Taxation (Cross-border Trade) Bill (Second sitting)

Mel Stride Excerpts

Tuesday 23rd January 2018 Public Bill Committees

[The Chair]

I think the Minister would like to ask a question at this point.

[The Financial Secretary to the Treasury (Mel Stride)]

Q Thank you very much for your contribution so far. In the previous sitting, we had a witness representing consumers—from Which?—and she made the point that she would be concerned if there were no lesser duty rule. She was concerned that consumers would be unduly damaged by any trade remedies that we might undertake under those circumstances. Do you recognise, as a panel, that there are risks to consumers in solely relying on remedial action, which takes a view on the dumping margin, which may be very significant but is equally in excess of those changes required to remedy the injury being incurred by producers? Or do you think that consumers are always going to be safe under an arrangement without a lesser duty rule?

Kathleen Walker Shaw: My union is of a school that believes that, in terms of remedies, we should be looking to a much broader assessment of what is taken into consideration, so we have welcomed the recent movement at the European level on trade defence measures and consideration of environmental and social issues. That is a bit of progress. We would have liked more of that progress. What we do not want to see is a narrowing of trade defence instruments that cut out the scope for that. Guaranteeing consumers good prices is one thing, but keeping the quality of good manufacturing in the UK is something very close to home for our members—obviously not just of our union, but all colleagues here. It is an issue of getting that balance.

The EU trade defence mechanisms and its anti-dumping rules are still within the WTO rules. For us to be going bargain basement on WTO is perhaps not the safest bet for dealing with a post-Brexit economy. We would like to see robust trade remedies that protect our industries from unfair competition, rather than working on the margins of the risk of putting good, competitive industries in the UK out of business.

[Mel Stride]

Q I totally accept the argument that if a lesser duty rule is not fit for purpose, it is not fit for purpose—if it is not operating as you would want it to, that is a problem. However, setting that to one side, if you have a lesser duty rule that does what it is meant to do and the injury that producers have suffered has been remedied as a consequence of the lesser duty rule changes, I cannot understand why those producers should be concerned and why you would want to remove that—and, in certain circumstances, have additional remedial punitive tariffs or duties apply over and above those that would meet the injury suffered by the producer. That would be simply at the expense of the consumer, and indeed other companies that were relying on the use of those imports in their production processes. That is the bit I do not quite get.

Kathleen Walker Shaw: It goes back to the point that it is very difficult to assess that accurately.

[Mel Stride]

Q If we could assess it accurately and make it fit for purpose in that sense, you would not object to the lesser duty rule? Your objection is to do with how it is framed rather than the principle? Would that be right?

Kathleen Walker Shaw: Our great concern with the Bill in its current form is that the provisions are not there to guarantee that. As our colleagues have said, the resources in terms of Government trade experts are not there to guide us through. For the best part of more than 15 years, we have not dealt with trade. You will need the resources to get those injury claims accurately assessed, and we have no confidence that the provisions are there in the Bill to guarantee that.

Rosa Crawford: I think this links with the issue of who is making the assessment. We have a concern about the parallel Bill to the one we are considering here: the Trade Bill, which sets out the provisions to create the Trade Remedies Authority. There is nothing in that Bill that indicates who will be on that authority. For trade unions, it is important that we have equal representation of trade unions and employer representatives, because we are directly involved in those sectors and we believe that trade remedies should be assessed using the insights of those directly affected in those sectors. It is unfortunate that from the Trade Bill we do not have confidence that we will have that representation, but we hope that we will see it developing in the legislation.

If trade unions were asked honestly to assess the lesser duty rule—if we had that discussion and we were genuinely taken into the process—that would be a very different conversation. At the moment, through this Bill we are being given a compulsory lesser duty rule without having seen any evidence that suggests that we need it and it is desirable. I would flip it round and say, why do we need the lesser duty rule and how are trade unions involved in the assessment of its effectiveness? Consumers are also workers who are employed in some of these industries, and they will not benefit from having unfair trade practice disadvantage them and the quality of their goods. That is something we must bear in mind.

[Mel Stride]

Q A final question to Rosa, which goes back to Mr Menzies’s question. What is the specific trade case you can cite where the application of the lesser duty rule has failed?

Rosa Crawford: I refer to the specific case about solar panels, and I am happy to provide more information. The trade remedies alliance has done additional research that we can supply to the Committee, so there is evidence that we can supply that it has not been effective.

[Nic Dakin (Scunthorpe) (Lab)]

Q On the lesser duty rule, as a result of things such as the steel crisis, the EU is moving to be exception-based, in line with Canada, Australia and others. Is there a lesser duty rule anywhere else in the world that will operate like this one?

