Q One of the Opposition’s general concerns about a lot of the Brexit-related legislation is about the level of clarity. A lot of the concerns relate to the powers that will then go to the Executive and the future policy consequences of that. In your assessment, do you think that this Bill provides the right level of legislative scrutiny and safeguards as to what the policy intentions will be?
I want to say at the start that from the perspective of Which? we focus on making sure that we get the best outcome for consumers from Brexit. We took a neutral position on the referendum, and that also applies to trade policy. Our interest in the Bill lies in making sure that it is as explicit as possible, within that, on how consumer interests will be taken into account.
In relation to what is in the Bill and what is dealt with by subsequent legislation, we want to make sure that any changes are limited to technical matters, and that anything with wider policy significance—particularly given the sensitivities of trade issues to some extent—is dealt with openly, so that we can see and weigh up its pros and cons. We feel that some aspects of the Bill need to be strengthened to make the consumer interest more explicit. There is recognition in the Bill, for example, of the need to take into account consumer interest when setting import duties. We also strongly support the inclusion of what is called the economic test in relation to trade remedies, because we want to make sure that we have a thorough understanding before we potentially raise consumer prices in order to support particular industries. There are aspects of the Bill that we think are important, but we also think that there could be greater clarity to make sure we see how the consumer impact will be assessed.
On the delegated powers issue: across the board we do have some concerns, more so with the Trade Bill and the process for agreeing future trade deals than are necessarily within this legislation. Here, we do have a lot of delegated powers around setting tariffs, establishing rules of origin. We are thinking about it from the perspective of developing countries, where in some instances there is a high dependency on the UK market and where there are products with tight margins, so changes to tariffs could make or break the livelihoods of producers. If you were to ask for a vote on every single tariff change, that would not be workable, so this is about finding the right balance in terms of moving forward.
It is a question to throw back to parliamentarians: to consider the role that parliamentarians feel they should have around parliamentary scrutiny, consideration of different tariff changes and rules of origin—the things we were discussing earlier. The Government have set out quite an ambitious vision about trade for development, for example in their trade White Paper, in which they want to use trade policies to improve access for developing countries. At the moment, however, we do not see those improvements in this legislation, because the focus is on continuity and maintaining the status quo for now, but we do not want to lose sight of future improvements and future discussions. I would say that actually, as things stand at the moment, there should probably be a process whereby Members of Parliament can call things in or request further scrutiny, but that is part of the wider discussion about trade policy going forward, including how the Houses want to be involved in that and how public consultation is built into it. It is something that needs to be thought about in tandem with the ongoing discussions about the Trade Bill, as well.
I have a problem with the structure of the Bill, the consequence of which is that parliamentary scrutiny will be excessively difficult. I can illustrate that with this visual aid that I have brought in, which is a handbook that I edit. This is the regulatory framework for customs duties in the Union—the Union Customs Code—and its guidance. The UCC and its implementing provisions are about this wide, very finely typed—about 1,300 pages. The rest—this part here—is the necessary European and national guidance on the matter.
Therefore, when we think about the implementing provisions, of which we have maybe 15 or 20 pages of detail in the Bill, which are meant to be implemented by this, we know that the statutory instruments are going to be an enormous burden. The problem is that the Bill is overly ambitious. It fails to distinguish between those provisions that I will call just charges and the machinery—the regulatory framework. This book does not concern the charges, the tariff schedules, the trade instruments or the preferential agreements. They are in another book, of about the same size. I am not concerned about those, and the Bill would deal with them.
The trouble is that it brings into force the repeal of the UCC, in effect, on exit day. That being so—it is hard-wired into the Bill—its commencement provision requires there to be statutory instruments of this magnitude on exit day. The problem is that since the destruction of the Bill is a recast, they will be recast into other, English language. Such an approach might be appropriate for a no-deal arrangement with the EU, but it creates burdens of cost and risk in respect of any trading activity that follows afterwards, particularly if we have any transition period at all or are subject to obligations under the leaving treaty—I will call it the leaving treaty, but whatever it is—to preserve the regulatory framework of the UCC.
