Taxation (Cross-border Trade) Bill (Fourth sitting)

Graham Stuart Excerpts

Thursday 25th January 2018 Public Bill Committees

[Anneliese Dodds]

I agree with much of what the hon. Lady said. We heard on Tuesday some of businesses’ concerns about consultation even relative to the Bill. It is important, when we move on to its exact provisions, that we have proper consultative mechanisms. I have certainly benefited hugely from the input into the process around the Bill and information from the Fairtrade Foundation and Traidcraft. If this Government are truly committed to policy coherence for development, it is important that they ensure that non-governmental organisations with expertise on the ground in international development can comment on preferential trade decisions, which could have a significant impact on different nations.

I was encouraged by what the Minister said to me when we talked about ensuring policy coherence for development when it comes to tax treaties. We need to ensure that that is the reality for our preferential trading regimes as well. One way to do that is by having appropriate consultation with experts in the area.

Finally, the Library note to the Bill, which was enormously useful as always, says that,

“the Government argues that the negative procedure is appropriate here as regulations might be lengthy, technical, frequently changed, not yet known and/or administrative.”

The note goes on to indicate what the EU process is for such schemes. It is quite different from what the Government propose:

“The regulations setting out the current EU scheme…were adopted by the EU Parliament and Council”,

meaning that there was debate within both those organisations. Our country is represented in the Council, and our MEPs represent us in the European Parliament. Then there are

“provisions allowing technical/routine updates through Commission delegated regulations.”

Again, delegated regulations can involve thorough scrutiny. I suggest that in many ways, it is far easier for an MEP to trigger a debate on a piece of delegated legislation on the Floor of the European Parliament than for an MP to do so in the British Parliament, certainly when the negative procedure is used, but also, potentially, when the affirmative procedure is used, given the arithmetic of Committees mentioned by the hon. Member for Aberdeen North. It is enormously important that we have proper scrutiny of such provisions. One way of embedding that is by having appropriate consultation. We support the amendment.

[The Parliamentary Under-Secretary of State for International Trade (Graham Stuart)]

It is a great pleasure to serve under your chairmanship, Mrs Main. It is an intimidating task that falls to me. I see many familiar faces, all pretty experienced and used to being in Bill Committees, as well as the Rolls-Royce Minister to my left. Fortunately, I am backed by the most extraordinary sea of talent behind me, as well as having on my right a much improved Treasury Whip, compared with his predecessor.

Amendment 108 seeks to create a statutory duty to consult on regulations relating to unilateral trade preferences for developing countries. The Government sought views on unilateral preferences as part of the trade White Paper and proposed creating a trade preference scheme that, as a minimum, maintains the preferential market access of countries in the EU’s generalised scheme of preferences, or GSP. The Government regularly engage with stakeholders on the issue, and—I can undertake—will continue to do so in future.

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[Kirsty Blackman]

I appreciate the Minister speaking on these matters in Committee, and I welcome him to his place. He is absolutely right about the importance of the preferential trade agreements, but perhaps we had a slight misunderstanding. I am not suggesting that opposition to such agreements would be likely. It is just that some organisations such as Fairtrade and Traidcraft have been in touch with us, and they might have better insight into what is happening on the ground in some of those countries. They might be able to provide more information to ensure that the preferential tariffs being provided unilaterally are the most appropriate ones.

The amendment is not about trying to create a blockage in the system. My reason for moving it is not about protecting our industries, but about ensuring that the best possible preferences are put in place for those countries that most need them. That is more likely to happen if there is an opportunity—a requirement, I suppose—for the Government to consult, in particular those bodies and organisations working in the country which can be absolutely clear about the best way forward for any trade deals.

If the Minister is clear that he will consult, that is useful. However, I intend to press the amendment to a vote.

[Graham Stuart]

I am disappointed that the hon. Lady will press for a Division, not because the points she has made are not important, not because the Government should not consult and listen to those voices, and not because we should not seek to improve our programme of support for developing countries, but because to put consultation in at that particular point in the process will not deliver the outcome that she desires and might in fact cause damage to the very system that we all want to see improved and working properly after having taken such consultation.

