Unite- Written evidence (TAS0071)

Submission to the Lords EU Internal Market Sub-Committee on the inquiry Brexit: future trade between the UK and the EU

Executive Summary

Unite is the UK’s largest trade union with over 1.4 million members across all sectors of the economy including manufacturing, financial services, transport, food and agriculture, construction, energy and utilities, information technology, service industries, health, local government and the not for profit sector. Unite also organises in the community, enabling those who are not in employment to be part of our union.

Unite recognises the referendum result on June 23rd and accepts that the nature of the relationship between the UK and the European Union will now change. The question however is on whose terms that change will happen.

Unite refutes the suggestion that the result gives the government any mandate for so-called ‘Hard Brexit’ which would be an act of ideologically motivated economic vandalism for which working people would be expected to pay.

Instead, Unite sees its task as ensuring that trade union values are at the heart of Post-Brexit Britain. This means secure work, decent pay and a strong voice for working people. The trade union will campaign for the government and employers to take the necessary steps to mitigate the impact of Brexit

Unite has raised the following four priorities:

• Tariff-free access to the Single Market:  This must be a central objective of the government in the forthcoming negotiations, as it is a vital requirement to defend jobs in sectors across our economy.
• Retaining Workers’ Rights: Unite will not accept any diminution of hard won workers’ rights.
• Article 50: To ensure transparency and democratic scrutiny, Unite is calling for a vote in Parliament before Article 50 is triggered.
• A Seat at the Table for Working People: The collective voice of working people, as represented by the trade unions, must be consulted throughout the Brexit negotiations.

In the longer term, Unite believes that the only way to truly mitigate the impact of Brexit on our economy is with an ambitious and integrated industrial strategy which involves all sectors, from manufacturing to energy, transport and finance.

More information on Unite’s analysis of the need for an Industrial Strategy can be found here:

• Unite the Union Submission, Inquiry into Industrial Strategy, BIS Committee, 2016, URL

More information on Unite’s analysis of Brexit can be found here:

• Brexit on our Terms: Unite Strategy to Defend Manufacturing Jobs Investment and Employment Rights, Unite the Union, October 2016, URL

Sectoral Overview:

Unite is the UK’s largest trade union with over 1.4 million members across all sectors of the economy including manufacturing, financial services, transport, food and agriculture, construction, energy and utilities, information technology, service industries, health, local government and the not for profit sector. Unite also organises in the community, enabling those who are not in employment to be part of our union.

The UK’s membership of the European Union impacts all members of our union, regardless of their sector. While matters of trade are directly relevant to our members in manufacturing, transport, agriculture and finance, the impact will also be felt by members in the public sector and beyond, especially if a suitable replacement trading relationship is not established. For example, import tariffs on food, clothing and every day consumer goods would result in a cost of living crisis for UK workers.

EU and Market Access:

It is clear that following forty years of integration tariff-free access to the Single Market is of vital importance to the employment of many thousands of our members. This is especially true of the manufacturing, agriculture and financial sectors, which have benefitted from the lack of cross-border tariffs.

Many of our members’ largest employers, from HSBC to Airbus, BMW, Astra-Zeneca or Unilever, see their presence in the UK as ‘European Hubs.’ Similarly, pending investment decisions for major manufactures such as Vauxhall, Nissan, Siemens and Honda, are reliant on the UK retaining tariff-free access to the Single Market and the 500 million consumers therein.

For both manufacturing and transport, the Single Market’s ‘frictionless supply chain’ is a crucial part of modern industry. The automotive industry is indicative of the wider manufacturing base, with the percentage of UK parts in British-built cars standing at 41 per cent. Firms such as Bentley and BMW, for example, will transfer a single component across national borders multiple times in its journey from creation to inspection and assembly.

This relationship within the UK-Europe components supply chain is two-way. Two-thirds of the £4 billion of motor components that are exported from the UK goes to the EU, while the vast majority of materials that go into British-built cars are imported.[1]

Importantly, these supply chains are ‘frictionless’ allowing the development of so-called ‘Just in Time’ supply chains which operate in a window measured in hours. For example, Jaguar Land Rover and Nissan, the UK’s two largest carmakers, hold only two hours’ of stock of some items at their sites in order to minimise inventories and save on costs.

