GS (UK/US) 12: Written evidence from UK Trade & Investment

 

 

Introduction

 

1. The Foreign Affairs Committee (FAC) has announced a new Inquiry on "Global Security: UK-US Relations". The Committee has indicated that it wishes to inquire into the relationship between the UK and the US and the implications on UK foreign policy. As UKTI is responsible for the trade and investment work of embassies and other diplomatic posts, the Committee may find it helpful to have a separate memorandum on this issue. This memorandum specifically addresses the "basis of the bilateral relationship between the UK and the US".

 

2. UKTI, established in 2003, brings together the work of the Department for Business, Innovation and Skills (BIS) and the Foreign & Commonwealth Office (FCO) on trade development and promotion of foreign direct investment (FDI) into the UK. UKTI exists in order to help UK-based companies succeed in the global economy and to assist overseas companies in bringing high quality investment to the UK. There are clear economic benefits for the UK in increased international trade and investment. UKTI can intervene, providing cost-effective ways of supporting industry at the Government level.

 

3. UKTI works with a variety of partners, including the nine Regional Development Agencies (RDAs), the trade promotion and inward investment organisations in the Devolved Administrations (DAs), Partners Across Government (PAGs), trade associations and private sector organisations active in the field of business development. The shared goal is that our customers receive services tailored to their individual requirements, irrespective of where they are based. UKTI has 2,400 staff, of whom 1,300 are overseas working in 96 markets.

 

4. UKTI's strategic target objective, agreed with HM Treasury as part of the 2007 Comprehensive Spending Review settlement is as follows:

By 2011, to deliver measurable improvement in the business performance of UKTI's international trade customers, with an emphasis on innovative and R&D active firms; to increase the contribution of FDI to knowledge intensive economic activity in the UK, including R&D; and to deliver a measurable improvement in the reputation of the UK in leading overseas markets as the international business partner of choice.

 

5. UKTI has targets for raising revenue as well as Service Delivery targets for helping business. The key source of data to measure UKTI's performance against the set targets is the Customer Relationship Management (CRM) system, used by all teams across the global network. It provides the information used within the Performance and Monitoring Survey (PIMS), which is an independent survey carried out by a leading market research organisation. The findings demonstrate that trade customers reported an averaged annual total of £3.6 billion additional bottom-line profit, which they would not have achieved without UKTI support, which equates to every £1 that UKTI spends generating £16 of benefits to the UK economy.

 

6. Trade policy issues relevant to the USA are the responsibility of Europe, International Trade & Development (EITD) in BIS. Contributions from EITD and the Export Control Organisation have been included in this memorandum at paragraphs 25/26.

 

 

The US Market

 

UK - US Trade Statistics 2007/08

 

Exports 2007/08	Imports 2007/08
Goods   £34.7 billion Increase of 8.3% over 2006/07	Goods   £28.7 billion Increase of 9.9% over 2006/07
Services   £36.2 billion Increase of 9.7% over 2006/07	Services   £19.7 billion Increase of 7.2% over 2006/07

 

7. The US is the UK's largest single overseas market and is the leading destination for UK overseas investment. It has an integrated and largely self contained economy and every major industry is represented. With the exception of a number of import quotas, and some strategic industry ownership restrictions, there are no limitations on foreign firms seeking to do business in the US. The US has Federal laws applicable throughout the entire country, and State laws, which are passed by individual States, both sets of which apply in the business world.

 

8. The US is an attractive market to UK exporters and investors for the following reasons:

· Political and (relative) economic stability;

· Shared history and culture;

· UK goods have traditionally enjoyed a good reputation for quality in the US;

· US manufacturers often source components overseas;

· Wider market access to Canada and Mexico through the North America Free Trade Agreement (NAFTA).

 

9. The US has consistently been the major single investor into the UK. In 2008/09, we successfully attracted 621 FDI projects to the UK from the US and they are a major source of growth and employment for the UK economy. The 621 projects (out of a total of 1,744), created 12,888 new jobs in the UK. There were 30% more projects from the US in 2008/09 than in the previous year. This figure was underpinned by the increase in companies locating their headquarters operations in the UK as a platform for accessing global markets in Asia and Africa.

