COMMONWEALTH PREFERENCE

HC Deb 03 August 1962 vol 664 cc940-68

11.9 a.m.

Mr. Ronald Russell (Wembley, South)

I am most grateful to you, Mr. Speaker, for selecting the important subject of Commonwealth Preference for our first debate today.

My chief reason for wanting this debate is that in recent months some amazing statements have been made by hon. Members on both sides of the House, and by people outside it, about Commonwealth Preference, and I wanted the chance of trying to refute some of those things—a chance that one probably would not get in a debate on Common Market negotiations. Further, it is a fitting subject to discuss on the last day before the Summer Recess, especially in existing circumstances.

I might add that I am most grateful to my hon. Friend the Minister of State for being in his place today. I think that, when he replies, he will be making his first speech in his new office.

The first statement to which I want to refer is that made in a debate at the beginning of June that Commonwealth Preference began at Ottawa. It is true that the present system, as we know it, began at Ottawa, but the principle of giving some kind of priority to Empire trade goes back, not thirty years, but about three hundred years. It dates from the Navigation Acts of Cromwell and Charles II. If anyone doubts my word on that, there is confirmation in a very excellent booklet produced by the Central Office of Information and entitled "Commonwealth Preference", which makes this point, and many other points.

Even preferences themselves date from the 1820s at the latest. At that time, British goods entering the Colonies enjoyed preferences of from 7 per cent. to 15 per cent. and, in return, we gave preferences on such colonial products as sugar, wheat, timber and wine. It is undeniable that that system helped to build up the economic strength of the British Empire, as it was then called.

Just over a century ago, the whole of that system was swept away when free trade came into being. It was brought back by the Commonwealth only about thirty years later, and it was Canada which led the way, certainly in relation to the United Kingdom, by granting, in 1898, preferences on our exports of manufactured goods. The lead given by the Canadians was followed in fairly quick succession by New Zealand, Australia and South Africa. For twenty years that unilateral preference was given by those four Commonwealth countries.

The result was a great success. That system not only increased exports from the United Kingdom to those four Commonwealth countries, but it also— and this is, perhaps, a rather strange result—increased exports from those countries to the United Kingdom. In other words, the preference agreement in one direction stimulated trade in both directions, which means that a unilateral preference is nearly as good—as this piece of history shows—as a reciprocal one.

Not until 1919 did this country reciprocate. Indeed, it could not do so —at least, until about 1915—because we were a free trade country, but it did give preferences in return in 1919, and some of those preferences, together with others introduced in the years that followed, gradually developed on a limited scale into some sort of preferential system which continued until we get to the time of Ottawa, with which I shall deal in a moment.

I have heard some hon. Members ask, "Some Commonwealth countries do not grant us preference, so why should we worry about them?" It is perfectly true that in Africa, for example, six countries do not. They are Ghana, Nigeria, Kenya, Uganda, Tanganyika and Zanzibar—and there are other, smaller, ones in other parts of the world. That is not their fault. The reason is that treaty obligations entered into by Britain, mainly in the last century, precluded their discriminaiting between any foreign countries and ourselves.

Ghana, for instance, is bound by the Anglo-Dutch Convention of 1871, so that anyone objecting to that should blame, not President Nkrumah, but Mr. Gladstone. Nigeria is affected by the Anglo-French Convention of 1898. It is true that that Convention was abrogated by the French in 1936, and I am only sorry that the pre-war National Government, and the Labour Govern- ment after the war—and, for that matter, the war-time Coalition Government— did nothing to introduce a preference system into Nigeria. Nigeria has a population of 35 million, so that it is quite important from the point of view of exports.

The other countries are involved (because of the Congo Basin Treaties, again dating from the 1880s and 1890s Those treaties are too difficult for me even to try to explain. I believe that they are so complicated that they could not be unravelled when the Government thought about doing so a few years ago. It is, therefore, in no way the fault of present Commonwealth Governments that they do not grant us preference.

