On the brink of Brexit: the economic consequences for the island of - - PowerPoint PPT Presentation

On the brink of Brexit: the economic consequences for the island of Ireland PwC, 17 October 2019 Presentation Slide Pack

Organisers: Thomas Conefrey (Central Bank of Ireland), Katy Hayward (Queens University Belfast/UK in a Changing Europe), Ronan MacNioclais (PwC).

Brexit in historical perspective

Kevin Hjortshøj O’Rourke NYUAD

What the book does

• To understand Brexit and the negotiations that

follow, you need to understand

– Three histories (UK, EU and Ireland), how they have shaped attitudes and economies, and how they are interacting today – The logic of free trade areas vs customs unions vs single markets

• A lot of what we have lived through during the

course of the last three years follows fairly logically from the above

The EU has a history

“We must ensure that our commemoration [of the First World War] does not give any support to the myth that European integration was the result of the two World Wars” (memo to David Cameron)

Why is the EU supranational?

• “The profound pooling of sovereignty that is a

crucial feature of the European Union permits unprecedentedly deep cooperation, which brings benefits. But it also means that when countries are in the minority they must sometimes accept decisions they do not want…So the British electorate made a choice. They chose the power of domestic democratic control over pooling that control” (Theresa May, September 2017)

Maurice Faure, 5 July 1957

• You see, my dear friends, we still maintain the

fiction that there are four Great Powers in the

• world. Well, there are not four Great Powers,

there are only two: America and Russia. There will be a third at the end of the century:

• China. And it is up to you as to whether or not

there will be a fourth: Europe

Post-1945: lessons of the 1930s

• Agriculture

– 26% of male French employment in 1954; the figure was 42% in Italy in 1951

• Keynesian macroeconomics, welfare states,

corporatist growth strategies, mixed economies

• How to combine benefits of trade with a

protective state?

– “The problem genuinely was how to construct a commercial framework which would not endanger the levels of social welfare which had been reached . . . The Treaties of Rome had to be also an external buttress to the welfare state” (Milward 2000)

Treaty of Rome 1957

• ARTICLE 118
• .. the Commission shall have the task of

promoting close co-operation between Member States in the social field, particularly in matters relating to:

– employment; – labour law and working conditions; – basic and advanced vocational training; – social security; – prevention of occupational accident, and diseases; – occupational hygiene; – the right of association, and collective bargaining between employers and workers.

Treaty of Rome 1957

• ARTICLE 119
• Each Member State shall … maintain the

application of the principle that men and women should receive equal pay for equal work.

• ARTICLE 120
• Member States shall endeavour to maintain

the existing equivalence between paid holiday schemes.

Protocol to Treaty of Rome

• Les Êtats membres estiment que l’êtablissement du

marchê commun entraĩnera..une situation dans laquelle la base au-delà de laquelle sont rêmunêrêes les heures supplêmentaires et le taux moyen de majoration pour ces heures dans l'industrie correspondront á ceux existant en France, selon la moyenne de l'annêe 1956.

• A dêfaut de rêalisation de la situation ci-dessus…la

Commission est tenue d'autoriser la France á prendre, á l'êgard des secteurs industriels afgectês par l'inêgalité dans le mode de rêmunêration des heures supplêmentaires, des mesures de sauvegarde dont elle dêfinit les conditions et modalitês…

Weighted tariff rates

Atlantic Charter, August 1941

Fourth, they will endeavor, with due respect for their existing obligations, to further the enjoyment by all States, great or small, victor or vanquished, of access, on equal terms, to the trade and to the raw materials of the world which are needed for their economic prosperity;

GATT Article I (General Most-Favoured Nation Treatment; non-discrimination)

• With respect to customs duties and charges of any

kind imposed on or in connection with importation

• r exportation or imposed on the international

transfer of payments for imports or exports, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with importation and exportation…any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in

• r destined for the territories of all other

contracting parties.

GATT Article XXIV

• “the provisions of this Agreement shall not

prevent, as between the territories of contracting parties, the formation of a customs union or of a free-trade area.”

GATT Article XXIV

• 8 (a) A customs union shall be understood to mean the

substitution of a single customs territory for two or more customs territories, so that

• i) duties and other restrictive regulations of

commerce…are eliminated with respect to substantially all the trade between the constituent territories of the union or at least with respect to substantially all the trade in products originating in such territories, and,

• ii) …substantially the same duties and other

regulations of commerce are applied by each of the members of the union to the trade of territories not included in the union;

GATT Article XXIV

• A free-trade area shall be understood to mean

a group of two or more customs territories in which the duties and other restrictive regulations of commerce … are eliminated on substantially all the trade between the constituent territories in products originating in such territories

EU history shaped EU attitudes during the negotiations

• The Single Market represents a complex

diplomatic bargain and there were only 12 members in those days..

– UK can’t be allowed to unravel that bargain

• Need to retain control of Single Market rules

– UK can’t be allowed to influence EU regulations from the outside; it can’t influence the way the EU applies those regulations (e.g. at borders)

EU concerns regarding Northern Irish border

• Here we are talking very practically about –

imagine – an import of shrimps from an Asian country where they treat shrimps with antibiotics, which are prohibited in the EU because they can lead to blindness. Now this shipment arrives in Liverpool and is destined for the market in Northern Ireland and also the EU27. At what moment and how do we check that there are no residues of prohibited antibiotics? . . .

EU concerns regarding Northern Irish border

• The second example is bicycles imported from

China on which the EU levies anti-dumping

• duties. Maybe the UK in the future decides not to

have such anti-dumping duties because you want to have your own system on this, so how can we ensure that bicycles, arriving in Liverpool again or somewhere else, do not end up undermining the anti- dumping duties that the EU is levying? How can we avoid that this becomes an entry point into the single market?

EU concerns regarding Northern Irish border

• The third issue – and a very important one – is VAT.

How can we ensure that VAT is levied correctly? That is a major source of revenue for all our member states and is also a major source of fraud in the EU but also in the UK.

• Therefore, we will need to have a system where we can

protect the integrity of the single market and the customs union, in a situation where we do not have a hard border between Ireland and Northern Ireland. It is

• n these very precise and concrete issues that we need

to find a solution.

