Sam Lowe, Aslak Berg and Professor David Collins.

Q36 The Chair: Good afternoon and welcome to another public session of the European Affairs Committee, taking evidence in our inquiry into the proposed UK-EU reset. This week, we are drilling down into the issue of trade relations between the UK and the EU, and are delighted to have with us Sam Lowe, a partner at Flint Global; Aslak Berg, research fellow at the Centre for European Reform; and David Collins, professor of International Economic Law at City, University of London. Thank you, all three, very much indeed. Please do not feel that you all three have to answer every question. We have questions for each member, so I am keen to try and get through quite a long agenda in an hour—or perhaps a few more minutes, if you can spare us that. With that, rather than ask you for introductory comments, I am going to pose one question which gives you a chance to kick us off, please, and then I shall throw the ball around to other members.

My opening question on this, bearing in mind that we are very much focused this week on trade, is: to what extent do you think the Government’s red lines, as they have laid them down, are going to become an obstacle in the ambition to boost UK-EU trade? I want opening, general thoughts before we come to the detail. Professor Collins, would you perhaps like to start?

Professor David Collins: I do not think they will be a significant obstacle. I think they make sense. Indeed, I would hope that perhaps the red lines are not even strong enough. An improvement in trade relations with the EU is feasible under the existing framework of the TCA, as long as the will is there in terms of work at the committees. Non-membership in the single market or customs union is eminently sensible, and I do not see any reason why—given the nature of the economies of the UK and the EU, each needing something that the other produces, and the nature of the trade surplus that the EU has with the UK in goods at least, and the wide market that the UK offers in services—a more robust relationship cannot be achieved. Even if it cannot be, I think the existing relationship, as it is, is functioning reasonably well.

Aslak Berg: I will give a slightly different answer. I do not think the red lines will be an impediment to improving relations or to having a deal, but they will shape what it is possible to achieve. They will determine the extent to which you can improve relations. One thing that the EU is very consistent about in its relations with third countries is this relationship between obligations and privileges. Having these red lines means that there are certain obligations that the UK will not accept, such as freedom of movement, and the customs union. Leaving aside the issue of whether these are sensible, I do not find these red lines very objectionable, but they will shape the possibility of what you can achieve.

Sam Lowe: I think one of the challenges with this discussion is that people benchmark success differently. If your benchmark of success is the removal of all border procedures and controls, the reinstating of passporting for financial services, and the removal of rules of origin, then yes, the red lines are an impediment to that. The customs union red line means you are not going to be able to deal with rules of origin as fully as you might like, and the single market red line means you are not going to be able to reintegrate UK services into the EU’s regulatory regime. However, saying that, in the context of the red lines, it is still possible to deepen the relationship further. If you look at what the UK has proposed—I am sure we are going to get on to the details of this—then I think many of those things are possible.

The Chair: Okay. That is very good to get us kicked off. Thank you very much. I am going to ask Baroness Nicholson to speak next.

Q37 Baroness Nicholson of Winterbourne: Thank you very much, Chair. I wonder if our guests could tell us about the three priority negotiating objectives that our Government have already identified—the SPS agreement; then the crucial help for touring artists, musicians and so on; and of course the vital mutual recognition of professional qualifications, which is absolutely essential so far as some of us see. What is the view on those objectives? Are they good objectives? Are we likely to reach them?

Aslak Berg: On the three objectives, the SPS agreement is an area where the EU has already signalled willingness to negotiate and where there is mutual interest in a closer relationship. So that is certainly possible to achieve. I think it would be beneficial. I also think that it would not deliver much in terms of economic growth. It would solve a specific problem for the food sector and would help the situation in Northern Ireland, but it is not an engine for growth. The sector is just not large enough to do that.

For the touring artists there are two issues. One is the visa situation—that is certainly something that could be achieved. The other is the cost of the carnets and paperwork. The carnets are there as part of an international agreement to simplify customs work. They are supposed to be a positive alternative to the regular customs procedures. Being outside the customs union, it is very difficult to envisage how we can remove that barrier. Maybe we can reduce the cost to a bit of trade facilitation, but those costs are probably there to stay.

Mutual recognition of qualification is a very understandable request from the UK. There are clear interests for attorneys, accountants, ski instructors, and so on. It is a long path to get it approved. If you look at the countries that have achieved something, they all have freedom of movement. In EU logic, it is linked to freedom of movement, and then you encounter the red lines, so it is difficult to achieve.

A colleague of mine estimated what this would deliver in terms of economic growth, and his estimate was that these things would deliver maybe 0.2% growth in GDP over 10 years—that is very modest. It is a modest ambition and is, in my view, only partially achievable.

Sam Lowe: On the three issues identified, if we start with a sanitary and phytosanitary agreement, first we need to acknowledge that there are different types of agreements, in so far as you could have a sanitary and phytosanitary agreement modelled on the one that the EU, and the UK also, has with New Zealand, which does not require any regulatory harmonisation, or at least very little, but does not remove all physical inspections at the border. It simplifies the paperwork, it makes that process easier, but it does not remove the obstacle or some of the challenges that food exporters face.

On the other hand, you could have an agreement more in line with what the EU has with Switzerland, which removes every need for products to enter via a border control post and the need for physical inspections, identity checks and document checks. However, the trade-off is that Switzerland has to bind itself to the EU’s food hygiene regime, both as applied domestically and in relation to imports. So clearly there is a trade-off there. I am of the view that the objective of the UK Government still slightly diverges from how the EU perceives it. Some meeting in the middle will need to be done.

On touring artists, I would add a third issue. You have issues around the visas related to performers. I would add to that the people who take performers around. There are two different issues. We largely talk about the musicians but actually the industry group that complains about this most is the touring industry—the truckers and the roadies. The UK used to do all those things for Europe, and now it does not because of the difficulties.

You also have visas and carnets, and the issue of cabotage. The issue is about how many drop-offs a UK vehicle could make when it enters the single market. The TCA is more liberal than the EU’s other free trade agreements on this, but it is not necessarily liberal enough to accommodate a Europe-wide tour.

On what can be done on the visas, it is important to acknowledge that the UK and the EU attempted to deal with this issue, at least in respect of the artists, during the TCA negotiations. The EU proposed a labour mobility chapter that would have allowed for artists, broadly speaking, to perform and be paid in the EU for a short period of time. The UK did not want that and instead proposed a different approach in which artists were added to the temporary business visitors list. That is what the UK has done with Norway, so that approach has worked elsewhere, but it did not work in the context of the negotiations with the EU. I raise that to say that there are solutions, and there are solutions that do not require the reintroduction of freedom of movement. There is a solution on each side that is palatable to each side; it is just a question of whether we can agree on a single one.