We are in regular contact with external stakeholders. We hold roundtables with representatives of civil society, business and academia, and we have received about 20 responses on trade with developing countries as part of the White Paper consultation. We have heard support from some of the organisations that the hon. Lady mentioned for creating a UK preference scheme, and an understanding of our approach to maintaining in the first instance existing levels of market access as we leave the EU. In effect, we are replicating the system we have now. In the oral evidence earlier this week, the Committee heard someone from the Fairtrade Foundation say of the measure:

“It takes the best bits of current EU policy and brings them over into UK policy.”––[Official Report, Taxation (Cross-border Trade) Public Bill Committee, 23 January 2018; c. 21, Q23.]

In some areas, stakeholders have suggested changes for the future, including extending to more countries, simplifying rules and adding more products. All of that can be considered by Government. I suggest to the hon. Lady that it is not too late not to press this amendment to the vote, because I do not think it is appropriate, although I take on board entirely the points she is making.

[Kirsty Blackman]

I still intend to press this to a vote.

Question put, That the amendment be made.

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[Anneliese Dodds]

This seems like a sensible amendment, particularly because accessing that nil rate is crucial for so many nations. If there is ambiguity around the conditions, they need to be clarified. Definition, initially, as a least-developed country, is partly with reference to vulnerability to economic shocks. Inability to access that nil-rate, or inability have it reinstated when it should be, could cause economic shocks. As we know, the value of access to the nil-rate to UK markets for least-developed countries is incredibly important—it is £323 million a year. It is important that we have no ambiguity and are absolutely crystal clear.

[Graham Stuart]

As we have heard, the amendment seeks to clarify that the regulations may provide for the restoration or reinstatement of the nil rate of import duty to least-developed countries where this has been suspended or withdrawn. It is clearly important that we can reinstate preferential rates of import duty after they have been suspended or withdrawn, but the Government do not believe that the amendment is required. The existing power enables the withdrawal or suspension of preferences to least-developed countries to be partial and reversible. That is in line with the general principles relating to regulation-making powers. It goes to show that even when you deal with lawyers as eminent as those at the Law Society of Scotland, they sometimes get it wrong, even technically.

The Government intend to use the power to suspend sparingly and, if used, we will work with the relevant country with a view to reinstating preferences as soon as is appropriate. For trade preferences to be effective, they must be relatively stable, so that businesses have confidence to make decisions to import from beneficiary countries. I therefore ask the hon. Member for Aberdeen North to withdraw the amendments and give a categorical assurance that a provision to do what they suggest is already in place.

[Kirsty Blackman]

Having looked at subsection (2), I still do not think it is particularly clear. It says that the scheme can make provision about the withdrawal, but then does not make clear that it can be reinstated. I will not press it to a vote because I hope the Government will table an amendment on Report to make it clear that they have the ability to reinstate the rate. I would not like a situation in which the Government were unable to do so because there was a challenge around the language used in the law. The amendment seeks to make it as unambiguous as possible. The hon. Member for Oxford East was absolutely clear on the importance of nil rates, particularly in relation to economic shocks. SNP Members would echo that. I am not going to press it to a vote, but I would appreciate it if the Minister would consider returning to the matter on Report. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 80, in schedule 3, page 57, line 18, at end insert “among other things”.

This amendment provides that the Secretary of State may have regard to things other than the classification of least developed countries by the UN in amending the list in Part 2 of Schedule 3.

That schedule 3 be the Third schedule to the Bill.

Amendment 10, in clause 32, page 19, line 32, after “which” insert

“section (Preferential rates given unilaterally: enhanced parliamentary procedure, etc) (7) applies and”.

This amendment is consequential on NC4.

New clause 4—Preferential rates given unilaterally: enhanced parliamentary procedure, etc—

(1) No regulations may be made by the Treasury in exercise of the power in section 10(1) except in accordance with the steps set out in subsections (2) and (4) to (6).

(2) The first step is that a Minister of the Crown must lay before the House of Commons—

(a) a statement on the matters specified in subsection (3); and

(b) a draft of the regulations that it is proposed be made.

(3) Those matters are the reasons for—

(a) the proposed application and non-application of the scheme to each country listed in Parts 2 and 3 of Schedule 3;

(b) any proposed conditions for the application of the lower rates or nil rate, and

(c) any proposed provisions about the variation, suspension and withdrawal of the application of the lower rates or nil rate.

