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

Nicholas Dakin Excerpts

Tuesday 23rd January 2018 Public Bill Committees

[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.

[Nic Dakin]

Q Can I come to Kathleen? The lady from Which? did not actually refer to the lesser duty rule with respect to the Minister. She did refer to the economic test. Of course, everybody recognises that there should be an economic test, but there are a number of tests—public interest tests, and tests by various people. I noted that you, Kathleen, said that you were alarmed by the state of the current proposals. What needs to change in them to remove your alarm?

Kathleen Walker Shaw: The introduction of the economic interest test in itself, and then a further public interest test that the Secretary of State would then make a final decision on, is a confusion. First of all, the economic interest test is not defined clearly enough in our view, in terms of what it is assessing. The public interest test is just not defined at all. We have to assume that that would be an issue of national security, but a concern that we have about the economic interest test in terms of the procedure as laid out—it is still very vague in some of these areas—is that it would come before interim measures. If you are an industry that is suffering from anti-dumping, you do not want to be waiting for the conduction of an economic interest test—we still do not know the nuts and bolts of how that will happen—while somebody is roasting your fingers in an anti-dumping case. By the time you get to the interim measures, said British company may not be there any more. Having that where it is in the process is very flawed. Having it at all has a serious question mark over it, in terms of its broadness and definition. It is something that you cannot pin down.

Another concern that I have is the—

[The Chair]

Can I just ask that you keep it short? We have three more Members to get some questions in.

Kathleen Walker Shaw: Sorry. The lack of scrutiny, in terms of parliamentary process, over the economic and public interest elements of it is a huge worry to us regarding the Bill.

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[Emma Hardy]

Q Welcome. Could you discuss in more detail the proposals you have for sift and scrutiny committees to deal with the delegated legislation?

Joel Blackwell: Of course. At the moment, the Chair of the Procedure Committee, Charles Walker, has tabled amendments that would introduce a sifting mechanism for clauses 7, 8 and 9 of the European Union (Withdrawal) Bill, which means that for those SIs laden with those powers that are subject to the negative power, a new European statutory instruments Committee—in the House of Commons only at the moment—would have the ability to recommend an upgrade if it thinks it more appropriate that the negative should be subject to the affirmative procedure.

At the moment that is only a recommendation; the Government is not obliged to follow that recommendation, and we have concerns about that. We proposed in September our variation of a sifting committee, which would combine the sifting mechanism with Committee scrutiny. That is in keeping with what we call the strengthened scrutiny procedure, but many others call the super-affirmative procedure: if you see a power in a Bill that you think is extremely wide—particularly if it involves numerous policy areas and Government Departments—you would say, “The affirmative is probably not rigorous enough; we would like a more rigorous procedure than the affirmative.”

You would create what we call a strengthened scrutiny procedure, which is in essence Committee scrutiny work. It is not just sifting; sifting is one element of that super-affirmative, but it potentially involves the ability to table conditional amendments as a Committee, and the Government being obliged to listen to those recommendations. That was the Committee we wanted to see—a Committee with teeth. At the moment, we do not think the amendments tabled by the Chair of the Procedure Committee go very far, and we would like to see more amendments tabled to the Bill, particularly in the Lords, that would give that Committee more bite, in keeping with strengthened scrutiny procedures.

[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.

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[Chris Davies]

Q If and when we set up free trade agreements with the rest of the world, will the ships come in and receive the same treatment as if one was coming from Europe at the moment?

Tim Reardon: It would depend on what the agreement said, but on the experience of ones that exist elsewhere, that is extremely unlikely. The effect of a free trade agreement tends to be to reduce, perhaps to zero, the customs duty that an importer has to pay. It tends not to make a material difference to the administrative process of getting that unit across the quay.

Richard Ballantyne: My members would be relatively calm about free trade agreements, actually. I thought when we had the vote, and in the time after, that a lot of ports would be getting concerned about potential tariffs on a lot of commodities. There are one or two high-profile exceptions where there are relatively high tariffs, such as the automobile trade—new cars and trade cars—but a lot of the trade and the ports are reporting that tariffs are relatively low. As, operationally, they are collected away from the border—they are not a condition of entry —they are not seen as a direct issue for port authorities. Obviously, if they have an impact on trade, ports will be interested.

