Rt Hon Lord Lilley

    Peter Lilley Conservative, Hitchin and Harpenden  2:25 pm, 15th June 2016


    It is a great pleasure—a nostalgic pleasure—to follow Mr Clegg. He reiterated the fears he first enunciated in relation to our leaving the exchange rate mechanism, and those fears proved to be wrong. He next enunciated those fears in relation to our not joining the euro, and they proved the reverse of the truth. It is nostalgic to hear him recycling his damaged goods again today.


    It is even more of a pleasure to follow my right hon. Friend John Redwood. He and I worked together at the Department of Trade and Industry. I think I am the only serving Member of Parliament, apart possibly from the right hon. Member for Sheffield, Hallam, who has experience of successfully negotiating an international trade deal and of introducing, with my right hon. Friend the Member for Wokingham, the single market programme into this country.


    We have that experience, and I want to apply it to some of the arguments because on this issue, as on most issues, I find that when we in politics do not have that experience, we simply adopt the most plausible argument that supports our case. By and large, that is what happens on matters of trade and economics in this House, because there is so little experience of them. In a way, I am a member of an endangered species as one of the few Members who has such experience.


    Let me first take the very idea that trade agreements are necessary and essential for trade. I hate to say this, because I have a vested interest in claiming to have experience of these things, but trade agreements are less important than people imagine. That is particularly the case for agreements between developed countries, largely because of the success of the Uruguay round, which brought down tariffs between developed countries to negligible levels. The average WTO tariff that would apply to British exports to the EU, in the almost inconceivable circumstance of our having no free trade agreement with it, would be 2.4%. It is better not to have it and I would rather not have it, but compared with the movements in the exchange rate, it is negligible or much less important than it is made out to be. The only important trade deals are those with fast-growing markets in Asia, Latin America and Europe that still have high tariff levels, and we ought to be looking to negotiate trade deals with those markets.


    Bob Stewart Conservative, Beckenham

    I entirely agree with everything my right hon. Friend has said. We have not so far discussed the fact that people want our market just as much as much as we want their market. It takes two to tango in any trade deal, and trade deals will go on regardless.


    Peter Lilley Conservative, Hitchin and Harpenden

    My hon. Friend is absolutely right. Trade deals take place because they are in the mutual interests of both parties; they are not military conflicts. They take place between two parties, like trade itself.


    A very plausible but incorrect argument is that trade agreements always take a long time. When the Secretary of State for Foreign Affairs was asked whether Ministers had done any study of trade agreements, he sidestepped the question. A freedom of information request has actually revealed that neither the Treasury nor the Government have done any study of the trade agreements about which they talk so knowledgeably. However, such studies have been done. I refer to the study by Professor Moser of the Centre of European Union Studies in Salzburg of every single trade agreement in the past 20 years. There are 88 of them. They took an average of 28 months, but the time for each varied greatly. The deals that took a long time were those that involved lots of countries, which certainly concurs with my experience. Of course, by definition any EU treaty involves 28 countries and takes a long time, because all 28 have vetoes. A lot of EU treaties are being held up now, but bilateral treaties take less than that average of 28 months. We should not start deluding people into thinking that it will take a long time to negotiate bilateral deals with countries that already have bilateral deals with Switzerland, for example.


    The right hon. Member for Sheffield, Hallam asked rhetorically whether anyone was queueing up for trade deals with us. Well, look not for what they say but what they do. Switzerland has trade deals with countries whose total GDP is four times that of the countries with which the EU has trade deals. Chile has trade deals with countries whose collective GDP is even bigger. Switzerland has a trade deal with China. We are told that it is a bad deal for Switzerland, but clearly the Swiss did not think so. The Swiss published the details of the deal online; Members can look at it themselves. By the time the EU even gets around to negotiating a trade deal with China—which by the way will never succeed because the EU will always insist on human rights terms the Chinese will not accept—the Swiss will have zero tariffs on the vastmajority of their exports to China.


    Mark Pritchard Conservative, The Wrekin

    My right hon. Friend is a distinguished former Trade Secretary so knows what he is on about. We come from different sides of the debate on this issue, but does he—with all his experience and wisdom, and all his contacts both in the Commonwealth and the European Union—accept this point? Brexiteers invoke the Commonwealth leaders as wanting to do business with Britain whether we are in or out of Europe. Is it not the case that Commonwealth leaders want a trade deal with the whole of Europe, not just with the United Kingdom?


    Peter Lilley Conservative, Hitchin and Harpenden

    They probably want trade deals with whoever they can negotiate sensible ones with, if they are sensible. They will not say that it is either/or; they will want a trade deal with us, because we are the fifth biggest economy in the world, and they will probably also want a trade deal with the EU. They will find, however, that that deal takes a very long time because all 28 countries will have to agree to it first.


