Written evidence submitted  by Christopher Roy-Toole (INR0001)

About the Respondent

I am a Barrister. I was an advocate in the criminal and civil courts and the founding head of a barristers’ chambers on the North Eastern Circuit. When I retired from private practice, I served as a member of an NHS research ethics committee and undertook advisory work on the regulation of clinical research in the UK and on the reform of regulation of pharmaceutical trials and medical device research in the EU. I have experience in helping to reform the work of government departments. I involved myself in the Bonfire of the Health Quangos in 2010 by developing a case for a single regulator for UK clinical trials. I provided evidence to the Select Committee Inquiry on EU Regulation of the Life Sciences. That evidence provided a blueprint for the Combined Ways of Working Pilot that the Department of Health is currently running with the MHRA and the Health Research Authority. Separately, I was one of the contributors to the work of the Commission on Economic Justice. I have an abiding interest in the UK Industrial Strategy, specifically to devise legal and regulatory solutions to the fall-out from a Hard Brexit. I apprehend that a Hard Brexit is not only likely but necessary, whereby the UK departs the EU without attempting close regulatory alignment on matters of Competition and State Aid. I have no competing interests to declare.

Terms of Reference

The Committee welcomes evidence inter alia on;

My evidence submission attempts to address those points.

 

Putting a Context to the Integrated Review

The Commission on Economic Justice produced The Plan for the New Economy. It featured heavily at the 2018 Labour Party Conference but was partially eclipsed by more radical proposals from other quarters, such as the compulsory creation of shares for workers in the larger UK companies. The Plan, together with the scheme for compulsory share issuance, was obscured further by the over-stuffed manifesto package that the Labour Party took to the 2019 General Election.

The Plan borrowed heavily from Tony Benn’s Alternative Economic Strategy. The latter was intended to take the United Kingdom out of the Common Market. It would deploy protectionist measures to strengthen UK Industry so that it could at some future time emerge to compete on global markets. Despite this, the Commission on Economic Justice took a neutral stance on Brexit and the Labour Party set its face against No Deal Exit.

This being so, the Labour Party deserved to lose the 2019 General Election because it failed to confront the legal contradiction that lay at the root of its economic strategy: its reconstructive plan for the New Economy could not readily be accomplished whilst the UK remained within the EU rule framework on Competition and State Aid.

That point is made by Costas Lapavitsas in this article: https://www.thefullbrexit.com/quit-single-market .

But there is an added layer of complexity. The rules of the European Union and those of the World Trade Organisation take a similar stance towards the use of State Aid and other trade practices deemed to be anti-competitive and thereby discriminatory to other member states. The WTO Government Procurement Agreement sets the basis for the EU Directives on Public Sector Procurement. Even if the United Kingdom departs from the EU legal framework on Competition and State Aid, the United Kingdom would face the same or similar strictures by remaining as a member of the WTO and becoming a member state signatory to its agreements. Only the manner of their enforcement would differ.

A key question for the Integrated Review is whether the UK Government can accomplish an enduring regeneration of UK Industry and the re-growth of the post-Brexit economy whilst continuing to apply the current WTO rule framework for Competition, State Aid and Public Sector Procurement.

Put another way, the Integrated Review must produce a strategy for the UK Foreign Policy and the strategy must address the platitude that was bandied about so loosely in the run-up to General Election; the idea that the United Kingdom requires a Free Trade Deal with the European Union, and it if does not get one, then the United Kingdom can proceed to trade on World Trade Organisation terms and be none the worse off. Says who?

Informing the Strategy for the UK Foreign Policy

The European Union has no incentive to agree to allow the United Kingdom to depart from close regulatory alignment on Competition and State Aid at the end of the Transition Period. Where one goes, other member states are sure to demand to follow. That was the case before Coronavirus, and it is likely to be increasingly the case as the European Union confronts the new stresses emerging within the Bloc that proceed from the current public health emergency.

Therefore, it is time that the UK Government had a coherent strategy for economic recovery that is based on the likely outcome that the UK will not secure a comprehensive Free Trade Deal with the European Union because there has been no accord on the matter of close regulatory alignment. To that end, the best and most radical recommendation that I have seen comes from Raffaele Giammetti. I set out links to his arguments in summary and detailed form:

https://braveneweurope.com/raffaele-giammetti-the-effects-of-brexit-and-alternative-scenarios and https://mpra.ub.uni-muenchen.de/93229/1/MPRA_paper_93229.pdf .

