Committee Reports::Report No. 10 - Examination of the effectiveness of Irish trade promotion abroad::28 March, 2007::Report

The Joint Committee on Enterprise and Small Business agreed as part of its Work Programme for 2005 to undertake an examination of the effectiveness of Irish Trade Promotion Abroad and the State Agencies involved.

The Joint Committee appointed Senator Terry Leyden as rapporteur to undertake such an examination and to report back to the Joint Committee. Senator Leyden’s report has made a number of recommendations in regard to the future of Irish trade promotion abroad and the State Agencies involved in this area. The report was considered by the Joint Committee and adopted at its meeting on Wednesday 28^th March 2007.

The Joint Committee wishes to record its thanks to Senator Terry Leyden for the excellent work he has carried out in the preparation of this report.

1) Introduction and Recommendations

I am pleased to present this report to the Joint Committee on Enterprise and Small Business. I was appointed Rapporteur to the Committee to examine and report on the effectiveness of Irish trade promotion and marketing and new opportunities for Irish companies.

The report looks at existing trade promotion and makes proposals for future developments and business opportunities.

I hope that this report will give rise to a debate on this vital area of our national interests.

During the course of my research it has been apparent that new approaches are needed to respond to significant changes in world markets. There are significant regulatory changes like the single market in the E.U., World Trade agreements and there has been a big shift in geographic prosperity and economic growth, for example the rise in prosperity in China, India and Brazil.

Irish exporters face new opportunities and new threats from these changes. In general

Ireland has been coping very well with these and good planning and foresight will help us to continue to do so. However, this means that we must continually adapt and change, both in what we produce and supply and also in how we promote and market ourselves overseas. Our current approach of attracting foreign investment and also encouraging home-grown new businesses seems to have been the right one and we should continue in this vein. Nonetheless, we need to review how we assist these businesses to grow their business abroad.

1.The amalgamation and consolidation of state-sponsored export promotion bodies ought to be considered. This report has outlined some of the issues and pointed in particular to overseas offices as one important face to the Irish export sector for which consolidation may have benefits. All of the agencies should operate from one location and the local embassies should be closely interlinked with their efforts.

2.Representatives from each of the organisations discussed in this report need to attend the seminars of and get involved in the National Trade Forum in order to realise the potential of the Forum as a guiding authority for future trade policies.

3.Second Level Education should include an option of Asian languages. Asia is the fastest growing economy in the world. This may become a necessity for all countries in years to come, therefore Ireland should be one of the leaders of this.

4.The link between education and economic performance is widely accepted, Ireland has to continue to promote adult education and on the job training for employees in order to reach the OECD average.

5.The continuous growth of broadband users and online business transactions must be supported and developed.

6.The London 2012 Olympics offers massive opportunities for Irish business and tourism promotion so businesses need to compete early for the highly sought after contracts.

2) General Overview of the Export Sector in Ireland

Export growth has accounted for much of the growth in the economy over the past 15 years. As Figure 1 shows, the rise in Irish exports has matched national income growth closely over this time period. A large part of both growth in exports and in overall economic growth has been foreign direct investment (FDI), notably from the investors residing in the U.S.

Figure 1 — Real value of Irish exports; real Irish economic growth (GNI over time)

At present, there is every indication that the export sector is continuing its good run. While there was a drop in exports in 2003/2004, this was largely a result of decline in certain commodity groups, notably heavy machinery and transport equipment. In 2005, exports from Ireland were valued at about €89,000 million, representing 5.3% growth from the previous year. Figure 4 shows the distribution of export value by importing region.

As can be seen from Figure 2, goods exports are still largely driven by the chemicals industry, followed by machinery and transport equipment and sundry manufactured goods.

Figure 2 — Breakdown of value contribution to total goods exports by broad category

Agricultural products come fourth, and have been in more-or-less steady decline in terms of overall importance, as Figure 3 shows. With the scaling down of CAP subsidies and further pressure of globalisation it is likely that this trend will continue into the future.

Figure 3 — Agricultural Exports as a percentage of total exports (1995 — 2003)

Growth in exports of services has increased considerably, with a 13% growth rate for 2004. Roughly 35% of service exports (the largest category by far) are computer services, representing a value of €14,972 million in 2004.

