17
Examination of witnesses
Colin Barker and Elisabeth Bowes.
Q35 The Chair: Welcome to this evidence session of the International Agreements Committee on CPTPP. You have had a list of interests that have been declared by members of the committee. The meeting is being broadcast live via the parliamentary website. A transcript of the meeting will be taken, and you will be sent a copy to make any corrections that you think are necessary.
I am going to ask the first question. What, in your opinion, can the United Kingdom bring to the CPTPP? Particularly, what special role can the UK play in the operation of the CPTPP and in the things surrounding its operation?
Elisabeth Bowes: Thank you very much, Lord Goldsmith, and thank you for the opportunity to present today.
The Chair: Thank you for being here.
Elisabeth Bowes: In our view, the United Kingdom brings a certain heft to the CPTPP, being now the sixth-largest economy globally but the second-largest economy in the CPTPP after Japan. The heft that it brings in economic terms is of considerable advantage to the CPTPP in terms of its increasing importance in the region. In addition, the UK is a like-minded partner in its commitment to free trade and rules-based trade. In that respect, bringing that contribution to the CPTPP further reinforces and helps maintain the high standards of the agreement and its rules.
In our view, the United Kingdom also brings a certain strategic significance to the Indo-Pacific, consistent with the integrated review refresh. It is a demonstrated commitment to our region, the Indo-Pacific, not just in economic terms but in geopolitical terms. That is why Australia was a very strong supporter of the UK’s accession to the CPTPP throughout the accession process.
Colin Barker: I think you will find that we will probably be in violent agreement on most things, so I will try not to repeat too much of what my esteemed colleague has said. Obviously, Canada also welcomes the UK’s accession to the CPTPP. I guess in a more granular sense, the UK’s accession will mean that UK businesses will be even better integrated with CPTPP supply chains. It will help to establish a single set of rules for businesses operating in the UK, Canada and other CPTPP members, and that, of course, makes the business of trade more transparent, predictable and accessible for our companies.
The addition of the UK as the third G7 economy in the CPTPP will, of course, expand the reach of the agreement’s high standards and strengthen its geopolitical importance in the Indo-Pacific region, and we hope that it will also heighten the appeal of the agreement to other economies.
The Chair: Can you both say something about the fact that the UK comes into this agreement from very much outside the CPTPP’s original remit? How do you see that as significant?
Elisabeth Bowes: I see the significance very much as a demonstration by the UK of its free trade credentials and adherence to the high standards that the CPTPP represents. It is one of the highest standards of the trade agreements that are in existence. Despite its coming from outside the region, it provides, as my Canadian colleague said, the foundation for UK integration into Indo-Pacific supply chains and regional value chains in what is the fastest-growing, most dynamic region in the world. The economic significance of the UK seeking to accede to this agreement in this fast-growing region can not be underestimated.
Lord Fox: You very helpfully mentioned the higher standards than many of the other members. I wonder how a country that has come in will manage to balance its standards with the standards that it finds in some of the other countries and what role it can play in that. Associated with that, at the moment if we talk to Government Ministers about what they think about things in the CPTPP, the reply will be, “We’re a new member, so we shouldn’t go around thinking things or saying things”. Do you think it is appropriate for the UK to start to play a front-foot role in things such as standards, or do you expect it to sit back and take it on the chin, so to speak?
Elisabeth Bowes: In my view, there are two points to make. The agreement already represents high standards, and those are the standards to which the UK has acceded. They are also the standards to which all the other 11 parties of the CPTPP have agreed to adhere. It is not a case of differentiation in standards of the membership in the agreement. All members have signed up to those standards and rules in the agreement.
There are always discussions, and next year we will launch a review of the operation of the agreement, a general review as mandated under the agreement, which will examine the operation of the agreement. That will provide an opportunity to examine the agreement in a granular sense and to see where perhaps amendments or improvements might be made. I imagine and envisage that the UK will play a strong role in that discussion, as with all CPTPP members.
The Chair: Do you want to add something to that, Mr Barker?
Colin Barker: No, I think that is right. Once accession is complete and the UK is a full member, we hope it will be a very active member in the discussions that will go on over the next year on the general review.
The Chair: In relation to potential new membership, we will ask a question about that in a few moments. It is obviously a question that we need to consider.
Q36 Lord Grimstone of Boscobel: As a former Trade Minister, I am very conscious that the UK had to relearn trade policy and how to do trade negotiations. You and your colleagues have seen us in operation from the inside. We would be very interested to hear your views on how the UK handled the negotiations. Are there things we could have done better? Did we do things that surprised you? Feel free to be as critical or as complimentary as you like, because part of this process for us and for our House is learning how to do things better in this area.