To be realistic, we cannot expect the EU to be in favour of or agree to any kind of regulatory framework that is different from the UCC. The UCC is what they have budgeted for. At the moment, it is in an implementation phase; we will probably come to that in other questions, and the problems of the timetable for its implementation now that, yesterday, the Commission has endorsed a report following the revised road map for the implementation of the UCC, which I could cover later.
The primary point then is that if we have a complete recast on exit day, anybody who is involved in trade, particularly if we have obligations to retain the same effects as the UCC, will have to be looking at both the UCC and the English implementation at the same time for every single piece of endeavour—almost every importation. As I said, the scrutiny will not just be on the basis of whether the legislation achieves its objective with respect to any changes from the UCC; it will also have to look at it on the basis of whether it preserves the effect of the UCC that was intended. That is an enormous burden, and I would say that it makes parliamentary scrutiny unnecessarily and excessively difficult.
Q The Chartered Institute of Taxation submission is particularly damning; it is quite difficult to pick out a particular issue to ask you about because it has so much about how unclear this legislation is and how many unintended consequences it might have. In terms of the members that you have, the organisations that you work with, making decisions now for what will happen in 15 months’ time, are organisations making decisions now that will have a negative impact because of the process that we are undergoing, and is there a way that this process could be made better in order, for example, to safeguard supply chains in the UK rather than moving them to Europe?
That is an important point. The CIOT’s report brings out some evidence of some members having already amended their supply chains in order to cope with arrangements, because of the uncertainty. Uncertainty is a burden that trade faces at the moment, and it has to make decisions about it, so you are right. The CIOT has noticed that clients—enterprises that are members—are changing their supply chains because of the uncertainty, so anything that the Bill can do to reduce uncertainty would be good. For example, if the Bill can, by its commencement provisions, instead allow the withdrawal Bill to operate—therefore the UCC is automatically incorporated—and then exercise the powers to modify that application, that will reduce a lot of uncertainty and there will be no need to read this book—the UCC—and the English version. This book has to be read anyway, and this, and there will be a very small amount of variation where we want to improve on the UCC for the United Kingdom.
This is about uncertainty and cost, and what enterprises want to do. Everything can be resolved by law and by allocating resources to the issues, but that just increases cost, besides the parliamentary scrutiny being a burden for Parliament and for those who want to assist it—charities such as the CIOT and so on. Businesses themselves will see this as an issue of cost that it is unnecessary for them to incur.
Q In terms of the measures on developing countries, Helen, how do you feel that the Bill explores those issues? Do you feel that it adequately ensures that fair trade happens, for example, and that developing countries are given a fair deal?
There is certainly that intention in the legislation, and that is good to see. Certainly, bringing forward a UK preference scheme and guaranteeing in law the duty-free, quota-free access for the least developed countries is all very positive. It takes the best bits of current EU policy and brings them over into UK policy. What we are grappling with at the moment is those countries that do not qualify for that access, which are not LDCs but still have developing country status in some way; they may have an economic partnership agreement or a free trade agreement. We do not yet have absolute clarity and guarantees that their market access will be preserved in the same way. There is definitely a stated intention from Government, but not a guarantee.
I would say we have heard more than we have seen. Obviously, the next six months or so are going to be critical. What we have heard were potential discussions about people changing their sourcing—away from Kenya to Ethiopia, for example—in relation to cut flowers, and discussion about trading routes: things that currently come via other EU countries into the UK, whether that is flowers via the Netherlands or tea or coffee that is processed in Germany. There is lots of complexity around every commodity. I would say that at the moment there has been more hearing than seeing action, but I think the next few months will be crucial.
The challenge of one of the points that we have been trying to make with quite a short submission about this is that because we do not have an absolute guarantee at the moment that the transition of the economic partnership agreements and free trade agreements will occur in March 2019, although we know that the Government are working hard on it, we want to ensure that the preference scheme is able to accommodate additional countries that may not be listed in the schedules at the moment, as a kind of fall-back option in case we cannot transition those free trade agreements and so on over in time. Obviously, we want to avoid the cliff edge for developing countries just as we want to avoid the cliff edge for UK business.
