Trade Bill

(Limited Text - Ministerial Extracts only)

Committee stage & Committee: 3rd sitting (Hansard) & Committee: 3rd sitting (Hansard): House of Lords
Tuesday 6th October 2020 Grand Committee

[The Minister of State, Department for Business, Energy and Industrial Strategy and Department for International Trade (Lord Grimstone of Boscobel) (Con)]

My Lords, it has certainly been an erudite and extraordinarily interesting debate, and I congratulate all noble Lords who have taken part in it. I certainly understand the point made by the noble Baroness, Lady Chakrabarti, that it is right and proper that noble Lords should be allowed a free rein in debating these matters, and I entirely recognise the legal competence that we have in this House, which has been displayed to such great effect in the Grand Committee today.

Your Lordships might expect me to start off, as I always do, by saying that this Trade Bill does not deal with the implementation of FTAs with new partners, such as the USA or Australia. Instead, as noble Lords are no doubt tired of hearing me say, the Trade Bill provides powers to implement those trade agreements to which the EU and third countries were already signatories before we left the EU. I will come back later to the points that noble Lords have raised about the status of ISDS in those agreements.

Having said that, of course I understand completely the concerns that have been raised about ISDS, but I believe that these may be overstated. Perhaps I may be allowed a couple of minutes to try to elaborate this argument. We have heard that the UK has never faced an ISDS claim before an arbitral tribunal; nor has the threat of an ISDS claim affected our legislation. We are clear that the UK and treaty partners retain the right to regulate in the public interest, and this is already recognised under international law.

Before going into the detail of the amendments, which, understandably perhaps, focus on foreign investors in the UK, it is important that we remember that there are two sides to ISDS. It would not be right to let go unremarked the great benefit that UK investors overseas obtain from ISDS. Arguably, the benefit that our investors overseas obtain from ISDS is, for reasons that I will come to later, significantly greater than the benefits that overseas investors obtain in the UK.

We should not forget that ISDS disputes generally arise when private assets are expropriated by the state without paying compensation or where foreign investors are discriminated against compared to domestic investors. These two factors are the essence of the ISDS mechanism. I would suggest that these are perfectly laudable matters to want to protect for investors—either our investors overseas or foreign investors here. I ask that we remember these two points as we debate these amendments.

On Amendment 17, in the names of the noble Lords, Lord Hendy and Lord Hain, and the noble Baronesses, Lady Blower and Lady Chakrabarti, the proposed new clause would result in the UK being unable to implement a continuity agreement that contains ISDS unless the matter in respect of which an ISDS claim was brought had its exact parallel in UK domestic law for UK investors.

Of course, foreign investors in the UK already have access to legal redress against the UK Government through domestic remedies. These will often be quicker and more cost-effective than resorting to ISDS, and the UK’s courts and legal system are held in high regard internationally, so it is not surprising that people often choose to go to our courts in the UK. However, it is important for foreign investors to have a means of redress which is seen to be completely independent of the UK state, and, as I said previously, ISDS remains valuable for UK businesses when investing overseas. It is very much seen as a mechanism of last resort but may in some cases be the only form of legal redress available to investors.

Like other noble Lords, I admired the erudition of the speech made by the noble Lord, Lord Hendy, to which I listened closely. He set out a long list of cases and argued cogently that ISDS may have a chilling effect on a state’s ability to regulate in the public interest. My noble friend Lord Caithness also made that point. However, while some cases that were cited are examples of ISDS impinging on the rights of the state, investor protection agreements do not eradicate the Government’s ability to regulate in the public interest, and it is this right to regulate that is recognised in international law.

The UK has more than 90 bilateral investment treaties in place with other countries, and there has never been a successful ISDS claim brought against the UK, nor, importantly, has the threat of potential claims ever affected the Government’s legislative programme. Let me be clear to put people’s minds at rest: ISDS tribunals cannot overrule the sovereignty of Parliament; they cannot overturn or force any changes in law.

