International Trade Committee 

Oral evidence: Trade in services, HC 1776

Wednesday 8 May 2019

Ordered by the House of Commons to be published on 8 May 2019.

Watch the meeting 

Members present: Angus Brendan MacNeil (Chair); Mr Nigel Evans; Sir Mark Hendrick; Mr Ranil Jayawardena; Mr Chris Leslie; Julia Lopez; Emma Little Pengelly; Faisal Rashid; Matt Western.

Questions 150 - 224

Witnesses

I: Professor Panos Delimatsis, Director of Tilburg Law and Economics Centre, Tilburg University, Dmitry Grozoubinski, Founder, ExplainTrade.com, Dr Billy Melo Araujo, Lecturer in EU Law, Queen’s University, Belfast, and Quan Zhao, Trade in Services Adviser, International Trade Centre.

II: Nick Ashton-Hart, Geneva Representative of the Digital Trade Network, Giles Derrington, Head of Policy: Brexit, International and Economics, techUK, Andrew Fray, Managing Director, Interxion UK, and Anna Fielder, Senior Policy Adviser, Transatlantic Consumer Dialogue.

Written evidence from witnesses:

– Giles Derrington, written submission from techUK (TIS0014)

Examination of witnesses

Witnesses: Professor Panos Delimatsis, Dmitry Grozoubinski, Dr Billy Melo Araujo and Quan Zhao.

Q150       Chair: Good morning. I welcome our panel to our inquiry on trade in services. In time-honoured tradition, I will invite the panel to introduce themselves, starting from my left. Name, rank and serial number, as you please.

Quan Zhao: Good morning. My name is Quan. I am from the International Trade Centre in Geneva, which is a joint UN and WTO agency.

Dmitry Grozoubinski: Good morning. I am Dmitry Grozoubinski. I run something called ExplainTrade.com. I am a former Australian trade negotiator.

Dr Melo Araujo: Good morning. I am Billy Melo Araujo, from Queen’s University, Belfast.

Professor Delimatsis: Good morning. Panos Delimatsis from Tilburg University, the Netherlands.

Chair: Thank you very much. Given we have quite a big panel this morning, we don’t need every panellist to answer every question; otherwise, as one of the members said in the private session—he or she will remain nameless—we would be here until tomorrow, wouldn’t we, Nigel?

Mr Nigel Evans: Yes.

Q151       Chair: I have an opening question: what are the main differences between trade negotiations related to services and those relating to goods? Maybe a couple of answers on that one. Dmitry, you are looking animated there so we will go to you.

Dmitry Grozoubinski: It is just my face. So, from a negotiator’s perspective, they are quite different in a couple of key ways. The first one—and a lot flows from this—is just the complexity. When you are talking about trade in goods, you are primarily talking about market access, which is a series of tariff percentages. When you are talking about services, not only is it a far more complex kind of milieu, but the actual documents you are looking at are degrees of complexity higher. You are looking at about four modes of delivery. You are talking about 12 sub-sectors. You are talking about regulatory control, so it is a much more complex beast to deal with.

What flows from that is the fact that, unlike with tariffs, where you are primarily talking about something that is generally within the gift of the trade ministry, you have the prime competency on tariffs, so you know what you are doing. With services, you are almost never, as a trade negotiator, negotiating on something on which your ministry has the actual lead. You are always talking about a regulatory limit, or perhaps a barrier that is within the gift of a different ministry, which exponentially increases the complexity and explains why a lot of the time services are—

Q152       Chair: What about a professional body within your customers?

Dmitry Grozoubinski: Yes; it could be even possible that the Government do not have the competency to give it—such as, for example, bar accreditation in Australia.

The last point is that services are in some ways—it is not that they are more politically sensitive, but that around tariffs there is an established political back and forth. A Government will do an agreement that cuts tariffs. Opponents will say, “This will cost jobs”. Proponents will say, “This will decrease prices for consumers and increase competition”. It is an established pattern of political narrative.

Around services, because it is much less well understood and because so many of the issues are so sensitive, everything gets politicised to factor 12. There are still anti-trading services agreements all over my sleepy city of Geneva, despite the fact that the last meeting was three years ago. It is much more contentious. It is much more politicised, and the issues tend to be the kind of third-rail issues that make ambitious commitments difficult.

Q153       Chair: Thank you. Does anybody have anything to add to that? Quan?

Quan Zhao: I very much agree with what Dmitry has said about the complexity of services negotiations. I also served as services negotiator for China, both in the context of the DDA and also in the context of some FTAs.

As I remember, for the FTA negotiations, about half of the delegations came from different ministries that are related to services, and we had to co-ordinate positions with all of them. The difficulty lies in the fact that it is difficult to quantify the interests and to formulate the positions in negotiations, because for goods trades, we have very good trade data, and we can do all kinds of simulations to assess the impact of the trade negotiation, whereas for services, the data is not as complete as trading goods, and the assessment of the impact of opening up those services is often quite difficult.

Service negotiations also have different approaches. Whereas in goods trade you have linear or formula approaches to tariff reductions, in services it is often a request-and-offer approach, which could go into many, many realms, and there are different mechanisms. For example, there is the positive list, negative list approach, which are quite different, and the ratchet mechanisms, and also what they call standstill.

Professor Delimatsis: There are also many more trade instruments that we use in trading goods than in trading services, so this means that we need much more co-ordination. Also, you need to be much more reluctant because of the irreversibility, almost, of the type of commitments that you make.

In the case of goods, you simply have tariffs for the most part—maybe some quantitative restrictions, some quotas, but overall I think the approach that is taken is much more simplified. Essentially, by introducing, let’s say, the GATT and the GATT approach to liberalisation, negotiators also added a headache for themselves. This is why we have seen much less appetite for liberalisation, even in free trade agreements.

Q154       Mr Nigel Evans: Perhaps I could direct my question to Dr Araujo. Looking at the WTO’s general agreement on trade and services—I will get the right glasses on—the European Union signed a range of trade agreements with third countries that contain service provisions. To what extent do these offer new market access, as opposed to just simply binding third countries to existing levels of openness?

Dr Melo Araujo: Most of the studies on this show that, whether it is GATS or FTAs, it is about locking in liberalisation commitments about domestic regulatory reforms that are already in place. That does not mean that these commitments have no value, because what they do is they lock them in. You cannot backtrack on them, especially now when you look at trade agreements like CETA, which includes standstill and ratchet clauses.

That said, it is quite rare for an FTA to lead to significant domestic regulatory reform in an FTA party. I think it is just a reality of trade negotiations in general that countries are very reluctant to carry out further domestic regulatory reforms at the behest of another country.

Q155       Mr Nigel Evans: Is that some form of protectionism?

Dr Melo Araujo: There is that. The value of these trade agreements—and this is also from the perspective of those countries that are making those market access concessions—is that they reinforce domestic regulatory forms that are already in place.

Q156       Mr Nigel Evans: You know people say that four fifths of the British economy is services, as opposed to goods. Do you think that that is where the real potential is for the United Kingdom—focusing more on services and almost disregarding the goods side?

Dr Melo Araujo: I will leave that to the economists. It is clear that that is an area where the UK has a huge competitive advantage. What I would say to that is the UK services market is already quite open, so if you are going into trade negotiations with other countries, what they might tell you is, “Your economy is already quite open; our service suppliers having fairly good access to the UK market. What can you give us in return?” That may be where trading goods come in.

Mr Nigel Evans: It is a bit of a weakness, then, for us?

Chair: In negotiations.

Mr Nigel Evans: In negotiations, yes.

Q157       Sir Mark Hendrick: The most favoured nation clauses included in some of the EU’s FTAs, such as CETA, require that better access granted by one partner in future negotiations with other countries be automatically extended to the other partner. How might that affect future negotiations relating to services trade between the UK and others—such as the EU and/or Canada?

Dr Melo Araujo: First of all, there are limits to these MFN clauses. For example, they do not apply to trade arrangements that lead to market integration rather than trade liberalisation, such as participation in the single market, agreements relating to mutual recognition, or even regulatory approximation like the Ukraine deep and comprehensive free trade agreement. Also, the EU member states put on some exceptions to the MFN clauses so they don’t apply to certain sectors. I think some members states are excluded from the legal services sector. I think the gambling and cultural sectors are also excluded from the MFN clauses.

In terms of their impact, you have to distinguish between, first of all, the negotiations between the EU and the UK naturally. If we are talking about a trade agreement in line with CETA—for example, a bog-standard deep and comprehensive free trade agreement—you might be reluctant to give better market access to the UK if it means it has to unilaterally extend that treatment to, say, South Korea or Canada—all countries that have MFN clauses in the trading services chapter.

From the UK’s perspective, in terms of rolling over trade agreements, there is also an issue. If it is trying to roll over an agreement with Canada, for example, Canada would also be reluctant to extend better treatment to the UK if it means having to unilaterally grant that treatment to the EU, which is a much larger market.

Q158       Faisal Rashid: A question to Professor Panos: How useful are provisions for pro-competitive services regulation in sectors such as telecommunications, financial or postal services that were included in recently negotiated trade agreements such as CPTPP, CETA and the EU-Japan Economic Partnership Agreement?

Professor Delimatsis: Obviously they are very, very useful. This is exactly the area where we see actual progress in terms of good governance and due process, going beyond the reference paper that we have in telecommunications within the GATS, and also building, essentially, on the negotiations for domestic regulation that we had across services sectors within the WTO since 2000.

I think the interesting aspect here is whether you can limit the application of such pro-competitive provisions or the compliance with such pro-competitive provisions only to the other partner. I have been arguing in several of my papers that once you do this for one partner, it is very difficult to limit these due process provisions or requirements to the other partner, except maybe for those relating to market access or auctioning, for instance, in terms of telecommunications or postal.

