Brexit: Trade in Goods (EUC Report)

Lord Hain Excerpts

Tuesday 18th July 2017 Lords Chamber

[Lord Hain (Lab)]

My Lords, I commend the noble Lord on a fascinating speech with a lot of detail; the practical approach of a former business leader is valuable in this context. The seemingly cavalier way in which the Government are approaching this terribly important historic enterprise is a big contrast with the noble Lord’s contribution—although I disagree with him on one fundamental point, which I will come to. I also welcome the report, which is packed with immense detail, from the impact of new IT systems on the customs union to the sector-by-sector analysis, the implications of which are, frankly, alarming, as the noble Baroness, Lady Verma, spelled out in her able speech. I particularly noted the point she made about less well-off areas, such as Wales, for example, which I represented—as did my noble friend Lord Wigley—and still live in. I am worried about the impact of Brexit on Wales—particularly the hard Brexit that we seem to be cantering towards.

Prioritising jobs and the economy in Brexit negotiations means prioritising trade, which in turn means staying in both the single market and the customs union—which the Trades Union Congress, the CBI, and, overwhelmingly, the business community also want. It is the largest, richest market in the world, with over 500 million people, and it is worth £11 trillion—fully a quarter of global GDP. It accounts for half the UK’s trade, and a surplus in services of £17 billion—and we are about to walk away from it. Over the 10 years or so that it will take to adjust to the shock of exiting the European Union, including its single market, the economy will end up 6% smaller in 2030 than it would otherwise have been if we had stayed, according to the Treasury’s analysis. That is a massive hit on jobs and prosperity.

When the country voted by a narrow margin to leave the European Union, the single market was not on the ballot paper. I know that it was not, because it did not come up on the doorstep—and I knocked on hundreds of doors, especially in the south Wales valleys. We can both leave the European Union if we really have to and stay in the single market and the customs union. On that point, I disagree with the noble Lord, Lord Livingston of Parkhead. He mentioned Norway; if you talk to Norwegian politicians and leaders, they are trying to persuade their own country to go into the full European Union, where they could sit on the Council of Ministers and in general be the rule-makers rather than the rule-takers, as he described it.

However, the truth is that Norway has significant influence behind the scenes on particular regulations and directives as applied to the single market. Being such a significant trading partner with the European Union and such an important economy in every respect—below the mega economies of the global economic system—we would also have enormous influence informally. Of course it would be better to be on the Council of Ministers—but, if we have to settle for second best, we can do so and have considerable influence in the examination of draft regulations and directives, and so on.

Frankly, leaving the single market would be a total nightmare. It would need to be followed by subsequent trade agreements, and not only with the remaining 30 European Union and European Economic Area member states. There would have to be new agreements under World Trade Organization rules with around 52 “third countries” outside the EU with which we currently have trade deals through European Union negotiators and the single market. We would have to renegotiate all our relationships with those 52 third countries as well.

On the European customs union, the European Union Committee report explains:

“To our knowledge, no precedent exists for an agreement outside a customs union that entirely eliminates the need for customs checks and the additional burden of associated administration and costs”.


Do we really want that? I see the noble Lords on the DUP Benches. They, like me, are alarmed at the prospect of a hard border in Northern Ireland, yet that would happen if we were outside the customs union. I have not seen a solution to that problem.

Why on earth do we imagine that outside the single market and the customs union we would get a better deal, let alone the same terms as we have now? This is moonshine. It is far better to stay in from a position of strength and, at the very least, negotiate a new deal before we leave the single market and the customs union. We will be in a much weaker position after we leave them.

As has been said, these new trade agreements will take many years to negotiate. Canada’s with the EU took up to seven years and covered only manufactured goods. Such a deal would be no good for the United Kingdom because we are an 80% service economy. Free trade agreements do not cover many services because of the complexity involved. Existing single market legislation covers things such as the authorisation mechanisms and systems for granting licences to provide services, systems of mutual recognition of licensing arrangements, commitment to common monitoring for observing standards, and a dispute resolution mechanism.

Unless we stay in the single market, any newly negotiated UK access agreement—which is what the Government seem to be talking about—would have to be ratified by all remaining 27 member states across more than 35 parliaments, including regional ones such as that of Wallonia in Belgium, which tried to hold up ratification of the Canadian deal. The removal of non-tariff barriers with the EU—especially when it comes to standards of goods and services—would be tough to negotiate because they are numerous, complex and subject to frequent updating through amendments, as the report has outlined. EU standards for cars alone cover thousands of pages of EU legislation. These are complex matters.

The interim period between leaving and finalising free trade deals could last for years, with UK companies then facing trade barriers such as customs duties, customs procedures, country-of-origin checks at borders, quotas and other quantitative restrictions, as well as other non-tariff barriers, including standards for goods and services.

The European Union’s “passport of regulatory equivalency”, which EU institutions currently grant to UK banks and other financial institutions, will no longer apply if we leave the single market. That will be a huge threat to a sector estimated to provide 11% of Treasury revenues and 10% of GDP. As we know, new announcements, almost daily, show that leading banks are making decisions to move jobs to rival financial centres such as Frankfurt, Dublin, Amsterdam, New York or Paris. President Macron is openly recruiting new institutions, persuading them to relocate from the City to France. Furthermore, single market rules come with the social, environmental and health and safety standards, and the workers’ and consumers’ rights, which we all take for granted. Hard-right Brexiteers see an opportunity to water down this so-called red tape, which they find an anathema.

Although it is not central to the report, I will touch on something that is relevant to my argument for staying in the single market. Does the single market mean uncontrolled European Union migration? No, it does not. The right to free movement of labour has never been unconditional. For example, Belgium imposes restrictions by returning to their EU country of origin each year thousands of migrants who do not have jobs. Britain can and should ensure that EU nationals come here to work under the same conditions.

I note that the noble Baroness, Lady Anelay, did not answer my recent Question, in which I quoted the article from the directive concerned, on the precise point that we are allowed to return EU nationals who are not in work, as other countries, including Belgium, do. I sought through Written Questions—an Answer was published today by the Minister concerned—to find out how many EU nationals we have returned under that EU legislation. I have been told that the answer is not available because it would come at disproportionate cost. As a former Minister, I know that that is usually an excuse for not giving you the information that you want.

As the Guardian columnist Martin Kettle put it, the trouble is:

“The negotiations with Europe are an increasingly embarrassing mess too. In Brussels, Michel Barnier leads an organised, rational team of negotiators whose professionalism is a credit to the system. Meanwhile in London, amateurs, ideologues and chancers rule. No one can really say what the Brexit policy is”.


There is probably now a cross-party parliamentary majority to remain in the single market and the customs union—certainly for a multi-year transitional deal, as indeed the European Union Committee report urges and the noble Baroness, Lady Verma, referred to. Will the Minister specifically distinguish between an implementation phase and a transitional deal? A transitional deal means staying where you are until you have something that you are willing to agree, however many years that takes. As I understand it, an implementation phase means settling everything in principle and then, having left the EU, the single market, the customs union and all the rest of it, agreeing the period of implementation and the detail around that. If my understanding is correct, the implementation phase would be disastrous, because we would have burned all our boats in the meantime.

Such a transitional deal as I think is necessary to remain in the single market and the customs union could even become permanent, as people and businesses become aware of the dire consequences of Brexit for Britain’s trade, and for their jobs and prosperity. I fear that we are instead being led as a people, as if by First World War generals, over the top without any idea of what we are facing. Certainly, calamity beckons.