Oireachtas Joint and Select Committees
Wednesday, 1 May 2013
Joint Oireachtas Committee on Foreign Affairs and Trade
Trade Promotion: Discussion with American Chamber of Commerce Ireland (Resumed)
We will move on to the next part of the meeting. I would appreciate if members, witnesses and those in the Public Gallery would ensure their mobile phones are switched off completely for the duration of the meeting as they cause interference. We had some incidents last week. Mobile phones interfere with the sound recording so I would appreciate co-operation from all concerned.
The next item on the agenda is trade promotion and the role of the Department of Foreign Affairs and Trade in economic recovery, which is an ongoing issue in respect of the preparation of our report relating to our economic recovery. We have a very important presentation today from the American Chamber of Commerce Ireland, which is represented by two individuals, Brian Cotter, who is public affairs director, and Jonathan Small. The US is a very important trading partner. Mr. Cotter and Mr. Small are very welcome to the meeting. They are here today to offer the views of the American Chamber of Commerce Ireland on trade promotion in the context of a series of meetings and other activities which the committee has been undertaking in respect of trade promotion and the role of the Department of Foreign Affairs and Trade in economic recovery.
The American Chamber of Commerce Ireland represents US companies based in Ireland at both Government and industry level and within the Irish and international media. With a corporate membership of more than 700 companies, the chamber is well placed to reflect on how official Ireland and the Department of Foreign Affairs and Trade in particular can help maximise the potential for developing our relationship with one of our most important trading and investment partners. There is always the risk that our long-standing links in business, political and cultural arenas may lead to us becoming somewhat complacent about the strength of our relationship with the US. We must continually seek to understand the changing dynamics of the relationship and develop our approach in order that it continues to be a key contributor to Ireland's economic recovery. American foreign direct investment is extremely important to us. We saw it at first hand when we travelled to Atlanta, Houston and Silicon Valley in the US last year and had 32 meetings in six days. Business interests out there wanted to meet politicians and learn about the recession and how Ireland was faring in its economic recovery. The meetings were very successful.
The aim of the committee's examination is to prepare and publish a report on the strategy and the response of the Department of Foreign Affairs and Trade to the economic crisis as it is extremely important that we tell the good news about foreign direct investment in Ireland, the Department's newly recognised responsibilities in respect of trade promotion, which relate to the Department's new trade remit, the programme for Government in terms of trade promotion and economic recovery, and how well the Department is performing in these respects. As part of the examination, a delegation of the committee held 30 trade related meetings in three US cities last year as part of a very successful visit. This reflected the importance we attach to the US as a trading and investment partner and the potential to look beyond the traditional horizons to places such as Houston in Texas.
Texas is the fastest-growing state in the US and accounts for approximately 48% of new industry and is overtaking Silicon Valley. We were there to see the potential for putting a consul general's office there so as to know what is happening on the ground because Chicago covers that now. There are exciting opportunities in the field of technological development in Austin, Houston and Dallas, so it is to be hoped we will recommend that there be a consul general's office based there, similar to the last one we opened in Atlanta, where there have been major opportunities for us in Georgia.
Before I invite the witnesses to make their presentations I advise them that they are protected by absolute privilege in respect of utterances at this committee. However, if they are directed by the committee to cease making remarks on a particular matter and continue to do so, they are thereafter entitled to only a qualified privilege in respect of their remarks. They are directed that only comments and evidence related to the subject matter of this meeting is to be given and they are asked to respect the parliamentary practice that, where possible, they should not criticise or make charges against any Member of either House of the Oireachtas, a person outside the Houses or an official in such a way as to make him or her identifiable.
As I said, the witnesses are both very welcome. We are delighted to have the American Chamber of Commerce Ireland here. We have had other chambers of commerce, including the Arab and British chambers of commerce. We were to meet the American Chamber of Commerce before but the meeting had to be postponed. I invite Mr. Cotter to make his opening remarks before we take questions from committee members.
Mr. Brian Cotter:
I thank the Chairman, Deputies and Senators for the invitation to address them on trade promotion and the role of the Department of Foreign Affairs and Trade in economic recovery. I will begin by talking about the bilateral investment environment between Ireland and the United States, the role of that investment and, more specifically, foreign direct investment, FDI, in driving trade and conclude with some perspectives on the role of the Department.
As the Chairman said, the American chamber represents the community of 700 US firms in Ireland that directly employ 115,000 people. That accounts for over 70% of all IDA-supported employment. Employment in US businesses in Ireland has increased by an estimated 15% since 2007. Today the total US FDI in Ireland is at an historic high of $188 billion. Putting that into perspective, US investment in Ireland is well in excess of US investment in, for example, Germany and France, and is even ahead of the combined investment in the BRIC countries of Brazil, Russia, India and China. It tops the total investment that US companies have in all of Latin America of $148 billion.
The chamber's role is to encourage a policy environment that retains and attracts investment and jobs into the country and that fosters the development of bilateral trade and investment flows between the US and Ireland. Over the first two years of this decade, the combined inflows of investment from the US to Ireland reached almost $59 billion, and it is hugely encouraging to note that this is the highest 24 month period on record. It represents a surge in both US investment and business confidence in Ireland. It is also heartening for Ireland that there has been no shift in the geographic preference of US FDI, which remains directed towards Europe in general and Ireland in particular.
This has brought significant benefits to Ireland both economically and socially. The strongest statistic for illustrating the importance of this relationship to Ireland is that with a total output of $58 billion, this business in Ireland now accounts for over a quarter of Ireland's total GDP and contributes approximately €3 billion to the Irish Exchequer in total taxes, with an additional €14 billion in expenditure to the Irish economy in terms of payroll and goods and services employed in their operations. In the global table of export platforms for US companies, Ireland now ranks as second, with only Switzerland ahead of us.
It is a two-way relationship and that is vital to the sustainability of the strong economic relationship between the US and Ireland. The investment levels of Irish firms in the US has dropped recently, however this has been driven in no small part by the sale of US assets previously held by Irish owned banks. In spite of these shifts, Irish companies in the US still have a total investment of $25 billion. Employment levels remain strong, and Irish companies in the US are estimated to employ 120,000 people in sectors such as services, software, food, nutritionals, construction and engineering. Just as US companies here use Ireland to access the major market opportunities of the EU, so too does this investment abroad find opportunities in the US market. These Irish companies generated no less than $42 billion in sales in the US in 2011, twice the level of goods exports from Ireland to the US in the same year.