EU suspicions

• UK supply chains versus “taking back control”
• June 2017: “the EU will feel obliged to guaran-

tee a softer border with Ireland, and that the Republic is the European Union negotiator’s Achilles Heel” (DUP)

• July 2017: David Davis on Ireland as a “test

border”

• November 2017: Johnson links Irish border to

Dover-Calais

EU history shaped EU attitudes during the negotiations

• Level playing field was always crucial and

remains so

• Johnson’s stated wish to get rid of the (already

weak) LPF conditions of the previous deal makes a free trade agreement unlikely

• Reduces opportunity cost of sticking to

backstop demands

– (but obviously not good news)

Structural explanations for Brexit

Structural explanations for Brexit

An under-performing central bank

Euro area core inflation Source: Athanasios Orphanides

A dysfunctional monetary union

Unemployment rates Yields on two-year sovereign debt. Source: Athanasios Orphanides

Italian profligacy?

Source: Athanasios Orphanides

Maintaining support for the EU and globalization

• Going back to the spirit of the 1950s: what is

required to maintain political support for

• penness?
• What policies are in Ireland’s long run

interest?

– Taxation – EMU – Strategic cooperation

The Impact of a Disorderly Brexit on the Irish Economy

Thomas Conefrey On the Brink of Brexit, PwC, 17 October 2019

3 2

Overview

1. The impact of Brexit so far:  UK economic performance  Ireland 2. Modelling the effect of Brexit on the Irish economy. 3. Sector and region-specific problems. 4. Conclusion.

3 3

UK GDP Growth Since Referendum

• 3.9
• 2.9
• 1.9
• 0.9

0.1 1.1 2.1 3.1 4.1 5.1 6.1 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1 2018 Q2 2018 Q3 2018 Q4 2019 Q1 2019 Q2

%

GDP Growth Contributions

Domestic Demand Stocks Net Exports GDP (annual average)

Source: ONS

3 4

UK Domestic Demand

60 80 100 120 140 160 180 5 10 15 20 25 30 35 40

Indices: peak in GDP = 100 Quarters since pre-recession peak in GDP

Range of previous recessions EU Referendum

Source: Bank of England

Actual Predicted investment

• 5.0

0.0 5.0 10.0 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1 2018 Q2 2018 Q3 2018 Q4 2019 Q1 2019 Q2

% year-on-year (ma 4Q)

Components of Domestic Demand

Private consumption Business investment Housing Investment Domestic Demand

Source: ONS UK Business Investment

3 5

Household Savings Rate at Historic Low

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0

% of disposable income

UK Household Savings Rate, % of Disposable Income

Source: ONS.

3 6

UK Trade and Balance of Payments

70.0 75.0 80.0 85.0 90.0 95.0

• 10.0
• 5.0

0.0 5.0 10.0 15.0 20.0 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1 2018 Q2 2018 Q3 2018 Q4 2019 Q1 2019 Q2

2012 = 100 % year-on-year

Exports and Imports

Exports Imports REER

Source: ONS

• 6.0
• 5.0
• 4.0
• 3.0
• 2.0
• 1.0

0.0 1.0 2.0 3.0 4.0 1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017

UK Balance of Payments, % of GDP

Source: ONS

3 7

Overall UK Economic Performance since Referendum

Source: Centre for European Reform.

UK Slowdown: Effects on Ireland

 Trade: slower UK growth will have reduced overall activity in Irish economy.  Evidence across sectors is mixed:  Agri-food exports to UK  2016: -6.3 per cent  2017: +9.2 per cent  2018: +3.1 per cent  Machinery and equipment exports  2011-15: average annual growth of13 per cent per annum  2016-18: exports fell by 6.5 per cent per annum on average  Prices: Sterling depreciation has put downward pressure on Irish goods inflation.  Tourism: UK residents account for 2 out of every 5 visitors to Ireland. Sharp slowdown in number of visitors since mid 2016 (RH chart).  Sentiment and uncertainty: signs of a slowdown?

3 8

• 10.0
• 5.0

0.0 5.0 10.0 15.0 20.0 25.0 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1

y-o-y % change

Overseas Visitors to Ireland from Great Britain and Rest of the World, annual % change

Great Britain (includes England, Scotland, Wales) All countries excl. Great Britain

Source: CSO

Economic Activity Index takes sharp dip

3 9 June 2013 March 2019 August 2019

• 4.0
• 3.0
• 2.0
• 1.0

0.0 1.0 2.0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Below average Above average growth Note: mean = 0, S.D. = 1 Source: Author's calculations.

• 0.6
• 0.4
• 0.2

0.2 0.4 0.6 0.8 1 January February March April May June July August * 2019 Hard data Soft data

Below average growth Above average growth Source: Author's calculations. Note: mean = 0, S.D. = 1

4

Brexit - Modelling the Unknown

The UK is the first country to leave the EU. The consequences of that exit are therefore largely unknown. “Soft” or “hard” ?: a wide range of Brexit outcomes (still) possible. Can the model capture the complexity of the change?

 Does Brexit cause a structural shift that alters basic relationships embedded within the model?  How quickly will trade fall in a no-deal Brexit?  What will be the scale of the logistical and supply chain disruption?  How will financial markets react?

Nevertheless, quantitative estimates are needed to inform debate and assist policymakers. Examples of Brexit modelling work carried out in CBI using COSMO:

 May 2018 (NIESR Economic Review): impact of an orderly WTO Brexit.  October 2018 (Central Bank Quarterly Bulletin, Box A) : preliminary assessment of impact of UK Government Brexit White Paper (Chequers).  January 2019 (Central Bank Quarterly Bulletin, Box B) : Impact of a disorderly Brexit.

Builds on other similar work for Ireland by Department of Finance, ESRI and others.

4 1

Approach

• 1. Model effect of Brexit on UK economy and broader external environment using NiGEM.
• 2. Use NiGEM outputs as inputs into model of Irish economy (CBI-COSMO).
• 3. Consider additional shocks important in a disorderly UK exit.
• 4. Simulate the full scenario.

