Examination of Witnesses

Trade Bill – in a Public Bill Committee at 3:09 pm on 16th June 2020.

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Richard Warren and Ian Cranshaw gave evidence.

Photo of Graham Brady Graham Brady Chair, Conservative Party 1922 Committee 3:12 pm, 16th June 2020

Our third panel of witnesses giving oral evidence is from Make UK and the Chemical Industries Association. We have until quarter to 4. Could I ask both witnesses to introduce themselves for the record—first Richard Warren in the room, and then Mr Cranshaw?

Richard Warren:

I am Richard Warren, head of policy and external affairs at UK Steel. Although UK Steel sits within the wider organisation of Make UK, I will be speaking specifically on behalf of UK Steel and the steel industry rather than the wider manufacturing sector.

Photo of Graham Brady Graham Brady Chair, Conservative Party 1922 Committee

If you would like to make any opening remarks, you are welcome to.

Richard Warren:

Certainly. The Trade Bill deals with a number of issues that are extremely important to the steel industry, not least the one I am most keen to discuss this afternoon: trade remedies. Of just over 40 measures that are being carried over from the EU, 15 or 16 relate to steel, so we are probably more affected than any other sector in UK industry. Obviously the vast majority of that regime and how it will operate is dealt with by the customs Bill, so I will not dwell on it too much, but the Trade Bill is critical in establishing the Trade Remedies Authority as an independent authority that can act independently from the Department for International Trade.

The second element, of equal importance to the steel industry, is the continuity of trade agreements. There are a number of trade agreements, particularly with Turkey, that I would highlight as critical for establishing continuity with. Turkey is our third biggest export market after the EU and the US, accounting for 300,000 tonnes, which is about 8% of UK exports. The ability of the Bill to ensure that we can have as much of a continuity arrangement as possible with Turkey and with other, smaller export markets is paramount to the steel sector.

The other issues dealt with in the Bill are of lesser importance but are still worth commenting on. The UK steel industry obviously supplies public contracts in other countries, so ensuring that we are still members of the GPA after the end of this year is critical for the steel sector. In terms of data management and data sharing, there is already an issue that has come up during the transition period and the process before that. Ensuring that HMRC is able to share data with the Department for International Trade is extremely important to us, and I will touch on that later.

Photo of Graham Brady Graham Brady Chair, Conservative Party 1922 Committee

Q Thank you very much, Mr Warren. Mr Cranshaw, please introduce yourself and make any opening remarks you have.

Ian Cranshaw:

Good afternoon, Chair, and thank you for the opportunity to address the Committee today. My name is Ian Cranshaw. I am head of international trade at the Chemical Industries Association. The CIA has been around for over 50 years, and it represents and advises chemical and pharmaceutical companies located across the UK. Our core membership is a mix of chemical and pharma companies. They are all obviously treated as UK companies, but many of them are multinational companies using the UK as a base for their European and UK operations. We have small and medium-sized enterprises and MNCs.

Chemicals is a significantly enabling industry for downstream manufacturing. I think that most members of the Committee will understand that chemicals are a key ingredient in 96% of manufactured goods, so pretty much everything you see, touch, drink or use will have chemicals in it.

That is our intro. I am sorry—I did not really hear what you wanted me to focus on straight after the introduction, Chair.

Photo of Graham Brady Graham Brady Chair, Conservative Party 1922 Committee

We will move to questions now, Mr Cranshaw, but that is very helpful. Thank you. We will start with Bill Esterson, who is the shadow Minister.

Photo of Bill Esterson Bill Esterson Shadow Minister (International Trade)

Q Good afternoon, Mr Warren and Mr Cranshaw; thank you for joining us. May I ask you about the Trade Remedies Authority? How is the Trade Remedies Investigations Directorate, which is the TRA’s current form as part of the Department for International Trade, performing? How is it working with your organisations? Added to that, could you both comment on the proposed membership of the TRA and on what that should be? Richard Warren, would you like to go first?

Richard Warren:

Certainly. We have a very good relationship with the organisation, as it currently exists within the DIT. There is only one live case—a case on welded tubes that are produced in Corby by Tata Steel, which I believe has been live for three months now—and we have had very good engagement with the organisation.

