Trade and Customs Policy

Baroness Fairhead Excerpts

Tuesday 5th December 2017 Lords Chamber

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[Baroness Fairhead]

That this House takes note of the future of United Kingdom trade and customs policy in the light of Her Majesty’s Government’s white papers Preparing for our future UK trade policy (Cm 9470) and Customs Bill: legislating for the UK’s future customs (Cm 9502).

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

My Lords, I am delighted to stand before you today and open this important debate. Trade is a vital part of the UK and world economy, and is a key driver of growth and prosperity. It helps business by promoting efficiency and innovation and encouraging knowledge sharing; it helps working people by creating jobs; and it helps consumers by ensuring that more people have a wider choice of goods and services at lower costs, making household incomes go further.

Free trade can be a force for good, but that does not mean trade without rules; it needs to be underpinned by global rules, and it has to be fair. There is a balance to be struck between all parts of the UK, and between protecting UK businesses while also taking consumers and the broader economy into account—and that is what we are trying to achieve.

When the UK leaves the EU, it will leave the EU customs union. This clearly has implications for trade and, indeed, that is what we are debating today. So in these Bills we are aiming to provide continuity and a smooth transition, avoiding a cliff edge, so that businesses and people can be confident that these trading relationships will continue. We have to ensure that the UK can operate as a fully functioning independent trading country, whatever the outcome of the Brexit negotiations.

In my opening remarks, I intend to focus on the two Bills that have recently been introduced in the other place: the Trade Bill and the Taxation (Cross-border Trade) Bill. I shall come to the White Papers in due course because, importantly, they provide us with a platform to continue discussion and engagement over the coming months.

We are very fortunate in this House to have Members, among whom are my noble friends Lord King, Lord Lang, and Lord Young of Graffham, and the noble Lords, Lord Hutton, Lord Darling and Lord Mandelson, who hold a vast wealth of experience and expertise in matters of trade—as do a number of noble Lords from all across the House who I know are down to speak today.

I say right from the beginning that, while the Trade Bill is intended to cover transitioning of existing agreements, not future ones, we will consult widely on future trade policy and the appropriate means of ensuring parliamentary scrutiny. I am very keen to work in particular with noble Lords across the House to help the UK get in the best possible position as we leave the EU. That is why this debate today, which is very much part of the early engagement, is particularly important.

The Trade Bill contains the following provisions. It will create powers that enable the UK to transition trade agreements that currently exist between the EU and other countries, and that the UK is part of via our membership of the EU. This will prevent disruption to UK businesses, workers and consumers by enabling the UK to maintain its existing relationships. It will create the powers needed to implement the World Trade Organization’s Agreement on Government Procurement, known as the GPA, as an independent member instead of as part of the EU. As noble Lords will know, the GPA is a plurilateral agreement between some WTO members that opens up public procurement markets. This will maintain UK businesses’ access to public contract opportunities, worth collectively around £1.3 trillion per year, while ensuring that we get the best deal for taxpayers in the UK.

The Bill will also establish a new independent UK Trade Remedies Authority to provide a safety net to protect domestic industries from unfair and harmful trading practices and any unforeseen surges in imports which cause injury. Free and open trade has a positive impact on the UK’s prosperity, but it needs to have the appropriate checks and balances. The Bill will also allow data on trade to be collected and shared with relevant bodies, such as the Department for International Trade and the new Trade Remedies Authority, to help them perform their essential public functions. This will help us build up a rich picture of UK trading patterns and help government identify new opportunities and ways in which we can support British businesses.

The second Bill we have introduced is the Taxation (Cross-border Trade) Bill, previously known as the customs Bill. This Bill deals only with matters of taxation. Whatever the outcome of the negotiations, we will need a functioning customs regime to enable the UK to charge customs duty on goods when we exit the EU, and the powers to apply trade remedies and deal with trade disputes in line with international law by imposing additional customs duties. One of the sensible steps we can take now is to provide the legislation to create this regime.

The Taxation (Cross-border Trade) Bill will therefore: allow the UK to charge customs duty on goods, including those imported from the EU; allow the Government to set out how, and in what form, customs declarations should be made; set out rules relating to the collection, administration and enforcement of import duty; and give the UK the freedom to impose additional rates of import duty, including those resulting from trade remedies investigations. It does this primarily by creating a new UK trade remedies framework to be overseen by the independent Trade Remedies Authority.

