Fulfilment Industry Policy (P.152-2006) comments

STATES OF JERSEY

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FULFILMENT INDUSTRY POLICY (P.152/2006): COMMENTS

Presented to the States on 26th January 2007 by the Minister for Economic Development

STATES GREFFE

COMMENTS

The  Minister  generally  agrees  with  part  (a)(i)  of  the  proposition  in  that  the  Island  can  benefit  from  the appointment of a dedicated post for e-commerce. A post for an e-commerce Manager within the Economic Development  Department had  already been  agreed in the 2006 Business  Planning  process and is  currently undergoing  evaluation.  It  is  anticipated  that  recruitment  will  take  place  in  March  2007  (see  attached  Job Specification).  However,  the  remit  for  this  person  will  be  much  wider  than  just  online  retailing  and  will encompass promotion  and diversification of a growing e-commerce  sector which the  Minister  believes has significant potential.

In respect of part (a)(ii), the Minister is firmly of the belief that the fulfilment industry has been reviewed thoroughly. The attached documents provide evidence that full and comprehensive reviews have been undertaken. In addition, the Economic Affairs Scrutiny Panel has already itself reviewed the industry as part of the scrutiny process and produced 2 reports in May and October 2006. The current and potential role of the industry in the Island's economy is well understood and the existing policy is both appropriate and in the Island's best interests. Online  retailing  and  fulfilment  policy  is  being  kept  under  constant  review  because  of  the  sensitivity  and potentially changing nature of developments outside of the Island. The Minister does not therefore agree that any further review be undertaken.

The Minister does not believe that he should direct the Jersey Competition Regulatory Authority to investigate any  potential  cross-subsidy  between  Jersey  Post  International  Limited  and  Offshore  Solutions  Limited,  as requested in part (a)(iii). It is a licence condition that cross-subsidy is not permitted and it is for the Jersey Competition Regulatory Authority, as the Island's independent and expert regulatory authority, to ensure that licence conditions are adhered to and enforced.

In respect of part  (b) of the proposition, the Minister does not consider that there is a need to introduce a standard code of practice for dealing with appeals against ministerial decisions. The Council of Ministers will however be considering  the  matter  and  issuing  its  own  comment.  In  respect  of  the  Regulation  of  Undertakings  and Development (Jersey) Law referred to in the report, a robust and fair appeals process is in place and is publicly available. The Minister recognised the Panel's comments concerning the documentation of the appeals process and it is now documented (see attached document).

JOB DESCRIPTION

JOB TITLE:   E - C o m merce Manager DEPARTMENT:   E c o nomic Development REPORTS TO:   D  ir e ctor – Regulatory Services POSTHOLDER:   N  ew  Post

JOB NO:

JOB PURPOSE

Develop and implement an e-commerce strategy for Jersey, based on detailed examination of the present and future business requirements of existing and developing industry sectors, in order to –

• improve productivity of existing businesses;

• encourage entrepreneurship and the establishment of new business; and

• enhance Jersey's reputation as a world-class business centre.

PRINCIPAL ACCOUNTABILITIES

1. Examine the entire process of global-reach online retail ability in order to optimise the effectiveness of the supply chain from online checkout through to customer fulfilment.
2. Work with ICT providers to ensure that services are always sufficiently robust to allow for fully effective business-to-business and business-to-customer transactions.
3. Develop, in close co-operation with all industry sectors, a robust security risk management strategy to ensure business continuity.
4. Benchmark Jersey's e-commerce performance against that of its global competitors, and best-in-class industry standards, in order to ensure that Jersey reaches and remains at the forefront of international e- commerce business.
5. Ensure that the e-commerce strategy, when implemented, contributes significantly to economic growth (as measured by GVA), evidenced by increased business activity and profitability across all interactive media.
6. Provide professional, specialist advice on e-commerce to the Director of Regulatory Services to ensure that the departmental Business Plan takes full account of the contribution of this aspect of the Island's economy.
7. Advise  and  work  actively  with the  Department's  Enterprise  and  Business  Development  unit  and  the Regulation of Undertakings and Development section of the Population Office in the assessment of business cases for relevant online initiatives and proposed business start-ups.
8. Manage the process relating to all aspects of communications legislation, including broadcasting and wireless telegraphy, acting as Jersey's liaison officer in this respect with Ofcom and the JCRA.

