Examination of Witnesses (Question Numbers
140-155)
LORD MALLOCH-BROWN
KCMG AND STEPHEN
LILLIE
2 JULY 2008
Q140 Mr Illsley: How much scope
is there for increasing British exports to Japan, bearing in mind
that there is a relatively low level of FDI into Japan? As recently
as 2006, those on the lord mayor's visit to Japan commented on
the difficulties involved in getting exports into Japan. Recently,
it has been noted that Japan is perhaps looking to be a little
more protectionist, particularly after looking at this side of
the world and at the credit crunch. Is there any prospect of increasing
our exports to Japan?
Lord Malloch-Brown: I think there
is. In January, Stephen Lillie and I were both at remarkable events
in Japan to celebrate 150 years of diplomatic relations between
our two countries, and they were used to show off a little of
our commercial ankle—and even a little leg, I might add.
A lot of British design firms and service sector firms used that
as an opportunity to remind the Japanese of the sectors where
we believe we still have a lot to offer. Brave, British-based
firms are still trying to take on the Japanese financial services
sector and to expand their investment in it. You are right that
they have run into some problems, which although couched in legal
terms, smack of a little protectionism, and that needs to be taken
on. Yes, I hope the British business sector continues to see the
huge opportunity in Japan. While everybody else is racing off
to Beijing, they might even get a bit of a competitive break in
Japan.
Q141 Mr Illsley: Are you happy
with the advice that companies that are willing to make that move
are getting not only from the Foreign Office, but from across
the Government?
Lord Malloch-Brown: Yes. This
is a high priority for our colleagues in the Department for Business,
Enterprise and Regulatory Reform, ourselves and others. So, yes,
everybody is pushing hard to try to make the most of the opportunity.
Q142 Mr Purchase: We have adopted
the Anglo-Saxon model of financial markets and capitalism more
generally, but the Japanese and the Germans have adopted a different
version, which has been very successful. You use the word "perverse",
but they are not being perverse at all; indeed, the Japanese have
managed their model very well over a long period. Even though
they have had negative interest rates because of over-production
and all the usual problems, they have been able to weather that
storm. However, there is also a high level of Japanese investment
in Britain, and we see cultural changes in many of the companies
involved. What makes Britain attractive to Japanese investors,
who know that they will be coming into a dog-eat-dog world that
Macmillan once described as being run by "banksters"?
What makes it attractive to them?
Lord Malloch-Brown: It is its
openness. It is the fact that they feel that they can come here
and open factories and that they will be welcomed and encouraged.
That is the plus of the British model. Compared with our European
competitors, we are an extremely open economy, which welcomes
overseas investment, whether from the Japanese or elsewhere. We
have seen waves of this. At the time when the US was getting suspicious
of the Japanese because they had bought the Rockefeller centre
and Pebble Beach golf course, the UK remained extremely open.
Let us take as an example the sovereign wealth funds not of Japan
but of the Gulf countries, China or Singapore. In Europe or the
US, you see a certain antipathy growing towards those funds, but
the UK remains open. The reward for that is that we attract more
than our fair share of that capital. The difficulty sometimes
is that it does not look like a particularly flat playing field,
because we have a much more liberal set of rules for here versus
those available to us there. It is swings and roundabouts; you
win some and you lose some in such a situation.
Q143 Mr Purchase: Japan is, for
all that, in the top three or four of the countries with which
we enjoy major trade relations, but is there anything we could
or should do—is there anything we could do to attract more
Japanese investment? I will leave the "should" because
that has a bit of a value-laden connotation.
Lord Malloch-Brown: Japan was
the fourth-largest investor in the UK last year after the US,
Canada and France. Similarly, our exports to Japan are worth £8
billion a year, breaking down 50:50 between goods and services.
