Farm Money Advice - PWC predicts a hard Brexit: How hard?
The prospect of Britain exiting Europe emerged about five years ago when Prime Minister David Cameron entertained the concept of an in or out vote, which it was thought would for once and for all quell the anti-EU club in Britain.
Some would suggest the strategy paid off initially, earning the Conservative Party led by Cameron a majority in the parliament for the first time in more than 20 years.
But ultimately the strategy backfired for the prime minister, with a majority of voters in the June 23, 2016, referendum deciding exiting the EU was in Britain’s best interests.
The resulting Brexit process is now well past the half way mark.
Formal negotiations kicked off in March 2017, when Theresa May, Cameron’s successor, triggered Article 50, giving both sides up to 11 months to agree the Brexit deal.
Along the way a general election was called, with expectations that the Conservatives would get a strong mandate to continue Brexit negotiations.
Instead, they lost support and had to team up with Arlene Foster’s DUP for a majority in the parliament.
Since November, the inclusion of the DUP guaranteed some Brexit cohesion between mainland UK and the North.
On the other hand, options available to Theresa May in sorting out the border between Ireland and the UK became more difficult.
The DUP has insisted there will be no border between the North and Britain, yet Britain agreed last December to do what it can to avoid a North-South “hard” border.
There has been much talk about a soft border or a frictionless border, but the EU as a trading block will not countenance weakness in its frontiers where illegal goods or illegal immigrants may find their way into the EU.
Avoiding a border can ultimately only succeed if there is regulatory, security and customs alignment between the UK and the EU, and that is the agreed default position in Brexit negotiations between the EU and Britain.
However, any potential benefits of exiting the EU may be lost if Britain’s hand is tied into regulatory and customs alignment with the EU.
At stake, for example, are Britain’s ability to make individual trade deals with other non-EU countries, importation of cheap food, and increased manufacturing on the back of export growth.
The prospect therefore of a Brexit without Britain actually leaving the EU is doubtful.
The issue of a border between Ireland and Northern Ireland remains, with the post-Brexit trading relationship between the EU and Britain next up in negotiations.
This is perhaps the toughest part of the negotiations, where the EU and Britain will thrash out their future trading relationship.
It is hoped that this can be settled on by October of this year.
It is only at the point when the future relationship is decided, to include whether there will be or won’t be a common customs control in Britain or on the island of Ireland, and definition of our border controls with Britain.
It’s something of a chicken and egg scenario.
Which comes first? The decision on border controls or the decision on trade agreements?
There are now just 11 months left to agree and ratify the exit process and the trade deal between the UK and Europe.
In the absence of agreement, Britain will leave the EU at midnight, March 29, 2019.
With our without an agreement, there will be disruption.
EU Council President Donald Tusk has said: “Our agreement will not make trade between the UK and the EU frictionless or smoother. It will make it more complicated and costly than today, for all of us. This is the essence of Brexit.”
PWC, the giant professional services company, recently predicted a hard Brexit is the most likely outcome.
That would mean the UK leaving the EU on March 29, 2019, without agreement.
In such a scenario, a hard border between Ireland (or Northern Ireland) and the UK would be unavoidable, and World Trade Organisation tariffs on trade between the EU and the UK would instantaneously come into effect.
Intertrade Ireland, a cross-border trade and business development body, suggests that tariffs on beef exports to the UK would amount to 59.2%.
For many products, the tariffs are based on dual factors.
For example, tariffs on fresh or chilled boneless bovine meat are 12.8% of the value of the product plus €303 per 100 kg.
For Ireland, the overall impact is concentrated in meat exports, with 28% of the feared fall in trade to Britain being accounted for by fresh or chilled boneless bovine meat.
The expected drop in exports of cheese to the UK would be somewhat less, at about 9%.
So, while the announcement this week of the opening of the Chinese market for Irish beef is welcome, potentially disastrous damage to UK-Irish trading relations due to a hard Brexit still hangs over our agri-food sector.
