Future Free Trade Agreements

Ben Lake Excerpts

Thursday 21st February 2019 Commons Chamber

[Stewart Hosie]

I do. It was interesting to listen to what the Secretary of State said earlier. He laid out very clearly, to be fair, the component parts of the NHS that were to be protected. I listened very carefully, but let me give an example of something that was not included: cleaning. People might say, “Big deal,” but in Scotland, when cleaning was contracted to the private sector, hospital-acquired infection rates went up. We then took a decision to bring back NHS cleaners, and hospital-acquired infection rates came down. Had that contract been won under the terms of one of these agreements, we could have been sued and challenged if we had tried to take a public health measure to return something as simple as cleaning from the private sector to the public sector. When it is considered on terms that people can understand—my hon. Friend is absolutely right to raise this point—it demonstrates how, and I will give a few more examples later, public health concerns can be overridden by some of the provisions in these international trade deals.

I look at trade and the proposed deals that we are discussing today through four prisms: how they will affect the success of Scotland’s export businesses; how they will support the Scottish Government’s trade and investment strategy; by asking if the processes suggested ensure that there is proper scrutiny of trade deals; and the attitude towards investor-state dispute settlement arrangements, which can give foreign companies special legal rights outwith our national legal systems. I think it is right that we look at trade through these four prisms.

Scotland’s exporting businesses—it is businesses, not Governments, that export—have done a remarkable job. Last year—I use these figures because they were immediately to hand—Scotland’s exports rose to £29 billion. That was 12% up on the previous year, the largest rise in any part of the UK. With imports at £24 billion, Scotland is a net exporter, which is a fantastic position for the economy to be in—a position that we should strive to retain but one which is put in jeopardy not just by a hard Tory no-deal Brexit, but by any form of Brexit, and that is the point. We hear about the Prime Minister’s deal, but that is only the transitional arrangement. It is not the deal we will have to cut to kick in in 20 months’ time, at the end of the transitional period; that is the bit the Government always seem to ignore.

I said it is businesses that export, not Government, and that is true, but Governments do and must support exporting companies. The Scottish Government’s trade and investment strategy is first class. It brings together trade, investment and the internationalisation of our economy. It defines our ambition and the importance of the “One Scotland” approach. It links to Scotland’s innovation and investment hubs. It tells us what our global opportunities are, and it supports global Scotland and our approach to boosting export performance. Anything the UK Government do should support that.

Although we can and do support trade, we do not negotiate our own deals or have a seat at the top table in the EU, which strikes the best trade deals currently. Until we do—this relates directly to any new deal—we demand a formal, statutory input to trade deals, including the ones being discussed today, at every stage of every trade deal, from setting the mandate for negotiations right through to implementation.

[Ben Lake (Ceredigion) (PC)]

My hon. Friend is making an important point about how Parliaments across the United Kingdom should have a thorough input to trade negotiations, including the mandate. The Welsh Affairs Committee received evidence from representatives from Canada, who engage thoroughly with the devolved legislatures in that country, as well as with businesses, before even coming up with the mandate for negotiations.

[Stewart Hosie]

That demonstrates that it can be done and there is nothing to be afraid of. It is vital so that Scotland’s national interests, as well as those of Wales and Northern Ireland—all the devolved nations—are given equal weight to the needs and ambitions of exporting companies in London and the south-east.

--- Later in debate ---

[Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

Thank you, Mr Deputy Speaker. I will take cognisance of the fact that I started at 2.7 pm and will look to not to be too long. I want to thank the hon. Member for Brent North (Barry Gardiner), who reminded me as he was speaking that I had not arranged for somebody to feed my sheep this morning. My 81-year-old neighbour Iain MacLean stepped into the breach quite admirably, but only because I was reminded by the hon. Gentleman.

I was talking earlier about how citrus fruit may not be an offensive trade interest, but I have just heard that the weather today in Aboyne, Lossiemouth and Altnaharra in the highlands of Scotland is about 17° C or 18° C. It is a summer’s day in Scotland, so anybody watching who is looking to have a decent half-term break should head to Scotland and forget about going anywhere else. It seems to be the place to go for the temperatures. I note that the Conservative Benches are empty, but perhaps they are in Val d’Isère taking advantage of free movement while it still exists. This may be the Brexiteers’ last holiday.

