Brendan Howlin (Wexford, Labour)
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I thank the Ceann Comhairle for allowing me the opportunity to raise what is a critical issue for Ireland's economic progress. I hope to get a comprehensive response from the Minister.

The decision of the Government, in the face of reported opposition from the European Commission, not to proceed with plans to provide grant aid for the planned extension of the Intel plant at Leixlip, County Kildare, raises a series of important questions that need to be addressed by the Government. This is an important issue for the people of Leixlip and surrounding areas who were looking forward to the 400 additional jobs at the expanded Intel plant. It is equally important for other parts of the country where people are concerned that their hopes of attracting foreign manufacturing industry might be dashed by any wider decision of the European Commission to prohibit grant aid on the basis that it might constitute an illegal state aid.

Intel is a major employer and a flagship project for Ireland's high technology sector. Some people might argue, with some validity, that a huge and very profitable multinational company like Intel does not need grants from the State, and that is probably true. However, this is now the basis on which decisions on the location of multinational companies are made. If we are not able to compete with other international locations outside the EU for grant aid, then there is clearly a danger that we may lose out.

The situation is made all the more uncertain by the fact that no determination has been made by the European Commission on the matter. We do not know whether the grant aid proposal would have been approved by the Commission because the Government took the extraordinary step of withdrawing the application. Government sources are quoted as saying that there were clear indications from the Commission that it was preparing to rule against financial assistance, but surely there was a case for allowing a decision to be made so that everyone would be clear about where the Commission stood. This is especially the case since we understand that the Intel development is going ahead in any event. There must have been a strong case to be made that the proposal did not constitute an illegal state aid, especially since it is quite clear that there was no prospect of Intel locating this project anywhere else in the EU. If it was not coming to Ireland, it was clearly going to go elsewhere in the world.

As a matter of urgency, the Minister must clarify why this package has fallen through and specifically why the Government decided to withdraw it before a final decision was made by the Commission. He should also explain why his Department and IDA Ireland came to hold a view on this aid package which was so at variance with the European Commission that the package was withdrawn. We need a detailed explanation from the Minister on why the proposal was so vigorously opposed by the Commission. He should also indicate what implications this has for other projects in the pipeline, particularly in the vital high technology sector.

It is important that we know whether this is likely to be a once-off occurrence or whether there are ongoing implications for the IDA Ireland strategy of developing the high-technology sector. Foreign investment has been a great source of jobs over the past four decades. It is essential for our economic future that we should be able to continue to source jobs in this way. However, the experience with this project, as well as the warning from some that the era of large-scale state aid for industry is nearing an end, provide a timely warning against placing all our eggs in the one industrial basket. While continuing to seek investment from abroad, we also need to make more effort than we have done in recent years to promote the development of the indigenous high technology sector and manufacturing industry. A clear enunciation of Government strategy is now urgently required.

Dan Boyle (Cork South Central, Green Party)
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I thank the Ceann Comhairle for allowing me to raise this issue. I also thank the Minister for attending and giving this issue the serious consideration it deserves.

This decision by the Government has enormous implications for future industrial policy in Ireland. It demands an immediate response for those of us who need to know the future direction of Government industrial policy. The Minister can be assured of some degree of support, as Deputy Howlin indicated, in initially questioning how inward investment to Ireland is regulated at EU level. However, the Minister has contacts at European Council level and at the Commission and cannot have been unaware of feelings among the Commission and other member states to which Ireland needs to respond if it is to frame an industrial policy for the future.

Members on this side of the House believe it was the intention of the enterprise strategy group that we should not only recognise that foreign direct investment has brought many jobs to Ireland and has the potential to bring more, but must also accept the need to reduce our reliance on it. The enterprise strategy group recommended that indigenous companies based on research and development must be encouraged to a greater extent, not in substitution for foreign direct investment but to enable us to avoid in future circumstances like those under discussion.

I concur with Deputy Howlin in what I would like to hear from the Minister. I wish to know what will be the immediate impact of the Government's action on other projects. A similar package is in place for Centrecore which the Government seems confident will be approved in its current form. Surely, questions must be asked about the feasibility of pursuing State grant assistance for projects such as the one involving Johnson and Johnson which appears comparable to the project the Government proposed for Intel. We require more information if we are to proceed further in establishing worker confidence in the companies involved and general business confidence in the direction of the State's industrial policy.

