G7 Summit and Future Trade Relations

Baroness McIntosh of Pickering Excerpts

Thursday 21st June 2018 Lords Chamber

Asked by

[Baroness McIntosh of Pickering]

To ask Her Majesty’s Government what assessment they have made of the implications for the United Kingdom’s future trade relations of the failure to reach an agreement at the G7 Summit in Canada.

[Baroness McIntosh of Pickering (Con)]

My Lords, I am delighted to have secured this topical debate today and I look forward to hearing noble Lords’ contributions. Perhaps I may take this opportunity to welcome the Minister to her place and say how appropriate it is, on the longest day and the summer solstice, that in responding to the debate she represents the department known as the “department of sunshine”.

The G7 summit earlier this month, hosted by Canada and held in Quebec, aimed to promote the rules-based international order to advance free and fair global trade, promising talks leading to more trade between the subscribing nations. Why does the G7 matter? In my view, it matters precisely because it bridges trade relations between the EU and world trade through the World Trade Organization. In looking at the implications for our future trade relations in this debate, we must ponder the reasons for the failure to reach agreement in Canada.

The background to the June G7 summit was the latest UK trade figures in April 2018 showing a widening of the total UK trade deficit to £9.7 billion in the last quarter for which figures are available. This change was due mainly to falling exports in both goods and services. Exports of goods fell by £3.1 billion due to falls mainly in exports of machinery, pharmaceuticals and aircraft, while exports in services fell by £2.5 billion. I find the figures surprising given that the pound is at a low level. In this situation one would have expected exports to have risen. Given the fact that we are negotiating our exit from the European Union, it is perhaps not surprising that our trade deficit in goods with the EU has grown while that with non-EU countries has improved.

Looking at the backdrop to these figures and the failure to reach agreement at the G7 summit, I conclude that trade relations pose the greatest threat to the global order. In a post-Brexit world, we in the UK are seeking to negotiate our own trade deals, with the Government aiming initially to strike a good trade deal with the EU and subsequently with America, India, Australia and so on. Success will depend on all players playing by the rules but, following Donald Trump’s behaviour at the summit and subsequently introducing tariffs on trade, respect for these rules is now in doubt.

I am delighted to say that Yorkshire seems to have bucked the trend. Trade figures show that the region outperformed the national average in the first three months of 2018, with an increase in both the amount of goods that Yorkshire exports and the number of companies exporting. In terms of food and farming, Yorkshire is well placed to compete with other regions of the UK and internationally. Exports to China from Yorkshire are growing, helped in particular by the sale of pigs’ trotters and other parts to China where they are considered delicacies.

Without doubt, the EU is the UK’s most important market for food and drink exports, followed by the US and China. It generated £13.3 billion of the total food and drink exports in 2017, which accounts for 60% of the total. The EU has 36 preferential trade agreements with more than 60 countries, representing 15% of all UK-traded goods, not just food and drink. Many Commonwealth countries have economic partnership agreements with the EU, giving preferential access for their goods to what will be a market of 440 million consumers after Brexit. The application of the EU’s standard rules of origin on the day after Brexit would be hugely damaging to UK-EU trade. Will my noble friend the Minister give the House a commitment today that the Government intend to negotiate specifically that this could not possibly happen?

In terms of the share of national exports as a percentage of world exports, China, excluding Hong Kong, led in 2016, followed by the EU, then the United States. As a major trading nation, the UK should welcome every opportunity to improve its international trading relations, so it was a disappointment that the June G7 summit was divisive and inconclusive. The attempt by President Trump to persuade the G7 partners to readmit Russia, following on from the decision to impose US tariffs on steel and aluminium, poisoned the atmosphere of the talks, which were then doomed to fail. Russia was admitted to the G7 in 1997 and removed in 2014, following the annexation of the Crimea. We should remember that in August 2014, Russia announced a ban on imports covering a wide range of agri-food and drink products from the EU, the US, Canada, Australia, Norway, Ukraine and other countries. In the year following the ban’s implementation, UK food and drink exports to Russia fell by 52%. EU food and drink exports to Russia fell by 53%. US threats to impose tariffs on EU and Chinese exports to the US look set to raise the temperature in international trade talks further still, with consequent retaliatory measures. Rising trade tensions globally do not augur well for trade; nor do the signs of the world index in stock markets across the globe falling, as we saw this week. Signs of slower economic growth can only be increased by the prospect of a trade war between the US, the EU and China.

How can we best navigate these choppy waters in international trade? How do we replace the existing market of 505 million consumers on our doorstep with alternatives? There appears to be no simple answer. Current international tensions highlight the dangers of leaving a trading bloc of 505 million consumers, of which we have been an intrinsic part since 1973. This debate provides the Minister with an opportunity to share on their behalf the Government’s priorities for future trade talks, mindful of the importance of talks to the food, drink and other manufacturing sectors.

I conclude with a small number of questions for my noble friend the Minister. The World Trade Organization’s existing trade dispute settlement mechanism currently dictates that the EU Commission manages trade disputes on behalf of the UK and other member states. Can the Minister assure the House that by the time we leave the EU on 29 March 2019, the Government will be in a position to defend any trade disputes brought against the UK? Can she share with the House what the dispute resolution mechanism will be, as was envisaged—we would know—in the White Paper at the end of last year?

Finally, what is the current progress of the recent EU dispute brought before the World Trade Organization, relating to the US tariffs on steel and aluminium imports? As a general rule, what is the average length of time for such a dispute to be resolved? No matter how difficult we might think our relations and negotiations with the EU have been, I think the Minister will confirm that future negotiations on trade matters with the World Trade Organization could be 10 times worse.