Trade Bill (Second sitting)

Mark Prisk Excerpts

Committee Debate: 2nd sitting: House of Commons
Tuesday 23rd January 2018 Public Bill Committees

[The Chair]

Thank you; that was very useful. It is not necessary for all four members of the panel to answer all the questions. You may want to target them, because we have half an hour left and we want to make the best use of our time.

[Mr Mark Prisk (Hertford and Stortford) (Con)]

Q May I ask Dr Bartels about the remedies section, in part 2 of the Bill? In your view, how does the legal framework for remedies, particularly if a remedies authority is established, compare with others abroad? What are the strengths and weaknesses?

Dr Bartels: One of the features of the package that you have been presented with is a split between fiscal and non-fiscal measures that can be adopted. I am not entirely convinced that that is a very sensible division of tasks. For instance, because of that division, what seems to be missing is the ability to impose quotas—not tariff-rate quotas but quantity quotas—as safeguard measures, which is permissible under WTO law and is done. Because of the split, nothing on those measures is set out in this agreement, and the other agreement only deals with duties, so you are limited to tariff-rate quotas. That is one overall observation. I could say other things about the treatment of developing countries in the other Bill, which I find under-complex, to use a German term that my colleague is fond of.

More directly to your question—again, this links to what I am saying about the split—the major issue when it comes to the Trade Remedies Authority here is that we do not have it in a context that enables appeals. I know that in the other Bill there is a reference to the possibility of an appeals mechanism. The United States is very big on appeals—it is very elaborate. Of course, one can disagree with the way in which the United States conducts itself—we have all paid some attention to the Bombardier dispute and the United States’ interpretation of its WTO obligations—but at least formally speaking there is a sequence of decision making that includes a court, appeals and so on established there, and we do not have that here. It is very, let us say, basic at this point.

On the rest of it, reading this together with the other Bill, I would say in general terms it looks fairly standard. There are some choices you can make when setting up a Trade Remedies Authority, such as the duties that can be imposed and whether you go for a lesser duty rule or not—we seem to be doing that here. One can make a political choice on that, but in general terms, other than the point on appeals of decisions, and connected with that the relationship between the authority and the Secretary of State, which here is extremely close and in other systems might be a little more arm’s length, I think the detail of what the authority can do is fairly standard.

[Mr Prisk]

Does anyone want to add to that?

Jude Kirton-Darling: I would add one thing. I heard the evidence this morning in which there was quite a lot of discussion of the EU trade defence instruments and the EU system, and some of it was a little bit out of date. During the steel crisis, quite a number of reforms came in to modernise and speed up trade defence inside the EU, mainly led by the European Parliament. That is one of the key elements missing from the Bills: the role of Parliament in terms of oversight and scrutiny.

If I think about the role of MEPs when it comes to trade defence instrument questions, we have the right to veto proposed duties and to scrutinise all of the Commission’s proposals, we have access to all of the documents in relation to investigations, and we can demand closed-door meetings with Commission officials to really get into the detail of those investigations. It seems to me that lots of that scrutiny is missing from the proposals on the table. That scrutiny gives a quality to the process of ensuring balanced trade defence instruments that are effective.

[Mr Prisk]

Q So you do not think that having Question Time and a Select Committee on trade is adequate.

Jude Kirton-Darling: There is a clear role for stronger scrutiny. Inside the legislation, there is no obligation on the Secretary of State or the new Trade Remedies Authority to engage directly with Parliament through, for example, a specific Committee of Parliament. In future, that could be the International Trade Committee—an amendment could be tabled to ensure that link and that scrutiny—but at the moment that is not in the proposals. It is a missing link, if you think about what we already benefit from in the current system, of which we are a member.

I would hate to give the impression that what we have is perfect; that is not what I am trying to say. Today, in the European Parliament’s Committee on International Trade, MEPs have voted on a modernisation package to try to rectify some of the weaknesses in the EU’s regime. If you are thinking about what to improve on, our system is not perfect, but, at the same time, MEPs—your counterparts—have a clear role in the process, which is entirely missing from the proposals tabled.

[Anna McMorrin (Cardiff North) (Lab)]

Q May I address this question to Dr Bartels? The Government suggest, to justify the absence of any process for parliamentary oversight, transparency and scrutiny, that trade negotiations need to be done confidentially and under some secrecy. What is your feeling about that?

