Examination of Witnesses (Questions 100
- 119)
TUESDAY 9 JANUARY 2007
CBI
Q100 Mr Hoyle: Which sectors and
which types of company do you think are missing out in South America?
Mr Campkin: If you look at our
traditional strengths in consumer goods, in engineering, consultancy—all
sorts of services—we have done well but we have not done
well enough. That is the key thing: you can look at some really
good success stories, companies like Rolls-Royce and Cadbury Schweppes,
you can look in areas like financial services and, indeed, the
broader services arena, where British companies have had some
success but not as much as one would expect. We think that is
probably partly because of the perception gap and partly because
companies have not been able to properly assess the sorts of opportunities
that might be available.
Q101 Mr Hoyle: Obviously, Rolls-Royce
is a huge success story, been there for a long time and has always
made money. Pilkington is another company that has been there
a long time and made a lot of money. Cadbury Schweppes is new
to the market; they have only just bought in, have they not, and
are trying to get a foothold. I am not sure how you would judge
that.
Mr Campkin: If you are talking
about Brazil, that is true. They took over Adams, which gave them
a major footprint, although they had been looking, of course,
and exporting to the market for some time. This was the natural
progression of their corporate strategy. We believe that is a
good British success story.
Q102 Mr Hoyle: You mentioned earlier
where companies have begun. Do you think there are any trading
partners that we ought to be looking at in South America and that
we ought to be saying: "That's the area we ought to be"?
We have seen the Brazilians looking at our steel area, and they
are coming to the UK. Where do you think we ought to be fighting
back? Volkswagen are big on manufacturing, we have mentioned Pilkington,
but we have sold those. Are you worried, like I am, that Pilkington,
which was a UK company, is now Japanese?
Mr Campkin: That is a very broad
question about ownership and control—
Q103 Mr Hoyle: I would just like
a quick touch on what your feelings are. I have worries.
Mr Campkin: The CBI's view is
that the British economy has gained from inward investment and
it has gained from having an open trading and investment environment
globally. If you look at British interests, it is true that we
have been able to become the world's second-largest provider of
foreign direct investment and, also, home to the second-largest
amount of FDI in the world. So this gives us an enormous advantage
competitively, we think. The issue of ownership and control is
a difficult and complex one, but at the end of the day if there
is advantage coming back to the UK it should not really matter
who owns the company.
Q104 Mr Hoyle: So you have no worries
about steel in the UK?
Mr Campkin: No particular worries.
Q105 Chairman: Following on some
of the questions that Lindsay was asking, in your original submission
you were certainly quite bullish about this, but I was interested
to read your list of the difficulties: the Brazilian tax system
is complex and burdensome; Brazilian employment law is complex
and acts as a brake on investment and trade; the burdens of regulatory
compliance and licensing procedures provide a major source of
concern for business; average tariffs are higher than for Russia
and China, and a list of specific problems in the service sector;
investment barriers (foreign investment is restricted in internal
transport, public utilities and the media); intellectual property
rights; piracy; price controls are a problem for the pharmaceutical
industry; national content—Brazil seeks local production
in a number of sectors. It is quite a list of government-imposed,
largely, obstacles to doing business in Brazil. What kind of UK
companies can find their way through these, to me, quite significant
barriers?
Mr Campkin: I hope, Chairman,
that we have tried in our submission to be as comprehensive as
we could be in identifying issues which will be of interest to
the Committee.
Q106 Chairman: So comprehensive you
frighten me!
Mr Campkin: I do not think you
need to be frightened, Chairman, and I do not think, importantly
for our member companies, they need to be frightened either. The
key thing is to recognise where difficulties do arise and to ensure
that you have strategies in place that deal with and reflect those
difficulties. What is quite important—and I do not want
to preclude any questions you might have about the JETCO—is
to recognise that the list we have here is broadly similar to
the sorts of concerns that Brazilian business itself has about
the changes and reforms that it wants to see in Brazil. Certainly
on the taxation issue, for example, there are something approaching
62, maybe 65, taxes that a company needs to look to pay. These
have, in the past, been subject to rapid changes, sometimes without
advance notification. These are obvious difficulties. They need
to be rectified but, also, if you are going into an environment
like that I think you plan accordingly and, just as importantly,
these are problems that Brazilian business recognise and are lobbying
their government to change. Together we can begin to make some
good and significant progress towards addressing these issues.