4 2

Transmission Channels and Assumptions (1)

1. Reductions in trade  Tariff and non-tariff barriers reduce UK-EU trade. Estimated 40-50 per cent reduction in goods trade, 35 per cent in services. 2. Foreign Direct Investment  Free movement of capital encourages cross-border investment.  Reduction in trade reduces FDI. 3. Migration  Barriers to free movement of labour may be introduced.  UK may become less attractive destination for migrants. 4. Productivity

 Immediate: rebalancing of economy towards less productive sectors as trade falls.  Long run: lower trade, FDI and migration could reduce productivity.

Source: NIESR.

4 3

• Other channels:

5. Financial Markets: Potentially large depreciation of sterling. Impact on borrowing costs, equity and bond prices. 6. Sentiment and Uncertainty: Consumer spending and investment would be negatively affected by fall in sentiment and adjustment to weaker future growth and incomes. 7. Importing and exporting: around 25 per cent of Irish goods imports come from UK. Disruption to supply chains with implications for production, distribution and retailing. Added importance due to landbridge. 8. FDI: potential increase in Irish FDI. Magnitude of effect is uncertain. Size of FDI efffect based on Lawless and Morgenroth (2016).

• Calibrate these shocks based on a synthesis of the available literature. Some judgement is also required.

Transmission Channels and Assumptions (2)

4 4

• With a Brexit deal and a transition period, the economy would remain on a favourable growth path,

although the pace of growth is expected to slow.

5.0 4.3 3.9 1 2 3 4 5 6 2019 2020 2021

annual % change

Real Output

Deal + transition

Source: Central Bank Quarterly Bulletin,

2.4 1.5 1.4 0.5 1 1.5 2 2.5 3 2019 2020 2021

annual % change

Employment

Deal + transition

Source: Central Bank Quarterly Bulletin, October 2019.

4 5 5.0 4.3 3.9 4.7 0.8 1.9 1 2 3 4 5 6 2019 2020 2021

annual % change

Real Output

Deal + transition

Source: Central Bank Quarterly Bulletin, October 2019.

2.4 1.5 1.4 2.1 0.2

• 0.2
• 0.5

0.5 1 1.5 2 2.5 3 2019 2020 2021

annual % change

Employment

Deal + transition

Source: Central Bank Quarterly Bulletin, October 2019.

• A disorderly Brexit would see a sharp slowdown in economic activity and employment in 2020 and 2021.

4 6

Disorderly Brexit: Long-Run Effects

• 10
• 9
• 8
• 7
• 6
• 5
• 4
• 3
• 2
• 1

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

% deviation from baseline

Output by Sector, % Deviation from Baseline

Traded Non-traded Total output

4 7

Unemployment Rate

0.0 0.5 1.0 1.5 2.0 2.5 Short Run Medium Run Long Run

p.p. deviation from baseline

Impact of Disorderly Brexit on Government Deficit and Debt

4 8 70.0% 80.0% 90.0% 100.0% 110.0% 2018 2019 2020 2021 2022 2023 2024 2025

% of GNI*

General Government Debt in a Disorderly Brexit, % of GNI*

Baseline Disorderly Brexit Source: Authors' calculations based on COSMO.

• 1.5%
• 1.0%
• 0.5%

0.0% 0.5% 1.0% 1.5% 2019 2020 2021 2022 2023 2024 2025

% of GNI*

General Government Deficit in a Disorderly Brexit, % GNI*

Baseline Source: Authors' calculations based on COSMO.

4 9

Sector and Regional Effects

 Overall macro impacts hide important sectoral variation.  Impact of Brexit will not be evenly distributed across sectors and regions.  Agriculture sector stands out as particularly exposed:  Sector has a heavy reliance on UK market  Faces the highest tariffs in a WTO Brexit  Has weak underlying profitability  Importance of agri-food sector varies significantly by region.

Meat and offal Dairy Produce, eggs & honey Cereals Preparations of meat and fish Sugars and confectione… 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0% 10% 20% 30% 40% 50%

Export Share Ire to UK) Implied WTO Tariff

Goods Exports (Agri-Food) Goods Exports (Excl. Agri-Food)

Source: Horan and McQuade (2019).

5

Agriculture by Region

3.0 7.8 8.3 9.7 10.2 11.5 11.8 12.2 14.2 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0

% of total employment by region

Source: Census 2016, CSO. Notes: Chart shows employment in the agri-food sector in each region as a 11.7 6.0 8.6 2.5 8.7 17.0 20.6 25.1 56.9 57.4 68.8 66.6 43.7 69.2 41.8 44.8 10 20 30 40 50 60 70 80

%

Specialist tillage Specialist dairying Specialist beef production Specialist sheep Source: CSO Farm Structure Survey 2016.

5 1

Deal + FTA: Effect on UK GDP relative to Stay Scenario

5 2

Summary

 Evidence that UK economy has slowed since June 2016 referendum.  Reduced UK demand for Irish exports will have lowered overall Irish growth with evidence of more pronounced effects in some sectors.  Modelling the effect of a disorderly Brexit is an inherently uncertain exercise.  Based on assumptions grounded in the academic literature, we find a significant long-run negative effect on Irish

• utput, with the output loss front-loaded in a disorderly Brexit.

www.esri.ie @ESRIDublin #ESRIevents #ESRIpublications

www.esri.ie

Brexit and Cross-Border Trade

DATE 17th October 2019 VENUE On the brink of Brexit: economic consequences for the island of Ireland AUTHOR Martina Lawless

www.esri.ie @ESRIDublin #ESRIevents #ESRIpublications

Outline

• Levels of economic integration
• Potential impact on Ireland of “no-deal”
• utcome
• Cross-border trade and integration
• Current state of play

www.esri.ie @ESRIDublin #ESRIevents #ESRIpublications

Layers of integration - memberships

Source: LGIM www.macromatters.lgim.com/

www.esri.ie @ESRIDublin #ESRIevents #ESRIpublications

Brexit trilemma

www.esri.ie @ESRIDublin #ESRIevents #ESRIpublications

Northern Exposure

www.esri.ie @ESRIDublin #ESRIevents #ESRIpublications

Share of NI in Irish Goods Trade with UK

0% 2% 4% 6% 8% 10% 12% 14%

Import share Export share

Source: CSO 2016 and InterTradeIreland 20

www.esri.ie @ESRIDublin #ESRIevents #ESRIpublications

Northern Ireland External Trade Structure

Source: NISRA BESES 2018

www.esri.ie @ESRIDublin #ESRIevents #ESRIpublications

Cross-Border Trade Structure

Source: CSO 2016 and InterTradeIreland

www.esri.ie @ESRIDublin #ESRIevents #ESRIpublications

Share of trade by potential WTO-level tariff level

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% (0, 5] (5, 10] (10, 25] 25+

Source: CSO 2016 and InterTradeIreland

www.esri.ie @ESRIDublin #ESRIevents #ESRIpublications

Who Exports? (NI firms)

Source: CSO 2016 and InterTradeIreland

www.esri.ie @ESRIDublin #ESRIevents #ESRIpublications

Cross-border deliveries by firm size

Source: NISRA 2018

www.esri.ie @ESRIDublin #ESRIevents #ESRIpublications

Technological solution?

