Speech

The business of diplomacy

This speech was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Foreign Secretary William Hague spoke at the Confederation of British Industry Annual Conference on 21 November.

I congratulate the CBI on the theme for this year’s annual conference. There are few more important subjects for the future of our nation than how we generate growth and find new markets for our trade.

Our Foreign and Commonwealth Office exists to defend and promote Britain’s national interests in their broadest sense. Today, more than at any other moment in recent history, that national interest requires us to use British diplomacy to support jobs and growth in our economy. That is what we have set about doing.

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As I will set out in this speech, alongside all the attention we devote to the Middle East, to Afghanistan and Pakistan, to all the other challenges in world affairs, not a day goes by when I am not also relentlessly pursuing our commitment to elevate the importance of economic and commercial diplomacy within British foreign policy.

Not everything in foreign policy is about trade of course: our nation’s interests are far broader than that.

When we intervened to prevent a massacre in Libya, or when we champion human rights in the most oppressed regions of the world, we do not do so because of trade but because of our international responsibilities and our values as a nation. We must always seek to advance political and economic freedom and poverty reduction, recognising that in an inter-connected world these things are also essential to our long term security and prosperity.

But our ability to promote human rights effectively as well as to contribute to a secure and peaceful world, ultimately rests on our economic strength as a nation.

Our generous international development programmes - the largest donor of the G8 countries relative to Gross National Income; our network of 262 Embassies and other diplomatic offices - again, one of the largest of any nation; the fact that we are able to be the third largest financial contributor to UN peacekeeping operations and that we still enjoy today some of the most effective Armed Forces in the world, all ultimately rely on the health of our economy.

A strong economy is the bedrock of international influence. That is an ironclad reality that Governments ignore at their peril.

The foundation of this country’s power in the past, and much of its influence today, was and is its trading prowess.

We are the sixth largest trading nation in the world.

We export almost 30% of our GDP.

It is our success in trade - based on ingenuity, innovation, openness and enterprise - which has made Britain what it is today, and today, the idea that Government spending can be the engine of sustainable growth in developed economies is now dead. With the international financial system damaged and consumer confidence eroded, the one sure way for all to prosper is to shake off barriers to trade.
Our future prosperity requires us to look further afield and to seize the many opportunities that the global economy presents for an outward-looking and highly-developed economy like our own.

So the Prime Minister and I came to office determined to lead a drive for more Foreign Office support to British-based business and for our economy as a whole: building stronger bilateral relationships with the fastest-growing economies of the world, drawing on the access, political understanding and international presence of our diplomats to make the connections that help our companies expand and invest, attracting new investment into the UK and identifying where there are barriers to trade that we need to break down.

Our Government inherited the worst fiscal position of any British Government since the Second World War. In the last government foreign policy rode on the back of an economic policy that was living on borrowed time and built on a vast pile of borrowed money. Its leaders strutted the world stage while our economic growth ran out of steam. Our job now is not only to restore our finances and make the right decisions about foreign policy today, it is to help restart the growth that will give the country its influence and prosperity twenty or thirty years from now. That is what we have set out to do, developing a concept of economic diplomacy alongside its political counterpart.

Some people have criticised us for this. Not everyone in the country understands the essential importance of expanding trade.

When the Prime Minister took a trade delegation to India and China last year, one newspaper sniffily described it as “zealous mercantilism”. That is an example of shallow thinking and lack of understanding of the real world that we have to confront and defeat.

Mercantilism is the idea that one country’s prosperity comes at the expense of another. It is the absolute antithesis of the free trade and economic liberalism that in Britain we should all champion as the route to secure prosperity for all nations.

If those people who criticised us or who say that Britain doesn’t make anything anymore could actually see with their own eyes what British businesses are accomplishing in aerospace, in pharmaceuticals and health technology, in robotics, in computer software, in architecture and design or in other areas where British companies are among the very best in the world, they would be inspired, as we are by these capabilities. These are the sorts of brilliant products and know-how that our country should be proud to sell to the world, and which this Government is proud to promote overseas.

