Joint Committee on Agriculture, Food and the Marine díospóireacht -
Tuesday, 17 Jan 2017

Impact of the UK Referendum on Membership of the EU on the Irish Agrifood and Fisheries Sector: Discussion (Resumed)

Chairman

I remind members, witnesses and people in the Public Gallery to turn off their mobile telephones for the duration of the meeting.

I welcome Professor Alan Matthews of Trinity College, Dublin. It is an honour to have him appear before the committee today to discuss the issues presented by Brexit and the impact of the UK referendum on membership of the European Union on the Irish agrifood and fisheries sector and the review of the Common Agricultural Policy, CAP, post-2020. We are all aware that the CAP is expected to develop over the coming months and there will be a great deal of discussion on it before that is concluded. We appreciate him giving his time to discuss both of these matters.

Before we begin, I draw the witness's attention to the fact that witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the Chairman to cease giving evidence on a particular matter and they continue to do so, they are entitled thereafter only to a qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or entity by name or in such a way as to make him or her identifiable. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.

I invite Professor Matthews to make his opening statement on Brexit.

Professor Alan Matthews

First, I thank the committee for this opportunity. When I was drawing up my opening statement I had to make some suppositions and assumptions about what the British position might be. This morning, we heard the British Prime Minister lay out in clear terms what her strategy is and it is not good news for the Irish agrifood sector.

The way to try to understand this is to recall 1973, when both Ireland and the United Kingdom joined what was then the European Economic Community, EEC, and later the European Union. Before that time we were selling into the British market, obviously in competition with other exporters, and we were getting essentially the world market price. There was some opportunity under the Anglo-Irish Free Trade Agreement to benefit from some of the deficiency payments the UK had at the time for some of our livestock exports, but basically we were selling at world market prices. For us, joining the European Union at the same time as the British meant that we got the benefit of the protection provided by the common external tariff. The Common Agricultural Policy was important but this tariff wall required the British consumer to pay the higher EU price rather than the world market price after membership. Irish exporters were able to benefit from what I call that trade transfer. We were able to benefit because we were protected in selling to that market after membership vis-à-vis third countries that were outside the tariff wall. For me, the announcement by the British Prime Minister today that she is not seeking to remain within the customs union is probably the most significant part of her statement. I believe we will see the UK reverting to a less protectionist position for its agriculture. I am not suggesting that it will go to zero tariffs, but it is highly unlikely that it will retain the high level of tariffs we have in Europe.

We also heard her say in no uncertain terms that she wishes Britain to be open to trade with the rest of the world. She wishes to sign trade agreements, which would embrace many competitive agricultural exporters, so we can expect to see that even if we maintain duty free access to the United Kingdom market under a free trade agreement, and I will comment on that shortly, it will be a far less valuable market for us in the future. That is the biggest difficulty I foresee for the Irish agrifood sector following Brexit.

The British Prime Minister has indicated that she will seek a free trade agreement. That is an important objective for Ireland also, so that at least we will not have tariffs put on our exports in addition to the lower market price when exporting to the UK market. Of course, the value of that free trade agreement will depend on the size of the tariffs which the UK Government decides to put in place once it has the ability to do so. To take an extreme situation, and I do not believe it is likely, if the United Kingdom were to decide to eliminate tariffs on its agrifood imports, a free trade agreement does not really mean anything because we, along with the Brazilians, New Zealanders and Australians, would have duty free access anyway. In that case the free trade agreement is not very important. It is important to the extent that the UK retains some positive protection for its farmers after Brexit. I expect it to do so, therefore the suggestion that the UK will at least seek a free trade agreement is one of the few positive things we can take from the statement today.

It will take time to negotiate a free trade agreement. The withdrawal from the Union is negotiated under Article 50 of the treaty but negotiating a free trade agreement is a different negotiation under Article 218, with its own rules, Council mandate and so forth. There is much concern, which I share, that it is not clear if the European Union will be able to start negotiating such a free trade agreement until the United Kingdom has left the EU. This, of course, raises the question of the cliff edge.

A free trade agreement, which will be negotiated under a separate set of procedures, could well take longer than the actual withdrawal negotiation itself. If the British timeline is held to and Brexit occurs in spring 2019, I think it is unlikely we will see a free trade agreement in place by then. Accordingly, the question of what transitional arrangements might be put in place to avoid the re-imposition of tariffs is an important strategic issue for Ireland.

