Dublin still expects to count cost of Brexit despite trade accord

Ann Murray took command of Lir, a premium Irish chocolate-maker with significant UK sales, weeks before Britain voted to leave the EU in 2016. But with an eleventh-hour trade deal finally settled on Christmas Eve, it is only now becoming clear what Brexit will mean for a business that sends a truck full of products to Britain almost every working day. 

“We’ve done all of the pragmatic, practical things that we can do,” Ms Murray said as negotiators limped towards the EU-UK trade pact. “Deal or no deal, things are going to change. They will never be as they were before.” 

The new agreement guarantees tariff-free and quota-free trade in goods, prompting considerable relief in Dublin that a disorderly UK crashout from Europe’s trading regime has at last been averted.

It also means the implementation of the Northern Ireland protocol, the mechanism agreed by the EU and UK last year to keep open the 310-mile land border with the Irish Republic — Dublin’s top priority after the 2016 EU referendum.

Micheál Martin, Irish premier, welcomed the deal, saying it represented the “least bad version of Brexit”. “There is no such thing as a ‘good Brexit’ for Ireland,” Mr Martin said. “But we have worked hard to minimise the negative consequences.”

With business facing increased costs, delays at ports and cumbersome customs paperwork once Britain finally leaves the EU’s single market and customs union on December 31, Ireland fears it will pay a hefty price.

The country’s deep trade ties with its former colonial master mean that it remains the most exposed in the EU to fallout from Britain’s protracted exit from the bloc, even with a deal.

The issue of the Irish border has dogged the Brexit process since the UK’s EU referendum in 2016 © Paul Faith/AFP/Getty Images

Not only did endless Brexit turmoil disrupt the stability in Anglo-Irish relations that helped secure the 1998 Good Friday peace agreement that settled three decades of political violence in Northern Ireland, the rows over the future of the border sharpened tensions in Northern Ireland between the pro-British Democratic Unionists and Sinn Féin Irish nationalists.

Dublin’s fervent hope now is that the trade agreement will restore calm to the political relationship with its closest neighbour after the Brexit rupture.

But Roy Foster, a leading Irish historian, said it would be a huge challenge to regain the spirit of “joint endeavour” that Dublin and London developed before the Good Friday pact and for almost two decades after it. “The gears, the levers have been thrown absolutely into reverse on all that, which I think is tragic,” he added. 

Brexit still presents huge questions for business in Ireland, whose trade in UK markets will be crucial as its economy struggles to overcome the effects of the pandemic. 

Thousands of companies in Ireland would have suffered badly in a no-deal scenario because of steep World Trade Organization tariffs that would have been imposed on its €13.5bn export trade with Britain, adding to the cost of goods that comprised 9 per cent of the country’s total exports in 2019. Such tariffs would also have increased the price of imported British goods.

Significant foreign direct investment means Ireland today is one of the world’s most globalised economies with the share of exports to the UK down from 55 per cent in 1973, when the two countries joined the then European Economic Community on the same day. But the dangers to Ireland from a no-deal Brexit were still very significant — and were heavily concentrated in its food and drink industries.

Line chart of Share of total trade over previous 12 months (%) showing Ireland's declining reliance on trade with the UK

Fergal O’Brien, policy director with business lobby group Ibec, said WTO tariffs would have added €1.5bn to the cost of such goods. “For a lot of subsectors in that industry, trading into the UK in that context would not be viable.”

Such risks were all the greater for Ireland because of coronavirus, which left 352,000 people out of work in the last lockdown and more than 19,000 companies claiming government wage subsidies.

Like many Irish exporters to the UK, Lir resolved after the Brexit vote to lessen its reliance on the British market that made up 90 per cent of its sales in 2016. The company, owned by German venture capital investor Zertus, sells chocolate under its own brand and with alcohol flavours under licence from Baileys cream liqueur, Guinness stout and Famous Grouse whisky. It also makes private-label ranges for large British supermarkets. 

“In the last four years we have tripled our exports outside the UK,” Ms Murray said, citing increased sales in Germany and the Nordic countries. 

Lir has always sent products to those new markets via Britain — the “land bridge” route to the continent — but now it plans direct continental shipments to avoid Brexit paperwork and any delays at ports as the new regime takes force. “We’re actively engaging in booking the slots for avoiding the land bridge for the first months in 2021.”

