The Future of Canada/U.K. Trade and Investment in a Global Economy

Head Table Guests

David J. McFadden, Q.C., Partner, Smith Lyons, Vice Chair, Toronto Board of Trade and a Director, The Empire Club of Canada; Omar Chalabi, OAC Student, Lawrence Park Collegiate Institute; Reverend Bill Middleton, Armour Heights Presbyterian Church; Eleanor Clitheroe, President and CEO, Ontario Hydro Services Company; Malcolm Freeman, Vice-President and General Manager, Canada, British Airways plc; Daniel Burns, Ontario Deputy Minister of Economic Development, Trade and Tourism; The Hon. Barbara McDougall, President, Canadian Institute of International Affairs, Chair, Morguard Real Estate Investment Trust and former Canadian Minister of External Affairs; Terry Curran, Consul General, British Consulate General, Toronto; John Smith, Senior Manager, Global Private Banking Canada, Royal Bank of Canada and Chairman,

British Canadian Chamber of Trade and Commerce; Reay MacKay, Vice Chairman, Royal Bank of Canada; Mike Lagopolous, Senior VicePresident, Global Private Banking, Royal Bank of Canada; Barry Smith, President and CEO, Metro Toronto Convention Centre; and Thomas L. Wells, President, TLW Consulting, former Ontario Agent General in the U.K. and a Director, The Empire Club of Canada.

Introduction by George L. Cooke

We are privileged to have as our guest speaker today, Lord Marshall of Knightsbridge, Chairman, British Airways plc.

British Airways remains one of the world's most successful airlines. The British Airways Group, including Deutsch BA, and Air Liberte, carried a record 38.2 million passengers during 1996-97.

Lord Marshall was appointed Chairman of British Airways plc in February 1993 after 10 years with the airline. He previously held the position of Deputy Chairman and Chief Executive, prior to which he had a distinguished career in international business.

In 1958, after seven years with Orient Steam Navigation Company, Sir Colin joined the Hertz Corporation in Chicago as a management trainee. After a term as General Manager Mexico and Assistant to the President in New York in 1961, he became General Manager U.K., Netherlands and Belgium.

In 1964, he joined Avis Inc. as Regional Manager/Vice-President Europe. After progressively assuming responsibility for all areas of the world excluding the Western Hemisphere he moved in 1971 to New York as Executive Vice-President and became President and Chief Executive Officer, in 1976.

Following the takeover of Avis in 1979, he was appointed Executive Vice-President of Norton Simon Inc., and Co-Chairman of Avis. He returned to the United Kingdom in 1981 as Deputy Chief Executive and a Board Member of Sears Holding plc., joining British Airways in 1983 as Chief Executive. He was appointed Deputy Chairman in July 1989 retaining his responsibilities as Chief Executive.

In November 1995, Sir Colin joined the Board of Inchcape plc. and was appointed Chairman in January 1996. In 1998 he was appointed Chairman of Siebe plc. He is Deputy Chairman of British Telecommunications plc, Chairman of BTR Siebe plc. and a nonexecutive director of HSBC Holdings plc.

Lord Marshall was made a Knight Bachelor in the Queen's Birthday Honours in June 1987 and made a Life Peer in July 1998.

In addition to all of the above, Lord Colin was also President of the CBI (Confederation of British Industry) from May 1996 to July 1998 and is currently Deputy President. He is Chairman of London Development Partnership; Deputy Chairman of the Financial Reporting Council; Vice Chairman of the World Travel & Tourism Council... and the list continues. But if I do... we won't have time for his remarks.

Lord Marshall, welcome to The Empire Club of Canada.

Lord Marshall of Knightsbridge

It's a good few years since I had the pleasure of meeting with business and community leaders here in Toronto. It was, in fact, seven years ago and the occasion was a Financial Post conference on the subject of open skies in the airline business.

