Taxation (Cross-border Trade) Bill (Fourth sitting)

Anneliese Dodds Excerpts

Thursday 25th January 2018 Public Bill Committees

[Mel Stride]

Current trading partners and others. Obviously, as an EU member, we are bound not to enter into any other arrangements prior to our departure, but I am confident that we are having appropriate conversations at this stage of our withdrawal.

In addition, as set out in the trade White Paper, after leaving the EU, the UK will have the opportunity to

“look to forge new and ambitious trade relationships with our partners around the world”.

Clause 9 provides a basis for those aims.

The clause enables the UK to implement preferential import duties on goods originating in territories covered by a preferential arrangement. That will cover arrangements made bilaterally with a Government of another territory. A recent example is the comprehensive economic and trade agreement between the EU and Canada.

The Bill refers to making arrangements to allow preferential rates of import duties to apply before an agreement is ratified. That is common when implementing FTAs and is the case under the comprehensive economic and trade agreement, which has been provisionally adopted but is not yet fully ratified.

The clause will also enable the UK to continue to provide preferential tariff treatment to those British overseas territories, including the British Virgin Islands and the Falkland Islands, that currently receive that access under the EU via the overseas association decision.

As I was looking through new clause 2 during the hon. Member for Bootle remarks, my eagle eye spotted what I think is an error. Although subsection (1)(a) of the new clause would do what is intended—that the first regulations to be made under clause 9 will be subject to the provisions of the new clause—the explanatory statement and the points made in his speech suggest that subsection (1)(b) should relate to instances where there has been a lowering of import duties. In fact, as currently drafted, subsection (1)(b) refers to

“the effect of which is an increase in the amount of import duty”.

I can only imagine that that is a drafting error or has been lifted from new clause 1, which does refer to the increase in import duties. However, I fully understand what the hon. Gentleman intended, and I will deal with new clause 2 on the basis of its intention and of the way in which he describes it in the explanatory statement.

The new clause would put in place an additional parliamentary process for regulations giving preferential import duty arrangements to other countries. As I previously set out, for indirect tax matters, it is common to have framework primary legislation supplemented by secondary legislation. The Bill introduces a comprehensive framework for a new stand-alone customs regime. It ensures that the scrutiny and procedures that apply to the exercise of each power are appropriate and proportionate, taking into account the technicality of the regulations, the frequency with which they are likely to be made and how quickly the law may need to be changed.

Clause 9 allows the Treasury to give effect to the tariff section of trade arrangements once they have been negotiated. It is therefore appropriate and proportionate for the negative procedure to apply. Any delays in implementing preferential duties in trade arrangements could have significant impacts on UK supply chains or exporters who rely on the arrangements. As set out in the trade White Paper the Government are considering how to ensure that the process for negotiating new trade deals is transparent, efficient and effective, and we will ensure that Parliament is engaged throughout.

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a pleasure to see you in the Chair, Mrs Main. I have a couple of questions for the Minister. I am grateful for his comments. He seemed to suggest that the appropriate time to consider these matters might be at the time of ratification of any preferential trade agreement and that the provisions are merely enabling. How will we be able to scrutinise at that stage? Will we be able to have a developed and involved discussion at that stage? My understanding is that we would not be able to do that.

In his opening remarks—perhaps this is unfair—the Minister referred to the existing preferential trade arrangements that we have with the overseas territories and the EU and those between the EU and other countries, but, as many others have mentioned, we could be concluding new trade arrangements, particularly with the US, and there are all the concomitant problems that that might cause as well as potential opportunities. Have the Government considered whether the scope of the clause could be reduced so that it relates only to areas where we already have preferential trade arrangements?

[Mel Stride]

There are a couple of important points to make here. This particular clause enables the Government to put into effect the tariff-related elements of an FTA, for example. When it comes to the points that the hon. Lady understandably makes about treaties that we may enter into with other countries or with countries with which we already have existing arrangements that we wish to continue on our departure from the European Union, those kinds of debates and issues do not rest within this clause. As the trade White Paper sets out, they rest with the Government whose duty it is to make sure that we consult during the negotiation of those treaties so that we conclude them in an appropriate manner.

[Anneliese Dodds]

I find that very helpful because it has clarified that there is not a detailed parliamentary process for us to consider the matters that are covered by the clause. We believe that they will not be scrutinised in an appropriate and thoroughly democratic manner. Also, there will not be much opportunity for parliamentarians to engage with the issues raised by free trade agreements.

[Mel Stride]

I do not think my response to the hon. Lady earlier suggested that there would not be any parliamentary scrutiny of the provisions in clause 9. Indeed there will be, as she knows. If we are going to change duties or introduce tariffs, such matters will be subject to secondary legislation and statutory instruments in the normal manner.

