As of the beginning of 2021, the United Kingdom (UK) has officially left the European Union (EU). This exit is commonly known as Brexit and has complicated business relationships and economic matters in Ireland, which remains a full member of the EU. In January 2021, for instance, imports into Ireland from the UK dropped by 65 percent from the previous year as Ireland contended with new customs requirements alongside Covid-19 restrictions.
How will Brexit affect Ireland in the near future? Companies building new teams in Ireland will need to understand how Brexit may affect their business practices and employment decisions. This guide discusses the impact of Brexit on Ireland in detail so your company can develop an informed strategy for navigating the new challenges.
How does Brexit impact Irish businesses?
Brexit has altered supply chains, customs duties, the flow of goods, and intellectual property rights. It has also impacted opportunities in various industries and how international employees are able to travel and work in Ireland and the UK.
1. Northern Ireland Protocol
One of the most significant effects of Brexit on Ireland involves the Northern Ireland Protocol. This protocol is an agreement made as part of the Brexit deal and designed to protect the Good Friday Agreement — the 1998 peace deal between the Republic of Ireland, a sovereign state and member of the EU, and Northern Ireland, a part of the UK. The Good Friday Agreement formalizes a preference for no hard border between Ireland and Northern Ireland.
Complications arise, however, because the EU requires inspections of specific goods like meat, fish, milk, and eggs before they enter its market. Practically speaking, because the Republic of Ireland remains part of the EU while Northern Ireland does not, the EU would require a relatively hard border with checkpoints where these official inspections can occur.
To preserve the spirit of the peace agreement, the Northern Ireland Protocol establishes a way for the inspections to occur without creating a hard border between the two states. Under the Northern Ireland Protocol, products like meat, fish, milk, and eggs must receive inspections when they move from Great Britain into Northern Ireland. The checked goods can then move across the border between Northern Ireland and the Republic of Ireland.
The Northern Ireland Protocol impacts businesses because of the regulatory compliance and paperwork now required to import certain food products from the UK. The affected products from Great Britain must go through a border control post when they reach Northern Ireland. They need to pass inspection and have the correct certifications and paperwork accompanying them.
The increased difficulty of getting the designated food products across the border has led to a decreased supply in supermarkets and grocery stores, despite the enactment of three-month and extended grace periods. In the future, companies may continue to experience delays in receiving their orders as products become stalled or turned back at checkpoints.
2. Supply chains
Irish trade has historically relied heavily on free access to the UK market. With that access now complicated under the terms of the Northern Ireland Protocol, relationships between Irish companies and UK suppliers, distribution hubs, finishing plants, and third-party clients may all face reexamination.
Companies in Ireland have seen supply chain difficulties as they face challenges in procuring goods from the UK. UK-based services and supply hubs may become unviable over the short term and potentially into the future. Even when Irish businesses can procure goods from the UK, they may sometimes choose other options because they want to avoid exposure to any future tariffs imposed on UK imports. Some companies may rely on EU partnerships instead to ensure a steady supply of goods and materials.
3. Rules of origin
Brexit has altered the rules of origin for imported and exported goods. Rules of origin are an integral part of most EU trade agreements — under the rules of origin, certain goods require a certificate of origin and the payment of a significant customs duty when they move between EU and non-EU markets. Some qualify for a lowered or waived customs duty if they originate from approved partner countries.
To qualify for zero tariffs, goods traveling between Ireland and the UK must be certified as originating in Ireland or the UK. They can qualify under specific rules of origin, which vary between different product types. Companies must prepare an official Statement of Origin and include it with the shipping paperwork.
4. Movement of goods
Because of factors like border controls, tariffs, checkpoints, and excise duties, the movement of goods between Ireland and the UK after Brexit has become more challenging. Effective routes to market for goods coming from or transiting through the UK may diminish significantly.
One beneficial effect of the rules of origin is that they can prevent UK companies from purchasing inexpensive items from a country outside the EU, repackaging and rebranding those items, and reselling them tariff-free within the EU. However, under the terms of the recently signed EU-UK Trade and Cooperation Agreement (TCA), goods from the EU that undergo unpacking and repacking in the UK and then travel on to Ireland are now subject to tariffs.