Otherwise, once a Government or the EU as a whole decided to go down that road, obviously, it is in its interest to try to bring this at the multilateral level, so that everybody somehow abides by similar commitments at the regulatory level. This is something that we also see with certain countries within the WTO, which are committed to going forward with domestic regulation disciplines by the next ministerial conference.

Q159       Faisal Rashid: The same goes for financial services—exactly what you have mentioned—so would it be useful for financial services?

Professor Delimatsis: With financial services, we don’t have a reference paper. What we have for financial services, for example, in CETA—it is quite interesting—is a powerful committee in financial services. In my view, this is a breakthrough. Maybe other colleagues have seen this in other free trade agreements. I haven’t, so maybe I have been lazy in this respect, but I know about CETA that the powers that this particular committee has are very important. They are very similar to the comitology procedure that we have seen within the internal market for financial services.

I expect that, if this is the willingness of the two parties, it may indeed bring some very, very serious commitments and liberalisation of financial services between the two partners. Obviously, this is very, very interesting for the UK, since it is excluded post Brexit.

Q160       Emma Little Pengelly: Can I first say how great it is to see representation from Queen’s University, which is in my constituency, on the panel?

In relation to the types of provisions and services that the UK should be seeking in future FTAs, what, in your view, should it focus on? Should we focus on market access, regulatory disciplines, the recognition of licensing and qualifications, or all three? Or anything else?

Dr Melo Araujo: Usually, you will go for all three and see what you can get. Just to build on what Panos was saying, when it comes to disciplines on domestic regulation, you need to be realistic about what you can actually achieve. The example of the EU and US trying to negotiate financial services in TTIP, where the EU was very keen on exploring the possibility of addressing regulatory barriers to trade and the US was really steadfastly against that, is a very good example of where—even between like-minded countries that have fairly similar regulatory approaches and regulatory frameworks—there are limits to what can be achieved.

As for the UK, when you are looking at disciplines, you have to identify those sectors where you can find common ground at bilateral, regional or multilateral level. Some sectors lend themselves quite easily to this, such as the telecommunications sector because it is quite technical; other sectors—education, health and social services—not so much. It also varies depending on who you are negotiating with. Developing countries are usually more reluctant, because this means that they have to carry out significant regulatory reforms that are very burdensome, time consuming and so forth.

In some cases, you will find developing countries are quite keen to engage in negotiations on discipline. For example, in the EU CARIFORUM Economic Partnership Agreement, the Caribbean countries were demanders in terms of coming up with disciplines in the tourism sector, which is an area where they have competitive advantage and offensive interests, so it is really on a sector-by-sector basis.

Dmitry Grozoubinski: I would add that I think services suffer from a lot of unknown unknowns. As a negotiator, as a negotiating team, it is devilishly hard to get information about where businesses in your country—especially smaller and medium-sized businesses—have attempted to enter a market, or tentatively entered a market and found regulatory barriers to be so onerous that they weren’t able to expand properly.

You will hear from a lot of bigger businesses, but smaller businesses in services are less used to dealing with trade policy as a concept. That is why it can be hard in a trade agreement to say, “Here are all the things we need, and we are happy to list them now. This is it: lock fees in”, even if the other side is willing to give them to you.

That is why I wanted to come back to something Panos said on the value of something that is a little bit more dynamic, something like a committee that will then work not so much on bound commitments—things that are locked into the treaty—but will progressively work to improve the applied regime, as you discover different challenges your businesses are facing in that market that you maybe did not know prior to the negotiation.

Chair: Thank you. Chris Leslie, do you want to come in on the Belfast self-love-in that started there?

Q161       Mr Chris Leslie: No. I want to follow up a little bit more on financial services. I was looking at the FT this morning. There is a comment from Andrew Bailey, the FCA Chief Executive, who has been sounding alarm bells about financial services trade, particularly in the Brexit environment.

Can I just say it is very refreshing and useful to have a panel of experts? I know experts get denigrated quite a lot in British politics, but it is very useful to be guided by the evidence on this particular issue.

When it comes to the services sector, am I right in thinking 83% of jobs— 26 million people—in the UK are in the services sector? There is one estimate that even up towards 71% of our exports have a services component. One estimate is between 45% pure services and up to 71%.

A quick-fire question to each of you: in your professional expert opinion, what impact is Brexit going to have on our services jobs—on our core markets? Is it going to be helpful in terms of services jobs in our core markets, or is it going to be harmful for services trade? If I could just get a quick assessment from each of you.

Quan Zhao: If I may start, I think that services is obviously a key pillar of the UK economy. As you said, 80% comes from the services sector. Also, in trade in 2017, the UK recorded an overall trade deficit with the EU of minus £67 billion, but a surplus of £28 billion in trade and services was outweighed by a deficit of £95 billion in trading goods. It is also overall apparent in UK trade that it has more of a surplus in services and has a deficit in trading goods.

The key sectors that are very much relevant to the UK services sector were the financial services, pensions, and insurance, which account for about 40% of exports to the EU. One of the key things is to try to maintain the same conditions that the company used to have before the Brexit scenario. One of the key issues there is passporting, which I think it was said that around 5,000 companies operate on passporting rights. How to keep that right is going to be quite a challenging issue.

Q162       Mr Chris Leslie: On balance, helpful or harmful to services trade?

Quan Zhao: It depends on the conditions that you will get with the UK.

Q163       Mr Chris Leslie: What is your professional judgment?

Quan Zhao: You will probably have new opportunities in other markets where you will have more freedom to negotiate terms, but with the EU, I think it is probably going to be a negative impact.

Dmitry Grozoubinski: To give you the answer I think you might be fishing for, I think the EU single market is an unprecedented level on services access. The EU is the nearest and richest neighbour the UK has. As for pulling out of that and getting anything short of that, frankly, in my professional experience, short of remaining in the single market, whatever the UK ends up negotiating will probably fall well short of that. I don't think I am out on the fringes of trade commentary when I suggest that. It will be incredibly difficult to compensate for with FTAs with other countries—including really large ones like the US, China and India—simply because services components in FTAs just don’t tend to be that ambitious compared to regional integration. It is simply a numbers game. Proximity applies, market size applies, and the single market is just such a huge level of access you will be losing.

Q164       Mr Chris Leslie: It is harmful, then?

Dmitry Grozoubinski: It is not great. The one caveat I would say just to balance that is that people get very excited when you quote figures like 83% of the UK economy is services. The vast overwhelming majority of that is people selling services to one another.

Mr Chris Leslie: Internally, yes.

Q165       Chair: What is the lowest level an economy has in services?

Dmitry Grozoubinski: Economies with very large resource components, so something like a Saudi Arabia. I don’t know what the numbers are offhand, but I would suspect—

Q166       Chair: That would be an outlier?

Dmitry Grozoubinski: Yes. Unless you are selling a vast amount of a natural resource, you are probably somewhere in the 60s to 80s.

Quan Zhao: Or manufacturing, like China. It used to be below 50%, but services have also picked up in recent years and now I think it is 56%.

Q167       Mr Chris Leslie: I will just keep that in mind. Brexit: helpful or harmful to services?

Dr Melo Araujo: What he said: it all depends on what type of Brexit. For most of the UK’s exports, at least half of them end up in the EU single market. It is logical to conclude that any move that would create further obstacles to trade with that market would be a problem.

Professor Delimatsis: We haven’t received any instructions as to how blunt or not we are supposed to be. If I am open, my personal sentimental view is it would be harmful, because I am pro-European. My professional expert opinion would be that, again, it depends. For example, it would depend on the trade agreement that you are going to have with the EU and whether, for instance, you will abide by the Services Directive.

Take, for example, the EU-Switzerland agreement. The Swiss delegation obviously desperately wanted a service agreement, but the EU was not willing to give it. The EU gave only what it wanted, which was free movement of natural persons, so service providers but independent service providers. Again, it will depend on what type of leverage that will be at the negotiating table and what we are going to get.

At the same time—let me say this because it is important—much of the trade and services that the EU does is intra EU, with one exception as far as I recall, and if there are economists in the room they can correct me. 60% of UK trade is extra EU. This means that if there is one country within the EU that probably has a better chance than the others to survive outside the EU, it is the UK.

Mr Chris Leslie: Very diplomatic. Thank you very much.

Q168       Julia Lopez: You talked about leverage and what the UK’s leverage would be in trade of services. Given how interconnected the EU market is with the City of London, and how dependent they are on some of the financing aspects of that, given that you have such a concentration of services in London—which is going to be hard to replicate, because they probably will not move to one of the European cities; they will move to Dublin or Frankfurt, and it won’t have that same mass—does that give the UK a particular difference in leverage, as opposed to somewhere like Switzerland?

Chair: We are fishing for a different answer here. A good question.

Professor Delimatsis: It is a good question. No, I don’t think so, simply because if you see, for instance, how the EU has behaved vis-à-vis Swiss financial authorities, you would expect that something similar will happen, just to mark their territory—to see how willing financial providers are to relocate. At the same time, I think that in financial services, maybe some of the discussions or the fears that we have may be exaggerated, because the level of convergence is so high that financial providers can move very easily from one place to the other.

What I found a shame—or a pity, to use a less ambivalent word—is that maybe two or three years before Brexit, the European Court of Justice’s decisions relating to financial services were quite favourable for the UK marketplace being outside Europe. In that respect, I find it a pity that in the UK debates before Brexit, this was not discussed more thoroughly.

Dmitry Grozoubinski: Just on that leverage point, you are absolutely right about the size and weight of London, both as a financial centre but also as a legal centre generally and as a services hub, and its importance to the EU. The problem from a leverage standpoint is that, in a way, the EU gets to manage how it weans itself off that, if it chooses to do so. If you look at a lot of the steps the EU announced in preparation for no deal, there was a consistent pattern of: manage the immediate shock. Therefore, allow things in the short term, like elements of passporting, and then say, “Look, sure, you can continue as you are now or you can only move individual offices over to mainland Europe, but within 12 months you need to present to us a plan of how you are going to draw off”.