Both sides of that equation are growing strongly. Whenever we
see anything that might slow down Japanese inward investment into
Britain, we jump on it like a tiger. Earlier in the year, there
was some fear that the new points-based system for visas might
discriminate against Japanese middle managers coming to work in
sectors such as auto parts when they had not had big international
exposure elsewhere in their careers and so were not fluent English
speakers. We work very closely with our colleagues in the Home
Office and I personally spend an awful lot of time lobbying the
Home Office, working with the Japanese ambassador here and combining
our efforts, because this is a very important economic relationship,
which we want to make sure is not disrupted unintentionally by
other policy objectives of the Government.[3]
Chairman: I congratulate you on that.
If only the Home Office listened all the time to all representations
made to it, but that is another question, which I will raise in
a different context.
Q144 Mr Illsley: On research and
development, some members of the Committee made a very interesting
visit to an outfit called Advanced Telecommunications Research
Institute International in Kyoto, where my Barnsley accent managed
to defeat its wonderful device that is entitled the multilingual
speech translation system—a wonderful machine that delivers
simultaneous translation from Japanese into English. It simply
could not cope with a Barnsley accent. I felt very sorry for the
poor English designer of the machine, who had spent 15 years developing
it with 500 different regional accents from the UK. In two minutes,
we destroyed his career, but there you are. The Foreign and Commonwealth
Office memorandum talks about the huge benefits from R and D and
deeper relationships and co-operation between the UK and Japan.
How can we ensure that we maximise those benefits? You referred
to competition from China, the US and South Korea. How can we
best fight off that competition and maintain that research and
development co-operation?
Lord Malloch-Brown: Japan is,
as I am sure the memorandum said, the UK's second-largest research
partner. We set out in the two Prime Ministers' joint statement
of January 2007 aligned priorities on climate change, sustainable
energy, health care and innovation. I have to admit we are slightly
riding on the coat tails of the Japanese, because they aim to
spend 1% of GDP on science and technology during the current five-year
period between 2006 and 2011. The annual budget for the current
period is £15.5 billion a year. It is singularly, and in
a Japanese way, focused on Japan's priorities. For example, under
its new cool earth initiative for low-carbon technologies, which
is $30 billion, it is strategically funding in that area. We recently
signed a memorandum of understanding between our two countries'
two main funding agencies on R and D. It sets out a framework
in which we can develop specific collaborative programmes. Later
this year, Japan is due to host the UK-Japan joint committee on
science and technology, which meets every two years to discuss
priorities. It is led on our side by our Government chief scientific
adviser, John Beddington. A huge amount goes on at the Government
and private sector levels to work with the Japanese Government.
As Mr Purchase said earlier, it has more of a model of Government-led
investment in things such as R and D. We are trying to go with
that and work with that, and to partner Japan as much as we possibly
can.
Q145 Mr Heathcoat-Amory: I want
to raise the question of the death penalty in Japan. I am against
it, but I am slightly puzzled why we apparently take up the issue
regularly with the Japanese Government. Your Department tells
us that the UK, "through the EU, regularly takes this up
with the Japanese Government, although there is still overwhelming
support for capital punishment in Japan." Is there not a
slight contradiction in that sentence? If Japan is a democracy,
is self-governing and has a judicial system that by and large
we respect, why do we waste an awful lot of time lecturing Japan
about this issue when there are appalling human rights abuses
elsewhere in the far east? Is this really a good use of diplomatic
effort?
Lord Malloch-Brown: It has been
a long-standing priority of British foreign policy to lecture
everybody on the death penalty. Japan is in no way singled out.
Even the Americans get their ears bent by us on that one. For
countries where it is much more horrendous, such as China, the
death penalty is always part of our dialogue, along with all the
other issues. I think that the feeling is that in Japan, precisely
because it is a democracy, we are pushing on more of an open door,
and it is worth keeping going. We feel that there are UN resolutions
to back us, but it is also an underlying value of British engagement
in the world generally that we want, if possible, to persuade
other people of it. If your worry is that lobbying Japan on that
issue happens at the expense of the quality of the bilateral relationship,
or that by lobbying Japan we lobby China less, I would not worry.
I do not think that it is a trade-off on either. We make a nuisance
of ourselves on the point, but not to the point of damaging our
other objectives.