In addition to the free trade element, the UK Prime Minister has indicated that Britain wishes to withdraw from the Single Market. The Single Market has allowed us to trade, not only with the United Kingdom but with other EU countries in a seamless way without the administrative checks and paperwork required before 1992 when it came into effect. We are going to see some additional trading costs simply because the United Kingdom will no longer be part of the Single Market. What will these additional costs be? For example, an Irish meat factory, once it is inspected by the Irish authorities and approved to sell its products on the Irish market, can also sell those products on the British and French markets without any further checks. It is assumed it will meet the relevant EU standards. That will no longer be the case after Brexit. The British authorities may decide to change when they leave. They will have exactly the same regulations in place that we have. However, over time, these regulations may evolve and change. In any case, the British authorities will wish to ensure our processing plants meet their standards.

We will need to ensure these additional costs are minimised as far as possible. It is possible to do this through mutual recognition agreements where two sides agree to recognise each other's agencies and systems for approving, say, plants for food safety and other reasons. Again, however, that is a trade agreement which has to be signed by the Commission for that mutual recognition to take place.

What agricultural policy will the United Kingdom, and its devolved administrations whose responsibility that policy is, pursue after Brexit? What support will it give through its budget to its farmers? That is a significantly important question for farmers in the North of Ireland who are heavily dependent on direct transfers at the present time. With supply chains which link production in the North with processes in the South, there will be issues as to how that level of production may be affected in the future if support is reduced under UK agricultural policy.

There are also indirect effects of Brexit. Obviously, we are all familiar with the exchange rate impacts. There will be indirect effects from the impact of Brexit on future economic growth rates and migration into the United Kingdom, which obviously will impact on the overall level of demand for Irish exports. It is clear the UK is a major net contributor to the EU budget and, therefore, to the Common Agricultural Policy, CAP, budget. After Brexit, there will be a hole in that budget. Will that be replaced by the other member states? Several tables in my submission indicate the key sectors which will be mostly affected by Brexit.

In my submission, I made six recommendations to the committee to consider. On the first one, the ship may well have sailed, as it emphasised the importance of encouraging the United Kingdom to remain within the customs union. One issue is the revenue from the tariffs, which are currently paid into the European budget and are, therefore, a cost to the United Kingdom. There would have been scope for the United Kingdom to retain that revenue. It seems, however, the UK Prime Minister has ruled that option out today.

In that case, we need to emphasise the importance of concluding a free trade agreement which also covers agrifood trade. That is not a foregone conclusion. For example, the European Economic Area agreement does not itself cover agriculture, although there are bilateral agricultural agreements with the members of that agreement. There are trade-offs involved. The committee will be aware that the most important UK agricultural export to the rest of Europe is lamb. The UK is actually self-sufficient in lamb. The lamb exported is, in a sense replaced, by lamb imported from New Zealand. If, after Brexit, the UK enters into a free trade agreement with New Zealand, a lot more New Zealand lamb might go into Britain. One can expect Welsh lamb to be diverted to France in competition with Irish lamb exports. Is that something with which we would be happy? Would we want to put a quota on future British lamb exports to avoid that? In that case, the British would be clearly looking for a quid pro quo. Would they then want to limit exports of interest to us? There are going to be difficult trade-offs, even in negotiating a free trade agreement.

With respect to leaving the Single Market, it is important to underline the importance of mutual recognition agreements to ensure each trading partner recognises the systems in place to approve, for example, veterinary and food safety equivalence. Clearly we will need to emphasise marketing efforts. The British market inevitably will be less attractive to our exporters. We are going to need to provide assistance to look for alternatives either in the rest of the European Union or outside.

Brexit is going to be a big negative shock. We will hear calls for assistance, both from smaller food firms and farmers. My advice is that this is a permanent shock. This is not something which is likely to reverse itself in the near future. Accordingly, if assistance is to be provided, it should be targeted to assist the sector to adjust. It should not be something which is simply a hand-out to keep the sector going without helping it to adjust. It is an unfortunate situation but one with which I am afraid we are going to have to live.

Chairman

I thank Professor Matthews for his thought-provoking presentation.

Deputy Charlie McConalogue

I thank Professor Matthews for taking the time to present to the committee, as well as for his ongoing research as an agricultural economist and his contribution to the agricultural sector.

I have a couple of key questions. Today's well-flagged announcement by the British Prime Minister, Mrs. Theresa May, on the UK's intention to go for a hard Brexit is, as the witnesses pointed out, quite concerning for agriculture more so than any other sector. It raises many serious questions with which we are going to have to grapple. Professor Matthews said that he would flesh out his view on the various sectors if he asked to do so. I would certainly be interested in hearing his view. He mentioned lamb and I would like to hear his perspective, which will be different to those relating to other sectors. I would like to hear his thoughts on how Brexit will affect the various sectors.

