Taxation (Cross-border Trade) Bill

Jonathan Djanogly Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Monday 16th July 2018 Commons Chamber

[Mr Leslie]

We have got the hon. Gentleman’s measure now. He used to be an entertaining curiosity, but no longer. He represents a major present threat to the future of our economy and our constituents’ jobs. He is trying to scupper our smooth frictionless arrangements for businesses that currently have to pay VAT but can do so because we treat it as a matter of dispatches and arrivals, rather than its having to be paid upfront. By deleting paragraph 14 of schedule 8, the hon. Gentleman would hole future VAT arrangements below the water line.

[Mr Jonathan Djanogly (Huntingdon) (Con)]

Are we not seeing here an insertion of further red lines when we have enough of them already?

[Mr Leslie]

Exactly. It would be sensible of the Government to read the runes and start thinking about where there is a consensus in Parliament for a positive way forward rather than constantly laying down or accepting more red lines, or caving in to threats from those who are very loud but represent a tiny minority viewpoint.

New clause 2 is really important because it would preserve our current role of participation in the EU VAT area. I hope hon. Members will see the purpose of that. I think we currently have 25 million customs declarations paying VAT at the border. That will potentially rise to 255 million. Imagine the bureaucracy, the cost of administration and the paperwork for our VAT system if those declarations also have to be made at the border. Amendment 73 would end up taking out our participation. I intended to raise this issue as a matter of debate, but perhaps I should press new clause 2 to a vote, because the EU VAT area is absolutely crucial to avoiding a hard border.

It is important that we pick out the problems with the Chequers arrangement. I understand that the Prime Minister is trying to find some sort of balance, but I am afraid to say that the notion of a facilitated customs arrangement just does not quite get us to where we need to be. I am delighted with the acceptance of how important a common rulebook for goods is to our country. That recognition of economic reality is important, but it is only one piece of the jigsaw that we need. For instance, we need to ensure that the 80% of our economy in the services sector is not completely abandoned and that we lose out as a result.

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[Mr Clarke]

I agree and that is why I tabled, with my right hon. Friend the Member for Broxtowe (Anna Soubry), new clause 12 on a customs union. I have taken the view that, while I can see nothing wrong with that amendment, I am prepared to try to get us out of this political chaos by giving the Government White Paper a try. It is attempting to reach precisely the objectives I am arguing for: frictionless trade, with none of these procedures at the border. I cannot see what is wrong with a customs union. If anyone calls a vote on that, I shall abstain. I do not vote against amendments that I plainly agree with and that I have tabled. If a facilitated customs arrangement can be devised which achieves the same, good luck. What is most important is that, now we have the White Paper, we agree with our partners in the EU that we now negotiate on this. We have wasted two years and are facing laughable suggestions that we are going to solve all the problems now in the next three months, or possibly by Christmas if that slips. That is absolutely ludicrous. That is the uncertainty that is racking business and anybody in the country with an interest in our economic future.

Now we have actually got quite a large majority of the Cabinet to agree on this. I never thought the Cabinet we had was ever capable of agreeing on anything on this subject because of the sincerely held, completely opposite views on virtually every aspect of it. We now have most of the Cabinet behind it. If we give them a chance, lots of developments will take place. As compromise takes place, with any luck, people who actually understand the subject will be allowed to try to come up with some workable version of this that achieves the essential objectives.

I am afraid the debate that the public are listening to infuriates them as it is all about personalities. Most sensible members of the public do not have the faintest idea what we are talking about because, throughout the entire debate, no one has ever given a proper explanation to the country of what a customs union or a single market even are and what certificates of origin involve. That is inevitable. We have never debated these things before, but we owe it to the public to have a slightly more sensible debate in future.

Half the arguments used in the general debate do not understand what a trade agreement is with any other country. As things stand, if we leave with no deal, we will be the only developed country in the world that does not have a trade agreement with any other country, because it is not going to be easy to roll over all the other agreements we have with other countries, which are based on the EU. We have driven the EU to achieve all those agreements. I agree that there are problems with 28 member states negotiating, but the problems with America are far worse. All the Americans want to do is export food to us; they will not open up their public procurement or their service industries.

[Mr Djanogly]

rose—

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Much of the debate has focused on narrow considerations about how a border works. Important though that is, there is much more to a customs union than simply the operation of a border or set of borders, and it is very important to bring that into this debate. Before anyone proposes going down the route of entering into a customs union with the EU, we should ask whether anyone currently does that. Turkey does; it is not in the customs union for everything or a customs union for everything, but it is for most goods, with the exception of agricultural goods. The Turkish example is very instructive. Some 23 years ago, when Turkey joined this customs union, its direction of travel was the entire opposite of ours. Turkey was looking to enter the EU and saw joining a customs union, with all its disadvantages and imperfections, as a staging post to joining the EU. We are operating in the opposite direction. What happens when a country is in a customs union with somebody and it goes into a trade agreement? Well, Turkey must give access to its markets under that trade agreement, because it has signed up to the common external tariff. However, because Turkey is not subject to that trade agreement, as that agreement is with the EU—

[Mr Djanogly]

rose—

[Greg Hands]

I am going to carry on and explore this point. Because Turkey is not subject to that agreement, as it is not a member of the European Union, Turkey must negotiate its own trade agreement with counterparts. It is not obliged to do so, and various counterparts have agreed a trade agreement with the EU but not agreed one with Turkey.

[Mr Djanogly]

rose—

[Greg Hands]

No, I am not giving way as I am going to explore my points in the available time.

The lesson here is that these partners will be less likely, in many ways, to do a deal with such an economy, and ours is the fifth largest economy in the world. If they can get access to that economy through a trade agreement with the EU such that Britain would be forced to lower its tariffs, the people they might want to speak to are more likely to be in Brussels than in London.