DIMENSIONS

Department staff   6 3 . 5 8 F T  E Department Budget   £ 1 5 m   Budget (Regulatory Services) £ 2 . 5 m  Individual Budget   £ 1 0 0 , 0 0 0  

The E-Commerce Manager role impacts particularly on the finance, fulfilment, telecommunications and retail industries, but is also vital in protecting the Island's international reputation as a safe, responsible and welcoming jurisdiction in which to undertake business.

Finance Industry £1580 million GVA

Wholesale and Retail £209 million GVA

Fulfilment  £100 million GVA (estimated)

Technology and Telecommunications Sectors £75 million GVA (estimated)

The Economic Development Department's mandate is to develop and implement an integrated economic and industrial strategy for Jersey through the Plan for Economic Growth. The E-Commerce Manager is responsible for  ensuring  that  the  strategic  goals  of  the  Department,  particularly  sustainable  economic  growth  and diversification, are met in allocated areas of policy responsibility.

Vitally, the postholder will have to work closely with the Economic Adviser, the Regulation of Undertakings team and the Enterprise and Business Development unit. A strong positive relationship with business leaders will be essential and the postholder will take on the role of e-business champion across the States, thereby ensuring that their strategy and plans are fit for purpose.

The postholder thus has a direct effect upon the sustainability and growth of the above sectors and on the economy more generally.

KNOWLEDGE AND EXPERIENCE REQUIRED

Given the importance of e-commerce to the achievement of the States' policy on economic growth, the postholder will have –

1. a first degree inmanagement/business administration or information and communicationstechnology and, preferably, a higherdegreeand/orprofessional qualification from a recognised institution;
2. at  least 10 years' experience  an e-commerce environment,  5  years of which will  have  been  at management level, including the developmentand implementation ofe-commercebusiness strategy;
3. highly-developed skills and experience in project management,businessanalysis, information systems.
4. a proventrack record in delivering e-commerce architecture solutions, preferably in large organisations requiring deep knowledgeofe-marketplaces,exchanges,e-procurement,web portals, intranet, extranet, auctions etc.;
5. strong analytical and conceptual skills with highly developed, confidentpresentationaltechniques;
6. excellent communication, facilitation andinfluencing skills and ideally experienceof dealing with the media and press;
7. businessandfinancial planning expertise and experience within a rapidly movingtechnical environment.

JOB CONTEXT

This will be a high profile role with close scrutiny by the press, politicians and industry leaders. For this reason the postholder must have total credibility based upon a background of success and delivery. E-commerce has been widely considered as a neglected area of the economy and the E-Commerce Manager must have the personal gravitas to turn this around.

E-commerce is not just e-retail or delivery through the fulfilment industry. It is a method of doing business that is both invaluable and far-reaching, impacting upon every industry sector in the Island as well as the general public.

Working without day to day supervision, the postholder will have regular contact with the Ministry team, Chief Officers and senior officers of other Departments, industry and business leaders. The postholder will be required to participate in boards, advisory groups, and working parties, both on behalf of the Department and the States, as well as constructing effective relationships with individuals.

Delivering the policy objectives of the Economic Development Department often takes place within settings where the post holder has no authority over others who have a significant impact on delivery. The post holder, therefore, needs to persuade, influence and negotiate with the Minister's and Assistant Minister's stakeholders to achieve the Department's objectives.

The E-Commerce Manager will actively engage the private sector to:

• harness their creativity into the development of States strategy; and vitally

• develop industries' understanding of States' policies.

The E-Commerce Manager is responsible for advising the Director of Regulatory Services on the suitability and longevity of all relevant legislation to ensure that it is kept relevant and up to date.

Joining up policy and relationships is a vital element of the role. ORGANISATION CHART

See attached Chart.

VERIFICATION

I confirm that this is an accurate description of the job of E-Commerce Manager.

