Written evidence
from the British Chambers of Commerce
British Chambers of Commerce (BCC) response to the
Business, Innovation, and Skills Select Committee inquiry into
Rebalancing the economy - trade and investment
We welcome the Business, Innovation, and Skills Select
Committee's interest in international trade and its recognition
of the importance that exporting has to play in the rebalancing
of the British economy. The BCC and the Chamber of Commerce Network
have a long-standing commitment to helping British business access
international markets.
The BCC is an influential network of fifty five Accredited
Chambers across the UK. No other business organisation has the
geographic spread or multi size, multi sector membership that
characterises the Chamber Network. Every Chamber sits at the heart
of its local business community, providing representation, services,
information and guidance to member businesses and the wider local
business community.
In summary, our position is the following:
- That British businesses must take a more proactive
approach to finding new international customers;
- The services provided by UK Trade and Investment
(UKTI) are vital for encouraging British exporters and in order
to offer levels of support comparable to other major trading nations;
- The Government must also look at ways to incentivise
companies to trade abroad for the first time, or at a higher rate;
- The Government and other bodies providing trade
services must offer a more joined-up approach;
- The completion of the Doha round of the WTO negotiations
will be a real boost for British exporters, and must be completed
as soon as possible;
- The lack of intervention into the export trade
finance and export trade credit insurance markets, which have
caused serious problems for British exporters during the past
two years, has stood in stark contrast to other European countries.
This has placed British exporters at a competitive disadvantage;
- The Bribery Act has the potential to create a
serious disincentive to SME exporters who are worried about compliance
with complicated regulations. We would also like to see plans
for informing businesses of their new obligations under the act
- especially given the current marketing freeze;
- Inward investment has been a success story during
the past decade, but the government must ensure that efforts are
not duplicated by competing regional and national bodies.
1. EXPORT SPIRIT
1.1 Research from the BCC has shown that many
businesses take an overly passive approach to exporting and international
markets.[5]
The BCC therefore believes that British industry needs to recover
its mercantile spirit, and become far more proactive when it comes
to exporting. While we are currently the 10th largest exporter
of goods in the world we need to work hard to maintain our position.[6]
There is much more that the UK produces of value than is exported
currently.
1.2 Our survey Exporting Britain in 2009
illustrated that the main reason why businesses export is because
they have been approached by their customers (58%), or by an agent/distributor
(19%). Nearly half also said they exported because they already
had connections in the market into which they were exporting (49%).[7]
This illustrates the lack of tenacity and forwardness in the approach
taken by many British businesses to exporting. We therefore recommend
that manufacturing companies themselves become far more proactive
in seeking out export markets - especially in the high-growth
developing markets.
1.3 Many British businesspeople who are already
exporting to countries around the globe are very willing to offer
advice and guidance to new exporters or those wishing to enter
new markets - providing that it does not conflict with their own
business interests.[8]
A manufacturing and exporting mentoring network should be created
and facilitated through UKTI and the Chamber Network.
2. HELPING
COMPANIES EXPORT
MORE (5-6, 11)
2.1 UKTI programmes such as Passport to
Export have encouraged a number of companies to export for the
first time, and it is vital that UKTI continues to fund such support
schemes for SME businesses. Despite such programme-based help,
currently there is little in the way of direct incentives for
companies wishing to export for the first time - which is often
a costly and difficult process, despite the possible rewards.
We would like to see investigation into the feasibility of tax-breaks
on exporting-derived profit for a limited period of time in order
to encourage businesses to enter their first foreign markets.
2.2 Incentives that encouraged both first
time and existing exporters to enter new markets have been gradually
removed over the past 20 years. For example, taxation allowances
can have a role in encouraging exports, but many such facilities
have been withdrawn over the past twenty years. Prior to the early
1990s, companies were able to offset entertainment of foreign
clients at home and abroad against Corporation Tax. We believe
that exporters could be spurred into exploring new markets if
companies were able to offset the considerable costs of exploring
new markets against Corporation Tax in the same way as capital
investments.
2.3 Previously, export salesmen were also able
to claim Income Tax rebates if they had spent over thirty days
in a row outside the UK. This acted both as an incentive for British
firms to send their employees out into the world, and as a recruiting
tool for a role that involves spending long amounts of time away
from their home and families.
2.4 The UK Government provides very little in
the way of state-backed export trade finance and insurance compared
to all of Britain's major competitors. During the recession, the
private market withdrew support from many British companies -
often with little notice. Conversely, many European companies
have been able to benefit from the relaxation of State Aid rules
around export trade credit insurance, which has meant that they
have been able to access state-backed products for developed markets.