Further, it is likely that the UK’s treaty partners would insist on reciprocal provisions—if I may come back to the amendment—for the implementation of trade agreements. This would result in UK investors overseas being unable to bring an ISDS claim unless there are also equivalent forms of domestic legal redress in those states, which in many cases, or some cases, there will not be.

One of the key benefits of investment treaties is to agree the precise details for an effective and common form of legal redress. Requiring this to reflect different domestic laws could disadvantage UK investors overseas by introducing uncertainty in a well-understood mechanism and denying them the same means of legal redress available to other international investors. I will come later, if I may, to the point that these mechanisms evolve and improve over time.

The noble Baroness, Lady Blower, raised the potential impact of ISDS on the NHS, and I would like to deal with that quite straightforwardly. ISDS does not and cannot force the privatisation of public services. Under current UK agreements, claims can be made only in respect of established investments—that is when a company is already operating in the United Kingdom—and claims cannot be made in relation to an alleged failure to open up public services to a potential investor. ISDS claims can only lead to compensation where the tribunal finds that treaty commitments or obligations have been breached, and they do not lead to a change in the law.

To be absolutely clear, ISDS will not oblige the Government to open the NHS to further competition, and overseas companies will not be able to take legal action to force us to do so. The NHS will continue to be free at the point of use for everyone who needs it. Protecting public services, including the NHS, remains of the utmost importance to the United Kingdom.

Similarly, Amendment 43, in the names of the noble Lord, Lord Purvis of Tweed, and the noble Baroness, Lady Kramer, would require that the UK sign a trade agreement only if it commits all parties to pursue the establishment of a multilateral investment tribunal system and an appellate mechanism for the settlement of investor-state disputes. This would apply to both continuity agreements and future trade agreements, even though the latter are outside the scope of this Bill.

Not all trade agreements include investment protection and investment dispute settlement. It is therefore not appropriate to require all trade agreements to include a commitment to pursue a multilateral investment tribunal system. To include such a requirement on the UK and our treaty partners for ratification in such a manner would hinder the progress of UK trade policy. It would also require reopening agreements to make these significant changes.

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[Lord Purvis of Tweed (LD)]

My Lords, I thank the Minister for his comprehensive response to the debate on this group of amendments. I am grateful for that; it shows the seriousness of this issue. I and other noble Lords will reflect on his remarks.

I have two questions. The first relates to the amendment in the name of the noble Lord, Lord Lansley, which I support. As I understood it, if we were to bring retaliatory measures or sanctions, they would have to have been authorised by the dispute settlement body at the WTO, so by the time they came to Parliament, either under the negative procedure or the affirmative procedure, they would be public anyway. Therefore, Parliament’s ability to use the affirmative procedure would be based on what was already in the public domain.

Secondly, I am still not sure why the Government have not indicated that they will continue with their support for moving towards an investment court system in our continuity agreements with Singapore, Vietnam and Mexico, which are yet be signed, given that the European Union has stated categorically that moving towards such a system is the approach for those countries and is now, to quote the Commission in October 2019, “on the table” in all ongoing investment negotiations. I simply do not understand why the Government, who supported moving to a multilateral system, now say that they are fully engaged and cannot say what their position is yet. Why can the Government not simply say that they support this in principle and are working with others to bring it about?

[Lord Grimstone of Boscobel (Con)]

The noble Lord raises two good points. On the first point, I will, if I may, write to him setting out in more detail the disadvantages and advantages that I see of the negative as opposed to the affirmative process. On the court, I make it clear that we welcome changes in the ISDS mechanism and potentially the formation of an MIC if, once the details are worked out, it seems that nations will sign up to it and it will be workable and in the best interests of the UK. We do not have our head in the sand in these matters. Like the noble Lord, I recognise that, if improvements can be made to the ISDS process, it is incumbent on us to do that. The point that I was trying to get across was that these are still early days in the discussions at the UN on this and it did not seem right to put our weight firmly behind it until we see how the discussions move forward. But I assure the noble Lord that we are open-minded about this and we will see where it gets to.