Source: Deirdre Heenan via Twitter

www.esri.ie @ESRIDublin #ESRIevents #ESRIpublications

Promise of world trade deals?

• For UK as a whole:
• Unlikely to replace levels of trade in integrated EU market.
• Distance still matters to trade.
• Trade-offs part of any international deal – across sectors,

standards, migration(?).

• Financial services and car industry most likely to be prioritised.
• For Northern Ireland:
• If trade-offs above mean opening UK up to world food imports,

would pose major competitive challenges for NI.

• Services exports not (currently) a major feature of economy.
• Any deal involving changes in food standards very problematic for

cross-border flows – technology unlikely to help if standards diverge.

www.esri.ie @ESRIDublin #ESRIevents #ESRIpublications

Impact summary

• Cross-border trade between Northern Ireland and Ireland more

like local trade than international export activity

• Almost all exporting firms in Northern Ireland include Ireland as
• ne of their destination markets.
• Over 80% of the smallest firm size group that export from

Northern Ireland have all of their export sales in Ireland.

• High degree of cross-border integration through supply chains.
• High frequency of deliveries and low value per delivery for NI

traders across the border.

• Impacts of any changes in the cost of trading post-Brexit liable

to be felt most particularly by very small firms trading across the border.

The Impact of Brexit on the Agri-Food Sector, North and South

Kevin Hanrahan and Trevor Donnellan Teagasc

On the brink of Brexit: the economic consequences for the island of Ireland Dublin, October 17 2019

Overview

• Agri-Food on the Island of Ireland

– Similarities and differences

• Why Brexit matters (more) to agri-food
• Analysis of Brexit impacts on Irish agri-food
• Work to do

Agriculture on the island of Ireland

• Agri-food North and South dominated by

ruminant grassland agricultural production systems and processing of the resultant meat and milk output

• Both agri-food economies overwhelmingly

export dependent

• Agri-food stories of Ireland (North & South)

can largely be told through the stories of beef & dairy

Farm Types: Ireland different to UK and other EU

0% 10% 20% 30% 40% 50% 60%

COP Dairying Cattle Cattle & Dairying Sheep Pigs Poultry Other

IE NI

0% 10% 20% 30% 40% 50% 60%

COP Dairying Cattle Cattle & Dairying Sheep Pigs Poultry Other

IE UK FR Source: Eurostat (ef_m_farmang)

Agricultural Output: Ireland different to GB

0% 5% 10% 15% 20% 25% 30% 35% 40%

Cattle Pigs Sheep Poultry Milk Cereals Other

GB NI

0% 5% 10% 15% 20% 25% 30% 35% 40%

Cattle Sheep Pigs Poultry Milk Cereals Other

IE NI Source: Eurostat (agr_r_accts)

Average Farm Incomes & Subsidy dependence

• £20,000
• £10,000

£0 £10,000 £20,000 £30,000 £40,000 £50,000 £60,000 £70,000 £80,000

Cereals General Cropping Dairy Cattle & Sheep LFA Cattle & Sheep Lowland All

Farm Business Income Direct Payments FBI less DP

• €10,000

€0 €10,000 €20,000 €30,000 €40,000 €50,000 €60,000 €70,000

Dairying Cattle Rearing Cattle Other Sheep Tillage All

Family Farm Income Direct Payments FFI less DP

Source: Teagasc NFS 2018 and DAERA Farm Business Survey 2017/2018

Northern Ireland Ireland

Agri food sector in IRL (2018)

• Employment

– 173,000 people – 7.9% of total employment – 7.8% of Gross National Income*

• Total value of agri-food exports

– €13.6 billion of which 40% (€5.6 billion) to UK – Just 15% of that 40% (i.e. 6% of total agri-food exports) went to NI

• Total value of agri-food imports

– €8.7 billion of which 47% (€4.1 billion) from UK – Mainly from GB

Source: DAFM 2018

Agri food sector in NI (2018)

• Employment

– 40,000 – 4.6% of total employment – 3.7% of Gross Value Added

• Total Turnover of Agri-food sector

– £6.8 billion

• Most of NI’s agri food output goes to GB

Source: DAFM 2018

Agri-food Trade Flows

• East-West agri-food trade flows dominate

North-South trade flows

– Gravity matters

• But there are some critical North-South trade

flows that are particularly important for NI Ag.

Flow of Trade between IE and NI

• All Island animal health strategy (covering IE and NI)

– Treated as a single zone for animal health – EU SPS regulatory alignment

• Agri food trade between IE and NI

– Live animals – Finished good and intermediate goods (for further processing) – Trade flows of food products are not so important

• Agri food trade between IE and GB

– Large flows in agricultural goods from IE to GB – Large flows in processed food/drink from GB to Ireland

• and onto Northern Ireland

IE/NI Trade in Milk and Live Animals

• Milk

– 100 million litres exported from IE to NI annually

• ~1% of total IE milk production

– 800 million litres exported to NI to IE annually

• Over 30% of total NI milk production
• Pigs and Sheep

– 500,000 live pigs exported from IE to NI annually – 400,000 live lambs exported from NI to IE annually

Why Brexit Matters to Agri-Food

• Brexit (at least in part) is about changes in trade policy
• Tariffs and non-tariff barriers (NTB) to trade much more

important in agri-food than for many other areas of merchandise trade

• Integration of IE and UK (NI) economies means that market

price impacts of Brexit likely to be very large

• UK is a large net contributor to the EU budget.

– Most of the “juste retour” Ireland gets from the EU budget is via CAP – UK Brexit “dividend” from lower agricultural income support?