Nevertheless, it is interesting to note that last year we had a favourable balance of trade with those six African countries which do not grant us any preference. Our exports to them totalled £172 million, and our imports from them, £128 million. Those figures exclude the value of the trade in gold. It is impossible to quote a figure there because, except in an annual statement, the Board of Trade maintains strict secrecy about that trade. But the figures available clearly show that preferences do not need to be reciprocal, and that unilateral preferences are at least nearly as good.

The proceedings at Ottawa resulted in 12 trade agreements being reached; seven of them between the United Kingdom and various Commonwealth countries—including the Irish Free State, as it was then called, and South Africa— and five agreements between Commonwealth countries themselves. The result was an undoubted success. Between 1932 and the outbreak of war, there was an increase in trade between Britain and the Commonwealth. There was also an increase in trade between Britain and the rest of the world; in other words, the recovery of the Commonwealth from the world depression also helped other countries.

The third argument I want to refute is the very defeatist one that the Commonwealth Preference system is, in any case, being weakened, and that nobody wants to see it revived. It is quite true that it has been weakened, and the first reason for that is that we started retreating from Ottawa even before the war, the express example being the Anglo-American Trade Agreement of 1938, by which the preference of 2s. a quarter on wheat was abolished and other concessions were made, in return, of course, for some reduction in the United States tariffs. It is only fair to add that Canada, too, was involved in a triangular arrangement.

Since the war, the whole system has been weakened by the erosion of specific preferences by inflation. It has also been weakened by G.A.T.T., which froze the whole system at 1947 levels, except for one or two colonial waivers. It is true, also, that some Commonwealth countries—Pakistan, Australia and New Zealand—requested the revision downwards of the Ottawa agreements.

The reason for that was that the system had become unbalanced because the ad valorem duties had maintained their value unaltered, whereas the specific ones had not. The majority of those preferences granted by Commonwealth countries are on ad valorem basis or on an ad valorem plus-specific basis, and many of those we grant to Commonwealth countries, especially on foodstuffs, are on a specific basis; for example, 9s. 4d. per owt. on cocoa, and 1s. 6½d. per 1b. on tobacco. I am glad that the former Chancellor of the Exchequer, my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd), in this year's Budget, reduced the duties on sugar, cocoa and coffee, because that had the effect of increasing the proportion of preferences without violating G.A.T.T. by increasing the margin.

I return to this argument about no one wanting to see the system revised. Of one thing I am certain; that only four years ago—and, more recently, last September—the Commonwealth countries made it abundantly clear that they did not want to see the system weakened. I quote from paragraph 7 of the Report issued at the end of the Montreal Conference of September, 1958. It stated: Commonwealth participation in the Preferential system has proved to be of mutual benefit and we have no intention of discarding or weakening it. That was a clear statement which did not say anything about the Rome Agreement or anything else.

Paragraph 28 of that Report stated: The Conference re-affirmed the importance of the rôle that preferences have played and continue to play in Commonwealth economic relations. It added that the Commonwealth countries had continued to adhere to the preferential system while adjusting their policies to the requirements of changes in the scope and character of world trade. Paragraph 31 of the Report contained this statement: The United Kingdom Government confirmed its intention of maintaining as an important element in the preferential system the free and unrestricted entry of nearly all goods imported from the Commonwealth. Then there was the Commonwealth Finance Ministers Conference at Accra last September. I should, perhaps, give it its correct title, the Conference of the Commonwealth Economic Consultative Council, which was set up at the Montreal Conference. This Finance Ministers' Conference resulted in a rather lengtlhy communique in which, in paragraph 8, there appeared this definite statement: They"— that is, The Commonwealth Representatives— reaffirmed the value and importance they attach to traditional Commonwealth trading arrangements under which most foodstuffs and raw materials and manufactures enter the United Kingdom free of duty with, in most cases, preferential advantages, and other Commonwealth countries make reciprocal tariff concessions. The benefits of these arrangements have accrued to the United Kingdom as well as to other Commonwealth countries. I now refer to the memorandum sent out by the Commonwealth Producers' Association, of which I am chairman at the moment, to all hon. Members last May. That stressed the point that free and unrestricted entry is of vital importance to many Commonwealth producers. It also made the point that worldwide commodity agreements are unlikely to solve the problem because there is no element of preference in them. The Commonwealth Sugar Agreement is a form of preference and there are preferences in addition to that for sugar which is not covered by that agreement.

