I would like to thank you for the kind invitation to speak to you this evening at the start of what is an excellent expert panel. The diversity and seniority of your speakers confirms just how serious the issue of Brexit is for Ireland.
Nearly one year on from the Brexit referendum the only thing which is certain is that Brexit represents a profound economic, political, social and cultural challenge for Ireland. Purely in terms of the economy, this is the first time since Lemass set a European course nearly 60 years ago that we face new barriers to trade and investment.
It is almost beyond parody that the English anti-EU core that drove the Leave campaign claims that it favours freer trade. They have succeeded in removing the UK from what is by far the greatest enabler of free trade in modern history and they are now scrambling for ways of limiting the damage but remaining true to their anti-EU prejudices.
It is important to start any discussion on Brexit with the harsh realities. Not only does Brexit create uncertainty, there is no positive outcome in the near or medium term. That may sound harsh, but I see no benefit from thinking that we can get through this without cost.
There are indeed claims in Britain that everything is working out great and predictions of problems have been disproved. This is simply nonsense.
As the result of major short-term intervention by the Bank of England, a consumer spending boom which is already disappearing and looser fiscal policy, the UK’s economy has shown strength.
However the medium and long-term situation is far from rosy. Companies have already announced that thousands of jobs will be relocated, public borrowing has dramatically increased and taxes have risen.
The cake has been eaten and they are slowly discovering that they no longer have it.
In reality the most we can do immediately is to try to reduce the scale of disruption and aid transition to a longer-term model of more diversified, innovative and efficiently-administered trade.
Let me stress that while I see grave threats and inevitable damage for Ireland from Brexit I remain an optimist about Ireland’s future. We have shown many times in the past that we can overcome major obstacles. The transformation of our economy because of Lemass-era policies shows us all that we do not have to accept the inevitability of economic problems.
More recently we can see a direct link between long-term investments and sustained economic strength. For example, the decision to step-change investment in research was taken at a time when we already had full-employment. This investment allowed for later success in developing sectors which remained strong at the height of the crisis and have underpinned recovery.
We now have a short window of opportunity in which to prepare for a situation where the conditions of access to our largest and closest bi-lateral trade partner will be at best more complex and uncertain. We also face the ongoing challenge of a trading environment where evolution and innovation is the only way of sustaining high living standards.
Your other speakers will address quite specific elements of the Brexit challenge for Ireland. What I would like to do is to talk with you about the overall strategy, and the first part of this is to look at the current state of affairs.
I have spoken in considerable detail in other places about special arrangements for North/South and East/West trade as well as the future of the post-Brexit EU. I’m not going to repeat what I said in those speeches but to try and address the most immediate issues of this moment.
On Monday the relevant body of the European Council of Ministers signed off on the final set of directives required for the Brexit negotiations to begin. We have finally reached the end of the beginning.
I first addressed the issue of Brexit in May 2013 in a speech to the Institute of International and European Affairs. Since then it has been a recurring topic and it continues to be an absolute priority for me and for my colleagues.
We have reached out to experts in various fields and to both businesses and communities in seeking their perspectives and promoting the need for a deeper discussion about moving from broad debates to hard specifics.
It is our belief that Ireland needs a special deal and policies which go beyond reducing the administrative impact of the North-South customs border. The current regulatory and legislative frameworks simply won’t allow us to overcome the short and medium term disruption and prepare for a sustainable long-term model of trade.
My general sense of the current situation is that we are not Brexit-ready. What we have is a very high level of understanding that Brexit is negative and we must respond to it. But this is combined with great uncertainty about what we can do about it at both a business and national level. There is much that is happening, but this has to be step-changed and resourced at a much, much higher level if we are to get ahead of events.
At the highest of levels it is now clear that the UK will leave both the Single Market and the Customs Union. Given the Tory manifesto and that party’s still huge lead in opinion polls, the General Election will make this policy inflexible. With the rising prominence of the cavalier Brexiteers, the risk of Brexit on WTO-only terms is at best 50/50.
More importantly, the approach of the UK to the negotiations does not suggest that they have any serious interest in discussing complex sectoral deals. Indeed the flexibility in relation to Northern Ireland has been made subject to a decision to enforce a single model on all of the devolved jurisdictions within the UK.
Irish diplomacy has always been very strong in reaching out to other EU member states in relation to issues unique to Ireland. We have always had a disproportionate impact on major Treaty negotiations.
This strength has shown itself again in the willingness of others to acknowledge Ireland in the Negotiation Guidelines and Directives.
There is one very significant problem which we still have to address – and this is the fact that the current policy is that Ireland should have flexibility but only within the current EU legal order and legislation. In practical terms this means that whatever we do has to be justiciable through the EU system and cannot confer any benefit which is specific to Irish business.
