International Trade

Lord Giddens Excerpts

Thursday 23rd January 2014 Lords Chamber

[Lord Giddens (Lab)]

My Lords, I congratulate my noble friend Lord Harrison on having initiated this important debate. It is a pleasure to follow the noble Lord, Lord Marland, and to see him back here, in such ebullient form as always, even if he is going to desert us half way through the proceedings.

I have been a practising social scientist for several decades. Over that time, a principle of working has always done very well for me. That principle is—this might be the first time this word has ever been uttered in the House of Lords—“think dialectically”; that is, do not think that the future will be like the past; the future will often be the opposite of the past. There are transition points in history when the world starts to look very different. I feel that we are at such a transition point in the world economy today.

Therefore, when people go with the easy assumption that this will be the Asian century, I do not think that is necessarily true at all. The assumption that there will be an inevitable and significant decline in the West is not necessarily true either. The same thing applies to the process of deindustrialisation, which has perhaps been the dominant feature of the western economies for the past 30 years or so and which has transformed them essentially into heavily service-based economies. Although most observers see this as a continuing process, I do not think it will be or that deindustrialisation is a trend which will simply run and run.

I would like noble Lords participating in this debate who are interested in how we can produce a resurgence of global trade in this country to take very seriously the discussion about reshoring which is going on in the United States and several other advanced industrial countries around the world. Reshoring, which I have mentioned in a previous debate in your Lordships’ House, is the opposite of offshoring. It is the idea that industry will come back to the advanced economies and that there will be processes of reindustrialisation. It is very important that the UK is at the forefront of such processes should they indeed take place. We can all see that the “effort bargain” that has dominated the world economy over the past three decades can no longer be sustained. This now pivots on the role of China. Over that period there has been a kind of odd coupling between the United States and China, and to some extent Europe and China, based on the fact that the Chinese produce manufactured goods for the United States and the industrial economies. The United States cannot afford to pay for those goods so it has to borrow, and the situation is much the same for Europe. How does the United States borrow? It borrows from the Chinese, who invest in American bonds. It is surely the case that we have come to the end of that relationship now. It is also the case that China will move back much more towards domestic demand rather than simply exporting. Wages have also gone up significantly in the manufacturing centres in China.

When we look to our trading relationship in the future, we should not suppose that it will just depend on a continuing increase in the export of services. Instead, we should be back making things, which is crucial for the future. There is a kind of convergence between what is happening in the world economy and the emergence of digital production. Reference was made to the noble Baroness, Lady Lane-Fox. It is a matter of the expansion of not just the digital world but digital production in the form of 3D printing and things well beyond that now. These are massive processes of change. With these localised forms of production many things that used to be made thousands of miles away can now be—and in the future will be—made locally.

When we think about the resurgence of UK trade it is a mistake just to make the simplistic assumption that we should turn our eyes to the east or, if you like, that the main driving force should be how to be nicer to China. For that reason, I would like to expand on the comments made by my noble friend Lord Harrison about the significance of the free trade system now under discussion between the United States and the European Union. I see this as a kind of core of the possible pivot of change in the global world economy. It could be a crucial source of transformation for the whole range of industrial countries involved. Looking at the potential impact of the EU-US Transatlantic Trade and Investment Partnership, to give it its full name—it is usually called TAFTA, which is the term that I shall use because it refers to an area—you could say that it might be the most important source of job creation and wealth creation for western economies for many years.

There are some disputes among academics about the implications of TAFTA for GDP, but I have looked at the Commission’s estimates in some detail and think that they are pretty reliable. The Commission’s estimate is that TAFTA will yield €120 billion for the EU states and €130 billion for the United States. I remind noble Lords that trade is not a zero-sum game. It does not follow that a consolidated western trading relationship will have adverse consequences for the developing world. Actually, it is the contrary: according to the Commission’s estimates, €100 billion extra GDP will be generated for the developing world as a result of this process. The implications are huge.