The size and weight of London, while it could create a very sharp shock for the EU, the EU can decide not to have that shock and instead gradually try to draw some of those very lucrative service providers and their headquarters away from London and into Europe in a way that avoids what would otherwise happen if there was an abrupt shift, so that dilutes the leverage a bit.

Q169       Julia Lopez: In so far as that happened, would that make it more important that the UK had the ability to tax and regulate as it saw fit, rather than bind itself into various EU regulatory systems, such that we could really provide a competitive advantage that would try to offset some of those tactics that the EU might use?

Dmitry Grozoubinski: That would be an advantage if you were trying to attract businesses, if you were basically trying to attract customers interested in your service to their third countries, or your services into say Africa. But in terms of businesses—like many Australian businesses that headquarter in the UK in order to provide services into the EU as a kind of base for the European Union—then actually a divergence from their regulations would either force those companies to adopt EU regulations anyway or to conform to them or it would create confusion, so there are advantages and disadvantages to it.

Q170       Julia Lopez: I will get to my actual question: a recent ruling of the WTO panel in the EU-China poultry meat case could be interpreted as meaning that, unlike in relation to its schedule of goods commitments, the UK must certify its new schedule of services commitments to give them effect. Do you agree with this interpretation, and what do you think the consequences would be for the UK if we were unable to certify our services schedule in time for Brexit, should it ever take place?

Chair: Words of optimism there.

Dr Melo Araujo: I suppose if you are looking for positives from Brexit, it is really shining a light on niche areas of WTO law and this is certainly one of them. The EU meat poultry case concerned GATS, so rectification of the GATS schedule. The question that was relevant here was the extent to which the completion of the rectification procedures or formal rectification is a legal prerequisite for those schedules to be implemented. In this case, the panel found that it wasn’t, and one of the arguments it used to support its position was a textual comparison between the procedures for the modification or rectification of GATT schedules, compared to the GATS schedules.

The text of the GATS schedules seems to suggest that formal certification is required for those schedules to be implemented. There are two points I would make on this. First of all, it is a panel ruling, so it wasn’t appealed. The appellate body has not been given the opportunity to confirm it or not. Secondly, the determination, as far as I can see, relates to GATT. There wasn’t a clear determination in terms of what the requirements for the legal effect of GATS schedules are.

If you were to take the view that formal certification is required for the GATS schedule to—

Chair: Just speak a little louder. I think there are a couple on the panel that—

Dr Melo Araujo: Sorry. If you were to follow the view that a formal certification was required in order to implement these schedules, that would mean that, if objections are raised to the GATS schedule proposed by the UK and not withdrawn, there is no formal certification and the question is: what happens to the UK? Usually, WTO members just fall back on their original schedules, but the UK’s original schedules are those that were negotiated on its behalf by the EU, and they are the same ones that have been proposed.

In terms of what will happen from a legal point of view, I don't know, but practically speaking, I would suspect that this would be handled through bilateral consultation and negotiations, and if there really is a problem, you would take it to the dispute settlement mechanism and get a ruling there.

Professor Delimatsis: My view is slightly different from my colleague’s. In my view, Article 21 of GATS is clear that the process is totally different, so unless there is agreement, and unless there is compliance with a potential ruling, then no modification or rectification is possible, so I agree on that point.

What I disagree on essentially is the fact that a panel ruling is not binding. In my view, the text of the GATS is clear in this respect, and I think also the negotiators, when they concluded the procedures for the modification for the GATS schedules, explicitly wanted to go in this direction because they didn’t like this over-friendly approach that we had under the GATT. But indeed the outcome would be in my view—and my colleague’s—that we will fall back to the EU schedule.

As far as I recall, the decision of the Council for Trade in Services is quite ambiguous as to timeline—as to how quick the arbitration should be. You can envisage a scenario where the other WTO members will simply procrastinate and push the UK as much as possible, so that they agree on whatever requests come from them. We have seen this during accession proceedings or other proceedings relating to modification.

Q171       Julia Lopez: You suggested that one of the upshots of Brexit would be that it shines a light on some of the things happening at the WTO. Given what an influential services provider the UK is, what impact do you think that would have on the dynamic within the WTO on services, in particular, given that groups of countries are now breaking off and doing their own thing on services liberalisation, such as Australia and Singapore on digital? Do you think that the UK joining those groups of countries could have a significant impact on, say, the drawing up of global standards on some of these new areas of services, particularly digital and technology?

Dmitry Grozoubinski: From somebody who was in the WTO for a number of years, it never hurts to have another pro-liberalisation creative force in the room with some weight behind them. The UK would be a good ally in that respect. Some of us will miss having the UK inside the EU as a moderating voice that is pushing towards more pragmatism and openness and against some of the basic instincts that sometimes emerge within the EU consultations.

I would say—and I want to get this on record—that your representation at the WTO, the UK mission, even while an EU member, was perhaps the most active, clued-in missions. It was certainly helping to push things along in a thousand ways that just did not happen to involve picking a flag up and making an intervention, which, as someone who has done it, I can tell you is often the easiest and least impactful part.

Q172       Julia Lopez: Picking up on something you said about the impact on the internal dynamics of the EU and its position towards free trade, I would like you to expand on that a little bit. Particularly in light of where we are with the Trump/China dynamic, the EU might be tempted to go towards a more protectionist direction. I would be interested in what panellists think about what will happen within the EU in terms of its approach to trade because of the UK’s departure.

Professor Delimatsis: If I may, I truly believe that there will be, in the short run, some protectionist forces. I fully agree with Dmitry that the UK voice on the trade negotiations table in particular will be a huge loss for the European Union. Also, I think the EU has a very clear shorter/medium term interest to be protectionist because of OBOR—One Belt, One Road. For many in Brussels I think it is a very visible threat, and the first instinct that you have is obviously to push back. How these will survive will also depend on the new Commission.

Q173       Chair: A view from China and the One Belt, One Road: you were involved with Chinese negotiators in the past. What view would they have on the premise of the question that Julia Lopez has asked?

Quan Zhao: Is the question about One Belt, One Road, or about the EU protectionism?

Q174       Chair: I think it is more WTO and the UK joining perhaps with Australia and Singapore.

Quan Zhao: I agree with what Dmitry said. We will always benefit from a strong voice on the pro-liberalisation side, but the challenge was the WTO negotiations. For example, the e-commerce negotiation that is currently ongoing with 77 members was this diversity of the membership. Usually it is difficult to get a higher ambition agreement as in the bilateral original context. The UK, given its interest and also its capacity to push for greater liberalisation, certainly will be a welcome factor in the context of the WTO.

Chair: Just to echo Dmitry’s words there, I think it would be the Committee’s feeling that we would agree with what you have said about the team that Julian Braithwaite has been operating and running in Geneva.

Q175       Sir Mark Hendrick: Could Mr Zhao respond to Panos’s point about the impact of the Beltand Road (BRI), on the EU’s attitude towards trade?

Quan Zhao: My purely personal opinion is that I think we are still at the stage to formulate a clear view about belt and road, because for now what we know about it is that investment in infrastructure improves the efficiency, lowers trade costs and possibly will generate greater trade along the countries on the belt and road connecting China, which eventually leads into Europe.

From a purely economic perspective, this would help to increase bilateral trade, but which direction that trade goes in is still an issue. Obviously, the bilateral trade ties go beyond trading goods and more into investment and trade services. I think what China is trying to build is a stronger partnership with the belt and road countries, including the EU, which is a bigger part of that. There is also an issue of geopolitics, which probably has a different direction than pure economic perspectives.

Q176       Faisal Rashid: Very quickly, Professor Panos, did you just mention that the EU sees the BRI project as a threat?

Professor Delimatsis: Some in Brussels would see it as a threat, yes, because of the geographical proximity. We share borders with several countries that are connected to China, so this is a fear that we see growing, particularly because China has adapted, as I see it, a very piecemeal approach, where they go towards particular countries in the south: Greece, my home country, Portugal and other countries. Also in North Africa they are starting to increase their presence.

Where they also competed with the EU, the EU currently has an introvert approach vis-à-vis the services trade and the implementation of the Services Directive, and at the same time expanding the internal market towards its neighbours. The regulatory approximation that Bill was referring to earlier—what is it? It is essentially adapting the EU Acquis, so we don’t meet in the middle; we meet actually in the corner of the EU.

Within this framework, I think there are also certain concerns vis-à-vis China and of course how this may affect the EU negotiation.

Q177       Faisal Rashid: Of course, that also gives an opportunity for bilateral trade. It works both ways to open up the markets. It could be useful and beneficial as well at the same time.

Professor Delimatsis: Yes. For several years the EU has been negotiating with China. The EU has been negotiating an investment agreement with China. I think the negotiations are still ongoing, so we don’t know in which direction it will go. It is definitely in the interest of both parties, and the global interest—the world as a whole—to have co-operation, as was mentioned earlier, rather than everybody building their own fences.

Faisal Rashid: As we are discussing too much BRI, Chair—

Chair: You are very enthusiastic about it.

Faisal Rashid: I chair the all-party parliamentary group on BRI and I think we should open up an inquiry through this Committee.

Chair: I think the Committee has heard your pitch.

Q178       Faisal Rashid: Yes. I will move on to my question. The Government have acknowledged that they will not be able to roll over all EU free trade agreements in time for Brexit. How significant is this likely to be for UK service exporters and consumers?

Dr Melo Araujo: Looking at the website, quite a limited number of agreements have been rolled over. There is, first of all, a category that relates to very shallow trade agreements that mostly just deal with goods, with a focus on developing countries like the specific states and the Palestinian Authority. It will make no difference for those agreements.

Then you have the second category of deeper trade agreements, like the agreement signed with Chile or the CARIFORUM group of states, which contain your standard trade in services provisions, and which therefore give guaranteed market access commitments. Then the third category are those trading arrangements with Norway, Iceland and Switzerland, where we are talking about something closer to market integration.

