International Trade Committee
Oral evidence: The Trade Bill, HC 603i
Wednesday 29 November 2017
Ordered by the House of Commons to be published on 29 November 2017.
Members present: Angus Brendan MacNeil (Chair); Mr Nigel Evans; Mr Ranil Jayawardena; Mr Chris Leslie; Emma Little Pengelly; Julia Lopez; Faisal Rashid; Catherine West.
Questions 1-76
Witnesses
I: Bernardine Adkins, Partner, Head of EU, Trade and Competition, Gowling WLG, Edwin Vermulst, Partner, VVGB, Brussels, Gareth Stace, Director of UK Steel
II: Derrick Wyatt QC, Brick Court Chambers, Nick Dearden, Director, Global Justice Now.
Written evidence from witnesses:
– [Add names of witnesses and hyperlink to submissions]
Witnesses: Bernardine Adkins, Edwin Vermulst and Gareth Stace.
Q1 Chair: Good morning, witnesses. Thank you very much for coming along. Can I ask you to state your names and organisations for the record; name, rank and serial number essentially?
Edwin Vermulst: Edwin Vermulst, VVGB, Brussels, Belgium.
Bernardine Adkins: Bernardine Adkins, Gowling WLG, Birmingham, London and Brussels.
Gareth Stace: I am Gareth Stace. I am Director of UK Steel, which is the sector association that represents the steelmaking sector in the UK.
Q2 Chair: Very good. Thank you. By way of introduction and some of the basic scene setting here, can you explain what trade defence is and what legal regimes govern trade defence measures at the EU and WTO levels?
Edwin Vermulst: The trade defence instruments are basically three. That is the anti-dumping instrument, the countervailing duty instrument and the safeguards instrument. Dumping and subsidies deal with what we call unfair trade. It is supposed to be unfair to subsidise your industry or to dump products in other people’s markets. Then we have the safeguards instrument that deals with fair trade.
At the international level we have agreements in the WTO, the World Trade Organization. We have the anti-dumping agreement, the agreement on subsidies and countervailing measures and the safeguards agreement. In the EU we have three what we call basic regulations: the basic anti-dumping regulation, the basic subsidies regulation and the basic safeguards regulation. The purpose is to protect your domestic market against imports, at the end of the day.
Q3 Chair: Is the EU a prolific imposer of trade defence measures and what measures is it currently using?
Edwin Vermulst: Yes. They are a very substantial user; let’s say in the top worldwide. They would certainly be in the top five. India and EU would be in the top five and maybe Brazil also would be in the top five.
Q4 Chair: Could you describe this as being protectionist?
Edwin Vermulst: No, because it is allowed under the WTO rules and so the correct use of these instruments is not protectionist.
Q5 Chair: What involvement does the UK Government presently have in the investigation and the imposition of these trade defence measures at an EU level?
Edwin Vermulst: We have the Commission of DG Trade, and DG Trade has a directorate, Directorate H, which is conducting these investigations. I have to say, in response to your previous question, the anti-dumping instrument is used the most often by far. There are many anti-dumping investigations, probably 20 or 30 or so a year. There are also subsidy cases, more regularly, especially against China and India, but it is less used and the safeguards regulation is hardly ever used. Probably your priority would be anti-dumping, to make sure that there is an anti-dumping regulatory framework in place.
Q6 Chair: How does the UK Government currently interact with this? If they have an issue with steel in Wales, or whatever, what role do they have?
Edwin Vermulst: There is a committee called the anti-dumping committee or the trade committee, and the trade committee is consulted by the European Commission before they impose a measure. The Commission conducts the investigation basically from A to Z, but before a measure is imposed the member states have to be consulted and they have to basically give their stamp of approval. If a qualified majority is against, then the measure cannot be adopted, but that is fairly rare.
Q7 Chair: Thank you very much. Mr Stace, have you been happy or unhappy, pleased or displeased with the approach and the protection and the defence given by the EU in your particular sector of steel?
Gareth Stace: We have been broadly happy with what is in place in the EU and the developments that we have seen on modernisation of the trade defence instruments at the EU level, and how that will change over time to react to a change in circumstances in global trade, particularly for our sector.
We have also seen a change in the UK Government’s position to that, of how, as Edwin said, the UK plays into the process in the EU. Historically, and perhaps up until two years ago, the UK would routinely vote against any measures that were put forward. That changed with a steel case on renewing dumped imports of wire rod from China into the EU, where the UK voted in favour. What we are seeing now is the UK much more voting either in favour or abstaining and very rarely now, in steel cases anyway, voting against those measures, which is very welcome.
Q8 Chair: Going forward, if the UK was to repeat its past actions, apart from steel, how would industry in the wider sense deliver that?
Gareth Stace: Do you mean going forward in terms of a UK—
Chair: An independent UK trade defence policy. Apart from the steel chapter, if it was to mirror what happened in the past, do you think industry would be happy or unhappy with that—domestic?
Gareth Stace: We would not be entirely happy if it was to mirror, in the sense that the UK Government do not vote in favour all the time at the moment and in cases where we think they should. I am sure we will come on to it in more detail later, but the proposals from the UK Government of a UK trade remedies authority and a trade remedies regime are very concerning in terms of the direction of travel that it is going in, which does not really reflect what the UK is doing now within the EU, and replicating that.
Q9 Mr Chris Leslie: Could I elaborate on the concerns that you have at the moment? Apologies if I sound a bit confused about how we are going to move from this current regulatory framework of all these trade defence measures done by the EU for decades into the UK independent policy on this. We have a Trade Bill. We have a Customs Bill or Taxation Tariffs Bill, but we also have the EU (Withdrawal) Bill. Maybe this is a question for the lawyers first, but my understanding was that the EU (Withdrawal) Bill was going to copy and paste EU rules and regulations into UK law, so why do we need a Trade Bill and a Customs Bill if those EU approaches would be retained EU legislation, in other words cut across? What is your understanding of why the British Government have taken that particular route of a freestanding Bill? Shall we start with that one?
Bernardine Adkins: Basically, we are looking to leave the EU. The trade defences that are in place, the duties that are imposed on products that come over, where they would otherwise be dumped on to the UK industry, are adopted by the European community to protect the community instruments. Once we have left we have left, and we cannot benefit from those. Therefore, we will be subject to the WTO rules, how we should put in place a system that will be governed by the basic rules of the WTO. The WTO is very clear. It is a rules-based system. We have to respect due process. If the UK Government want to adopt their own independent trade measures, they must go through identifying where they are seeing instances of injury to domestic industry, giving the people who are importing the dumped products an opportunity to defend themselves. Only then can you legally adopt your own independent rules. We simply cannot legally cut and paste over what is already in place.
Q10 Mr Chris Leslie: It has to be a fresh sort of application appeal process?
Bernardine Adkins: Correct. That is right because you need concrete evidence to establish there is harm being caused to domestic industry by these products.
Q11 Mr Chris Leslie: Does that not imply that there will not be a continuous day minus 1, day plus 1 system because there will have to be a fresh process, so for a period there might be no trade defence measures?
Bernardine Adkins: Correct.
Q12 Mr Chris Leslie: How can the British Government ensure that this is a contiguous, smooth transition?
Bernardine Adkins: That is going to be very problematic because of the choice that we are leaving, and then we have a transitional period where we have some sort of fiction that we will follow the community rules. However, we will no longer be in the community. Therefore, those rules will not apply, so the most they can do is move very fast, quite frankly. There will be a gap in that period of time when you will have to set up the agency, create the rules, start the process running whereby people bring themselves forward and say, “We, domestic industry, are suffering harm as a result”, demonstrate the harm, the investigations commence and so on. These investigations, as Edwin will agree, are hardcore. There is a lot of data that has to be disgorged, a lot of various analytical tests. It is not a quick job.
Q13 Mr Chris Leslie: Can I get the same sort of views on this process from the panel?
Gareth Stace: There will not be a binary from us leaving and, therefore, not using the EU system to using the UK system. There needs to be the UK system up and running, conducting any investigations for the length of time that an investigation takes place, which would be up to a year, in parallel with the EU system, so that we do not suddenly fall out of it in the middle of an EU investigation and find that, whatever trade remedies are put in place at the EU level, they would not be applicable.
Q14 Mr Chris Leslie: There is a year-long process so, in effect, we need to get this legislative framework and authority all in place by March 2018 in order to have that year to go bang on exit day. Is that sort of the timescale?
Edwin Vermulst: Yes, but if I can add one point. I think it was the DIT yesterday issued what they called a call for evidence, where they are asking UK producers whether they would be interested in maintaining EU measures once Brexit takes place. I think the DIT is ahead of the curve because they are already preparing for the event of Brexit so that they will be ready at that moment to decide which of the measures should stay in place and which measures should lapse, for example, because there is no UK industry. If there is no UK industry you cannot maintain the measure. You have to have UK producers in order to maintain a measure.