Just to bring up a very general point, you may find it useful to know that roughly 500 million tonnes of freight is handled at UK ports. That is 95% of UK international trade. About 20% of that is roll-on, roll-off ferry traffic, which by definition and by its nature is overwhelmingly—99.5%, I think—with other EU ports. Then you have the container sector, which accounts for about 10% or 11% of tonnage and is probably about 70% from third-country sources—countries outside the EU. The other big area is bulk commodities—liquid bulks and dry bulks—which, from memory, account for about 40%.

[Nic Dakin]

Q When the Home Office had its e-border thing, it appeared to fail through lack of engagement with key partners. How much engagement have you had with HMRC on the new CDS system? Are you confident that it is getting to the right place?

Robert Windsor: I will take the lead on that, because the freight borders are heavily engaged in this. CDS has been an ongoing project for about three and a half years. Customs did quite a lot of research with industry on what its requirements were. They have been doing a development stage, which, I have to be honest, is highly technical and way beyond anything that I can understand, although software suppliers and the community service providers have been part of the technical workshops on it. They are now starting to talk directly to us and, as a trade association, we are receiving quarterly updates on the project. I really do not want to comment on whether we think it is going to succeed or be delivered on time, because at the moment it is still under development. Part of the problem that they have, which is not of the team’s making, is that some of the data elements are still to be defined within the Union customs code, such as the format of a unique consignment reference. That matter still needs to be resolved.

Richard Ballantyne: This is a technical area, and Robert and his colleagues will be concentrating on that, but all three of us sit on the Joint Customs Consultative Committee, which is HMRC’s main stakeholder committee, and there are opportunities to get briefings on CDS. I feel personally that if we want the information, it is there.

Tim Reardon: What I would say on CDS is that it is an importers and exporters system. As carriers, we have very little interface with it, but our engagement with Revenue and Customs has been constant and continual since the referendum result, when it became apparent that there was a significant new element of uncertainty about whether the 40% of the UK’s international trade that arrives and leaves in trucks on ferries was going to be able to continue doing as it did.

Richard Ballantyne: Yes, at a very general level, ports touch many Government Departments in terms of policy regulation, and of all the Departments, HMRC has been the most forthcoming since the referendum. The amount of engagement has been quite unprecedented. That is not necessarily to speak negatively about the other Departments, but HMRC has really taken the lead.

[Peter Dowd]

Q I want to talk about the Joint Customs Consultative Committee. I understand that you are all members. How often has it been convened in the past year, for example? Are there any plans to increase the regularity of its meetings in the run-up to Brexit? What sorts of things have you been discussing at those meetings—maybe the last two or three, for example?

Robert Windsor: The Joint Customs Consultative Committee meets three times a year, and it covers areas of strategy that are impacting on importers, exporters, freight forwarders, shipping lines, whatever. Since Brexit, the JCCC has established sub-committees specifically dealing with Brexit as an issue and that group, if I remember correctly, meets about four times a year.

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[Kirsty Blackman]

Q The other one is about the trade remedies that are in place. On the trade remedies that we have by virtue of being a member of the EU, is it your view that they will definitely roll over and continue to be applicable, or is it your view that they might be challenged when the UK leaves the EU and is no longer part of that kind of conglomerate which has put those remedies in place? I have heard conflicting evidence and information about that.

Gareth Stace: Those remedies might well be challenged, in the sense that anyone can challenge anything, but that does not mean that they should not be rolled over. It is our firm view that the UK Government can roll over all the remedies that are applicable to the UK within World Trade Organisation rules, and we have set that out very clearly to the UK Government.

We have heard lawyers. I gave evidence to the International Trade Committee, and there was a lawyer saying that it could not happen, but when we explained it to her she thought, “Ah yes, actually it could happen.” We need to remember that if they could not roll over from the EU to the UK because the calculations were wrong, because it is just the UK and not the EU, they would also all be invalid in the EU, because they are based on 28 member states and there would be only 27. I think they can easily roll over and will then be reviewed when those cases expire after five years.

