European Union: Negotiations (European Union Committee Report)

Lord Hannay of Chiswick Excerpts

Monday 16th March 2020 Lords Chamber

[Baroness Noakes]

I will come on to that in a short while. I was saying that dynamic alignment is simply not what the British people voted for in 2016 or in last year’s general election. It is right that it forms no part of our approach to our longer-term relationship with the EU.

One symbol of being an independent nation again is fisheries. The EU seems to think it can recreate the existing quota arrangements, which are so disadvantageous to our home fishing industry. That simply cannot happen. The fishing industry may not be the most important contributor to the nation’s GDP, but it is symbolic of what it means to be a free nation: controlling our own waters and setting the rules by which we will be responsible conservators of our fishing stocks.

I am also completely behind the Government’s decision that we should not seek any extension of the transition period at the end of this year, even in the face of the current pandemic, which may well disrupt negotiations but does not present an excuse for not completing them. It is essential that we move to prepare for life without a comprehensive agreement if we do not make enough progress by the summer. I have never been afraid of trading on WTO terms and I will not start now.

All in all, I believe that the Government’s approach as set out in Command Paper 211 and as illuminated by the wonderful speech last month by Mr David Frost, our chief negotiator, is terrific. I hope that the House will support it.

I turn now to the other Motions before us, namely the Motion in the name of the noble Earl, Lord Kinnoull, on behalf of the EU Select Committee, and the amendment in the name of the noble Baroness, Lady Hayter. If I had to sum up both of these Motions, I would say that they are seeking to rerun battles that have already been fought and lost. I was absolutely amazed that the EU Committee managed to hang its first report on Section 29 of the EU withdrawal Act. I shall express no opinion on the validity of the argumentation around this as set out in chapter 1 of the report. It may well be technically accurate. I do not, however, believe that Section 29 was intended to be used for the purpose of requiring a debate on the negotiations on our longer-term relationship. I had understood that section to allow Parliament to raise important issues about EU legislation passed in the transition period and therefore applying to the UK while we do not have any representation in the EU.

Noble Lords will be aware that the terms of the 2020 withdrawal Act differed significantly from the version of the earlier Bill that was considered by the last Parliament. The earlier Bill required the approval of Parliament to the Government’s negotiating objectives, which themselves had to be consistent with the political declaration. It also required three-monthly reports to Parliament on the progress of negotiations. Those provisions were inserted in a doomed attempt to get the last Parliament to pass the withdrawal Bill. But since then, the general election has given a huge mandate to the Prime Minister to “Get Brexit done”. The provisions for involving Parliament in the negotiations were removed from the Bill which became law in January this year. The will of Parliament is now clear: these provisions of parliamentary scrutiny are neither necessary nor desirable; yet here we are with the EU Committee using Section 29 of the Act to achieve a debate on negotiating principles, and even calling for the Government to publish a comparative analysis of the political declaration and the Command Paper.

The political declaration has no legal force and, as the EU Committee’s report makes clear, neither the Government nor the EU are using the political declaration as the starting point for their negotiations. We have moved on. I respectfully suggest that the EU Committee does as well.

[Lord Hannay of Chiswick (CB)]

Will the noble Baroness explain why it is that she believes that the European Union is not behaving in a manner consistent with the political declaration when my noble friend’s report says quite explicitly that it is?

[Baroness Noakes]

I will say to the noble Lord only that it may have the headings of the political declaration but the content is significantly different in a number of places, as indeed was set out in the EU Committee’s report.

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[Lord Hannay of Chiswick]

Well, my Lords, that really was back to 1958.

Were the coronavirus pandemic not dominating the public debate almost to the exclusion of everything else, the admirable and forensic report of your Lordships’ EU Select Committee, which was so excellently introduced by my noble friend Lord Kinnoull and which we are discussing today, and which deals with the opening positions of the UK and the EU in the post-Brexit new relationship negotiations, would be getting a great deal more attention, and rightly so. The political and economic choices that will be made in these negotiations will be felt for a long period—a period measurable in decades, not just in months and years—and very possibly long after the consequences of coronavirus will have been consigned to the history books and academic research. The consequences of the post-Brexit negotiations are likely to be seriously negative, which is no doubt why the Government are still refusing to publish any impact assessment of the proposals that they have put on the table in Brussels.

