Lord Leigh of Hurley
That this House takes note of the opportunities presented by the United Kingdom’s vote to leave the European Union for the promotion of global free trade, and the impact on domestic and international trade.
Lord Leigh of Hurley (Con)
My Lords, it is a great honour to lead off this take-note debate. I start by clearly stating my position. The debate title shows that opportunities abound if we can become an,
“outward looking champion of global free trade”.
We can do that only if we leave the EU customs union, and it is to that that I want to address my remarks.
In 2008, after seven grueling years of negotiation, the Doha round of trade talks collapsed as India, China and the US failed to agree on farm import rules. TTIP continues to founder as unions promulgate the barely even half-truth that it will lead to mass privatisation of the National Health Service. The raging US presidential debate piles myth on top of myth about the supposed damage caused by free trade, with startling implications for not only TTIP, but other trade agreements as well. Despite the UK having a trade commissioner present in the case of Doha during these events, the UK’s voice in trade was subsumed into that of the EU. Now, no longer. Now is the time to articulate our own vision of global free trade. I pay tribute to my noble friend Lord Maude, who began to do this with some alacrity, even before the referendum.
Leaving the European Union, which, for transparency, in case noble Lords had not guessed, I disclose that I voted to do, has undoubted risks. We have seen this with the slide in sterling and its possible implications for inflation. We may yet see it in business confidence and inward investment as the Article 50 negotiations proceed, with every summit, press conference and crossed word capable of moving markets. But, for all these threats, one such opportunity stands out. It is shown in the title of the debate—namely, for,
“this country to be an outward looking champion of global free trade”.
This is something for which the Conservatives have historical form. The Corn Laws were a great and terrible example of how protecting local producers at the expense of cheaper imports impoverished UK consumers. It was contentious enough to split the Conservative Party, but it seems to me, when we speak against global free trade today, that we are essentially making the same mistake, favouring narrow producer interest over the common good. Indeed, in 1904 we had not gone far enough for one Winston Churchill, leading him to join the Liberal Party in response to our ongoing fixation with tariffs. I look forward to hearing whether the modern incarnation of that party is similarly dedicated to free trade.
In the context of leaving the EU, how do we make this into an opportunity for the UK? There are many permutations for our future relationship with the EU, but I want to focus on what opportunities we might avail ourselves of by leaving the EU customs union. If we are to become a global trading nation once again, we must do so. While some UK businesses accustomed to the existing arrangements may cry foul, it is surely a price worth paying to be outside it. This is principally because, if we are, we can strike free trade deals of our own, and, indeed, grandfather into some free trade agreements.
We will not be bound by the protectionist whims of the EU. It is worth remembering that while tariffs have been eliminated between member states, they are most certainly imposed on countries outside the EU. It is worth bearing in mind that these tariffs were devised to protect certain EU industries in which the UK may not have any or significant interest. Once outside the customs union, we can reduce tariffs on non-EU countries, meaning low prices for British consumers.
Here I commend the excellent work of the Policy Exchange, in particular Dr Geoff Raby and his work on free trade. He tells us, for example, that the EU currently imposes tariffs of 165% on dairy products, 192% on livestock and 197% on horticulture. In addition, he cites the EU’s 97 anti-dumping measures, which were not designed with protecting British interests in mind. Once out of the EU, we will have a huge competitive advantage over EU countries. Yes, we will be bound by existing regulation, but we will not have to adopt future regulation. Achieving a mutually beneficial UK-EU trade treaty is viewed as a challenge by some, despite the fact that there is a deficit in both goods and services with the EU. In reality, all we have to do is merely to strive to maintain the status quo—an unusual objective, which so many EU businesses, despite pressure from EU leaders, are keen to see.
Notably, at worst, if no specific trading relationship were put in place, the UK would continue to trade with the EU using WTO most-favoured nation rates. For most manufactured goods, the EU’s most-favoured nation tariff rates are low, so UK exporters could certainly continue to trade profitably. To reiterate, this is the worst-case scenario, in that no alternative arrangement had been put in place. As Dr Raby said recently, “a EU-UK FTA”—free trade agreement—
“would be the most unusual trade negotiation in modern history. It would involve two highly integrated partners negotiating to introduce new trade barriers (such as tariffs, quotas, or non-tariff measures) which would make both parties worse off. This is the opposite of what trade negotiators are trained to do. The art of any trade negotiation is to produce win-win outcomes, not lose-lose”.
We should not underestimate how integrated the UK and EU markets are. Therefore, the barriers to signing a free trade agreement are much lower than with third parties. To those who recently referred in this House to the collapse in talks between the EU and Canada, this gives insufficient credence to the amount of existing alignment between the EU and the UK in both standards and regulations. This is a crucial point. I know others will go on to explain difficulties in doing business with the EU, but we have an enormous degree of alignment.
One obstacle that is often mentioned is the labour chapter, but the EU has many FT agreements where there are no labour chapters. I am thinking, in particular, of Turkey. Once outside the EU, we will automatically become a member of the WTO. Those saying we will have to re-join by negotiating with 163 countries are not right. As the WTO Director-General Roberto Azevedo has said, Britain would “remain” a member. He was not quite as helpful as in some of his comments in June, but he has now confirmed that we would remain a member and would then need to re-establish the defined terms in the WTO for trade in our goods and services. We could put ourselves on the fast track to do this by accepting higher commitments. This would involve opening up our economy significantly, but that is where the future should lie for our trading policy anyway. This would require real leadership from the Government.
This free trading approach is already gaining traction. At the recent G20 meeting in China, India, Mexico, South Korea and Singapore, all hugely dynamic economies, expressed an interest in freer trade with Britain. My recent trip to Israel with the APPG as a guest of the Israeli Government confirmed that this high-tech, fast-growth economy, is keen to sign a deal with us as soon as possible.
Your Lordships may have noticed that during the summer, UK politics seem to go a little quiet, so in mid-July I found myself at the Republican Convention in Cleveland, Ohio, as a guest—as an observer, I hasten to add. It was clear there that many in the States, and certainly in the Republicans, are very keen on a trade treaty with the UK at the earliest opportunity—and why should they not be? Britain is already second, behind only the US, for foreign direct investment. We can now showcase our own dynamism on a global stage. UK businesses may fear that renegotiating customs duties, and rules of origin will be fiddly in the extreme, but we need to look at this strategically. Our goal should be turning a European opportunity into a global one.
I am concerned that some are going in a different direction. The leader of the Opposition has already tumbled down the slippery slope of protectionism, claiming that free trade has,
“been pursued at the expense of the world's most fragile economies”.—[Official Report, Commons; 7/9/16; col. 338.]
I suggest he take a trip to Mexico, a country he should know well, where he could see first hand the benefits that NAFTA has brought to businesses and the economy there. It is a truism we should repeat daily: capitalism and free trade have eliminated more poverty than any aid programme. Despite their free trade policy’s once being of sufficient vim to entice Churchill to cross the Floor, the Liberal Democrats, I believe, remain wedded to the straitjacket of the customs union, failing to see the opportunities outside the EU for British consumers and businesses.
It is true that some 40% of our £500 billion of exports in goods and services currently go to the EU, but in 1991, that was more than 60%. Only £48 billion goes to the Commonwealth, for example. This surely shows us what potential for growth we have. Take China. We have doubled exports there in the past five years, and Chinese investment into the UK is growing at 85%. Imagine what we could do outside the customs union. I am delighted that our new Prime Minister has already been on a trade trip to China and is taking a plane load of SME businessmen and businesswomen to India next month.
I hope this is the optimistic and outward-looking approach that the Government ultimately adopt, and I hope they will be joined by noble Lords from all sides of the House. I look forward to contributions from some extremely distinguished experts and, more important, practitioners in international trade, far more so than would ever be possible in the other place. I particularly look forward to the maiden speech of my noble friend Lord Gadhia.
I began today by lamenting the loss of a distinct British voice in the global debate on trade from our position within the EU. Our re-entry into this most vital of debates is exactly what is needed to dull the voices of protectionism and get global free trade talks back on track. Since as far back as the Suez crisis, so many have questioned what Britain’s role in the world is and what it should be. I think that we may have found it again.
Lord Haskel (Lab)
My Lords, I always welcome an economics debate, and I looked forward to hearing what the noble Lord had to say because of his long business experience. I look forward to hearing the Minister too. But I was a little confused by the noble Lord’s words, because I always thought that we were an outward-looking champion of global free trade. I know that we were there when China announced the open door policy in 1978. We have been active in Asia, North and South America and the Middle East—trade delegations have been going there for years, with government departments and trade organisations developing and promoting UK goods and services. The noble Lord implies that this was hindered by our membership of the European Union. My response is one word: Germany. We have been very open for global free-trade business at home. The proof lies in the large number of UK businesses owned from overseas and the success of inward investment. Certainly, much of this investment was influenced by our membership of the European Union. It must be important that we retain these trading links, links that must not be sacrificed for political ends.
After all, what is modern world trade? It is relationships that lead to investment, trade in goods and services and movement of people, which nowadays are interconnected and interdependent. Much of this is taking place in an intangible digital world. This is why it pays to belong to a single market: it facilitates this rather complicated structure. Yes, the alternative is protectionism, but it is the kind of protectionism and national control of business that we see in places such as Russia, Turkey or China and which is on the rise in the face of declining growth in trade.
The noble Lord spoke of activating our own individual membership of the WTO. This could be a hair shirt. The WTO rules are very unforgiving. For instance, until we make our new arrangements, we shall have to charge tariffs on goods coming into this country. The noble Lord spoke of tariffs, but they are only one part. More important in world trade are the rules and standards, not only the technical standards set by standards institutions but the myriad product and service rules on health and safety, animal welfare, tax avoidance, labelling, the environment and modern slavery—I could go on. So is it envisaged that we will simply adopt the arrangements that currently exist between the EU and the WTO, or does becoming more open to world trade mean that we will seek our own detailed arrangements? If we do not accept those standards, we just enter a race to the bottom.
So, internationally, I do not see any benefits; domestically, I can see only problems. For instance, our membership of the European Space Agency gives us access to satellites which touch many sectors of our domestic economy—transport, communications, security, farming, land use and weather. Healthcare is being revolutionised by gene editing and stem cell therapy, much of it funded by the EU Horizon 2020 programme and work at the Crick Institute. Yes, the Chancellor has guaranteed that, if withdrawn, this funding will be continued by the UK taxpayer, but it is well known that, on average, international collaboration leads to much higher quality research than national research. So should we pay our dues to remain in the Horizon programme and to be a member of the European Space Agency? These are just two of the possible domestic difficulties.
It seems to me that we first have to get our own house in order, to make our own economy more resilient to a world of free markets. We need to build back our currency; raise productivity; modernise by building the fourth industrial revolution into our economy; and redouble our efforts to encourage long-term investment. We need to become less dependent on low-cost labour and immigration and focus on employee engagement and real growth in wages through investment and productivity and raise the standard of our goods and services. This is what world trade is about.
What does this add up to? To get rid of uncertainty we should maintain our access to the EU single market through membership of the European Economic Area with generous movement of people; sign up to the same existing arrangements between the EU and the WTO; and get on with the real work of an industrial strategy to build our economy. The noble Lord seems to be saying that disruption brings opportunities. Sometimes it does, but uncertainty is always the enemy of growth.
Lord Tugendhat (Con)
My Lords, this is the second time in recent weeks that I have had the pleasure of speaking in a debate opened by my noble friend Lord Leigh and I am very grateful to him for initiating this one. I also look forward to my noble friend Lord Gadhia’s maiden speech.
Although I disagree with my noble friend Lord Leigh on a number of points, there are two on which I hope we do agree. One is that the decision to leave the European Union is a profoundly important one and the second is that, whichever side one was on in the referendum, one must strive to make it a success. To do that it is important to face facts. One of the biggest problems during the leave campaign was the extent to which those advocating leave tried to make everything sound so easy—epitomised by the remark of the now Foreign Secretary, Boris Johnson, that one can have one’s cake and eat it. That is something which he may be able to do but it is very difficult for the rest of us to achieve.
That error has been compounded since the referendum by the propensity of some Ministers to accuse those who point to difficulties of trying to undermine or reverse the referendum. That is a tone that has come through all too often in some ministerial statements. The reverse is true. We point out the difficulties in order to find ways of overcoming them and to avoid the pitfalls.
What is so extraordinary about the decision to leave the European Union is not that we have undertaken a profound change of policy—democracies do that. What is so extraordinary is that we are undertaking this immensely important change with absolutely no plan of campaign at all and having to make it up as we go along. That is why those of us on both sides of the argument have a duty to point to difficulties in order to find a way through.
Nothing is more important than ensuring continued access to EU markets on terms as close as possible to those that exist at present. This is partly for the obvious reason that just under half UK exports currently go to the EU and we must safeguard this very important bird in the hand, before we try to do anything else. It is also because membership of the EU in no way inhibits us from increasing our exports to other parts of the world. One only has to look at the great success achieved by Germany in China and India and also by other EU countries to see the truth of that.
In any case, it is quite clear that special deals with other countries cannot be signed before we have clarified and agreed our position with the EU. Even when that applies, the whole climate of opinion in so many countries, including the United States, to which my noble friend drew attention, is very hostile to trade agreements. Not only that, but trade agreements are extremely difficult to negotiate and even more difficult to get through domestic legislatures. That would perhaps particularly apply in some respects in our case, because the services which are so important to us give rise to such difficult political issues in many of the countries with which we would wish to reach agreement.
