22
Examination of witnesses
John Cooke, Sabina Ciofu and William Bain.
Q21 The Chair: Welcome, everyone, and thank you for coming together for what is turning out to be a very interesting inquiry into how the UK can adapt its trade policies and different trade instruments in what is clearly a very turbulent world. This is not just in relation to the macro situation but with specific interventions on principles such as tariffs and free trade and, running alongside that, the dialogue around recent ministerial meetings of the WTO and pressures on other multilateral organisations. So it could not be a more interesting time for us to welcome our three witnesses today: John Cooke, from TheCityUK; Sabina Ciofu from techUK; and William Bain, head of trade policy for the British Chambers of Commerce, who joins us online.
I hope you have had a chance to read some of the transcripts of our last few meetings. We are starting to navigate our way through a very interesting picture, which demonstrates the opportunities that present themselves in the less traditional mechanisms for creating trade deals.
We have a number of questions allocated to this committee. Any committee members who do not have a question allocated to them should feel free to follow up with supplementaries. We have designed this meeting to have fewer specific questions so that we can have a more general discussion, so please do not feel that you are left out by not having a question allocated to you. Finally, I remind everyone that this is a recorded public meeting.
The first question, which I will ask if I may, is pretty general. The Government have said—the last Government were pretty clear on this as well—that sectoral and non-binding agreements, alongside and sometimes instead of comprehensive FTAs, may be a useful way to navigate for the future. We should not forget that we are here for businesses; this is about trying to create wealth for the UK, and economic security. I would like to hear your thoughts on how the departure from a traditional FTA will affect these businesses in relation to being able to plan and utilise these FTAs. I am also interested in what you think could be the best mechanism for helping businesses to flourish in international trade given what is going on at the moment.
There are three of you and we might not ask every question to all of you but, in this instance, this is an opportunity for you to introduce yourselves and some of your thoughts relating to our inquiry. Let us we start with Sabina and then we will go to Willian and on to John. My colleagues will probably have supplementary questions. Thank you all once again for joining us.
Sabina Ciofu: Thank you, Chair. Thanks for the opportunity to be here and to engage on this crucial topic for the tech sector. For those of you who may be unfamiliar, techUK is the trade association for the UK tech sector. We represent about 1,200 companies—that is growing—and about 750 of them are SMEs that are growing quite quickly. So this is a strong industry for the UK.
That said, we are doing slightly worse than comparative economies at exports, especially in the category of companies that are more on the smaller and medium side. We have put together quite a bit of thinking for the UK Government on how to improve SME exports.
As regards policy, you have a good structure. I would say that these types of agreements are complementary. We need the free trade agreements. We absolutely need the framework of a free trade agreement for the legal certainty that it provides and for addressing significant market access barriers that you can only address in an FTA that is legally binding and that obliges parties to commit to certain market access barrier removals and so on.
The Chair: Could you give us some examples of that? An intriguing comment was made in our last session about how digital trade agreements in particular do not do anything new; they just protect what is there. That is at the core of the argument.
Sabina Ciofu: I was referring to the FTAs specifically. A digital trade agreement, as opposed to a digital chapter in a free trade agreement, tends to be a little bit more synthesised. You can do a lot more in a digital trade agreement than you can do in an FTA digital trade chapter.
The important things there are related to data flows. I would say that is the most important measure and it would open markets for technology companies in the UK. Commitments to data flows and bans on data localisation are priority number one for us as a sector. You can do that only in a free trade agreement or a digital trade agreement. An MoU cannot fix that problem for you; you need to do it in a legally binding international instrument.
So data flows are one big thing, and the other big bucket of things is regulatory co-operation. As an independent jurisdiction ourselves—but dealing with independent jurisdictions around the world—the biggest barrier for technology SMEs is not to do with tariffs or with borders. It is about the rules and regulations behind the border. This is where these trade agreements come in handy, especially digital trade agreements. They go into commitments for Governments and regulators to work together with industry, to try to diminish some of those market access barriers that come naturally from different jurisdictions doing different tech legislation.
So it is complementary: you need FTAs and you need digital trade agreements. You also need those non-binding memorandum of understanding instruments that we have started to develop in recent years. Those are more of a signal for dialogue. They are a signal for industry in the market that we are working with. They do not have the legally binding weight that an FTA or a digital trade agreement do. We need all of them. We need all the possible instruments to have a proper trade strategy. I think the Government’s trade strategy does recognise that, but we need flexibility in the instruments to be able to achieve our aims.
William Bain: The BCC still sees a strong case for further FTAs to enter the trade negotiation pipeline. It is clear that, by the end of this year, there may be an agreement with Switzerland, which would be very helpful in providing clarity and new terms on services trade between the UK and Switzerland. We may end up with a situation where, by the end of this year—particularly if a deal with the Gulf Cooperation Council can also be reached—Türkiye will be the only country with which we are in active trade negotiations.
We think there is a strong case for adding to that pipeline. Research from the DBT commissioned and published in 2020 indicates that bilateral trade flows can increase between anywhere from 17% to 32% through having an FTA in comparison with other methods of trying to boost trade. So certainly they do have their role. We would see strong candidates, for example, in respect of Indonesia, Thailand and the Philippines, as well as Mercosur, which is the fifth-largest economic entity in the world. However, where we have an existing trade agreement with a trading partner, it can be easier to try to do a mini deal.
Sabina talked about the benefits of digital trade agreements, which can significantly improve customs facilitations, introduce new binding commitments on the processing of goods at ports and deal with the free flow of data. These can be quite agile instruments to negotiate, taking much less time than it would take to do an FTA and much less ratification time as well. So we think that digital economy and digital trade agreements are a very good idea.
When you go into other sectors, the lack of a binding element is not so optimal for investment. Many of our larger members tell us that the real benefits of an FTA for them are the predictability, the dispute resolution processes and the clear binding commitments around investor protection. These are very helpful to them in making long-term decisions on investment calls. So we see a blended approach as probably being the way forward, but we must not underestimate the role of FTAs and the ability to change the schedules of trading partners in terms of goods and services. Only an FTA-era digital economy agreement is capable of doing that.
