Brexit: Options for Trade (EUC Report)

Lord Risby Excerpts

Thursday 2nd March 2017 Lords Chamber

[Lord Risby (Con)]

My Lords, it is always worthwhile listening to the noble Lord: he asked one or two very pertinent questions about the future situation of our mutual relationship. It gives me great pleasure to thank the noble Lord, Lord Whitty, for introducing this debate so well and for chairing the proceedings of his committee, but most particularly I want to thank my noble friend Lady Verma, who also made such a good contribution and chaired our proceedings so well. I add my appreciation for the staff who did such a brilliant job in pulling all this together; they really are the unsung heroes of the situation.

Since the report’s publication, as has been indicated, we now have a much clearer view of the Government’s intent, but the details of our pursuit of a free trade agreement are certainly not yet at hand. This is our dilemma in the discussion this evening. The possibility also exists, as we have discussed, of our just having to deal with the WTO, if the whole process fails. Indeed, we do not know very much more than that at this point. I should therefore like to focus on some elements of the topography of trade post our formal departure, including, of course, non-tariff barriers. While we will initially be incorporating EU legislation into our own legislation, the challenge thereafter is how we manage the inevitable regulatory and other changes as the EU itself evolves.

As we have often heard, supply chains are uppermost in business’s mind. We could, in theory, see tariffs levied at different production levels across borders several times, with all the difficulties that that brings. While there appears to be a template offered by NAFTA, particularly between the USA and Canada, with simplified customs procedures, the issue of a pan-European supply chain is a hugely significant factor to manufacturers, most notably in the successful automotive sector. Both the supply chain and regulations on quality assurance are fundamentally important as we seek a new trade agreement with both the EU and others. We naturally would favour preferential rules of origin, and such rules apply currently, but I wonder whether my noble friend the Minister could expand further on how possible preferential rates of origin might apply as we leave the currently structured customs union, as presumably there would still be an issue of more burdensome administrative checks to be undertaken.

Regrettably, the UK traditionally suffers a considerable trade deficit. What is left of our manufacturing industry is modern, productive and in many instances a great success story, for example in our car industry, although it is mostly foreign-owned. So what every Government have had to do, for decades, is continuously try to attract foreign direct investment to fill the trade balance void. Successive UK Governments have sought to minimise any disincentives to the purchase of British assets, and this has broadly been a success. Traditionally, we have remained the single most favoured European investment destination. But of course, as we have heard, access to the single market is at least a substantial part of the reason why this investment comes in in the first place, to avoid not only tariff disincentives but potential non-tariff barriers as well. Concluding an FTA is therefore—for all the reasons so perfectly and thoughtfully put by your Lordships this evening—crucial for our continuing survival.

Our report relates to the EU, of course, but we need to address the impact on other markets as well. For example, in two key markets, Japan and China, the demand for high standards is increasingly marked. We are currently signed up to the EU, and that is one thing, but a common EU-wide regulatory system is also both efficacious and avoids higher administration costs. Consider the case of the pharmaceutical industry. The quality of our pharmaceutical companies is bound to be put under a spotlight during these negotiations. The quality of these companies—often ultimately owned by non-British enterprises—as well as food and beverage suppliers, is bound to be tested. While we may start with the assurance that common regulation and standards provides, our export destination countries need to understand how our regulatory and therefore quality system will prevail post Brexit. While we know that the EU-Korea and EU-Switzerland agreements provide useful templates for mutual recognition and certification, this is going to be an increasing challenge as living standards improve in our key export markets, and as we seek to create new business agreements with those countries which enjoy a trade agreement with the EU at present.

In a recent speech my noble friend Lord Hill reminded us that there are 27 other countries now directly or indirectly engaged in our negotiation process—with all the potential pitfalls, as we saw in the Wallonia problem in the EU-Canada agreement. But it is interesting to note, on a rather more optimistic note, that the European Commission has just published a working paper on equivalence in financial services which at least accepts the need for compliance in international standards in tax and money laundering, as well as potential reciprocal trading rights with third countries. This is incredibly important for our financial services industry, and I hope that this sort of realism will prevail during our direct negotiations with the European Commission over the broad range of goods and services, rather than what my noble friend Lord Horam described as a fist to the face. Therefore it goes without saying—I emphasise this—in the language we deploy, a prosperous EU is completely in our own national interest, and we have to go on saying that.

My noble friend Lady Verma mentioned the complexities of the agricultural sector, for example, in any negotiations. I ask noble Lords for forbearance in mentioning one rather personal instance of how deeply our current agreements reach within the EU. I declare an interest as a government-appointed director of the Horserace Betting Levy Board and as the former Member of Parliament for Newmarket. Freedom of movement usually implies human beings, but I want to bring an equine dimension to this discussion. A tripartite agreement between the UK, France and Ireland currently allows thoroughbred horses to travel freely between the three countries for race meetings. Under an EU directive, horses need only a simple passport arrangement, with no customs documentation or veterinary export health certificate. I can only hope that a frictionless trade agreement will be extended to this valued part of British life, but it simply illustrates how far we are embedded in the totality of EU architecture. Therefore, I hope that the next two years will bear fruit; but it will be a challenge. I make a plea to the Minister to communicate this as appropriate.

It is certainly gratifying, as we have heard, that skilled individuals are now being deployed in our negotiations to forge new trade relationships with the EU. However, may I highlight how, with some notable exceptions, our embassies are underresourced and insufficiently manned, compared with our soon-to-be rival neighbours? As one of the Prime Minister’s trade envoys, I see how actively EU countries—particularly currently, because they sense an opportunity—are hard at work in a number of promising export destinations. It is a matter of the utmost concern to me and others that, while some embassies have liberal funds specifically for social or political projects, their ability to promote trade is wholly inadequate. If our embassies are to be part of developing our post-Brexit strategy, as promised, the ludicrous resources available to them need to be dealt with with the utmost speed. Any other trade envoy would tell your Lordships exactly the same thing. We can only hope that a free trade agreement can be secured to avoid the additional burden that WTO tariffs imply. How necessary it could well be to secure transitional arrangements we all accept, to give assurance to those foreign investors and businesses that are so important to our national economic life, survival and prosperity.