Progress with trade negotiations

The Department has not set out how it will measure the benefits and outcomes of its programme of trade negotiations. The Department has published impact assessments, including projected economic benefits for each of the new FTAs it is pursuing, and has set out metrics that aim to demonstrate its progress in securing trade agreements in its Outcome Delivery Plan (ODP). However, the ODP measures projected, rather than secured, benefits and outcomes of each concluded trade agreement, and the Department has not set any associated targets. The Department acknowledges that these are forecasts and also that they do not cover potential wider benefits of trade deals such as productivity or geo-political impacts. It has committed to publishing regular monitoring reports for the new trade agreements with Japan and Australia and conducting comprehensive evaluations within five years to assess what has actually been achieved. However, we are concerned that without outcome-based targets, Parliament will not have the information it needs to hold the Department accountable. When considering this, the Department may 6 Progress with trade negotiations wish to emulate the six-monthly reporting exercise now being undertaken by the Department for Transport in relation to High Speed 2 following recommendations from this Committee. Recommendation: The Department should develop a set of clear and measurable outcome-based metrics with targets for its programme of trade negotiations. It should commit to regular reporting of progress to Parliament, including actual benefits and value achieved versus initial forecasts.

The Department is not doing enough to help businesses, particularly SMEs, to take advantage of opportunities offered by new trade agreements. Businesses need to understand and take advantage of the opportunities arising from trade agreements if agreements are to deliver their predicted benefits. However, UK businesses’ use of existing agreements may be relatively low. For example, less than a third of surveyed UK businesses knew whether the goods they most frequently exported were eligible for reduced customs duties. We raised concerns in 2020 that the Department was not doing enough to support small and innovative businesses to export. The Department’s November 2021 export support strategy sets out a new approach, aiming to bring its export support services together in one place. To promote the new agreement with Japan, the Department conducted a virtual trade mission with around 250 businesses, but it could not tell us if this event had led to new export opportunities. Recommendation: The Department should write to the Committee within 12 months to set out how it has supported businesses, particularly SMEs, to take full advantage of existing and newly negotiated trade agreements. It should: i) regularly measure and report the preference utilisation rate for UK exports (the rate at which exporters use preferential tariffs) for each of its trade agreements; ii) consider how it can reduce burden and costs for SMEs; and iii) set out initial progress with its new export strategy.

The farming industry has concerns about the effect of significant competition from imported Australian meat, and there is a lack of clarity on the potential environmental impacts from increased trade with Australia. The FTA with Australia signed in December 2021 removed tariffs and quotas on many agricultural products imported from Australia. There are four safeguards to protect the agriculture sector, including a 15-year safeguard to protect UK beef and lamb from a rapid rise in Australian imports following implementation of the deal. The Department says that the safeguard is adequate given the length of the transition period and because the increase in imports is expected to be small relative to the size of the UK market. However, the National Farmers Union remains pessimistic about the impact of competition from Australia on farmers who may lose out in exchange for gains in other areas of the economy. Defra expects imports from Australia to largely displace existing imports, for example from the EU, and says that it is doing a lot to help the agriculture sector export, such as setting up a food and drink export council. The Department and also Defra tell us that they have modelled the environmental impact of the deal with Australia, and do not expect there to be Progress with trade negotiations 7 changes in greenhouse gas emissions of UK production, or that transporting goods from Australia will have a big impact on carbon emissions when compared to other parts of the production process. However, the departments acknowledge that more needs to be known about carbon emissions and the interaction between transport and trade. Recommendation: Defra should work with the Department for International Trade to monitor the impact of free trade agreements in its policy areas. In particular, it should: i) monitor imports closely to make an ongoing assessment of the impact of the Australia FTA on beef and sheep farmers, and set out what support could be provided to those farm