Lord Anderson of Swansea: You mentioned the FTAs as being a boost to trade. Yet the FTAs with Australia and New Zealand have in fact led—not as a consequence—to a lessening of trade between Australia and New Zealand and the UK. It is rather puzzling. How do you account for that?
William Bain: That is a very good point. On the Australia FTA specifically, we have seen a reduction in goods trade between Australia and the UK since the agreement came into force. Global factors and uncertainty are largely the explanation for that, but what we have seen with that agreement is a massive increase in services trade. That is testament to what the agreement does in terms of, for example, mobility provisions providing routes for young professionals under the age of 40 to go and work in each other’s markets; the more generalised youth mobility provisions for under-35s; and the provisions around the mutual recognition of qualifications.
So we are seeing a change in the pattern of UK-Australia trade, but it is perhaps more down to the burgeoning services exports that each partner is doing with the other. That leads to another issue that FTAs must cover, which is, increasingly, mobility—particularly professional mobility—and the recognition of qualifications. Those are massive drivers of additional services trade growth.
Q22 Lord Hannay of Chiswick: Have the Government given you, or either of your colleagues on this panel, any indication of how they choose countries or groups of countries with which to negotiate? You said that, basically, the more elaborate provisions of the FTA provide greater sustainability for future trade. Have they told you how they pick them out? I was interested to note that you included Mercosur in your list of possible FTAs. I would have thought that that was an absolutely obvious one, because it has already concluded an agreement with the European Union, which is an economy not totally dissimilar to our own. So there should not be a huge amount of difficulty in identifying what should go into such an FTA. I called for an FTA with Mercosur in the debate on the UK-India agreement. The Minister was unable to respond; he did not say a word. Can you understand how that has come about?
William Bain: Typically, the previous Government would commission calls for input. When they had taken informal calls from business and industry that there was a clear demand to move to an FTA, they would initiate a formal call for input with which all stakeholders could engage. That would have a degree of economic modelling. We saw that with the Australia and New Zealand FTAs, as well as with the India and South Korea FTAs. An economic case was put and clear priorities were set out—a negotiating mandate, almost—in those calls for input. We think that going back to that kind of approach and returning to that formal “call for input” process, if there is a clear groundswell coming from business organisations to move further and faster on new FTAs, adds to the scrutiny that your Lordships can undertake and that business can undertake on the trade-offs. It also leads to more transparent policy-making. So our ask of the Government would be to move forward with calls for evidence on FTAs with those countries that we have indicated in our evidence today.
Lord Hannay of Chiswick: And Mercosur? What is your reaction to that?
William Bain: We have been consulting stakeholders internally, and there has been strong support. We will continue to have further discussions and will say something definitive on Mercosur perhaps in the next couple of months. It is a $5.9 trillion economy where the EU has a clear competitive advantage. Its trade deal with Mercosur will be applied provisionally in a few days’ time, and for the UK not to have one with such a fast-growing area of the world seems like a significant competitive disadvantage.
John Cooke: I agree with a lot of what previous witnesses have said. First, I should say that TheCityUK has certainly welcomed the Government’s approach to having a whole suite of different ways of having agreements with trading partners depending on what the objective is. I certainly agree that a classic FTA has all the major advantages that have been referred to. However, it is important to point out that the essence of an FTA as far as market access is concerned—if you wish to negotiate preferential market access between two partners—should not be confused with legal certainty. You can have treaty-type agreements with trade partners that have legal certainty without their having to be an FTA. For many purposes, such as regulatory co-operation, you could negotiate that in a legally binding way if you liked without going as far as having to have an FTA.
That is all I want to add, except to say that on the services side we have tended to find that FTAs are less successful than they have been for goods. There are probably two broad reasons for that. One is that it is always much more difficult to liberalise services than to liberalise goods. That has been true of the efforts of the EU in the single market to liberalise services to the same degree as goods. The other is that, for services, we often find that for the objectives we would like to achieve in an agreement such as on regulatory co-operation—I am not talking about market access, where you definitely need an FTA, but where there are other objectives to an agreement for services—it often seems to us simpler not to have to go through an FTA, with its whole panoply of subject matter, including very difficult subject matter such as agriculture, when the objective for services might be achieved in some other way.
Q23 Lord German: I have just tried to summarise your three emphases on what we might call the volatility of the trading world around us. I have written down here “a suite of arrangements”, “a trio” or “a blend”, which I think are the three contributions that we have already had. What we are really interested in is: what does business actually value? How do businesses value the speed and responsiveness of mini-deals and the like against what you might describe as legal certainty and stability, which an FTA can provide?
William Bain: We recently had a visit at the BCC by a visiting delegation from Texas. The UK and the US have a memorandum of understanding in place regarding the state of Texas. It is an exciting part of the United States for UK companies to invest in, particularly in areas such as life sciences. These MoUs with individual US states are an example of the type of agreement that can generate and focus FDI from each other’s territories into productive and key economic sectors. They are useful in promoting areas like clean energy and services, but they do not change the trading terms under which businesses have to operate; those can come only from FTAs or agreements like them. MoUs are useful in directing investment and generating additional growth from that but without fundamentally changing trading terms.
In terms of the development of trade policy in the 2020s, we are seeing an increasing focus on economic security. We issued a report yesterday on economic security, calling for a deal with the European Union. For things like supply chains, there have to be agreements of a binding nature with contractual elements, such as on trying to secure the supply of key minerals and growth metals. The UK is going to need a lot of lithium to meet its ambitions around electric vehicles, clean energy and solar panels in the coming years—we will need a 13,000% increase in the amount of lithium by 2035. So these supply chain agreements are another useful addition. We are seeing this in some of the UK’s up-rated FTAs. For example, the one with South Korea has a supply chain chapter within it, the first UK FTA to have that, and going forward we will probably want all our FTAs to have those sorts of arrangements within them.
Given where we are, with economic security being critical as we move into the second half of the 2020s, supply chain agreements that have force, and which can produce important flows of key metals and minerals that we need for our economy, are increasingly going to be a part of this, alongside the digital agreements that we discussed earlier.
