BABC Lunch, Thursday 14 October

Remarks by Sir Nigel Sheinwald, British Ambassador to the United States

“UK/Texas - Fuelling the Recovery”

I am very happy to be speaking here in Texas, a state that in many ways symbolises
the future of the United States – economically, demographically and politically. I
would like to thank the British American Business Chamber, the Greater Houston
Partnership, the Port of Houston Authority and the City of Houston for hosting me.

You may not all be aware of Britain's role in the birth of Texas. Richard Ballantine of
Scotland, William Blazeby of England, Samuel Burns of Ireland, and 23 others born
in the British Isles, were among those who crossed the line in the sand drawn by
Colonel Travis at the Alamo. During Texas’s period as an independent country,
between 1836 and 1845, Britain was one of the few nations to recognise it.

If you visit London’s St. James Street today, you can still find a plaque marking the
building which housed the Texas Embassy for those nine years. You have to look up
though. It’s quite high on the wall. I understand this is less a reflection of the height
of the average Texan, and more to do with the fact that a number of Texan tourists,
so overcome with pride at finding their Embassy, tried to take the plaque home as a
memento.

The United States and the United Kingdom share the same challenges: how to
ensure sustained economic recovery; boost jobs; and build a new energy economy
for the 21st century. We live in an increasingly interconnected, globalised world.
What happens in one part of the world can affect someone on the other side of the
planet within seconds. Resolving these issues requires more international co-
ordination than ever before. Our countries have traditionally shown leadership – to
recognise and seize these problems as opportunities, not retreat from them. That’s
going to be my theme, as I talk about trade, commerce and energy and “Fuelling
the Recovery.”

The State of Texas possesses a vibrant economy and is a major actor in

international commerce, with the 2nd largest economy in the nation and 15th
largest in the world by GDP. From its oil and gas sector here in Houston, to its
information technology around Austin, to its aerospace, defence and other industry
in Dallas – Texas is poised to emerge stronger than ever from the current downturn
and will be a central driver of America’s and the world’s economic recovery.

The UK wants to partner with you. Britain is open for business and our new
Coalition Government is committed to free trade and supporting business. We will
open markets, break down barriers, resist protectionism both at home and abroad,
promote British business and champion our commercial reputation. We, like others,
have serious fiscal challenges, which we cannot ignore. But fiscal responsibility is
entirely consistent with our vision of private-sector led recovery, driven by

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entrepreneurial spirit, private capital and hard working businesses of all sizes. That
may sound familiar…….

Openness and trade is vital to our shared prosperity. Any strong, vibrant economy,
whether local, state or national, depends upon a range of international ties and the
impact of global trade and investment is evident right here in Houston. I’m struck
that this city has the second highest number of Fortune 500 companies in America.
Houston is home to such multinational companies as ConocoPhillips, Halliburton,
Waste Management Inc., and Sysco as well as several UK-based enterprises such as
Turner and Townsend (our gold sponsors today - thank you), BP, Rotech (oil and gas
excavation services), RBS and Faithful & Gould (construction and engineering
consulting).

Prime Minister Cameron has been clear - trade is not a zero-sum game, but a win-
win. When we import low-cost goods we benefit from choice, competition and low
prices. Trade has always been in the bloodstream of our seafaring nation. Exports
account for 27% of UK GDP and the UK is world’s 5th largest exporter.

There is no better example of trade binding nations together than the United States
and the United Kingdom. In addition to our historic political and cultural ties, our two
countries enjoy a truly unique trade and investment relationship. British companies
are the largest foreign investors in the US, responsible for creating a million jobs,
and almost half a trillion dollars in FDI. Likewise, the US is the number one investor
in the UK. We are each other’s largest services partners. In 2009, total UK imports
from the US exceeded those from Brazil, India and China combined. The US is the
United Kingdom’s top export destination and its second-largest trading partner. We
possess, across the US, our largest UK Trade & Investment network in the world,
dedicated to supporting US and UK companies to grow their transatlantic business.
And right here in Houston, at the British Consulate-General, there is a team of trade
and investment professionals ready to help your business understand the
opportunities in the UK.