The single market in Europe (and with it air transport deregulation) was still the best part of a year and several ministerial summits away. Canada, as I recall, was talking with the folks across the border about the possibility of a single North American aviation market. Clearly, a great deal has changed since 1992, but some things haven't. Nevertheless, it's good to be back.

I am very grateful to the British Canadian Chamber of Trade and Commerce and the Empire Club for the invitation to speak at this joint gathering. I know the Chamber well, through its affiliation to the British American Business Council with which I have a long-standing association.

The Empire Club I know more by its immense reputation than direct involvement. I am, therefore, especially pleased at the honour of becoming the Club's 2,505th guest speaker.

The developments which have taken place between my last visit and today pale into insignificance when one considers the momentous issues and seminal events addressed by the Empire Club over its long and distinguished history.

No doubt one of the early items on the agenda, after the Club was established in 1903 was the new phenomenon of powered flight, achieved for the very first time in December of that year. It is a curious and very pleasing coincidence that the development of the aviation industry goes hand in hand with that of the Empire Club.

A few months ago, at the annual Wilbur and Orville Wright Lecture of the Royal Aeronautical Society, a few of us were discussing the scepticism with which the invention of flight was met on the streets of Edwardian London. "If God had meant men to fly, He would have given them wings," was the popular, scornful refrain.

Nine decades on, people not only travel by air on a truly massive scale, as a matter of course, but they are also less concerned with the mind-boggling technology than with such matters as the content of the in-flight meal tray, the number of channels on the entertainment system and how many frequent flyer points they can earn.

Today, a twist on the old, sceptical comment might go along the lines of: "If God had meant people to fly, He would have given us up-grades."

I guess that kind of attitude shift is true of any industry. Encouraging consumers to be entirely familiar with our goods and services and to raise their value expectations is, after all, the essence of business.

'What future is there for Canada/U.K. trade and investment in a global economy?' is, as you know, the theme I have been asked to address from a range of industry perspectives; and also in my role as one of Britain's Business Ambassadors. I have to say that 'British Business Ambassador' is a rather grand title for a group of unpaid, but supposedly high-powered, travelling salesmen, pressganged by the government to plug Britain around the world at every opportunity. You can begin to see what Tony Blair is getting at when he talks about the 'new enterprise economy.'

To be serious, this role is extremely rewarding and one that I am very happy to fulfil because the promotion of Britain and the fostering of excellent international trade relations, especially with countries of very close affiliation, like Canada, have a direct effect on the businesses I represent.

It goes without saying that the traditional links between Canada and the U.K. remain extremely strong. The difference nowadays is that our trading relationship is no longer simply bilateral, but geared to the global market. The Joint Declaration agreed by Jean Chretien and Tony Blair 20 months ago specifically calls for encouragement of the two-way flow of trade and investment, with a direct focus on providing access, respectively to NAFTA and the Single European Market for our companies, particularly those in the growing smalland medium-sized enterprise category.

Both our countries are committed to building knowledge-based economies. Indeed, Canada's progress in meeting this objective is the envy of much of the rest of the world. When Industry Minister, John Manley, addressed the Empire Club last month, he spoke about the Connecting Canadians programme (taking pains, I understand, to point out that this was not a government-organised dating service).

The scheme to transform Canada through accessible information technology, with the aim of making this country the lead nation in the knowledge-based economy of the next century is truly impressive. It comes against a background of steady economic development, as evidenced by the February budget; and policies to increase the level of enterprise, productivity and long-term industrial investment.

This all sounds very familiar to me, because it is almost exactly the way things are going in Britain.

By example and association, Canada is very important to the future economic and social development of my country which is why just a few weeks ago, the Department of Trade and Industry and the Foreign and Commonwealth Office agreed to plans for a new campaign to develop even stronger links between us, especially in the knowledge-driven industries, such as aerospace, biotech health care, software and pharmaceuticals. The Chretien/Blair Joint Declaration actually specified the encouragement of partnership in the science and technology fields, through links between Canadian and British companies and between our academic institutions.

