REPORT - Northern Ireland and the EU Referendum

8/16/2019 REPORT - Northern Ireland and the EU Referendum

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HC 48

House of CommonsNorthern Ireland AffairsCommittee

Northern Ireland and

the EU referendum

First Report of Session 2016–17


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HC 48Published on 26 May 2016

by authority of the House of Commons

House of CommonsNorthern Ireland AffairsCommittee

Northern Ireland and

the EU referendum

First Report of Session 2016–17

Report, together with formal minutes relatingto the report

Ordered by the House of Commons

to be printed 25 May 2016


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Northern Ireland Affairs Committee

The Northern Ireland Affairs Committee is appointed by the House of Commons toexamine the expenditure, administration, and policy of the Northern Ireland Office(but excluding individual cases and advice given by the Crown Solicitor); and other

matters within the responsibilities of the Secretary of State for Northern Ireland(but excluding the expenditure, administration and policy of the Office of theDirector of Public Prosecutions, Northern Ireland and the drafting of legislation bythe Office of the Legislative Counsel).

Current membership

Mr Laurence Robertson MP (Conservative, Tewkesbury ) (Chair)

Tom Blenkinsop MP (Labour, Middlesbrough South and East Cleveland )

Oliver Colvile MP (Conservative, Plymouth, Sutton and Devonport )

Mr Nigel Evans MP (Conservative, Ribble Valley )

Mr Stephen Hepburn MP (Labour, Jarrow )

Lady Hermon MP (Independent, North Down)

Kate Hoey MP (Labour, Vauxhall )

Danny Kinahan MP (Ulster Unionist Party , South Antrim)

Jack Lopresti MP (Conservative, Filton and Bradley Stoke)

Dr Alasdair McDonnell MP (Social Democratic and Labour Party, Belfast South)

Nigel Mills MP (Conservative, Amber Valley )

Ian Paisley MP (Democratic Unionist Party, North Antrim)

Gavin Robinson MP (Democratic Unionist Party, Belfast East )

Powers

The committee is one of the departmental select committees, the powersof which are set out in House of Commons Standing Orders, principally inSO No. 152. These are available on the internet via www.parliament.uk.

Publication

Committee reports are published on the Committee’s website atwww.parliament.uk/niacom and in print by Order of the House.

Evidence relating to this report is published on the inquiry publications page of the Committee’s website.

Committee staff

The current staff of the Committee are Robert Cope (Clerk), Philip Larkin(Committee Specialist), Nick Taylor (Senior Committee Assistant), DominicStockbridge (Committee Support Assistant) and George Perry (Media Officer).

Contacts

All correspondence should be addressed to the Clerk of the NorthernIreland Affairs Committee, House of Commons, London SW1A 0AA.The telephone number for general enquiries is 020 7219 2173; theCommittee’s email address is [email protected].

http://www.parliament.uk/biographies/commons/Mr-Laurence-Robertson/253http://www.parliament.uk/biographies/commons/tom-blenkinsop/4037http://www.parliament.uk/biographies/commons/Oliver-Colvile/4022http://www.parliament.uk/biographies/commons/mr-nigel-evans/474http://www.parliament.uk/biographies/commons/Mr-Stephen-Hepburn/520http://www.parliament.uk/biographies/commons/Lady-Hermon/1437http://www.parliament.uk/biographies/commons/Kate-Hoey/210http://www.parliament.uk/biographies/commons/danny-kinahan/4381http://www.parliament.uk/biographies/commons/Jack-Lopresti/3989http://www.parliament.uk/biographies/commons/Dr-Alasdair-McDonnell/1596http://www.parliament.uk/biographies/commons/Nigel-Mills/4136http://www.parliament.uk/biographies/commons/Ian-Paisley/4129http://www.parliament.uk/biographies/commons/gavin-robinson/4360http://www.parliament.uk/http://q/Committee%20Reports%20Session%202016-17/Northern%20Ireland%20Affairs/760/www.parliament.uk/niacomhttp://www.parliament.uk/business/committees/committees-a-z/commons-select/northern-ireland-affairs-committee/inquiries/parliament-2015/eu-referendum/publications/mailto:[email protected]:[email protected]://www.parliament.uk/business/committees/committees-a-z/commons-select/northern-ireland-affairs-committee/inquiries/parliament-2015/eu-referendum/publications/http://q/Committee%20Reports%20Session%202016-17/Northern%20Ireland%20Affairs/760/www.parliament.uk/niacomhttp://www.parliament.uk/http://www.parliament.uk/biographies/commons/gavin-robinson/4360http://www.parliament.uk/biographies/commons/Ian-Paisley/4129http://www.parliament.uk/biographies/commons/Nigel-Mills/4136http://www.parliament.uk/biographies/commons/Dr-Alasdair-McDonnell/1596http://www.parliament.uk/biographies/commons/Jack-Lopresti/3989http://www.parliament.uk/biographies/commons/danny-kinahan/4381http://www.parliament.uk/biographies/commons/Kate-Hoey/210http://www.parliament.uk/biographies/commons/Lady-Hermon/1437http://www.parliament.uk/biographies/commons/Mr-Stephen-Hepburn/520http://www.parliament.uk/biographies/commons/mr-nigel-evans/474http://www.parliament.uk/biographies/commons/Oliver-Colvile/4022http://www.parliament.uk/biographies/commons/tom-blenkinsop/4037http://www.parliament.uk/biographies/commons/Mr-Laurence-Robertson/253


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1Northern Ireland and the EU referendum

Contents1 Introduction 3

The EU Referendum Debate 3“Known unknowns” 4

Our Inquiry 5

2 Trade and Commerce 7

Northern Ireland’s Trade with the EU 7

Estimating the economic impact of a Brexit 8

Trade 10

Foreign Direct Investment 14

EU migration to Northern Ireland 17

The views of business 17

3 Agriculture 19

Agriculture in Northern Ireland 19

The Common Agricultural Policy 22

4 The Border and Cross-Border Issues 26

The border in the event of a Brexit 26

The Belfast/Good Friday Agreement 28

Policing and Security 30

The Single Electricity Market 31

Conclusions 33

Appendix 1: Referendum position of members of the Committee 35

Formal Minutes 36

Witnesses 37

Published written evidence 39

List of Reports from the Committee during the current Parliament 40


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4 Northern Ireland and the EU referendum

that has a land border with a Member State which will, in effect, become the externalrontier o the EU.6 O course, Northern Ireland’s greater exposure to the EU is largelydue to its relationship with the Republic o Ireland. Te ability o armers and companiesto do business across the border and or continued cooperation between governments in

a range o areas, including trade promotion and policing, in the event that the UK leavesthe EU, are undamental to the potential impact on Northern Ireland.

