Examination of Witnesses (Questions 60-75)
UKTI, DTI AND FCO
24 FEBRUARY 2004
Q60 Chairman: Having identified a gap
in the market, as it were, of which you think a British business
could take advantage, you would then draw it to the attention
of the sector group, which would have within it either major players
or the trade associations or what have you?
Mr Holmes: Yes, that is pretty
well the way it would work now. I heard only yesterday of the
case, for example, where we knew a British company had bid for
a particular piece of business, had not got it, but a parallel
or similar piece of business had come up. We would notify them
directly and any other British companies who we knew to be interested
in that area of business. So you may be as specific and direct
as that.
Q61 Sir Robert Smith: With the three
countries competing to be the hubs for investment, has that created
a limited set of inducements to investors or incentives to come
to the different centres to try to make them a hub?
Mr Holmes: There certainly are
incentives. I am not sure to what extent they swing investors'
decisions.
Q62 Chairman: So they are more competing
on the fundamentals.
Mr Holmes: Things like infrastructure,
for example; the availability of freight flights in and out of
airports. All those sort of issues count just as much as the incentives,
I think.
Mr Mumford: I read recently that
Thailand and Singapore were competing on tax incentives for oil
trading—reducing them.
Q63 Chairman: We will be looking later
this morning at outsourcing, really in the context of call centres,
but there is a lot of outsourcing done in manufacturing work.
Do you find a kind of conflict of interest when British companies—and
I am not here talking about Dyson, which is a high profile company,
but companies that may well want to disconnect from the supply
chain in the West Midlands and move out to Malaysia to get cheaper,
let's say, supplies of kit that they need for the motorcar industry
or what have you—come to you and say, "We want to try
to find a cheaper source and we might even want to relocate out
there, given the tax incentives, the low rates of pay, perhaps
quicker turnaround time, even allowing for transportation and
things like that?" Are you placed in a spot, as it were,
when that kind of thing happens?
Mr Holmes: On the issue of somebody
asking, "Can you help us source from overseas?" we do
not do that. It is not part of our function and we make it very
clear that if somebody wants to source from Malaysia they can
talk to the Malaysian Embassy: that is their job, not ours. At
the same time, if somebody were to come to us and say, "We
are looking at a joint venture operation in Malaysia to supply
the Chinese market," for example in the auto parts sector,
that would not present us with the same problem. But our bottom
line comes back to competitiveness. I would not have a problem
myself—and this is my own personal view—if I feel
sure that the company by doing this would retain competitiveness
in its ability to function in the global market more effectively.
Although for our colleagues in the Regional Development Agencies,
for example, whose jobs are much more about industrial development
and regeneration and so on, I can see that it presents them with
a problem, but, interestingly, they also, I believe, by and large
operate with the view that the important thing is to maintain
the overall competitiveness of an operation.
Q64 Mr Clapham: What I want to look at
is the impact of WTO negotiations because I understand that the
three countries were basically in concert, for example, on the
Uruguay Round and we were talking about a guaranteed agreement
on the tariff on trade. Then at Doha there were some differences
that came about, basically because I understand that Singapore,
for example, has much more of a free market approach, and we see
Malaysia is more protectionist, and the Thais have the agricultural
agenda and have expressed some scepticism about the CAP. Is it
possible to say what the reasons are for the differences between
the three countries? Given that they actually acted in concert
on the Uruguay Round, do you see their differences being resolved
and them acting in concert for Cancun?
Dr Drage: I think the world has
moved on a great deal since the end of the Uruguay Round in 1994,
and we are very much in a different geopolitical ballgame. The
attitude the three countries take is very much conditioned by
where they see their comparative advantage being. Singapore is
a small island, relatively high-tech, looking to be a regional
hub particularly in services and high-tech industries. In those
areas of course there are relatively few barriers in the developed
world in terms of the markets because the tariffs are very, very
low on industrial goods in the developed world and we do not have
that many barriers to services. The Thais, on the other hand,
want to be big agricultural exporters—and they are the only
one of the three countries in the G20 group that emerged at Cancun—and
their prime target is to lower the agricultural barriers in the
big developed countries in the world which do subsidise their
own exports. So this is the prime targets for Thais and that is
why they have linked up with the Brazilians and the Indians to
get agricultural barriers down. The Malaysians' real concern is
to preserve what you will hear them call their own "policy
space". They want flexibility to be able to promote their
manufacturing industry, so the three have got different approaches.
Q65 Sir Robert Smith: Since 1998 the
European Union has maintained a moratorium on the negotiation
of Free Trade Agreements, presumably to allow a multilateral GATT
and the WTO to try and work but this position appears to be changing.
Is that your reading of it?
Dr Drage: No.
Q66 Sir Robert Smith: The European Union
are not changing their position?
Dr Drage: No, I do not think so.
