What are the trade implications for Northern Ireland of the UK leaving the EU?
A referendum on the UK’s membership of the EU is to take place on Thursday 23rd June. Voters will be asked ‘Should the United Kingdom remain a member of the European Union or leave the European Union?’ This blog post looks at the possible trade implications for Northern Ireland of a UK exit from the EU.
Those who advocate leaving the EU argue the institution has become economically weak and too bureaucratic to respond to global challenges (see for example Vote Leave and Leave.EU). On this side of the debate, a UK outside of the EU will have greater global influence by virtue of World Trade Organisation membership and the capacity to negotiate bilateral agreements with trade partners.
Those in favour of remaining part of the EU emphasise the uncertainty of what will replace the UK’s current trading relationship should the electorate vote to leave and emphasise the shortcomings of these alternative arrangements (see for example Britain Stronger in Europe and British Influence). Trade with other countries would also be affected, they argue, as the UK is forced to renegotiate trade deals with third countries currently secured through its EU membership.
The UK’s EU membership provides Northern Ireland access to a single market of 500 million people. HMRC trade data shows the EU to be Northern Ireland’s largest export market. This has been the case over the last ten years for which data is available (2004 to 2014, Figure 1).In percentage terms, overall exports have been consistently split 60:40 in favour of the EU over the last previous ten years (Figure 2). In 2014, Northern Ireland exports to the EU were valued at £3.63bn in 2014. Exports to non-EU countries were valued at £2.35bn in the same year.
Figure 1: NI Exports to EU and Non-EU countries 2004 to 2014 (£000s)
Figure 2: NI exports to EU and non-EU countries, percentage of total exports, 2004-2014
Northern Ireland’s trade balance with the EU is significant. With the exception of 2012, the region has consistently exported more to the EU over the past ten years than it has imported from it (Figure 3). This contrasts to the UK as a whole, which has consistently imported more from the EU than it has exported to it.
Figure 3: Northern Ireland’s balance of trade with the EU 2004-2014 (£000s)
Quantifying the impact of the UK leaving the EU on Northern Ireland trade is problematic. In an exit scenario trade between the UK and the EU will not cease. The terms of trade and the UK’s access to the single market could be fundamentally altered, however, depending upon what replaces the current arrangement.
A number of possibilities have been put forward. The UK could seek single market access without EU membership. There is precedent for this. Norway has full-access to the single market, but must contribute to the EU budget and implement EU directives. Switzerland has partial access to the single market, secured through bilateral agreements. This too is predicated on EU budgetary contributions and the implementation of EU law.
Alternatively, the UK could leave without a free trade agreement and chose to trade with the EU on World Trade Organisation terms, although this would carry with it the possibility of Most Favoured Nation tariffs being placed on UK exports entering the EU.
A third option is a bespoke UK/EU deal. This is perhaps the most uncertain option, as the terms of such an arrangement will depend upon negotiations between a post-exit UK and the remaining EU.
Ultimately, the impact on Northern Ireland trade of a UK exit is at present ambiguous. Not only will it depend upon the nature of post-exit UK/EU relations, it will also depend upon the region’s ability to absorb any increase in tariffs or reduction in exports in a post-EU environment. In turn, this will be affected by the region’s capacity to grow non-EU exports as a counter-balance to any reduction in EU exports resulting from changes to single market access.