Everyone knows that the Natural History Museum is one of the greatest visitor attractions of this nation. I am delighted to report that in fact, we were the most visited museum or gallery in the whole of the UK last year—and yes, we do have dinosaurs. Less well known is that we have a unique and huge collection of specimens from the world’s environment, and that we are a major scientific research institute with 350 full-time scientists and 170 doctoral students all working on that unparalleled database and in the field.
There is a problem. We know that life on earth started around 3.5 billion years ago and that life has spread to every corner of the land and sea. The fossil record also teaches us that over that vast period, there have been five occasions when almost all life on earth has disappeared. We call these “mass extinction events”: five occasions when dramatic changes in the environmental conditions—warming, cooling, ocean acidification—have wiped out almost all existing species, most recently, some 66 million years ago, when we lost the last of the dinosaurs.
The problem is that the evidence is telling us that we could be heading towards a sixth mass extinction—and this time an extinction that we are causing. The causes are quite well understood and are uncomfortably reminiscent of the last but one extinction event, some 200 million years ago, when exceptional tectonic activity created enormous emission levels of carbon and methane in the atmosphere and led to the loss of at least 80% of all species then on the planet. Does this sound familiar? This time, the emissions are again the root cause of dangerous climate trends, but this time, it is humans who have caused those emissions.
The loss of biodiversity has other causes too. Factors such as land use and pollution are equally, if not even more important to biodiversity degradation. Last year, ahead of COP 26, the Natural History Museum published its new biodiversity trends explorer. This uses satellite imagery to collect abundance data on plants, fungi, insects and animals all around the world. It shows for the first time how local terrestrial biodiversity is responding to human pressures causing land use change and intensification. We can now measure with increasing precision and detail what is happening to our environment essentially everywhere.
Our research continues, but it is already showing that the earth has only 76% of its pristine natural biodiversity still intact—well below the safe limit of around 90%, which is the broad consensus among natural scientists. Here in the UK, only just over half our natural biodiversity is still intact, placing us last in the G7 and in the bottom 10% worldwide, because so much of our land has been given over to sometimes marginal agriculture or monoculture conifer plantations.
At this point we might be tempted to throw up our hands and give up, but the crucial point is that this is a fixable problem. We have the science and the solutions, and we know that—given the chance before it is too late—environmental diversity responds and recovers quite well.
The UK Government have been forthright in calling for biodiversity loss globally to be halted and reversed by 2030. One of the most important tasks at Montreal will be to push for a set of clear metrics and targets to achieve this overall objective, analogous to the clear headline targets on emissions and carbon neutrality that have been embedded in the international discourse on climate change.
Inevitably, we have to act in our own backyard and not just on the international stage. That is why I support the Bill’s intent in setting clear, robust targets for the UK, even as it champions robust targets at the global level. Indeed, I suggest that we see it as our national objective by 2030 to be not bottom of the G7 but top of the class. Maybe that is ambitious, but it is profoundly important that the Government show clear and strong leadership in this national task. I look forward to the Minister’s response.
]]>All recognise the significance of services to the British economy: more than 70% of output and more than 40% of exports. The EU is collectively our largest market for services exports, with the US our second largest. There are a number of sectors, but three dominate: financial services, which we are not focused on this evening; professional business services; and tourism, those three accounting for two-thirds of all our services exports. The statistics probably underestimate the importance of services exports because many engineering manufacturing exports include a lot of services revenue. Furthermore, the trend everywhere is in favour of services. Services rise as a percentage of economic output almost everywhere, and there is as much opportunity to gain value through trade in services as there is in goods; that is, the arguments about comparative advantage that date back to Smith and Ricardo apply just as much in services as in goods sectors. What is more, the digital revolution will steadily increase the proportion of services output which is tradeable. There is, therefore, a lot to go for.
Sometimes, we tell ourselves that the UK has a special comparative advantage in services. It is true in that we are the second or third largest services exporter globally and have the highest percentage of services as a proportion of exports of almost any of our competitors. However, we should take care about this argument. First, the high percentage of services in our exports is due in part to the weakness of goods exports. Secondly, it is also distorted by the great importance of financial services, whose net exports account for 3% of GNP alone. Thirdly, the gap with Germany is in any case closing or almost closed. Fourthly, Asia will, over time, grow its services exports. In short, this is not just a matter of getting open markets and then we are up, up and away; no, we will have to work at it hard. Nevertheless, the future is good and probably better than for goods exports. Therefore, this is an important strategic theme for us as we chart our new course.
I want to make three brief points and then pose a couple of questions to my noble friend the Minister. The first concerns trade with the EU. As the noble Lord, Lord Whitty, has mentioned, we start with regulatory alignment, more or less, on day one. There are any number of commentators who would like to see us deviate from this as soon as we reasonably can. We hear phrases like, “We don’t want to move from being a member state to a vassal state” or, earlier, “This is our big opportunity to complete the Thatcher revolution”. It was a standard complaint of many sectors of British industry that we were shackled by bureaucracy that came from Brussels, gold-plated then by the UK Government and punctiliously enforced by a bureaucracy here which caused unnecessary cost to consumers and, in any case, created an unfair competitive advantage to other EU members who were not playing by the same rules. However, the dream that we can get away from regulatory alignment to any significant extent is, I am afraid, just a dream. It is not based on reality either as an accurate description of the past or as a vision of the future. It is not surprising that we now see industry after industry arguing for the importance of maintaining regulatory alignment in sector after sector with the EU. Why? Because the market there is critical and the regulations there are not going to change at the request and behest of the British. We will certainly have less influence—not none maybe, but certainly less than in the past.
Secondly, the Government’s ambition for a bespoke deal—Canada-plus-plus-plus, as it is often described—is broadly the right one. It is often noted by sceptical remainers that the Canadian deal has little in the way of services. It does not cover aviation; it does not cover broadcasting; it tackles overt discrimination against foreign ownership, but it does not tackle domestic regulation; and it has virtually nothing about regulatory convergence of any significance. I cannot say that I have skimmed all 450 pages in the way that the noble Lord, Lord Whitty, has, but it is clear that there is not much about services in the Canadian deal—hence the importance of the plus-plus-plus. Today’s news that both the Institute for Government and the Institute for Public Policy Research have produced ideas on how this might all work is very welcome, and I hope that the Government will take their ideas seriously.