MRPQ, as has been said already, tends to be quite difficult to do. There is a precedent, again, with the UK and Norway, whereby the burden of proof on qualification recognition shifts, and qualifications are automatically recognised unless there is a good reason not to. So there is a model out there that works quite well. The model that exists in the TCA can take a long time. However, there is definitely some economic upside there. I know from talking to different business groups that if, for example, you could get better recognition of the qualifications of engineers and pilots, that would be of significant interest at least to those businesses concerned with that.

Professor David Collins: I would just add that, starting with the MRPQ issue, this is very sectoral-based. Some sectors will be easier than others. It is difficult to answer the question globally. We know already there was an attempt to have a mutual recognition for architects that was not successful. But if you take, for example, legal services, it may be achievable at member state-level. Some EU member states, for example France and Germany, have the foreign legal consultant designation. So there may be some room to make progress at the member state-level with legal services, for example. Again, it is difficult to generalise and it will depend on the good will that is manifest by the various parties.

That issue is also raised with regard to the touring artists. If I am not mistaken, I believe there was an agreement with Spain, or some discussion about Spain making some progress on this. It may be perhaps too ambitious to think of this in an EU-wide sense. Perhaps we should think of it more in terms of each member state.

On the SPS issue, I agree with the comments that were just made. But it is worth reiterating that if no checks is the desired goal, then some kind of dynamic, ongoing regulatory alignment will be necessary. Not only would that seem to breach one of the red lines, but it could put the UK in a position where it is in breach of its other international trade agreements—the CPTPP, for example. To give one example of how that might transpire, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership is focused on science-based evidence for health and safety regulations, and the EU adopts, of course, the precautionary principle, which is not as deeply rooted in science. So there could be some kind of tension there if the standards from one of the CPTPP countries were recognised at the same time as the EU standards having been subject to a different level of requirement. You would have a segmented market within the UK. You could have suggestive discrimination vis-à-vis EU goods entering the UK market, and so on.

The UK needs to be very careful about pursuing a deep integration on SPS, because that could dismantle the very successful framework of free trade agreements that is already in existence, and the potential free trade agreements that could come in the future, especially when you transpose that to the reality that the EU is ever-decreasing in size as part of the global economy and of the UK’s export market. It would be a mistake to jeopardise those arrangements for the sake of achieving the sort of perfect agreement that would replicate what was in place for the UK as a member of the EU.

Q38 The Duke of Wellington: In what other areas do each of our witnesses think it might be advantageous for the Government to try to negotiate a closer relationship, other than the three we have already discussed?

The Chair: Mr Lowe, could you start? I think you also wanted to come back on Professor Collins.

Sam Lowe: I just wanted to make the point that although the professor’s legal analysis is, of course, sound, I disagree that it is such an issue in practice. The UK managed to accede to CPTPP while retaining the EU’s sanitary and phytosanitary measures in practice. We retain the precautionary principle; we retained, in practice, all the EU’s rules.

While there may be on paper some differences that would need to be resolved, we have already seen the UK manage to join an agreement while maintaining EU rules. The idea that binding itself to the EU rules further would cause a significant problem—I am not saying no one would complain—is something I disagree with. However, I agree with the point that was made about it possibly impacting future negotiations. If, for example, the US asked the UK to change its food safety regime in order to accept more US food, that would of course cause a problem for the UK in respect of both its ability to conclude an agreement with the US and possibly its ability to conclude a veterinary agreement with the European Union. Sorry, that was a bit long-winded.

Other areas that I have been thinking about have been, first, linking of emissions trading schemes—that is something that I think we might get on to. Then there is mutual recognition of conformity assessment bodies, the recognition that a testing body located in the UK can certify that products produced in the UK to EU standards are okay to be placed on the EU market. The EU has lots of these agreements around the world, including with countries it does not have free trade agreements with—for example, Australia and the US. It was something that the UK did not manage to achieve in the TCA negotiations, and I wonder if it could be revisited.

Professor David Collins: Those points that Mr Lowe just made with regard to other areas are excellent. I agree with those. Obviously, financial services passporting would be a major achievement. Not requiring UK financial services providers to have a presence in the EU would be very useful. We have sort of touched on this with respect to the mutual recognition of professional qualifications. I agree absolutely with the point on recognition of conformity assessment procedures. The EU has granted that to Canada, for example, and it is unclear why it has not done that with the UK.

Perhaps one other area that would be on a wish list—perhaps too ambitious, but why not mention it?—would be a permanent data adequacy commitment to facilitate digital trade flows. I am of the opinion that that is probably not actually necessary and that, in fact, the UK should seize the opportunity to diverge from the EU’s data protection rules. Measures that UK firms could take, such as standard clauses in contracts, while potentially onerous, would be more than compensated by eliminating the cumbersome GDPR rules. This would also facilitate onward exchange of data with third countries, again such as those in the CPTPP. But it would be nice for the EU to grant a permanent data adequacy acknowledgement. That would set a lot of businesses at ease, and it would sort of cease to operate as this sword of Damocles that could be removed at any moment, which I think has potentially hampered businesses that are not prepared yet to pursue alternative regimes.

The Chair: I think Baroness Ludford wants a quick intervention on that.

Baroness Ludford: Yes. Professor Collins, I think I heard you suggest that another objective could be passporting of financial services. But how could we do that while refusing to join the single market—or am I out of date?

Professor David Collins: Joining the single market might be one way of doing that, but I do not think that it would be the only way. Why not have an agreement to allow passporting? Why would it need to contemplate the single market? I do not know why that could not be—

Baroness Ludford: Without any regulatory agreements or convergence?

Professor David Collins: Well, I could not purport now to lay out exactly how I would phrase it, but it would be something along the lines of acknowledging outcomes, recognising international standards, having a joint appreciation of prudential measures, some sort of shared goals—that kind of thing. It would be eminently doable.

Sam Lowe: Could I add to that? Outside the single market, you do, of course, still have the EU’s equivalence regime, which exists for financial services. This is largely something that UK industry has given up on as an option, with the exception of one area in particular where there is still an equivalence decision in place for clearing houses, because that was something that the EU was not able to do onshore. Theoretically it is still possible for the UK to be granted equivalence. It has not been part of the discussion for a while but, I suppose, as Professor Collins said, if you are being very ambitious, it is something that you could bring into the conversation.

Aslak Berg: Just to add to that, I think financial passporting would be a significant achievement, but this is also an area where the EU sees the relationship as more competitive, so I think it is politically unlikely, unfortunately. I do not want to repeat what others have said, but I would like to add energy trading as an important sector that would benefit from harmonisation and increased alignment.

The other thing I would add is that there is a lot that the UK can do unilaterally without agreement. I will take a specific example on medicines. The UK has a regime in place that facilitates recognition of medicines approved in other countries. That is a good system that is well adapted to that sector. You would have to look at other things for other sectors—for instance, for chemicals, Switzerland has had a regime with unilateral recognition of EU REACH. That is something that the UK can do without an agreement. You can do that for a lot of sectors, but any kind of unilateral alignment would be much easier if you could also have this conformity assessment that—

The Chair: Sorry, could you just repeat the last point?

Aslak Berg: Well, the scope for the UK to adopt a regulation unilaterally would expand if you could have a conformity assessment agreement with the EU.

Q39 Baroness Suttie: Could I ask you a little about the timeframe you would expect for these negotiations? Perhaps we could start particularly with the SPS agreement. I do not know who would like to start. Mr Lowe?

Sam Lowe: I am a big sceptic of people purporting to say that things take a long time. The reason I say that is that the UK and the EU managed to negotiate the trade and co-operation agreement in under a year, and the EU-UK Trade and Co-operation Agreement is arguably the most comprehensive free trade agreement in the region, possibly on earth if you discount deeper relationships such as the EU has with, say, Norway. Sorry, I am pointing at Aslak because he is from Norway.

The Chair: Our representative Norwegian.

Sam Lowe: Yes. In terms of time frame, I think it is more of a political decision. How much do you want to do it and how quickly do you want to do it? If you want to do it quickly, you can. You have to commit a lot of resources to it, and you have to essentially take political decisions to upset certain constituencies in short order, because that is how you eventually get to an agreement. But it is possible to do everything on the list that we have been talking about in 12 months. I am not saying we will, but you could.

I also forgot to add to my list the Pan-Euro-Mediterranean Convention on preferential rules of origin. The PEM convention is one of the things that I think we should do.

The Chair: We shall come to that, I think.

Baroness Suttie: Professor Collins?

Professor David Collins: I am in agreement with my colleague. I do not see any reason why this could not be done reasonably quickly. This is a political question. I think I have alluded to this or mentioned it before: if the political will is there, I do not see why this could not be done in under a year. All the committees and the framework are in place under the TCA. If the parties wanted this, yeah, this could conceivably be wrapped up in a year’s time—sure.

Baroness Suttie: Do you agree, Mr Berg?

Aslak Berg: The issue is that the UK also has to have its internal processes completed. It is easy enough. If the UK knows what it wants, it can be negotiated. A lot of it can be negotiated in any case, but you need to have a proper process in place so that there is a degree of consensus in the UK, so that there can be some certainty that these will be lasting solutions that will also survive the next Government, whenever that Government come.

Q40 Baroness Ashton of Upholland: You mentioned “if the UK knows what it wants”, so let me turn to the EU and its position. Having been Trade Commissioner for a bit before I was high representative, I dealt with many issues of trade, and the EU has to come to a position from a perspective in which member states and indeed different parts of industry have different views—different sectors take different views. So do you think the EU is broadly content with our relationship under the terms of the TCA? Do you see, especially as we look to a reset, particular member states or EU sectors or industries who perhaps would like to see the relationship change in one direction or another?

Aslak Berg: Broadly, the EU is happy with the TCA. There is no urge from the Commission to renegotiate—it is not an EU priority. However, there are member states that have close relations with the UK that want to maintain or deepen the relationship. They are generally in northern Europe—Poland, the Netherlands, and countries such as that. They are, fundamentally, countries that feel an affinity with the UK for historic and cultural reasons, and reasons of national security.

There is extensive good will in parts of the EU. But even those countries do not see deepening trade relations as a priority. It is something they would be happy to do but it is not at the top of the list. They have internal issues they have to address.

The Chair: Who else would like to take a shot at that? Mr Lowe?

Sam Lowe: One of the things the EU has explicitly mentioned as an area where it would like to see improvements in the relationship is fishing. The access to waters will be renegotiated in 2026. Alongside that, you have an EU-UK dispute under the TCA relating to the ability of largely Danish fishermen, but also French fishermen, to fish sand-eels in protected waters. That is going to be a problem.

We can remember throughout the Brexit withdrawal negotiations and the negotiations around the future relationship there were moments where it looked like everything would fall apart because of disputes relating to fishing. You may remember, at the extreme end of that discussion, the threat to cut off Jersey’s energy supply. Fishing will need to be navigated.

Speaking cynically, and as a non-political actor who is observing, the current Government do not necessarily need to be as worried about fishing communities as the previous one. That could inform the discussion, but I am sure no one in the Government will ever say that publicly.

My second point is that the EU has mentioned youth mobility. I can explain at length why youth mobility is not freedom of movement, but in the public debate they, of course, get conflated. Clearly, that is politically difficult for the current Government, but it is what the EU has identified, so, if the UK wants something in return, it is going to have to at least address those issues.

Another thing that has been raised recently is PEM, the Pan-Euro-Mediterranean Convention on preferential rules of origin. Maroš Šefčovič mentioned that two weeks ago.

In the margin, you also hear conversations about the linking of the emissions trading scheme.

Lord Jackson of Peterborough: You will know, Mr Lowe, that we had a debate on youth mobility in the Lords two weeks ago. Is it your sense that on youth mobility the EU might be prepared to give ground on, for instance, being treated as a third country for higher education fees and admin fees, and on the intervention or otherwise of the European Court of Justice? Is there room for compromise on those areas?

Sam Lowe: I spend my life going back and forth from Brussels but, without claiming to have any specific conversation on this, my assumption is that as part of that discussion, they would have to concede on some of those issues. For example, the point you raised about EU students being treated as UK students for the purpose of fees goes far beyond what we have seen in other youth mobility schemes.

If you look at the UK’s existing youth mobility schemes with South Korea, Japan and others, India is a slightly different scheme—you are talking about two years, possibly extended to three, for young people aged either 18 to 30 or 18 to 35. If the landing zone is around there, then hopefully an agreement can be reached. Of course, if the EU remains at its most maximalist, it could be difficult. I remember that when I was studying—this may no longer be the case—even students from Guernsey had to pay international fees. So extending that treatment to EU nationals might be a step too far.

Lord Jackson of Peterborough: The German Government are likely to change this month with their general election. The Germans have been particularly insistent on a youth mobility scheme being one of their imperatives. Do you think that will change? I know it is a difficult question. Will the new Government have as much of a priority for a youth mobility scheme as the existing Administration?

Sam Lowe: There are degrees, but my view is that the EU’s ask on youth mobility will be consistent and will stay. Given it is not asking for many things, it needs at least to have something. The question is around what the landing zone looks like and what the details are.

The Chair: Professor Collins, do you want to add anything?

