HL Deb 10 March 1994 vol 552 cc1593-603

7.33 p.m

Baroness Chalker of Wallasey rose to move, That the draft regulations and orders laid before the House on 7th February, be approved [8th Report from the Joint Committee].

The noble Baroness said: My Lords, I beg to move draft Orders in Council concerning Europe agreements establishing associations between the European Community on the one hand and Bulgaria, Romania, the Czech Republic and Slovakia on the other. These orders specify the agreements as European treaties under Section 1(3) of the European Communities Act 1972. They are mixed competence agreements and, therefore, require approval by all EC member states and the assent of the European Parliament before they can come into force.

The year 1989 marked the beginning of the reintegration of these countries into the wider European family. The UK has been at the forefront of efforts to bring them back into the European fold. Bilaterally, we set up the Know How Fund, through which the best of British expertise is helping to restructure these economies. But we have also worked hard to ensure that the European Union developed a positive and effective approach to this new challenge. These efforts bore fruit last June when tie European Council agreed that the associate countries should join the Union as soon as they were ready to take on the obligations of membership.

The agreements before your Lordships tonight are an important step in that process. They establish a framework for a closer relationship between the European Union and its Eastern neighbours. Through trade, economic co-operation and political dialogue, we will work together with a clear objective; namely, to help these countries prepare themselves for membership of the European Union.

The Europe agreements with Poland and Hungary have already entered into force, and both we and they are reaping the benefits that flow from them. Inaugural association councils were held at ministerial level with these countries this week.

It is right that Bulgaria, the Czech Republic, Romania and Slovakia should join them. They are anxious to prepare themselves for membership of the European Union. We are anxious to help them. The Europe agreements before your Lordships today are the most effective means of assistance we can give. I commend the orders to the House.

Moved, That the draft orders laid before the House on 7th February be approved [8th Report from the Joint Committee]. —(Baroness Chalker of Wallasey.)

7.35 p.m.

Lord Eatwell

My Lords, the objective of both the European agreements before this House tonight and similar agreements concluded with Hungary and Poland is, according to the explanatory notes attached to all the agreements before us, to provide, an appropriate framework for … gradual integration into the Community and [the] setting up [of] institutions for an effective association". That ringing objective was strengthened, as the noble Baroness reminded us, at Copenhagen, where it was stated that the agreements are indeed the precursors to full membership. Will the Minister confirm— I believe that she did, but I would like to hear it said again— that the British Government indeed view the agreements as the first step towards full membership? Do they represent a commitment by Britain and other members of the European Union actively to promote that full membership?

If full membership is indeed the objective of these agreements and they are the first step, then we should evaluate and judge the agreements to the degree to which they assist the transition of the central and east European states to full membership of the European Union for the central and east European states would surely imply three fundamental changes: first, the transition to market economies and liberal democracy; second, the attainment of levels of income per head roughly approaching those of the European Union average; and, third, the development of a structure of production in agriculture and industry which can be integrated into the European Union without excessive disruption on either side. Therefore, the fundamental question which should be asked is whether the content and operations of the agreements before us are such as to attain those three goals.

The first two goals are of course closely linked. The transition to market economies and liberal democracy is likely to be effected successfully, and to endure, in an economic environment of growing prosperity. The greatest danger now faced in eastern Europe is that democracy should be linked with poverty.

Perhaps I may deal first with the issue of transition to a market economy, and turn later to the question of building the foundations of prosperity. I shall also later have some comments to make concerning the declared intent of the agreements and the future of the common agricultural policy. In doing so, perhaps I may remind the House that these agreements have already been in effect as interim agreements for the past two years or so, so their impact can already be seen.

On the question of transition, the central and east European economies are urged to move rapidly towards a market economy, and in particular to open up their domestic markets. Yet the European agreements contain substantial protectionist barriers, particularly towards so-called sensitive industrial products— notably steel, textiles and coal— and severe restrictions on the export of agricultural goods to the European Union. Does the Minister agree that there is an obvious economic, and indeed political, inconsistency here? We encourage the central and east European countries to adopt free markets while carefully manipulating the markets in our own favour by excluding exactly the goods which those countries have some capability of selling.

In a recent article in the Independent newspaper, the distinguished commentator on east European affairs, Mr. Timothy Garton Ash, described current arrangements as: "shameful and shamefaced protectionism". It is hardly surprising then that the inconsistency in the message that we give to east European countries has caused considerable political resentment in central and eastern Europe. Does the Minister agree that that resentment towards the European Union is likely to hamper the political transition in central and eastern Europe and tarnish the image of the market economy? What will the Government do to diminish that growing resentment about the protectionism of the agreements?

