I welcome the opportunity to speak here today and I commend the committee on its work. I would also like to commend the Government on the way it has ensured, through effective diplomacy, that the particular problems of Ireland have been publicly recognised in the negotiating positions of both the EU 27 and the United Kingdom.
I will go into some of the difficulties that will arise in the Brexit negotiations. It is important to say that Brexit is a British initiative, for whose consequences Britain must take primary responsibility. It was not forced upon them. In fact, as I will show, numerous concessions have been made by its EU partners to keep the United Kingdom within the EU treaties, which it freely adhered to in 1973 and which its people overwhelmingly endorsed by referendum in 1975. The context of the Brexit negotiation is changing all the time. In recent weeks, the EU economy has been improving. Election results in the Netherlands and France are more positive than many feared. Even the Trump Administration is beginning to see value in doing business with the European Union. The EU has remained united in its response to Brexit, a matter for which the Irish Government can take particular credit.
While it may seem impossibly naive or optimistic today, I believe conditions can be envisaged in which, eventually, UK voters decide either not to leave the EU at all or, after it has left, to rejoin. Ireland should try to keep that possibility alive. The terms for Brexit, as set out so far by Mrs. May, will do incalculable damage to this island, politically, emotionally and economically. We cannot simply wait for this to happen. While seeking to mitigate the effects of Mrs. May's chosen hard Brexit, we must also do everything we can to ensure that, at the end of the day, there is no Brexit.
Apart from a few open questions, Mrs. May has said what she wants. She wants to be out of the Single Market, to be out of the customs union and to have control over immigration.
The open questions she has avoided so far are about the financial terms of the divorce, the status of EU citizens living in the UK and vice versa, and two aspects of a future trade agreement, if there ever is one, namely, arbitrating disputes and third-country imports getting into the EU via the UK. The Article 50 letter, sent to Donald Tusk, did not tell us much more about the UK negotiating position than the Lancaster House speech did, although it does not repeat the pledge to leave the customs union.
How the EU will respond to Mrs. May's letter? The European Council is meeting this week to agree the orientation it will give to the EU negotiators for the discussions with the UK that will start formally in June and in earnest after a new German government is formed in September. As these orientations will be agreed by consensus, each EU Head of Government will have to be satisfied. In working out the orientation to be given to the negotiators, it will be crucial for the European Council to have in mind its best alternative to a negotiated agreement - BATNA for short. It is important to have such an alternative ready because there is every possibility that no agreement will be reached within the two-year timeframe for negotiation and ratification of a withdrawal agreement.
Mrs. May has said that, for her, no deal at all is preferable to a bad deal. Her BATNA, so to speak, is no deal at all. No deal would mean the UK simply crashing out of the EU overnight, sometime before the end of March 2019. This no-deal scenario could lead to an overnight halt to flights, to trade and to commerce. There would be immediate, massive currency instability. As pure negotiating tactics, maybe it is not surprising that Mrs. May would pretend that no deal would be better than what she would call a bad deal but she is hardly serious. No deal is something the UK simply cannot afford. This no-deal scenario put forward by Mrs. May will, I expect, be probed during the UK election campaign to discover what it actually means. The fact that it was put forward by the Prime Minister vindicates Tony Blair's description of the UK Government, at the time of the Lancaster House speech, as not driving the Brexit bus, but rather being driven by partisan and ideological forces it had not tried to control.
The EU country that would be worst affected by the UK crashing out of the EU with no deal would, of course, be Ireland. Ireland, along with its EU partners, must use all its imagination and ingenuity to ensure that a better alternative to no deal is available in the event of a deal not being agreed.
If, because of domestic politics, the UK Government is unable or unwilling to work out a responsible BATNA, then the EU side should do so for it. It should adopt, alongside its line-by-line response the UK's negotiating demands, its own best alternative to a negotiated agreement. Having such a BATNA would also strengthen the EU's negotiating position. It would provide something with which an emerging deal could be compared. It would also provide a basis on which the UK electorate could reconsider its decision of 23 June 2016, if it ever wants to do that.
As Tony Blair said, UK voters have a right to change their minds. After all, politicians are allowed to change their minds, so why not voters? If it was the UK voters who, in a referendum, sent their Government on a mission towards Brexit, it would be reasonable that the same voters, rather than Parliament, should adjudicate on what will or will not have been achieved by their delegates. However, if UK voters ever do change their minds about Brexit, it will happen slowly and incrementally.
