EUROPEAN TRADE POLICY

HC Deb 26 November 1956 vol 561 cc34-164

3.45 p.m.

Mr. Harold Wilson (Huyton)

On a point of order. Before we begin this debate on European trade I wish to seek your guidance, Mr. Speaker, about how the debate may proceed. A few weeks ago we asked the Government whether they would present a White Paper on this subject so that we might have a full debate on a Motion either to take note of or to approve the White Paper. Because of preoccupations which we understand, or deplore, the Government have not produced that White Paper, and we are now being asked to debate this matter on the Motion for the Adjournment of the House.

Is not it the fact that a European common market, or free trade area, can be brought about only as the result of far-reaching legislation, and that to debate that on this Motion would be out of order? If that be the position, and since I am sure that the whole House wishes to have a thorough and useful debate, I should like to ask you, Sir, whether you would agree to rule very widely on this question and enable us at least to discuss the negotiations which might at a further stage lead to a Motion which it would be out of order to debate today?

The Chancellor of the Exchequer (Mr. Harold Macmillan)

I think that the right hon. Gentleman is quite right, Mr. Speaker. The process before any legislation, which, I should think, would be legislation to authorise a treaty, is a very lengthy one. I hope, therefore, that you, Mr. Speaker, would regard the rule about the discussion of legislation as hardly applying. What we are discussing today is the beginning of negotiations which may last for a year or more and then be followed by action ultimately leading to a treaty.

Mr. Speaker

I see the difficulty which the right hon. Member for Huyton (Mr. H. Wilson) has brought to our notice. The rule about Adjournment debates is quite clear, and cannot be dispensed with: that matters of legislation are out of order and cannot be discussed on the Adjournment. But I think that there is a great deal about this subject—so far as I understand it, which is not as much as some hon. Members understand it—which may be said and which would be in order. My hope is that we may start and see how we get on. It may be that the whole subject can be well discussed without transgressing the rules of order. I have no doubt that hon. Members will co-operate to that end.

3.47 p.m.

The Chancellor of the Exchequer (Mr. Harold Macmillan)

Whenever we are faced with the type of problem which we are to discuss today, we are conscious of three distinct forces working upon us. We in this island are founder-members of the great community with which we all feel the strongest of ties, and that community is of great importance to all of us in our daily lives. No small part of our own economic and financial strength and that of our partners depends upon our association with the various countries, independent and dependent, within the British Commonwealth. And, even stronger than these most material interests, are, of course, deep emotional bonds. That is our first problem.

Then, secondly, we are European geographically and culturally, and we cannot, even if we would, dissociate ourselves from Europe. We are moved by the continued efforts in the post-war world to strengthen the unity and the cohesion of the old world.

Thirdly, we are members of a great alliance which itself links across the Atlantic the old world and the new, and we can never be unmindful of any of these three forces at work upon us. Politically and economically we must, of course, continue our searching for a course of action which, while serving the vital domestic interests of the people of this island, would enable us to play our part in strengthening Europe as an integral part of the whole free world. At the same time, we must fortify and strengthen our Commonwealth links.

All this is not easy and successive Governments have had to face this problem. In these post-war years, in cooperation with our European friends, we have been able to do quite a lot. But sometimes we have found that we could not go along with them without damage to the Commonwealth relationship. Nevertheless, when we see a significant movement in Europe tending to strengthen the old world, we must, I think, at least try to find a way whereby, without weakening or running counter to our other interests, we may be associated with it.

The House will remember that at the Messina Conference in June, 1955, six countries, France, Germany, Italy, Belgium, Holland and Luxembourg, agreed in principle to work for the establishment of a Customs union among themselves and to promote certain action in the sphere of transport and power. A special conference was called at Brussels, under the chairmanship of M. Spaak, to prepare a Report. At that stage, we gave what help we could and joined in the technical studies, although, of course, without any kind of commitment. The Report was published in April of this year and at a special conference of the Messina Powers, in Venice, on 1st May, it was adopted by those Powers as the basis of negotiation to prepare a treaty.

This treaty will involve the creation of a Customs union. All six Powers will progressively abolish all tariffs between one another and establish a common tariff against the goods of the rest of the world. Work on the negotiation of the treaty is going forward and it is clear that considerable progress is being made. That is the position with which we have to deal.

Now let us consider the economic factors which will dominate the world during the second half of this century. They are surely the amazing strength of the United States and the rapid emergence of the economic power of Soviet Russia. These two great Powers, the United States with a home market of 165 million people and Russia with more than 200 million people, will dominate, in due course, the trade of the world. The problem presents itself: how can Europe, with its home market divided, one might say "Balkanised", as it is today, hope to compete with those two giants? Surely we in Europe should, if we can somehow find a way, join together and develop a single market for manufactured goods among our 250 million people, so that we may stand firmly and erect, and able to contribute, as we should, to world development.

What will our successors on this bench, from either side of the House—for this is not a party question—say in the year 2,000 if we fail at least to strive to see whether something of this kind can be done? Will not they say that we were short-sighted. "How can we hope" they will ask, "to catch up with America, with its hundred years' start, and Russia, with fifty years' start?" That is what they may say fifty years from now. Therefore, we ought to try to give ourselves that start and face whatever difficulties there may be—and there will be difficulties and perhaps hardships—in the course of this journey. That is the object of the six Powers, Mr. Spaak and his colleagues, in working to achieve a Customs union.

Nevertheless, whatever we may feel about this problem, I believe that we all agree that it is quite impracticable for the United Kingdom to join such a Customs union. In view of the misunderstanding of our position in this matter abroad, and to some extent at home, I propose, and I hope the House will forgive me, to spend a moment or two explaining why this is.

The countries which together will form a Customs union will not only abolish tariffs against all goods within the union, but they will also abolish their separate national tariffs against the outside world and will replace them by a single common tariff. In this process some tariffs will be raised and others may be lowered. If the United Kingdom were to join such a Customs union the United Kingdom tariff would be swept aside and would be replaced by this single common tariff. That would mean that goods coming into the United Kingdom from the Commonwealth, including the Colonies, would have to pay duty at the same rate as goods coming from any other third country not a member of the Customs union, while goods from the Customs union would enter free.

Judged only by the most limited United Kingdom interests, such an arrangement would be wholly disadvantageous. We could not expect the countries of the Commonwealth to continue to give preferential treatment to our exports to them if we had to charge them full duty on their exports to us. Apart from that, our interests and responsibilities are much wider. I do not believe that this House would ever agree to our entering arrangements which, as a matter of principle, would prevent our treating the great range of imports from the Commonwealth at least as favourably as those from the European countries.

So this objection, even if there were no other, would be quite fatal to any proposal that the United Kingdom should seek to take part in a European common market by joining a Customs union. I think that we are all agreed there. I feel sure that the Governments of the countries who are negotiating their Customs union in Brussels understand and appreciate our position in this matter. So that is out.

If a Customs union, from our point of view, is out and we cannot join it, can we be associated with it in some other way? It is clear from the expressions of opinion in this matter both inside and outside the House during the course of this year, that the desire to do so is very widely felt. This desire is based not only on limited trade interests, important and vital as they are to us, but on the fact that we must be concerned with another interest. We want to feel sure that such arrangements as those of the Messina Powers, which are intended to unite Europe, do not have the effect of actually dividing it still further. That is the tremendous reason for some association of other countries with the six.

We were, therefore, very glad to read in Mr. Spaak's report the suggestion that a way be sought for associating other European countries with the proposed Customs union, and we welcome the decision, taken by the Council of the O.E.E.C. last July, that a study should be made urgently to discover whether such an association is practicable. A committee of the O.E.E.C., in Paris, has now been at work on this matter, from the technical point of view chiefly, for two months, and there it stands.

What are we to do? We would dearly have liked to find some way by which the Commonwealth countries, with their resources of food and raw materials and rapidly developing economies, and Europe, a large manufacturing area with a great market for Commonwealth produce, might, if they wished, join together in some still wider common market. That would have been the ideal; indeed, it has been the dream of many of us, but it was soon evident—we may as well face the fact—that the developing countries of the Commonwealth would not be prepared to remove their tariffs and quotas against European goods, and that, at the same time, the countries of Europe, not having our historical link with the Commonwealth, would be reluctant to grant free entry to Commonwealth manufactures.

So we have turned to some other plan by which we could associate with Europe without injury, and indeed with benefit, to Commonwealth relationships. After all, a strong and expanding Europe is the best guarantee of Commonwealth prosperity. After the most careful examination the Government have worked out a main plan and proposals to this end. Its purpose is to harmonise the interests of Britain, the Commonwealth and Europe. As the House knows, my right hon. Friend the President of the Board of Trade and I took the opportunity of the gathering of the Commonwealth Finance Ministers, in Washington, at the end of September, to put these ideas before them. As I have already reported, the initial reaction was friendly and sympathetic, and after further discussion their more considered judgment confirms this initial reaction.

The main features of the proposed plan I must now try to describe briefly. They are these. In accordance with the broad lines of the scheme already being studied in the O.E.E.C., the United Kingdom would enter a mutual free trade area with the Messina Powers, would reach it stage by stage with the Messina Powers and—this is important—with all other O.E.E.C. countries that wished to participate. The area would then consist of the Customs union, that is the six countries as one unit, together with such other countries, including ourselves, as thought fit to join. We sincerely hope that there would be a very wide measure of support in the O.E.E.C. for an arrangement of this kind. Our proposals are not in any way intended to replace or to lessen the importance of the Customs union itself. We wish it every success in the negotiations now going on in Brussels.

Within this free trade area, that is, the six countries forming the Customs union, together with the other European countries outside the six, goods of every sort would eventually—I stress the word eventually—be admitted duty free. Each country which is not a member of the Messina customs union—this is the real difference—would retain its own separate and different tariffs on imports from outside the area. There would not be a harmonised tariff; each would have its own tariffs. It would retain its freedom of action to vary that tariff subject to any international agreement by which it might be bound at any time. National freedom of action would be retained in its own tariffs. It would also be retained in the field of duties designed to raise revenue rather than to protect home industry.

There is, of course, no question of these changes being made suddenly. The removal of tariffs must be done progressively. That would take, perhaps, a period of ten or more years and we envisage this being achieved through a number of more or less automatic and predictable provisions by all the members. Only thus could the changes in British industry, and indeed in European industry, be made smoothly and efficiently. But, of course tariffs are not the only barriers to trade, as we all know. In spite of the work of O.E.E.C. for more than six years, trade is still in some measure restricted by import quotas, most of which have been imposed by countries to safeguard their balance of payments. Those, too, would be progressively abolished between the members of the free trade area subject to a strict proviso that they might be restored temporarily at any time by a country faced with balance of payments difficulties.

Of course, we are already committed to the progressive removal of protective quotas except in special circumstances. The reductions of tariffs of which I have spoken, the progressive lowering and abolition of quotas, under the plan we envisage would embrace a whole range of products with one major exception—which is a vital one.

Mr. John Edwards (Brighouse and Spenborough)

The right hon. Gentleman has spoken about import quotas. It would help to complete the picture if he would state the intention about export quotas.

Mr. Macmillan

The right hon. Gentleman means export support quotas, or, still more important, subsidy of exports. All those would be dealt with in the same way. It is part of the plan to remove all the extraneous and unfair system and to get the free trade area into full operation. There will be thousands of details to fill in. I shall have to apologise to the House for the length of my speech. My right hon. Friend the President of the Board of Trade will answer at the end of the debate points which hon. Members may raise.

As I said, there must be one major exception to all this. We must make it clear from the first that any project we could envisage of a free trade area cannot be extended to foodstuffs, whether for man or beast, whether in the raw, a manufactured, or a processed state. Foodstuffs must be extended to include drink and tobacco. We must remain free to continue to grant to this great volume of imports the preferential arrangements we have built up over the last twenty-five years. This is an essential counterpart to the preferences which we enjoy in Commonwealth markets.

It is absolutely essential that this exception should be made so that the preferential system can remain, but that is not all. Apart from the independent members of the Commonwealth, many of our Colonies rely for their social and economic development to an important extent on the preferential treatment which their exports of foodstuffs receive in this country. So, from the point of view of independent Commonwealth countries and of the Colonial Territories this exception is vital.

I think we would all agree that—perhaps by different methods, but always with an agreed purpose—we have made a determined effort to build up an efficient agricultural industry in this country. We are all resolved to maintain it. I think we all agree that some measure of support or protection is essential if we are to maintain it. Therefore, for all these reasons—the Commonwealth interests, the colonial interests and support of our home agricultural industry—there is only one way out. It is simple, but it is vital; it is to treat agriculture as an exception in this scheme.

Naturally, that does present difficulties to those European countries which are large exporters of foodstuffs. Nevertheless, in this attitude we are by no means alone. I think that hon. Members on all sides of the House know that most countries of Europe are determined to protect their home agriculture by one means or another. Therefore, we shall not be alone in taking this attitude. This does not mean that we are not interested in trading in agricultural markets. Britain is a very great market for foodstuffs produced all over the world.

We have no reason to be ashamed of our record in this matter in the O.E.E.C. We have few quotas against foodstuffs from Europe but, if we have to exclude agriculture from this big plan it does not mean that we are not willing to co-operate in any practical measures for promoting greater trade in agricultural products. Special and individual arrangements are one thing; a wide sweeping obligation is quite another thing. Therefore, I repeat, the exclusion of foodstuffs, drink and tobacco from the free trade area is quite crucial for the United Kingdom. Unless such an exclusion is accepted, we could not proceed with any such negotiation.

Mr. John Dugdale (West Bromwich)

The right hon. Gentleman has referred to foodstuffs and also to agriculture. Does he include every kind of agriculture other than foodstuffs, because, of course, there is a great deal of agriculture in Colonial Territories which is not concerned with foodstuffs?

Mr. Macmillan

I gave the widest definition I could. I do not want to go into the absolutely detailed form of the way in which we would perform the thing, but we say that, broadly speaking, food for man or animal, drink and tobacco, would be excluded. Raw materials come under another heading.

Mr. H. Wilson

This is important. If I might suggest it to the right hon. Gentleman, he should be a little more explicit. What my hon. Friends have in mind are products such as wool. I do not think that any hon. Member would refer to that as food for mankind or beast, but, at the same time, it is an agricultural product. Another such product is raw cotton, and there are others.

Mr. Macmillan

Those raw materials are mostly duty free and are dealt with in that way. In this scheme we would make, as a general broad exception which could not be dealt with by the scheme at all, foodstuffs, whether manufactured or processed for man or beast, drink, and tobacco. Other products, wool and the rest, are duty free in any case. I have to treat this with a rather broad brush because there are many points to raise and I wish to paint the picture as simply as I can.

I now come to the advantages for which we might hope from a free trade area of this kind for manufactured goods—that really is what it is. To begin with, there is the perhaps negative advantage because not to go in is as positive an action as to go in. The negative advantage if we move towards this area is that we shall avoid being discriminated against in Europe. If we were to remain aloof while other countries went in our goods would be able to enter the markets of the rest of Europe only over tariff walls, which would place us at an overwhelming disadvantage relative to our European competitors. It is also clear that the larger market for which an industry produces gives it an advantage which can be got from the increased scale of production, the greater degree of specialisation and the greater opportunity for the development of new products and new forms of activity.

The division of Europe into a number of small units divided by tariff walls hinders its economic growth. If European industry is to make rapid progress, it requires a market comparable to those of the United States or Russia. This wider market, combined with the incentive and efficiency which competition provides, would serve to stimulate more economic forms of production, both in our own country and in the European economy.

I must remind the House that we are living—at least, we hope to go on living for the rest of this century—in a period of expansion, and that the existing limits to our industrial markets are not wide enough and we ought to widen them. The growth and heightened productivity of our industries which the widening of the European market would promote, should, in turn, enable them to compete from a stronger base with the competitors in the world at large outside Europe—such as Japan and the United States—and the United Kingdom and all Europe would be strengthened both absolutely and relatively.

The world of contracting markets, in which the great trading nations compete for a limited and often shrinking volume of demand, has been largely replaced by a world in which trade and production are expanding, and the prospects of steady growth in the future are something that we could not have dreamed of, say, twenty years ago. In this new atmosphere, it is surely wrong to talk about competition as if it has some sinister ring. We are all concerned, and rightly so, to promote conditions which contribute to a high and stable level of employment, and to an exporting country like Britain the prosperity of the countries which form her markets is the only real safeguard that her export industries will not languish from a fall in demand in those countries. That really is the lesson that we learnt from the period between the wars. Finally, the greater variety of imports available to the British consumer and the reduction in their prices should have a beneficial effect upon standards of living.

It is certain that whether this plan is adopted or not, British industry will have to live more and more in a competitive world. Naturally, in a free trade area of this kind, this is still more so. What will be the effect of competition upon our industries? The Government must try by all appropriate means to maintain the right economic climate to encourage efficiency. Successive Governments may vary in their methods, but whatever the method there is only one answer. It depends upon industries themselves, upon their power to produce products of suitable type and design, in good time and at suitable prices and upon their power to adapt themselves and exploit a great market.

For many of our industries, the gains that might be got are obvious and, indeed, enticing. For some they are problematical, and for a small group I have no doubt that they are non-existent. We must not, however, forget that if they have to be competitive in the free market as it comes stage by stage into being, they must in any case be competitive in the far greater area outside the free market. Moreover, we must remember that the removal of tariffs and restrictions will take place gradually over a period of years, allowing time for adaptation and redeployment, both in our country and in other countries. The widening of the market and the competition which this scheme would provide must be viewed by industries as a challenge and a stimulus.

I do not believe that anybody can foresee in detail precisely how British industry would be affected by the mutual opening up of markets. I do not see great danger of enormous dislocations, for one must remember that the immediate impact is of only limited operation. Our existing trade with Europe is only one-quarter of our total trade. Moreover, the length of time over which the lowering of tariffs is to be spread, taken in conjunction with the rapidly rising trend of manufacturing production, means that our less competitive industries will not, for the most part, contract.

What, surely, will happen is that those particular industries—the less competitive—will enjoy a slower rate of growth than they would otherwise have done. Over the last seven years, however—and many hon. Members who study these matters in great detail know this—our industrial development has changed tremendously in character. Its whole pattern has changed, one might say, with hardly anybody noticing it. It is, perhaps, not generally understood by the mass of people how great that silent continual change has been.

The truth is that the share in total output contributed by every major industrial group has changed quite sharply, yet virtually every major manufacturing industry has expanded. What has happened is that there have been sharp differences in the rate of expansion. All industries have expanded, but the change in pattern has been the much sharper rate of expansion in some industries than in others.

Of course, there are objections and difficulties in these proposals. If there were not, they would have been unanimously adopted by Governments before. Of course, arrangements of this kind will accentuate the changes which must take place in any growing industrial community. The changes that mean expansion for some firms and industries may mean contraction for others. Some individual firms may go to the wall, with all that that implies. I doubt whether they would be many. Making full allowance for the individual loss, however, nationally, of course, there will be gain in concentrating our scarce resources of skilled labour, technicians and managers on those things which we do the best. Moreover, there will be a little consolation, even to those who suffer some contraction or whose rate of expansion is reduced, in the sense that all this is of a general widespread benefit.

Our economy is already exposed to great pressure from outside because, as we expand our production and our imports, we must always be seeking to expand our exports. Entry to a European free trade area will somewhat increase these pressures—I do not wish to deny that. It is not simply a matter of wage rates, level of taxation, level of defence expenditure or the standard of social services, although all these things enter into it. What matters really, whether we go into the area or not, is whether we are competitive. If we are, or if we can become so, for the outside world which we must be if we are to survive, these proposals will increase our opportunities. If we are not—I will be frank about it—they certainly increase the extent to which we are at risk.

We do not know what problems this course of action will throw up over the next ten or fifteen years, neither can we attempt to settle how successive Governments throughout that period would seek to deal with these problems. We must take what reasonable precautions we can to ensure that the hands of this and successive Governments are not tied. We must be able to use all legitimate means to protect our interests in any European free trade area, but we must not exaggerate the extent to which a scheme of this kind will create new problems.

I suspect that however difficult the problems we shall have to face in the free trade area, they would be, for the most part, problems that we should have to face in any case and would, indeed, be harder to solve if this area were formed and we were outside it. The British people want to maintain their standard of living. They must also play their part in providing capital for development in the Commonwealth and elsewhere. To do that, we must be competitive. We must be ready to adapt ourselves to changing opportunities to develop the new industries where our strength lies and to be continually redeploying our resources into those fields in which we most excel.

But we shall be no less able to influence our competitors to have a reasonable regard for the policies we would seek to follow for good employment and labour standards. We should be no less able to influence them if we were inside than if we were outside the free trade area. Indeed, I think that we may be able to have much greater influence if we are in the area. In the comments which both sides of industry have made on these schemes attention has been drawn to a number of specific points which will need to be considered in the context of the free trade area. Many of these problems will arise and affect the ability of British industry to compete in world markets. Some will take on particular importance a decade hence, when tariffs and quotas against European goods will have disappeared.

If export subsidies were allowed, this would make nonsense of all that we and our European partners are trying to do and we should have to reach agreement for their abolition. Dumping may also be a problem and we shall have to ensure that our arrangements are adequate to deal with it if it arises. We have an anti-dumping Bill which is to be presented this Session.

It has been suggested that we shall need to have safeguards to prevent currency manipulation within the free trade area. To begin with, all or nearly all the potential currencies of the free trade area are already linked through the system of exchange rate apparatus agreed within I.M.F. and the payment arrangements of E.P.U., and these should go far to guard us against these dangers. Nevertheless, I think that we should delude ourselves if we thought that we could see precisely how these problems would develop over the next ten or twenty years, or devise new solutions to deal with them. We must ensure that adequate safeguards exist to deal with the problems as we see them now—and that I think that we can do—but the process and course of the negotiations will really make sure for us.

My right hon. Friend the President of the Board of Trade will deal with some of these specific problems, both those submitted already to the Government and those which will be raised in the debate.

Mr. Maurice Edelman (Coventry, North)

Before the right hon. Gentleman leaves the objections of industry, will he deal with the objections or reservations put up by British motor car manufacturers about the matter of wages? It is well known that the workers in the French motor industry receive wages approximately 25 per cent. less than the workers in the British motor industry.

Mr. Macmillan

My right hon. Friend will try to deal with that in greater detail. I would only say that the general level of wages—and I do not think that anyone would urge this more strongly than hon. Members opposite—is not the only factor in costs. If it were, where would be the vast exports of the United States, which are based upon a very high wage level?

The whole point is whether we can get a market of such size as will sustain the kind of high wages that we want to see and yet have the combination of high wages and falling costs, which modern production methods have proved to us is possible with co-operation. These are detailed problems and, of course, they will all have to be most carefully studied.

Mr. H. Rhodes (Ashton-under-Lyne)

Would the Chancellor say that we are in better shape now for competing with Western Germany or the most up-to-date countries on the Continent than we were in 1932, when import duties were introduced?

Mr. Macmillan

I was trying to say—and these are very difficult matters on which to lay down the law; I was in that period—that what we were suffering from during that period was a falling world market. What happened was because of the low price of materials, the pressure upon the producers of raw materials, the market never expanding but, on the whole, contracting. Every country was fighting for a share of a smaller market, or at least not an expanding market. Every firm in this country was fighting desperately for a share in a non-expanding market.

I believe that the new position which the world will be able to reach in the second half of the century will be the opposite. There will be an expanding market and the problem will be to meet it and create the capital to finance it with sufficient rapidity to meet the demand.

Mr. F. J. Bellenger (Bassetlaw)

Does the Chancellor intend to say anything about capital movement—for example, capital investments in this wider area, if we take part in it?

Mr. Macmillan

I have some observations to make on the money side of it. I am sorry to take so long, but it is necessary to get the Government's view broadly on the record.

The new relations with the Western European countries which we would assume if this plan comes to fruition raises the whole question of our trading relations with the Commonwealth. Let me say at once that we expect these relations to be no less close by reason of any new association. I, for one, would be no party to any arrangements which drew us away from the Commonwealth, and I think that that would be the general view here. Nevertheless, the new trade arrangements must inevitably result in some modification of the system of Imperial Preference as we now know it, and it is as well that we should be clear about what would be involved.

These changes will not be so great, because they would result solely from the reduction and eventual elimination of our tariffs against the manufactured goods of the free market. Such reductions would have the effect of removing the preferences which the Commonwealth at present enjoys in the United Kingdom market for the industrial products of European countries, and certain Commonwealth exports would have to compete within the United Kingdom on equal terms of entry with similar products from Western Europe.

This might cause our Commonwealth friends some dismay if the range of products involved was large, or if it included the goods of their greatest industries, but such, in general, is not the case. The whole range of foodstuffs, drink and tobacco would be excluded from the free market scheme and on these staple products of Commonwealth trade the preference in favour of the Commonwealth would be unaffected by our proposals. The range of Commonwealth manufactured products for which preference in the United Kingdom would be lost is really a very small one in relation to the vast market for food and raw materials.

I think that perhaps Canada is the one country which is the exception to the general rule, but she already has a special position. First, she would not lose her preference in our market against the United States. She would only lose her preference, at the end of the whole story, against other European manufacturing countries. She would keep her preference against the United States, which is very important for Canada. Indeed, it might have very great importance on the development of American subordinate industries in Canada.

Secondly, I think that it is true that the main obstacle to Canada's trade today is not the tariff, but the quota. It is her interest to secure the removal of quotas against her and to feel that once removed they would not return. I believe that the free trade area—at least, that is what we have to judge—would help rather than hinder what Canada wants, because I think that it would bring us and the whole of Europe into a position where these quotas could be gradually extinguished.

As for the Commonwealth in general, it is only vis-à-vis Western Europe that preference on manufactures would be removed. Vis-à-vis other competitors, the preference enjoyed by manufactures of Commonwealth origin would be unaffected. The net effect of the changes—and this seems to be the whole effect from the Commonwealth point of view—would be that about 90 per cent. of our present imports from the Commonwealth would not be affected by these proposals one way or another. I think it is important to bear that in mind in judging the Commonwealth side.

