Brexit: Options for Trade (EUC Report)

Lord Horam Excerpts

Thursday 2nd March 2017 Lords Chamber

[Lord Horam (Con)]

My Lords, the noble Lord, Lord German, had great fun with the lexicon of the terminology to which Ministers are clinging like a life raft. I think one recognises here all the subtle skills of a Sir Humphrey in collating the incompatible. To be absolutely fair to the Government, they have come up with a clear plan in the shape of the White Paper which we are all familiar with, but I remind the Government and the House of the words of Mike Tyson, the boxer, who said recently, “Everyone has a plan until they get a fist in the face”. A fist in the face will come with the shock when we find out exactly what the European Union thinks of all this. We will have some idea—there is talk of a €60 billion bill as a start, before discussions can even take place—but I hope it is not too big a shock. Even as professional an adviser as Sir Ivan Rogers said that we should be prepared for some sort of stand-off after the initial discussions take place, and that may well happen.

The merit of our report—speaking as a member of the committee—is that it lays out for the trade in goods the various options: the single market, the European Economic Area, a UK/EU free trade area, the customs union and World Trade Organization rules. I, too, thank our chairs, the noble Lord, Lord Whitty, and my noble friend Lady Verma, for getting us through all this, and I thank the staff who did a very difficult job in marshalling this extensive material and trying to understand it. I now understand what a diagonal cumulation of rules of origin is—at least, I understood for five minutes this morning, but I am not sure I could repeat the explanation shortly afterwards. We tried to explain to the world at large exactly what is involved in these various options.

We went on to make two recommendations—bits of advice, I may say. The first has already been touched on by the noble Lord, Lord German. We said that this cannot be done in the time available and we need some sort of transition period. To be fair to the Government, they have grasped this point and are using the word “implementation”—we return to the question of language. We explore this further in our second report, which is about to hit the stalls. I shall give it a trailer: it is fascinating reading, just as our first report was. I think the Government have grasped that there is a very short period.

The second recommendation is that we advocated staying in the customs union—not the single market, of course, which is impossible as the Government have ruled that out—at least in the transitional period while this is all sorted out. The White Paper rejects that, saying that the Government want to set up a new customs or free trade arrangement—a bespoke arrangement, a unique arrangement—for the UK. This is not impossible. For example, Wolfgang Schäuble, Germany’s Finance Minister, has commented on this and said that the model the UK might look to is the arrangement that Switzerland has with the EU. Of course, we should remind ourselves that Mr Schäuble is a notably good friend of the United Kingdom. It is reported that he shed tears when he heard the referendum result. He is a friend, but there might be others who are rather less friendly and who have rather more influence when we are negotiating these things. He may not, of course, be in post as Finance Minister any longer, so we cannot rely too much on him. None the less, it is certainly possible.

However, if that cannot be negotiated, we have either to go back to the customs union or to rely simply on World Trade Organization rules, which present us with a problem. First, as David Davis apparently said to the Cabinet sub-committee looking at these issues this week, all the bureaucracy of government will have to be re-engineered in a very short time to be ready for that period no less than two years from now. All the companies will have to re-engineer all their arrangements, particularly those with complicated just-in-time supply chains. That will be an absolutely major undertaking. Not only that, but we are looking to replace the certainties of a large free-trade market on our doorstep with only the possibilities of free-trade agreements with other countries, which may take a long time to complete and may not give us as much in total trade as we will lose by not continuing to be members of the customs union. There is no doubt that this is a huge gamble, and we live in perilous times—when you look at it this way.

Some in these circumstances predict disaster, and some say that we will have a bumpy ride for a few years and, after that is out of the way, things will be better. In my experience, in such situations certainty is usually misplaced. I say that particularly as an economist who has quite often found that predictions I have made in good faith and from my expertise have turned out to be wholly wrong. People far more illustrious than I am have made even more certain predictions that have been even more certainly proved unfounded in the light of events. Even the greatest of experts—as in Michael Gove’s view of experts—have come unstuck in all this. So I confess that I do not know what is going to happen. What I do know is that a great deal will depend on the choices we make in these areas in the trade negotiations we are about to enter into. Success in politics usually comes from a good combination of courage and judgment, so I can only hope that my colleagues in government can show both the courage and the judgment to steer us through these perilous times.