My apologies for the Metropolitan line this morning. I am the director of Customs Associates. I am an independent customs consultant and have been for many years, advising businesses on importing and exporting, currently for trade outside the Union.
Q Many thanks to Mr White for setting out quite a different approach to how the Bill could have been structured. It has been quite salutary for the Committee to hear that. In the comments that you made, Helen Dennis, about the proposed system for least developed countries, you said that you felt that the Government have taken the best bits of the existing approach. Certainly, the exclusion of arms is retained here. There is a question about the extent of conditionality, because in the European system there is conditionality about good governance and environmental sustainability. Could you comment on that? I understand that that is not replicated to the same extent.
I have an additional question about the distorted economies. We have very little detail about how distorted economies will be dealt with in the Bill. Do you have any comments on that, given that there are severe human rights concerns in many of those economies about certain elements of production, including modern slavery?
You are right to say that the three tiers of the EU preference scheme are not cited in the legislation. At the moment, in the Generalised Scheme of Preferences, there is Everything But Arms duty-free and quota-free access for the least developed countries, and there is broad GSP and something called GSP-plus, which countries can access if they have ratified certain human rights agreements and conventions. That highlights that the Bill is being kept incredibly loose. We have had discussions with officials at the Department for International Trade about this, and the stated intention is probably to cut and paste the preference scheme.
At one point, I thought that there would probably be some wider discussions about the shape of the preference scheme: whether we would go for one tier, two tiers or three tiers, whether we wanted to roll over the human rights conditionality, and more. I do not know whether it is to do with the time, resources and everything that needs to be done in the next year, but the preference seems to be, essentially, to cut and paste for now, and to look at those improvements later. You are right to say that that is not in the legislation, so the detail of rules of origin and the different tiers of a preference scheme are just more issues that the Secretary of State would bring forward in regulations. It was implied in the first question whether that is satisfactory. Do members want to have a say in shaping a preference scheme and on whether there should be human rights conditionality? That is an important question that needs considering.
On your second question about distorted economies, there probably are divergent opinions—certainly in civil society and non-governmental organisations—about the use of trade agreements and tools to enforce human rights obligations. Obviously, everyone wants to see that, but trade is quite a blunt tool for doing that. Its application at EU level is still fairly recent, so there probably is not enough evidence yet to see whether the GSP-plus has the desired effect. I am not an expert, but I know that after the Rana Plaza tragedy in Bangladesh, the United States was able to use trade policy to move forward some of those conversations about labour conditions and rights in Bangladesh. There are ways in which trade policy can be used for those discussions, but whether they are applied as conditions in trade agreements is a question for discussion.
Q May I go back to Mr White’s response? I would have thought that you would be very happy with what the Government have come up with, because you may be able to produce yet another volume of your book. You have certainly given the first volume great marketing—many points to you for that. The previous panel seemed, in general, to approve of the Bill. They liked its flexibility and agreed that it is an enabling Bill. They are the ones whose members will have to implement it. You, as a lawyer, do not seem as happy with it. Forgive me for saying this, but every lawyer I have encountered in an evidence session since we decided to trigger article 50 has seemed very dismissive and upset about the way we are going forward. Is this lawyer-speak, or is it something that will cause problems for the Bill?
Good lawyers—and even good editors—work only for their clients, not for themselves. Barbara is a colleague of mine, and you should ask her that question, too. We are interested only in making sure that the Bill is fit for purpose. Our charity is made up of lawyers and consultants, and we all agree that although the Bill is not designed to do something bad, it tries to do too much. We applaud its ambition and, to a point, its flexibility, but let me make a couple of pleas for special items.