[Anneliese Dodds]

I did not say “any”. I said that there would not be scrutiny of the type that is necessary and of an appropriate thoroughness, which would not be of a one-shot nature whereby it is difficult to have the kind of debate that we all think is necessary, given the impact that the provisions could have on major sectors of our industry.

Question put and agreed to.

Clause 9 accordingly ordered to stand part of the Bill.

Clause 10

Preferential rates given unilaterally

[Kirsty Blackman]

I beg to move amendment 108, in clause 10, page 6, line 35, at end insert—

“(1A) The Secretary of State must consult on a proposed version of any regulations to be made under this section before making them.”

This amendment requires the Treasury to consult prior to making regulations establishing preferential rates for developing countries.

The amendment is about consulting on a proposed version of any regulations to be made under the section before making them. This would make sure that relevant people are consulted in advance, specifically in the case of unilateral preferences. The Minister previously argued about the processes that are gone through in advance of the signing of international agreements, but those are slightly different in relation to this clause. We are specifically talking about consultation. Again, we have been clear that there is not enough consultation throughout, and more consultation would be appropriate.

As amendment 108 is about unilateral preferences, we think that consultation is necessary. It is absolutely clear that unilateral preferences, particularly those relating to these provisions, and the reasons for unilateral preferences, are good—they are sensible in relation to our least developed countries—but we must also ensure that relevant stakeholders are consulted.

[Anneliese Dodds]

I agree with much of what the hon. Lady said. We heard on Tuesday some of businesses’ concerns about consultation even relative to the Bill. It is important, when we move on to its exact provisions, that we have proper consultative mechanisms. I have certainly benefited hugely from the input into the process around the Bill and information from the Fairtrade Foundation and Traidcraft. If this Government are truly committed to policy coherence for development, it is important that they ensure that non-governmental organisations with expertise on the ground in international development can comment on preferential trade decisions, which could have a significant impact on different nations.

I was encouraged by what the Minister said to me when we talked about ensuring policy coherence for development when it comes to tax treaties. We need to ensure that that is the reality for our preferential trading regimes as well. One way to do that is by having appropriate consultation with experts in the area.

Finally, the Library note to the Bill, which was enormously useful as always, says that,

“the Government argues that the negative procedure is appropriate here as regulations might be lengthy, technical, frequently changed, not yet known and/or administrative.”

The note goes on to indicate what the EU process is for such schemes. It is quite different from what the Government propose:

“The regulations setting out the current EU scheme…were adopted by the EU Parliament and Council”,

meaning that there was debate within both those organisations. Our country is represented in the Council, and our MEPs represent us in the European Parliament. Then there are

“provisions allowing technical/routine updates through Commission delegated regulations.”

Again, delegated regulations can involve thorough scrutiny. I suggest that in many ways, it is far easier for an MEP to trigger a debate on a piece of delegated legislation on the Floor of the European Parliament than for an MP to do so in the British Parliament, certainly when the negative procedure is used, but also, potentially, when the affirmative procedure is used, given the arithmetic of Committees mentioned by the hon. Member for Aberdeen North. It is enormously important that we have proper scrutiny of such provisions. One way of embedding that is by having appropriate consultation. We support the amendment.

[The Parliamentary Under-Secretary of State for International Trade (Graham Stuart)]

It is a great pleasure to serve under your chairmanship, Mrs Main. It is an intimidating task that falls to me. I see many familiar faces, all pretty experienced and used to being in Bill Committees, as well as the Rolls-Royce Minister to my left. Fortunately, I am backed by the most extraordinary sea of talent behind me, as well as having on my right a much improved Treasury Whip, compared with his predecessor.

Amendment 108 seeks to create a statutory duty to consult on regulations relating to unilateral trade preferences for developing countries. The Government sought views on unilateral preferences as part of the trade White Paper and proposed creating a trade preference scheme that, as a minimum, maintains the preferential market access of countries in the EU’s generalised scheme of preferences, or GSP. The Government regularly engage with stakeholders on the issue, and—I can undertake—will continue to do so in future.

--- Later in debate ---

[Kirsty Blackman]

I beg to move amendment 109, in clause 10, page 7, line 5, at end insert “and—

(c) may make provision about the restoration or reinstatement of the nil rate band.”

This amendment places beyond doubt that regulations may reinstate the nil rate band after suspension or withdrawal.

This amendment comes from the Law Society of Scotland. It was a kind of tidying-up exercise that we suggest would be helpful in the clause. Clause 10(3)(b) allows the trade preference scheme to

“make provision about the suspension and withdrawal of the application of the nil rate.”

