The International Chamber of Commerce (ICC) United Kingdom welcomed leading figures of global business on March 17 to debate recent developments and to discuss how business and government can best collaborate to deliver global growth.
- Sir Michael Rake, UK Chair, ICC [Chairman of BT] (chair and co-host)
- Terry McGraw, Chair, ICC [Chairman Emeritus of McGraw Hill Financial] (co-host)
- John Beechey, Beechey Arbitrations
- Kit Bingham, Partner, Odgers Berndtson
- Rt. Hon Baroness Virginia Bottomley, Chair, Board Practice, Odgers Berndtson
- Cynthia Braddon, Vice-President, International Affairs, McGraw Hill Financial
- John Carroll, Head, Product Management & International Business, Santander UK
- Tim Clark, Chair, WaterAid UK
- John Danilovich, Secretary General, ICC
- Robert Elliott, Senior Partner, Linklaters
- Shaha El-Sheemy, Associate, Norton Rose Fulbright
- Kenneth Gardener, Honorary Advisor to the Governing Body, ICC
- Sir Peter Gershon CBE FREng, Chairman, National Grid plc
- Gregory Hodkinson, Chairman, Arup Group
- David Hudd, Deputy CEO, Hogan Lovells
- Paul Korolkiewicz, Global Lead Partner and Head of Audit for International Markets and Government, KPMG
- Peter Mather, Group Regional Vice-President, Europe and Head of Country UK, BP
- Richard Meddings, Chairman of Audit Committee of the Supervisory Board, Deutsche Bank AG
- Simon Morris, Chief Adviser External Affairs, Rio Tinto
- Fred Osborn, Chairman, British International Freight Association
- Andrew Ratcliffe, President, The Institute of Chartered Accountants in England and Wales (ICAEW)
- Anne Riley, Associate, General Counsel Antitrust, Shell International
- John Turnbull, Joint General Manager, Global Head Structured Trade & Commodity Finance, Sumitomo Mitsui Banking Corporation
- RT Hon. Baroness Shriti Vadera, Chair, Santander UK
- Chris Southworth, UK Director, ICC
The global economic recovery remains fragile and is by no means guaranteed, especially when navigating the headwinds of a Chinese slowdown, oil market volatility and uneven growth. This – together with unpredictable geopolitics in the Middle East, a possible British exit from the European Union, and a growing anti-trade sentiment in the West – underlines the need for business to make its voice heard.
Certainly, business needs to keep governments focused on the policies that promote trade, jobs and investment. It is vital to establish an ongoing public-private partnership and dialogue that ensures the priorities of companies driving the world economy are better reflected in government policy – thus helping to deliver prosperity both at home and in the emerging markets.
Rake: There are a number of pressing issues facing us in an uncertain world. What are the top priorities?
McGraw: We should focus on trying to achieve high levels of global economic growth through international trade and job creation. We must also focus on the development of small and medium-sized enterprises (SMEs). We can measure success – we’re either achieving these goals or we’re not. And, at the moment, you could say that we’re not.
Rake: How about the trade landscape? What are the challenges in the financing of international trade?
Vadera: Right now there is an almost anti-trade sentiment across the political landscape associated with anti-globalisation. There are concerns that while trade has been very good for consumers, it is directly linked with the depression of wages, unemployment and growing inequality in some countries. This idea is at the heart of the protectionist viewpoint, and has led to an ‘attack’ on the fundamental premise that trade creates prosperity and jobs. We therefore continuously need to make the case for trade.
What’s more, we must acknowledge that there has been a change in the composition of GDP and its relationship with trade. Trade used to grow twice as fast as global GDP, whereas now it is at, or below, that level. In part, this is due to the fact that while services now play an increasing role relative to manufacturing in global GDP, it is also one of the most protected areas. It is crucial that we place a real focus on services liberalisation in order to allow trade to grow.
Finally, we have the issue of finance. 90% of trade needs financing in some shape or form – the overwhelming majority of which is provided by the banking sector which, of course, has faced capital constraints. This was very judiciously dealt with – thanks in large part to John Buchanan and ICC’s intervention at the G20 in 2009/10, which highlighted the impact of capital regulation on trade finance.
Yet we now have the issue of anti-money laundering (AML) regulation and measures to combat terrorist finance. The current measures have a serious impact – almost 50% of banks said they terminated correspondent relationships due to AML issues and 27% reported terminating relationships even where there was no evidence of non-compliance with regulations. Of course, we need to deal with money laundering problems – so introducing regulation is essential, but it has to be done in a smart way.
McGraw: When you see regulatory pressures increase, all you are really seeing – from a legislative standpoint – is a response to a perceived increase in risk. It is difficult for politicians to pinpoint the exact problem and cause of often very technical issues, so governments are forced to clamp down across the board.