Sabina Ciofu: I will touch on a few of the points that were raised earlier. Not only the Australia relationship but the EU-UK relationship has seen the same rise in trade in services, while there has been a drop in trade in goods since Brexit, for obvious reasons. We are seeing across the various trading partners that trade in services is ramping up, which is good for the UK economy; even the tech sector is predominantly services in the UK, so that very much reflects the trend there.
The point about who is choosing the markets and how is incredibly important. We have seen in the trade strategy a choice of markets for digital trade agreements but, frankly, I do not know where that comes from. They have picked Malaysia and Kenya specifically. I do not know whether there is a calculation or any economic reasoning there, so I do not know how those markets were picked. We would have thought of, for instance, a country like the United Arab Emirates, where we are doing quite a lot in digital trade, or Canada, with which we have stalled trade negotiations and which is doing a digital trade agreement with the EU. I would have thought they would have been somewhere in the priority list, but they are not. I reiterate the call that William made—better consultation around the choice of markets would make a lot of sense.
I am slightly less excited than William about the MoUs with individual states in the US, mainly because, as he rightly said, they do not really change the trading terms. However, going back to the point I was making earlier, they contribute to a signal that these are markets that we are having discussions with. There is a real opportunity at state level in the US when it comes to procurement. We have a lot of business-to-Government business in the UK tech sector, so we sell a lot to Governments as an industry. Given that a lot of the procurement in the US is at sub-federal level, there could be an opportunity to open up sub-federal markets to UK companies. However, I have not seen a lot of drive post the signature of the MoUs to help companies access some of those markets. It still requires trade missions and building networks on the ground, and all that work does not seem to happen post signature. There is a bit of extra work to be done on the implementation of those, bringing them to life and working with us and other industry bodies to try to translate some of those agreements into actual benefits for business. I am quite sceptical of the full benefit there if it is a non-binding agreement that does not really commit parties to anything. That is what I would say about the MoUs.
On mini-deals more generally and volatility, obviously the volatility affects SMEs a lot more than larger companies, and they are caught up in geopolitical crosshairs pretty quickly as they expand outside of the UK. We had conversations with a British company only last week where it was told that if it manufactures in India, the US is not interested, and if it manufactures in the US, India is not interested. The company asked, “What do we do?” So there is an increasing ask from industry for some form of government economic advisory service. The Government have put that in place—we have that under DBT—and we will see how it works with time, because it is fairly recent. But it is really interesting to look at a whole category of companies that are looking to the Government for advice on geopolitics and how to navigate that. We are talking about companies without the resources, networks and capacity to deal with all these giant questions, and they often have to make those investments in advisory consultants and accountants in a market before they make their first investment or their first deal.
There will have to be more of a team UK approach to trade and economic security as we move forward to assist an entire industry that is growing very quickly—we are talking about 20-people companies, not those with 200 or thousands of people—and that happens automatically, by the nature of what we do and we are really good at, which is deep tech. In addition, most of it is dual use and can become a kind of economic security issue. We will need a more joined-up approach, in government but together with industry, to get it right.
John Cooke: Just to try to answer Lord German’s question on what industry wants. I can only really speak for financial and professional services, but we certainly want the kind of agreement that is quickest and most effective for securing the result that we need. If we need guarantees of market access, and particularly preferential market access, or if we need guarantees that there will be available a dispute settlement mechanism for investors, it has to be a binding agreement. It does not necessarily have to be a free trade agreement; one can have a separate investment agreement, for instance.
Turning to MoUs, and particularly those with American states, I make the point that when it comes to trade in goods, it is best and most practical to have an agreement with the US federal Government, because most of the controls on trade in goods are operated by the federal Government, and that is obviously the partner one must have. But, thanks to the way the American system works, a lot of the barriers to trade in services are operated at state level, and it is much less easy for the federal Government to negotiate on behalf of the states. Very often in a trade agreement, the federal Government will simply list—or even not list but simply refer to—all the non-conforming measures at state level that there may be and which will remain in place. To try and tackle those, the MoUs are not binding, but they represent a way of there being contact with state-level authorities, and that is more important than it used to be.
There was a time when most US state-level authorities tended to be interested, I think, in fending off any invasion of their territory by a competing state and were rather protectionist. Now that tends to be changing, and many more state authorities are actually interested in attracting investment into their state, so that mechanisms that can allow for discussions about how we can secure discussion of removing barriers at state level, and, on the other hand, how the state-level authorities can secure discussion of things that they are interested in, such as inward investment, can all be quite positive, even though they are not binding.
Lord McDonald of Salford: Can I just follow up on that, please? Of course, there are 50 states in the United States, and I assume they are not all of equal interest to your members. Are you making progress with the key states, which I assume are New York, California, Texas and Illinois?
John Cooke: Yes. Obviously, there is a tendency to choose these states that are very large economies. A state such as Wyoming, which has I think half a million people in it, although it has the full panoply of all the state regulatory authorities, Insurance Commissioners and the like, is of less interest. But yes, that is certainly the aim. Another of our aims, from TheCityUK’s point of view, is to try to make sure that these MoUs cover services. I think we found that some of the early MoUs, such as the one with Texas, covered energy and that sort of thing, because that was of interest to the Texan negotiators and was also familiar territory for the British consulate-general in Texas, which had a role in the negotiation. There obviously is room for there to be—I think it is now happening—more consultation with private sector interests from the Government on what the content should be of these MoUs.
The Chair: Lord Anderson, this is a good follow-on to your question.
Q24 Lord Anderson of Swansea: Building on what has been said about links with individual US states, there have been eight such agreements since 2022. I think the point was made about it being a signal, but a signal is of importance only if it is received by the other side. Can you say what has been the response of business in the UK to these agreements? Is it more than just a signal? Has there been an increase in FDI in those states as a result? What degree of monitoring is there, and what review of the effectiveness of these individual deals for British business?
