EU: Trade in Goods (European Affairs Committee Report)

Earl of Kinnoull Excerpts

Thursday 2nd February 2023 Lords Chamber

Moved by

[The Earl of Kinnoull]

That this House takes note of the Report from the European Affairs Committee One year on—Trade in goods between Great Britain and the European Union (4th Report, Session 2021-22, HL Paper 124).

[The Earl of Kinnoull (CB)]

My Lords, before I address the substance of the Motion, there are some important things to say. First, on behalf of the whole committee, I thank and congratulate our staff, Nick Boorer, Dom Walsh, Tim Mitchell, Louise Shewey and Sam Lomas. Their hard work, professionalism and good humour stood us in good stead and were evident throughout.

Secondly, I formally record our warm memories of Baroness Couttie, who was a strong and highly respected colleague, Member and contributor to our report. Finally, I would like to say how much I am looking forward to the valedictory speech from the noble Baroness, Lady Chalker, marking her stepping back from such an exceptional career in service.

In September 2021 we launched our inquiry into trade in goods between the EU and Great Britain, recognising that trade matters relating to Northern Ireland are for our sister committee, that on the Ireland/Northern Ireland protocol. We published our report on 16 December 2021, just under a year after the conclusion of the trade and co-operation agreement. The Government responded on 16 February 2022. It is now just over two years since the TCA was concluded and came into force.

The report sets out the then economic context using official trade statistics. At the time, there was evidence that there had been a sharp drop in UK-EU trade immediately after the end of the transition period, with a partial recovery thereafter. The committee concluded that, at a macroeconomic level, it was difficult to disentangle the impact of Brexit on trade in goods from that of Covid. However, we observed that this should not obscure the new administrative burdens that business faced; for example, the requirement to fill in customs paperwork when exporting goods to the EU—something that was clearly not a consequence of the pandemic.

In the year since the publication of our report, the gradual trade recovery that we observed seems to have continued. In 2022 the value of both goods imports from and exports to the EU recovered to their highest level since 2019, even after taking inflation into account. However, overall UK trade volumes have performed below those of most advanced economies, with the UK currently experiencing the lowest trade growth in the G20. It is not clear whether this underperformance can be attributed to Brexit. For my first question, I ask the Minister to comment on the current state of UK trade with the EU and its impact on the UK’s wider trade performance in the light of the recent statistics.

The start of the committee’s inquiry followed just after the Government’s decision in September 2021 to delay the introduction of certain import controls on EU goods. It was the third time that the Government had announced such a delay. The report therefore assessed the causes and consequences of that delay, including the impact of asymmetry in the import controls applied by the EU and the UK, it being the case that GB exporters faced more stringent checks than their EU counterparts. We noted concerns among some businesses that this could create a competitive disadvantage.

At that time, full customs declarations were due to be implemented in January 2022, with sanitary and phytosanitary, or SPS, controls and safety and security declarations due to follow in July 2022. The customs controls were indeed implemented as planned, in January 2022. In their response to the committee’s report in February 2022, the Government said that they would introduce the remaining controls on time. However, the remaining controls were delayed yet again in April 2022 and are now not due to be implemented until the end of 2023 at the earliest. Our committee engaged in correspondence with the then Minister for Brexit Opportunities, Jacob Rees-Mogg MP, in the wake of that delay. He confirmed that the latest decision reflected a more fundamental change in approach, with the nature of the border regime as well as the timetable under review. He was also dismissive of concerns about the impact of asymmetry at the GB-EU border, saying that the Government rejected

“the premise that increasing burdens for importers and increasing costs for British consumers will help our exporters”.

However, there is still uncertainty about the future border regime. We were told that the Government would publish a target operating model in autumn 2022 that would set out in detail how and when the new border regime would be implemented. We still await that document. According to the Department for Environment, Food and Rural Affairs, it is now due to be published in early 2023. Can the Minister provide an update on the UK’s future border control regime and the publication of the target operating model?

Questions have also been asked about the UK’s biosecurity, given the absence of the remaining SPS controls on imported plants and animals from the EU. Last summer the Food Standards Agency said that

“the continued absence of a fully implemented UK import control regime for EU food and feed reduces our ability to prevent foods that do not meet the UK’s high standards being placed on our market.”

What steps are the Government taking to safeguard the UK’s biosecurity in the absence of the remaining SPS controls?

