God's Diplomacy

Feb 10, 2020

Business Post 9 February 2020

Now that the scramble for votes is over, the scramble for the big jobs in government begins. 

The job descriptions of the 15 ministers allowed under the constitution has changed many times, as successive Taoisigh sought to emphasise or reallocate political priorities.  New portfolios get created, and then can be re-amalgamated as happened with Finance and Public Expenditure and Reform in 2011.  Also as part of the deck shuffling by Enda Kenny in 2011, responsibility for trade was moved to the Department of Foreign Affairs.  The move was broadly welcomed at the time, notably by the Fianna Fáil leader Micheal Martin.

Trade is where the diplomatic rubber hits the road for open economies.  When outlining Britain’s trade negotiation strategy on Monday last in Greenwich, Boris Johnson quoted the 19th century Liberal politician Richard Cobden.  Cobden once described free trade as “God’s diplomacy”, the best way of keeping the peace.

More pragmatically, Ireland’s tiny pool of natural resources along with a small indigenous market means that we simply cannot go it alone and ignore international trade.  It makes perfect sense to have the trade function directly linked to the Department of Foreign Affairs and, in parallel, for Ireland to increase the number of diplomatic missions abroad in recent years as it has done.  Quite literally, if you're not in, you cannot win.

If ever there was a need for Ireland's trade concerns to be in step with our diplomatic efforts, it is now.  There will be no immediate land border issue on the island of Ireland as a consequence of Brexit.  Having this problem resolved diminishes any special negotiation status we may have within the European system, though there is optimism in official circles that the other EU countries won’t throw Ireland to the Brexit wolf as the future relationship with Britain unfolds.  As Finance Minister Paschal Donohoe was quoted as saying last week, “we will be seeking at all times to put both the European interests and the Irish interest first and I believe they are going to be fully aligned”.

This is the kind of diplomatic circumlocution that will be required in the coming months from our next Minister for Foreign Affairs and Trade.  Brexit makes little commercial sense for most Irish and British people in industry.  It will make even less commercial sense for the British if Britain becomes obliged to stick to EU norms and standards to secure a comprehensive free-trade agreement with the EU.  This was the underlying message of Boris Johnson’s Brexit policy speech in Greenwich on Monday last.

On the other hand, the EU cannot grant Britain free access to its market unless Britain continues to accept EU standards.  To do otherwise would dilute the necessity for any country to be a fully paid-up member of the EU to gain access to EU markets.  Compounding this problem for Brussels is that several other EU member countries aren’t entirely clear themselves on what constitutes adherence to standards and quite often don’t bother themselves unduly when going about implementing EU legislation.  Nor is Ireland the only EU member country fighting State Aid tax cases against the Commission.

The new Minister responsible for Foreign Affairs and Trade will also be embroiled in two further scenarios.  He or she will need to continually reassure investors from outside the EU that Ireland is still the place to be when doing business with Europe, and that because of Brexit we can offer even more opportunities than before, while at the same time dealing with a growing contradiction in the all island economic approach. 

Successive governments on both sides of the border have long extolled the virtues of an all-island economy but the Northern Ireland economy is imbalanced.  It is overly reliant on the public sector.  The Brexit withdrawal agreement has created a hybrid form of trading existence (part UK, part EU) for Northern Ireland.  Northern Ireland will have, in effect, dual membership of both the EU Customs Union and the UK Customs territory, and a similar dispensation for VAT.  This makes Northern Ireland an ideal place to consider establishing a business if looking to trade with Britain in high tariff or highly regulated goods. 

It follows that the worse the future trade deal is between the EU and Britain, the greater the potential advantage to Northern Ireland of having this dual-regime arrangement.  A thriving Northern Ireland economy should reduce Stormont’s dependency on public sector funding from Westminster which involves a subvention in excess of £1billion sterling a month. 

So now, in the course of the negotiations on the future trading relationship between Britain and the EU, the economic interests of the North and South will be directly at odds.  It will take a particular brand of diplomatic skill to square this particular circle.

In his Greenwich speech, Johnson without any sense of irony quoted Cobden’s “God’s diplomacy” idea as the best way of keeping the peace. Cobden could not have envisaged, and perhaps Johnson does not care, about the trouble the next Irish Minister for Foreign Affairs and Trade will have in ensuring that free trade does indeed keep the peace.  Any takers for the job?

 

Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland