European Union (Definition of Treaties) (Republic of Korea Free Trade Agreement) Order 2012

Baroness Wilcox Excerpts

Monday 16th January 2012 Grand Committee

Moved By

[Baroness Wilcox]

That the Grand Committee do report to the House that it has considered the European Union (Definition of Treaties) (Republic of Korea Free Trade Agreement) Order 2012.

Relevant document: 33rd report from the Joint Committee on Statutory Instruments.

[The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox)]

My Lords, increasing trade and investment is essential for generating strong, substantial and balanced growth. The United Kingdom has been influential in making sure that trade liberalisation is central to the European Union’s growth strategy. In the absence of a multilateral deal, free trade agreements are the main vehicle for doing this. The European Union is pursuing an ambitious range of free trade agreements across the globe and the European Union’s South Korea Free Trade Agreement is the most ambitious trade agreement ever concluded by the European Union. It will be good for Europe and good for Britain, boosting the United Kingdom’s economy by an estimated £500 million pounds a year.

South Korea is the European Union’s fourth largest export market outside Europe, despite the high barriers to trade: industrial tariffs averaged 6.6 per cent, agricultural tariffs averaged 48.5 per cent and there were extensive regulatory barriers. The free trade agreement eliminates the vast majority of these barriers to trade. The agreement will boost growth and create jobs across the economy. It is estimated that the agreement will bring £17 billion of opportunities to European Union goods and services exporters, of which £2 billion will accrue to the United Kingdom. This is why almost all European Union and UK business groups support this agreement.

The United Kingdom is well placed to benefit. South Korea is already a valuable trading partner for the United Kingdom. In 2010, bilateral trade was an impressive £6.5 billion. South Korea is the UK’s seventh largest export market in Asia, and in 2009 the United Kingdom was the largest single investor in South Korea, but we want to strengthen this relationship further.

The free trade agreement will create opportunities where the United Kingdom has a distinct competitive advantage: in legal and financial services; in ICT, where UK firms can take their world-class technology and cutting-edge designs to South Korea; in automotive components; in whisky; in pharmaceuticals; in aircraft engines; and in low-carbon technology, to name just a few. The agreement will dramatically increase our access to a market of 50 million people, with growing disposable incomes and an appetite for British goods.

Following the free trade agreement coming provisionally into force on 1 July 2011, the United Kingdom Government have been working closely with UK businesses and the South Korean Government to ensure that the United Kingdom extracts the full benefit from the deal. BIS and Foreign Office Ministers have hosted a range of events with UK business and the Government of South Korea. UKTI is working hard to promote the deal, including through its report on 100 opportunities for UK companies in Korea.

The coming into force of the EU-South Korea Free Trade Agreement provides the United Kingdom with a tremendous set of opportunities. It will boost UK growth, and create UK jobs through enhanced two-way trade and investment. It will strengthen our strategic relationship with an important global player, and it will lay the ground for future trade agreements between the European Union and other parts of the world. I therefore commend the order to the Committee.

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[Lord Young of Norwood Green]

My Lords, I, too, would like to thank the Minister for her statement. I am not opposing this statutory instrument, but I am, like a number of noble Lords, interested in the value of UK trade with Korea. The impact assessment shows a £0.2 billion deficit. Those are the figures under the heading:

“Value of UK trade with Korea”,

on page 10 of the document. In goods, there is nearly £1 billion excess on imports. In services, we have some advantage.

The noble Lord, Lord Dykes, was right to describe the boosting by £500 million a year as somewhat modest. While I do not want to pour cold water on the enthusiasm of the Minister in this area—I note what she said about BIS and Foreign Office Ministers hosting events, which is a good initiative—I would be interested in hearing from her whether BIS and UKTI will give any special assistance to business exporters and potential exporters of both goods and services.

The point that the noble Lord, Lord Edmiston, raised is that these are both—aggressive might not be the right word—enthusiastic and successful exporters. We should not underestimate that. Again, I do not want to sound as though I am opposing the concept of free trade: I am not. But we ought to be cognisant of the nature of competition and understand the importance of giving every assistance and encouragement to our own exporters both in goods and services.

[Baroness Wilcox]

My Lords, I would like to thank noble Lords for their contributions today. I did rather expect that I would hear from someone with experience and expertise in the motor industry like my noble friend Lord Edmiston. Let us start by recalling that the free trade agreement is an excellent deal overall for the UK—worth £500 million a year in UK GDP. As well as eliminating South Korean automobile tariffs, the free trade agreement contains the most ambitious disciplines ever negotiated by the European Union to tackle non-tariff barriers. South Korea will now accept international standards as being equivalent to Korean regulations, saving considerable time and expense retesting EU cars once exported to Korea.

At the same time, Korean car producers must comply with all EU rules and standards, and the free trade agreement prohibits the introduction of any new unjustified barriers to trade. As well as the EU market access committee, a working group on automotive trade will be established to monitor and increase regulatory co-operation. Furthermore, the European Union has secured a range of provisions in response to the industry’s concerns, including a slower phasing of tariff reductions and a bilateral safeguard clause, which will protect any industry from harm due to the free trade agreement. For these reasons, we believe that the EU has secured a possible outcome and an excellent deal overall.

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[Lord Young of Norwood Green]

Again, I do not want to dispute the £500 million boost that the Minister referred to—I am sure that we welcome that—although the figure is fairly modest. However, over what period of time is that forecast to take place?

[Baroness Wilcox]

That is a very good question, to which I shall give an answer. On the £500 million each year, that will come into force over time. I hope that that is of some help to the noble Lord.

[Lord Edmiston]

Is the Minister aware of certain practices that used to exist in South Korea? It may be that this does not happen any more, but in previous years anyone who drove a non-Korean-manufactured car could look forward to a visit from the tax inspector and a thorough investigation. There were various means by which South Korea managed to keep a very high percentage of local cars in its market. Is the Minister aware of other practices of that nature?

[Baroness Wilcox]

We are aware of difficulties that have happened in the past. When the noble Lord reads about the matter in Hansard, I hope that he will realise that we have put in place various restraints and careful practices with which we will ensure that the Koreans have to comply if we are to trade with them. We hope that they will want to trade with us even more than we will want to trade with them. I realise that the motor industry is a very sensitive issue, but we have a range of actions that we may take if we see that there is danger of unfair trade taking place.

The EU-South Korea free trade agreement is ground-breaking in its approach. We have reached an agreement that responds adequately to EU concerns on such things as diesel emissions and post-market surveillance of safety standards. We have tried where we can to write as many things as possible on to the face of the agreement to ensure that, if we feel that there is unfair practice going on, industry in this country can quickly tell us and we can quickly return to see whether we can quickly sort out the problems.

Motion agreed.