Trade Bill

Lord McNicol of West Kilbride Excerpts

Committee: 3rd sitting (Hansard): House of Lords
Wednesday 30th January 2019 Lords Chamber

Moved by

[Lord McNicol of West Kilbride]

31: After Clause 5, insert the following new Clause—
“Rules of origin
It shall be the objective of an appropriate authority to negotiate as a term of all international trade agreements implemented under section 2 that goods subject to the agreement which have originated in the European Union shall be treated as if they had originated in the United Kingdom.”

[Lord McNicol of West Kilbride (Lab)]

My Lords, Amendment 31 is a short amendment but an important one. This is my first Bill and first amendment from the Opposition Front Benches in your Lordships’ House, so please forgive any mistakes from the outset.

Nowhere, as far as I can see, are rules of origin mentioned or dealt with in the Bill. This is worrying for a number of reasons. Most importantly, rules of origin will have a huge impact on the UK’s efforts to replicate our current EU trade agreements with other countries. Rules of origin are about how we define where a product or products really come from, and what “Made in Britain” actually means. It is important to the Bill because, if we are to take the Government at their word, this is just a Bill to allow the rollover of existing trade agreements—agreements that we currently have because of our membership of the EU and customs union. Without changes, rules of origin locally should be expressed in exactly the same way as they currently are. My concern is that they will not be. Post Brexit the EU will no longer be classified as “local”. The UK will be the new “local”. So a new definition will need to be written into these rollover trade deals, where “local”—which until leaving the EU meant inside the whole of the EU—will now mean not just the UK but the UK and the rest of the EU.

The issue of rules of origin is inextricably linked with our membership of the customs union. The big advantage now of being inside the customs union is that no tariffs or taxes are placed on imports or exports of goods traded between member states. Fulfilling the country-of-origin principle ensures that products can enjoy zero tariffs as part of free trade deals if they meet the requirement: conversely, if they do not, they will not. To give a practical example, trade deals in the car industry usually require about 55% of the components of a car to be considered as local. But most cars made in the UK have just 40% of UK-only content. If we then look at the fact that many of the subcontractors source many of their parts from abroad, a UK-made car could be less than 30% made in the UK. This is improved and passes a 55% threshold due to the fact that other manufactured parts of the car come from EU countries, currently classified as local. I ask the Minister: when we leave, how will this be addressed in each of the possible exit scenarios, as this is pertinent to the rollover of existing trade agreements? I also ask the Minister to clarify, if amendments need to be made to the text of existing trade agreements, how parliamentary scrutiny of those changes will be handled. I beg to move.

[Lord Purvis of Tweed (LD)]

My Lords, I congratulate the noble Lord on moving his first amendment to a Bill. It does not get any easier—I do not wish to offer any false reassurance—but I happily concur with his remarks in moving the amendment. I have little to add except to reinforce the point that, for the UK in particular, the majority of our imports from our biggest market and an even larger majority of our exports are intermediary. They include components that are from a number of different countries and not from here.

This issue was raised briefly with the Minister on the cross-border taxation Bill. It is the complexity not just of the components but what is necessary to ensure that many UK exported goods and our imported consumer goods have a seamless transaction process. It is less about the tariffs applied and much more about the regulatory aspects and checks that will be necessary, which I shall turn to in a moment. Therefore, for our key sectors—the noble Lord mentioned automotive, but for wider engineering and overall production and for our exporters— this issue is critical.

I will cite one example from HMRC’s advice to businesses that is close to my heart, living in an area that has a rich tradition of manufacturing in textiles. It shows some of the complexity when rules of origin have to be applied. Each business has in effect to do its own certification. The advice states:

“For example, yarn spun from non-originating man-made fibres in France”,


would not be considered as originating within the EU for preferential purposes when considering whether rules of origin apply.

“However, cloth woven from that yarn in the UK would be an EU originating product, just as if the weaving had been done in France or Germany”.


That is one tiny example of where, if we do not have a customs union with our biggest market, we will have difficulty with rules of origin with our largest market and then, as we move to trade with other countries outside the customs union, we will have difficulty in deciding which are applicable for other preferential or other trade policies.

That is part of the complexity that leads to Amendment 51 in my name, which is in the view of these Benches necessary to align with our biggest market in order for us to exploit trade with other markets. We need to triangulate as little as possible, which seems to be what the Government seek. The best way to do that is through these arrangements. I understand that there is tacit agreement from the Government on this point, because the announcement last week of an in-principle agreement with Israel to roll over our agreement means that it seems that the United Kingdom is in principle considering what is in effect a rules of origin regime with the EU, the EEA, Switzerland, the Faroe Islands, Morocco, Tunisia, Egypt, Jordan, Israel, Montenegro, Bosnia-Herzegovina, Serbia and Turkey—all countries that have in effect a rules of origin regime.

It would be helpful if the Minister could clarify the Government’s intention for rules of origin in the existing rollover agreements and how they consider the future. However, even if we operated under such a regime, necessary checks and certification still have to be done electronically; each exporting company has to apply its four-digit tariff heading and carry out its own checks on whether rules of origin are being complied with. If we are to have a separate anti-dumping and corrective measures system—which, incidentally, the Government promised us for consideration before the final stages of the Bill—and if we are to have a preferential rules of origin system for developing countries, we will have to have some form of check system to ensure that those countries comply with it. It is one thing to say that we will have an electronic system for our closest trading partner—but how will we know that it is not being abused by other countries that wish to circumvent it?

Up to the Lords stage, the Government said that the language as set out in these amendments would necessarily tie their hands and weaken their negotiating flexibility by having them take all necessary steps—but this is no longer the Government’s position because we see that language in Clause 6. This is now government language, where it relates it to the European medicines regulatory network. The Government seemingly do not intend to bring forward any amendments to delete that from the legislation, so if they do not then that is the government language. That means that the Government should not have any problem with accepting this language.

Secondly, the Government said, prior to yesterday, that it would be inappropriate for Parliament to set a mandate for how the Government should take forward negotiations. That is clearly no longer the case because, as the Secretary of State for Exiting the European Union and the Prime Minister herself have said, Parliament has set the Government a mandate with regards to the Northern Ireland protocol. So there is no barrier to the Government accepting the language of these amendments. As to the necessity of them, it is very clear that this is what most of the industrial sectors of this country are seeking.

--- Later in debate ---

[Baroness Fairhead]

The Government do not endorse the wording of the amendment, and consider that the wording has legal and technical difficulties, so we are reflecting on what should be done.

[Lord McNicol of West Kilbride]

I thank the Minister for her response, and the noble Lords, Lord Purvis of Tweed and Lord Lansley, and the noble Baroness, Lady McIntosh of Pickering, for their contributions and kind words. This is an important amendment, as it looks to protect the current benefits of rules of origin classification. As the noble Baroness, Lady Kramer, said, there are benefits for both the UK and our EU partner countries, through cumulation and clarification of local goods.

A lot has been said, so I will read Hansard with interest. I beg leave to withdraw Amendment 31.

Amendment 31 withdrawn.