I don’t know about figures, or to what extent the UK trades with, for example, Chile or the CARIFORUM group of states in services. The status quo will be maintained for those trade agreements, but when we talk about agreements, like CETA and South Korea, certainly there will be a reduction in terms of market access.

With respect to Norway and Iceland, you cannot roll over the services dimension of those arrangements because they are based on the assumption that you are part of the single market.

Q179       Faisal Rashid: What I am trying to understand is that if the Government cannot agree to the rollovers for all EU FTAs, if we go on to a WTO tariff, how will it affect the exporters in services and consumers? Will it be significant?

Dr Melo Araujo: Again, I don’t know to what extent the UK is reliant on those markets with which the EU has signed trade agreements. Certainly, with big economies like South Korea and Canada, there will be an impact, because you are dealing on WTO terms, and Norway and Iceland as well.

Q180       Faisal Rashid: Let’s take Switzerland, for example. If there is no rollover agreed in time, how will that affect the trade in services for the UK?

Dmitry Grozoubinski: There has been a quasi-rollover of the Swiss agreement, but it explicitly does not include services. In fact, all it says on services is that within 24 months of several dates, I believe, there will be a committee that will meet to basically talk about all the things that are not in the UK-Swiss agreement, which is basically, as far as I know, goods-centric. Please somebody correct me if I am getting that wrong.

What will be the effect of that? It will not be as bad as it could be, because Switzerland has guaranteed the rights of UK citizens, which is nice, so the visa component is okay, but I suspect there will be some reduction in the ease with which capital and establishment can move to Switzerland.

As the panellists have been saying I think from the start of this Committee, FTAs have tended not to go significantly beyond existing openness. With Japan, Korea and Canada, the impacts are likely to be confined to a few narrow places where the FDAs were able to increase market access somewhat over what already existed, but compared to loss of access to the single market, it will be very localised pain, as opposed to getting hit by a bus.

Professor Delimatsis: Actually, with Switzerland, I do not think the impact will be that big, because for the most part, the UK has been trading with Switzerland on WTO terms, so there is no trade in services agreement, as Dmitry said, and the European Court of Justice in all cases relating to services has insisted on that. It almost implicitly says, “We wanted to have an internal market in services with you, but we do not want to be part of this”. As you know, the Swiss population rejected access to the European Union. There I don’t expect any impact.

There is the free movement of natural persons. I think the agreement with the Acquis is also there. What is very, very interesting is that there is reference in an agreement between non-EU members to EU regulations, so the professional qualifications directive and the citizens’ rights directive. This is quite interesting, at least from an academic perspective, but just like the other panellists, I do expect an impact in the agreements that the EU has concluded, or in trade with countries with which the EU has concluded agreements—South Korea, Japan and Canada—because we go back to 1995 and 1999.

Dr Melo Araujo: It is clear that with Switzerland, we don’t have comprehensive free movement of services, but with Norway and Iceland, where there is a rollover agreement, you are trading with them on the basis of the single market. To the extent that that relationship has not been rolled over because it cannot be, then you are talking about full market access to WTO terms.

Chair: That is a more instructive example to take forward.

Q181       Sir Mark Hendrick: The UK Government have stated their commitment to aid for trade, and to maintaining current levels of market access for services provided by least developed countries that are guaranteed under the least developed countries services waiver. What other initiatives should the UK Government pursue to help developing countries in services trade?

Quan Zhao: I will take that, coming from an agency focused on aid for trade. First, I should say that there are a lot of opportunities to be utilised. The trade of developing countries is in general growing quite fast, and obviously the UK also has a lot of advantages in services trade.

In terms of areas that could be explored, digital trade and e-commerce is an area where, from our day-to-day work, developing countries have shown a great interest. It is a train that no one wants to not get on. Also, in terms of helping developing countries to export more services, obviously capacity building programmes, aid for trade and technical assistance would significantly help.

In ITC we have different projects working in many countries on tourism. It is an area where developing countries certainly have an interest and also a capacity to export. E-commerce is an area where they want to expand both goods and services exports through e-commerce: digital trade, games software, IT outsourcing and also creative industries where developing countries can explore their advantages in culture and arts. These are some of the areas where probably efforts could be directed.

Q182       Chair: Does anybody else want to add anything to that?

Dr Melo Araujo: For developing countries, one of the main challenges they face is how to bridge the regulatory gap. You negotiate a trade agreement with a developed country, and you get all these fancy market access concessions, and then it turns out that you cannot comply with their more detailed and sophisticated regulatory standards, so if you are an SME in a developing country, market access commitments don’t really amount to much if, in the end, you cannot sell your services in that target market.

Again, aid for trade capacity building, one thing the UK can explore, during the context of trade negotiations market opening commitments, is how to tie in technical assistance and capacity building to ensure that those countries can raise their standards and that it is easier for service providers there to comply with UK rules, for example.

Q183       Sir Mark Hendrick: The trade justice movement obviously tends to think that this is very much a one way relationship, and that it is to the benefit of the UK, and not necessarily for the benefit of the developing country, partly I think for the reasons you gave about regulations. You mentioned a remedy to deal with that. Do you feel that the UK Government are necessarily committed that way?

Dr Melo Araujo: I really cannot comment on that.

Chair: Fair enough. It seems a bit of a fishing expedition.

Q184       Sir Mark Hendrick: Does anybody else want to be frank?

Professor Delimatsis: I don’t know about specific UK initiatives, but I have recently done a study for the German ministry of development with respect to the DCFTA negotiations between the EU and Tunisia. What I see that comes very clearly from Tunisia—which is an advanced developing country, I would say—is multiple commitments. They are asking for automaticity between recognition of professional qualifications and access to the European markets. Clearly, in view of the discussions that you had here in the UK with respect to the Brexit referendum, this will be a very controversial issue.

Mr Nigel Evans: Like a lot of people who voted on Thursday, I am a bit frustrated that we have not left the European Union already.

Chair: Can you say that again?

Q185       Mr Nigel Evans: There is this coalition that is taking place at Whitehall to try to work out what sort of Brexit they are going to throw at the 17.4 million people. One of them is that we stay in the customs union. If we do that, what effect will that have on Liam Fox’s ability to strike trade deals, particularly with the jewel in the crown—the United States of America? I would like each of you to see if you can answer that. What would the impact be of staying in the customs union?

Dmitry Grozoubinski: It is a massive trade-off. What you are doing by staying in the customs union is essentially receiving guaranteed access into the EU without having to negotiate afresh. You are getting a streamlined—although not equivalent to what you have now—level of trade facilitation at the border. In exchange, you cannot lower your tariffs below those of the European Union. What that will mean for a negotiation with anyone is that the UK will be approaching those negotiations without one of the biggest arrows it would otherwise have in its quiver, which is to offer reduced tariff access into the UK in exchange for things it wants, either on goods or on services.

It is possible to overstate that. For one thing, I know that there is a strong push within the UK to lower a lot of those tariffs unilaterally, so that is point one. The areas where the UK does not want to lower tariffs, where there seems to be opposition, are sensitive sectors that will be just as sensitive in a bilateral negotiation with the US. You will find it just as difficult to trade that bilaterally in some ways. Therefore, it is possible to overstate that.

It is also important to note that, as we have said all along, on these kinds of FTAs that are not regional integration, but that are, for example, the EU and Canada, the EU, despite being able to offer access to its massive, massive internal market, despite all of these things and despite having a UK inside it pushing for services access, wasn’t able to get that much services access out of Canada, and that is with its full economic muscle and with those things.

In a null case scenario, where the UK is not in a customs union and it is negotiating with the US, to what extent will having control of its tariffs allow you to kick in doors that would otherwise be closed? I tend to be more on the sceptical side, because I have sat in front of a USTR negotiating team and I still have their track marks over my face as they drove over me. Maybe I am a bit bearish on that. Maybe there are bulls on the panel.

Q186       Chair: Could I just ask a quick supplementary there? I am sort of abusing my role as Chair here, but you mentioned borders and the customs union, and I think you are hinting that a customs union alone will not solve the border issue; you need the single market with that. The idea that a panacea has been sold on the customs union alone solving border issues—is that strictly true, or do you need both? I think you need both, but I am just looking for a witness.

Dmitry Grozoubinski: It depends on what you define as solving the border. In order to replicate what the UK currently has with the EU, a customs union is not enough. What a customs union allows you to do is avoid the need for your businesses to comply with and to fill out rules of origin paperwork, which are incredibly onerous and painful for businesses, especially those dealing in complex machines from lots of different components. It gets you a lot closer than an FTA would, but it is still not quite all the way there. It is a partial fix, but it also guarantees the tariff-free access, which is not a given in an FTA.

Q187       Chair: What would the single market then fix, just for the record?

Dmitry Grozoubinski: Under a single market, the documentary requirements for a trader go down significantly. The single market, including the customs union, has come close to making it as easy to take a shipment from London to Paris as it is from London to Kent; it is not quite all the way there, but as close to that as, I think, anywhere on earth in human history. Therefore, it is better for business, and it allows for cheaper movement, lower compliance costs and smoother supply chains.

Q188       Chair: Either side of that, if they want to be opponents of it, they could claim the customs union was neither fish nor fowl if they so chose and to attack it from a Brexiteer point of view—or a Remain point of view.

Dmitry Grozoubinski: This is shades of grey. You are losing an unprecedented level of access. Anything you get will not be as good as that, if it is not that. It is a spectrum, from a customs union with some customs co-operation arrangements around it, which can get you maybe most or a significant chunk of the way there, all the way through to a WTO relationship or an FTA, which is likely to get you a much, much smaller percentage of the way there.

Q189       Mr Nigel Evans: Does anyone else want to come in on that?