Q15 Chair: That is a Brexit opportunity then. We could have tariff-free goods coming in that do not affect the UK industry?
Edwin Vermulst: As Bernadine also said, there is a lot of homework to be done, but DIT seems to be doing that at the moment, in view of that call for evidence that they put out yesterday, so I think it is a good step.
Gareth Stace: It certainly is a good step, but we need to think about it. There are almost two separate issues here. When I talk about the parallel remedies regime in the UK, I am talking about new complaints that industry might bring that need to be investigated. What Edwin is talking about are the ones that are already in place for a period of five years and what does the UK do there: do they just carry them over or do they let them lapse?
Q16 Mr Chris Leslie: Are we all expecting the DIT to grandfather, to basically carry forward the existing system?
Bernardine Adkins: It is not going to be possible to grandfather because if they do they will have trouble with the WTO, and so as we start out afresh in this new—
Mr Chris Leslie: This is quite important.
Bernardine Adkins: Yes.
Gareth Stace: It is very important.
Q17 Mr Chris Leslie: Is it your understanding that grandfathering is not possible on the steel side?
Gareth Stace: No. It is our understanding that we could grandfather it and it would not be against WTO rules. The UK would need to be very careful there. It would not just be a straight, “Right, we are going to put them all in place”, as Edwin says. For the steel sector there are currently 27 cases in place at the moment. I am sure it will not be all 27 that will be applicable to the UK when the UK sits outside of the EU. It might be half of those, I don’t know. If there is a broad case to be answered, it would be within WTO rules to grandfather those cases over. At the end of the five-year period, whenever that might be, the UK Government would then do a sunset investigation to decide whether they need to be carried over again. We believe, and we set out very clearly to DIT, the method for doing this and why it would be WTO compliant.
Q18 Chair: Can I clarify this? There seems to be some difference in the panel. We could have a situation, on the one hand, when we leave the EU in March 2019 where we have no protection. There is a view that we leave the EU in March 2019 and it will be fine, we will have protection, or is that contingent on this process starting, as Mr Leslie said, in March 2018, in about four months’ time?
Gareth Stace: Like I said, it is almost two issues, so separately to the new cases going forward, and we need a regime to be able to investigate those and for the UK to impose them.
Q19 Chair: Starting in March?
Gareth Stace: Yes, broadly at some point next year.
Q20 Chair: Unless we have something in place in March next year, new trade defence will be difficult for a while; is what you are saying?
Gareth Stace: Yes, it is a year, but provisional measures can come in place in probably seven to nine months. It might not be March, it might be a bit later, but a full investigation takes that long.
Q21 Chair: For continuing trade defence that the EU is currently doing, the difference of opinion seems to be that in March 2019 we can or we cannot grandfather these. There seems to be a difference of opinion on the panel.
Bernardine Adkins: I do not believe we can because we will be a third country at that stage and so we will not be able to carry over the trade instrument from another regime, frankly. We have to respect the rule of law, and be seen to respect the rule of law as well, and do a proper investigation, respect the rights of defence of the importing countries. Otherwise, we are going to be compromised in how we go into other countries requesting a fair trade agreement, if we are mired in a dispute with the WTO and other countries.
Edwin Vermulst: My view is a bit different. What DIT is proposing to do—as you can see from the call for evidence that they published yesterday—is terminate all measures unless there is a domestic industry in the UK that says, “We were a complainant at the time, so we have an interest and, therefore, the measure should stay in force as far as we are concerned”. I am sure, like Gareth says, the UK steel industry is a big player in the steel sector, but there have been other cases where there was only one company in the UK that filed a whole complaint. For example, the EU did a big case on cargo scanner systems against China, but there was only one complainant in the UK, a company called Smiths Detection.
It seems to me that that kind of measure can be maintained if you can show there is UK production, which obviously there is, and maybe we have to conduct a review in order to see, for example, whether the dumping margin that was calculated on an EU-wide basis would be different if it was supplied only for the UK. But I think that is what DIT’s plan is.
Q22 Mr Chris Leslie: Yes, so let’s assume that that is the DIT plan. We need not only all the legislation, because we have to do it under new legislation and it has to be done and through by this coming Easter, but also the new regime has to be up and running, ready to take all the evidence, hearings, appeals and all that, from that point onwards. That is the critical timeline.
Bernardine Adkins: Yes.
Mr Chris Leslie: Do you all agree on that?
Edwin Vermulst: We all agree on that, yes.
Gareth Stace: I agree with Edwin, but there is one important point about carrying over from the EU to the UK. If it is the case that we could not do that because we are now out of the EU and, therefore, the calculations do not apply to us, then the EU would have to recalculate all of those because the UK is not in the EU calculation anymore, so I just don’t see that happening.
Q23 Catherine West: I want to ask about the cost of that process, accumulatively. We heard last week in the Budget that if you add up the £700 million we have spent, £1.5 billion for the coming 12 months, the £1.5 billion for the 12 months after that, and then I think departmental spend is up, it comes to a total of about £5 billion over the next couple of years. That is obviously an estimate, but it is the first real sight that we have had, as MPs, of the cost of Brexit. As you know, there has been a debate about revealing costs to MPs. Do you think that is included within those figures or do you think this is extra to those figures?
Bernardine Adkins: I have done some back of an envelope figures. Extrapolating competition law, which is kind of a cousin to trade law, we have the CMA, the Competition and Markets Authority. It puts its budget estimate before Parliament every year and it is usually around £72 million running costs per year. I think there are about 700 officials in the CMA. Extrapolating that, DG Comp has 800 officials and DG Trade has 693 officials in Brussels. Loosely speaking, if the trade remedies agency ends up with 600 officials, you are talking about annual running costs of about £60 million. That is the sort of figure.
Q24 Catherine West: Do you think that is probably included within the £1.5 billion?
Bernardine Adkins: Yes, I would imagine so because they are going to have to move very quickly, very hard, to get in place expert people, especially economists, so that is going to cost. I would imagine that would be—
Q25 Catherine West: What we do not know, for example on the ports, is how much we will have to spend very quickly on adjusting to new ways of managing things. Do you know what I mean? There is a lot within that £1.5 billion and, if I know anything about Government figures, having run a local authority, double it.
Bernardine Adkins: Yes.
Catherine West: Things happen, don’t they—“Events, dear boy”? I think we have to be realistic about the cost because we have to be realistic to the people who voted for this that they understand the full implication of what this means to their living costs.
Bernardine Adkins: Yes. You could start with a skeleton staff, borrow some accommodation from somewhere, to move over the existing instruments and create your fresh instruments. There are these initial upfront costs and then there are the ongoing running costs.
Catherine West: It is more what that money then can’t be spent on domestically.
Bernardine Adkins: Yes.
Q26 Chair: Before I go back to Mr Leslie, I am just thinking this through. If the EU has three different trade defences in place, if we decide that in the UK we do not have to worry about 90% of this and we can now take in tariff free—which is hopefully good for UK consumers—that does mean that we will have to have quite a hard border with Europe because otherwise there is a smuggling route through. If you get stuff into the UK that is tariffed in Europe, there is a danger to Europe that you route these goods into Europe from the UK, so Europe has to be checking the goods. If the French, the Dutch, the Belgians, in particular, are not ready with their customs posts—but we will have to check, maybe the Irish too—this is possibly going to slow up trade quite a lot. There are trade implications with the future relations with the EU, but there may be good implications for people who consume this stuff in the UK.
Bernardine Adkins: I think there are two questions there. It is possible to be part of a customs union and have some sort of link-up with the EU and still run your own independent anti-dumping regime. For example, Turkey does it. It is part of the common customs policy, but has its own independent trade instruments to protect its own domestic industry where it is being hit by products that are undercutting and hurting its own domestic industry. That is one question.
Also, there is an assumption that it is always good for consumers not to have anti-dumping tariffs, but the whole point of these anti-dumping rules is where domestic industry is hurting because somebody from abroad has a lot of state intervention, state support or over capacity and they are able to—
Q27 Chair: What I am saying is that in this situation there might not be a UK interest. Let’s say the EU had this anti-dumping measure in place because it was happening in Portugal or the Czech Republic. If it was not affecting any industry within the UK, it would be fine to get rid of it and it would actually help consumers of that product in the UK.
Bernardine Adkins: Yes. In that case, you would probably have to have some form of check if you are operating a different external tariff to the rest of the EU.
Edwin Vermulst: One element I think you also have to bear in mind is what we call tit for tat—if countries bring cases against you, you want to have something to hit them back with. Otherwise you are a sitting duck and everybody will bring cases against you because they know you do not have a law in place. That is an element that certain countries use. For example, China uses that. If people bring substantial cases against China, it will sooner or later bring a case back against that country on another product.
Q28 Mr Nigel Evans: Yes, but the extension to the argument, which is the Chairman’s point, is if there were controls on goods going from the UK into the European Union, if they wanted to go down that abusive line then, of course, tit for tat would mean that it may take some time to get a Mercedes into the United Kingdom.
