by Gary Murphy
154 NARA, RG59, box 2343, pol 2–1 Ire., Dublin embassy to State Department, 9 Oct. 1964.
155 Ibid., box 2343, pol 15–1 Ire., Dublin embassy to State Department 16 Oct. 1964.
156 The Irish Times, 10 Oct., 15 Oct. 1964.
157 Horgan, Seán Lemass, p. 356.
158 Daly, First Department, p. 459.
159 M.A.G. Ó Tuathaigh, ‘The land question, politics and Irish society, 1922–1960’ in P.J. Drudy (ed.), Ireland: Land, Politics and People, pp. 186–7.
160 Andrews, Man of No Property, p. 242.
6. Exploring Faraway Lands
In January 1957 the US embassy in Dublin reported to Washington that ‘the Irish are beginning to think about the problems associated with EFTA. The Taoiseach … pointed out that Ireland could not hope to remain unaffected by the plan and advised interested organisations to study the plan’.1Such Western European moves towards European integration were being actively followed by the main economic interest groups, with farmers’ organisations, trade unions and business interests all adopting positions on both the European Free Trade Association and the EEC.
The following month – when Lemass was thinking seriously about issues of protectionism and free trade, and was hopeful that the forthcoming general election would see the return to Government of Fianna Fáil – the council of the Organisation for European Economic Co-operation initiated negotiations to establish a free trade area in Europe. Its objective was to establish a region within which there would be no tariff barriers or other restrictions to trade, although the EEC and each of the other countries within the proposed trading bloc would maintain protective defences against the rest of the world. As a member of the OEEC since 1948, Ireland participated in the negotiations during 1957 and 1958. Two points were of particular importance to the Irish: the future of tariffs on agricultural products, and the proposals to give special treatment to underdeveloped countries (later known as ‘countries in course of economic development’) by extending the period in which tariffs might be eliminated and by providing financial assistance if required.2The Irish Government hoped to be included in this category, which also included Greece and Turkey.
Yet the prospect of a European free trade area embracing the member countries of the OEEC was viewed with grim scepticism by some Irish policy-makers, given that the dismantling of protection was seen as a serious threat to Irish industry. Furthermore, the removal of barriers to imports into Britain would eliminate Ireland’s preferential position in that market vis-à-vis other OEEC countries.3Yet the weakness and instability of the Irish economy after a generation of self-Government, and the evident failure of traditional policies, led many to seek effective alternatives. As Garret FitzGerald pointed out at the time:
The emergence of the Free Trade Area Plan, and its presentation to the Irish public, could scarcely have been more opportune … and the interest, even excitement which this proposal has aroused throughout the country provides remarkable evidence of the existence of this new and receptive climate of opinion.4
Three working parties were set up by the council of the OEEC in March 1957: Working Party 21, which would deal with the general constitution of the proposed free trade area; Working Party 22, dealing with the special position of agriculture; and Working Party 23 to deal with the position of ‘countries in course of economic development’. It was to the latter working party that the Irish Government turned its attention. At a meeting on 9 October 1956, the second Inter-Party Government decided that, acting under the direction of the Taoiseach, the secretaries of External Affairs, Industry and Commerce, Agriculture, Finance and the Department of the Taoiseach should examine the probable effects on Ireland’s interests of an association between the proposed Customs and Economic Union and the other member countries of the OEEC in a free trade area.5
This was the genesis of the four-secretaries group that was to play the key role in moving Irish economic policy from a protectionist framework to one where interdependence with other European economies was assumed. Seven meetings were held before a memorandum was issued on 18 January 1957. The report pointed out that in considering the question of Ireland’s participation in a free trade area, the Government had to take into account not only the economic considerations but also more general matters of national policy regarding Ireland’s participation in a movement towards closer association of the countries of Western Europe. As T.K. Whitaker pointed out:
It was taken as granted by Irish policy makers from an early stage that economics and politics were mixed in a European context. We realised that serious issues had to be faced on both fronts when we first debated entering EFTA.6
For the Government, economic considerations were still paramount, and formed the bulk of the memorandum. While acknowledging that the establishment of the free trade area was intended to secure the economic benefits of a unified market of 250 million people – providing the opportunity for specialisation, lower-cost production, more productive investment, constant growth in the output of goods and services, and rising real incomes – the memorandum noted that this of itself would not ensure that individual countries would share proportionately in the expected benefits. It was also uncertain as to whether investment and adaptation funds would be made available to any member country that would otherwise struggle to fulfil the obligations of membership.