Then we have the Colonies. We must bear in mind their interests, their various degrees of development towards independence, and our responsibilities towards them. Since foodstuffs are excluded, and there are relatively very few preferences on raw materials—very few, but still a few preferences on raw materials—the value of the Colonies' principal preferences in the United Kingdom would remain.

In so far as the United Kingdom economy was strengthened, if it was strengthened, as a result of the new market open to us, we should be better able to discharge our responsibilities for promoting the development of the Colonies. These benefits would be obtained by the Colonies, whether or not they themselves joined the free trade area. We think that probably most of them would not wish to join, but they themselves must weigh the pros and cons from their own point of view. In all this we shall remain in the closest consultation with them.

So much for the Commonwealth and the Colonies. Might I say just a word about another aspect of the United Kingdom point of view? A few of us were Members of this House a quarter of a century ago, when the great changes in tariff were enacted. I am sure that one of the most powerful reasons which led us to adopt those measures was the belief that only if we were armed with a tariff would we be able to negotiate effectively with other countries to get their tariffs down.

I remember that, from the very beginning of that debate, that was the great argument. The tariff, it was said, gave us a bargaining weapon. Few can go still further back—except perhaps as children—and remember the great free trade versus tariff reform talks at the beginning of the century, and the arguments put up by Mr. Joseph Chamberlain and Mr. Arthur Balfour. I shall not weary the House with a long list of quotations from speeches in that controversy—a controversy which I have no wish to renew—but there is one quotation from that time which is particularly apt.

About forty years ago, Mr. Balfour said: Hitherto, it has been impossible for us to negotiate effectively with other Governments in respect of commercial treaties because we have neither anything to give which they wish to receive nor anything to take away which they are afraid to lose. I think that that exactly sums up the major argument, or one of the major arguments, for the adoption of a tariff system.

Since the war, however, the weapon which we forged for ourselves in 1932 has been used. It has been used by Labour Governments when in office and by Conservative Governments, in all kinds of negotiations for the reduction of tariffs. What a magnificent justification of the policy to use this weapon if we could extend it not only for the reduction of tariffs, but for the abolition of tariffs over a period and covering a large area of Europe—and that by mutual agreement! It would, indeed, be fulfilling the very purpose for which the tariff weapon was largely forged.

It has, of course, been the declared policy of successive British Governments since the war to work for the removal of restrictions on trade and payments, to secure a reduction of impediments to our exports and, when we can, to restore the convertibility of sterling. To this end we have joined, and have played a leading part in the setting up of the International Monetary Fund. We also hoped to set up the world trade organisation, but this we could not achieve. We entered the General Agreement on Tariffs and Trade, and even those who feel that its limitations can sometimes be embarrassing to us must agree that it has done a great deal to reduce restrictions on trade of one kind and another. But much remains to be done, and we look forward now to ratification of a further agreement for the organisation of trade co-operation.

That advance to the freeing of trade, and particularly of payments, remains, I think, the policy of the British Government. The proposals which I have outlined to the House are proposals within the broad framework of that policy. We shall stand ready to reduce our tariffs against the rest of the world if the rest of the world reduces tariffs against us. It will be our policy to relax, as and when we are strong enough, quota restrictions.

I believe that the setting up of a free trade area in Europe will ultimately help to ensure conditions in which such restrictions on imports from the dollar area, if once they can be ended, can best be avoided for the future. If, as we believe, the economies of the European countries are strengthened by these proposals, and if, with the large market at their disposal, European industries can develop on lines which match the industries of the United States, these seems to be the best conditions on which Europe can face the future.

I ought just to say a word, for the outside world particularly, about how this affects our policy on money and monetary matters. It remains our policy, when we can and when the conditions make it possible, to make the £ convertible, but I do not think—and this is the point—that anything that we can do in this plan can do anything but strengthen, in the long run, the value of the £ sterling if it strengthens, in the long run, the wealth and prosperity of Europe. We do not contemplate a common currency for the free trade area. Indeed, there is nothing in the free trade area that would require it, for we must remember that sterling, although our currency, is used internationally; and it is said that half the world's trade is still done in sterling.

I have set out—at rather greater length than I had intended, but this is, after all, a very great subject—the problems with which we are faced. I now come to the course of action which the Government have been examining and are to take. As I have shown, any positive action, while carrying promise and hope, also carries with it great risks, and the Government would not have promoted this debate this afternoon if they had not formed the view that, on balance, this course is a desirable one for this country to follow, or, at least, to explore by negotiation with the countries concerned.

After all, such a plan cannot be implemented overnight. It would take many months to negotiate, and thereafter, more than a decade to bring into full operation. It is not, therefore, a course—and I say this, I hope, with absolute sincerity—upon which we feel we could launch as a purely party matter. We must take a Governmental decision, but because of the length of time which all this must take it would not be right to start on this course unless there was a reasonable assurance that all parties in the State and all sections of industry were, by and large, prepared to give a general support to it. That is why we have sought advice from industry and from the trade unions, and now come to Parliament.

There are three courses open to us—and we must do something. We cannot just do nothing about it. The first course is to say, perhaps regretfully but firmly, that we in the United Kingdom must stand outside of these developments. If we are to do that then it is, I think, only fair and honest for us to say so now. No doubt the Messina Powers will go ahead and form their trading arrangements without us. They may even attract into their orbit other countries of Europe. If this happened we should be excluded from these markets or, at least be able to enter them only under great handicaps.

The second course would be to do everything we could, to use all our efforts to upset this plan—to try to prevent it developing, to try to stop the Powers of Europe from getting together into a single market—and thus avoid having to make up our minds on the matter at all. But I am sure that this would be a very wrong decision, and it would be a terrible responsibility for us to take purposely to try to undermine the movement for European unity of this kind. I do not think that we could possibly justify such an action.

The third course, therefore, is to offer to our European colleagues in the O.E.E.C. proposals of the general character that I have outlined, and to find out whether, upon the basis of these, a satisfactory outcome of these discussions is possible.

It will be some time before we shall know whether such arrangements can be worked out in detail. I myself would doubt whether 1957 would see the end of the negotiations. Throughout this time we would continue to consult all those interested in the Commonwealth, including the Colonies, and those in the United Kingdom. We should keep in the closest touch, on how the negotiations were proceeding, with both sides of industry and inform them constantly how our talks were going on.

Next, of course, if all that reached a conclusion, there would be the preparation and ratification of treaties or other legal instruments. Then would follow the period—it might be ten years—before the European free trade area was fully established. While I agree that we should not act precipitately, in my view we should not drag our feet. I must, therefore, tell the House that we propose to follow the third course and put forward for discussion and negotiation all the proposals which I have outlined.

We shall hope soon to hear whether this invitation and this type of proposal will be welcomed in Europe. Only time can show whether it can be brought to fruition, but I am convinced—and my colleagues are convinced after great thought on this matter and much consultation with many interests—that we should be wrong not to make the effort.

4.42 p.m.

Mr. Harold Wilson (Huyton)

Those of us who read with some alarm the Press last Friday with its intimation that the right hon. Gentleman the Chancellor of the Exchequer was likely shortly to claim his viscountcy, have approached with some sense of relief the fact that the Chancellor has felt able to vouchsafe another speech to us before there is any question of his going to another place.

I hope, however, that he will acquit us of ingratitude if I say to him that however important the subject which we are debating today, and however lucid his account of the problems which he has given to us, many of us at any rate on this side of the House, and I suspect a number of hon. Members opposite, wish that he had devoted his energies and his time to dealing with something a little more immediate today, and that instead of giving us an assessment—I agree that we must have this debate sooner or later—of what the future of European trade looks like over the next half century, instead of debating and discussing a scheme which, on the Chancellor's own admission—and he is quite right about this—will take some twelve or fifteen years to carry out, he should have given us some survey of Britain's and Europe's economic prospects—not in the next twelve or fifteen years but in the next twelve or fifteen months, or even weeks. That is what the country really wants the Chancellor to tell us. I hope that we shall get him to devote some energy and some of his very great abilities to this problem before long.

The Chancellor showed at the beginning of his speech, in what, if I may say so, I thought was one of the most eloquent parts of what he had to say, that in his approach to this problem he was thinking not purely in economic terms, but in political terms, that the Government were wishing to make some kind of gesture to Europe at this very critical time.

I am sure that all of us recognise the political motives that underlie the proposals which are before the House today. I do not intend to say anything about that aspect of the matter. If he is successful in catching your eye, Mr. Speaker, my right hon. Friend the Member for Brighouse and Spenborough (Mr. J. Edwards) who, if I may say so, has established a unique reputation for himself in the work that he has been doing in Strasbourg recently, will obviously want to concern himself a little with that aspect of the subject.

There is a desire in Western Europe to assert itself as a specific area of the world. If this does not stem from a desire to create a third force in the world comparable in its power with the American area and the Soviet bloc, at any rate there is a strong desire in Western Europe to create a third market in the world. But, of course, the Chancellor of the Exchequer—I do not think anyone will doubt the sincerity of his desire to stimulate the progress of European unity—has strange ways of showing his devotion to the European idea. No one doubts his sincerity about this fifteen year plan, but, of course, the value of that fifteen year plan has been obliterated by the immediate actions of Her Majesty's Government and the effect of those actions on the economies of Western Europe. So we find that the right hon. Gentleman's way of wooing Europe is first to give the lady a black eye, and then to come along with fair promises of all that he is going to do in fifteen years time.

I do not think any hon. Member opposite can deny that what Western Europe is primarily interested in today is oil. The right hon. Gentleman will not, I am sure, seek to deny his share of the responsibility in the desperate situation which has been forced on Western Europe. If hon. Members are in any doubt about that, they should consider the very serious position that Western Europe is facing this winter as a result of no action on its part. I am a little concerned—and I am sure the right hon. Gentleman will agree with this—that if the immediate effect of recent actions in the Middle East were to cause industrial depression in Western Europe, that might have quite a serious effect on the progress of the negotiations that we are debating this afternoon.

Only this morning, I think, the Manchester Guardian, in a leading article, said that it would be a matter for great regret if any industrial depression, for instance, in France resulting from shortage of oil and other immediate economic difficulties, led France to be more difficult in the negotiations which, as the Chancellor has rightly admitted, are going to be very difficult indeed in any event.

Having said—and I hope the Chancellor has taken note of this—that the House expects from him in the very near future a much fuller account of Britain's economic difficulties than he has given us, I will now join with him in turning to this essentially long-term proposal. The first thing I want to say about it is that it is not in any way a panacea for the economic ills either of this country or of Western Europe. I think that needs to be said. Secondly, despite the jargon which has inevitably crept into the discussions on this subject, what we are debating this afternoon is not a common market or a free trade area. It is an area of tariff-free trade, and that is as far as it goes. That is all we are talking about.

I know there are some who are a little mesmerised from time to time by thinking of the great American free trade area where there is not only a complete absence of tariffs between the separate States, but a free movement of capital and labour, and everything that constitutes a common single price market and a common free trade area. This is not what has been suggested here in Europe, as I think the Chancellor would be the first to concede. We are not talking about a scheme involving the free movement of capital or the free movement of labour. What we are talking about is an area between the separate parts of which there will, with certain significant exceptions, be no tariffs on goods entering into trade within that area.

Mr. Arthur Holt (Bolton, West)

Would the right hon. Gentleman agree that the proposals as produced so far by the Messina Powers in no way envisage the prevention of a free movement of either labour or capital?

Mr. Wilson

I entirely agree. The Messina proposals, in so far as they relate to the scheme for the six Powers, do involve something in the nature of a common market and free trade area; but the Chancellor said, at the very beginning of his speech—and I think we agree with him—that we are not contemplating adherence to the Messina scheme or to the Messina six-Power "club".

For the reason I have given, the positive advantages are much more limited and much more speculative than might have been thought by those who have been misled by such terms as "common market" and "free trade area." There may, however, be considerable positive advantages, and, as I shall go on to say, this country must enter into the negotiations fully and frankly with a desire to find a solution to the problems we are facing. We must certainly go into them, as the Chancellor quite rightly said, not in any mood of obstruction or delay, but positively, in the hope of working out a helpful European arrangement.

Apart from such political advantages as there may be stemming from the greater unity of Western Europe, I hope we shall not go into this with excessive hopes of what it will achieve economically. For instance, there is a view held by some, and the Chancellor at one point tended to lend support to it, that certain industries, finding a large market open to them, will substantially expand, perhaps double or treble, their industrial capacity because they will now have the whole of this Western European market open to them. I am not sure that any British industry is likely to do that, merely with a promise of a removal of tariffs over a period of twelve or fifteen years in the Western European market.

The reason why I say that is to be found in a fact mentioned by the Chancellor in his speech. He said that in order to protect this nation and the sterling area from a balance of payments crisis, we must reserve the right to impose quantitative restrictions—quotas. I agree that that is an absolutely essential defence for the sterling area. Nevertheless, if there is that threat of the quota axe falling at any moment in any of the countries in Western Europe—for this is not a concession we could keep to ourselves—then I doubt whether many British industries will feel sufficiently confident to lay down capacity themselves purely on the expected increase in demand in Western Europe.

I notice that the Chancellor today did not produce an argument, which, I think, attracted him a few weeks ago, that the Western European market would provide a source of capital for the underdeveloped areas of the world. He did not make very much of that today. I am glad he did not, because I think it is illusory. I do not believe that this scheme is likely to build up a capital surplus for investment; indeed, there is no hope for the attack on world poverty and the problems of the under-developed areas unless—I know this may possibly upset hon. Gentlemen opposite—that job is tackled seriously by the Specialised Agencies of the United Nations. It is not a job for the Western European market.

The Chancellor did put more than once in his speech the main and immediate question facing this country, can we afford to stay out? I am sure the answer is that we cannot afford to stay out. Western Europe, referring here to the O.E.E.C. countries who may be expected to join and not purely to the Messina Powers, represents a market for something like 25 per cent. of our total exports and rather less than 25 per cent. of our total imports. In 1955, £700 million of our total exports went to these O.E.E.C. countries. I am assuming for this purpose that we might expect Scandinavia, Austria and Switzerland to join the scheme. Against the £700 million exported, we imported about £870 million.

Many people will say immediately, of course, that we already have an adverse trade balance with the area. But I would remind hon. Gentlemen that if we exclude agriculture, there is then a substantial trade surplus. Taking manufactured goods alone, there is a surplus on 1955 figures of about £200 million in trade between this country and the countries who might be expected to join a wider free trade area.

The real issue which is in the minds of all hon. Members is, can we leave this market free to German industry to overrun? Already competition from Germany is formidable and growing. We must ask ourselves what would be the position if we had to pay tariffs in this area and German industry entered the market duty free. For this reason, if for no other, it would, I submit, be the duty of this House to advise the Government that they cannot reject the opportunity to go on with the examination of this scheme.

Now I should like to come to the positive attitude that I feel the Government ought to adopt. First of all—and I put it first, as I am sure all hon. Gentlemen would wish to do—we must consider the position of the Commonwealth in all this. If Western Europe accounts for 25 per cent. of our trade, the Commonwealth accounts for 50 per cent. of it. Certainly the Commonwealth is much more complementary to us than many of the countries of this free trade area, which are largely competitors.

The Chancellor, in some well-chosen passages, referred to his attitude to the Commonwealth. We had the usual graceful genuflection in the direction of the ideal of Commonwealth trade. But, as we all known from the experience of the last five years, the party opposite is the Commonwealth party no more. [HON. MEMBERS: "No."] Certainly. This Government have done very great harm to Commonwealth trade. They have been so anxious to free the commodity markets that they have broken up most of the trading links with the Commonwealth. We recently had the discussions with Australia conducted by the President of the Board of Trade, and we saw how the Australian Ministers feel about all this. What they are interested in is not all these ingenious schemes, not even, I think, preferences, but firm orders for their products, and that is what they have not been getting under this Government.

The Chancellor referred to the Colonial Territories. One has only to look at the effect of the Government's doctrinaire abolition of the Raw Cotton Commission and the establishment of the "phoney" Liverpool Cotton Futures Market to see what has been the result as regards long-term contracts enjoyed by the Colonial Territories with Lancashire for the sale of Commonwealth cotton.

Speaking on behalf of the party which does not talk so much about Commonwealth trade, but does a great deal for it—[HON. MEMBERS: "Oh."]. We did, in fact, propose something which this Government have never proposed, namely, a Customs union within the Commonwealth. That proposal was put forward by the late Ernest Bevin and the late Sir Stafford Cripps. It was unfortunately turned down by other Commonwealth countries.

The President of the Board of Trade (Mr. Peter Thorneycroft)

Does the right hon. Gentleman mean by a Customs union within the Commonwealth that all Commonwealth countries should lower, and indeed remove, all tariffs in trade within the Commonwealth, and that there should be a common external tariff against the world?

Mr. Wilson

As the right hon. Gentleman well knows, the proposal made by the two late lamented statesmen to whom I referred was that there should be no tariffs between Commonwealth countries. As to the question of outside tariffs, that is a matter which, in a common market and free-trade area, would have to be gone into. The proposal was discussed in the House at the time.

Speaking, as I say, on behalf of the party which did a great deal for Commonwealth trade—

Major H. Legge-Bourke (Isle of Ely)

And started G.A.T.T.

Mr. Wilson

If the hon. and gallant Gentleman thinks that G.A.T.T. has been very harmful to Commonwealth trade. I am not sure why he has not succeeded in persuading the Government to drop it.

Major Legge-Bourke

However advantageous in certain respects to individual members of the Commonwealth it may have been, it did involve the United Kingdom surrendering the right to discriminate in its trade.

Mr. Wilson

If the hon. and gallant Member looks at the records he will see that this has been stated many times: I made it clear to the American Government on behalf of the Labour Government in April, 1951, speaking at 3 o'clock in the morning, that we should not seek to make G.A.T.T. permanent on any basis which continued the requirement that we could not increase preferences. That was stated clearly on behalf of the Labour Government. That position has been abandoned by this Government. I am not necessarily condemning the right hon. Gentleman for it, because I know the immense difficulties he has on this point with certain other Commonwealth Governments which do not share the enthusiasm of the hon. and gallant Member for the Isle of Ely (Major Legge-Bourke) for certain aspects of preference. It may be regrettable, but that is a fact.

This Government, as long as they last, should seize this moment, the moment of entering into discussions on a European common market, to announce positive, specific and effective measures for increasing Commonwealth trade. There is no need, I believe, for the expansion of European trade which we all want to sec to be at the expense of Commonwealth trade. I am sure that the President of the Board of Trade agrees with that. But the expansion of European trade will be at the expense of Commonwealth trade unless the Government take immediate and specific action.

The action which I have in mind is a decision to reintroduce centralised buying and long-term contracts, without which it is nonsense, and I almost use the word hypocrisy—my right hon. Friend the Member for Battersea. North (Mr. Jay) suggests the word "humbug"—to talk about Empire trade. We cannot talk about it unless we are prepared to introduce long-term contracts for Commonwealth products.

The reason I say that the Conservative Party is no longer the party of Commonwealth trade is that hon. Members opposite are not prepared to sacrifice their doctrinaire views about commodity markets to what I believe are sincere views about Commonwealth trade.

If the Government would do as I have suggested it would be of benefit to Colonial Territories as well as to the self-governing territories. It would be of benefit to this country, to our dollar balance and to the efforts of all parties to stabilise the prices of food and raw materials in this country. I only wish that in the last five years we had seen more of these policies and less of what I believe to be rash experiments in convertibility, liberalisation of dollar imports and setting the commodity markets free. With those policies, I think we should be in a stronger economic position today.

I turn to the safeguards and conditions which will be required and for which we should press in these negotiations in the O.E.E.C. First, there was the safeguard referred to by the Chancellor in his reference to the products of agriculture and horticulture. I agree with him that for both the reasons he mentioned—because of internal policies for home agriculture and also because of the great interest of the Commonwealth in trade in agricultural produce—it is right that we should exclude agricultural and horticultural products from the operation of this scheme. My right hon. Friend asked whether the Chancellor was talking about food and feedingstuffs or about agricultural products, because we have also to consider agricultural raw materials.

The second condition which I want to stress is the need to reserve all the powers we may need to protect our balance of payments. The Chancellor referred to import restrictions, and, again, we are at one with him on the need to preserve these powers. I would go much further and say that we must reserve all our rights to impose exchange control, including control over capital movements. It is vital, at this time above all, that the Chancellor should do nothing to throw away the defences which are essential to the maintenance of our gold and dollar reserves. Indeed, I feel that before very long, before many days are out, the Chancellor will have to give thought to methods of strengthening our existing defences for the gold and dollar reserves, and there should certainly be no question of weakening them.

Again, I think the Chancellor must ensure that this process of removing tariffs in no way makes us more vulnerable to gold losses through the modified gold standard system which is operating in Europe today through the E.P.U. I suggest to the Chancellor—I am sure he has this in mind—that an essential condition of this proposal is a complete overhaul of the European Payments Union. I thought it was a very bad step when the Government agreed to the 75 per cent. gold formula in E.P.U. I charitably said "agreed," but there are many who think it was the United Kingdom Government who took the initiative in proposing a figure of 75 per cent. instead of the previous 50 per cent. If it were, I should like to remind the Chancellor that on the best calculations I have been able to see, the increase from 50 to 75 per cent. has cost this country about 100 million dollars over the past year because of the E.P.U. formula. I hope that the Chancellor will tell us that when he goes into these negotiations he will press for the removal of that gold clause of E.P.U., or at any rate for a very substantial reduction in the gold percentage.

Mr. Gerald Nabarro (Kidderminster)

Would the right hon. Gentleman tell the House what he has in mind as a substitute for the existing arrangements under the 75 per cent. gold payments? Surely surpluses and deficits have to be dealt with sooner or later, and it is only a question of how much sooner or how much later.

Mr. Wilson

I intended to come to that, but if the hon. Member wants to know what I should propose for 75 per cent., I would say 50 per cent. or preferably 25 per cent. and a bigger credit swing. I feel that the right hon. Gentleman must insist not only that the gold proportion must be reduced, but also that the amount of the swing, the amount of credit advanced by E.P.U., should be considerably larger than it is at the present time. I think the greater freedom of goods to move and the danger that there might be a temporary deficit for this country as a result of a sudden movement of particular commodities ought not to put this country in a more vulnerable position in respect of the payment of gold.

Indeed, the suggestion has been made, and I hope the Chancellor will keep an open mind on it, that there might be a central bank for the area, not only to extend credit and to carry out the extended credit duties of E.P.U., but perhaps to take positive investment action in depressed sectors of the free trade area. All are afraid that depressed areas within the free trade area might possibly drag the rest of the area down, and there is a lot to be said for the creation of a central bank or a central investment board to help some of these debtor areas, these depressed areas, by positive investment projects.

I emphasise that this is absolutely vital, otherwise—and I suspect that some people, not the Chancellor, may have this motive—any period of adverse balance might lead to pressures for policies of deflation involving unemployment in the United Kingdom or in other areas. If there is no system of credits and if there is a serious attack on our balance of payments position, I think the pressures for internal deflationary policies may become almost impossible to withstand. The Chancellor has on more than one occasion said what he thinks about pressing those deflationary policies too far. We have become only too familiar over the last year or two with the fact that once we start a policy of pushing interest rates up as a means of controlling the situation, what we have is not a flexible instrument but a ratchet which will go only one way. The effect of the increase is lost and then we have to impose a further increase with a further twist of the credit screwdriver. It would be extremely dangerous if we got into a position in which we had to rely even more than the Chancellor relies at present on deflationary means of preventing a balance of payments crisis.

Indeed, I will go further. I hope the Chancellor will tell us that policies of international full employment will underly the whole conception, that they will be written into the treaty and that specific agreements on the lines of those worked out by international agreement in 1949–50 will be part of the final arrangements that he hopes to see.

I come to another necessary safeguard. The Chancellor must preserve full freedom for all the policies necessary for the maintenance of full employment and full production in this country. If the right hon. Gentleman is just thinking of this scheme as a means of generalising over Western Europe the policies of Tory freedom under which this country is languishing, then he should go no further with it. He must reserve the right to introduce all the measures of economic planning which are needed for full employment and for expanding investment and expanding production. In particular I would emphasise the need for a Development Area policy.

There is no doubt that certain areas may be badly hit over a period of years as a result of what we are debating today. Therefore, it will be more necessary and not less necessary that the Government should have an effective policy for bringing employment, bringing factories, bringing industrial prosperity to areas that may suffer. I think the Government may go a little further in this. They may need special policies to help particular industries. I do not mean by subsidies. I mean by giving aid to help them get on to their feet again. The whole Development Area policy has been one of helping a sick area to become a development area. We may need a policy, I think, to help a sick industry to recover, especially one which is suffering from the draught of European competition. I hear an hon. Member mention carpets. I do not know whether that is an industry that the Chancellor would have in mind or not.

I gather, to come to my fourth condition, that the Chancellor is not proposing that there should be a free movement of labour within this area, but there is in many industries—and there is in the mind of the hon. Member for Kidderminster (Mr. Nabarro), I think—some apprehension about under-cutting by cheaper industries abroad. Therefore, parallel with the twelve to fifteen years' tariff process there should be positive action to improve labour standards, and especially to improve social security standards. I hope the Government will tell us they are going to use the full powers and the full facilities of the International Labour Office for this purpose during the twelve to fifteen years. I hope they are going to begin by making a reality of Article 2 of the Brussels Treaty, which is very relevant in this connection, but there should be included specifically in the agreement or treaty a provision relating to labour standards on the lines of Article 7 of the Draft Charter for the International Trade Organisation.

Fifth, since the purpose of this whole operation is a freer flow of goods, we have to recognise that the purpose would be utterly frustrated if we saw the emergence within Europe of international cartels or market-sharing arrangements. Therefore, I ask the Chancellor to tell us that he will press for a specific clause to be written into the treaty to prevent cartel action of this kind.

