TUESDAY 9 JANUARY 2007

CBI

  Q120  Mr Bone: When we came to India, it turned out that it was not a real problem. You could leave it and things would get done. I just wondered, in the context of Brazil, is it a problem? Is it a hurdle? How is it dealt with?

  Mr Campkin: Again, when the Government was looking at revising the bribery and corruption law here in the United Kingdom the CBI made some comments to, I think, a joint committee which was looking at the issue. One of the questions there related to facilitation payments. Our view at the time was that small sums of money which do not change behaviour—in other words, were not geared towards fundamentally changing the behaviour but were related to, as you say, a faster installation of a 'phone line, for example—are not in the same category as requests for vast amounts of money which say: "You will either get this contract or not." I am talking in general terms now, not about this specific inquiry. That remains our position. Indeed, the OECD Convention against Corruption does allow for facilitation payments, and the UK Government, when it transposed the Convention into UK law, chose, in fact, to include facilitation payments, and those payments are illegal under UK law, although there is guidance from the Attorney General's Office that it is unlikely that a British national would be prosecuted for such a payment. Referring specifically to the region, again going back to perceptions, it is one of those perception issues and a legacy of the past that the region is very heavily engaged in corrupt practices. In relation to Brazil, it is an issue but it is not an issue which we believe is a significant and major one, and the conditions have significantly improved, there is no doubt about that. With a lot of emerging markets, as you said yourself, with the inquiry into India and indeed China and the others, companies regrettably are still faced with issues that they would prefer not to be faced with.

  Q121  Mr Hunter: Before I come to the question of double tax agreements, can I just finish off the bit about JETCO. Is it your view that JETCO, ultimately, is going to contribute significantly to stronger economic relationships? Could you summarise what you think the key factors will be in order for its effects to be maximised?

  Mr Campkin: I hope I do not get involved in projects which do not deliver results. Certainly, the fact that I committed quite a lot of my personal time and, obviously, on behalf of my members to the JETCO process means that I want to see it deliver results, and I expect it to deliver results. We will be pushing officials hard, and our Brazilian counterparts will be doing exactly the same, to ensure that it can deliver results. The important thing about JETCO, in the Brazilian context, is that it creates a mechanism that was not there before to raise sometimes difficult issues, sometimes complex issues and to try to find a way of resolving them. We would be very interested to see how far officials have got with a six-month stock take, and at that point we will make a decision on what we will do for the balance of the year leading up to the first, if you like, formal ministerial review in the autumn.

  Q122  Mr Hunter: Has there been any progress on any of the issues that cropped up at the first meeting in September that you can point to, in the relatively brief time that has elapsed since then? Anything that gives us cause for encouragement at the very start of this initiative?

  Mr Campkin: I regret that I, personally, have not had a conversation about that issue to-date.

  Mr White: On recommendation 15—to have a conference on Brazil in London, a seminar on doing business in Brazil—UKTI will be looking to hold that in the latter half of 2007 and have said that they will be involving the CBI in that. So we look forward to working with UKTI on that event.

  Q123  Mr Hunter: There was discussion about sector-based issues as well, as I understand JETCO. Has that been developed? Have there been many sector-based sub-committees set up, or which have met, or anything like that?

  Mr Campkin: As this Committee will know, that issue is intimately linked to UKTI's five-year strategy. What is encouraging is the way in which UKTI has moved towards a more balanced approach towards sectors and markets, and certainly the conversation that I had just before the Christmas break did suggest that in terms of this process itself they would be looking to ensure that the new UKTI focus fully reflected the JETCO recommendations, but I am afraid I have no more information on the detail of that.

  Mr Hunter: I would be interested if you could check out—it is, presumably, yes or no, at the end—whether or not the sector-based sub-committees have actually been developed and if there has been any progress on that since September. What we are looking for is some evidence, rather than just aspirations and hopes, that JETCO is making a difference and that those fine sentiments that were pronounced back in September are being followed through with some concrete action. Anything that you could send to us subsequently to back that up would be appreciated.

  Q124  Chairman: As far as I recall, we have heard the Minister say that, really, probably we are at the limit of the JETCO process now, with three JETCOs established, and ministerial time is limited. Have we got the right three JETCOs? Is there a fourth we really ought to be thinking about establishing?

