Select Committee on Trade and Industry Annxes to the Report


Memorandum submitted by the Department of Trade and Industry

  This memorandum has been prepared by the Department of Trade of Industry (DTI) in consultation with the Foreign and Commonwealth Office and with contributions from the British Embassies in Prague, Warsaw and Budapest. It responds to a request from the Committee for a report on progress since the DTI last submitted information in February 1999.

  The Department is pleased to have this chance to update the Committee. It is a timely stage at which to take stock. The process of integration of the Central and Eastern European countries into the EU has moved ahead, with the progress of negotiations with the first six candidate states (the Luxembourg Six—Poland, Czech Republic, Hungary, Estonia, Slovenia and Cyprus) and the recent opening of negotiations with a further six states (the Helsinki Six—Latvia, Slovakia, Lithuania, Malta, Bulgaria and Romania). The Helsinki European Council also decided to recognise Turkey as a candidate for EU membership.

  Alongside that work, British Trade International has continued to be actively engaged in the markets of Central Europe, following the end of the Open for Business in Central Europe Campaign in March 1999. Building on the momentum gained from the earlier market-awareness Campaign, British Trade International launched a new two-year programme last year call Opportunities in Central Europe. The principal objective of the new programme is to introduce British companies new to the Central European Markets through their attendance at UK events and their participation on Government-supported in-market initiatives.

  The need for this new programme was identified by the Export Forum in late 1998. As part of their recommendations for the overall honing of Government's trade promotion focus, they proposed prioritising export markets where the consensus view was that Britain could significantly improve its overall export and investment performance.

  The remainder of this memorandum deals with the Committee's specific points.

Q(i).  "Whilst we appreciate that the BOTB has been subsumed into British Trade International since the Government's response, it would be helpful to know if the annual review of markets and sectors was carried out, when it was carried out, and what were the results?"

  A.  Preliminary discussions have started on reviewing British Trade International's markets and sectors initiative. However, the relevant business advisory groups have recommended that the current markets and sectors matrix be allowed to run its full year (up until the end of March 2000) before undertaking a formal review.

Q(ii).  "How many (outward) missions (to Central Europe) has DTI supported?"

  A.  In the two-year extended "life" of the Open for Business in Central Europe campaign (which concluded in March 1999), a total of 27 outward missions visited the five markets of Central Europe with DTI financial support under the terms of the Outward Missions Scheme (OMS). Many of these missions visited more than one market as part of their respective itineries. The mission breakdown by country visited was as follows:


—  Poland 16 missions
—  Hungary11 missions
—  Czech Rep7 missions
—  Slovenia2 missions
—  Slovakia1 mission.


Q(ii).  "What evaluation of the missions has been carried out?"

  An evaluation of the outward missions that took place during the Campaign has taken place. The evaluation sought to establish:

    —  the number of missions which actually went ahead compared with the total offered support;

    —  the number of companies "captured" by the scheme; and

    —  the percentage of companies new to the market being visited.

Q(ii).  What were the results?

  Of the 40 missions offered OMS support for Central Europe over the period of the Campaign, 32 per cent (13) were cancelled due to an insufficient number of companies being recruited by the designated sponsoring organisation. (The Terms and Conditions of the OMS scheme require a minimum of 10 companies for a mission to proceed.) There is a separate discussion below of the reasons for this apparently high attrition rate.

  A total of 363 British companies participated in the 27 outward missions to Central Europe and had the benefit of support under British Trade International's OMS.

  A total of 363 firms, more than three quarters (77 per cent) were new to the market they were visiting. The breakdown is as follows:


— Poland234 companies of which 162 (69 per cent) were new to the market;
— Hungary149 companies of which 127 (85 per cent) were new to the market;
— Czech Rep85 companies of which 69 (81 per cent) were new to the market;
— Slovenia18 Companies of which 12 (66 per cent) were new to the market;
— Slovakia19 Companies of which 16 (83 per cent) were new to the market.



  The OMS, in common with all British Trade International's export services, is subject to continual and independent assessment of customer satisfaction under the Quality Management Survey (QMS). Customer satisfaction rates for the OMS for Central Europe are at least equal to those of other market areas and are universally high (well in excess of the 80 per cent target) across the various criteria of:

    —  increased knowledge of market;

    —  new business contacts;

    —  value for money; and

    —  overall satisfaction.

