Examination of Witnesses (Questions 160
- 179)
TUESDAY 20 FEBRUARY 2007
DTI/FCO, UKTI, DTI
Q160 Miss Kirkbride: I do not wish
to be rude, but after I have asked my questions I must leave.
My last question is whether you think Brazil suffers from its
lack of investment grading. How do you view that issue?
Mr McCartney: I think that it
is making great strides. The fact is that it has burst into the
four big emerging economies in terms of its capacity to trade
and create within its own market a serious service sector. With
its growth in earnings and political stability it is moving to
a position of leadership in the G20. From its perspective it is
doing very well and will continue to do so. My meetings with Brazilian
ministers a few months ago were marked by their huge hunger to
do more trade with the UK and more cultural and educational investment
and work closely with us in Doha. I do not believe that Brazil
sees itself as being at a disadvantage, but in terms of world
trade it regards itself as a senior player on behalf of developing
nations and as such wishes to be treated with respect and as an
equal partner in that role. If we are serious about a greater
penetration of the Brazilian marketplace we should take that on
board honestly and effectively. I believe that potentially there
is a really good relationship with Brazil. I do not think that
Brazil sees itself other than as a great economic player over
the next decade.
Q161 Miss Kirkbride: But it must
affect Brazil slightly in terms of business attitude, must it
not?
Mr McCartney: But no more than
issues to do with flows of capital and exchange rate fluctuations.
There is a whole range of factors in economies, including our
own, that come into play from time to time, but the bottom line
is that that country in the past decade has emerged as a major
trading power, and it will grow. Of course, it is not an India
or China, but in terms of the global economy and its growth and
where it is geo-politically set in Latin America it is a major
global player and is seen and treated as such by the World Bank,
IMF, stock exchanges and big investors around the world. Just
look at the levels of inward investment in Brazil and you will
see how seriously it is treated.
Q162 Judy Mallaber: Sticking with
Brazil, can you tell us the Government's initial thoughts on President
Lula's economic plan announced in January and the prospects of
meeting the 5% Brazilian growth target? In particular, could you
comment further on what we observed when we were there, that is,
discussions with local businesses about the barriers to bilateral
trade? Do you think that the proposals in the plan put forward
in January will help to break down some of those barriers to trade?
Mr McCartney: We broadly support
the plan, although we have had discussions with them about how
they prioritise it. Key to its implementation is the political
situation in Brazil. A good example of that is the Doha Development
Agenda discussion where there is a consensus on the desire for
agricultural liberalisation. They are prepared to be a big broker
in that process. But vested interests stand in the way of a clear-cut
position on services and non-agricultural issues. That is where
the rub lies as between the United States and ourselves. As in
Europe, there are rubs which have to be resolved. How the plan
is implemented will depend on the resolution of those issues.
From our perspective the plan is about unblocking certain aspects
to create economic growth. We would like them to take on the two
themes of investment in infrastructure and incentives to and encouragement
of private sector investment, looking to the creation of public/private
partnerships and dealing with procurement issues and financial
services. On all those issues we would like Brazil to open up
its economy. We could go into details to do with tariffs, but
I think that is too detailed at this stage. In general terms we
support the plan and will work with them. I am sure that in our
priorities for the JETCO arrangements that will be taken into
account.
Q163 Judy Mallaber: Presumably, you
are looking in detail at some of their proposals. As I recall,
some of the issues are to do with business registration and more
detailed barriers. From your initial discussions, are you satisfied
with the way in which that appears to be progressing? What further
discussions might you have?
Mr McCartney: In general terms,
yes, but how this is progressed in a practical way is by way of
a projected work programme.
Q164 Judy Mallaber: The CBI and UKTI
have stated that they do not believe Brazil is really a market
for small businesses or companies that are new to exports; it
is one that should be considered by experienced exporters. Is
that a view with which you concur, and does it affect your work
in trying to encourage exporters from this country to look for
opportunities there?