  Mr Campkin: You are right, Chairman, to identify the fact that JETCOs (or JETCs in the Chinese case) are not going to be applicable to all of the major markets. I think they are best established where there is willingness on the side of the partner government and the partner business community to identify specific issues and to try to make a difference and to try to solve them. The three that have been established to-date are the right ones. To be frank, I do not have a view at the moment as to whether there ought to be another one. My hunch is probably not because we would also want to ensure that the three that are established do deliver the results for business.

  Q125  Mr Hunter: Can we move on to the double tax agreements. We were told that the existence of bilateral double tax agreements with other EU countries could be distorting the trade and investment statistics, as UK companies reduce their own tax by trading with Brazil via subsidiaries in those European countries. Do you recognise that picture? Is that statement broadly accurate as far as you are concerned? Do you think that it is important for the UK to have a double tax agreement with Brazil?

  Mr Campkin: The issue of double taxation agreements are important to our members. I should preface my remarks (apologies) by saying I am not a tax expert, nor do I necessarily wish to become one. Certainly my tax colleagues, in consultation with our members, do believe that double taxation agreements are absolutely critical bits of the building block and it is important that we try to ensure that there is a double taxation agreement with all of our major trading partners, including Brazil. Will that make a difference? Yes, we believe it will; we believe it brings some of the certainty back into tax planning; it provides an envelope for companies to pursue what they want to do. The first part of your question related to, in effect, investing or trading from other entities within a global group. I cannot comment on whether the tax situation has made a particular impact in this case because I honestly do not know. What I could only observe is that a multinational group will make decisions based on a whole range of factors, one of which I am sure will be tax.

  Q126  Mr Hunter: In the interests of time I will pursue the final part of my questions now. Brazil, we know, has signed bilateral Investment Promotion and Protection Agreements (IPPAs) with a number of countries, including the UK, but, I think I am right in saying, has not so far ratified any of them. Do you therefore think it is important for the UK to have an IPPA with Brazil? What would be the obstacles to reaching such an agreement?

  Mr Campkin: As you rightly say, the IPPA is there, it has been negotiated. You are right, also, to say it has not been ratified by the Brazil Congress because of what I understand are constitutional reasons. These need to be addressed in Brazil, and we were very pleased to see that the issue was raised in the JETCO process and recognised as an issue. We will be looking to see how the Brazilian authorities, in terms of their relations with the Brazilian Congress, try to unblock the ratification of what we believe is an important building block in terms of business relations.

  Q127  Rob Marris: Turning it round the other way, in terms of the series of questions we have just had from the Chairman and from my colleague Mark Hunter, talking about the barriers—the lack of double taxation agreement ratification, corruption and 65 taxes or whatever—apart from JETCO, is Brazil doing anything to encourage trade and investment from the UK? If so, what?

  Mr Campkin: The issue of encouraging trade from or investment into Brazil is an issue for the Brazilian Government first and foremost, so I cannot really speak for the Brazilian Government.

  Q128  Rob Marris: With respect, you could actually say whether your perception is (and whether that perception is a reality is a philosophical question we will not get into) that the Brazilian Government is doing anything besides JETCO to, in effect, assist your members.

  Mr Campkin: I think the short answer, in my view, is yes. If you go back to the first question and my first answer, economic stability is absolutely vital for business. Certainly what the Brazilian Government has done in terms of economic management, we believe, is extremely positive and creating the right conditions for business to flourish. That is, I think, an absolutely fundamental change, and the conditions that we have now are fundamentally different to the conditions that existed in 2000 and 2002. If you are looking at other issues, the fact that President Lula came here on a State visit last year was also extremely important; the fact that Alistair Darling was invited to go to Brazil to meet his counterpart, Minister Furlan, was important. Brazil, also, as my colleague Nick Miller knows all too well, is a key member in the WTO negotiations, the leader of the G20 and, indeed, if Brazil can operate on a global scale and help create the conditions for a successful conclusion to the DDA (the Doha Development Agenda) for British business that will be the jewel in the crown. Maybe that goes some way to answering your question.

  Q129  Rob Marris: I want to talk about capital markets for a minute. We visited Clifford Chance, which is a UK-based international law firm, who have an office in Sao Paulo. They told us that the New York Stock Exchange is in Sao Paulo, the business centre of Brazil, more or less every week, as it were, and that the London Stock Exchange comes once a year, or something, if it feels it necessary. Do you think that the capital markets and organisations like the London Stock Exchange are doing enough in places like Brazil to encourage companies in those countries to raise capital and even list on the London Stock Exchange?

