In Search of the Promised Land

by Gary Murphy

  At this junction, the Irish Government had two alternatives in its quest to protect its interests: one was to seek participation in EFTA, and thus secure a seat at subsequent negotiations; the other course was to work for closer economic relations with Britain. The second was adopted in recognition of the preponderant place occupied by Britain in Ireland’s external trading relations. As Whitaker has maintained: ‘at that stage considering so much of our exports went to Britain, it was really the only substantive option we could take’.46The Government decided that since three-quarters of Irish exports were going to Britain and Northern Ireland, it should seek to explore the possibility of building on the preferential arrangements of 1938 and 1948 before turning to Europe in its efforts to expand Irish exports and develop the economy.

  In spring 1959 the committee of secretaries undertook an in-depth review of economic relations with Britain so as to examine how those relations might be changed in order to gain the maximum benefit for the future development not simply of the economy but of the state itself. It attempted to give future economic relations with Britain a new angle, and recommended that any review of the Anglo-Irish trade agreements should not be confined to seeking concessions within the frameworks of existing agreements merely to compensate for losses arising out of whatever new trading relations Britain might build up with Europe. It argued that what was needed was a different and wider approach that would have as its objective a substantial and significant improvement in general economic relations with Britain. It called for an improvement in such relations, claiming:

  It is necessary for further economic expansion if we are to retain the market outlets we already enjoy, secure the improved outlets necessary for further economic expansion and avoid being squeezed between the emergent trading blocs in Europe.47

  As freer trade developed within Europe, the Irish were afraid that there would be a weakening of the special trading relationship with Britain as other European countries – primarily in EFTA but possibly in a wider trading association – gradually achieved parity with Ireland by the attainment of free entry into the British market.

  At a meeting in June 1959 of the Foreign Trade Committee, of which Lemass was chairman, he succinctly summed up the problems of Ireland’s weak bargaining position in relation to EFTA: ‘because of the liberal Irish import regime there is virtually nothing to offer to the other side’.48Industry and Commerce then prepared a preliminary study on this matter, which was circulated to Agriculture, External Affairs and Finance. In the meantime, and with this in mind, representatives of the British and Irish Governments met on 13 July 1959, with Lemass and Maudling heading the negotiating teams. The British were reluctant to embark on talks along the lines suggested by the Irish representatives, pointing to the difficulty of according to Ireland more favourable treatment than that granted to the Commonwealth. For the British, any new Anglo-Irish trading relationship would have to take cognisance of their obligations to the Commonwealth.

  Over the ensuing months, various documents were exchanged between the two sides. The Irish Government’s ultimate position was that it would be prepared, on a sector-by-sector analysis, to negotiate such progressive reductions in the prevailing rates of duty on British products as would give British suppliers full opportunity of reasonable competition while affording Irish industries such protection as might be necessary for their progress. This measure represented a substantial concession that would virtually guarantee to British goods an increasing share of the Irish market. Following this meeting, the Department of Agriculture maintained that ‘we cannot afford to stay outside a regional grouping and that in particular we should strengthen and develop our relations with our most important trade customer Britain’.49This attitude was supported by the other departments, and was the strategy henceforth pursued by Lemass in his dealings with the British. Early in 1960 Whitaker made it clear in a memorandum on Ireland’s position in relation to free trade in Europe that the Government’s ‘immediate concern is to redress and improve the balance in her trade relations with Britain’.50

  At a meeting on 12 February 1960 between Lemass and Maudling – at this stage president of the Board of Trade after his promotion following the October 1959 British general election – the British made it clear that they would not be able to take any positive steps to steer investment into Irish industry. With regard to agriculture, it was decided that further negotiations should take place in order to conclude a trade agreement. This agreement was produced on 13 April 1960, and saw the British Government state that it would not reduce or eliminate any preferential margins on Irish agricultural produce without consultation with the Irish Government. The Irish Government undertook to initiate another review of protective duties and other import restrictions on British goods. The Government retained the power, subject to consultation, to impose additional duties or other import restrictions where it was satisfied that, following a review, a reduction of protection was in danger of causing material injury to an established Irish industry. Finally, provision was made for further yearly meetings to discuss trading relations and views on agricultural policies.51

  The Anglo-Irish trade agreement was the result of a concerted effort by the Irish Government to inaugurate a movement towards closer economic ties and some sort of free trade initiative with the British. While the resultant outcome was modest enough, Finance considered it a significant first step in the direction it wanted the Government to take with regard to its economic policies. Tadhg Ó Cearbhaill has maintained that the Anglo-Irish free trade agreement was ‘seen as a half-way house by the Government and was very much a preparation for entry to the Common Market’. In this context, the agreement can be seen as another step on a winding road to some form of economic association with Europe.52

