Examination of Witnesses (Questions 200
- 219)
TUESDAY 20 FEBRUARY 2007
DTI/FCO, UKTI, DTI
Q200 Mr Weir: In Argentina we heard
complaints about the Government effectively fixing prices in some
areas, sometimes by fairly colourful means. Has the UK Government
made any representations on behalf of UK companies to the Government
of Argentina on policies relating to price-fixing?
Mr McCartney: No, we have not
made any move in that respect. Basically, we agree with fair and
free markets. The setting of prices is for them; that is their
responsibility.
Q201 Mr Weir: Have you had complaints
from UK companies trying to trade in Argentina that they are being
penalised in any way by price-fixing activities by the Government
of Argentina?
Mr McCartney: Off the top of my
head—I apologise if I am wrong—there is no evidence
that that is the case.
Q202 Chairman: It is right to record
that sitting in the embassy in Argentina we heard British companies
making precisely that representation to this Committee, so it
is rather surprising you have not heard it.
Mr McCartney: There we are. I
could come here and bluff you, but I have no evidence that that
is the case.
Chairman: To be fair, we know that British
energy companies are worried about the practices of some of their
counterparts in Europe.
Mr Weir: Many of the companies seem to
be unwilling to say publicly what they said privately. I wanted
to ask the Minister whether the Government had been approached
in this matter.
Q203 Chairman: One British company
has been very public.
Mr McCartney: This is not unusual.
We have had British companies in other marketplaces that have
had similar experiences, but when you ask for the evidence they
are unwilling to give it.
Q204 Chairman: The evidence is absolutely
clear cut on this one.
Mr McCartney: If that is in your
report send it to us.
Chairman: I am genuinely disturbed. I
can think of two companies—I shall not name them in case
I am wrong—which have gone public about their concerns relating
to price-fixing in Argentina. This was a big issue raised with
us by British companies in Argentina.
Q205 Mr Weir: But it is interesting
that they do not appear to have taken it up with the UK Government.
Mr McCartney: I am more than happy
to look at it, if that is in your report.
Q206 Chairman: We will just check
the public status of their comments.
Mr McCartney: I have nothing in
my brief to suggest that.
Q207 Mr Weir: Referring to the other
Mercosur countries, obviously Venezuela has recently joined it
and I understand that Bolivia has applied for membership and that
application is being considered at the moment. Would the accession
of those countries change the balance in Mercosur away from the
dominance of Brazil?
Mr McCartney: Overall, the answer
is no in the sense that it is such a dominant economy and it will
continue to be so. It will become very much a growth economy in
terms of trade, investment, its customer and consumer base. Venezuela
is an oil and gas economy and will develop. Obviously, how that
develops under its leadership is a matter for that country. I
am sure that Mercosur will take all of that into account in considering
the implementation of Venezuela's Mercosur accession commitments.
Q208 Chairman: It has joined.
Mr McCartney: In July 2006, yes.
But it still needs to meet accession requirements. We will see
how it goes, and how long it remains a member. As was said at
the beginning, the question is whether this organisation is sustainable.
Some argue that it is; some argue that it is not. From our perspective
we want to operate with it in an effective, positive way.
Q209 Mr Weir: UKTI classes Brazil
with Mexico and others such as South Africa and the United Arab
Emirates in a 15-strong group of emerging markets. We have received
further information from UKTI's emerging market criteria, but
is not Argentina a promising emerging market as well?
Mr McCartney: This is a kind of
moving feast, is it not? Over the next five to 10 years you will
see markets develop. The thing about our emerging market proposals
and strategies is that they set all the criteria and the volume
of trade. In the end you cannot cover the whole of the world's
marketplace in a blanket way; you have to think strategically.
Thinking strategically and working in consultation with UK industry
and the trade associations, we came to the recommendations that
we did in UKTI. That does not mean in future there will not be
other economies that start to emerge in a very rapid way, or there
will not be niche markets that provide opportunities for significant
penetration. It may well be that some of the former Soviet Union
and Eastern European countries will become emerging economies
and they may provide different markets in five years' time. That
is why we have to be innovative and entrepreneurial in our approach,
which means we have to develop a role in Argentina. We are doing
that. It is not just Brazil and nothing else. Argentina is an
important area for us and we will work in particular in goods
and services. We want to work with them, and will be doing so.
Our sector advisory boards are looking at how to develop opportunities
in Argentina. Argentina is not left out of the equation. At this
stage of our analysis of emerging markets it is not quite at the
level of these other markets, but that does not mean it will not
get there.
Q210 Mr Hoyle: Is it not right to
say that Argentina always repeats its history: it is always a
"nearly" market and never makes it? Is it not right
to say that the bubble will burst again? That is the impression
one receives and that is why we can understand that not much emphasis
is placed on Argentina.
Mr McCartney: That may or may
not be true, but for me it is important to maintain positive relationships
with Argentina, as do our posts there. It is important to UK business
interests. Argentina has come a long way and we have to encourage
it to go even further in terms of its economic and social welfare
structures. There will be, and there are, opportunities for the
UK. It is a difficult marketplace particularly in terms of export
guarantees that people want, but we shall work as best we can
and provide a good service to UK companies that want to export
or invest there.
Q211 Rob Marris: I want to step back
a little to the UKTI position as a whole before returning to Brazil.
I understand that UKTI spends money to encourage or assist UK
business to invest overseas. Why?