It is difficult to estimate but what would be the potential loss to the value of our various sectors in the event of a hard Brexit? I am also interested in the witness's perspective on where Brexit might leave British agriculture. It is not what we are looking at in this committee but I would like to hear the comparative analysis in respect of it.

What is Professor Matthews's perspective on the quest for new markets in the event of having to find alternatives? What are the best options and what would the timeline be in the context of being able to develop realistic and viable alternative markets?

Deputy Martin Kenny

I thank the witness for the presentation. The witness raised a couple of issues in his presentation that I wish to return to. He mentioned the standards we have here and the standards in Britain. Many people are saying that when Britain leaves, if it wants to export its goods to the EU, it will also have to maintain the standards the EU has. The campaign for Brexit was very much based on the rhetoric of getting rid of all the red tape, tossing away Europe and not having to comply with all of its standards. If it tosses away the standards, Britain will only be able to trade with itself. Therefore, I believe the argument that was put at that time does not hold water.

The witness spoke about the free trade agreements and the customs union, which is bigger than the EU, and involves Turkey, the Isle of Man, and many other countries, and was a stepping stone towards the EU. It is almost like the Single Market, or the Common Market as we first called it in the 1970s. That is effectively what the customs union is. To say that the UK is going to step outside of that union seems an almost incredible step to take, beyond even what was being demanded. Most people said that Brexit was about leaving the EU, but now they are leaving the customs union as well. I do not understand what logical benefit the British Prime Minister can bring to the table for the British people by leaving the customs union. Perhaps the witness can enlighten us on that.

Deputy Jackie Cahill

I thank Professor Matthews for his thought-provoking analysis. From listening to him, I definitely would not like to be a farmer in Northern Ireland or the UK facing the consequences of this British decision. Professor Matthews mentioned Northern Ireland farmers and their dependence on direct payments in particular. If I was a farmer in Northern Ireland, I would be extremely worried about how that will happen in a post-Brexit scenario.

There is analysis needed of how the UK agricultural industry will survive, particularly if a cheap food policy is pursued. The UK's beef industry has been promoted fairly intensively over the last couple of years. There were campaigns for Scottish beef and for buying British. If the UK allows imports in from South America on a tariff-free basis, how will its own industry survive the onslaught? The other question is about the co-dependency and the processing capacity. How will that work out in a tariff environment? In the dairy industry, Northern Ireland is massively dependent on southern processing facilities. Approximately 3 million litres of milk are transported across the Border each day. We are seriously dependent on Northern Ireland's capacity in the pig industry. A significant number of pigs are transported across the Border to be slaughtered. With a tariff situation or a strict Border, how will the practicalities in this regard work?

The professor mentioned lamb exports. How can the UK have its cake and eat it? If it wants access to the French market, how can it deny us access to its own market? If the UK wants to export lamb, there will have to be a lot of serious talking done. I would fear that lamb exports will be sacrificed for the idea of cheap food in the UK market. I would like to hear the view of Professor Matthews on that.

The sector that is most exposed is our beef sector. A total of 50% of our beef is exported to the UK market. I would not have many concerns for dairy because the worldwide price for dairy is fairly similar. Whether a litre of milk is produced in New Zealand, the United States or in Europe, there is not a huge dissimilarity in price. I do not see huge difficulties on that side of it. However, there is a significant worldwide difference in the price of beef. If we look back ten or 15 years, we exported a huge amount of our beef outside of the EU. There was a policy decision taken that the EU was the best market on which to focus. That decision was taken by Bord Bia and I sat on that board at the time. The prime intention was to sell all of our beef within EU borders. In a way, that is coming back to haunt us now in that we left markets to which we will now have to return in order to sell beef.

What kind of a timescale does Professor Matthews foresee in order to reduce that 50% dependency down to single digits? Is it possible to re-establish the markets we left ten or 15 years ago on an economic basis? Can we economically export into those markets again at our cost of production? If the answer to that is no, then we have serious problems in our beef sector. I am not questioning the decision that was taken in good faith to leave those markets, but now 50% of our market could be pulled out from under us. Does the witness see a timescale, or is it economically possible?

Professor Alan Matthews

I thank the Deputies for those questions, which cover a very broad field. First of all, in terms of the sector, Deputy McConalogue is absolutely right. The beef market is clearly the most vulnerable. The way to look at it is in terms of the degree of self-sufficiency for the product in the UK and then the difference between the UK and the world market price. In the case of dairying, I agree that the price differences are less. There will still be a challenge to find alternative markets, for example, if we need to diversify somewhat. There is still probably a premium for some of the dairy products, but much less so than in the case of beef, lamb and poultry. I am of the view, therefore, that meat products will be most affected. Some of the more processed products, such as the infant formula, beers and spirits, are also less dependent on the UK market. Obviously, the value added back to the farmer is much smaller in the context of these industries. In terms of looking at the impact at the farm gate, it is essentially the meat sector in which we are going to see problems.

