G7 Summit and Future Trade Relations

Lord Purvis of Tweed Excerpts

Thursday 21st June 2018 Lords Chamber

[Lord Purvis of Tweed (LD)]

My Lords, we are indebted to the noble Baroness, Lady McIntosh, for bringing this Topical Question to the Chamber to elicit the Government’s position so fresh after the very worrying G7 summit in Quebec. We are grateful to her. I will address some of my points to the very pertinent issues she mentioned. I know that it is a gentle convention in the House that the Front-Bench speakers reflect on contributions made by the Back Benches. I can do that very briefly by saying that I agreed almost entirely with the contribution from the noble Lord, Lord Whitty.

The point that the noble Baroness, Lady McIntosh, mentioned that is probably the most troubling of all is that we see trends in global trade and global growth that are a worry. In a recent meeting, representatives of the World Bank were very clear that they are concerned that what has been happening over the past decade—a global growth trend that was uniform across the planet—is now under threat. We start to see this particularly with what is likely to be a looming trade war, where leaders’ pride and nation states’ interests collide. That will mean that many citizens and consumers will be worse off. I represented a constituency that is still living with the impact of a trade war in the 1990s with high tariffs on the textile industry. Trade wars impact people’s livelihoods and their futures. They are not to be taken lightly.

The Minister will know that for a number of months I have been concerned about the WTO’s capacity to address some of these issues. I was at the WTO ministerial conference in Buenos Aires in December. It failed to agree a communiqué as the US delegation left early. I was not entirely surprised, therefore, with the US’s approach in Quebec. I had the benefit of being in Washington last week, which I will return to a little later. It was fascinating meeting the Canadian ambassador, discussing with the US trade envoy’s office to Europe the very pertinent issues that the noble Baroness, Lady McIntosh, raised.

I also agreed with the noble Baroness in raising issues relating not just to tariffs. In many respects, the debate about non-tariff measures is as important as that about tariffs. While such measures serve highly legitimate policy goals such as protection of human health, animal and plant life and the environment, they make it more difficult for SMEs and small farmers in smaller nations and least-developed countries to compete effectively in the international markets.

According to the WTO, there has been a phenomenal increase in the number of rules and regulations affecting international trade. While most favoured-nation tariffs have declined from an average of 5% to 6% to below 3% to 4% between 1995 and 2015, the number of non-tariff measures rose from more than 1,500 in the mid-2000s to more than 2,500 in 2015. It was the UK’s desire in the 1980s to avoid what was known to be the trend of growth in non-tariff measures and to reduce the cost and burden on business and exporters that led us to support a single trading market in goods and services. No doubt we will return to Brexit in other debates in the House.

It is a simple fact that smaller nations and least-developed countries lack the financial and technical resources to develop effective policies, regulations and institutions to address non-tariff measures such as technical barriers to trade and vital sanitary measures. UNCTAD and other bodies are doing sterling work to raise issues regarding the burdens on least-developed countries. Those who lose out in trade wars between large nations are not just consumers in those nations; there is a considerable impact also on smaller trading nations especially on a regional basis. In many respects, they are the collateral damage of such trade wars. It is therefore no surprise that there is considerable concern among members of networks established for the very purpose of reducing trade barriers, such as Mercosur, the Pacific Alliance, within the Maghreb, SADC and ASEAN, all of which are focused on reducing non-trade measures, reducing time and cost of border crossings, reducing customs costs and aligning and then harmonising regulations. There is deep concern across all those networks that the WTO is in many respects hampered by the position of the United States and not assisted by the strategic position of China, with its alternative approach that we are starting to see in the Shanghai Cooperation Organisation.

The UK Government must have a clear position. We would have needed a clear position regardless of Brexit but, with it, the Government need to be clearer than ever. As we embark on the first trade negotiations in history to create trading barriers rather than reduce them, the Government need to be even clearer.

This might have been an easier situation to manage had it not been for the latest position of the United States. There is no doubt that the White House has a transactional, nation-state-first trade policy that is not likely to change in the foreseeable future. If we add to this the very clear position of our non-EU trading partners that they will need to know what arrangements the UK enters into with the EU before they agree positions with us, we see that this is not a conducive trading environment in which to be entering a new, third-country relationship with the biggest single trading bloc.

The position of the US was made clear to me on my visit there last week. As the noble Lord, Lord Whitty, said, it cannot be denied that there is no universal support for free trade anywhere within the United States and certainly within Congress. It is perhaps possible to re-engage in the TTIP discussions; it is perhaps possible to rescue from the embers the NAFTA relationship within the United States; and some form of relationship with the new progressive trade partnership being formed within Asia and the Pacific may well be possible, but it cannot be guaranteed—nor can we base our future trading relationship with the US on those assumptions. It cannot necessarily be taken for granted that the US Congress would be satisfied with a UK FTA. I met delegations in both the Senate and the House. Both Republicans and Democrats made it clear that they would not support a free trade agreement. They would support trading relations and look at areas where barriers could be reduced, but what they would ask for would be broadly unpalatable to us. It would be helpful to get a clear understanding of the latest position of our trading and investment working group with respect to the United States.

