Written Evidence Submitted by Jeremy Miles AS/MS, Counsel General and Minister for European Transition, Welsh Government (BAT0016)
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Written evidence submitted by Jeremy Miles AS/MS, Counsel General and Minister for European Transition, Welsh Government (BAT0016) Thank you for giving the Welsh Government the opportunity to contribute to your enquiry into Brexit and Trade: implications for Wales. Throughout the negotiations between the UK and the EU on our future relationship, the Welsh Government has sought to play a constructive role in influencing and informing the UK position in order that the Government could speak for all parts of the UK. By working with us and the other devolved governments, the UK Government would have been able to approach the negotiations with the EU from a position of unity and strength. The UK Government, however chose to take a different approach and shut the Devolved Governments out of the negotiations. We have had no real opportunity to influence the negotiations and our repeated attempts to ensure that the UK Government was negotiating in the best interests of Wales have been ignored. We have therefore been clear that responsibility for the success or failure of the negotiations rests firmly with the UK Government. The fact that the negotiations seem set to yield a very ‘thin’ free trade agreement- assuming agreement is reached at all – is of the UK Government’s own making. They refused the calls from us and many others to seek an extension to the transition period to give themselves the breathing space necessary to complete such a complex set of negotiations, recognising the changed circumstances arising from the Covid-19 pandemic. Instead the UK Government insisted that it was perfectly able to respond to the Covid-19 pandemic and achieve a good outcome to their first trade negotiations in over 40 years. It is critically important that a deal is achieved which protects the economic interests of Wales and is in the best interest of our businesses, our workforce and our communities. The UK Government must redouble its efforts to reach a deal, which minimises the damage to the economy. It would be inexcusable to reach the end of negotiations with no deal, or only a basic deal, knowing the damage this would cause to jobs and livelihoods – layered on top of the devastating impacts of Covid-19 – as well as to our security and the fabric of people’s lives. My responses to your specific questions are annexed to this letter. Yours sincerely, Jeremy Miles AS/MS Cwnsler Cyffredinol a'r Gweinidog Pontio Ewropeaidd Counsel General and Minister for European Transition Call for Evidence: The Welsh Affairs Committee What are Wales’ priorities for future trade relations with the EU, and what are the implications of any future UK-EU trade and customs arrangements for Wales? The Welsh Government has consistently and coherently advanced the priorities of Wales for future trade relations since the referendum in June 2016, based on evidence about likely impacts on businesses and jobs in Wales. In our January 2017 White Paper Securing Wales' Future, and our subsequent policy paper Trade Policy: the issues for Wales we set out proposals for trade with the EU post-Brexit and made the case for the UK retaining full access to the EU Single Market and membership of a customs union with the EU. This paper, supported by an analysis from Cardiff Business School, argued that the Welsh economy was best protected by this approach. It also recognised that economies and global trading patterns are never stagnant and accepted that there were trading opportunities outside of Europe. At the beginning of 2020, we published The Future UK/EU Relationship: Negotiating Priorities for Wales which - in the light of the UK Government’s mandate from the General Election and the Political Declaration agreed between the UK and the EU in autumn 2019 - set out our views on priorities that we believed could still be negotiated to reflect Wales’ economic, social and environmental interests. They included: Prioritise access to the EU market, not for ideological reasons but because it is of overwhelming importance to our economy particularly Wales’ manufacturing, agriculture and services sectors. No tariffs on trade with the EU and minimising non-tariff barriers – which are often even more damaging than tariffs. Maintain deep co-operation on all aspects of security, including the environment and health. Covid has shown that threats to our way of life can come in unexpected forms and has highlighted the need for governments across Europe to work in partnership. Continued access to EU programmes which are already open to countries outside the EU and which have done so much for our economy, our young people and the richness of our lives – for example Erasmus+, Horizon Europe, Creative Europe and INTERREG. Over the spring and summer of this year, we also sent a series of letters to the UK Government covering the 11 work streams for the negotiations, namely the Level Playing Field, Governance, Law Enforcement and Judicial Cooperation, Fisheries, EU programmes, Trade in Services, Trade in Goods, Mobility, Energy and Civil Nuclear Cooperation, Transport and Civil Judicial Cooperation. With only two months to go before the end of the transition period, we still do not know the nature of our trading relationship with the EU after 1 January of next year. However, whether there is a deal or not the new trading relationship with the EU will be significantly worse than the one we currently enjoy, with substantial new barriers to trade, which will have a serious economic impact, compounding the risk to businesses and jobs that arises from the pandemic. We fully accept that international negotiations are reserved although we have implementation powers in a number of key areas. We therefore accept that the principal responsibility for the conduct of the UK’s trade policy will rest with the UK Government but with a significant intersection with devolved powers in areas such as environmental standards, economic development, agriculture and skills and qualifications. Decisions on new trading relationships both with the EU and the wider world must be taken in close co-operation between the UK Government and Devolved Governments in order to reflect fully the interests of the whole United Kingdom. The UK Government has missed the opportunity to present a united UK position on the negotiations and has also been unable to assure the EU that what is agreed can be implemented effectively across the whole UK. The economic implications for Wales of a new trading relationship are significant. Wales is an outward-looking, globally trading nation. Our businesses trade across the world, in 2016 exports from Wales were worth £14.6 billion and in 2015 service exports were £1.7 billion. Our economy is closely integrated into the Single Market and 61% of our identifiable goods exports and just under half of our imports are to and from the EU, along with 35% of services exports. Analysis by independent economists indicates that were the UK to leave the transition period with no agreement and were to continue to trade with the EU on WTO terms, over the long term (10-15 years) this could result in incomes being up to around 10 per cent below what they would otherwise have been. The analysis also shows that, while losses of income under a bare-bones Free Trade Agreement would be somewhat less, they would still be large, at up to around 6 per cent of annual income. In addition, if the transition to a new trading relationship with the EU is disruptive – as will be the case in the absence of an agreement emerging from the current negotiations - this will cause short term economic harm, and will probably either prolong the current recession or cause a new one. It is impossible to predict the scale of any such effect with precision, although previous analysis by the Bank of England suggested that resulting recession could be large, and might not be much less severe than the one experienced as a result of the financial crash in 2008. If anything, Wales is likely to be more severely affected than average by the transition to a new trading relationship, as Wales is even more reliant on the EU as an export market than is the UK as a whole. The Covid crisis and associated economic contraction does not change the analysis of long run impacts described above. And as the effects of moving to less advantageous trading relations with EU persist over the long run, the cumulative effects are likely to be greater than those resulting from Covid. In addition, there is abundant evidence that uncertainty adversely affects business investment, with negative effects on future growth in productivity and income. Business investment is already severely constrained by the effects of the Covid crisis, and further uncertainty over the transition to a new trading relationship will only worsen this situation. The practical implications of new border arrangements between the EU and the UK will also impose significant extra bureaucratic burdens to businesses in Wales which either export to or import from the EU27. The requirements are particularly onerous for agri-food products. Products that can affect human, animal and plant health such as live animals, products of animal origin, plant products, high risk foods and feed from third countries (including the EU after the transition period ends) will be subject to pre-notification and documentary checks, and enter GB through a designated Border Control Post (BCP). Certain other controlled goods which can have environmental impacts (such as chemicals, fertilizers, pesticides etc) will also need to be checked, but not necessarily at the border. In Wales, these obligations are the responsibility of Welsh Ministers. UK Ministers are responsible for the increased volume in customs and other borders checks.