The new rules have caused bottlenecks and delays at UK distributors that legitimately repackage products before supplying them to the Irish market. These delays have contributed to increased supply issues, shortages, and empty shelves in Ireland.
Additionally, Irish companies must now engage with unfamiliar customs regulations, complete more paperwork, and make customs declarations the law did not previously require. Missteps with these new rules lead to further delays.
5. Movement of people
In some instances, people may have difficulty traveling between Ireland and the UK because of new visa restrictions.
Citizens of Ireland and the UK may travel, live, work, and receive social services in each of the two countries under the terms of a long-standing arrangement known as the Ireland-UK Common Travel Area. However, international employees who now reside in Ireland and wish to travel to the UK, or vice versa, will need to meet new requirements like obtaining passports and visas for each of the two countries.
6. Intellectual property
After Brexit, intellectual property rights have become more complicated because EU trademarks no longer have protection or recognition in the UK. Irish companies that plan to operate in the UK will need to apply for and receive UK trademarks in addition to their EU trademarks to protect their intellectual property rights.
EU regulations on supplementary protection certificates, though, will remain part of UK law. In addition, Brexit leaves patent law unaffected because the European Patent Convention is an international treaty rather than an EU law.
7. Cross-border data
Services trade often relies on cross-border data flow, yet the TCA does not fully address cross-border data. The EU maintains stringent personal data protections and could potentially block data transfers from Ireland to the UK on the grounds that the UK provides insufficient data protection.
However, in February 2021, the EU published a draft adequacy decision stating that the UK provides a level of protection equivalent to the one provided by the EU’s General Data Protection Regulation (GDPR). If and when the EU member states approve the draft decision, their approval would pave the way for relatively unimpeded cross-border data flow.
Except in specific instances, Brexit has largely not caused tariffs on trade between Ireland and the UK. The TCA gives the two countries quota-free, tariff-free access to each other’s markets for trade in all goods, including agricultural imports. As we’ve discussed, though, only goods originating in the EU or UK benefit from the tariff-free opportunity. Many companies in Ireland or the UK will face some tariffs because their supply chains involve producing or manufacturing goods or components in non-EU, non-UK countries.
In the future, if the UK develops rules that differ significantly from EU rules on trade, the EU would have the option to impose additional tariffs in response.
Brexit has changed employment requirements in Ireland and introduced new HR complexities. Irish companies that employ non-Irish, non-UK citizens in the UK will need to apply for work permits for those employees from the UK immigration authorities. They should also apply for sponsorship licenses and discuss the EU Settlement Scheme with eligible EU citizens who wish to settle in the UK. Business travel for international employees has also become more complicated.
Companies that operate in Ireland and the UK need to comply with two different sets of complex laws and regulations. Navigating the ins and outs of the two countries’ legal systems presents a thorny challenge, even for experts well versed in employment law.
Social security costs are particularly difficult for cross-border international employees. An agreement on social security prevents Irish and UK citizens from incurring double social security costs when they work in both Ireland and the UK. However, that agreement does not protect international employees, who may become responsible for paying into social security in both jurisdictions.
Irish trade sectors impacted by Brexit
Brexit has affected some trade sectors more than others. These are a few of the Irish trade sectors Brexit has most significantly impacted:
- Agri-food: The agri-food sector has experienced significant impacts because of the checks required for some food products under the Northern Ireland Protocol. The same checks also affect producers in other countries, who may divert some of their products into other markets, including the Republic of Ireland, and depress profits for Irish producers. The subsectors most affected include processed food, beef, sheep, and other dairy and cattle meat products.
- Pharma-chemical: The pharmaceutical and chemical sector constitutes the largest export sector in Ireland, responsible for 57 percent of the value of Ireland’s exports. It works with UK, EU, and global supply chains, with different components manufactured or processed in different countries and packaging sometimes occurring in the UK. New product standards, border inspections, and manufacturing requirements will affect supply chains both in and out of the country.
