Written evidence from the CBI
SUMMARY
1. The CBI is the UK's leading business organisation,
speaking for some 240,000 businesses that together employ around
a third of the private sector workforce. With offices across the
UK as well as representation in Brussels, Washington, Beijing
and Delhi the CBI communicates the British business voice around
the world.
2. The CBI welcomes the opportunity to give evidence
to on the effectiveness of government policy and actions on trade
and investment. As the UK continues to emerge from a painful recession,
our future economic prosperity will be very much determined by
our success in overseas markets - in exports of both goods and
services, and our ability to attract and supply foreign direct
investment (FDI) in ways that will let our companies succeed in
multiple markets.
3. Competitiveness overseas depends on competitiveness
at home. Although outside the scope of this particular enquiry,
the CBI would like to reiterate that companies' ability to compete
globally requires the right building blocks in the UK: macroeconomic
stability, the right regulatory climate, competitive taxation,
skills development and labour market flexibility. Companies must
have these conditions in their home market if they are to be strong
enough to win abroad.
4. The UK government must continue its efforts
to set the right trade policy framework at an international level
- even though the process of negotiating these can be painful.
The CBI strongly advocates a timely conclusion of the Doha Development
Agenda (DDA) negotiations in the WTO, and urges the UK government
to do all it can, eg within the EU and in groupings such as the
G20, to secure political support for this. The CBI also strongly
supports bilateral free trade agreements (FTAs), as building blocks
towards a multilateral agreement.
5. In terms of direct support for companies,
the CBI believes there is a vital ongoing role for UKTI. We accept
that UKTI must bear its share of cuts in funding at this particular
time, and believe that the spending levels announced in the Comprehensive
Spending Review of October 2010 were acceptable. They do, of course,
increase the pressure on UKTI to deliver as efficiently as possible.
In order to do this, we suggest that UKTI should:
(a) Put a particular focus on a more limited
number of priority markets. Given the current imperative to look
for growth, these are likely to be developing, rather than developed,
countries.
- (b) Continue their vital support to SMEs,
and in particular ensure that the move from RDAs to LEPs does
not reduce company understanding of how to access export support.
- (c) Move away from overemphasising targets
for new-to-market exporters.
- (d) Develop a more sophisticated relationship
with their larger client companies. For many in this group, the
support they need is not financial, but political/economic intelligence.
- (e) Focus in particular on major project
work, and how UK companies might work in consortia to access such
contracts.
- (f) Work more closely with key trade associations,
to enable a better understanding of, and tailoring of services
to, the appropriate economic sectors.
6. Ensuring an available and affordable supply
of trade and export finance and ancillary facilities is essential
to securing an export-led recovery. The ECGD can play a key role.
However, the CBI believes that the ECGD needs further reform,
including:
- (g) A review of the governance and application
of the rules that ECGD operates under to ensure greater flexibility
and responsiveness to future financial shocks; and
- (h) An overhaul of the marketing and product
range of ECGD, starting with a study to understand the potential
demand for further government-backed export finance, to help boost
the UK's export performance.
7. The involvement of key ministers in supporting
UK business in overseas markets - eg by leading delegations on
foreign trips, attending JETCOs, welcoming incoming delegations
- is very helpful. More advance scheduling and better logistical
support could maximise the impact of these efforts.
8. The CBI has always supported the British Business
Ambassadors scheme, and we welcomed its relaunch in November 2010.
We also commend the government for securing the involvement of
some very significant figures in the UK business community. However,
in the past it has been difficult to identify exactly what the
impact of the scheme has been. The Secretariat will need to be
extremely proactive in terms of co-ordinating with the Ambassadors
about their travel schedules and possible opportunities. The Ambassadors
will also require first class briefings to fulfil this role.
INTRODUCTION
9. The UK is still in the early stages of a modest
and gradual recovery. The CBI's latest economic forecast predicts
growth of only 2% in 2011, and 2.4% in 2012. We expect net trade
to be a key driver of that limited growth: household spending
restraint and cuts in government expenditure will constrain the
momentum of domestic economic activity. There will be some greater
momentum from business investment as recovery and confidence gather
pace, but much of the desired growth will have to come from overseas
markets.
10. The CBI strongly supports, therefore, this
government's emphasis on trade and investment. We welcomed the
Prime Minister's commitment to be "messianic in wanting to
see free trade and open markets around the world" and to
step up the commercial focus of the UK's foreign policy. We welcome
the efforts by Foreign Secretary William Hague, Business Secretary
Vince Cable and their departmental Ministers to reinvigorate the
UK's overarching trade and investment strategy. We are pleased
to see all Ambassadors and UK government representatives overseas
putting support for business as their key priority.