Dr Melo Araujo: Maybe on the border. Maybe I am oversimplifying this. With respect to goods, what happens at a border is you check for tariffs and you check for regulatory compliance. The way to not apply tariffs is a customs union or customs arrangement where there is full alignment. The way to not check for regulatory compliance is to follow the same rules and have a system of mutual recognition, which is underpinned by an institutional framework that ensures continuous monitoring and enforcement. That is the only way you will resolve those issues.

Q190       Mr Nigel Evans: What do you think about the ability of Liam Fox, then, to strike trade deals on services only? I think Turkey is in a customs arrangement—call it what you will—but it does not cover services. Is that right?

Dr Melo Araujo: That is right. In fact it only covers certain goods, not all goods. My view on this is that it is perfectly possible to have an effective and successful trade policy, and to sign trade agreements without having full flexibility when it comes to tariffs, although, as I alluded to before and as Dmitry said, it does reduce the leverage in the context of trade negotiations.

I suppose the fundamental question here is—and this is the question that you have to answer—does the ability to set your own tariffs compensate for the economic costs of leaving the Customs Union? That is an economic question. For Northern Ireland it is also a political question. I am glad I don’t have to make that decision but, fundamentally, that is what it comes down to.

Q191       Mr Nigel Evans: Panos, do you want to come in?

Professor Delimatsis: Yes. I have the impression that typically within the FTAs parties try to put in as many chapters as possible, so that trade-offs are possible, so you take something in goods and then you give something in intellectual property. I think with CETA we should also see it this way: the EU has taken something, maybe in geographical implications or protection of certain trademarks. It has then given something somewhere else. Therefore, the problem of focusing only on one area—such as services—is that you cannot have these types of trade-offs.

What we have seen is investment agreements, which are mode 3 agreements, so they cover part of services. Again, you can imagine that certain future UK trading partners would like to have an agreement that covers all modes, including mode 4. There things become much more complicated, and the problem is that if you focus only on services, you cannot, let’s say, offer something to your trading partner in another area to compensate for not opening mode 4, for instance.

Q192       Mr Nigel Evans: Do you think that would damage the ability to do a proper trade deal with the United States of America?

Professor Delimatsis: Yes, although the United States is probably not so much interested in mode 4, except maybe for the high skilled. I think they are equally concerned about further liberalisation in mode 4. If we talk about developed country agreements, I think things are much easier. It can become much more complex when we have negotiations between the UK with a developing country.

Q193       Mr Nigel Evans: Finally, Mr Zhao.

Quan Zhao: I think there are two questions here. One is: is it at all possible to have an agreement with the US as extensive and as comprehensive and as high quality as the single market with the EU, which covers goods, services, capital and also the access to the labour market? Then the second question is—because services trade is a lot about regulations and I think the EU and the US have different philosophies or approaches behind regulations—the EU has a more precautious regulatory mentality, whereas the US focuses more on business opportunities. There is also a choice to be made between these two approaches and regulations, which in many cases go beyond trade and into how you regulate the sector, and how you address some of the more fundamental questions, such as values. Yes, that goes beyond economic interest.

Mr Nigel Evans: Thank you.

Q194       Mr Chris Leslie: I just want to pick up the point about dealing with the USTR, the US trade representatives, how tough that is and how, even with the might of the European Union, getting access to US markets might be quite difficult.

For the UK, imagine this scenario, for a second. The meeting takes place. The British Government are around the table. The US Federal Government are on the other side of the table. We want to get access to financial services in California, legal services in Oregon or IT services in Texas, or wherever it happens to be. This is the crown jewel—what we are banking on; the whole strategic move behind Brexit—“Never mind the European Union; Let’s go after services access into the United States.” Are those on the other side of the table—the US trade representatives—going to say, “Yes, that is fine; we will do a deal on services in those areas”? Or are they likely to point out that these are state-by-state decisions? These are issues that they are not necessarily responsible for. Should I be more optimistic, or am I being too realistic about this?

Dmitry Grozoubinski: I think the way to judge what the US is likely to offer the UK, or be able to trade with the UK, is to look at what they have traditionally offered others. I understand the appeal of exceptionalism but, generally speaking, you can get a pretty good sense of what an FTA partner is going to do with you by checking what they did last week with someone who is even vaguely in your weight category.

In this case I think that while the UK is a large power, the comparative size dynamics will not allow it to carve out massively more than Korea was able to get, or that the combined TTP parties, by pooling their leverage, were able to extract.

Generally speaking, there will be areas where the US is able to move, but I would suspect those areas would mirror the access others have got, perhaps going a little bit beyond it in places, but not significantly. I would caution a great deal of expectations management. FTAs are never quite as transformational as I think trade Ministers’ press releases would like us to believe them to be.

I don’t think the US is going to be an exception, especially because, in my experience, a lot of what an FTA comes down to at the last minute is political will and the political downsides for either side of not getting a deal. I think it is important that the UK approach this US negotiation fully prepared, first, to walk away, if that is what is required, and, secondly, frankly to forgive the trade minister for walking away, if that is what he or—if it is a lady by this point—she determines is in the national interest. I think that is absolutely vital to making sure that this negotiation either succeeds or does not lock in commitments you don’t want it to lock in.

Q195       Chair: Thank you for that. Time is a great enemy. Would anyone on the panel like to throw in an answer on the back of that, or are we quite happy with that answer?

Professor Delimatsis: Yes. In US free trade agreements—without looking at them very thoroughly—you see this state-to-state approach. Earlier, for instance, there was a comment relating to what the EU got from Canada. One of the biggest victories that the EU considers to have taken is that we have commitments at the provincial level for the first time, plus Canada made an extra effort to repeal the internal market Act, so that it is much easier to have access to that market. Expecting something like this from the US is totally unrealistic, at least in the short run.

As to whether the UK will be able to get something, in terms of financial services, I think the US is not interested. There is a huge lobby against including financial services in FTAs. In that respect, I think they will be out, and this is also one of the reasons why I think TTIP will not see the light of day, because for the EU I think inclusion of financial services has been a prerequisite at least a few years ago. In that respect, this may be a good or a bad thing; it is for you and the UK Government to judge. I think this is how things will evolve. Indeed, it is important to be able to simply leave the negotiating table if you feel that there is no margin for manoeuvre.

Chair: Thank you very much, panel, for that, and thank you for dealing with our questions and our fishing expeditions from various sides of the debate. As ever, they were well dealt with professionally, so thank you very much.

Examination of witnesses

Witnesses: Nick Ashton-Hart, Giles Derrington, Andrew Fray and Anna Fielder.

Q196       Chair: Can I ask the second panel to introduce themselves as they choose—name, rank and serial number—starting from my left?

Andrew Fray: Good morning, everyone. My name is Andrew Fray. I am the managing director of a company called Interxion, which has been based in Brick Lane for the last 20 years, where we design, build and operate data centres for all sorts of different customers—everything from financial services to the distribution of sport—and nearly all the largest brands in the world. We are part of a European group, so this is a very important discussion. We sit in London but are also across Western Europe—10 other countries from the Nordics to Spain.

Q197       Chair: Thank you. It seems that all the building blocks are there in Brick Lane. Sorry, I couldn’t resist that.

Anna Fielder: I am Anna Fielder. I am senior policy adviser to the Transatlantic Consumer Dialogue, which is a coalition of about 80 EU and US consumer and digital rights groups. I am also President of European Digital Rights, which is a federation of digital rights organisations in 40 countries in Europe. I am a consumer and digital rights and privacy advocate, not a trade lawyer.

Giles Derrington: Giles Derrington. I am associate director for policy at techUK, specifically covering Brexit and international and economic policy. techUK has about 900 members, ranging from large multinationals right through to about two thirds of our members being small and medium-sized UK tech businesses.

Chair: You might be a rare find—somebody who is enjoying Brexit.

Nick Ashton-Hart: Good morning, and thanks for asking me to come. I am Nick Ashton-Hart. I am the Geneva representative of the Digital Trade Network, which means I am the private sector’s voice on digital trade and economic policy in Geneva, which is something I have been doing for many years. The digital trade policy and the negotiations that begin next Monday are my main obligations.

Q198       Chair: It is a good time to have you here. Thank you. Again, with a panel of four, don’t feel you have to answer every question, and the same goes for the Committee: don’t expect the panel to answer every question.

Can I open up by asking both Nick and Giles how we should define digital trade, and how it differs from e-commerce? You are on.

Nick Ashton-Hart: Yes. When we think of e-commerce we think of shopping online and things that consumers do, that we do, but e-commerce and digital trade are used interchangeably in international trade policy for historical reasons, really. What we are talking about is ICT enabling of trade in general. This covers everything from e-mailing between departments in a company to taking payments that have some electronic element to them. Any trading of services at distance tends to be ICT enabled.

Q199       Chair: Is it possible to value the economic size of it?

Nick Ashton-Hart: It is very difficult to do that. In fact, there is an inter-agency process in Geneva that has been running since 2005 to improve the statistical quality. UNCTAD has reported that it believes one third of global GDP is underpinned by ICTs by the internet. For us it is much higher. It is at least 57% and up to 75% of services that are the overwhelming majority of our economy. Digital trade is literally the heart of our economic life and our prosperity, and what we choose to do about it will define our role in the world and our relative prosperity.

Giles Derrington: As Nick says, e-commerce at the trade policy level covers everything, I think. When it comes to the business level, e-commerce is seen as transactional work—buying and selling online, and payments, for example—whereas digital covers a far wider breadth of issues, including embedded services within certain goods. In terms of how you define it economically, it is very hard to do, again, because where does tech stop? That is a constant question that we as techUK have to ask ourselves. If you think that the average modern car has about 100 million lines of code in it, is that a tech product more than an app on a phone, which has only a few lines of code in it? You can see where the barrier lies.