Our research has shown that even before the recession, British
companies suffered from a structural disadvantage when attempting
to access state-backed trade finance and insurance support for
high-value high-growth developing markets which the private insurance
market considered as too risky. Conversely, although exporters
from Germany, France, Italy, Japan and the United States (among
others) were also unable to access trade finance and insurance
on the private markets, but could access state-backed schemes.
This has naturally given them a real advantage over British companies
in such markets. The true cost of this is difficult to quantify,
because anecdotal evidence suggests that many companies are put
off from entering such markets in the first place because they
know that they cannot obtain the necessary trade credit insurance
or bonding support to be competitive against better-supported
exporters from other nations.
2.5 The BCC believes that the Government should
create a state-backed export trade credit insurance scheme run
through a private company, who would share the risk and the profits.
Both France and Germany have successfully applied this model,
with benefits for exporters and their respective exchequers. The
application of such a model would mean that exporters would not
be dependent on the private market for exporting into emerging
markets, or during periods of recession or economic uncertainty.
We also believe that the Government needs to remain vigilant to
ensure that other countries are not extending support to their
exporters that would infringe upon State Aid rules.
3. UK TRADE
AND INVESTMENT
3.1 UKTI performs many vital functions for
British companies that wish to engage in trade, such as organising
delegations into different markets, funding tradeshow access and
creating British pavilions, providing market research, and running
schemes to help SMEs export for the first time. October's spending
review has cut UKTI's programme budget by 25% over the next four
years, and this will undoubtedly have an impact on the range and
quality of services offered.[9]
Further cuts to UKTI's budget could also take place once departmental
spending reviews have taken place at the Foreign and Commonwealth
Office (FCO), and Department for Business, Innovation and Skills
- both of whom provide other parts of the budget for trade promotion.
In order to remedy the effects of the cuts, the FCO must make
good the Prime Minister's announcements that British missions
abroad will spend more time and resource on international trade.
3.2 In our recent manufacturing research, while
many exporting manufacturers that we spoke to had used UKTI and
saw its services as vital, they often had mixed views about its
effectiveness and efficiency. While some found it useful, especially
for its investigative work into new markets, the majority felt
that it could be further rationalised with a more joined-up service
offered, and that its quality could be variable. Our survey showed
that 32.7% of businesses responded that they felt that better
export support from the Government would be one of their top three
policy changes to help manufacturers. The number of different
Government organisations that attempt to help exporters also added
to confusion, such as UKTI, ECGD, Chambers of Commerce and RDAs.
3.3 UKTI now charges for many of the services
that it once offered free of charge. A number of companies commented
on this, and also said that they felt UK staff were very keen
to sell them charged-for services whenever they came into contact
with them. Despite these charges, such as for the Overseas Market
Introduction Service (OMIS), companies have often reported receiving
variable quality work. One interviewee from an SME technology
company commented that a bad OMIS can set a small business's growth
back considerably. Firms such as these often only a have a small
marketing budget, which dictates a gradual approach to new market
entry; a bad OMIS and in-market service from UKTI has the potential
to damage growth strategies based on exporting for a considerable
time period.
3.4 It is clear that charges at UKTI will increase
after the Spending Review, and that the number of charged-for
services will increase. We understand the need to recoup some
costs from businesses, both because of the current state of the
public finances, and to act as a gate-keeper to make sure companies
genuinely have a commitment to exporting. However, fees should
be set at a level that encourages and supports new SME exporters
without strong cash-flows. Furthermore, UKTI must ensure that
the raising of funds through collecting fees for services does
not detract from qualitative help for exporters. Businesses also
have a right to expect that services that are paying for are of
a consistent high quality.
3.5 Despite the problems identified by our business
case studies, companies thought that UKTI services could often
be effective. The UKTI organised British presence at international
trade shows was considered a particular success. Such events were
often made especially effective by the attendance of a Government
minister. As such, BCC welcomes the appointment of Stephen Green
as Minister for Trade and Investment, and hope that he will play
a critical role leading trade delegations and helping to open
new markets for sometimes risk-averse UK exporters.
3.6 There are also a number of things that UKTI
could do differently. For example, currently it operates under
a quantitative, target driven culture, where the number of companies
assisted and £3.7 million value of revenue generated to UKTI
take precedence over the outcomes of help offered to both new
and existing exporting companies. BCC therefore believes that
UKTI's targets should be changed to monitor the value of results
associated with help given, such as growth in export sales and
employment generated, rather than purely on the number of companies
assisted.