The UK/Texas trade and investment relationship exemplifies the US/UK commercial
partnership. In 2009, Texas ranked 2nd among the US states importing products
from the UK, importing over a tenth of all UK goods that come into the US. The UK
is the 8th largest destination for Texan exports, importing just over $3.2 billion in
2009. The UK is the single largest investor in Texas and accounts for nearly a fifth
of all jobs created by foreign-owned affiliates in the state. That’s 74,100 jobs,
20,400 of which are in manufacturing, providing well above the average wages. UK
investment in Texas totals $20 billion.

While UK/Texas commercial ties remain robust, we know that the global economy as
a whole remains weak, and continues to face unprecedented challenges. In the last
two and a half years, the global financial system has been rocked by a crisis that
nearly caused a second Great Depression; global GDP declined for the first time in
the post-war era; trade flows fell by at least 12%; and foreign investment flows
plummeted by 40% globally.
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But in times of downturn, public sentiment towards free trade tends to weaken, as
evidenced by last month’s Wall Street Journal/NBC poll which suggested that 53% of
Americans believe that trade agreements hurt America and 69% believe free trade
agreements have cost US jobs.

During my time as British Ambassador to the United States I have seen those
protectionist arguments play out. Free trade can become a scapegoat for the woes
of the overall economy. It can be portrayed as causing jobs to be shipped
overseas. It can be seen as giving foreigners a foothold in the US market, crowding
out American companies, without reciprocal openness in the other direction.

Coupled with opposition to trade agreements, there has been an uncomfortable

growth in protectionist or restrictive measures being considered in Congress: Buy
American provisions in public procurement; restrictions on international maritime
trade; anti-competitive fixes in financial services.

Let there be no doubt. We must have the courage of our convictions, trumpet trade
and open markets, and allow comparative advantage to function. In today’s world,
no single country can do it all themselves, better than everyone else.

A study by Matthew Slaughter of the Dartmouth School of Business showed that

open markets are an overwhelming net positive for the US economy. For every job
that moves overseas, American companies create two jobs at home; because they
can reinvest the cost savings. The same logic applies to companies: healthy
competition created by trade ensures that consumers get the best deal and that
costs are kept down for manufacturers here.

No one should imagine that if America acts to protect its markets, everyone else will
carry on regardless. Instead there will be retaliation, reciprocal restrictions and a
downward spiral. According to a 2009 Peterson Institute report, ‘Buy American’
provisions protect about 9,000 jobs. But foreign government procurement of US
products supports 650,000 US jobs – jobs that could be lost if other countries were
to implement their own ‘Buy National’ provisions.

Of course we should not be naïve or Panglossian. Not everyone wins all of the time.
Americans are right to worry about their trade deficit. That’s why the G20 is working
together to manage the transition to a more balanced pattern of global growth.
Ensuring a strong recovery will necessitate adjustments across different parts of the
global economy using various policy instruments.

Some workers will lose their jobs as companies find less expensive labour abroad.
For affected individuals, this adjustment will be a painful. Our societies need to
ensure that they receive help and incentives to re-train and re-skill.

But endlessly trying to protect specific industries is not the answer. We in the
advanced economies should have the confidence to focus on the industries of
tomorrow.

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Interestingly, while financial services accounts for nearly 8% of UK’s GDP,
manufacturing still accounts for 12%. The UK government is supporting its
manufacturing base by embracing competitive advantage – not by creating national
champions, or protecting manufacturing from international competition. In other
words, we are promoting what we are good at – not protecting what others can do
more efficiently. As a result, we are the sixth largest country in the world for
manufacturing. 70% of UK-made cars are exported. The UK aerospace industry is
second only to the US.

As well as the movement of capital, goods and services the exchange of people and
ideas are crucial. The UK can offer Texas and the wider United States a range of
knowledge and expertise. For example, in infrastructure. Public Private
Partnerships (PPP) are a useful procurement tool that can be used to achieve value
for money in the delivery of a range of infrastructure and public services. The UK
has 20 years experience. In the last 12 years we have done over 900 PPP projects,
worth $120 billion: about 15% of total capital projects in the UK. We are happy to
share this experience, which is especially relevant as government finances are
squeezed. Delivery of public works by the private sector through PPP has been on-
budget, on-time and high quality.

