Culture, Tourism, Europe and External Relations Committee

Meeting date: Thursday, September 21, 2017

Official Report 550KB pdf

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Withdrawal from the European Union (Negotiations)

Good morning, and welcome to the 21st meeting in 2017 of the Culture, Tourism, Europe and External Relations Committee. I remind members and the public to turn off mobile phones. Any members using electronic devices to access committee papers should ensure that they are switched to silent, please. Apologies have been received from Jackson Carlaw. I welcome Dean Lockhart, who will be substituting for Jackson, and I invite him to declare any relevant interests.

Thank you very much, convener. Good morning. I am a member of the Law Society of England and Wales.

Thank you.

Our first item of business is an evidence session on the article 50 withdrawal negotiations. The focus of today’s session will be on the circumstances relating to Northern Ireland and the Republic of Ireland. It is my pleasure to welcome the consul general of Ireland to Scotland, Mark Hanniffy. Mr Hanniffy, would you like to make an opening statement?

I would, please. Good morning, convener. I thank you and the other committee members for your invitation to participate in this session to discuss the Irish Government’s perspective on the United Kingdom’s withdrawal from the European Union and on the negotiation process that is under way.

As you probably all know, we were deeply disappointed by the UK’s decision to leave the European Union, but we respect the democratic decision of UK voters. Our principal objective now is to make the best of a Brexit that we hoped would never come to pass and to limit the negative consequences for Ireland, the British-Irish relationship and the European Union as a whole.

Our priorities are clear. We want to protect the gains of the Northern Ireland peace process, including by protecting the Good Friday agreement in all its parts and avoiding a hard border on the island of Ireland. We want to maintain the common travel area between Ireland and the UK. We want to minimise the impact of Brexit on trade and the economy, and maintain a close trading relationship between the UK and the EU, including Ireland; and we want to influence in a positive way the future of the European Union.

The key priority issues for Ireland have been prominently reflected in the EU’s negotiating guidelines and directives for the withdrawal negotiations, which are being led by Michel Barnier and his team at the European Commission on behalf of the European Union. In particular, the European Council and the European Parliament have recognised the unique situation and the specific circumstances that apply on the island of Ireland. As you know, the question of Ireland and Northern Ireland is one of the areas on which it has been decided that sufficient progress must be made in the first phase of negotiations before a second phase, which will focus on the broader question of the future UK-EU relationship, can begin. The European Council will take stock of the progress that has been achieved in the negotiations so far at its October meeting in about four weeks’ time.

Although some progress has been made in the negotiations—in some areas more than in others—October is fast approaching and further progress is needed. It is not the case that all issues relating to Ireland and Northern Ireland need to be fully resolved before the next phase of negotiations can be opened—we acknowledge that it will be difficult to determine how certain border issues will be resolved until we know what new arrangements will be put in place between the UK and the EU—but it must be clear that both sides are beginning to converge on a shared understanding of how those issues should be addressed.

We very much hope that the British Government will engage fully on all of the phase 1 issues, including the financial settlement, citizens’ rights and the Ireland issues, so that tangible progress can be made and the critical discussions on the future relationship between the UK and the EU can begin. Real progress on the phase 1 issues will help to build trust and confidence in the process and to ensure that the complex negotiations ahead have the best possible chance of a positive outcome.

Overall, we believe that we all—Ireland, Britain and the European Union—need to work towards the closest possible future relationship between the UK and the EU, an orderly exit and a substantial transition period that allows everyone to prepare adequately for new realities. Such an approach will provide certainty for businesses and allow companies to plan and invest. The Irish Government believes that such a transition period must maintain the status quo in terms of membership of the customs union and the single market. It would be unreasonable to expect businesses to have to adjust to new arrangements twice.

Our key objective for Northern Ireland is to ensure that the gains of the hard-won peace process are protected. That involves protecting our all-island economy, which has supported peace, facilitated the normalisation of relations on our island and allowed people to get on with their daily lives. More than a third of Northern Ireland’s exports travel south across our near-invisible border every year. Much commentary has focused on the challenges for the movement of goods across the border, but the Irish Government has consistently highlighted that the challenges of the border are about more than that: they are about people’s lives and livelihoods, the border region being able to develop and prosper, and the potential psychological and social impacts on communities.