One critical issue is our ability as a sector to participate in trade remedies investigations, and particularly to finance them. I do not think it will be any surprise to people in the room that those cases cost an awful lot of money, particularly at this stage, when, frankly, industry in the UK does not have the same level of expertise that our European counterparts do. Bringing in external legal support and external consultancy has been critical, and our ability to do that as a sector has been severely disrupted by coronavirus. To put it bluntly, discretionary spend within many manufacturing companies, including in the steel industry, has effectively been halted. I say that to point out that we have asked for an extension with the TRA, and it has been as flexible as possible in providing us with an additional three months. I provide that case as an example to show that we have a very good working relationship with it .

In terms of how well, practically, those investigations will operate on an ongoing basis, and whether we feel that we are getting a fair hearing, I cannot comment on that yet, in the sense that we really are at the very first stages of the first investigation. We have another two or three investigations to go through this year. If I was to comment again at the beginning of 2021, I would probably have a more informed opinion.

To touch on the second question, about the membership of the Trade Remedies Authority, that is an important point. I would say that it is probably the only outstanding issue specifically within the trade remedies element of the Bill that we would still be pushing for reform of. In terms of the non-executive membership selected by the Secretary of State and appointed by them and the chair, there is no stipulation about how, or where from within industry and wider society, those members will be chosen.

That is an important point, because nowhere does the Trade Bill, the customs Bill or the secondary legislation actually define the role of the non-executive membership of the Trade Remedies Authority. All reference to decisions by the Trade Remedies Authority— recommendations to the Secretary of State—are referred to as, “The Trade Remedies Authority will do x or y.” Precisely what the role of those non-executive members is is still somewhat vague.

I understand that the Government will have left it that way to provide maximum flexibility and to allow for the organisation to grow into its role and to find its feet. But, from our perspective as industry, while it remains vague, we can have anything, from the board or the non-executive membership merely providing an admin task—looking over the funding of the organisation, the remuneration of staff and so on—right through to it having influence on the recommendations that the organisation ultimately makes on anti-dumping and anti-subsidy measures.

Therefore, while we have that ambiguity, industry is keen to see representation from a cross-sector of business. Everything from unions through to manufacturing interests and people who may be classified as trade remedies experts, who may have a slightly different view on trade remedies to industry, should be represented on that organisation to show there is a spectrum of views.

Photo of Bill Esterson Bill Esterson Shadow Minister (International Trade)

Q Before I ask Mr Cranshaw to answer the same questions, may I ask a follow-up, Mr Warren? How essential is it that the non-executive membership is drawn from people in different sectors of industries affected by trade remedies? Can this be done by expertise, without having those backgrounds?

Richard Warren:

To a certain extent, it depends, ultimately, on the role of the non-executive membership. If the non-executive membership functions as a board providing steering for how the organisation operates on an admin basis, you could say it was less important. If the membership has a high level of influence over the outcomes of those investigations and the recommendations that are made, we would say it is extremely important.

On the same token, if the board membership was made up exclusively of trade lawyers from firms that have exclusively represented exporting producers, one would say that the outcome of those investigations may be biased. On the opposite end of the spectrum, if you had the entire membership made up of people who had a more protectionist bent, again, that may result in a biased outcome. While we have ambiguity around the role of the non-executive membership, industry will err on the side of caution and say it should represent a range of views so that it can come to a balanced decision on whether those measures are in the interests of industry and the wider UK economy and its workers.

Photo of Bill Esterson Bill Esterson Shadow Minister (International Trade)

Q Thank you. Mr Cranshaw, please respond to the same questions and expand on what we have just heard from Mr Warren.

Ian Cranshaw:

We started this journey back in January 2017. Previously, I would have said that policy has moved quite quickly—that was before coronavirus, where, obviously, policy has been delivered in a matter of weeks or months. However, I think some credit goes to the Department for International Trade, which has gone from a standing start, with a handful of 30 or so trade policy experts on trade defence instruments within the EU. Now, we have a significant and very capable resource in the Department. At the same time, when the Trade Bill passes, they will establish the authority, which will have 100, growing to 130, staff whose level of expertise has grown significantly over the last three years. We have seen many of them, and we have had good exposure to many of the employees of the Trade Remedies Investigations Directorate.

But the point I would make, and what that highlights, is that when they were developing that knowledge, who did they turn to for expertise and the nuance of how to carry out an investigation, how to assess the injury margin and how to build a case to prove that there had been inappropriate trade behaviour by a competing company or nation? That was really about turning to the manufacturers. One of our member companies has welcomed a continuous stream of TRID or TRA officials into their facilities, explaining how to build the case, because that case has to satisfy WTO criteria. It is a significant piece of work. Mr Warren mentioned the cost of building the case, and companies do not go into this lightly.

