Examination of Witnesses (Questions 360
- 368)
TUESDAY 20 APRIL 2004 (Afternoon)
CONFEDERATION OF
BRITISH INDUSTRY
Q360 Mr Evans: We have had a number
of witnesses before us today who referred to the support as a
subsidy. Are they just completely wrong?
Mr Jones: Yes, in Britain; in
Britain. They are not completely wrong if they are talking about
another country.
Q361 Mr Evans: They were referring
to Britain. I get equally irritated if that is not what it is.
You were very critical about ECGD right at the very beginning
and that a number of your members have said to you that they are
a "can't-do" group these days. Does that mean that we
are losing out to other countries who are supporting their industries?
Mr Jones: Yes.
Q362 Mr Evans: In any particular
sector? Today we have really concentrated on defence; it seems
that defence is the one which gets most of the cover, but are
any other sectors losing out?
Mr Jones: In anecdotal evidence
to me, construction, pharmaceuticals. That is on anecdotal evidence,
but the big major one would be on aerospace, which does not necessarily
mean defence, in fact for two or three of the big aerospace players
it is not about defence.
Q363 Mr Evans: No, no. Do your members
tell you why ECGD will not cover them?
Mr Jones: Yes. Sometimes they
tell us specifically, but in confidence. Sometimes it is just
that it is too difficult, don't go there, too many forms to fill
in, I don't get an answer quickly enough, I know that the Americans
will do it better, I'll go there, I won't even start here, which
comes back to the confidence question. What we must do—and
the CBI will definitely put its weight behind this—now there
is a new regime there and new capitalisation is to get the British
business community to trust it again and to say—I will explore
whether you will cover it philosophically in a minute—it
knows that the system for applying for this will be better and
more efficient. At the moment they have no confidence in that
part.
Q364 Mr Evans: Do you think it would
be better if there were fixed rate export finance as opposed to
the way they are currently doing it?
Mr Larkin: We do have a fixed
rate export finance scheme which is done through the commercial
banks who are supported by ECGD. They are not only guaranteeing
the payment by the ECGD of bank loans but they are actually guaranteeing
that rates can be fixed over a period of time according to international
agreement. That is thought by the CBI and its members to be a
very important factor because most foreign buyers like to know
exactly what their costs are going to be over these long periods
of time. So being able to provide fixed rate finance for 10 or
15 years is extremely important to being competitive internationally.
That is something which will be coming out of the capitalisation
fund. It will be one of the costs that fund will have.
Mr Scott: You were also asking
what it is that our members are finding when they go to try to
get competitive cover from different ECAs. There will be a variety
of different factors. You probably heard this morning when the
aerospace and civil aviation witnesses were giving evidence that
sometimes it would be that the premium is higher. An example would
be Ex-Im in the US, where there are clear examples, and I am sure
people from both Rolls-Royce and Airbus would have cited this
this morning because they made these points very clearly to us
that when you are comparing the support you can get for either
Airbus vis-a"-vis Boeing out of ECGD or indeed other European
ECAs for that matter, but certainly out of ECGD compared with
what they can get out the US at Ex-Im bank, there will be a difference
in premium rate. Other companies would cite the fact that what
they are really looking for is an early indication when they first
approach an ECA that this is likely to be a project which is going
to get cover; that is why they are looking for flexibility. What
they need, when they are still at that negotiating stage, is to
be able to say yes, this is a project for which they are likely
to get cover. If there is a slow response rate, as indeed many
of them have found over the last three of four years out of ECGD,
partly because of all the uncertainty, and they get a more rapid
response rate and turnaround time at that initial stage, then
they are more likely to go through and continue to work with that
ECA and therefore also put the business into that particular country.
It is a mixture: sometimes absolutely down to the premium rate,
one ECA vis-a"-vis another; sometimes it is down to the rapid
response time at an early enough stage, sometimes it is down to
the actual process itself which it then has to go through with
a particular ECA to get the approval. It is a mixture of those
factors. One of the key things which our members have been saying
to us is that they are very frustrated because some of them who
then go back five, 10 years or more will be able to say they used
to and have been working with an ECGD which was very responsive.
Particularly over these last three or four or five years, they
have been frustrated, they have seen morale dropping within ECGD
itself, they have seen this cannot-do attitude in the UK, not
because the individuals are not capable of doing it, but because
they feel constrained and that is what they find hugely frustrating.