Despite the disappointing performance of the global economy over the past year, subdued growth has not altered how US firms prefer to compete overseas via FDI rather than traditional trade. I would like to highlight to the committee a recently published joint publication from the American Chamber of Commerce Ireland and the American Chamber of Commerce to the European Union. We have provided copies to the committee members. The publication is entitled The Transatlantic Opportunity: Why we need a Transatlantic Trade and Investment Partnership. As many members will be aware, that partnership, TTIP, was initiated earlier this year by the European Commission and US Administration. The Irish Government is leading discussions on the negotiating mandate for the European Commission on this transatlantic partnership, and we hope that mandate for trade and investment will prove to be an ambitious and comprehensive one. There are several areas in which trade in goods and services as well as investment can be boosted on both sides of the Atlantic.
In the context of the potential further freeing up of trade between the EU and US, I want to highlight a lesser covered aspect of trade. A crucial aspect of global commerce is what is known as intra-firm trade, which relates to the flow of goods and services between a parent company and its affiliates abroad. The overall scale of intra-firm trade is, unfortunately, poorly documented outside of the US and a few other countries. Statistics from the Bureau of Economic and Business Affairs in the US indicate that in 2009, such trade accounted for around 40% of all US goods imports and exports. It is a very large amount of the trading activity into and out of the US. The importance of such trade underlines the centrality of FDI to the global economy. Companies regularly locate various functions around the world performing different roles in the firm's value chain and requiring the flow of goods and services across that chain of functions. This flow largely relates to intermediate or unfinished goods within the global value chain. There is also, however, a significant amount of trade in finished goods.
Ireland serves as a strategic beachhead to the rest of the world for US multinationals, with most of these exports destined for the UK and the rest of the EU. US foreign affiliate sales of goods and services from Irish-based operations totalled $247 billion in 2009, the last full year of figures for this metric. Putting that number into perspective, US foreign affiliate sales in a nation with a population of 4.5 million people and an economy the size of West Virginia were greater than affiliates sales in China and Japan, which rank, respectively, as the second and third largest economies in the world. Ireland's place in the global value chains of US companies is the result of several decades of excellent performance and is proving to be an enormous boon to the country as it continues its economic recovery. This has not happened overnight but through a focused industrial policy to create specialised industrial clusters and developing high-value activities within industries like electronics, computer software, medical instruments, pharma-chem and international finance.
The global economy remains fragile. This has created a difficult environment for all international businesses. The impact of the eurozone crisis has affected global demand and growth prospects. What has helped, and will continue to help, Ireland and our relationship with the US is the fact that in spite of these global challenges, protectionism has not increased significantly. More generally, US firms are in a solid financial position. Ireland's position in Europe is central to our ability to attract FDI. Europe continues to account for 30% of global consumption, and it is for access to these wealthy markets that US companies are in Ireland.
Into the future, there are potential benefits accruing from the fact that Europe lies in close proximity to what some analysts call the best business opportunities on the planet. These are the growing markets of eastern Europe, including Russia, the Middle East and north Africa, a geographical area whose combined output is greater than that of China.
The work of attracting further investment to Ireland will be enhanced by building on our reputation, delivering greater numbers of well-qualified graduates, maintaining our business-friendly regulatory environment, maintaining certainty regarding our corporate tax rate, and through a consistent focus on improving our overall competitiveness. Previous witnesses to the committee have provided their thoughts on how the Department of Foreign Affairs and Trade can be positioned to aid the process of recovery and how it has performed under its new mandate.
As the leading voice for US business in Ireland, we are keenly aware of how important trade missions, ministerial visits, the work of IDA Ireland and the openness of senior Cabinet members to meet our members have been in restoring Ireland's reputation in boardroom America. We hear repeatedly about the positive impact Ministers and senior Oireachtas Members have on senior decision makers when they decide to invest time and energy to meet investors. The Department, working with IDA Ireland, has an important role to play in scheduling such visit programmes, coordinating the detailed logistics and providing quality briefs for Ministers and visitors that ensure a positive impression is made of Ireland. We are grateful for the responsiveness of the Anglo-Irish division of the Department of Foreign Affairs and Trade which holds responsibility for US affairs and the mission in Washington under the current stewardship of the ambassador, Mr. Michael Collins.
While the chamber supports greater public sector productivity and flexibility, we are in favour of ensuring vital areas essential to our continued economic and social recovery are prioritised. That would clearly include the Department's network in the United States, as well as resources given to agencies such as IDA Ireland. They have delivered and are continuing to deliver in the US marketplace. With a heightened focus on the commercial relationship, it would be appropriate to ensure the Department had the correct skills sets in place to understand and empathise with the business world. While diplomatic and consular skills and experience are needed in conducting the State's diplomatic business overseas, it might be prudent to consider if the injection of more commercially experienced executives into missions might not bring further benefits to our efforts to project Ireland as a business-friendly trade and investment partner in Europe. Our view is that maintaining and strengthening the State's US infrastructure, in conjunction with competitiveness improvements, with a focus on encouraging two-way investment and trade, are essential to increase the presence of US investment in Ireland.
The opening of the consulate general in Atlanta, Georgia, was a welcome step for the Department abroad, focusing exclusively as it does on fostering and strengthening commercial, scientific and cultural links. In addition, the approach followed in Atlanta, London, New York and Tokyo of housing State agencies alongside departmental staff has been cohesive and could serve as a model for future reorganisation of the embassy and consulate network. Further, any encouragement that the State or the Department can give to the establishment of an Ireland-west coast USA direct flight connection would be welcome, as would the extension of pre-clearance facilities for US passenger traffic to air freight in order to improve the attractiveness of Ireland.
Balancing the need to maximise existing relationships and build new ones is important. The economic relationship between Ireland and the United States remains unique in Europe and is a strength from which our two countries have benefited extensively. While there is an increasing and understandable focus on emerging markets, the bond with the United States continues to deliver enormous value to Ireland and should continue to be tended and nurtured.
I thank Mr. Cotter for his valuable presentation. I have a question about pre-clearance facilities. Members will not mind if I put on my parochial hat for a moment. I come from the mid-west region and have seen the benefits of passenger pre-clearance facilities. Very shortly there will probably be military pre-clearance facilities also. Will Mr. Cotter outline the benefits for this country of freight pre-clearance facilities between Ireland and the United States?
