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2 >> 1


Issue 7 2019 - FBJ


million (+41%) in the seasonally adjusted trade


surplus to €6,276 million in July 2019 compared with the previous month. The biggest change in


exports was the medical and pharmaceutical products sector which increased by €661 million (+18%) to €4,314 and now represents 33% of the value of total exports. Organic chemicals were also


up strongly, increasing by €642 million (+35%) to €2,479 million in July 2019 compared with July 2018. More strong growth was seen in exports of machinery


and equipment,


which increased by €314 million (+70%) to €765 million. Office machinery and automatic data processing machines increased by €144 million (+49%) to €441 million over the same period. However, exports to Great


Britain decreased by €66 million (-6%) to €1,108 million in July 2019 compared with July 2018. The main fall was in chemicals and related products. The Economic and Social


Research Institute (ESRI) says that, despite the considerable uncertainty,


Ireland continues


to grow at a robust rate. The domestic economy is now expected to expand by 4.0% in 2019 and 3.2% in 2020, it says, up marginally on its previous predictions. However, its forecasts for 2019 and 2020 “are subject to the


imports of chemicals than large molecule plants and, as a result, the ratio of Irish chemicals imports to pharma exports has halved over the past decade. Ibec adds that outside the


technical assumption that the UK’s continued membership in the EU will effectively remain in place aſter October 2019”. ESRI adds that the domestic


electrical


economy is now effectively operating at full capacity. Unemployment is forecast to fall to 4% by the end of 2020 with evidence of increasing wages and costs, and the government may have to take action, such as increasing taxes, to prevent the economy from overheating. However, “this policy may have to be re-examined in the event of a negative economic shock associated with a ‘No-Deal’ withdrawal of the UK from the European Union,” it says. The Ibec business


organisation adds that purchases by industries such as


aircraſt leasing can make


for volatile investment figures, while the effects of the growth of the BioPharma industry are by no means clear-cut. It says that while 2018 saw the single largest expansion in the volume of Irish goods exports since 2001 - 15% - that was almost solely driven by the BioPharma sector. This is related to the recovery of the sector aſter the ‘patent cliff’ and


massive investments in a new generation of biologics plants. Ibec says that the economics of


the new generation of BioPharma plants are quite different to that of ‘small molecule’ plants typical of


investments in the past.


Small molecule plants require significantly more intermediate


BioPharma sector, 2018 was the first year where the value of Irish non-pharma exports fell since 2011 due to slowdowns in the export of both micro-chips and food. In the indigenous food and drink sector, exports fell marginally by 0.8% or €105 million in 2018, although this trend has been reversed in the early months of 2019 with exports growing by over 7% annually, driven by continued increases in production in the alcohol and dairy sectors. However, both sectors will face challenges over the coming year with the threat of US tariffs and potential loss of preferential access to the UK market. In fact, for all the furore over


Ireland has a long biotech tradition. Killyleagh resident Sir Hans Sloane’s plant collection was the nucleus of the British Museum.


Brexit, it is the proposed US tariffs on EU goods that could have the most damaging effect – some €818 million-worth of Irish exports worth could be affected and, given that the food and drink sector makes up two-thirds of the exports of indigenous firms there is potential for significant knock- on impacts on the domestic economy. Ibec points out that despite making up only 10% of exports, indigenous exporters spend as much in the economy through investment, wages, and purchases from sub-suppliers as the multinationals.


///IRELAND


British Prime Minister Boris Johnson’s latest plan for Brexit, revealed in late October, would create, in effect a new customs border in the Irish Sea. It would mean that there would have to be some controls on goods moving between Northern Ireland and the UK mainland with the authorities in Northern Ireland collecting duties and VAT on behalf of the EU in some cases to avoid a ‘hard border’ between Northern Ireland and Ireland. While duties and VAT will not


automatically have to be paid on goods coming into Northern Ireland from mainland UK, they would have to be paid on those “at risk” of being transported onwards into Ireland. A joint UK/ EU committee would apparently decide at a later date what goods would be considered at risk. The European Commission


stated that the Union Customs Code would apply to all goods entering Northern Ireland, so as to avoid customs checks and controls on the island of Ireland. EU customs duties would apply to goods entering Northern Ireland “if those goods risk entering the EU’s Single Market. No customs duties will be payable, however, if goods entering Northern Ireland from the rest of the UK are not at risk of entering the EU’s Single Market.” This applies to all goods that are


not subject to further processing and that meet the criteria that a Joint Committee will establish in order to determine the risk of the onward movement. For goods from third countries not considered to be at this risk, the customs duties applicable in Northern Ireland will be the same as in the other parts of the UK. The Joint Committee will


establish, by the end of the transition period, the criteria for the above risk assessments and may amend the criteria during their application, taking into account issues such as the final destination of goods and value or risks of smuggling. The UK may reimburse duties


levied if the UK duty is lower, subject to appropriate safeguards on the correct application of EU state aid rules. No duties will be payable in


cases such as personal property, consignments of negligible value or those sent by one individual to another.


Northern Ireland will remain


part of the UK’s VAT area, with HMRC remaining responsible for applying VAT legislation, including collection and setting VAT rates. The UK will keep revenues accruing from this tax. But in order to avoid a hard border on the island of Ireland, EU VAT rules for goods will continue to apply in Northern Ireland. VAT exemptions and reduced rates applied in Ireland may also be applied in Northern Ireland in order to avoid distorting the island market. Northern Ireland will be able to operate the EU’s VAT Information Exchange System (VIES) and to share data with Ireland and other Member States. The aim of all these measures


is to avoid the controversial ‘backstop’ which is intended to prevent a return to physical checks on the Irish border. However, the main Ulster


Unionist party, the DUP, had, at the time of writing, yet to be convinced of the merits of the plan and could scupper the whole plan. The latest Boris Johnson


proposal, which apparently is acceptable to the European Union, is a development of his earlier suggestion of an “all-island regulatory zone” with Northern Ireland following EU rules for trade in goods. However, with Northern Ireland no longer be in the EU customs union, that would have necessitated a customs border between Northern Ireland and Ireland, although the government argues that most could be automated with a small number of physical checks, possibly at traders’ premises. Whatever deal is agreed, the


Stormont Assembly - Northern Ireland’s parliament - would have to vote to accept the proposals and this would be repeated every four years, although with the Northern Ireland parties not having been able to agree to sit in the house for over two years, how that would be achieved is far from clear. Under its earlier proposals, the is


government also promising


finance to help Northern Ireland manage the changes including grant schemes to help intermediaries such as customs brokers, hauliers, freight forwarders and fast parcel operators.


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