asked the Minister for Industry, Commerce and Energy if he will make a statement concerning the current situation relative to his consultations with the Commissioners of the EEC responsible for industrial affairs and competition policy concerning the continuation by Ireland of State incentive systems to industry with particular reference to export tax reliefs; and if, further to his address to the Confederation of Irish Industry on 22nd September, 1977, he will specify the difficulties of a technical kind relating to export tax relief referred to in his address.
Ceisteanna—Questions. Oral Answers. - Export Tax Relief.
5.
The current situation in relation to regional aids in Ireland is as outlined in the statement which I recently made to the Confederation of Irish Industry. Copies of this statement are available to Deputies. Discussions are continuing between the Commission and member States concerning the establishment of new arrangements to co-ordinate the regional aids of all member States including Ireland. We are working vigorously to ensure that whatever arrangements are drawn up will take fully into account our special development needs as recognised in Protocol 30 of the Accession Treaty.
The "technical difficulties" relating to export sales relief are twofold. Firstly, the relief applies solely to exports. As I mentioned in my statement, it has been argued that export aids are not compatible with the EEC Treaty. The argument is that within a common market there can be no exports as such and that it is wrong to apply export sales relief to such trade. The second difficulty is that export sales relief is not readily measurable. This is a characteristic that it shares with some of the aids of other member States. The Commission consider that in order to co-ordinate the regional aids of all member State—so as to prevent outbidding and to facilitate in particular the less-endowed regions—it is important to be able to compare these aids. This is possible only where aids can be measured by reference to a common standard. Hence the Commission, in consultation with member States, are endeavouring to develop methods of measuring these aids. While not denying the relevance of these technical considerations, I am anxious to ensure that in our case they do not overshadow what must be our primary focus of attention, that is, our need to promote and attract employment-creating investment.
Following is the Minister's statement:
Address by the Minister for Industry and Commerce, Mr. Desmond O'Malley, TD, at the Monthly Council Luncheon Meeting of the Confederation of Irish Industry in Dublin, September 22nd, 1977.
There has been so much alarm about our State aids system in general and export tax relief in particular over the last few days that I would like to straighten this matter out and make the position as clear to you as I possibly can.
The main rumours coming out of Brussels were to the effect that the EEC Commission had now decided that export tax relief would have to come to an end from the beginning of next year. I am pleased to be able to tell you that there is no foundation whatever for that story. Unfortunately, and I regret very much having to say this, a considerable amount of damage has probably been done already arising out of the mere circulation of these rumours and it would be foolish to expect that all of this damage will be undone by simply establishing that they were without foundation. One may speculate about the origin of these stories, but they are clearly not unrelated to the fact that any harm done to us may redound to the advantage of other countries. I am afraid that this is a factor which has been assuming increasing relevance in recent times especially in view of the disimproved employment situation in Europe and the consequent competition between all countries for mobile industrial projects.
As you know, I have just seen the two Commissioners mostly concerned with these matters, Commissioner Vouel, who has charge of competition matters and Commissioner Davignon, who is responsible for industrial affairs. I was glad to find that they were quite taken aback at the alleged "leak" which had occurred in Brussels and were at pains to assure me that no action of the kind envisaged in that leak would or could be contemplated. As regards the reference to people having seen a document, they informed me in the clearest terms that not only was there no document of which they were aware but that such a proposal had not even been considered. The official denial issued yesterday in the name of the Commission is, I think, a good indication of their great anxiety to put matters right.
In negotiating the Treaty of Accession to the European Communities we went to considerable trouble to get as many safeguards as we could, and particularly provisions designed to ensure that in the working of the Treaty due regard will be had to the weak state of our economy in comparison with other member countries and our great need to press on with our industrial development programme. One of the most important provisions in this category was Protocol 30 and the associated Declarations which are printed in the Official documentation relating to the Accession Treaty. I think most of you are familiar with the terms of the Protocol and the Declarations.
