Brexit: Trade in Goods (EUC Report)

Baroness Hayter of Kentish Town Excerpts

Tuesday 18th July 2017 Lords Chamber

[Baroness Hayter of Kentish Town (Lab)]

My Lords, I add my thanks and congratulations to the noble Baroness, Lady Verma. I share her regret at the absence of any response to a report which is key to the future of our economy. As we have heard, the EU is our nearest and biggest trading partner, taking nearly half our exports. How we trade with it after Brexit will determine our economic well-being. We do not necessarily have to agree with the FT’s rather apocalyptic vision of 29 March 2019, with drivers at St Malo having to pay VAT and import duties, and—should the truck be carrying lamb—suddenly finding it can only be taken into France via a registered border inspection post. But we do have to recognise that, as a third country, outside the customs union and without an agreement, we would see customs duties, quotas, border checks, non-tariff barriers and perhaps unsafe toys and unhealthy food—and import duties would make consumer goods cost more here, on top of price increases already happening because of the falling pound.

Even enthusiastic Brexiteers who claim that we can replace lost EU trade through trade deals with faraway countries acknowledge the hit we will take, by first seeking to replace existing EU trade before building up additional orders. It is with fingers crossed that they hope a knight in shining armour—Donald Trump or Malcolm Turnbull perhaps—will ride to our rescue. Saner commentators admit that, as noble Lords have said, any deals will take time. Indeed, the Australian Prime Minister, although happy to see a post-Brexit trade deal, said that this would come only after one with the EU.

So the Government must start being realistic and put childish dreams to one side. An unpublished Treasury paper concluded that the costs of a hard Brexit would far outweigh any potential gains from Liam Fox’s free trade strategy. It said that it is “idle thinking” to imagine that two dozen bilateral agreements could compensate for the loss of trade with the EU and with the agreements covering a further 11% of our exports with the 60 countries already mentioned, such as Korea, Mexico, South Africa, Turkey and—in the future—Japan and Canada. When Donald Trump supposedly offered the UK a “very, very big”, “very powerful” trade deal “very, very quickly”, such a deal, even if it could be drafted fast, is simply not his to enact—as the noble Lord, Lord Inglewood, reminded us. It has to go through the Senate, which is even more protectionist than President Trump.

As we have heard, trade deals take years to negotiate and then come on stream. They are cold-hearted affairs. They are not about favours to foreign friends; they are about gaining market access for domestic producers. Since the UK has a trade surplus with the US, any deal will be about the UK making concessions to the US, not the other way round. Big countries, such as the US, China and the EU, have more cards than small ones in such deals. I am afraid that Britain is a small country—as the CIA put it, “slightly smaller than Oregon”. As the noble Lord, Lord Horam, described, even after a deal is signed, it takes time and hard work for exporters to develop new markets on the other side of the world. Whatever happens there, we will always need strong trade ties with our closest market, the EU. So the Government’s priority should be to safeguard these ties, especially given the Maltese Prime Minister’s warning that any deal must be “inferior to membership”.

We have been warned about the lack of trade negotiating skills in the UK, since it is nearly 50 years since we have had to use them—added to which, the world has never seen a trade deal like the one we will need. Every other deal is about reducing barriers to trade, whether they are duties, quotas or other things, but this will be about increasing barriers. How prepared are the Government? The FT describes a “sense of disarray” while Brussels is briefing about us “dithering chaotically”. Michel Barnier said:

“I don’t hear whistling, just the clock ticking”—


but I am hearing whistling from the Government. They are whistling in the belief that all will just turn out right, that things do not need hard work, or the compromising referred to by the noble Lord, Lord Livingston, or working with our partners and stakeholders. But trade is too important to be left to the whims of badly briefed negotiators, continuing along the lines of Lancaster House despite the election outcome, while Ministers fight among themselves, their attention fixed more on extreme Eurosceptics—whether on their Back Benches or in the tabloids—than on the country’s interests.

