Employment (Allocation of Tips) Bill
Wednesday 12th October 2022
(2 years, 1 month ago)
Public Bill CommitteesRead Full debate Employment (Allocation of Tips) Act 2023 View all Employment (Allocation of Tips) Act 2023 Debates Read Hansard Text Read Debate Ministerial Extracts
The Chair
I begin with some instructions that are contrary to the Government’s view that you should not tell people how to live their lives. Please switch electronic devices to silent. No food or drink, except for the water provided, is permitted during sittings of this Committee. Hansard colleagues would be grateful if Members emailed their speaking notes to hansardnotes@parliament.uk. My selection and grouping for today’s sitting is available online and in the room. No amendments have been tabled. We will have a single debate on all the clauses in the Bill.
Clause 1
Tips, gratuities and service charges
Question proposed, That the clause stand part of the Bill.
Virginia Crosbie (Ynys Môn) (Con)
It is an absolute pleasure to serve under your chairmanship, Ms McDonagh, and to bring this Bill to Committee. I express my sincere thanks to the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Watford, and congratulate him on becoming a Minister. It was he who first tabled this important private Member’s Bill and did so much work to get it to this stage. This groundbreaking legislation will benefit millions of workers, and I am honoured that the Minister has asked me to sponsor this Bill with Government and cross-party support.
The Bill is all about fairness. I entered politics to be a voice for others. The hourly pay in the hospitality sector is one of the lowest of all sectors in the UK. The Bill will potentially benefit more than 2 million people— 7% of workers in the UK—who receive tips as part of their work.
Mark Eastwood (Dewsbury) (Con)
My son, Liam Eastwood, works in the hospitality industry. He is quite fortunate that he keeps all his tips, which supplement the quite decent wage that he is paid as well. Does my hon. Friend agree with me that, contrary to what some on the left are saying, the Bill ensures fairness in allocating tips and is not an attempt to reduce a decent living wage?
Virginia Crosbie
My hon. Friend is a hard-working champion and advocate for his constituents in Dewsbury, and I have been hearing about his son, Liam, and how he has been working. I highlight the fact that the Bill has so much cross-party support. It is great to see how we are all working together to make a significant change for workers in the hospitality sector, who are having a particularly tough time at the moment.
As I said, the Bill will potentially benefit more than 2 million people—7% of workers in the UK—who receive tips as part of their work. It will ensure fairness across the board, so that whether people work in Pete’s Burger Bar in Holyhead or serve fine dining at the Gaerwen Arms, they will be treated fairly and equitably. Places in dire need of levelling up, such as my constituency of Ynys Môn and other coastal and rural communities, are often home to thousands of people employed in tourism and hospitality. Local employers on Anglesey include the Sandy Mount hotel, Sergio’s, the Sea Shanty, Catch 22, the Oyster Catcher, Dylan’s, and the White Eagle. There are so many to mention—I am sure all Members here have the same story to tell.
I was the first one in my family to stay on at school beyond the age of 16, and it was the hospitality sector—work in restaurants, pubs and cafés, like the Mercury Café and Fifi’s Restaurant—that helped me to pay my way through sixth form and university. The tips I earned were spent on a new winter coat or a pair of warm boots.
There is a drive for better hospitality career opportunities and pay—driven by the likes of Aled Jones-Griffith and his team at Coleg Menai—but jobs in such sectors are often seasonal and poorly paid. For many workers, tips form an important part of their potential earnings, particularly in these challenging times. Although most employers distribute tips fairly and honestly, that is not the case for everyone. That is what the Bill seeks to address.
I will deal with clauses 1 to 14 together. The provisions create a legal obligation on employers to pass on tips to workers in full. The only deductions permitted are those required or permitted under other statutory provisions, such as tax law. That will promote fairness for workers and ensure that they receive the tips they earn. The vast majority of customers give tips on the assumption that they will go to the workers, and do not expect businesses to take a slice. Likewise, workers rightly expect to receive their tips in full, in recognition of their hard work.
The Bill will also provide greater transparency for employers and workers on how tips should be treated, and will create a level playing field for businesses that already pass on tips to workers in a fair and transparent way. Finally, consumers will have the confidence that the full value of their tips will go to workers.
Let me set out the detail of the clauses. Clause 1 inserts into the Employment Rights Act 1996 a new part on how employers must deal with qualifying tips, gratuities and service charges, which I will refer to as tips. The Bill will apply to all tips paid by a customer to an employer, including tips paid by card, which are usually paid into the employer’s bank account. Some 80% of tipping is now paid by card.
The Bill will also apply to tips paid directly to a worker if the employer controls or influences the allocation of tips—for example, if the employer tells workers how to share the tips between themselves. The Bill will not apply to tips received by workers when an employer or associated person does not control or significantly influence the allocation of the tip.
Clause 1 aims to capture all scenarios in which an employer has control over tip allocation and distribution, to prevent them from taking advantage of that control to exploit workers. The clause provides that
“tip, gratuity or service charge”
means the actual amount paid by the customer. As employers cannot make deductions for things such as processing fees, the Bill ensures that workers receive the full amount of tips.
Clause 2 introduces a fairness requirement that requires employers to ensure that the total amount of tips is allocated fairly among workers of the employer at the place of business where the tips were paid. That means, for example, that tips paid by customers at a particular restaurant will not be shared with workers at a different restaurant of the same employer. In determining how to allocate tips fairly, the employer must have regard to the relevant provisions of the code of practice, which is described in later clauses. The amount of tips allocated to a worker is payable to the worker by the employer.
Clause 3 sets out how the employer’s obligations apply when tips are allocated by an independent tronc. The Bill allows for tips to be allocated by an independent tronc as long as the arrangements are fair overall and have regard to the code of practice. The word “tronc” comes from the French word for an alms box; it is about pooling and redistributing tips. The tronc can be employer controlled or independently operated by a member of staff or a payroll or accounting company. Tipping practices vary among employers, and the Bill seeks to support diverse practices as long as they are fair. Clause 3 also provides that tips can be payable to workers by independent tronc operators, either directly or through the employer’s payroll.
Clause 4 details when tips must be dealt with. It sets out that an employer must ensure that tips are allocated to workers and paid no later than the end of the month following the month in which they were paid by the customer. For example, if a tip was paid on 8 April, the employer would need to deal with the tip by 31 May.
Clause 5 sets out how an employer’s obligations regarding tips apply to agency workers, who are workers supplied by an agency to work for a business, such as a restaurant. They benefit from the Bill and will be treated as if they were workers directly employed by the restaurant. That ensures that agency workers do not miss out on tips they have earned. The clause defines which agency workers are eligible to be covered by the protections and requires tips to be fairly allocated to eligible agency workers. It allows a business to pay the agency worker’s share of the tips to the agency, which must then pay that sum to the agency worker. This is because agency workers are often not on the business’s payroll.
Clause 6 concerns the written policy and records that employers must keep of tips. All employers that deal with tips on more than an occasional or exceptional basis are required to have a written policy on dealing with tips. That policy must include whether or not the employer requires or encourages customers to pay tips and how the employer ensures that all tips are dealt with in accordance with this legislation, including in respect of how the employer allocates tips. The employer is required to make the written policy available to all workers of the employer at the place of business.
Employers are also required to keep records relating to tips. Records must be kept for three years and include the total amount of tips paid, the amount allocated to workers and, if relevant, the amount allocated to an independent tronc operator. The requirement to keep records is essential to ensure that workers have access to the information they may need to enforce their rights. The clause provides workers with a right to make a written request to access limited relevant parts of their employer’s tipping records. That allows workers to gather evidence to seek redress if they are not being treated fairly.
Clause 7 explains the enforcement mechanism for employers’ obligations regarding tips. Workers can present complaints to an employment tribunal that an employer has failed to comply with their obligation to allocate tips fairly, or failed to do so in time. The clause also allows agency workers to present complaints. The limitation period for those complaints is 12 months.
Workers’ rights to bring forward such claims are at the core of the Bill, as employment rights need to be underpinned by effective enforcement. The clause sets out how a tribunal should determine complaints about tips. When a complaint by a worker is well founded, the tribunal must make a declaration to that effect. The tribunal may also make a range of orders, including an order requiring the employer to revise any allocation of tips they have made, or an order requiring the employer to make a payment to a worker of up to £5,000 to compensate them for consequential financial loss.
Clause 8 explains how workers can complain if their employer breaches the information provisions. That includes an employer failing to comply with the requirements relating to written policies dealing with tips, records of how tips have been dealt with or workers’ written requests for information. Workers can bring forward a claim to an employment tribunal in those circumstances. The limitation period is three months. Workers’ rights to bring forward those claims are essential to the Bill, as access to that information allows employers to be held accountable and workers to check that what they are paid is correct and fair.
The clause sets out how a tribunal should determine complaints about the employer’s policy or record keeping obligations. When a complaint by a worker is well founded, the clause states that the tribunal must make a declaration to that effect. A tribunal can also order a payment from the employer to a worker of up to £5,000 to compensate them for consequential financial loss.
Clause 9 gives the Secretary of State powers to issue, revise or revoke a code of practice for the purpose of promoting fairness and transparency in the distribution of tips. The code of practice is necessary to help to describe different circumstances that are fair or unfair in more detail than the Bill could. The code can also be adapted to changing circumstances more easily than primary legislation. To issue a code of practice, the Secretary of State must consult ACAS and publish a draft to allow stakeholders to make representations, before laying the draft before both Houses of Parliament for approval.
The clause establishes the procedure to revise or revoke the code, and details the legal effect of the code. It sets out that the code is admissible as evidence in proceedings before an employment tribunal and, where relevant, must be taken into account.
Clause 10 sets out some additional provisions relating to tips. It prevents employers from bringing restitution claims against workers in respect of tips. If an employer is ordered to revise their allocation of tips and they have over-allocated tips to a worker, those tips are not repayable from the worker to the employer.
The clause preserves existing contractual arrangements relating to tips. That means that if a worker was already entitled by their contract to receive a certain percentage of qualifying tips, they would remain entitled to those tips despite the passage of the Bill. However, payments under the statutory and any contractual obligations can be set off against each other to avoid double counting.
The clause prevents workers from opting out of their rights under the Bill and provides further definitions, including of “customer” and “place of business”. It clarifies certain situations in which it is unclear to which place of business a tip is attributable. The clause also provides that the Bill applies to tips paid by customers on or after the date on which the obligation to allocate tips fairly comes into force. The Bill is not retrospective.
Clause 11 amends certain provisions of the Employment Rights Act 1996 with regard to tips and clarifies that a worker cannot contract out of, or consent to amend, their right to receive tips that have been allocated to them by their employer. It also amends the definition of “wages” to include tips.
Clause 12 amends other pieces of employment legislation as required. That is because some Acts require amendment to ensure the provisions will apply correctly and cohesively once the Bill comes into force.
Clause 13 sets out where the provisions of the Bill apply in the United Kingdom and provides that the Bill regulates qualifying tips paid at, or otherwise attributable to, a place of business located in England, Wales or Scotland. The legislation does not regulate tips in Northern Ireland because employment law is devolved to Northern Ireland.
Clause 14 is the final clause apart from the title. It defines how and when the Bill comes into force, and confers the power on the Secretary of State to determine when clauses 1 to 12 come into force by the making of regulations. Clauses 13 to 15 come into force on the day the Bill is passed.
Let me close by thanking the Chair, the officials who worked so hard to make the Bill a success and everyone present for supporting the Bill. Once again, I thank in particular my hon. Friend the Minister for putting his faith in me and for everything he has done to bring the Bill this far. We all want workers to be treated fairly, and we all want to see the rewards for hard work distributed to those they are meant for. This is a great opportunity for stakeholders to engage in setting up the code of practice. Let us work together to ensure the Bill achieves what it has set out to do.
David Linden (Glasgow East) (SNP)
It is a great pleasure, as ever, to serve under your chairmanship, Ms McDonagh. I congratulate the hon. Member for Ynys Môn on taking the Bill forward on behalf of the Minister, the hon. Member for Watford. I congratulate him in particular on rising to ministerial office; I have always found him incredibly thoughtful since he entered the House in 2019. I never quite thought it would be a Conservative Member bringing forward legislation to strengthen employment rights, so I am grateful to Comrade Russell for doing that. I only hope that the current Leader of the Opposition can bring himself to start supporting employment rights, because he seems to be on a bit of a slippery wicket on that one.
I want to offer my support and that of my party for the whole Bill, from clauses 1 to 15. My constituent, Joan Tomson from Carmyle, was in touch with me in the summer about this specific issue of how to protect tips for staff. I am fortunate to have in my own constituency excellent restaurants such as Kastriot’s in Baillieston and Gia’s of Shettleston. They would not dream for a minute of trying to steal their staff tips, but this Bill addresses the bad employers out there who behave in a completely unacceptable way. It is right that we bring forward legislation to bring them to heal.
It will come as no surprise to the Minister when I say that the Government need to bring forward a full employment Bill. It is noticeable that we are having to bring forward piecemeal bits of legislation, such as the excellent Bill before the Committee or, indeed, the legislation introduced by my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East (Stuart C. McDonald) on neonatal leave and pay. These are hard-won battles that we are having to fight on employment rights, but if anything has been taught as a result of the shameful actions of British Airways and P&O Ferries—
Chris Stephens
Does my hon. Friend agree that this Bill and the other legislation that he talks about have the support of the trade union movement, which is playing a vital role? The rhetoric that we sometimes hear from Ministers is not the rhetoric that we want to hear. We want to see a partnership with trade unions so that we can shape employment legislation that deals with insecure work and unfair conditions.
David Linden
This is probably an appropriate juncture to declare my membership of the Unite trade union. I agree with my hon. Friend; he is right to put that on the record and it is topical because at the weekend the wonderful Rozanne Foyer from the Scottish Trades Union Congress talked at the SNP conference about how refreshing it was that the Scottish Government very much view trade unions as partners. I am sure that, given the doughty leadership of Comrade Russell as the Business Minister, the trade unions will find an open door from this Government, but my hon. Friend is right to put that on the record.
As much as I seek to poke a bit of fun at the Minister, today is a day for us to work across party lines. This is an excellent piece of cross-party legislation and I will be glad to see it hopefully pass through Committee, through the remaining stages in this House and then over to the noble Lords, and receive Royal Assent.
The Chair
I see no other Back Benchers wishing to contribute to the debate. Would Chris Stephens like to sum up on behalf of the SNP?
The Chair
Okay. I understand that the shadow Minister has a personal issue that means she is unable to be here this morning, so I call the Minister.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Dean Russell)
It is an absolute pleasure to serve under your guidance, Ms McDonagh.
As has been kindly noted, until recently I was the policy sponsor for this Bill; I am honoured to be the responsible Minister and to see it through the whole way. I thank my hon. Friend the Member for Ynys Môn for stepping in to sponsor the Bill, and I thank the other Committee members for their time and energy. Personally, it means a lot to me, and it will mean immense amounts to the millions of workers we will help by getting the Bill through Parliament. It will make a difference to them.
This is about fairness. The issue of protecting workers’ tips is not only close to my heart but incredibly important to so many. I am grateful that we have cross-party support, as indicated today and on Second Reading, to help to take the Bill forward.
Judith Cummins (Bradford South) (Lab)
I welcome the Minister to his place. Will he outline the broad support that the Bill has received not only from individual trade unions but, importantly, from the TUC?
Dean Russell
I thank the hon. Lady for her comments. It has been fantastic to engage with all those groups and I am immensely grateful to all those who have lobbied and pushed for this legislation. I will come to this point later in my speech, but the Government originally explored this issue in 2015, and the discussion goes back way longer than that. I am grateful to everyone who has been involved. I am not sure whether I am allowed to allude to myself as the hon. Member for Watford, but in his speech on Second Reading the hon. Member for Watford said that he felt very much that he was standing of the shoulders of giants, as I do, and we really are. This change has long been fought for and I am pleased that the Government listened to me when I was a Back Bencher. I am now very pleased to be the one listening and helping to make this change happen.
This change is happening because many people were appalled to hear the stories over the past few years of bosses wrongfully pocketing tips that were intended for workers. The money left by customers who wanted to recognise the hard work and excellent service of staff was taken by businesses; at times they took up to 10%, and we heard about the awful, nefarious practice of staff not receiving tips at all. The Bill will stop that practice. The Government believe that tips should go to the workers who earn them and that businesses that withhold tips from staff wrongfully benefit from money that is intended for hard-working staff.
Ultimately, the Bill will stop that conversation we have at the end of a meal or after having received good service—I think we have all said, “Are you definitely going to get this tip?” It is important that the Bill will end that conversation.
Ian Levy (Blyth Valley) (Con)
Does my hon. Friend agree that the Bill will encourage people who work in the hospitality industry to realise that they are actually going to get the tips for the service they give? In itself, that will encourage better service, because it will give people that feeling that they want to put more into the job.
Dean Russell
Absolutely. The Bill will give everyone certainty: in a time of particular uncertainty, especially as we face the cost of living crisis, people will know where they stand. Of course, it will take some time for the legislation fully to come into force, but organisations should put measures in place now rather than wait for the law to change. That is how it should have been anyway, but the Bill will make sure that businesses with bad practices deliver the right thing in the short term and onwards.
Mary Robinson (Cheadle) (Con)
I was pleased to be in the Chamber to support my hon. Friend when he was the promoter of this much-needed Bill, so it is great to see him in his place to take it even further. First, how will we ensure that the 2 million people we are trying to help with the Bill get the message? Will the Government run a public relations campaign to ensure that those people know their rights? Secondly, some unscrupulous employers will not treat people in the right way, so it is good to see in the Bill clauses to protect people who could be affected. Of course, some people end up in employment tribunals because they have been sacked or unfairly dismissed because they have complained about a process, so will the Minister, in his new position, also advocate for whistleblowers, to ensure that they too get the right protections in law?
Dean Russell
I know how important my hon. Friend’s campaigning on whistleblowing is for her and I appreciate her raising it. I will come to the tribunal process later in my speech. In terms of communications, it has been wonderful that, from the early stages of the Bill, the media have been very active in promoting it, and I know that the Government have been very much promoting it. This is also about transparency, which I will come to, in terms of not only ensuring that businesses are clear with their staff but making it clear to the public that members of staff will be keeping 100% of their tips. That is a key part of the Bill that it is so important to get across: 100% of their tips—everything that they are given—should be shared fairly with staff.
I will continue with my speech, so that we can come to a close. All the points that have been made show why the Government stand resolutely behind the Bill. We want to see it enacted, benefiting millions of workers in industries where tipping is common, such as hospitality, which is such a huge workplace for so many. My hon. Friend the Member for Ynys Môn has set out how the clauses protect workers and why that is so important, and I am pleased to say that the Government support all the clauses. I will reiterate a few points on why they should stand part of the Bill.
The Bill will prevent employers from making any deductions when distributing tips, apart from those required or permitted by existing legislation, such as under tax law. That ensures that all money left by customers is passed to workers in full—I reiterate the words “in full” as often as I can. The Bill also establishes a requirement to allocate tips fairly—fairness is at the heart of the Bill—between workers at a place of business. That protects vulnerable workers and prevents exploitation.
A statutory code of practice will help to promote fair allocation of tips. The code will be developed with the help of key stakeholders and will be subject to a full consultation period before the final version is brought to both Houses for approval. On the point that my hon. Friend the Member for Cheadle made, that consultation is key, because it will help to raise awareness of what organisations and workers want but also make them aware that this is going to happen across all the sectors affected. It will ensure that the diverse views and practices of stakeholders are taken into account in preparing the code. To support enforcement of these new requirements and hold employers to account, the Bill will also require employers to have a written policy on tips and to maintain records relating to tips. These measures will be enforced by employment tribunals, with the tribunal empowered to revise allocations of tips and order compensation of workers.
The hon. Member for Glasgow East, who is not in his place, made some wonderful comments, and I reiterate my thanks to him for them. He asked why this legislation is not being brought forward as part of an employment Bill and is, instead, a private Member’s Bill. The Bill highlights a very important issue, and I am pleased to say that there is cross-party consensus that tips should be fairly attributed to workers. I know, because I felt it at the time, that it was disappointing that the Queen’s Speech did not include an employment Bill for the third Session of this Parliament, but we remain committed to bringing forward legislation to deliver on our commitments on employment rights, and I know that there are several other pieces of legislation coming through.
Chris Stephens
I am grateful to the Minister, who is, as always, generous in taking interventions. A number of Members have stepped in where the Government have not acted—a number of private Members’ Bills are being tabled that address issues of employment and workers’ rights. Will the Minister commit to look at those pieces of legislation and meet the hon. Members who have put them forward, so that we can tackle some of the issues and injustices that take place at work?
Dean Russell
I thank the hon. Member for his comments. I am always happy to meet Members and discuss how they feel we can create better workplaces and support workers’ rights. I already have many meetings with colleagues to ensure that we are heading in the right direction on that.
With regard to the comments made by the hon. Member for Glasgow East, I want to be clear that more needs to be done to ensure that tips earned by workers go to them in full, which is why the Government are supporting the Bill. I am incredibly grateful to my hon. Friend the Member for Ynys Môn for taking forward this legislation.
I also note the comments made by my hon. Friend the Member for Dewsbury about his son, Liam. I know he is a proud father of Liam; he regularly talks about how proud he is of him. Liam is a credit to him, with the work he is doing while at university. The key point my hon. Friend made is that this is not about topping up salaries. That is an important point in the Bill, and it is important that we communicate it. This is a gratuity, tip or service charge that is a “thank you” on top of a salary. It should never be used by employers, and the Bill makes it clear that this is not about topping up salaries; it is about an additional piece and making sure that workers receive tips fairly and squarely.
I will now conclude, because we have covered a lot of ground and I am very pleased with the feedback from the Committee. The Bill provides vital protection for low-paid workers. Bringing forward these new rules will protect over 2 million workers from bad bosses and give them an avenue to seek remedies. It will be good for businesses too, as they will be confident that they are not being undercut by companies where bosses are keeping tips for themselves. The Bill is an excellent step. My hon. Friend the Member for Ynys Môn has received support from both sides in the House and in Committee, and I want to thank everyone for the collaborative way we have all worked, for the way that the feedback has come in and for their support inside and outside the Chamber to make sure that workers are protected in this way. I look forward to following the Bill through its parliamentary stages.
Virginia Crosbie
This House is at its best when people work together, and the Committee has been a shining example of that co-operation and collaboration. I thank all hon. Members who have been on this short Committee. As a Welsh MP, I am delighted that there are two other Welsh MPs, both of whom are women, on the Committee. Tourism is a key sector in Wales, contributing around 12% of all employment.
I thank those who contributed to the debate. My hon. Friend the Member for Dewsbury talked about his son Liam, who has had a very positive experience in the hospitality sector. The hon. Member for Glasgow East talked about a level playing field, and I congratulate him on his private Member’s Bill on neonatal care. The hon. Member for Glasgow South West talked about the support of the unions, and Kate Nicholls, who heads up UK Hospitality, has been very helpful with the Bill. My hon. Friend the Member for Blyth Valley talked about fairness, and my hon. Friend the Member for Cheadle talked about the importance of a PR campaign and whistleblowing.
This is an important Bill, which enshrines a right that seems evident to many consumers already, and I am sure hon. Members will agree that it is not right that business owners can keep part or all of the tips given in good faith to workers by customers who recognise the good service they have received.
Tonia Antoniazzi (Gower) (Lab)
This is a great Bill that will give the hospitality sector the boost that it needs and provide people with security in their job. Does the hon. Lady agree that this is really needed, particularly in parts of Gower and her constituency of Ynys Môn, where we have such a shortage in hospitality?
Virginia Crosbie
I absolutely agree with the hon. Lady. This Bill is so important, and it is important that we can get these people back into the sector. Tourism and hospitality is one of the key sectors across the UK, but particularly in Wales.
Fay Jones (Brecon and Radnorshire) (Con)
I congratulate my hon. Friend on the progress of the Bill. As she mentioned, there are three female Members of Parliament from Wales on this Bill Committee. Hospitality is a sector that employs more women than average, so does she agree that the Bill is a very good step towards getting more women into the workplace?
Virginia Crosbie
I absolutely agree with my hon. Friend, and she makes an important point. The average salary in the sector is one of the lowest in all sectors in the UK, and the sector is particularly important for women.
I would like to highlight the fact that, although we have three Welsh MPs, we also have two MPs from Yorkshire—I do not want them to feel left out. I am grateful for everyone’s support so far, and I particularly thank the Minister. I hope we can use this momentum to deliver the successful passage of the Bill and benefit workers right across the UK.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clauses 2 to 15 ordered to stand part of the Bill.
Bill to be reported, without amendment.
Trade (Australia and New Zealand) Bill (First sitting)
Wednesday 12th October 2022
(2 years, 1 month ago)
Public Bill CommitteesRead Full debate Trade (Australia and New Zealand) Act 2023 View all Trade (Australia and New Zealand) Act 2023 Debates Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 12 October 2022 - (12 Oct 2022)
The Chair
We are now sitting in public and proceedings are being broadcast. I have a few preliminary announcements. Hansard colleagues would be very grateful if Members emailed their speaking notes to hansardnotes@parliament.uk. Please switch electronic devices to silent. Tea and coffee are not allowed during sittings. I am happy for Members to take off their jackets, if they so wish. Date Time Witness Wednesday 12 October Until no later than 10.20 am Federation of Small Businesses; Confederation of British Industry; and British Chambers of Commerce Wednesday 12 October Until no later than 10.35 am Trade Justice Movement Wednesday 12 October Until no later than 10.55 am International Chambers of Commerce Wednesday 12 October Until no later than 11.25 am TheCityUK Wednesday 12 October Until no later than 2.15 pm British Phonographic Industry Wednesday 12 October Until no later than 3.05 pm National Farmers Union; National Farmers Union of Scotland; and Scottish Crofting Federation Wednesday 12 October Until no later than 3.25 pm Professor Albert Sanchez-Graells, University of Bristol Wednesday 12 October Until no later than 3.45 pm UK Trade Policy Observatory Wednesday 12 October Until no later than 4.05 pm Trades Union Congress Wednesday 12 October Until no later than 4.30 pm Wine and Spirit Trade Association
We will first consider the programme motion on the amendment paper. We will then consider a motion to enable the reporting of the written evidence for publication and a motion to allow us to deliberate in private about our questions before oral evidence sessions, although we might not need to do that. In view of the time available, I hope that we may settle those matters formally, without debate. I call the Minister to move the programme motion that was agreed yesterday by the Programming Sub-Committee for the Bill.
Ordered,
That—
1. the Committee shall (in addition to its first meeting at 9.25 am on Wednesday 12 October) meet—
(a) at 2.00 pm on Wednesday 12 October;
(b) at 9.25 am and 2.00 pm on Tuesday 18 October;
(c) at 11.30 am and 2.00 pm on Thursday 20 October;
2. the Committee shall hear oral evidence in accordance with the following Table:
3. proceedings on consideration of the Bill in Committee shall be taken in the following order: Clauses 1 and 2, Schedules 1 and 2, Clauses 3 and 4, new Clauses, new Schedules, remaining proceedings on the Bill;
4. the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00pm on Thursday 20 October.—(James Duddridge.)
The Chair
The Committee will therefore proceed to line-by-line consideration of the Bill next Tuesday at 9.25 am.
Resolved,
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(James Duddridge.)
The Chair
Copies of written evidence that the Committee receives will be made available in the Committee Room and will be circulated to Members by email.
We could go into private now, but the indications are that no one wants to. If that is acceptable, we can go straight on to questions and the formal evidence session. We are still sitting in public and the proceedings are being broadcast. Before we hear from the witnesses, Members should make any declaration of interest in connection with the Bill.
Examination of Witnesses
Lucy Monks, Andy Burwell and William Bain gave evidence.
The Chair
The first panel of witnesses is Lucy Monks, head of international affairs at the Federation of Small Businesses, who will appear in person; and Andy Burwell, director at the Confederation of British Industry, and William Bain, head of trade policy for the British Chambers of Commerce, who will both appear by Zoom. I understand that there are some problems with Zoom at the moment, but we will bring the two other witnesses in later. Lucy Monks is present, so we will deal with questions to her. Lucy, will you introduce yourself, before I ask Members if they have any questions?
Lucy Monks: My name is Lucy Monks. I am head of international affairs at the Federation of Small Businesses. We represent the UK’s small and medium-sized businesses.
The Chair
Thank you, Lucy. I remind Members that questions should be limited to matters within the scope of the Bill and that we must stick to the timings in the programme motion that the Committee has agreed. For this session, we have until 10.20 am. I will be strict about the time. I first call Gareth Thomas.
Gareth Thomas (Harrow West) (Lab/Co-op)
Q
Lucy Monks: The entire free trade agreements?
Gareth Thomas
The entire deals—or are they so wonderful that they could not be improved in any way?
Lucy Monks: Absolutely not. For a long time, Australia and New Zealand have been areas where UK small businesses have been interested in doing a greater amount of trade, so anything that reduces those barriers and makes those markets more accessible is welcome—not only for access to those markets, but because Australia and New Zealand are useful territories as jumping-off points, especially for smaller businesses that might need to take smaller steps into export support.
The areas in which we would want to see a little more movement have been around the movement of people, in essence. We think that there is scope for further discussions with both Australia and New Zealand about moving skilled workers in and out of the UK—lending our skills to those markets, and vice versa.
The Chair
I remind Members that questions must be in scope—they have to be about the Bill, not the general issue of trade.
Gareth Thomas
Q
Lucy Monks: I think the rush will come as far as people are able to be encouraged into those markets. Again, it is useful progress, but it is the implementation that matters. Small businesses have problems accessing public procurement in the UK as it stands, because they find it technically difficult. They obviously do not have the ability to take the same kind of risks as larger businesses. They might not have the technical departments, lawyers or whoever might support them through that process. That is in the UK, which means that small and medium-sized enterprises are basically underserved in the UK procurement processes as well. Those issues need to be addressed if we are to get UK small businesses into Australia and New Zealand as well.
First, SMEs have to understand the opportunities, which have to be made as clear as possible. The scope of the Bill and of the FTA makes it clear that measures have to be put in place to open up transparency, so that small businesses are more aware of the opportunities in front of them, but we have to wait for those things to happen to know how successful they will be.
