Examination of Witnesses (Questions 100
- 114)
MONDAY 2 JULY 2007
Ms Karen Clements and Mr Clive Davenport
Q100 Baroness Eccles of Moulton:
There has been an emphasis throughout your answers on a lack of
resources and several times there has been an indication that
there are others that could perhaps do a bit more to help SMEs
because resources are always very limited. This is a little bit
wide of the question but not very, because it has come up several
times. Is there any way that you can see of the SMEs themselves
helping to solve that problem by perhaps being very specific about
the request for resources that would move them on but maybe in
a semi-independent way so that there is not a heavy dependence
on others providing the resources that are so badly needed?
Ms Clements: I certainly think that, as a result
of this inquiry and indeed of the Commission's whole focus on
the Single Market, that we at the BCC will be doing some more
in-depth research into exactly what type of information it is
that SMEs need, which will help us understand where it should
come from. After that, I think we could probably have a greater
idea of where the resources need to be channelled, if they need
to be at chamber level, at government level or at European Commission
level.
Mr Davenport: Co-operation would be desirable
and it would also tend to reduce the over-implementation in interpretation
of the Directives anyway. It would also benefit SMEs to reduce
the burden of red tape. There is a plus and a minus in both directions.
Everyone tends to look at what it is going to cost but we should
I think focus a little bit on what it is going to save as well,
both as a nation and as a European Community.
Q101 Baroness Eccles of Moulton:
The next question is to do with the country of origin principle.
I think we all understand what the country of origin principle
is. We have a definition here. It is if you are operating in another
country you are operating under home country rules. Is that the
best basis, do you think, for SMEs? The country of origin principle
has been under a certain amount of threat from various quarters
at various times but I think it is holding pretty steady, is it
not, at the moment with regards to SMEs? What comments do you
have?
Ms Clements: We definitely support the country
of origin principle. It makes absolute sense that an SME in particular
need only deal with one set of rules rather than 26 others and,
as you say yourself, it has come under threat, most recently in
the Services Directive, which we regret. That said, we will make
the most of what the Services Directive has to offer when it is
implemented and we will certainly, in terms of any lobbying that
we do of our government or of the EU institutions or of other
Member State governments, ensure that the country of origin principle
is adhered to. Unfortunately, as a national business organisation,
we do not necessarily have the political clout that is required
to knock heads together at Member State or government level.
Q102 Baroness Eccles of Moulton:
How much are British SMEs affected by the fact that we operate
under a rather different legal system to the legal system that
the European countries operate under? Does that have an effect
on the country of origin principle?
Ms Clements: It should not do since we are just
operating under the laws that SMEs have set themselves up in,
so in principle, everything that they need to do in order to market
or sell their product or service they need to do here and they
do not need then to do elsewhere but obviously, it is not working
that way, which is why we have the Services Directive, even though
the country of origin principle and the mutual recognition principle
are enshrined in the objectives of the Treaty and have been brought
out in the case law. This is why we have the Services Directive,
it is why we have the new proposal from the Commission on mutual
recognition, because in practice it is not playing that way.
Mr Davenport: Slightly the other side of that
as well, although I fully endorse what my colleague has said,
the alternative to not having that principle is having 26 or 27
different ones, which is horrendous, or a need for harmonisation
and the timescale of harmonisation and the legal ramifications
of harmonisation are too horrendous to think about. They could
go on for decades. It is just not worth it.
Q103 Lord Geddes: Could I
just follow this up with two different questions. You have both
said, and not surprisingly, that you are all in favour of the
country of origin principle; it helps ease the passage. To what
extent has the cross-border activity been hindered by the country
of origin principle? Has it been hindered at all? Are there any
minuses?
Mr Davenport: Not that I am aware of. We certainly
have had nothing at all like that.
Ms Clements: No.
Q104 Lord Geddes: The second
part of that question is—and I think I am almost asking
a question to which I know the answer—is there anything
that the Commission should have done that it has not done to improve
cross-border activity? Obviously, I am talking specifically about
SMEs.
