Professor Alan Matthews:

I am grateful for the opportunity to talk to the committee about the implications of a British withdrawal from the European Union for the Irish agrifood sector. My remarks summarise a somewhat longer submission, which I have made available to the secretariat.

The former ambassador, Mr. Dáithí O'Ceallaigh, referred to the importance of trade between Ireland and the United Kingdom, but the trade links in the agrifood sector are even more important, and more important than for any other EU country. Approximately 51% of Ireland's total agrifood imports are from the United Kingdom, and the United Kingdom takes approximately 51% - the same percentage - of our total agrifood exports. Therefore, more than half of imports and exports of agrifood products come from and go to the United Kingdom. These are also much higher proportions than for Irish manufacturing. A British exit, or "Brexit", from the EU could potentially lead to significant disruption of this trade.

As the previous speakers have mentioned, much would depend on the nature of the trade relationship that is put in place between the UK and the EU post-Brexit. The various alternatives that are on the table include: membership of the European Economic Area, as in the case of Norway; membership of European Free Trade Association, EFTA, combined with literally dozens of bilateral agreements approximating the Single Market, as in the case of Switzerland; a customs union, as in the case of Turkey; a deep and comprehensive free trade agreement, as negotiated with Canada; or trade on most-favoured-nation terms without a trade agreement. I agree with the other guests that the UK is not likely to leave the EU because it dislikes some Single Market regulations, only to sign up to these again outside the EU. Therefore, the most likely outcome is a free trade agreement in which the UK is no longer a member of the Single Market, tariffs on most - if not all - trade between the two partners are eliminated and the United Kingdom is free to set its own trade policy, including tariffs with third countries. In my view, there is a good possibility that in that scenario trade in agrifood products would also remain tariff-free. I will call that the good outcome, although it is clearly less desirable than the maintenance of the status quo. In another scenario, tariffs might be reintroduced on some primary agricultural products and the primary element of processed products, which could include important Irish exports such as beef and dairy products. I will refer to that as the bad outcome.

Even in the good outcome, without the reintroduction of tariffs, there would be additional costs to trading compared to the current situation. Trade conditions would revert to what they were in the early 1990s prior to the introduction of the Single Market. Trade costs arising, for example, from the reintroduction of Customs controls, rules of origin checks, import licence requirements as well as the additional costs of complying with two different regulatory regimes where regulatory divergence occurs, would increase. This would put downward pressure on producer prices in Ireland and upward pressure on consumer prices, an important issue given the close integration of supermarket supply chains between the two countries.

The United Kingdom, given what we know about its preferences regarding food and farm prices, would be likely to adopt a less protectionist trade policy with respect to third countries. That means its average tariff on agrifood products would likely be lower than the EU tariff it applies today. It may also find it easier to enter into free trade agreements with extensive agricultural concessions with partners such as New Zealand, Australia, Mercosur and the United States. For both reasons, competition on the UK market will intensify for Irish exporters, even in the good scenario.

Food trade, more than most, is governed by detailed regulations governing plant and animal health and safety, marketing standards, labelling requirements, allowed food ingredients and many other areas. The greater the degree of regulatory divergence between the UK and the EU, the greater will be the costs for Irish exporters and importers. As aversion to EU regulations is one of the driving forces behind BrExit, one would expect the UK to adopt different regulations in many areas, although there are countervailing forces such as strong UK consumer, environmental and public health organisations which will seek to maintain high standards, as well as the fact that the EU will remain the UK's largest trading partner in food and agriculture, both of which will give it an incentive to keep its regulations harmonised with the EU, perhaps by continuing to transpose EU regulations into British law. None the less, examples where different regulatory regimes might emerge include the regulation of plant pesticide products, genetically modified crops and animals, and food labelling. These are all areas where the UK position is at variance with the EU position at the moment. Dealing with these different standards will imply higher costs for both exporters and importers.

If tariffs were to be reintroduced on some elements of agrifood trade between the UK and Ireland, in what I have called the bad outcome, trading costs could be increased by much more and, in some cases, could become prohibitive. The question of tariffs is also relevant to the introduction of an economic border between North and South of the island. Land borders between EU and non-EU countries are not unusual and in principle, under the good scenario, would not lead to problems additional to what I have already mentioned. Even if the UK were to pursue a less protectionist and more consumer friendly farm and food policy after BrExit, the likely change in food prices North and South of the Border would be much smaller than what we observe today as a result of exchange rate fluctuations. However, if tariffs were reintroduced there would again be incentives to smuggle those agricultural and food products subject to high tariffs.

There might be a temptation among some in Ireland to welcome Britain's exit from the EU because of its traditionally hostile attitude to the Common Agricultural Policy. However, in my view the overall impact of UK withdrawal on the future of the CAP would be rather minimal. Partly, the succession of CAP reforms and the greater flexibility provided to member states under the 2013 reform address many of the UK concerns. It is true the EU would lose a voice arguing for fewer exemptions and more trade liberalisation in concluding trade agreements with, for example, Mercosur or the US but on the other hand the UK is a massive net contributor to the EU budget, the largest after Germany, and it made a net contribution to that budget amounting to almost €11 billion in 2013. If the remaining member states want to maintain farm support at currently foreseen levels, they must be prepared to contribute more to the EU budget to ensure this following a BrExit. In this calculation, some member states that now see themselves as benefiting from high CAP spending could well move to the other side of the ledger.

In my view, BrExit is an outcome to be avoided if that can be achieved, but if it were to happen, the Irish agrifood sector should pursue a number of objectives in the subsequent negotiations on the UK-EU trade relationship. These include minimising the disruption to agrifood trade and particularly to avoid the reintroduction of tariffs, but also to seek to minimise the impact of regulatory differences, through continued UK adhesion to Single Market rules, at least as it relates to items such as product standards, veterinary and phytosanitary rules or through mutual recognition agreements.