So our approach to trade and new markets was right when we came into office last year. It is even more important now. The global economic situation is deteriorating. The eurozone crisis is the biggest international threat to our prosperity.

As you know Europe is our most important marketplace. Eurozone countries bought 42% of our exports last year and the wider EU provides 43% of our inward investment. Our most important marketplace faces a worrying combination of anaemic growth and uncertainty. This has serious implications for British jobs and growth.

The EU is also the world’s marketplace. Every manifestation of the euro’s difficulties sparks aftershocks in other economies.

The Prime Minister, Deputy Prime Minister, Chancellor and I have been working tirelessly with our European counterparts in and out of the euro to help find solutions. Last week, we welcomed the appointments of Prime Ministers in Greece and in Italy. But the eurozone has more to do to reassure markets and citizens that it is dealing decisively with its problems.

Our Government’s message to all countries in Europe must be that there is no answer to the financial crisis without the promotion of growth.

We must complete the single market as the engine of European recovery, including full implementation of the services directive.

We must reduce costs of doing business with a reduction in the overall EU regulatory burden.

Now is absolutely the time to redouble and bring to fruition efforts through the EU to secure trade and market access in the emerging powers. We must press forward with vital negotiations on EU Free Trade Agreements with India, Canada and Singapore.

And Europe as a whole must conquer the instinct to turn inwards, at a time when we need to be more outward-looking than ever to seek opportunity where today these opportunities truly exist.

The size and importance of the EU means that we will not turn away from our efforts to stabilise growth and recovery there. But, as the Chancellor has said, “the whole world must be our market place”. Our approach would be short sighted if we focused only on the EU.

There are several aspects of our efforts in this respect.

The first is the political leadership and coordination across Government that is enabling us to significantly upgrade our support to British business.

We have an entire Government that sees the strengthening of Britain’s economy as an existential mission - starting with our Prime Minister, who leads by example in taking business delegations on his trips overseas. The Chancellor leads annual Economic and Financial Dialogues with India and with China, where we are the only European country to hold this level of economic talks. The Secretary of State for Business has visited Singapore, Indonesia and Vietnam in just this month alone to promote British business. My Ministerial team in the FCO alone has made 183 overseas trips in the last year, many with a commercial component, and our Ministers and Ambassadors have increased their support for business deals. We have seen notable recent successes for Premier Oil in Indonesia; for Centrica in Qatar, which also services 10 per cent of the UK’s residential gas demand, and for Diageo in China.

Government policy towards emerging markets is now coordinated across the whole of Whitehall, through the National Security Council’s Emerging Powers sub-committee, which I chair. We are taking a far more targeted and strategic approach to identifying commercial opportunity, within the Foreign Office and UKTI. The FCO is working side by side with UKTI on its new initiative for promoting SME exports, and its drive to identify High Value Opportunities for UK business. In the last year in the FCO we have funded market surveys in areas as diverse as Machine Tool Refurbishment in central Siberia, opportunities for UK SMEs to supply the Turkish Navy and agriculture in Brazil designed to highlight real business opportunities and improve UK market share.

To help provide finance for trade, the range of products provided by the Export Credits Guarantee Department has been expanded, and it is working more closely with UKTI. To emphasize its new wider role the department now operates under the trading name of “UK Trade Finance”, which was the first export credit agency in the world to resume supporting trade with Libya following the revolution there.

Just as important is the inward investment we can attract. We made a start in the first Budget in cutting burdensome regulation on small firms and when we reduce corporation tax to 23 per cent by 2014 we will have the lowest rate in the G7. The UK Borders Agency is looking to build on the success of its development of premium services for business travellers, going further in offering priority services especially in emerging powers.

We have put Britain back in the business of opening Embassies again, not closing them. We’re opening six new Embassies at the moment and up to seven new Consulates General in the emerging economies, including one just opened in Brazil. And we are significantly increasing our diplomatic presence in India and China, increasing the number of frontline staff in each country by 30 and 50 respectively and increasing staff numbers substantially Brazil, Turkey, Mexico and Indonesia and nearly 20 other nations.

