Memorandum submitted by the Department
of Trade and Industry
This memorandum has been prepared by the Department
of Trade of Industry (DTI) in consultation with the Foreign and
Commonwealth Office and with contributions from the British Embassies
in Prague, Warsaw and Budapest. It responds to a request from
the Committee for a report on progress since the DTI last submitted
information in February 1999.
The Department is pleased to have this chance
to update the Committee. It is a timely stage at which to take
stock. The process of integration of the Central and Eastern European
countries into the EU has moved ahead, with the progress of negotiations
with the first six candidate states (the Luxembourg SixPoland,
Czech Republic, Hungary, Estonia, Slovenia and Cyprus) and the
recent opening of negotiations with a further six states (the
Helsinki SixLatvia, Slovakia, Lithuania, Malta, Bulgaria
and Romania). The Helsinki European Council also decided to recognise
Turkey as a candidate for EU membership.
Alongside that work, British Trade International
has continued to be actively engaged in the markets of Central
Europe, following the end of the Open for Business in Central
Europe Campaign in March 1999. Building on the momentum gained
from the earlier market-awareness Campaign, British Trade International
launched a new two-year programme last year call Opportunities
in Central Europe. The principal objective of the new programme
is to introduce British companies new to the Central European
Markets through their attendance at UK events and their participation
on Government-supported in-market initiatives.
The need for this new programme was identified
by the Export Forum in late 1998. As part of their recommendations
for the overall honing of Government's trade promotion focus,
they proposed prioritising export markets where the consensus
view was that Britain could significantly improve its overall
export and investment performance.
The remainder of this memorandum deals with
the Committee's specific points.
Q(i). "Whilst we appreciate that the
BOTB has been subsumed into British Trade International since
the Government's response, it would be helpful to know if the
annual review of markets and sectors was carried out, when it
was carried out, and what were the results?"
A. Preliminary discussions have started
on reviewing British Trade International's markets and sectors
initiative. However, the relevant business advisory groups have
recommended that the current markets and sectors matrix be allowed
to run its full year (up until the end of March 2000) before undertaking
a formal review.
Q(ii). "How many (outward) missions (to
Central Europe) has DTI supported?"
A. In the two-year extended "life"
of the Open for Business in Central Europe campaign (which concluded
in March 1999), a total of 27 outward missions visited the five
markets of Central Europe with DTI financial support under the
terms of the Outward Missions Scheme (OMS). Many of these missions
visited more than one market as part of their respective itineries.
The mission breakdown by country visited was as follows:
| Hungary||11 missions
| Czech Rep||7 missions
| Slovenia||2 missions
| Slovakia||1 mission.
Q(ii). "What evaluation of the missions has been carried
An evaluation of the outward missions that took place during
the Campaign has taken place. The evaluation sought to establish:
the number of missions which actually went ahead
compared with the total offered support;
the number of companies "captured" by
the scheme; and
the percentage of companies new to the market
Q(ii). What were the results?
Of the 40 missions offered OMS support for Central Europe
over the period of the Campaign, 32 per cent (13) were cancelled
due to an insufficient number of companies being recruited by
the designated sponsoring organisation. (The Terms and Conditions
of the OMS scheme require a minimum of 10 companies for a mission
to proceed.) There is a separate discussion below of the reasons
for this apparently high attrition rate.
A total of 363 British companies participated in the 27 outward
missions to Central Europe and had the benefit of support under
British Trade International's OMS.
A total of 363 firms, more than three quarters (77 per cent)
were new to the market they were visiting. The breakdown is as
| Poland||234 companies of which 162 (69 per cent) were new to the market;
| Hungary||149 companies of which 127 (85 per cent) were new to the market;
| Czech Rep||85 companies of which 69 (81 per cent) were new to the market;
| Slovenia||18 Companies of which 12 (66 per cent) were new to the market;
| Slovakia||19 Companies of which 16 (83 per cent) were new to the market.
The OMS, in common with all British Trade International's
export services, is subject to continual and independent assessment
of customer satisfaction under the Quality Management Survey (QMS).
