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The Parliamentary Under-Secretary of State for International Trade (Mr Ranil Jayawardena)
It is a pleasure to serve under your chairmanship for the first time, Mr Paisley, and I welcome the hon. Members for Brentford and Isleworth (Ruth Cadbury) and for Airdrie and Shotts (Ms Qaisar) to their places. I should also like to thank my hon. Friend the Member for Harrow East (Bob Blackman) for securing this important debate and all Members who have been present this Thursday afternoon and made important contributions.
The hon. Member for Strangford (Jim Shannon) raised the question of why I had been away from the House in recent weeks. In his absence, but for the record, I should say that I have been away for a couple of weeks due to the birth of my son. [Hon. Members: “Hear, hear.”] Thank you.
That explains why the hon. Gentleman has not seen me in the Palace, but I am delighted to be back and discussing this important topic, because Britain is strongly committed to her trade and investment relationship with Israel, one of the middle east’s most dynamic and innovative economies. Israel is a key ally and friend to the United Kingdom. We share the same values and are key strategic partners in the middle east. The bilateral trade relationship is very strong, and we want to continue to work with Israel to strengthen our relationship as we emerge as an independent trading nation for the first time in 50 years.
Let me be crystal clear at the outset: we are strongly opposed to boycotts. Open, honest conversations best support peace efforts. The United Kingdom is very clear about this—always has been and always will be. We have also made clear our commitment to supporting the Abraham accords and to working with Israeli and Arab partners to promote our shared prosperity and regional security.
The continuity agreement that we signed on 18 February 2019 was one of Britain’s first. It replicated the scope of the EU-Israel agreement, with key provisions covering tariff liberalisation, customs, regulation and public procurement. This trade and partnership agreement, which entered into force on 1 January last year, secured the future of our bilateral trade relationship. Anglo-Israeli trade was worth £4.6 billion in the four quarters to the end of Q2 2021, making Israel—I am pleased to say that I agree with my counterpart, the hon. Member for Brentford and Isleworth—the United Kingdom’s 40th largest trading partner globally. The United Kingdom is Israel’s second largest trading partner, behind only the United States.
While it is difficult to disaggregate trade figures, it is certainly true—to respond the comments by the hon. Member for Strangford—that covid has depressed trade around the world, but that makes trade with Israel all the more important. Co-operation between us in sectors such as science and technology—and particularly medical science, which we have heard a lot about this afternoon—is already very strong, with Israel’s status as a start-up nation and the United Kingdom’s as a science superpower going hand in hand.
We have heard some great examples from so many colleagues, including my hon. Friend the Member for Harrow East. I was also particularly drawn to the examples given by my hon. Friend the Member for Southport (Damien Moore), which showed the huge scale of imports that we benefit from here in Britain, but we export to Israel too. We should not lose sight of that benefit to both countries. The London Electric Vehicle Company, for example, makes taxis in Warwickshire—I am sorry to say that to my hon. Friend the Member for Harrow East, although I am sure Members from Warwickshire will be pleased with that news. LEVC vehicle exports totalled something like £1.46 million in 2021—a year when trade was depressed because of covid—and the company anticipates purchases of something like £730,000 a month this year. That is just one example but, to the point made by the hon. Member for Brentford and Isleworth (Ruth Cadbury), as far as I am concerned, the sky is the limit.
As my hon. Friend the Member for Hendon (Dr Offord) said, around 500 Israeli firms operate in the United Kingdom. That investment from overseas is creating thousands of jobs in high-value sectors, and over 20 Israeli firms are listed on the London Stock Exchange or AIM—its alternative investment market—demonstrating the benefit and strength of capital markets in the City of London. Of course, we can always do more to assist the relationship, and I know that Ministers across Government will look carefully at the comments made by Members, including their suggestions on changes to the visa regime.
We can always do more to help businesses succeed, and the Department for International Trade is doing that right now. We have a dedicated team of trade advisers in Tel Aviv, and UK Export Finance has a risk appetite for Israel of at least £4 billion, which is helping firms operating from the United Kingdom to win contracts, insure their operations and obtain trade financing. The United Kingdom and Israel share a world-leading culture of entrepreneurial, tech-savvy and innovative businesses, which will be celebrated in an innovation summit later this year—a clear opportunity to highlight our ambitious trade, science and innovation relationship, and a chance to showcase the shared talents and skills of world-leading British and Israeli businesses. My hon. Friend the Member for Harrow East asked about what more we could do to enable binational approaches to research and development, and I am pleased to say that the UK Science and Innovation Network is already making great strides in that direction.
