Comprehensive Economic Partnership (EUC Report)
(3 years, 12 months ago)
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Lord Goldsmith
That the Grand Committee takes note of the Trade Agreement between the United Kingdom and Japan for a Comprehensive Economic Partnership, laid before the House on 23 October (16th Report from the European Union Committee).
Lord Goldsmith (Lab)
My Lords, this debate is on the UK-Japan trade agreement, on which the International Agreements Sub-Committee reported last week. I shall provide a summary of its key findings, but the debate is also an opportunity to talk about the process of scrutiny with a test case before us. It is a novel process, and we can draw some initial conclusions about what works well and what does not. I trust that Members will permit those remarks about the bigger picture. I look forward to the debate and to hearing what noble Lords will say; I look forward in particular to the maiden speech of the noble Lord, Lord Darroch of Kew, about which more will be said later.
The report is the culmination of months of talking to stakeholders and discussing negotiations in confidence with the noble Lord, Lord Grimstone, who is in his place today and has been generous with his time—I thank him for that on behalf of the committee—and senior officials, including the chief economist and the chief negotiator. We also spoke to and corresponded with the Secretary of State before the summer.
The International Agreements Sub-Committee has sought to work in a complementary fashion with the Commons International Trade Committee, whose report on CEPA largely concurred with ours. The report principally contrasts CEPA with the JEEPA—the Japanese-European agreement that existed and still does—looking to understand impacts of any deviations and what stakeholders wanted the Government to achieve. Parliamentary scrutiny is a second route for their concerns and ambitions to be heard, and we tried to do justice to that evidence base in our report.
Where appropriate, we have considered the Government’s published objectives, but they are, to be frank, generic, and the Government have not cross-referenced CEPA with those published aims to set out whether all of them in their view have been effectively met. Parliament is not involved at the moment with that objective-setting process. We can say after the fact whether we think that they got the objectives wrong and what other objectives might have been sought, but our role here is severely limited. That is a matter which the House may wish to think further about.
We have also evaluated the Government’s final claims about what CEPA achieves and what it does not. Our principal conclusion in this regard is that the Government have oversold several provisions in a way that risks undermining what is ultimately a respectable continuity-plus agreement.
Looking at our specific key findings and starting with the successes, we note that CEPA goes beyond JEEPA in some of its digital and data provisions, which is welcome. This will benefit UK and Japanese businesses across sectors, in particular those in service industries. Those provisions have found favour with many of our witnesses, such as the City of London Corporation and the Motion Picture Association. However, some others, such as the consumer organisation Which?, and the Open Rights Group, have asked whether CEPA’s provisions might indicate a change of thinking from the Government about how to ensure the protection of personal data. Overall, we did not view CEPA as creating a potential personal data protection loophole, but we would be interested to hear from the Minister whether the UK envisages diverging from the EU on data protection.
Another key area of provisions relates to agri-food products. Those provisions are split through several chapters in our report, but I shall summarise them here together. First, overall, CEPA is useful to UK producers. Tariff reductions and their staging are maintained, allowing UK exporters to continue to be competitive with EU exporters. I do not really want to mention the supposedly cheaper soy sauce—the little incident on Twitter—but Members may recognise that as an allusion to an unfortunate and wrong statement that the deal would make soy sauce cheaper. Our report covers some areas such as trade in malt and tariff-rate quotas because the Government made quite a big deal of them, although they are relatively small in trade terms. Regarding the malt trade, the Maltsters’ Association of Great Britain told us that this agreement
“offers the same benefits as the existing system”—
access to the Japanese market tariff free through Japan’s autonomous tariff-rate quotas—yet the Government have advertised CEPA as delivering “more generous market access”. The Minister might like to comment on that.
Tariff-rate quotas, or TRQs as I will call them, were one of Japan’s key concessions to the EU to avoid greater liberalisation of tariff lines. Japan liberalised 97% to the EU’s 99%. In this UK deal, 94% of Japanese tariff lines are liberalised, to 99% of ours, but CEPA maintains access to only 10 of JEEPA’s 25 tariff-rate quotas, and then only after EU exporters have used them as much as they wish. That creates some uncertainty for UK producers and Japanese importers, who may now need even to provide bankers’ guarantees when importing UK products lest additional duty eventually needs to be paid. That does not make UK goods attractive, and access for the UK via the headroom left by the EU may disappear in only a few years. The Government say that joining the CPTPP will fix this, but that seems a contingent basis for dismissing the difficulties that exporters will face.
Finally, on a matter on which other noble Lords may touch later, there are new provisions for geographical indicators. The Government advertised CEPA as though they had won these protections, but in fact there is still an application process to be completed during which there may be objections from any of the 11 CPTPP countries or other producers.
Turning beyond agricultural and food products, CEPA has significant effects on trade in other goods. We thought particularly and had evidence particularly about automated manufacturing, as that is an area of key inward investment in the UK. Let me be clear: CEPA’s provisions are necessary and therefore welcome, but they are not sufficient. CEPA enables UK and Japanese manufacturers to use EU products and count these as their own for the purposes of cumulation. However, what the Society of Motor Manufacturers and Traders and the North East England Chamber of Commerce told us was most vital was cumulation for products exported to the EU. CEPA cannot deliver this on its own; only the UK-EU deal can, and it seems increasingly from press reports that it is unlikely to do so. I hope that other noble Lords may cover this topic.
The noble Earl, Lord Sandwich, regrettably cannot be with us for debate today, but I know that he would have wanted to highlight the sustainable development provisions of CEPA—the noble Lord, Lord Oates, may touch on some of these issues later. CEPA retains JEEPA’s sustainable development chapter but does not go any further. We were concerned at the lack of focus on environmental goods in CEPA overall. Cornwall Council highlighted in evidence to us the absence of any mention of green technology and the North East England Chamber of Commerce wanted more attention paid to low-carbon goods and services, including renewable energy, which are an important part of its regional economy.
As for the Government’s impact assessment, that itself notes uncertainty about whether CEPA can increase investment fall and the export potential of low-carbon goods and services. Again, I hope that the Minister will say something more about these issues in his speech.
I will illustrate how these issues are all interrelated. The North East England Chamber of Commerce highlighted that the accumulation of Japanese content in UK automotive manufacturing products being exported to the EU was “crucial”, in particular for electric vehicles, as the EU is not well developed in electric vehicle production and many parts come from Japan.
I will say a word about the Government’s explanatory documents. The brief summary of our findings that I have just given indicates the importance of looking closely at variations from the existing Japanese-EU agreement, JEEPA. However, the Government’s impact assessment does not allow us or the public to answer the question of whether the UK-negotiated deal serves UK businesses and consumers better than the existing one. The impact assessment compares CEPA only with no deal with Japan—that is, with WTO terms.
The committee does not want to use this report to relitigate Brexit, of course; that was not the purpose or intent behind that conclusion. However, we think the question is important and that the information to answer it should have been provided. We note that the Government’s own impact assessment of JEEPA estimated a GDP increase of £2.1 billion to £3 billion. That is much more than CEPA’s estimated £1.5 billion boost. We understand that the methodology and context of those two assessments differed, but we believe that the Government should have addressed this issue head on.
Our conclusion is thus forward-looking. For Parliament to best scrutinise the Government’s exercise of their new powers, which will be increasingly important for the country as we develop more new trade deals, we must have the data necessary to judge whether the Government have done a good job.
The Grand Committee previously debated our report, Treaty Scrutiny: Working Practices, and allied reports, when there was significant support for an enhanced mechanism for parliamentary scrutiny of treaties, including trade deals. That has also been evidenced in debates on the Trade Bill, and is likely to feature on Report when it comes about. Our inquiry on CEPA and those on the ongoing talks with the US, New Zealand and Australia—all of which are under way—have all yielded evidence from stakeholders about parliamentary scrutiny processes and their importance. This is not simply Members enjoying an opportunity to talk about themselves, but an important issue that we must get right.
Producing this report has been challenging. It is a testament to the willingness and ability of Members and staff to absorb and consider a vast amount of information quickly that we have been able to produce this report to allow the House to hold a debate within the CRaG scrutiny period. As we said at the working practices discussion, that is a short period. However, success that we were able to produce this report should not lead the House or the Government to think that this has been easy or will be easy in the future. We had notice and we planned accordingly, and because the deal is largely identical to an existing one, it does not raise some of the thornier issues, such as respect for human rights or food standards, that may well arise in other deals and agreements, and still it is very challenging to do CEPA justice.
We said in our working practices report that we reserve the right to recommend changes to CRaG if we conclude that, overall, the required pace is detrimental to the House’s scrutiny function. Nevertheless, I want to recognise that DIT has worked hard to make the process as it is work as well as it can in the circumstances, and the Minister and his staff should be commended for their efforts—I thank them, and particularly him. I look forward to hearing what noble Lords say in this debate. I beg to move.
Lord Oates (LD)
My Lords, I welcome the opportunity to debate this report. I have the privilege of serving on the International Agreements Sub-Committee and the rapid production of such a comprehensive report is due in no small part to the skills of our chairman and those of the clerk to the committee, Dominique Gracia, and her team, who have done a brilliant job pulling it together in such a constrained timetable.
In the limited time we have available for debate, I want to focus particularly on the data provisions in the agreement, how we use trade agreements to advance decarbonisation and the importance of building trust in trade policy.
First, on data provisions, the IAC received evidence from Dr Emily Jones and Beatriz Kira, of the Blavatnik School of Government at Oxford, which raised a number of concerns. In particular, I hope the Minister can tell us more about the decision of CEPA to expand the scope of protection of mandatory disclosure of source code and software beyond that in the EU deal to include algorithms expressed in that source code. Will the Minister tell us in his response the reason for that expansion, which is a matter of concern given the impact that algorithms can have on decision-making and the need for this to be transparent to the public?
Secondly, as the noble and learned Lord, Lord Goldsmith, has said, while it is welcome that the agreement retains the references in the EU deal to international environmental commitments, including the Paris Agreement, and commits both parties to working to secure mutual environmental aims, it seems like a missed opportunity not to have sought more, particularly on green technologies and services. The impact assessment predicts an increase in greenhouse gases as a result of the treaty, and while in itself it is not a significant increase, we need to think about how we can use trade policy to bring down greenhouse gas emissions, not to raise them—however small the amount may be.
In future deals, we will need to take a radically different approach, and we have an opportunity to do so in the New Zealand negotiations, given New Zealand’s credentials in this regard and its ground-breaking initiative to negotiate an agreement on climate change, trade and sustainability with Norway, Costa Rica, Iceland and Fiji. I hope we will take the opportunity this offers to create a forward-looking trade agreement with New Zealand which puts protection of the planet at its heart.
Next, I want to address the issue of public trust in our trade policy, which has not been well served by the way in which the Government have tried to oversell this agreement. Announcing the deal on 11 September in a press statement, the Secretary of State for Trade said:
“The agreement we have negotiated …. goes far beyond the existing EU deal”.
However, the impact assessment for this agreement suggests that it will increase UK GDP by £1.5 billion per annum in the long term, whereas the impact assessment for JEEPA, the Japanese-EU trade agreement, published in May 2018, estimated that it would increase UK GDP by £2.1 billion to £3 billion over the long term—a significantly larger figure. The Government will doubtless argue that the figures cannot be compared because they are modelled differently. However, if the Government will not provide us with comparative modelling, we can only go by their own previously published figures, and they do not in any way bear out the Government’s claims that this deal provides significant benefits over JEEPA—in fact, they show the contrary.
Overselling in this way undermines trust. That may be less important in respect of this deal, which has not given rise to significant public concern, but it will be a real problem when we come to more controversial deals, such as a potential agreement with the United States. I therefore urge the Minister to ensure that lessons are learned from this experience and, in future, that deals are communicated objectively on their merits rather than spun to be something other than they are. In this case, the Government should simply have stated the reality: that a rollover deal, with a few additions and a few subtractions, had been secured. That was the reality, full stop. That is what the Government should have said.
Lord Lansley (Con)
My Lords, I am very pleased to follow my colleague on the International Agreements Sub-Committee, the noble Lord, Lord Oates, and our chair, the noble and learned Lord, Lord Goldsmith, who has so well set out the basis of our report that I will not follow him in most of that. I will focus on what I think is really important, which is that this is a continuity-plus agreement. I want to focus on the plus, which I think is more significant than people have perhaps yet realised.
I declare an interest. In addition to being a member of that committee, I am the UK chair of the UK-Japan 21st Century Group, which was in online conference with our Japanese colleagues on 11 and 12 September this year, when the agreement was signed. Among our colleagues from Japan were seven members of the Japanese Diet and former Ambassador Tsuruoka, who will be known to a number of Members.
The sense of positive welcome given by our Japanese colleagues to the agreement reflected their view that this was not simply a rollover of the EU agreement—although much of it might look that way—but presaged a significant broadening and deepening of the UK-Japanese trading relationship. I will focus on that. First, on digital trade, I think the EU, because of its lack of a digital single market, continues not to enter the kind of expansive agreements available with other countries. This agreement much more nearly reflects the content of the CPTPP, the Trans-Pacific Partnership Agreement: things such as free flow of data, net neutrality, consumer protection online, no data localisation and more open government use of anonymised data. All of those are really important for digital trade, and the United Kingdom is a world leader in digital trade. For us to have such agreements is increasingly important.
That is also true on financial services, where the lack of potential agreement in the EU-UK agreement is a matter of continuing regret. Here, with Japan, are some starting points much welcomed by the City on facilitating UK firms licensing in Japan, on regulatory co-operation and reference and deference to each other’s regulatory structures and, generally for service industries, the mobility of staff and their families to work in Japan.
There are improvements on agricultural tariffs and things such as the administrative scheme enabling more geographic indications to be protected in the Japanese market—they are modest, but they can be developed, as the noble and learned Lord, Lord Goldsmith, said, in the CPTPP context, as long as we make progress there. I think we can and we will. It is not unimportant that Japan holds the chair of the CPTPP in 2021, and things such as digital trade developments and agricultural market access will be much improved if we are able to accede to the CPTPP. I hope that the Government will take that forward early in the new year.
