Written evidence from the Confederation
of British Industry (CBI)|
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 DC, Beijing
and New Delhi, the CBI communicates the British business voice
around the world.
2. This submission responds to those questions
in the inquiry terms of reference that are of direct concern to
business; namely, the FCO's role in promoting UK trade and economic
recovery, the role of the FCO's network overseas and cross-government
3. As the UK continues to emerge from recession,
future economic prosperity will be greatly determined by the UK's
success in overseas marketsin exports and ability to attract
and supply foreign direct investment (FDI) in ways that will let
UK companies succeed in multiple markets.
4. The UK government must continue its efforts
to set the right trade policy framework at an international level.
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. UK official support in Brussels is vital.
The European Union is key to the UK's economic recovery process
- both as the negotiator of international trade and investment
rules, but also because it is effectively both "home market"
and the number one export destination for the UK. When considering
ways in which to improve the UK's trade and investment performance,
therefore, the Single Market should not be overlooked.
6. In terms of direct UK government support for
companies, the CBI believes there is a vital ongoing role for
the FCO and UKTI, in particular the expertise and intelligence
provided by overseas posts. We accept that the FCO 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 tough but acceptable. They do, of
course, increase the pressure on the FCO/UKTI to deliver as efficiently
as possible. We suggest half a dozen ways in which FCO/UKTI might
increase its performance, eg by putting a particular focus on
a more limited number of priority markets.
7. The UK is still in the early stages of a modest
and gradual recovery. The CBI expects growth of only 2% in 2011,
and 2.4% in 2012. We expect net trade to be an important component
of that limited growth.
8. Support to the recovery must therefore come
from business investment, and from net trade. Net trade actually
detracted marginally from growth in Q3, but we forecast that it
will add to growth in the quarters ahead, as relatively weak gains
in domestic demand restrict import growth and exports continue
to be boosted by the past depreciation in sterling.
9. As many commentators have noted, to date this
fall in the value of sterling has not delivered the boost to trade
that might have been expected. On a trade-weighted basis, the
pound has fallen more in the recent years than in the period after
it exited the ERM. An assessment of whether the benefits are only
now kicking in, or whether there are other reasons holding back
the UK's export performance, will be important in the next months.
10. Promisingly, the CBI's manufacturing survey
data has shown quite strong export demand at the end of 2010.
But prospects for export growth will also depend crucially on
the pace of recovery in the UK's key trading partners. Ongoing
fiscal concerns in peripheral European states, and the effect
that this may have on activity and confidence in the Eurozone
as a whole, therefore poses a key downside risk to our export
11. Against this background, the CBI strongly
supports this government's emphasis on trade and investment. We
welcomed the Prime Minister's commitment to free trade and open
markets and to step up the commercial focus of the UK's foreign
policy. We welcome the efforts by the Foreign Secretary, Secretary
of State for Business Innovation and Skills and their departmental
ministers to reinvigorate the UK's overarching trade and investment
strategy. We particularly support the strengthening of bilateral
relationships with countries including India, China, Brazil, Turkey
and the Gulf States. Enhanced partnerships such as that envisaged
between the UK and India give a clear signal that joint business
development is high up the agenda.
12. We recognise the key role of the FCO in contributing
to deficit reduction by helping to facilitate improved export
and investment performance and by supporting UK business presence
in high growth markets such as those mentioned above.
13. FCO Heads of Mission play an important role
in delivering trade and investment objectives, especially where
there is only a small UKTI or local commercial team. The political
insights they can offer as well as contact networks they can instigate
are invaluable in briefing businesses.
14. The CBI welcomes the creation of the FCO's
Commercial Task Force in August 2010, in particular the emphasis
on upgrading and embedding commercial awareness amongst staff
and working towards a whole-of-government approach to progress
the prosperity agenda.
15. We are pleased to see all Ambassadors and
UK government representatives overseas putting support for business
as their key priority.
THE DDA, FTAS
16. In addition to getting the basics of international
competitiveness right, the government and FCO can help British
companies overseas by working to get the right trade and investment
policy in place. Both of these areas are now within the competence
of the European Union, so above all, this means focusing on getting
the right policy decisions taken in Brussels.
17. The CBI strongly advocates timely conclusion
of the WTO Doha Round (DDA). We believe that an effective multilateral
trade agreement is by far the best way to create a level playing
field, increase market access and improve global rules. We acknowledge
that it is increasingly difficult to rouse much enthusiasm for
the DDA, as the negotiations have now dragged on for a decade.
Nevertheless, CBI member companies clearly expect that the British
government should continue to push for an ambitious outcome to
18. We fully support bilateral free-trade agreements
as they are a key to increasing market access for European companies
in fast-growing markets such as South Korea, India, Mercosur and
South East Asian countries. While the multilateral route will
always provide the optimal route for trade liberalisation, well
framed free trade agreements (FTAs) can also bring important benefits
for all parties, including businesses.
19. FCO work to shape and reform key international
institutions and organizations such as the EU, G20 and UN Security
Council lead to enhanced stability and co-operation and is therefore
good for business.
20. In all negotiations - both 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 British government with support of the
FCO should make this point strongly in Brussels.