Signed: .. D at e : Director of Regulatory Services

Signed: . D a t e: Executive Director

Signed: . D a t e: Chief Executive Officer

POLICY FOR THE FULFILMENT INDUSTRY

Introduction

1. Previous researchon the natureofthe fulfilment industry in the Island hasthrownsomelightonthe activity at a time when it is attracting somenegative publicity whichis in dangerofundermining the Island'sgood international reputation and integrity. Thenegative publicity is focusing on existingUKcompanies that are switching the distribution of their DVDs/CDs through theChannel Islands to take advantageof the Low ValueConsignmentRelief(LVCR – the EU approved mechanism for VATexemption).
2. This papersetsout a revised policy that can maximise the benefit ofthe fulfilment industrywhile at the same time notdamagetheIsland's international reputation or integrity.

The Economic Benefits

3. There are basically two typesof activity withinthe fulfilment sector, although a number of companies operate as a hybrid of the two activities. Whole Chain Companies(WCC) physically buy in andown the stock and sellthegoods to the finalcustomers.Third Party Service Providers (3PS) on the other hand provide logistics or distribution services to otherretailers. WCC receive revenuesbasedonthetotalvalueofsales whilst 3PS only receive revenuesbasedonthe service they provide, with the sales revenue going to the retail company.
4. The EconomicGrowth Plan (EGP) has two keyobjectives: to generate £20m additional tax revenue and to create high value jobs for local people. On purely economic growth grounds the dichotomy within the industry means that the appropriatenessof the twotypesof activity for the Island is significantly different. The high value added per employee and significant tax contributionofWCC activity means that it isfully complementary to the EGP and therefore shouldbesupportedby the States wherever possible.
5. 3PS activity contributes less significantly to either ofthetwokeyeconomicgrowth objectives andthe States should therefore bemuchmorecautiousabout this type of activity. Significant growthinemploymentin this sector posestwoquestions(assuming that licences will notbe granted for significant non-local labour):

Where  will  this  labour  be  drawn  from – the  unemployed/new  labour  market  entrants  or  other industries/firms?

Could the labour be put to more productive uses?

6. The answer to the first question is that whilesomeoftheexistingemployees might have come from the unemployedornewlabourmarket entrants there are greater concerns that further jobs growth will starttobid up wages in this area and therefore undermine activity of all firmsin the sector and possiblyother sectors such as tourism.
7. The very low valueaddedperemployeeof3PS activity alsosuggests that the labourcouldbeput to better use in otherareassuchas tourism and retail.
8. OnpureEGPgrounds the conclusion should beto support WCC activity butnot to allow further growthin 3PS activity, where it requires significantly morelabour.

Jersey's Integrity in Financial and Commercial Matters

9. The impactof the fulfilment industry does not however, stop here.EGP issues also have tobe balanced with those surrounding the Island's international reputation.
10. The selling structure which is adopted by the retailer is little better than a sham.The vendor, or the vendor's parent company,and the purchaser are both located in the UnitedKingdom.Thegoods,orsomeofthem,

come from the United Kingdom, and are shipped to Jersey for a "sale" before being shipped back to the United

Kingdom for delivery to the customer. Jersey's integrity in financial and commercial matters cannot but be damaged by the use of the Island as part of such a selling structure.

The policy

11. The appropriate policy (for further details seenotesbelow) that meets both the EconomicGrowth Plan and protects the Island's international reputation and integrity is:

1. Existing WCCshould be supported, particularly those that areor have been majority beneficially ownedbyJersey principals.
2. New WCC which are beneficially ownedby Jersey principals will besupported.
3. With the exceptionof those companies trading in DVD/CDs into theUKmarket, high value hybrid companies should be supported, where they do not involve UKcompanies diverting current business through the Island.
4. There are some UK companies already operating in the DVD/CD market through 3PS. These companiesshouldhave applied for licences, andany which have not will be required to doso. Assuming that there isnoground for refusing a licence additional tothose set out in this policy statement, such companies will be granted time limited licences to allow them gradually reduceand eventually to discontinue their activities.
5. 3PS activities will be allowed to grow where they donot require significant additional labour and are consistent with the EconomicGrowthPlan.