Parliament and the public are not being provided with clear and transparent information to understand the impact of trade agreements. Business associations and consumer groups are concerned that it is unclear how trade policy aligns with other policy objectives, and how any trade-offs required may impact on the groups they represent. The consumer group Which? has found that consumers have limited awareness of the status and implications of trade negotiations. Although the Department says it has found that the public is highly supportive of its trade agenda, we are not convinced that the public has significant knowledge and interest in trade agreements. The Department does recognise that it faces a challenge in how it communicates important information to Parliament and the public on what it is doing on trade agreements and why. In addition, the Department could not explain why, in its impact assessments of the agreement with Australia, the projected value of UK exports to Australia increased by more than 600% between June 2020 and December 2021 (from £900 million to £6.2 billion). It thought that the rise was probably driven by a change in the methodology it uses to forecast economic benefits, but could not be more specific. Recommendation: The Department should improve transparency and communications around trade agreements and their impacts, to aid understanding and inform scrutiny. As part of this exercise, it should: i) explain clearly to Parliament and the public the policy trade-offs, particularly in relation to human rights and environmental priorities, in new FTAs and the potential impact for sectors, businesses and individuals; and ii) set out clearly the factors and underlying assumptions driving any changes in the forecast benefits. 8 Progress with trade negotiations

The Department has not done enough to support effective Parliamentary scrutiny of trade agreements. Despite the Department making additional commitments beyond the statutory framework, the International Trade Committee has not been provided with information from the Department in sufficient time to enable it to perform its scrutiny function effectively. For example, although the Department shared the final agreement with Australia three months ahead of the statutory process for Parliamentary scrutiny, this still makes it difficult for that Committee to consider and produce a report for Parliament in time for it to have an impact. It would also be easier for Parliament to scrutinise trade agreements if it had sight of the negotiating objectives at the outset. There is a precedent in Parliament where government has provided privileged information to the Committee and to other select committees. The House of Lords International Agreements Committee has also called for Parliament to have a stronger formal role earlier in the process and for provision of the agreement text prior to signature. Recommendation: The Department should make further commitments that would support robust and timely Parliamentary scrutiny. These should include providing the International Trade Committee and the House of Lords International Agreement Committee with the negotiating objectives, under privileged access, at the outset of the negotiations, providing oral updates at regular points on a trusted basis, and sharing any other key information in sufficient time for scrutiny. Progress with trade negotiations 9 1 The trade negotiations programme

On the basis of a report by the Comptroller and Auditor General, we took evidence from the Department for International Trade (the Department), the Cabinet Office and the Department for Environment, Food & Rural Affairs (Defra).2 We were also joined for this evidence session by Mark Garnier MP and Anthony Mangnall MP from the International Trade Committee.

In addition to the programme of negotiations, the Department also needs to implement and review existing agreements.14 The Department told us that it has set up governance committees to provide an overview of how FTAs are being implemented in practice and to discuss issues arising. However, these implementation processes are at relatively early stages.15 We asked the Department about the work it may need to do to renegotiate the continuity agreements that the UK was originally party to as an EU member, where the EU may have made certain concessions without any benefit to the UK. The Department told us that the picture is mixed, and with some of these agreements, the UK made a clear commitment to come back to the overall deal to consider further opportunities. These include Canada and Mexico (where the Department has already run consultations), and South Korea, Turkey and Switzerland, but the Department said that it is not the case that every country wishes to re-negotiate existing agreements.16 However, we note the important point that the Department’s workload is more than the headline negotiations.17

The Department aims to secure agreements with countries representing 80% of total UK trade by the end of 2022. This aim is stated in the Department’s 2020–21 annual report and accounts and is a government manifesto commitment. The National Audit Office (NAO) report stated that 64% of total UK trade is covered by trade agreements, including agreements in principle, and the UK’s Trade and Cooperation Agreement with the EU which represents 47% of UK trade.18

We noted that the Department is quite a long way from reaching the 80% target and asked the Department when it expects to meet it. The Department told us that it thinks it will reach the 80% target but that the timescale will be challenging.19 The NAO found that joining the CPTPP and a new agreement with India would represent 0.4% and 1.5% respectively.20