Whether Ireland joined or not, the formation of a free trade area and the emergence of an integrated Western European market of 250 million people were developments that would have profound implications for the Irish economy, necessitating a fundamental reappraisal of economic plans and policies. The Government was therefore compelled to consider both the immediate economic impact of joining a free trade area, and the question of whether participation in such an area would best promote the expansion of the economy in the future. Among the specific considerations the Government was concerned with were the effects of assuming an obligation to progressively remove existing protection over a period of years, and of foregoing the right to impose further protection against countries within the area. It mooted the possibility of including in the agreement escape clauses related, for example, to balance-of-payments difficulties, of which Ireland faced plenty in 1956, and special arrangements modifying the obligations in favour of member countries, like Ireland, whose economies were not fully developed.
Not surprisingly, Industry and Commerce was the most fearful regarding Ireland’s position. It came to the following conclusion:
As regards a large section of existing industries, the Department of Industry and Commerce can see no prospect of their survival, even as suppliers of the home market, except with permanent protection. The Department of Industry and Commerce can see no prospect of a significant expansion of industrial exports from Ireland to the continental part of the Free trade Area even if we were members of the Area and could thus enter this market without any tariff barriers.7The Department of Agriculture viewed events in much the same light, and due to the overwhelming reliance on the British market for Irish exports saw:
… little prospect of a significant expansion of agriculture exports from Ireland to the continental part of the free trade area even if we were members of the area and agricultural products were freely traded by all members other than Britain.8
There is a grim fatalism to Industry and Commerce’s view of engagement with the free trade area:
Ireland has reason not merely to be worried about the setting up of a free trade area, but about her future economic and political prospects generally. It is obvious that we can avoid economic stagnation and continuous loss of population only by making the most strenuous and urgent efforts to raise the efficiency and volume of production both in agriculture and in industry. If a free trade area is established and we had to accept from the start the full obligations of membership, those existing industries which need permanent protection (and therefore could not adjust themselves over the transitional period) would go to the wall. Few new industries could be established in
the absence of a protective shield and a guaranteed home market.9
Whilst this report has retrospectively been subjected to justifiable criticism for its negativity and paucity of thinking – considering that it offered no positive recommendations but a continuation of protectionism – it nevertheless illustrates the important point that Irish policy-makers were actually engaged in a debate about Europe.10The negative tone is not unusual, and nor should it be read as so. Industry and Commerce felt a loyalty to those industries that had survived and even prospered under protection, whilst Agriculture was obviously very wary of any continental trading bloc that would have the potential to interfere with Ireland’s special trading position with Britain. It was the question of a period of adjustment that was crucial to any proposed Irish application. In any event, despite the dire warnings about Ireland’s future, one avenue that was going to be explored was the European option.
Having considered the report, the Government adopted a sit-on-the-fence approach, contending that no commitment to join the proposed area should be entered into until every possibility had been explored for securing adequate safeguards for a country in the process of economic development. No initiatives were to be taken until the concession of special arrangements enabling Ireland to enter the area became part of the equation. J.C. Nagle defended the position taken by Agriculture as ‘the only one practicable at the time. We were in a very difficult situation. Britain was our predominant market and we had to consider all aspects of policy with that in mind.’11This was the position the Irish delegation was to adopt at the meeting of the council of the OEEC fixed for 12 February 1957. At a Cabinet meeting four days earlier, it was agreed to issue a formal statement voicing general approval of the idea of a free trade area:
In accordance with her general attitude to movements by European countries towards closer economic association, Ireland welcomes the proposal to form a European Free Trade Area. While her attitude to the question of participating in an area will, as in the case of other countries, be determined in the light of consideration of her own national interests, Ireland views with sympathy this latest movement towards closer association among European countries and wishes the proposal every success.12
J.J. McElligott – by then governor of the Central Bank – supported a more active approach to Europe; in early 1957, on behalf of the board of the Central Bank, he went on record in favour of Ireland joining EFTA:
Taking the long view the board was of the opinion that it would not be in the best interests of this country to remain aloof from the main stream of European economic development and that the disadvantages which would result from failure to join the proposed free trade area were likely to outweigh the temporary adjustments necessary in our economy consequent on a decision to join.13
It is significant that at this stage even McElligott was of the opinion that the country could not operate economically in isolation. He had overseen the dominance of protection in his role as secretary of the Department of Finance between 1927 and 1953 but was now effectively renouncing it. Seán Cromien notes that McElligott’s support for EFTA can in many ways be linked to the fact that:
He was a sponsor of Whitaker and he was open to ideas like EFTA as philosophically he would have seen it as a classic free trade idea. I think also he had reached the conclusion that protectionism had had its day and a new economic philosophy had to be put into place.14
Whitaker also emphasised the need for closer association with some larger economic unit, arguing:
It would be a sad commentary on our industrial and agricultural policy over the last thirty years if we could now choose only between two alternatives of (a) continuing to fall behind other countries in material progress, with an unabated outflow of emigrants, or (b) economic reintegration with the United Kingdom. Whatever difficulties it may involve, the European free trade area offers us a better prospect than either of those alternatives and we should hesitate long before we would decide to stay out. At the moment it is obviously the right policy to try to secure the most favourable terms of membership.15
At the first meeting of Working Party 23, held on 18 March 1957 – less than two weeks after Fianna Fáil had won a resounding victory in the general election – the Government indicated that it would be submitting a claim for special treatment: this was to be based on the belief that the aim of EFTA should be to establish conditions that would enable every member of the OEEC to enter EFTA without fear of serious damage to its economy. Ireland would be unable to join unless special treatment in this regard was agreed. In the meantime, a vigorous debate was going on within the principal departments about the route to be taken.
