Examination of Witness

Trade Bill – in a Public Bill Committee at 11:32 am on 18th June 2020.

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Sam Lowe gave evidence.

Photo of Judith Cummins Judith Cummins Labour, Bradford South 12:10 pm, 18th June 2020

Q We will now hear oral evidence from Sam Lowe from the Centre for European Reform. Sam, we are doing this remotely so you are on audio. I am Judith Cummins and I am the Chair of the session. I will not be putting questions to you but I will call Members forward to ask questions of you and inviting you to speak. For this session, we have until 12.35 pm. Can you introduce yourself, Sam? Thank you and welcome.

Sam Lowe:

Thank you for inviting me. My name is Sam Lowe and I am a senior research fellow at the Centre for European Reform, a think-tank. I am also a member of the Strategic Trade Advisory Group.

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

Q Good afternoon, Mr Lowe. Thank you for giving evidence. Can you talk us through your view of the Bill? Perhaps you could say a bit about the provisions on the GPA and the continuity trade agreements and how you see those provisions, whether you have concerns about them and whether there is anything you would like to see added to the Bill in either of those sections.

Sam Lowe:

The first thing that I should say is that I think the Bill is necessary; there is a need for continuity when it comes to the UK’s trade relationships with third countries. Looking at the provisions for the government procurement agreement, I can see why there might be some concerns about the powers given to the Executive to alter things in future, but I also understand why the provisions are there, in that the government procurement agreement will evolve over time, new members will accede to it and there will be a need to update it.

Specifically on the continuity agreements, there are a few points that I would like to make. First, I am not sure that the scope is fully understood, in that it maybe covers more agreements than people think. As well as the ones that we all know about, for example Chile, Jordan and the like, it also covers Singapore and, to my reading, Vietnam, which was signed by the EU in June 2019. That is something that should be considered.

When it comes to the broad categorisation of continuity, I have a few questions. I would probably recategorise the agreements. I would start with category 1, which is the pure continuity agreements where there are just minor changes to be made. I am thinking of Chile, Israel, Jordan, Lebanon, Faroe Islands and the like. I would also include South Korea stage 1 in that box.

My second box would be the agreements that are continuity agreements but will be substantially different from what exists within the EU. Those are the agreements with Norway, Iceland, Switzerland and Turkey, and I would probably add Ukraine to that box as well. Because the existing relationship is so contingent on our EU membership, there is no doubt that the future agreement we have with them will be substantially different from today.

The third category are just new agreements, because we have decided that they cannot be rolled over and we are set to renegotiate them. That would be Japan and Canada. I would also put South Korea stage 2 in that box, in that the South Korean roll-over agreement contains a commitment to consider renegotiating after three years, but it also contains a poison pill that means that we will inevitably have to, because the rules of origin provisions that allow for EU inputs into UK goods to continue to qualify for the agreement’s local content provisions expire after three years. In that case, it will be a renegotiated new agreement.

As to whether I think the Bill is appropriate in its coverage, I think for box 1—pure continuity with minor changes—it is fine. For box 2—continuity but with big changes—I would say that it is probably still fine. There are obviously some concerns that they will change substantially, but those agreements are ones where we probably need to prioritise continuity over all else. In box 3, to my mind, they are new agreements, so I am not sure why they will be covered by a Bill that is focused on continuity—particularly in the case of Japan, where we have seen new objectives and even statements that we want to go beyond the EU’s existing agreement.

I would conclude with the need to consider the counter- factual. What we are discussing here is not necessarily the whole trade agreement; we are discussing how we deal with the implementing legislation accompanying the trade agreement. If we think about what that covers in practice, we are largely just talking about procurement and perhaps some issues on technical barriers to trade—that is it. In practice, we are probably talking about fairly minor changes in this space.

In the grand scheme of things, I suppose the question we are asking ourselves is: would slowing this down for everyone in order to do this via primary legislation add sufficiently extra scrutiny on the whole? I am not convinced it would, considering that it is ultimately still a yes/no decision either way. Parliament is not going to change; it just has to decide whether it wants it. Here is where I think it speaks to the bigger issue, which the Bill does not address but is hard to ignore. I listened to some of the first panel, and they touched on it. Parliament’s role vis-à-vis trade policy is incredibly limited; it is largely an Executive competence. Parliament has very little influence over what trade agreements look like, and very little ability to object to them if it comes to it.

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

Q Thank you very much for such a comprehensive opening. I want to ask you about what is and is not a new agreement, but in the context of what has already happened. I think I am right in saying that something like half the agreements covered by the Bill have already gone through. Are there concerns about some of the things that happened in those agreements? As some agreements have already gone through without the Bill, is the Bill needed in order for the remaining agreements to be negotiated and to pass?