I also recommend that we pay more attention to the EU-Japan deal. That started when I was the Minister for Trade and Investment. I remember how sceptical we all were at the time that much progress would be made, given the difficulty of the Japanese domestic market environment. In fact, it seems to have gone rather rapidly, and substantial progress has been made. There is still some way to go, of course, not least as this is a mixed competence deal which will require unanimity among the member states and will therefore be vulnerable to the Walloon effect. Nevertheless, it has clear potential. It covers business services, financial services, especially insurance, telecommunications, transport, distribution and courier services and it proposes the establishment of a regulatory co-operative committee which will methodically look through the different non-tariff barriers that exist on both sides and propose solutions. I believe that we should watch this carefully, because at the end of the day Japan is more important than Canada and this is the harbinger of future Asian deals, with China, with ASEAN and with India. New deals will be more and more about non-tariff barriers, about regulatory dialogue and about services: this is important to us.
Thirdly, in general we need to be realistic. Britain will largely be a rule taker in these discussions. In the case of the US, for example, TTIP is now stalled at best, and the mandate was a compromise, but we should be under no illusion that the UK alone will find it easier to deal with the US, particularly in areas that are of particular importance to us. Financial services is one obvious area—pharmaceuticals is another —where the US regulatory environment is particularly impenetrable. The truth is that neither the US nor the EU is likely to be up for any substantial regulatory change to meet our needs. We will largely be a rule taker vis-à-vis the world heavyweights: the US, the EU, Japan and, who knows, in times to come China.
That is why developments in the last couple of weeks give me the first inkling of optimism that we are heading down a sensible path. I thought phase 1 was a good deal. I make no comment on the budget settlement, of course, but I think the settlement on citizens’ rights in both directions is both good in itself and helpful to services industries. The Irish settlement, which involves “regulatory alignment” between the north and the south in order to keep the border as invisible as possible, provoked the inevitable backlash and the result is a parallel commitment to, to use the phrase, “the constitutional and economic integrity of the UK”. That is also good. It is clear what both those commitments amount to in terms of continued regulatory alignment between Britain and the EU.
As we move to the second phase, I therefore briefly ask my noble friend two questions. First, can he clarify this point? Assuming we leave the EU legally in March 2019 and that we have agreed a transition period by then, what will the UK’s status be in respect of existing EU-third country agreements at that point? If it is envisaged that the transition agreement will mean that these agreements are still in effect for the UK, does that have to be negotiated not just with the EU but with the third-party country as well?
Finally, we do not talk much about trade with Africa. It is not a substantial growth opportunity of magnitude at the moment, but it offers substantial growth over the coming decades. It is also a big development imperative, important in its own right and in geopolitical terms as well. I welcomed the announcement of the appointment of a trade commissioner for Africa, but I was disappointed that no reference was made in the advertisement or in the brief to development as part of the package. Trade is critical to development; development is critical to trade; and I would have wanted to see a reference to a development responsibility in the role of the trade commissioner for Africa.
]]>There is much to be saluted in those aspirations, even by one such as myself who believes that we should have remained in the EU. Apart from anything else, there is a fundamental difference between this approach—the approach of the new Brexit Britain—and that of Trump’s protectionist version of America. We did not hear at any stage in the referendum campaign rhetoric about cheap Chinese imports, for example.
I want to make a few points, all briefly—not least because some of what I was going to say has already been covered. First, the deep and comprehensive free trade agreement and the customs agreement with the EU will now be critical as the centrepiece of the Government’s strategy. As has already been underscored, this is unprecedented. It will be more ambitious than the ambitious Canadian agreement, the South Korean agreement and the Ukraine agreement—which we looked at in our deliberations. It will be different, too, from the Turkish association agreement. In a sense, “more than all of these put together” is the mantra. At the end of the day, it will be something sui generis.
Of course, unprecedented does not mean impossible. In fact, it has often been argued—there is clearly an element of truth in this—that the starting conditions make an agreement easier to achieve than was the case with any of the others that I referred to. We start, after all, from a position of considerable harmonisation, certainly in the goods markets and increasingly in the services markets, too. So, technically, the achievement not of convergence, which already exists, but of the avoidance of divergence should be easier.
Politically, however, it will not be straightforward. As has already been mentioned, from the EU perspective this deal cannot be as good for the UK as the status quo. If it were, others might be tempted to say, as Philip Snowden is reported to have said in 1931 when Britain dropped off the gold standard, “I didn’t know you could do that”. It will also be difficult for Her Majesty’s Government because the dispute resolution process will almost certainly have to involve in some way the ECJ—certainly on the EU side, there is no way to avoid that.
My second point has been made by a number of other noble Lords: there is close to no chance of accomplishing all this in two years. The Canadian deal took somewhere between seven and 10 years; the Japanese discussion with the EU is going surprisingly well but it is already into its third or fourth year and clearly will not be completed any time soon.
The complexities are enormous. They are not just about the short-term distractions of the EU elections and the high priority that will undoubtedly be attached by the EU to the budgetary questions and by all of us to the acquired rights questions. All these mean that that the process will take some time. On top of that, the trade discussions with the EU are inevitably related to other trade discussions—this is true on both the UK side and the EU side. The existing EU FTAs may be questioned by their counterparts. The South Koreans and the Canadians, after all, both signed deals with a market that included Britain. Will they want to review those agreements in the event of their no longer getting access to the British market?
Then there is the question of new agreements that are in process of negotiation now—I have referred already to the Japanese agreement, which is the most important case. The noble Baroness, Lady Armstrong, mentioned the north-east and its high export propensity per head. Those exports are very largely of cars to the EU market. Therefore, I am sure that the noble Baroness would want to join me in asking the Minister whether the Department for International Trade has given careful thought to the impact of a successful conclusion of the EU-Japan deal on the UK-EU discussions.
Thirdly, there is the all-important question of Ireland. We debated this at great length earlier this week, but, unlike everything else in the Brexit discussions on trade and investment, this is not just about commerce and could not be treated as one item in a shopping basket for a negotiation where, inevitably, trade-offs and compromises get made. It is of course about the peace settlement, and if it went wrong a human tragedy could result. Ministers have confirmed on a number of occasions that they attach a very high priority to the maintenance of a seamless, open, frictionless border on the island of Ireland. In responding to this debate, could the Minister confirm that this means that there are no circumstances in which we would sacrifice that question on the altar of a very good free trade arrangement in other respects?