I met a Congressman who addressed the point mentioned by the noble Lord, Lord Whitty: the dichotomy of where we are. Republican Congressman Joe Wilson from South Carolina has a massive Trump-supporting base in his district, but he also represents a BMW factory that employs 10,000 people there. Any X range of BMW that you see on the streets of London is made in his district in the United States. He understands how interrelated are global supply chains in trade, but the White House has a position which is absolutely contrary to it. That is likely to be a contradictory position that we see going forward.

We know that the policy of the White House, with Ambassador Lighthizer and adviser Navarro, is for disruption, uncertainty and unpredictability, but we need to address the fact that it is not directed towards adversaries only; it is directed also towards allies and trading partners. That it is the President’s clear position to offend, insult and undermine a key ally to the United Kingdom in the Canadian Prime Minister should be a clear warning signal. Ultimately, it means that when we consider our approach to trade post Brexit—if it happens—we will need to address much more deeply the type of trading relationships that we have and not just what goods and services are included in them.

This Parliament will need a much clearer position on setting a government mandate, to enhance scrutiny arrangements and to have deeper means of ratification than those currently provided by the Government. I thank the noble Baroness, Lady McIntosh, for bringing these issues to the House. I know that they will set the cloth against which we look at our trade policies in a post-Brexit world. I look forward to hearing what the Minister has to say in response.

--- Later in debate ---

[The Minister of State, Department for International Trade (Baroness Fairhead) (Con)]

My Lords, I, too, thank my noble friend Lady McIntosh of Pickering for her Question. I thank her and other noble Lords for their rich and probing challenges. The noble Lords, Lord Whitty, Lord Stevenson and Lord Purvis, raised the challenges of the multilateral trading system, and I think we can all see that those challenges are there. As we said, the G7 was one of the most tense of recent years. My right honourable friend the Prime Minister made it clear that the discussions were difficult. But we also have to see that these meetings provide opportunities for close allies to discuss many things apart from trade, such as empowering women, security and sustainability, in particular of the ocean environment. It should be recognised that they have that purpose as well.

However, the debate today is on trade and that is where I will focus. I shall touch on the summit at the beginning. The agreed communiqué had two parts. The first was, indeed, about the importance of a rules-based international trading system and the continued fight against protectionism. The second strand was a trilateral discussion between the US, the EU and Japan, talking about level playing fields, industrial subsidies, inadequate protection of IP and non-market oriented policies. As noble Lords have highlighted, the communiqué was later dismissed by the President of the United States, but let me be very clear that the commitment of the UK to the contents of the communiqué and to the other non-US members of the G7 remains unchanged. Furthermore, there is a determination to work constructively with all parties, including the US, on that trilateral dialogue between the US, the EU and Japan.

As the noble Baroness, Lady McIntosh, pointed out, the summit took place against the backdrop of the US decision to raise tariffs on steel. We are allies—close allies—but where we disagree, we will say so. We disagree with these tariffs. We have made clear, and continue to make clear to the US Government at the highest levels, the importance of UK steel products to US businesses and defence projects. We will continue to work with the EU and the US Administration to try to achieve a permanent exemption because, as the closest allies, we think we should be permanently and fully exempt.

That said, we have proceeded with our complaint at the WTO. The noble Baroness asked for some information about the timing of that and where we were. On 1 June, through the Commission, we launched the case at the WTO. These typically last around two to three years. However, we are able to impose countermeasures relatively immediately. Those countermeasures were announced on 18 May and can be applied 30 days after that. We can also conduct studies and investigations, one of which is under way on steel, to look at whether any safeguarding is needed to protect our industry. That is what we are doing.

We have been very clear that we do not want a tit-for-tat escalation. The important thing here is to focus on the global overproduction of steel, and a multilateral approach is the right way to do it. The noble Lord, Lord Purvis, spoke of his concern about a trade war. It is a real concern and we need to work multilaterally to find a solution. Free trade matters. I take the point made by the noble Lord, Lord Purvis, about his visit to the US. Free trade is challenged at the moment in the US and elsewhere but we should look at what it has achieved: 1 billion people taken out of poverty. In the 1990s per capita income in developing countries grew three times faster if they opened their borders. In the developed world, the OECD found that a 10 percentage point increase in trade exposure led to a 4% rise in income per capita. It is good for consumers and good for choice.