The plus also includes areas where we want to go further—on financial services, on mutual recognition of qualifications, on the ability of people from this country to go to work in Japan, on the environment and sustainable development and for there to be an investment chapter, given the relative significance of Japanese investment in this country and that in the opposite direction, and in audio-visual and creative industries, where both we and Japan are world leaders and should be encouraging continuing trade. The noble Lord, Lord Foster, may want to say something about that.
Finally, using this agreement is really important, and I commend our colleagues in the embassy in Tokyo, because they recently appointed a digital trade and an agricultural trade attaché. If they, business, including SMEs, and the department use this agreement fully, we can make this a significant increment to our UK-Japan trade.
Lord Trees (CB) [V]
My Lords, I am sure that all of us welcome this trade agreement—the first post-Brexit trade agreement—and may many successful agreements follow. However, it is being scrutinised under the so-called CRaG rules, and it illustrates the limitations of that system with respect to parliamentary scrutiny, as was emphasised by the noble and learned Lord, Lord Goldsmith, in his opening remarks. There has been no input into negotiating mandate or oversight during negotiations, no proper involvement of devolved Administrations and no guarantee of a vote at the end of the debate. There has been very limited time for consideration by parliamentary committees.
For all those reasons, I welcome Her Majesty’s Government’s recent agreement to not only set up but extend the life of the Trade and Agriculture Commission for at least three years and to require the Secretary of State to lay a report before Parliament with regard to free trade agreements involving agricultural products, explaining their consistency with UK statutory protection in relation to human, animal and plant health, animal welfare and the environment.
Returning to this UK-Japan agreement, I shall focus on my particular interest in standards of food products, animal welfare and the environment. We were assured by the noble Lord, Lord Grimstone, in a letter of 11 September that, with reference to the Japan agreement,
“we have maintained all existing protections for our high standards of … animal welfare”.
How will we ensure that imported food products have been produced to standards no lower than our own, and who will do that? I ask that in the knowledge that the World Animal Protection ratings for animal welfare in general are E for Japan compared to B for the United Kingdom; and for farm animal welfare legislation, G for Japan, lower than the UK’s rating of D. Japan has no specific legislation on animal transportation, the rearing of pigs, laying hens or chickens, and it still permits sow stalls and conventional battery cages for chickens—all in contrast to the range of legislation on these subjects applicable in the UK and to our UK farmers. Furthermore, it is not clear how many of the 14 farm animal welfare guidelines of the World Organisation for Animal Health—the OIE—Japan has put into law. Of global significance is the fact that there is no reference in the agreement to antimicrobial resistance or measures in Japan to reduce antibiotic use in farm animals. In fact, in general, there is little reference to animal welfare standards in the UK-Japan agreement.
The Department for International Trade’s impact assessment on animal welfare is very limited, but it does state that
“imports will continue to meet the UK’s food safety standards”.
I do not doubt that food safety standards will be met—we have the FSA and the FSS to ensure that—but food safety is not the same as welfare standards. The former relates to the safety of the edible products from animals, the latter to how those animals were kept. These are different issues which require different expertise and processes to audit.
It is welcome that provisions in the UK-Japan trade agreement commit both parties to co-operation on matters of animal welfare. In addition, the DIT has committed to scrutiny of animal welfare standards in free trade agreements through a range of measures, including, where appropriate, assessments of animal welfare impacts. But the Regulatory Policy Committee report which assessed the DIT’s impact assessment stated that it should have given more detail on the impact on animal welfare and identified animal welfare as an area to be improved in future impact assessments. How will the DIT do that? Does it have the relevant expertise? Will the DIT fully utilise the Trade and Agriculture Commission? Particularly with regard to breadth and depth of expertise, will it co-operate fully with Defra on this?
I would welcome a response from the Minister to those questions which will provide further assurances that, in future trade agreements, the UK’s standards will not be compromised.
Lord Hain (Lab)
My Lords, I look forward very much to the maiden speech of the noble Lord, Lord Darroch, with whom I worked very productively when I was Europe Minister and who has the great virtue of being a Chelsea fan.
The EU-Japan agreement, from which the UK, as an EU member, has benefited, entered into force on 1 February 2019 and is the world’s largest bilateral trade deal, creating an open trading zone covering nearly one-third of global GDP. In his evidence to the International Agreements Sub-Committee, the Minister, the noble Lord Grimstone, confirmed that this new agreement with Japan is a “continuity” agreement. His departmental colleague confirmed that
“in almost all respects the tariff liberalisation is the same as it is in the EU agreement”.
It is therefore surprising, perhaps, as the noble Lord, Lord Oates, pointed out, that the Secretary of State, Liz Truss, called the agreement a
“ground-breaking, British-shaped deal”,
which she said went far beyond the existing EU-Japan trade deal. On 19 November, when questioned by the shadow Secretary of State, Emily Thornberry, she was unable to explain how this was the case, and has failed to produce any economic modelling to prove otherwise.
A government impact assessment in October found that the £15.66 billion projected boost to bilateral trade claimed by the Government was, in fact, a comparison with no trade deal with Japan, rather than with the existing EU-Japan deal. It also showed that of these benefits, 83% would go to Japanese exporters and only 17% to the UK’s. Officials confirmed that the deal was expected to add a mere 0.07% to UK gross domestic product, and this was again as compared with no deal with Japan, rather than with the status quo EU-Japan deal.
The UK had sought access to tariff-rate quotas for value-added agri-food exports such as cheese. As the Japanese had promised their farmers that there would be no such new quotas, Britain failed to secure these, and instead has to use any quota left over by the EU in only 10 out of 25 such products covered by the EU-Japan agreement. Moreover, the UK Trade Policy Observatory found that all the tariff “wins” claimed by the Secretary of State are for goods that the UK does not actually export to Japan. The 10 products concerned include obscure items such as birds’ eggs, raw hides, fur skins, and ultra-strong spirits of at least 90% alcohol. The gain to British exporters was therefore found to be “zero”.
The trade observatory study also concluded that:
“In services and investment liberalisation, it is clear that Japan’s commitments to the EU and the UK are almost identical”.
Foreign direct investment is therefore one notably important area missing from the deal. The UK is Japan’s second-largest destination for FDI, totalling £131 billion in 2019. Japanese investment supports over 100,000 jobs in the UK in sectors such as manufacturing and scientific research. However, as Mr Motegi, the Japanese Foreign Minister said, at the signing of the deal:
“It is of paramount importance that the supply chain between the UK and the EU is maintained even after the UK’s withdrawal.”
He therefore had “high hopes” of a deal between London and Brussels—as I trust that we all do.
As the Financial Times pointed out on 13 September, the UK-Japan deal commits the UK to tougher restrictions on state aid than those that it has said it would accept in the context of a trade deal with the EU. Why, then, do the UK Government continue to regard state aid as a make or break issue for the crucial trade talks now taking place with Brussels?
The UK has said that this deal will be a stepping stone to the UK’s membership of the Trans-Pacific Partnership, but trade deals with countries on the other side of the world cannot replace those with the EU, the biggest and richest market on our doorstep, worth 47% of the UK’s trade in 2019.
The Government have sought to overplay the significance of the UK-Japan trade deal as cover for the chaos looming if the UK fails to secure an EU trade deal. As the Guardian business leader said on 13 September:
“A Japan trade deal is little consolation if Britain is locked out of the EU.”
Lord Foster of Bath (LD)
My Lords, as a relatively new member of the IA committee, I have been impressed by the expertise of fellow members; by the skill and professionalism of the committee staff, to whom great credit must go for this report; and by the dedication and, above all, patience of our chairman, the noble and learned Lord, Lord Goldsmith.
Whatever the merits of the Government’s claim that the Japan deal is more than a rollover of JEEPA, it should be welcomed as providing
“valuable continuity for businesses, consumers and other stakeholders”,
and as a stepping stone to joining the CPTPP. But it is nowhere near as ambitious as many had hoped. Agreement to negotiate a deal was not reached until January last year, but it was a further 17 months before negotiations even began, so they had to be conducted at pace. I congratulate our negotiators on what they were able to achieve in such a short time, but it meant that nothing that required any change to primary legislation in either country could be included. Hopes for an ambitious deal were dashed and many proposals from consultees had to be ditched, calling into question the claim that this is a comprehensive deal.
Indeed, as other noble Lords have already pointed out, there are several examples of the Government overselling the deal. I hope that the Minister will accept that criticism. I note also that the UK’s overselling is in marked contrast to the Japanese who, despite appearing to gain far more from the deal than we do, have been much more muted. But working out those gains is difficult given current limitations in economic modelling and because, unhelpfully, the Government have compared the deal against trading on WTO terms rather than against JEEPA. I hope that this will not be the case in future deals.
Operating on a compressed timetable reduced ambition, but it also meant confusion and disappointment for the numerous stakeholders. The intellectual property chapter provides a good example. Of those aspects impacting the creative industries, our report says that, despite government claims of significant improvements on JEEPA,
“many of the additions focus on future discussions and awareness raising about existing enforcement procedures in both countries, rather than securing new … protections.”
To protect IP, the creative industries had sought much more. They wanted tougher measures to enable blocking of websites containing illegal content, along the lines that we already have in our own Digital Economy Act —but they did not get them. Can the Minister confirm that the UK will be reliant upon Japan’s existing IP enforcement procedures and that the deal does not commit Japan to any specific changes to those procedures?
The other two creative industry asks—public performance rights and artist resale rights—were not achieved either. Does the Minister acknowledge that stakeholders were given inaccurate expectations of what could be achieved in the deal?
The creative industries and other sectors may benefit from provisions on digital and data. But, as my noble friend Lord Oates pointed out, there are concerns about those provisions. One is that they could herald the lowering of our current GDPR-based data protection standards, perhaps to enable us to gain admission to the CPTPP given the lower standards of data protection in the Asia-Pacific region. In JEEPA, onward data flows are specifically excluded. Under CEPA, however, data which flows from the UK to Japan could be passed to other countries, through trade deals that Japan has with those countries, where lower data protection standards apply, thereby giving reduced protection to the personal data of UK citizens. I am not a believer in conspiracy theories, so will the Minister give an assurance that nothing in this agreement, or any future agreements, will reduce the standard of protection of the personal data of UK citizens from what is currently enjoyed?
This is a welcome deal because of the continuity that it provides. But it is little more than a rollover deal, one which has been oversold by the Government, appears to be far more beneficial to Japan than to the UK, and for which the Government have not even provided analysis to enable comparison of it with what we currently enjoy.
The Deputy Chairman of Committees (Baroness Garden of Frognal) (LD)
My Lords, the Grand Committee will now resume with the noble Lord, Lord Lilley.
Lord Lilley (Con)
My Lords, I welcome this trade agreement, not only because it secures the benefits of the existing EU-Japan free trade agreement. It goes beyond that, especially in digital and data, and, potentially, on geographic indicators and rules of origin, and it helps to pave the way for our future membership of the TTP, or the CTP—you know what I mean.
Before elaborating on those aspects, I repeat my habitual warning, like a cracked record, about the excessive importance attached to trade deals in public debate in this country and, indeed, in your Lordships’ House. Trade agreements like this are useful but far less important than most people imagine. What really drives trade is producing goods and services that people want to buy then getting out and selling them, preferably aided by a competitive exchange rate. Sadly, a significantly lower proportion of British small and medium-sized enterprises engage in international trade than is the case for similarly sized companies in our major competitors. That weakness in our business culture has been exacerbated by an exchange rate sustained at an uncompetitive level by the sale of assets, rather than by selling as much goods and services as we import.
This agreement with Japan is sometimes belittled, not just relative to the existing EU-Japan agreement but because it is not nearly as deep as the single market arrangements that we are leaving at the end of December. It is the accepted wisdom that the European single market represents the most comprehensive and deepest trade agreement that exists, whereas the WTO is treated as of little fundamental importance. I happened to be the Secretary of State for Trade and Industry who had to implement the single market legislation and helped to negotiate the Uruguay round which set up the WTO. Despite the optimistic speeches that I made at the time about how much the single market would boost our exports, we find that, over the ensuing quarter of a century, our goods exports to the 14 countries which founded the single market have little more than stagnated: they have grown by some 18%, barely 0.5% a year. By contrast, our goods exports to the 14 largest countries with which we trade just on WTO terms have grown by 80%—six times as fast—over the same period. As for the impact that either may have had on our GDP, that is almost impossible to assess, even in retrospect; it is certainly imperceptible, looking at the trend in our trade in recent decades.
I am sceptical in the extreme about the figures shown in the impact assessment of this trade agreement with Japan, and even more so about attempts to break this speculative impact down by region. As someone said, such figures serve only to make astrology look respectable. Government statisticians would be better employed trying to calculate cost-benefit assessments of the effect of the Covid restrictions on lives and livelihoods than those of the CEPA.
On the CEPA itself, the most striking element is the agreement on digital trade and data, which, according to the brief, accounts for as much 30% of our trade with Japan—a figure I find it hard to get my head around. If it is correct, the positive measures in this agreement are likely to be important to trade with Japan, and even more valuable as a template for future trade agreements across the world.
The Deputy Chairman of Committees (Baroness Garden of Frognal)
We now welcome the maiden speech of the noble Lord, Lord Darroch of Kew.
Lord Darroch of Kew (CB) (Maiden Speech) [V]
My Lords, I am delighted and honoured to join your Lordships’ House. In my 42 years as a British diplomat, I sometimes sat in the official Box in this House on the deeply questionable basis that I could offer useful advice to the Minister at the Dispatch Box. Later in my career, especially in my last two overseas postings, as ambassador to the European Union and to the United States, I had the honour of giving evidence to committees of this House. I remember in particular two features that stood out whenever I gave evidence: the matchless courtesy with which proceedings were conducted and the forensic accuracy and pertinence of the questions posed. So it is a relief that I am now on the other side of the table.
I start with some words of sincere thanks to the staff of the House for the help that they have given me over the past few months. They have been models of professionalism, not least the IT expert who spent more than an hour on the telephone to me—though to him it must have seemed much longer—helping me with the theoretically simple task of setting up my email account.
There is a particular reason for my choice of this debate for my maiden speech. Tokyo was my first overseas posting, and I was there for four and a half years in the early 1980s, so there is a certain symmetry in UK- Japan relations being the focus of my first intervention in the House.