Mr. Brian Cotter:
A group of stakeholders is being formed, including the Shannon Airport and Dublin Airport authorities and a number of business groups, to assess the potential impact. We have seen the benefits of pre-clearance facilities for individuals in the ease of movement in the case of executive travel, for example, and tourism. The feeling is there might be an opportunity for Ireland, as global trade continues to expand and air freight becomes more important and given the constraints on many international airports and hubs. Shannon Airport has a particular interest in seeing if there is a business case to be made for it. It would be a considerable boon. As there are not many locations in the world that have pre-clearance facilities, it would be an attractive hub, for example, in setting up significant store rooms and stock to supply businesses and being able to move it easily back and forth across the Atlantic. Ireland is in a good position in the context of this trade partnership between Europe and the United States. It has potential capacity from an airport perspective. We have a reputation for having successfully implemented pre-clearance arrangements for individuals; therefore, there is a keen interest in some parts of the US Administration and certainly on the Irish side to explore this to see whether we can carve out a new business opportunity for the country.
I welcome Mr. Cotter and his colleagues. The statistics he has quoted indicate the strong business relationship between the United States and this country, the very significant number of employees in US firms in this country and the large number of individual companies also. A number of years ago it was always thought that the number of people employed in the United States by Irish companies was somewhat lower than the number employed by US firms in this country. When did that change to Irish firms employing more people in the United States than the number US firms employ here? We welcome this because it often provides an opportunity for the sale of products from the parent company in this country to the company established in the United States.
Will Mr. Cotter elaborate on and give some detail in regard to his statement that the overall scale of inter-firm trade is poorly documented?
With regard to the Chairman's question about pre-clearance facilities and Mr. Cotter's reference to better links with the west coast of the United States, what locations does Mr. Cotter have in mind? He also mentioned corporation tax. In my limited experience of trade missions one of the first questions which is always raised in the boardroom is whether Ireland is committed to retaining its current level of corporation tax. Sometimes there can be a misapprehension in regard to the European Union and the level of corporation tax. It is a matter within the competence of the national government and it cannot be changed except with unanimity at European Union level. The message must continue to be conveyed that there will be no change to the corporation tax rate, as has been stated by successive Governments. It is a clear message that must be reiterated at every opportunity.
With regard to the eurozone and the difficulties in recent years, has that been a source of concern on a constant basis since 2008 for the members of the chamber and client companies? It factors in to the issue of competitiveness, as well in the context of fluctuations in the value of currencies.
I welcome Mr. Cotter's strong statement about what has been achieved during the years and the potential for further development and trade through the US-EU trade agreement. Does there appear to be a desire in the United States to complete a World Trade Organisation deal? It has been on the agenda for many years but has not moved forward significantly.
Mr. Brian Cotter:
I might need to be steered in case I forget some of the questions posed.
On the numbers, we have only been recording them since three years ago when we first looked into the matter. We do not look back to the early part of the decade. We are using one set of data, by and large, the data provided for us by the US Bureau of Economic and Business Affairs. We are comparing like with like. The bureau has figures for investment, trade and employment and we look at the same set of data it provides for companies in Ireland. The Government has a slightly different set of figures because it counts them differently. It counts employment mainly in companies that are agency supported in the United States, which is a slightly different figure. I believe 80,000 is the figure it gives using that metric.
Mr. Brian Cotter:
A total of 96,000 used to be the quoted number for employment in US companies in Ireland. That is true. It depends on the year, but it is in that range and has fluctuated, depending on how companies have acquired particular assets or got out of particular businesses. It is in that range from the State's perspective. We look at the US Department of Commerce in the United States and 120,000 is its figure. We use this figure because it is very important in communicating in Washington. When Members of the Senate and the Congress talk about investment and look to Ireland, we can say that, according to the US figures, there are more people employed in the United States by Irish companies than there are employed in Ireland by US companies.
That is always a useful fact in being able to discuss the two-way relationship between the two countries.
The second point was on inter-firm trade. Approximately one third of the trade between the United States and Europe is inter-firm. Companies, when assembling their final offer in the market, use different sources within their own organisations for components or parts of the final solution, whether it be software or otherwise. A company might be engaged in research and development in another part of the world, but the different components come together. Companies are actually trading these components and parts among themselves. That is why that part of the arrangement is very important and it has grown as companies have grown on multiple sites.
It was really interesting talking to some of the hi-tech companies which, in conjunction with the American chamber, must often explain the importance of Europe to their bosses. Europe provides a huge amount of technology which is often assembled in the Far East and re-imported back into Europe and sold at a very good price. Companies involved in the technology industry make their money for investment in wealthy markets with a high GDP, that is, Europe, the United States and Japan. Europe still matters very much for these companies and it is a big point we make. It is all driven by the inter-firm trade relationship, not the movement of the final goods which is often picked up in the trade statistics.
With regard to the reference to the west coast, there would not be any controversy about the fact that Silicon Valley is the magnet and on into LAX, Orange County and San Jose. They are the main drivers of economic activity. There is a cluster of life sciences companies in San Diego also. As long as there is a west coast hub and connection into Ireland, that is seen as a big advantage for the entire state of California and the west coast economy which is quite strong and rebounding.
The comment on taxes was very welcome. We have always welcomed the consistent political commitment to certainty around Ireland's taxation regime, which is crucial. There is great stability in the current regime. When companies are making long-term decisions, that stability is worth a lot. We certainly support the Government's role in keeping that message solid.
I also note the comments on effective rates of tax. Ireland's effective rate of tax is very close to its headline rate, unlike many countries in Europe which sometimes criticise Ireland. They need to look at the World Bank's report to see how their headline rates contrast very dramatically with the effective rates of tax. Even as they accuse Ireland of behaving unfairly in the tax environment, they introduce new regimes for intellectual property, holding companies, etc., which reduce even further their effective rates of tax. Ireland plays by the rules. We have an EU and an OECD approved tax regime. This is not a tax haven; we apply international rules and regulations and are compliant. We have more than 70 tax treaties worldwide and there is transparency in what we do; in other words, the countries which have tax treaties with us can gather information on their companies which have operations here. Most importantly, we pride ourselves on the fact that we have a substance-based regime, that is, there is real substance on the ground, real operations, real headquarters, real decision-making and real risk-taking, which is the acid test as to whether one has a legitimate taxation regime. Members will note that in recent comments from the European Commission, it is clear that the focus is on regimes which do not play by those rules and countries in Europe which have used devices to avoid such issues.
