Ireland's Anxiety

  • Ireland’s Anxiety
  • Europe Re-Levers: Cause for Concern?
  • Wage Pressure Starts Locally

It had been a long journey, which included multiple encounters with customs and airport security. It was nearly dinnertime in Limerick, with business starting promptly at 7:15 the next morning. I still had a stack of preparatory material to read, but I couldn’t get motivated.

I needed something to enhance my focus; a brown beverage, perhaps. But not coffee, mind you. Instead, I visited a relaxed public house and enjoyed a perfectly poured Guinness. Somehow the pages flew by, with many notes taken. The arcane details of Brexit suddenly seemed simple. I hadn’t felt that productive in some time.

For visitors, the charms of Ireland go well beyond the brown nectar. For economists, the country is interesting for other reasons. Ireland lies on the frontier (literally) of the debate over global trade. The resolution of its boundary issues may prove a harbinger of what lies ahead for other regions.

The Republic of Ireland shares the island of Hibernia with Northern Ireland. The former is an independent nation, and a member of the European Union (EU). The latter is a member of the United Kingdom (U.K.). Once at terrible odds with one another, the two have enjoyed 20 years of relative peace. The border between them, once a flash point for violence, has dissolved; thousands of people and millions in commerce cross it daily.

When voters in the U.K. chose to divorce themselves from the European Union, they created a significant problem for the Irish. Brexit could return a guarded border to the island, an outcome that would complicate commerce and politics. As negotiators tackled the thorniest issues involved with separation, the Irish problem quickly rose to the top of the list.

There are three potential paths to resolution. The first would be to have Northern Ireland and the Republic of Ireland transact under rules established by the World Trade Organization (WTO). This would be a step back from the current arrangement, and potentially lead to periodic disputes over trade. The WTO’s ability to enforce its rules has been hindered by a swelling caseload and shrinking support brought about by the nationalist impulses spreading across the globe.

The second would be to create a free trade zone on the island. The North would follow the EU’s rules to preserve its interactions with the Republic. But such an arrangement would create different trade practices within the United Kingdom, making it hard for Northern Ireland to transact with the rest of its country-mates. This idea solves one big problem, but creates another.

The final option is for the United Kingdom to remain in the EU customs union. This would solve the Irish issue and allow the United Kingdom to avoid having to renegotiate trade agreements with more than 160 countries. (Up until now, the EU has established such arrangements on members’ behalf.) Remaining in the customs union would mean that the United Kingdom would still be covered by EU treaties, saving a lot of trouble.

But the optics of that arrangement, however sensible it seems on the surface, would abrogate the wishes of the majority that voted to leave the EU. (It would actually be worse that the current state of affairs, because the United Kingdom would have no voice in the establishment of EU trading rules after departure.) Prime Minister Theresa May will have to choose her words and her alliances very carefully to bring this outcome about.

We can draw two main lessons from this challenging situation. The first is that countries should not assume they can strike better terms by moving away from existing trade agreements. The combatants in the current round of global trade friction would do well to remember this.

And secondly, public referenda are a terrible way to decide complicated problems. It would have been far better if the parties to Brexit had tried to hash things out behind closed doors; perhaps with a few pints of Guinness to move them along.