SUCCESS OVERSEAS
CAN ONLY
BE BUILT
ON A
STRONG BASE
AT HOME
11. It is probably outside the focussed remit
of this enquiry, but the CBI would begin by pointing out that
in order to be competitive in overseas markets, British companies
must have the right conditions at home. We have previously highlighted
five basic requirements for economic growth in the UK:
- (a) Macroeconomic stability;
- (b) The right regulatory climate;
- (c) Competitive taxation;
- (d) Skills development; and
- (e) Labour market flexibility.
12. A conducive environment for growth is the
essential prerequisite for enhancing the UK's export and FDI performance.
If we get those basics right, we will, in turn, enable many more
SME and mid-cap companies to gain scale and to target new markets.
Much of the improved international performance that we seek will
ride on this.
13. More details of the CBI's views on these
fundamentals can be found in our submissions to last year's comprehensive
spending review, BIS consultations and our 2010 election manifesto.
They can be downloaded from www.cbi.org.uk.
THE GOVERNMENT
MUST ACT
TO GET
THE MULTILATERAL
POLICY FRAMEWORKS
FOR TRADE
AND INVESTMENT
RIGHT
14. The next step must be for the government
to work to ensure the right policy frameworks are in place. Post
the Lisbon Treaty, this must be done, for the most part, via the
European Union, which has competence in both areas.
15. The CBI continues to advocate for a successful
conclusion of the Doha Development Agenda (DDA) negotiations in
the WTO. We strongly believe that an effective multilateral trade
agreement is by far the best way to create a level playing field,
increase market access and enforce global rules. Even though the
negotiating process can be tiresome and drawn out, this should
continue to be the government's main focus.
16. We also support bilateral free-trade agreements
(FTAs) as building blocks to a successful multilateral agreement.
These are particularly important for increasing market access
to some key fast-growing markets in the developing world, such
as India and Mercosur.
17. In all negotiations - multilateral and bilateral
- the CBI believes the EU must give priority to economic objectives,
strongly promoting the export and investment interests of European
business. The EU should also look to prioritise those FTAs that
can deliver best opportunity.
18. UK government officials must play an instrumental
role in shaping the EU's negotiating FTA mandate, taking into
account the potential benefits and costs to all
UK sectors through comprehensive impact assessments, and seeking
to balance offensive and defensive interests. It is not acceptable
for sectors to be traded off against each over, effectively sacrificing
one sector's interests in order to seal a deal. In all negotiations
the UK must consider the impact each agreement will have on UK
business as a whole and seek to defend this interest robustly.
19. In parallel to the trade negotiations, the
UK should work within the EU to secure a strong framework of international
investment rules. The CBI broadly welcomed the Commission's communication
on a comprehensive European international investment policy. However,
we would like to stress the importance of grandfathering existing
bilateral investment treaties (BITs). To ensure legal certainty
and strengthen investor confidence, existing BITS must be allowed
to remain in force until such a time as a new EU-wide treaty is
signed, or where an existing BIT is deemed incompatible with EU
law. It is not enough to annul existing treaties on the basis
of incompatibility with political goals, which are open to wide
interpretation.
20. Additionally, future BITs, negotiated by
the EU, must guarantee the same level of protection by preserving
the most favoured nation (MFN) clause, covering direct as well
as indirect investment, and maintaining investor-state arbitration
clauses.
21. For more information on the CBI's position
on trade and investment policy, see our submission to the European
Commission's consultation on the Future of Trade. This is also
available from the CBI website, www.cbi.org.uk.
THE ROLE
OF DIRECT
GOVERNMENT SUPPORT:
UKTI
22. Beyond setting the right policy frameworks,
government has a key role to play in providing direct support
for companies looking to expand their presence overseas. At a
time of extremely constrained public finances, it is understandable
that funding for these efforts will have to be somewhat restricted.
Nevertheless, the CBI believes that government support for UKTI
is extremely valuable; delivers a significant return on investment
for the economy, and should be preserved as far as possible. We
believe that the spending levels announced in the Comprehensive
Spending Review of October 2010 were tough but acceptable.