When that frustration builds up, they are then in danger of turning
their back on ECGD and not even making the approaches to them,
because they have been used to getting a more positive response
when they have approached other ECAs. It builds on itself and
that is the sort of vicious circle and that is what we would argue
we have desperately got to break out of.
Q365 Richard Burden: In paragraph
16 of your memorandum you refer to the portfolio management which
ECGD is seeking to develop. You say you would like it to evolve
in a more pro-business direction. How would you like to see it
do that? Is that in a sense what you have just been saying, or
do you have something else in mind?
Mr Jones: Firstly, it is exactly
what Andy has just been saying, a more pro-business, efficient,
we-are-on-the-same-side-here approach to an application. Secondly,
an understanding of the way the world works and an understanding
that the multinational companies in this world do have to operate
in the real world, not in the world you and I would like but in
the real world, and a greater understanding.
Mr Larkin: I agree with that.
This is a delicate area because it involves not just environmental
things but also elements of corruption and all the rest of it.
As all British businesses do, we totally support all these moves
which OECD has brought in to make these things clearer. The CBI
has always made the point, talking about bribery, that there is
also extortion and in certain territories you have to be realistic
and certain things are expected. This is a very difficult area
for international businesses to cope with.
Mr Jones: The CBI is the UK member
of BIAC (the Business and Industry Advisory Committee), which
is the business side of OECD and we have been very forceful in
pushing through an approach which is saying we will not participate
in or support any policies which facilitate corruption. I feel
very strongly about that and we do as an organisation. However,
what do you do about the areas where there are facilitation payments,
what do you do in countries where every single piece of business
which is ever done involves a degree of facilitation payment?
Does Britain just never ever trade there, when every other developed
nation is? What do you do? If somebody could give me a specific
answer to that . . . I am not talking about huge extortion and
corruption, I am talking about minor facilitation payments, like
taking people out to lunch in other countries. What do you do?
We have been very forceful in saying at a level we are not going
to go there at all and we feel very strongly about this. It is
about setting an example, it is about a code of ethics, but there
will be many of my members who will say that there is a level
at which the world works this way in certain countries and what
do you want us to do? That is a sense of business realism and
then you might rightly ask me at what point that ceases to be
that and becomes corruption? If we all knew the answer to that,
it would be a better world.
Q366 Richard Burden: I was not going
to ask you exactly that. You do not know the answer and I do not
know the answer on that one. What I was going to ask is, if there
is going to be a re-injection of the "can-do" attitude,
more of a pro-business approach in the ECGD, less red tape and
the rest of it, where do you see the backstop coming which prevents
that slipping too far down the road of downplaying environmental
issues, downplaying sustainable development issues and increasing
corruption? What would be the backstop you would like to see in
there in the active portfolio management which could guard against
that?
Mr Jones: Who polices the policeman?
Q367 Richard Burden: Yes.
Mr Jones: I suppose the ultimate
answer is you guys, is it not? The ultimate answer is Parliament.
Mr Larkin: The exporters' concern
is to deal with these things efficiently; the gold-plating argument.
We do seem to have slightly longer questionnaires on environmental
issues than other export credit agencies, although they are all
governed by OECD agreement. We enforce them at slightly lower
levels in terms of contractual value. It is that sort of thing.
It is not that the questions cannot be asked, they must be asked,
but the procedure should be simplified.
Mr Jones: And transparent.
Mr Larkin: And transparent; absolutely.
As long as it is transparent it can be simple.
Mr Jones: I would have no problem
with a form of public reporting on a regular basis; instead of
every three years with a great hiatus, just regular reporting.
You would hope, of course, that if companies came back to this
because they had more confidence in the way it worked and the
pressure was on the companies to help make it work and therefore
they knew what was expected of them, there would be self-regulation
essentially.
Mr Larkin: In one way from the
insurance point of view it should be self-policing because the
policies contain a clause which says that if there is any breach
of law, either in the buyer's or seller's country or international
law the policy is invalid. The risk is borne by the exporter.
Q368 Chairman: On that point, we
are very grateful for your evidence. We are also conscious of
the fact, Mr Jones, that you had indicated you would have preferred
to have left a little earlier. We are grateful to you for hanging
on.
Mr Jones: I am cutting the tape
on the opening of a member's facility at six o'clock elsewhere,
but I thought this was very important, so I am grateful to you
all for your time.
Chairman: Thank you very much and thank
you for your trouble. If there is anything else we need, we know
we can come back to you. Thank you.
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