Ms Clements: I think the Commission has been
doing its job quite well, to be honest, in terms of fulfilling
its duties as set out by the Lisbon agenda, in its recent push
to improve the functioning of the internal market specifically
for SMEs, which has given rise to several proposals recently,
one on mutual recognition, the others on the so-called new approach
Directives, and these are specifically with SMEs in mind because
it carried out a consultation which brought back some alarming
results whereby SMEs felt that they were not getting any benefits
from the Single Market. So I think the Commission is taking that
very seriously and is doing what it can within the framework of
its competence. Equally, there is a lot of work going on, and
has been consistently, on improving the implementation with the
league tables and the naming and shaming. Perhaps we need to see
some more on enforcement, but I would like to see the European
Parliament or even national parliaments having a greater role
in assessing the quality and consistency of reinforcements in
the Member States. Everything else that it can do, for example,
within DG Enterprise, which is the Directorate General responsible
for promoting SMEs and entrepreneurship, is only ever going to
be encouraging Member States to undertake certain actions. It
does not have the competence to do anything other than build the
foundations for a level playing field in which the SMEs will hopefully
thrive.
Q105 Lord Geddes: Given Mr
Davenport's evidence that 89% of SMEs are engaged in the service
sector, I am slightly surprised that you are as sanguine as you
have been on the severely watered down country of origin principle
in the Services Directive.
Ms Clements: We are not going to be able to
undo what has been done. We regret the fact that it was watered
down but we have to make the most of it, and that means ensuring
that the single points of contact actually do what they are supposed
to do and they do it in every Member State. That is where the
focus of our work is now, ensuring that we have these single points
of contact up and running in time and that every Member State
is providing a similar level of service. They will be the success
or not of the Directive ultimately, and so it is in our interests
to make sure that they work properly.
Mr Davenport: Exactly that; a common standard
is absolutely of the essence and, as my colleague said, we are
where we are. The only way round it is to create a level playing
field, a common standard, and it is important that that is what
happens.
Ms Clements: I would just like to add that the
FSB, the IoD and the BCC spent an inordinate amount of time lobbying
to ensure that the country of origin principle remained in the
Directive as it was. Unfortunately, we were not successful but
hopefully through our efforts and others we secured a Directive
that was not as bad as it could have been.
Lord Geddes: If I can make a personal
remark, I do not disagree with your last comment but I am rather
disappointed that you appear to have given up. Perhaps you do
not want to comment on that. That is more a hint than anything
else. I think we had better move on, Lord Chairman.
Q106 Chairman: This Committee
did previously produce a report on the Services Directive which
was very critical of the decline or at least the withdrawal of
support from the principle of country of origin. We shall return
to the issue because I think the Committee would very much agree
with your criticism. Before turning to Lord Haskel and any other
questions before we draw the proceedings to a close, can I come
back to one very interesting point that you made on partnerships
and ask a question? For the benefit of the record, this was the
point that SMEs in this country, to do business in another country,
could probably best find a partner of similar size or a group
of partners in order to help with perhaps a two-way flow of business.
In the past British embassies and commercial attachés were
helpful in my experience—and I am going back 20 or 30 years
now—in helping relatively small companies find partners
within the European Union—naturally, it was much smaller
then. Could you just expand on your remarks and perhaps guide
us as to where we might be looking to see if we can reinvigorate
this service that might be provided, either by the European Union
or by the British Government.
Ms Clements: As you said yourself, the British
Government is still responsible through the embassies and consulate
sections for hosting trade promotion events for SMEs in particular
keen to enter new markets. The chambers of commerce themselves
run them. We run trade missions on a regular basis but not as
regularly as we would like to do. We do not have the resources.