Ben Richards: Not that I am aware of, and I think that what happened with that steel crisis is one of the reasons our members do not have confidence in what is in the Bill at the moment. Even with the reservations that we have about the way EU trade remedies worked, as Kathleen spoke about, the EU was trying to deal with that situation. Unfortunately, our members felt that it was their own Government who were holding back the process of imposing sufficient remedies at a European level to deal with the situation of Chinese steel dumping.

--- Later in debate ---

[Nic Dakin]

Q What is your view on the Henry VIII powers in this Bill and their impact on this area of legislation?

Joel Blackwell: It is a good question. Referring back to Ms Blackman’s question, I think all Henry VIII powers should be subject to the affirmative procedure unless the Government give a compelling reason, and we do not think that that has happened in the Delegated Powers Committee note. The six Henry VIII powers contained in this Bill are not as wide as clauses 7, 8 and 9 of the European Union (Withdrawal) Bill or the clauses we have seen in the Legislative and Regulatory Reform Act 2006 and the Public Bodies Act 2011. They are constrained merely by the fact that this Bill is focusing particularly on taxation, border trade, customs arrangements and what-have-you. So I think, in keeping with the views of the Delegated Powers Committee, that the affirmative procedure would be sufficient in this context.

However, parliamentarians, particularly in the House of Commons, have made it clear over the last few months that there are issues with the scrutiny of delegated legislation—more so than they have since we have been doing our research. In particular, there seems to be a view that they would like to have more meaningful and effective oversight over Brexit SIs. The sifting committee was intended to be part of that, but at the moment the sifting committee will only look at clauses 7,8 and 9 of the European Union (Withdrawal) Bill and will not touch the other Brexit-related Bills. If it is still the view of the House of Commons that they would like to look at all Brexit-related SIs then you could, for example, insert into Standing Orders that the new European statutory instruments Committee looks at clauses 42, 45, 47 and 51 of this Bill if it so wishes.

[Mel Stride]

Q Thank you for your evidence. The negative SIs, on balance, given that they do not necessarily get “called in”, for want of a better expression, are on average scrutinised less than affirmative SIs, but is there anything that would in any circumstances stop an Opposition party calling one in? Is there any reason why they would be out of the reach of scrutiny, should the Opposition decide that more scrutiny was appropriate?

Joel Blackwell: A Member of either House who wants to pray against or seek to annul a negative instrument has to do so within a 40-day period. That is one of the restrictions: you have to do it within 40 days, otherwise you have the situation that arose with the personal independence payment regulations and the student fees regulations. The Opposition wanted to debate those regulations but the 40-day period had ended, so they used Opposition day debates in another Session. They had to hold the debates on “revoke” motions, and there was the issue of whether those would be statutorily binding if the Government were defeated. It turned out that the Government did not vote at that point. So there is that limit.

We think the negative procedure is fundamentally flawed, because in order to debate a negative SI, an MP has to use an early-day motion, for which no fixed time is allocated. That means that whether a negative instrument is debated is purely in the hands of the Government. We would like to see that changed. In “Taking Back Control”, we proposed that a new sift and scrutiny committee should be created, and that that power should be given to that committee. You would have to tweak Standing Orders to ensure that the debate was heard, but that is our view.

[Mel Stride]

Q Given where we are with secondary legislation and Brexit, which means there is rather a lot of it, can I clarify that your position is not that we should not have negative-procedure SIs, but just that some of them should perhaps be affirmative?

Joel Blackwell: Yes, absolutely. The negative procedure plays an important role. There is legislation that is extremely technical and almost administrative in nature, for which the negative procedure is appropriate. In our view, the scrutiny procedures in the Commons—not in the Lords—are inadequate. Our position is not that the negative procedure should not exist, but that something needs to be done to improve MPs’ ability to debate those SIs.

[Peter Dowd]

Q This is one of the biggest political and constitutional shifts that most people in this room can remember. The House of Lords Delegated Powers and Regulatory Reform Committee, to which you referred, said it is a massive transfer of powers from the House of Commons to the Crown. There is also the general issue of all the delegated powers that go with the withdrawal Bill, this Bill and the Trade Bill. In those circumstances, do you agree that this is more like a new constitutional precedent for a land grab by the Government from Parliament, and it has nothing whatsoever to do with the aptitude or the adroitness of Members of Parliament? It is about a constitutional and parliamentary stitch-up.

Joel Blackwell: I do not think I would agree in those terms. There are serious constitutional issues raised by the withdrawal Bill and the related Brexit Bills. This is not the first time that the Government have used Henry VIII powers. This is not the first time, nor will it be the last time, that we see framework legislation, or skeleton legislation. In all honesty, the use of delegated legislation is unavoidable in legislating for Brexit. Framework legislation is probably unavoidable for Bills that deal with issues such as welfare and indirect tax law, particularly if they are subject to change and involve highly complex and technical detail. The key is parliamentary oversight of that.