His plan depends upon a programme of import substitution in the United Kingdom to replace imports of intermediate and final goods from the European Union with domestically manufactured goods and to divert part of the United Kingdom’s trade with the European Union to non-EU foreign countries. If successfully managed, he contends that this strategy could result in only a negligible loss to the UK in the event of a ‘Soft Brexit’ and might even produce a benefit in the event of a ‘Hard Brexit’. This will require a trade policy based on protectionism. Protectionism is justified on the reasoning that the UK is a special case.  Special in that the United Kingdom economy exhibits weak economic growth deriving from a particular combination of factors including: (1) a growing balance of payments deficit skewed by reliance on export of services; (2) for which price elasticity of demand is low resulting in limited space for currency depreciation; (3) its manufacturing base has been hollowed out through forty years of globalisation and jobs off-shoring; and (4) these factors are compounded by the ‘idiosyncratic’ shock of Brexit.

In the above example, protectionism takes the form of UK manufactured products being favoured at the expense of their European counterparts. That preference could be applied through tariff measures, non-tariff measures such as those seen in the Buy American legislation in the USA, or new approaches to Public Sector Procurement and especially for construction and infrastructure projects.

It will be noted that the implementation of this plan will depend at least in part upon a new approach to rules for Public Sector Procurement that facilitate the development of UK based supply chains and discourage the offshoring of production to overseas bidders for tender. Closely allied to that is the need for a new approach to Competition rules. The precept that underpins our current Competition rules is free movement of goods and services within the EU Bloc. A more cynical mind might suggest that the precept behind the precept is to facilitate free movement of German exports within the EU Bloc. Competition rules for the EU Bloc are likely to change as the need emerges to leverage European companies at scale so that they can better compete against market incursion by Chinese companies, or the Americans, or wherever the next threat is perceived to come from. Competition rules for the UK should change in order to respond to those events. The aim should be to enable British companies to leverage at scale to better meet the demands of an economy that needs to be increasingly focussed on domestic production and consumption.

The objection will be made that protectionism will result in a loss of reciprocal access to foreign markets by British firms who depend on it. I direct you to a very useful discussion of that question by Clifford Chance, who also discuss the legal modalities of a protectionist UK Trade Policy. UK industry could lose access to contracts worth £1.3 trillion per year, of which ‘UK Wins’ are estimated to be worth £1 to 1.4 billion. But on the other hand, UK industry could have exclusive access to a UK procurement market valued at £ 292 billion per annum. See:

https://www.cliffordchance.com/content/dam/cliffordchance/briefings/2019/10/public-procurement-brexit-and-boris-johnsons-buy-british-pledge.pdf .

UKGOV is blowing hot and cold on Buy British

There are contradictory noises coming out of the Government on its approach to international trade obligations. A fortnight or so before the 2019 General Election, the Prime Minister said that the UK Government would have a strategy of Buy British for procuring materials and services to be used in UK Infrastructure projects. It was no doubt intended to placate the workers and suppliers in the UK steel industry. It is a good idea. It is a policy which demands separation from EU rules on Public Sector Procurement, Competition and State Aid. It also demands a very significant departure from the market liberalisation principles articulated in the current WTO framework, especially the WTO Government Procurement Agreement. Yet after the General Election, when he spoke at Greenwich, Mr. Johnson appeared to champion the cause of Global Free Trade. Liz Truss, the UK Trade Secretary, recently told the WTO that: “The UK wants to turn the rise of protectionist measures around. We are at heart a free trading nation and we see the WTO as central to that vision”.

I suspect that the Government may be buckling in the face of the legal and regulatory challenge that goes with escaping the gravitational pull of the European Union. They are falling back on the mantra of “Global Free Trade” because that is what Ministers tend to parrot whenever they are called upon to give a soundbite. But evidence before Parliamentary Select Committees has shown that Ministers are not able to describe what that “Global Britain” means. The Government has not got the historic data on Foreign Direct Investment to be able to tell what effect it is having on the UK economy.