Full details of how the trade remedies framework will operate have not been determined. We are thinking very hard about how to strike the right balance between the two important objectives of providing a safety net for UK industries, while ensuring we do not place unnecessary costs on the UK’s downstream industries and consumers. We sought views on this when we published our trade White Paper, and engaged with key stakeholders to hear what they think. We remain keen to receive input to make sure that we get the working in the best interests of the whole of the UK.

The Bill also enables the Government to implement preferential import duty rates pursuant to arrangements with other countries or territories. This will enable us to give effect to duty rates in free trade agreements and to continue our current preferential trading arrangements with the British Overseas Territories. Finally, the Bill will also enable us to create a UK unilateral trade preferences regime for developing countries. That means that the UK will continue to provide preferences that support economic and sustainable development.

The UK, with the support of this House, has been a proud advocate of supporting developing countries to reduce poverty through trade. I think we can all agree that an important way to help end poverty—and aid dependency—is through inclusive economic growth, jobs, investment and trade. Unilateral trade preferences are a key part of that aim. They act by reducing or removing tariffs on imports from developing countries without requiring market access in return. This boosts trade, which is good not only for the exporting country, but for British business and consumers. The Bill will allow us to ensure that countries receiving unilateral trade preferences under the current EU arrangements will continue to do so and will still benefit from the same level of preferential rates on their exports to the UK when we leave the EU. It also allows us to consider, in future, how we can make our unilateral trade preferences regime even more generous and easy to access. That is certainly this Government’s intent.

I turn now to the White Papers, which look to our future. They set out principles designed to guide our approach to establishing an independent trade and stand-alone customs regime outside the EU. As the Government consider the options for our future customs arrangements, they will be guided by what delivers the greatest economic advantage to the UK, and by three strategic objectives: continued trade between the UK and EU member states that is as free and as frictionless as possible; the avoidance of a hard border on the island of Ireland; and the establishment of an independent international trade policy. The Government are clear that cliff-edge changes are in no one’s interests. That is why we want a smooth transition, which is at the heart of the two published White Papers. It is also why we are proposing an implementation period: so that businesses and Governments—in both the UK and the EU—will have time to adapt.

As my right honourable friend the Prime Minister set out, the current evidence points to the need for an implementation period of around two years. However, the form it takes will be a matter for the negotiations; we will need to cover issues beyond customs and trade. While the exact nature of our future relationship with the EU is a matter for the negotiations, there are sensible—indeed responsible—steps that we can take now to prepare for the future.

Therefore, while our immediate priority is to ensure a smooth transition, we recognise the importance of the UK being able to forge ambitious new free trade agreements with countries around the world after we leave. As we set out in our trade White Paper, we want to garner views both on the substance of the future free trade agreements, and on what would be the suitable amount of scrutiny for aspects of such agreements that go beyond the setting of import duty rates. That is why the Taxation (Cross-border Trade) Bill proposes a power to accommodate import duty rates agreed in future trade arrangements, but does not provide for the implementation of any aspects of future free trade agreements with new countries.

The Bills are a vital step towards getting us ready for exit, and the White Papers help us prepare for the future and the future trade agreements that we want to forge outside the EU. The White Papers provide a starting point for our engagement and discussion, both on future trade agreements and on the scrutiny arrangements for such agreements. On these, and on the Bills, we are keen to hear as many views as possible.

--- Later in debate ---

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

My Lords, I am very grateful for the insightful contributions that have been made during this evening’s debate from right across the House. I join the noble Lord, Lord Mendelsohn, and the noble Baroness, Lady Kramer, in congratulating the House on the intelligence, insightfulness and specificity of the concerns. We are very fortunate to have, in the Chamber, Members of the House who between them have decades of experience at the helm of trade policy. I am particularly pleased that we heard this evening from my noble friend Lady Verma and her co-chair on one of the EU Committees, the noble Lord, Lord Whitty, as well as from the noble Baroness, Lady Quin, and the noble Lords, Lord Kerr of Kinlochard, Lord Campbell-Savours and Lord Liddle. This considerable experience will be invaluable in helping us to ensure that our trading arrangements after we leave the EU provide the greatest continuity and certainty for businesses, employees and consumers.