I am sure this is unintentional, but it does not make provision to reinstate or restore the nil-rate band, if it is necessary to do so. It is just a slight technical change suggested by the Law Society of Scotland, allowing for the restoration of the nil-rate band if that is what the Government need to do.

[Anneliese Dodds]

This seems like a sensible amendment, particularly because accessing that nil rate is crucial for so many nations. If there is ambiguity around the conditions, they need to be clarified. Definition, initially, as a least-developed country, is partly with reference to vulnerability to economic shocks. Inability to access that nil-rate, or inability have it reinstated when it should be, could cause economic shocks. As we know, the value of access to the nil-rate to UK markets for least-developed countries is incredibly important—it is £323 million a year. It is important that we have no ambiguity and are absolutely crystal clear.

[Graham Stuart]

As we have heard, the amendment seeks to clarify that the regulations may provide for the restoration or reinstatement of the nil rate of import duty to least-developed countries where this has been suspended or withdrawn. It is clearly important that we can reinstate preferential rates of import duty after they have been suspended or withdrawn, but the Government do not believe that the amendment is required. The existing power enables the withdrawal or suspension of preferences to least-developed countries to be partial and reversible. That is in line with the general principles relating to regulation-making powers. It goes to show that even when you deal with lawyers as eminent as those at the Law Society of Scotland, they sometimes get it wrong, even technically.

The Government intend to use the power to suspend sparingly and, if used, we will work with the relevant country with a view to reinstating preferences as soon as is appropriate. For trade preferences to be effective, they must be relatively stable, so that businesses have confidence to make decisions to import from beneficiary countries. I therefore ask the hon. Member for Aberdeen North to withdraw the amendments and give a categorical assurance that a provision to do what they suggest is already in place.

--- Later in debate ---

By creating the trade preference scheme, the Government are providing certainty to businesses and our developing country partners as we leave the EU.

[Anneliese Dodds]

It is a pleasure to see the Minister in such a prominent role now. In his role as a Whip, he was of course fundamental to the operation of all the discussions that we have had in this Committee room, but it is good to see him speaking on these issues.

As the Minister intimated, the amendment relates to part 4 of schedule 3, which sets out the conditions under which amendments can be made to parts 2 and 3, including the lists of least developed countries and other countries eligible for preferential trading schemes. Colleagues will be aware that those schemes arose out of the work of the United Nations Conference on Trade and Development, which from the 1960s onwards argued for improved market access for developing countries as a means of fostering their economic development. The so-called generalised system of preferences was adopted in 1968.

The whole point about that—the Minister alluded to it—is that a generalised system of preference, just as with a customs union like that of the EU, is allowed as an exemption from the most favoured nation rules within the WTO. Those rules stipulate that no country can have a preferential trade agreement with any other country that is not offered to every other member of the WTO. It is therefore enormously important to have the ability to deviate from WTO rules to promote development.

As the Minister suggested, the arrangements have over time developed at EU level into, effectively, three different layers of preferential scheme for developing countries: the everything-but-arms approach, which applies to the least developed countries; the generalised system of preferences—GSP—and then GSP-plus which, as the Minister said, offers additional favourable terms to those countries fulfilling environmental and good governance requirements.

Will the Minister clarify one issue relating to GSP-plus, and my reading of the existing Bill, with regard to classification as another eligible developing country under part 3 of schedule 3? I thought that the Bill referred to the Secretary of State developing regulations with a view to

“among other things…classification by the World Bank”

and that those “other things” were not just economic factors but human rights and environmental considerations, as is the case with the GSP-plus system in the EU. I think that was what he intended to say, but it was not crystal clear and it would be helpful if he would clarify it.

Our amendment is focused not on the arrangements for GSP and GSP-plus countries, which I believe are all gathered under part 4 but, in practice, on the least-developed country regime—the successor to everything-but-arms, which the Government say they want us to take on board. It is positive that the Bill provides the possibility for a three-year transition period, so that countries currently described as least-developed countries can remain in the scheme for another three years, as a graduation period. However, particularly with regard to current EU developments, it seems that in the Bill, the Government are missing out on an important opportunity.

The Minister was correct to say that the current everything-but-arms regime does not explicitly include reference to human rights and the environment or other criteria, but there is pressure at EU level for those factors to be taken much more closely into account. Our country could play a key role in that. That is very important when we look at how the everything-but-arms process has worked in practice.

A very good case study is the sugar trade in Cambodia. The sugar industry in Cambodia has grown exponentially over recent times due to changes in the overall sugar price, but also due to the imposition of a preferential trading regime. That has not led to sustainable development. Instead, very large global conglomerates have captured much of the market. Ninety seven per cent. of Cambodia’s sugar exports went to the EU in 2012. Tate & Lyle bought 99% of those, and companies linked to it—or some of those which it has now sold off—were controlling much of the new sugar plantations in Cambodia.