John Cooke: I do not think I can answer that in detail. One thing to say is that the period between 2022 and the spring of 2026 is of course not long, and I would not expect there to be a huge increase in those volumes in that timescale. But I will see what I can discover and will gladly provide some written evidence. The other thing I would say is that I think personally that these things send more than a signal. It is easy to say, just as it is easy to say about some legislation, “It sends an excellent signal”, but I think both sides are looking for more than a signal. They are looking in particular for ways to create routes to having deeper discussions—that is the plan in these MoUs.
Lord Anderson of Swansea: And finding those routes?
John Cooke: Yes, I think so. But I will offer some further evidence on that if I can.
Lord Hannay of Chiswick: You do not have to go far in the United States to bump into a lawyer.
John Cooke: Certainly not.
Lord Hannay of Chiswick: The lawyers tend to say that non-binding MoUs do not really matter very much because they cannot be litigated in any direct way, and therefore you do not have to pay too much attention to them. That rather goes against your point about sending good signals and so on, because the question may be: a signal of what? Is it a signal of a sort of warmth or friendship, but not much else? Can you perhaps comment on that aspect of the MoU approach? If you come across areas of discrimination with one of these states with which the UK has an agreement, is there anything you can do about it or do they just smile sweetly and say, “Ah yes, but this is not legally binding”?
The Chair: Maybe we could move around the panel a bit. Perhaps, Sabina, you could amalgamate some of those points.
Sabina Ciofu: I am happy to contribute broadly to this conversation. I am on the more sceptical side about the value of MoUs, so I agree; I think they are an instrument of soft power in dialogue. They are not hard law. You cannot litigate against them. If the state of Texas is discriminating against UK companies, there is nothing you can technically do, other than to have dialogue about it and try to secure better treatment of UK companies, versus companies from countries that do not have an MoU. If you do use it, it is fundamentally an instrument of soft power.
To the earlier point about the last four years, since we have been signing them, I think there is an open question about how much we have worked on the implementation of these MoUs in bringing the industry on board, and trying to figure out where there may be some market access barriers that you can try to tackle through using them. There is an open question of how much we have done after we have signed them.
As regards the other point about the review, we have to review FTAs, but we do not really have to review MoUs. That is another part of how we do binding versus non-binding.
The UK Government did something this year, though, that I found was extremely useful. It probably built on some of the relationships that they have developed through the MoUs. There is a conference in the US called the NASPO conference; it brings all the procurement officers from the sub-federal level into this one big conference every year. It is very expensive to attend. Most of my companies that would be interested in those contracts would have absolutely no opportunity to join.
The UK Government sponsored a trade mission for a very select group of SMEs, taking them to build networks with some of these officers so that they could get to get to know them, understand the procurement process at sub-federal level in the various states and so on. That is a very practical example of what you can usefully do post signing MoUs. That way, you have developed a network of procurement officers in states who I do not know, and my companies do not know, but who the Government now know. How do we make sure that knowledge translates into opportunity for business? I thought that was a really a good way of going about it.
Lord Hannay of Chiswick: Thank you; that sounds more like soft and less like power.
The Chair: Lord Anderson, let us go back to you and then we will hear from William.
Lord Anderson of Swansea: I am going back to “Buy American”. How important are “Buy American” pressures in the individual states?
William Bain: It is a very significant factor. Let us be clear: this has been an approach not just from this Administration but going back to the previous two Administrations. There has been much more focus on companies favouring their own internal supply chain, and the US market is on such a scale that it has the capacity to do that.
Where we think MoUs have been very useful is in aligning trade policy and trade facilitation with industrial strategy and industrial policy. The Government in the UK have eight sectors within their industrial strategy. If you take the MoU with North Carolina, for example, the big focus there is on life sciences and pharmaceuticals, and there is a lot of research and innovation going on in institutes in that state, so that speaks quite well to that area. One of the first deals, with Oregon state, was also very useful in respect of focusing investment and activity in the tech sector in Oregon.
So we would see MoUs as being most useful as investment and trade promotion vehicles, aligning policy but not able to create legal commitments. When it comes to trade and services and customs issues with the US, that obviously depends upon the UK Government being able to reach a holistic text to implement the economic prosperity deal reached at federal level between the US Administration and the UK Government.
The Chair: This leads us quite neatly on to Baroness Bonham-Carter’s question.
Q25 Baroness Bonham-Carter of Yarnbury: As the committee knows, I share the scepticism about MoUs; I know that Lord McDonald does not.
Lord McDonald of Salford: No, no; I was just asking a question.
Baroness Bonham-Carter of Yarnbury Then maybe we agree. I think they are more of a “Let’s get together and shake hands” thing or, as Lord Hannay was saying, soft rather than power. To come to what John Cooke was talking about in relation to services earlier, obviously the services and digital trade agreements are different again and can rely on regulatory co-operation and shared standards on mutual recognition. How do businesses weigh the benefits of this against concerns about compliance costs and uncertainty about future rule changes? Compliance costs can arise when regulatory co-operation becomes complicated.
John Cooke: Of course, compliance costs can also arise when there is no regulatory co-operation. We see regulatory co-operation as at least an effort at alleviating the kind of compliance costs that can arise from gratuitous conflicts of laws and so on.
In regulatory co-operation, far from being worried about compliance costs, the kind of thing that we would look for is for authorities in two countries that agree—or do not agree, but preferably they do—to regulate co-operatively, for example when introducing regulation to implement global standards coming from the Basel committee, or whatever. We would look for those authorities to try to implement those standards at the same time and in the same way. If that can be achieved, it will save business an awful lot of compliance worries; for example, in the way that compliance is notified to an authority and such things.
These are not questions where one needs to compromise the strength of one’s regulatory regime. It is more a question of the day-to-day obligations placed on business and, there, regulatory co-operation can be extremely helpful. The point that we would certainly make is that regulatory co-operation is not much use if regulators simply get together post hoc to compare notes on why something has gone wrong, without being able to do anything about it. The essential thing is to try to be forward-looking and see how new regulation can be implemented on two sides in a way that does not create conflicts.
On Lord Hannay’s point, I would say only that I am not entirely surprised, saving the presence of any lawyers here, if lawyers are rather dismissive about agreements that do not give rise to litigation that they can participate in.
The Chair: I do not think we have any lawyers here.
Lord Anderson of Swansea: I am a lapsed lawyer.