On the replacement of VAT on acquisitions being dealt with in a VAT return, we see flexibility in the Bill and in the announcements of HMRC and the Treasury. That can be replaced by postponed accounting of import VAT. That kind of flexibility is good. When we look at the flexibility that we would like to see in respect of some of the special procedures and information systems, we think, “Yes, that will be good.” In particular, guarantee waivers—taking a different view from the EU on guarantees—are a good thing. The Bill would give us that structure, and we applaud that.
Our problem is with the cost that would follow, both in terms of parliamentary scrutiny and for the trade, if we commenced a UK recast. Having to look at both the UK recast and the Community law would create an unnecessary cost. As I said, we are not concerned about parts of the current law such as tariff schedules and trade instruments, which we know will have to be recast. Each paragraph of the Chartered Institute of Taxation report is quite dense—a number of people were fighting to get their arguments in, and some of it is a bit too dense—but one talks about international obligations. We do not want the flexibility of a UK approach that is inconsistent with our international obligations, because that would just lead to more cost. Although we might, in individual cases, obtain a result that we liked based on a simple reading of the English recast, it might be incompatible with either a Community obligation or an international obligation, and we would end up with everything having to be reversed on appeal and the whole enterprise being more expensive.
The problem with an unnecessary recast is that it would produce an amount of uncertainty. It is that, not the flexibility, that we object to. If I put my own hat on, you are right that I would never be able to retire, because, instead of being paid once for reading this version, I would have to be paid twice—once for reading this version and once for reading the English recast—in any case I was involved in.
Q Welcome, Ms Scott. As you said, your business has repeatedly asked for the new legislation to replicate as far as possible the current customs regulations, and you were disappointed to find that that is not the case. You also said that the Bill looks like an “antiquated” piece of legislation, rather than a modern law for a modern and forward-thinking new customs administration. Would you like to put a bit of meat on the bones of that?
Sure. I presume that Jeremey has already mentioned the fact that the new draft Bill moves away from the Union customs code. We had been told that the Union customs code would be the way forward for UK legislation, so we were surprised to see the new draft Bill presented in this way. If it is to be changed—personally, I do not see how we can change something in such a short period, given that the Union customs code took 10 years to put in place—how can we present something new that is a strong and proper piece of legislation? We will not be able to do that in the time available, which is all the more reason for picking up the Union customs code and tweaking it.
If we are going to change things, why produce something that to me looks like going back to the legislation that we had? Perhaps those drafting the Bill started by looking at legislation before the Union customs code, or even the Community customs code, because a lot of the wording is not modern. Perhaps that is the way that this has always been done, but it seems to me that we could at least use plain English that people understand, and present it in a clearer way. The wording of the Union customs code is sometimes a bit odd, but it is written in clear English that most traders and non-lawyers can understand. If we are to change this legislation, it would have been nice to have seen something a lot more fitting for today. A totally new customs regime is coming in, and if it is to be different, this would have been an opportunity to make it a shining star for Britain.
Q Mr White, paragraphs 3.4 and 3.5 of evidence from the Chartered Institute of Taxation state that
“new UK legislation is needed to create a separate UK Customs regime.”
I think everyone acknowledges that.
“However, we believe the Government’s approach, of providing Ministers with exceptional (yet apparently permanent) powers to create a Customs regime from scratch, with minimum parliamentary involvement or scrutiny, in a very short space of time, is unnecessary.”
Why? What is wrong with that? The Financial Secretary is a very reasonable person, and I am sure that nobody would want to pull the wool over anybody’s eyes. What is the problem with that idea?
Parliamentary scrutiny will be excessively difficult. That is the problem. We are talking about how to get this amount of material recast and properly analysed, with time to debate anomalies, difficulties, or even the uncertainty of it all. There are risks to the Revenue as well, besides business cost. The Revenue might think that it has a proper charge, but the problem with customs machinery as something that is modified or recast is that often the customs debts themselves result from a time when goods were on duty suspension. That is where customs duties are in two parts. First, there is a charge in the thing, in rem, on importation, and then the goods are on duty suspension until there is a charge, in persona, against a person who is then liable for the debt.