Colin Barker: You should not sell yourselves short. It was a big challenge for the UK to get into the game of negotiating free trade agreements again, but I think the UK has done quite a good job of getting up to speed quickly. The CPTPP was probably a very complex process in which to engage in an FTA process. You are not necessarily negotiating the rules because those were set, as my colleague said, so it is more a matter of just demonstrating adherence to those rules. You were negotiating market access, not with one partner but with 11 at the same time. That was demonstrated to be a complex process. It was the first time for us as well to have an acceding partner, so we were all learning as we went, and for a variety of reasons it took longer than we had thought it might. That is more a factor of its being the first time we were all doing it.
The Chair: Given that the UK was going to enter into an agreement that had existing terms that it could not change, can you talk a bit further about what there was for the UK to negotiate, and not just saying, “I put my hand up because I’d like to be there too”?
Elisabeth Bowes: In the first place, the UK had to demonstrate that it could actually meet, implement and adhere to all the rules and standards in the agreement. The UK worked closely with the accession working group that was established to examine the UK’s claims, and it was a very intensive process. It was a chapter-by-chapter or sector-by-sector process, often with concurrent working groups examining all the claims, provision by provision, for the UK to demonstrate that it could meet and had in fact implemented or would implement the rules.
As my colleague said, it was the first time for us all, so it was quite an intensive process. The United Kingdom co-operated to the greatest extent possible, absolutely to the max, in all the demands that we as the existing members of the CPTPP placed on the UK to ensure the demonstration of its claims. One of the motivating factors for all the members was the keen desire to establish a very robust process for accession and to ensure that a very high standard was set through the first accession process to establish a strong precedent for any applicants that might come thereafter. That is another reason why, in fact, the membership was very keen to work with the United Kingdom as the first applicant; we were confident that the UK could meet that high standard and help set that very robust precedent.
Lord Grimstone of Boscobel: Of course, all CPTPP members are equal, but do you find that some countries take their responsibilities much more seriously? Do you find that natural leaders emerge in different parts of this? Can you give us any insights into the mechanics of how negotiations are handled between the members?
Colin Barker: I am afraid I do not have great insights into that as I was not involved. In the more formal mechanics, there is a chair every year that leads the group. Canada will be taking over that chairmanship role next year to give some direction to the ongoing work of review, accessions and other issues that we want to tackle as parties to the agreement. Within the negotiation itself, I expect that the dynamics are more a factor of individual countries’ interests as they pursue those negotiations. We all had a collective interest in making sure that the UK process was robust, as my colleague just mentioned.
The market access negotiations became a much more one-on-one discussion in most cases, and the UK found, across the parties, that they had very different interests because the economies are very different. You may have found that you were talking about agriculture more with some members and financial services and services trade more with other members, just based on how their economies are structured. Those negotiations became a much more one-on-one dynamic.
Q37 Lord Kerr of Kinlochard: Some of us who were very pleased to see us join the CPTPP are interested not so much in what it is now but in what it might become, so I want to ask about your two Governments’ views on its likely development. I would like to see it both widen and deepen. On widening, how fast do you see the accession process with other candidates going? On deepening, how quickly do your Governments see extra chapters being added and existing chapters being developed further? What do your Governments expect to come out of the review next year, and what would they like to come out of it?
Colin Barker: Maybe I will start as Canada will be chairing. First, on the deepening question, that will be the focus of the general review work next year. Even though it is a relatively young agreement, it has been five years and there have been a lot of developments in those five years. Things that Canada would be keen to look at as a group would be on digital trade, not surprisingly, and the green economy and how we can support that. Canada has a very important focus on inclusive trade and how to make agreements more accessible to small and medium-sized enterprises as well as women-owned enterprises and indigenous-owned enterprises. Those are the types of things that Canada would like to explore with the group. I am sure that others will have things, both shared and other issues, that they want to discuss. We will see how much we can do as a group together over the coming years.
How quickly to move on accessions is a bit harder to predict, so we will have to see, again on a consensus basis, where the group wants to move on new accessions. That will also be a priority for the work ahead in the next year.
Lord Kerr of Kinlochard: What is the Canadian view? I agree that consensus will have to be found, but what will Canada be bidding for on the accession front?
