Look behind the headlines for the real story on UK trade diplomacy

Andrew Wilson
ALMOST two years ago, David Cameron used his first tour of the United States to announce a major change in foreign policy. He outlined plans to refocus British diplomacy on promoting UK businesses abroad – with diplomats told to use “every opportunity” to win orders for domestic firms.

Many commentators may view the Prime Minister’s trip to East Asia this week as an opportunity to evaluate that policy’s success – or otherwise. The early dispatches from the trip certainly look promising: a new £127m investment in Nissan’s Sunderland plant is likely to be just the first of a string of major deals signed through the week.

The headlines tell only part of the story, however. A proper assessment of the UK’s strategy needs a more careful look at the day-to-day realities of trade promotion. This has two strands.

First, on inward investment, the “Britain open for business” refrain needs to be backed by domestic policies that firmly re-establish the UK as a centre for international business. Here, there remains some work to do. Britain slipped from fourth to seventh in the most recent global league table for inflows of foreign direct investment – losing its crown as Europe’s leading destination to Germany and (more surprisingly) Belgium.

One of the reasons for this slide is the UK’s tax regime, which remains a major deterrent to international investors. Imminent changes to the UK’s international corporation tax rules – announced in last month’s budget to relatively little fanfare – should help woo multinational groups looking to set up either a holding company or an operational hub in Britain. But there is much unfinished business when it comes to completing the reform of the UK’s complex and burdensome tax regime.

Likewise, some major firms have been right to warn of potential damage to the UK’s competitiveness from a raft of proposed EU regulation in the fields of corporate responsibility and transparency. In general, Whitehall needs to be far more attuned to how domestic regulation affects the perception of the UK as a place to do business. Trade diplomacy needs to start at home, with all new legislation scrutinised carefully through an international lens.

Second, when it comes to promoting exports, it would be wrong to discount the importance of trade missions as a tool to open up new markets for British firms. However, the emphasis – at least in terms of media coverage – is often misplaced. The real value for most UK businesses comes not from one or two multi-million pound deals (important though these are); but rather the potential to develop much closer working relations with foreign governments.

One area requiring special attention here is the growing use of non-tariff barriers to block access to overseas markets. Recent figures from the Global Trade Alert initiative show that the use of such measures is on the increase – often taking the form of environmental or product regulations introduced with the covert aim of choking off international competition. While this issue has been on the agenda at every G20 Summit since 2008 many major economies are now world leaders when it comes to taking these subtle steps to close their markets. Where high-level summitry has failed, trade diplomacy must fill the void.

To capitalise on the success of trade missions, however, it’s clear that the UK’s diplomatic network needs re-equipping. This means placing staff with specialist expertise in overseas posts with a view to engaging with local officials where problems arise. Embassies need to be more alert to the impact new regulations could have on international trade. Some efforts have been made to do this in recent months – most notably with the appointment of an IP attaché in Beijing – but the good work needs to continue.

On arriving in Japan the Prime Minister is reported to have told journalists that part of his job is to “load up an aeroplane full of business people... get out there and fly the flag for Britain”. That is certainly true: but behind that plane the government needs to continue to develop and enhance its diplomatic machinery for trade. Those efforts won’t hit the headlines, but they certainly have the potential to deliver for the UK.

Andrew Wilson is director of policy at the International Chamber of Commerce in the UK. www.international-chamber.co.uk