European Union (Withdrawal) Bill — House of Lords, 2018-04-18
Topic: Foreign Trade
John Kerr (Crossbench, Unknown): My Lords, the Eugene O’Neill play "Long Day’s Journey Into Night" is very good, but it does go on a bit. We have already had 13 long days and 372 amendments, which at least enables us to be quite brisk and brusque at this stage. The arguments have all been advanced already, and it falls to me to speak to Amendment 1, in my name and those of the noble Lord, Lord Patten of Barnes, and the noble Baronesses, Lady Hayter and Lady Ludford. The amendment is a call to the Government to explore a customs union I intend to distil simply five points out of our previous debate—five arguments for a customs union. The first argument is that made by manufacturing industry, and it does not need repeating: it has been made very clearly in our debates and in public debate, and has been supported strongly by the CBI and the TUC. We know what Airbus Industrie thinks and we know of its worries. We know about the motor industry’s worries. We know that 60% of a UK-built motor car consists of components that come into our country. The motor industry believes that, if those components came across a customs frontier, its costs would rise by between 5% and 10%, which is serious. We know from the Government’s economic analysis that the hit on manufacturing would represent, over time, 1% of GDP. That case does not need to be explained any more Secondly, the case for export to the European Union explains itself too. Fifty per cent of our exports go to the European Union—indeed, 70% of our agricultural exports. The Government are rightly concerned not to introduce new frictions in this trade, but a customs frontier is an inevitable friction; the delay, not just at the Irish frontier but at Dover and elsewhere, would be considerable and would have considerable costs. The Government are right to minimise frictions, not just for that reason but because to replace trade with the European Union with trade further afield will not be an easy task. A further 20% of our exports go to countries which have preferential arrangements with the EU or are negotiating them, including 60 free trade agreements, 32 of which are with Commonwealth countries. To simply replicate such preferential arrangements when we are out on our own, representing a smaller market—offering the concession of access to a smaller market—will not be child’s play, as the Australians and New Zealanders have already demonstrated to us through their demands on agricultural quotas. If we look at America—which accounts for 15% of our exports today—and the TPP, TTIP and NAFTA sagas, or listen to the inaugural speech with its paean for protectionism, we can see that that will not be easy The further afield you go, the more difficult it gets. The population of Canada is three times the population of Switzerland but we sell twice as much to the Swiss because they are closer. The ineluctable rule is that as distance doubles, trade halves. I am talking about trade in goods, but it is a fairly standard rule. So it is well worth looking further afield, but it will be hard not to see a fall in overall exports if our trade with the European Union is made more complicated, and it will be much more complicated if we do not have a customs union. We must try to limit the damage of leaving our largest, because closest, market My third point is about the nature of customs union, and here I will admit the downside of customs union. It is about goods, not services, and it would prevent us abolishing our tariffs on imports into this country. It would prevent us doing what Professor Minford wants to do, and that is, for some, a serious downside. I do not believe that the Government intend to follow Professor Minford’s prescription. I do not think the Government intend to take us to a tariff-free, low-welfare, low-tax, low-regulation, low-standard sweatshop economy. The Prime Minister has been pretty clear that she is not planning to do that More importantly, as I said, the customs union is only about goods—it is not about services. It would leave us entirely free to go on doing our trade promotion, as we do now, but also to negotiate new arrangements for trade in services, investment protection, remittance of profits, intellectual property, data protection, access to government procurement—all the new ideas and new issues which are now much more important in trade negotiation than tariffs. Therefore, there is very little economic downside to customs union. It would stop us doing what no sane Government would want to do and would in no way inhibit us from doing what every Government would want to do The fourth issue is the Irish border. Even if cross-border trade is tariff free, as I hope and believe it will be, rules of origin, phytosanitary and other checks will require a hard border. They will make that inevitable unless we have a customs union. A customs union is not in itself a sufficient condition for an open or soft border—there will still have to be a degree of regulatory alignment, particularly in the agricultural sector—but it is a necessary condition for an open border.