Slight movement on Free Zones by minister

Trade Bill Committee (day four) – Monday 4 February 2019

Labour’s spokesperson Lord Stevenson of Balmacara moved his and Lord Purvis’ probing amendment to clause 5 that provides an opportunity for the Government to put some remarks on the record about its approach to services. Lord Stevenson gave his view about services not featuring more strongly in the Lords’ discussion and debate so far; services agreements are a relatively new form of trade negotiation and because different regulations belong to different bodies, it is more difficult to trade one sector, as it were, against another.

Lord Purvis said the UK is more dependent on services, especially non-financial, than perhaps any other country in the world. He opined that the arrangements for the Northern Ireland backstop were as much to do with the continuity of the services sector for those providing professional and trade services from north to south and south to north as they were with the checking of the origin of goods at a border for tariff purposes. “We know that we cannot rely on a much wider alternative, which is the WTO. In its last set of discussions, it could not even agree on a communiqué about taking forward future services agreements on a WTO basis,” he said.

Government spokesperson Lord Bates said the UK will have an independent trade policy covering all aspects of goods and services. To deliver that objective, it will be important to retain regulatory freedom where it matters most for the UK’s services-based economy. The amendment was withdrawn.

Conservative Lord Lansley spoke for an amendment which calls for the Treasury to launch a consultation on proposals for the establishment in the UK of Free Zones, as defined by the Customs and Excise Management Act 1979, within three months of the passing of this Act. The EU has a general disinclination towards free zones because the single market effectively creates one single customs territory, he said. Whereas in the past we may have concluded that there was no basis for introducing such a distortion into our economic activity, if and when UK ports are principally having to compete in international trade with other European ports, we may conclude that it is not a distortion to trade inside the UK. Actually, it is an aid to competitiveness for the UK in relation to ports elsewhere in Europe.

Lord Bates said existing customs facilitations in the UK offer the same benefits as free zones, but are not geographically limited and can be accessed anywhere across the country, thereby potentially having more widespread benefits for the UK as a whole. Those existing facilitations avoid distortions which can arise from free zones where a manufacturer or its supply chain would be required to locate on the same site to benefit. He said the Treasury will write to Lansley on how BEIS, for example, can look at this matter without an ‘onerous’ consultation.

Labour’s Lord Lea of Crondall’s amendment calls on the Government to implement an international agreement to enable the UK to become a member of the European Free Trade Association and continue as a signatory to the EEA Agreement, before Brexit Day. The peer said it was vital to enhance and protect our world market share of investment and trade by staying part of the customs union and the single market/common market. The only way we can leave the EU and remain in the single market—which is just as essential for BMW, Airbus and Unilever as the customs union—is by rejoining EFTA. EFTA with the UK again a member would probably evolve into a more influential and substantial body than is currently the case, he said.

Lord Bates said there are consequences to joining EFTA and the benefits are not automatic. To gain the benefits of the 29 existing free trade agreements negotiated by EFTA, the UK would have to negotiate its way into each trade agreement with the relevant third countries. There is no guarantee that this will be successful and it could take a long time to achieve. EFTA is not an off-the-shelf model that would deliver ready-made trade deals. EFTA’s trade agreements were not negotiated with the size and type of Britain’s economy in mind, he added. He went on to say seeking to remain in the EEA beyond the implementation period would not pass the test that the Prime Minister set out for our future economic partnership with the EU because it would not deliver control of our borders or our laws.  The amendment was withdrawn.

The debate then moved to Clause 6: UK participation in the European medicines regulatory network

Green Baroness Jones of Moulsecoomb spoke for her amendment that calls on the Government to push the WTO to modify its procedures in a way which secures the supremacy of international treaties arrived at under the auspices of the United Nations. She said WTO terms are not the answer to our problems, rather ‘they are part of a global giant which undermines democracy and restricts the sovereignty of nations to implement their own policies’.

Government spokesperson Baroness Fairhead replied that the WTO is not part of the UN system and exists independently in international law. That position is combined with the fact that there is an established principle of international law that there is no hierarchy of sources of international law. Reform of the WTO therefore requires reform of the WTO’s own treaties. The amendment was withdrawn.

Lord Stevenson of Balmacara moved a series of amendments from peers relating to clause 8 -  none of which were pushed to a vote - that reverse the late amendments made by the European Research Group to the Taxation (Cross-border Trade) Bill in the Commons because, he said, they do not strengthen our position in general terms. For example, one of the amendments removes the restriction in Section 31 on creating a customs union with the EU by requiring a separate Act of Parliament to be passed before the designated powers could be used. We think that that should be amended because the restriction under the previous amendment will make it difficult for the Government to negotiate a customs union—or even the customs union, he said.

Another amendment would change the situation where, as it stands, the collection of taxes and duties on behalf of the EU would be banned unless there are reciprocal arrangements. 

Crossbencher Lord Hannay of Chiswick said anyone who seriously believes that preventing the British Government maintaining a VAT union and doing away with that which exists now will not put a huge amount of friction on our trade simply does not understand the realities. The VAT aspect is just as important as the tariff aspect and is separate from it, he said.

Lord Bates said the Government have been clear in their White Paper that the arrangement they are seeking will ensure that both the UK and the EU get their fair share of the revenues from the rest of world trade, and the Government have been clear that both the UK and EU should agree a mechanism for the remittance of relevant revenue. The Government has been clear that it is aware of the potential impact on businesses of any move away from the concept of acquisition VAT, he said.

The full session can read here.

By Hamant Verma.