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Excerpts from speech
THE CHALLENGE OF BREXIT: IRELAND, THE EU AND THE TRANSATLANTIC RELATIONSHIP
PASCHAL DONOHOE TD, MINISTER FOR FINANCE AND PUBLIC EXPENDITURE & REFORM
THE BROOKINGS INSTITUTE, MONDAY NOVEMBER 13 2017
Ladies and Gentlemen, let me start by thanking you for the invitation to address the Brookings Institute.
I know the Institute is one of the foremost think tanks in the world, tracing its roots back to the first organisation devoted to analyzing public policy issues at the national level in the United States.
The Institute’s capacity to gather such a broad range of expertise over the years is why it has been able to maintain itself as such an important voice in American and global debates since its foundation.
THE CHALLENGES OF BREXIT
The overarching challenge for Ireland today is Brexit.
Britain’s exit from the European Union will be a defining moment in our relationship and I would like to speak to you briefly today about what Brexit means for Ireland and the EU and also for Ireland’s relationship with the United States.
In the first instance I want to emphasize the scale of the challenge that Brexit brings.
While Ireland’s trade with Britain has dropped from over 50% in 1973 to 17% today, it is still our single largest trade partner.
Estimates vary somewhat but over 110 million border crossings took place between Ireland and the UK in 2016.
Irish people cross the border for vacations, for university, for work, and even for marriage.
So we share not just trade but language, history and culture.
We also share the hard won peace process in Northern Ireland.
Brexit negotiations between the EU and the UK are ongoing but I can confirm that Ireland’s priorities remain unchanged.
We must protect the peace process.
We must ensure that there is no introduction of a hard border.
We must maintain the Common Travel Area between Ireland and the UK.
And we must ensure there are effective transitional arrangements leading to the closest possible trading relationship between the UK and the EU.
The Government is optimistic that this challenge can be met but we are under no illusions about the complexity and difficulty that must be overcome.
We have already taken important steps to prepare our economy, including significant measures announced last month in my Budget for 2018 and in Ireland’s Trade and Investment Strategy.
Brexit will also be a critical factor in our longer-term economic strategy;
A new 10-year Capital Plan is in preparation;
We’re revising our enterprise policy which sets out our longer term ambition for enterprise growth and job creation;
We are in active discussions with the European Investment Bank for a potential increase in investment in Ireland; and
Our Government’s enterprise agencies continue to work with a wide range of companies, helping them to deal with Brexit – making them more competitive, diversifying their market exposure, and up-skilling their teams.
Stabilising our national finances by reducing our national debt and need to borrow.
THE IMPACT OF POPULISM
There are lessons to be learnt from Brexit for all of us.
It represents a choice by a substantial portion of the electorate in a fully developed member of the global community to turn away from an interconnected Europe.
A choice to try and turn back the clock on some of their closest international relationships.
There has been significant analysis since Brexit that suggests that the vote was in part a reaction to increased globalisation.
I’m sure many of you here have read similar analysis that points to the rise in populism being driven in part by a backlash against a perceived economic injustice arising from globalisation and global trade.
This is not just an issue in Britain.
Nor is it confined to the English speaking world.
Right across the globe, in a host of countries with differing economic and political situations, a growing number of voters are asking what is there to hold on to in a world that is moving so quickly?
Many people have examined and rejected the existing political and economic frameworks which many would claim have served us well.
A crucial challenge is that those societies or countries that have either anchored the growth of globalization or are perceived to have benefitted the most from it are now leading the questioning of its benefits.
Many of you may know Dani Rodick from the John F Kennedy School of Government at Harvard University.
He made the point that until recently, it looked as if the world’s economic and political order was set on an established, predictable course.
Advanced democracies would be led by centrist politicians, trying to address inequality and exclusion at home while remaining committed to an open economy.
We have learnt that these conventional assumptions are just that – assumptions.
And they have been upended by a range of elections in Europe and across the world which have challenged what was previously settled economic and political orthodoxy.
The lesson I think that we must take from Brexit is that it is not enough to assume that we need to communicate better the benefits of trade and globalisation.
The lesson is that it is not enough to believe that globalisation has lifted hundreds of millions out poverty around the world, laid the basis for our economic prosperity and created a safer world.
The lesson is that we need to tell people about how globalisation and an interconnected world has changed their lives for the better.
As a small open economy Ireland is a good example of what globalisation means.
To take our relationship with the United States as an example, every year our trade is worth over $100 billion.