Colin Barker: For Canada, the decisions will always be what we think is in the best interests of Canada and Canadians in terms of new trading partners to be joined into the agreement, and ensuring that that partner, before we engage, has a demonstrated track record of adhering to international obligations and a commitment to free and open trade. There is some work to do ahead of time before we jump with both feet into an actual accession process.
Elisabeth Bowes: If I might add, in fact, all the membership has agreed on three principles for future applicants: they must be able to meet, implement and adhere to the high standards and rules of the agreement, have a demonstrated track record of adhering to trade commitments, and meet the consensus rules. They must be capable of attracting consensus support for their application request. That is the test shared by all the CPTPP membership—consensus being, of course, very important for all decision-making.
The Chair: A lot of Members want to come in, but I am going to let Lord Kerr continue this for a moment because it is an important point.
Lord Kerr of Kinlochard: On deepening and the review, what is the Australian hope from the review?
Elisabeth Bowes: Our hope is to properly examine the effective operation of the agreement as it is written at this point to ensure frictionless trade, integrated trade and those deep supply chains in the region. In addition, the review adds the opportunity, as my colleague said, perhaps to extend the rules on digital trade. We went beyond the CPTPP on digital trade in our bilateral agreement with the United Kingdom. We also went beyond the environment chapter in our bilateral agreement with the United Kingdom. There are certainly new areas we can look at to extend the commitments in the agreement. Trade and labour standards, trade and gender equality, and trade and environment are all key features of the review that we share a particular interest in, as well as digital.
Baroness Kingsmill: I would be interested to know whether the UK’s behaviour in exiting the EU and Brexit generally have any impact on your sense of the UK’s commitment to this particular trade agreement.
Elisabeth Bowes: I have seen no evidence to suggest anything but full commitment to the agreement, and indeed without Brexit neither our bilateral nor CPTPP accession would be possible. We certainly have no qualms about UK commitment. It is very committed.
Colin Barker: I do not think I have anything to add other than that Canada believes the UK entered the process in good faith and worked in good faith to secure its accession.
The Chair: We will come to other countries in a moment. Do you want to ask something about the structural side, Baroness Hayter?
Q38 Baroness Hayter of Kentish Town: Can I first ask one other question about Europe? During 2024, in the UK we will be doing the work ready for the 2025 review of our TCA with the EU just at the point that the CPTPP review is going on. Is there anything in any deepening, and possibly widening, of the CPTPP that may impact any change in the relationship of our TCA?
Colin Barker: I am not aware of any issues that might be at odds. There may, in fact, be areas of similarity and consensus that would be helpful to bring to the CPTPP context in your ongoing discussions with other partners. Every member of the CPTPP probably brings in discussions that they are having with other partners as part of their priority. One issue is always capacity to deal with all the variety of agreements at once, but the Department for Business and Trade is quite a well-resourced department and seems to have the capacity to do many things at once.
Baroness Hayter of Kentish Town: It was the digital I was really thinking about—the confidentiality and offshoring of data and stuff—and whether there could be anything there.
I have a different view, which the Chair indicated, and a question that I am interested in asking. The present format is with a rotating chair and without a full-time, staffed secretariat. How do you find that system works, particularly now with quite a large country coming in and possibly more being written into the review? Does it work at the moment and do you think it is sustainable going forward?
Elisabeth Bowes: It is a very good question. To date, whoever holds the chair carries quite a heavy burden in organising the meetings and ensuring that documentation is prepared. That was separate from the accession process. We need to distinguish between the rotating chair and the accession process with the UK, which was very resource intensive. Japan chaired the accession process in that instance, and Australia and Singapore were co-vice-chairs.
We are party to other regional multilateral and plurilateral agreements that have standing secretariats or are in the process of standing them up. Certainly, one can see the benefit of a standing secretariat in providing everyday support for the agreement. I note that New Zealand as depositary carries out quite a few functions that might go beyond the usual remit of a depositary, so it certainly steps up. It is, as Canada will no doubt learn next year, quite a significant burden.
The Chair: You focused there particularly on the day to day, the administrative, the burden of preparing the papers and all that sort of thing. Is there an issue about continuity of policy, thinking and philosophy if you do not have a standing chair or a secretariat that is always there?
Elisabeth Bowes: We have not encountered that to date, and that is because the agreement and the proceedings, discussions and outcomes of the commission meetings are well documented. We have not seen any challenge to continuity of thinking. Many of the delegates were involved in the original negotiations at some point. That brings a level of continuity as well. It has not been a challenge, in our experience.