Professor David Collins: Yes, just briefly. I would imagine that the EU would be delighted with the current situation under the TCA. It got the better end of the deal. It is a goods-focused agreement, and its strength is exporting goods to the UK.. The agreement is weak on services. That is a functional problem with the agreement. Moreover, the EU retained Northern Ireland within the single market. The UK’s internal market was sacrificed for the sake of the TCA. So my sense would be that the EU would be quite happy with the current arrangements.

On the youth mobility point, that would denote a major concession on the part of the United Kingdom, because I would think most of the traffic would be going this way rather than the other way, mostly due to language reasons and the strength of the economy. So, you would bring in young people who would compete with young people in this country for very scarce jobs. That would be a major concession on the part of the UK. I am not surprised that that is something the EU is asking for.

The Chair: They might not compete for jobs if the youth mobility visa was limited to a very short period but, anyway, that is a fair point. Thank you very much.

Q41 Lord Stirrup: I would like to dig a little deeper into the impact of one of the red lines, which is non-membership of the single market. The EU regards the principle of the single market as sacrosanct, and certainly from what we have heard in answer to the question so far there does not seem to be anything attractive enough on the EU side to suggest it might wish to sacrifice the principle of the single market. The presidency recently issued a report saying the United Kingdom’s sectoral participation in the single market would not be in the Union’s interest economically or politically, and would be contrary to the European Council guidelines. It has been suggested to us that the EU’s recently negotiated arrangement with Switzerland would give the lie to that. But the Swiss arrangement would require the UK to row back on some aspects of Brexit, and there seems to be an indication that the EU does not really want to repeat the Swiss experiment.

Mr Berg, you wrote about the DCFTA model—the deep and comprehensive free trade areas with Ukraine, Moldova and Georgia—and how they might be applicable to the UK. But surely those are arrangements designed to take countries that aspire to EU membership and help them to converge with the EU rules, and to reward them more and more as they converge more and more, whereas the UK starts from a position of alignment and is diverging from the EU, not necessarily because of UK actions, but because of EU decisions that take it further away from that aligned position.

The DCFTA would seem to be a mechanism that would encourage, or indeed require us, to remain aligned with the EU on these things. It is not clear to me how that would help the UK’s position. In all of this, I am, for one, rather confused about how we get around this issue of the single market. Perhaps you can help me.

Aslak Berg: Perhaps I can. By having membership of the single market as a red line you accept the EU line that the single market is sacrosanct and indivisible. But, if you look at what the EU does and not what it says, Switzerland has partial access to the single market, while even Norway and Iceland are not part of the single market for agricultural goods or seafood. What the EU has been consistent about is correlation between responsibilities and privileges, and about negotiating its interests. Even in relations with the UK, once it has indicated that an SPS agreement is possible, that is a sectoral agreement. When the EU talks about cherry picking, it should be interpreted as saying that the UK cannot just pick the cherries it wants. But if they are cherries that the UK and the EU want to enjoy together, I think those can be picked. There is more flexibility than it likes to indicate.

With respect to the DCFTA, you are right, of course, that these are agreements that have been granted to countries that aspire to join the EU. It is just a matter of: if you are going to do alignment, how do you align? There are different models of that: there is the Northern Ireland model, the Swiss model, the EEA model. The DCFTA model offers a different alternative that is more gradual—where the EU negotiates, where you have committees and gradually try to align. There is no reason that has to be limited to countries that aspire to join the EU. It could work for the UK, if the UK, for instance, wants a less ambitious model than full alignment on SPS.

Sam Lowe: The point on SPS is well made. In offering agreement on sanitary and phytosanitary alignment that specifically covers food and plant products, you have already acknowledged that you are willing to split the single market in specific instances. It is sort of on the EU’s terms. One point I would make is that the real barrier to deep regulatory harmonisation across a number of sectors does seem to be freedom of movement. If you look at what is consistent with Switzerland, which has partial integration with the EU’s single market for goods, I note that on agricultural products, while it is more integrated from the regulatory perspective, some of its products are still subject to tariffs. That means that the UK is actually more integrated on that from a tariff perspective, because we are duty- and quota-free across the whole spectrum. Norway is also integrated, but more so, with freedom of movement, as is Iceland. You can get to Liechtenstein and start having some questions about some of the emergency brake, but I really hope we left that behind during the Brexit era. That seems to be the obstacle. I do think it is possible to integrate further, but it is just a question of on whose terms.

Lord Stirrup: To summarise, just to make sure I have understood: basically it depends on there being something the EU wants badly enough in the context of a deal where it has already got the better end of the stick, as the professor put it.

Professor David Collins: I would like to just add something. The other thing to be aware of with regard to any of these elements of the single market being disaggregated is, of course, the role of the ECJ. The ECJ sits as the final arbiter over the single market and all the regulations. That is just how it works. If the UK wants to have some elements of the single market—various aspects of the cherry picking, as it were—I would be concerned that the ECJ jurisdiction is going to come with that, and I think that would violate some of the red lines that have been articulated with respect to the reset and that are also quite deeply rooted from the old Brexit days—this idea of having a foreign court arbitrating over British regulations. Even with the EFTA countries, you have the EFTA Court, but of course the EFTA Court is a supplicant to the ECJ. You would have to find some way to make it palatable in this country to remove the ECJ’s oversight, and it would be very difficult for the EU to agree to that, so that is going to be one of the areas of tension.

Q42 The Chair: Can I raise the issue of the emissions trading system and CBAM, the carbon border adjustment mechanism? Since we have read in the press that it is now perhaps in scope or coming into scope, what commitments would the UK have to make in order to join the EU emissions trading system or more accurately align the UK system with the EU’s emissions trading system? Would the benefits of that outweigh the costs, particularly if you take into account the CBAM? Would avoiding CBAM make this an attractive deal, even if there were costs to aligning with the emissions trading system?

Sam Lowe: The linking of carbon pricing is a fascinating one because, if you look at Article 392.6 of the trade and co-operation agreement, it is one of the only articles in the entire agreement that envisions future reintegration of the UK and the European Union. It says: “The Parties shall cooperate on carbon pricing. They shall give serious consideration to linking their respective carbon pricing systems”. So it is one of those areas that, in a way, should be fairly uncontentious, in that that provision was agreed under the previous Government and it is something that industry has advocated for quite vocally.

In terms of some of the challenges around linkage, there is a question as to whether the EU will ask for further regulatory or dynamic alignment alongside it. If you look at the linkage between the Swiss emissions trading scheme and the EU’s, you can see there is a model that does have some regulatory alignment in how you manage the infrastructure and the like, but it is really rather technical and I would argue relatively non-contentious in the grand scheme of things—as in, it is fairly sensible. You need to work together to make the thing work, and you need some common understanding of what the different rules mean. I suppose there is a version of this where the EU goes maximalist and asks for wider environmental alignment in different areas that maybe could be seen as more contentious, but it certainly does not have to be. Also, I would say that the linkage between the EU and Switzerland does not include the Court of Justice, which at least avoids one red line in theory.