4. OTHER
GOVERNMENT RESOURCES
(7)
4.1 The UK Government generally has not taken
a joined-up approach to trade and investment, both within itself
and with other organisations in the UK who offer export promotion
and support services. However, since the Coalition Government
came into office, there has been a change in discourse around
this, and we welcome the increased emphasis of on the use of Foreign
and Commonwealth Office and its foreign missions to better promote
British commercial interests abroad. Aside from assigning greater
resource to trade promotion within British embassies and high
commissions abroad, the promotion of British commercial interests
must also be the prime goal of British foreign policy.
4.2 More work still needs to be done on linking
up Government-provided services such as UKTI, and the work of
other organisations working in the field of export promotion and
support. The Government therefore needs to develop one stop shops
for trade promotion and investment by pursuing the integration
of business support agencies such as Business Link, UKTI, and
Enterprise Europe Network. It must also take into account the
trade promotion and support work undertaken by Chambers of Commerce
and other private sector bodies such as trade associations. Many
of their services are complementary and are more accessible to
business if can be found in one place (whether physically or electronically).
Moreover substantial sums of money have been invested in the UK
Welcomes Business site, and the UK is participating in an EU project
to develop one stop shops for the future. The Government should
aim to use this as a springboard for more coordinated trade promotion
activities.
5. BOOSTING GLOBAL
TRADE - EU, WTO AND
FTAS (8, 14, 15, 22, 26 8, 22)
5.1 The Chamber Network supports free trade
and believes that the best way to achieve this is through multilateral
channels at the WTO. The Doha round of the WTO negotiations has
the potential to greatly benefit the UK through its liberalisation
of trade in services - in which the UK is the world's second largest
exporter. The UK Government should maintain its pressure on counties
that are holding up a successful conclusion to the round.
5.2 In the absence of a formal conclusion, it
is right that the EU pursues bilateral FTAs with high-value markets.
However, an undisciplined and bilateral approach can serve to
complicate international trade and add to its considerable costs.
As a priority, the UK should press for the conclusion of FTAs
with markets that offer the highest potential commercial returns
for British businesses, pushing for further liberalisation of
trade in services to be included in any agreements reached.
5.3 The BCC believes that the following actions
are key to boosting global trade:
- Speed up the negotiations to conclude the Doha
Round of multilateral trade talks. Governments must commit to
a clear and ambitious roadmap and calendar for technical negotiations
to open markets and create new trade flows while consolidating
the progress achieved so far. This would provide much needed stability
and predictability to companies conducting business internationally,
give added impetus to the recovery and spur long-term economic
growth;
- Avoid a perpetuation or aggravation of the global
current account-financial imbalances that marked the past decade,
by collaborating with their G20 counterparts. Their correction
must be supported, inter alia, with policies aimed at achieving,
where needed, a consolidation of public and private sector balances
in advanced economies. This is crucial to ensuring macroeconomic
and financial stability, and restoring global confidence in the
rules-based free trade and investment system;
- Stop trade restrictive measures, which now total
almost 300 worldwide. More importantly, it is imperative that
they remove the ones which were introduced at the beginning of
the global economic crisis. Indeed, according to the European
Commission, only 10% of the measures introduced since the beginning
of the monitoring exercise have actually been removed. These two
factors (the overall increase and the very low level of removal
of existing restrictions) could lead to a high risk of entrenchment
and institutionalisation of trade-restrictive measures in the
post crisis period;
- Explore the possibilities of harmonizing the
existing rules of origin of the bilateral and/or regional free
trade agreements signed so far for the benefit of businesses and
especially SMEs;
- Include the issue of raw materials in international
trade agreements. An unhampered access to raw materials without
export barriers and clearly formulated trading rules must appear
on every agenda of regional, bilateral and multilateral trade
negotiations. Existing trading regulations should be recognized
and enforced by all states possessing raw materials; and
- Strengthen and ensure the effective protection
of intellectual property (IP) rights, which is crucial to driving
growth and innovation in the increasingly knowledge-based G20
economies.
6. THE
BRIBERY ACT
AND ITS
POTENTIAL IMPACT
ON TRADE
Impact assessment and cost to business
6.1 We do not currently believe that enough investigation
has been undertaken by the Government to assess the financial
and commercial impact that the Act will have upon British businesses
trading internationally. This is especially true for smaller and
medium sized businesses (SMEs) who are considering entry into
difficult, but high-value markets. For example, the Regulatory
Impact Assessment does not properly define the cost of implementation
of the Act to UK business. This must be undertaken as a matter
of urgency - and then subjected to the "One In, One Out"
(OIOO) regulation costing policy, with commensurate savings for
business established elsewhere.
