Trade Barriers (Revocation) (EU Exit) Regulations 2018

Baroness Fairhead Excerpts

Wednesday 28th November 2018 Lords Chamber

Moved by

[Baroness Fairhead]

That the draft Regulations laid before the House on 22 October be approved.

[The Minister of State, Department for International Trade (Baroness Fairhead) (Con)]

My Lords, these regulations revoke the EU Trade Barriers Regulation 2015/1843 under Section 8 of the European Union (Withdrawal) Act 2018. The EU Trade Barriers Regulation sets up a process for businesses, trade associations or member states to report trade barriers in non-EU countries to the European Commission. Cases have ranged from burdensome customs procedures to discriminatory pricing systems. The Commission assesses the measure and makes proposals for resolution—for instance, raising it in bilateral discussions or at the World Trade Organization. It should be noted that this covers unlawful trade barriers only.

After we leave the European Union, the work on trade barriers will fall to the British Government. It is important that we get this right. Trade barriers cost the UK economy billions of pounds in exporting opportunities worldwide, and non-tariff barriers on average add up to three times as much as tariffs to the cost of traded goods. That is why one of the Department for International Trade’s key objectives is to open markets and why our export strategy details the types of barriers businesses face when exporting and the government support that will be available. It is therefore crucial that businesses can continue to report them. But that only makes it even more crucial that the system for reporting them works effectively, and there is limited evidence of the success of the statutory process.

We do not believe the current Trade Barriers Regulation is fit for purpose in the new UK context. It is complex and costly for businesses, making it slow and infrequently used. It sets a high threshold to be met before an investigation is initiated. This high threshold acts as a disincentive to firms, particularly small firms, reporting market access barriers. The Trade Barriers Regulation requires a complaint to provide detailed evidence that obstacles to trade actionable under international rules are causing injury or adverse trade effects. Just gathering this evidence requires significant amounts of complex legal and economic analysis to be conducted by firms or trade associations. All this is required just for an investigation to be triggered and a report to be written. This is a higher threshold than the Government wish to set for a potential non-tariff barrier to be examined in the first place.

However, amending this threshold would be a change in policy, and thus not within the scope of the powers granted under the European Union (Withdrawal) Act. We would therefore need primary legislation to provide the legislative authority to have a new threshold for reporting trade barriers under a UK replacement of the EU Trade Barriers Regulation. Moreover, it does not create an obligation on the Government to resolve trade barriers. Creating such an obligation would again be a substantive change of policy, again needing primary legislation. The Government have therefore decided not to replicate the Trade Barriers Regulation, and instead to introduce a materially enhanced non-statutory system.

In the EU’s own evaluation of the Trade Barriers Regulation in 2005, a potential TBR user indicated that, while it believed it had a sufficiently sound case, it was discouraged from proceeding to file because of the volume of additional information requested by the European Commission during the pre-initiation phase. In the same report, one of the important EU trade associations commented that there is a large discrepancy between the TBR as a market-opening instrument and the reality faced by complainants in making a complaint. This leads to a lot of frustration for companies or industries that want solutions to market barriers.

The Trade Barriers Regulation, as it stands, provides for a five-step process: the complaint is submitted; the Commission has 45 days to determine whether to investigate; the Commission announces this decision in the Official Journal of the European Union; the Commission actually investigates; and a report is submitted to the trade barriers committee. It is drawn-out and complex. Businesses are required to submit lengthy reports, involving detailed economic and legal analysis for which small organisations just do not have the resources. It is also almost entirely superfluous. All the regulation does is to commit the Commission to investigate and write a report. There is no requirement to take action. In practice, the regulation has been almost entirely bypassed. Around 70 new barriers were reported to the EU last year. On just one of those did the businesses involved choose to use the statutory process; the rest were submitted informally. Indeed, in the last 10 years there has been just one UK application. There is no evidence that those submitted informally were any less likely to be resolved.

Businesses are already revealing their preference for a non-statutory process. So we propose a new, non-statutory process to improve the approach rather than continuing to use a less effective one. Our non-statutory approach will be accessible and user-friendly, with a simple online form on www.great.gov.uk for businesses to fill in. This is already well under way and will be ready for 29 March 2019. Because it is non-statutory, it will also be a flexible process. UK exporters will be able to tell the Government of the full range of barriers they face, including ones that breach the letter and spirit of international agreements. The Government will then use the full range of available tools to tackle these barriers: economic diplomacy, regulatory dialogues, WTO dispute settlements and, if necessary, committees. It will also be a two-way process. It has been designed with the objective of better understanding the trade barriers that businesses face so that we can target the Government’s effort more effectively.