Apart from all that, I draw the House’s attention to one particular aspect of the British economy which is all too often overlooked, and that is the very high proportion of large British manufacturing companies that are foreign owned. The car industry is of course a particular example, but there are others. The UK has derived great benefit from foreign direct investment, but we must recognise that the companies that have bought, expanded and placed plants in this country have above all done so in order to serve the EU market. Those plants are part of a worldwide network. The companies concerned have plants in other parts of the world to serve markets in other parts of the world, so that if the plants in the UK become less competitive on the continent of Europe, those plants will not simply switch their products to other parts of the world, because the companies that own them have plants that already serve those other parts of the world. This is a problem that particularly applies in the case of the United Kingdom.
In making these points, I do not want to be thought pessimistic. If Britain, in accordance with the referendum result, takes over control of immigration from elsewhere in the EU, it cannot expect to remain in the single market on special terms. But that does not mean that a separate and distinct agreement, tailored to the new conditions, to the benefit of both sides, cannot be reached. What we must bear in mind, however, is that we have chosen to put non-economic self-interest factors at the top of our agenda. We have a right to do that, but so too do others, and when I read in today’s papers that Dr Fox is complaining that other people are putting politics ahead of prosperity, I feel he should look at the beam in his own eye.
Lord Razzall (LD)
My Lords, the House clearly owes a great debt of thanks to the noble Lord, Lord Leigh, for bringing forward this extremely important and topical debate. The topicality and importance of it are clearly indicated by the number of noble Lords who have put their name down to speak. We all look forward of course to the maiden speech of the noble Lord, Lord Gadhia, which will follow my remarks.
As other noble Lords have indicated, the political world is now obsessed by the negotiations to come out of the European Union. Will it be a hard Brexit or a soft Brexit? What will the trade-off be between our business relationship with Europe and the restrictions on European immigration? We have not really had any answers from the Government. We have been told by the Prime Minister that we have to accept that Brexit is Brexit—but I am not quite sure where that gets us. The Prime Minister had an opportunity yesterday at Questions, in response to a question from the Leader of the Opposition, to say whether, like Baldrick, she had a cunning plan. I am not sure that her reply—that Baldrick was a member of the Labour Party, which seemed to confuse the political views of the actor with the political views of the character—was terribly relevant. Of course, I do not think she appreciated that the whole point of Baldrick’s cunning plan was that ultimately there was no cunning plan. Some of us on this side of the House think that is where we are.
Apart from the creation of the Brexit ministry under David Davis, we also, as noble Lords know, have a new ministry under Liam Fox, who has been given responsibility for all our trading relationships outside the European Union. But until today, there has so far been very little debate about the issues that now face the Liam Fox ministry. Apparently he has two responsibilities. The first is to improve our trading relationship throughout the world. In this regard, he has inherited the policies of the previous Government and the team of trade envoys now led by Mark Price, the former chief executive of Waitrose. Sensibly, it seems that he is leaving this structure alone to continue its good work. I am glad that he has agreed that it should remain cross-party.
The other issue that has not really been discussed publicly is that apparently we are to negotiate trade deals with our most favoured partners—which, according to some government statements, will need to be concluded within the next two years. There are serious issues to be discussed here. First, how are we going to negotiate trade deals outside the European Union while we remain a member of it until the expiry of the two years following the triggering of Article 50—particularly when we do not and will not know the restrictions we will have to accept as part of any retention of access to the single market? Secondly, how can we put in place the trade negotiators to provide assistance in these negotiations? I suspect that most negotiators with this experience are still working in Europe, and we do not want to have to rely on law firms and firms of accountants to provide our negotiators. Do we seriously anticipate that we will be able to negotiate these deals within two years? The recent Canada experience demonstrates those difficulties.
There is a more fundamental point. We are all agreed that free trade is beneficial, as the noble Lord, Lord Leigh, indicated. Protectionism—either by tariffs or quotas—has costs, makes imports more expensive and depresses the incomes of consumers. By shielding domestic industries, protectionism diverts scarce resources to less efficient uses. This concept of free trade was advanced initially through the General Agreement on Tariffs and Trade after the Second World War and subsequently, as the noble Lord, Lord Leigh, indicated, through the World Trade Organization. But this is not what Liam Fox seems to be advocating. Bilateral trade agreements favour some countries over others and are, by definition, discriminatory and preferential. The danger is that we confuse bilateral trade deals with free trade. Basing policy on finding partners such as Australia or South Korea will secure preferential access for our exports there and may increase trade flows between us and them. But will it enhance efficiency and improve British living standards? That is the question that Liam Fox, the noble Lord, Lord Leigh, and their colleagues need to answer.
Lord Gadhia (Con) (Maiden Speech)
My Lords, I speak for the first time in this House with all humility and respect for an institution that has welcomed me so warmly to its fold. I have been here for only a few weeks, yet it feels like several years, and I mean that as a compliment to your Lordships. The officials, clerks, attendants and doorkeepers have all been exemplary in their professionalism and courtesy—so professional that on the day of my introduction I was prompted discreetly, with a firm tug of the ermine, not to forget my signature on the roll of Peers and the Code of Conduct.
All rites of passage require trusted guides to navigate the important journey ahead, and my entry to this House has benefited hugely from this tradition. I am indebted for the support and guidance of my two distinguished sponsors, my noble friends Lord Popat and Lord Fink. I also acknowledge, with much gratitude, the wise counsel of my mentors, my noble friends Lord Borwick and Lord Geddes. To top it all off, I have benefited from the spontaneous generosity of an honorary mentor in the form of my noble friend Lord Leigh of Hurley, who has so eloquently introduced today’s debate.
The topic of both debates in this House today, on championing global free trade and promoting social mobility, could not be more intertwined with my own journey to these Benches. Noble Lords will therefore get two maiden speeches for the patience of sitting through one. I am the very first generation of my family to be born outside India. My grandfather took the brave decision to travel 3,000 miles across the Indian Ocean from the state of Gujarat, in north-west India to Uganda, where I was born. Gujaratis are well known as a trading community, for their entrepreneurial flair and god-fearing modesty. We are often seen as pioneers—establishing ourselves in new countries, businesses or professions—and represent the majority of the 1.5 million British Indians in this country. I believe that globally connected communities will be of ever greater value as we forge new trading relationships with the rest of the world.
Had it not been for a twist of destiny, I would still have been in Uganda today, but the despot Idi Amin had different ideas. In 1972, he served notice on 60,000 Asians to leave the country. We were forced to flee overnight, leaving everything behind. To his eternal credit, the then Prime Minister Edward Heath fulfilled his moral and legal responsibility to provide a safe harbour to 30,000 of my fellow compatriots, and we started all over again.
For most of us arriving here, it was our third country and we had no choice but to get it right. Migrants, as a group, are people who are prepared to uproot themselves, who want to improve their lives. They are already highly motivated. Those forced to be migrants more than once are doubly driven. The story of the Ugandan Asian community and its settlement and contribution to Britain has been the subject of important debates in both Houses of Parliament—introduced on the same day, 6 December 2012, by my noble friend Lord Popat in this House and by my honourable friend Shailesh Vara in the other place. I would commend the respective Hansard entries as required reading.
Immigration has become an emotive topic following the EU referendum, but let us not forget that immigration is one of the things that has made Britain great. Britain is fundamentally an open, tolerant and welcoming nation. We look out to the world for trade, for skills, for friends. We are not a small country that closes itself off to the world. That has never been our outlook and must never be. So I wear the badge of an immigrant with pride. People want to come to this country because they see us as the land of opportunity—somewhere to build a new life and secure better prospects for their families. My parents worked long hours and made sacrifices so that their children could enjoy a better future. I am standing here today precisely because Britain offered me those opportunities and I seized them with both hands.
I also had luck on my side—luck in the form of an excellent British education and the fortune to work for a number of major global financial institutions over the last 25 years. I have survived that rollercoaster ride and learned the lessons, too. I have focused on cross-border mergers and acquisitions, raising capital and making investments, frequently connecting emerging markets with western economies. I came full circle by leading some of the largest investment flows between the UK and India, ranging from steel to pharmaceuticals. This experience led me to work closely with the former Prime Minister David Cameron, who I believe did more than any other holder of his position to build a modern partnership with India and also to engage proactively with the British Indian diaspora. I am pleased to say that our new Prime Minister Theresa May is building on this strong legacy, and it will be my privilege to accompany her in 10 days’ time to India on her first major planned official visit overseas, at the invitation of my fellow Gujarati, Prime Minister Narendra Modi.
I am also proud of my background in financial and professional services. It is our flagship export sector, generating a combined trade surplus of £72 billion, contributing £66 billion in tax revenues, which pays for essential public services and accounts for 2.2 million jobs, two-thirds of which are outside London. While the complex City ecosystem is difficult to replicate and usurp, we should not be complacent either. Our position is hard won over decades and should not be traded off lightly against misguided fears of immigration.
The City of London has also been one of the greatest engines of social mobility which our country has ever seen because it is rooted in meritocracy. So sacrificing a sector where we have a natural competitive advantage, which generates significant tax revenues to pay for public services and which underpins aspiration for so many, would be a triple travesty.
Whether it is selling services or goods, we are a trading nation first, last and always. Total trade as a share of GDP has increased from just over 50% in 2003 to over 60% today. However, in Germany it is almost 90%, and we should make that our long-term objective, too.
Our natural instincts are supported by hard logic. The Brexit imperative is also an economic imperative. At a time when fiscal policy is still constrained and the efficacy of monetary policy has long since been exhausted, liberalising trade offers a policy lever that can lift economic growth potential around the world against the centripetal forces of deflation.
I also believe that, with some deft footwork, we can get to the front of the queue on trade deals. While we cannot sign actual trade deals, there is nothing to stop us agreeing MoUs, as confirmed by my noble friend Lord Price in his recent evidence to the EU External Affairs Sub-Committee. I make this exhortation to EU leaders: liberalising trade is a positive sum game; you may want to teach the UK a lesson for leaving the EU, but do not betray your own self-interests by being protectionist.
In conclusion, I am deeply honoured to have been introduced to this House and given this opportunity to serve this great country. As a Hindu, the act of selfless service, or seva, combined with right conduct, or dharma, are among the noblest of Vedic traditions. I truly believe that our best times lie ahead if we can capture the full benefits of being an open, outward-looking country that embraces global free trade and welcomes new talent to our shores. Let us make that dream—a British dream—our destiny.
Lord Lupton (Con)
My Lords, I am sure that the House will agree with me that that was a powerful maiden speech by my long-standing and now noble friend Lord Gadhia. It drew on his displaced, almost nomadic, early life and on the debt which he palpably feels to this country, which took his family in. He is, however, too modest to highlight the notable success he has had in the London-based financial services industry, nor did he refer to his active and consistent track record of public service—either as a trustee of Guy’s and St Thomas’s hospitals, or as a board member of NESTA, UK Financial Investments or UK Government Investments—or his philanthropic activities. I am, therefore, pleased to speak after him, since I shall allow myself just a little reflected glory for spotting the talent and recruiting him as a fresh-faced graduate in 1991 to my former firm, perhaps creating the foundation for his future success. He will make an important, enlightened contribution to this House and I congratulate him on his maiden speech.
While I admire the conviction your Lordships bring to this debate on the opportunities and benefits that the UK can now reap post-referendum, it is still a little too early to be entirely confident about predicting a positive result—from whatever route we choose. Having said that, there are some pointers. We could use history as a guide; my noble friend Lord Leigh of Hurley has already referred to the corn laws. The economist James Wilson described them at the time as,
“laws passed by the seller to compel the buyer to give him more for his article than it is worth. They are laws enacted by the noble shopkeepers who rule us, to compel the nation to deal at their shop alone”.
Indeed, Wilson dismissed tariffs, saying they were unnecessary “swaddling” against an economy as mature as Britain’s in the 19th century.
On the other hand, we know that opening up our economies to global competition, as we would be doing outside the EU—which currently has significant external tariffs to protect EU industry—carries risks. For example, after China joined the WTO, the US lost 6 million manufacturing jobs between 1999 and 2011.
Another pointer is economic research. Consumers in closed countries have a lot less purchasing power, and the effect is progressive. Academics at Columbia University suggest that in an average country, if trade borders were closed, citizens on higher incomes would lose 28% of their purchasing power but the poorest 10% would lose a horrifying 63%—something the leader of the Opposition should note carefully. Free trade adds to growth. Trade with the EU, since we joined in 1973, has increased Britain’s GDP by 10%.
So at this stage we should be careful about what we wish for. There are conflicting economic and political forces at work, the latter pushing for immigration control of our borders outside a customs union, the former less clear-cut, although I lean towards leaving the EU customs union.
My second point is a simple one. Britain is a major economic force in the world. We are an inventive nation, we are pioneers. While it is sensible to allow history to inform our decisions, as I have already done in this speech, it concerns me that we hear in the debate about Brexit too much about this or that established model for leaving—there is no model for leaving, no country has ever done it. The rhetoric should embrace the concept of an innovative and, above all, bespoke solution being devised, which forges a new path for the UK while being acceptable to our European partners.
My final point echoes a speech I made in this Chamber a few weeks ago about the feeling of disfranchisement among the working poorly skilled and educated, who are of such concern to this Government. We must of course back British exporters more. We have world-leading capabilities in, for example, advanced manufacturing, pharmaceuticals, financial services, and emerging technologies such as artificial intelligence. A modern industrial strategy must support British business to reach beyond the EU to new markets, but we must be open to helping those who could suffer as a result of our economy being more open.
Academics at the LSE have found that areas of the country such as Northampton, Blackburn and Port Talbot, which are more exposed to Chinese imports, for example, have a higher rate of unemployment. The UK has something called the rapid response service, which is meant to help the economically displaced, but its activities are frankly unclear and in 2008, when the other place investigated it, it had a budget of a paltry £6 million. It is clear that we will need our own adjustment fund with a much bigger budget and much clearer strategic, industrial purpose.