Fourthly, the phased period of implementation in which the UK, EU and member states prepare for the new arrangements—to quote from the Government’s response to our report—has been commented on by a number of speakers. What is in a name? We might well ask. A rose is just as prickly by any other name. The fact is that this will take a considerable number of years beyond the two years of the Article 50 discussions. I wonder, in the company of a number of other speakers, whether the Government would not be better to say this outright and set a period— not an unlimited period but one, for example, of five years—during which there will be a transitional agreement and, knowing the direction of travel towards an eventual deep and comprehensive free trade agreement, discussions can take place in the orderly manner and over the timeframe they will need and necessarily take.
Finally, I will raise a broader and deeper issue. Global Britain will want to think of itself as a nation of traders. Indeed, we have heard that expression. We want to think of ourselves as outward looking and entrepreneurial, ready to take on the wider world. But, as of now, we are more what Napoleon said we were: a nation of shopkeepers. We have too few companies engaged in exports. We have market shares in some of the fastest-growing markets in the world that are behind those not only of Germany but of France and Italy. The growth statistics this week produced by the Office for National Statistics show how unbalanced the current growth pattern is in this country. We have a yawning trade and current account deficit, which has a long history. We have an import penetration problem such that the devaluation of sterling is blunted and tends to translate all too quickly into higher rates of inflation. Rhetoric will not change this and neither will monetary policy and fiscal rectitude alone.
We need to face up to one of the most basic lessons of the Brexit vote. Britain has lived for half a century with not only an increasingly unbalanced economy but an increasingly unequal society. These two trends are related. We have failed over decades to invest properly in the country’s societal future, above all through the education and training needed to enhance life chances and social mobility. Changes in the nature and structure of the economy in the latter decades of the last century played their part in this, and the radical change in technology that is likely to transform the economy over the next few decades will exacerbate the challenge.
The last generation saw the British economy become more dominated by services than that of any other major European country. Of course, others have seen manufacturing decline as a percentage of national output in the face of newly globalised competition—but none as steeply as Britain. As the share of manufacturing shrank from the 1970s onwards, apprenticeship training—the principal route into the good, intermediate-skilled jobs that are the backbone of any effective manufacturing industry—was allowed to wither on the vine.
The so-called hourglass economy has not done away with the need for intermediate skills. In fact, we are gradually building up a significant skills mismatch. An unbalanced and unfair system of preparation for adult working life has produced plenty of low-skilled workers and not enough intermediate-skilled ones, such that by 2022 on present trends, 9 million low-skilled workers could be chasing 4 million jobs while there will be a shortage of 3 million workers needed to fill some 15 million higher-skilled roles. In an underinvested economy that has seen no material growth in labour productivity, economic growth overall has failed to increase average prosperity and has been possible at all only because skills gaps have been plugged through immigration.
This is not sustainable and the social implications of these imbalances are certainly unacceptable. This is a complex problem with deep roots, both societal and economic. The Social Mobility Commission’s State of the Nation 2016 report documents in sobering detail how a disadvantaged start in life feeds through to weaker average educational performance from the earliest years onwards; less access to tertiary education; and less support for vocational development routes into adult working life and into a labour market where the supply/demand equation is increasingly weighted against the low-skilled.
Does this all seem irrelevant to the question of trade? I hope not, because it is actually fundamental to our long-term ability to succeed in trade. In other words, there is a lot more to the strategy for the successful development of the new global Britain in its trade position vis-à-vis the rest of the world than trade deals. Surely a major priority has to be a long-term, properly resourced skills education strategy. It is not easy. We have failed over several decades to do this well. We need—dare I say it?—to be prepared to learn from some of our European friends who do this so much better than we have done.
]]>The trade deficit has been there almost all the time since the 1960s. Hitherto we have had no trouble financing it, but it would be folly to assume that the markets are always going to be that kind to us. As the noble Lord, Lord Stoneham, indicated in his remarks just now, the deficit is becoming more deeply rooted. Traditionally, sterling devaluation every now and then helped us out of the crisis of the time, but each sterling devaluation has had less effect than the last one. Why is that? It is partly because of short-term responses. There seems to be a tendency for export prices to be held up in the foreign currency rather than to cut them on the back of a devaluation in order to gain share. On the import side, it seems to have resulted in a short-term depression of import demand rather than real domestic import substitution. In any event, over time the growth of supply chains has reduced the impact of a sterling devaluation because our major engineering names—household brands for all of us—which export world-class products from this country find that the import component has gone up over the past 20 to 30 years from around 30% to about 70% of their output.
The point is that this is a serious challenge and has been so for a long time, and there is good reason to believe that part of our challenge is to get more British firms involved in the export markets. Compared with some of our obvious competitors across the Channel, we have a smaller proportion of businesses engaged in the export trade.
Of course, we have recently increased dramatically the scale, complexity and risk of the challenge. We have put into question our ready access to the market that takes more than 40% of our exports. As my noble friend Lord Patten said, the EU does indeed have every rational interest in a reasonable deal with the UK going forward, but it will be complex to negotiate it. We have told ourselves that other markets will be ready and eager to negotiate trade agreements with us to replace the existing 50 or so EU agreements around the world under which we currently trade. We have told ourselves, too, that in the case of the big ones currently under negotiation—the United States, Japan and India—the counterparty is not only ready and eager, but will find it easier to negotiate with us because we do not have to balance the demands of 27 other member states against our priorities.
“O brave new world
That has such people in’t”,
I am tempted to observe, because now we are on our own. We have taken the challenge, we have made the decision, and now we need to deliver on the promises.
We have given ourselves some extra degrees of freedom—that is clear—but we have undertaken grave risks. We have seen sterling fall. As of yesterday it was at its lowest level against the dollar since 1985 and against the euro since 2013. On the face of it that is good news for British exports, but on the other side we have started to see anecdotal evidence of an investment slowdown, various announcements of decisions, particularly strategic decisions, being put on hold, IPOs being pulled, and evidence that we are moving into a period of uncertainty that will affect investment. We need to keep that period of uncertainty as short as possible.
