Transatlantic Trade and Investment Partnership

Julian Smith Excerpts

Tuesday 25th February 2014 Commons Chamber

[Steve Baker (Wycombe) (Con)]

rose—

[Julian Smith (Skipton and Ripon) (Con)]

rose—

[John Healey]

I give way to the hon. Member for Skipton and Ripon (Julian Smith).

[Julian Smith]

Does the right hon. Gentleman agree that we in the all-party group have been somewhat helped by George Monbiot, who wrote a barking mad article in The Guardian, to which the Minister responded in his usual robust manner, and that we require George Monbiot to keep writing these barking mad articles so that we can resist them every step of the way?

[John Healey]

The hon. Gentleman may be slightly disappointed by my response, because I do not necessarily agree with his arguments. However, I draw the same conclusion about the particular focus of the article: the case for investor-state dispute systems as part of a deal between the EU and the US. In fact, I have written my own piece in which I say that I cannot see the case for that in a deal such as that under negotiation. The case has still to be made—I will come on to this later—by those Governments who may favour it and, indeed, by the Commission, whose role it would greatly enhance.

[Julian Smith]

rose—

[John Healey]

I was going to give way to the hon. Member for Wycombe (Steve Baker), but he has left the Chamber, so I will, of course, give way to the hon. Member for Skipton and Ripon again.

[Julian Smith]

Will the right hon. Gentleman clarify how on earth Britain will be able to persuade inward investors to come here and how we will be able to do a deal with China if we cannot sign this agreement?

[John Healey]

The answer is simply because a deal with China is very different from a deal with the US. The US and the EU both have long traditions of due legal process. If the hon. Gentleman looks at the representations being made by business and investors, he will see that there is very little call for the arrangements. The strongest advocate to date has been the European Commission, which is why I think the pause it has put on further discussions is so significant, although it did so only because it was put under significant pressure by those who had concerns, perhaps including Mr Monbiot in The Guardian.

These trade negotiations are about a potential trade deal like no other. They are the biggest ever bilateral trade talks, because together the EU and the US account for 30% of global trade and almost 50% of the world’s output. They are also the best prepared talks ever, because the serious work was going on for almost two years before the talks were formally launched, and they are the most ambitious negotiations ever, because for the first time in history this would be an agreement between economic equals, without any significant imbalance in power and wealth.

This is, therefore, a deal like no other, but it is being conducted at a time like no other, because since the 2008 global financial crisis and world downturn, faith in politicians, established civil servants and big business is at an all-time low and mistrust at an all-time high. I think that heightens the sense that past trade talks have been unjustifiably conducted in secret, controlled by a few big countries and often dominated by the interests of multinational companies.

A symptom of that current suspicion led War on Want to assert in a well-written report last week:

“TTIP is…correctly understood not as a negotiation between two competing trading partners, but as an attempt by transnational corporations to prise open and deregulate markets on both sides of the Atlantic.”

I quote that not because I agree with it, but because it is a sign of the degree of opposition and hostility to—and to some extent the lack of understanding of what is really at the heart of—the negotiations, which is fashioning the debate at present.

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[John Healey]

We are, indeed, such a trading partner, but I have to say that we are not big or significant enough to be in that position. Obama has made that clear and his staff have been even blunter—this sort of negotiation would not be available to Britain if it tried on its own to reach such a deal with the US.

Let me come back to the case for why the UK needs the economic boost and benefits of trade at this time. The size of our UK economy is still 1.3% smaller than it was before the peak prior to the 2008 global financial crisis and recession. The production component of our GDP is still about 10% smaller than it was before the downturn. We also have a high trade deficit—£30 billion in 2013—which has remained high despite the large fall in the value of the pound compared with the euro or the dollar during the downturn. At a time when we still have a domestic demand problem, trade deficits can lead to further weaknesses as income generated in the UK is spent overseas. In turn, that puts more pressure on factors such as household borrowing or inflated regional housing to fuel growth, which cannot produce a balanced or sustainable economic recovery. I must tell Government Members that, in his speech in Hong Kong earlier this month, the Chancellor of the Exchequer recognised that the economic recovery has not so far been put on a sustainable footing. He said:

“Britain is not exporting enough.”

The TTIP alone will not of course produce the kind of long-term recovery that we need. Public investment in infrastructure and new housing, an active industrial and regional policy, and a new deal jobs programme for young people are all needed, but an ambitious trade policy will be an important part of our future economic strength.

[Julian Smith]

Does the right hon. Gentleman accept that, as I understand it, there was no debate about trade or exports in this House under Labour for about 13 years, and that the number of trade trips by our Prime Minister in the past four years is more than the number undertaken by two Prime Ministers in 13 years? Government Members do not need to take lessons from Labour on exports.