This report tells us that, on 31 January, this country ratified a political declaration annexed to the withdrawal agreement which set out the framework for our new relationship with the EU, and that from 3 February onwards—a mere four or five days later—every statement made by the Government treated that framework with blithe disregard, often contradicting it. Before anyone jumps up to say that the political declaration was not legally binding, I would not dream of suggesting that it was, but the time was when this country prided itself that its word was its deed. No more, apparently. Such blatant disregard for what we signed up to will carry a heavy cost in lost trust and confidence on the other side of the negotiating table. That will no doubt become clear when the two parties meet to thrash out the details of the Northern Ireland protocol to the withdrawal agreement, the interpretation of which by the Prime Minister bears no resemblance to what he actually signed up to.

The level playing field will clearly be a major bone of contention. In the political declaration we agreed—I emphasise: “we” agreed—and ratified the following words:

“Given the Union and the United Kingdom’s geographic proximity and economic interdependence, the future relationship must ensure open and fair competition, encompassing robust commitments to ensure a level playing field.”


There is not much ambiguity there, you might think, but the Government are driving a coach and horses over it by turning to the precedents of the EU’s agreements with Japan, Canada and South Korea, all many thousands of miles distant and much less interdependent with the EU, and ignoring the fact that agreements with its neighbours—Norway, Switzerland and Ukraine, for example—all have elaborate level-playing-field provisions.

Why are we insisting on the principle of regulatory divergence before we have even worked out in what sectors divergence might be to our advantage? I noted that today the noble Lord, Lord Goldsmith, made it quite clear that we have not worked that out yet on motor vehicles and chemicals. I wonder whether business really wants us to diverge. Surely it would have made more sense—and still makes more sense—to discuss the practicalities of divergence, not the principle of it.

Then there are all those regulatory agencies for which we seem determined to set up or restore separate, national institutions come what may, for largely ideological reasons. That will involve more costs, some no doubt to be loaded on to business, and more civil servants. Will it also mean more safety and protection for consumers? That is not terribly likely. Think of the implications of leaving the European Medicines Agency. As for internal security and law enforcement—on which the EU has made great strides in recent years from which we have benefited substantially—if the use that we have made of those new instruments is anything to go by, will we be safer without the European arrest warrant, or less safe? I think the answer is the latter.

One of the most blatant departures from the political declaration, which has already been mentioned, is the way that we have turned our back on any systematic co-operation with the EU on foreign and security policy, opting instead for bilateral ad hoc approaches. However, we will have no control over this. If the EU decides to act together on an issue of foreign policy, security, defence or sanctions, we will have no choice but to deal with it on that basis or not at all. Will we have more or less influence on the formulation of EU policies if we refuse systematic co-operation? That question is not too difficult to answer.

It is not too late to remedy some of these defects as the negotiations proceed—not too late even to reach mutually beneficial arrangements over fisheries which give our fishers a better deal than they had in the past, so long as we do not take an all-or-nothing approach. But imposing artificial deadlines which ignore what is written in the political declaration about the possibility of extending the transitional period and threatening to walk out in June are not the best ways to promote out interests, nor are they likely to succeed. That is why I support the resolution in the name of my noble friend Lord Kinnoull and the amendment moved by the noble Baroness, Lady Hayter, and why I regard the Motion in the name of the noble Lord, Lord True, as grossly inadequate to meet the challenges that lie ahead.

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[Viscount Trenchard (Con)]

My Lords, it is a great pleasure to follow the noble Baroness, Lady Falkner. She made some very interesting new points to inform your Lordships’ debate. I thank the noble Earl, Lord Kinnoull, for introducing this debate. His committee rightly concludes that the recent Council decision raises matters of vital national interest.

I believe that the matters that the committee raises are not exactly new, because we have been debating them since before the referendum of 2016 and, indeed, before that. Indeed, a majority of the electorate voted to leave because they considered that remaining in the EU raised matters of vital national interest. They thought that reclaiming our right to have our laws made in this Parliament by MPs accountable to the British people was one of these matters.

I am sure that your Lordships are grateful to the noble Earl’s committee for its report and for promoting debate on our EU negotiations, which will, whatever their outcome, profoundly and permanently change the United Kingdom. However, even if we had not left the EU, the continuing incremental transfer of competences to the European institutions would have continued to profoundly and permanently change the country.

