Considered in Grand Committee
That the Grand Committee do consider the Kimberley Process Certification Scheme (Amendment) (EU Exit) Regulations 2019.
My note here starts with: “My Lords”. I am also addressing the public, but I am glad that the Deputy Chairman of Committees is also present, so the term applies most appropriately.
During the 1990s, the trade in conflict diamonds was a significant cause of instability, particularly in Africa. The Kimberley Process Certification Scheme is an important tool for reducing conflict, in Africa and elsewhere. Great strides have been made since its inception in 2002, and today more than 99% of the global supply chain of rough diamonds is certified as conflict-free.
From the beginning of the Kimberley process, the United Kingdom has been represented by the European Union. Together with our European partners and other participants, the UK has been active in our support of the Kimberley process and its principles: to increase transparency, to ensure trade is limited to Kimberley process participants, and, importantly, to apply effective controls.
The Kimberley process is not a treaty and has no basis in international law. Instead, it is simply a grouping of interested states—the “participants”—that have decided to enact domestically a uniform process for verifying the trade in rough diamonds at their borders. They then made the political decision to permit the trade in rough diamonds only with similarly minded states to establish the Kimberley process. The legal effects of the Kimberley process come from domestic legislation, hence this legislation is essential if we are to continue to participate in the process after we leave the European Union—as we intend to do.
As noble Lords will be aware, until 29 March 2019, the UK remains a full EU member state, subject to all the rights and obligations of membership. Those include trade arrangements that fall within the EU’s common commercial policy, including the Kimberley process. Under the terms of the withdrawal agreement, we have agreed with the EU that it will notify international partners that the UK is to be treated as a member state during the implementation period. This would mean that the UK would continue to participate, represented by the EU, and the UK trade in Kimberley process-compliant rough diamonds would continue. In the event that we are unable to enter into an implementation period, our participation through the EU would end and UK trade would be frozen until our application for participation was approved by other participants in the Kimberley process.
In either case, the legislation would ensure that we continue to comply with the requirements of the Kimberley process. It would secure our borders, prevent any non-compliant rough diamonds from entering the UK supply chain and send a strong message to would-be smugglers that the United Kingdom is not a recipient of conflict diamonds. It would also reassure the Kimberley process body of the UK’s commitment to the scheme, ahead of our application for independent participation. The instrument does not undermine the wider EU withdrawal negotiations, nor does it assume no deal. Instead it lays the groundwork for our future relationship with, and independent participation in, the Kimberley process. Essentially, it enables business as usual.
This matters because maintaining our relationship with the Kimberley process is an intrinsic element of our international commitments to conflict prevention. It is also pivotal in how we support UK business to operate responsibly in post-conflict and other difficult environments. The Kimberley process is not perfect, but as an independent participant, the UK will maintain our commitment to the ongoing reform process and continue to be an active and collaborative partner.
Some noble Lords have noted that a significant portion of UK trade in rough diamonds could fall away once we have left the EU. The reality is that, given the structure of the UK rough diamond market, trade statistics can be misleading. UK exports in rough diamonds outside the EU were valued at £67 million in 2017. We expect this to continue at around this level once we have left the EU.
The Government Diamond Office implements the Kimberley process in the UK, and is working closely with Border Force to ensure we meet the minimum standards set by the process. We are a well-respected participant in the Kimberley process as an EU member state and can expect to remain so as an independent participant. We have already informed the EU of our intention to initiate our application. Demonstrating that we have appropriate legislation in place is a fundamental part of that application process. That is the purpose of this instrument. Once passed, it will apply even if we are not a participant immediately at the point that the UK leaves the European Union, or after any implementation period.
Last week, this instrument was considered and approved by the other place—introduced by my right honourable friend the Minister of State for Europe and the Americas, Sir Alan Duncan—and has been approved. I welcome this opportunity to hear the views of the noble Lord on this draft order. I beg to move.
