Trade and Customs Policy - Motion to Take Note

– in the House of Lords at 4:42 pm on 5th December 2017.

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Moved by Baroness Fairhead

That this House takes note of the future of United Kingdom trade and customs policy in the light of Her Majesty’s Government’s white papers Preparing for our future UK trade policy (Cm 9470) and Customs Bill: legislating for the UK’s future customs (Cm 9502).

Photo of Baroness Fairhead Baroness Fairhead Conservative

My Lords, I am delighted to stand before you today and open this important debate. Trade is a vital part of the UK and world economy, and is a key driver of growth and prosperity. It helps business by promoting efficiency and innovation and encouraging knowledge sharing; it helps working people by creating jobs; and it helps consumers by ensuring that more people have a wider choice of goods and services at lower costs, making household incomes go further.

Free trade can be a force for good, but that does not mean trade without rules; it needs to be underpinned by global rules, and it has to be fair. There is a balance to be struck between all parts of the UK, and between protecting UK businesses while also taking consumers and the broader economy into account—and that is what we are trying to achieve.

When the UK leaves the EU, it will leave the EU customs union. This clearly has implications for trade and, indeed, that is what we are debating today. So in these Bills we are aiming to provide continuity and a smooth transition, avoiding a cliff edge, so that businesses and people can be confident that these trading relationships will continue. We have to ensure that the UK can operate as a fully functioning independent trading country, whatever the outcome of the Brexit negotiations.

In my opening remarks, I intend to focus on the two Bills that have recently been introduced in the other place: the Trade Bill and the Taxation (Cross-border Trade) Bill. I shall come to the White Papers in due course because, importantly, they provide us with a platform to continue discussion and engagement over the coming months.

We are very fortunate in this House to have Members, among whom are my noble friends Lord King, Lord Lang, and Lord Young of Graffham, and the noble Lords, Lord Hutton, Lord Darling and Lord Mandelson, who hold a vast wealth of experience and expertise in matters of trade—as do a number of noble Lords from all across the House who I know are down to speak today.

I say right from the beginning that, while the Trade Bill is intended to cover transitioning of existing agreements, not future ones, we will consult widely on future trade policy and the appropriate means of ensuring parliamentary scrutiny. I am very keen to work in particular with noble Lords across the House to help the UK get in the best possible position as we leave the EU. That is why this debate today, which is very much part of the early engagement, is particularly important.

The Trade Bill contains the following provisions. It will create powers that enable the UK to transition trade agreements that currently exist between the EU and other countries, and that the UK is part of via our membership of the EU. This will prevent disruption to UK businesses, workers and consumers by enabling the UK to maintain its existing relationships. It will create the powers needed to implement the World Trade Organization’s Agreement on Government Procurement, known as the GPA, as an independent member instead of as part of the EU. As noble Lords will know, the GPA is a plurilateral agreement between some WTO members that opens up public procurement markets. This will maintain UK businesses’ access to public contract opportunities, worth collectively around £1.3 trillion per year, while ensuring that we get the best deal for taxpayers in the UK.

The Bill will also establish a new independent UK Trade Remedies Authority to provide a safety net to protect domestic industries from unfair and harmful trading practices and any unforeseen surges in imports which cause injury. Free and open trade has a positive impact on the UK’s prosperity, but it needs to have the appropriate checks and balances. The Bill will also allow data on trade to be collected and shared with relevant bodies, such as the Department for International Trade and the new Trade Remedies Authority, to help them perform their essential public functions. This will help us build up a rich picture of UK trading patterns and help government identify new opportunities and ways in which we can support British businesses.

The second Bill we have introduced is the Taxation (Cross-border Trade) Bill, previously known as the customs Bill. This Bill deals only with matters of taxation. Whatever the outcome of the negotiations, we will need a functioning customs regime to enable the UK to charge customs duty on goods when we exit the EU, and the powers to apply trade remedies and deal with trade disputes in line with international law by imposing additional customs duties. One of the sensible steps we can take now is to provide the legislation to create this regime.

The Taxation (Cross-border Trade) Bill will therefore: allow the UK to charge customs duty on goods, including those imported from the EU; allow the Government to set out how, and in what form, customs declarations should be made; set out rules relating to the collection, administration and enforcement of import duty; and give the UK the freedom to impose additional rates of import duty, including those resulting from trade remedies investigations. It does this primarily by creating a new UK trade remedies framework to be overseen by the independent Trade Remedies Authority.

Full details of how the trade remedies framework will operate have not been determined. We are thinking very hard about how to strike the right balance between the two important objectives of providing a safety net for UK industries, while ensuring we do not place unnecessary costs on the UK’s downstream industries and consumers. We sought views on this when we published our trade White Paper, and engaged with key stakeholders to hear what they think. We remain keen to receive input to make sure that we get the working in the best interests of the whole of the UK.

The Bill also enables the Government to implement preferential import duty rates pursuant to arrangements with other countries or territories. This will enable us to give effect to duty rates in free trade agreements and to continue our current preferential trading arrangements with the British Overseas Territories. Finally, the Bill will also enable us to create a UK unilateral trade preferences regime for developing countries. That means that the UK will continue to provide preferences that support economic and sustainable development.

The UK, with the support of this House, has been a proud advocate of supporting developing countries to reduce poverty through trade. I think we can all agree that an important way to help end poverty—and aid dependency—is through inclusive economic growth, jobs, investment and trade. Unilateral trade preferences are a key part of that aim. They act by reducing or removing tariffs on imports from developing countries without requiring market access in return. This boosts trade, which is good not only for the exporting country, but for British business and consumers. The Bill will allow us to ensure that countries receiving unilateral trade preferences under the current EU arrangements will continue to do so and will still benefit from the same level of preferential rates on their exports to the UK when we leave the EU. It also allows us to consider, in future, how we can make our unilateral trade preferences regime even more generous and easy to access. That is certainly this Government’s intent.

I turn now to the White Papers, which look to our future. They set out principles designed to guide our approach to establishing an independent trade and stand-alone customs regime outside the EU. As the Government consider the options for our future customs arrangements, they will be guided by what delivers the greatest economic advantage to the UK, and by three strategic objectives: continued trade between the UK and EU member states that is as free and as frictionless as possible; the avoidance of a hard border on the island of Ireland; and the establishment of an independent international trade policy. The Government are clear that cliff-edge changes are in no one’s interests. That is why we want a smooth transition, which is at the heart of the two published White Papers. It is also why we are proposing an implementation period: so that businesses and Governments—in both the UK and the EU—will have time to adapt.

As my right honourable friend the Prime Minister set out, the current evidence points to the need for an implementation period of around two years. However, the form it takes will be a matter for the negotiations; we will need to cover issues beyond customs and trade. While the exact nature of our future relationship with the EU is a matter for the negotiations, there are sensible—indeed responsible—steps that we can take now to prepare for the future.

Therefore, while our immediate priority is to ensure a smooth transition, we recognise the importance of the UK being able to forge ambitious new free trade agreements with countries around the world after we leave. As we set out in our trade White Paper, we want to garner views both on the substance of the future free trade agreements, and on what would be the suitable amount of scrutiny for aspects of such agreements that go beyond the setting of import duty rates. That is why the Taxation (Cross-border Trade) Bill proposes a power to accommodate import duty rates agreed in future trade arrangements, but does not provide for the implementation of any aspects of future free trade agreements with new countries.

The Bills are a vital step towards getting us ready for exit, and the White Papers help us prepare for the future and the future trade agreements that we want to forge outside the EU. The White Papers provide a starting point for our engagement and discussion, both on future trade agreements and on the scrutiny arrangements for such agreements. On these, and on the Bills, we are keen to hear as many views as possible.

Photo of Lord Whitty Lord Whitty Chair, EU Internal Market Sub-Committee 4:54 pm, 5th December 2017

My Lords, I thank the Minister for that explanation of the Government’s position, which was rather clearer than what leaps out from the White Papers and the explanations of the Bills.

I thought my prominent position in the batting order today was in compensation for me being almost last in the debate on the Budget last night. However, more logically, it probably relates to the fact that almost exactly a year ago the noble Baroness, Lady Verma, and I co-chaired committees that produced the document on options for trade. At that time we already asserted that trade negotiations would inevitably take some considerable time longer than two years. We also said that whatever change was needed, we would need a transition arrangement. We also said that the least disruptive change for Britain would be to stay within the single market in the EEA. Shortly after that, of course, the Government ruled out in the Lancaster House speech the EEA option and the customs union option. Instead of referring to a transition period, they have continued—like the Minister today—to refer to it as an implementation period. The Government continue, even now, to refuse to accept that they need longer to negotiate a full, bespoke free trade agreement, which is now the preferred option, and that they can still do that in time for March 2019.

More recently, there has been slightly more realistic talk from the Government. David Davis spoke to the Select Committee about a bare-bones agreement by that time, and in different contexts they have referred to an in principle or heads of agreement by March 2019. I welcome this increased realism. However, even that is a tough call, and it means ratification by the European Parliament, which would have to start in October 2018. In addition, of course the free trade agreement itself, which would not come into play until after we had left the EU, would probably be a mixed agreement and therefore require ratification by the parliaments of the 27 member states—no doubt the noble Lord, Lord Kerr, will correct me in a moment. Therefore speed is not exactly on the table in concluding this agreement, even if we have the substance right.

I welcome what the Minister says about the measures being taken to regulate the position under the WTO and to establish our own means of deciding our own tariffs. I welcome also the measures on government procurement and state aid, and on the issue of the trade remedies body. Indeed, my committee is looking at state aid and competition issues post Brexit, which will be helpful. However, on the bigger issues, the Government need to stop prevaricating and explain to the nation where we are. A transition period needs to be a transition period; it is not simply an implementation period, because we will not have agreed what exactly we are going to implement. It needs to be, in effect, a standstill period, during which we can negotiate the full details of a free trade agreement—assuming that we have a bare-bones agreement to start with. It will also probably be used to negotiate a full-scale security agreement. In addition, in the context of this debate, we will need that time to develop and test new customs procedures and the systems they involve on this and the other side of the Channel, and to familiarise business with them, staff them up and make sure that they operate properly.

During the transition period, it seems almost a no-brainer that, while we will have left the European Union, we should stay within the single market and the customs union. That is the standstill option. It will have to last for at least two years and, if necessary, for longer because we do not want two switchovers for British business and trade patterns.

Indeed, we may, as some witnesses to the committee have recently said, need both a standstill period and an implementation period. However, if the Government or the EU maintain their position that 19 March will be the leaving point, we will need a period of stability when we may well be outside the EU politically and constitutionally but we will still be subject to its rules. I recognise that that is a difficult political sell for some within the Conservative Party; nevertheless, it is the rationale and the logic of the position.

However, we must now look beyond that transition period. We need to look at what kind of free trade agreement we want, how it will operate and how it will impact on the subject matter of this debate. In any trade deal, negotiated tariffs should be lower than they otherwise would have been—therefore, in this context, lower than the current common external tariff between ourselves and the EU. Not all of them will be at zero but, even if they are, or if most of them are, that will not fully achieve the alleged objective of the Government to achieve frictionless trade. The reality is that outside of a single market and a customs union, there is really no such thing as entirely frictionless trade. Therefore, a zero tariff across the board does not mean “frictionless”.

At lunchtime I, along with a number of other noble Lords, attended a seminar of customs experts. The message that came across was somewhat complicated and, in some ways, depressing. For businesses—had they been present, as some were—and particularly for small businesses and those with complex multinational supply chains, this is all a headache; indeed, it is a severe migraine. There will almost certainly be additional administration and significant costs. There may be serious delays and businesses may eventually be faced with a deterrence to trade. A lot of those companies are not aware of the complexities, because for 40 years they have not had to operate with them.

Many small companies export only to the European Union and to nowhere else, and they will be faced with much more complex transport, customs and taxation procedures than they have been used to. They will also have to face the rules-of-origin requirements. The EU will need to treat the UK the same as it does other most-favoured nations under some of the other trade agreements that it has around the world. Of course, trading into the EU also requires regulatory equivalence for goods, agricultural products and the whole range of services, which are unaffected by tariffs but will be affected if they need differential regulatory provisions. Regulatory equivalence relates to standards and a regulatory regime, but it also relates to the specific sectoral regulatory requirements. As people keep emphasising, we start from the great advantage that we are currently equivalent and indeed pretty much identical in relation to many regulations, but, as part of a free trade agreement, we will have to agree with the EU a procedure for dealing with proposals on either side of the new relationship for divergent regulations, and we will also have to agree a very clear resolution procedure between the two sides.

At this point, we need from the Government the rapid development of new customs systems and protocols. They will need to be, as far as possible, digitally based but they will be subject to checking and inspection, and borders, ports and airports will mean that the system may not be entirely invisible, as some are hoping for. They will also have to cover differential VAT and excise duty reconciliations, as well as straightforward customs provisions. Therefore, we also need a two-year period in order to develop these systems. Current improvements in the HMRC system have not yet been tested and will need to be scaled up substantially. I understand, as of lunchtime, that the EU improved system will not come into full force until 2025. Therefore, we will need some fairly hefty work on both sides of the channel to ensure smooth, let alone frictionless, trade.

This is a nightmare for a lot of small businesses, and they need taking through it very carefully. Last week, the noble Baroness, Lady Verma, and I met a trade association that explained its anxieties. It represents small, sophisticated electronics companies that have specialist markets in the EU, multi-sourced components and multinational supply chains. One company produces ventilation equipment in Britain and exports it to the EU, but 30% to 40% of its components are made in the EU. It asks questions such as: is there a minimum level of EU content in order for tariffs not to be charged, or for administrative costs to be avoided? What if the components are not of EU origin—as some still are—but are partially EU and partially third country? Is there a minimum level at which that has to be declared? How will origin composition need to be recorded and reported, and with what level of evidence? Will that company suffer duties—if duties there are—on the total value? What records will it need to keep? What checks will it face? Will that mean delays at Dover, Calais or Boulogne for exports or component imports? The company is worried about such things, and about continuing acceptability of the product standards to which it has hitherto worked; hence, it is also worried about continued regulatory equivalence. It and hundreds and hundreds of other exporting companies require clarity, they require it soon, and they need the Government to start that mentoring process now and take them through it.

I hesitate to say something about the Irish border—so I will not. I will leave that for another occasion.

The Minister touched on the situation of the Crown dependencies, because we do have other borders with the EU. I would like her to explain the position on Gibraltar. What about small British territories in the Caribbean whose markets and supplies are with French and Dutch territories in the Caribbean? How will the customs arrangements work in those very small, very independent—and in most cases, recently devastated—Caribbean communities, which are part of the Government’s responsibility and are covered by this provision? I ask that question from left field, but if the Minister could reply to it now or in writing, I would be very grateful.

I will spare the Minister my current views on the Irish situation.

Photo of Lord Kerr of Kinlochard Lord Kerr of Kinlochard Crossbench 5:07 pm, 5th December 2017

As the legendary and topical Irishman said when asked for directions to Dublin, “If I wanted to get to Dublin, I wouldn’t be starting from here”. It seems to me that it might have been a good idea before the October Conservative Party conference speech to stop and consider the possible effects on the Good Friday agreement, and perhaps to consult our co-signatories to the 1998 agreement—the Irish Government—and the devolved Administrations before concluding that Brexit meant leaving the customs union and the single market. However, we are where we are. The easiest way to solve the present problem would of course be to reinterpret what Brexit means and to consider, as the costs of leaving become clearer, whether it might not be better to avoid the damage to our trade that will be done by leaving the customs union and the single market.

It was a pleasure to hear the Minister introduce this debate in such an elegant way. It is less of a pleasure to follow the noble Lord, Lord Whitty, because he made most of the points I wanted to make—and rather better than I would have.

The two White Papers we are debating today are rather contrasting. I do not mean to be rude to the Minister, but the Chancellor’s is a sort of technical explanation of a Bill, and I find it extremely useful. On reading Dr Fox’s, I was reminded of Dr Pangloss: there is a lot of aspiration and assertion, but not a lot of facts. So I thought I would suggest eight facts to keep in mind. It would have been 10, but the noble Lord, Lord Whitty, pinched a couple of them on the way.

Fact one is that it is worse than the noble Lord, Lord Whitty, said. It is not just a matter of time. Legally, one cannot negotiate a trade agreement under Article 50. It is not possible. Article 50 is about divorce, settling the debts and setting the dates. That is all. Yes, one is enjoined by the treaty to agree a framework for the future relationship, guidelines and ground rules. I have been arguing for over a year that we would do very well to submit our own draft framework. I do not understand why we insist that it is for the other side to put forward all the papers. We would have done ourselves some good if we had submitted a draft long ago. But the draft cannot amount to a free-trade agreement or an association agreement because they come under the different rules of Articles 216 and 218.

The Secretary Of State for Exiting the European Union was quoted in the FT yesterday as saying that if we leave the EU before we have a trade deal,

“trying to finalise an FTA under those circumstances would be very disadvantageous from a negotiating leverage point of view”.

That is if we have left before we do it. But that is what will happen. He is quite right. It is very disadvantageous from a negotiating point of view, but the inconvenient fact is that we cannot do trade under Article 54 or until we have left. That is a fact.

The second fact is that a free-trade agreement, as the noble Lord, Lord Whitty, said, will take several years —perhaps five—to negotiate and ratify. I imagine that it will be a mixed agreement, as he said, so ratification will add another couple of years. The Canadian deal took seven and it is still not in force. A deeper agreement than the Canadian one, extending to services, might take longer to negotiate and will certainly face greater ratification problems. It certainly cannot be done by 2021—the end of this standstill period—so another hiatus will be coming up. That is a fact.