Mr McCartney: It is certainly
true that in particular the markets in Brazil and Argentina—other
countries are very small in terms of their capacity in the near
and medium-term to generate additional trade, but perhaps we can
look at that later—are more suitable for large investors.
That does not mean, however, there are not opportunities for small
investors and SMEs. One of the priorities of UKTI is to work with
SMEs to get them market access to emerging economies directly
or in partnerships or in downstream activities. This is important.
The whole trend in globalisation is small companies coming to
the global marketplace quicker than they would have done a decade
or even five years ago. We have a role to play. There are a number
of UK small and medium-size enterprises breaking into Brazil at
the moment, for example in telecoms and interactive services.
A lot of our small and medium-size enterprises are into new technology
such as biotechnology. There is a real potential market there
to assist the development of biotechnology and environmental services
in emerging economies like Brazil. In Rio de Janeiro we already
have a company generating carbon emission credits from a landfill
site and we are also involved in water projects. In all of those
infrastructures small and medium-size enterprises are involved.
They can gain access to these markets successfully, and it is
our job to help them do that.
Q165 Judy Mallaber: You do not agree
that given the barriers it is so difficult to do it that it is
not worth putting in the effort to encourage small businesses
and we should concentrate on the larger and more established exporters?
Mr McCartney: I think you have
to be entrepreneurial. I say that as a socialist. There is ample
opportunity out there. Who would have thought that, for example,
Lancashire Ambulance Service as a public sector organisation would
get a contract in Brazil? It has set up medical training centres
for the oil and gas industry; it is entrepreneurial. When there
is an opportunity UKTI's officials on the ground in Brazil and
Argentina and here have to be fleet of foot to take it up. These
opportunities may arise purely by chance by the development of
a relationship. If it is a big contract involving aerospace one
may be talking of investing two or three years' effort to get
to the stage of contract. We have to be more fleet of foot and
entrepreneurial. I would never give up any idea if there was a
potential business opportunity there and put resources into it.
Q166 Judy Mallaber: Is it more or
less difficult than doing business in India and China, or just
different?
Mr McCartney: All of them present
challenges.
Q167 Judy Mallaber: Greater or less?
Maybe that is sufficient.
Mr McCartney: At 56 years of age
I have come late to being a diplomat.
Q168 Judy Mallaber: You mentioned
various sectors which were the subject of some work. How well
do you think the UK is doing with its priorities such as in Brazil?
Is there more that we should be doing or can be done? How do you
see those priority sectors at present?
Mr McCartney: That is a very good
question. The priorities for 2007-08, based on ground work both
by people in Post and economic intelligence, working with companies
in various sectors, are to see whether we can make progress in
agriculture, engineering, environment, healthcare, life sciences,
oil and gas, sports and leisure, infrastructure and chemicals.
I shall come back to the Committee with some details as these
progress. That is not just a headline; I will give some examples
so you can test it. Alongside of that there are ongoing discussions
in other areas like aerospace and the creative media. I believe
that there are more opportunities in education and skills, financial
services, the textile industry and ports. I believe that over
the coming year those are areas in which we can make further inroads.
Those are the areas in which we are making progress but we have
priorities. We believe these are the areas where at the end of
the time and effort we are putting into it there will be actual
trade. We have also commissioned an in-depth report into the aerospace
industry in Brazil. Again, this is an area where the UK has distinct
advantages in its skills and R&D base, production capacity
and ability to partner other organisations in markets in other
parts of the world. We are very good at that. We are looking at
how to do that. We are also looking at issues to do with the supply
chain in Brazil where UK companies have problems. JETCO is identifying
the barriers and working with our colleagues in Brazil to reduce
them in the supply chain so that UK companies can get more direct
investment and trade into the sector in Brazil.
Mr Wright: You have answered the first
part of my question which is to do with what we have heard about
risk-aversion on the part of UK companies. You indicated that
you had commissioned a report in respect of aerospace. That is
one of those industries where we fall very short in relation to
Brazilian companies.
Q169 Chairman: Can we be clear about
the status of that report on aerospace issues?
