Europe Moves East: the Impact of the New EU Member States on UK Business
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House of Commons Trade and Industry Committee Europe moves East: The impact of the new EU Member States on UK business Eleventh Report of Session 2006–07 Report, together with formal minutes, oral and written evidence Ordered by The House of Commons to be printed 9 October 2007 HC 592 Published on 18 October 2007 by authority of the House of Commons London: The Stationery Office Limited £0.00 The Trade and Industry Committee The Trade and Industry Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Department of Trade and Industry. Current membership Peter Luff MP (Conservative, Mid Worcestershire) (Chairman) Roger Berry MP (Labour, Kingswood) Mr Brian Binley MP (Conservative, Northampton South) Mr Peter Bone MP (Conservative, Wellingborough) Mr Michael Clapham MP (Labour, Barnsley West and Penistone) Mrs Claire Curtis-Thomas MP (Labour, Crosby) Mr Lindsay Hoyle MP (Labour, Chorley) Mr Mark Hunter MP (Liberal Democrat, Cheadle) Miss Julie Kirkbride MP (Conservative, Bromsgrove) Judy Mallaber MP (Labour, Amber Valley) Rob Marris MP (Labour, Wolverhampton South West) Anne Moffat MP (Labour, East Lothian) Mr Mike Weir MP (Scottish National Party, Angus) Mr Anthony Wright MP (Labour, Great Yarmouth) Powers The committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the Internet via www.publications.parliament.uk/pa/cm/cmstords.htm Publications The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at http://www.parliament.uk/parliamentary_committees/trade_and_industry.cfm. Committee staff The current staff of the Committee are Elizabeth Flood (Clerk), David Slater (Second Clerk), Robert Cope (Committee Specialist), Ian Townsend (Inquiry Manager), Anita Fuki (Committee Assistant), Jim Hudson (Senior Office Clerk) and Cassandra Byrne (Secretary). Contacts All correspondence should be addressed to the Clerks of the Trade and Industry Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 5777; the Committee’s email address is [email protected]. Footnotes In the footnotes of this Report, references to oral evidence are indicated by ‘Q’ followed by the question number. References to written evidence are indicated in the form ‘Ev x’ which refers to the appropriate page number. 1 Contents Report Page Summary 3 1 Introduction 5 2 Migration 7 Impacts of Immigration 9 Skills 9 Wages 10 Employment 12 Overall Impact 13 Exploitative Employment 14 Long-Term Impacts 15 3 The Business Environment in the A8/A2 Countries 17 GDP Growth 17 EU Funding 18 Labour Market 18 Transparency and Corruption 21 Ease of Doing Business 21 Taxation 23 Size of Market 23 The Future 24 4 UK Trade and Investment with the A8/A2 Countries 26 Missed Opportunities? 26 Trade Promotion 29 Relocation 29 5 Conclusions 32 Conclusions and recommendations 33 Formal minutes 40 Witnesses 41 List of written evidence 41 List of Reports from the Committee during the current Parliament 43 3 Summary This Report examines the impact on UK business of the accession of the ‘A8’ countries (the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia) and A2 countries (Bulgaria and Romania) to the European Union in 2004 and 2007 respectively. It is, in part, a follow-up to two inquiries held by our predecessor Committee in the 1997-2001 Parliament. We conclude that the accession of these countries has been beneficial to UK business, but that these benefits could be greater if businesses were better informed about the resulting opportunities. Our inquiry found that the A8 countries—and to a lesser extent the A2—should not be seen as primarily low-cost, low-value economies. They have shown consistently strong economic growth since the Russian crisis of the late 1990s. Their strong skills base, especially in technical skills, was repeatedly cited as a major reason for investing in the region. During our visits we were impressed with the sophistication both of the facilities being established in these countries and the understanding amongst governments and business alike that, to be successful, they cannot compete on labour costs alone and need to attract more high-tech and innovative investment. Although there remain some significant obstacles—in particular a growing labour shortage in the major centres of investment—the prospects for at least some of these countries to move rapidly up the value-chain look good. Although UK trade and investment with and in the A8/A2 has increased substantially since the lead up to accession, the benefits to the UK economy could have been much greater if more companies had been aware of the opportunities emerging in the region during the 1990s. We do not, however, believe that the UK ‘missed the boat’; there remain significant opportunities, not least those