Perhaps I could first say how pleased I am to be speaking to Seanad Éireann. It is my first occasion to do so since I left the House in 1981. In view of your new surroundings, I welcome you to my House and say that I trust you will enjoy these surroundings.
I recommend this Bill to the House. The Bill has two purposes one of which is routine, while the other represents a significant step forward in the restructuring of our export promotion effort.
The routine aspect is that the Bill raises the ceiling on Córas Tráchtála's aggregate level of grant-in-aid, the existing level now having been reached. The innovative aspect is that the Bill creates a licensing system for the special trading houses envisaged in the 1987 Finance Bill, which extended valuable tax advantages to these new entities.
Perhaps I could refer first of all to the matter of Córas Tráchtála's grant-in-aid, which is dealt with in section 3 of the Bill. By approaching it in this way I can make some general comments on export marketing which will serve as an introduction to the question of special trading houses.
An overall ceiling is provided by law in the amount of grant-in-aid that the Government may pay to Córas Tráchtála, and from time to time that ceiling needs to be increased. The existing ceiling, which was set by legislation in 1983, is £160 million. The measure before the House raises that figure to £260 million, which is considered to be adequate for the next four years or so.
What makes this section of the Bill relatively routine is that, of course, it does not actually provide this money, nor even commit the Government to doing so. In the future, as in the past, allocations for CTT will be set each year as part of the normal Estimates process for the Department of Industry and Commerce and, as is customary on such occasions, the Estimate each year will be debated and approved by the Dáil and Seanad. This arrangement of limiting the aggregate total of grant-in-aid is a common feature in the legislation for semi-State bodies.
The moneys provided each year to CTT are spent on a wide range of support to exporters. These include: advice and basic information; specialist services in the field of market research; incentive grants to exporters entering new markets; and the organisation of national stands at international trade fairs. As well as this, CTT has an important role in improving the marketing skills in Irish companies. Together these services add up to a comprehensive support for our exporters, and the provision at section 3 of this Bill is necessary to enable CTT to continue to provide them.
Indeed, this is a matter of some urgency because CTT has already reached the current ceiling of £160 million. Any undue delay in implementing this measure would result in CTT having to borrow money in order to continue to operate, because we would be unable to pay them the moneys that have been voted in this year's Estimate. This would be an unnecessary cost which we are anxious to avoid, especially in the current financial climate.
The urgency attaching to this part of the Bill, which also applies for different reasons to the measures relating to the special trading houses, is the reason why this measure does not provide for any overall restructuring of Córas Tráchtála but is restricted to matters which cannot wait until the other side of the summer.
Senators will be aware from public comments I have made since taking up office that the Government consider it necessary to focus our national export effort on those areas that will deliver the best results in the shortest time. Furthermore, we are conscious of the urgent need to give that effort a major new impetus so that exports can play the part they must in our national recovery.
In this context, I have been carrying out a complete reappraisal of CTT's activities and functions. What exactly do we want the organisation to do from now on? Where should it concentrate its resources in the immediate future? By what criteria should it operate, to meet the challenges that face us as a trading nation now — challenges that are on an altogether different scale, and indeed of an altogether different nature, to the ones we faced when CTT was first set up at the end of the fifties.
The outcome of this reappraisal will certainly call for policy changes and almost certainly for new legislation. I may, therefore, be returning to this House in the near future with another Bill relating to CTT. It may be appropriate, however, if I now make some general comments to set this current Bill in perspective and also as an indication to the House as to the direction we are moving in.
Exports are central to our economy. They account for more than half our GNP, and we as a nation are now more dependent on exporting than many of the world's traditional big exporters — like Britain, the United States and Japan — that is proportionately of course. We have become what is above all a trading nation and it is not hard to see why. In contrast to the countries I have just mentioned we have no home market of any significance by modern standards. That tiny home market is fully open to the cold winds of international competition.