I also thank the hon. Member for Brent North for his frank honesty. I was talking earlier about damage to GDP and gains through the trade agreements. Of course, a no-deal Brexit and crashing out would, according to the UK Government, damage UK GDP by 8%. Now, the gain in GDP would be about 0.2% from a USA-style trade agreement, but that would mean we would need 40 USA-style trade agreements to make up the gap. There is only one problem. The USA accounts for over a quarter of the world’s GDP, so needing 40 USAs means that we will have to find 10 planets of people as wealthy as Americans in 2019—not 1919 or 1819, but as wealthy as they are today.

If there is an FTA, which is the route the Government want to take after kicking the can down the road for another 21 months of European Union membership—putting the pain off for another wee while—there would be a 6% hit to GDP. We would then need 30 USA-style agreements, or seven and a half planets.

If we follow Labour’s policy of a customs union only—I pay tribute to the honesty and candour with which the hon. Gentleman admitted this—there would be a 4% hit to GDP, requiring 20 USA-style agreements, or five planets, to make up for the lost GDP caused by ripping up our current deal with the European Union.

It is important to bear that in mind. It is nice to talk about flashy new trade agreements and trade policies but, in actual fact, trade is what drives all this. As I said to the Secretary of State, people who are selling shellfish or frozen fish, as people I know in the north-west of Scotland are, will not be able to do their rotations to Europe because of the barriers and all the paperwork listed by the hon. Member for Yeovil (Mr Fysh), and they cannot exactly drive their lorry on a rotation to New Zealand, South America, Chile or wherever else in the CPTPP, or wherever else we might find ourselves having an accidental trade agreement.

As Chair of the International Trade Committee, I welcome this opportunity to debate these potential free trade agreements with the United States, Australia and New Zealand, and to debate possible UK accession to CPTPP. The Government initiated consultations on these potential trade agreements last summer and, despite having closed four months ago, we have yet to see the Government’s response, which would have helped to inform this debate. The Government received a vast number of responses to the consultations, but I understand that many of those 600,000 responses were duplicates. I hope we will see the responses soon.

The Committee recently went to the World Trade Organisation in Geneva, where there is much bemusement as to what the UK is doing. Trading on WTO terms is the most expensive form of trade, and the deputy director general of the WTO, Alan Wolff, said that if we trade on WTO terms, or something close to it, rather than the open single market we currently have, a “Brexit gap” in economic performance would damage our GDP. That is a good way of seeing it, because we are talking about a 4%, 6% or 8% Brexit gap in our economic performance.

It is good that we are having this debate, because the Committee published a report in December titled, “UK trade policy transparency and scrutiny,” which made a host of recommendations on Parliament’s role in future free trade agreements. One recommendation is that Parliament should have an opportunity to debate the Government’s negotiating mandate, or “outline approach” to use the terminology that the Department for International Trade favours, on a substantive motion before negotiations begin on the free trade agreements. I think negotiators would find it useful to have such a steer on the will of Parliament as to what they should progress in any negotiation.

An example of how not to do it is the Prime Minister’s approach to her international agreement with 27 other actors under one umbrella, the European Union. She came back to Parliament and found herself with a whole range of people, from Yeovil to the north of Scotland, ranged against her for various reasons. Had she tried to carry Parliament with her from the beginning, she might have found herself in a different position. We should be adopting such an approach to future trade agreements. Governments come and Governments go, and an awful lot of work might be done before being stopped and wasted. The resource of trade negotiators is few and far between, and they take a long time, so we do not want to negotiate something for three or four years and then find ourselves having to scrap it—assuming we Scots are still here, because independence may well be around the corner for us.

My Committee also recommended that devolved Governments should be consulted on this, as Canada and other countries tend to do. We have to make sure that we have as big a buy-in as possible. As we are seeing with Honda and Japan at the moment, there can be winners and losers in these agreements. As I said to the hon. Member for Brent North, the automotive sector in the midlands of England has perhaps lost out in the EU-Japan agreement.