A recent government briefing told the business community: "Neglecting business opportunities in Canada, by failing to recognise its strategic role in tackling the wider NAFTA region, could prove costly for U.K. companies." We have been warned.

Clearly, the same could be said, in geographic reverse about Britain. While we are--and will no doubt remainavid consumers of Seagrams' liquor and McCain's foods, Britain's overriding importance to Canadian business is now as a gateway to the Single European Market.

While we have been far from immune from the effects of recent global economic slow down, the British economy remains sound and stable--based, as it is, on a low level of inflation, workable costs of borrowing and a largely flexible work force. The strength of sterling is our major concern and I will come to the currency exchange issue in a moment.

To Canadians, our recently re-defined trade policy will have a familiar ring about it. It is enshrined in the new competitiveness White Paper entitled unsurprisingly, 'Building the Knowledge-Driven Economy.'

What it essentially says is that Britain can no longer compete on traditional terms at the global level. Instead, we must play to our strengths by adding the extra dimension of high-value and lasting integrity to our national catalogue of goods and services; and also by going for industrial innovation based on our scientific and intellectual capabilities, harnessed to the power of advanced information technology.

Fundamental to this shift of emphasis is a new commitment to investment and that, in turn, means moving away from the old 'boom-bust' strategies based on short-term financial gain, to ones driven by the need for sustainable growth and development over the long term.

Just as in Canada, our new trade policies go hand-in-hand with the social agenda, most notably in the emphasis on education, health care, social inclusion and the regeneration of deprived neighbourhoods. Perhaps the important hallmark of all these policies is that they are planned and implemented in partnership with the business community in recognition of the essential economic truth that only companies, not governments, can provide jobs and create wealth. We do not agree with the politicians on everything, as you would expect, but these days, by and large, British business has a healthy, progressive relationship with government.

Mind you, I look with envy at the continuity Canadian business enjoys with the long-serving John Manley. We've had three different Trade Secretaries in the space of the last six months, but that's another story.

As a direct result of our enterprise economy and our membership in the European Union one of the outstanding features of Britain's economic development in recent years has been the boom in inward investment.

Around 34 per cent of all overseas investment in Europe now comes to Britain. As far as Canada is concerned, the figure rises to 50 per cent. Last year, the 250 Canadian firms operating in Britain represented a total investment value of just about 10 billion. In London, where I have special interests, new investments are coming in at an average rate of four a month and this is confidently expected to double over the next few years. Just last week, London First Centre, our inward investment agency, celebrated achieving the 250th investment since it came into being less than five years ago.

In the U.K., our shift of economic focus and structure is coupled with the momentous development of the European common currency.

As you know, Britain has remained outside the first phase of economic and monetary union-EMU-for sound economic, not political reasons. We are simply out of synchronisation with the 11 other EU member states whose economies have converged to make the euro possible.

For many reasons, we have been saddled with the perception among some of our overseas trade and investment partners that Britain is unfocused on Europe. We can't make up our minds whether we are in or out, for or against.

It was therefore a red letter day for business when, last month, Tony Blair, announced what the government calls the National Changeover Plan as a firm commitment that Britain is getting to grips with the European single currency. Encouragingly, the Prime Minister confirmed that public-sector bodies would be moving ahead with investment to prepare for the euro.

You may have detected that critics of Europe, the so-called 'Eurosceptics' were putting it about that the Blair government is determined to force Britain into the single currency, come what may. That is not so. The government has simply reaffirmed, in the strongest way possible, its opinion that Britain's long-term interests rest on full participation in the Single European Market and that this can be most effectively achieved through economic union.

The vast majority of business people agree. But whether we go in or not depends on our ability to meet five, stringent economic tests laid down by the Chancellor; and the result of a national referendum.