On the overall impact of the end of the transition period, the committee’s report concluded:

“Although the worst-case scenario of widespread disruption did not come to pass, GB-EU trade in goods is now more complicated and expensive than it was before January 2021.”


We noted that SMEs and the agri-food sector were particularly hard hit. In their response, the Government said that the new relationship

“will contain many benefits for individual businesses; but … this involves some change”.

Our committee wrote back to the Government asking them to explain what these many benefits were. In his reply, the then Minister for Europe, Graham Stuart MP, highlighted the TCA’s provisions for zero tariffs. I found his answer somewhat perplexing and disappointing.

The committee’s report identified some more specific problems that traders have faced and proposed several solutions. However, the Government’s engagement with those recommendations, both in their response and in the subsequent correspondence, was mixed. On SPS requirements, the committee highlighted that these had been a major challenge for exporters and called on the Government to seek an SPS agreement with the EU. The government response did not engage with that recommendation. In a subsequent letter, the Minister clarified that the Government were “open to discussions” on SPS, but not on the basis of “alignment with EU rules”.

On customs, the committee called for increased EU-UK co-operation, including exploring a so-called single customs office model. The Government dismissed this recommendation, arguing that the TCA did not provide the legal basis for co-operation of this kind.

On VAT, a major concern for small businesses, the committee welcomed the Government’s efforts to persuade the EU to list the UK for VAT purposes, which would eliminate the need for businesses to engage an expensive fiscal representative when exporting to the EU. The Government have since said that they will continue actively to pursue facilitation in this area.

These and other matters could all be addressed within the plethora of trade specialised committees set up under the trade and co-operation agreement—committees that are operational but not really operating due to the Northern Ireland protocol impasse.

There may be further challenges on the horizon. Businesses that the committee spoke to in the inquiry were not opposed to regulatory divergence, provided that it was carefully considered. However, the Retained EU Law (Revocation and Reform) Bill could produce further divergence between the UK and the EU in an unplanned way and in ways that might interact with the trade and co-operation agreement. What assessment have the Government made of the compatibility of the retained EU law Bill with the UK’s commitments under the trade and co-operation agreement, in particular regarding the level playing field provisions on employment and environmental standards?

There was a lot in our report and, I feel, many clues as to how to improve matters. Trade is always mutually beneficial; I fervently hope that the many trade-specialised committees can be unleashed soon to unlock that benefit. In the meantime, I very much look forward to the debate ahead. I beg to move.

--- Later in debate ---

[The Earl of Kinnoull (CB)]

I shall be very brief. First, I congratulate the noble Baroness, Lady Chalker, on her valedictory speech. It showed that, after 49 years, she has lost none of her touch. I found it to be a heady mixture of wit, wisdom and style. It was a great privilege to be here for it; I thank her very much.

I also thank all noble Lords who have spoken in the debate; it is has been very long and very interesting. I particularly thank the members of my committee, who presented noble Lords with a window on to the vibrancy, expertise and strong views that sit around our table, which make it so interesting, enjoyable and satisfying when we manage to produce a report such as this one. I thank the Minister; he is a multirole Minister because, while the report is about trade, he is from the Foreign Office. As ever, he responded very carefully; I thank him in advance for the letters that will arrive to answer some of the difficult questions posed to him.

Some common themes arose today. A cloud is developing around the REUL Bill. Many of us will be back in this Chamber on Monday to discuss that developing cloud; it must be watched very carefully. There were also remarks on travelling creatives. I assure my noble friends Lord Berkeley and Lord Clancarty and the noble Viscount, Lord Stansgate, that the committee remains committed to following up on the work that we are doing on that difficult and distressing area for which we need to find solutions.

Two themes were most important, one of which was about SMEs. An important point was made early in the debate by the noble Lord, Lord Lamont, that, strangely, the damage to SMEs is bigger in the European Union than it is in the UK when expressed as an aggregate number of pounds. So it is in the interests of both sides to solve the issue with SMEs. It is in the British interest because we want growth and this is a quick way for growth to solve the issue. The mechanism for solving the issue is the series of specialised trade committees within the TCA; we must get those going.

The second incredibly important theme concerns the SPS requirements. It seems to me that finding a solution to that is in the realms of the possible. I am always disappointed to hear that someone remains open to something because it suggests that they are not going out to search for the solution. I hope that the language of the Government changes here from “remains open” to “going out to try to search for a solution”, because that, too, will unleash growth—and growth is something we really need.

As a committee, we will return to all these themes in due course.

Motion agreed.