Edwin Vermulst: Sure.
Chair: No more Mercedes then.
Q29 Catherine West: China is a very good question, because some of the financial pages are saying that the situation is slightly improving, that production is slowing down in certain parts of China. I want to ask Gareth whether he has a feeling for whether it has had an impact. Obviously 12 months ago we, as parliamentarians, were discussing it day in, day out. Can you give us 10 seconds of a view that it has slightly improved over time?
Gareth Stace: We have seen a fall in Chinese exports this year but, bear in mind, there was a rapid rise in Chinese exports before then. Up to 110 million tonnes of steel had been exported from China on to the global market. You need to bear in mind that in the UK we produce 7.6 million tonnes of steel. It is very easy for China to swamp our market in the UK. We have seen that a few years ago where in the rebar market—reinforcing bar for construction—China had 0% of the UK market and four years later they had 43% of our market before a trade defence instrument came into place, and then it dropped down again to zero.
China’s exports into the EU now are almost non-existent because of trade remedies. However, it is like the Whac-A-Mole game where China is out, now India are coming in and Korea and others, hence to enable free trade to take place you always need a very effective trade remedies regime as a safety valve to enable liberalised free trade.
Q30 Mr Nigel Evans: Coming to trade defence legislation and non-market economies, it seems, if I have it right, that the European Union is changing its approach to these countries, which includes China. What do you think the United Kingdom will do in this regard?
Gareth Stace: Exactly, the EU is changing its approach. In the Bills that we have just seen, we don’t have any detail of what the UK is going to do to tackle non-market economies. That is deeply worrying. The simplest thing would be to say, “This is what the EU is doing and we will broadly do that”. My fear is: will the UK ever become a dumping ground within the EU because we have a less stringent trade remedies regime? Our overall concern with the Bills is that there are not the details that we need now, upfront in primary legislation, to address issues like—
Q31 Mr Nigel Evans: Has the European Union properly addressed yet what they are doing about going on to this different regime? It is on a case-by-case basis by the sounds of it.
Gareth Stace: It is not ideal, but I think in terms of the Commission, the Council and the Parliament a good compromise has been reached and we, as industry, broadly support it.
Q32 Mr Nigel Evans: Does anybody else want to comment on this?
Edwin Vermulst: Yes, if I may, just a general comment. I agree with Gareth that your Customs Bill is very summary. Many key provisions that are, for example, in the EU legislation but also in the primary legislation of many other countries—China, Brazil, Mexico, US, whatever—are not included in that Bill and are left for secondary regulations. That is a general point that struck me. I have seen many comparable laws in other countries and your law is very rudimentary. It applies, for example, also to sales below cost. Sales below cost is a type of dumping that occurs very frequently, but in your Bill it is not addressed.
Q33 Mr Nigel Evans: But you say it will come at secondary legislation?
Edwin Vermulst: Supposedly. We do not know what will be in the secondary legislation.
Q34 Mr Nigel Evans: What you are saying is that unless we have it on the face of one of these Bills that are going through, your fear is that the United Kingdom, post Brexit, will become the dumping ground of the world?
Edwin Vermulst: I am not saying that, but I am saying that you need the WTO agreement, which provides many rules. What most countries do is copy and paste from the WTO agreement. For example, the WTO agreement contains rules on sales below cost, which is a kind of dumping that occurs very often, but your primary legislation does not contain rules on that. It does not contain rules on how to make an injury determination. The international WTO agreement does contain those rules and most other countries incorporate those rules in primary legislation. When I look at your documentation, what is most surprising to me is that it is very rudimentary.
Specifically with regard to the non-market economy provision, like Gareth says, that is not addressed in your Bill either. It is addressed in the EU legislation. The EU legislation will enter into force before the end of the year, but I am 100% sure it will be challenged by China and I am 90% sure that China will win. If you copy that Bill you will copy legislation that, in my view, will be held to be WTO-incompatible in a couple of years from now.
Q35 Mr Nigel Evans: Doesn’t that reinforce why the Government have not perhaps cut and pasted what are going to be inadequate rules by the European Union into legislation?
Edwin Vermulst: With respect to the non-market economy, I agree with you there. But sales below cost and the injury determination is very basic and should be in primary legislation, and that is something that cannot be challenged as long as you copy and paste from the WTO agreement itself.
Q36 Mr Nigel Evans: Yes. Anybody else?
Bernardine Adkins: The Bill at the moment is scaffolding, basically, for the creation of a regime. In schedule 4 of the Customs Bill I counted 22 instances of, “Provision shall be made for regulation”. It is important this Committee keeps an eye on the statutory instruments that come through and ensure that you give scrutiny to those statutory instruments, which is clearly going to be difficult in the context of the Withdrawal Bill. You have 800 statutory instruments coming through, so I think this is the only way. You really need to find time, if you can, to ensure that you are having oversight of those statutory instruments and that they are positive ones and not necessarily negative ones.
Q37 Mr Nigel Evans: Do you envisage this contention between China and the European Union being a big talking point in Argentina at the WTO ministerial next month? Unless that can be sorted out, it is quite difficult for the United Kingdom to do it on its own, unless we do it ourselves on “Whatever the WTO says”.
Gareth Stace: We need to look back and think that the previous Administration, the Government here in the UK, had full market economy status for China. It categorically said that China should have market economy status. It is our concern that in the Bill there is very little detail, and secondary legislation or guidance will be just the same with lack of detail. We might be heading for being the one country in the whole of Europe that grants market economy status and stands alone; that not necessarily becomes the dumping ground but has the weaker regime.
I agree that for us there are 22 points in the primary legislation that are vague. I would have thought Brexit was designed to bring back control to this Parliament, and if we look at the proposals there is no detail or very little detail here. It will be difficult, in secondary legislation, to make any changes. The overriding point is that it seems to give overall responsibility and decisions to the Secretary of State. The trade remedies authority can give all the advice it likes, but at the end of the day it is up to the Secretary of State to do what the Secretary of State sees fit.
Q38 Chair: Are you saying we are seeing a very deficient Trade Bill?
Bernardine Adkins: I would not say it was deficient, but there is a little bit of work to be done. You have the very broad scaffolding there. The area where I would say there is a big hole is appeals. It is the recommendation of the trade remedies agency and the Secretary of State takes a decision, and you are going to have a very narrow window to have check and oversight of those decisions. It is going to be an administrative court, old style judicial review where you are looking at, “Was the Minister rushing on that day, and did he or she follow due process?” That is a very narrow window through which to have oversight of those decisions.
Contrast that with where we have gone as a modern democracy in other regulated areas, such as competition. These areas have been depoliticised. We have a specialist tribunal, the Competition Appeal Tribunal. You have depoliticised it and it is basically a specialised set of people—a judge, an economist and an accountant—people who have the capaability to understand this data and these analyses that go through. You have an on-the-merits inquiry. You double check and you mark the homework of the agency, which in the initial days of the CMA was brutal. It was brutal for the lawyers and for the CMA, but ultimately you got a world-class agency from it that is very proactive and influences huge soft power with respect to how the other agencies throughout the world behave.
This is an opportunity we are missing if you do not get an adequate appeal and adequate oversight of whoever takes that decision. I would say to you to look hard at that appeals decision, query whether it should not be the TRA who makes the decision, and then have a full-blown, on-the-merits inquiry to test the thinking and the analyses that the inquiry does. You will end up with a much better product, which would be good if it could lead the world in how it is achieved, and also gives integrity and credibility to the UK when it goes to other countries and says, “Look, we are a good citizen in the world order. Look at the quality of our trade-dumping investigations and look at the quality of our instruments”. I think that is a really important point that you need to get into that legislation.
Q39 Catherine West: The kind of agency that would be set up equivalent to the CMA would be separate to the Bill or as part of the Bill?
Bernardine Adkins: You have the TRA, so that is in the Bill. What you also need is provisions as to how appeals are going to happen. I would suggest either expand the competence of the Competition Appeals Tribunal or create something akin to the Competition Appeals Tribunal. I think the CAT is a good place to start, because it follows European Court style rules, which means it moves very quickly, a lot of thinking is not on the documents, very, very quick justice, and you have a tribunal. It is not just lawyers; it is economists and accountants. You do need cross-discipline thinking on these cases.
Q40 Catherine West: Parliament would have to vote for that and asking MPs to vote against politicians having more power is sometimes problematic.
Bernardine Adkins: I think what you can say is what is currently proposed is against the trajectory of where we are as a country in how we have oversight in these regulated industries. What is currently on the table is very much 1970s thinking. It reminds me of when I was a junior lawyer and you had the MMC. We had a massive great investigation and suddenly it was given into the arms of the Secretary of State, and everyone was in a mad scramble round, “Can we get in the ear of the Secretary of State? Who can get near him?” It was all behind closed doors, and it was very much lobbying. At the end of that it was like, “What was in the head of the Secretary of State?” We have moved on since then.
