17
Examination of witness
Sir Crawford Falconer.
Q31 The Chair: Thank you very much, everyone, for coming together today for the continuation of our work on trade in a turbulent world and what the UK can do to grow its economy through using current and existing, as well as future and as yet unthought of, mechanisms to increase our trade around the world and improve our economy. I am extremely pleased to introduce Sir Crawford Falconer, the second Permanent Secretary at the Department for Business and Trade and the Department for International Trade. I should declare that I worked with Sir Crawford for a number of years, first as a non-executive director and then as a Minister. I found his take on the world, particularly on trade, to be particularly powerful. He was brought in to construct our post-Brexit trade framework. Since then, he has retired from the department and we are very grateful to him for coming in and speaking to us today.
We will aim for 50 or so minutes. We have scripted questions, but this is an important and wide-ranging topic, so please feel free to stray from the specific questions and give us your views. At the end of the day, we are trying to understand where we go as a country from here, given a number of different factors: the views of the President of United States on how tariffs should function and the actions of America in relation to our own trade policy, the ramifications of Brexit and the growing trend of steering away from significant FTAs and using other less formal memorandums of understanding or sector-specific trade deals to drive the economy. The issue for us in that instance is that, on many occasions, they are not open to the sorts of scrutiny that we would be allowed to have if they were full FTAs into whether or not they yield true trade benefits.
I will kick off with the first question. Perhaps you could use this as an opportunity to introduce your own thoughts, given the inquiry that we are doing. I would be interested to know which trade agreements that we have signed actually support trade in areas of comparative advantage for the UK, particularly in areas such as services. Rightly, there is a lot of focus on goods, but really we are a growing services economy. What do you think the future is for trade agreements, and particularly for different types of trade agreements, and what should we be doing to improve our global trade position and growing our economy as a result?
Sir Crawford Falconer: Thank you very much. It is a pleasure to be here. I hope that I have a few things to say that are of marginal value to you—I shall give you my opinions, for what they are worth. Thank you for the opportunity to share them with you.
In answer to your question, I think a number of the agreements that are already in place have good provisions on services. Traditionally, it is more difficult to negotiate on services than on other things. There are reasons for that, because your services regulations go to the core of how you manage your economy. Across the board, it is very difficult, though not impossible, to decide that for one particular trading partner you will have a set of provisions on services. By and large, for the big services issues, for instance financial or regulatory, you tend to do them, as the Latinists would say, erga omnes. You do them across the board and they apply to everybody—you decide that you will liberalise your investment regulations for everybody, as opposed to saying that you will liberalise them for this country and not for that country.
It is not impossible to do these things. There are some things that you can do bilaterally with a country but, by and large with services, it tends to be the case that your trade agreements represent an agreement between the two of you to bind in, with respect of each other, things that you have already liberalised, so you make it contractual. That has been the pattern, both multilaterally and bilaterally. But it does not mean to say that you cannot make progress bilaterally on some things. Certainly, that is true of a number of the agreements that the UK currently has; the Australian and New Zealand agreements have quite good provisions on services, as does the Japanese agreement. The CPTPP has many commitments on services.
None of those would be ideal from a UK point of view; we would love to have, I imagine, a much more comprehensive set of liberalisations with our trading partners. It would have been great to have that with India, but India was not ready to do that. But again, that does not mean to say that you do not do your agreement with India—you get as much as you can and you build on it, because a trade agreement is not static. It is something that you should be using to build. In professional services, particularly insurance, there are areas where in future the growth that would come from India is very significant. The Indians were not in a position to liberalise in those areas—they could not get a parliamentary majority—so they were not achievable for India, though other things were. But you build on it in future and, as long as you have a platform, you are in with a chance.
The other thing I would emphasise is that with services we tend to think of financial services, but business and professional services are huge for the UK. There are lots of provisions on market access in those agreements here and there, and I hope that in future agreements we can improve that.
I have two things to say, one of which sounds very academic. You do not just do trade agreements where you have the comparative advantage—you do them for the advantage that comes to you from the liberalisation as well. In fact, if you look economically at most trade agreements, the biggest economic benefit that occurs for many countries as a general rule comes from their own liberalisation. That is where you make the gains, because trade agreements are not just about exports—they are about imports and exports. It is absolutely important to take care of your export interests as best you can, but it is also important that you provide a competitive domestic market because of the welfare gains that come to your economy. They are more politically controversial, usually, but they are a very important part of the agreement. I would be failing in my duty as a retired academic not to make that observation.
The second point that I would make about services is that it is about digital. Some 90% of financial services are delivered digitally. So when you say “services”, these days I would think of a world transformed into digital and tech—that is where it is. It is not just because it is fintech; it is also right across the board. When it comes to what you are looking for in trade agreements, you may find the most significant contributions, as far as services are concerned, are in the areas of digital and technology.