Dr Bartels: One can look at what is covered in modern trade agreements according to two poles, and then there is a sort of meeting in the middle. On one side, you have the pure market access issues, where you are reducing duties—you are liberalising trade—in certain economic sectors. Those sectors are going to be affected negatively and are not going to be happy about it, because there is competition that they were not used to. To do that, you need to be able to trade sectors off against one another. There is a reason for confidentiality with that traditional sort of trade negotiation. Not everybody would agree—you might say that someone whose job is at risk should get a right to know what is being negotiated—but there is at least a traditional and strong argument there for confidentiality.

On the other side, you have purely regulatory issues, such as the question of what you think in your system of the precautionary principle for health and safety. That sort of principle would normally be dealt with through the normal democratic process, and I cannot see any reason why that should be changed and negotiators should be given the ability to haggle that away, particularly if they are doing that in secret. In the middle, you have rules that are regulatory but arguably are also protectionist, so the trade negotiators would say, “We should be able to negotiate those away in secrecy.” It is hard to know where to draw the line, but it is certainly useful to conceive of what is in a trade agreement according to those two poles.

None of that means that this should be limited purely to the Executive, even when there is confidentiality on market access. Many other countries have systems where parliamentarians have some rights to see what is being negotiated and to be kept apprised of negotiations as they go. The European Union, for instance, is extremely advanced when it comes to that; there are strict limitations in terms of going into and coming out of the room, no phones are allowed, and so on. The US Congress has similar arrangements. There is a palette of options to enable parliamentary involvement, even within the framework of confidentiality. I am not sure that the Bill is the right place to address that sort of issue, but there is certainly nothing like that in the Bill.

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[Barry Gardiner]

Q Given that there is this renegotiation going on, do you feel that those countries might seek to use the occasion as a means of bettering the current agreement in some way? Or would they feel—if they are being told, “You will not get a trade agreement unless you do this quickly”—that they are being bullied into doing it against their will?

Professor Winters: By and large, countries find it very difficult to resist the offer of tariff-free access to a market. If they were put in a position where they were told it was the equivalent of the EPA or nothing indefinitely, my guess is that most would shrug and accept the EPA, but given one quarter of a chance, they would want to talk to us about a more reasonable and satisfactory—and in the end more efficient—process of market access.

[Mr Prisk]

Q Professor Winters, we have before us in part 2 a broad legal framework for a future remedies authority. In your view, is it robust enough? If not, what should we be thinking about amending?

Professor Winters: The Trade Remedies Authority is something we clearly need. Without seeing a lot more details about exactly how it operated, I would not want to say whether it is robust, but I would like to emphasise three things about it. One is, I understand, Government policy; I think the others are not.

The so-called lesser duty rule is important for safeguards and anti-dumping. That is essentially the rule that says the duty you put on goods that are allegedly dumped is the lower of the amount of dumping—the dumping or injury margin—required to make good the British industry. That is a good rule to have.

The two things I am less clear are there at the moment are, first, a very strong degree of transparency. Its operations need to be, with the exception of commercial confidence, pretty much out in the open. The second is that experience through decades in nearly every country suggests that these trade remedies are captured by producer interests. They are complex, they are triggered by the producers complaining that they cannot manage or that they are being cheated, and the whole process essentially favours them.

The really important thing is that, exactly like the House of Commons, you need an opposition. I would urge that we try to supplement the Trade Remedies Authority with an officially sanctioned and resourced group to represent the consumer interest, to do the analysis and actually have the right of audience at the TRA to make the case.

George Peretz: If I may add to that, of course the trade remedies provisions are spread across this Bill and the customs Bill. If one looks at the customs Bill to find out where the appeal mechanism is—as a barrister, my first thoughts go to what the appropriate appeal mechanism is—all you find is a power of the Secretary of State to make appropriate regulations.

It is my personal view that that is somewhat unsatisfactory. There are a number of important questions that arise about appeals, one of which is very important, and that is what the appropriate standard of review is. Is it a merits review, which enables a specialist appeal court to correct the decision maker on questions of fact as well as questions of law, or is it simply a judicial review mechanism, where all the court is doing is saying, “Is this a reasonable decision, whether it is right or wrong?”? It is a very important decision to make and it seems to me that that is one that ought to be made by Parliament in primary legislation and not by the Secretary of State or the Executive in a statutory instrument. That is a decision for you.