The third fact is that the standstill agreement that is being talked about is one that the EU has been offering since April. It is in its April guidelines. It is in the Florence speech so it seems that the Prime Minister is now ready to accept it. It would only be a standstill. It comes in after we have left, so we would no longer have a vote in Council, judge or Commissioner and we would no longer have Members of the European Parliament, but we would agree to respect, in the Prime Minister’s words, all the rules and regulations of the EU during that period. We would be enjoying, if that is the word, a sort of colonial status. It might be politically a little ignominious but economically very convenient, except that it would lapse after two years and the second hiatus would then come in. The standstill agreement does not avoid the cliff edge; it merely postpones it. It gives businesses more time to do the packing as they prepare to leave, but it does not avoid the cliff edge. It would be wrong to call it a transition or an implementation period because, by the time it ends in 2021, we would have nothing agreed to transition to and nothing to implement. It cannot therefore provide the certainty that employers and investors now seek. That is a fact.

I will add another equally inconvenient fact. Many I meet in the business community say, “Ah well, the can will be kicked down the road. The usual solution to the problem is that you say now that it will take two years, but it will stretch for longer than that”. Under the treaty, it cannot do so. The Commission and Council lawyers looking at the divorce treaty already have grave difficulties in accepting that it can cover the colonial period when you have left but are still respecting the rules of the club. There is no colonial article in the treaty or any provision for this state. Moreover, it is odd to have a relationship with a third country that is not covered by any of the articles of the treaty; it will be a first. The European Parliament lawyers say that it is completely impossible, while the Commission and Council lawyers seem to have compromised on two years as a maximum that cannot be stretched. I am afraid it will probably remain the view that you cannot do as the French say and make the temporary the provisional and then the permanent. Legally, that will not happen, so the cliff edge will still beckon.

Dr Fox’s White Paper states that during the standstill period we will be able to negotiate new trade deals with third countries. That is right because the standstill period will begin only after we have left. In practice, our first concern will probably be to try to salvage a share of the third country access that we currently enjoy under agreements negotiated by the EU. The Minister referred to that in her introductory speech and she made it sound rather simple, as does page 28 of the White Paper. However, it would not be simple at all because it is not a matter of arithmetic, of dividing it up. Trade diplomacy is a form of mercantilist arm-wrestling. We have seen that already in the reactions of Australia and New Zealand to the division of quotas agreed between us and our European Union friends. They were instantly rejected by the Australians and the New Zealanders. It is not simply a question of dividing our share from their share; the third country will want to grow the cake.

Nor will it be easy to replace in these third countries the market share that we will be losing in the European Union. The reason for our large export trade with the European Union is principally because it is quite close. The member states are our neighbours. There is a pretty much infallible rule when talking about trade in goods that the trade halves as the distance doubles. It is really hard to see how we can replace in distant parts what we will be giving up close to home. That is not in Dr Fox’s White Paper but it is a fact.

How good a deal with the EU will we get eventually? To coin a phrase, the key is in regulatory alignment. Tariffs are not the problem these days when we talk about trading goods. The greatest obstacle is not tariffs but differential standards. In services, of course, the greatest obstacle is regulatory misalignment. It is not just in Ireland that the issue of regulatory alignment is important; it is the key to the whole negotiation. A month ago in London, the American Secretary of Commerce, Mr Ross, told the CBI and others that if we hope for greater access to the US market, we must break with EU regulations and standards and adopt American ones. Three weeks ago in Brussels Mr Barnier asked in public whether the UK’s aim was to limit or to maximise divergence from the EU regulatory model we have been working to build for 44 years. Nobody in Brussels knows the answer. I do not think anybody in London or the Cabinet knows the answer, because the issue has been ducked up to now. To hold the coalition that is the Cabinet together, it has been important not to ask the question but to pretend instead that one can have the cake and eat it. However, the crunch point is coming quite soon. The moment we start talking about trade, the EU will need and want to know where we are going. If the Cabinet decides that we will go with Dr Fox, insisting on adopting American standards or setting our own autonomous national standards and regulatory systems, I do not see how we can get anything better than the Canadian deal, which is very light on services and would therefore be very bad for us.

I have only two more facts to go. Fact seven is that the EU’s existing free trade agreements include most favoured nation clauses. That means that if a third country, as we would be, gets a better deal for any particular category of goods or services than the South Koreans, Singaporeans or Canadians got—or than the Japanese will get—the EU is obliged to upgrade the deal for the third country in question and is not entitled to claim any compensation in better terms for its exports to that third country. That could be a disincentive for the EU to offer us a much better deal than Canada. You will not find that in Dr Fox’s White Paper, but it is a fact. The most favoured nation clause, which we were extremely keen on while a member of the club—because we were trying to liberalise the EU’s external trade—will now be a weapon against us. We will find it very disadvantageous.

Fact eight is simply to cheer noble Lords up. We do not have to go there. A notification under Article 50 is not an irrevocable act. As more inconvenient facts emerge, and as the costs of leaving the EU become clearer, it is important that people understand that the people of this country have the right to say that we should take back the Prime Minister’s March letter. We are still free to choose not to move to colonial status in 2019, nor to stormier waters in 2021. We have not crossed the Rubicon. It is still up to us.

Photo of Baroness Verma Baroness Verma Chair, EU External Affairs Sub-Committee 5:22 pm, 5th December 2017

My Lords, it is always a pleasure to follow the noble Lord, Lord Kerr. I will try to calm the waters. I thank my noble friend the Minister for introducing the debate to your Lordships’ House. It provides us with a timely opportunity to discuss the hugely important subject of future trade and customs policy.

The real challenge for the Government is in getting all parts of the UK to agree to the terms that the Prime Minister laid out on taking office: no single market and no customs union. Yet the situation of the Irish border demonstrates clearly the complexities of reaching consensus and what appears to me to be the inadequate preparedness of the Government. Yesterday’s news reporting was evidence of the incredible complexity and sensitivity of the discussions.

Members will be aware that the EU Select Committee and its sub-committees have produced a number of related reports over the past year, including Brexit: the Options for Trade, Brexit: Trade in Goods and Brexit: UK-Irish Relations. The reports have taken large amounts of evidence from businesses, academics, trade organisations and Ministers, and they enabled the committees to lay out objectively the opportunities and challenges arising from leaving the EU. However, there were significant warnings that uncertainty and the slow progress being made would undoubtedly start to impact seriously on business investment decisions if the Government failed to ensure that real progress was made with the negotiations.

The results of the referendum are known: some 4% more of the voting British public voted to leave. However, now it is the duty of the Government and the Prime Minister to ensure that we leave with terms that benefit all the people of the UK; that all who live in the UK believe and feel they will not lose out from our exit from the EU; that the UK will maintain a strong relationship with Europe; and that people working here or in Europe will continue to build on the current opportunities we enjoy.

It is hard to understand what a seamless and frictionless border means in the context of the UK-Irish border. I for one certainly struggle with how, in the time remaining, the Government intend to have a bold and ambitious agreement, the freest possible trade and a bespoke arrangement unique to the UK.

The Government must not believe they have the mandate or position to respond with meaningless responses on the important and detailed work that the committees have carried out here and in the other place, hiding behind the so-often used phrase: “We cannot comment on ongoing negotiations”. Our reports lay out clearly and in detail the many issues and challenges that need to be addressed if we are to see our deep and special partnership maintained with our EU partners.

Many of the proposals contained in the Government’s position papers on Brexit are untested and without precedent. It is critical for all of us—from the job and wealth creators to the workforce at large—to believe that real pragmatism and honesty are in place to tackle the mammoth task ahead. It is certainly not in any of our interests for self-serving politicians to get in the way of what is inevitably a massive task of necessary compromises and demands to maintain a strong trading relationship with our biggest trade partner, the EU.

In the Government’s position paper, Preparing for our Future UK Trade Policy, the Government have expressed a desire,

“to ensure continuity in relation to our trade around the world”, and that we,

“avoid disruption for business and other stakeholders”.

That is a welcome starting point given the scale of the trade that the UK carries out with the EU: the EU accounted for 43.1% of the UK’s exports of goods and services and 53.9% of its imports. Business, the associated supply chains, the associated services and the required skills and people all demand a high level of certainty and consistency.

It is crucial that we understand what a transition period will consist of. We all understand that these are discussions for negotiation, but I will ask my noble friend the Minister specifically about transitional arrangements and the EU’s preferential trade arrangements with third countries. The paper lays out the Government’s commitment to seeking continuity in arrangements for trade with countries,

“covered by EU third country FTAs and other EU preferential arrangements”.

These must be negotiated with the 60-plus countries that are signatories to the EU’s agreements and not with the EU. Will my noble friend confirm that the Government expect to have in place individual transitional deals the day we leave the EU with all countries covered by current EU FTAs, all states party to EU preferential arrangements and the EEA countries and Switzerland, or does she envisage a different scenario? If the latter, could she shed some light on what that would look like?

Will my noble friend say how discussions with Norway and Switzerland are going to ensure that, post Brexit, we avoid a hiatus with two of our largest trading partners outside the EU? Have the UK Government managed to allay the obvious concerns they may have?

The Government have placed huge emphasis on their intention after Brexit to,

“boost our trade relationships with old friends and new allies”.

Will my noble friend tell us how the Government plan to spend the additional £0.1 billion allocated to the Department for International Trade’s resource budget for 2017-18? Are our old friends and new friends expecting significantly different terms on visas and job prospects, given that the Government want tighter immigration levels?

The EU External Affairs Sub-Committee wrote to the Minister of State last week on the new trade remedies regime that my noble friend mentioned in her opening remarks. We all agree and accept that a robust trade remedies framework will be essential if we are to make a success of our new trade policy. Is my noble friend able to tell us what progress has been made on the new framework? I know she said that the Government are working for the best possible framework, but I am sure she can say what she feels are the key objectives for the new trade remedies regime.

I will touch quickly on how the paper relates to the WTO. There have been voices of concern from a number of quarters. The EU Committee also expressed deep concern last year that negotiation of the UK’s schedules of concessions may prove to be less straightforward than the Government have pinned their hopes on. It is of course critical that the views of other WTO members be considered, especially on tariff quotas and on whether the UK’s and the EU’s actions are seen as “modification” rather than “rectification” of the schedules. How confident is my noble friend that, if necessary in the case of a no-deal scenario, the schedules will be agreed in a timely fashion, and how content is she with the pace of the negotiations? What to her mind is a bare-bones deal?

I shall not comment on the White Paper on the customs Bill but focus on the Government’s overall approach to customs after Brexit. As I said in opening, the situation in which the Government find themselves reflects complexities that can be ironed out and agreed on only with a sensible timeframe. In any attempt to rush what are hugely sensitive issues, achieving room for manoeuvre can prove extremely challenging, the Irish border being exactly a point of illustration.

The EU External Affairs Sub-Committee considered in the autumn the Government’s document, Future Customs Arrangements: A Future Partnership Paper. It was extremely disappointing that neither of the two options outlined in the paper was presented with sufficient detail to allow us to examine properly what the “new customs partnership” option would look like, because, in the Government’s own words, it is an “innovative and untested approach”. Surely we are right to feel somewhat apprehensive. Given that we have less than 16 months before we depart from the EU, it is clear that a whole plethora of questions need to be answered on what a customs framework will look like.

My noble friend will be aware that the committee wrote to my noble friend Lord Callanan on 31 October requesting details of the preparatory work that the Government are undertaking before they start negotiations on customs with the EU. I will remind my noble friend of the areas around which the letter was framed: entry and exit declarations; membership of the common transit convention; mutual recognition of the authorised economic operators scheme; a technology solution for ports, and other customs co-operation, assistance and data sharing. The committee has received acknowledgement of the letter from my noble friend, but we are awaiting a response on those issues. Perhaps the Minister can comment on them and assure the House that we will receive a detailed response from the Government on the issues we have raised.

As a former Minister, I am aware of the immense pressures that Ministers are working under. That said, I was and remain of the view that, as servants to the British people, it is critical that we keep our population informed, enabling honest discussions and decisions to be made in the interests of all in our United Kingdom.

One such honest discussion is on the concern raised in our committee’s report, Brexit: Trade in Goods, about the costly administrative procedures for businesses and the varying levels of delay in the consignment of goods, let alone issues raised by our committee and other committees on rules of origin, passporting rights and membership of EU agencies that give us the passage to operate across the globe. Have the Government undertaken an assessment of the cost implications for businesses that they outlined in the future customs arrangements paper? What support in preparedness for these transitions has the business community asked from the Government, and have the Government calculated the scale of financial and time impacts on supply chains and associated providers? The noble Lord, Lord Whitty, and I met people from a trade association. He has cited one example; I could cite many more.

In our report, Brexit: Trade in Goods, we drew the House’s attention to our concerns about the new Customs Declaration Service, or CDS. We said that we were concerned that the introduction of a new IT system for customs, planned for the year that the UK leaves the EU, may add to the complexity of the trading conditions facing businesses in the face of Brexit. Will my noble friend update the House on the progress of the CDS, both the development and implementing stages? What information programmes will be made available to businesses and how will this work be complemented with our European partners?

The noble Lord, Lord Whitty, referred to our committee’s report, Brexit: the Options for Trade, published in December 2016. If the Minister has not read it, I heartily recommend that she and her colleagues do so, as it lays out a number of very well thought-through and doable recommendations and conclusions. I will end on one; it is on page 71, at paragraph 263. The last sentence states:

“We urge the Government to establish at the outset of negotiations a clear ‘game plan’ for a future transitional agreement, with specific proposals as to what form it should take”.

We must not allow ourselves to sleepwalk into chaos. The job of this House and the other place is to provide for all the possible outcomes we could face. The people of the UK expect us to work hard on their behalf, but they also expect honesty and integrity in the debate. We make a difference; let us not find ourselves short in performing our duty.

Photo of Baroness Quin Baroness Quin Labour 5:37 pm, 5th December 2017

My Lords, it is a pleasure to follow the speech of the noble Baroness, Lady Verma, who reminded us, as did my noble friend Lord Whitty, of the valuable work done by the European Union committees in this House.

Despite the publication of the two documents before us today, on trade and on customs policy after Brexit, there remain huge unanswered questions. First, I want to look at the aim of frictionless trade with the European Union—this is very much the topic of the moment, given the events of yesterday in Brussels. How can frictionless trade be achieved when we are outside the single market and the customs union? The irony of the two papers is that we seem to want to get as close to the EU as possible while at the same time moving away from it. There is almost a secret admission in the papers that what we have now is very much in our economic interest.

There is the whole question of regulatory divergence. It has often been put to us that, outside the EU, we will be free to make our own rules, but if we want frictionless trade, it cannot be in our interest to have regulatory divergence from the European Union. Regulatory divergence may give us more theoretical freedom to do our own thing, but it will not lead to frictionless trade and we cannot have both.

The papers also make a great deal of consultation with industry, and I welcome the fact that the Government have launched widespread consultation the length and breadth of the UK with devolved authorities and with industries both large-scale and small. However, if the outcome of the consultation is a strong message from the majority of business that is against the Government’s policy of leaving the single market and customs union, will they think again as a result?

I have read briefing papers recently from a huge variety of our major industries, both in the manufacturing sector and the services sector, and they all seem extremely worried about our future outside the single market and the customs union. Furthermore, I have been struck by the number of industrial sectors which, rather than resenting European regulation, feel on the whole that they have had a huge role in creating and shaping that regulation. They worry that there will be a massive loss of influence for them once they no longer have a seat at the table. They feel that they have been setting the agenda in Europe, in many ways. That is a very different picture from that painted by many during the referendum campaign.

Understandably, the papers in front of us talk a lot about the prospects for trading with the rest of the world outside the European Union. Of course we want to conquer new markets and do better in existing markets outside the European Union but these things are not an alternative to European Union trade; they are complementary and additional to it. Certainly, over recent years, Germany has exported on average about five times as much to China as we have done—it can do that while being firmly part of the European Union. The irony is that, as was reported last week in a number of newspapers, our exports to the European Union have improved in recent months but our trade deficit with the rest of the world has worsened.

Much is made of our ability to negotiate free trade deals post Brexit, and that is certainly mentioned in the papers in front of us. But, again, there are many uncertainties here. Obviously, the United States is mentioned as a very important market. The noble Lord, Lord Kerr, referred to that. Personally, I was very keen, unlike some in my own party, to see a free trade agreement between the United States and the European Union. I saw huge benefits in that, particularly for some of our smaller-scale exporters and specialist exporters in the agricultural sector, for instance, which are handicapped by American rules, which make it very difficult and a huge bureaucratic procedure to export to the United States. But the United States under President Trump now seems less keen to prioritise a deal with us over one with the European Union, and in any case we know that the programme on which he was elected is much more protectionist than the one followed by President Obama. The question is: will we be a priority for third countries or blocs to negotiate with, or will they favour the much larger European Union trading bloc? This is a valid question, which needs to be asked. I noticed an interesting quote in the Evening Standard yesterday, which was covering the new V&A museum in China. It quoted a Chinese spokesman as saying:

“You should be leading the EU, not leaving it”.

Trade deals require dispute resolution mechanisms, which the Minister referred to in her opening speech. In this respect I simply cannot understand the Brexiteers’ paranoia about the European Court of Justice. There are many people in this House who have longer ministerial experience than I do, but when I was Minister for Europe I made a lengthy visit to the European Court of Justice; earlier, as a Member of the European Parliament, I was involved in helping constituents take cases to the European court. In those cases and judgments, there was a ruling in favour of our own citizens. As a result, I have tended to see the European Court of Justice as an ally rather than an enemy, and as an organisation which carries out the responsibilities that the member Governments of the European Union have entrusted to it.