It is too early to tell, as Zhou Enlai famously said about the French Revolution, how this will all play out—but it is not too early to reflect on the policy challenges and the trade promotion imperative that we now face. I will talk briefly about three things. The first is the policy challenge vis-à-vis the EU. Participation in the single market now becomes a trade policy and negotiation question. Essentially there is a spectrum of possibilities that will have to be looked at in the coming couple of years or so. At one end we have an arrangement that looks like the EEA—essentially for access to the single market but taking the four freedoms as well and the costs of contributions to the Brussels budget. It is worth noting under that heading that being a member of the EEA does not get you inside the common external tariff of the EU and that we will face, even under that regime, new customs procedures, proof of origin rules, and so forth.
At the other end of the scale we have the WTO rules which, however, cover only goods. If we set our tariffs with the EU at zero we have to generalise those around all the other markets—and that removes bargaining chips as we go into negotiation with them. I make these points simply to indicate that life will not be easy or straightforward in these negotiations.
We can look at in-between arrangements. Switzerland has attracted a certain amount of attention in recent days. That country has dozens of agreements with the EU. Its relationship is fractious and changing. It is worth noting that it does not yet have passporting arrangements for Swiss banks in the EU, and that the Swiss have put all of that in balance by their referendum in 2014 which voted to restrict migration from the EU. The standstill arrangement on that runs out next February, so we will see how the Swiss get on.
There are other models. People talk about the Canadian arrangement: the Comprehensive Economic and Trade Agreement. That covers goods and agriculture and deals with tariffs, quotas and subsidies but does not cover services which are, as a number of speakers have already pointed out, important to us. It is also outside the customs union and would have the same effect, therefore, as being in the EEA.
Not talked about enough is the Turkish option. It is inside the customs union and can still negotiate independently with third parties. The arrangements cover only part of its economy—notably its manufacturing and processing industries—and Turkey notoriously does not have free movement of people. That is a disadvantage in their minds which, I suspect, would not be a disadvantage in the mind of the British Government. I do not know what the way forward is; I merely stress the importance of sorting out this problem as soon as we reasonably can.
As for the rest of the world, we have to negotiate with those countries that are currently covered by the EU agreement. It is probably too easy to assume that they will be happy to sign the same thing with us independently. In the case of the Canadians, for example, that was a painfully negotiated deal, involving the provinces as well as the federal Government of Canada, which makes it complex on their side as well as on ours. We will see as we get into it how well we get on with these various renegotiations.
What about those countries where no agreement exists yet—notoriously, the United States, Japan, and China, the first, second and third largest economies in the world, by the way? Negotiating TTIP at the moment feels to all concerned rather like walking through treacle and we do not know how and when we will get out the other side. We have told ourselves that they will find it much easier to negotiate with us because they do not have to deal with the requirements of 28 member states—only with us. That is true, but we need to stare one uncomfortable fact in the face: that negotiation is all about services and regulatory convergence or harmonisation. Tariffs on goods are 3% both ways, and for the most part are relatively trivial. The services that we care about, in particular in pharmaceuticals and financial services, are ones where it is a particularly difficult negotiation on their side. We would be unwise to assume that the Americans will find an agreement with the UK easy to negotiate.
We are where we are, and the question, to quote one famous Russian politician, is: what is to be done? The most obvious point is that we need a huge increase in official resources devoted to this challenge. We should see this as almost putting the country on a war footing. I am told that there are about 20 people in the trade policy division in the Department for Business, which roughly coheres with my memory of it from a couple of years back. My suggestion is that we probably need to grow that at least fivefold or maybe tenfold as quickly as possible with people who are able, and who, as rapidly as possible, will be trained in the minutiae of trade negotiations.
On the trade promotion front, we should re-look at the question of the UKTI budget. It was slightly reduced in the spending round. It would seem rational to ask ourselves whether we should not reinstate an investment in UKTI and encourage an expansion of the partnership that has been developed between UKTI and business groups around the world—in some cases it is chambers and in others British business groups in what I think is now 37 countries. I suggest that we need to enhance those, be prepared to invest in them as strategic partnerships and not see them just as contractual arrangements. In short—I am conscious that I overrunning my time—there is a lot to be done. I look forward to hearing any comments from my noble friend the Minister on the way that we will resource this.
]]>path. I well recall appearing before the committee and being grilled closely on the details of the Government’s approach to the reform of UKTI and UKEF.
I shall make one general economic comment and three specific points about the continuing task. First, the economic point is in two halves, one a macro point and one a micro point. At the macro level we are clearly seeing a real economic recovery, continuing evidence of which was evident in the latest, first-quarter growth data. But it is also clear that we have to make a lot of further progress in rebalancing the economy if we are to achieve the ultimate objective of a more sustainable growth model for the British economy. None of us believes that growth is sustainable when it is driven too much by domestic demand and fuelled by debt. The fact is—we are all aware of this but we need to remind ourselves of it—that the trade account and, indeed, the current account more broadly, is still weaker than it should be. This has been the case for something like the past 40 to 50 years. Trade is not yet contributing properly and consistently to economic growth. In fact, it is still at best neutral and, more often than not, a drag on growth. So far we have not had a problem with financing that deficit but it would be folly to assume that that is always the case.
Therefore, at the macroeconomic level, there is a real, high-priority imperative to address this question of exports, particularly the role of smaller companies in the export performance of the country, to remove the vulnerability of our current account position and to achieve a more balanced approach to growth in the economy. I know that the Government recognise this and that they also recognise the importance of what might be described as the microeconomic imperative—that is, to get more companies, particularly smaller ones, into the international markets.
The evidence is clear and compelling. I used to cite it and make no apologies for calling attention to it again. A very impressive BIS study was done some two years ago but private sector studies also essentially demonstrate the same point—namely, that companies of all shapes and sizes in almost every sector which get into the international markets enjoy higher profitability, last longer, grow more and create more jobs. In other words, whether we look at this from a macroeconomic point of view or a microeconomic perspective, the conclusion is the same—we need to encourage more companies into the export markets.