Q41 Mr Chris Leslie: Essentially, we are reconstructing a process that does not have the modern transparency that you might get in the CMA regime, and we are reconstructing an old, antiquated, “Secretary of State knows best”? Is that the model in the Bill?
Bernardine Adkins: Absolutely, and we are missing out something we are really good at. We have a super regime that sets a standard globally, and we are missing the opportunity to put that in place with respect to trade.
Q42 Mr Chris Leslie: That is important so that you can avoid unnecessary appeals or your decisions from the Secretary of State coming untangled because of the lack of transparency. That was why we moved to a more modern, professional basis in the competition policy regime, wasn’t it?
Bernardine Adkins: Yes. You are not taking it completely out of the ambit of the politicians, because there will be times when they do want to intervene but do something open and transparent. For example, in merger regimes you have the public intervention notice. Again, it is put before Parliament for scrutiny. Especially in the context of trade, there will be situations where we will have to ask: should the Secretary of State adopt anti-dumping measures or not? It may be good for consumers, but you know there is a company, arguably in your constituency, that is going to go under.
Q43 Mr Chris Leslie: When we have the Bill, we will have this proposed architecture for the new authority and regime. We have not had any experience in the UK for decades on this, so where should we look to emulate the best model, the best practice? Are there countries across the developed world that you could suggest? Are there experts we should be listening to about this? I am slightly worried we are fumbling our way to construct something very quickly—as we were saying earlier, by Easter—to get this thing done. Where would you advise we look for the best practice?
Gareth Stace: In a way there is no need to be fumbling along in the sense that we, as the steel sector, this year from March onwards produced four detailed papers. I am not going to go through the four papers in detail, but the first one was about saying, “This is a great opportunity. Let’s pick from around the world all the best bits of trade remedies”. We set out very clearly what that would look like, and then line by line, almost, how you could set that out. We followed it up with another paper, and then we have answered the White Paper. Now we have published a paper on Monday, which I would like to share with you, on our initial response to the Customs Bill. We have set out exactly what the steel industry needs or the UK economy needs from this regime, and so it is there. We have given the Government all the evidence that they needed long before they were asking for it from us. We felt that we needed industry and Government to work closely together to achieve the best outcome.
Q44 Chair: Do you want to follow up on that question?
Edwin Vermulst: I agree with Bernardine about the idea of politicising the system to some extent, but putting the Secretary of State above goes back to the old days. I do not think that is a good development. There are some other countries, especially developing countries, that have a system like that where you need a Minister, basically, at the end of the day to make a decision. That becomes very politicised, like Bernardine said. I think that is probably not a good idea.
That having been said, and to reply a bit to Gareth, of course the steel industry has its own agenda, and there is nothing wrong with that. But, for example, in Europe we have EUROFER, the European association of steel producers, and they have dominated the whole debate on China and on market economy status. They are punching above their weight, if I can say it like that. They have more influence than maybe they should have on the basis of their economic status in the EU.
Again, there is nothing wrong with that, but you also have to think about users, especially steel. Steel is a raw material or a semi-manufactured product. The car industry needs steel. There is speciality steel that maybe has to be produced in the UK, but there is also bulk steel where basically the cheaper the price the better for the users. It is not only steel, it is also many other products. There are many cases in the EU against raw materials and against semi-manufactured products. You do not have the consumers on the other end of the remit, but you have the users, people who use the product to make cars, silicones, solar panels. There I think you need a certain balance, but the balance should be in the law; it should not be left to the Secretary of State.
Q45 Chair: I can see some emotion there, so we will allow you to plead your case.
Gareth Stace: Two points to make, Chairman, thank you. In terms of us punching above our weight in the steel sector, the reason why we want to be included on the debate is it is very important for us. Just from here, steel is on the left. That is the number of trade cases, that is steel, and this is other sectors. You realise why it is important for us. It is 27 cases, and other sectors have one or two or three.
Q46 Chair: Is that because of paying too much attention to steel or giving steel too much protection?
Gareth Stace: No, it is because steel is a globally-traded product. One-third of all steel produced is moved across an international border. Free trade, global trade, is the life blood of our sector, so much so that in the 1990s there was the Uruguay round of trade talks and all the developed countries agreed to adopt zero tariffs on steel moving across borders, customs tariffs, not dumping tariffs. That is still in place today, and that will be in place post Brexit. We, as the UK, whatever happens with Brexit, import and export to developed countries.
Q47 Chair: Is a third of the steel produced in the UK then exported?
Gareth Stace: No, 50% of what we produce is exported and 70% of those exports go to the EU. That is why Brexit is such a big issue for us because that is our biggest market. The development of the zero tariff in that agreement enabled more liberalised trade to take place in the steel sector, hence what we will see without a strong trade remedies regime is a rise in protectionism. Chairman, at the beginning you said, “Is this protectionism?” What we would say is that without TDIs, trade defence instruments, there would be a rise in protectionism and not less protectionism, which might fly in the face of some—
Chair: No, I can see your logic.
Gareth Stace: Edwin said the cheaper the better. We are not talking about cheap. This is not cheap steel. It is dumped steel that is state supported or state subsidised and dumped on to our market. If we think of the Chinese steel sector, it is 70% state owned, and one could say 100% state controlled. That is not free trade. It is illegal and against WTO rules, and hence why we would consider it dumped when it is dumped, and we need action against it.
Q48 Chair: You are saying that the Chinese Government are subsidising steel consumers in the west?
Gareth Stace: The Chinese Government subsidise their steel sector.
Chair: Which, by extension, then is subsidising the west.
Gareth Stace: Yes. I do not blame them for that. It employs 3.5 million people in China. If they start closing steel plants down to address their massive global overcapacity—their overcapacity that is adding to global overcapacity is something like 300 million to 400 million tonnes of steel—and get rid of those workers they will have riots on their hands. They have to do something with the steel that they produce and do not need for their domestic economy, and they chuck it abroad.
Q49 Julia Lopez: Is it a bad thing for UK users of steel to have cheap Chinese steel, for instance if that allows you to build cheaper houses, cheaper cars, and all the rest of it? The Chinese Government is essentially paying for us to have cheaper steel. What is your view on that? Is it worse quality steel?
Gareth Stace: I would not want to get into that argument. There must be times when it is not as good quality as others. I would say it is very short-sighted. At the moment we have our own industry, we can supply our own value chains. It is there with location, it can adjust in time, work in with customers and so on. That can take place and innovation can take place as a result. If China swamps our market and we do not have a steel sector anymore—and that is it gone, we would not bring one back—what is to stop China either increasing the price of steel or saying, “This is the amount of steel we are going to sell you and we are going to sell you no more”, or, “This is the quality and this is the type of steel”?
We will not then have control over the value chains that we feed into, automotive, aerospace, construction and so on. Also you will lose that foundation, those very important supply chains here in the UK economy. Once you close one part of that supply chain—the beginning of it is steel—where does the slow burn stop in moving along that supply chain? You won’t see manufacturing take place here in the UK because you do not have the foundation sector here in the UK.
Q50 Julia Lopez: Do you share that opinion?
Edwin Vermulst: No. First of all, as I said in the beginning I think the use of anti-dumping and countervailing measures is justified if it is in accordance with the WTO rules, and there are detailed rules in the WTO that determine when it is justified or not. The EU, I think for political reasons or to make a point, is bending over backwards to come back with findings of high dumping and subsidy margins for China, so the results are manipulated. They result in high dumping and subsidy findings for China, and they result in subsidy or anti-dumping measures that would not be justified normally under the WTO rules.
We work mostly for exporters, including Chinese exporters, but we have some EU companies, for example, that have invested in China. The EU investigated them and said, “You got a subsidy from the Chinese Government. You don’t operate under market economy conditions. We will give you a high duty”. We had hearings before the EU and the company said, “We get many more subsidies in Europe than we get in China, so why is it a problem that we get a subsidy in China?” I do not know the situation of your company, Gareth, but many companies in Europe get subsidies too; let’s be fair about it.
Bernardine Adkins: You asked when it is in the public interest. That is factored into whether one should impose an anti-dumping duty or not. Most regimes do have that tailoring once you have established where there is dumping, what is the level of dumping, what is the extent of injury or potential injury to domestic industry. Then you have the question: is it in the public interest to impose those duties? It is interesting to look, for example, at Canada, which has that public interest test. America does not. It is just, “If there is dumping we will put the duties on”.
Canada used it for the first time last year in respect of plasterboard. There you had an open hearing, a two weeks’ hearing where all interested parties made representations to the authorities: the consumers, the users, the importers and the producers. Ultimately, they said, “It is really important that this product is available. We don’t have these anti-dumping duties because there have been forest fires, shortages of product, flooding, and also prices have gone up”. With an open, transparent system it was judged in the circumstances of that case not to impose those duties.
