(10 years, 10 months ago)
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Lord Harrison
That this House takes note of the role of international trade in increasing employment and economic growth.
Lord Harrison (Lab)
My Lords,
“all the evidence is that when you open up markets people flourish, businesses grow and you create jobs”.
Thus the former Trade Minister, the noble Lord, Lord Green, put it to a recent meeting of the Trade Out of Poverty group. International trade is central to all our lives, bringing jobs, growth and prosperity to the developed and developing world alike. I want to explore how well Britain is doing in promoting international trade, how well it is rebalancing its economy to emphasise exports—especially manufacturing—and how well we as parliamentarians are doing in holding to account UK, European Union and world decision-makers in doing the big trade deals. It is my belief that for too long politicians have neglected international trade as a job winner and left it on the parliamentary shelf.
How well is the United Kingdom doing? According to the ONS, the UK’s trade deficit on goods and services was some £2.6 billion in October 2013, while our deficit on goods rose to £29.5 billion in the three months to October last year. Eurostat identifies Germany as having the largest trade surplus, while Britain contests France, Greece and Spain for bottom place at minus €55 billion.
The former government adviser Sir Alan Rudge points out that the troubling balance of payments deficit in recent years has largely been financed by the sale of UK debt and assets, not by increasing exports and trade. In contrast, says Sir Alan, small businesses, the real engines of growth and trade, are frustrated by a Government who still have not solved the scandal of late payment of commercial debt or successfully dealt with the drought of investment finance for small businesses. This was evidenced today by the Bank of England’s lukewarm assessment of the UK’s plethora of indifferent schemes for small businesses.
The Prime Minister rightly vaunts the benefits of the purposed transatlantic deal between the European Union and the USA. It could indeed add £10 billion to the British economy, but such aspirations require the back-up of hard work and planned follow-up. I ask the Minister why our embassy in Washington has part sponsored a state-by-state study of the effect of TTIP on US jobs, but Ministers in the UK have yet to sponsor any such similar sectoral assessment for the United Kingdom, from which we might develop a reasoned industrial strategy.
I would be grateful for an update on the EU-US TTIP negotiations, and I ask the Minister to assure us that any potential adverse effects on developing countries will be mitigated. However, President Obama commented that he would have “very little appetite” for a deal with the United Kingdom alone. That brings me to the question of why, oh why, at this time when we are trying to secure this TTIP deal, we are giving the impression that we want to absent ourselves from the European Union, which is the principal negotiator.
We also need hard work on improving the UK’s grasp of foreign languages, instead of lazily relying on English as the world’s lingua franca. This is of the essence. The British Chambers of Commerce has remarked that knowledge gaps and language skills hold back British exporters. A rebalancing of the economy requires expansion of language acquisition in our schools, colleges and businesses. However, we should also mobilise the many pools of language expertise found among our British citizens, especially among communities of recent immigrants. How refreshing it would be if the Government coupled their insistence on immigrants speaking English with a pledge to arm each current UK citizen with the gift of fluency in one other language. In our engagement with the European Union and others, we have had too much British bluster and too little British barter, too much using the English language as a battering ram and too little buttering-up of trade partners in their own tongues.
Last week, the Commons Public Accounts Committee published a report which was critical of UK support for exporters overseas, and also highlighted the failure of UKTI and the FCO to work effectively together. There is also the failure of the Chancellor’s ambition to double the value of UK exports to £1 trillion by 2020, which was a realistic goal in the 2012 budget, and the failure of UK trade to match that of our EU partners, especially Germany, which is the export champion of Europe. How does the Minister respond to the criticisms of the Public Accounts Committee?
Does the noble Lord recognise, and how does he respond to, the changing trade patterns? I remember the vice-president of eBay addressing the WTO Parliamentary Assembly and underlining the importance of having secure WTO rules, whatever the medium of trade—in his case, of course, eBay. A second contributor to that debate reminded us of the increasing use of mobile phones for effecting trade. We have to change with the changing patterns and times.
I also ask the Minister to reflect on the Commonwealth and the CHOGM in Sri Lanka last November. What does he believe can be done through the Commonwealth? Does it have a responsible role in promoting intelligent trade? Indeed, how does he respond to the idea of a Commonwealth trade and investment facility?
I now turn to how well we, as parliamentarians, perform oversight of international trade deals done in our name here in the United Kingdom, in the Commonwealth or in the European Union—which is charged with agreeing the forthcoming TTIP deal with the United States under European Union law—or, indeed, through the World Trade Organisation, where I was until recently the Westminster parliamentary delegate in the run-up to Bali. Parliamentary oversight in the United Kingdom is woeful. We spiritedly examine the Government’s domestic economic policies but often neglect to place under the same forensic microscope their trade policies.
Perhaps the new Minister, the noble Lord, Lord Livingston, to whom I offer a very warm welcome, will acknowledge that trade scrutiny in Parliament is indeed too perfunctory. Would he not welcome being held to closer account by parliamentarians? The last time we had such a debate in the House of Lords was back in 2012, when my noble friend Lady Liddell led an important report. I am told that the only debate held hitherto in the House of Commons on the important EU-US trade negotiations was brought by John Healey MP, who runs the all-party group on TTIP. However, we need to have more than just that.
The Lords, of course, has a Select Committee system, which does very well. When I became chair of your Lordships’ European Union Sub-Committee on Economic and Financial Affairs, as well as trade, in 2010, we were entrusted with clearing trade deals such as the Korea-EU accord on the automotive industry. Perhaps that is why we have heard some good news recently on that front. The newly installed EU Trade Commissioner, Karel De Gucht, came before my committee. We took evidence from him on the new and important EU trade policy communication, Trade, Growth and World Affairs, which promotes a more assertive trade policy being developed by the European Union. However, that was the limit of our parliamentary investigation.
On that point, how does the Minister intend to report to Parliament on the annual EU Trade and Investment Barriers Report, which I am sure his officials have told him about, and the ambition in the 2011 March report to have made progress in extending the opening of government procurement markets and developing successful dispute settlement arrangements for the future? The EU foreign policy committee, led by the noble Lord, Lord Tugendhat, is currently scrutinising the forthcoming EU-US trade deal and it interviewed Karel De Gucht on 13 November last year. Perhaps the Minister can also tell us about either meetings that he may have had with Karel De Gucht or ones that he proposes to have with him in the future.
For 18 months I was the UK delegate to the WTO Parliamentary Assembly meetings, which included my co-chairing a meeting in Brussels with the International Trade Committee of the European Parliament—the so-called INTA—on which sit distinguished British MEPs who are now co-legislators on these important international trade deals. What conversations has the Minister had, or what conversations does he propose to have, with British MEPs to get a better and more thorough understanding of what the European Union and European Parliament will be doing in this area? Regrettably, the WTO parliamentarians were excluded from the final successful assembly concluding the Bali accord unless they were designated as part of the national delegation. That offer was denied me, much to my regret.
Perhaps I may conclude on the successful Bali accord and ask the Minister to report on its outcome. Does he understand that, increasingly, because of the difficulty with the Doha round and its completion, there have sprung up many more bilateral, plurilateral and even bi-regional accords such as the EU-US deal? They are proliferating in the absence of the giant multilateral deal that is aspired to in the Doha round. Do the Government believe that such partial deals undermine the principle of multilateralism, or are they stepping stones on the way to achieving multilateralism which, in the end, must be the favoured way of going?
On Bali implementation, will the Minister report on what discussions government departments have had and what budget provisions are being made to support the implementation of the Bali trade facilitation deal? Will he also report on the continuing economic partnership agreements that are being developed with the European Union and African states and whether we will mitigate any adverse affects that may arise as the deadline of 1 October 2014 comes into sight?
The point I have tried to make is that trade is hugely important. We, the Government and parliamentarians must take it seriously. We must find the road down which we can go to improve the understanding and transparency of trade deals, which have so much influence on our lives and from which those to whom we report will benefit if we get them right. I look forward to a debate in which these matters can be expressed and to the response of the Minister to the questions I have put. If he is unable to respond to everything, I hope he will write to me later. It is an important debate and I hope that we will treat it seriously.
Lord Marland (Con)
My Lords, I was flattered and surprised to receive a generous letter from the noble Lord, Lord Harrison, asking me to speak in this debate. I regret that I shall not be able to stay until the end—I have written to the noble Lord to inform him—because I have not been able to reschedule some of my activities. This will be a terrific debate. It is a very important debate, as the noble Lord has mentioned, and I congratulate him on securing it. I also understand that I am clearly the warm-up act for the noble Lord, Lord Giddens, and I hope that he will say nice rather than nasty things afterwards. He is a very good tennis companion, but not necessarily a good debating companion on the other side of the Chamber.
When we look at the exam question that the noble Lord, Lord Harrison, has set, the answer is, “Yes, of course”. I have just finished being for two and a half years the Prime Minister’s trade envoy and chairman of his business ambassadors. Throughout that time I have had the great pleasure of working with parliamentarians, including the noble Baroness, Lady Symons, who is unique in her tireless work in the Middle East, and with trade envoys who are appointed from all sides of the House. They give of their free time to support the trade initiative. I pay tribute to the noble Lord, Lord Green of Hurstpierpoint, who was an unpaid Minister. It has been a pleasure to work with them all, trying to sort out the problems we inherited and galvanising the United Kingdom back into what it was: a great trading nation.
The Prime Minister has rightly put trade at the centre of our economic recovery and, as the noble Lord, Lord Harrison, said, it is important, and incumbent on us all, to put our shoulders to the wheel to make sure that that happens. But it has been a significant challenge because businesses and Government had been focusing their activities almost entirely on Europe and the internal market. We had been a prosperous country for the past 15 to 20 years and orders were easy to secure both within our own market and overseas. Moreover, the Government themselves had failed to focus on the emerging markets of the world, instead maintaining strong relationships with those countries that had been our friends for ever. I think that the Government had become complacent about their relationships. Not only has there been a huge overhaul of UKTI and its focus, which was needed, but also an effort to tackle the horrendous fact, in my view, that 60% of small and medium-sized enterprises export only if someone comes and knocks on their door, and 60% of SMEs do not export at all. For a trading nation, those are extraordinary statistics. Repositioning, regalvanising and leading the way have all been very important.
It is easy to say, “The Government should be doing this and should be doing that”, but from my experience since I started my first business in 1982, which went on to become a global international insurance broker, the last people we wanted working with us were Government. They were slow and pedestrian, they taxed us, and they took too long to make decisions. As business people we want to be able to trade on our own. What we do want, when we get into sticky situations, is for the Government to intervene at a senior level and to ease the path for us. There are two or three things that the Government need to do in terms of providing access to markets. We should not expect Government to be the commercial, deal-doing arm of business, but we should expect them to have access at senior levels and to understand the routes to market: knowing who are the reliable partners in market that British businesses can deal with and understanding the rules and regulations within country so that businesses know about and recognise the problems they may face when going to market.