Colin Barker: The speculation would be that, as time goes on, the agreement grows, more members join and those that were involved move on to other things, some of that continuity may be in jeopardy. As long as there is a consensus-based approach, you still have to get all the members to agree to decision-making going forward. Whether they are newer to the table or not, it is still a consensus-based approach.
Baroness Hayter of Kentish Town: Neither of you at the beginning said that moving more towards a permanent secretariat was something you wanted out of the review, so it will not be on the table from either of your countries to move that way.
Elisabeth Bowes: I would not say that it is excluded. We have only just set the terms of reference for the review, which are really subject-matter based, looking very intensively at each chapter of the agreement to ensure that it is functioning properly, rather than at the structural issues.
Q39 The Chair: I am going to move on to a different topic, one that I have trailed already, which is new membership. Do either of your Governments have an agreed approach to how the applications of China and Taiwan, the two that you have in mind, will be progressed? In that context, I am interested in what you think the role of the United Kingdom might be in helping with those applications.
Colin Barker: I will take each in turn. Canada welcomed Taiwan’s application as a demonstration of Taiwan’s commitment to trade and investment diversification. We take note of Taiwan’s efforts to bring its regulatory regime up to the CPTPP standards, which, as we noted, is an important prerequisite before beginning an accession discussion. Canada’s engagement with Taiwan on this issue is consistent with our internal one-China policy, which maintains people-to-people trade and investment ties with Taiwan.
With respect to China’s accession application, Canada supports the accession of economies that are willing to meet the three prerequisite standards, which include meeting the commitments, demonstrating a history of compliance and meeting the consensus rule of the CPTPP. In our view, it is not a case that aspirant economies need to be considered in the order of their application. The three principles take precedence over who is in line in the queue. Those are my high-level comments on those two.
The Chair: What do you mean by the order of the two applications? Are you making a point about that?
Colin Barker: It is simply to say that it is our view, and probably the view of the membership, that it is not a requirement to proceed with accessions in the order in which economies have submitted their application. The three prerequisite standards are more important. We do not engage in a process that does not have a good likelihood of success. We want to make sure before we do all the hard work and all those years of discussion that we have a reasonable likelihood of success.
Lord Fox: That answers half of the question that I was going to ask. The other bit was whether this is an exercise in series or in parallel. In other words, are you simultaneously assessing all the applicants and, in a sense, prioritising them, or are you doing them one at a time? How is it working?
Elisabeth Bowes: At this point, the members are actually working together to develop a process for future accessions, and that is one of the issues that will be addressed. We found that the UK accession process was extremely resource intensive, but that was partly because it was the first time that the membership had entertained an accession request. For Australia, the process for future accessions must be based on consensus and maintaining the standards of the agreement, and should also be informed by the lessons learned from the UK accession process. That is a very important point. As I said, it was very resource intensive. We have, in fact, engaged in a discussion with our UK colleagues ex post facto to really look quite seriously at where we could streamline or what we could do better. A proper examination of those lessons learned is important to feed into any future accessions process.
Lord Fox: Do you envisage something like a sifting process with various gates through which the applicants would go to get to the more labour-intensive end of the market when you are doing the proper negotiations? Is that the sort of thing you are looking at?
Elisabeth Bowes: There has to be a certain amount of discussion among the membership before any accession process is even commenced, and that commences with the consensus decision of the members. So it is only when the members are confident that an applicant is capable of meeting, implementing and adhering to the standards and has a good track record, and there is consensus, that that first decision would be made to commence the accession process.
Q40 Lord Kerr of Kinlochard: In the accession process, presumably quite a lot of responsibility falls to the country that happens to be in the chair in the rotation. I should know this, but I do not. When will that be the United Kingdom? How do we fit into the rotation? I remember that when Latvia and Lithuania joined the EU we had to adjust the alphabet to avoid Luxembourg, Latvia and Lithuania and 18 months of very small country presidencies. Is something like that happening, or are you sticking to strict alphabetical order? When do we come in?
Colin Barker: I actually do not know the answer.
Elisabeth Bowes: I think that is in your hands, actually. When the UK is fully a member is a matter for UK domestic parliamentary processes. In any event, depending on how quickly the legislation is passed through the Commons and the Lords, there is a process whereby the UK’s accession would be fully effective after all parties to the membership have completed their domestic processes and then 60 days after that date, unless we get to 16 October 2024. If not all parties have completed their processes by that stage but six have, including the United Kingdom, the 60-day period could commence. We have factored in the element that every party has a different parliamentary process or ratification process.
Lord Kerr of Kinlochard: It is basically alphabetical order for the chair, is it?