The second part of your question was about the make-up of the TRA board and how to achieve the balance. The Minister, Mr Hands, said that you do not necessarily invite people with a specific ideological position to the board—we really want trade experts. All that I would say is that trade experts are not necessarily trade remedy experts, and often that representation from the manufacturers or trade unions—some labour point of view; labour with a small “l”—generates and delivers real balance for any non-departmental public body that has to look at the entire scenario, certainly in a period when we are looking to build back better.

I am not going to keep stealing other’s summaries of how we are trying to work, but the Government have already said that they want to rebalance the economy and put more investment in certain areas. The chemical sector is focused in the north-west of England and the north-east, along the Humber—areas that require significant investment, and they need to know that they are competing on a level playing field. All of that, with a balanced view and a balanced board, would really help to ensure that all views and positions were reflected appropriately in policy development.

Photo of Bill Esterson Bill Esterson Shadow Minister (International Trade)

Q Thank you very much. While we are talking to Mr Cranshaw—others may want to come back on the trade remedy point—I wanted to ask about chemical regulations and whether you feel that there should be something in the Bill to cover them, given their importance to your industry.

Ian Cranshaw:

Sorry, I heard that the question was about chemical regulation. Was it about whether chemical regulation is covered in the Bill?

Photo of Bill Esterson Bill Esterson Shadow Minister (International Trade)

Do you think that it should be covered in the Bill? It is not, as it stands. Do you think that it should be, and why?

Ian Cranshaw:

There is an awful lot of work going on in chemicals, and the Government are keen to deliver a chemical strategy. That is something that DEFRA has covered over the past couple of years, and it is right that we have one. We have no issue with the amount of regulation on the chemical industry. We are dealing with sensitive products, and they ought to be regulated in the way that they are. Again, we have had a good hearing from the Government, but it is about the criticality of making sure that any deal with the EU—this is key for us—can include access to data sharing, because we do not need to replicate the testing of individual chemicals to build up a UK database when a perfectly functional database exists at the European Chemicals Agency. There is plenty of provision elsewhere for chemicals and chemicals regulations, and I do not necessarily think that it needs to be in the Trade Bill.

Photo of Katherine Fletcher Katherine Fletcher Conservative, South Ribble

Q I have the same question for both of you, with your respective hats on. You mentioned that the Bill has been knocking around since 2017. What happens to the chemical industry if we do not pass the Bill?

Ian Cranshaw:

That is probably me for me, because Richard is focused on steel. It is really important. We want a Trade Remedies Authority to be established, fully functioning and delivering support for UK industry from 1 January next year. Chemicals go into every other manufactured good. There are chemicals in the automotive sector; there are chemicals in chlorination of water; there are chemicals in putting the aroma into the natural gas that we all use in our stoves every evening. Chemicals does have downstream industries that will all be impacted, so we need a strong chemicals sector.

If I am honest, looking at remedies and chemicals, there are not a huge number of current remedies in place in the EU, so when the Department transitioned those remedies that were relevant to the UK, did a call for evidence and assessed exactly which remedies should be brought into the UK, of the 23 remedies that existed in the chemicals sector, only two were transitioned into UK law. I am not suggesting that it is a huge area, but it is a very significant area, and those two remedies that are in place are very important to those companies, and to downstream industries in the UK. One of them is producing fertilizer, and it is the major supplier of that fertilizer in the UK, so you can appreciate that its availability to UK farmers is absolutely crucial to their operations. If they were exposed to unfair trade from external operators, that really would be a significant loss to UK capability, especially when we are looking at supply chains and ensuring that our really critical production is safely onshored at the moment.

Photo of Katherine Fletcher Katherine Fletcher Conservative, South Ribble

Q Mr Warren, if there were continuity trade agreements that did not roll over, what would be the consequences for the steel industry?

Richard Warren:

There are a number of agreements that are obviously already in motion to be carried over. One to highlight is that north African nations like Morocco, and South Africa, are important markets for steel. It is a bigger concern that the agreement for one of the biggest markets for our UK exports, Turkey, probably will not be carried over, regardless of the Bill. Whilst the Bill would allow for it to be carried over—the steel element, without getting into too many dull details about the coal and steel free trade agreement between the UK and Turkey—it seems like it is an almost impossible ask now to get that carried over.