Deputy McConalogue asked about the future of UK agriculture. As the Deputy said, it is not directly of concern to the committee but it is of great interest nonetheless. We have seen very little guidance as yet from the Ministers at the UK Department for Environment, Food and Rural Affairs as to what they might be thinking. They have promised a consultation with their farmers. There are very strong environmental interest groups in the UK, which is a very densely-populated country.

These interest groups would like to see more of the funding go towards environmental improvements, but the National Farmers Union is keen to see as much of it as possible retained to provide income support. Given what the United Kingdom has stated in the past, it is clear that it will probably support its farmers to a lesser extent. Having said that, I do not assume it will reduce the level of support to zero. We will probably not have clarity on the question for at least a two-year period while consultations are under way.

There was a question about new markets. I agree that we have been successful in moving away from dependence on the UK beef market. It seems that we will have to continue in that regard. The UK market will be less attractive; we will, therefore, be looking to try to diversify further. The markets outside the European Union present a problem in that they are less valuable than the EU market. I am unsure whether I would necessarily suggest we give up these markets, but once export subsidies went, it was clear that we were competing in them at world prices. It may well be that in the case of some commodities world prices will recover in the future and these markets may become more attractive again. However, I believe the EU market will be the most obvious place to start, but that is not to say some of the Asian markets where demand is growing will not play a greater role in the future.

The question was asked by Deputy Martin Kenny whether the United Kingdom would have to meet EU standards. He also asked about the value of the United Kingdom leaving. That was a question voters in the United Kingdom had to answer in the referendum. Even if the United Kingdom was to retain the same standards in the future, the actual mechanisms for recognising those standards would be different simply because the United Kingdom would be outside the Single Market. I share Deputy Kenny's point of view in the sense that even if the standards were to remain the same, many of them are international and not necessarily EU standards. They are agreed to under the Codex Alimentarius and by other standard setting bodies. The key issue is who would get to decide whether the UK or Irish plant, depending on the direction of trade, was meeting the standards of the trading partner. That represents an extra step. It would involve not only approving the plants but also inspecting consignments crossing borders, at least on the basis of risk. There would be additional costs that we should try to minimise as much as possible.

I agree that the issues surrounding supply chains with the North will need close consideration. I am unsure who asked the question, but someone asked whether there was an overall estimate of the cost of Brexit. I am aware that Teagasc has done some work on this issue. Now that there is a little more clarity about the scenarios involved, I imagine Teagasc will be working on modelling estimates. I do not have a figure that I could give to the committee, but I know that Teagasc is working on the issue.

Two issues arise specifically about the North, the first of which is whether the production base might contract if support was to be reduced relative to the current arrangement. The second concerns the greater complexity of moving supplies across the Border. For the larger players, this might not be such a great issue because they would be able to handle Customs declaration forms and inspections. I reckon it would be a bigger problem for smaller firms that only export intermittently but for which it could be an important source of additional revenue.

Chairman

We will move to the next round of questions. We will hear first from Senator Tim Lombard who will be followed by Senator Pádraig Mac Lochlainn and Deputy Willie Penrose.

Senator Tim Lombard

I thank Professor Matthews for his wonderful contribution. One of the key issues facing the Joint Committee on Agriculture, Food and the Marine is the response to CAP reform and how it will fit in if Brexit materialises, with particular reference to a reduction in the UK budget. The figure touted as being the possible reduction is 18% in the net contribution the United Kingdom makes to the budget. If such a drastic cut to the CAP budget were to materialise, it would have major knock-on effects on the tillage and beef industries, as well as throughout the entire agricultural framework. How does Professor Matthews propose that it be dealt with? Does he believe member states will decide to step in and bridge the gap, given what is happening on the eastern side of Europe? If there was to be a 20% cut in the budget in the next round of the Common Agricultural Policy, what impact would it have on agricultural output in Ireland?

Two issues arise with Brexit, the first of which is the trade impact, while the second is the major issue of the CAP payment for this country. Statistics from Teagasc for beef and grain production suggest farmers survive on the single farm payment. If it was to be cut by one fifth, it would amount to the demise of the two industries across the board. That could be an unfortunate knock-on effect of the unfortunate vote result in the United Kingdom. Will Professor Matthews comment on these two issues?