A deal with the US would contribute 16.8% towards achieving the 80% target as the US is the UK’s largest trading partner.21 However, negotiations with the US are not currently progressing. The Department told us that in the meantime it is concentrating 10 Q 31 11 Q 36 12 Q 41 13 Q 6 14 Q 9; C&AG’s report 3.38 – 3.40 15 Q 9 16 Q 39 17 Q 40 18 Q 6; C&AG’s report, paras 20, 4.2 19 Chair’s opening remarks, Q 6 20 C&AG’s report, para 4.6 21 Q 6; C&AG’s report, para 4.6 Progress with trade negotiations 11 on improving market access to the US.22 In particular, the Department said that the Government has negotiated to end the US ban on UK beef and lamb, and is also pursuing a state-by-state approach to allow the UK to trade more at a state level with large economies such as California. The Department added that this activity also keeps the onus on a free trade agreement with the US as a whole.23

We asked the Department about the value of state-to-UK bilateral agreements, in terms of contributing to the 80% target. The Department could not tell us and thought this would be hard to calculate. The Department said that it had not set a target for increasing market access at a state level.24 We also emphasised that the lifting of the ban on beef and lamb is only an achievement if it actually has an impact on British exports to the US. Defra told us that the ban on lamb was lifted at the end of 2021 so there have been no impacts yet. However, it estimates that, over five years, the lifting of the ban could be worth more than £30 million to the sector. Defra told us that it is working closely with the sector and the devolved administrations to ensure that the benefits are realised.25 22 Q 6 23 Q 7 24 Qq 7–8 25 Qq 75, 76 12 Progress with trade negotiations 2 Outcomes of trade agreements Measuring the Department’s progress

The Department set out four measures in its Outcome Delivery Plan (ODP) for 2021–22 to measure its progress on its programme of trade negotiations. One of these measures, described in the previous section, is the percentage of UK trade with partners with whom the UK has a trade agreement. The NAO found that the other three outcome measures in the Department’s ODP are the projected, rather than secured, benefits and outcomes of each concluded trade agreement, and that the Department has not set any associated targets for these measures.26 We noted that it is really important that it is clear to Parliament where things have gone well and where they have not. We asked the Department if it would work with the NAO to develop a set of metrics that can be used to report to Parliament on its progress with its programme of trade negotiations.27 The Department agreed to this, stating that it had a good starting point with the existing measures in its ODP and other published material.28

The Department has published an impact or scoping assessment for each new FTA it is pursuing to help businesses and the public understand the potential economic benefits of the agreement and to support Parliamentary scrutiny.29 For example, the impact assessment for the UK-Australia free trade agreement (FTA) projects that the agreement will lead to an increase in UK GDP of £2.3 billion in fifteen years.30 We questioned whether the Department was putting too many resources into trade negotiations given the relatively small impact the agreements are expected to have on the economy. In response, the Department told us that it expects any long-term increase to GDP to be a permanent, annual increase. It also said that it spends about £50 million to £70 million a year doing these trade negotiations, and that there are few government programmes that would deliver that rate of return.31 The Department also explained to us that its assessments do not cover all potential impacts and that they are just forecasts of the future. For example, they do not cover secondary impacts that agreements could have, such as changes in production as a result of innovation, or wider geopolitical impacts such as furthering the UK’s environmental, human rights, animal welfare and wider agendas.32

We asked what the Department was doing to measure the actual benefits of trade agreements. The Department told us that it is committed to monitoring and evaluating the impacts of agreements.33 For example, it has committed to publishing monitoring reports for the Australia and Japan agreements two years after they enter into force and 26 C&AG’s Report, para 4.2 and Figure 13 27 Q 81 28 Qq 34, 81 29 C&AG’s report, para 4.2; Qq 16, 30, 73 30 Qq 4, 10 31 Q 4 32 Qq 27, 30 33 Q 30, 34, 54 Progress with trade negotiations 13 evaluating the agreements within five years.34 The Department said it recognises that it will be challenging to deliver the forecast impacts and ensure the agreements are being used by businesses.35 Use by businesses

We asked the Department how it planned to support businesses, particularly small and medium-sized businesses (SMEs), to take advantage of the opportunities in trade agreements.36 The Department’s 2020 survey of UK registered businesses found that just 28% of surveyed businesses who exported to non-EU countries knew whether the goods they most frequently exported were eligible for reduced customs duties.37 In our 2020 report on government support for exporters, we raised concerns that the Department was not doing enough to support small and innovative businesses to export.38