Most Commonwealth producers think that there is very little chance of any world commodity agreements being reached for meat and dairy produce, Moreover, there are small producers of commodities like raw fruit, dried and canned fruit and wine which cannot but be worried not only at the possible loss of preference—and in this I include Australia, for example—but also by the danger of reverse preferences being put on against them as well.

I turn to the preferences granted by the Commonwealth countries on United Kingdom exports. Indeed, I was rather surprised at the attitude of my right hon. Friend the Lord Privy Seal, when he answered a question a few days ago. When asked about the continuation of Commonwealth preferences to British traders he replied that it was a matter for the Commonwealth Governments concerned. But speaking in a two-day debate on the Common Market negotiations, exactly a year ago, the present Chancellor of the Exchequer, then the President of the Board of Trade, said: We are still accorded preference over about half our exports to the Commonwealth on an average of 10 per cent. or 12 per cent. It is very important indeed for our engineering, chemical and other industries, and is clearly a matter which we must bear in mind in our discussions just as much as we bear in mind Commonwealth sales in England."— [OFFICIAL REPORT, 2nd August, 1961; Vol. 645, c. 1604.] That was a most important statement and since it contained the phrase "we must bear in mind", the Board of Trade is clearly interested in the fate of British exports. It would seem that the Foreign Office is a little more detached.

I now refer to the most defeatist argument of all; that the revival of an exclusive system such as Commonwealth preferences is impossible in the condition of the world today. It is important to remember that the system constructed at Ottawa was not an exclusive one— certainly it was not as exclusive as the E.E.C. sometimes looks like becoming —because it was for a moderate level of preferences and at best the result was that we conducted 50 per cent. of our trade with the Commonwealth and the other 50 per cent. with foreign countries. For Commonwealth countries as a whole the proportion was about the same. No one can call such a system exclusive.

In any case, why should it be impossible to do this in conditions as they are today? There is only one reason; that the United States does not want it. Since the Ottawa agreements were signed, the United States Government have worked hard to undo them. Their first success was the Anglo-American Trade Agreement of 1938, to which I have referred. Their next step was to insist on inserting in the Lend-Lease Agreement during the war the promise from us that we would work towards the … elimination of all forms of discriminatory treatment in international commerce and a reduction of tariffs and other trade barriers. I would interpose that a tariff is not necessarily a trade barrier but a means of regulating trade. That attitude became a feature of the United States economic policy all through the war and it was repeated in the Atlantic Charter, although my right hon. Friend the Member for Woodford (Sir W. Churchill) succeeded in getting inserted into that document the phrase: … with due regard for our existing obligations whach was meant to maintain our rights over Commonwealth preferences.

The United States' attitude culminated in compelling us, in return for the American Loan, to promise not to increase existing preferences or introduce any new ones pending the outcome of the International Conference on Trade and Employment. That conference was held in 1947 and produced G.A.T.T. and the rigid no-new-preferences rule. G.A.T.T. succeeded in preventing any new preferences, except the colonial waiver. That is all it has done in that direction.

In almost every other way trade discrimination is absolutely rampant and the United States is a leading exponent of it. One flagrant example is the United States tariff on woollen goods. In 1957, the United States nearly doubled its rate of duty on imports in excess of 14 million pounds. I will not go into the details of this, because they are rather lengthy. I will merely say that this has the effect of discriminating in favour of French, Italian and Japanese woollen goods against those from the United Kingdom. The result has been a decrease in the exports of woollen goods from this country to America. That is, indeed, a flagrant example of discrimination.

There are also the various agreements which the United States has made bilaterally with many foreign countries to sell surplus farm produce. There was one, for example, over wheat to Brazil in which America gave Brazil forty years to pay, not in dollars but in cruzeiros. In one year the United States negotiated no fewer than 38 new agreements with 25 different countries for the disposal of surplus produce.

