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TEARING UP FORTY YEARS WORK

PRIME MINISTER MAY’S SPEECH.....IMPLICATIONS FOR IRELAND AND THE EU

 Once Theresa May said she was insisting on immigration controls, on rejecting the jurisdiction of the ECJ, and on making trade deals with non EU countries, a hard Brexit, along the lines of her speech yesterday, became inevitable.

That said, her statement that she wants the European Union to be strong and successful, without the UK, was important. It set a good tone and it differentiates her position from that of Donald Trump, who seems to want the EU to break up.

 She wants the EU to stay together, but for that to happen, there can be no question of a country being offered better terms for leaving the EU that it would obtain if it stayed in. That is not “punishing” anybody, it is common sense. It is where the negotiations will get sticky, and Theresa May did not deal fully with that reality yesterday.

  She set out her goals, but not all the pitfalls on the way. The eventual Free Trade agreement she wants with EU will have to be approved by 38 Parliaments within the EU. The difficulties Ukraine and Canada have had getting their Agreements approved show how unpredictable that may be.

She said that, on leaving the EU, the UK will retain all the  then existing EU rules for goods and services, but will then change them, as necessary afterwards.

 This implies a gradual hardening of the border in Ireland, as UK standards begin to diverge from EU standards.

 To the extent that the UK diverges from EU standards, the UK businesses will have to apply two sets of standards, one for the UK market, and another for the 45% of UK exports that go to the EU. More paperwork, not less!

Once the UK has left the EU, goods coming into the EU (including into Ireland) from the UK will be subject to checking under “Rules of Origin” requirements, in other words to check that they do not contain an undue amount of content that is not from the UK at all, but from elsewhere.

 For example, there will have to be checks that UK beef burgers do not contain Brazilian beef.  These “Rules of Origin” checks will involve a lot of delays, and yet more bureaucracy, which will be especially onerous for small firms.

 One study estimated that the need to apply “Rules of Origin” checks could reduce trade volumes by 9%.

Theresa May was remarkably unclear about the sort of relationship she wants with the EU Customs Union. She wants bits of it, but not all of it.

 In attempting this unusual feat, she will run into difficulties with the World Trade Organisation (WTO), a body of which the UK now wants to become a fully independent member.

The WTO works on the basis of non discrimination, or the so called “Most Favoured Nation” principle.

 As I understand it, any concessions that the EU Customs Union grants to the UK, as a non EU member, would have to be extended to all the EU Customs Union’s trading partners, unless the concessions cover “substantially all” trade between the UK and the Customs Union. If this is so, Theresa May’s formula will be unworkable. The UK will have to be either ” substantially in”, or “substantially out”, of the Customs Union.

Theresa May’s commitment to the Common Travel Area (CTA) with Ireland is welcome, but the CTA is an understanding rather than an enforceable legal agreement. The extent to which it gives legally enforceable right to work in either jurisdiction will be tested in the negotiations.

Now that it is clear that we have to prepare for a hard Brexit, Ireland should adopt an aggressive strategy to improve its overall competitiveness. That is how we will attract new business here, make Ireland the launch pad for new Irish businesses, and withstand the currency gyrations that will be part of the Brexit process.

 Ireland must become hyper competitive.

 The right action agenda for the government is to be found in the “Competitiveness Challenge”, presented to the government last month by the National Competitiveness Council.

 In his foreword to the Report, the Taoiseach said “We need to continue our effort to control and reduce costs-whether for property, legal services, finance or energy”

As the Report points out, Ireland has the 5th highest productivity in the OECD, after Luxembourg, Norway, the US and Belgium. To overcome Brexit, we should aim now at first, not fifth, place on this table!

When the UK leaves the EU, we will still be competing with them, and they will be freed of the discipline of   EU state aid rules, and thus able, if they wish, to compete unfairly with us. Comparing Ireland with the UK, on the World Bank Rankings, the Competitiveness Council Report says that, for a business wanting to

+ get electricity, Ireland is in 33rd place, while the UK is in 17th place in the world

+ get a Construction permit, Ireland is in 38th place, while the UK is in 17th place

+  enforce a contract, Ireland is in 90th place in the world, while the UK is in 31st place (our case clearance rate in our courts is the worst in the EU)

+ trade across borders, Ireland is in 27th place, while the UK is in 13th place

+  get Credit, Ireland is in 32nd place , while the UK is in 20th place.

The remedy to each of these problems is different. It will usually involve action by several government Departments. So a “whole government” approach will be needed, with a narrow focus on dramatically improving Ireland’s competitiveness position in every area where our costs of doing business are too high.

 The Taoiseach, and his office, are in an ideal position to drive this because he has unique authority to clear away road blocks caused by disputes between Departments.

 Making Ireland hyper competitive, so as to withstand a  hard Brexit, would provide a unifying agenda for the New Politics, going beyond the Programme for Partnership government, which after all agreed when Brexit seemed unlikely.

If the national aim is to be hyper competitive, that must influence public sector pay claims. It strengthens the case for setting up a “Rainy Day Fund” to meet unexpected fiscal eventualities, and the case for a strong Independent Parliamentary Budget Office. We will not be able to afford to narrow our tax base. We should not spend today, what we are unsure we will actually earn tomorrow!

We will not be able to afford any work disincentives in our tax and income support systems, nor to have so many households where no one is working, an area where Ireland is worse than any other EU country.

The clarity we now have from Theresa May’s speech about the direction Brexit will take, is the signal we needed for a comprehensive plan to make the Irish economy hyper competitive, starting now, even before the UK writes its Article 50 letter.

by John Bruton