A new treaty raises questions over trade policy—and parliamentary scrutiny

My committee is responsible for scrutinising matters relating to the EU’s single market, often resulting in the publication of reports by the House of Lords main EU Select Committee. We have covered various exit-related matters, including a recent inquiry on UK-EU transport and what might happen in the event of no deal.

One of our scrutiny jobs has been to look at a number of treaties between the UK and other countries, which will come into force in the event of the UK’s exit from the EU. We look at matters such as whether existing rights are protected and how standards will be recognised and maintained. One recent example was the new free trade agreement (FTA) between the EU and South Korea.

What might seem like a rather dry subject raises issues concerning future trade policies and the extent of parliamentary scrutiny. We need a comprehensive assessment of any impact such FTAs may have on trade and to make sure UK stakeholders will not lose out. Further, it is vital that we know more about what the government’s strategy will be to ensure maximum transparency and clarity to parliament, as well as to the devolved administrations.

As an EU member state, the UK is party to the FTA between the EU and South Korea. The new FTA seeks to “rollover” the effects in a bilateral context, from the point at which the EU-Korea agreement ceases to apply to the UK. The UK and South Korea have also agreed a joint statement on shared values such as the rule of law, good governance, human rights including gender equality, and fundamental freedoms.

The FTA is to be welcomed. South Korea accounts for 1.1 per cent of total UK trade, made up of £10.5bn in goods and £4.1bn in services and this is growing. Top goods exports to South Korea are mineral fuels or oils, machinery and mechanical appliances and vehicles. We also export legal services, accounting and management consulting and travel services. The FTA is therefore politically important and raises various questions of public policy and parliamentary accountability.

On the latter, treaties are negotiated, signed and ratified by the government. Parliament’s scrutiny role is set out under the Constitutional Reform and Governance Act 2010 (CRAG), which provides that, with some exceptions, the government may not ratify a treaty unless it has first laid a copy before parliament, and, within 21 sitting days of this happening, neither House has passed a resolution that the treaty should not be ratified. A resolution passed by the Lords is advisory: the government may decide to proceed regardless, but is required to publish a statement giving its reasons. This means that our reports can only draw to the attention of the Lords (and the government) any shortcomings. A Commons resolution, on the other hand, would prevent the government from proceeding.

Our scrutiny was assisted by inviting written evidence and receiving very high quality responses. Normally there would not be time to do this under the CRAG timetable, but the “non-prorogation” period gave us additional time. Thinking about how more time can be made for expert contributions might well be a point for future consideration.

On the trade detail, the UK-South Korea FTA would preserve preferential arrangements in goods and services but there are some differences from the pre-cursor EU-South Korea arrangements. For instance, some tariff rate quotas, which allow certain quantities of particular products to be imported at a zero or reduced tariff rate, will be discontinued due to “no or low usage.” The Committee asked for a fuller explanation for this discrepancy and a clearer idea of the government’s criteria and priorities. For example, where arrangements such as some tariff rate quotas are discontinued, what will be the impact on UK businesses and future market development?

We also asked for more information on tariff arrangements for the agricultural sector in particular and on “rules of origin” arrangements for components, such as car parts, originating in the EU.

Then there was the subject of “most favoured nation” provisions: improved market access offered to a third party must sometimes be extended to other parties. These provisions illustrate that agreements intended to rollover existing arrangements also have implications for the UK’s future trade policy.

In terms of governance, the FTA establishes a joint Trade Committee which will be made up of representatives of each party and co-chaired by the Korea minister of trade and the UK secretary of state for international trade. The Trade Committee will meet once a year to ensure that the agreement operates properly and to supervise and facilitate implementation.

The Joint Committee will be able to amend important provisions of the FTA. We considered that such amendments may amount to significant trade policy decisions and highlighted that they would receive no parliamentary scrutiny under the CRAG Act. Ongoing amendments have implications for future policy, not just continuity. We concluded that to support appropriate scrutiny in future, the government should report regularly to parliament on changes to international agreements, even where changes are not covered by the CRAG Act.

The UK and South Korea are also “in discussion” on a temporary non-binding transition mechanism applying to goods and services as a contingency measure, in case one is needed. It is unfortunate that the report accompanying the FTA stated originally that the text of any bridging mechanism would be shared with parliamentary committees “in advance of signature” but on enquiry, this commitment was amended to state that the text of any bridging mechanism would be shared with parliamentary committees “shortly after signature.”

The government has provided an initial response to our report in writing, but I expect the Committee to continue to pursue its questions after the general election. Trade policy is not a simple “rollover” exercise.