So if we are to grow, we must grow through selling our goods and services abroad — in short through exporting. Irish companies need to sell internationally at a much earlier stage in their development than is necessary in bigger countries. Bigger countries can offer rich pickings for local companies on their own doorsteps but Irish companies that do not move into exporting are doomed not to grow. Even worse, they are doomed not even to survive because they are increasingly exposed to competition from much bigger companies from outside.
In the past 30 years, our national policy has been for export-led growth and our record of success has been impressive in many respects. We now export at the level of about £10 billion a year; the positive trade balance last year was around three-quarters of a billion pounds and this year's result will be even better. The most recent month's trade figures were particularly encouraging but if we look behind these rosy figures, we get an indication of the scale of work that still needs to be done and where we need to focus our effort.
There is, as Senators will be fully aware, a sharp contrast between the export performance of foreign-owned companies operating in Ireland and the performance of Irish-owned companies. In general, the foreign-owned companies are the stars of the export show, while the Irish-owned companies tend to have bit parts, smaller parts or no parts at all. In saying this I have no wish to ignore the magnificent export performance of many Irish-owned companies; the problem is that there are not enough of them and they are the exception, not the rule.
This is obviously where we must focus our effort. Now, as never before, we must concentrate on getting more Irish-owned companies into exporting and get those who are already in exporting to give it a much higher priority. The task of Government, as I see it, is to create the conditions in which this will happen and happen quickly.
It is now received wisdom that our biggest industrial weakness is in international marketing but while we have recognised the disease we have done precious little up to now to bring about a cure. We urgently need to transform Ireland from being a production-led country to one that is market-driven. It was the awareness of this need that led this Government to set up the Office of Trade and Marketing, the first time in the history of the State that the importance of marketing as an aspect of wealth creation was adequately recognised by devoting an office of Government to it.
The whole thrust of our effort must be towards making good that deficiency in marketing capability within Irish-owned companies — a deficiency that we can afford no longer. So in restructuring CTT, our emphasis will be overwhelmingly on Irish-owned companies in the first instance, and in the second place on getting those Irish-owned companies to take a proper marketing approach to exporting. In essence that means that they should approach exporting on the basis of a strategic, long term plan.
We cannot, and indeed we should not, do the job of these companies for them. No State should be in the business of mollycoddling private companies who are not prepared to make an effort for themselves. What this State should be in is the business of helping companies to overcome the handicaps they suffer through being, for the most part, small enterprises in a small economy.
Export marketing is not easy, let us not be in any doubt about that. It demands a major commitment of resources — in money, time and energy. Let us not underestimate the very real practical difficulties that small companies face in venturing out on these waters. In equipping them for the voyage, we need to offer not one support but a wide range of supports, each one geared to the different needs and circumstances of different situations.
We need a toolbox for exporters. In that toolbox should be only those tools that are necessary to help the people we are talking about; we can no longer afford to spend resources in providing tools that some people are perfectly capable of providing for themselves. So part of what we will be doing is thinning out the toolbox but another part will be adding tools so that the people we need to help will have a full range of options available to them in approaching their task.
Many of these tools are already in place and part of my task as Minister for Trade and Marketing is to ensure that people are fully aware of them and that they make full use of them. We have, for instance, a scheme to encourage the employment of marketing executives in companies by subsidising their salary costs in the first year. We have a scheme to encourage companies to group together for export marketing. That scheme has already had some notable successes and I am glad to report to the House that there has recently been a dramatic quickening of interest in the idea. In one recent week alone, more than 500 people from Irish-owned companies attended seminars on group export marketing which were mounted by CTT at five centres around the country. I attended one of these seminars and was highly impressed by the keen level of interest and indeed enthusiasm that is now being shown by many newcomers to the export scene. It is evidence that the message is getting through that Irish companies can no longer afford to depend on the home market.
Where do the special trading houses fit into this? They will fill what I see is a structural gap in our export effort. They will offer to Irish companies export marketing skills they are not in a position to provide themselves, or not yet in a position to provide. They are a necessary addition to our national marketing toolbox, and section 2 of the present Bill is concerned with the creation of this tool.