The UK has a very good agreement with Singapore on that, which is a model for what can be done. It has improved its agreement with Japan. We would have liked something more ambitious, and I think the Japanese would have too, but time did not allow for that. Increasingly—we can come back to this in some of the other questions about where the UK should look to go next—in many ways the most significant way of liberalising to the UK’s advantage is by pursuing the digital and technology liberalisation agenda. That involves more than just trade, but trade is a very big part of it.
The Chair: That is very helpful and true. Your comment about its use to liberalise our own domestic economy is not lost. It was a very well-made point.
Q32 Lord Hannay of Chiswick: What you say about the balance, or the lack of balance, between trading services and trading goods carries a lot of weight. Does that explain why the figures for potential UK gains from these free trade agreements often seem to be pretty small? Is part of the explanation the fact that 80% of our economy is in services and that services are not often covered in the trade agreements, or not in a very quantifiable way? Does that explain why these figures are often described as “minimal”?
Sir Crawford Falconer: I am not a believer that they are all that minimal. When you express everything in terms of decimal points, it sounds rather insignificant. But if you go through and analyse specific policies that Governments undertake, you will see that they will reap billions of pounds forever—that is what these agreements do, and actually there are not that many areas of governmental policy where you can significantly move the dial in that way. Once you add up 0.1 and 0.2, pretty soon you are talking about real numbers. There are significant gains, for what has been very little leveraging through these agreements.
The other thing is that I never take these things too literally. Even the econometricians will admit that they are, at the end of the day, estimates, and they can be way out of whack. The dynamic effects of these agreements seem to me to be far more significant. I am an insider, so I would say that, but that has been my experience. In the end, successful agreements, which operate off what the history of the trade has been, significantly underestimate what the outcomes are likely to be, because you are, by definition, changing the dial of what the relationship is.
Let me take another example from another economy that I used to work for in New Zealand. If you had analysed what a free trade agreement between New Zealand and China would have achieved, according to the economists, at the time it was achieved, you would have come up with a relatively small number. But, in fact, it has transformed the New Zealand economy over a period of 10 or 20 years, as China has grown. Similarly, with growing economies such as that of India, the point is that they will have endogenous growth and you will profit from it, because you have an insider position in that relationship.
It is quite important that we maintain that perspective, because it is very easy for somebody to have used an econometric model, which gives you false precision, and think that that is the deal. When you talk to businesses, you learn that they understand that, in fact, those are projections based on where you have been up to this point in time. They want to be on the ground floor, because they can see the dynamic advantages that come from it.
It is true that it is much harder to estimate the services, and that is partly why those numbers are, as I would argue, somewhat of an understatement. But I think there is a more profound reason, which is that, generally but not always, it underestimates—although you cannot fake it—what I call the genuine dynamic effects of doing it. One day, I think we will find that it was a very much bigger deal to have negotiated an outcome with India than it is at the moment, because it is the first step in a process.
The forgotten agreement is the Asia-Pacific agreement that we have with CPTPP, which spans something like 13% of global GDP. Indonesia and the Philippines are knocking on the door to get in. I do not know what the econometric estimates of what it would have been when we joined CPTPP, but it probably would have been several billion. If you are part of a growing agreement, which is expanding in what is a fast-growing part of the world, those numbers are going to become dated very quickly. I do not think that is the private fantasy of a serial trade negotiator; I think it is common sense.
Q33 Baroness Blower: Sir Crawford, when you were talking in July 2025, you said, “the trend line of our exports, they’ve been dropping to the EU for years. They’ve been going to where the growth has been, which is in East Asia and other parts of the world like the Middle East”. I take it you still believe that from what you have been saying. I think you have answered some elements of this, but the question says, “Which sectors and partner countries should the UK be prioritising for trade negotiations and agreements?”
Sir Crawford Falconer: I think I have said before—I may not have said it in July 2025—that I personally have a very simple philosophy of these things, which is: follow the money. It seems to me that that means—it is not a definitive judgment—that we should be really active in East Asia. We should be very strongly trying to hook ourselves into the fast-growing economies of East Asia—they have been fast-growing and they still remain fast-growing. Thailand, Indonesia and the Philippines are examples. We should be going after them. I do not know if this phrase is familiar in the UK: we should be going after them like a robber’s dog. That is where we should be going.
We should also go for economies such as Brazil, as well as Mercosur, where there are major growth economies. You can do that bilaterally. With Mercosur, you have a collective agreement. I do not quite understand why the UK has not already announced that it is going to try to negotiate with them. Even the EU has negotiated an agreement with Mercosur. We are going to be the last cab off the rank, if we are not careful. Why would you not do that?
