Brexit: Trade in Goods (EUC Report)

Baroness Smith of Newnham Excerpts

Tuesday 18th July 2017 Lords Chamber

[Baroness Smith of Newnham (LD)]

My Lords, I thank the noble Baroness, Lady Verma, for bringing this report before us and I thank the committee for producing yet another excellent report. Increasingly, there seems to be a cottage industry in reports from your Lordships’ House, particularly from the EU Select Committee. While the other place is still trying to create its Select Committees after the general election, there is plenty of opportunity for work to be done at this end.

I think that this is the third time within a week that one Member of your Lordships’ House or another has pointed out that Her Majesty’s Government have failed to give a response to the report being debated. That is clearly unfortunate, given that a general election was called so that we could tackle the Brexit question. Despite that, many questions remain unanswered.

In many ways, the words of the noble Baroness, Lady Verma, could have been said from the Liberal Democrat Benches. The issues that have been raised by the committee’s report and the noble Baroness are extremely important. For once, from these Benches, I do not propose to rehearse the same arguments that we have raised over the past year, 18 months or seemingly longer. Listening to the debate yesterday on the free movement of people, I thought that we were perhaps getting to the point of Groundhog Day. I began to explore groundhogs and whether there was a trade in them, but it appears not—with the exception of Members of your Lordships’ House and the UK media, who seem to have spent more time since the referendum last year discussing what we think we mean by Brexit, what Brexit means for the United Kingdom and whether it means leaving the single market, the customs union or both.

While, in many ways, we on these Benches agree with the points made by the noble Lord, Lord Hain, about the importance for the United Kingdom of remaining in the single market and the customs union, to avoid quite as much repetition as we are in danger of having this afternoon I will raise a number of questions for the Minister. She is fairly new in post in this role, but it is perhaps not so very different from the role that she had in the Foreign and Commonwealth Office when she was responding to questions ahead of the referendum. The questions have not changed, because the Government still do not appear to have many answers.

Brexit means leaving the European Union. That is clear—it has always been clear—but what has not been clear, as the noble Lord, Lord Hain, pointed out, is whether that means leaving the single market or the customs union. The nature of the departure and, more importantly, the nature of the UK’s subsequent relationship with the EU 27 remained an unknown throughout the referendum last year. It essentially remained an unknown until the Prime Minister’s Lancaster House speech almost exactly six months ago. At that point, the Prime Minister made clear what she intended by Brexit, which was to leave the single market and the customs union, although ideally with some kind of undefined and unprecedented customs agreement. If the Minister can explain what the customs agreement the Prime Minister is thinking about would mean in practice, that would be most welcome.

Clearly the reason why the Prime Minister thinks that the UK should leave the customs union is that the trade deals that countries are lining up to negotiate with us will be free flowing as soon as we leave. Whether they are available, and whether it would not be better for the UK to negotiate free trade agreements in parallel to those already negotiated by the EU, remains an open question. However, there is at least a logic behind the Prime Minister’s suggestion.

The reason for leaving the single market seems to be down to a narrow understanding of the reasons why the United Kingdom voted to leave the EU—namely, the view that the vast majority of those voting to leave did so for reasons associated with immigration and EU free movement. It is not at all clear that that is why many people voted to leave. There were myriad explanations of why the 52% voted to leave. However, if you take the view, as the Prime Minister seems to have done, that leaving the single market is essential, that means getting rid not only of free movement of people but of free movement of services, goods and capital. These are things that in the past the United Kingdom has seen as beneficial. After all, the idea of the 1992 programme completing the internal market—outlined in a paper by then commissioner Lord Cockfield at the behest of Margaret Thatcher—was to create a level playing field. It was not only about getting rid of tariffs but about getting rid of non-tariff barriers.

The noble Lord, Lord Lawson—unfortunately, he is not in his place today—frequently opines that the single market does not matter anymore and that we have moved beyond it. I can hear muttering along the lines of, “What is she talking about?”. The noble Lord, Lord Lawson, has frequently suggested that the internal market perhaps does not matter in the way that it used to and that the global market is what is important. However, in walking away from the European Union and its single market, the United Kingdom is proposing to walk away from a trading relationship that takes away non-tariff barriers. The tariff barriers are the least of our problems. We could crash out in the way that certain Brexiteers have talked about and say, “It’s not a problem. We can trade on WTO terms”, but, as we have heard, just trading on WTO terms is not as simple as it sounds. We would have to negotiate the schedules with other member states, because currently those schedules are for the EU 28. They are not identified country by country for the EU. There is already a difficulty in seeking to trade simply on WTO terms.

WTO tariffs deal only with tariffs. Having tariff-free trade is clearly desirable, but WTO terms will not in themselves give us tariff-free trade in all sectors. Beyond that, there are the non-tariff barriers about mutual recognition and questions around the rules of origin, which, as full a member of the European Union, we do not have to think about because they are part of our everyday decision-making. If the great repeal Bill—or, as it now is, the European Union (Withdrawal) Bill, the first section of which will repeal the European Communities Act 1972—sets in stone the regulations and directives that are in place on the day we leave, that will temporarily ensure that the United Kingdom meets the requirements of the European Union, but the EU’s acquis is a changing corpus of legislation. As every day passes after we have left the EU, unless we manage to negotiate an arrangement that is something akin to membership of the single market, the EU will be changing its rules and its standards and the UK will be running to catch up.

It may be that Members of your Lordships’ House and Her Majesty’s Government do not think that that matters. They may think that we will have our own rulebook in such a way that it will not affect trade, but it will. Unless the United Kingdom is able to negotiate an arrangement whereby we have a place at the table in a form that is akin to but different from the Norwegian model in the European Economic Area, there is no possibility of the UK not being seriously disadvantaged by crashing out of the European Union without a deal. WTO terms will not resolve that. However, even with a free trade agreement, it is difficult to see how we are going to be in a position where we are not materially damaged by leaving the single market and not having access to the negotiating table. That is because the Norwegian model is not the same. The Norwegians do not have a seat at the table; they have to respond.

The questions that I would like to ask the Minister concern the assessment that the Government have made of the impact of the United Kingdom crashing out of the EU without a deal. What assessment have they made of the ability to create the wide-ranging free trade agreement that the Prime Minister has said that she wants? What assessment have they made of the time that it will take to create such an agreement? Free trade agreements are notorious for taking years to complete. Unless a miracle happens, we have less than two years before we leave the European Union. There has been a lot of discussion about transitional arrangements, which may or may not be the same as implementation. With the exception of the Secretary of State for DExEU, most people do not think that a transitional arrangement and an implementation period are the same. Have Her Majesty’s Government given any thought to a transitional arrangement and, if not, why not? Finally, Monsieur Barnier, the EU negotiator, has pointed out that he can hear a clock ticking. We have less than two years to create the withdrawal agreement. Without a transitional arrangement, do the Government think that they will be able to build an effective, long-term relationship with the European Union, or are we going to be on the outside, desperately trying to find a way back to the negotiating table to get a sub-optimal deal?