    —  Overall satisfaction

      British Trade International's Central Europe Unit also undertook a separate review of the OMS scheme as it applies to the five markets to establish why there was such an apparently high attrition rate. The principal conclusions were:

    —  that the mission attrition rate for Central Europe was in fact no worse than the "global" average;

    —  as developing markets, company interest in Central Europe lags behind that of the sponsoring organisations bidding for missions to specific markets. The latter were (and remain) keen to develop companies' interest in the potential opportunities that Central Europe has to offer;

    —  companies have their own export market priorities that, in many cases, are set up to 18 months in advance. The level of market interest raised by the Campaign among companies is not necessarily reflected by a concomitant or early shift in established company market priorities (and their associated resources) towards Central Europe;

    —  the need for British Trade International to work more closely with the OMS sponsoring organisations to ensure they have the necessary access to resources to successfully plan, recruit and deliver their respective missions;

    —  British Trade International and the OMS sponsoring organisations should make better use of the electronic media to promote the Central European markets and the export support schemes (that facilitate individual company access to these markets) to ensure greater coverage of the British business community.

CAMPAIGN EVALUATION

Q(vii).  It would be helpful to have a copy of the (campaign) evaluation and an indication of the action taken as a result

  A.  A copy of the Campaign's evaluation paper is attached for reference.[3]

  As was identified in Mr Harris' oral evidence to the Committee in July 1998, the achievement of the principal targets (a doubling of exports and 100 new investments) set for the Open for Business in Central Europe campaign was, in retrospect, largely outside the Department's control. External influences such as the August 1998 financial crisis, that had a particular impact on Russia and Eastern Europe and smaller, but not insignificant, effect on Central Europe, were a major factor in disrupting the confidence of British exporters and investors, as much as the actual reality of the market conditions and prospects for them in Central Europe.

  Despite this however, through the promotion of the markets under the Campaign, British Trade International established contact with many companies new to the Central European markets and was successful in introducing them to the markets. Evidence of this is found in the high percentage (77 per cent) of firms participating in the OMS that were new to the market being visited.

  Since the Committee's report was published in November 1998, British Trade International have been made aware of further significant investment interest from British companies, particularly among retailers and automotive and electronic component manufacturers. Initial contact with these companies was made during the Campaign; some were targeted by our Export Promoters for specific presentations on the potential opportunities the markets had to offer them as investors.

  Evidence of continuing interest in Central Europe can be seen in the resurgence of British company interest in the Czech market following its emergence from economic recession last year. CzechInvest, the Czech inward investment agency, have informed us that nearly half of the prospective inward investment cases they are working on involve British companies, many of which are in the retail and automotive and electronic component sectors.

  British Trade International has developed a close working relationship with the Czech, Hungarian and Polish inward investment agencies and can legitimately claim to have assisted UK companies to take advantage of the emerging trade and investment opportunities being developed in Central Europe.

RENEWED BRITISH TRADE INTERNATIONAL FOCUS ON CENTRAL EUROPE

  This new programme, incorporating the valuable lessons learned from the earlier Open for Business in Central Europe campaign includes:

    —  a series of individual and consecutive market "Opportunity . . ." initiatives focusing in turn on the Polish, Hungarian and the Czech markets;

    —  a UK regional programme of seminars/workshops (following a high-profile ministerial-led London launch event in partnership with CBI) for each of these three market initiatives focusing on the mechanics of doing business in the individual markets; this is aimed primarily at the needs of SMEs;

    —  a number of target sector initiatives across the Central European markets with an equal emphasis on exporting and investing;

    —  a full programme of outward and inward missions and supported in-market trade fairs; and

    —  at least one "showcase" event in each of the three markets profiling UK business and technical excellence.

  An initial assessment of the first of the three initiatives—Opportunity Poland—undertaken at the end of 1999 suggests that the principal objective of introducing new companies to the opportunities in the market has been achieved. More than 350 companies attended the series of UK regional Doing Business in Poland seminars. Of those that responded as part of the initial assessment, over 60 per cent were new to the Polish market.