Tourism as a percentage of total exports of services is falling in importance, accounting for only about 9% of all exports in 2004. Factors which may account for this are the loss of competitiveness of the Irish hospitality sector and the effects of September 11^th on demand for transatlantic tourism.

In terms of the destinations for Irish exports, a marked and persistence feature has been the steady decline since the foundation of the State in the importance of Britain as a market for Irish goods. Growth markets have been in Europe, the Rest of the World, and to a lesser extent the U.S. Figure 4 shows the current distribution of destinations by value for 2005.

While exports in general have been booming, the performance of the indigenously owned export sector has been dwarfed in the 1990s. The share of Ireland’s industrial exports made by indigenously-owned firms fell from 26% of the total in 1991 to 12% by 1998. In 2004, the share was virtually the same, at 12.4%.

As Figure 5 illustrates, Ireland places not only heavy reliance on exports comparative to its EU partners (highest Export Value: GDP ratio), but also on exports outside the EU. In this, it is second only to the Netherlands.

Figure 5 — Exports by destination as a percentage of National Income (2004)

In summary, the export sector has played a vital role in the success of the Irish economy in recent years. Exports of goods — particularly chemicals and machinery but also computers — remain the strongest component of export performance, but exports of services are also important. Agricultural exports are diminishing in importance. The role of Foreign Direct Investment (FDI) in the success of the Irish export sector can hardly be overstated. Foreign-owned firms exhibit a greater propensity to export and have outperformed indigenously-owned firms on export markets.

3) The Role of Government Departments

A) An overview of the role of relevant Government departments is an essential component to any report on trade. As the Department of Enterprise, Trade and Employment has many functions in relation to supporting exporters, it is necessary to divide the Department as follows:

The Bilateral Trade Section or Unit of the Department is the section with main responsibility for the promotion of Irish exports on world markets. (The Department also maintains a “Multilateral Trade Section” whose main role is to determine Ireland’s trade policy in relation to external fora, such as, the EU and the WTO). This is achieved by working closely with State agencies and other Government departments, in particular Enterprise Ireland, Forfás and the Department of Foreign Affairs, in the development and coordination of the programme of Ministerial-led overseas trade missions and other promotional events, and assisting in the coordination of inward trade related visits.

The Unit also facilitates the coordination of direct Government-to-Government contacts, whether formal or informal, and ensures that any difficulties that may arise can be addressed. This is a key function which allows for many mutually beneficial agreements to be decided.

The Unit compiles up-to-date and comprehensive data on exports and imports with our main trading partners (in association with the Central Statistics Office) and maintains close contact with the Irish based embassies of these countries.

Each year the Unit coordinates in the region of 20 Ministerial-led trade missions to other countries. These involve high-level meetings with Ministers and officials, an extensive range of meetings for participant Irish companies with the aim of developing contacts and/or finalising contracts/joint ventures with partner companies in that country and also developing an awareness of Ireland as a supplier of world-class goods and services.

The range of countries visited reflect both the need to provide support in important established markets and to assist companies to further develop their export potential and diversity by accessing emerging markets, particularly those in Eastern Europe and Asia.

The National Trade Forum (NTF) was established in 2005 to replace the former Trade Advisory Forum and provides a forum for discussion on the future agenda for developing trade policy. It is coordinated by Forfás, with the assistance of the Bilateral Trade Unit. The inaugural meeting engaged senior representatives from industry, the social partners and NGOs in a discussion on key trade policy issues. There was a positive response to the establishment of the Forum and to the trade research that has already been undertaken by Forfás. Research themes that have been identified include:

-Identifying the latest outward direct investment (ODI) trends and the merits of ODI;

-Identifying opportunities offered by the World Trade Organisation (WTO) for Irish services companies; and

-Developing a better understanding of the trade performance of services sectors.

It is envisaged that meetings of the Forum will be held every 18 months to take stock of intervening developments, to report on the findings of research and to discuss new research areas. Attendance at these meetings should be encouraged; with a wider spectrum of interests their submissions will be enhanced.

