The UK has “a fantastic opportunity to do a free trade deal” with the European Union, Boris Johnson said last week, promising to get it done in just 14 months at what he says will be a “blister- ing pace”.

That is, if he gets it through parliament, and if he can reconcile contradictions within the proposed deal and its stated aims.

Johnson’s proposals for Northern Ireland’s economic relationship with the UK and with the Republic, which will see a customs border established in the Irish Sea rather than a ‘hard’ border on the island, started to unravel on Monday.

In testimony to the House of Lords European Union committee, the UK’s Brexit secretary Stephen Barclay initially stated there would be no need for Northern Irish businesses to fill out any forms to export goods to mainland Britain, as the process would be “frictionless”.

Thirty minutes later, he was forced into an embarrassing U-turn and stated “exit summary declarations will be required in terms of NI to GB” exports.

Philip Rycroft, the British civil servant who served as the permanent secretary of the Department for Exiting the European Union from 2017 to 2019, dubbed the process “ferociously complicated” in comments made on Radio 4 on Tuesday.

Trade by companies in Northern Ireland with Great Britain is 1.1 times the value of all other exports put together, and 2.9 times exports to the Republic, according to figures from the Northern Ireland Statistics and Research Agency.

The imposition of new paperwork will affect every company in the North, no matter how small, that imports goods from outside the European Union, according to George Peretz, a barrister at Monckton Chambers in London, specialising in EU, VAT, state aid, competition and customs law.

“For example, sugar and flour headed for a small Belfast baker will always have to pay applicable EU tariffs, whether the flour comes from the US or Norfolk, even if none of the baker’s cakes go south of the Border,” he wrote on his Twitter feed.

There are 10,500 firms in Northern Ireland that purchase goods and services from the UK.

Anna Jerzewska, a free trade agreements specialist, said that in order to import anything from a free trade agreement partner into Northern Ireland, you will need to pay EU tariffs first and then get a rebate.

“That’s a lot of paperwork for a tariff-free import,” she noted.

“Utilisation rates are low, with less paperwork than this. My guess is few NI importers will bother with preferential trade as the administrative costs of all this are likely to exceed the tariff reduction benefits in a lot of cases.”

The other major flaw in the Northern Irish deal is uncertainty.

The deal will be reviewed by Stormont every four years, potentially further damaging investment in an economy that is still 2pc smaller than it was before the financial crisis hit.

“What FDI [foreign direct investment] investor would dare invest money in NI when the fundamental trading relationship with your neighbours could be wiped out every four years? Manufacturing capital spend is usually written off across 20-30 years,” said Manufacturing NI, a group that represents companies with annual sales approaching £20bn (€23.2bn) that directly employ 80,000 people. That is a potential advantage to locations in the Republic, despite the apparent ‘best of both’ status the withdrawal deal carves out for the North.

A smaller UK economy

The one major plus for businesses in this State from any deal is that the ‘cliff edge’ risks of the UK just crashing out will not be felt from October 31, as there will be a transition period in which Britain will trade under the existing regime.

The Central Bank had forecast that in the case of no deal, growth here would slow suddenly and dramatically to just 0.8pc, from a forecast of 4.7pc this year.

Given there will be a transition period, the Central Bank expects growth of 5pc this year and 4.3pc in 2020, which means that the economy will keep on creating new jobs and that those in work can expect to see continued pay rises.

If nothing else, the prospect of a hard Brexit come October 31 acted as a spur to business preparations.

While the rules for Northern Ireland could change dramatically, companies in the State have at least had three years to prepare for whatever the future holds.

The latest statistics show that they have finally started to position for a UK outside the EU.

According to the Revenue Commissioners, the pace of registration for Economic Operators Registration and Identification (EORI) certificates that will be needed to trade with the UK once it has exited has picked up dramatically.

Nearly 22,000 EORI numbers have been issued to Irish businesses in 2019 to date and almost 5,800 were completed in September, with more than 3,300 as of October 21.

This means that 97pc of the export trade value with the UK in 2018 was carried out by businesses who now have an EORI number, the department said, and that 91pc of the import trade value with the UK in 2018 was carried out by businesses who have one.