We have to face the fact that some companies have exportable products but do not have any resources to commit to exporting. We have to face the fact that some manufacturing companies are able to cover only a few key export markets and have to turn their back on smaller opportunities in other countries in order to concentrate on their priorities.
On the other hand, we have to recognise that there is now in Ireland a considerable reservoir of export marketing experience that we can put to more effective use. There are people and companies with special knowledge of certain markets or who possess certain language skills that are in rare supply. Looked at from the national perspective, many of these talents are at present under used, not least because up to now we have been penalising rather than encouraging them.
Suppose, for instance, someone with special knowledge of a particular product area or of a particular geographical market decided to set up a company specialising in exporting Irish goods into that market. The existence of the company would be welcome to those manufacturers who were not able to do the exporting themselves. But though the company would be selling Irish manufactured goods, and creating valuable new exports, the enterprise would be taxed unfavourably — compared with a manufacturer of those goods. At present, the tax advantages of manufacturing goods do not flow through to a company whose only role is to export the goods.
Is it any wonder, then, that very few companies like that exist? We now want to provide a positive incentive for people to go into this kind of business. We want to make it worth people's while to act as exporters for Irish manufacturers.
The incentives are already in place; they are contained in section 29 of the Finance Bill, which this House recently considered. Special trading houses will get the concessionary corporation tax rate of only 10 per cent, which up to now has been restricted almost entirely to manufacturing companies. Investment in special trading houses will also be eligible for income tax relief under the business expansion scheme, making it much easier for these enterprises to find start-up capital in the form of risk-taking equity. In addition, special trading houses may be eligible for assistance from Córas Tráchtála in exactly the same way as if they were manufacturing the goods they are exporting. But the precise details in this area have yet to be worked out and agreed.
Section 2 of the Bill before the House this morning has the purpose of setting up a licensing system so that these very substantial incentives are used only for the purpose the Government intended when we introduced them — to create additional exports for this country.
We are fully determined to restrict the enjoyment of these incentives to bona fide trading houses that will fill the structural gap that exists at present in our exporting system. The licensing system proposed is outlined in section 2, and it is my intention that it will be simple, fair and fast. If I may repeat the phrase I used in the Dáil in this connection, my objective is not to put an obstacle in the way of enterprise but merely to put up a fence to keep the cowboys out.
The procedure will be that companies seeking the status of a special trading house will make application for a licence to the Minister for Industry and Commerce. To support that application, the company will have to provide information about their proposed capitalisation, their general qualifications and expertise, and their business and marketing plans.
As a help for people applying for a licence, my office will very shortly be issuing a guidance leaflet which will set out the basic information that people will need to know in order to apply for a licence. This leaflet will, for instance, detail the five main requirements that a company have to fulfil, to qualify as a special trading house. These are: they must be registered as a company; their business must be solely the sale abroad of Irish goods (to which they have title); they must not be the manufacturer of those goods or of any other goods; they must sell only by wholesale; they must have received a special trading house licence. The licence will be a necessary condition for getting the tax reliefs.
In this context, perhaps I should add that "Goods" means goods manufactured in Ireland, and includes data processing equipment and computer software services, and "Selling by wholesale" means selling to a person who either carries on a business of selling such goods or who uses the goods for the purpose of a trade or undertaking.
As well as this, the leaflet will provide a checklist of the information that we will need to assess the application. This covers six main areas: firstly, we will need to see the memorandum and articles of association of the proposed company. In most cases, perhaps all cases, we will be talking about newly-incorporated companies. I should like to make the point that the name chosen for the company should preferably reflect their status as a special trading house. Secondly, we will need details of the management structure of the company, and details of the promoters' expertise in relation to the chosen target markets and the product areas. Thirdly, we will need details of the sources and value of the proposed equity finance as well as that of any bank facilities for working capital (where that is appropriate).