I see two big ironies in the current situation. The Government believe strongly in free enterprise—understandably and rightly—but ironically this present situation is making industry more dependent on politics and on the negotiating competence of government politicians than at any other time I can remember in our history. It is also ironic that many pro-Brexit politicians used to say to us that the European Union would be absolutely fine if it was just a common market, yet it seems to be that common market—that single market that Britain did so much to create—that we are turning our back on. I do not really understand why.

I accept the point made by the noble Lord, Lord Kerr, that tariff rates are not the most important things now, but I also worry that in a harsh trading environment any changes to tariffs or non-tariff barriers—sometimes even marginal changes—or suddenly becoming penalised by the rules of origin, which my noble friend Lord Whitty mentioned, can be the difference between export success and failure. Coming from a part of the country—the north-east of England, which voted largely in favour of Brexit—where we have a good exporting record, I am very worried that we will make the economic situation worse in my part of the country, rather than better, as a result of this overall approach.

The noble Baroness, Lady Verma, urged the Government to be honest with people about these issues. That theme was also mentioned by the noble Lord, Lord Tugendhat, and others in the debate yesterday. The Government really should admit that the current arrangements are better than the alternatives, certainly with regard to the situation in Northern Ireland and the Republic. The best way to resolve the concerns of the Irish Government and those of the DUP and Northern Ireland is to maintain these arrangements, not destroy them. The arrangements also allay the concerns of Scotland and, indeed, of London and other parts of the UK, which have also talked about the possibility of having separate arrangements, but I agree with the Government that it would be a nightmare if within the United Kingdom common market we had all kinds of different trading and customs arrangements. Living very close to the Scottish border, I feel that issue very strongly indeed.

The hard-line Brexiteers often present themselves as patriots and accuse those who do not share their views of talking the country down. But by not facing the problems honestly, the Government and their hard-line supporters are letting the country down and endangering our future as a United Kingdom. Surely that is something that none of us wants to see happen.

Photo of Lord Empey Lord Empey UUP 5:46 pm, 5th December 2017

My Lords, I refer the House to my registered interest as a vice-president of the Institute of Export & International Trade, which is an educational charity.

A number of statistics are included in the very helpful Library Note, and they do not make particularly good reading. Although the European Union is by far our largest export market, it is also an organisation with which we have a huge deficit—some £82 billion, according to the note. I have an issue with the whole approach of this country towards trade and the generation of economic activity. With all the resources that we have, both academic and in the City of London, and all the international experience we have had over many years, why has this country effectively turned its back on business? This goes back to the 1970s and even beyond. It became unfashionable to have smelly factories —we needed to concentrate on all the services—but we still need a core element of manufacturing in this country. We have largely turned our back on that.

I believe that a large amount of the trouble goes back to our education system and our approach to education. One of the things that is at the root of our failure to improve our economic performance is basically a form of snobbery. For instance, let us look at the difference between ourselves and a country such as Germany when it comes to vocational education. Here, an engineer is someone with an oily rag who goes in through the back door, but there Herr Ingenieur is regarded highly and with respect. We therefore have our whole approach wrong, from the ground up, and that is why this country’s relative economic performance has over many years been declining.

I welcome the Minister to the Dispatch Box, but I say to her that our approach to trade, and to business generally, has been not as good as it should have been. Look at our competitors: they tend to be more active and aggressive when it comes to getting into markets. Reference has just been made to our economic performance in China, and while that is improving, it is from a minimalist position. We are not focused as a country on trading, yet that was where this country built up its entire background around the world. We talk about global Britain, but we have become terribly parochial. Our approach to education and the message that we send out to our young people is at the core of this fundamental weakness. Political clout in the world also comes with economic clout, yet we are seen as a country that is not moving forward in that regard. The Government and the Minister will have to address that.

Let us come to the City of London—to finance and our approach to taxation. We do not incentivise companies to trade, but we could use the tax system. A simple matter, for instance, is that the Institute of Export and International Trade provides qualifications for people in exporting. Your Lordships would not go to get your car fixed by a mechanic if that person had no qualifications, or to a dentist if they had no qualifications. Why do we risk the farm—risk the company—on people trying to export if they have no qualifications? We do not give a tax incentive to companies to encourage people to take that training.

The City of London is, allegedly, the financial capital of the world, so how is it that major companies in this country cannot win contracts, say, to build trains but are beaten by a German company? It is not because the trains are any better but because the German company could produce a better financial deal. How is it that the City of London, which is supposed to be the financial capital of the world, cannot beat anybody? I just do not understand why we do not say to the City of London and to companies, which are awash with cash in many respects at present, that we will incentivise them if they invest in something productive, instead of giving money to Russian oligarchs to buy houses that will lie empty in this city.

We need an entirely new approach to trade. It has to be front and centre and we should trade-proof all government policy by asking, “What is this doing to help grow our businesses or raise wage levels?”. We talk about poverty endlessly in this House, quite rightly, but it is basically caused by a lack of money. People are just not getting wages that would make them self-sufficient. Nobody—or, I suspect, very few—would want to languish on social security. But at the end of the day, if we do not put those issues at the front and centre of our policies, something is radically wrong.

I come to some of the issues that concern our international trade, such as tariffs versus standards. With the recent decline in our currency, tariffs are less of an issue but standards remain key and, of course, they come right into the Brexit process.

The noble Lord, Lord Whitty, said in his opening remarks that he would not delve into the Irish question, but I am afraid that I am not going to be so reticent. The fact is that yesterday, no matter how you measure it, was a bad day for the United Kingdom. It was bad because we have made statements which involve inventing a new language: we have “frictionless” now, which is a great word, and all sorts of things. We have to put it all in perspective. The amount of trade done across the Northern Ireland border is, in European terms, minute. It is done by a relatively small number of significant companies, allied to a lot of local people, particularly around agriculture, produce and animals. Why do we have to invent new phrases? What does “regulatory alignment” mean?

Can the Minister confirm this for me? If she cannot do it tonight then I am sure she will write to me. I was led to believe that when the document was leaked, it spooked a whole lot of people. Some people may have seen pieces of paper but did not pick up their significance; others, who may have believed that they had great influence over the Government, suddenly discovered that their influence was not that great after all. They discovered that, shock-horror, a UK Government were going to put a national interest first instead of a regional interest. This is not a new phenomenon to some of us who have been involved with negotiations over the years. However, a scenario has been put to me that people have misunderstood the phraseology and that the document did not mean that Northern Ireland and the Irish Republic would be permanently aligned with whatever Brussels decided on regulatory performance. But it would mean that the regulations that have already been agreed between the north/south bodies established under the Belfast agreement and the North/South Ministerial Council would stay as a fixed point.

There was then the revelation earlier today, when the Urgent Question was being answered in the other place, that regulatory alignment would apply to all of the United Kingdom. Forgive me, but that piece of arithmetic just does not add up. I believe that there are solutions to our border issue. The starting point is that everybody agrees that we do not want to go back to the past. We have spent 20 years getting rid of this obstacle, which is in our own minds as well as elsewhere. I am a totally convinced unionist and do not want to see, in any shape or form, a diminution of Northern Ireland’s position in the United Kingdom. However, we agreed a number of regulations. I was a Minister who set up, with our southern counterparts, two of the largest north/south bodies, InterTradeIreland and Tourism Ireland. As Energy Minister, I also did deals for gas pipelines and the electricity interconnector, so I have some grasp of the issues involved.

I believe that we could have a customs relationship between Ireland and the rest of the United Kingdom because 90% of Ireland’s goods go either to or via the UK, which is a land bridge across to Europe. We could also guarantee that we will not allow the integrity of the single market to be damaged by people who try to subvert it by bringing in goods that are not up to standards, or to use the Republic of Ireland as a back door in. All of that is possible; it is also possible, through working with the relevant customs authorities and other intelligence bodies, to communicate between Brussels, ourselves and Dublin so that we can find a way through. Can the Minister tell us whether that regulatory convergence or alignment would apply to regulations currently in force, such as those on animal health, or to new regulations that will come in over time? If it does, that will inevitably mean a divergence between our part of the United Kingdom and Great Britain. I would really want to know the answer to that question.

Coming to the bigger picture, the way that things have unfolded will make matters terribly worse because, if there is to be any change to it, who will be seen to have backed down? This matters a lot in Irish politics, as one well knows. There are so many games being played. People are seeking to be successors to the president of the European Union, there is a minority Irish Government, there is a minority Government here, people are jockeying for position, and we are caught in the middle of all this. We must remember that we have to think about our own people. Their future jobs and prospects are out there, and I have to say that the biggest mistake the former Prime Minister, David Cameron, made was preventing Her Majesty’s Government making any preparations for one of the two possible outcomes of the referendum. We are now finding that we are playing catch-up in so many different areas. We are well behind where we should be at this stage.

Finally, I return to the point I made at the start. We want to see this country re-established as a significant trader in the world, but we have to go back to basics. That starts in the classroom and in the attitude. It starts in where government sees the priorities lying. Economically, we should incentivise our businesses through the tax system so that, if they put their money into something that is going to be productive, they will get a better return from that than from putting it into property. We saw the crisis in the Irish Republic a few years ago over property. Money was sloshing around, and the crisis left a debt that will take two or three generations to clear. Please revisit the whole concept of where our economic policy lies.

I believe there is enough talent and qualified people in this country to find a way through this so that we end up as a really global Britain, not one that will inevitably be crippled by continuing deficits. Remember, it is more than 30 years since this country ran a trade surplus, and anybody in a corner shop will tell you that as we have continued to lose money like that for 30 years, when we come to a shock, as we inevitably will in the next couple of years, whether we get a good deal or a bad deal, we have no reserve, and that is where we are weak.

Photo of Lord Monks Lord Monks Labour 6:02 pm, 5th December 2017

My Lords, I, too, welcome the noble Baroness, Lady Fairhead, to the Dispatch Box this evening and thank her for her presentation of the government documents on trade and customs. I have to say that even her skilful presentation could not disguise the huge amount of wishful thinking that exists in the Government’s position on these two subjects. I also welcome the lament expressed by the noble Lord, Lord Empey, for too much of UK manufacturing. Whether we are inside or outside the EU in the future, it certainly needs a lot more attention than it gets in British public life at the moment. Like my noble friend Lord Whitty, I will leave my comments on Ireland at least until I have seen the evening news, because when you are in this Chamber you do not know quite what is going on outside.

To return briefly to wishful thinking, the feeling that having independent trade deals with countries around the world will more than compensate for the costs associated with leaving the EU seems to me wildly misplaced. The harsh reality is that by casting ourselves adrift, not only from the EU but from the European Economic Area, we put ourselves in an environment where we will be trying to negotiate deals not just with the EU and its 27 member states, with all their different interests to be taken into account, but with the 60 other counties that currently have trade deals with the EU. I make that 87 countries to negotiate with just to get the same geographical coverage as we have now. I am talking not about the quality of those agreements but just about some sort of arrangement with them.

I agree with those who say, as several noble Lords have in this debate, that we have to level with the British people and be very honest about how things lie. Membership of the EU has been unencumbered by tariffs or rules of origin checks. My noble friend Lady Quin reminded us that the single market was Mrs Thatcher’s baby. It was her vision. She wanted the common market. When, at their first meeting in Downing Street, Jacques Delors asked, “What do you want?”, she said, “I want a big market”. That option is still there for the Government, but at the moment it is being rejected. It ensures common product regulations and standards, basic worker rights on health and safety, information, consultation and equality, good consumer and environmental standards and, importantly, the right to deliver services across the continent. That is what we have. That is what we enjoy at the moment, and that is what we have to try to replace in some way if and when phase 2 ever gets off the ground. What a task we are setting ourselves. We should tell the people how hard it is going to be.

I agree with noble Lords who said they wished we were trying to lead Europe rather than leave it, not least because trade is inversely proportionate to the geographical distance between the countries concerned, as the noble Lord, Lord Kerr, explained. We also need to bear in mind that many of the countries earmarked by the Government as friendly targets for future trade deals are right on the other side of the world—as far away as you can get in some cases. At the moment, Australia accounts for 1.7% of our exports, India the same and New Zealand 0.2%. Even those countries, with their close historic and cultural ties with this country, will be very tough on trade talks, as they were a few weeks ago on agriculture in the case of Australia and New Zealand. Can the Minister tell us whether the Anglosphere countries, such as Canada, Australia, New Zealand and the United States, are prepared to open their markets to British beef exports soon? When will they lift the bans that were imposed as a result of the BSE crisis? The EU did it years ago, in 2006. The European Court of Justice made it do it. One or two countries, such as France, did not want to, but the ECJ made them. That is also something that will be lost as we go down the current route that the Government are setting. It is part of the wishful thinking that there will be friendly countries out there anxious for deals generous to us. The true picture is more like an episode of the BBC’s “Blue Planet”: a frightening ocean full of all kinds of predators seeking to burst out from the depths to circle and pick up some of the choicest parts. Some of our choicest parts, such as pharmaceuticals and financial services, are already being eyed up greedily by other countries to pick them off if they possibly can.

The EU apparently favours a replica of the EU-Canada proposed deal—the CETA agreement—for the UK, and I can see why. If I were in its position, I would do the same thing. CETA covers most manufacturing, an area where, as has been said, we have a big trade deficit with the EU. It does not cover much in the way of services, such as audio-visual and, crucially, financial services, where the UK has a big balance of payments surplus, so a CETA deal would not be a good deal for the UK. Wishful thinking is not an intelligent basis for these trade talks. I have yet to learn what the Government are really seeking in their comprehensive free trade deal in phase 2 of the negotiations, if and when they get going.

In the absence of a hard-headed, clear approach, the Government must think again and look again at the option that several noble Lords have mentioned. Do we have to exit the single market and the customs union? Can we not stay in the European Economic Area? Can we negotiate a Norway-plus deal rather than a Canada-plus deal? It is far from the ideal option and would not be anything like as good as what we have at the moment. It risks the charge of being a colonial arrangement, as the noble Lord, Lord Kerr, said. There is no doubt about that. We would be a rule-taker rather than a rule-maker, although I am sure we would still find ways of having a significant influence on crucial decisions if we were in that position as this is a much bigger country than Norway in the constellation of European states. If we are to stick to the result of the referendum, however, it is the only option that minimises the damage of Brexit, as others have said, and solves the Irish border issue. It is the only way I can see to keep at least some cake and possibly be able to eat it.

It is a better bet than Canada-plus. If the Government will not take this kind of changed approach as the difficulties mount up, as they inevitably will, the moment is surely arriving when Parliament itself—this House and the other place—will have to consider what to do. The situation is very serious, and the sooner the country is aware of the limited nature of our options the better.

Photo of Viscount Waverley Viscount Waverley Crossbench 6:10 pm, 5th December 2017

My Lords, parallel preparations in advance of final Brexit implementation are essential, even though the end product is yet to be determined. As a reluctant but optimistic Brexiteer, I have no difficulty with a paper entitled Preparing for our Future UK Trade Policy. The principle of free trade and the goal of enabling continuity, boosting global trade relationships, supporting developing countries in reducing poverty and a rules-based framework for trade remedies and trade disputes are objectives that allow the UK to hold its head high.

I have spoken on multiple occasions over the months on such matters and will not repeat what is already on public record. The covering note on the cross-border trade Bill, however, presents a Rubik’s cube of complex legal and technical issues within equally complex political constraints. It is that lack of clarity around political constraints that makes the technical analysis a testing exercise, such that businesses have no alternative but to prepare for the contingency scenario of no agreed customs arrangement.

It is hoped that this month will shed light on the probable Brexit end game. While a hard Brexit is still on the cards, given the continuing uncertainty, renewed focus on delivering the ideal scenario of frictionless trade, with an interim implementation period, would appear more sensible. Brexiteers should understand, and accept, that frictionless trade will be perceived by some as though we are still in—but surely this is a small price to pay to ensure overall readiness. I have also come to accept, albeit reluctantly, that addressing detail through secondary legislation is acceptable in the circumstances.

In essence, this is about an orderly withdrawal of the UK from the EU. Questions arise, however. Excise and VAT regimes must function effectively on exit day, so what is the Treasury’s preferred option? Is it a continued waiver from entry and exit summary declarations? Is it to remain a member of the Common Transit Convention, so that goods will not need to complete import and export declarations at each new border crossing? Is it to seek mutual recognition of authorised economic operators and press for bilateral implementation of a technology-based solution for roll-on roll-off ports? Will the Government be supporting the adoption of these simplified procedures, including presentation waivers, the use of the CTC and self-assessment? Or would the Treasury prefer an option of a virtual border, where the UK, in partnership with the EU, operates a regime for imports that will remain in the EU market even if they are part of a supply chain in the UK first?

Leaving the EU without a negotiated agreement will necessitate other EU countries having infrastructure in place for the two-way process of importing and exporting to work effectively. Is there any evidence that such preparations are under way? To achieve frictionless trade, the Government must ensure that all departments and related agencies operating at the frontier are joined up. The main cross-channel port countries of Belgium, France and the Netherlands will need to alter their systems to accommodate UK imports and exports. Beyond budgetary issues, this will require co-operation and direction from the Commission. Preventing disruption will require both sides to be prepared for changes.

I spent a large part of yesterday evening scouring public-source EU documents. It is a given that, as of the withdrawal date, the United Kingdom will no longer be part of the customs and VAT territory of the Union. However, in one of those documents, in the subsection, “Modes of Transport”, in each of the sections pertaining to “Maritime”, “Air”, “Road and Rail”, “Postal Shipments” and “E-commerce”, the following words appear:

“These changes will be implemented when all the … IT systems will be available”.