The Chair: You are owning up to being a lapsed lawyer, so we have found one. They are never too far away. Thank you. William, do you want to come in on this?
William Bain: Yes, in respect of regulatory co-operation, it is quite interesting to look at the recent agreement made between the EU and the UK on competition co-operation, which ties into the governance arrangements in the trade and co-operation agreement quite well. That provokes a useful regulatory dialogue around what are still very similar rules in relation to mergers and competition policy between the UK and the EU. I think that shows the value of those sorts of agreements.
As regards binding decision-making, however, it is useful to indicate just how important international standards are. Many trade agreements and digital trade agreements in many deals make reference to international standards. This is important as a process that is still deepening despite all the fragmentation that we are seeing, for example in international trade on tariffs. The growth, usage and development of international standards, is very useful.
Specifically in terms of services, one of the things that are most useful and beneficial to the UK, and again this takes us towards the more binding part of the agreement spectrum, is MFN—most favoured nation—clauses. That means that where a country in the future opens up part of its services market to another trading partner, the UK has a ratchet-effect benefit of seeing the same openness applied to itself. That is pretty much the gold standard of where you want to be. It future-proofs your trade agreements. It means that, as they improve over five or 10 years, your service sectors are not left behind but are carried forward by that rising tide of improved commitment. That is important in services, and it has to be paramount in whatever type of agreement we get, either an FTA or a free-standing services agreement. For example, the Government are looking at a free-standing services trade agreement with China, which is something that the BCC would support, subject to safeguards. Again, ensuring that that is future-proofed will be fundamental to the UK’s economic success.
Lord Anderson of Swansea: Obviously there are clear limits to what can be achieved at state level, in spite of the states’ rights pressures. There is the commerce clause, Article 1 of the constitution, which gives primacy to the federal Government. How important do you find that as a barrier in setting the limits to what can be achieved at state level?
John Cooke: One of the difficulties about the commerce clause is how capricious it is. What is regarded as interstate commerce? Insurance, for instance, is not regarded as such—or, rather, it actually is regarded as interstate commerce but Congress countermanded that in the McCarran-Ferguson Act to restore it to being a state competence. That is an example of the kind of difficulty there is in penetrating the areas where the individual states have jurisdiction. In the case of the professions, say, they often have pretty complete jurisdiction, and that is where even non-binding memoranda of understanding about co-operation in some of these things can be useful. I am not sure I have really answered your question. Was there another angle to it?
Lord Anderson of Swansea: How important are the clear barriers from the constitution for your members in trying to go beyond that, when at any stage the federal Government can assert their primacy?
John Cooke: Yes, but they do not tend to do so in services. The federal Government tend to say, “This is a state matter on which we cannot bind the individual states”.
The Chair: Just to follow up on that, you mentioned insurance. There is an effective working relationship between, I think, the state of Delaware and the insurance markets in the UK, and that was done before the MoU process began.
John Cooke: Of course the most important relationship on insurance is the Covered Agreement on reinsurance and the collateralisation of risks. That is something on which the Association of British Insurers can speak more than I can. On the whole, insurance is at state level and there are very few agreements relating to that.
The Chair: Can we look into that? According to insurance professionals I have spoken to, that was a precursor to the MoUs and it was seen to work well. Our MoU programme was based on a mutual qualification recognition and an ability to cross-sell between the state, Lloyd’s of London and the UK market, and it might be worth looking at that. Do you have any follow-up, Baroness Bonham-Carter?
Baroness Bonham-Carter of Yarnbury: No, thank you. That was extremely interesting and useful.
The Chair: Baroness Lawlor, a particular focus of yours is the services industry. Would you like to come in now?
Q26 Baroness Lawlor: I want to ask a question to John Cooke, if I might. The very interesting TheCityUK report in March 2026 indicated that financial and related professional services account for about one-fifth—I think it is 22%—of Britain’s total goods and services exports. What is the destination of those exports? I know you referred to some of the countries in the report, but it would be helpful to know generally what the destinations are. Also, the report shows clearly that financial and related professional services are for the whole country, not just the City, which was very heartening. So what are the destinations, and are they covered by formal trade agreements, binding or non-binding, or do they result from individual business initiatives? Lastly, which trade arrangements are best for financial and related professional services?
John Cooke: I am not sure I can recite all the destinations of all trade. Basically, it is a global market, and many of our members aim at being able to support their business clients with financial or other services—legal or accountancy—wherever in the world they may happen to be.
Another point to make is that a lot of these financial services are wholesale rather than retail. That is to say that there are exports of retail financial services in certain markets but they usually require a retail commercial presence to be set up in the market in question. That can definitely be helped by a trade agreement, which may be specific about ways in which commercial presence—that is, GATS mode 3—can be established in a particular market. But, even without a trade agreement of any kind, the usual thing that a business would have to do, in retail financial services or indeed in any other retail service, is comply with the local regulatory standards of the market concerned. When it comes to wholesale services, some of those are the subject of commitments under the General Agreement on Trade in Services by many countries. That is particularly true of wholesale reinsurance services around the world. Where a country has not given any commitments, a wholesale business obviously has to comply with the regulation of that country. Does that help to answer your question, which was quite broad?
Baroness Lawlor: Yes. Have you anything to add to that report, which covered the years up to 2023? Perhaps you would like to say a word about the different sorts of emphasis from the different parts of the UK.
John Cooke: I will gladly supply evidence, but I do not have that in my head. Our economists are constantly working on doing more to differentiate the regional contribution of different parts of the UK.
The Chair: We are very grateful for any follow-up information that you can give us. Earlier you also committed to giving us some information on the MoUs, and in fact any of our guests today would be welcome to send supplementary information. On the services side, we are trying to get a bit deeper into how we can promote our tech industry, for example. I do not know whether this is a declarable interest, but I am on the board of a tech business. When I talk to that business, I do not see it thinking nationally. It is not thinking about exporting from the UK. In fact, its staff are all over the world. It is very new to me. I interview people and they are in Poland, America or wherever. So it is a completely different type of company to the one that I ran for 30 years, which was based in London. We had a business that sold services out of London to the world.