I was in the political section of the embassy but, at that time, there was absolutely no question about the central task of the embassy: it was about the economic and trade relationship, opening up the Japanese market and encouraging Japanese investment in the UK. If anyone ever thought that diplomats were interested only in political and national security work and not in trade or inward investment, they should have seen the British embassy in Tokyo in the early 1980s.
While it was nothing to do with me, labouring away in the political section, my colleagues in Tokyo succeeded —it took a while—in opening up the Japanese market. Tariffs and quotas were reduced or eliminated, and the first big Japanese investments—notably the Nissan factory up in Sunderland—were enticed to the UK, all of which paved the way for a substantial boost to the commercial and investment links between the two countries and the thriving bilateral relationship that we see today. A lot of officials, diplomats and Ministers have played a part in this progression, but I like to think that the seeds were planted by my economic and commercial colleagues in those now distant early 1980s days, back in the Tokyo embassy.
That brings me to this new UK-Japan Comprehensive Economic Partnership Agreement. I start by congratulating the International Agreements Sub-Committee on its report on the agreement, which is an excellent piece of analysis, and the summary of conclusions and recommendations is a model of its kind. I am tempted to say that I agree with every one of them and leave it at that, but, having got the Floor, I would like to offer briefly three reflections.
The first is to highlight one of the central themes of the committee report: the overselling of the gains of this agreement. This is not to discount or diminish the work of our negotiators. I spent many hours negotiating around the EU table and know that negotiations are always a hard slog. But to quote the committee’s report, the Government are
“presenting as a new gain the retention of EU negotiated provisions.”
There are some modest advances, such as faster reductions in tariffs on, for example, leather goods, some more liberal rules-of-origin provisions, and some improved financial services provisions. However, there are also some deficiencies in comparison with the EU agreement—in particular, the arrangements for continued access for UK companies and some tariff-rate quotas are suboptimal and introduce uncertainty. There is further uncertainty about whether UK exporters will actually gain the additional 60 or so geographical indicators that are promised, and around how the provisions of this agreement on application to Northern Ireland will work in practice.
With so little good news around in these coronavirus days, I can understand the temptation to talk up successes. I repeat that it is good to have this agreement, but overselling always brings consequences down the track.
Secondly, the committee’s report highlights the important succession to the Trans-Pacific Partnership Agreement. I strongly agree. This is the part of the world enjoying the strongest economic growth, and it is coping with the pandemic better than Europe or the United States. The stronger our trade relations with the region, the better for the UK in the medium term.
My third point is a wider one. As the report notes at paragraph 105, the Government have estimated that the agreement with Japan will increase GDP by 0.07% a year, though they have not offered a figure for what benefits the agreement brings over and above those that were enjoyed by the UK as a member of the EU-Japan agreement. I note that in another part of the post-Brexit forest, the Government have estimated that a free trade deal with the US would boost the UK economy by 0.16% over the next 15 years. I point out the contrast between these figures and the impact on the UK economy of no-deal Brexit. A recent study by the London School of Economics estimated that no-deal Brexit would have a long-term impact on the UK of 8% of GDP—that is not too far from the Government’s own forecast, back in 2018, of 7.6% of GDP.
The point is obvious: these trade deals with the likes of Japan and the US can have a positive but modest impact on our future economic growth, but they are dwarfed by the implications—positive or negative—of the current negotiations with the European Union. Nothing is more important than a successful outcome to that process. This is, I recognise, hardly an original or controversial point, but the clock is ticking, it is the 11th hour, and the risks are growing.
Lord Kerr of Kinlochard (CB) [V]
What a privilege it is to follow the noble Lord, Lord Darroch, and be the first to congratulate him on an excellent maiden speech. We come from the same Diplomatic Service stable, where, in Washington, Brussels and Whitehall, he served five Prime Ministers with verve and distinction. He was famous in our service for hard work, good judgment, a certain joie de vivre and conspicuous loyalty to his team. I was rather luckier than him in some ways, because the Presidents I watched in Washington were rational and predictable, and all the Prime Ministers I worked for saw loyalty as a two-way street. We have just had an insight to and foretaste of the huge contribution that the noble Lord, Lord Darroch, will, with his wisdom and experience, make in the House. Despite his being a Chelsea fan, I welcome him very warmly.
As a member of the committee, I begin by congratulating the noble and learned Lord, Lord Goldsmith, on his judicious and magisterial chairmanship. I also congratulate the noble Lord, Lord Grimstone, and thank him for his courteous and co-operative relationship with the committee. I particularly congratulate our clerk, Dominique Gracia, who mustered our thoughts graciously, skilfully and fiercely
I am one who welcomes the agreement and think that its principal merit is continuity; it prevents a cliff edge on 31 December. There are small pluses—on digital, on data and on regulatory co-operation, though nothing on investor protection and no separate chapter on digital—and there are minuses. There are minuses on TRQs, as the noble Lord Darroch, has said, and on geographical indicators. I would not make a big deal of these minuses—indeed, I would not mention them at all—but for the fact that the department chose to present them as pluses by comparing the deal not with the status quo of the EU deal that we have enjoyed up to now but with the straw-man of what WTO terms would have been.
I join the noble Lords, Lord Foster, Lord Hain and Lord Darroch, in warning of the dangers of overselling. It is actually unfair to our negotiators, who have produced a perfectly respectable rollover deal, that there should be Twitterstorms and criticisms over claims that are, at best, exaggerated. I think it would be wise, if we are comparing the benefits that we will secure from the agreement, to compare them with the status quo.
These points have been well made and I do not want to labour them. I would like to make a different and more general point. For 40 years, the dominant factor in our economic relationship with Japan has been its inward investment in this country, first in electronics, then in the automobile sector and then more widely. The benefits to us have been enormous, not just in employment but in learning from Japanese production techniques of automation and now digitisation. The Japanese came here because they saw us as a springboard into Europe. I was one of those who, despite strong Italian and French opposition, persuaded Jacques Delors’s Commission that Nissan’s investment in Sunderland would produce European cars, not Japanese cars, and they would be just as European as Fiats or Peugeots. If we had failed, the Japanese would not have come here. What worries me now that Sunderland is outside the single market—which Jacques Delors, Leon Brittan and Margaret Thatcher built—is that the Japanese may be forced to take a different view. Whether Nissan and Toyota now pull back—or, worse, follow Honda and pull out—depends not on the agreement that we are discussing today but on the agreement we strike with the European Union and what it says about rules of origin and what the return of customs formalities and frontier checks means for just-in-time supply chains. We must cross our fingers and hope for a no-tariff deal and minimal frontier friction. If we do not get those, the relationship with Japan will wither.
For all the fine talk of Asian opportunities and the CPTPP, the rule of thumb for trading in goods is that trade halves as distance doubles. That is why the Japanese have chosen to make things here, and if we lose them the European market, we will lose them, full stop. They will make things in continental Europe instead. I hope that the Prime Minister understands that.
Lord Risby (Con)
My Lords, it is a pleasure to be a member of the International Agreements Committee, and I warmly congratulate the noble Lord, Lord Darroch, on his speech.
I begin my remarks by referring to our trade and investment exports, which in recent years have been supported in a transformed way. For the past eight years, I have been one of the Prime Minister’s trade envoys. It has been a dramatic change, not least of course the huge expansion of the facilities of UK Export Finance.
It is widely accepted that the UK-Japan agreement is not significantly different from the precedent of the EU-Japan agreement, and inevitably there will be caution in Japan pending the outcome of the Brexit talks, most particularly on trade and goods. But given that the only committee briefing I have participated in was on financial services, it is appropriate that I should confine my remarks to services and data. Last year, 56% of service exports to Japan were financial, so there is certainly further scope, and an agreement has potentially opened the door to that and, importantly, to further regulatory co-operation in financial services and digital trade.
We all know how often individual countries are most reluctant to embrace fully foreign banking and insurance activity. There is considerable professional admiration for our financial service structures. The CEPA, including our three pillars—HM Treasury, the Bank of England and the Financial Conduct Authority—sends a clear signal. It is now possible for our financial services to offer products on the same basis as Japanese companies, but that has to involve mutual trust. Although it is the intention that meetings will take place regularly, it will be done within a voluntary framework, not forced, with regulators eventually controlling the dialogue. I wonder whether my noble friend the Minister believes that this voluntary framework adequately sets out a mutually beneficial trajectory.
If we look at CEPA as the basepoint for future advances, during our time as members of the European Union, in my view we greatly benefited from mutual professional recognition. My understanding is that this matter will be explored further and is to be strongly encouraged. Again, my noble friend may wish to express a view on how we can take this matter forward.
What is gratifying is that both Japan and the United Kingdom instinctively favour open economies, but work needs to be done to address the challenges of digital e-commerce, given that half of services trade is now digital. This is a hugely sensitive area, not least to prevent money laundering and enforce the know-your-customer rule.
It is also clear that the matter of investment protection needs to be revisited; again, perhaps within a voluntary mutual context, but certainly that of a defined dispute resolution that may require additional powers.
Unfortunately, the view on trade matters of both countries is not widely shared internationally. However, I acknowledge that both Governments, in being committed to the free flow of data, are also committed to a legal framework that provides for the protection of personal information. This is certainly an area that is beset with potential concern and abuse, so it is good that CEPA addresses only data flows between the two countries directly, with onward transmission abroad disallowed. This is an understandable concern with regard to personal and medical data, but the two countries are of like minds, as indeed are New Zealand and Australia.
Thus, while it is perfectly true that CEPA largely mirrors the Japan-EU agreement, the architecture has been put in place for future digital advance. It is not a matter of controversy that higher levels of economic growth are forecast for countries broadly in the Pacific basin. I hope therefore that the successful conclusion of CEPA will open the way to our participation in the CPTPP in due course, not only for economic but for geostrategic reasons, bringing together countries that believe in open markets at a time when their value has been challenged, with negative consequences for world trade and prosperity.
I believe that the committee’s report clearly points to areas where further clarity and progress can be advanced.
Baroness Liddell of Coatdyke (Lab) [V]
I am delighted to join in the congratulations to the noble Lord, Lord Darroch, on his excellent maiden speech. As both a Minister and a cuckoo in the nest of the Diplomatic Service, the noble Lord was one of those I always looked up to—including, of course, the noble Lord, Lord Kerr of Kinlochard. The noble Lord, Lord Darroch, is joining us at a critical time and we look forward to his judgment.
I am also delighted to be a member of the International Agreements Committee. I welcome the UK-Japan Comprehensive Economic Partnership Agreement, but like my noble and learned friend Lord Goldsmith, I have to say that the way the deal has been oversold detracts from what is in the agreement, and it tends towards scepticism about progress on other agreements. I hope that those who are responsible for the overselling recognise that, so that we do not have this in other agreements. I am sure that the uncertainty about the outcome of the UK-EU talks means that there must be question marks around the rest of the agreement, not least the fact that it was measured against WTO rules. That was regrettable.
While I welcome the improvements in data and digital to which others have referred, I feel that the agreement lacks a proper investment chapter, which is a critical key to maintaining Japan’s interest in the UK. That could come from greater investment by the UK to Japan, not just in the other direction. The UK will no longer be a gateway to the EU, so an investment chapter would have mapped out continued encouragement for future Japanese investment throughout the economy. There is a real need to seek opportunity and to consolidate it, and we should be seeking a bigger export market for UK goods into Japan. At the moment, the UK exports more to the Netherlands than it does to Japan; we have to reverse that.
I echo the conclusion of the report of the chair on the agreement that there is a lack of ambition. I do not deny the challenge of getting a deal done against the timetable, but the lack of ambition in the agreement, and the exaggeration surrounding its launch, really does create an atmosphere of scepticism for future deals. Looking closely at the three impact assessments which have been published, we can see that for every pound we make, Japan makes five pounds. We have to get a better balance in something like that.
There is one area about which I have serious concerns. I am worried about the commitment to trade and women’s empowerment. I was greatly encouraged to hear this referred to at the start of the negotiations, because it is an issue for women doing business with Japan, as well as for very talented Japanese women.
The Global Gender Gap Report published by the World Economic Forum since 2006 covers 153 countries. It measures the gender gap between men and women in four areas: health, education, the economy and politics. It has the Japanese at 121 and the United Kingdom at 21. I can find no reference to the Secretary of State referring to women’s economic empowerment as an element in the UK’s trade policy; all I can find is advice on training and the exchange of information and experience, but no binding commitment. More troubling is that Article 21.4 excludes it from CEPA’s dispute settlement procedures. Where I come from, that would be called kicking it into the long grass.
I am also very concerned about the arrangements for SMEs. Can the Minister give us an idea of the extent to which the scoping exercise showed the difficulties that SMEs might encounter in doing business with Japan? What consultations have taken place with representative organisations and is facilitation, and little else, a last point of exercise for SMEs?
It was said earlier that lessons have to be learned for the future handling of these agreements, in particular around the interaction with Parliament. We are not the enemy, but it is our job to scrutinise the interaction that leads to these agreements and, in doing so, make them much more robust. I look to the future and to lessons learned.
Baroness Bowles of Berkhamsted (LD) [V]
My Lords, I, too, congratulate the noble Lord, Lord Darroch, on his maiden speech and look forward to future contributions. I was fortunate enough to be able to rely on his wisdom in his role as the UK’s ambassador in Brussels, which was especially helpful when I became the chair of the Economic and Monetary Affairs Committee and had a scrap or two while finding my feet.
I welcome the UK-Japan trade agreement. Trade agreements are not simple or speedy matters, and the corollary to that is recognition that this one is an achievement—although in my previous EU Parliament role I knew what was going on during trade negotiations and did not have to wait until the end. I have at times wondered what planet trade negotiators were on—and I say that in a friendly way, having once contemplated being one. But the fact is the negotiations are political, detailed, complex and slow. They remind me of the science fiction story “The Waitabits”, where the alien planet operated on such a slower timescale that it was described as “unconquerable”. Maybe that is the point of trade deals; there should be no great victory of one side over another and no conquering, nor any need for exaggerated boasting.