I turn now to the growth of prosperity in central and eastern Europe. Raising the living standards of the central and eastern European economies is a vital prerequisite for achieving the stated objective of membership. Given the problems and the economic costs of transition, it is vital that the central and eastern European economies should be able to maximise their foreign exchange earnings. That speeds their development by financing the import of necessary new technologies and also limits the growth of their foreign debt, which might otherwise prove a severe constraint on their growth towards prosperity.

Much is made in these agreements of the asymmetry of the relationship defined between the central and eastern European states and the European Union. Essentially, that means that more concessions are being granted to the central and eastern European states than are being required in respect of the European Union. I suggest to the Minister that that much vaunted asymmetry is in fact a fig leaf for the European Union's protectionist attitude towards eastern Europe. It is the kind of asymmetry that would be present were I given a 10 yard start on Mr. Linford Christie in a 100 yard race, or, with due respect to the noble Baroness, if she and I were given five points out of six in an ice dance competition with Jayne Torville and Christopher Dean. Asymmetry there would not help us too much, and I am afraid it is not helping the eastern European countries either.

Is the Minister aware that, in the first year of operation of the interim agreements, exports from the Czech and Slovak republics to the European Union increased by the massive amount of 1.8 per cent., whereas exports from the European Union into the Czech and Slovak republics increased by 23.1 per cent. Over that same period of the operation of the interim agreements, exports from Bulgaria into the European Union increased by 4.8 per cent. Exports to Bulgaria increased by 17.3 per cent. The story is the same with respect to Romania. Exports from Romania into the European Union increased by 14.1 per cent. but exports to Romania from the European Union increased by 42.7 per cent. That, it seems to me, is what is meant by asymmetry; they buy from us we do not buy from them.

Does the Minister agree that urgent action must be taken now to halt the deterioration in the trading position of the central and eastern European states? Should not the action taken at the Copenhagen summit to bring forward the phased reduction in EU tariff barriers be accelerated? Indeed, in view of the fact that European Union trade surpluses are growing rapidly — that is, that trade with the East is creating jobs in the West and destroying jobs in the East— is not there a case for removing all European Union industrial protectionist measures now?

This discussion of protection leads me naturally to the agricultural part of the agreements. The most obvious inconsistency in the agreements is their approach to agricultural trade and the common agricultural policy. Unlike the provisions for industrial trade, which are designed to wither away in five years, agricultural trade restrictions, particularly in sensitive areas, are to remain in place. Some agricultural imports from central and eastern Europe, such as sugar, are still to be totally banned.

Not only are those restrictions particularly pernicious in their limitations on the potential exports of countries such as Hungary and Bulgaria, which depend very heavily on agricultural trade for foreign exchange earnings, but also they create major distortions in the development of central and eastern European agriculture, forcing agricultural development into a pattern dictated by the arbitrary restrictions imposed by the agreements rather than that which would be appropriate to the market. If the European Union is serious in its intent that the agreements should be the precursor to membership, the structure of agricultural production should be guided in a direction appropriate to membership and not a direction appropriate to the current obsessions of the EU agricultural Ministers.

Does the Minister agree that the common agricultural policy could not survive in its current form, and perhaps not survive at all, if the central and eastern European economies joined the European Union? If she believes that the common agricultural policy would be changed fundamentally by the central and eastern European countries' entry, would she not agree that agreements such as these, which do not take into account such fundamental changes, are likely to be damaging to the membership prospects of the central and eastern European countries? They need an agricultural structure appropriate to the agricultural system that they would enter and not an agricultural system which would disappear because of their entry.

It is only fair to tell the Minister that this afternoon her right honourable friend the Minister for Agriculture told a sub-committee of your Lordships' House that in her view the agreements with respect to agriculture were simply trade agreements and were not agreements which would aid transition. If the governments are serious about the central and eastern European countries joining the European Union and if we are not simply holding out a hope that we have no intention of satisfying, should there not be a major reform of the agreements, a reform which seriously addresses the question of agricultural transition and embodies a declaration that the European Union recognises that the common agricultural policy could not exist in its current form, if at all, once central and eastern European countries join?

For the people of Europe these agreements should be as important as the Marshall Plan. They should be as generous as the Americans were to us, both in their trade and aid provisions and in the manner in which they allow poorer countries to discriminate in their development against the rich. That is what the Americans did for us.

Instead, these agreements fail to live up to the hopes of the people of western Europe and the people of eastern Europe. They reflect the cold face of short-term economic calculation rather than the warm welcome of long-term development commitment. They are better than nothing and for that reason we welcome them. But they are not adequate to the historic task in hand.