As the noble Lord has hinted, we know that there are significant problems in establishing the free trade agreement; there are problems getting it through Congress; there are problems at a state level in the US; and there are problems within the European Union—for example, at least some French thinkers and politicians are not as enamoured of free trade as other parts of the European Union and have made perhaps not terribly helpful comments on the process. Nevertheless, I think that there is a strong will in the United States to push it through—President Obama has made it a legacy issue for himself—and there is also a strong will in Europe.

The free trade deal has been widely criticised from the left. It is said that it will give more power to footloose corporations and have negative environmental consequences. These criticisms are strongly misplaced and quite wrong. For example, increasing collaboration between the United States and the European Union is likely to be the only way of having a significant impact on tax loopholes, eliminating tax havens and creating greater corporate responsibility. I think that the FTA will bring greater corporate responsibility, not less. There is a sticking point around the precautionary principle environmentally, but I think that the precautionary principle is not a principle and that Europe should be encouraged to abandon it. Not taking a risk is itself a risk; therefore I see a fruitful possible source of collaboration here, too.

I have three brief questions for the Minister. What is his assessment of the progress of TAFTA so far and have the Government made a clear assessment? Secondly, do the Government accept the Commission’s estimate of GDP growth and job creation for the UK and, if not, why not, because it seems to me quite valid? Thirdly, to pick up on what the noble Lord, Lord Harrison, said, do the Government accept that were the UK to leave the EU in the relatively near future its chances of inclusion would be slim to non-existent?

--- Later in debate ---

[Lord Sharkey (LD)]

My Lords, it is a great pleasure to follow the noble Baroness, Lady Thornton, and I congratulate, as she did, the noble Lord, Lord Harrison, on securing this debate. There seems to be a general, if qualified, consensus among the commentariat that international trade does promote both employment and growth, both in exporting and in importing countries.

However, this consensus is not uncontested. In a 1999 paper, Warzynski and Westergård-Nielsen comment:

“International trade and outsourcing are often blamed for destroying jobs”,

and the current position of China serves as an example of the problems that imperfect international trade arrangements might generate. As Irwin Stelzer wrote in the Sunday Times four days ago,

“China, running its largest trade surplus in five years, manipulates its currency, subsidises its state-owned enterprises and steals intellectual property from America and Germany—or demands it in return for access to its market”.

However, as I said, the balance of expert opinion seems clearly of the view that international trade, provided that certain regulatory mechanisms are in place, promotes both growth and employment. An OECD paper of May 2012 called Trade, Growth and Jobs summarises that organisation’s view. It concludes:

“Trade improves employment and wages through growth … Trade—both imports and exports— contribute to creating better jobs … there is no systematic long run link between import levels and unemployment ... Trade can also improve working conditions”.

In addition to all this, there are some compelling examples of where the absence of international trade damages both growth and employment. The world uses sanctions as an instrument of persuasion precisely because of the damage caused by constraint in external trade. There is a compelling example in the middle of the Mediterranean: Northern Cyprus has been effectively cut off from any significant internationa1 trade for 40 years, and the consequences have been poverty, unemployment, and low growth and investment.

However, the benefits arising from international trade may not be as clear or as straightforward, or as equitably distributed, as a Panglossian reading might suggest. There are, of course, two kinds of international trade: goods and services—and financial services are a major component of the second group. I do not think that anyone would argue that the collapse of 2007-08 has not damaged growth and employment in very many communities. The connectedness inherent in international trade can be a major cause of reversals in growth and employment. That is especially true when regulation proves inadequate, and I shall return to the theme of regulation a little later.

However, I note that even when international trade promotes growth and employment, as it frequently does, it can also have other important consequences. It can have cultural consequences that may be seen as undesirable—France’s attitude to the Anglo-Saxon model, mentioned already by the noble Lord, Lord Giddens, is a case in point. The opening up of new markets may also have unpredicted cultural consequences. For example, I believe that Prince Philip is still worshipped as a god by a cargo cult on the island of Tanna in Vanuatu.

International trade agreements may also significantly advantage large corporations over SMEs and micro-businesses. They may act to reduce economic stability via contagion. We have seen examples of that both in sovereign debt and in the Asian markets. Finally, international trade may act to reduce democratic oversight of the operations of the market. This can take the form of simple distance from the transactions, complexity and lack of transparency in trade agreements and non-accountable dispute resolution procedures. In the time remaining, I shall comment on just three of these areas.