There are certain queries in the minds of many industries and one very difficult and knotty point about re-exports. As we know, some countries have liberalised their dollar raw material imports more than we have. If those countries are able to get cheaper dollar raw materials than we can, this country must be protected against their re-exporting those materials either in the form in which they are bought or in only a slightly processed form.

Mr. Rhodes

It must also be remembered that some countries have allowances of more dollars for the purchase of raw materials than we have at the present time.

Mr. Wilson

That is really my point. Suppose dollar cotton were cheaper than cotton from the rest of the world—which it is not at the moment—there would be a real danger that a country like Belgium, which seems to have more dollars to spend for her industrialists, would be able to import cheaper dollar raw cotton and either export it direct to us at a dollar or gold cost or to export it with a veneer of processing added to it, which might have very serious effects on our position. I am sure this is a point which the Government have in mind.

The Government have been asked about the double pricing of coal and steel. While we recognise that the usual G.A.T.T. rules against low export prices, against subsidies, dumping, and so on, would presumably apply, and presumably be written into the treaty, I understand that the right hon. Gentleman has given an assurance that, as far as he is aware, there would be no limitation on double pricing the other way, and that there will be nothing to prevent the National Coal Board and our steel industry from selling our coal or steel abroad at higher than its domestic price, so long as it does not fall below the domestic price.

I hope that the President of the Board of Trade will tell us a little about the strategic industries, the watch making industry and others set up after the war for the purpose of giving us the necessary skills and machinery for certain strategic requirements. I presume the Chancellor will not attempt to protect them by tariffs. I presume, therefore, that the ordinary G.A.T.T. rules about subsidies will apply to those industries, namely, that an industry as a whole may be subsidised, but that we cannot give a specific export subsidy to its products.

I would conclude with one or two general observations about this proposal. As I have said, and as the Chancellor implied, this is not a panacea. It will not solve our continuing economic problems of itself. Our salvation lies, and lies only, in our own efforts, our own inventiveness and, above all, in the level and efficiency of investment in British industry. If we are successful in the period covered by this plan in converting this country from a low investment economy to a high investment economy, we have nothing to fear from the results of this plan whether production is intensified or whether there is removal of tariffs or not. But if we fail, if we remain a low investment economy, we shall go under any way. The Chancellor said that very frankly. The freeing of European trade restrictions will merely hasten the process and make it more complete. I think the Chancellor put that point very fairly a few moments ago.

We therefore regard this plan, if appropriate arrangements can be made in the negotiations so that we can enter it, not as a generalisation of a free economy, but as a change of policy which will require very fundamental changes of internal policy in this country. This is our chance, our one chance to increase investment, and in our view this will mean more controls, more positive Socialist planning measures, more positive use of public ownership, not only to increase the total volume of investment in this country, but also to direct that investment more purposively into the industries we most need to expand.

This has simply not been happening over the last five years. This debate, the whole development of this scheme, takes place under the shadow of German competition. Between 1950 and 1955 German investment in manufacturing industries doubled, whereas British investment rose by an entirely insignificant proportion, in any case mainly in the less essential industries.

Consider investment in the metal industries, the most vital and dynamic sector of the economy. In Germany that investment increased from 32 per cent. to 56 per cent. of total investment.

Mr. Julian Ridsdale (Harwich)

Net or gross?

Mr. Wilson

Net.

Mr. Ridsdale

The Germans have not had an armaments programme.

Mr. Wilson

While I appreciate that, I repeat that while Britain has a much smaller absolute volume of total investment, Britain showed an increase in the metal industries section of only from 36 per cent. to 42 per cent. of total investment.

Mr. Nabarro

And we have higher taxes.

Mr. Wilson

Hon. Members can have their own explanations why this has been going on. I am content today only to record the facts, which are important, I am sure, to the whole House and the whole country.

Since 1950 German exports have increased from 2 billion dollars to 6.1 billion dollars, while ours went only from 6.3 billion dollars to 8.5 billion. In the last two years, in the exports of durable consumer goods, one of the main items of exports, Germany increased exports by 50 per cent., while ours were practically unchanged. German monetary reserves, practically non-existent as late as 1950, are now about 4 billion dollars, the largest outside the United States and the Soviet Union, and are nearly double ours. I agree with the hon. Gentleman's point that they have had no arms programme, but they have accumulated reserves despite having had to pay out hundreds of millions in reparations, in the repatriation of claims and assets, foreign loans and premature debt repayments. All this has to be counted on the other side.

I am quoting these figures not for the purpose of starting an argument as to why Germany has been able to put up this record. I suspect that there would be very many different views on both sides of the House on that subject. I quote them to show that unless we can equal Germany's record in investment in industry this would be a very dangerous scheme for us to enter, and an even more dangerous scheme for us to keep out of. I am quoting these grim facts not to lend support to those who say that because of German domination we should keep out of it. As the Chancellor implied, we are facing intensive German competition any way, and it would be made doubly intensive if the Germans were facing a tariff-free market and we were facing formidable tariff barriers in Europe. I am quoting them to emphasise that association with the proposed free trade area underlines the need for more positive measures to increase investment than this Government dreams of.

Finally, in a wider sense, we should approach not merely the United Kingdom problem in this positive manner, but the whole European scheme. I think that the Government's idea is that if certain restrictions are removed in Europe, trade and economic development may increase. This may be true, but this is a negative approach. If one wants a car to go, it is not enough merely to remove the brakes unless one is going downhill, and of course this country and Europe are facing a great uphill struggle. One has first to remove the brakes, but one also has to provide a driving force—perhaps it would be indelicate to mention petrol.

This is why we stress the need for positive measures to expand trade not only in depressed and laggard areas in Western Europe, but in the entire world. This scheme is useful. It removes one impediment to greater European trade, but unless we see it as part of a wider pattern, with positive measures to increase Commonwealth trade and positive action greatly to increase the standard of living and economic development of the underdeveloped areas of the world—which is our declared policy—and unless we fit the United Kingdom to play her full part by strengthening the industrial and trading system, the idea behind this will remain an empty delusion.

Therefore, I say to the Chancellor. "Enter the negotiations with our encouragement and support." I give the right hon. Gentleman the pledge that Her Majesty's Opposition, so long as it remains the Opposition, will not be found ranging itself on the side of any protectionist lobbies in this country, though we shall be pressing the Government extremely hard on some of the national safeguards to which I have drawn attention. But in saying this, I ask the right hon. Gentleman to realise that it will need vast and revolutionary changes in both the country's internal and international policies and thinking if all that he hopes to see and to realise from this scheme is to be fulfilled.

5.24 p.m.

Mr. Maurice Macmillan (Halifax)

I must first ask the indulgence of the House towards my maiden speech, and I am sure that in the circumstances the right hon. Member for Huyton (Mr. H. Wilson) will forgive me if I do not follow him in respect of most of his argument, though I am happy to agree that on neither side of the House do we consider that this scheme is in any way a panacea and that the point is that we cannot afford to stay out of it.

As my right hon. Friend the Chancellor, whom I am only moderately happy to see in his place, has pointed out, we must look at these plans against a background of expanding industry. Since the war, industrial expansion throughout the world has been continuing, and though it may be argued that we in this country came into it rather late, we cannot doubt that the expansion in Europe as a whole has been considerable. As the right hon. Member for Huyton pointed out, we must maintain our position in this expanding industry if we are to maintain the high level of employment and prosperity which we have reached.

This is especially true of those industries which demand the greatest skill and whose employees therefore command the highest wages. It perhaps might go some way to meet the point raised by the hon. Member for Coventry, North (Mr. Edelman) if I say that in a widening market we can afford to pay the higher wages, in the same way as is done by the United States, at economic prices.

Though we must not forget that the Commonwealth is still our biggest market, it is not the market which is expanding the fastest. The only figures that I can find show that imports into the Commonwealth as a whole, from all sources whatsoever, since 1950 have remained static at about 12,000 million dollars. The imports into the six Messina countries only for the same period have risen from 11,000 million dollars to 19,000 million dollars, but on the other hand our exports to those six countries have risen by only 400 million dollars—700 million dollars to 1,100 million dollars. If my sums are correct, this means that imports into the Messina countries as a whole have risen by some 73 per cent., but our exports to this market have risen by only 57 per cent. If the Messina countries had a common average tariff it would mean that in the Benelux countries, the only low-tariff area at the moment, tariffs would have to rise at the same time as French, German and Italian tariffs fell, in order to meet the average. I feel that such a rise in Benelux tariffs would be more dangerous to us than a fall in the other tariffs would be advantageous.

We have heard a good deal about German competition and I am sure that every hon. Member has studied most assiduously the article on Western German competition in the Board of Trade Journal for 28th July. I feel that anybody who has studied that article cannot possibly doubt that we cannot face the danger of this already imposing competition being increased by having tariffs lowered for German goods whilst they still remain raised against British goods.

The safeguard in the case of the Empire is very considerable. Something like 90 per cent. of her exports to this country are not affected at all. We have also had it suggested, though not today, that Imperial Preference is in some ways a wasting asset, that while rising prices have reduced the real value of the rates of duties our agreements under G.A.T.T. prevent us from raising the absolute rates. The recent Australian Trade Agreement tends to show that the rates of Imperial Preference are tending to lower. The President of the Board of Trade, in a statement commenting on this, said that the 1932 agreement was by now balanced against Australia and that on balance trade figures in recent years have been swinging against her. I do not know whether or not that is true of other Commonwealth countries, but it is certainly true to say that Canada tends to pursue more and more a free trade policy.

There is one other point which must not be forgotten. As our former dependencies achieve independence, and this happens more and more frequently, they tend to develop their own manufacturing industry. That is particularly the case in India. I cannot see why this tendency should not continue, and therefore we cannot count on them any longer for a protected market. In fact, as the Minister of Supply said some days ago, "There are no longer any sheltered markets".

Although I agree that possibly the general expansion of European imports through a decrease in the need for dollar restrictions, might help Canadian exporters, I feel that they will to some extent suffer injury through our association with the free trade area. That would also be true of the jute and cotton textiles which we import from India, Pakistan and Hong Kong, which now enjoy a preference of between 17½ per cent. and 20 per cent., as well as duty-free entry.

This brings me to a point about the textile industry which I want to make as one coming from a Yorkshire constituency. I do not pretend to be an expert on that industry but, so far as I can see, our association with this scheme cannot hurt the wool textile trade, since we export five times more than we import from the common market countries together with the other O.E.E.C. countries.

Cotton, however, is another matter. We must not shut our eyes to the fact that some of our chief competitors in the cotton and rayon textile trade are countries in the proposed common market and with which we may be associated and, in almost exact contradistinction to wool textiles, we buy from them five times more cotton textiles than we sell to them. Nevertheless there are adherents to this scheme, even within the industry itself. Although my chief concern is with wool textiles, we in Yorkshire are not above taking advice from others, even from our friends and rivals on the other side of the Pennines, so I hope that hon. Gentlemen who represent Lancashire constituencies will forgive my trespassing.

There is a tendency to confuse the situation which is arising out of imports of cloth from Commonwealth Asiatic producers with the situation that might arise with the establishment of a free trade area with which we were associated; because we have not really got a common market with the Commonwealth, at any rate for textiles. In some ways, indeed, it is a most uncommon market, because cloth from India has free entry into this country whilst our cloth has not got free entry into India. I feel that this one-way traffic provides little guidance as to what might be expected if Europe sets up a common market and we associate with it in a free trade area.

That illustrates a real difficulty which will make many industries anxious if they have to face increased competition from Europe with, at the same time, problems similar to the ones I have described in dealing with the Commonwealth. I am sure that the only reason my right hon. Friend the Chancellor of the Exchequer did not mention this is that he is leaving it to his colleague, the President of the Board of Trade.

It has been pointed out that the dangers of staying outside the plan are greater than those of coming in. Probably we should all agree with that, subject to the safeguards which have been proposed. But there is one other point, that although it is proposed that only the United Kingdom should join in the free trade area, the United Kingdom is the link with the Commonwealth, and by associating Europe with the Commonwealth through ourselves we can strengthen the sterling area as a whole and indeed all currencies vis-à-vis the dollar.

Allied with the proposed economic advantages there are certain political advantages. Over the years we have seen the development of blocs at the United Nations. Apart from the United States, there is the Latin-American bloc, the Russian bloc, and now there is the Afro-Asian bloc. In recent weeks we have seen only too clearly the power of such blocs. Perhaps this scheme will be not only the means of closer economic cooperation with Europe but it may also be a step to the closer association of Europe within the United Nations, and perhaps the foundation of a truly united Europe.

5.38 p.m.

Mr. Frederick Mulley (Sheffield, Park)

It is always a great pleasure for an hon. Member to congratulate another on his maiden speech. Today I am grateful for the opportunity of following the hon. Member for Halifax (Mr. Maurice Macmillan), who follows, in the representation of his constituency, an hon. Member who was greatly respected on both sides of the House. We all know from our own experience that it is a great ordeal to make a maiden speech. I suggest that it is a double ordeal to do so in a debate opened by the Chancellor of the Exchequer, who is also the father of the hon. Member making his maiden speech. On behalf of the House, may I tell the hon. Gentleman that he has certainly passed the first test with an excellent speech, and I should be very surprised if the Chancellor does not pass the hon. Gentleman through the second test successfully also, but that is a matter which will take place outside the walls of this Chamber.

The hon. Gentleman entertained the House with a well-informed, well-argued speech, which was pleasingly phrased and charmingly spiced with humour but also, I thought, in one particular it went a little beyond the normal realms of controversy. However, since the controversy was confined to the other side of the House, we have no complaint. We congratulate the hon. Gentleman, and look forward to hearing him frequently in our debates. Perhaps when the restriction on controversy is removed, we may have even sharper exchanges between the hon. Member for Halifax and the Chancellor of the Exchequer.

We are today concerned more with the principle than the details of this scheme, which would make possible the provision of a common market or free trade area, including 200 million people if we do not enter it, and probably as many as 250 million people if we do. That is a matter of the greatest importance, both politically and economically, for ourselves and for all Europe.

We cannot really separate the political from the economic considerations. When he was at the Foreign Office, the late Ernest Bevin said—and said wisely, as was the case in respect of many of the things which he said—that if we had another 20 million tons of coal a year he could have the kind of foreign policy that he would like. So we must look at this matter from the political as well as from the economic point of view.

Before coming to the actual merits or otherwise of the present proposal, we might look back at two similar proposals, one of which was accepted and one of which was rejected. I refer to the European Coal and Steel Community and the European Defence Community. I still say that it was impossible for us to go into the negotiations which preceded the setting up of the European Coal and Steel Community, because we were asked to accept beforehand a supranational principle without there being any opportunity to discuss our special circumstances.

Having said that, I regret that we are not in closer association with that Community than is possible through the normal procedure of association such as we have. At the same time, I believe that if we had made proposals to be associated with the European Defence Community earlier, that organisation might well have succeeded instead of failing. For my part, I would much rather have had E.D.C. than the Paris Agreements.

Those are largely matters of history. I mention them because I am encouraged by what I have heard today to think that the Government will not, in connection with present matters, make the mistakes which were made in the past. Both we and our Continental friends have learned something since the original negotiations began about the first Schuman Plan.

The Continental countries, especially France, by training, tend to think in terms of logic and well-argued written constitutions, treaties, etc., whereas we have got on well enough without a written constitution, and if we can run the country without a written constitution, we are not so insistent upon having a written treaty before we proceed to work in economic co-operation with others. That has been shown by our preference hitherto for the O.E.E.C. approach as opposed to the Schuman Plan approach.

However, when we look at the European Coal and Steel Community Treaty, we see that it begins with most magnificent phrases, but tails off into a list of exceptions and provisions to deal, very sensibly, with the special problems of the countries belonging to it. I believe that a similar approach can be adopted successfully with regard to the proposals for a free trade area or common market for Europe.

Because of the desire of the Continental countries, particularly France, to agree upon a set of principles at the beginning, it is extremely important for us to say firmly now that we accept the principle of belonging to some kind of European common market or free trade area. We should go further than that and say that we will associate ourselves with any scheme which can be agreed after negotiation. I believe that, even if the present Government conducted the negotiations, we should be negotiating with a strong hand. I also believe that there is a sincere desire on the Continent for us to be associated with any scheme which is set up. [Interruption.] If the hon. Member for Kidderminster (Mr. Nabarro) wishes to intervene, I shall be glad to give way to him.

Mr. Nabarro

Of course, there is a strong desire on the Continent that we should be associated with any scheme that is set up, because the result will mean far more advantages to the European countries than to ourselves.

Mr. Mulley

We shall see about that as we go on. When one is considering an association with someone, it is not a bad thing to know that the other person is favourably disposed towards one. The hon. Member might remember that in other connections as well as in relation to the matter we are now discussing.

Mr. Nabarro

What does the hon. Member mean by that?

Mr. Mulley

I regret that the Chancellor placed special emphasis upon the exclusion of agriculture or foodstuff products. I wish to say a little more about that point later. I would rather go into the scheme even if foodstuffs and agricultural products have to be included rather than stay out because of that issue. I hope that the Government will later on make the point clear.

Our friends in Western Europe are a little tired of having our blessing and encouragement and very little else. I am reminded of the story of the padre who used always to say to his guests as they left "God be with you always. I will go with you as far as the station". In many of the developments towards a united Europe, that has tended to be the British attitude. I am not making a party point, because I believe that the Labour Party can be criticised in some respects as much as the Conservative Party.

This may well be our last opportunity to play an effective part in association with the other countries of Western Europe. I would say that, on political grounds alone, we cannot afford to let the opportunity pass. Despite the intervention of the hon. Member for Kidderminster, I believe that a case can also be made on economic grounds. I would begin with the observation that we should discuss it on the basis that free trade is an expedient and not a principle. That is a view that I have always taken. I feel that if we get the pure free trade versus protectionist argument, we shall be getting away from the principles that we have to decide.

As the Chancellor fairly said, in deciding not to associate with the scheme we should be taking almost as far-reaching, if not as far-reaching, a decision as if we said that we would associate with the scheme. No one claims, of course, that the scheme can be a panacea for all our economic problems, but I would say that if we do not associate with such a scheme, if it is set up, our economic problems may become worse rather than better. If we belong to some kind of European common market, our industry will be given a challenge which will tend to direct it along the right road for the solving of our own economic problems.

I suggest that the economic adjustments which may be necessary if the scheme is set up and we take no part in it could be as big as, if not bigger than, those if the scheme is set up and we participate in it and, in addition, have some say about the way in which the readjustments can be planned, and about their tempo.

One extremely convincing point has already been made. It is whether we could hope to compete, not only in Western Europe but all over the world, with a German industry which had a home market of 200 million people. Over the years our manufacturers, when criticised for their comparative inefficiency in relation to their American counterparts, have complained that our home market is too small to enable them to achieve optimum output. Here is an opportunity for us to reach a comparable competitive position by having a home market, or at least a market without tariff restriction, of even greater size than that of the United States. Consequently, I hope that the manufacturers who advanced such arguments against Purchase Tax will not now oppose the suggestion that we should associate with the European common market.

It is important to stress at the same time that the question of export subsidies and dumping, etc., will have to be watched very carefully. As, no doubt, the President of the Board of Trade is aware, in connection with the New York Trade Fair to be held next April, of the thirty-nine countries which have indicated their intention to exhibit, ours is the only country which is giving no financial or other assistance to its exporters. I understand that the equivalent of the Board of Trade in some countries has bought space at 3 dollars per square foot, and is selling it to its manufacturers at 50 cents per square foot.

In other cases, in addition to providing them with the actual space at the exhibition below its actual cost, they are paying expenses for representatives to be present at the fair. Because of the financial and other assistance which other Governments are giving to their exporters it looks as though we shall be completely outshone at that important fair, which is to be held next April. It is certainly a matter to which the President would do well to turn his attention.

This point was put to me very strikingly by someone who was told by a manufacturer of toys, who also permits the same toys to be made under licence in Italy, that his Italian subsidiary, or the person making toys under licence, is going to the fair at the expense of the Italian Government, whereas the man who developed the toys in this country cannot be present in New York for financial reasons.

Mr. Rhodes

There are hundreds of such cases.

Mr. Mulley

As my hon. Friend says, there are no doubt hundreds of such cases, to the disadvantage of our export drive in the United States. That is only one aspect of the kind of discrimination in the field of exports about which we shall have to be very careful.

There is no question of our going into this scheme if it is to be in the guise of a Customs union. If the Messina Powers wanted to do so, they would be quite entitled to proceed on the basis of a Customs union, and we could not be members of it. We could be associated with such a scheme only upon a free trade basis. I believe that there is a possibility that, in order to achieve the widest possible participation, the Messina Powers may in fact agree to have only a free trade area scheme. Although, as my right hon. Friend said, a free trade area scheme is only a tariff scheme, for my part I would not oppose its extension to the free movement of capital and labour. As has been made quite clear, this scheme can take full effect only over a period of from twelve to fifteen years. I see no greater difficulties in arriving at a proper arrangement with regard to capital and labour than there will be in some industries in arranging the question of protection.

I believe it is well understood on the Continent that we have two special problems which are not shared by the other potential participants in the market. There is, first, the problem of Imperial Preference, and, secondly, that of the sterling area. I should like to make it clear that I should want to retain Imperial Preference. Its value is as much political as economic; indeed, it is perhaps even more important from a political than from a purely economic point of view, because unfortunately there are signs of its declining economic value. In certain cases imperial Preferences have been whittled away.

I do not want to give a great many statistics, but I understand that the extent of Imperial Preference can be measured at the rate of about 6 per cent. of the average of all the goods that enter into Commonwealth trade and, since they are estimated to amount to about 48 per cent. of our exports and 40 per cent. of our imports, we should obviously not be in a position to enter a scheme which would sacrifice Imperial Preference unless there were some very large compensating advantages. In any event, for political reasons we could not contemplate the break-up of the Imperial Preference system.

On the other hand, trade with the Messina Powers is about 12 per cent. of our trade, and if we contemplated a European market including Scandinavia it would be between 20 per cent. and 25 per cent. As the Chancellor has said, if we exclude foodstuffs, 90 per cent. of our Commonwealth trade would be unaffected by our belonging to the European market. I do not really welcome this immediate jump to exclude foodstuffs.

Many of the arguments put forward, certainly that based upon comparative cost, apply equally to agriculture and food. The only really effective argument which I have heard for excluding foodstuffs from the scheme is that if we are going to have trouble with pressure groups and with the F.B.I., why should we have trouble, at the same time, with the N.F.U.? From a tactical point of view, there is much to be said for taking on these pressure groups one at a time.

Mr. P. Thorneycroft indicated assent.

Mr. Mulley

I see that I carry the President with me in this matter.

Mr. Nabarro

Would the hon. Gentleman say something about horticulture? In my constituency cherries are grown, which are protected by a very valuable tariff against Italian cherries. The Italian cherry grower pays his employee one-third of the N.F.U. and the National Union of Agricultural Workers standard in this country. If we brake down that tariff arrangement—and I agree that we shall not if foodstuffs are excluded—it would surely ruin practically every horticulturist in this country.

Mr. Mulley

I accept that view, but I have not the same degree of sympathy with the hon. Member's constituents because my constituents eat the cherries which are produced by his constituents, and we should be much more interested in having Italian cherries at a cheaper price. Let us be frank and straight about this wages question: if people were not growing cherries in Kidderminster, they could, as I understand the employment position in the Black Country, probably earn more than the N.F.U. rate if they worked in some other occupation.

Mr. Nabarro

One does not grow cherries in the Black Country; one grows them in rural Worcestershire. They are consumed in the Black Country and in Sheffield—and at a different time of year from that at which Italian cherries are imported.

Mr. Mulley

I do not want to confine all my arguments to cherries. My point about wages is fundamental to this scheme, and I think that there may be much misunderstanding in the matter. Let us take a case which we probably all have in mind, of motor cars—

Mr. Nabarro

And cherries.

Mr. Mulley

I submit that motor cars are of more importance to the economy than are cherries.

Mr. Nabarro

Not to Kidderminster.

Mr. Mulley

The hon. Member speaks for Kidderminster. Some of us try to speak for a rather wider section of the community.

It is quite clear that without its very high protection of 30 per cent. the British motor car industry might be in a difficulty in competing with the Volkswagen and French cars, but I believe that the Americans could undercut any European producer if they wanted to do so, despite the fact that the American wage rates in that industry are very much higher than those in Europe at the present time.

We must look at the wages argument in both ways, rather than say that just because an industry in one country is paying higher wages than the same industry in another country it is necessarily the case that the articles produced in the first country must cost more than they do in the other.

Mr. R. Gresham Cooke (Twickenham)

The Americans have an enormous home market which is protected and which is ten times the size of Britain's home market.

Mr. Mulley

It is precisely for those reasons that I hope that the hon. Member will support me in my plea to the Government that we should go into the common market scheme.

The other very real problem is that of the sterling area. We have to safeguard not only our own gold reserves but those of the whole British Commonwealth, excluding Canada. This is a special problem, because it means that we must ensure that any scheme which we join contains adequate provision for safeguarding our balance of payments position. The other countries in the scheme will probably also have balance of payments troubles when the swing is against manufactured goods, but in the sterling area we may well have difficulties in the reserves position because of the decisions of other Governments in the Commonwealth that we cannot control. We may have trouble in other parts of the sterling area because when the value of raw materials falls it has a serious effect, as does the price of gold, upon the sterling area balance of payments, as distinct from those of the United Kingdom alone.

Obviously we could not go into the market unless it was clear that we were to have the necessary freedom of action to safeguard our balance of payments position. At the same time, I think that hon. Members on this side of the House must make it clear that we should not want to join in a scheme in which there were not adequate powers to permit the British Government to apply their economic planning in the way in which they, and the people electing them, thought best for the running of the country's economy. We would be prepared to forswear any competitive advantage afforded by hidden economic subsidies and so on; but if we wanted to nationalise an industry, or to have public ownership in other ways, no clause should be permitted in a treaty which would prevent the British Parliament from being sovereign in that particular respect.

