Ireland may have to sacrifice sacred cows to survive Brexit

State must reconsider corporate tax breaks and neutrality for the sake of our EU future

Enda Kenny with Danish prime minister Lars Løkke Rasmussen and  Dutch prime minister Mark Rutte in The Hague last  month. File photograph: Peter Dejong/AP Photo

Enda Kenny with Danish prime minister Lars Løkke Rasmussen and Dutch prime minister Mark Rutte in The Hague last month. File photograph: Peter Dejong/AP Photo

 

The prelude to the Brexit negotiations is over and we now move into a second, more challenging but crucial phase for Ireland.

There are three inter-related clusters of issues that confront Ireland in this phase. These are the negotiations themselves, the preparation of our public and private sectors for Brexit and Ireland’s future role in EU27.

All must be addressed in an environment of heightened uncertainty and contingency.

From an Irish perspective, it would be best if progress on the divorce itself is sufficiently substantial by the end of the year for the European Council to agree to open discussion on the future relationship between the UK and the EU.

That is because the Irish Border question is entangled with the nature of that future relationship.

A special status for post-Brexit Northern Ireland should not be ruled out

Both the UK and EU27 have said that they do not wish a return to a hard Border, but this is difficult to reconcile with the stated aim of the UK to exit the EU customs union.

In any case, the Irish Border will become an external border of the EU.

There is a need to examine other complex transfrontier arrangements that might offer examples of the creative thinking that will be needed if the desired outcome of no hard Border is to be achieved.

The Basel transborder region, the Norwegian-Swedish border and the Hong Kong-China border prior to the former’s return to Chinese sovereignty might offer helpful practice.

The idea of no change at all on the island of Ireland should also be assessed. What do I mean by this?

Let’s begin from the objective of not changing the current Border regime which enables goods and people to pass freely. What would it take to reproduce this outcome post-Brexit?

Northern Ireland does not have many ports and airports. Therefore, systems could be developed that ensured that there was no leakage of goods that were not covered by agreement into Britain.

In other words, Northern Ireland could not become a backdoor into or out of the UK. This would represent a special status for Northern Ireland and should not be ruled out.

Beyond the Border, how Ireland deals with Brexit depends on how the Irish public and private sectors respond to it.

The economic fallout of Brexit is difficult to predict until the future relationship between the UK and the EU is clarified through a negotiated deal or the failure to reach one.

Individual companies and SMEs are the most vulnerable and how they adjust and adapt to the new regime will be crucial.

Those sectors that are heavily reliant on the UK market, particularly the agri-food sector, need not just continued access to the UK market, but also diversification strategies so that they are less reliant on it.

Investment in more extensive transport links to the continent should be prioritised to avoid having to go through a third country that is no longer in the customs union.

In the event of a failure to reach a deal in the Brexit talks, part of the Irish strategy must be to secure financial instruments from the EU that would support the Republic and other very affected states.

EU strategy

To date, most attention in Ireland has been paid to these first two clusters of issues. However, as important in the longer-term is how the Republic adjusts to EU27, as opposed to EU28.

There is much that might be said about this but some issues stand out. How does the Republic engage with the other member states? Where does it find like-minded states? How does it underpin Brussels-level activity with strong and fruitful bilateral ties?

We must tap into the reservoir of resilience and adaptability that is a key element of the Irish DNA

The State was close to the UK on many, although not all, issues. Given our geographic location, it does not have natural allies .

In looking across the member states in terms of regions, Irish strategy should be to identify key interlocutors among the large and small states.

The recent meeting between the prime ministers of the Republic, the Netherlands and Denmark points to the potential for an arc of small northern states, running from Ireland to Sweden. The State has become a net contributor to the EU budget and would fit reasonably comfortably in this group.

The Republic must also be attentive to developments among the large states. Over the past five years, close attention to Berlin would have been sufficient, but Macron’s election means France will position itself centre-stage again through a renewed Franco-German relationship.

A Macron presidency is very good news for the EU, but will challenge Ireland in terms of its domestic policy mix. In particular, it will bring renewed attention to the Republic’s corporate tax rate.

The State has successfully defended the 12.5 per cent corporate tax rate, even though there were compelling domestic reasons to ask businesses to shoulder more of the burden of the adjustment during the recent recession.

What is impossible for the State to defend is the evidence that, due to additional tax breaks, large and extremely wealthy multinational companies based here pay virtually no tax at all.

There is a simmering public debate on corporate tax in the Republic which needs to be intensified so that the State has a tax code that is not seen as undermining other countries. The outcome of the Apple case will be a critical moment in this regard.

Moreover, a second sacred cow needs attention and that is the Republic’s policy of military neutrality.

Irish policy in this regard was always conditioned by the safety of its geographical location.

However, the return of hard geopolitics in a world of Putin and Trump challenges European security and means that the State’s neutrality deserves sustained scrutiny.

The so-called triple lock which binds the State into a UN resolution before committing to the deployment of Irish troops does not do justice to the Irish Republic.

The consent of the Oireachtas should be sufficient for such a move, and the Republic should take full part in the further development of the EU’s security capacity.

The Irish State and society approaches these challenges in the context of strong support for EU membership and the absence of a far-right party.

As Brexit approaches, we can call on the reservoir of resilience and adaptability that is a key element of the Irish DNA.

Brigid Laffan is director of the Robert Schuman Centre for Advanced Studies at the European University Institute in Florence.

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