That is a very good example of where you can have very significant gains. Again, for a long-term diversification of your trade, it makes sense, because it is big and growing. It is already a customs union—a very dodgy customs union, but a customs union none the less—and therefore you have economies of scale and scope available to you to negotiate. You also do not have the complications that the EU has of having to manage 27 member states to reach a negotiated outcome. I think it took them 25 years to negotiate it, and they are still squabbling over it, but I think the UK could do it a lot faster.
Certainly, in East Asia, perhaps you can do it bilaterally or you can do it in both bilateral and plurilateral ways. Over the years, the Australians and the New Zealanders have negotiated bilaterally with the members of ASEAN. I remember personally negotiating with the Thais decades ago—but they have also negotiated with ASEAN, collectively. We now have CPTPP, so do it three ways if you want to, because those are the economies that are growing. We have a Vietnam agreement already, and Vietnam is in CPTPP; but for the likes of Indonesia, the Philippines and Thailand—to name but three—we have other options. I would go after them.
I am not saying that that is exclusively so, but those are areas where we have—to come back to your original question—genuine advantages to bring. We are a services superpower; we should be pursuing that. We are the second biggest digital exporter in the world; we should be pursuing that. Those are the economies where the growth will come. Indonesia is a phenomenally young country; it is a very difficult market to deal with, but it is enormous. Therefore, it gives you huge prospects.
At the end of the day, I have nothing against you maintaining as best and as strong a trading relationship as you possibly can with Europe. But you should look afield to where the growth is, and it is not hard to find where it is. I do not believe that, as economists will tell you—certainly on some goods—distance is a factor in making it more difficult to trade. But it is certainly not the case for services, digital and the regulatory areas there. I also think that it is overstated in some areas of trade, but let us not go down that particular avenue.
The big picture is quite clear: other people are doing it. If the United States chooses to resile from pursuing relations with these parts of the world, it means that there is more of the pie left for the likes of us, so why not get on with it? That is all. It is a very simple reason; I do not have anything more casuistical on what lies behind my rationalisation for these things. I think that these economies would be very interested in doing it.
It is interesting that we do not yet seem to be at a stage where we are pursuing that next wave. We still have things that we have to finish, with the likes of Switzerland and elsewhere. I read in the FT that the GCC agreement is about to be completed; that was around the 10th time I have read in the FT that that agreement is about to be completed, so let us hope that it is correct. I just think that we need to get on with it. It is not as if our growth opportunities are booming. Trade is one area, even if the decimal points are still decimal points, in which I do not think the Chancellor will pass up a few billion here and a few billion there of cost-free growth. That seems to be what you get from trade.
Q34 Baroness Lawlor: I am really sorry for being a bit late; I had difficulty with the trains.
Picking up Baroness Blower’s question, I recall—you have just done so, so I do not need to do it—how you said earlier, in 2025, that we need to “follow the growth”. Given that services are a huge component, my question arises from what you have said. How would you specifically promote services, particularly legal and financial services, with the trading partners you have already mentioned? Given that, in Dubai, the DIFC—the Dubai International Financial Centre—uses common law as the default basis for its legal system unless other legal systems are chosen, how would you improve existing non-FTAs, where we do not have formal agreements for legal or financial services? What more can be done to promote services with the countries you have mentioned?
My second question is completely different; you have touched on this already. With regard to goods, do you envisage potential legal challenges from existing trade partners, such as the CPTPP and New Zealand, in respect of the decision to follow dynamic alignment with the EU on agri-foods?
Sir Crawford Falconer: On services, at the end of the day, there are some things that you can negotiate in the old-fashioned way: “I can give you this if you give me that”. In that discussion, you have to play your cards effectively. At the end of the day, that is often a political decision, but, if you look at it from the point of view of pure economics, you would find their commercial interests in your market. Then, if they have goods interests in particular areas, you leverage the market access issues that they wish to have in your market in order to obtain the gains that you want on the services side, if they are on the services side; sometimes, they are on the goods side. There is no reason why the UK should be shy about its capacity to export goods competitively. It cannot export some things, but it very much can export other things. In advanced manufacturing, the UK is a serious player in certain sectors.
At the end of the day, although you go through a mercantilist narrative when you negotiate, most economies follow their interests to a certain extent. They know very well that, even though you are saying that you want something, it is probably in their interest to do it. You make those arguments as best you can.
When it comes to areas such as professional services, often, the problem is that the professional services bodies are quasi-independent—or, indeed, genuinely independent—from the Government. So you need a two-pronged strategy for them. To the extent that the Government are able to influence those things, you try to ensure that changes are made in those areas. To the extent that they are independent or quasi-independent, you try to use your professional contacts, working with professional bodies over a period of time, to make some changes with them. A trade negotiation is not just a couple of people sitting at a table and haggling; it should be part of a concerted process in which you are also working at the private sector and governmental levels to try to improve it.