[Lord Hendy (Lab)]

My Lords, I am very grateful to the Minister for his response and to my noble friends Lord Hain, Lady Blower and Lady Chakrabarti for supporting Amendment 17. I am also grateful to all noble Lords who made such elegant and persuasive contributions to this debate, which has been wide-ranging and has covered a lot of issues.

I will not presume on the time of the Committee by commenting on particular contributions, save for two. The noble Lord, Lord Lansley, mentioned the fact that the central issue in the Philip Morris case was litigated in the World Trade Organization dispute mechanism, where the case was lost. His knowledge of the WTO is certainly greater than mine, but my understanding is that the rules, and hence the basis of the claim in the WTO, were different from the basis of the claim under the ISDS, not least because the claim in the WTO—as I understand it; I could be wrong—was brought by nation states rather than investing corporations.

The Minister made many points in his summary that I would like to take up, but I must resist. I will make just three points. First, he said that there were great benefits to UK investors overseas. Of course I accept that that is the case, but there appear to me to be four points to bear in mind.

First, this country should not support a mechanism that provides an avenue of challenge to other democratic states, just as it should not support a mechanism that enables a challenge to our democratic state. A remedy under ISDS is not available to citizens of either state except for investing corporations, but many citizens are affected by the matters covered by these trade agreements—food standards, environmental standards and labour standards.

Secondly, the Minister overlooked the globalised economy that we now have. UK corporations can establish almost anywhere in the world, just as foreign corporations can. So UK corporations can take advantage of ISDS arrangements by establishing a subsidiary to bring a case against the United Kingdom. There are dangers there, too.

Thirdly, when overseas investors make their investments, they of course evaluate the risk that things could go wrong or that the state might change the law. That is a matter for them. I do not see why we should put at risk our democratic standards by inviting a mechanism to protect overseas commercial investors.

Fourthly, this country has an admired legal system, as do many other countries. It is wrong in principle to provide a mechanism of legal challenge that is outside the domestic laws of any country.

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[Lord Purvis of Tweed (LD)]

My Lords, it is a pleasure to follow the noble Viscount. I agree with one point he made in his speech: it is for Parliament to seek guarantees on our standards. In essence, that is what we are seeking to do: to have a statutory underpinning to ensure that our trading relationships and trade agreements do not undermine them through various different mechanisms which can be beyond amending primary legislation.

It is certainly not uncommon for there to be duties in law on Ministers that frame how they carry out their duties. Most legislation that comes before Parliament has such duties. We are seeking the equivalent for the new approach we have for Ministers and the Department of International Trade when carrying out their trade negotiating duties. There should not be any great surprise about that. This legislation has restrictions in Clause 8 on the new powers for HMRC. There are duties in Schedule 1 about how Ministers carry out their duties on consultation. There is no great surprise that this legislation has restrictions and duties. We are simply arguing that, when it comes to the elements within our amendment, we are expanding the scope of those restrictions and those duties. The noble Baroness, Lady Noakes, might consider that to be appeasement, which I will refer to a little further on, but I disagree with her.

I wish to move government Amendment 23. I want to use those words because I doubt I will ever be able to move a government amendment, but a government amendment was moved on the previous Bill and, without wishing to be facetious, I shall go a little further and quote:

“My Lords, I am bringing forward amendments designed to maintain UK levels of statutory protection when implementing continuity trade agreements … The fact that I am able to do so is testament to the cross-party working that makes this House so valuable, and I have no doubt that this process has enhanced the legislation.”


That was the Minister, the noble Baroness, Lady Fairhead. Later, she said it was

“an improvement to the Bill”.—[Official Report, 20/3/19; cols. 1439-40.]

That is testament to cross-party working. It is not déjà vu or Groundhog Day, and I say to the noble Baroness, Lady McIntosh, that it is not a race or sprint in which we got there first because she is a dogged campaigner on these areas. I think this is more of a relay race between legislation and different individuals. I hope the Minister feels from knowing and seeing the Agriculture Bill and this Bill that it is the settled will of a cross-party consensus that the Trade Bill should be strengthened by the reinsertion of what the Government themselves had considered a strengthening of it.