Would the Minister care to comment on this prospect? What is being anticipated, by whom, and at what cost over what period? From what I understand from the excellent briefing this morning, the EU is not expected to have its systems ready until 2025—a point made by the noble Lord, Lord Whitty. So even if we were to enjoy a transition period of two years, it would take us to March 2021. What is the process that would be enacted during the period 2021 to 2025?

We are at a critical juncture in the Brexit journey today. The Irish frontier complexities loom over the negotiations. The question of no divergence on regulatory alignment remains the bogey. I have not been to the large logistics centre on the Chinese side of the Kazakh frontier, but it might be that relevant lessons could be learned given the long-haul shipments that eventually reach Europe.

I have previously raised the possibilities and benefits of an integrated digital economy platform in relation to cross-border challenges. Given that 60% of global B2B trade currently runs through the systems of the leading 12 technology companies, signing up 150 of their leading customers would be sufficient to ensure that the digital economic platform captures around 60% of global trade by 2030. I understand that the Global Coalition for Efficient Logistics—GCEL—stands ready to demonstrate the potential of its digital technology in respect of trade between Northern Ireland and the Republic, in order to enable trade to take place between the two in a manner satisfactory to all parties and without the need for a physical border. I am aware that principals will be in the UK Friday and Saturday, and I have little doubt that a meeting of interest to the Minister and her department could be arranged.

Very briefly, and as a concluding thought, I will flag the concerns of SMEs, many of which have never prepared documents for a customs exit or entry clearance—again, a point made by the noble Lord, Lord Whitty. It stands to reason that a lack of experience, staff and resources for dealing with significant changes, procedures and paperwork will become a challenge. Would the Minister consider placing this issue in her in-tray for consideration? What possible training exercise might be readily entered into?

The greater the divergence between EU and UK regulations and product standards, the more customs capacity the UK will need to develop. The Minister should recognise constraints at the physical border and consider moving checks inland. The UK currently has access to more than 20 EU systems used to track the movement of goods and vehicles. Although an FTA could grant the UK permission to continue to use at least some of these, no deal could require the UK to build and integrate new systems from scratch.

Finally, I have two quick observations. I listened very carefully to the noble Lords, Lord Whitty and Lord Kerr, as I have done to all noble Lords. Two thoughts emerged. Will the Government draw up a comprehensive list of FAQs—frequently asked questions —to address the issues as we move along this journey? That would be very helpful for all our good friends around the country to understand where and what the game is, what they must do, how they should do it, and so on.

Secondly, the noble Lord, Lord Kerr, referred to his Article 50. As no one can judge the political future environment, there may well be a need to consult the people. In anticipation of this, could we jettison the term “second referendum” and instead vote on the “final outcome”—a point raised at a joint meeting that the noble Lord and I attended?

Many other challenges remain. However, I will leave it there for the moment.

Photo of Baroness Golding Baroness Golding Labour 6:21 pm, 5th December 2017

My Lords, I lived in and represented North Staffordshire—the Potteries—for many years, so it will not come as a surprise that I will make a short contribution to the debate on a small number of the many concerns affecting the future of just one industry: the ceramics industry.

It is well known that, over a number of years, UK ceramic manufacturers have been vulnerable to illegally priced imports by state-subsidised Chinese competitors. The European Union has been instrumental in combating these unfair practices by introducing anti-dumping duties, enabling the UK ceramic industry to stabilise and grow over recent years.

Our Government have acknowledged that free trade must operate within a rules-based system, but there is concern in the ceramics industry that the opportunity is being missed to build on the strengths of the EU’s trade defences and improve their effectiveness for UK manufacturers. One area which the industry thinks could be improved is the removal of the lesser duty rule in calculating the level of injury to the domestic industry in dumping investigations. Only nine out of 32 main users of trade remedies around the world apply a mandatory lesser duty rule, and its removal would certainly help British manufacturing. I hope that the Government will take note of that.

The ceramics industry has also expressed to me its concern over the dumping of imported goods below their normal value, such as their domestic price. Given that distorted economies such as those of China and Russia will be included in our market, strong parliamentary input to our trade rules will be essential to enable the industry to keep the Government up to date with what is happening throughout our country.

The ceramics industry directly employs 22,200 people, with many more in the supply chain. It generates annual sales of more than £2 billion. There are so many items of concern to the industry. The Government should listen to the industry and its unions, for it is they who will bear the brunt if the Government get all this wrong. Those are a number of small concerns in a not very big industry—but an important industry in North Staffordshire.

Photo of Lord Cope of Berkeley Lord Cope of Berkeley Conservative 6:24 pm, 5th December 2017

My Lords, as I have ministerial experience both as a Northern Ireland Minister for security and, subsequently, for Customs and Excise—as it then was—in the Treasury, I cannot resist commenting on the events this week concerning customs and trade across the Irish border.

The start of the problem—we must recognise that it will be a problem throughout this whole process—is that we live in the age of the tweet and the leak, so private diplomatic choreography leading to a carefully planned and phrased communiqué is a thing of the past. It makes many things, including international agreement, much more difficult, but it is no use being nostalgic for a vanished age. The Brits seem to have been playing the game by the old rules, so they arrived at a typical Brussels formula which meant different things to different people, particularly when put into individual phrases.

However, agreement seems near and, I believe, possible. The message is: do not give up and do not allow noisy spectators to put you off your game. Remember, after all, that the Belfast agreement was not eventually arrived at until quite late on Good Friday—well after it was supposed to be.

The argument was never about the Northern Ireland border alone. It is almost as much about Dover and Heathrow as it is about Belleek and Killeen. There was never any question of setting up border crossing points on the road, railway and canal links across the Northern Ireland border. They would not work practically or be acceptable for normal life in the border areas. Ministers in both London and Dublin said from the start that crossing points were unacceptable. It suited some, particularly in Dublin, to pretend that they were likely, but that always looked to me like a bogey put up to claim the credit for having resisted them when they did not happen. No one has been publicly arguing in favour of crossing point barriers—perhaps Brussels has been privately pushing for them to be threatened as a necessary consequence of Brexit, but that is because it wants to make Brexit impossible.

We are leaving the EU. That means that we expect that in due course there will be divergence of both customs duties and regulations. I think it is impossible to have totally frictionless borders in those circumstances. I prefer the phrase, “as frictionless as possible”. I think that that is more achievable. What concerns me today is the practical consequences. It is not only about customs duties. Indeed, as the noble Lord, Lord Kerr, said, regulations and standards are more important. So, for that matter, are indirect taxes, excise and so on.

The UK border—not only in Northern Ireland but the border all around the United Kingdom—is now, and has been for many years, a very important fiscal border. VAT and excise duties differ, as does agricultural support, and so on. Smuggling has long been and is now a paying proposition for those who can get away with it. Customs and other authorities on both sides of all our borders have fought it with some success for many years, and there will be no change in that. I do not mean that no smuggler has ever been successful for a time on any of our borders—either the Northern Ireland one or the English Channel—but other smugglers have ended up in jail and, no doubt, some will in future.

The difference in rates of indirect tax is likely to continue to be much higher than that in customs duties for many years to come, and the incentive to smuggle will still be in favour of smuggling excisable goods—tobacco and alcohol—rather than those relating to customs duties. Customs formalities everywhere are, these days, already mainly carried out electronically, away from the borders.

A new customs declarations system has been mentioned already, and it is forecast to be ready by March 2019. Like my noble friend Lady Verma and her committee, I would like the Minister to tell us, if she can, if it is still on course for that date. It will, of course, take time after that to bed in and for business to absorb it. That timescale is not capable of a precise forecast, but we all know that it will be a year or two before it fully works and works smoothly. In that context, it is essential that HMRC increases its staff to deal with the huge increase in customs declarations that is anticipated after the transitional period. We were told this morning at the seminar to which the noble Lord, Lord Whitty, referred—I think I am correct—that customs declarations were likely to increase from 50 million a year currently to 300 million. That is an enormous increase. Clearly, the statistical arrangements and IT arrangements will have to be able to deal with that. Can the Minister confirm that those figures are approximately correct?

It is also true that many smaller companies will be involved in such matters for the first time and will need help from Her Majesty’s Revenue and Customs and others. Applications for accreditation of the authorised economic operator are now apparently taking about a year to process. That is unacceptable, particularly if the so-called self-assessment customs declarations are to be confined to those with full AEO status, although I hope that that will not be the case. That is particularly serious, of course, if there is no deal—but it is essential in any case, even if there is.

The common transit convention for transit of goods is also important, but it seems to me that the EU would be being particularly difficult if it did not accept that UK membership should continue, as it will help its companies quite as much as ours—so it should not attempt to frustrate continued UK membership. Continental companies widely use trucks, and so on, to bring stuff to, for example, UK airports for onward transmission, particularly to the United States.

The noble Lord, Lord Whitty, and others, including the noble Lord, Lord Kerr, spoke about the timings and difficulties ahead during the transitional period. The difficulties, of course, are not only difficulties for government in negotiating all these complicated agreements with so many people; they are also difficulties for business. Companies have often said over the years to me and others, “We can live with your regulations and your forms when we know them, but not with the Government changing them all the time”. That, of course, is true in general, but it will be even truer over the next few years. The period that faces us involves massive changes in procedures for customs and trade generally. It will be very expensive and difficult for government and companies, large and particularly small, and part of the problem is the timescale. The Government must do all that they can to bring greater certainty to the situation as soon as possible. If they know what faces them, businesses and others can prepare. As part of that, we look forward to these two Bills.

Photo of Lord Liddle Lord Liddle Labour 6:34 pm, 5th December 2017

My Lords, first, I apologise to the noble Baroness, Lady Fairhead, for not being present for the opening of her speech. That is a great breach of protocol in the House, and I feel very apologetic for it. Secondly, I welcome the Minister to her new role. I am afraid that it is a bed of nails, being a Trade Minister, particularly as we move into the era of trying to negotiate our independent trade deals—and I am afraid that the thrust of my brief remarks will be to try to make those nails a bit sharper so that she realises some of the awful responsibilities that she has taken on, in my view.

My view is that the Government are prioritising the creation of an independent trade policy when it has no need to do so to respect the referendum vote. We could remain in the customs union and leave the European Union, but the Government are determined that we must leave the customs union in order to be able to conduct this independent trade policy. We know already what the downsides of it are, and we know that it raises the risks of chaos at the ports, because the customs arrangements are not in place—and we know that it could potentially set off a chain of events in Ireland that could lead to a serious threat to the Northern Ireland peace process. We already know that, so why are the Government continuing doggedly to pursue that objective?

I am going to ask a series of questions, although I am obviously not expecting a set of instant answers. I would like in due course to receive from the Minister some answers to the questions that I am going to put.

First, have the Government carried out a full economic assessment of the benefits and costs of their decision to have an independent trade policy? Have they compared staying in the customs union and relying on the EU to negotiate trade agreements as against having an independent position?

Secondly, if they have done that analysis, will they please let us all see it? I remain unconvinced that the losses that we will suffer from essentially giving up a free trade arrangement that we have for the 40-odd per cent of trade with the European Union will be made up, or more than made up, by the gains from trade deals that we can do with the rest of the world. So let us have a proper analysis of this—and is it available?

Thirdly, our trade comes in three categories. This is very broad, but there is the 40-odd per cent that is the European single market, the 30% or so covered by deals that the EU has negotiated on behalf and the other 30% or so where there are no arrangements at present between the EU and those countries. Where there are no trade agreements, can the Government tell us which of the countries they will prioritise? Is the United States at the top of the list and, if so, can the Government tell us what their negotiating objectives are for their deal with the United States?

When I worked at the European Commission for the Trade Commissioner, they always used to ask, “What are our offensive interests?”. This gives you a flavour of the world of trade, with the bitter battles between offensive and defensive interests. I would like to know what our offensive interests are in relation to the United States and how far they differ, if at all, from the offensive interests that the EU had in the TTIP negotiations. My instinct is that they would be pretty much the same.

How do our defensive interests differ from those of the rest of the EU? At one time, I think that there probably was a real difference, in that Britain would have been less concerned about agricultural protection and would have been prepared to give more on agriculture to get more from the Americans than, say, France, Italy and Spain would have been However, I am not so sure about that now, as Michael Gove seems resistant to the idea that we should accept agricultural goods into this country that do not comply with our very high standards. Parliament has a right to know where the Government stand on this. Is it their policy to maintain EU standards and not relax them, and therefore exclude this bargaining chip from their negotiations? If that is their policy, it undermines why we are undertaking all this separately from the rest of the EU.

Second in line is India, or it might be, anyway. Would India come near the top of the list? I suppose that it would. Do the Government really believe that Britain has some kind of special relationship with India? If so, can they explain to me why the Germans export three times as much to India as we do? I am very sceptical about a trade agreement with India. I know from my Brussels experience what India’s offensive interests are in terms of trade negotiations with Europe. There is one simple answer—lots of visas for Indian workers to come and work here. How does that square with the Government’s commitment to take back control of our borders and cut immigration? Where is the consistency in the Government’s policy? How does this square with Mrs May’s refusal to abandon the target of cutting immigration to 100,000 a year? I do not see why anyone in India should take seriously a British negotiator who turns up on their doorstep unless the negotiator can state clearly what the Government’s policy is. I bet that we will not hear what it is, as I do not think that the Government know what it is because it is contradictory and all over the place.

The EU has all these agreements with countries that we must now, somehow or other, turn into agreements that we have, as the noble Lord, Lord Kerr, said. The Prime Minister went to Japan with great fanfare. The great triumph of that visit on the trade front, as far as I could see, was that the Japanese Prime Minister said, “We will give you exactly what we have negotiated with the EU”. If that is the limit of what we are likely to get—setting aside all the complications which the noble Lord, Lord Kerr, mentioned about how you renegotiate quotas and all that—is it really worth while having this independent trade policy? I am very sceptical about that. Therefore, can we have a proper analysis? Can the Minister say what the gains will be, as against the losses we know about, in terms of the barriers to free trade with our European partners as they are now?

The phrase of the week is “regulatory alignment”. Do the Government accept that if we depart from regulatory alignment with the EU in order to negotiate independent trade deals with other countries, we will inevitably face tighter customs controls and more difficulties in trade with the EU? How has that trade-off been assessed? I do not think that there has been any proper analysis or reasoning of this decision to have an independent trade policy. I believe that it is all based on religious faith and ideological obsession with the idea of a global Britain that can rule the waves in economics in the 21st century as we ruled them in politics in the 19th century. We are sacrificing the free trade we have for a set of very uncertain benefits. I would like to hear a coherent statement from the Government on where they stand, as that has been completely lacking.

Photo of Baroness Murphy Baroness Murphy Crossbench 6:46 pm, 5th December 2017

My Lords, I am surrounded by trade experts and I am no trade expert, so I speak largely from the gut. I cannot be the only person in this Chamber—I know that I am not from the voices I have heard around me—who finds myself in despair over the performance of our Government in the negotiations leading up to some kind of trade exchange in Brussels. I did not want them in the first place because I cannot see, as many others cannot, what possible improvements in trade over and above what we already have could be achieved by what we are hoping to get in Brussels now. By abandoning the common market and the customs union, it seems to me that we are abandoning things that we have taken so much trouble to build up over the last 40 years.

Secondly, I was ashamed to see our Prime Minister unable to negotiate on the UK’s behalf as a result of what I consider the fickle decision of the DUP to intervene. However, that may be the Prime Minister’s fault. As she had a special relationship with the people in the DUP, you would have thought that she might have turned to the nearest Irish woman or Irish man that she could find before she started these negotiations, but she did not.

My main purpose today is to talk about those members of the Cabinet who are still talking about the possibility of an ultra-hard Brexit and crashing out of the European Union with no deal at all. From what we know about how trade works and how trade deals are done, it seems to me quite unconscionable that we could contemplate such a thing.

The White Paper before us is very pretty. I have never seen Dr Fox with such a big smile on his face. There is a little picture at the front of Britain with laser beams going out from it. I thought that it was a butterfly at first and then I realised that it was the UK at the centre of the world, as the noble Lord, Lord Liddle, said, just like that old Mercator projection that used to hang in our geography classroom at school, which depicted Britain at the centre of the world with all the pink bits round it. Ours still had India in pink, in the early 1950s, I am afraid, as we had an old map. That reminded me that this image harks back to when we ruled 25% of the world. Britain got rich plundering that empire, and I find it quite frightening that pro-Brexit groups should be so deluded as to think that we could so easily remake links that were—in the face of our history—difficult to maintain when we had them, and refashion others that we so casually abandoned when we joined the EU. This trade policy White Paper is, of course, largely aspirational since we have no idea at all what kind of deal is likely to be achieved with the EU: it is riddled with “don’t knows” and uncertainties. As we heard, in another two years at the end of the negotiations, we will probably be on another cliff.

Behind the news of this lurks this persistent and dangerous threat. The more the Prime Minister yields to the EU, the more some cavalier Brexiteers argue that Britain should leave without any deal. The little Englanders hate the concessions that have been made, especially over money. One can predict that the second phase of the negotiations will prove to be even more painful, with the EU sticking right to the rigid line on trade. It would be an unmitigated disaster: it is not the right tactical approach; it is actually an absurd idea. Unfortunately, some really believe that “no deal” would not really be so bad. I believe that there are eight famous economists who agree that it would be perfectly fine, even if there are 8,000 other economists who say it would be crazy. Britain could revert to trading on World Trade Organization terms, but that is not an automatic outcome.