You have a particular situation with the US, where the regulatory framework for professional services is at the state level, so there is not a lot of point in negotiating at the federal level. You could argue that there is not a lot of point in negotiating at the state level either, because something like the legal profession is not straightforward. When I was working with the Government, we opened a whole series of regulatory conversations at the state level. It was quite innovative—others have not done that—precisely to build relationships, at least.
There are certain things you do, and your strategy has to be to prioritise what you want to achieve, but, sometimes, you are defensive. If you are defensive, you are unable to liberalise, which incurs a cost with your trading partner. If you want to liberalise and get something further on insurance or financial services, you might decide that you want to protect imports of four-legged animals, but, if they want to export those, bad luck; you are going to miss out. Sometimes, that happens, but that is part of the negotiation. You make a political judgment on those things.
The point to underline is that trade negotiations should not—and, most of the time, do not—operate in clinical isolation from what your ongoing economic and commercial diplomacy is doing. You should be building a long-term relationship, promoting dialogue between your respective bodies and viewing even the conclusion of a trade negotiation as a step along the way to where you want to be in 10 years’ time.
In my view, that applies not only to trade negotiations but to other things that are not new. The question was posed that there is a new game in town in non-trade negotiations and sectoral agreements. There is nothing new in that: you have veterinary agreements that are stand-alone, and you have regulatory arrangements for all sorts of things that are either multilateral or plurilateral. Telecoms is a very good example of that. You invest in those relationships. When I worked for the New Zealand Government years ago, they had spent 30 years developing their relationship with European Commission veterinarians, because they wanted to sell agricultural products into Europe. They knew that they had to invest for decades in order to develop those relationships and create trust.
When it comes to professional services regulators and financial services regulators, the Treasury in the UK does this; as with anything, we could undoubtedly do it better. You are investing in a long-term relationship and, for some of these things, particularly when it comes to understanding financial services, people say, “Well, it’s just talk. It’s regulators talking to regulators. Big deal”. Actually, it is quite important, because those relationships of trust and understanding the issues can sometimes resolve matters that are commercially important. One day, they could lead to an actual agreement.
So it is not just about the big moment of signing an agreement; it is part of a broader process. You have to be quite ruthless about that process. You do not want it to turn into soup. It has to be prioritised, and your markets have to be defined. That is a big part of what your trade policy is and how your trade negotiations fit into that. Sometimes, they are a staging post in that process; sometimes, they are largely at the end of the process; and, at other times, they are the start of the process. The important thing is that you have that sense of direction. As long as the UK carries on with that, it will eventually lead to commercial breakthroughs with its trading partners.
The Chair: I have a supplementary question, on which we would like a bit more information, around our concerns about alignment with the EU and other treaties. Can we have your further thoughts on that?
Sir Crawford Falconer: Yes, I did not come to that as I was burbling on at such length about all the other things you have to do as part of the context of a trade negotiation. It is a moot question as to what the UK will ultimately do. It is not 100% obvious to me that, on the sanitary and phytosanitary side of things, that would cause a huge problem. It might do. It depends on judgments that the parties to those trade agreements will make about how they want to manage their relationship with the UK market. There are one or two issues where I am sure they will take the view that, if we were to strictly follow what the EU was doing, it might cause a problem for them. But in terms of the agreements that we have already with them, I would take the view that in those we have not, as far as sanitary and phytosanitary issues are concerned, set fundamental lines that are a huge difference from what the EU has already. It would have liked us to be more forward-leaning in some areas than we were. I think it is a moot point as to where we would end up with those.
On the broader question of dynamic alignment, again it depends which sectors you are talking about and for which particular practices we are going to end up doing such things. In theory, you could find something problematic; on the other hand, you may not. The Australians and New Zealanders have free trade agreements with the EU already and they have agreements with us. Would there be something across some part of the sectors where we decide to change it in a way that is commercially disadvantageous to them? Theoretically there may be some cases like that, but until the Government take their decisions on these things you really cannot be sure.
Australia and New Zealand, and to some extent Canada, which are parties already to an agreement with us and with the CPTPP, tend to focus mostly on the agricultural side of things. The question of services and manufactures regulations is not necessarily going to be that fundamental—but we will see. Certainly, if we had negotiated a free trade agreement with the United States, I can imagine that it would be quite straightforward that in some sectors dynamic alignment would be a problem—if we had done a classic free trade agreement with the United States. But we did not, and it remains to be seen whether the Government and the United States want to pursue what at one stage looked like a forward-looking agenda in the trade area, which seems to have gone cold in the past few months.
Baroness Lawlor: The farmers have an objection to the reset for farming.
