QEO - The Implications of a Hard BREXIT for Northern Ireland
Posted on December 06, 2016 by Paul Mac Flynn
The Winter 2016 Quarterly Economic Observer was released this morning and it provides the NERI's analysis recent economic trends and the outlook for both Northern Ireland and the Republic of Ireland. We highlight the signs of decelerating growth in the Republic along with concerns about recent budgetary measures particularly in the housing sector. For Northern Ireland, the relative stability of the UK economy in the last few months removes any threat to the economy in the short term, but significant challenges remain. The depreciation of Sterling has provided some boost for the retail and hospitality sector in Northern Ireland in the form of increased exports and cross-border trade. However, there are more worrying trends in the labour market particularly with regard to increased male and youth unemployment. Overall the future path for the Northern Ireland economy will be very much decided by the exact shape and nature of the UK's exit from the European Union and this provides the topic for the focus section of this QEO.
This QEO builds on an earlier NERI working paper which outlined how a BREXIT might impact on the Northern Ireland economy by examining the choices involved in a hard BREXIT. Whilst much of the debate on hard BREXIT at UK level has been on the issue of the Single Market, for Northern Ireland the Customs Union is just, if not more, important.
The Customs Union eliminates all customs and duties on goods traded between members and imposes a common external tariff on goods imported from outside the union. The Single Market has harmonised regulations for product standards, professional qualifications and other indirect barriers to trade. The Single Market and the Customs Union represent the two most significant phases of European economic integration, but both can accommodate members from outside the EU. For example, it is possible to be a member of the customs union but not the Single Market like Turkey. Equally, it is possible to be a member of just the Single Market but not the customs union like Norway.
The Customs Union is more important for NI as it will become a more immediate and visible barrier to trade on the island of Ireland in the event of a hard BREXIT. Complicated Rules of Origin regulations would provide a bureaucratic obstacle for trading EU export orientated firms and dramatic changes to the common external tariff could cause significant difficulties for the agriculture sector. Furthermore, leaving the Customs Union will inevitably lead to the reestablishment of customs checks on the land border with the Republic of Ireland. It is possible to gain sectoral access to the single market through equivalence arrangements and there will likely be room for a compromise between the EU and the UK on this. However, the Customs Union is a binary decision and a very important one at that for Northern Ireland.
The QEO also highlights significant issues with regard to free movement of workers and the implications that any change will have for the health of the Northern Ireland labour market.
Overall a Hard BREXIT is likely to be more economically disruptive for Northern Ireland. The UK remaining within the Single Market and most importantly the Customs Union would be the optimal situation, but as this QEO outlines, there are policy actions that can be taken to ameliorate the economic damage if this is not the case.