It is not enough to say that the UK overall will benefit from more openness to trade. We will have to identify where people are not benefiting and support them to develop new economic activities, just as we did in the north-east of England a generation ago, when the closure of the coal mines left an industrial vacuum so successfully filled by our becoming a highly efficient car manufacturer, as again demonstrated by Nissan today.
Lord Davies of Stamford (Lab)
My Lords, let me start by paying a tribute to the noble Lord, Lord Gadhia, who I thought delivered a particularly well-conceived and lucid maiden speech. I share his great admiration for Edward Heath and the Conservative Government in the 1970s; I was a political supporter of the Conservative Party and of that Government at that time. Their brave decision to let in the Ugandan east Asians was taken for the highest motives of humanitarianism and a sense of historical obligation for the movements of peoples that had taken place under the British Empire. If the motives were very pure, we have been rewarded many times in sheer economic terms by the extraordinary and quite exceptional enterprise and wealth creation of that community, which has now become such a valued part of our country. I cannot help saying what a sad thing it is that the Conservative Party which made that brave decision back in the 1970s should now be the hotbed of chauvinism and the source of so much agitation about freedom of movement—and indeed should have become so obsessed by its desire to oppose freedom of movement that it appears willing to pay almost any economic price to thwart it.
I pay tribute to the noble Lord, Lord Leigh, for having given the House the opportunity to discuss this matter, though I am afraid that may be the last compliment I deliver to him in the course of my remarks. I very much agreed with the noble Lord, Lord Tugendhat, about the dangers of wishful thinking in this world. He expressed himself perhaps a little more subtly than I will on the subject. I think that wishful thinking is a very dangerous thing in human affairs and, particularly when one contemplates a large, strategic decision of any kind, great effort should be made to clear one’s mind of wishful thinking. I do not think that the noble Lord has made that attempt. I have not heard for some time a more delusory speech than the one we just heard from the noble Lord, Lord Leigh. He seems to be one of those people who goes around the world and hears what he wants to hear rather than what people are saying. Here is a man who apparently went to the Republican convention, no less, and came away thinking that the Republicans were friends of free trade and very likely to want a free trade agreement with the United Kingdom. I have to tell him that the Republican Party now opposes TTIP, and some of its members even oppose NAFTA. The Republican candidate at the presidential election has said that he opposes NAFTA. So much for the Republican enthusiasm for free trade at present.
The noble Lord also mentioned India and China. India and China have indeed developed a very good relationship with this country and invested a lot here; we have done a lot of trade with both those countries—although the Germans have, of course, done far more trade with both. However, the noble Lord does not appear to have noticed that during the campaign those two countries made it very clear that that relationship had been greatly strengthened by the fact that we were members of the European Union, and they wanted us to remain part of the EU. Xi Jinping and Narendra Modi were both explicit on this point. If the noble Lord listened a bit more carefully to what people are telling him, he might not draw such very perverse conclusions from his running around the world and his global travels.
The noble Lord made another great mistake—indeed, a fundamental mistake: to suppose that there was some trade-off between developing international trade with the whole of the rest of the world outside the EU and our membership of the EU. There is no such trade-off; there is no evidence of that at all. In fact there is a negative trade-off. Our membership of the EU is a very positive asset in terms of our ability to trade with other people. I must tell the noble Lord, because he does not seem to know about this, that the single market was conceived for precisely that reason—so as to provide European economies with the strength of a domestic market comparable to that enjoyed by the United States and Japan, and to give us the longer production runs and economies of scale that enabled us to compete with those countries right around the world.
That has worked. That is why we have such an extraordinarily complex and sophisticated structure of supply chains throughout the European Union—and that is why it is so dangerous for us to leave the European Union. Immediately there is the threat not only of tariffs but of regulatory changes over time, and people will no longer be able to depend on our presence in one of those supply chains.
The noble Lord seems to think that we can go around the world signing free trade agreements with all kinds of people very easily. He is totally wrong about that. If we leave the European Union we shall leave, at the same time on the same day, 35 free trade agreements that the EU has with other countries or groups of countries throughout the world, involving about 45 nations in all. What a completely crazy thing to do, if we want to sign FTAs around the world—to walk away from 35 of them before we have even started. Then we will have to start negotiating new foreign trade agreements, and they take an average of five to 10 years. On this occasion things will be even more complicated, because we will not be able to complete one until we have completed another, as people will want to know what concessions we have made to their potential trade rivals. This is an extraordinarily complex area, and the noble Lord really needs to think about it a bit more clearly.
I leave the House with one final thought. We have two big important economic assets in this country. One is the fact that we have been the most favoured locus for corporate headquarters and manufacturing bases for international investors wanting to access the single market. Clearly, if we leave the European Union that will go overnight. Our second great asset is that we are the financial capital of the European Union. That is under direct threat. If we leave the single market we leave the banking and insurance passports, and that asset too will go by the board. It is pretty extraordinary that the Government of a country are planning to destroy, at a stroke, the two major economic assets that it has. That is a frightening thought and we should contemplate it, and try to clear our minds of any kind of wishful thinking about it, before we do that.
Lord Livingston of Parkhead (Con)
My Lords, I first thank my noble friend Lord Leigh for tabling this important debate. I also welcome my noble friend Lord Gadhia to this House. I have known him for a number of years, and I know that he will be a great addition to this Chamber. His powerful maiden speech highlighted his background, experience and expertise, and what he will bring to this House.
Often in these debates we tend to decry the UK’s export performance, and of course we do have a trade gap. But it must be remembered that the UK is one of the world’s leading exporters—not just in services, although we are the second largest exporter of services across a range of service industries. That includes not just financial services but creative industries—the publishing industry deserves a good mention—and sectors such as the car industry. We are now the second largest producer of motor cars in Europe. We are also the second largest exporter in the world in the aerospace industry. Therefore, our exporters do a good job but, of course, we would like to see more exports.
However, whichever side of the Brexit debate you are on, I think there is widespread agreement that the uncertainty of Brexit certainly does not help. The notion that we will exit the EU in 2019 with a range of trade agreements with a number of countries is appealing but, regrettably, I believe that it is unrealistic, even verging on the fanciful. It is not that there are no interested countries: there are plenty of countries interested in doing a deal with the fifth or sixth largest economy in the world. However, there are still legal issues regarding the ability to negotiate during Brexit. The Australian Trade Minister made that point very recently, and Australia was already starting to talk to us. Moreover, it is very difficult to have meaningful conversations with the UK until we sort out our position with the EU. Mike Froman, who heads the US trade commission, and who I knew very well during my time as Minister of Trade, made that point very clearly. He would be willing to talk to the UK but we have to work out what our relationships are going to be. We can, over time, reach trade agreements, and they can be comprehensive, good and quick. Unfortunately, they cannot be all three of those things. It is important that we do not sacrifice the quality and breadth of a trade agreement on the altar of time. That will not be in our country’s long-term interests. Therefore, we need to play for time.
I loudly supported staying in the EU and regret the decision that was made. However, we have made this decision and it is not helpful for us to go through the arguments for and against Brexit. I agree with my noble friend Lord Tugendhat that we must get on and make the best of it for the UK. I also think that a message was sent out about taking back control. In the long term we will need to exit the single market and the customs union. People talk about Norway and government by fax machine, but being in the single market would create new rules for us over which we had no say. I think that would be very difficult. When I visited Turkey, people always complained to me about its inability to participate in trade agreements when it was part of the customs union.
Therefore, we need to buy ourselves time. I suggest we do that by agreeing with the EU to establish beyond the two-year Brexit period a further period in which we will stay part of the single market but after that period—say, another three years—that will stop. We should use that period to negotiate a proper, deep free trade agreement with the EU. In addition, as we would know our end status, we could start negotiating with other partners. We can debate whether that involves having a CETA-plus deal or is something new but it must include deep free trade and tariff cuts; non-tariff barriers; availability, for instance, for local procurement; and, critically—most trade agreements do not have this in depth—it must include services. Services account for 80% of the UK’s economy and without them we will struggle to increase our overseas exports.
As we negotiate these agreements, we must look to certain countries. The US is our largest trading partner. We will see who the next President will be but the US will prioritise. As regards Canada, there is a basic agreement under CETA regarding what we should do. There is also Australia and New Zealand. But we are going to have to focus because we cannot address all countries together.
I would like to say a lot more about exporting but time will not allow me. Suffice it to say that I have been on both sides of this issue. I have been a Trade Minister and I have been responsible for companies that export around the globe. I know that in both cases exporting is not easy. It is government’s job to reduce these barriers, not increase them. The Government must look forward and try to give certainty to our exporters. They must also try to buy some time so that we can have a long-term deep trade agreement with many of the major trading countries around the world. In that way we can look forward to the future with some confidence and make the best of an otherwise bad decision regarding Brexit.
Lord Shipley (LD)
My Lords, I pay tribute to the maiden speech of the noble Lord, Lord Gadhia, and his very thoughtful contribution to this debate. I was also impressed by the contribution of the noble Lord, Lord Livingston of Parkhead, particularly in relation to his comments on the media, and his warning about the pace of exiting the EU and the need to buy some time.
We are debating the issue of global free trade, and we are grateful to the noble Lord, Lord Leigh of Hurley, for enabling us to have this debate. The Secretary of State for International Trade said in Manchester a few weeks ago that our departure from the EU would provide an opportunity for the UK to become a world leader in free trade. He said this, which I took directly from the Library briefing for this debate:
“I believe the UK is in a prime position to become a world leader in free trade because of the brave and historic decision of the British people to leave the European Union”.
We should note the words “because of”. They imply that it is our departure from the EU that will enable us to grow our trade across the rest of the world. But, as the noble Lord, Lord Tugendhat, reminded us, we can increase our trade with the rest of the world while being inside the European Union. Exporting to the rest of the world is not a problem for Germany, which exports very successfully—and Germany is not planning to leave the European Union.
I question the assertion that we promote global free trade by leaving the free trade area—the EU—that we are currently in. It will not make it easier for us to promote global free trade; it will reduce our global free trade because it will reduce our free trade access to the European Union and the 35 agreements to which the EU is party. It will stifle our businesses exporting to the EU, to which 44% of our exports go. We will face tariff barriers and customs delays as we comply with complex rules of origin that will increase the cost of exporting—and we will lose the ability to influence the harmonisation of non-tariff barriers.
The Government need to recognise that we are part of integrated European supply chains. Countries outside the EU—not least the USA and Commonwealth countries—invest here to gain access to the EU. Crucially, how can it be helpful to leave the EU in 2019 when securing global free trade could take many years to achieve—if we ever do?
It is undoubtedly the case that there is capacity for growth of exports worldwide, but to make sure that our exporters are making the most of worldwide opportunities, the support provided by the Department for International Trade is key. But I draw your Lordships’ attention to the fact that in the last year, the DIT’s nine English regions saw major cuts in their promotion and support of exporting, with more cuts thought to be pending, perhaps over the lifetime of this Parliament, amounting to some 20%. Will the Minister, in summing up, tell us how we can promote exporting globally if the Government insist on cutting the very budgets that can enable exporting to increase?
I turn now to inward investment. A recent report produced by Nathaniel Lichfield & Partners showed that the amount of foreign direct investment that the north-east of England—where I live—has received declined dramatically from 14.3% of national jobs in 2009 to the current low of 7.8% in 2015: a cut of nearly half. I can suggest one reason why this has happened: the absence of regional targets for inward investment, which were abolished a few years ago. National targets can be achieved by the DIT by promoting London and the south-east, to the disadvantage of other parts of the United Kingdom. Over the last five tax years, the DIT’s own website tells us that London and the south-east received half of all projects and 35% of all jobs. But promoting global trade means promoting all parts of the UK—and their products and their skills—to the world.
Briefly, on overseas students, to stop talented students from overseas coming to study in the UK because the Government insist on counting them as part of net migration fails to understand that overseas students become ambassadors for the UK. Reducing the number who can come undermines our universities and says that we are neither global nor open.
The noble Lord, Lord Leigh, in introducing this debate, said that leaving the EU to promote global free trade was a price worth paying. It is a huge price, which will have a huge impact on all parts of the United Kingdom. I fear that it is not a price worth paying, and I very much hope that those who believe that the noble Lord, Lord Leigh of Hurley, is correct will pay heed to the warnings that we have already heard in this debate from his own Benches.
Lord Bamford (Con)
My Lords, I too congratulate the noble Lord, Lord Gadhia, on his excellent maiden speech.
I am a businessman, in the business of manufacturing and selling construction and agricultural machinery to customers all over the world. You see, exporting is in my blood, and I have been doing it for over 50 years, since I started in our family business. We now export around 75% of everything we make in the UK. We export to customers in North America, South America, the Middle East, Africa, Asia, and, of course, to mainland Europe. We also import goods and services from around the world.
There is much speculation about the future terms of trade between the UK and the EU. We currently trade with each other on the basis of zero tariffs and no import duties. It would be helpful, of course, if this carried on after we leave the EU. It has indeed made exporting somewhat easier for us all. But is it the end of the world if tariffs and import duties re-emerge upon exit? For companies that export, tariffs and import duties are not alien concepts. They are simply part of how we do business each day. I remember trading with France, Germany and the Benelux long before we joined the common market. Tariffs and import duties were simply part and parcel of doing business with Europe back then. They were not a concern or a threat to British business, unlike currency fluctuations. A weakening deutschmark against the pound could do a lot more damage than any tariff or import duty.
Please do not think for one minute that zero tariffs across the EU today mean that we operate on a level playing field. For example, my company sells farm tractors into the single market, so there are zero tariffs, no import duties and, supposedly, no barriers to trade, in an EU without borders. Noble Lords may find this hard to believe, but farm tractors must comply with at least 10 individual—and different—pieces of national road legislation, at great cost to my business, in the likes of Germany, Italy, and certain other EU markets. So there are hidden barriers. This is just one example of many in my industry that proves that the single market has not created a level playing field.