The ability to trade is one thing; profitability and continuing to do so are a different matter.

According to economic analysis by the UK in a Changing Europe think-tank, the Brexit proposal from Johnson could reduce UK GDP per capita by between 2.3pc and 7pc 10 years after Brexit.

That outstrips the loss under Theresa May’s deal, which was projected to be minus 1.9pc to minus 5.5pc.

A smaller economy and the possibility that the pound will slump once again, perhaps as low as parity with the euro, will reduce the attractiveness of the UK market.

A timely reminder of this came from the Central Bank of Ireland’s new governor, Gabriel Makhlouf, last week.

“There are no scenarios for Brexit that are good for Ireland,” Mr Makhlouf said in his first press conference as governor.

Businesses here have also started to take up Government aid schemes to help them offset the impact of Brexit.

According to the Department of Business, Enterprise and Innovation, there have been 860 eligibility applications to the Strategic Banking Corporation of Ireland (SBCI) as of October 18, of which 774 have been approved.

So far, 204 applicants have progressed to the second phase of the process and have had loans sanctioned at bank level, to a total value of €45.2m, the department said in response to inquiries from the Irish Independent.

As of the same date, there have been 1,683 eligibility applications to the SBCI for the Future Growth Loan Scheme, of which 1,551 have been approved.

Of those, 376 have so far progressed to sanction at bank level, to a total value of €64.39m.

“If the total net number of approved applicants were to apply successfully at similar average loan values, almost half of the total €300m fund for the Brexit Loan Scheme would be allocated,” the department said, although it noted that extrapolating numbers based on experience to date is approximate and may be different to actual outcomes.

Future EU relationship

While Irish companies may dodge a Brexit bullet on October 31 and are now better-prepared, the Johnson deal is far harsher for the UK-EU trading relationship than that negotiated by his predecessor as prime minister.

The pledges for continued regulatory, tax, labour and environmental alignment with the EU have been erased from the May deal, as Johnson has indicated he wants a free trade agreement type arrangement that will give Britain far more leeway when it comes to striking its own deals with countries outside the bloc.

“A free trade agreement with the EU is a very hard version of Brexit,” Thomas Conefrey, senior economist at the Central Bank of Ireland, said recently.

There is no clarity on what the trading relationship between the UK and the EU would look like after a transition period, and 14 months looks like too short a period to strike a deal, based on previous experience.

The trade agreements struck by the EU with other countries have been based on regulatory convergence, rather than the divergence that Johnson appears set on.

In its recent deals, such as the one negotiated with Japan, Brussels has insisted on tougher environmental, product and labour standards, not weaker ones.

“If the UK, indeed, uses Brexit to undercut EU regulations – in order to strike deals with the US, for example – the best trade deal that it can probably get with the EU is a very basic one,” said Rabobank economist Stefan Koopman.

“Recall that various EU leaders have frequently raised the danger of the UK developing into another competitor on the continent’s doorstep. There is an inverse relationship between UK divergence and the depth and breadth of the future trade relationship with the European Union,” he said.

The EU-Canada deal, a pared-down agreement that did not include services, took seven years to negotiate, while the dialogue on the EU-Japan economic partnership started in 2011 and came into force in February this year.

The Japanese deal also gives a good indication of how much openness the EU is willing to tolerate in services, one of the biggest industries in the UK and one that London has said it will prioritise in future talks.

The answer is not much, according to a research paper by Sam Lowe of the Centre for European Reform think-tank.

He says that access is given, for example, for data processing software, advice and other things that support financial services, “but not for banks’ main job – lending”.

In two years’ time, if the deal appears anything like the current terms, we could very well be looking once again at a large hit to the Irish economy.

People

The extension of the common travel area ahead of the Brexit deal has nailed down the rights of citizens from Ireland and the UK to continue to live and work in each other’s countries, regardless of future EU/British agreements.

That has created a significant degree of certainty for UK citizens living, working and retired here, as well as for cross-border commuters in both directions.

However, there is less certainty for non-Irish EU citizens who cross the border for work, or whose Irish-based work involves significant time in the UK.

Just how they will be treated once the UK fully exits the EU and evolves a new visa regime remains up in the air.

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