Trade Policy - Planning For The Future

3.1 The Challenges

3.1.1 As we look to the future, the main external events that face Ireland in the area of trade policy are:

• our participation with certain other EU Member States in the creation on 1 January 1999 of an Economic and Monetary Union.
• a new 'round' of WTO trade negotiations at the turn of the century expected to lead to further trade liberalisation.
• further enlargement of the EU in the first decade of the next century.
• a general process of continued expansion and liberalisation of world trade, possibly leading to global free trade by the end of the first quarter of the next century.

3.1.2 The likely effect of these events, both singly and in combination, will be to further reduce barriers to trade within Europe and globally. The global outlook of most of our industry means we are well placed to benefit from these developments; but there are also challenges facing us.

3.2 Economic and Monetary Union

3.2.1 The Government are committed to meeting the convergence criteria laid down in the Maastricht Treaty and thus qualifying this country for participation in EMU in 1999. This involves a continuation of an economic policy which aims to develop a dynamic low-inflation economy while controlling public sector deficits and providing for moderate wage increases. These principles are underpinned in Partnership 2000.

3.2.2 EMU itself will present one of the greatest challenges and opportunities for Irish trade. The overall effect of EMU on trade and exports, should, on balance, be positive. This expectation holds good regardless of whether the UK joins or not. The ESRI(Economic Implications for Ireland of EMU - Paper No. 28 (July 1996)).has estimated that joining EMU with the UK should lift GNP by about 1.4% and create up to 20,000 jobs. Even if the UK remains outside, the ESRI has estimated that the balance of quantifiable effects is favourable, although to a lesser degree of about 0.4% of GNP and an estimated 10,000 jobs. The expected advantages of EMU from an Irish exporter's perspective include :-

• elimination of transaction costs and exchange rate risk among participating States.
• low and fairly uniform interest rates among participating States.
• promotion of price stability, sound public finances and sustained low inflation.
• a Government voice in decisions about the economic and single monetary policy of the Union.

3.2.3 The Government have launched, through Forfás, the EMU Business Awareness Campaign which is aimed at helping small and medium-sized enterprises prepare for the practical changes and challenges of EMU. As part of this campaign, An Bord Tráchtála has launched a dedicated EMU guide for exporters, Irish Exporters and the Euro (May 1997), which deals specifically with the challenges and opportunities presented. In preparation for the single currency, ABT has stepped up its export development programme in Europe and is pursuing an export diversification strategy to Continental Europe supported by a £10m annual expenditure programme.

3.2.4 Ultimate responsibility for responding to the challenges and opportunities of the single currency rests with exporters themselves. They must prepare now in the full knowledge that the role of Government will not extend to providing financial assistance to firms or sectors which may experience difficulties on the road to EMU. EMU is a no bail-out regime.

3.3 New WTO 'round' of Trade Negotiations

3.3.1 At the end of the 'Uruguay Round' of trade negotiations, WTO members committed thems elves to engage in further negotiations towards the end of 1999. These are to focus on carrying forward the reform process in relation to agricultural trade and achieving a progressively higher level of liberalisation in relation to the increasingly important area of trade in services. It is possible, if not probable, that the negotiations will evolve into a more general 'millennium round' of negotiations. These would cover all aspects of trade liberalisation, including broader issues such as the interface between trade, environment, investment and competition.

3.3.2 Ireland's general approach, reflecting the needs of business, would be to favour the further liberalisation that would flow from such a general 'round'. In relation to further agricultural trade liberalisation, it would be essential for us that this take full account of the particular needs of the agricultural sector and of the broader rural community. It would be necessary that any associated adjustment of the EU's Common Agricultural Policy would be gradual, allowing for the structural changes which are necessary in Ireland, that the principle of compensation to farmers for any negative income effects would be maintained and that the common financing of the CAP was not undermined.

3.4 EU Enlargement

3.4.1 The EU is committed to entering into negotiations for the accession of Central and Eastern European Countries (CEECs) (The CEEC applicants for EU membership are: Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia.) as well as of Cyprus. The EU already has preferential trading arrangements with these countries providing for substantially free trade in both directions. While the time-table for the accession of these countries has not yet been finalised, it seems likely that at least some of them will accede to the EU within the next decade.

3.4.2 The main economic effect is likely to come from the accession of the CEECs rather than from the small and relatively developed economy of Cyprus. Ireland's trade with the CEECs has expanded rapidly in recent years, with a substantial balance in Ireland's favour. Accession of the CEECs would give Irish companies and producers guaranteed tariff-free access to an extra 110 million people in an enlarged Single Market of 480 million. Though Irish companies are also facing increased competition from these countries on important EU markets, current indications are that the positive trade benefits of their accession should outweigh the effects of increased competition (The NESC report referred to in Footnote 5 concludes that "...provided sufficient and appropriate actions are undertaken to ensure the competitiveness of Irish exports, the integration of the CEECs into the European trade regime provides a major opportunity for further growth in Irish exports"). In relation to agriculture and agricultural trade, it will be essential for Ireland that enlargement is not detrimental to the proper functioning of the CAP, that the principles regarding CAP reform outlined above (paragraph 3.3.2) are adhered to and that adequate budgetary resources are made available.