Q146 Mr Illsley: To expand on
that, there are aspects of the Japanese death penalty that are
quite horrendous. A person can be imprisoned for decades and simply
be told with a few hours' notice that they are about to be executed.
Their family is not told, and it is done quietly and in secret.
Aspects of Japan's treatment of prisoners are questionable, including
the daiyo kangoku, or substitute prison system, which we looked
at while we were over there. How susceptible are the Japanese
to pressure to change that system? Unlike the death penalty, I
do not think that how the system operates has overwhelming public
support. I am pretty sure in my own mind that a lot of Japanese
do not realise just how the system works. We were given the example
of a British national who was detained in Japan during the World
cup. He was told that until he confessed his misdemeanours or
crimes, he would simply remain in prison. The Japanese rely simply
on the fact that a lengthy period of imprisonment will produce
a confession. About 98 per cent. of crimes in Japan are solved
as a result of a confession, with the person being incarcerated
until they sign a confession. Is there any sign that they are
likely to change that and move to a jury trial system?
Lord Malloch-Brown: You have pretty
accurately described the daiyo kangoku system, which literally
means substitute prison. You are right that there is a possibility
of repeated detentions. They are approved at several stages—after
72 hours and after a further 10 days—but prosecutors generally
get extensions, if they seek them, up to 23 days. In that period,
they can secure confessions, in circumstances where the full legal
rights that would be available in the formal prison system are
not available. That gives us significant disquiet. What can we
do about that? Bilaterally, there have been a number of notes
verbales on this and we have even sent letters on general prison
issues to specific prisons where we have had concerns. However,
the main point is to pursue the issue in the multilateral, international
legal system. We have been urging Japan to ratify the optional
protocol to the convention against torture as soon as it can.
We also recently raised our concerns about the treatment of detainees
as part of the new Human Rights Council's first universal periodic
review of Japan. When the report on Japan was adopted, it insisted
that the country remain committed to human rights, to its participation
in the process and to its claim that all people were equal and
no form of discrimination was possible under its constitution.
We have noticed some changes. There was a 2006 prison law, which
was definitely an improvement on the condition before, but we
still have worries and we will go on raising them multilaterally
and in bilateral démarches of different kinds.
Mr Illsley: It is worth placing on record
that the Japan Federation of Bar Associations campaigned strongly
on this issue, and we had a successful meeting with it.
Q147 Mr Purchase: This sitting
is part of our global security inquiry, as you know, so my next
point might not seem desperately relevant, but may I remind you
that the discussion in Britain about detention has revolved around
global security and the fight against religious fanaticism? People
here will say, "You introduce these measures at your own
peril. They actually encourage religious fanaticism." Although
this has little to do with us in Britain, is there any evidence
in Japan that such measures, which Japan has used for a long time,
encourage, discourage and or have any effect whatever on the behaviour
of people who would kill others for reasons of fanaticism or fundamentalism?
Lord Malloch-Brown: Japan is a
homogenous society and does not have the same problems of domestic
security or fundamentalism as we do. As a young UN refugee official,
I served in Asia, and I remember my outrage that Japan would not
allow in more immigrants. Frankly, it has always been highly restrictive
in that regard, although less so in recent years. Again, however,
I would argue that there have been somewhat perverse consequences.
Q148 Mr Purchase: You would not
see any connection between what Britain and the Americans are
doing in this area of so-called global security and what is happening
in Japan?
Lord Malloch-Brown: No.
I think they are disconnected. Having said that, it is worth pointing
out that our own proposals for detention without trial were also
brought up in the universal periodic review of the UK in the Human
Rights Council, and very properly so. This issue of peer review,
in which everybody has blemishes and is willing to point a gentle
finger at each other, is a very important one. We have no monopoly
of virtue in this area.
Chairman: We have a few minutes left.
I am conscious that we have kept you a long time, but we have
a few more areas to cover.
Q149 Mr Moss: May I turn the Minister
to Japanese whaling activities? Although there has been some success
this year in disrupting the Japanese whaling effort in the southern
oceans—particularly by organisations such as the Sea Shepherd
Conservation Society and Greenpeace—it is unlikely that
this direct action is sustainable in the medium to long-term.
