Lord Whitty
Main Page: Lord Whitty (Labour - Life peer)Brexit: Options for Trade (EUC Report)
Lord Whitty Excerpts
Lord Whitty
That this House takes note of the Report from the European Union Committee, Brexit: the options for trade (5th Report, HL Paper 72).
Lord Whitty (Lab)
My Lords, after a week of excitement in this House on Brexit, it is a little galling that it takes us until 5 pm on a Thursday afternoon to get to what is actually the central issue in terms of our future relationship with Europe—namely, the trade relationship. However, I am very grateful to everybody who has stayed, including the Minister, and I am sure that we will have a good and effective debate.
This inquiry was carried out by two committees. I thank all the members of both my committee and that of the noble Baroness, Lady Verma, and the staff who have produced this report. It was a very interesting exercise. The inquiry was conducted in the autumn of last year and reported in December.
There have obviously been one or two developments since then. We have had the Prime Minister’s speech in January and the White Paper which followed. In effect, the Government have rejected two of the broad frameworks that we considered as options: the option of remaining within the single market, probably via the EEA—what some call the Norway option—and, to all intents and purposes, the option of staying within the customs union. More recently, actually as recently as yesterday, we had the Government’s response to our report, for which I thank them.
These developments have limited the range of formal options and negotiating priorities that the Government have decided to pursue—they have restricted them broadly to what the Prime Minister calls a “bold and ambitious” or an “ambitious and comprehensive” free trade agreement—but they have not altered the concerns, anxieties and requirements that we had put to us from a whole range of sectors at that time, most of which are still valid.
Our collective starting point was that membership of the EU has defined the UK’s trade policy for the past 40 years. It obviously defines our terms of trade with other EU states but, equally importantly, the UK’s trade with third countries is in effect based on terms negotiated by the EU as a bloc, either through EU free trade agreements or shared schedules of commitments under the World Trade Organization. We considered how this might change after the UK leaves the EU. We looked at the European Economic Area, at the customs union, at trading on the basis of WTO rules and at negotiating, as the Government seem now to be intent on, some form of free trade agreement with the EU.
We did not attempt a detailed economic evaluation of each of those options, nor have the Government ever presented us with such an evaluation—which is a bit strange, given the strategic importance of the decision before us. Nevertheless, we looked at what the requirements would be as expressed to us by a whole range of industrial sectors, academics and others who saw the advantages and disadvantages in each of the options. The fact that we are now focusing on a free trade agreement is important, but equally important is to focus on the other option which the Government say is now open: in effect, reverting to trading under WTO rules if there is a “no deal” situation.
Let us look a little bit more at those options. The first point in our report is that the majority of our industrial, business and academic witnesses favoured one option that is now rejected: membership of the EEA—or at least of the single market but the most obvious way to do that was through the EEA. That option has been closed by the Government, but the reasons industry favour it remain. They want tariff-free access, maximum regulatory equivalence and, in many cases, freedom to recruit skilled labour within the EU. Any free trade agreement with the EU would need to go at least some considerable way towards meeting those requirements.
Of course, it is true that the Government rejected the Norway solution because it offends two of their key political red lines: first, the need post Brexit to gain what they regard as total control of our migration policy and, secondly, the need to escape the jurisdiction of European law and of the ECJ in particular. It is arguable that a further deal could have been done on the issue of free movement, but our report does not go into that. We clearly say that, frankly, any liberal trade agreement—an FTA or even trading under the WTO rules—involves some compromise on your sovereignty. In other words, it is a myth that you can take back total control of your borders if you engage in trade in any degree of mutual arrangement with other countries, including the EU. Taking unilateral control is subject to at least supranational or joint processes for dispute resolution and for testing equivalence of regulatory frameworks. In the world of international trade, there is no entirely free lunch.
Our report describes two of the most comprehensive FTAs the EU already has with third countries: its trade relationship with Switzerland, which is complicated and based on more than 100 bilateral agreements within that framework, and the very recent and not entirely implemented Comprehensive Economic and Trade Agreement with Canada.
Although CETA has been branded the most comprehensive FTA in existence, our witnesses were quite clear that existing FTAs, including CETA, do not provide anything like as comprehensive access to the single market for businesses as membership of the single market as such would entail. In a free trade agreement, UK manufacturers for example may well have to comply with the rules of origin. These imply levies imposed by importing nations on the components of goods that originate outside the country. Exporting such goods would cause complications for most of our manufacturing industry.