To support this scheme, one must believe in the strength of British industry. I do believe in that, and I think it is those who have doubts about it who will plead special cases today. That, of course, is not to say that one does not recognise that some industries, particularly the textile and motor industries and a number of smaller industries like the camera industry, will have difficult problems.

As I have said, the wages argument is not necessarily a conclusive one. It is a question of the efficiency of the firms concerned. Very often high wages can lead to lower costs per unit than low wages. There is an old saying that low wages are often dear wages. We should devote such influence as we have to raising the standard of living and the wages in the industries in Europe which will be competing with ours. But I do not think we can say that, because wage rates at a particular time in a particular industry on the Continent are below ours, we cannot possibly compete with them.

We must always remember that while some industries will face difficulties and problems, other industries will derive great advantages from having a free trade area of 250 million people to whom they can sell their products. Even the Germans, whom we fear so much, can devote a ton of steel or the working week of a man only to one purpose at a time. If they expand their motor industry vastly, the steel and the manpower will, naturally enough, be taken away from other industries, thus creating a gap which we should be able to fill.

I believe that British industry can compete, provided that it is willing to free itself from the stranglehold of restrictive practices. We may need to go further in that direction than the provisions contained in the Act which we passed last year for that purpose. I believe that we require higher managerial standards. We must concentrate less on expenses accounts and that kind of thing to secure the competitive spirit needed in the next twelve or fifteen years if, as I hope, this scheme comes about. We must use the waiting period before its full implementation to get rid of the restrictions on production in British industry.

After adding up the balance of economic advantages—while conceding that there are points on the other side—and the overwhelming political importance of the proposals which we are discussing, we should declare the fullest possible support for any scheme which could reasonably be negotiated towards the formation either of a free trade area or a Customs union with a free trade appendage, in an endeavour to further what I believe to be sound economic and political objectives.

6.6 p.m.

Mr. R. P. Hornby (Tonbridge)

I hope hon. Members will not feel that a second maiden speech in one day imposes too much of a trial on their kindness. I ask them to be indulgent to me for a few minutes.

There were a number of points in the speech of the hon. Member for Sheffield, Park (Mr. Mulley) with which I would heartily agree, and I shall probably touch on one or two of them in my speech.

One of the most encouraging things which has happened since the war—in this there are hon. Members on both sides of the House who would probably agree—is the progress, gradual it is true, that we have seen in the movement towards co-operation both political and economic in Europe. We have seen a gradual movement towards the liberalisation of trade. We have seen an increasing realisation that most of the nation States of Europe, standing by themselves in the shadow of two great Powers to the East and to the West of them, are individually too small and too insecure, both politically and economically, to pursue their own policies entirely alone.

Political unity has seemed more important to Continental nations than to ourselves, simply because we have the added security and confidence of our overseas members of the Commonwealth. On the other hand, I think most hon. Members would agree that economically we have been able to play a very big part in the work of O.E.E.C. Now we come to a stage at which both the political and economic movements show some signs of fusion. The nations which have met in the Messina Conference have formed plans which look like the beginnings of the next step forward covering both the political and to some extent the economic field. At this moment we are faced with a decision; what should we do?

Are we to go in and throw overboard to some extent some of our ties with our overseas possessions? Should we stay out and fade away from the co-operation which we have had with Continental nations in the economic field? Or can we find some other proposal which would meet with the approval both of the Commonwealth and the members of O.E.E.C.? If I understood the line of his speech, the hon. Member for Sheffield, Park—like the right hon. Member for Huyton (Mr. H. Wilson)—was, broadly speaking, in agreement with the proposals of the Government to try to find a common ground on which to do those two things.

I welcome what my right hon. Friend has said today about trying to find some way which would enable us to enter into what we might call a partially free-trading area in Europe while at the same time enabling us to preserve our ties with the Commonwealth. I welcome that for two reasons. First, because I think that this European free-trade area offers great opportunities, and, let us face it, great challenges to British industry. Secondly, I welcome it because I believe that if this common market went forward without us it would present great dangers to us.

I wish to remind the House of two simple figures of which hon. Members will be well aware. They are the figure of our population, 51 million, and the size of the total population of the Messina countries, which is about 162 million; and the size of our national income, about 43,000 million dollars, and the size of theirs, which is about twice that figure. If we went into that grouping, we should be part of an economic association comparable in size with the United States. If, as was suggested by my right hon. Friend, more O.E.E.C. countries joined with us in the scheme, we should be even greater than that, and comparable in size with Soviet Russia as well.

As I said earlier, this proposal presents difficulties, but, on those figures alone, I believe it provides enormous advantages which deserve careful examination. I believe that the advantages which we can get as manufacturers and, if I may stress it, as retailers and purveyors of goods and services, and as consumers, may very well—in my mind will—outweigh any difficulties and challenges that British industry will have to face.

Now I would say a word or two about the dangers that might face us if the scheme went forward without us. It would be a pretty bleak prospect for us. I think I am right in saying that we sell about 17 per cent. of our exports to the Messina countries. If the common market came into being without us, we should be faced with a tariff wall against us at the time when the member countries of the common market would be selling among each other tariff-free. That would not help our exports. In other overseas markets, outside the common-market area, we should be working against the background of a home market of 50 million people while they would be working to a home market of 160 million. That would have its effect on our ability to compete with those countries in other markets than the common market.

Thirdly, we should not be too confident about turning our backs upon Europe and concentrating upon our traditional primary-producer countries, because the figures are not all that encouraging, if I read them aright. I understand that imports to the overseas markets in the sterling area actually fell in the period 1951–55. In that same period, imports from the Messina group countries rose by about 50 per cent. The point that I believe this makes is that we would be in danger, if we turned our backs upon Europe and concentrated upon our traditional markets, of turning towards a market which is going to expand at a slower rate than the rate of expansion of European markets. We should be, competitively, facing a period in which we should grow at a slower rate than our European competitors. That might easily mean a decline in our standard of living, with all that would follow from that. It would also mean less money available for investment in many other parts of the world.

Next I come to the question how we should enter this group. Many of us on this side of the House will find it extremely difficult to support this scheme, for all its advantages, if it does not contain the provisions which the Chancellor mentioned this afternoon for the exclusion of agricultural produce, feeding stuffs and raw materials. I say this with particular reference to my own constituency. In Tonbridge and round about are many people whose livelihood comes directly or indirectly from agriculture, and there are many other people who have worked at some time or another in British territories overseas and have very great loyalties to those parts of the world. Both those groups will be glad of the conditions that the Chancellor of the Exchequer put forward for entry into this scheme. The agricultural point of view is completely covered in the guarantees which my right hon. Friend gave.

Secondly, there would be a worse prospect if the scheme meant any weakening of Commonwealth ties. From the figures that we have had today, I understand that about 90 per cent. of our trade with the Commonwealth comes under the agricultural raw material exemption. By no means all of the remaining 10 per cent. is in direct competition with European produce.

Thirdly, all Commonwealth goods will continue to enjoy their existing preferences in this country against non-European goods. Even so, many of us would be extremely worried if a deliberate act of policy reduced by even 5 per cent. our Commonwealth trade if there were no compensating advantages to be set against that. I think there are compensating advantages which will make the Commonwealth very largely sympathetic towards the move which my right hon. Friend proposes to make.

In the first place, there is a recognition all over the Commonwealth that this country can only play her part in the world and in the development of the Commonwealth if she is prosperous. If the scheme is good for British trade, it is likely for that reason to be good for the Commonwealth. Secondly—I hope the Commonwealth realises this—Britain has a large part to play in Europe on behalf of the Commonwealth. I believe that a great deal of our Commonwealth thinking has taken a turn towards regional grouping and areas of responsibility, with no loss to the strength of the Commonwealth. I do not believe that the strength of the Commonwealth, or the loyalty of Canada to the Commonwealth, has suffered because a great deal of Canada's trade is with the United States. If that is good for her strength, it is good for the Commonwealth as a whole, and it provides important links between us and the United States.

It was a perfectly natural and logical decision for Australia and New Zealand to take upon themselves in the Anzus Pact on behalf of the Commonwealth the defence of the Pacific. In that sort of way they would understand that Britain and Europe, both geographically and diplomatically, are linked together; they would understand this movement towards co-operation.

I welcome these proposals. I believe they are a valuable challenge to and a valuable opportunity for British industry. They will enable us to play our part in the next steps of further co-operation in Europe, and to retain our ties and loyalties to the Commonwealth. I hope that the Government will be able to go forward enthusiastically into these negotiations. It is terribly important at the present time that Europe should think that we are genuinely and honestly behind this desire for co-operation among us all.

6.18 p.m.

Mr. H. A. Marquand (Middlesbrough, East)

My hon. Friend the Member for Sheffield, Park (Mr. Mulley) referred to the ordeal which the hon. Member for Halifax (Mr. Maurice Macmillan) had undergone in making his maiden speech. If ordeal there be, the hon. Member for Tonbridge (Mr. Hornby) had an even worse one, because he had to wait a great deal longer before he was allowed to take the plunge.

Now that we have listened to his speech, I am beginning to wonder whether there was any ordeal at all, for he seemed so confident and spoke so eloquently. The hon. Member gave the House a speech in which he evidently strongly believed, and he delivered it well. If he suffered an ordeal in making his maiden speech it was not apparent, and I doubt it very much.

I congratulate the hon. Member most sincerely indeed upon a most interesting speech. It certainly succeeded, so far as I am concerned, in being non-controversial, as maiden speeches are supposed to be. So far as I could grasp the speech, I agree with every word of it. I am sure that I am voicing the feelings of the whole House when I say that we listened with very great interest and admiration to the hon. Gentleman's eloquent and well-prepared speech and that we hope we shall hear more of him.

A Member of this House, even if he has been one for eleven years but happens to be a Privy Councillor, suffers a different sort of ordeal when he gets up and ventures to address a few words to the House, because many of his hon. Friends think he ought not to do it but should stick to the one subject on which from time to time he speaks from the Front Bench. My excuse, with which I believe many hon. Members will have some sympathy, is that I feel obliged to put to the Government on this occasion some questions which have been put to me by my constituents. I hope that when the President of the Board of Trade replies to the debate he will devote at least a few minutes to some of the queries I shall put to him, particularly on behalf of the iron workers in Middlesbrough. Members of the blast furnace men's union have approached me recently concerning some of their anxieties about this new arrangement. In defining their questions I am not necessarily committing myself to complete agreement with what they say.

They are quite certain that at present they have no cause for anxiety. The demand for steel is very high, and the demand for iron goes with it. They have plenty of work, and they know that the firms for which they work have plenty of orders. At the moment, they have no misgivings. Nor indeed, have they any fear of their ability to hold their own with any other world producers of iron and steel, provided the terms are fair.

On the other hand, these iron workers have memories of the past. They might well have because, in north-east England, they suffered very heavily indeed during the years of depression between the wars, and they have not forgotten. They have not forgotten that steel bar was imported from European countries at that time. They have not forgotten that even iron ore, which is what the blast furnace men make, was imported. They pointed out to me that this very weekend, in Middles-brough, there is a Russian ship in dock with 1,000 tons of iron ore. Although that is all right, and the iron ore is needed—

Mr. William Shepherd (Cheadle)

Is the right hon. Member referring to iron ore or pig iron?

Mr. Marquand

I thank the hon. Member for intervening. If I said "iron ore" I meant "pig iron". I am so accustomed to iron ore coming from Middlesbrough that I made a slip of the tongue.

Russian pig iron now coming into Middlesbrough is very valuable and useful. No one is complaining about that, but the mere sight of such a vessel has reminded them very vividly of the possibility of the import of pig iron once again to Middlesbrough should there be some onset of industrial depression in future.

They say, "Suppose Great Britain entered into this new European free trade area and—through the stages which the Chancellor of the Exchequer described in his speech—reached a point at which tariffs were lowered or extinguished and then depression came, what would be the position, not so much in regard to the possible import into Great Britain of German or Belgian pig iron, but of its import from other countries? If, by entering a European union, we reduce our power to protect ourselves from European imports," they ask, "under the arrangements we have with other nations for most-favoured-nation treatment, would we to the same extent have to reduce our ability to protect ourselves from imports from nations outside Europe?"

I have not heard the words "most-favoured-nation" used this afternoon. It may be that there is some special reason for that which I do not understand. I should like the President of the Board of Trade to explain the relationship between the new proposals and the treaties which oblige us to give most-favoured-nation treatment to a great many other countries. I think that hon. Members will agree that these anxieties of Middles-brough people, they having suffered as they did between the wars, are very natural. Certainly, they deserve an answer, even if we might feel that those anxieties are not likely to prove very real as a result of the course of events in future.

What is the answer we are to give them? A common answer is to say that the imports of pig iron from abroad, if brought in more cheaply than we can produce it at home—as it would be—would give us oportunities to make cheaper steel and thereby to expand our steel-making activities. Perhaps we could provide cheaper steel for our engineering and shipbuilding industries, and enable them to sell more goods at home and abroad. The resulting prosperity would be great for the nation as a whole, even if, in the short run, it might hit the interests of blast furnace men.

Of course, reasonable men can accept an argument of that kind, but if that be the answer, and if these disadvantageous circumstances occurred and they found themselves out of work through the importation of such materials from abroad, they want to know whether a process of that kind cannot be planned in some way. They realise—certainly I, speaking on their behalf, recognise—that such a set of circumstances might be advantageous to the economy as a whole although it might adversely affect some particular part of it. If we accept that as being in the interests of the nation as a whole, what provision is being made for when things like that happen? They might happen in other industries. What provision is being made to ensure that those who are injured in the greater cause of the nation as a whole are then assisted to find other work and other jobs?

Blast furnace men in particular cannot move easily from one industry to another. The nature of their training and their craft is such that they do not find it easy to adapt themselves to processes and techniques in other industries. They can hardly view with very much optimism the possibility of moving to Germany or Belgium and obtaining work in iron industries there, I should like some undertaking from the Government that, whenever possibilities of that kind emerge, they will not only be carefully watched by the Government, but properly planned by the Government.

These men would have a great deal more confidence in the new arrangement if the iron and steel industry were in full national ownership instead of, as it is now, partly nationally-owned and partly privately-owned. They want to know what kind of safeguards they can look forward to for any gradual transfer from one place to another if the circumstances of the new free trade area should make that possible. The Chancellor of the Exchequer said there would be some dislocation in some industries and that that was inevitable, although it might be for the overall good of the country.

What proposals have the Government for managing a dislocation of that kind? Do they propose to plan it or to leave it to the free play of an unorganised and uncontrolled economy? We know that there are safeguards against dumping. We are aware of the Bill now before the House, giving power to the Government to enforce anti-dumping duties, and we favour that. These men know the safeguards there are in the proposed arrangements concerning balance of payment difficulties, but they want a more emphatic Government assurance that there will be definite and deliberate methods of planning the transference of labour if that should be necessary.

Turning from the particular to the general, I favour the entry of Great Britain into the new arrangement, not only because I am sure, as other hon. Members have said, that we cannot be kept out, but because, in general, it seems to me to be a good thing and an advance in the right direction. I shall not traverse the whole story of why I think that such a free trade union is a good thing, but I do say that there are grounds for anxiety about the maintenance of full employment within the union itself.

We have had full employment for fifteen years and we have become so accustomed to it that we are almost inclined to think that it comes about by some natural cause and will go on for ever; but we must face the fact that we have had these fifteen years of full employment during wartime or during periods of heavy armament.

It may seem strange in the present disastrous state of world affairs to mention the word "disarmament", but if we are to have peace in the world, obviously disarmament must come about. The reduction of the large volume of conventional weapons which could not possibly be used in the sort of third world war that we would have, if ever we have one, must make a great reduction in the demand for steel particularly.

If disarmament came about and caused a dislocation, resulting in a need for the redeployment of the whole of our steel and associated industries towards a new form of consumer demand, and if with that there were processes of automation which rendered particular types of labour less necessary than they were, what policy have we got for maintaining full employment in those circumstances?

I do not believe that the answer to that question is simply intensified competition. I do not believe that we can maintain our ability to sell our goods only by so competing with other nations that we prevent them from selling their goods. I believe that full employment depends upon demand, and it depends upon sustained demand.

It is true that the Chancellor of the Exchequer referred to this, but it seemed to me little more than a passing reference to the maintenance of demand. He talked about expanding demand and he quite rightly, as many hon. Members have done since, pointed to the advantages of a market of 250 million people as compared with a market of 50 million. The market is larger, and demand from the larger market must be greater than it was before, but what about sustaining that demand in circumstances of dislocation and in circumstances of disarmament for example?

I should like particularly to ask the President of the Board of Trade whether there will be included in the new agreement, or whether he will seek to have included in it, something more emphatic about the maintenance of full employment than we have at present in the General Agreement on Tariffs and Trade. The General Agreement says that: The contracting parties recognise that their relations in the field of trade and economic endeavour should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand … That is all right—that is exactly what we want to do; but there is very little more than that in the General Agreement on Tariffs and Trade. It could be no more than paying lip service, no more than a pious platitude, as it stands at present in the Agreement.

We had something very much better in its predecessor, the Charter for an International Trade Organisation, in which there were at least two chapters, and possibly three, dealing entirely with the maintenance of full employment and pledging the nations that adhered to that Charter to appropriate measures for maintaining full employment.

In the new arrangement which we are beginning to negotiate with our European friends, can we seek to have something more like—indeed, something better, if possible—what is now in the General Agreement on Tariffs and Trade, something more like what was in the Charter for the International Trade Organisation?

I refer in particular to Article 3 and Article 7 of the Charter for the International Trade Organisation. Article 3 pledges that Each Member shall take action designed to achieve and maintain full and productive employment and large and steadily growing demand within its own territory through measures appropriate to its political, economic had social institutions. As my right hon. Friend the Member for Huyton (Mr. H. Wilson) said, we were not altogether sure about our own Government, under their present management, in regard to the maintenance of full employment within our own economy. Can we be sure about Germany? Can we be sure about Belgium? Both of those countries have operated, as we understand, on an economic philosophy which certainly does not put the maintenance of full employment very high. It puts other things higher.

Are we to invite the Belgians, the Germans and other proposed members of the European free trade area to pledge themselves to the maintenance of full employment within their own economy, just as we are pledged to do ourselves by the Coalition Government's White Paper and the frequent speeches of right hon. Gentlemen on both sides of the House of Commons?

Article 7 of the I.T.O. Charter dealt with fair labour standards and stated: The Members recognize that measures relating to employment must take fully into account the rights of workers under inter-governmental declarations, conventions and agreements. They recognize that all countries have a common interest in the achievement and maintenance of fair labour standards related to productivity, and thus in the improvement of wages and working conditions as productivity may permit. I will not read the whole of it but I have read sufficient to show the lines on which it goes. Can we have in the new agreement, or will the Government seek to have placed in it as they enter into negotiations, a pledge of that kind for the maintenance of fair labour standards?

I have said to my trade union friends in the blast furnace men's union, "You must rely largely upon yourselves for the protection of your standards. You must seek to make agreements with your fellow trade unionists of Germany, Belgium, France, Italy and the other nations involved. Surely you can join together to ensure between you all, members of the International Confederation of Trade Unions, that you protect your own standards and that you see that wages everywhere are at levels which give every one of you decent standards such as you are accustomed to and that you do not undercut one another."

That I have said, but I would also say that Governments have a part to play in this, too. I should like to see in the new agreement not only the pledge to maintain full employment within the economies of the countries themselves, not only the pledge to create sustain, foster and build up demand, but the pledge to maintain fair labour standards. I hope that when the President of the Board of Trade replies to the debate, I may have some satisfaction on these points.

6.39 p.m.

Mr. Geoffrey Stevens (Portsmouth, Langstone)

The right hon. Gentleman the Member for Middlesbrough, East (Mr. Marquand) expressed the fears of the iron workers of Middlesbrough at the possibility of the dumping into this country of cheap imports. He referred to the part-answer to that difficult question—the anti-dumping duties—but as he spoke I recalled an earlier speech this afternoon by his hon. Friend the Member for Sheffield, Park (Mr. Mulley), who said that should we proceed with these discussions and finally form part of a common European market that would indeed be a challenge to our producers. I feel that that challenge should be heard by the iron workers of Middlesbrough as well as by our large industrialists.

The right hon. Gentleman went on to illustrate the big difference between the two sides of the House, which has not been so evident today; and I am certainly not going to stir it up. He felt that the economic difficulties with which we shall be confronted should be dealt with by Government planning and control as contrasted with guidance and persuasion by the monetary weapon and credit control, in which we believe, in addition to normal commercial prudence. The right hon. Gentlemen ventilated certain fears, and, undoubtedly, there are grave dangers ahead.

The right hon. Gentleman the Member for Huyton (Mr. H. Wilson) said that the Chancellor of the Exchequer must reserve his freedom of action for policies to maintain full employment. That is undoubtedly true, but I should have thought that the whole object of grasping this opportunity at present was to preserve the possibilities of full employment in the years ahead. There are, however, sections of opinion in this country which are seriously concerned lest our hands should be unduly tied in many ways.

There is talk of these discussions as being concerned with a Customs union. I was very pleased to hear the Chancellor say quite clearly this afternoon that there could be no question of a supranational authority. That may well be our view and that must be the view that we hold without yielding in any shape or form. But there is a great body of opinion in Europe which does demand such an authority.

Just over a year ago, I went to Salzburg, to the Annual Congress of the Christian Democrat Party. I suppose that the Christian Democrat Party is the largest or certainly one of the largest political parties which is common to nearly all the European countries. There was no doubt there about what the delegates felt. They were all enthusiastic about European economic integration and a Customs union. They all wanted the United Kingdom to come in, but they seemed quite determined to go ahead, even if we stayed out. There was undoubtedly considerable failure to recognise our special problems of Imperial Preference so far as the Dominions are concerned and the development of our Colonies.

A report was submitted to the Congress, which was adopted most enthusiastically, and I have no reason to think that the views of the Christian Democrats have changed in this respect in any way in the last year. This report was presented by the Netherlands Minister of Economic Affairs and, in the course of it, he had this to say: The method of co-operation has yielded valuable results as far as the Benelux is concerned. He was referring to the pilot scheme of the European union, the three countries Belgium, the Netherlands and Luxembourg, and went on: In the course of the ten years which have elapsed since the end of the Second World War a satisfactory economic union has been realised. Later in the report he went on to indicate that there were differences between this pilot scheme and the much wider European scheme then under discussion. He pointed out that the scheme was at present confined to three countries, two of which were already members of an economic union. The problems set were, therefore, less complicated than they would be in the case of several countries making such an attempt. That seemed to be a masterpiece of understatement. He said: Distances in the Benelux territory are small, which facilitates close contact between all those concerned in the setting up of a common market. Those were reservations, but they did not prevent the report coming to this conclusion. This is the sort of atmosphere which will meet the Chancellor when he goes forward for his discussion: European countries must accept this state of affairs and derive strength from the established fact that failure of the integration experiment will mean the end of European influence on world affairs. There is not the slightest doubt that among a substantial body of opinion on the Continent full integration and a Customs union is essential. Those judgments ignore our responsibilities to the Dominions and the Colonies and under no circumstances, as I think is generally agreed, can we accept a supranational authority.

I would look at the possibilities of the scheme in rather a different way. I think that we—indeed, I think the whole world—has gained very considerably by the free association of the Western nations, in a military sense, in N.A.T.O. I wonder whether much good might not come from economic co-operation between all the countries of Europe. Rising standards of living can certainly only follow from dynamic economic policies. I am quite certain that there is grave danger if we do nothing, but I think that there is even greater danger if we try to do too much too fast.

It seems to me that there are three very great potential gains from entering into these discussions at this early stage. In years gone by, London was the financial centre of the world. I am well aware that hon. and right hon. Gentlemen opposite very often poke fun at the City of London, at the great financiers and moneylenders and all the rest of it, but, equally, it is perfectly true that whereas trade follows the flag it also follows the banker, and our position as the financial centre of the world has had a great deal to do in bringing to this country trade which otherwise would not have come here. The bankers brought great trade to this country. The insurance companies went into the world, as they still do, and brought great wealth to us.

We are no longer the bankers of the world, but we are the bankers of the sterling area and from that we derive great strength. It seems to me that with this economic integration we might find that just as our industrialists and the iron workers of Middlesbrough will accept the challenge of a common market in Europe, so will the bankers and insurance brokers and insurance agents. I think that that may be a further source of strength and bring greatness, or growing greatness, back to London as the financial centre, thus enabling the £ to look the dollar in the face more firmly than it has been able to do for a considerable time, and also meet the challenge of Soviet economic power.

There is also the fact that if we do not participate in these early discussions, if we stay out, the other countries of Europe will go ahead. If they go ahead without us, I think that it is logical and natural that Western Germany, before very long, will be the acknoweledged leader of that European bloc. It seems to me that if we stay out there is great danger that 25 per cent. of our total trade—25 per cent. of our export trade and nearly 25 per cent. of our imports—will be whittled away. If we co-operate I think that we shall have a great opportunity of increasing that 25 per cent.

My third point has not been raised at all this afternoon, and I think it is relevant. Many of us have been worried for a great many years about the economic and political stability of France. If we in this country can come into closer trade association with France we can bring to her some of the strength which she certainly has lacked in the past and which, I believe, she lacks today.

For these three reasons, I very strongly support the Government's intention to take part in the preliminary discussions. I was glad to hear the Chancellor propose to go into them with his weather eye open. I should like him also to go into them with courage, because I believe that great advantage may accrue to the United Kingdom.

6.50 p.m.