Parts of the Brexit scenario, obscured during the referendum campaign, will become clearer during the negotiation. The unavoidable interconnections between EU freedoms and EU rules will emerge. For this to happen, it will be in the EU side's interest to ensure that there is maximum public understanding of the unfolding negotiation at every stage. Transparency will work in the EU's interest. A running commentary is exactly what is needed in the interest of public education. When the UK public comes to see that the alternative to a single set of EU rules is either no rules at all or multiple sets of contradictory rules for different jurisdictions, citizens in both the EU countries and the UK may come to see EU membership in a different and better light. They may, for the first time in many cases, see the EU as something that actually simplifies their lives, rather than the reverse.
In my view, the BATNA that the EU side should adopt is an offer of continuing UK membership of the EU broadly on the basis that the UK was a member in 2015 before David Cameron's ill-fated renegotiation. The terms obtaining then were generous to the UK. They allowed it to opt out of the euro, of Schengen, of justice and policing co-operation, of the Stability and Growth Pact, and of the justiciability in the UK of the European Convention. Furthermore, the UK itself had also decided, without Brexit, that it would have a referendum of any new EU powers. In that sense, the UK was already having its cake while eating it before it ever decided on Brexit. These pre-2015 terms should be left on the table by the EU side but without the unjustifiable UK budget rebate.
The President of the European Parliament, Mr. Tajani, made such an offer when he met the UK Prime Minister recently. That was a very important initiative and underlined how central the European Parliament will be in this whole process. Of course, at this stage, the UK would reject such an offer out of hand. However, as the inevitable consequences of Brexit become clearer, UK public opinion might begin to see merit in it, particularly when it is compared with the costs of simply crashing out of the EU overnight with no deal at all, which is supposedly still Mrs. May's fallback negotiating scenario as compared with what she calls a bad deal.
The resistance to keeping such an offer on the table is more likely to come from some existing EU member states. Some of them will point to the UK's insatiable demands when it was a member for opt-outs, rebates and exceptions. Arlene Foster's analogy about feeding crocodiles may come to their minds if they are well informed about Irish politics. They will also recall General de Gaulle's original veto of UK membership and his foresight that the UK would never settle in as a member. They might also argue that offering the UK a way back after it has triggered Article 50 might encourage others to try it on too.
However, if they sit back and think about it, they will, I believe, conclude that a UK inside the EU is better for the EU than a UK outside it even with a trade deal with the EU. Keeping the offer of resumed UK membership on the table would be good politics and good economics for the EU.
I mention, in passing, that Article 6.8 of the Vienna Convention, which sets out the general international law on treaties, explicitly allows revocation of a notice of intention to withdraw from a treaty.
A political declaration by the EU Heads of Government at some stage in the coming months, along the lines of what the President of the European Parliament, Mr. Tajani, said, in favour of facilitating an eventual UK resumption of EU membership on its pre-2015 terms minus the budget rebate would create a realistic yardstick against which UK citizens could compare the terms of Brexit as negotiated by their Government at the end of the process.
I do not propose to go into detail about how the EU side should conduct negotiations with the UK. Obviously, it will keep the 27 member states informed at every stage. Ireland will need to ensure that any deal guarantees the UK will not engage in unfair or environmentally harmful trading practices, that there will be no unfair subsidisation of UK enterprises competing with Irish enterprises and that assurances will be received that the EU will take immediate action if either of those things happen. Ireland will have a special interest in the post-2020 agricultural policies of the UK and in ensuring that they do not introduce production subsidies that disadvantage Irish exporters, that the UK adheres to reasonable climate change emission standards and, further, that it does not permit third-country imports that would undermine traditional Irish exports to the UK. We will need to protect our electricity and energy supplies after the UK has left the EU's common energy policy. Ireland's network is entangled with the UK's, and it is through the UK that we can access the rest of the EU network. The EU has agreements on this with other countries, including Switzerland, which, although not EU members, contribute to the EU budget. The EU will have difficulty offering the UK a better deal than it is giving Switzerland on this or any other matter.