I am cautiously optimistic. There are small businesses that are working very successfully, but obviously public procurement is just one part of the regime. There are construction businesses, architects and engineers working very successfully to deliver public projects in both Australia and New Zealand, usually because they have a particularly niche skillset that they can provide to those markets—for example, they are experts in delivering railway stations or bridges, with a particular set of expertise that those countries might not have the skills base for. It is about enabling a bigger basis of those businesses to take advantages of potential opportunities and to understand them.
Gareth Thomas
Q
Lucy Monks: We have, yes—
Gareth Thomas
Or has a unit in the Department for International Trade been set up to support you?
Lucy Monks: We are having those conversations. I think there is more focus on it, because International Trade Week is coming up soon. The Department for International Trade has been talking to us and other bodies about encouraging opportunities. It is an ongoing process, because the Australia and New Zealand deals are very new in the context of the UK, so it has to be an ongoing process in which businesses are also able to feed back and to say, “This is working”, or, “That isn’t working.” There has to be a degree of flexibility, because we do not want to be landed with a product that essentially does not improve with time. But the Department is talking to us lots.
Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)
Q
Lucy Monks: If it is a matter of process for Parliament, I guess you will have discussions with relevant Ministers about your concerns about scrutiny. There is always a point at which it is useful for us to be able to be part of those conversations. The more information that is available to us and the public, in general, and that we are able to feed into, the better.
Drew Hendry
Q
Lucy Monks: In all honesty, we have had extensive conversations with the Department for International Trade. We have also given evidence to your colleagues on the International Trade Committee. I feel that we have had the opportunity to have thorough conversations. In all fairness to colleagues at the Department for International Trade and the civil servants leading on it, they have been proactive in engaging and pursuing those conversations for a number of years. I have been doing this job for only six months, but I was doing a similar job at a similar organisation before this and we engaged quite extensively with the Department there.
Drew Hendry
Q
Lucy Monks: I think the process issue is one for you to take up with your colleagues. It is obviously critical because this is new and, as I said, there has to be a feedback process. However, the way in which you and your colleagues across Government and Parliament interact is one for you, I think.
Dame Nia Griffith (Llanelli) (Lab)
Q
Lucy Monks: Yes. There are SME chapters in the Australia and New Zealand agreements. If we had a concern with the Bill and the issue around procurement, it would be that, as I said, small businesses tend to be cut out of the procurement process even in our own country, so both the FTA and anything that impacts procurement legislation need to be done in a way that supports small businesses. I am not as concerned about competition from Australian and New Zealand small businesses as I am about the ability for larger businesses to take opportunities that could be sitting there for smaller businesses.
Separate from that, for a long time there was a conversation between various Government Departments about trying to improve the central Government procurement system, not only for small businesses, but generally in its ability to encourage greater social value through public spending, basically. A couple of years ago, the Government finally published a social value model, part of which is supposed to be about encouraging engagement of small businesses both in the direct procurement system and as part of that supply chain. Obviously, larger businesses can go and bid for contracts, but they kind of have to promise that they will engage with x, y, z number of small businesses in delivering bits and pieces.
The Government have promised to keep monitoring how that model is implemented. I would ask that we keep monitoring how these measures are implemented in terms of both the ability for small businesses to actually access those procurement markets in Australia and New Zealand, and the impact of larger businesses that are going forward and trying to procure those projects and their ability to bring along UK small businesses as part of the process.
Bill Esterson (Sefton Central) (Lab)
Good morning, Lucy. You talked about the potential challenge of larger Australian and New Zealand businesses winning UK Government contracts. Is there anything in the legislation you would like to see amended to support small UK businesses in winning Government contracts when facing that international competition?
The Chair
Lucy, just before you answer I should say that we have now been joined by Andy Burwell and William Bain. We have had a few technical problems, but welcome to you both. Will you please introduce yourselves briefly to the Committee?
Andy Burwell: Apologies, everyone, that I am not there with you—I have had a few childcare issues this morning. I am Andy Burwell, international director at the Confederation of British Industry. My team covers everything from trade to foreign policy, national security and, increasingly, supply chains.
William Bain: Good morning, Chair and Committee. I am pleased to be with you this morning. I am William Bain, head of trade policy at the British Chambers of Commerce.
The Chair
Thanks very much. Lucy has been holding the fort and was just about to answer Bill Esterson’s question, if she has not forgotten it.
Bill Esterson
Q
The Chair
We will take Lucy first as she was asked first.
Lucy Monks: Under the terms of the FTA, I guess we cannot be too defensive; otherwise, we will slightly defeat the point of what we are trying to achieve. I am sorry to bore on about this, but there are ways that small businesses can be encouraged to take opportunities that are available to them. For example, the Department for International Trade could support the implementation of, say, the small business chapter or the procurement chapters, where there is a clear push for the degree of information and support that would be needed for businesses to compete on an even keel. At the moment, small businesses are not even competing on an even ground.
The Chair
William, do you want to add anything to that?
William Bain: We are obviously aware of the interplay between the Government procurement agreements at World Trade Organisation level and the different FTAs that have been and will be signed. Our view would be that some of the issues are probably best sorted through the joint committee apparatus that will be created once these two FTAs come into effect. We can then examine, in a sort of full way, how things are operating for small businesses here and for their counterparts in Australia and New Zealand. Of course, we also have the ability to raise issues under the Government procurement agreement, should they arise, at Geneva. We would see those options as the best means to try to resolve any issues. Overall, we want to see the agreements ratified as quickly as possible.
The Chair
Andy?
Andy Burwell: I hope you gave Lucy all the difficult questions on procurement while she was sitting there with you.
From speaking to our members about these free trade agreements and procurement, which I presume this specific line of questioning relates to, we know that they are broadly content with where the FTAs are. They are very supportive of a competitive public sector market in principle—one based on quality, cost and value, and innovation. Increasing the competition in the market drives British firms to be more innovative, to have better quality and to drive better value. Also, the Government’s social value commitment ensures that anybody who wins a contract for goods or services in the public market contributes to the UK economy, which is an important principle.
Our members are very conscious that the vast majority of companies that win contracts in the UK are either EU participants or EU-headquartered companies or UK-headquartered companies, with the large majority having presence in the UK, so in general our members were not concerned about the provisions or the Bill’s impact on their ability to win contracts in the UK.
The Chair
Mr Esterson, have you finished your questioning or do you have further questions?
Lloyd Russell-Moyle (Brighton, Kemptown) (Lab/Co-op)
Q
Lucy Monks: The point that William made about the potential to address these issues in future forums is really important. We should make clear what is and is not possible. If you go through the annexes to the Bill and the agreement, there are obviously quite a lot of bits that are scoped out because of the more federal system in Australia and New Zealand. It is a matter of seeing how far we can progress these things and address them further down the line through the appropriate forums.
Lloyd Russell-Moyle
Q
Lucy Monks: Yes.
Lloyd Russell-Moyle
What about the other two?
William Bain: Again, our response would be that trade deals tend to unfurl once they are ratified. We have strong joint committees set up under the agreements to look at implementation. We have just taken part in recent implementation discussions around the EU-UK trade and co-operation agreement, so they are very rigorous indeed. The committees have the ability to make clarifications and small improvements that do not change the overall text but can provide greater context about what the text actually means. At this stage, it is unlikely that we will be able to amend a closed agreement with Australia and New Zealand, but through the joint committee apparatus and the engagement that you as Members of Parliament will have with your colleagues in Australia and New Zealand, you can secure further clarifications that might lead to some of the changes that you are seeking.
Andy Burwell: Just to add to that, there is an important principle that will be a running theme throughout today’s discussion, which is that free trade agreements are only one means of achieving market access. Although at a national level, there is reciprocal access for procurement, there needs to be greater clarity at a federal level. Equally, there are opportunities and means of gaining access in Australia and New Zealand outside the free trade agreement process, through the market access work that DIT regularly does. Industry and the Government need to continue to work with our counterparts in Australia and New Zealand to seek greater opportunities between the nations.
Lloyd Russell-Moyle
Q
Lucy Monks: I guess that is always a concern with these kinds of processes. An opportunity to feed in if changes are made would be great. I know there is sometimes a need to move quickly to change regulations, but the opportunity to feed back into that process is obviously always welcome. That does not even have to happen within the context of what happens through a parliamentary scrutiny process; there can be conversations with the Department and parliamentarians, too.
Lloyd Russell-Moyle
But a requirement for the Secretary of State to consult before regulations are made might be useful.
Lucy Monks: Yes.
Lloyd Russell-Moyle
William and Andy, do you have any views on this?
William Bain: The maximum consultation with business and other stakeholders is important when important regulatory changes are being made, so we would encourage the greatest possible transparency from the Government in that respect. In relation to whether things are done through the negative process or the affirmative process, those will be issues for you as lawmakers to address. I am aware that if this Bill becomes an Act, it will be replaced by the Procurement Bill in due course, so there will be another opportunity to revisit this issue if it is considered that the legislative processes around order-making are ripe for improvement in some way.
Andy Burwell: Much like William, I am going to say that the decision about whether the negative or affirmative procedures are used and the processes in the House are for you to discuss and debate. In terms of business consultation, I have no doubt that if the Secretary of State and the Department deem it necessary to make further changes, they will consult with industry, and we would encourage them to do so in depth. Given the existing discussions, I have no reason to doubt that that would happen. The key thing is that if changes are made, industry is notified in a timely fashion, there is clarity as much as possible, and the changes are communicated clearly to all parties to enable them to utilise whichever provisions are changed, as well as prepare for them.
Lloyd Russell-Moyle
Q
Andy Burwell: I am broadly content with where we are. I do not think a specific process necessarily needs to be set down in legislation because, as we all know, the world changes and in future we may need to have a process different from what we have right now. We should not hamstring ourselves with a particular approach in this legislation.
Gareth Thomas
Q
Lucy Monks: Basically there needs to be more done to help businesses—especially small businesses—export. There is so much potential with the kind of businesses we have in this country and the kind of markets that might be able to open up to us. We are entering into a new world. We have had conversations with the Department for International Trade over the export support service, which is meant to cover the EU and basically help businesses find their way through the new relationship. Has that worked as well as it could have done? Has it been as targeted as it could have been in the level of support? Not really, but the Department has promised and is in the process of introducing a new system that is supposed to address some of the concerns we have levelled, such as providing detailed information in a way that is accessible to small businesses, rather than just pointing to bits of the Government website, which is what was happening before.
We need to keep working in the direction we are talking about and trying to improve the availability of those kinds of services, while also looking at, for example, new ways of working with the FSB or DIT to encourage more people to understand and to export. We would be happy if that were to continue. There are so many different things that will have to happen to encourage businesses, and especially small businesses, to think about exporting if they are not doing it already, or to export into new markets if they are unfamiliar with exporting to Australia and New Zealand, because the cost and the risk can potentially be so high. We all need to work together to ensure that that can take place.
Gareth Thomas
Q
Lucy Monks: I am the head of international affairs at the FSB, so I always think that more could be done to help exporters enter into new markets. I do not want to take up the Committee’s time by running through a list of things, because there are so many things—for example, helping businesses mitigate some of the financial risks that they might face, because there are broader benefits to the UK economy if we can get those businesses into those new markets in the first place; providing the right kind of information; encouraging larger businesses to bring smaller businesses along with them; and doing more to allow for market access support. There is so much more that can be done, and we want to ensure that it will be done. If you want to have another conversation about all those things, I would be thrilled to have that conversation with you and with colleagues in DIT.
The Chair
May I remind the Committee to make sure that questions are within the scope of the Bill?
Gareth Thomas
Q
Lucy Monks: It is not the only type of risk, but it is a very clear risk—again, especially for smaller businesses that do not necessarily have the experience or the access to the legal departments and trade departments that larger businesses have. The points he raised need to be looked at and addressed for the sake of legal clarity, because he brings up some interesting points.
Gareth Thomas
I wonder if Mr Bain or Mr Burwell have a view.
William Bain: In terms of the question about the export capacity of these two trade agreements, we would see the case for a refresh of the export strategy. We think that some elements of it have worked well, so it is a case of examining and rocket-boosting those but also leveraging what business groups and other trade bodies do collectively, in terms of turning what are otherwise dry legal texts into growth-generating instruments for our export companies. In the chambers network we have particular strengths in trade promotion and trade facilitation. We are doing the paperwork that makes international trade happen.
In the other business groups and trade bodies, we all have expertise that can be leveraged with what the DIT is providing, to ensure that we get more exports from agreements such as the two that we are considering today. It is more of a refresh than to discard the export strategy. That seems to us to be the best way forward with both these agreements.
Andy Burwell: I will jump in off the back of that. Thank you for the question, Mr Thomas. I am probably going to have a slightly more positive tone than Lucy and William. The export strategy did take a step forward. The 12-point plan was broadly welcomed by business. If we look ahead for these two agreements and put them in the context of these two free trade agreements, as William said, to a degree it is about utilisation. It is about how industry and Government can work together to really push that utilisation. Due to covid and other reasons, we have had a dearth of trade missions and support from Government for trade missions. There now needs to be a really concerted effort to get out, shout about the UK and excellent goods and services and get British business thinking about travelling overseas.
Under the Trade Act 2021, His Majesty’s Revenue and Customs has an excellent dataset of British exports, which at the moment the Department does not leverage as it could or should. Giving the Department the ability to use that alongside business groups, as part of the approach to encouraging and promoting exports, would be a real opportunity for the Department and industry.
The final point I would make is the importance of continued work between industry and Governments on market access. The issues do not stop at the signing of an FTA and its ratification. There needs to be continual discussion between Departments in the UK and in post about market access issues and non-tariff barriers that we can work on together to further the opportunity for growth.
Gareth Thomas (Harrow West) (Lab/Co-op)
Q
Andy Burwell: From his perspective, from a technical point of view it is accurate, but it all depends on how the new access is used and what the experience will be. I think we will have to wait and see whether those concerns come to the fore. It is hard for me to judge right now whether they are correct.
Gareth Thomas
Q
Andy Burwell: The professor will be much more the procurement expert than me. Speaking to members about these two agreements specifically and whether they had any concerns about the Procurement Bill and its powers, in the grand context of the changes that the Procurement Bill is making and the reforms within it, in a way these pale into insignificance. They are very minor in the grand context of that Bill. In broad terms, our members felt that they would be positive for industry.
The Chair
If there are no further questions, I thank the witnesses for their evidence. We will move on to the next witness.
Examination of Witness
Leo Verity gave evidence.
The Chair
We will now hear oral evidence from Leo Verity, the senior political adviser at the Trade Justice Movement, who is appearing via Zoom. The session will last until 10.35 am. Could the witness introduce themselves?
Leo Verity: Good morning. My name is Leo Verity. I am the senior political adviser at the Trade Justice Movement. We are a network organisation that represents around 60 non-governmental organisations and trade unions, and we work on issues around trade rules, including trade democracy and scrutiny, which is something I would like to focus on this morning.
Drew Hendry
Q
Leo Verity: Yes, that is a problem with the trade scrutiny system we have and the parliamentary processes we follow. There are major inconsistencies with the way the Government are approaching parliamentary scrutiny, so it is maybe worth touching on some of the problems we saw during the Australia ratification period. You will be aware that the 21-day CRaG period took place before summer recess, so Parliament has officially given its consent to that agreement.
Parliamentarians had major problems during that period with trying to secure parliamentary debates in the Commons. In the end, an urgent question that was tabled was the only opportunity for parliamentarians to debate the Australia agreement. Now we are in a situation, as you say, where New Zealand has not been through that process. There is a question here about what chronology Parliament should be following. It seems illogical that we are talking about legislation implementing an agreement that Parliament has not yet given its consent to, and that is probably a reflection of the way in which the Government view the CRaG process. Given that the Australian CRaG process was so fast that it was difficult to get meaningful scrutiny, I think that debating and implementing the legislation on New Zealand at this point implies that the Government are not expecting any further meaningful scrutiny of the New Zealand agreement in the CRaG period.
We would like to see consistency, and the logical standpoint should be that Parliament should approve these treaties through the CRaG process before Parliament discusses the legislation needed to implement them for future agreements. I certainly think that consistency is the key thing we need to see for future agreements.
Drew Hendry
Q
Leo Verity: I think so, yes. In truth, I think that awareness of the ratification process for Australia among not only the public but parliamentarians was extremely low, given the way it was snuck through, really, before the summer recess without meaningful notice of when it would be coming. I have seen that the new Secretary of State has made a commitment that for future agreements there will be at least 10 sitting days between the Government’s final report on trade agreements—the section 42 report—and the triggering of CRaG. That is less than the ITC requested—they wanted it to be a 15-day period—but at least it is some kind of structure that we can work by, so there is something about how these processes are supposed to work. But given that we saw that the CRaG process for Australia was so unfit for purpose, I certainly think it needs reform for future agreements.
Gareth Thomas
Q
Leo Verity: In terms of Australia and New Zealand, I know that in Australia the treaty is in front of joint committees that are constituted to properly scrutinise the agreement line by line, which is certainly more thorough than what we have. I think that is a relevant point about the Australia timeline. It is another question about why CRaG was rushed through for the Australia agreement prior to the summer recess, given that in Australia the treaty is done in front of a committee and then the implementing legislation will come forward, so there was certainly no rush for that happen.
In terms of other scrutiny processes to learn from, it is worth pointing to places such as America and the European Union, where there seem to be more meaningful scrutiny opportunities throughout the whole process of negotiation. For example, in America negotiating objectives come before Congress; that would be something that we would really welcome. As it stands, Parliament has no opportunity to debate the negotiating objectives that negotiators take forward. There are also more meaningful opportunities for legislators to see texts during negotiations; again, at the moment, parliamentarians do not see negotiating texts at any stage of the process. We would argue that it would be beneficial for the International Trade Committee to at least have a view of the negotiating text during the process. Finally, there will be guaranteed votes and debates on the content of trade agreements after signature; that is the big omission that we saw with the Australia CRaG process. The International Agreements Committee was debated in the Lords, but the International Trade Committee and the Liaison Committee pushed extremely hard for an opportunity to debate the Australia agreement, which was not forthcoming. In the end, an MP tabling an urgent question provided the only opportunity to debate the agreement, but there was still no vote on its content, which is something that happens elsewhere.
Finally, and linked to that, CRaG allows for parliamentarians, in lieu of a vote, to pass a motion against resolution. There is no opportunity to amend the text or anything like that. Even that motion, as I understand it, would just delay ratification rather than resolve against it. Given that there is no precedent, it is not completely clear what form that motion would have to take for parliamentarians, so it seems that ultimately there is no meaningful way for parliamentarians to express dissatisfaction with the trade agreements that our negotiators are coming back with. I think that is a problem.
The Chair
Can I remind everybody to stick to the scope of the Bill? A lot of the debate is very relevant, but please keep that in mind, in both asking questions and answering them.
Bill Esterson
Q
Leo Verity: In terms of amending the content of the agreement, as it stands I do not think so. One of the things we would be concerned about with the Bill in particular is that it is going to entrench some of the failures we have already seen in the scrutiny process. For example, we submitted written evidence, alongside the Public Law Project, that talks about the fact the secondary legislation brought in under the Bill will be subject to the negative procedure, and how that compounds the overall scrutiny deficit. There will be no opportunity for further regulations to be brought in to implement the procurement chapter. There will be no opportunity to debate those statutory instruments, which I think is a problem.
This Bill is a vehicle for debating the agreement in the round. We had concerns that the Secretary of State said, in a session with the International Trade Committee during the CRaG process, that the process of implementing legislation was an opportunity to discuss the content of the Bill; we do not see how that is the case. I have spoken about the scrutiny context, but given how narrow this legislation is, and given that it focuses on one specific chapter of the agreement—the procurement chapter—there is no meaningful scope for that further debate. The thing that I think could be done with the legislation would be to ensure that our treaty scrutiny deficit is not furthered, by ensuring that regulations brought in under the Bill will be debated. There is nothing to reopen the content of the agreement.
Bill Esterson
Q
Leo Verity: I have a couple of minor points on that, which, again, are covered in the written evidence that the Public Law Project did some fantastic work on. Some of the powers in clause 1 are not constrained by any kind of necessity test. I believe the wording is that regulations can be made where they are considered appropriate. I think that could potentially be problematic.
I know that concerns have also been expressed by the devolved Governments about the content and powers in the Bill. The Scottish Parliament has passed a legislative consent memorandum against the Bill on the basis that UK Ministers would be able to make further regulations without the need to refer back to Scottish Ministers. In addition to that, there are also some concerns expressed that there would not need to be further consultation with Scottish Ministers if the agreements were altered in the future. The Scottish Government have pointed out that that is a strange thing to include, given that the agreements have just been signed and this legislation will ultimately be superseded by the Procurement Bill that is with the Lords at the moment. Those are some of the areas that refer to treaty scrutiny and ensuring that any powers brought in under the Bill can be subject to proper scrutiny.
Bill Esterson
Q
Leo Verity: It is a good question. It also goes back to the point about the timelines for the Australian ratification of the agreement from their side. As far as I can infer, it is because the view is that this legislation can be passed quickly, and it is anticipated that the Procurement Bill will last for a long time. It often seems to be the case in the passage of these trade agreements that the Government have a tendency to impose arbitrary deadlines on themselves. We see it with the UK-India free trade agreement at the moment: we are two weeks away from the deadline that the Government imposed on themselves to come back with an agreement. That has been subject to criticism from ourselves, but also from lots of business groups and others.
There is no reason to be hasty in these agreements. These are new, from-scratch and comprehensive agreements, and as far as I can infer this legislation is in place so that the agreements can be signed off more quickly. That is what we have seen reflected in the scrutiny processes: there seems to have been a rush where none was needed. People on all sides of the argument accept the principle that more scrutiny is worth while, but that is all that I can read from it. Whether it is a good use of parliamentary time for this Bill to be debated in detail before being superseded by the Procurement Bill, I am not altogether certain, but that is an open question.
Lloyd Russell-Moyle
Q
The Bill allows the Secretary of State to make regulations in a relatively broad way. First, do you think it would be useful to restrict more tightly what the Secretary of State can make those regulations on? If so, how? Secondly, would it be useful to include on the face of the Bill a requirement to consult with stakeholders and non-governmental organisations, or even with the advisory committees and standing committees that already exist in the Department, and/or the International Trade Committee, which as we know was treated appallingly by the Department under its previous leadership?
Leo Verity: Absolutely. That would be extremely worthwhile. We have talked about the parliamentary processes, but there are lots of big problems with the kind of consultation that has been available for civil society and for business organisations. We have certainly found it difficult to have those opportunities. Groups do exist—advisory groups, as you mentioned—that we take part in, and others within the Department for International Trade, but sometimes it is difficult to see the outcomes of the first discussions and, as you said, the relationship between the Department and the ITC has not been good enough either. It would be good to have some kind of meaningful mechanism for proper consultation with Committees, the public and also devolved Governments, which have been sidelined.
In response to your first point, on restrictions on what the Secretary of State can do, I think that would be worth while. I mentioned that the wording we were concerned about in the Bill was about regulations being made where considered appropriate; I am not an expert in procurement and I do not know what the intentions of the Government are in terms of the specifics of the regulations, but some kind of constraint on that language would be extremely helpful.
The Chair
We do not have time for any further questions so, on behalf of the Committee, I thank the witness for his answers.
Examination of Witness
Chris Southworth gave evidence.
The Chair
Q
Chris Southworth: Good morning everybody. It is a great pleasure to be here; thank you for the invitation. My name is Chris Southworth. I am the secretary general of the International Chamber of Commerce here in the UK. I am also the co-chair of the legal reform advisory board at the ICC digital standards initiative in Singapore and the ICC representative to the Commonwealth, so I am pretty well plugged into the digital trade agenda and very supportive of the Government’s efforts, in its trade negotiations, to develop and drive forward new digital trade corridors with commitments to reform laws and remove legal barriers to the handling of key documents and paper forms. The Australia and New Zealand agreements were the beginning of that process, if we look back in time.
There are a few points that I would like to make here. The first relates to the time of the negotiations; these were the first after the EU roll-over deals. Of course, the world has moved on quite significantly since then, and you can see that through the UK-Singapore digital economy agreement.
In terms of the context of the agreements, the Australia and New Zealand agreements are what we call a minimal requirement; they have got the basics, but they are not the gold standard, which is the digital economy agreement with Singapore. However, they are perfectly sufficient for us to modernise trade systems, remove all paper, enable our platforms, systems and processes across the public and private sectors to go fully digital and paperless, and, importantly, standardise those processes. All of those are key barriers to the digitalisation of trade, so this is quite an exciting opportunity.
I should mention that, although the value and volume of trade with both countries is relatively small in the UK context, this is about positioning in Asia. That is an important piece of the way we need to look at these agreements. This is about the UK preparing the ground to be closer to the Asia space and closer to relationships with the likes of the CPTPP. This was one of the first stepping stones towards that overall objective, which is the right objective; I do not think there are many people out there saying that is the wrong thing to do. Obviously, we are now in CPTPP accession negotiations, so we have moved on considerably. This is step one.
In terms of the context of the agreements—
The Chair
Order. Sorry, Mr Southworth. This is very useful information and we are very grateful, but we need to move on to questions. I will ask Gareth Thomas to start the questioning, and I am sure you can add what you need to add at that point.
Gareth Thomas
Q
Chris Southworth: Others may have comments on that. I am looking at this through the lens of the digitalisation of trade, and I do not think there is any conflict there at all. I think the two things are quite complementary, so we are not concerned by that. There has been no discussion raising those sorts of concerns in any of the networks we are involved in. I hope that answers your question.
Gareth Thomas
Q
Chris Southworth: I think we would all hope that it is opening up opportunities for everybody. SMEs are obviously crucial. It is great to have the big companies using these deals, but ultimately most traders are SMEs, and those are either operating within supply chains or operating independently. I hope that small companies across the UK look at this as a great opportunity to increase their trade with another part of the world—Australia and New Zealand in this context.
Gareth Thomas
Q
Chris Southworth: I would not say it is rosy. You only have to look at the trade figures to see that. There is a range of issues here. If you look at it in the context of digitalisation of trade, it is not as simple as just putting an agreement in place and then expecting it all to happen, which is exactly why we have created the Centre for Digital Trade and Innovation. We need to help industry understand what systems and processes they can use to make trade simpler, cheaper and faster. That is the big opportunity in terms of digitalisation, and that has to be a joint effort. The Government are doing a stellar job in that area. In fact, we are leading in the world on that. Lots of other countries are looking at what we are doing. So there is no issue there in my view.
If there is an issue, a question that I would pose is around the practical model of export support. We are the only big nation that delivers B2B support through Government. Every other major exporting economy works in partnership with the likes of chambers of commerce. This is a great point to reflect on whether we have the right model or whether we could be leveraging the private sector far better. I would argue, having been in government myself, in what used to be UKTI, and looked at exactly these issues, that you do not have to spend very long with other countries—Japan, France, Germany or anywhere else—to see that if Government can streamline and really focus where it adds value, which is more in Government-to-Government negotiations, Government-to-business on the big strategic opportunities where the Government are required, and then in partnership with business on the B2B support, that works exceptionally well. It is very efficient. You can mobilise whole value chains into markets on a whole different level than we can in the UK. That is a huge opportunity and is something that should be reflected upon and debated—whether we have got the right model or whether we can do that in a better way.
Gareth Thomas
Q
Chris Southworth: Like I say, I have been around this particular discussion for many years now, both in government and outside government. I personally think it was the wrong call. I think we can do it better. There are lessons to learn from others—particularly the Japanese model. The Japanese chamber of commerce operates like we do, with a voluntary membership model, but it has legislation that provides legal certainty, meaning that it can drive in investment over the long term. That is what we too need to do in the private sector, to make sure we have the right capabilities. It has a really effective relationship with METI, its DIT equivalent.
I personally think we can do this better, and we can do it more efficiently. Ultimately, trade is a business activity. Governments do not trade; businesses do. When a company picks up the phone and asks for advice, it wants business advice from people who do this stuff day in, day out, and it wants proper advice quickly on what to do and what not to do. That is a far more efficient way of doing that B2B piece than it is coming from Government, where you are naturally restricted. On top of that, you are constantly chopping and changing with contracts and different approaches. All that does is create more and more uncertainty, and you cannot build for the long term. We need to build for the long term. There is a big opportunity to do this much better, and I would strongly argue that that has definitely got to be the way forward, but it needs more debate from all those involved.
The Chair
Can I remind you again that, in both questions and answers, we must stick to the Bill and not debate the wider policy?
Gareth Thomas
Q
One of our later witnesses is a gentleman called Professor Sanchez-Graells, who gave evidence to the International Trade Committee on some of the legal issues relating to remedies for businesses that feel they have been unfairly treated in a tendering process. If I have understood his evidence correctly, he argues that the remedies available under the UK-Australia FTA are worse for businesses that have been treated unfairly than those available under deals we have done with similar countries, such as the EU and New Zealand. As a result, there might be regulatory chill—it might put businesses off bidding for Government contracts in Australia. Is that something that you worry about? If his evidence suggests that there is a serious issue, do you think the Government would need to address it quickly?
Chris Southworth: To be honest, I would defer to others to advise on that. Obviously, the trade remedies framework is very important, for all the reasons you have just set out, but I am not in a position to comment as it is not a space that we are focused on. Others are much more into that space than we are and would be better placed to advise on it.
The Chair
We will now hear oral evidence from John Cooke, chair of TheCityUK’s liberalisation of trade in services committee, appearing via Zoom. We have until 11.25 am for this session. Mr Cooke, would you like to introduce yourself? I will then ask Members to ask you questions.
John Cooke: Thank you. Am I the only person giving evidence?
The Chair
In this session. There are a number of evidence sessions.
John Cooke: Thank you very much. I am John Cooke. I am a consultant with TheCityUK, and I co-chair an expert advisory group at TheCityUK on liberalisation of trade in services.
Gareth Thomas
Q
Gareth Thomas
Yes, in respect of the Bill.
John Cooke: One has to remember about the agreements with Australia and New Zealand that, as far as services are concerned—that is my particular area, and financial and professional services within that—they are agreements with trading partners that already had pretty liberal regimes, so there was only a limited amount extra that could be achieved in the agreements. All the same, they are useful agreements to have, and in particular they have provisions in them on regulatory co-operation that provide frameworks for building further points in the future into the relationship between the United Kingdom and the two countries.
Gareth Thomas
Q
John Cooke: I think they have value in themselves, certainly on public procurement and Government procurement. The view we have always taken on financial and professional services is that while Government procurement is often thought of in terms of procurement of goods, such as medical supplies and so on, the UK sector in these areas is very keen that it should be absolutely explicit that Government procurement also applies to services.