Sabina Ciofu: That is a very common story.
The Chair: How can we be part of that in the UK and think differently in terms of how these agreements are managed?
Sabina Ciofu: We have done a big exercise this year in talking to our members one on one because, as we all know, surveys and other things do not necessarily work when you are running a small company; you have other priorities. We have done a lot of speaking to members, one on one, to take the trade policy language out of the conversation and try to understand the main markets. Where are they going? Have they interacted with the Government at any point, either in post or in central government? Has it been useful? It is so that we can provide something. I am happy to submit to the committee afterwards our most recent report, which looked exactly at how we can support tech exports, which are a special category of exports.
Often, it is the case that they do not even know that they are exporting because so much of it is happening—we are coming on to the WTO—on the infrastructure of tariff-free trade over the internet. That has been the rule of how we did digital trade. Often, they are not even aware, if they have a data centre somewhere else, that data is flowing across borders. Sometimes, you are sending people to service an agreement in a country. That is part of trade.
I remember that, after we signed the improved FTA with Japan, we saw a lot of our AI and fintech companies go to Japan specifically. I remember having a conversation with them and asking, “Why now? Why Japan?” They said, “Well, I can train my algorithms on open government data and release my software in Japan without actually having to go there”. To my mind, that is the digital trade chapter, but they would not necessarily make that connection because they would have advisers or intermediaries, who would explain why Japan makes sense for their business all of a sudden.
I want to touch briefly on the regulatory co-operation piece because that is hugely important for the tech sector. I fully agree with John that, ideally, you should think in advance about how you can co-operate with countries on this. I work with some of our main markets; I am happy to touch on those. The EU as a whole is definitely number one. The US is number two, followed by countries in the Asia-Pacific region and, increasingly, the Gulf, with a focus on the UAE and Saudi Arabia. Those are the main markets for UK tech exports. I have worked with governments around the world, and I am still to meet anyone in any government who does not think that they are doing a much better job than anyone else in regulating technology.
There is a slight limitation in what you can do at a foresight level—that is, in saying, “We’re coming up with this regulation. We’re going to talk to our partners”. However, I do not think that it is a completely dead end if you have not done that in the process of legislating. There is an element around regulator-to-regulator dialogues. We need to use more of those. We have world-leading regulators in this country, especially in technology. I remember that, even in the dark days of the Brexit negotiations in Brussels, people still wanted to hear from the ICO and the CMA. We need to use that brand and convening power better to address the differences in legislation that are naturally coming because everyone is coming up with laws on data, AI, cyber, IP and so on. In any given week, you have new laws in these areas across our main markets.
I would add an element to that: the economic security agenda and the digital sovereignty conversations. We have a broader ask here around how we work with our partners in this discussion. It feels quite siloed in government departments and across the country. If we are coming up with any economic security strategy, measures and guidelines, as well as any form of digital sovereignty conversations, they need to be in a dialogue with our partners and allied countries; otherwise, we will come up with market access barriers. It is the nature of what we will end up doing.
Finally, I echo what William said earlier around standards, especially because of this flurry of legislation in technology—or, sometimes, the absence of it because we decide, for good reason, to pause and think about whether we need legislation in certain areas. Standards then become even more important. In the geopolitical game, when it comes to standards, we need to be on the front foot. We need to lead in those conversations. We are doing a good job so far, but standards will only increase in importance as we advance in this fragmented geopolitical era.
Q27 Lord Hannay of Chiswick: Can we turn to the issues relating to the World Trade Organization, formerly the GATT, and the way in which it encapsulates—perhaps looking beyond that, too—what you call a wider rules-based trading system? How important do the industries that you work for and represent think the WTO still is? How important do they think the existence of a—not “the”—world trade-based system is to their future prospects? To what extent are they looking for multilateral rules? Or are they quite happy roaming around President Trump’s jungle, which has no rules other than chaos? Perhaps you could comment on that.
It seems to me that we have been talking about the United States very much, and then the rest of the world, because the rest of the world has not retaliated—unlike in the 1930s, on the whole—and has tried to keep the rules-based trading order open. We do not know, of course, how long they will succeed in doing that. Can you comment on those issues and find a way of saying whether the interim dispute settlement procedure has any real life and openings in it, given that we are not going to be able to revive the full WTO dispute procedure due to the American position?
Sabina Ciofu: I am happy to touch on that briefly, although we are all qualified to have this conversation on the WTO so I am happy to hand over to all my co-panellists.
As someone who has been in Yaoundé, I know that it went from high hopes at Sunday lunchtime to the complete collapse of the negotiations four to six hours later. We have been through the ups and downs of that ministerial negotiation. It was looking quite positive at one point, then it all fell apart pretty quickly.
I would say, for the tech sector, that we are supportive of the WTO. We have been supportive of the UK Government positioning on the WTO and trying to find solutions. The proposal that they put forward on reform made a lot of sense. There is some flexibility in there around plurilaterals. There are some really good ideas around digital trade, incorporating building capacity with developing nations. There are a few good ideas that have been put forward and are a good basis for discussion. We will see how far we get with the reform agenda. I think that all members of the WTO would like to reform it, but all in slightly different ways.
For the tech sector, there are two things here. One is the moratorium on customs duties for electronic transmissions, which, sadly, collapsed. It cannot be stressed enough that, although we may not see immediate action on that, it is the first time in the history of an organisation set up to liberalise trade that it has created an opportunity to raise tariffs. The only reason why we have the internet and the digital economy as they are is because we had the moratorium, which collapsed at the end of March and at the end of the ministerial. My hopes for reviving it in any shape or form without the Ministers in the room are fairly low. Hopefully, we can move forward and bring it back.
There was, however, a positive bit of that ministerial: the provisional implementation of the e-commerce agreement. It is the first time that 70-plus countries have had an agreement on that; I think that 67 signed on at the ministerial.