We will, of course, provide reports to businesses and Parliament within the bounds of commercial confidentiality. In due course, the Government will be able to share information with businesses on where barriers exist or—just as importantly—have been removed. That will help businesses make decisions. We are absolutely clear that reports of non-tariff barriers will not disappear into a vacuum and that we will give both parliamentary oversight and feedback to businesses on barriers they report. We are expanding the market access team in the DIT to support this work, with a designated regional point of contact for each of the nine DIT global regions. Her Majesty’s Trade Commissioners overseas will spearhead and champion action on market access across our nine regions overseas. Of course, this will be accessible and available to all parts of the UK.

We are upgrading our capacity to deal with market access barriers, including the IT infrastructure to share information on market access barriers faced by UK businesses. This will enable better collaboration and information-sharing.

As the UK delivers an independent trade policy for the first time in 40 years, we are committed to ensuring that our businesses have as many exporting opportunities as possible. Part of that means helping to resolve trade barriers as effectively as possible. I welcome the opportunity for full scrutiny of this statutory instrument and of the Government’s new approach to tackling trade barriers. I look forward to hearing noble Lords’ contributions. I beg to move.

--- Later in debate ---

[Lord Stevenson of Balmacara (Lab)]

My Lords, I am grateful to the Minister for her detailed introduction to the SI. I agree almost entirely with the approach of the noble Lord, Lord Fox, and will follow a number of his points.

I am intrigued by this SI. The noble Baroness was right to point out that it does not do what the other SIs are trying to do, which is to replicate in a UK context what is currently happening because of our membership of the EU. I do not quite follow the logic. We are considering these SIs today in such large numbers because they transpose whereas this SI dismantles. The Government’s argument is that we cannot amend it but we can dismantle it. I do not get the logic of that. It seems that the Government could not do anything about it because anything they wanted to do would require primary legislation. That rather suggests that the Trade Bill, which is in limbo, is not appropriate for that. However, it seems to me to fit entirely within the parameters of the Trade Bill. I understand what the noble Baroness is saying but I do not get where we are going.

My second complaint is that the figures I have do not square with the figures that the noble Baroness used. I have just looked at the list of trade barriers which are currently reported to the Commission and, on a quick count, there appear to be about 1,000—there are 116 in agriculture and fisheries alone. If you count them by country—which I can do even as I speak—you will find that many of them are interesting countries, including the USA, which have a substantial number of trade barriers.

I am hearing a different story from the other side of the Dispatch Box about a pathetic structure which is hardly used and has industry turning away in droves. As the numbers show, however, that is not what seems to be happening; there are live cases covering a range of issues that play to this question of non-tariff barriers. It seems rather odd that we are trying to dismantle it. Those are my opening points. It is a system which the Government have taken against. They have decided in principle, for reasons I do not follow, that it would be much better if we were not part of the TBR scheme, or any TBR scheme, as we leave the EU, if we have to, on 29 March.

As the noble Lord, Lord Fox, said, there are clearly issues about trade barriers and how we are going to resolve them. Surely it must be the objective of the Government to make sure that we have a robust system in place to support our businesses and workers, who will otherwise be affected badly by countries which have decided, for reasons best known to themselves, that barriers should be erected. Given the new world order, in which might is right and where protections and tariffs are rife, we verge on the prospect of a very dangerous set of trade wars. It therefore must be appropriate for the UK Government to think hard about this, and it is not obvious that the right way to do it is to dismantle something that has some merit.

Why would the Government decide to replace the present statutory scheme, without formal consultation or proper notification, with a non-statutory reporting mechanism, which seems at its heart to simply rely on emails sent to local ambassadors in the hope that they will be able to do something about it? That does not seem to pass the test of a serious approach to supporting exporting.