We look at this globally, not just in relation to Australia and New Zealand. The example I would give is that if, say, a country has a pensions regime that is provided by the state but also has a private sector pillar for extra investment, we would want to be quite sure that that private sector pillar is open to bidding and tendering by UK financial product suppliers. Sometimes there is a tendency in that sort of thing for a Government to feel, “Well, as the pension provision is in the main a state pension that is Government controlled, any private sector pillar should also be somehow confined to the country concerned.” We are very keen to remove any such assumption and make sure there is open competition, so—[Interruption.]
The Chair
We have lost the witness, so I will suspend the session until—hopefully—we get Mr Cooke back.
The Chair
Welcome back. Mr Cooke, can you confirm that you hear us okay?
John Cooke: Yes, I can.
The Chair
I think you were halfway through an answer, or coming to the end of it. Do you want us to move on to the next question?
John Cooke: I do not know at what point I was cut off exactly. The point I was making was that Government procurement is commonly associated with supplies of goods, but we in services, and in financial services in particular, are keen that, where the Government are commissioning the private sector, for example, to provide a private sector pillar of pension provision, UK financial services providers should be in a position to bid for that; it should not be confined just to financial services within the country concerned, or to nationals of the country concerned. That was the point that I was making. We value the public—Government—procurement provisions for their own sake, as well as for whether they prove to be a stepping stone to CPTPP membership.
Gareth Thomas
Q
John Cooke: I am not familiar with that particular comment. I think it depends very much on the context of an observation like that. For us in financial and professional services, we look for particular kinds of help. On the whole, when dealing with financial businesses —with very big businesses—they might need a certain amount of door-opening help from missions abroad, which I think they get. I do not think that we have expressed any discontentment about that. The question may be much more open for smaller businesses, where the Government might be in a position to do much more by way of helping them in particular markets. The other kind of help that is of course very important for all exporters is the implementation of a trade agreement. The making of a trade agreement is not an end in itself; its implementation needs to be carried through. Where the other party might not implement it fully, that needs to be attended to actively.
Gareth Thomas
Q
John Cooke: It is not a point that I have been made aware of, frankly. I will gladly make inquiries and, if appropriate, submit some written evidence to the Committee, but it is not something that has been brought to my attention.
The Chair
As there are no further questions from Members, I thank the witness for his evidence.
Ordered, That further consideration be now adjourned. —(Mark Jenkinson.)
Trade (Australia and New Zealand) Bill (Second sitting)
Wednesday 12th October 2022
(2 years, 1 month ago)
Public Bill CommitteesRead Full debate Trade (Australia and New Zealand) Act 2023 View all Trade (Australia and New Zealand) Act 2023 Debates Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 12 October 2022 - (12 Oct 2022)
The Chair
We are now sitting in public and the proceedings are being broadcast. We will now hear oral evidence from Sophie Jones, director of public affairs at the British Phonographic Industry, appearing via Zoom. We have until 2.15 pm for this session. Please will the witness introduce herself for the record?
Sophie Jones: Good afternoon. My name is Sophie Jones. I am director of public affairs at the BPI, representing UK record labels.
Gareth Thomas (Harrow West) (Lab/Co-op)
Q
Sophie Jones: I do not know how much. It did feel like something of a rush, but while some relatively modest progress was made, we welcome a number of strong improvements. I think you are referring particularly to Australia, but that was to New Zealand as well. Some of the things we were most interested to see, particularly around the Australian system of placing broadcast caps on the royalties that can be paid through to music rights holders, artists and musicians, is a commitment to make progress on those matters through ongoing dialogue, rather than firm commitments within the trade agreement itself. Perhaps that, as a significant focus and priority for us, with more time might have been able to make even more progress than the bilateral discussion approach that is being taken. While very welcome, that is perhaps an area that might have been given a firmer commitment.
The commitment is important because currently, in effect, the music industry provides a cross-subsidy to the broadcast sector, so that when musicians have their music played on broadcast channels in Australia, the amount of royalties paid is significantly capped at 1% of the gross revenue from the broadcaster. It is a significant policy area, and we hope to see progress made on that so that artists both in Australia and the UK can see the benefits of it flowing through.
Gareth Thomas
Q
Sophie Jones: The trade agreements themselves are significant in opening up markets to exporters, such as ourselves. British music is a phenomenal export success. In recorded music, we have seen our export revenues grow steadily year after year. That is partly due to the strength of the UK music sector and partly to do with the phenomenal talent we have here in this cultural capital, as well as the soft power of our music throughout the world. Outside of free trade agreements, we seek to—it is the example I just gave—bring countries more into line with the UK’s gold-standard IP framework and ensure that the value of the music we are creating is fairly recognised.
There are other parallel, accompanying schemes that we think could be more bold and ambitious. For example, we run something called the music export growth scheme with the Department for International Trade and the Department for Digital, Culture, Media and Sport. That provides a really important foothold for British artists—independent artists in particular—when exporting into those territories.
We think there should be bigger, more ambitious support for that scheme, particularly with the rise of streaming, to enable access into markets such as those of Australia and New Zealand, which are really important touring markets but of course very far away, expensive and difficult to get to. The opportunities opened up by the rise of digital streaming mean that British artists have more access into those markets to generate export revenue and engage with fans, but smaller independent companies and artists need extra help to do that.
There is a huge growth opportunity there. We think that recorded music exports are set to double in the next two years, and by the end of this decade they will be at more than £1 billion a year. We need initiatives such as that and investment that helps bridge some of the gap in marketing, so that we can promote into those territories more than we ever have done before.
Gareth Thomas
Q
Sophie Jones: If you are an SME or an independent artist, there is a cost of either going to tour in that territory or market yourself in that territory, particularly in a streaming-led environment where competition is so fierce and you are competing against the whole catalogue of music on streaming platforms. The music export growth scheme that we run provides grants that help support that kind of marketing, promotional and touring activity in a way that companies and artists at that scale in the market struggle to be able to meet. It is an investment injection to help bridge that gap.
The scheme is really successful. It generates £13 back for every £1 that is put in through the Government partnership. We see it very much as a valuable, even necessary, scheme to enable that export activity to happen for those who are at the earlier stages of their career development.
The Chair
If there are no further questions from Members, I will thank the witness for her evidence. We will now move on to the next panel. Thank you, Ms Jones.
Examination of Witnesses
Jonnie Hall, Donald MacKinnon, Gareth Parry and Nick von Westenholz gave evidence.
The Chair
We will now hear oral evidence from Gareth Parry, senior policy and communications officer for the National Farmers Union of Wales, Jonnie Hall, director of policy for the National Farmers Union Scotland, and Donald MacKinnon, chair of the Scottish Crofting Federation. All three will be appearing via Zoom. Welcome also to Nick von Westenholz, director of international trade at the National Farmers Union. We have until 3.5 pm for this session. Please could the witnesses introduce themselves for the record?
Nick von Westenholz: I am Nick von Westenholz, director of trade and business strategy at the National Farmers Union of England and Wales.
The Chair
Thank you, Mr Parry, for joining us at comparatively short notice. I very much appreciate you taking the time today. Will you introduce yourself?
Gareth Parry: Thank you, Chair. I am Gareth Parry, senior policy and communications officer for the Farmers Union of Wales. Thank you for that acknowledgement.
Jonnie Hall: Good afternoon, everyone. I hope you can hear me loud and clear. My name is Jonnie Hall. I am director of policy with NFU Scotland. I am speaking to you from Edinburgh.
Donald MacKinnon: I am Donald MacKinnon, the chair of the Scottish Crofting Federation. I am a crofter from the isle of Lewis.
The Chair
Thank you. Some might ask why we are doing that twice, but it is because we do not know who you are even though I am reading out the names. Now we do, so we are very grateful. We now have questions from colleagues.
Dame Nia Griffith (Llanelli) (Lab)
Q
The Chair
For those of you joining us via Zoom, I can see all of you clearly, so if you raise your physical hand, we can go from there. Nick.
Nick von Westenholz: Generally, the position of the NFU on procurement—this will not surprise you—is that we are keen to encourage it, perhaps as in the UK guidelines, which encourage the purchase of locally produced food. That is broadly shared by many MPs, that our schools, hospitals and other things should as much as possible be able to provide British food on the menu. Agreements such as those found in the trade deals, as well as the Government procurement agreement that the UK is a signatory to, put some restrictions on that. The potential quid pro quo, of course, is that we might be able to benefit from greater procurement access to overseas markets.
First, it is not clear to us exactly the extent to which food procurement will be central to the chapters in this sort of agreement; it might be other, much bigger procurements that are more likely to benefit from the arrangements, whether in the trade deals or the GPA, to a large degree because we are very far away from each other. If we are looking at a total service contract, it is not necessarily straightforward for businesses in Australia to provide that to schools or hospitals in the UK, and vice versa. Nevertheless, this potentially captures those kinds of contracts.
I am not sure that I am at the moment aware of UK businesses that are looking and eager to capitalise on this or to provide UK food directly to Australian public procurement markets. It is obviously a long way away to be doing that. I suggest that the opportunities are modest, probably both ways. Nevertheless, there is some concern that these sorts of arrangements do restrict the ability of the UK Government in future to look at ways of increasing the amount of British food subject to UK public procurement guidelines.
The Chair
Would any other witnesses like to respond?
Jonnie Hall: Yes, if I may come in on that, first to echo Nick’s points about the need for Governments and public bodies throughout the United Kingdom primarily to source their procurement locally, certainly within the UK or within the devolved Administrations, as it is here in Scotland. One additional slight complication to this issue on Government procurement, which I am sure the Committee is well aware of, is that over the summer the Scottish Parliament passed something called the Good Food Nation (Scotland) Act. This has measures in it here in Scotland on public procurement and so on.
Alongside lots of questions around what is UK legislation on the one hand and devolved legislation on the other would be questions in my head around the intersection between UK Government procurement in the food arena and what the Scottish Government are trying to achieve through legislation here in Scotland. Maybe that is a complication too far at this stage, but I just raise that as an issue, in addition to supporting what Nick has already said.
In terms of overall Government procurement, I do not believe that food issues will be of huge significance. That is not to say that food, trade and agrifood trade issues as a consequence of the free trade agreement with Australia and New Zealand are not of huge significance. I am sure you are well aware of some of our concerns around that.
Gareth Parry: From the FUW’s point of view, specifically with regards to procurement, it is worth remembering that New Zealand and Australia are huge net exporters, particularly of red meat and agricultural goods. It is assumed, at least, that there would be more scope for those countries to make the most of procurement contracts in the UK compared with vice-versa, where for certain products there may be an opportunity to make the most of that procurement benefit in those two countries. From our understanding, there would be scope for them to make use of our markets rather than the other way round.
Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)
Q
Nick von Westenholz: I do not have a concern with that specific issue of the timing of the implementing legislation. Clearly, it is the Government’s position that a number of things need to be in place before they go ahead and ratify this deal: the implementing legislation such as the Bill, certain regulations that flow from that and the requirements of the Constitutional Reform and Governance Act 2010 process itself. The chronology, as it were, is not necessarily the most important thing. They all need to be done.
What is a much bigger concern of ours is the fact that the debate on Second Reading, and I suspect some other debates on the Bill, will be used as a proxy for a general debate and discussion about the merits or otherwise of these two trade deals. This is the wrong vehicle for that, frankly. It turns out that it is possibly the only vehicle for that and we will make do with that, but we understood, through the exchange of letters from the Government and the International Agreements Committee in the House of Lords, that the process would be—and should be—a debate tabled during the CRaG process. That is important because that is the only period of time where MPs retain the ability, if they so wish—I suspect with this deal they would not have wished to do so—to delay the ratification. Once that CRaG process is completed, that power for MPs falls. That process with Australia has been completed, so MPs no longer retain the right to delay ratification under the CRaG for the Australian trade agreement.
We are where we are, but I would say that with a number of other FTAs coming down the track, it would be very good to hear a commitment from the Government that they will allow time for debate on a relevant motion—not a neutral motion—prior to the end of the CRaG period. In that case, they can satisfy normal expectations of parliamentary scrutiny and accountability for what are very important trade deals that will have a big impact on all our members.
Jonnie Hall: May I come in here? Again, to echo everything that Nick has just outlined, the whole issue of the scrutiny of free trade agreements, particularly in the context of agrifood, has been a major concern for farming and crofting interests here in Scotland. Throughout this process in the last two years, as we saw first the Australia FTA and then the New Zealand FTA quickly follow suit, a whole host of questions were raised about the role and efficacy of the process. In particular, it rekindled the thoughts around the role of the so-called Trade and Agriculture Commission, and its powers or otherwise to essentially scrutinise FTAs in the agricultural sphere before they have gone through all of the other processes. That was rather than it being a retrospective scrutiny, by which time it was too late—the horse had bolted in many respects. There are still concerns here in Scotland, which I am sure are shared across the United Kingdom, from the agrifood sectors in that regard.
Donald MacKinnon: I agree with the two previous comments, but I reiterate that it is so important that these trade deals are given the scrutiny that they deserve. The really important thing is that we consider all the potential unintended consequences—for our sector, in particular—of what may be well meaning motivations. To pick up on the point that Nick made, the really important thing for us is not just these trade deals that are in front of us just now, but the precedent that they set for the future, and the precedent that the process sets for the negotiation of future trade deals, the scrutiny that is applied to those and the implications of that.
The Chair
Before I call Anum Qaisar, I think Nia Griffith has a supplementary, or another question.
Dame Nia Griffith
Q
Nick von Westenholz: We take the Government’s impact assessment at face value. It is not surprising, if you look at the basics of the trade deals, that the deals themselves change very little for UK exporters to Australia or New Zealand. They are open, liberalised economies already, with tariffs generally at zero, although there are some tariffs on some products. Of course, coming the other way, the deals are very liberalising—over a period of years, admittedly, but eventually we will liberalise our markets in a way that they are not for other countries that we do not have trade deals with. It makes sense that there would potentially be a negative impact in those sectors of the economy where Australia and New Zealand are particularly strong, such as agrifood. So, yes, those impact assessments sound right to us.
Jonnie Hall: To complement what Nick has just said, for agriculture and agrifood as a whole, it looks like a potentially damaging impact, but I think we need to be a bit more nuanced about it, and look at it in terms of particular sectors in agriculture. New Zealand is very strong in terms of red meat—beef and lamb—but also dairy and horticultural production. Australia is likewise, and you can add grain to that. There are clear potential impacts for particular sectors that are already really quite vulnerable in large parts of the United Kingdom, not least in Scotland. I am thinking particularly of the red meat sector and how important that is to the rural economy of Scotland and, indeed, the whole economy. Scotch beef and Scotch lamb are iconic products, but we are not in a situation whereby we can stack it high and sell it low, as it were. Anything that comes along and undermines our position in that respect is clearly going to be a considerable threat—I use that word advisedly—to the viability of agricultural businesses here in Scotland.
Donald MacKinnon: I agree with everything that Jonnie said there. I think of the impact, particularly on the red meat sector, which, we cannot forget, operates in some of the most fragile areas of the country and really underpins the rural economy in these areas, particularly in the highlands and islands, where my members are crofters.
