My Lords, it is a privilege to speak in this debate with so many who are expert in this field. It is a pleasure to follow the noble Lord, Lord Cavendish of Furness, although I do not think that I agree with anything that he said. I also join other noble Lords in congratulating the noble Baroness, Lady Meyer, on her powerful and fascinating maiden speech.
I will concentrate my remarks on the provisions in this Bill to implement an independent trade policy, and to transition the existing trade agreements between the EU and third countries. I will focus on these provisions because they neatly encapsulate the futility of the Brexit process, which involves recklessly dismantling all the benefits that we currently enjoy, with the promise of a better—but as yet unspecified—replacement at some distant point in the future, only for us to end up in a far worse position than we started with.
“continuing what we have at the present time”.—[
What then, we might ask, is the point of it? Why are we expending huge amounts of time and energy? Why are we setting ourselves red lines for the negotiations that are proving impossible to reconcile with each other, and threaten to scupper the chances of any exit deal at all, with the hope only of continuing what we have now? Surely such effort is worthwhile only if we end up with more trade than we had before?
As the noble Lord, Lord Cooper, made clear in his speech, the point is certainly not to honour the referendum result. Only 12% of the public even recall independent trade deals ever being mentioned in the course of the referendum campaign. The fear must surely be that once again theological obsession is being allowed to take precedence over the economic well-being of our country. As my noble friend Lord Browne of Ladyton argued earlier, the central question must surely be: is the goal of simply maintaining what we have now itself realistic?
Noble Lords will know that the UK is currently party to more than 40 EU trade agreements covering more than 80 third countries. Indeed, the EU has trade deals in place with more countries than the US, China and Australia combined. These third-country trade deals amount to 15% of the UK’s total trade, over and above the trade we do with the EU.
The Government have acknowledged that transitioning these existing trade agreements will not be a matter simply of rolling them over, but they have not yet explained how they will be replicated. Other countries will need to agree to transition their existing agreements without asking for substantive changes, otherwise the UK will need to renegotiate many, or possibly all, of these agreements before we leave the EU.
At last year’s Conservative Party conference, Liam Fox said:
“Well believe me, we’ll have up to 40”— free trade agreements”—
“ready for one second after midnight in March 2019”.
I would be very grateful if the Minister could confirm, when she responds to this debate, whether the Government remain confident of achieving this commitment, on this timescale, and update us on how many third countries have so far agreed to roll over their existing trade agreements on the exact same basis as now.
In reality, renegotiation will be complicated because of rules of origin, clauses tied to service sectors and investment flows, mutual recognition and tariff rate quotas. It will take only one of those 40 countries to renegotiate their existing agreement to our detriment for us to be in a worse position than we are now as a member of the EU. Furthermore, if we were to leave the EU with no deal, Britain would be the only country in the world which did not have a single trade agreement with anyone else. In fact, I might be wrong. I believe that there are two countries in the world that trade only on WTO terms: Venezuela and Yemen. Quite an ambition for a country such as ours.
This Bill is necessary only because of the Government’s decision to leave the customs union and the single market—a decision taken without first undertaking any economic analysis of the consequences. With Europe on our doorstep, the UK’s current annual trade with countries in the customs unions is £466 billion. It is estimated that leaving the customs union would cost the UK £25 billion every year, and leaving the single market some £45 billion. New tariffs alone would cost UK exporters £4.5 billion a year. HMRC has estimated that new customs checks would increase the cost of imported goods to businesses and consumers by 24%. The National Audit Office estimates that the number of customs declarations each year will increase from 55 million to 255 million and that UK-based companies will have to comply with far higher levels of bureaucracy and additional costs. To take just one example, Honda, which is based in Swindon, receives 2 million components every day thanks to the free and frictionless movement of goods. Outside the customs union, to store the minimum nine days-worth of components on site, it would need to build the third-largest building on earth, measuring 300,000 square metres—the size of 42 football pitches. The Government have repeatedly committed to delivering a future trading relationship with the EU that has the “exact same benefits” as we currently enjoy, yet they have no realistic, viable or acceptable proposal to do so.
The Cabinet spent several months of valuable negotiating time arguing over either a streamlined customs agreement or a customs partnership, neither of which was actually workable and both of which had already been rejected by our negotiating partners. When the Prime Minister chose between the two, it prompted the resignation of her Brexit Secretary and her Foreign Secretary, and it was promptly and predictably shot down by the EU. We now have the spectacle of the Government unable to save their Chequers proposals but without any credible strategy to put in their place, while the more extreme Brexiters in the European Research Group have abandoned publishing their alternative plans for fear that they could be “too easily ridiculed”.
We have frequently been told that the great prize of Brexit is the ability to strike free trade deals with new countries. Presumably for Brexit to be worthwhile, the new trade deals would, at a minimum, replace the trade with the EU that by the Government’s own admission would be lost by leaving the customs union and the single market. Yet many of the countries cited as targets for new trade deals barely compare to the nearly 50% of our trade that is currently with the EU. Australia accounts for just 1.7% of our trade, India 1.7%, Indonesia 0.2% and New Zealand 0.2%. According to analysis by the National Institute of Economic and Social Research, the estimated increase in UK trade from free trade agreements with Australia, Brazil, Canada, India, Indonesia, New Zealand and the US combined would be less than 5%.
By contrast, leaving the single market would see a reduction in UK trade of between 22% and 30%. Even the Government’s own analysis shows that new free trade deals will add only between 0.2% and 0.7% to UK GDP, compared with their own estimate of a 5% reduction in GDP from leaving the single market. Moreover, the long-term benefits of a free trade deal with the US, their most prized goal, are estimated by the Government to be worth just 0.1% to 0.3% of GDP. As my noble friend Lord Liddle pointed out, Sir Martin Donnelly, former Permanent Secretary at the Department for International Trade, has said that leaving the single market and the customs union to seek new trade deals is like,
“giving up a three-course meal now for the promise of a packet of crisps in the future”.
These economic effects are to say nothing of the practical difficulties. New agreements will take many years to negotiate, with huge trade-offs and large countries holding the whip hand in negotiations. Third countries will not be in a position to even start negotiations until they know what the UK’s future trading relationship with the EU will be, which currently looks several years away. Agreeing an independent status at the WTO will not be straightforward, with the US, Canada and Brazil already raising concerns. In talks with the US, negotiators will demand that the UK lowers its environmental and food standards and accepts products such as hormone-treated beef and chlorinated chicken, while US healthcare companies will lobby for the right to bid for NHS contracts. What is more, all this relies on dealing with President Trump, who is yet to show himself as an advocate of mutually beneficial trading relationships.
It is clear that transitioning existing trade agreements on the same beneficial terms we currently enjoy cannot be taken for granted. It is also clear that new trade deals with other countries will not remotely come close to making up for our lost trade with the EU, the largest free trade area in the world. The reality is that this Bill will reduce UK trade, not increase it or even maintain it. On trade, as with so much of Brexit, the damage will be huge, the benefits illusory and the reality so very different from the promise. The case for giving not only Parliament but the people a meaningful vote on the final deal is ever more compelling.