Taking goods and services together, we sell almost as much to the US as America does to Ireland.
There are about one hundred and fifty thousand people in Ireland employed by US companies and about a hundred thousand jobs in the US economy, across every state, employed through Irish companies.
When you factor in the rest of the EU you are looking at two of the most developed markets in the world, over eight hundred million people looking to buy goods and services from each other.
I believe that our trade relationship will only grow stronger.
And while trade talks are currently on hold I very much hope that a transatlantic trade arrangement will be agreed in the future.
This will be particularly exciting for Ireland because I believe we are uniquely positioned to act as a bridge between these two huge economies.
After all, Ireland is not just a member of the European Union but a close friend of the United States.
Our ties go beyond commercial opportunities – we share a language and a history, as well as business.
But however strong our trade relationship is now and no matter how much it grows in the future it won’t persuade people of the benefits of globalization by itself.
International tax issues are often discussed in the context of globalisation.
In this context, there is a lot of interest in Ireland, and worldwide, on potential changes to the US tax code, and the current debate here on the issue.
The recently published legislative proposals give a lot more detail on the intentions of Congress as to what any reforms will look like.
If agreed, these changes would represent a significant change from the current system under which the US taxes the global profits of US multinationals only when those profits are repatriated to the US at the full headline US tax rate.
As with any tax changes, the devil is in the detail.
The substantive detail of any final legislation will be important.
As you know, agreement between the House of Representatives, the Senate and President Trump will be needed before any legislation can ultimately be agreed and any changes can be introduced.
The implications of US tax reform for Ireland, and for the rest of the world, will depend on the exact nature of those changes which are ultimately agreed.
I am aware that sometimes Ireland is mentioned in the debate and discussion on US tax reform.
This is to be expected given the large numbers of US companies that has chosen Ireland as the ideal EU location to invest in, and trade from.
US tax reform however is not about Ireland: it is about modernising US tax rules.
It has been 30 years since the last substantial changes to the US tax code and the world has moved on significantly since then.
Ireland has always been clear that US tax reform will help to address aggressive tax planning by US multinationals.
We have taken action where we could but only US action combined with ongoing global reform at OECD can ultimately ensure international tax rules are up to scratch for the modern world.
This is why Ireland continues to play an important and constructive role in the international tax debate.
We are working closely with some 100 countries at the OECD, including the United States, to find evidence-based answers to the difficult questions posed by the digitalisation of the global economy.
As a small open economy, connected to Europe, the US, and the wider world, we are of course affected by changes in the international environment.
I do believe however, that change also brings opportunities.
The right choice for Ireland is to continue our commitment to a corporation tax system that it competitive, transparent and stable.
One issue that is clear however is that Ireland’s membership of the EU is, and will remain, a key factor in attracting FDI from the US and elsewhere.
Global business, from the US or elsewhere, will always want to have operations in the EU, and Ireland will remain very competitive and attractive as an EU location to invest in and do business from.
Ireland’s corporation tax regime and 12.5% corporation tax rate will continue to be competitive while also offering long-term certainty to international business.
And for the avoidance of any doubt, we have no intention to either increase or reduce the 12.5% rate.
No matter the issue, be it tax or trade or Brexit, it is vital that we are able to discuss the realities of a situation and can challenge the preconceived notions and assumptions that might be shaping our understanding of them.
For Ireland, Brexit represents a huge challenge.
But we are not facing it alone.
Our EU membership has been central to the success of our small, open, trading and competitive economy.
Membership of the Single Market and Customs Union is a core element of our economic strategy.
Access has allowed our economy to prosper and has greatly assisted in attracting business.
It has given us full access to EU trade agreements with other major markets and a capacity to engage in global free trade that we could not possibly have on our own, such as the recent trade deal between the EU and Japan, which is providing new opportunities for Irish exporters, in particular the farming community.
The EU is a home which we have helped build and while there are many challenges, the Irish Government is confident that we can work together as 27 countries, to deal with all of those challenges.
While Brexit will pose undoubted challenges to the Ireland, there will be opportunities as well and the Government will work to maximise those where possible.
Following Brexit, Ireland will be the only country in the EU that is an English speaking common law jurisdiction.
We have a young, well-educated population and the Government continues to build a business friendly environment, for businesses large and small, foreign and domestic.
It is easy to understand Brexit as a reaction to an ever changing and complex world.
But the world will continue change and our role as Government and leaders is to ensure that whatever the challenges we are ready to meet and overcome them.