The Department acknowledged that “agreements are only as good as the businesses that utilise them”.39 It told us that its new export strategy, published in November 2021, had been informed by our previous report on support for exporters, and that a particular focus of the new strategy was on supporting small businesses to export.40 For example, it said as a result of our report it was working more closely with UK Export Finance which is focusing more on small and medium-sized enterprises (SMEs) in the work that it does.41 The Department’s new export strategy includes a 12-point plan to encourage UK exports and it explained to us that the big change that it has made is the introduction of the Export Support Service. The Department said that this service aims to help small UK businesses to trade with the EU, though the Department intends to widen this to the rest of the world in the future. It told us that it had received positive feedback from businesses on its new strategy, including from organisations like the Federation of Small Businesses.42 We asked the Department why it had cut the Tradeshow Access Programme and funding for the British Chamber of Commerce overseas, if it wanted businesses to export more. The Department wrote to us after the evidence session to explain that it has replaced the Tradeshow Access Programme with a new UK Tradeshow Programme which was launched as part of its 2021 export strategy. The new programme continues to support businesses to exhibit at trade shows and it also supports smaller companies to visit tradeshows prior to exhibiting to help them make a choice about whether exhibitions should be part of their export strategy.43

We asked the Department how it would benchmark its trade promotion activities against those of countries such as Singapore and Hong Kong. The Department said that it 34 Q 30; C&AG’s report, para 4.19; Department for International Trade, Impact assessment of the Free Trade Agreement between the United Kingdom of Great Britain and Northern Ireland and Australia, 2021, part 8: Plans to monitor and evaluate the agreement 35 Q 34 36 Q 53 37 C&AG’s Report, para 4.16 38 Committee of Public Accounts, Government support for UK exporters, Twenty-First Report of Session 2019–21, HC 679, 28 October 2020 39 Q 4 40 Q 52 41 Q 57 42 Qq 52, 54 43 Letter from Permanent Secretary, DIT, to the Chairs of the Public Accounts Committee and the International Trade Committee, 4 February 2022 https://committees.parliament.uk/publications/8916/documents/152325/ default/ 14 Progress with trade negotiations had developed an analytical framework to sit alongside the new export strategy that would be used to measure its success.44 It told us that it was moving away from taking credit for deals made by large companies where the Department’s role was questionable and focusing more on SMEs instead. However, when we asked about the outcomes of a specific export support activity—a virtual mission held by the Department to raise awareness of the UK-Japan trade agreement attended by around 250 businesses—the Department was unable to say if it had led to any export deals being signed.45

We received written evidence from Logistics UK, asking for specific provisions to be included in future FTAs to make it easier for UK businesses to trade with the rest of the world. These include, for example, commitments to clear goods at the border within a pre-determined timeframe and cooperation between tax authorities to simplify requirements.46 Logistics UK would also like government to pursue Mutual Recognition Agreements and Customs Cooperation Agreements in addition to pursuing FTAs, as it said these agreements can lead to useful benefits for businesses without going through the full FTA process.47 Impact of trade agreements on agriculture and carbon emissions

The FTA with Australia signed on 17 December 2021 removed almost all tariffs and quotas on agricultural products from Australia over 15 years. Tariff-free beef quotas, for example, would increase from a current 4,669 tonnes to 35,000 tonnes immediately after the agreement comes into force, a 7.5-fold increase in the tariff-free quota.48 We asked the Department whether this means that British famers were disadvantaged in return for the bigger, macroeconomic benefits of concluding an agreement with Australia.49 The Department told us that this was not the case and that the deal includes four safeguards to protect the agriculture sector, including a 15-year transition period that it considers will protect the farming industry against a rapid rise in beef and sheep meat imports.50 The Department acknowledged that Australia is a competitive producer of beef, but that it would be unlikely that Australia would divert its exports to the UK because it makes a lot of profit in East Asia. It also said that the size of the total UK domestic market for beef is large relative to the level that Australia would be allowed to export to the UK in the first year of the agreement.51