The special relevance of rules for Public Sector Procurement

The success or failure of the UK Steel Charter will depend upon the ability of UK Procurement rules to support the continuance of steel manufacturing in the United Kingdom after the end of the Transition Period. The purpose of the Charter is to secure a commitment to maximise opportunities for UK steel producers for construction and infrastructure projects. UK Government has issued guidance on how steel should be sourced by public bodies for major projects. That guidance enjoins the procuring body to have regard to a wide range of environmental, sustainable, safety, logistic and technical factors, as well as other optional criteria that might add social value to the project in terms of job creation and promotion of local supply chains. But the one thing that the guidance cannot do is to instruct public bodies to Buy British for the sake of it, because that offends against the market liberalisation precepts of the WTO rule framework. Therefore, I question how far the UK Steel Charter can ever prevail in the face of massively lower cost production from China, or in a case where German producers continue to benefit from a structurally undervalued Euro currency and historically higher levels of state investment in clean energy. I question whether the determinant legal requirement to select the most economically advantageous tender can provide enough support and certainty to British steel manufacturers, as we transition out of the EU Bloc, in the absence of additional legal measures to support the position of UK manufacturers in the procurement exercises for major contracts inside the UK. Parliament should ask the same question.

Shaping the Process of the Integrated Review

The United Kingdom Government needs to rethink the basis on which it conducts trade negotiations with the European Union. But now that it has left the European Union it must also rethink the basis of its dealings with other members of the World Trade Organisation. The United Kingdom Government should not allow EU or WTO rules to restrict its ability to re-tool, develop and protect critical industries and their supply chains. Negotiations with other WTO members should allow a retained policy space for protectionist measures. In this, I commend to you the work of Dani Rodrik: https://www.milkenreview.org/articles/the-trouble-with-globalization.

I question why the UK Government should rush into free trade agreements at a time when it needs to develop its own industrial base at the expense of foreign competitors. DIT’s recent announcement that a US-UK Free Trade Agreement might only yield a 0.16% boost to the UK economy over the next 15 years reinforces this question. FTAs in their modern guise often serve to displace national laws and put resolution of trade disputes in the hands of international arbitrators. We should instead seek to affirm the primacy of national law and access to national courts in our international trade. Indeed, we may need to depart from a free trade deal model and use a more flexible approach to import strategy that is based on periodic review by the UK Government according to changing need. That flexible review might depend upon the use of secondary legislation rather than treaties to set tariffs or quotas and be supported by something akin to Forward Guidance for the benefit of our trading partners.

The UK Government should think twice before depositing its instrument of accession to the WTO Government Procurement Agreement. And if it does, or already has, then the UK Government should consider getting out of it soon. The Government should also think twice before incorporating elements of the GPA in any regional trade agreement that it might make. There would need to be large scale exemptions from the coverage of the GPA if the UK Government is serious about a Buy British programme for domestic infrastructure projects. That would mean departing from the stance towards the WTO and GPA taken by the Theresa May Government in its policy document Preparing for our future UK trade policy.

If current legal rules on Procurement do not provide enough protection for British steel producers in the face of foreign competition, and I contend that they do not, then a key priority for the Integrated Review is to devise a new legal framework for Public Sector Procurement that does. Developing this aspect of UK Trade Policy will require the collaboration of the FCO with BEIS and DIT but also with other government departments responsible for local government and with non-departmental bodies of special remit, such as the Infrastructure and Projects Authority.

The problem is that decisions as to what constitutes the most economically advantageous tender can only consider factors relevant to the contract in question. The objective should be to enable procurement decisions to move beyond the sphere of the individual contract to embrace a more strategic type of decision-making that applies to many procurement contracts across an entire sector or linked sectors, to support critically important industries. Current EU rules allow only limited initiatives to develop domestic supply chains in the name of ‘social best value’, without otherwise offending rules against State Aid, and usually only at regional level or involving small to medium sized enterprises. But the aim should be to develop supply chains at national level for heavy manufacture too, and for all sizes of British companies, not just SMEs. This can only be accomplished by a radical departure from the current EU and WTO rule framework on Public Procurement, Competition and State Aid. Criteria for the most economically advantageous tender must in future contain express requirements to encourage domestic manufacture and supply in the national interest. New and targeted enforcement measures must also be devised to combat corruption and price fixing which are the inevitable consequence of open procurements being closed off.

 

Calls for a return to protectionism, or the embrace of what we now term economic nationalism, might be dismissed as regressive. But the current crisis in the EU Bloc, exacerbated by Coronavirus, has led the Spanish Prime Minister to speak of the need for a new Marshall Plan and other war economy measures to restore stability. The EU rule book will be torn up and so then too must ours. Applying exemptions from WTO rules on the ground of national security is not enough. Exemptions must in future address the need to maintain national resilience to public health threats. They must also enable national resilience in the face of exogenous supply shocks of the type that we have seen over recent weeks when Chinese exports dropped off a cliff because of the events in Wuhan. The Global New World Order does not appear to have triumphed in this crisis caused by a virus.

 

April 2020