Britain’s relationship with the EU is far more intimate than that of most countries. We have already heard that the EU accounts for 43% of our goods exported and half of its imports; more than that in services, which make up 80% of British GDP, and almost half of exports, so the EU market is crucial. Until that is accepted, I cannot see what we are negotiating about. Theresa May has dismissed a Canada-style free trade deal for reasons that we might understand: it would mean a restriction on our mutual market access. However, we should remind ourselves that the Canada negotiations took seven years, and it has not even ratified it yet, no doubt waiting to see what will happen with our negotiations.

It is also misleading to claim that the rest of the world trades with the EU on WTO terms. The Institute for Government has pointed out that all big countries have bilateral agreements on customs co-operation, data exchange and standards. Only seven countries in the world trade with the EU on WTO terms alone, and they are pretty small fry, such as Cuba and Venezuela, which are rather disheartening bedfellows. Reverting to WTO rules is not simple, as we have already heard. It requires a division of EU import quotas, for example on beef, lamb and butter. Big food exporters such as Brazil, Argentina and America are unlikely to be thrilled with that, nor indeed if we got them would our farmers be very thrilled. The WTO proceeds by consensus among its 164 members. It makes negotiating with the 27 EU countries look easy peasy, does it not?

A no-deal Brexit would undoubtedly damage other EU countries, but Britain would be hit the hardest. Of course it would perhaps mean not paying the divorce bill, which would jeopardise the position of British citizens in the EU and EU citizens in Britain. Amid the recriminations that follow a breakdown of relationships in any divorce with its bad blood, the EU would surely look to its own interests first. We would fall out of all those many EU organisations that we are so dependent on, from Euratom to the European Medicines Agency. I know a little about that agency. We now know that it is going to move to Amsterdam. It will cost us about £532 million: that is our UK cost to move that institution since it is a direct consequence. With it will go at least 800 jobs. There are about 100 very senior people who might move to Amsterdam with it, but that would be all. Not only will we lose that agency and all it brings with it, but it plays host to tens of thousands of national regulators and scientists each year from across the continent, who come to London to negotiate and talk about deals. It puts our own industries in a very favourable position from the point of view of being able to understand what is going on. It seems ludicrous to me that many people voted for Brexit because they thought there would be more money for the NHS. To anyone with analytical nous, this would clearly be a non-starter. It makes it all the more sad that we are going to lose one of these extremely important regulators. Crashing out of the EU would be an absolute no deal for all kinds of reasons, not only in respect of medicines, the pharmaceutical industry and the other things that I know most about, but for all those other incredibly important industries.

The customs White Paper is another bland set of aspirations that ignores the huge problems created by Brexit. I have only one question for the Minister on this. What options in this White Paper appear to her to be superior in the short or longer term, or even as good as the arrangements that we already have? Further interim solutions that give business no certainty seem inevitable, as the paper admits.

I have probably covered many issues that other people have already covered more expertly than I can. I would like to stay within the customs union and single market, but I would much more prefer the solution suggested by the noble Lord, Lord Kerr, of withdrawing our invocation of Article 50. The economic health of our nation is at stake, and I would like the Minister to confirm that the economic health of the citizens of this nation means more to her Government than mollifying the whingeing Brexiteers.

Photo of Lord Horam Lord Horam Conservative 6:56 pm, 5th December 2017

My Lords, I welcome the noble Baroness, Lady Fairhead, to her post. Like me, she is a northerner who went to St Catherine’s College, Cambridge, and ended up working for the Financial Times, so her pedigree is—I assure you—immaculate. The noble Lord, Lord Liddle, said that my noble friend’s new post was a bed of nails. He ought to know, since he is a northerner as well, that northerners think nothing of beds of nails. We deal with them every day, with élan. So it is an absurd idea that she will find this a difficult post. I think she will enjoy it, although I agree that it will probably be a bit of a slog.

The noble Lord, Lord Whitty, led off the Back-Bench contributions to this debate, along with my good and noble friend Lady Verma. They were the co-chairmen of the EU sub-committee on which I was happy to serve. As they mentioned, we produced a report on the options for trade, and reality has taken quite a long time to seep into the higher levels of government. One of the firmest conclusions we drew was that there had to be a transition period—transition or implementation, call it what you will—simply because a detailed agreement could not possibly be finalised in the time available under the Article 50 arrangements. The transition period really has to be based on the status quo. To do otherwise would simply mean two sets of negotiations; and one set is bad enough, but two would be ridiculous. That was implied in the Prime Minister’s speech. Not only that, but it will need some legal underpinning. That period cannot exist in thin air, so I expect that there will be a Bill in the next calendar year that we will have to discuss in the House. I hope there will not be too many attempts to put red lines into that necessary Bill, because it is important that we get through it.

The other issue about the transition period is definitely more controversial, and that is the length of time. The noble Lord, Lord Kerr, said, as his third fact, I think, that a trade deal could not possibly be agreed inside two years. With respect, that is not a fact, because we have not got there yet, although I have to agree that the broad evidence is fairly heavily on his side at the moment. However, I remind him that we are in a sense reverse-engineering here. All the examples that he and other noble Lords have quoted have been of bringing together divergent trade situations. Here we have a single trade situation that we are trying to prevent diverging. As I say, that is reverse-engineering, and surely that can be completed in less time than engineering away from the status quo.

I also very much doubt—I would be interested in hearing the noble Lord’s view on this; perhaps we can discuss this when the debate is over—whether the European Commission itself has been thinking of a two-year transition period. Surely, if it thought that two years was sufficient, it would not be inconsiderate of the time it might take to do a real deal. I doubt that it would set itself up to fail. It, too, seems ultimately to want a deal. Therefore, if it is thinking of two years, it must feel there is a reasonable chance of getting the deal done in that time. I am therefore not unoptimistic about the two-year period, which seems to be the one that has been settled on, although I agree that it is difficult.

Finally, there is the end game, which is also a question. In our report we set out the four inevitable choices: the European Economic Area, the customs union, the WTO basis and a bespoke agreement, which is what the Government want. I will leave out the EEA, because the Government have ruled that out because of the four freedoms and the European Court of Justice; and nobody wants no deal, although I fully agree that it could happen by accident if there were ultimately no agreement. That could happen at almost any time by accident; those things do occur. We are therefore left with the customs union—a single customs union, leaving aside the single market, which is a separate issue—and a bespoke agreement.

Clearly the disadvantage of a customs union is that we could not pursue our own trade policy. That is a significant disadvantage and we need to consider it carefully. On the other hand, to remain in the customs union is clearly less disruptive than removing ourselves from it. Indeed, that is the only way to ensure we get this treasured adjective “frictionless”. Anything outside a customs union will have some friction. It may not be sufficient friction to light a fire, but it will be some sort of friction. Michel Barnier said the other day that the only way to get a frictionless agreement is to remain inside the customs union.

If we remain inside the customs union we will also, we hope, keep the 45% or so of our trade that is with the European Union; and do not forget the 11% or so which comes to us by means of the EU free trade area agreements that have already been agreed. We are therefore talking about nearly 60% or so of our trade. As the noble Lord, Lord Kerr, said—and here I agree with him—“Why do we have so much trade with the European Union? Because it is nearby”. He also said—again rightly; he has got two out of three right on this occasion—that trade halves as distance doubles. I know that from personal experience. As it happens, many years ago I built up a company with—the Minister will be interested to know—a fellow graduate of St Catherine’s College. It is a highly successful medium-sized company, with about 250 employees, and 92% of our sales are outside this country. Therefore I know about doing deals with distant countries, and they are more difficult, for obvious reasons—culture, distance, and so on. So it is not a question of like for like, somehow conjuring up a similar amount of trade from outside the European Union and its affiliates to what we might lose if we remained inside. To remain inside the customs union is also the only sure way of solving the Irish question. No other way is as satisfactory as that.

What is becoming apparent to many people now, to put it in economic terms, is the opportunity cost of all the effort that government is having to put into Brexit by comparison with the other problems that we face in so many different parts of our world. The National Health Service, our education service and all the rest of it require attention, and all that was heavily brought out in the economic debate yesterday. The amount of time the Government are having to spend on all this has a huge cost, which is a great pity.

Finally, on the customs union, the truth is that in 1974 many people thought that they were joining an economic arrangement. They did not fully appreciate that it was also a political arrangement. That has become more and more apparent as the years have gone by. I suspect that if you put it to people now that we could get rid of the Parliament and all the political connotations of the European Union and retain our membership of the customs union, they might well buy it as a simple solution without, as it were, throwing the baby out with the bathwater. You never know; as the months go by, “Events, dear boy, events”, to quote Harold Macmillan, might move us a little further towards that conclusion.

None the less, I understand why the Government want to have a bespoke solution, as is set out in the White Paper. Quite apart from the politics of the matter we should, as the Minister herself said in her introductory remarks, be a fully independent trading nation, and we cannot do that without a clean Brexit. In addition, although we are all being lobbied by companies and industrial organisations of one kind or another very rigorously at the moment—for obvious reasons; I do not doubt their concern—we should not necessarily overestimate or overweight existing interests. As I know from my personal experience, businesses change with remarkable speed. A business that was in one area 20 years ago will be quite different today, so we should not overestimate the present at the expense of the future. To have the independence and flexibility of being totally outside the European Union would give us the sort of control that we need to deal with that situation.

Above all, I agreed with the noble Lord, Lord Liddle, when he said that he hopes that people do not approach this matter and make these profound choices for our country in an overly ideological spirit. We all have to put the interests of our country first. That is why we are here: in the interests of our country. We will have to try to get as objective as possible an evaluation of where the best interests of Britain lie, and I hope that that will be achieved.

Finally, the way the Prime Minister has dealt with the conflicting pressures upon her over the last few months has been extraordinary. The noble Lord, Lord Liddle, mentioned a bed of nails, but there is a higher bed of nails, as I think the Minister will agree. I certainly hope that her week ends better than it has begun; she certainly deserves that.

Photo of Lord Leigh of Hurley Lord Leigh of Hurley Conservative 7:08 pm, 5th December 2017

My Lords, I also take this opportunity to welcome my noble friend Lady Fairhead to this House and her position. I thank her and congratulate her on arranging this debate—somewhat bravely, under the beady eye of her predecessor. It is a privilege to take part in this debate on a subject so vital to the future of our country.

We have heard today of the importance of our trading relationship with the EU. Indeed, as a bloc it is our most significant trading partner, with some £236 billion of exports in 2016.Why then, many have asked, would we destroy that by leaving the customs union—which we will? To this I say two things, which form the basis of my speech today. The first is that we must reject the premise of the question: we are not seeking to destroy that trade. It is in no one’s interests that we erect trade tariff barriers, so we must all remind ourselves that we start with the building blocks of free movement of goods. We must, as these two papers say, simply make the case to avoid protectionism and maintain low or no tariffs, which, I hope, will lead to mutual gain for us all.

The second is to encourage more dynamic thinking on how we plan our trade policy. In 2020, Europe, including the UK, will represent 10% of the world’s population. By 2050, once you take out the UK, it will be 6.5%. If you take out non-EU European countries, it will be lower still. None the less, getting our relationship right is the subject of today’s debate.

We have a lot to gain and should not be despondent or be put off by the many in this House and elsewhere who are downcast or in despair. Future trade should be easier in many jurisdictions, and the current situation in the EU is not as wonderful as some make out. I am reminded of the observation that my noble friend Lord Bamford, the chairman of JCB, made in this House in a post-Brexit debate. He related that farm tractors must comply with at least 10 individual and different pieces of national road legislation within the EU.

The fifteenth of December is a date etched on everyone’s mind. It is the date when the EU Council will meet to determine whether sufficient progress has been made to go to the second stage. However, it is etched on my mind for another reason, as it is also the date of the economic and financial dialogue between the UK and China—an annual event at which public and private sector organisations meet to agree how to boost co-operation, trade and market access in business and finance. I find it comforting that we are working hard within the UK and outside the EU to secure the most prosperous trading relationships for Britain, and it is auspicious that these two events happen to align.

This is not ideological. It is not to regain an empire but to maximise our ability to trade globally outside the customs union on which we must focus. I do not apologise for considering the UK the centre of my world. My world is in fact mergers and acquisitions. Inbound mergers and acquisitions have also maintained a robust pace. In the 12 months following the EU referendum, international acquisitions into the UK rose by 11%. To date, one major impact of Brexit has been to boost the role of foreign buyers in the UK deal flow, led of course, as it always has been, by the United States.

Returning to options for maximising trading opportunities with the EU, I commend the Government for the recent White Paper on the customs Bill, not least because it makes clear the importance of a two-year implementation period—please note, “implementation”, not “transition”—to give sufficient time for businesses to plan and for Governments to implement the new regime. This should also help UK firms being cut out of supply chains because of the perception of a lack of certainty over future arrangements. However, as a word of warning, I am a member of the Chartered Institute of Taxation, which reports examples of businesses already altering supply chains, as that is the only way at present to plan with any certainty. For example, stock currently sold by the UK to European customers will now be warehoused within the EU to service that market, the stock never reaching the UK, having obviously been sourced from abroad. In that way, firms seek to avoid potential barriers to trade that cannot be predicted accurately at this time.

This White Paper helpfully seeks to build on the existing regimes but paints a picture of the future where the UK has the maximum flexibility—in particular, through secondary legislation. I believe that it hints that this might lead to a different set of rules from those that the EU adopts in the future, although it does not specifically say so. The first option available, of a “highly streamlined customs arrangement”, certainly looks the most attractive—in particular, remaining a member of the common transit convention. Negotiating the mutual recognition of authorised economic operators, known as AEOs, is a must-have for both category (S) for security companies and category (C), which grants customs simplifications. I agree with the noble Viscount, Lord Waverley, that we must pay particular attention to SMEs. I make a plea for SMEs to be offered an “AEO lite”, as many of them, as the noble Viscount said, have never prepared for a customs exit or entry clearance and have never filled out the forms, although these days you do not fill out the forms; you make an entry on a website. Otherwise, many SMEs will struggle for AEO status. When I looked into this, to my surprise I found that only 600 companies in the UK have AEO status—all of them very large organisations.

The new “customs partnership” proposals are radical and could be a very innovative and sensible way forward. My only question, which I appreciate the Minister may not be able to answer now, is: where will disputes be settled? Will it be with our old friend the European Court of Justice? In common with the European Union (Withdrawal) Bill, perhaps I may also ask what happens to disputes arising between now and exit day? It seems logical that these would fall under the “business as usual” UCC rules, but which jurisdiction would oversee such disputes and what rights and remedies would be available?

Incidentally, in the other place Cheryl Gillan has raised the uncomfortable question of disputes pre-exit, many of which arose several years ago and which may now not go to the ECJ but clearly ought to, as these disputes arose under the old regime. The Francovich principle, which is not discussed in these two briefings, urgently needs more thought.

However, I should like reassurance from the Minister on one point in particular: taxation. I note that the important Making Tax Digital project, which involves important changes to submission, record-keeping and VAT reporting, is due to be implemented at almost the very same time as the Article 50 two-year period comes to an end. Your Lordships’ House discussed the issue in the debate on the 2017 Finance Bill. I had the honour of serving on the Economic Affairs Sub-Committee on the Finance Bill, which focused on Making Tax Digital. Can the Minister say whether the indirect tax industry, and indeed HMRC, will be able to cope with such a confluence of change?

However, I stress that there is much to commend in the Government’s attempts to provide certainty. The two-stage approach implied in implementation will help maintain our trading relationships not just with the EU but with all the other countries with which the EU has signed deals. We need continuity for those arrangements too. Can the Minister comment on the engagement with and response from businesses that she has had to date on these important matters of continuity with the EU and the trade deals with third countries? Can she also say whether the mooted implementation arrangements are easing pressures on location decisions in particular?

I commend the recognition in the White Paper that future deals will require proper scrutiny but, given that this is a money Bill, will the Minister confirm that the Government will respond to this White Paper, setting out exactly how these future arrangements will be scrutinised, as we will not discuss them further here?

This debate was in danger of becoming too polarised between, on the one hand, those who would have us stay in the customs union via the EEA—surely a failure to deliver on the democratic nature of Brexit—and, on the other hand, those who would have us too simply walk away with no deal. This debate today has done much to reassure me that there is a middle way and that it is being thought through properly. A middle way that would allow us to leave the customs union yet maintain as frictionless a trading relationship as possible with our friends in the EU is what we need. This White Paper sets a path to get us there but, as well as drafting the necessary legislation, the Government must also communicate—so much of this is about confidence. I look forward to hearing from the Minister how we can reassure UK businesses that matters are in hand.

Photo of Lord Campbell-Savours Lord Campbell-Savours Labour 7:18 pm, 5th December 2017

My Lords, I had no intention at all of speaking in this debate until last week, when I heard that the customs Bill was a money Bill. That basically means that we can have no influence whatever on the legislation because, by the time it gets to us, the Commons will have made up its mind and any proceedings in this place after Second Reading will basically be of no consequence. Indeed, the subsequent stages of the Bill will probably be taken formally.

In the 1960s, I was in business in Lancashire and one of my tasks was to appear regularly at the Long Room at Dover Western Docks, submitting entries on the component imports needed in our manufacturing operation. That was nearly 50 years ago. As the years went by, we sent trucks for component collection overseas, particularly to Italy and often through Mont Blanc and occasionally the Brenner Pass—all before we had entered the European Union. That is the background of my experience in the matter.

Unknown to me, a cousin of mine, John Shirley, was later to establish a freight-forwarding agency in the Western Docks area in Dover, so he is on the front line in this whole discussion. Over recent weeks we have had a number of conversations about Brexit, with reminiscences from me and direct experiences from him. His primary market has been non-EU—Albania, Bosnia, Croatia, Kosovo, Macedonia, Montenegro, Slovenia and Serbia. He is multilingual, he talks to the drivers, he hears their concerns and complaints and obviously he has mixed feelings about what is happening. He does not want a cliff edge, but the route we are on troubles him.