What leverage, if any, does the UK Government have in persuading
Japan to discontinue its whaling activities?
Lord Malloch-Brown: Despite
our close friendship with Japan, we choose to differ with it very
fiercely on that issue. We have just had the annual International
Whaling Commission meeting; it was held at the end of June in
Santiago, Chile. The formidable and redoubtable warrior, Lord
Rooker, was fighting the British corner. I get a large mailbag
on the issue the whole time. The British Government is very clear
with its close allies—Japan and Norway—about our abhorrence
of this activity and we go on fighting. At the moment, we are
up, but there are always new issues with which to deal, such as
the restructuring and reform of the IWC. We are intent on ensuring
that that is not a cover for emasculating its anti-whaling position.
We have to go on fighting on this issue.
Chairman: I want to
touch on some regional issues. We produced a report in 2006 on
East Asia in which we suggested that the NATO model or regional
security model for Europe could profitably be considered with
regard to security in East Asia. The Japanese Prime Minister recently
made a speech in which he talked about the potential development
of the Association of South East Asian Nations and where it might
go. Is there anything that we can do to encourage greater regional
institutional framework security in a very volatile part of the
world?
Lord Malloch-Brown: It will become
more and more of an issue. Anyone involved in the business of
strategic forecasting of where the most dangerous part of the
world will be in 10 or 20 years would have to choose the Asian
region. You have all the conditions necessary for a rise in the
likelihood of conflict with surging Asian economic powers, sharp
population growth and increases in consumption of energy and resources.
Everything is there for some of the economic and political competition
turning violent. Such violence characterised Europe in the 19th
and 20th centuries. Anything that we can do to put in place frameworks
for managing that competition through mutual security arrangements
is important. I commend Bill Emmott's new book on China, India
and Japan to anyone who has not seen it. He speculates how long
the competition will remain friendly and economic in character
and not assume a military dimension. The fact is that the current
regional security arrangements are pretty insipid and have not
been intended so far to provide a NATO-like arrangement, or anything
akin to it. As people who are not members of the region but have
strong historical connections with it, we can press them constantly
to improve things. I cite, although it is a little bit out of
regional context, our efforts to get ASEAN to take a lead role
on Burma. It is all about trying to encourage regional institutions
to move beyond passive secretariats with very mild ambitions to
be something more. The region is generally light on regional institutional
arrangements, let alone security arrangements.
Q150 Ms Stuart: My question follows
on from what you said about the regional realignments. There are
two issues on which I want to have your view. One concerns the
development of trading groupings within that part of Asia. Is
the UK fairly relaxed about that, as you were last time the Foreign
Office responded about it? The second concerns the UK Government's
view on goods produced in Kaesong in terms of the EU free trade
agreement. Are we happy, or are we pushing for those goods to
be classified as South Korean in origin?
Lord Malloch-Brown: On the latter,
the position has not yet firmed up, either in Europe or in the
UK. The dilemma, as we discussed earlier, is that against the
€1 a month salaries that industrial workers earn elsewhere
in DPRK, it is attractive. The South Koreans have asked that it
be included in the agreement, but we have to take a good hard
look at the human rights and other issues and not give them a
free ride. If they are to be included, there must be human rights
requirements and, included in that, I suspect, labour requirements.
Is it correct, Stephen, that policy on the issue is under development
and not formed at this point?
Stephen Lillie: The negotiation
has not yet moved to a stage where we have had to take a final
view on that.
Lord Malloch-Brown: We welcome
guidance from this Committee
Q151 Ms Stuart: One problem that
we usually have involves discussions. We ask specific questions
and Ministers tell us, "Well, we're thinking about it,"
but give no indication which way they are thinking until the decision
is dished up. I would like to put it on record that there are
just 50,000 workers there. It is planned to have 250,000 there
within the next 18 months. Whatever the decision is, it will have
considerable long-term consequences.
