International Trade Opportunities

Lord Patten Excerpts

Thursday 7th July 2016 Lords Chamber

[Lord Patten (Con)]

My Lords, in times of economic change and challenge there are always new opportunities for business. That is why my noble friend’s debate is so timely, and I listened with great care to what she had to say.

Change is all around us but we must not be seen as mere supplicants at the gates of the stronger in the economic world. For sure the pound is down, but then the stock market at FTSE level is higher than before 23 June, unemployment in the UK is low and the envy of the western world and investment is quite good into UK business and industry, even if productivity is a bit ho-hum and strongly in the “Must do better” box. The recent fall in the pound/euro cross rate or the 10% devaluation of the pound against the dollar should be seen as radically reducing the cost base of UK manufacturing, already with a strong underpinning economic base, as it exports into Europe or the US—if these changes in the exchange rates are taken advantage of, together with the excellent proposals from the Chancellor of the Exchequer to cut UK corporation tax in short order, which is a pledge that I hope to see kept to in future months.

Equally, on trade itself, President Obama said that in his view Britain would be at the back of the trade treaty queue. We will see about that. Australia, India, Mexico, South Korea, New Zealand and others have all expressed interest in new deals. I hope the United Kingdom will pursue those with vigour while at the same time we continue to trade with Europe, a much-valued customer for what we do but also a major market in both directions, because it wishes to sell to us. Therefore we must respect our close neighbours, allies and friends. However, in the coming months both sides will, post that decision-night shock, realise that getting bogged down into difficult discussions of a never-ending sort about access to the single market for goods will turn out to be a bad for world trade and European trade. This process cannot drag on forever, so we should simply apply World Trade Organization rules after, say, a 24-month period after the exercise of EU Article 50 unless we agree otherwise in specific areas, if agreement does not happen during that period.

The proposal for applying World Trade Organization rules would do a number of good things for the UK, its economy, and for exporters. First, it would provide business with new certainties, which it wants—understandably, businesses like certainties—to parallel other measures such as that corporation tax reduction proposal, which would create a most attractive location for inward investment into offshore Europe. Secondly, it would encourage UK business to raise sector-specific concerns early with the Government. Thirdly, faced with World Trade Organization tariffs, other countries would be encouraged to negotiate, which would allow the United Kingdom to seek freer access to the EU for some of our priority industries. Lastly, and most importantly, with our new albeit surprising freedoms to do this kind of stuff we can unilaterally decide to do all this in short order after 24 months or whatever period, and it can be delivered without trade wars.

I will exemplify how this works or might work with a worked example; I do so with some temerity, seeing down the Bench from me my noble friend Lord Green of Hurstpierpoint, that strikingly successful former Trade Minister who knows what he is talking about. None the less, I will risk it, and will take our trading goods with Europe—trading goods alone—as an example of how this might work.

The context of all this is that the European Union in the last full year, 2015, exported £219.8 billion of goods to the UK. On the other hand, the UK exported £134 billion of goods to the EU in return. Therefore the average tariff on imports into the UK would be 4.1%, by my calculation, raising about £8.9 billion per annum under World Trade Organization rules. The average tariff rate in the other direction, on exports from the UK, would be 3.5%, costing about £4.6 billion per annum.

However, all this detail—and let no one accuse me of not getting into the detail this afternoon—should be set against the context that the UK is the EU’s single largest export market: some 17% of all EU exports come to the UK. That is bigger than the amount that goes to the US, which is 16%, or, for example, to China, which my noble friend mentioned in her introductory speech, which is a mere 8%. Therefore we all have to recognise on both sides that the EU needs the UK market very badly indeed in any future trade negotiations.

UK exporters have benefited from the reduction in the value of sterling and are therefore now very competitive, even with tariffs. The only significant sectors where we are a net exporter to the European Union are fish, mineral fuels and bitumens, and aircraft, spacecraft and parts thereof. These sectors would need to be helped in various ways and would doubtless be the focus of government incentives to relieve any pain of tariffs, even beyond the currency tail-winds, to be realistic—I recognise that.

At the same time, some UK importers would suffer substantial additional costs, and these are focused on a few industries: my little list is vehicles, electrical machinery, plastics, nuclear reactors, boilers and so on, and meat and fish preparations. There are also a few relatively small sectors where the UK relies heavily on EU imports that would attract high tariffs. These are flowers, vegetables, citrus fruit and nuts, preparations of meat and fish, preparations of vegetables and fruit, and fertilisers. There will also be—I have taken expert advice on this—some even smaller sub-sectors that will be affected. One, I am told, is pastry cooks’ products. Let no one suggest that I do not get into the detail of these future trade negotiations.

In those areas, the UK could do one of two very important things: first, unilaterally reduce tariffs on imports for smaller sectors where leverage over any one member state is low; and, secondly and absolutely vitally in these negotiations with Europe, use the tariff imbalance to negotiate other access rights—for example, trade tariff-free access for cars coming from Europe into the United Kingdom in exchange for the continuation of passporting for financial services. To take one country as an example, the Netherlands relies very heavily on the UK for its cut flower industry. It would doubtless apply pressure on other EU countries to act in a realistic way and in the spirit of give and take that all global trade agreements demand in return for tariff-free access for its own goods and markets here. Without a doubt that is what the Dutch would do. That is enough detail. That approach with our European friends would underpin the broad strategic approach to other worldwide business opportunities which my noble friend so rightly wishes to see and which she eloquently set out in her introductory speech.

I should like to ask just one question of the Minister, and I apologise for not having given her advance written notice of it. Working, as I do, outside the House for my living, some of these niceties escape me. I apologise and would be very happy to have a written answer placed in the Library of the House in due course if she cannot give it now. What is our vision for utilising more systematically our trading links with the 53 member countries of the Commonwealth, which should be our natural trading friends and allies? After all, the Commonwealth Secretariat says:

“Through our expertise and assistance … countries secure better trade deals”.

We are indeed one of the countries seeking those better trade deals and we should trade vigorously with our Commonwealth neighbours.