Customer satisfaction rates for the OMS for Central Europe are
at least equal to those of other market areas and are universally
high (well in excess of the 80 per cent target) across the various
increased knowledge of market;
British Trade International's Central Europe Unit also undertook
a separate review of the OMS scheme as it applies to the five
markets to establish why there was such an apparently high attrition
rate. The principal conclusions were:
that the mission attrition rate for Central Europe
was in fact no worse than the "global" average;
as developing markets, company interest in Central
Europe lags behind that of the sponsoring organisations bidding
for missions to specific markets. The latter were (and remain)
keen to develop companies' interest in the potential opportunities
that Central Europe has to offer;
companies have their own export market priorities
that, in many cases, are set up to 18 months in advance. The level
of market interest raised by the Campaign among companies is not
necessarily reflected by a concomitant or early shift in established
company market priorities (and their associated resources) towards
the need for British Trade International to work
more closely with the OMS sponsoring organisations to ensure they
have the necessary access to resources to successfully plan, recruit
and deliver their respective missions;
British Trade International and the OMS sponsoring
organisations should make better use of the electronic media to
promote the Central European markets and the export support schemes
(that facilitate individual company access to these markets) to
ensure greater coverage of the British business community.
Q(vii). It would be helpful to have a copy of the (campaign)
evaluation and an indication of the action taken as a result
A. A copy of the Campaign's evaluation paper is attached
As was identified in Mr Harris' oral evidence to the Committee
in July 1998, the achievement of the principal targets (a doubling
of exports and 100 new investments) set for the Open for Business
in Central Europe campaign was, in retrospect, largely outside
the Department's control. External influences such as the August
1998 financial crisis, that had a particular impact on Russia
and Eastern Europe and smaller, but not insignificant, effect
on Central Europe, were a major factor in disrupting the confidence
of British exporters and investors, as much as the actual reality
of the market conditions and prospects for them in Central Europe.
Despite this however, through the promotion of the markets
under the Campaign, British Trade International established contact
with many companies new to the Central European markets and was
successful in introducing them to the markets. Evidence of this
is found in the high percentage (77 per cent) of firms participating
in the OMS that were new to the market being visited.
Since the Committee's report was published in November 1998,
British Trade International have been made aware of further significant
investment interest from British companies, particularly among
retailers and automotive and electronic component manufacturers.
Initial contact with these companies was made during the Campaign;
some were targeted by our Export Promoters for specific presentations
on the potential opportunities the markets had to offer them as
Evidence of continuing interest in Central Europe can be
seen in the resurgence of British company interest in the Czech
market following its emergence from economic recession last year.
CzechInvest, the Czech inward investment agency, have informed
us that nearly half of the prospective inward investment cases
they are working on involve British companies, many of which are
in the retail and automotive and electronic component sectors.
British Trade International has developed a close working
relationship with the Czech, Hungarian and Polish inward investment
agencies and can legitimately claim to have assisted UK companies
to take advantage of the emerging trade and investment opportunities
being developed in Central Europe.
This new programme, incorporating the valuable lessons learned
from the earlier Open for Business in Central Europe campaign
a series of individual and consecutive market
"Opportunity . . ." initiatives focusing in turn on
the Polish, Hungarian and the Czech markets;
a UK regional programme of seminars/workshops
(following a high-profile ministerial-led London launch event
in partnership with CBI) for each of these three market initiatives
focusing on the mechanics of doing business in the individual
markets; this is aimed primarily at the needs of SMEs;
a number of target sector initiatives across the
Central European markets with an equal emphasis on exporting and
a full programme of outward and inward missions
and supported in-market trade fairs; and
at least one "showcase" event in each
of the three markets profiling UK business and technical excellence.
An initial assessment of the first of the three initiativesOpportunity
Polandundertaken at the end of 1999 suggests that the principal
objective of introducing new companies to the opportunities in
the market has been achieved. More than 350 companies attended
the series of UK regional Doing Business in Poland seminars. Of
those that responded as part of the initial assessment, over 60
per cent were new to the Polish market.
Similar assessments of the Hungarian and Czech programmes
will be undertaken as those programmes are completed as will corresponding
assessments relating to the programme's in-market activities.