In the time between those two events, the goods are subject to all this regulatory machinery. Uncertain or defective provisions that could be subject to litigation will affect the Revenue itself. We will say what we think the legislation is—it will have its explanatory notes and its public notices—but once you have let it go, it is up to the judges to decide what it means, and traders and advisers might come up with a clever, nuanced interpretation of the Bill and statutory instruments that was completely outside your intention. So avoid that uncertainty, that litigation and that cost simply by allowing the withdrawal Bill to incorporate the UCC—as we thought it would—and then enact just the sensible few amendments or modifications that are necessary of the UCC. As I say, I am arguing only for that, not for the whole body of the customs legislation, some of which it is probably best to recast, subject to compliance with EU and international obligations.
Q You have said:
“The explanatory notes to the Bill state that the new standalone regime will be ‘largely based on EU law’ and that it is intended that the customs regime ‘will continue to operate in much the same way as it does today’.”
I want to tease out a little more on that. Do you think that aspiration will be delivered by the Bill?
Q Finally from me, in relation to the appeals process, you identify in paragraph 6.1 of your evidence:
“We are concerned that taxpayers’ rights in relation to an effective appeals process are retained. This Bill could be”— you do not say “will be”—
“a backwards step in relation to an effective appeals process, because it affords such wide discretion to HMRC. We wish to see the adoption of clear unambiguous legal requirements for customs matters, which minimise commissioners’ discretion.”
Could you tease that out a bit more? That is in paragraph 6.1 of the Chartered Institute of Taxation’s evidence.
A thorn in the flesh of the people who contributed to that section was clause 23, and in particular where certain results—particularly approvals—are treated as never having been granted if HMRC considers that approval would not have been granted if a deficiency was known at the time it was granted. That is just one example. There are a number of parts of the Bill where this construction is used whereby one authority—an administrative authority, a parliamentary authority or a Minister—considers that kind of discretion.
Yes, that is a useful construction in English for granting a power to make an instrument, but when it comes to affecting a trader’s relationship and whether they can be in business or not because they have got an authorisation, it should then be subject to the ordinary appeal to the simple, low-cost traders’ tribunal that we have learned to admire. All of the other authorisation-type decisions that HMRC could make are subject to appeal, and they are preserved properly by the Bill. The trouble is the Bill then adds in a few more, using a construction such as “considers” and “discretions”. It is bad enough now that sometimes we have to tell a client, “Sorry, you’re going to have to pay the money to go to the High Court and challenge the Ministers or HMRC on the basis of judicial review,” which is very expensive, discourages litigation and often discourages people from obtaining a remedy for their dispute.
This should not be controversial. It should be, “Yes. That is the right thing to do.” If we were able to add to a shopping list, we would say, “Can we please have all of the current disputes going on in the High Court in customs matters dealt with in a tribunal as well, please?” but that may be asking too much. If the scope of the Bill is wide enough for that and you could amend it to get that in, that would be good. We should not really have customs issues going to the High Court at all. They should all be dealt with in the first-tier tribunal tax chamber.
I would like to return to the point made by Helen Dennis on fair trade. Do you agree that it is very important that the Government have a wide remit within the scope of the Bill? Some of the current rules regarding EU regulations and tariffs are detrimental to fair trade. I will cite one example. Colombian coffee producers export low-value green coffee into the EU for the value to be added, usually in Germany and in some cases in Italy. Massive value is added here in the EU to the benefit of German manufacturers and large German brands, which therefore has huge detriment to the coffee producers back in Colombia. That is one example. There are many. Having a wide scope in the Bill will give the Government, in the fullness of time, the ability to make sure that free trade arrangements work as consumers in this country think they work, as opposed to how the EU has currently drawn them upQ .
A lot has been said about value addition and its potential post-Brexit. Our view is probably that the tariffs are not the key issue here. We already have duty-free, quota-free access for the least developed countries. If we take a country such as Colombia, or a GSP-plus country such as Bolivia, it is able to access the market with roasted coffee as well, duty free, but as I said before, with the free trade agreements, they may not all transition over necessarily. The biggest issue in terms of trade policy and development continues to be subsidy rather than EU tariffs. There are other issues, such as rules of origin or just getting the investment in roasting and processing facilities, that are more of an obstacle to moving into that kind of value-added activity.
