Examination of Witnesses (Questions 180
- 199)
TUESDAY 20 FEBRUARY 2007
DTI/FCO, UKTI, DTI
Q180 Chairman: Perhaps we can have
a note of those activities. I know that you have already promised
a lot of notes, but that would be very helpful.
Mr McCartney: I shall put all
of it into a single memorandum.
Q181 Mr Wright: That has taken the
steam out of the next question which is about doing business in
Brazil. One of the matters mentioned to us by the CBI was that
it was at the discussion stage of the creation of task forces
or working groups. Is that being proceeded with?
Mr McCartney: Indeed. We are trying
to make progress in co-operation in three specific sectors: aerospace,
financial services and healthcare. Again, I will provide you with
further details.
Q182 Mr Wright: We understand that
as far as JETCO is concerned there is a six-month stocktake probably
in the second week of March. What do you expect that to report?
Mr McCartney: We will do a stocktake
of all of the action plan. We will probably do a stocktake in
terms of the technical discussions about barriers. For example,
we have also submitted a bid under the Global Opportunities Fund
to support a visit to Brazil by some of our experts on patents
and intellectual property rights. We are looking at issues concerned
with biology, microbiology, chemistry, pharmaceuticals and electronics.
It is important to investors and traders that in penetrating the
market their intellectual property rights are protected. A lot
of practical steps are being taken here which I hope will lead
to agreements and the dismantling of barriers and give certainty
to the business community which will lead to trade.
Q183 Mark Hunter: The JETCO statement
to which you referred earlier outlined 15 specific action areas.
When we talked to the CBI about it and asked what it felt were
the most important from the perspective of UK business it mentioned
three in particular: greater protection of intellectual property
rights; implementation of an investment protection and promotion
agreement (IPPA); and a double taxation agreement. UKTI also highlighted
the second and third of those concerns. Which of the action areas
do you think are the most important to the UK, and are these the
ones on which we are making progress?
Mr McCartney: I think that they
are all equally important for the reason that each impacts in
some way on the potential leading sectors for trade and investment
in the region, particularly in Brazil. The issue of intellectual
property rights is not related just to Brazil; it applies to all
the emerging economies. With some we make great progress; in others
it is less, but it is a fundamental issue which always arises
in building up business confidence and being prepared to do business.
But I believe that the Brazilians are seized with the need to
work in that area. As to the investment protection and promotion
agreement, the Brazilians have set up a working group to look
at all of the pending issues to do with Brazil. We included this
matter as a major issue at the JETCO sessions. We are trying to
expedite the issue but many areas remain unresolved and will do
so for the foreseeable future. It is a difficult area for us to
resolve, but we agree with the CBI that it is a priority. The
Brazilian Government is very much aware of our views on this matter
and it has promised to work towards putting in place a mechanism
to help attract investors, but at the moment that falls far short
of what we envisage as an investment protection and promotion
agreement. It is an ongoing piece of business in relation to that.
I do not want to misrepresent the position. This is one of those
areas where a lot more needs to be done by the Brazilians.
Q184 Mark Hunter: As you say, clarity
is important. Are you saying that the three action areas I specifically
mentioned are equally important to the Government, or that all
15 of the action areas are of equal importance?
Mr McCartney: All of them are
of importance. There is a difference in the sense that some will
be easier to implement than others. The three that you raised
are quite rightly the ones that give the CBI the greatest concern,
and we need to take that into account in our negotiating strategy.
There is no point in inviting British business to the party and
ignoring what it says. My job is to be an ambassador for British
business. Those are three areas in which from their perspective
they want to see a great deal of progress. They are equally important,
but progress will be made at a different pace. In such negotiations
there will always be progress made at a different pace. That is
why I have said that in one case the pace is better than another
and one is extremely difficult and we will not get far with it
in the immediate future, but it is on the list of the priority
work that we are doing.
Q185 Mark Hunter: We appreciate that
these are difficult, complex issues and progress is slow. Can
you briefly summarise from the perspective of the Government what
it regards as the real obstacles to progress on these key issues?
Mr McCartney: I think the short
answer is vested interests. I am not being a clever dick about
it.
Q186 Mark Hunter: That is helpful.
Perhaps some of it will come out in further questions. We have
also been told of distortions in the trade and investment statistics
which appear to be at least in part due to more favourable tax
arrangements that exist in other European Union countries. How
important do you think is the double taxation agreement with Brazil?