It is an incredibly expensive enterprise. There is also UKTI that
has a responsibility for encouraging SMEs to enter new markets
and to build partnerships. Perhaps the emphasis through UKTI has
not been enough on partnership building. It has certainly been
something that, as chambers, we have found has worked extremely
well for our members. There is also a perception that UKTI has,
not fallen out of love with the SME sector, but is certainly at
the moment more concerned with larger companies than with the
SMEs, and we would certainly like to see that reversed. I have
to say I do not have any hardcore evidence for that; it is a perception
amongst the membership that that is the case. I do not have anything
to support that.
Q107 Chairman: Could you just
comment on the apparent withdrawal of resources by the government?
This is not a party political point but there has been a secular
decline over many years in the resources available to embassies
abroad in assisting SMEs.
Ms Clements: The same I am assuming to UKTI,
which is why the emphasis has changed in the level of service
it provides, and we regret that deeply.
Mr Davenport: In Wales there is Wales TI, and
they have tended to focus more on small enterprises. That has
been reasonably successful but, obviously, it is a very small
area relative to the rest of the UK, so it may be worth getting
some comparisons for that and seeing what the situation is between
Wales and the take-up of small enterprises and the trade that
that engenders. We wholeheartedly agree that there has been a
withdrawal of the back-up services really that were there many
years ago.
Q108 Lord Haskel: Could I
just make a point about Trade and Investment? As I understand
it—and maybe you can correct me here—their task used
to be to help small companies get into new markets by helping
them exhibit their products at trade shows and all that sort of
thing.
Mr Davenport: Yes.
Q109 Lord Haskel: As I understand
it, their activity within the European Single Market was cut back
because it was interpreted as a way of government helping industry,
so TI now concentrates on helping companies exhibit their products
in markets outside the European Single Market. Is that a correct
interpretation?
Mr Davenport: Yes, it has done that, but it
still goes to European countries as well. Certainly the Welsh
TI do anyway, as they have done for the past two or three years,
but they do strike a very fine line between encouraging businesses
... All they do is say, "Look, this is the business, this
is the trade market that we are going to. Do you want to enrol
in this area?" and you go there. You do not get any other
back-up apart from that. You do not get any other additional support.
They just take you to the conference or to the trade fair and
that is the end of the support; the rest of it is entirely up
to you, and that tends to me to seem to be almost but not quite.
It is helping people to get there but not helping them to engage
in business on a long-term basis.
Q110 Lord Haskel: When they
are there.
Ms Clements: Yes.
Q111 Lord Haskel: Do the concepts
of the national champion and economic nationalism pose a threat
to the Single Market? We heard quite a lot about this after the
summit last month and I noticed somewhere in the FSB paper you
do mention it. We just wondered what was the impact on small and
medium size enterprises of such a policy?
Mr Davenport: We roll back to the Services Directive
and the problems that that has but it can be seen through those
problems and the impact is effectively to try and keep SMEs out
of the Single Market, or at least make entry complicated and expensive
for them. It is much more difficult for a small enterprise to
engage because of the resources that it requires as distinct from
a larger enterprise, where they have a lot more internal resources
and a lot more funding to be able to move into markets. That is
about it really, I think, as far as that is concerned. I will
go no further than that.
Ms Clements: I would echo Mr Davenport's comments.
In terms of what happened at the summit, as I understand it, we
do not really know what the implications will be until the IGC
has been completed and there has been some tweaking and fitting
the treaties together. I was talking to the person responsible
for competition at UPREP last week, who seemed to suggest that
there may be some scope for tweaking but certainly not for opening
renegotiations on the wording. Legal experts seem to suggest that
we will just have to wait and see what happens, that in theory
there is enough still left in the Treaty to protect the principle
of free and unrestricted competition. Unfortunately, that does
not really fill us with very much confidence. Of course it is
a threat. I would say it is actually a greater threat to larger
companies than it is to SMEs, who are not, obviously, trying to
acquire the same shares of the market.