21. Across the board, UK government officials
should 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.
22. One major area for potential growth is trade
in services. At the European level, services make up 70% of European
GDP, but represent only 28% of European external trade. This disparity
presents a major opportunity for a future EU trade policy to make
a substantial contribution to European competiveness and prosperity
- and the UK, in particular, would benefit from this.
23. Achieving market opening for services requires
a more complicated and difficult process involving a range of
government departments and regulators. This makes ongoing discussions
both at the European-level and Member State-level important in
facilitating information exchange and legislative adjustments
where necessary to open up services.
24. Trade can only be a driver for business opportunities
when there is strong and effective enforcement of governing rules.
A firm line should therefore be taken on countries which do not
adhere to international trade commitments.
THE FCO SUPPORTING
25. British business is a strong supporter of
the Single Market and the many advantages and opportunities it
provides. Internally, it has enabled the EU's 20 million business
to provide goods and services to almost 500 million citizens.
Externally, the 30-country European Economic Area is the world's
largest trading bloc and gives Europe its global strength.
26. The Single Market is the foundation of the
EU's recent economic success. It is estimated that 52% of UK trade,
half of inward investment and nearly 3 million jobs are linked
to the EU. Similarly, some 300,000 British businesses operate
in non-domestic markets across Europe, generating prosperity and
growth at home and on the global stage.
27. Open markets and free trade, internally and
externally, are integral to business interest in the EU. The economic
downturn has, however, highlighted the Single Market's vulnerability
to protectionism and barriers to completion remain. British business
therefore supports policymakers' renewed focus on delivery of
the Single Market and the five freedoms it represents.
28. FCO work to focus the EU agenda on issues
such as climate change, energy security, better regulation, the
effective enforcement of EU rules and the possible implications
of further enlargement all enhance prospects for UK and European
growth and competiveness.
FCO GLOBAL SUPPORT
29. 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 FCO/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.
30. Reduced resources do, of course, increase
the pressure on the FCO to deliver as efficiently as possible
- the classic "do more with less". The CBI supports
the direction that the FCO and UKTI have been moving in over the
last 18 months. We are hopeful that the FCO will continue to recognise
the need for a tailored offering that precisely identifies priority
markets and sectors, and particular business needs.
31. Business is looking for consistency of strategy
and therefore supports the FCO four year Business Plan and implementation
strategy to ensure cohesion across all government activities overseas,
and the sharing of best practice across Whitehall.
32. In the short term, 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
33. When measuring success of services provided,
more sophisticated metrics are needed than headline 'new entrant
to market' numbers. Quantitative targets are usefuland
necessary when dealing with public fundsbut 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.
34. Similarly, a focus on meeting numerical quotas
for chargeable services should be qualified by other metrics.
An over-focus on the targets, we believe, detracts from the imperative
of identifying additional opportunities for existing proactive
exporters and investors.
35. 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, as with economic
and political briefs, it vitally important that there are effective
quality and consistency controls in place.
36. FCO posts must ensure that commercial objectives
are thoroughly integrated into their other policy objectives eg
commercial opportunities arising from policy areas such as climate
change. Excellent communication between UKTI and 'pure' Foreign
Office staff on the ground could deliver a really valuable intelligence
product for UKTI clients. (Another 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.)
37. FCO/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 tailor 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
38. An area of particular opportunity that has
already been identified is large-scale projects requiring multiple
company involvement. UKTI has estimated that there is currently
a potential of around £700bn 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.
39. 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.
40. 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.
41. Companies looking to do business internationally
are highly likely to want to move their staff around the globe
- bringing locally-based sales staff back to a UK headquarters
for training, for example, or sending senior management overseas
to establish new business partnerships. It is therefore crucial
to the UK's prospects that it is as easy as possible to move staff
from country to country.
42. It is vital overseas posts maintain adequate
consular resources in order to facilitate visa services for inward
business visitors and prospective investors. Awareness among senior
consular staff of FCO/UKTI trade promotion objectives would be
helpful in terms of avoiding unnecessary delays for significant
43. We welcome the new Foreign Currency Mechanism
to restore protection to FCO purchasing power overseas and thereby
secure best value for money in delivery services to UK businesses
44. The involvement of key ministers in supporting
UK business in overseas marketseg by leading delegations
on foreign trips, attending JETCOs, welcoming incoming delegationsis
very helpful, and we commend the Government for the priority it
has given to these.
45. 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
46. 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.
47. 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
48. 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? The
existing JETCO vary in substance. They can be very valuable forums
for focusing political attention on key business issues and should
strive to avoid becoming formulaic. Bi-lateral business development
should be higher up the agenda.
49. The CBI has always supported the British
Business Ambassadors scheme, and we welcomed its re-launch 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.
50. Countries all around the world are seeking
to increase their exports as a way of generating growth and jobs.
Everyone recognises the same fundamental realities: the rise of
the emerging and expanding middle classes in countries such as
India and China, and across Africa and the Americas, are the next
generation of consumers. The UK will have to work hard to position
itself in this raceUK business will need strong FCO/UKTI
support to get international policy frameworks for trade and investment
right; and tailored support services to companies to enable them
to enter and thrive in rising economies.