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EU: Will Dublin's Success Be Threatened By Eastern Candidates? (Part 2)

The Republic of Ireland is one of the great economic success stories of our time. In the span of a few decades, it has grown into a powerhouse of advanced knowledge-based industries. But Ireland is now looking over its shoulder toward the transition economies of Central and Eastern Europe. Some in Ireland are worried that the up-and-coming Easterners could eclipse Ireland's achievements once they enter the European Union. In the second of a four-part series, RFE/RL correspondent Breffni O'Rourke reports from Dublin on the debate about the "threat from the East."

Dublin, 27 November 2001 (RFE/RL) -- Success never comes easily, the proverbs say. It has to be won through hard work, perseverance, and wise decisions. The Republic of Ireland believes it has found its path to success. It has transformed itself from a rural backwater into an international high-tech center in just a few decades.

The figures tell the story. Per capita income in the republic almost doubled between 1990 and 1998. Joblessness fell from 16 percent in the 1980s to practically zero today. Emigration has stopped, and foreigners are arriving now to fill the tight labor market -- some 45,000 have come this year alone.

But there's a certain unease developing in Ireland as the 10 Central and Eastern European candidate countries move toward full membership in the European Union. The Irish are not unaware that the Czechs are heirs to a fine tradition of precision manufacturing; that the Poles are considered quick-thinking and innovative; that Bulgarians have a way with computers; that the Baltic nations have powerful Scandinavian supporters; and that Romania has extraordinarily low costs to offer investors.

In fact, rising costs -- in comparison to the Eastern candidate nations -- are one of Ireland's main worries. As one Dublin commentator noted, a big Irish printing company recently bought a stake in a Hungarian printing plant to stay competitive. In Hungary, he said, the labor component accounts for 20 percent of total production costs; in Ireland, it's 80 percent.

The question troubling the Irish is: Could incoming Eastern member states prove so attractive for foreign investment that the country would find itself eclipsed?

A prominent Irish academic economist, Frank Barry, of University College Dublin, thinks that risk is real.

"Ireland will face an increasing competitive challenge from the countries of Central Europe. They are competing against us already in terms of low corporation tax. And we argue that their educational standards are higher than those prevailing in Ireland. Their public infrastructure is obviously very, very strong, and, upon accession to the EU, we think the efficiency of their public administration systems and the efficiency in general of their bureaucracy will be improved to Western European standards. So they represent a threat to us in terms of our ability to continue to attract the high levels of foreign direct investment (FDI) that we have been attracting until now."

Barry goes on to say why educational standards in Ireland, which are so often warmly praised, are in comparison perhaps not as good as people think.

"The latest data concerning educational standards indicates that between 60 and 70 percent of the younger age group in Ireland have high levels of secondary education. The relevant figure for the Czech Republic is 90 percent. And [in addition] the Czech Republic is turning out the same proportion of people with scientific and engineering degrees [as Ireland does]. And on the basis of cross-country tests of ability, the Czech population appears to have a better basis in scientific education than the Irish people do. And these sorts of factors are very important in terms of a country's ability to attract FDI."

Tony O'Hanlon is the senior vice president of the AIB bank in Dublin, an Irish bank with a strong international presence in the U.S. and Eastern Europe. O'Hanlon, although confident of the future, also has concerns.

"I think it is going to be increasingly difficult for Ireland to maintain [investment] at its current levels. Certainly, we have seen that other countries have held Ireland up as a barometer or a benchmark upon which to base themselves. And certainly we see some of the Eastern European countries investing very heavily in education. And I think that would make it attractive to other companies to set up in those locations."

At the Economic and Social Research Institute, analyst David Duffy takes an optimistic view, believing that Ireland can meet the challenge in any event.

"I think Ireland can compete, I think the nature of competition will change. Ireland has the advantage of being able to offer itself as a developed economy, and it also possesses a very strong 'demonstration effect,' [meaning that] foreign multinationals that have come and established themselves in Ireland have generally been very successful, and that in itself has attracted other foreign multinationals."

Another top analyst, Professor Rory O'Donnell of University College Dublin, plays down the challenge posed by the Eastern candidate nations. He says most investment in the transition economies is into low-tech or medium-tech ventures. For this reason, they represent no competition to Ireland's knowledge-based economy -- at least for now. He says foreign investment will decide which industries in the transition nations will eventually be ready to challenge Ireland.

In the meantime, the most developed nations of the region -- such as Poland, the Czech Republic, and Hungary -- will provide major new market opportunities for Irish products. O'Donnell concedes, however, that Ireland, because of its costs, is no longer an attractive base for low-tech ventures, such as, for instance, textiles.

A complicating factor in the debate is that in June, Irish voters rejected the EU's Nice treaty in a referendum. That treaty sets out internal EU reforms to make space for the incoming Easterners. As such, it is considered a politically necessary document for enlargement, and Ireland's unexpected rejection has cast a shadow over the process.

Many on the continent may link the Irish rejection of the Nice treaty with a desire to avoid new competition from the East. But according to Anthony Coughlan, the leader of Ireland's Euro-skeptic National Platform group, the Irish are not opposed to enlargement. Quite the contrary. They are worried that the newcomers might not get a fair deal from Brussels.

"Most Irish people are not against it [the enlargement], provided the accession countries get a fair deal which is acceptable to their people in free and fair referenda. It's up to them to decide whether they have a fair deal or not."

He says voters' opposition to the Nice treaty reflected other concerns apart from enlargement. The third program in this series on Ireland looks at exactly what did worry Irish voters about Nice -- and the possible impact it could have on the expansion process.