The European Commission task force recently published a set of guiding principles for the dialogue on Ireland and Northern Ireland as part of the article 50 negotiation process. The UK is a co-guarantor of the Good Friday agreement, and the paper makes clear that it is the UK’s responsibility to propose workable solutions for the border to overcome the challenges that have been created by the UK’s decision to leave the European Union. It stresses that the situation regarding the border on the island of Ireland will require a unique solution that cannot preconfigure other future arrangements for the EU-UK relationship, including those on trade and customs.

The Irish Government has carefully examined the ideas on a new customs relationship that the UK put forward in its position paper that was published last month. On the face of it, those ideas do not seem to be consistent with the shared objective of avoiding a hard border on the island of Ireland while respecting the integrity of the EU single market in which Ireland will continue to play a full part. Our Minister for Foreign Affairs and Trade, Simon Coveney, has made the point that streamlined customs arrangements are unlikely to be streamlined enough for businesses with tight margins and that, although a customs partnership has some promise as an idea, it will simply not be feasible if it is undercut by the UK making trade deals with countries that do not share our standards or systems.

If we value the peace and prosperity that has been built on the foundation of the Good Friday agreement, the obvious solution to address the difficulties that Brexit poses for Northern Ireland is for the UK to remain in an extended customs union and single market—or some version of that concept. We believe that that option would be in the interests of Ireland, Britain and the European Union and that it deserves to be fully explored and considered rather than taken off the table before negotiations on a future UK-EU trading relationship have even commenced. We hope that we can move on soon to discussions on that future relationship and that we can achieve an outcome that provides for the closest possible future UK-EU relationship that is consistent with the integrity of the single market and the principles that have guided the development of the European Union. We have made it clear that the door always remains open for the United Kingdom on its future connection with the EU.

I will be happy to respond to any questions, convener.

Thank you, Mr Hanniffy.

You said that the obvious solution is for the UK to remain in a customs union and as close as possible to the single market. Is that the progress that you would like and expect to see in this first stage, before we can say in October that we can move on?

It is unlikely that we will get there fully in the first stage of negotiations. As I said in my statement, it is clear that we do not expect all the first-phase questions to be resolved before the European Council can judge that sufficient progress has been made on those issues. However, it should be clear that both sides in the negotiation are beginning to converge on a shared understanding of the essential principles that are at stake and the direction in which the negotiations need to move to solve the key issues that need to be addressed, including the difficulties in relation to Ireland and Northern Ireland. I do not think that we need to get to a full exploration of those ideas, because they encompass questions that are connected with the broader future UK-EU trading relationship, which are not phase 1 issues but, if an openness to contemplating that solution was demonstrated as part of the phase 1 negotiations, that would be extremely helpful in demonstrating that progress in the negotiations is being made.

Do you think that, because that solution has been taken off the table, progress cannot be achieved in phase 1?

No, I do not think that that rules out the prospect of sufficient progress being achieved. We await further information and suggestions from the UK side on the proposals that it will put on the table to address the difficulties that Brexit is likely to pose for Ireland and Northern Ireland, particularly in relation to border arrangements.

We make the point—the European Commission has also made this point in its essential principles paper that was published two weeks ago—that it is very much incumbent on the United Kingdom to come to us with suggested solutions. We are open to receiving and considering them but, in the absence of what we would consider to be workable solutions emerging from the United Kingdom side at this stage, the prospect of continued customs union and single market membership seems to us the obvious idea deserving exploration.

Can you go into detail about some of the practical, day-to-day challenges that the all-Ireland economy could face if you do not achieve your objectives?

The reimposition of a hard border between the Republic and Northern Ireland would have very significant impacts not only economically and politically but psychologically with regard to the progress that has been achieved in the peace process since the Good Friday agreement was signed in 1998.

Essentially, Northern Ireland and the Republic and communities on both sides of the border have gone through a process of social and economic integration. Much of the economy in border regions, particularly the agricultural economy, is highly integrated; not only do hundreds of thousands of litres of milk travel back and forth across the border every week for processing, but every year something like half a million pigs travel from south to north and 350,000 sheep travel from north to south for processing. It has become normal for businesses and economic actors on one side of the border to conduct business without hindrance on the other side, and any reimposition of a hard border or any difficulties that might be encountered by businesses, particularly small to medium-sized enterprises, in that region in continuing to operate and trade in that way could have very difficult consequences for the economy in border communities.

There is also the psychological impact of the reimposition of the border on the island. The move away from a highly controlled border arrangement in the past 20 years has helped to make the dividends of the peace process very visible to and tangible for communities in Northern Ireland and to ensure the normalisation of political relationships on the island of Ireland. Any sign of momentum in that direction beginning to reverse could have difficult and unpredictable political consequences and consequences for communities on the island. We would very much wish to avoid that as the process continues.

