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Asian Infrastructure Investment Bank (Immunities and Privileges) Order 2015

Volume 765: debated on Tuesday 27 October 2015

Motion to Consider

Moved by

That the Grand Committee do consider the Asian Infrastructure Investment Bank (Immunities and Privileges) Order 2015.

Relevant document: 6th Report from the Joint Committee on Statutory Instruments

My Lords, I beg to move that the Committee consider the Asian Infrastructure Investment Bank (Immunities and Privileges) Order 2015. The order was laid before the House on 12 October, and it gives authority for immunities, privileges, reliefs and exemptions to this new international organisation, also known as the AIIB, under the International Organisations Act 1968.

Before going into the details of the order, I would like to set the context by saying a few words about the bank and its link with our prosperity objectives. These recognise that, as we continue our business-led recovery, one of our greatest strengths is our openness to global markets. The fast-growing markets of the emerging economies are becoming ever more important to global trade, British business and our values. The United Kingdom must continue to play a significant role in developing these markets, as well as the global economy. Equally, we must expand into areas where we are economically under represented.

China is at the heart of this. Last week’s state visit by the President of China demonstrated the scale of the opportunities that lie in deeper co-operation between our two nations. A key component of opportunity and growth in Asia is and will continue to be infrastructure. Requirements for infrastructure in Asia are estimated to expand substantially over the next 10 years: the Asian Development Bank estimates the value of these at $8 trillion. Satisfying this need is not only vital for driving growth and increasing living standards in the region, but will benefit the whole global economy, creating new opportunities for British business.

The UK has expertise in areas ranging from green investment, infrastructure and engineering to accountancy and project management. Add to that our world-leading position in finance and we see that a host of businesses around the country and across a variety of sectors are well-placed to take advantage of the opportunities offered by the world’s fastest-growing economies. There are also significant opportunities for the financial sector in London. This order ensures that London is in a strong position to take advantage of opportunities that arise from the AIIB.

Key to enabling effective support for infrastructure development in the region is ensuring that the AIIB is well-established as a high-quality and well-functioning international organisation. That is why the United Kingdom has taken such a strong role in supporting the AIIB. Our announcement in March this year of our desire to become a prospective founding member was the first by any major western country. Germany, France and many others have now followed. There is significant advantage in being involved from the beginning. Working to shape the bank in the British interest and ensuring that it follows the model and learning of other established institutions will help the new bank to meet the highest governance standards for an international institution.

I turn now to the details of the order. The formal laying of the treaty in Parliament under the Constitutional Reform and Governance Act 2010 was undertaken on 4 September. This order is part of the UK’s ratification and provides the privileges and immunities to enable the bank to function as an international organisation in the United Kingdom. This is part of the requirements laid out in the articles of agreement signed in June for the UK by the Commercial Secretary to the Treasury, and is in line with requirements in other international organisations of which the UK is a member.

The order applies to the whole of the United Kingdom. However, some provisions of the instrument do not extend to, or apply in, Scotland. A separate Scottish Order in Council has been prepared to deal with those provisions within the legislative competence of the Scottish Parliament and has been laid before it. We will of course take a significant interest in the bank’s operations. We have been and will continue to be active players. I beg to move.

My Lords, as the Minister highlighted, UK involvement and investment in this Chinese-led AIIB was first proposed in March. We then became the first major western country to apply to be a founding member—followed quickly, as he said, by Germany, France, Italy, Switzerland and Luxembourg. I also note what the noble Earl said about joining the AIIB being a further step in the Government’s plan to build a closer political and economic relationship with China and the Asia region. But as we heard in debates last week during the state visit, our involvement is not simply a neutral business matter. In that developing relationship, there are issues of human rights and other concerns that we do not wish to ignore, particularly given the debate we had on religious freedom.

As the order—and the news—has said, the UK will make a capital contribution of £2 billion to the AIIB. However, at the time we made our announcement in March, the White House, on behalf of the US Government, issued a statement.

My Lords, I hesitate to interrupt the noble Lord but there is a Division called. The Committee will adjourn for 10 minutes and resume not earlier than 5.40 pm. If the Divisions are held one after the other, the Committee will adjourn until both votes have been completed.

Sitting suspended for a Division in the House.

My Lords, when I was so rudely interrupted, I was in the middle of a sentence. I began to quote the White House statement at the time of our announcement that we were joining the AIIB. The statement said that the White House had concerns about whether the AIIB would meet high standards,

“particularly related to governance, and environmental and social safeguards … The international community has a stake in seeing the AIIB complement the existing architecture, and to work effectively alongside the World Bank and Asian Development Bank”.