We asked Defra for its assessment of the effect of the Australian FTA on British agriculture. Defra said that it was confident that the phasing in of the liberalisation and the safeguards provide a period of adjustment for the UK agriculture sector, particularly as it goes through major domestic challenges following EU exit.52 The Department for International Trade also suggested that Australian imports may displace European beef that is currently imported to the UK. Defra confirmed its modelling showed that new imports mainly, but not entirely, displace existing imports and would not necessarily 44 Q 53 45 Qq 55–57 46 PTN0002 47 PTN0002 48 C&AG’s report, para 3.25, Figure 11 49 Q 20 50 Qq 10–11; 18–19 51 Qq 11, 20 52 Q 12 Progress with trade negotiations 15 damage UK production.53 Defra told us that it is also doing a lot to help the sector to reorient itself towards exports, such as by setting up a food and drink export council and by working with overseas trade attaches to open up new markets in places like China and the Gulf.54

We asked why the National Farmers Union is so pessimistic about the trade agreement. The Department admitted that there were risks and downsides to the deal and that a body which represents the interests of farmers would be concerned about the downside, although the Department considered the downside to be very unlikely.55 We acknowledged that a trade deal requires compromise on both sides. However, the National Farmers Union may have concerns that farmers have been disadvantaged by the agreement so that the UK can gain access to Australia’s financial services market.56

Defra told us that it has looked very carefully into the question of carbon emissions.57 Its analysis so far suggests that carbon emissions resulting from shipping goods from Australia to the UK are not the most significant factor when looking at the carbon footprint of different sorts of production. The Department for International Trade added that it has modelled the environmental impact of the UK’s agreement with Australia and it does not think the greenhouse gas emissions of UK production will change much although transport has to be looked at as a whole.58 We asked Defra whether emissions outside territorial waters are counted when measuring the UK’s carbon emissions. Defra did not know but said that the quantitative assessment of environmental impacts is a very live topic across the world.59 The Department for International Trade wrote to us after the evidence session to confirm that its transport emissions modelling uses the whole distance between two trading partners, and captures the emissions associated with travel in non-territorial waters. It applies sensitivity analysis using the shortest and longest typical maritime routes between two trading partners to estimate the distance travelled by shipping freight.60 The NAO noted that the UK’s target to achieve net zero emissions by 2050 is set on a territorial basis and does not include emissions from goods produced overseas and traded with the UK.61 53 Qq 21–22 54 Q 12 55 Q 13 56 Q 14 57 Q 23 58 Q 24 59 Q 26 60 Letter from Permanent Secretary, DIT, to the Chair of the Public Accounts, 4 February 2022 https://committees. parliament.uk/publications/8916/documents/152325/default/ 61 C&AG’s report, para 3.6 16 Progress with trade negotiations 3 Transparency and scrutiny Transparency of information

When we asked the Department about its overarching trade strategy it told us that it aims to have “an open trade environment that promotes jobs and wages and reduces poverty”. The Department plans to achieve this through trade negotiations and the right protections against unfair practices at both bilateral and multilateral level, while promoting exports and investment.62 However, the NAO found that it was unclear how trade policy aligns with other policy objectives, and how any trade-offs required may impact on business associations, civil society and consumer groups. For example, it is unclear how the government’s international trade ambitions help to achieve domestic and wider policy objectives in areas including agriculture, the environment, international development and human rights.63 Evidence we received from Which? supported the NAO’s recommendation that the Department should set out an overarching trade strategy so that it is clear how its trade policy supports wider policy objectives and how it will use trade negotiations, alongside other levers to achieve its objectives.64

We asked the Department whether it thought that the general public knew about trade. The Department told us that based on its survey, the public was “highly supportive of the trade agenda”.65 However, the NAO noted that the Department has identified public concerns about the actual or feared impact of its trade agenda, and a lack of belief in the potential benefits as a key strategic risk to achieving its objectives.66 Similarly, evidence submitted by Which? shows that consumers have limited awareness of the status and implications of the government’s trade negotiations. For example, two thirds of respondents to a Which? survey felt that the UK government currently provides ‘too little’ information about new trade deals it is negotiating.67 The Department acknowledged that there is a “big communication issue” for the Department at an official and ministerial level to set out what it is it does and why it does it.68