In addition, multilateral systems allow us to bring down the cost of trade. I take the point made by the noble Lord, Lord Whitty, about some stalling in multilateral capability in the WTO but there is progress; for example, the recent entry into force of the Trade Facilitation Agreement. Once fully implemented, it will improve global trade by £70 billion. Yes, it has stalled in many areas. The noble Lord, Lord Stevenson, also made the point that the CPTPP was signed recently. That was 11 disparate countries. So there is progress.

The challenge for us is that we need to have free trade and a multilateral system that works for all. There has been a sense that it works on a broad basis but the costs and impact are local and immediate. That requires a much more sophisticated, joined- up reaction, both domestically and internationally. Domestically, we are making sure that the industrial strategy focuses on bringing skills and people so that we have skilled jobs all around the country, bringing a future for the young people of this country. We are linking that up with the export strategy that is coming down the track. We are trying to look at regional development as well.

The noble Lord, Lord Stevenson, mentioned the importance of trade for development. I am absolutely clear that trade helps not just prosperity but security and sustainability. I hope the noble Lord will be pleased to hear that the DIT has recently taken responsibility in government for leading the Prosperity Fund, aimed at development but with trade as one of its focal points.

Concern was expressed about leaving the EU. I will touch on some of the general numbers on our export performance that the noble Baroness, Lady McIntosh, gave. I think she gave the monthly numbers. I tend to look at the annual numbers because there can be volatility. On an annualised basis, exports grew by 7% and the deficit reduced. Historically we have seen a reduction in the amount of exports to the EU. We are likely to see non-EU trade growing faster over the long term because that is where faster growth is expected. As we leave the EU, we are clear that we need to grow and build a strong and ambitious relationship with our EU allies as well as countries outside the EU.

The noble Baroness, Lady McIntosh, raised rules of origin. Clearly, those are part of the negotiations. I agree they have a particular effect on food and drink. It is too early to say exactly what those will be. It is part of the technical way that we will have to adjust some of the agreements that we have with third countries, but we recognise that this is an issue that needs to be given serious attention and that is what we are doing.

A number of noble Lords raised concerns about the WTO and how it is working. We know it is not perfect but we believe the best way to manage it is from within. That is why I am happy to say that my right honourable friend the Secretary of State is in Geneva today with the WTO, meeting ambassadors there, including our ambassador to the WTO, making the case for free trade and a multilateralism that works for all.

As we exit the EU, our primary focus is on continuity, to make sure that there is no cliff edge for our businesses and the businesses of the EU. We are also working in parallel with the other parties that we are party to agreements with because of our membership with the EU. We fully understand the importance of EPAs with developing countries, which the noble Lord, Lord Purvis, talked about. I agree that non-tariff barriers are as much of an impediment as tariff barriers to their coming up and developing. That is clearly going to be a part of what we are making sure that we follow over.

When it comes to the TRA and the dispute resolution mechanism that we will have, we believe in free trade but we need to make sure that we have the powers to protect our consumers and our businesses. That is why we are working to set up the TRA—Trade Remedies Authority—before we leave the EU to ensure that we can continue to provide a safety net. We have taken a number of steps already, including a ministerial direction on 29 March 2018 to begin critical spend on the establishment of it prior to Royal Assent on the Trade Bill. We have begun recruitment, including of the chair and specialist roles. On 10 May 2018 we announced the location: Reading. Our aim is that the TRA will have a full suite of remedies at its disposal.

A number of noble Lords talked about the relationship with the US. Clearly, the US’s approach to free trade has raised some concerns. We have a commitment from the highest level to enter into preparatory discussions with us. Noble Lords will be aware that we cannot negotiate but we have a trade and investment working group. It has met three times already, focusing on SMEs and science and technology. We also have an official-led financial regulatory working group. We will be proceeding on that and there is active progression of that preparation.

[Lord Purvis of Tweed]

We are grateful for the Minister’s very clear response to the debate. While I was in Washington last week it was apparent that there is some lack of transparency over what issues are discussed and the scope of the working group’s discussions. Will the Government lay in the Library some more information about the meetings, their scope and the meetings that are planned for this trade working group?

[Baroness Fairhead]

I believe we give what we can. We obviously have to agree it with the US, but I will look into it and see what we can do in that context.

Environmental, human and labour standards do not have to come at the expense of future trade agreements, and we will be looking at all options in future trade agreements. The noble Lord, Lord Stevenson, made some very clear points about human rights. It is a very complicated area and I think I would prefer to write to him.

This is a challenging time for the multilateral trading system. However, we will continue to be a strong believer in the multilateral system in championing the needs of developing countries, and a strong voice that wants the lives of citizens all around our country and in the world to be strengthened so that we have a more prosperous, secure and sustainable world.