I am intrigued why this responsibility—which clearly is not the flavour of the month within the department—is not given, to be beefed up and made more effective, to one of the two bodies that the Government will rely on if the Trade Bill ever goes forward. The Trade Remedies Authority deals with exactly these issues. Why does it not have this responsibility? If there is some doubt about whether it has the range or the skills to do it, the CMA will also be looking, through its state aid function, at similar areas. There is a perfectly good way of taking on this responsibility outside the department. Taking it outside the Department for Trade will give hope to those industries that do not naturally relate to BEIS or other departments such as Agriculture that the new body will set up expertise.

The Minister said that feedback on the effectiveness of the trade barriers regulatory system has been mixed. Without a formal impact statement being available—or maybe an informal one, as we have heard in other SIs—and without knowing what an adequate definition of “mixed” is, there are rather confusing messages coming back. “Mixed” does not mean a unanimity of views, so I take it that there were some dissenting voices. Would it not be sensible to set out clearly what the objective of the trade barriers system should be, what system is required to countermand these things, and to set up a proper consultation to come up with a solution that will command the support of those who have to be involved in it?

The argument seems also to rely on the fact that even though there is this system, it does not achieve very much and has rarely been used. The information I have—I do not know whether it is true—is that when the Confederation of European Paper Industries lodged a complaint that measures imposed by Turkey on the imports of certain varieties of paper were inconsistent with both the WTO and the EU-Turkey customs arrangements, Turkey immediately withdrew the unfair measures because of possible action through the statutory system. Even though it does not have a set of sanctions or a court behind it, the fact that this was formal and statutory-based was sufficient to get action. I do not understand why what might be a developing, long-term programme will be abandoned when the UK might have need of it.

If we are to get rid of it, what about the things that are present and still of value? The Minister did not give any detail. There is a market access advisory committee which monitors arrangements and puts forward recommendations, and there are lists published. Who will do that when we move into this new, semi-informal system? In particular, how will we organise in the UK the variable geometry that arises when different departments have responsibilities here? I do not think the issues that will be affecting Defra—such as the transport of live animals—will be in any way cognate with some of the other issues that have been raised. How will that be managed? In particular, in the future we will have a situation where the devolved Administrations—Scotland, Wales, and Northern Ireland if ever re-formed—will have direct trade responsibilities. How will their complaints be organised? Will that be done on an informal basis, and has that been cleared with the devolved Administrations? I suspect that they will have concerns about that. While we are on the topic of consultations, in the absence of a properly constituted market access advisory committee, where in the system will representatives, consumers, trade unions and businesses be able to feed in views and advice about this non-statutory system? Will this be done in some informal way, through Facebook perhaps?

The trade barriers regulations are only one area of EU legislation that deal with trade barriers and dumping. This SI before the House is part of a process, so where are the other pieces of EU legislation that deal with dumping and other matters? Specifically, what about Regulation (EU) 2016/1036 about protection against dumped imports and Regulation (EU) 2016/1037 on protection against subsidised imports? Can we expect those, and, if so, roughly what is the timescale?

There is also a transitional issue. There are a number of complaints apparently already in the system from the UK. What will happen to those if they have not been completed by 29 March 2019 and we have to leave the EU with no deal? What happens if there is a transition period? These are two separate issues. I put it to the Minister that the department should be issuing advice about those currently engaged. Even though they are small numbers, the issues are substantial.

I end by suggesting to the Minister that, rather than revoking the regulation, it might have been a good idea to make a greater effort to investigate whether the current system was truly effective and whether the fact that the statutory element was not used very often was a sign that it was working rather well, rather than the opposite. I generally agree with the noble Lord, Lord Fox, on this: this SI is somewhat undercooked.

[Baroness Fairhead]

My Lords, I thank your Lordships for your contributions today. This has been an interesting debate in a particular area and I will try my best to cover all the points that were made. I start with the point made by the noble Lords, Lord Fox and Lord Stevenson of Balmacara, about why we are revoking. Essentially it is because, as I laid out in the briefing, there is a very complex process to submit and all it requires the Commission to do is to investigate and produce a report—it has no teeth or requirement to solve anything. What is the logic of revoking rather than amending? The amendment, as I said, concerns primary legislation—that is our advice. When you look at amending to create primary legislation with the force of just creating a report, you wonder why you would do that. Many countries have exclusively non-statutory approaches, including Australia and New Zealand.