In terms of the benefits, from a market perspective it just means that you have more to trade, which means less volatility. I have completely blanked on the correct word for this. It is easier to buy and sell—what word am I searching for in my head? Ah, liquidity! You have increased liquidity and more certainty on pricing. But the other benefit is a sort of second-order benefit for UK exporters of goods that would otherwise be impacted by the EU’s carbon border adjustment mechanism. As it stands, even if the UK’s carbon price is higher than the EU’s, exporters of steel, cement and other products, including electricity from the beginning of next year, will be faced with at least the administrative burden, which is already being phased in, of the carbon border adjustment mechanism and potentially a new cost. If you link the emissions trading schemes, you no longer have that to deal with. This also removes the problem that no one wants to talk about, which is how the EU’s carbon border adjustment mechanism interacts with Northern Ireland. This is not a question that anyone really wants to discuss, and linkage would resolve that.

To my mind, it is fairly sensible. You then also have to consider what to do with the UK’s proposed carbon border adjustment mechanism—whether you align it with the EU’s or not. I would make the point that they are distinct policy discussions. Although related in terms of impact, one does not necessarily require the other. Switzerland has linked its ETS without having a carbon border adjustment mechanism. It is possible to have one without the other, but obviously it would probably be sensible to package it up together. In terms of downside—we can acknowledge this—in the short term, you could see the carbon price go up, just because the EU’s is currently higher than the UK’s. But when you talk to anyone about this, they just make the point that you cannot assume that the EU’s is always going to be higher than the UK’s, or the UK’s is going to be higher than the EU’s. So actually, in the long to medium term, the linkage, the increased liquidity and the ease of trading just outweigh the maybe short-term downside.

Professor David Collins: There are a couple of technical differences with the UK’s emissions trading system and the EU’s, one of which I think is the reserved price issue that the UK has for the auctions, which the EU does not have. There would be some technical adjustments which are probably manageable.

I would like to take a moment on the record to say that I am dubious about the CBAM as a policy. The EU seems to be going ahead with it. Obviously, it is going to raise prices for consumers. It is a massive bureaucracy that is going to be expensive. There are concerns that it will affect developing countries. My concern is that I am not convinced it is compliant with World Trade Organization rules. I know the UK is going through the analysis now, in the construction of its own CBAM. Linking emissions trading is one thing, but doing it with a view to complying with the EU’s CBAM—to avoid the EU’s CBAM tariffs—is potentially problematic, especially in the context of the trade wars that we are now in. There is no way the Americans will stand having CBAM duties put on their products. It will only exacerbate trade wars, and I do not see the economic rationale for it. I am not convinced that there is a climate change rationale for it either.

The Chair: Thank you very much indeed. Mr Berg, do you have any further thoughts on that?

Aslak Berg: I do not want to repeat anything, so I will just say that the EU is undergoing its own regulatory rethink on a lot of issues, but the CBAM is one of the key priorities so it is likely to go through. It might possibly get delayed but I think that it will be implemented.

Sam’s overview was fairly comprehensive. I want to emphasise the importance of CBAM for the energy market. If you are going to have a North Sea electricity market, it will be very difficult if you place CBAM pricing on energy from the UK.

The Chair: It would very much complicate that. Okay, thank you. Lord Jackson?

Q43 Lord Jackson of Peterborough: Going back to the SPS agreement, whether that is expedited quickly or not, the EU is likely to stick to a demand for full UK alignment with the EU acquis. What would that mean?

As a supplementary question, can you tell me your views on the Product Regulation and Metrology Bill before Parliament at the moment, particularly on Clauses 1 and 2 on the environmental impact of products and the ability of Ministers to direct that there will be full alignment of manufactured goods? I wonder how you see that in the broader context of alignment and future trade between the EU and the UK.

Sam Lowe: I would agree with you that, from an EU perspective, when it uses the terms “veterinary agreement” or “SPS agreement”, it is envisioning regulatory alignment in the sanitary and phytosanitary sector between the UK and the EU. There might be some consideration about how you package it. In practice, that means that the UK complies with EU rules and regulation in its domestic regime, and applies the same rules to imports from third countries.

If you think it through, you can understand why that leads to the removal of checks at the border, because you have essentially extended the EU’s SPS firewall to your own borders. That is what Switzerland has done. I get the sense that perhaps that is not what the Government are trying to achieve or that they would necessarily like how I have just described it, but it is certainly how the EU perceives it and will be part of the negotiation.

I notice that Lord Frost has just entered the room. I remember we had this discussion a year and a half ago at conference and made the point that SPS agreements sit on a spectrum, and one side of the spectrum is perhaps easier for the UK to sell domestically or to tolerate.

On the Product Regulation and Metrology Bill, my view is that the UK Government creating a mechanism by which they can unilaterally align with certain EU product standards and approaches is essentially just codifying what was happening in practice anyway, in so far as, for example, CE marking. We constantly said we would try to diverge and would introduce the UKCA mark, and then people would say, “Doesn’t this create problems with Northern Ireland? Our companies are not up to speed”, and then you would have another extension of the recognition of CE marking.

For example, you would have the continued recognition of medical devices authorised by third parties located in the EU. That is a good thing. As we discussed earlier, the way the regime is changing towards the recognition of authorisations of medicines in third countries is quite a good thing, because it can lead to patients getting the products they need quicker. It is a sensible thing to do, because it was wasting a lot of time and creating a lot of uncertainty for businesses that had to be walked up the hill every time and be told, “There’s a new deadline, there’s going to be a change. Oh no, there’s not”. I am of the view that if there is something we want to change and we have a good reason for it, then absolutely let us have that discussion. But we should not create unnecessary uncertainty otherwise.

Lord Jackson of Peterborough: Is not the flipside of that that you will design a regulatory regime where you have not had any input, and you have no legal infrastructure domestically to challenge that, and you have a supranational legal entity making those decisions?

Sam Lowe: It is unideal but, as I said, that was happening anyway. We are just codifying it and making the practice simpler. In practice, if we start from the beginning, the underlying standards are usually the same, and the UK is part of that standards creation process. We are largely talking about how you certify them, either using third parties or self-certification, and the stamp that is used to recognise that. Companies are doing that anyway. They have really struggled to change in some sectors, particularly in areas where there has been difficulty creating the domestic capacity to create the third parties necessary to actually do that certification.

