Examination of Witnesses (Questions 20-39)
CONFEDERATION OF
BRITISH INDUSTRY
AND BRITISH
EXPORTERS ASSOCIATION
17 MAY 2006
Q20 Chairman: Are there any particular
circumstances when you might advise your members to use the arrangements?
Mr Scott: As far as the CBI is
concerned, we would not be advising our members one way or the
other. All we have been involved in throughout this exercise is
to look at what is practical and what is workable and to put on
the table a serious option, and it would then be up to the individual
customer to make the judgment themselves. We will not be advising
members to either use it or not to use it. It is an option there
for them to make their own commercial judgments on.
Ms Walton: And the same is true
for the British Exporters Association.
Q21 Mr Weir: Would you tell us what,
if any, consultation you have had with ECGD prior to the issue
in May 2004 of anti-bribery procedures.
Mr Caldwell: In 2000, there was
what we thought was a fairly significant consultation process
over some significant amendments to ECGD's anti-bribery and corruption
provisions. It is not clear whether that was a consultation with
a capital C but it certainly was a consultative process which
involved ECGD's customers and trade bodies. There were, as a consequence
of that discussion, amendments to ECGD's original proposed wording
were made and were implemented in 2000. Between then and May 2004,
we are not aware of any consultation, with or without a capital
C, with ECGD's customers and trade bodies. So, when new provisions
were announced, they did come, as far as we were concerned, as
a complete surprise.
Q22 Mr Weir: How did you lobby for
them to be changed? Did you lobby for them to be changed after
they were announced in 2004?
Mr Caldwell: The events that followed
from after May 2004 are well recorded. There was considerable
concern expressed by the major British exporters and by the BBA
about the practicality of some of the provisions that had been
proposed in May, in particular the breadth of the undertakings
that were required. Ultimately, the then Secretary of State requested
that the CBI establish a so-called solutions group to work with
the exporting community and ECGD to try and find a resolution
to these practical problems.
Q23 Mr Weir: Do you have a relationship
with the Export Guarantees Advisory Council? Were they involved
in this procedure at any time?
Mr Caldwell: Individual members
meet with the Advisory Council and I think that the trade bodies
also meet with them. There was not, as far as I am aware, a specific
discussion with them on this issue.
Q24 Mr Weir: Should there have been?
Mr Caldwell: They are the Council
that advises ECGD and we would expect them to have that discussion
with ECGD.
Q25 Mr Weir: Do you think that if
these discussions with the Advisory Council had taken place prior
to May 2004 or April 2004, the subsequent problem would not have
arisen in the same way?
Mr Caldwell: I really cannot say
whether that would have had any effect or not.
Q26 Mr Weir: Had discussions between
ECGD and you taken place before that?
Mr Caldwell: Indeed, one would
hope so in that, when they did consult with us in 2000, then a
solution was found and I have no doubt that, had they done the
same prior to May 2004, a solution would also be found.
Q27 Chairman: The May 2004 procedures
operating until December 2004 were—
Mr Caldwell: No, I am sorry, that
is not correct. An interim arrangement was agreed pending the
outcome of the solutions group.
Q28 Chairman: Yes. Let me rephrase
my question. Were most of your members content with the May 2004
procedures?
Mr Jones: Certainly from the point
of view of the Banking Association, we came to the view fairly
early on that it was not possible to work with the 2004 procedures
because of the breadth of the undertakings that were required.
From the point of view of the undertakings we were required to
sign, aspects of them were impractical and, as the exporters were
likewise asked to sign not dissimilar undertakings, I think a
number of exporting companies also had grave reservations that
they could actually complete the formalities.
Mr Caldwell: I do not think there
was a full survey conducted by the trade bodies but what I think
it is fair to say is that the majority, if not all, of the CBI's
and BExA's members who were actively involved in major export
campaigns were not content with the provisions.
Q29 Chairman: As you said, the focus
of the opposition and the main opposition to the May 2004 procedures
came from aerospace and defence manufacturers.
Mr Caldwell: If you study the
ECGD's annual reports, then you can see who are the principal
constituents of their customer base.
Ms Walton: I think that the problem
hit those customers first because they are consistently users
of ECGD's products. There were certainly many other members of
BExA who also had similar concerns. I think we should make it
very clear that our members take making these representations
very, very seriously. They want to be sure that everything they
are telling ECGD in their application forms is true and accurate
but, when they are being asked to make representations about third
parties over whom they have no control and to make representations
about future behaviour of those parties where they actually exercise
no control over them, they found that was impractical and something
that they simply could not do, and that prompted these discussions
to try and find a way to get ECGD what it needed in order to feel
comfortable about its anti-bribery and corruption procedures and
to find a way to make it practical for the exporters who were
having to sign up to those representations and warranties in their
application forms.
Mr Scott: I would like, just so
that we understand, to put into context some of the volume of
business which we understand took place between May 2004 and December
2004, again just to reiterate the point about the concerns expressed
to us reflecting the structure of the ECGD customer base.
We understand that something like £55 million of business
was done on the new procedures whereas about £900 million
of business had to be done on the interim procedures because those
were the customers who were finding difficulty with it. It is
important to put into context that the reason why particular focus
seemed to be on the aerospace and defence-rated customers is that
they were the largest customers with the most significant contracts
at that particular stage, and that relative balance to the volume
of business—
Q30 Chairman: Were the interim arrangements
put in place at the request of those customers?