  Mr Campkin: The Stock Exchange visited Brazil and Chile in September of last year as part of its rolling programme, and I understand that the Lord Mayor is due to travel out in the second part of this year to Brazil.

  Q130  Rob Marris: That does sound like annual.

  Mr Campkin: It does indeed sound like annual. I was going to go on to say, if I may, that there are a number of other things which I think are important. There has, in Brazil, I think, been a tradition of looking to New York; the north/south axis has been quite prevalent in terms of raising finance. That needs to be worked at hard, and we think that the corner is being turned. I was very encouraged to see, towards the end of last year, a report that CVRD, the second-largest mining group in the world, is considering floating its metals business in London this year. I think that float could be worth something in the region of just over £15 million. So, again, if London can attract those sorts of flotations that is going to be incredibly important. The other asset that, of course, LSE has compared to NYSE is the regulatory environment here, and the importance of, we believe, a principles-based approach rather than a rules-based approach allows much more flexibility and much more ability to raise the sort of finance under the right sorts of conditions and under the right sort of regulatory framework than in New York. I would agree with you it is an issue that we need to work on in Britain. It is one of our big assets here; it is one of the reasons why the Chancellor set up the high level task force on financial services as part of the UKTI five-year strategy.

  Q131  Rob Marris: Do you think that what appears to be a certain indifference on the part of the capital markets based in the UK to countries like Brazil is an obstacle to encouraging other investors from the UK into countries like Brazil? That is, putting it perhaps somewhat simplistically, if the London Stock Exchange is not there then other UK companies will not be there.

  Mr Campkin: That is not always an easy question to answer. It is not quite "night follows day" but I think it is one of those perception issues that I hinted at earlier. I repeat the fact that the LSE has Brazil in its sights; the LSE and International Financial Services London itself sees Brazil as a major market in terms of the way that it categorises its opportunities, and is looking to ensure that it has effective strategies—and we would support that.

  Q132  Mr Wright: Turning to business support from UKTI, is there anything more or different that UKTI should be doing to encourage more bilateral trade or investment? Is there anything that the UK should be exporting to the Mercosur countries that it is not already, or, indeed, not taking full advantage of?

  Mr Campkin: Can I just ask, as a point of clarification, whether you are talking more generally about UKTI strategy or specifically related to Mercosur?

  Q133  Mr Wright: Specifically to Mercosur.

  Mr Campkin: The issue about Mercosur is to look at issues related to, first of all, the major market Brazil, and then to look at the complications that may relate to some of the other markets. This means that, in effect, the advice that UKTI has to offer is going to have to be quite individually tailor-made. We have already said in our evidence that we believe that there are some areas where we have identified some potential, and these were the areas that we took with us into the JETCO. In paragraph 20 of our evidence we identified aerospace, the financial sector, high-tech, IT, oil and gas and timber as areas where we believe that there was some room for further co-operation with Brazilian business. Environmental technologies are also important; there is a British capacity there, particularly with the whole debate over climate change and energy security, and we believe there is a lot more we could be doing in that area.

  Q134  Mr Wright: You mentioned that there is a significant number of industries that we could be involved in or, indeed, increasing the involvement there. In terms of UKTI, do you think there are things that they should be doing differently, or do you think there are areas where they have weaknesses?

  Mr Campkin: Perhaps I can answer that in a more generic sense, because the generic issues reflected in a region-by-region basis. We were asked last year by your sister committee, the Foreign Affairs Committee, to provide a note on UKTI's five-year strategy for a scrutiny inquiry that it was undertaking, and I would be more than happy, Chairman, to send that if you would be interested in seeing that.

  Q135  Chairman: Yes, please.

  Mr Campkin: That was, if you like, a state-of-the-art view of CBI and its members on where the UKTI strategy had got to. We had identified some areas where we believed UKTI still had to work quite strongly and some areas where we believed that changes made sense. On the sorts of areas where the changes made sense, we believed it right to put more focus on the mid-cap companies rather than the SMEs, and we were hearing stories, for example, that many of our members were unable to access UKTI services because they did not fit into the "small" category or the new-to-export market which was the key to unlocking UKTI help and advice. So we believe that the changes that Andrew Cahn announced as part of his strategy were important in that sense: the balance I have already mentioned between sector and market activity, which we believe focused too much on sectors and had not recognised enough about market advice; the balance between inward investment support and trade support, we believe, was in danger of getting seriously out of kilter and, of course, the ongoing saga of devolved administrations and RDAs and difficulties within—

  Chairman: That is quite a big question we asked of you. You have given quite a lot in answer, and I think that has probably given us a flavour of it.

