Just how free is Ireland's free trade?

Since his retirement from active politics in 1959, Éamon de Valera, the subject of David McCullough’s recent two-part documentary on RTÉ, has been elevated to iconic status in the history of the Irish State’s formative decades. His departure to serve as president was quietly welcomed by his successors in politics and in the civil service, who promptly embarked on the creation of the modern Irish economy, based on open free trade, inward foreign investment and ultimately accession to the European Union, the Common Market as it was then known, in 1973.

The Anglo-Irish free trade agreement was enacted in 1965 and restrictions on foreign ownership of Irish companies abolished even earlier. De Valera had favoured high tariffs and protectionism, which suited only the beneficiaries, the tariff-protected companies and the trade unions which represented their employees, but job prospects for the workforce at large were dismal.

In the grim 1950s, outward emigration had reached 3% of the labour force each year and the abandonment of failed policies was long overdue. The shift in policy under his successor Seán Lemass brought a commitment to free trade which has been central to national policy ever since, but de Valera left an enduring economic legacy in the form of neutrality and a small military budget, freeing resources to this day for more urgent priorities.

Both neutrality and close adherence to the free-trading ethos of the European Union are now in question. Leading politicians have been equivocal on both issues, with many insisting that Ireland should never join NATO, but should expand the military budget regardless, while others profess commitment to Europe while seeking to block the Mercosur free trade agreement.

As in so many areas of policy, there is a denial of trade-offs, an insistence that desirable national objectives can be pursued even when they are in conflict and that choices never have to be made.

On the neutrality issue, it is clearly in Ireland’s economic interest to avoid a huge and recurring military budget. Expenditure on the military currently absorbs around one quarter of one percent of national resources per annum.

In the United Kingdom, the figure is eight times that figure at 2% and Keir Starmer’s government has committed to an increase to at least 4% in the light of the Russian invasion of Ukraine and doubts about US commitment to the defence of Europe.

The cost of the military to Ireland’s budget will be roughly €1.5bn in 2026. If the prospective UK 4% figure was to become the NATO norm and hence the membership bill for this country, the number would rise by over €20bn per annum, every year and indefinitely. Some NATO members are aiming even higher and €20bn per annum might not be the ultimate cost.

Ministers have been hinting at increased defence spending anyway in the upcoming 2026 budget, responding to pressure from current and former officers in the defence forces, while denying any intention to join NATO.

They insist also that Ireland will oppose any Europe-only expansion of the EU’s defence mission, a possible response to the Russian threat and growing American isolationism. Even if a formal EU defence alliance never happens, there could be pressure to contribute financially.

The same American disaffection with Europe has created the impetus for the Mercosur trade deal, the largest the EU has contemplated in recent decades and likely to be embraced by most of Ireland’s EU partners. If transatlantic trade is to face high tariffs, South America is an attractive alternative and Mercosur offers opportunities to all sectors.

But Irish ministers have been reluctant to go along on Mercosur, responding to concerns from the farm organisations about improved access for Argentina and Brazil to European markets for beef in particular. This creates, along with insistence on neutrality, the impression that Ireland can pick and choose which bits of solidarity with EU partners it finds convenient.

While the farm representatives have understandably been voicing concerns about Mercosur, it would be reckless to invite a rift with the EU, and a huge and crippling bill for defence, in order to mitigate the risks to the beef sector from a deal which limits the exposure and provides for countermeasures. Any perception in continental Europe, where economic pressures are widespread, that the Irish are getting away with rather too much of an à-la-carte approach will have consequences down the road.

Ireland’s European Commissioner Michael McGrath has indicated a more open stance on Mercosur, understanding perhaps the risks of future pressures on the Irish contribution to the EU central budget under the guise of an expanded defence role independently of NATO.

Especially if it is going to happen anyway, the political damage from government opposition to Mercosur could turn out to be substantial, even the more expensive option.