And the UK proposals do not assuage your concerns.

The UK position paper that was published last month contains proposals that are interesting and certainly deserve examination. There are two key suggestions in the paper: the possibility of streamlined customs arrangements and the possibility of a close customs partnership between the United Kingdom and the European Union. We welcome a lot in the paper and the fact that ideas and suggestions have been put in writing and circulated to us is welcome, too. The commitment in the paper to avoiding any physical border infrastructure for any purpose on the border between Ireland and Northern Ireland is also very welcome, but that is a lot easier said than done.

However, in respect of the two suggestions in the paper, I said in my opening statement that we believe that highly streamlined arrangements are unlikely to be streamlined enough for businesses operating in the border region. We might start from the same place with regard to single market regulations on either side of the border, but it is inevitable that, as time progresses and the UK negotiates trade deals with third countries, as it intends to do, regulations and arrangements will diverge. That will inevitably mean the emergence of more paperwork, more customs checks and more red tape, which will chip away at the tight margins of cross-border businesses. That is without dealing with the impact on the peace process of having more of a border on the island.

The idea of the new customs partnership that was suggested certainly has some promise but, as currently proposed, it could be a logistical nightmare to operate. It would prove viable only if the UK were prepared not to negotiate separate trade deals with third countries and instead chose to take advantage of the trade deals that the EU has concluded or is currently negotiating with major economies such as Canada and Japan. The publication of a paper by the UK side is welcome, but we do not believe that the ideas in it are sufficient to solve the problems that we face.

09:15  

As you know, consul general, the UK Government has published a couple of papers, one of which relates to potential future relationships in some detail, and the other to Northern Ireland and Ireland specifically and issues arising from that. I suspect that the UK Government would say that there should not be a problem as it has set out its objectives and everyone agrees with things such as retaining the common travel area, protecting the peace process and maintaining free movement of goods and people across the border.

Can you outline what the problem is and what is required—apart from the statement of good intentions—in order for things to work in practice?

The problem is reconciling those objectives and whether the broader objectives that have been set out by the UK are mutually compatible. The big difficulty that we see is the potential incompatibility between solutions that might be proposed for the Irish border and the intention of the UK to leave the customs union and the single market and to conclude separate and distinct UK-only trade deals with other economies. It is very difficult to see how that circle can be squared and how border arrangements that are consistent with the integrity of the EU single market—in which the Irish state will continue to play a full part—can be designed in a context where the UK is determined to vary its customs and economic arrangements significantly from those that apply in the EU.

I was struck by your comment that it would be in everyone’s interest, and would enable progress in Ireland in particular, if the UK were to remain in the customs union and the single market in the transitional phase, which would presumably run for two or three years beyond March 2019. Can you expand on that point and explain what that arrangement would do to enable the negotiation and agreement of longer term arrangements that would protect the position in Ireland?

Such an arrangement would certainly allow more time for further exploration of the future arrangements that might be agreed at the end of the negotiation process. We have consistently stressed the importance of robust transitional arrangements in order to provide certainty and continuity to both citizens and businesses as well as to ensure that there is an orderly and calm transition from the UK’s withdrawal from the EU to a future UK-EU partnership. The importance and value of such transitional arrangements is broadly understood as being in the best interests of all parties concerned—the UK, Ireland and the broader European Union.

You mentioned the UK paper on future customs and trading arrangements. In that paper, the UK proposes an “interim period” of “close association” with the EU customs union. That is a positive indication of the thinking on the UK side. We are looking carefully at that and other proposals in the UK paper, along with our EU partners and the European Commission task force, in light of the parameters of the European Council guidelines and the negotiating directives that were agreed by the council.

However, it must be said that, regardless of the potential nature of those transitional arrangements, we will only be able to address the matter formally once we have made sufficient progress on the terms of the orderly withdrawal and are able to move into phase 2 of the negotiation process. We hope that we will get to that stage very soon.

That is an important point. The easiest transitional arrangement would be one in which the current provisions continue to apply. Given that such a possibility exists for 2019 to 2021 or 2022, what would the Irish Government consider to be sufficient progress on the withdrawal agreement in relation to Ireland in the period between now and March 2019?

The formal judgment on what constitutes sufficient progress will be made by the European Council as a whole when it meets in October.