[John Healey]

I remember a series of very high-profile international trade trips led by Prime Minister Blair and by my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown) as Prime Minister, but I have no idea about the figures. My point is not to offer lessons, but to make the case for the importance of trade as a part of a strengthening UK economy and of our efforts to secure a more balanced economic recovery and more sustainable growth in the future, as well as therefore to make the case for the importance of the TTIP to the UK, not just the European Union.

I suppose people may say, “Look, you’re a Labour MP. Why on earth are you making this argument about international trade and capitalism?” I have to say that I am also part of a Labour movement, which stretches back to Keir Hardie, that has a great internationalist tradition of qualified optimism about the benefits of trade. Hardie described international trade as a way of fostering shared values:

“Despite the keenness of commercial struggle there comes a time when on each side there grows up a feeling that underneath the hard bargaining…there is a human element…the dykes that separate man from man are broken down, and the waters of their common humanity begin to intermix and commingle”.

I can tell the hon. Member for Skipton and Ripon that it was the pioneering 1945 Labour Government who signed the first incarnation of the general agreement on tariffs and trade, which was of course the forerunner of the World Trade Organisation.

I do not want to labour this point too strongly in a cross-party debate, but it was in the same progressive spirit that Franklin D. Roosevelt encouraged trade as a way of dragging the US out of the great depression after the protectionism of his Republican predecessor Herbert Hoover. As a pro-trade Democrat, Roosevelt wanted clear rules and clear standards—in other words, fair as well as free trade. He said:

“Goods produced under conditions which do not meet a rudimentary standard to decency should be regarded as contraband and not allowed to pollute the channels of international commerce.”

My argument is that that progressive pro-trade case is even more important with the TTIP than with other trade deals, because a deal between the US and the EU would, as I have said, cover a third of world trade and involve countries responsible for almost half the world’s output. The size of our combined economies and the scale of the potential deal mean that it could set standards for future agreements with other countries on consumer safeguards, workers’ rights, environmental protection, trade rules and legal process.

Finally, to bring this together—

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[Mark Field (Cities of London and Westminster) (Con)]

I congratulate the right hon. Member for Wentworth and Dearne (John Healey) on securing this debate.

As the right hon. Gentleman rightly pointed out, in the aftermath of the 2008 financial crisis, politicians the world over were at great pains to avoid the policy mistakes that followed the banking collapse of the 1930s. Conventional Keynesian pump-priming was continually invoked as the means of preventing a recession from turning into a depression. Depressingly, rather less interest seemed to be given to the equally important lessons that the 1929 to 1933 era taught us about protectionism. The right hon. Gentleman referred to the Smoot-Hawley Tariff Act of 1930, which raised tariffs drastically on goods that were imported into the United States in a bid to protect American jobs from foreign competition. That Act sparked a domino effect among America’s trading partners, who predictably imposed similar measures to protect their own economies. The result, as we all know, was a terrific slump in world trade that devastated economic growth and caused unemployment to soar. Only the ensuing second world war helped to get the global economy on its feet again.

In 2010, as growth remained elusive, I wrote and spoke in this House of my deep concern that we might see a new wave of protectionist measures being introduced by politicians who were under pressure to protect domestic markets. The House might recall the defensive, almost nationalistic tone of the debate as Kraft’s hostile takeover of Cadbury was going through, particularly from the Opposition Benches. I called at that time for political leadership to make the case strongly for the massive benefits of free trade and to break down the remaining barriers.

It is in that context that I am heartened, four years on, by the enthusiasm with which the transatlantic trade and investment partnership has been embraced by policy makers.

[Julian Smith]

Does my hon. Friend agree that, despite all the hassle Kraft got, its £70 million commitment to Cadbury and Bournville is another example of the great benefits that inward investment can bring to our country?

[Mark Field]

Very much so. I suspect that my hon. Friend knows more about the chocolate industry than I, particularly as he is a Yorkshire MP.

The enthusiasm that I mentioned has been seen predominantly on this side of the Atlantic. The main aims of the partnership, on which formal negotiations began last July, are to increase trade and investment between the US and the EU by reducing tariffs, particularly on agricultural products; to align regulations and standards; to improve the protection for overseas investors; and to increase access to services and government procurement markets for foreign providers.

There is no doubt that the prize is enormous and that the TTIP is highly ambitious. The US is and will remain the EU’s most important trading partner, with some $2.7 billion of trade daily in goods and services.