My second reason relates to the pursuit of an independent trade policy and trade agreements. If we are no longer setting our own tariffs and they are set by somebody else, that weakens our ability to have a trade negotiation and to come to a trade agreement—by definition, we have a lot less to offer.

Remarkably, the third area—trade remedies—has not been explored at all tonight. I am amazed that the Labour party wants us to join—I am not sure what the official Front-Bench view is, but I think it is this—a customs union with the EU. Who would do our trade defences? Trade defences are incredibly important; they are the topic de jour in the current disputes between the United States, China and other counterparts. If we were in a customs union, it would be likely that Brussels would be making the decisions on trade remedies that would apply to the UK. We would not have a seat at that table when those decisions, which would affect our industry, were being made. Moreover, it would be likely to be against WTO rules for Brussels to make decisions that might affect the UK, because under WTO rules, people have to show the impact on their own market, not somebody else’s. So it is not at all clear to me—

[Mr Djanogly]

Will my right hon. Friend give way?

[Greg Hands]

I am going to use my three remaining minutes.

The fourth area—again, it is remarkable that Labour is ignoring this—is the potential regulation of the NHS and other public services. I think that Labour Members have forgotten the TTIP debates of four or five years ago. They got very agitated about TTIP and the prospect of granting access to the NHS and other key public services in this country via a EU trade agreement. Now they seem to be happy for the EU, through a customs union, to negotiate potential access to the NHS and our markets. Even worse, we would not have a seat at the table when that trade agreement was set up. I find it remarkable that the Labour party is prepared to do that.

My final point has also not been raised in this debate, but it is a vital aspect of the Bill: trade preferences for the developing world. Again, I think that there is cross-party support for this country doing more and better in this area. The Bill allows for the transition of the scheme of trade preferences, meaning that the UK will have its own scheme of trade preferences. It will transfer overnight the European Union GSP—generalised scheme of preferences—and GSP+ and include everything but arms. Crucially, there will be the ability to improve on that scheme. If we stay in a customs union with the European Union, we will strangle in its infancy that ability to do better than the European Union on trade preferences.

The Trade Ministers to whom I have spoken in the Governments of countries such as India, Pakistan and Bangladesh—they are all really important markets for this country and really important friends—would welcome the UK having the ability to offer better access for their goods than the European Union currently does. I am not saying that we will make a policy decision today, but it is extremely important that the Bill contains the ability for us to do that, and it is an underrated aspect of the legislation. Whatever we think of the access currently offered by the European Union, I do not think that anybody would say that the UK would be unable to offer better access if we had our own preference scheme under the Bill. That has been neglected in this debate.

Whatever we think of the original decision in June 2016, it would be a grave error to enter into a customs union with the European Union. It is not just a question of formalities and practicalities at the border; there many other really important issues, such as trade remedies and trade preferences with the developing world, that make entering a customs union with the European Union a very bad idea. I very much support the Bill and urge the House to reject the new clauses.

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[Mr Speaker]

Order. I think that three minutes will now suffice.

[Mr Djanogly]

Let me start by saying that, to my mind, the European Research Group’s amendments are clearly aimed at restricting the Government’s ability to negotiate, if indeed they are compatible with the White Paper at all—a White Paper that I support. Amendment 73 and new clause 36 certainly fall into that category. I think that they have been tabled by those who wish to create such difficulties and red lines that we are forced into a hard Brexit, ostensibly by default but secretly by design. They will not have my support tonight.

I want to address the claims of those who say that we do not want the FCA, or indeed a customs union, because we cannot then strike our own trade deals. I note that the Government maintain that we should be able to separate goods from services, but others caution against that because goods and services are often so intrinsically linked that it is unrealistic. I will wait to see the EU’s position.

However, on the central issue of negotiating our own FTAs, I think that we need to question the benefits that so many seem to be taking for granted. First, we need to appreciate that the Department for International Trade is currently acting like something of a Jekyll and Hyde character—on the one hand the Secretary of State is talking about bravely striding around the world seeking new FTAs with countries such as the US and China, but on the other he is pleading with the EU and about 70 third-party countries to roll over the existing 40 or so FTAs that the EU now has with them. So, with more than one third of the world’s countries, Brexit represents the chance at best to get the same deal as from the EU. From the look of things, we may yet get a worse deal in some cases as those third countries start evaluating the decreased advantage of dealing with 50 million rather than 500 million people.

Secondly, there is little evidence that business sees any advantage in customs differentiation—indeed, quite the opposite. The vast majority see advantages in our customs negotiating position, which emanates from the power of the huge trading bloc that the EU represents, and will wish in any event to stick as closely as possible to whatever trading position the EU takes.

Thirdly, world trade is much more interlinked and complex than most people discuss. For example, some of the existing trade agreements that we want to roll over, such as those with Canada and South Korea, feature most favoured nation clauses. Therefore, if we agree a FTA with the USA that offers better terms than those we agreed with Canada, Canada would need to be offered the same. The advantages of being outside the customs union are thus much reduced in any event, and talk of becoming a colony or vassal state is ridiculous.

Fourthly, we live in a world of trading deals where size matters. Rather than discussing a trade deal with the US, we have become caught up in a trade battle. Again, if we were in a customs union, we would have more cover.

Finally, the process of negotiating new FTAs is a long and arduous business. The average time is seven years; Canada took 15 years. Bargaining is tough and based on potential market clout. That goes back to the possibility of US chlorinated chickens and so forth. We need—

[Mr Speaker]

Order. I am extremely obliged to the hon. Gentleman, to whom I could always listen at length, but we must move on.