Electrical machinery manufacturing: The electrical machinery sector is another important sector in Ireland, accounting for 15 billion euros of exports in 2015. In this industry, 17 percent of exports go to the UK, and 30 percent of imports come from the UK. Experts predict exports to the UK will drop significantly in response to Brexit upheavals.
- Wholesale and retail: The wholesale and retail sectors in Ireland have numerous complex supply chains that operate in Ireland and the UK. These supply chains face new costs associated with supplier delays and the effort of managing the separate regulations that now exist.
- Air transportation: The Irish air transportation industry is an integral part of the country’s economy, with the London-Dublin route serving as Europe’s busiest international air route. Under the European Common Aviation Area (ECAA) rules, airlines offering intra-EU flights must have majority-EU ownership. With the UK now outside the EU, several airlines operating in Ireland now lack majority-EU ownership. Furthermore, if airlines change their ownership structure to meet ECAA rules, they may no longer be able to offer intra-UK flights under UK rules. These challenges may lead to disrupted flight schedules and profit losses.
Opportunities for Ireland post-Brexit
Despite the challenges, some of the implications of Brexit for Ireland are positive. Ireland anticipates several economic opportunities in Brexit’s aftermath.
With the UK’s departure, Ireland is now the only country of predominantly native English speakers in the EU. This fact, along with Ireland’s strong economic relationship with the United States (U.S.), positions the country well for attracting English-speaking companies. UK-based financial institutions may seek to relocate to Ireland to access the EU market, or U.S. companies considering an English-speaking base in the EU may find Ireland an attractive option.
According to a report by EY released in October 2020, financial services firms have transferred assets worth 1.2 trillion British pounds out of the UK to the EU since the 2016 referendum. Over 7,500 jobs have been relocated outside of London to Europe — with Dublin being the most popular destination for relocation, followed by Luxembourg, Frankfurt and Paris.
In terms of the finance sector specifically, the TCA does not grant UK financial services equivalency to the financial services in the EU. Irish financial companies may see increased business opportunities as the robust UK financial services sector contends with a more limited capacity to serve EU clients.
Brexit may also be the incentive Ireland needs to seek new market opportunities outside the UK. Bureaucratic requirements associated with supply chains extending through the UK may propel Irish companies to diversify their economic partnerships and seek exciting new relationships with companies in other countries.
How can companies in Ireland navigate new business structures most effectively and take advantage of these post-Brexit opportunities? Here are five critical steps for a successful transition:
- Assess risks: Consider the pros and cons of entering new markets or diversifying products. Research alternative suppliers and analyze any new cost implications. Seek external help if necessary to gain a thorough understanding of potential risks.
- Evaluate financials: Look into your company’s finances to determine how well you can manage Brexit’s challenges. Assess your fixed and variable costs and the figures associated with new suppliers, UK suppliers, and UK customers. Review your cash flow, forecasts, and pricing models, and develop strategies to protect against currency fluctuations.
- Explore new sales opportunities and expansion possibilities: Determine which new markets could most effectively fill the gaps left by UK suppliers and customers. Consider using Irish-based or EU suppliers, for instance. Be sure to establish a written supplier agreement that includes the terms of supply, supply forecast, terms of order and delivery, price, payment terms, return terms, and security and safety references.
- Update processes and systems: Remember to update your sales, business development, marketing, operations, and payment processes as needed to comply with new customs regulations and thrive in new markets.
- Seek assistance with legal documentation, contracts, and compliance: As your company prepares to navigate Brexit’s challenges and take advantage of its opportunities, you should seek expert advice as you need it. Contact legal professionals or other trusted advisers who can help you through the difficulties of creating new business arrangements after Brexit.
Request a consultation with Globalization Partners
To see the benefits of working with a global Employer of Record (EOR) as you build post-Brexit international teams in Ireland, work with Globalization Partners. Our teams of expert professionals are well versed in the economic impact of Brexit on Ireland and can help you tailor your strategies for success in the post-Brexit marketplace. When you’re ready to begin hiring, our technology enables efficient recruiting, hiring, and onboarding of new employees, saving your company time for more urgent business.