Government consults sectoral stakeholders in preparation for Brexit
Tuesday, 28 March 2017Prior to the beginning of the UK's formal negotiations to leave the European Union, the Irish Government held a series of fourteen dialogues and two plenary sessions with individuals, businesses and representative groups who will be most affected by the Brexit process, to identify the major implications anticipated for their sectors in the lead up to and post-Brexit.
The consultation process began in December 2016 with over 1,100 representatives from industry and civic society participating from a wide variety of industries ranging from agri-food and enterprise, to transport and hospitality. This included representatives from business, employer and trade union organisations, farming organisations, community and voluntary NGOs, local authorities, Government agencies and academic institutions.1
The key issues identified in the consultation process and the plenary sessions were published in February (“the Reports”)2 by the Irish Government News Service. While it is clear that a number of issues, such as the fluctuating euro-sterling exchange rate; tariffs on trade; and differences in standards and regulations, will have a wide impact on many sectors, these risks will affect businesses to varying degrees depending on the sector and the size of the business.
The main output from the consultation process will be a report to inform the Irish Government's position on issues related to the UK’s negotiations of exit from the EU.
We outline below the key issues identified by stakeholders of Brexit for each of the following sectors:
Energy Sector
The key concerns for stakeholders in the Energy Sector relate to:
- Security of energy supply
- Imposition of tariffs
- The future of the All-Island Single Electricity Market
- Access to EU funding
- Impact of customs checks or border tariffs and currency fluctuations on prices
Overview of key findings
While Ireland imports 85% of its energy from the UK and relies on the UK for its emergency energy supplies (a relationship which is governed by EU regulations); Northern Ireland is a net importer of electricity from Ireland. Given the high level of interdependency between the UK and Irish energy markets, obvious concerns arise around the risk to security of energy supply. Actors in the energy sector have signalled that uncertainty over the future agreements between the UK and the EU post-Brexit and the corresponding fear of the imposition of tariffs (which looks increasingly likely) have led to hesitation in making investment decisions in the sector.
The Reports also outline very legitimate concerns about the future of the All-Island Single Electricity Market3 (“the SEM”) - the cross-border wholesale electricity market – which is jointly regulated by the Commission for Energy Regulation (CER) and its counterpart in Belfast, the Utility Regulator. The SEM is designed to provide a cost effective source of electricity generation to meet demand across the island. Post-Brexit, the Utility Regulator would no longer be subject to European regulation which would put the CER in a difficult position. Northern Ireland’s departure from the EU would place the integrated single energy market (I-Sem), which is currently being negotiated to replace the SEM, at risk. In this context, and combined with the fluctuation of the euro-sterling exchange rate over the last year, the hedging strategies of energy companies at least in the short to medium term look to become increasingly important.
Participants in the consultation process also outlined the importance of EU funding to cooperation between Northern Ireland and the ROI on research into renewable energy. By way of example, research projects into energy in Ireland secured €18 million4 in EU funding in the year leading up to 30 September 2015 and stakeholders are understandably eager to protect this funding.
There are also concerns for those operating in other areas of energy, such as the importation and sale of petroleum products. Any introduction of customs checks or border tariffs between the UK and Ireland would have a significant impact on an industry reliant on high-volume sales and already exposed to currency fluctuations and international markets at several points in its distribution chain. On the other hand, those active in the energy sector also see potential opportunities for the ROI to export clean energy to the UK and to become more self-sufficient.
Agri-Food
The key concerns for stakeholders in the Agri-food Sector relate to the imposition of tariffs and customs checks and the possible imposition of trade barriers.
Overview of key findings
While agri-food exports to the UK account for a relatively small percentage of Ireland’s total trade with the UK, a recent report by Teagasc5 showed that Ireland exported €4.5 billion in agri-food products to the UK in 2014 (mostly beef, dairy products and processed foods), while Ireland imported an almost equivalent amount of agri-food products from the UK in the same year (mostly processed food, raw milk for processing, alcoholic beverages and soft drinks).
Any imposition of tariffs and customs checks would have a significant effect on this trading relationship and participants in the consultation process highlighted how uncertainty about the future UK-EU trading relationship is negatively affecting business confidence.