For another example of what happens when we inject UK expertise, I turn to

Greyhound - an iconic US company. A decade ago the Dallas-based bus operator
looked like a company without a future. Poor labour relations, low customer
satisfaction and increasing competition from low-cost airlines had brought the
company to bankruptcy in 1990 and again in 2001. FirstGroup, a Scottish
transportation company and Britain’s largest bus and rail operator, bought
Greyhound in 2007 and immediately set about introducing practices which had
been successful in the UK. They overhauled their ticketing and reservation system,
terminals and buses were refurbished, security was enhanced, and a new
advertising campaign aimed at the youth and Hispanic markets was launched. The
re-launching of Greyhound was so successful that last year FirstGroup exported the
brand to the UK to compete in the UK intercity market, beginning with just two
routes. It’s now been just over a year since entering the UK and Greyhound’s low
prices and quality of service has been well received by customers; growth has
exceeded company expectations; passenger numbers are constantly on the rise;
and the company has since added four additional routes with yet another route to
be announced in the coming months.

Now I know Texans prefer small government and our new Coalition Government
agrees. George Osborne, Chancellor of the Exchequer, said in August that “the
much-needed rebalancing of our indebted economy - away from government and
towards the private sector, away from consumption and towards business demand,
away from imports and towards exports - is beginning.”

We recognise that the key to our economic recovery lies not just in promoting the
free exchange of trade, investment and ideas but also in reducing the UK’s

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unsustainable budget deficit. The Coalition Government has developed a credible
plan to reduce spending and balance the budget. The emergency budget released
on June 22, set out a map for much needed consolidation, 77% of which will be
achieved through spending reductions and only 23% through tax increases. Deficit
reduction is essential to restoring confidence in the UK economy and ensuring
lasting prosperity. As a recent IMF ‘report card’ of the UK stated: “economic
recovery is underway, unemployment has stabilized, and financial sector health has
improved. The government’s strong and credible multi-year fiscal deficit reduction
plan is essential to ensure debt sustainability. The plan greatly reduces the risk of a
costly loss of confidence in public finances and supports a balanced recovery.”

Let me develop this theme of sustainable economic growth by finishing on that very
Texan topic - energy.

First, I want to talk about the Gulf of Mexico disaster. I visited the spill site and the
surrounding region, and saw the severe impact - in human, economic and
environmental terms - of this terrible tragedy. We sympathise deeply with all those
affected, some of whom will be feeling the impact for many years, long after the TV
cameras and reporters have gone. The UK Government pays tribute to what has
been an unprecedented relief effort – local communities, BP, the industry, the coast
guard, the military, and numerous other state and federal agencies. It is above all a
tribute to the renowned resilience of the people of this region.

We await the findings of the various investigations, but we must certainly ensure
that all possible lessons are learned and the necessary remedial action is taken - in
terms of safety, regulations, risk management, and industry operating standards.
Such an accident should not have happened, and we must ensure it never happens
again. That is not just a challenge for the Gulf but for governments, regulators and
the industry all over the world. In the UK we have already undergone a thorough
review of our North Sea operations, ramped up our safety inspections, and are
confident that drilling is safe.

Back in the Gulf meanwhile, I know that BP – still the biggest oil and gas operator in
the US - is absolutely committed to seeing through its obligations. The company has
spent over $10 billion so far and made provision to meet three times that level of
claims if necessary. When the crisis was at its height, our Prime Minister and your
President said that it was in no-one’s interest to see the company run into the
ground. BP is an important British company, but its operations are global, with
almost as many American shareholders as British; and more jobs in this country
than in Britain. That remains important. We must remain fair-minded, and not pre-
judge the investigations into BP’s and other companies’ actions.

We can all agree that Deepwater Horizon was a massive wake-up call. And not just
for oil companies. It has made all of us think about where our energy comes from,
and at what potential cost.

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In the UK we feel this challenge acutely. For most of our history we have been self-
sufficient in fuel. For centuries it was wood, then coal, then oil, and gas. Now we are
net importers of energy. Over the next 10-15 years we will need over $300 billion of
new energy investment just to keep the lights on. We believe this investment needs
to be across the board – in renewable technologies, carbon capture and storage,
and nuclear energy, as well as in natural gas and petroleum.

Local conditions differ, but in Texas, and the US generally, you basically face similar
strategic choices. I want to talk about this shared challenge.

For much of the last century, global growth was closely tied to our ability to access
cheap energy. But there are multiple hurdles ahead. Surging demand and strong
purchasing power in various emerging economies; peaked production in many
regions; uncertainty about reserves; complex and uncertain geo-political trends,
including greater resource nationalism; massive financing challenges for new
infrastructure investment; and the global challenge of climate change are all
making for an uncertain future.