There are numerous ways that you can constrain powers in Bills. We have seen some attempts to do that in the House of Commons, and no doubt we will see that happen in the House of Lords with the European Union (Withdrawal) Bill. Fundamentally, though, although you can try to tightly define powers or to insert a list of actions that you are not able to use SIs for, you are ultimately going to have to confront the inadequate procedures for scrutinising negative and affirmative instruments in the House of Commons; otherwise, it will not matter. If you really want to take back control and have meaningful and effective oversight of delegated legislation, you have to focus on improving the negative and affirmative procedures in the House of Commons.

--- Later in debate ---

[Peter Dowd]

Q On the point about tertiary, are you saying that you have fundamental issues with tertiary legislation?

Joel Blackwell: The fact that it is usually not subject to any parliamentary scrutiny is of concern to us.

[Mel Stride]

Q On that specific point: if, for example, HMRC was to produce a small amount of guidance on a small part of the customs process, why would it make sense to make that subject to potentially being a regulation, rather than having it as a public notice? Why would you want to clog Parliament up with all these additional items, which may be very insignificant in some senses—in a grander sense?

Joel Blackwell: It is a good point. Specifically on this Bill, it is the fact that it says it can do what regulations could do and that would be an issue. In terms of guidance codes of practice, they are laid before Parliament and that is not the case for this Bill. You would not necessarily have to clog up the system with things that are extremely administrative in nature, but there is the fact that Parliament is delegating a legislative power to the Government and if you can do what is done in regulations, it would make sense that they should be subject to the same level of parliamentary scrutiny as those regulations.

[The Chair]

Kirsty Blackman, this will probably have to be the last question, depending on how lengthy the answer is.

--- Later in debate ---

[Nic Dakin]

Q How does the UK’s proposed system of public and economic interest tests compare with elsewhere, and are you happy about the proposals as they currently are?

Dr Laura Cohen: I want to explain that the EU uses a Union interest test as a sanity check, to balance the possible conflicting interests of member states. The wording of the rules around that test are crucial. For example, in the tiles renewal that I just talked about, the Official Journal text says:

“In weighing and balancing the competing interests, the Commission gave special consideration to the need to eliminate the trade distorting effects of injurious dumping and to restore effective competition.”

It is essential, if the UK is doing that sort of test, that such clarity of purpose is in the Bill that you are considering. It is not at present.

I would argue, as my colleagues said earlier, that addressing dumping is always in the long-term consumer interest because it restores a competitive market. We would expect the Competition and Markets Authority to take strong action if UK companies were not playing by the rules. In the absence of international competition laws, strong trade remedies are the best we have. The EU is only one of five countries or areas out of 32 main anti-dumping users in using that type of test. In Brazil and Canada, it is a conditional test used in certain circumstances only.

What is the UK proposing? First, I want to state that the WTO does not require a public interest test. It appears in the Bill as if the UK is proposing something very new to replace the Union test. That seems to run counter to the principle that global free trade cannot mean trade without rules. As some of the previous witnesses said, three opportunities are provided to stop remedies against rule breakers. The text in the Bill suggests the three stages, the first of which is an economic interest test by the TRA. The research commissioned by the Department for International Trade strongly hints that that may contain a cost-benefit analysis and/or an economic model. No other country uses that approach. The USA tried it and stopped. The Union interest test is just a sanity check. Secondly, if the Secretary of State does not like the result by the TRA, he or she may overrule it with their own economic interest test. Finally, that may be overruled again by the Secretary of State’s public interest test. A recent article in The Telegraph—we can provide a link if the Committee wishes—alluded to the implications of a potential UK-China free trade agreement and inward investment being weighed up in such a test. If true, that would be highly alarming.

Those second and third tests are not carried out in the EU. They add a lot of uncertainty to the process, particularly with a very unclear presumption at present in favour of adoption of duties in the Bill text. No wonder some UK manufacturers are scared witless by this. I think you heard similar emotion from the unions. Manufacturers have enough uncertainty around Brexit to cope with, without the fear that if they bring a case, despite dumping and injury being found there will be three chances for that ruling not to be implemented, and they might have all sorts of legal challenge. We heard this morning that the Bill is not even clear if we can do that.

[Mel Stride]

Q Thank you very much. It is very good to see you again—I know we had a very recent meeting, Laura. Just for clarity, because I do not know whether this suggestion was being made or not, from the Government’s point of view we do not equate sensible, proportionate trade remedies with protectionism at all. We see the value of those, just as everybody else on the Committee, and indeed yourselves, does.

Can I just go into the area of the lesser duty rule in a little more detail? To the extent that the lesser duty rule functions as proposed, and it does provide remedy for injury caused through dumping to those producers who have been affected, why would you want to go further than that in terms of a potential remedy? Why would you want to go beyond that particular threshold? The argument from consumer groups is that that will then start disproportionately to damage consumers and those businesses that use those imports within their own production processes.