In terms of our trade in services, if you just take telecoms, computers and ITC activities, then we are at £20 billion of exports, whereas if you talk about things that are reliant on tech, where you start to bring in things like financial services, you get up to about £158 billion. The difference in scale is significant. Again, as tech develops and is embedded into more things, the usage of current statistical processes becomes increasingly hard. For example, health tech is a major growth area but most health companies in the tech sector would define themselves as in health rather than with an ITC zip code for the moment. It is very hard to partition where they might end up and how you count them in the figures.

Chair: Nigel Evans, I am turning to you at this crucial point.

Q200       Mr Nigel Evans: Can you give us examples of how digitalisation has changed the way that we trade?

Andrew Fray: I can give a very good example. Back in the day, not so long ago, you might cross the floor to make a trade to buy and sell a commodity, and then that went to something called a telephone. Everyone used to be on the phone. Now those transactions are being done digitally and increasingly faster and faster. The trades are now being done, certainly through where we are, in nanoseconds. It is this increase in volume, huge volumes of trades being done faster and faster, which then has to be audited. That is what is driving this.

Q201       Mr Nigel Evans: I was just thinking that digitalisation of things like buying an airline ticket or a train ticket is one thing, but then I thought, “Of course, you cannot do that with a cup of coffee”, but increasingly you can pre-order your coffee. That, I guess, is digitalisation as well, yes?

Anna Fielder: Yes. There are a lot of examples. The OECD defines digital trade as digitally enabled trade in goods and services, which is the example you just gave about the cup of coffee, all the apps and so on. It also includes things like telecommunications. For example, VoIP services—voice over internet—are also part of that. As Nick said, it is very interchangeable with e-commerce because if you look at what countries are proposing in the current e-commerce WTO proposals, it covers everything. There is no accepted term except to say that almost everything we do nowadays can be digitally enabled and, therefore, can be categorised.

Q202       Mr Nigel Evans: Any ideas what the next big breakthrough that we do not even yet quite see is going to be in digitalisation in trade?

Anna Fielder: We are talking about artificial intelligence, machine learning and the internet of things—your fridge knowing what you do, how much it is loaded, and when it is time to reorder. Some of these devices are already on the market. Dolls that speak to children exist. There is one called a Cayla doll.

Chair: Maybe one of these fridges or dolls could solve Brexit.

Q203       Mr Nigel Evans: I was going to say that that could be handy for Harry and Meghan, but you never know. Is anybody who thinks that this digitalisation industry—if we can call it an industry—is mature completely wrong?

Andrew Fray: Not at all mature.

Anna Fielder: No.

Andrew Fray: Very immature.

Anna Fielder: Very much in development.

Andrew Fray: The wave is about to come now.

Giles Derrington: I think that there are three key examples where we would see things growing very rapidly. The first is, as you say, the internet of things, not just on the consumer side but on the business side. More and more, when we talk about manufacturing machinery, we talk about adding sensors to machines—individual bits of building blocks. The data is being collected and utilised very successfully. For example, I was speaking to a company recently that has been working on theme parks. They have sensors effectively all over the rollercoasters, so that they can now define when something might break and close it beforehand, overnight, and fix it rather than having queues of children crying when they have had to close the ride because something has gone wrong.

There is, as you say, AI and the ability to do mass data analytics and understand consumer trends very early on—being able to figure out, for example, when you need to send a ship carrying a set of goods from one country to another six weeks before you need it.

Thirdly, there is also the case of 3D printing, which is beginning to come online. That could potentially be very interesting in the way that we process and manufacture goods in general.

Q204       Mr Nigel Evans: Following on from that, which is fascinating, as you know the backstop and the border issue in Northern Ireland and Ireland is the thing that apparently is tripping everything up, yet you are talking about technology that clearly if properly implemented could do away with the problem of the backstop and the border issue.

Giles Derrington: I would argue that there are some things that we are still not—we cannot 3D-print food yet, although there are people working on that. If you look at the trade flows between Ireland and Northern Ireland, there are a lot of agricultural goods. I think that is where a challenge lies.

In terms of technology at the border, there are some things you can do without a doubt to improve the way the border works. People have talked about things like geomeshing and so on. They would make the border smoother. Do they eliminate the border? Absolutely not. Do they eliminate the need for infrastructure at the border? Almost certainly not. There is a way to go. You could have the best border in the world, but it is probably still at this point a border, if that makes sense.

Andrew Fray: I think that it is a really good comment, and I wish someone had got together a massive hackathon over a weekend to see if it was possible to apply known technology to that particular application. There is a lot of discussion about another coming technology called blockchain, which is the ability to gain consensus—not cryptocurrency but blockchain. There is a lot of discussion now about using blockchain for financial trade and—

Q205       Mr Nigel Evans: Can you just say what blockchain is?

Andrew Fray: Blockchain, if I understand it correctly, is gaining consensus in a chain. It was called a distributed ledger. Let’s, for example, say I wanted to gain agreement from all of you, I might be—

Mr Nigel Evans: Good luck.

Andrew Fray: Yes.

Anna Fielder: It is like lots of little databases, as opposed to one huge one.

Andrew Fray: By distributing it, I can also get you to almost simultaneously buy into it, in which case you will know all your roles and will have done it instantaneously. Very good for football transfers.

Chair: There is a very good TED Talk on blockchain.

Anna Fielder: It is good for privacy as well.

Q206       Emma Little Pengelly: I did not think it was controversial until I referenced it on Twitter in relation to the Northern Irish border. Apparently, blockchain can set the tech world alight. Who knew?

Chair: I take it there was more block than chain going on.

Anna Fielder: Can I add something about economic values? My colleagues here are totally right that it is really difficult to measure because nobody has devised a system to measure it. UNCTAD is measuring retail e-commerce, business to consumer especially, because that is one of the things that UNCTAD is specialising in. It reckons that e-commerce value of business to consumers is about $29 trillion in 2019, on their latest figures. That is just a fraction of the industry as a whole.

Q207       Chair: What role does data play in the digital trade, and how tradeable an asset is it? What are the concerns over privacy around that area?

Anna Fielder: Where do you want me to start? There are two issues. I think that we need to introduce the discussion on data flows because all this digital industry is obviously fuelled by data. It acts as an enabler, collecting, and not just from consumers but from everywhere, as colleagues just pointed out. What we need to remember is that this data also includes your personal information. It is virtually impossible to separate what is personal and what is non-personal when you talk about digital trade.

Q208       Chair: Are there human rights issues around this?

Anna Fielder: Of course. Basically, because of that, there is an increasing tendency to include this neutral term of data flows into trade agreements. If you look at the latest trade agreement examples, the new TPP, the TPP Mark 2, includes it; the US-Canada-Mexico agreement includes it. It becomes firmer and firmer, basically to enable data flows. While as advocates we agree that digital trade is beneficial for consumers and for the economy, it also has vast implications on human rights. That is another aspect.

What we are calling for is a win-win situation. There are plenty of good international agreements around such as Convention 108 and OECD guidelines that deal with these things, which deal with both the privacy and data protection issues and enabling data flows. We do not think they belong in trade agreements, and if they do and if they must be there, there must be very, very strong safeguards to ensure that your personal information is not jeopardised.

Nick Ashton-Hart: I should say it is the case that data flows have been a part of trade agreements since GATS in 1995. Article 5 of GATS requires that if any service is in your services schedule as a country in terms of market access—if anyone is trying to, for example, sell into your market in mode 1 in that services category—you must allow access to the telecommunications infrastructure, and you must allow data to flow in order for that service to effectively be sold into your market.

The data flow protections that exist are not new. What industry is asking is that in trade agreements, that same level of protection of data flows be provided on a horizontal basis, across the scope of the agreement that is being agreed. It is nothing innovative or even terribly new, because it would be logical to extend the existing provisions of GATS in that way. If you see the language and how they are written in newer trade agreements, that is, in effect, exactly what they are doing.

Of course, it is true that data protection is important on many levels, commercial and personal. I have never heard industry ask for less privacy or for an agreement to provide for less privacy; quite the contrary. No one would agree to it even if you did ask for that. It would be invidious to ask and no country would agree to it because you have to go home and sell a trade agreement to your own people and they are not going to buy that either.

The question here is: how can you provide that the protection we have in our domestic life is not reduced when data associated with us travels outside of our borders? That is the question that trade negotiators are grappling with, including in Geneva, how to give legal effect to that value proposition. There are multiple ways in which you can do this. Convention 108 is a human rights agreement but it has this built into it. The CETA agreement has interesting provisions in financial services that would give effect to this, but you could use them for other sectors.

There are many ways to do this. It is unfortunate that the issue becomes infected with more fear and becomes the sum of all fears when it is not even a new issue; it is as old as GATS.

Anna Fielder: I think I will take you to lunch, Nick. Nick is right, I don’t think industry want to jeopardise privacy rights and do illegal things, but the elephant in the room is that some partners in trade, and some of the powerful partners in trade, do not have general data protection law. The US is one of them, although there is a big move in the US to introduce them. California is introducing one. The EU, for example, has proposed a language in two articles, which on the one side prevents localisation of data and on the other hand does not jeopardise national data protection law. We support that language. In our view, it provides the balance between ensuring that data is transmitted across countries, at the same time not jeopardising rights. Nick mentioned Convention 108. The issue is that you can refer to international conventions. You do not need to create extra rules in trade agreements.

Q209       Emma Little Pengelly: Very specifically on this issue, although, Nick, you have referenced that it is not new in terms of this kind of data flow, I think that for a lot of people, the privacy concern is that what is new is that people have these devices that presumably, if you have not turned something off on it, can tell somebody somewhere in the world exactly where you have been every day, every hour—what restaurants you have gone into. We all get a ping on our phone saying, “I see that you are in such-and-such a shop”, or “I see that you are in”—

Chair: Yes, the International Trade Committee.

Emma Little Pengelly: Exactly, and that is without checking in. I suppose what has evolved is the sense that there is a huge amount of personal data now collected on everybody.

