International Trade

Lord Sharkey Excerpts

Thursday 23rd January 2014 Lords Chamber

[Lord Sharkey (LD)]

My Lords, it is a great pleasure to follow the noble Baroness, Lady Thornton, and I congratulate, as she did, the noble Lord, Lord Harrison, on securing this debate. There seems to be a general, if qualified, consensus among the commentariat that international trade does promote both employment and growth, both in exporting and in importing countries.

However, this consensus is not uncontested. In a 1999 paper, Warzynski and Westergård-Nielsen comment:

“International trade and outsourcing are often blamed for destroying jobs”,

and the current position of China serves as an example of the problems that imperfect international trade arrangements might generate. As Irwin Stelzer wrote in the Sunday Times four days ago,

“China, running its largest trade surplus in five years, manipulates its currency, subsidises its state-owned enterprises and steals intellectual property from America and Germany—or demands it in return for access to its market”.

However, as I said, the balance of expert opinion seems clearly of the view that international trade, provided that certain regulatory mechanisms are in place, promotes both growth and employment. An OECD paper of May 2012 called Trade, Growth and Jobs summarises that organisation’s view. It concludes:

“Trade improves employment and wages through growth … Trade—both imports and exports— contribute to creating better jobs … there is no systematic long run link between import levels and unemployment ... Trade can also improve working conditions”.

In addition to all this, there are some compelling examples of where the absence of international trade damages both growth and employment. The world uses sanctions as an instrument of persuasion precisely because of the damage caused by constraint in external trade. There is a compelling example in the middle of the Mediterranean: Northern Cyprus has been effectively cut off from any significant internationa1 trade for 40 years, and the consequences have been poverty, unemployment, and low growth and investment.

However, the benefits arising from international trade may not be as clear or as straightforward, or as equitably distributed, as a Panglossian reading might suggest. There are, of course, two kinds of international trade: goods and services—and financial services are a major component of the second group. I do not think that anyone would argue that the collapse of 2007-08 has not damaged growth and employment in very many communities. The connectedness inherent in international trade can be a major cause of reversals in growth and employment. That is especially true when regulation proves inadequate, and I shall return to the theme of regulation a little later.

However, I note that even when international trade promotes growth and employment, as it frequently does, it can also have other important consequences. It can have cultural consequences that may be seen as undesirable—France’s attitude to the Anglo-Saxon model, mentioned already by the noble Lord, Lord Giddens, is a case in point. The opening up of new markets may also have unpredicted cultural consequences. For example, I believe that Prince Philip is still worshipped as a god by a cargo cult on the island of Tanna in Vanuatu.

International trade agreements may also significantly advantage large corporations over SMEs and micro-businesses. They may act to reduce economic stability via contagion. We have seen examples of that both in sovereign debt and in the Asian markets. Finally, international trade may act to reduce democratic oversight of the operations of the market. This can take the form of simple distance from the transactions, complexity and lack of transparency in trade agreements and non-accountable dispute resolution procedures. In the time remaining, I shall comment on just three of these areas.

The first is the question of whether international trade agreements should now concentrate more on supply chains than on tariff reductions. The World Economic Forum at its meeting a year ago focused on reducing supply chain barriers, which it is estimated would give a bigger boost to GDP than removing tariffs. Improving border administration and transport and communications infrastructure could increase global GDP by 5% and would have six times the effect of removing all global tariffs. I would be grateful if the Minister could tell the House how the Government currently see the proper balance between reducing supply chain barriers and reducing or removing tariffs.

The second area is the position of SMEs in all this. The CBI reports that, in the UK, only one in five SMEs currently exports. It also notes that businesses are 11% more likely to survive if they export. Perhaps part of the problem is that SMEs are not properly represented in large-scale multilateral or bilateral trade negations. In January last year, the WEF recommended that SMEs be at the negotiating table when there is discussion of the regulatory framework and environment. Does my noble friend the Minister agree with that recommendation, and is it actually happening when the UK negotiates bilaterally and multilaterally through the EU?

My final point is on these negotiations. There is an alphabet soup of these things: FTAs, WTO, TPA, TPP and TTIP. Much of what goes on in these negotiations is complex, opaque and takes an awfully long time. Occasionally, it is all punctuated by a dramatic announcement. For example, a year ago the EU Trade Commissioner suddenly announced that he had personally saved the WTO,

“from the darkness of multilateral irrelevance”.

It may well have been true, but I cannot see that kind of thing quickening the pulse of anyone in an SME in, say, Merseyside.

That begins to illustrate a point. We need all our business communities to understand and feel that they have a part in trade negotiations, but we also need to make sure that Parliament has an effective oversight role. This was a point made forcefully by the noble Lord, Lord Harrison. This is currently a question in the TTIP negotiations which envisage, as they should, dispute resolution procedures. This is obviously vital when trading between different jurisdictions, but the question that has arisen is whether these non-governmental arbitration panels will have the power to override or amend local laws.

In the TTIP negotiations, there is a procedure called ISDS—investor to state dispute settlement. The EU acknowledged on 20 December last year,

“that ISDS, if not properly designed, can raise a number of legitimate concerns about whether legislation can be undermined by investors”.

Put another way, it is possible that in settlement of a trade dispute large companies can rewrite national laws. For example, Eli Lilly is currently suing the Canadian Government for $500 million under the terms of a trade treaty and demanding a rewrite of Canadian patent laws.

George Monbiot said in the Guardian on 4 November 2013,

“Brussels has kept quiet about a treaty”—

he means TTIP—

“that would let … companies subvert our laws, rights and national sovereignty”.

Ken Clarke responded to this a week later. He did not agree. However, the issue is clearly important. What role will Parliament have in determining the final text of the ISDS? What opportunity will we have for scrutiny? I would be grateful if the Minister could reassure the House on these points and on the proposed dispute resolution in general.

[Lord Giddens]

My Lords, the fact that George Monbiot says something does not necessarily mean that it is true. The Commission is well aware of the issues surrounding this. I do not think that we can say that this is not being discussed, because it is.

[Lord Sharkey]

I apologise if I suggested that everything that George Monbiot says is true. I did not mean that.

Returning to the issue of ISDS, I was saying that I would be grateful if the Minister could reassure the House on the points that I have made and on the proposed dispute resolution mechanisms in general.

Since I have mentioned Ken Clarke once, I will quote him once more, talking about the advantages of the TTIP deal:

“According to the best estimates available, an ambitious deal would see our economy grow by an extra £10bn per annum. It could see a rise in the number of jobs in the UK car industry of 7%. British companies—of all sizes—currently pay £1bn to get their goods into the US—this cost could be removed altogether. Perhaps most importantly in the long-term, such a deal would safeguard the liberal trading rules which we British depend on—but which the growing economies of the east are less keen on—for generations to come”.

I think that puts a succinct and powerful case for international trade as a promoter of growth and employment—growth and employment abroad and, critically, growth and employment at home too.