I reassure the Minister that I also welcome the opportunity to give him my views, once again—we have the opportunity at frequent intervals. I will say, right from the outset, that of course we support wholeheartedly the principles of the Kimberley process. It is not perfect and can certainly be improved on regarding impact, but it has certainly had a substantial impact in diminishing that awful, illicit trade in war diamonds. It is extremely welcome that we will continue to apply the principles after Brexit, and certainly ensure there are no gaps that could potentially be exploited.
One area of criticism is the fact that, as an exit SI, it is caught up in this overwhelming number that are coming forward, and whether there has been sufficient time for proper scrutiny. Irrespective of that—I have called this an “SI stampede”—whatever we have, the Explanatory Memorandum sets out, as the Minister has said, the reasons for this. It is an unusual SI in terms of an exit SI, because it is required in its provisions whether there is a deal or no deal. It is just that, if there were a deal within the transitional period, we would be able to ensure that our transition from EU involvement to being an independent participant goes smoothly.
There is a slight difference between a deal or no-deal situation. As the Minister said, 82 countries are members, and Sir Alan Duncan said in the other place that he was confident our existing participant status would be embraced by the 81 as we reapply on a slightly different basis. But doing so within the terms of an agreement to leave the EU is different from coming out at the end of March. We are faced with possible consequences, and it is those consequences that I will address.
As the Minister said, in the event that we are unable to enter an implementation period, our participation through the EU would end and UK trade would be frozen until our application for participation was approved by the other participants in the Kimberley process. In either case, as he says, this draft legislation will ensure that we continue to comply with the requirements of the process. It will secure our borders, prevent any non-compliant rough diamonds entering the UK supply chain, et cetera.
What assessment have the Government made of the impact such a break in our coverage of the process would have on our conflict prevention objectives and obligations? We have been a prime mover of this, so would there be any sort of impact? While we are saying we are going to ensure we remain compliant even outside the process, I want a better understanding of what assessment has been made if we are outside it.
Sir Alan Duncan said that the cost would be the same as now. Likewise, the impact is unchanged, hence the absence of a need for an impact assessment. Paragraph 13 of the Secondary Legislation Scrutiny Committee’s report quotes the Explanatory Memorandum on why there would be no significant impact on business—because it broadly replicates what we have now, and will apply in a no-deal situation. But the committee—I want to ask the Minister about this—found the Explanatory Memorandum,
“deficient for not articulating more clearly the potential financial and commercial consequences for the trade if endorsement of the UK’s application to the Scheme is delayed”,
coming back to this point that inevitably, if we fall out of EU at the end of March, there will be a period when we are not covered. What does that actually mean?
Is the Minister able to say categorically that a no-deal scenario, where for a period we may be outside the scheme, would not involve any additional cost to the UK diamond trade? Sir Alan Duncan responded to Bob Stewart in the other place on the fact that this is about rough diamonds, not the sort of imports and exports that Hatton Garden would have. He said that this SI,
“is about a particular category of diamond. The draft regulations mean that if we were a participant, anything legal in the Kimberley process would include us in that process; if we do not pass them today, it would not”.—[Official Report, Commons, Seventh Delegated Legislation Committee, 5/2/19; col. 8.]
I understand that this is a case for making this SI. I do not have any objection, but I want to be absolutely clear that, in this no-deal scenario, the Government are completely satisfied that there will be no financial impact, particularly on small businesses. Has there been any consultation with the trade on this specific point?
With these few remarks, I will leave it for the Minister to respond.
My Lords, I am truly grateful for the noble Lord’s participation, without which we might not be having this SI debate. I thank and pay tribute to the noble Lord. It is often said that you call your friends “diamonds”. We may call each other “noble Lord” and not “noble friend”, but I am grateful that I have a diamond of an opposition shadow Minister to deal with—often in a spirit of harmony. On the odd occasion we challenge each other, it is reflective of our mutual respect. I am grateful to the noble Lord for his contributions this afternoon.