Notes

12. WCC are as previously defined – companies that physically buy andsellgoodsto final customersand receive revenuesbasedon the totalvalueofsalesandare generally owned by locally qualified principals.
13. 3PS areas previously defined – they provide logistics or distribution services to other retailers and only receive revenuesbasedon the service they provide, with the sales revenue going to the retail company.
14. Hybrids are fulfilment relatedcompanies that do not fit easily into either category but have a permanent establishment with some or all of their core activities in the Island such as a head office, finance, purchasing, marketing orcustomerservice. Hybrids employ locally qualified peoplein high valuejobs, make a significant local tax contribution and stock is ownedandpossibly held bythe local business. Their pick andpack operations are likely tobecarriedoutby a 3PS butcould be donebythecompany itself. Therecouldalsobe companies that operate as both WCC and 3PS.

Implementation

15. For the policy to work:

The Chief Minister's department will undertake any international relations work.

The Economic Development Minister will apply RUDL in the required manner*.

Time limited consents will be issued for a maximum of 12  months from the date of this policy.

The Economic Development Minister will seek to ensure that Jersey Post will comply with this policy.

*When considering any application, the Economic Development Minister is required under the Regulation of Undertakings and Development (Jersey) Law 1973 ("RUDL") to have regard to the need to regulate and manage demand on the resources of the Island and to protect its integrity in commercial and financial matters. Furthermore, the Minister has particular regard for the Population & Immigration Policy recommendations adopted by the States in November 1997 and the States Strategic Plan 2005.

The Minister will make decisions in line with domestic legislation and policy. However, the Minister will monitor the fulfilment industry and seek to ensure that a level playing field is maintained with other jurisdictions.

February 2006

STATEMENT BY THE MINISTER FOR ECONOMIC DEVELOPMENT ON POLICY FOR THE FULFILMENT INDUSTRY

1. In the last week there has been a flurry ofcommentsmadeon the fulfilment industry in Jersey, with varying degrees ofaccuracy. I wantto inform membersof the situation from EconomicDevelopment'sperspective and make sure Members have accurateand correct information at their disposal.
2. At the outset, it is worthsummarising exactly whatcurrent policy on the fulfilment industry is, recognising that it that has arisen outofdecisionstaken by measEconomicDevelopmentMinster and the previous Economic DevelopmentCommittee.
3. In a nutshell, the current policy is to allow online retailing aswhole to expandin the Island whileat the same only granting time limited licences to UKcompanies that simplyuseJerseyas a post box and divert their business in CDs/DVDs through the Island. By February 2007 these firms will no longer be granted a licence to operate through Jersey.
4. It isworth explaining as to why policy focuses on curtailing the particular activity whereUK retailers simply divert theirbusiness through the Island. Thereare basically threereasons:

1. This typeof activity isdamaging the Island'sreputation.
2. Such activity is increasing the probability that the UK will acttochangeLVCRtothe extent that all our fulfilment businesses will beundermined.
3. The economiccontributionof such activity isverylow in terms of valueaddedperperson.

5. It is worth explaining thesethree reasons in a little more detail, as I believe it is importantformembers to appreciate why I believe the current fulfilment policy is the right and only responsein the Island's best interests.
6. On the first point,whereUKbusinessesaresimply allowed touse the Island as a means of exploiting LVCR and avoiding VAT in theUKit does not portray the Island in the best light. We mustendeavour to continue to ensure that the Island is seen internationally toconduct itself in a manner that has the highest integrity. Notto do sounderminesthefutureprospectsof all businessesand particularly those operating internationally in the Island.
7. On the second point, the greater thevolume of CDs/DVDs that are shipped from Jersey to the UK the more likely it is that the UK will haveto act tostemthe loss of VAT. Where the increase in such volumesisdueto UKcompanies diverting their currentbusiness through the Island the needfor the UKgovernmenttoact will only increase. Letmemakeitquite clear – if the UK does act then this will dramatically alter the fortunesof nearly allouron-line retailing and fulfilment businesses in the island.
8. Finally,  the economic  contribution of what  are  now called  3PS (companies that  provide  logistics  or distribution servicesto other retailers) is very low – at £24,000 per FTEand equates to that ofagriculture. WCCs(companies that physically buyand sell goods to final customers) ontheotherhandhave a very high GVA/FTEof just over £100,000 – the highest in the Island outside the finance industry. Irrespective of any international concerns the low economic contribution of3PSin itself would influence the way in which I apply RUDL to such businesses.
9. AsMemberscannow plainly see there is clear justification for implementing the current policy and that doingso is in the Island's best interests both in termsof managing oureconomicresources and in maintaining our high international reputation.
10. I also want to address a numberofthe inaccuracies that have been put forward as a way to justify criticisms of the policy.
11. Firstly, there has been scaremongering suggesting that the current policy is costing jobs in the industry. The Scrutiny Panel Chairman has highlighted concern ofone particular 3PSwhich has been affected by the policy

