Trade and Customs Policy

Lord Mendelsohn Excerpts

Tuesday 5th December 2017 Lords Chamber

[Lord Mendelsohn (Lab)]

My Lords, I join my voice to those who have said that this has been a remarkable debate. Those people who enjoy reading the previous day’s Hansard over a morning coffee are in for a real treat.

I join others, too, in paying tribute to the noble Lord, Lord Price, for the work that he did when he was Trade Minister. This has been the first opportunity to say so. It was excellent to be able to see him in public service. He did a great job. I am sorry that he is not there, not because I wish to see the Minister replaced but because a bit of additional strength to the department would be no bad thing in this context. However, it is always good to see the now-familiar noble Baroness the Minister, who made an excellent initial presentation that was certainly better than the White Papers that we were reading, which I confess were somewhat tough going—they are not vintages, but we are none the less dealing with something that has to take place and where there is, unfortunately, quite a vacuum.

We have to understand the context here. I hope that we do not end up always recreating the debate over Brexit, but those who wanted to leave have to demonstrate that there is a better case and greater prospects from doing so. They should not be afraid of having to meet that challenge and test. Just as they were able to present to the public the argument that things would be better outside, so they still have to meet the test of demonstrating that it is a better path, as was the challenge posed by many speakers today.

My fear is that the context in which we are debating this is quite difficult. I do not think that anyone who was there will forget hearing the noble Lord, Lord Prior, introduce the industrial strategy White Paper, when he talked about the problem we have in the country of very low GDP growth, terrible productivity—in fact, last quarter saw the worst performance in 200 years—and the terrible prospect of declining wages over the next 10 years. It will be another lost decade. It is a massive challenge to try to introduce such a change as we are and to deal with our trade strategy and policy.

That is largely because we were not exactly dealing with the finest trade performance before. Those who have participated in the many such debates that we have had previously will remember debating the then Chancellor’s target, when he established it in 2012, of doubling exports to £1 trillion. At that time, we had UKTI and a branding campaign. In 2015, the OBR projected that exports would be £630 billion in 2020—that was a third less. In 2016, UK exports were £544.8 billion. It is argued that global trade has slowed, but others have had a much better export performance. We knew that we had to achieve a much better export performance because our future and our economy depend on exports. Some 30% of our economy relies on exports, as do one in four jobs. We have always had to improve trade policy but have consistently failed to do so.

That target, from which the Government were moving away in 2015, I think I saw being buried in a Select Committee earlier this week. It is a real problem, because we are looking at a new trade policy where we cannot establish a figure nor what the impact of it will be. We cannot establish how much further that will take us forward in addressing our economic prospects. What we can see is some research which is troubling. The ICAEW concluded that, after what it described as an expensive advertising campaign, just 53% of all UK small businesses were exporting, which is exactly the same figure as in 2014. SME trade promotion is getting much worse—many of us are familiar with complaints about trade shows and the like. We have huge problems with our overall trade performance.

Even when we look at the prospects for services, our greatest potential attribute, we note that all surveys, including by the British Chambers of Commerce, show that the main target markets for our companies are the USA, Germany, France, China and the UAE. As the noble Lord, Lord Leigh, said, much of our trade will be dependent on areas outside the EU—90% of all growth over the next period will come from outside the EU, a third being China. We are not the first people to realise that; in fact, one thing we are turning away from is a concerted EU effort to address that as well. Many EU countries have been much better in their trade and export performance as a result of recognising that much earlier, so this is not all new.

Our test is to be realistic, to have a correct estimate of our position and to be entirely realistic about the prescriptions that we have. We have to make sure that we test these prognoses. We have to be straight about the fact that trade deals are quicker under the EU and take longer as a single nation. Look at the difference between the performance with Korea and the EU and somewhere such as Australia. Trade deals with the EU are comprehensive in scope, whereas for individual countries they are more difficult. That is a considerable challenge to us.

We have to be straight about the rest of the world in respect of the WTO quotas. This is a zero-sum game. We have introduced the British policy of Brexit and thought that the rest of the world will just say, “That is wonderful”. There is no greater zero-sum game in international diplomacy and the exercise of national interest than in trade. Is it any surprise that America, Australia and countries in Latin America have objected to a simple carving-up of the EU quotas in the WTO, which we thought would be straightforward? This is going to be the permanent story. The idea that the USA is going to simply roll over and change all its markets to satisfy us for Brexit—I just cannot see it. We have to be completely and seriously realistic.