“Known unknowns”

6. Tere are a range o uncertainties, or “known unknowns” in the words o the ormerUS Secretary o Deence, Donald Rumseld, that make predicting the uture impact othe EU or Northern Ireland with any accuracy impossible. Te most obvious “knownunknown” is that we do not know what type o relationship the UK will have with theEU in the event o a vote to leave. Several types o relationship with the EU have been

posited in the event o a Brexit. Tey represent distinct alternatives but are essentiallydifferent points on a continuum that sees access to the Single Market increase in returnor contributions to the EU budget and compliance with EU regulations (see paragraphs24 to 35). Whilst a number o attempts have been made to model the economic impact oeach o these, it became clear during the Committee’s discussions in Brussels that otherunknown actors lef the Commission unable to provide any urther inormation onpotential post-Brexit arrangements ahead o the reerendum vote. Tose who advocateleaving the EU tend to emphasise that, in the event o a vote to leave, it will be in theinterests o the EU to prioritise negotiations with the UK and to conclude a deal swifly,largely because o the trade surplus that the rest o the EU enjoys with the UK. In purelyeconomic terms, it would be mutually beneficial to do so. Countries across the world sell

their products into the Single Market—by which we mean consumers in the EU—so thereshould be no reason why the UK could not have similar access in the event o Brexit. Onthe other hand, those who advocate remaining in the EU emphasise that negotiations onan agreement could take years to conclude and the terms will inevitably be less avourablethan those the UK currently enjoys. Tere is no incentive, they argue, to allow the UK toenjoy access to the Single Market whilst being ree to ignore regulations that it finds costly,inconvenient or unpopular.

7. In the event o a vote to leave, the most likely option would be to use the process orthe exit o a Member State set out under Article 50 o the reaty on European Union.

Once triggered, Article 50 provides or a maximum two-year period during which theterms o the exit are negotiated, which can only be extended with the agreement o all 27remaining Member States.7 It will not be until those negotiations are complete that thedetail o the post-Brexit relationship with the EU will be known. However, economistswho gave oral evidence to us believed there would be an initial downturn in the economyin the period ollowing a decision to withdraw rom EU membership, but there was cleardisagreement about the rate o uture growth.

8. Tere are also domestic uncertainties. For instance, much has been made o thebillions o pounds that currently comprise the UK’s contribution to the EU’s budget whichwill become available to the UK Government in the event o a vote to leave, sometimes

reerred to as the “fiscal windall”. Te UK is one o the largest contributors to the EU. Afer

6 Gibraltar is not part of the UK, but it is treated as though it is in respect of the UK’s membership of the EU.

7 HM Government, The process for withdrawing from the European Union, Cm 9216, February 2016

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12. We took evidence rom the Northern Ireland CBI, the Northern Ireland Instituteo Directors, the Northern Ireland Federation o Small Businesses, the Institute orInternational and European Affairs, Dr Leslie Budd (Open University), Proessor NeilGibson (Ulster University), Dr Graham Gudgin (Cambridge University), Proessor

Dagmar Schiek, Dr Cathal McCall, Dr Lee McGowan (all Queen’s University Belast), theBritish-Irish Chamber o Commerce, the Centre or Democracy and Peace Building, theNorthern Ireland Independent Retailers rade Association, SONI Ltd, the Police Serviceo Northern Ireland, the Ulster Farmers’ Union, and representatives o the Alliance Partyo Northern Ireland, Democratic Unionist Party, the Green Party in Northern Ireland,the Social Democratic and Labour Party, Sinn Féin, raditional Unionist Voice, and theUlster Unionist Party, and the Parliamentary Under Secretary or Northern Ireland. Wethank them and those that made written submissions or their contribution. We alsothank the Speaker o the Northern Ireland Assembly or allowing us to take oral evidenceat Parliament Buildings in Stormont.

13. Te Government has set aside collective responsibility in respect o the reerendumto allow Ministers who wish to do so to campaign or the UK to leave the EU. 13 However,the Cabinet Office guidance on Civil Service support or Ministers states that it is notappropriate or permissible or officials to support Ministers who oppose the Government’sofficial position by providing briefing or speech material on the matter.14 Furthermore,while Ministers are ree to express their personal views in media and other debates anddiscussions, they are required to ollow the Government line when speaking in the Houseo Commons, including when giving evidence to Select Committees. For this reason, itwould not have been useul to take oral evidence rom the Secretary o State or NorthernIreland, the Rt Hon Teresa Villiers MP, who is campaigning or the UK to leave the EU,

as she would have had to simply state the Government’s position rather than have beenree to give us her own views. Te Parliamentary Under Secretary o State, Mr Ben WallaceMP, instead provided a deence o the Government’s official position. We believe, however,it would have been valuable to hear also rom the Secretary o State on her position, givenher overall responsibility or many issues affecting Northern Ireland and, as a ormerMEP, she may well have given us interesting insights.

13 Prime Minister, “Personal Minute to Ministerial Colleagues – EU referendum”, 11 January 2016

14 Cabinet Office, “EU referendum – Guidance for the Civil Service and special advisers”, 23 February 2016

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2 Trade and Commerce

Northern Ireland’s Trade with the EU

14. Figure 1 below compares Northern Ireland’s trade with EU and non-EU countrieswith the UK’s. It highlights the extent to which Northern Ireland’s trade has beenpredominantly with EU nations. Te proportions have not changed significantly in spiteo continuing sovereign debt problems in the Eurozone.

Figure 1: Northern Ireland and UK Trade Compared (%)

Source: The EU Referendum and Potential Implications for Northern Ireland, NIAR32–16, Northern Ireland Assembly Researchand Information Service, January 2016

15. Tis higher reliance on EU trade is largely accounted or by cross-border tradewith the Republic o Ireland (see able 2). In 2015, the Republic accounted or 61% oNorthern Ireland’s exports to the EU and or 34% o Northern Ireland’s total exports. It

also accounted or 49% o imports rom the EU and 27% o total imports.

Table 2: Northern Ireland’s top five export and import partners

Exports Imports

Country Year endingSept 2015 (£m)

% Totalexports

Country Year endingSept 2015 (£m)

% Total imports

RoI 2,133.4 34.1 RoI 1,647.1 26.8

USA 1,047.1 16.8 China 1,056.8 17.2

Canada 367.7 5.9 USA 497.6 8.1

Germany 333.8 5.3 Germany 365.1 5.9France 307.6 4.9 Netherlands 342.3 5.6

Source: HM Revenue and Customs, Regional Trade Statistics Third Quarter, 2015, p 20

0

10

20

30

40

50

60

70

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

NI-EU NI-Rest of World UK-EU UK-Rest of World

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16. Te HMRC figures primarily ocus on manuacturing rather than services. TeNorthern Ireland Statistics and Research Agency (NISRA) has an experimental datasetunder development which includes services. For 2012, the NISRA data puts total NorthernIreland exports at £8.8 billion, o which 37% went to the Republic, 20% to the rest o

the EU, and 43% to non-EU countries. In sectoral terms, the largest is manuacturing,with 60.9%, ollowed by wholesale and retail with 17.5% (£1.6 billion), with construction,agriculture and ‘other services’ accounting or the bulk o the remainder.15

Estimating the economic impact of a Brexit

17. Calculating the costs and benefits o EU membership can be done in different ways,leading to different results. Work by the House o Commons Library notes that studiesthat find the EU to be a net cost to the UK typically base this on attempts to calculate thesum total o the costs o EU-derived regulation and budget contributions. On the other

hand, those that find EU membership to be beneficial to the UK tend to emphasise thegains rom trade flows and oreign direct investment (FDI) that they believe would belower outside the EU.16 In evidence to us, Dr Graham Gudgin o Cambridge University’sCentre or Business Research made a similar point: “I you look at the methodology andthe ways in which these studies have been done, all o them have different assumptionsabout whether we have a ree trade agreement or not. You can pretty well predict the resultrom knowing what the assumptions are”.17

18. Te economic impact o a Brexit is uncertain. Te costs o withdrawal may not besymmetrical (i.e. the costs associated with remaining may not simply be reversed onleaving, nor all o the benefits lost) and we cannot know the way in which the UK economy

may or may not adapt to leaving. In particular, we cannot know the terms under whichUK firms will be able to access the Single Market in the event o a vote to leave; the scaleand terms o any trade deals with non-EU countries that the UK is able to negotiate i itis outside the EU; the impact o these on the nature and volume o FDI; the uses to whichUK governments would put the money that had previously gone to the EU budget; nor theimmigration policies that they might adopt.