implementation. With respect to the Chairman that is only example and it would be wrong for members to gain

the impression that this is representative of the whole sector.

12. Sir, I would like to give memberssome facts.
13. Since theintroduction of the policy in February 2006, WCCs and 3PSs have continued to apply for staff. New applications foronline retail undertakings have also continued to be made.
14. Excluding the time limited licences granted to Jersey registered companies with UK principals operating in the CD/DVDmarketand whose licensesexpirein February 2007, a numberof successful Regulation of Undertaking decisions have been made.

1. Therehave been a numberofnewbusinesses, all with locally qualified principals,who have been grantedlicenceswithfor the engagementofmore staff.
2. A number of otherWCCs and 3PSshavebeen granted additional locally qualified staff.

15. I believe that the current policy, for the reasons already outlined provides greater security for the 650 people that are currently employed in theindustry as a whole.
16. Secondly, it has been asserted that the policy isbasedon incomplete data.Thefactof the matter is that it is based on a thorough,objectiveand independent survey ofthe fulfilment industry conductedbytheStatesof Jersey Statistics Unit.There can be little doubt that the policy has been based on soundevidence, with the appropriate attention to detail.
17. Thirdly, therehas been a suggestion that the February 2006policyhas been an over reactioncomparedwith the previous policy. There is inrealityonly a minor difference between the two.TheoriginalEDCpolicy froze UKvolumes and the associated 3PSbusinessat very low levels.
18. The February 2006 Policy which I announcedtightened this approachby only granting time limited licences to UKcompanies that just use Jerseyas a post box and divert their business in CDs/DVDs through the Island. It requiredcompanieswhichdidnot have a license to get one. It alsore-stated a policy which I believe had not been strictly adhered toby the previous EconomicDevelopmentCommittee.
19. I feltstrongly that this tightening was necessary if the policy was to meetthe objectives I have already outlined. ThepreviousEDC policy wasdesignedinsuch a manner that UK businesses would beunableto expand businessthrough Jersey from what were very low volumes and that this would mean they would stop diverting business through Jersey. Thiswould clearly have impacted on a numberof3PSs even without the tightening ofthepolicy.
20. Accusations havealso been made that the policyisan overreaction to UK pressure and at the same time that it makes the Island appear tobe weak internationally. Members will haveseen the Hansardcoverageof the recent EarlyDayMotiondebatein the UKParliamenton the issue, which I circulated tomembers last week.
21. It is clear from the statements made by theUKPaymasterGeneral that neither oftheseaccusations made by Scrutiny and others can becorrect. It is apparent the threat of action by the UKtochangeLVCRto the detriment ofthe Island is both clearand present and that if Jersey had failed to act in the mannerithas with the current fulfilment policy that this threat would have been much greater.
22. Secondly, the policy does notmake Jersey appear weak' internationally. ThePaymasterGeneralhasmade it clear that she would have liked sterner action by Jersey.
23. The current policy gets the balance rightbetween acting to address international concernsbut at thesame time maintaining a policy that is supportive of genuine Jersey on-line retailing businesses that donot assist UKcompanies to avoidUKVAT.Thereis a minimaleconomiccost to the policy and at the same time it reduces theprobability that the rug will be pulled from underneaththewholeof our online retailing industry.