We have an agreement on e-commerce and what it means. It brings the WTO into the modern era. Obviously, it is low ambition because it involves so many countries; it will not compare to what we have in the digital trade agreements with our most like-minded partners. But it sets a framework for the WTO and how we how we do e-commerce. The important thing now is that we implement it and move forward in phase two of those negotiations to do with data flows, source code, algorithms—the really geeky stuff where the UK Government had a leadership role in previous negotiations on data. We would encourage them to continue doing that, and hopefully we can move this conversation forward. Bringing the moratorium back might have to be a big priority for those of us who believe in open trade. I will stop there.
John Cooke: I was going to try and answer Lord Hannay’s question in a slightly different way. Our members do not spend a lot of time thinking about the future of the global rules-based system and the reforms that there might be to the WTO, partly because the reforms that might be negotiable between governments are essentially a matter for Governments. It is difficult for business to say what they might be. That said, our member businesses rely enormously on the existence of the global rules-based system and the WTO as part of the furniture within which they operate. They are probably more accustomed to that tacitly than they might think they are.
For instance, if you take something like trade finance, it is difficult to imagine that trade finance for insurance and capital movements in respect of cargoes and that sort of thing could possibly be operated in the way in which it is at the moment without there being the kinds of understanding that there are in the WTO on shipments and that kind of thing, and also the work of the World Customs Organization in the way in which tariffs are levied and how goods are cleared. Those are all things that, like it or not, are part of the furniture within which services are provided for trade.
There are two areas where the need for WTO reform hits through to the way in which our members think about it. Sabina referred in a slightly different way to both of them. One is WTO decision-taking. At the moment, that has effectively broken down because there is a rule of consensus that, in turn, means that a single member of the WTO can prevent a decision being taken, not because they have some vital economic interest that might be a legitimate reason for objecting but on some point of principle. For instance, the moratorium on customs duties on electronic transmissions, as Sabina said, has now been discontinued for the first time ever, opening the way for the possibility of tariffs to be levied on electronic transmissions. It was Brazil that objected at the last moment to that, for reasons connected with agriculture that had no bearing at all on the merits of a decision to prolong the moratorium. So, that is one problem.
The unanimity rule has to be broken or at least radically amended so that decisions can be reached. That goes to the other point that our members attach importance to, which is plurilateralism. There has been a tendency to say that multilateral proceedings are the gold standard in the WTO. In fact, wholly multilateral proceedings have rarely happened. Most reforms or changes in the WTO have begun, or the emergence of a new agreement has begun, with a group - say, the “friends” of liberalising whatever it may be - getting together and beginning to prosecute an idea. That is true of the two plurilateral agreements that Sabina spoke about: the Investment Facilitation for Development Agreement and the Electronic Commerce Agreement. Both of these are so-called Joint Statement Initiatives, which carry a large measure of support—in one case, over 100 members and in the other, between 60 and 70 members. These have not been able to be brought into the WTO legal framework, although a substantial number of members is in favour, because of blocking minorities or even a blocking single country.
If it is to go on supporting the WTO, industry is entitled to expect that where a plurilateral agreement is reached with a strong industry backing, ways are found within the WTO of bringing that into operation. If it cannot be brought into operation, despite it being agreed, then business starts to doubt the value of a rule-making system that cannot bring new rules into operation. It is not just those two, of course. We might imagine that in the future there could be some agreement on AI that might, for instance, come forward. If there is no way in which innovatory rules can be brought through on a plurilateral basis, and the WTO has a membership that is simply too big and diverse at 166 to hope that one can have multilateral rules to which all members are equally committed, it will lose the WTO respect in business. It needs urgent reform.
The Chair: That is well put and a good example of the difference between multilateral and plurilateral, for which I am sure our watching public will be grateful.
Q28 Baroness Blower: When we had the Secretary of State before us, he told the committee his aspiration: “I hope all the agreements I make from MoU upwards, whether or not they are novel deals such as the economic prosperity deal, are rungs on the ladder. I hope all of them lead to a deeper, and in some cases broader, set of agreements where possible and appropriate”. I think I am hearing different things about people’s views on MoUs. I should therefore like you to make observations on the Secretary of State’s view about whether these are rungs on a ladder, and whether, in all or most cases, they ought to lead somewhere else, including in what circumstances that would be either possible or appropriate. I want to try and fix in my mind how all these issues fit together. I should like to know whether our witnesses today agree with what I take to be the Secretary of State’s view.
John Cooke: I am not sure I would share the Secretary of State’s figure of speech.
William Bain: I am happy to provide the committee with our points on the WTO, because we will not come back to that point today. Where the different policy instruments can be evaluated and sit with each other, we clearly need a method for identifying how effective they are going to be. For example, this week, the BCC has called for a UK equivalent of the EU anti-coercion instrument—the trade bazooka as it is sometimes called. That will need primary legislation if it is introduced but we want to have robust means of ensuring that that can be used effectively. We talked about having a Cabinet committee, chaired by the Prime Minister, to co-ordinate policy in this area and to ensure that the very head of government would take decisions that could affect flows of services, data and investment under such powers in the UK.
We therefore need an apparatus to estimate and evaluate how effective all these different types of agreements are. As we have indicated, we think that FTAs are perhaps the most liberalising and produce the greatest economic benefits. We also need to have evaluation, once FTAs are in place and being used. We did call for this a couple of years ago and are happy that DBT is now facilitating this publication of usage of preferences within trade agreements. That certainly covers trade in goods but we also need to see how facilitative these FTAs are in terms of trade and services.
Early signs with Australia are very good; early signs with the CPTPP are very good, but we need to have a sort of framework in place that scrutinises exactly which instruments are the most successful and can generate the most growth. Because ultimately, we are not saying that Government should be a negotiation factory; it has got to be a growth factory, and the agreements have to be the right ones for different sectors of the economy.
The Chair: Thank you very much. I know that Lord McDonald is keen to come in, but maybe you could touch on this, Sabina. I just wanted to press a point you made earlier that is relevant for us: you said that MoUs do not need to be scrutinised in the same way that FTAs do. We think that is a bad thing, frankly, because if they are not worth the paper they are written on, then why are they writing them on the paper in the first place? Or they are valuable, in which case—Lord McDonald, do you want to come in?