The noble Lord, Lord Kerr, mentioned some of the complexities. I think the exact point of these debates is that we can flush them out and make sure that we deal with them. This will be the first of a number of debates to be held on the Floor of this House and I look forward to the continuing contribution that the House will make to helping us ensure that we have our sights on the right priority areas. A number of important and very pertinent points were raised during the debate. I will try to answer as many of these as I can, and am happy to write to noble Lords with a follow-up where I cannot.

A number of noble Lords talked about negotiations with the EU. The UK is committed to securing the most frictionless trading relationship possible and we are very supportive of an implementation period. I am glad that my noble friends Lord Price and Lord Leigh also supported the implementation period. I should have done this at the beginning, but I would like to give my own tribute to my noble friend Lord Price, while he is in the Chamber, for all his achievements in his role of Trade Minister. He did an outstanding job.

Turning back to the EU negotiations, it would be wrong of me to comment on their detail. These are sensitive matters and we do not want to prejudice the negotiations. But it was made clear in the comments of the Prime Minister, President Juncker and President Tusk yesterday that all parties remain confident of reaching a positive conclusion. Noble Lords will recognise that this is not the subject of the White Papers or the Bills. Our aim is to achieve a comprehensive trade agreement with the EU while also building our relations with third parties, so let me turn to that.

A number of noble Lords, including my noble friend Lady Verma and the noble Lord, Lord Whitty, spoke about the importance of a smooth transition. That is why we have placed emphasis on the transitional adoption of trade agreements. Countries potentially in scope of these types of agreement—around 40 of them—account for 13% of the UK’s trade. My noble friend Lord Leigh made some positive comments about the impact of leaving the EU in galvanising industry, but it is important that we maintain the effects of the agreements that we have in place. Our aim is to provide continuity and certainty, to avoid cliff edges for business.

A crucial element of ensuring effective transition is enabling any obligations that are created to be reflected in our laws. The legislation that we have brought forward will ensure that these agreements can be fully implemented and remain operable over time. But, as many of your Lordships pointed out, having the legal power is one thing; we must also have the agreement of our trading partners. This important point was raised by the noble Lord, Lord Kerr, and my noble friend Lady Verma. We are clear that this is a technical exercise to ensure continuity, but our trading partners are equally convinced. Benefits flow both ways and they have reiterated this point to Ministers and officials alike. It is clear that it makes practical sense at first to provide continuity. I am pleased that my noble friend Lord Price confirmed that they were supportive of this fact in his negotiations.

In response to a direct question from my noble friend Lady Verma, we have already had very productive engagements with all the concerned countries that she mentioned, such as Switzerland and Norway. For this reason, we continue to believe that it is a realistic ambition to transition these agreements.

My noble friend Lord Leigh raised the issue of parliamentary scrutiny of trade agreements. Let me assure noble Lords that the trade agreements that we will be transitioning have already been subject to a scrutiny process at EU level. They have also been overseen in the UK by Select Committees. In addition, many of these agreements have been ratified by Parliament through the Constitutional Reform and Governance Act process. To be absolutely clear, the Trade Bill that has been introduced in the other place does not provide for the implementation of trade agreements with countries with which the EU does not have an existing trade agreement. To be clear, it will not be used for the implementation of future free trade agreements with new countries.

In response to a question asked by the noble Lord, Lord Liddle, about which countries are a priority, we are talking to a number of countries about future trading options, including full FTAs—but, as noble Lords know, we cannot negotiate while we are a member of the EU. We are using instruments such as joint trade reviews—collaborative analysis of the mutual trading relationship —and we are exploring what may be possible with partners, but it is too early to say what it will mean in a particular country.

The noble Lord, Lord Kerr, asked about the UK being able to do a better deal with the EU than Canada, which is light on services. Services are an essential element of the economies of the UK and the EU, so we will be seeking an ambitious free trade agreement between the UK and the EU which will be of greater scope and ambition than any preceding agreement, because we realise how important it is.

The noble Baroness, Lady Henig, talked about the scrutiny process for free trade agreements. We have been very clear that we are involved in engagement. One of the elements will be the substance of the free trade agreement and the other will be the exact scrutiny process. We are welcoming views to make sure that we get it right.