I turn to my three specific points on the strategy. First, it is sometimes argued that all our focus should be on the emerging markets and on building the UK’s position and share in organisations such as ASEAN and in places such as China, the Middle East and what we might call the African lions, in recognition of the fact that six out of the 10 fastest growing countries in the world today are African. That is clearly undoubtedly important but it is wrong to conclude therefore that the EU somehow does not matter. We need to remind ourselves that the EU is a market of 500 million people. It may be growing relatively slowly but it is prosperous. As an aside, I think that it will surprise us by emerging on the upside in the coming year or two. Indeed, not all of it is slow- growing. Some of the east European markets in particular have many emerging
market characteristics. Last but not least, the EU is near at hand and getting into it involves lower costs. It is also easier to navigate than many of the emerging markets and is often the best place to start for a smaller company exporting for the first time. In other words, this is not a question of either/or, as it is sometimes presented, but of both/and.
That leads me to stress the importance of the single market and of broadening and deepening it. This complex topic is perhaps worthy of a debate in its own right on another occasion in this House. However, a quick stocktaking suggests that good progress is being made in goods. You can export a car to 28 markets without making any adjustments because of the standardised EU regulations applying to goods in the single market. On the other hand, I think we all recognise that we have a long way to go on services, and on the digital single market we are barely off the starting blocks with regard to EU-wide broadband, roaming charges, consumer rights across borders, collective rights negotiation and so forth. I strongly suggest that the task of strengthening the single market and making its development, management and governance more efficient should be very high on the list of priorities for the reform of the EU. That is an interest, by the way, which all members of the EU share; this should not be presented as just a piece of British exceptionalism. I hope that my noble friend the Minister will comment on some of the key milestones on this important journey which has so much direct relevance to SMEs and their export opportunities.
My second point is that whether we are looking across the channel or further afield, proactive and high-quality support for SMEs is clearly essential. We should recognise that UKTI now stands reasonable comparison with many of its peers in the relevant countries; I think particularly of countries such as Germany, France and Italy. What does not stand comparison is the quality of business support for business. The role of chambers of British business groups around the world is critical, and their performance has been varied. At their best they stand comparison, but they are too often little more than lunch clubs providing no meaningful support for incoming British small businesses. Yet, at their best, they can provide a really welcoming environment providing mentoring and buddying, sectoral working groups and office space. They can showcase that country back at home to small business here, and so on. This is what the Germans do. We should not always shamelessly imitate the Germans but in this case we should. We began a journey some 18 months ago to work with business groups to upgrade these presences around the world, and I know that the British Chambers of Commerce is very active in developing an international programme to this effect. There is a lively interest in linking up among the more energetic domestic chambers and a rising interest among their members in exporting—so we have some good traction. I should be grateful if my noble friend the Minister can comment on progress, the way in which the Government have been supporting that initiative, how he expects it to pan out over the coming years, and the implications for UKTI as it is enabled to move into a more strategic role in those overseas presences.
Finally, much, though not all, of exporting requires effective financial support. The Government have begun over the past couple of years to rejuvenate UKEF, broaden its project range, make it better known to SMEs, strengthen its marketing, strengthen its presence around the country, and provide advice to banks—I am sorry that it has to provide advice to banks, but it is none the less there and it does and should do so—and, of course, to its clients. Anecdotal evidence is that progress is being made but I am sure we all recognise that there is a long way to go. Again, I ask my noble friend to comment on progress in developing UKEF’s offering to small businesses up and down the land.
My final comment is one that may well provoke a wry smile on the faces of the civil servants in the Minister’s office, because it is one that I made often when I had the honour to be in his position. We have lived with a weak trade position for many decades, we have lagged behind our obvious peers, we have fewer companies engaged in exports than should be the case and we leave great export opportunities on the table. There are many good stories as well, though. Many companies in many sectors in all parts of the country have their tails up and are exporting energetically around the world. Achieving more balanced growth with stronger trade performance is critical to us all and is a major task for us all. Furthermore, I believe that it is a task that is non-party political and that we have to stick at, probably for the next 20 years. It is a task that is collective because it involves government, of course, but also businesses and business representatives—and we need to keep at it. As I said—to the point where my civil servant colleagues were, I suspect, bored with hearing it—this is a marathon, not a sprint.
]]>being held in the margins of the 9th WTO Ministerial Conference which is being held from 3 to
The Trade Foreign Affairs Council is being held in the margins of the WTO Conference to allow any essential business pertaining to the Conference to be finalised.
Negotiations are underway on a set of deliverables that could be agreed at the Ministerial Conference. Some of these form part of the Doha Development Agenda (DDA) and if agreed, would constitute the first multilateral agreement for twenty years. Some non-DDA issues are also likely to be agreed at the Conference for example the sccession of Yemen to the WTO
The Government’s objectives for the Conference are to:
• Reiterate our commitment to the multilateral trading system by pushing for an ambitious and balanced outcome to the Conference.• Support a political understanding on the text of an ambitious and legally binding Trade Facilitation Agreement.• Support agreement on a limited number of agricultural issues which would be of benefit to developing and Least Developed Countries. • Support the establishment of the Monitoring Mechanism for Special and Differential Treatment for developing and Least Developed Countries.• Support the WTO Ministerial Decisions on: the operationalisation of the services waiver for Least Developed Countries; preferential rules of origin for Least developed Countries and cotton.• Support the extension of the moratorium on charging customs duties on electronic transmissions and the extension of the moratorium on bringing non-violation and situation complaints under the Trade Related aspects of Intellectual Property Agreement.• Welcome the accession of Yemen to the WTO.
]]>The research commissioned included a framework to analyse the costs and benefits of investment protection treaties as a whole and use of the framework to assess the inclusion of investor-state dispute settlement provisions within the proposed EU agreements with China and with the US (the Transatlantic Trade and Investment Partnership). A copy of this research has recently been placed in the Libraries of the House.
]]>As part of our strategic relationship with Vietnam, we have committed to targets of US$4 billion of bilateral trade and US$3 billion UK investment in Vietnam by 2013. The Prime Minister has appointed Lord Puttnam of Queensgate as his Trade Envoy for Vietnam, and he recently led a trade mission to the market as part of UKTI’s “GREAT” campaign.
During his visit to Malaysia last year, the Prime Minister announced a commitment to double trade to £8 billion by 2016 and grow two-way investment and appointed the UK National Security Advisor Sir Kim Darroch as his Special Representative to Malaysia.
In 2011 UKTI established the UK-ASEAN Business Council (UKABC) to facilitate a step change in the UK’s level of trade with Southeast Asia. The UKABC has worked with more than 500 businesses over the past 12 months raising awareness of the commercial opportunities in the region.
