My Lords, I shall speak to Amendment 89 to which I had the privilege of adding my name. I want to draw the House’s attention to that amendment because it addresses a constitutional issue. We are back to the issue of Henry VIII powers. This is to prevent the Government using Henry VIII powers in statutory instruments in order to drive through a separation from the customs union and from the single market rather than bringing those issues directly to this House for its decision. That is exceedingly important.
In supporting that argument, I want to underscore the importance of the customs union and the single market in response to the arguments put forward by the noble Lord, Lord Lamont. He said that without the customs union we can achieve what we need through a free trade agreement. What he did not say is that free trade agreements do not include services—or do so only at the margin. Our economy is an 80% service economy and a free trade agreement along the pattern
and lines of other free trade agreements across the globe would leave us without the ability to sell our services freely as we do today across the European Union. Now the single market in services is not yet complete, but it is fairly close to completion and there is a great deal of opportunity.
The Government turn and occasionally say that there will be a mechanism to do this called mutual recognition. But within this House there are Members who will remember in the early days of Thatcher the development of the single market. This country thought that the route to be able to open up the single market and access across Europe was mutual recognition. But it was not effective, which explains the move towards regulation and harmonisation that currently overwhelmingly underpin our trade with the EU.
The EU has been very clear that it cannot see a way forward along the lines of mutual recognition except in fairly narrow terms. We have an example that the Government often cite with Switzerland where there is in effect mutual recognition through an equivalency agreement. But in December, when that agreement needed to be extended to provide for MiFID II, the EU would agree only to a one-year arrangement because it needed to be underpinned by a great extension of institutional arrangements to deal with disputes and a whole range of other issues.
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The notion that a mutual recognition system is available without the creation and adjustment of a whole series of institutions is extraordinary. Barnier has been fairly clear that he might be able to get one or two countries to vote for such an arrangement, but the chances of getting all 27 and their regional governments to vote for fundamental changes in EU institutions to accommodate a mutual recognition environment that the UK thinks is so easily available is completely impossible. That is why he repeats that, essentially, financial services with free access across the EU is not possible and that applies to the range of services. There is a critical issue here that affects our future relationship and our trade, and although someone like the noble Lord, Lord Lamont, says that this is all solved by a free trade agreement, it absolutely is not. In fact, the core issue is not addressed at all.
The noble Lord talked about the customs union. The only real issue if we have a different arrangement—and I say this to the Labour Front Bench as well, which wants to go from “the” customs union to “a” customs union—is with rules of origin. Let us not dismiss rules of origin so immediately and quickly. Members of this House will have talked with companies such as the automotive companies, and asked them what the costs would be for non-tariff barrier rules of origin declaration requirements whether done through pre-clearance, at a border or whatever else. The number that I keep hearing—and I am happy for the Government to correct me because they must have explored this number—is that it adds to costs somewhere in the range of 3% to 4%.
When I was a Minister in the Department for Transport and talked with some of our automotive companies, I asked one of them how it was successful in winning investment from its parent company to put
in a new production line, which had to be on a competitive basis against factories all over Europe. I asked by what margin they won that particular investment and was told that it was roughly under 1%. If a bid to get foreign investment into a new factory or production line here is on such a narrow margin and we are knowingly putting in place a burden that runs to a 3% or 4% benchmark, the economic consequences are huge. Rules of origin are not to be trivialised and tossed away as if this were some sort of barrier that we can talk ourselves out of.
I can humanise this in a particular way which addresses the Irish question. I was over in Dublin and the border country with some of my colleagues a couple of weeks ago. I did not understand until I went there that the economy of the island of Ireland has fundamentally changed in the past four or five years. It is now a single economy. There are mergers, acquisitions, and movement by companies. It functions as one single economy. I have a small example. I talked to a gentleman who sells stationery in Northern Ireland. The only wholesaler of stationery is in the south. Every week, a little van comes up to bring him his supplies. He has investigated rules of origin and every possible mechanism to find a technological answer—the same experience discussed by the noble Baroness, Lady Kennedy—to complete the necessary declarations for his van load. He has come to the conclusion—and if the Minister has a better number he can tell me—that every category of declaration will cost him roughly £40. So, six staplers in the van will cost £40; 10 boxes of copier paper, £40; two filing cabinets, £40 and five boxes of pencils, £40. Noble Lords will get my point. Every single item needs a separate declaration, and as far as he is concerned it means that he is out of business.
I talked with the owners of other small businesses who said exactly the same thing. If a clothing shop sells the suit that the Minister is wearing, that will cost £40. If it sells the suit that the noble Lord, Lord Forsyth, is wearing, that will be another £40 because of the different fabric and style, and the same applies to the suit being worn by the noble Lord, Lord Lamont. Understanding the impact of this is absolutely necessary and I do not believe that we should be able, through statutory instrument, to make those kinds of changes. I hope very much that this Committee will stick on them.
I want to pick up on the India issue. We quickly googled this to make sure that we have fully understood the point made by the noble Lord, Lord Patten. The EU was indeed close to making a free trade agreement with India, but it was not just the UK Government who stood in the way, it was Theresa May herself. She refused to agree to the visa arrangements that were acceptable to the Indian Government. This is the same Theresa May who sits there today and makes the same statements about immigration that she has made in the past and repeats the same commitments to reducing immigration. The Government have to accept that they are making offers which they are not willing to actually fulfil. I hope very much that we will pay attention to the detail and to the amendments.