Irish-owned firms rely heavily on the UK as the source of intermediate inputs, which are goods used to produce a final product. Over half of the total imports used by Irish-owned firms are sourced in the UK with many importing solely from the UK market. Many Irish-owned companies are therefore highly exposed to cost increases in the case of a hard Brexit, which could damage their competitiveness and impact their export performance.
A new report published by the ESRI, the Department of Business, Enterprise and Innovation and Enterprise Ireland examines the extent to which exports of Irish firms use imports from the UK as part of their production process. It aims to gauge the extent of the risks posed by disruptions in the supply chain post-Brexit and the distribution of risks across different types of firms, particularly focusing on domestic small and medium sized enterprises.
Irish-owned firms are most affected, as foreign-owned firms in Ireland are less likely to source their inputs from the UK. The goods that Irish firms are most likely to source from the UK are from the minerals sector, which includes petrol and other fuels, and many products within the food sector. The report shows evidence that imports of intermediate inputs play an important role in the export performance of firms. This suggests that restrictions following Brexit that result in increased input prices or availability could negatively affect firms’ broader export activities.
However, a greater risk to firms’ exporting performance is likely to come from tariffs on goods they export to the UK. The average tariff on the types of products imported from the UK as intermediate inputs would be 2 per cent in a hard Brexit scenario. However, food products are the primary export from Ireland, which would be subject to tariffs as high as 18 per cent in a hard Brexit scenario.
Martina Lawless, author of the report and Associate Research Professor at the ESRI, commented, “While the final Brexit outcome is still highly uncertain, an understanding of who is most exposed to any changes in trading arrangements is an important step in developing plans and policies to mitigate any negative impacts. Food products stand out as being particularly exposed, with a relatively high dependence on the UK market as an import source and high potential tariffs in the absence of a comprehensive trade agreement.”
Welcoming the research work, the Minister for Business, Enterprise and Innovation Heather Humphreys TD, said “The research presented today provides a further contribution to the evidence base on the potential impact of Brexit for businesses and the broader economy, and will help inform our ongoing development of mitigation actions. The Government is committed to ensuring the continued growth and resilience of Irish enterprise after Brexit by helping firms to remain competitive. We also remain committed to securing the best possible outcome for Ireland in Brexit negotiations, working as part of the EU27, and in full support of Chief Negotiator, Michel Barnier.”
The ESRI works towards a national vision of ‘Informed policy for a better Ireland’. This means producing high-quality analysis to provide robust evidence for policymaking, with the goals of research excellence and policy impact.
The ESRI produces research that contributes to understanding economic and social change in the new international context and that informs public policymaking and civil society in Ireland.