Lord Bonham-Carter

My Lords, I shall not detain your Lordships for long on these agreements, which are very similar to those which already exist with Poland and Hungary. I agree with the noble Lord, Lord Eatwell, that they contain certain intrinsic weaknesses. It is in precisely those areas in which the central and eastern European countries find it most easy to make exports that the agreements are most restrictive; that is to say, in textiles, steel and agriculture.

However, in another place when putting forward these agreements, the Minister said: I should mention the inclusion of the important preambular paragraphs in each of the agreements that look forward to the associate countries' accession. We want the associate countries to join the European Union as soon as they are ready to take on the economic and political obligations of membership. That commitment was made, at British urging, by the Copenhagen European Council in June last year". — [Official Report. Commons,28)2/94; col.663.] So these agreements are about enlargement. That is something that we should not neglect. I have one or two comments to make on that subject. I hope that we do not repeat the mistake that we made with Turkey in arousing hopes that we cannot fulfil.

I believe that Poland, Hungary and the Czech republic are natural and essential members of the European Union and, given a long transitional period, their entry should be speeded up and welcomed as part of the consolidation of Europe after the 1989 revolutions.

I must confess that I am far more doubtful about Bulgaria, Romania and Slovakia as members of the European Union. Are we really sure that we want to encourage them to join us? Have we taken into account the digestive capacity of the European Union? After all, we are taking on Sweden, Finland and Austria and though they have many advantages as members of the European Union in being net contributors and in being fairly well-established— some very well established— democracies, nonetheless the absorption of new members, as we have found in the past, is a difficult and lengthy process.

Do we really feel that politically, historically and culturally the backgrounds of Bulgaria and Romania make them countries which within the foreseeable future will be natural members of the European Union? Will they become members whom we can absorb without difficulty? Have we learnt nothing from the experience of Greece? That was hardly a satisfactory episode in the development of the European Union. I am not criticising Greece; I am simply saying that its history, culture and bureaucratic and political infrastructure make it very difficult for it to comply with the standards of administration and so forth demanded by the European Union. Perhaps the noble Baroness can tell us when answering whether the Government are committed to the early or later accession of Bulgaria, Romania and Slovakia to the European Union. If so, I shall be rather worried.

My final point is that it is impossible toclay— I do not refer to 28th February when the Minister of State was speaking in another place— not to ask what is the real attitude of the British Government to enlargement. For years the British Government have been campaigning for enlargement, congratulating themselves on the progress made at Maastricht and at the Copenhagen Council in June of last year. Now we find that they are putting enlargement in jeopardy— the noble Baroness called it their positive and effective approach— by making objections to the proposed voting procedures in the Council of Ministers.

We on these Benches have constantly said that enlargement would lead to the need for institutional change within the European Union. Those changes must be made early rather than late; they should have been discussed at Maastricht and if they were not discussed at Maastricht they should have been discussed immediately afterwards. The Community started with six members which became 12. The arrangements were originally largely consensual. When membership increased to 12 it led to more voting. When the Single European Act was passed it moved to qualified majority voting, and when membership reaches 16 in number the idea of consensus becomes ludicrous.

The question of voting is central to enlargement, yet the Government suddenly find that it is a matter of such importance and principle that they are prepared to jeopardise their whole campaign for an enlarged Community. That certainly needs an explanation and an answer. Are the Government prepared to see the collapse of their campaign for enlargement on this issue? I should like to know what the noble Baroness thinks. Have not the Government thought about the issue? Does it come as a total surprise? It is an almost incredible example of what the Guardian described this morning as tactical thinking which was pitiful. It is a basic incompetence for which the present Administration have become famous.

Also, we should not forget the offence that it gives to our Scandinavian friends who would support within the European Community most of the features for which we have been fighting. Some answer must be given to that critical question, which must be decided this week.

Baroness Chalker of Wallasey

My Lords, I listened with interest to the points raised by the noble Lords, Lord Eatwell and Lord Bonham-Carter. It is clear that we all believe in the importance of drawing in the countries of central Europe closer to the European Union. Even though we can be critical of the agreements, they are certainly the most practical way of proceeding. I believe they are good for the European Union and they are a good deal better for the associate countries than either the noble Lords, Lord Eatwell and Lord Bonham-Carter, would have us believe.

I do not view the thought of going ice dancing with the noble Lord, Lord Eatwell, however attractive he may be, with relish, particularly not at the present moment because we would hate to crack his other collarbone. But we wish him well and perhaps when we are both in better health we shall experiment in some way.