Senator Pádraig Mac Lochlainn

I welcome Professor Matthews who touched on the implications for the North and all-Ireland trade in his paper and presentation. When representatives of Teagasc and other organisations were before the committee, they emphasised the vital importance of agrifood to the all-Ireland market. I am keen for Professor Matthews to touch on that matter a little more. There is a suggestion the North and Scotland would have special EU status. Obviously, that will be a growing issue having heard the negotiating strategy laid out by the British Prime Minister today. Will Professor Matthews offer his thoughts on the impact on the all-Ireland market and the calls for special EU status for the North and Scotland?

Deputy Willie Penrose

I thank Professor Matthews for what was a useful presentation in which he addressed the issues. As he said, this has the potential to be an economic and administrative nightmare, one which will have a seismic impact on the general economy and, in particular, the agrifood industry. Apart from the price differential, there will be a difficulty in securing alternative markets. We should be clear about this rather than live in an ivory tower or fantasy land. There will be currency fluctuations, tariffs, customs barriers to regulate, veterinary inspections, phytosanitary controls and so on, but there is a sense of utopia around the place. I wonder whether I am in a different place altogether when I hear people suggest we can influence the outcome. We will have a major job to try to hold back this barrier.

The country has produced Food Harvest 2020 and Food Wise 2025, one of which I realise is within Government control, while the other is outside its control. They will have to be reviewed carefully. Prudent advice will have to be furnished to farmers in the coming years, but there will be a major hullabaloo and everyone will be whinging.

Deputy Cahill is right. I come from a beef area. It is hard enough now to produce beef economically and profitably, so what will it be like in this new scenario? There is a challenging environment ahead. We must accept that the UK agriculture industry has always been treated as a Cinderella industry by UK Governments. Their focus is on consumers. Only ten or 15 years ago, 19% or 20% of what they consumed originated in Brazil and Argentina. That was reduced to 9% under the trade agreement approximately ten years ago, so already there is potential for the UK to bring in another 11% without any big deal. That means our 50% will be hit straight away. We had better realise that the UK will start with cheaper food imports for their consumers and with environmental objectives. We should know that. In the UK's overall view, the wider industrial and services sectors are as important as agriculture and the car industry dwarfs all of that. We need only consider one big factory in Sunderland. The UK made sure that Nissan was going to be secured. The farmers will be on the outside, and that will be an issue.

In that context, one would not want to have today's announcement. As Professor Matthews said, it is a clean break with the trading bloc and the customs union. Even some of the right wing Tory newspapers last night were not predicting that. They thought it might well be kept in reserve, but the entire flush of cards came out today.

The UK is a net contributor of €10 billion or €11 billion to the budget. I have been speaking about this regularly. Approximately €7 of every €10 in the CAP budget goes on direct payments. Without the UK there will be a massive hole in the bucket. Is it credible, as some people in this country have started saying, that other countries will be asked to contribute to fill that hole? We must start asking these questions. Is it the more likely scenario that member states will be asked to make bigger contributions, moving towards almost the co-financing of schemes? That would raise significant issues for this country. One does not replace €11 billion in a budget in seconds. This could be serious and I consider it very serious. We might well work our way through the other issues in a slow way, not totally neutralising the impacts of today's announcement, but this matter is huge. Other countries will be looking for a bigger slice of the cake and they will say we have reached the development zone. Does Professor Matthews think this will be the issue or am I wrong? Member states will have to make a larger contribution and that would be a significant move towards co-financing, which would be an absolute disaster for us. We have always articulated that over the years. Those are the scenarios that now emerge and they trouble me. We all have an obligation to the more than 100,000 productive farmers in the farming community and the approximately 250,000 people in the agrifood industry who depend on them. We must be upfront with them and tell them what this means, in so far as we can.

Until today, the only certainty was the uncertainty. Now, instead of paddling along there is something of a foundation. Professor Matthews, whom I have known for a number of years, will now be in a position to give better prognostications of the impacts. He produced a paper six or eight months ago and he probably will revise that, as will the Teagasc economists. Even in terms of our report, if we consider all of the evidence we have received over the last seven or eight weeks, today's announcement transcends all of that and changes the dynamic of the report we will prepare.