British business has long recognised the competitive reality that Europe, as a whole, not just the U.K., is our home market. This is now reinforced with the political will for Britain to play a full, productive and influential part in Europe.

The crucial importance of Europe to Britain and our global trade and investment network led me, earlier this month, to accept an invitation to lead a new campaign designed to educate British people on Europe and encourage them to support membership of the single currency Known as Britain in Europe, the organisation is business-led and will operate outside the confines of party politics. The benefits of economic union in a market which now accounts for around 60 per cent of all British trade are obvious. The dangers of a free-wheeling pound, out of step with a new reserve currency in our home market, are equally clear. My motivation stems from the conviction that we must have a fully completed single market in Europe, based on the established British values of less government, fair trade and free enterprise, with all the economic reform this implies for our mainland partners.

I mentioned an interest in London and would like briefly to touch on it. Next year, the 32 boroughs and one corporation (the City) which comprise London will be amalgamated under one government, formed by an elected Mayor and Assembly. The city's economy will be planned by a London Development Agency. In order to develop a pan-London economic strategy ready for the Mayor we have created the London Development Partnership as a prototype economic agency and I am privileged to act as its Chairman.

The point of telling you this is that our work in planning for the economic regeneration of London is prompted by the need for truly global competitiveness and I want to assure every one of our trade and investment partners in Canada that their needs and interests in London are very much at the top of our minds. Our objective is to maintain and strengthen London's position as a

hub of global commerce and certainly as the most important financial services centre in Europe.

Our thinking in London is in line with new governance strategies for Scotland, Wales and the regions of England as they become devolved from central government. It also stacks up with the U.K.'s overall dedication to a more integrated world economy as the foundation for global prosperity.

So, the future of the Canadian-British trade relationship is being built on a shared commitment to innovation, invention and long-term economic sustainability through knowledge-driven strategies. We are both evolving as catalysts for the single global market which will inevitably emerge and it is important that our role-model policies and the business relationship that brings them into play are strengthened and sustained. It should go without saying that the British Canadian Chamber of Trade and Commerce has a defining role to play.

Back in 1992, I can recall telling that Financial Post conference that the future of air transportation would be marked by the development of global airline alliances. In the end, I predicted, there might be no more than a handful of powerful worldwide systems competing against each other. Some people clearly thought I was taking leave of my senses.

Now, as I remain sane, we are seeing these alliances taking shape. Our own one-world partnership, featuring Canadian Airlines, along with American, Cathay Pacific, Iberia and Qantas, is up, running and in global contention.

The airline industry has been hit by the effects of downturn in major markets and the main carriers here both bear financial scars.

Hopefully, the strength of our one-world consortium which provides a global network covering 630 destinations in 138 countries and a critical customer mass of 174 million people can help the resurgence of Canadian.

As for British Airways, our investment in Canada remains as strong as ever. As from this week, the service steps up to 11 flights weekly between Toronto and London; and to daily 747 flights for Montreal. Vancouver maintains its daily 747 operation; and the cross-marketing, codeshare link with all Canadian trans-Atlantic services naturally continues.

Finally, anybody wanting to see the new era of competitive intent at work in British business need only to call in at Shakespeare's Globe Theatre in London this summer. There, the Cranfield School of Management will be running a series of courses designed to develop the potential of British managers.

Apparently, the idea is for business people to study and act out themes from Shakespeare plays. One of the courses, for example, is entitled "Stepping into Leadership with Henry V" Can't you just imagine what executives inspired by the bloody battle of Agincourt might do for British competitiveness in the Single Market? No doubt there is another course on something like "Trust and delegation for subordinates with Julius Caesar." Or "Reputation Management with Othello." Although in these days of keeping a tight rein on overheads, a course on "Controlling the headcount with Henry VI l 1," might be the most popular.

The appreciation of the meeting was expressed by John Smith, Senior Manager, Global Private Banking Canada, Royal Bank of Canada and Chairman, British Canadian Chamber of Trade and Commerce.