It is important to remember that Westminster politicians have never taken much interest in how the EU actually works, its procedures and rules and the compromises that underlie its very existence. They have this in common with many politicians in larger European countries who treat the EU as a sideshow to national politics. Even though the Conservative Party sponsored the idea of holding a referendum on leaving the EU, it did not give much thought in advance to what leaving the EU might mean in practice. In a sense, it is now finding out about how the EU works for the first time - just as the UK is leaving it. Mrs. May's first priority immediately after the referendum was party unity. This may be why she told the Conservative conference last year that she would go beyond the mere terms of the referendum. She would not just leave the EU. She would also refuse to join the European Economic Area, unlike non-EU member Norway. She would also refuse to join the EU customs union, unlike non-EU member Turkey. She would reject the jurisdiction of the European Court of Justice. This has kept her party quiet for the time being. However, now come the actual negotiations. This is where Mrs. May's rhetoric at the Conservative Party conference meets the reality of a rules-based international trading system.
In a rules-based international trading system, unpleasant compromises are essential if one is to persuade others to open up their markets to one's exporters, bankers, planes and people. In a rules-based international trading system, one cannot unilaterally make, amend, interpret and enforce the agreed rules in ways that only suit one's own state. There must be a common system, which involves some concession of sovereignty. One often has to accept an external enforcer such as the European Commission or an international court. This is a concession of sovereignty. One often has to accept an external body, such as the European Court of Justice or a disputes panel of the WTO, interpreting the meaning of the rules one has agreed. This is another concession of sovereignty. This is unacceptable to those who have made a religion of national sovereignty. It is unacceptable to some of Mrs. May's euro-hostile MPs and some supporters of Donald Trump.
Some have argued that if Ireland is in the EU and the UK is out of it, a special "bespoke deal" for the island of Ireland, or for the UK and Ireland, could be envisaged. I do not see how this could work as far as trading standards and tariffs are concerned. The European Court of Justice, ECJ, would be the final arbiter of Irish standards, while the UK Supreme Court would make the final arbitrations as far as UK and Northern Ireland standards would be concerned - a recipe for divergence. Ireland would be obliged to collect EU tariffs and enforce EU standards on any goods entering the EU through Ireland, and to do so at the Irish Border, unless we wanted to exclude ourselves from the EU Single Market. Any precedent established for the UK and Ireland in this matter will be examined by the countries in EFTA and the EEA. They will want to be sure that their existing deal is better than anything offered to the UK, which has refused to join either EFTA or the EEA. This will be the case especially if those EFTA and EEA countries are, as they now are, contributing to EU funds on an ongoing basis and the UK is not doing so.
The EU side in the negotiations will also have to respect the long-standing "Interlaken principles" of 1987 which state that, in negotiating privileged relations with non-EU states, the EU will prioritise integration between its own members over relations with non-members and will safeguard its own decision-making autonomy. This reference to decision-making autonomy may mean that EU rules and the ECJ must take precedence over decisions by any joint bodies the EU might agree to set up with the UK.
I have been reading publications of Conservative-supporting think tanks such as the Bruges Group and Leave Means Leave. They are discovering now how much extra bureaucracy will be involved in the UK decision to leave the EU customs union and the Single Market. The UK will have to introduce customs controls on the goods bought and sold between the UK and the EU. This will involve checking where the goods came from, whether they are properly labelled, whether they are safe and whether the tariffs due have been paid on all components included in those goods. The delays will be substantial - at the Border in Ireland and at ports in the UK, in Ireland and on the Continent. Customs clearance alone, without tariffs, will add 8% to the cost of goods arriving in the UK by sea from Ireland or the rest of the EU. At present, 90 million customs declarations must be checked in the UK for goods arriving from outside the EU. Once the UK leaves the EU customs union, UK customs officials will have to check 390 million documents.
Some may think the UK could reduce these difficulties by being in the customs union for some goods but not others. This is impossible under WTO rules. A customs union restricted to some countries is a departure from the WTO norm of non-discriminatory trade policy among all WTO members, the most-favoured-nation principle. A customs union is allowed by the WTO rules only if it covers substantially all trade. If the UK were to seek to have a customs union with the EU on some but not all of its trade, that would breach this rule. I do not expect, given that the UK will have to try to join the WTO with the agreement of all its existing members, that it will start by breaking the WTO rules. At least, if it does, it would not be acting wisely.