Professor Alan Matthews

Senator Lombard and Deputy Penrose raised the question of the budget gap, so I will make a brief comment on that. I estimate the figure for the net contribution per annum to be €10 billion to €11 billion. It has varied a little over the last few years because there have been revisions in national accounts and so forth. As a percentage of the expenditure in the remaining 27 member states, which is approximately €138 billion, it is not quite as big as 18%. It is 7% or 8%. One of the things about other member states making up that gap is that it would not be proportional. In other words, each member state would not be asked to increase its net contribution by 7% or 8%. Due to the complexities surrounding the British rebate, four member states get a rebate on having to pay for the British rebate. In other words, they do not pay as much of that rebate. If the British rebate goes, these countries will lose that financial advantage. The four countries concerned, Germany, the Netherlands, Sweden and Austria, would be asked to pay possibly up to 15% more into the budget. I noted with interest last week that the German state secretary in the Ministry of Finance, Mr. Spahn, said there was no automatic requirement or expectation that the existing member states would make up the gap in the budget.

There are some ways in which the gap could be filled, although I am not suggesting that Ireland should look for these. However, if tariffs were re-introduced on trade between the EU and the UK, for example, that tariff revenue would be an additional source of revenue to the EU budget and would compensate, to some extent, for some of the loss. I am not suggesting that we should look to re-impose tariffs, quite the opposite, but that could be the way to secure additional budget revenue. The Prime Minister was quite vehement that she did not want to continue with what she called vast transfers into the EU budget in the future, but she did not rule out some payments into the EU budget. In most cases, these are payments for which the UK would get a quid pro quo. They would be payments into the Horizon 2020 programme or the Erasmus student exchange programme where the UK would expect to get money back. In other words, it is not a net gain to the EU budget. The UK will also probably wish to stay in some of the EU agencies, such as the European Medicines Agency, and it will pay a share for that. It could be the case that at least over a transition period the UK might continue to make what could be called unrequited payments, namely, payments for which it does not get something in return and which therefore would be available to finance general EU budget expenditure. However, I do not believe the sums involved would be very significant.

We will talk about the CAP budget presently, where we can make other general comments. Brexit will certainly put pressure on that budget, but the CAP budget was probably going to be under pressure from other challenges which we can discuss later.

Deputy Penrose quite correctly raised the British attitude to farming, cheap food and so forth. Again, the qualification to bear in mind is that agriculture in the UK under its devolved government is now a responsibility of the devolved administrations. It is quite clear that the attitudes of Scotland, Wales and Northern Ireland to agriculture are somewhat different from the attitude in England. The question is whether the devolved administrations will have the resources through their block grants to implement somewhat different policies. Agriculture policy is a devolved responsibility in the UK, so we might see some differences across the United Kingdom in the future.

Senator Mac Lochlainn asked about the importance of the all-Ireland dimension.

The ability to move products and purchase raw materials, animals and so on, without having to worry, not just about the Border but what it means in terms of different regulatory regimes, is very important. It is a huge benefit to us. We have seen businesses build very profitable supply chains in both directions on the basis of being able to move products North and South. There will be a threat to that and it will be more difficult in future, despite the hopes expressed, in a sense, that we will have a soft Border. There are clearly ways in which we can try to minimise those issues. For example, we might see electronic and information technology systems used in customs administration and so on that could minimise some of those costs. It is clearly not a progressive move that we could welcome.

Senator Pádraig Mac Lochlainn

I had a question on the status for the North of Ireland and Scotland.

Professor Alan Matthews

Yes. This is something we will need to explore further now that we have a little more clarity on Britain's objectives. If they said they would stay in the customs union, that particular issue might have been less urgent. There are some important agreements, including the Good Friday Agreement, which in a sense give us something to build on. Currently, I have difficulty in trying to conceive exactly how that might work in practice as I know how European Union trade policy works vis-à-vis third countries. It is a well established regime. There is the idea of trying to see bits of a country having a different regime from the United Kingdom and how it might work. There are precedents, although not very convincing, and we may be able to build on them. We have the example of Greenland and Denmark but this will require much more work and thought now that we know what-----

Senator Pádraig Mac Lochlainn

One of the obvious exceptional points is the fact that citizens in the North of Ireland are entitled to Irish passports and, as a result, European citizenship. It strikes me that this must strengthen the case for a special arrangement.

Professor Alan Matthews

I agree completely that there are some building blocks that we must consider to see how we might be able to make a case for special treatment, which would clearly be in the interests of both sides.

Chairman

We will have a final round of questions from Senators Mulherin and Paul Daly and Deputy Pringle.

Senator Michelle Mulherin

I thank Professor Matthews. I had the benefit of seeing his presentation before but it is timely that he has given it today, when the British Prime Minister set out the objectives. In many ways, what she said is contradictory. She seems to hope for the best and does not want membership of the Single Market or the customs union. There are riders on the objectives. It must be clear to us that the writing is on the wall. If she gets the concessions she wants, it will interfere with the integrity of the European Union. Everything about this smacks of going backwards on Britain's part. There is the idea that it will again be a global trading nation but the concept of the sun never going down on the British Empire comes to mind. It seems to be some sort of delusion but I respect that people voted that way.