Q112 Lord Fyfe of Fairfield:
Can I touch on a couple of points, one of which has been mentioned
before, and that was on language. I am assuming, perhaps wrongly,
that English is the principal second language of most of the countries
in the enlarged Union. If that is the case, surely language should
be less of a problem for British companies than it is for companies
in other parts of the EU. Would I be correct in saying that? Also,
one other point that occurred to me when I heard your comment:
do you have meetings with similar organisations based in other
European countries, similar to chambers of commerce, where you
can all sit round the table and gripe about the action or non-action
of each other's governments, or do you act very independently,
without consultation with perhaps counterparts in other countries?
Mr Davenport: One of our members is the chairman
of ESBO, which is the society for small businesses throughout
Europe, so we do have a link there throughout the whole Europe
and the Scandinavian countries as well. I think you are right
in saying that English is the prime language. As I said, the devil
is in the detail. It is when you get down to the smaller intricacies
of dealing with someone, what does this word mean as against that
word. That is when it becomes a problem and starts to break down.
Normal conversational English is quite common throughout Europe,
but when you are talking technical details against specific contracts
and things like that, that is when you get a problem and that
is where the larger business has the ability to bring in specialists
that know all the fine details, and that is a very expensive commodity
if you are a small company trying to deal with the equivalent
one in another nation.
Ms Clements: Certainly on the sister organisation
side, we do sit round the table regularly with other chambers
of commerce across the European Union and the wider Europe within
the auspices of an organisation called Eurochambres, which I mentioned
earlier. In terms of the language, it is often speaking not English
but the language of the state you are in; that has definitely
been raised by our members, and particularly in relation to central
and eastern European countries. Also, the perception amongst the
membership is that, once you have had to learn another language
properly, it is much easier to take on a third and a fourth and
a fifth, and that it is the actual training in learning how a
language fits together and a new language that enables you to
acquire others quite quickly, and they feel that the UK is at
a disadvantage compared particularly to its German and even French
competitors, and not least the Dutch and the Scandinavians, although
they do not prove to be so much competition in the central and
eastern European countries.
Q113 Lord Haskel: I wonder
if I could just put a last question and ask you whether small
companies are, by their very nature, local businesses, and that
is why we should not really be surprised at the fact that you
told us that only 2% of your members trade in other European countries.
So perhaps for smaller companies a vision for the Single Market
is something that you do not bother about very much until the
company gets bigger and it is going to expand, and then you start
being concerned about a vision for the Single Market, and that
really what we are looking at or what this particular inquiry
is about really small companies are not really affected by it.
Ms Clements: Perhaps we need to split out whether
it is a small company or a medium size company. In theory, the
Single Market is a domestic market; it is a local market, and
there is no reason why a small or a medium size company cannot
trade as easily with Barcelona as it does with Birmingham. That
is the whole philosophy behind it and that is what should happen.
Clearly, there are obstacles to growing from a small company to
a medium size company and they will largely be ones of employment
really, taking people on and risk, etc. In terms of trading, it
should not be a huge obstacle to growth. It is a domestic market
in theory ready for the taking. However, as we know, there are
certain barriers still apparent.
Mr Davenport: I can certainly agree, but I also
agree with you that small businesses do tend to be conservative
and they do tend to operate within a 50-mile radius. That is one
of the perceptions that we are trying to break with regard to
the EU. We should not be in that confined situation. What we should
be looking at is raising our head and raising our game so that
we do deal with anyone in Europe. That is the important thing,
and it is getting the barriers away from being able to do that.
A lot of them are preconceived barriers but they are still nonetheless
barriers. Whether they be psychological or physical, they are
still barriers and that is what we have got to try and break down.
That is why the structures that we have been talking about earlier
are so important. It will break those barriers down. I think a
lot of it could be fear even, of the unknown.
Q114 Lord Haskel: But the
ideal of a Single Market is an inspiration to raise your game?
Mr Davenport: Yes.
Chairman: I think that is a very fitting note
of optimism to end on. Thank you very much for coming. Would you
do us the favour, please, of looking at the website at the evidence
sessions which will come in the following two weeks, here and
then in Brussels, because any comments that you have on the evidence
taken, if you could come back to our clerk, we will certainly
bear them in mind when we write our report. The hearing is closed.
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