Fourthly, we will need cash-flow projections for the first three years. Fifthly, we will need details of any contracts to acquire products from manufacturers. Finally, we will, of course, need to know what are the company's marketing plans and overall strategy.
The applications will be assessed by the Office of Trade and Marketing, after consultation with Córas Tráchtála. CTT will be required to make a recommendation to the Minister on each application. It is obvious, I think, that the on-the-ground expertise of CTT should be fully availed of in this evaluation process; they are the closest to the export marketplace, and it is right that the Minister making a decision should have access to CTT's informed view on the proposal.
Section 2 also provides that the Minister can seek further information about an applicant's suitability. One purpose of this is to avoid the need to impose an excessively detailed disclosure requirement on all applicants, whether relevant to their individual needs or not. A further aspect of section 2 that I would like to refer to is the provision for an appeals procedure. I am sure that Senators will agree that it is right that such a safeguard should exist.
It will be clear from the draft of section 2 that there is no explicit provision for the revocation or withdrawal of a licence, once granted. In this connection I would stress that the benefits accruing to special trading houses are the tax benefits which are set out in this year's Finance Bill, and those benefits are subject to the conditions laid down in that Bill. If a special trading house fail or cease to meet those conditions, then the tax reliefs will not be granted.
The licence is, as I have said, a necessary condition for the tax relief — but it is not a sufficient condition. As the major benefit to the licensee is the tax relief, then obviously the major sanction which is applied is the withdrawal of those reliefs when the company no longer fulfil the conditions. It was for this reason that I decided not to include in the Bill before the House explicit provisions for withdrawing licences. However, I can assure Senators that I will be monitoring the operation of this scheme very carefully indeed. If experience indicates the need for modification to the scheme, whether in relation to the withdrawal of licences or otherwise, I will have no hesitation in proposing the necessary amendments.
I should also like to stress that the object here is to stimulate new exports, not to divert existing trade away from manufacturing companies to the new houses. However this element will be assured by the workings of a competitive market-place; an existing exporter, who already enjoys the 10 per cent rate of corporation tax will not consider putting his goods through a trading house unless he judges that by doing so his sales will be increased. Otherwise he would have no incentive whatever for doing so if he is already getting the reliefs as a manufacturer. The trading house will enjoy no advantages that the manufacturer on his own does not already enjoy, and since the tax reliefs are benefits on profits actually made, there is no possibility of the benefit being received twice.
In this, as in other matters, I have not put anything into the Bill except what is strictly necessary to achieve our ends. The Bill is not long on detail. Where possible, I have approached the matter by using existing provisions, including definitions, in order to get this idea up and running as soon as possible. I have, therefore, resisted the temptation to introduce a whole array of new definitions. Instead, I have used those already existing in finance legislation and company law legislation, and I can assure the House that this approach reflects the advice of the parliamentary draftsman. It may nonetheless be useful if I make a few brief comments on this matter of definitions.
Senators will note that the term "special trading house" is itself defined in the Finance Bill, 1987, and as such requires no further definition in this Bill. Under the Finance Bill a special trading house is required to confine its activities to the selling of "export goods". This term is defined in finance legislation as "goods manufactured in the State in the course of a trade," and such goods are deemed to be exported when they are transported out of the State.
I mention these points merely by way of background, because the activities of the special trading houses are largely governed by the parameters and definitions already set down in the Finance Acts. The purpose of this Bill is not to redefine matters but rather to give a new stimulus to new exports.
We want to encourage the setting up of special trading houses, and we want to see them in action soon. From the response we have had to the idea since it was first mooted, I am in no doubt at all that there is both a real need for this initiative and a readiness to get involved on the part of people with the necessary expertise. I am extremely encouraged by the inquiries to date to my office.
The special trading houses will not, of course, be a panacea. They are a specific response to a particular problem, which is only one aspect of the overall export challenge that faces the country. To use the analogy I played with earlier, they are one more tool in our toolbox. I am confident that they will be an effective tool, and for that reason I have pleasure in recommending this Bill to Seanad Éireann.