I did not expect massive changes on goods, but there are some interesting things in the detail, such as tariffs on UK products being applied upon arrival rather than applied for in advance, which looks happily streamlined, at least until the point when products arrive to find the low-tariff quota already filled. One hopes that will be worked through to something that really works in the end.
On services, there are changes in direction compared with the EU-Japan agreement, especially digital services, and that gives rise to questions about where they lead over time and what may have become a change in policy that might otherwise have been expected to be in primary legislation. Digital trade moves towards positions in the United States-Mexico-Canada Agreement and setting the UK up for accession to the CPTPP. I understand that positioning, but I am not certain of how much is now rendered a fait accompli and how much marks a potential path that will still have subsequent monitoring by Parliament. Perhaps the Minister could give more guidance on that.
There is no denying that data is important to the digital economy, and there are global differences of opinion on who owns it. Put crudely, the EU considers that it is owned by the individual, the US that it is owned by companies, and China that it is owned by the state. How far down the track from the EU to the US position has the UK gone, and how will Parliament be involved in the detail?
I broadly welcome the agreements around intellectual property but, again, the devil will be in the detail. Simplified trademark registration is welcome. Given the difficulty in protecting algorithms by formal mechanisms, I understand the reasons for agreeing that there should not be forced disclosure. However, can the Minister confirm that this will not result in lack of information concerning accountability and oversight over automated decision-making, especially vis-à-vis individuals’ rights to explanation and inferences? I think the A-level results fiasco taught us all a thing or two about surprising and wrong things that can be found in algorithms and consequential inferences affecting people. It is necessary to be able to have explanations and understanding of the parameters that are used even if algorithms are not disclosed. Can the Minister confirm that requirements for this type of information are not prevented by the agreement?
Lord Howell of Guildford (Con) [V]
My Lords, I join in warmly congratulating the noble Lord, Lord Darroch, and welcome him and indeed his wisdom to our counsels. I declare interests in advising for many years two major Japanese companies and writing a regular column since the 1980s in their newspapers, and as UK chairman for 10 years of the UK-Japan 2000 Group, renamed the UK-Japan 21st Century group when we got to the millennium, which in those days included such legendary giants as “Sony” Morita and Shoichiro Toyoda. However, I want to concentrate here on the less business-related and more strategic significance of this agreement.
The agreement, which is thoroughly modern in focusing on digital trade and services, has had a rather grudging reception in some quarters, like the Financial Times, which has emphasised the undoubtedly small immediate trade aspects compared with large issues like the EU, or, as some have said, a new trade deal with the United States—although I have always been a bit sceptical about the wisdom of disturbing our present very strong trade with the USA by going for something bigger still: a slight case of the dog with a bone seeing the bigger bone in the pool.
This new agreement with Japan has also had a thorough and impressive going-over, as we have heard, from our EU International Agreements Sub-Committee, as well as from the independent Regulatory Policy Committee. It made the point, which I agree with, that we have no bilateral investment treaty with Japan, nor does this agreement create one, which is slightly odd when one considers that foreign direct investment is, has been and will often be the main trade driver.
However, the new agreement is significant for the UK—and maybe for Japan—for a number of reasons that go very much deeper than just trade. It marks a firm step towards the realisation in British policy circles that the future will be increasingly Asian. It could therefore herald a new era of increased collaboration with Japan, not just in trade relations but in much wider fields. For instance, extending the Five Eyes intelligence alliance would be an obvious next step on this front. Opening the gateway for us to join the Comprehensive and Progressive TPP is another, already featured. Aid co-operation could also increase, although it is worth noting in passing that Japan runs an excellent aid programme at only 0.29% of its GDP.
Another shift of huge significance could be about to occur on the UK home front as well. Ten years ago we were all talking about a golden era of UK-China relations, ushering in extensive Chinese involvement in many aspects of the British economy, from nuclear power to railways, ports, property, public utilities and even football clubs. However, in the decades since then, under the rule of Xi Jinping, China has forfeited much of the UK’s broad goodwill by its growingly assertive and prickly attitudes and disruptive policies, not least in Hong Kong. Maybe this will change under better leadership but, meanwhile, it could be that the golden era of UK relations with China is set to be replaced by a golden era of relations with Japan. The trade deal is a harbinger of just that. This would make a great deal of sense, since the two nations working in tandem could be a considerable force for good in a fragmented and frightened world and at a time when the voice and influence of a divided United States has regrettably become “an uncertain trumpet”—at least up until now.
Perhaps the new Prime Minister, Yoshihide Suga, could open his premiership not only by welcoming the new trade deal, as he has already done, but by recognising that this is one step along a road to very much closer co-operation in almost every field—security, defence, culture and intelligence included—and that Japan and the UK, working in harmony, constitute a formidable nexus around which the 21st-century connectivity between east and west can continue to be expanded.
Lord Loomba (CB) [V]
My Lords, I share the Government’s pleasure at signing the trade agreement between Japan and the UK, their first trade deal outside the EU. However, the agreement raises some issues, especially as there appears to have been some overselling by the Government on their achievement in signing it.
The first issue relates to an agreement with the EU on diagonal cumulation, so that goods bought from Japan and then incorporated into British goods can be sold on in the EU with the UK as the country of origin. At this point, we do not have such an agreement in place. This is no small matter, as without it—and time is tight on reaching agreement—businesses may find themselves unable to sell their product in an EU country either at all or, to be able to do so, with increased costs.
Secondly, tariff-rate quotas are problematic for UK companies. For instance, there is a mixed bag for agriculture, with products such as cheese and wheat capable of zero-rate tariffs, while products such as butter, whey and sugar have lost all access to lower tariffs.
There also appears to be some confusion over how access to zero tariff-rate quotas will operate in practice. One report suggests that zero rates will be available only once EU companies have used up their share of the quota, while a second believes that the zero rate will be available on point of delivery. One suggests that UK companies will only benefit from anything left after the EU has taken up its share, while the other says that UK companies that get in first will access it. Can the Minister explain the correct position?
Lord Gold (Con) [V]
I too congratulate the noble Lord, Lord Darroch of Kew, on his insightful maiden speech and welcome him to the House. I am sure that, when we return to normal business, we will all want to hear his reflections on the soon-to-be-ending Trump White House.
The Government are to be commended for securing a new economic partnership with Japan in what has been an extremely short timespan when compared with normal trade negotiations. The achievement is particularly notable, as this is the first time that the UK has had to negotiate a trade treaty in some 40 years. When asked by the EU International Agreements Sub-Committee to identify the most significant feature of this agreement, one witness stated that it was in securing the agreement itself, in that by concluding an agreement we have avoided a trade impasse from 31 December and avoided being at a competitive disadvantage with EU exporters, which would have been particularly damaging.
Although the Government’s aim in their negotiations was to create an agreement as ambitious, high-standard and mutually beneficial as the EU-Japan economic partnership agreement, enhanced in areas of mutual interest, the reality is that this is a rollover of the EPA with certain additional features. As some have said, it is a rollover or continuity-plus agreement. This in itself is to be commended.
In acknowledging this achievement, however, there was no need to oversell what had been achieved, which, as other noble Lords have pointed out, the Government have to some extent done. As the report acknowledges, the agreement provides valuable continuity for businesses, consumers and other stakeholders and it avoids a return to WTO trading terms. Those negotiating our post-Brexit arrangements with the EU should please take note.
However, as other noble Lords have stated, the agreement is not perfect. For example, with regard to tariff-rate quotas for agriculture and food exports to Japan, the EU is given priority and the UK can only use the remaining headroom if there is any. Importers will not know until some time after purchase whether the imported items attract duty. Indeed, they may even have to pay the duty in advance or give security without knowing whether duty is payable. These factors may well be a disincentive to purchasing British products.
Nevertheless, the add-on features to the Japan agreement may prove significant, particularly in financial services and in relation to digital and e-commerce. The agreement also offers a potential extension of geographical indications for unique British products from seven to potentially over 70, although whether this can be fully achieved is at present somewhat speculative and may take some time.
In its work, the sub-committee, of which I have had the honour of being part, has learned a great deal, both on the way in which scrutiny of treaties might be undertaken and on how the process of negotiation might be improved. The Government have established a series of new trade advisory groups, which will identify business needs and set out what they seek in their aims for the negotiation. For true benefit to be gained from these advisory groups, it is necessary that they are kept informed and that there is an open dialogue with the relevant group so that those negotiating the treaty are aware of any worrying concerns and can hopefully cover these in the negotiation. Once the text is drafted, it may be too late to make changes.
The CRaG procedure provides a tight timetable for scrutiny of new treaties. By briefing the sub-committee in both public and private sessions and by providing confidential access to documents, the department has enabled the committee to undertake its work far more efficiently than would otherwise have been the case. I hope that the department has itself benefited from timely feedback from the sub-committee as the negotiations have continued and that this will be a regular feature as further treaties are negotiated.
The Deputy Chairman of Committees (Baroness Garden of Frognal) (LD)
I call the noble and learned Lord, Lord Morris of Aberavon. Lord Morris, are you there? Lord Morris, we cannot hear you. We may need to carry on and come back to you if there is time. I now call the noble Lord, Lord Shipley.
Lord Shipley (LD) [V]
My Lords, I congratulate the noble Lord, Lord Darroch of Kew, on his excellent maiden speech and on his clear analysis of this trade agreement.
I am pleased that we are having this debate today and I say at the outset that this trade agreement with Japan is most welcome. I live in a region—the north-east of England—that has benefited significantly from Japanese investment in recent years and wants to go on doing so. The north-east has a long and valued history of trading with Japan, ever since the first official delegation from Japan came to the UK in 1862. The delegation visited two cities, London and Newcastle, to understand better the impact of the Industrial Revolution, where it met civic leaders, engineers and inventors. It was the start of a long and fruitful trading relationship over several decades.
Today, Japanese investment has generated many thousands of jobs in the north-east. Yet we still do not know what our trading relationship with the EU will be in just 36 days’ time. This matters profoundly. This trade agreement is good news in keeping tariffs down, but Japanese companies in the UK need markets to sell into without barriers to their trade. A week ago, in an interview with Reuters, Nissan’s chief operating officer said that its UK business would not be sustainable in the event of a Brexit that added major costs to its business model.
Many thousands of jobs are dependent on the Government securing a good EU trade deal. Is there going to be one? There are, as I said, just 36 days to go. The concerns of the North East England Chamber of Commerce, which we heard about earlier, are amply justified. This is the UK’s first trade agreement on a large scale and it is with our fourth largest trading partner outside the EU, with trade being worth £32 billion in 2019.
It is, however, unfortunate that Ministers were so tempted to engage in hyperbole by claiming that the agreement would increase UK-Japan trade by £15.2 billion over 15 years, somehow forgetting that the estimate of the growth in trade was actually based on the expected increases from before the introduction of the EU-Japan trade agreement two years ago when we were still EU members. Can the Minister confirm what the real increase is expected to be as a direct result of the negotiation of this agreement?
As we have heard, the agreement projects a growth in GDP of 0.07% over 15 years. It broadly replicates our existing agreement via the EU with Japan, with the addition of some important improvements in digital services and in the system of geographical indications. But today trade between the UK and the EU is 20 times bigger than that between the UK and Japan. This agreement will be of limited value if we cannot access EU markets as we do now.
As we have also heard, the EU will remain so much bigger a market for the UK for the foreseeable future, even allowing for possible further access to Pacific markets. Some 50% of UK trade is with the EU, compared with 2% with Japan; that is, £672 billion with the EU, compared with £32 billion with Japan. These are important figures for us to remember as we seek to develop our trading relations with Japan, which we can and must. But to do so requires continued access to EU markets, as we have it now and as so many speakers today have emphasised.
Baroness Hooper (Con)
My Lords, although I am not a member of the committee which prepared this report, as a recently appointed trade envoy for three central American countries—Panama, Costa Rica and the Dominican Republic—I am naturally interested in the very important scrutiny procedures which we will now have to carry out. I congratulate the noble and learned Lord, Lord Goldsmith, and his committee on producing this report in record time. This debate, and yesterday’s in the House of Commons, are therefore very useful in raising issues that need further clarification and, indeed, in emphasising the importance of completing the EU trade agreement.
I should also flag up the fact that I am a long-time vice-chairman of the All-Party Parliamentary Group on Japan, so I am fully aware of the cultural links and the good will which exist between our two countries. This, I believe, will be helpful in interpreting the deal in the future and in resolving any disputes that may arise.
As the 18th speaker in this debate, I am aware that many of the questions which I had in mind have been well aired, so I will confine myself to three. First, on the ongoing analysis and monitoring that are envisaged, the analysis which caught my eye and on which the deal was based suggests that there will be a trade increase of £15.7 billion and an increase in UK workers’ wages of £800 million, compared with the 2019 levels. That is quite a statement. What procedures are envisaged to check that these statements are fulfilled? Will it be left to Parliament to initiate debates and question Ministers or are the Government committed to regular reporting?
Secondly, since we recognise that trade agreements by themselves do not create trade, it is a question of boots on the ground; my noble friend Lord Lilley underlined this and the noble Baroness, Lady Liddell, also talked on this front. In terms of trade promotion for SMEs in particular, what plans do the Government have to encourage SMEs to get involved? I believe that on the whole the big boys can look after themselves but SMEs certainly need support and, as a result, may be able to take advantage of some of the new niche business opportunities that are made available as a result of this agreement.
Thirdly and finally, I am tempted to raise the issue of energy. As the Energy Minister in your Lordships’ House way back in the 1980s when we were privatising the electricity industry, we stood shoulder to shoulder with Japan on the subject of nuclear energy being a clean energy. There was a particularly memorable meeting of the IAEA—the International Atomic Energy Agency—in Paris when Sweden was urging the closing down of all nuclear production, when that relationship was very useful. But in the context of today and of this debate, green energy and renewables have to be at the forefront. What are the Government’s expectations on this front?
Lord Bilimoria (CB) [V]
My Lords, the total trade in goods and services between the UK and Japan was almost £32 billion last year. Japan is the world’s third largest economy and the UK is the fifth or sixth largest, at any time, and a major importer and exporter of goods. The UK is currently Japan’s 12th largest trading partner, accounting for 2.1% of all Japanese trade.
