Mr. Dáithí O'Ceallaigh:

I have been asked to talk about the possible implications for trade between Ireland and the UK in the event of a UK withdrawal from the EU. I will preface my remarks by addressing two issues. First, I wish to inform the committee that the Institute of International and European Affairs has just finished editing a book on Great Britain and Europe that we expect to publish on the web early in March and as a printed book later in March so it may be of some help to the committee in its studies.

Second, the situation in the UK is very uncertain and entirely unpredictable. The Prime Minister, David Cameron, has said that he wants to have a referendum in 2017. We in the institute think that regardless of whether Mr. Cameron is re-elected, a referendum in the UK is likely in the next few years and that, in practice, this referendum will be of an "in-out" nature. However, we do not know what the British want. The Prime Minister has said that if he has a successful renegotiation with Europe, he will recommend a "Yes" vote. The British Government has not made clear what it actually wants in a renegotiation so this is uncertain. There will be one negotiation between now and whenever there is a referendum but we do not know what it will be and we do not know what the issues are.

When the referendum comes, we do not know whether it will result in a vote to remain within the EU or a vote to withdraw from it. If it is a vote to withdraw from the EU, there will then be a negotiation period which will probably take the best part of two years. This negotiation will essentially be led by the European Council but most of the work will be done by the European Commission. There is a further question regarding what will happen internally in the UK if there is a vote to withdraw. The Scottish National Party has already said that it does not want Scotland to withdraw unless there is a majority vote in Scotland to do so. There is great uncertainty and the possibility of two negotiations, all of which would affect Ireland's relations with the UK and Europe.

I will now turn to trade. By trade, I mean both merchandise and services. Trade is one of the key economic linkages between Ireland and the UK. The impact on that trade will depend on what happens in the first negotiation and the second negotiation if this takes place. At the moment, trade between Ireland and the UK, like trade between Ireland and the rest of the EU, takes place on the basis of the EU Internal Market - the Single Market. The British appear to be quite happy with the Single Market. From time to time, one sees commentaries in the British press stating that they would like to remain in the Single Market.

However, as I am sure some of my colleagues will mention later, some of the basic freedoms in Europe underpinning that Single Market are freedoms about which people in Britain are demanding serious changes, such as the free movement of people.

If there are negotiations following a referendum to withdraw, there is no doubt but that trade between Britain and Ireland would be affected. That is really what we need to examine. We also need to know how much trade there is between Britain and Ireland. In 2012, 43% of merchandise exports from Irish-owned firms went to the United Kingdom. The proportion of exports from non-Irish-owned firms is much lower, at about 12%. About 20% of our services exports went from Ireland to the UK. Therefore, should there be a change in the arrangements about trade, there will obviously be very big implications indeed for Irish exports to the UK. In the book I mentioned earlier, there is an attempt to quantify the result on this trade, and on Ireland, of a British withdrawal from the EU. The argument is that the effect on Irish exports, were the UK to withdraw from the EU, could be in the order of a decrease of 3.6%. I should mention that there are so many ifs and buts in this thing that we need to examine that figure with caution, but that is the way it looks.

Should the British succeed in a renegotiation of their terms of membership between now and the time of a referendum, and remain in the EU, that in itself could have an effect on our trade. Should they withdraw, however, the effect is likely to be much greater.