I understand that the United States has revised its opinions and that the concerns that it previously expressed have been addressed. In particular, AIIB president designate Jin Liqun, in an FT article that I read on 25 October, vowed to run a “clean, lean and green” institution, operating to the highest international standards, but with greater speed than its rivals. Liqun said that the AIIB,

“would abide by the toughest environmental and social standards in its lending and model itself in many ways on existing multilateral development banks”.

The thing is, China will hold 26% voting shares, which is almost double the proportion of United States voting shares in the World Bank, which is dominated by and hosted in Washington. As the articles of association stipulate, China will have veto power on issues that require a supermajority vote, such as the board, the president and the capital, as well as the major operational and financial policies. Retention of a veto no doubt reflects China’s determination to retain control of key aspects of the bank. I am certainly aware that the Philippines is very concerned by the potential veto power that China will hold.

Given the original concerns raised by the White House and the White House National Security Council, what reassurances have the Government received that the AIIB will retain strong environmental, social and governance standards? Despite the good words of the bank’s president designate, what steps have the Government taken to ensure that standards are upheld and kept under appropriate scrutiny and review?

What assessment have the Government made of how the new investment bank will sit alongside and work effectively with the IMF, the World Bank and other global institutions? How do we ensure that it behaves in a complementary and co-ordinated fashion rather than becoming duplicative and suboptimal in its effectiveness?

Finally, just under a week ago the Minister addressed in the Chamber the question of unpaid parking fines and London congestion charge payments by diplomatic missions and international organisations. It appears that this order may add to the number of inviolable organisations—I hope the Minister appreciates how I pronounced that word because I am expecting a reciprocal arrangement in terms of pronunciation—so what steps have the Government taken to ensure that, in the event of unpaid tickets arising from this new bank, it pays up?

My Lords, I thank the noble Lord for his contribution to our debate on the AIIB. The raison d’être of this is to continue building a strong economy in an increasingly globalised world which requires good partnerships, deep co-operation and strong economic links. The noble Lord raised a number of issues, beginning primarily with human rights. I will use that general heading if the noble Lord will allow me. As part of our co-operation with China we discuss our values. We believe that human rights, prosperity and security are mutually reinforcing. The free flow of ideas and innovation is a driver of economic growth and a key element of democracy. We continue to discuss all aspects of human rights at the highest level.

The noble Lord also drew attention to US relations in respect of this agreement. As he will be aware, the UK remains a close ally of the United States. Where the United Kingdom led on the bank, others have followed. As the noble Lord said, they include Germany, France, Brazil and Australia. The recent Chinese state visit to the United States saw the US Government recognise what role the bank would play in the international financial architecture. During that state visit by the Chinese President, the Obama Administration reiterated their pleasure in backing China’s bid for inclusion of its currency, the renminbi, in an elite International Monetary Fund basket of reserve currencies as long as Beijing is declared worthy by the IMF.

A joint statement that was issued after the state visit to the United States and before the Chinese President came to the United Kingdom said that China intends to meaningfully increase its role as a donor in all these institutions. Both sides acknowledge that for new and future institutions to be significant contributors to the international financial architecture, these institutions, like the existing international financial institutions, are to be operated with the existing high environmental and governance standards. Both sides were keen to put any form of unpleasantness over the AIIB and any conflict over the governance of the existing regime behind them, as set out in President Xi’s public statements during his visit.

The noble Lord also raised a couple of issues relating to the bank. As I said earlier, the AIIB is committed to meeting the highest international standards and the UK has pushed hard for those environmental standards by ensuring that there is public consultation. The noble Lord also mentioned the minority holding of the Chinese in the bank—26% is still a minority. The veto stops action. It does not force action.

The noble Lord also mentioned unpaid parking fines. The AIIB will receive the same immunities and privileges to enable it to function. With regard to parking fines, privileges and immunities are granted on a functional need basis. Careful consideration is given by Her Majesty’s Government to what organisations or their staff need. The number of immunities is thus tailored to need and we work with organisations to ensure that only what is needed is granted. The noble Lord will remember from that interesting exchange at Questions last week that at the highest level, when new heads of mission come to London, we express at all times the importance of payment of the congestion charge and parking fines.

I think that I have covered most of the points raised by the noble Lord. Should there be any that I have not as yet covered I will write to him. I thank noble Lords for their contributions.

Motion agreed.

Committee adjourned at 6.01 pm.