Ireland, the Border and Brexit: the impact on Irish retail

By Ciaran Bradley – Dublin office

23 June 2016 is a date that may well live in infamy. The decision of the people of the United Kingdom to leave the European Union ushered in a period of unparalleled instability for Member States and sent shockwaves through the commercial and political world. Prime Minister Theresa May’s triggering of Article 50 set in train negotiations that will likely continue right up to the 29 March 2019 deadline, with repercussions that will linger long afterward. For one Member State, Brexit has pushed them to the front and centre of negotiations on commerce and security.

The Republic of Ireland is in a unique position regarding Brexit. The United Kingdom is her largest trading partner, with over €1bn in goods and services exchanged between the countries every week. In this regard, the Government of Taoiseach Leo Varadkar might appear in a precarious position, but the Irish Government have been clear in stating their priorities with regard to the negotiations.

In March 2017, they published their four key priorities for negotiations: minimising the impact on trade and the economy; the protection of the Northern Ireland peace process; the maintenance of the Common Travel Area and influencing the future of the EU. To best address these, Simon Coveney has been appointed as Minister for Foreign Affairs and Trade with special responsibility for Brexit. Since his appointment, the Minister has been bullish that Ireland will not be used as a ‘pawn’ in EU-UK talks. One sector facing particular concern is the retail sector, with 285,000 jobs accounting for 14% of total employment – an aspect we will discuss shortly.

Aside from losing her biggest trading partner, Ireland is the only country with which the United Kingdom shares a land border. So far, the border has proved an intractable problem. According to the Department of Foreign Affairs, 8,295 residents of Ireland work or study in Northern Ireland, with the number making the reverse journey being 6,456. In addition, more than one-third of Northern Ireland’s trade is with the Republic and relies on a porous land border.

There has been very little progress made on the issue so far. Minister Coveney dismissed as “totally unworkable” one proposal that would involve the UK mirroring the EU’s requirements for imports from the rest of the world where their final destination is the EU. The issue also threatens the progress of wider negotiations. Guy Verhofstadt, the EU’s representative at the table, said in September that the British must present their position for the border before wider talks, as the EU “do not currently see a workable solution being put forward by the UK Government.”

Irish retail is wracked with uncertainty over the Border status, and it is already causing significant problems. Sterling has fallen 15-20% against the Euro since the referendum, prompting Irish customers to shop over the border to increase their spending power. As a result, figures from the Central Statistics Office have shown a fall-off in around €300m in excise receipts in the second quarter of 2017 alone. In addition, consumption – another key metric of economic stability – is down 1.1% in the same period. It is logical that any further drop in Sterling will increase the burden on not only the Irish Exchequer, but on small and medium-sized border retailers.

These retailers have already reported serious concerns over the impact of Brexit on cross-border smuggling. The illicit trade in alcohol, tobacco and solid fuel – key products for small retailers in increasing their footfall and ‘add-on’ sales – is already estimated to cost the Irish economy €2.4bn each year. A study into border retailers in August 2017 has revealed that one in three retailers in Ireland are concerned about the rise in criminality and illicit trade since the Brexit result. For the sake of retailers in particular, it is crucial that there are concrete plans for the Irish border as soon as possible.

To get up-to-date briefings and analysis of the situation regarding Brexit, follow the Instinctif Partners Dublin office on @IP_Dublin.

We endeavour to bring the most considered updates, designed to be commercially relevant to businesses with Irish operations.