I think it is just common sense. I am not arguing that there is no opportunity for the UK to diverge on specific areas. Show me the example and we can discuss the merits or not. But creating cliff edges for businesses where they are thinking, “All my products are going to have to be taken off the market. I have not got it certified. I’ve invested”, was happening regularly, and this will hopefully stop that.

The Chair: Would any other witnesses like to comment on that? Mr Berg?

Aslak Berg: On the SPS, if you look at the policy problems the UK Government want to solve, which are Northern Ireland and the checks on the border, it is true that there are a variety of SPS agreements out there—you have equivalence, and mutual recognition. But anything short of full alignment is not really on the table if you actually want to address those problems in full, and that would require adopting EU rules and ECJ jurisdiction. It does not necessarily mean 100% alignment; there is usually a bit of leeway, and Switzerland has secured some exemptions. There is limited scope but it is on the margin. It would require 98% adoption of everything. But that would solve the issue, and it is conceivably on the table. On the metrology Bill—

Lord Jackson of Peterborough: It is product regulation and metrology. I wish it was just metrology. It would be easier—

Aslak Berg: You are right. On product regulation, the UK is a large market in the European context but a fairly small market globally. It is not a market large enough to impose its own product standards without significant cost. That is the reality, and that is what causes the dynamic that Sam just discussed where you were looking for ways to diverge and then you ended up maintaining the same rules.

It is important for British companies is to have predictability, to know that if you are exporting to the EU you will not just be compliant with both EU and UK regulations now but also in 10 years, if you are investing in a factory. So having a way to provide that predictability is essential and, if anything, I would like to see it done more explicitly and clearly and also delineating where the UK might want to diverge and what the consequences would be. If is just a ministerial decision, that is a source of uncertainty. Maybe their decision in a few years will be something other than it is now. Having an even stronger framework would be good in my view.

Professor David Collins: I can only reiterate the point I made earlier on SPS. I would be very concerned that any kind of dynamic alignment that was meant to minimise or eliminate border checks would be absolutely devastating to the UK’s framework of trade agreements that it has formed with other countries and will form in the future. I do not see how it is compatible with the CPTPP. Regarding the fact that there have not yet been any challenges to this, I think that is only a matter of time.

I cannot possibly conceive how the UK could ever imagine having a free trade agreement with the US, having committed to dynamically align with EU SPS rules. You can forget about innovations in the agriculture sector, for example, such as precision agriculture, genetically modified organisms, and so on. It would be incredibly stifling to innovation and dynamism in the UK market, and would fundamentally undermine the UK’s past and future free trade agreements.

I am disturbed by the metrology Bill. It grants too much discretion to the Secretary of State. I do not know why the EU has been chosen as the jurisdiction that is unilaterally presumptively valid as a source of regulations among all the countries in the world. Why did Japan not get this treatment, for example? Why not Canada? I am very concerned that this is a backdoor to dynamic alignment going forward. There is too much discretion to enact secondary legislation without proper parliamentary scrutiny. This is a very dangerous route to go down and I would like to see the language tightened up so that those potentials or risks are eliminated.

Q44 Baroness Ludford: We have considerably covered the next question, but we can think about any other potential factors across the piece that could operate as obstacles to an SPS agreement. We have talked a lot about alignment, and dynamic or full alignment, and there is a difference of emphasis between Professor Collins and particularly Sam Lowe, and possibly Mr Berg as well, on any conflict with the CPTPP. But clearly the election and pronouncements of President Trump are quite a different matter.

We may go more into politics than economics and regulation, but I could not help noticing at lunchtime that the UK had joined the US in refusing to sign the final communiqué of President Macron’s AI conference, and I wondered whether that was a signal of things to come.

On food, it is certainly true that we cannot have GM food and hormone-treated beef or milk and have full regulatory alignment with EU rules. I speak as a former MEP remembering all the GM issues. Can you think of anything else that will trip us up?

I am not sure about the ECJ. The UK Government seem quite relaxed about the ECJ, presumably on the basis that, unlike the ECHR, voters do not get terribly worked up if there is going to be ECJ jurisdiction on veterinary rules. I get the feeling they do not get too worried about that.

Anyway, that is too much from me. I just wonder if you can think of anything we have not covered.

Sam Lowe: On the ECJ, it depends on how you package it. The ECJ exists in the withdrawal agreement, in the context of citizens’ rights but also of the Northern Ireland protocol, in how disputes are managed. It is packaged so that you have independent arbitration but, on questions of interpretation of EU law, you take into account the opinion of the ECJ. That is also broadly how the EU resolves its issues with Switzerland—the ECJ links into the dynamic alignment that exists in the relationship there. So you have the ECJ at arm’s length, but you do not necessarily have its direct involvement in disputes. It is a political question as to whether that is palatable or not in the context of some of the things we are going to discuss.

On the issues that could create tensions between the UK and the EU, or damage the reset, yes, of course there is the new US President. He might, for example, say to the UK, “I am going to put tariffs on you unless you agree to buy more food and, as part of that, you need to change your regulatory regime”. That is a plausible scenario. If the UK said, “Yes, okay, we are going to change our regulatory regime to allow ourselves to import more food”, then that would of course create issues with the reset with the EU and the veterinary agreement. However, I do not think there are that many of those examples. That is one where it is certainly a possibility that it could occur.

On ETS linkage, I think it is true that when the new US President is told about carbon border adjustment mechanisms he will not like them. The Biden presidency did not either. That is certainly an issue. But, as I said earlier, the CBAM and the ETS linkage are distinct policy conversations. You could link the ETS of the UK and the EU while still having a separate conversation about carbon border adjustment mechanisms. It does not necessarily need to get sucked in.

The political answer is that, if we get to a situation in which the US is engaged in a tit-for-tat trade war with the EU, and the UK has negotiated its way out of that, then that could of course create some resentment at the political level. But within the EU you are going to have some of those tensions, with individual member states having better relationships with the new Administration than others, so it might not be so out of the of the ordinary.

Professor David Collins: Many of the questions you have raised are probably political problems, and Mr Lowe has articulated some thoughtful responses to those. I would be concerned about the issues that were, let us say, not mentioned.

You raised the issue of AI, which will be an interesting one to look at. We know that the EU, typically, has taken a much more robust stance on AI technology, and that was reflected in the Vice-President’s comments today. So that would be an area where the UK could potentially adopt a more Atlantic approach that would be more accepting of innovation.

The other issue is the UK’s approach to trade remedies. In particular, how willing is it to use to use safeguard measures to maintain anti-dumping actions, and whether or not that is more aligned? What line would the UK take with respect to China, for example? Were the UK to take a stronger stance on dumped products or allegedly dumped products from China, and were that to align more with what the US is doing, if we could frame the US’s tariffs as anti-dumping or safeguards, which they have not been but which a lawyer might attempt to do, that would be an example of how interesting it will be, going forward, to see the extent to which trade remedies will be used by this country.