The deal has further economic significance because it lays the foundation for the UK’s future accession to the CPTPP, as many noble Lords have mentioned. Given that Japan is the second largest investor in the north-east of England, the UK could have used the agreement to incorporate commitments to boost and diversify Japanese investment across the country. The next step must be for the Department for International Trade to monitor implementation and launch a targeted campaign to ensure that businesses of all sizes take advantage of the deal. Does the Minister agree? As president of the CBI, I say that we stand ready to work with the Government to promote the deal to businesses in all regions and nations of the UK.
The additional benefits that the deal provides are perhaps not as significant as they might have been had the deal been negotiated over a longer period of time. As has been said, the pressure to secure a deal before the end of 2020 meant that both sides had to be realistic about their ambitions in what was really about four months of negotiations. The strategy was always to secure continuity as a baseline and avoid defaulting on WTO terms. In that regard, the DIT has achieved its aim and deserves full credit.
The Government see the agreement as a platform for the UK’s accession to the CPTPP and their hope was that by joining the CPTPP—whose signatories, let us remind ourselves, make up around 13.5% of global GDP—UK businesses will have improved access to the fast-growth Asia-Pacific region and the ASEAN trading bloc, while increasing the resilience and diversity of UK supply chains in this area.
The deal has huge economic significance. If you compare the UK-Japan CEPA with the EU-Japan JEEPA, the agreement has, broadly, secured continuity of the existing agreements with the EU, with some additional provisions that address business asks. The key areas where it goes further include e-commerce, rules of origin, IP and financial services. UK business sees this Japan CEPA as an opportunity to increase market access in services, reducing obstacles to mobility and leading to the development of a more inclusive labour market. This is particularly important for financial services, which of course are the UK’s biggest export to Japan, accounting for 28% of all UK exports.
The main gain for business in this area is that CEPA contains some new mode 4 provisions, which broaden the scope for obtaining business visas for intra-transferees. UK business also saw this agreement as an opportunity to tailor provisions to address UK-specific concerns and data standard protection, bearing in mind the slightly different approaches to data taken between JEEPA and the CPTPP. Improving intellectual property rules will tackle the counterfeiting of UK products and allow free bilateral data flows to take advantage of the UK Japanese partnerships in R&D innovation and technologies. In these areas, UK businesses will benefit from commitments such as prohibition of data localisation for stricter regulations on IP infringement.
I congratulate the noble and learned Lord, Lord Goldsmith, and his committee on this report. It mentions that the SMEs chapter of CEPA, while welcome, does not in itself offer significant benefit to UK SMEs. Unlike SME chapters in many other trade deals, including the EU-Japan agreement, it simply offers facilitation. As I have said, this is where the Government need to work to encourage businesses to take advantage of FTAs. As president of the CBI, I can say that it stands by to help do this.
The CEPA does not offer a comprehensive stand-alone investment chapter, which would have been of benefit to the UK once it is no longer a member of the EU. The UK-Japan agreement is also important because it sets a baseline for the EU and US agreements.
The noble Lord, Lord Darroch, whom we welcome—particularly as a fellow Chelsea supporter—and the noble Lord, Lord Kerr, in their excellent speeches, stated the importance of the EU, as did the noble Lord, Lord Hain. It accounts for 47% of our trade. If we look at it in perspective, Japan is much smaller. America is our biggest trading partner with 15%, Germany is number 2 with 9% and Holland number 3 with 7%. The whole of the Commonwealth accounts for 10%. This rollover is very important. We nearly did not roll over the Canada deal. It has been rolled over now, but the main point is that the Canada deal rollover is the basis for building on a super-duper bespoke deal for the UK and Canada going forward. Let us hope that we get an EU deal now that can be the basis on which we can build for the future.
Viscount Trenchard (Con)
My Lords, I declare my interests as stated in the register. I thank the noble and learned Lord, Lord Goldsmith, for his report and for introducing this debate today. Having spent 11 years living and working in Japan and a considerable additional period on business trips to the country, I am delighted that the UK-Japan CEPA was the first of our EU trade agreements to be rolled over, as an enhanced continuity trade agreement.
I also welcome the noble Lord, Lord Darroch of Kew, to the House and congratulate him on his impressive maiden speech. The noble Lord and I gained our first experience of expatriate life in the same city, Tokyo, at the same time, which is interesting. I served under six ambassadors in Japan, including the great Sir Hugh Cortazzi, who perhaps was the one person whose effectiveness inspired me to study Japanese seriously.
The committee’s report is somewhat too grudging in its assessment of what has been achieved in only four months and against the predictions of the naysayers. It is perhaps also too reluctant to give fair credit to the political significance of the agreement against the background of Brexit and the launch of global Britain. Does the Minister also agree that it underestimates the importance of the side letter to CEPA, in which the Government of Japan express their firm determination to support the early accession of the United Kingdom to the CPTPP?
Japanese officials have been encouraging the other 10 members of the CPTPP to understand the benefits of UK accession for some time. The US had persuaded Japan to include significant agricultural quotas in its CPTPP schedules, which are still there after US withdrawal. This is one reason why early UK accession makes a great deal of sense. In addition, Japan believes that early participation by the UK and the workings of the CPTPP will maximise British influence, which will help to ensure that the CPTPP develops as a global beacon and exemplar of the benefits of rules-based free trade, contributing greatly to growing prosperity for many millions across the world.
In May 1998, I was honoured to be allowed to introduce a debate in your Lordships’ House on the state of Anglo-Japanese relations at the time the then Emperor and Empress of Japan arrived for their state visit. At that time, Japanese companies in Britain accounted for 65,000 jobs. Twenty-three years on, the planned state visit by Japan’s new Emperor and Empress has regrettably had to be postponed as a result of the Covid-19 pandemic. But the number of jobs provided in the UK by Japanese companies has more than doubled, to around 150,000. Since then, trade and investment have grown impressively and the cumulative stock of foreign direct investment from Japan now stands at £128.9 billion.
Cultural and educational exchanges between the two countries have also continued to develop impressively. In 1998, defence co-operation between Japan and Britain amounted to not much more than the provision of courtesy vehicles by Honda and Mitsubishi Motors at the Royal International Air Tattoo. Now, Japan is an increasingly important partner in both defence operations and procurement, all three armed services having conducted exercises with their Japanese counterparts in the last three years. Our Japanese friends had been disturbed by the emphasis placed on the UK’s developing relationship with China and are now relieved that Ministers have stopped talking about the “golden era” of our relationship with that country.
Japan’s soft power on the diplomatic stage has increased dramatically since 1997, particularly during the period in office of Mr Shinzō Abe, who has recently had to stand down for health reasons. My right honourable friend the Secretary of State for International Trade and her team deserve to be congratulated on the CEPA, but it has also been possible to execute it in such a short timescale as a result of the very positive approach towards Anglo-Japanese co-operation held by the previous Prime Minister, Mr Shinzō Abe and his Government, including his chief Cabinet Secretary, Mr Yoshihide Suga who, of course, has now succeeded Mr Abe as Prime Minister. This augurs well for the continued positive developments in bilateral relations. Given more time, perhaps the agreement might have included an investment protection chapter. Will the Minister tell us whether that could be added later? Does he also agree that the digital and data provisions illustrate well the benefits of being able to diverge from cumbersome EU regulations in that field?
Baroness Bennett of Manor Castle (GP) [V]
My Lords, coming this far down a long and distinguished speakers’ list, including the welcome expertise of the noble Lord, Lord Darroch of Kew, whom we already know has a very sharp eye for political realities and the ability to communicate them clearly, I seek to meet my regular aim of adding to the debate, rather than repeating points already made. However, I note how many speakers have highlighted how this continuity-plus agreement has been radically oversold by the Government as ground-breaking.
That the Government have a problem with trust is a statement of the obvious. They seem to fail to understand that assertion is not fact. The disrespect for reality-based politics dates back to at least the second Bush Administration in the US and seems to have spread its tentacles across the Atlantic with great success. Our Government would do well to recover a respect for reality when commenting on future trade agreements, not just for their own future, but for the level of trust and engagement in politics. The noble Lord, Lord Woolley, has just powerfully commented on that in the Chamber. It is something that the UK has a particular problem with.
As a former resident of Bangkok, where I counted as friends a number of members of the large Japanese community, I found the extended focus on blue cheese exports particularly grating—not to coin a pun. Of course, we can understand the attraction of strange and exotic foods, but 100,000 tonnes a year in sales is not, I venture to say, something we are likely to see growing significantly in this particular market.
There are many things missing here. A crucial area, highlighted by the consumer organisation Which?, is the digital. This potentially undermines the general data protection regulation, and threatens the data adequacy agreement with the EU, as many noble lords have already addressed. There are also grave concerns in the area of animal welfare. As the RSPCA has noted, there is no new language, only poor existing language that does not even recognise animals as sentient beings, something that my noble friend Lady Jones of Moulsecoomb has often addressed in the House. There is no provision to implement the Government’s commitment not to lower animal standards in free trade agreements. We come back to trust again. This part of the agreement says:
“The Parties will cooperate for their mutual benefit on matters of animal welfare with a focus on farmed animals with a view to improving the mutual understanding of their respective laws and regulations.”
I can only concur with Compassion in World Farming in saying that this wording is meaningless.
I want to focus an issue that I have been engaging with this week through the All-Party Parliamentary Group on Antibiotics. In 2017, the UK used 281 tonnes of antibiotics in animal agriculture and Japan 809 tonnes. Those figures come from the excellent Antibiotic Footprint website. It struck me in preparing for today that perhaps we could bring our technological leadership a step further, compared to the other place, by bringing slides into our speeches, for the image of the size of each nation’s footprint is a compelling and telling one—although, of course, the United States looms enormously, as it would in a similar graphic for greenhouse gas emissions and so many other environmental destructions, something to keep in mind when a trade deal there is potentially on the table.
Japan is working on reducing antibiotic use, but is clearly well behind us, something to think about at the end of World Antimicrobial Awareness Week. That is closely related to the issue of animal welfare, which is a crucial issue in its own right but also crucial for human health, as the issue of mink and Covid-19 has recently illustrated only too clearly. The risks of factory farming anywhere in the world are obvious, and trade should be one of the mechanisms we are using to tackle that.
To pick up a point made by the noble Lord, Lord Oates, about the truly world-leading work by Costa Rica, Fiji, Iceland, Norway and Switzerland with New Zealand on the Agreement on Climate Change, Trade and Sustainability, and to quote their agreement,
“trade policies, practices and rules have an important and substantive role to play”
in tackling the climate emergency, and indeed broader issues of sustainability.
Your Lordships have heard me ask before a question too often ignored. What is the economy for, and what is trade for, as a subset of that question? Growing GDP is the assessment most commonly used, yet we know that GDP is a terrible measure of national progress. Chasing it has given us a trashed planet, an insecure society and a dreadful state of public health. This agreement does not live up to the Government’s promises of improvement and does not meet the crises facing us, so it can only be called a failure, and a failure to live up to the promise. New Zealand and its allies are leading; we are again trailing far behind.
Baroness Henig (Lab)
My Lords, I congratulate the noble Lord, Lord Darroch, on his excellent speech. Clearly, he will be a great asset in future debates in your Lordships’ House, and I look forward to hearing from him.
This is an important deal for the United Kingdom, but it also raises significant issues relating to scrutiny, as my noble and learned friend Lord Goldsmith and the noble Baroness, Lady Hooper, have said. Effective scrutiny requires access to clear and relevant information. I turned first to the Government’s impact assessment and read it with increasing frustration and bewilderment. I found it turgid, difficult to follow and very unhelpful. It clearly was not aimed at a Back-Bench Member of the Lords such as me, seeking to understand the key aspects of this deal. Who was the impact assessment aimed at and why was it written in the way it was?
I felt better when I read the verdict from the International Agreements Sub-Committee on the assessment, that it
“fails to provide the information that Parliament and the public need if they are to evaluate”
the benefits of the agreement, and that it left many questions unanswered. The committee further cautioned the Government not to oversell their achievements, and I would endorse that, having followed the infamous Twitter debate about duty on soy sauce, which caused huge interest on the internet. It illustrated very clearly the dangers for the Government of inviting ridicule over their inflated claims. I note that the Minister agreed that her original tweet was an error, and she put it down to a display of exuberance. We really need to be able to access sober and realistic financial and economic analysis from the Government on trade deals.
In contrast, the report of the International Agreements Sub-Committee was excellent: clear, informative and helpful in its assessments. However, there is still one issue where I am unclear about what impact the agreement may have—along, I think, with many other noble Lords —in relation to the new provisions on international data flows. Like the noble Baroness, Lady Bennett, I have seen it suggested that these provisions will endanger a deal on data adequacy with the EU, which many businesses say will be crucial to them. Can the Minister clarify the Government’s position on that issue?
I note that other provisions hinge on a deal with the EU for their effectiveness, especially in Northern Ireland. Has the Minister any updates for us on the EU negotiations, given how close we are to the wire on that one?
I was extremely concerned to hear about the time pressures that the International Agreements Sub-Committee felt that it was under in scrutinising this treaty and hearing from a sufficiently broad range of experts. Clearly, more time is going to be needed in this area. I have in the past suggested that trade deals should be accompanied by an independent expert assessment of the main issues covered in a deal. Is that something that might assist the committee in its future treaty scrutiny? I think that those of us who are not members of that committee would find an independent report and the committee’s assessment of it, alongside the Government’s impact assessment, very helpful.
I also query whether a three-hour debate such as we are having now is sufficient time for Back-Bench scrutiny, especially in future, when the treaty is not mainly rolled over but may be a completely new agreement.
Finally, I mention involvement of NGOs and trade bodies. We have had useful feedback from some of those bodies that were consulted, such as the City of London Corporation, the Blavatnik School of Government at Oxford and Which? I very much agree with Which? about the importance of safeguarding consumer rights and protections in future deals. I also agree with the noble Baroness, Lady Fairhead, who stressed recently in Committee on the Trade Bill the importance of engagement with wider audiences. I know that some trade bodies are regularly in contact with the Department for International Trade, but many are not on official lists, and it will be vital in future to mobilise as wide a range as possible of businesses and commerce effectively behind future trade deals. I agree very much with the noble Baroness, Lady Hooper, on that one.
