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This Report examines the impact on UK business of the accession of the 'A8' countries (the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia) and A2 countries (Bulgaria and Romania) to the European Union in 2004 and 2007 respectively. It is, in part, a follow-up to two inquiries held by our predecessor Committee in the 1997-2001 Parliament. We conclude that the accession of these countries has been beneficial to UK business, but that these benefits could be greater if businesses were better informed about the resulting opportunities.
Our inquiry found that the A8 countries—and to a lesser extent the A2—should not be seen as primarily low-cost, low-value economies. They have shown consistently strong economic growth since the Russian crisis of the late 1990s. Their strong skills base, especially in technical skills, was repeatedly cited as a major reason for investing in the region. During our visits we were impressed with the sophistication both of the facilities being established in these countries and the understanding amongst governments and business alike that, to be successful, they cannot compete on labour costs alone and need to attract more high-tech and innovative investment. Although there remain some significant obstacles—in particular a growing labour shortage in the major centres of investment—the prospects for at least some of these countries to move rapidly up the value-chain look good.
Although UK trade and investment with and in the A8/A2 has increased substantially since the lead up to accession, the benefits to the UK economy could have been much greater if more companies had been aware of the opportunities emerging in the region during the 1990s. We do not, however, believe that the UK 'missed the boat'; there remain significant opportunities, not least those resulting from the 2007-2013 European Union funding round and the efforts of the most forward-looking A8/A2 countries to establish high-tech and innovative industries. We therefore recommend that government and business leaders work together to overcome the 'iron curtain in the mind' and encourage companies to look more seriously at the A8/A2 countries as potential partners and also, increasingly, as potential competitors.
The A8/A2 countries should also be taken more seriously as export markets for UK businesses. Despite the apparent reluctance of UK businesses to become involved in the region, Poland alone buys £2.8 billion of UK exports a year, around the same as China. We therefore believe that there is a good case for UK Trade and Investment to give greater attention to and more actively promote these countries.
The most visible and significant impact of the A8/A2 accession has been migration into the UK from the new member states—chiefly Poland, but also Lithuania and Slovakia. It is clear from the evidence we received that this has benefited UK business by easing skills and labour shortages and providing employers with a source of well-motivated employees, often skilled in areas where the UK workforce is traditionally weaker. In the longer term, the evidence suggests that migration from the A8/A2 to the UK is likely to slow: Central and Eastern European labour cannot, therefore, be a long-term solution to the UK's skills problems. Nonetheless, the cultural, social and economic links between the UK and A8/A2 generated by migrants returning to their home countries could result in significant opportunities for UK businesses looking to move into those markets and we urge both government and the private sector to ensure that the UK derives the greatest possible benefit from these links.
During this inquiry, as with our inquiries into trade with Mercosur, India and China, we were told that British trade overseas is hindered by a relative lack of high-level trade missions compared to our major competitors. We believe that British ministers—especially those in trade promotion roles—should follow the example of our competitors and travel abroad more frequently to promote the UK interest; we welcome the new Minister for Trade Promotion and Investment's intentions in this regard as a positive first step.
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