Outwardly, the stock of foreign direct investment from the United Kingdom to Israel was £1.4 billion as of 2019. We trade across a huge range of sectors, as I have said, but both our economies are also highly oriented towards services, which represent over 70% of GDP for each country. After the United States, we are Israel’s second-largest collaborator in pharmaceuticals and medical products, and the pandemic has catapulted the need for digital health solutions, with Israel already being the world’s leader in this area. It has therefore become even more important. Beyond that, we seek opportunities in business services, research and development, and professional and management consulting services—the biggest traded services between our countries, making up 12.5% of the overall trade relationship. Although our trading relationship continues to be predominantly goods-based, at around 65% of our trade, our economies are highly services-oriented, and I believe that huge scope for the future lies in our trade in services.
As two like-minded partners, with expertise in areas such as technology, innovation, data and digital, we are confident that the United Kingdom and Israel can agree an ambitious deal that will complement both our economies. On 29 November, the Prime Minister announced that we would begin talks with Israel this year on an enhanced free trade agreement. Given both the political and economic importance of our trading relationship with Israel, we expect the FTA to form a substantial part of our bilateral trading relationship. I should emphasise that Her Majesty’s Government are committed to scrutiny and openness in our FTA negotiations. We aim to be transparent, consultative and accountable throughout our trade agenda, and we believe we compare favourably with other parliamentary systems around the world.
On 2 December, the Secretary of State for International Trade announced that the United Kingdom would open our formal call for evidence very shortly. This call for input will allow the views of businesses, the British people, civil society and others—not only parliamentarians —to be fully heard during the mandate development process, helping us shape the negotiations for our comprehensive FTA. The specific coverage of the objectives for an FTA, as asked for by the hon. Member for Airdrie and Shotts, will be concluded following this call for input, to ensure that we have fully listened to the views of all British people, businesses and civil society. It simply would not be appropriate to speculate on the contents of such a call for input—and, indeed, on our objectives—before completing that work. However, I am pleased to be able to say that the Secretary of State plans to travel to Israel in early February.
We will publish our strategic approach, an initial scoping assessment and a Government response to the call for input before starting negotiations, giving the House the means to scrutinise our negotiation approach, its projected impact, what we have been told by British people and businesses and our response to their views. We will, of course, update the House in the usual manner after each negotiation round and when requested to appear before the relevant parliamentary Committees.
Jim Shannon
I must apologise for not being present when the Minister mentioned me. I have a private Member’s Bill tomorrow and the Minister responsible has been trying to catch me, so I had to speak to her. I just wanted to ask if, when those meetings are held with the Minister’s counterparts in Israel, we could have some indication of the input of Northern Ireland companies in that process? Obviously we want every part of the United Kingdom—all the regions—to benefit.
Mr Jayawardena
The hon. Gentleman can be absolutely assured that the views of every part of our United Kingdom will be fully taken into account. In fact, the Board of Trade recently visited Belfast to demonstrate our commitment to ensuring that the Department for International Trade works for every corner of our United Kingdom. The timings of the negotiations will very much depend on the readiness of both sides, which, of course, means agreement with the Israeli Government.
My hon. Friend the Member for Harrow East and the hon. Member for Strangford raised the potential opportunities that a future FTA might provide. While British businesses already benefit from our existing trade and partnership agreement and we would not, of course, want to prejudice the call for input, I believe the potential to take our trading relationship to the next level through an enhanced and improved FTA is very clear. There is the opportunity to remove or significantly lower tariffs for major British exports, such as in the food and drink sector. We see opportunities to give easier access for all British companies—whatever corner of the country they are from, and including small and medium-sized enterprises—to set up, do business and access the Israeli market.
There is significant scope to expand our trade in services, including digital services, which grew a remarkable 73%, albeit from a low base, between 2010—remember 2010?—and 2020. Co-operation in this area is, frankly, very limited in the existing trade and partnership agreement, and we see real opportunities for an enhanced FTA to supercharge the trade in services, which would complement our services-based economies, as we have discussed during the debate, and cement the United Kingdom as the international services hub.