I just want to add another point about timescales. Often the argument is put to us that New Zealand is not ready to flood us with lamb on day one—I am sure we will get on to the safeguards that have been put in around the 15-year transition—but that was never something that we were concerned about. This is about changes that can happen over a much longer period of time. Agriculture does not operate on year-to-year, short lifecycles. We operate in generational terms in our businesses, and 15 years is a relatively short period of time in that sense. So it is not that we are concerned that the negative impacts are going to happen straightaway. This is about the long-term future of our industry. That is what my members are concerned about.
Gareth Parry: I would take that a step further, from a Wales perspective at least. Without going into too many details of the figures from the UK Government and the impact assessments of all the different sectors and the different nations across the UK, I think it is worth highlighting how much more Wales relies on agriculture when it comes to rural economies, rural communities, our Welsh language, and a number of other, tertiary businesses that rely on agriculture. We believe that those impacts would be much more significant in Wales.
Dame Nia Griffith
Q
Nick von Westenholz: I am not sure it could be done via the Bill, because I guess the Bill is simply legislating domestically for what has been agreed under the Government procurement chapters in the FTAs themselves. My understanding is that if they were to do that, they would have to go back and open up the negotiations, which are obviously completed. I think the Bill either stands or falls. I am not sure an amendment would be possible in that sense.
I would have to examine the text closely, but under the relevant chapters in the agreements and, indeed, in the wider Government procurement agreement, there are provisions that allow Governments to stipulate provisions around environmental protection and so on, and environmental standards for procurement contracts, as long as those are not discriminatory between domestic and overseas potential bidders. I am not sure that that would extend to, for example, animal welfare and those kinds of production standards, but I could not be absolutely sure about that. I would suggest that there is some degree of flexibility for Governments to stipulate certain requirements in the contracts for these public procurement arrangements, but on the question whether that extends to specific animal welfare requirements, I do not believe it would.
The Chair
I remind colleagues that the scope of the Bill is quite narrow, as Nick alluded to. I do not know whether any other witness wants to comment on that question.
Jonnie Hall: The question raised the issue of standards, and how you could build and ensure standards through any procurement contract. We all have standards in mind around all sorts of trading arrangements, and that has been one of the major focal points of the FTAs with New Zealand and Australia, but we have to bear in mind that it is not just about animal health and welfare and environmental standards; it is about the way in which the production systems operate in New Zealand and Australia. Their costs of production are different from those in the UK, often because of the very high standards and compliance costs that go alongside production here.
Ultimately, an awful lot of procurement contracts will be negotiated on price, given that there will be a written understanding, at least, that the standards in them will be of an equitable value, if that is the right expression. It is the competing on price piece that will probably be of more concern to Scottish producers than anything else, because we operate under different agricultural production systems and our cost structures are therefore different. If it comes to Government procurement issues, it may be that New Zealand and Australian produce is more attractive simply in terms of value for money—I will call it that, but the word “value” is not right.
Ms Anum Qaisar (Airdrie and Shotts) (SNP)
Q
Nick von Westenholz: As I said at the beginning, these kinds of arrangements, whether through FTAs or more generally through the Government procurement agreement, obviously put restrictions on the ability of the UK Government to encourage purchasing of UK goods in public procurement contracts. You understand why: these are liberalising arrangements that are intended to encourage trade. But we also know that there is widescale political support for “buy British” provisions in Government procurement, so there is a tension between the sorts of provisions in these chapters and the stated desire from the Government to encourage more Government procurement of British food.
In terms of how much that will come to bear in practice, Australia and New Zealand are obviously on the other side of the world; it is not clear the degree to which they will be pitching for procurement contracts around food, but this would facilitate that if they wanted to. It is part of a wider picture of essentially facilitating more overseas provision of food in public procurement, and that is a concern if your policy objective is to encourage more “buy British” in public procurement.
Jonnie Hall: I agree with what Nick just said. There seems to be some divergence between a policy that is intended to stimulate trade, as opposed to backing local Scottish and British food producers and manufacturers. There will obviously be some sort of trade-off in that situation, and I am not clear where that would leave Scottish producers in the longer term.
Lloyd Russell-Moyle (Brighton, Kemptown) (Lab/Co-op)
Q
The deal does not cover schools in New Zealand and Australia, because those public institutions are at the state level, not the federal level. If, for example, we produced a certain crop or fish, such as British cod, cheaper, those products would not have that easy access, so people in Australia having fish and chips would not necessarily have British fish or British potatoes. Do you not think there is an inherent unfairness in this deal? Should there be some procurement conditions in the Bill to ensure that it is about reciprocity and, where reciprocity does not exist, to allow devolved or local authorities to take a divergent approach, as Australian local authorities will be able to do?
Nick von Westenholz: I certainly agree with the principle of what you say: these deals should be reciprocal. There are a number of elements of the Australia deal where there is an asymmetry. In some of the environmental aspects, there are provisions that apply to UK-wide environmental regulations, but only to Australian federal regulations rather than those at state level. Most Australian environmental laws actually exist at state level, so the vast majority of environmental laws are not covered by this trade deal. I would say that that is an imbalance and an asymmetry in the deal.
As I say, as a point of principle, I agree with you. The rather lengthy annexes to the FTA set out which bodies are covered at both national and sub-regional levels. It is not always easy to discern exactly what is and is not covered, so I will bow to your knowledge on the exact differences in the bodies that are covered—I would not be able to confirm that myself—but, where there are differences, we would be concerned about that.
I would temper that a little with the fact that I am not sure we think there will be a major exchange of business through procurement contracts on food as a direct result of this deal. We will need to keep an eye on that. It will probably be other, bigger industrial services contracts that are likely to benefit, so I would not want to over-egg it. However, as a point of principle, I agree with you.
Jonnie Hall: I will add one thing quickly. There was a reference to the carbon content of lamb from New Zealand versus the carbon content of Welsh lamb, or indeed Scottish lamb. I think that would be a real sticking point in many ways, because that carbon is not necessarily calculated using the same process and the metrics may not be directly comparable. We need a level playing field in how we measure the carbon or climate impact, or indeed any other environmental impact, of production in Australia and New Zealand versus production in the UK before we can draw any sort of comparison. If you cannot do that, you have to be very careful about any assumptions you make about importing any product because of its smaller carbon footprint or any other environmental impact before you rush into any deal.
Gareth Parry: I agree with everything that has been said. I have not seen the figures relating to the carbon footprint, but if they are correct, thank you for challenging them. I also agree with the point about carbon calculators, and as a union we have been raising that issue on a national level. The same calculator may be used to compare neighbouring farms, or even on a national scale, but the issues become even more apparent when we look further afield and discuss trade deals: the issues that arise in comparing the carbon footprints of two farm holdings five miles apart also apply when we compare the carbon footprint of a product produced in a UK nation with that of a product produced on the other side of the world.
It is really important to consider the scale of production in countries such as Australia and New Zealand, compared with the UK. I guess that has something to do with the conclusion that the carbon footprint is lower. The scale of production over there—and things are produced to different standards there, as has been said—cannot be compared to that in the UK.
Lloyd Russell-Moyle
Q
Nick von Westenholz: As a general rule, we are nervous about the overuse of secondary legislation to implement Government policies. That goes back to the earlier point about parliamentary accountability and scrutiny.
Lloyd Russell-Moyle
Q
Nick von Westenholz: Yes, indeed. I would not like to comment, because you would need more expert legal commentary on the precise powers available in the Bill. I sit on the Trade and Agriculture Commission to which you referred, and our experience from that supports the points made by Jonnie Hall. We found very varied calculations of the relative carbon emissions from New Zealand and UK red meat production, which is exactly the point made earlier. To give New Zealand farmers due respect, on a global scale, they have comparatively very sustainable and good global emissions—as do we; we should be proud of ourselves as well.
Bill Esterson (Sefton Central) (Lab)
Q
The Chair
Order. The hon. Gentleman, who is a very experienced Member, tempts our witnesses to comment on other Bills. Even though he does so in the context of this Bill, that is slightly out of scope of the Bill. Perhaps he might rephrase his question.
Bill Esterson
I can certainly rephrase it. What sort of provisions would you ideally like to see in this Bill?
Chair
Excellent. You confirm your experience and political agility.
Nick von Westenholz: I touched on it earlier: much as we might want to say, “We can amend the hell out of the primary legislation in order to amend the FTA,” that will not happen, and I also do not think that would be right. The FTA has been negotiated by the UK Government’s negotiators, and what they have come back with has been agreed with Australia and New Zealand. Trying to change the details of it through primary legislation would simply mean opening up the negotiations again; we would have to go back and renegotiate.
I might think that there are elements of the FTA that need renegotiating, but the way to do that is to have much more transparency and scrutiny throughout the negotiation process. As I said earlier, that was agreed in the exchange of letters between the International Agreements Committee and the Government. The Government committed to sharing their objectives before negotiations opened, to sharing updates throughout the negotiations with Parliament, and to providing for a debate on an amendable motion at the end of the process. If the Government do that, one could be pretty assured that the negotiations would end up with a result that is more palatable to a whole range of UK stakeholders. That did not happen in this case, and that is why there has been serious disquiet, particularly in the farming sector, about the deals.
Gareth Parry: Ever since the trade deals were mooted, we have been calling for a level playing field when our producers are in competition, or even greater competition, with producers in Australia and New Zealand. We could be here for hours discussing differences in production methods and standards between the countries, but my understanding is that there is no provision in the trade deals that would allow us to influence how those countries produce food and vice versa. From my understanding, that is why quotas and tariffs are used in trading across the world. If we are not allowed to influence how food is produced in another country, we use quotas and tariffs to create that level playing field. As Nick said, perhaps they cannot be incorporated to negotiate the current FTAs, but they definitely need to be considered when future trade deals come down the line.
Jonnie Hall: I thought the issues of concern were articulated very well in the first question. If they are the issues of concern, it strikes me as being a bit odd that they would be dealt with in legislation on Government procurement, rather than in the original process governing the trade agreements. I guess I am echoing what has been said by Nick and Gareth.
Gareth Thomas
Q
Nick von Westenholz: As I said, I sit on the Trade and Agriculture Commission, but maybe it would be right to say that I am making my comments as a representative of the NFU. Obviously, my role on the commission is as required and set out by the Secretary of State, who asks us to do what she would like us to do and says what she would like us to look at. We do that job as requested, essentially.
From the NFU’s perspective, I think the strength, or role, of the Trade and Agriculture Commission is as strong or as weak as the parliamentary scrutiny process around it. We look very closely, in considerable depth, at the standards aspects of trade deals, and we have produced two reports that go into some depth on that. The value of that is in providing parliamentarians with as much information as possible, so that they can assess the strengths and weaknesses of the FTA. Obviously, that goes alongside the broader assessments that Select Committees in both Houses make. We hope that, armed with that information, parliamentarians can then an informed decision as to whether they like an FTA or not. If parliamentarians, as I mentioned earlier, are not given the opportunity to vote on that, or even to debate it during the CRaG process, that clearly seriously undermines the effectiveness of any assessments, whether from the Trade and Agriculture Commission, Select Committees or, indeed, anything else. The scrutiny process and the role of Parliament in this is vital.
We still are using the CRaG process as the main process. As I say, I do not think that it has been used at all well in this situation, but that is what we have. That process was designed while we were a member of the EU, and really it did not envisage that free trade agreements like these would be subject to the process; it was for international treaties covering many other sorts of things. It seems to me pretty obvious that, having left the EU more than six years ago, we should design a parliamentary process, in statute, that actually deals with the fact that we are an independent trading nation doing these very important and often in-depth free trade agreements. The current situation is not designed to do that, and that is being shown up already in the Australian FTA.
Jonnie Hall: I completely endorse what Nick says. The Trade and Agriculture Commission was set up with the best intentions, and gave the agricultural industry and probably the whole agrifood sector a bit of encouragement that proper scrutiny would take place as trade deals were being negotiated. That was enhanced even further in November 2020, when the UK Government said that the commission would be placed on a full strategy footing, to ensure that the voices of farmers, growers, those in the supply chain and environmental, animal health and welfare groups could be heard while the UK Government were securing trade deals.
However, in March 2021, the terms of reference were published by the UK Government, and they stated that TAC would scrutinise free trade agreements once they were signed. That takes the whole point of the commission away from under its feet in many ways. It would work well, was effective and, I think, did perform a useful function—as Nick says, in informing parliamentarians, more than anything else. It has now been somewhat sterilised in some ways. We still need some sort of body to function in that way.
Gareth Thomas
Q
Nick von Westenholz: I would not want to give a long answer; we all have opinions on what happened with the negotiations. I would just say that if you are doing a trade deal with a country such as Australia or New Zealand—countries that are, particularly when it comes to goods, already almost totally liberalised, and are very big and effective agricultural exporters—agriculture in the UK will probably be the main sector to come under pressure as a result. If you wanted to do a deal, and particularly if you wanted to do it quickly, and wanted it to be liberalising, as was the Government’s intention, I am not sure that you could do it in any way that did not at least have the potential to have a negative impact on UK agriculture, though none of us knows exactly what the outcome of the deals will be in the next few years.
Jonnie Hall: If you look at modern trade deals—deals in the last 20-plus years—agriculture has often been the sacrificial lamb in those trade negotiations, no pun intended, so the expression, “being thrown under the bus”, resonates quite clearly with the agrifood sector. In modern-day economies, it is in digital, tech, manufacturing and finance that great gains are to be made. We are the primary producers of a primary product; when it comes to overall value, agriculture and food products will be relegated to the tail end of a trade agreement between modern economies. If you ask other sectors of the economy, they will probably think that the agreements that have been signed are very much in their interests and create opportunity. We tend to see them in another way.
Gareth Parry: I wanted to answer the question on the Trade and Agricultural Commission. Forgive me, but I am not 100% sure of the full list of TAC members; however, we have long had the policy that representation on the commission needs to reflect the potential impacts on the agriculture and food sectors across the UK. I emphasise the need for good representation of all nations. I fully agree with what Nick and Jonnie said about the effectiveness of the TAC. As was said, it is no secret that the agricultural sectors in both the countries that we are talking about are huge. There will always be winners and losers in these types of liberalised trade deals, and unfortunately, as we can see from the impact assessments, agriculture is predicted to be one of the sectors that is a significant loser from these deals.
Dr Kieran Mullan (Crewe and Nantwich) (Con)
Q
Nick von Westenholz: When we were a member of the EU, all trade agreements by the EU were scrutinised directly by Committees of Parliament. There was, through that process, a good degree of parliamentary scrutiny. At that time, Parliament retained a theoretical ability to either accept or reject all regulations stemming from the EU. A lot of people might argue that the power was exercised rarely, if ever, and that played greatly into the debate on our membership of the EU, but certainly formerly Parliament had a greater ability to oppose trade deals.
The Chair
Order. If colleagues have got something to say, they should say it through the Chair for the benefit of Hansard, the broadcasters, the public and most of all out of courtesy to our witnesses. Thank you Dr Mullan. If there are no more questions, I thank the witnesses for their time. In particular, if I may, I thank Mr Parry, who came in at late notice; we certainly wanted to hear from Wales.
Examination of Witness
Professor Albert Sanchez-Graells gave evidence.
The Chair
Professor Albert Sanchez-Graells is professor of economic law and co-director of the centre for global law and innovation at the University of Bristol law school. He is appearing via Zoom, and this session will end at 3. 25 pm. For the record, could you please introduce yourself, professor? Thank you, sir.