It is not just about where we have our diplomats, it is about the skills they have. Across the Foreign Office as a whole we have launched the biggest drive ever to enhance cutting edge abilities and diplomatic skills, including in commercial diplomacy. We have strengthened and upgraded our Economics Unit at the heart of the FCO, we have more private sector secondments for senior officials, and we have developed specific training programmes for staff in commercial diplomacy and economics which over 300 staff have taken this year so far. Nick Baird, CEO of UKTI is a member of our Management Board; we have Stephen Green as a joint FCO/Business minister; we have a Permanent Under Secretary who worked in Brussels for the EU Trade Commissioner and was previously Permanent Secretary in BIS; and we have a new Chair of the FCO Supervisory Board, Richard Lambert, who was, as you know, formerly Director General of the CBI. These appointments mean we are absolutely geared up at the top of the Foreign Office with people who have a deep understanding of the world of business and economic diplomacy.

We are proud of the successes that we’ve seen already, such as with the recent approval by the Korean government for the contracting of a major multibillion dollar LNG purchase from Shell, or our aid to the development of the Chinese non-financial enterprise bond market where HSBC is the first, and so far the only non-Chinese based bank to have secured a licence.

But we also need to use diplomacy to help build a better global business environment for building a framework of global economic conditions, rules and standards in which UK business can thrive. This is my second point.

Some of this we can do by lobbying specific countries or regions. Our team in India worked closely with SAB Miller and the local authorities in Andhra Pradesh to remove restrictive regulations prohibiting beer sales, worth over $80m in sales to that company.

Where it is a case of trade opening, the UK acts through and with the European Union. The new EU-Korea free trade agreement will eliminate 97% of tariff barriers with Korea within three years and could be worth up £500 million to the UK. We estimate forthcoming agreements with Canada will yield £420 million per year and with India £2 billion over ten years. We are in the vanguard of those within the EU pressing for more trade agreements, and reforms to policies like the Common Agricultural Policy that inhibit trade.

So far in the current economic crisis we have been largely successful in winning the argument against protectionism. More than anything else at this moment, the world needs growth. The G20 Summit in Cannes this month agreed an action plan for growth and jobs, including many of the things that Britain is already doing: fiscal consolidation, monetary activism, getting rid of the barriers to business and job creation. There was some real progress, including China’s determination to increase its exchange rate flexibility, but more needs to be done to support balanced and sustainable economic growth. The G20 also agreed to pursue fresh approaches to completing the Doha round of trade talks and to strengthening the WTO in line with the Prime Minister’s recommendations. And they welcomed Russian accession to the WTO, which is the last major missing piece of the global system.

There is and must be an ethical under-pinning to economic growth. The UK is rightly recognised as the best country in applying the OECD’s voluntary guidelines for multinational enterprises. We are setting the standard - there is no need to be shy about that. But we are working to raise the standards of others throughout the world..

Third and finally, we are leading robust international action to tackle global economic challenges that affect our future well-being. In the recent clamour around the eurozone and other political events, it would be easy -but wrong - to miss the clear message that we have radically to step up our action on low carbon before 2017 if we are to avoid global warming exceeding 2 degrees centigrade. The longer we leave it to take action, the more expensive it will get, and the greater the risks to our prosperity. Moving to a low carbon economy is also good for our energy security, and it offers commercial opportunities.

So I think you get the message of what we are about, it was one of my predecessors as Foreign Secretary, Lord Palmerston, who said “it is the business of government to open and secure the road for the merchant”. He too lived in turbulent times. Today’s challenges are vastly different from those he had to face but we will live up to that very good phrase and have made a good start. We know there is more to do, but we are determined to make “economic diplomacy” as successful and sustainable as its political counterpart. That is good for Britain, it is good for business and it is good for our future. We are determined to carry this through to success and we welcome all your views and advice on what we are doing.