It's not me it's EU - Theresa May's speech

Theresa May’s speech this week will likely go down as a watershed moment in the history of the European Union. Back in 1973, Ireland and the UK joined the then EEC together and, over the years, the UK has proven a very close ally for Ireland at the negotiation table in the EU. However, May’s speech this week signals the separation of our partnership as the UK begins its journey out of the EU alone.

Since the Brexit vote, the defining word of 2016 had been uncertainty. This speech offers the first certainty we have seen since last June and provides some clarity to the negotiating position of the UK. However, this is just the beginning of what could prove to be a long road of negotiations between the UK and the EU. For Irish farmers, Brexit looks like it will be the biggest challenge to face the sector since joining the single market.

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The news that the UK would leave the EU single market had been well reported in the days before May gave her speech on Tuesday. However, she has now also confirmed the UK will leave the EU customs union, as the current arrangement prevents the UK from striking any new trade agreements with non-EU countries.

However, May did state that she wished the UK to create a new customs agreement with the EU (whether by becoming an associate member of the customs union, create a new one or remaining a signatory to some elements of it) and was keeping an open mind on what shape this might take.

Impact on Ireland

From an Irish perspective, the UK leaving the customs union poses a number of challenges. If the UK were out of the customs union in the morning, trucks filled with Irish exports destined for mainland Europe would suddenly face two border crossings just to get to France.

There is inevitably an added cost to this through additional transport times, paperwork and administration that has to be absorbed. Again, Ireland will suffer most from this new arrangement. Being a small island on the fringes of western Europe, Ireland will suddenly find itself isolated from mainland Europe with the UK as a barrier in between.

We have started discussions on future trade ties with countries like Australia, New Zealand and India. And [US] president-elect Trump has said Britain is not ‘at the back of the queue’ for a trade deal with the United States, the world’s biggest economy, but front of the line.

A key pillar of May’s 12-point Brexit plan is that the UK must be free to strike trade agreements with countries outside the EU. Significantly, the UK prime minister name-checked US president-elect Donald Trump. The surprise election of Trump has made the future global trade picture more complicated, with references to closer ties with Russia.

Trump has already been vocal on the UK’s decision to leave the EU and has said he wants a trade agreement between the two countries to be “signature-ready” by 2019, when the UK finally exits the EU. All of this plays to the UK as it strengthens its negotiating hand.

Impact on Ireland

From an Irish perspective, our beef industry will be concerned to see Theresa May mention Brazil in her speech. The UK is by far our most important market for beef with 240,000t – or 50% of our beef exports – shipped to our nearest neighbour every year. If Brazil, as the world’s largest beef exporter, gained access to the UK market, it could displace Irish beef.

Irish beef producers are at a significant disadvantage to Brazilian beef farmers, who have fewer animal welfare and health regulations to comply with than in the EU. A free trade agreement between the UK and US also opens the door to the UK importing hormone-treated US beef.

Currently, less than 10% of the UK’s beef imports come from non-EU countries. Ireland has always been the dominant supplier with a market share of almost 70%, given our beef processors’ close ties with the UK retailers. This could be about to change.

Similarly, our dairy industry will be concerned about the future trading relationship between ourselves and the UK. Overall, the UK accounts for over a quarter of all dairy exports at €840m, with some products more heavily weighted to the UK market. For example, 53% of Irish cheese and almost a third of our butter goes to the UK.

Taking a hard line with the European Union

No deal for Britain is better than a bad deal for Britain

Much of the thinking since the Brexit vote has been that the EU would seek to impose tough conditions on the UK as it leaves the common market in a bid to discourage other member states not fully enamoured with the European project from taking the same route.

A figure of €50bn has been floated as a compensation charge for costs incurred while the UK was a member of the EU.

In her speech, Theresa May said that a punitive deal that punishes Britain would not be accepted and that were this to arise, the UK would proceed without any agreement being reached.

What this means is that if the UK and the EU cannot come to an agreement on a future trading relationship, the UK would simply exit the EU and the terms of trade between both sides would revert to World Trade Organisation (WTO) rules.

Impact on Ireland

From an Irish perspective, this would be the worst possible outcome. Ireland would be faced with tariffs on the huge volumes of agri-food produce exported to the UK annually, as well as facing intense competition if the UK secured free trade agreements with non-EU countries. For Northern Ireland, this would have a negative impact on milk and lamb sent south for processing.

Conclusion

While Theresa May’s speech aimed to give clarity to the UK position on Brexit, it does seem certain this will be a long, drawn out process. This is not good for business. It will lead to extended transition periods and the inevitable economic uncertainty this will create.

Ireland is in the unusual position as an EU member state, where the best possible outcome for us would be if the UK achieved its exit from the European Union, but maintained full access to the European single market. Given our trade dependence on the UK, it is no surprise that the Irish agri-food sector will want to defend its position and maintain free access to a market of 65m consumers.

This would be contrary to the stance held in Brussels, Paris or Berlin, where the power brokers in the EU will be setting out a tough stall to defend the price of access to the 500m consumers in the single market.

This puts Ireland in a delicate position for the upcoming negotiations. While Ireland’s loyalty lies with the EU, our longest standing trading relationship is with the UK. This will put pressure on Ireland to align itself with one side or the other.

While the political leaders in Brussels will be looking for the best deal for the EU, and Theresa May will be looking for the best deal for the UK, how can the Irish government secure the best possible deal that supports Ireland’s agricultural sector?

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