Republic's reputation as a good place to invest should be the priority,writes Cliff Taylor, Economics Editor

As war in the Gulf looms, the focus has sharpened on Ireland's business and economic links with the US and particularly the implications of Ireland's political stance on foreign direct investment from America. Those with experience in the foreign investment area believe, however, that more mundane issues of competitiveness will be the key factors in foreign investment decisions over the next few years, with politics taking second place.

The US is by far Ireland's biggest source of foreign direct investment.The figures have been well rehearsed in recent weeks: $34 billion of investment by 570 US companies who employ over 90,000 directly and generate substantial wealth through exports.

This investment has obviously taken place in a favourable political context, with successive governments going out of their way to build close links with the US. However the key factors attracting investment here have been the low corporate tax rate and, up to recently, the relatively low cost of operating in the Republic.

The implications for investment and overall economic links with the US of any political decision not to support a unilateral US attack on Iraq would obviously depend on the context.

There would be a big difference between, say, a decision by Ireland not to allow the US military to use Shannon, which was explained as part of our military neutrality, and an all-out diplomatic shouting match between some European "non-supporters", including Ireland, and the US.

Those with experience in the foreign investment field believe that, barring a major trans-Atlantic political rift, economic factors will remain paramount for investors.

"Most of the major multinationals are not overly politicised," according to one close observer.

Many US technology companies are based in the west coast, as far from the White House as Ireland is, and would thus not be part of the Washington political machine. Their decisions are based on business grounds, although naturally part of this involves looking for a stable and friendly political environment.

The key economic policy goal for Ireland would be to ensure that whatever happens in the weeks ahead, the Republic retains its reputation as a good place to invest.

That said, it would be foolish to believe there may not be some industrialists whose decisions could be affected by Ireland's political stance. Also, such are the uncertainties of the current situation that the wider political impact on US relations with Europe remains very much a matter for conjecture.

The Government is clearly alive to the issue and it goes some way to explaining the Taoiseach's equivocation about the use of Shannon. The Minister for Finance, Mr McCreevy, frankly admitted this week in Brussels that economic factors such as foreign investment are taken into account when formulating foreign policy.

With trademark chutzpah he commented: "There is nothing wrong with that. I think that's what all countries do in any event". He went on to point out that the consequences of a prolonged war were of greater concern.

It would not be difficult to imagine economically damaging fallout, for example to the world trade talks, which could knock on to affect investment trends. At this stage, however, there is probably not much point in examining such scenarios in great detail, as the efforts continue to develop a united approach through the UN.

The greater threat to our efforts to attract inward investment may come from economic factors. The Republic is no longer a low-cost location and faces new challengers in Eastern Europe and the Far East.

Instead, all the talk from our politicians and industry leaders is of "moving up the value chain" and developing knowledge-based industries. We have come some way in this area through multinational investment and related spin-offs in the indigenous sector. But are we doing enough to develop the key factors for success in the new era?

An All-Ireland Competitiveness Forum, held in Shannon this week and organised by InterTrade Ireland, examined some of the issues. The keynote speakers, Deborah Wince-Smith of the US Competitiveness Council and Stephane Garelli, director of the World Competitiveness Yearbook, both had much to say about the kind of conditions necessary to foster competitiveness in a new era.

One of the key points for an economy at Ireland's stage of development was identified to be a strong base of investment and development in science and research. Here, as highlighted by our own National Competitiveness Council, the Republic's performance has improved, although investment in research and development at 1.2 per cent of gross national product is still below that of other knowledge-based economies such as the US and much of Scandinavia.

The Government has not demonstrated a consistent policy approach in this area, a key issue for investors. General research funding to universities has been cut for this year, for example, casting doubt on a number of research programmes.

Prof Garelli, who also teaches at the Institute for Management Development in Lausanne, said that it was important for a country to attract talented people in a range of fields to live and work. This was "as important as the attraction of investment".

A new body, Science Foundation Ireland, has started working in this area in the Republic over the past year, seeking to attract top quality researchers to undertake work here in biotechnology and information and communications technology.

However, while it undertakes this important work, there remains a problem in ensuring there are enough graduates in science subjects here and the Government has yet to act on task force recommendations in this area.

Also crucial, according to Ms Wince-Smith, is the uptake and diffusion of technology through all businesses and the educational level of the population, which allowed this to happen. A key problem she highlighted for Irish business was the lack of availability of reasonable-cost broadband access, an issue that policymakers here have been slow to tackle.

There are also more basic factors hindering competitiveness, of course.

Costs are high to business across a whole range of areas and physical infrastructure remains poor.

It is addressing this agenda that is likely to be the Government's key contribution in terms of attracting inward investment, rather than its political manoeuverings over Iraq.