Competitive disadvantage
6.2 British companies are against bribery because
it is against the law, counter to the interests of people living
in countries where it happens, and has a distorting effect on
markets which directly harms business interests. However, business
and government cultures are different across the world, and British
companies cannot work against the grain of such markets if they
are to win business in competition with companies from countries
with less stringent bribery laws. For example, the Act's stipulation
that "where the performance of the function or activity is
not subject to UK law (for example it takes place in a country
outside UK jurisdiction) then any local custom or practice must
be disregarded" will put British companies at a disadvantage
when trading in markets with widely varying business practices
to the UK.
6.3 Further examples of the impact upon British
competitiveness can be seen in the treatment of common "facilitation
payments", which are an offence under Section 6 and Section
1 of the Act. Here British business will be uncompetitive with
American firms who are not subject to such a prohibition. Furthermore,
as the guidance recognises, many smaller businesses do not undertake
foreign trade directly, instead working through intermediaries
such as agents and in-market distributors, where control over
their behaviour can be limited. Elements of the Draft Guidance
are therefore unrealistic given the prevailing conditions of doing
business - such as "modification of sales incentives to give
credit for orders refused where bribery is suspected".
SMEs and burden of proof
6.4 We are concerned that for SMEs, the burden
of proof requiring adequate anti-bribery procedures to be in place
will act as a deterrent for new market entry and to accessing
lucrative government contracts. While we appreciate that the guidance
stipulates that procedures are likely to vary for companies of
differing sizes, many smaller companies wanting to bid for such
contracts are likely to face a similar range of issues to larger
companies, such as where forms of bribery are part of an accepted
form of foreign public officials' behaviour. Smaller companies
will therefore feel it necessary to implement costly, time-consuming
and complex procedures that make market-entry uneconomical, or
too great a risk for their businesses - leaving valuable business
to the exporters of other Western countries who have less stringent
or less enforced bribery laws. We therefore believe that the Act
could have a damaging effect on British exports through discouraging
SMEs from international trade, thus running counter to the Government's
desire to rebalance the UK economy.
Marketing
6.5 Considering the impact that implementation
will have upon businesses, we would expect the Government to undertake
a marketing campaign to make companies aware of their new obligations
under the Act. However, we know that Government marketing budgets
are frozen at present and therefore a proper campaign might not
be possible. We would therefore like to better understand the
Ministry of Justice's plans for the dissemination of information
about the Act.
Implementation
6.6 We believe that the problems highlighted
here suggest that an implementation date of April 2011 is unrealistic
given the extra work that needs to take place in coming to a sensible
assessment of the cost to British business. Implementation should
be delayed until this is done. Implementation should also not
be undertaken until the Government can give assurances that SME
businesses will not be subjected to significant new burdens that
effectively prevent them from exporting to new markets in the
developing world.
7. INWARD INVESTMENT
7.1 Central government clearly has an important
role to play in attracting inward investment into the UK; indeed,
this has been a particular success of the UK during the past decade,
partially down to government action in this area co-ordinated
through UKTI and the Regional Development Agencies (RDAs). However,
despite these successes, there are a number of issues that the
Government should take into account around duplication of effort
among the different regions and nations of the UK. During the
past few years RDAs have sometimes competed against each other
to win investment for their regions. The UK brand abroad is watered
down by separate representation from all three devolved nations
and nine English regions. Separate efforts from Scotland, Wales,
Northern Ireland and the English RDAs only serve to confuse potential
investors who are likely to be unaware of the constitutional particulars
of the UK.
7.2 Now that RDAs are being wound down, and the
functions of Local Economic Partnerships (LEPs) are being determined,
there is a discussion about how these functions should be delivered.
Many Chambers in the North and Midlands (including the North East,
North West and Yorkshire and the Humber) believe that there is
a continued need to retain control over some of the strategic
economic functions presently exercised by RDAs, notably around
inward investment and place marketing. When establishing these
functions, central government must ensure that provision is made
to reduce externally visible competition between different organisations.
January 2011
5 Exporting Britain, June 2009 Back
6
Source - WTO - http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?Language=E&Country=GB Back
7
Exporting Britain 2009 p. 11 Back
8
Supporting UK business: The report of the Business Finance Taskforce
October 2010 p.9 Back
9
Spending Review 2010, HM Treasury p.84 Back
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