But the UK still accounts for 60 per cent of Lir’s sales, enough for 250 truck shipments to Britain each year that will soon be subject to increased border friction under the new trading arrangements. Ms Murray said Lir has had to appoint customs clearance agents to manage this trade from January and take out certification as an authorised economic operator to fast-track customs. 

“Even if you’re not paying a tariff, we have to ensure that the products we sell are classified under the customs headings which we never had to do before,” Ms Murray said.

For business in Ireland generally the looming requirement for checks on UK trade is a huge and costly change that presents multiple problems. A report this month for the Irish parliament by Dublin Port, Ireland’s biggest, said checks would be required on 900,000 UK cargo shipments each year, a big rise from 200,000 annual checks on current non-EU trade at the port. 

Eamonn O’Reilly, chief executive of Dublin Port: ‘The checks are going to cause delays, of that there is no doubt. That is the nature of border checks’ © Aidan Crawley/Bloomberg

This is a very tall order, according to the report. Eamonn O’Reilly, chief executive of Dublin Port, said speed would suffer. “The checks are going to cause delays, of that there is no doubt. That is the nature of border checks.

“It is the opposite of what we saw in 1992 when the single market came in, when we saw trade accelerating through ports. Brexit is undoing the efficiencies which the single European market aimed to introduce.”

The new regime will come in “virtually overnight” once the UK transition ends on December 31, said Mr O’Brien of Ibec. “The big thing we’re facing from January 1 is reduced efficiency in logistics and supply chains. Businesses are holding higher stocks again for contingency purposes, and that comes with higher costs.”

Sterling’s weakness in the Brexit era presents other complications, as it erodes the ultimate value to companies in Ireland from their sales in the UK.

Pinewood, a County Tipperary generic pharmaceuticals company with 60 per cent of its sales in Britain and daily shipments to that market, said it had moved some UK contracts to the euro from sterling last year to preserve its return. “That’s probably the biggest concern we have,” said Colum Honan, the site director.

Lir Chocolates makes private-label ranges for large British supermarkets © Paulo Nunes dos Santos/FT

Despite the coronavirus shock that has led to record unemployment in Ireland, the economy is forecast to grow this year because multinational pharma and tech companies in the country are booming. But the pandemic has blown a huge hole in Ireland’s public finances, adding billions to its €223.6bn national debt.

Back at Lir’s chocolate factory, Ms Murray said she never expected Britain leaving the EU would turn out to be such a “vitriolic” process but said commerce must survive the split. “They’re next door. We speak the same language. We travel across them in order to get to our other markets.”

Northern Ireland leaders set aside Brexit divisions to welcome deal

Northern Ireland’s first minister Arlene Foster welcomed the EU-UK trade accord, saying the region will seek maximum advantage from arrangements she opposed when Boris Johnson settled the vexed question of the Irish border last year. 

Mrs Foster, leader of the pro-Brexit Democratic Unionists, and deputy first minister Michelle O’Neill of the Remain-supporting Sinn Féin Irish nationalists, set aside bitter divisions over the UK’s EU withdrawal as they hailed the deal on Thursday.

Their statements reflect relief in the devolved executive that a no-deal outcome was averted, something that would have disrupted the region’s economy and politics. 

Mrs Foster had opposed the Northern Ireland protocol, part of the Brexit withdrawal agreement signed last year to keep open the 310-mile land border with the Irish Republic.

But following the announcement of the deal by Mr Johnson, she indicated the executive would pursue all potential benefits from the protocol, which was cast as a “best of both worlds” opening for the region to trade freely with both the EU and the UK. 

“This is the start of a new era in the relationship between the UK and the EU and in Northern Ireland we will want to maximise the opportunities the new arrangements provide for our local economy,” Mrs Foster said.

Ms O’Neill said the executive must consider detailed aspects of the agreement. “There will be many questions on what the agreement means for businesses and citizens and it is important they get that clarity.”

Despite the political unanimity, Northern Ireland faces tough new tests in the wake of the trade deal. 

Business in the region has long worried about new compliance costs, paperwork and delays at ports.

Plans to implement the protocol were agreed only this month — three weeks before it comes into effect — and business has pressed for more detail.

“Questions remain on operational readiness and the longer-term impact for supply chains,” said CBI Northern Ireland, the lobby group.

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