Having said that, there is still scope for improving the tariffs. That goes back to the point about how we and the Government do that. Do we say that the Secretary of State has that power and authority, every three years or so, to revise the preference scheme to extend product coverage and potentially country coverage, and so on? Is that a conversation that happens through regulations under delegated powers, or is it something that a Committee of the House or another grouping, or Parliament in its entirety, would want to discuss, debate and have a vote on? There are lots of issues to unpack. I would certainly agree with the premise of your question, but some of the detail on that particular issue around coffee roasting does not impact as many countries as is sometimes talked about.
Q But those people that it does affect, it affects in a great way. That is why it is really important to have a wide scope in the Bill, so that we can get into the detail in the fullness of time, and get it right.
I agree with you on that. There are certain products that we work with, such as bananas and sugar, that are not covered by the GSP. There may be products that we would want to include within a new preference scheme, and we would want to have the opportunity to bring those proposals forward. The Bill certainly does that, by granting the power to the Secretary of State to make those decisions.
The one thing I would want to flag up is that a decision about tariffs affecting one country impacts on other countries. It is important that when those matters are being brought forward, a thorough impact assessment is done of the impact not only directly on that economy but on neighbouring or other competitor countries. If we go back to Colombia for example, it is a big exporter of cut flowers. There is competition between east Africa and some of the Latin American countries. There is no right or wrong answer, but if we are going to make tariff changes, we need to make sure that we have thoroughly considered the potential impacts.
When the Bill lists the things that the Secretary of State or Chancellor must have regard to, at the moment there is nothing that relates to development impact. From our perspective, we would like to see something added there, so that we are thinking about UK interests and consumers, of course, but we are also thinking about development impact when we make changes.
I would like to ask an additional question. In the previous session we heard that, for example, in terms of SMEs, 130,000 small businesses would be affected by this kind of legislation for the very first time. Does the panel have a view on the particular challenges that the Bill might bring to small business and its impact, especially if Mr White’s book has to be trawled through every time some decision has to be made? What is the panel’s view on thatQ ?
I work a lot with SMEs who currently find it very hard to understand the Community legislation on customs and international trade law. It is complex and there are a lot of different strands to it. Trade is complex. Things are different depending on what you are doing, whether coffee from Colombia or bicycle parts from China. The legislation and the effect on business is very different, unlike other laws, such as VAT or corporation tax, which generally impact in the same way on most businesses.
This is a huge step change for SMEs and particularly for those who have only traded within the EU. It will be a tough challenge for HMRC to reach out to those people, get them involved and explain how the new legislation will work. There is clearly going to have to be a lot of propaganda and information out there. It is a huge challenge for the state.
And there is a cost. The SMEs will have to employ agents, because they will not be able to employ in-house staff. I have been told that SMEs will sell out to someone who does have the assistance. The only frictionless trade known to man is customs union. Anything else is costly and can only be managed—just—with all the simplified procedures of the UCC in operation, plus all the information systems that are there to support them. That is big money.
When we talk to customs about this, we are constantly hearing, yes, they are being given more resources and will be employing more staff, but can business afford to do that—suddenly to employ new people and understand these new processes? It is a huge cost. People ask, “What is that cost?” It is very difficult to measure. I do not think anyone has attempted to do so yet. It will be a very difficult time for SMEs in particular.
I cannot comment on SMEs but I want to make the point that if there are additional costs for businesses, they will feed through and lead to increased prices for consumers. That is why it is really important that we have as efficient a system as possible, which still maintains the right level of protection for consumers.
Uncertainty always produces that, doesn’t it? A little bit of background: all my professional life has been using EU-type rules, EU language and structure. Through all its iterations—when I was a Government lawyer working on the implementation of the Community customs code, then when we began to do work on the Union customs code, then I went back to practice—it is still very similar. It is well-known that the opportunities for avoidance are few. There have been some, obviously, in terms of customs valuation. There have been customs valuation schemes in the past. Most of them have been dealt with.