Brexit and Agriculture

• Channels through which Brexit affects

Irish/Northern Irish agriculture

– Immediate impact via exchange rate – Tariff & non-tariff barriers to trade – For IE via impact of Brexit on EU budget and CAP – For NI via impact of future UK (Devolved?) Ag policy

What does Brexit Mean for Ag ?

• We obviously still don’t know what Brexit means for

the magnitude of tariffs and NTB

• We know the No Deal EU trade policy

– The UK is a third country and WTO rules apply

• We think we know the UK trade policy

– The announced “temporary” No Deal tariff schedule

• We don’t know the shape of future UK or devolved

NI agricultural policy

UK No Deal Trade Policy

• UK No Deal tariff schedule (March and October 2019)
• Many tariffs set to zero

– so Brexit “delivers” lower prices for UK consumers

• But UK government would apply some tariffs

– To protect UK producers – Retain something to “trade” in a future trade negotiation with EU and/or other third countries

• UK also plans to use Tariff Rate Quota (TRQ)

– a TRQ allows in a limited volume of imports at low or no tariff – To be used to manage UK imports of beef & poultry

Trade Weighted Average UK MFN Tariffs (No Deal Temporary tariff schedule)

10 20 30 40 50 60 Cereals Butter & Dairy Spreads Cheese Beef * Sheep meat Pig meat Poultry Meat Ad Valorem Equivalent % * Beef AVE tariff relates to the over-quota tariff.

The in quota tariff is set at zero.

EU No Deal Trade Policy

• MFN tariffs as per EU schedule at WTO

– These tariffs are very high

• Regulatory barriers & customs procedures to

protect SM integrity will represent an important NTB

– Entry of animal and food products only via BIP – Requirements for physical inspections on entry to EU – Licensing/inspection premises in the UK that wish to export to the EU – Rules governing what is an “EU” product & RoOs

Trade Weighted Average EU MFN Tariffs (Under No Deal)

10 20 30 40 50 60 70 80 Cereals Butter & Dairy Spreads Cheese Beef Sheep meat Pig meat Poultry Meat Ad Valorem Equivalent % Note: Calculated using 2018 EU28 imports from UK

Irish and Northern Irish Agri-Food & Brexit

• Greatest negative economic impact on sectors where

– Large share of output is exported to the UK (EU) – That have high levels of tariff protection currently (preferential access) and are not internationally competitive – High level of income dependence on direct payments – Where existing margins from production are small

Ireland: Beef

• Most exposed Irish agri-food sector is beef

– Very high dependence on exports to UK – Large loss in preferential access with No Deal – Lack of competitiveness at world market prices – High dependence of farm incomes on CAP direct income support payments – Chronic low levels of profitability => little or no ability to absorb lower margins at either farm or processing stage

Northern Ireland: Dairy

• Under a No Deal Brexit Northern Irish ag

sector most exposed is dairy

– Very high dependence on exports of milk for processing/consumption in Ireland – Both tariff and non-tariff barriers to trade will apply in event of a no deal and will effectively halt this trade – No feasible processing capacity for the 800 m litres of NI milk (currently shipped south) within the UK

Northern Ireland: Beef

• Sector v. “export” dependent but market is mostly in GB
• Any Brexit opportunities (import substitution) will

depend on degree to which UK No deal trade policy leads/doesn’t lead to lower UK beef prices

• Dependence on CAP direct payments means sector very

vulnerable to changes in UK Ag. Policy

• Very low profit levels at farm and processor levels mean

sector is unlikely to be able to withstand negative market or policy impacts of Brexit

Ireland: Dairy

• Less exposed to UK Market than beef

– Some segments have higher exposure (cheddar)

• UK No Deal Tariffs on dairy are relatively low
• Irish dairy exports competitive at world market prices

– => Loss of preferential market access doesn’t necessarily mean loss of UK market share

• Low dependence on CAP direct income support payments
• Profitable business at farm and processor levels => even with

Brexit Irish milk production likely to continue to grow

What impact will tariffs & NTB have on trade?

• Demand curves slope down Tariffs and NTB will reduce trade

– Key uncertainty surrounding magnitude of trade elasticities

• With tariffs of >50% applying to some agri trade flows leads to

dramatic impacts on trade

• What happens to prices, production and use ?
• Using PE models of Irish and Northern Irish/UK agricultural

economies to assess impact of Brexit “scenarios”

Partial Equilibrium Model based analysis

• AFBI-FAPRI (2017)

analysis of three Brexit Scenarios

– WTO – Unilateral Trade Liberalisation – EU-UK FTA

• Teagasc-FAPRI

(2018/2019) analysis of No Deal Brexit Scenarios

– WTO – UK temporary tariff schedule

• With TRQ variants

AFBI analysis

• AFBI analysis predates the UK No Deal Trade

policy announcement

• Highlights the trade offs between an explicitly

protectionist UK trade policy and a very liberal trade policy stance

– The more “liberal” the UK trade policy stance the larger the negative impact on N. Irish agriculture

• Management of UK beef imports via TRQ and a

solution to the problem of what to do with NI milk production will be critical to mitigating the negative impact of Brexit on N. Irish agriculture

Teagasc Analysis

• Analysis for Government of impact of WTO Scenario and

announced UK No Deal trade policy

– Assumes its persists over the medium term under a No Deal Brexit

• Large negative price impact on Irish beef prices of almost

20% versus Baseline if Ireland fails to retain partial preferential market access offered by UK TRQ

• Negative price impacts for all sectors except Lamb

– Due to exclusion of UK lamb from EU markets

• Overall Irish Agricultural Sector Output projected to decline

by over €700m per annum and Operating Surplus (Ag Sector Income) declines by over €500m by 2026

Work to do

• Analysis has focused on impact of tariff barriers
• Questions about impact of NTB will arise in the

event of a future EU-UK FTA

• Clarity on actual trade rules will allow for

scenario analysis grounded in some political facts

– That will be novel !!