Mr McCartney: If it is in a form
that can be understood I am happy to share it with the Committee.
Q170 Chairman: Is it an internal
document done by UKTI staff?
Mr McCartney: Yes. We established
a sector group with the industry. We have quite a number of sector
groups which are concerned with all sorts of issues in different
emerging markets. The aim is to look at the sector and look at
the opportunities, identify the barriers and work out how to remove
them. Whom do we identify within the economy, in this case Brazil,
to deal with those barriers? It may be a ministerial or governmental
barrier or a market barrier. We put in place a work programme
to deal with that.
Q171 Mr Wright: How far along are
you with that report?
Mr McCartney: We have commissioned
it and it is in the process of being prepared. I am happy to share
it with the Committee; that is not a problem for me. The more
I can share with the Committee the better.
Q172 Mr Wright: Obviously, you look
at this report in terms of aerospace as one way to try to encourage
industry to take a more proactive response in terms of investment
in Brazil. What can we also do for other companies to encourage
them to be more enterprising in Brazil?
Mr McCartney: I think that from
our perspective the changes we have made in UKTI and the priorities
laid down mean that UKTI staff on the ground are now going out
to various parts of the UK—Wales, Scotland and the North
West—and working with RDA colleagues to start promoting
with them, first, an awareness of the ability to access the Brazilian
market; second, the services that we are prepared to provide them
in that respect individually and collectively; third, the way
in which our staff will operate on the ground, and the skill mix
and capacity of staff have increased, including the introduction
in Brazil of more local staff, that is, people who have worked
in and understand industry and Brazil and provide additional knowledge
and information. Over the coming year we shall be developing programmes
to improve involvement by UK companies. In the next 12 months
I shall be looking at the development of a range of companies
to go to Brazil. Those that have already gone out, small groups
as they are, have all come back with increased business. We have
had a very high success rate linking British business activity
with our counterparts in Brazil. The big issue is getting them
to go there.
Q173 Mr Wright: How do you select
the companies to go there?
Mr McCartney: If you look at the
sectors we have, some companies will already be there. For example,
in aerospace Rolls-Royce is already there. In other sectors some
companies are already working there and that will be the building
block. The whole purpose is to identify companies that have the
capacity and are looking to export their products into that marketplace.
That is why we have identified all of these priority areas and
in each one we have a good working relationship with the key companies
in those areas. We will work with them and develop with them the
potential and provide them with a personal service to give them
access to the Brazilian marketplace.
Q174 Mr Wright: Do you rely on the
RDA to give you certain information about what companies' interests
would be there?
Mr McCartney: We work very closely
with the Scottish Development Agency—I think it has a new
name now—and our Welsh and Northern Ireland counterparts
and the RDAs. In each of the RDAs we have key UKTI staff, so it
is a very co-ordinated approach. I think that we have a brief
of the kinds of visits that have already taken place and from
what regions. For example, I believe that the Welsh have had about
eight forays into the marketplace to penetrate it and have done
quite well. There is a whole range of areas of interest, and I
shall provide that information to the Committee, to give it a
pattern of the regional investment that is taking place.
Chairman: Thank you.
Q175 Mr Wright: I turn quickly to
the successful bid by Tata of India over CSN of Brazil for Corus.
Do you believe that that represents a missed opportunity for fostering
more UK-Brazil trade and investment?
Mr McCartney: Quite frankly, it
is a matter for the shareholders. I was never one for nationalisation
without compensation. What we need to do now, whatever the new
ownership, is ensure that the investment that was to take place
continues. If you look at the synergies of the company that has
now purchased Corus they present opportunities. Corus is a specialist
steel company; it produces steels that are important in a whole
range of emerging markets. In lots of those markets Tata already
has a foothold. There are potential opportunities for the new
company. I hope that is the case.