Which? also highlighted the importance of reflecting consumer interests more generally and suggested that a consumer chapter should be included in each trade agreement.69 The Department confirmed that the UK-New Zealand trade agreement will include a “first ever” chapter on consumer protection and it said that it wants to test appetite in this area with other partners – where partners are equally interested in pursuing this. The Department said that consumer chapters serve to improve cooperation and to ensure the benefits are more clearly explained to consumers.70 It wrote to us to explain that the consumer protection chapter that the UK is negotiating with New Zealand aims to uphold consumer protection rights and ensure that consumers continue to benefit from trade 62 Q 3 63 C&AG’s Report, paras 16, 25 64 PTN0001 65 Q 47 66 C&AG’s Report, para 16 67 PTN0001 68 Q 48 69 PTN0001 70 Qq 58–60 Progress with trade negotiations 17 in both online and offline settings. For example, the agreement is currently expected to include commitments requiring goods to be of satisfactory quality at the time of delivery and requiring services to be performed with reasonable skill and care..71

The Department said that it is its job to explain, engage and communicate and that when communicating information about trade agreements, it tries to set out what this might mean for consumers.72 We asked the Department why its forecast of the value of UK exports arising from the agreement with Australia had increased by 600% from £900 million in June 2020 to £6.2 billion in December 2021. The Department could not tell us what the difference was, and we considered the lack of clarity to be a failing of some of the Department’s documentation and its communication to parliamentarians. It thought that the majority of the rise was due to changes in its approach to modelling the forecast economic benefits, as part of continuous improvement, and that this is set out in publicly available documents.73 The NAO also underlined the need for the Department to provide greater transparency in the impact assessment for the UK-Japan trade agreement. The report said that the Regulatory Policy Committee, academics and the two Parliamentary committees leading scrutiny have highlighted that the costs to businesses and environmental impacts are areas where better quality information is required.74 Parliamentary scrutiny of trade deals

The Department has made additional commitments beyond the statutory framework under the Constitutional Reform and Governance Act 2010 (CRAG) for Parliamentary scrutiny of trade agreements, but the Parliamentary committees responsible for trade agreements scrutiny have called for Parliament to have a stronger formal role.75 We expressed concerns that the Department did not share proper information in a timely manner given that scrutiny of trade agreements is important to ensure that people understand trade deals and that members of Parliament can justify them to constituents. For example, sharing of the text of the Japan agreement by the Department was delayed and the International Trade Committee did not have the full time it expected to scrutinise the agreement.76 Although the Department shared the final agreement with Australia three months ahead of triggering CRAG, we did not feel that it was generous enough given that that the International Trade Committee needs to produce a report alongside.77

The opportunity for Parliament to view negotiating objectives at the outset would aid its scrutiny of trade agreements.78 There is a precedent in Parliament to share privileged information between government and select committees. For example, this Committee routinely sees privileged information and the Intelligence and Security Committee sees documents on a confidential basis. The Department said that it is not refusing to share the text of the agreement and is increasing the time that it allows for scrutiny, but it understands that it needs to improve.79 71 Letter from Permanent Secretary, DIT, to the Chair of the Public Accounts, 4 February 2022 72 Qq 14, 61 73 Qq 67–69, 79 74 C&AG’s Report, para 4.10 75 C&AG’s Report, para 19 76 Qq 70–73 77 Qq 71 78 Q 73 79 Q 72 18 Progress with trade negotiations

We also note that the House of Lords International Agreement Committee reported that the statutory framework under CRAG is insufficient to facilitate robust and effective scrutiny of international agreements. As stated in the NAO report, the International Agreement Committee has called for Parliament to strengthen its formal role earlier in the process and for provision of the agreement text ahead of signature, and that Parliament’s consent should be required prior to ratification through a new mechanism beyond CRAG.80 80 C&AG’s Report, para 3.19 Progress with trade negotiations 19