We have had much discussion on this matter. Our Taoiseach has spoken with Prime Minister May in the context of this issue as it relates to Northern Ireland. He has also approached the leaders of other member states. The reality is that for us to get what we want and remain a member state of the Union, we must go to Europe and not Britain. Do we need a sharper focus? Nobody can argue but that this is bad for us from an economic and social perspective, as well as with regard to the Northern Ireland issue as a special case. We must calculate what will be the loss to us. Of course, we, as progressive Europeans, will try to mitigate that and seek a package from Europe. We must say to Europe that this is how it will be. No matter what Prime Minister May says, Britain is not really worried about us. I do not know if she is really worried about the North of Ireland either to be honest, particularly in light of the way the British Government has behaved. This could be like a red-letter day. We can have platitudes - they will keep flowing - and we can talk but suddenly we will wake to the reality, which will not be good.

One of the first meetings the committee held involved a discussion with mushroom growers. We can see the devastation being wrought on them just as a result of sterling's collapse. We will be looking at fluctuations in sterling, at tariffs, as alluded to, as well as at cheaper agricultural imports. Prime Minister May can proclaim that she wants the European Union to stay together but she is moving towards undermining all that. We must make the best of a bad situation but we will have to call it a bit more. Is that not what we must do?

We must go to Europe and seek a package. We cannot run with the hare and hunt with the hound on this because there is a principle at stake. If Europe gives too many concessions to the UK and it works out over time with the British delighted, it will be the death knell for Europe as everybody will want more of the same. We do not know what this is about except disintegration. We have seen President-elect Trump's attitude to the disintegration of Europe. We must take stock of our position. I am interested in the views of the witness.

Deputy Thomas Pringle

I apologise for being late. This meeting clashes with that of another committee. I have two questions but if they have already been answered, we can move on. In the opening statement there was an indication that the UK would have some obligation to open tariff rate quotas under World Trade Organization, WTO, rules and provide market access to traditional exporters. I presume the Irish agrifood sector could be classified as traditional exporters to the UK under the WTO trade rules. The recommendations indicate we should seek duty-free access to the UK market under WTO or autonomous tariff rate quotas. When should we start doing that or should we start having those conversations now as a worst-case scenario. This might lead to pre-approved traditional exports under WTO rules.

There is also the option of mutual recognition agreements negotiated by the Commission. The Commission would probably not look very kindly on us seeking those in advance of Brexit, given that it will negotiate directly with the UK as well. Tactically, should we discuss the WTO tariff rate quotas with the UK at this stage? Should we speak with the Commission about mutual recognition agreements in order to set out our stall. It seems there will be a WTO arrangement for a period after Brexit so we should not lessen the impact on trade. How could that be negotiated at this stage?

Senator Paul Daly

I welcome the witness and thank him for his presentation. A number of sectors have been mentioned but that relating to fisheries has not so I would like to hear Professor Matthews' opinion on how it will be affected, and not only with regard to tariffs or export markets. Once the UK reclaims its waters, it will lose part of the European harvest ground. Will the delegation elaborate on what the future holds in that sector in the event of a hard Brexit?

We heard Prime Minister May outline the UK's opening stance. In terms of the big picture, the EU has played its cards very close to its chest.

As mentioned by Deputy Penrose, Ireland is one of 27 member states. When it comes to negotiations I cannot see the Irish beef farmer being a priority in the negotiation policies of many of the other 26 member states. How does Professor Matthews envisage the BMW, Volkswagen and Audi team will influence the negotiations? Could the negotiations work to our advantage down the line? The EU side has not disclosed what it will seek or what it deems acceptable as part of a hard or soft Brexit. As there will be many bigger players and companies involved, how will the industrial negotiations affect the agricultural outcome?

Chairman

I thank the Senator. I have a couple of brief questions for the witness. In the main, we have spoken about the challenges of Brexit. Are there agricultural opportunities for us? How best can we challenge or take advantage of the opportunities?

As for the timeframe, the Prime Minister has indicated that she will trigger Article 50 before the end of March. A two-year process will follow but as we all know, it may take longer. Since the people of the UK voted on 23 June last, there has been a great deal of uncertainty. Will there be further uncertainty from March onwards for a two-year period and beyond? What difficulties will be created?

Sterling has fluctuated in the previous six months. If we have similar difficulties in the next two years will it have a serious knock-on effect on some of our sectors?