Under the Overseas Business Networks initiative announced by the Prime Minister last year, UKTI is working closely with the British chambers of commerce
in Malaysia and Vietnam to help them build capacity to deliver more business-to-business support services on the ground.
The UK is also working within the EU to establish highly ambitious free trade agreements with ASEAN countries and is currently negotiating bilateral agreements with both Malaysia and Vietnam.
]]>This is an extremely important topic for us all and a very complex one. We have covered a lot of ground in this debate and I will find it something of a challenge to respond to all the questions and summarise all the themes in the allotted time. I like to think that I have come and gone to China over a long time but I am humbled by the fact that the noble Lord, Lord Watson, first went there in 1977 and the noble Lord, Lord Haskel, who first went there in 1978. I am a mere newcomer, having first gone there in 1983. However, I think the thought resonates with all of us that this is a society and an economy that is changing rapidly and profoundly, and will continue to do so. The challenge posed by this enormous, sophisticated and cultured country, and our engagement with it, is of profound importance to British society and the economy.
As China continues to grow, so do our shared interests and responsibilities. Our relationship is broader and deeper now than at any time in our history. As I say, China is changing fast. I could go on at length but one manifestation of that change is that Chinese companies are increasingly going global and are on their way to establishing global brands rather in the way that the Japanese did after the war and South Korea more recently. China will be next.
China is also becoming more sophisticated in its own research and development. It now files the largest number of intellectual property patents of any country in the world. Interestingly, there are more cases of IP theft going through Chinese courts than in any other country in the world—some 84,000 in 2012, only 2% of which involved foreign companies. .In other words, China has got to the stage where IP is an issue for Chinese businesses dealing with Chinese businesses, which I think means that we can take some comfort that the authorities mean what they say and intend to create a robust environment which protects intellectual property and stamps out corruption and fraud.
China is changing in other ways, too. The international role of China is changing profoundly, as my noble friend Lord Howell of Guildford so articulately explained. This is a country that is taking its place on the world stage. We often talk about an emerging power. It is not an emerging power; it is re-emerging, or retaking its place on the world stage. I like to remind my colleagues in business that in 1820 China had the largest economy in the world and, 200 years on, it will be the largest economy in the world again.
China is also a country with a deep cultural past. As the right reverend Prelate the Bishop of Guildford reminded us, and others echoed, this is a country with a long-standing philosophical and religious perspective. I have met some of the characters mentioned by the right reverend Prelate and they are very remarkable people. The authorities are very keen to see a harmonious development of Chinese society and recognise the role that faith groups can play, particularly in an urbanised environment.
That brings me to my next point. China is not merely changing fast but urbanising fast. The figures are enormous. A number of speakers cited figures in relation to aspects of China’s growth. China has the most of almost everything these days, and the challenge posed to it by urbanisation over the next 20 to 30 years will be the biggest for any country, except possibly India. Something like 50% of its population live in cities now, but this will increase to 60% in as little as 20 years’ time. The implications for urban infrastructure, urban planning and the whole economy are profound. The rapid transformation presents enormous challenges for the Chinese authorities. Sometimes I think that the popular impression of China is that the authorities sit in Beijing smiling quietly as more and more Chinese companies invest and take over the world. That could not be further from the truth. The authorities are very conscious of the significant challenges of developing a very complex and large society, and of the need to rebalance. They are well aware that at the moment the Chinese economy is too dependent on investment and exports and needs to rebalance itself.
They are also well aware of the issues in the rural areas: poverty, issues of land ownership, the flow of immigration into the cities, which it is increasingly difficult to control, and so on. Demand for products and services like healthcare and education is expanding very rapidly and will continue to do so for the next generation. On the plus side of these challenges, a middle class is developing with the same sort of appetite for branded goods that we all take for granted. It is, therefore, no surprise that, as has been quoted, Jaguar Land Rover now finds China to be its largest market. Some 80,000 vehicles were sold there last year, and the number is growing rapidly. It is the second largest exporter of cars to China after BMW. So there are lots of challenges and plenty of opportunities, too.
Two important themes have dominated this debate and I will touch on both of them. The first is education and culture. My noble friend Lord Dobbs spoke about Chinese language tuition in schools and universities. I share his view of the importance of increasing the sensitivity of the younger generation in this country to Chinese, which is about both Chinese studies and Chinese languages. I am very pleased to report that my grandson is, almost exactly at this moment, doing a presentation on the warring kingdoms period of Chinese history. So he is being made to learn something about that great country.
The Government are committed to the learning of languages, including Chinese, in schools and universities. We undoubtedly start from a low base in the case of Chinese, but in 2013 the number of students entering for a GCSE in Chinese increased by 20% compared to
the previous year and there were more than 3,000 A-level entries. It is a low base, but at least the direction of travel is right. In higher education, language study is about choice. We have seen some shifts towards languages that will better support employment outcomes in growth economies, including Chinese. In 2011-12 the number of students at UK higher education institutions taking Chinese studies was 1,870: a small number, again, but the direction of travel is good. It is important to note that there are many students not studying Chinese who increasingly get a component of Chinese studies as part of more multidisciplinary programmes. There are Chinese centres at Sheffield and Nottingham, to name but two.
There is plenty of work to do. My noble friend Lord Lexden and others, including the noble Baroness, Lady Dean, also pointed out the importance of education, not just at university but at school level. We recognise the importance of schools introducing children to Chinese at a young age and also the importance of being open to Chinese students wanting to come here at secondary and tertiary level. Another aspect of this is the importance of the engagement of British universities and other colleges in China. The noble Baroness, Lady Dean, referred to the work of Nottingham Ningbo. There are a number of other British colleges and universities: Dulwich College in Shanghai is just one of them. There are now some 230 research partnerships between British educational institutions and Chinese ones. We cannot be complacent about this. The noble Lord, Lord Stevenson, reminded us that the Chinese are rapidly upping their game and the old-fashioned notion that we have all the expertise and they have all the need is, frankly, behind us. We should recognise these as joint experiences: partnerships where we learn together about matters of importance to both our economies and societies.