• Analysis of the impact of Brexit on the structure
• f the Irish and Northern Irish farm sectors will be

needed

– Brexit likely to accelerate structural change processes

Brexit: Workers at Risk and Policy Responses to Maintain Employment

PAU L M AC F LY N N N E R I ( N E V I N E C O N O M I C R E S E A RC H I N S T I T U T E ) B E L FA S T PAU L . M AC F LY N N @ N E R I N ST I T U T E . N E T W W W. N E R I N ST I T U T E . N E T

On the brink of Brexit 17 October 2017

Context

• Unemployment in NI - historic low of 2.8% (May – Jul ’19).
• Total no. of jobs >900k (Q2 2019)
• Economic Inactivity still higher than UK, almost same as ROI.
• Seems like an odd time to be designing gov programmes to deal

with significant increase in unemployment.

• Advantages:
• Time – not exogenous shock, conscious policy decision.
• Impact – some idea of where will be hit
• Disadvantages:
• Limits to help – compensation for tariffs cannot be direct.
• Unlike cyclical downturn, hard to see natural recovery.

Northern Ireland GVA

2003 Q4, 5.49% 2010 Q1, -4.79% 2015 Q3, 4.17%

• 6.00%
• 4.00%
• 2.00%

0.00% 2.00% 4.00% 6.00% 8.00% 1999 Q1 1999 Q3 2000 Q1 2000 Q3 2001 Q1 2001 Q3 2002 Q1 2002 Q3 2003 Q1 2003 Q3 2004 Q1 2004 Q3 2005 Q1 2005 Q3 2006 Q1 2006 Q3 2007 Q1 2007 Q3 2008 Q1 2008 Q3 2009 Q1 2009 Q3 2010 Q1 2010 Q3 2011 Q1 2011 Q3 2012 Q1 2012 Q3 2013 Q1 2013 Q3 2014 Q1 2014 Q3 2015 Q1 2015 Q3 2016 Q1 2016 Q3 2017 Q1 2017 Q3 2018 Q1 2018 Q3 2019 Q1

Recession

Context

• Financial crash in NI, similar experience to ROI but more benign
• n jobs/unemployment.
• Unemployment rate increases from 3.2 in Q2 2017 to 8.3 in Q4

2012

• Total number of jobs falls by 78,000 between Q2 2008 and Q4

2012

Jobs recession to recovery

100000 200000 300000 400000 500000 600000 700000 800000 900000 1000000 1999 Q1 1999 Q3 2000 Q1 2000 Q3 2001 Q1 2001 Q3 2002 Q1 2002 Q3 2003 Q1 2003 Q3 2004 Q1 2004 Q3 2005 Q1 2005 Q3 2006 Q1 2006 Q3 2007 Q1 2007 Q3 2008 Q1 2008 Q3 2009 Q1 2009 Q3 2010 Q1 2010 Q3 2011 Q1 2011 Q3 2012 Q1 2012 Q3 2013 Q1 2013 Q3 2014 Q1 2014 Q3 2015 Q1 2015 Q3 2016 Q1 2016 Q3 2017 Q1 2017 Q3 2018 Q1 2018 Q3 2019 Q1

Unemployment – recession to recovery

1 2 3 4 5 6 7 8 9 1999 Q1 1999 Q3 2000 Q1 2000 Q3 2001 Q1 2001 Q3 2002 Q1 2002 Q3 2003 Q1 2003 Q3 2004 Q1 2004 Q3 2005 Q1 2005 Q3 2006 Q1 2006 Q3 2007 Q1 2007 Q3 2008 Q1 2008 Q3 2009 Q1 2009 Q3 2010 Q1 2010 Q3 2011 Q1 2011 Q3 2012 Q1 2012 Q3 2013 Q1 2013 Q3 2014 Q1 2014 Q3 2015 Q1 2015 Q3 2016 Q1 2016 Q3 2017 Q1 2017 Q3 2018 Q1 2018 Q3 2019 Q1

Unemployment – recession to recovery

• 6
• 4
• 2

2 4 6 8 10 1999 Q1 1999 Q3 2000 Q1 2000 Q3 2001 Q1 2001 Q3 2002 Q1 2002 Q3 2003 Q1 2003 Q3 2004 Q1 2004 Q3 2005 Q1 2005 Q3 2006 Q1 2006 Q3 2007 Q1 2007 Q3 2008 Q1 2008 Q3 2009 Q1 2009 Q3 2010 Q1 2010 Q3 2011 Q1 2011 Q3 2012 Q1 2012 Q3 2013 Q1 2013 Q3 2014 Q1 2014 Q3 2015 Q1 2015 Q3 2016 Q1 2016 Q3 2017 Q1 2017 Q3 2018 Q1 2018 Q3 2019 Q1 GVA Unemployment Rate

Sectoral change

• 15.2
• 27.5

8.0

• 6.4

43.1

• 27.8

2.3 23.6 17.6 43.7 0.6 22.9 34.5 34.5

• 16.3

1.1 14.9

• 40.0
• 30.0
• 20.0
• 10.0

0.0 10.0 20.0 30.0 40.0 50.0 Agriculture, forestry and fishing Mining and quarrying Manufacturing Electricity, gas, steam and air conditioning supply Water supply; sewerage, waste management and remediation activities Construction Wholesale and retail trade; repair of motor vehicles and motor cycles Transport and storage Accommodation and food service activities Information and communication Financial and insurance activities Real estate activities Professional, scientific and technical activities Administrative and support service activities Public administration and defence; compulsory social security Education Human health and social work activities

% change in total workforce jobs by SIC 2007-19

Sectoral change

9.4

• 9.3

4.8

• 8.3

50.3

• 22.0

4.8 16.1 17.5 41.8

• 1.0

8.4 53.0 38.4

• 16.3
• 2.1

15.9 11.9 17.6

• 30.0
• 20.0
• 10.0

0.0 10.0 20.0 30.0 40.0 50.0 60.0 Agriculture, Forestry and Fishing Mining and quarrying Manufacturing Electricity, gas, steam and air conditioning supply Water supply, sewerage, waste management and remediation activities Construction Wholesale and retail trade; repair of motor vehicles and motorcycles Transportation and storage Accommodation and food service activities Information and communication Financial and insurance activities Real estate activities Professional, scientific and technical activities Administrative and support service activities Public administration and defence; compulsory social security Education Human health and social work activities Arts, entertainment and recreation Other service activities

% change in employee jobs by SIC 2007-19

Manufacturing Jobs NI

20,000 40,000 60,000 80,000 100,000 120,000 140,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Manufacturing Jobs (000's)