It is really important that if you are to have this regime it needs to be open, transparent, have integrity and credibility, rather than the Secretary of State deciding behind closed doors whether it was or was not in the public interest. These areas are going to be hotly contested. Sunlight is the best disinfectant, as they say. I think it is really important that these things are aired openly, because someone is going to be disaffected. It is important that they are seen to be done in an open fashion. It is all about Britain having credibility on the world stage in terms of how it operates its trade policy.
Faisal Rashid: Following on from Julia’s point, it is a very valid point but at the same time I do understand where you are coming from, guys, because it can work on any other product as well. It could work on any other industry. If China is subsidising and exporting key products to other countries and we do not have some kind of rates and subsidies or measures to stop them, there is danger that our own industry will suffer. At the same time, we can build cheaper homes and cheaper things because of the cheap product coming from abroad. Our cost of manufacturing may be higher than that, but where do you draw a line? It is really important. That is why these trade deals are important: where to give subsidies, where not to, the tariffs, and how you work around to secure your own industry at the same time.
Q51 Emma Little Pengelly: I wanted to pick up your point about having the opportunity to create something that is taking the best bits from around the world. In relation to what is before us with the Trade Bill, is it your view that the scaffolding that is contained within that is such that there is a strong enough indication that is not going to be the case, or do you believe that the detail is not there as yet because it is going to be contained within secondary legislation? Do you not know yet in what way it is going to operate? From our point of view, is there a fundamental problem with the primary legislation as set out, or do we really need to be scrutinising the secondary legislation to make sure that the structure is much more robust?
Bernardine Adkins: I think there are two primary problems with the scaffolding, which by and large is fine. The first is the fact it is a recommendation of the Secretary of State and it is not the TRA. Secondly, you need to have adequate appeal and oversight, which should be, I would say, a specialist tribunal, as we are doing in other regulated areas where regulators impose price control and it goes to the CAT specialist tribunal, and so too with the competition regime. Those are the two fundamental flaws. To the extent that you have the capacity, it is important that you have oversight of the secondary legislation that comes through, putting flesh on the rules and how you are going to measure damage, injury and so on.
Q52 Emma Little Pengelly: In relation to the decision about whether or not the actual adjudication is on the back of recommendations made by the Secretary of State versus an independent body, is this an ongoing discussion internationally? Is there an argument to say it should rest with the Secretary of State? Presumably, there are a number of different models where some are more political than others. What do you think about where it has landed, where it is at the minute, which is that it is political here? Presumably there were arguments on both sides of this and pros and cons on both sides.
Bernardine Adkins: To my understanding, it has not been that hotly contested. Edwin, I think you have a greater sense of what happens elsewhere. In Canada you do not have that, which is the regime I am more familiar with, but I do not believe it is something that is—
Q53 Emma Little Pengelly: The Canadian one is completely independent in terms of the decision?
Bernardine Adkins: Yes.
Edwin Vermulst: Like Bernardine said before, in the United States it is purely legalised. The US is probably the most legalised system. There is no political influence whatsoever, although President Trump, of course, is trying to do it at the moment.
Emma Little Pengelly: We will reserve judgment on that one, I think.
Edwin Vermulst: Until then it was really a very technical process, and there is no political decision to impose duties. It is a decision taken by the authority, by the executives. I think it is very much like that in Mexico too. As I said before, some developing countries are more politicised, and I think it is because they have taken it from the EU. In the EU you have the member states that at the end of the day decide on measures proposed by the Commission. The system has become more legalised in the EU, but you still have the member states that have a say, and the member states are political.
Q54 Emma Little Pengelly: Is there an argument that if it is political there is more control for protecting British interests in relation to this as opposed to an uncontrolled process, an independent panel? I think it would be interesting.
Chair: You prefer the Canada versus the USA?
Emma Little Pengelly: I am just asking the question to see what is on both sides of the argument. What are the pros and cons?
Bernardine Adkins: The Government’s White Paper on trade policy is very much setting out its stall to say, “We want an ambitious global trade policy where we lead the pack and are proactive in making sure that we are as liberal as possible”. For that you need a very legal process that is open, transparent, with integrity, and not a recommendation where there is the perception of a discretion.
Q55 Chair: We are coming towards the end of our time. I have a couple of takeaways. There is an argument for steel, that it is important, almost like food. You need a food security policy, or a steel security policy, going forward. If you get food from one place in the world, as we saw in World War II you can have difficulties with North Atlantic convoys to get your food. That argument could be made for steel. The other argument I heard was that the Trade Bill is not deficient, which is the question I posed, but neither did it seem to be comprehensive. I want to ask each member in the panel: is there one burning issue you might want to say, one particularly important thing that we have not covered, one takeaway or one thing that you might want to emphasise?
Edwin Vermulst: I will reiterate the point I made before. A lot of very important concepts are missing from the primary legislation. You will have to make sure that they are included in the secondary legislation, because they are very important. They limit the discretion of the authorities, so it is in the interest of transparency, like Bernardine has been saying.
Chair: Which then weakens trade defence?
Edwin Vermulst: Yes.
Bernardine Adkins: I think you are going to have to take a pragmatic approach, given the volume of legislation you are going to have to have oversight of. I think the most important thing is you have a proper appeal process to allow the system to evolve. For that reason, I think you need to get that into the primary legislation to have an on-the-merits review by a specialist tribunal. Whatever glitches or failings you have in the system as set up can be resolved over time.
Gareth Stace: If there was an element of trust and we understood exactly where the Government were aiming to get to in secondary legislation and then guidance, our concerns here about the lack of detail in the primary legislation would not be such a problem. But we have indications in that primary legislation, perhaps on the economic interest test; Bernardine is saying in Canada they do it after the investigation and it is not used that often. The primary legislation says the authority is going to conduct that twice, and the Secretary of State separately is going to conduct an economic interest test twice.
Also, it is the length of when tariffs come in. In the EU it is five years; that is what it is. Primary legislation is indicating it may be five, but it could be quite a bit less. You have a sense of where perhaps the Government are going on some really crucial issues but, from our point of view as the steel sector, they are going in the wrong direction; hence our concern about the Bill that was published only very recently.
Chair: Thank you, panel, for your time this morning. As ever, we are up against the clock in this, but your information and your expertise has been very valued indeed. Thank you.
Examination of Witnesses
Witnesses: Derrick Wyatt QC and Nick Dearden.
Q56 Chair: Can I ask you to state your names and organisations, please, for the record?
Derrick Wyatt: Derrick Wyatt, member of Brick Court Chambers and fellow of St Edmund Hall, Oxford.
Nick Dearden: I am Nick Dearden from Global Justice Now.
Q57 Chair: Thank you both. Could you talk through the primary parliamentary scrutiny mechanisms contained within the Trade Bill that govern the implementation of “transitioned” EU agreements and the Government Procurement Agreement? Are they sufficient?
Derrick Wyatt: In answering the question about sufficiency, one maybe has to take a step back and ask what principles one would apply. If I may briefly do that, I shall. What I say would apply to public procurement and to the rollover and renegotiation of trade agreements. The current position under both the Trade Bill and the Constitutional Reform and Governance Act 2010, CRAG, is, first, to implement procurement agreements and trade agreements in the UKwhat is needed are ministerial regulations subject to a negative resolution. There is no positive requirement of consent before the UK signs up to these arrangements. It is true that CRAG applies as well, but the CRAG arrangements are simply, first, statutory enactment of the so-called Ponsonby Rule; a treaty must be laid before Parliament. Secondly, it is possible—for the House of Commons, at any rate—to block a treaty on the basis of a resolution.
However one calls it, approval of the UK being committed—CRAG—and implementation domestically of procurement of trade agreements go forward on the basis of a statutory instrument unless Members have concerns and try to block it. Really it is very late in the day to find your concerns at a time when all you can do is either block approval to an agreement or block the implementation of it.
What this kind of arrangement does is to feed into a low level of parliamentary involvement in the processes that lead to these agreements. To put it another way, if there had to be a positive affirmation—at least a positive affirmation by the House of Commons before obligations under an agreement could be assumed by the UK, before it was implemented in the UK, both those stages—that would feed back into more intense parliamentary scrutiny and parliamentary involvement through the negotiation progress. Chair, if you would like to stop me—
Nick Dearden: It is fairly easy to talk through the scrutiny provisions that are there at the moment, because there are not really any. At the moment, you, as elected representatives, do not have the power to set the Secretary of State a mandate or guidelines, to scrutinise what he is doing, to see the negotiating text, or even know where he is meeting or who he is meeting. He may choose to tell you, but he does not have to. He has no mandatory responsibility to conduct impact assessments or to make those public, to enter into dialogue with civil society or other stakeholders. As elected representatives, when the deal is done and dusted, you have no right to stop a trade deal or to amend a trade deal. If you are very lucky you will get a debate if the Opposition decides to give one of its Opposition debates over to this issue, and they may not even be able to do that. That is essentially it. You can stop it for 21 days and then the Government can bring it back again.