This is just an example—we do not know, and it could be handled very well—but in a recast there is always an opportunity of bringing in some uncertainty. Is this exactly the same provision as we had before? Will it prevent a customs valuation scheme? The answer to that is that we do not know because all we have seen in the Bill is a very small, framework principle rule provision, but it still does not adopt exactly the language of the World Trade Organisation customs valuation agreement. That would be beneficial—that is another point in our report. The way it works is this. All the customs authorities in the world are obviously interested in preventing evasion and avoidance. They have their own legislation, they have got together for a world agreement on how customs valuation should be—taxation based on movements of goods—that is adopted generally, and their Supreme Courts have ruled on it for many years now, or at least since everyone adopted the same since 1994. We have all that body of work, help and certainty. If we then have an English law recast that abandons that language, we do not take the benefit of leveraging off of any of the international law or any of the international judgments.
The answer to your question—that was really all background—is that we do not know until we see what the statutory instrument looks like, if we still go down this road. It would be better not to, but if we do still go down the road of the recast for all purposes, we will see what the statutory instrument says. I would have thought that the advice will be that the statutory instrument has to adhere to the WTO customs valuation agreement.
Q In sectors like steel that operate pretty much in a free market without tariffs, trade defence instruments are very important in ensuring fair trade. What do you think about the UK’s proposed system of public and economic interest tests? How do they compare with elsewhere? To me, at first glance, they seem more cumbersome than what is already there, and therefore there might be higher risk, but I am interested in your views.
We think it absolutely critical that we have the economic interest test. We completely recognise that there will be cases where we need to consider whether we put remedies in place, but it is really important that when the decision is made to do that, there has also been a full assessment of what the impact would be ultimately on the end consumers. As some of the products or sectors that have involved remedies up to now have often been inputs or intermediaries into other sectors, which will then feed through to consumers, we need to ensure that we are looking at what the short-term impacts could be while also thinking longer term. We were really pleased to see the economic impact test referred to. We think it could be more explicit about the public interest side and the need for a consumer impact assessment, but otherwise we could be going down an unnecessarily protectionist route that could have consequences we are not sure about, because remedies can remain in place for quite a while.
Correspondingly, I appreciate that you are not considering the Trade Bill, but we think that the composition of the Trade Remedies Authority, which will be included in the Trade Bill, and the way that it operates, are also critical, so that we ensure it is transparent and includes consumer interest—for example, consumer representation on its board—so that when it is looking at the need for remedies we all understand exactly how it has traded off those different interests. But we think it would be simplistic and potentially damaging to consumers if we do not have the test in the Bill.
Q There are four tests here—four different checks. That seems to me to be potentially over-checking. There needs to be a test, but do there need to be four tests?
We have the economic significance of affected industries and consumers and the likely impact on affected industries and consumers, which enable a wider public policy consideration. For example, there have been remedies in everything from salmon to solar panels in the past. We have got the likely impact on particular geographical areas, which is about regional aspects, and the likely consequences on the competitive environment. So there is a wider competition check, and that is where it will be important to make sure that the Competition and Markets Authority is consulted.
We think the criteria are right. It is how it is done. At the moment it says, “They can take account of the following so far as relevant,” whereas we think it is really important that there is a transparent impact assessment, so we think the wording there could be clearer about how it is doing that modelling in assessing the impact. We felt that the criteria seemed sensible.
What also needs to be in there is perhaps timings. At the moment, when we have trade remedies under the EU legislation, it takes an inordinate amount of time to put them in place. If we can have something in our legislation that is timeframed and more clear, with a shorter timeframe, that will be a big plus.
Currently, we have a bit of a divide between HMRC and Customs and how it operates processes such as economic operators, which Border Force does not come online with. No matter what we do to facilitate authorised economic operators—I detest that term—Border Force will still carry out the same controls whether a trade is authorised or not authorised. That really is something that discourages businesses from actually becoming an AEO.