So that wider concern, that sits outside the Trade Bill, is a bigger one for us; it is a very important one. The Trade Bill would allow that to legally happen, but with politics and the complexities of negotiations, I fear, that agreement will not be in place by the end of the year, which would result in 15% tariffs, on average, on UK steel going to Turkey—8% of our exports. It is an extremely competitive market already; a 15% tariff would pretty much knock that on the head. At the same time, because the UK has no tariffs on steel, we would still have up to half a million tonnes of steel coming in from Turkey, but it would be a very uneven trading relationship at that point. That is probably our biggest concern at this point, in terms of continuity trade agreements.

Photo of Katherine Fletcher Katherine Fletcher Conservative, South Ribble

Q Understood. So the not passing of the Bill makes the situation impossible, probably, for certain—

Richard Warren:

Obviously, yes. If we do not pass the Bill, there is no way that the Turkish agreement can be passed, but there are other complexities on top of that.

Photo of Katherine Fletcher Katherine Fletcher Conservative, South Ribble

Understood; that is something to avoid.

Photo of Matt Western Matt Western Opposition Whip (Commons)

Q May I delve a bit further into the Trade Remedies Investigations Directorate? You were explaining, Mr Warren, about the one case going through, and some of the challenges in terms of expertise—that is, resource ability and capacity. To what extent do you think the Bill should be defining the scale of what a TRA should look like, recognising that, post this crisis, and given the economic headwinds globally prior to the crisis, there is a huge amount of pressure on Governments to reshore, with all that that will mean in terms of how Governments adhere to certain agreements? Maybe we can start with steel and go on to chemicals.

Richard Warren:

Certainly. As I said, the vast majority of how the trade remedies regime will operate—the responsibilities of the organisation itself, how it reports to the Secretary of State and so on—are dealt with within the Taxation (Cross-border Trade) Bill and the secondary legislation. There were still outstanding issues that we had with that legislation. Obviously, it has passed now, and we are working with the regime as it has been established. If we had an opportunity as an industry—we are talking about a hypothetical now—to strengthen the trade remedies regime, change elements of how it was operated, perhaps be more explicit in legislation about how those investigations are conducted, and change certain elements of the methodology, like dumping and how we treat certain non-market economies, that would be fundamentally best be dealt with in the Taxation (Cross-border Trade) Bill and the secondary legislation that supports it.

This Bill is fairly cursory in what it establishes in the trade remedies regime. Our key request at this point remains the make-up of the non-executive membership, rather than dealing with precisely how that regime operates. It really is the customs Bill that we would look to if we were making changes.

Photo of Graham Brady Graham Brady Chair, Conservative Party 1922 Committee

It was a slow burn, but I have to say that the witnesses have excited the Committee, and I am getting lots of people wanting to get in, so if everybody can try to be quite crisp in their questions and answers, it would be appreciated. Antony Higginbotham next.

Photo of Antony Higginbotham Antony Higginbotham Conservative, Burnley

This question is probably more for you, Mr Warren. When we talk about trade remedies and defences, a sector we always go to is steel. Has an assessment been made of the impact of not having a Trade Remedies AuthorityQ ? Has any assessment been made, for example, of the number of jobs that could be at risk if the body was not set up by 1 January?

Richard Warren:

As Ian Cranshaw noted earlier, we have been on this journey for quite some time. We first started having discussions on the possibility of a Trade Remedies Authority at the back end of 2016. At that stage, there obviously was uncertainty. I do not think the UK Government had thought about—no one in the UK had—the need to establish a Trade Remedies Authority. Obviously, after the Brexit vote in 2016, that became immediately apparent to the UK steel industry. So if there has been an assessment done, I suppose it was an unofficial assessment through the evidence that we provided and the discussions we had with Government, and it became evident that this was an absolute must and there was no question that the UK would need an authority. I am happy to provide further data or evidence to the Committee afterwards.

If you look at the impact that trade remedies have had on imports and on dumping into the UK, the evidence speaks for itself. It is clear. China was exporting perhaps 500,000 tonnes to the UK in 2015-16. That has been reduced to 100,000 tonnes because of the measures that have been in place on the key steel products that it was found to be dumping and that were subsidised by the Chinese state. If that had gone on—it was a major cause of the difficulties that the steel industry was undergoing in 2015-16, when we saw a major restructure of the steel industry and new ownership—and those measures had not come in, the situation would have been far more dire, and the modest recovery that the steel industry saw in 2017-18, which has obviously been knocked off course by recent events, certainly would have been far slower and far more fragile.