Mr McCartney: Whilst my colleagues
look for the answer to that, I did not answer the double taxation
point you made, which is important. As to double taxation, we
raise this matter consistently in discussions, as does UK business.
Our double taxation policy is close to the OECD model treaty and
we should like that to be the starting point for our discussions
with Brazil. It has the necessary features that business would
welcome. Brazil's policy varies significantly from the OECD model
and Brazil is unwilling to give up its taxing rights. Again, it
is another vested interest, but we think that the best way forward
is the OECD model. We believe that the CBI concurs in that. Therefore,
we shall use that model for discussions, but that will not be
easy. Comparisons have been made with France, Italy, the Netherlands,
Spain, Portugal and Japan which have double taxation agreements
with Brazil, but they have limited benefits and I do not think
they fully cover the OECD model. The problem is that they have
settled for second best, but we are not yet prepared to do that.
Q187 Mark Hunter: Because of limited
time perhaps I can move to one of the specific issues out of the
list of 15 JETCO recommendations. The IPPA was signed in 1994.
We understand that whilst the Brazilian Government favours its
implementation, Congress is somewhat less than enthusiastic with
the constitutional issues over ratification. Can you give us an
update on progress? Do you have any more detail on it? We understand
that currently Brazil has no IPPAs in force. Do you not think
it would be a major marker for the UK if it was able to conclude
and put into effect the first one?
Mr McCartney: Yes, but that will
remain unresolved for the foreseeable future. We have insisted
that it be part of the JETCO process; it is a priority area for
us with Brazil. When we have our next discussions with them it
will be part of that agenda, but at this moment they are extremely
unwilling to make a move in the right direction.
Q188 Mark Hunter: You see no prospect
of significant progress in the immediate future; it will be another
long haul?
Mr McCartney: No. To give you
any other impression would be misleading in the extreme. It is
a difficult area for us.
Q189 Mark Hunter: To turn to JETCO
in general, the Committee has seen this mechanism operating in
China, India and Brazil. Clearly, it would not be appropriate
to have a JETCO in every country across the world, but is it a
question of how much ministerial time is available for these things
as well? With the best will in the world, I am sure that as with
all ministers you have an exceptionally heavy workload. Is three
the sort of figure that has been arrived at on the basis that
it is the most that ministerial time currently permits? If that
is about right in terms of what can be managed logistically, do
you think we have identified the right three countries?
Mr McCartney: You are absolutely
right that as far as JETCO is concerned human resources and contact
need to be put in at official and political level. It is an error
to establish a body in name only and then nothing happens to it.
It is not just frustrating but the business community and others
will quickly become aware that that is exactly what it is. JETCO
is a good concept but it should be used only in certain circumstances.
Those circumstances do not simply mean the creation of a better
business environment. One wants to do that with every country
one trades with. It is about the size of the marketplace, the
scale of the issues and how significant the barriers are. Some
are trade, some are administrative and some are political. If
as in the case of Brazil, China and India one has massive opportunities
but also clearly areas where they cannot be realised because of
significant impairments to trade then JETCO is a way forward,
but it is only a way forward if there is a specific programme
that is transparent, auditable and accountable internally and
externally. That is why I am happy to share with you what we are
doing and why. But we would not have it, for example, for Mexico
or South Africa. Although those markets give rise to issues we
have the ability to resolve them in a different way; we do not
need this kind of mechanism. I do not rule out a JETCO somewhere
else, but it would have to be in the context of what I have said.
Q190 Mark Hunter: To press that a
little further, you say that three is about right at the moment.
I do not want to put words into your mouth. Can you confirm that
there is not currently active consideration of an increase in
the number of JETCOs, or is the Government seeking similar arrangements
elsewhere? To go back to the second part of my original question,
of the three that we have at the moment—all of them are
important matters—do you think that they are the appropriate
ones for JETCO arrangements?
Mr McCartney: No plans are being
prepared at the moment for another JETCO, but I would not rule
one out if the circumstances were right. The three that we have
are the right ones. I would say that because we have established
them. But in this framework we have a UK-Russia intergovernmental
steering committee which had its initial meeting a few weeks ago
in Russia. Alistair Darling attended it. That addresses similar
issues to those considered by JETCO, but they are not exactly
the same.
Q191 Mark Hunter: It would not be
appropriate to have similar arrangements with, for example, Argentina,
Russia or South Africa because they can be dealt with in a different
way?