As I said in my introductory comments, we consistently make the point that there is sometimes a certain misapprehension about the nature and scale of the progress that has to be achieved. We are not suggesting that everything needs to be signed and sealed, and that a deal that comprehensively covers all the issues that arise for Ireland and Northern Ireland as a result of Brexit must be agreed, before the second phase of negotiations can be opened. However, it needs to be clear that both sides are converging on a shared understanding of what solutions might be arrived at and of the principles that should guide those solutions as the negotiations progress.

Once the second phase of negotiations begins, we will be in a parallel negotiation phase in which discussions on the future relationship will take place alongside discussions on the remaining elements of negotiation on the phase 1 issues and on tying down formal ways of addressing those issues.

We have two rounds of negotiations yet to come before the European Council meets in October and makes its judgment on the question of whether sufficient progress has been made on the withdrawal issues. We will see how those negotiations go, and whether we get to a point in mid-October at which it is possible for the European Council to make the judgment that progress has been sufficient, that confidence has been built in the process and that the foundations are there for phase 2 negotiations to begin.

Would an indication from the Prime Minister when she speaks this week that the UK Government understands the principles of that transitional period and of the ultimate destination constitute a signal, to your mind, of progress in the round and convergence on shared principles?

Yes—convergence on principles would be very valuable. The purpose of the papers on essential principles and guiding principles that the European Commission task force has published in the past few weeks has been to set out the understanding on the EU side of the key principles that should be reflected in any agreement or deal on the phase 1 issues. If there can be convergence on those principles, that moves us very far forward in the phase 1 process.

I would like to explore the question of trade deals. If, post-Brexit, the UK enters into trade deals off the back of the existing EU trade deals with Japan, Canada—given the trade deal that came into effect today—and other countries, would that minimise your concern about the divergence of regulations as we move forward? The UK’s trade relationships with third countries would in that case map or be the same as the EU’s trade relationships.

It would certainly help. If there was a guarantee that the nature of the trading relationship between the UK and third countries paralleled the EU’s relationship with those third countries, that would help to resolve certain difficulties that might exist with regard to the compatibility of single market and trading regulations within the EU and the UK’s external economic relationships.

I imagine, however, that there would have to be a guarantee that there would not be subsequent divergence between the trading relationships that exist between the EU and third countries and between the UK and third countries, in order to ensure that arrangements for a very free and unfettered trading relationship between the UK and the EU could continue in the longer term.

Obviously, while the UK is part of the customs union formal negotiations with third countries on free trade agreements cannot take place. However, that does not stop informal negotiations taking place to discuss what a trade agreement might look like post-Brexit. I appreciate that this depends on some different scenarios, but how far down the track do you think the shape of a trade agreement could be outlined between the UK and Ireland over the next couple of years before the UK leaves—assuming that it does, in one scenario—the customs union?

It is not the case that there will be a trade agreement between the UK and Ireland. There will not be a bilateral process as part of the negotiations—those negotiations will be handled between the UK on one side and the EU on the other. An ultimate agreement that is reached between the UK and the EU will obviously reflect elements that encompass the specific and unique circumstances on the island of Ireland, which have been widely recognised.

However, the arrangements to govern the economic relationship between Ireland and the UK will be encompassed within a broader UK-EU agreement once we reach the end of the negotiating process. We very much hope that those relations can be as close and as productive as possible.

You mentioned in your opening statement that it is not just a question of goods moving across the border; it affects people’s day-to-day lives and it will have a massive impact. I would like to ask about that as well as the issue of citizens’ rights. What are your views on the UK’s position paper on that and how do you see it developing?

The impact that Brexit might have on communities and on society in Northern Ireland if things cannot be sorted out in a positive way is very significant. There are impacts on communities on both sides of the border. I have mentioned some of the economic impacts, and there are impacts on north-south co-operation in many sectors. It is useful to reflect on the fact that the Good Friday agreement itself, which is the founding document of the Northern Ireland peace process, was agreed at a time when the relationship between Britain and Ireland and the relationship between Northern Ireland and the Republic were always assumed to take place in the framework of shared EU membership.

There are regular references to the European Union and to co-operation within the framework of shared EU membership within the Good Friday agreement and the associated documents that govern both north-south and east-west institutions arising from that agreement. The North South Ministerial Council, for example, has a specific role in addressing EU policy questions. The British-Irish Council, which was established on foot of the Good Friday agreement to provide a framework for relations between the UK and Irish Governments and the devolved Administrations on these islands, as well as the Administrations in the Channel Islands, is also tasked with discussion of relevant EU issues.

