Vol. 379 No. 10
asked the Minister for Industry and Commerce if he will outline the role and function of the new special trading houses; if it will be open to commercial semi-State companies, such as the Irish Sugar Company to qualify as a special trading house; and if he will make a statement on the matter.
11.
asked the Minister for Industry and Commerce the role which will be played by manufacturing companies whose goods are being promoted by the newly licensed export trading houses; and the relationship which these companies will have to buyers abroad.
33.
asked the Minister for Industry and Commerce the requirements for the issuing of a licence to operate as an export trading house; and the criteria being used by him to decide which groups should be issued with such licences.
I propose to take Questions Nos. 3, 11 and 33 together.
There are many Irish manufacturers producing goods which could be sold on international markets if the company developed their own internal marketing capacity. However, for a variety of reasons, such as size, expertise and financial resources, many companies do not have the strength to develop their own exports.
In response to this situation, the Government introduced the special trading house scheme. Under this scheme, the special trading houses will do the overseas marketing for the supplier companies.
The special trading houses will engage solely in the marketing abroad of Irish manufactured goods (including software) on a wholesale basis. They will not be the manufacturer of those goods. The special trading houses will have to purchase and take title to the goods they intend selling and will not be allowed to operate on a commission basis.
As manufacturing firms will sell their goods to the special trading houses who in turn will sell to the overseas buyers, in general there will not be a direct relationship between the manufacturer and the overseas buyer. The special trading houses will locate, negotiate, agree and service the sales to the overseas buyers'.
Special trading houses and suppliers will determine for themselves the nature of their commercial relationship. There is nothing in the legislation which restricts the exporting opportunities of the supplier. Through the relationship, supplier firms will improve their awareness of overseas opportunities and will develop their capacity to service overseas contracts. Greater access to overseas markets will improve the marketing skills of the supplier and should lead him or her to taking initiatives on his or her own behalf in developing more overseas sales.
The conditions under which special trading house licences are issued are covered by the Export Promotion (Amendment) Act, 1987. In addition to this, I have had an information booklet prepared which clearly sets out the type of information which is required in support of any application. I have arranged to have copies of this booklet available in the Dáil Library.
The main criteria for judging an applicant for a special trading house licence is that the applicant should have the structure, organisation and marketing ability to undertake successfully the overseas marketing of Irish manufactured goods. In this respect, the applicant for a special trading house licence must supply my Department with details of his expertise in relation to the target markets and product sectors in which he intends selling, the management structure of the proposed trading house, the source and value of proposed equity finance and a full strategic marketing plan. Evidence of the commitment of manufactureres to supply the applicant with the proposed products must also be provided.
Every application is critically examined. An initial examination is undertaken by a technical assessment group comprised of officials of my office and CTT. Once this group are satisfied with the proposal, it is then examined by the special trading house management unit comprised of senior officials of my office, Córas Tráchtála and the Industrial Credit Corporation. It is only on the recommendation of that group, and through them the organisations which the group members represent, that is the Irish Export Board and ICC, that the application goes forward for ministerial approval.
The legislation introducing the scheme does not differentiate between private sector or public sector applicants. Applications from either sector would be examined on their individual merits. However, the main points to remember is that licensed special trading houses cannot engage in any activity other than the export of goods which they have not manufactured and that the supplier companies from which goods are sourced must employ fewer than 200 people.
I take it from the reply that State companies such as the Irish Sugar Company would be eligible to apply for special trading house facilities? Would such a company require to have a subsidiary especially established to do that or could, say, the sugar company operate through their existing subsidiaries, Gosfort Limited and Trilby Limited in the setting up of such a trading house?
There is no special view on whether it is a public sector or private sector company as long as they meet the criteria laid down in the booklet I have published. There is no reason why a company fostered by a public company could not apply for a licence, but they must strictly be doing the business of purchasing goods from manufacturers in the State and exporting those out of the State.
And cannot be involved in any other activity?
No, they must do that sole job.
Could the Minister give some more information on the level of equity that would be required for a company given that they must be the owners of the goods in which they are trading? Is any guideline laid down as to the ratio of subscribed equity in the company to ensure that the company are financially solid and do not themselves go under because of late payments by some of their customers relative to their overall turnover?