Sam Lowe:

The question of whether it is needed is a very good one. I am not sure I can actually answer it. You have just acknowledged that some of the agreements have passed. I suppose it is required, in that there might be a need to get some legislation through very quickly at the last minute if some of these negotiations drag on, so there is an issue there. Your first point was about what is in the agreements.

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

Q Are there any concerns about what has gone through in the agreements that have passed already?

Sam Lowe:

I cannot confess to have looked at the text of every single one, but one of the concerns that had been raised was that there was an issue about whether the tariff rate quotas will have been changed in a specific agreement. When I looked at Chile in this case, the changes that had been made did, to my mind, make sense. For me, the most interesting point about some of the continuity agreements is the approach to rules of origin, which I mentioned earlier. It is the process by which a product qualifies for tariff-free trade under a trade agreement, dependent on the amount of local value added. As the UK has an issue, which is that in many sectors we do not create enough local value added to qualify for free trade agreements under normal rules of origin-type provisions, we have inserted conditions that allow for EU inputs to continue to be accounted for—either indefinitely in the case with Chile, or temporarily with South Korea. That is not necessarily a concern, but it is interesting. It is actually quite a new approach to rules of origin, and the jury is out on whether it is WTO-compliant. I probably lean towards it being compliant, but I have certainly heard counterarguments.

Photo of Antony Higginbotham Antony Higginbotham Conservative, Burnley

Mr Lowe, that was really helpful, thank you. I want to turn to the Trade Remedies Authority, if I may. Can you outline your thoughts on whether there are any downsides to our having a Trade Remedies Authority and joining the global rules-based system? If we did not have one, what might be the impact?Q

Sam Lowe:

Sorry, you cut out at the end.

Photo of Antony Higginbotham Antony Higginbotham Conservative, Burnley

It was just about what the impact of our not having a TRA might be. Have you given any thought to that?

Sam Lowe:

We do need a Trade Remedies Authority. As it stands, this is dealt with at EU level, and when it comes to disputes over trade—be it because we are worried about unfair subsidies abroad, or worried about products being dumped on our markets or being sold at an artificially low price—we need a means to investigate and remedy them. In the interim, I believe the approach is that following our exit from the transition, we are just going to continue with the EU trade defence measures. However, those measures might not be justifiable if we are only taking into account the UK context, so they are all going to need to be reviewed.

I do have some concerns about the practicalities of the Trade Remedies Authority. First, I believe it has lost two provisional chief executives already, and it is still looking for a new one. Secondly, speaking as someone who comes from south Wales, from Llanelli—I am not an “everything needs to happen in London” person—I am not convinced that it was a sensible decision to put it in Reading and offer the salaries it does when it is trying to attract trade lawyers with vast amounts of experience. My fear is that it will create a false economy: we will end up paying law firms to do it all for us for a while as we build up the internal capacity, and then because of the pay constraints, the people who have learned how to do the job will be able to leap into these law firms to get paid a lot more. That may point to a broader problem with retention in the civil service.

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

Q Mr Lowe, thanks very much for coming this morning. Could you talk a little bit about the difficulties there have been in getting continuity agreements with Japan and Canada completed, and what big issues you expect to arise with these deals, which you described as effectively new trade deals?

Sam Lowe:

Canada is a long story, in that it links back to the previous iteration of the Government’s no-deal tariff schedule and its publication. When we put forward a tariff schedule that was very liberal and offered a lot of access to everyone, the Canadians looked at it and said, “We do not want to roll over any more, because you are giving the whole world for free what we had to pay for via our trade agreement”—remember, they also had to open up their market in that context. I believe that the more recent update to the new global tariffs has changed that calculation slightly on the Canadian side, and will lead to a renegotiation.

The reason that the Japanese were not able to roll it over from a domestic point of view was that from their perspective, they had liberalised their agriculture sector to a great extent over previous years—through their agreement with the EU, through the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and also through their more recent agreement with the US. If they were to roll the agreement over to the UK, they would be giving extra agriculture access to their market on top of all that, but for free. That was just not politically doable within the Japanese context, so it led to the need for this renegotiation.

Turning to the contentious issues, I suppose that with Canada we could return to some of the TTIP issues around investment all over again. That is also the case with Japan. I think both those deals are probably doable by the end of the year under certain circumstances, but you will notice that the UK has had difficulty replicating agreements with the bigger countries. It has not been so difficult with some of the smaller countries, but if you think about the ones that have not been done yet—Japan and Canada, but also Mexico and Ukraine—many of those countries want to be certain of what the future UK-EU relationship looks like, and what concessions the UK offers the EU, before finalising anything with the UK.

Photo of Judith Cummins Judith Cummins Labour, Bradford South

We have until 12.35 pm for this session, and three other Members want to ask questions, so it would be good if we could keep questions and answers quite concise.