As outlined in the trade White Paper, the UK remains committed to a transparent, fair and rules-based approach to international trade and we are inviting views on that. We are committed to developing it in a transparent and inclusive manner, consistent with the need not to damage our negotiating position. We will be involving Parliament, the devolved Administrations and the devolved legislatures, as well as local government, business, trade unions, civil society and the public from every part of the UK, because they must have an opportunity to engage. Since the publication of the White Paper, we have been engaging with a range of stakeholders around these issues and will be looking to benefit from best practice across the world. We understand that we do not hold all the answers and we are committed to taking into account all views.

The noble Baroness, Lady Henig, also asked about the devolved Administrations. Continuity in trade must be for the whole of the UK. The Trade Bill creates powers designed to be held concurrently by the devolved Administrations and the UK Government for existing trade agreements. This will ensure that, where it makes practical sense for regulations to be made once for the whole of the UK, it is possible for this to happen. This gives greater certainty for business, minimises legal risk and reduces the volume of legislation. I assure noble Lords that the UK Government will not normally use these powers to amend legislation in devolved areas without the consent of the relevant devolved Administrations, and not without first consulting them. Under the Bill, every decision that the devolved Administrations can make before exit they will be able to make after exit. Decisions have not been taken on the legislative framework, and we will be working closely with the devolved Administrations on our future policy in this regard. On engagement, the Secretary of State has met his counterparts in Scotland and Wales and is planning to meet them regularly, and our officials are engaging with their counterparts in Northern Ireland.

My noble friend Lady Verma spoke about the Trade Remedies Authority. The UK Trade Remedies Authority is to be a new, non-departmental public body, independent of government. We have carried out an extensive assessment of other countries’ trade remedies systems, structures and case loads, including those of Australia, Canada, the EU and the United States. Our proposed model is designed to ensure that industries and consumers have confidence in an independent and objective investigative process. The Trade Remedies Authority will apply a framework, set out in legislation, which will provide UK industry with a safety net against unfair trade practices and unforeseen surges in imports but which will also ensure that unnecessary costs are not imposed on consumers or downstream.

The strong support of the noble Baroness, Lady Golding, in favour of Staffordshire ceramics was noted. We will aim to provide transparent thresholds for the application of measures, including a market threshold providing a de minimis rule, to avoid costly investigations into cases destined to fail. The economic interest test will provide a balance between regions, primary producers, downstream industries and consumers. The lesser duty rule will ensure that effective remedies are in place without imposing unnecessary costs. The evidence that we have shows, for example, that imports of certain steel products that were subject to EU trade remedy measures with the lesser duty rule in August 2017 were down over 90%. We think that gets the balance right, which is why we are doing it.

The noble Baroness, Lady Golding, also asked how we intend to manage trade remedies with China under the UK system. On leaving, we will operate our own WTO-compliant trade remedy system. There is provision in the Taxation (Cross-border Trade) Bill to define alternative dumping methodologies that will enable the UK system to account for particular market situations. For businesses with existing measures in place, the continuity of those measures is a valid concern. We launched a call for evidence on that on 28 November as a first step to identifying what matters to UK businesses. That is a vital start to the way that the UK responds.

Turning to the customs union, I set out in my opening remarks the strategic objectives that will guide our assessment of the options for the future outside the EU customs union. The noble Baroness, Lady Murphy, asked what the Government’s preferred option is. The customs White Paper, and the future partnership paper before that, set out the two options—the highly streamlined customs arrangement and a new partnership —that most closely meet those objectives. The Government look forward to continuing to discuss these two models with businesses and with our partners in the EU.

We have also been clear that, in order to avoid unnecessary disruption for businesses in both the UK and the EU, there is a strong case for an implementation period, which I think has received quite a lot of support in this House. We are keen to ensure that affected parties will have to adapt only once to any new arrangements.

The noble Lord, Lord Whitty, asked about arrangements for overseas territories, and Gibraltar in particular. As he will know, they are not part of the EU customs union, and set their own tariffs on goods entering the territories. The new legislation will allow the Government to continue to provide tariff-free trade between the UK and the overseas territories. The Government will continue to work with them to ensure that their priorities are taken into account.