Dr Laura Cohen: In our association, we appreciate the way in which the Department for International Trade is going about the consultation at the moment, just checking UK interest. Certainly, we are gathering evidence from our members on tiles and tableware, but the consultation is also forcing us to check the three or four other sectors where we think there could be some UK manufacturing interest. That is particularly in the technical ceramics and refractory areas, which are quite diverse and complex, and we need to take enough time to explore those properly.

[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.

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[Graham Stuart]

Q The TRA has that presumption in favour of imposing those duties. Do you welcome that in the Bill?

Dr Laura Cohen: All three tests should have that presumption.

Ian Cranshaw: The specific issue is the language: there is not that specific phrase. There is a presumption in favour of duties written into the Bill, and we would like to see that specifically written much clearer than it currently is. That would reassure many of our companies.

[Nic Dakin]

Q On timescale, is the current Bill likely to mean that things will take longer to get done than currently with the European regime, or will it make things quicker? I am sure that we want everything to be slicker and easier when we come out of the European Union.

Gareth Stace: The timescales are not set out clearly enough. I do not want to go over old ground, but the hoops to go through at all the different stages will only lengthen that process. I am sure that will happen, calculating injury and dumping, but if was just dumping, that would happen very quickly.

I might have said already that in the US, provisional measures come in after 45 days and in the EU they come after nine months, which is coming down to seven. The UK has the opportunity to say that we will do it at six months, and we always—unless there are circumstances where it is not appropriate—apply retrospective duties of three months. So you get provisional duties coming after three months, which sends a very strong message to the market: do not dump your illegally traded goods here in the UK.

Ian Cranshaw: I think we would all be disappointed if we could not expedite the EU system, when it has to canvass views across 28 member states. We would have to canvass views in just the UK, so if we cannot bring that nine months—soon to be seven months—down further, an opportunity will have been missed.

Dr Laura Cohen: There is a tremendous opportunity here for Brexit. If an industry is suffering injury and dumping, it is really important that it gets sorted out quickly.

[Peter Dowd]

Q What involvement have you had in your respective sectors with the Department for International Trade on the creation of any potential trade remedies in the Bill? We are expecting a Division shortly, so a short answer would be helpful.

Gareth Stace: From my point of view of steel, this time last year we had written five very detailed papers that DIT officials have been very pleased to receive. We have had very good engagement with them, so I could not actually fault that. We probably have had some difference of opinion, so although I heard, “We agree with 95% of what you are putting out,” I said, “That’s fine, but it’s the 5% that is crucial.” Like everything with Brexit, the issue is around that 5% and we do not understand the detail around that.

We continue to engage with DIT, but we have provided all the information we can; there is nothing more we can provide. That is why we are disappointed: in the face of this Bill in primary legislation, we have not seen the detail that the Government had the opportunity to put in.

Dr Laura Cohen: From our sectors, I echo what Gareth has said. As an association, we have had really good engagement with DIT officials. BCC has had four meetings as an association with Ministers or Secretaries of State in the past year. That is really appreciated. However, we have made our case very clearly and I do not know what else we can say. We need to ensure that businesses, investment and jobs get the best possible deal from Brexit.

Ian Cranshaw: As a group, we met Greg Hands. The Minister gave us a considerable amount of time. He had been briefed well and he understood our issues, but he just did not accept them—he had a different view. That is fine; we have to go away and refine our position and give the evidence that was required. Some of the evidence that he called on we would call less than proven.

We know that there was a discussion earlier about the make-up of the TRA and who helped formulate the Government view. They say that for the review on trade remedies they went to a very liberal think-tank and asked what the view is on this, so of course they got a very predictable response. We would have questioned whether they had taken in some of the advice and evidence from business, as they might have got a rounder view of what was required.

Gareth Stace: It was not a liberal think-tank, but a company that represents the Chinese steel sector against the EU. They could have chosen many; why did they choose that company?