Draft European Union (Definition of Treaties) (Republic of Korea Free Trade Agreement) Order 2011

The Committee consisted of the following Members:

Chair: Sandra Osborne 

Anderson, Mr David (Blaydon) (Lab) 

Bell, Sir Stuart (Middlesbrough) (Lab) 

Davey, Mr Edward (Parliamentary Under-Secretary of State for Business, Innovation and Skills)  

Glen, John (Salisbury) (Con) 

Goodwill, Mr Robert (Scarborough and Whitby) (Con) 

Johnson, Joseph (Orpington) (Con) 

Joyce, Eric (Falkirk) (Lab) 

McKenzie, Mr Iain (Inverclyde) (Lab) 

Mactaggart, Fiona (Slough) (Lab) 

Murray, Ian (Edinburgh South) (Lab) 

Norman, Jesse (Hereford and South Herefordshire) (Con) 

Poulter, Dr Daniel (Central Suffolk and North Ipswich) (Con) 

Pritchard, Mark (The Wrekin) (Con) 

Ruane, Chris (Vale of Clwyd) (Lab) 

Simpson, David (Upper Bann) (DUP) 

Stewart, Bob (Beckenham) (Con) 

Sturdy, Julian (York Outer) (Con) 

Willott, Jenny (Cardiff Central) (LD) 

Mark Oxborough, Committee Clerk

† attended the Committee

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Third Delegated Legislation Committee 

Tuesday 17 January 2012  

[Sandra Osborne in the Chair] 

Draft European Union (Definition of Treaties) (Republic of Korea Free Trade Agreement) Order 2011 

4.30 pm 

The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Mr Edward Davey):  I beg to move, 

That the Committee has considered the draft European Union (Definition of Treaties) (Republic of Korea Free Trade Agreement) Order 2011. 

It is a privilege to serve under your chairmanship, Mrs Osborne. This is a very important agreement for the Committee to be considering; indeed, it is a truly groundbreaking agreement. Its benefits will extend far beyond the deal itself, because the impact of the deal will stimulate our other international competitors to open their markets in pursuit of open trade over protectionism. Therefore, we should see this agreement in the context of the need to increase trade and investment, and to spur on economic growth. 

The United Kingdom has been influential in ensuring that trade liberalisation is central to the EU growth strategy. That was true under the previous Government, as well as being true under this Government. I am delighted to say that, overall, trade policy has not been an issue of partisan disagreement, because as I think we all accept, without a multilateral deal in sight—in particular, without Doha—EU free trade agreements are the main vehicle for pursuing our trade liberalisation agenda. The EU is negotiating an extensive range of free trade agreements across the globe. The EU-South Korea free trade agreement is the first of the new wave of ambitious agreements that we hope will be agreed. It sets the bar high, as it is the most ambitious trade agreement ever concluded by the European Union. This free trade agreement is therefore good for Europe and for Britain, and is set to boost the UK’s economy by £500 million a year. 

South Korea is an important commercial partner for the UK. In 2010, bilateral trade was worth an impressive £6.5 billion; and in 2009, the UK was the largest single investor in South Korea. However, because of the high tariffs and regulatory barriers that South Korea has had in the past, we have barely scratched the surface of the potential trade between our two nations. The free trade agreement has eliminated the vast majority of those barriers to trade—most of them immediately. 

The agreement will boost growth and create jobs across the economy, delivering a saving of £1.4 billion in Korean tariffs for EU exporters, including in sectors where the UK is particularly competitive, such as industrial machinery, jet engines, chemicals, low carbon and pharmaceuticals. The agreement will deliver a groundbreaking approach to removing non-tariff

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barriers—for example, through transparency in Korean pricing decisions for pharmaceuticals and Korean recognition of EU standards for EU vehicles and most consumer electronics, improving access and saving expensive repeat testing of EU exports in Korea. It will deliver several billion pounds-worth of new opportunities for EU companies in the services sector, including in telecommunications, the legal sector and financial services, among others. The agreement dramatically increases our access to a market of 50 million people with growing disposable incomes and an increasing appetite for British goods. 

Following the free trade agreement’s provisional coming into force on 1 July 2011, the UK Government have been working closely with UK businesses and the South Korean Government to ensure that the UK makes the most of this opportunity. My right hon. Friend the Foreign Secretary and I have hosted a range of events with UK businesses and the Government of South Korea, while UK Trade & Investment is working hard to promote the deal—for example, through its recent report, “100-plus Opportunities for UK Companies in South Korea”. The coming into force of the EU-South Korea free trade agreement provides the UK with a tremendous set of opportunities. As I said, it will boost growth and create jobs through enhanced two-way trade investment, and it will strengthen our strategic relationship with an increasingly important global player. It will lay the foundations for future trade agreements between the EU and other parts of the world. 