The appeals mechanism is important. I said slightly flippantly that it was because I am a barrister, but it is the experience of all regulatory processes that what actually happens at the regulatory stage is often very conditioned and influenced by the form of an appeal. Any sensible regulator will, during the process, have their eye on what the appeal route is, who can appeal and what the level of scrutiny of their decision is going to be.

If you have a very robust form of appeal mechanism, which is open to both parties— the complaining industry but also a range of interest groups whose interests might be affected by the imposition of duty—and if they are allowed routes to appeal that will encourage the regulator, in this case the TRA, to take robust decisions. That is robust in the sense of fully reasoned decisions that will sustain detailed scrutiny, to ensure that all parties are properly heard so that they are fully aware of where the objections to what they are proposing to do are and can properly evaluate them. You get better decision making out of all of that.

I sent the secretary to this Committee a copy of a briefing paper I did for the UK Trade Forum website, which is there if any of you want to read it. It expands a bit on that point but I would emphasise the appeal mechanism. There are other issues about the trade remedies. I have probably spoken for long enough but if people have other questions they could ask about them.

Michael Clancy: I read your blog; it is very good. The other thing that I would say is that the tenure should be made more independent by having term limits. That is quite important in reinforcing independence and impartiality. We have had experience in Scotland of the whole system of judicial appointments being reworked for temporary sheriffs because they did not have a stated term and were subject to the whim of the appointing Ministers. That would be my addition to this discussion.

George Peretz: The provisions for the appointment of members of the Trade Remedies Authority are very similar to the provisions for appointments to the Competition and Markets Authority, which as anyone who has watched the press this morning knows takes very important decisions about the economy. There is a difference with the Trade Remedies Authority, and the argument why you might need a more constraining set of rules governing whom the Secretary of State might appoint. At the moment the Secretary of State appoints the majority and the rest are staff members. There may be an argument for a more constraining set of rules, particularly if the Trade Remedies Authority is—as the customs Bill contemplates—itself given the remit of applying a wide range of economic interest tests as the trade remedies body. That means that even if the TRA accepts that there is a legal basis for opposing a trade remedy, then as a matter of economic interest to the UK it is able to say, “We are not going to do so here because, for example, the consumer interest outweighs the interest of the particular producers affected.”

That seems to me to be a political position: it is balancing the interests of jobs in a particular area of the country against the interests of consumers across the country, to put it crudely. If the TRA is, as the customs Bill contemplates, itself going to be taking that kind of decision, then there is a case for saying that its composition ought to be balanced by statute and that it ought to reflect a variety of different perspectives. In that sense its role is much more political than that of the Competition and Markets Authority.

[The Chair]

We have half an hour left. Incidentally, Mr Peretz’s evidence is available in written format in the Committee Room.

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[Barry Gardiner]

rose—

[Mr Prisk]

rose—

[The Chair]

No, the Opposition failed, so we will give the Government a try. I call Mark Prisk.

[Mr Prisk]

Q Thank you, Mr Gray. I have asked other witnesses about the remedies regime, and I am interested in your views. In a way, you all represent industries that are familiar with this challenge. “Remedies” sounds arcane, but it is really about all the challenges a locality may face with dumping in particular business sectors. What would you want to see in an effective remedies authority, and what would need to change in the Bill to deliver that?

Gareth Stace: Let me start with what would need to change in the Bill. We would like to see more detail in the Bill. The Bill sets out powers to create an independent arm’s length authority—the Trade Remedies Authority—to advise the Secretary of State, but there is no detail. There is little detail of the powers that it might have or of the scope of its remit. I am sure that will come in secondary legislation or after that, but as you quite rightly said, industries that are or have been subject to dumping and unfair trade practices are quite nervous about what is going to happen in the UK, and the more detail we have, the better. That is why at this stage we are quite nervous about what might or might not come out down the line.

[Mr Prisk]

Q We know that there is not a lot of detail—it is a framework—but is there something specific, such as an appeals process, that you want to be teased out in our deliberations?