(4) The second step is that a Minister of the Crown must make a motion for a resolution in the House of Commons setting out, in respect of proposed regulations of which a draft has been laid in accordance with subsection (2)(b)—

(a) each country to which the proposed regulations apply;

(b) the proposed conditions for the application of the lower rates or nil rate, and

(c) the proposed provisions about the variation, suspension and withdrawal of the application of the lower rates or nil rate.

(5) The third step is that the House of Commons passes a resolution arising from the motion made in the form specified in subsection (4) (whether in the form of that motion or as amended).

(6) The fourth step is that the regulations that may then be made must, in respect of any matters specified in subsection (4), give effect to the terms of the resolution referred to in subsection (5).

(7) No regulations may be made under the following provisions unless a draft has been laid before and approved by a resolution of the House of Commons—

(a) section 10(4)(a) (meaning of “arms and ammunition”);

(b) paragraph 2(1) of Schedule 3 (power to add or remove countries from lists in that Schedule).

This new clause establishes a system of enhanced parliamentary procedure for regulations setting lower import duties for eligible developing countries, with a requirement for the House of Commons to pass an amendable resolution authorising the key provisions of the proposed regulations, and also requires that certain other regulations are subject to the affirmative procedure.

[Graham Stuart]

Clause 10 ensures that the UK can operate a unilateral trade preference scheme when the UK leaves the EU. It will provide the powers to implement a scheme that will enable the reduction of import duty on goods originating from developing countries. By legislating now, we can ensure continuity for businesses both in the UK and in those countries when the UK leaves the EU.

As you know, Mrs Main, the UK has a long-standing commitment to support developing countries to reduce poverty through trade. One important way to do that is to offer preferential access for their exports to the UK. Trade preferences will also provide opportunities for UK businesses, while enabling UK consumers to benefit from lower product prices. In 2016, the UK imported £19.1 billion of goods from countries receiving trade preferences.

The UK currently provides trade preferences through the EU’s generalised scheme of preferences. Under GSP, the product coverage and import duty rates for countries vary depending on their development levels and trade flows. The granting of a unilateral preference to facilitate the trade of developing countries should, under WTO rules, be based on objective criteria. The European Commission regularly updates EU legislation to reflect that. Examples include making changes to a country’s economic circumstances, or to the list of products in respect of which a country receives a preference. After the UK leaves the EU, similar legislative powers will be needed to establish and manage an effective trade preference scheme. Clause 10 provides for a power to create a trade preference scheme for eligible developing countries.

It is intended that the UK scheme will have tiers of preferences for groups of countries with different economic characteristics. The UK will reduce to zero the import duty on goods originating from the 48 least developed countries, except for the import of arms and ammunitions, which is called “everything but arms”. That fulfils an international commitment made in the UN sustainable development goals, and will provide vital support to the world’s poorest countries.

To maintain continuity at the point of exit, in the first instance the UK intends to mirror the EU’s scheme, which includes two further tiers, known as standard GSP and GSP-plus. The standard tier will reduce import duty on the majority of goods. The enhanced GSP-plus tier will reduce to zero the import duty applicable to those goods covered by the standard tier when such goods originate from economically vulnerable countries that make commitments on human and labour rights, environmental protection and good governance.

The trade preference scheme will allow for the variation, suspension and withdrawal of trade preferences in certain circumstances. For example, where the import of a good threatens serious injury to UK business, the preferential rate could be amended or revert to the standard customs tariff rate. That would take place following discussion with the specialised, expert Trade Remedies Authority. Importantly, a preference may also be varied or withdrawn from a country in response to serious and systematic human rights violations.

Schedule 3 lists the countries that are eligible to receive unilateral trade preferences. It is an objective list based on economic criteria. Countries in part 2 of schedule 3 are currently or recently classified by the UN as least-developed countries. Countries included in part 3 have not been classified by the World Bank as upper middle income or above for the last three consecutive years. Not all of the countries on the list will actually receive the trade preferences. Some of the eligible countries will trade with the UK under a different arrangement, such as a free trade agreement. In such a case, it is intended that the FTA terms will apply to that country instead. Schedule 3 gives the Secretary of State the power to amend the list of eligible developing countries when a country’s economic characteristics change. It is important that a UK preference scheme can react swiftly in such circumstances.