I want British business to get behind the Government. We need the Government to secure an exit deal that is in Britain’s best interests—one that will allow us to become a truly global trading nation. If tariffs are the price we have to pay to leave the EU, so be it. I hope that common sense will prevail. But if, for example, WTO rules were to apply, the EU would lose out much more than the UK. That is what Civitas concluded this week in its analysis of potential tariff costs for EU-UK trade.
In my own industry, under WTO rules tariffs of 4% could apply to certain types of UK-built machinery. Of course, similar tariffs would be levied on equivalent products imported into the UK from EU countries. But British businesspeople are very adaptable. They adjust very quickly to changes in the trading environment, so rest assured they would take tariffs in their stride. If tariffs are the price that we have to pay to secure free trade agreements with the rest of the world, I think it is a price worth paying.
Please remember that, as a nation, over 54% of all UK exports go to non-EU countries. Of course, Europe will continue to be an important market, but the EU’s role in the world economy is shrinking and will continue to shrink further. That is why regaining control of how we trade with the rest of the world is so important.
British businesses must now work together to help create a truly global Britain. Free from the constraints of Brussels, British businesses are certainly up to the task of making Britain a global leader in free trade.
Lord Patten (Con)
Two key cogs in the myriad of moving parts involved in these issues are the World Trade Organization and our own government machine.
I start with the WTO. This is, in its purposes, a non-political organisation. The UK has been there since it was first dreamt up at Bretton Woods in 1944. We were there at the foundation of its predecessor body, the General Agreement on Tariffs and Trade in 1948 and then at the start of the WTO itself. We are one of the founding fathers and mothers of the organisation and a driving force. As such, I wish to seek reaffirmation from the Minister that she has already had reassurances in straight terms from the WTO that, as a founder member, after we leave the European Union we will not have to go through any reaccession process whatsoever.
I think the world needs the WTO. The UK certainly needs the WTO, but the WTO also needs the UK, as a forceful member, promoting free trade, rooting out protectionism and standing firm against trade distortions. This was our historic role within that organisation in the past.
Only yesterday, by happy coincidence with the timing of my noble friend Lord Leigh of Hurley’s debate this morning, the World Trade Organization’s director-general Roberto Azevedo, whom we heard about earlier, told Sky News—the “truth station”, as I think of it—that he does not want to see the UK suffering “disruption” after we leave the UK. He wants, rather, to see a “fast and smooth” transition. I welcome that very much indeed. He goes on to say that,
“The global economy … is not in the best shape for us to be introducing turbulence”.
Mr Azevedo has changed his tune. I hope my noble friend Lord Leigh of Hurley welcomes that change of tune, because Mr Azevedo is going to be a dominant figure on the world stage—not just as far as the UK is concerned, but as far as the European Union is concerned. The UK can take the lead in helping him work towards offering reciprocal, tariff-free entry to all sorts of goods and services coming from third countries.
Consider, for example, countries such as Germany, which are facing economic headwinds at the moment. Germany has a considerable surplus with us. It is running a surplus not just in Mercedes and Volkswagens, but also in all professional and other services into the United Kingdom—to the surprise of many. In future, we may find that the thought of having tariff-free entry to the UK has its own particular charm, to put it mildly, for economies like those of Germany. However, we need to work much harder to export to Germany, and to Poland and other eastern European countries, in return.
My second point turns to the UK Government. It must be very exhilarating and challenging on the home front for those setting up new or reformed ministries and fettling up our export promotion machine. This is a matter not just of organisation charts and talent searches but of attitude at the centre. Such global promotion is multilayered and certainly not just a matter for the huge FTSE 100 companies and their often very corporatist representative bodies, such as the CBI. Such FTSE 100 companies may often have a welcome UK heritage but generally get a majority of their earnings abroad, so they should have the global structures and intelligence-gathering machines in place not to need much help from trade delegations and the rest.
No, it is the companies of the FTSE 250 size and below, having a much more UK-centric view, that arguably deserve the greatest attention, and even more so the entrepreneurial classes—footloose, high-tech and other developing start-ups—which are characteristically very uncorporate in their attitudes. So I am very glad to learn that the Prime Minister is taking a plane-load of representatives of SMEs to India to kick off what I hope is a totally new trend, rather than having the front of the plane clogged with the CEOs and chairmen of great FTSE 100 companies, who should be able to look after their shareholders’ interests without much help from Prime Ministers.
I also believe that the Government should welcome—I draw this in particular to the attention of my noble friend the Minister—what I am told is a queue of professionals in the legal and professional services who are stepping forward as volunteers, offering themselves on a continuing pro bono, part-time basis to help Her Majesty’s Government in what they are trying to do. We should welcome a “Government of all the talents” in trying to promote international trade, and particularly in helping what one might loosely call the Brexit Ministries as they set themselves up, upskill and get to grips with the new world of post-EU government. These volunteers are part of our national brain reservoir.
We must also welcome—I stress this—top-class immigrant brain power. We need to develop a discerning approach to high-tech, high-medical and high-finance open borders—in other words, a free market in the brain sphere. That is vital to the United Kingdom to help sustain old markets and win new ones, at the same time as we seek, quite rightly, to control our borders in relation to entry-level employment-seekers coming into this country.
Lord Taverne (LD)
My Lords, what surprises me is the complacency in the Government and in certain other circles about our trade prospects after Brexit. It is claimed that we are in a strong negotiating position but, when Article 50 is invoked, we have about a year and a half after the German elections to complete infinitely complex negotiations. We will be arguing against the clock—a very weak position.to be in.
The least bad deal after Brexit would be the Norwegian model, which would keep us in the single market—although it still has severe disadvantages, now well known, and will be unacceptable to Brexiteers. Alternative forms of access, or partial access, to the single market have even greater disadvantages. Negotiating a new free trade agreement with the EU will be much more complex than the Canadian agreement, which took ages and may never have effect. Any agreement, moreover, has to be approved by all 27 other members, each with different interests and a power of veto.
It is said that it benefits the European Union to give us a soft Brexit, but there is little good will towards Britain, especially after Mrs May’s speech at the Conservative conference, and several of the 27 have different reasons for not helping: they fear other separatists; Paris and Frankfurt would love to replace London’s financial services; Spain has offered a secure home within the EU for London banks; and, as the imposition of sanctions against Russia showed, the lobbying power of German industry, often invoked, does not outweigh Angela Merkel’s political concerns, which are mainly to keep the European Union together.
I fear the odds are that we will not reach an agreement before 2019. Can we negotiate an interim agreement, as many hope, to enable more negotiations after Brexit? That is very unlikely. The same obstacles have to be overcome and our partners know that temporary agreements often become permanent. So we will be left with a WTO solution which some advocate and which—as I understand from what has been written by Mr Peter Sutherland—involves having to submit new schedules of commitments to the WTO that will need approval by all its 164 members. That is not just a simple formality.
We will have to renegotiate, or rather negotiate, new bilateral free trade agreements with the 35 or 50—I am not sure exactly how many—countries that have them with the European Union, and with third countries with which the EU is currently negotiating. None of them will talk to us until they know what our relations with the European Union will be.
No agreement would be the hardest of hard Brexits. Our huge service industry will suffer most. As uncertainties grow, and as the prospects and implications of exclusion from the single market and the customs union become clearer, it is likely that domestic and foreign investment will decline; many companies will emigrate; the pound will fall further; and we would be in a severe Brexit recession. What price then the sunny uplands promised by the leave camp? As Donald Tusk, one of our friends in Europe warned, the choice will be between a hard Brexit and stay.
Anyone who challenges the June vote is immediately branded as anti-democratic. But why should a referendum vote be sacrosanct, unlike the result of a general election, especially when the choice of Brexit was not clear? Did it mean staying in the single market, which is what the Conservative manifesto pledged and what many leave voters thought it meant? It is the essence of a democracy that no decision is ever irreversible. Of course we cannot have a second referendum now, but with a major shift in public opinion it would be fully justified. To deny—before a final decision to leave—that there could be a new decision would be truly undemocratic.
Finally, will Article 50 allow us to withdraw? I quote the view of a former head of the Legal Service of the Council of the European Union, Jean-Claude Piris, who wrote that the article declares an “intention” to leave, which is a unilateral act that does not depend on the views of other EU members. He wrote that an “intention”,
“cannot be interpreted as a final and irreversible decision”,
and that nothing in the article prevents the UK from withdrawing its unilaterally declared “intention”.
Lord Flight (Con)
My Lords, surely everyone realises the world will be better off the more it engages in free trade. As the Prime Minister recently said in Brussels:
“I am determined that as we leave the EU, Britain will be the most passionate, the most consistent and the most convincing advocate of free trade anywhere in the world”.
That was a powerful statement. Based on this, she made the point that as we look beyond our continent, we will seize the opportunities of Brexit to forge an ambitious and optimistic new role for Britain in the world. I am pleased the UK is already discussing its future trading relationships with third countries and wish all success to the forthcoming visit to India, where there is now major scope to increase our trading and financial relationships. I also congratulate my noble friend Lord Gadhia on a moving maiden speech and welcome what I believe will be the major ongoing contribution that he will make to our commercial relationships with India.
I commend to your Lordships Professor Patrick Minford’s IEA paper of this May, No Need to Queue: The Benefits of Free Trade without Trade Agreements. His argument is that for a country the size of the UK, which represents only some 3% of global trade, unilateral free trade is a better option than individual trade agreements which, inevitably, entail both bilateral and multilateral complications and costs. Some 70% of UK trade is already conducted under WTO rules with no involvement with EU trade deals. This includes the export of services where the EU has little or no commercial policy. Indeed the UK’s exports of services to the EU owe little or nothing to the single market. Rather, the obstruction to larger EU international trade in services arises from national barriers within the EU to protect domestic services.
Professor Minford’s practical point is that being a relatively small supplier, the UK benefits trade-wise from being of marginal importance. The UK’s share of world trade is sufficiently modest that there is little incentive to levy tariffs on UK exports. May I comment how much I agreed with my noble friend Lord Bamford’s speech, and with the point that enterprising British business has to get on with it and cope with whatever the ups and downs and issues are? My noble friend might well agree with Patrick Minford.
The fundamental point is that increased trade boosts output and raises living standards. China and India have demonstrated over the last three decades the huge gains to be made by opening up economies to world markets. This did not and does not need an expansion of trade agreements either regionally or via the WTO globally. China’s rapid growth owes little to trade agreements; it was not even a member of the WTO until 2001. Indeed, it has been the 165 non-EU states that have accounted for the majority of the world’s growth in recent years. I regret to comment that the UK in the single market is essentially part of a protectionist structure based on regulation and protecting domestic EU markets from competing international trade.
For trade in goods, a zero tariff regime with the EU would make the most sense, combined with an invitation to the EU to reciprocate, which is likely to be attractive to EU commercial organisations. This is the sort of regime that Hong Kong and Singapore have taken up, where both have a better network of free trade arrangements than the EU. Indeed, my vision for the UK post-Brexit is what I might call a super-Singapore or a super-Hong Kong. I add the point that this could equally well be organised under a WTO regime.
Of our total trade, our exports to the Commonwealth presently represent only 9%. We are the biggest exporter of services to Commonwealth countries. I believe there is huge scope to increase our trade with Commonwealth countries. As my noble friend Lord Howell of Guildford has pointed out, the Commonwealth is more suited than the EU to the expansion of trade and commerce in the digital age because of its growing emphasis on information and data exchange. The Commonwealth network could provide a gateway to the faster-growing economies of Asia, Africa and Latin America.
I would have liked to have spoken about the City, where I believe a lot of overpessimism is argued about the effect of Brexit, but alas, there is not time. I close by saying that the case for free trade is moral as well as economic. It is an instrument of poverty alleviation. Since 1990, the numbers living in poverty have fallen from 36% to 8%. I end by repeating a comment by the governor of Hong Kong in I think 1857:
“Free trade is Jesus Christ, and Jesus Christ is free trade”.
He meant by that that free trade is a hugely effective moral force in raising living standards for the less fortunate.
Lord Farmer (Con)
My Lords, I also begin by congratulating my noble friend Lord Gadhia on an excellent maiden speech. I also mention his great contribution in getting the Indian community engaged in the British political system.
Having started on the London Metal Exchange in 1963 I have been involved in metals trading for more than 50 years. At present, I have every intention of continuing. I am therefore grateful to my noble friend Lord Leigh for securing this debate on the impact of Brexit on trade and particularly the promotion of global free trade. We are in danger of reverting to an unattractive and counterproductive negativity, talking ourselves down and doing our great British brand a disservice. Of course Brexit has brought with it a new source of uncertainty, and business thrives on stability, but it is important to be clear-eyed about what lay behind and optimistic about what lies ahead.
Shortly before the referendum I wrote that as an island nation we have always depended on our trading and market skills and how continued membership of the European Union posed a direct risk to our unrivalled concentration of markets and trading expertise. The market in which I am most involved, the London Metal Exchange or LME, is the global pricing mechanism for base metals and has, since it was founded in 1870, provided substantial invisible exports for this country. I was concerned that European regulators were endangering the sophisticated systems and culture undergirding London markets’ success. Our international reputation for trading ethically and innovatively has made Britain very attractive for investors. Yet, regulators in Brussels, issuing ever more top-down directives, effectively sidelined personal responsibility, creativity and innovative flair.
The LME, which operated smoothly and without disruption during the financial crisis, is governed by rules designed and developed over the last 150 years that are, as a result, well suited to its markets. However, these were in danger of being swept away by EU laws such as the Markets in Financial Instruments Directive II. MiFID II, as it is known, actively deters people from taking on risk in markets and betrays the assumption of those at a remove from trading that risk should be avoided. Yet risk is what gives markets liquidity. It needs good controls, but risk is a good thing.
