Theresa May’s speech last week, while providing very little new information, provoked a lot of debate about the future relationship between the United (or perhaps more aptly the Disunited) Kingdom and the EU, and the potential consequences for Ireland. In particular there is much debate about the nature of the trade deal that might be achieved, and what Ireland should do. No doubt this debate will continue until the UK has left the EU and probably beyond.
However, what people are forgetting is that for there to be a trade agreement there first needs to be a successful outcome to the Article 50 negotiations. Some commentators do not distinguish the Article 50 negotiations, which are solely about the exit of the UK from the EU, from the trade negotiations, which in any case can’t be completed (at least in terms of signatures and giving legal effect to them) until the UK has actually left the EU.
The lack of attention on the Article 50 negotiations also seems to apply to the UK government, which other than indicating the likely time period in which Article 50 is going to be triggered, has not commented in detail about these. Theresa May’s speech last week is no exception in this. It would appear that the outcome of these negotiations is taken for granted, which might be due to a lack of understanding of what they entail.
A key aspect of the negotiations relates to the assets and liabilities shared between the Member States. The EU owns significant financial assets and of course also owns significant property assets. The 2015 consolidated EU accounts show that these assets were worth €154 billion. Of course the EU also has substantial liabilities, such as contractually committed expenditures but also pension liabilities. These amounted to €226billion in 2015. If one simply apportioned the net liabilities according to economic size the UK would owe the EU €12.6 billion.
Apportioning the UK share of the net liabilities amounting to €72 billion is going to be a tricky task, especially as the simple aggregate approach used here for illustrative purposes will have to be replaced by a much more detailed approach. Thus, instead of arguing about the shares for the two figures on assets and liabilities the negotiations will be about lots of figures.
Some commentators have also suggested alternative numbers, which are presumably based on different underlying data. For example the Financial Times has suggested that net payments from the UK to the EU could range between €20 billion and €60 billion. Apart from the potential for disagreements in attributing assets and liabilities to the UK, it should not be taken for granted that a Eurosceptic Westminster would approve payment of billions of pounds to ‘Brussels bureaucrats’. Failing to successfully complete the Article 50 negotiations would make trade negotiations difficult if not impossible.
What should Ireland do to mitigate the consequences of Brexit? Some people (e.g. Nigel Farage) are arguing that Ireland should also leave the EU. This is utter nonsense! Does anyone believe that Ireland could cut a good trade deal with a country that is over ten times larger in economic terms (GDP) and 14 times large in terms of population (the UK) rather than being part of a block that is almost 5 times larger than the UK? Brexiteers are trying to stir disagreement among EU members as a broken EU will be a lot easier to leave and doing deals with (small) individual countries will also be more advantageous for the UK.
The fact that Ireland trades extensively with non-EU countries, and particularly the US is not evidence that Ireland does not need the EU, but the opposite. Multinational companies that are responsible for the bulk of Irish trade are in Ireland because of EU membership. The EU has concluded trade deals with a range of countries and blocks and a small country like Ireland is not going to negotiate a better deal than the EU.
The latter point also applies to the UK. While Theresa May is now using the slogan of “making Britain truly global”, she and fellow Brexiteers have failed to show how the EU stopped the UK from being global. Indeed the evidence shows that Germany went global, i.e. increased its export share with non-EU countries accounting for EU expansion effects, from the 1980’s onwards. Using this definition the UK only started globalising in the early part of the last decade (see Morgenroth, 2017). Far from stopping countries going global the EU has actually facilitated globalisation for countries that wanted to pursue this goal (something that has been criticised by certain groups). Failure to do so is thus likely to be due to domestic policy failings.
So what should Ireland do? Firstly, it is important to note that when it comes to trade, the objectives of the EU are the same as those of Ireland – to keep trade as free as possible. Similarly, every EU Member State will want to protect its firms from unfair competition. This implies that the EU negotiating stance is likely to be reactive, responding to deviations by the UK from the status quo on trade barriers as well as other factors such as the adherence to State Aid Rules.
Secondly, while Ireland is particularly exposed to the negative impacts of Brexit, there are other EU Members, which will have shared concerns. For example as is now well known, the Irish agri-food sector is particularly exposed. Analysis shows that the Danish pork exports are as exposed Brexit as Irish beef exports to the UK (see Lawless and Morgenroth, 2016). Thus, there are natural allies which will have similar interests when it comes to the negotiations. The detailed analysis of which sectors, firms and regions are most exposed will help identify potential mitigating actions, for example by helping develop alternative markets.
Thirdly, EU Members will have the same objectives when it comes to attracting investment (both of foreign and UK firms) away from the UK, even if they will be competing against each other for this investment. Ireland is already more successful in attracting FDI than its size would suggest and it is likely that this will also apply to any investment diverted from the UK, at least in sectors where Ireland is already strong.
Finally, it is important to remember that it is not the EU that is turning its back on Ireland but that it is the UK that is doing so by leaving the EU – no amount of rhetoric changes this fact.