Mr. Roy Jenkins (Birmingham, Stetchford)

The Chancellor of the Exchequer this afternoon in a lucid and interesting speech dealt very fairly with a number of the points which we have to consider in facing this issue. I do not think he would claim to have added very much new information to what we already know about the Government's attitude. He really argued the reasons which had led the Government tentatively to take up the point of view which they have. One new thing which he gave to the House was a quotation from Mr. Balfour. Originally he said that it had been made 30 years ago, but subsequently corrected that to an earlier period, when Mr. Balfour was presiding over a Government in which there had been defections to the right and defections to the left, and which was going through a period of difficulty with a substantial number of resignations. I do not know if that made the quotation appropriate for the present circumstances.

I think that, in a sense, any quotation taken from the old free trade versus tariff controversy is not particularly appropriate to what we are now discussing. As I understand it, the basis of that old controversy was whether, in a world becoming increasingly protectionist, we ourselves could afford to remain a little isolated island of free trade. The issue to which we have now to apply our minds, as. I think, we are doing to some extent, is whether, in a Europe which is becoming a free trade area, we can afford to remain a little isolated island of protection. That is a very different situation from any that affected both sides of the long and bitter controversy to which reference has been made.

I hope that in our whole approach to this question we shall consider it at least as much from the political as from the economic point of view. In the speech which I made on this issue in the Consultative Assembly of the Council of Europe at Strasbourg, I ventured to begin by using a quotation, as the Chancellor has done. I made mention of Mr. Gladstone, not because—as, I think, the hon. Member for Bolton, West (Mr. Holt), who was there, thought at the time—I wished to line up behind Mr. Gladstone as a free trader on principle, but because I thought that he had made a remark apposite to this context, when, as Vice-President of the Board of Trade, he complained bitterly that he had wished to concern himself with men, but had been set to looking after packages.

I do not know whether it is a valid distinction, but, if it is, the free trade area and our approach to it must essentially be a matter of men and not of packages. In other words, we are at least as concerned with the political consequences and political implications as with striking a very narrow balance between a particular degree of economic advantage and disadvantage.

It cannot, I think, for a moment be denied that there is a genuine political impetus behind the common market in Europe; the strongest political impetus in Europe since the collapse of E.D.C., and if the idea of the common market, for one reason or another, were to collapse and come to nothing, it would be a very grave setback for the morale of Western Europe as a whole, and something which none of us, I am sure, would wish to see take place. Certainly, if it were to be thought for a moment that such a collapse could be attributed in any way to the British Government—and I make no party point of this—it would make Great Britain extremely unpopular in Western Europe. Again without wishing to stir up too much controversy, we can all say that our store of popularity in Western Europe at the moment is not so great that we could wish to dissipate any of it in this way.

There are, therefore, very important political considerations driving us in the direction of welcoming this scheme and of being anxious to make it a success. I agree with the Chancellor that it is impossible for us to contemplate going into a full customs union. To do so would mean not only whittling down Imperial Preference but introducing anti-Imperial Preference. That is a position manifestly impossible to any British Government. But a free trade area, with our own control over external tariffs, is a different matter.

When we turn to the economic considerations, they are, on the whole, strongly in favour of our going into such an arrangement. The most important and, certainly, the point which is likely to make the biggest impact on our people is, if it may be so termed, the negative point about German competition. We would undoubtedly be giving the Germans a very powerful advantage over us in a very big, a very rich and an expanding market. It is important to bear in mind that all those three considerations apply to Western Europe at the present time.

If the scheme developed, with the free-trade area attachments which are possible, and indeed probable, it will mean a market of about 240 million people. As the average purchasing power per head of those 240 million people is very much higher than the average for the world as a whole, the area's aggregate purchasing power per head would be one of the greatest in the world. Its importance is to be measured not only by the number of inhabitants but by their purchasing power per head.

As the hon. Member for Halifax (Mr. Maurice Macmillan) pointed out in his very persuasive maiden speech, it is also an expanding market. It is a complete fallacy to think of Western Europe as being an old and tired market. It may be an old market, but it is not a tired one. In the last five or six years, it has been expanding more rapidly than has any other comparable market in the world. This is an extremely important market to us, and one in which it is very important that we should be able to compete on the most favourable terms.

What about the possible economic disadvantages of our going in and having to overcome the difficulty of the Germans having this particular advantage? What about the disadvantages of opening our home market to tariff-free imports of manufactured goods from Europe? There is a good deal of natural and understandable fear that this may lead to our industries being undercut by the industries of some European countries which pay lower rates of wages than do we.

I suppose that the countries which have the lowest wage levels are Italy and Holland. Italy, primarily, sticks out in people's minds as having the most notably low standard of living as compared with our own. Certainly there is a possible danger here. But it is a fallacy to believe that a country which has lower wage levels must automatically be in a more favourable position, competitively, than one which has higher wages.

If particular British industrialists were to say that because of that they could not possibly compete, as I believe they do in some parts of the textile trade, it might not be unreasonable to ask them if they would prefer to have quota-free and tariff-free imports from the United States rather than from Italy. If the sole, or even the major, competitive factor were wage levels, it would be very difficult to explain the persistent size of the United States export surplus over the whole period from 1945.

It is undoubtedly the case that some industries may get into difficulties, and it is important that the period of transition should be fairly long, as is proposed. I suppose that the cotton industry comes most rapidly to mind, but the motor industry must also, to some extent, be to the forefront of our minds in considering the problem. As I represent a constituency which, while not as dependent on the motor industry as are some others, has a very great interest in it, I should like to consider that industry for a moment. From a long-term point of view, it is doubtful whether it is in the interest of the British motor industry, let alone the interests of the British economy as a whole, to maintain itself at a size which its competitive performance does not entitle it to do, on the basis of a soft and highly protected home market. Most of us would agree that the British motor industry at anything like its present size must be to a very large extent an export industry.

Mr. Gresham Cooke

I do not know whether the hon. Gentleman is aware of this, but the French market is protected and so is the German market, and yet both markets in France and Germany are larger than the British market.

Mr. Jenkins

I have no idea what that point means. I do not know if the hon. Gentleman would like to have another go, or whether I am being particularly obtuse, but I am afraid I do not follow the particular direction in which that piece of information, interesting in itself, was intended.

Mr. Gresham Cooke

I thought the hon. Member was leading to the point that a protected home market was a bad thing and was going to draw some conclusion from Germany's position. I only wanted to point out before he developed that argument too far that Germany has a protected home market rather larger than our own, equally protected, and that therefore it is impossible to draw any conclusion from a protected home market.

Mr. Jenkins

The hon. Member is a great expert on the motor industry, but I would doubt whether the German market is as protected as ours. Ours is very protected, with a rate of duty of 33⅓ per cent., which is in fact brought up to 50 per cent. through the operation of the Purchase Tax.

Mr. H. Wilson

Germany's rate of duty is from 17 per cent. to 21 per cent.

Mr. Jenkins

As my right hon. Friend points out, the duty in Germany is from 17 per cent. to 21 per cent. So far as the other three participants in the free trade areas are concerned, these other countries are contemplating abandoning this degree of protection. The question which is, therefore, posed for us is whether in those circumstances we want to try to preserve our own protected home market or whether we want to play our part in the larger common market. I would have hoped that the British motor industry, which must be largely an export industry, would be able to make itself more competitive over a period of fifteen years, and it is doubtful whether it would be in its interests to have a home market which gave the impression that its task in the export market was easier than in fact was the case. Certainly from the point of view of the economy as a whole, provided the transition is slow and provided we maintain a full employment policy, that is in no way an unreasonable point of view.

Therefore, I take the view that it is possible greatly to exaggerate the dangers of cheap Italian labour as a threat to most of our industries, particularly those industries which are as efficient as they should be. On the other hand, it would be extremely difficult to exaggerate the threat of a high German rate of investment. This seems to me to be the crux of the problem. This is the possible danger for British cars—not cheap wages in Italy, but a much higher rate of investment in Germany than we are achieving in this country.

Although I would not have expected from the Chancellor detailed proposals about the form in which we would act when we entered into negotiation for going into the free trade area, I would have felt much happier about his whole approach to the problem if this afternoon he had been able to make absolutely clear to us that, in his view, one of the prerequisites of effective participation was the stepping up of our rate of investment in this country and if he could tell us how he proposed to do it. Without wishing to go too deeply into controversy, I would not have thought that hon. Members opposite could suppose that events in recent weeks had created a favourable opportunity for stepping up the rate of investment in this country in the very near future. Therefore, we are in a sense confronted with the position that we have to make our dispositions in respect of this very important project in Europe at an unfavourable moment from our point of view, and to some extent from the point of view of some European countries.

It is not, however, quite true to say that all our competitors will be affected by the present difficulties equally and that therefore they do not upset the balance. It appears to be a peculiarly unfortunate fact that the Germans, for reasons that I do not pretend fully to understand, are far less dependent on oil as a proportion of their total energy needs than is any other country in Western Europe. If, therefore, a general oil shortage in Europe should exist for some time, that would be a factor strengthening the relative position of the Germans, and it is one which we should carefully bear in mind.

From the point of view both of the success of the common market as a whole and of safeguarding our position within the common market to the extent that we participate in it, the rate of investment is the key consideration. The common market will not solve the economic problems of Western Europe unless it is a common market with a high rate of investment. It is possible to have a common market in an area where there is a low rate of investment or in an area with a much higher rate of investment.

Certainly the only major country with a really satisfactory rate of investment in Western Europe is Germany. It is no good blaming the Germans for that—quite the contrary—but it makes it essential, from the point of view of the success of the scheme as a whole and of preserving a balance within the Commonwealth so that we do not have one area of prosperity surrounded by a number of semi-distressed areas, that we in this country get our rate of investment up as far and as fast as we can. It is absolutely essential to our support for the Government's proposals that they should be accompanied not merely by a vague expression of desire that at some time in the future the rate of investment should go up, but by something approaching a plan showing how it is going up in the comparatively near future. This seems to be the most essential of what one might call the constructive points.

There are one or two other points that I should like to put to the Government in the hope that when the President of the Board of Trade replies he will touch upon them. Some of them have been mentioned in some form by my right hon. Friend the Member for Huyton (Mr. H. Wilson) this afternoon. He mentioned the possibility of reducing the gold element in E.P.U. One or two hon. Members not on the Government Front Bench but on the back benches, including the hon. Member for Kidderminster (Mr. Nabarro), who has been keeping up an even more continuous running commentary than is usual throughout our debate, indicated that there was very little point in having a lower gold element in the E.P.U. settlements because we were chalking up our debts for the future. I think the hon. Member for Eastleigh (Mr. D. Price) has also expressed that point of view.

Mr. Nabarro

I have kept up no running commentary. Three hon. Members opposite gave way and, on each occasion, I made a thoroughly constructive point. In connection with the hon. Gentleman's interrogation about the E.P.U. settlements, what I said was that under current arrangements we are bound to settle as to 75 per cent. in gold. There may be controversy as to whether it ought to be 75 per cent. or 50 per cent. or 25 per cent., but some day one has to settle. There cannot be an endless debit and credit.

Mr. Jenkins

That is exactly the point I understood the hon. Gentleman to make.

Mr. Nabarro

I am glad the hon. Gentleman understood it.

Mr. Jenkins

It is the point he made in the form of a commentary, which may or may not be running. At any rate, I am extremely glad to have confirmation that what he had in mind earlier is exactly what I thought he had in mind. Therefore, I understand him to take the view that there is not much purpose in such a reduction because it merely runs up a debt for the future. I should have thought, however, if other countries are getting gold to a very considerable extent, to the extent of 75 per cent., that there was a very much greater incentive upon them to continue to run favourable balances with India and other countries in which they can spend outside of the dollar area than to be running up book debts which are not of very much value. It is generally accepted in Europe that there is an obligation on the creditor countries to reduce their surplus balances, just as the debtor countries should reduce their adverse balances. There is a much better chance of doing this if there is an improved gold content in the mechanism of the settlements.

There are one or two other matters I should like to put to the President of the Board of Trade. There is first the question of agriculture. I do not think anyone in the House will dispute that agriculture in this country and agricultural trade within the Commonwealth must have a great degree of special protection, and any idea that their products can be thrown into the free trade area on exactly the same terms as manufactured goods would be quite unrealistic. At the same time, I am not convinced that the Government's policy of a straightforward blanket exclusion of agriculture is the best way of going about it. This will be a pretty difficult thing for some of our partners in this enterprise, if we go into it, to swallow.

The Danes, in particular, who export almost solely agricultural goods, and who import manufactured goods, will certainly not be particularly attracted by our saying, "Certainly we will participate in the scheme on the basis that you make all our products duty-free, although we cannot make yours duty-free." There are other countries which similarly will not be attracted by such a proposal. Denmark is the extreme example of those countries, but Italy and Holland are also to some extent in the same position as Denmark, and I am a little doubtful about this approach by our Government.

I take, therefore, as my two beginnings to this problem, one, that agriculture must have some measure of special protection, and that nobody is going to argue for a moment that we can leave home agricultural production to free trade in the European market; and two, that it is not necessary to swing a little from free trade to complete exclusion. Hon. Members opposite were in a scoffing mood when my right hon. Friend mentioned long-term arrangements for purchasing Commonwealth products, but I am one of those who thinks that there could be an arrangement to cover the Commonwealth which would at the same time be more acceptable both to the Commonwealth countries and to some of the European countries, and that is a means of maintaining freedom to make long-term prices with them. That would be preferable to a blanket exclusion of agricultural produce, which sounds all very well from the point of view of us in this House, but is extremely offensive and also unfair to some of those other countries.

Thus, although we cannot go into the full common market, certainly not in the near future, and into the customs union, because of Imperial Preference, and for some other reasons, that does not necessarily mean that our participation must be confined merely to going into the free trade area, and I should like to know the Government's view about the possibility of participating in some sort of common investment to get a more balanced approach to investment throughout the area. I should like to know whether the Government, in rejecting, as, I think, they rightly do, the common currency, they also reject equally decisively a common central bank which, I think, might be of value under such an arrangement as we are contemplating. I hope that the President of the Board of Trade, when he replies to the debate, will be able to touch on and give us some more information about these detailed points.

In conclusion, I revert to what I said at the beginning, that I believe that the political aspects of this plan are, if anything, rather more important than the economic considerations. I believe that even on economic considerations the balance of advantage—though certainly it is a balance, and nobody is going to claim that it is more—lies clearly in our participation in the plan and, I hope, our enthusiastic participation. That being so, and as it seems to me that the political considerations point very strongly in the same way, being indeed in favour of our participation, not on balance, but wholly in favour of participation, we should have no hestitation at all about what is the right course to pursue in the interests not only of our constituents but of Europe as a whole.

7.15 p.m.

Mr. Gerald Nabarro (Kidderminster)

I am glad to be the first Conservative Member sitting for a Midlands industrial constituency to participate in the debate, especially as it gives me an opportunity of following the hon. Member for Stechford (Mr. Roy Jenkins). I do not propose at the outset to answer categorically a number of his arguments, but I shall undoubtedly touch upon them as I make my way through this speech, and especially as I am in a good deal of disagreement with what he has to say.

This debate so far has been conducted—in my mind, at all events—in a somewhat artificial atmosphere. Everybody is acclaiming the political, the economic and the financial merits of participating in a form of common trading area in Europe. None has as yet, so far as I am aware, pointed to a number of manifest difficulties, in view of the living standards we enjoy in this country, the form of social Welfare State we have embraced in this country since 1945, and the exceedingly high taxation which we suffer.

The right hon. Gentleman the Member for Huyton (Mr. H. Wilson), I recall in my mind, used the telling expression that the word "competition" in this context has "a sinister ring". I have heard Labour and Socialist spokesmen in the last few weeks say that it is the purpose of the Government to try to secure a common market in Europe because they believe that in the process of doing so we shall be obliged to depress wage rates and wage structures in this country, create deflation, and that we shall burst the stranglehold enjoyed today by the trade unions. I do not think that is the purpose behind my right hon. Friend's proposals. Certainly it could not be further removed from my own, in considering what ought to be done in present circumstances. However, there is a thought going through some people's minds, as the right hon. Gentleman said, that a common market has a "sinister ring" in that context.

I direct my remarks not to the position of particular industries, because I think that in this debate it would be wrong to try to argue from the particular to the general. I content myself at this stage by saying very briefly that I am keenly aware that there is, in the Midlands, grave anxiety, which is felt both by employers and employees in a wide range of industries, as to what would happen if all tariff protection against European manufacturing imports were removed.

I sit for, I suppose, the classic example of a single-industry town, Kidderminster, overwhelmingly concerned with the production of carpets. There is grave anxiety there. I shall not go into that in detail today because my right hon. Friend has just presented his Customs Duties (Dumping and Subsidies) Bill, and I think that the Second Reading of that Measure will provide a better opportunity to talk about the difficulties arising in the carpet industry and lack of adequate protection for its products against unfair trading practices by certain foreign competitors. However, the Kidderminster carpet industry in the Midlands is only one example. The motor industry has grave anxieties, to which the hon. Member for Stechford referred. He might have informed the House that the principal interest there is the manufacture of commercial vehicles, and that there is not as much concern about the common market proposition as there is in Coventry.

There is no doubt at all that the 30 per cent. tariff protection enjoyed by the motor manufacturing industry in this country gives a measure of security and a basis for continued expansion. I speak merely as an observer and because it impinges on the interests of my constituency, but I have the gravest doubt whether it would be a good thing for the motor industry, for example, to have to withstand competition from a Fiat 600 c.c. motor car, a vehicle of 6 h.p. approximately on our scales, which is well-known no doubt to hon. Members and which could sell on the United Kingdom market at as much as £60 to £70 below the price of a Morris 8 h.p. car. [An HON. MEMBER: "£120."] I do not think it is as much as that. My researches have led me to believe that it is between £60 and £70.

Mr. Roy Jenkins rose—

Mr. Nabarro

May I just finish? I am sure that the hon. Member will not wish to make a running commentary on what I am saying.

The price comparison excludes considerations of Purchase Tax. It is the wholesale price against the wholesale price. I doubt whether we can readily dispel the anxieties of the Stourbridge glass industry in the Midlands, which is protected heavily by tariffs, or the anxieties of the pottery industry in Stoke-on-Trent, also protected heavily by tariffs. It is all very fine for my right hon. Friend the Chancellor to say, in his customarily spacious and statesmanlike terms, that there will, of course, be particular difficulties in particular industries. I can see a whole gamut of industries facing massive difficulties if tariffs are removed.

Mr. Jenkins rose—

Mr. Nabarro

Hundreds of thousands of workers will face grave difficulties, whether tariffs are removed arbitrarily and unilaterally or over a period of 10 to 15 years, because it is only a matter of degree. I will now give way to the running commentary.

Mr. Jenkins

I am very glad that the hon. Member is giving way. His behaviour during other people's speeches is made tolerable only because he usually gives way in his own, but if he is going to give that up it really will become intolerable. I am sorry that the hon. Member took so long in giving way because, in the course of doing so, he has advanced some distance from the point which I wished to take up. He was dealing with unfair competition with the British motor industry. Could he think of any method by which the British motor industry could avoid competition from the Fiat Company, and many other companies, in its export market which is and must remain 40 per cent. of the British motor industry's market?

Mr. Nabarro

I hope to say something about that matter as I get on with my speech. I only say at this stage, that if the home market of the British motor industry is deliberately undermined by removal of tariff protection it will become increasingly difficult for the industry to compete in the overseas market—not more easy.

Mr. Jenkins indicated dissent.

Mr. Nabarro

It is no use the hon. Member shaking his head. The foundation of a healthy export trade in engineering goods must surely be a healthy home market.

Mr. Gresham Cooke

It applies to every country.

Mr. Nabarro

Even the hon. Member for Stechford concedes that my hon. Friend the Member for Twickenham (Mr. Gresham Cooke) has expert knowledge of the motor industry, and my hon. Friend points out, in a well-merited interjection, that the same principle applies to the motor industry in every country and not merely in this country.

Mr. H. Wilson

If the hon. Member for Kidderminster (Mr. Nabarro) believes it essential to have this vast home market in order to compete in the export market, what has he to say about the Government's policy in trying to squeeze the entire home market of the industry by the credit squeeze and the hire-purchase restrictions, which are completely opposed to his argument?

Mr. Nabarro

They are not completely opposed. I will endeavour to deal with them later, as I shall mention industrial taxation later on, which seems a material point.

It is my opinion—and it seems that I am the only discordant voice in the debate so far—that there are several valid reasons which have not yet been fully advanced as to why Britain should not enter precipitately into a common market in Europe. The first is in connection with wages. It is, of course, true that if one takes wages in isolation and one does not have regard to other incipient handicaps which this country might suffer according to the circumstances were she to go forward and participate in the scheme, the wages factor is not all-important, but in conjunction with other handicaps it is of great importance.

There were exchanges between the hon. Member for Sheffield, Park (Mr. Mulley) and myself about cherries. Obviously I chose cherries because they would attract attention in the House and I wanted them to be representative of horticultural products. Tariffs are enjoyed on these products by British producers. Italians send large quantities into this country and in spite of tariffs they are still doing great harm to our growers.

Major Legge-Bourke

Hear, hear.

Mr. Nabarro

My hon. and gallant Friend agrees. They are doing great harm because Italian horticultural workers have a wage scale which is about 40 per cent. less than ours. We cannot beat competition like that except by giving our growers tariff protection.

Mr. Holt rose—

Mr. Nabarro

No, I cannot give way.

On wages, I want only to make this important point on wages in European manufacturing industries. In Italy, wage scales are at present only about 60 per cent. of our own, and they are much more stable than British wages. The reason is that since the end of the war there have been between 2 million and 3 million unemployed in Italy. I believe that if there were a common market with both Italy and Britain members of the common market, we should import a great deal of that unemployment from Italy into this country. In Western Germany, wages are, at an average, only 75 per cent. of ours in the manufacturing industries, and their wages are much more stable than ours because there has been a continuous infiltration of refugees from the Eastern Zone which has created a labour pool in Western Germany and conditions far short of full employment.

Mr. John Hynd (Sheffield, Attercliffe) rose—

Mr. Nabarro

I will not give way, because the hon. Member has only just entered the Chamber and I have been here all day.

Mr. Hynd indicated dissent.

Mr. Nabarro

A further point is in connection with unfair trading practices. Possibly my right hon. Friend the President of the Board of Trade may be able to suppress many of these under the Bill to which I referred a few moments ago. I must say, quoting for example a particular injury to my own constituency, that my right hon. Friend has been unable to do very much about it so far. This country has been flooded since 1952 with cheap Belgian cotton carpets. Six times the square yardage of these have come into the country in 1956 as came into it in 1952, evidently due to the fact that the Belgians are deliberately subsidising the growth of Congo cotton, thereby placing carpet manufacturers in Belgium at a great advantage compared with carpet manufacturers in this country. That is the type of unfair trading practice which, under a common market arrangement, I think it will be nearly impossible for us to suppress.

Also, I should like to say a few words about the working habits of continental peoples. Please do not let us imagine that they subscribe to a 40-hour five-day week or even a 42-hour five-day week in the generality of industries.

Mr. Bellenger

They will probably get their five-day week in Germany quicker than we shall in this country.

Mr. Nabarro

Most industries in this country have a five-day week already. The fact is that the continentals generally are working much longer hours than are our people, and for lower wages. A combination of longer hours and lower wages would place all manufacturers in this country at a manifest disadvantage were there an abolition of our protective tariffs.

Now a word about the extremely unequal taxation standards as between European countries and this country. We are the most highly taxed nation in Europe. Today a British manufacturer pays approximately 50 per cent. of his gross earnings or profits to the State in the form of Income Tax and Profits Tax. The German manufacturer pays substantially less. The Italian manufacturer pays a great deal less. I belong to the school of thought which believes that the higher the rate of direct taxation in industry, the higher the price of the finished product. Since the end of the war that has invariably been proved to be the case.

If it were possible to have one uniform scale of direct and indirect taxation for all the six Messina countries contributing to a common area agreement and ourselves if we participate, there would be approximately equal terms for trading between all the participants. But so long as our levels of taxation remain so much higher than those of competing countries, I believe that our manufacturers will continue to labour under a manifest disadvantage.

Moreover, there is the simple point of geography. Nobody can convince me that it is possible, for example, for a British motor car manufacturer to deliver a vehicle in southern Germany, in Austria, or in any other part of Central Europe, as cheaply as it is possible for a German manufacturer to do so, for the simple and valid reason that he has to ship the vehicle across the Channel at quite considerable cost.

Mr. Douglas Houghton (Sowerby)

But the motor cars, which the hon. Gentleman was saying earlier would be such strong competitors in our own home market, will have to be delivered there as well.

Mr. Nabarro

But the hon. Gentleman must remember that there is now a measure of protection, and presumably we are seeking to enter into the arrangement on the basis that it will be advantageous to British manufacturers. I cannot believe that our geographical position can yield any advantage in the cost of transportation, shipment or delivery. That is one important factor which we should all take into account.

Finally, I want to say a few words about Empire and Commonwealth considerations in view of the fact that glibly, from all parts of the Chamber today, have come continuous assertions that we can go into the common market and still maintain our Imperial preferences—an hon. Member opposite said "We can"?

Mr. Rhodes

I said we cannot.

Mr. Nabarro

I am sorry. The hon. Gentleman is exactly right; we cannot. Either those Imperial preferences will be whittled down or they will be eliminated. My right hon. Friend is rightly excluding food stuffs and agricultural and horticultural produce, but let me cite a major import into this country, timber. In 1955 we imported into this country about £230 million worth of timber. All the foreign timber coming in paid an import duty; all the Empire timber coming in was duty free. Presumably, if we allow European timber to come here duty free, under an arrangement of the kind we are discussing, then the preference formerly given to Empire producers is immediately lost, to their patent disadvantage.

In any event, we would create a three-tier tariff system. First, there will be the highest rate of duty imposed on imports from those countries, such as the United States of America, which are not contributors to the common market. Secondly, there will be the Empire countries with some preference left, I hope, and thirdly, there will be the common market countries with no tariff. What is indisputable is that in certain cases the Empire countries will lose their preferences altogether compared with the imports from European countries, and in other cases they must be whittled down.