[Mark Field]

I look forward to the Minister destroying one or two of those arguments. I suspect that the hon. Lady has provided a selective reading of the BIS impact assessment.

Much of the media coverage of the TTIP has focused on the trade of manufactured goods. Rather less attention has been given to a sphere of commerce in which the UK economy excels globally: financial and professional services. I represent the City of London, which is a hub not only for banking, but for a range of related service businesses such as accountancy, insurance, consultancy, the law and pensions management. To put into perspective the importance of those industries to the UK, in 2012 the financial and associated professional services sector employed some 7% of the UK work force, produced some 13% of total economic output, contributed £65 billion in tax and generated a trade surplus of £55 billion.

The City of London is strongly supportive of the TTIP, but has been consistent in its belief that no industry should be excluded from the partnership’s scope, including financial and professional services. There would be benefits not only through boosted trade, but through a reduction in the potential for the kind of regulatory arbitrage that currently means that differences in the implementation of financial standards are exploited, thereby putting financial stability at risk. Some of the regulatory differences are unavoidable because of the variations in EU and US market structures and cultures. Others cannot be justified on prudential grounds.

As was demonstrated so painfully in 2008, we tend to get regulatory co-operation only in times of severe crisis, when deals are brokered at the eleventh hour to avoid market fracture. If financial services were within the TTIP’s scope, I believe that we could design a stable, long-term framework for the discussion and co-ordination of regulatory issues long before we hit the next crisis point. The other great prize is that we could create a larger, more efficient market place for EU and US financial institutions, thereby solidifying their leading role in global financial regulation—a market that will get much bigger in Asia as the emerging economies of China, India and the like strengthen.

It is for those reasons that the EU has been lobbying hard for such services to be included in the TTIP negotiations. However, there is still stiff opposition from the US Treasury, which suggests that the TTIP is primarily a trade pact, not a forum for regulatory co-operation. The fear seems to be that the US might lose its sovereignty over regulation. It must be made clear that that is not what the EU proposes. Nobody wants to undermine existing regulations, even the Dodd-Frank Act. Co-ordination is quite different from capitulation. We need sustained, high-level political engagement to bring financial services within the TTIP’s remit.

I am concerned that there is insufficient public awareness of the TTIP, including what is at stake, what the challenges and benefits are—I accept what the hon. Member for Brighton, Pavilion (Caroline Lucas) says—and what the potential benefits are. Quite understandably, given the systematic undermining of the world’s political and economic elite in recent years, which has been referred to, there is a wave of distrust at the tenor of the negotiations that are under way. There is a common perception that side deals are being brokered to benefit global corporations, posing a risk to national sovereignty that might see our independent courts being made subservient to outside arbitration. It would be helpful if the Minister clarified his position on those arguments this afternoon. I encourage the Government to run an even more visible campaign on the TTIP that allows us all to have an open, honest discussion about its potential benefits and drawbacks.

[Julian Smith]

Does my hon. Friend agree that it is not just the UK Government that should be carrying out that publicity, but the EU? Instead of focusing on Eurobarometer and the other daft publicity ideas that it has, the EU should be spending its money on promoting the benefits of this agreement to its population.

[Mark Field]

I accept that, but realistically we in the UK probably also need our Government to make clear some of the benefits of trade—some of us in the Conservative party are convinced that the best future lies within the European Union, hopefully with a certain amount of reform going on as well. None the less, it is important that our Government make that strong case.

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[Jim Sheridan (Paisley and Renfrewshire North) (Lab)]

I congratulate my right hon. Friend the Member for Wentworth and Dearne (John Healey) and others on securing this important debate. I also congratulate him on the measured way in which he presented his progressive arguments.

The TTIP could be a good deal. It has the potential for job creation, higher wages for workers and a better deal for consumers. Trade across the Atlantic between the US and the EU is a fact of life and the US is the UK’s biggest export market. If people want to buy and sell across the water, we should do all we can to make it convenient for them to do so. But here is the key: we should have an agreement that helps ordinary people, not big corporations and big businesses. As it stands at the moment I, along with a number of my colleagues both in this House and in the trade unions, are concerned that the TTIP will allow companies to wield control over national Governments and in the long run may not help those we are told it will. The negotiations for this agreement are lacking transparency and we need more information and some people championing ordinary people’s rights before we can accept what is on the table.

We are told by the European Commission that the agreement will give an extra €545 per year to a European family of four, but only one major study has been conducted—by the Centre for Economic Policy Research, two thirds funded by investment banks, asset managers and European central banks. We need better projections to identify the economic and social impact of the deal. An average figure is not good enough. We know, for example, that while the EU motor vehicles labour force could expand by up to 1.28%, other sectors, such as communications, electrical machinery and metals, are likely to contract.