This trend towards overregulation made it increasingly likely that the now Hong Kong-owned LME would sooner or later have been forced to relocate to Hong Kong or to another major Chinese city. The irony is that as a global exchange the LME was not affected by the single market, yet was subject to the EU’s strictures, which were endangering its continued operation in London.
Now free to take back control of our regulation, we need to have a healthy dose of national confidence and self-belief on the grounds that other countries will want to trade freely with Britain, the world’s fifth-biggest economy, especially if, like the EU, they are already doing so. In this interconnected world, our trade with Europe, which has a surplus of nearly £70 billion with us, is an indispensable source of jobs and wealth for their economies.
However, I wish to make another point. We are also free to help other countries create wealth through free trade. Harvard Professor and author of The Wealth and Poverty of Nations, David Landes, emphasises that the task of rich countries like ours,
“in our own interest as well as theirs, is to help the poor become healthier and wealthier. If we do not”,
he says,
“they will seek to take what they cannot make; and if they cannot earn by exporting commodities, they will export people. In short, wealth is an irresistible magnet”.
Written nearly two decades ago, he is prophetically summing up what happens when trade is not free. The European Union has to ask itself to what extent its protectionism is responsible for so many economic migrants willing to take perilous journeys across the Mediterranean and turning up on her shores with no certainty of a good outcome even if they survive the passage.
Our exit from the European Union creates a vital opportunity to make arrangements with just-about emerging economies that would previously have been at the back of the queue for trade deals with nations such as ours. Surely this would enable them to hold on to more of those citizens who want to better themselves instead of losing them to uncertain tides, flimsy boats and people smugglers.
Will the Minister provide a little more detail of what my right honourable friend in the other place, the Secretary of State for International Development, is planning in terms of free trade with poorer countries as part of her welcome drive to ensure that every penny of the aid budget is well spent? We need to ensure that the rising tide of what I believe will be our post-Brexit prosperity lifts as many boats as possible.
Lord Hunt of Chesterton (Lab)
My Lords, I welcome the noble Lord, Lord Gadhia, another brilliant Ugandan, to this House. I would like to hear him talk more about Uganda, which I visited when my father was in the embassy there.
We should thank the noble Lord, Lord Leigh, for this debate but also perhaps for exposing the questionable arguments for the UK’s prospective departure from the EU. This is a very important debate because the magnitude and extent of trade are essential for improving the livelihoods of people all over the world and for dealing with the massive challenges of global problems, whether they be climate change, the quality of the environment or security.
I am glad to say that the mainstream of the Labour Party has always recognised that a good society works with strong trade and with public bodies. I have worked in both sectors, and the small high-tech company I helped to set up benefits from free trade in the EU but, regrettably, is completely blocked from trade with the USA. Leaving the EU may lead to our being blocked by both the EU and the United States.
It is of course the founding principle of the European countries that, within and outside the EU, they believe in trade and public bodies as being the basis of a good society. It is partly because of the broad commonality of European societies that European trade has prospered. The proposal being moved in this debate is that international trade, especially for the UK, will expand as a result of the UK leaving the EU. One has to ask, however, what will be the real benefits to the British people of detaching our business from our European partner countries when major countries such as Germany are more successful on average than the UK in both trade and productivity, both within and outside Europe, as other noble Lords have pointed out.
Germany maintains its successful trade at the same time, of course, as maintaining much higher standards of living and a better environment, especially in housing, as I would see when I visited as a councillor in the UK. Surely the UK should be working even more closely with such successful countries, whose new industrial collaboration and technological methods have been recommended for this country, for example by the noble Lord, Lord Willetts, who explained his ideas to the House of Lords Science and Technology Committee.
Indeed, the success of this new methodology, which the noble Lord, Lord Haskel, also mentioned, is attracting new investments into those countries by leading UK industrial and high-tech companies. It was excellent to hear another engineer, the noble Lord, Lord Bamford, speaking in this debate, and to hear his comments about technical collaboration. There are excellent UK companies, but I think we have to see where the leadership and the new developments are coming from.
One of the important features is what is going to happen next. One of the interesting points that I have tried to discuss with civil servants in the UK and in Brussels is what they are thinking. I have heard some sphinx-like utterances that one of their ideas is that every effort should be made for the UK and other countries outside the EU to continue to participate in technological and scientific networks based in the EU. These have been very successfully developed. Indeed, I myself, with UK colleagues, helped to set up one in aerospace and other engineering which is very important.
These networks, based in Brussels, which I am sure will continue, will greatly help UK industries and research organisations to participate in and contribute to the latest technical advances and to trade, but I am afraid that will be a second best for the UK because there will no longer be the funding streams for UK research and industry that we have seen over the past 20 years. One hopes that UK industries will also receive funding from the UK Government to participate in industrial fairs. This point was made by the noble Lord, Lord Shipley.
Criticism of the lack of funding for UK businesses to export and explain themselves was made by the British Chambers of Commerce, and that point is made in the document from the Library. Representatives of British SMEs whom I have met in various parts of the world have also complained that funding is not available for them to participate. Meanwhile, the European Commission has technological representatives all around the world, many of whom are seen at these major trade fairs. I think, therefore, that it is very important that we continue to work in these EC networks; it is clear that the EC would welcome that.
One of the other features about the development of our industry and our trade and the connections to technology will be to question how UK international trade will make good use of the UK’s continued participation in these very large and technically successful intergovernmental European agencies such as the European Space Agency, the European Medicines Agency, the European Centre for Medium-Range Weather Forecasts, telecoms and so on. It is extremely important that negotiations dealing with these agencies are very successful.
Finally, one hopes that when the Prime Minister was talking about getting closer to Europe, she was not thinking of the kind of schoolboy abuse that we heard today about Europe and we hear sometimes from the Foreign Secretary.
Lord Young of Cookham (Con)
My Lords, I remind your Lordships that this is a time-limited debate, and speakers should seek to contain their speeches within the five-minute limit.
Lord Horam (Con)
My Lords, I do not always listen to the Whips, but I will endeavour to do so on this occasion.
I thank my noble friend Lord Leigh for this debate. As an economist, I certainly appreciate an economic debate, although I do not think “It’s the economy, stupid” all the time. None the less, I think we are glad to have an economic discussion. I also congratulate my noble friend Lord Gadhia on his maiden speech. We will be very glad to have his particular experience in the House of Lords over the coming years.
I agree with my noble friend Lord Leigh that free trade is indeed extremely important. As someone who has founded a company which exports more than 80% of its products—even more than the famous company of which the noble Lord, Lord Bamford, is managing director—I am certainly in favour of free trade and always advocate it when possible. However, I would point out to the House that there are losers as well as winners in the free trade argument. Although there can be a net gain from free trade, none the less some people lose. We saw that in the Brexit debate.
I am, like my noble friend, an optimist. That may be something that is just natural to our personality—I recognise that in him—but I also feel that we are right to be optimistic in the present situation. None the less, we are in a difficult situation, and I think the noble Lord, Lord Haskel, made the point in his opening speech that uncertainty is the enemy of business. It is, and we have already seen the Chancellor make the point, on a number of occasions, that the uncertainty of the present situation is deterring future investment. Present investment is going ahead, but there is a deterrent effect on business investment. That is why I hope that, in the coming Statement next month, we will have an increase in government investment to make up the gap in business investment. I certainly hope that that will happen because it is necessary.
We are now poorer. We are now poorer than we were before the referendum took place. We are poorer because sterling has gone down and food prices have gone up. I would make the point, which the Prime Minister has made at some length, quite well in my view, that it is the people at the margin who are suffering.
So what do we do in these circumstances? I believe the right approach in these circumstances is to remain a member of the European Economic Area and, if possible, rejoin the European Free Trade Association. That may not be possible—I fully understand that—but if we cannot do that, I would certainly want a bespoke agreement which is as similar as possible to the existing arrangement. Under the EFTA arrangements, we would have immediate clarity. If the Government said in their expected Green Paper that they would be pursuing a course of action whereby we would remain in the European Economic Area, that would give immediate clarity to all investment decisions. Immediately, people would say, “Well, there we are. We know where we stand. We can carrying on investing”.
The advantage of that is that, first, under the EEA agreement, you can action Article 112, which allows you to deal with immigration if there are societal problems with it. That could quite easily be invoked. Secondly, the European Economic Area agreements do not involve the European Court of Justice. Therefore, both those elements of the Prime Minister’s red lines are met. Finally, carrying on as a member of the European Economic Area would relieve us of the frankly crushing burden of having to renegotiate all our trade and tariff barriers in the WTO. There are some 160 members of the WTO. As the noble Lord, Lord Davies of Stamford, said, it would take at least five to 10 years, if not longer, to renegotiate all that.
Those who advocate a hard Brexit say, “We should take the risk, the risk is worth it”, but I would argue that it is not we who are fairly well-off—some of us are extremely well-off; I do not include myself in that—who will bear the burden the burden of that risk; it is the poor, the people at the margins of society. As the Chancellor rightly said, they did not vote for Brexit to get poorer.
Baroness Harding of Winscombe (Con)
My Lords, it is a pleasure to speak in this debate. I thank my noble friend Lord Leigh for giving us all the opportunity to do so today. I also congratulate the noble Lord, Lord Gadhia, on his extremely moving maiden speech. He struck a perfect chord by saying that Britain is a trading nation first, last and always. It is interesting that all of us who have spoken in this debate have agreed with that—every one of us has started from a premise that free trade is a good thing. As the chief executive of TalkTalk and a businesswoman all my life, I know that that is true: that unfettered, open and competitive markets at home and abroad bring out the best in people. They bring out the best in businesses and, in turn, give the best possible outcomes to customers and citizens.
It is not just physical trade that is a good thing in this modern world; digital trade is hugely powerful, too, as many other noble Lords have mentioned. For this country in particular, digital free trade should be something that we are brilliant at. We are already brilliant at consuming products online, and the UK’s reputation for the protection of intellectual property and the fair rule of law means that a Chinese citizen looking at a website of an unknown British business is more likely to click “buy” than they would on a website from many other countries. So we should be brilliant at global free trade.
I want therefore to focus my remarks not on whether free trade is a good idea or a bad idea but on how we bring everyone in the country with us. I voted to remain in the EU, but, as a businesswoman, I cannot but hear the fury, frustration and disaffection of a significant number of people who feel that the modern, global, digital world that I have just described is not working for them. While many of my noble friends have spoken eloquently about how leaving the EU will be brilliant for global trade, many people who voted with them to leave the EU would disagree. We have all to work out how we make the global trading nation of Britain work for everyone in this country and take to heart that that is not the case now. I want to offer a few suggestions for business and for government on how we might make the case for free trade genuinely working for everyone.
First, we need to focus on building skills. If you do not have skills to take advantage of free trade, you are understandably scared of it. You are more likely to be convinced that an open economy means that your living standards will be threatened rather than seeing it as an opportunity. We need to make sure that we upskill our nation to be the global free trade bastion that we all want it to be. I hugely welcome this Government’s commitment to build basic digital skills across the whole country, but we know that we all need to invest in engineering and R&D skills, at every stage of people’s career. That is not just about government money; all of us who run businesses need to take this much more seriously.
Secondly, we need fair and competitive markets, not just open ones. Competition drives out bad behaviour, provided that consumers have choice, so we need strong, independent competition regulation in every market. That is how you do the best possible job of ensuring that everyone in society benefits from global free trade. We also need to tackle the issue of fair working practices in a modern, global world. I welcome the Government’s appointment of Matthew Taylor to run an independent review of modern working practices. As the world changes, we need to make sure that business genuinely works for everyone. I have been a strong advocate in this House of zero-hours contracts, but I would be the first to admit that they can be horrendously abused if they are not properly regulated. It is incumbent on those of us who operate in a modern economy to work through what the rights to sick pay and holiday pay of those working in the flexible, gig economy should be. The Matthew Taylor review could be a hugely important component in setting Britain up to be a brilliant trading nation in the future global economy.
Finally, businesses have a responsibility for this, too. It is not enough today to do a brilliant job for your customers and to make money for your shareholders. Successful Great British companies also need to make sure that they know what contribution they are making to their community and country as a whole. It will not be enough just to look after where you are already driving employment, in the local community where your factory or office might be based. Those in this House today who really believe that free trade will drive economic growth for the whole country—I believe that is all of us—need to make sure that that is genuinely true. My noble friend Lord Lupton spoke eloquently about making sure that we really understand and identify those people who are not benefiting. That is as true of business leaders as it is of politicians, otherwise the global free trade world that we would all like to part of will be pulled back because, rightly, some citizens will feel that they are being left behind.
In conclusion, although I campaigned to remain in the EU, I am an entrepreneur and a businesswoman. The secret to successful business is to accept the world that you are in and to move on, rather than to fight yesterday’s battles. I am excited that Britain really can be a fabulous trading nation. As we exit the EU, I think that championing free trade at home and abroad that genuinely works for everyone is a prize that we can all agree we want to chase after.
The Earl of Caithness (Con)
My Lords, I am a committed free-trader, as are most of those who have spoken in this debate. The evidence is there for everybody to look at: since the end of the Cold War, the proportion of the world’s population living on less than $1.25 a day has dropped from 40% to 23%, and that is due to free trade. We should congratulate not only ourselves but the other free-traders in the world, such as America.
I pick up on what was said by my noble friend who spoke before me: there are major problems. When one looks at CETA, one asks what is stopping that free trade agreement. Ninety-eight per cent of the tariffs will be taken down; there will be annual savings of €500 million in duties. What is stopping that and why is free trade such an important issue in the American election? Why did Bernie Sanders, Clinton and Trump all highlight not free trade but protectionism? There is a worry. It reminded me a little of that old Scottish saying:
“Wha’s like us? Gey few, and they’re a’ deid. If they’re not deid, they’re dying”.