I have a suggestion for the Minister. The treaty with Japan has as one of its objectives to pave the way for the United Kingdom to join the CPTPP. That will raise issues far more fundamental and complicated for businesses and consumers than anything in this largely rolled-over treaty. The text of the CPTPP is already in the public domain, so there is nothing to stop the Government openly engaging and consulting on it and inviting a wide range of businesses, NGOs and trade bodies to participate in preliminary discussions. That would be a clear demonstration that the Government are serious in their desire to consult widely and engage fully in their future trade negotiations, not just with Parliament but with the wider business community and consumers.
Baroness Bottomley of Nettlestone (Con)
My Lords, I am delighted to speak in this debate, and congratulate all those involved. Fortunately, I am in the minority as someone who was not a member of the International Agreements Sub-Committee, so your Lordships will be spared my insights on that matter—but I have certainly enjoyed the comments from members of the committee, and will quite soon regard myself as an expert as well, I am sure.
I am delighted to have been present for the maiden speech of the noble Lord, Lord Darroch. I have always thought of him as a man of erudition, insight and wisdom. As someone who has served in Brussels, Washington and Japan as well as Whitehall, he evidently has a huge amount to offer us in our deliberations. My only disagreement is that I heard him say that he had always been treated with “matchless courtesy” and “forensic accuracy” when he appeared before committees. Any colleagues who have previously been in another place would not necessarily describe finding those things in a parliamentary Select Committee—but long may it last, and it may be a sign of things to come.
This trade agreement is a tremendous achievement that enables Britain to reassert our long-standing commitment to open, rules-based free trade as we leave the EU, stepping back on to the international stage as an independent, competitive trading nation with a global perspective.
I need to declare my interests: first, I am on an advisory council for a Japanese research-based pharmaceutical business and, secondly, I am a long-term director of the International Chamber of Commerce UK, an organisation which is unequivocally committed to free trade and has worked relentlessly over the years and in many ways to assist in this critical area of policy development, which is all too easily jeopardised in today’s world.
Japan is one of the largest, most open economies in the world, with 4% of world’s GDP. It remains our fourth-largest non-EU export partner and 12th including EU countries. Great credit should be given to the key International Trade Ministers who have invested massive energy, commitment and tenacity in this outcome. When visiting Japan recently, I was struck by how highly our Ministers are praised for their determination, energy and positivity, in particular the former Secretary of State for International Trade, the right honourable Liam Fox MP, and the present Secretary of State, the right honourable Liz Truss. A wonderful addition to the team has been my noble friend Lord Grimstone, a seasoned expert in many parts of the world and a wily, knowledgeable individual who greatly adds to our activities to secure effective, positive trade agreements.
Of course, this is only the beginning. I was influenced by the late Minister, Ernest Marples, who said, “You don’t need brains to be a Minister; the civil servants have them all”. I pay credit to the civil servants at the Department for International Trade, particularly Antonia Romeo, who from a standing start have developed a highly effective department. Thinking of the noble Lord, Lord Darroch, joining us, we are also much indebted to successive, highly-talented ambassadors, most recently Paul Madden—who my noble friend Lord Lansley referred to—Sir Tim Hitchens and Sir David Warren. When I was around, there was Sir John Whitehead, Sir John Boyd and Sir David Wright, all of whom were shrewd and wise in developing those commercial relationships and highly knowledgeable and effective.
Like others of my generation, I was influenced by the injunction of my Prime Minister at the time not overly to focus on the EU but to befriend and emulate Japan, a country where she found so many areas for common cause. Japan is the future. Over subsequent decades, as the noble Lord, Lord Kerr, said, we have seen investment, trading relationships and so forth develop. I led a delegation with Sir Richard Sykes, Prescribe UK, on the important pharmaceutical industry. We have heard about electronics, the motor industry and whisky—an ongoing saga even in my first visit in 1987 with, I believe, my noble friend Lord Howell. Anyone who heard yesterday’s debate in another place will have witnessed the degree to which Members of Parliament up and down the country, particularly those from the north-east and Wales, talked about their important trading relationships with and investments from Japan.
As with all agreements where trust is required to deliver sustainable results, soft power plays a central part. Our positive relations with Japan go much deeper than the commercial and economic. I have mentioned the tremendous work done by the British Council and VisitBritain over the decades. In 2019, the UK was ranked fifth for the most desired overseas travel destinations among people in Japan. Our cultures, though different in many ways, share a profound mutual fascination. When the V&A’s William Morris exhibition went on tour to Tokyo, more people visited it there than did in London. I remember Sir Geoffrey Cass, then chairman of the Royal Shakespeare Company, talking about the rapt, massive audiences who followed its performances there.
I hope that all my noble friends have purchased my noble friend Lord Howell’s delightful book, The Japan Affair, in which he details 35 years of the Japanese-British relationship based on his regular articles for the Japan Times. I for one strongly endorse his argument that we should recognise the strategic significance of this agreement and build it wider.
Viscount Younger of Leckie (Con)
I am sorry to interrupt the noble Baroness. It would be wise if she could conclude her remarks.
Baroness Bottomley of Nettlestone (Con)
Whether this agreement is a great leap forward or a simple step, we will learn from it and, I hope, in future develop it. I am delighted that it was with Japan that we made this first trade agreement.
Lord Morris of Aberavon (Lab) [V]
My Lords, I regret that there were technical difficulties when I was called earlier. My noble and learned friend Lord Goldsmith has introduced most persuasively the report of the committee on which I serve as presented to the House. It is one of many that will be presented in due course.
My noble and learned friend has made a major contribution in the way in which he has chaired the committee and mastered the tsunami of paperwork which has passed over our desks. I fear that my expertise in trade matters is limited and I confine myself in my membership of the committee to ensuring that the devolved Governments are properly consulted and that all treaties help support agriculture, on which I have some knowledge.
The proceedings of the committee brought back happy memories of a visit I made many years ago leading a UK mission to Japan to seek inward investment. As an aside, perhaps I may say that I was introduced to the president of the Japanese rugby union, with whom I shared a common interest. He told me that he was an ex-kamikaze pilot. When I queried the “ex”, he said that he was alive and well because he had been ordered back due to engine failure.
The United Kingdom has always been regarded by Japan as a stepping stone to the European Union, particularly for the motor, television and electronic industries. Given that so many parts required for automotive building in the UK flow backwards and forwards between many countries, I am far from sure about what the future holds for existing and further inward investment. I am not optimistic from the noises and the decisions that apparently have already been made.
One of the attractions of the UK for such investment is the quality and flexibility of labour. On my visit to the Japanese Sony plant at Bridgend when I was the Welsh Secretary, I was impressed by the prominence given by the management to the full-time official of the one union on the plant. One union in a plant was a basic requirement of the Japanese, and it worked.
I come to the issue that I wish to emphasise. In our report, we say that the Government in some respects have presented the Japanese deal in a way that is
“overselling the extent of CEPA’s achievements in going beyond JEEPA”.
The International Trade Committee of the other place has noted that the difference between CEPA and JEEPA
“may not be as extensive as claimed”.
I want to ensure that this agreement has not been oversold. That would be a terrible tragedy. Both committees share a common reservation about the Government’s impact assessment and its failure to provide information to enable us to evaluate how well they have done. If proper examinations by both Houses are to be the blueprint for future agreements, I hope that the Minister will note specifically our concern and that of the other place about this matter. It is essential in all these matters that the Department for International Trade provide the assessment of the value of the benefits that CEPA presents above and beyond those conferred by JEEPA as an example for future examination of treaties. That must be a requirement and a blueprint for the future.
Lord Liddle (Lab) [V]
My Lords, I, too, welcome the noble Lord, Lord Darroch, to the House of Lords. In my seven and a half years in Downing Street, I worked closely with him and, for me, he is in a long line of very distinguished diplomats who tried to make the best of Britain’s relationship with Europe. I was very interested to hear his comments about his early posting in Japan. The Japanese economic relationship with Britain is crucial, and I remember how, in the 1980s, a decade of industrial gloom, inward investment from Japan was a symbol of hope, particularly in the north-east, south Wales and other depressed areas. The noble Lord, Lord Kerr, is right to remind us that a lot of what lay behind that was our membership of the single market, which was then being born and being deepened. If there is a lesson of that history, it surely must be that the future success of our relationships in the Pacific, which will be very important—the doorway opened up to the Pacific partnership is very important—depends on us maintaining our close relationship with the European single market, which is still our biggest market.
What of the lessons of the present agreement? If I were being cynical about it—and I think this is how a European trade official would describe it—Japan has extracted a high price for what is effectively a continuity agreement. Eighty-three per cent of the increased trade is estimated to be on the Japanese side. That 83/17 balance is a pretty good result for the Japanese. This was a predictable result: we were the demandeur. There is a political need on the Government’s part, which I think they must be very wary of, to demonstrate that deals can be done and to claim that any deal is a great success. There is also the timing. It took forever to negotiate the EU-Japan deal—I think it started off when my noble friend Lord Mandelson was Trade Commissioner. This deal we achieved in four months, so it was never going to be a great advantage to us.
In future, we must be more strategic and less naive about trade. To again use a Brussels expression, we need to be much clearer about where our offensive interests lie in trade negotiations. What are we trying to achieve? Where are we going on digital issues? Where are we going on geographical indications? What is our aim in terms of attracting inward investment? We must have a clear strategic view of these questions rather than just ad hoc negotiation. The Government have not given enough attention to thinking about these issues strategically.
The other point, which is that of the committee’s report on the deal that we are discussing today, is that the quality of our debate about our future trade strategy depends on transparency from the Government—not secrecy, which is what we have had—about how the negotiations have gone. We need transparency and honesty. I see a crucial role for this House, because of our depth of expertise and the civilised way in which we conduct ourselves, in contributing to that public transparency, as the report from your Lordships’ committee has done. I very much hope that, in the review of our committee structures, which is ongoing today, we will continue to devote resources to such scrutiny because if we are not prepared to do it, I do not know who else will be.
Baroness McIntosh of Pickering (Con)
My Lords, I thank the noble and learned Lord, Lord Goldsmith, and his committee for securing this debate and for their excellent report, which has been most helpful in preparing today.
I also welcome most warmly the noble Lord, Lord Darroch of Kew, and congratulate him on his maiden speech. I take this opportunity to thank him for all the help he provided me in my capacity as MEP when he was at the UK representation and its help in briefing MEPs for debates in the European Parliament.
The noble Lord, Lord Liddle, and others have spoken of the asymmetry and imbalance in the rollover agreements that have been secured to date. I think it was the noble Lord, Lord Purvis, who secured our debate in the previous Parliament on our agreement with the Faroe Islands, to which we export £90 million—mostly fish—but from which we import £200 million, mostly fish. The noble Lord, Lord Liddle, set out the asymmetry in the agreement before us today.
I welcome the Minister and am delighted to see him in his place today. I take this opportunity to pick up on some his remarks in the form of questions that I hope he will be able to answer. What stood out in the agreement, but which I do not think anyone has mentioned today, are the state aid rules and the rules on subsidies, which are much stricter and reflect the state aid rules we currently have as a member of the single market since the new arrangements came into place. In much the same way as my friend, the noble Baroness, Lady Henig, asked about the deal currently being negotiated, surely my noble friend and his department would wish to move by maintaining the current state aid rules that we have with the European Union if that were to mean that we could close in on a deal on our future relationship with a proper free trade agreement there.
The noble Lord, Lord Trees, asked who will uphold our animal health and environmental protection standards in any future trade deal. I hope my noble friend Lord Grimstone will reply that it will indeed be the Trade and Agriculture Commission. That begs the question that several noble Lords have posed in the debate today about the scrutiny that will be permitted of future trade deals. I hope my noble friend will have a chance to consider the amendment that several of us—I like to think the four wise ladies—have tabled to the Trade Bill to allow sufficient time to scrutinise not just free trade agreements but the recommendations of future Trade and Agriculture Commission reports to enable us to view the criteria it has set and its recommendations on to what extent such agreements reflect and follow those criteria. I congratulate my noble friend and his department on moving to ensure that the commission will have a degree of permanence, which I hope will be further extended before the initial three-year term expires.
I also pay tribute to my right honourable friend Elizabeth Truss, the Secretary of State for Trade. She appointed the first ever agriculture attaché to Beijing, which at the time and since has brought enormous benefits, particularly in the agri-foods sector, which I care about passionately, and more especially in pork. It has enabled all the pork parts that we do not savour in this country to be exported to China and other countries. I hope that, as my noble friend Lord Lansley said, that will be a forerunner and that we will see many more such examples. Learning from a small country like Denmark, it never ceases to amaze me that its exports of agricultural foods often outstrip our own.
I welcome this rollover agreement, although I regret that it is perhaps imbalanced in favour of Japan. However, I hope that it will be the forerunner to others. I hope also that before the 31 December deadline is reached, this House will have had a chance to approve a trade deal on our future relations with the European Union.
Lord Purvis of Tweed (LD)
My Lords, as is the case in many of these trade debates, it is a continuing pleasure to follow the noble Baroness, Lady McIntosh, and I agree with much of what she said. I am sorry to see the Minister’s discomfort with his eye and I admire his resilience during this debate. I wish him a speedy recovery. I also commend the able way in which the noble and learned Lord, Lord Goldsmith, introduced the committee’s report. I commend all the members of the committee who have contributed to the debate today, including my noble friends Lord Oates and Lord Foster. I also agree with the noble Baroness, Lady Henig, that not only is this a thorough report, it is a very readable one. On many aspects, for those of us who are not steeped in the language of negotiation, readable reports on the consequences of trade agreements are of the utmost importance. I also welcome the maiden speech of the noble Lord, Lord Darroch. I serve on the international relations Select Committee. When we visited Washington, he hosted us for a great visit to the embassy and gave us valuable insights into American politics then under the Trump Administration. To our great benefit, everything that he says now will be on the record, and we will value his ongoing contributions.