In the brief time available to him, it is hoped that the Minister can provide the House with a brief overview of the status of the enterprise strategy group's recommendations. Many Members had hoped that unlike its predecessors, the Culliton and Telesis reports, the group's report would include a strategy to implement its recommendations. We hoped it was not a report which was likely to remain unconsulted on a library shelf for years to come. While the Minister might argue that upwards of 70% of the report's recommendations are being implemented in one form or other, some of the 30% which have not been implemented are key recommendations of the enterprise strategy group on the organisation of Enterprise Ireland, that IDA Ireland and Forfás should be brought under the same umbrella and that there should be different arms dealing with marketing and technology.

While we are all concerned at the nature of the impasse with which we are faced and its impact on industrial policy, I would like the Minister to articulate how the opportunity to recast Irish industrial policy to give birth to ideas expressed in the report of the strategy group and those of its predecessors will be seized. At last, we can begin to offer the support necessary for indigenous Irish industry to facilitate research and development. In a decade or two, we should be able to point to successes in the Irish economy and to a company in the high technology sector which is the equivalent of Nokia in Finland.

Unfortunately, the above is indicative of the gap which exists here. While we are reacting to the immediate implications of the Commission decision for foreign direct investment, we should be thinking about how to develop investment opportunities within the economy. I would like to hear a positive contribution from that perspective from the Minister.

Micheál Martin (Cork South Central, Fianna Fail)
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I thank the Deputies for raising this important matter and, at the outset, record my disappointment at the outcome of the aid notification procedure. Notwithstanding recent developments, it is clear that Ireland will continue to face global competition for future investments. It is to be regretted that the European Commission has opted such a narrow interpretation of its conditions when projects like Intel can locate anywhere in the world. I have made this point very clearly to Commission officials on numerous occasions.

The vast majority of inward investment projects need not, however, undergo this process. Of the very small number of projects that do, each project must be examined in the context of its individual elements. We cannot, therefore, draw generic conclusions from the Commission's decision and must be careful to ensure we do not do so. Recently, for example, the Lucent Technologies-Bell Labs investment of €69 million to establish a global headquarters for research into telecommunications and supply-chain technologies in Ireland was successfully notified to the EU.

While IDA Ireland considers the outcome of the Intel case to be unhelpful in the progressing of investment projects of this size, it does not envisage that it will have a direct negative impact on Ireland's ability to attract foreign direct investment in the future. Financial support is only one of a combination of factors which makes Ireland attractive and competitive to inward investment. The availability of highly educated young people with the skills and ability to use knowledge quickly, flexibly and creatively has been vital in attracting inward investment. The education system is focused on continuous learning and pursues a collaborative approach with business and industry. The Government's science foundation programme contributes to the improvement of research capabilities and skills in Irish universities in partnership with international business and world-leading centres of research excellence.

Ireland continues to invest heavily in infrastructure, especially in the areas of access and telecommunications, and the Government's national development plan is establishing high quality physical and social infrastructure. Ireland has retained a competitive operating environment while undergoing a transformation in much of its business structures in response to new models and the needs of global enterprise. We offer one of the most attractive corporate tax environments in the world in which a rate of 12.5% applies to all corporate trading profits. Ireland consistently outperforms other locations in providing the best return on investment to US companies. We also compete on a par with the best, most advanced countries in the world for business. We are winning investments of the highest quality across the wide range of business types and sectors in which we have chosen to compete.

The current regional aid guidelines will expire at the end of 2006. Discussions have commenced on the guidelines which will cover the period 2007-13 on the basis of proposals from the European Commission. In considering the new guidelines, I am influenced by comments in the Commission communication, Working together for growth and jobs — A new start for the Lisbon Strategy, which states that the renewed strategy will focus on growth and jobs. According to the Commission, if we are to succeed we must ensure that Europe becomes a more attractive place in which to invest and work while shaping policies which allow our businesses to create more and better jobs.

Consideration of the new guidelines should focus on ensuring that the reform of state aid policy and, specifically, the shaping of the new regional aid policy are geared towards allowing a sufficient degree of flexibility to promote the realisation of the objectives and targets of the re-launched Lisbon strategy. State aid rules should not be solely inward looking, nor should they be designed primarily to regulate state aid within the European Union. As I pointed out to the Commission, the world is changing rapidly and Europe must look outwards every bit as much as it looks internally. The rules must recognise the need for the EU to be internationally competitive in attracting investment. Any desire to reduce regional aid within the Union must be balanced with the need to recognise that all member states face an increasingly competitive threat from other locations around the world in attracting investment. These countries not only have access to much lower cost bases and improving skills and infrastructure, but are less restricted in the levels and types of aid they can offer.