This has an inevitable impact on transport workers for whom the logistical impact of exiting the Single Market and the EU Customs Union would be equally damaging.

For international road haulage, the Single Market is fully integrated for all EU operators. With an International Operators Licence there are no border checks, permits required or quota limitations. Any operator with an international licence from any EU State can undertake international road transport between any two EU States without limitations.

EU rules underpin much of the regulatory regime for the operation of the commercial road haulage sector. This includes rules relating to market access, operator licensing, transport manager qualifications, driver licensing and qualifications, drivers hours and tachograph standards, vehicle standards and roadworthiness. There is a mixture of EU Regulation and EU Directives that have been woven into UK legal frameworks. There is significant cooperation between EU enforcement agencies that is underpinned by EU regulations and Directives.[2]

It should also be noted that on the UK side of the channel many of the gateway ports, such as Felixstowe, Tilbury and Dover simply do not have the road or rail infrastructure required for the prolonged border checks and inspections which would result from the UK leaving the Customs Union.

Exiting the European Union:

After forty years of integration the European Union now underpins a broad panoply of workers’ rights, regulations and standards. It is clear that the legal effect of the European Communities Act 1972 is that when UK membership ends, EU-derived employment legislation will automatically end with it.

Unite has proposed that all existing workers’ rights should be 'grandfathered' into UK law at the point of Brexit. This is a view shared by major employer federations, including the EEF and the Chemical Industries Association. 

Such rights include the Working Time Directive; The Acquired Rights Directive; The Agency Workers Directive; The Employer Insolvency Directive; and the Transfer of Undertakings (TUPE). A full list of the workers’ rights underpinned by EU law has been produced by Thompsons Solicitors.[3]

European Works Councils:

EU law also underpins some basic trade union rights, such as the right to consultation ahead of major changes in the workplace. Similarly Unite is involved in more European Works Councils and Social Dialogue initiatives than any other trade union, both of which are protected in EU law. Important directives include: 

• The European Works Council Directive
• The Information and Consultation Directive

Future UK-EU trade Relationships:

WTO Terms: ‘Hard Brexit’

It is Unite’s view that reverting to World Trade Organisation terms of trade (GATS), commonly referred to as ‘Hard Brexit’, would be a disastrous option.

This is because the UK would be expected to face the European Union’s common external tariffs. The rate of tariff will differ between sectors and products.[4]

Taking the automotive industry to be indicative of manufacturing, this could be as much as 10% for exports and 4% on imports. This would see manufacturers of vehicles and parts incur an annual cost of £1.3 billion on EU bound goods.[5]

The loss of access to the Single Market would be felt far beyond manufacturing. It would impact the finance sector, which would lose ‘passporting’ rights into the EU.[6]

The agricultural sector would also be impacted, with an average tariff of 22.3% on agricultural products and 2% on non-agricultural products.

If the UK leaves the EU without a trade deal UK exporters could face the potential impact of £5.2 billion in tariffs on goods being sold to the EU. However, EU exporters will also face £12.9 billion in tariffs on goods coming to the UK.[7]

The impact of tariffs on Unite members would be two-fold. First, the cost of tariffs incurred by employers would invariably be handed down to the workforce. This is as true for the manufacturing sectors as it is for transport, retail and services. Secondly, the rising cost of imports would trigger a cost of living crisis for working people.

It is worth noting that the threat of tariffs, caused by a government which has failed to address mounting uncertainty, has already allowed opportunistic producers and retailers to raise prices on everyday household items.[8]

The European Economic Area (EEA):

Membership of the EEA, commonly known as the ‘Norwegian Option’ is the closest trading arrangement the government could achieve to full EU membership. This would result in partial access to the Single Market. For Norway, agriculture and fisheries are excluded.[9]

Unite notes several political hurdles to EEA membership, notwithstanding the government’s likely inability to square the EEA’s required commitment to Freedom of Movement with the pledge to introduce migration controls.

Unite notes that membership of the EEA would create a ‘democratic deficit’ as the UK would continue to be subject to EU regulations, laws and standards, despite having no ability to influence those laws. In Norway over 165 agreements and 1,000 regulations have been adopted since 1994.[10]

This would also come at a cost to the UK. Maintaining 93 of the 100 most important EU-based regulations would cost £31.4 billion a year. It is estimated that EEA membership would cost 80% of the UK’s current contributions to the EU budget.