Even if the UK eventually decides to stay in the customs union but leaves the Single Market and tariffs no longer have to be collected, the origin of goods will still have to be checked, as will compliance with EU safety and labelling rules.
This will take a lot of time regardless of whether it is done at the border or in a depot, electronically or on paper. The cost of doing business will increase, but for no productive or constructive purpose.
By leaving the EU customs union, the UK will not only exclude itself from duty-free access to the EU market, which represents more than 50% of UK trade, but it will also lose the benefit of trade agreements that the EU has negotiated with 60 other countries, which account for a further 17% of UK exports. For example, since the EU negotiated a trade agreement with Korea ten years ago, UK exports to that country have increased by 110%. Leaving the EU means giving that up temporarily, perhaps permanently. There may be opportunities for Ireland to replace some of that UK trade with Korea. Japan has more investment in the UK than it has in the rest of the EU combined but a great deal of that is there to get access to the Single Market. Again, this is an opportunity for Ireland.
Mrs. May is also beginning to discover that her hard line on immigration will have costs. A total of 20% of employees on UK farms and 29% of employees in UK food processing plants are EU nationals who will lose their right to live and work in the UK. When the UK tries to negotiate trade deals with countries outside the EU, for example India, it will find that it will face demands for more Indian migration to the UK, as Commissioner Hogan pointed out earlier this week.
UK airports will find themselves losing business when the UK has to leave the EU open skies agreement with the United States. More transit traffic will be routed through Dublin in that situation. The UK will also have to try to join the European common aviation agreement as a separate member if UK-owned airlines are to have the right to fly passengers between EU airports. Rival airlines anxious for that business will not make it easy for them to join. A sudden "no deal" Brexit would leave the UK outside the European Aviation Safety Agency's jurisdiction without a ready replacement.
After Brexit, the UK will have to set up and staff 34 new national regulatory bodies to do work now being done for the UK by EU agencies, from which the UK will have excluded itself because those agencies fall under the jurisdiction of the European Court of Justice, ECJ. An example of this is EURATOM, a body confined to EU members that regulates nuclear safety, which is not a trivial matter for some of us who have represented the east coast of Ireland.
UK farmers and food producers will find themselves facing tariffs of 35% on dairy exports, 25% on confectionery and 15% on cereals. UK lamb production will be hard hit. These tariffs will have to be collected at the Irish Border and in Irish ports trading with Britain. This foreseeable consequence will be the direct result of the sovereign UK decision, not any EU position.
If Mrs. May wants to be able to make deals to extricate herself from some of these bad outcomes, she will need much more negotiating flexibility. Much will depend on what the Conservative manifesto says. If it repeats the promise of a low cap on immigration, then Mrs. May will have less negotiating flexibility after the election than she has now.
Even if the UK decides to stay in the customs union, additional barriers to trade will go up at the Border in Ireland and between Ireland and Britain. Ireland must use every legal means available to prevent this damage, including making full use of the institutions set up in the Good Friday Agreement, to persuade the UK to continue to adhere fully to EU standards within the UK even after it has left the EU. For example, were the UK to decide as part of its agenda of taking back control to develop new British standards for packaging, plant safety, pharmaceutical safety or food safety, the disruption to North-South trade and to trade between Ireland and the UK would be immense. Even slight differences in product or packaging standards can add significantly to costs and can require expensive duplication of testing and production lines. This will be the case even if there are no tariffs. Similar regulatory barriers could arise for the provision of services sold between Ireland and the UK. Increasingly, international trade agreements are about standards rather than tariffs. As the only EU country with a land border with the UK, keeping harmony between EU and UK standards will be disproportionately important for Ireland. Since 1973, both parts of the island have been following identical rules interpreted identically by the ECJ. All of this may change on the day the UK leaves.
The UK Prime Minister has announced that she will, later this year, introduce what she calls a great repeal Bill to repeal the European Communities Act 1972, under which EU laws automatically apply in the UK and are given primacy over UK law. This great repeal Bill would come into full force on the day the UK left the EU. This proposed Bill is misnamed because it will not actually repeal the EU laws, but simply declare these same laws to be sovereign and UK laws, independent of the EU but without altering a single comma. What happens after that? The great repeal Bill will go on to provide a mechanism whereby the UK can then quietly repeal or amend these laws one by one without reference to the EU or anyone else. This will be done by ministerial orders, which cannot be amended and are rarely even debated. If these orders unilaterally change the standards to be met in the UK market, this could overnight erect a new barrier to trade with Ireland and across the Border. The same will happen if a UK Supreme Court decision interprets a rule the UK has inherited from the EU in a manner that differs from the interpretation of the same rule by the ECJ. Overnight, we would have another new trade barrier.
