As a small, open economy with a limited home market, Irish producers will benefit more from free trade agreements (FTAs) than producers in large countries who can gain scale in their home markets, according to a new study on trade.
Tánaiste Leo Varadkar and Minister of State Robert Troy have this week published a study on FTAs with Canada, South Korea, Mexico and Japan.
The independent examination, conducted by Copenhagen Economics, looked into the economic opportunities and effects for Ireland arising from these four recently concluded EU FTAs.
Principal findings of the study:
- Real wages are expected to increase between 2.6% and 4.4% in 2030 due to the FTAs, with the largest increases found for low-income workers;
- Imports are and will continue to become cheaper, reducing costs for consumers and Irish firms with global value chains;
- Irish GDP will be 2.3% higher in 2030 than would have been the case without the four FTAs in place;
- The higher GDP is driven by an increase in global total Irish exports of 3.3% and an increase in global imports of 3.3%;
- Increased market access benefits Irish exporters who can specialise in production, where they have a comparative advantage and are productive relative to competitors;
- As a small, open economy with a limited home market, Irish producers will benefit more than producers in large countries who can gain scale in their home markets.
The four FTAs
The EU-South Korea FTA, described as “the most ambitious trade agreement ever negotiated by the EU and also the EU’s only trade deal with an Asian country” at the time of implementation (2011), eliminates duties on almost all products.
Tariff cuts on sensitive agricultural products are being phased in over a period of up to 18 years.
Despite the ambitious agreement, trade barriers still exist, including the issue of market access for meat products.
The report notes: “Currently, Ireland does not have blanket access to the South Korean market for beef and sheep meat, which means that these products cannot currently be exported from Ireland to South Korea.
“To obtain market access for these products, South Korea must first recognise the Irish system for food safety standards for these products, after which individual plants can apply for clearance to export.”
The sectors in Ireland that have seen the largest relative increase in exports to South Korea were primary production (agricultural products), dairy and processed foods.
The EU FTAs with Canada, Japan and Mexico have all recently been concluded and are in varying stages of application and implementation.
Tariffs on industrial goods and non-sensitive agricultural products will be removed under all three agreements, the report states.
“For sensitive agricultural products, tariffs will, in general, be reduced under all three agreements and, in some cases, so-called tariff rate quotas (TRQs) will apply.
“A TRQ provides access for a limited volume of imports, either duty-free or at a reduced in-quota tariff rate, while additional imports are subject to the higher out-of-quota tariff rate.
“TRQs apply to several agricultural products, but of particular importance to Ireland is the treatment of beef, sheep and cattle meat.
The EU-Canada FTA removed/reduced tariffs on most agri-food products, except for chicken and turkey meat, eggs and egg products. Canada will eliminate tariffs for 91.7% of agricultural tariff lines, while the EU will eliminate 93.8% of agricultural tariffs by 2024.
Under the EU-Japan FTA, which entered into force in 2019, Japan will remove tariffs on 85% of tariff lines in the agri-food sector. The remaining tariff lines will be liberalised via tariff reductions or subject to TRQs.
“Japanese tariffs on EU beef will be reduced from 38.5% to 9% with an initial cut bringing the tariff down to 27.5%, but with a safeguard option of increasing tariffs if imports exceed a given amount. There will be no change in TRQs for Japanese beef into the EU.”
Meanwhile, the new EU-Mexico agreement, which was agreed in principle, “will liberalise more than 85% of tariff lines in agriculture and fisheries not previously liberated”.
The EU will grant Mexico a beef TRQ of 10,000t carcass weight equivalent and a beef offal TRQ of 10,000t carcass weight equivalent with 7.5% duty phased in over five years. There will be no change in TRQs for EU beef in Mexico.
FTAs open up ‘new and exciting markets’
Speaking about the report, Tánaiste Leo Varadkar said that along with an increase in wages, national income and productivity, consumers “are also better off as increased trade provides more choice and keeps prices competitive”.
“For business, trade deals open up new and exciting markets, make doing business easier removing bureaucracy, tariffs, quotas and regulatory barriers,” the Tánaiste and Minister for Enterprise, Trade and Employment said.
“This is particularly important for SMEs, given that trade barriers tend to disproportionately burden smaller firms.”
‘The more we trade, the more jobs we support’
Ireland currently exports over €20 billion in goods and services to the four specific FTA partners subject of this study, equivalent to almost 6% of total Irish exports of goods and services in 2019.
Minister for Trade Promotion Robert Troy added that as a small, open economy, trade and investment “is crucial to our recovery and future prosperity”.
“The more we trade, the more jobs we support and the better the living standards for all,” he said.
“The best way to grow our exports and market diversification is by improving the terms of trade for Irish firms.”