Mr McCartney: The short answer
is that we need an organisation that can work with British industry
to secure for our country the best advantages possible in trade
and in terms of inward and outward investment. Why? As a country
we have 1% of the world's population and have between 5% and 7%
of world trade depending on what sectors you put together. As
the global economy intensifies the world's productive capacity
and spending power will shift eastwards, and it is critically
important that economies like that of the UK are able to compete
by going upmarket, not downmarket. That means we need an organisation
that can provide strategic support and help both to individual
companies and sectors and work with industry to identify what
those sectors are and then be able in a stable economic environment,
taking both the public and private sector, to give British industry
the best chance to perform well.
Q212 Rob Marris: I understand all
that, but it is the encouragement of overseas investment on which
I focus. Why should we spend taxpayers' money to encourage UK
companies to export British jobs and to do that which they have
been doing successfully as mercantile and financial capitalists
for the past 200 years, namely investing overseas?
Mr McCartney: If you look at the
UK's performance in terms of inward investment—this point
transcends partisan politics—we are now the largest recipient
of inward investment in the world. In European terms we have over
40% of all US inward investment. Over the past decade that investment
has gone into the third generation of R&D research and science
and the improvement of productive capacity and the ability to
service new parts of the world economy. Without that inward investment
we would simply see the UK losing investment and jobs.
Q213 Rob Marris: Minister, maybe
I have not made myself clear or perhaps you put it in a broader
context which I fail to grasp. I am not talking about UKTI resources
being spent on encouraging UK inward investment; I am talking
of UKTI resources being spent on encouraging or assisting outward
investment into other countries, for example Brazil and Argentina.
I am not talking about the export of goods or services but investments
by companies such as Pilkingtons, when it was a UK company, in
Brazil.
Mr McCartney: Looking across the
globe, in what are we asking British companies to invest? There
are public/private partnerships. A UK company based in Cardiff
Bay has a huge investment in shipbuilding in China. It remains
a UK company and employs more people in the UK than it did a decade
ago. It survives and builds ships in China. The same goes for
oil and gas exploration and issues to do with high-technology.
Rebuilding work on the Yangtze river, improvements in transport
infrastructure, the construction of a new airport and improvements
in the environment have been provided by British companies. Why
not?
Rob Marris: Minister, that is the export
of goods and services.
Chairman: I intervene from the chair
to say that we do not have time to pursue this philosophical point
any longer. We will come up against it with Andrew Cahn again
next week when we consider UKTI's investment strategy. Let us
move back to Brazil and Mercosur.
Rob Marris: When I was with the Committee
in Latin America I heard a story. In Turkey our ambassador had
a retirement party because he was being removed from the post.
The Prime Minister of Turkey specifically came to the leaving
party. The ambassador thanked the Turkish Prime Minister whose
response was, "I am coming to say goodbye, but I am really
here to say goodbye to your wife because she speaks such good
Turkish and I have enjoyed talking to her whilst you have been
in post in Turkey." I have been told that the UKTI is cutting
back or even eliminating language training for spouses of UKTI
officers who are being posted abroad. Have you heard that? It
seems very surprising and counter-productive.
Q214 Chairman: We are straying well
away from the list of questions. Perhaps we may have a brief response.
Mr McCartney: No.
Q215 Rob Marris: Minister, perhaps
you would look into it and get back to us.
Mr McCartney: I shall look into
it, but it is the first I have heard of it.
Q216 Rob Marris: Has UKTI's annual
strategic sectoral review been completed and, if so, can we have
a copy of it? If not, when will it be completed?
Mr McCartney: It has been completed,
as I understand it, and I am happy to send the Committee a copy.
Q217 Rob Marris: How big is UKTI's
annual budget for priority markets? What percentage of that budget
is devoted to Brazil?
Mr McCartney: Without dodging
the question, we are currently in discussion on the CSR. The UKTI
budget comes from three different administrative components: one
is a DTI component; one comes from the Foreign and Commonwealth
Office; and the third one comes directly from negotiations in
the form of a programme budget. That is the budget in which I
am particularly interested. I am in ongoing discussions with the
Treasury about that. The outcome of those discussions over the
next three years will not depend on the shape of UKTI and its
structures; that has already been agreed and developed. The programme
of recruitment, reallocation and redistribution of resources is
almost complete in the marketplaces. But the programme budget
when finally agreed will be concerned with the types of programme
services that it will provide for companies and sectors in the
key marketplaces, of which Brazil is one. In administrative terms
the budgets have been set and that was why we were able to reallocate
additional resources in terms of human effort. That is what we
have done as part of the process, as we have done in the emerging
markets in India and China. We have not taken account simply of
emerging markets; we have taken account of traditional marketplaces
like the United States which, because of globalisation, are themselves
changing. We are moving investment from, say, the north east of
the United States into the new and emerging markets in the American
economy, like the south west and western states. We are moving
resources around the globe either to emerging markets or changing
traditional markets. I will come back to the Committee with the
conclusion of those discussions. Rather than give last year's
figures, which I will send to the Committee, I would rather give
an update of the discussion. I think that you are more interested
in that.
Q218 Mr Weir: Minister, throughout
the session you have mentioned investment by UK companies in Brazil.
Do you think the UK is attracting enough inward investment from
Brazil?
Mr McCartney: It is miniscule;
it is only £77 million. We would like to encourage it. I
do not want to go back to the debate with your colleague about
Brazilian steel. Yes, it is an area that needs to be improved.
It is dramatically low for the size of its economy and potential.
Q219 Mr Weir: We have heard that
there is to be a new inward investment team in Brazil. Is that
up and running as yet?
Mr McCartney: It is part of the
new team that we are putting together. Has it produced results
yet? The answer is that we have not seen any so far.
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