With regard to the eurozone, Ireland is a beach head for American companies into Europe, in particular. Naturally, therefore, there is concern about what will happen in the eurozone. Interestingly enough, investment flows have remained strong. There was a little jitter last year because of what was going on in Greece, Cyprus, etc. We will see if that continues this year. Flows into Ireland have been strong and we have increased our percentage share of a smaller pot. I think companies are taking a longer view and believe the matter will be sorted and that they need to be in this marketplace. They see a huge opportunity in central and eastern Europe, the Middle East and Africa and their European operations have strong links with these markets because Europe has had a strong trading relationship with them.
I note the focus of the committee on our links with the Middle East. In terms of the Middle East, central Europe and north Africa, when one considers that the combined economic output and the number of consumers in these regions outstrip those for India and China, it is a great opportunity, although I imagine it is not without risk. However, taking the longer view, companies want to be placed there.
In anything we do, it is all about competitiveness, that is, the combination of one's cost base, one's talent, the experience one can bring to bear, one's tax offering and infrastructure, which is very important. We have gained a degree of competitiveness in the past four to five years. In a recent report the National Competitiveness Council cautioned that much of the gain had been concentrated in a depression of domestic demand, in particular in the sectors of construction and retail, and changes in the Government sector but also changes in the value of the euro. In other words, there had not been enough structural changes in the cost base. That is probably reflected in the fact that there remains a skills shortage in the high tech areas, in which our members are concentrated. That is also part of the factor, as well as higher energy costs and higher indirect costs through the tax system.
With regard to the prospects for a US-EU trade deal, following the round table meetings which have recently taken place in Washington and Dublin, there is a sense that there is a willingness to get a deal done. It will not be without its problems and challenges, but there is a real sense that the opportunity for both trading blocs cannot be ignored. The prospect of up to 1% in economic growth and up to 400,000 to 500,000 jobs in Europe alone presents a significant opportunity. We not only have economic interests but we have also political interests which are aligned. We want to establish the impetus for another world trade deal. If we can crack this nut, as two trading blocs, the feeling is that it would be of benefit to both and Ireland as a key gateway in that relationship. It will also encourage other trading blocs to adopt the same rules.
The focus is less on tariffs and more on regulation - aligning regulations to respect and consider each other in order that we are not putting non-tariff barriers in place in companies doing business. The trading relationship between the United States and Europe is the largest economic artery in the world. It encompasses half of all worldwide exports. The two markets comprise 60% of the world's GDP and the two blocs probably account for in the region of 50% to 60% of the world's research and development. We have a lot to gain in working together. For instance, in terms of compliance, we should ensure that when companies are doing something, they do not have to go through the same procedures multiple times, if that can be avoided. If there is goodwill on that front, there is a good chance of a deal being reached.
I thank the delegates for their contributions. I welcome the points made, including that on the transatlantic partnership, which is hugely important and a two-way process. In recent years Ireland and the United States have become more conscious of the two-way nature of that process because, as previous speakers said, once upon a time, it was deemed to be all in one direction. There are huge benefits to be gained from the further development of that element of the process.
I welcome, in particular, the reference to the importance of Ireland as a beach head for expansion of business in Europe and vice versa. The fact that Europe is a great consumer market is hugely important and something the committee has discussed on numerous occasions. We all believe Europe has not developed to its full potential. There is huge consumer demand among Europe's huge population. This is something that has been much sought after by businesses worldwide, to which reference was made.
Direct flights to the west coast of the United States are of major importance. It is a second string to the bow and brings us as a European bridgehead nearer to the west coast of the United States. We have much in common, in particular the development of technology and IT in general. Anything that can be done to enhance, improve and contribute to the development of that process is to be welcomed.
Most of the directors we met in Silicon Valley were focused on the importance of that direct link. It saves time for people travelling over the Atlantic and they no longer have to stop off in either London, New York or Atlanta.
Mr. Brian Cotter:
To respond to the points Deputy Durkan made, and on the back of the visit to the United States, we in the American Chamber of Commerce Ireland are involved in the production of a paper entitled The Case for Investing in Europe, aimed at the business audiences in the United States.
During our visits to the United States and talking to business people and other chambers of commerce we found a few years ago there was an obsession in the United States to the effect that all of the opportunity was in Asia. Whatever city or state one was in, the people had forgotten that four out of the top five investors and four of the top five exporting partners were European countries. It is fantastic to see a rebalancing in the world and Asia coming forward adding a new economic engine to the world, but it is very important to emphasise notwithstanding the great success, that Europe remains important and vital for the success of US businesses. It is part of our job to ensure they do not forget it. It is in Ireland's interest that this is to the fore. Once one has persuaded US companies that they need to be in Europe, then we have a case to talk to them about investing in Ireland.
I have the luxury of being an Independent Member, which I find quiet useful. It allows me to be undiplomatic from time to time but I do this in a way that I do not think is hostile. I am friendly and well disposed to the United States, which I am sure will come as a huge relief to that immense country.
Let me preface my question by stating I have been on this committee for a long time. In the old days, it was simply covering the Department of Foreign Affairs, the then Tánaiste, Mr. Dick Spring, added the human rights unit to the Department. That became a very significant element of its work.
The Chairman raised the issue of preprocessing at both Dublin and Shannon airports, which is very welcome. He also introduced the idea of military preprocessing, which is something that I would be interested in, particularly because I was very much involved in the campaign to expose the question of rendition, which I am glad to see the Obama Administration has very largely rejected. Trade promotion is very important. It has been very positive and I think we can be very proud as Irish people of our positive contribution to the United States in terms of companies building up very considerable resources.
In the committee we are used to blackmail, we have instances with China, if we dare to raise anything such as the question of organ harvesting, Falun Gong, Tibet and so on. Today we will be dealing with Russia. We have all received blackmailing letters, some of which were very pathetic, from Russia, stating that if one were to dare to take up the case of Mr. Magnitsky, we will withdraw adoption rights.
I take the point, but that is the general context. It is blackmail. There are no two ways about it. We see similar instances from China and it happens in other countries as well.