At the moment there is really no scrutiny, transparency or accountability in trade policy as set out in this Bill. We are worried about that because, of course, there is an argument that this is about replicating deals that already exist with the European Union. However, we believe that essentially they will be new deals. They will have to be. You cannot simply cut and paste deals from the EU. There will be new deals, but also this is a piece of parent legislation, a framework as it was described by the former panellists, that will, to a large part, set the parameters of how future trade deals will be scrutinised and how you, as elected representatives, will be able to hold future Governments to account. That is really important because trade deals nowadays are about more than tariffs and quotas. They are about huge swathes of public policy and regulations that you should have a role in setting.
Q58 Chair: If I was a cynic, I might say the UK has not taken back control at all, it has handed control to a Government Minister. Is that the essence of what you are saying?
Nick Dearden: I think that is right, Chair. There are people like me who have been complaining for a long time about the democratic deficit in the European Union, especially with trade deals like TTIP where we thought there should be a far more rigorous process of democracy. But if you look at how the European Union does it, the Commission has to hold a public consultation and scoping exercise, the Council has to set a mandate and the Parliament has the right to make its views known on that mandate. Various committees will discuss as the negotiations are going on and offer their views. The European Parliament must give consent and Council must give consent. For some agreements, all 40 recognised Parliaments must give consent. There must be formal civil society dialogue. There are less restricted texts than ever in the European Union. The European Union Ombudsman said in 2015 that this was inadequate, and I would agree with her.
There is a real question here for people who voted to take back control because they wanted more control of things like trade policy. Far from it, we actually would have less control under what is currently denoted in the Trade Bill.
Q59 Julia Lopez: On that note, do you not accept that the Government are in a very tricky position because they have to get provisions in place for March 2019? They have to accept that this is not an ideal situation or an ideal process, but if they do not do this there are going to be very real economic implications. It is potentially not where we want to be, but it has to be done. How would you have approached that to have provided better scrutiny but also deliver in that timeframe?
Nick Dearden: We are pushing a few proposals for how it could be better, along with a range of other civil society organisations, trade unions and so on. They say that we think there should be an affirmative parliamentary vote at the end of it, absolutely, but there should also be a committee that is empowered to look at the statutory instruments and the secondary legislation and decide which one of those should be voted or not—some super-affirmative action. Remember that in the past all of these trade deals have had scrutiny from the EU Scrutiny Committee, but under the trade deals that we are now talking about replicating in future trade deals, you will not have that even from the EU Scrutiny Committee. We would suggest that either this Committee or a separate Committee takes on some of the powers of the EU Scrutiny Committee so that you are properly able to look at what is going on.
Q60 Chair: We would need to have a UK scrutiny committee?
Nick Dearden: It could be. It could be a trade scrutiny committee that would have real power to look at what the Secretary of State is doing, who he is meeting, what his mandate and guidelines are, be able to recommend to the rest of the House when you see concerns with particular statutory instruments and particular things that are going on, and send it to the House for a full debate if you believe it is necessary.
Derrick Wyatt: Could I come back to Julia Lopez? My own take on this is that the current scrutiny arrangements will be inadequate in some cases for trade agreements covered by this Trade Bill. Where I think the inadequacy might be forgiven would be in cases where the Government were going for a fast rollover, with the only adjustments being applying an agreement mutatis mutandis where the UK assumes obligations hitherto assumed by the EU; where the UK was guaranteeing to the EU that the UK would comply with the agreement. Then in the future the UK will be guaranteeing that directly to a third party.
In those cases, there is not a lot of time for the Government to get these things together. I think the Government would be justified in operating with a fairly light touch in submitting to scrutiny but—and it is a big but—these provisions are likely to run in the first instance for five years and be renewed for another 10 years. This is not just about rollover. This is about any agreement potentially over the next 10 years that the UK is party to with another country not in the EU which at the time of Brexit had an EU trade agreement. We are talking about maybe four years down the track—when the UK has rolled over an agreement and they are changing it, they are renegotiating it.
How to deal with it? My general approach would be to say build in all the safeguards that you need for the long term, but Parliament will be understanding. There is no way Parliament is going to start trying to undermine—it certainly should not—the UK’s negotiating position, but Parliament can distinguish between immediate need to roll over and significant renegotiation of trade agreements.
Q61 Chair: Are you both touching on an ironic situation here? The UK currently has scrutiny over EU Bills. It is one of 40 Parliaments that can say yay or nay to EU Bills such as TTIP, as Wallonia famously did.
Derrick Wyatt: Not quite, Chair. It is only to a very limited extent.
Chair: Okay, to that very limited extent, but now you are saying that it would not have control or it would not have scrutiny even to that very limited extent. The UK Parliament will have less say or control on UK trade Bills than the UK Parliament currently has on EU trade Bills. It is a huge irony.
Derrick Wyatt: I would add, Chair, or maybe put it this way—at the present time, the interests of UK people are protected by European parliamentary oversight of the treaty-making process at EU level. I think maybe I see it a bit more favourably than Nick because the position as regards the European Parliament overseeing the treaty-making process at EU level—
Chair: We have elected representatives to that Parliament.
Derrick Wyatt: We certainly have, and the interinstitutional agreement between the Commission and the Parliament is such that there is a constant interchange, a constant dialogue, between the Commission and the Parliament when trade agreements have been negotiated. The Commission is bound to indicate its position to the Parliament if necessary under conditions of confidentiality and always in enough time for the Parliament to come back and potentially influence what the Commission is doing in its negotiations. As Nick suggested, at the same time you have the member states tracking the Commission. Normally, the Trade Policy Committee would be tracking what the Commission does.
The European Parliament has laid down firm recommendations on, for example, TTIP. I am not cynical about this. I think these are the kinds of moves by the European Parliament that strengthen the arm of the EU as a negotiator. I see potentially, in the future, this House and this Parliament strengthening the arm of the UK negotiator in its dealings with third parties. The UK Parliament would not and should not seek to micromanage negotiations, but some of these trade agreements have as much impact as major statutes on individuals, businesses and national economic welfare. The Government, any government, instinctively may feel too much scrutiny will mess this up. I do not believe that. I believe that what scrutiny can do is to help the Government think outside the box, and test their own internal advice.
Nick Dearden: It is worth saying that the Secretary of State says he does not want to get into another TTIP situation—I am sure he does not—and, therefore, we need that scrutiny and accountability at the beginning so it can make a real difference. The problem at the moment is that that does not exist.
It is also worth saying that under the current system in the EU many trade deals go back to member state parliaments for another very, very thorough system of scrutiny, accountability and transparency. In Germany, there are strong powers in the Parliament to stop trade deals and see the negotiating texts all the way through and hold the Government to account; in Denmark and the Netherlands as well. Many other European countries are already working at a higher level of scrutiny and accountability even after the European Parliament scrutiny, which it is able to give in legal terms.
There is a real worry that we already have fairly weak scrutiny of EU trade deals, and even that is being removed. I think it is worth saying that some of the trade deals that will be covered by the Trade Bill—Derrick is right—may be close to what the original terms were. I am sure that MPs would respect that and not create too much opposition if that was the case. But there are some in here, like CETA—the Canada deal—like Vietnam, like Japan, that have not even been through the proper ratification process in the European Union and yet we are saying if these are signed by the time of Brexit day, we will simply translate these into law with, as I see, no scrutiny at all.
Faisal Rashid: I met with Trade Justice Movement and Global Justice Now yesterday and they raised the same kind of issue. I did say to them that it might be because of the time limit, and the previous lady mentioned that. The speed is the key for getting out of this Brexit and having a good deal for us and making it work, but at the same time I do feel that there has to be some type of scrutiny. I did propose that it might be under a subcommittee of the International Trade Select Committee maybe, and we can propose this to the Government. Having no scrutiny at all is not good for everybody.
Q62 Emma Little Pengelly: On a very similar point, we have in our briefing some comparative analysis in relation to scrutiny mechanisms. It strikes me that on many of these, including the European Union, it is a lot to do with committee scrutiny at various stages. This is a relatively new committee in terms of international trade, but as this develops clearly it is going to be a significant part of the Department’s work and presumably the Committee has an opportunity to do that. From the European Union perspective, is that committee scrutiny process set down in terms of statutory instruments or legislation or protocols or is that something that they have developed for enhancing the scrutiny as they have continued to grow in relation to this area?
Nick Dearden: It is set down and it is evolving all the time. As we said, with regards to TTIP, because there was such a strong campaign against that in the EU, all sorts of new provisions were brought in that meant that it had to be really exceptional if texts were kept secret and there had to be a good rationale for that. By the end of the process all MEPs were allowed to see the negotiating text as the process went on.