A Joint Commission is a formal Bilateral Intergovernmental Forum dealing with trade development in all its aspects, mercantile and services. Its role is to further the development of economic and business cooperation, including scientific and technological cooperation and it provides a forum for discussing issues between the two countries involved. Ireland has formal Joint Commissions with China, Russia, Saudi Arabia and South Korea. In 2006, formal sessions of the Joint Commissions with China and Russia were held. Progress was made on a range of trade related issues and this initiative should continue to be supported.

The Foreign Earnings Committee (FEC) brings together representatives of all of the Government Departments and State promotional agencies with responsibility for overseas commercial promotion to ensure that there is adequate coordination of promotional efforts and to bring issues of concern to the attention of relevant authorities. The FEC has been re-structured to improve its effectiveness. A meeting of the revamped FEC took place on 29 November, 2006 at which it was agreed that the Committee continued to play a worthwhile role while recognising the need to constantly review its modus operandi and structure.

The Department has several other areas of responsibility with regards to Export Credit Insurance, the OECD Investment Committee and as an Instrument of Pre-Accession Assistance (IPA) and European Neighbourhood & Partnership Instrument (ENPI) groups.

The Licensing Unit of the Department of Enterprise, Trade and Employment operates Ireland’s export control system, in cooperation with a number of Government Departments and agencies including:

•The Department of Foreign Affairs, which is consulted on all military license applications and on dual-use license applications where foreign policy considerations apply.

•The Revenue Commissioners, whose Customs and Excise officers have the lead role in the enforcement of export controls.

The goal of the Unit is to operate an efficient and effective export licensing system in accordance with Ireland’s obligations as a participating state in the International Export Control Regimes. At the same time however, we aim to have a regulatory environment which does not impede companies engaged in legitimate trade.

❑To prevent the export of goods that could be used in nuclear and other weapons of mass destruction

❑To prevent the export of military goods to countries whose behavior is a threat to international and regional peace

❑To prevent the export of goods that could be used to violate human rights or exacerbate internal conflict in the country of final destination

❑To prevent the export of goods that could be subsequently diverted for purposes other than their stated end-use

❑To comply with restrictions imposed by internationally agreed trade embargoes

The Licensing Unit imposes a licensing requirement for the export of military goods, dual use goods and goods that may be used for capital punishment, torture or other cruel, inhuman or degrading treatment or punishment. It also imposes export controls that have been authorised under United Nations (UN), Organisation for Security and Cooperation in Europe (OSCE) and/or EU Sanctions.

Export controls are imposed on both finished products and on components, and also on technical services associated with the controlled goods. However some goods may be exempted from controls, for example software that is generally available to the public or information such as basic scientific research that is in the public domain.

B) The role of the Department of Foreign Affairs is of high importance in cultivating strong liaisons with governments abroad and encouraging exports by promoting Ireland’s trade, investment and other interests, including its culture;

The Department of Foreign Affairs website lists the functions of the Bilateral Economic Relations Division as:

•working closely with the State Agencies and other Departments in identifying new market opportunities and in promoting awareness of Ireland as a preferred business partner and as a world-class location for educational services, investment and scientific research and development;

•using the resources of our Embassies to assist Irish business in gaining and maintaining access for their goods and services;

•highlighting the benefits of inward investment in Ireland as a gateway to Europe; and

•working to realise the objectives set out in the next phase of the Government’s Asia Strategy.

Positive government relations with the administrations in centrally planned economies are of particular importance. Ireland’s Asia Strategy assigns responsibility to the Department of Foreign Affairs, the Department of Enterprise, Trade and Employment, other Government Departments and State bodies to develop the relationship between Ireland and eight priority Asian countries — China, Japan, Korea, Singapore, India, Malaysia, Indonesia and Vietnam. The strategy aims to intensify the levels of political, business and other forms of interaction with these countries so that Ireland benefits to a significantly greater extent from trading with the region. Specific developments in relation to the targets of this Strategy include: an additional 30 Irish companies establishing a presence in the priority countries; a significant increase (to 7,500) in the number of third level students coming to Ireland; and significant increases in food and drink exports. During 2006 Enterprise Ireland organised a total of 46 events to promote exports there.

