Conduct of negotiations

Part of European Union (Notification of Withdrawal) Bill – in the House of Commons at 5:15 pm on 8 February 2017.

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Photo of Peter Lilley Peter Lilley Conservative, Hitchin and Harpenden 5:15, 8 February 2017

For the sake of brevity, I will focus, if I may, on new clause 11, which is entitled “Tariff-free trade in goods and services”. Of course, there are no tariffs on services worldwide, so that should be fairly easy to achieve. I take it to mean tariff-free trade in goods and the minimum of barriers to services.

With regard to trade, there are only two realistic outcomes to the negotiations we will have: first, that we negotiate a free-trade agreement continuing tariff-free trade—more or less what we have at present—and secondly, that we move to trading on the basis of most favoured nation tariffs under WTO rules, which is basically what America, China, Japan and Russia, the four most successful countries exporting to the EU, do.

From what I have heard in this House and what I know of the Government’s position, everybody would like us to negotiate continuing tariff-free trade with our European partners. We do not particularly need any clause in this Bill to try to achieve that. Moreover, it is very simple to negotiate. It is very easy to go from zero tariffs to zero tariffs—it can be done in an afternoon. It is not like negotiating the removal of tariffs, as the EU has had to do with Canada. Canada had 5,000 different tariffs, the EU had 12,500 different tariffs, and they had to trade off one against the other.

Tariff-free trade is very simple to negotiate. As far as barriers and services are concerned, if our regulatory systems began to diverge, all we would have to negotiate—after assessing whether or not the matter was serious—is the normal dispute resolution procedure, because after the great repeal Bill we will start with identical regulatory arrangements.

Tariff-free trade is also in the interests of the European Union. We are the biggest single market for the rest of the EU—bigger than the United States, with which it has laboriously been trying for years to negotiate the removal of tariffs. The EU also has a big surplus in trade with us, so it should not be difficult. It is very much in the EU’s interests and it already has free-trade agreements with some 50 other countries that do not involve free movement of labour, paying a contribution or accepting European legislation. It has demonstrated that that is the sort of thing it can do with countries with which it wants free trade.

It might be the case that, within the EU, politics will trump economics. Although it is in its economic interests to continue tariff-free trade with us, the EU may feel it necessary to punish us in order to deter other countries from following our example and their voters from voting for Eurosceptic parties. This House has to acknowledge—few people seem willing to do so—that that will be the EU’s choice. It will either decide to go along with continuing free trade, or it will say, “No. For political reasons, we can’t accept that. We must trade on most favoured nation terms in future.” We cannot go back to it and say, “Sorry. You didn’t give it to us the first time, but the House voted against, so can you give it to us the second time?” If it does not give it to us the first time, it will not give it to us at all.

We need to acknowledge that, although trading on most favoured nation terms is not as good as continuing free trade, it is the second best option and better than continuing with our previous arrangement. If Europe applies the common external tariff to us, most favoured nation tariffs would average 4%. The net contribution that we make to the EU annually is equivalent to 7% of the value of our exports. We are currently paying 7% to avoid a charge of 4%.