 

 

Sector specific information

 

10. For the 2009/10 year, in tandem with business, UKTI has highlighted eight priority sectors for the US market:

 

Construction, Creative & Media, Energy, Environmental, Financial Services, ICT, Healthcare and Pharmaceuticals.

 

 

UKTI Teams in the US

 

11. The 120 staff working full or part time for UKTI in eight offices across the USA represent the organisation's largest overseas trade and investment team and reflects the importance of the market. UKTI has offices in Washington, New York, Boston, Miami, Houston, Chicago, Los Angeles and San Francisco. The majority of the staff cover both trade and investment work. Sir Alan Collins, Consul General, and Director General, Trade and Investment in New York, is Head of the UKTI US team. There are five UK-based Directors located in Los Angeles, Chicago, Washington and two in New York. Each of the teams at Post is led at operational level by a Locally Engaged officer (Head of Trade & Investment). Separate arrangements exist for help to the defence sector - see paragraph 22.

 

 

The UKTI North American Scholarship Scheme

 

12. UKTI and co-sponsors, the Ellis Goodman Foundation and British Airways, offer UK SMEs a unique opportunity to attend the JL Kellogg School of Management in Chicago. The course aims to help UK companies understand the importance of effective marketing for the USA. There are two calls per annum for UK companies to participate in this initiative.

 

 

Achievements

 

13. In 2008/09, the US UKTI team raised a total of £342,405 in revenue against a target of £265,000. 2,500 UK companies were significantly assisted in accessing the US market against a target of 2000. This was accomplished despite EU-US trade falling by 20% between January 2008 and January 2009, as a result of the economic recession.

 

 

Success Stories

 

14. The Committee may wish to note a few examples of successful UKTI activity in support of trade development and FDI. Further examples can be submitted if required.

 

- In January 2009, Microsoft opened a Search Technology Centre in London. Employee numbers are expected to reach several hundred in the next five to ten years.

- Guardian Industries Corporation, a worldwide glass manufacturer, launched a new £6m laminating line at its plant in Goole. The plant will produce safety glass used in schools, hotels and shopfronts.

- Pfizer, the world's largest drug company, announced plans to spend $60m on a new stem cell research centre in Cambridge.

- CyberSource Corporation announced plans to establish an R&D centre in Belfast, employing up to 60 software development professionals.

 

 

US-UK Defence Equipment Collaboration

 

15. The Defence and Security Organisation (DSO), which promotes defence exports is now part of UKTI. The UK enjoys a close relationship with the US which covers a broad range of joint capabilities and programmes spanning high-tech, state of the art equipment to off-the-shelf purchase of components. This delivers value for money and enhanced interoperability as well as helping to meet the UK's priority of securing the best equipment for our Armed Forces. The UK and US are partners in 22 collaborative equipment programmes, the most significant of which is the Joint Strike Fighter (JSF) programme.

 

16. US Government and Industry have also provided invaluable support, which the UK greatly appreciates, in acquiring equipment, ranging from Reaper Unmanned Aerial Vehicles, to Mastiff Armoured vehicles through to desert boots, and in expediting export licenses to meet Urgent Operational Requirements in both Iraq and Afghanistan.

 

17. The US International Traffic in Arms Regulations (ITAR) control the export of equipment, technology and other information on the US Munitions List and can be bureaucratic for nations seeking to obtain US export licences. In 2007 Prime Minister Blair and President Bush signed the US-UK Defence Trade Co-operation Treaty, which seeks to ease the transfer of specified categories of equipment, technology and information. The President is awaiting advice and consent from the Senate Foreign Relations Committee on the Treaty, prior to ratification. This would allow the UK to access, more quickly, material required to support operations, help improve interoperability between our forces and enable our defence industries to work more closely together. The UK continues to work closely with the US Administration to prepare for ratification and subsequent implementation.

 

18. The principles of the two-way street are reflected in an intergovernmental Memorandum of Understanding (MOU) (Declaration of Principles for Defence Equipment and Industrial Co-operation - signed 5 February 2000). Defence trade between the US and UK amounts to approximately $2.8 billion per year. The US is the largest importer of UK defence goods after Saudi Arabia. The balance of US-UK defence exports is approximately 2 to 1 in favour of America. This is not surprising considering the scale of the US defence budget and defence industrial base and it reflects well on the performance of British companies in the challenging US defence market.

