Trade and Customs Policy

Lord Horam Excerpts

Tuesday 5th December 2017 Lords Chamber

[Lord Horam (Con)]

My Lords, I welcome the noble Baroness, Lady Fairhead, to her post. Like me, she is a northerner who went to St Catherine’s College, Cambridge, and ended up working for the Financial Times, so her pedigree is—I assure you—immaculate. The noble Lord, Lord Liddle, said that my noble friend’s new post was a bed of nails. He ought to know, since he is a northerner as well, that northerners think nothing of beds of nails. We deal with them every day, with élan. So it is an absurd idea that she will find this a difficult post. I think she will enjoy it, although I agree that it will probably be a bit of a slog.

The noble Lord, Lord Whitty, led off the Back-Bench contributions to this debate, along with my good and noble friend Lady Verma. They were the co-chairmen of the EU sub-committee on which I was happy to serve. As they mentioned, we produced a report on the options for trade, and reality has taken quite a long time to seep into the higher levels of government. One of the firmest conclusions we drew was that there had to be a transition period—transition or implementation, call it what you will—simply because a detailed agreement could not possibly be finalised in the time available under the Article 50 arrangements. The transition period really has to be based on the status quo. To do otherwise would simply mean two sets of negotiations; and one set is bad enough, but two would be ridiculous. That was implied in the Prime Minister’s speech. Not only that, but it will need some legal underpinning. That period cannot exist in thin air, so I expect that there will be a Bill in the next calendar year that we will have to discuss in the House. I hope there will not be too many attempts to put red lines into that necessary Bill, because it is important that we get through it.

The other issue about the transition period is definitely more controversial, and that is the length of time. The noble Lord, Lord Kerr, said, as his third fact, I think, that a trade deal could not possibly be agreed inside two years. With respect, that is not a fact, because we have not got there yet, although I have to agree that the broad evidence is fairly heavily on his side at the moment. However, I remind him that we are in a sense reverse-engineering here. All the examples that he and other noble Lords have quoted have been of bringing together divergent trade situations. Here we have a single trade situation that we are trying to prevent diverging. As I say, that is reverse-engineering, and surely that can be completed in less time than engineering away from the status quo.

I also very much doubt—I would be interested in hearing the noble Lord’s view on this; perhaps we can discuss this when the debate is over—whether the European Commission itself has been thinking of a two-year transition period. Surely, if it thought that two years was sufficient, it would not be inconsiderate of the time it might take to do a real deal. I doubt that it would set itself up to fail. It, too, seems ultimately to want a deal. Therefore, if it is thinking of two years, it must feel there is a reasonable chance of getting the deal done in that time. I am therefore not unoptimistic about the two-year period, which seems to be the one that has been settled on, although I agree that it is difficult.

Finally, there is the end game, which is also a question. In our report we set out the four inevitable choices: the European Economic Area, the customs union, the WTO basis and a bespoke agreement, which is what the Government want. I will leave out the EEA, because the Government have ruled that out because of the four freedoms and the European Court of Justice; and nobody wants no deal, although I fully agree that it could happen by accident if there were ultimately no agreement. That could happen at almost any time by accident; those things do occur. We are therefore left with the customs union—a single customs union, leaving aside the single market, which is a separate issue—and a bespoke agreement.

Clearly the disadvantage of a customs union is that we could not pursue our own trade policy. That is a significant disadvantage and we need to consider it carefully. On the other hand, to remain in the customs union is clearly less disruptive than removing ourselves from it. Indeed, that is the only way to ensure we get this treasured adjective “frictionless”. Anything outside a customs union will have some friction. It may not be sufficient friction to light a fire, but it will be some sort of friction. Michel Barnier said the other day that the only way to get a frictionless agreement is to remain inside the customs union.

If we remain inside the customs union we will also, we hope, keep the 45% or so of our trade that is with the European Union; and do not forget the 11% or so which comes to us by means of the EU free trade area agreements that have already been agreed. We are therefore talking about nearly 60% or so of our trade. As the noble Lord, Lord Kerr, said—and here I agree with him—“Why do we have so much trade with the European Union? Because it is nearby”. He also said—again rightly; he has got two out of three right on this occasion—that trade halves as distance doubles. I know that from personal experience. As it happens, many years ago I built up a company with—the Minister will be interested to know—a fellow graduate of St Catherine’s College. It is a highly successful medium-sized company, with about 250 employees, and 92% of our sales are outside this country. Therefore I know about doing deals with distant countries, and they are more difficult, for obvious reasons—culture, distance, and so on. So it is not a question of like for like, somehow conjuring up a similar amount of trade from outside the European Union and its affiliates to what we might lose if we remained inside. To remain inside the customs union is also the only sure way of solving the Irish question. No other way is as satisfactory as that.

What is becoming apparent to many people now, to put it in economic terms, is the opportunity cost of all the effort that government is having to put into Brexit by comparison with the other problems that we face in so many different parts of our world. The National Health Service, our education service and all the rest of it require attention, and all that was heavily brought out in the economic debate yesterday. The amount of time the Government are having to spend on all this has a huge cost, which is a great pity.

Finally, on the customs union, the truth is that in 1974 many people thought that they were joining an economic arrangement. They did not fully appreciate that it was also a political arrangement. That has become more and more apparent as the years have gone by. I suspect that if you put it to people now that we could get rid of the Parliament and all the political connotations of the European Union and retain our membership of the customs union, they might well buy it as a simple solution without, as it were, throwing the baby out with the bathwater. You never know; as the months go by, “Events, dear boy, events”, to quote Harold Macmillan, might move us a little further towards that conclusion.

None the less, I understand why the Government want to have a bespoke solution, as is set out in the White Paper. Quite apart from the politics of the matter we should, as the Minister herself said in her introductory remarks, be a fully independent trading nation, and we cannot do that without a clean Brexit. In addition, although we are all being lobbied by companies and industrial organisations of one kind or another very rigorously at the moment—for obvious reasons; I do not doubt their concern—we should not necessarily overestimate or overweight existing interests. As I know from my personal experience, businesses change with remarkable speed. A business that was in one area 20 years ago will be quite different today, so we should not overestimate the present at the expense of the future. To have the independence and flexibility of being totally outside the European Union would give us the sort of control that we need to deal with that situation.

Above all, I agreed with the noble Lord, Lord Liddle, when he said that he hopes that people do not approach this matter and make these profound choices for our country in an overly ideological spirit. We all have to put the interests of our country first. That is why we are here: in the interests of our country. We will have to try to get as objective as possible an evaluation of where the best interests of Britain lie, and I hope that that will be achieved.

Finally, the way the Prime Minister has dealt with the conflicting pressures upon her over the last few months has been extraordinary. The noble Lord, Lord Liddle, mentioned a bed of nails, but there is a higher bed of nails, as I think the Minister will agree. I certainly hope that her week ends better than it has begun; she certainly deserves that.