Ireland in the middle!

Kilian Cawley | 25 Feb 2021 | General

EU – UK – US – Global Trade Diplomacy

Almost 12 months on from the initial Covid lockdown, almost 2 months since Brexit became a reality and now we find ourselves within Lockdown 3.0, this is on the surface not such a great place to be, however we do have reasons to be optimistic. The latest trade numbers from the Central Statistics Office, indicated that Irish exports had increased by 5% in 2020, up €8.3bn, mainly on the back of a surge in exports of medical and pharmaceutical products.

Ireland’s evolution over the past five decades from a mainly agrarian economy to becoming what Leo Varadkar described as a ‘global country, an island at the centre of the world’, has been an example of how successful global economic and trading agreements can be.

Ireland’s relationship with Britain is long and complicated, however the economic and trade ties have been very close and significant for centuries. Ireland and Britain while separated by the Irish Sea were each other largest trading partners, the Exchange Rate Mechanism between the Punt and Sterling, demonstrated the importance of trade between both countries by ensuring that exchange rate movements were controlled. It would be fair to say that Ireland was in the shadow of Britain and psychologically economically bound to its neighbour. Indeed, Ireland was always struggling to find its feet within the international community.

Ireland joined the EEC in 1973, on the coat tails of Britain. However, the consequences of this membership could not have been be any more different for both countries. Ireland has benefited greatly from EU membership, with 88% of the Irish population wishing to remain within the EU, because of the prosperity and trade opportunities it has afforded. There have been times when the relationship has been strained particularly with the arrival of the Troika and subsequent austerity following the Celtic Tiger boom. The Irish people see themselves as very much, Europeans and have developed fresh opportunities and have been building alliances. Confidence has grown through this membership and as a small country, Ireland exports around the world and has global influence, for example, with a seat on the UN Security Council.

Britain represented one fifth of the EU’s economic capacity and was the largest military power, the referendum result of 2016, to leave the EU was a significant psychological impact for the EU, Britain and indeed Ireland. Britain while a member of the EU, retained a high level of independence, retaining Sterling and was generally more resistant to the EU project. Traditionally Britain was an ordering power in Europe and not one of the ordered and this certainly had a bearing on the EU partnership.

The Brexit negotiations have been well reported and analysed and the subsequent fallout from Brexit is a dynamic situation. While there is a trade agreement with Britain and the EU, there are tensions between both sides around the Northern Ireland Protocol, the problems with supply chain, the location of the customs border running along The Irish Sea, even accessing vaccine supplies has caused tensions between both sides.

The consequences of Brexit for Ireland were always going to be challenging. The ‘Backstop’ was introduced to protect against a hard border on the island of Ireland to avoid damaging the Good Friday Agreement and a return to division and violence. During the negotiations, the EU assured Ireland of its support and that the country would not be abandoned.

Ireland’s relationship with the US goes back generations with significant ancestral ties and shared values, some 10.5% of Americans reported Irish ancestry in 2013. The US is Ireland’s largest export destination with a figure of 27% of exports. US FDI into Ireland has been substantial, with the Irish government collecting €4.75bn in revenue in 2016. While Ireland represents only 1% of the EU economy, it attracted 12% of US FDI.

The election of US President Biden, with his very open Irish heritage, has reignited the Irish – US relationship conversation which was largely absent during President’s Trump’s time in office. President Biden, and his fellow Democrat Nanci Pelosi, have both been very vocal about the preservation of the Good Friday Agreement during the Brexit negotiations and, that any effort by Britain to damage the agreement and peace in Northern Ireland would be reflected in achieving a US Trade Deal. The fact that both countries are the biggest investors in each-others countries cannot be ignored.

President Biden has many issues to deal with in his own country. The virus, the economy, climate change, racial divisions, the list is long. He must put the US first, by putting it back on a strong economic footing and regaining international respect and recognition which may have been somewhat diminished over the past four years. He understands the need for a grown-up approach to international relationships and the interdependencies between nations with regard to international trade.

There is no doubt that Brexit has changed the international trade dynamic, while other more powerful nations are reconfiguring their relationships, Ireland has been careful to build strong international relationships. Ireland took advantage of EU membership and became a nimble and open economy with a focus on FDI. While Ireland still has significant trade ties to Britain, EU membership and US FDI have neutralised the historic reliance on its neighbour.

With Brexit, it is expected that Ireland’s role will grow within the EU. Ireland now the only English speaking country in the EU, is considered the ‘gateway to Europe’ for US companies seeking to grow their EU footprint. With a highly skilled workforce, Forbes named Ireland as the ‘best country for business’. Phil Hogan, previously EU Commissioner for Trade stated that ‘Ireland remains a logical and very attractive European base for American business’. Ireland needs to remain attractive for investment and with an enhanced presence in Washington, must be a close EU partner.

With this strong growth and support from the US and the EU comes responsibility. There are various challenges on the horizon, tough discussions and decisions on corporate and digital taxation and greater contributions to the EU.

Other significant potential challenges to Ireland’s economy are potential slowdown in the US economy will have a knock-on effect, and pending trade wars, with EU-China and US-China could have negative implications on the Irish economy.

Ireland must continue careful diplomatic engagement and leverage the relationships and alliances it has built up over the past five decades globally. While international relationships are diplomatically and economically complex, there is the need to stand back and recognise what we have in common and avoid becoming obsessed with what divides us. Prince Charles during a visit to Ireland summed up Ireland and Britain’s relationship as being ‘enduring and mutually productive’. By the way, Brexit hasn’t gone away!