Negotiating a successor to Partnership 2000 is crucial if Ireland's economic well-being is to be maintained, according to the National Competitiveness Council.
In its second annual report, the council also highlighted a list of problems for the economy including bank lending rates, poor infrastructure and inferior telecommunications and Internet usage.
However, the priority, according to council chairman and Waterford Wedgwood chief executive, Mr Brian Patterson, has to be the negotiation of the next partnership agreement.
"It will be a huge challenge to find another agreement that contains the magic formula of previous agreements and which is flexible enough. In fact, it is almost impossible," Mr Patterson said. "But it can and must be done."
He added that Ireland is doing well in competitiveness league tables but that staying there is 10 times as hard as getting there. "Global competitive pressures are building all the time and monetary union and the expansion of the EU are only adding to that."
According to the council's analysis, 25 measures of competitiveness have disimproved over the year compared with improvements in 35. Among those which have disimproved are inflation, unit labour costs, commercial property prices, Internet development and lending rates.
Most of these can be acted upon. The banks, for example, could take the same margin as their counterparts in other countries. The council hopes that, by pointing to the large spread - the difference between the rates at which the banks borrow and lend money - it may encourage them to reduce the differential.
"This is a particular problem for small companies which cannot go to European banks or raise funds themselves," said Mr John Travers, chief executive of Forfas. The Government can also act on the problems of Internet connectivity. It is negotiating with broadband providers and £10 million (€12.7 million) has been allocated but much more may be needed. Currently, Ireland is lagging behind Europe, which is itself lagging significantly behind the US.
Inflation is also causing some problems with monetary policy now being decided in Frankfurt and the pound declining in value against sterling.
Other problems include the complex inter-related issues of serious skills shortages, poor transport infrastructure, inadequate housing supply and unbalanced regional development.
Telecommunications are also a serious problem, according to the council, and the infrastructure must be strengthened, particularly in the regions.
Other problems are the relative scarcity of science and engineering graduates, the unwillingness of companies to undertake serious research and development, and the lack of patent registration. Unlike last year, the council has not come up with any recommendation. However, Mr Travers, who heads an implementation group also involving civil servants from the main spending departments, said that almost 90 per cent of last year's recommendations are being worked on.