Meddings: Businesses generally understand the risks wherever they have operations. They may not always get it right, but they understand them. However, at the moment, those individuals/institutions are not managing risk, they’re managing the burden of complying with the regulation. And the regulation imposed is sometimes not aligned with the risk businesses face.
Braddon: An effective dialogue between business and government is essential on the anti-corruption agenda. It is so important that companies provide evidence-based case studies of what is happening on the ground so that government can create informed, effective policy.
Rake: Of course, regulation is not just having an impact on the way banks view SMEs and the emerging markets, it also means they don’t want to do anything new, take any risks, accept unfamiliar clients or launch new products. It undermines their ability to properly facilitate trade.
Turnbull: Of course, the regulation is addressing bad practices, but it is also impacting some of the really important international trade initiatives that are crucial for developing countries.
Meddings: That is a very important point: the impact of the withdrawal of banks can also have consequences beyond trade.
The constraints upon banks – not just with regard to the capital banks have to keep in reserve, but also the obligations to ‘know your customer’s customer’ – is making it really difficult for banks to provide services to companies in emerging markets.
Some of these countries have fragile political and economic systems so the withdrawal of bank support in terms of remittance networks – which banks are forced to make, given the level of penalties – can cause significant disruption to the underlying economy and the sources of income which support those populations.
Carroll: There are countless opportunities for trade in Europe but emerging markets offer great potential. The combination of growing populations, burgeoning economies and untapped markets brings opportunities for UK businesses to thrive. Banks play a crucial role in supporting this activity, whether through their own footprint in these markets or via partnerships with local banks that will ensure businesses get the adequate support.
Turnbull: Iran is a good example of isolation being detrimental to political and social progress. Now that sanctions have been eased, trade and relationships can be developed.
Rake: The opening up of Iran is particularly pertinent here. It is a fantastic country to bring back into the international trading system and perhaps critical for a solution in the Middle East. The West has a role to play in opening up trade.
However, it doesn’t help if there is an anti-trade sentiment – as Shriti has highlighted. This seems to be particularly true with regard to the US elections. What are your views on the US election and the use of anti-trade rhetoric used by both sides on the campaign trail?
McGraw: What is happening with the US elections at the moment reflects a sentiment that is also growing in other parts of the world. Voters are fed up with the ‘establishment’: we’re not getting fiscal policy and federal policy right, there is a feeling that the establishment is not delivering the growth, job creation and prosperity that is needed.
Gardener: ICC’s raison d’être is international trade. Our prime focus should therefore be to challenge the anti-trade rhetoric using verifiable statistics that demonstrate that the benefits of international trade in creating jobs and shared prosperity.
McGraw: It used to be that the US, EU and Japan accounted for 85% of the world’s GDP, but now their share is looking more like 30% – not just because of their failings but because of the success of the emerging markets in growing their share. When your share is a little over 30%, trade is critical – you can’t be isolated and you have to engage with emerging markets. Protectionism and isolationism are not viable options for the US.
Rake: We also have to look at the EU and the looming British referendum. Many people around the world can’t believe that the pragmatic, sensible British are actually discussing the idea at all. Unfortunately, the current debate is largely fact-free. It is one of the most important decisions the British population will make in a generation and they need to be well-informed. What are your views on the EU referendum?
McGraw: There is a fragmentation across Europe. However, when you have a problem the solution lies in co-operation and co-ordination. The UK holds a level of respect and leadership in the world economy and its needs to be heard. But it should be heard in the context of the EU, in a leadership role – helping to raise the level and capabilities of the others. The UK’s voice would be diminished on the world stage by leaving.
Rake: Certainly, communication and collaboration is key – not just between countries (UK and the EU, for instance, or with Iran) but, vitally, between business and government. Wouldn’t you agree?
McGraw: It is crucial that business and government work together. Governments need to set the framework in which businesses can deliver the growth, job creation and prosperity for their citizens. Saying that, governments are only there for as long as they are elected and new governments need time to adjust. Having a consistent business voice can help support governments early on and get them up to speed so they can start making policy. In some cases government and business operate separately and are very isolated from each other. Global progress and prosperity relies on them working together.
Braddon: Government sets policy and business executes. If we don’t help the government understand the impact of what it’s proposing, the ramifications can be significant. If business wants to operate in a favourable environment it needs to take an active role in working constructively with policymakers.
Bottomley: We need to remember that business and government are different creatures. In politics, unlike business, it is almost impossible not to over-promise and under-deliver. Whereas it is well-known that in business if you over-promise and under-deliver, you’re toast!