There was an example of flag discrimination between the United States and India over the shipment of 17 million tons of grains in the four years following the agreement in 1956. In other words, non-discrimination, which was the keynote of American tariff policy until the woollen agreement of 1957, is a mockery because it does not exist. G.A.T.T. is not more effective in enforcing non-discrimination than the Volstead Act was in enforcing prohibition in the United States between the wars—perhaps with this difference, that whereas the United States Government did not engage in any illicit liquor deals, it seemed to be one of the leading bootleggers so far as discrimination was concerned.

I do not complain about these deals; they are perfectly legitimate policy if the United States wants to engage in them. What I object to most strongly is when they prevent us, by bringing in pressures like G.A.T.T., from using tariff discrimination in favour of the Commonwealth. I do not believe that the Commonwealth Preference system has ever done the United States any direct harm. From 1898 onwards, when the Dominions granted Britain unilateral preference, there was a striking increase in trade between Commonwealth countries in both directions.

Also, in the same period the United States exports exactly doubled, although their population increased by only 30 per cent. Similarly, during the 1932–38 period when there were equally striking increases in Commonwealth trade, United States exports again doubled, although its population increased by only about 3 per cent.

I should like to see the Government challenge the United States to state what harm Commonwealth Preference has done to its trade. During the war a report was published by two Americans and entitled, "The United States in the World Economy". They had been instructed by the State Department to inquire into the position. That report stressed that the nations of the Commonwealth and the sterling area had led the world in recovery from the depression of the 1930s and had helped the United States and the rest of the world. I know that Commonwealth Preference has prevented the United States from doing what some Americans would have liked to do—that is, to capture all the markets of the Commonwealth with subsidised exports which are merely an overspill of the huge American home market. But that would bring no benefit to anyone, not even the United States in the long run.

We talk glibly about the Common Market and the free trade area. I want to stress that the E.E.C. is not yet the Common Market, nor is E.F.T.A. a free trade area. Both are preferential areas for manufactured goods exactly similar in principle at the moment to the Commonwealth Preference areas. That is partly the reason for their success, and that is why I believe that we should first have brought the Commonwealth Preference system up to date before opening negotiations with the E.E.C.

There is no better way of bringing the Commonwealth Preference system up to date than that described by my right hon. and learned Friend the Member for Hertfordshire, East (Sir D. Walker-Smith) and my hon. Friend the Member for Worcester (Mr. Walker) in their book A Call to the Commonwealth which I was glad to hear my right hon. Friend the Prime Minister say, in answer to a Question yesterday, that he was reading. Having carried out that procedure, we should then apply for association with the E.E.C. under Article 238. That, I believe, is the best way the Commonwealth can help Europe and Europe can help the Commonwealth. I believe it to be the true solution to our problems of today.

11.34 a.m.

Sir Martin Lindsay (Solihull)

I am sure that the House is grateful to my hon. Friend the Member for Wembley, South (Mr. Russell) for raising this issue, because the Commonwealth Preference system has certainly been a great help to us in the past. It undoubtedly considerably assisted our recovery from the 1929 slump. But, in my judgment, this is much less valuable today and I do not think that we should exaggerate its value.

Viewed in the context of our Common Market application, some people regard it as a kind of alternative to the Common Market—that is to say, go into the Common Market and abandon Commonwealth Preference, or stay out and keep it. In that context I believe that Commonwealth Preference has an altogether insufficient value today to be a factor in these calculations.

I have said that it is no longer as valuable as before, and this, of course, is demonstrably true because our margins of preference have been cut by more than half in twenty-five years— that is to say from 11 per cent. to between 4 per cent. and 5 per cent. They have been considerably reduced in successive tariff negotiations and, of course, under G.A.T.T. new preferences are not allowed. Moreover, as many of the margins of preference granted to United Kingdom goods in Commonwealth markets were specific, in contradistinction to ad valorem, the post-war rise in prices has greatly reduced their value.