Q63 Emma Little Pengelly: When you say set down, was that set down in guidance? Was it a best practice or was it legislative, some form of regulation?
Derrick Wyatt: It is a combination. I think no is the answer to your question, but the background is that it is a combination of the committee structure in the European Parliament and the interinstitutional agreement of 2010 between the Commission and the Parliament as regards liaison and commitments of confidentiality and the Commission giving an opportunity to the Parliament to potentially influence the way it is conducting the negotiations. Why did all this happen? There are two reasons. First, the Lisbon Treaty gave the Parliament the authority to decide whether or not a treaty would be concluded—in effect a right of veto over a treaty. Secondly, the Parliament exercised this and that changed a lot. It certainly gave rise to the 2010 interinstitutional agreement; well, the same political processes gave rise to the interinstitutional agreement. Once you know that the Parliament is willing to reject an agreement if you produce it at the end of the day, like a rabbit out of a hat, that feeds right back into the scrutiny process.
Q64 Emma Little Pengelly: Just to clarify that, at the moment does the European committee scrutiny get the text of the agreements? In a sense, what is set down here is a negative resolution, so if there is an opportunity for this to be stopped by Parliament now. There would be arguments about whether it should be affirmative or negative, and affirmative would obviously be stronger. Presumably, Parliament will do that on the back of a recommendation. I see opportunity for the International Trade Committee, or whatever relevant committee, to call a Minister at an early stage, scrutinise the interest, maybe take evidence on that, and then also scrutinise the end text in making a recommendation in relation to the vote of Parliament.
I suppose with that type of committee taking the initiative, there would be no guarantee of getting earlier texts before it was agreed to be laid down in a negative resolution procedure. Is that the way that the European committee works in their scrutiny? Do they see pre-texts before it is agreed and then laid down? That would not be guaranteed to any committee here under that procedure.
Nick Dearden: They do. Well, they see the negotiations as they are progressing, so the final text should not be a surprise to anybody. If I could also give one little clarification there. At the moment there is a negative procedure to the whole Chamber here, but you really cannot stop trade agreements. You would be lucky to get the debate where you can pass the resolution and, even if you get that, you can only stop it for 21 days, after which the Government can bring it again in the same form.
Q65 Emma Little Pengelly: Don’t you have to stop it within 21 days? You have to stop it within a period of time, and then it has to be laid down again.
Nick Dearden: It would have to be laid down again 21 days later, but there cannot even be—
Q66 Emma Little Pengelly: It could be stopped?
Nick Dearden: No, because you can only stop it for 21 days and there would not be enough Opposition Days for the Opposition to continually keep bringing it back and stopping it indefinitely for 21 days.
Derrick Wyatt: It is because the Government can re-lay it and—
Emma Little Pengelly: Yes, that is what I mean, they would have to re-lay it.
Derrick Wyatt: Just on the European Union, a lot of the good things the European Parliament has been doing are relatively recent. I say this very cautiously. If we look at the practice with respect to the withdrawal agreement with the UK, I am very cautious about this. This is not a trade agreement. It is not a typical trade agreement, but it does represent the way the EU operates right now.
First, you had guidelines on negotiation from the European Council. That is the Heads of Government. They were published. Then you had a proposal from the Commission for a negotiating mandate based on the guidelines made to the Council, not the European Council, not the Heads of Government but the appropriate ministerial representatives; that was published. Then you get the actual negotiating mandate laid down by the Council. That was published. As of April this year, we have had a very clear idea of what it was that the European Union, as of the time of writing, was willing to put on the table, what the European Union wished to achieve. Obviously, the UK has gone about it in a different way, but this is relatively new for the EU. The reason the EU started publishing its negotiating mandates was because they were leaked. That is what happened.
Chair: They were unofficially published then.
Derrick Wyatt: Yes, absolutely, and then a virtue was made of necessity. That happens. No system is immune from leaks. Because all these negotiating mandates are published you get an insight into what the Council and the Commission want to do. We have seen from the European Parliament what it will accept, admittedly in pretty broad-brush terms, on the withdrawal agreement. That has been published, too.
Q67 Chair: Can I move on a bit because of time, as ever? To what extent does the EU restrict the degree to which transitioned UK-third country trade agreements can diverge from existing EU agreements? Is there a point at which the new UK agreement would be so dissimilar from an existing EU agreement that it could not be implemented via the negative procedure?
Derrick Wyatt: I think the answer to that is no because the way the Trade Bill addresses these agreements is not in terms of content at all. It defines the agreements to which the power to make secondary legislation applies by reference to who is party to them. If the UK is party to an agreement with country X and at the time of Brexit country X had a trade agreement, then it falls within the secondary legislative powers of the Bill. I see a quizzical look to your left. If there is any specific question—no.
Just to be complete, when the Bill provides for secondary legislation subject to a negative resolution, that is non-tariff measures. Tariff measures are covered by the Taxation (Cross-border Trade) Bill, and that provides that you can reduce tariffs on a negative resolution, but you need an affirmative resolution to increase them. If we were talking about a substantial renegotiation of a trade agreement that currently country X has with the EU, it is transitioned on the basis of an exchange of notes shortly before we leave the EU. Two years later, the country signals that it wants to make substantial amendments. The UK and country X engage in negotiations and produce a substantially amended treaty. CRAG applies, so no big deal, with respect. CRAG applies under secondary legislation and there is nothing there to incentivise close parliamentary involvement, or rather to incentivise the Government to be enthusiastic about close parliamentary involvement in the process.
Nick Dearden: For me, the number of trade deals that are going to be cut and pasted will not going be very many. Even the Secretary of State has said you cannot just look at this as cut and paste, it is much more complicated. You have things like rules of origin, you have us potentially diverging from EU standards that the trade deals are based on, you have a different sized market—and the Secretary of State himself has said he thinks that many aspects of these trade deals could do with reinforcing a bit around things like e-commerce, for example, which is a whole different agenda—and these deals are going to be new deals to different extents depending on which deals they are.
Derrick Wyatt: The first category of examples Nick gave is fairly technical stuff. Once you start talking about a new deal on e-commerce, I agree, this could be significant. Parliament would be interested. It would affect national economic wellbeing and rights of businesses. Common sense would suggest it should be subject to close scrutiny.
Can I make a point about the way scrutiny operates at the moment? Mr Davis indicated a while ago to the House of Lords EU Committee—I think things are run this way—that the Government would facilitate scrutiny with respect to our negotiations with the EU. They would ex post facto disclose what had happened, but would not disclose things before they happened. It seems to me that is a hard and fast, black and white distinction that goes too far. There are occasions when Governments can be open and transparent and can and should share their objectives with Parliament. Parliament has a legitimate interest in those objectives and in the ways and means the Government plan to achieve them.
Q68 Chair: You talk a lot about sharing. What can we infer from the Trade Bill about the Government’s likely approach to devolved Administrations in the making of future trade deals?
Nick Dearden: I know that this is a particular concern for you, and it is for us as well. At the moment, when we are talking about trade deals again, even if you are talking about just tariffs and quotas it can have a particular impact on certain parts of the country. When you start talking about the regulatory aspects of trade deals, it is very easy for the Secretary of State who goes off to negotiate these trade deals to simply list services that are under the devolved competence of the Scottish Government or the Northern Irish Assembly or whatever. At the moment, they cannot really do anything about that. They can object, but they have no power to stop that. Yet when the final trade deal is being discussed, they have no power with regard to that.
We are definitely arguing that there need to be enhanced powers for the devolved Administrations with regard to trade, and other countries already do this. It is not an impossible thing to happen.
Chair: It is not a revolutionary situation.
Nick Dearden: Yes. Canada already includes, for example, devolved Administrations.
Chair: Provinces of Canada.
Nick Dearden: Yes, absolutely. First, they have to pass the trade deal. The central Canadian Government cannot force Quebec, for example, to implement a trade deal that it does not want to implement. As a result of that, they have started including members of the Quebecois Administration on the trade delegation itself.
Chair: And, presumably, British Columbia, Alberta, Saskatchewan?
Nick Dearden: That is right. It is the same in Belgium, where the regional assemblies also get a vote on trade deals because it is seen, especially in the era of modern trade deals, just how much impact these trade deals can have on devolved powers.
Q69 Chair: What are the advantages and disadvantages of that? Particularly in Canada, with a 3,000-mile coast-to-coast reach, you could see why Alberta might have a very different view to Ontario. In Belgium, between Wallonia and Flanders perhaps less so, although I am not an expert on Belgian politics. Can you expand on that a bit?
Nick Dearden: Wallonia has a very strong agricultural community, for example, so that was one of the reasons that it was so concerned about CETA and TTIP. These Administrations still pass trade deals. I suppose that is the ultimate lesson. I would say that they pass trade deals that have more buy-in by the time the final deal is reached than they would do if there was not that level of participation from the different parts of the country in how you construct that deal.