Amendment 80 will allow the Secretary of State to consider things beyond the UN’s classification of least-developed countries when deciding which countries must be provided with a nil rate of import duty. When determining whether a country is least developed, the Secretary of State must have regard to its classification by the UN but, importantly, other relevant considerations may be taken into account. The amendment is therefore unnecessary.

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[Anneliese Dodds]

It is a pleasure to see the Minister in such a prominent role now. In his role as a Whip, he was of course fundamental to the operation of all the discussions that we have had in this Committee room, but it is good to see him speaking on these issues.

As the Minister intimated, the amendment relates to part 4 of schedule 3, which sets out the conditions under which amendments can be made to parts 2 and 3, including the lists of least developed countries and other countries eligible for preferential trading schemes. Colleagues will be aware that those schemes arose out of the work of the United Nations Conference on Trade and Development, which from the 1960s onwards argued for improved market access for developing countries as a means of fostering their economic development. The so-called generalised system of preferences was adopted in 1968.

The whole point about that—the Minister alluded to it—is that a generalised system of preference, just as with a customs union like that of the EU, is allowed as an exemption from the most favoured nation rules within the WTO. Those rules stipulate that no country can have a preferential trade agreement with any other country that is not offered to every other member of the WTO. It is therefore enormously important to have the ability to deviate from WTO rules to promote development.

As the Minister suggested, the arrangements have over time developed at EU level into, effectively, three different layers of preferential scheme for developing countries: the everything-but-arms approach, which applies to the least developed countries; the generalised system of preferences—GSP—and then GSP-plus which, as the Minister said, offers additional favourable terms to those countries fulfilling environmental and good governance requirements.

Will the Minister clarify one issue relating to GSP-plus, and my reading of the existing Bill, with regard to classification as another eligible developing country under part 3 of schedule 3? I thought that the Bill referred to the Secretary of State developing regulations with a view to

“among other things…classification by the World Bank”

and that those “other things” were not just economic factors but human rights and environmental considerations, as is the case with the GSP-plus system in the EU. I think that was what he intended to say, but it was not crystal clear and it would be helpful if he would clarify it.

Our amendment is focused not on the arrangements for GSP and GSP-plus countries, which I believe are all gathered under part 4 but, in practice, on the least-developed country regime—the successor to everything-but-arms, which the Government say they want us to take on board. It is positive that the Bill provides the possibility for a three-year transition period, so that countries currently described as least-developed countries can remain in the scheme for another three years, as a graduation period. However, particularly with regard to current EU developments, it seems that in the Bill, the Government are missing out on an important opportunity.

The Minister was correct to say that the current everything-but-arms regime does not explicitly include reference to human rights and the environment or other criteria, but there is pressure at EU level for those factors to be taken much more closely into account. Our country could play a key role in that. That is very important when we look at how the everything-but-arms process has worked in practice.

A very good case study is the sugar trade in Cambodia. The sugar industry in Cambodia has grown exponentially over recent times due to changes in the overall sugar price, but also due to the imposition of a preferential trading regime. That has not led to sustainable development. Instead, very large global conglomerates have captured much of the market. Ninety seven per cent. of Cambodia’s sugar exports went to the EU in 2012. Tate & Lyle bought 99% of those, and companies linked to it—or some of those which it has now sold off—were controlling much of the new sugar plantations in Cambodia.

Those plantations have been enormously controversial because they have involved the wholescale removal of families from their smallholdings. Many people illegally transferred into Thailand because the sugar plantations forced them off the land. The growth in the industry has not led to an increase in people’s incomes. In fact, the opposite has happened: it has led to many people becoming destitute who formerly were able to live at subsistence level at least. Some families from Cambodia have even taken cases against Tate & Lyle to our High Court because they were dispossessed of their land and are no longer able to live sustainably.

Other changes occurred around sugar in the EU—minimum pricing and its removal—but surely, given that example, we should think about whether we need to do more to try to stop developments of the kind that existed under the everything-but-arms initiative from occurring in any UK-specific schemes. There is certainly an argument in the development community about whether it is appropriate for human rights matters to be taken into account in trade deals. Particularly in the sugar market, very large corporations are making a huge benefit, but that has not led to a more sustainable income for ordinary people—quite the opposite.