I recently sent him the PAC and Home Affairs Select Committee reports and asked him for a memorandum setting out his concerns, which I wanted to hear on the basis of his front-line experience. In response, he immediately flagged up demurrage as an issue and said:

“The slightest error in a customs entry would mean rejection. Rejection would mean the truck standing not for hours, but for days and when it comes to lengthy periods of time which are not the fault of the driver or the haulier we are talking about late delivery to the offload point and demurrage. Currently the accepted amount … is £250 a day. This is just the bare minimum and we, as freight forwarders, broker the number of days payable by the shipper to the haulier. Trucks cost money. They are driver accompanied and have to be kept running day and night in order”, to make an income.

“To give you some examples: in February this year we had four trucks held at an airbase in Dalmatia for a fortnight and the USAF agreed to pay”, demurrage of,

“£14,000! Last year, Samaritan’s Purse, running their shoebox”,

Christmas,

“appeal had three trucks stuck at customs in … Serbia for three days costing them £2,250! In Kosovo 2 years ago a truck with a load of humanitarian aid ... was stuck at customs from the Thursday to the Tuesday. The haulier … sought 5 days’ demurrage from us but also … the £900 penalty they had been stung with for failing to turn up at the reload point at the agreed time and day.

In Britain there are … a number of household names who like to externalise their costs. If the driver turns up … half an hour early the haulier or shipper gets fined; if he turns up half an hour late again there is a fine”.

If a non-EU truck gets stuck in Dover the customer can say,

“‘We can’t take the truck now till Friday’, and it is only Tuesday! This is a huge cost to the haulier”.

I am sure Ministers know where I am going: with the arrangements that are in hand, we are in danger of introducing great delays into the process. Someone is going to have to pay for it, and it will not be the Revenue: it is likely to be the haulier.

I turn now to CEMT—third-country permits. He says:

“I would like to bring to your attention what may happen to British hauliers”, if, outside the EU,

“they are put in an identical position to hauliers from”, non-EU states,

“who have to obtain third country permits in order to load in say Italy for Holland. There are only limited numbers of the CEMT permits ... A haulier with 10 trucks will typically get only one permit and that permit … remains with the driver the whole length of the journey. If British hauliers are outside the EU they will no longer be able to load from here to Budapest for example, then reload for Paris and again reload back up to Manchester unless they have a CEMT permit. These permits are not universal for the EU. Depending on their … routes British hauliers may need a Hungarian CEMT, an Italian CEMT and or an Austrian CEMT. Britain will have to negotiate with all 28 countries individually”, to secure those entry arrangements. I hope that officials are well abreast of this issue; otherwise, there are problems in store.

I turn now to IPR and OPR—inward and outward processing relief. I will again quote from the Shirley memorandum. To illustrate the problem, let us take the rag trade, when,

“a designer sends drawings and trimmings from Manchester to a Macedonian factory … where they make up twenty types of jacket and thirty types of skirt ... When”, the garment,

“arrives in Dover the entry clerk has to deduct from all the different types the amount of green buttons or red buttons or blue lace or red piping that went out of the factory from the cost of each and every finished garment. The entry can run to many pages and take all day to prepare”.

If that is perplexing, imagine a piece of electronic equipment with multi-sourced components, which would all have to be taken into account.

Then, there is the issue of stacking, both here and abroad. This is the nightmare scenario. There were plans for a large lorry stacking area near Dover, but there was opposition. I understand that Highways England is now considering a large site near the M20 and perhaps even holding freight on the M20 in an exercise described by the agency as,

“HGVs in the centre of the motorway rather than coast bound using steel barriers or moveable barrier systems”.

That is called stacking. Clearly, the Highways Agency is anticipating that—and of course, it also means demurrage charges.

But of course, it goes further. During the Brexit Committee evidence session last week, which I managed to see a portion of, I had the feeling that the witnesses were far more concerned about arrangements at northern European ports, including issues such as documentation clearance, stacking abroad, delay and perhaps even a more casual approach in Europe to the treatment of our trucks leaving this country—all of which we will have no responsibility for, and little influence over.

I turn now to the proposed electronic border, backed up with number plate recognition, in-country clearance and trusted trader status both here and abroad—what I regard as,

“a white van smuggler’s dream”.

The proposed vehicle number plate recognition system might work in Northern Ireland and perhaps at the Channel ports. Jon Thompson of HMRC seemed very reassuring when giving evidence. I personally had some experience of this in the early 1970s, before our entry into the Union, when we would register at the Mont Blanc tunnel entrance and clear at Cluses, 40 kilometres further up the road. You could, with trusted trader status, run a few Cluses-type operations in Northern Ireland as an alternative to destination clearance—which, I understand, is what the Government believe will happen. But there are three major problems: first, white van evasion; secondly, number plate switching on trailers, which is very easily carried out; and thirdly, of course, the DUP.

This brings me to my final point: soft border clearance procedures. Jon Thompson of HMRC seems confident that CDS, which has been referred to, will deliver. But, given the huge increase in traffic for clearance on duty, VAT compliance and animal health, should we be so confident?

I go back to the Shirley memorandum, in which he states:

“If we take the figures given to me by Paul Wells, Managing Director of Channel Ports Ltd and extrapolate them, we come up with some very interesting scenarios. Regardless of whether the actual transmission of an entry is electronic or not it still requires an entry clerk to prepare it by looking at the invoice, checking the value and currency, the weights, the number of packages, the truck number, calculating the VAT and or duty and obtaining it from the importer and sending it over to Motis … who pass it on to customs. Paul said that there are only 200 entry clerks left in East Kent but in 1992”— before all this—

“there were 2,000. The number of trucks has gone up by 400% of which”, we are told,

“only 1% currently need an entry, so a hard border will need 400% more entry clerks”— in other words, nearly 8,000.

“We can also surmise that they will need their counterparts in Europe”, so it is estimated that a further 7,800 entry clerks will be needed across Europe.

It was all best summed up by Chris Lewis, editor of the Freight Business Journal, which is an excellent publication if you want to keep abreast of Brexit transport issues. He said:

“One nettle that the UK may have to grasp in the run-up to Brexit is the shortage of trained customs officers … the Government lost no time in downsizing HM Revenue & Customs capabilities in this area, removing trained officers from many ports and putting a good proportion of those that remained at its centralised operation in Salford … France now has 35 times as many customs officers as the UK … And it’s not only frontline strength that has been reduced. Many … of HMRC’s top level managers with trade expertise have now retired”.

He writes an editorial every month on these matters and they are a very interesting read.

I really hope that we know that what we are doing and that we are taking into account these issues that I have raised today, which are the little things that could turn into mammoth problems unless they are dealt with at an early stage.

Photo of Lord Price Lord Price Conservative 7:31 pm, 5th December 2017

My Lords, as this is the first time that I have spoken in your Lordships’ House since I stepped down as the Minister for Trade Policy, I will start by congratulating the Minister on her appointment and wish her every success. I also thank the dedicated, hard-working and extremely able civil servants who supported me during my time in office, in particular Rob Cook and latterly Matt Fry, who ran my private office, and the senior team in trade policy led ably by John Alty, who oversaw an increase in their department number from 45 at the time of the EU referendum to around 550 this autumn. They will need all that resource as they take on the unprecedented task of establishing the UK’s independent schedules at the WTO, rolling over the current EU third-party trade agreements, establishing new trade agreements, supporting DExEU in its work on a new trade deal with the EU, and putting in place a UK trade remedies regime.

The trade Bill and the customs Bill will provide the necessary framework for the department to carry out that work, and I am wholly supportive of the Government’s approach. The Bills bring to life the Prime Minister’s clearly stated objectives: that Brexit means Brexit and we are leaving the EU; that we will strike a comprehensive free trade agreement with the EU; that we will strike new FTAs with other countries; and that we will avoid a cliff edge for businesses. Although I voted to remain, I can see that the UK, as the world’s fifth-largest economy, is perfectly capable of having a successful, independent trading future. It is clear to me that continued membership of the single market is not consistent with the vote to leave the EU. No fewer than 18 European Trade Ministers told me independently that the four freedoms and single market membership are indivisible—you cannot cherry pick, in their words.

Alternatively, membership of the European Economic Area or the Customs Union will constrain the UK’s economic opportunities around trade. We will be followers on regulation and will be obliged to offer third-party countries the same inward tariffs as Europe negotiates—but will then have to independently negotiate our own export and investment agreements with the same third-party countries, putting UK businesses at a disadvantage.

All of that makes a comprehensive FTA with the EU the most economically literate outcome. Our first step must therefore be to try to maintain what we already have. To ensure that there is no cliff edge and to make things as straightforward as possible for business, the Government plan to set out our independent schedules at the World Trade Organization which will replicate, as closely as possible, our current EU schedules. This will provide continuity for businesses that trade with countries not currently covered by bilateral agreements, such as the USA, China, India and others.

You cannot drop out of the multilateral trading system, and I am sure that the tried and trusted approach of using actual historic usage to determine future tariff rate quotas will be hard to overturn if any appeal is forthcoming. I welcome the Government’s approach to signing the UK up to existing plurilaterals in the WTO such as the GPA. These will continue to provide consistency for UK businesses. I cannot find common cause with those who suggest that we should adopt unilateral tariff reductions at the WTO. While it would undoubtedly reduce the cost and increase the range of goods and services open to consumers, it would produce a damaging shock to a currently underproductive UK economy and make the chances of reciprocal arrangements almost impossible, creating a permanent disadvantage for UK businesses.

Lest we forget, around 75% of all taxes are raised directly or indirectly from business. Its success pays for our schools and hospitals. There is an inextricable link between the success of business and what a society can sustainably afford. That is why I applaud the further consistency of trade that will come from rolling over or grandfathering our current EU third-party FTAs, EPAs and association agreements, as set out in the White Paper.

Following the referendum, I visited 35 countries and met 75 Foreign Ministers. They all agreed that they wanted continuity of trade, and for the existing arrangements to apply post March 2019. They all committed to a process of working to secure that, not wanting a break and to fall back to less favourable WTO terms. I welcome the Government’s continuing support of EU FTAs not yet fully ratified with Canada, Singapore, Japan and Vietnam, and I hope that these, too, can be grandfathered once we have left the EU. There is certainly an appetite for that to happen.

Then there are the new agreements. The Prime Minister has announced nine working groups to explore new FTAs covering 15 countries. They will take time to deliver, post Brexit, but they are real. As I travelled the world, there was an enthusiasm to trade with Great Britain. I welcome the fact that the Government will continue to offer the poorest countries duty-free, quota-free access to the UK and adopt the generalised scheme of preferences for the next tier, as well as grandfathering the existing asymmetric economic partnership agreements in Africa, the Caribbean and the Pacific.

Lastly, I welcome the Prime Minister’s commitment to a transition period to allow time for all these things to fall into place. It is a sign of understanding to business that the challenges as well as the opportunities are recognised. The vision that the Government paint of an open, liberal, free-trading Britain competing on a global scale with reciprocally reduced tariffs and access is economically compelling, but not something that I suspect businesses or employees are yet prepared for. Our productivity needs to increase by around 18 percentage points just to meet the average of the G7 countries—let alone be a global leader. This may not be the vision of Brexit that many voted for, and expectations will need to be carefully managed.

The whole endeavour will not be easy. Many say that it is the most difficult peacetime challenge that we have faced. Some realism as to the scale of the task would be welcome on all sides. However, I see little point in adopting an “I told you so” approach to the inevitable and previously debated challenges of Brexit or in repeating points on how difficult it all is—save in a way to constructively improve our position or to check understanding.

The EU nations have rallied in common cause to enhance their economic position and we should now do the same. Hopefully, having tackled Brexit as swiftly as we can, we can move on to the substantial social issues that this country faces at the beginning of the 21st century: those of fairness for all and how we adjust to benefit successfully from the new digital era.

Photo of Baroness Henig Baroness Henig Deputy Chairman of Committees 7:40 pm, 5th December 2017

My Lords, it is not always an unalloyed pleasure to be the last speaker in a long and serious debate such as this one, but being sandwiched between the former Trade Minister and the present one is a great honour. It gives me the opportunity both to welcome the noble Baroness, Lady Fairhead, to her role in this House and to pay tribute to the noble Lord, Lord Price, for all the hard work he has put in and for his indefatigable global networking on behalf of the UK. The noble Lord, Lord Horam, referred earlier to his northern origins, and I think I am right in saying that both the noble Lord and myself are alumni of Lancaster University, so that continues the northern theme that we have heard about.

My interest in, and knowledge of, trade matters stems in part from an inquiry I was involved in as a member of the EU Sub-Committee on External Affairs into the Transatlantic Trade and Investment Partnership. That opened my eyes to the fundamental and often brutal realities of trade negotiations: the vested interests to be accommodated; the complex range of issues to be managed; and the balancing of producers’ and consumers’ interests. Most important of all was formulating a coherent communications strategy to explain all the bargaining and concessions to domestic interest groups and to the general public. When we reported, we noted that despite the great benefits that TTIP was likely to bring to Europe and the UK, members of the EU were comprehensively losing the publicity war to critics of the deal. We said at the time that the Government needed to take action to counteract this.

After what happened yesterday, no one can be in any doubt about the difficulties which lie ahead, and it is therefore really important, as the noble Lord, Lord Price, has just said, that the Government should take a realistic view of trade deals and what needs to be done to negotiate them successfully. Thus far in the Brexit negotiations, as we have heard, a lot of wishful thinking has been on display, along with an obstinate refusal to face facts and acknowledge difficulties. I am afraid I have to say that there is an awful lot of wishful thinking in this White Paper. The noble Lord, Lord Kerr, described it rather aptly as Panglossian. An effective trade policy means being very clear about what is involved and what the risks are. I would therefore like to ask the Minister first of all how the Government, and specifically the Department for International Trade, are going to build a broad consensus to support their policies.

Trade negotiations, as is now abundantly clear to us, are hugely political affairs. They involve backing some interests over others, some groups over others—such as farmers over consumers, or perhaps tomorrow’s industries over today’s—protecting some industries and exposing others. A wide range of consumer and producer groups will have their views, as well as social media experts and the Twitterati. As the noble Lord, Lord Cope, reminded us, we are in a new age of communications and all of this is going to be in the public sphere. We have already had a taste of it with the widespread disparagement of chlorinated chicken and hormone-treated beef which a deal with the United States might bring into the UK. There has already been a lot of discussion about that.

How do the Government intend to handle such controversies, because they are bound to arise? The White Paper is not actually much use. It states that we want to be “transparent and inclusive”. I would say to that: get real. The Government will need a good communications strategy and the ability to build a consensus to support its proposed trade deal objectives. I would go further and say that such a consensus will need to span the political parties. If it does not, countries with which we are negotiating will be able to exploit internal divisions to their advantage. How is such a consensus to be achieved? What has happened so far in the Brexit negotiations and in the way the Government have dealt with their parliamentary and other critics does not inspire any confidence. Yet trade experts such as members of the UK Trade Forum, people with first-hand experience of putting together trade deals, are in agreement that establishing such a consensus is fundamental to success.

Were we, for instance, to make the US our first negotiating partner, as my noble friend Lord Liddle suggested we might, we would be running considerable risks of the sort we saw with TTIP, perhaps of the deal being undermined by a campaign of orchestrated opposition focused on the threat of big United States drugs cartels holding our NHS to ransom, or of cheaper food undercutting British agricultural output and lowering food standards. That could in turn torpedo the success of future deals. What does the DIT propose to do to counter this threat? All we learn from the White Paper is about the importance of ensuring that,

“concerns are heard and understood, and the right facts are available”.

I do not think, in this social media age, that such wishy-washy sentiments are going to cut much ice.

My second set of questions, which are not covered in the White Paper at all, relate to parliamentary scrutiny. What will the process be for overseeing trade negotiations and scrutinising emerging agreements? We know that trade agreements are liable to be long and complex. The agreement between the EU and Canada runs to some 30 chapters, with 454 pages of text plus annexes. Will Parliament have any input and powers, for example, in terms of agreeing the negotiating mandate at the beginning of the process? Which parliamentary committee will be able to see draft texts and get regular briefings from the negotiating teams? Obviously, there will be the need for some confidentiality, but at the same time it is absolutely crucial that when the deal is finalised, Parliament and the public they represent are broadly happy with the outcome. Can the Minister tell us what plans have been made in terms of enabling Parliament to oversee trade policy, to be able to raise issues as negotiations proceed, and then to ratify the deals when they are concluded? There are many experts in this House who would want to know how all that is going to work.

My third area of concern relates to the devolved Administrations. It was pretty obvious, long before yesterday’s debacle, that there are serious issues to be faced in this area. Again, the White Paper casts no light on the really crucial questions such as what powers in terms of trade policy will be devolved to Scotland, Wales and Northern Ireland. To what extent will the UK be negotiating on their behalf? Will they have the same powers in terms of negotiations as the UK Parliament? Will they be able to exercise a veto, particularly in the areas in which they have delegated powers? Not long ago we saw how Wallonia in Belgium threatened to derail the Canada-EU deal. How will the Government ensure that this will not happen with United Kingdom trade deals while at the same time respecting devolution powers? The White Paper sheds no light on this. What it talks about, I think rather platitudinously, is building,

“support for our vision across all four nations”, and seeking their input. Perhaps the Minister could explain in a more tangible fashion how relations with the different devolved UK Governments, in terms of the specific elements of trade negotiations, will operate.