Mr McCartney: We have a definite
arrangement with Russia which has similar elements.
Q192 Mark Hunter: I want to deal
with the London Stock Exchange which was mentioned to us on our
fact-finding visit at the back end of last year. There have also
been recent press reports about the success of the London Stock
Exchange compared with the New York Stock Exchange primarily due
to its regulatory approach. When we were in Brazil we found that
the New York Stock Exchange had a significantly stronger presence
than London. Furthermore, we were told on more than one occasion
that London's presence through the stock exchange was ceremonial
rather than businesslike, although we have heard that more is
being done in this area. Do you think that enough has yet been
done to encourage more business from Brazil, and would a greater
presence of the London Stock Exchange help to provide a catalyst
perhaps for the greater involvement of UK companies?
Mr McCartney: That is a very fair
question. The fact of the matter is that for the past 20 years
the UK's financial services and banking sectors have been losing
out significantly in South America to other competitor countries.
UKTI has a new City strategy where London is a global player and
the hub and the spokes of the other regional financial centres
in the United Kingdom work together. Last week our new Financial
Services Sector Advisory Board met to work on a paper on South
America about what we do, how we do it and how to get back into
the marketplace there, dust ourselves down and do what we should
have been doing over the past 20 years, namely offering a range
of financial services in partnership arrangements in terms of
both inward and outwards investment. The Lord Mayor and the City
of London will be visiting Brazil later this year. The activities
will include joint seminars with legal services. It will be organised
by the Brazilian advocates' organisation. It will look at intellectual
property rights and patent protection. We will also link the Lord
Mayor's visit with activities in the City of London and the services
that it can provide. It will look for possible support on our
part to give to the London Stock Exchange to do follow-up activity
in September of this year which will look for serious business.
We are putting in place a programme. I did not want to say that
it was all hunky-dory; I accept that we have had 20 years of under-resourcing.
Q193 Mark Hunter: Do you not think
that the kind of visit already planned, very useful though I am
sure it will be, confirms a suspicion on the ground in Brazil
that what we are about is largely a ceremonial presence rather
than serious business? You mentioned the Lord Mayor and the City,
but you did not mention whether the London Stock Exchange specifically
would be part of that delegation. It was put to us that that was
a major factor in the lack of development from the point of view
of UK business investment in that country because the London Stock
Exchange did not have a presence there which was deemed to be
particularly proactive.
Mr McCartney: All of this is spilt
milk. I wish I could turn back the clock 20 months, never mind
20 years. But we now have a grip on the situation and are working
with the City. The London Stock Exchange is a big partner in this.
With our support the London Stock Exchange went to Brazil in September
of last year to see what it could do to build contacts, get a
greater understanding of the services that the exchange could
provide and see what could be done in the way of creating a process
for listing abroad companies and operators and looking for emerging
companies in Brazil to start listing on the London Stock Exchange.
There is a great deal of activity which comprises intellect, investment
and a strategic approach. We are starting from a long way back,
but as a key component of the reforms of the UKTI the City strategy
was a main part of that reform. Within months of the new strategy
being put in place we have people on the ground. This is not ceremonial.
The London Stock Exchange is the most successful exchange in the
world, but in a global economy it will be competing 24/7. Other
centres offer a range of services not just to Brazil but other
emerging nations and we need to do the same.
Q194 Mark Hunter: Sticking with financial
services, obviously we are aware of the Chancellor's high-level
task force set up to develop a co-ordinated strategy to help ensure
the future success of our financial services industry and extend
our global reach even further. Apparently UKTI is responsible
for that co-ordination and a financial services sector advisory
board has been set up with plans to put more resources into key
markets. A UKTI document on this strategy mentions China, India,
Russia and the Gulf, but not Brazil other than a solitary point
about regulation and JETCO. Do you think that is a serious omission,
or do you know of any reason why Brazil should not have been mentioned
in that context, particularly given that UKTI's evidence to our
original inquiry on Brazil states that financial services have
been identified as a priority?
Mr McCartney: I would not read
too much into that in the sense that I am a member of the board
and Brazil is a priority, and I think that my last answer showed
we are dramatically improving our performance in regard to Brazil
in the financial services and related sectors. The board has met
on three occasions. At some stage I am happy to come back to the
Committee and talk about its work and activities. I see the board
very much as a hands-on practical programme of work to be delivered
by ministers. The board is managed and run by the City in partnership
with us, so they are very much in control of the programme. As
ministers, Ed Balls and I have the job of promoting that programme.