We can talk about transitions, implementation periods, cliff edges, timescales—all these sorts of things—but let us be absolutely clear that it is going to be bumpy and uncertain. We are in unprecedented times. We are trying to muddle through and we are treading water, and that is our condition. It is in that context that we will have to look at whether or not the White Papers and the Bills are fit for purpose, offer the best possible alternative for us and demonstrate that the Government have put together the right resources with the right plan and have the right practical approach.

I will cover just a few issues. The trade White Paper explains the Government’s intention to transition existing EU free trade agreements and European partnership agreements so that, for example, the EU-South Korea free trade agreement will be replicated as a UK-South Korea free trade agreement. According to the EU’s website, more than 80 countries have signed an agreement with the EU. Around 30 of those agreements are fully in place and 50 are partly in place, including CETA. I would be grateful if the Minister could confirm these numbers and the details of how many EU trade agreements the Government are seeking to replicate.

Many of the EU agreements we have signed involve some of our most important trade partners outside the EU, including Switzerland, Canada, Singapore, South Korea, Norway, South Africa and Israel. By my rudimentary calculations, we export more than £60 billion each year to countries where we have an agreement in place through our EU membership, highlighting the importance of ensuring consistency in our trade with those countries after Brexit.

The Government have described transitioning as a “technical process” and essentially a formality. That is true if each country gives its consent, and some legal experts believe that it may not be so straightforward even then. It would be very interesting to get some idea on this from the Minister, especially after what has been said in the other place: with which countries do we have an agreement in principle to roll over the deal in its entirety and how many, and which, countries have notified us that they might wish to make modifications? As for those countries that have not yet agreed in principle to transition their deals, is this a matter of DIT resource, or are there more fundamental barriers to agreement?

There is also the question of by what process we will achieve the transition—or grandfathering—of EU FTAs. Will the Minister confirm whether the UK will be acceding to the existing agreements as an annexed party, or will we be seeking new, identical agreements with each country the EU currently has a trade agreement with? What level of scrutiny will Parliament be afforded during the transition process?

Will the Minister also clarify the Government’s plans for EU trade agreements that remain in negotiation, such as with the USA, Japan, India and Thailand? The fact that the EU has struggled to reach agreement with some of these countries should of course act as a reminder of the challenge that awaits the UK post Brexit and the importance of putting the right trade policy framework in place early on.

Transparency, public consultation and scrutiny will be important to ensure that a future trade policy has democratic legitimacy and will boost growth in a way that is more positively felt across all sections of society—especially with the warning of the noble Lord, Lord Prior, in our ears. It is welcome that the trade White Paper has a section titled “Trade that is transparent and inclusive”, but it looks like a missed opportunity that the Trade Bill itself includes no provisions at all in this area, despite the Secretary of State promising a,

“major consultation mechanism for new free trade agreements”.

Regarding parliamentary scrutiny, the White Paper says merely that the Government will,

“respect the role of Parliament”.

Will the Minister explain what this means? At present, the Government can negotiate and sign a trade deal in secret and ratify it via the negative procedure for secondary legislation without debate. Does the Minister think that this is sufficient for trade agreements with wide, long-lasting implications, or will a greater role for parliamentary scrutiny and accountability be established?

It is welcome that the White Paper and the Trade Bill accept the case for an independent UK trade remedy framework in the context of the mess we are likely to get into. The Government’s proposals for the UK Trade Remedies Authority include an economic interest test, but will the Minister explain why social and environmental criteria have not been included, and whether there are any plans to do so?

We are also somewhat in the dark about what will happen to trade defence measures that are in place currently through the EU. Will those be replicated? I would be grateful for an update, including on what consultation the department is carrying out with industry on this point. Of course, one important thing to understand about the value of our relationship with the EU is that trade defence measures are very hard to exercise on your own; they are much easier in concert with others.

No doubt the Government will seek to make the Bills we are likely to have as technical as possible, dealing only with a transition process. I am not sure that this will be sufficient. I am not sure that the position is one where we can just roll over what was done before. That is not practical and it ducks the important issues about being clear about what needs to be done. There is a realism on the scale of the task that we have to get used to, and there are ways forward. We need clearer goals and realistic language. We need a trade policy in line with our industrial strategy. We need to boost our capacity for conducting trade in the department and in other parts of government.

We are where we are. I am in business: every new business takes longer and costs more; every deal is more complicated and requires more work than was planned in integrating it. We have to face up to what is likely to be the most difficult part of the process—ensuring that we have some sort of stability. I fear that there will be an economic consequence to it and that we are now debating how to fill a vacuum. The vacuum has to be filled, but when the Bills finally arrive in this place, we will have to conclude whether we are being served an acceptable filler.