I believe that this is not to the best long-term advantage of the Commonwealth, Empire and the United Kingdom. By all means let us enter into discussions about these common market proposals, but I do not want any precipitate commitment by this country to a common market. Also I do not want my right hon. Friend to repeat what he did with the Federation of British Industries when he asked them early in October to let him have their views within a month. Manifestly an organisation having thousands and thousands of members and affiliated trade organisations cannot collect their voices and give any reasonable consensus of opinion in so short a period as one month.

There should be detailed consultation with every affected industry in this country. There should be detailed consultation with the T.U.C. Above all, let us have detailed consultation with the Commonwealth countries, both the Dominions and the Colonial territories, in order to be certain that they are not rushed into a precipitate decision, and to enquire that there is some reasonably broad basis of agreement between us all, before we commit ourselves to any such drastic and unique departure from the protectionist trading practices of the last 25 to 30 years which have served the Empire, and Commonwealth and ourselves so well.

7.36 p.m.

Mr. Arthur Holt (Bolton, West)

Later, I shall take up one or two of the points made by the hon. Gentleman the Member for Kidderminster (Mr. Nabarro), but I wish to start by saying, on behalf of the Liberal Party, that I welcome most warmly the proposal for a common market. I speak as a free trader and as a Member of Parliament for a constituency which is predominantly textile and as one who also has a tiny, but, nevertheless, to me important, stake in a branch of the textile industry which is supposed to be one of those which might be in difficulties.

I have looked at these proposals from all angles, and on all counts I have arrived at the same answer, namely, that they are to be welcomed most warmly. I hope that the Government will go ahead with them and support them, not only from a negative point of view—that is, from a fear of being left outside the Customs union of the "Little Six"—but will support them with their own initiative. Indeed, I hope that the Government will encourage some of the reluctant members of the Customs union, particularly France, who may at the last moment be reluctant to join. By the action of the British Government I want as much support and encouragement given to France, and the others, to enter the Customs union and us to support it in a free trade area.

Now I want to take the House back to certain fundamental trade trends which we must bear in mind. One was mentioned by the hon. Members for Halifax (Mr. Maurice Macmillan) and Tonbridge (Mr. Hornby) in their maiden speeches, namely, that Empire trade is stagnant. For five years the trend has been neither up nor down, but has been extremely erratic. I am thinking particularly of the action of Australia and South Africa in imposing quotas and then removing them. Empire trade is nearly 50 per cent. of our total trade. If the question is asked: has Britain a bright future in Empire trade, the answer is that it most certainly has not. That is one thing that we must understand. But I do not accept there is nothing we can do about this.

What is happening to world trade in the meantime? During the last five years this has been expanding rapidly. It is now running at about 21 per cent. in volume greater than it was five years ago. Not only that, but it is expanding at an increasing rate each year, and it is something in which we must take part. As part of that expansion in world trade, European trade has been expanding to an even greater extent. So here we have this proposal to encourage greater trade between the United Kingdom and the other European countries. That is basically what it is; it is a market which is expanding more than any other in the world. Therefore, prima facie, there is a first-class case for doing anything which will bring about greater growth in this market which is already so rapidly expanding.

The next point that I want to make is that if this scheme is eventually to be successful—there are many hurdles to be surmounted; I am sure the President of the Board of Trade knows that—the Government must change their attitude. I felt that there was some change in what the Chancellor said today, but there has not previously seemed to be any. The Government must change their attitude from the rather negative one of saying, "We cannot afford to stay out" to the positive one of saying, "We must go in and see it through because we think that it has, intrinsically and basically, become a major British interest that the proposal succeeds."

It has been fascinating for me, as one who has had the free trade cause very near his heart for a long time, to sit here this afternoon and listen to protectionists advocating this very liberal and free trade measure. However, the hon. Member for Sheffield, Park (Mr. Mulley) said he thought we ought not to become involved in free trade and protectionist arguments. This idea was supported by some remarks by the hon. Member for Stechford (Mr. Roy Jenkins), who said that the circumstances these days were quite different and that the arguments do not apply. I agree that the circumstances are utterly different, but the basic arguments vis-á-vis protection or free trade do apply, and unless more hon. Members accept the free trade arguments the scheme will eventually break down, because there will be difficulties like those that the hon. Member for Kidderminster cited.

The hon. Member for Ashton-under-Lyne (Mr. Rhodes) asked the Chancellor, very pertinently, why, since the Government brought forward the Import Duties Act, 1932, the Government were now trying to remove the tariff. The answer is simple—

Mr. Rhodes

That was not what I said. I asked whether there was any evidence to show that we were better equipped now to compete with the continentals than we were when the tariffs were introduced in 1932.

Mr. Holt

I took the implication of the hon. Gentleman's remarks to be what I said.

The Chancellor's answer should have been that we recognise that the Import Duties Act, 1932, was irrelevant. It brought no benefit whatever to the country. The right hon. Gentleman pointed out that what was really the trouble in those days was a complete lack of demand, both at home and abroad. Can anybody tell me—this is where we come back to the old arguments about tariffs and free trade—how we can increase demand on the home market by putting on a tariff, therefore putting up the price of a commodity which the ordinary person cannot afford already?

If the price is raised, can the person afford to buy the commodity any more than he could previously? If we put a tariff on some goods coming from Italy, say cherries, does it enable the Italians to increase their standard of living because of a higher demand? Of course it does not; because of the tariff they cannot sell some of their goods.

These are basic arguments about tariffs and free trade, and unless hon. Members are prepared to accept them again, as this proposal develops and people see their own industries and constituencies being hurt, we shall have people coming to us and saying, "This is terrible. Tariffs are being reduced and our people are hit. The tariffs must be restored."

I was glad to hear the right hon. Member for Huyton (Mr. H. Wilson) say that he would give a pledge that the official Opposition would not take the side of vested interests and lobbies who were concerned to get protection just for their own groups. However, I assure him that, unless all hon. Members on this side of the House accept the arguments for free trade, he will have to go back on that pledge because people will say that the removal of tariffs is harming the cherry producers, the carpet industry or the textile industry, and that the tariffs must be restored. Not until people accept the fallacy of the argument and realise that tariffs never did any good to anyone shall we have enough support in the House to face the difficulties which the Chancellor and the Government will have to face before they overcome their problems.

Mr. Gresham Cooke

I must contradict the hon. Member. Tariffs have done some good to a lot of people over a long period. Take the iron and steel industry. Tariffs have enabled the iron and steel industry to employ people who would otherwise be unemployed. The workers have had more money in their pockets and have thus been able to buy more goods and so increase demand.

Mr. Holt

That is all right, but if one works the thing out it shows the futility of the whole business. All this kind of thing has been argued previously. The hon. Member can refer to copies of HANSARD in the 'twenties and the 'thirties and see all the answers. We had debates of this kind at certain stages of the Restrictive Trade Practices Act. Whether a country is prosperous or not depends entirely upon the level of demand. It has nothing to do with tariffs; tariffs have always been utterly irrelevant.

The only circumstance in which a tariff can possibly justify itself is if, in the gradual development of a society in a free trade atmosphere, it is desired for some reason—it may be defence which is beneficial in a general way and not just an economic way, to develop a certain industry which might take some years to stand on its own feet in a completely free trade area. There is a case for having a tariff then, but the difficulty is that nobody will ever want to take it off again afterwards.

All the arguments which the hon. Member for Kidderminster used about his own industry apply on the other side, as was pointed out in an intervention by the hon. Member for Sowerby (Mr. Houghton). The hon. Member for Kidderminster may think that there are great difficulties about our selling motor cars in south Germany. There will also be difficulties for the Germans in selling their motor cars in Coventry.

The hon. Gentleman goes on to argue the hoary old fallacy that we must have a protected and stable home market as a foundation for an export industry. That is nonsense. Many industries have been built up in which 70–80 per cent. of production was exported. Today, our textile machinery industry is a peculiar and interesting example. For about thirty years—some hon. Members may deplore it, but it is a fact—5 per cent. of its production has been sold on the home market and 95 per cent. abroad. It may be thought entirely intolerable that some of the machinery has not been sold to the Lancashire cotton mills. Nevertheless, the industry has survived on that basis for a long time in spite of a great depression in the industry of its customers at home.

If we say that the protected home market for the motor car industry is essential, the same argument must apply to the Italian motor car industry. Their home market is essential for them. But both countries will lose that protection under this scheme, so that even if one accepted that there was something in the argument one would have thought that the disadvantages were equal to both sides.

The hon. Member for Kidderminster also referred to the disadvantages of a high standard of living, our welfare services, and taxation. It is a new argument to me that it is a disadvantage to have a high standard of living; I thought that that was what we were all after. There again, we must get down to the basic arguments. How do we achieve a high standard of living? It is achieved by our technique and by the capital we employ, so that we are able to produce goods cheaper than somebody else.

Mr. Bellenger

Or better.

Mr. Holt

Or better, at the same price, if the right hon. Member would prefer it.

As soon as the backward nations of the world are able to produce their goods better, they will obtain a higher standard of living. One of our problems in our endeavour to raise the standard of living in the under-developed countries is the task of making them produce their own goods more efficiently, and so create their own wealth. It is not necessary, as has been suggested, that we should give them 1 per cent. of our income; we want to enable them to trade with us.

How do certain people propose to deal with this problem? We hear them suggest that textiles from India, Hong Kong or Japan should not be allowed into this country. Then we hear talk of the advisability of giving them aid. Where is the sense of it? The best way of giving aid to people is to allow them to trade with us.

This brings me to my next point, which is quite different from any which has so far been made, but which I regard as vital to our future trading policy. What are we going to do about the most-favoured-nation clause? At the moment, it is proposed that we should merely reduce the tariffs on manufactured goods between ourselves and European countries. If that is all that is proposed, it will require us to renegotiate the most-favoured-nation clause with third countries outside Europe. If we do not, we shall be bound to reduce our tariffs with them at the same time as we reduce those with Europe.

There are three alternatives—and this is allowed for in Article 24 of G.A.T.T. First, we can just say, "This is a free trade area under Article 24 and so our most-favoured-nation clause agreements do not apply in connection with this 12- or 15-year development, or whatever it is; we shall reduce our tariffs bit by bit with Europe, but we are afraid that our tariffs with the U.S.A. and South America, etc., in connection with machinery, wool or textiles, or whatever it is, must stay the same."

Secondly, we can say, "No. We have a great interest in continuing development with other parts of the world, so we do not want to annul the most-favoured-nation clause now; but what we would like to do is to delay the renegotiation of them. We would like to get the common market developed in Europe for several years and then see whether we can lower our tariffs to some extent with the third countries, although perhaps not down to the European level."

Thirdly, we can say, "The most-favoured-nation clause must stand, which means that any tariffs we lower with Europe we lower with you." That would bring Britain into the position in which she was in the 1860s, when she became a free trading nation in manufactured goods. The implementation of the most-favoured-nation clause in our treaties, at the same time as the lowering of our tariffs with Europe, would make Britain once again a free trading nation.

Many people forget that Britain is largely free trading now. About six-sevenths of our imports come in completely free of protective duty. Only £500 million worth of imports are subject to tariffs, and they are mainly on manufactured goods. Many of those tariffs would go, because the goods concerned come from Europe. We must ask ourselves whether we want to divert our trade so much that the import of the remainder of those manufactured goods which come from other parts of the world dies out, because of our failure to implement the most-favoured-nation clause.

If we deny those countries that benefit, there will undoubtedly be a big diversion of trade in manufactured goods between this country and Europe, away from those countries. We must consider whether that is desirable or not. I doubt it. Although I think that we want a big expansion of trade with Europe, I believe that we want it as an extra, and not at the cost of our trade with other parts of the world. I hope that the Government will give very careful examination to this problem, which is most important for our future trading policy. I should have thought that our interests in world trade were so great that we could not afford to deny to these third nation countries the benefits of the most-favoured-nation clause, even as we develop the common market with Europe.

I have spoken rather longer than I had intended, but so many points have been made that I wanted to take up. We warmly welcome this development. We hope that the Government will not be merely lukewarm about it, but will use all their initiative and power to press forward with it and even carry forward some of the reluctant countries on the Continent. We hope that the proposal will go through at an early date.

7.58 p.m.

Mr. Martin Maddan (Hitchin)

I very much agreed with an enormous part of the clear speech of the hon. Member for Bolton, West (Mr. Holt). He certainly dealt clearly with some of the principles raised by my hon. Friend the Member for Kidderminster (Mr. Nabarro) The argument really comes down to this: do we look at economic forces from the point of view of the consumer, or of the producer? In the end, they are both the same people. Where do we start? Where does value come from? All the economists tell us that value, in fact, comes from the consumer. The value which he puts upon it is the true value of the product. The cost of making it is really nothing to do with it. If it were, we would never see unsold goods, waiting in vain for a buyer.

I believe that it is right to start looking at all these problems from the point of view of the consumer. It is also, perhaps, worth reiterating some of the reasons for the favourable reception which the House has given the proposals put forward by my right hon. Friend the Chancellor. It was he who first inspired the proposal for a free trade zone around the Messina countries at the O.E.E.C. meeting in July. He should be given great credit for having taken this step. We have heard a lot about the way in which the Commonwealth markets have not been expanding in the way in which European markets have been doing. I do not propose again to mention all the figures. We have been told that the average rate of Imperial Preference is about 5 or 6 per cent. but what I do not think we have heard is that that rate has halved since 1937; and that is another factor of which we must take account. Some figures have been given to suggest why that tendency is likely to continue.

I wish to emphasise the need of Commonwealth countries and the "Colombo countries"—if I may call them that—for investment, and how important it is that our country and Europe should be able to play a big part in providing the necessary machinery and finance for that investment and development. I am sure that the linking together of our country with Europe will lead to a strengthening of the economies and enable us to meet the demands for capital from these under-developed countries.

Then, of course, the possibility of research and investment on a scale to equal that either of the dollar area or the rouble area—about which we have not heard a great deal—is extremely important. The Communist countries are increasing their production by 10 per cent. to 15 per cent. annually, which is another threat that we have to meet, as well as the position where the United States, our great competitor, already manufactures half the world's goods.

Some industries will benefit directly from the present proposals, and while we talk about industries which will suffer—some have been mentioned—it is necessary to repeat that they would probably have suffered in any case. It is hard to see how they would not have suffered as time went on. If they are to suffer, it is better that encouragement be given to stronger industries to take their place and fill the economic vacuum which would otherwise be created. Industries which seem to me likely to gain are the iron and steel industry, the chemical industry, the aircraft industry, commercial vehicles, engineering products and machinery; and the general effect of this change on our economic climate will be as The Banker described it: "anti-cyclonic"—the nice, warm, growing weather, good for the harvest, which is needed. Obviously, it is right, therefore, that our country should enter into the common market talks and play a prominent part in developing the idea of a common market. If we go into the talks, we shall get a second large preference area, which seems to me to be important. If we do not, we have heard what will happen to us, and I do not intend to repeat what has been said about that.

One example of the benefit we shall get from tariff reduction is worth considering. In the European Coal and Steel Community countries, which are the same as the Messina countries under a different name, since the Community has been in operation there has been an increase in trade in the Community products of coal and steel of 93 per cent. in the same period between the same countries the increase in trade in other products has been only 60 per cent., which shows the added impetus given to trade by the E.C.S.C. arrangement.

Undoubtedly, there will be a growing number of pressures from quarters both idealistic and interested to damp down and whittle away our association with the common market. Because of that I wish to put the entirely contrary point of view, that perhaps our association should be closer than we are now proposing. There are four alternatives which face our country. We could do exactly as is now proposed, and have a free trade area relationship with the common market, excluding agricultural produce, and retaining Imperial Preference thereby. That is one alternative. That might run us into considerable difficulty with G.A.T.T. I hesitate myself to pronounce on that, but the position can be taken up against some of the rather ambiguous Clauses in that Agreement.

The second alternative is that both Britain and the Commonwealth—or perhaps I should say the overseas sterling area, not including Canada—should join the free trade area. It is worth while considering what would happen were that proposal followed. So far as I can see, the Commonwealth manufacturers could gain through the tariff reductions which they would enjoy with Europe. That would not help the one Commonwealth country particularly concerned in this direction, namely, Canada, because I do not see how, for currency reasons, Canada could be associated with such a proposal.

Again, European exporters and finance houses could contribute better to Commonwealth development, but, again, I think that we should be troubled by G.A.T.T. We could either carry this through with a four-tier tariff which would consist of British preference. European preference, most-favoured-nation rate, and the other, which always exists—the hon. Member for Bolton, West talked about three tiers, but there is always the fourth one which a few outside countries have—but this would run into trouble with G.A.T.T. Or it could be done by the reciprocal granting of preferences by Europe and the Commonwealth. This, again, might lead to difficulties with G.A.T.T.

The third course which, frankly, is so unlikely that I will merely mention it, is that both Britain and the Commonwealth together should join the common market. I will say no more about that, but go on to the fourth course which, in fact, is the proposal made by France with regard to herself and her overseas territories. This proposal is that Britain might join the common market, leaving the Commonwealth in a free trade relationship with Britain and Europe. This might eventually be the scheme which would be most acceptable to us. It is worth saying that in the common market proposals, quite apart from our reservations about joining the free trade area, provision is made for the exclusion of agricultural products, or at least certain parts of them, so that might be a possibility. I think it worth recollecting that if this seemed right for France it might be right for us in relationship with our Commonwealth.

There are, obviously, certain benefits which would result from actually going into the common market instead of just into the free trade area. I have listed four of them. One important thing which might not commend it to some of my hon. Friends is that it would probably solve the difficulties with G.A.T.T. That might make a great deal of difference. The second, and more serious, is that we should share in the investment fund, and the industries which will be disrupted, or their disruption hastened, by the association with the common market might do better right in the common market than if we rested on an association with it in the free trade area. The third point is that we should benefit from the abolition of transport discrimination from which, I take it, in the free trade area we should still suffer in relation to our European competitors.

The fourth, and, I think the most important point of all, is that the whole development of the common market, the huge economic activity of those six countries, will be governed by those who are actually in the market, and not by those who are hanging on outside. Are we to be in it, or are we to be hanging on without so much influence over the development of this country as we should have were we actually in the market? Whether these considerations will be decisive I cannot possibly say, but, since it is being suggested that lesser associations than that now being proposed would be right for us, it seems to be useful at least to point out the benefits which would, flow from closer association than that which is now proposed.

The Government have been very wise to decide to enter into these talks. I recall that when, in 1950, Great Britain was invited to take part in the discussions on the European Coal and Steel Community—I was not in the House then—my hon. Friends, who were then in opposition, moved a Motion of censure upon the then Government for not entering into these talks. In the course of the debate my right hon. Friend the Member for Woodford (Sir W. Churchill) said: We are asked … 'Are you prepared to part with any degree of national sovereignty in any circumstances for the sake of a larger synthesis?' … The Conservative"— Party says— without hesitation, that we are prepared to consider, and if convinced to accept, the abrogation of national sovereignty, provided that we are satisfied with the conditions and the safeguards. Nay, I will go further and say that for the sake of world organisation we would even run risks and make sacrifices."—[OFFICIAL REPORT, 27th June, 1950: Vol. 476. cc. 2158–9.]

Mr. Nabarro

No doubt my hon. Friend would wish to be fair and to complete the picture by saying that on that occasion in 1950 there were six Conservatives, including myself, who refused to be associated with the plan.

Mr. Maddan

I am much obliged to my hon. Friend. I have not studied the HANSARD list of votes in the same way as other hon. Members may have done.

We should keep an open mind about solutions which, although they may look more radical than the one now being proposed, may be better for us both in the transition and in the long run.

8.12 p.m.

Mr. F. J. Bellenger (Bassetlaw)

I will endeavour to follow the example set by the hon. Member for Hitchin (Mr. Maddan) and limit my remarks to the short space of time that he took. The last interruption of the hon. Member for Kidderminster (Mr. Nabarro) is most illuminating. He told us that he was one of the six who voted against his party or took a different line from his party in those days. I am satisfied that he really means that he is living in remote times and is not up-to-date and that his ideas are to a certain extent based on the fact, as he told us in his speech, that he represents a one-industry constituency.

Mr. Charles Pannell (Leeds, West)

A one-idea man.

Mr. Bellenger

When I first came into this House, and to a large extent now, I represented a two-industry constituency, coal and agriculture. Both those industries, about 21 years ago, were not so prosperous as they are now.

Mr. Nabarro rose—

Mr. Bellenger

I would willingly give way to the hon. Member but, if I am to keep to my time restriction, I hope that he will let me say what I want to say uninterrupted. Those two industries in my constituency had a considerable amount of under-employment and less prosperity than today.

What did I do, so far as I was able to do anything? We were not a depressed area, but we tried to get other industries into the constituency so as to balance things. I suggest to the hon. Member for Kidderminster that if he wishes to retain his seat he must do the same. Whether he likes it or whether he does not, and whether the Government introduce these proposals later on by way of legislation, he can be quite certain that at some time or other his constituency is to suffer unemployment because of the competition it will inevitably face, whether we have a free trade area or tariffs and all the rest of it. The hon. Gentleman had better make up his mind about it and come a little farther from those luscious days in which we lived for 150 years when Britain had the world markets. Today we no longer have them.

Let us take the motor car industry. Why is the German light car, such as the Volkswagen, knocking our cars out all over the world. We are fairly competitive on prices with the German manufacturers of motor cars but the fact is that the consumers, the buyers, prefer those cars to ours and will always want to have their choice. It is no answer to say that we must put up tariffs in order to protect our industries when we depend upon markets overseas. Hon. Gentlemen on Government benches and perhaps a few on my side of the House think that they can do that. My right hon. Friend the Member for Huyton (Mr. H. Wilson) said that we must take measures—I do not know whether he meant subsidies—to protect or to do something to help industries that might suffer as a result of Great Britain's going into the common market. I hope that my right hon. Friend does not mean that we are to continue obsolescent and inefficient industries in operation. That, in my estimation, would be fatal.

I have no doubt that in the days when we had horse traffic, trams and horse buses, there was a great demand that we should protect the horse industry because motor cars were just coming along. In those days women used to wear cotton stockings, but they do not want them any more. They want artificial silk and all the rest of it. We have to go forward with the times, and if we do not provide these things somebody else will. It is no answer to say that we can retain overseas markets and prevent manufacturers from foreign countries from coming into our markets by putting up a tariff wall. Very often overseas manufacturers can jump that tariff wall, as for example we can do in relation to the United States of America.

We often hear Government supporters complaining about the American Government preventing, for example, the General Electric Company from competing with American industry. The fact is that the Americans have a very high tariff but, in spite of it, our manufacturers can surmount those tariff walls. What are we to do? Are we to have the same system as prevails in America and by quotas and restrictions other than tariffs try to stop manufacturers coming in here? If we do it, the same thing will happen to us when we have to compete.

I have risen mainly to deal with one subject which has been mentioned frequently this afternoon, and it is German competition. In eight years from the time of the Currency Reform in 1948, Germany has advanced her industries and her export trade very remarkably. It has not been due to a miracle, but to certain factors. One of them is that they have much more modern factories and machinery than we have, for obvious reasons. After the war there was dismantling of German factories all over the country.

Mr. Shepherd rose—

Mr. Bellenger

I would rather not give way to the hon. Gentleman. I have no doubt that he has a perfectly valid objection. If I may complete my remarks and sit down the hon. Member will perhaps, catch Mr. Speaker's eye.

The German motor car industry is a case in point, and especially the Volkswagen industry. It was comparatively defunct at the end of the war. The Volkswagen factories were offered to British manufacturers and they turned up their noses at them. American money went into them, and look at the position today. I know a little bit about the Volkswagen motor industry. It is taking markets away from us. Would it not be an advantage if we could, under the common market area, exchange employers, employees, capital investment and so forth? We might get a little of the know-how of some of these industries in Germany which we have not got today. I do not want to depreciate British industry, because we have some very fine ones, such as the chemical industry, about which I know something. Both it and the motor car industries are large. Nevertheless, the Germans have a few tricks of the trade which it might very well be advantageous to share.

I only hope that if the common market means anything it will mean more than extending the area of trade in Europe, and that it will mean a greater interchange of knowledge, methods and employees. This interchange is taking place today, but only to a very limited extent. Take, for instance, the position of industrial workers. We and the Germans permit a small exchange to take place between the two countries. I think we should extend it on a much wider basis. I know it would have to be subject to trade union conditions and to a certain extent to restrictions, but a greater interchange between workers in the common market would be of great advantage to them and certainly to industry generally.

This debate is the logical following on of the liberalisation policy which has been followed for some years. The whole purpose has been to liberalise trade in Europe particularly and to reduce tariffs. I do not know how far we are from 100 per cent. liberalisation today, but I believe that Germany has liberalised trade to more than 90 per cent. and is going out for 100 per cent. Quite voluntarily, without any extension of the free-trade area envisaged by this debate, Germany—probably the greatest manufacturing country on the Continent of Europe—is liberalising her tariffs to the extent of 100 per cent. Why is she doing that? It is because she is in a somewhat similar position to that in which we were when we were a free-trade country 50 or 100 years ago. She is investing in foreign countries as we ought to be investing if we had a surplus such as Germany has.

Another question I want to raise is that of key industry duties. I have a personal interest in this, and I think I ought to declare it, because in connection with one industry with which I have some association I have seen the effect of the imposition of key industry duty. When that originally became law, shortly after the First World War, it was for one purpose and one purpose alone. It was to protect certain strategic industries. I believe the Safeguarding of Industries Act has been used freely, not to protect British industries which have some strategic value, nor even to promote employment in this country, but merely to enable manufacturers to take advantage of the market and, incidentally, to force up prices. As soon as a key industry duty, which I believe is 33⅓ per cent., is imposed, as against the average of 10 per cent. ad valorem duty, prices tend to rise. The Exchequer may get that revenue, but it has to be paid by the customer.

Sir John Barlow (Middleton and Prestwich)

I think the right hon. Member said that he had an interest to declare, but he did not declare it. I am not quite clear what it is. Could the right hon. Member tell us?