Elisabeth Bowes: Canada is hosting next year because Canada ratified before Australia. We are hosting the year after. Hosting is in order of ratification. The UK will be twelfth.
Lord Fox: We are on five at the moment, are we?
Colin Barker: We will be going into six.
Lord Fox: So it will be in six years, on that calculation, assuming the ratification goes ahead as planned.
Elisabeth Bowes: Yes.
The Chair: I am still thinking about what you said about its not being strictly in order of application. I get that. That is what it is not. Has there yet been an agreed position on how to deal with those two countries and the order in which they come, because obviously there are serious political issues about that? If the answer is no—
Colin Barker: I think no. Obviously, all the parties were very much focused on the UK’s accession over the last couple of years, so part of the work plan for the year ahead is the general review and our approach to the additional accession candidates.
Q41 Lord Howell of Guildford: At first sight, looking at the list of countries, it is quite difficult to define the political affinities, if any, that exist between them. It certainly seems to defy the old maxim that trade benefits most from proximity. There is not much proximity here at all. Presumably, the nature of trade has changed. Do either of you—two great countries—see particular political gains and benefits from being members? Looking at us here in the United Kingdom, do you see any particular benefits for us? When we join, more than half will be members of the Commonwealth. Will that provide a sort of togetherness and value? Where do the politics of this lie?
Colin Barker: To start off, before talking about the more esoteric political benefits of engagement, at the end of the day this is a trade agreement so, in our view, there are many trade benefits. To share our experience, in the fifth year since the entry into force, Canada found that its total merchandise trade between Canada and all CPTPP members had increased 26% compared with five years previously, and our merchandise exports had increased more than 30% compared with five years previously. There are clearly trade benefits to being part of the agreement, and that is the key thing to bear in mind. It is a trade agreement, at the end of the day. That is what it is meant to help with: increasing trade between the parties.
Of course, there is a benefit to closer engagement with partners across the Indo-Pacific. It gives us another forum in which to engage with countries perhaps on issues of digital trade, greening the economy or inclusive trade, learning more about how their economies are functioning and the challenges they are grappling with in those and other issues. The forum is interesting. As you say, it is a diverse set of economies spread across the Indo-Pacific at different levels of economic development. It is a good forum for exploring some of the issues together with common, like-minded partners.
Elisabeth Bowes: I completely agree. That is certainly one of the benefits. In fact, by ratifying the CPTPP we also gained the benefit of having a trade agreement with Canada. We did not have a bilateral agreement with Canada; similarly with Mexico. For Australia, it opened up new market access and trade opportunities with two like-minded partners that have a strong adherence to free trade. For Australia, we also have a series of regional, multilateral and plurilateral agreements in the region. Australia and New Zealand and ASEAN have a long-enduring agreement, so with the ASEAN member states of the CPTPP—Brunei, Malaysia, Singapore and Vietnam—we already have pre-existing trade ties. In the WTO we work closely with the Cairns Group of free-trading agricultural nations including Canada, Chile, Malaysia, New Zealand, Peru and Vietnam.
There are various regional architectures, all of which, including the CPTPP, are mutually reinforcing, and all of which help support rules-based trade and the rules-based trading system. For us, that is one of the key benefits, and indeed one of the most important aspects, of this membership, because the CPTPP members, by virtue of signing up to this high-standards agreement, are supporting the cause of rules-based trade in a free and open Indo-Pacific.
The Chair: We would like to talk a little bit about bilateral agreements and how those fit in.
Q42 Lord Razzall: You are probably aware that one of the criticisms of some people about our joining the CPTPP is that the economic effect for us is minimal. On the Government’s own statistics, less than 1% of GDP will be created by us joining this body in the foreseeable future. One of the reasons, of course, is that—apart from Malaysia and Brunei—unlike Australia, which you touched on, we already have trading agreements with every other country. How do you think the existing agreements that we have—for example, with Australia and Canada—will affect the CPTPP? Will possible changes enable us to increase our opportunities?
Elisabeth Bowes: For the benefit of Australia and the UK, in our bilateral negotiations we used the CPTPP as the foundation for many of the chapters in our bilateral agreement. The ability to be in bilateral negotiations meant that in certain areas that were of particular interest to Australia and the United Kingdom we could go beyond the CPTPP, and I have already referenced some areas in environment. We could also add chapters on innovation, trade and gender equality and animal welfare co-operation. It provided the foundation, but given the specific interests of Australia and the United Kingdom we could go beyond that. I see the two, using that example, as very complementary and in a continuous process of building on different areas of trade liberalisation.