I want to refer back to the Agriculture Bill, as other noble Lords have indicated. When the noble Lord, Lord Gardiner of Kimble, summed up, he referred to me and the noble Lord, Lord Rooker. In rejecting what we had argued for at that time—although the House did not agree with the Government and passed the amendment—he said that

“none of the 20 continuity trade agreements signed to date would undermine domestic standards.”

He then set us a challenge, saying:

“I look forward to those noble Lords who are determined that this is not the case at least having the courtesy to say, ‘Actually, our fears have been allayed’. I set that as a challenge.”—[Official Report, 22/9/20; col. 1755.]


In around five years’ time, if I am still here, I will say to whoever the Minister is that allays have been feared. The powers under this legislation are for five years and the Government have indicated that some of these continuity agreements are likely to change. Countries that we have signed continuity agreements with will have changed their agreements with the European Union over that period because many of them are discussing changes. The UK will have to choose how it changes its agreements. We are saying that any changes being brought forward must comply with our statutory standards.

The Government have indicated that that is not really necessary because they have pretty much got all the agreements done anyway, so it is purely an academic exercise. We have signed 20 agreements and there are 18 to go. Half is not all of them done and dusted. Given the fact that the Government had this amendment in the legislation when 18 were signed, not 20, what has changed? The noble Lord, Lord Gardiner, did not give a proper response. I look forward to the Minister giving one. The noble Baroness, Lady Noakes, said it was because the previous Government appeased those who wanted to keep our statutory functions. I would be grateful if the Minister can indicate why the Government have changed their position.

I turn to the issue of whether we should be completely reassured that, as the Minister has said before, no trade agreement can ever change statutory provision. The noble Viscount, Lord Younger—who is now back in his place—indicated in the previous group that that would be the case. On the face of it, that is correct. Any trade agreement would require statutory changes, if necessary, to change the primary legislation. However, we have already seen decisions made, for example, on quotas on imported sugar. Decisions have been made over the summer that will have a big and damaging impact on our domestic agricultural market because we will be giving a competitive advantage to those who are operating without the environmental or labour standards that we find acceptable. They also undermine commitments that we have given to the least developed countries.

It also comes back to the issue of chicken. I have been struck by the Government’s language about chicken and the use of chlorine washing. It was helpful that the NFU gave us the details of some of the concerns about this. It comes back to the specific food hygiene regulation. We are carrying this regulation over but the Government have said that it will change on completion of the implementation period. I shall quote from it:

“Food business operators must not use any substance other than potable water—or, when”


a regulation

“permits its use, clean water—to remove surface contamination”.

That is what the Minister has quoted to us in the past, and that is correct, but I found it really interesting, because the Minister did not finish the quote. It goes on to say

“unless use of the substance has been prescribed by the appropriate authority”.

So materials can be used—in a trade agreement that we can accept from America, for washing any of their products—if we simply prescribe that by an approved authority, and that can be done by negative resolution.

My suspicions always grow when Ministers, when they want to give us reassurance, give us half the situation. The record of the Government this year up to now is, I am afraid to say, that they say they have no intention of doing something just before they do it. The Government say “Trust us, because we have no intention in our future trading relationships of undermining any environmental standards” in the same week as they appoint a trade commissioner, Tony Abbott. I remind the Committee that the week he was appointed, when we were raising concerns on standards in previous proceedings on this Bill and on the Agriculture Bill, he told a conference in London, when he was giving his top tip on how to achieve success in trade negotiations, that they needed,

“not to be held up by things that are not all that important, and not be distracted by things that are not really issues of trade but might be, for argument’s sake, issues of the environment”.

I think the House believes that those aspects are issues of trade. Therefore, the current legislation lacks the enhancements that had been made by the previous Government in their amendment.

In conclusion, the Government’s previous position was:

“A key aspect of that continuity is to ensure that UK statutory protections are maintained. These protections are highly valued by our businesses and consumers and are an important component of the UK’s offer to the world”.