If there are to be losers, how do we compensate them? If the UK enters a free trade agreement that, say, benefits the south-east of England and destroys, for instance, Welsh lamb, is there any idea of fiscal transfer or compensation for the sacrifice of the Welsh for the south-east of England? Do not think these are esoteric, way-out-there possibilities, because the air agreements that the UK entered into after 1945 specifically mentioned international flights only flying into London airports, which damaged the north of England, Wales, western England, central Scotland, northern Scotland and many other places. Iceland, for obvious reasons of its geography, was one of the first to break that. Having created the advantage of a transport hub in the south-east of England, there was a huge reluctance to cough up for the sacrifice imposed on others.

There are trade-offs in the decisions and directions that Governments take. Interestingly, of course, the Irish Government were quite different during that period. Rather than centralising around Dublin, they actively promoted the west, which is why Shannon airport is still the destination it is, and Knock airport in the north-west has also benefited.

The Committee feels that the Government should publish a trade policy strategy that articulates a vision for the UK as an independent trading nation—if all those things come into being—and outlines the UK’s immediate and future trade priorities at bilateral, plurilateral and multilateral levels. We propose that such a strategy should outline the UK’s key objectives, interests and priorities in respect of its trade policy. Sadly, we have yet to see such a strategy, so I urge the Government to publish one, as it would allow potential new FTAs, such as the ones we are debating today, to be seen in a wider context.

The UK has been spoken of as being a dwarf in comparison with the US, and the Secretary of State robustly jumped to the Dispatch Box to say that the UK is absolutely not a dwarf compared with the United States and that it is the fifth largest economy. When we actually look at it, the United States makes up about 28% of global GDP—about a quarter, as I said earlier—and the United Kingdom is about 2.3% of global GDP, so it is about a twelfth of America. If I came across somebody 12 times taller than me, I might feel rather dwarfish. We might find that the muscle that can be applied in trade negotiations by a grouping 12 times larger than us is somewhat more substantial than what we bring to the table ourselves.

[Ben Lake]

The hon. Gentleman makes an important point about how many other nations will look at the market size of the UK and will perhaps consider that they do not want to concede in the same way in these negotiations as they perhaps would have if we were still a member of the European Union. Perhaps that goes some way towards explaining some of the difficulties that the UK Government are having in trying to sign off on some of these roll-over agreements.

[Angus Brendan MacNeil]

The hon. Gentleman makes an interesting point. There are 40 such agreements with about 70 countries, and the UK’s hope is that we can stand on the shoulders of the European Union and roll over that work, which of course relies on 70 other countries not seeing a possible advantage in getting better trading terms, as a number of them certainly do. A negotiator who wants to be promoted within their trade negotiating structure will, when the UK appears over the horizon with probably not the most experienced negotiators—they certainly will not have the same track record on international negotiations—see too great an opportunity to resist.

Interestingly, I note that the countries that have concluded the much-trumpeted trade agreements are ones with a tremendous balance of exports in their favour. Chile’s is about £150 million to £200 million in its favour, but the outstanding winner here has to be the Faroe Islands; I like to blow the Faroes’s trumpet as chair of the all-party group on the Faroe Islands, but my goodness! It exports £229 million-worth into the UK while importing only £16 million-worth back. So not only have the Faroes got themselves up the scales of acknowledgement, but they have done themselves a fantastic piece of business by rolling over what was already a very advantageous trade agreement. So well done the Faroe Islands, and I hope the welcome in Tórshavn will be as good as it always is.

Let me now look at UK-US trade relations. When we went to the US the farm lobby asked, “Why folks? Why have you done this?” They were just bemused. Ford said that for it, “The UK-US is incremental, but the UK-EU is existential, particularly the interplay with the UK-EU and Turkey. The tariffs that could be accumulated in that direction could be problematic.”

The International Trade Committee’s key recommendation was that

“the Government should undertake detailed work modelling the potential effects of a UK-US agreement on the economy.”

Evidence to the inquiry regarding the impact on GDP varied, but it was about 0.2%. We also have to make decisions about whether we have some increase in regulatory barriers with the EU in exchange for the removal of barriers with the US, and what the overall benefit of that is. As someone who keeps a few sheep, as I mentioned to the hon. Member for Mole Valley (Sir Paul Beresford), I can see a huge problem if we find ourselves putting up barriers to the EU to please some Americans and the American Administration in order to wave a piece of paper and say, “Trade agreements in our time.” That huge danger presents itself to a UK Government who might rush into trade agreements for the sake of it.