We are going down a route that is absolutely right, but we have to sell it. As my right honourable friend the Prime Minister said, there are those just managing in this country who do not like free trade. They do not see the benefits of it.
I want to take a slightly different road from that taken my noble friend and look at what are the problems with free trade. Free trade agreements have become far too complicated. They include matters that are not trade. If we are trying to win the argument, let us get back to a trade agreement that does not include things such as patents.
The problem areas are many, but the real difficulty, as highlighted by the Walloons, is the investor state dispute settlement. It is quite wrong that big corporate bodies should be able to sue Governments, which puts them in a powerful position, equating to government, overriding local sovereign democracy and being able to influence Governments in a way in which they never did before. That is one of the main reasons that CETA is failing at the moment. The Walloons want a lot of protectionist measures which I do not approve of, but I sympathise with them on that point. It is not good.
It is also very noticeable in America—which is, or has been, our biggest ally in this area—that these ISDSs are growing in number and causing increasing problems for the Americans. That is why TTIP is not going to happen and why the TTP and NAFTA are under threat—because of the threat of corporate bodies. If corporate bodies want to take a risk overseas, they must take the risk, not the people.
There must therefore be more transparency in our free trade agreements. The EU is good on this; America is lousy and needs to change. One of the things Britain can do, through its diplomacy, is get the USA and others to be much more open about this. A free trade agreement needs tighter definition on rules of origin. Those are being abused, and if they are abused, it leads to resentment. There need to be more enforceable and substantive labour and environmental rights. We need to be able to protect those, while continuing free trade.
My noble friend Lord Bamford said that changes in currency are a bigger threat than tariffs. He is absolutely right. That was why Mr Trump wanted to shove on a 45% tariff against the Chinese, because they have manipulated their currency. Our currency has just fallen and that is distorting our free trade agreements. We need to look at that.
I end with a point for free trade: it does boost productivity. Since the 2008 crash, there has been a levelling off and down-turn in productivity. It is trade that builds that up. That leads to prosperity, that leads to a better feeling and that will lead to a happier community.
Baroness Smith of Newnham (LD)
My Lords, there has been considerable agreement this afternoon in that we all appear to support free trade. We lack the leader of the Official Opposition, Mr Corbyn, who perhaps does not agree with free trade in the same way. However, across your Lordships’ House there seems to be some agreement and a sense that there are opportunities from global free trade.
These opportunities are not cut off by our membership of the European Union. We are already able to trade globally. A set of questions needs to be considered in the current period before we leave the European Union in the transitional period and looking forward, about what the UK’s relations might look like after we leave.
During the referendum, it was entirely unclear what the leave campaign meant by “leaving the European Union”. Did it mean leaving the single market? Did it mean leaving the customs union? There has been a bit of rewriting of history. In the last week I have heard Matthew Elliott and Douglas Carswell of Vote Leave saying, “It was always entirely clear, we have to leave the single market”. It was not clear to me and I spent a lot of time listening to the leavers during the referendum.
There are real questions about where the UK is going and where we want to end up in trading relations with the EU. At the moment our trade with the EU is 44%. Some Ministers may feel that it is a price worth paying to walk away and trade simply on WTO terms, but have the Government undertaken any sort of review of the financial costs of increased tariffs?
Beyond that, the EU and the single market clearly offer far more than simply tariff-free trade. They allow us to get beyond non-tariff barriers to trade, to give a level playing field. That was precisely the reason why Margaret Thatcher pushed for it 30 years ago. To what extent have the Government begun to look at the implications for the UK if we walk away and then need access to the market, without being part of it? The EU is a rules-based system. If we seek to export to the European Union from the outside, we will still need to meet EU standards.
We have heard that somewhere between 6% and 11% of British companies currently export—a relatively small percentage. Some hard Brexiteers have suggested that we can take the opportunity of leaving the European Union to have a bonfire of red tape. But if some companies are going to export to the EU, they will still be bound by EU regulations. Are we going to have a two-tier system, where exporters have to abide by different rules for health and safety and environmental standards from those companies that do not export? Is that what the Government are thinking about? If not, are we going to leave the European Union and somehow create our own legal system? Or will we simply follow the European Union in its entirety but without any seat at the table? That would be true whether we were in the EEA, EFTA or entirely outside—we would have no say in those rules.
However, there are opportunities for trading now, for free trade and for expanding trade. We already trade significantly with the Commonwealth. We could do more. The old Commonwealth countries that have already suggested that they might be interested in free trade deals with us have relatively small economies, nothing like the size of the US or our European market.
There is one way in which the United Kingdom could demonstrate right now that it wants to go global—that it is open for business. That is in the area where I spend my time when I am not in your Lordships’ House. I declare my interest as an academic at Cambridge. Higher education and education more generally are massive global exports. The United Kingdom has a considerable competitive advantage in this area yet it links to an issue that the Brexiteers were not comfortable with—immigration. Here, I thank the noble Lord, Lord Gadhia, for a fantastic maiden speech and note the points he made about immigration and the importance of people coming to this country. They may be teachers or academics, but they may also be students. Will the Minister take back to her colleagues in the Home Office—across departments—the importance of looking again at visa restrictions? At the moment, the UK does not look as if it is open to business for Indian and other students who would happily come here. If we are going to go global we need to show we are open. We need to look again at our visa regimes for students.
Baroness Finn (Con)
My Lords, I thank my noble friend Lord Leigh of Hurley for introducing this important and timely debate. It is an honour to lend my voice to the incredible array of expertise in the Chamber today. I also congratulate my noble friend Lord Gadhia on his excellent and moving maiden speech. I wholeheartedly agree with the sentiments he so powerfully expressed.
Navigating through the noise, post-referendum but pre-Article 50, I say that one point of clarity in a Mexican wave of uncertainty is that we do not yet know what our relationship with the EU will ultimately look like. This is, after all, a negotiation. However, I am clear that Brexit cannot and must not mean Britain turning in on itself, so that we shut ourselves off from the world. It is not in our history, it is not in our culture and it is not in our nature. Nor is it in our short-term or long-term economic interest.
As expressed so eloquently by the rather magnificent butterfly on the cover of the Spectator magazine on the eve of the referendum, Britain must go:
“Out and into the world”.
This goes for immigration, where the goal must be control, not arbitrary reduction. It goes for diplomacy and foreign policy, where a more engaged Britain is a necessity in these uncertain and volatile times. It must certainly go for trade as we look to sign agreements with developed nations and emerging markets alike—places on our doorstep starting with the EU and the fastest-growing nations in Asia, Africa and elsewhere.
This is not ideological, it is economic, and the benefits for Britain and the world are clear. We have heard today that free trade increases the purchasing power of our consumers, putting more pounds in the proverbial pocket, just as it helps our exporters and goods go further and deeper into global markets. It is quite simply about the age-old principle of comparative advantage. We can import goods from where they can be manufactured cheapest to reduce prices for consumers. But where we in the UK do it best, be it advanced manufacturing, financial services or bioscience, we can export our expertise and sell it on the global market. It really is win-win.
However, free trade can be more even than this. Done well, it can be the final, decisive arbiter in the war on poverty. The World Bank looked at 30 African countries between 1981 and 2000 and concluded that trade liberalisation had materially reduced poverty. So not only is it good for us, the fifth-largest economy in the world with the second-highest level of foreign direct investment, it is good for those countries that are still on the up. There are many who say that this world order I have described is nothing more than a pleasant fiction: that countries are not clamouring to sign trade deals with us, that it will take for ever and that politics will trump economics. I say again though that our trump card is Britain—our skills, our capability and, now, our leadership on the world stage.
Other nations are responding. We have already seen Australia and New Zealand speak out in favour of a deal with the UK. Indeed, those two long-standing allies have gone a stage further, and have offered to plug the gap in our Civil Service where trade expertise should be and to lend us their own experts. If that is not enough for the sceptics then what of South Korea, a country quick to express an interest? What even of the USA? My noble friend Lord Leigh has already cited senior figures in the Republican Party who believe a deal can be done. I would like to add my own experience to that, so that I am not just hearing what I want to hear. At a dinner that I attended a few months ago in Washington DC when I was an adviser to the then Trade Minister, the noble Lord, Lord Maude, we asked some former presidential US trade representatives from both parties whether it was true that the UK would need to go to the back of the queue. With one voice, they answered in the negative. They were quick to cut through the prevailing scepticism to say that a US-UK free trade deal could be done. So there is hope yet.
To those who worry about what it means for the state of Britain if we are really to leave the EU—myself included—I say that we must make sure that we get the best deal with the EU we possibly can, yes, but the best deal with the rest of world too. This will show that Britain is still open: open for business, open to immigration and ready to lead the world in getting global free trade back on track.
Lord Popat (Con)
My Lords, I, too, thank my noble friend Lord Leigh for initiating this important and timely debate and for his excellent opening remarks. It was also a pleasure to listen to my noble friend Lord Gadhia’s excellent maiden speech. A Hindu and a Ugandan like me, my noble friend has extensive experience in international trade. I am sure that that experience will be a great asset in your Lordships’ House and I look forward to many more contributions from him.
The truth is that, irrespective of how the nation voted on 23 June, we have needed a new approach to our trade policy for some time. Britain’s economy has been skewed for a long time. Our current account deficit is unsustainable, we export far too little, our productivity is too low, we are overly reliant on both the City and consumer spending, our manufacturing base is too small and our house prices are too high. Irrespective of Brexit, these problems have been in place for some time.
We have become complacent, both in government and in the private sector. We have some firms that do a tremendous amount of work to export, but nowhere near enough. Too many businesses avoid the risks. When I was in business in the 1970s and 1980s, exporting was seen as a great point of pride for companies. Now it is just seen as a risk. We have to change that mindset.
Part of that work falls to government. Our Government should be more proactive. The Department for International Trade—previously UKTI—works on the basis that companies will come to it. This is fine if you already export, or if you are a FTSE 100 global company with vast resources, but it does not help SMEs. Indeed, it is the wrong way round. The department should be identifying opportunities—a road project in Tanzania, for example—putting them straight up on their website and emailing the link to every infrastructure company in the UK. A bit of proactivity could get us a long way.
Before I move away from government, I will make two additional comments. The first is that the previous Prime Minister committed to making our diplomatic service more business orientated: to appoint business leaders to high commissioner and ambassador posts and to increase the commercial knowledge of those from a diplomatic background. Could the Minister give me an outline of what progress has been made in this area?
The final thing I will mention in relation to government—in this case, I have definitely saved the best for last—is UK Export Finance. For those who are not aware, UK Export Finance is the UK’s export credit agency and directly supports the export of British goods and services. Its work is invaluable. I highly recommend that any company thinking about exporting should look at its work. This is a vital service and one that we must do a lot more to promote.
In the time I have remaining, I would like to talk about Africa, which my noble friend Lady Finn covered very well, and the opportunities available on that continent. I was very fortunate to be given my dream job earlier this year, acting as the Prime Minister’s trade envoy to Rwanda and Uganda. Africa is home to a number of the fastest-growing economies in the world—exactly the type of markets we need British firms to be focusing on. Huge chunks of Africa are now prime markets for British firms. Yes, there are risks, but the rewards are also fantastic. With a developing middle class, 52 huge cities with populations of more than 1 million and some of the most innovative banking systems that I have seen, this is a continent that has come on leaps and bounds.
For too long Britain has seen Africa through the Band Aid lens and has missed its real potential. We have to change our mindset on Africa and on exporting. This is why we should focus more on trade and not aid. We should not have the situation, as we do in many African countries, of having dozens of DfID staff but no trade representatives—it is lunacy. Similarly, we cannot have an entire continent, especially one with the economic potential of Africa, constantly overlooked when it comes to visits by our Cabinet Ministers. These are little things, but they add up to our current exporting difficulties.
Our business leaders and the Government need to seize the opportunity that Brexit has offered to reset our path, to be more proactive in identifying and advertising opportunities, and to be less risk-averse and lazy. We have barely gone a day since the referendum without talk of free trade deals and of hard and soft Brexit, but this is a red herring. If we are not encouraging and supporting firms to export in the first place, additional tariffs are hardly a significant factor. I hope that we will see a new approach from this Government.
Baroness Manzoor (Con)
My Lords, I, too, take the opportunity to thank my noble friend Lord Leigh for securing this debate today and to congratulate my noble friend Lord Gadhia on his excellent maiden speech.
We have been members of the EU for the last 40 years, and it has played a hugely important role, whether in business, trade, science, technology, employment or human rights. But we must also not lose sight of the fact that EU countries now have some of the lowest economic growth rates in the world and some of the highest unemployment rates. Some EU countries are precariously close to bankruptcy. These can hardly be considered hallmarks of a vibrant or successful economic model.
Despite this, like many in your Lordships’ House, I supported the UK remaining a member of a reformed EU. But there is one simple and unavoidable fact: more than 1 million more people voted in the referendum to leave the EU than to stay. So that is what Britain must do. To do otherwise would be to defy the democratic will of the British people. Most people like me just want the Government to get on with it and remove the uncertainty that damages confidence in our businesses, deters investment in our economy and erodes public confidence.
Of course, we will need to negotiate new bilateral trade deals and non-tariff barriers. Nobody says that this will be easy, but is it achievable? Certainly I believe it is. Parliament must now unite to deliver what the British people have voted for. To do otherwise would be antidemocratic, illiberal and a dereliction of our duty. Indeed, on referendum night I was pleased to note that my noble friend—I hope he remains a friend—the noble Lord, Lord Ashdown of Norton-sub-Hamdon, said:
“I will forgive no-one who does not respect the sovereign voice of the British people once it has spoken. Whether it is a majority of 1% or 20%, when the British people have spoken, you do what they command. Either you believe in democracy or you don’t”.
I believe in democracy.
