Firms worry that free movement of goods into Britain and Europe at risk despite UK assurance of no 'hard Brexit', while financiers eye mini-boom
Brexit stokes Irish trade concerns even as Dublin benefits
When the British pound dropped 15 per cent against the euro in the wake of the 2016 referendum on leaving the EU, the management at Silver Hill Foods foresaw huge disruption to their business.
It did not work out that way for the Ireland-based food producer and the experience has taught Barry Cullen to be phlegmatic about the overall prospects when Brexit actually takes place in March next year.
The euro-zone company weathered the drop in sterling then and hopes to similarly cope with whatever the eventual change in trading conditions. “We sold the same number of ducks in the UK market last year as we did before. It helps that ours is a premium product and that we are not relying on tiny margins,” he tells The National. “We are being philosophical about Brexit. Everyone is telling us there will not be a hard Brexit and a fallback to World Trade Organisation rules.”
Silver Hill once specialised in producing ducks for London’s Chinatown. Three quarters of its sales were to businesses on the other side of the Irish Sea.
The business has steadily grown beyond its reliance on the British market and now sells to Chinese markets, including sending a shipping container of its product to Singapore every week. “We have reduced our reliance on the UK and we are better prepared for the currency risk. We are fully hedged for currency risk for the rest of the year.”
There are particular difficulties facing Silver Hill beyond the trade and currency factors. As a business just 8 kilometres from the border with Northern Ireland, Mr Cullen describes how their ducks start life in the north but are hatched in the south and then raised in the north before returning to the poultry factory, which is set amid green hills and slate-grey lakes.
The staff live both sides of the border and any customs checks would be disruptive to a working day that starts at dawn. A visit to the region by Robin Barnett, the British ambassador to Dublin, last week sought to reassure businesses that, as stated in the UK prime minister Theresa May’s December deal with Brussels, there will be no “hard border” checks following the departure.
However, the British mainland also acts as a land bridge for Irish trucking shipments to other parts of the euro zone. Mr Cullen worries about delays in sending the company’s product to customers in Germany and France. “Britain must import food. It can’t feed itself but needs to import about 40 per cent of its protein needs. We are hoping there won’t be the same kind of restrictions in our sector as there might be in pharma, technology or finance.”
Just over 130km away in Dublin there is something of a mini-boom for the Irish capital ahead of Brexit. Jobs in finance and services such as legal firms have migrated west into a system that, like Britain, uses English and enjoys a virtually identical common law.
While no longer having to manage an independent currency, the central bank of Ireland (CBI) is expanding its regulatory and supervisory functions. A "For Sale" sign stands outside its former headquarters on Dame St in the heart of the city, and the staff have already moved to a glass-and-steel tower block in Docklands.
Among the big name firms that have moved to Ireland and specifically the rapidly developing Docklands is Goldman Sachs, which announced in December it was shifting 20 jobs to maintain so called European financial passporting rights to access the euro-zone markets. Bank of American Merrill Lynch has said Ireland will host a new European headquarters and JP Morgan has invested €125 million (Dh562.2m) office facilities.
Yet there are tensions about challenging the City of London’s role as Europe’s financial hub, not only in Dublin but elsewhere in Europe. Michael D’Arcy, the Irish minister of state of the department of finance, wrote to the CBI last year, to criticise its outreach to foreign finance business, calling its reported lack of enthusiasm “unhelpful”’.
At an Asian business conference last week, Mr D’Arcy rolled out the red carpet for concerned businesses currently based in the UK.
"We're saying to people, if there are difficulties, Ireland can be part of the solution for passporting,” he told the broadcaster CNBC. "We are a pro-business country. We are non-protectionist."
The financial establishment is more nuanced in its attitude. The highly regarded governor of the CBI told the Financial Times that the euro zone was too sanguine over the risk of a one-off shock disruption to the financial system if ties to London were severed abruptly.