19. Because o this, attempts have been made to model a variety o possible post-Brexitarrangements. HM reasury (which reflects the Government’s support or remaining inthe EU) modelled three separate Brexit scenarios: membership o the European EconomicArea (“the Norway option”); a bespoke Free rade Agreement; and no agreement, with

trade conducted under the World rade Organisation’s (WO) “Most Favoured Nation”(MFN) system o tariffs.18 It ound that leaving the EU could lead to a lower growth rateo between 4.3% and 9.5% o GDP over the course o 15 years, depending on the natureo the UK’s trading relationship with the EU (see able 3). It should be stressed that theorecast is or the UK to continue to grow outside the EU, but slightly more slowly: as withmost analyses o the economic impact, the figures given are or oregone growth ratherthan a loss.

15 NISRA, New Northern Ireland Exports Estimates (Goods and Services) 2012

16 The Economic Impact of EU Membership, Standard Note SN/EP/6730, House of Commons Library, 2013, p 5.

17 Q8

18 HM Treasury, HM Treasury Analysis: The Long-Term Economic Impact of EU Membership and the Alternatives,

Cm 9250, April 2016, p 85–93

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22. Te Oxord Economics analysis also highlights how the impact varies betweensectors. For Northern Ireland, they predict that construction and manuacturing wouldbe the hardest hit, possibly acing a loss o GVA o 4.9% and 4.1% respectively. For sectorssuch as transport and communications, the loss will be significantly lower at around 1%.24

23. It should be reiterated that economic modelling can, at best, provide indicative resultsand these should not be considered to be accurate orecasts. It is based on assumptionsabout uture scenarios that may or may not unold. Yet economic modelling is regularlyemployed in the development o policy and the unknowns aced by economic analysts arethe same as those aced by the electorate voting in the reerendum. I the UK does leavethe EU, the extent o trade deals negotiated or access to the Single Market that the UK hascannot be known at this stage. Perhaps more importantly or those deciding how to votein the reerendum, projected GDP figures say little about how individual households willbe affected. Future choices about taxes and spending made by the UK Government andthe Northern Ireland Executive can impact on people’s lives as much as relatively small

changes in the rate o growth. Te IoD said that “big economic orecasts are unlikelyto convince businesses, nor the public. It will come down to profit margins and costoverheads”.25 Some perspective is also needed: trade will not cease i the UK leaves the EU.Firms will trade i it remains advantageous or them to do so, even i tariffs are applied.Research also suggests that existing trading relationships persist even afer the end otrade blocs in which they were established.26 Moreover, many o those who advocate theUK leaving the EU would argue that the risk o a relatively small reduction in the rate oGDP growth should be weighed against the potential wider constitutional benefits o notbeing in the EU, together with the reedom or the UK to negotiate its own trade dealsacross the world, which would then be possible with countries with which the EU does not

currently have such deals.

Trade

24. Much has been made o the importance o trade deals. However, as has been pointedout, trade can, and does, continue between countries without trade deals being in place.For example, the EU has no trade deal with China, yet trade between China and theEU continues; and the EU and US are struggling to agree IP, yet while negotiationscontinue so too does the trade between the EU and US. However, what the economicmodelling does is highlight the importance o agreeing a trade deal with the EU in the

event o a Brexit. I no deal allowing UK firms access to EU markets were successullyagreed between the UK and EU in the event o a vote to leave, and there were no extensionto the negotiating period afer the two-year period or exit negotiations ended, tradewould be conducted under the auspices o the World rade Organisation’s (WO) MostFavoured Nation (MFN) rules. Te average tariff applied by the EU to trade under MFNrules was 5.3% in 2015. Other things being equal, firms exporting into the EU (includingthe Republic o Ireland) rom Northern Ireland and the rest o the UK would either haveto increase their prices, reduce their costs or reduce their margins by the same amountin order to maintain their current position in the Single Market.27 Te same, however,would apply to companies in the EU which wanted to export to the UK, because the

24 Oxford Economics, The Economic Implications of a UK Exit from the EU for Northern Ireland , 2016, p 8

25 EU0018 (IoD)

26 See A Barret et al, Scoping the Possible Economic Implications of a Brexit on Ireland, ESRI Research Series No. 48,

November 2015

27 Details of tariffs are included in WTO, World Tariff Profiles 2015, Geneva WTO, p 6

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same tariffs would presumably be applied. However, behind that 5.3% average, tariffs vary very significantly between types o product. Food and agricultural products inparticular incur a much higher tariff. Whilst the average or non-agricultural productsis 4.2%, or agriculture it is 12.2%. Furthermore, the average or agricultural products

also hides significant variation. Some products incur only a modest tariff (primarily thoseproducts where the EU has historically had little production and has consequently reliedon imports), but or others it is much higher. For dairy products, or instance, it is as highas 42.1% (we address agriculture specifically in Chapter 3). Te UK would then have toconsider whether to impose equivalent tariffs to level the playing field between EU andUK firms but at the risk o significant domestic price increases on imported goods. On theother hand, ewer imports would create gaps in markets which UK companies could seekto fill. Alternatively, it could allow EU firms to export to the UK on relatively avourableterms in order to allow UK consumers to benefit rom lower prices, but at the risk oconsiderable potential damage to UK firms.

25. Perceptions about the possibility o a deal to allow access to the Single Market weredecisive or many we spoke to in persuading them o the case to leave or remain. Tosewho are confident that a avourable deal that allows UK firms tariff-ree access to theSingle Market can be swifly agreed are more confident about a uture outside the EUand typically emphasise the economic incentives or doing so. For example, Dr GrahamGudgin, an economist in avour o leaving the EU, emphasised the importance o a tradedeal: “I assume it would be possible to make a ree trade arrangement. It would be inthe interests o other EU Member States to do so, but it is very important that such anarrangement is made”.28 Another economist, Proessor Neil Gibson, Director o the UlsterUniversity Economic Policy Centre, agreed:

In terms o how we trade and who we trade with, I do not see any reason thatshould change massively, because it is not in anyone’s interests to set up anyanti-trade agreements or trade tariffs that would make it more difficult. It isnot going to help the businesses in either economy. I we were talking onlyabout Northern Ireland, it might be an issue, but the UK is such a huge tradingpartner or the EU that it is in nobody’s interest or that trade agreement not tobe relatively ree and beneficial or both.29

26. Certainly the UK would nominally be in a good position to agree a deal with the EU.Te UK has a trade deficit o £68 billion with the EU so there is clearly scope or a mutually

beneficial agreement and incentives on both sides or such a deal to be concluded.30 Teincentive to reach agreement should be particularly strong as the UK is one o the largesteconomies in the world—fifh, by GDP31—and the EU has concluded trade agreementswith much smaller economies. As Dr Gudgin put it: “It is very hard to see why [the EU]would not have a ree trade agreement with the UK i they have a ree trade agreementwith Canada. Teir previous ree trade agreement was with South Korea. Te EU believesin ree trade; I cannot see why it would not believe in ree trade with the UK”. 32 And asthe UK would already be compliant with EU regulations, the lengthy technical wranglingthat characterises most trade deals would be unnecessary.