The frustration that I found as a trade envoy and chairman of the business ambassadors was that we could take the horses or businesses to water, but we could not make those horses or businesses drink. We would offer endless opportunities, but getting them to the table was difficult. That is changing, but it is an area where progress still needs to be made. To illustrate the degree of change, when I first went to Angola—I was almost the first government Minister ever to visit the country—I took five businesses with me. The last time I visited, I took 30, and deals are now being done with that country. But we should be taking 60 or even 90 businesses because today Angola is per capita the wealthiest nation in Africa. The oil industry is expanding enormously and there are going to be huge infrastructure changes. The other frustration is: why are we three years behind the Chinese and the Koreans in getting into Angola? It is because businesses have not looked at the potential initiatives there.
The most important thing from the point of view of British business and the Government is that we spend a lot of our time criticising ourselves and this nation but the truth is that in every country I visited we were in the top three countries in the world that that country would want to deal with. That is an extraordinary position to be in. It comes down to three or four things. First, business here is underpinned by the rule of law and we should compliment ourselves on that. The rule of law is fundamental to business practices and we are the leading exponents of it.
Secondly, we are transparent in the way that we do our business. I was very concerned about the Bribery Act when it came through but I now recognise it to be a very important and differentiating plank for British businesses when negotiating in the world. Now we see Governments being overturned for being corrupt by their people at the drop of a Twitter—or whatever it is; I am not going to ask my noble friend Lord Cormack because he does not know either—or the push of a button because they are not transparent. That sets us apart from the rest.
Thirdly, I disagree with the noble Lord, Lord Harrison: the reason people want to do business with the UK is that we speak English, which is the desired language of all nations now in terms of commerce. Fourthly, London is a place that everyone wants to come to. I do not say this without humility but for this short moment in our lifetime London is the centre of the world to do trade. That makes it a fantastic place for us to do business.
Finally—and this may surprise noble Lords—we have an enormous bandwidth of skills. We lead the world in e-commerce, as the noble Baroness, Lady Lane-Fox, has led the world in e-commerce. We lead the world in high-tech. We lead the world in low-tech. Our medical capability is the envy of the world. Most importantly, our education system is the envy of the world. That is the thing that everyone wants to buy because we have a very strong education system and we have this ability to transfer skills.
Therefore, the Minister takes on a momentum that is beginning to happen. I support him and any initiatives that he sets about involving Members of this House which continue putting Britain on track to being what we have always been: a significant trading nation with a strong position in the world.
Lord Giddens (Lab)
My Lords, I congratulate my noble friend Lord Harrison on having initiated this important debate. It is a pleasure to follow the noble Lord, Lord Marland, and to see him back here, in such ebullient form as always, even if he is going to desert us half way through the proceedings.
I have been a practising social scientist for several decades. Over that time, a principle of working has always done very well for me. That principle is—this might be the first time this word has ever been uttered in the House of Lords—“think dialectically”; that is, do not think that the future will be like the past; the future will often be the opposite of the past. There are transition points in history when the world starts to look very different. I feel that we are at such a transition point in the world economy today.
Therefore, when people go with the easy assumption that this will be the Asian century, I do not think that is necessarily true at all. The assumption that there will be an inevitable and significant decline in the West is not necessarily true either. The same thing applies to the process of deindustrialisation, which has perhaps been the dominant feature of the western economies for the past 30 years or so and which has transformed them essentially into heavily service-based economies. Although most observers see this as a continuing process, I do not think it will be or that deindustrialisation is a trend which will simply run and run.
I would like noble Lords participating in this debate who are interested in how we can produce a resurgence of global trade in this country to take very seriously the discussion about reshoring which is going on in the United States and several other advanced industrial countries around the world. Reshoring, which I have mentioned in a previous debate in your Lordships’ House, is the opposite of offshoring. It is the idea that industry will come back to the advanced economies and that there will be processes of reindustrialisation. It is very important that the UK is at the forefront of such processes should they indeed take place. We can all see that the “effort bargain” that has dominated the world economy over the past three decades can no longer be sustained. This now pivots on the role of China. Over that period there has been a kind of odd coupling between the United States and China, and to some extent Europe and China, based on the fact that the Chinese produce manufactured goods for the United States and the industrial economies. The United States cannot afford to pay for those goods so it has to borrow, and the situation is much the same for Europe. How does the United States borrow? It borrows from the Chinese, who invest in American bonds. It is surely the case that we have come to the end of that relationship now. It is also the case that China will move back much more towards domestic demand rather than simply exporting. Wages have also gone up significantly in the manufacturing centres in China.
When we look to our trading relationship in the future, we should not suppose that it will just depend on a continuing increase in the export of services. Instead, we should be back making things, which is crucial for the future. There is a kind of convergence between what is happening in the world economy and the emergence of digital production. Reference was made to the noble Baroness, Lady Lane-Fox. It is a matter of the expansion of not just the digital world but digital production in the form of 3D printing and things well beyond that now. These are massive processes of change. With these localised forms of production many things that used to be made thousands of miles away can now be—and in the future will be—made locally.
When we think about the resurgence of UK trade it is a mistake just to make the simplistic assumption that we should turn our eyes to the east or, if you like, that the main driving force should be how to be nicer to China. For that reason, I would like to expand on the comments made by my noble friend Lord Harrison about the significance of the free trade system now under discussion between the United States and the European Union. I see this as a kind of core of the possible pivot of change in the global world economy. It could be a crucial source of transformation for the whole range of industrial countries involved. Looking at the potential impact of the EU-US Transatlantic Trade and Investment Partnership, to give it its full name—it is usually called TAFTA, which is the term that I shall use because it refers to an area—you could say that it might be the most important source of job creation and wealth creation for western economies for many years.
There are some disputes among academics about the implications of TAFTA for GDP, but I have looked at the Commission’s estimates in some detail and think that they are pretty reliable. The Commission’s estimate is that TAFTA will yield €120 billion for the EU states and €130 billion for the United States. I remind noble Lords that trade is not a zero-sum game. It does not follow that a consolidated western trading relationship will have adverse consequences for the developing world. Actually, it is the contrary: according to the Commission’s estimates, €100 billion extra GDP will be generated for the developing world as a result of this process. The implications are huge.
As the noble Lord has hinted, we know that there are significant problems in establishing the free trade agreement; there are problems getting it through Congress; there are problems at a state level in the US; and there are problems within the European Union—for example, at least some French thinkers and politicians are not as enamoured of free trade as other parts of the European Union and have made perhaps not terribly helpful comments on the process. Nevertheless, I think that there is a strong will in the United States to push it through—President Obama has made it a legacy issue for himself—and there is also a strong will in Europe.
The free trade deal has been widely criticised from the left. It is said that it will give more power to footloose corporations and have negative environmental consequences. These criticisms are strongly misplaced and quite wrong. For example, increasing collaboration between the United States and the European Union is likely to be the only way of having a significant impact on tax loopholes, eliminating tax havens and creating greater corporate responsibility. I think that the FTA will bring greater corporate responsibility, not less. There is a sticking point around the precautionary principle environmentally, but I think that the precautionary principle is not a principle and that Europe should be encouraged to abandon it. Not taking a risk is itself a risk; therefore I see a fruitful possible source of collaboration here, too.
I have three brief questions for the Minister. What is his assessment of the progress of TAFTA so far and have the Government made a clear assessment? Secondly, do the Government accept the Commission’s estimate of GDP growth and job creation for the UK and, if not, why not, because it seems to me quite valid? Thirdly, to pick up on what the noble Lord, Lord Harrison, said, do the Government accept that were the UK to leave the EU in the relatively near future its chances of inclusion would be slim to non-existent?
Baroness Miller of Chilthorne Domer (LD)
My Lords, I want to concentrate my remarks in this debate on the agricultural and food sectors. I should begin by declaring an interest as a co-owner of Vignobles Temperley, our family vineyard, which makes and exports wine.
I was moved to speak in this debate because, with food production and the trade in agricultural products, there are two very different and often conflicting goals. One is to maximise trade and, in that case, big is certainly successful. The other is to ensure that the people of the world are properly nourished. In his excellent introduction, the noble Lord, Lord Harrison, spoke of the lack of parliamentary scrutiny of trade. At national, European and international level, there is a total vacuum when it comes to reconciling these two, very different goals.
Here in the UK, the food industry is very important. It employs 2 million people and has a turnover in excess of £70 billion. Farming—primary production—employs around half a million people but is just 0.7% of GDP. However, it supplies 60% of the country’s food needs. Of course, our farmers share many of the same issues with farmers throughout the world, whether that is unpredictable weather, difficulty accessing capital investment, cutting-edge science or markets without middle men taking so much of the profits, or a younger generation who do not see agriculture or horticulture as their ambition of choice. Consumers throughout the world share a surprising number of problems in common, too. Although there are enough calories produced throughout the world to meet the population’s needs, they are incredibly unevenly distributed. Noble Lords will know that roughly 1 billion people in the world are malnourished, and many severely, and about 1 billion people are obese, and some severely. Just this month, the Overseas Development Institute report highlighted the fact that since 1980 the incidence of obesity has almost quadrupled. Shockingly, almost one in three people worldwide is now considered obese.
The trade in agricultural products is massive but many of the poorest people in the world are farmers. One part of the problem is that the transnational corporations—the TNCs—that deal in agricultural products are among the world’s largest traders. The big four—known as ABCD—have an annual turnover bigger than some countries but very limited accountability. Of those big four, two are still private companies so especially unaccountable. They will be familiar names to many noble Lords. Archer Daniels Midland has a turnover of about $80 billion. All four have a lot in common but Bunge Ltd is a good example: it operates in 40 countries with about 35,000 employees. The point is that it buys, sells, stores and transports so much of the world’s foodstuffs, whether oilseeds or grains. It processes oilseeds to make protein meal for animal feed and edible oil products for commercial and consumers. These companies are also involved in producing sugar and ethanol. They are involved in food, fuel and often fertilizer production, too—so they are involved in the whole chain. “C” stands for Cargill, which last year had a turnover of $136.7 billion, and “D” is Louis Dreyfus, whose annual gross turnover exceeded $120 billion. Between them, these companies are said to control as much as 90% of the global grain trade. Other players are emerging in the market, such as Olam, Sinar Mas and Wilmar. Their presence varies from nuts in Africa to palm oil in Indonesia, but they are busy diversifying, too.
A couple of years ago, the Oxford Farming Conference commissioned a study on power in agriculture, which said:
“Consolidation of TNCs has seen some shifting of the focus of power, away from governments/supranational bodies towards corporate businesses. This could be a source of concern for farmers”.
I contend that that is a pretty mild comment. It continued:
“However the exercise of this power isn’t limitless and can be constrained by policy”.
My first question to the Minister is: how can it be constrained? What can the UK Government do to address this? Clearly, there is a role for BIS, Defra and DfID working together in this area of policy. I would be very interested to hear from the Minister just what forum there is for this sort of issue to be addressed.