24. Finally, I would pointout that despite a number of issues raised by the Economic Affairs Scrutiny Panel, some ofwhichseem to bebasedon a complete misunderstandingof the situation, the Panelwas unable to recommendany change tothe current fulfilment policyor in fact a better way for policy to be implemented. I take this as further evidence that the current policy is both appropriate and clearly in the Island's best interests.
25. I can assure members that I continue to keep thematterof online retailing under review. The Chief Minister and I will continue to engage with HerMajesty'sgovernment in the UnitedKingdom to explain the actions wehavetaken locally andkeepinformedof their position.

Population Office, Regulation of Undertakings Decision-making and appeals process

Subject to the provision of the Regulation of Undertakings and Development Law, unless granted a licence so to do, no person shall –

1. co m mence a newundertaking;
2. in c rease the number of persons engagedin an undertaking.

I

f an application is refused or a condition of a licence not accepted, the applicant has the following courses of action:

• I f th e y consider a decision is unreasonable, they should set out in writing

why they consider this to be the case with reference to the Regulation of Undertakings policy, and the Minister

will normally be prepared to reconsider a decision.

• I f th ey are able to provide additional relevant evidence to support the application, the Minister will

normally be prepared to reconsider a decision, based on such additional information.

The applicant may also request a meeting with the Minister to discuss the application in person. In reconsidering, the Minister will normally seek the views of:

Economic Development, Assistant Minister, and/or

Chief Ministers' Department, Assistant Minister, and/or

The Housing Minister.

The Minister will either maintain or amend his decision. The Minister will not reconsider a decision more than once.

Should an applicant wish to undertake either of the above courses of action, they should write, within 2 months of the date of the decision notice, to the Population Office, Regulation of Undertakings.

Should the applicant continue to be unsatisfied with the decision of the Minister once the above process is complete, the following courses of action remain open:

1. Hearing by a Board ofAdministrativeAppeal

An application can be made to the Greffier of the States for the matter to be reviewed by a Board of Administrative Appeal. This procedure can apply to a decision made

by any Minister or Department of the States. It is provided by the Administrative Decisions (Review) (Jersey) Law 1982.

If the Greffier of the States, after consultation with the chairman of the Administrative Appeals Panel, considers the circumstances of the case justify a review by a Board then a hearing will be arranged. This will hear evidence from both the complainant and the Minister. These proceedings are usually relatively informal and although a complainant may wish to present his or her case with the help of an agent or adviser, this is not strictly necessary. After the hearing, the Board will report its findings. If it considers the Minister's decision to be unreasonable, the Board can request that the Minister reconsiders the decision. It should be noted that the findings of a Board are not binding on the Minister, although the Minister will be required to justify their decision if they decide not to follow the Board's recommendations.

2. Statutory Appeal

Paragraph  (7) of Article  6 of the Regulation of Undertakings and Development (Jersey) Law 1973 provides, so fa as it is relevant, that any person aggrieved by the decision of the Minister to refuse the grant of a licence or by any condition attached to the licence, may appeal to the Royal Court. Such an appeal must be made within two months of the date of the notification of the Minister's decision in the matter, on the grounds that the decision of the Minister was unreasonable having regard to all the circumstances of the case.

3. Judicial Review

I

f an applicant wishes to challenge the Minister's decision, they are entitled to apply for leave to bring judicial review  proceedings.  Whether  an  application  would  satisfy  the  judicial  review  criteria  is  one  on  which  the applicant should obtain their own independent legal advice. There is no set time for the bringing of an application for leave to apply for judicial review, but an application must set out the grounds for any delay, and delay may be a ground for refusing leave to apply.

4. Subsequent Appeal

A decision of the Royal Court is binding on the parties, subject to the bringing by them of any appeal, doléance, or other challenge. The determination by the Royal Court of a statutory appeal, or of an application for judicial review, are both subject to appeal to the Court of Appeal. Appeals against decisions of the Royal Court taken in administrative appeals are regulated by the Court of Appeal (Civil) Rules 1964. Appeals against decisions of the Royal Court taken in applications for judicial review are regulated by the Court of Appeal (Civil) (Judicial Review) Rules 2000.

Decisions of the Court of Appeal are subject to appeal to the Privy Council. Copies of all the enactments referred to are available on the Jersey Legal Information Board website www.jerseylegalinfo.je  or from the States Bookshop, the contact details for which are as follows:

Address: M  o rier House,

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