The first is the question of whether international trade agreements should now concentrate more on supply chains than on tariff reductions. The World Economic Forum at its meeting a year ago focused on reducing supply chain barriers, which it is estimated would give a bigger boost to GDP than removing tariffs. Improving border administration and transport and communications infrastructure could increase global GDP by 5% and would have six times the effect of removing all global tariffs. I would be grateful if the Minister could tell the House how the Government currently see the proper balance between reducing supply chain barriers and reducing or removing tariffs.

The second area is the position of SMEs in all this. The CBI reports that, in the UK, only one in five SMEs currently exports. It also notes that businesses are 11% more likely to survive if they export. Perhaps part of the problem is that SMEs are not properly represented in large-scale multilateral or bilateral trade negations. In January last year, the WEF recommended that SMEs be at the negotiating table when there is discussion of the regulatory framework and environment. Does my noble friend the Minister agree with that recommendation, and is it actually happening when the UK negotiates bilaterally and multilaterally through the EU?

My final point is on these negotiations. There is an alphabet soup of these things: FTAs, WTO, TPA, TPP and TTIP. Much of what goes on in these negotiations is complex, opaque and takes an awfully long time. Occasionally, it is all punctuated by a dramatic announcement. For example, a year ago the EU Trade Commissioner suddenly announced that he had personally saved the WTO,

“from the darkness of multilateral irrelevance”.

It may well have been true, but I cannot see that kind of thing quickening the pulse of anyone in an SME in, say, Merseyside.

That begins to illustrate a point. We need all our business communities to understand and feel that they have a part in trade negotiations, but we also need to make sure that Parliament has an effective oversight role. This was a point made forcefully by the noble Lord, Lord Harrison. This is currently a question in the TTIP negotiations which envisage, as they should, dispute resolution procedures. This is obviously vital when trading between different jurisdictions, but the question that has arisen is whether these non-governmental arbitration panels will have the power to override or amend local laws.

In the TTIP negotiations, there is a procedure called ISDS—investor to state dispute settlement. The EU acknowledged on 20 December last year,

“that ISDS, if not properly designed, can raise a number of legitimate concerns about whether legislation can be undermined by investors”.

Put another way, it is possible that in settlement of a trade dispute large companies can rewrite national laws. For example, Eli Lilly is currently suing the Canadian Government for $500 million under the terms of a trade treaty and demanding a rewrite of Canadian patent laws.

George Monbiot said in the Guardian on 4 November 2013,

“Brussels has kept quiet about a treaty”—

he means TTIP—

“that would let … companies subvert our laws, rights and national sovereignty”.

Ken Clarke responded to this a week later. He did not agree. However, the issue is clearly important. What role will Parliament have in determining the final text of the ISDS? What opportunity will we have for scrutiny? I would be grateful if the Minister could reassure the House on these points and on the proposed dispute resolution in general.

[Lord Giddens]

My Lords, the fact that George Monbiot says something does not necessarily mean that it is true. The Commission is well aware of the issues surrounding this. I do not think that we can say that this is not being discussed, because it is.

[Lord Sharkey]

I apologise if I suggested that everything that George Monbiot says is true. I did not mean that.

Returning to the issue of ISDS, I was saying that I would be grateful if the Minister could reassure the House on the points that I have made and on the proposed dispute resolution mechanisms in general.

Since I have mentioned Ken Clarke once, I will quote him once more, talking about the advantages of the TTIP deal:

“According to the best estimates available, an ambitious deal would see our economy grow by an extra £10bn per annum. It could see a rise in the number of jobs in the UK car industry of 7%. British companies—of all sizes—currently pay £1bn to get their goods into the US—this cost could be removed altogether. Perhaps most importantly in the long-term, such a deal would safeguard the liberal trading rules which we British depend on—but which the growing economies of the east are less keen on—for generations to come”.

I think that puts a succinct and powerful case for international trade as a promoter of growth and employment—growth and employment abroad and, critically, growth and employment at home too.