Leaving a vacuum means that the ABCDs of this world determine where money in agriculture is invested, where agricultural production is located, where the produce is shipped and how the world’s population shares—or fails to share—the food produced. As consumers, we depend on a food chain that we neither understand nor have any power over. This concentration of power is not building a resilient food system—I could have spoken in the next debate—it is not fair on producers, and it is certainly producing appalling outcomes in terms of nourishing the world’s population, as I have outlined, whether obese or malnourished. We need to address these issues.
The food production system is highly vulnerable to weather—we have seen many examples of that this year—and to lack of natural resources, such as scarce water. We need to think about this and create other models of greater accountability to create a balance between a healthy trade that is bringing wealth to producers and their communities and the need of the world for food and resources.
There are models out there. I shall mention one today. There was a sustained fall in commodity prices in the second half of the 20th century, in which many prices halved, and the Fairtrade Foundation was born from that unhappy state of affairs. This year, it has been going in the UK for 20 years. It now has a turnover here of £1.5 billion, so it cannot be said to be a small, niche thing anymore. It has connected consumers meaningfully to producers in the developing world. I welcome the Government’s support for it. DfID Ministers have recently been active in their support for the importance of Fairtrade. Fairtrade farmers have explained to us that one of the problems that multinationals produce for them is that they may buy large volumes one year but not the next, when they need stability for investment. Price volatility is a massive challenge. For example, the price of coffee virtually halved between 2011 and 2013. Price volatility is perhaps the biggest enemy of the smallholder farmer. Fairtrade tends to balance out these issues and make life much easier for the investment we need for future food production if we are to be sure of a food supply.
Finally, I ask the Minister about the bilateral EU trade agreements that have rather taken the place of the failed WTO agreements. Decades of policies weakened small producers in developing countries, and at the moment there is not much in bilateral agreements about poverty reduction. There needs to be some concentration on the content of trade agreements so that the poorest people in those countries, who are often the people producing the goods that we will eat, are protected. There is a reconcilable conflict, but as long as there is a vacuum of governance in this area it will not be reconciled.
Lord Carrington of Fulham (Con)
My Lords, I add my congratulations to the noble Lord, Lord Harrison, for initiating this important debate. I declare my interest as deputy chairman of a small bank and as part-owner and director of a small consultancy doing business in many countries, as in the register of interests.
The UK is dependent on international trade, which is why we have pretty much always supported free trade in a largely protectionist world. In no industry has free trade served us better than in financial services. Of course, within the EU, we have from time to time had difficulty in persuading our fellow members that free trade in financial services is a good thing, as the noble Lord, Lord Giddens, pointed out, coming as they do from a more protectionist culture, particularly where agriculture is concerned.
For all that, one of our main global exporting industries is financial services, which has come in for a lot of criticism, some justified and some extreme. We need to help that industry to overcome its failures, not to shackle it so that it cannot deliver economically for the UK. The financial services sector employs between 1.5 million and 2 million people, many, but by no means all, in London. The contribution to GDP is well over 10% and the tax contribution is more than 12% of total tax receipts, so there is no doubt about the importance of financial services.
That is not to say that we do not need to build up other industries; of course we do. Manufacturing has seen a resurgence in the high-tech and high-productivity end of the industry and, of course, our software design and cultural exports have been hugely successful. However, none of these sectors is mutually exclusive. Indeed, a buoyant financial services industry, if working properly, helps other businesses to be even more successful, with innovative ways of providing financial liquidity and risk reduction. I know from my own experience that one of the greatest headaches in exporting is the foreign exchange risk, which can only be reduced with the help of a friendly banker.
As we all know, banking has been through a torrid time caused by the illegal, unethical and self-serving actions of some banks and bankers. The reasons for this, apart from human nature, have been examined in great detail, not least by the Parliamentary Commission on Banking Standards. Many proposals have been put forward to ensure that this catastrophe does not happen again. Hopefully, we are not making the same mistake that we have made many times previously, of regulating now to stop the transgressions of the past. It has been said that our banking sector is too big for our economy. That is only true if we make the absurd assumption that all banks operating in the UK are seeking business in the UK, and many do not, and that they are a risk to the UK taxpayer in case of their failure, which many are not. In any case, the changes to banking supervision that we have introduced make that even less likely.
However, the UK financial services sector is a fragile industry. Because of the employment it brings and the tax receipts it generates, many other countries would like to relocate the City of London to their city. We see this in the strong hints coming from the European Commission that it wants euro-denominated transactions to be located in the eurozone. Also, only this week, Reto Francioni of Deutsche Börse Frankfurt commented about Germany:
“Constituting the largest economy in Europe, Germany should also host the best financial centre in Europe”.
That is not a fanciful proposal. We have seen it happen before, when financial futures trading in German bonds was successfully moved from London to Frankfurt after a concerted effort by the German Government and Deutsche Börse.
What makes London successful in financial services, and how do we protect the advantages we have? In practical terms, because financial services and risk reduction are so specialised, the world will only ever need three global financial centres, each in overlapping time zones: New York, London—hopefully—and one in the Far East, where the battle continues to decide whether Hong Kong, Singapore or Shanghai will emerge dominant. We have a major advantage in London over our European neighbours, in that we have a large population used to working in financial services and, of course, having as their first language English, thanks to the Americans the language of finance.
It has been said that the assets of a bank go “up and down in the elevator”; it is an American expression. It is the people who work in financial services who make the industry a success or a failure. They come predominantly from the home market, but we need to ensure that the UK is welcoming to other nationalities coming here to build our industries. We need to be open to skilled people coming to live and work here, both for their talent in generating and closing deals and for their local knowledge of the overseas markets our financial services companies need to operate in. We need to continue to be welcoming to the already successful but also to the soon-to-be-successful, who will learn and work in London. That means getting our personal tax regime competitive on an international level and, because of the US dominance in these markets, coming to an agreement on personal taxes with the USA, the federal tax regulations of which work aggressively against employing Americans internationally, and against foreign companies doing business with Americans. We and the European Union are far too complacent about the extra-territorial reach of the US tax regime.
However, financial services do not just need highly paid, international employees at the top. They could not function without the skilled staff who analyse, process, record, ensure compliance and take on the multitude of often routine functions that are needed to support the income generators and deal-doers. In short, we need a highly educated, well housed and well motivated labour force. That is why our reforms in education and housing are so important. However, it is the regulation of financial services which is the biggest challenge. There is always a desire to regulate to a point where any risk banks take is minimised, supposedly to the benefit of the consumer and the taxpayer, but there is a balance to be struck. Banks only make money by taking risk and it is up to the shareholders, in the first instance, to decide the acceptable level of risk, although, as we have seen, this does not always work as shareholders do not have enough real-time information to control their investment. This is where the Prudential Regulation Authority and the Financial Conduct Authority come in, providing hands-on, forward-looking supervision.
I think we have now got the level of supervision about right in the UK. What is more worrying is the seeming intention of the EU Commission to micromanage the banks operating in the eurozone, with the inevitable impact on London. We have to get the regulation of financial services right, as it is only because the market is well regulated and safe that many overseas clients do business in London at all.
There is also a problem where capital is concerned. If banks are required to hold too much capital in low-risk, low-earning assets, this will certainly reduce the risk of bank failures but they will also be unable to make an acceptable return on capital and so be unable to raise more capital. Getting our regulation and capital requirements out of line with the rest of the world would not be a problem if the financial services industry were not able quite easily to move its “elevator assets” to another more welcoming or just more lightly regulated location.
We have a very successful exporting industry in the UK, one that employs a large number of people, makes good profits, pays a lot of tax and has potential for even greater growth. It has had catastrophic failures, caused by problems in its culture of personal reward, perhaps, and certainly by its need to produce an unrealistic return on shareholder funds. The then regulator could not prevent such failures but, I hope, the new regulator will be able to help the financial services industry avoid them in the future.
I believe that the regulatory problems have been addressed and I hope that the cultural attitudes are changing. The industry is a vital export earner and one that we should nurture and encourage. We must not sleepwalk into allowing other countries to take one of our most successful industries, to the detriment of the many people and companies in the UK that depend on the financial sector.
Baroness Thornton (Lab)
My Lords, I congratulate my noble friend Lord Harrison on initiating this debate. International banking is definitely not my territory, but I decided I would join in because of my involvement with social enterprises, co-operatives and the social economy—indeed, I attended a conference in Strasbourg last week. I need to inform the House that I am the founding chair and now patron of Social Enterprise UK and a supporter of the Social Economy Alliance. I am an ambassador for Sporta, the trade association for the social enterprise trust, providing leisure and sport services in the UK, and I work from time to time for Social Business International. All these interests are in the register. I am also the founder and honorary secretary of the All-Party Parliamentary Social Enterprise Group.
As the Minister will know, social enterprises, co-operatives and mutuals are businesses which trade to make a surplus, just like any other business. There are some 65,000 to 70,000 social enterprises in the UK. It is what they do with those profits or surpluses that make them social businesses; that and their governance and social mission, which express themselves in many ways, including community and environmental interests, job creation and support for people with disabilities. Hackney Community Transport, which has bid in the commercial market for red bus routes in London, is one example. Its profits go into supplying transport for the disabled and local communities, creating jobs and apprenticeships. It is a good example of a social enterprise.
The context in which this debate is important for social businesses has already been recognised by this Government. In recent times the British Council, for example, has made social enterprises and support for social entrepreneurs a key plank in its work. So when the Prime Minister recently led a large trade delegation to China the chief executive of Social Enterprise UK, Peter Holbrook, was part of that delegation. Throughout this autumn and winter the British Council has been running seminars and training workshops in China and Hong Kong. I take this opportunity to commend the British Council for its programme in support of social entrepreneurship, which is running not just in Europe but in nine countries in east Asia—China, Indonesia, Japan, Myanmar, the Philippines, South Korea, Thailand and Vietnam. It has trained thousands of social entrepreneurs so far.
There is no doubt that the UK is globally seen as the most advanced. We lead the world, for example, in developing social investment products, with Big Society Capital, Big Issue Invest, Bridges Ventures and the Charities Aid Foundation. They are all developing investment opportunities that exist to help to promote social enterprises and bring together social entrepreneurs and the investment that they need to grow those businesses. My Government invested a great deal in putting through legislation, creating community interest companies, with cross-party support, and creating the circumstances for health spin-outs and social enterprises, which has been followed through by this Government. Indeed, we all supported the social value Act, more recently, which gave more social entrepreneurs the opportunity to bid and tender for public service contracts.
Why is this important for the debate that we are having today? I hoped that the noble Lord, Lord Marland, might have mentioned the promotion of social enterprise when he listed businesses of which he thought the UK could be particularly proud, because this is definitely one of those sectors.
I have mentioned already China and south-east Asia. I now turn to Europe and social enterprise, because last week in Strasbourg there was a refreshing mix of policy-makers, senior politicians, front-line social enterprises, academics, public sector representatives, and social entrepreneurs, including commissioners and Members of the European Parliament, from across Europe, to reflect on the progress and next steps in developing a more social economy in Europe. The UK’s social enterprise sector was well represented, I am pleased to say, with the likes of Social Enterprise UK, Hackney Community Transport, Fusion21, Social Adventures, the British Council, the co-operatives, UnLtd, E3M, and many others, speaking and learning from the diverse mix of policy and practice that was on show. Indeed, I went there myself. The declaration that came out of that conference, which I shall refer to in a moment, was led by Jonathan Bland, who used to be chief executive of Social Enterprise UK. It was a recognition of the great expertise in this country in this field.