Of course, we should not consider the preference margins in isolation. They must be considered together with the quota system and also together with the tariff level. It is not much use having a margin of preference over foreign competitors if one is prevented from trading by quota restrictions. Commonwealth countries do not discriminate in favour of the United Kingdom in the fields of quota. Nor is it much use having preference if the tariff is in any case too high.

Let me give an example of one trade, that of the British paper and board makers. Up to about two years ago the average tariff on their products was £13 and in the last two years this has been raised by approximately £14 10s. increasing the tariff from £13 to £27 10s. per ton.

Mr. Douglas Jay (Battersea, North)

Would Dhe hon. Gentleman explain whose tariff he is describing?

Sir M. Lindsay

I am sorry if I did not mention the country. This is the Australian tariff.

Whether we like it not, we have to face the position as it is, and that is that Commonwealth countries have altered the pattern of preference, lowering it by negotiation to suit the interests of their own trade, just as from time to time they impose quotas and raise tariffs which hit British exports.

I make no criticism whatever of this, because the first duty of any Government is to protect its own people, and if commonwealtlh countries find that this is the best way of establishing their own industries and consider that this is the best policy in the long-term interests of their people, of course they are undoubtedly righit to do it. But when they say to the British exporter that they have raised the tariff or placed a quota restriction against his goods, they do not go on to say"But, of course, we have found an alternative market for you". In my view, therefore, they are hardly entitled to be insistent that it is now our duty to find other markets for them if some are closed as a result of our entry into E.E.C.

Of course, the attenuation of Commonwealth Preference is one of the principal factors in the falling off of Commonwealth trade. Thus United Kingdom exports to the Commonwealth, which accounted for nearly 50 per cent. of our total exports in 1957, accounted for only 44 per cent. of the total in 1961. Similarly, Commonwealth imports into the United Kingdom declined from over 45 per cent. of all imports in 1957 to less than 42 per cent. in 1961.

Thus, in spite of some Commonwealth Preferences, to which my hon. Friend the Member for Wembley, South attaches such importance, the fact is that Commonwealth trade is steadily declining year by year. I contrast this picture with our trade with the E.E.C. countries During exactly the same period, from 1957 to 1961, our exports to the six E.E.C. countries rose from less than 14 per cent. to almost 17 per cent., and Common Market imports into the United Kingdom rose from 12 per cent. to 15½ per cent.

I hope that this brief summary of the situation puts the value of Commonwealth Preferences today in somewhat clearer focus and more accurately weighs its importance in the modern world.

Mr. R, H. Turton (Thirsk and Malton)

I do not think that percentages give the true position. Has my hon. Friend the actual figures? I think I am right in saying that, on the figures, the increase in Commonwealth trade is greater than the increase in E.E.C. trade.

Mr. Jay

Will the hon. Member take it from me that the figures he has given are wholly wrong and that I shall give the right ones presently?

Sir M. Lindsay

With respect, they are not wholly wrong. They are perfectly accurate statistics taken from the Board of Trade's figures. I have given the figures in terms of percentage, and they are accurate.

Mr. Jay rose—

Sir M. Lindsay

I cannot give way again. I have only a short time, and other Members wish to take part in the debate. It is foolish to suggest that the Board of Trade figures are wholly wrong.

It is no good our trying to live in the past. We must look to the future. It is no secret that I desperately hope that our negotiations will be successful and that we shall join the Common Market. I want us to join the bloc to which our trade, without any preference, is expanding, even if we may unfortunately lose some of our exports to the Commonwealth in which our trade, in spite of Commonwealth preferences, is declining.

To put it in another way, on our doorstep is a market of 170 million people, or, if we succeed in joining, 220 million, or, again, if the other countries of Europe come in, as many as 250 million. What alternative has the Commonwealth to offer? It is the developed parts of the Commonwealth which matter to us because they alone have the purchasing power to buy British goods. The total population of Australia, Canada and New Zealand together is 30.4 million—and they are a long way away compared with a present market of 170 million, and 220 million when we go in.

It is quite wrong to think that the Commonwealth can provide us with a compensating alternative market if by the common external tariff we are cut off from trading with the Six. In my view, therefore, it is wrong to use a sentimental attachment to what is left of Commonwealth Preference and its usefulnes as an argument for not entering Europe. I very much hope that wiser counsels will prevail.