One of the things that I have noticed is that obviously this is now a commodity, but now that data protection has been introduced, when you click on to a service or you are trying to buy something, be it international or within the EU, you have to hit, “I agree”. I have been clicking in to some of that to try to see what exactly you are agreeing to. What you are agreeing to, of course, is that everywhere you have been and every site that you have visited and all of your shopping records for x period of time is accessible and becomes a commodity of that company.

What is concerning is that when we talk about trying to ensure that data flows are seamless, in some of those it does not enable you to switch those off. I go through and hit off; it does not allow me to access any further. You try it two or three times and then consumers go, “I agree” and you go on and you buy whatever good that you want. The concern is whether the consumer realises how much personal information they are giving. Does that become then a commodity internationally? How do data flow arrangements protect the privacy, say, of UK citizens, if you are dealing with a US company or a company elsewhere in the world? That can flow to where? Do we know? Should we be considering that when we look at the detail?

Anna Fielder: I just want to say very briefly that you are absolutely right, but what you just described is illegal under GDPR, very simply, and under UK data protection.

Q210       Emma Little Pengelly: But if you have to physically agree to it? On the site there is “I agree”, so in that sense, yes, they are asking you, but as a condition of their service you are physically agreeing to give them that information.

Anna Fielder: Yes, but the way they are asking you and the way the sign of agreeing is put forward, it is called dark patterns. It is making you agree to it. It is a behavioural economics thing.

Q211       Chair: Yes, because you just want to see whatever bit of information is next on the screen and you are agreeing to whatever, as Emma Little Pengelly said.

Anna Fielder: That is right. Besides what you are describing, there are a lot of so-called data brokers that you do not even know exist. They lurk about.

Q212       Chair: Are tech people being naughty?

Anna Fielder: There have been a lot of investigations by our member organisations and academia into these practices, and some of them are now investigated by the ICO. For example, it recently started investigating a data broker called Quantcast because of these practices.

Q213       Chair: Giles, are tech guys being naughty? We have to put this to you.

Giles Derrington: For starters, it is worth saying that GDPR is still largely unwritten. The legislation is there, but the case law is still being developed and still going through. I think that some of this will be worked out as the ICO and other data protection authorities in individual—

Q214       Emma Little Pengelly: Do you think that means that people should be challenging this and raising this much more frequently than perhaps they are doing? People just assume in the tech age. We just say, “I agree”. The biggest lie that was ever told is “I have read the terms and conditions”.

Giles Derrington: First of all, there is a massive education piece for consumers about what they are agreeing to and how, and that is partly about making sure that the law is clear enough, that companies can write terms that are clear. One of the challenges many businesses find is that in order to comply with the law and make sure that their liability is limited where it needs to be, terms and conditions do become hundreds of pages long. That is a function of difficulties in regulation as much as it is companies wanting to protect themselves to the hilt, but they obviously have to do so to a certain extent.

Fundamentally, this is about educating people on what data is, and that conversation is still only just beginning to go on. It is about data ethics at the built-in end of tech so that when people are designing systems the data that they are collecting is only data they need for their commercial processes. This is already a principle within GDPR called data minimisation. They are supposed to reduce the amount of data they utilise.

Thirdly, it is about making sure that people understand that the transaction that is taking place, for example, with a search engine is data for a service transaction, so non-financial transaction in that regard, and that there are alternative options to utilise that. One thing that I very quickly would say is that third country transfer, so outside of the GDPR framework, is illegal unless that country has an adequacy agreement at the moment under EU law. Keeping that framework is fundamental to keeping that.

Nick Ashton-Hart: To give it a more trade angle, not to diminish the importance of this on a consumer level but I am a trade guy, I hear this in Geneva, by the way, from developing countries often. They are not expecting trade policy to solve these problems at a business to consumer level with usage of devices, but they are expecting that it provides a framework that they can say at home gives their people some comfort that whatever happens with the information that is sent by them across borders it will be subject to some regime that they can understand, that they can relate to their own people as a country, and that if there is an infringement they know what to do. It is not a black box. This is the limits of what trade policy can do.

Next week the negotiations begin and we already see some proposals on consumer protection by some countries and some on data to explore the concept of whether I can rely on the data protection regime and agreement to ensure that my data is protected anywhere it goes as if it had never left the UK, for example. This is the kind of thing that trade law can create a basic framework for and because it is enforceable, and that is one of the unique things about trade law, it has a value that other areas of law do not have. It is for us to decide how we are going to leverage an independent trade policy in order to promote both what our consumers expect for us but also how we can become even more competitive for services for other countries that have the same concerns.

Q215       Sir Mark Hendrick: Can I ditto everything that Emma has said? Some of the stuff I have been looking at—and is it Quantcast?

Anna Fielder: Quantcast.

Sir Mark Hendrick: Quantcast. You switch these options to say you do not want your data going wherever, and the next time you come to use it again, if you have switched those options, it asks you the same question again, rather than taking the answer you gave last time, which I am sure it could sort out if it wanted to.

You talked about OECD guidelines and Convention 108 and, as Nick was saying, in this mode 1 this is flying everywhere, obviously across jurisdictions. You have all described the problem very well. You have described what you think ought to be done about it. What I have not heard anything about is enforcement. Clearly, this is flying across different legal jurisdictions but it is not something you can easily see. It is not something you can easily pick up. Obviously, telecommunications companies have a big role in this in how they provide it. I am sure that security services have their own little backdoors into these systems as well as commercial interests that want to exploit the information on personal data that is flying around. How much do you feel that enforcement needs dealing with?

Secondly, all this hoo-ha at the moment that we see in this country about 5G and Huawei, is it just that the Americans are taking part in the trade war and they are trying to keep them out on the threat of perhaps a foreign Government looking at our data or is it a genuine concern? Looking at Ericsson, Nokia and other companies that are getting close to be providing that 5G infrastructure, is it better that we go with them or is it just the Americans, as I say, playing hardball?

Chair: That is a massive question. Can we keep it brief?

Giles Derrington: First of all, in terms of enforcement, GDPR has the ability to leverage significant fines, 4% of global turnover.

Q216       Sir Mark Hendrick: How do you find them? How do you get it?

Giles Derrington: The way that the GDPR works is that individual authorities have to have data protection registration—ICO in the UK. They are responsible, and one of the big things is making sure that they are well resourced to be able to do that job and do the investigation. The UK has led the way in some of that and the ICO is a well-respected model.

Q217       Sir Mark Hendrick: Are they monitoring online, though? Are they physically getting into the system?

Chair: Can it be policed?

Giles Derrington: It depends a bit on the nature of the inquiry and the challenge. A lot of it is led by complainant challenge, so people finding that there are problems there, but there are also active ICO monitoring investigations.

If I can very quickly touch on the Huawei point, the clear steer I would give on this is, listening to other telecommunication providers in the UK who have been very clear that Huawei is an important part of the mix, if we want to deliver 5G at the pace and scale that the public and Members of Parliament want to deliver, there is no suitable alternative option. There are ways you can make sure that you are protecting your security. The difficulty with 5G is that the boundary between the front end, the wires in the ground, and the handsets you use begins to blur, so there are challenges there. I think that the Government’s approach has been more evidence led and sensible than potentially other countries. If you do not have it, that is a choice but it is a choice that leads to you not having 5G.

Anna Fielder: I will be really brief. It is a huge subject but it is a really good question. Enforcement is crucial, as Giles says, across the GDPR countries. In the European Union the authorities are co-operating. There is also an international convention of all the privacy commissioners, which meets every year and they try to work together. You need to remember that there are about 134 countries that have enacted data protection laws, and if they co-operate you can ensure some kind of enforcement. That is not to say that it is effective; it is to say that some measures exist but they are clearly not enough.

The other point I wanted to make is to add to what Giles said on the Huawei story and all that. It just shows that when you talk about trade and privacy and data protection, all these things are interrelated with massive data exploitation and massive Governments across the world surveillance as well. Commerce and Government actions are related, as investigations in this House have already shown—the case of Cambridge Analytica and Facebook and so on—so they are not separate issues. They have to be considered in the round.

Q218       Julia Lopez: It has been touched upon already, but I just wondered if the GATS modes of supply are appropriate for managing modern digital trade.

Nick Ashton-Hart: I would say yes for two reasons. One is if you look at the wording of the telecom annex of GATS and the reference paper, they were incredibly forward looking. Those rules have underpinned the explosion in the use of the internet. It is certainly the case that the rapidity with which the internet has spread has been enormously facilitated by the obligations to deregulate telecommunications markets and have competitive telecommunications markets and the resulting drop in broadband cost and all of the like. This revolution has been underpinned by the rules that we have, and the technology neutrality principle of trade agreements does say that if you make a commitment it extends where natural to any new method of use that it should. If it is a commitment on professional services being able to use the phone, professional services can use any other telecommunications mechanism. So, I think they have.

The challenge now becomes, especially for us given our commanding position in services globally, how we can lead mindshare on some of the issues that have just been discussed here. For example, we want our data to be protected. We also want to be able to trade into and receive trade from the developing world where something like 70 countries do not have data protection laws now. Others are already complaining privately that the GDPR is something of a cliff because if you have to upfront agree that you in a developing economy are going to abide by the GDPR in order to supply services into the European Union, this is an enormous undertaking.

I am not suggesting that we should have less data protection depending on the level of development of countries or less data protection on any kind of conditionality but we have a vested interest given our services position in finding a way to bridge the gap so there is not a cliff for developing countries to climb. So developing countries that do not have effective and robust data protection frameworks now adopt one and we, thanks to DfID, have the tools at our disposal to actually help to make that happen. I think we need to do more in order to do that. There is exactly one capacity building and technical assistance project in the UN system to help with data protection, it is in UNCTAD and it is underfunded massively. 