28 Q2

29 Q15

30 ONS Statistical Bulletin, Balance of Payments: Oct to Dec and Annual 2015, 31 March 2016, Tables B and C

31 World Bank, World Development Indicators, 2016

32 Q22 [Dr Graham Gudgin]

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27. However, those less confident that a deal can be quickly and easily made on termsavourable to the UK highlight potential problems. Tey emphasise the political natureo any trade agreement. Whilst there may be an economic incentive or the EU to agreea deal with the UK, there is also a strong incentive or the EU to ensure that the UK is

not perceived to be benefiting rom leaving. In particular, it is unlikely that a deal willbe reached that allows the UK all o the benefits o ull access to the Single Market butalso allows it to escape any o the associated costs. Andy Bagnall, the CBI’s CampaignsDirector, thought that “it is hard to see why European negotiations on the other side othe table in the event o a Brexit would offer us a package with none o the costs but allo the advantages”.33 For that reason, it is suggested that ull access to the Single Marketwill almost certainly be contingent on a high degree o regulatory compliance as well as acontinued contribution to the EU’s budget. Tis is the case or members o the EuropeanEconomic Area such as Norway, although Norway does not have to comply with the EUrules in those areas in which it does not have Single Market access, such as agriculture

and fisheries.34

28. Te CBI also noted that, whilst unavourable trade deals can be agreed quite easily,mutually beneficial ones can take many years.35 It is worth noting, though, that ruleswork both ways. Both sides in a trade negotiation can insist on both tariff and non-tariffconditions being in place. It would then be or the two sides to agree which rules orm parto the deal. One o the reasons IP negotiations are taking so long is in part because theUS is insisting on certain rules being in place.

29. We have already noted the mutual importance o the trade relationship betweenNorthern Ireland and the Republic o Ireland. Such is the level o cross-border economic

integration it was suggested to us that, in the event o a Brexit, some sort o ree trade dealbe negotiated with the Republic o Ireland that would allow the status quo o unimpededcommerce, shopping, leisure and commuting across the border to continue. Te FSB toldus o a local member who wanted to leave the EU who predicted that, afer a vote to leave,“[…] an agreement would rapidly be reached on trade with the Republic […] He is lookingat it rom the point o view o a pragmatic business person and eels that it is in people’sinterests, so it will happen”.36 Given that the main part o the purpose o undertaking thisinquiry was to expose acts surrounding the EU reerendum, we should make it clear that,under present rules, this cannot happen i the UK votes to leave. Te Republic cannotnegotiate a trade deal independently o the other members o the EU. Whilst Dan Mulhall,Ireland’s Ambassador to the UK, assured us that the Republic would push or a deal thatwould disrupt the trade with the UK as little as possible, it “will be determined by thequalified majority voting o the Member States, all o whom have very different interests,preoccupations and relationships with the UK”.37

30. In Brussels, we were told that there are a range o possible outcomes rom any post-Brexit trade negotiations. o date, access to the Single Market has increased in accordancewith regulatory compliance and a contribution to the EU budget. High access might bean arrangement along the lines currently enjoyed by Norway which enjoys ull market

33 Q559 [Andy Bagnall]

34 The Director General of the British Irish Chamber of Commerce, John McGrane, noted the problematic nature of the

Norway model, e.g. an EU levy on food and fish exports from Norway. He suggested that: “this is the kind of scenario

that can happen when you begin to move away from the status quo that we know about.” Q69

35 Q575 [Andy Bagnall]

36 Q203 [Roger Pollen]

37 Q131

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access or goods other than fisheries and agriculture-related products. In return, Norwayaccepts EU regulations in those areas and makes a substantial contribution to the EUbudget. It does not have access to the ree trade agreements agreed by the EU. At the otherend o the spectrum is the agreement between the EU and Canada. Canada enjoys tariff-

ree access to the Single Market or most manuactured goods (there are some remaining, but they will be phased out). However, a number o agricultural tariffs remain and thereis only limited access or services. Canadian firms exporting to the EU are bound by itsregulatory standards, as are all exporters required to comply with the rules o whichevermarket they wish to serve.

31. Northern Ireland will obviously be covered by UK-level negotiations. But ProessorGibson noted that an arrangement that benefits the UK may not be similarly beneficial orNorthern Ireland: “Let us not orget that Northern Ireland is a very small part o the UKand, in going into those trade negotiations, one o the risks would be that its interests […]may not be the UK’s. Tere may be other priorities or the UK: to get the trade agreements

that are most beneficial to, say, the financial services industry first. Northern Ireland’sability to be a player in those negotiations, as a very small part o the UK, may have somesectoral ramifications on Northern Ireland that are worth thinking about”.38

32. It should be noted that, when we discuss “trade” in this section, we are largely reerringto exports. Companies that trade with the EU account or over 6.5 million jobs, althoughclearly not all o those jobs depend on the exports.39 However, because it is typically largerfirms that export, only around 11% o British businesses actually export at all and only aproportion o those export to the EU.40 However, all business are affected by EU directives,regulations and European Court o Justice judgments. It is thereore important to take

into account the views o those people who run businesses that do not export to the EU,yet are affected by UK’s membership o it.

33. It should also be noted that, since the UK joined the EU, the unemployment rate hasbeen consistently and stubbornly higher in almost every year o our membership than itwas in any year beore the UK joined, going back to 1940. Tis does mean that all actorsshould be taken into account when discussing this matter, and not just the workings opresent, and the prospects or uture trade deals.41

34. What sort o post-Brexit trading relationship the UK might negotiate with theEU is the question that needs to be answered beore any robust evaluation o the likely

impact o leaving the EU can be made. For many people, it is the main question thatwill determine which way they decide to vote.42 It became apparent during our visit toBrussels that there is an unwillingness to discuss options or UK-EU relations in theevent o a vote to leave ahead o the reerendum. Tis is probably inevitable. Te uturerelationship will be the product o a negotiation process between the UK and theremainder o the EU. Nobody has the authority to state in advance o that negotiation

process what the outcome will be, including the extent o Single Market access or UK

38 Q25

39 HMRC, IDBR overseas trade statistics country data tables 2014, November 2015

40 ONS, Annual Survey: Exporters and Importers, Great Britain 2014, November 2015.

41 Unemployment rose steeply from the mid-1970s. See Office of National Statistics, Time Series: Unemployment, 18

May 2016

42 See Ipsos MORI, Economy and immigration key issues for Britons in the EU referendum , Ipsos MORI Political Monitor,

April 2016

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firms and the extent o regulatory compliance. However, it means that one o the mostimportant questions in the minds o many remains unanswered and votes will be caston the perception o risk and the balance o probability.