Q(ix). The Committee recommended that a detailed economic
analysis of the likely effects of enlargement on existing Member
States be carried out and enquired as to what has been produced
by the Commission or by the UK Government
We are not aware of any work which the Commission has done
specifically on this subject. We do, however, attach a report
by DTI economists which
examines, in particular, the effect of EU enlargement on the UK
economy, and brings together other recent work. The report concludes
that enlargement should have a positive effect on the economies
of present member states although the size of that effect will
depend on the level of bilateral economic activity with the applicant
countries. The candidate countries will experience more substantial
Q(xi). It would be helpful to have an update on UK involvement
in the secondment of experts to the candidate countries
The UK is participating in a total of 43 twinning projects
from the 1998 and 1999 rounds. The UK is among the top three Member
States involved in twinning, and on average 80 per cent of UK
proposals are chosen by the candidate countries.
After the success in bidding for projects in the 1998 round,
DTI suffered during 1999 from a lack of suitably qualified candidates
available to lead projects, so fewer new bids were made. To address
this, DTI held a successful "recruitment" campaign in
December 1999 to enlist further candidates and now has a pool
of potential candidates to call on when details of projects are
released in 2000. Details of DTI's involvement are given below.
UK Government departments lead on 13 twinning projects from
the 1998 rounds, and are involved as a partner in a further 11,
all of which have now begun. The projects are spread throughout
the candidate countries: in Bulgaria, the Czech Republic, Hungary,
Latvia, Poland, Romania, Slovakia and Slovenia. There were unfortunately
no successful UK bids from the 1998 round in Estonia or Lithuania.
State Aid project in the Czech Republic(in
conjunction with France and Spain);
development of a market surveillance system in
Hungary(in conjunction with Sweden);
preparation for Structural Funds in Poland(with
Denmark, Finland, France, Ireland and Germany);
development of a training capacity for regional
development in Romania (in conjunction with Strathclyde University);
(In a secondary role) Development of policies
to promote regeneration after coal and steel restructuring, in
Poland (led by Spain).
UK government departments were chosen to lead 13 projects
in the 1999 round. These are in Bulgaria, the Czech Republic,
Lithuania, Poland and Slovenia. The UK has been chosen to support
a further seven projects in the Czech Republic, Hungary, Poland
DTI have submitted bids for two additional projects: one
in the Czech Republic on supplier linkage and competitiveness
and one on State aids in Bulgaria.
Q(xii) The Committee asked about DTI's plans to undertake
further consultation on enlargement. What action has been taken
to ensure more substantive engagement by DTI's main client groups?
It has been decided to delay publication of the consultation
paper until Spring 2000. This will enable it to provide full coverage
of the developments following from the Helsinki European Council,
which was a major step forward for the Enlargement process.
The new paper will incorporate lessons learned from the response
to its predecessor. The document will be less academic and more
widely distributed. In addition to taking forward the consultation
process on issues of policy it will aim to increase awareness
and understanding of enlargement in UK businesses. It will promote
market opportunities in each applicant state. British Trade International
are closely involved in its production. We are aiming to launch
the paper in the spring of 2000.
The new paper on enlargement will form the core of DTI engagement
on enlargement with our main client groups. It will be a published
document, and will form a major part of the enlargement section
of the DTI website, which will be re-launched with a focus on
the paper and the Helsinki developments. The DTI's other recent
report on enlargement "How might enlargement of the European
Union affect the economy of the United Kingdom", as mentioned
above, will also be placed on the site, offering a more detailed
economic perspective to complement the information in the Consultation
Paper. This will support our regular dialogue with the CBI, trade
associations and other business organisations on EU enlargement
and the commercial opportunities in Central and Eastern Europe.
Q(xix). The Committee would find it helpful to have a progress
report on the implementation of the Europe Agreements and the
elimination of the problem areas identified in the report as potential
barriers to trade
Progress on the implementation of the Europe Agreements has
generally been good, moving towards the creation of a single market
which includes the accession states. The structure of Association
Committees and specialist sub committees provide fora for engagement
at all levels between the EU and the CEE states and allow for
the discussion of specific problems. Formally, the Commission
has now proposed that Hungary move to the second stage of its
agreement. Other states are likely to follow.
