Trade Bill — House of Lords, 2019-03-06
Topic: Foreign Trade
Andrew Lansley (Conservative, Centre-right): Amendment 10 stands in my name and that of the noble Lord, Lord Stevenson. In Committee, we did not discuss what tariffs the United Kingdom would apply if we were to leave without a deal with the European Union. Since Committee, although Ministers have not published a proposal—notwithstanding some hints that they would—we are told something about it by virtue of reporting by Sky News. I do not know whether that is true or not; I tend not to rely on media reports for these purposes. As it happens, I tabled Amendment 10 before Sky News started reporting anything of this kind, because it seemed that noble Lords would want to talk about what such a tariff structure might look like This amendment relates to the implementation of import duty under Section 8 of the Taxation (Cross-border Trade) Act 2018. There are regulation-making provisions in Clause 32 of that Act, which specify that the first regulations under the Act require an affirmative procedure in this case, and that the affirmative procedure should also be used when there is an increase in duty in the standard case. For these purposes, "standard case" means when there is not a preferential rate or a tariff-rate quota, or when something is not subject to trade remedies. In that sense, it is what my noble friend referred to in the last group as an "MFN rate". That is the standard case for these purposes The provision currently says it would be an affirmative procedure when there is "an increase in" that duty. The effect of Amendment 10 is to change that, so that it would be an affirmative procedure for any regulation that sought "to vary" the rate from the rate set in the schedule notified to the WTO. One of the points I hope to make is that this enables us to say something about the shape of how we might approach the situation if there is no deal. If we remain in the transition or implementation period, we will clearly abide by the EU external tariff. Depending on the nature of the future relationship with the EU, we may continue to be within a single customs territory and, by implication, within a single EU external tariff. That does not necessarily reflect the Government’s point of view, because they appear to want to be able to reduce tariffs below the EU rate, even though we remain in a single customs territory. This is a debatable proposition, which we will perhaps debate later but not on this group In this amendment, there is an expectation that, if we leave without a deal, we will start with our schedules to the WTO being those that we have notified—as I said right at the beginning of our proceedings today, in response to the noble Lord, Lord Kerr. They are essentially in line with the EU external tariff. My proposition is that there is no need for this; indeed, there would be significant detriment if we did not maintain those schedules. Under the WTO rules, we should have what is known as a bound rate, which is in line with the EU external tariff. The bound rate is the one that we are, in this sense, bound not to exceed. However, that does not mean that that is the rate that is applied. It is not widespread, but it is entirely normal practice under the WTO rules to have not only free trade agreements of the kind which are contemplated under Article XXIV, which lead to preferential arrangements, or the kind of preference scheme that we were just talking about for the less developed countries, but also to apply a rate of duty that is lower than the rate which one is bound to under the schedules for the WTO The proposition I put to your Lordships is that we should be thinking constructively about how to use the flexibility under the WTO rules to vary the applied rate of tariff from the bound rate, if we were in the unhappy circumstances of leaving without a deal. We would leave the bound rate, the WTO schedule and the EU external tariff where they are, in the expectation that, even if we leave without a deal, we may enter into a relationship with the European Union with a customs relationship which might require us not to vary from the EU’s external tariff—we would just leave that alone for the time being. In the short term, this would enable us to reduce tariffs on products from around the world which are presently subject to a higher tariff or to tariff-rate quotas. It would enable us to offset what is otherwise a significant risk of overall price increases for UK consumers The reasoning of course is that the EU will not change its external tariff. If we leave without a deal, we will be subject to the EU’s external tariff. Roughly half of our imports come from the European Union; a significant proportion of those—for example, cars—will have a 10% tariff applied. To turn it the other way round, UK producers would be in the unhappy position of being subject to increased costs when they try to sell. What we do not want to happen is that, simply by virtue of leaving, we impose high tariffs, leading to higher costs for UK consumers When people have speculated about what the tariff on a no-deal basis might look like, in some quarters they have tended to say, "We cannot lower our tariffs because the consequence of that is that we will have given something away unilaterally, which would prejudice our ability to enter into bilateral trade deals with other countries". This is not the case. If we proceed by having an applied rate that is lower than the bound rate, first, it will become apparent to us and other countries to what extent liberalised, lower rates of duty stimulate imports from those countries, in some cases in competition with the EU at a level of duty which it has not been able to match in the past. It will begin to tell countries, and us, what the impact of lower rates of duty might be on trade between those countries Secondly, those countries would know that, if no bilateral deal was brought to a successful conclusion which then gave a preferential rate of duty to the United Kingdom under a free trade agreement, we could restore our applied rate back to the bound rate. They would then lose the benefit we had given them in the short run. In a nutshell, the short-run benefit of lowering tariffs not only potentially offsets what might otherwise be price increases but enables us to demonstrate to other countries what the benefits of a bilateral deal in the long-run might look like My expectation, and the expectation of most developed economies, is that the bound rate and the applied rate will converge in the long run. They are generally the same thing, but we are not required to have them as the same thing. It gives us an opportunity to vary rates and see what the future might look like. In the short run, it also gives us the opportunity to vary the rates of duty from those in the EU tariff to give specific benefits on things such as agricultural products or some industrial products where the protection that is required for European producers does not apply to UK producers. In that way, we can start to benefit from lower rates of duty where the European Union does not currently offer that option to us.