There may be some debate about their juridical effect but so far as we are concerned they were put there for a purpose and we intend to ensure that they are not ignored. One of our main objects was to ensure that our system of State aids, including the export tax relief, would persist with the minimum interference so that we could continue to be an attractive location for new industry whether coming from outside the Community or within it. We were also anxious to ensure that the industries already established in Ireland which were enjoying export tax relief and other aids could continue to make full use of them so that they could expand and prosper. There are, it is true, certain difficulties of a technical kind relating to export tax relief in as much as it can be argued that export aids are not compatible with the Treaty. A number of people, generally speaking competitors of ours had been drawing attention to this even before we joined the Community. There is some recognition of this problem in the Protocol and related declarations and it was always understood that export tax relief as well as other aids would continue to be reviewed by the Commission and that at some stage it might be necessary to devise a change which would dispose of the technical difficulty to which I have referred.
I would like to make it clear at this stage, however, that there is no question of anyone who, either in the past or in the future, has qualified for export tax relief, losing that right as a result of any change in the system which we may introduce. It is our intention that these enterprises will continue to qualify for export tax relief up to the expiry date of 1990 which is specified in Irish legislation. Another point I would like to make is that if changes are made, then those who qualify for the new aid system can expect to do as well, and to get as much support, as they do under the present system. This is something which is recognised in the declarations to which I have referred.
As required by the provisions of the Treaty of Rome, the examination of the State aid systems of member countries has been going on now for very many years. When the Community was expanded to include Ireland, the UK, and Denmark in 1973 this examination system was necessarily extended to us and there have been continuing exchanges on this subject since the date of our accession. The object which the Commission have in mind is to bring about what they call a "co-ordination" of State aids throughout the Community. There was a limited co-ordination in 1971 which, of course, applied to the original six member States. This was followed by new arrangements drawn up in 1975 for the enlarged Community. We were satisfied at the time with the 1975 solution in as much as it allowed us to continue with all our State aids, including export tax relief, without any restraint and without having any ceiling imposed upon us. In the meantime, however, a number of loopholes have lessened its effectiveness considerably. This has become painfully obvious in more recent times as a number of better-off countries of Europe have exploited the 1975 formula in a way which has involved the process of outbidding to which the Commission strongly objects.
The 1975 co-ordination was to last for a period of three years and almost a year ago now the negotiations commenced amongst the member States and the Community in order to establish the system which would apply from 1978 onwards.
These discussions gave rise to quite an amount of difficult technical work as it has not proved easy to find acceptable mechanisms for measuring certain forms of State aid. This question of measuring and transparency is something to which the Commission attaches great importance as without it, it is extremely difficult to have a meaningful co-ordination with ceilings which can be effectively enforced. These discussions have been going on now for a considerable time and it is to be expected that quite an amount of additional hard work will have to be done at the level of officials before proposals can be submitted to Commissioners and to Ministers. There can, therefore, be no support for the suggestion that we were late in tackling the Commission about so-called decisions which were in the pipeline. There was nothing to be late for.
I would not like to try to establish a precise timetable for the discussions which are to take place from this point onwards. I think it no harm to say, however, that whatever may have been our position in 1975 we now have a much greater interest in seeing that any co-ordination exercise upon which we may agree will be effective in two respects. First of all, it must give recognition to the principles enshrined in Protocol 30 by making a clear distinction between the things which the central regions of Europe can do and those which the more disadvantaged areas can do. We must have a great deal more scope and latitude than the development authorities within the golden triangle of Europe and, indeed, I myself am strongly of the view that the limits which have been agreed for these central regions are altogether too generous. We will also want to make sure that the loopholes in the 1975 co-ordination solution are fully closed off since it is essential that unfair competition for worth-while industrial projects should not be created by the development agencies in the better-off countries who up to now have had no trouble in putting forward bids which effectively go well beyond the EEC ceilings imposed upon them.
Finally, I would like to emphasise that in any negotiations in which we are involved for a 1978 co-ordination we will be taking a very strong line in respect of certain aids provided by other countries which have given rise to strong protests from Irish manufacturers, as they involve unfair competition and appear to be in breach of the Rome Treaty.