Those plantations have been enormously controversial because they have involved the wholescale removal of families from their smallholdings. Many people illegally transferred into Thailand because the sugar plantations forced them off the land. The growth in the industry has not led to an increase in people’s incomes. In fact, the opposite has happened: it has led to many people becoming destitute who formerly were able to live at subsistence level at least. Some families from Cambodia have even taken cases against Tate & Lyle to our High Court because they were dispossessed of their land and are no longer able to live sustainably.

Other changes occurred around sugar in the EU—minimum pricing and its removal—but surely, given that example, we should think about whether we need to do more to try to stop developments of the kind that existed under the everything-but-arms initiative from occurring in any UK-specific schemes. There is certainly an argument in the development community about whether it is appropriate for human rights matters to be taken into account in trade deals. Particularly in the sugar market, very large corporations are making a huge benefit, but that has not led to a more sustainable income for ordinary people—quite the opposite.

In addition, it is important that other factors can be taken into account in these classifications and in determining whether countries should be on the list. Three years is a good graduation period but it may be necessary for some countries to have longer, especially if they are subject to a particular economic or other problem.

Furthermore, I understand that there are cases where countries have used additional considerations in relation to classification under these kinds of regimes. Norway has said that if a country is not classified as a least-developed country but is part of a customs union with other least-developed countries, it is a good thing because it promotes regional integration. That nation is also likely to share many trade characteristics with the least-developed countries, and therefore should be able to be allotted trade preferences on the same basis. Norway at least believes that it does not need a waiver from the WTO for that—not only is that not being actioned by the WTO, but Norway believes that it does not even need to approach the WTO for a waiver. We could be more ambitious in that regard, and I hope that as a result the Minister takes our suggestion on board.

[Graham Stuart]

I thank the hon. Lady for her passionate espousal of a number of interesting issues. I will respond as best I can, but my three weeks in this post probably does not match her many years of expertise.

As highlighted, clause 10 and schedule 3 ensure that the UK can operate a unilateral trade preference scheme when the UK leaves the EU, supporting our long-standing commitment to support developing countries. The group of least-developed countries, as set out in schedule 3, are among the poorest in the world. As I said, providing nil-rate import duty access to goods from those countries helps them to reduce poverty through trade and is part of the UN’s sustainable development goals. Clause 10 enshrines that in UK law, ensuring that the commitment will be maintained in future. The clause is not prescriptive about the level of import duty for other eligible developing countries—they are listed in part 3 of schedule 3—that are not designated as least developed. However, as I have mentioned and as the Government set out in the trade White Paper, the Government’s policy intention is to ensure continuity at the point of exiting the EU by replicating the market access of all countries currently part of the EU’s generalised scheme of preferences.

I take on board the fact that the hon. Lady talked about being more ambitious. We have said that, as a Government, we wish to be more ambitious, but we need to bring into place in this country continuity from the existing system and give assurance and confidence that we are not opening up. If we open up the issues more widely, we will create uncertainty as to what we will continue—we may be strengthening in some areas; we might weaken in others. I therefore ask the hon. Lady to accept that I need to think and talk to her over time about some of the issues that she has raised. We do want to be more ambitious in the future, but for now, we believe that the right thing to do is to have continuity with the existing system and bring that as effectively as we can into UK law.

The amendment proposes that changes to schedule 3 be done by the affirmative procedure. As I have mentioned, eligible developing countries will be determined with regard to the classification by the World Bank or UN. The Government need to be able to react promptly to a country’s change in economic circumstances. Similarly, the power to specify the meaning of the term “arms and ammunition” is intended to allow the preference scheme to adopt the same nomenclature enabled through clause 8 for the customs tariff, which will itself be constrained by international nomenclature.

As I said, our intention is closely to replicate the EU’s preference scheme, including the GSP-plus tier. That is the enhanced tier of preferences available for economically vulnerable countries that ratify the international conventions I have mentioned. We expect beneficiary countries to continue to respect the conditions in GSP-plus, including meeting those international obligations. Those conditions will be set out in secondary legislation, as clause 10(2)(b) allows.

The question is asked why we would give preference to Cambodia even though land disputes have occurred following the EU’s everything-but-arms access. A key objective of the UK is building the UK’s prosperity by increasing exports and investment and promoting sustainable global growth. Greater prosperity leads to greater stability. We are aware that the Government of Cambodia have taken steps to improve their issue of economic land concessions, such as introducing a compensation process. Furthermore, the Ministry of Environment cancelled more than 20% of all economic land concessions. For now, therefore, we continue to work through the EU’s GSP monitoring system, and we seek to bring the existing system into UK law.