  Q136  Mr Wright: Just continuing in that particular vein with UKTI, at the present time they do not have a presence in Paraguay and I understand that they are going to remove their presence in Uruguay very shortly. Do you think that is going to harm the trade with those countries, obviously, bearing in mind that they are also a significant corridor into the markets of the larger Mercosur countries as well? Do you see that as a retrograde step?

  Mr Campkin: Again, apologies, Chairman, if this might seem a long-winded answer, but UKTI has two parent departments, the DTI and the FCO. We very strongly support the FCO's global footprint and the global outreach of its network of posts. We believe that is absolutely vital, but we do recognise, also, with the public purse issues, that there are issues about resources and where they go. UKTI is putting £5 million into the priority markets that it has identified, which will include Brazil, so there will be more resource going into Brazil. In terms of removing the resource that you mentioned (I was not aware of that), my view more generally about these sorts of issues is that if the market can be effectively served, either through honey-potting or through regional hubs, as for example happens in South Africa, where the post in Johannesburg is actually the regional hub, then that need not necessarily be detrimental to business interests. The final point I would make is that, of course, one does need to look at priorities and if you look at Mercosur, certainly the original members of Mercosur, then Brazil is where the key opportunities are, Argentina has some issues in and of itself and, to be honest, we do not get a lot of inquiries on the other two.

  Q137  Mr Weir: Just following on from that, during our visit to South America we got somewhat conflicting opinions on Mercosur. One company told us that the trade bloc, and particularly its agreement with Chile, allowed greater specialisation; others were much more sceptical about Mercosur. I note you, in your answer, talked about Brazil as being the major market and said that the opportunity is, basically, in Brazil, but how important is Mercosur for the other member countries and, indeed, for Brazil itself?

  Mr Miller: I think Mercosur represents perhaps what we can see as a pattern in other parts of the world, such as in the Gulf, of a growing regionalisation, economically. Clearly, the European Union is the most advanced example of that by quite some way but what I think we need to do is take a long-term view and see Mercosur as part of that process. As part of that, it certainly is very, very important, and it is important for business because it reduces the barriers to trade within a region and to investment within that region, and that thereby has an escalating effect in terms of the investment that goes into that region. So it is important over the long term. There are issues currently with the degree of integration of Mercosur, particularly around the investment climate, services liberalisation, and so on. These are, unsurprisingly, issues that remain the case for the European Union, to a lesser extent. So over the longer term it is absolutely important, but you have to view it as a process that is ongoing.

  Q138  Mr Weir: From the point of view of UK business, does the advent of Mercosur open up the other South American economies, other than Brazil, as a better investment opportunity, or is it still your view that Brazil is the one to concentrate on? Given the language difficulties between Brazil and the rest of South America, does that present any difficulties for companies wanting to locate in the Mercosur area?

  Mr Miller: Brazil, by its sheer size, is going to dominate the picture in Mercosur, there is no question about that, and that will continue. That is an inherent part of Mercosur. Again, the process of economic integration of Mercosur in all sorts of ways, I think, does provide an incentive for companies to invest. If they used to invest in Brazil and the barriers between the other Mercosur countries and Brazil are reduced, clearly there is an incentive for it to, if you like, spill over in terms of investment. So, yes, I think the answer is yes to the question. In terms of the language question, I think that is possibly an issue, but again it is no more of an issue than for Brazil.

  Q139  Mr Weir: What about the development of a political Mercosur? We heard, again, conflicting evidence on how far advanced that is or is likely to go. Do you see development of that, and do you think it would affect how UK business is able to do business in Mercosur?

  Mr Campkin: I will try and respond to that, if I may. When you are looking at Mercosur (or "Mercosul" as the Brazilians call it), there are clearly political tensions, and it would be wrong to deny the fact that those tensions exist. There have been a number of disputes between Mercosur members on a range of issues and there have been problems which have bothered us in terms of the application of the common external tariff, which make life more difficult for business, but, as Nick said, it is an emerging trend. They are trying to find their way through some of these issues, and to that extent we would encourage them to proceed as fast as possible. At the end of the day, what we are looking for, from a business perspective, is stability and certainty. If Mercosur can begin to, within the region, create some of that certainty for business then that will make regional strategies for businesses, which is very much the trend at the moment—part of the globalisation issue—very much more easy to think about and to apply.