In Committee on the Trade Bill, I think that the Minister felt that sometimes I was being rather churlish and a bit dour in some of my remarks. He challenged me to welcome signed trade agreements, and I do so; I welcome this agreement. However, not to disappoint him, I regret that we will be starting next year with fewer free trade agreements than we had prior to leaving the EU. I regret that businesses are facing more costs, more complicated red tape, more bureaucratic government processes and export procedures that are still confusing. I did reflect that page 9 of the scoping document for the UK-Japan agreement states:
“We will ensure that processes are predictable at, and away from, the border.”
Unfortunately, at the beginning of 2021, we will have anything but that.
This is a rollover agreement with some elements of addition which have been debated. I have said on a number of occasions during the passage of the Trade Bill and before it that my party has as one of its founding principles free, fair and open trade. We have been a champion of that for over a century. But we also believe in proper parliamentary scrutiny and accountability. For us to judge the benefits of agreements such as this, the scrutiny as set out in the report of the committee is both welcome and necessary. We will require ever deeper analysis to be able to come to a balanced view of the relative benefits to the UK, as the noble Lord, Lord Liddle, and others have indicated, compared with our trading competitors.
However friendly our trading competitors are, they are still competitors to the UK economy. It is my view that the scrutiny processes need to be enhanced, and we will debate that on the Trade Bill over the coming weeks. The reality for trade agreements, which I have learned during my time in this House, is that a Government who need the agreement the most will concede the most. Fundamentally, therefore, we have two questions today: is this deal good for Britain and is it a negotiated deal that provides comparative advantage for the UK as compared with Japan? We have had a lot of references to the Government selling this, but I think that we often operate a John Lewis trade policy—never knowingly undersold. There has certainly been no shortage of hyperbole. The Daily Express, in response to the announcement by Liz Truss of the signature for this deal, shouted
“Brexit Britain makes history as staggering £15 billion Japan trade deal secured.”
If grandiosity was an exportable commodity, our economic woes would be over, and I think that most Daily Express readers would be staggered to learn that, of that £15 billion, only £2.6 billion is to the benefit of the UK and the remainder is to the benefit of Japan. Therefore, parliamentary oversight and the ability for us to approve the mandates and then the agreements signed is vital. It should not be lost on Members of the Grand Committee that while we do not have a say on the setting of the mandate, and nor do we have a say on the final deal, the Japanese Diet will be voting for ratification on an up and down vote.
It is fair to compare the objectives set by the Government with what has then been realised. The Government published their strategic approach document in May 2020, which said that we would see a growth in exports of 21.3% over 15 years, but the final impact assessment states that we will see an increase of 17.2%, falling short of their ambition by nearly 25%, as the committee has alerted us. Can the Minister explain why we have fallen so short?
I want to look a little more closely at the comparative benefit, notwithstanding the remarks of the noble Lord, Lord Lansley, who knows that I hold him in high regard on these issues. The Government’s impact assessment for the UK on the EU-Japan agreement was published in May 2018. It stated that
“The economic assessment is carried out against a baseline”
where the EU-Japan EPA has not been implemented. This was the same for the scoping assessment for the UK-Japan agreement published in May 2020 and the same for the impact assessment published by the Government in October, so the same baseline makes for interesting reading. The Government’s impact assessment for the UK component of the EU-Japan agreement said:
“Compared to a baseline in which the EPA is not in force, we estimate that the beneficial impact of the EPA on UK GDP could range from between £2.1 billion to £3.0 billion per annum in the long run.”
The impact assessment of this agreement suggests that it is just £1.5 billion. The impact assessment for the EU went on to say:
“We estimate that because of the EPA, UK bilateral exports to Japan could increase in the range of £3.3 billion to £5.6 billion.”
The reality set out in the assessment in October this year is £2.6 billion. So even in the estimates of the UK impact on the EU agreement, we fall short. Let us remember that this uses the same baseline as if there had been no agreement in the first place.
Let us look at the sectors. My noble friend Lord Shipley referred to the motor industry in the north, which is absolutely vital to the area. The impact assessment of the EU agreement for the UK would see an increase for the motor vehicle industry of £1 billion, while the impact assessment for this shows no change. The UK is not at any comparative benefit from where we were with the European agreement. I accept that it can sometimes be difficult to compare baseline data when looking at the different circumstances—that is fair—but we are looking at comparisons between 2018, 2019 and 2020 from the same Government. Therefore, if there are differences, the Minister should say in his response that it is difficult to draw direct parallels, and it is incumbent on the Government to give us tracking data showing why the baseline indications are different.
I have a great deal of sympathy with the contribution made by the noble Lord, Lord Lilley. Having sparred quite consistently with him during the trade negotiations on this, I hope that it will not offend him or make him feel uncomfortable if I say that I agree with every single thing he said in his speech today. I am not sure if that helps at all with our relationship, but I do. To try to get a balanced view, I did something I have not done before, which was to read the report of the Regulatory Policy Committee, the existence of which I admit I was not thoroughly au fait with before. It has reviewed the impact assessment well. Page 5 of the report indicates something quite interesting when looking at the baseline data:
“The uncertainty around the use of the ‘do nothing’ baseline should be made clearer in the IA and set in context with the existing EU-Japan FTA.”
I agree. In judging the long-term versus the short-term benefits, in a wonderful understatement it also states on page 5 that:
“There is a noticeable tendency towards highlighting and exploring the beneficial sides of CEPA.”
It goes on to say:
“The motor industry will see a contraction as a result of this.”
The Regulatory Policy Committee goes on to talk about there being no information about the comparative people movement, as the noble Lord, Lord Lansley, indicated. I shall conclude on the element of the UK-Japan balance of trade. On the key element of what our strategic comparison of benefit would be and the impact on our balance of trade, page 43 states that UK exports would increase by 17.2%, as we have heard, but that:
“The paragraph focuses on the increase in the overall trade between the UK and Japan, but does not discuss the UK’s balance of trade, which according to these figures would weaken by £10.4 billion.”
If we are to judge the merits of a trade agreement, we have to look at the comparative benefits for each of the two signatories. We have to compare accurately what the Government said it would be, and the reality. On the overselling of the agreement, I agree with noble Lords: it will put at risk the reputation of all trade agreements going forward if the Government actively oversell the agreement. We are in debt to the committee for bringing many of these points to our attention and I hope the Minister will respond positively to many of the contributions made in this debate. If he can do anything, perhaps he can persuade the Secretary of State to sell a little less and to deliver a little more.
Lord Stevenson of Balmacara (Lab) [V]
My Lords, I thank all speakers for their contributions today. I welcome the noble Lord, Lord Darroch of Kew and congratulate him on his maiden speech. His reflections on the trade agreement before us after such a short time in your Lordships’ House illustrate that he will fit in very well, and we all look forward to his further contributions. I also welcome back my noble friend Lady Liddell and thank her for her contribution today. I extend my sympathy to the Minister on his recent eyesight problems and wish him a speedy recovery.
I welcome the report from the International Agreements Sub-Committee and thank my noble and learned friend Lord Goldsmith for his excellent introduction. From the comments of members of the committee who have spoken today, it is obviously a committee which is already working well in what is a new activity, which is probably just as well, as it seems to have quite a lot on its plate. This first substantive report from the IAC is, as its chairman pointed out, about the CEPA signed earlier this year between the UK and Japan, but it is also witness to the scrutiny process for trade treaties that the Government are bringing in. In that sense, it is an historic first for this House and for Parliament. We have had useful and insightful comments on both issues and, as was the case in the Commons when it debated the report of its Select Committee on International Trade yesterday.
Several speakers have mentioned that, notwithstanding changes relating to agriculture and data, and the inclusion of dedicated chapters on women’s economic empowerment and SMEs, CEPA almost entirely replicates the EU-Japan free trade agreement. I agree with the noble Viscount, Lord Trenchard—a rare occurrence—that there is a lot to commend the fact that a roll-over continuity deal is a good thing to have at this time of uncertainty, but the Government would do well to learn from the criticisms made today and elsewhere about their apparent overclaiming of benefits, unwillingness to provide accurate baseline figures and testable estimates of benefits. There is a sensitivity about gaps in the treaty, such as pointed out today, about the lack of an inward investment chapter and better and more targeted support for our creative industries.
I will not go through every issue raised by speakers today, but I would like to mention a few. First, it is obvious that there is an imbalance in the treaty. It is tilted very much in Japan’s favour with the final estimate, if we can believe the figures, revealing that about 83% of the projected increase in trade will go to Japanese exporters. Obviously, no Government should design a trade policy around the minimisation of trade deficits, given that that would lead to a protectionist rejection of imports. Nevertheless, these figures demonstrate that there much greater benefits in the deal for Japanese exporters. However, according to the impact assessment, increased imports from Japan will boost employment in certain industries. But the Government also estimate that there will be negative effects for employment in sectors where Japanese imports will provide cheaper alternatives to home-grown products. As the noble Lord, Lord Kerr, said, it is a bit ingenuous of the Government not to make it clear how much CEPA depends on a satisfactory deal with the EU on cumulation, rules of origin and zero tariffs. I hope the Minister will respond to this when he comes to reply.
Secondly, we need to do better on tariffs, and particularly on TRQs. The EU has 25 separate TRQs with Japan on agricultural goods, of which the UK has managed to secure partial access to 10. Of those 10, the UK gets only leftovers of what the EU has not taken up that year. When you learn that, in practice, Japanese importers have to secure a bank guarantee to import UK goods at the reduced tariff, with a higher tariff charged retrospectively by the Japanese authorities at the end of the year if the EU has taken up its full quota, that means that this bureaucracy and uncertainty will inevitably reduce what Japanese importers will opt for in terms of UK agriculture, which is surely a great pity. The Government have argued that UK exports will not lose out because, by the time the EU increases its use of the TRQs, we will have already joined the CPTPP, therefore securing zero tariffs. However, as others have said, that is hardly a proper response to the issue. Perhaps the Minister will comment when he comes to respond.
On labour issues, trade unions were not able to provide input on any text during the negotiations and drafting of the UK-Japan EPA. This is the latest of a long list of times when the DIT has brushed aside union concerns and rejected opportunities to consult them. Why is this? In many cases, the lack of trade union consultation shows. The labour provisions of the deal have not advanced on those agreed in the EU-Japan EPA, and they are weak and unenforceable. Alongside the missed opportunities to strengthen labour provisions, the UK-Japan CEPA rolls back civil society dialogue. The UK and Japan have to meet with civil society groups only two years after the deal comes into effect, rather than the one-year wait that was contained in the earlier agreement. Will the Minister comment on that?
On digital matters, raised by several noble Lords, including the noble Lord, Lord Oates, the Government say that CEPA will enable a free flow of data while maintaining high standards of protection for personal data. However, many of these elements of the UK-Japan deal are not new. Some are but, by not requiring each other’s companies to follow data localisation, disclose algorithms or hand over encryption keys used to guard proprietary tech and data, CEPA has removed some of the provisions insisted on by the EU to give it control over the activities of Japanese tech companies. Is this a good thing? As well as bringing benefits for UK firms operating in Japan, as it largely will do, these provisions will reduce burdens on and increase proprietary protections for Japanese digital firms wanting to expand business in the UK. However, is this light-touch approach really the way forward? I would be grateful if the Minister could respond when he comes to reply on whether this light-touch regulatory system does not run counter to the Government’s concerns over data protection or, indeed, the imposition of stricter controls on companies over the access to online content. What about the online harms Bill? Does the Minister believe that the positions taken on data localisation can be squared with getting agreement with the EU on the data equivalence issues, and will the position on net neutrality not cause difficulties with the US and Australia, where powerful media interests have been engaged in long-standing campaigns against the principle?
Finally, as others have said, this is a report on the new system of scrutiny, which the Government—sometimes somewhat reluctantly—are ushering in. The Japan deal is being ratified under the procedures laid down in the Constitutional Reform and Governance Act 2010, which dictates that all international treaties must be laid in Parliament for 21 sitting days before they become law. There is no obligation under CRaG for the Government to hold today’s debate but they are doing so, in part to nullify criticism from us, from the committee, the International Trade Select Committee, their own Back-Benchers and the House of Lords about the inadequacy of CRaG as a mechanism to allow scrutiny and approval of trade agreements.
We ought to do better on this. As the noble Lord, Lord Trees, and other noble Lords have said, today’s debate focuses on the signed treaty but ignores the other important steps in this process: the approval of objectives, the receipt of progress reports and the ratification procedure itself. We can do better, and I do not believe that we are far apart. The Government seem adamant that we should continue to operate under the royal prerogatives and leave the CRaG processes alone. I happen to disagree. In the interests of making progress, I suggest to the Minister that we use the time before Report to find a way forward which builds on the progress so far evident today and the experiences that we gain in the next few years, to sort out a proper process worthy of the importance of trade to our country.
The Minister of State, Department for Business, Energy and Industrial Strategy and Department for International Trade (Lord Grimstone of Boscobel) (Con)
My Lords, this has been an extensive and compelling debate. The many thoughtful and measured contributions that we have heard this afternoon have reiterated this House’s ability to express its expertise clearly and authoritatively on the most important issues of the day. The 11 years spent by my noble friend Lord Trenchard in Japan perhaps deserves today’s gold star for knowledge.
On a personal level, I very much thank the noble Lords, Lord Purvis and Lord Stevenson, for their kind remarks about the underlying cause of my rather piratical appearance before noble Lords today.
The UK-Japan comprehensive economic partnership is a very important agreement, not least because it is the first in nearly 50 years that the United Kingdom has struck on its own account with another major economy. It strengthens Britain’s relationship with the third-largest economy in the world. It not only secures the benefits of the existing EU agreement—I ask noble Lords to remember that that was something that many said was impossible—but it goes further in a number of key areas, such as digital and data, the protection of geographical indications, and rules of origin.
At this point, perhaps I may welcome the noble Lord, Lord Darroch of Kew, to his place this afternoon and thank him on behalf of all of us present for electing to make this debate the occasion for his maiden speech. It was a particularly appropriate choice, given his deep experience of Japan. It is clear from his insightful remarks today, combined with his outstanding record of public service, that he will make a significant contribution to the quality of our proceedings.