The absence of that supporting EU framework for such co-operation brings us into a new paradigm, and it is difficult to anticipate precisely what impact the absence of shared EU membership might have on opportunities for cross-border co-operation, even in sectors such as transport and healthcare. The Irish Government is providing funding towards the upgrading of the road that stretches from Omagh up towards Derry and Donegal—I think that it is the A9. There are arrangements for cardiac patients who require access to emergency services in Donegal to access those services in Altnagelvin hospital in Derry, and co-operation arrangements that allow children who require paediatric cardiac care and cardiac surgery throughout Northern Ireland to access those services at the Irish national children’s hospital in Crumlin, Dublin.

We hope and assume that such cross-border co-operation can continue without hindrance in a post-Brexit scenario, but there will be more difficulties than were anticipated when the frameworks for that co-operation were originally put in place. That could present challenges for us, even in terms of divergence of standards, recognition of qualifications, and recognition of product standards for medical and healthcare products. Those issues could arise and could require some effort to deal with.

In relation to citizens’ rights, we have examined carefully the paper and the proposals that have been put on the table by the United Kingdom. It is an issue that is being discussed in detail in the context of the negotiating rounds between the UK and the EU in Brussels. It seems that there is at least a degree of political convergence on what the UK and the EU sides want to see as the net effect in terms of the experience of EU citizens in the United Kingdom and the experience of UK citizens elsewhere in the European Union at the end of the process. There is still a divergence of views on the mechanisms and governance of those arrangements into the future. Those issues will be discussed during the next two rounds of negotiations, but I think that it is possible to say that we are hopeful of good progress in those areas reasonably soon.

09:30  

Thank you. Further to that, what is the Irish Government’s view on what needs to be agreed on citizens’ rights as part of the withdrawal agreement?

Our position is very clearly aligned with the EU’s position and the position paper on citizens’ rights that the Commission task force has published.

We are looking at the issue from a unique perspective, as the regulations that govern the residence of Irish citizens here in the UK are derived principally from the common travel area arrangements between Ireland and the UK rather than necessarily from the rights of Irish nationals as EU citizens. That has been recognised by the EU side and the UK side.

There is a commitment on all sides to preserve those common travel area arrangements, which have been recognised in the European Council negotiating guidelines. We are obviously discussing the issue in great detail as part of the negotiating process and it is one of the areas on which we believe good progress has already been made in the negotiations between the UK and EU sides.

Our legal analysis at this stage suggests that there is nothing in the current common travel area arrangements that is in any way incompatible with EU law, even in a situation in which one of the parties to the common travel area arrangements is a continuing EU member state and another party is not. The UK has made it very clear, very publicly, that it does not intend to put in place any regulations that would affect the ability of European Economic Area nationals to travel freely through the common travel area. That is extremely helpful and it means that we should be able to reach a good solution in terms of the maintenance of the common travel area post-Brexit.

I want to follow up on a couple of Dean Lockhart’s questions. First, can you provide the committee with the percentages for the level of trade from Ireland to the UK and the level of trade from Ireland to the EU that travels via the UK?

With regard to the level of trade between Ireland and the United Kingdom, 17 per cent of our overall exports go to the UK, and between 40 and 45 per cent of our overall exports go to continental Europe to what will be the EU 27 post-Brexit. However, quite a significant proportion of the goods that are shipped from Ireland to continental Europe also transit through the UK; the British land bridge, as it were, is used to physically get them from Ireland to the EU. I cannot give you a definite statistic for that just now, but I can check it and come back to you. The importance of that land bridge and the issue of continuing to facilitate goods trade between Ireland and continental Europe via the United Kingdom have been recognised in the European Union papers that have been published, and it is being taken into account in the negotiations that are under way.

It is only fair to point out that quite a proportion of the trade that moves between Northern Ireland and the rest of the United Kingdom transits through the territory of the Republic; it might be shipped on a lorry to Dublin and then on a ferry to Liverpool or Wales. As a result, an equivalent issue needs to be addressed on the United Kingdom side, but we are confident that the issue is well understood on both sides and that progress will be made on finding an arrangement to ensure that that type of trade can continue post-Brexit.