  As the details of Anglo-Irish trade were being discussed, Lemass wanted to formulate an Irish position on EFTA. He had four questions on the free trade area; primarily, he wanted to know the short and long-term implications of joining EFTA on the Portuguese terms: Portugal had obtained terms that allowed tariff reductions to be spread over twenty years, and had secured the right to introduce new tariffs up to 1972 as long as they were removed by 1980. Secondly, there was the minimum agricultural concessions required from Britain for entry. Thirdly, he wondered would it be more advantageous to seek a free trade area with Britain alone. Finally, there was the question of the compatibility of an Anglo-Irish free trade area with Britain’s obligations to EFTA.53

  Finance, Industry and Commerce, Agriculture and External Affairs coalesced to present a memorandum to the Taoiseach on 8 February 1960 outlining a response to these questions.54Opposing views were taken by Finance and Industry and Commerce regarding protectionism. Industry and Commerce considered it essential to have some arrangement under which the Government would be free to maintain protection and to take whatever steps would be necessary to promote industrial development and exports. Only when Irish industry in general had reached a point where tariff reductions and quota dismantlement could be adopted without too much risk to Irish industry could some sort of free trade development be adopted. Thus, the principle of a free-trading period during which tariffs would be maintained was crucial to Industry and Commerce. Entering a free trade area would in effect be a betrayal of indigenous Irish industry. It had earlier suggested that as many as 100,000 of the 150,000 or so manufacturing jobs of that time could be lost if trade was liberalised across all of Western Europe, and noted that these conclusions were broadly valid with respect to EFTA membership. Depending on the precise nature of the terms to be agreed with Portugal, Industry and Commerce suggested that between 20 and 40 per cent of manufacturing employment could be threatened. As Frank Barry has pointed out, ‘in this, the department is clearly equating competition with ruin’.55He also notes that the view of Industry and Commerce is very similar to the Irish Farmers’ Association reaction to what appeared to be a likely World Trade Organisation deal in the summer of 2008, when the IFA claimed that such
a deal would result in 50,000 jobs being lost in the food industry and services, and a further 50,000 farmers losing their livelihoods with farm output being halved. This again goes to show that in Ireland, protecting the interests of one’s own patch seems to be an overriding principle for at least some economic interests.

  The Department of Finance argued that economic expansion depended on greater industrial efficiency, reflected in lower costs and better quality. Failure to achieve this would jeopardise the future of Irish industry and its associated employment whether Ireland participated in a free trade area or not. It opposed the necessity of obtaining a period of freedom from the obligation to reduce protection. Finance, furthermore, maintained that participation in some form of free trade arrangement was the most advantageous context in which to effect a gradual reduction in tariffs that would be necessary to ensure progress in industrial efficiency; thus, it favoured entry on the Portuguese terms, but did not want a free-trading period, which, it believed, would be a psychological as well as an economic mistake. In a European setting, an external commitment, provided it was not too severe, would be more effective and beneficial than a system operated entirely at the discretion of the domestic Government. External Affairs supported Finance’s view. Agriculture, however, saw little benefit in joining EFTA unless it would be possible to secure agricultural arrangements with Britain that would be substantially better than those operating between Britain and the other members of the seven.

  The joint-departmental memorandum addressed the question of whether it would be more in Ireland’s interest to seek ‘free trade’ arrangements with Britain alone than with EFTA as a whole. Agriculture gave a positive response. Finance and External Affairs agreed that it could be possible to gain substantially better agricultural advantages from a free trade agreement with Britain alone. Both departments, however, were still anxious for Ireland in the long term to associate itself with EFTA. Industry and Commerce was consistent in its opposition in that it maintained that much the same industrial risks would be present in a free trade area with Britain alone as would be present in EFTA. This was standard Industry and Commerce fare. Tadhg Ó Cearbhaill maintains:

  Industry and Commerce regarded itself as the protector of Irish industry. In a way it was like a lawyer with a brief and their brief was to protect Irish employment. That was the strongest aspect in their thinking. If foreign goods were to flood the market as they feared, then Irish jobs were at risk. They felt it was their job to draw attention to this scenario and they did so in strong language. This was in order to discourage the Department of Finance from advising the Government on taking what Industry and Commerce would have regarded as precipitous steps.56

  In essence, between 1958 and 1960 Ireland’s external trading position had changed greatly. The creation of the two trading blocs in Europe and the rapid progress towards freer trade had forced the Government and the policy-making community in general to reconsider the economic future of the country. It was within this context that the Irish Government entered into trade talks with the British in 1959. Ireland, as The Statist pointed out, faced a two-fold task in the light of such new trading conditions in Europe:

  She must first produce food at increasingly competitive prices if she is to retain her position in the British market. Secondly, she must seek markets outside Britain on the European continent and elsewhere for the increasing surplus of foodstuffs she must produce if she is to attain economic prosperity.57

