Preferential rates: arrangements with countries or territories outside UK

Part of Taxation (Cross-border Trade) Bill – in a Public Bill Committee am 2:15 pm ar 25 Ionawr 2018.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Peter Dowd Peter Dowd Shadow Chief Secretary to the Treasury 2:15, 25 Ionawr 2018

My new clause 2 would require a vote in the House on regulations that lower import duties as a result of an arrangement between the Government and another country. I will wrap that up with speaking to the clause in general, with your permission, Mrs Main.

The powers the Government have given themselves under the Bill to offer preferential rates to other countries through free trade agreements, and with no regard to the House of Commons, should concern us all. I will return to time after time to the theme of parliamentary accountability. The lowering of import duties, if done carelessly and without consultation of key industries, can have disastrous economic consequences that can destroy whole sectors and cost jobs and livelihoods. The Government have made it clear that this is a money Bill, as I said earlier, and will therefore not be subject to further scrutiny.

In that regard, the raising and lowering of tariffs are in effect the taxation of goods coming into the country. As far as I am concerned, it is crucial that we maintain frictionless negotiation of free trade agreements, instead of risking the scenario that I am afraid the Bill will almost inevitably enable or provide for. It appears that the powers outlined in the clause, as in other clauses, comprise a huge accretion of power to the Treasury, which will give it a hegemony in Parliament, notwithstanding the issue of negative or affirmative resolutions. Ministers will be left to their own devices to introduce regulations where they see fit, with no parliamentary oversight of any significance, and no requirement to consult industry or the relevant stakeholders that the changes will affect. Similarly, there is no inkling about what considerations or conditions the Treasury will agree to when it comes to entering into preferential rate agreements, particularly whether industries will be protected by the use of quotas or rules of origin.

There are two types of rules of origin: non-preferential rules of origin, which apply under World Trade Organisation rules in the absence of a preferential trade arrangement—for example between the EU and the USA—and preferential rules of origin, which apply to countries that have concluded a preferential trade arrangement. The latter apply to trade with countries with which the EU has an FTA, such as South Korea and Switzerland, and to non-EU members of the EEA, such as Norway. Under such agreements, only originating products are given preferential tariff treatment. Each preferential agreement specifies a set of rules of origin, which has a direct impact on processing times, customs duty and, perhaps just as importantly, the domestic market. That was touched on in some detail in the witness evidence.

Preferential trading agreements generally specify a minimum percentage of own-origin product for a product to qualify. The calculation of own-origin is currently EU-wide. Post-Brexit, unless an appropriate arrangement is reached with the EU, it will be only UK-produced components that will be deemed own-origin. That could cause a problem for the car manufacturing industry, where it is normal in the sector for a country to have 60% of own-origin product in the export content. In the UK, that is usually around 10%, with a maximum of about 43%. Therefore, will we be able to deem UK car parts as UK origin?

Similarly, in relation to our future trade deal with the EU, the question of preferential rates is important when considering the proof of origin. Leaving aside the obvious difficulties of consignments that incorporate parts that are sourced from multiple countries when certifying origin, once the UK leaves the EU, it is highly possible that the UK and the EU could differ on the preferential duty rates that they give to products from certain countries, and they would need to document the origin for that purpose.

Let us consider for a minute an export situation where a UK business is exporting goods to a customer in a country that allows preferential duty rates for goods of EU origin, but not to the same extent for the UK. The foreign customer would demand that the EU origin of any included parts is certified, so that they can at least pay some at the lower duty rate. The UK business would then need to ensure that it gets that EU origin certified to pass the certification to its foreign customer. The rules of origin that the Treasury will set through regulation alone present huge difficulties for stakeholders in the UK, who will have to face the challenge of deciding whether qualifying as EU origin will be more important than qualifying as UK origin. This consideration will likely be based on where manufacturers’ key markets are.

The second difficulty will be in the reorganisation of manufacture supply chains, moving either from Europe into the UK or out of the UK. Again, that will depend on how UK manufacturers currently structure their business and the agreements that the Government reach with the EU and other countries. In both these instances, there need to be clear lines of communication between the Government and UK manufacturers and producers. We keep coming back to the point made by the hon. Member for Aberdeen North. Her amendment would have required the Treasury to consult relevant stakeholders and it is regrettable that it failed. I hope the Government take on the spirit of her suggestion.

The consideration of concerns of key stakeholders could be the difference between the Treasury issuing a preferential rate that upends a whole industry and costs the UK economy thousands of jobs, and the Treasury pausing and choosing not to follow through on that. If the Treasury was forced to consult with key stakeholders, for they would have an opportunity to make the case against whatever crude economic test the Treasury has set. After all, UK manufacturing remains a huge employer, employing 8% of the UK workforce, amounting to almost 3 million jobs. Those jobs are distributed across the country and are in key industries such as minerals and ceramics, paper, steel, glass and glass products, chemicals and other fertilisers. We had representation just two days ago from witnesses who were deeply concerned for their industries, including steel, which my hon. Friend the Member for Scunthorpe is also deeply concerned about. Ideally, the Opposition would favour a mechanism of consultation that goes beyond written evidence. We would like to see a situation where Ministers consult in a much wider sense—I take that point.

As far as we are concerned, as we leave the European Union and undertake free trade agreements with countries all over the world, we want to avoid situations where arrangements do not work—a situation that could see the UK Government negotiate a free trade agreement with America, with part of the agreement being a preferential rate being given to US machine parts entering the UK. While the Treasury may see the economic benefits of businesses being able to access cheaper machine parts, in that scenario it does not take the consideration of UK machine part suppliers into account. The UK machine part suppliers are then undercut by the flooding of cheap machine parts from the US. That in turn would lead to job losses, and the loss of a whole industry and all the knowledge and skills that go with it. We have seen so much of that over the past three decades, and the Bill potentially makes the situation worse.