In your opening comments, you mentioned the transitional arrangements and said that it would be unreasonable for businesses to make changes twice if an agreement could not be reached. Do you agree that the figures that you have just highlighted and the issue of the land bridge strengthen the point about the importance of sorting out a transitional arrangement between the UK and the EU to ensure that business in Ireland does not suffer as a consequence of Brexit?

Absolutely. Any change in regulations imposes costs on business. It does not seem reasonable to suggest to businesses, many of which, as I have said, trade across the border on the island of Ireland or between Ireland and the United Kingdom and operate on tight margins, that they be required to adjust themselves to one new set of circumstances, regulations and arrangements and then have to transition yet again to a completely new set a short number of years later. Our view, therefore, is that a prolongation of current arrangements through continued UK participation in the customs union and the single market during a transitional period would make the most sense for everyone involved.

I have a couple of questions about money. At the Council of Ministers in October, progress will largely be judged on the issue of money. We are told that Theresa May will say something about money tomorrow, but what do you think constitutes progress in that respect?

First, it has to be clear that what we are talking about in relation to the financial settlement is seeking a commitment from the United Kingdom that it will honour its obligations and the commitments that it has made as a member state of the European Union. We are not talking about imposing a bill or a charge on the United Kingdom for leaving, or about punishing the United Kingdom or seeking to dissuade it from taking the action that it has chosen to take.

The UK itself has stated clearly that it intends to work with the European Union to

“determine a fair settlement of the UK’s rights and obligations as a departing member state, in accordance with the law and in the spirit of ... continuing partnership”.

From an Irish perspective, we fully support the European Union position, which tries to approach the issue in what we think is a fair and transparent way, based on a clear, objective methodology that is agreed between both sides.

As for judging in October whether sufficient progress has been made on this issue, I repeat that we are not looking for a final agreement; we are simply looking for a situation in which it is clear that a convergence of views is developing, that a shared way of approaching the issue is emerging and that ultimately it will be possible to get ourselves, at the end of the negotiation process, to an agreed conclusion that both sides can accept.

And the view is that if the UK Government applies for a transitional period, however long that might be—I say “if”, because it has yet to do so; again, it is assumed that the Prime Minister will indicate as much tomorrow in some way—that will mean a charge per year for it to remain in the single market and the customs union.

There are costs associated with single market membership—there are single market institutions that need to be funded, and there are regulatory bodies that have to pay their staff and fund their operations—so it is quite reasonable to expect a state that participates in the single market to make a financial contribution to its running and to those single market institutions. That principle is understood by states that, although outside the European Union, still participate, to a degree, in the single market, and I think that it would be understood that a similar provision should apply in respect of the United Kingdom.

We all hope that these things will be set out with some clarity tomorrow in the speech in Florence. That would help us all enormously with understanding the UK Government’s position.

It would help us all, and I admire your optimism.

I am not optimistic, but thank you all the same.

I think that there is good will on both sides. Indeed, you have talked about positive steps to come to an agreed conclusion. It seems that Theresa May will make Northern Ireland and the financial settlement—the divorce bill, if you like—priorities, but what do you hope she will set out in her speech tomorrow over and above the status quo and the kind of frictionless border that you have been talking about?

To be fair, the United Kingdom Government has clearly acknowledged the importance of Northern Ireland and the priority that needs to be attached to it in the context of this negotiation process. It was in the Lancaster house speech that the Prime Minister made in January and in the article 50 notification letter that was submitted at the end of March. We know that there is good will and a commitment to work hard to find a way of resolving the issues that Brexit poses for Northern Ireland.

However, we have to make the point emphasised in the recent EU guiding principles paper in respect of Ireland and Northern Ireland that Brexit is a British choice. We are perfectly content with the status quo in respect of arrangements on the island of Ireland, and we would like it to continue; however, it is Britain that is choosing to change that status quo. In that context, it is incumbent on the UK Government to come up with solutions and suggestions for how it wishes to proceed with its overall policy objectives in a way that allows us to preserve, in so far as is possible, the arrangements that currently exist on the island of Ireland in respect of north-south co-operation, the open border and the full continued implementation of all provisions of the Good Friday agreement.

We have suggested that a commitment to a continued single market and customs union membership would be one way of solving that. That is on the table, and we wait to see what other suggestions or ideas the United Kingdom wishes to put on the table as part of the negotiation process.

I do not foresee this happening, but have you made provision for the possibility of there being no deal?