Dr Laura Cohen: I am going to let Gareth answer first. Then I will come back and refer to what the unions were talking about; I have some evidence from the alliance.

Gareth Stace: It seems that we are constraining ourselves in the UK when we do not need to. One of the aims of Brexit was to strip things away, make things more simple and have fewer people employed working on these things; much of what we have seen in both Bills seems to add layer upon layer that is probably not needed. The lesser duty rule is used quite a lot in various different regimes, but it is not used in the US at all. We want to create strong links with the US in terms of trade, so that seems a bit odd.

We could say yes, but I could not tell you that if we did not have the lesser duty rule, we would have seen less dumping in recent years. The lesser duty rule has not meant that new cases did not stop dumping. The point I would like to make is this: we are always told that the lesser duty rule ensures that the consumer is not ripped off—that prices do not rise significantly because tariffs are imposed at too high a rate.

I have an example. In the hot rolled coil case recently—hot rolled flat is used for car bodies and washing bodies, but I am using the example of the car—the injury margin was 17.5% and the dumping margin was 29%. That is a difference of 11%. So the 17.5% was applied, not the 29%. If we think of a luxury car that cost €45,000, because this is a European example, if the lesser duty rule was not applied in this case, it would increase the value of the €45,000 car by €16. We are not suddenly going to see runaway costs and the poor old consumer having to pay lots and lots more. We are going to have a robust system that ensures that we have free liberalised trade continuing as a safety valve. In that case, it increases the cost by €16 on €45,000.

[Mel Stride]

Q Specifically, what is the justification for going beyond in your trade remedy measure that which puts right the injury to the producer? What is the argument as to why you should go even further still?

Gareth Stace: One of the things that we were talking about right from the beginning of this process was that calculating the dumping margin is a really easy process. It can be done fairly quickly. It does not need a lot of people to do it and does not need a lot of work from industry and the Government. Calculating the injury margin does. It is a bit of a black box—you do not know what is going to come out of it—whereas the dumping margin is very transparent.

We said right from the beginning that if you have a clean sheet of paper, why not just go for the easiest and quickest system, so that you could get provisional measures in place very quickly? In the US, they get them in in 45 days, whereas in Europe until very recently, it has been after nine months. There is a really good opportunity to do that. I am not sitting here saying that we have to have 29%, not 17.5%—the point is that it is not a huge difference.

If the Trade Remedies Authority did the dumping calculation and then said, “Well, actually, it is 29%; we think it could probably be effective at perhaps a bit less,” it has the flexibility to do that—you would have the economic interest test and the public interest test to weigh that up—rather than having a fixed system that says, “I do not care what the dumping margin is; we are going to ignore it and are only going to go for the injury margin.”

[Mel Stride]

May I be allowed one final question?

[The Chair]

Mr Cranshaw wants to come in at this point. I have five or six other people who want to ask questions. I ask Committee members to make their questions as condensed as possible, but still factual. I call Mr Cranshaw.

Ian Cranshaw: The chemicals sector exports a massive proportion of our product. We are an import-export business, so free trade is something that we have always encouraged. We are free traders: 60% of our product goes to the EU, 75% of raw materials come in—it is products that cross borders multiple times, and integrated supply chains. We do want that. Sorry, I had not actually got to my point. Can I come back on that?

Dr Laura Cohen: I want to support what Gareth said. These are subjective and time-consuming calculations. As we heard from the unions, these will require stipulating what profits industries should make. They can only underestimate injury because they do not cover, for example, whether there is a general subsidy in the country that is doing the dumping.

It is not compulsory in the WTO: only nine out of 32 main anti-dumping—AD—users have them. Australia and, imminently, the EU will have conditional use. The UK has no such provision and is not even thinking about pasting it into the Bill. Out of 32 main AD users, only three—the EU, the Eurasian Economic Commission and Brazil—have both a public interest test and a lesser duty rule. The EU is moving to a conditional lesser duty rule, and Brazil has a conditional public interest test. Why does the UK want to be such an outlier?

[Mel Stride]

Q On the public interest test, are you saying that there are no circumstances whatever under which the Secretary of State might legitimately be concerned about the remedies being taken—for example, on the grounds of national security where particular components might need to come into the country but would otherwise be choked off as a result of recommended measures?

Gareth Stace: Picking up on Laura’s earlier points about the economic interest test and public interest test, at the moment there are six tests. Six! You only need two: an economic interest test that a TRA does, which the Secretary of State looks at and takes note of; and, I agree, you need a public interest test at the end, because there may be those extraordinary circumstances where it is or is not in the public interest to apply or not apply tariffs. But we only need two, not six—not five economic interest tests and one public interest test. That would speed up the process.

[The Chair]

I am going to Anneliese Dodds next. We must finish at 5 o’clock and I am conscious that there are several people wanting to get in.