I am interested in the question of adverse effects because of people like me speaking out. What is Mr. Cotter's view of people like myself raising these issues? I intend to continue to raise them, not in away that is hostile to the United States but because I believe it is important that they be kept up to the moral standard, in the same way as I believe that the State of Israel is betraying the moral ethos of Judaism in the way it is treating the Palestinians at present. I welcome the slight move by President Obama in the last few days on Guantanamo. I know it is a very difficult problem but the United States walked itself into it.
The West stands for the right to due process and the right to proper trial. Most people, certainly in Europe and liberal people in America - I am not at all ashamed of the label "liberal" - would take offence at the idea that one can make a decision in some basement in the White House to blow away a few dozen people every so often, every Tuesday and it is done mechanically from the sky without any exposure to danger on the part of the warriors from the United States. I wonder how does Mr. Cotter read that situation? I have only one question, but I have given the context.
Yes. I do not believe that capital worries about people like myself raising issues. I think capital flows in the direction in which the greatest profit can be made. Will Mr. Cotter give his views on the sensitivities of American capital to old lefties like me saying that one should not bump people off without giving them a trial?
Mr. Brian Cotter:
The role of the American chamber is to ensure that Ireland is the most competitive place for the conducting of business and the attraction of investment. We talk to our members about what that means. The Senator might be disappointed that his name does not come up in those conversations.
Mr. Brian Cotter:
I could not really stray and give a personal view as this would not be appropriate in my role in the American chamber. The American chamber does not have a view because the members have not articulated a view on the matter to us as a matter of concern. It is clearly not on their radar. In relation to the concerns in their boardrooms that Senators' activity here-----
Mr. Brian Cotter:
I think in the substance of the matter we do not have a position on it. I could not offer one because our members are not discussing it. I could imagine that one always needs to be careful in the totality of the image of the country. We certainly want to ensure there is no doubt - and I think Senator Norris expressed this - that Ireland wants to be a friendly place for business and investment. However, we need to be cautious about what we say to media and be aware of how they use it. We have to be aware of that at all times in our dealings with the media and how it is transferred.
I am not aware of any discussions in the US business community that they are particularly concerned that this matter is being discussed or that it would be a factor in investment.
I was hoping that Senator Norris would address the skills shortage issue raised by Mr. Cotter. I ask him as an academic why the third level sector is not producing men and women who are quite capable of taking up employment that is being brought into the county?
I want to assure Mr. Cotter that I will not start my contribution by asking what his position is on illegal Irish immigrants in America, because I know it is not his field.
Mr. Cotter's paper was a breath of fresh air.
It was an exciting and positive presentation. It presented the facts of the situation to us. It made it clear that there are wonderful trade relationships between America and Ireland. It is a compliment to American and European companies that have invested in Ireland and recognised that our exports are at an all-time high in the teeth of austerity. It cannot be forgotten that they are making a contribution to the sustainability of the State at this time.
I would like to refer to the concerns that have been expressed by a professor. What has gone wrong with the Irish education system? I hear reports of inward direct investment. I am aware of a company that fears it might have to recruit 500 specialist staff from throughout the world to fill a portion of its positions. That is very worrying. We have moved up the technology chain, but our universities are not producing the engineers and talented programmers that are needed. The Council of Europe has recognised that Dublin city is fantastically intercultural and diverse. People of all nationalities are very happy to work here. Does that mitigate against the indigenous shortfall in skilled labour?
I would like to refer to another point of negativity that has not been mentioned. I wonder if it is fact or fiction. We do not seem to have the large-scale office developments or industrial units that would attract companies to come here. Is there a weakness in our system in that regard?
Along with the Chairman and others, I attended the recent transatlantic partnership debate in Dublin Castle, which was organised by the American Embassy. It strikes us that this is the most exciting potential trade development that can be envisaged in the next ten years. Mr. Cotter has probably been asked where he thinks it is going. I know the Irish Government is currently leading the discussions in this regard. It struck me during the debate that there is a strong belief that these relationships are developing at a pace that might lead to conclusions sooner rather than later.
I ask Mr. Cotter to respond to my questions on office developments of a suitable scale, the availability of skilled labour, the notion of Ireland being a warm, friendly and culturally diverse place and the extent to which people are happy to come here if foreign labour is required to fill posts.
Mr. Brian Cotter:
The Deputy asked why the education sector is not meeting the needs of the expanding technology sector, which thankfully has been experiencing a boom. Many US technology companies look to Ireland when they are locating the headquarters of their European operations. They have a demand for skills. Over the last five or six years, between 60% and 70% of US investment in Ireland has come from companies that are already here. That is an incredible vote of confidence. The companies in question are looking to expand.
When we express our concerns, we have to be conscious of the context in which we make our remarks. There is a global shortage of skills. We are not unique. We are in a high GDP developed market. Historically, there has not been a tendency for such markets to produce the same level of technology skills. People sometimes get diverted into other skills and trades. The other context is that we had a boom in construction and domestic demand that lasted between ten and 15 years. This encouraged and made it attractive for people to join State services or get involved in retail and construction. To a large extent, there have been two generations that did not look kindly on the opportunities that presented themselves in the technology sector. I mention those two factors to give some background information.
We are now in the fortunate position of having companies that wish to expand. They are finding excellent graduates coming from Irish institutions, but not enough of them. The best graduates are still very highly regarded. As the Deputy will know, Ireland has expanded its third level output. Over half of the population under the age of 35 has a third level degree. It is interesting to note the increase in graduate outputs that has taken place since the end of the construction boom. According to figures from the HEA, over the last five years engineering outputs have increased by 21%, computing outputs have increased by 50% and science outputs have increased by almost 20%. These things are to be welcomed.
The combined efforts of the Departments of Jobs, Enterprise and Innovation and Education and Skills and the HEA have allowed people who have one set of skills to convert them into something more relevant. The people in question did not wake up stupid one morning. They might have been in the wrong sector. We need to see how we can get those people to transfer to another sector. At least 2,000 new third level graduates with ICT skills are coming through next year. A further 1,500 people are being converted and will have those skills at the end of that process. The companies that have used and invested in the JobBridge programme have found it very useful as a means of converting skills. We are meeting some of the demand that exists, even though there is still a shortage in some sectors. As long as those sectors are demanding people, it is a signal that they are expanding.