Professor Alan Matthews

If I might answer the questions in reverse order, I cannot see any new opportunities arising from Brexit that we do not have at the moment. I have no good news on that front. In terms of a timeframe and regarding uncertainty, the first of 12 principles mentioned by the Prime Minister today was a need for certainty. It is clear that we are into a negotiation on the initial phase of Article 50 that may last 18 months, if things go well. There will be a need for at least six months for ratification etc. One can imagine that there will be many occasions during that period when the newspapers will get hold of a leaked statement claiming the two sides are at loggerheads and headlines proclaiming talks will collapse or Britain will walk away without an agreement or whatever. The foreign exchange will react to such news. I agree with the Chairman that we will face an uncertain period. From an Irish point of view, it is key that we set out what we think are the best negotiating outcomes. During the negotiations we must focus on those outcomes and not be swept along on the tide of public opinion.

The EU negotiating position was mentioned by Senator Mulherin and others. I think it is a balancing act. From an Irish point of view we would like to retain close trading links with the United Kingdom, which is in our interest. She put her finger on the difficulty by asking what is the point of membership if the UK is given too favourable a deal. She wondered what differentiates membership from being on the outside but having all of the advantages. It is probably in our interest to keep the UK as close to us as possible. It looks like we will not be able to keep the UK in the customs union and it also wants to leave the Single Market. In terms of the free trade agreement, however, Ireland wants to try to retain tariff-free trade. That is where the impact of the industrial lobbies in the other member states may help us because they also will try to ensure that no new trade barriers are erected. I warn that there is a precedent in these kinds of trade agreements for the agriculture and food sectors to be treated somewhat differently and not necessarily covered by the same general arrangements. We may need to watch that we do not end up with less favourable arrangements for the food and agriculture sectors but a good deal on cars, which obviously would not help us.

The following two issues also were raised. Can we argue that Ireland is more exposed to the adverse effects of Brexit than other member states? If so, can we seek financial assistance from the EU budget? This is important and is worth thinking about. There are some arguments that we might find it difficult to do that, with one being that Ireland is a relatively rich member state, particularly after the revaluation of our GDP in 2015. While it has not really affected us in our pockets, the statistics indicate that Ireland still is one of the richer member states. If one of the responses to Brexit is to try to provide assistance to firms to enable them to diversify their exports to the EU market, then other member states obviously might not be that happy. The Dutch and the Danes also will be seeking alternative markets if the UK opens up to the Brazilians, New Zealanders etc. in a much bigger way than at present. Member states will question why Irish exporters get assistance while they do not. As the implications of Brexit become clearer, it will be worth making the case to the Commission to argue for transitional support. The Irish Government may want to provide support and the EU may provide co-funding. It is important that we at least make the case for support.

I am afraid that I have no expertise in the fisheries sector and must pass on the question. I recognise that fisheries is a huge issue.

I have mentioned that the issue of tariff-rate quotas, TRQs, might be important if we end up with the British withdrawing after two years without a trade agreement in place. In other words, TRQs are irrelevant if we have a free trade agreement because we would have full access without tariffs. TRQs are a fallback position if, after two years, the unthinkable situation occurs and we are trading with the UK on these so-called WTO terms. There would be no point in raising that question once the tariffs are in place. Clearly, we would need to negotiate with the United Kingdom if it began to look as if, for procedural reasons or negotiating reasons, a free trade agreement was not possible.

That would be the context in which tariff rate quotas may play a role but they are not one of the immediate issues because clearly we would hope that we could retain duty-free access through a free trade agreement.

Mutual recognition agreements are different because they will be necessary to avoid some of the negative consequences of the UK leaving the Single Market. We know that is going to happen, so we know that we need to put in place mechanisms whereby both sides will agree to recognise inspections, approvals and so on done by the other side. This does not only affect the food industry. As can be seen if one looks at the most recent report from the House of Commons on Brexit earlier this week, which entailed meeting business people in the north of England, it affects, for example, the pharmaceutical industry. They will be unclear as to whether their products can be sold legally in the European Union the day after Brexit because they will not necessarily have the clearances and certificates they will need unless there are some mutual recognition procedures in place. It is not only food that will be affected by this.

Deputy Thomas Pringle

The mutual recognition agreements obviously need to be in place before Brexit happens. As Professor Matthews has stated that the UK is going to leave the Single Market, should we not, therefore, be starting that conversation with the Commission now?

Professor Alan Matthews

I would have thought it is important to make that point, yes.

Deputy Thomas Pringle

And the North-South situation will be particularly important, for the-----

Professor Alan Matthews

For the flow of milk and livestock products, yes.

Chairman

I thank the professor for his contribution on that particular issue.