35. Clearly negotiations cannot exclusively prioritise the interests o NorthernIreland to the detriment o other parts o the UK. But neither can UK-level interests beallowed to dominate the UK’s bargaining position at the expense o Northern Ireland.In the event o a vote to leave the EU, it is imperative that Northern Ireland’s economicpriorities, such as gaining a good deal or agricultural and manuactured goods,are given due prominence by the UK Government in any subsequent negotiations.However, the likelihood o this cannot be guaranteed.

Foreign Direct Investment

36. FDI is a significant priority or Northern Ireland because it lacks a critical mass o

large homegrown firms and so is particularly reliant on oreign investment to increasecapacity and create employment. It is no surprise then that the Northern Ireland Executivehas made improving Northern Ireland’s attractiveness to oreign investment a majorplank o its economic strategy.43 Te decision to reduce corporation tax rom 2018 wasa recognition that FDI is crucial or Northern Ireland and a response to ears that it wasmissing out on oreign investment to the Republic o Ireland.

37. Te UK is the most successul EU member at attracting FDI (see Figure 2). It holds$1.6 trillion (18%) o the EU’s total FDI stock o $8.8 trillion. France and Germany attract acomparable amount o EU-derived FDI—investment originating rom other EU members.

However, EU-derived FDI accounts or only around hal o the UK’s total whereas, or theother EU members, it accounts or a much higher proportion.44 In other words, the UKhas a much better record than other EU Member States in attracting FDI rom non-EUsources.

38. According to UKI, inward investment into the UK reached a record level o newprojects (1058) in 2014–15, an increase o 29% on 2013–14. Tere was also an increase inexpansion projects to 740, as well as 190 mergers. England dominates as a venue or inwardinvestment, with 796 o these projects going to London, and 905 to the rest o England.Northern Ireland, which has 2.9% o the UK population, received 48 projects—2.4% o thetotal. However, the average number o jobs created per project in Northern Ireland was

the highest at 83, almost double the figure or the rest o the UK, and representing 4.7%o total new jobs (4,007 out o 84,603).45 Between 2006–7 and 2010–11, 120 oreign firmsmade greenfield inward investments in Northern Ireland, creating 12,000 jobs.46 Tis hasbeen achieved whilst the Republic has had a lower rate o corporation tax.47

43 Northern Ireland Executive, Economic Strategy: Priorities for Sustainable Growth and Prosperity, March 2012

44 HM Treasury, The Long term Impact of EU membership and the Alternatives, Cm 9250, April 2016, para 1.69

45 UKTI, Inward Investment Report 2014/15, June 2015, p.10-11

46 FDI Intelligence, Improving the Quality of Foreign Direct Investment to Northern Ireland, July 2012, para 1.1

47 Corporate tax rates in Northern Ireland have been brought into line with those in the Republic. This will take effect

in 2018.

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Figure 2: UK FDI 2012

US $ billions

0

100

200

300

400

500

600

700

800

900

UKFranceGermanyNetherlandsSpainItaly

Non-EU sources EU sources

Source: HM Treasury, The Long term Impact of EU membership and the Alternatives, CM250, April 2016, para 1.69

39. FDI Intelligence note that our actors are crucial in determining FDI. Teir modellingsuggests that corporation tax, labour costs, market size, and the existing concentrationo similar oreign firms (‘agglomeration’) account or over 75% o the variation in FDIbetween cities and regions.48 On the basis o these our actors, losing access to the SingleMarket would deter oreign investment. But agglomeration effects would continue andcorporation tax and labour costs would be affected by domestic policies rather than EUmembership. Indeed, corporation tax is already being lowered to 18% rom 2018. In 2015,research by Ernst and Young did, however, argue that access to the Single Market was asignificant actor in attracting FDI to the UK. 72% o the investors they surveyed includedit as a actor in the attractiveness o the UK to oreign investors. Tis could be mitigatedwith a avourable trade deal. However, the uncertainty over uture UK-EU relations in the

event o a Brexit would, their research suggested, lead 31% o oreign investors to eitherreeze or reduce their investment until that picture is clearer.49

40. As with trade, accurately predicting the impact o a vote to leave on Northern Ireland’sFDI is difficult. FDI Intelligence data contrasts the motivations o oreign firms investingin NI with those investing globally.50 Te availability o a skilled workorce was the mostsignificant actor in attracting investment in Northern Ireland by a considerable margin,ollowed by the availability o government support. Tese actors were both considerablyless important globally, where proximity to markets and potential or market growth werethe most common. Te data is summarised in Figure 3 below.

48 FDI Intelligence, Improving the Quality of Foreign Direct Investment to Northern Ireland, July 2012, para 1.4

49 Ernst and Young, UK Attractiveness Survey 2015, 2015, p 4

50 From Daniel Donnelly, A Review of the Literature on Determinants of Foreign Direct Investment NIA , Briefing Paper

10/15, November 2014

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Figure 3: Factors attracting FDI to Northern Ireland

41. Anything that detrimentally affects the flow o FDI into Northern Ireland is clearly aconcern. It would risk damaging trade, productivity and employment. What is less clearis the extent to which leaving the EU would do so. Access to markets is a significant

actor in determining the attractiveness o a location or FDI and a Brexit would carrythat risk. However, a ree trade agreement o some sort would go a long way towardsmaintaining that market access. However, a Brexit would also increase the scope o theUK Government and the Northern Ireland Executive to introduce policies that wouldmake Northern Ireland attractive in other respects. For example, EU rules prevent theUK Government rom setting a lower rate o Corporation ax in Northern Ireland. Teresponsibility has had to be devolved, which has taken time to achieve, whereas i therate had been lowered, say, five years ago, much more FDI could potentially have beenattracted to Northern Ireland by now. Furthermore, EU rules prevent the UK governmentrom lowering the rate o VA or tourism in Northern Ireland, which is another tax that

compares unavourably with the rate in the Republic o Ireland, where tourism appears tohave been boosted by the lowering o their rate o VA.

42. Here, the contrast between the actors which attract oreign firms to invest in NorthernIreland and global trends is notable. Te two most important actors or investors werethe availability o a skilled workorce and the availability o government support. Inaddition to a ree trade deal allowing a high level o market access, the risk o a Brexit toNorthern Ireland’s FDI can be mitigated by ensuring that investment in education, skillsand training and a supportive public policy environment is maintained.