That leads into even more deeply political questions about economic plans generally, with respect to regulation in this country, industrial policy, the tax regime, and how welcoming the UK is to foreign investment. Obviously, if the EU faces tariffs and the UK does not, the UK could potentially be a more attractive destination for foreign investment to jump over the tariff wall, as it were.

Those are all very interesting issues that are ongoing. They are only going to become exacerbated in light of the trade tensions that we see unfolding in real time. We may even have new tariffs since this committee meeting started.

The Chair: Yes, quite possibly. A quick word from Mr Berg and then we will move to the last few questions

Aslak Berg: In addition to what has been mentioned, if we are talking about the EU-UK-US triangle, tech regulation in general might become an issue. The UK is largely in line with EU regulation, with the exception of some of the newer ones. There is a very real risk that you will see a push from the US to reverse some of this or at least affect how it is implemented and enforced, and that would also affect the UK.

There is also the issue of competition law—antitrust law—and you could also see some renewed pressure from the US and a change of course.

The issue of aligning with the EU on SPS is mostly about the US. Even the regulations in the CPTPP are there because the US wanted them. That is also why there have not so far been any issues. There is a real barrier and having this alignment would make it harder to negotiate an FTA with the US. Then you can also ask how realistic any agreement with the US is in any case in the short term. But the barrier is real.

Q45 Lord Frost: Apologies for arriving late. I had some business in the Chamber. It sounds like you may have covered some of the ground that I would have asked about, so stop me if you have.

I have a question for Mr Berg, although I would be interested in others’ views too, which is that you said just now that in the end the only SPS agreement that makes a difference is the alignment, ECJ, full-fat version, and that has certain consequences on trade that others have touched on. Is it your view, therefore, that there is no point in the British Government seeking to negotiate any other kind of SPS agreement? Is it either that or there is not an agreement?

Aslak Berg: There is not much point in trying to have something such as, for instance, the New Zealand equivalence agreement, about which I know there has been some discussion. I do not think that it is on the table. It is always useful to negotiate and to try to expand the room for manoeuvre. There might be possibilities for exceptions; it does not have to be completely identical. If the issue you want to solve is the border controls, then that implies a very high degree of alignment, and then it is just a matter of negotiating at the margin around that. That is my view.

Lord Frost: Do other panellists agree on that?

Sam Lowe: If your ambition is to remove the controls at the border—the need to enter via border control posts and for physical inspections, identity checks and document checks—then you are talking about full integration. But if your ambition is, for example, to reduce the frequency of physical inspections or to simplify the documentation, then perhaps you push for something that does not come with as much alignment.

But that does not necessarily fully solve the problem that you want to solve and is, indeed, something the EU rejected previously, at least conceptually. However, I do not agree with anyone who says that you cannot go and ask for something again, because the politics of the situation has changed and perhaps different people will view things differently.

On the point around exceptions, I just want to mention something I whispered to Aslak, because it is slightly amusing. One of the exceptions Switzerland has, on whether it has to apply EU SPS rules in relation to imports from third countries, is hormone beef. Switzerland is able to import hormone-treated beef from the US, so long as it is very heavily labelled and comes with lots of conditions. It does not import it because the tariffs are so high, but it could in theory. One of the reasons for that is because the EU lost a WTO case. Switzerland argued that it could not align with the EU on this issue because it would put Switzerland in breach of its international obligations. So I do not think the EU would allow this with the UK this time round, but it provides an example that you can, in theory, create carve-outs that would make things easier with the US, even though I do not think that would necessarily happen in practice this time round.

Professor David Collins: My cynical take on this is that I suspect the UK is the least likely of any country to secure any kind of a concession with respect to SPS alignment and the jurisdiction or not of the ECJ, and so on. If New Zealand is going to have a concession, the UK will not be able to get such a concession, for the simple reason that the EU perceives the UK as a competitor. It does not want a more nimble, more competitive market on its doorstep. It wants the level playing field.

The EU does not see New Zealand as a threat economically, whereas it does perceive the UK that way. That is not a very nice way to put it, but it is a realistic way to put it. That was reflected in the Brexit negotiations all those years ago—no cherry picking. The EU does not want the UK to enjoy anything that will allow it to position itself as a better destination for capital and for business, because it could have negative repercussions on the EU’s own economy.

Lord Frost: For the purpose of clarity, if we are in the full-fat SPS agreement world, or something like it, would you both agree, Mr Berg and Mr Lowe, with the statement that Professor Collins made about 10 minutes ago, which is that that is basically incompatible with a worthwhile third-country trade policy? Do say if you have already talked about this.

Aslak Berg: No, it would specifically raise issues with the US. The rest of the world would not be nearly as problematic. It would specifically raise issues for a full-fat free trade agreement with the US. The US has not done a lot of these FTAs lately. It might be willing to do so with the UK, because the special relationship does matter a little. I want to acknowledge that and say that that is a real issue, and that means that you might get something less from the US than you otherwise would have. That does not preclude the UK from having an independent trade policy in general.

Sam Lowe: I would say that the evidence suggests not. We managed to negotiate a free trade agreement with Australia and with New Zealand and to accede to the CPTPP while retaining the EU’s sanitary and phytosanitary regime in every meaningful way. So the UK’s post-Brexit successes demonstrate that continued imposition of EU rules in the UK was not an obstacle to an independent free trade policy.

I would also highlight that Switzerland, which obviously, as we have discussed, is bound to the EU’s SPS regime, has trade agreements with Indonesia and with China. Both are countries the EU does not have free trade agreements with, so it is entirely possible to have an independent free trade policy while being bound to the EU’s SPS regime. But it is important to acknowledge that it creates problems, and I think it would create a problem with any free trade negotiation with the US.

It has created problems with Canada. In the context of CPTPP accession, Canada continually moaned about the UK’s retention of EU SPS rules. It did not ultimately prevent the UK acceding but it was an issue, and it remains a challenge in the bilateral discussions with Canada when it comes to upgrading the agreement. That is because Canada, being on the doorstep of the US, implements US approaches to sanitary and phytosanitary rules, which might be a lesson in this context as well.

The Chair: Very good. We have come to the last couple of questions. Baroness Hayter?

Q46 Baroness Hayter of Kentish Town: I am a bit cynical about the idea of a bilateral free trade agreement with perhaps the most protectionist President and Congress that one can imagine. I will put my prejudice to one side.