Gareth Stace: Yes, an appeals process—there is no detail in the Bill—is not even set out as: “The appeals process will be this, this and this.” We do not even know what the basis of appeals might be, because we do not know how the TRA will define subsidy, injury and dumping. We do not even have something to base that on.

Tom Reynolds: It is clear that we need a TRA, and it is certainly welcome that the Bill establishes one. I want to rebut a point made by an earlier witness, who said that trade remedies are invariably captured by producer interests. That certainly has not been the experience in the European system. I am sure that Gareth agrees that that was apparent in the steel crisis—the trade remedy system was slow to react to the producer interest.

We have to read the Bill alongside the Taxation (Cross-border Trade) Bill. My feeling is that the rules for the TRA, which are set out in that other Bill, tip the balance the other way, against the producer interest. There are areas where that Bill and the way that it works with this Bill can be improved, which I would be happy to explore with the Committee.

[Mr Prisk]

Q Is that specifically the national interest?

Tom Reynolds: There are really four points. The public interest test and the economic interest test is of concern because, as Gareth has already pointed out, the lack of detail means it could operate in any number of ways. Our fear is that it might include an over-simplistic cost-benefit analysis that appears very seductive in its indication that the benefit for producers may be outweighed by the damage to the consumers, when it does not show the full story and perhaps the long-term impact to the consumer that removal of a competitive environment for domestic producers creates if the trade remedies are insufficient to keep production here in the UK.

A big concern for ceramics—the country of concern that is dumping into the European Union at the moment is China—is how you calculate the dumping margin in instances where the domestic price cannot be used because it is subject to such state distortion. That detail is crucial to the effectiveness of the trade remedies system.

There are other issues, such as the lesser duty rule—it was touched on earlier. For the proper operation of the lesser duty rule, we would need to see the detail and how you calculate injury. That is crucial. Pushing all of this into the long grass just adds a lot of uncertainty and concern for producers.

Cliff Stevenson: Because the Bill is simply setting up a framework for the TRA and not really having anything more substantive than that, there are only small points that you might look at, but there are some important points. For example, the composition of the members of the TRA is critical because trade remedies is a highly political area of policy where there are very different views. Some see trade remedies as purely protectionist and would abolish them completely, and some see trade remedies as an essential competition policy-type tool to correct multilateral distortions.

I am in the second group. I believe that, in the absence of multilateral competition rules, trade remedies are the only thing we have that allows state distortions and other unfair practices to be addressed. Within the EU, we do not need anti-dumping or anti-subsidies law because we have really good competition and state aid law.

What we want from this legislation—you have to see the two Bills together—is a coherent, robust system that could redress those problems. In terms of this Bill, the composition of the members is very important to look at because, if all the members thought trade remedies were protectionist, we would never get any trade remedies through—or all members might believe that trade remedies were essential. You would want to ensure that there is some balance in there.

There are some other smaller issues that could be significant. For example, regarding the provision that the TRA should report to Parliament annually, I think there could be a little bit more detail on what it might report on, so that, if the TRA was being biased one way or the other, by being obliged to provide certain statistics, such as number of cases opened, measures adopted and so on, it could be assessed.

[Barry Gardiner]

Q Picking up on your last point, Mr Stevenson, in the EU, the Commission is obliged to report to the European Parliament on trade events, so there would be an annual production of just such statistics. There is a lacuna in the Bill in that there is no provision to make such a report to Parliament and to aid parliamentary scrutiny on trade remedies in that way. Is that something that you and the trade remedies alliance would seek to redress? Would you like to see introduced in this Bill some way in which a report ought to be made—an annual report perhaps—to Parliament?

Cliff Stevenson: Yes, what would definitely be of importance is to have a substantial report submitted to Parliament on an annual basis. In the Taxation (Cross-border Trade) Bill, there is a provision on reporting. There is already a proposal for there to be an annual report. The EU anti-dumping regulation is quite specific about what the European Commission must report to the European Parliament in terms of the statistics it must provide. A little more detail ensuring that certain things were provided in this report would be useful.