There is a lot of talk about our not having a high number of AEOs in this country. That is because UK Customs has looked at trade facilitation as far as it can, and was quite facilitative to business before we even had an AEO system. For larger traders, there was a lot of facilitation allowed, whereas perhaps some other EU countries, particularly before the UCC, were not so facilitative and have used that AEO process to be more facilitative, which is why traders in, say, Germany have become authorised and in the UK they have not.
The benefits of AEO currently are very small, which is why I was pleased to see within this Bill that there are opportunities for having different levels of AEO. That could be a particular help to small businesses that cannot get over the extremely high bar that exists at the moment. Something that is smaller—a sort of bronze star for SMEs—might be better than the gold star that a multimillion-pound business can afford to obtain.
Q Thank you all for your evidence today, which has been really helpful. I have a specific question for Mr White regarding his assertion, which I generally agree with, that the simplest way forward would be to effectively take the UCC on board, but modify it as required. Is there anything in the Bill that would prevent us from doing that? If your thought is that we should be required to do it, given that we might not be prevented from doing it by the Bill, would bringing it into the Bill not just risk us tying our hands in a way that would be unhelpful, given that we do not know exactly where the negotiations are going to land in that respect?
Technically, I think you would be safe if you amended the commencement provision. At the moment, the way that it operates on exit day is that the repeal in schedule 7 of the taxation Bill automatically repeals the effect of the withdrawal Bill, which would otherwise preserve the UCC as retained EU direct legislation. You would have to effect the taxation commencement provision. That would have to be amended, so that on exit day it no longer immediately repealed the UCC. Then the withdrawal Bill would operate.
Clearly, we would identify some modifications that are required, some deficiencies, and we would have power under regulations, under the withdrawal Bill, to make regulations amending an unnecessary effect or remedying a deficiency. There would also be power under regulations under the taxation Act itself to make regulations. Those regulations would have to be enforced on exit day.
That is right. If you had a qualified commencement provision, so that schedule 7 did not take effect straightaway but had to have a commencement provision, so instead of Royal Assent you had a commencement provision, you would still have the flexibility, if sadly it became appropriate, in a no-deal situation, immediately to bring this into effect. That would be possible.
Someone is still going to have to do the work. As Barbara outlined, someone in HMRC and the Treasury will have to do the work for all of these scenarios for the regulatory framework. Even if they wanted to have a recast, now is not a good time.
To pick up for a second or two on the preference agreements on replication, everything there that will be done will have to be proved. There will have to be proofs of origin. We have got a serious problem outlined, because of the Commission’s adoption yesterday of the road map to put back the information systems, which could have included common databases, as we have in other free trade agreements, particularly with China and Switzerland, that that computer system would not be available in the EU until 2025. In the earlier session you were told that a transition to 2025 is better, even legally technically for getting what we want by way of free trade agreements being replicated and being frictionless. If they are not replicated and not frictionless, then we have to be back to all of the paper certificates. We know that we will have to on the anti-dumping—we will have to employ our own police force to investigate in other countries; we will need reciprocal agreements. At the moment we benefit from the Community policing. There will be no police force—no OLAF. That is a serious problem we face on implementation in this area.
Q I am sorry to be a real dog with a bone, but I have one last quick question on this point. On the UCC, your contention is that you would have to amend the Bill under schedule 7 to stop it being switched off, to allow the time to bring it in to UK law and amend accordingly. Why could you not just continue with the provisions of schedule 7 and have secondary legislation that comes into immediate effect at the appropriate time, by way of a made affirmative statutory instrument, for example?
Except for the fact that the affirmative instrument, the SI, would have to repeal those parts of the Bill that make specific provision already. The trouble is that it is not just repealing the UCC. There are 33 pages of provision in the Bill that would have to be repealed by the affirmative statutory instrument, which will be messy. It could work, but it is better to amend the commencement provision, I would say, so that part 1 and schedule 7 do not commence as they do now.