You could paraphrase this by saying that we can have flexible arrangements as long as we are entitled to have them anyway.
If there is to be any genuine flexibility, or any special support for overcoming the short-term disruption of Brexit, it is very hard to see how this can be achieved without some new legislation and perhaps even a treaty-level provision.
To be practical, for the sectors which are going to be hardest hit, including those which are already hit by Sterling volatility, direct state aid for diversifying markets and product innovation is essential. This can’t just be in the form of vouchers or advice – yet such aid is clearly not allowed under current rules.
A solution should be to seek a form of transitional arrangement which is effectively a reverse-engineering of current accession treaties.
Every country when it joins the Union does so, on the basis of a treaty which provides for the full rigour of state aid and competition law to be delayed for particular sectors. This is generally done in order to give the industries time to adjust or to provide alternatives for the impacted regions and workers.
If joining the EU requires periods of adjustment to the new customs and market borders is it not logical that the same adjustment be considered for remaining member states when a state leaves?
The departure of the UK represents a significant change to the nature of our membership which was not anticipated in our accession treaty or in any of the accession treaties which we agree for the 19 countries which joined since 1973.
The ECJ’s ruling last week on the ratification process for trade agreements provides an opportunity. It basically suggests that any likely deal will have to be ratified in the same manner as a treaty-level agreement.
I believe we need urgently to come up with a specific transitional proposal based on the scenario of the UK being fully external to the Single Market and Custom’s Union.
In the first instance the lead in this will need to be taken by different business sectors which could, for example, develop proposals about how complex supply-chains can be defined and administered or how regulatory compliance or market diversification could be subsidized.
I also believe that we have to develop proposals to reconstruct our relationship with the UK government. At present the bulk of our connections emerge in the context of the EU. Equally most of the practicalities of the Common Travel Area are regulated by EU legislation.
Divergence and misunderstanding will be inevitable unless we create a new approach to our relations.
At a minimum we should seek to create something akin to the Nordic Council which provides a permanent forum for raises practical concerns and minimising barriers across EU and non-EU borders.
In terms of Northern Ireland and the border region specifically, the case for some form of Special Economic Zone is strong and, in truth, one of the few practical ways of limiting growing division and economic damage.
The Good Friday Agreement was never supposed to be about a simple binary choice between Unity or the UK. It is fundamentally founded on the idea of developing political, economic and social cooperation while providing an agreed process for addressing the constitutional issue.
Its spirit is one of sharing rather than competing – and to do so through institutions which can evolve.
Whether or not the UK government is willing at this point to concede special status, we should at least seek an enabling provision which can allow genuinely flexible arrangements in future.
Whatever the impacts of Brexit will be, many of them will be unanticipated. The best way of dealing with this would be a provision which would allow the EU Council to make special provisions for Ireland in the context of the implementation of the Good Friday Agreement.
This could take a form similar to the so-called Passarelle clause which provides a restrictive process for changing very limited matters which are otherwise only amendable through a new treaty.
Events such as this are essential because the level of professional engagement in the details of Brexit needs to be very high.
Many state agencies have in place early policies for helping firms and all are looking for what more they need to do.
Whatever happens it is clear that we will need to significantly increase the level and capacity of regulatory compliance expertise at all levels, from the individual firm to national government.
Many firms which have no experience of exporting outside of either the Single market or the Custom’s Union are facing very serious challenges. In many cases they simply are not of a scale where they can develop in-house expertise – and where they are the availability of this expertise is limited.
I believe we should have urgent national programme for expanding our regulatory compliance capacity. This should involve each major sector and profession detailing current capacity, future likely demand and the professional training required to fill the gap. As a general rule, there is an obligation on the state to take a lead in financing this.
It really can’t be something where it is left to the normal policy of individual or firm-level planning and financing.
The Revenue Commissioners are undertaking a major programme of looking at customs administration and they will certainly adopt as low-impact an approach as is possible.
However, we need a deep and ongoing exchange between them and both business and professional bodies so that the many unanticipated problems which will emerge are identified quickly and tackled appropriately.
The recognition here and abroad that Ireland has specific Brexit challenges does not mean that we are Brexit-ready. It means simply that our situation is acknowledged.
Tackling the adverse impacts of Brexit require a complex and coordinated series of actions ranging from securing key texts in international treaties to providing support to small businesses whose trading relations are being disrupted.
The next 18 months are critical, but adjustment to Brexit will continue over the next decade and will leave a permanent impact on our country.
We have got through worse before. At the core of this has been the willingness to face harsh realities, to avoid sugar-coating, to support enterprise and to invest in the skills and innovation of the Irish people.