Despite all the challenges and complexities, there are also great opportunities for our forward-thinking, tolerant and outward-looking, great country as a global trading nation. Successful trade negotiations, not just with the EU but with the wider global economy, are key to exploiting these opportunities. Yet some politicians are trying to force open any door to remain in the EU, and are talking down or belittling our country’s outward and forward-thinking strategy. I am not one of them. It is in the interests of neither our economy nor our country at this crucial time in our history to do this. Independent countries can and do successfully trade with the EU single market without being a member of it.
If we are to compete on the global stage and remain a world leader among the developed economies, the Government must ensure that there is long-term investment in infrastructure, skills, science and innovation, as these are the key drivers of increased productivity and economic growth. I welcome the fact that a long-term industrial strategy is being developed, as this should help us identify how best to build our strengths, overcome our weaknesses and take full advantage of the opportunities that lie ahead.
During my recent visits to the Middle East, India, Azerbaijan, Pakistan and Turkey, I saw and heard at first hand how well respected the UK is in so many sectors. Some of these countries want to establish trade agreements with the UK as soon as possible. We are recognised as having a world-renowned higher education system and a world-class health service. We are one of the world’s leading scientific nations, and our life science sector contributes around £60 billion to the economy each year. We are considered world experts in financial services, agriculture and digital technology. We have much to be proud of and we offer fantastic opportunities for trade and investment.
However, to retain our global competiveness we must remain a magnet for the best of international talent. I urge the Government to rethink and consider taking international students out of the migration targets because they could be our future ambassadors for trade across the world. We are travelling in a brave new world. We need to make our economy more agile in order to respond more quickly to new opportunities such as solar power, robotics or biotechnology and react more successfully to competitive threats such as the dumping of cheap steel.
Yes, there are significant and complex challenges ahead but we can be a great global trading nation. We have all the hallmarks of one.
Lord Sterling of Plaistow (Con)
First, I thank noble Lords for allowing me to speak rather belatedly. I thank my noble friend Lord Leigh for outlining the global situation. It may not be everybody’s cup of tea but those are the facts. It goes without saying that my noble friend Lord Gadhia spoke not just emotionally but with huge experience and knowledge. I very much appreciated sitting behind him and listening to his speech.
I spent my working life in delivering international trade—driving international trade and tourism. The latter has not been talked about today. My company has operated for nearly 200 years in 110 countries. Everybody keeps talking about Brexit—a word I dislike intensely. I suggested recently to the Prime Minister that we should think of something different, because it is a toxic word. However, in practice, economic power and strength have been dominant in every country in the world that has ever made its name. That is what it is all about. If we do not retain and create further economic strength, everything means nothing. One cannot have hard power without economic strength.
People talk about protectionism. Does one honestly believe that the Germans, with their memory of the Weimar Republic, or America, given what happened in the 1920s and 1930s, want to go back to that form of protectionism? Never—because there is too much knowledge and experience around.
Big companies know their way around. In practice, we must remember that the SMEs and self-employed in this country comprise 58% of our workforce. They are the middle class and the real driving force. As time goes on, they will be key. It may not be widely realised, but those who get involved in exports usually achieve at least a 7% improvement in productivity. The day has to come, therefore, when the SMEs need and must have encouragement; this is one of the problems with the current uncertainty. Encouragement is key because we are dealing with people, not just institutions. When they get encouragement, there will be a moment, as happened in the 1980s, when they start to invest, including in R&D. That is when the country will start to move forward. We could do that in spades.
I ask the Minister to consider the following. One of the problems for SMEs is that the banking system does not help them—not deliberately, but it has not been created in a format that can help. Anyone who has worked with SMEs recently will know that the cost of money is horrendous for them, as against rates that are nearly zero for everybody else. I ask my noble friend to inquire about this, and for the Chancellor to consider, in advance of his Statement later this month, putting it right.
One can see that we are in a very strong position to take advantage of our leading technology in all areas. There is much talk of deals. Those of us in business are negotiating every day of the week. As Peter Lilley, who has been involved in major negotiations and trade talks, said only yesterday in the other place, one does not remember trade deals as history progresses. They are made out to be much more important than they really are. We are constantly talking about deals here and negotiations there, and what they will do to us. It does not matter.
I conclude by asking why entrepreneurs—there are many in this House; and I have been one all my life—here and elsewhere, who put their own money at stake, are not worried about the future. As far as they are concerned, there is a great future and in 10 years’ time we will look back and realise that we made the right decision.
Baroness Kramer (LD)
My Lords, I join in welcoming the noble Lord, Lord Gadhia. I also echo what has been said around this Chamber that the welcome to immigrants is something that we need to keep living today and not just think of as a quaint achievement of the past. I am conscious that this debate is time-limited and we are well over the anticipated time for the beginning of the winding-up speeches, so I shall reconstruct what I had hoped to say—partly because so many people have said almost everything of importance—into a series of questions to the Government. I hope that the Government will feel that they have time to reply.
I come, as we know, from very much a free-trading party; that is one of the reasons why we backed Mrs Thatcher in developing the single market. That took the concept of removal of barriers even further, and I shall be astonishingly sad to lose it. Perhaps the Government can tell us what priority they give to non-tariff barriers. We hear constantly about tariffs but almost no comment on non-tariff barriers, until we talk with companies and discover that they are very often a larger part of the problem than the tariffs themselves.
Does the Minister agree with the noble Lord, Lord Bamford, who basically took the view that tariffs are simply something that we have to live with? Is that what our companies now need to expect? They are making decisions about their future and, if WTO tariffs are the future they are looking at, they need to know now so that they can make their adjustments. They may not all have the noble Lord’s view towards living with tariffs on that kind of scale.
There has been a lot of talk about free trade. As I say, I am inherently a free trader and so is my party, but what is the Government’s view on the general momentum across the globe on free trade? Many would say that the momentum has turned against free trade. The pace of increase has slowed and now we hear a strong language of protectionism. The United States, probably the most protectionist country on the globe, now speaks a protectionist language. The trade deal with the Pacific looks likely to die on the vine and it looks like there will be very little progress on TTIP, and NAFTA is at risk. We hear Hillary Clinton—it is not just the Republicans but the Democrats—criticise free trade extensively.
Part of the issue is that free trade and globalisation are linked together in both the mind and experience of many people, and it is the rising of the people who feel they have been hurt by globalisation that is creating a very fundamental problem. If we are relying on a free trade mood and say that we will lead free trade and it is the only and essential route to saving our economy post Brexit, we need to know the Government’s assessment of where the free trade movement is in countries today. I fear—some have said this, and I want to know whether the Government agree—that those most likely to enter trade agreements with us are relatively small countries such as New Zealand, Australia and Canada.
Also on that subject, I talk now with companies based in small Commonwealth countries—the Bahamas is one example. They are absolutely in a state of shock because their access to the EU market is, as I understand, through the agreements that we signed up to when we joined the European Union. They need to know that, if those agreements fall away and their access to that market disappears when we leave, whether that is being encompassed in the work that we are doing. As well as talking about them as free trade partners for us, it seems to me that we have to answer the question of where they will stand in their trading relationship with the European Union.
Does the Minister agree with Priti Patel that we should take the aid budget and use it largely to promote UK exports, or does she accept that, according to the 2002 Act, we are committed to using that DfID budget to support the poorest and the most vulnerable, not to promote ourselves? Those who want to go back and read the discussions around the creation of the 2002 Act will discover that that was a much-discussed issue. At that time, there was a real recognition of the importance of an approach to international aid that supported the poor but was not looking to create a benefit for us as an important part of its process.
I talked about the issues around tariff and non-tariff barriers. We are being told constantly that there can be no running commentary from the Government. I understand that, but the Government have been quite vocal in saying that they have agreed a deal with Nissan in order to immunise it completely from any negative effects of Brexit. Can we be told what the costs of that will be to the British taxpayer? It seems to me that, since that has been spoken of openly, it is not an issue that needs to be withheld in any kind of free trade discussions.
Will the Minister say what the Government will do with small businesses? I was on the Select Committee on small businesses and exports that was inspired by the noble Lord, Lord Popat. It was absolutely clear when we talked to small businesses that, first, exporting is difficult and, secondly, exporting to China is extremely difficult—the phrase often used is “one sale only” because of the risk of loss of intellectual property. Exporting to South America and Latin America was extremely difficult because obtaining letters of credit to ensure that payment was received was near impossible for any small company and non-payment was a very primary problem. Exporting to the US was exceedingly difficult because of its protectionist rules—most small businesses have to link up with and find a joint-venture partner in the United States, which then takes most of the upside of the revenues and profits that are generated. Perhaps the Minister can tell us much more.
Does the Minister accept that the structure of businesses in the UK is very different from that in many other countries? We have a few large major international exporters. I forget which noble Lord made the point that many of those do not necessarily export because they have an overseas base from which to sell into various markets. Many of our small businesses export and we want more of them to do so. That is a very different profile from somewhere like Germany, where most of the exporters are at the large end of medium-sized enterprises, or are large companies, that can overcome the various obstacles that have been described.
Lastly, will the Minister talk about the hiatus period that potentially will follow actual Brexit? Where do we stand with the WTO? It has been said that we retain our membership, but I understand that the effectiveness of that membership—the ability to make use of it—depends on our schedules being approved by 163 countries. That is a matter of fact, not opinion, and I hope that the Minister will clarify it.
Others have said that, if we do not have a deal, we can continue trading with the European Union just as we do today. I understand that, under European law, it would be a criminal offence for a company within the European Union to trade with a company in the UK on current terms unless an actual trade deal was in place. That again is a matter of fact, not opinion, and I wonder whether the Minister will clarify that, as well as tell us as much as she can beyond simply the words, “Brexit is Brexit”.
Lord Mendelsohn (Lab)
My Lords, I thank the noble Lord, Lord Leigh, and congratulate him on securing this debate, which has been very interesting. As ever, the noble Lord demonstrated his great commitment to this House with a very interesting exposition of his views. One illustration of the way in which the debate has changed matters is that, during the course of this debate, Belgium has backed the trade deal with Canada. Many things change quite slowly in life, but it seems that in the world of international trade things that might have taken years change very quickly. Perhaps it is the power of the conversation in this House.
I also congratulate the noble Lord, Lord Gadhia, on his maiden speech, which was a truly excellent speech. I was most impressed as he read out his list of mentors and sponsors. It started to appear that it was a new board of directors of a company. One could be mistaken for taking such a view, given his distinguished career—he is now with the great behemoth, the Blackstone Group. We look forward to his contributions in this House and wish him much enjoyment and strength here.
It is also a pleasure to have the noble Baroness, Lady Mobarik, here for the first time, I believe, in her role in the department—
Baroness Mobarik (Con)
It is my second time here, but the first time in a debate.
Lord Mendelsohn
This is her first time speaking in a debate. The noble Baroness is very well-known. She performed hugely effectively as the president of the Scottish CBI and is well-known as a champion of SMEs and family businesses. We wish her well in responding to the debate.
It has been a very useful and broad debate. We have had a number of very interesting contributions—started by the noble Lord, Lord Leigh, but there were others such as the noble Baroness, Lady Finn—that showed great enthusiasm for our prospects. Those were sensibly tempered by the wise words of my noble friends Lord Haskel, Lord Davies and Lord Hunt, who have raised a number of the issues that we have to demonstrate. The noble Lord, Lord Livingston, also made a very important point about how difficult it is to export and how difficult some of these issues really are.
The noble Lord, Lord Horam, made a very good point about the fact that there can be losers in free trade, which is important for us to recognise. I also want to associate myself with a number of questions that the noble Baroness, Lady Kramer, made in an outstanding summary speech. They are questions on which we are looking for the Government to give as much guidance as they can in the weeks ahead.
There is a new department in town. We on these Benches welcome the elevation of international trade to departmental level. It reaffirms our commitment to ensuring that Britain is seen as a great place to do business and that British products and services continue to be considered of world standard; this must be not just a means to usher in a new deregulatory agenda that is not so much about free trade as about rolling back standards on rights and protections. The department really needs to make sure that it adds power to trade promotion and works properly for the interests of SMEs as well as big business.
So the question at this stage is: what has the department been busy doing? Well, a tweet from the Department for International Trade requesting British jams has caused a major stir on social media. The department tweeted:
“France needs high quality, innovative British jams & marmalades #EXportingisGREAT #ExportOpps”.
It is linked to an advert saying:
“A fine food representative/agent, with good connections to gourmet distribution and fine food retailers on a national level, is looking for British food & drink brands which offer innovative and high quality jams/marmalades”.
It seems, however, that a few people did not take the appeal entirely seriously, with some suggesting it was straight out of “The Thick of It”, and others questioning whether the account was supposed to be a parody. I will read out some of the tweets and responses. One said:
“Tell me more about these innovative jams. Are they wi-fi enabled? Future-proof? Self-spreading? What's the future of jam?”.
Another said:
“You do realise you’re a government department, don’t you? This is international trade, not an episode of Bake Off”.
I have some sympathy for the Government, whose overriding strategy has been defined by the result of a referendum that they neither wanted nor planned for—a referendum that was a rejection of the real and an affirmation of an aspiration. The Government will be respected for their desire to be honest on the size of the challenge and the breadth of the changes needed. They will set themselves up for failure if they do not.
Some will say that Brexit helps us focus on the world beyond Europe, as if this was a sudden or new revelation. The European Commission’s trade and investment strategy, written in 2015—in which we played a significant role—is explicit in saying that 90% of future global growth will take place outside Europe’s borders and a variety of tools will be needed to ensure that Europe continues to thrive. Indeed, it is not just about commerce but also the values that we ascribe to commercial activity: human rights, sustainable development, anti-corruption, high-quality regulation and effective investment in public services. While we may not have even triggered the first steps in leaving, let alone defined our trade relationship, it does seem obvious that Europe is likely to be our most important ally in what even its most ardent detractors describe as the UK returning to leadership in free trade, competition and property rights.