The noble Lord, Lord Eatwell, asked whether the association of the agreements before us tonight were a first step to membership. Without hesitation I answer him yes. The British Government are committed to promoting the case for their membership. I believe, as does the noble Lord, Lord Bonham-Carter, that it will take longer for countries like Bulgaria and Romania, and maybe Slovakia, to attain that degree of economic basis that would allow them to be members. But during that time we hope that they will also improve on the other aspects of their organisation as countries which I know worry him.

The noble Lord, Lord Eatwell, greatly exaggerated what he said was a resentment within the countries of eastern Europe which will benefit from the agreements. When the Czech Republic Prime Minister, Prime Minister Klaus, talked with the Prime Minister at No.10 earlier this week, he gave no indication of any resentment, and in my discussions with various politicians from those countries, I hear nothing but a welcome for the way in which particularly the British Government have gone about seeking to get the enlargement discussions on the road and to put in place these specific agreements as a first step to eventually wider enlargement beyond 15 or 16 members, whichever we achieve next year.

When the noble Lord, Lord Eatwell, asked about the agreements being a transitional device, I felt that I should point out that in the preamble to each agreement it states quite clearly that the associate countries had the ultimate objective to accede to the Community. That objective was endorsed in June 1993 by the Copenhagen European Council. We hope that a practical framework will arise from the agreements through which those countries can achieve that objective.

At the Copenhagen Council, when the CEE objective of membership was endorsed, the council defined a framework which was geared to that objective of membership— a structured dialogue at all levels, improved market access, approximation of laws and improved use of the PHARE programme. The agreements cover all those areas and I believe will be important for the countries concerned, though perhaps more important for the Czech Republic in the short term and for the other three in the longer term.

The noble Lord, Lord Eatwell, asked me a number of questions about trade. The United Kingdom has consistently argued for more liberal agreements both for industrial goods and agriculture. The agreements did not satisfy our demands. The United Kingdom is in fact largely responsible for some modest but very positive changes which we managed to get agreed. We would like to have seen more.

The noble Lord spoke, too, of the provisions being less generous. I can agree with him. They are certainly less generous in those sensitive sectors than we would have wished. However, we shall continue to press the case for freer trade between the Community and its eastern neighbours, basing that argument on those arguments we used for the European Council and have used in discussions in Brussels both before and since.

As regards the impact of these interim agreements on trade between the Union and the eastern European countries, the volume of trade has increased over the past three years, although the CEE countries are currently in deficit with the European Union. That is truly to be expected while the Union is in recession and the CEE countries need substantial imports of European Union goods to sustain their economic reform. In other words, it is precisely that transitional phase with which they are having to cope. One of the better outcomes has been the decision which we gained at Copenhagen that from 1995 the majority of industrial products from the Czech Republic and Slovakia will have free access to the European Union. So steps forward have been made already, and so far as I can tell there is no reason why further steps of that nature could not be taken even after these agreements. It is important for the countries of eastern Europe to concentrate on removing their domestic barriers to trade; for instance, by improvement in their infrastructure, their financial systems and flows on potential markets. Many CEE exporters believe that these barriers are the major obstacle to the expansion of trade which they wish to pursue.

I mentioned the liberalisation for the Czech Republic and Slovakia. I should also have mentioned the complete liberalisation for Romania and Bulgaria by 1996. Perhaps I may also say. particularly in response to the noble Lord, Lord Bonham-Carter, that the duties on imports of the so-called sensitive goods— steel and textiles— will disappear by 1998. While one would always like to be able to do even more, what those republics need above all is a predictability and a certainty so they know exactly where they are moving.

The noble Lord, Lord Eatwell, began to talk about CAP reform. I do not think it comes as any surprise to him to hear me say that reform of the common agricultural policy is urgently needed anyway, but I doubt whether the agreements themselves will provide the major incentive towards CAP reform— certainly not one comparable with the importance of the impact of GATT or the need to respect the Edinburgh limits on CAP expenditure. The main purpose of the agricultural provisions in the Europe agreements is to improve the CEE access to EU markets by steadily reducing the tariffs and increasing the quantities that can enter the European Union under the reduced tariff quotas.

The noble Lord was anxious that the changes of which I have been speaking should perhaps hasten the way to CEE accession to the European Union. I think they will indeed. certainly give some help, although I have made clear that they are not as generous as we would like them to be. The noble Lord said that perhaps these Europe agreements appear to be defined in terms of preservation of the current structure of the CAP rather than a CAP which will include CEE agriculture.