We also conclude that an FTA with the EU would have to be of unprecedented depth to provide anything like the level of market access for UK service industries. There are great complications in the services trade, and most FTAs do not in any detail cover trade within the service sector. They more or less talk about equivalence of regulatory frameworks. There is therefore no precedent in any relationship the EU has with other third countries that gives us much guidance as to how an FTA would look in relation to the EU. FTAs provide a great deal of flexibility. Of course, we would not have to accept the principle of free movement or the jurisdiction of the Court of Justice. However, we would have to ensure that there was a high degree of regulatory equivalence and that we had a joint arrangement to settle disputes.
We then also considered how the process of negotiating such an FTA would operate. This is the area where we had greatest reservations about what appears to be the Government’s current position. In the context of the tight two-year deadline imposed by Article 50, we concluded that,
“experience demonstrates that FTA negotiations with the EU are complex and slow moving”.
All our witnesses were unclear to downright doubtful about whether the UK would be able to negotiate such an FTA in the same timetable as the UK’s withdrawal from the EU. Ministers continue to say that they would hope to do so; almost everybody else told us that, in any case, the EU 27 and the Commission are likely to take the view that these negotiations would have to be undertaken separately and staggered. There would be a divorce agreement, and that divorce agreement covering such contentious issues as the budget and acquired rights would have to be completed before we could move into negotiating a free trade agreement in any detail. Even if we had an outline commitment to a free trade agreement, the complexity I have described would take considerably longer to negotiate. We therefore recognised that the conclusions would be not only complicated but probably part of a wider agreement which the Government would have to reach with the EU.
There are issues other than trade—security, criminal justice, climate change, cultural and foreign policy relationships, and possibly mutual arrangements on migration—and it would be highly desirable if we did have a very comprehensive agreement, but that would be even more complicated and likely to take even longer. Accordingly, we recommended that the Government should urgently consider and be clear to the nation about whether negotiations on a UK-EU FTA could be conducted in parallel with the withdrawal negotiations and if not—and probably even if so—whether they would seek a transitional trading arrangement in order that the full details of the negotiations could be worked out.
On the issue of the transitional arrangement, the Government’s response is that we will not seek,
“some form of unlimited transitional status”.
Rather, we expect,
“a phased process of implementation”.
Nobody was calling for an unlimited transitional phase, but phased implementation clearly relates to an agreed end. In effect, the period of negotiating withdrawal is considerably less than two years. We will not be starting until the mandate has been given by the Council of Ministers to the Commission, which will probably be in June. Even then, heavy discussions will probably have to await the German elections and will have to be completed before the European Parliament elections. We are therefore talking about considerably less than 18 months. In the absence of clarity on the Government’s position, I therefore ask the Minister to clarify the Government’s view on the relationship between the withdrawal arrangements and the negotiation of a free trade agreement, and on the need for a transitional arrangement.
The other reason why the now discarded EEA option remains relevant is that it illustrates what the EU has sought or found acceptable in the past in the pretty comprehensive trading relationship it has with the EFTA countries. It includes a mechanism to transpose changes in EU laws into domestic legislation on an ongoing basis. We are about to see a great repeal Bill, which will in effect put EU laws into British law. That will mean that, at the point of departure, we will have more or less harmonised or equivalent regulatory structures. It is what happens beyond that that the Government will have to ask about, and the EU is likely to have a starting point that it will require the same of us as it has required of the EFTA nations. Frankly, there is not much reason to suppose that the EU’s starting point in negotiations will be to offer the UK significantly more favourable terms than it does to the EFTA countries.
I will mention one other thing before I sit down. The report is about UK-EU relations but those relations are also important for the prospect of deals with the rest of the world, on which the Government are embarked, and for the sequence of events. For all the talk of doing deals with Mr Trump, New Zealand or India, while preliminary discussions can no doubt take place, no deals can be signed until after we leave the EU customs union and the common external tariff. That is not simple. Even if scheduling what are currently EU tariffs as provisional UK tariffs at the WTO may be relatively straightforward, we will then have to unravel from EU arrangements. Until we do that, it is not possible to conclude other deals, because not only is it unclear whether third countries currently party to an FTA with the EU will be prepared to offer the same terms to a market of only 60 million that they offered to a market of 600 million, it is technically difficult in many cases, because many EU tariffs also have tariff quotas attached. This applies in particular to agricultural and commodity trade. Since many third countries, including New Zealand and the USA, are big in agriculture, as are India, Brazil and most of the developing countries, the divvying up of those tariff quotas will be a very complex early stage in negotiation. This has implications for trade with the third world, as well as trade with the EU as such.