My final point concerns the domestic context within which trade policy is being developed. We know that the UK is facing some serious economic problems. We know about low productivity and the lack of some essential skills in the workforce, along with the ever larger gap between London and the south-east on the one hand and the rest of the country on the other in terms of output and contribution to the national economy. The White Paper talks blithely of delivering wealth and opportunity across the country. How will that be done? What will change? There is agreement, even from those who want to leave the EU, that in the short to medium term, coming out of the single market and customs union will make us poorer before the new trade deals, such as they are, are negotiated. How will that economic pain be distributed?

The White Paper talks of taking views from “the English regions”. How will that be done? Many areas are already—perhaps rather belatedly—recognising the big problems that Brexit will bring and formulating solutions. We have already heard from my noble friend Lady Golding about the concerns of the ceramic industry in her area. The fishing industry in Grimsby has raised the issue of establishing a free port. Who will decide such measures? How will the Department for International Trade avoid all-out war between different parts of England fighting for an economic edge in this brave new world? We have already heard that the mayors of Liverpool and London are asking for a Brexit opt-out. Different parts of the country will obviously push for their own interests; it is not clear to me how those different regional interests will be reconciled. We do not have a coherent regional strategy, as far as I can see.

If we are going to be successful as an independent trading country, we need far more realism about what success entails than what is in the White Paper, which skirts around and avoids all the hard choices and contentious issues that will inevitably arise. I hope that the Minister can reassure me that thinking has moved on since the White Paper was produced and I hope that she can answer at least some of my questions.

It strikes me that, when we were a member of the EU, a lot of the politicking and contentious lobbying went on in Brussels. Of course, the UK was shielded from a lot of that and was able to blame Brussels when it was not possible to accommodate a lot of the interests. That will no longer be possible; the Government will have to face the full force of all the lobbying and competing business interests from all quarters. I want the Department for International Trade and the Government to give some realistic answers and I want some assurance that the Department for International Trade is ready to take on the big challenges that we all know we will inevitably face.

Photo of Baroness Kramer Baroness Kramer Liberal Democrat Lords Spokesperson (Treasury and Economy) 7:52 pm, 5th December 2017

My Lords, as the first of the winding-up speakers, I want to say that I have sat through many debates in this House, including in the position of Minister, and I do not think I have ever heard a debate that was more informed, contained more expert knowledge, raised more challenges and took a more intelligent approach to a crucial issue. It has been a privilege to sit through today’s debate.

I say that in welcoming the Minister, the noble Baroness, Lady Fairhead, to her place. However, I have a concern: the noble Baroness, Lady Henig, just used the word “platitudes”. Unfortunately, when Brexit is raised in any kind of discussion or debate in this House, the Minister commonly replies with platitudes and fairly simplistic answers, similar to those in some of the papers before us. That is no longer acceptable, if I may say so. We are now in the late stages of phase 1 of Brexit negotiations. I believe that there will be opportunities to exit from Brexit, but I set that aside. We are at a point where platitudes will no longer serve and where not only this House, but the British public more generally—a number of people talked about the importance of transparency—need a detailed response that addresses the many, seemingly almost intractable, sets of issues.

Following the referendum, when the current Government came into place, there was an almost euphoric sense that Brexit would be simple and cost-free—that there was an upside and virtually no downside. It was in that spirit that many commitments were made that pushed us into a corner where we have a Government who say, “We are going to leave the single market and the customs union”. A year ago, when I held discussions with Government Ministers, it was impossible to get any of the facts without being told that we were simply hearing from whinging people. The situation is very different today; I give the Government credit for it. I do not know how much Theresa May’s views have changed, but I am certain that David Davis’s views have changed. Now, there is a recognition of the extraordinary complexity, challenges and dangers involved, and that the process will be one not of new opportunity—at least not for many years—but of damage limitation. That means that the Government are in a position where they can open their mind and rethink the decisions that are essentially taking us out of the customs union.

A number of people talked about the importance of frictionless trade, but in a meeting—I think the noble Viscount, Lord Waverley, the noble Lord, Lord Whitty, and I were at the same meeting—it was absolutely evident that the only way to have frictionless trade is to have an identical process to the one we have today, with no change whatever. That is the precondition for frictionless trade. The noble Lord, Lord Cope, used the phrase “as frictionless as possible”, but that is as long as a piece of string. Once we move out of the customs union, we move into a regime in which divergence constantly increases: we go from the moment of least friction to moments of increasing friction. Around friction, there are costs, which will be borne by our businesses and, ultimately, the residents of this island. The Government have to face up to—and ought to be coming to us with—a realistic and detailed assessment of those costs, the burdens that will be placed on businesses and the consequences for the ordinary people of this country.

As we all know, we are part of an integrated supply network across Europe, where physical goods move unimpeded across our border—often more than once a day, particularly for larger companies. That is the whole just-in-time concept, about which we had very little discussion but which is critical to the economics and efficiency of virtually every one of our major industries. It underpins lower-cost production and makes the UK a place where it is viable to build a business.

I was a Transport Minister, so perhaps I know the automotive industry best. From talking to companies in the sector, I know that 350 trucks move through Dover every day. That is an extraordinary amount of product. The Minister will know that Dover alone sees 10,000 trucks a day move through, roll-on and roll-off. I do not know whether noble Lords have seen it; I have. I have been down there and looked at the traffic movements in Dover. It is like watching a ballet: a constant, unbroken stream of trucks rolls on to and off ferries. There are no checks whatsoever at Dover because the friction that they would introduce to the system would destroy just-in-time and the businesses that it underpins. As somebody said today at the meeting that I and other noble Lords were at, there is absolutely no slack in the system for just-in-time—there cannot be any delay. For people who do not understand how just-in-time works, I have talked to some of the automotive industries: product leaves the European factory at 8 am, to be in the UK production line at 11 am. It is that tight; the consequences of any disruption are extraordinary, but absolutely no one has produced a viable scheme that does not disrupt those timings.

I turn to tariffs. I recognise that there are those among the Brexiteers who are happy to go to WTO rules. I am glad we heard the noble Lord, Lord Price, say that doing so made no sense—particularly instead of a zero-tariff regime—and would have utterly shattering consequences for our domestic industry. In fact, I find the whole suggestion that we can go to WTO rules completely irresponsible.

Many people have said that tariffs do not matter and that it is the non-tariff barriers that are crucial, but there are some industries for which tariffs absolutely matter. Again, I speak as a former transport Minister. The 10% tariff that would be applied to our automotive sector under WTO rules would frankly destroy most of the automotive industry in this country. I do not think that is an exaggeration. I suggest that anyone who questions that talks with the industry directly. Tariffs of 35% for the dairy industry would clearly be devastating. There are not many ways to overcome that because any attempt to subsidise gets us in trouble with state aid rules.

We will have really serious problems if tariffs become part of that picture, but of course the issue is non-tariff borders. We did not have much of a discussion about rules of origin, which are a very large component of the non-tariff barrier problem. It is a complete nightmare. Talking a little off piste at the meeting we were at today with one of the food producers, who works for a major company, he tried to explain to me that to complete rules of origin he has to account for every drop of milk in making his food product if he goes through a customs barrier. That milk could come from three or four different places, but every single drop has to be tracked. It is the same for the sugar, the flour and every other component that goes into those foodstuffs. The challenge, burden and administrative demands that that leads to are huge: export declarations, licences and other kinds of supporting evidence. They are myriad and a nightmare. We have talked in the past about the importance of cutting red tape in this country. Frankly, I cannot think of a way that we can introduce more red tape through a single measure than by leaving the customs union.

Of course, it becomes worse if we divert from any EU rules. This is the whole issue of regulatory alignment. Again, a very good example was given at the meeting today. What do you do if the EU is completely resistant to the idea of GM food? I understand why, but we are quite likely to make trade agreements with countries that would permit GM to come into the country. If any GM maize is fed to a chicken, that chicken cannot be sold to the EU. How do you track the detail, demands and complexity of this? It is astonishing.

The Government have said that there will be an electronic solution. What solution? Everyone I have talked to says that none of the existing systems can possibly cope with anything of this kind. The noble Viscount, Lord Waverley, mentioned that digital clearances at the EU are not targeted for completion until 2025. We also heard from customs experts that HMRC’s new computer system, which is meant to be up and running by 2019, is not scalable to the level required for this system. It simply is not. I tend to trust people who tell us that we have problems with our IT systems because they have been right virtually every time in my lifetime.

On the authorised economic operator system and trusted trader, I say to the noble Lord, Lord Leigh, that there is a reason why only 600 UK companies—I thought it was only 500—have signed up to it. It is extraordinarily complex and delivers very little. It is nowhere near any kind of answer to providing smooth electronic systems at any kind of reasonable cost. Around this House so many people have talked about SMEs’ problems. If they cannot be included in these systems they will be at a permanent disadvantage in trying to compete to be part of supply chains and in trying to grow. Surely they are the backbone of our economy. Anybody who thinks that small businesses can easily adapt to new digital opportunities should be involved in some of the debates and discussions we have had on digital quarterly tax reporting. The Government keep carving more and more people out of that regime because it is so impossible, burdensome, costly and time-consuming to make those kinds of adaptations.

I will talk just for a moment about free trade agreements with countries other than those in the EU. The noble Lord, Lord Price, implied that we can do a kind of transfer over of the 58 agreements the EU has negotiated with other countries that we separate from if we leave the EU. My conversations suggest to me that the Government have finally accepted that there cannot be a rollover: these agreements die and there has to be a new agreement put in place. Surprisingly, the various players on the other side of this picture are turning out to be much more difficult. Everyone assumed that they would simply sign on the bottom line, and they are not doing so. Again, a number of noble Lords referred to trying to split access quotas between the remaining 27 and the UK, but that is a minor problem. We are hearing that a number of the countries see this as a great opportunity to get much better terms than they had before. They intend to use a unique opportunity, not to walk away from it.

To go back to rules of origin, one of the shockers for me in this was to understand the way rules of origin interact with free trade agreements. I admit that until a few weeks ago I was not aware of how this worked. I take the automotive sector again as a typical example. Under free trade agreements around the world, the zero tariff is available only to a country that is exporting an automotive product that has 60% local country content. The highest UK content for any car we export is 43%. That is unusual; the average is 10%. The industry says that it is pretty much impossible to increase the number of suppliers in the UK to push up that number. They have been trying to do it for years.

Economies of scale matter. For example, if you are going to produce ball bearings for your cars, you will do it in one place for the whole of Europe. You cannot afford to put up a separate supplier for a product of that kind in the UK. I do not know how many other products this applies to. I gather it is a really serious issue in the food processing industry. We need to understand how all that works. Here is another issue raised in the meeting today. Perhaps the food product a producer is selling meets rules of origin content, but say it is a flour-based product, we have a bad harvest and at the last minute he needs to switch his source of supply. He might then fall foul of rules of origin content and suddenly face a tariff. All these questions have to be answered so that businesses can plan and deal with them.

I lived for nearly 20 years in the United States. Whenever I hear people talk about creating free trade deals with the United States, I really do begin to laugh. The issue primarily in dealing with the United States is that the trade barriers are at state level. They are never engaged in the free trade discussions that the United States enjoins with any other country. That is one of the reasons why it is considered one of the most protectionist countries in the world. We have had plenty of evidence that from the United States’ perspective an agreement would essentially put America first and means the adoption of American rules. The notion that it will be a rollover strikes me as extraordinary.

Photo of Viscount Waverley Viscount Waverley Crossbench

I apologise for breaking in. Will the noble Baroness agree with the governor of Virginia, who was recently in London, who, when asked, said it would take a minimum of two years to negotiate a free trade agreement with the United States?

Photo of Baroness Kramer Baroness Kramer Liberal Democrat Lords Spokesperson (Treasury and Economy)

If we can negotiate a free trade agreement in two years with United States it would be a miracle. Trade negotiations are complicated—there is so much at stake. Everybody in this Chamber knows that. I wish we could simply acknowledge it and start to factor it into the thinking and planning we are dealing with. The noble Lord, Lord Kerr, essentially said that it will take some five to seven years to negotiate a trade agreement with the EU, where we start from a position of no divergence. We have to become realistic. That is one of the things I ask of the Minister. She must know that most of what goes down in print frankly does not have any tang of realism to it. It is so much about wishful thinking.

I shall make some remarks on transition and then I will sit down. I have talked to a number of companies which believe that transition will be a genuine standstill arrangement, because that is the only outcome they can contemplate. I know of no company which thinks that transition will be the beginning of change; they believe that it buys two years of peace in which they can think about what to do, understand what the end game is and work out how they will then respond to it. But that is not what I am hearing from government. Transition is a very different period in which change is ongoing. I suspect that companies will not be in any position to deal with it.

I want also to pick up an issue raised by the noble Lord, Lord Kerr: is there any way to negotiate a standstill arrangement once one leaves the EU, or is the only way to get a genuine standstill the two-year extension of Article 50? The noble Lord is shaking his head. At least, that helps with this situation. Trying to work out transition will be extraordinarily complex. I hope that we will hear from the Minister something that takes us much further along the path of understanding how the Government intend to deal with this situation and a genuine assessment of the consequences.

Photo of Lord Mendelsohn Lord Mendelsohn Shadow Spokesperson (Business, Energy and Industrial Strategy), Shadow Spokesperson (International Trade) 8:11 pm, 5th December 2017

My Lords, I join my voice to those who have said that this has been a remarkable debate. Those people who enjoy reading the previous day’s Hansard over a morning coffee are in for a real treat.

I join others, too, in paying tribute to the noble Lord, Lord Price, for the work that he did when he was Trade Minister. This has been the first opportunity to say so. It was excellent to be able to see him in public service. He did a great job. I am sorry that he is not there, not because I wish to see the Minister replaced but because a bit of additional strength to the department would be no bad thing in this context. However, it is always good to see the now-familiar noble Baroness the Minister, who made an excellent initial presentation that was certainly better than the White Papers that we were reading, which I confess were somewhat tough going—they are not vintages, but we are none the less dealing with something that has to take place and where there is, unfortunately, quite a vacuum.

We have to understand the context here. I hope that we do not end up always recreating the debate over Brexit, but those who wanted to leave have to demonstrate that there is a better case and greater prospects from doing so. They should not be afraid of having to meet that challenge and test. Just as they were able to present to the public the argument that things would be better outside, so they still have to meet the test of demonstrating that it is a better path, as was the challenge posed by many speakers today.

My fear is that the context in which we are debating this is quite difficult. I do not think that anyone who was there will forget hearing the noble Lord, Lord Prior, introduce the industrial strategy White Paper, when he talked about the problem we have in the country of very low GDP growth, terrible productivity—in fact, last quarter saw the worst performance in 200 years—and the terrible prospect of declining wages over the next 10 years. It will be another lost decade. It is a massive challenge to try to introduce such a change as we are and to deal with our trade strategy and policy.

That is largely because we were not exactly dealing with the finest trade performance before. Those who have participated in the many such debates that we have had previously will remember debating the then Chancellor’s target, when he established it in 2012, of doubling exports to £1 trillion. At that time, we had UKTI and a branding campaign. In 2015, the OBR projected that exports would be £630 billion in 2020—that was a third less. In 2016, UK exports were £544.8 billion. It is argued that global trade has slowed, but others have had a much better export performance. We knew that we had to achieve a much better export performance because our future and our economy depend on exports. Some 30% of our economy relies on exports, as do one in four jobs. We have always had to improve trade policy but have consistently failed to do so.

That target, from which the Government were moving away in 2015, I think I saw being buried in a Select Committee earlier this week. It is a real problem, because we are looking at a new trade policy where we cannot establish a figure nor what the impact of it will be. We cannot establish how much further that will take us forward in addressing our economic prospects. What we can see is some research which is troubling. The ICAEW concluded that, after what it described as an expensive advertising campaign, just 53% of all UK small businesses were exporting, which is exactly the same figure as in 2014. SME trade promotion is getting much worse—many of us are familiar with complaints about trade shows and the like. We have huge problems with our overall trade performance.

Even when we look at the prospects for services, our greatest potential attribute, we note that all surveys, including by the British Chambers of Commerce, show that the main target markets for our companies are the USA, Germany, France, China and the UAE. As the noble Lord, Lord Leigh, said, much of our trade will be dependent on areas outside the EU—90% of all growth over the next period will come from outside the EU, a third being China. We are not the first people to realise that; in fact, one thing we are turning away from is a concerted EU effort to address that as well. Many EU countries have been much better in their trade and export performance as a result of recognising that much earlier, so this is not all new.

Our test is to be realistic, to have a correct estimate of our position and to be entirely realistic about the prescriptions that we have. We have to make sure that we test these prognoses. We have to be straight about the fact that trade deals are quicker under the EU and take longer as a single nation. Look at the difference between the performance with Korea and the EU and somewhere such as Australia. Trade deals with the EU are comprehensive in scope, whereas for individual countries they are more difficult. That is a considerable challenge to us.

We have to be straight about the rest of the world in respect of the WTO quotas. This is a zero-sum game. We have introduced the British policy of Brexit and thought that the rest of the world will just say, “That is wonderful”. There is no greater zero-sum game in international diplomacy and the exercise of national interest than in trade. Is it any surprise that America, Australia and countries in Latin America have objected to a simple carving-up of the EU quotas in the WTO, which we thought would be straightforward? This is going to be the permanent story. The idea that the USA is going to simply roll over and change all its markets to satisfy us for Brexit—I just cannot see it. We have to be completely and seriously realistic.

We can talk about transitions, implementation periods, cliff edges, timescales—all these sorts of things—but let us be absolutely clear that it is going to be bumpy and uncertain. We are in unprecedented times. We are trying to muddle through and we are treading water, and that is our condition. It is in that context that we will have to look at whether or not the White Papers and the Bills are fit for purpose, offer the best possible alternative for us and demonstrate that the Government have put together the right resources with the right plan and have the right practical approach.