If large international companies that are based in Ireland or the United States are to service a European marketplace, their workers will need to have a diverse set of skills. Therefore, it will not be unusual for them to have a European profile. We want to make sure that as many people as possible who come through the Irish system can take those jobs. The companies in question would not be as successful without their European profiles. We are enjoying some success because we can pull in and assemble fantastic teams of people. The teams in question will continue to be dominated by people of varying nationality and ethnicity who have come through Irish institutions. That is where we want to be. I think the real success of the Irish system is that it is able to function in this way.
It needs to be borne in mind that for every job that comes in, there are other indirect jobs in support or in the indirect economy. All of that is important. We must let the opportunity grow. We must encourage a continued increase in the uptake of science and engineering courses and continued improvements in maths. I welcome the improved maths scores through the secondary system. The issue of languages is in the long grass. We are not quite sure how we are going to tackle that. A large percentage of our educational time is given to Irish and English. That is the way the priorities have been. It does not leave much space for other languages. If we decide to address that, there will have to be a focus on long-term change because it will take a long time to build those skills and put them into the marketplace.
The Chairman spoke about his trips to the United States. I often say to people that I was impressed when I visited Salt Lake City recently. Its economy is basically driven by agriculture and mining, but it is trying to reinvent itself. When the authorities there examined what they could use to that end, they discovered that the Mormon church is one of their greatest assets, albeit not in the context that one might think. As part of its mission, the Mormon church sends young men around the world to target countries. They are given years of language training before they go to these marketplaces - if I may call them that - for two years to talk to people on the ground. When they come back, they rejoin the local society, community and economy.
Salt Lake City is trying to reorient itself to avail of a huge resource. It is particularly targeting Asia because a large number of Americans speak Chinese, Mandarin, Cantonese and south-east Asian languages. When we look to languages, that is the kind of investment we need to be able to make. We want to encourage students to take up languages and support them to go into the marketplace for an extended period in order to become fluent. We understand that educational resources are narrow at the moment. We need a strategy for the medium and longer terms.
We must start thinking about it now in that context.
What is Mr. Cotter's view on the link up between the universities here and the US? When we went to Atlanta, we noted Georgia Institute of Technology was linked up with a number of universities. Should we do more of that in the US?
Mr. Brian Cotter:
Yes. The thing to do is to look at where Ireland is trying to build up competency and at the prioritisation areas Science Foundation Ireland has set and to map those, largely in alliance between companies and universities, with the centres of competency for those around the world. One would expect to see strong linkages in the education sector between those clusters because they should mirror each other. Those linkages are a great source of intellectual transfer also that needs to take place. The opportunity exists for any institution in Ireland, whether it is an IT or a university, to target a cluster to find and establish the links. This could bring significant benefits in terms of investment and trade down the road.
I welcome the delegates and thank them for the information provided. Two issues were highlighted, the high level of foreign direct investment we have vis-à-vis other countries and the fact that in recent years this has accelerated. Another highlight is that we have 115,000 people employed in American companies here, while in the States, there are 120,000 people employed in Irish companies. I had not realised we had more people employed in Irish companies in the US than here. That is interesting.
I have two questions, the first of which has to do with product exports. I understand that last year our product exports fell, but that this was compensated for by increased exports within the services and high tech areas. What is the exposure level within the high tech area and could we lose some of that? What should we be watching out for in order to ensure some of this business is not transferred elsewhere?
Mr. Cotter said we lag behind Switzerland. Some people might say that coming second is good, but if one is second, one should always look to be first. Does Switzerland have sectors from the US that put it in pole position and are there sectors on which we should focus to try to put ourselves in the primary position? What should we target in that regard?
My final question has to do with Mr. Cotter's comments regarding supporting greater public sector productivity and flexibility. Will he elaborate on that? What would he like to see happening in that regard and what deficiencies does he see in that area? He said the Department should have the correct skill-sets to understand and empathise with the business world. Is he talking about the Department of Foreign Affairs and Trade or the Department of Jobs, Enterprise and Innovation, a Department in which significant questions have been raised about the calibre and quality of personnel in it? Would Mr. Cotter like to see a policy where there would be greater mobility between the private sector and the public sector? This would bring a greater level of ethical governance to the private sector and would bring more dynamic commercial expertise to the public sector. Mr. Cotter mentioned this, but I would like him to elaborate a little on what he said.
I wanted to raise the issue of skills shortages, but I think Mr. Cotter has responded on that. This used to be an issue, but an attempt has been made to address it. Changes have been introduced and we are producing more graduates. There has been a question with regard to the issue of languages. This has been identified by the expert group on future skills needed in this country as an area we need to promote. Language skills are a difficulty here and we have a shortage of those who are fluent in foreign languages. Mr. Cotter made the point that graduates should be encouraged to work in other countries and immerse themselves in the languages there.
Mr. Brian Cotter:
With regard to the make-up of exports, the trend over a number of years has been that services exports have increased at a faster pace than manufacturing exports have tightened. Manufacturing output from US companies has been quite strong over the past couple of years but I do not have information on their contribution to last year's figures.
In general, if we look at the manufacturing base here and stand back and look at it over the decades, we see a shift. Often, unless manufacturing is very advanced or involved with high technology, such as the type of work being done by INTEL or EMC, it comes under significant cost pressures. As we have developed a higher standard of living, our cost base has become more expensive, which has tended to put these operations under a degree of pressure. In my remarks I mentioned inter-company trade and value chains. These things become part of the mix. We have seen a shift with regard to manufacturing. There were more options in the last decade within Europe and places like Poland have done very well in the area of manufacturing. There has been a shift in the past 20 years to centres of excellence in Asia. We have also seen the United States become more competitive, particularly in regard to energy, where the cost of gas is one third of what it was in 2008 there because it is exploring policy and new gas reserves have come on stream. All of this weighs on the minds of companies here.
What companies here are doing, whatever their nationality, both successful indigenous companies and multinational companies, is focusing on widening the amount of activities they do. They control the development cycle, do research and development, bring in new products and bring them to commercialisation. They start the manufacturing process here, they engineer in all the quality and remove the cost in the process. Then, at that point, they possibly move that range of products to a different and cheaper location. Therefore, they are becoming centres of excellence and maintaining their pivotal role.
