Yes vote maintains us as investment magnet

Fri, May 23, 2008, 01:00

OPINION:The IDA strongly supports the Lisbon Treaty because the single market is vital to attracting future foreign direct investment, writes  JOHN DUNNE.

THE RECENT economic development of our nation has been unprecedented and widely commented upon. IDA is proud of its role in this economic transformation, facilitating some of the world's leading corporations to invest here in Ireland. As a small island nation on the western periphery of Europe, Ireland has performed beyond all expectations: we have attracted a disproportionate amount of mobile foreign direct investment, relative to our size, particularly from the USA. We must remain cognisant of the factors which were instrumental in achieving this. And European Union (EU) membership has been central to that success over the past 20 years.

Since joining the European Economic Community (EEC) in 1973, our membership of the EU has supported Ireland's economic development in a myriad of different ways. Our economic growth has resulted in the convergence of our per capita income levels with some of the highest in the EU, a mere aspiration one generation ago. Irish per capita gross domestic product (GDP) has increased from 59 per cent of the EU average in 1973 to almost 125 per cent in 2006 (EU 15 average).

Since 1973, our labour force has doubled to over two million, and net inward migration stands as the hallmark of our success with a resultant reduction in unemployment. Ireland benefited from the free movement of labour in the EU at a time of high unemployment and recession in the late 1980s and early 1990s. More recently, the common European labour market has provided Ireland access to a well-qualified and highly skilled talent base.

Earlier this year, IDA sister agency Forfás published a very positive report on the impact of the single European market. One key finding was that access to the wider EU marketplace, since the 1970s, has resulted in both growth and diversification of Ireland's trade and investments. Our membership of the EU has enabled tariff-free access for Irish-based exporters to a market of almost 500 million people, one of the largest single markets in the world. As a result, in the space of one generation, Irish goods exported to EU member states almost doubled.

The reduction of trade barriers associated with the completion of the single market and the introduction of the euro were positive steps in our economic journey. IDA client companies and the international business community will readily recognise that Ireland's membership of the European Economic and Monetary Union (EMU) has eliminated exchange-rate risk in trade between EMU states, encouraged price transparency, facilitated cross-border trade and supported the achievement of a stable domestic macroeconomic environment.

These are the factors which have enabled IDA to win a disproportionate share of US foreign direct investment into Ireland. At the heart of this matter is the efficient functioning of the single market - and this is also what is at the core of the Lisbon Treaty and why we support it. The efficient functioning of the single market and its extension into new areas of financial and traded services is vital if IDA Ireland is to continue being successful in winning future valued-added investments and highly paid jobs for Ireland. In a Europe of 27-plus member states, an efficient market can only be guaranteed if the decision-making process is well-organised and streamlined as provided in this treaty.

Multinational companies have invested in Ireland on the basis that we are at the heart of a vibrant and efficient single European market. Conversely, any threat to the continued efficiency and dynamism of that market would be viewed negatively and be detrimental to its future investment prospects, particularly impacting the smaller countries. Such as Ireland.

The opportunities presented by the European market to multinational companies investing in Ireland are complemented by the talented Irish workforce and our attractive corporate tax rate of 12.5 per cent. This tax rate is fully compliant with the provisions of all EU treaties and nothing in the Lisbon Treaty changes that position.

Furthermore, the Lisbon Treaty provides for a continuation of the current status and any changes that might affect it can only be taken by the unanimous vote of all member states. Therefore, Ireland retains its veto in tax matters, thus maintaining international business confidence and ensuring we continue to remain an attractive investment location.

From IDA Ireland's perspective, a favourable corporate tax regime alone will not attract and retain substantial investment, as it is only relevant when a company can operate profitably in the market. The Lisbon Treaty allows Ireland to continue to offer a low corporate tax regime within a growing European marketplace.

In recent weeks, there has been much comment about the section of the treaty under which the EU's trade agreements with other countries are negotiated. This is known as the common commercial policy (CCP) and, for the first time, it makes reference to foreign direct investment.

However, this reference simply gives formal recognition to the status quo and to suggest otherwise is inappropriate. Existing free trade agreements negotiated under the CCP today set out bilateral rules in relation to investment by EU companies in other countries. These rules are beneficial to Irish companies that wish to globalise and establish a presence in foreign markets. These agreements are negotiated by the European Commission on the basis of a mandate given to it by the member states and must be subsequently approved by the member states.

Furthermore, the Lisbon Treaty clearly stipulates that in areas such as trade in service, intellectual property and foreign direct investment where unanimity is currently required, this unanimity will remain the case in the future.

Finally, within IDA Ireland we are immensely proud that a recent global survey ranks Ireland third place in the generation of new jobs per head of population. The importance of access to the European single market as an European EMU member should not be underestimated in this achievement. IDA's endorsement of the Lisbon Treaty is based on the key role that Ireland's membership of the EU has played in enabling us convince almost 1,000 overseas companies to create and sustain over 150,000 jobs in Ireland. Last year alone, these companies accounted for 85 per cent of our manufacturing exports, spent €15 billion in our economy and contributed almost half the corporate tax take, valued at circa €3 billion.

In conclusion, nothing in the treaty poses a threat to Ireland's ability to frame its foreign direct investment policy to meet future needs. A Yes vote on June 12th and the ratification of the Lisbon Treaty will facilitate a dynamic single European marketplace, supporting IDA in winning high-quality investments and well-paid jobs, further enabling Irelands transformation into a leading 21st century knowledge-based economy.

John Dunne is chairman of IDA Ireland and a member of the boards of the Irish Financial Services Regulatory Authority and the Central Bank