There is no pre-set equity threshold. The Deputy will understand that it could not be done that way. What is important here is that you have an appropriate level of equity. Obviously, if your plans are small and your products not expensive you do not need a very high level of equity. On the other hand, if you have very expensive products and long lee times in selling them abroad you need a different level of equity. The booklet makes quite clear that there should be an appropriately strong equity base in each company.
Would the Minister not agree that the word "appropriate" is probably one of the most flexible words in the English language and that it would be desirable to ensure that the trading houses do not become possible methods of losing goods through unwise trading? The Minister himself should at least lay down some more specific guidelines as to what are appropriate levels of equity relative to value of turnover and average length of delay between supply and payment.
You have to judge that on a case-by-case basis. I am fully satisfied that it is all laid out in this special trading house brochure which is available. There are seven main criteria before the trading house management unit, in which the ICC and the Irish Export Board are centrally involved, and all these criteria have to be met. One of the criteria is that the sources and value of the proposed equity finance, bank facilities and all such information has to be made available. That includes cash flow projections for the first three years, target markets, sales projection, overall sales strategy, list of intended suppliers, information on markets to be targeted, management structure and memorandum and articles of association. I am confident that both the ICC and the Irish Export Board with their involvement in the trading house management unit can apply these criteria objectively to every application.
Will they be monitoring the continuing of the level of equity?
The trading house management unit will keep in touch with the trading houses as they develop to see whether we can learn policy lessons from them. The intention would not be to interfere with private sector companies once they are up and running. We will have to see if we can learn policy lessons from what they are learning.
If one of them collapsed——
I want to bring in Deputy Ann Colley.
If any company collapses there are difficulties. These are private sector companies. There are investments——
Specially created by the Government?
They are companies created by the private sector. There are tax advantages.
By the Government?
The Deputy should know from his time as Minister for Industry and Commerce that many companies get IDA support for example and you cannot say that they are created by the Government. These are companies for which tax incentives were offered but they are created by the private sector and their future will depend on how successfully they are run by the promoters. That is no different from any other company who may get IDA support.
I cannot dwell unduly long on this question. Deputy Ann Colley for a final supplementary.
The Minister mentioned a number of the criteria laid down for judging who may or may not enter into the trading house business. He mentioned the list of suppliers as one of those that must be looked at. What role does he see the suppliers playing vis-à-vis the trading houses and the buyers on the export markets? I would like him to address himself to the problem I see if a company in Ireland have, say, production laid out for the next six months, then the export trading house goes abroad and gets an order. How does that fit in with existing arrangements with the suppliers here?
That question has been asked many times. The special trading houses are not compulsory. If a manufacturer wants to sell goods to Germany he goes and sells goods to Germany. If a trading house approaches the manufacturer and says, "I can find another outlet for you whether in Germany or elsewhere," it is entirely a matter for the manufacturing company to say, "Let us work out the details of how we will do this and we will do it efficiently". There is no compulsion on any manufacturer. If he wants to trade directly with another company abroad we will encourage that. All we are doing is providing another export opportunity for manufacturers which does not tie them down in any way.
A final supplementary——
Please, Deputy Colley. I indicated earlier that I was moving on to another question and I do not like being hindered in such matters.
I will be as brief as I can. Is it not true that the IDA did a report on such trading houses in the late sixties and the end result was the indication that the only way they could successfully operate would depend on a real relationship between the suppliers and the end buyers? How does the Minister believe he will get over this problem?
There will be a relationship because the trading house will come back to the manufacturer saying they will buy some items but not others. That is sharp marketing feedback. There are thousands of small manufacturing companies here, the majority of whom are not exporting. All we are doing is providing another vehicle for exports. If they already have a cosy relationship with a foreign purchaser they are free to continue that. This is a new mechanism to help additional exports. I am totally convinced that there are thousands of small manufacturing companies who are unable to export by themselves.
But they will remain free to opt out of these contracts. There is no tie-in to the trading companies.
Given the Deputy's philosophy, I am surprised that she should suggest I should interfere in the ordinary business relationships between a manufacturing company and a possible exporter. If a manufacturing company want to export directly to Germany, this scheme does not interfere in any way.