I think this is part of the what the UK can lead in in answering some of these questions. If we take a joined up approach that values that but is also pragmatic in a commercial sense.

Q219       Julia Lopez: I wanted to quickly say that goes to the heart of the question of Brexit and where the world is going, whether you want to be small, nimble and dynamic or whether you want the protection of being part of a larger more influential block. In digital trade and the volume of the trade that will come from it, that is a very big question and so it is interesting to get your point of view on that.

Nick Ashton-Hart: You want to have your cake and eat it too there, I think.

Giles Derrington: If I may very quickly, two points. That quick and nimble point, certainly when we speak to our members, being part of a larger market is where they land. Just very quickly on the GATS point, there is a lot of talk on mode 5 GATS—this idea of services embedded in goods. In reality, it is pretty hard to see the examples of that. What is really important is the relationship between mode 3 and mode 4. This is a commercial presence in mode 3, and “fly in, fly out” service in mode 4.

As for what we have seen as a result of some of the decisions people have made for Brexit, if you have a hub and spoke model, you have a commercial presence in, say, Germany and the UK with your financial service expertise in the UK. At the moment, you use mode 4, so they will effectively go to that country and deliver the service, and that billing will end up in the UK. Because of the potential changes to freedom of movement, companies are now saying, "Well, the Germany entity is a commercial presence. We will have to employ a person from London in that part of the business, and serve through the Germany entity". What that then means is the billing ends up in Germany.

In large multinational companies, where often you are competing across borders for your slice of pie to meet your sales targets, that means there is almost no incentive for the London-based commercial entity to transfer that person to the German-based commercial entity, because they are not getting any piece of the pie. Ultimately, there is a risk that the London entity shrinks, because it can no longer deliver ease in mode 4. That is why mode 4 is so important as a way of delivering some of these digital services.

Q220       Chair: Thank you. We are right up against time at the moment. Andrew Fray, can I ask you what the physical and digital infrastructure requirements are at global, national and business level to facilitate international digital training? Do you see these requirements changing at all?

Andrew Fray: This speaks to our core business. First, you need somewhere to store this data. I completely take the point that you need to understand where this data should be stored and held. A lot of people are now holding that in the cloud, whether that is the big public clouds or building their private clouds. They are less keeping it under the stairs or in the office. They tend to be outsourcing it and trying to put it somewhere safe. The first thing is that the data needs to sit somewhere safe, protected, physically but also digitally.

The second driver is really around connectivity. This is enormous. Some of the international former telcos, but now some of the bigger over-the-top players—the Facebooks, Amazons and Googles of this world—are even going as far as laying their own undersea cables to facilitate access to different international markets. As I mentioned at the start, the big thing is about being able to deliver huge volumes of business or huge volumes of data in a very short period of time. Some are doing this less than others, but if I went back 10 years, everyone was saying, "Right, for environmental reasons put all this infrastructure, your data centres and all your connectivity in a cool country like Iceland, Finland or Norway".

Q221       Chair: Iceland majored in that for a while. Is it still able to?

Andrew Fray: Absolutely. That is fine for your deep storage, but in terms of digital trade and commerce, the capital cities have this enormous gravity. They pull in resources and liquidity, the capital markets, the expertise, the talent, and the creativity, and they are pulling it into the centre, where it can be stored and highly connected, so that this data can be brought in and then distributed. We see this in digital media, in things like the distribution of sport or film content. We see it particularly in capital markets and financial services, but we are now starting to see it also in other areas, particularly things like health tech, and even fashion tech, where this immediacy and quantity needs to be addressed.

For the UK, what that huge, super-exponential increase in data drives—we used to send texts, then we went to gifs and now we distribute it on high definition TV to one another. That mode, that wave, is happening at multiple levels. You also need the ability to distribute this data, not just internationally through a whole number of players, but also around the UK. I am particularly concerned about how you manage things like digital exclusion for those people who do not have the resources to access the social services that they are being told they have to, and also about rural communities. I think in that sense 5G is going to be a very important cornerstone for the UK in the future, because it allows faster deployment and more rich deployment of applications.

Q222       Chair: One of the criticisms of what the UK has done in mobile phone telephony is it has had no plan. It is basically a competition idea. Maybe you could say they have built one and a half networks each time and never built a proper comprehensive network. Should the 5G take a different approach? Rather than having two competing, should the resources make sure the entire area is covered?

Andrew Fray: I think that might speak to some areas that are not particularly my expertise around back to the day of universal access and requiring those who lay the network to make sure that they have access to all markets. I think there is still a very hard push for the commercial organisations to lay their own networks, do that as efficiently as possible and take it from there.

Chair: I am just aware the companies have a different approach. We are really running out of time badly. Emma Little Pengelly.

Q223       Emma Little Pengelly: We have already heard about some of the challenges. This is quite a generic question: what in your view are the key barriers to international digital trade?

Anna Fielder: I think that is for you.

Giles Derrington: A couple of things I would start with. Absolutely the flow of data across borders, wider than just the current GDPR countries, is the top barrier. I think the biggest barrier facing the digital global trade at the moment is a retrenchment and protectionist attitude, so data localisation is still a major, major problem in a number of countries and that has a big impact on the ability to trade with those countries. The efforts for forced technology of transfer, that is forcing companies to give up the IP effectively is a challenge in entering certain markets.

Finally, also, the people because while digital trading in theory is entirely a way of doing things without the need for people to travel, in reality business still works on people. As I say, mode 4 is absolutely critical. No trade agreement has ever really cracked the idea of making that really simple and easy. At the moment the worry we are dealing with is people entrenching their attitudes towards digital trade rather than where we can go to expand it. When I speak to member businesses of ours, when we ask, "What would you like to see in a free trade deal for our digital chapter", they are relatively few and far between what they can come up with, what they actually want is good business support in countries helping them navigate the various domestic systems.

Q224       Emma Little Pengelly:  Just a very quick question. Protectionism: is that on a business level, or is it on a country level?

Giles Derrington: It is largely at a country level. I think most businesses understand that. As Nick said, things like GDPR do create a barrier and it is a justifiable barrier in the case of GDPR because of the importance of data protection. They do create a hurdle over which companies have to jump. It is when countries seek to utilise things like data localisation to minimise the exposure to competing partners that is where you see it.

Nick Ashton-Hart: I agree with his list, I want to use a case study and what we can do about some of this. About 10 years ago the UK signed its first FinTech bridge agreement with Singapore. At the best what this does is provide when a new business model starts in one of the countries in the bridge it can begin immediately trading in both or however many there are. There are now eight of those that we have. Singapore has 26 so I think we have that the wrong way around.

The interesting thing is this is the kind of agreement that you can make even being in the EU, which is what we have been doing. I think the challenge for us is to win the argument with developing countries—to explain to them what is in it for them. The reason I picked this example is because it is particularly apt. 1.7 billion people do not have access to financial services. This is absolutely key to them getting out of poverty. It is a huge proportion of the human family.

Financial services and FinTech is a particularly strong area for us. Something like 10% of FinTech companies operate from the UK. This is an opportunity for trade to make an argument for those countries to say, "You want to make your regulatory choices in a way that works with us, because we see the value to you in reducing poverty and creating opportunity in your own country from doing so. We will provide the technical assistance to help you create the underpinnings that will make it possible for you to be an active trader for us because it is a win-win situation".

Increasingly, the argument that we have for the future is the one to win, in which trade is a part of a bigger picture of empowerment for other people and opportunity for us at the same time. Instead of a zero sum game, which is the traditional way in which trade agreements are negotiated and will still be negotiated to some degree, more sectoral agreements like this can be done much faster, they are less politically complicated and they provide enormous benefits to us in a strategic advantage sense, irrespective of whether we are in the EU or not.

Andrew Fray: Very briefly, I think at the core of this is continuing to keep trust within all the parties who are trying to trade with us, consumers or businesses, and keeping quality and speed to market with that sense of trust because if feels to me as if there is enormous freedom of information opportunities here, there is the will to good around all this, it helps enhance our lives but on the other hand there is the other side to it where more due diligence may be needed over the deployment of networks or deeper thought and control to make sure the gates are not left open.

Anna Fielder: It is quite simple: trade is vitally important and should be encouraged, but it is not everything in everybody's life, and there needs to be a balance between good trade rules on the multilateral level and respecting all the other international rules and conventions. I think that balance can be easily achieved. GDPR, by the way, has lots of other ways of transferring data, not just adequacy. There can be codes of conduct, and there can be binding corporate rules that can be agreed with developing countries. The key is not to make too many rules that exist elsewhere within trade agreements, but to ensure that trade agreements with countries respect those rules that already exist.

Giles Derrington: We talk a lot about what other countries are doing in various situations. I think it is more important we look at our own house, because some of the genuinely difficult policy choices Government are having to grapple with around digital technologies do absolutely impact on ability to trade. For example, Government are looking at the moment at a digital service tax. When I speak to the US Administration, they absolutely, rightly, frankly see that as a non-tariff barrier to trade, and would seek, in a US FTA context, to explore that.

Similarly, we are looking at things like the ICO consultation about age verification, and the online enhancement paper—genuine policy problems we need to work through. We need to understand how other countries that we might want to be trading partners with will view those as new barriers to market, and to work through that process. It is all well and good to say, "There are challenges in developing worlds" or with the US Administration, but our domestic law has to be aligned with our international trade policy. Otherwise, you are going to sit down with them at a table and they are going to say ultimately, "We know what you say you want, but when we look behind the scenes, you are practising a very different approach".

Chair: Thank you very much. One thing we cannot package and squeeze and change is time. “Nae man can tether Time nor Tide”, as Robert Burns said in his poem, "Tam O'Shanter". With that, we will send you some written questions on a couple of things that we have outstanding, and look forward to your answers to that for evidence for the inquiry. It would be appreciated if you could do that. I know it is an extra time burden on you. Thank you for coming this morning; it is greatly appreciated.