In addition, it is important that other factors can be taken into account in these classifications and in determining whether countries should be on the list. Three years is a good graduation period but it may be necessary for some countries to have longer, especially if they are subject to a particular economic or other problem.

Furthermore, I understand that there are cases where countries have used additional considerations in relation to classification under these kinds of regimes. Norway has said that if a country is not classified as a least-developed country but is part of a customs union with other least-developed countries, it is a good thing because it promotes regional integration. That nation is also likely to share many trade characteristics with the least-developed countries, and therefore should be able to be allotted trade preferences on the same basis. Norway at least believes that it does not need a waiver from the WTO for that—not only is that not being actioned by the WTO, but Norway believes that it does not even need to approach the WTO for a waiver. We could be more ambitious in that regard, and I hope that as a result the Minister takes our suggestion on board.

[Graham Stuart]

I thank the hon. Lady for her passionate espousal of a number of interesting issues. I will respond as best I can, but my three weeks in this post probably does not match her many years of expertise.

As highlighted, clause 10 and schedule 3 ensure that the UK can operate a unilateral trade preference scheme when the UK leaves the EU, supporting our long-standing commitment to support developing countries. The group of least-developed countries, as set out in schedule 3, are among the poorest in the world. As I said, providing nil-rate import duty access to goods from those countries helps them to reduce poverty through trade and is part of the UN’s sustainable development goals. Clause 10 enshrines that in UK law, ensuring that the commitment will be maintained in future. The clause is not prescriptive about the level of import duty for other eligible developing countries—they are listed in part 3 of schedule 3—that are not designated as least developed. However, as I have mentioned and as the Government set out in the trade White Paper, the Government’s policy intention is to ensure continuity at the point of exiting the EU by replicating the market access of all countries currently part of the EU’s generalised scheme of preferences.

I take on board the fact that the hon. Lady talked about being more ambitious. We have said that, as a Government, we wish to be more ambitious, but we need to bring into place in this country continuity from the existing system and give assurance and confidence that we are not opening up. If we open up the issues more widely, we will create uncertainty as to what we will continue—we may be strengthening in some areas; we might weaken in others. I therefore ask the hon. Lady to accept that I need to think and talk to her over time about some of the issues that she has raised. We do want to be more ambitious in the future, but for now, we believe that the right thing to do is to have continuity with the existing system and bring that as effectively as we can into UK law.

The amendment proposes that changes to schedule 3 be done by the affirmative procedure. As I have mentioned, eligible developing countries will be determined with regard to the classification by the World Bank or UN. The Government need to be able to react promptly to a country’s change in economic circumstances. Similarly, the power to specify the meaning of the term “arms and ammunition” is intended to allow the preference scheme to adopt the same nomenclature enabled through clause 8 for the customs tariff, which will itself be constrained by international nomenclature.

As I said, our intention is closely to replicate the EU’s preference scheme, including the GSP-plus tier. That is the enhanced tier of preferences available for economically vulnerable countries that ratify the international conventions I have mentioned. We expect beneficiary countries to continue to respect the conditions in GSP-plus, including meeting those international obligations. Those conditions will be set out in secondary legislation, as clause 10(2)(b) allows.

The question is asked why we would give preference to Cambodia even though land disputes have occurred following the EU’s everything-but-arms access. A key objective of the UK is building the UK’s prosperity by increasing exports and investment and promoting sustainable global growth. Greater prosperity leads to greater stability. We are aware that the Government of Cambodia have taken steps to improve their issue of economic land concessions, such as introducing a compensation process. Furthermore, the Ministry of Environment cancelled more than 20% of all economic land concessions. For now, therefore, we continue to work through the EU’s GSP monitoring system, and we seek to bring the existing system into UK law.

[Peter Dowd]

I rise to speak to the Opposition’s new clause 4 and will also touch on schedule 3, if I may. We do want to require a vote in the House of Commons on the giving of preferential rates unilaterally to developing countries—I do not mean in relation to amendment 80, but in future. We can all agree that the Government have a responsibility to ensure that our trade policy works for everyone, including the poorest in society, and how tariffs are set has an important bearing on that.