11.44 a.m.

Mr. Michael Clark Hutchison (Edinburgh, South)

I am very glad to support the propositions outlined by my hon. Friend the Member for Wembley, South (Mr. Russell). As the House may know, I am utterly opposed to Britain entering the Common Market. One of my reasons is that it will mean the changing and disappearance of Commonwealth Preference.

Mr. A. G. Bottomley (Middlesbrough, East)

No.

Mr. Clark Hutchison

I was greatly surprised last Thursday when, being asked by my hon. Friend the Member for Twickenham (Mr. Gresham Cooke) to give a breakdown of our expected exports into and imports from Europe if we enter the Common Market, my right hon. Friend the President of the Board of Trade replied that such figures, if accurate, would be useful but that changes in the level of imports and exports if we enter the Common Market would depend on a very wide range of factors, including the level of demand and prosperity, both at home and in our overseas markets".—[OFFICIAL REPORT, 26th July, 1962; Vol. 663, c. 1709.] In other words, there are no figures and no forecasts. To my mind, this is quite extraordinary. We are being asked to support entry into Europe but we are not even told how our trade is expected to be affected. I, for one, do not intend to buy a pig in a poke, and I do not think that the British public does either.

Since 1918, our trade with the six countries in toto has never been in our favour. No one has ever told me why it should suddenly become so in 1963. I add to this that the pro-marketeers and the Government themselves have said that if we enter the Common Market the cost of foodstuffs will go up. What effect will this have on our wage and salary bills and on the cost of our products? How much more money shall we have to provide for pensions? What revenue shall we lose if tariffs are swept away or reduced? I hope that the Front Bench will answer these questions.

It is significant that between 1950 and 1960 exports to the Commonwealth expanded in a remarkable way. This is the answer to my hon. Friend the Member for Solihull (Sir M. Lindsay). The increase in our exports to the Commonwealth by 1960 as compared with 1950 was no less than £451 million. This, of course, was in large measure due to the Commonwealth Preferences which we enjoyed. In those years, the percentage increase to Canada was 705 per cent. and to New Zealand it was 395 per cent. Have the Government worked out what damage we shall suffer if these preferences are abolished? I should like to know. They have been remarkably silent about it.

I oppose entry into the Common Market also because of the damage it will do to our agriculture. I am not a farmer, but it seems to me that our agriculture and the system surrounding it fit in very well with the import policy we have in relation to Commonwealth foodstuffs. We boast of the prosperity of our agriculture, which is up by 70 per cent. over the pre-war level. Why tamper with something which is working perfectly well? Why jeopardise it? I want to know.

Last year, our farmers spent about £900 million on industrial goods and services. If one adds the personal spending of fanners, farm labourers and employees, one sees that British agriculture bought twice as much from British industry as all the Common Market countries put together. This is an excellent record. It has been attained by the British people because agriculture and its affairs are under our own control. No one has yet explained to me why Britain's affairs, and her agricultural affairs in particular, will be better dealt with by six foreign nations in Brussels than by the House of Commons in Westminster.

I also oppose our entry into Europe on Commonwealth grounds. Personally, I was much struck last September when every Finance Minister of the Common- wealth expressed concern at Accra at our approach to the Six. All sorts of doubts have been expressed since then, and, in my view, our relations with our own people overseas are more strained than they have been for years. I am very much grieved that this should be so under a Tory Government. I should have thought that of all parties the Conservative Party was the most concerned to expand Commonwealth trade, to develop the Commonwealth and to look after its interests. But this does not seem to be the fact at the moment, and I regret it.

I remind the House that our trade with the Commonwealth far exceeds in value and quantity our trade with the Six. This, of course, is largely due to our having preferential treatment arrangements. The potential in the Commonwealth is enormous—600 million people and untold mineral resources. Parts of Australia, a country I know, and of Canada are still unexplored. We do not know what may be there. We have preferential arrangements with these lands.

