Brexit: Trade in Goods (EUC Report)

Lord Livingston of Parkhead Excerpts

Tuesday 18th July 2017 Lords Chamber

[Lord Livingston of Parkhead (Con)]

My Lords, I commend my noble friend Lady Verma for tabling this debate and for the very thoughtful report emanating from her and the committee. This has to be taken in conjunction with some of the earlier reports to which she referred, such as the EU Committee’s report on the options for trade. Looking at individual sectors was a very practical way of identifying the real issues relating to Brexit. These issues could, of course, be resolved in many ways—by staying in the customs union or the single market—but I do not believe that is what we voted for. It is very difficult to reconcile being a rule taker with that vote. I have sat around many EU tables and the UK had a great influence. Once we have exited the EU we will not have that influence and we must take the rules as given to us. The Norwegians, who are in the single market, make this point. I heard a senior Norwegian Minister refer to this as “government by fax machine”. That is probably not an option for us.

On the other hand, as this report highlights, it is entirely wrong to say: “This is all very easy; you do not need trade agreements; you can rely on the WTO”. After the South Korean trade agreement, which the report mentions, we saw trade almost double and the UK ended up with a trade surplus with that country. Many noble Lords may refer today to the fact that we do not have trade agreements with the US. That is true, but so many business models in the UK, particularly in the fields mentioned in the report such as automotive and aerospace, have highly complex supply chains that were set up around the single market. We are not starting with a clean sheet of paper; we are having to untangle a lot of problems. When we are very closely joined with the EU it is not appropriate just to say that we can rely on doing things as we do with other countries.

I have been involved in trade deals and know that you can have either a quick one, a good one or a comprehensive one but you cannot have all three. The UK needs to focus on the last two of these: good and comprehensive. We have a complex, service-led economy—we must remember how important services are to us—and quick timing is not in our favour. First, we cannot negotiate now, as the report makes clear, because of our commitments to the EU. Secondly, until we understand the nature of our relationship with the EU and, indeed, the WTO, we cannot have negotiations. We cannot start talking to Australia about the food industry until we understand whether we have certain quotas under the WTO or, indeed, with the EU. Normal negotiation timescales are long. While the EU is not the quickest organisation in the world, there was good reason why the agreement with Canada took five or six years—namely, because it is deeply complex and covers areas such as standards and rules of origin but also immigration. I remember that when I negotiated with the Canadian Trade Minister, immigration was one of the last points to be concluded. These negotiations are deeply complex. In addition, the UK will be trying to negotiate multiple agreements at the same time. The US and the EU have far greater trade resources than we have but they would not take on multiple agreements at the same time—they might do a few—and I think that is going to make this process very difficult.

As anyone who is used to negotiating will know, negotiating agreements when you are in a rush and your counterpart is not tends to end up with not the best outcome. That is a problem. Timing is not our friend. The noble Baroness referred to the cliff edge and I think all of us fear that. She asked for assurances regarding a transitional agreement. I absolutely support that. If we are to exit the EU in two years, which it looks as if we will, while we cannot necessarily stay in the single market and the customs union over the long term, there is a period during which it is appropriate for us to look to do so. Yes, that will mean that we have to put in money, but I think we are going to have to do that anyway. Yes, it will mean submitting to the ECJ for a period, and yes it will mean staying open to free movement, but perhaps two or three years would make a big difference. We should use that period not just to put in place agreements with other countries but also to establish the administrative procedures that government and businesses will need. When government finally decides what it is going to do, business cannot do it overnight. I think there is a failure to understand that. We should focus so that businesses can plan. We should first make agreements with the EU but then focus on replicating existing agreements that the EU already has. South Korea has been mentioned, and measures with Canada and Japan will be in place. These will be very important and I hope that we can take large parts of them and move them over.

As regards some of the talk about doing trade agreements with the US, India and China, such agreements would be commendable. However, in the case of the US, I think there is a failure to recognise the problems of dealing with difficult areas such as the Jones Act, the buy American policy and, indeed, the current President of the US. None of these will make it easy to do a trade deal. India and China do not start from a globalisation position. They are big markets but they will not start from the same place regarding free movement of goods and, indeed, services. To achieve all this we may have to make some of our red lines a little dotted. We have challenges and we may have to compromise.

I speak to your Lordships’ House not just as an ex-Trade Minister but also as a businessman who has sold and imported around the world. The uncertainty that businesses are feeling today is increasingly problematic. The question I hear businessmen being asked repeatedly is: what are you going to do? Most businesses will say in a quiet moment, “It rather depends on what the outcome of the negotiations is”: that is, we cannot plan without knowing what we are planning for. In such an environment, that means that investment in the UK is being deferred. It does not mean that factories are being shut down yet but investment is being deferred although one cannot see that at the moment. It also means that inward investment decisions in the UK are being held back. Shortly—it will not take too long—companies will have to start to make contingency plans. We have already seen the first few of them. We recently saw the announcement from Citibank, and easyJet announced that it would set up in Austria. These are very small movements of people today, but they represent perhaps the start of a trend that we would not welcome. In addition, the other side of that is people deciding not to invest in the UK from outside the UK—and the UK was the number one country for inward investment from around the world in the whole EU.

Many people were misled about the ease of Brexit, but we are where we are. In that environment, now is the time to stop platitudes. To have our cake and eat it is just not available; the cake shop shuts in two years’ time—or about 18 months, now—and we have to recognise that. As a country we need to buy some time to avoid the cliff edge, and show some realism. We also have to explain to people the sorts of choices we have to make between the economy, employment, investment and, perhaps, some of the other things, such as free movement and being subject to supranational bodies, which may or may not be the ECJ. This report, which looks at what it means sector by sector, is a practical way in which to start talking to people about what Brexit really means and about how the UK can adapt to its new world.