Q107 Chairman: Those very real barriers
you have described; how much of a barrier do you think they are,
in practice, to British companies getting engaged in Brazil? Does
it suggest particular sizes of companies or levels of sophistication
that need to be involved in the Brazilian market?
Mr Campkin: My sense is that Brazil
is not going to be a destination that new-to-export companies
would be looking at, or necessarily an "S" of the "SME";
it is more of a country destination for an experienced exporter
who knows the way the world works and which can manage risk. I
would make the same sorts of observations about others of the
BRIC countries as well; the problems we list here are not unique
to Brazil.
Q108 Chairman: There seems to be
quite a real perception that Britain is not doing enough in Latin
America, and Brazil in particular. Do you think those are the
factors which explain it? You talk about perceptions of Brazil
in your brief as well. Is it a problem of reality or of perception,
or of both?
Mr Campkin: Perceptions and reality
are often interchangeable. One tends to make a decision based
on one's perception of the reality. What we are seeing—certainly
what we are seeing in CBI terms—over the past two to three
years is an increase in inquiries on Brazil, an increase in interest
in Brazil and more of a willingness to look at the opportunities
that the market offers. That is why we take quite an upbeat tone
in our submission to you.
Q109 Chairman: Without wishing to
appear to be pursuing it obsessively, is there anything else you
think could explain the relative lack of British engagement in
Brazil and the rest of the Mercosur countries? One factor might
be that Brazil is not classified as an investment grade country,
for example.
Mr Campkin: Again, these are the
sorts of issues which, if one is looking at a corporate risk analysis
and corporate thinking, are an important factor. For example,
we also mention in our memorandum that the IPPA has not been ratified
by the Brazilian Government. How important is this to a business?
Well, it is important in terms of providing confidence and stability
and a sort of comfort that if they invest certain things will
happen if things go wrong. These are all building blocks which
help to create a better and more positive perception. The other
point which often comes up, and I think you have explored this
in your other hearings, so I may not want to labour it, is the
language problem. We have talked to British companies about this
and while English is, of course, the lingua franca (if
I can mix all sorts of metaphors) of business internationally,
there is still, within parts of Brazilian business and certainly
Brazilian politics, the desire to work in Portuguese, and Portuguese
is not one of the strongest language suits of British business.
Chairman: True. Or of me personally.
Let us move on to look at the JETCO procedures in particular.
Q110 Mr Hunter: Brazil is the third
country now with which the UK has established a Joint Economic
and Trade Committee. The CBI took part in the first JETCO meeting
back in September of last year. Could you give us some feedback
about your impressions of that first meeting? Do you think it
was effective? Was it useful?
Mr Campkin: I co-chaired the business
section of it and then helped to present the business recommendations
to the plenary which the two Ministers, Secretary of State Alistair
Darling and Minister Furlan, co-chaired. My abiding impression
from the business part of the exercise was the coincidence of
interest—and again I reflected that in one of my earlier
comments—the fact that the Brazilian business community
and the British business community broadly shared the same concerns
and the same sorts of issues that they wanted to see resolved.
I was very keen to get an action-oriented agenda in front of ministers
and officials, and we came up with some ideas, most of which were
reflected in the final communiqué, which I think you have
seen. In terms of the ministerial session itself, I think it was
very encouraging that both Mr Darling and Mr Furlan wanted results,
and they themselves said: "We would like a six-month report
from this ministerial as to what progress has been made. We are
not interested in talk shops". Indeed, that is the CBI's
view as well; we want the JETCO sessions to be productive and
for officials to go away, work in the interim and actually create
the sorts of results that make a difference to doing business.
Q111 Mr Hunter: So JETCO was an important
initiative in itself, was it?
Mr Campkin: We believe so.
Q112 Mr Hunter: Is there a follow-up
meeting arranged at the moment?
Mr Campkin: The first six-month
session comes up in the springtime, and then there will be the
annual meeting following that, I would assume, sometime in the
autumn.
Q113 Mr Hunter: So there is a schedule
of subsequent meetings. Given how important it has been so far,
presumably you would share some concerns that we do not want to
lose the impetus that has now been developed further.
Mr Campkin: I would be extremely
disappointed, and I think my members would be extremely disappointed,
if this process did not deliver results and, indeed, we would
be looking very keenly with our Brazilian counterparts to ensure
that the momentum is maintained.