Tom Reynolds: The question about Parliament’s ongoing role with the Trade Remedies Authority is an interesting one, but so is Parliament’s role in setting up the rules for the system. The point made by Jude Kirton-Darling earlier on about the level of involvement of MEPs in scrutinising and offering amendments on, for instance, the new anti-dumping methodology and the TDI modernisation, which was mentioned, has been integral in improving that legislation from the Commission’s original proposals. I would be more comfortable if there was a more rigorous approach for parliamentarians to get involved in the setting of the rules for the system as well.

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[Barry Gardiner]

Q I want to pursue what Mr Jones said. We have got away from the initial question of the sift Committee. You stressed the urgency of this and the need to try to get things through as quickly as possible, and you adopted an approach to delegated powers and Henry VIII powers of, “Well, maybe they’re necessary in the circumstances”. However, it was your organisation that recommended that there should be a sift Committee in the EU (Withdrawal) Bill. Would that not be an appropriate way of trying to say, “What we’re talking about here is a minor change to an existing agreement, but this is actually a major change”?

We are talking about 100 separate agreements between the EU and Switzerland alone, some of which include free movement of people. There are going to be some major changes, such as those we talked about with Turkey and the customs union, and with Norway, free movement of people and the four freedoms. Do you not think, given that you have already recommended a sift Committee in one form, that a similar sort of mechanism for trying to distinguish between what is and what is not vital, and what should have parliamentary scrutiny, is a sensible way to proceed?

Stephen Jones: Yes, sorry; forgive me for the lack of clarity. My reference was really to the existing provisions between the UK and the EU in relation to financial services. In my assessment, for the purposes of transition and of business services in financial services, the chances of change, and therefore of the need for sift, are zero. There just is not the time. In the context of other areas, where there is an assessment that change is possible, the sift Committee strikes me as a very sensible mechanism to prioritise and assess those changes and the degree of scrutiny that is required.

[Mr Prisk]

Q Mr Bain was very clear about the importance of continuity to business. Can I ask the chambers of commerce in particular, but also other witnesses, about that issue? Clearly, the Bill is about the continuity of existing arrangements. How important is that principle of continuity to your members?

Anastassia Beliakova: It is absolutely critical. Our members are operating on the assumption that during a transition period there will be continuity in our trading arrangements not just with the EU but with all the other markets with which we have a trade agreement of some sort. The working assumption is that they should not be making any changes currently or planning for significant changes in trading conditions in March 2019. Of course we are still waiting for greater clarity from the EU on this over the coming months, but I cannot stress enough that in the immediate future the continuity in our trading relationship with the EU during transition is critical. Our continuity, looking further ahead, with the other markets, is also something that our members want to count on.

[Mr Prisk]

Q Mr Jones, what about financial services?

Stephen Jones: Continuity is very important, particularly through the transition period and on an ongoing basis. We believe that there is an opportunity for a free trade agreement in services between the UK and the EU that prolongs many of the existing arrangements, which are beneficial on a cross-border basis, particularly in markets for wholesale financial services and markets affecting professional counterparties and market-based counterparties, where cross-border provision, passporting and mutual recognition are important to the efficient working of trade not just in financial services but in goods—not just in the UK but in the EU as well.

The economic case for maintaining much of the existing arrangement is significant, but we are, as you know, working with a negotiation envelope as far as the EU is concerned that appears to require change—to require the UK to have less access than previously, in a visible sense. So we need to be seen, I guess, within the context of that envelope, to prioritise what is important for both sides in financial services. In our assessment it is more of the capital, derivative, centralised clearing and—outside my remit but clearly very important—insurance and reinsurance markets, which are professional-to-professional markets operating on a seamless and cross-border basis across Europe, the disruption of which would be quite significant. In those circumstances maintaining as much as we can of the existing establishment regulatory supervisory arrangements around those business activities will be important for the UK economy, but equally for the continental European economy as well.

[Mr Prisk]

Mr Bowles, is that your take as well?

Edward Bowles: There are two things I want to say. One is that the lead time involved for change for a regulated industry—and it is not just financial services but, my guess is, pharmaceuticals and manufacturing, among others—is so long that, to give you an idea, to create a subsidiary where you do not have one, even in a market where you may have a branch, is a minimum 18-month project plan timeframe from beginning to end, and in some cases longer depending on the breadth of products you are dealing with and the number of regulatory approvals involved. Therefore, a degree of clarity around the future timeframe and the continuity in that timeframe is critical. Otherwise you end up creating a high degree of uncertainty, not just for the regulated entities but for all their clients—thousands of clients who would be forced, with scrambling and redocumentation, to look to a different legal entity and to price and measure risk in a different way from the way they are used to doing it with the current entity.