I do think though that the heft of the CPTPP and its high standards, and the 12 parties to it, provide further significance in the region, which is really important, as well as the very existence, as my colleague mentioned at the outset, of regional value chains, are so important to ensure frictionless trade, particularly resilience in supply chains, which was tested during the pandemic. There are many complementary benefits for the CPTPP vis-à-vis a bilateral agreement.
The Chair: That is Australia. Lord Geidt, did you want to ask about Canada?
Lord Geidt: Yes, the same question about Canada, please.
Colin Barker: Having more than one agreement covering a market gives businesses a choice. The agreements work in a complementary fashion, so businesses can decide which agreement benefits them more, given the good or service they are selling. Of course, having an agreement with as many parties as the CPTPP also simplifies that decision-making for businesses.
As negotiators, we negotiate a great deal, but then it is the actual implementation that is important and businesses using the agreement, so a lot of focus has to be put on that. If you can provide a common set of rules and a common tariff rate for multiple markets, it simplifies matters for companies, particularly smaller companies that do not have money to spend on rafts of compliance officers and other things. Having a transparent, predictable process in which they know they can apply to multiple markets is helpful. In that sense, an agreement like the CPTPP is helpful on its own.
As my colleague said, with a bilateral deal sometimes you can go further. Typically that is not in terms of tariffs, because the CPTPP is a very deep agreement in tariff liberalisation. Sometimes it is not about tariffs; it is about other rules or obstacles. Sometimes, in a bilateral agreement, you can tackle those that are a bit more important for companies in their export story.
Lord Razzall: As growth to our GDP is projected to be less than 1%, can you see anything specifically vis-à-vis either Canada or Australia that, as a result of our membership, could increase our trading relationship with your two countries, bearing in mind that we already have deals with you?
Colin Barker: I cannot point to a specific commodity or product or anything like that. Companies, particularly smaller ones, are not always aware of agreements that are in place. The fact that we now have a belt-and-suspenders approach where we have welcomed the accession of the UK to the CPTPP, which is a well-known international agreement, is simply another layer that we can talk to our companies about and say, “The UK is an important market for us, so much so that we have two agreements in place, and you can look at those agreements and figure out which one is best for you”. Having that in addition to our bilateral agreement is an important statement about the importance we place on the trading relationship. For smaller companies that do not pay attention to this every day, it is a welcome addition to the relationship to be able to point them to it.
Lord Razzall: How about Australia?
Elisabeth Bowes: I see the CPTPP and our bilateral agreement as providing enhanced investment opportunities. If you look at the fact that the Indo-Pacific is the fastest-growing region in the world, having the very high standards we negotiated in our bilateral agreement, including on mobility, the temporary movement of skilled professionals, better enables UK companies to come to Australia, set up a headquarters arrangement or a subsidiary in Australia, and use that as a base for access into the region, including using the CPTPP rules.
It goes beyond the very granular trade in commodities to an enhanced trade and investment relationship that presents an enabling environment for a greater UK economic presence in the region. How that can be quantified is—
Lord Razzall: A moot point.
Elisabeth Bowes: But it provides greater opportunities for UK companies, and I think that is a really important point. UK companies and Australian companies that trade and have presence in each other’s country tend to do better economically.
The Chair: Those helpful observations have prompted several questions.
Lord Geidt: Can I probe a little on machinery and process? You noted that in the case of Australia, CPTPP propositions would lead the discussion, beyond which the bilateral machinery would take over to develop the opportunity if it was beyond the scope of the CPTPP.
For both jurisdictions, noting the limits on capacity that were referred to earlier, is it the same machinery that manages those processes? Is it the same machinery in Australia and Canada that takes those considerations as a whole, considers the case within the CPTPP, and then as necessary moves to a bilateral consideration, or are those two separate activities?
Elisabeth Bowes: I think it’s fair to say that, and my comments are based on implementation and how we implement. At this point, implementation of the bilateral and the CPTPP is all done in the same area of my department in Canberra. It is not so much a case of whether we look at one and the other; it is a relationship with companies or exporters wishing to export to a particular region. We have various means by which we can help them assess which agreement might best serve their needs. For example—very technical—we have a dedicated website where, basically, you can import any product and it will give you the relative tariffs under all our 15, 16, 17 free trade agreements. That is how we can support exporters to determine which one to use. We have a trade promotion authority that can also assist in that respect. It is determined by the particular needs of each company or exporter. Certainly, we work very closely with our trade promotion authority.
