How to Protect Your Business

The UK Government has set 23rd June 2016 as the date for its “In-Out” referendum vote on Britain’s continued membership of the EU. Opinion polls are pointing to a very close outcome, and an “Out” result would undoubtedly change the landscape for business owners in Ireland, writes Oliver Mangan, Chief Economist at AIB.

The UK EU referendum issue has now moved centre stage in the UK. We view it as the primary event risk for the UK and Ireland in 2016, as a vote to leave the EU would have profound economic and political consequences for both countries. It is now a 50/50 call, in our view, on whether the UK votes to leave or remain in the EU.

Impact on the UK Economy – Uncertainty About Trade Agreements

Most studies show that leaving the EU would have a negative impact on the UK economy. It could take up to a decade for the full economic impact to be felt in terms of foreign direct investment (FDI), trade flows, migration etc. There would obviously be negative knock-on effects for Ireland given its close ties with the UK.

 

The critical question centres around what type of trade arrangements would be put in place between the UK and EU post a Brexit. The more the UK seeks to regain control over policy and regulations, the more difficult it will be for it to negotiate a worthwhile trade deal with the EU. In order to secure a preferential trade deal, the UK is likely to have to adhere to EU rules and regulations.
It would be a major drawback for the UK if it had to fall back on World Trade Organization (WTO) rules, which is likely to involve the imposition of trade tariffs. Some 45% of UK exports go to the EU, so it is a vital market. On the other hand, the UK takes just 10% of EU exports. Thus, the UK is not as vital to the EU for trade as the EU is to the UK.
Trade Impact on Ireland

Ireland has very close trade and economic links with the UK and so would be greatly impacted by Brexit. Those trading with the UK, at a minimum, would face increased administrative and regulatory costs and possibly tariffs. A recent ESRI report suggests that there could also be a significant decline in bilateral trade. Sectors such as agriculture, retailing, energy and financial services are likely to be most impacted by Brexit.
The main Irish exports to the UK are food, pharma, ICT and a broad range of services, while on the import side, energy, manufactured goods and services are all important. Ireland is the UK’s fifth largest export market. Some 33% of Ireland’s imported goods come from the UK. It is worth noting that more goods are imported into Ireland from the UK than the rest of the EU combined.