There is plenty of competition in the English-speaking world. As my noble friend, Lady Warwick, said, the Australians have learnt the lessons of some of their mistakes. We must make sure we have a supportive approach to letting Chinese students, and others, into the British education system. We need to minimise the impact of immigration rules on universities. I have been asked in this House before whether I would take up the question of excluding students from the immigration numbers. In response to that suggestion, I have taken it up and am happy to have another go.
Another theme that came up repeatedly, not entirely unrelated to education, is visas. The noble Baroness, Lady Valentine, and others, drew attention to the ease with which you can get a Schengen visa. There is some mythology around the numbers of these visas and where people actually go. In his opening speech, my noble friend Lord Dodds said that seven times as many Chinese visitors go to France as to Britain. This is actually quite difficult to verify. One hard figure we do have is the number of visas issued. In 2012, the French issued 277,000 visit visas and we issued 210,000. So they issued one-third more than us rather than seven times more.
Chinese exit data on first destinations for Chinese travelling abroad show that the UK was the top European destination in 2010 and second to Italy in 2011. My general point is not that we should be complacent but
that the numbers are quite hard to pin down. It is plain that we need to expect more and more Chinese visit visas over the coming years, both for tourism and for business and educational purposes. Specifically, we expect the number of visa applications to top 1 million by 2017. To facilitate that, and the processing of this very large increase in the number of applications, we introduced a number of measures.
Last month, in Beijing, the Chancellor of the Exchequer announced measures to streamline and simplify the visa process for Chinese nationals who want to visit the UK for business, study or pleasure. This includes plans to open a 24-hour visa service and streamlining the UK and Schengen visa application process. As the noble Baroness, Lady Valentine, pointed out, the Schengen process itself is moving—or so they claim—to biometrics, which will level the playing-field. I hope that we will increasingly be able to provide, in effect, a one-stop-shop service for Schengen and UK visas. We will, of course, always be left with the greater flexibility of Schengen. I suspect there is no one in this House who would argue for us joining the Schengen accord at the moment.
We will do our best on visas and I assure noble Lords that the Government recognise the importance of ensuring that the process works as seamlessly as possible. The forms are now in Mandarin, which was a good start. We now have more offices around China: more than the Schengen area does. Progress is being made in discussions with Schengen about how to converge the two processes as much as possible. I noted comments from a number of noble Lords on the importance of ensuring that the visa entry rules for both students and business are as business-friendly and education-friendly as we can make them. I am always happy—and so is UK Trade and Investment, the office which I oversee—to discuss any problems that specific institutions or firms have with getting people in, within the context of the overall policy. We are plainly not going to throw the whole policy up in the air but we need to make sure that, in practice, it works for business as seamlessly as possible.
I turn to inward investment, which is a very important topic for the economy in general. It is a great and long-standing competitive strength of this country that we are open for inward investment from all countries in the world. It is very difficult to imagine a number of our obvious competitors being as sanguine as we are about investment in, for example, the water supply of the national capital. Some 9% of Thames Water is owned by the Chinese sovereign wealth fund, as is 10% of Heathrow. We welcome these investments. We also welcome the deal announced by EDF in respect of Hinkley Point C, which is a good deal for this country. The entire nuclear industry, irrespective of who is investing in it and who is building it, needs to be properly regulated, for all the obvious reasons, but we are committed to the importance of nuclear as part of the energy mix. We have to invest substantially over the next 10 to 20 years in nuclear rebuild and we should welcome the involvement of foreign direct investment—including from China—so long as it is properly regulated and overseen.
The noble Lord, Lord Haskel, mentioned Chinese banks in London. The fact that we offered to allow
them to operate through branches, as opposed to subsidiaries, does not mean that we are not going to regulate them, although they are, of course, regulated by the authorities in Beijing—not in Shanghai, incidentally—which would be the case whether or not they were subsidiaries or branches. They will also be regulated by the Prudential Regulatory Authority, whether they are subsidiaries or branches, according to the highest standards that the PRA thinks fit. I am very happy to assure the noble Lord on that point.
Huawei has already been discussed and I am not sure that I have anything useful to add to the exchange that has already taken place. I know the managers of that company, both here and in Shenzhen. I believe that they are committed to doing good business in this country and are certainly investing and building up the skill base in the way that my noble friend Lady Wheatcroft mentioned. All Members of the House will be aware of the security arrangements that are in place and are currently subject to review, following the report from the Intelligence and Security Select Committee.
I turn to exports, which are the other side of the coin. Every speaker has referred to the fact that we have a long way to go on this. We start from a low base and market share. I have always found completely unacceptable the notion of being behind not merely Germany, which is possibly understandable, but France and Italy. The good news is that we have now overtaken Italy. The good news is also that we have grown faster than all three of those countries for the past three years, but this is a long journey and we have to keep at it.
The importance of building relationships and making long-term commitments is something that everyone has underscored. It is true everywhere but it is certainly true in a country like China. Businesses need to spend time and need help. When it comes to small businesses, which were referred to by a number of noble Lords, it is important for the British Government to ensure that the role of UK Trade and Investment, working in partnership with the China-Britain Business Council, is as effective as possible in supporting those who make that journey by de-risking the decision for them and helping them to attend trade fairs. I am pleased to report that we have increased the number of resources we have on the ground in China, not merely in Beijing but around the country. We have increased the amount of money available for attendance at trade fairs and, by the way, we have increased the number of trade advisers in this country.
In respect of finance, we have substantially revamped UK Export Finance; it is not now the case that as few companies have been able to access UKEF as the noble Lord, Lord Stevenson, referred to. Indeed, its business is growing rapidly and I have asked it to triple its book over the next two or three years. I am afraid that I shall not be in office to see this happen but will be cheering from the sidelines. UKEF is now on the way and the momentum is clearly there. It now has more than £1 billion of support for small businesses, compared with almost nothing three years ago. So the direction of travel is there. We need to keep at this. It is a long journey, and we need to keep investing. I have mentioned UKTI and UK Export Finance.
In response to the noble Lord, Lord Wilson, I should like also to refer to the capabilities in the Foreign Office. We have 60 new staff working across the network in China, a third of them focused on less well known provinces and second-tier cities. I was recently in Wuhan, a city that we the British have neglected; the French are the dominant foreign presence there and we need to put that right. What is true of Wuhan will, frankly, be true of dozens of other cities. We have a long way to go. We have been investing in language training in the Foreign Office. I have some numbers somewhere that I cannot find, so I will write to the noble Lord, Lord Wilson, with the details. We have substantially increased the amount of Mandarin training in the Foreign Office because we fully endorse the notion that its officials are at their most effective if they can speak the language.