EEA membership would also undermine the government’s commitment to an industrial strategy. For example, Unite would oppose new regulation such as the ‘fourth railway package’, barriers to positive procurement by the public sector or barriers to subsidisation or public ownership of strategic industries. Unite is clear that such barriers have been used as political excuses by UK governments and this would continue with membership of the EEA.

Unite notes that where the political will exists, other European governments have acted to defend strategic assets and develop industrial strategies. For example, in Italy the state cited EU environmental concerns in order to nationalise the Ilva steel mill in Taranto[11]. In Belgium the government provided €211 million in direct aid to the Duferco steel mills in Wallonia.[12]

UK-EU Free Trade Agreement (EFTA):

Membership of the EFTA is commonly known as the ‘Swiss option’. Switzerland’s participation in the EU internal market is less complete than Norway’s participation through the EEA. Like Norway and other EEA countries, it has free trade in goods, but unlike the EEA it has no agreement with the EU on services.[13]

Through a series of bilateral trade agreements, Switzerland has partial access to the Single Market. This sector-by-sector approach is far from straight forward. For example in the financial services sector insurance companies have full two-way access to the single market via a so-called ‘passporting’ deal in return for keeping Swiss regulation at an equivalent level to that of the bloc. However, Swiss banks do not benefit from any such trade deal, meaning they must do most of their EU capital markets business from their London subsidiaries.[14]

Like EEA membership, Switzerland must accept laws, regulations and standards which apply to relevant sectors with Single Market access despite having no influence over them.

The Bilateral agreements also include potential barriers to an ambitious industrial strategy, with the same barriers to state support for industry and procurement as the EEA.

Unite notes that Switzerland is also not legally obligated to adopt directives on employees’ representation. There are therefore no legal provisions on the implementation of Directive 2009/38/EC covering European Works Councils.[15]

While the ‘Swiss option’ sets a precedent for a bespoke trade deal between the EU and a partner nation, Unite would not support a like-for-like replication of the Bilateral arrangements.

Customs Union: Sector-By-Sector:

Unite notes that the third commonly cited option is for the UK to retain access to the EU Customs Union despite not being a full member, or for the UK to attempt to keep specific economic sectors within the Customs Union.

The only precedent for this is that of Turkey, which gained access to the Customs Union in 1995. This agreement only covers goods, specifically the Turkish manufacturing sector, and excludes services and capital.

Turkey must also apply the EU’s external tariff on goods imported from outside the EU, despite having no influence. Turkey must also be subject to any free trade agreement that the EU negotiates and is not able to negotiate its own trade agreements without ratification by the European Commission.

Furthermore, despite manufacturing goods for the Single Market, Turkish workers do not have the protection of EU standard workers’ rights nor legally protected access to European Works Councils. This has allowed multinational corporations to treat Turkey as an ‘offshore platform’, threatening a race to the bottom.

Bilateral Trade Deals: CETA

If no trading relationship with the EU is established, it is suggested that the UK could seek to negotiate a bilateral trade deal with the bloc, potentially using the architecture of the TTIP or CETA agreements. Unite would call for a series of safeguards in this event. This would include trade defence mechanisms to prevent the ‘dumping’ of goods such as Chinese steel, tyres and ceramics. Unite would also call for labour rights to be protected to ILO standards, underpinned by threat of sanctions.

Unite would also reject any tribunals modelled on the ‘Investor State Dispute Settlement’ (ISDS), in effective a secretive court used by multinational corporations to litigate against governments.

Unite notes that inclusion of such provision in NAFA has resulted in Canada becoming the most sued developed country in the world, facing 35 of the 77 NAFTA investor-claims, to the tune of over $200 million. In contrast the U.S. government has won 11 of its cases and never lost a NAFTA investor-state case or paid any compensation. This shows the extreme danger of entering into a free trade deal which contains ISDS and a disproportionate power balance in favour of the United States.[16]

Migration, freedom of movement and safeguards

Unite notes that it is a fundamental position of the European Union that the movement of goods and services cannot be separated from the movement of people. This will be a key issue in the upcoming negotiations, and may determine the future trading model the UK government adopts.

The exploitation of Freedom of Movement is an issue of central importance to Unite members, particularly in sectors such as hotel services and agriculture.