The report is not all doom and gloom; we are merely saying it is difficult. The Government have to recognise that it is difficult and gear up to tackle it. We were a bit critical of the Government’s capacity when we discussed this back in December. We have been reassured to some extent that the Government are getting their act together across Whitehall now, but it is a colossal task. I would welcome anything the Minister can tell us about how the build-up of Whitehall expertise, capacity and co-ordination is going.
Our report is but a snapshot of the debate. It covers different paths that we are now likely to go down. None the less, it remains instructive not only about the realities of trade in the modern world, but in highlighting the trade-offs and the deals that will need to be done on sovereignty and mechanisms. It also brings the House up to date on the complexity and size of the tasks. I beg to move.
Lord Whitty
My Lords, I thank the Minister for that contribution to the debate. I join her in sending birthday greetings to the noble Lord, Lord Price. I gently say to her, though, that there was not much new in her speech. I had hoped that there would be a little more engagement with some of the points made by noble Lords. One of the difficulties as we go forward in this House, and in Parliament generally, is that if the Government continually repeat the same phrases it will increasingly sound like whistling in the dark. It might be whistling in the dark to keep their own spirits up, or it might be to make sure that we do not quite know what is going on. Either way, we need a little more than that. It was a good run-through, but it was only a run-through of things that we had heard before, generally speaking.
There was one little bit that might be new, although I am not sure whether the noble Lord, Lord Lansley, would agree with me with his interest in customs, I thought the phraseology on the customs union was slightly different, and I will look at the precise text on that and see if there is a new measure there.
I am not going to make a great speech tonight; I thank everybody who has participated in the debate, particularly the noble Lord, Lord Gadhia, my noble friend Lord Mendelsohn, and others who had not participated in the debate; everybody else who spoke had participated in committees. I thank them very much for their work, as I thank again the staff. I just wanted to mention one thing in relation to staff: the clerk to our committee, Alicia Cunningham, has actually left for separate duties in this House this very week. I would like to put on record in this debate the work that she has done for us.
Of all the experts that were going to be quoted in this debate, I had not expected Mike Tyson to be one of them. However, knowing how the EU negotiators react is an important missing part of the jigsaw in most of this debate. There was a point in one of our debates, and the noble Baroness, Lady Verma, and I are probably the only ones who remember it, when one of our colleagues—he was a noble and gallant Member of the House—said, “In these situations, I like to see it through the eyes of the enemy”. That might be going a bit far—I prefer the term “counterpart”—but nevertheless, we did not get much of an inkling during the course of our discussions with the Government that they were really getting enough intelligence on where the EU is coming from.
One of the things my noble friend Lord Lea and my noble friend Lady Donaghy will remember is our irritation, in trade union discussions, when the press always said that the trade unions made a demand and the employers made an offer. The reality of this is that that is how Europe sees this: we are the demander and it has to deign to make an offer to us. It has interests to preserve, but those are not necessarily the same as ours. We want to maintain a good relationship and so does it, but it sees us as the people who are walking away and, to some extent, stopping paying the rent at the same time. We start from that psychological disadvantage. If we do not try to understand and cultivate a better understanding of our position among our EU partners—I will still call them that for the moment—then this negotiation will fail. I hope the Government are up to this.
We need proper engagement in this Parliament. We are going to discuss parliamentary scrutiny again on the Bill, but whatever the results, there has to be a greater degree of candour between the Government and Parliament as we go through this process. We do not expect the Government to give their total negotiating hand to the world at large. I think my noble friend Lord Lea said of our report that it was ruthless and realistic.
Lord Whitty
I thought for a moment that he was talking about me; it would have been the nicest thing he has ever said about me.
We need to be realistic and some of the statements by the Government are self-evidently not realistic at this point. If this House is to be taken along with the Government during this very difficult process, we need to have an honest and realistic discussion of what the options are and how we are to deal with them. We need that to be on a systematic basis and I hope that the Government have taken that lesson from this debate. Certainly, we in our committees will be both honest and realistic. We will also recognise the limitations. But the Government will not get through this if they do not get parliamentary support in both Houses. I hope they recognise that and that we can therefore have a perhaps slightly greater engagement than we have had so far with Ministers and government. That way, maybe we can get through this difficult process. In the meantime, I thank everybody who has participated in the debate.