I will respond explicitly to some of the points made by the noble Lord, Lord Stevenson. I do not have the time to discuss Britain’s industrial strategy, except to say for the record that we the coalition believe that it is a coherent strategy that is bearing fruit, and we need to stick at it. We need to invest in the skills that equip the next generation to succeed in a competitive world. There is no turning back from this globalisation. There is no turning back from the challenge of ensuring that education and apprenticeship systems work correctly, that we connect up research and development at university level with businesses and that we invest in appropriate partnerships in key sectors. The sectors involved for the British economy are very wide—all the way from advanced manufacturing and aerospace, through IT, the creative industries and practically every sector in between.
Perhaps I may conclude with just 30 seconds on Hong Kong, as my time is up. Hong Kong remains extremely important to the British relationship with China generally, as well being important in its own right. I had the great honour of living in Hong Kong when the noble Lord, Lord Wilson, was governor there, and I have seen it change rapidly over the years. The closer economic partnership agreement is in place between Hong Kong and the mainland, which means that a company operating in Hong Kong can do business in the mainland without further restrictions, and several hundred British companies in Hong Kong have the opportunity of building their business in the mainland through the Hong Kong gateway. It is a very important asset in terms of the competitiveness of British businesses in China, when compared with that of our European counterparts and others.
Finally, I come back to the importance of this debate. No country is strategically more important to us than China. This is a long journey forwards in the relationship. It is a complex country and there are massive opportunities. Of course there are many political and economic challenges on the way through. The dialogue needs to be open, honest and continuous. Given that two or three of your Lordships quoted Mao’s saying that the longest journey begins with a single step, I should like to add another: this journey is a marathon, not a sprint.
]]>A final decision on Ministerial attendance at the Commonwealth Business Forum has yet to be made.
]]>on the UKTI website at: http://www.ukti.gov.uk/uktihome/aboutukti/ourperformance/performanceimpactandmonitoringsurvey.html
]]>I and Sir John Cunliffe (UK Representative to the European Union) represented the UK on all the issues discussed at the meeting. A summary of those discussions follows.
Financial Responsibility for Investor State Dispute Settlement
The Presidency reported that their compromise text had been adopted by Member States during the previous week and would now form the Council position for negotiations with the European Parliament and the European Commission.
Eastern Partnership Summit
The Presidency highlighted the importance of strengthening the EU's economic links with Eastern Partners. They would therefore include Deep and
Comprehensive Free Trade Agreements with Ukraine, Moldova and Georgia as part of wider Association Agreements with those countries and present these at the Eastern Partnership Summit in November.
Member States agreed that, provided the relevant political obligations were met, the Ukraine agreement could be presented for signature and those with Moldova and Georgia for initialling.
Adoption of the EU-China and EU-ASEAN Negotiations on investment
Council adopted the Presidency's compromise mandates on both the China Investment Agreement and Association of South-East Asian Nations (ASEAN) Investment Agreement without debate.
Declassification of the EU-US Transatlantic Trade and InvestmentPartnership (TTIP) negotiating Directives
The Presidency reported that there was no consensus in favour of declassification of the TTIP mandate. Therefore the mandate will remain a classified EU document.
State of play on preparations for the IX World Trade OrganizationMinisterial Conference (Bali, 3-
The Commission reported accelerated progress in Geneva since September; new WTO DG Roberto Azevedo was bringing energy to the negotiations. EU Trade Commissioner Karel De Gucht underlined that considerable effort would still be required to secure agreement at December's Ministerial Conference in Bali. In the debate the UK was joined by other likeminded Member States (Sweden, the Netherlands, Denmark, Malta) in urging flexibility in order to secure a deal and in highlighting the economic benefits to the EU.
China anti-dumping measures on wine
The Commission felt the case was politically motivated, providing the Chinese with balance in the face of other high profile disputes and the upcoming investment agreement negotiations. Progress had been limited since the summer, when China agreed not to introduce duties before the end of the formal investigation period in June 2014. At the EU-China High Level Economic and Trade Dialogue the Commission would insist on starting formal negotiations, and would push hard to reach an early resolution.
Lunch: TTIP and Japan negotiations; Canada
Ministers received an update on both the TTIP and Japan negotiations over a private lunch which otherwise concentrated on the Canada deal which was being simultaneously concluded by President Barosso and Canadian PM Harper in Brussels. This long awaited conclusion was unanimously and warmly welcomed.
]]>The European Commission negotiates the deal on behalf of Member States. I will be acting as Vice-Chair at the 9th Ministerial Conference in December, which is a signal of the UK’s commitment, and I will do everything possible to help ensure an ambitious deal is achieved.
]]>domain. On trade-restricting measures specifically, World Trade Organisation (WTO), Organisation for Economic Co-operation and Development (OECD) and United Nations Conference on Trade and Development (UNCTAD) produce regular monitoring reports on performance against the anti-protectionism pledge first agreed in 2008 and most recently extended to 2016 at the St Petersburg Summit in September. The EU and its Member States, including the UK, provide information on trade restrictive and facilitating measures for this report. The latest and all previous reports can be found at the following link:
]]>The Home Office does not provide financial support to arms fairs but does give some logistical assistance to the organisers of arms fairs by: (i) providing advice in conjunction with the police on the security measures required at the event; and (ii) processing the delegates’ applications for the Secretary of State’s authorisation under section 5 of the Firearms Act 1968 (as amended). UKTI Defence and Security Organisation (DSO) also provides support to the major defence exhibition held in the UK on a biennial basis, Defence and Security Equipment International (DSEI). At DSEI costs associated with hosting official overseas delegations invited to attend by the Government were met by the commercial organisers.
UKTI DSO part-funded a UK Capability Showcase which is expected to cost around £86,000, which will be offset mostly by income from industry in support of the showcase, and for other support. No direct costs, other than staff time and related staff travel expenses, are incurred on hosting official delegations. For the other UK exhibitions that UKTO DSO supports, Farnborough International Air Show and Security and Policing, DSO’s assistance is generally limited to staff time and travel expenses incurred on hosting official delegations.
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