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48. Te unwillingness o the main business organisations unambiguously to advocatea particular position reflects a lack o consensus amongst their members on the issue.However, there seems to be a prevailing mood to remain in the EU amongst NorthernIreland’s businesses (though, given the relatively small number o responses rom

Northern Ireland in the surveys, caution needs to be exercised in drawing conclusionsabout the views o business).59 Although they have not taken a position, the Chamberso Commerce and IoD—the two business organisations that typically represent largerfirms in Northern Ireland and who have gathered NI-specific survey results—bothreported that a significant majority o respondents preerred to remain in the EU. TeIoD reported 74.4% wanted to remain and 17.5% to leave. Uncertainty about the uturetrading relationship with the EU, the border with the Republic and the impact on FDIwere all cited as reasons or remaining, whilst concerns about the uture trajectory othe EU and reedom rom constraints and regulation were cited as reasons or voting toleave.60 Te Northern Ireland Chamber o Commerce reported stronger support—81%—

or remaining in the EU and 11% or leaving.61

Tey reported members’ concerns thatNorthern Ireland would be isolated outside the EU, that the border with the Republicwould be affected, trade with the EU would become prohibitively costly, and the loss oEU unds as reasons or remaining in the EU. Te potential fiscal windall rom retainingmoney that currently goes to the EU was cited as a reason to leave.62

49. However, support or retaining EU membership is certainly not universal amongstbusinesses. Discussing the views o his members, Roger Pollen o the FSB emphasisedthat, in spite o a popular tendency to assume that business is uniormly pro-Europe, it isnot a “single cohesive block”; the small businesses his organisation represents hold a widerange o opinion and were certainly not united in the remain camp.63 Te FSB ound that

54.2% o respondents avoured remaining in the EU compared with 32.3% who wantedto leave.64

59 The IOD’s received responses from 214 of its members in Northern Ireland, the FSB 96. IoD Northern Ireland EU

referendum Survey, March 2016; Verve Partners, A Study of FSB Members’ Views on UK Membership of the European

Union, September 2015.

60 IoD, IoD Northern Ireland EU referendum Survey, March 2016

61 The BCC has received money from the UK Government which supports remaining in the EU.

62 Northern Ireland Chamber of Commerce, NI Chamber: Renegotiated EU deal unlikely to change voting intentions of

business leaders, 17 February 2016

63 Q166

64 Verve Partners, A Study of FSB Members’ Views on UK Membership of the European Union, September 2015. The FSB

emphasise that, particularly for small businesses, the personal and commercial views of Europe can become blurred

and that views of the impact on business will be coloured by respondents’ personal views .

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3 Agriculture50. Agriculture is affected by many o the same issues as the economy more generally.Te impact o a vote to leave on exports is a concern or armers just as it would be or any

other business, or instance. However, leaving the EU would also see an end to the currentsystem o support or armers through the Common Agricultural Policy (CAP), thoughthis might be an opportunity to introduce an alternative scheme, which perhaps could bebetter targeted. Such is the significance o the EU to agriculture in Northern Ireland thatwe have addressed it specifically.

Agriculture in Northern Ireland

51. Agriculture represents a significant sector or Northern Ireland’s economy. Tere are25,000 arms in Northern Ireland and 28,500 people employed in the arming sector.

Almost as many are employed in the wider agri-ood sector, which includes processingand packaging and is one o Northern Ireland’s main industrial sectors, and agriculturalsupplies.65 Agri-ood is, unsurprisingly, one o the sectors targeted or growth in theNorthern Ireland Executive’s Economic Strategy.66 Te Executive established an industry-led Agri-ood Strategy Board in 2012, which published its strategic plan or the sector inApril 2013.67

52. Te composition o the Northern Irish agricultural sector is quite different rom theUK as a whole. Figure 4 shows the agricultural output o Northern Ireland and the UKrespectively. It highlights how the sector in Northern Ireland is heavily concentrated onlivestock: dairy and bee cattle alone account or 50% o total agricultural output but only

28% in the UK. Te UK, in contrast, has a much higher output o crops and the sector asa whole is more diverse.

65 See DAERA, Statistical Review of Northern Ireland Agriculture 2015, p 19-21

66 NI Executive, Economic Strategy, March 2012

67 Agri-Food Strategy Board, Going For Growth, May 2013

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Figure 4: UK and NI agricultural gross output by sector 2015

0

0.05

0.1

0.15

0.2

0.25

0.3

milk cattle poultry other horticulture pigs eggs sheep

Northern Ireland UK

Source: DAERA

53. able 4 gives the value o Northern Ireland’s sales o its main agricultural productsby destination. Te data shows that the largest proportion o agricultural sales are madewithin the UK: sales within Northern Ireland and the rest o the UK comprise 70% o the

total.68 Exports to the European Union account or 27.2% o the total.69 O that EU trade,the Republic o Ireland represents a significant market. It accounts or 57.4% o sales to theEU and 15.6% o Northern Ireland’s total sales. Te Republic is also an important marketor agri-ood products such as baked goods and sof drinks. Te small proportion o salesto the rest o the world is striking. Only 3% o total sales are to countries outside the EU.

Table 4: Northern Ireland Agrifood Sales by Destination 2012

Destination TOTAL NISALES

Animal by-products

Milk/Milkproducts

Beef/Sheepmeat

Pig meat Poultry

NI £1205.8m £2.7m £296.3m £152.2m £124.3m £143.4m

GB £1940.5m NA £222.3m £768.3m £120.2m No data

RoI £704.7m £1.8m £155.5m £80.1m £55.5m £96.2m

Rest EU £523.9m No data £259.2m £178.6m No data No data

Rest World £135.1m No data £66.6m £19.9m No data No data

TOTAL £4510.0m £40.5m £999.9m £1199.1m £316.0m £764.7m

Source: DAERA

68 The sum of sales to Northern Ireland and the rest of the UK.

69 The sum of sales to the Republic of Ireland and the rest of the EU.

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54. Tere is clear variation between sectors. In their evidence to us, the Ulster Farmers’Union (UFU) stressed the importance o the EU as a market or bee and dairy in particularand this is confirmed by the figures.70 For milk and dairy products, or example, the UK isstill the largest market but accounts or just over hal o total sales, with the EU accounting

or over 40%. Again, the volume o exports beyond the EU is low.

55. As we noted in the previous chapter, i no trade deal with the EU were agreedollowing a vote to leave the EU, trade would be conducted under the terms establishedby the WO’s Most Favoured Nation (MFN) criteria. Tis could have potentially ar-reaching consequences or Northern Ireland’s armers. Te EU, like many trading blocs,has traditionally protected agriculture rom cheap imports and this is evident in the MFNtariff regime. ariffs are typically higher or agricultural products than manuacturedproducts. Te EU’s average MFN tariff is 5.3%. However, or agricultural products, theaverage is much higher at 12.2%. But there is considerable variation within that 12.2%average. O particular relevance to Northern Ireland are the MFN tariffs on meat and

dairy which are amongst the highest tariffs the EU imposes. For meat, the current MFNtariff is 17.7% and, or dairy products, 42.1%.71 It should be noted that these are averagesand are much higher or some dairy products.72

56. Tere is a global oversupply o milk which is reflected in alling prices that armersreceive. In Northern Ireland, average arm gate milk prices ell by 28% over 2015.73 Someo the oversupply is generated within the EU. Northern Ireland itsel saw milk productionincrease by 3% to a record level in the same period.74 Te concern is that, in this context,any post-Brexit trade negotiations would encounter resistance rom remaining EUmembers keen to restrict the supply o dairy rom a major supplier into the EU. But

the inclusion o dairy produce by HM Government in any post-Brexit trade agreementwould be imperative or Northern Ireland’s interests. It is also worth noting that Russiahas instituted a ban on agricultural imports originating rom the EU. Tis ban came inresponse to the imposition o EU sanctions on Russia, supported by the UK, ollowingthat country’s actions in Ukraine, and has impacted the global price or dairy in a waythat has been unhelpul to Northern Ireland’s armers.