  Similar assessments of the Hungarian and Czech programmes will be undertaken as those programmes are completed as will corresponding assessments relating to the programme's in-market activities.

Q(ix).  The Committee recommended that a detailed economic analysis of the likely effects of enlargement on existing Member States be carried out and enquired as to what has been produced by the Commission or by the UK Government

  We are not aware of any work which the Commission has done specifically on this subject. We do, however, attach a report by DTI economists[4] which examines, in particular, the effect of EU enlargement on the UK economy, and brings together other recent work. The report concludes that enlargement should have a positive effect on the economies of present member states although the size of that effect will depend on the level of bilateral economic activity with the applicant countries. The candidate countries will experience more substantial gains.

Q(xi).  It would be helpful to have an update on UK involvement in the secondment of experts to the candidate countries

  The UK is participating in a total of 43 twinning projects from the 1998 and 1999 rounds. The UK is among the top three Member States involved in twinning, and on average 80 per cent of UK proposals are chosen by the candidate countries.

  After the success in bidding for projects in the 1998 round, DTI suffered during 1999 from a lack of suitably qualified candidates available to lead projects, so fewer new bids were made. To address this, DTI held a successful "recruitment" campaign in December 1999 to enlist further candidates and now has a pool of potential candidates to call on when details of projects are released in 2000. Details of DTI's involvement are given below.

1998 TWINNING PROJECTS

  UK Government departments lead on 13 twinning projects from the 1998 rounds, and are involved as a partner in a further 11, all of which have now begun. The projects are spread throughout the candidate countries: in Bulgaria, the Czech Republic, Hungary, Latvia, Poland, Romania, Slovakia and Slovenia. There were unfortunately no successful UK bids from the 1998 round in Estonia or Lithuania.

DTI PROJECTS ARE:

    —  State Aid project in the Czech Republic—(in conjunction with France and Spain);

    —  development of a market surveillance system in Hungary—(in conjunction with Sweden);

    —  preparation for Structural Funds in Poland—(with Denmark, Finland, France, Ireland and Germany);

    —  development of a training capacity for regional development in Romania (in conjunction with Strathclyde University);

    —  (In a secondary role) Development of policies to promote regeneration after coal and steel restructuring, in Poland (led by Spain).

1999 TWINNING PROJECTS

  UK government departments were chosen to lead 13 projects in the 1999 round. These are in Bulgaria, the Czech Republic, Lithuania, Poland and Slovenia. The UK has been chosen to support a further seven projects in the Czech Republic, Hungary, Poland and Slovenia.

  DTI have submitted bids for two additional projects: one in the Czech Republic on supplier linkage and competitiveness and one on State aids in Bulgaria.

Q(xii)  The Committee asked about DTI's plans to undertake further consultation on enlargement. What action has been taken to ensure more substantive engagement by DTI's main client groups?

  It has been decided to delay publication of the consultation paper until Spring 2000. This will enable it to provide full coverage of the developments following from the Helsinki European Council, which was a major step forward for the Enlargement process.

  The new paper will incorporate lessons learned from the response to its predecessor. The document will be less academic and more widely distributed. In addition to taking forward the consultation process on issues of policy it will aim to increase awareness and understanding of enlargement in UK businesses. It will promote market opportunities in each applicant state. British Trade International are closely involved in its production. We are aiming to launch the paper in the spring of 2000.

  The new paper on enlargement will form the core of DTI engagement on enlargement with our main client groups. It will be a published document, and will form a major part of the enlargement section of the DTI website, which will be re-launched with a focus on the paper and the Helsinki developments. The DTI's other recent report on enlargement "How might enlargement of the European Union affect the economy of the United Kingdom", as mentioned above, will also be placed on the site, offering a more detailed economic perspective to complement the information in the Consultation Paper. This will support our regular dialogue with the CBI, trade associations and other business organisations on EU enlargement and the commercial opportunities in Central and Eastern Europe.

Q(xix).  The Committee would find it helpful to have a progress report on the implementation of the Europe Agreements and the elimination of the problem areas identified in the report as potential barriers to trade

  Progress on the implementation of the Europe Agreements has generally been good, moving towards the creation of a single market which includes the accession states. The structure of Association Committees and specialist sub committees provide fora for engagement at all levels between the EU and the CEE states and allow for the discussion of specific problems. Formally, the Commission has now proposed that Hungary move to the second stage of its agreement. Other states are likely to follow.