Sir Crawford Falconer: That is a different question, but it is a matter for national policy. Do you want to go back to regulatory alignment in areas where you have moved away? Is the trade-off considered to be worthwhile? That is something that has to be negotiated. There are some areas, such as animal welfare and gene editing, where the UK has moved away from the European model. There are commercial advantages to those dealing with those areas, and political support, particularly in the case of animal welfare, in others. But at the end of the day the UK Government will have to make a decision about how they value those views from certain parts of the agricultural community vis-à-vis what they consider to be the overall outcome with the EU. But that is not so much a question of how it relates to your future or existing trade agreements but rather of whether it makes sense for you. Certainly, the Swiss have managed to get a bit of an allowance for gene editing in their agreement with the EU, but then again the Swiss allow a degree of free movement for the EU which the UK probably would not—so there is a question there about how that negotiation pans out. Not being an insider these days, I have no real feel for how all that is going.
The Chair: Lord German, I think some of your question might have been covered, so feel free to adapt it.
Lord German: I have been busily adapting it as we go along.
The Chair: There is not much left.
Q35 Lord German: Well, there is, in a sense. To paraphrase everything that you have said so far, one point is that you should seize the opportunity—whenever you see an opportunity in front of you, seize it—which is akin to “follow the money”. Secondly, you are saying that trade agreements and discussions and all that stuff are a process, not an event. In other words, they are continuous. If both those things are correct, into the basket goes everything that we have talked about—FTAs, mini-deals, MoUs and sectoral agreements go into the pot. You have given us the benefits, but what are the risks in your approach, in the sense that you are not going for an FTA or whatever and have chosen a particular pathway? What do you have to look out for? In your approach, what are the things that it is absolutely important to bear in mind?
Sir Crawford Falconer: I would not want to give you the wrong impression. It is sometimes worth making the corrective to the general view that it is just all about FTAs. Yes, it is about FTAs, but there are all these other things that you have to do as well which are also commercially important. I feel that in events such as this, it is worth reminding people—certainly when I was working in government, and I have no reason to believe that it has fundamentally changed—that nobody thought that their day job was restricted to doing free trade agreements. There were a whole lot of other things you had to do as well.
However, I certainly think that the case for going for free trade agreements is worth making. There are reasons for that. There are some things that you can do on a narrower basis, and if you can do them, so much the better. For example, we were able to do a digital agreement with Singapore because it had an aligned interest with us and it made sense. We already had an agreement that covered goods and services more generally, so why not do that? It made perfect sense. But in many cases, and still in most cases, even in a post-Trump world, you do not bring it all together or put the political pressure on that is needed to get an outcome that improves things from the status quo unless you actually have something like a trade negotiation, whether it is at the multilateral, plurilateral or bilateral level.
I would never want to detract from the fact that having a trade negotiation that is, if you like, on a general free trade agreement is important, because it is actually the only way in which you get that political and strategic engagement to shift policy in a way that has been official for you. I would not want you to get the impression that I was downgrading that. I fear that, if you think that there is some kind of alternative, the alternative is that you do not do it and you do not achieve the outcomes. For an economy like the UK’s, which should have nothing to fear—quite the contrary, it is dependent on international trade—it should, other things being equal, always be at the forefront of those pushing for these things, precisely because we should not be a defensive nation when it comes to the fundamentals of our capacity to compete and survive. We should be joining those who have the same mind, if we can meet with them—that is why the CPTPP is a plurilateral agreement and has that collectivity to it—and we should be doing it bilaterally with those who are prepared to negotiate with us.
Again, on our own, we are still a very significant and very attractive G7 economy. We do not have the leverage of the United States, in terms of the market it has, so we have to be realistic, but we have enough to be able to achieve more than negligible gains for ourselves. We are, as I say, a leading services supplier. We have high-tech and digital leadership. We have manufacturing that is, although not across the board, of top quality in certain areas. We are not going to sell that to just our domestic market; there is every reason why we should be selling to the world. Therefore, if you can have a negotiation that deals with those points and actually improves your market access, I cannot see any reason why you would not go for it.
Indeed, in a world that is showing signs of growing inwards, we are systemically dependent on that openness. If you ask me—you have not asked me this in so many words, but I will volunteer it for you—we should be going after it, like very few others probably are, because we have more of a vested interest in trying to restabilise the world and keep up the momentum of liberalisation. The naysayers will say, “It’s grim. It’s all doom and gloom”—all the more reason to get on with doing it, to find the partners who feel the same way as you and put together the processes that will reinforce this with those who want to reinforce it. There will be those who do not want to do that; that is okay, but I do not see why we should all have a collective fear of trying to achieve the outcome.
At the end of the day, we have a vested interest in this, and plenty of other countries have that as well. This is why I think that the UK should play a genuine leadership role here. I cannot see why, together with an economy such as that of Japan or Canada, we should not constantly be asking, “How can we reinforce the system either multilaterally or plurilaterally, or both? Which other bilateral candidates can help us do so?” If the US does not want to play, it does not want to play. If the Chinese want to play by rules that are different from the rules we want to play by, that is fine. We will play with the people whom we want to play by the rules that we consider valuable.