A number of noble Lords focused on the state of preparedness. The noble Lord, Lord Whitty, and the noble Baroness, Lady Verma, both committee chairs, and my noble friend Lord Cope talked about the need for certainty. The noble Baroness, Lady Kramer, talked knowledgeably about “just in time”. The noble Viscount, Lord Waverley, asked how the Government will continue to facilitate trade. The White Paper made clear that the Government are committed to exploring the scope for streamlining the movement of goods across the UK’s borders, including through seeking to negotiate mutual recognition of authorised economic operators, greater use of technology at the border and other simplifications for business, including self-assessment and other procedures.

I have spoken with people at HMRC on the systems point that a number of noble Lords raised, in terms of making sure that we can cope with customs. HMRC is replacing its old system, CHIEF, with a new system called CDS—if any noble Lords are aware of that. CDS is on target to meet its planned delivery date of January 2019. This was the conclusion of an NAO report into CDS in July 2017.

I believe that the CEO of HMRC has also talked about the need to staff-up on exit and hiring 3,000 to 5,000 people. We are also very aware of the particular issues about roll-on roll-off, and realise that it is about space and timing. We are trying to do what we can both unilaterally and on a bilateral basis, targeting the areas where there are the most particular issues.

The noble Viscount, Lord Waverley, made a number of suggestions that we might use to help speed the process, and I shall certainly pass them on to my officials, because we need to take any examples and suggestions forward.

On Northern Ireland, the noble Lord, Lord Empey, who has extraordinary expertise in this area, reiterated the importance of not going back. The Government have been clear that we seek to avoid a hard border in Northern Ireland. This is one of our key strategic objectives for any customs arrangements. We know that the movement of goods across the land border is key to the economies of Northern Ireland and Ireland, and both the UK and the EU recognise the unique circumstances on the island, so we welcome the European Commission’s call for flexible and imaginative solutions. We remain committed to the Belfast agreement and the common travel area, and I know that there are ideas on small businesses, when 80% of their trade goes across border.

The noble Lord, Lord Empey, also talked about our approach to trade and the importance of education. Coming from an education background with Pearson, I support that. I hope that he has seen the creation of a new department, DIT, whose role is to support companies to export more, open new markets and promote our business, supported by finance, as an important step. He asked why we do not use the tax system to incentivise trade and investment. The Government are trying to create the right environment. For example, the recent Budget acted on business rates, increased levels of infrastructure investment, boosted R&D spending and laid the foundations for the UK to become a world leader in new technologies.

Continuity is at the heart of our approach, so it follows that the Bills introduced in the other place are designed to provide maximum continuity for UK businesses, workers and consumers. A cliff edge in our trading arrangements is in no one’s interest.

[Lord Campbell-Savours]

Are discussions now taking place with the French, Belgian and Dutch authorities about what will happen with trucks being held in stacks going into Ostend, Dunkirk, Calais and the Hook of Holland?

[Baroness Fairhead]

I thank the noble Lord for his question. The answer is yes. The roll-on roll-off situation has been highlighted as an issue, because when companies have been exporting to the rest of the world, they are used to all the compliance, but we have roll-on roll-off, which is all about space, availability and time to get through and make sure that it is through. We are looking at both unilateral and bilateral aspects, focusing on the ports with the most significant issues. Through that, we are entering into conversations to see what can be done, because we realise that there is real complexity and there are practical issues.

I hope that noble Lords will see that the steps that we are starting to take are practical and that we are trying responsibly to create powers so that we do not have a cliff edge and can cope with any outcome.

It has been abundantly clear in today’s debate that there is huge depth of understanding of the complexities in this House. My colleagues in the Government and I are committed to involving all those in this House with this expertise. My right honourable friend the Minister of State for Trade Policy, Greg Hands, and I have already held one open-door meeting for noble Lords. I assure Members of this House that we want to provide regular forums where we can discuss our future trading arrangements. We need to have those sorts of honest discussions and will take on board some of your Lordships’ suggestions as we work that through. I shall do all that I can to involve noble Lords across all the Benches so that we can work together in what your Lordships have yourselves described as a spirit of honest, intelligent co-operation, with the shared aim of providing UK businesses, workers and consumers with maximum continuity in their trading relationships as we leave the EU.

Motion agreed.