In the discussion, you mentioned between you SPS, CBAM and tech regulation as some of the possible obstacles, but to what extent would the reset, as opposed to the existing relationship we have with the EU, affect our relationship with the US with respect to trade? Or do you think you have covered that in the comments you have already made?

The Chair: Is there anything to be added to the discussions we have already had on that?

Aslak Berg: I am generally of the opinion that the UK does not, at least in the short term, have to choose between the EU and the US. The UK is a high priority from the US point of view at this moment in time, and that is generally a good thing. It means it is not going to be a high-priority target for tariffs. As I mentioned, an FTA is not realistic in the short term. But, at least for now, the UK is fortunately not in a position where it has to choose.

Professor David Collins: One of the ways in which free trade agreements have been pressured or accelerated by the US is via the threat of tariffs. That is how the USMCA was ultimately renegotiated. Were the UK to wish to continue to not be on the radar of the US, and to hide and hope that it does not get hit by tariffs, its willingness to engage in free trade negotiations with the US, and to pursue them enthusiastically, would be a way to do that. In fact, I suspect that in the long run, the only countries that are not going to face severe trade barriers from the US are those with which it has bilateral trade relationships. I suspect the USMCA renegotiation will save Canada and Mexico. The US-Australia Free Trade Agreement will ultimately save Australia, and the fact that there is no US-EU free trade agreement, and there never will be, will leave the EU vulnerable to tariffs from the US.

The Chair: Very good. The last question goes to Baroness Anelay.

Q47 Baroness Anelay of St Johns: I would like to ask a question about a different kind of trade agreement, and that is the Pan-Euro-Mediterranean Convention. There were a couple of references to it earlier and Mr Lowe referred to the fact that Šefčovič had said that the EU is open to discussing it with the UK and, three days later, the Chancellor of the Exchequer said she would be very happy to look at the idea. It has been raised in the past, and my noble friend Lord Frost was part of the negotiation. Nothing proceeded then. My question really is about your view of its benefits to economic growth if we joined. Is it worth the candle against the background of so many other detailed negotiations that we are about to face?

The Chair: Professor Collins, do you want to start?

Professor David Collins: I have a feeling that Mr Lowe maybe has the most comprehensive answer. But since you have asked me, I do not see a problem with the PEM. In particular, it is designed to work with other free trade agreements. It includes diagonal cumulation, which is something advantageous. I do not have any particular concerns about the PEM.

Sam Lowe: Sorry, this has been one of my pet subjects over the last the last few years. The first point I would like to make, and I think this is probably well understood on this committee, is that this is very much not a customs union, as it was sort of wrongly reported on the day by many media outlets. A customs union requires all its members to align on their third-country tariffs. There is no obligation to do so under PEM. What PEM does require is that the free trade agreement that its members, in their free trade agreements among themselves, utilise PEM-originating rules of origin. So there is a list of rules of origin that they then incorporate into their respective free trade agreements.

The benefit of this is it allows for, as Professor Collins just said, diagonal cumulation. What do I mean by that? I mean that, for example, if I was making a vehicle in the UK and I used an engine from Turkey, I could account for that engine as being of UK origin for the purpose of qualifying for tariff-free trade under the UK’s free trade agreement with the EU. The advantage of PEM is that it allows for greater integration of regional supply chains and for, in theory, easier access to tariff-free trade among its respective members. The question on the UK side is: would it be applicable in all instances? One of the reasons we did not join PEM as part of the TCA negotiations, at least for one sector, is that, as it was written at the time, the rules of origin relating to electric vehicles perhaps were not appropriate to the supply chains we were discussing. If we had PEM in force as it was written at the time, on day one, electric vehicles would not have qualified for tariff-free trade under the trade and co-operation agreement. That is an issue that was addressed explicitly in the TCA. We have actually had to keep discussing it because there have been extensions of certain provisions.

My question on PEM is—I do not know the answer to this; it would need to be tested—is it possible to run PEM in parallel to the existing TCA negotiations, or to only run it for specific product lines? That would need to be discussed with the EU. There are lots of examples of a relationship between two countries having two different sets of rules of origin. For example, the UK has two different sets with Japan because we have a bilateral agreement and we have CPTPP. It is technically something that companies are used to dealing with, but is it possible under the legal construct of the TCA? I am not sure. If it is not possible, could it be then advantageous to discuss PEM coming into force at a later stage—in three or four years’ time, once the EV supply chains have adjusted? That is possibly another option. In terms of whether it would be advantageous, all the businesses I have spoken to about it seem to think it is a good idea, with caveats such as the one I have just given.

Aslak Berg: Just a small point: you mentioned whether it is worth the effort. Anything short of something like the EEA would not be transformative. You are looking at sectoral deals, little arrangements that will give you a marginal gain. Maybe it is just 0.1% of GDP but, if you have 10 or 20 of those, that adds up. Instead of looking for transformative solutions, you have to look at step-by-step solutions that will help on the margin, maybe just a sector, but in the end it adds up over time. That is how you have to look at it.

The Chair: I think we are now deep into extra time but Lord Stirrup, I think, has a quickfire question just to round up.

Q48 Lord Stirrup: Absolutely. It relates to what Mr Berg just said. The Government have said that their overriding priority is economic growth. You have already told us this afternoon that the Government’s stated priorities for the EU-UK reset would do little in that regard. Of all the other issues that we have discussed, is there anything that would?

Professor David Collins: I think there are answers, but I do not know if it would be in the remit of what we have been discussing today. I would cut regulation and taxes and try to stimulate business that way domestically. I think that would be the best way to do that. Maybe it was not quite what you were looking for, but that is what I would say.

Sam Lowe: What was the figure that John put on it, Aslak? 0.2%? In the context of free trade agreements, 0.2% is quite a lot. The Australia-UK FTA was a rounding error; I think it was 0.03%. UK-US, as modelled by DIT at the time, was 0.16%. I actually think 0.2% is probably too high but, in terms of the number that has popped out, it is fairly significant. You have to remember that is a level change, so it means that the economy is permanently that much bigger than it would have been otherwise over time. So if you accumulate lots of different agreements that top that up, then it could be fairly substantive. But to your point, it is not something where, on day one, you sign up to a veterinary agreement and then we are all going, “Oh, we are rich again”. It is incremental over time.

The Chair: Is there any other one thing, Mr Lowe, from the list that we have talked about that would move the dial, to use some jargon?

Sam Lowe: Cumulatively, it could be fairly significant. The one thing that really would move the dial that we are not talking about, because it is politically unpalatable, is freedom of movement, but that does not feel like it is part of the discussion.

The Chair: I think it is not part of the Government’s approach to the reset, is it?

Thank you very much indeed, all three of you, for a fascinating session. Thank you for your time. With that, I close the public session.