In the EU and in contacts with applicant states, the DTI
continues to emphasise the importance of single market issues.
We continue to discuss specific problems about trade with the
accession states with the business sectors affected. We would
welcome being informed about difficulties UK businesses face in
working in the accession states, so that we can raise them at
appropriate opportunities with the Commission and in bilateral
contacts. This is one of the purposes of the consultation paper.
The European Commission, who administer the Europe Agreements,
produce annual reports on each country's progress towards EU accession.
These reports also cover progress on matters covered by the Europe
DTI welcomes the Committee's continued interest in this area,
which is a key part of the wider single market acquis. The recent
Commission progress reports showed that there was good alignment
with the acquis in the area of competition law, but that all three
states considered by the Committee needed to make further progress
on monitoring and controlling state aids. This is an area of obvious
significance to UK business, and DTI continues to press for progress.
A UK State Aids expert is now working in the Czech Republic under
the twinning scheme and we have bid for another State Aid twinning
project in Bulgaria. We also regularly provide more informal advice
on state aids to officials in the accession states.
There has been progress in all the countries considered here,
although the Commission has pointed out in each case areas where
further work is needed, especially in the case of Poland. HMCE
continues to be involved in providing assistance. In Poland the
UK is leading a Twinning consortium involving France, Germany,
Netherlands on a project due to start in May to supply training,
trade facilitation advice, IT infrastructure advice and a user
requirement for a customs declaration processing system.
In the Czech Republic, probably starting in July, the UK
is again the lead but likely to partner with Germany in a tax
project to supply advice on the development of a strategic plan,
staff training programme, tax payer communication strategy and
report on the options to upgrade the tax information system. This
will include joint working with the Inland Revenue.
Like Customs, adoption of the acquis in this area is a key
step for effective participation in the single market. It is clear
that progress is being made, with the new Polish legislation on
conformity assessment an important step towards addressing a long
standing trade barrier. The UK continues to offer assistance and
support where we can, through the PRAQ and TAIEX programmes. As
part of the PRAQ programme, the UK is assisting the accreditation
bodies of the applicant states to prepare for full membership
of the European co-operation system for accreditation. As part
of the twinning project for the development of a market surveillance
system in Hungary the UK is working with Sweden to ensure that
appropriate certification procedures are in place. The UK also
provides practical support from a range of UK technical experts
in particular on the New Approach Directives.
As we said in our previous response, this is an important
single market issue for accession, frequently raised with DTI
and other parts of the Government by concerned businesses. DTI
has been active in Brussels in ensuring that the interests of
British business are taken properly into account in the enlargement
negotiations. It is clear that there has been progress in the
CEE states, but that adequate enforcement is still an issue in
In all these areas, the quality of enforcement of the acquis
will become an increasingly important issue as the candidate countries
approach membership. We shall be relying on the Commission, the
experience of UK businesses in those markets and on our own knowledge
of each administration to assess each country's progress.
Industrial and Trade Relations with the Baltic States, Twelfth
Report of Session 1999-2000, HC 835: Government Response, Eleventh
Special Report, HC 907
1. In April 2000, the Committee announced an inquiry
into industrial and trade relations with the Baltic States concentrating
on UK trade with these countries, levels of foreign direct investment
and prospects for EU enlargement. The Report was published in
July 2000. The Committee concluded that Estonia, Latvia and Lithuania
showed every sign of meeting the requirements for EU membership
in the relatively near future, although some problem areas remained.
It was disappointed at the relatively low proportion of UK companies
investing in the Baltics, in particular the absence of banks and
financial services companies.
2. In its reply of October 2000, the Government agreed
with the Committee's summary and recognised the importance of
practical assistance for the Baltics. It announced support for
twinning projects with the Baltic States and agreed with many
of the detailed observations made, including on the process of
privatisation. It took some objection to the criticism expressed
of the level of UK support for decommissioning of the Ignalina
nuclear reactor in Lithuania. The Committee is likely to continue
to keep these matters under its attention.
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