The European Union have said very clearly that they were not going
to launch any new sets of negotiations that they were not already
committed to once the Doha Round had started. They were already
committed to negotiating economic partnership agreements with
the African-Caribbean and Pacific countries under the Cotonou
Agreement, basically the ex-colonies of all the European Union
members. They were already committed to negotiating with the four
MERCOSUR countries in Latin America and those negotiations started
back in 2000 before the Uruguay Round was started. Those are the
main sets of negotiations that are really going on at the moment.
Frankly, the Community is struggling to manage the WTO and those
negotiations. We know very well that many other countries would
struggle to manage multiple sets of negotiations at the same time.
Economists will tell you that the gains are much greater through
multi-lateral negotiations where people can do the trade-offs
to make the really difficult political decisions than there are
through bilateral agreements. We are quite happy to discourage
people from asking for further bilateral agreements with the EU.
Q67 Sir Robert Smith: It was more talk
post-Cancun that set hares running than the reality?
Dr Drage: I think within the EU
there is still a commitment to sticking to that line. I was talking
to DG Trade about this only last week, and it was quite clear
the line is still the same with DG Trade. That is not true with
some of the countries you are going to see. The Thai Prime Minister,
who is a businessman and a man in a hurry, sees that you can get
quicker wins through negotiating bilateral agreements. The Thais
are negotiating something like 12 or 13 simultaneously. God knows
how their trade department is managing!
Q68 Sir Robert Smith: Presumably the
other concerns of long-term benefits of multilateral, if the bilaterals
ever start to take off seriously, are that the really underdeveloped,
poorer nations are going to lose out and not be part of that?
Dr Drage: Nobody is going to bother
to do bilaterals with them.
Q69 Chairman: What do you mean by a "bilateral"?
Do you mean the UK and ASEAN is a bilateral because it is not
within the umbrella of the WTO, even although it includes at the
moment the European Union members and, I would imagine, the ASEAN
members? It is not quite bilateral in the sense of a one-to-one,
is it?
Dr Drage: Bilateral could be one-to-one,
or one-to-a-group, or a group-to-a-group. They are often called
regional trade agreements, but then that can be a misnomer as
well. It is better to be more specific. What the economists will
say is, if you have got an agreement between a group of countries
who are often regional neighbours—and it is all about integrating
the economies of those countries and getting economies of scale
in exactly the same way it has happened within the EU, and as
is happening with ASEAN at the moment, although they are not there
yet—that you can actually get trade creation out of that
process. The jury is very much out on whether you get trade creation
when you have got an agreement between a country or a group of
countries and another country at some distance away. The prime
push for most of those agreements is actually political rather
than economic.
Q70 Chairman: The political motive would
be that countries like Malaysia, Thailand and Singapore—which
you might say are the more advanced economies within ASEAN—are
more sensitive to what Mr Mumford regarded as the Chinese threat,
as it were; and there would be an interface of both politics and
economics?
Dr Drage: Of course ASEAN is looking
at a regional agreement with China at the moment. That is their
way of trying to cope with that.
Q71 Mr Berry: Given that there are first
best and second best positions on trade negotiations, would it
be sensible for the EU to agree an FTA with the ASEANs?
Dr Drage: I think it is very difficult,
as negotiations of Mercosur have shown, to actually negotiate
an agreement with a group of countries who are not properly integrated
themselves. The practicalities are absolutely nightmarish for
exporters. Until ASEAN gets a common external tariff, and that
is not until 2010, I think it is pretty impractical to do it.
The Mercosur negotiations are tricky because the four countries
are simply not integrated at all.
Q72 Mr Berry: It is not just that the
ASEAN countries have different views about the objectives of WTO
negotiations; it is a matter of integration?
Dr Drage: It is not very far advanced.
When they get to a common external tariff they have not done very
much about integrating things like internal standards between
themselves; all the sort of things that make life a lot easier
for exporters.
Q73 Mr Berry: The UK Government does
not want an FTA between the EU and ASEAN?
Dr Drage: I think at the moment
it would be impractical and a severe distraction and would not
add a great deal of assistance to exporters. What the EU has committed
itself to doing is something they are calling the "TREATI
process", which is a process of dialogue trying to look at
sectors that the ASEAN countries suggest where, in a sense, you
can have a preparatory dialogue to prepare possibly for an FTA
after the Round has finished, and when you are nearer to the 2010
deadline and you have actually got a more harmonised ASEAN; and
that is quite a sensible thing to do.
Q74 Chairman: I think we have covered
all the areas we would like to deal with. Thank you very much
for your evidence. We may want to come back to you on one or two
points and there may be additional bits of information, but we
are very appreciative of this.
Dr Drage: I think, having read
the memorandum we sent to you, if you are happy I will send you
further information about the exact positions of each of the three
countries on different aspects of the Round which you might find
helpful in your dialogue.
Q75 Chairman: That would be very good.
We are in the process of briefing ourselves before we go out there,
but we know there will be another brief to look at as we sit down
on the plane. We are very grateful to you. I am sorry you had
to be at the brunt of our criticisms on concerns about the latest
style, but we hope the next time you arrive you are in the same
incarnation!
Mr Holmes: I quite understand!
Chairman: Thank you very much.
| 