57. ariffs on the scale o those currently imposed by the EU under the WO’s Most-Favoured Nation conditions would be hugely damaging to Northern Ireland armers.rade within the UK would be enhanced i substantial tariffs on EU imports intoGB were put in place, but exporters in sectors such as dairy would be badly affected,

especially in the context o a continued global oversupply. Agreeing a ree trade dealthat includes agriculture would need to be a priority or the UK Government in theevent o a Brexit. Tat deal would need to recognise that the profile o agriculture in

Northern Ireland is different rom the UK as a whole and should include tariff-reeexports o dairy and bee.

70 Q682 [Wesley Aston]

71 WTO, World Trade Tariffs, 2015, p 75

72 Because trade tariffs are excepionally complex, with different rates applied to similar products (for example, to

milk with different fat content or two different cuts of beef) or the form it is exported in, we have just included the

average tariffs. A full breakdown is available from https://www.gov.uk/trade-tariff/sections

73 DAERA, Statistical Review of Northern Ireland Agriculture, 2015, p 23

74 DAERA, Northern Ireland agricultural incomes in 2015, Statistical Press Release, 28 January 2016

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The Common Agricultural Policy

58. Te Common Agricultural Policy (CAP) is the largest single item o EU expenditure,constituting around 40% o the total budget. It comprises two elements or ‘pillars’. Pillar

One, the Basic Payment Scheme (BPS), gives support directly to armers and accountsor the bulk o the CAP. Pillar wo, the Rural Development Programme, supports ruraleconomies more generally.

59. Te steady move o EU agricultural support away rom coupled support—supportlinked to production—to provision o a basic income or armers, contingent on ulfillingcertain environmental roles, has continued. Under the latest round, the old Single FarmPayment (SFP) scheme has been replaced with the Basic Payment Scheme. Under the BPS,30% o the payment is dependent on compliance with various ‘greening measures’.75

60. Te CAP allocations or the current 2014–20 round were announced in late 2013.

Tere has been a reduction in the UK CAP allocation in line with a reduction in theoverall CAP budget. Te Pillar One allocation has been reduced by 12.6% and Pillar woby 5.5%.76 Within the UK, that reduction has been distributed evenly, so the proportion othe CAP budget going to each part o the UK has remained the same.

Table 5: UK CAP Allocations

Pillar One Share Pillar Two Share TOTAL

England €16,421m 65.5% €1,520m 58.9% €17,941m

N.Ireland €2,299m 9.2% €227m 8.8% €2,526m

Scotland €4,096m 16.3% €478m 18.5% €4,574m

Wales €2,245m 8.96% €355m 13.7% €2,600m

TOT €25.1bn €2.6bn €27.7bn

61. Te UFU is not campaigning to remain in the EU but its official position is that“… in the absence o any compelling reason or agriculture to leave the European Union,we eel that it is better or the minute, given the circumstances and the knowledge we have,to stay”.77 Tey did, however, acknowledge there were divisions within their membership:UFU President, Ian Marshall, told us that “We see divides within sectors o our industry.We see splits within amilies within our membership”.78

62. Along with access to markets, the uture o agricultural support is the other key issuethat would most directly affect Northern Irish armers. Currently, support to armersprimarily comes through the Pillar One o the CAP. Current economic conditions have putthe uture o arm support high in the minds o Northern Ireland’s armers. Data rom theNorthern Ireland Department o Agriculture, Environment and Rural Affairs (DAERA)suggest that total income rom arming in Northern Ireland ell by an astonishing 41%in 2015.79 Te figure is even higher or some types o arm, with dairy and pig armingparticularly badly affected.

75 Basic Payment Scheme Debate Pack , CDP2016/0026 , House of Commons Library, January 2016, p.10-11

76 “CAP Allocations Announced”, GOV.UK Press Release, 8 November 2013


78 Q722

79 DAERA, Northern Ireland agricultural incomes in 2015 Statistical Press Release, 28 January 2016. We were told that

dairy prices had fallen so dramatically due to a combination of high production, falling demand, particularly in Asia,

and the EU embargo on exports to Russia.

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Figure 5: Average farm business income by type of farm (£ per farm) 2010–11 - 2015–16 (forecast)for selected sectors

0

10000

20000

30000

40000

50000

60000

70000

80000

2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 (forecast)

Cattle and Sheep (LFA) Cattle and Sheep (Lowland) Dairy Pigs Cereals

Source: DAERA

63. Tis reliance on subsidy rom the EU was also noted by Dr Gudgin: “… virtually thewhole o arm income in Northern Ireland, by which I mean the income o the armersand the businesses, not the labour costs, is really covered by the CAP. I that subsidy wasnot there, the arming industry in Northern Ireland would not make any money at all. It isa marginal producer in this sense and that is something that nobody in Northern Irelandhas been very keen to publicise”.80

64. Figure 6 gives the breakdown o average arm income by source or the main industrysub-sectors. It clearly shows the importance o the direct payments in keeping many arms

afloat. Cattle and sheep and cereal producers are particularly dependent. Without it, or anequivalent replacement, many would not survive.

80 Q18

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Figure 6: Average farm business incomes including and excluding direct payments in 2013/14 (£ perfarm)

-40000

-20000

0

20000

40000

60000

80000

Cattle and Sheep (LFA) Cattle and Sheep (Lowland) Dairy Pigs Cereals

Farm Business Income(fbi) Direct Payments FBI minus Direct Payments

Source: DAERA

65. It should also be noted that because incomes or dairy and pig armers have allendramatically in the last year (see Figure 6 above) they will be more reliant on CAP supportnow than this 2013–14 data suggests.