Mr. Bottomley

Would not the hon. Gentleman agree that, with the industrial might of Europe properly organised, we could invest in and build up the economies of the under-developed parts of the Commonwealth and expand trade generally?

Mr. Clark Hutchison

No. There is no need to go into the Common Market in order to invest in the Commonwealth. There is nothing to stop Germans and Frenchmen investing there now.

Mr. Peter Emery (Reading)

They are doing so.

Mr. Clark Hutchison

Then let them continue.

Much of our trade and commerce with the Commonwealth is, I believe, due to the preferential arrangements which we have and the Commonwealth's outlook is orientated towards Britain. It seems to me absolutely crazy and utter madness to throw away the privileged position which we have. It seems from what the Lord Privy Seal said some days ago that we are to abandon preferences which we give Commonwealth countries on their manufactured goods coming into this country—about £70 million worth per annum. It also seems clear to me that if we enter the Common Market we shall have to put up tariffs against the Commonwealth.

I wish to make it clear that I have no mandate from my constituents in South Edinburgh to support any such alteration, and I do not think that the Government have any mandate from the country to do this. In short, I am not prepared to support any policy by which this country treats its own people overseas, the Queen's subjects, worse than it treats Germans. Frenchmen or Italians.

I wish to make one further point about Commonwealth Preferences and trade with the Commonwealth and with the Common Market. I was not elected as a Unionist Member of Parliament to lessen or to abandon British sovereignty. I wonder whether the public know how much we will be restricted if we sign the Treaty of Rome. Tariff and other trade arrangements will not be under our control; they will be under the control of a body in Brussels. We will not be able to alter or to adjust Commonwealth Preferences. If we wish to make new trade treaties, we will not be able to do so unless the other six countries agree. The Court of Justice, situated on the Continent, will be able to give judgments affecting this country, companies in it and even individuals in it. There is no appeal. All kinds of directives can be given and we will have to carry them out, whether we like them or not. Parliament will lose some of its power. Do the British people realise all this? I pray that they will wake up very quickly and will learn the threats which face them.

I believe most firmly that the people of this country wish to retain their freedom of action in economic and all other affairs. Since I have taken an interest in politics, I have never heard anybody ask for the abandonment of Commonwealth Preference. I have heard adjustments suggested, but I have never heard it said that the principle should be given up. I very much hope, therefore, that the people of this country will realise what is happening and will rise in their wrath and make it clear that they do not wish us to join the Six.

11.55 a.m.

Mr. Douglas Jay (Battersea, North)

I think that a few facts would be helpful in this controversy, and I should like first, to say a word or two about the preference which we give in our markets here to imports from the Commonwealth. In the discussions and debates now going on, and in some of the Lord Privy Seal's statements, the issue is treated as if what we were discussing, and what was at stake, was the end of Commonwealth Preference in the United Kingdom market. But this is not by any means the main issue at stake. What is at stake is the free and unrestricted entry of foodstuffs and raw materials into the British market.

It is possible to get rid of Commonwealth Preference, which is the phrase that the Lord Privy Seal always uses, in two ways—first, by abolishing the duties on non-Commonwealth imports of these goods into the United Kingdom market, or, secondly, by imposing duties on Commonwealth goods. These are totally different propositions. I think that one could make out a case for the first. One could make out a case for saying, "Let the United Kingdom import all foodstuffs and raw materials tariff free from all parts of the world". Even the Liberal Party conceivably would agree with that.

Mr. Eric Lubbock (Orpington)

I am sure that the right hon. Gentleman would not wish to mislead the House. He will agree that there are a great many important raw materials which are already imported tariff-free from any source, such as jute and rubber.

Mr. Jay

I was hoping that the Liberal Party was in favour of free trade in foodstuffs and raw materials. That was all that I was saying.

This is not what we are asked to do. What we are asked to do is to put new tariffs on the main imports of food and on some imports of raw materials into this country. That is a totally different issue, and it has not been made clear to the country. Whether one thinks it right or not, this second proposition has the following consequences. First, it means a reverse preference against Commonwealth goods. That is what we are being asked to institute—a tax on Commonwealth goods when foreign goods of the same kind are entering the country tariff-free.