--- Later in debate ---

[Lord Stevenson of Balmacara]

I understand the point the Minister is making, although it was not really at the heart of what I asked. It would be helpful if she could explain what would be the difference. She talked about the informal ways, but let us take the Turkey example. As I understand it, that was properly documented, sent in, appropriately registered, taken up by the European Union and was formally there. Therefore, it is the threat—rather than the practice of it—that the EU might take a range of sanctions and not necessarily just do a report that seems to have caused the change of heart in Turkey. In the new system, what is it—emails to the ambassador?

[Baroness Fairhead]

Definitely not. What happens when this goes to the MAAC—Market Access Advisory Committee—is similar to what will happen when it goes to the market access team, which is the new team set up inside the DIT. All concerns and market access issues can be raised on an online site and, as I tried to explain, they will be reported on. The concerns will go back to businesses and particular sectors and will also come before this House. So within the bounds of commercial confidentiality, the concerns will be logged as specifically as possible. In fact, it will be similar to the current approach: the areas will be reported on and will not just stay in the ether.

[Lord Fox]

From that answer, it is still not clear what they will plug into. Perhaps the Minister can help on that. Improving the resources from three or four people to 20 people sounds impressive—until you think about the scale of the task. If the Minister’s wonderful online system will gather in more issues, as it is supposed to, there will be a lot of work to do.

There is a large variety of sectors. For example, rules of origin will be a major issue around non-tariff barriers in the food sector; we have not mentioned those dreaded words. The department will need tremendous ability to analyse and substantiate any claim around that. Automotive and aerospace are industries that I know better—and chemicals. All those industries have immense specialisation in them and a great number of legal issues around them. The reason this process becomes complicated quickly in its TBR mode is that there are those complications. Simply having an online form will not remove that complication. So understanding the scale of the resource, it seems that, unless nobody bothers to do this, 20 people will soon be insufficient. Attracting sufficient expertise to address that issue will be a real challenge.

[Baroness Fairhead]

Again, the noble Lord makes good points. The market access team will be made up of 20 people, as I said. That is similar to the number of people on the Market Access Advisory Committee, which exists currently for all EU nations. There are 28 people there—one for each EU nation—as against 20 who will focus just on the UK.

The new digital system will be online and accessible to all businesses. I will come on to engagement in a moment, but we have had feedback from discussions at the round table of businesses that there is unanimous support for the new approach. Businesses see it as a way to make sure that the system is accessible and that more information can flow in a less restricted way, eventually becoming a two-way process.

I will touch briefly on engagement and consultation. As I said, the TBR process has been used very rarely, so we reached out to organisations that have used the process or contemplated doing so. We sought their feedback on the most effective way to use it. We engaged with businesses on the right approach to the online service. They have had an active role in user testing to make sure that the external-facing side is fit for purpose. We reached out to and included stakeholders from the full range of sectors, including food and drink, pharmaceuticals, alcoholic beverages and automotive; they all attended the round table. We also spoke to those who had been actively involved in TBRs. We also engaged with stakeholders who fed into the design of the service. All that engagement had the aim of making sure that we had something that businesses thought was the right support for them in terms of the market access barriers that they see.

The noble Lord, Lord Fox, made an important point about the power of the UK and its capability to influence. This is not new to us. On trade missions, I often push back at some of the trade regulations and non-tariff barriers. We can see significant successes in pushing back on regulations on a UK-only basis. For example, Taiwan removed the barriers on pork from the UK. That was done not on an EU basis but on a UK bilateral basis with Taiwan. Similarly, the Chinese block on UK beef was also pushed back. So we have the ability to push back on such regulations.

The noble Lord, Lord Stevenson, was concerned about mixed feedback. The broad majority of businesses were comfortable with this non-statutory approach and supported it unanimously. Even the entity that was more interested in continuing with a statutory option appeared pretty sanguine about moving to this approach and could see some real benefits. My understanding from the impact statement is that neither the TBR approach nor the new approach regulates business, so no impact assessment is needed. However, I hope that I have conveyed our significant engagement with all parties that we think would be interested in the approach.

I truly appreciate the challenge we face here. I hope that I have given noble Lords some confidence in what is being created, because it will support British businesses and help them push back the barriers. The approach has been designed with the objective of being business-led. With this in mind, I ask noble Lords to support this instrument.

Motion agreed.