[Julian Smith]

Will the hon. Gentleman give way?

[Jim Sheridan]

The hon. Gentleman has had a good run so far today. I am conscious of Madam Deputy Speaker’s instructions.

The sustainability and employment impact assessment will not be completed until the end of the year and so we are in the dark about what we are signing up to. A much fuller study needs to be conducted as well on social, environmental and labour rights. When I was a shop steward I would never have considered negotiating without all the facts that were available to me. This agreement is on a far bigger scale and our Governments, with all the experts they have to hand, are going into this agreement without the information.

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[Julian Smith]

Will my hon. Friend give way?

[Mr Syms]

I will not, because we are short of time.

There is a debate to be had about the European Union, and clearly Members have different views about it, but the key point is that it contains a major market consisting of more than 500 million people. I personally am glad that the EU is seeking trade agreements with the United States. I see nothing but benefit if we can simplify regulation, reduce barriers and increase trade.

Commentators often write off the United States as though it had had its time, but again and again it reinvents itself, with its Apples, its Googles and the fracking boom, which has had a material effect on energy prices. We are also seeing the repatriation of manufacturing jobs to the United States. I still think that the US has a very good future, and I think it vital for us, as a nation with a long history of campaigning for free trade within the European Union, to press our partners and colleagues to secure an agreement with it.

We have already heard today about the size of the combined economies of the European Union and the United States, which constitute well over 40% of the world’s GDP. If we can establish rules which will mean an increase in trade, we shall have an advantage outside that particular trade area, because other countries will have to confirm to some of the norms. It does not make sense that firms sometimes have to obtain a huge amount of authorisation for products in Washington, and then do the same across the European Union. That increases costs, especially the costs of medicines and pharmaceuticals.

I agree with my hon. Friend the Member for Cities of London and Westminster (Mark Field) that this country is tremendously good at services. In respect of general agreements on trade, what we have not been so good at is opening up markets for services. What we need to do is persuade our Government, and the EU, to push for far more inclusion and far more trade between nations in this area, because it is an area in which we as a country can do particularly well.

It is understandable that Opposition Members have worries, but I think that there is a great prize to be won. If we can boost our economic growth, this will be not a win-lose situation, but a win-win situation. Our country can be richer, our partners in the European Union can be richer, and the United States can be richer. I believe that if the world’s major trading blocs do more trade, world trade will be increased, and we will all benefit from that.

[Ian Murray (Edinburgh South) (Lab)]

I thank the Backbench Business Committee for scheduling the debate. Let me also echo the tributes paid by many other Members to my right hon. Friend the Member for Wentworth and Dearne (John Healey) and the hon. Member for Aberconwy (Guto Bebb)—who is present—for taking such an interest in the issue, along with their colleagues in the all-party parliamentary group on European Union-United States trade and investment. If it had not been for them, we would probably not have had the two debates on this subject that have taken place in the House over the past seven or eight months. They have raised the issue to the top of the political agenda, and they should be applauded for that.

The TTIP has cross-party support in the House. Indeed, it is supported by a coalition of organisations including the CBI, the TUC and consumer groups. We should reflect on that, and ensure that we get things right. However, as we have already heard today, that is not to say that the TTIP does not involve significant problems.

[Julian Smith]

Will the hon. Gentleman give way?

[Ian Murray]

I will give way once to my—hon. Friend!

[Julian Smith]

I thank my hon. Friend. Following the point made by the right hon. Member for Wentworth and Dearne (John Healey), will he confirm that it is Labour policy not to oppose ISDS as it develops in relation to this agreement?

[Ian Murray]

I shall be unpicking some of the arguments during the short time available to me. I think that ISDS is the subject of one of the most important criticisms of this process, and I shall be interested to hear what the Minister has to say.

The TTIP has huge potential. The CBI has rightly described it as a “global economic game changer”. It can create more jobs here in the UK, improve the wages of British workers, and deliver a better deal for our consumers, but only if we get it right. As we have heard, according to some assessments the potential gain to British output is between £4 billion and £10 billion, equating to between 1% and 3% in exports. We must, however, be cautious about the overall figures, as they have been questioned by some leading academics. My right hon. Friend the Member for Wentworth and Dearne has been asking for an area-by-area assessment, and I think that such an assessment would allow Members to sell the deal to their constituents. Perhaps the Minister will reflect on that.

