Comprehensive Economic Partnership (EUC Report)
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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.