There is a whole cadre of management here which did not exist 20 years ago, or even 15 years ago. These people have global responsibilities. They are responsible for plants not only in Cork, but also in Singapore and parts of China. They are sitting in Galway, but have responsibility for plants in Boston, New Mexico, Costa Rica and Bulgaria. I mention those two in particular because two people came to mind, but they are not alone. There is now a whole cadre of management here with a track record that offers great potential for more, particularly when it comes to our ambitions in research and development. This has been the general trend in terms of manufacturing, apart from industry such as car manufacturing.
Recently, Forfás issued a report which suggested that with the best possible outcome in terms of competitiveness inputs - we control costs and address skills shortages - there is a potential of 22,000 new jobs by 2016 in manufacturing alone. We would subscribe to that because the manufacturing base here is quite strong. It is under pressure because of cost changes and lack of demand in Europe, but the experience and the skills to make it happen exist here. We should be conscious of this and ensure we do not lose this manufacturing base because so much hangs off it. We are optimistic in this regard.
I wish to make an observation. Deputy Eric Byrne raised the academic issue. At the senior academic and research level, the interrelationship between Ireland and the US is vital. Traditionally, the difficulty has always been that the United States has commercial validation companies which it hires to give accreditation to degrees, but these companies frequently got things disastrously wrong. I hope that has been addressed. Better accreditation would help student exchanges.
I welcome Mr. Cotter and thank him for his presentation. I apologise for arriving late but I read his statement.
It is fair to say that Ireland and the USA, from a business, social and cultural perspective, as well as a range of other perspectives, have a remarkably positive relationship, and long may it last. I was encouraged last week by some of the comments made by David Marcus of PayPal on his company's relationship with Ireland. PayPal, a subsidiary of eBay, has invested heavily in my constituency of Louth and in Blanchardstown as well. That represents a vote of confidence in the Irish economic recovery and in Ireland in general, and it ought to be welcomed.
I have no doubt the witnesses has been following the dynamic in recent years and they will have noted that there can often be tension within this complex and even within Government on taxation rates and the rate at which taxation for those who might be considered to be higher earners is set. The American Chamber of Commerce Ireland has previously welcomed the introduction of the special assignee relief programme, an important initiative to encourage business leaders and senior executives to locate in Ireland and to support the expansion of their companies, and this happens frequently. How determined is the American Chamber of Commerce Ireland to ensure there are no additional levies on those earning in excess of €100,000? I put the question because we would all be concerned if US companies decided to change tack on the focus on foreign direct investment in Ireland, and certainly that would have consequences. However, in terms of balancing the books in this country, some people may consider it reasonable to request slightly more from those who can afford to contribute more, and I imagine the delegation will understand that.
I listened to an interview with David Marcus from PayPal on "Morning Ireland" last week. He was asked specifically if the introduction of an additional 1% levy on those earning over €100,000 would in any way affect his company's interest in Ireland and its expansion plans and so on. He replied to the presenter that he did not think 1% would make a big difference. Mr. Marcus's case was more nuanced than that and we realise that it was a short radio interview. Will the delegation comment on the structure of our taxation system? Do they believe that if additional taxes, small though they might be relatively speaking, were introduced on higher earners, it would affect investment in Ireland?
The special assignee relief programme, SARP, provision has been significant. From reading the Chamber of Commerce Ireland pre-budget submission last year, I gather it would prefer the programme to be tweaked somewhat, especially in respect of the residency issue and other related factors. Will the witnesses elaborate on the taxation system and offer their views on how they see it evolving in the coming years?
My question is also a tax question and has been raised by Deputy Smith. Before the last American presidential election, there was much talk about Irish corporation tax. The US President referred to bringing jobs back to America because it was losing revenue and jobs as a result of several countries - Ireland was named as one of the countries - through which American multinationals were channelling profits generated elsewhere. I gather the practice is legal and therefore it is probably tax avoidance. One way or another, it was a big issue at the time of the election, but we have heard nothing since. Where is that now? Was it a pre-election thing? Are the members of the American Chamber of Commerce Ireland concerned about it? I realise the difference between our headline rate and the effective rate is minimal compared with other countries, including France, which was keen under Sarkozy to get us to change it. Is it still a political issue? Is it an issue that the chamber members are genuinely concerned about at this stage?
I welcome Mr. Cotter and Mr. Small and I thank them for a positive presentation. Having worked for an American multinational at one stage and coming from the county of Galway, which has a good deal of American investment, I appreciate many of the issues raised in the presentation. The delegation made a notable reference to competitiveness. What are the main elements on which we need to concentrate and that could have the potential to impact negatively on future investment?
My second question relates to corporation tax. We have heated discussions from time to time in this House about the 12.5% tax rate and the effective rate. I do not exactly share the view but many people believe it would be appropriate to consider putting it to 15%. Would it impact negatively on American investment in Ireland if consideration was given to making some adjustments? I imagine the delegation appreciates the difficult budgetary situation in which we find ourselves. The ordinary taxpayer is being squeezed and is probably unable to carry much more of the taxation burden. We need to consider other ways of raising tax. Will the delegation comment on the question put by Deputy Mitchell on corporation tax?
Mr. Brian Cotter:
I will address the questions of Deputy Nash first. I am pleased in one way that he has raised this issue. He will be aware of the importance of separating the issue of marginal tax rate from the special assignee relief programme. The special assignee relief programme is designed to ensure our members in particular do not pay additional costs when they transfer a member of staff for a short period, in other words, an assignment, to Ireland. The costs at present can be in the region of 15% to 20% extra because of what is termed the tax equalisation policies of US companies. This means if a US company moves staff, there is no difference to the tax in the wage packet of the staff member and the worker will not suffer whether the tax rate of the country he is going to is lower or higher, because the company equalises the costs. Sometimes this takes place by way of the company giving extra incentives like housing support or support for the family in moving to a different jurisdiction. There are different packages. That is the reason for it and we want to be competitive in that sense. In particular, we want the people who are in charge of finance in the United States to be aware of it. When a company decides to move people to Dublin for a period of 18 months, we do not want the finance person to say it will cost extra money and they do not have it in the budget. That is where we are going with that and we want that to be competitive. It is not competitive at the moment mainly from an administrative perspective. Some tweaks on how it is being implemented would be welcome. We are satisfied there is a good regime and that the mechanisms are in place, but we believe it can be improved.