3.5 Towards Global Free Trade?

3.5.1 The trend towards globalisation of production - with intra-firm trade accounting for an increasing percentage of trade flows - is likely to provide further impetus to the elimination of barriers to trade in services and goods. The expected WTO 'round' at the end of the century is likely to mark a further step in this direction. With tariffs on industrial products already generally very low and trade in agriculture and services now incorporated into the WTO system, an objective of global free trade to be achieved in the first quarter of the next century is increasingly being spoken of.

3.5.2 Already the countries of APEC (APEC groups the ecomomies of the Asia-Pacific region), including major economies such as the USA, China and Japan, have set themselves a target of free trade among their developed-country members by 2010, to be extended to all members by 2020. There is also increased emphasis in the WTO on helping developing countries - and particularly the least-developed - to further integrate their economies into the global system so as to be able to benefit from the liberalised trading system and attract a greater share of mobile international investment.

3.6 New Liberalisation Agenda

3.6.1 The same process of globalisation is driving moves towards regulatory reform and reduced State involvement in trade-related activity. Strict enforcement of the WTO rules is acquiring a higher priority. The process of globalisation is also driving moves for binding multilateral rules on investment and competition. Both subjects are currently under examination in the WTO. In addition, OECD Member States are negotiating among themselves an ambitious Multilateral Agreement on Investment (MAI) (Annex 5 contains further information on the MAI and on Ireland's position) which will guarantee the unhindered flow of investment across borders.

3.6.2 An agenda is taking shape which would see, not only free trade in goods and services on a global basis, but also full liberalisation of investment flows and a common framework of competition rules aimed at preventing anti-competitive practices. Stricter curbs on subsidies and other supports from governments is also part of this agenda, as is an expansion of the WTO's role to cover investment and competition issues. The WTO rules would also be modified as necessary to further incorporate the principle of sustainable development and to facilitate the full integration of developing countries into the global economic system. WTO rules governing the free movement of key personnel might also need to be strengthened and the WTO might acquire a greater role in supporting the ILO's work in promoting, in a non-protectionist way, the observance of basic labour standards.

3.6.3 The scenario that is emerging would, in many respects, involve a replication at global level of the main features of the EU's Single Market. Recalling the length of time it took to create the Single Market among a small number of European countries, the challenges of achieving something similar at global level should not be underestimated. While suggested target-dates such as 2020 may prove too ambitious, the pace of liberalisation has quickened so much in recent years that such targets cannot be described as entirely unrealistic. It is certainly possible that developed countries would have eliminated all tariffs in such a time-frame.

3.7 Implications for Ireland

3.7.1 For Ireland, it is necessary to plan on the assumption that the trend towards global economic liberalisation will continue. With our experience of such open-market conditions in our main market, the EU, the transition at global level should not have any dramatic effect. Clearly, in a scenario of global free movement of goods, services and investment and further limits on State intervention, domestic competitiveness will become the vitally important ingredient to continued success in trade. We will also need to exploit to the full our natural advantages. For example, our grass-based, extensive agricultural production systems put us in an excellent position to meet the demand for safe, environmentally-friendly food products. We also need to ensure that the groundwork is laid now for fuller Irish participation in the Information Society (The types of strategies that need to be adopted are set out in the report Information Society Ireland - Strategy for Action (Forfás, December 1996)) which is essential if we are to participate fully in the anticipated further growth in trade in services.

3.7.2 Even in a situation of global free trade, an expanded EU Single Market is likely to remain our main market. However, there could be changes in the composition of our trade with non-EU markets arising especially from the rapid economic development of major countries such as China and India. There is also likely to be a significant impact arising from the process of globalisation of production and distribution and the rapid development of electronic commerce. Many Irish companies are already targeting transnational companies rather than specific export markets. A growing number are also generating new sales oppurtunities by establishing Internet 'sites' which showcase their goods and services to the global Internet community and allow orders to be placed electronically. The significance of these trends is likely to increase in the future.

3.8 Role of the State

3.8.1 In the global free-trade scenario, State supports in general, including those targeted at exporters, would be strictly curtailed. The focus of Government activity would rather be on measures to enhance the competitive environment, including a reduction of regulatory and other burdens on business. It would also be essential to ensure coherence between economic/trade policy and policy objectives in related areas. Close contact between Government and business through organs such as the Trade Advisory Forum and the Competitiveness Council would be essential to ensure continued responsiveness of Government to the needs of business.

3.8.2 For the present, it is necessary that Government activity takes account of the likelihood of a more liberal economic and trading environment by ensuring, for example, that State supports for exporters are concentrated on those companies who demonstrate a capacity for sustainable export growth and for whom such State support can make an appreciable contribution to their success in this respect.

3.9 Future Trade Prospects