Brexit: Trade in Goods (EUC Report)

Lord Teverson Excerpts

Tuesday 18th July 2017 Lords Chamber

[Lord Teverson (LD)]

My Lords, first, I should like take up some of the points made by the noble Lord, Lord Leigh of Hurley. He seemed to get it slightly back to front. First, I think he suggested that the Commission was vindictive—that it had decided how it would negotiate and it was about time that the Heads of State or Government put them right. It works like this, and it has worked amazingly efficiently on their side, to our detriment: Governments got together in the Council of Ministers and decided a very precise negotiation remit for the Commission, which then gave it to Michel Barnier to deliver, which he did very effectively.

I was privileged to lead a delegation of this House to meet Mr Barnier in the Berlaymont building in Brussels last week, and he made it very clear that the EU wanted a deal, as we have just heard from the noble Lord, Lord Howard of Rising. It absolutely wants to do a deal, and its concern is that we are not capable of delivering the agreement that it wants to make within the negotiating period—hence Michel Barnier’s comment about the ticking clock. The EU is very aware of the time. As the noble Lord, Lord Howard, said, they understand that a deal, whatever it is, will be done only towards the end, because it has to be ratified by member states and the European Parliament as well. The picture that we saw in the newspapers and social media of the meeting between our Secretary of State and Mr Barnier, in which they have their papers and look ready to go and the British side does not, was very unfair—but it summed up very well not just the actual situation but how the rest of the world and the EU perceive that negotiation.

That, however, is not really what I wanted to speak about. I wanted to talk about little and large. Small business is not focused on hugely in the report, although I do not criticise it in any way for that, because there is much reference to it. I declare that I am a director of a company called KCS Print, which is defined as a small company in the print industry. It employs about 30 people and has a turnover of between £3 million and £4 million; it is based in Cornwall, and its main growth area has been the European Union through the single market, in the Netherlands and the Republic of Ireland. Frankly, it looks at Brexit as a major brake on its business. Is that business able just to fly out to China or the United States and spend a lot of time in those places? No, it has a tight and very effective management team but does not have the time or ability to do that. It is easier—this is not unreasonable—to fly to Schiphol or Dublin and do business. I agree with the noble Lord, Lord Howard, that the tariffs are not the problem; the non-tariff barriers are the big issue here—the VAT system, customs checks, rules of origin and the whole area around standards and regulations, which are not a problem now because we have a single market.

It surprises me how united the Federation of Small Businesses is, given that its membership is fairly diverse. It is united on our need to stay as near as we can to the single market, certainly in terms of a transitional arrangement. Even small businesses have supply chains. Yes, we can be more competitive through our prices, through the devaluation of the pound into Europe, but 70% of the market for KCS Print is still in the UK, and it has suffered significantly from the increase in costs of its supply and its raw materials, most of which come from southern Europe. So it is not all win in that area, either.

A number of people have mentioned the automotive industry, and I want to say a little about that with regard to larger businesses. In the south-west, where I come from, we have an automotive industry as well. Even more importantly, we have an aerospace industry—but in Swindon we have Honda, which employs some 3,500 people and produces 140,000 units, or cars, each year. It, too, is centred in Japan which is very concerned, as the Japanese Government have shown, about the effects of Brexit. It is not just about rules of origin; it is also about the whole area of divergence of standards.

Going back to the Barnier meeting, he told us that the trade negotiation between the Commission and the United Kingdom is the exact opposite—a mirror—of the sort they normally do. Most trade negotiations undertaken by the EU are about converging standards: bringing them together to make non-tariff issues melt away and make sure that trade works. The UK will have complete convergence on day one, but the risk all the way through is to convergence thereafter. The way to avoid divergence is to apply European standards to UK ones. This means that we actually lose control rather than take it. Are we going to keep safety and type approvals, emissions standards and end-of-life vehicles the same for the automotive industry? Most importantly, will the British Vehicle Certification Agency be able to issue EU-type approvals post-Brexit? If not, that is a key barrier to the automotive industry, beyond the supply chain.

On the timetable, I am absolutely sure, as other Members have said, that the broad, comprehensive, free trade agreement that the Government quite rightly want cannot be made within the timescale. Mr Barnier pointed out something that we all know but do not necessarily think about. The comprehensive agreement that we want is, in European terms, a mixed agreement, just as the Korean and Canadian agreements are. It has to be broad and cover more than just goods. It has to cover services and all sorts of other areas that modern, broader trade agreements deal with. The problem with those agreements, and the one that we want, is that they have all the benefits but must be approved not just by the European Union—the European Parliament and the institutions—but by all member states. That is even more impossible within the timescale that we have.

If we are going ahead with Brexit—and we are—we need, as other noble Lords have said, an interim transitional agreement, preferably with us as part of the single market and customs union. If we do not do that, we will come to the cliff edge. That is something we cannot afford, whether we are small businesses, importers, large businesses or parts of international supply chains. I remember well that, when I chaired our agricultural inquiry, the chairman of the Tenant Farmers Association almost interrupted me at the end of the session because he was desperate to say, “There is no worse deal than no deal”. We have to make sure that we have those transitional arrangements. I congratulate the noble Baroness, Lady Verma, on her excellent report. Most of all, it is a reality check and I hope the Government will treat it as such.