Compete with the best in Europe
Fianna Fáil’s general election victory saw Lemass appointed once again as Minister for Industry and Commerce; in this capacity, he chaired the committee of ministers to which the four-secretaries group reported. He immediately took a keen interest in the development of the EFTA proposals. A week after the general election, the secretary of Industry and Commerce, J.C.B. MacCarthy, had advanced the view:
[We] might agree that we could offer to submit ourselves for examination (say in three years’ time and at successive three year intervals) and to accept the results of such examinations. It was also possible that in the last resort we might be able to agree to make an initial reduction of say 10 per cent in our tariffs, subject to exemption for certain sensitive industries, provided the choice was left to us.16
Although MacCarthy’s tone was hesitant – and he was to bitterly argue with Whitaker about protectionism a number of years later – he realised that association with some sort of trading bloc might have benefits for Irish industry.
In April the Government decided to submit a memorandum to Working Party 23 that would include:
… an intimation to the effect that Ireland is willing to submit herself to independent examination, at suitable intervals, by the appropriate institutions of the Free Trade Area and to assume obligations of member-ship when it has been established, as a result of such examination, that her economy has attained a better relationship with the economies of those member countries of the area which are at present more highly industrialised than Ireland.17
The Irish ambassador in Paris, William Fay – who was chairman of Working Party 23 – urged the Government to present its submission in a more ‘optimistic’ fashion. He suggested the application should note that Ireland welcomed the idea of the creation of a large, free market that might at last provide a solid basis for the development of Irish industry through exports. He argued that the submission should declare that such development was ‘up to now frustrated by the limits of the small home market’ but that the creation of a free trade area would enable the Government ‘to compete with the best in Europe and thus make a substantial contribution to the success of the free trade area’.18
The eventual memorandum to the working party – submitted in May – stated that Ireland could not hope to share in the benefits of a free trade area unless the obligations of membership were modified so as not to deprive the country of its freedom to protect its industries over an extended transitional period.19The Government made it clear that it was ‘most anxious to avail of external capital for the financing of national development’, and confirmed its interests in any proposals that would be formulated for the creation of finance institutions in the free trade area.20The London financial magazine, The Statist, summed up the dilemma some months later, when negotiations were still ongoing: ‘there is no doubt that entry into a free trade area on a basis of equal responsibility with partners vastly better developed industrially would strike a death blow to the Irish economy’.21While Whitaker undoubtedly realised this, he wanted to see a situation develop where Ireland would one day be able to compete with these partners. It was with this in mind that he had issued in March 1957 a memorandum on the state of the economy in which he declared that something would have to be done economically or the achievement of national indepe
ndence would prove to have been a futility:
In the political field the primary national objective is the re-unification of the country. Until that is achieved, however, and no doubt after it has been achieved, the principal economic problem of the Irish Government will continue to be the safeguarding of political independence by ensuring economic vitality. Without a sound and progressive economy, political independence would be a crumbling facade.22
It was with this memorandum in mind that the official application to EFTA was drafted. In essence, it was an analysis of the Irish economy: it began by outlining the late start Ireland had made in the industrial field, ‘as prior to independence no autonomous policy for the development of Irish industry existed’, and added that a lack of industrial tradition, managerial skill, adequate risk capital and native raw materials, coupled with the country’s proximity to such a heavily industrialised country as Britain, and Ireland’s insular position, made the new state’s task of establishing Irish industries particularly difficult.23As an example of economic ‘poor-mouthism’, this would be pretty hard to beat. In the memorandum, the Government recognised the urgent need to develop an industrial sector comparable to that of other Western European countries. There was a lack of balance between agriculture and industry, with only 15.3 per cent of the labour force engaged in manufacturing industry. Furthermore, a high level of unemployment – aggravated by the degree of underemployment on the land – and the scale of emigration, which was higher than the natural increase in the population, highlighted the importance of Ireland securing industrial economic growth. The Government put forward the following
vision:
If the home market could be preserved by the maintenance of protective measures, Irish enterprises would become more attractive as an investment proposition to our people at home and to the investor from abroad. According as capital was forthcoming through the growth of the habit of investment among our people, and through the attraction of money, technical skill and enterprise from outside, development could be expected to proceed on the pattern of other European countries and in a measurable time to reach a point when the assumption of the obligations of membership of the Free Trade Area would become a practical proposition.24