I thank you, Chairman, and members for inviting us to appear before the joint committee. We wish to make a number of key points about the likely impact of Brexit on our members and how the country should prepare. While we can influence the final outcome of the negotiations with the European Union, nonetheless they are ultimately outside our control. However, there are matters within our control which require action now.
We must put in place new shipping and air links with continental Europe and the rest of the world. We must become more cost competitive. We wish to lobby strongly for food and agricultural products and livestock to be high on the European Union's customs free trade agenda. This is in the United Kingdom's interests, as well as ours. We want to ensure companies will consider their entire supply chain and the impact of a UK exit on all of their input costs and start thinking about alternatives. We wish to recognise and attract more foreign direct investment from the United Kingdom and elsewhere for those who wish to retain access to the European Union.
The Irish Exporters Association, IEA, has been running a series of surveys with members to quantify what they believe are the biggest threats to the economy. Some 81% are concerned about Brexit, 63% are concerned about Donald Trump, 59% are concerned about Ireland's cost competitiveness, 47% are concerned about affordable housing, 46% are concerned about elections in Holland, France and Germany, 32% are concerned about the availability of skilled talent, while 7% are concerned about other matters. A total of 94% of IEA members do business with or export to the United Kingdom and 39% of members say more than 25% of their total exports are destined for there. Some 58% are planning to diversify their export markets, up from 54% last year, while 71% said the weakening of sterling had had an impact on their business, up considerably from 65% last year.
On transport links, our members are telling us that we must start looking for alternative physical routes to avoid the use of the UK land bridge and the additional costs that will likely arise if a border is put in place. A significant share of Irish exports are shipped through the UK land bridge, as this is the quickest route to continental Europe. Depending on the terms of the future trade agreement between the United Kingdom and the European Union, Brexit has the capacity to seriously threaten the reliability of this transit route. The agrifood and fisheries sector depends on fast access to markets and intercontinental air hubs. Alternative routes to continental Europe will have to be researched and funded, including upgrading Irish ports. In 2006 Maersk Line introduced a new feeder loop for Irish cargo that linked with Algeciras rather than English Channel or Benelux ports. This saves up to ten days on some routes. Opening new routes could open opportunities for Irish exporters. There are also air freight alternatives. For example, in 2017 the arrival of the IAG Group's major shareholder, Qatar Airways, in Dublin further increases the air freight options for exports to Asian and African markets. More services to and from Irish airports increase the cargo possibilities for Irish trade. We must start work on this now to ensure we will have a route to market and our ports, airports and access to transport will allow us to avoid the United Kingdom without undue delay.
On the matter of cost competitiveness, there is a direct correlation between movement in the euro-sterling exchange rate and the value of goods exported to the United Kingdom. Irish exports to the United Kingdom peak during times of euro weakness. There is also a direct correlation between cost competitiveness and the size of our export market. As we lose competitiveness we run the risk that our exports will become too expensive. If there are tariffs on Irish goods sold in the United Kingdom and we also have to face into the head wind of a VAT-type border tax being introduced in the United States, our two biggest trading markets for our indigenous and FDI companies, the United Kingdom and the United States, will both face huge challenges.
The other costs of doing business in Ireland are continuing to rise. Costs such as labour, insurance, energy, raw materials and rent are all increasing. The increasing costs will impact on our ability to do business and, in some instances, may result in companies going out of business, particularly where margins are low. This is reflected in the feedback we have received from our members in our recent survey. They are concerned about their ability to absorb these higher costs. We recommend a greater focus on reducing our rising cost base driven by wages, personal taxes, currency movements, tariffs and other costs across industry sectors.
Irish exports of food and agricultural products reached record levels in 2016, according to the Central Statistics Office, despite a drop in shipments to Britain. Export values rose by 4% to nearly €117 billion last year, with most sectors enjoying growth in this period. It was the highest annual export value on record.
Exports to the UK increased by 4% while imports from the UK decreased by 8%. At the same time in 2016, the UK incurred its second highest trade surplus of $5.3 billion with Ireland. Consequently, although we may only be fifth in terms of our importance to the UK, we are strongly contributing to its overall trade balance, which increases our importance to the UK market. CSO data show some sectors are heavily dependent on the British market with a number of sectors particularly vulnerable. Britain is not self-sufficient in food and we traditionally make up the balance in beef, dairy and consumer foods. This relationship is somewhat symbiotic, in that Ireland is also the UK's largest destination for food exports worth €3.8 billion in 2015.