Professor Sanchez-Graells: Good afternoon. Thank you for the opportunity. I am Albert Sanchez-Graells and, as you said, I am a professor of economic law at the University of Bristol.
Gareth Thomas
Q
Professor Sanchez-Graells: Yes, that is correct. Thank you for the opportunity to expand on those ideas. Basically, the starting position is that both the UK and Australia, as well as New Zealand, are members of the World Trade Organisation plurilateral Agreement on Government Procurement. That means that free trade restrictions are already bound by a standard of rules with which they comply, and then they have bilateral agreements on market access. You would have expected that if the UK and Australia wanted to deepen that market access, or the UK and New Zealand wanted to do so, they would do it by adding to the annexes of the GPA, basically by keeping the rules as they are, but accepting that this or that market at national or sub-national level is also open to the tenders of the other jurisdiction. By the way, that is the approach that has been followed in the EU-UK trade and co-operation agreement, basically because that is a clean legal approach. We agree on the rules, we just negotiate on market access.
The difficulties with the chapters in the UK-Australia agreement in particular, and to some extent in the UK-New Zealand agreement, is that they have not done that. They have copied the rules of the GPA and then tweaked them. In those tweaks, there are problematic changes. I have identified two main areas of problem: one is the national treatment rules on access to markets, which applies in particular to suppliers in different jurisdictions, and the other is access to remedies. The access to remedies is the one that worries me because under the chapter with Australia, not the one with New Zealand, there is a clause that allows for the exclusion of legal remedies completely on the basis of public interest. That means that, for example, for very high-profile projects, or very high value, the courts might just set aside any claims for a suspension of the procedure or even for the compensation of damages to admit that there has been a loss to be excluded on the grounds that that is not in the national interest. It is a very open-ended clause. I think that this will make tenderers from Australia, in particular, think twice about tendering in the UK now, when they could basically be mistreated or even illegally excluded from tenders and then not have access to legal redress.
I think that that can be problematic. What is also problematic is that of course it plays both ways. If I am a UK small or medium-sized enterprise and I have to decide whether to invest my limited time and resources in bidding for a contract in Australia or bidding for a contract in, for example, the European Union, I know that, in the European Union, my interests are protected to GPA-plus standards, whereas under the FTA, in Australia, my interests are protected to GPA-minus standards, so I would probably refrain from bidding in Australia, which then brings a big question mark to the practical advantages of the enhanced market access that the Government have claimed the chapter will bring.
Gareth Thomas
Q
Professor Sanchez-Graells: Thank you; those are good examples to flesh this out. Let us take High Speed 2 as the first example. Let us imagine that for any bit of the construction of the lines or for the supply of the rolling stock, the UK conditions wanted to prioritise UK steel, as is Government policy at the moment. Imagine that an Australian construction company wanted to tender for the contracts, but the steel that it wanted to use for the rails was South Korean steel. In the current conditions, before the FTA enters into effect, the Australians have to be treated equally to a UK company even if they want to use South Korean steel, because South Korea is also a member of the GPA.
What would happen under the FTA is that, because of the specific wording in the provision—I do not want to bore you with the detail—there would be an option for the UK buyer to take a narrow understanding and say, “You are not offering Australian steel and you are not offering British steel, so I no longer have to treat you equally to UK bidders. Therefore I exclude this construction company from the tender.” The construction company probably would want to challenge that, especially because it spent money tendering but also because it is potentially a profitable contract, so it goes to the High Court. Let us say that the High Court dismisses the claim, on the basis that HS2 is already so delayed and so over budget that there is no public interest in looking at this issue. Then the Australian company is left with maybe one final resort option, which is to try to bring an investment protection claim on the basis of that denial. But certainly it seems strange that if the FTA had not entered into effect, the Australian company would have had access—maybe not to suspending the project if the interest is high, but certainly to claim the damages for that unfair treatment of its tender.
The same thing would happen the other way. Let us imagine that an innovative British company that wants to sell low emissions rolling stock for that metro link in Melbourne airport goes and tenders in Australia. It is excluded for any number of reasons and it wants to challenge the decision. It could also be barred from access to remedies in Australia, which means that the UK tenderer has lost its time and probably made a loss on the project. That would generate a very big disincentive for anybody to try to tender in future projects. But also, again, there would be a risk of maybe trying to raise this issue as an investment protection issue. That would basically, in simple terms, open up a trade war between the UK and Australia.
To me, it is counterintuitive that when we are trying to deepen our trade liberalisation on a bilateral basis, we are creating problems that do not exist under the current multilateral basis, where these issues are not allowed.
Gareth Thomas
Q
Professor Sanchez-Graells: Yes, that is absolutely correct. In the tender process that we are imagining for the Melbourne airport rail link, if a French company, a British company and an Australian company was tendering, and the Australian company was preferred, the French would have access to remedies that could not be excluded, at least in terms of claiming for compensation for lost profits, or at the very least for the cost of having bid, but the UK tender could be barred from those remedies. Again, that does not seem like a post-Brexit improvement of the position of UK businesses under these stand-alone free trade agreements.
Gareth Thomas
Q
Professor Sanchez-Graells: I would make two points on that. First, even if the CPTPP were to resolve these problems, which it will not—I will explain why later—there would always be the problem of how long it takes between these FTAs entering into force and CPTPP basically overturning them. The reason why CPTPP would leave these FTAs without effect is that both Australia and New Zealand are members of CPTPP, and therefore the later international treaty modifies the previous ones. For any tender that started between the entering into force of these FTAs and the entering into force of the UK’s membership of the CPTPP, the rules of these FTAs would apply. So this is not an issue that might be on the books and is then fixed by CPTPP; it could run for years even if CPTPP enters into force.
The second and more important point is that CPTPP is very close to the Australian procurement chapter, which is probably where its inspiration was drawn from. So it would keep the same problems under the Australian chapter and make the problems under the New Zealand chapter worse, because on remedies the New Zealand chapter is aligned with the GPA, but once CPTPP entered into force all single relationships with New Zealand would have the problematic clause that would allow the barring of access to remedies. So CPTPP would not make it better, and in any case we would have to live with the consequences of these FTAs for the period between the entering into force of them both.
Gareth Thomas
Q
Professor Sanchez-Graells: Of course, I am not privy to the negotiations, but my impression is that these chapters very much started from the position of the trading partner. I do not think the reason why the New Zealand chapter is different from the Australian chapter has to do with the UK Government learning from mistakes; I think it has to do with different starting positions among the New Zealand negotiators and the Australian negotiators. Australia has the same sort of clause in most of its trade deals, and it also pushed for it under the CPTPP. You may call it luck, but I think we may just call it an effect of the rush in which the deals were negotiated. Effectively, they have made the UK a rule taker, because they have accepted the proposals of the counterparty just to progress negotiations. That is my observation.
Gareth Thomas
Q
Professor Sanchez-Graells: This would be an issue that would depend on the terms of the investment chapters in the FTAs, and, again, the investment chapters are different under the Australian and New Zealand deals. The New Zealand deal excludes procurement from all of those outstanding obligations of the investment chapters. That would not be a problem in that FTA, but in the Australian investment chapter there is an obligation to provide fair treatments, which includes common customary law on access to justice.
The point I am trying to make without being too complicated is that the Australian company that had bid for HS2 and had been thrown out on the basis that it wanted to use South Korean steel goes to the High Court and sees its action thrown out on the basis of public interest. It could then say, “Okay, I was trying to acquire an investment in the UK. The UK has to give me fair treatment in the process of trying to gain this investment. They have denied me access to remedies. Also, they have denied access to remedies on grounds that they cannot play with other companies that are in a very similar position to me, including other companies that come from GPA countries.” They could make the case of having been discriminated against in not being given access to remedies and make that an investment dispute.
The difficulty in this context is that under the Australian chapter, to the best of my knowledge, and I am not an investment expert, there is no possibility for the Australian company to sue the UK Government. They have to raise the issue with the Australian Government so that they could raise it as a dispute under the agreement with the UK. That is why I think it opens up the problem of potential trade wars. It is not an issue even of relatively secretive arbitrators determining whether the UK has to compensate the Australian company, but it immediately becomes a potentially very high-profile trade issue between the two countries. It is very difficult in that case to foresee how it will end up being resolved. There will be a panel which will also work relatively similarly to an investment arbitration tribunal. If what the panel decides is not implemented, then we can just go to countervailing measures and other types of sanctions. The prospects are not looking good, unless the UK Government at some point decides to settle the dispute to avoid those problems.
There is a long story, starting with the Brexit process, of very expensive settlements for procurement mishaps, for example, with the ferry contracts or with the Nuclear Decommissioning Authority. Potentially, these could be very expensive claims to settle and the terms of those settlements are never very clearly controlled, and the process whereby those settlements are achieved is also not necessarily well scrutinised in time. That opens up all sorts of other issues with how, instead of being dealt with in the courts, the misbehaviour of a procuring entity in the UK ends up becoming a political and potentially very expensive issue.
Gareth Thomas
Q
Professor Sanchez-Graells: I always said from the beginning that it is difficult to know how realistic the impact assessment is because the details have not been made public, so we would need to take the Government’s word at face value. It is difficult to see that some of the touted advantages are going to be exploited, because we are talking about high-profile, high-value projects. We know that usually there is always a risk of protectionism, especially in the current circumstances. If I were advising a big company, I would flag the risk that going to Australia means we are basically putting all of our investment at risk because we may not be able to recoup it. I wonder whether that was taken into account in the impact assessment, but I would think not. That £10 billion probably has to be adjusted downwards for that uncertainty, which will make some companies not take advantage of the opportunities.
The other issue that makes me wonder how accurate the impact assessment was relates to the claims that the Government made in some of the documents that tried to promote the advantages of the FTA. For example, they said that there is now a massive improvement in access to financial services contracts because some authorities in Australia are now covered. But those authorities are already covered under GPA, just at the higher value threshold. There is quite a lot of marginal improvement on market access. I would have wanted to see some evidence that UK companies would have been interested in those contracts but were not bidding because they did not have a legal right to bid, which I have not seen anywhere. I think that the £10 billion is a quite theoretical, best-case scenario. I advise caution in assessing that figure.
Gareth Thomas
Q
Professor Sanchez-Graells: That is correct; I think that is what the UK impact assessment claims. When the International Agreements Committee raised this issue in the report, the Government’s response did not provide any further details; they simply said that the figure was properly checked. It may be the cynic in me, but when those figures are not put out for public scrutiny, perhaps we naively accepted the benefit suggested by the counterparty.
The Chair
If there are no further questions, I thank the witness for his evidence. We will move on to the next panel.
Professor Sanchez-Graells: Thank you for your time.
Examination of Witness
Michael Gasiorek gave evidence.
The Chair
We will now hear oral evidence from Michael Gasiorek, director of the UK Trade Policy Observatory, who is joining us via Zoom. This session will end at 3.45 pm. Will the witness please introduce himself?
Michael Gasiorek: Yes. Good afternoon and thank you very much for inviting me to give evidence. My name is Professor Michael Gasiorek. I am a trade economist. I am director of the UK Trade Policy Observatory and co-director of the Centre for Inclusive Trade Policy, and I am based at the University of Sussex.
Dame Nia Griffith
Q
“This may endanger…the EU’s…adequacy decision to the UK”,
and public trust, which would obviously be a very serious issue. Is there any way that we could remedy your concerns through the Bill?
Michael Gasiorek: The short answer is that I do not know. The issue that arises is to do with the agreements in the UK-Australia and UK-New Zealand deals on transmission of data across countries, and whether they accord with the EU’s data adequacy decisions. I am not a legal scholar, so I would not be able to tell you with regard to the specific terms of this Bill. My understanding was that I was coming to the Committee to address questions about the economics of the agreement, not the legal technicalities; I am afraid that I am not a lawyer.
Dame Nia Griffith
Q
Michael Gasiorek: I think the reason that the economic impact is limited is largely driven by the fact that we trade very little with both Australia and New Zealand. In each case, it is not much more than 1% or 2% of our trade—less with New Zealand than with Australia—and they are both very far away. There is very little that could be done to increase the aggregate economic impact of the agreement. Logically, these are countries that we do not trade very much with, and that are very far away—that is one of the reasons why we do not trade very much with them; another is that their GDP is smaller than that of larger trading partners. There is little that could be done in the Bill to change that outcome.
Dame Nia Griffith
Q
Michael Gasiorek: Once again, I will pass on that question. As I informed the Committee’s secretary, I am not a specialist on procurement processes; I am a specialist on the economics of the agreement.
The Chair
Okay. If there are no further questions from Members, I thank the witness for his time.
Michael Gasiorek: Thank you very much.
Examination of Witness
Rosa Crawford gave evidence.
The Chair
We will now hear evidence from our next witness, Rosa Crawford, policy officer at the TUC, who is appearing via Zoom. Rosa, thank you for being available a little early. We have until five minutes past 4 for this session. May I ask you to introduce yourself, for the record?
Rosa Crawford: I am Rosa Crawford, policy officer lead on trade and Brexit at the Trades Union Congress, the national union centre that represents 48 affiliated unions, and over 5.5 million workers.
Gareth Thomas
Q
Rosa Crawford: We as trade unions believe that public procurement has the potential to create tens of thousands of jobs and many apprenticeships, but they need to be on the right terms; we have to make sure that these are decently paid jobs, on good, secure terms and conditions, that support a just transition and promote equality. What causes us concern about the Trade (Australia and New Zealand) Bill is that it does not provide guarantees that those social objectives will be promoted through our public procurement procedures. In fact, there is potential to undermine them, particularly in the parts of the UK-Australia trade deal about public procurement, which this legislation would allow to be implemented.
Article 16.17 of the UK-Australia agreement says only that environmental, social and labour considerations “may” be taken into account by procuring entities, and only when those considerations are
“based on objectively verifiable criteria”.
That could open up scope for Australian companies, via their Government, to challenge social criteria in UK public procurement processes as being potentially unverifiable, because that is an undefined term. Multinational companies are eyeing up our procurement market—this is a big objective in trade deals—and will be looking for any means of challenging any social criteria that they regard as being a burden for business, such as a requirement to pay a living wage or to provide secure conditions. We are very worried about the language in the UK-Australia procurement provisions, which the Bill would allow to be implemented.
Let me connect that to the Procurement Bill going through Parliament. It does not give us the assurances that we need that social criteria will be promoted through its provisions, unlike the EU-derived procurement rules in the Public Contracts Regulations 2015, which allowed the Government to refuse a tender on the grounds of its non-compliance with International Labour Organisation conventions, and required social value criteria to be taken into account in the most advantageous tender criteria. There is no such requirement in the Procurement Bill. That means that now, in UK procurement rules, there are no provisions to prevent public money from being given to suppliers who abuse fundamental workers’ rights. For us, that is going in completely the wrong direction.
In the EU-UK trade and co-operation agreement, we made commitments to promote fundamental International Labour Organisation standards, yet in the Procurement Bill and the UK-Australia agreement, we do not see them promoted. I will highlight two more concerns about the Procurement Bill. There is no requirement for high labour standards—
The Chair
Order. Forgive me, but we are not talking about the Procurement Bill. There is clearly some crossover, but if we can try to avoid the temptation to spend too much time on that crossover, I would be very grateful. Thank you.