In conclusion, as the western European politician who represents the most Koreans—there is a huge Korean community in New Malden—I am particularly pleased to be the Minister who can commend the order to the Committee. 

4.34 pm 

Ian Murray (Edinburgh South) (Lab):  It is a great pleasure to serve under your chairmanship, Mrs Osborne. 

This is the second time that the Minister and I have agreed on something in Committee. Long may that not continue, because it would do my electoral prospects a great deal of harm. He has explained in great detail why the agreement is of great worth to the EU and the UK in terms of trade. We, as the Opposition, will continue to do what we can to help promote the UK, through the EU, to ensure that development concerns are central to negotiations on regional and bilateral trade agreements with developing countries. We will also continue to support trade deals that are fair and that promote development, while working to ensure that all EU free trade and economic partnership agreements have suitable human and social rights clauses and that UK businesses are given maximum access, to drive exports and, therefore, economic growth. 

As the Minister has explained, the FTA will boost EU exporters of industrial and agricultural goods to South Korea. There are some concerns, however, that the agreement may harm some EU sectors, such as car makers and the electrical machinery sector, which are important not only for the UK economy, but for the EU economy. We welcome the attachment of a safeguard clause to the FTA to prevent such negative impacts. However, can the Minister reassure the Committee that the motor trade industry will be protected and that

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what the industry calls the duty drawback clauses will not result in a competitive disadvantage to the UK motor trade? Will the UK Government and the European Commission monitor closely any detrimental effect on the UK motor industry and the other sectors that have expressed concerns about any competitive disadvantage that might arise from the FTA? 

It would be remiss of me, Mrs Osborne, given our accents, not to mention the Scotch whisky industry and the massive benefits that the FTA may have for it. To put that in context, South Korea is the sixth largest market in the world for Scotch whisky, providing £153 million of exports a year, which is equivalent to 35 million bottles of whisky. Whisky is the UK’s biggest export by value to Korea, and the industry in Scotland is doing very well in this economic downturn, particularly with exports to the far east and the BRIC countries. The FTA will provide two important benefits to the Scotch whisky industry. First, the 20% import duty on Scotch whisky will be eliminated over a period of time, to allow a completely level playing field in South Korea. Indeed, the Scotch whisky industry is keen to promote the phasing out of import duties in other countries in that part of the world, particularly India. Importantly, South Korea has also agreed to recognise and protect EU geographical indicators of origin, which are so important to the Scotch whisky industry. 

So as not to keep the Committee too long after mentioning those two things—the sectors that may be at a competitive disadvantage and the great importance of this FTA to the Scotch whisky industry—let me say that the Government must be commended for bringing this agreement before the Committee and for the negotiations that have taken place on what is a welcome and far-reaching free trade agreement with Korea. 

4.38 pm 

Mr Davey:  I thank the hon. Gentleman for his support, which reiterates the point I made in my opening remarks about trade policy being a generally non-partisan issue. I will take his points one by one. He mentioned a particular concern about the automotive sector. We have certainly listened, and during the negotiations the

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EU secured a range of provisions in response to that industry’s concerns, including a slower phasing of tariff reductions to help adjustment and a bilateral safeguard clause, which will protect any industry from harm arising from the free trade agreement. For the Committee’s interest, if an industry thought that serious harm was being done as a result of these liberalisation measures, it is able to ask the EU to investigate, and safeguards can be applied if the Commission finds a problem. There are safeguards, which have been reassuring to people in the automotive sector, and they of course apply elsewhere, to other sectors. 

The hon. Gentleman is quite right to mention the importance of the agreement to the Scottish economy and the Scotch whisky industry in particular. He probably knows that Diageo already has a 40% market share of the Korean whisky market. That, I think, shows already that the agreement will help that company and give it future opportunities. 

I do not want to delay the Committee unduly, but I want to put on record my thanks to Commissioner De Gucht and his team, who negotiated this, to officials and to the Korean ambassador to the UK, Mr Choo, who has been very supportive. There is an interesting anecdote that I can share with the Committee. Right in the last hour of negotiations the Italians had concerns—I think that the former Prime Minister, Mr Berlusconi, had had a phone call from Fiat—and they were delaying the procedures. I had an interesting conversation with the Korean Trade Minister, who asked me to convey to the Italians the analysis that the free trade agreement would be very beneficial to the Italians, because of their high-value goods. He pointed out that he was wearing Italian shoes and an Italian suit, and that he ate Italian food. 

I believe that the free trade agreement is beneficial to all EU member states, but particularly the UK, so I commend the order to the Committee. 

Question put and agreed to.  

4.41 pm 

Committee rose.  

Prepared 18th January 2012