This is a genuine challenge. You may say that it is simple-minded, but I do not see why you would simply be terrified and decide just to retreat, hunker down and hope that this will somehow pass. It will not pass; indeed, it certainly will not pass if you do not try to change the narrative.
Q36 Lord Anderson of Swansea: Sir Crawford, traditionally, we in the UK have, through our Civil Service, relied on the cult of the gifted amateur—that is, someone who can glide effortlessly from one department to another and learns on the job. Then Brexit came along, with the realisation that we did not have expertise in your field, so you were headhunted. Ten years have passed since then. I would value your reflections on the success—or otherwise—of the past 10 years. Have we learned from that experience? We have certainly been impressed by the quality of a number of the trade negotiators who have appeared before us, but should we rely simply on training on the job, or should we parachute in more people with relevant expertise, like you? What are your reflections after the 10 years that have passed?
Sir Crawford Falconer: I will try to find a way to answer that without sending you all to sleep.
As I said to a parliamentary committee shortly after I arrived, I was convinced that the skills and talent were here in the UK. When I said that, I would not have known whether those people had spent all their lives studying Chaucer or doing advanced metamathematics—I really did not know—but I was convinced that there were people who were absolutely interested in doing the work and who would be capable of doing it. I remember that being greeted with deep scepticism.
In fact, I am pretty sure that I am not exaggerating—perhaps I am exaggerating slightly, or conflating two meetings—when I say that Liam Fox and I were in front of a parliamentary committee where people said, “You’ll never be able to roll over these agreements that exist. Nobody else will ever want to negotiate with us”. That seemed to have been the consensus. There was a degree of partisanship, of that I have no doubt, but that was pretty much the media’s view. Well, they were completely wrong. We managed to roll over all the agreements that we had and improve them. We managed to create all of the agreements to which I have referred, and there are more in the pipeline.
I have to say, that did not happen because people were parachuted in. I am very grateful to have had the opportunity to be part of that, but I have never been a great believer in the trade negotiator as hero. At the end of the day, it is a team sport, and you are only as good as your team. I had a wonderful group of committed people who had not done this before. Some, though not many, of them had done it before, but they went down the learning curve because they were committed to doing it. Other parts of the bureaucracy were not the least bit interested; then again, it is the same in any bureaucracy, I suppose.
From that, I learned that, if people have a vision and believe that something is important, if the explanation for what you are trying to achieve is communicated, and if people can see the commercial value of what you are achieving because it is tangible, that is a pretty strong asset to have. I have always believed in the view that, until they are faced with a challenge like that, most people have never had the opportunity to find out how much more they can do than what they have traditionally been doing.
I would say that the raw material absolutely was there, but it was interesting because they were motivated to do something that was commercially significant and tangible, but without a reward structure that would have invested in them the rationale for doing it. Their traditional public service training was probably what enabled them to do that; if you were in the private sector, you would have expected to have been remunerated for that. When I look at what they achieved over that period—I have talked about literally billions of pounds—we are probably talking about a couple of hundred bureaucrats generating billions of pounds for the UK. And that is for ever—because, if you look at economic models, they go to a certain point where a level of long-term additionality is reached, and things stay that way for ever, as long as you remain in those agreements.
What did I learn from that? My view is that it would possibly have been even better had we had larger numbers of people with experience, but the important thing for me—this is the story I take from this—is not the fact that that was allowed to happen. That is interesting but, to me, it is not the fundamental point. The question is: how do you retain that? How do you retain them and maintain that commitment?
For me, the amazing thing is that so many of them inside the system still want to do it—at least, in the old department, when I was there—because they are still not being financially rewarded for what they are achieving. Financially speaking, they still get paid the same salary as somebody who does something that is not worthless but does not have the same additionality to the UK economy. It is an interesting question, to my mind; if you are in the private sector, you kill it and eat it.
The Chair: Are you suggesting a potential for future trade? We will move on to the next question because we have five to seven minutes left, but thank you for that point, which was well made and reassuring for us.
Q37 Baroness Anelay of St Johns: Having listened to so much positivity and forward thrust, I want to pick up on the whole issue of pluses and minuses that Lord German referred to. I am trying not to be negative, but we have seen in our trading relationship with the United States an element, shall we say, of volatility in behaviour in the political world. Thinking of both government and business, what is your advice on how the UK Government should assist business to be able to deal with that volatility and make sure that we can have the growth which the Government have said from the very beginning they want to promote? At the moment, while there is obviously increasing growth in some aspects—and I certainly take what you say about what is created for the future—for businesses it has to be about what they can do now to get pluses. What would you advise the Government to do to assist them?
Sir Crawford Falconer: That is a difficult question. I well understand that it must be difficult for the Government to get the judgment right, because it is not easy. It is easy sometimes when you are not in government to pontificate about it, but I do think it is difficult.
