Brexit: trade in goods Contents

Chapter 10: The Government’s view

Negotiating a FTA

292.Lord Price CVO, Minister of State for Trade Policy, Department for International Trade (DIT), told us that a UK-EU FTA would be unprecedented:

“What makes the EU FTA so unique is that we start from a point of no tariffs and complete conformity, with tariffs or different conventions applied at some point in the future. I do not think anybody is quite sure how that will work, because nobody in the world has ever done this before. We are doing the complete reverse of every FTA that has ever been done.”570

293.When asked about the feasibility of negotiating the UK’s withdrawal and the new trading relationship within two years, Lord Bridges of Headley MBE, Parliamentary Under-Secretary of State, Department for Exiting the EU (DExEU), said the Government was seeking to negotiate “an agreement that covers both … within the two years”. Thanks to the UK’s “unique position because of the way in which our laws and regulations are so entwined with one another … we see it being technically possible to do this”.571 Lord Price agreed, arguing that there was “certainly no reason why an FTA could not be negotiated within that timeframe”.572

A transitional agreement

294.In our report, Brexit: the options for trade, we concluded that a transitional arrangement would be essential. In her speech of 17 January the Prime Minister rejected a “form of unlimited transitional status, in which we find ourselves stuck forever in some kind of permanent political purgatory”, and reiterated that the UK and the EU must reach an agreement on their future partnership “by the time the two-year Article 50 process has concluded”. Rather than transition as such, she favoured “a phased process of implementation” of Brexit.573 This was reiterated in the Government’s White Paper in February 2017.574

295.On the distinction between a ‘transitional arrangement’ and ‘a phased process of implementation’, Lord Bridges told us: “An implementation phase is an implementation phase, and you could call a transition arrangement an implementation phase.” In many FTAs there was “a phase after the agreement has been signed in which businesses, legislatures and regulators have time to put in place what has been agreed. It is pretty much that simple.”575

296.We note that this issue is also of concern to foreign investors in the UK. Mr Koji Tsuruoka, Ambassador of Japan to the UK, emphasised the need for a transitional arrangement following withdrawal, as articulated in the Government of Japan’s open letter:576

“If there are changes that need to be implemented it is our hope that there will be transparency and an indication as to what will be implemented at some future time, with a time schedule. Companies will therefore be able to adopt a road map that has been made public and known, and they could adjust step by step. If it happens overnight and you say, ‘The world is now different. Unless you have satisfied A, B and C, your product will not be able to enter the market’, that will not be possible for anyone to address.”577

Resources and capacity

Staffing

297.In our report, Brexit: the options for trade, we expressed concern that Government would not be able to recruit the necessary additional skilled personnel and that the timetable decided by the Government was putting considerable strain on resources across government. Giving evidence to that inquiry in October 2016, Lord Price told us that DIT had around 110 staff working on trade policy. In February 2017, he said that number had risen to 185 staff.578 This number included “policy and country specialists as well as expert economic analysts and lawyers”.579 Lord Price estimated that by the end of 2017, “we will probably be at around 240 or 250”.580 DIT had “a lot of good-calibre people with experience in international relations”, and had advertised “for a government-appointed chief trade negotiator to advise on all trade deals. So we are now starting to beef up our capacity.”581

298.Similarly, Lord Bridges told us that there were now “300 very good people in DExEU”. He was “confident but never complacent”.582 DExEU was “also supported by 120 UKRep staff, based in Brussels, who report to FCO and DExEU Ministers”.583 Regarding the potential recruitment of UK staff currently working for EU institutions in Brussels, Lord Bridges said: “We have to be somewhat careful with our European partners so that we are not seen as trying to poach people, but we are making it clear that opportunities are available in the way that [Lord Price] explained. They are obviously a valuable resource.”584

299.An increase in staff numbers was important not only to DExEU and DIT, but to HMRC, in order to deal with an increase in customs controls for goods crossing the UK border post-Brexit. A joint customs consultative committee, consisting of 20 associations representing core business sectors and Government departments, was “working together to look at exactly the issue” of managing the increased need of staff.585 We noted in Chapter 6 that HMRC was considering its resourcing needs.