 

19. The US sources a relatively small proportion of its defence equipment from overseas and the UK is the biggest offshore supplier to the US military. Similarly the US is the biggest overseas supplier to the UKMOD. The two-way defence trade makes an important contribution to each country's military capability. UK companies have been very successful in meeting niche requirements such as avionics, vehicle communications, military bridging, howitzers, and Chemical, Biological, Radiological and Nuclear (CBRN) defence equipment, and they have well established relationships with US primes. Platform sales have been relatively few. The Anglo-Italian AW101 helicopter was selected for the VH-71 Presidential Helicopter requirement in 2005, although the DOD recently announced its decision not to proceed further with the project because of cost escalation. Around 100 British companies are working on the JSF programme. UKMOD purchases of US equipment include Apache and Chinook helicopters, C-17 and C-130 transport aircraft, and armoured vehicles. UK companies have been successful in establishing themselves as valued parts of the supply chain through industrial participation agreements with a number of US prime contractors, who are suppliers to the UKMOD.

 

20. The transatlantic defence trade has also encouraged two-way investment in the defence industrial base. US companies who have established a presence in the UK include Boeing, Honeywell, Lockheed Martin, Raytheon, ITT, General Dynamics, Harris, Rockwell and Northrop Grumman. They are an important part of the UK's defence and aerospace industrial base, contributing expertise and investment to the benefit of UK defence requirements and exports. In the US, BAE Systems, QinetiQ, Rolls-Royce, Cobham, Ultra and Martin Baker are examples of successful British investment with similar positive contributions to the US defence industrial base. UK companies employ around 117,000 people in virtually all of the 50 states.

 

21. An increasingly important focus for UKTI activity in the US is the homeland security market which is dominated by US suppliers but offers significant business opportunities for the UK security sector to provide niche solutions utilising the UK's innovative technology and extensive experience of dealing with security threats.

 

22. UK Government support to British defence and security companies in the US market is provided on both sides of the Atlantic. In the UK, DSO within UKTI provides support to UK industry campaigns and advice to companies pursuing business opportunities in the US. In the US, support for UK defence companies and UKTI is provided by the British Embassy Defence Trade Office in Washington, while Security companies are assisted by locally based UKTI staff.

 

 

Uk & Us Export Controls

 

23. UK export controls broadly correspond to US controls on military items (munitions) and dual-use goods. The US Munitions List (USML) and the UK Military List (UKML) are comparable both in scope and coverage of goods and technologies, though they take a slightly different approach in some areas. There is a high level of commonality between the USML and the UKML, and between US and UK dual use controls.

 

24. The UK and the US governments liaise closely on export control issues where appropriate, including the sharing of intelligence material to inform licensing decisions. We also share intelligence where possible with a view to preventing breaches of our respective controls. A delegation of export control officials from the State Department visited the UK for talks with their counterparts here earlier this year. We expect to see them again soon - possibly with a return visit to the US in the course of the coming year, for which we have a standing invitation.

 

 

Trade Policy

 

25. Trade Policy is an area where the European Commission negotiates on behalf of EU Members States, on the basis of mandates agreed with EU Member States. However, in line with the comments made on the global economy and other economic issues in the FCO's memorandum, and working closely with others (in Government and outside), the Europe and International Trade Directorate (EITD) in BIS leads on the UK engaging effectively with the US, including through the EU, both bilaterally and multilaterally. Some recent and ongoing examples of this are:

 

- the trade policy aspects of the G20 engagement and the reform of international institutions, mentioned in the FCO's memorandum;

- discouraging protectionism through the extension and implementation of 'Buy America' provisions, visas and Border Adjustment Mechanisms;

- seeking to avert new trade disputes and managing the downside risks of existing ones (eg. Boeing/Airbus); as well as

- engaging the US in relation to the Doha Development Agenda (DDA, the current WTO Trade Round).

 

26. In addition, the UK works to promote UK/EU-US economic cooperation, and address market access and regulatory barriers to trade and investment, including through the EU's Market Access Strategy, and inputting into and influencing the EU-US Transatlantic Economic Council. The FCO memorandum also mentions the objectives on Aid for Trade, Trade Finance and Development, which the UK is fully committed to and pursues actively.

 

 

22 September 2009