Ms Anne Coleman-Dunne:

We are delighted to be here to speak to the committee this morning. One of my areas of policy responsibility was Brexit preparations for the Department, its offices and its agencies and we continue with the implementation of those preparations. I am joined by Mr. John Hughes and Mr. Andrew Colgan from our trade policy area. Both colleagues have policy responsibility for the broad trade agenda, ranging from the EU level to the multilateral level. Joining us online is Ms Fiona Kilcullen from our access to finance unit. She had particular responsibility for the Brexit loan schemes.

It has been almost 15 months since the first trade impacts of Brexit took effect following the entry into force of the trade and cooperation agreement, TCA. Throughout this period, businesses have managed to navigate the increased administrative burdens and non-tariff barriers that Brexit has presented, and to carry on trading. In large measure, Brexit was not the calamitous event we all feared. This can be attributed, in no small measure, to the level of preparedness of Irish businesses for the changed trading relationship with the UK in the aftermath of Brexit. This is a huge tribute to the determination, hard work and resilience of Irish businesses, at a time they also faced the enormous challenges of Covid-19.

While the seamless trading relationship that existed prior to Brexit has certainly come to an end, businesses have faced the realities of the new trading relationship to continue trading with Great Britain, and to diversify into new markets. Businesses were actively assisted in their Brexit preparedness by the Government through advance Brexit contingency planning, involving a range of State agencies and bodies, which provided support for businesses and traders throughout. Support came in the guise of advisory clinics, targeted customs training and upskilling, as well as a range of enterprise supports, including voucher schemes like the one InterTradeIreland just mentioned. Financial loan schemes such as the Brexit loan scheme and its successor, the Brexit impact loan scheme, were introduced to provide financial assistance to businesses and assist them with liquidity.

InterTradeIreland played a key role as part of the Government's wider Brexit response with initiatives such as its Brexit Advisory Service to assist companies, both North and South, to prepare for Brexit. ITI's Brexit Voucher scheme was also used extensively to assist Irish SMEs in areas such as tariffs, currency management, regulatory and customs issues.

While for many businesses, Brexit is done, this is not the case for those in the agrifood sector and businesses in this sector need to continue preparing for the UK import controls. The UK postponed import checks on goods from Ireland due to come into effect from 1 January 2022. For this reason, the full impact of our new trading relationship with the UK has not truly been felt yet as full customs controls are not yet in place. This temporary reprieve, and it is temporary, for goods from Ireland allows for the ongoing technical discussions between the EU and the UK on the protocol on Ireland and Northern Ireland. These discussions continue. There was a meeting yesterday of the Specialised Committee on the implementation of the Protocol on Ireland and Northern Ireland. These discussions are focused on finding durable and realistic solutions under the protocol to difficulties that present for businesses and citizens in Northern Ireland.

As the committee will know, Ireland has very significant economic ties with the UK, our closest neighbour and one of our most important trading partners. With the UK now outside the EU Single Market and customs union, inevitably trade with the UK is not now as frictionless as it once was. In 2020, which was the final year of trading as partners in the EU, Ireland exported €49.8 billion in goods and services to the UK with total imports of €40.4 billion. The UK accounted for around 11% of total Irish trade in 2020. This is a very significant share and for certain sectors of the economy, our trading relationship with the UK is even more important. For example, approximately 40% of Irish trade in food and beverages takes place with the UK.

Brexit has changed forever the trade relationship between the UK and Ireland and the full extent of these changes will only become fully evident over time. The EU introduced customs and border procedures and checks under the trade and co-operation agreement from the beginning of 2021 and the resulting impact on EU-UK trade has been substantial. There was a significant fall in Irish goods imports from the UK last year decreasing by 4% with imports from Great Britain specifically down 13%, primarily driven by a reduction of 36% in food imports from Great Britain. On the other hand, as the UK has delayed implementation of customs checks, Irish exports have yet to see the same negative impacts and indeed Irish exports to the UK actually rose by 23% last year mainly driven by an increase in exports of chemicals, which were up by 40%.

A further phenomenon was that trade with Northern Ireland increased last year as both exports and imports recorded very strong growth of around 55% and 65%, respectively, although it should be noted this is from a very low base. Trade has increased across virtually every sector. These increases are likely the result of trade with Northern Ireland not being subject to the new customs and regulatory checks and the possibility that businesses on the island sourced new supply chains outside of the UK, which would be encouraging for the all-island economy.

Overall, the trade data for 2021, particularly on exports to Great Britain and on trade flows North-South, is encouraging. However, uncertainty for the future of the UK-Ireland trading relationship remains. Some notable shifts in trade patterns were evident in 2021. What jumps out is that chemicals exports to the UK increased by €1.5 billion or 40% to €5.3 billion. Imports of food and live animals from Great Britain declined from €3.1 billion in 2020 to €2 billion in 2021, which is a 36% decline. Imports of mineral fuels, lubricants and related materials increased by 69% or by €1.1 billion from €1.9 billion in 2020 to €2.8 billion in 2021. This increase is due mainly to gas. It is not clear if these shifts represent a trend or if they are more linked to global issues such as energy supplies in the case of gas imports.

To get the measure of the full ex-post impact of Brexit, it would be optimal to conduct research at the point at which agreement on the implementation of the Northern Ireland protocol has been reached and full UK import controls are operational on an EU 27-UK wide basis. In December 2021, the Department of Finance and the ESRI jointly published some early analysis of the impacts of Brexit using monthly trade data up to August 2021. It noted some early effects, including the increase in North-South trade and the asymmetric decline in imports from Great Britain. The study confirmed the increase in trade between Northern Ireland and Ireland but concluded that product substitution away from Great Britain by Northern Ireland firms cannot be estimated without data on trade between Northern Ireland and Great Britain. As trade between Northern Ireland and Great Britain is internal UK trade, it is not captured in the collection of international trade statistics. Furthermore, firm level activity data for Northern Ireland that identifies sales to Great Britain is collected on an annual basis. This means that the question of product substitution and the impact of the Northern Ireland protocol on trade is a potential avenue of further research once such data becomes available. The Department of Finance leads on monitoring the overall macro-economic relationship between Ireland and the UK and the Department of Enterprise, Trade and Employment will liaise closely with the Department of Finance regarding future research on the impact of Brexit.

I think we have covered the issues of logistics, transport and routes to market so I will skip over them. The analysis of trade data available at this point indicates the asymmetric impact of Brexit on imports and exports. This divergence between exports to and imports from the UK suggests that the divergent non-tariff barriers to trade have had an impact on bilateral trade. Brexit is still unfolding and the phased implementation of UK import controls means that the full impact of Brexit has not yet been felt. The years 2020 and 2021 gave rise to unprecedented changes due to Covid-19 in terms of supply chain issues, depressed demand and inflationary costs as a result of Covid-19. The final outcome of the protocol on Ireland and Northern Ireland will also be a determining factor on the manner on which this impacts on trade in Ireland.