Overall, the Bilateral Assistance Programme has proved to be a useful and cost-effective tool for developing bilateral relations, as well as a meaningful engagement in aiding governance. The Programme will continue as the beneficiary countries will require assistance and advice for some years to come. (Business 2000, 9^th Edition)

Local initiatives such as trade missions are backed by Irish Embassies. These initiatives are varied and can include visits by Irish experts and seminars/workshops in the target countries. The table below lists a selection of Ambassadors and locations.

Reference needs to be made to the valuable role which our embassies play in our national exporting effort. In most countries they are very well positioned to be of assistance. By and large, it is the experience of our successful exporters that our embassies can be very helpful and they use their services whenever necessary. In certain locations Enterprise Ireland operates from the same offices, which is to be encouraged.

4) Role of Export Bodies in Promoting Irish Exports

There are five key organisations which play an important role in export promotion in Ireland. They are:

Enterprise Ireland, formerly known as An Bord Tráchtála or the Irish Trade Board, is the main statutory body with specific responsibility for export promotion in Ireland. Their five main areas of activity are:

Enterprise Ireland also includes what were once the Institute of Industrial Research and Standards and the home industries division of the IDA (Forbairt). There was an opinion that the overseas role became quite diluted in the new entity which was somewhat more inward looking and company focussed instead of outward looking and market focussed. This has now been addressed and a new division has recently been established in Enterprise Ireland which focuses on overseas selling and marketing. This development is to be commended. It represents a return to the original structure which served Irish exporters very well over the decades since the original Export Promotion Act in the 1950’s.

Historically, Enterprise Ireland has always had a focus on small-business development, arising from a specific mandate from government to this effect. This, in turn, is most likely in response to a perception by policy-makers that smaller, indigenously-owned exporters have performed poorly in comparison to larger Multinational Enterprises (MNEs), and hence there is a perceived need to provide superior resources to the former client group.

In terms of funding, Enterprise Ireland is almost wholly reliant on Oireachtas Grants, comprising over €232 million or 86% of total income in 2005. The remaining income sources include own resources, comprised largely of professional fees, rental income and income from dividends¹.

Enterprise Ireland facilitates the achievement of its aforementioned objectives through financial support to industry (€160 million in 2005). This comes in three forms

Of these, the greatest emphasis (51%) is placed on Science & Technology Development, in line with current policy thinking on the role of technology in retaining competitiveness in the economy (see, for example Forfás Report on Competitiveness, 2006).

Enterprise Ireland also maintains an extensive network of market offices throughout the world, representing a considerable portion of its staffing costs and giving a broad face to Irish industry in the markets of interest.

The Industrial Development Authority (IDA) is the government body responsible for supporting and promoting industry and enterprise in the State generally, but also has a role is export promotion in that the encouragement of foreign direct investment is often closely related to export growth. Like Enterprise Ireland, the IDA has a network of offices to give Irish industry a face in the wider world.

Chambers Ireland also plays a crucial role in the functioning of the export sector. While their primary purpose is in lobbying government, they also operate an International Business Services section, which provide crucial information to exporters and potential foreign buyers and — perhaps most importantly — facilitate the issuance of Trade Documentation. Chambers Ireland are the accredited issuers of Certificates of Origin, the vital documents needed to meet customs requirements in importing states. Chambers Ireland is not a statutory body, and is funded by members’ contributions, fees from professional services and other revenues. It is important to note the federal structure of Chambers Ireland, meaning that individual chambers enjoy a large degree of autonomy within the national structure.

Bell focuses on the export promotion activities of An Bord Tráchtála (ITB) — now Enterprise Ireland — in comparison with the activities of similar agencies in Finland and Norway, and contrasts the three with other countries where export promotion has been less effective, such as the United Kingdom. He concludes that the Irish model has been largely successful. In particular, he finds the focus of ITB on the small-to medium-sized enterprises has been well placed, because it has closed the information gap needed for these (largely indigenously-owned) enterprises to compete in uncertain markets. In general, he identifies four positive roles of An Bord Tráchtála in export promotion:

•Providing information to foreign importers about Irish companies and products

It is important to bear in mind, however, that this study is based on the performance of export promotion in the early to mid 1990s, a time in which the Irish economy was in transition.