The food and agriculture policy that the UK will adopt outside of the EU will determine a lot for Irish agrifood exports. If the UK goes down the road of a "cheap food" policy as it did before it joined the EU 40 years ago, it will have serious implications for the food and agricultural industry in Ireland. There is no doubt the UK is already being approached by non-EU countries eager to do business with it. However, depending on faraway markets to provide food to the UK poses significant risks to the UK as other countries may outbid it in their own desire for food security. The UK could potentially source lesser quality food outside the EU at cheaper rates. In saying that, there are still standards in supermarkets that would need to be maintained. Ireland needs to be thinking five to seven years down the line to remain competitive.
To combat a hard Brexit, many of our members have said that they would be considering sourcing more of their supply needs from the UK, locating more staff in the UK and shifting some production to the UK. This will have serious implications for employment in Ireland, especially low-skilled labour and rural areas dependent on manufacturing. Initially, our members were mainly concerned with the impact of currency fluctuations, which were immediate following the referendum. There has been a definite shift in concern from implications of currency to a serious concern about the reintroduction of customs. Indigenous Irish businesses are woefully unprepared in this regard. Even from an administrative perspective, if a company has only ever exported to the UK, it has never had to deal with customs procedures previously. Realistically speaking, training and upskilling staff should start now, as opposed to waiting until the chaos of implementation. There seems to be a generally held view that it will take the UK years to negotiate the 53 separate trade agreements that it currently accesses as part of the EU. Our understanding is that it will not be as difficult or as drawn out as is expected and that it will be accomplished quite quickly, especially with countries in the Commonwealth. Countries outside the EU, especially the US, China and the UAE, will not benefit from extended trade negotiations and will not want to interrupt a bilateral trade relationship in which they have invested heavily. This will benefit the UK and will likely come at the expense of Ireland. We do not know the outcome of EU negotiations with the UK but we can make an educated guess that it is likely to be closer to the Turkish model of a partial customs-free union than the Swiss model, which requires contributions to the EU budget. There is also a possibility that in addition, the UK may look for import and export quotas, perhaps frozen at current levels, without tariffs.
We should also consider the possibility of having minimum immigration levels set between the UK and Ireland-Europe, particularly when it comes to attracting skilled labour and talent which are not available in Ireland. This could form part of an overall agreement between the UK and the EU along the lines of the Scottish Government's suggestions for the movement of people. We consider that more focus needs to be put on trade between Ireland and the UK. We should not simply focus on the impact of a border with Northern Ireland.
We will also face pressure from the US in the form of tax reforms to attract US multinationals back to the US in terms of future investment decisions, as well as pressure from Europe to share our corporate tax with the rest of Europe. Many of the financial institutions or insurance companies in the UK that are considering setting up operations outside the UK are concerned about having a high Irish cost base combined with a regulatory regime that is considered overly strict in comparison with some of our European counterparts. I note that AIG moved its jobs to Luxembourg yesterday. We are unlikely to gain a significant number of new jobs from the UK in any event from any new offices set up in Ireland in the financial services industry. An expansion of the SARP tax relief, a reduction in high personal tax rates and the introduction of some form of immigration quotas with the UK would all be of assistance, as well as considering how to reduce the level of red tape involved in establishing such businesses in Ireland without a lessening of standards. We consider a new focus needs to be placed by the IDA on attracting FDI from the Middle East, China and India, which are looking for opportunities within Europe, particularly for locations outside of Dublin with good transport links to the airports and ports.
Our recommendations here today are that the Government should identify the UK landbridge as a serious risk to trade and research and invest in alternative, but equally reliable, transit routes. It should focus negotiations more on the east-west trade relationship, research the implications for Ireland if the UK implements a "cheap food" policy and prepare for the impact on SMEs of the reintroduction of customs procedures, including through the upskilling of staff to deal with potential changes. In addition, it should refocus on our cost competitiveness and the costs of doing business in Ireland and look to attract FDI from the UK and elsewhere for those who want to retain access to Europe but to do this we need to look at our cost base. Moreover, it should ensure companies consider their entire supply chain and the impact of a UK exit on all their input costs and start thinking about alternatives and should lobby strongly for food and agricultural products to be high on the EU agenda for free trade, which is in the UK's interest as well as our interest. While Ireland has become less dependent on the UK through increased diversification of its export markets in the past 40 years, the UK is still a very significant trading partner. We have traded with the UK for more than 1,000 years. We will continue to do so but now that trade is going to be different. We thank the committee for the opportunity to present here today and will take any questions from members.
