Trade Bill - Second Reading

Part of the debate – in the House of Lords at 4:01 pm on 11th September 2018.

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Photo of Lord Lilley Lord Lilley Conservative 4:01 pm, 11th September 2018

My Lords, it is a great privilege to follow the noble Lord, Lord Kakkar, who has delivered the kind of well-informed speech that I, as a new boy, have looked forward to hearing in this House, and which is such an important feature of its contribution to the working of Parliament.

The Trade Bill is useful, workmanlike and necessary. I was tempted to add that it is crucially important, because I have a vested interest in emphasising the importance of trade Bills and trade deals. I am probably the only person in the Chamber—or rather, one of the few—who participated in negotiating a trade deal in the Uruguay round, which culminated in the creation of the World Trade Organization. I was also the Secretary of State for Trade and Industry who had to introduce the whole single market programme into our country, by introducing the legislation that made us part of the single market. At the time, I made speeches emphasising how immensely important these developments were and how dramatically they would change everything.

I am a scientist by training so, when I make a prediction, I subsequently look back to see whether it has come true. I have to say that it was hard to see a seismic change following either the Uruguay round or the single market. Since the single market was implemented, our exports to the European Union have grown at 1% per annum compound, which is not a huge deal though better than no growth at all. It is hard to see a dramatic change in our trade, or in the trade of the whole world, following the Uruguay round. I believe that both were important and valuable, but we should not exaggerate their importance. What drives trade is producing goods and services of a quality, and at a price, that other people want to buy. One can have the best trade deals in the world but, without that, one will not prosper. It depends far more on your domestic competiveness, productivity, investment, training and skills, rather than the trade deals we negotiate. Yes, let us have good trade deals, but let us not imagine that they are the solution to our problems or will create a sudden, dramatic change—or that the loss of trade deals, though regrettable, would be the end of the world.

The Uruguay round halved the tariffs between developed countries on trade in goods. This means that future free trade agreements based on goods between developed countries are of limited value. The average tariff on trade in manufactured goods between developed countries is in low single figures, smaller than fluctuations in the exchange rate in a week or a month. Indeed, the tariffs are quite small compared with other factors too. There is merit in removing those tariffs but we should not think it is the be-all and end-all. Therefore, as far as goods are concerned, the most valuable free trade agreements are with countries with highly protected markets—typically the fast-growing countries of Asia, Africa and Latin America. It would be wonderful if we could indeed join the CPTPP agreement, as the Government have indicated they want to do, as the first non-Asian member of that trade group.

More than 50% of the value added that Britain exports is in services, so trade deals that emphasise services are particularly important to us. Unfortunately, they are less important to the EU and, as a result, 90% of the trade deals that the EU has agreed have no significant benefits for services. Switzerland, for example, has its own trade deals, a third of which have a significant component of service-enhancing trade. We will be able to do the same if we are outside the EU, but as a member of the EU we have to go along with the lowest common denominator, which is not necessarily in accordance with our interests.

The Bill will enable us to novate the existing EU deals—covering some 70 countries, we are told—into UK law and take over our share of those agreements. That sounds a daunting task, and of course it is significant, but I understand that no country has said that it is unwilling to renegotiate or reapply deals with us. Even those who have said that they wish to exploit the opportunity to change the terms, as the noble Lord, Lord Fox, has suggested, will, I understand, in the interim continue on existing terms, as is allowed under WTO rules, while any revised agreement is being finalised.

It is not the case that trade will suddenly stop. In fact, most of the countries that I have visited—I have been to Australia and New Zealand and have talked to a number of other countries nearer to home—want, subsequent to rolling over those deals and once we have some spare negotiating capacity, to negotiate better, more comprehensive deals. There is the scope for that because the deals that we have at present are those negotiated by the EU, which had to get the unanimous agreement of all 28 countries, not all of which were in favour of free trade and all of which have the exceptions that they wanted to make. Therefore, those deals are less comprehensive and we will be able to say, “Those exceptions don’t matter to us because we don’t manufacture that sort of thing. We can make you a concession on that in return for concessions on other things”. Therefore, there is scope for improvement even there.

I understand that the bulk of these different agreements is carried out with very few countries. Seventy countries sounds daunting but half of all our trade with those 70 countries is with one of them—Switzerland—and 80% is with three or four of them: Switzerland, Korea and Norway; I forget the fourth. Therefore, as long as we prioritise those, we can deal with most of our trade very well. However, I do not think that we should neglect the smaller countries. I am the former chairman of the All-Party Parliamentary Group on Trade out of Poverty. It happened to be a personal interest of mine that we should open our markets—and keep our markets open—to the developing countries of Africa and elsewhere. All my talks with those countries indicate that they want that too and that they will not put obstacles in the way of novating the trade deals that they have with the EU into trade deals with us.

This debate, like many others, has given people the opportunity to spread what I call plausible myths: things that sound plausible but unfortunately are not true. The noble Lords, Lord Grantchester and Lord Fox, said that, as a member of a big unit like the EU, we will be able to negotiate better, faster and more-extensive agreements than we would as a country in our own right. That sounds very plausible but it is simply not true. A study of all the trade agreements negotiated in the last 20 years shows that the average speed at which they were negotiated was 28 months. If, however, you exclude multilateral deals—essentially those involving the EU—the remaining bilateral deals were negotiated in much less than two years. Australia found that, when it told its negotiators not to go for the perfect agreement, but for the best agreement that they could reach in 12 months, it got three agreements within 12 months—with, I think, Taiwan, South Korea and Japan. It is possible, therefore, to do it more speedily when you are not part of a big group.

It is possible to do it more comprehensively, too, because if the EU is negotiating as 28 countries, each country has things it wants reserved, and the country it is negotiating with says, “Well, if you do not include this, and that, we will not include everything either”. So the EU’s group agreements tend to be less comprehensive than bilateral agreements that would be possible with us. There could also be more such agreements. Switzerland—which does not seem to think it necessary for its just-in-time trade to be a member of a customs union—is able to negotiate its own trade agreements, and has one with China. Even Iceland has an agreement with China. The EU does not. Switzerland has agreements with countries with a collective GDP that is far greater than those of the countries with which the EU has negotiated agreements. The same is true of Chile.

I do not think we should allow ourselves to be misled by things which sound plausible but which, when we confront them with the facts, turn out not to be true.