Lord Geidt: There is not in any sense an impression that something that might not meet the high standards and tests of the CPTPP might then be shoved on to the bilateral basket instead.
Elisabeth Bowes: No. A goods exporter or services exporter would look for the most liberal regime that is of most advantage to that company and then go from there.
Lord Howell of Guildford: I liked your phrase about “another layer”, Mr Barker. Could it be that we are talking about a system that will be predominantly data, digital and knowledge products and services and things other than physical trade? We are already bound up in absolutely huge security projects with two of the members, Japan and Australia, and to some extent with Canada as well. Therefore, in trying to assess the value of this and trying to gain any public consent that we want for it, should we be using different language, rather than the traditional language of just another trade alliance? This is something quite different, is it not? It is moving into a completely different world from the familiar container ships and all the rest. Is that the right way to see it?
Colin Barker: Certainly, over my career we have seen a shift. We used to talk just about goods and merchandise trade and tariffs, and then services became much more important to our economies. There is the challenge of measuring services trade and capturing that in your data, because unless you have good data you cannot decide what policies you need to support that. That has been an ongoing challenge, but we are getting better at it. As my colleague said, it is understanding the very complicated nature of the things that exporters are looking for in regulation, the ease of doing business and the ease of moving staff around to different offices.
If you are going beyond just exporting a widget, it becomes a much more layered and complicated picture. That is why trade agreements have grown in size and complexity, and trade economists have a lot of work to do these days trying to understand those flows and relationships. We have been talking a lot about supply chains over the last few years and even more so in the last two years, trying to understand how to ensure that we have diversity in our trade and that we have options to different markets if we need them.
The picture of trade, as you said, has become much more complicated over the last 20 years, and that is why we have agreements like this that are very broad and include a full range of rules around all the different ways to do exportation, whether it is goods, services or investment. That is why it is important for these sorts of agreements to grow and for new members to join and, as we discussed earlier, find ways to deepen them even further as things evolve.
Lord Grimstone of Boscobel: I have a small practical point. You seem to be saying that a company that wants to trade with Canada or Australia, say, has to declare which agreement it is using, as opposed to it being an automatic process. If that is right, it would seem to be a real burden for SMEs. It is hard enough for them to get their heads around this anyway without having to declare which one they want to use.
Can the process not be made automatic, almost like a most favoured nation status sort of thing, so that if you are trading, the counterparty automatically switches you into whatever agreement is best for you? If you really mean that there has to be some kind of declaration that you are using, I cannot get clear in my own mind how exactly that would work.
Colin Barker: It could be different in different jurisdictions but, as I understand it, in Canada companies have to declare to claim back the tariffs. As we dug into this over the last couple of years, we found that, surprisingly, even with our agreement with the United States, which we have had now for a generation and which is very well known in Canada, we still had a large percentage of companies that were not claiming back the tariffs they were entitled to. That is what I talked about. Particularly for small businesses, that process, that paperwork, is viewed as an expense, and sometimes, unfortunately, they are unable to spend the time doing the paperwork to claim it back. For them, it is just easier and better to ship and pay the duty even if they are entitled to the refund.
We are trying to find ways to improve that process and make it more accessible, and that is why we talk a lot about inclusive trade and making the agreements more accessible to small and medium-sized enterprises so that the take-up of the refunds is improved. As I said, negotiators think we do a great job and produce these agreements, but if companies are not using them they are not really worth the paper they are written on.
The Chair: Is that practical question one of the things that the 2024 review might look at?
Elisabeth Bowes: I think if you are talking about goods, it depends on the customs administrations in each country. In Australia, we are currently looking at implementing a simplified trade system that might help address some of these issues. The key point is that SMEs in particular have to know of the existence of the agreements and the benefits under them, and that is where Governments can step in to make sure that there are tools to help those that wish to export to identify the benefits.
The Chair: Lady Kingsmill has the final set of questions.
Baroness Kingsmill: It was supposed to be the wrap-up question right at the end, so does Lord Fox want to ask his bit?
Q43 Lord Fox: Thanks. You have the Columbo question at the end. Having gone from a multitude of bilaterals, let us go to a multitude of multilaterals. Mr Barker mentioned the relationship between the United States, Mexico and Canada. Two of those are in the CPTPP. We have RCEP where, again, there is multiple occupancy. Different, but trading in the same area, we have ASEAN and the new kid on the block, the IPEF, which may or may not be a trading bloc but may be a policy bloc. How do your respective countries negotiate these interlocked organisations, and where in the stratosphere of these organisations does the CPTPP fit?
