When it comes to size and geography, Ireland and Canada may not seem to have all that much in common.
Yet both countries know what it means to be disproportionately dependent on a single trading partner — one that has become decidedly unpredictable in the last number of years.
As such, both have made trade diversification a key economic policy, though the Irish have been chasing this goal far longer, and arguably with more success, than Canada.
That in mind, Irish Minister of State for Trade Pat Breen had a few words of advice for Canada while in Toronto this week.
“Canada has had its struggles with the U.S. obviously in relation to the NAFTA agreement,” Breen said in an interview. “And the fact that 75 per cent of your exports go into the U.S. means that you should not be putting all your eggs in that one basket. For any country that’s doing well, and Canada is doing well, you need to be making new friends all the time.”
It’s an approach Ireland has been pursuing since the 1950s, following a failed attempt to supply all of its own needs through protected domestic industries. Back then, most trade took place across the Irish Sea, leaving Ireland overwhelmingly dependent on the United Kingdom. So the tiny island nation of nearly 5 million people abruptly changed course and opened itself up, opting to focus on foreign direct investment, building export industries and mapping new trade routes.
“Certainly the government policy was always to diversify trade away from the UK, because nobody wants to be completely dependent on one big neighbour,” said Frank Barry, professor of international business and economic development at Trinity College Dublin. “But it wasn’t easy to do.”
Indeed, the project didn’t really take off until 1973 when Ireland joined the European Community, now the European Union. With new access to the vast European market, exports to Britain fell from 55 per cent at the point of membership to 14 per cent today. The EU now takes roughly 30 per cent of Ireland’s exports.
Also essential were Ireland’s low corporate taxes and a strategy of tapping the vast Irish diaspora — expats living and working in the U.S. in particular — in order to promote investment.
“They pushed a lot more actively to draw FDI (foreign direct investment) from the United States and they did it by leveraging the diaspora,” said Laura Alfaro, professor of business administration at Harvard University who has studied the Irish strategy. “They made a list of the Irish people working in particular fields in the U.S. and they exploited those relationships. They’re very persistent.”
Today, 80 per cent of Irish exports are produced by multinational companies, most of them American firms. Nine of the top ten pharmaceutical companies and 14 of the top medical technology companies in the world have operations in the country.
Yet Breen and his colleagues are constantly beating the bushes for more business.
“We export 80 per cent of what we produce so we have to find new markets all the time,” said Breen. “Of course, the consequence of Brexit is we now need to diversify even more of our exports and not depend so much on the (United Kingdom).”
Under the Comprehensive and Economic Trade Agreement (CETA) Irish exports to Canada are up 30 per cent, Breen says. Canada has had less success. While all European exports to Canada rose 14.5 per cent in 2018 compared to a year earlier, Canadian exports to the European union rose at half that rate.
“We see Canada as a very strategic partner for both imports and exports,” he said, adding that 14 per cent of the Canadian population claim Irish roots.
Not that Ireland’s approach is without its vulnerabilities, said Barry. While Britain has long defended the rights of member states to set their own course when it comes to taxation, other EU member states, most notably France, are more critical. That means Ireland’s low corporate tax advantage could soon be at risk.
“If Britain leaves the EU, France will have a much louder voice in calling for tax harmonization,” Barry said. “So you see there’s no silver bullet.”