That is correct, and our offer to the world should be the highest standards. The Minister, the noble Baroness, Lady Fairhead, continued:

“It makes it clear that the power can be used only in a way that is consistent with the maintenance of UK levels of statutory protection in the listed areas”—[Official Report, 20/3/19; col. 1439.]


but the agreements, some now very old, will need to be updated, and, in updating them or replacing them, we will have to ensure that any of those changes will be upholding our current standards.

The noble Viscount, Lord Trenchard, suggested that some of this may restrict our negotiators or put extra burdens on them. I do not agree, for an historical reason. The noble Lord, Lord Lilley, said on Second Reading that the party of free trade should not be imposing restrictions. That was half the story. We got rid of the Corn Laws and introduced free trade at the same time as we got rid of adulterated bread, beer and milk and put in place public food standards against them and against counterfeiting.

The Sale of Food and Drugs Act 1875 was a major precursor of the Food Safety Act 1990, itself the precursor of the standards that we are now inheriting. Upholding them is the strongest tradition of Britain, where we have led since Victorian times and other countries have followed. Reinserting this amendment, with the addition of food standards, by the noble Baroness, Lady Bennett, and others and the support of the noble Lord, Lord Grantchester, would be a very strong signal to our trading partners in the world that we will be upholding our standards—British standards.

[Lord Grimstone of Boscobel (Con)]

My Lords, no one listening to this debate today could be in any doubt about the importance that noble Lords attach to the maintenance of the highest standards in the areas that we have been discussing. To make the Government’s position clear, we entirely concur.

I turn to the amendments, starting with Amendment 20 in the names of the noble Lord, Lord Grantchester, and the noble Baroness, Lady Bennett of Manor Castle. It is intended to ensure that regulations can be made under the Clause 2 power only if they adhere to UK standards of food production and safety and that partner country products are in line with our domestic health policies and policy targets.

I was grateful to my noble friend Lady Noakes for reminding us that Clause 2, to which many of the amendments that we considering today relate, relates to continuity agreements, not to new free trade agreements. As your Lordships are aware from the many debates that we have had on this issue in both this Bill and the Agriculture Bill, the UK already has extremely high import standards of food safety enshrined in domestic law. I say again that we have no intention of lowering these; I completely reassure my noble friend Lady McIntosh of Pickering on this point.

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[Baroness McIntosh of Pickering (Con)]

My noble friend Lord Grimstone has just confirmed my worst fears about this interchange of terminology between food safety and food standards. We owe the noble Lord, Lord Purvis, a great debt of gratitude because he clearly stated what Heather Hancock, as chair of the Food Standards Agency, has said on numerous occasions: that our current food safety standards can be changed overnight by the passing of a regulation—that is, a statutory instrument. I think he said that that could happen via the negative procedure, not even the full affirmative procedure.

There we have it. That is the problem. We are not even speaking the same language, which concerns me greatly. On food standards, whatever chemical you want to rinse with—such as chlorine—or hormone you want to inject your beef with, it is not something that the consumers of this country want to consume. I just wish that my noble friend Lord Grimstone would accept that this goes to the heart of our concern, reflected in this group of amendments and the other amendments that we will come on to when we discuss the International Trade Commission and what the future criteria will be.

It is not that the chicken or beef might be unsafe to eat; it is that the product does not meet the high standards of production that our farmers must meet. It will therefore undercut our farmers, who could potentially be put out of business. That is precisely what happened under a previous Conservative Government in the mid-1990s; as a result, 50% of pig producers—who were largely in north and east Yorkshire, I might add—went out of business. That is a position to which I do not want to return. Will my noble friend accept that this terminology is extremely important and that what the noble Lord, Lord Purvis, said in regard to the regulation being amended literally by the sweep of a pen is what goes to the heart of this argument?

[Lord Grimstone of Boscobel (Con)]

My Lords, of course I apologise if I caused any confusion in my remarks —but I stand by them. It would require a statutory process for these food standards to be altered.