There has been some discussion on marginal income tax rates. We compete with countries such as Singapore, Switzerland and the United States. The marginal tax rate in Singapore is 20%, in Switzerland it is 11.5% and in the United States it is 35%. We do not have to look too far afield to see lower and falling marginal tax rates. It is happening to our neighbours next door. Marginal tax rates are a tax on talent. Talented people, whether technical or managerial, tend to get paid more. They are highly mobile. We need to be sensitive to that. As the committee members are well aware, workers in Ireland fall into the marginal tax rate at a much lower level of income than in other countries. All this plays a part. We are keen to ensure we retain and attract new investment, but part of that involves attracting skills and retaining skills. We do not want the global leaders who are here, many of whom are Irish, to leave because suddenly it is more attractive for them to be in another operation in their company, and that might be the case. We have to be conscious of that when we are looking at our tax policy. That is where we start from.
A question was asked about tweaking it one way or the other. One would have to carry out an econometric study to get the right result. At the moment we reckon the feeling is that we are on the cusp. There is an understanding that we can support that cusp at the moment because of where the country is, but we need a plan to get our marginal tax rates more in line and more attractive in order that we can retain the talent. The committee should have no doubt that this is of concern and we do not want to see Ireland losing talent, leadership talent in particular, to other countries.
On US tax reform I was very pleased to hear the President of the United States, in the presence of the Taoiseach in the White House, confirm before the world media the importance he and the US administration attach to investment in Ireland. In doing so he recognised the fact contained in the paper we presented today that Ireland is an export platform to the European Union for US multinationals. From that perspective they may not like the fact that we are competitive but we play fair. Ireland prides itself on being compliant and we will play within the rules. We have never been found not to be compliant with major tax treaties or law. That is part of our reputation but we will compete and we should be proud to compete because that is one of the tools that we have to attract investment and build our industrial base here.
In response to the question on competitiveness, we have talked about the combination of track record and skills. When one steps back and looks at what is really successful in Ireland what stands out and is repeated again and again, is what is referred to casually as the "can-do" attitude of Ireland and the people who work in Irish facilities. They get things done. They do not let artificial barriers get in the way. That flexibility and agility have been huge advantages. It is hard to measure that. We have asked economists if they could do a study on it but they cannot figure out a way to measure it. We want to maintain that reputation of getting things done. That comes down to regulation and making sure that we have a regulatory system that meets our minimum requirements but does not get overburdened with business and employment law. That is really successful.
We have to watch our cost base. I draw the committee's attention to the National Competitiveness Council. We still have one of the highest cost levels in Europe and that is affecting employment. The lower the cost base the more opportunities there are, particularly in the manufacturing sector, to gain greater elements of the value chain. They do interact. As our economy recovers we need to seek ways in which we can restrain the cost base. The State is a big player in that area. It still owns many of the utilities and drives them through regulation. Tax in the form of local charges, etc., is another factor. We must be very cognisant of what is weighing on the Irish economy. That is all very well articulated in the National Competitiveness Council's report which makes hard reading for everybody but is a very accurate reflection of what is being and what needs to be done.
A change in corporation tax would be catastrophic. Our brand value is certainty. Our commitment to 12.5% through thick and thin is the brand we advertise. If the committee reads the Revenue accounts for the State and compares the headline sources of income it will see that Ireland gains a higher percentage of revenue from its corporate base than other countries. That is because we generate a lot of corporate activity here with our low corporate tax rate so in terms of the top line numbers for the US companies, approximately €3 billion in total taxes, some of the largest taxpayers in the country are large multinational businesses trading in Ireland with real substance. Our tax policy has been successful in generating income and jobs and we want to sustain that. Companies value limited risk. If we are committed to stability, neither decreasing nor increasing it, that will be warmly welcomed. In all discussions at EU level and with the OECD regarding taxation reform we also encourage them to keep a keen eye on Ireland's interests. We welcome the fact that the Irish Government is constructive. We will play within the rules but we will be competitive and as long as we are hard-nosed about that we will be successful.
I thank Mr. Cotter very much indeed for the informative discussion we have had this afternoon. The American Chamber of Commerce is in safe hands with Mr. Cotter as director of public affairs. I also thank Mr. Small and the rest of the team from the American Chamber of Commerce who came here this afternoon. They have given us food for thought. We will include their recommendations in the report which we hope to finalise in the next few months.
Mr. Brian Cotter:
I have just realised that I forgot to answer a question from Senator Walsh, at least I think it was he who asked me about skills in the Department of Foreign Affairs and Trade. If the Senator reads the relevant paragraph, my comment was not necessarily to criticise the Department's new job but I suggest that as this committee scrutinises what needs to happen it should take cognisance of whether the Department has the right skills. Those skills could indeed be delivered by ensuring that there is co-ordinated action between Departments and agencies such as an Ireland House or through more flexible arrangements whereby people would come in on a contract basis from the private sector. The committee should be cognisant that the Department of Foreign Affairs and Trade in its evolving role, as Senator Norris pointed out, would look to people with more experience of international affairs and they are excellent. If the Department is to have a role in promoting investment in trade it would be good for it to consider that mix of skills to make sure that it is successful.
In that context, and this will form part of our report, where would Mr. Cotter see it as important to have a bigger presence in the US? We considered Texas. Should we have more consul-general offices throughout the US? Is that extremely important if we want to attract foreign direct investment in here?
Mr. Brian Cotter:
If one considers the pattern of economic development in the United States there has been a shift in economic activity, particularly to the south. Maybe in the future it will shift slightly up to the north west because of the development of the oil and gas boom in Nebraska and other states in that region. The opportunities will be where there is the greatest dynamism and where we have the greatest relationships. Where we have the relationships might not be where there is the dynamism so we need to get the balance right. There is no doubt that Texas has been booming. It has been very creative too. We think of it as an oil state but it has also developed financial services and technology sectors and services and entertainment.
Mr. Brian Cotter:
It has always been a player in the energy sector. Strengthening the presence there is bound to be welcome and it would be useful to have an analysis that would show the committee where the economic activity is taking place, how it has changed, where it will be in the future and where Ireland has its strongest relationships. It needs to get those all right.
I thank Mr. Cotter again. We have had a very stimulating and thought-provoking discussion. We look forward to working closely with the American Chamber of Commerce again soon. We will certainly present a copy of our report to the chamber when we finalise it.