Processing

300.Lord Bridges told us that “if you look at our performance at customs internationally, you will see that actually HMRC does a good job”. He also stated that, of goods imported from non-EU countries, “92% of all declarations … are cleared for UK customs purposes in less than five seconds, and … 8% of goods are identified for further control requiring examination of paper documents or physical inspection.”586

301.Lord Bridges pointed out that a new IT system was being created—the Customs Declarations Services (CDS) system. This system was “planned before the referendum to increase the capacity of the current CHIEF system” (which we considered in Chapter 6), and should “make things quicker and easier to operate”. HMRC was “making every possible effort to make [the CDS] ready for operation in 2019”. The new CDS and the current CHIEF system “will be able to be run side by side, so we should be able to have the capacity”.587

302.Lord Bridges and Lord Price added that CDS “is being developed with appropriate mechanisms in place to ensure high levels of performance and resilience continue to be provided to users as HMRC moves from CHIEF to CDS”. In preparation for its launch, HMRC and the Home Office planned “a rolling programme of staff training in June 2017, with checks in place to make sure affected staff receive appropriate support in readiness for the operational use of the system”.588

303.When asked about the cost of the additional capacity for customs controls, Lord Bridges told us: “When we can provide figures, we will, and I am sure that there will be further added scrutiny, quite rightly, on this point when we introduce primary legislation on customs, which we have said we will need to implement.”589

Engagement with business and investors

304.Lord Bridges and Lord Price told us that the Government “will continue to build a national consensus around [the UK’s] negotiating position by listening and talking to as many organisations, companies and institutions as possible”. Their departments continued to have “open and honest conversations with businesses and trade associations to help limit uncertainty and ensure our future trading relationships work for them”, and such dialogue would be maintained.590

305.Ministers and officials in DIT were “working in a range of markets to promote the UK as a great place to do business and with which to trade”. Such discussions were undertaken informally through UK embassies abroad, with “embassies and High Commissions in London”, and through “official-level dialogues, and ministerial discussions”.591

Conclusions and recommendations

306.If the UK and EU are unable to agree a FTA within the two years provided for in Article 50 TEU, preferential terms for trade between the UK and the EU would cease, and WTO rules would apply. This can only be avoided by negotiating a transitional arrangement. Businesses, both domestic and foreign, would welcome such a period of adjustment.

307.We urge the Government to establish at the outset of negotiations a clear strategy for a future transitional agreement, with specific proposals as to what form it should take.

308.We welcome the Prime Minister’s commitment to a phased implementation of Brexit. We note, however, that this commitment is conditional upon the UK and EU agreeing a FTA within the two years provided for in Article 50 TEU. This is inherently ambitious, and there has been no indication so far that the EU is willing to contemplate such a truncated negotiation.

309.We are concerned that the introduction of a new IT system for customs—planned for the year that the UK leaves the EU—may add to the complexity of the trading conditions facing businesses in the wake of Brexit. We urge HMRC to ensure that the system is robust and fully tested before it is rolled out, to prevent further disruption to businesses.

310.We welcome the Government’s commitment to report to Parliament on the cost of new infrastructure and of additional staffing at customs posts.

311.We welcome the Government’s efforts to increase the promotion of UK trade overseas. We ask the Government to confirm that it is confident it has sufficient commercial staff in UK embassies overseas to promote the UK’s trade interests, in particular in comparison to the staffing of the embassies of other European countries.


570 Q 117 (Lord Price)

571 Q 118 (Lord Bridges of Headley)

572 Q 118 (Lord Price)

573 Theresa May MP, Speech on the government’s negotiating objectives for exiting the EU, 17 January 2017: https://www.gov.uk/government/speeches/the-governments-negotiating-objectives-for-exiting-the-eu-pm-speech [accessed 13 February 2017]

574 HM Government, The United Kingdom’s exit from and new partnership with the European Union, Cm 9417, February 2017, p 8: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/589191/The_United_Kingdoms_exit_from_and_partnership_with_the_EU_Web.pdf [accessed 10 February 2017]

575 117 (Lord Bridges of Headley)

576 Government of Japan, Japan’s Message to the United Kingdom and the European Union (4 September 2016): http://www.mofa.go.jp/files/000185466.pdf [accessed 13 February 2017]

578 Oral evidence taken on 13 October 2016 (Session 2016–17), Q 57 (Lord Price)

579 Written evidence from Lord Bridges of Headley MBE and Lord Price CVO (FTG0027)

580 121 (Lord Price)

581 Ibid.

582 118 (Lord Bridges of Headley)

583 UKRep is the UK Permanent Representation to the EU. Written evidence from Lord Bridges of Headley MBE and Lord Price CVO (FTG0027)

584 121 (Lord Bridges of Headley)

585 Q 110 (Lord Bridges of Headley)

586 Ibid.

587 Ibid.

588 Written evidence from Lord Bridges of Headley MBE and Lord Price CVO (FTG0027)

589 Q 110 (Lord Bridges of Headley)

590 Written evidence from Lord Bridges of Headley MBE and Lord Price CVO (FTG0027); Details of ministerial meetings are published in the Department’s Quarterly Transparency Returns, which are publicly available on GOV.UK.

591 Written evidence from Lord Bridges of Headley MBE and Lord Price CVO (FTG0027)




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