The Commission has stated that the regional aid guidelines review must not be approached as an isolated issue. It must also be conceived as an integral part of a general reform of state aid policies designed to give practical effect to the conclusions of the European Council which call for less and better targeted state aid. According to the Commission, this approach implies strict control of what are potentially more distorting forms of aid while allowing member states sufficient flexibility to design aid measures which promote the realisation of the objectives and targets set out as part of the process of implementing the Lisbon Agenda.

I am concerned that the focus to date in the review of the regional aid guidelines has concentrated on the strict control of state aid. Mechanisms which provide member states with a sufficient degree of flexibility to design aid measures to realise the objectives and targets of the Lisbon Agenda must also be accommodated in the new guidelines and general reform of state aid. The package must encourage a high level of investments and allow disparities to be reduced in line with the Lisbon objectives.

On the Intel project, I reiterate the comments I outlined in my press statement yesterday. As indicated at the outset of my reply, I am extremely disappointed with the outcome of the aid notification. Under the terms of the European Commission's multisectoral framework on regional aid for large investment projects, which came into general effect on 1 January 2004, approval of the proposed grant aid to Intel was required. Detailed discussions continued until recently following the submission of notification to the Commission in June 2004. It became apparent in the course of the discussions that the Commission was adopting a different interpretation of the provisions in the multisectoral framework than that on which IDA Ireland and my Department relied in proposing to grant the aid. The Intel project was the first case to which the framework's provisions were applied. Substantial further information was supplied to the Commission and a number of meetings were held. Further submissions were made in an attempt to resolve the differences which arose.

To respond to Deputy Howlin's point, the Government took its decision to withdraw the proposal for aid in agreement with Intel and IDA Ireland. It did not take that decision in isolation, which is an important point. I attended meetings with Commissioner Monti before he retired and with his successor, Commissioner Kroes. At one of the meetings, an official made it clear that even if this went through a full formal process, it would not come out the other end in a positive light. We had to be honest with Intel and communicate that to the company.

Brendan Howlin (Wexford, Labour)
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Would the location have made any difference?

Micheál Martin (Cork South Central, Fianna Fail)
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We repeatedly pointed out to officials that we were not taking this from anywhere in Europe. Location within Ireland would not have made any difference. That is not the issue; the issue is definition of innovation. During the Irish presidency, as this framework was being negotiated and concluded, Ireland was successful in getting a footnote into the framework agreement which allows for flexibility in terms of leading edge technology companies of this kind. We felt that clause was the way the Commission should have dealt with this particular project. China, India, the US and a range of countries outside the European Union are putting forward competitive packages for attracting foreign direct investment. Europe does not have a preordained destiny that means it will always be strong. We must get competitive and that is what the Lisbon Agenda is about. After six months in the job, I feel there is a mismatch between the rhetoric and commitment surrounding the agenda and decisions of this nature. We must reflect on and review that at pan-European level, given the competitive forces within Europe and outside.

There was a degree of advance spinning before this decision was announced by the Commission yesterday about which I also have concerns. It is important, even when going into a full formal process, that confidentiality is assured to companies in terms of commercially sensitive material they may be asked to submit. The events of recent days would not lend confidence to the process and this is a point I intend to take up with the Commission in light of my experiences this week.

The Commissioner indicated in writing to me that she felt she would not be prepared to approve the aid package at preliminary stage and therefore we cannot now grant the notified aid to Intel. However, work on the project has already commenced at the Leixlip site and will continue. We have a very good relationship with Intel and I have been in constant contact with the company throughout the process. I met different individuals and they are happy with their performance, staff, productivity and outcome in Ireland. They feel that Intel Ireland has been good for the company as a whole, and we feel Intel has been good for Ireland. It is my job and the Government's responsibility to maintain that strong and fruitful relationship into the future.

I agree with the Deputies on the indigenous issue. I am passionately committed to the implementation of the recommendations of the enterprise strategy group, in particular the internationalisation of indigenous Irish companies in the growth of small and medium-sized enterprises, equipping them with all that is required to internationalise and develop markets and build presence in overseas markets. I have a strong record regarding research and development in my previous portfolios at the Departments of Education and Science and Health and Children. I intend to give the issue a major priority in the context of Ireland's competitiveness, in particular the commercialisation of research and the linkage between research and small businesses in Ireland within the indigenous sector. I am in agreement with the essence of what the Deputies said regarding the importance of bringing indigenous enterprise centre stage.