resulting from the 2007-2013 European Union funding round and the efforts of the most forward-looking A8/A2 countries to establish high-tech and innovative industries. We therefore recommend that government and business leaders work together to overcome the ‘iron curtain in the mind’ and encourage companies to look more seriously at the A8/A2 countries as potential partners and also, increasingly, as potential competitors. The A8/A2 countries should also be taken more seriously as export markets for UK businesses. Despite the apparent reluctance of UK businesses to become involved in the region, Poland alone buys £2.8 billion of UK exports a year, around the same as China. We therefore believe that there is a good case for UK Trade and Investment to give greater attention to and more actively promote these countries. The most visible and significant impact of the A8/A2 accession has been migration into the UK from the new member states—chiefly Poland, but also Lithuania and Slovakia. It is clear from the evidence we received that this has benefited UK business by easing skills and labour shortages and providing employers with a source of well-motivated employees, often skilled in areas where the UK workforce is traditionally weaker. In the longer term, the evidence suggests that migration from the A8/A2 to the UK is likely to slow: Central and Eastern European labour cannot, therefore, be a long-term solution to the UK’s skills problems. Nonetheless, the cultural, social and economic links between the UK and A8/A2 generated by migrants returning to their home countries could result in significant 4 opportunities for UK businesses looking to move into those markets and we urge both government and the private sector to ensure that the UK derives the greatest possible benefit from these links. During this inquiry, as with our inquiries into trade with Mercosur, India and China, we were told that British trade overseas is hindered by a relative lack of high-level trade missions compared to our major competitors. We believe that British ministers—especially those in trade promotion roles—should follow the example of our competitors and travel abroad more frequently to promote the UK interest; we welcome the new Minister for Trade Promotion and Investment’s intentions in this regard as a positive first step. 5 1 Introduction 1. On 1st May 2004 the fifth enlargement of the European Union saw the accession of eight Central and Eastern European states: the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia (the A8). Cyprus and Malta joined at the same time.1 The fifth enlargement was the largest in the EU’s history, adding ten member states and 75 million people. On 1st January 2007 the accession of Bulgaria and Romania (the A2) added a further 30 million people. 2. In the 1997-2001 Parliament our predecessors conducted a major inquiry into trade and investment relations with the Czech Republic, Hungary and Poland and a subsequent inquiry into trade and investment relations with the Baltic States.2 This Report is intended partly to act as a follow-up to those Reports. 3. The previous Committee’s Report into Industrial and Trade Relations with Central Europe identified a number of sectors—including retail banking, insurance and automotive—where British business had been reluctant to take up investment opportunities. It also identified sectors, such as energy, where British companies had been more enthusiastic. The Report expressed the view that privatisation programmes still offered good opportunities at the time of writing but that it was “getting rather late in the day” for British companies to take full advantage.3 The Committee noted that there was “little doubt” that membership of the European Union would bring the three countries benefits, but “The balance of costs and benefits for existing member states, including the UK, is less obvious.”4 Overall the Committee expressed disappointment that “the level of UK investment in central Europe should be so relatively low.”5 4. The Committee’s report into Industrial and Trade Relations with the Baltic States came to largely similar conclusions. The Committee expressed disappointment at “the relatively low proportion of UK companies investing in the Baltic States” and in particular drew attention to the absence of UK banks and financial services companies in the region.6 The report identified a strong desire among the Baltic States to invest in e-commerce and information and communications technology (ICT) more generally.7 Opportunities arising from the restructuring of energy markets and development of tourism infrastructure were 8 particularly stressed. 1 Although Cyprus and Malta are not covered by this inquiry, where data refers to the ten countries which joined in 2004 they are referred to as the EU10.