I will cover just a few issues. The trade White Paper explains the Government’s intention to transition existing EU free trade agreements and European partnership agreements so that, for example, the EU-South Korea free trade agreement will be replicated as a UK-South Korea free trade agreement. According to the EU’s website, more than 80 countries have signed an agreement with the EU. Around 30 of those agreements are fully in place and 50 are partly in place, including CETA. I would be grateful if the Minister could confirm these numbers and the details of how many EU trade agreements the Government are seeking to replicate.

Many of the EU agreements we have signed involve some of our most important trade partners outside the EU, including Switzerland, Canada, Singapore, South Korea, Norway, South Africa and Israel. By my rudimentary calculations, we export more than £60 billion each year to countries where we have an agreement in place through our EU membership, highlighting the importance of ensuring consistency in our trade with those countries after Brexit.

The Government have described transitioning as a “technical process” and essentially a formality. That is true if each country gives its consent, and some legal experts believe that it may not be so straightforward even then. It would be very interesting to get some idea on this from the Minister, especially after what has been said in the other place: with which countries do we have an agreement in principle to roll over the deal in its entirety and how many, and which, countries have notified us that they might wish to make modifications? As for those countries that have not yet agreed in principle to transition their deals, is this a matter of DIT resource, or are there more fundamental barriers to agreement?

There is also the question of by what process we will achieve the transition—or grandfathering—of EU FTAs. Will the Minister confirm whether the UK will be acceding to the existing agreements as an annexed party, or will we be seeking new, identical agreements with each country the EU currently has a trade agreement with? What level of scrutiny will Parliament be afforded during the transition process?

Will the Minister also clarify the Government’s plans for EU trade agreements that remain in negotiation, such as with the USA, Japan, India and Thailand? The fact that the EU has struggled to reach agreement with some of these countries should of course act as a reminder of the challenge that awaits the UK post Brexit and the importance of putting the right trade policy framework in place early on.

Transparency, public consultation and scrutiny will be important to ensure that a future trade policy has democratic legitimacy and will boost growth in a way that is more positively felt across all sections of society—especially with the warning of the noble Lord, Lord Prior, in our ears. It is welcome that the trade White Paper has a section titled “Trade that is transparent and inclusive”, but it looks like a missed opportunity that the Trade Bill itself includes no provisions at all in this area, despite the Secretary of State promising a,

“major consultation mechanism for new free trade agreements”.

Regarding Parliamentary scrutiny, the White Paper says merely that the Government will,

“respect the role of Parliament”.

Will the Minister explain what this means? At present, the Government can negotiate and sign a trade deal in secret and ratify it via the negative procedure for secondary legislation without debate. Does the Minister think that this is sufficient for trade agreements with wide, long-lasting implications, or will a greater role for parliamentary scrutiny and accountability be established?

It is welcome that the White Paper and the Trade Bill accept the case for an independent UK trade remedy framework in the context of the mess we are likely to get into. The Government’s proposals for the UK Trade Remedies Authority include an economic interest test, but will the Minister explain why social and environmental criteria have not been included, and whether there are any plans to do so?

We are also somewhat in the dark about what will happen to trade defence measures that are in place currently through the EU. Will those be replicated? I would be grateful for an update, including on what consultation the department is carrying out with industry on this point. Of course, one important thing to understand about the value of our relationship with the EU is that trade defence measures are very hard to exercise on your own; they are much easier in concert with others.

No doubt the Government will seek to make the Bills we are likely to have as technical as possible, dealing only with a transition process. I am not sure that this will be sufficient. I am not sure that the position is one where we can just roll over what was done before. That is not practical and it ducks the important issues about being clear about what needs to be done. There is a realism on the scale of the task that we have to get used to, and there are ways forward. We need clearer goals and realistic language. We need a trade policy in line with our industrial strategy. We need to boost our capacity for conducting trade in the department and in other parts of government.

We are where we are. I am in business: every new business takes longer and cost more; every deal is more complicated and requires more work than was planned in integrating it. We have to face up to what is likely to be the most difficult part of the process—ensuring that we have some sort of stability. I fear that there will be an economic consequence to it and that we are now debating how to fill a vacuum. The vacuum has to be filled, but when the Bills finally arrive in this place, we will have to conclude whether we are being served an acceptable filler.

Photo of Baroness Fairhead Baroness Fairhead Conservative 8:24 pm, 5th December 2017

My Lords, I am very grateful for the insightful contributions that have been made during this evening’s debate from right across the House. I join the noble Lord, Lord Mendelsohn, and the noble Baroness, Lady Kramer, in congratulating the House on the intelligence, insightfulness and specificity of the concerns. We are very fortunate to have, in the Chamber, Members of the House who between them have decades of experience at the helm of trade policy. I am particularly pleased that we heard this evening from my noble friend Lady Verma and her co-chair on one of the EU Committees, the noble Lord, Lord Whitty, as well as from the noble Baroness, Lady Quin, and the noble Lords, Lord Kerr of Kinlochard, Lord Campbell-Savours and Lord Liddle. This considerable experience will be invaluable in helping us to ensure that our trading arrangements after we leave the EU provide the greatest continuity and certainty for businesses, employees and consumers.

The noble Lord, Lord Kerr, mentioned some of the complexities. I think the exact point of these debates is that we can flush them out and make sure that we deal with them. This will be the first of a number of debates to be held on the Floor of this House and I look forward to the continuing contribution that the House will make to helping us ensure that we have our sights on the right priority areas. A number of important and very pertinent points were raised during the debate. I will try to answer as many of these as I can, and am happy to write to noble Lords with a follow-up where I cannot.

A number of noble Lords talked about negotiations with the EU. The UK is committed to securing the most frictionless trading relationship possible and we are very supportive of an implementation period. I am glad that my noble friends Lord Price and Lord Leigh also supported the implementation period. I should have done this at the beginning, but I would like to give my own tribute to my noble friend Lord Price, while he is in the Chamber, for all his achievements in his role of Trade Minister. He did an outstanding job.

Turning back to the EU negotiations, it would be wrong of me to comment on their detail. These are sensitive matters and we do not want to prejudice the negotiations. But it was made clear in the comments of the Prime Minister, President Juncker and President Tusk yesterday that all parties remain confident of reaching a positive conclusion. Noble Lords will recognise that this is not the subject of the White Papers or the Bills. Our aim is to achieve a comprehensive trade agreement with the EU while also building our relations with third parties, so let me turn to that.

A number of noble Lords, including my noble friend Lady Verma and the noble Lord, Lord Whitty, spoke about the importance of a smooth transition. That is why we have placed emphasis on the transitional adoption of trade agreements. Countries potentially in scope of these types of agreement—around 40 of them—account for 13% of the UK’s trade. My noble friend Lord Leigh made some positive comments about the impact of leaving the EU in galvanising industry, but it is important that we maintain the effects of the agreements that we have in place. Our aim is to provide continuity and certainty, to avoid cliff edges for business.

A crucial element of ensuring effective transition is enabling any obligations that are created to be reflected in our laws. The legislation that we have brought forward will ensure that these agreements can be fully implemented and remain operable over time. But, as many of your Lordships pointed out, having the legal power is one thing; we must also have the agreement of our trading partners. This important point was raised by the noble Lord, Lord Kerr, and my noble friend Lady Verma. We are clear that this is a technical exercise to ensure continuity, but our trading partners are equally convinced. Benefits flow both ways and they have reiterated this point to Ministers and officials alike. It is clear that it makes practical sense at first to provide continuity. I am pleased that my noble friend Lord Price confirmed that they were supportive of this fact in his negotiations.

In response to a direct question from my noble friend Lady Verma, we have already had very productive engagements with all the concerned countries that she mentioned, such as Switzerland and Norway. For this reason, we continue to believe that it is a realistic ambition to transition these agreements.

My noble friend Lord Leigh raised the issue of parliamentary scrutiny of trade agreements. Let me assure noble Lords that the trade agreements that we will be transitioning have already been subject to a scrutiny process at EU level. They have also been overseen in the UK by Select Committees. In addition, many of these agreements have been ratified by Parliament through the Constitutional Reform and Governance Act process. To be absolutely clear, the Trade Bill that has been introduced in the other place does not provide for the implementation of trade agreements with countries with which the EU does not have an existing trade agreement. To be clear, it will not be used for the implementation of future free trade agreements with new countries.

In response to a question asked by the noble Lord, Lord Liddle, about which countries are a priority, we are talking to a number of countries about future trading options, including full FTAs—but, as noble Lords know, we cannot negotiate while we are a member of the EU. We are using instruments such as joint trade reviews—collaborative analysis of the mutual trading relationship —and we are exploring what may be possible with partners, but it is too early to say what it will mean in a particularly country.

The noble Lord, Lord Kerr, asked about the UK being able to do a better deal with the EU than Canada, which is light on services. Services are an essential element of the economies of the UK and the EU, so we will be seeking an ambitious free trade agreement between the UK and the EU which will be of greater scope and ambition than any preceding agreement, because we realise how important it is.

The noble Baroness, Lady Henig, talked about the scrutiny process for free trade agreements. We have been very clear that we are involved in engagement. One of the elements will be the substance of the free trade agreement and the other will be the exact scrutiny process. We are welcoming views to make sure that we get it right.

As outlined in the trade White Paper, the UK remains committed to a transparent, fair and rules-based approach to international trade and we are inviting views on that. We are committed to developing it in a transparent and inclusive manner, consistent with the need not to damage our negotiating position. We will be involving Parliament, the devolved Administrations and the devolved legislatures, as well as local government, business, trade unions, civil society and the public from every part of the UK, because they must have an opportunity to engage. Since the publication of the White Paper, we have been engaging with a range of stakeholders around these issues and will be looking to benefit from best practice across the world. We understand that we do not hold all the answers and we are committed to taking into account all views.

The noble Baroness, Lady Henig, also asked about the devolved Administrations. Continuity in trade must be for the whole of the UK. The Trade Bill creates powers designed to be held concurrently by the devolved Administrations and the UK Government for existing trade agreements. This will ensure that, where it makes practical sense for regulations to be made once for the whole of the UK, it is possible for this to happen. This gives greater certainty for business, minimises legal risk and reduces the volume of legislation. I assure noble Lords that the UK Government will not normally use these powers to amend legislation in devolved areas without the consent of the relevant devolved Administrations, and not without first consulting them. Under the Bill, every decision that the devolved Administrations can make before exit they will be able to make after exit. Decisions have not been taken on the legislative framework, and we will be working closely with the devolved Administrations on our future policy in this regard. On engagement, the Secretary of State has met his counterparts in Scotland and Wales and is planning to meet them regularly, and our officials are engaging with their counterparts in Northern Ireland.

My noble friend Lady Verma spoke about the Trade Remedies Authority. The UK Trade Remedies Authority is to be a new, non-departmental public body, independent of government. We have carried out an extensive assessment of other countries’ trade remedies systems, structures and case loads, including those of Australia, Canada, the EU and the United States. Our proposed model is designed to ensure that industries and consumers have confidence in an independent and objective investigative process. The Trade Remedies Authority will apply a framework, set out in legislation, which will provide UK industry with a safety net against unfair trade practices and unforeseen surges in imports but which will also ensure that unnecessary costs are not imposed on consumers or downstream.

The strong support of the noble Baroness, Lady Golding, in favour of Staffordshire ceramics was noted. We will aim to provide transparent thresholds for the application of measures, including a market threshold providing a de minimis rule, to avoid costly investigations into cases destined to fail. The economic interest test will provide a balance between regions, primary producers, downstream industries and consumers. The lesser duty rule will ensure that effective remedies are in place without imposing unnecessary costs. The evidence that we have shows, for example, that imports of certain steel products that were subject to EU trade remedy measures with the lesser duty rule in August 2017 were down over 90%. We think that gets the balance right, which is why we are doing it.

The noble Baroness, Lady Golding, also asked how we intend to manage trade remedies with China under the UK system. On leaving, we will operate our own WTO-compliant trade remedy system. There is provision in the Taxation (Cross-border Trade) Bill to define alternative dumping methodologies that will enable the UK system to account for particular market situations. For businesses with existing measures in place, the continuity of those measures is a valid concern. We launched a call for evidence on that on 28 November as a first step to identifying what matters to UK businesses. That is a vital start to the way that the UK responds.

Turning to the customs union, I set out in my opening remarks the strategic objectives that will guide our assessment of the options for the future outside the EU customs union. The noble Baroness, Lady Murphy, asked what the Government’s preferred option is. The customs White Paper, and the future partnership paper before that, set out the two options—the highly streamlined customs arrangement and a new partnership —that most closely meet those objectives. The Government look forward to continuing to discuss these two models with businesses and with our partners in the EU.

We have also been clear that, in order to avoid unnecessary disruption for businesses in both the UK and the EU, there is a strong case for an implementation period, which I think has received quite a lot of support in this House. We are keen to ensure that affected parties will have to adapt only once to any new arrangements.

The noble Lord, Lord Whitty, asked about arrangements for overseas territories, and Gibraltar in particular. As he will know, they are not part of the EU customs union, and set their own tariffs on goods entering the territories. The new legislation will allow the Government to continue to provide tariff-free trade between the UK and the overseas territories. The Government will continue to work with them to ensure that their priorities are taken into account.

A number of noble Lords focused on the state of preparedness. The noble Lord, Lord Whitty, and the noble Baroness, Lady Verma, both committee chairs, and my noble friend Lord Cope talked about the need for certainty. The noble Baroness, Lady Kramer, talked knowledgeably about “just in time”. The noble Viscount, Lord Waverley, asked how the Government will continue to facilitate trade. The White Paper made clear that the Government are committed to exploring the scope for streamlining the movement of goods across the UK’s borders, including through seeking to negotiate mutual recognition of authorised economic operators, greater use of technology at the border and other simplifications for business, including self-assessment and other procedures.

I have spoken with people at HMRC on the systems point that a number of noble Lords raised, in terms of making sure that we can cope with customs. HMRC is replacing its old system, CHIEF, with a new system called CDS—if any noble Lords are aware of that. CDS is on target to meet its planned delivery date of January 2019. This was the conclusion of an NAO report into CDS in July 2017.

I believe that the CEO of HMRC has also talked about the need to staff-up on exit and hiring 3,000 to 5,000 people. We are also very aware of the particular issues about roll-on roll-off, and realise that it is about space and timing. We are trying to do what we can both unilaterally and on a bilateral basis, targeting the areas where there are the most particular issues.

The noble Viscount, Lord Waverley, made a number of suggestions that we might use to help speed the process, and I shall certainly pass them on to my officials, because we need to take any examples and suggestions forward.

On Northern Ireland, the noble Lord, Lord Empey, who has extraordinary expertise in this area, reiterated the importance of not going back. The Government have been clear that we seek to avoid a hard border in Northern Ireland. This is one of our key strategic objectives for any customs arrangements. We know that the movement of goods across the land border is key to the economies of Northern Ireland and Ireland, and both the UK and the EU recognise the unique circumstances on the island, so we welcome the European Commission’s call for flexible and imaginative solutions. We remain committed to the Belfast agreement and the common travel area, and I know that there are ideas on small businesses, when 80% of their trade goes across border.

The noble Lord, Lord Empey, also talked about our approach to trade and the importance of education. Coming from an education background with Pearson, I support that. I hope that he has seen the creation of a new department, DIT, whose role is to support companies to export more, open new markets and promote our business, supported by finance, as an important step. He asked why we do not use the tax system to incentivise trade and investment. The Government are trying to create the right environment. For example, the recent Budget acted on business rates, increased levels of infrastructure investment, boosted R&D spending and lay the foundations for the UK to become a world leader in new technologies.

Continuity is at the heart of our approach, so it follows that the Bills introduced in the other place are designed to provide maximum continuity for UK businesses, workers and consumers. A cliff edge in our trading arrangements is in no one’s interest.

Photo of Lord Campbell-Savours Lord Campbell-Savours Labour

Are discussions now taking place with the French, Belgian and Dutch authorities about what will happen with trucks being held in stacks going into Ostend, Dunkirk, Calais and the Hook of Holland?

Photo of Baroness Fairhead Baroness Fairhead Conservative

I thank the noble Lord for his question. The answer is yes. The roll-on roll-off situation has been highlighted as an issue, because when companies have been exporting to the rest of the world, they are used to all the compliance, but we have roll-on roll-off, which is all about space, availability and time to get through and make sure that it is through. We are looking at both unilateral and bilateral aspects, focusing on the ports with the most significant issues. Through that, we are entering conversations to see what can be done, because we realise that there is real complexity and there are practical issues.

I hope that noble Lords will see that the steps that we are starting to take are practical and that we are trying responsibly to create powers so that we do not have a cliff edge and can cope with any outcome.

It has been abundantly clear in today’s debate that there is huge depth of understanding of the complexities in this House. My colleagues in the Government and I are committed to involving all those in this House with this expertise. My right honourable friend the Minister of State for Trade Policy, Greg Hands, and I have already held one open-door meeting for noble Lords. I assure Members of this House that we want to provide regular forums where we can discuss our future trading arrangements. We need to have those sorts of honest discussions and will take on board some of your Lordships’ suggestions as we work that through. I shall do all that I can to involve noble Lords across all the Benches so that we can work together in what your Lordships have yourselves described as a spirit of honest, intelligent co-operation, with the shared aim of providing UK businesses, workers and consumers with maximum continuity in their trading relationships as we leave the EU.

Motion agreed.

House adjourned at 8.45 pm.