Q70 Chair: If it is a good trade deal, Wales will like it, Northern Ireland will like it and Scotland will like it, so the Government centrally in London has nothing to fear from buy-in from those?
Nick Dearden: Everybody should benefit in some way. Of course, there will also be losers from trade deals, and I accept that.
Chair: This is the other point.
Nick Dearden: We talked about that earlier with regard to steel. There will be losers from trade deals. That has always been accepted as a central component of free trade theory. What you are supposed to do about that is create policies that sit alongside the trade deal and are implemented at the same time and make sure that for anybody who loses their job or any industry that will be struggling as a result of this trade deal you have an industrial policy to deal with those parts of the country and those industries. You ensure that you are investing so that people will not just lose their jobs but there will be different industries and skills retraining for some people in those areas. You may decide it is too big a price to pay and we do not want to lose this part of our farming industry, but you are only going to get that, I think, if you have a really big debate and discussion with all parts of the country and different sectors involved in that discussion.
Derrick Wyatt: I go along with a lot of that. I do not know whether Nick is saying that there ought to be a right of veto in all the Administrations. If he is, I would certainly hesitate before I endorse that. I would point out an alternative take on this is that, first, this Parliament represents all parts of the United Kingdom through its elected Members. Secondly, that does not exhaust the interests and claims of the devolved Administrations, but an alternative take perhaps on the more intensive one offered by Nick is that the appropriate avenue for the devolved Administrations would be direct consultations with central Government. It seems to me that the point about close participation in the negotiation process could be workable. There is the avenue of committees like this giving a platform to the devolved Administrations.
Q71 Chair: Isn’t there a tension in somewhere like the UK, where Wales and Northern Ireland are particularly small and perhaps weaker? If you had a trade deal that was going to decimate Welsh sheep farming and Northern Irish beef, say, together or independently, the rest of us might think, “Oh well, it is only Wales and Northern Ireland, what is the difference here?” For Wales and Northern Ireland, that suddenly becomes a very big deal. Isn’t the tension between them having a say to protect themselves from something the rest of us might decide that is extremely bad for them versus someone central deciding we just—
Derrick Wyatt: I see problems if again, Chair, we are moving to the veto idea. The problems I see are that we have devolved Administrations, but we have loads of regions in the UK and they have quite distinct needs. I am not simply talking about almost ethnic areas such as Cornwall, it is the north-east, the north-west. There is a case for taking this position. The great balancing of the interests of the United Kingdom should be done within the national Parliament with a voice given to devolved Administrations and also given to those from all the parts of these islands who might have their interests enhanced or damaged.
Q72 Catherine West: To add to that, Chair, there seems to be almost a ladder. The veto is there, but at the moment we are not even on the ladder because in the proposed legislation there is no sense of consultation whatsoever. The Secretary of State takes all the decisions, and that is one person who is not even on the ladder. I think there is quite a lot of room there for suggesting different levels of consultation without necessarily having a veto, but at least having some form of conversation. That is better than just a closed door, and the Secretary of State makes a decision. Within that, Chair, there is a lot of room to move.
Chair: Would the panel agree?
Catherine West: For what it is worth, I think it is sometimes the English regions that lack the voice in this House.
Nick Dearden: It would be really interesting to think of a way we could ensure that those regions participate in discussions even before we begin on the trade deal; even before we commence it.
The United States is really interesting in some ways as well. It publishes its mandate publicly, before the start of negotiations. It publishes impact assessments and negotiating texts before they are signed. There is mandatory public consultation with a lot of specific guidelines about how that is to be done. There are 700 citizen advisers with access to confidential information and the ability to comment on drafts. At an absolute minimum, Congress has an up or down vote at the end of it.
Q73 Julia Lopez: There are probably going to be some strong political incentives for the Secretary of State not to retain all of these powers—for instance the sheer risk that there could be a different Secretary of State, who would have a lot of power, which would not be attractive if they were from a different party.
Nick Dearden: That is right because very often, of course, trade deals bind in a way that even normal primary legislation cannot. You can undo primary legislation very quickly. It is far more difficult to extricate yourself from a trade deal. Some of them have sunset clauses and review clauses and that kind of thing, which we also believe should be made more democratic. Nonetheless, there is an incentive for people of all parties, all political persuasions, no matter what kind of trade deals we think should be done, to have a more participative and democratic process.
Derrick Wyatt I agree with that. Where we find ourselves now—in a way this is the worst possible time to be thinking long and hard about the way we go forward on trade policy because our Government is under enormous pressure. No Government have been in the position that the Government are in of having to do so much in such a short time against such a strong negotiating party on the other side of the table. It is understandable why the priority in governmental circles is on giving us the tools to get on with the job, but that can lead, I think, to Government taking a slightly short-term view about the longer-term interests in a workable mechanism for scrutiny and participation.
Q74 Julia Lopez: That goes back to my earlier point. Is there any way in which we can accept the pressure that Government is under but write in some legal safeguards to the effect that, say that after a period of time has lapsed, we get X, Y and Z in terms of scrutiny?
Nick Dearden: I think that is right. We are working at the moment with some legal experts on how that could potentially be done in the current Trade Bill. Our concern at the moment is that there is nothing else, apart from what is in the Trade Bill; there is not a promise of any future legislation, and we know that the Secretary of State is already discussing trade deals. There have been two rounds of discussions with the United States, for example and there are working groups set up with a very wide range of countries—17 countries in all. We need something and we are wondering whether we can put it in this Bill to create a kind of precedent for how trade deals will be negotiated in the future.
Derrick Wyatt A signal that one could make would be to limit the power to go forward, subject only to a negative resolution; to say 18 months from Brexit, and thereafter to require an affirmative resolution.
Q75 Chair: I am not sure the previous question Julia Lopez was asking was foreseeing Faisal Rashid, perhaps, as Secretary of State, but under a different Government, of course.
Parking that lovely thought there, as I should, and to wrap up, gentlemen, in the past the Committee has considered looking at the process of making trade deals and how they are made: are they made because the Secretary of State meets somebody in an airport departure lounge or are they mandated by Parliament? We just do not know at the moment. I invite your comments on a possible inquiry in that area, on what you might think it could achieve.
Nick Dearden: I think it would be an excellent idea. We have already talked about the sheer quantity and breadth that trade policy currently impacts on in public policy. We know that the Secretary of State will be at the World Trade Organization next week, as will I. Do we know what his position is on behalf of this country with regard to the big issues that are going to be talked about there: agriculture, fisheries, e-commerce, the dispute resolution problems that are going on with the United States and the Doha development agenda? These are big international areas of policy, and it is my proposition that at least this Committee should be really well informed of what his objectives are and should be feeding into and amending those objectives, if you think it is necessary.
One of the problems we have at the moment is that, as the previous experts told us, it is a framework, it is a scaffold, but we really need to know more than that because these are huge issues that are being discussed in international arenas and bilaterally. I think MPs certainly, but the public as a whole, have a right to feed into what positions we are taking on those different issues.
Chair: Thank you. I think you have your invite written now for the inquiry, if it should happen, in that area.
Derrick Wyatt: I have a very similar view. I will even offer a title: “Democratic accountability and the future of UK trade policy”. Why shouldn’t a Committee like this look at it? It seems to me that would be taking one step back—or could be—from our immediate pressures and putting them in context. At the same time, such a report could be completed in a reasonably short time and could feed into the thinking of our Government at a time when the future trade arrangements for the UK within the EU are being decided. I shudder to think—
Q76 Mr Nigel Evans: Would that not just make trade discussions interminably long? We are told now that between the EU and other countries it takes eight years, and that is part of the problem. If we go down your route, isn’t it going to take years before anything is finally sorted?
Derrick Wyatt: I would respectfully make two points. The first is that it need not be longer. I suggested earlier, and I think I would maintain this, that parliamentary involvement can strengthen the arm of a negotiating party. That is precisely what the European Parliament has done in negotiations for the EU and it did this in the TTIP context. The second is that when the UK is negotiating with powerful partners like the EU it will have to wait on their timeline. Let them wait on our timeline, if democracy is at stake. That would be the line I would take.
Nick Dearden: If you do not do that, I think you end up with a situation like TTIP, which has been a complete waste of time for everybody because there wasn’t the public buy-in or political buy-in from the beginning and it became very controversial. Nobody wants to do that.
To add to what Derrick was saying about the difference between cut and paste deals and new deals, there is an EU-UK trade deal that will be discussed; it looks like the process has been speeded up over the last 24 hours, so hopefully we will start discussing that soon. As things stand at the moment, as elected representatives you will have less power, less scrutiny over those trade deals than will MEPs, German parliamentarians and probably their Wallonian deputies, and to me that is not taking back control of trade policy.
Chair: Thank you. On that gloomy note, we shall retire and reflect on that. Committee members have said that my Private Frazer gene has been somehow delighted by this moment of gloom. Thank you both very much for coming along this morning and we might see you again in the future.