It will take many years for UK Ministers to go through every inherited EU directive and regulation, every amendment to them and every court judgment interpreting them and then to decide which to keep, amend or replace. All of that will be done behind closed doors and under pressure from special interests. It could happen with no discussion with Ireland or other EU countries. That is the logic of the Brexit rhetoric about taking back control.
Ms May has promised that this process will be subject to full scrutiny and parliamentary debate, but that seems impractical, given that many EU laws are involved. Scrutiny and debate, if there is any, will be confined to Westminster. She said nothing about scrutiny in the Parliament in Edinburgh or in the assemblies in Belfast or Cardiff, let alone any consultation with Dublin. This problem will get more severe as time goes on and the UK seeks to justify its decision to leave the EU by introducing new rules and regulations of its own.
The British-Irish Intergovernmental Conference, set up under the Good Friday Agreement, must make this possible divergence a permanent agenda item. It will have to meet much more often than it now does to keep up with the rapidly moving EU and UK regulatory agenda and to spot divergences that might create new trade barriers. It will need a substantially enhanced secretariat and, as the initiator of Brexit, the UK Government should make concrete proposals on this.
Some of the laws being repatriated from the EU by the UK will deal with matters that fall within the competence of the devolved assemblies. These assemblies would theoretically be able to make new rules of their own that differ from one another, which raises the possibility of new barriers to commerce within the UK itself. The exact same former EU regulation could be interpreted in one way north of the border and in another way south of it.
What can we do to prevent these disruptive and costly trends? In my testimony to the House of Lords, I suggested that the proposed great repeal Bill contain a special Ireland clause. This clause would require any UK Minister or devolved UK assembly that was contemplating making any unilateral amendment to inherited EU-UK law to give public notice of its intention to do so and to consult the Irish Government and the Northern Ireland Assembly.
Such an Ireland clause should also provide for the monitoring of any divergences between the interpretations by the ECJ and the UK courts. In this way, one could identify anything that might cause a problem for any part of Ireland or for Anglo-Irish relations. This would help the work of the British-Irish Intergovernmental Conference, to which I referred earlier. It would not avoid all the problems that will arise from Brexit, but it should ensure that every step is taken with proper deliberation and foresight and that further damage is not inflicted by accident.
Another aspect of Brexit to which I must refer is its impact on the Good Friday Agreement. The consent principle in the Good Friday Agreement provides that the constitutional status of Northern Ireland - defined as its status as either part of the UK or part of a united Ireland - could not be altered without the consent of the people of Northern Ireland. This is not affected by Brexit, but it is arguable that Brexit changes the constitutional status of Northern Ireland in another sense by taking it out of the EU. This type of constitutional change was not envisaged at the time the agreement was being negotiated. Had Brexit been on the cards then, I am sure the negotiators would have attempted to deal with this matter in the original agreement. Brexit will impact living standards in Northern Ireland. The CAP provides 60% of the cash income of Northern Ireland farmers. The 57% of exports from Northern Ireland which go to the EU will suffer. The per-hectare support of farmers in Northern Ireland by the EU is the highest in the entire Union. Strand 2 of the Good Friday Agreement covers North-South relations. A strong North-South dimension was important in ensuring the overall balance of the Agreement. The three-stranded approach is the key to the Agreement.
One of the key elements of Strand 2 is the Special EU Programmes Body, which helps spend EU moneys on projects that promote closer North-South relations. When the UK takes Northern Ireland out of the EU, all this will change and, in the absence of EU moneys, Strand 2 will lose an important part of its content. The UK Government, which is the initiator of Brexit, must take responsibility for all of these issues and propose alternative ways forward to strengthen Strand 2 and Strand 3 of the Agreement. This will require the continued use of the review procedures in the Good Friday Agreement and the St. Andrews Agreement as Brexit evolves. This is a matter the committee might wish to explore.