I incline to the view that what we did with the US—to try to manage it as best we can to avoid even worse outcomes—was sensible. Sure, you can say, “They’re so volatile that even doing a makeshift arrangement is probably not sensible because they might renege on it”, and there are some signs from time to time that they want to but, on the other hand, what is the alternative? You face something even more volatile. For the time being, I think that that is part of the answer. I do not work for the Government anymore, so I do not have a vested interest in saying they did reasonably okay anymore—I am not on the payroll. But that is probably the most sensible thing you should do to try to deal transactionally with that situation.
I am absolutely sure that you could quite easily say, “Well, it’s too difficult to deal with them and we shouldn’t do any deals, just hunker down and try to keep out of the way and not do anything”. I am not convinced of that. Again, at the end of the day, I understand that you have a political management question that you have to deal with domestically: if the public think that you are being played for a fool, clearly it does not make any sense. It requires real political agility to make it work, at the very least.
I still think we should have had and should have a more active positive agenda with them. My view is that, largely, to some extent you say, “Well, you said you wanted to have a digital and technology agreement. Okay, let’s try to have one. It’s in our interest to have it, so let’s think about what we can do about that”. Yet there seems to have been a strange silence about that. I do not know what is going on behind the scenes. Maybe there is something else going on there. I well understand that, if the defence and security issues that have arisen leak into other areas that make things impossible, then okay, they make those things impossible. Maybe that is what has happened. Everybody would understand that.
But I have this nagging feeling that we are missing an opportunity. This digital services tax that we have is really a nonsense. If that is the problem, my argument is that you go on the front foot and offer it in a negotiation, because they are going to come and take it off you anyway and they will not pay you for it. If you went on the offensive on this and said, “Look, you say you want a digital agreement. There are some things we can do because it is in our interest”. We want to have a thriving digital technology economy and to be a leader in AI as well, so we should be working with those business groups on either side of the Atlantic and pushing this agenda. We should be prepared to look at our regulatory arrangement, which is incompatible with that, not just because Uncle Sam wants it but because it is actually impeding our own improvement on digital. The last thing we should be doing, in my view, if we are serious about digital and tech, is going down the EU regulatory route. Look at the difference between growth in the US economy and the performance of those sectors and the UK and the EU. The model is pretty clear to see. So it seems to me the trade possibilities are positive.
Now, you would say: “Well, you would be a sucker. These guys can’t be trusted”. We are not stupid; we say, “Okay, that is a risk we run”. But we work with business on both sides of the Atlantic to try to get an improvement in that with them, which might overall improve the relationship on the trade and economic side. If it does not, we are not really any worse off. If he gets irritated with us over something that has nothing to do with trade, so be it. Nothing ventured, nothing lost. But we just seem not to have been interested and let that fall into abeyance. What happened to the rest of the goods agreement and all the rest of it? Bureaucracies and Governments sometimes think that it might just be easier to forget about it for a while and leave it alone, maybe because they know things that I do not, but I just think there is an opportunity missed there.
At the end of the day there is a mid-term election coming. This Administration, although they have all their peculiarities, are in favour of moving in this kind of direction. If there is a Democrat Congress, I do not think they will be so interested. If there is a change at the next election, it may well be that you have a Democrat Administration who are not interested in a liberalising agenda with the UK. That was the case with the Biden Administration. They were not seriously interested in any liberalising arrangement with the UK. Oddly enough, it was the Trump Administration who seemed to be ready to go in that direction, but we are not in a position to profit from it.
It is a bit of a mystery to me, shall we say. It is still the largest economy in the world and our biggest single trading partner. Surely there is something more we could be doing than we are able to do at the moment, with all the due cautions. You are saying that I am still being optimistic. I am not blinkered about this; I just think it makes sense for us to try to find a way to reignite that. We are going to have to live with the present situation as best we can, and it looks as if we are just treading water on this. I have this instinct that we should be trying to achieve something more. That is a frank answer to your question.
Baroness Anelay of St Johns: That is a very good advertisement for having get up and go and getting on with it.
The Chair: It is good to be optimistic. We need some optimism. That is a very useful answer covering a number of areas.
Q38 Lord Hannay of Chiswick: Could we look at the World Trade Organization in the aftermath of the ministerial meeting in April? Perhaps we could leave the plurilateral aspect covered by the CPTPP, because you gave us some very helpful indications of your views on that. Following the World Trade Organization’s meeting and the failure to reach agreement on any measures of reform, although certain understandings seem to have been reached, what is the future of multilateral and plurilateral agreements—possibly in the WTO, if that can be done? What are your views? How should the UK be positioning itself in the discussions that are undoubtedly going to take place in Geneva, even if they are not immediately fruitful?
