Business

PLATFORM: We're paying a huge price by leaving the biggest market in the world

Europe accounts for 54.6 per cent of all exports from Northern Ireland

THE first month of the year has certainly presented us with some pretty dramatic political twists and turns.

We've had the collapse of the Executive and a new Assembly election announced for March 2. Theresa May has declared her wish list for what she wants to focus on in terms of EU negotiations. It transpires that she does not fear a hard Brexit - but unfortunately for Northern Ireland (and indeed many businesses across the UK) this is the worst possible scenario.

Then last week we saw the Supreme Court wrap the Prime Minister’s knuckles and remind her that the UK parliament alone was sovereign. Much to Mrs May’s dismay, it turns out that an unelected UK Prime Minister does not have the legal authority to take the entire UK out of the EU. No, she must first obtain permission from the House of Commons and the House of Lords.

It does look a little like things are getting more complicated for the Prime Minister and the 'Brexit Bad Boys' as Nigel Farage likes to call them. Mrs May’s 'I will do it my way' attitude has softened a little, and her government has even bowed to pressure, finally, after seven months, consenting to producing a White Paper on exiting the EU.

The timing of the Prime Minister’s speech was a little unfortunate. All the noise around making the UK an open and global economy was quickly dispelled when US President Donald Trump made his inauguration speech a few days later. His 'Buy American, Hire American' mantra put a dent in any real hopes for a ‘good’ UK-US trade deal in a post-Brexit world.

Last year, the UK sold approximately £48 billion worth of goods to the North American market (just under 10 per cent of all UK exports). Let’s just hope the new President is happy for that to continue.

It is probably fair to say that the Prime Minister’s speech has worried many businesses across the UK. Indeed some companies in the financial sector have openly admitted that they are exploring relocation options to other European countries and the car industry has referred to leaving the Customs Union as 'death by 1,000 cuts'.

With 49.6 per cent of UK exports going into the EU (equivalent to £211 billion in the first three quarters of 2016, according to HMRC data), the speech held little comfort for UK manufacturers and exporters. Business are trying to make a success of Brexit, but have huge concerns about falling back on WTO rules.

For Northern Ireland, export levels with Europe account for 54.6 per cent of all exports and therefore the very idea that the Prime Minister could consider leaving the Customs Union was greeted with shock among the business community.

Unfortunately there appears too little economic expertise or trade knowledge being applied to the current Brexit strategy. The well-established Gravity Model of international trade can accurately predict bilateral trade flows between two countries and is used by trade experts to test the effectiveness of trade agreements worldwide. Quite simply, this model shows time and time again that trade flows rise when the geographical distance between the trading regions is small and when the respective populations are large.

So the desire to rip up a free trade agreement with the EU (which is on our doorstep and has a population of half a billion) makes no economic sense. Some politicians have talked excitedly about striking trade deals with countries such as Australia and South Korea.

But we must bear in mind they are on the other side of the world, and indeed in terms of population, Australia (at 23 million) is roughly one third of the size of the UK (63 million). South Korea with 50 million people also has a smaller population than the UK.

Quite simply, it's going to take a lot of external trade deals before the UK government can offer the Northern Ireland business community anything like the market access that they currently have in the EU.

This is best summed up by Mark Rutte, Prime Minister of the Netherlands, who said in response to Mrs May’s speech “The UK is now making a choice. To control migration, they are paying a huge price by the fact they are leaving the biggest market in the world.”

:: Angela McGowan (Angela.McGowan@cbi.org.uk) is regional director of the CBI in Northern Ireland. Follow her on @angela_mcgowan

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