  In the EU and in contacts with applicant states, the DTI continues to emphasise the importance of single market issues. We continue to discuss specific problems about trade with the accession states with the business sectors affected. We would welcome being informed about difficulties UK businesses face in working in the accession states, so that we can raise them at appropriate opportunities with the Commission and in bilateral contacts. This is one of the purposes of the consultation paper.

  The European Commission, who administer the Europe Agreements, produce annual reports on each country's progress towards EU accession. These reports also cover progress on matters covered by the Europe Agreements.

COMPETITION POLICY

  DTI welcomes the Committee's continued interest in this area, which is a key part of the wider single market acquis. The recent Commission progress reports showed that there was good alignment with the acquis in the area of competition law, but that all three states considered by the Committee needed to make further progress on monitoring and controlling state aids. This is an area of obvious significance to UK business, and DTI continues to press for progress. A UK State Aids expert is now working in the Czech Republic under the twinning scheme and we have bid for another State Aid twinning project in Bulgaria. We also regularly provide more informal advice on state aids to officials in the accession states.

CUSTOMS

  There has been progress in all the countries considered here, although the Commission has pointed out in each case areas where further work is needed, especially in the case of Poland. HMCE continues to be involved in providing assistance. In Poland the UK is leading a Twinning consortium involving France, Germany, Netherlands on a project due to start in May to supply training, trade facilitation advice, IT infrastructure advice and a user requirement for a customs declaration processing system.

  In the Czech Republic, probably starting in July, the UK is again the lead but likely to partner with Germany in a tax project to supply advice on the development of a strategic plan, staff training programme, tax payer communication strategy and report on the options to upgrade the tax information system. This will include joint working with the Inland Revenue.

CERTIFICATION

  Like Customs, adoption of the acquis in this area is a key step for effective participation in the single market. It is clear that progress is being made, with the new Polish legislation on conformity assessment an important step towards addressing a long standing trade barrier. The UK continues to offer assistance and support where we can, through the PRAQ and TAIEX programmes. As part of the PRAQ programme, the UK is assisting the accreditation bodies of the applicant states to prepare for full membership of the European co-operation system for accreditation. As part of the twinning project for the development of a market surveillance system in Hungary the UK is working with Sweden to ensure that appropriate certification procedures are in place. The UK also provides practical support from a range of UK technical experts in particular on the New Approach Directives.

INTELLECTUAL PROPERTY RIGHTS

  As we said in our previous response, this is an important single market issue for accession, frequently raised with DTI and other parts of the Government by concerned businesses. DTI has been active in Brussels in ensuring that the interests of British business are taken properly into account in the enlargement negotiations. It is clear that there has been progress in the CEE states, but that adequate enforcement is still an issue in some areas.

  In all these areas, the quality of enforcement of the acquis will become an increasingly important issue as the candidate countries approach membership. We shall be relying on the Commission, the experience of UK businesses in those markets and on our own knowledge of each administration to assess each country's progress.

March 2000

Industrial and Trade Relations with the Baltic States, Twelfth Report of Session 1999-2000, HC 835: Government Response, Eleventh Special Report, HC 907

  1.  In April 2000, the Committee announced an inquiry into industrial and trade relations with the Baltic States concentrating on UK trade with these countries, levels of foreign direct investment and prospects for EU enlargement. The Report was published in July 2000. The Committee concluded that Estonia, Latvia and Lithuania showed every sign of meeting the requirements for EU membership in the relatively near future, although some problem areas remained. It was disappointed at the relatively low proportion of UK companies investing in the Baltics, in particular the absence of banks and financial services companies.

  2.  In its reply of October 2000, the Government agreed with the Committee's summary and recognised the importance of practical assistance for the Baltics. It announced support for twinning projects with the Baltic States and agreed with many of the detailed observations made, including on the process of privatisation. It took some objection to the criticism expressed of the level of UK support for decommissioning of the Ignalina nuclear reactor in Lithuania. The Committee is likely to continue to keep these matters under its attention.


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