We learnt at that conference the difficulties faced in the social investment market here in the UK, which we are familiar with, and we shared it with our counterparts across Europe. We learnt of the European Commission’s interest in social impact bonds and the social stock exchanges, which we have been discussing and pioneering in this country for several years. That demonstrated how enthusiasm for more social investment models is growing inside the institutions of the European Union. We discussed state aid reforms, which are under way, and some of the rules that are emerging, which may free up the ability of national Governments and others to support access to finance for social enterprise.
Emerging from this event was the Strasbourg declaration. I do not intend to read out two pages of the declaration, noble Lords will be pleased to know. Surprisingly, it was not completely written in Eurospeak; it is an accessible document, which recognises the contribution that social enterprise is making to Europe as a vehicle for social and economic cohesion and to help to build a pluralistic and resilient social market economy. Acting in the general interest, social enterprises create jobs and provide innovative products and services, promoting a more sustainable economy; they are based on the values of solidarity and empowerment to create opportunities and hope for the future. They offer a model for 21st-century businesses that balance finance, social, cultural and environmental needs. Social entrepreneurs need to be seen as agents of change, as individuals and groups who are passionate about improving the lives of the communities in which they exist.
Ten recommendations came out of the declaration, but I shall point to just one or two. The European work on support for social enterprises has started already—with the social business initiative, through the Commission, and with the support of the various committees in the Parliament. However, it has to be said that that has been resourced by what we might describe as half a person in a cupboard, and by a lot of political support from across all the political parties.
The initiative was led by Commissioner Barnier. Three other Commissioners from various countries across Europe and from different political parties have also been involved; they were on the platform. Five chairs and vice-chairs of European Parliament committees were also there; again, that representation was cross-party. I emphasise that, because we in the UK have been proud of the cross-party support for social businesses and social enterprise, and I am glad to say that that seems to be translating itself into the European experience.
The declaration includes recommendations that,
“the next European Commission (with a dedicated inter-service structure) and the next European Parliament must take full ownership and deliver on”,
lots of the suggestions that were made about how to support social enterprise, and that the,
“European institutions and Member States should reinforce the role of social enterprises in structural reforms to exit the crisis, notably where the social economy is less developed”.
It also says:
“Public and private players must develop a full range of suitable financial instruments and intermediaries that support social enterprises throughout their life-cycle”.
The Minister will not be surprised to hear that I am asking him to ensure that the British Government support the declaration. They should support this initiative, and because we are the leaders in the field, we should help it to happen.
Lord Sharkey (LD)
My Lords, it is a great pleasure to follow the noble Baroness, Lady Thornton, and I congratulate, as she did, the noble Lord, Lord Harrison, on securing this debate. There seems to be a general, if qualified, consensus among the commentariat that international trade does promote both employment and growth, both in exporting and in importing countries.
However, this consensus is not uncontested. In a 1999 paper, Warzynski and Westergård-Nielsen comment:
“International trade and outsourcing are often blamed for destroying jobs”,
and the current position of China serves as an example of the problems that imperfect international trade arrangements might generate. As Irwin Stelzer wrote in the Sunday Times four days ago,
“China, running its largest trade surplus in five years, manipulates its currency, subsidises its state-owned enterprises and steals intellectual property from America and Germany—or demands it in return for access to its market”.
However, as I said, the balance of expert opinion seems clearly of the view that international trade, provided that certain regulatory mechanisms are in place, promotes both growth and employment. An OECD paper of May 2012 called Trade, Growth and Jobs summarises that organisation’s view. It concludes:
“Trade improves employment and wages through growth … Trade—both imports and exports— contribute to creating better jobs … there is no systematic long run link between import levels and unemployment ... Trade can also improve working conditions”.
In addition to all this, there are some compelling examples of where the absence of international trade damages both growth and employment. The world uses sanctions as an instrument of persuasion precisely because of the damage caused by constraint in external trade. There is a compelling example in the middle of the Mediterranean: Northern Cyprus has been effectively cut off from any significant internationa1 trade for 40 years, and the consequences have been poverty, unemployment, and low growth and investment.
However, the benefits arising from international trade may not be as clear or as straightforward, or as equitably distributed, as a Panglossian reading might suggest. There are, of course, two kinds of international trade: goods and services—and financial services are a major component of the second group. I do not think that anyone would argue that the collapse of 2007-08 has not damaged growth and employment in very many communities. The connectedness inherent in international trade can be a major cause of reversals in growth and employment. That is especially true when regulation proves inadequate, and I shall return to the theme of regulation a little later.
However, I note that even when international trade promotes growth and employment, as it frequently does, it can also have other important consequences. It can have cultural consequences that may be seen as undesirable—France’s attitude to the Anglo-Saxon model, mentioned already by the noble Lord, Lord Giddens, is a case in point. The opening up of new markets may also have unpredicted cultural consequences. For example, I believe that Prince Philip is still worshipped as a god by a cargo cult on the island of Tanna in Vanuatu.
International trade agreements may also significantly advantage large corporations over SMEs and micro-businesses. They may act to reduce economic stability via contagion. We have seen examples of that both in sovereign debt and in the Asian markets. Finally, international trade may act to reduce democratic oversight of the operations of the market. This can take the form of simple distance from the transactions, complexity and lack of transparency in trade agreements and non-accountable dispute resolution procedures. In the time remaining, I shall comment on just three of these areas.
The first is the question of whether international trade agreements should now concentrate more on supply chains than on tariff reductions. The World Economic Forum at its meeting a year ago focused on reducing supply chain barriers, which it is estimated would give a bigger boost to GDP than removing tariffs. Improving border administration and transport and communications infrastructure could increase global GDP by 5% and would have six times the effect of removing all global tariffs. I would be grateful if the Minister could tell the House how the Government currently see the proper balance between reducing supply chain barriers and reducing or removing tariffs.
The second area is the position of SMEs in all this. The CBI reports that, in the UK, only one in five SMEs currently exports. It also notes that businesses are 11% more likely to survive if they export. Perhaps part of the problem is that SMEs are not properly represented in large-scale multilateral or bilateral trade negations. In January last year, the WEF recommended that SMEs be at the negotiating table when there is discussion of the regulatory framework and environment. Does my noble friend the Minister agree with that recommendation, and is it actually happening when the UK negotiates bilaterally and multilaterally through the EU?
My final point is on these negotiations. There is an alphabet soup of these things: FTAs, WTO, TPA, TPP and TTIP. Much of what goes on in these negotiations is complex, opaque and takes an awfully long time. Occasionally, it is all punctuated by a dramatic announcement. For example, a year ago the EU Trade Commissioner suddenly announced that he had personally saved the WTO,
“from the darkness of multilateral irrelevance”.
It may well have been true, but I cannot see that kind of thing quickening the pulse of anyone in an SME in, say, Merseyside.
That begins to illustrate a point. We need all our business communities to understand and feel that they have a part in trade negotiations, but we also need to make sure that Parliament has an effective oversight role. This was a point made forcefully by the noble Lord, Lord Harrison. This is currently a question in the TTIP negotiations which envisage, as they should, dispute resolution procedures. This is obviously vital when trading between different jurisdictions, but the question that has arisen is whether these non-governmental arbitration panels will have the power to override or amend local laws.
In the TTIP negotiations, there is a procedure called ISDS—investor to state dispute settlement. The EU acknowledged on 20 December last year,
“that ISDS, if not properly designed, can raise a number of legitimate concerns about whether legislation can be undermined by investors”.
Put another way, it is possible that in settlement of a trade dispute large companies can rewrite national laws. For example, Eli Lilly is currently suing the Canadian Government for $500 million under the terms of a trade treaty and demanding a rewrite of Canadian patent laws.
George Monbiot said in the Guardian on 4 November 2013,
“Brussels has kept quiet about a treaty”—
he means TTIP—
“that would let … companies subvert our laws, rights and national sovereignty”.
Ken Clarke responded to this a week later. He did not agree. However, the issue is clearly important. What role will Parliament have in determining the final text of the ISDS? What opportunity will we have for scrutiny? I would be grateful if the Minister could reassure the House on these points and on the proposed dispute resolution in general.
Lord Giddens
My Lords, the fact that George Monbiot says something does not necessarily mean that it is true. The Commission is well aware of the issues surrounding this. I do not think that we can say that this is not being discussed, because it is.
Lord Sharkey
I apologise if I suggested that everything that George Monbiot says is true. I did not mean that.
Returning to the issue of ISDS, I was saying that I would be grateful if the Minister could reassure the House on the points that I have made and on the proposed dispute resolution mechanisms in general.
Since I have mentioned Ken Clarke once, I will quote him once more, talking about the advantages of the TTIP deal:
“According to the best estimates available, an ambitious deal would see our economy grow by an extra £10bn per annum. It could see a rise in the number of jobs in the UK car industry of 7%. British companies—of all sizes—currently pay £1bn to get their goods into the US—this cost could be removed altogether. Perhaps most importantly in the long-term, such a deal would safeguard the liberal trading rules which we British depend on—but which the growing economies of the east are less keen on—for generations to come”.
I think that puts a succinct and powerful case for international trade as a promoter of growth and employment—growth and employment abroad and, critically, growth and employment at home too.
Baroness Wheatcroft (Con)
My Lords, I congratulate the noble Lord, Lord Harrison, on securing this debate on such an important subject. I reassure the House that I will not be quoting George Monbiot.
I believe that there is scope for taking a much more upbeat look at the situation than that of the noble Lord, Lord Harrison. The news from the UK on employment is of job creation. Even among younger people who are very hard to employ, the numbers are going in the right direction. Contrast that with what is being said at Davos at the moment, where some people, including the French president of Total, are saying that Europe should be regarded as an emerging market. That is not the situation in this country.
In the motor industry, for instance, to which my noble friend Lord Sharkey just referred, exports of vehicles from this country in November were up by 10.7% on a year ago. That is a remarkable climb in a market that has been very difficult. UK car production over the last year hit a six-year high. Huge investment has made a difference. Nissan in Sunderland is responsible for halving the unemployment rate in that town. It now exports a remarkable 80% of production from that plant. Huge investment in that plant has managed to produce something that is a world-beater.
However, not every sector is as buoyant as the automotive sector. I was struck by the following information from the most recent trade statistics. Reporting our imports from non-EU countries, it was said that in November last year:
“The top five commodities are similar to the previous month although HS2 88”—
their arcane description for—
“Aircraft, spacecraft, and parts thereof … has risen from fifth to fourth place forcing HS2 61 … into fifth place”,
in our imports. HS2 61 is:
“Articles of apparel and clothing accessories, knitted or crocheted”.
I try to keep abreast of trends but I am unaware of an avalanche of crochet coming into the country. Perhaps we would get a better grasp of what is going on in our imports and exports if we were to revisit the basis on which the trade figures are comprised.