23. Reduced resources do, of course, increase
the pressure on UKTI to deliver as efficiently as possible - the
classic "do more with less". The CBI supports the direction
that UKTI has been moving in over the last 18 months. We are hopeful
that when their next five year strategy is published in a few
weeks, it will continue to move UKTI down the same path, recognising
the need for a more tailored offering that precisely identifies
priority markets and sectors, and particular business needs.
24. In the short term, when the government's
priority is very much on rapid growth , the CBI supports a greater
focus on a smaller number of high growth export markets alongside
work to build on success in more developed markets especially
in innovation, UKTI has identified seventeen high growth markets;
amongst these it should prioritise markets such as China, India
and Brazil to ensure the greatest return possible on taxpayer
investment.
25. When measuring their return on investment,
UKTI needs to use more sophisticated metrics than headline "new
entrant to market" numbers. Quantitative targets are useful
- and necessary when dealing with public monies - but should not
become a sole end in themselves. They should be complemented with
qualitative targets in terms of work provided and outcomes in
terms of business won.
26. Similarly, UKTI's focus on meeting numerical
quotas for chargeable services should be qualified by other metrics.
An over-focus on the targets has, we believe, led to a disincentive
for UKTI staff to pursue more proactive work such as pinpointing
further opportunities arising from these schemes and developing
the export activity of successful users.
27. The "classic" UKTI offerings of
basic market information, limited funding support, and consultancy
services focused on early stage exporting skills, are of most
use to SMEs - and are valued by this group of companies. They
must be continued, and in particular UKTI must be careful to ensure
that in the shift from RDAs to LEPs, companies don't lose their
link to export expertise.
28. Although the UKTI funding for regional international
trade directors is still in place, several of these posts were
housed within RDAs, and some of their activities were part-funded.
It seems inevitable, then, that the £8 million loss of RDA
funding support will impact them in some way. This need not cause
cutbacks in services - eg sharing international trade directors
across regions could be a more cost-effective way of acting -
but it will require careful management.
29. The Passport to Export and Gateway to Global
Growth (G3) programmes are valued by new and established exporters
respectively. The OMIS (Overseas Market Introduction Service)
is also broadly supported by business. However, given that it
is a bespoke service it vitally important that there are effective
quality controls in place.
30. UKTI also needs to continue expanding beyond
its core SME customer base, and reach out to mid-cap and larger
companies. Many of these don't need the classic UKTI offerings;
instead, they need up-to-the-minute and informed economic and
political intelligence. To deliver this, UKTI must ensure it is
thoroughly integrated into the broader staff capabilities of the
Embassies and consulates around the world in which it is housed.
Excellent communication between UKTI and "pure" Foreign
Office staff on the ground could deliver a really valuable intelligence
product for UKTI clients. (An example of best practice here would
be the US network's work on business opportunities from the US
Stimulus package, which involved staff from the Embassy in Washington,
DC, as well as the Science & Technology network and all UKTI
posts in the US.)
31. UKTI should also move to a more account management
style of interaction with its largest client companies. This would
enable it to have a much better understanding of companies' needs
and market strategies and thereby match the UKTI/FCO offering
more precisely. It is also important that there is close liaison
between UKTI and BIS sector teams, who perform similar account
management roles.
32. An area of particular opportunity that UKTI
has already identified is large-scale projects requiring multiple
company involvement. UKTI has estimated that there is currently
a potential of around £700 billion of non-defence contracts
and projects that could be secured in this way, with UKTI helping
to pull together consortia. It should be noted that this is also
a very good way of helping SMEs into new markets, by plugging
them into supply chain relationships.
33. Major infrastructure developments in the
high growth economies and international sports events such as
the World Cup and Olympic Games in Brazil will provide interesting
test cases for these project and consortia approaches.
34. UKTI has been shifting towards a more sectoral
based approach, both at a national level and via sectoral dimensions
to all regional and overseas staff. The CBI believes this can
be an effective approach. We would urge UKTI to build better relationships
with key trade associations in the relevant areas in support of
this. We also believe there could be an improvement in the relationship
between business sector advisory groups and staff covering priority
markets, to ensure there is no duplication of effort between regional/national
or sectoral/market levels.
THE ROLE
OF DIRECT
GOVERNMENT SUPPORT:
ECGD
35. The second major strand to direct government
support for trade and investment is the provision of trade finance
and ancillary services via the ECGD. Research from the International
Chamber of Commerce suggests there are continuing constraints
on the availability of trade finance around the world. In the
UK in particular, the ECGD is currently playing a very limited
role with a very limited number of business customers albeit for
the customers this can be very significant.