The possible imposition of trade barriers may also change the competitive landscape in Ireland. A devalued Sterling has increased the cost of Irish exports to the UK and this may lead to the UK choosing other trade partners. This would have far-reaching effects especially for Irish owned companies which export 44% of their exports to the UK. This would impact the Irish economy further if alternative trade partners with Ireland are not found. A devalued Sterling has reduced the price of imports from the UK and while this is positive for retailers in Ireland (and consumers if this is passed on), this may negatively affect Irish producers who must compete with cheaper imports.
Jobs, Enterprise and Innovation
The free movement of workers between Northern Ireland and ROI and with the UK was the key concern.
With an estimated 23,000 cross-border workers in Ireland (0.5% of the population of the island)6, significant concerns exist about the imposition of a hard border between Northern Ireland and the ROI and how this would affect workers (and the companies they work for). The implications on workers' rights post-Brexit if the UK is no longer bound by EU legislation remain unclear.
Participants also have concerns about the impact that tariffs and restrictions on the transit of goods will have for businesses that currently enjoy free movement, especially between Northern Ireland and the ROI. It seems likely that smaller companies will be hit hardest by this with bigger companies being more able to handle the potential administrative burdens and imposition of barriers to trade.
Transport Sector
The main concern in relation to transport and logistics is the possible impact of currency fluctuations, custom checks and imposed tariffs.
According to an article published by AIB, every week €1.2 billion worth of trade is carried out between Ireland and the UK.7 Participants highlighted the vulnerability of the transport sector in terms of currency exposure. If Sterling was to depreciate further, this would dramatically affect the volume of Irish exports to the UK and the transport sector in Ireland more generally.
Over 80% of Irish road freight to Europe travels through the UK and the imposition of customs checks would have a very significant impact on cross border trade as they would increase both the cost and time required for transport of goods through the UK. Such costs would have to be passed on to the consumer which may make some freight uneconomical and result in lost revenue to Irish hauliers and reduced trade.
Participants also have concerns about the impact of uncertainty on business and investment decisions, in particular the infrastructure challenges for ports and the impact on regional development (in the situation where Irish owned companies export 44% of their exports to the UK8).
Conclusion
The Brexit process will without a doubt cause many challenges for businesses in a wide variety of sectors in Ireland.
It is hoped that the findings of this Consultation process will be used by the Taoiseach to voice Ireland’s concerns when the European Council has its first formal meeting on the Brexit negotiations at the end of April. These findings should also inform Irish Ministers when they meet in their sectoral divisions at Council of the European Union in order to obtain the best outcome possible for EU citizens and consumers alike.
Further information on the Consultation process, participants in same and the Reports can be found at http://www.merrionstreet.ie/en/EU-UK/Consultations/.
ByrneWallace has established a dedicated multi-disciplinary team to advise and represent both Irish and international businesses on the possible legal and regulatory implications of Brexit. For advice and support preparing your business for Brexit, contact a member of our Brexit team.
1 A full list of participants in the plenary sessions can be found at http://www.merrionstreet.ie/en/EU-UK/Consultations/Dialogue_Report_on_Brexit_Compendium.pdf
2 All-Island Civic Dialogue on Brexit - Sectoral Dialogues, a copy of which can be found at http://merrionstreet.ie//en/EU-UK/Consultations/Summary_of_All-Island_sectoral_dialogues.pdf and All-Island Civic Dialogue: A Compendium November 2016 – February 2017, a copy of which can be found at http://www.merrionstreet.ie/en/EU-UK/Consultations/Dialogue_Report_on_Brexit_Compendium.pdf
3 More information can be found at the following website: http://www.dccae.gov.ie/energy/en-ie/Electricity/Pages/Single-Electricity-Market-(SEM).aspx#
4 According to the report published by the Sustainable Energy Authority of Ireland at the end of 2015: https://www.seai.ie/News_Events/Press_Releases/2015/Irish-energy-R-D-projects-secure-%E2%82%AC18m-EU-funding-in-the-last-year.pdf
5https://www.teagasc.ie/media/website/publications/2012/BrexitPaperApril13final.pdf
6 In a report commissioned by the EURES Cross Border Partnership and conducted by the Centre for Cross Border Studies, Measuring Mobility in a Changing Island, May 2010.
7 Available at: https://business.aib.ie/blog/2016/05/how-brexit-could-affect-the-irish-transport-industry
8Brexit: The implications for Irish business; PWC