  Whether Ireland joined EFTA or not, the Government still had to expect that Ireland would suffer a certain weakening of its preferential position in the British market due to the reduction of British tariffs vis-à-vis other EFTA members. Yet by joining EFTA, Ireland would not necessarily be in a position where rapid dismantling of its own tariff barriers would be called for. Portugal had been accepted for membership of EFTA on quite indulgent terms, and Irish policy-makers could expect to secure membership on equally favourable grounds. Moreover, the British perspective on EFTA was that it had been set up ‘essentially as a bridge-building step between itself and the EEC’.58If an alignment between the two could be secured, Ireland’s interests would best be served by being present at the conference table. As Desmond Fisher, in The Statist, put it:

  If the process of linking the Six and Seven achieved success – and even the most pessimistic would hope for some progress eventually – it is a safe guess that a bit of further give-and-take not only in the industrial but in the agricultural field will be necessary. In this regard it is vital for Ireland to be in at the start. Otherwise undertakings to the other European food exporting countries may be such as to leave very little scope for entry by Ireland into continental markets.59

  Looking at the development of Europe from this perspective, it did seem quite logical for Ireland to be a member of EFTA. At this stage, it appeared undesirable for Ireland to be isolated from European developments. Any country that was not in either of the two trading blocs would find itself out in the cold when decisions concerning the relationship between EFTA and the EEC were being discussed.

  ‘We were not that enthusiastic’

  The main consequence of Ireland joining EFTA would be the necessity of a methodical reduction in tariff barriers. Most of Ireland’s industries set up since the 1930s had failed to develop any export capacity, and it was questionable whether some of them would be able to justify their existence in a free trade environment. Yet whether Ireland joined EFTA or not, it had become abundantly clear to most of the policy community that some step towards dismantling, or at least reducing, tariff barriers was essential. Lemass had pointed this out many times since becoming Taoiseach. A unilateral tariff reduction would, however, bring with it strong internal political tensions; thus, some were arguing that it would be more palatable to undertake the exercise within the context of a formal undertaking inside a European grouping, where there would be some compensating advantages, and Ireland would be able to exert at least nominal influence on decision making. If Ireland did not join a trading bloc, its tariff reductions and quota increases would have to be unilateral. If Ireland joined EFTA, however, the effect upon Irish industries of the removal of trade barriers would be partially offset by the new markets opened up for Irish products. In the view of Garret FitzGerald, at this stage, chairman of the executive committee of the Irish Council of the European Movement:

  While the potential markets for our goods in the continental Little Free Trade Area countries may not be of first importance they are certainly better than nothing – and may indeed prove a good deal more valuable than is at present supposed. Current estimates of the value of these markets to us tend to be based on the assumption that the efficiency of our industries, and the vigour of our export drive will be no greater in the future than they are today whereas current trends in Irish industry, if reinforced by the spur of the gradual removal of protection, may before long transform the scene, and greatly enhance the value to us of free access to new foreign markets.60

  Moreover, the Irish European Movement argued, if Ireland did not become a member of EFTA, the Government could find it difficult to put across a programme of unilateral tariff reductions. This failure to move ahead with the dismantling of protective tariff barriers at a time when public opinion had to an extent been prepared for such a development – said the Irish European Movement – could well have adverse consequences for the economy: ‘increased pressure on industry to improve efficiency and to become even more “export-conscious” will be needed if we are not to fall behind in the very early stages of the European economic race’.61

  Irish membership of EFTA would entail the removal of tariff and quota restrictions on imports from all the members of EFTA, including the UK, though it was likely that the Government would be able to secure a gradual phasing-out of such restrictions – probably up to twenty years, as in the case of Portugal.

  Whether Ireland joined EFTA or not, it seemed quite clear that its prosperity still depended on the agricultural econ
omy. Membership of EFTA – though it would subject Irish manufacturers to unfettered competition – would provide new markets for farmers to sell their produce, although, as we have seen, their prime target was the EEC. Faced with the options of embarking on a process of accession to EFTA or of negotiating free trade agreements with Britain alone, the Government came down in favour of the latter when it turned its attention to the possibility of acceding to GATT. Lemass, in May 1961, explained why EFTA negotiations were not pursued. Besides Britain, he remarked:

  The other six members of the EFTA have not been important markets for us in the past and, while we must not of course neglect any market, it is doubtful whether the advantages we could hope to reap in those countries would satisfy acceptance of the Stockholm Convention, particularly as agriculture is expressly excluded from its provisions.62

  Irish interest in the free trade area, set up by the convention signed in Stockholm on 4 January 1960, had naturally stemmed from the prospect of greatly expanded agricultural exports that might have been opened up by Irish participation. The Government had informed the council of the OEEC early in 1960 that its trade returns showed:

  Our trade balance with non-sterling member countries is extremely unfavourable – in roughly the proportions of three to one. This position has recently become more serious by reason of the emergence among our partners in this Organisation of two trading groups, EFTA and the EEC.63

  When agriculture was not going to be included in the EFTA context, Irish policy-makers felt they had no option but to revert to the old formula of negotiating independent trade agreements with Britain. Yet in many ways, the negotiations had taken down one of the great psychological barriers impeding developmental progress. By these negotiations – in the words of Terence Brown: