Trade Bill

Lord Lilley Excerpts

2nd reading (Hansard): House of Lords
Tuesday 11th September 2018 Lords Chamber

[Lord Lilley (Con)]

My Lords, it is a great privilege to follow the noble Lord, Lord Kakkar, who has delivered the kind of well-informed speech that I, as a new boy, have looked forward to hearing in this House, and which is such an important feature of its contribution to the working of Parliament.

The Trade Bill is useful, workmanlike and necessary. I was tempted to add that it is crucially important, because I have a vested interest in emphasising the importance of trade Bills and trade deals. I am probably the only person in the Chamber—or rather, one of the few—who participated in negotiating a trade deal in the Uruguay round, which culminated in the creation of the World Trade Organization. I was also the Secretary of State for Trade and Industry who had to introduce the whole single market programme into our country, by introducing the legislation that made us part of the single market. At the time, I made speeches emphasising how immensely important these developments were and how dramatically they would change everything.

I am a scientist by training so, when I make a prediction, I subsequently look back to see whether it has come true. I have to say that it was hard to see a seismic change following either the Uruguay round or the single market. Since the single market was implemented, our exports to the European Union have grown at 1% per annum compound, which is not a huge deal though better than no growth at all. It is hard to see a dramatic change in our trade, or in the trade of the whole world, following the Uruguay round. I believe that both were important and valuable, but we should not exaggerate their importance. What drives trade is producing goods and services of a quality, and at a price, that other people want to buy. One can have the best trade deals in the world but, without that, one will not prosper. It depends far more on your domestic competiveness, productivity, investment, training and skills, rather than the trade deals we negotiate. Yes, let us have good trade deals, but let us not imagine that they are the solution to our problems or will create a sudden, dramatic change—or that the loss of trade deals, though regrettable, would be the end of the world.

The Uruguay round halved the tariffs between developed countries on trade in goods. This means that future free trade agreements based on goods between developed countries are of limited value. The average tariff on trade in manufactured goods between developed countries is in low single figures, smaller than fluctuations in the exchange rate in a week or a month. Indeed, the tariffs are quite small compared with other factors too. There is merit in removing those tariffs but we should not think it is the be-all and end-all. Therefore, as far as goods are concerned, the most valuable free trade agreements are with countries with highly protected markets—typically the fast-growing countries of Asia, Africa and Latin America. It would be wonderful if we could indeed join the CPTPP agreement, as the Government have indicated they want to do, as the first non-Asian member of that trade group.

More than 50% of the value added that Britain exports is in services, so trade deals that emphasise services are particularly important to us. Unfortunately, they are less important to the EU and, as a result, 90% of the trade deals that the EU has agreed have no significant benefits for services. Switzerland, for example, has its own trade deals, a third of which have a significant component of service-enhancing trade. We will be able to do the same if we are outside the EU, but as a member of the EU we have to go along with the lowest common denominator, which is not necessarily in accordance with our interests.

The Bill will enable us to novate the existing EU deals—covering some 70 countries, we are told—into UK law and take over our share of those agreements. That sounds a daunting task, and of course it is significant, but I understand that no country has said that it is unwilling to renegotiate or reapply deals with us. Even those who have said that they wish to exploit the opportunity to change the terms, as the noble Lord, Lord Fox, has suggested, will, I understand, in the interim continue on existing terms, as is allowed under WTO rules, while any revised agreement is being finalised.

It is not the case that trade will suddenly stop. In fact, most of the countries that I have visited—I have been to Australia and New Zealand and have talked to a number of other countries nearer to home—want, subsequent to rolling over those deals and once we have some spare negotiating capacity, to negotiate better, more comprehensive deals. There is the scope for that because the deals that we have at present are those negotiated by the EU, which had to get the unanimous agreement of all 28 countries, not all of which were in favour of free trade and all of which have the exceptions that they wanted to make. Therefore, those deals are less comprehensive and we will be able to say, “Those exceptions don’t matter to us because we don’t manufacture that sort of thing. We can make you a concession on that in return for concessions on other things”. Therefore, there is scope for improvement even there.

I understand that the bulk of these different agreements is carried out with very few countries. Seventy countries sounds daunting but half of all our trade with those 70 countries is with one of them—Switzerland—and 80% is with three or four of them: Switzerland, Korea and Norway; I forget the fourth. Therefore, as long as we prioritise those, we can deal with most of our trade very well. However, I do not think that we should neglect the smaller countries. I am the former chairman of the All-Party Parliamentary Group on Trade out of Poverty. It happened to be a personal interest of mine that we should open our markets—and keep our markets open—to the developing countries of Africa and elsewhere. All my talks with those countries indicate that they want that too and that they will not put obstacles in the way of novating the trade deals that they have with the EU into trade deals with us.

This debate, like many others, has given people the opportunity to spread what I call plausible myths: things that sound plausible but unfortunately are not true. The noble Lords, Lord Grantchester and Lord Fox, said that, as a member of a big unit like the EU, we will be able to negotiate better, faster and more-extensive agreements than we would as a country in our own right. That sounds very plausible but it is simply not true. A study of all the trade agreements negotiated in the last 20 years shows that the average speed at which they were negotiated was 28 months. If, however, you exclude multilateral deals—essentially those involving the EU—the remaining bilateral deals were negotiated in much less than two years. Australia found that, when it told its negotiators not to go for the perfect agreement, but for the best agreement that they could reach in 12 months, it got three agreements within 12 months—with, I think, Taiwan, South Korea and Japan. It is possible, therefore, to do it more speedily when you are not part of a big group.

It is possible to do it more comprehensively, too, because if the EU is negotiating as 28 countries, each country has things it wants reserved, and the country it is negotiating with says, “Well, if you do not include this, and that, we will not include everything either”. So the EU’s group agreements tend to be less comprehensive than bilateral agreements that would be possible with us. There could also be more such agreements. Switzerland—which does not seem to think it necessary for its just-in-time trade to be a member of a customs union—is able to negotiate its own trade agreements, and has one with China. Even Iceland has an agreement with China. The EU does not. Switzerland has agreements with countries with a collective GDP that is far greater than those of the countries with which the EU has negotiated agreements. The same is true of Chile.

I do not think we should allow ourselves to be misled by things which sound plausible but which, when we confront them with the facts, turn out not to be true.

--- Later in debate ---

[Lord Lilley]

The Swiss have to fill in rules of origin on their trade with Europe, which constitutes 80% of their exports. They say that the overall cost of dealing with borders is about 0.1% of the value of trade. How does the noble Baroness make that tie in with the scare story she is currently retelling?

[Baroness Kramer]

This is not a scare story. I think the Government will be able to confirm the description that I have just given. I will make one, more general comment but I do not want to go on because of time. Different countries have different patterns of production and trade. Over the past 40 years the UK has integrated into a supply chain, just as the Northern Ireland economy has integrated across those borders. I cannot speak about the Swiss because I do not know that economy in detail. It requires detailed knowledge of the specific economies. We are part of a crochet, deeply embedded into it, just as many of the supply-chain countries are, with constant trading across borders within the EU.

Even under the Chequers proposal, rules of origin certificates are required on every good. I have talked before about the small company that sells party supplies across Europe. It would be £30 every time they sent out a shipment of cups, £30 for the plates, £30 for the paper napkins, £30 for the tablecloths—you can go on with those kinds of numbers and you quickly realise why for many companies this is a totally destructive additional cost, which changes the game completely. I ask the Minister: can we please have some comprehensive answers? Can we have the impact assessment of what this will do to our businesses as they are today—not the fictitious new businesses that may develop in the next 20 years which will abandon the kind of trade that I have described and specialise in something different, perhaps more along a Swiss pattern, but the real businesses that exist today, in which people have invested and by which people are employed?

--- Later in debate ---

[Lord Hannay of Chiswick (CB)]

My Lords, it is a great pleasure to follow the noble Lord, Lord Lansley. It is good news that he is back playing an active role in our debates. I say that all the more so because I agree with a large amount of what he just said, but that is not the only reason. The only point I make on what he said is that I think a link with the CPTPP—the Pacific grouping—is of great importance, but it is much more likely to be achieved by the European Union in a more successful way. That is why I support the idea that we should stay within a customs union and negotiate with that objective.

A great deal of the Bill is highly technical and process-driven. The Minister made an excellent effort to persuade us that that was all that it was about, which is not the case, but those aspects require careful scrutiny, and perhaps amendment in Committee and on Report. I intend to focus my remarks today on the broad political thrust of the Bill, which is the imperative view of the Government that this country must have an independent trade policy outside the EU and its customs union—within which this House voted to remain, I recall, as others have done, by a three-figure majority when the issue was discussed in another context.

The contention of those who supported Brexit in the referendum campaign—it since remains the Government’s view—is that an independent trade policy is absolutely vital and that it will be good news for the United Kingdom. Outside the EU and its customs union, Britain, they say, will emerge on to the sunlit uplands of a free trading world, freed of the shackles of the EU’s trade policy with prosperity assured. Negotiating trade deals around the world would be easy as pie—that is what the Secretary of State for International Trade told us, although his assurances were slightly undermined by the fact that he has never negotiated a trade agreement. If only that picture were true the Government would have a case, but it is not. It is, frankly, false.

First, take the EU’s trade policy. It is, of course, not perfect and it has some protectionist features which need to be changed. That is what the EU was attempting to do in the Doha multilateral trade negotiations and in the TTIP negotiations with the US; the EU was not responsible for the failure of either. When the EU was founded, it did have a pretty protectionist trade policy but, over the decades, that policy has been progressively liberalised, not least by the leadership of a whole succession of British Trade Policy Commissioners: Lord Soames, for whom I worked, Lord Brittan, the noble Lord, Lord Mandelson, and the noble Baroness, Lady Ashton. Britain, as a member state, was at the forefront of that liberalisation campaign with great success. Now, the results of that campaign, in the form of the European Union’s trade policy, are being denigrated, belittled and cast off. Nor is the EU and its trade policy in any way the only important point. After all, we export only about one-third of the amount that Germany does to China. That is not because we are shackled by the EU but because we are not quite as competitive as the Germans. That will not be solved by leaving the EU or by negotiating separate trade agreements.

There is then the still-growing network of bilateral trade deals that are an integral part of the EU’s trade policy and its customs union: most recently the agreement with Japan, but also those with South Korea—where our exports have hugely increased since that agreement came into effect—Turkey, Chile, Colombia, Mexico, the 50 or so African, Caribbean and Pacific associates, and the countries of eastern Europe, the Mediterranean and the Caucasus. There are negotiations now under way with Mercosur, which hopefully will lead to a successful conclusion, and with Australia and New Zealand. Are we going to do better than those deals that are being handed to us on a plate? Will we do more for developing countries than the EU’s “Anything but Arms” policy? I rather doubt it.

How about those sunlit uplands? Well, the sun is not shining up there any more, as President Trump rampages through the international trade commitments that the United States has, mistakenly believing that trade wars are easy to win and that trade between nations needs to be bilaterally balanced. This is the very antithesis of this Government’s trade policy, yet the US seems to be the jewel in the crown when it comes to our negotiating independently. Some hope.

Then there is China, which has negotiated free trade deals such as the one it did with Switzerland, which gave China tariff free access to the Swiss market straightaway and told the Swiss that, with a bit of luck, in 20 years’ time they might get something like that.

[Lord Lilley]

The noble Lord said in 20 years’ time. Actually, the Swiss deal with China reduces tariffs by two percentage points a year. The high tariffs are 18%, so in nine years they will all be gone. They are already half way through. Where are we, in our membership of the European Union, in the process of getting free trade with China?

[Lord Hannay of Chiswick]

That remains to be seen, of course. If we were in a customs union, I have no doubt that the issue of freeing up trade between the European Union and China would become a very important point—and, since the Chinese are now being sucked into a trade war with the United States, they might take a rather different view of a free trade agreement with the European Union than they have in the past. I do not know. All I can say is that they are more likely to do so if what they are offered is access to a 500 million single market, with the UK in a customs union with it, rather than what they have at the moment.

Then what will we say to India and Brazil, for example, which undoubtedly will raise with us issues about the visa burden on their students, businessmen and researchers? It is obviously desirable that we should have agreements with Australia and New Zealand, but what will that mean for our producers of sheepmeat and beef, who are already at risk of being struck by the loss of their continental European markets if all does not go well with our negotiations with the EU. What will we say to that?

One day, I hope, when President Trump’s memorial library is being constructed—there will not be many books in it, I imagine—the world will resume the search for multilateral and plurilateral trade agreements to remove tariffs and non-tariff barriers to trade. What role will we play in such negotiations as an independent actor with our own trade policy? I can give noble Lords a clue: a very modest one, is the honest answer. I was a very junior member of the negotiating team in the Kennedy round, which was the last occasion on which the UK operated independently before it joined the European Communities. We were in a much stronger position then than we are now. Our share of world trade was much greater and we had a stronger economy on the whole compared with other people. However, even then, in the 1960s, the deals were cut between the US, Japan and the European Community. In future, it will be between the US, China, the European Union, Japan and India. Of course, we will be there on the margins, our eye glued to the keyhole, saying, “Me, too”, when they reach an agreement, but our role will be that of a watcher and not, as we are at the moment, an actor. So the case for an independent trade policy does not stack up. It is a chimera and a mirage, doomed to disappoint.

Of course, if we were to remain in the customs union, we would need to raise some quite important issues with the EU to ensure that we had a proper consultative role in shaping its trade policy and that any trade deals negotiated by the EU applied fully to all members of the customs union, including the UK, and did not require separate negotiation. But how can we find out whether these possibilities are even faintly viable if we are not ready to ask for them to be put on the table and to discuss what the reaction of the other side would be? Since this would greatly help the problems of Northern Ireland, I suspect that it would be pretty positive.

The other day, I heard a representative of one of the think tanks that supports Brexit and an independent trade policy, the IEA, say, quite clearly, that an independent trade policy is “the only prize” remaining from Brexit. But is it a prize? I very much doubt it.