Q114 Mr Hunter: Can I talk to you
briefly about the press release that was issued from the JETCO
meeting. It talked about some 15 areas of future work. Would you
like to tell us, in your own opinion, which of these you consider
to be most important for UK businesses, which of them do you think
are most likely to see progress, and are the ones that are likely
to see progress the most important ones anyway?
Mr Campkin: It is important that
there was a range of recommendations that need to be taken forward.
In our view the most important ones probably relate to the issues
related to IPR, which is an incredibly important issue for British
business, and we would also think that the issue related to the
IPPA and the double taxation agreement are important. On the latter,
quite how much progress can be made quickly is open to debate.
Nonetheless, it is important that it is there and on the radar
screens. The other issues are also important in their own right
and are more about co-operation, working together. We believe
there is scope for more joint venturing; we believe there is more
scope for collaboration in research and development. Indeed, that
was one of the themes that President Lula raised with us when
he was over here on his State visit last year. Again, we think
there is a lot of synergy between what Brazilian business and
research is undertaking and what British companies are doing.
Those are the areas I would consider to be most important.
Q115 Mr Hunter: One of the things
that struck us when we visited Brazil and Argentina was the repeated
oblique references to lack of transparency, to price fixing and,
indeed, to corruption. Are these issues that have been addressed
in any significant way yet by JETCO? Indeed, could you perhaps
give me a CBI view on the significance of those kinds of issues
relating to the countries I have just mentioned?
Mr Campkin: The short answer to
your question is yes. In terms of regulation, some of the language
which we used in the JETCO is reflected in the CBI submission.
We talk in our submission about the burdens of regulatory compliance
and licensing procedures, clear and consistent application of
regulation, and greater transparency and timeliness in the formulation
of regulation and enforcement. Those things are important and,
we believe, need to be addressed. One of the ways of doing that
is through exchange of best practice and a push towards more mutual
recognition of standards, and so on. So, yes, this is an issue
that is very much on our radar screens. It also impinges in areas
like intellectual property where, again, transparency and consistency
are absolutely key and crucial in terms of protecting IP. Corruption
is, of course, an issue on which the CBI is on record on a number
of occasions: we absolutely deplore bribery, corruption and extortion—which
is often the word that is left out of the equation—most
of the incidents that companies face are actually from officials
trying to extort money from companies. It is a problem in many
countries of the world. As you know, there are a number of conventions—the
OECD Convention and the UN Convention against Corruption—which
are important moves forward, and the CBI has supported and been
involved with both.
Q116 Mr Hunter: What about the price
fixing aspect I mentioned?
Mr Campkin: I am not aware of
any particular details of price fixing. I do not think it came
up in any great sense in our consultation with members.
Q117 Chairman: It is more Argentina
than Brazil, is it not?
Mr Campkin: It has not come across
our radar screens in terms of Brazil.
Mr Hunter: I have to say I am quite surprised
by your reaction to that specific question. I think, Chairman,
it was specifically in Brazil that I recall. It was after our
discussions with Pilkington, amongst other places, where this
came out. They were explaining how well they are performing as
a British company largely because there is an agreed price for
their product, and that price is agreed in advance with the government,
who appear to select specific companies that they are going to
give that competitive edge to. It did seem to us that price fixing—
Chairman: It was called a "reference"
price.
Q118 Mr Hunter: Yes, they use different
terminology but it did seem to us to be a fairly significant issue.
I just wonder, taken with the issues around production and taken
with the issues about lack of transparency, whether these are
not themselves probably the most significant barriers to trading
relationships between the UK and Brazil and Argentina.
Mr Campkin: As I say, I am not
aware of that particular dynamic, certainly in the way that you
originally phrased it. There have been examples which have given
us and our members cause for concern in Argentina, particularly
related to so-called price freezing around utility companies,
and so on, which have created some real problems. In the Brazilian
context I am not aware of that particular issue.
Mr Hunter: That is an issue we might
pursue outside of the context of this meeting.
Q119 Mr Bone: You mentioned, in your
answer just before, bribery. What is the difference between an
official that says to a company: "This will take several
months but if you pay a commission it will be fast-tracked"?
Is that a bribe or is that a commission, and what would you advise
a British company to do?
Mr Campkin: Are you referring
to what have been called "facilitation" or "grease"
payments?
Mr Bone: I can never get a feel on how
widespread these things are. There is a sort of grey line.
Chairman: Can I ask, for my clarity,
Peter, whether you are referring to Brazil or more generally making
a philosophical question? Speed money.
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