The agricultural concessions in the Europe agreements were designed to offer CEE countries immediate benefit by means of improved terms of access to the markets of the European Union for their agricultural exports. The concessions have to be expressed in terms of the current mechanisms of the CAP since nothing else could provide the benefit in terms of improved agricultural access which the concessions were intended to confer. But the agricultural provisions of the Europe agreements were not designed to be a means of transition to the CAP by CEE countries. It is most important that he central and eastern European countries are not misled into thinking of them in that way. Indeed, the very decision that the CEE countries should in due course become members of the European Union was not taken until after the process of negotiating the Europe agreements had been completed.

The issue of how the CAP needs to be adjusted in order to accommodate the eventual accession by the CEE countries is one that is only now starting to be addressed by the European Union's policy-makers. It is a critical matter to be addressed. When agreement has been reached on the kind of adjustments that need to be made, we must examine the ways in which the Europe agreements might need to be modified in order to facilitate progress towards the accession.

There are other ways in which we are helping those countries to change their manner of operation. My own department has been deeply involved in giving assistance from the know-how funds to try to get financial and technical expertise up to the level which will be needed. There are some extremely well-trained people in all these countries but never before have they had the chance to apply that training. What the know-how funds have been so successful in doing is helping the application of knowledge already gained in their own universities. It is interesting to see how well we have done with the know-how funds. It has perhaps shown the way to the PHARE fund for central and eastern European countries and to TACIS for the former Soviet Union in how they may help in those countries. The United Kingdom goes on seeking to contribute through the PHARE programme for the benefit of those countries.

Lord Eatwell

My Lords, I thank the Minister very much for the most informative and helpful answers that she has been giving to my questions. Does she agree with me on the point that I was trying to make towards the end of my remarks? I attempted to draw a comparison between the assistance which the United States provided for western European reconstruction after the Second World War and the assistance which we are providing to eastern Europe for its reconstruction.

American efforts had two characteristics: first, the scale of aid, which in modern terms was much greater than the aid which we are giving to eastern Europe today; secondly, and probably much more importantly, the Americans opened their markets to western European goods but allowed the western Europeans systematically to discriminate against American goods so that they could build up their markets without facing too soon the cold wind of the highest quality competition in the world, which then came from the United States. Perhaps I may suggest to the noble Baroness that in pursuing an opening of markets in eastern Europe we should be prepared to open our markets rapidly while allowing them for a transition period to discriminate against us.

Baroness Chalker of Wallasey

My Lords, as I am someone who fervently believes in the whole of the GATT reforms, that idea is certainly at one with those of the Government. The difficulty is that we are talking about the situation of 12 member countries, not just ourselves. We are also talking of liberalisation at the same time as we have agreement at last on the GATT round. Taking the two things together, while we wish to be as generous as we can and encourage the market economies of eastern Europe and the liberalisation of trade, we are in a very different position from that which existed in the late 1940s. Nevertheless, this country will do all it can, and has done as much as it can, both bilaterally and in other ways, to assist those countries, and we shall go on doing so. However, I do not believe that the noble Lord is right to try to make that direct comparison.

I certainly believe that we have given the right signal to all six ex-communist countries of central Europe. There is certainly no discrimination against Bulgaria, Romania and Slovakia although I understand the concerns of the noble Lord, Lord Bonharn-Carter, as I said earlier. I observe that they will apply when they are ready. I believe that their readiness will inevitably be further away than that of the Czech Republic in particular, which is likely to follow, as the noble Lord said, Hungary and Poland in being early applicants.

Perhaps I may make one comment as regards the question asked by the noble Lord, Lord Bonham-Carter, concerning institutional change. We always knew that this was going to be a most difficult and contentious argument. I do not believe that anyone who knows the reality of European politics is surprised that that has been so this week but there is no question of any collapse of the enlargement negotiations. There are other questions under discussion, but it may be that they are not highlighted so much by the media.

I hope that there will be a solution on all the outstanding points next week. I am clear that these matters need to be resolved in a way that looks after the substantial minorities of the three or maybe four countries who are to join the European Union in the shorter term, and not only those of the existing 12 members, as Spain has so clearly explained for herself. There will always be substantial minorities. Unless the European Union has it within its power to understand their needs, then I do not believe that it will be the sort of union we want. It is possible to get agreement, and we shall. I have tried to answer the questions put to me. I believe that the orders are good orders, and I commend them to the House.

On Question, Motion agreed to.

Viscount Long

My Lords, I beg to move that the House do now adjourn during pleasure until 8.20 p.m.

Moved accordingly, and, on Question, Motion agreed to.

[The sitting was suspended from 8.13 to 8.20 p.m.]