Manufacturing Jobs NI

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Manufacturing Jobs %

Manufacturing Jobs NI & UK

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 2019

Manufacturing Jobs %

Northern Ireland United Kingdom

Manufacturing Jobs NI

0.0 5.0 10.0 15.0 20.0 25.0 30.0 Food Beverages & Tobacco Textiles Wearing apparel Leather and related products Wood & Cork Paper Printing recorded media Coke and refined petroleum products Chemicals and chemical products Basic pharmaceutical products and preparations Rubber and plastic products Other non-metallic mineral products Basic metals Fabricated metal products Computer, electronic and optical products Electrical equipment Machinery and equipment n.e.c. Motor vehicles, trailers and semi-trailers Other transport equipment Furniture Other manufacturing Repair and installation of machinery and equipment 2019 1973

Manufacturing Jobs NI

• 3.0
• 2.5
• 2.0
• 1.5
• 1.0
• 0.5

0.0 0.5 1.0 1.5 2.0 2.5 Food Beverages & Tobacco Textiles Wearing apparel Leather and related products Wood & Cork Paper Printing recorded media Coke and refined petroleum products Chemicals and chemical products Basic pharmaceutical products and preparations Rubber and plastic products Other non-metallic mineral products Basic metals Fabricated metal products Computer, electronic and optical products Electrical equipment Machinery and equipment n.e.c. Motor vehicles, trailers and semi-trailers Other transport equipment Furniture Other manufacturing Repair and installation of machinery and equipment

Manufacturing Jobs 2009-2019

Manufacturing Jobs NI

Brexit Impact

• NI to ROI trade reduction as a result of WTO Tariff and NTB
• scenarios. Overall reduction of 9-17% Lawless & Studnicka (2017).
• Reductions in trade of up to:
• 65% in Dairy
• 35% in Meat and Fish
• 19% in Foodstuffs
• 16% in Vegetable products
• Share of reduction in total trade reduction accounted for by product.
• Milk and cream (fat content > 1% but <= 6%, unsweetened) 47-56%
• Fresh or chilled bovine meat, boneless 4-5%
• Wheat or meslin flour 4-5%
• Preparations for animal feeding (excl. dog / cat food) 2-5%

Food Manufacturing Jobs NI

What can policy do?

• Many firms - disruption will be short-term – immediate trade

disruption, new suppliers, new supply routes, etc.

• These firms can be helped, but aid needs to be time limited.
• Example: Short-time work scheme. Helpful in maintaining employment during temporary

economic shocks. Germany & Italy 4% of workers in STW in 2009.

• Maintains skills in firm, less costly than redundancy and unemployment benefits. Cost split

between firm and state (for Brexit, balance should tip to state)

• Not without risk, temporary nature very important.
• How do we determine Brexit effect? Deadweight loss with any subsidy scheme, but less with

STW

• If STW is continued after shock, prevents the productive reallocation of labour that comes

with recovery.

• Also what starts as temporary shock can evolve. Hard to know in advance or at the time.

What can policy do?

• For some firms disruption is more significant, modification of

product range, diversification of export markets or production segmentation (single market).

• Support for these firms cannot directly compensate for tariffs, assistance

must be targeted toward proactive measures.

• Deadweight loss issues here greater than STW.
• Some firms cannot be helped – business models simply no longer

viable.

• In this case workers need to be assisted with job searches and

skills/training.

• EGAF provides a model, very little experience of this in UK.
• As impacts may be quite concentrated, sector shift too much for some workers (e.g. retail to

accommodation and food)

EU workers

• EU born NI residents potentially a risk for labour shortage.
• EU born residents more likely to be economically active and have

higher skills attainment than NI born.

• Could be the situation that EU born residents work in the same

sectors at risk to trade disruption.

• Do not have sufficient data to match down to sub-sectors, but

indications this could be the case.

EU workers

2 4 6 8 10 12 All Agriculture, forestry and fishing Mining and quarrying Manufacturing Electricity, gas, steam and air conditioning supply Water supply; sewerage, waste management and remediation activities Construction Wholesale and retail trade; repair of motor vehicles and motor cycles Transport and storage Accommodation and food service activities Information and communication Financial and insurance activities Real estate activities Professional, scientific and technical activities Administrative and support service activities Public administration and defence; compulsory social security Education Human health and social work activities Other

EU born residents in NI

EU workers

2 4 6 8 10 12 14 16 18 All Corporate managers and directors Other managers and proprietors Science, research, engineering and technology professionals Health professionals Teaching and educational professionals Business, media and public service professionals Science, engineering and technology associate professionals Health and social care associate professionals Protective service Culture, media and sports Business and public service associate professionals Administrative Secretarial and related Skilled agricultural and related trades Skilled metal, electrical and electronic trades Skilled construction and building trades Textiles, printing and other skilled trades Caring personal service Leisure, travel and related personal service Sales Customer service Process, plant and machine operatives Transport and mobile machine drivers and operatives Elementary trades and related Elementary administration and service

% of EU born residents in employment

Summary

• Some idea of sectors that will be impacted. Can identify workers.
• Not clear how economy will recover. Preserving existing jobs may

not be the answer for all firms.

• Impact of labour shortages also need to be factored in.
• All of this is avoidable.

BREXIT – IMPLICATIONS FOR NORTHERN IRELAND ECONOMY

OCTOBER 2019

2

BREXIT – A ‘YET TO BE DEFINED’ FUTURE FOR THE NORTHERN IRELAND ECONOMY

ECONOMIC IMPACT ON NORTHERN IRELAND WILL DEPEND UPON: 1. UK:EU reaching A Deal 2. The type of Deal 3. The length of transition will be important too. 4. The economic impact to the UK and RoI economies from new arrangements 5. No Deal (chances low but consequences would be significant)

3

UK TREASURY – ECONOMIC IMPACT OF VARIOUS SCENARIOS ON REGIONAL ECONOMIES (% ∆ GVA)

4

NORTHERN IRELAND ECONOMY – WHY GREATER EXPOSURE TO BREXIT?