Elisabeth Bowes: I have mentioned some of the plurilateral agreements in our region, including RCEP and our trilateral with ASEAN. All those agreements have similar objectives in promoting trade and investment, reducing trade barriers and establishing rules for traders. The objectives are similar. However, the CPTPP has a wider scope and depth than some of the other agreements to which we are a party.
For example if we look at the Regional Comprehensive Economic Partnership, RCEP, is an ASEAN-centred agreement with five of its trading partners—Australia, New Zealand, China, Korea and Japan—but it takes into account the differing levels of economic development in ASEAN. Compared with RCEP, CPTPP commitments are more extensive and, in fact, go into areas that RCEP does not, such as trade and labour standards, trade and environment, and state-owned enterprises.
It really depends on the negotiating partner, but they all sit together quite neatly and in a complementary fashion. With IPEF, the Indo-Pacific Economic Framework, which is US-led but has an even larger membership than RCEP, again it goes into different areas. It does not contain binding market access rules, but it looks at new areas such as anti-corruption, supply chain resilience and green economy. Those are all areas where rules can be set to help further economic integration in the region, and that is one reason why Australia is party to those negotiations.
Lord Fox: And Canada?
Colin Barker: I do not have much to add to that. I reinforce the point that we spend a lot of time just to make sure that all these arrangements and agreements are complementary and can co-exist, and that they do not negate one another or cause any problems. We try to make sure that the rules are complementary and try to find ways to simplify for business how best to use the agreements, and not to change the rules too much between agreements to confuse the business community. There will be an increasing focus on how to make all these things work together.
Lord Fox: In your assessment, which of those organisations causes the most trade for your country?
Colin Barker: For us, it is a simple answer: our North American Free Trade Agreement is our main trade agreement, but the CPTPP is a very important agreement as well. It is probably secondary to our NAFTA arrangement.
Elisabeth Bowes: I would have to say that I do not have the data to fully answer that question, but I can say that our agreement with ASEAN, the Australia-New Zealand-ASEAN agreement for goods, is one of our most widely used agreements. That is partly because it was one of the first. It dates back to 2010. Traders are familiar with it. They are familiar with the rules. Certainly, we are seeing uptake under the CPTPP, particularly with Mexico and Canada where we did not have a pre-existing trade agreement. Traders will look for the best advantages.
Lord Fox: Because your trade with China is large—
Elisabeth Bowes: It is.
Lord Fox: —and does not depend on any trading agreement as such.
Elisabeth Bowes: We have a free trade agreement with China that has been in force since 2015.
Lord Fox: I mean as a group—sorry.
Elisabeth Bowes: Yes. China is part of RCEP. With the United States, we have seen trade double since our agreement entered into force in 2005. It can be a slower process when an agreement comes into force before traders take it up, so it is really important to look at the longer-term impact rather than the immediate.
The Chair: Back to Lady Kingsmill, with apologies.
Q44 Baroness Kingsmill: The summary of what you are saying is that trade with your nearest neighbour is the most profitable trade that you have. Is that not true?
Elisabeth Bowes: It is indisputable that China is our largest trading partner. It also depends on the make-up of our trade, and by far our biggest exports to China are commodities, trade where Australia has a very strong advantage.
Baroness Kingsmill: Indeed. As a wrap-up question, is there anything you would like to draw to our attention that we have not already covered? There must be something.
Colin Barker: I was pleased that we spent quite a bit of time talking about the importance of operationalising FTAs, which we sometimes forget to talk about. To my mind, we have brought the most important thing to your attention, which is to ensure that you work with your companies to make use of these agreements. The Department for Business and Trade benefits from the experience of other countries that have grappled with the issue and have learned some lessons and are doing that from the beginning. You are already a bit ahead of the curve there in incorporating some of the lessons we have learned on advertising the benefits of the agreement and ensuring that people use it and understand it. That would be my important takeaway for you today.
Elisabeth Bowes: From Australia’s perspective, the CPTPP is very much a demonstration more generally of the modernised and transformed bilateral relationship that we enjoy with the United Kingdom, building on our bilateral agreement, as well as being, as I said, a demonstration of the UK’s very strong commitment to the Indo-Pacific region in both economic and geostrategic terms, and that is a really important point.
The Chair: Thank you for that. That brings us to the end of our time, and perhaps slightly beyond. Thank you both very much indeed for your evidence. It is enormously helpful.