Photo of David Johnston David Johnston Conservative, Wantage

Q Sam, this is a question I asked some of the witnesses earlier in the week, when we heard from representatives of the steel and chemical sectors and elsewhere. Do you think there are there particular countries with which it is especially important that we achieve continuity agreements, and particular sectors for which it is particularly important we achieve them?

Sam Lowe:

Yes. In terms of countries that require continuity, Turkey is quite a good example: we currently have supply chains that run out of the UK into Turkey and back. I think particularly the automobile industry has some exposure here. This is a really tricky one, in that we are currently in a customs union with Turkey via our membership of the EU and, unless we are in a customs union with the EU, which is obviously not Government policy, we are going to be unable to replicate that relationship with Turkey. When it comes to the future trade agreement with Turkey, at least on the tariffs level, the most we can expect is for it to match what we have agreed with the EU. That, of course, would be better than not having a trade agreement; but the benefit of being in a customs union is you do not need to worry about rules of origin. So all of a sudden this becomes a slight issue with Turkey, and it is why I put it in my second box earlier, of being a continuity agreement but with big changes.

Of course the other ones that really do, probably, matter are Switzerland and the EEA countries—Norway, Iceland—in that we have quite deep trade relations with them now, as we are part of the single market. That will obviously, again, change quite substantially because of our decisions over our relationship with the EU.

Another country that does matter, and I believe it has been resolved—I do not want to say certainly, because I do not have a list up in front of me—is South Africa, in that we actually have automobile supply chains that run through South Africa. There we have a different problem, in that it does not achieve the same for the companies as now; we currently export products to South Africa—inputs to South Africa under the EU-South Africa agreement— that are put into, say, a car there and then sold back into the EU under the preferences of the agreement, because the UK-based inputs can qualify as local to South Africa under something called bilateral cumulation. That will cease to exist under the new agreement.

The point I would make is that all the agreements are going to change. I have just, in my head, got three different categories.

Photo of Matt Western Matt Western Opposition Whip (Commons)

On the TRA, what is your view in terms of what structure it should be—you mentioned the two chairs that we have lost in a fairly short period of time—in terms of the make-up and the origin, and who approves their appointmentQ ?

Sam Lowe:

Having read the Trade Bill, I think the approach seems broadly sensible. I do not have it in front of me at the moment, but I believe the Secretary of State approves the chair; and then the chair makes a recommendation on the chief executive, subject to sign-off of the Secretary of State, unless the chair is not there, in which case the Secretary of State does it. I understand it is an independent body to the Government, but it obviously needs to have close ties with the Department for International Trade.

Photo of Fleur Anderson Fleur Anderson Labour, Putney

Q In terms of global best practice on trade agreements, if there was a ranking system, with nought being no parliamentary scrutiny at all and 10 being maximum parliamentary scrutiny plus civil society involvement, what score or ranking would you give the Trade Bill? What are the downsides of not having much parliamentary scrutiny? Can you give us examples of what things can be improved in trade agreements by more parliamentary scrutiny and involvement?

Sam Lowe:

Taking into account the current scope of the Bill, which is to achieve continuity, it is slightly unique in that sense. However, I agree with a comment by an earlier witness: if there is not going to be further legislation to lay down the scope for Parliament’s engagement in future trade agreements, it seems to me that it would be possible to expand the remit of the Bill to cover that. I think that is right, in that the Trade Remedies Authority and GPA provisions are forward-looking, so there is no reason why you could not do that as well.

The UK’s general approach to scrutiny is very poor. I think parliamentary scrutiny is very poor. Parliament has very little ability to influence trade negotiations or set the agenda of trade negotiations. To my mind, it has—[Inaudible]—yes/no vote. Just from a democratic point of view that seems slightly out of order to me, in that, when we compare it with the US or the EU, Parliament at the crudest level has a yes/no option on whether to approve a trade agreement or not. As a result it is much more involved with the process. That is something I should like changed. Of course that is not currently in the scope of the Bill, but if the Government are not going to introduce further legislation, I would understand if the scope of the Bill was expanded.

Photo of Fleur Anderson Fleur Anderson Labour, Putney

Would you give that a score, then?

Photo of Judith Cummins Judith Cummins Labour, Bradford South

Q Hi, Sam. Fleur is asking if you will give a score out of 10.

Sam Lowe:

The point I am making is that this Bill is not really comparable to other systems, in that it is sort of unique. To score the UK approach more generally to treaty scrutiny out of 10, it would be below five.

Photo of Judith Cummins Judith Cummins Labour, Bradford South

Thank you very much for giving evidence. If there are no further questions from hon. Members, I ask that we move on to the next panel. We are just waiting to get the technicalities sorted out, so we will suspend for a few minutes.

Sitting suspended.