By contrast, business knows the risks involved, with industries hard hit if there is no comprehensive UK-EU FTA similar to the single market and customs union. Along the lines of the Nissan example given by my noble friend Lady Armstrong, if you look at the Ford Fiesta, there is a potential 2.7% tariff on engine components imported from the EU, a 4.5% tariff on the 65,000 UK-made engines exported to the EU, and a 10% tariff on the 120,000 finished Fiesta cars reimported for sale here. When will the Government tell us the full details of whatever deal is done with Nissan?

I will take another sector that has been mentioned—namely, pharmaceuticals. This is a world-leading exporter that uses multiple imports and exports to and from the UK before a final medicine is completed. This industry is key to our economy, with life sciences notching up a turnover of £60 billion, with a £3 billion trade surplus. No wonder it wants a new free trade and customs agreement with the EU that takes into account its specific needs, which Ministers need to understand.

Other sectors are demanding to be heard, not least the creative industries, which contribute some 8% of GDP—more than the arms trade, although of course they kill nobody—with that 8% likely to grow substantially over the next decade. This high-skill, technological and creative sector needs to recruit talent, exploit IP, attract inward investment and trade freely if it is to continue to support so much of our wealth creation.

A different issue faces the chemicals industry, where exports and imports from heavy industrial chemicals to ingredients in toothpaste and shampoo could cease if we fall outside the EU’s REACH regulations. Meanwhile, we have heard already about agricultural import duties on the 70% of our imports coming from the EU, which could see food prices rise while harming the £20 billion-worth of exports, making our UK farming less competitive.

I need hardly explain to the House how crucial transport is to trade. Airlines, ports, shipping companies, hauliers and railways need to know at least a year ahead what regulatory regime they will face in March 2019. In fact, airlines need to agree schedules by this autumn. They cannot wait any longer as they need regulatory certainty. But where is the Brexit plan for transport? This is just one area where the calls for transitional arrangements are siren, and should have been on David Davis’s agenda last weekend—had he taken any papers with him, or indeed spent more than 30 minutes in Brussels.

It is not simply that we are a long way from agreement, when the EU 27 have been preparing for 12 months and already know what they want and how to achieve it. As Professor Alasdair Smith of the UK Trade Policy Observatory stressed, a UK-EU FTA cannot be negotiated in 21 months, even once it has been started—and that cannot happen until progress is made on the withdrawal items. As he said, a two-year completion timetable would not be ambitious or challenging, simply “completely impossible”. The EU has never completed one in under five years—“dreamland”, I think the noble Lord, Lord Bilimoria, called such an ambition.

Our prosperity depends on trade, but the Government are listening to neither business nor consumers. Such meetings as have taken place laid bare the lack of preparation within government. The big “summit” at the Foreign Secretary’s retreat led to no concrete policy announcements, while, despite the Chancellor, the Business Secretary and the Brexit Secretary supposedly being committed to fortnightly meetings with a smaller group of business leaders, these have yet to happen. Meanwhile, there have been no meetings at all with consumer representatives, leading the three largest consumer groups to write to the Prime Minister on 22 March,

“calling for a cross-Government high-level working group focused solely on securing the best possible deal for UK consumers”.

Sadly, the PM’s reply omitted any positive response to this.

It is clear from the debate today and even from Brexiteers such as the noble Lord, Lord Leigh, that a transition period is essential, and the knowledge that it will be there is needed now, before contingency plans, especially as regards relocation, are implemented. We cannot live in a fantasy world which imagines that a substantive free trade agreement needing only some phased implementation can be reached by March 2019. There will be no agreement by then, let alone the customs procedures and new ways of working needed to accommodate delays to supply chains, not least in food and drink, where the current efficient supply chains enable almost a third of supermarket food to be imported from the EU and be on the shelves within two days. Meanwhile, our ports lack the facilities or staff to cope with new customs inspections, duties, VAT collection and assessment of conformity of goods with regulations, foretelling movement grinding to a halt as vehicles wait to be processed by customs authorities, as suggested by the noble and gallant Lord, Lord Stirrup.

Many questions have been put to the Minister today, but the most urgent of these is surely about a transitional agreement—that there will be one high on the Government’s agenda and that they will give certainty on that sooner rather than later. Too much depends on it for us to sit around waiting. It is time to hear about that now. I look forward particularly to the Minister’s answer on that but also on all the other questions that have been posed to her.