At the same time, access to existing and untapped energy supplies is also becoming
more difficult. Much of the world’s energy reserves lie in severe environments such
as in Russia or Canada’s pipelines in the Arctic. The massive pre-salt oil finds off the
coast of Brazil are in water far deeper even than the Macondo well that was being
drilled by the Deepwater Horizon.

So how do we meet these challenges? I want to touch on two aspects. First, to

reinforce my earlier points about open markets, in the context of energy. Second, to
talk about scarce and sustainable supply.

First, on open and transparent markets, we all remember oil prices reaching $147
per barrel in the summer of 2008 then plummeting to less than $40 six months
later. Such volatility is extraordinary for such a key engine of economic growth,
creates uncertainty, undermines essential energy investment, and threatens the
recovery. The UK is working with the United States and other partners to promote
transparency and stability in global energy markets; remove drivers of excess
demand such as fuel subsidies in China, India and the Middle East; and in future we
intend to work harder to ensure that energy markets stay open, so our companies
can invest as easily globally as they can at home.

In terms of two-way trade and investment in energy, Texas and the UK are well
placed to play a leading role. We have a long history of sustained investment by our
energy majors and their suppliers in each others’ markets. It has been unfortunate
to see legislators in Washington propose bills that would have ‘Americanised’ the
Gulf waters.

The North Sea remains a significant market, with the potential to produce at least
20 billion more barrels of oil and gas. The UK remains the 16th largest oil and gas

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producer in the world, and well over half of UK energy use will come from our
domestic supplies in 2020.

Ronald Reagan famously said that the nine most terrifying words in the English
language were ‘I’m from the government and I’m here to help.’ But Government
does have a positive role and a vital stake in energy security.

The smart strategy is to diversify, harness cleaner technologies; use energy more
efficiently; and develop new sources of supply at commercial scale. To do all that
we should focus on setting a simple but robust regulatory environment, liberalise
energy markets as we’ve been doing in the European Union; provide long-term
certainty for business, and ensure that incentives are in place to allow business to
get on with it, and flourish.

Governments also have a role in ensuring a stable international environment,

whether in the Persian Gulf or Central Asia, through political and security support
and by building mutually advantageous relationships.

Many forms of renewable energy will play their part – marine, wind and biofuels.
Britain has around 40% of Europe’s total off-shore wind potential, and has been
named by Ernst and Young as the most attractive place to invest in offshore wind
globally. Just last month we opened the largest wind farm in the world and are the
world’s largest producer. This is not marginal business.

Texas already leads the US in on-shore wind, which accounting for approximately
6% of Texan electricity in 2009 - this State’s generation of wind power has
increased by an astonishing 25 times in a decade. Moreover, a report in August by
the Cynthia and George Mitchell Foundation indicated that renewable energy
investment in Texas could create 23,000 additional jobs in the state each year until
2020. A good example of how this market has attracted UK business, is renewables
company RES, who took their UK-based know-how, applied it to Texas, flourished
and is now opening offices and factories across the US and around the world.

Nuclear power, carbon capture and sequestration, and natural gas will also be
important, and are key to the UK’s strategic plan for securing our energy and
climate future. In the UK we have accelerated the planning process for new nuclear
build and are scheduling a new generation of facilities, with excellent opportunities
for US companies to invest. We expect nuclear to continue to provide around 20%
of the UK electricity supply. I know nuclear power supplies 14% of Texas’s
electricity generation.

Texas has been the energy capital of the world for the last century. I have no doubt
that it will continue to be the global energy hub in the century to come, harnessing
every ounce of its innovative and technological know-how, and being a genuinely
international market. Texan ingenuity on unconventional gas production has also
proved a game-changer over recent years. We are watching closely to see whether
companies such as BG, Shell, Exxon and others have the potential to adapt what

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they are doing in Texas and Pennsylvania to the European market. The UK and its
companies look forward to playing a leading role.

In summary, if the UK and Texas can continue to do what we’re good at – keeping
markets open to trade and investment; and collaborating and innovating on
infrastructure in areas like energy exploration and energy security – then I believe
we will truly “Fuel the Recovery” and offer a more sustainable path for economic
prosperity in both our countries in the years to come.

Thank you very much.