The statistics, however, still show some good news. Exports to China have doubled since 2009. That is not enough—it is still only 1% of the market—but is certainly a creditable achievement. As we saw in the recent trade mission, a great deal is being done to build further alliances with China. The digital alliance, for instance, between UKTI and China is aimed at providing up to £2 billion in extra business for our creative industries. That trade mission did not just accomplish big deals for UK businesses but brought investment from China into this country. Chang’an Motors, for instance, is now making a £60 million investment in a West Midlands R&D centre, which will create 300 jobs. It would be really useful if a discipline adopted by the Government was to refer later to what has actually been achieved by these trade missions in the longer term. To hear what the follow-up has been would produce some interesting information for us, but would also probably put a deal of pressure on those businesses that go on trade missions to continue to work hard to capitalise on the extraordinary boost that they have been given.
However, one of the main problems for us is that companies are not investing. I talked about Sunderland, where Nissan’s huge investment has generated a vast number of jobs, made a big difference and made a hugely productive plant that can export. However, in this country and all around the world very few companies are investing and prefer to sit on their cash piles, which is why the employment figures are going up but, I am afraid, the productivity figures look very disappointing. Investment in modern plant and technology creates improved productivity. One thing that I am desperate to see, and to which I have referred in this House previously, is some incentive for big companies to invest at least a bit of that cash pile in smaller companies, thus generating more jobs and helping us to grow businesses.
More can be done. Next week, a report from the 2020 commission, entitled Sweating our Assets, will be launched in the other place and has been led by Laura Sandys MP. I have been delighted to have a small part in the work that it has done, which has been very much in collaboration with the Engineering Employers’ Federation. Some of the ideas that it has come up with will, I hope, help this country to improve productivity. There is a long way to go on that.
The Government are determined to boost trade. As my noble friend Lord Marland said, and put into practice when he was Trade Minister, many initiatives are under way. Last year, in October, the Government launched Grow Online, Expand Worldwide—a scheme aimed at helping small and medium-sized British companies to expand their e-commerce operations. We are already one of the leaders in that field. According to the Business Secretary Vince Cable:
“Britain’s 220,000 online retailers export more than the rest of Europe’s e-retailers combined”.
The Government have been energetic in providing support for exporters, with the aim of doubling exports by 2020. That is a brave aim and one that demands support. It is, however, a very big ask: it requires exports to grow by 8% a year. We are not getting anywhere near that at the moment. In part, to reach that target, there have been dramatic changes in the way in which the support network overseas works. There is increased reliance on British chambers of commerce abroad. This has created a degree of concern among some companies and other business organisations. Some chambers of commerce abroad are effective, strong organisations but vary in quality. Can the Minister assure us that the quality of those chambers is being monitored and that we are confident that this is the best method?
Our chambers of commerce differ from the German chambers, where membership is mandatory. There are some concerns that we may be moving in that direction, as smaller businesses of course want nothing which will involve them having to pay subscriptions to organisations to which they do not particularly want to belong. I understand the logic in taking responsibility for small and medium-sized exporters away from our embassies. I believe that the theory is that the embassies can then concentrate on helping the really big deals go through. I am a great admirer of the skills of our embassies overseas, which do great work. I would like reassurance that we are making the best landscape for encouraging our exporters. I have been particularly impressed, for instance, by the high commission in Delhi and its work building exports in India. The people in those embassies really know their markets.
I return to the undoubtedly good news. Noble Lords will have seen today’s announcement by James Dyson that he will triple the number of engineers working in Malmesbury on creating his brilliant designs. Products will not be manufactured in this country; that is just not competitive. We have to accept that our skills are really on the inventive side. James Dyson says that:
“Competitive advantage rests on knowledge and developing patentable ideas that can be exported—and our intellectual property is owned in the UK”.
We are an inventive race. Over the years we have created some of the most important things in the world today. I do not need to mention Tim Berners-Lee. On a smaller scale, look at Fever-Tree. I would hazard a guess that most noble Lords have come across Fever-Tree, which creates some of the best mixer drinks in the market. Who would have thought, just 10 years ago, that there was a market for a new creator of fizzy drinks to mix with gin? Fever-Tree spotted the gap in the market and now, just a few years later, exports 75% of its turnover. There are a hundred and one stories such as that about inventive British companies, which we need to support.
In conclusion, I take comfort from the fact that, thanks to the determination of our Government to tackle the deficit, no one in Davos this week is saying that the UK should be regarded as an emerging market.
Lord Davies of Stamford (Lab)
My Lords, I add my congratulations and my gratitude to the noble Lord, Lord Harrison, for this debate, which enables the House to focus on this very important issue today. Standard economic theory tells one that economic growth is a positive function of two variables: increases in factors of production and increases in productivity. Increases in productivity arise from the application of technology, changes in work practices and specialisation. The three things go very much hand in hand. Specialisation is what requires trade: trade within the local community, within one nation and internationally.
We can all take pride in the fact that the central economic theory breakthroughs in this area are all achievements of the great British political economists. Smith first identified the importance of specialisation with his memorable analogy in The Wealth of Nations about the makers of pins, who suddenly became more productive when one man ceased to make the whole pin and another man added the head. Fifty years later Ricardo formulated the much more counterintuitive theory of comparative advantage. This demonstrated that a country with an absolute advantage in everything still has an interest in trading with its neighbours, because if it concentrates all its resources on those areas where its absolute advantage is greatest, it will so increase its output as to be able to purchase anything else it needs from the world on very favourable terms. Global output and global welfare will then be maximised. Those theories are now just as embedded and well established in economic science as Maxwell’s equations are in physics, Mendeleev’s periodic table is in chemistry, or Darwin’s theory of natural selection is in biology.
Over the past 50 or 60 years and the lifetime of most of us in this House, there has been a remarkable phase of economic growth. This has been cyclical, as one expects, but nevertheless it is extraordinary. I often wonder whether it can be continued over the next 50 or 60 years. There have been four very special, remarkable and unusual features to the last 60 or 70 years, which have made possible that great growth in output. All of those four developments can and should go further. They should be pushed further, which I will come to in a moment. However, it is not clear to me that they can be effectively replicated or replaced in their totality. We should be quite worried about that, and should not be complacent in simply extrapolating the growth rates of the last 50 years—which in this country have averaged about 2.5% per annum—into the indefinite future.
The first of those great developments and changes was the introduction of the female half of the human population into the labour force of developed countries. Obviously, that was an event of enormous social consequences, but also enormous economic importance. That is a classic example of an increase in a factor of production, of the major factor of labour.
The second great development of the last 50 or 60 years has been what I call the economic emancipation—unfortunately not always accompanied by political emancipation—on free market models of countries in the Far East. The first of these was Japan, followed by Korea, Taiwan and the ASEAN countries, and then over the last 20 years by China and India. China and India alone account for more than 2 billion of the world’s 6 billion population. That is an enormously important development for the future of everybody on the globe. Can it be reproduced? Can an equivalent dramatic event occur in the future? That is a classic case of the rise in productivity which happens when people move from very low productivity activities such as agriculture—sometimes at subsistence or near-subsistence level—into manufacturing and into the cities. That has been the history of Asia over the last two generations.
The third factor, which I do not need to dwell on as everybody knows about it, is the introduction of IT into the economy. Again, I do not doubt that we have much further to go on this, but is it possible to envisage that over the next 50 or 60 years there will be an equally dramatic impetus to growth from new technology? I do not know, but I sometimes worry about that.
The fourth factor, which comes down to the subject introduced today by the noble Lord, Lord Harrison, is the growth in free trade. Since the Kennedy round in the 1960s right through to the latest chapter—I hope it is not the end—in the Doha process, there has been a steady reduction in tariff barriers. This has been a great achievement, and a great boost to growth. The establishment of regional free trade areas or economic areas of co-operation is, in a way, the greatest success. The European Union has been a model for the whole world. It has done something which none of the others has succeeded in doing: addressing the non-tariff barriers to trade just as effectively as the tariff barriers. We all know that the non-tariff barriers are the most difficult to deal with.
It is very unfortunate that the Doha round seems to have run into the sand. Perhaps it can be pulled out, as we all hope. In the mean time we must concentrate on doing what we can. The Government and the European Union in partnership have been very sensible in putting the emphasis on doing trade deals, particularly with other economic groupings around the world. Quite the most important of those is the potential EU-US trade agreement.
I will spend the rest of my time asking the Minister about that agreement, because it is so important that the House of Lords—and, indeed, the House of Commons—are kept up to date. We all know that the negotiations are taking place, and of course practically they can only take place at the level of the European Union. Clearly, this is one of the great things which the European Union can do much more effectively than 28 different countries could do separately. They could not even begin to think about it. I know that mechanisms are in place for national Governments to keep abreast of the developments. It is very important that they in turn keep us abreast of developments, so perhaps I can ask one or two questions.
We should bear in mind that this is an enormous challenge and that the United States does not have a good record as a free trader. On two occasions in the 20th century, or, at least, in the past 130 years—first, with the McKinley tariff in 1890 and, secondly, with the Smoot-Hawley tariffs in the interwar period—the United States led the way in starting a world tariff war, with disastrous results for everybody concerned. We also have to remember that the two Democrat Administrations—the Woodrow Wilson and Kennedy Administrations—reduced tariffs. Thank goodness, both Republican and Democrat Administrations in the United States have been committed to freer trade over the past two generations. However, we are going forward into this negotiation, which I think is going to be enormously complicated and take a very long time. Some of the great challenges are very unclear, so perhaps I may ask the Minister some very precise questions. If he does not know the answers to them, I should like him to write to me, if he would be so kind, and to place a copy of his letter in the Library so that the whole House can be informed.
First, at the behest of the French, as we know, a whole area of cultural products was taken out of the negotiating mandate by the Commission. I should like to know what the American response to that has been. Have the Americans accepted it or are they asking for a difficult, or any, quid pro quo?
Secondly, what scope is there for getting joint recognition of geographical descriptions of products—for example, the preservation of the concept of Scotch whisky or champagne—in the United States? That would mean that no one was allowed to produce New York or Californian champagne. This is an important issue. Is it in the negotiating brief? Is it something that the Minister is confident we can achieve?
Thirdly, what about the ownership rules? The United States, unlike the European Union, has ownership rules in certain sectors. I think I am right in saying that foreigners can own only 25% of an airline or 25% of a broadcasting corporation. Those are important sectors and there may be others as well. Are those issues on the table? Is it practicable and possible that the Americans will change those rules?
Fourthly, the Jones Act always struck me as being one of the most extraordinary pieces of protectionism. It prevents vessels which are not American-owned and American-crewed handling merchandise from one American port to another. It is rather like the navigation Acts that we had in this country and in Europe in the 17th century, but it is still alive and kicking in the United States. Is that on the table and is it going to continue?