Mr. Bellenger

Certainly, I have no objection whatever; it is chemicals. Although certain chemical industries were included in the Safeguarding of Industries Act, so far as I can recollect the duty was to protect mainly dyestuffs, optical instruments and, of course, the motor car industry after the First World War, because we found we were at a great disadvantage compared with Germany in conducting a war; now I think the whole picture has changed.

It is not Germany from whom we want to be protected now, but certain other countries which have been named in this debate—the United States of America and Soviet Russia—who may be the competitors who might precipitate war as Germany did in 1914. Those of us who remember that war will know that the real reason behind it was trade. It is true that there were certain other reasons connected with the Kaiser and so forth, but they have faded away now. It is mainly a struggle for markets which may endanger our country and other countries in future.

It is not the slightest use hon. Members in any part of the House talking as if German competition was something like a disease. I would say, particularly to my hon. Friends, that German workers are protected. German workers in industry are protected by a very powerful trade union movement, as are workers in this country. Make no mistake. German trade unions co-operate very closely with German employers, so much so that they fought for and won representation of trade unionists on the boards of industry. That will be found particularly in the heavy industries under what is known as mitbestimmungsrecht. They have their representatives on the boards who are able to see what policy is to be followed. Being intelligent trade unionists, if the policy adumbrated by the board is to benefit workers by making them more prosperous—as it certainly is, although not to the same extent as it benefits the employers—they say, "We will give you our co-operation."

That may be the reason for a greater steadiness of wage increases in Germany than there has been in this country. There has not been the same competition between unions in Germany as there has been here. That does not mean that wages have not been increased. They have been raised under trade union pressure and, taking into account the difference in the value of the rate of exchange of currency, their wages in some industries have been increased almost to the level of those in this country.

To mention one case—the metal industry—German trade unionists have been able to enforce their demands practically with few strikes. They have got their way. Let us be under no illusion, German trade unions will protect their members and there will not be cheap industry in Germany to intensify competition. We cannot avoid that, but, by association with Germany, which probably has the biggest industrial potential in Europe, we can benefit our workers and industry.

From the Chancellor of the Exchequer we have heard only the most generalised generalisations. We have heard nothing about details. It is no good the hon. Member for Kidderminster saying that the Federation of British Industries had only a month to think this out. It has been thinking it out for years, and so has the Trades Union General Congress. The matter has become urgent because six countries in Central Europe have decided to federate to keep their standard of living and to improve it; they must do that or go under.

I welcome the atmosphere of agreement—for the first time, it seems, for many weeks—not only between the two Front Benches, but between the back benches also.

Sir J. Barlow

The Government seriously asked the Federation of British Industries only in October for an answer at the end of October. While the matter had been discussed in a mild way for many months, it was only in October that the Government asked for an answer during that same month. That was all too short a time.

Mr. Bellenger

It may be that the Government have been dilatory in asking for a definite answer either from the Federation of British Industries or the Trades Union General Congress, but it did not come as a surprise to either of those large organisations. They have had experts examining this matter for a long time. If after years of study the Federation of British Industries cannot make up its mind on such vital principles as this in a month, it proves only one thing: that it is no wonder that British industry is losing a lot of ground to its German competitors, who can think quicker. That is all.

8.30 p.m.

Mr. Geoffrey Rippon (Norwich, South)

The right hon. Member for Bassetlaw (Mr. Bellenger) is perfectly correct in saying that there has been ample time for everybody to consider the implications of the establishment of a common market, whether on the Customs union basis or on the partial free-trade area basis. We have known about it ever since the Messina Powers had their first meeting. As a result of their latest meetings, it is quite clear that they are on the point of finalising their negotiations. It is obvious, therefore, that a decision by us is urgent.

I do not, however, consider it fair to suggest that the Federation of British Industries or the Trades Union Congress have failed to give an indication of their views, because although the F.B.I. complained that it had only a month in which to circulate its members, nevertheless the response to its appeal is, broadly speaking, favourable and satisfactory.

I would also take up the right hon. Gentleman the Member for Bassetlaw for his attack upon my hon. Friend the Member for Kidderminster (Mr. Nabarro); I am sure that he has misunderstood my hon. Friend's motives. The right hon. Gentleman must know that there are some people of such courage and independence that they would rather be wrong in the minority than right with the majority. On this occasion, I think that we are most of us right with the majority. It is encouraging that these proposals, which offer to British industry and to British labour a challenge that cuts right across sectional and party lines, have been received with general approval on all sides of the House. We have even had the enjoyable spectacle of the hon. Member for Bolton, West (Mr. Holt) being able to get up and say that he can speak for the Liberal Party.

I am delighted that we have this broad unanimity of opinion throughout the House and throughout the various sections of British industry and labour, for it is most important, as my right hon. Friend the Chancellor of the Exchequer said, that we should all go into this together and with enthusiasm. I was, however, a little disappointed that the hon. Member for Bolton, West harked back to an antiquated conception of free trade, which, I think, is now shared only by the Liberal Party and by the right hon. Member for Ebbw Vale (Mr. Bevan), who has described this as a "will o' the wisp" of a nineteenth century conception. That argument, happily, has been completely blown up by the hon. Member for Stechford (Mr. Roy Jenkins), who has pointed out that this proposal for a mutual free trade area is almost precisely the reverse of the nineteenth century conception of free trade, with Britain maintaining free trade while others were protectionists.

The Government's proposals for the establishment of this partial free trade area may shape the future pattern of trade and industry even more decisively than the Ottawa Agreements of 1932. The important aspect of the proposals is that they contain an implicit recognition that the fruits of modern industrial methods and sources of power can be reaped only by large economic units.

Of course, there are doubts and difficulties and many practical and technical problems have to be solved. Many of them, one hopes, will be solved through the O.E.E.C. working party, to which my right hon. Friend the Chancellor referred. It is perhaps better at this stage that we should over-emphasise the difficulties rather than fall into the trap of over-optimism, because this is a long-term project which can only take effect in twelve or fifteen years' time. It is easy, therefore, to exaggerate both the difficulties and the benefits.

I should like, however, to consider briefly some of the main objections which have already been canvassed. It is not necessary for me to say very much about the effect of the proposals on our relationship with the Commonwealth. We all accept that it is essential to carry the Commonwealth with us at every stage; but as the proposals have been explained by my right hon. Friend the Chancellor of the Exchequer, I think that we would most of us agree that there is no conflict between our two rôles as the centre of the Commonwealth and as a great European Power.

It is true, of course, that Imperial Preference is bound to be affected, even though, as a result of the exceptions, 90 per cent. of our trade with the Commonwealth will not be affected. The remaining 10 per cent. must be affected, but I think that we have had an answer in regard to that. So far as that 10 per cent. is concerned, it is probably Canada, which is the country of the Commonwealth which is most affected.

We must accept the arguments of the Chancellor that while no doubt Canada is interested in this preference, she is much more interested in the removal of quota restrictions. That is a matter of far more long-term interest to the Commonwealth than marginal preferences which, as we have heard today, are growing less and less in importance year by year.

My hon. Friend the Member for Hitchin (Mr. Maddan) pointed out that although the figure is between 5 or 6 per cent. today that is a reduction from 10 per cent. in 1937 or 1938. In any event we are to continue to give the Commonwealth preference against the countries outside Europe. I do not know if that point has been sufficiently appreciated outside this House: that Canada will still get preference against the United States or that India will still get preference against Japan.

So far as the position of the Commonwealth is concerned, I would only add in parenthesis that I share some of the views expressed both by the hon. Member for Stechford and the hon. Member for Sheffield, Park (Mr. Mulley), that whilst obviously we must insist on special treatment for foodstuffs and agriculture, it may possibly be impolitic to insist on the permanent exclusion of agriculture. I hope that it may be sufficient merely to reserve agriculture until the fulfilment of certain definite and specified conditions. Quite apart from the attitude of the other European countries on this particular point, we must take account of the fact that in negotiations we cannot set down our terms here this afternoon and expect them necessarily to be accepted in toto. Quite apart from their views, there may be danger for us in dissociating ourselves entirely from the agricultural arrangement which other countries may make and which we may wish to influence.

Possibly the most serious matter which we have had to discuss is the effect of these proposals on the competitiveness of British industry. Since we abandoned free trade, we have become a high tariff country, and a fear of competition has generally been regarded as one of the greatest weaknesses of British industry. Inevitably, certain firms will have some vested interest in the status quo. What we must bring home to British industry and all others concerned is that high protection can do anything for a limited period of time but that discrimination against the wide European market will never enable any industry to sell its goods abroad.

There are, of course, the negative reasons for embarking upon these proposals. I do not think that the hon. Member for Bolton, West was quite fair when he said that the Government appeared to have adopted the negative approach. It is certainly true that, if we refuse to associate with the plan, we run a serious risk of exclusion from this great and growing market on our doorstep, which might, at the same time, develop into an increasing threat to our competitiveness in the Commonwealth and other markets. I prefer myself to emphasise the positive advantages of this plan.

The first and the obvious one is that Western Europe is today the richest market in the world. As has been mentioned, it is an expanding market, and one that is expanding to an extent far greater than that of any other in the world today. It is in no sense a dying market that we are going in to revive. In fact, the rise in its internal trade accounts for no less than 60 per cent. of the total increase in world trade between 1948 and 1954. Clearly, we must compete for our share in that market. As my right hon. Friend the Chancellor said, the present position is the reverse of the problem of the 'thirties.

Secondly, we must recognise that one result of cowering behind high tariff walls is that retaliatory tariffs are imposed. I am sure that many of our industries have never had a fair chance of competing effectively in Europe. The hon. Member for Hitchin listed a number of industries likely to benefit, and no doubt hon. Members can add to that list. It is significant that the majority of the industries approached by the Federation of British Industries welcome this competition, subject only to safeguards ensuring fair competition. I think that we are all agreed that there must be strict rules about unfair trading, dumping, subsidies, and the like. I believe that the response of the Federation of British industries assures us that British industry is far more competitive than the pessimists appreciate.

The right hon. Gentleman the Member for Bassetlaw referred particularly to the position of Germany, which has been referred to time and again today. I thought that the right hon. Member for Huyton (Mr. H. Wilson) rather distorted the position, in that he quoted statistics which are liable to be misinterpreted. It is really no good comparing the growth of British and German exports unless we choose our starting point very carefully. German industry, having only fairly recently started from scratch, appears to have made greater progress. I thought that the right hon. Gentleman's figures gave a distorted impression.

The most important point is that made by the hon. Member for Stechford; that the real conflict between this country and Germany will be over the level of investment. By that, I presume, he means the level of productive investment. I share his view that that must be kept high. I do not think that we need be pessimistic about the position if we compete freely with the countries of Europe. Germany, as I am sure the right hon. Member for Bassetlaw agrees, has enjoyed great advantages. Her factories are new, she has had considerable dollar aid and no responsibility for repaying loans. She has had nothing like the same labour problem. She has been manifestly benefited over a period of years by the continued influx of refugees from Eastern Germany and Eastern Europe. There are, however, signs that that favourable position will not continue indefinitely.

There are also dangers in having too great a balance of payments. The O.E.E.C. criticises us because our balance of payments position, and our gold and dollar reserves position are not sufficiently strong. It criticises Germany because her balance of payments position is too strong, and her reserves have been built up to too high a level. One may well ask what would be the position if every country, in any given year, had a surplus on its balance of payments. I cannot answer that question myself.

We must look at these things over a period of time. It is true that some concern has been expressed lest we should lose control over our balance of payments difficulties. The right hon. Member for Huyton argued that we should be able to restrict imports for reasons connected with our balance of payments difficulties, and should be able to retain the right to control capital movement, so as to avoid forcing countries into a position where they would have to resort to internal deflation. Of course, we would have to ensure in the negotiations that a satisfactory payments system be evolved. But I do not think we should take too extreme a view of this. We obviously cannot expect to have it all our own way. It may be useful to explore the possibilities of having variable exchange rates; but above all, in discussing these trade and economic matters it is important not to underestimate the strength of sterling. We are inclined to exaggerate our difficulties, in so far as we lend weight abroad to the idea that we are not fully competitive or that our trading position is not strong or that our currency is not strong.

In fact, the pressure on sterling in recent years, as I am sure many hon. Members opposite will agree, has been due as much to psychological as to commercial factors. First, there was the fear of convertibility, and then this was followed by a fear of devaluation. There has even been a movement against sterling because of the fear that the Government might fall—and presumably the party opposite would form a Government. But all those reasons are psychological and, as my right hon. Friend the Chancellor has said, we ought to emphasise the fact that sterling is the most important trading currency in the world and covers half the world's trade even today.

It is fair to say that one of the favourable results of entering this arrangement for the establishment of a free trade area is that it would bring great benefits to the city and to our banking and insurance interests.

We can be sure there are many industries which will welcome these proposals. But we have to consider the position of those who, for various reasons, fear open competition.

It is noteworthy that there are people in the cotton and textile industry and in the motor manufacturing industry who are not as alarmed about the position as some hon. Members would appear to suggest. Hon. Members may have seen on the tape today what was said by Mr. William T. Winterbotham, the new President of the International Federation of Cotton and Allied Textile Industries. He said: No one would shun because of extreme competition what must surely be one of the world's most attractive markets. This would be the greatest single domestic market in the world, being 50 per cent. as big again as the American domestic market. Certainly some adjustments will have to be made. They are taking place all the time. Industry cannot stand still inside or outside a common market. But the readjustments will, I believe, be manageable provided that it is not too rapid. We know that tariff barriers will not be removed overnight. This will take place over a period of twelve or fifteen years. Furthermore, the rate of reduction can be varied as regards individual commodities. If that is not sufficient, we may consider the establishment of a compensation fund, of which one has had some experience in the European Coal and Steel Community.

I think, however, it is well to remember that even if there are some industries which are going to lose their protective tariffs—and there will be some—they will not necessarily go to the wall because the experience of the European Coal and Steel Community has shown that very often inefficient producers are not driven out of business by a dose of foreign competition. They are merely stimulated to undertake a long overdue reorganisation and modernisation.

I should like to welcome the fact that the T.U.C. General Council has given its qualified support to these proposals, subject to safeguards relating to labour standards and to special arrangements to ease the transfer of redundant workers from old to new employers. I am sure that we on these benches accept as readily as hon. Members opposite the fact that those safeguards must be assured. But here again we must bear in mind that redeployment of labour is going on all the time. There are many areas in which this process is taking place. If we ensure the gradual transition, labour, like industry, will be protected. There will also be the further advantages to workers generally of the higher living standards and the wider choice to consumers to which the hon. Member for Hitchen referred.

I was particularly interested in the observations made by the hon. Member for Halifax (Mr. Maurice Macmillan) in his maiden speech, to which we listened with such interest, on the subject of American wages. I think, again, that we ought not to be defeatist about American wages, and I agree with the right hon. Member for Bassetlaw on this. American workers are not supermen. I believe that the British worker is capable of just as good work as the American worker. But the American worker has, first of all, a healthy attitude towards production and production costs, and, secondly, the advantage of the high wages that follow expanded demands for products of large-scale industries.

In considering whether or not Britain participates, it is fruitless trying to draw up a balance sheet of gains and losses from an economic or a political point of view. From the facts now before us I think that the hon. Member for Stechford is quite right when he says that the balance of economic advantage is in favour of going in. As far as the political issue is concerned, I am sure he is right when he says it is all one way, and that from the political point of view it is essential that we should participate. We should make up our minds on the basic principle.

The essential question is whether or not participation in that large free market would lead to the expansion of trade and the collective economic strength so vital to Europe. What is the position today? The nations of Europe are less self-sufficient than they ever were because of loss of foreign investments, loss of eastern colonies and loss of the East-West European trade. Yet the 250 million people who would participate in this common market or free trade area have in Europe and in their overseas territories a great part of the world's natural resources—coal, iron, gold, copper, uranium and tin. These are only a few of the minerals found in great richness in this Western controlled area. We possess in that area a natural wealth which cannot be matched either in the United States or in the U.S.S.R. It is disunity alone which prevents Western Europe being a great trading area, if not the greatest, in the world today.

One positive result of the Suez crisis is that it has given a new impetus to European co-operation. I think it is a fact of the highest significance that the interruption of the flow of oil, which is a common threat, is being met by concerted action. Some years ago, President Auriol of France said: Europe must unite herself if she wishes to recover and live, and if she does not want American assistance to be a gesture without future or a humiliating charity. I think that recent events have given emphasis to his words.

The nations of Europe today are learning the lesson that they must stand together in defence of their common interest, in the last resort, nobody else will be prepared to do it for them. I believe that Europe must be strong and prosperous in its own right if we are not to go to the wall. Without Britain a six-Power common market might well have an economic unity which would be gravely detrimental not only to our interests but also to those of the Commonwealth. But it would not be strong enough to be a real power in the world. I believe that only Britain can provide the necessary weight, power and strength. It would indeed be a tragedy were we to lose the initiative and leadership in Western Europe by missing this opportunity, which might well be the last opportunity we shall have.

8.55 p.m.

Mr. John Cronin (Loughborough)

I shall not: follow the hon. Member for Norwich, South (Mr. Rippon) in all his arguments, as time is short, but I agree with him that the American worker is not a superman. Psychologists who have tested American workers and English workers have found that the mental age of the American worker is much lower than that of the English worker. The only reason the American worker is more productive is simply that he has more capital investment behind him. It is in that that this country, under the present Government, is lamentably failing.

We have heard of the advantages of associating ourselves with the European Customs union. Obviously, there are economic advantages in a group of countries dropping trade barriers. That is an economic truism. There is no doubt about it. However, we have had the advantage of a pilot experiment, the European Coal and Steel Community, which for its products, coal, steel and scrap, has had a Customs union. The result has been an enormous increase in the coal and steel trade of the countries concerned. For instance, their trade in iron and steel products rose from 2,108,000 metric tons in 1952 to 5,664,000 metric tons. In the same way, their coal trade has increased considerably.

I do not think that it is generally recognised that it is still advantageous even for a country which is inefficient from the point of view of production also to drop tariff barriers. If we look at the Fourth General Report of the European Coal and Steel Community we find that although, during the last five years, Germany increased her iron and steel exports from 302,000 metric tons to 832,000, a country like Italy, which has had considerable disadvantages, raised hers from 2,400 to 61,000.

That bears out the well-known economic fact that the dropping of tariff barriers is effective even for countries which have less efficient standards of production. It is also quite clear that the dropping of these tariff barriers must produce a very big increase of trade, and we who live almost entirely on trade must welcome an increase in trade in any part of the world whatsoever, for we shall inevitably gain.

The hon. Member for Norwich, South stressed that we should get in on the Western European market not only because it is the richest market in the world but also because it is a rising market. I think he tends to minimise the importance of the Commonwealth market. After all, 50 per cent. of our exports go to the Commonwealth and only about 25 per cent. to Western Europe, so we cannot in any circumstances neglect the Commonwealth.

It was suggested by the hon. Member for Hitchin (Mr. Maddan) that it is very important to increase our capital investment in the Commonwealth, and I think we all fully agree with him, but the Chancellor of the Exchequer, a few weeks ago, mentioned the irrefutable mathematical proposition that one cannot invest a deficit. That is the difficulty.

Association with the proposed European Customs union is important from the point of view of foreign policy as well as from the point of view of economic policy. First, it is very important to avoid the dominance of Germany in Western Europe. Hon. Members may recollect that the rise of the Prussian Empire began more or less with the Customs union with the smaller States of what was then a mass of autonomous German States, and we should not like to see the same thing happening again.

Another important aspect from the point of view of foreign policy is that it is the avowed purpose of the Soviet Union to establish a Russian-German entente again. That sort of alliance has absolutely limitless possibilities of mischief for us in Western Europe, and anything which tends to bring Western Germany into closer association with Western Europe should, therefore, be encouraged. The most important economic and foreign policy argument is the need of protecting not only our industries, but ourselves completely from the economic colossi of the Soviet Union and the United States. These are the enormous economic machines which can grind Western Europe down.

The danger from the United States is not so serious, because, on the whole, she has used her economic power in an enlightened way, but we cannot say the same of the Soviet Union. She has made it quite clear that she has an attitude of implacable hostility to Western Europe. The Soviet Union is increasingly coming into the position where she can wage a very dangerous economic war. In the last five-year plan, for instance, the U.S.S.R. raised her gross industrial output by 85 per cent., and in the coming five-year plan she has a target of 65 per cent. With this enormous economic power at their disposal, and an attitude of complete hostility towards all other ideologies, it looks certain that unless Europe protects itself to a substantial extent by unity it will suffer some dire results from what the Russians can do in an economic war.

We have discussed reservations on foodstuffs, feeding stuffs, drink, and tobacco. These seem very acceptable, but I hope that the protection given to drink will be to a substantial extent in order to look after the Commonwealth wine-producing countries and not so much to provide a large umbrella for the brewers in this country. Brewers tend to have a "most-favoured-nation" treatment from hon. Members opposite. It always seems rather unfortunate that the average English workman has to drink a rather thin fluid made from hops instead of the generous juice of the grape, like his counterpart on the Continent. That is something which the President of the Board of Trade might well look into in the future.

It will be very necessary, of course, to have some kind of employment and wages policy. The original proposal of the Messina Powers was a common labour market, but that is unacceptable. It would have been very helpful if we had had by now some authoritative document issued by the Trades Union Congress in connection with this idea. My right hon. Friend the Member for Huyton (Mr. H. Wilson) said that adaptation will be necessary at a national level to help industries and areas. The Brussels Committee suggested in its report that there should be some sort of adaptation fund. It would be most satisfactory if that fund were concerned with the whole Customs union and not with individual countries.

Although individual industries may be at a relative disadvantage with the lowering of tariffs, the effect of lowering them is so much to raise the real income of the country that the less favoured industry has a net gain from expansion of its home market. The actual disadvantage to individual industry is considerably less than is at first apparent. The suggestion of my hon. Friend the Member for Stechford (Mr. Roy Jenkins) for a central bank for the whole of the Customs union is an excellent one.

It is obvious that if there is a Customs union, and certain areas of it become increasingly prosperous, capital will tend to find its way exclusively into the more prosperous industries, whereas if there is a central bank it can redistribute investment in terms of need rather than in terms of success.

I must now give way to my right hon. Friend the Member for Brighouse and Spenborough (Mr. J. Edwards). In conclusion, may I say that this debate seems in many ways to be somewhat irrelevant to the present situation of the country? We are discussing something which can evolve gradually over the next ten to fifteen years—certainly, that is the earliest period in which it can fully emerge. The problem is what will be our economic situation during the next ten to fifteen weeks. That is something to which we really require an answer, I hope the President of the Board of Trade will give it to us.

9.6 p.m.

Mr. John Edwards (Brighouse and Spenborough)

It is my pleasant duty, Mr. Deputy-Speaker, to begin by congratulating the two hon. Members who have made maiden speeches this afternoon. I must confess that it is such a long time since I spoke from this Box that I feel like asking the indulgence of the House myself. It was with great difficulty that I refrained from addressing you, Mr. Deputy-Speaker, as "Mr. President."

May I say how much I personally enjoyed those two speeches? One came from the hon. Member for Halifax (Mr. Maurice Macmillan), whose constituency abuts on mine. One thing he said caused me a little alarm. The hon. Gentleman admitted the principle that Yorkshire could learn from Lancashire. On reflection, I, too, have to admit the principle, but I have to say, in loyalty to my constituents, that although I admit the principle I cannot call to mind any case where the statement is true.

I listened with peculiar pleasure to what was said by the hon. Gentleman the Member for Tonbridge (Mr. Hornby) for two reasons. One was because I agreed with all he said, and that is always a great pleasure. The other was because I believe he was the only person speaking in the debate this afternoon who has drawn our attention to the extremely important point of the relative rate of expansion of trade in various parts of the world, and as between the industrial countries and those producing primary products.

It might be said that there was a certain air of unreality about our talk this afternoon, but I would find our present circumstances quite unendurable if I could not spend some time, at least, in thinking positively and constructively and taking a view beyond the day when the Foreign Secretary comes back from New York.

At this stage of our consideration of this matter we shall obviously help the Government most by airing our views and by drawing attention to the things which matter to us. We have no Motion before us today but, as I understand it, the Government themselves have taken a step forward. Previously they had an idea which was under sympathetic consideration. Now, if I understand it aright, they have a proposal to make to other nations as a basis of negotiation.

Mr. H. Macmillan indicated assent.

Mr. Edwards

I hope that the Chancellor and the President of the Board of Trade will consider the possibility of issuing a White Paper as soon as possible, as soon as they have taken up all the points; not necessarily to indicate everything with which they are in agreement, but rather to indicate the subjects which ought to be discussed with the other countries concerned, and which ought to receive our consideration while all this is going on.

Some of us, of course, have beeen involved in this matter somewhat earlier. I think it is true to say that the United Kingdom members of the Consultative Assembly of the Council of Europe have already indicated their approval of the free-trade area, being frightfully careful to commit nobody but themselves, of course. This afternoon, however, my right hon. Friend the Member for Huyton (Mr. H. Wilson) has given a conditional approval to the proposal before us, not only for himself but on behalf of Her Majesty's Opposition.

This is not because we have been able to make a precise judgment in terms of a balance sheet which we have drawn up, but because we have come to the conclusion, by and large, that it would be both economically and politically desirable at least to take this project to the point of discussing it and negotiating it with other nations.

There was one thing that the Chancellor said about which I was not sure, and I hope that the President of the Board of Trade will clear up the point. The Chancellor was at pains to say that in all that we do our hands must not be tied. If by this he means that we must reserve to ourselves rights which are indispensable for protecting our own interests, the interests of the Commonwealth and the position of the sterling area, that is one thing.

However, it will be agreed that once we have got to the point—if, as I hope, we do get to the point—where we negotiate a treaty and accept and ratify it, we shall have certain obligations. Then there cannot be any question of our doing what I think the French were suggesting at one stage during the talks in Paris, that if they did not like it after the first four years they would pull out.