McDonnell & McAleese focus more on general theoretical arguments about the role of export promotion in economies in transition. In particular, they address the question as to whether export promotion is more effective if organised through state bodies such as Enterprise Ireland or the IDA, or whether private business-for-business organisations like Chambers Ireland or the IEA would not do a better job. They find the evidence is mixed, but they do point out that business for business organisations tend to be seen as more accessible and less bureaucratic than government or semi-state agencies.

The value of providing a consistent export promotion service is well documented in the studies. It is important that the resources to exporters and potential foreign importers alike are consistent across industries, in order to minimise search costs and avoid unnecessary delays in coordinating services. On the other hand, this must be balanced against the specialised knowledge which industry agencies may be assumed to have of the needs of their particular industry. A potential strategy for integrating industry agencies into a broader export body such as Enterprise Ireland should therefore pay special attention to the need to maintain niche knowledge bases within the overall agency structure.

Beyond knowledge management and coordination, there may be potential gains to integrating export services through cost effectiveness arising from the integration of offices. In particular, the maintenance of foreign offices for industry agencies such as Bord Bia and BIM exhibits considerable overlap with the foreign offices of Enterprise Ireland, as can be seen from Figure 8. In particular, attention can be drawn to the case of Bord Bia, which has four of its eight foreign offices at addresses distinct from those of other agencies in the same city.

Enterprise Ireland Annual Report & Accounts 2005 Laid before the Houses of the Oireachtas (2006)

IDA Ireland Annual Report 2004 Laid before the Houses of the Oireachtas (2005)

McAleese, D and O’Donnell, M, “Institutional Support for Exporting: Issues and Evidence”, in A. MacBean (ed.), Trade and Transition: Trade Promotion in Transitional Economies, London, Frank Cass, 2000, pp. 18-28

Roper, S and Love, J The Determinants of Export Performance: Panel Data Evidence for Irish Manufacturing Plants (2001) Northern Ireland Economic Research Centre, available online at: http://www.erini.ac.uk/Publications/PDF/Rwp69.pdf

Websites

Members of the Joint Committee on Enterprise and Small Business

Committee on Enterprise and Small Business Orders of Reference

Dáil Éireann on 16 October 2002 ordered:

‘(1)(a)That a Select Committee, which shall be called the Select Committee on Enterprise and Small Business, consisting of 11 members of Dáil Éireann (of whom four shall constitute a quorum), be appointed to consider —

(i)such Bills the statute law in respect of which is dealt with by the Department of Enterprise, Trade and Employment;

(ii)such Estimates for Public Services within the aegis of the Department of Enterprise, Trade and Employment; and

(iii)such proposals contained in any motion, including any motion within the meaning of Standing Order 157 concerning the approval by the Dáil of international agreements involving a charge on public funds, as shall be referred to it by Dáil Éireann from time to time.

(b)For the purpose of its consideration of Bills and proposals under paragraphs (1)(a)(i) and (iii), the Select Committee shall have the powers defined in Standing Order 81(1), (2) and (3).

(c)For the avoidance of doubt, by virtue of his or her ex officio membership of the Select Committee in accordance with Standing Order 90(1), the Minister for Enterprise, Trade and Employment (or a Minister or Minister of State nominated in his or her stead) shall be entitled to vote.

(2)(a)The Select Committee shall be joined with a Select Committee to be appointed by Seanad Éireann to form the Joint Committee on Enterprise, Trade and Employment to consider —

(i)such public affairs administered by the Department of Enterprise, Trade and Employment as it may select, including, in respect of Government policy, bodies under the aegis of that Department;

(ii)such matters of policy for which the Minister for Enterprise, Trade and Employment is officially responsible as it may select;

(iii)such related policy issues as it may select concerning bodies which are partly or wholly funded by the State or which are established or appointed by Members of the Government or by the Oireachtas;

(iv)such Statutory Instruments made by the Minister for Enterprise, Trade and Employment and laid before both Houses of the Oireachtas as it may select;