Fifthly, I understand that the European Commission has given an assurance that the negotiating mandate will exclude health and environmental protection measures. For example, the European Union would not have to accept the import of American beef produced with the use of growth hormones. That is potentially an important public health issue, so I am told. Equally, in the EU we control GM products for environmental reasons; the Americans do not. Are we going to have to give up our controls on GM plants and crops? What is the American position on this?
Finally, I have a question on the whole area of insurance. This seems to be an extraordinarily difficult area in which to make progress because it is managed and controlled by the states and not by the union of the United States. Each state has its own insurance commissioner. In many states, no foreign insurers are allowed at all in the insurance market. Other states let them in for what they call “surplus lines”, where the local insurance companies do not want or do not have the capacity to handle the business. Obviously in relation to certain things, such as wind storms on the east coast and earthquakes in California, they do not want their insurance companies to bear the whole potential risk burden. What is happening on insurance? Is it going to be opened up and are we going to be able to sell insurance directly, either through binding authorities or on the internet, to retail customers in Eau Claire, Wisconsin, or Kansas City, Missouri?
Those are some of the essential questions on which I think it would be very useful to have an update, and I should be very grateful if the Government could give it to us.
Lord Purvis of Tweed (LD)
It is a pleasure to follow the noble Lord’s theoretical and practical contribution to this debate, and I welcome the opportunity given to us by the noble Lord, Lord Harrison, to speak on this issue. I wish to pick up on a couple of points that the noble Lord, Lord Davies, mentioned and to discuss two export sectors that are of considerable significance to the Scottish and UK economies. I want to focus, in particular, on rural Scotland. For skilled workers in difficulties in the recession that has taken hold in the manufacturing sector in rural Scotland over the past few years, there are two shining lights, but both need support from the Government.
I should like to address some areas where removing barriers to international trade will allow whisky exports to continue to grow and will also allow opportunities for the Scottish textiles sector. Unlike other noble Lords, I have no interests to declare in this debate, other than to point out that my title of “Tweed” relates to the river rather than the cloth, although, incidentally, the latter was named after the former nearly 200 years ago. These are iconic products. “Iconic” is an overused word but I think it is appropriate to describe these two Scottish products—whisky and textiles. They are of the highest quality in both product and brand, and they have a heritage that is surpassed hardly anywhere in the world. They continue to represent key areas of employment and domestic economic activity, and are areas known for their innovation and creativity—the noble Baroness, Lady Wheatcroft, mentioned innovation and technology. I am not resting on their laurels; they are of significance for the economy.
Some 35,000 jobs are supported by the Scotch whisky industry, including 10,000 directly related to production. In textiles—medical textiles and pioneering research for technical textiles—Scotland in many respects leads the world. Often, as I indicated, the jobs are in rural and remote Scottish areas, where there is little alternative employment. Jobs supported by the whisky industry include those in packaging, tourism, logistics, maltsters and cereal suppliers, and this industry shares many of the attributes mentioned by my noble friend Lady Miller. We are often told not to mix grain and grape, but I think that in this context we share many priorities.
Scotland’s textile sector remains a key employer in many parts of Scotland, including the one close to my heart in the Scottish Borders. The sector currently employs in the region of 9,000 people across 600 businesses manufacturing textiles, apparel and leather products. For nearly 1,000 years, woollen and woven goods have been exported from the Scottish Borders. Most noble Lords will have worn Scottish textiles and most will have partaken of the occasional dram. Thankfully, few will have drunk counterfeit whisky, but perhaps more will have worn textiles that were either cheaper and poorer-quality products purporting to be Scottish or were otherwise based on traditional Scottish designs but were manufactured in areas where the quality is poorer and the labour conditions even worse. We do not need to go far back in history to find the awful example of the incident in Bangladesh. Such poor labour standards in manufacturing textiles can make us proud of our standards in the United Kingdom.
That leads me to my first area of concern. It is in our economic interests to protect these exports. The current round of negotiations for the EU-US Transatlantic Trade and Investment Partnership, or TTIP, referred to by the noble Lord, Lord Harrison, gives the UK and its EU partners the opportunity to address some of the areas where support is needed for these sectors.
Scottish textiles, and in particular woollen and woven goods, require protection to maintain brand standards. The mislabelling, and therefore mis-selling, of goods that are not made in Scotland is a continuing concern for the sector and it is an area where the Government can assist in providing support. Clear labelling of the country of origin for manufactured textile goods is of significant importance given that some retailers in the UK—even in Scotland—and around the world sell woollen or cashmere products that claim to be Scottish or from Edinburgh or the Highlands, or they purport to be of a Scottish design and therefore give the impression that they are manufactured in Scotland, whereas they are actually manufactured in other countries, typically China, Pakistan, India or Vietnam. By ensuring that the Government use all the powers available to their offices and agencies around the world, and by encouraging domestic prosecuting authorities, whether it is the Lord Advocate in Scotland or the authorities in England and Wales, we can support and protect this important British product by making sure that customers are aware of what they are buying. .
The Scotch Whisky Association, regrettably but necessarily, has to use considerable resource in pursuing legal challenges around the world against those mislabelling and mis-selling Scotch whisky. The reality for many textile companies is that they do not have the reach or the resources to do this. Therefore, I should like Her Majesty’s Government to explore how they can use their trade representatives around the world to look at how more support can be offered to ensure that there is aggressive and proactive policing of those undermining Scottish exports.
In the latest round, EURATEX, the European trade body for textiles, and its American counterpart, the American Apparel and Footwear Association, sent a joint letter in December to Michael Froman, the US Trade Representative, and Karel De Gucht, the Commissioner for Trade, which said that,
“design, creativity and innovation are at the core of our companies’ strategies and we rely on the authorities to clarify and improve coordination mechanisms on Intellectual Property Rights … in order to better safeguard our companies’ creativity. Maintenance of an appropriate framework of intellectual property protection and effective enforcement of intellectual property rights is vital for individual brands and companies in the context of the T-TIP”.
It would be helpful to hear the Minister’s thoughts on the protection of intellectual property rights.
I do not expect the Minister to respond to that today but it would be most helpful if he would meet myself and representatives of the Scottish Textiles and Leather Association to discuss this and associated issues as they are fundamental to creating the conditions in the world and in the emerging markets for this sector to flourish.
These exports are of real significance already and the opportunities are huge. Scotch whisky leads the way for British food and drink in overseas markets, accounting for about 25% of all UK food and drink exports. The Scotch Whisky Association informs me that 40 bottles of Scotch whisky were shipped overseas each second in 2012. For many Scots that is both a tragedy and something to be proud of. Exports have increased by 87% in the past 10 years and the value of Scotch whisky exports increased by 11% to almost £2 billion in the first six months of 2013.
The Scottish textile sector remains an important contributor to the economy, with an annual turnover of £950 million, and exports of Scottish textile products are valued at £295 million. In fashion and interior textile design, Scotland operates in more than 100 markets worldwide, with major emphasis on the USA, Japan, Russia and Europe. Therefore the trade negotiations and promotion that the Minister will carry out is of fundamental importance to this sector.
Finally, touching on the point made by the noble Lord, Lord Davies, about crippling tariff regimes, there are continuing barriers for Scottish woven exports. Noble Lords may be interested to know that in exporting a lambswool sweater from the Scottish Borders to the USA, a 16% import tariff is applied. That means that a sweater manufactured for $50 in the Scottish Borders, with a fourfold retail mark up plus a 16% tariff, will cost the US customer $232. That is a crippling tariff regime. While it is less for cashmere at 4%, both are above the average tariff rates that are currently being negotiated. I know that my right honourable friend Michael Moore has been pursuing this issue since he was first elected but we have an opportunity with T-TIP to have it addressed.
There are opportunities for both whisky and textiles in the emerging markets of Africa, South America and central America. Opinion formers and fashion and creative leaders in those markets should wish to be associated with these high-quality products. With the continuation of the Britain is Great campaign, with our brand reputation around the world increasing in value and with the support of the UK Government, we can make sure that barriers are lifted, opportunities are increased for whisky and textiles and the vulnerable rural areas, where many of these jobs are so important, can look forward to a positive future.
Lord O'Neill of Clackmannan (Lab)
My Lords, I am very happy to follow the noble Lord, Lord Purvis, into what may be the Caledonian corner of this debate. Unfortunately, both he and I seem to have the same brief from the Scottish Whisky Association, so some of the statistics that I will be quoting may well be the same, although I have a slightly different slant on the matter.
I share some of the concerns expressed by my noble friend Lord Harrison in opening the debate, but I want to talk specifically about the Scotch whisky industry. When I was a Member of Parliament, I had a sizeable involvement in the textiles industry. Sadly, that industry is now gone, with the exception of a small amount of cashmere spinning, which is important for the rest of what you might call the Scottish woollen knitting industry.
Whisky is identified with Scotland. Indeed, the generic term “Scotch” covers all whisky which is not spelt with an “e”. We have already heard of the great importance the volume of Scotch whisky has for the Scottish economy. While it is correct to say that whisky distilling is set in rural circumstances and a lot of the raw materials come from the agricultural sector, it is also fair to say that the 30,000-plus employees in the Scotch whisky industry cover a variety of trades and economic activity across not only Scotland but the whole of the United Kingdom. It is therefore of great importance.
It is one of the few British products that any foreign traveller will see as they pass through airports with duty-free facilities, because there is always Scotch available. Not only is it available, but it is of consistent quality and people can have confidence in what they are buying. This is partly because of the efforts of the industry to maintain high standards but also because it enjoys a degree of support through the common market—and not only the common market of the United Kingdom but the free market represented by the European Union, which has been invaluable in supporting the Scotch whisky industry over the years.
As I have said, I had a constituency interest in the industry. Indeed, when I was a young candidate more than 30-odd years ago, one of the first bits of local colour that I was given was that I was told that the value of whisky stored in Clackmannanshire represented more than the worth of the gold in the Bank of England. I shall not comment on whether or not that was apocryphal but, certainly, when you drive through central Scotland and you look over to the Ochil hills, you will see miles of what used to be called bonded warehouses, where there is stored cask upon cask of Scotch malt whisky. That whisky can be there for anything up to 15 to 20 years. It represents a massive commitment by investors in the industry. Most of it in these warehouses is produced by the Diageo group, but the fact is that the Scotch whisky industry is a long-term industry.
Indeed, not only are taxes paid to the British Government, there is also the “angel tax”, which is the amount of whisky which escapes through the wooden casks and into the air. As you walk through these bonded warehouses, as I have done on occasion, you can have quite a heady experience if you stay there long enough—which I have not had the privilege of doing. However, as Ken Loach showed in his movie “The Angels’ Share”, there is evidence that the Scotch whisky industry requires the persistence and confidence of investors.
What concerns me is that, in the run-up to the independence or separation referendum in September, people will forget the complications with which the Scotch whisky industry will be presented if there were to be a yes vote. For a start, we would not become members of the European Union immediately. In the short term, we would be denied the services of the European Commission in the opening of new markets. The Commission has done a great deal to ensure what it calls the integrity of the product. This includes a consistent minimum level of alcoholic strength and that the “Scotch” name is protected. As my noble friend Lord Davies said a few minutes ago, the word “Scotch” is protected, and that is a consequence of the United Kingdom’s membership of the EU.