Sir Crawford Falconer: For the foreseeable future—this is perhaps cheating, because I am getting to an age where the foreseeable future is not that far away, so it is probably a bit further away than that—I genuinely do not think that multilateral agreements will happen, at least in the WTO. I love the WTO—I spent a large part of my professional life on it; it was great—but the reality is that it still moves by consensus. Anybody can block anything, and they do so now.
More fundamentally, for as long as I can remember, the United States and China have had a vested interest in being quasi-antagonistic. They are not going to reach agreement. Therefore, it is great to say that there will be multilateral outcomes from Geneva on the WTO, but I cannot see them happening—at least, not substantive ones. On some things, you might agree to have meetings and so on, but I do not think that you are going to get substantive agreements multilaterally; I regret to say that it is unrealistic to imagine you will.
However, you should still keep trying for plurilateral agreements. There are legalistic reasons why it is hard to get plurilateral agreements in the WTO, because of the way in which the MFN principle is meant to apply to plurilateral agreements, but there are some that you can pursue. We should try to do so. If we are doing plurilateral agreements, having the WTO moniker over them in some way would be desirable for the system, so you should try to do that. I am certainly in favour of that.
For certain areas of rules that have not been working—such as subsidies, anti-dumping, countervailing and dispute settlement—the UK should have state-owned enterprises with innovative ideas about how the rules could be revised. They would never be agreed by the whole membership, because they are too diverse in their interests, but more market-oriented economies could perhaps reach consensus on those. They could do them domestically if they agree but cannot reach a multilateral or plurilateral agreement among themselves. We should use the institution for that.
We certainly should do no harm. I think that the dispute settlement system has been overused. I am not saying that the US approach to dispute settlement system is correct. What I am saying is that, for too long, countries thought that they could litigate serious policy differences rather than negotiating them. That was a mistake, in my view; it expected too much of the system. I do not think that it is good for the system if you suddenly decide that what you are going to do is litigate on whether or not US action or UK action is for genuine national security purposes. That is deeply unwise. You might be entitled to do that, but why would you do it? There are some things where a bit of discretion is needed.
Similarly, on climate change issues, you could raise a whole lot of disputes in the WTO on climate change and say that the way in which Governments are implementing the climate change commitments breach the WTO, but what the hell is the point of that? It will not lead to a change. Even if you make a finding to that effect, nobody will follow it. So a degree of discretion is required in some areas, rather than more litigation, which would be a big mistake.
Lord Hannay of Chiswick: Do you think that there is a future for the interim dispute settlement procedure, to which around 50 countries, including the UK, have signed up?
Sir Crawford Falconer: If people are prepared to abide by it among themselves, I cannot be against that. In a sense, I could envisage this as a sort of plurilateral dispute settlement understanding—although I do not think it is called that, that is sort of what it is. Unfortunately, it does not involve the United States, India and Indonesia, which have chosen not to join it, so it is not a fully functioning system. However, to the extent that you can use it among each other, it is not a bad thing.
All I would say is that there comes a point, politically speaking—this is not an argument against it—where you say, “Hang on a minute. The US is not bound by this. Why are you allowing yourself to be bound by this in respect of somebody else?” So, it is fine for the moment, but it has a limited lifespan of political credibility if the key players do not play along with it. I am not against it, and I am not talking it down, but one has to be very realistic in terms of one’s expectations of how helpful it will be.
I am slightly more optimistic about things such as the CPTPP and pluralistic agreements, if you can do them under the umbrella of the WTO. The reality is that that is the only possibility where you can get a smaller group of like-minded countries to reach consensus. The days of genuine multilateral consensus on substantial trade liberalisations are gone.
Lord Hannay of Chiswick: Do you discount completely the possibility of changing the decision-making procedures of the WTO so that it does not have the liberum veto?
Sir Crawford Falconer: I do, because I have seen no evidence of it being prepared to adopt a two-thirds rule or something like that. There is no appetite for it, so I do not think that it would happen. It would then become a very different organisation: it would not be what people wanted, which was a consensus-based organisation. So, in that sense, if it morphs into something else, it would be something else; it would not be the old WTO as we knew it. It would probably be something more like a plurilateral organisation. I do not think that that is on the horizon for the realistic future, but that is fine—it is still important, and we should certainly do nothing to undermine it; indeed, we should try to strengthen it as much as possible.
One of the things I want to spend some of my time doing these days is giving my own thoughts about how you could rewrite some of those rules so as to make the system work a bit better. I assume that they will be ignored even more than my advice to Governments over the past 30 years has been ignored.
The Chair: We certainly look forward to reading your work. I hope that it will be a series of books—10 volumes—on the future of free trade in the world. Sadly, we have come to the end of our time. You have given us an enormous amount of incredibly valuable insight, and I am delighted to think that you will be educating politicians and policymakers for many years to come. Thank you very much indeed for joining us.