Lord Malloch-Brown: You can be
absolutely confident and safe that it is not going to be allowed
in without a set of conditions to govern it. Although it is an
important toehold, in some ways, on the liberalisation of North
Korea, it is a very limited one, as we said earlier. I mentioned
Cuba, and Stephen made the point that it is, in a way, like pre-1978
China. It is an effort to create some kind of enclave that brings
in foreign currency, but it is not indicative of a willingness
to open up the economy as a whole. It is an opportunity of limited
value. It is not the doorway to political and economic change
in North Korea. Although we think that it is useful and helpful
that the workers there get a bit more than the rest of them, it
is not something that we are wedded to for the liberalisation
policy. The downside—a flood of cheap goods into our markets
for which there are no workers' or human rights protections—is
very evident. I can confidently tell you that we would press for
conditions. We are not clear exactly what they would be. As I
said, I really do urge you. This is an issue where timely advice
from this Committee would be very influential in us forming a
view. On the first point, trade more generally, we remain of the
view that a global successful conclusion of the Doha trade round
to prevent the need for all these regional agreements is the way
to go, but we are not inherently against regional agreements as
long as their general impact is to increase international trade.[4]
Q152 Sir Menzies Campbell: Can
we take that last sentence as an endorsement of Commissioner Mandelson?
Lord Malloch-Brown: Commissioner
Mandelson needs an endorsement today, so he definitely gets it
from me, poor fellow.
Q153 Chairman: As a Committee,
we are going to Paris in two weeks' time, so we will no doubt
have opportunities to discuss it with officials in the French
Government. May I ask you about cultural issues? Do you think
that more work is needed on the image of the UK in Japan and South
Korea? Has the public diplomacy work of UK-Japan 2008 made a big
difference? Has it been successful so far? Is there more to do?
Lord Malloch-Brown: It is a huge
undertaking, with hundreds of events, if I remember my numbers
right, and all of them intended to show cool Britain at its coolest.
As far as I can tell, the only thing missing from the show is
Tony Blair.
Ms Stuart: And he is free.
Lord Malloch-Brown: There is an
awful lot going on that is intended to showcase British design
and British innovation in the services sector, the arts sector,
culture—you name it; it is all there. While the effort has
not got a particular focus this year in Korea, there is a heavy
public diplomacy effort. As far as I can tell, Britain is extremely
well regarded in both countries and has a good little niche going
for it made up of history, our reputation for openness today and
our different cultural exports. We are well recognised in both
countries.
Q154 Chairman: What about the
English language? When I was in Japan a year ago, there was clearly
a big American-influenced English language system. Are we well
positioned to take advantage of the great desire among young people
in Japan and South Korea to learn English?
Lord Malloch-Brown: Reasonably
so. The British Council in both markets is largely self-financing
in its activities—completely, I think. In both cases, there
is huge commercial provision of English language beyond anything
we can provide. The great glory of English becoming the global
language is, in a sense, that it has outgrown the ability of our
own institutions to service and meet that need. The demand is
huge and the British Council is part of the way of meeting it.
Q155 Chairman: There was discussion
earlier about trade issues, inward investment and our investment
in the region. Is there not a problem of lack of knowledge in
the UK, in terms both of the universities having a very limited
footprint on these areas and of our business community being able
to get into the Korean and Japanese markets?
Lord Malloch-Brown: The first
point is definitely true. Interestingly, regional studies in the
UK have not run down anything like as badly as in the US, but
I generally think that all western countries made a terrible mistake
10 or 20 years ago when they let a lot of real regional institutional
capabilities in our university system go. We can all regret that.
It means that fewer people have the language skills and the university-level
knowledge of these countries than ideally we would want. British
businesses make up for that even if it is a case of knowledge
gained on the ground. You do not get to sell £8 billion-worth
of goods to Japan without having learnt your way around the commercial
sector there, so I think they are doing okay. My suspicion is
that in many cases their Japanese does not go much further than
how to order a beer, but that has not stopped them; they are selling
a lot of stuff.
Chairman: Lord Malloch-Brown and Mr Lillie,
thank you very much for coming. This has been a very useful and
wide-ranging session and we are grateful.
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