There are several complex international considerations, so it is not for nothing that over the past 10 years the trade association of the Scotch whisky industry has been headed first by Gavin Hewitt and now by David Frost, both of whom are distinguished diplomats in their own right, having been ambassadors representing us abroad. This is a serious business and there will be serious consequences for the industry and for the Scottish economy if we are denied, even for a short period, the protection of the EU.
Any member state joining the EU has to accept the level of tariffs that prevail throughout the rest of the EU. At the moment, Hungary and Greece are in a somewhat acrimonious arm-wrestling process over their own tariffs, but I think it is fair to say that the Commission is confident of success. The fact is that, were Scotland to vote yes in September, this industry would be put at a great disadvantage for some time, and that is assuming that in the end an independent Scotland would be allowed to join the EU. However, much of the protection we enjoy at the present moment might well disappear. If that were to happen, I think that the confidence of investors in the industry would be jeopardised in a major way.
Equally, while Scotch enjoys a fantastic position internationally as a luxury product, a number of other drinks would seek to take advantage of the position of Scotland being denied EU membership. A fact that I always find quite surprising is that more Scotch is consumed in France than French brandy. I am pretty certain that the French drinks industry and the northern European white spirit industries would not stand idly by and let Scotland be given some kind of quasi-preferential status outwith the European Union.
When we hear about the strength of an independent, separate Scottish state, and that one of its elements would be the Scotch whisky industry, it is incumbent on the Government to spell out clearly the costs of not being a member of the EU. Perhaps some people will think about this tomorrow when another debate is held in this place. What is equally important is that it is essential to recognise that it would be not be business as usual for the Scotch whisky industry were there to be a yes vote in September.
It is an important industry; it is not some kind of Sleepy Hollow. As has been said, some 30,000 people are involved in it. Quality control and policing are undertaken by people of the highest calibre. Although it may sound a bit demeaning in some respects, the wages of the workers in this industry are now on a par with those of the best paid chemical process workers, who themselves are among the best paid in the UK economy. For a while, employment conditions in certain parts of the Scotch whisky industry were in a bit of a Sleepy Hollow but, led largely by Diageo over the past 25 years, there has been a dramatic improvement. The quality and nature of employment in the industry goes far beyond pouring drink into bottles. It is of a character that the United Kingdom requires and which Scotland would lose at its peril.
I therefore urge the Minister, not necessarily this afternoon but at an appropriate point, to spell out that whisky is as important to the United Kingdom as it is to Scotland, and that without the European Union alongside us, it would be a disaster for Britain and Scotland.
Baroness Symons of Vernham Dean (Lab)
My Lords, I thank my noble friend Lord Harrison for his opening remarks, culminating as they did in his almost impassioned plea for greater recognition of the importance of trade. I declare an interest as chairman of the Arab British Chamber of Commerce and so, perhaps unsurprisingly, I shall concentrate my brief remarks on trade with the Arab Middle East.
In spite of the current upheaval, the Middle East is a region that is full of opportunity for trade and investment—opportunities which are growing. But increasingly our business partners in the region are seeking commercial relationships based on partnerships and joint ventures; in short, based not just on one-off trade deals but on long-term business relationships with our Arab partners in the region. This is a fundamental point for securing not only Government-to-Government business, as I am sure the Minister is well aware, but business-to-business trade relationships.
There is an enormous problem in the region with the shortage of jobs for young people. That shortage is really acute, given that more than 50% of the population in the region is under the age of 25. Accordingly, in all the discussions and trade negotiations that I have had in the past few years, there has been a huge emphasis on two things. First, the transfer of skills—whether those skills are in IT or project management, whether they are specific to sectors such as the law or whether they are manual skills—is very highly prized. Secondly, the deals have to produce jobs, particularly jobs for young people. Can the Minister tell us how we in the United Kingdom are co-ordinating our efforts on those two vital elements as we try to take forward our trading relationships for the future? How are we getting those messages over to our business community?
I congratulate the Minister on starting his new job, and I am particularly delighted that he is concentrating within UKTI not only on high-value business opportunities, but also on trying to help medium-sized British companies develop trading relationships. That is hugely important, and I hope that he will be able to say more about what his plans are in that respect when he sums up the debate.
Finally, I make a plea to the Minister for more joined-up government on trade. My recent experience is that Ministers and their civil servants all work enormously hard but, my goodness, they still protect their turf. I know that it has always been like that—indeed, it was like that under the Government in which I served—but all civil servants still patrol the borders of the silos of their relationships with their own particular Ministers. That has to change if we are to do proper relationship building that goes right the way across government. We need joint initiatives involving UKTI, BIS, the FCO, the MoD, which is also slightly on the silo side, and DfID, which has a real role to play here, as do other government departments where there is enormous export potential, such as education, health, transport and agriculture. Relationship building is crucial to trade with the Arab Middle East, but, to be effective, Government have to act as Government and not just as individual departments.
Lord Liddle (Lab)
My Lords, I thank my noble friend Lord Harrison for taking the initiative in organising this debate and for his very thoughtful speech. We have had many excellent contributions, notably from my noble friend Lady Symons who is experienced in the practice of trade promotion. Earlier we heard from the noble Lord, Lord Marland, and various sectors have been discussed, ranging from the challenge of UK wine by the noble Baroness, Lady Miller, to the reputation of Scotch whisky by the noble Lord, Lord Purvis, and my noble friend Lord O’Neill. The complexities of financial services were considered by the noble Lord, Lord Carrington, while my noble friend Lady Thornton talked about the potential of social enterprise.
It is a great pleasure to welcome to his first debate the Minister, the noble Lord, Lord Livingston of Parkhead. I think he has answered Questions before but this is his first debate. He probably does not remember but I first met him when he was part of a group of businesspeople whom my noble friend Lord Mandelson, of Hartlepool and Foy, sought advice from when he was Business Secretary. We all welcome him to the Front Bench and his new role, and wish him every success in what is a vital national interest.
I start with the central point that one or two noble Lords have mentioned: improving our trade is essential to the rebalancing of the economy which the Chancellor set out as one of his key objectives in 2010. I will focus on trade policy rather than trade promotion, because I think that the Minister has an important role in trade policy. Of course, this all takes place in the context of globalisation. The noble Lord, Lord Davies, pointed out the extraordinary change in economic openness in the past 20 years. The figures I saw were that from 1960 until the end of the Cold War only one in five of the world’s population lived in an economically open society. Now, on some calculations, it is as high as 90%. That is a huge transformation.
Of course, for advocates of openness, this leads to a major political challenge because people, particularly in the developed world, worry about where their jobs are going to come from if we face all this low-wage competition. The Government talk about a global race. I would like to know how the Minister interprets this. Clearly, there are causes for optimism in Britain’s economic and trade position, as the noble Baroness, Lady Wheatcroft, said, but among the general public many people feel that the rewards of globalisation are being appropriated by the few, not the many, and worry that instead of a race to the top, we are actually seeing a race to the bottom.
One of the key political challenges for all the political parties in Britain is how to build public support for economic openness. Of course, we do not help that if we get into a political race to see who can be the toughest against immigration. When we talk about trade, we have to be prepared to make the argument that it is not just our exporters who benefit from more open trade, it is our poorest families—for instance, in buying children’s shoes and clothes—who have greatly benefited from the opening up of the world economy in the past 20 years.
What is the Government’s strategy for trade? How does the current emphasis on regional agreements fit in with sustaining the multilateral trade system? The noble Lord, Lord Davies, asked a lot of very relevant questions about the transatlantic trade initiative. I am not going to repeat them; it is vital and a great opportunity but it also raises lots of difficulties. The noble Lord, Lord Sharkey, talked about people’s fears about how trade arbitration can overcome laws that we have agreed either in the UK or at EU level. That is a legitimate concern. The points made by the noble Lord, Lord Harrison, about parliamentary accountability at both EU and national level are of great importance.
Another question is: does the Minister recognise the key importance of services to Britain’s trade prospects? I am sure he does. But once we say that we recognise the key importance of services, we get straight into the question of migration. For instance, as I know from when I was in the Commission, in the negotiations between the EU and India, a key demand of the Indians was for a more liberal visa regime for their IT companies. How do we handle these questions?
A key economic strength of Britain is in our higher education—I declare an interest as pro chancellor of Lancaster University—medicine, culture and sport. The Minister is a former director of Celtic. In all these areas, British success depends on an open policy towards people from the rest of the world. Where do the Government stand on this?
The key question for trade is that of Britain and the European Union. I know that this is a familiar theme, which I have spoken about many times in this House and we will be debating again tomorrow, but does the Minister accept the point made by several noble Lords around the Chamber that Britain outside the European Union would be in a much weaker position to make representations to China on intellectual property, to countries that are marketing counterfeit Border textiles, which the noble Lord, Lord Purvis, talked about, or to people marketing whiskies that are not genuine Scotch whiskies? I know there has been a problem with that in India. What strength would we have if we were outside the EU? The Government have to come clean on this question. How would we be able to participate in a transatlantic agreement if we were not members of the EU? What would be our prospects for attracting inward investment into this country if we were not members of the EU?
Since we have such an interest in the EU trade agenda, it is vital that Britain maximises its influence in Brussels. I know from when I worked in my noble friend Lord Mandelson’s cabinet that a large part of what the EU member states do on trade is actually to negotiate with each other on what the EU policy in negotiations with the outside world is going to be. But we all know that as a member state, we cannot negotiate with other member states if, as Herman Van Rompuy once put it in a very good speech, it always seems as though we have one hand on the door handle and are about to rush outside. This question of Britain’s relations with the EU is not some fanciful political question; it is a very real question for the Minister’s responsibilities and we greatly look forward to his reply.
The Minister of State, Department for Business, Innovation and Skills & Foreign and Commonwealth Office (Lord Livingston of Parkhead) (Con)
My Lords, I thank the noble Lord, Lord Harrison, for initiating this important debate. I am very much aware of the noble Lord’s contribution in this area, and his expertise has been shown by his thoughtful comments. I will seek to outline our Government’s approach to trade, as requested by the noble Lord, Lord Liddle, and other noble Lords.
International trade is, of course, essential to the world economy. It creates growth and employment, and enhances consumer choice and value. It is not just something for “rich” countries or big business. Trade is the greatest single tool to bring hundreds of millions of people out of poverty and set countries on the path of development. Trade is vital to the UK’s economy. We have an open economy and seek to champion that; we have a global outlook and a strong and proud history of commerce. Exports are equivalent to over 30% of UK GDP and, in the last financial year alone, FDI into the UK supported in excess of 100,000 jobs.
The noble Lords, Lord Giddens and Lord Davies of Stamford, outlined their support for free trade agreements, which I very much welcome. It is important that the whole global community can benefit from trade, and to do that we require a functioning global trade regime. It should reduce or, ideally, remove the barriers to imports and exports and provide convergence of standards so customers around the world can choose the best of what the world has to offer. I hope that they will choose “Made in the UK”, and it is part of my role to make sure that they do that more regularly.