Given that the European Union and the United States account for 40% of global economic output and that their bilateral economic relationship is already the world’s largest, the opportunities are clear for all to see. Between them, they contain more than 800 million consumers, and the TTIP has significant potential for them as well. It is clear from the helpful briefing sent to all Members by Which? that there will be big prizes for them if we can get this right. Opposition Members strongly support the principles behind the negotiations, and hope that their objectives—job creation, better wages, higher standards and consumer benefits—can be realised. That, indeed, should be the focus of all EU activity.

With the fourth round of talks scheduled to take place next month, things are moving rather quickly, but we are worried about the potential for the talks becoming derailed. Legitimate concerns raised by Members in all parts of the House about some aspects are not being taken as seriously as we would like by the Government.

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[Mr Clarke]

Let me make my point and go through the argument, and then I will give way. First, let us remember that trade deals do benefit consumers, which is why consumer groups such as Which? are in favour of this trade deal. It is protectionist providers that resist such deals. Quality, choice and the price for consumers are improved where there is a good trade deal, and those with the best products and services tend to win out in trade deals. The ISDS clause is not a novelty; it is not some new threat that has emerged. Such clauses have been put into most trade deals for years and years. I have heard the familiar examples of odd claims that have been made in actions around the world, but these clauses have not had the effect that has been described.

Apparently, there are 3,400 of these clauses inserted in trade deals globally. The EU and its members have 1,400 ISDS clauses in various trade deals, and the UK has 94 ISDS clauses in our existing bilateral treaties. We have twice been challenged under ISDS for standards alleged to break our treaty obligations, but so far no British Government have ever lost a case under ISDS. What we have done is successfully brought claims against other countries; we have had slightly more success there, because the point of an ISDS is to underline the value of the total agreement by making sure that no individual investor or business can be disadvantaged by a Government or union of Governments breaking the obligations they have entered into.

The case was cited of Slovenia—somebody, perhaps the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards), said Slovakia—and my understanding is that it was lost when, as a result of local lobbying, that country went back on the deal it had just done to open up its health insurance market. That cannot be done, but no ISDS takes away the right to legislate from a Parliament; an ISDS gives rise only to a quicker and cheaper means of resolving disputes if there is some suggestion that a Government are breaking the agreement. Some say, “No European Union Government or the USA would ever do that”, but one of the big ambitions of those on this side of the Atlantic is to open up the public procurement market in the US. In some states of the US it is open, but in others it is not; some states do not measure up to WTO standards at all. Far be it from me to express the faintest doubts about the approach of politicians in some smaller US states or some EU states, but public procurement sometimes takes on a pork barrel element when the contracts are being placed, as opposed to when the tenders are being issued.

I think there could be some advantage, some reassurance and some pressure against people cheating in public procurement contracts if it is known that there is an ISDS clause. Of course it is quicker and cheaper, and it is arbitration and not litigation, but again the argument of those against ISDS is, “Why don’t you just go to law? There is a perfectly good legal system in the European countries and in the US.” I can say only that the US does have a perfectly good legal system, but it is expensive and it can be extremely long, as one sails through either the state courts or the federal courts trying to resolve a dispute. People have said that the advantages in all this agreement are as much in the area of regulatory coherence —with far more regulatory coherence stopping unnecessary convergence in our recognition of regulatory standards—than they are in tariffs, but small and medium-sized countries are not going to go into these markets if they are taking on the risk of having to go in for expensive litigation against American authorities that are plainly not complying with their terms of the treaty. Similarly, there are states in the EU where American investors would be most reluctant to sail in if they were relying entirely on the fact that they can take to the legal process in some southern European countries to challenge the bona fides of local officials over whether they were complying with the agreement. I will go no further, but the British have always put these clauses in our trade deals and the US normally puts them in its trade deals; 3,400 of them are in place and they have made a reality of free trade where it would otherwise not have happened.

[Julian Smith]

I welcome the fact that my right hon. and learned Friend is standing up for small and micro-businesses, which will really benefit from this ISDS vehicle. Is he, like me, surprised that the Labour party, while claiming to be pro-enterprise, is so against this measure?

[Mr Clarke]

Obviously, I understand the doubts being expressed, because some extremely respectable lobbies and non-governmental organisations—some consumer groups, some aid lobbies and some sections of the trade union movement—are raising all these fears. I genuinely think that they are mistaken and that their arguments, if they are too successful, will not benefit employees, consumers or anybody else, which is why I am trying to rebut them. Those who have spoken—I do not think anyone would be offended if I described them as somewhat of the left of the broad political spectrum, which does not mean that they are unacceptably or extremely left—are getting the wrong end of the stick. The ordinary man and woman have a great deal to benefit from this TTIP. To make it less effective by excluding an ISDS would not help.