Photo of Drew Hendry Drew Hendry Shadow SNP Spokesperson (Business, Energy and Industrial Strategy)

Mr Cranshaw, on a comment you made earlier about a deal with the EU, including an agreement on data sharing, have you done any work on the implications, resources or costs of a failure to get such a deal?Q

Ian Cranshaw:

In chemicals, the REACH regulation is the key documentation, and that is stored by ECHA. We would accept that if you had to design a system now, it probably would not look a lot like what it does, but here we are 13 years after the ECHA database and the REACH regulations were introduced. UK companies alone have spent upwards of £600 million in furnishing that information on to the database, so you can appreciate the nervousness that, if we do not negotiate a deal with the EU that gives us access to that data, we will be back to a point where UK companies will have to rebuild a new database under UK REACH. There is no suggestion from DEFRA that we would move away from REACH. Globally it is seen as the gold standard for chemical regulation, so it is critical that we secure access to the data.

It is worth pointing out that UK companies are the second largest contributor of data to the information held on the ECHA database. Not only have our companies paid for the ability to use those chemicals, but, through their own innovation, research and capability, they have contributed significantly to the value of that database. It is crucial that we secure access to the data.

Photo of David Johnston David Johnston Conservative, Wantage

Q You touched on this, but I want to ask both of you: are there particular countries with which it is very important to you to have continuity agreements, with a financial value? We have talked largely about what the Bill protects, but what do you see as the opportunities of those continuity agreements going forward?

Richard Warren:

From our perspective, in terms of continuity—obviously, putting the EU to one side—the most important market is Turkey, with 300,000 tonnes and 8% of exports. It has a value of around £350 million. I can provide further details afterwards, if that would be useful. Without a shadow of a doubt, in terms of carrying over, that is the most important agreement.

There are other important markets, perhaps less for the sector as a whole but for individual companies supplying them. Manufacturing sectors in certain countries are very important, such as South Africa, Mexico and some of the north African countries I mentioned earlier. In terms of opportunity, we are essentially establishing what we already have, so it is difficult to see that there is a brand new opportunity. I wouldn’t say that it isn’t hugely important—we want to continue to trade with these countries and to make sure that we do not have a resumption of tariffs, but fundamentally the position is not going to be any different to what we currently have.

It depends on how you view the question. If you view it as, “If we don’t have this, you will have tariffs,” then there is a huge opportunity, because we would be in a worse situation than we currently are. If you view it from how we currently are, we are looking at exactly the same situation.

Photo of Graham Brady Graham Brady Chair, Conservative Party 1922 Committee

Mr Cranshaw, I think you wanted to answer as well. Mr Cranshaw? We may have lost the line. We only have about three minutes left. Would you like to ask the witness a question, Gareth Thomas?

Photo of Gareth Thomas Gareth Thomas Shadow Minister (International Trade)

Q What difficulties do you foresee in getting the Turkey agreement concluded by the end of the year?

Richard Warren:

Indeed. While it is not dealt with directly in the Bill, the complexity and complication around agreeing a deal with Turkey is that, obviously—sorry if I am teaching Members to suck eggs—it is in a customs union with the European Union. Once we have a trade deal with the European Union, we will have tariff-free access to the Turkish markets for things covered by the customs union.

Unfortunately for the steel sector, there is a rather antiquated agreement that just deals with coal and steel products. That would need to be replicated in addition for them to get access. As far as I understand from discussions with officials, it is not really on the table for discussion until an agreement with the EU has been established. Until we manage to get to that perspective, we are not looking at a replication of current arrangements and therefore it will be a 15% tariff, on average, for steel products going into Turkey. As I said before, we will not be putting any tariffs on steel coming in from Turkey, because we already have a zero-tariff position on steel. In a nutshell, that is the situation we find ourselves in. If you would like further information, we can provide it. [Interruption.]

Photo of Graham Brady Graham Brady Chair, Conservative Party 1922 Committee

Apologies for the bell, which is out of our control, as the sitting is suspended in the main Chamber. We are nearly at the end of the time allotted for this session. I thank both the witnesses and all the Members for being here. If Mr Cranshaw cannot hear us, we will make sure that he is subsequently thanked for joining us.

Sitting suspended.