Meirion Jenkins was Parliamentary Candidate for Bridgend in 2015 and has assisted DIT (formerly UKTI) as an international trade advisor. He is shadow cabinet member for Value for Money and Efficiency on Birmingham City Council.
The Government has set an objective to increase exports to £1 trillion a year by 2020. It looks ambitious when you consider we currently export barely half of this with a trade gap of 5 per cent of GDP. On 30th Sept, a balance of payments deficit of £28,684 million was announced for the second quarter of this year. That said, when compared to other exporting nations, it seems perfectly reasonable that we should be capable of operating at the Government’s target level.
I have spent eight years working at a detailed level with individual businesses who are either new to exporting or wish to increase their export activity. These are my observations as to how we can up our export game – here are the two game changers. They go together and feed off each other.
First, the macroeconomic levers. Businesses and business people respond to these levers which should be deployed to encourage a focus on export activity. Free of the EU, which frowns on tax competition, we can set differentiated rates of corporation tax for export sales. Such a change would be a massive help to small and medium sized businesses that are unable to exploit international transfer pricing that the multinationals enjoy.
We could abolish air passenger duty for overseas selling trips. We could create onshore “free trade zones” where export only subsidiaries of onshore companies could be freed of tax and “red tape” overheads on their export sales activity, resetting many of the macro-economic advantages that our overseas competitors currently enjoy. Above all, we need to be bold.
Although much is made of trade agreements with other countries, a trade agreement is not needed to export. Our largest single country export market is the US and we don’t have a trade agreement – just a desire to trade together. In many ways, free trade agreements are only needed as a state intervention to nullify a previous state intervention which created barriers to free trade – i.e: import tariffs or technical restrictions to favour the home market etc. The natural state of human existence is free trade before politicians get involved. Of course, if a free trade deal can be negotiated then that’s marvellous. The free trade deal with South Korea saw a 70 per cent increase in our exports but, for example, the absence of a free trade arrangement (as TTIP talks drag on and CETA may not be implemented?) doesn’t stop US and Canadian firms selling into Europe’s single market.
The second game changer is culture. Small countries with limited domestic markets seem to engender a natural export culture (Singapore, Hong Kong), but even our European competitors also seem to have more of a natural inclination to export. For example, Germany is the third largest exporter in the world. As a proportion of GDP, in 2015 we exported less than half that of Germany and, by the same measure, less than Netherlands, Belgium or Italy. In the UK, while 41 per cent of big companies (over 250 employees) are exporters, overall only 11 per cent of UK companies export. We need to create a culture of exporting such that every business that is capable of export, from birth, sees itself as a global seller. Cultural changes in this respect will follow the mood set by the government using the macroeconomic levers.
The facilities and resources at the new Department of International Trade (was UKTI) can help, although I doubt they will be the game changer we need. The existing network of international trade advisors along with the commercial officers based at almost every overseas embassy and high commission provide a solid bedrock of well-informed resource to help British companies operating in export markets. As well as providing a wealth of knowledge about local regulatory and market requirements and even cultural considerations, they can also undertake bespoke market research on behalf of British companies. Clients say to me that they value the assistance received from international trade advisors, which, in general, varies from a mentoring/consultancy style for smaller businesses and new to export companies, to more market specific guidance for the medium and larger companies.