As I outlined in my opening remarks, this instrument is crucial to the UK’s participation in the Kimberley process. This point was acknowledged by the noble Lord, and I thank him for his support in this regard. In turn, he raised the important issue of conflict-prevention objectives and obligations. As we have both acknowledged, the convention is not perfect, but this instrument seeks to ensure the continuity of the UK’s participation in a process that has seen results, especially when you see the commitment of the countries now participating in this process. It is right that countries come together to ensure that we protect this important sector and industry and send a clear message to those seeking to exploit the trade in rough diamonds. It is also important to note that this instrument maintains the status quo of the UK’s participation in the scheme.
The instrument is fully consistent with the Prime Minister’s commitment to be a supportive member of the European Union—both as we negotiate our departure and once we have left. It ensures the UK’s continuous compliance with the scheme.
I will pick up on a few of the noble Lord’s specific questions. He talked first about what would happen if the UK were not able to participate in the Kimberley process in the case of a no-deal exit from the European Union. This would of course affect the integrity of the process which we helped to establish. Without this legislation before the Committee, the UK would not have the power to seize illegal rough diamonds and would be perceived as a weak link in the process. Irrespective of how we leave the EU, this SI will ensure the UK’s adherence to the principles of the Kimberley process. It will demonstrate the UK’s continued commitment in this respect.
The noble Lord then built on the issue of conflict prevention. The fact that we are committed to participating, irrespective of the nature of our departure from the EU, underlines the importance of having this SI in place for both scenarios. Across the House, we are focused on the importance of ensuring that we prevent conflict—as I know the noble Lord is.
The noble Lord also asked about the costs associated.
Before the Minister leaves the point about maintaining our objectives and policy, I have a question. As it sort of states in the memorandum of agreement, I accept that, irrespective of whether we are able to participate as a member of the convention, we will continue to apply its conditions. That is how I read the statement. However, even if we continue to apply, will our not being—potentially for a period—a participating member of the convention allow any gaps in our ability to ensure a continuation of this?
In passing this SI, we are committed to ensuring that in any kind of gap that would occur—irrespective of whether we are formally part of the Kimberley process or not—our own industry, sector and standing as a country would be protected. In addition, more importantly, as I said, we would be committed to prevent anyone using the exit from the European Union, if it is on the basis of a no deal, to exploit any such gaps. I hear what the noble Lord said. The way this SI is drafted is to ensure that we are ready and will apply those same rules, irrespective.
The noble Lord raises the specific issue—it is a valid one—that if we were not to be part of the Kimberley process if there is no deal and there is a delay in gaining our independent participation by a given date, that would result in issues around trade. That would have an impact and I do not shy away from that fact. However, it is our hope and—it was coincidental that we informed the EU of our application to join as an independent member, not just as a member of the EU, because the EU was actually the chair of the Kimberley process at that time—we have certainly not perceived any reason why there would be any issue why we would not be able to join as an independent member.
Turning to trade and the costs, the noble Lord asked for a categoric assurance that there would be no impact. That kind of categoric assurance cannot be given. What we do have is the fact that the UK rough diamond trade currently comprises around 15 regular traders, with a few additional ad hoc traders. De Beers also imports rough diamonds for research and development and exhibition purposes. While I cannot give a categoric assurance, I assure the noble Lord that we have been in contact with traders who are making appropriate contingency plans, and we will be looking to support the industry in this respect. I assure the noble Lord that we understand that companies involved in this process will be taking appropriate contingency measures.
I appreciate that the noble Lord draws attention to the cost to the industry, and as best as possible we have certainly looked at it. We believe this will be limited. The statutory instrument itself is reflective of our intention to stay and be committed to the process. In passing this instrument today, we will ensure and give that important signal not just to our EU partners but importantly, to all members of the Kimberley process. I hope I have addressed the noble Lord’s questions quite directly.
Committee adjourned at 5.48 pm.