Obviously, we are conscious of the risk of there being no deal and that nothing is certain in the negotiation process. We believe that a failure ultimately to reach agreement between the UK and the EU and the disorderly withdrawal that would result would be hugely damaging for everybody involved—for the United Kingdom, the European Union and, most particularly within the EU, Ireland. For that reason, it is incumbent on all sides to act responsibly and to approach the negotiations in a constructive, positive, flexible and ambitious frame of mind, to ensure that a no-deal outcome, with all its negative consequences, can be avoided.

I am interested in who represents the north during the process and the level of scrutiny given to the issue. Obviously, strand 2 of the Belfast agreement is incredibly difficult to fulfil when there are no institutions in the north to be part of any north-south agreement. That means that not only is there no Northern Ireland Executive working with the Scottish and Welsh Governments, but there is no Assembly scrutinising the process. That is for reasons separate to Brexit, but the resolution of the issue is increasingly related to that. What impact is the lack of functioning institutions in the north having on scrutiny of the process?

Certainly, it is far from ideal that there is no functioning Executive in Belfast that can represent the interests of Northern Ireland in the discussions on Brexit among the devolved Administrations in the UK and between those devolved Administrations and the UK Government. Issues, problems and difficulties relating to Northern Ireland are possibly not getting the attention or the highlighting that they deserve because of the absence of the Northern Ireland Executive.

We are working hard to encourage the parties in Northern Ireland to come to an agreement that would allow the Executive and the Assembly to resume their work. Informal discussions continue all the time, and there is positive momentum in those discussions at the moment. Recent statements from the Democratic Unionist Party and Sinn Féin have shown encouraging signs with regard to the prospect of an Executive being put back together. We very much wish to see the Executive back up and running to ensure that the interests of Northern Ireland and communities in Northern Ireland have as strong a voice as possible as the negotiation process proceeds.

There is now a good understanding across Europe of the specific difficulties that Northern Ireland faces as a result of the process. Certainly, it has been prominently highlighted in the European Council guidelines and the European Parliament’s resolution on the Brexit negotiation process, and the guiding principles paper that the Commission task force published has reflected those issues very strongly. We know that Michel Barnier has a well-developed understanding of the issues, and Guy Verhofstadt, the European Parliament’s lead on Brexit, was in Belfast yesterday and visited the border regions. He is in Dublin today.

Certainly a good deal of attention is being paid to Northern Ireland and to border issues, but it would be extremely helpful if there was a functioning Executive that was able to use its voice in the internal UK processes to ensure that the issues relating to Northern Ireland can get the attention that they deserve.

09:45  

What are the intentions in the Republic with regard to parliamentary scrutiny of the process? Is there a Dáil committee or a joint committee? What is the plan?

The Joint Committee on European Union Affairs in the Oireachtas is following the process, and a number of sectoral committees are also looking at Brexit’s specific impact on their sectors. The Irish Seanad—the senate—has recently produced a report on the impact of Brexit on Ireland, with a special senate committee set up to examine the issues.

That is all part of a broader process of nationwide and island-wide public consultation that has been taking place over the past months. We have an all-island dialogue on Brexit that so far has engaged about 1,200 different stakeholders in the process of looking at the overall issues that Brexit poses for Ireland and some of the issues that Brexit is likely to pose in various sectors. Another full plenary meeting of that all-island dialogue will be taking place on the 28th. There is a wide degree of dialogue, consultation and stakeholder participation on the Irish side.

That is grand. Thank you.

Some sectors that are disproportionately important to Scotland and Ireland, particularly agriculture and fishing, will be affected by the withdrawal negotiations. Do you want to shed any light on your Government’s thinking with regard to the best way forward for those two sectors, particularly fishing, what with the quite complex situation in relation to the Irish Sea?

Fishing is complex, and it is an area that will have to be explored in detail in the withdrawal negotiations. I do not want to prejudge what might come out of those negotiations, but difficult issues will certainly have to be dealt with in relation to fisheries sector arrangements in a post-Brexit scenario.

More broadly, agriculture and the food and drink sectors—certainly in Ireland—are possibly disproportionately vulnerable to the impacts of Brexit. The agrifood sector in Ireland and Northern Ireland and indeed in Ireland and Britain is quite integrated; according to statistics, about 40 per cent of Irish agrifood exports go to the UK and about 45 per cent of Ireland’s agrifood imports come from the UK. There is clearly a great degree of economic integration between the two countries.