I regret that the negotiations leading to the withdrawal agreement were conducted ahead of and separately from the current negotiations on our future relationship with the EU. As your Lordships know very well, Article 50 states that the negotiations on the withdrawal of a member state shall take account

“of the framework for its future relationship with the Union.”

My understanding is that it was expected that the framework for the future relationship would be agreed at the same time as the withdrawal agreement. Article 50 does not suggest or imply that there should be two separate sets of negotiations or agreements. The EU insisted that we should agree the terms of withdrawal first, dealing with the future framework in the separate and non-binding political declaration.

The political declaration, as your Lordships are well aware, provided for a number of possible outcomes, ranging from continued close alignment with EU laws and regulations, to a clean break with full restoration of national sovereignty but also starting from a point where our legal and regulatory systems are identical.

The Conservative Party manifesto—on which the new House of Commons was elected—made it very clear that the Government would seek a future relationship with the EU based on a free trade agreement similar to that enjoyed by Canada; leave the single market and the customs union; and not agree to the continuing jurisdiction of the ECJ in this country. The Prime Minister made it clear in his Greenwich speech that if the EU would not agree to an FTA similar to that which it has with Canada, the UK would seek trading arrangements similar to those which the EU has with Australia.

I am opposed to the amendment of the noble Baroness, Lady Hayter, which seeks to exercise control over the actual process of our negotiations, or even debate the terms of emerging agreements. This would detract from our negotiator’s ability to obtain the best possible result for the UK and make it more likely that we will not be able to reach agreement with Mr Barnier and his team. I therefore urge your Lordships to reject this amendment, which, if agreed, would send the wrong message to the EU, and damage the authority of Mr Frost and our negotiating team.

One area where the Government’s Command Paper differs significantly from the EU’s decision is state aid. Indeed, the amended text of the decision adopted on 25 February implies not only that the EU will require the UK to continue to apply existing state aid legislation, but that it will be expected to adopt new or amended EU state aid rules in future. But the UK is very far from being the worst culprit of the excessive use of state aid. As the Prime Minister pointed out, and as the noble Baroness, Lady Falkner has just reiterated, the EU has enforced state aid rules against the UK only four times in the last 21 years, compared with 29 enforcement actions against France, and 67 against Germany. The recent hardening of the EU’s position on state aid will make it very difficult to reach agreement on a satisfactory FTA within the time available.

I would like to say a few words about services, especially financial services, based on more than 40 years’ experience as an investment banker. The political declaration suggested that the EU and UK should seek close and structured co-operation on regulatory and supervisory measures, including by working together in international bodies. As a member of the committee’s Financial Affairs Sub-Committee, formerly chaired by the noble Baroness, Lady Falkner, and now chaired by the noble Lord, Lord Sharkey, I can confirm that we have discussed this matter to a considerable extent. Our witnesses have included the present Governor and the Governor-designate of the Bank of England. Both have expressed the view that we should not be a rule-taker from the EU and should in future adopt a regulatory regime which recognises London’s connections with other important financial markets, such as New York and Tokyo.

I regret that the EU did not match our decision to grant temporary equivalence to EU clearing houses for two years, but was willing to grant this only for one year. Does the Minister concur that, in agreeing the basis of granting and withdrawing the recognition of equivalence in financial regulation, we should not establish a cumbersome and bureaucratic bilateral structure for assessing divergence with the EU which would, in effect, tie our rule-making more closely to Brussels than to other important financial markets, such as those of the US and Japan? Does he also agree that in future the UK should seek to maximise its influence in establishing best practice and designing proportionate regulation at the global level, through bodies such as the International Organisation of Securities Commissions, IOSCO? There are several EU financial rules, such as AIFMD, Solvency 2 and MiFID 2 which contain elements which we tried to resist and from which we may wish to diverge. If the structures we agree with the EU unduly restrict us from divergence, it will complicate our freedom to reach agreements on regulatory equivalence with third countries such as the US and Japan.

I agree with the former Chancellor who called for a durable equivalence relationship, whereas the EU has stated that its equivalence decisions can be withdrawn at 30 days’ notice unilaterally, as it has done in the case of Switzerland. This has increased the cost of trading in Swiss stocks, especially in the case of smaller companies.