It is clear that many employers use Freedom of Movement to advance a flexible labour market model, ensuring a plentiful supply of cheap labour for jobs which cannot be offshored to cheaper labour markets elsewhere.

Unite believes it is time to shift from talk of ‘freedom of movement’ on the one hand and ‘border controls,’ but instead focus on safeguards. This must include safeguards for communities, workers, and industries needing labour. At the core of this must be the reassertion of collective bargaining and trade union strength.

For example, such safeguards must include equal pay provision between workers irrespective of employment status or country of origin.

Unite proposes that any employer wishing to recruit labour from abroad should only do so if they are either covered by a proper trade union agreement, or by sectoral collective bargaining. This would change the race-to-the-bottom culture into a rate-for-the-job society.

Unite also reiterates support for EU citizens already living and working in the UK, who must have the right to remain.[17]

Government Key Objectives:

Unite is clear that retaining tariff-free access to the Single Market must be a central objective of the forthcoming negotiations. Publically pledging this would send a clear message to industry that it is safe to make upcoming investment decisions.

The need for urgent clarity is why Unite is calling for the government to bring its plan for the negotiations to Parliament, to receive a mandate via a vote, before Article 50 is triggered.

Opportunities

• Does leaving the EU raise significant benefits or growth opportunities for your business/sector? What are these and how can they best be exploited? To what extent do they offset/outweigh concerns about reduced access to EU markets?

Unite will campaign for the UK to retain the best aspects of EU membership, while taking advantage of opportunities that will arise from the UK’s withdrawal.

It is clear that even if tariff-free access to the Single Market is achieved, the government must commit to measures to mitigate the impact of ‘Brexit’ on the economy and working people.

The UK can officially reject the failed policy of holding the country’s deficit under 3%, as enshrined in the EU’s Stability and Growth Pact (SGP). The UK must reject austerity and exit the SGP, which forbids budget deficits, to work with industry and trade unions to identify opportunities for new investment.

Industrial Strategy:

Unite is clear that the only way to mitigate this impact is with an ambitious, long-term and integrated industrial strategy. The benefits of such an industrial strategy have been expanded upon in Unite’s submission to the ongoing BIS Committee inquiry. The written submission can be found here.

This industrial strategy is based on a five point ‘industrial toolkit’ which covers all aspects of industry, from manufacturing to energy production and transport:

• Develop and restore the UK supply chain through an active policy of encouraging reshoring while removing barriers such as high energy costs.

• Investment in skills, emulating the ‘German Model’ with regional support for the large manufacturers.

• Use of public sector procurement to create a stable, internal market for manufacturing and generate ‘social value.’

• Direct support for ‘foundation industries’ with long-term contingency planning to defend jobs and communities

• Investment in infrastructure projects, as a culmination of an ambitious industrial strategy.

A clear long term plan based on this tool kit would see manufacturing experience a renaissance in this country.

Transport: Challenging De-Regulation and Privatisation

Unite opposes laws which enshrine the role of the private sector in transportation services, particularly EU directives which seek to increase competition in tendering.

For example, the "Fourth Railway Package" is intended to remove barriers to privately-owned train operators providing services across Europe by 2020, with competitive tendering for contracts to "become the norm" by 2023.[18] In contrast, Unite supports bringing the railways into public ownership.

Similarly Unite sees the port services regulation, commonly known as 'Port Package III' as legally enforced competition which drives privatisation and precipitates a ‘race to the bottom’. The directive is clear in its intention of: “opening up national freight and passenger markets to cross-border competition.”

Rather than privatisation, UK ports require increased infrastructure investment. This is especially true if the UK is outside of either the Single Marker or the Customs Union, increasing demand beyond the capacity of docks road and rail links.

Unite notes that successive UK governments have sought to privatise and deregulate transport industries far faster than any requirements under EU law.

Workers’ Rights:

Unite calls for the ‘grandfathering’ of workers’ rights underpinned by EU law into UK law at the point of Brexit.

However, Unite sees existing EU law as the minimum standard of protections, many of which must be significantly improved.

For example, Unite has long called for an end to the so-called ‘Swedish Derogation’ which presents employers and agencies with a loophole to exploit part-time workers.

Further analysis of the alternative options to EU membership from Unite can be found here.[19]

November 2016