Q176 Mr Hoyle: We did have a blue
chip share. We thought that steel was strategic to the UK. The
fact that it was an Anglo-Dutch company based in Europe meant
that we still had control. Now an Indian company has taken it
over. Do you share my worry that at least the Brazilians would
allow the export of ore to be used in the furnaces in the UK whereas
India still restricts it and will not allow the export of iron
ore? Does that not concern you?
Mr McCartney: I suspect that when
the Dutch took over the company you complained about that as well.
Q177 Mr Hoyle: In fairness to the
Minister, he will recognise that there are no iron ore mines in
Holland. If he does not recognise that perhaps he ought to go
back and do a geological survey and explain where it is. The truth
of the matter is that there is a difference between India and
Brazil: one offered iron ore, the other still imposes a restriction.
I am just interested in the Minister's view.
Mr McCartney: With all due respect,
as someone who served as a cabin boy on a ship which transported
iron ore between Liberia in West Africa to Canada, Jamaica and
the Clyde in Scotland, I have some understanding of the product
at least from the point of view of getting it on and off a vessel.
The answer to this, is it not, is that the company has now been
established? In global terms steel is an important component of
the UK economy, but it is an industry that is globalised, and
the capacity to operate in that world depends on R&D, investment
and the ability to open up markets which hitherto have not been
available to us. Whether the Brazilians or Indians took over the
company, in the end it was a matter for the shareholders. I want
to be proactive with the company and trade unions. They have given
an absolute commitment about the portfolio in the UK and continuation
of senior management in the UK and the role of the company in
the UK. I am diversifying the discussion a bit.
Chairman: This is an inquiry into Brazil
rather than the UK steel industry, but that is a very helpful
answer for which we are grateful.
Q178 Mr Wright: We know that JETCO
is a ministerial-led committee. Have you personally been involved
in it, and how do ministers influence the committee? What level
of involvement and buy-in is there from UK business?
Mr McCartney: JETCO is very important.
Alistair Darling takes responsibility for JETCO as Secretary of
State. The original arrangement in terms of JETCO was between
the secretaries of state and the PMs. JETCO has a full programme
of work. It engages bilaterally not just with Brazilian industry
but also UK industry and chambers of commerce in London and Brazil.
The CBI and other key players in terms of sectors are involved.
It is an organisation that has within it not just political leadership
but also business leadership which is very important. Other committees
cover Russia, China and other emerging nations. They all have
similar arrangements where we have put in place the skill mix
to ensure we have a proper programme of work. JETCO is about promoting
and developing trade, addressing the barriers and ultimately helping
to create a better business environment. That means practical
work on the ground. There is a great deal of progress being made.
I do not know whether you want me to go into the details, but
I am happy to do so.
Q179 Mr Wright: In its evidence the
CBI told us that it wanted an action-oriented agenda for the UK-Brazil
JETCO. Is that what you think we have?
Mr McCartney: Yes. The CBI has
engaged in part of this process. We have been working with a unique
public/private sector forum to identify opportunities, not just
problems, and turn those opportunities into hard business deals.
The programme has engaged the CBI with Brazilian business, so
the CBI's counterpart in Brazil is involved in it. There were
15 agreed recommendations for delivery by JETCO. They included
the establishment of regular exchanges of both information and
progress; collaboration between the Brazilian chamber and trade
and investment in London. We are involved in developing a range
of events and strategies and co-ordinating a range of sectors
to co-operate and participate in developing shared relationships.
We have put in place arrangements for the UK Patent Office, the
accreditation service, the physical laboratories and the Civil
Aviation Authority to develop with their counterparts in Brazil
ways to identify the barriers and technical issues that prevent
business and investment taking place. In April of this year there
is a visit by the Brazilian Ministry of Trade which will look
at all the technical aspects of the service sector and how we
can try to remove many of the barriers in that sector. The service
sector is one of the areas where I believe we can make major gains
for the UK, but the problem that remains is the removal of barriers,
whether or not we have Doha. We also have a full programme of
events between April and autumn of this year, including an engagement
with the Lord Mayor of London and the business community in developing
business opportunities. That is just a range of ongoing activities
within the work programme, so it is very much action-oriented.
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