My hon. Friend the Member for Harrow East and the hon. Member for Strangford asked how such an agreement would fit into the United Kingdom’s wider trade agenda. Of course, our potential FTA with Israel is just one component of our ambitious wider international trade strategy. As an independent trading nation, the United Kingdom has the freedom to forge new bonds of trade with partners, friends and like-minded souls worldwide, based on British interests and shaped by British priorities. We will continue to carefully plan and sequence our negotiation programme to ensure that it delivers the maximum benefits for the United Kingdom. No longer restricted by anti-competitive and protectionist one-size-fits-all regulation from the EU, the United Kingdom will pursue prosperity through free and fair trade with sovereign nations, based on our shared interests and underpinned by the agreements we are forging worldwide.
We have signed deals covering 70 countries, plus the EU, that account for more than three quarters of a trillion pounds-worth of trade, and we intend to continue that record of success in 2022. We have a clear and ambitious goal that will put global Britain in pole position to pursue new opportunities to connect British businesses to the most dynamic economies of the decades ahead.
The International Trade Secretary recently kicked off negotiations with India, one of the world’s largest and fastest-growing economies. We are looking to accede to the trans-Pacific partnership, one of the world’s largest free trade areas, and we have launched our consultation on a potential deal with the Gulf Co-operation Council. Of course, Members will already know that we have secured an agreement in principle with New Zealand and have finalised our agreement with Australia. Those deals are aimed at unlocking growth in every corner of our United Kingdom.
The hon. Members for Brentford and Isleworth and for Airdrie and Shotts raised the matter of the Occupied Palestinian Territories and their status in a potential FTA. The United Kingdom has an interim political, trade and partnership agreement with the Palestinian Authority, which entered into force on 1 January 2021, which we are committed to implementing. That will help protect our bilateral trade relationship, which was worth £24 million in the four quarters to the end of Q2 2021. We value our bilateral trade relationship with the Palestinian Authority and will continue to work closely together to build on our trade continuity agreement.
Dr Offord
Is the Minister aware that the Palestinian Authority themselves do not agree with any kind of boycott? In December 2013, the Palestinian Authority President, Mahmoud Abbas, stated:
“We don’t ask anyone to boycott Israel itself. We have relations with Israel, we have mutual recognition of Israel.”
Mr Jayawardena
I am delighted to have that contribution on the record. Just as we stand clearly against boycotts and support the Abraham accords, the United Kingdom’s position on the settlements is clear. Settlements are illegal under international law, damaging to peace efforts, and call into question, I am sorry to say, Israel’s commitment to the two-state solution. We have urged Israel to halt its settlement expansion, which threatens the physical viability of a Palestinian state. Britain’s view is that the settlements in the Occupied Palestinian Territories are illegal under international law, so they are not covered within the scope of our trade agreement. This means that goods imported from illegal settlements are not entitled to the benefits from trade preferences, and we remain committed to that approach. This shows that more trade need not come at the expense of our values.
The hon. Member for Airdrie and Shotts raised the matter of arms exports to Israel. Her Majesty’s Government take their arms export responsibilities very seriously. We do not want any British equipment to be misused, and we aim to operate one of the most robust arms export control regimes in the world, complying with all our international obligations. We consider all export licence applications thoroughly against a strict risk assessment framework, and keep all licences under careful and continual review as standard.
The Government will not grant an export licence if to do so would be inconsistent with the strategic export licensing criteria. Those criteria provide a thorough risk assessment framework for assessing export licence applications, and require us to think hard about the impact of providing equipment and its capabilities. These are not decisions we take lightly. We continue to monitor the situation in Israel and the Occupied Palestinian Territories closely and keep relevant licences under review. If necessary, we will take action to suspend, refuse or revoke licences in line with the criteria, but only if circumstances require.
The economic relationship between Israel and the United Kingdom is strong, based on the trade and partnership agreement that allows British and Israeli businesses, exporters and consumers to buy and sell freely and with confidence. Israel is a friend and ally in the middle east, with an innovative and dynamic economy. Tech, science and innovation co-operation between businesses of both countries continues to grow, with real benefits for consumers across our United Kingdom. Through an ambitious, forward-looking and comprehensive free trade agreement, founded on the strength of the Israeli and British economies, we look forward to developing and improving that relationship even further in the future as an independent trading nation.
Ian Paisley (in the Chair)
Mr Blackman, you have some time for your winding-up speech. You do not need to take it all.