Continuity is key, but the working assumption, as Stephen said, is that there will be change. The question is when that change will come, and whether it will be in one step or more than one step. Will we have sufficient clarity that when we deliver the end state it will be the final end state? That is why the transitional period is critical to get us to the point where the framework gives us a high degree of visibility over what the end state might be.

[Mr Prisk]

Q On the financial services side, can we look at the issue of remedies? Clearly, in the current set of arrangements that is frankly irrelevant in a strict legal sense to you as a sector but, looking forward, the TRA is clearly not going to disappear in two years’ time or after however long the transition period lasts. Therefore, looking at the longer term, what is the relevance to financial services and what are the critical issues that you will be looking for in an effective remedies regime at that stage? Perhaps you can just give us one or two highlights to give us a sense. We have heard about goods so far, which is very important, but obviously services matter as well.

Stephen Jones: I defer to Mr Bowles on this—given his experience with TTIP and equivalent regimes.

Edward Bowles: Obviously a high degree of dialogue is done regulator to regulator, so we are a supervised entity not merely in the home state where we may have our domicile and headquarters but in all markets where we have operation. In fact, your first point of call would be the nature of the relationship in terms of supervisory co-operation between those two entities, and what it is that you are permitted to do, and where any disputes may arise about what you are doing in those markets. In fact, the TRA is probably much less relevant to a highly regulated and supervised industry like financial services than to some others, in which there are fewer regulator-to-regulator forums that would determine the methods and modes of operation.

Stephen Jones: I would just add that the concept of dumping in financial services is, therefore, not strictly relevant.

[Nick Smith (Blaenau Gwent) (Lab)]

Q Mr Bowles, I will ask just a bit more about Standard Chartered and the developing markets in the states and countries where you work. As previously mentioned, your Razia Khan predicts some difficulty in lining up quick deals in Kenya and other places in Africa. What is your view about other countries where your company has long-standing experience, like Vietnam and South Korea? How quickly can those countries respond to these sorts of deals?

Edward Bowles: Thank you for the question. Standard Chartered has been UK-headquartered for the last 155 years, but 85% of our revenues are from Asia, Africa and the middle east. In respect of most of those countries, there are no FTAs, either with the UK or, indeed, with almost any other markets. I was quite involved in my 10 years at Standard Chartered with the negotiations between the EU and Korea, the EU and Singapore and the EU and Vietnam and, most latterly, with those on TTIP, and on India in between times—that has been a slightly less successful product in negotiating terms. The fact is that we have FTAs with some of those markets and some of them are incredibly advanced. Korea and Singapore are incredibly advanced markets. You are dealing with very sophisticated regulators, politicians and others. They completely understand what the UK would be seeking to achieve in any renegotiation post the roll-over of the current FTAs.

There is certainly scope, I think, in some of those FTAs for tweaking, shall we say, and data offshoring would be one of the issues that I am sure the UK would want to look at. The negotiations take a long time. Korea was seven years. Singapore is not yet in force but we have just had a European Court of Justice ruling in relation to one aspect of it that will enable it to come into force soon, but it has been eight years overall. We can cut and paste them, but then the question is, “What are the incentives on each side—which will probably be asymmetric in terms of interests—for tweaking, and what will be the appetite and the timeframe over which you could do it?” My guess is that you would want to do it expeditiously, but the degree of consultation and engagement with other interested industries, politicians, civic sectors and so on, would inevitably build in a longer time.

For other markets that are rather less developed perhaps than Singapore and Korea, it would take longer, because if there is no existing FTA you are looking at a degree of transparency around their regulatory framework and around the concessions they inevitably will be asked to make, and the question is: “What is the quid pro quo for them?” India is a classic example. You have visas, and immigration is one of their core demands. It has always been one of the core issues that has bedevilled the EU-India FTA negotiations and that will be no less the case, I am sure, with the UK than it is with India.