The Minister was very clear and comprehensive about the Government’s direction of travel. I welcome him to his position—as a former Whip, he has come out of the darkness into the light—but I also agree that the current Government Whip, the hon. Member for Macclesfield, is much better.

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The issue is not clearcut. It is above my pay scale, but it raises larger ramifications that delve into the realms of foreign policy and international development more broadly and the question whether our trade policies should be linked or possibly subservient to British foreign policy interests or entirely independent of them. We do not want to get into a situation where the tail is wagging the dog. There is an important question that the Government must address in due course: should the UK have a selective trade policy in a world based on defined values and ideals or do we take a different approach? That is an approach that the Government have failed to define, and it needs to be reconsidered.

[Graham Stuart]

I will respond to some of the points that the hon. Member for Bootle has just made. I pay tribute to him for featuring so well. He must be another fine engine, if not a Rolls-Royce. I have certainly heard him purr in this Committee Room on many an occasion. As with my right hon. Friend the Financial Secretary, I have admired the style and content he has presented.

The hon. Gentleman raised the issue of whether the trade preferences will undermine human and labour rights. The UK has a long-standing commitment to universal human rights, and that will be reflected in our trade preference scheme. As part of transitioning EU arrangements, we will maintain a similar approach to human rights commitments in UK trade policy.

The hon. Gentleman raised Burma, based on the Rohingya situation, and mentioned the fact that the EU has, after all, suspended Burma before. I agree that this is an important issue. The UK is deeply concerned by the violence taking place in Rakhine state. The UK has been a leader in responding to the crisis in terms of both speed and size, helping to meet the urgent humanitarian needs that have arisen. For now, we continue to work through the EU’s GSP monitoring system. Under a UK scheme, it will be possible for countries to have their preferences suspended, although we intend to reserve suspension powers for serious and systematic human rights violations.

We must make sure that when we act, it is always to tackle the problems in those developing countries, and that the long list that was laid out—including climate change, forestry and various aspects of human rights—is not used as an excuse for protectionism of interests in this country while we are morally posing ourselves as helping those in developing countries. That is why the presumption is that we should let them trade with us; however, in serious cases we should act. I hope that both this Committee and the House can continue to take that proportionate and balanced approach.

On the clauses that the hon. Gentleman says give too much power to the Government, and on the question whether there is sufficient parliamentary scrutiny and due process in setting up this preference scheme, I would say that these powers are moderate and entirely necessary to create and maintain a trade preference scheme for developing countries, which is a goal that we all share. The overarching principles of the preference scheme are set out in primary legislation. That is important. Parliament will have the opportunity to debate the inclusion of these principles and powers throughout the passage of the Bill. Parliament will later have the opportunity to consider regulations setting details of the scheme. The scheme will need to be updated regularly. As economies grow or contract, their eligibility for trade preferences will change over time. We must ensure that the legislation is kept up to date to ensure that we trade on fair terms and avoid challenge from the WTO.

I did not respond earlier to the point made by the hon. Member for Oxford East about amendment 80 and why the Secretary of State cannot consider factors other than the UN’s classification when deciding which countries are least developed. The Government have chosen to enshrine in UK law the obligation to provide nil-rate import duty to least developed countries. This meets a commitment the UK made in the UN sustainable development goals to implement duty-free market access for LDCs. As a result, there needs to be significant certainty on the list of LDCs in part 2 of schedule 3, because it is in primary legislation that this legal duty will be in place. Therefore it is right that the Secretary of State is closely bound to the internationally recognised UN classification. The distinction in language between sub-paragraphs (2) and (3) in part 4 of schedule 3 reinforces this point.

As a final remark, I will quote the Fairtrade Foundation, which said that

“from the perspective of developing countries, where in some instances there is a high dependency on the UK market…changes to tariffs could make or break the livelihoods of producers. If you were to ask for a vote on every single tariff change, that would not be workable, so this is about finding the right balance”.—[Official Report, Taxation (Cross-border Trade) Public Bill Committee, 23 January 2018; c. 19, Q21.]

Being balanced and proportionate is the basis of the Government approach, and I ask the Opposition not to press their proposed amendments.

Question put and agreed to.

Clause 10 accordingly ordered to stand part of the Bill.

Schedule 3 agreed to.

Clause 11

Quotas