On defence, the Government’s Written Ministerial Statement contains no specific reference to defence but states that foreign policy alignment, which is likely to be substantial, does not in itself require a joint institutional framework. However, the EU’s decision reflects the political declaration in agreeing that the UK may co-operate in certain projects under the European Defence Fund and PESCO. Our Armed Forces enjoy a close collaborative bilateral relationship with those of France. Does the decision mean that UK-France defence co-operation will be possible only under the framework of the EDF or PESCO in future? Does that mean that in order to co-operate, British forces could work with French forces only under the command of a European general?

[Lord Hannay of Chiswick]

Perhaps I can give the noble Viscount an answer to his question. The answer is no, it does not mean that. It could only mean that if the French agreed to make it mean that, and they will not.

[Viscount Trenchard]

I thank the noble Lord for his assurance.

As noted in paragraphs 34 to 40 of the report, the decision envisages an overall institutional framework, which suggests the EU wishes to enter into an association agreement. Does the Minister agree that such an arrangement would be inconsistent with the Written Ministerial Statement, which proposes a suite of agreements appropriate to a relationship of sovereign equals? Will he confirm that the Government have made it clear to the EU negotiators that the UK will not entertain such a semi-detached continuing relationship with the EU which would make it impossible for this country to respond positively and flexibly to the opportunities that our new freedoms to pursue an independent trade and regulatory policy will provide?

I much look forward to other noble Lords’ contributions and especially to my noble friend’s winding-up speech.

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[Lord Hamilton of Epsom (Con)]

My Lords, your Lordships’ House has always regarded itself as the guardian of our constitution. Of course, included in our unwritten constitution, although many people wish it were not, is the whole question of referenda. I know that many people think we should never hold referenda in this country, but the fact is that it was decided that we should.

I want to put a hypothetical question to your Lordships’ House: what would have happened if all the Euro-enthusiasts, described by a noble Baroness on the Liberal Democrat Benches as Euromaniacs, had succeeded and kept us in the EU when the country had voted to leave—or, indeed, kept us in Brexit in name only when the country had made it quite clear that it wanted to leave the EU? I totally accept that this is a hypothetical question because the whole situation has now changed. For that reason, I do not expect my noble friend the Minister to reply to this—he should not reply to hypothetical questions—but your Lordships’ House should give thought to this matter because, let us face it, that referendum was in the 2015 Tory manifesto and was honoured in both the 2017 manifestos of the two major parties, which said that they would honour the result. If at the end of all this we had decided that somehow we were going to stay in the EU, where would that have left democracy in this country? We must think about this very seriously. Your Lordships’ House has done itself no credit in its role of scrutinising the whole business of European legislation and conspiring to do everything it could to ensure that we would never leave the EU at all.

I turn to the report. Much comment has been made about the level playing field, but also included in that is the fact that the role of third countries has been completely redefined. I thought that a third country was a country that did not happen to be in the EU—as simple as that—and that once you signed the withdrawal agreement and left, you were no longer in the EU but were a third country, but oh no, that seems to have been redefined. Now, for some reason, our closeness to the EU puts us in a unique category, and the amount of trade that we have with the EU puts us in a special position. I was somewhat surprised because, reading the report—

[Lord Hannay of Chiswick]

Obviously the noble Lord did not listen very carefully to the quotation that I read from the joint declaration. It makes it quite clear that we recognise that geographical proximity, and the extent of our independence, require a level playing field. Perhaps he could answer that question.

[Lord Hamilton of Epsom]

That is the point I am trying to make; this should have been answered in the report. It does not matter where it comes from. Whether our closeness to the EU makes any difference to our relationship with it is questionable. The problem is that we have had the nerve to vote in favour of leaving the EU. Therefore, the EU must redefine the position of a country that leaves so that it can mete out special treatment to that country and somehow discourage others from leaving as well. This report should have addressed these issues. Does it make any difference whether or not a country is close to the EU? Does the size of trade make any difference? I agree that our trade with the EU is probably greater than that with the United States, but the United States does a massive amount of trade too. Nobody is asking for a level playing field with the United States, and they would be told where to go if they tried. We should be questioning these things, as I hoped the report would. Perhaps the noble Earl, Lord Kinnoull, can tell me why this was not included in the report.