In making its preparations, Ireland should act on the assumption that the UK will leave the customs union and the Single Market. While it should work for the best, it should prepare for the worst. In our efforts to get the best outcome, and, indeed, to help the UK, we will only get the support we deserve from the other EU states if we show that we are fully committed to keeping the EU together. We cannot allow a perception to develop that we are half-hearted about preserving and strengthening the EU. As a member of the euro, we are necessarily in the EU for the long haul.
Acting on the assumption of a hard Brexit, Ireland should adopt an aggressive strategy to improve its overall competitiveness - in other words, to improve its ability to survive the worst outcome. To deal with a bad Brexit outcome, Ireland must become hyper-competitive. The right action agenda is to be found in the
Ireland's Competitiveness Challenge, a report presented to the Government by the National Competitiveness Council. As the report points out, we start from a good position. Ireland has the fifth highest productivity in the OECD, after Luxembourg, Norway, the US and Belgium. In terms of ease of doing business, Ireland is in fifth place in the EU after Denmark, Finland, Sweden and Germany. It should aim now to be in first place in both of those tables. The National Competitiveness Council shows exactly where there is room for improvement. Our immediate competitor in many areas will still be the UK. Comparing Ireland with the UK, using the World Bank rankings measures of ease of doing business, the National Competitiveness Council report shows that: in regard to a business wanting to obtain electricity, Ireland is in 33rd place, while the UK is in 17th; in the context of obtaining construction permits, Ireland is in 38th place, while the UK is in 17th; and in the area of enforcement of contracts, Ireland is in 90th place in the world, while the UK is in 31st. The case clearance rate in our courts is the worst in the EU. In respect of trade across borders, Ireland is in 27th place, while the UK is in 13th. In terms of businesses obtaining credit, Ireland is in 32nd place, while the UK is in 20th. The remedy to each of these problems will be different and will require action by several Departments. A whole-of-Government approach will be needed, with a narrow focus on dramatically improving Ireland’s competitiveness position. From my experience, the Taoiseach's office is in an ideal position to get all Departments working on this issue.
If our aim is to be hyper-competitive, that must influence our policy on public sector pay. This strengthens the case for a rainy day fund to meet unexpected fiscal eventualities and that for a strong independent parliamentary budget office in the Houses of the Oireachtas. We should not spend today what we are unsure we will earn tomorrow. As our population ages and the retired population inevitably expands, costs in this area will increase and we will not be able to afford any work disincentives. We cannot afford to have so many households where no one is working, an area in respect of which Ireland is apparently worse than any other EU country. We will also not be able to afford to narrow our tax base, as some propose. In fact we should be broadening it.
Ireland must work to make the EU more effective and more visibly democratic. It must help the EU to shake off its pessimism and defend it from unfair criticism. However, Ireland must also come forward with ideas for the reform and improvement of the EU. There is no doubt that there was a risk that Brexit would lead to individual countries pursuing separate agendas within the EU but thanks, in particular, to Ireland this has not happened. EU states must now work hard to strengthen both EU-wide democracy and the effectiveness of the EU. As a first step, the EU's ability to conclude trade agreements must be improved. As matters stand, the parliament of one country - the Walloon Parliament in Belgium - could block a trade agreement. This should be changed. If the EU does not have the ability to conclude and ratify trade agreements, others will make trade agreements to our disadvantage. Likewise, we must ensure that the EU becomes more visibly democratic. This could be done by having the President of the European Commission elected directly in a two-round election by the entire electorate of the EU; having the president of the Eurogroup similarly elected by the eurozone countries and by giving national parliaments of the EU, if a minimum number of them agree, a power to require the Commission to put forward for consideration a legislative proposal within the EU competences in the treaties. National parliaments can already delay EU legislation so why not allow them to make positive proposals in respect of such legislation? It is vital that EU rules are respected by all countries. I was shocked to learn that France had said it would not enforce the postal workers directive if an amendment it proposed was not conceded. It is an existential threat to the EU if countries threaten to act in that way. I was surprised that the Prime Minister of a founding member state of the European Union made such a threat.
Likewise, we must not accept that the EU treaties cannot be amended, which seems to be the political consensus at present in the Union. A club that does not have the ability to change any rules will fossilise and die. The EU must accept that treaty changes to make it easier to conclude trade agreements, allow for democratic elections of EU leaders and permit national parliaments to urge proposals on the Commission would be supported by the public and should be entertained.