There are certain particularly difficult and controversial topics that affect commerce and growth (airports and railway lines, for instance). Politicians don’t want to upset voters and lead an unpopular campaign. Business needs to step up and make sure the issues are addressed and help make the case for change. At ICC we can make an evidence-based valuable contribution to the debate.
Ratcliffe: One of these issues is sustainability. It is a problem for both business and government. We have short-term governments and short-term earnings releases but sustainability can only work with long-term planning.
Beechey: If we look at the EU, there is very little dialogue between business and government, where it concerns the Transatlantic Trade and Investment Partnership and dispute resolution. The Commission and the EU Parliament have been listening to NGOs, which have been feeding them a great deal of misinformation. Business seems to have been intimidated by what has been going on and now has a fairly low profile.
We need to look at how we can break through and begin a more constructive dialogue. We need to get the facts across so we can at the very least have an informed debate.
Ratcliffe: Even with business and governments communicating, however, it has to be more than just advocacy. We have to make partnerships and create better infrastructure. The focus should be on training and skills to enable business to flourish.
Rake: It’s true that it is about the ‘doing’ as well as advocating. Yet it starts with business making its voice heard. Of course, it has to be in the right way: you can’t have everyone saying everything at the same time. In part, this is the role of ICC – to listen to the concerns of business and make sure a clear voice is heard on the global stage.
McGraw: Yes, you have to have clear messaging. Fifty topics and hundreds of different voices distract governments from the real priorities and halts progress. Government and business need to work together, but in order for the collaboration to be effective the voice of business must be loud, orchestrated and focused.
That is the role of ICC and we are seeing incredible receptivity. Take the B20 and G20, for example. The rise of the emerging markets meant that it was only natural to expand the G8 into the G20. The first, in South Korea, was a challenge, because they came up with too many priorities. France was much the same. It wasn’t until Mexico, when ICC got involved with the priorities and we stripped it down to five agenda items that we made some real progress. This is the agenda we now follow and fine-tune for each G20.
That is one of the key roles of ICC – to listen to business and work with governments to stay focused. With Germany acting as the host country for next year, this is a unique opportunity for the UK, in particular, to support Germany to present a strong, focused pro-growth agenda.
Braddon: It is so important for UK companies to be at the table at the B20 through ICC. The role of B20 in relation to G20 is to hone in on what recommendations government and business should work on together to achieve economic growth, international trade and job creation. With ICC at the helm, the B20 is getting better and better at focusing its recommendations on issues that matter to the private sector.
McGraw: And it is not just the G20 – ICC has been working with governments worldwide on Sustainable Development Goals (SDGs) as well as climate change. We were very involved in the COP21 negotiations in Paris in December 2015. We were there to be part of the dialogue and to make governments recognise that it is business that will execute their policies.
Danilovich: We played a central role in the development and launch of the UN’s Sustainable Development Goals last year. We were designated by the UN as the lead business representative at COP21 and just recently met with the head of the upcoming COP22 process.
With regards to business engagement in the G20: we were, without doubt, the leading international business voice in last year’s cycle. In this year’s B20 process, we have a number of our top people as co-chairs of task forces in China. Terry is co-chair of the trade task force. Marcus Wallenberg is vice-chair of the infrastructure task force. Sunil Mittal is one of the leaders of the SME task force. So ICC, and the orchestrated voice of business, is well represented.
Rake: What about the role of the WTO? It seems like a lot of businesses are disillusioned with the idea of WTO, yet I suspect we all intellectually support initiatives such as the Trade Facilitation Agreement. What more can we do to ensure it is ratified?
McGraw: Roberto Azevedo, the Director-General since 2013, is making a difference by instilling a very open approach and works well with all stakeholders, including ICC. He has taken a proactive approach to engaging with business.
With globalisation happening so fast and so much disparity between economies, it is difficult to create a multi-lateral agreement.
The trade facilitation agreement, agreed in 2013, will put a trillion dollars into the global economy and is going to create 21 million jobs – 18 million of which will be in the emerging markets, especially in Africa. It is a home run and should be easy to execute. But getting it ratified is still a problem. The agreement will be of great benefit, yet business remains quiet.
The trade facilitation agreement is the perfect example of where the orchestrated, co-ordinated voice of business, under the auspices of ICC, could make all the difference.
Rake: What has come through very clearly during this roundtable is that we need business to speak out on the important issues that impact trade and the global business landscape in general. We need to reaffirm the case that trade is crucial for jobs and prosperity. We should support the B20 and G20 processes, as well as highlighting the importance of initiatives such as the Trade Facilitation Agreement. Finally, it is vital that business and government collaborates – that is the surest way to reach our objectives of economic growth, international trade and job-creation against a turbulent economic and geopolitical backdrop.