36. The CBI has previously recommended a two-pronged
approach, leading to a radical overhaul of export finance in the
UK.
37. First, a review of the governance and application
of the rules that ECGD operates under to ensure greater flexibility
and responsiveness to future financial shocks. The ECGD operates
under a myriad of rules and regulations set out by the OECD and
state aid rules under the EU. Notwithstanding this, other competitor
nations were able to put in place short-term additional export
trade credit support during the financial crisis when the UK was
either not able or willing to match. This situation needs to be
addressed so that UK exporters are not put at a competitive disadvantage
in the future.
38. Second, an overhaul of the marketing and
product range of ECGD, starting with a study to understand the
potential demand for further government-backed export finance.
This should include a detailed study of whether the export potential
for SME and mid-cap firms is being held back by lack of available
or affordable trade credit finance; and what form of export financing
would help meet their needs. Depending on the outcome of this
study, the UK may need an overhaul of the ECGD product range to
ensure it is more accessible and better suited to the financing
needs of SME and mid-cap exporters.
39. The ECGD also needs to build beyond its focus
on aerospace markets. As a means to this end, it should significantly
improve the marketing of its current, and potentially expanded,
product range to ensure greater awareness of the facilities it
offers.
40. There are two additional considerations that
the CBI will be pursuing in the next few months. First, do the
new international standards on capital and liquidity, supported
by the G20 (the "Basel III" accords) treat trade finance
in an appropriate way? BAFT-IFSA, an international financial services
trade association, suggests that trade finance is penalised under
Basel III. For example, it points out that trade finance exposures
are smaller in value, shorter in duration and self-liquidating,
compared to other transactions. Yet they are covered by one asset
value correlation (AVC) for the whole of corporate banking. The
overall effect of Basel III may be to raise the costs of transaction
banking, and thereby restrict the provision of trade financing.
41. Second, the CBI will be looking into the
relative competitiveness of export credit agencies (ECAs) within
and outside the OECD. ECAs from countries that are not within
the OECD framework are able to offer terms and conditions that
are not acceptable under OECD rules, and this may mean that companies
from those countries are given a competitive edge. It is not obvious
what restraints can be put on these activities, beyond the OECD's
current dialogue with non-member ECAs, but the issue is worthy
of further consideration.
HIGH-LEVEL
INVOLVEMENT: MINISTERIAL
DELEGATIONS AND
THE BRITISH
BUSINESS AMBASSADORS
PROGRAMME
42. The involvement of key ministers in supporting
UK business in overseas markets - eg by leading delegations on
foreign trips, attending JETCOs, welcoming incoming delegations
- is very helpful, and we commend the Government for the priority
it has given to these.
43. The CBI believes that there is potential
for prioritising this commitment further. Greater partnership
working between the FCO and UK business in briefing ministers
as well as direct ministerial briefings by companies on the ground
can further increase the effectiveness of ministerial interventions.
Learning from the approach of other European countries could also
be helpful.
44. While we understand the difficulties in scheduling
overseas visits especially for ministers with parliamentary commitments,
more advance warning of dates and visit plans would facilitate
greater senior-level input and involvement by companies.
45. It would also help in securing senior-level
commitment if visit programmes can be made available as early
as possible, and demonstrate that business leaders involved in
ministerial delegations will get real value for their time input.
Delegations where the minister has significant bilateral meetings,
and the business "input" is restricted to little more
than providing an audience at a speaking opportunity or attending
a networking reception, will not secure the right level of business
involvement.
46. We would also suggest that UKTI and the FCO
review the coverage and content of the UK's high-level dialogues.
It is not clear to us why some countries have a JETCO or similar
dialogue and others do not - what is the guiding strategy? Also,
the existing JETCOs vary widely in their substance. At their best,
they are very valuable forums for focusing political attention
on key business issues. At the other end of the spectrum, they
can seem little more than "going through the motions".
47. The CBI has always supported the British
Business Ambassadors scheme, and we welcomed its relaunch in November
2010. We also commend the government for securing the involvement
of some very significant figures in the UK business community.
However, in the past it has been difficult to identify exactly
what the impact of the scheme has been. The Secretariat will need
to be extremely proactive in terms of co-ordinating with the Ambassadors
about their travel schedules and possible opportunities. The Ambassadors
will also require first class briefings to fulfil this role to
their best ability.
January 2011
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