“The United States of America is very much alive to the threat from the European Community” declares Jim Dewhurst in his book Your Business 1992.
The EC is the largest trading partner for the U.S., taking around 25 percent of total U.S. exports and providing just under 20 percent of U.S. imports. Politicians in all 12 member states have been busy extolling the merits of establishing industrial bases within the European Community to non-European businessmen for several years now, urging them to get inside “Fortress Europe” before it is too late.
When might be too late? After January 1 next year when the single market takes full effect. There have been persistent fears that the U.S. exporters may be excluded from the single market through discriminatory procurement rules, local content requirements, and other measures.
Certainly by the beginning of 1993 Ireland, North and South, will have good reason to be concerned that this development does not hamper incoming American investment. The concept of a Single European Market is not new; it was present in the Treaty of Rome back in 1958 and it was perceived as the foundation for the political and economic unification of member states of the European Community (EC). The raison d’etre of the Single Market is to oversee the establishing of a new economic area for freedom of movement of persons, goods, services, and capital. But this has already been partly achieved; the majority of the directives necessary to give effect to the Single Market have been agreed on and while the Single Market Day is January 1, 1993, considerable tidying up will be ongoing for at least another year after that.
Harmonization means, for example, that one country’s goods and products can be different to another country’s provided they are compatible. In the EC context it also implies that a general agreement has been reached on safety and health and that national standards come within this overall umbrella. The harmonization that concerns certain member states is where there is a potential threat to favorable tax regimes.
During his term as EC President, Charles Haughey declared that the Single Market offered Ireland the challenge to translate potential into performance, while also adding that there was a very real need to maintain our economic competitiveness.
But one might be tempted to ask “What competitiveness?” on reading the introduction to The Single European Market and The Irish Economy published by the Institute of Public Administration. “The broad summary of Ireland’s position and performance in the European Community is quite bleak. Ireland has low income per head. Only Portugal and Greece have lower gross Domestic Product per head.”
However here is the cheering statistic: Ireland recorded the best export growth performance in the EC in the late 1980’s. “The main impact of the Single Market for multinational enterprises in Ireland is on its country-specific advantages, that is its relative attractiveness as a location for foreign direct investment,” state Ivan Jacobson and Bernadette Andreosso, authors of an essay on Ireland as a Location for Multinational Investment. “If a subsidiary was established in Ireland in order for the multinational enterprise to gain access to the EC market, then, at first sight, the completion of the Single Market will improve that particular country-specific advantage of Ireland.
“Very few, if any, manufacturing subsidiaries of multinational enterprises were set up in Ireland specifically to exploit the domestic market, so from this perspective it appears that manufacturing subsidiaries already in the country are unlikely to leave as a result of further integration.”
Why, for example, would a U.S. company decide to locate anywhere in Ireland?
- The low corporate tax rate.
- Special State assistance in the form of grants.
Apart from these “humanly created” reasons there are others primarily the availability of a well-educated English-speaking workforce and general macroeconomic performance of the economy, particularly since 1987. Quality of life is also a consideration, and while few would suggest that any company would establish a facility in a particular location to accommodate the quality of life goals of the management of the facility, it does have a bearing on how favorably non-Irish executives talk about working in Ireland.
One of the reasons why Ireland must offer attractive grant packages to multinationals is because of the temptation among decision-makers to select locations where a required standard of staffing and infrastructure exist. Frequently of even more importance is the need to be close to the markets into which companies plan to sell.
This is often cited as a reason why multinationals opt for EC locations other than Ireland.
Any attempt to remove the “humanly created” factors as part of a complete harmonization of grant and taxation packages resulting from the Single Market would be extremely detrimental to Ireland’s current competitiveness. To date Ireland has managed to be allowed to retain such carrots for corporations on the basis that it is one of the less developed members of the European Community.
It has been suggested that there are several possible reasons why foreign direct investment into Ireland would be affected by the Single Market.
- European integration may result in the expansion of existing facilities by non-European companies already operating in the member states.
- More non-European companies may decide to locate facilities within the EC because of the potential of the Single Market with over 300 million people.
- European and non-European companies already with facilities in several member states may decide to rationalize and re-sit production operations.
It is clear that 1 and 2 could have positive benefits for Ireland while 3 could be advantageous or disadvantageous, depending on where the rationalization and resiting take place.
Certainly U.S. investment in Ireland has played a pivotal role in industrial development for over three decades. Any threat to the continuance of inward investment from the States would have dire consequences for Ireland. Statistics indicate that the U.S. accounts for 33 percent of the 1,000-plus multinational subsidiaries in Ireland. And that’s not all; U.S. companies operating in Ireland are, on average, larger than others.
“If Ireland can increase its share of U.S. foreign direct investment in a period during which that investment into the twelve member states is also increasing, it suggests that American plans for the Single Market include a substantial role for Ireland,” according to the authors of Ireland as a Location for Multinational Investment. Four years ago 17 of the 32 American-backed greenfield investment projects in Europe came to Ireland.
“This rather positive check from U.S. foreign direct investment in Ireland is substantiated by another source, a survey undertaken by the Bank of Boston. In the survey 1,234 chief executives were polled on their attitudes to the Single European Market. These executives were from firms with sales averaging $35 million, mainly in the high-technology industries. The U.K. was clearly the most important path (past and future) for these companies into Europe. Greece and Portugal were not mentioned at all, and Denmark and Spain were consistently regarded as a likely location by the same or fewer firms than Ireland. Of those surveyed whose firms did not have a European location, seven percent of those planning to establish a branch or subsidiary in Europe were planning to do so in Ireland, well above the three percent for Spain and zero percent for Denmark.”
According to The Single European Market and The Irish Economy, “The Single Market program has raised questions about growth and distribution within the EC but has also caused some uncertainty about the Community’s economic relations with other major trading blocs. The Single Market is in essence concerned with deregulation and improved market access, it is not primarily isolationist in intent, though admittedly, some member states responding to domestic pressures may propose protectionist measures. It is clear that a major motivation for the Single Market was the desire to improve competitiveness of EC industry vis-a-vis Japan and the U.S.A. These countries were perceived to have integrated domestic markets that placed them at an advantage over the fragmented EC economy.”
Before the implementation of Single Market measures a non-EC manufacturer selling goods to several EC countries had to bear the cost imposed by the common external tariff barrier.
Within the EC there are many aspects to the Single Market, including trade restrictions. It is no longer possible to sell Brussels sprouts, Dublin Bay prawns, or Galway crystal unless these products actually originate in the place mentioned.
It is not clear yet whether the EC bureaucrats with responsibility for trade descriptions have ruled on whether Mars bars should be renamed!
Editor’s Note: This article was originally published in the May 1992 issue of Irish America. ♦
Leave a Reply