I also take the opportunity to thank the staff and members of the EU International Agreements Sub-Committee, so capably chaired by the noble and learned Lord, Lord Goldsmith, for the timely production of their report on the UK-Japan CEPA. I fully recognise the enormous amount of effort and labour that it involved, and I am extremely grateful for their work. As the noble and learned Lord, Lord Goldsmith, said, at least we have ended up producing a respectable agreement. I also thank the many members of the committee for their very informed contributions today. I should also thank my noble friend Lady Bottomley for her kind remarks about my officials.
We will talk about scrutiny later, and we will certainly discuss it further at the Report stage of the Trade Bill, but, having examined the sub-committee’s findings and from listening to the many contributions from noble Lords today, it is clear that this thorough and considered report has enhanced the House’s understanding of the key issues in this agreement. To my mind, that is what scrutiny is all about. With those key issues in mind, I would like to address specifically as many of the points raised by noble Lords as I can in the time available.
I will talk, first, about agricultural market access. I believe that we have negotiated a deal that will secure the continuation of strong tariff reductions across a range of agricultural exports—most notably, higher-value pork, beef and salmon. Noble Lords will note that I used the word “continuation”. We will continue to benefit from access to the low tariffs for key food and drink products covered by quotas, such as Stilton cheese, tea extracts and bread mixes.
It is perhaps worth noting that in 2019-20 total UK agri-food exports to Japan were worth around £402 million, of which £271 million related to beverages, spirits and vinegar, and £131 million to other agri-food products. I know that noble Lords have been concerned about tariff-rate quotas, but I remind them that only around £1 million of those exports was covered by TRQs. The deal that we have negotiated has, I think, provided a pragmatic solution, focusing on those quotas with the highest usage and of most value to the UK. The new arrangements cover 99% of the value of UK exports under EU TRQs in 2019-20.
We expect there will continue to be enough surplus volume in the EU TRQs until around 2024, by which time we hope and expect to have joined Trans-Pacific Partnership. The CEPA arrangements therefore—and I may come back to this later—form a pathway to further market access under CPTPP. That has, of course, been committed to by Japan as part of our agreement. The UK and Japan will monitor the implementation of the scheme for all products. Japan has provided a ministerial side letter committing to work closely with the UK to ensure the effective operation of the new scheme, such that the UK receives unfettered access to any under-utilised EU quota for the 10 TRQs covered by the scheme. I can assure the noble Baroness, Lady Bowles of Berkhamsted, that we will work hard to make sure that this process is as streamlined as possible. I will write to the noble Lord, Lord Loomba, if I may, on the points he raised about the TRQs.
Some noble Lords today have raised queries relating to geographical indications. Seven UK GIs are already covered in the agreement. The agreement sets out an improved process for the addition of new GIs. Under CEPA, it has been agreed that all eligible British products will be put through Japan’s GI approval process automatically. This arrangement is significantly better than the terms of the EU-Japan EPA, under which the EU was not able to put forward any new products for protection without explicit Japanese agreement. We have achieved agreement with the Japanese on this.
A number of noble Lords have raised queries concerning digital and data. The UK is committed to maintaining high standards of protection for personal data, including when it is transferred across borders. I can confirm to the noble and learned Lord, Lord Goldsmith, and the noble Lord, Lord Foster, that the rights of UK users are not impacted by the deal with Japan and data protection standards will not be lowered as a result of the deal. UK data rules, which will continue to be enshrined in the Data Protection Act 2018 and the GDPR, will continue to apply. Moreover, CEPA does not interfere with the high level of protection afforded to personal data which is transferred out of the UK under the UK’s data protections laws. CEPA goes further than the existing EU-Japan agreement on many aspects of digital trade with a number of cutting-edge rules that reflect the status of the UK and Japan as digital leaders. This includes—and a number of noble Lords have referred to these points—a ban on unjustified data localisation. This prevents potential costs for companies that result from requirements to store data within national borders. It also includes an agreement to avoid unjustified restrictions on the free flow of data between the UK and Japan. This ensures that data will be able to be collected, processed and transferred between the two countries, without facing unnecessary red tape. Very importantly, we have a commitment to uphold world-leading standards of protection for individuals’ personal data when data is being transferred across borders. UK data protection laws, I say again, are not undermined or changed by the deal with Japan; any transfers of personal data to Japan must satisfy the UK’s high standards of data protection. The changes in the agreement directly benefit the UK’s digital economy, which in 2018 delivered £675 million in services exports to Japan.
The noble Lord, Lord Oates, and the noble Baroness, Lady Bowles of Berkhamsted, raised the question of algorithms. If I may, I will write to them about that.
On the matters relating to financial services, I was grateful to my noble friend Lord Lansley for emphasising the welcome that the FTA has received in the City and for the comments from my noble friend Lord Risby. I have to say that I am optimistic about the way forward in this area and the scope for further advances. This is important to us because financial services are of course our biggest export to Japan, accounting for around 25% of all UK exports to Japan in 2019. The CEPA provides improved market access for financial services firms, including greater transparency and streamlined application processes for UK firms seeking licences to operate in Japan. There will be an annual dialogue between Her Majesty’s Treasury, UK financial regulators and the Japanese FSA that will explore ways to further reduce regulatory friction.
The noble Lord, Lord Foster, raised some important points about intellectual property, and if I may, I will write to him on that. The existing EU-Japan agreement contained a high standards IP chapter, but the CEPA contains a number of improvements to the EPA, covering designs, trademarks, copyrights and enforcements. I believe these improvements will bring benefit to both creative industries—for example, the music industry—and IP-intensive businesses.
A number of noble Lords raised issues relating to SMEs. The noble Baroness, Lady Liddell of Coatdyke, referred to the importance of this, and I can assure her that we consult widely with organisations that represent SMEs when we negotiate and carry forward agreements such as this. The CEPA will support SMEs through a dedicated SME chapter, which will ensure that SMEs are provided with the tools and resources necessary to seize the opportunities of exporting to Japan. This will include a commitment to making sure that information on doing business in Japan is available to UK SMEs in English.
I know that there is, rightly and properly, a strong interest across our House in the automotive industry, which was referred to in particular by the noble Lord, Lord Kerr of Kinlochard. The CEPA will continue to support jobs in the manufacturing sector—major investors such as Nissan and Hitachi, as well as our own manufacturers—through reduced tariffs on parts which already come from Japan, streamlined regulatory procedures and greater legal certainty for their operations. UK tariffs on two tariff lines covering electrical control units, often used in cars, will be put to zero as of 1 January 2021. By bringing in reductions on tariffs on car parts, UK-based auto manufacturers will benefit from lower costs of productions, which they could pass on to consumers.
As I mentioned earlier, on rules of origin, we have included a provision that seeks to recognise Japanese inputs that are contained in UK goods that are exported to the EU, and of course this is particularly important for the auto sector. While we have included this provision in CEPA, as the noble Lord, Lord Loomba, noted, this arrangement would also need to be agreed between the UK and the EU in order for it to come into effect. Of course, as a number of noble Lords have referenced, that most important negotiation is still ongoing. However, I ask the noble and learned Lord, Lord Goldsmith, and perhaps others, not yet to prejudge the outcome of those negotiations.
On the important question of food safety and animal welfare, I can reassure the noble Lord, Lord Trees, that we have locked in the benefits of the EU agreement on SPS and animal welfare, and nothing in the CEPA prevents the UK from continuing to uphold its high environmental, food safety and animal welfare standards now that the UK has left the European Union. I will write to the noble Lord, Lord Trees, and the noble Baroness, Lady Bennett of Manor Castle, with more details of the important animal welfare points that they raised.
I was pleased that my noble friend Lady McIntosh of Pickering rightly reminded us that when we debate matters such as this, we will have the benefit of expert advice from the Trade and Agriculture Commission, which I am pleased we are putting on to a statutory footing.
I know that climate change is an issue of great importance, and I recall the noble Lord, Lord Oates, speaking formidably on this topic after my maiden speech in September, as again he did today. I assure him and the noble Baroness, Lady Bennett, that the UK-Japan agreement locks in the benefits of the EU-Japan deal, including various provisions on climate change, such as those that reaffirm our respective commitments to the United Nations Framework Convention on Climate Change and the Paris Agreement.
On labour standards, I say to the noble Lord, Lord Stevenson, that the agreement includes provisions that commit the UK and Japan to reaffirm their obligations to internationally recognised principles on labour. In addition, the UK continues to meet its obligations under the International Labour Organization. I am pleased to acknowledge that we have now set up a trade union advisory group so that, as I am sure the noble Lord would support, we will be able to draw directly on the experience of trade unionists in future negotiations.
On standards, we have made it clear that the Government will never compromise the UK’s high environmental protection, product, animal welfare and food safety standards in this or any deal. I can confirm that nothing in the CEPA prevents the UK continuing to uphold these.
A number of noble Lords referred to the Trans-Pacific Partnership. It is clear that the CEPA also has wider significance in this context. We see the CEPA as part of our ambition to put the UK at the centre of a network of free trade agreements, making us even more of a focal hub for global businesses and investors.
Accession to the Trans-Pacific Partnership continues to be a priority for the Government and a key part of our trade negotiations programme. It complements bilateral agreements we have with TPP members, including this Japanese CEPA, deals we hope to strike with Australia and New Zealand, and existing EU agreements with Canada, Chile, Mexico, Peru, Singapore and Vietnam that we hope to transition into bilateral UK deals. We hope to be able to apply for formal accession in early 2021. I note the view of the noble Baroness, Lady Henig, that there should be wide consultation on this in due course. I was glad of the wise words of the noble Lord, Lord Darroch of Kew, and of the support from my noble friend Lord Risby and the noble Lord, Lord Bilimoria, in relation to potential accession. As recognised by my noble friend Lord Trenchard, Japan’s clearly stated support for this is extremely valuable and important to us.
I want to address directly noble Lords’ concerns that there may be greater benefits for Japan than for the UK in this agreement. It is true that the analysis shows that UK exports to Japan could increase by around 17% in the long run whereas UK imports from Japan could increase by around 80%, compared to no agreement. However, I say with all respect to noble Lords, including the noble Lords, Lord Liddle and Lord Stevenson, that cheaper imports lead to lower prices in British shops and make our businesses more efficient and competitive in global markets.
I acknowledge that our economic modelling does not compare the impact of the UK-Japan agreement with the impact of UK membership of the EU-Japan agreement. Our modelling compares the impact of CEPA against a situation where we do not have an agreement with Japan: that is, trade on MFN terms.
A number of noble Lords—I happily list some of them: the noble and learned Lord, Lord Morris, the noble Lords, Lord Purvis, Lord Stevenson, Lord Darroch, Lord Oates, Lord Hain, and Lord Foster, and the noble Baronesses, Lady Liddell, Lady Henig, and Lady Bennett of Manor Castle—expressed concern, which I acknowledge, about the way in which the agreement was publicised on media platforms and the claims that were made in relation to it. With a certain degree of trepidation, I will draw these comments to the attention of my colleague, the Trade Secretary.
I say to noble Lords that the right comparison for assessment is this deal versus no deal rather than the hypothetical continuation of our membership of the European Union. Going forward, I reassure the Committee that the UK and Japan will meet each year in a joint committee and, as part of the DIT’s transparent and inclusive approach to monitoring, I confirm that we will publish a monitoring report every two years.
I hope that my closing remarks have provided a broad assessment of the deal’s clear value and scope. The scrutiny the agreement has had has been extremely valuable. I apologise to noble Lords who have not had their questions answered directly, and I will write to noble Lords as varied as my noble friend Lord Howell of Guildford, the noble Baroness, Lady Liddell, my noble friend Lord Trenchard and other noble Lords, answering questions I was unable to answer today.
In conclusion, this agreement represents an historic milestone in the UK’s future as an independent trading nation. We will come back to the question of parliamentary scrutiny in our debate on the Trade Bill shortly. I hope that we will be able to take full advantage of the clear economic opportunities presented to us by this deal, and I am confident that this agreement will set a clear path and provide strong momentum to secure high-quality future trade agreements with friends and partners from around the world. I beg to move.
Lord Goldsmith (Lab)
My Lords, I thank the Minister for those remarks and his thorough observations on what noble Lords have said, but I particularly thank noble Lords who have taken part in the debate. When we first thought we would have a debate on this agreement, I was a bit nervous, because I knew that some of the very controversial areas that concern trade—the things that fill newspapers—would not arise on this agreement: it would be some sort of continuity agreement. I was quite wrong to think that this might not be a valuable debate; it has been very valuable. I, for one, will come back to things that many noble Lords have said in this debate when we look at other agreements; they are valuable and important.
I thank noble Lords for what they said about the report. To the extent that there is credit, it goes to my colleagues on the committee, but particularly to our staff. I pay particular tribute to the staff, who worked very hard under very pressing circumstances to get this scrutiny done, led by Dr Dominique Gracia, who is leaving us today, I think. She can rest on the laurels of a successful report and a debate in the House of Lords as, perhaps, her final official act, and I thank her.
Like other noble Lords, I congratulate the noble Lord, Lord Darroch of Kew, and welcome him. I had the privilege and pleasure of working with him in government, as did many noble Lords, and knew what a tremendous contribution he would make to this House. His clarity of thought, perceptive insight and incisive judgments will be very welcome here—perhaps much more than they were by the outgoing president of another country. I therefore very much look forward to his further contributions.
Time does not permit me to go through the important themes of our debate now, but we will return to them, including the question of scrutiny. I worry that we were able to do this in the time that we had partly because of the co-operation of the noble Lord Grimstone, and his staff, and on the back of an agreement that largely replicated an existing one. How we could have done so on something completely new, with a new text, worries me enormously. We will come back to that, and not just in debates on the Trade Bill.
Meanwhile, we are feeling our way. I think the Government are feeling their way as well, but I heard the Minister say that they have found this scrutiny helpful. That is what we intend: to be helpful to the people, but also to the Government. We think that, as examples in other countries demonstrate, scrutiny can help in negotiations. On that note and with those hopes, I beg to move.
The Deputy Chairman of Committees (Baroness Watkins of Tavistock) (CB)
That completes the business before the Grand Committee this afternoon. I remind Members to sanitise their desks and chairs before leaving the room.