(v)such proposals for EU legislation and related policy issues as may be referred to it from time to time, in accordance with Standing Order 81(4);

(vi)the strategy statement laid before each House of the Oireachtas by the Minister for Enterprise, Trade and Employment pursuant to section 5(2) of the Public Service Management Act, 1997, and the Joint Committee shall be so authorised for the purposes of section 10 of that Act;

(vii)such annual Reports or annual Reports and accounts, required by law and laid before both Houses of the Oireachtas, of bodies specified in paragraphs 2(a)(i) and (iii), and the overall operational results, statements of strategy and corporate plans of these bodies, as it may select;

Provided that the Joint Committee shall not, at any time, consider any matter relating to such a body which is, which has been, or which is, at that time, proposed to be considered by the Committee of Public Accounts pursuant to the Orders of Reference of that Committee and/or the Comptroller and Auditor General (Amendment) Act, 1993;

Provided further that the Joint Committee shall refrain from inquiring into in public session, or publishing confidential information regarding, any such matter if so requested either by the body concerned or by the Minister for Enterprise, Trade and Employment; and

(viii)such other matters as may be jointly referred to it from time to time by both Houses of the Oireachtas, and shall report thereon to both Houses of the Oireachtas.

(b)The quorum of the Joint Committee shall be five, of whom at least one shall be a member of Dáil Éireann and one a member of Seanad Éireann.

(c)The Joint Committee shall have the powers defined in Standing Order 81(1) to (9) inclusive.

(3)The Chairman of the Joint Committee, who shall be a member of Dáil Éireann, shall also be Chairman of the Select Committee.’

Seanad Éireann on 17 October 2002 ordered:

‘(1)(a)That a Select Committee consisting of four members of Seanad Éireann shall be appointed to be joined with a Select Committee of Dáil Éireann to form the Joint Committee on Enterprise and Small Business to consider —

(i)such public affairs administered by the Department of Enterprise, Trade and Employment as it may select, including, in respect of Government policy, bodies under the aegis of that Department;

(ii)such matters of policy for which the Minister for Enterprise, Trade and Employment is officially responsible as it may select;

(iv)such Statutory Instruments made by the Minister for Enterprise, Trade and Employment and laid before both Houses of the Oireachtas as it may select;

(v)such proposals for EU legislation and related policy issues as may be referred to it from time to time, in accordance with Standing Order 65(4);

(vii)such annual Reports or annual Reports and accounts, required by law and laid before both Houses of the Oireachtas, of bodies specified in paragraphs 1(a)(i) and (iii), and the overall operational results, statements of strategy and corporate plans of these bodies, as it may select;

(viii)such other matters as may be jointly referred to it from time to time by both Houses of the Oireachtas, and shall report thereon to both Houses of the Oireachtas.

(b)The quorum of the Joint Committee shall be five, of whom at least one shall be a member of Dáil Éireann and one a member of Seanad Éireann.

(c)The Joint Committee shall have the powers defined in Standing Order 65(1) to (9) inclusive.

(2)The Chairman of the Joint Committee shall be a member of Dáil Éireann.’

Tithe an Oireachtais

An Comhchoiste um Fhiontraíocht agus

Mionghnóthaí

An Deichiú Tuarascáil

Scrúdú ar éifeachtacht chur chun cinn thrádáil na hÉireann thar lear agus ar na Gníomhaireachtí Stáit atá ag gabháil dó.

Márta 2007

Houses of the Oireachtas

Joint Committee on Enterprise and Small Business

Tenth Report

Examination of the effectiveness of Irish trade promotion abroad and the State Agencies involved

March 2007

CHAIRMAN’S FORWARD

1) Introduction and Recommendations

2) General Overview of the Export Sector in Ireland

3) The Role of Government Departments

4) Role of Export Bodies in Promoting Irish Exports

5) Performance of Irish Export Promotion Bodies

6) Giving a Common Face to Export Promotion

7) Investment in Education

8) Internet Sales and Broadband Connection

9) Opportunities at the Olympics

10) Conclusion

Acknowledgements

10) Bibliography

Websites

Members of the Joint Committee on Enterprise and Small Business

Committee on Enterprise and Small Business Orders of Reference