The agricultural sector is also a key part of our economy in respect of employment, particularly in rural regions—obviously—and in the border regions. About 8.5 per cent of total employment in Ireland is in the sector, and we are working to mitigate the possible impact of Brexit on it. For example, we have taken some measures to support the sector in our 2017 budget, and we are working with our agricultural support and enterprise agencies to ensure that businesses in that sector are prepared for Brexit’s impact, are ready to deal with the difficulties that it might present for them and are ready to diversify their export markets, given the risk that it might be more difficult or that the costs of exporting into the UK might be a little higher in the years ahead.

The decline in the value of sterling since 23 June last year has already had a relatively significant impact on certain parts of the Irish agrifood sector. Bord Bia, our overseas promotion agency for Irish food, estimates that Irish food and drink exporters to the UK took a hit of about €500 million in 2016 alone as a result of that decline and the decline, therefore, in the value of their export trade.

In terms of the wider economy, you have outlined a lot of challenges and hurdles to be overcome in this process. What upsides do you or your Government see from the UK’s withdrawal from the EU?

There are potentially some, and we intend to take advantage of them in so far as we can. We are clear that the likely net economic impact of Brexit on Ireland will be negative, so we are determined to find ways to mitigate that negative impact wherever we can. In essence, Brexit will leave us as the only English-speaking member state of the European Union, which has benefits in terms of foreign direct investment. We can continue to offer free and unfettered access to a market of 500 million people post-Brexit, which the UK might not be able to do. We have already had some successes in certain sectors in attracting investments to Ireland from businesses concerned about future trading relationships between the United Kingdom and the European Union—including, for example, in the financial services sector, where a major global insurance company announced yesterday that it would base its European operations in Dublin.

The Industrial Development Authority, which leads on the promotion of Ireland as a destination for foreign direct investment, has been having some successes in promoting Ireland as a destination for foreign direct investment displaced from the United Kingdom as a result of Brexit. We have a very strong investment offering in Ireland, with a positive and favourable business climate, a very well-educated workforce and strong availability of skills. Ireland has a track record of being a good location for internationally trading businesses to base their European operations. As a result of that, we will seek, in so far as we can, to attract any foreign direct investment that might be displaced from the United Kingdom as a result of the Brexit process as it continues.

Stuart McMillan asked about the balance of trade between Ireland and the EU and between Ireland and the UK. How has that balance changed as a result of Ireland’s EU membership?

Very significantly. Ireland and the UK both originally applied to join the then European Economic Community back in the early 1960s. I am open to being corrected, but I think that at that stage nearly 80 per cent of all Irish exports were sold into the United Kingdom market. Last year, the figure was 17 per cent. In contrast, we sold between 40 and 45 per cent of our exports into the continental European market—what will be the EU 27 market, post-Brexit.

That diversification in our export trade over the 40 years or so of our European Union membership has been really remarkable. The ability to access continental European markets freely and without hindrance and Ireland’s participation in the single European market have revolutionised our economy and allowed us to trade in a very different way from the way in which we could trade prior to our European Union membership. The consequences for Ireland have been significant.

Has that led to an attitude towards the EU among Irish people that is strengthening as a result of the Brexit process?

There is very widespread support for the European Union and for continued Irish EU membership. The latest figure that I have seen was from a survey carried out in August, suggesting that 88 per cent of the Irish population is in favour of continued Irish membership of the EU. That is an overwhelming figure.

Ireland has a very strong European identity. We see European Union membership and participation in the European mainstream as an important part of who we are, and it has been key to the effective assertion of Irish sovereignty over the past 40 or 45 years. The fact that we are participating as an equal in discussions with the traditional great powers of Europe around the table in Brussels and that we can influence EU policy in so many areas as it evolves is very important for our international influence and our ability to shape the world around us in a way that is favourable to our interests. I think that that is understood and appreciated by Irish people.

Was Ireland a more inward-looking place when it was tied to the UK?

That is probably fair comment in that, geographically, we are an island behind an island. There was perhaps a sense of our being politically, socially and economically cut off, to a degree, from the European mainstream up to the early 1970s. We were always very keen participants in processes of European dialogue and integration; we were founder members of the Council of Europe in 1949, for example, and we have always had a strong commitment to multilateralism in our membership of the United Nations and broader multilateral policy processes. Membership of the European Union significantly changed Ireland socially, economically and politically and allowed us to broaden our political and economic horizons in a very important way.

Thank you for giving evidence to the committee, Mr Hanniffy. We will now have a short break to allow a changeover of witnesses.

09:55 Meeting suspended.  

09:59 On resuming—