That is an impossible situation. One has to do everything one can to work the thing out and—not necessarily at this point in time—say that we are going to accept it, but if, having done all, we then have a treaty, there is no doubt whatever that we shall have certain obligations which we shall not be able to escape.

Reference has been made during the debate to the report of the Messina Powers. It is a document which is singularly little known. I believe that it is not possible even now to get the copy in English, at all events not a copy which is generally available, although there are some copies which are being passed round. My right hon. Friend the Member for Huyton suggests to me that that might be given as an appendix to the suggested White Paper. That is an excellent idea.

It seems to me that in reading the document it is important to make a distinction. It is clear that we are dealing not just with free trade, but free trade with a difference—and an enormous difference. As one turns over the pages and sees the proposals for an adaptation fund, an investment fund, the harmonisation of social policies and all that kind of thing, one realises how far removed were the authors of the Messina report from any ordinary free trade concept.

I want to put that in contrast with the proposal we are considering today for our association in a partial free trade area—not a new market and not a common market, but a partial free trade area. Unless many of the things that we have talked about today are written into the treaty, it will be just a partial free trade area and not free trade with a difference. It will, in fact, not be very different from the classical concept of natural liberty. The Chancellor warned us that it would be wrong to talk of competition as though it had a sinister ring. No doubt that is true; but if all that we are to do in this partial free trade area is to establish competition, then it will not be enough.

One can, no doubt, profitably reflect on the current implications in Europe of Adam Smith's dictum that the principle of the division of labour is limited by the size of the market, but we do not need to go with him and look forward to that state where all systems of preferences and restraint are taken away and the obvious and single system of natural liberty is established of its own accord.

I would say—I hope I am not talking in riddles—that our success in this matter will depend upon how far we are able to depart from ordinary free trade principles. We want such a difference that perhaps some day someone will find a suitable name for a system in which the forces involved in the free play of the market are helped sometimes by planned intervention and the social consequences are mitigated by common services and individual and special aid.

What we therefore have to consider is change, and how great the change is. We have only to think of the things we wear, or our entertainment, to see how different things have become in relatively few years. I suggest that change is not something to be resisted; it is not a necessary evil. It is something to be thought of as normal and desirable, and as new demands are made upon us and new challenges are forthcoming, there must be a response.

When I talk about change I mean change not merely in the United Kingdom but in Europe, the Soviet Union, Germany and the Commonwealth. It is interesting to note that only a few days ago the President produced the Heads of Agreement with Australia, in a very interesting statement, from which I should like to quote a word or two. He said: The Australian authorities placed particular emphasis on the desirability of an increase in the sales of traditional Australian exports here, especially wheat, and of their need to have greater freedom to reduce their preference commitments towards the United Kingdom in the interests both of lowering domestic costs and of facilitating increased Australian trade with other countries."—[OFFICIAL REPORT, 12th November, 1956; Vol. 560, c. 561.] Here is one change that has taken place. It is a change which Her Majesty's Government must obviously take into account, and which we in turn must take into account.

The question then is, will the change that is necessary be made easier or more difficult by the proposal that we are now discussing? There is no way of making a nation economically safe and sound if its exports are falling and its reserves dwindling. No measures can be devised which can protect the people against the consequences of a low rate of investment, low production and low productivity. Therefore, I repeat the question. Will this partially free trade area make it easier or more difficult for us to effect the changes which we must make if we are to improve our standards, or survive in any creditable sense of the word?

Let us suppose that we were outside this area. If we were, I think that it would make it harder for us. It would have the immediate effect of presenting Germany with, perhaps, a 20 per cent. advantage in the large European market which is vital to our interests. It would do that in an area where trade is developing rapidly and where we should be at a disadvantage. If we were in, would it make it easier? I say "Yes", but only if the opportunity presented by a less restricted market in Europe is taken. Whether or not it is taken depends not upon the manufacturers, management and the unions alone; it depends upon the Government too, because if they fail to play their part the change will not be made easier but more difficult.

The Chancellor very frankly foresaw the possibility that some firms—I quote his words—"will go to the wall". I hope I carry him with me when I say that we must first be sure that it is necessary that they have to go to the wall. They may be willing to re-equip but not able to obtain the resources to do so. Do the Government think that they have any part in this? In other words, the safeguards which my right hon. Friend and many hon. Members have spoken about must be put into this treaty if we are to get the maximum results from it. It is not merely a question of enlarging the market and then leaving it to industry; it is a question of enlarging the market, with industry going hand in hand with the Government.

The Chancellor says that the effect will be to accentuate change. I agree, but only in the circumstances which I have described. It becomes the more important not only that the volume of investment that we have should be radically and substantially increased, but that its distribution should be considered in accordance with some national plan.

I should like the President of the Board of Trade to answer a few questions which, I think, have either been put, or should be put. First, I hope he will say something about the relationship of this with G.A.T.T. If we reduce our tariffs, within the free trade area do not we have to do the same for everyone else? I know that there is a provision in G.A.T.T. for this part of the Agreement to be set on one side. But do the Government think the treaty they have in mind will be compatible with G.A.T.T.? It seems to me important, even at this early stage, to say so.

Quite apart from that, what of the particular case of the Commonwealth country that sends goods here, and although they have a preference, nevertheless they pay duty. Take manufactured goods coming, say, from Canada. We introduce a free trade area first by reducing the tariff and, in the end, getting rid of it altogether. Do we reduce and then get rid of the tariff on the goods from Canada, and if so, do we not have at the same time to reduce the tariff, and finally abolish it, on every other import of the same sort? This is a technical point, but it is extremely important, and may mean that we should have to contemplate steps to get a special waiver or even some revision of this Agreement.

The second question is this. I interrupted the Chancellor of the Exchequer on the point about quotas. The right hon. Gentleman had been talking about import quotas, and I asked what about export quotas. I will put the same question to the President, because I did not really get an answer from the Chancellor. How will export quotas be affected by this project? Suppose, for example, we take the market for scrap, an extremely important market. Is it contemplated that present restrictions on exports are to be changed? What is the effect of that sort of thing on the iron and steel trade?

May I also run through a number of other questions; not necessarily because I think that they will be answered tonight, not even necessarily because I think that they are all points that have to be met. But I regard them all as essential to be included in the negotiations.

First, will the Government say whether they have in mind to exclude any other industries, apart from the ones named already? Have they any strategic industries which they wish to put into the list of exclusions? Are the Government prepared, as part of this whole operation, to contemplate the provision of assistance for the purpose of re-equipment? What had the Government in mind about assistance on the lines of Development Area policy? Have they anything special in mind about displaced workpeople? Let me say to the Government that it will not be satisfactory to us on this side of the House if they say, "Of course, we shall do what is necessary when the time comes." Before this treaty is finalised and ratified, we shall want to know what the Government have in mind about re-equipment and about assistance to displaced persons.

Will the Government take pains to reserve the right to take what action is necessary to promote particular social or economic policies, like Development Area policy, like internal fiscal policy, or the control of prices, as, for example, at the present time on steel and coal and the like? And what special measures or safeguards do the Government contemplate in relation to the balance of payments, bearing in mind especially our responsibility to the sterling area? Will the Government insist on putting into the treaty provisions for securing fair labour standards, and for action to achieve and maintain full employment in all member countries? Will the Government say anything more, can they say anything more, about the degree of mobility of labour which they contemplate? Have they anything more they can say about cartels? Finally, would this participation of the United Kingdom in this free-trade area affect investment in the Commonwealth, about which a good deal has been said?

I have two further matters to raise before I sit down. Assuming, as we must, that we shall try to reserve to ourselves certain rights to do certain things in certain circumstances, it is very unlikely indeed that in the treaty negotiations everyone will agree that the member States shall have absolute rights and absolute discretion. I wonder whether any thought has been given to the institutional problems that may arise if it is necessary to consult somebody, or a tribunal, or some institution, before certain of these rights are exercised. I ask that this matter should be considered.

I have talked largely about the economics of this matter, but in some ways the politics are more important than the economics. Let us consider what the situation was after the collapse of E.D.C. There was a failure of nerve in Europe and then, slowly, a regaining of confidence, and at Messina the decision to try to start again—a relance. Gradually this movement has gained momentum, and has enormous support on the Continent, not just from the fanatical federalists, and not just from people who say that Germany and France must work together in Europe and must find common loyalties to a larger community. The best people in France and Germany believe that, and not for the ordinary economic reasons, some of which are obvious to us, but for other reasons as well.

Let me take an example. I listened some months ago in Paris to M. Louis Armand, when he was talking, in the French Parliament, about Euratom. In this speech, he said: I do not know how to put over to you my own anxiety in regard to the matter of urgency. He talked about the purchase of equipment by Italy and Belgium from America, and he said that unless something was done quickly all the European countries will have to apply to the Colossi. … Here we see the beginning of a policy which we may well say will sound the knell of the autonomy of Europe in this field of the future. And the opportunity will never knock again. People in Europe are saying that they want to live their own life. They do not want to live beholden in essentials to either of the colossi. If we ask ourselves searching questions, we may have to come to very much the same conclusion. We have to reconcile ourselves to the real mediocrity of our circumstances, and we have to consider how best to work in this difficult world.

There are those who say that the interests of the Commonwealth and the interests of Europe are not compatible, but I believe that to be wrong. I do not think that we help the Commonwealth by weakening our position in Europe or that we help Europe by neglecting our Commonwealth responsibilities. Indeed, some of us at Strasbourg have dared to hope that in Europe we may help to reconcile those concepts. Some hon. Members will be aware of the work that has been done on the Strasbourg Plan and which is directed precisely to these problems. I know of no political disadvantage of taking this step, this negotiation of a possible treaty with other people in Europe, but there is a very real risk that the view may grow—which certainly I shall do my best to promote—that there is no single factor more important to our status or influence in the world than our relationship to Europe. Rightly regarded, this plan may take us closer to Europe, may extend our influence and improve our status, and make it possible not only for us, but for the Commonwealth, to have a greater position in the world, in the interests of peace and stability.

9.30 p.m.

The President of the Board of Trade (Mr. Peter Thorneycroft)

This has been a good debate, marked—as was said by the right hon. Gentleman the Member for Brighouse and Spenborough (Mr. J. Edwards)—by two very able maiden speeches by my hon. Friends the Members for Halifax (Mr. Maurice Macmillan) and for Tonbridge (Mr. Hornby).

I agree with some of what the right hon. Member for Brighouse and Spenborough said in the able and informed speech be has just delivered to the House. In particular, I agree that in these matters the need is to strike a balance between, on the one hand, a Europe which fears any advance until every risk has been insured, and, on the other, a Europe rushing into free trade too fast and with no opportunities for reasonable adjustment. It is in the working out of that balance that our discussions have been ranging today and will range for a very long time to come.

I should like to make one thing quite plain. That is that we are not discussing here a cut-and-dried, detailed plan. We are discussing the beginning of a negotiation which will range, necessarily, over what the whole House will agree are some very complex issues. Not all the answers to them can be delivered at this Box this evening. I believe, however, that one thing emerges quite clearly from our talks with the Commonwealth, with industry, with the Trades Union Congress, and from this debate today. That is that we should now enter into these discussions with Europe with the firm determination to try to secure an acceptable scheme.

I would mention particularly the report of the Federation of British Industries, because in a short time it has produced a really remarkable analytical study. In answer to some remarks made during the debate, I should say that we are only at the beginning and not by any means at the end of consultation on some of these matters.

It is also clear, whatever other views are held, that the House agrees upon two things. First, that we cannot enter into a Customs union, and, secondly, that we cannot have free trade in agriculture. We cannot enter into a Customs union because that would mean that we should have to put up tariffs, where no tariffs exist today, against a whole range of Commonwealth goods. That and other changes would affect the whole pattern of our Commonwealth trade.

Secondly, we cannot have free trade in agriculture and horticulture, because it would make nonsense of our agricultural policies. It would involve either heavy losses to the farmer or to the Chancellor of the Exchequer, and we can view neither of those with equanimity. Moreover, agricultural imports are the core of our imports and preferential arrangements with the Commonwealth, whether viewed as the dependent or independent Commonwealth. No one—certainly, I believe, no one in Europe—would wish to see that relationship broken up.

That, then, is the background of our approach and basis of our negotiation with the Europeans. It is the essential technique for linking the complex pattern of Commonwealth trade with the new and expanding opportunities in Europe.

I want to spend most of my time in replying to points put in the debate, but I should like to start by saying something about the generality of the questions which have been addressed to the Government today. In any venture of this nature the difficulties and the dangers in the short view are probably more apparent than the advantages in the long run. We can all see the lions in the path. None of us can see with certainty whether they happen to be chained. What we tend to forget is that the lions are there whichever path we choose to follow.

Of course, anyone views with some apprehension his particular competitors, but the outlook would be bleak in any circumstances if British industry was for one reason or another uncompetitive. There simply is no plan, policy or scheme which would enable this country to survive upon an uncompetitive basis. We have no vast agricultural territory to fall back upon, or rich sources of materials. We must meet and beat competition in the world or we shall go under.

I cannot emphasise too strongly that there is no governmental or economic trick which will enable us to take more out of the country and put less into it than our principal European competitors. We cannot live better than them in return for less investment, as the right hon. Member for Huyton (Mr. H. Wilson) said, or in return for less work or less skill. These are the harsh realities of the world in which we live. Above all is this true of our competitors in Europe.

We may say of America that she has the advantages of a vast home market and mass production, we may say of Russia that she has a planned economy with an internal market of 200 million people which permits very largely artificial export prices, or we may say of Japan that her standard of living and her wage levels gives her what to some people here may appear an unfair advantage, although we should not forget that there is quite a gap between our wage levels and those of the United States.

Whatever we may say about those areas of the world, however, Europe is an area in which we must be able to compete on broadly equal terms. If we cannot compete with Europe, quite apart from any proposals made by the Government today, not only will we lose the one-quarter of the trade that we already do with her—rather quicker under the Messina arrangements than otherwise—but we will lose a great deal of the trade that we do outside Europe. The truth is that we must compete. We must face it as a reality of our existence and plan and proceed upon that basis. That is the principle behind the Government's proposals.

What the right hon. Member for Huyton said in opening the debate for the Opposition was important. It was that the Opposition would approve the Government's proposals and initiative in this matter and that he would support the view that we should enter into negotiations with the countries of Europe on the basis described by my right hon. Friend the Chancellor of the Exchequer. That is important, because, as my right hon. Friend said, if we are to make progress with these ideas, which will extend over many years, we must try to do it upon a national rather than a purely party basis.

The right hon. Gentleman said that this is not a panacea and he is, of course, quite right. It is more in the nature of a challenge, a challenge to both sides of industry and, perhaps, to both sides of the House of Commons. He said that he expected that the quota restrictions which could be used for balance of payments reasons might prevent industry laying out capital for the new opportunities that were emerging in the common market. If that happened to any large extent it would, of course, frustrate the opportunities which lie ahead, but I do not think that that will happen.

Quota restrictions must remain subject to strict rules, as they are today. If we or other European countries were allowed to reimpose quotas for protective purposes under the guise of balance of payments reasons, it would frustrate the whole object of the exercise.

The right hon. Gentleman also referred to Commonwealth trade and I do not wish to take him up on that except to say this: whatever may have been said in the past about a Customs union or free trade for the Commonwealth, both he and I know that that is not a practicable proposition today. There is no prospect whatever of the Commonwealth dropping their internal tariffs between themselves and probably still less of getting countries as widely diverse as India, Canada and Australia to adopt a common, harmonised external tariff outside.

The right hon. Gentleman also asked, as others have asked, about the credit system. I do not want to be dogmatic about the credit system adopted in Europe—E.P.U., the gold rate, etc. It is, in fact, discussed each year and I shall not forecast what is likely to be the appropriate standard or arrangement at the end of ten years from now. I would, however, say this, that I believe that we have a better chance of securing good creditor policies in Europe in an arrangement of this kind than outside it.

The right hon. Gentleman and other hon. Members asked about labour and wage rates. Everyone would agree that our object must be to level up rather than to level down. I believe that that will not only be our objective, but our achievement. I believe that the International Labour Organisation and the trade unions in Europe have a very important part to play in all these ideas, but I am sure that if we were to say in advance that we have to harmonise all the wages before we started we should never start at all.

I would call the attention of the House to what I think was a very able leading article in the Financial Times today which places some emphasis on the realities of this wage problem. It pointed out that it is not money and wages alone which count in these matters, or, as my right hon. Friend said, it would be very difficult to see how the U.S.A. had an export trade at all. It is wages matched with machinery, skill and productivity which count in circumstances of this kind.

The right hon. Gentleman also asked me about cartels. I quite agree that cartels raise a very special problem with which this House has been considerably occupied during the past year. We have taken rather a leading part in legislation on these particular matters and some study has been made of them in the Coal and Steel Community as well. But this I do know: that if the removal of tariffs in Europe was merely to be matched and replaced by a continentally wide organisation of cartels we should all have failed in the object which we set out to achieve.

The right hon. Gentleman the Member for Brighouse and Spenborough and his right hon. Friend the Member for Huyton both asked me about double pricing, one in the form of double pricing and the other in the form of export quotas. Clearly, this is a particularly difficult and special problem. It is a two-way problem. It is not only we who are in this difficulty. There is, for example, the leather industry which complains very frequently of double pricing from other countries. Our problem at this end is more concerned with the coal and steel aspect of the matter.

There again, we are not alone. Even within the Coal and Steel Community there is double pricing. We shall no doubt be engaged in discussion with the High Authority through the Council of the Association on that particular problem and we shall be able to debate it as these particular ideas advance.

There will, no doubt, be lists of strategic goods, but I am bound to say that they should be very closely scrutinised. No attempt should be made—certainly, no attempt should be encouraged by us—to draw up a list of strategic goods so wide that it was, in fact, designed not to defend the strategic interests of a country but to defeat the advance to a free trade area.

Finally, the right hon. Gentleman said that he thought that a Socialist economy would do it much better. Well, I think that in a debate as friendly and good-humoured as this we can be allowed our own views on that matter. I would only say that to choose Germany as an example was a little odd. It seemed to me that he could not have picked a more classic example of a really successful economy than that under the liberal and conservative Government of the German Federal Republic. Notwithstanding that, I shall not quarrel with his reasons, as he agreed so closely with my conclusions on this matter.

My hon. Friend the Member for Halifax in a closely-reasoned and very admirable speech, supported the scheme, and said, rightly, that the woollen industry had nothing to fear from freer trade. There, I think, spoke the authentic voice of Yorkshire. He called attention to some of his friends who live on the other side of the Pennines.

I am glad to hear that in my absence—and I have attended as much of this debate as I could—my hon. Friend the Member for Norwich, South (Mr. Rippon) made an admirable quotation from words used by Mr. W. T. Winterbottom, who is an experienced and noted member of the cotton spinning industry, and who made it quite plain that, in his view, the Lancashire textile industry would certainly get its fair share of the great opportunities that were opening out ahead. I believe that that view is shared by many others in that great industry.

The hon. Member for Sheffield, Park (Mr. Mulley) made a speech with which I was almost wholly in agreement. In fact, one of my difficulties tonight in replying is that so many hon. Members agreed and there is less controversy than might otherwise be the case. The only point raised by the hon. Member which I think I should answer is this. He questioned the need to exclude horticulture. He argued with my hon. Friend the Member for Kidderminster (Mr. Nabarro) about horticultural wage rates here and in Europe. There is, of course, a factor other than wage rates. In Italy, there is more sunshine than there is in Evesham. That makes quite a big difference; and the abolition of all protection for the horticultural industry would undoubtedly cause a situation incapable of any adjustment within that industry itself.

The truth is that there are very few, if any, countries in Europe which would support free trade in agriculture. Even in Benelux, in Belgium, the Netherlands and Luxembourg, where they have had a Customs union for ten years, they have just applied for, and have got, a waiver from G.A.T.T. to use quota restrictions on agriculture for a further seven years. Whatever that is, it is not the free trade that we are talking about. I believe that the future agricultural policies on the Continent will not be free trade, though they may tend more to quota restrictions and less to tariffs. That is, no doubt, the type of discussion which can be carried on and, in fact, is carried on at present in the agricultural world.

The right hon. Gentleman the Member for Middlesbrough, East (Mr. Marquand) asked some questions about the ironworkers of Middlesbrough. He asked what could be the effect of these proposals upon imports of pig iron from third countries—that is, not from Europe. The answer is that there would be no effect under these proposals. It is conceivable that there might be other reasons for reducing the most favoured nation rate, but the mere reduction of the tariffs or, indeed, removal of the tariffs in Europe, on these commodities, would not affect the tariffs which we charged outside because the reductions would be on a discriminatory basis.

As to the other doubts which he expressed for the future, I would only say that it seems to me that the main hope of a basic industry such as iron, steel or coal, is upon expanding trade—still more so in the event of disarmament. I appreciated the right hon. Gentleman's thoughtful remarks upon the possibilities of a slump or of a recession, but I would say that I believe that, on the whole, Europe, including ourselves, would be less vulnerable upon the basis of a wider market in those conditions than we would be upon a narrow one.

Mr. Marquand

Would the right hon. Gentleman comment on my suggestion of a guarantee of full employment?

Mr. Thorneycroft

Certainly. I have no doubt that in this agreement, as in most others that are drawn up, much will be written about the objects of full employment, which I think are as widely held in this country, and even more widely held, than in any other. It would be our purpose to see that those objects are held firmly in front of our friends in Europe.

What matters is not altogether what is written into an agreement. What matters in full employment is demand. If we want more jobs, we need more demand in a wider market. I repeat my view for what it is worth, that in a wider market we are less vulnerable than we would be in the older system of a narrower market, from which the ironworkers of Middlesbrough suffered very considerably in the years between the wars.

I am sure that the House would like me to say a word about the speech of my hon. Friend the Member for Kidderminster. He said that no account was taken in these proposals of the wage rates, the Welfare State and high taxation. I have no doubt that we have our difficulties, but if all the cards are in the hands of our competitors I do not see much hope for Kidderminster or for any other place in our country. I have a feeling that we have a few cards left.

In any event, we have to compete. As the hon. Member for Stechford (Mr. Roy Jenkins) pointed out, in an admirable speech—and I apologise to him for not having been in the House when he was speaking—there is no short and convenient way of evading competition in this world. I would only add that if the taxation imposed by this Government, or what I sometimes think is the still higher taxation forecast by the Opposition, is really detrimental, it may be an argument for adjusting taxes but it is not an argument against going into a common market.

If, to be competitive, we have all to work a little harder, or think a little more, the sooner we set about it the better. I am not satisfied that we can evade the need by pretending that somehow or another we need not be competitive with foreign motor cars, or with Germany, or with any other European country.

My hon. Friend said that he thought we would lose preferences. We shall not lose preferences by these proposals. The effect of these on Commonwealth trade is really marginal. It is true that the other day we had a negotiation with Australia, but the Australian adjustments were really due to the fact that we had been expanding our agriculture and they had been expanding their industry. It had nothing to do with the marginal adjustments which would be necessary for us to enter into a free trade area in Europe.

Finally, the hon. Member for Bolton, West (Mr. Holt), who is a free trader, brought before the House some free trade arguments. I welcomed his support. But may I say that these proposals differ from the free trade advocated by the Liberal Party. This is not a unilateral lowering of barriers in a small area whatever anybody else may do. It is a mutual freedom in a large common European market.

The only other point the hon. Gentleman made was what would happen about the most-favoured-nation clause. The answer is that under these proposals we should seek with our European friends a waiver under the General Agreement on Tariffs and Trade. According to the provisions of G.A.T.T. it should be possible and necessary for all of us to obtain a waiver permitting the European countries to remove the tariffs which existed between themselves. That would leave their external tariffs subject to the same rules as exist today.

I would just add, on that point—not in answer to the hon. Gentleman, but in answer to some hon. Members who have asked why we do not take this opportunity of trying to renegotiate the G.A.T.T. itself, to get rid of certain provisions such as the new preference rule and the rest—that I hope they will study carefully Canada's reply to our inquiry on this matter.

Canada has made it clear beyond a per-adventure that her desire in coming along with us in this is that we should preserve our existing arrangements under the General Agreement on Tariffs and Trade, that we should not abolish those rules which we and she and other third countries in the world have entered into. If we were to try, at the same time as we negotiate this free trade area, to undertake the major task of renegotiating the General Agreement on Tariffs and Trade I think that we should lose all prospect of support from our friends in Canada which, I believe, is something that nobody would wish to do.

We have thought long how best to resolve these various problems. I would emphasise that we occupy a special position with regard to Europe, with regard to the great Anglo-American trade picture and with regard to the Commonwealth, and these proposals are designed to bring these threads together.

We are not at the end, but at the beginning. We are taking the first step along a road which may lead to great opportunities in the future. Dangers lie ahead. No doubt when this scheme comes into effect, as I believe it will, much will be blamed upon it. But if there are dangers for the weak, let us not underestimate the prizes for the strong, the chances which a market of 250 million will give to our exporters and the fine opportunity which will lie ahead for our traders, our merchants, our financiers and our bankers.

On the negative side, do not let us forget the dangers of staying out of a European bloc dominated by our principal competitor, Western Germany. I would make my own position clear. I would defend these policies not on the negative, but on the positive approach. I would defend them not for the dangers they avoid, but for the hopes which they give. Here, in Europe, we have the cultural centre of the free world. We should not leave it Balkanised, divided and weak, but growing closer together, stronger, more compact and linked through us with a great Commonwealth and Empire.

Here is a chance of achieving something which matches the scale of present events. Do not let us be so obsessed by the problems of action that we forget the dangers of doing nothing. I believe that in the months ahead we have a chance to lay solid foundations for the future and of giving to our descendants a chance at least of building something worth while.

The Parliamentary Secretary to the Treasury (Mr. Edward Heath)

I beg to ask leave to withdraw the Motion.

Motion, by leave, withdrawn.