• High Integration with EU – particularly agri & food sectors
• Higher proportion of EU FUNDING per capita
• High dependence on RoI trade (goods and services)
• High integration of labour across island
• NI a weaker economy relative to rest of UK
• Significant Skills Gaps (Labour mk)
• Prevalence of Small Firms / lower productivity
• Political stability and cross-border cooperation paid a significant

economic “dividend”.

• Fragile Peace Process – connected to Prosperity

5

BREXIT WILL TOUCH EVERY ASPECT OF AN ALREADY WEAK ECONOMY….

INVESTMENT - FDI & Indigenous Investment BIZ ACTIVITY / PRODUCTIVITY - Allocation of Resources COMPETITIVENESS - Supply Chains Cost of Doing Business (Tariffs and Non-tariff Barriers) Cost of Imports / Speed TRADE THE LABOUR MARKET - Migration / the Labour Market / Productivity THE RURAL ECONOMY & EU FUNDING CROSS-BORDER CO-OPERATION (Energy Markets / Tourism / Health / Education)

6

• The NICEI is currently 4.2% below

the maximum value recorded in Quarter 2 2007.

• Unemployment low (3.2%)
• GVA per head 2017 was £21,172

€24,051 Vs €58,800 in RoI

• Forecast Growth NI 2019 = 0.9%
• Forecast Growth RoI 2019= 3.7%
• NI represents 2.1% of UK economy

and 3% of population (Subvention)

CURRENT ECONOMIC PERFORMANCE

7

• 30
• 25
• 20
• 15
• 10
• 5

5 10 15 20

• 5.0
• 4.0
• 3.0
• 2.0
• 1.0

0.0 1.0 2.0 3.0 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Business' investment intentions

Business investment, y/y% (right axis)

UNCERTAINTY IS CRIPPLING BUSINESS INVESTMENT

Source: ONS, CBI, BCC, BoE Agents’ scores, CBI calculations

EU referendum Range of surveys on investment intentions - standardised (left axis)

8

• PRODUCTIVITY being dragged down because of LOW

INVESTMENT

• Resources SKEWED into – contingency planning & stockpiling

(one company talked of 200 hrs of C-suite time over 12 months)

• Less going into – R&D / Software / Training
• multi-national Investments – on hold
• EU nationals leaving / implications for output / Orders being turned

down

BUSINESS ACTIVITY / PRODUCTIVITY

9

…. BREXIT CONTINGENCY PLANS HAVE ALSO DRAGGED ON CORPORATE RESOURCE

10 20 30 40 50 60 Moving headquarters outside the UK Not relevant for my business Relocating data centres Automation Employing more staff Onshoring production and/or services to the UK Moving jobs Re-licensing or registering products Other (please specify) Price increases Setting aside contingency funding Applying for AEO certification Relocating UK production and/or services overseas Re-negotiating contracts Currency hedging Stockpiling Engaging the services of a customs broker, etc. Adjusting supply chains outside the UK

CBI Brexit survey: Brexit contingency plans (% of respondents)

The survey was carried out between 19 September and 8 October 2018

10

Companies in NI facing competitiveness issues around:

I. Rising input costs (with depreciated pound) / forcing price up II. Some European competitors targeting their customers (need to set up EU / RoI office) III. Some European customers have pulled orders for after Oct 31st

• IV. Customers requesting that they hold 3+ months inventories (stockpiling)

V. Labour / Immigration policy also having impact on competitiveness

• VI. Impact on FDI – unsure of future market access / not waiting for UK

NI’s COMPETITIVENESS

11

• “It is important therefore that stakeholders,

including those in regions such as Northern Ireland that have an interest in these trading relationships, engage at an early stage to ensure government is aware of their aspirations and concerns surrounding any future trade agreements”. NICS 2017

• 65% imports into NI from EU
• 56% of Exports go to EU
• The impact of EU tariffs could reduce NI’s

exports to Ireland by 11% and the inclusion of non-tariff barriers could see a decline of 19%

TRADE – NI is an economy heavily dependent upon trade with EU and access to EU’s non-EU trade deals

12

HUGE IMPLICATIONS FOR THE RURAL ECONOMY IN NI

Two of the largest components of EU spending are agricultural & regional structural funds. Receipts per capita are much higher in Scotland, Wales and Northern Ireland than they are in England. For e.g the Single Farm Payment represents 87% of NI farm incomes. Moreover, within all parts of the UK the benefits are concentrated in agricultural areas and poorer communities. beyond 2022 the UK would have to choose whether to substitute in full or in part for this funding

• Implications too for Infrastructure funding –

Connectivity etc (£500m from EU - now missing from DfI budget) 12

13

NI has an increased dependence on Migrant Labour since Financial Crisis

14

But migrant works leaving post EU Referendum….(-26% decline EU 26 workers since 2016)

15

• Crashing out of EU without a deal is not a viable option:
• UK would revert to WTO rules
• Tariffs imposed on 90% of our exports to EU market

(Tariffs into EU vary – for agri the ave tariff is 16.4% / textiles 10.5% / 10% for vehicles and 4.5% on components

• Current proposal on zero UK import tariffs would cripple NI economy

Non-tariff barriers to trade :

• Companies will face the administration burden in terms of paper work trail

(quotas / country of origin w.r.t non-EU intermediate inputs etc)

• Interruption to global supply chains
• Border measures – customs and quotas
• Behind-the-border measures – compliance / regulations / performance

standards etc

WHY “NO DEAL” IS NOT ACCEPTABLE

16

• UK Services currently trade under EU Services Directive
• SERVICES – eg Financial Regulation / Recognition of Professional

Qualifications / Aviation regulation

• For eg, Airlines – UK would no longer be member of Open Skies
• INVESTMENT – rules on international property rights / movement of teams

across borders /

• Data transfer across borders etc

We often forget….this is NOT JUST ABOUT MOVING GOODS: No deal also has implications for services, labour, investment

17

• Protects the all-island economy
• Protects the spirit of the Belfast / Good Friday

Agreement

• Ensures no hard infrastructure on NI
• Gives NI ‘unfettered access” to GB market
• Allows NI and RoI to continue with the 142

areas of co-operation currently

• Recognises that NI has unique economic,

geographic and political needs If we get a deal…. We have only just begun….the discussion on Services (75% of NI economy will commence)

NI needs a Deal that….

18 21/10/2019

NI needs an Executive but in the interim the business community must speak up