66. Under such circumstances it is perhaps unsurprising that armers in Northern Irelandare concerned about the uture o support. UK governments have supported armers beorethey were eligible or CAP and could do so again. In an interview with the News Letterearlier this year, the Secretary o State or Northern Ireland, Teresa Villiers, who avoursleaving the EU, sought to assuage these sorts o ears. She said that some orm o supportor Northern Irish armers will certainly continue in the event o a Brexit. She emphasisedthat there would be extra money available or support i the UK were no longer making anEU budget contribution: “I don’t think one would want to say that it continues in exactlythe same orm, but arguably we’ll have cash to spare, so it’s not impossible that we couldhave a more generous system”.81 Yet, the Government has not signalled any commitmentto replace such unds to armers. Te Parliamentary Under Secretary o State or Northern

Ireland, Mr Ben Wallace MP told us the Government “cannot guarantee [that armers inNorthern Ireland] will get the same subsidy that they get currently in direct payments inthe event o Brexit”.82

67. Te UFU’s witnesses were not convinced by such reassurances. UFU President IanMarshall said “Te concern is that historically there has not been a track record o supportingagriculture, irrespective o which party was in control. In the absence o guarantees [ocontinued support] we have huge concerns about what this could potentially look like”.83 Chie Executive Wesley Aston went on to say “… we don’t expect the UK to provide any

81 Sam McBride, ‘After Brexit, Farm Subsidies Could Be Even Bigger: Villiers’,The Newsletter, 5 March 2016

82 Q842

83 Q681

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money to any parts o the UK arming industry”.84 Tey noted that British governmentshad not used the latitude available to them within the existing rules to provide support toarmers to the extent that other EU members have.85

68. In the event o a vote to leave the EU, the nature o continued support matters toNorthern Irish armers. Tey were concerned that any support programme must supportarmers directly; Pillar One unding would need to be replaced with an equivalentmechanism in the event o a Brexit. However, successive UK governments have argued orsignificant urther reductions in Pillar One support, which has been regarded as marketdistorting. With agriculture a devolved competency, the Northern Ireland Executivewould have the ability to match existing Pillar One support but it would run counter to thepolicy pursued by UK governments, and be limited by the level o unding made availableto the Department o Agriculture, Environment and Rural Affairs.86 It is clear then that itis the certainty that the CAP provides that has led the UFU to avour remaining in the EUeven though arming income in Northern Ireland has allen dramatically.

69. Tere has been a precipitous all in Northern Irish armers’ income rom arming,which means the uture o agricultural support is a particular concern or the sector.Without support, much o Northern Ireland’s agriculture would be unviable. In theevent o a vote to leave the EU, a new system o agricultural support should be high onthe agenda o both the UK Government and the Northern Ireland Executive.

84 Q681


86 CAP Reform 2014–2020: Reaching Agreement Standard Note SN06693, House of Commons Library, 14 August 2013,

p 8

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4 The Border and Cross-Border Issues

The border in the event of a Brexit

70. Northern Ireland is the only part o the UK to have a land border with another EUmember.87 Insoar as Northern Ireland does have a different relationship with the EUrom the rest o the UK, it is this that is the cause. Previous chapters have discussed therelationship between Northern Ireland and the Republic in terms o commerce. Clearly,the two parts o the island o Ireland are key trading partners or each other and supplychains ofen span the border.

71. Te nature o the border has contributed to this. Whilst it is not true to say that theborder is completely open—there is number plate-monitoring technology in place—it isthe case that individuals can travel across the border by land unimpeded. And commerce

can take place across the border without duties being levied, customs checks, or otherbureaucracy, even though different currencies are already used. Te uture o the border inthe event o a Brexit was given as one o the main concerns by some witnesses.88 Tose romsouth o the border were also unhappy at the prospect that this ree movement betweenNorthern Ireland and the Republic might become more difficult and that a Brexit mightlead to a ‘hardening’ o the existing ‘sof’ border. Dan Mulhall, the Republic’s Ambassadorin London, said that “… we are obviously concerned about the uture o the border. Ouropen border is the biggest symbol, perhaps, o the normality and development o north-south relations. Te act is that no one can be 100% certain about what the impact o theborder will be i the UK decides to exit the EU”.89

72. Tere have certainly been suggestions that the border might well be hardened in theevent o a vote to leave. aoiseach, Enda Kenny, has said that Ireland could reinstate bordercontrols in the event o a Brexit.90 Significantly, the Republic o Ireland is not a Schengensignatory. Furthermore, the UK and the Republic have maintained a joint Common ravelArea (CA) since the 1920s. With a CA which predates either nation’s membership othe EU and no complications arising rom Schengen, some would argue that there is nocompelling practical need or the border to change. Tere is a general consensus that thecurrent arrangements work well and there is no desire to change them.

73. However, in the event o a Brexit, the border between Northern Ireland and the

Republic would become an external border or the EU and so would principally be amatter o negotiation between the UK and EU. Te scope o any post-Brexit trade dealwould have an influence on the nature o the border. In the event that it did not extendto mutual tariff-ree access to each others’ markets, the border might need to includecustoms checks. Furthermore, i any post-Brexit agreement between the UK and EU didnot extend to the ree movement o labour with the rest o the EU, there are ears that theborder with the Republic would become a “back door” by which UK border controls couldbe evaded (though measures already in place to restrict the ability o what would be illegalEU migrants to live and work in the UK would reduce its attractiveness).

87 Gibraltar is not part of the UK, but it is treated as though it is in respect of the UK’s membership of the EU.

88 For example, Q2 [Professor Gibson], Q561 [Judith Totten], Q734 [Ian Marshall]

89 Q121

90 ‘Kenny: Brexit Could Bring Back Irish Border Controls’, ww w.politico.eu, 8 January 2016

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74. In spite o there being no desire on either side o the border to change the currentarrangements, we were told that, in the event o a Brexit, the uture o the CA wouldbe put into question. Te European Union’s Brexit askorce told us that as the CA isan agreement between two EU members and protected by EU Protocol (it is currently

included in an annex to the Lisbon reaty), it would no longer apply i the UK was outsidethe EU. Whilst the CA predates British and Irish membership o the EU, it is not clearthat its status in international law is sufficiently robust or it to bind EU members beyondtheir mutual obligations to each other in the event o a Brexit. Outside the EU, the UKwould be ree to negotiate a special status or Irish citizens: Proessor Dagmar Schiek,

Jean Monnet Chair o EU Law and Policy at Queens University Belast, told us thatthere is some latitude within the EU’s rules to allow some bilateral agreement betweenthe Republic o Ireland and the UK over the border. However, she emphasised that itwould require the remaining EU members to agree to this: “Under EU law, any uturerelation between the Republic o Ireland and the UK would be subject to agreement

not only with the Republic o Ireland, but with the whole o the EU”.

91

75. In the event o a Brexit, i there is no agreement on ree movement between the UKand EU as part o the exit negotiations, and a harder border is required, three scenariosare possible: the border between the Republic and Northern Ireland could be hardened;the UK could instead harden the border between the island o Ireland and Great Britain;or the Republic could opt to enorce the same approach to border controls as the UK.

76. Te most immediate impact o imposing a hard border between Northern Irelandand the Republic o Ireland would be elt by those who regularly cross between the two orwork, leisure or study. Data on the numbers o people who live on one side o the border

but work on the other is limited. A 2001 study estimated that there were 18,000 dailycross-border commuters (9,000 travelling in each direction).92 John McGrane told us thefigure could be as high as 30,000.93

77. It was suggested to us that it would be impractical to try to control every bordercrossing between Northern Ireland and the Republic.94 Tere are nearly 300 ormalcrossing points and many inormal ones. Assistant Chie Constable Will Kerr, PSNI, toldus “We have to be pragmatic about how effectively we could police a border i we want toimpose all these controls again”.95

78. An alternative solution might be to strengthen the border between the island

o Ireland and the British mainland. Tere are ewer crossing points to enorce and itwould be less disruptive as there are already checks in place. Some airlines flying betweenNorthern Ireland and the rest o the UK already subject passengers to identity checksand these could be made more robust and extended to relevant ports such

REPORT - Northern Ireland and the EU Referendum

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