We are where we are, and I hope that the Government will not mind some constructive thoughts and reasonable questions. There is only one thing more painful than learning from experience, and that is not learning from experience.
First, we have to address some of the weaknesses in our trade performance. Published data show that the UK ranks almost at the bottom of OECD countries when it comes to export growth since 2010. In dollar value, in 2015—pre-Brexit—we were the fourth biggest exporter. I think that we are two places lower now, but irrespective of that we need to do more than just recover our position; we need to excel.
Our export growth depends on a variety of factors. One of the most significant is whether the markets we are looking to export to need the goods and services that we are offering. The markets in developing and fast-developing nations have a demand for raw materials and capital goods, which are not our strongest point. They will be harder to create significant trade with, and we must focus very carefully on where we prioritise.
But it is not just about the UK’s performance. Since the late 1990s, the UK and the G7 have been in decline, as competition from emerging markets has increased. Our performance, however, has not been as good as countries such as Sweden, the Netherlands and Austria, and a very few, such as Germany, have increased their share. We have to raise the number of exporters and exporting businesses. I think that the Government had a target of moving from 188,000 in 2010 to 288,000 by 2020. But actually we need to reach around half a million to have any possibility of increasing our capacity.
I would like to know whether the Government have a new strategy for developing trade, and whether the Minister can give us some idea of it. In particular, we need a real sense of what we are going to do about our performance on goods. The UK is, I think, the 10th largest, by dollar value, exporter of goods. Naturally, China, America, Germany, Japan and France are there; we are, I believe, behind Italy, the Netherlands, Hong Kong and South Korea.
The size of the manufacturing sector has declined, but we have a couple of lagging problems. For example, UK manufacturers import 60% of the final value of their production from overseas, which makes it very difficult for us to get the full value of the drop in sterling. In the US, 30% of the final value is from imports. In addition, UK manufacturers have contracted out their offshore manufacturing rather than buying or building factories. Between 2010 and 2014, German companies invested in 165 manufacturing and 54 logistics projects a year compared to the UK’s 29 and 10 respectively. For an effective trade strategy, we will need to support overseas investment and have more effective targeting of FDI. FDI has changed: net outflows exceed net inflows, and therefore too much of just asset purchasing is insufficient to help us.
We need to plan for how we can continue our world-class performance in services. We are the number-two global exporter, with China, Germany and Malaysia hot on our tail. To remain world-class, we will need to overcome some of the issues around the fact that a lot of our services are dependent on our expertise in Europe, and the problems of finding new markets. It is important that the Government devise a strategy for that.
The country has chosen a new and difficult challenge for us, which will require all our skill—and our agreement that our past differences should be set aside for the sake of our future. We cannot take our future success for granted. I am in business and I have learned that opportunity is usually disguised as hard work, so most people do not recognise it, and I am a strong believer that hard work beats talent when talent does not work hard. We have to be prepared to work hard, to make this situation work and at times to get it wrong—mistakes are proof that you are trying. But I caution the Government that, without direction, their mistake could be that they do not show that they are serious about trying.
Baroness Mobarik
My Lords, I am pleased to wind up for the Government in this debate. It is the first time I have done so for this department, as the noble Lord, Lord Mendelsohn, mentioned, and I thank him for his kind words of welcome.
First, I would like to say just how enjoyable I have found this debate. I thank my noble friend Lord Leigh for initiating it. The views that I have heard and the number of speakers at this debate have certainly emphasised the importance that noble Lords place on trade. I also congratulate my noble friend Lord Gadhia on making his inspiring and most moving maiden speech here today, and look forward to hearing more of his contributions. He was right to emphasise the benefits of free trade, as have many others during this debate.
Leaving the EU offers us an opportunity to forge a new role for ourselves in the world: to negotiate our own free trade agreements and to be a positive and powerful force for free trade. I thank noble Lords for their input in this debate, and will now address the points that have been raised.
As the Prime Minister has said, the UK will strike a unique agreement that gets the best deal for people at home and the right deal for Britain abroad. It is possible to be in a customs union and still strike trade deals. We will consider all options available to us. As we develop that position we will consider all the options, bearing in mind the issues that we have discussed here today: the need to regain more control of the numbers of people who come here from Europe, while allowing British companies to trade with the single market in goods and services. We recognise the need for a smooth transition which minimises disruption to our trading relationships, including those with developing countries. The Government have been engaging widely since the referendum and my noble friend Lord Price has met with more than 20 Trade Ministers, both inside and outside the EU. Everyone is keen to ensure a smooth transition for the UK.
Although we will work to avoid short-term disruption, there is one important change that we must make in the longer term: we need to change the terms of the debate around trade. As we leave the EU, we have an opportunity to be a global champion for free trade. We will develop our trading links and create opportunities for UK businesses across the world, including in developing nations. Trade with the UK will be a force for good. We will work with our missions overseas to promote the UK as a trading partner and a place to do business. We will drive inward investment and we will support our businesses and exporters. In time, we will also negotiate free trade agreements that will lower barriers to trade and create vital opportunities for UK businesses.
The UK is a full and founding member of the WTO. We are currently represented by the EU at the WTO—as my noble friend Lord Leigh notes, we are already a member. As my noble friend Lord Patten has said, the WTO director-general, Roberto Azevedo, said only yesterday:
“The UK is a member of the WTO today, it will continue to be a member tomorrow. There will be no discontinuity in membership”.
When we establish the UK’s position at the WTO as a post-EU member we will need to separate out our schedules of commitments, which are currently integrated into the schedule for the EU as a whole. We will do this in a way that causes the least disruption possible to our trading partners. In response to the noble Lord, Lord Haskel, while the simplest option would be to replicate the EU’s existing tariffs, we cannot set out our approach at this stage.
To deliver all this, the Government have been building our capability rapidly. The trade policy team has more than doubled in size since the referendum. We are looking at models from around the world to inform our resourcing requirements and the most effective way for us to pursue trade negotiations. The overseas visits that DfIT Ministers have been carrying out over recent months have given us great insight into the way that other countries structure their trade departments. We are ensuring that we have the expertise to deal with specific sectors, as well as the right in-country knowledge, to prepare us fully for the time when we will need trade negotiators. Over time, we will be putting trade negotiators in place. My noble friend Lord Patten raised the need for external help in our negotiations; we have already had more than 800 expressions of interest from external parties, which we will consider carefully. My noble friend Lord Popat mentioned appointing those with a business background to overseas posts and I thank him for raising this important point—the business ambassador network of key business and academic leaders acts as a powerful advocate of the UK abroad.
It is important to remember that UK companies are still exporting and doing deals abroad. The Department for International Trade is continuing to support them with advice, marketing support, trade missions, expertise on foreign markets, and more. Britain will continue to press for an ambitious EU trade agenda, including forging ambitious free trade agreements with major trading partners. We will continue to participate fully in these discussions for as long as we are members of the EU. In response to the noble Lord, Lord Davies, on his point that the UK is walking away from existing EU deals, the Department for International Trade is looking at a range of options for the transitional adoption of EU deals. The UK remains committed to pursuing free trade and continued access to existing EU free trade agreements. So this may be an option we wish to pursue—it would be assessed on a case-by-case basis.
However, as we leave the EU, we will also forge our own new trade deals. The UK is keen to seize the opportunities that leaving the EU presents, as are many of our international partners who recognise the attractiveness of doing business with the UK. We will have discussions with countries on the potential for future free trade agreements. There are limits in terms of concluding deals while we remain a member of the EU, however, and we recognise those constraints. The Government will be holding discussions and making progress in the period before we leave the EU. The noble Lord, Lord Razzall, asked how long it would take to negotiate trade deals with different countries. Trade agreements vary in shape, scope and form and, therefore, there is no average timeframe for a deal. For example, the Trans-Pacific Partnership Agreement—TPP—took eight years, but the US-Jordan FTA negotiations took only four months. The process is complex and it would be wrong to set out timelines before entering into negotiations. We want to get the best deal for Britain. We have already received positive signals from a number of other countries and the Government have already announced the establishment of a bilateral trade working group with Australia and a bilateral trade policy dialogue with New Zealand. In addition to this activity, the leaders of countries including Mexico, South Korea and Singapore have said that they would welcome talks on removing the barriers to trade between our countries.
As many noble Lords have recognised, one of the advantages of leaving the EU is the greater flexibility it offers us to trade more freely with the rest of the world. My noble friend Lord Flight spoke of the importance of increasing trade with the Commonwealth, an issue on which I too have spoken before. Shared systems and language mean that the cost of trade between Commonwealth countries is already estimated to be 19% lower than that with non-Commonwealth countries. There are enormous opportunities for increasing trade with the Commonwealth, which is a priority for the UK. We are committed to helping the Commonwealth unlock its vast potential in this area.
We also want to promote free trade by making sure that our regulatory environment helps businesses and workers. We are committed to reducing regulatory barriers to trade and will continue to give our strong support for further WTO action to reduce and eradicate non-tariff barriers. With a reduction in tariffs in many advanced economies, tackling non-tariff barriers is increasingly important. We will work with trade partners to minimise the regulatory burden placed on exporters, where appropriate, by developing mutual recognition agreements and economic partnership agreements. We will also work within the WTO to build on its successful work in taking an axe to red tape across borders, phasing out distortive export subsidies, and scrapping tariffs. My noble friend Lord Caithness mentioned investor state dispute settlement; the UK has a great record of creating the right environment for investors and treating them fairly. We have more than 90 such agreements in place with other countries and there has never been a successful investor state dispute settlement claim brought against the UK, nor has the threat of claims affected the Government’s legislative programme. But many UK investors overseas who have suffered discrimination, expropriation and lack of due legal process have relied on investor state dispute settlements.
Noble Lords will be aware that the Government are developing an industrial strategy that will put the United Kingdom in a strong position for the long-term future. This strategy will focus on improving productivity and rewarding hard-working people with higher wages. It will focus on creating more opportunities for young people and will ensure the benefits of growth are shared across cities and regions up and down the country. As my noble friends Lord Tugendhat and Lord Lupton highlighted, the industrial strategy must ensure that the economy delivers for all and not just the privileged few. The strategy will support and encourage companies to trade internationally, and create a business environment that will attract overseas investors to locate here for the long term. On top of all this, the strategy will identify and maximise the opportunities that we have from exiting the European Union, which we have discussed in such depth today.
The noble Lord, Lord Shipley, asked how we promote exports locally and whether the Department for International Trade is reducing funding to regions. The department supports all areas of the country. Support to the north and the Midlands has been up-weighted because overall economic indicators of prosperity are lower for those areas than for London and the south. Department for International Trade support continues to be available from international trade advisers in all English regions. This support is more sharply focused than ever on new exporters.
In response to the point made by the noble Lord, Lord Sterling, may I say that increasing opportunities is hugely important for SMEs. Small businesses account for more than 99% of private businesses in the UK, employ more than 15 million people, and generate nearly half of all private sector turnover. They play a vital role in the economy and in global trade. The Government will continue to support them, from working to reduce tariffs that hinder exports, to making sure that 95% of UK premises will have superfast broadband by 2017.
Another important question we must continue to consider as we leave the EU is how we can support developing countries. Countries to which we are providing aid today will be the markets that we can trade with tomorrow. The UK remains committed to ensuring that developing countries can reduce poverty through trading opportunities. Trade is an effective way of driving economic growth, and of helping to raise incomes and create jobs.
In answer to the question asked by my noble friend Lord Farmer about the role of DfID in terms of free trade with poorer countries, I can say that the UK’s aid programmes are tackling the domestic constraints in developing countries, reducing the costs of trade, integrating firms in poor countries into global value chains and improving the investment climate. DfID is committed to ensuring value for money and maximising the impact of UK aid on poorer people’s lives.
I thank noble Lords for their contributions over the course of this debate. Many valid points have been raised—for example, on international students’ ability to come to the UK; I think it was the noble Baroness, Lady Smith, who raised that point. I shall take those comments back to raise with the relevant departments and get back to her.
Noble Lords’ expertise will be invaluable to the Government on this most important of issues. I am sure that there will be many further opportunities to debate the subject of leaving the EU, and the trade opportunities which that brings to the UK. And I am sure that the House will continue to play an invaluable role in informing the Government on these issues.
Lord Leigh of Hurley
My Lords, I thank the Minister for her comments, and for allowing this debate to take place. As she said, over the past three hours we have had a variety of contributions from people with an extraordinary amount of knowledge. We also welcomed a maiden speech from the noble Lord, Lord Gadhia—who I would advise not to get used to the outpouring of affection and love, or expect it every time he speaks. None the less, it was well deserved.
It is difficult to draw any conclusions of unanimity, although I will try to keep to the description of me by the noble Lord, Lord Mendelsohn, as “enthusiastic”. The first theme to come through was that we are all keen to see more free trade, and we need to find ways to ensure that it happens. Secondly, we are all aware of the huge uncertainty, which we all counsel the Government can be damaging to business. However, many businesses quite relish uncertainty and, as the noble Lord, Lord Farmer, said, they are used to it.
One worrying phrase I heard was that “politics trumps economics”. I do not know whether that is necessarily true; I hope it is not. It was reassuring to hear that in the privacy of certain conversations some politicians recognise that free trade is vital to this country, so perhaps I am not entirely living in the land of wishful thinking.
The current situation is not perfect, despite the fact that many people said that we might be losing something wonderful. As my noble friend Lord Bamford pointed out, there are imperfections. The Motion before us in this take-note debate mentions “opportunities”. One can only hope that we end up with a trading arrangement that allows all citizens of this country to benefit—and, more importantly, allows people from other parts of the world who are currently prohibited, or inhibited, from trading with us on effective terms, to do so.