This Government are proud of their position at the forefront of European and global efforts to facilitate free-trade growth. My predecessor, the noble Lord, Lord Green, whose outstanding work in his two and a half years as Trade Minister I commend, was a vice-chair at the World Trade Organisation Conference in Bali in December, where the important trade facilitation package was agreed. This agreement will cut red tape and unnecessary processes and streamline customs procedures at borders. It will benefit the UK by around £1 billion per annum. However, crucially, most of the gain is global, with around $100 billion accruing particularly to emerging nations such as those in Africa.
My noble friend Lord Sharkey asked how we balance reducing barriers with supply-chain issues. Both are important, but I would also mention convergence: in many areas we have already reduced or removed trade barriers in terms of tariffs, but we also have to have convergence of standards so that manufacturers can produce global products and customers can enjoy them. Each and every one has its place and perhaps a different emphasis, depending on which area and which country we are negotiating with.
The UK has used its influence with both our EU colleagues and a wide range of other countries to help create a global consensus—we most definitely have such influence while in the EU. However, it has to be recognised that this was the first multilateral agreement in 20 years. It is appropriate, in the mean time, that the EU and other economies around the world have also pursued plurilateral and bilateral deals as well as regional routes to trade liberalisation. As the noble Lord, Lord Harrison, pointed out, those do not contradict each other; they can be mutually reinforcing and help build overall a system of improved trade, with higher volumes and prosperity.
Again, the UK has been at the forefront of efforts here. We were influential in shaping the EU-South Korea Free Trade Agreement, which was mentioned. This came into force in the summer of 2011 and was widely considered the first of a new generation of EU free trade agreements, in that it is genuinely deep and significantly more comprehensive than previous agreements. It has eliminated 97% of tariffs and addressed many of the non-tariff barriers. It makes doing business with South Korea much more straightforward. The results and successes of this agreement are clear, with trade between the UK and South Korea doubling over the course of the year following the agreement compared to the years before. Part of that is oil, but even excluding oil we saw a 40% increase in trade with South Korea. It may surprise many noble Lords that the UK now runs a £2.6 billion surplus in trade with South Korea. Before the agreement, it was broadly neutral.
Negotiations are also under way with a wide range of markets—east and west, large and small, developed and emerging. The largest of these is of course TTIP, which was mentioned by a number of noble Lords. This agreement was described by the US ambassador to the UK as,
“an important trade deal with a lousy acronym”.
He has a point, but what is more important is that it could be worth up to £10 billion to the UK. It is correct, as the noble Lord, Lord Harrison, mentioned, that we helped to sponsor a study to show the positive impact of the agreement in various US states. Why did we do that? Because it is very easy to spot the losers, but it is important that it is understood, on both sides of the Atlantic, where the winners are. Within the UK we have a clear view of the winners: for example, if we conduct a comprehensive TTIP, we expect the car industry to increase by 4.1% and financial services by 1.1%. There are real benefits for UK industry. However, critically, the point has been made previously in this House, including in Questions I have answered, that it will also benefit consumers, giving them better choice and lower prices.
The noble Lord, Lord Davies, raised a number of questions regarding TTIP, which I will do my best to try to answer. First, audio-visual services are initially excluded from negotiations at the behest of the French Government. The negotiation mandate was, unfortunately, leaked, so the US is of course already aware of it. However, we are just starting negotiations and setting out initial positions, and we will have to see how that is reflected and any interrelationship. The Jones Act might well be one of the quid pro quos but discussions will almost definitely continue and the UK will make its points. UK business is of course keen to see the removal of the Jones Act. We are raising this with the US Administration directly and through negotiations.
GIs are in scope, and the US and EU are taking different approaches to protecting geographical items. As the EU has done in other agreements, such as with Canada, it will seek protection of a list of geographical indications. However, to give comfort to the Scottish contingent, of which I am one, Scotch whisky is already protected in the US.
The US wants the EU to adopt a more science-based approach to treatments of food and the approval, for instance, of GM items. Her Majesty’s Government agree that the EU could improve its currently slow approval system but it is early days for all of these matters and, we should stress, there is a lot to be done on TTIP.
The EU has also launched other negotiations, including with Japan and India. It has also, as I mentioned earlier, reached—
Lord Davies of Stamford
Before the Minister leaves the topic of EU-US negotiations, will he perhaps address the questions I asked about insurance?
Lord Livingston of Parkhead
I will write separately regarding the matter of insurance. I have tried to pick up the various issues that have been raised and if I have missed any other detailed questions put by noble Lords I will be more than happy to discuss them or write separately on them. I will also come back to the role of Parliament in approving such agreements.
As I was saying, the EU has launched negotiations with Japan and India and reached an agreement with Canada. We believe that is worth over £1 billion and could be a good model for the start of discussions on TTIP. Our role in and membership of the EU is important to that, along with, as the noble Lord, Lord Harrison, said, our role in the Commonwealth. Canada is of course a member of the Commonwealth, and discussions are ongoing with India. We also want the EU to use trade policies to support development by putting in place economic partnership agreements with African and Caribbean countries. I hope to see good progress on EPAs this year at the same time as making progress on FTAs.
The role of Parliament is very important and I was interested in comments from noble Lords that they do not feel they discuss trade very much. I have been in this role for about four weeks and have had three Questions here in the House and a debate. It does feel, as a Minister, that we are discussing this issue on quite a regular basis. However, I shall also make an appearance in front of a Select Committee to discuss TTIP. TTIP and any other agreement will go through the appropriate scrutiny process, while it is recognised, of course, that the EU has competence in many of the areas involved here.
We are discussing these matters also with many other lobbying groups; for instance, small businesses and consumer groups. We meet regularly with Which? to hear its views, because it is important that we represent large businesses, small businesses and, of course, consumers in these discussions.
While these trade deals provide real benefit to the UK, the EU remains a cornerstone of our prosperity. The single market remains the most important trading area: 45% of our exports are to the EU and seven of the UK’s top 10 trading partners are EU member states. The UK is a passionate believer in the single market, and a key part of the reforms that we are seeking is to support and extend that. In the negotiations that we seek with the EU, free trade, prosperity and growth will be a cornerstone.
I fully agree with the noble Lord, Lord O’Neill, regarding the risk posed to Scotland by a departure from the UK and consequent departure from the EU and the free trade agreements. I have made this point passionately already—if your Lordships read the Herald and the Scotsman, you will see me quoted—and will continue to do so, as will government and, I hope, noble Lords.
I should also mention Africa, which is one of the fastest-growing regions and will be an increasingly important market for the UK. Many UK-based firms have already spotted the opportunities for business in Africa. Total UK exports to Africa in 2012 were worth £20 billion, which was more than to Russia and Turkey combined. But that is only a starting point. Many more UK-based firms could be doing business in Africa. There are opportunities in all sectors, particularly in energy, infrastructure, healthcare, ICT, professional services, and education and skills. We will work across government, particularly with DfID and the FCO, to maximise our efforts in Africa, and help in the implementation of the agreements reached in Bali on free trade and reducing barriers. Africa will be the big beneficiary; it is important that the UK uses its knowledge, influence and relationships to help achieve this.
Another area that is often raised in regard to trade is human rights. The Government strongly believe that the promotion of business should go hand in hand with respect for human rights. It is now more important than ever for us to help British companies succeed but to do so in a way that is consistent with our values. I believe strongly that personal freedoms contribute to economic development and vice versa. The thread of safeguards running through society that are good for human rights—good governance, the rule of law and property rights—usually go hand in hand with economic growth and trade.
We also recognise the issues raised by my noble friend Lady Miller regarding the impact of trade on food. One of the most basic human rights is the right to eat. Trade and economic development are the most effective ways of raising people out of starvation and poverty. The World Bank estimates that developing countries that have opened up their economies to trade grow three times faster than those which have not. The opening-up of trade particularly in agricultural products will be an important next stage in many of the trade negotiations, particularly between the EU and African countries. I note the comments on food production made by my noble friend and they are well taken.
I note also the points made by the noble Baroness, Lady Symons, and thank her for her very hard and productive work in the Arab world promoting British trade and development. We note the points made about jobs. We will want to raise more trade with the Arab countries. Progress there on various trade negotiations and FTAs falls behind what we are doing in other areas of the world and should be looked at.
I have so far focused on the impact of trade at the global level. A key priority of this Government is to deliver economic growth and jobs in the UK. Business success in international markets is central to our economy. This is as true today as it was in May 2011 when UKTI launched its five-year strategy. That strategy set out how we were going to improve our trade position. We are targeting high-growth companies to encourage more exports and help existing exporters penetrate high-growth and emerging markets. We are winning business contracts for high-value opportunity. These are often in excess of £250 million each. We are delivering high-quality foreign direct investment to the UK, which I shall say more about shortly. Finally, we are building high-level relationships with inward investors and exporters. The Government are committed to build on this strategy and the many good initiatives that we have started.
Having taken up my new role just a month ago, this speech allows me to outline some of our priorities further to strengthen our trade efforts. We will support medium-sized businesses. I made an announcement yesterday that we will commit to contact all 9,000 medium-sized businesses to help them with trade. More than a third of them do not export today and, in an even greater number, exports account for less than 10% of their trade. Only 17% of them export outside the EU. If we are successful with them, the CBI believes that this forgotten sector of our economy could raise UK GDP by up to £50 billion by 2020.
We will enhance our support for small companies through better marketing. UKTI does a great job, but I have to recognise that it is not as well known as it might be. We will conduct targeted marketing exercises and improve our web capability. I note the comments made by the noble Baroness, Lady Thornton, about social enterprises. We will think about how we include them. Small companies, large companies and social enterprises all have their role in the UK’s overall trade efforts.
We will continue to focus on China, India and other high-growth markets. I am told that I am running out of time, so we must conclude. We will do a number of things to improve our overall position. We recognise so many of the opportunities. The UK has had many successes in exporting and we have some great companies. We are exporting cheese to France and spices to India. We will build on that. We will grow exports and we will continue to champion free trade as a Government and move it forward.
Lord Harrison
My Lords, I thank all those who have contributed to the debate. In the words of the noble Lord, Lord Giddens, I have thought dialectically about some of these matters. In listening to the noble Baroness, Lady Thornton, I was taken back to my old stamping ground of Strasbourg. In listening to the noble Lord, Lord Carrington, I was taken to my contemporary stamping ground of the financial services. By the time we got to our two Caledonian colleagues, I was intoxicated on the Scotch Whisky Association. Encouraged by the noble Baroness, Lady Miller of Chilthorne Domer, I should perhaps admit that a scion of the Harrison family is one of Australia’s biggest wine manufacturers and exporters, not only to this country but in particular to China.
I thank the Minister for his response to the debate. When he has the opportunity and the time that the Whip has not yet given him, perhaps he could examine the questions that he was posed in debate, because we need a written reply to many of the substantial points. I was not simply asking—
The Deputy Speaker (Baroness Fookes) (Con)
My Lords, the time for this debate has now passed. I must therefore put the Question that this Motion be agreed to.