Transatlantic Trade and Investment Partnership (EUC Report)

Lord Trimble Excerpts

Tuesday 17th June 2014 Lords Chamber

[Lord Trimble (Con)]

My Lords, I join other members of the committee in thanking the staff attached to the committee for the help that they gave us in producing this report. I would also like to express my appreciation of the chairmanship of the noble Lord, Lord Tugendhat, who handled these very complex issues in a skilful manner, as noble Lords will have seen demonstrated by his comprehensive introduction to this report this afternoon. That enables me to cherry pick, as I want to go to one particular bit of evidence that we received which I find absolutely fascinating.

This may not be news to other members of the House or the committee, but it was considerable news to me. I refer to the evidence of Professor Richard Baldwin, the director of the Centre for Economic Policy Research, who described to us the main factor behind what he called the sea change that has taken place in international trade over the past two decades. I will paraphrase what he said in explaining that sea change. Professor Baldwin said:

“Around 1990 the ICT revolution changed the nature of trade in the sense that it allowed stages of production that were done within a factory to be dispersed overseas”.

In a sense, that was nothing unusual: it had been happening between the rich countries—between the US and Canada, and with western Europe and the Common Market and so on. However, apparently, what changed since the 1990s was that that could happen along a north-south axis, between the US and Mexico, Germany and Turkey, Japan and Thailand. He said:

“It was a global change, driven by the ability to co-ordinate complex activities overseas”.

What was happening was that there was,

“not just goods moving between production bases. It was that ideas, knowhow, training, capital and people were moving inside rich company factories”.

At a later stage—on page 28 of the evidence document—the professor said that,

“the know-how is staying inside firms but crossing borders”.

and that possibly the best way to think about that is that,

“the notion of national competitiveness or comparative advantage … has been denationalised”.

That is a fascinating aspect of globalisation, which I am sure in general would be a good thing.

However, as Professor Baldwin says, that development requires particular forms of discipline. The firms are connecting across borders, so things such as infrastructure services, telecommunications, capital flows, investment insurance and intellectual property right assurances are transferring and that itself needs particular assurances to be built in so that companies can proceed to do that.

Apparently, once that started, the nature of some trading agreements changed. Those had developed through a series of bilaterals between Japan and its factory economies and between the US and its factory economies. The nature of this,

“makes it sensible to knit together some of these agreements”.

That is basically what is happening in the large agreements we are seeing, starting first with the Trans-Pacific Partnership—TPP—which started to knit those things together. TPP is, in effect, knitting them together under a US template, and the European Commission realised that in these circumstances there needed to be a European template on the table as well. That is the reason for the sudden emergence of TTIP, so that is the background to what is going on.

The second major point that the professor made, which was touched on by other noble Lords, is that a lot of what is happening here aims for regulatory convergence or harmonisation. That process has started and is going on. However, as was pointed out by the noble Lord, Lord Lamont, there is considerable bureaucratic resistance to that convergence and harmonisation, as national regulators are reluctant to see powers move from them to other ways of doing things. As the professor said,

“That is the best that TTIP will do: start a process in which, first, the regulations stop diverging and the existing ones start to move, or we get mutual recognition. That is a process, and the best we can hope with TPP is to set in place a framework for … going forward”.

The big thing is,

“starting a process, so I do not think it will be done at the end of this year or anything”.

He said that in a sense one should not be concerned about not meeting those targets; the important thing is that people are discussing issues and making progress in a dialogue, and,

“a lot of this stuff can be done without signing a free trade agreement”.

I can perhaps see how those comments chimed in with some of the evidence we got from the City, particularly from TheCityUK. Noble Lords will find that on page 37 of our report, which deals with the existing provisions for a dialogue on regulatory matters between Europe and the United States. That existing dialogue is criticised, and those criticisms are set out in the report at that stage. TheCityUK said to us that it was well aware of the reluctance of the Americans to put financial services on the table and the way in which they wanted to ensure that the Dodd-Frank Act was not in any way reopened. I hope I am accurately repeating what TheCityUK said to us—they had no great expectation of there being any significant move in terms of enabling financial services to be more liberalised. However, what they want is an effective and continuing negotiation or conversation between Europe and the United States. This might be the most important thing that comes out of this.

Reference has been made to having a living agreement. Reference has also been made to the evidence we received from the noble Lord, Lord Mandelson, who used quite a few interesting metaphors. We have had the noble Lord, Lord Lamont, talk about his phrase about great trade agreements being a snapshot and what we really wanted was not just a snapshot—a picture taken at a moment in time—but a movie that is going on over a longer period of time. I have no great difficulty with the noble Lord’s reference to brownfield and greenfield. When he was referring to the difficulty of getting regulatory convergence in some areas where there were existing regulators, he likened that to a brownfield site, which is much more difficult to work with. It is much easier to work with greenfield sites—sites where there are no existing regulatory arrangements. The noble Lord, Lord Mandelson, at one point referred to moving into virgin areas where a more comprehensive set of proposals could be made. I am sure that will be necessary. I suspect, too, that the process that Professor Baldwin described about the way in which competitive advantage has been denationalised, in which firms are transferring know-how across borders into third-world or developing countries is a good thing and one which needs to be encouraged.

If we can get TTIP with all the bells and whistles, good; if we cannot, it is important we should not give up and say “Oh dear, opportunity lost”. We should ensure there is an effective dialogue put in place which can then be built on over time.