“The City of London is the wholesale headquarters of the EU,” said Philip Lane, a member of the European Central Bank’s governing body. “If there is a genuine shock and we have a Brexit without a transition period, then that is a financial stability risk.”
When the vote to move the European Banking Authority, the euro-zone regulator, narrowly went in favour of Paris over Dublin, the French capital was handed a platform to challenge London as the continent’s post-Brexit financial capital.
Even the man in charge of the French charm offensive to woo banking businesses to the continent cautioned that 2018 would not see a dramatic shift in the centre of financial gravity in Europe. Christophe Noyer, a former governor of the French central bank, is now in charge of a task force to attract financial firms to the French capital. Speaking in London last week, he portrayed Brexit as a reversion to the balance of business before the Big Bang in the 1980s consolidated the European industry. "Twenty years ago London was already the first financial centre and Paris was much more important,” he said. "Many banks had concentrated their forces in London, which had tens or sometimes hundreds of staff in Paris before. So if that goes back to where we were 20 years ago it is not a catastrophe for the City."
And Frankfurt, the German financial capital, is sending mixed messages on stealing a march on London. Last year saw local property transactions rise by 20 per cent to 711,000 square metres of new office leases. Only an estimated 30,000 square metres of this was related to Brexit. After the euphoria of anticipation in 2017, a leading German newspaper warned of ernüchternd in 2018 - a German word that means "a jolt back to reality".
Looking forward to the year, one of Frankfurt’s leading real estate specialists, Markus Kullman of JLL was similiarly cautious. “It is not a question of a full-scale relocation but of incrementally building up,” he said. “It will not be an exodus from London to Frankfurt but more a case of hiring locally.”
Trade in goods remains the key issue for the next phase of the Brexit negotiations. British ministers have said they want an agreement like the EU free trade agreement with Canada but one that reflects British closeness to the EU. In the words of the British Brexit negotiator, David Davis: "Canada, plus, plus plus."
Michel Barnier, the chief European negotiator, will get his official mandate at a council of the 27 states on March 22 and the negotiations will quickly get underway. Lobbying is intensifying with industry bodies on both sides of the channel now demanding a continuing customs union, even if Britain leaves the European single market.
“There may come a day when the opportunity to fully set independent trade policies outweighs the value of a customs union with the EU. But that day hasn’t yet arrived,” Carolyn Fairbairn, the head of the Confederation of British Industry, warned in a speech on Monday. “The idea behind a customs union is simple: a single set of tariffs for goods imported from outside the EU, enabling tariff-free trade within it. A flexible solution of this kind could preserve many benefits of barrier-free access to the single market while respecting the referendum call for more control - meeting the needs of business and politicians on both sides of the channel.”
With the Geman economy now growing rapidly, voices of concern over Brexit from within Europe’s biggest economy - and manufacturing powerhouse - have been muted. One senior economist, Thiess Petersen at the Bertelsmann Foundation, however, said that with its economy running near full capacity a disruptive Brexit could weaken the Euro significantly, causing to inflation spike. “The decision by the United Kingdom in the summer of 2016 to leave the European Union – Brexit – will be completed at the end of March 2019. The economic consequences of this departure are likely to increase over the course of 2018,” he said.
Another key factor for euro-zone businesses will be the length of the transition period the two sides can agree on. This means a further period after Britain leaves when there will be a standstill on existing trade links. Pieter Cleppe, who watches the Brexit talks for the lobby group Open Europe, says the negotiations will lay the groundwork for an eventual deal that will be negotiated and ratified during that period, likely to last at least two years.
“Actually, the goal is not to have a trade agreement ready by March 2019 but a political declaration whereby both sides mainly pledge their intent to agree a trade deal during the transition stage,” Mr Cleppe observed.
“Because of that, we won’t have any formal negotiations this year but a mere 'scoping' of what a future relationship might look like, so that the formal trade negotiation can take place during the transition stage.”