Brexit: Domestic and International

Lord Flight Excerpts

Thursday 27th October 2016 Lords Chamber

[Lord Flight (Con)]

My Lords, surely everyone realises the world will be better off the more it engages in free trade. As the Prime Minister recently said in Brussels:

“I am determined that as we leave the EU, Britain will be the most passionate, the most consistent and the most convincing advocate of free trade anywhere in the world”.

That was a powerful statement. Based on this, she made the point that as we look beyond our continent, we will seize the opportunities of Brexit to forge an ambitious and optimistic new role for Britain in the world. I am pleased the UK is already discussing its future trading relationships with third countries and wish all success to the forthcoming visit to India, where there is now major scope to increase our trading and financial relationships. I also congratulate my noble friend Lord Gadhia on a moving maiden speech and welcome what I believe will be the major ongoing contribution that he will make to our commercial relationships with India.

I commend to your Lordships Professor Patrick Minford’s IEA paper of this May, No Need to Queue: The Benefits of Free Trade without Trade Agreements. His argument is that for a country the size of the UK, which represents only some 3% of global trade, unilateral free trade is a better option than individual trade agreements which, inevitably, entail both bilateral and multilateral complications and costs. Some 70% of UK trade is already conducted under WTO rules with no involvement with EU trade deals. This includes the export of services where the EU has little or no commercial policy. Indeed the UK’s exports of services to the EU owe little or nothing to the single market. Rather, the obstruction to larger EU international trade in services arises from national barriers within the EU to protect domestic services.

Professor Minford’s practical point is that being a relatively small supplier, the UK benefits trade-wise from being of marginal importance. The UK’s share of world trade is sufficiently modest that there is little incentive to levy tariffs on UK exports. May I comment how much I agreed with my noble friend Lord Bamford’s speech, and with the point that enterprising British business has to get on with it and cope with whatever the ups and downs and issues are? My noble friend might well agree with Patrick Minford.

The fundamental point is that increased trade boosts output and raises living standards. China and India have demonstrated over the last three decades the huge gains to be made by opening up economies to world markets. This did not and does not need an expansion of trade agreements either regionally or via the WTO globally. China’s rapid growth owes little to trade agreements; it was not even a member of the WTO until 2001. Indeed, it has been the 165 non-EU states that have accounted for the majority of the world’s growth in recent years. I regret to comment that the UK in the single market is essentially part of a protectionist structure based on regulation and protecting domestic EU markets from competing international trade.

For trade in goods, a zero tariff regime with the EU would make the most sense, combined with an invitation to the EU to reciprocate, which is likely to be attractive to EU commercial organisations. This is the sort of regime that Hong Kong and Singapore have taken up, where both have a better network of free trade arrangements than the EU. Indeed, my vision for the UK post-Brexit is what I might call a super-Singapore or a super-Hong Kong. I add the point that this could equally well be organised under a WTO regime.

Of our total trade, our exports to the Commonwealth presently represent only 9%. We are the biggest exporter of services to Commonwealth countries. I believe there is huge scope to increase our trade with Commonwealth countries. As my noble friend Lord Howell of Guildford has pointed out, the Commonwealth is more suited than the EU to the expansion of trade and commerce in the digital age because of its growing emphasis on information and data exchange. The Commonwealth network could provide a gateway to the faster-growing economies of Asia, Africa and Latin America.

I would have liked to have spoken about the City, where I believe a lot of overpessimism is argued about the effect of Brexit, but alas, there is not time. I close by saying that the case for free trade is moral as well as economic. It is an instrument of poverty alleviation. Since 1990, the numbers living in poverty have fallen from 36% to 8%. I end by repeating a comment by the governor of Hong Kong in I think 1857:

“Free trade is Jesus Christ, and Jesus Christ is free trade”.

He meant by that that free trade is a hugely effective moral force in raising living standards for the less fortunate.