G7 Summit and Future Trade Relations

Lord Whitty Excerpts

Thursday 21st June 2018 Lords Chamber

[Lord Whitty (Lab)]

My Lords, I thank the noble Baroness, Lady McIntosh, for this timely debate. I am somewhat worried that there are not many speakers; indeed, I am the only Back-Bench speaker. I intended to participate in the debate after contributions in support of the noble Baroness from many sides of the House. I will utter a few correctives to the overall approach.

I certainly agree with the noble Baroness, Lady McIntosh, that this is a crisis point for the world and the UK. Unfortunately, the two coincide. The timing of Brexit, along with the timing a breakdown in the cohesion of the G7 and the rejection, in many respects, of the WTO order by the United States, presents us with a double problem. The noble Baroness also pointed out that the British trade balance has moved in the wrong direction, with the notable exception of Yorkshire. Despite the low level of sterling being a bit of a cushion hitherto, we need to take that signal very seriously. The situation underlines the need for us to come to terms rapidly with the EU on our future trading arrangements—thereby moving into the 36 countries that have a trading agreement with the EU—and how they will apply to the UK and beyond.

However, I intended to make two rather broader points. My first concerns how the theory and actuality of world trade sometimes clash. Secondly, I want to refer to the political reaction in many countries, including our own, against the perceived consequences of free trade. I am interested in two news items from the past few days. First, the Charlevoix communiqué, which was very noble. It talked about many things but did not say much about how to extend freer trade. I was also taken by a poll in the United States, which indicated that nearly 80% of the population thinks that the present system of free trade does not benefit them. I am afraid that this may well be repeated in many other countries.

As to what we do about it, my mind is taken back to my youth, which was quite a long time ago. In far left circles, there was an argument between those who argued for socialism in one country and that any trade barriers would defend the building of socialism—as espoused largely by the Communist Party at the time—and those who argued the opposite, as espoused by some but not all strains of Trotskyism: that workers of the world should unite and we all benefit from trading with each other, as long as it was not in the hands of the capitalists. Some of those arguments are still going on. In a sense, I am not surprised that they are still going on in the Labour Party and the far left, but I am surprised that they seem to extend, in a rather mirrored form, to the right of the political spectrum and to the Cabinet, between those who are for a Brexit that is a sort of little England taking control and running our own affairs, and those who see us as a buccaneering global power doing deals with everybody but with nobody restricting the way we do it.

The reality is that progress towards freer global trade on a multilateral basis had already stalled long before President Trump came into office. Indeed, I go back 20 years to when we began talking about the Doha round for a multilateral trade agreement that never transpired. It partly fell on its face—I speak as a former Minister of Agriculture—because of the inability to deal with agriculture in that context and protectionism within it. In fact, we moved from that ambition to relying very heavily on regional free trade areas or near free trade areas—the EU, obviously, but also Mercosur, NAFTA and the Pacific agreement. It was expected that the blocs would have deals between them. That, of course, has not happened. Indeed, the whole TTIP saga shows that it is very difficult to make it happen. Therefore, progress towards world free trade under a rules-based system has been stalled for a long time. It has been replaced by some serious inconsistencies between different approaches in different parts of the world and some weakening of the rules in the World Trade Organization et cetera.

Meanwhile, we have the political reaction. In the United States, Europe and many developing countries the political reaction has been against any further reduction in trade barriers. It is denounced in some circles as populism. Populism is basically an idea that the lower orders find attractive and the elites deplore. In this context, the ability of the European Union and the powers that be within Europe to face down this popular reaction, or to convince those who, for understandable reasons, are beginning to support that action, is one of the big political problems of our time. There has been a very serious reaction against the effects of free trade on people’s jobs, on the structure of industry, on the nature of employment and on the degree of migration that some of that free trade has been associated with.

We also have to remember that they are not entirely wrong. The lesson of history is at best mixed. After all, the UK grew to its manufacturing predominance behind high barriers—plus a bit of imperial preference. So did the US, Germany and Japan. More recently, so did China. It is only very recently that China, having become a successful power, has emulated the United States and Britain in earlier things and, having developed its industry behind barriers, become a great advocate for free trade. At the Davos before last, China claimed that it was the biggest advocate of free trade in the world. The world is actually in a bit of a mess on this.

Democracy is also in a bit of a mess, because when the population blame the world order for their problems and not their own Government we see a kicking over of the traces. We see it in the election of President Trump, in Brexit here and, in a slightly different context, in the election of anti-migration Governments in Poland, Italy and other parts of Europe. We need to grapple with that. It is no use assuming that the rules under which the WTO has operated will work for ever. There is a fear that the supposed rules of the WTO are not being enforced properly and that, as a second order issue, the enforcement mechanism of the WTO is neither accessible nor effective in enforcing those rules and that it takes an awfully long time over it.

But there is another aspect. Whereas rules on, for example, labour standards, modern slavery, treatment of workers, health and safety and so on are often not enforced as part of trade agreements—likewise, environmental standards are not being properly enforced—some aspects are, directly or indirectly, because of the world trade order. For example, on state aid or preferential public procurement states can claim breach of WTO rules and get the WTO to do something about it. The rules that apparently everybody agrees with in standards, treatment of workers, the environment, safety and product standards are not being enforced properly, whereas the rules related to government intervention are being enforced rather officiously—on occasion, they are even claimed to be part of the US Government’s attempt to turn over the WTO procedure.

This suggests that the world trade order and the political reality are getting seriously out of step. We might need to rethink not only how we deal, in the G7 and elsewhere, with world trade and how we take immediate steps to off-set the detrimental effect of Brexit in our own trade negotiations, but whether the WTO rules and disputes procedure are right or whether we as the G7—I hope led by the EU while we are still a member—ought to take the issue a little more seriously and look at how the system as a whole works under the WTO.