Gareth Thomas
Q
Rosa Crawford: CPTPP could create an even more problematic situation for us. Members will know that the CPTPP contains the investor-state dispute settlement provisions, and unless the UK explicitly opts out of those provisions, we will be bound by them. That obviously means that foreign investors could sue the UK Government for any actions that are interpreted as being a burden on business. That could mean living wages and decent conditions. If we accede to the CPTPP, we could be allowing social criteria that we include in our public procurement provisions to be challenged by foreign investors from across the CPTPP countries, which obviously include some of the largest multinationals in the world.
It is extremely problematic to us that the UK is considering acceding to the CPTPP, and the TUC is opposed to that, as are the majority of trade unions in CPTPP countries. It should be said that the CPTPP takes a very broad, liberalising approach towards its service commitments, which means that a number of public services that are part-privatised could be locked into that privatisation through the CPTPP. The direction taken by the CPTPP, as well as by the UK-Australia trade agreement, which the Bill will implement, seems to us very problematic. It could undermine the expenditure of public money through public procurement—[Inaudible.]—and decent-quality public services.
Gareth Thomas
Q
Rosa Crawford: We have specific concerns about the lack of scrutiny provided for through the Bill, because paragraph 2 of schedule 2 states that any regulations made under clause 1 will be subject only to the negative procedure. Obviously, that will deny MPs the opportunity to scrutinise the procurement legislation introduced via the Bill, so it will not be possible for Members to challenge legislation that undermines social standards in procurement. We believe that clauses 1 and 2 should be subject to the affirmative procedure.
We also have more broad concerns about the lack of scrutiny of the UK-Australia trade deal specifically, as well as of all the trade deals that the Government have negotiated to date. For us, it is really important—[Inaudible.]—scrutiny, and scrutiny by trade unions. Otherwise, those deals will not deliver the best outcomes for workers, public services and all sectors of the economy. We really regret the process that was followed for the UK-Australia deal; Members were not provided with the opportunity to debate and vote on the agreement when it was brought before Parliament in June. The Bill is the only opportunity we have to debate the provisions of that deal, but the legislation is extremely narrowly drawn, and that is completely inadequate, in terms of the democratic process.
Trades unions have also been completely shut out of negotiations. We released a joint statement with our counterpart in Australia, the Australian Council of Trade Unions, at the start of the negotiations, setting out our positive agenda for what we thought a UK-Australia trade deal should look like. We said that trade unions should be in the room to provide expertise from across different sectors about the kind of protections that workers need, as well as the agricultural safety standards required. That impacts on workers’ conditions, and has to do with workers not being exposed to unsafe chemicals and unsafe procedures. We said that unless trade unions were in the room, we would not get the outcomes that workers needed.
The Government made a lot of positive noises about trade unions being included in the negotiations, and last September, the then International Trade Secretary, Liz Truss, said that the trade unions would be included in their trade advisory groups, which are consulted on the text of trade negotiations. We were not given those seats, and we were not consulted on the text of any of the UK-Australia trade deal as it was being negotiated. As a result, we have a trade deal that does not have adequate enforcement mechanisms and has very weak commitments on workers’ rights; there is only a reference to the International Labour Organisation declaration, not to the fundamental conventions. The terms of the deal refer to listing for services, which, in common with the CPTPP, will expose part-privatised services to being locked into that privatisation. The deal also has very problematic provisions on data liberalisation, which could mean that workers’ data is not properly protected. It could allow for that data protection to be challenged as a barrier to cross-border flows of data.
We have ended up with a deal that is completely inadequate and threatening, from a workers’ rights point of view, and from the public point of view, because we did not have engagement with that deal. As I said, that is also the case with the UK-New Zealand deal. In fact, we have not had input to any of the trade deals that the Government have negotiated to date. We really want a change of direction; we want trade unions consulted, as they are in other countries, such as the US; there, they are routinely consulted during trade negotiations. We want Parliament to be given a full say, and to have the ability to debate and vote on any trade deal brought before the House.
The Chair
Thank you. We have a little bit more time than we expected, but we also have quite a few questions to get through, as I am sure colleagues will be pleased to hear.
The Minister of State, Department for International Trade (James Duddridge)
Q
Rosa Crawford: I understand that there can be a debate, but that it is much more difficult for the regulations to be voted down, and that a debate is not guaranteed. There must be an active initiative to pray against the regulations to create that debate. That is much less likely to happen. Such a number of SIs come through that it is quite difficult to trigger a debate on each one and vote against them. Full democratic scrutiny is much harder to achieve under that process than through primary legislation.
The Chair
The supplementary point was made, and a supplementary supplementary point is now on the record as well, so I think we will move on.
Drew Hendry
Q
I would like to ask Ms Crawford a question that I have asked others, and it is very much on the theme of what you have been talking about. You have said that questions have not been answered on jobs, climate change, workers’ rights, environmental considerations, and indeed the correct way to spend public money. What is your view of the fact that implementing legislation is being introduced on the New Zealand FTA before Parliament has had the opportunity to debate it under the CRaG provisions?
Rosa Crawford: We believe, again, that there is a deficit of democratic scrutiny. Much more parliamentary scrutiny should have been possible throughout those negotiations, as well as the negotiations on the UK-Australia FTA. The International Trade Committee has not been consulted on the text of that agreement as with UK-Australia, and there has not been the possibility to have a proper debate about the agreement before it is implemented, as you say. We are extremely concerned about that process and very worried that the Government will again try to push this through Parliament without having the proper debate required. Obviously, the negative resolution procedure will apply there, and it means that unless there is a resolution against, which can only delay the agreement for 21 days, it will become law. It is going to be very difficult for that process to be triggered by parliamentarians, so we are very concerned about the approach taken with UK-New Zealand as well
Lloyd Russell-Moyle
Q
I have asked people about the scope of the secondary legislation that the Secretary of State can lay down. In regard to the trade deal, the scope is slightly wider than “must”; it is currently phrased as “may”. Do you think that the scope is correct at the moment, or should it apply only to things that the Government are legally required to bring forward under the trade deal?
Rosa Crawford: Yes, we are concerned that the scope is very broad. As has been said by you and a number of members of the Committee, the negative resolution procedure makes the process for scrutiny and debate, and for full democratic—[Inaudible.] Using “may” terminology, rather than what the Government are legally bound to implement, introduces an element of concern that there might be a whole range of things brought in through this legislation that are not strictly required to be brought in, and that could be problematic because this Government have not suggested they are going to take an approach that is about protecting social standards and ensuring that social criteria are indicated in public procurement. We are therefore worried that there might be additional measures that would allow for further liberalisation of the public procurement processes, and for businesses that do not respect workers’ rights to be awarded public money. That would completely undermine the standards, so we are very concerned about the broad drafting of the Bill.
Lloyd Russell-Moyle
Q
Rosa Crawford: We would strongly support the inclusion of such a provision because, as I say, it is essential to consult trade unions on the provisions in all parts of the trade agreement. On public procurement specifically, we need consultation with the unions to ensure we have the requirements there so that international labour standards and environmental standards are upheld, and that we pursue public objectives such as reducing inequalities through public procurement. That consultation with trade unions and parliamentarians is really important. The International Trade Committee is an important Committee that should be consulted, because there is expertise there on the public procurement provisions; then maybe other Committees that are relevant and have an interest should be consulted. Having that requirement for consultation with MPs would be a welcome addition to the Bill.
Bill Esterson
Q
Rosa Crawford: Yes, that is correct. With both the UK-Australia and the UK-New Zealand trade agreements, you have a weak labour chapter that makes reference only to the ILO declaration, rather than a requirement of fundamental international labour organisation standards respected by both parties. That is an issue in Australia and New Zealand because, despite the fact they both have progressive Governments, neither has ratified all the fundamental ILO conventions. New Zealand has not ratified the fundamental conventions on minimum age, health and safety, or freedom of association, and Australia has not ratified the fundamental conventions on minimum age, and health and safety.
Without that base of fundamental rights, there can be potential for a pressure on rights to lower here, as businesses take advantage of the market access they can get through the UK-Australia and UK-New Zealand trade agreements to places where they can potentially respect rights less. That could pressure rights to be lowered here. You do not have a labour chapter that has high standards, requirements and rights, and it has an ineffective enforcement mechanism that requires a proven effect on investment and trade, which we think will be difficult to meet.
There are similar provisions in the CPTPP labour chapter, despite the fact that CPTPP contains countries that are egregiously breaching labour rights—such as Vietnam, where trade unions are banned, as well as Brunei. We have not seen the CPTPP labour chapter being used at all. To us, those kinds of provisions are ineffective when they are included in a trade agreement, so it is concerning that the trade agreements we have with Australia and New Zealand do not have those effective provisions in place for labour standards. It sets a concerning standard for trade agreements we might sign with future partners, particularly as the Government are considering signing trade deals with places where labour rights are much worse, such as Gulf states, India and Israel.
The direction of travel is concerning in Australia and New Zealand. The inadequate protections around environmental standards also have an impact on workers’ rights; allowing produce with lower environmental safety standards to be imported into the UK potentially exposes workers here to more dangerous chemicals and other production methods that impact on workers’ safety and protection. We are concerned about the approach taken in both agreements.
Gareth Thomas
Q
Rosa Crawford: No. We have just had several pledges from successive Secretaries of State for International Trade. Liz Truss, when she was Secretary of State, had a meeting with our general secretary, Frances O’Grady, in which she assured her that unions would be included on these trade advisory groups. As I say, that was in September 2021.
Then our general secretary had a series of meetings with Liz Truss’s successor, Anne-Marie Trevelyan, including a meeting that also included the US trade ambassador Katherine Tai. She also made the pledge that trade unions would be included on these trade advisory groups. After that meeting, she appeared before the International Trade Committee in April this year, where she said that she hoped that trade unions would be included on the trade advisory groups as soon as possible, but we still have not seen any sign of that.
We hope that the new Secretary of State for International Trade will make good on that promise. We have written to Secretary Badenoch to request that the Government fulfil their pledge to include trade unions on the trade advisory groups, but we still have not seen anything. We are surprised and concerned that we have not seen progress in over a year since the Government pledged to include unions in the group. As I say, the outcomes are that we are getting trade agreements that are undermining workers’ rights, and new trade talks are being launched with really serious implications for workers’ rights with countries such as Israel, India and the Gulf states.
Gareth Thomas
I do not know whether it is in order, Chair, but to save time for the Committee next week, I wonder whether the Minister might want to reassure the TUC representative that the Secretary of State will grant access to the TUC in the future. It would save a bit of time next week if he were willing to give that pledge.
The Chair
I am very grateful for that very kind offer from the shadow Minister, but it is not for the Chair to adjudicate on what the Minister may or may not say in the future. I am sure that if the shadow Minister raises it next week, he can hear it directly from the Minister.
If there are no further questions, I thank Rosa Crawford for her time, and for spending a little more time with us than advertised. We very much appreciate it. Thank you very much indeed.
Rosa Crawford: Thank you.
The Chair
We will now hear oral evidence from Miles Beale, chief executive officer of the Wine and Spirit Trade Association, who is joining us via Zoom. This session will last until 4.30 pm. May I ask the witness to introduce himself for the record? Thank you for being prepared to join us slightly earlier than advertised; we are very grateful. Over to you, sir—[Interruption.] I think you are on mute. [Interruption.] We still cannot hear you. I think we will suspend the sitting while we iron out some of the technical difficulties.
The Chair
Yes, we can hear you loud and clear.
Miles Beale: Fantastic. Thank you to my team, and apologies for that technical issue. We ought to have got used to it by now, but I am afraid that every now and then it defeats us.
Good afternoon, my name is Miles Beale. I am chief executive of the Wine and Spirit Trade Association. We have approximately 350 all-UK members. All our members are involved in buying and selling, importing and exporting, or advising on the sale of wines and spirits in the UK market.
Gareth Thomas
Q
Miles Beale: I think there is a small difference between the two deals, in any event. From a wines and spirits point of view, there was—still is—a low tariff that the deals are getting rid of in both cases: a 5% tariff for exports and imports in either direction. Obviously, it is of benefit to consumers and businesses in both countries when those fall away. That is pretty straightforward—fairly simple.
I think we see an improvement on the Australian trade deal in the New Zealand one, because the New Zealand deal includes an annex and has a bit more of a dynamic element to it. The wine and spirits annex will allow us to have conversations over time, and improve on the deal that is already there. That was not available as an annex in the Australia free trade agreement.
There are a couple of things that we were expecting to be able to get out of the New Zealand deal that we are not yet able to get out of the Australian one, particularly around the wider variety of wines and spirits being available on both markets, and better traceability and brand protection, particularly for spirits. There is a distinction you can draw between the two deals, and you can see some progress being made; the New Zealand deal is slightly better than the Australian one.
Gareth Thomas
Q
Miles Beale: Yes, in general terms that is true. There was an effort to get the Australia deal done quickly. You could say rushed; one person’s rushed is another person’s achievement in a shorter period of time. We were keen to support a deal that got over the line. There has been a bit more time for the New Zealand deal and it is probably slightly simpler to do, but the New Zealand deal also benefits from being the second one after a 42-year gap. I think that, certainly on the UK side, officials were in a slightly better position and knew a little bit more.
Gareth Thomas
Q
Miles Beale: Yes, I think we would share that view, particularly for our exports. Let us take British gin as an example: we think it has significant cachet, and we particularly see smaller gin brands doing very well in the Australia and New Zealand markets. At the Wine and Spirit Trade Association we have organised our own trade missions for some of our small businesses. We normally take a group of them to markets that we think are likely to prove fruitful for them. We have not been able to do Australia and New Zealand, partly because they are geographically very far way and are smaller markets than some of the others we have chosen to go to, such as parts of the US and Japan.
We would like to see significantly more support for British SMEs that have export potential. It is one of the things we have talked to the Department for International Trade about quite a few times. Anything we can do to bring down the costs of entry into markets where we think the products would be successful would be a good idea. We know that other countries do that to a greater or lesser extent. One of the opportunities we see in the next few years is speeding up some of our SMEs getting into exporting wines.
Gareth Thomas
Q
Miles Beale: It is not quite as simple as that. The Department has certainly listened to what we have had to say. In practical terms, we get some support for our SMEs going into market from the posts—the embassies and high commissions in the markets that are out there, usually in capital or larger cities. What we have not had is any financial support. To be honest, that is the thing that would make the greatest difference for small businesses in particular.
Occasionally, there are large food and drink festivals that the DIT—or, in some cases, other Departments such as the Department for Environment, Food and Rural Affairs—encouraged us to point our members towards. In truth, it is rather hard to appear as a small British gin brand or a new sparkling wine brand next to different types of British food and drink where there is probably a more established market, so that tends not to work so well for our members. We would need something more tailored to get the results we need.
Gareth Thomas
Why do you think the financial support has not been provided? Is the Treasury just not interested, or does it prefer to concentrate on other areas of support?
The Chair
Order. Forgive me; we need to keep within the scope of the Bill. I am sure that the shadow Minister will have ample other opportunities to raise such issues, but today is not the occasion. Mr Beale, you do not have to respond to that.
If there are no other questions, I thank our witness for taking the time today, and I reassure him and his office that Zoom issues happen to us all. It is no problem at all. We are glad that we were able to hear your responses and evidence today. Thank you for your time; it is much appreciated.
Miles Beale: Thank you very much.
Ordered, That further consideration be now adjourned. —(Mark Jenkinson.)