Mr Scott: They were put in place
at the request of those customers having identified some of the
problems and I think, as Clive Jones has just said, particularly
the banks found it very difficult, indeed almost impossible, to
be able to provide the cover because of some of the provisions
being sought in those May 2004 arrangements. As a result of that,
in order to be able to continue doing business, there had to be
some interim arrangement to enable that business to continue until
resolution of this issue could have been found.
Q31 Chairman: What precisely were
those interim arrangements? How were they different from the May
2004 procedures?
Mr Jones: I think the interim
arrangements were really a continuation of the arrangements which
had existed prior to the introduction of the May 2004 procedures.
I do not think there were any fundamental differences. One was
effectively working with a situation which we all knew and understood.
We thought that was probably the most appropriate methodology
to move forward on whilst a solution to the new procedures was
put in place.
Q32 Chairman: Am I right that basically
what happened was that in May 2004 we have the ECGD procedures,
some key clients said, "Sorry, they are impracticable; it
is not workable; we are not going to do business on these procedures"
and therefore somebody, presumably ECGD, the Secretary of State
or somebody somewhere, said, "Right, okay, we had better
agree some interim procedures until we sort this out"? Is
that roughly what happened?
Mr Jones: I believe so, yes.
Mr Caldwell: Whilst the solutions
group was trying to find a solution, the interim arrangements
continued as pre-May.
Ms Walton: We should not forget
that, throughout all of this, as ECGD had had the right before,
it still had the right to refuse cover if it felt there was something
untoward going on.
Q33 Chairman: Absolutely. I am trying
to think of other examples of public policy where a policy is
set down and those who are affected by it say, "Sorry, it
won't work" or whatever and the policy enforcers say, "It's
okay, don't worry about it, we'll have a chat and change it".
I am being slightly facetious but you get my point. Clearly, what
did happen in that period of time is quite important essentially
for ECGD rather than for the business community. I am sorry, I
am not asking questions, I am commenting. Just to explain, the
purpose of my question was to get to the role of ECGD because
our inquiry is into ECGD's role in pursuing its own bribery policy.
Mr Scott: I think I can answer
that question.
Q34 Chairman: It was not actually
a question but it is nice of you to rescue me!
Mr Scott: I think all we were
saying as the CBI and indeed BExA was, here were a set of circumstances
which the customers were presented with in May. Prior to May,
they had not had any opportunity to comment on those.
Q35 Chairman: That is significant.
I did not know that.
Mr Scott: As far as representative
business organisations are concerned, it is what we are here to
do which is to lobby government or other bodies to say, "Here
are concerns which we have for which we feel the procedures introduced
are impractical. Did you actually mean to have this impact when
you were introducing these procedures?" Ultimately, it is
for the Government and indeed in this case ECGD to decide if it
feels that those submissions which we and others have made had
substance. As far as we were concerned as the representative of
the business community, we were doing what was absolutely the
legitimate thing to do which is to say, "Procedures have
been introduced; no consultation took place prior to them; here
are the concerns that we have as representing those interests;
it is for you to decide whether you feel those are fair or not"
and our reflection of that discussion is that ECGD took some of
those key points which we had all made and, as a result of it,
we are where we are today.
Chairman: Thank you for that. That was
very clear and very helpful.
Q36 Rob Marris: I would like to deal
with anti-corruption declarations and we were talking just now
about the workability. For shorthand, as I understand it under
the Final Response, a supplier who is looking for ECGD support
has to give a clean bill of health for the previous five years
from various other bodies down the chain over which that supplier
has control. Does that work?
Mr Jones: When the supplier is
providing such a declaration, I think it is qualified to the extent
of "after making due inquiry".
Q37 Rob Marris: Yes, that is right,
"reasonable inquiry".
Mr Jones: Obviously it is going
to be up to the individual suppliers to make what inquiries they
deem appropriate amongst their colleagues who they are working
with and, if they feel comfortable making such a declaration,
then I hope they will do so. There may well be occasions where
exporters say, "We cannot give such a declaration covering
a five-year period". It may be that the subject has only
been in business for two or three years. There could be a number
of issues which will need to be settled.
Mr Caldwell: I would like to say
that this is a complex area.
Q38 Rob Marris: I did say that I
was doing it in shorthand.
Mr Caldwell: To the extent that
we have sought an analysis of the declarations that are required
of exporters and the extent to which some of those declarations
are absolute, which a good many are, and others are subject to
reasonable inquiry. So, it very much depends upon which question
you are asking as to what the answer is, but there are a good
number of declarations that have to be made particularly concerning
the applicants themselves and their directors and their employees
which are absolute. Then, if you like, the further out you go
away from the centre, the less absolute the declaration becomes
but it never gets less absolute than reasonable inquiry.
Q39 Rob Marris: I know you said that
it changes as you get further out and I understand that but, if
there is a kind of absolute list and a reasonable inquiries list,
are there bodies on the absolute list that should be on the reasonable
inquiries list and vice versa?
Mr Caldwell: I suppose from a
trade bodies' point of view the answer is "no" and that
the distribution is the result of a good deal of discussion between
us and ECGD and it is where ECGD comes to rest. I think that what
we have ended up with is a situation where it is felt to be practical
to comply with it, it is possible to comply with it. It does not
mean that it is not time consuming to comply with it on occasions,
but it is practical to comply with it.
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