Q29 Lord McDonald of Salford: My question nestles within all of this, so it is a three-for-one, Sabina. It follows from what Baroness Blower has just said, and I would hate for there to be a misunderstanding between me and Baroness Bonham-Carter. I am not a huge fan of MoUs. Like Lord Hannay, I worked for the Foreign Office for many years. We reached for an MoU in precisely three circumstances: one was where it was not a particularly important policy area and we wanted something; second, we wanted something quick to announce, and this involved relatively less effort; and the third was when we could not get an actual important agreement.
Baroness Bonham-Carter of Yarnbury: But the fact that the peace process between Iran and America is going to be an MoU—
Lord McDonald of Salford: That is an indication that they cannot get anything more substantial at this early stage.
The Chair: We do not scrutinise that particular agreement.
Lord McDonald of Salford: So I was intrigued that John Cooke was speaking in favour of MoUs, particularly with American states, but I am also conscious that resources are an important issue and that the department is stretched. So my question is, given how flimsy MoUs are, do you think too much resource is being devoted, and too much time is being given, to a set of agreements that do not amount to a hill of beans?
Sabina Ciofu: I am happy to try to touch on all of that. First of all, there are MoUs and MoUs. We have talked a lot about the MoUs with the US states, with various opinions on this panel. I will also give an example of where MoUs have been really useful. If you look at the UK-Singapore Digital Economy Agreement, it is accompanied by MoUs looking at specific technologies. It is a legally binding agreement accompanied by MoUs. That allows it to be almost like a living trade agreement, moving at the pace of technology. Those MoUs also involve consultation with industry and pilot projects. It is basically a novel way to look at where you can bring trade agreements into the modern era. While a review of an FTA takes forever, you can review and update a DTA a lot easier. So I think that there are useful uses of MoUs.
We do a lot of tech partnerships. We have technology partnerships with a lot of countries in the world. We have a tech and security initiative with India, we have the Hiroshima Accord with Japan, we have the seventh tech partnership with the United States in seven years; we have a lot of technology partnerships. As with MoUs and reviews and all of that, it is a bit of a process of signing them. They are not all bad. Some of them have a lot of really good co-operation areas in them. The United States partnership for looking at quantum co-operation is a really good area. We co-operate anyway, but it is helpful that the Government is supporting that exercise.
What do we do afterwards? We sign them, and there does not seem to be a big process of, “Okay, now what?” That is where there is a big movement to the moment of announcing it. We had the state visit, so obviously the tech partnership was announced then. What happened afterwards? Well, we know what happened afterwards. I think it is a matter of maybe putting more, or at least as much, resource into the implementation phase as you have done into the negotiation and putting-it-in-place phases.
Lord Hannay of Chiswick: Can I just ask if you can give an answer to the one question that nobody has touched on: to what extent does industry—the organisations you represent—attach importance to the interim dispute settlement procedures that have been agreed by, I think, between 40 and 50 countries, including the UK? Do your members attach importance to that? Do they think that has a capacity to grow and develop during the indeterminate-length period before, if ever, the United States can be persuaded to go back to a full dispute settlement procedure?
John Cooke: Lord Hannay is looking hard at me, but I also see William Bain nodding. I think that, as dispute settlement frankly does much more for goods than it does for services, I will hand over to him.
William Bain: Thank you, Chair, thank you, Lord Hannay, and thank you very much, John. The BCC took part in a campaign with more than 200 business organisations across the world in the run up to MC14 last month. We were very clear that part of that agenda has to be to make a success of MPIA. We had campaigned for some time—a good couple of years—for the UK to join MPIA. I think the benefits of that system are that they create an open door still for other countries to join, so the door is open for the United States to join MPIA itself if it does not like the other option which is on the table in Geneva. That door is still open to it. But it also allows those other countries—the 50-plus countries—to have a means to prevent appealing into the void, and a means of resolving trade disputes in a way that is definitive, adds certainty for investors and shows a way forward. The benefits of that system are profound for business. We were very clear that was one of our big aims from the run up to MC14. Indeed, we had encouraged the UK Government for years to join MPIA, and we were very pleased to see the Government do so last year. So I think it is an addition. We still hope that, in the future, the US will come fully back within the multilateral trading system, but for now, it is an effective solution that allows the EU, the UK, Australia, Canada and China to resolve trade disputes in a way that is definitive and final.
The Chair: Thank you very much indeed. I am afraid that we have come to the end of our time. Each of you is a potential two-hour evidence session on your own. I could not be more grateful to you. Do any of my colleagues have any final questions before we wrap up?
Q30 Baroness Lawlor: William Bain, I was very interested in how you said that everybody agrees on the importance of international standards, and I think that really is the case, but, when we are talking about the regulatory and compliance environment, is the problem not how we measure those standards? Say that it is a matter of outcomes, because of the different arrangements and frameworks—how do we measure the outcomes? That is really at the heart of the problem in services.
William Bain: That is a terrific question, Baroness Lawlor. We are seeing mutual recognition being used in parts of services industries. That is a way in which you can take forward the gist of standards while preserving regulatory autonomy as a means of having enforcement and the basic underpinning realities of those standards. I think mutual recognition in the services space does give a good way forward. Obviously, in the goods economy, we are seeing much more of a debate about different forms of alignment, including dynamic alignment with the EU in respect of trade in goods. But mutual recognition agreements do strike me as perhaps the most propitious means of taking this agenda forward in the future and embedding international standards within a good and growing services trade.
Baroness Lawlor: Thank you very much; that is very helpful.
John Cooke: The Berne Financial Services Agreement is probably the key current example of the furthest that the UK has gone in that sort of area.
The Chair: We should certainly look into insurance and specific agreements, qualification recognition and so on. Can we make a note of that? I think both of those are very important industries where sectoral agreements are clearly very relevant. Also, on the tech side, we are keen to hear more from you and your organisation in terms of what the future of your industry wants, because I think it is very different to a more traditional British Chambers of Commerce requirement in terms of goods, which we understand much more clearly and which is much more definable.
In the meantime, I thank all three of you very much indeed. John Cooke, Sabina Ciofu and William Bain, thank you for joining us; we appreciate it enormously. We wish you the best of success for the rest of your day.