I am more than happy to share that with hon Members. I go back
to what I said at the beginning. I cannot change the past 20 years
of inactivity, but I hope I have given to you the clear impression
that for me this is a priority as the responsible minister and
Brazil must be part of that story.
Q195 Rob Marris: The Financial Services
Sector Advisory Board was set up last autumn and had its first
meeting on 11 December 2006. This is the 21st century. There are
30 people on that board, four of whom are women. Judging by the
names, very few if any of its members come from black or minority
ethnic communities and there are no trade unionists on that board.
Why on earth is this?
Mr McCartney: Perhaps I may say
first that the question itself reflects the nature of the City.
Like you, I am a trade unionist and am very much in favour of
the engagement of ethnic minorities, but we have to work with
the tools that we have.
Q196 Rob Marris: Whose board is it?
Mr McCartney: Quite rightly, the
board is a joint effort between the Government and City to ensure
that the City remains in global terms the prominent financial
centre of the world and, with that, enables the United Kingdom
which has 1% of the world's population to punch above its weight.
It is critically important that that should be the case. I do
not dodge the question, but I am absolutely certain that there
is a need to change the attitude in British boardrooms in terms
of ethnic minorities, women and the engagement of organised labour.
This is all true, but these are all complementary policies and
well worth pursuing. I have a duty to work with those I need to
work with. The truth of the matter is that the leadership is in
the City. I will not ignore that because without its engagement
we will not reach the objectives we must reach. I am happy to
engage in the question—I do so on a regular basis—of
having more women and ethnic minorities in Britain's boardrooms
and partnerships. All of that is true and is complementary, but
I cannot do that if it means not doing what we are doing in terms
of this board. Every week and month that goes by when we do not
have the right strategy we will lose business in the City of London
and, with that, we shall lose business downstream in the financial
centres in Scotland, Leeds, Cardiff and other places which are
so important. I am not dodging the question; I just think that
it is a question that needs to be addressed other than through
the board.
Rob Marris: I suggest that if you wish,
as I do, for London to remain and grow as a world financial centre
things like this board need a diverse membership. I suggest that
even though no doubt there is structural sexism in parts of the
City in this joint board, part of which is set up by the Government
and part by the City, you have the balance wrong. I invite you
to rethink that, because unless you have that diversity the City
will not continue to thrive.
Q197 Chairman: I think the point
has been made, Minister. We are running out of time. As a cheap
shot, there is a female trade unionist on the board. Alison Hook
represents the Law Society which is the most powerful trade union
in the land as far as I am concerned.
Mr McCartney: I will take on board
what has been said, but if you look at the membership of this
body it is all white male.
Q198 Mr Weir: In answer to Peter
Bone earlier when talking about Brazil you mentioned that along
with Argentina they were the major powers in Mercosur, but how
well is the United Kingdom doing in priority sectors in Mercosur
countries other than Brazil, particularly Argentina?
Mr McCartney: Clearly, Argentina
is smaller, but significantly larger than Paraguay and Uruguay
which are very small marketplaces where little inter-trade takes
place. I do not believe that in the recent past in respect of
either Uruguay or Paraguay there has been any approach to involve
us in terms of export guarantees for trading with those two countries.
Therefore, the resources in those two countries are little and
Paraguay is covered by our colleague ambassador in Argentina.
Q199 Chairman: I want to come back
to Uruguay in more detail later, so perhaps we do not need too
much on that country for the moment.
Mr McCartney: In Argentina the
aerospace sector has limited opportunities. We have however been
relatively successful. BA has recently sold Jetstream to them
and Rolls-Royce has an aero engine operation that services both
military and civilian customers. Argentina's two largest carriers
have sourced their requirements from Airbus rather than Boeing.
Despite the depressed nature of it we are carrying out investment
there. In terms of financial sectors—banking, insurance
and reinsurance—we have been making advances in that sector
in terms of penetrating the marketplace, but it is a difficult
place to do work. We are developing a way forward in relation
to that. In addition, as far as ICT is concerned this is an area
where from UKTI's viewpoint there is potential for exports that
could exceed some of the other areas in which we have been engaged
hitherto. A number of companies have already established themselves
in the marketplace in Argentina, so that is another area where
we believe we can see growth activity.
| 