    It is often suggested that the EU will get better deals because it is bigger. Actually, not only is it more complicated to do those deals with lots of countries, and so takes longer, but the result is worse and less comprehensive, because there are 28 times as many exceptions and exclusions. They are even less likely to be in the UK’s interests, as we can see from what has happened so far. A third of the trade deals that the EU has negotiated with other countries do not include services. As has been repeatedly stated, services are very important to this country, but they are less important to the rest of the EU, so it does not bother to include them in the deals. Switzerland also attaches great importance to exporting services, so more than 90% of its trade deals include them—as of course would ours if we were independent and making our own deals.


    Kevin Hollinrake Conservative, Thirsk and Malton

    My right hon. Friend has mentioned Switzerland quite often. Switzerland is part of the European economic area, but still locates its banking services in London so as to access the rest of the European Union through passporting agreements. Does he have a solution to that difficulty?


    Peter Lilley Conservative, Hitchin and Harpenden

    Switzerland moved its banking centres to London post big bang and before the single market. I negotiated the second banking directive, which introduced passporting for banks. I was very proud of it, and subsequently wanted to make a speech saying what a wonderful thing it was, and how wonderful the single market programme was, so I asked my officials to find examples of banks and other businesses that were doing things that were made possible by the single market programme and that sort of passporting. They could not find a single one. Nearly all banks trade through subsidiaries, so do not take advantage of passporting, which allows operation through a branch rather than a subsidiary, regulated by the British financial authorities rather than those in the country in which they operate. I will perhaps come on to other aspects of the passporting issue if time permits.


    Barry Gardiner Shadow Minister (Energy and Climate Change)

    I always listen very carefully to the right hon. Gentleman. He has made a very strong point about the difficulties in negotiating with a large trading bloc of 27 nations, including the time it would take. Why then does he feel that it would be possible, in short measure, for the UK to re-establish its trading relations with an EU of which we were no longer a part? He has made a very compelling case for why it would not be.


    Peter Lilley Conservative, Hitchin and Harpenden

    That is a very good point that I was going to come on to. It takes quite a long time for the EU to negotiate a trade deal with Canada, for example, because each country has tariffs against the other, and different product specifications and so on. Each has to trade off, say, a cut in tariffs on steel against one in tariffs on leather goods. We can see how that could take a long time, particularly if there is not much enthusiasm for it. We would start negotiating with the rest of the EU with zero tariffs on both sides and with common product standards. Zero to zero can be negotiated in a fairly short space of time, I would have thought, compared with the time needed when 10,000 different tariff lines are involved, as in other tariff agreements. It should not take long to negotiate a continuing free trade deal, with good will on both sides.


    Barry Gardiner Shadow Minister (Energy and Climate Change)



    Peter Lilley Conservative, Hitchin and Harpenden

    I am afraid the hon. Gentleman has burned his boats.


    Another myth, which I am afraid has been proffered by my right hon. Friend the Foreign Secretary, is that we will need to renegotiate trade agreements with all the countries with which the EU currently has trade agreements. That is not the case. There is an accepted principle in international law called the principle of continuity: if a political unit splits into parts—as the Soviet Unionor Czechoslovakia did, for example—the component parts continue with the same agreement unless one party objects to it. There is absolutely no reason to suppose that the countries with which we are currently party to free trade agreements will want to end those agreements when we leave. For example, when the Soviet Union broke up it was not a member of the WTO, so had traded under separate trade agreements with other countries. Those trade agreements migrated by agreement, so that within weeks even America had migrated its agreement to Russia and other successor states. There is absolutely no reason—


    Angus MacNeil Chair, Energy and Climate Change Committee

    Will the right hon. Gentleman give way?


    Peter Lilley Conservative, Hitchin and Harpenden

    I am sorry, but I am under pressure to finish.


    I will say one final word, on the single market. It is often talked about as some arcane inner sanctum. It is simply the European market. It is like the American single market. We have no agreement with the American single market, and are not members of it; none the less, America is our biggest trading partner nationally in the world. The introduction of the single market consisted simply of standardising the product specification, so that instead of having to have 28 different ranges of refrigerator, lawn mower or whatever, we have one.


    That is very sensible. It is also just as much of an advantage to an exporter from outside the EU exporting refrigerators or lawn mowers to it as it is to member states within it. In fact, others outside the EU have taken more advantage of it than we have, and their exports have gone up more than ours, perhaps because they have to bear the burden of EU regulations only on those aspects of their activities carried out within the EU, not on 100% of their firms. That is another aspect of the benefits we would get from leaving, along with our ability to negotiate free trade agreements with the fast growing but protected markets of the world on which our children’s futures will depend.