Secondly, this is something which, whatever one may think of the Six, or of the United Kingdom, is contrary to the interests of the outside world, because it means erecting new barriers to trade. The one great industrial country in the world, which at present practises some sort of free trade in food and raw materials, is asked to take a step backwards and give it up.

Thirdly, if we are to end Commonwealth preference in this way, it is plainly contrary to the interests of the United Kingdom, for the reasons which the hon. Member for Edinburgh, South (Mr. Clark Hutchison) made plain. It must mean an increase in the price of food and in the price of certain raw materials in this country; and this is bound, in greater or lesser degree, to raise our export costs and, therefore, would have repercussions, on our balance of trade.

Fourthly, I would add this to what the hon. Member for Wembley, South (Mr. Russell) said. He pointed out that preference went back 300 years in some respects. If we start imposing import taxes on food, we are reversing not merely the Ottawa Agreements, but the system which has been in effect for at least 100 years, since the time of the repeal of the Corn Laws when, broadly speaking, we removed import duties on food. Therefore, it is not simply a reversal of the Ottawa duty.

Whether one is in favour of doing this or not, it should be made clear that we are not just being asked to give up preferences. We are being asked to start for the first time for at least a century imposing taxes on our main food imports. This is an issue which does not simply affect the Commonwealth producing countries, but it severely affects the standard of living and trading and exporting power of this country. Anybody who does not understand that does not understand the issues which are at stake. So much for the preferences in the United Kingdom market.

I should like now to look at the other side of the coin—that is, the preferences granted to us on our exports by the Commonwealth countries. The hon. Member for Solihull (Sir M. Lindsay) grossly misrepresented the facts of the case. While wishing today to be wholly dispassionate, it always seems to me to be a little discreditable to denigrate one's own country and Commonwealth; and when one does it on the basis of plain falsehoods, I find it positively shabby.

The hon. Member said that Commonwealth trade has been declining every year. This is wholly false. It is wildly the reverse of the truth. These facts were given to me simply and plainly in answer to a Question cm 28th June by the Board of Trade and they are in HANSARD of that date at column 168. I make the comparison between 1946 and 1961 for the totals of trade.

Between 1946 and 1961, British exports to the Commonwealth increased from £302 million to £1,326 million which is a fourfold increase in exports during that period. The hon. Member for Solihull calls it a decline. In the days of Dr. Goebbels, that was almost what would have been called the "big lie"; if it is repeated often enough, one hopes that somebody will believe it, although it is totally devoid of truth.

Sir M. Lindsay

This is outrageous. Does not the right hon. Gentleman realise that to quote figures of percentage of British imports and percentage of British total exports is the fairest possible guide?

Mr. Jay

I am now coming to the percentages; the hon. Member should have waited a little longer. He has asked about percentages. Therefore, we will look at the percentages given in the same column of HANSARD to which I have referred. It is a pity that the hon. Member does not study these matters before making speeches. Comparing British exports to the Commonwealth as a percentage of British exports, and taking the two years 1938 and 1961—that is, over the whole period of the war and afterwards—we find according to the Board of Trade that in 1938 British exports to the Commonwealth as a percentage of our total exports were 31.6, and in 1961 they were 34.5. Of course, the hon. Member is totally ignorant of this. I realise that he was not trying to mislead the House—

Sir M. Lindsay

I took the last four years. Nothing that the right hon. Gentleman says in comparing figures of 1938 and 1961 will make my figures for 1957 to 1961 less accurate.

Mr. Jay

The hon. Member is getting deeper and deeper into the mire. I do not know why he wishes to be so controversial on a Friday morning. I am coming to those figures. The story is the same in both cases as regards United Kingdom imports from the Commonwealth as a percentage of total United Kingdom imports. They increased from 34.2 in 1938 to 35.3 in 1961. Therefore, in the case both of imports and exports, Commonwealth trade was a greater proportion of our trade in 1961 than it was in 1938.

It is true that certain propagandists, with whatever motives, have tried to select a few recent years to misrepresent the facts. What has really happened, however, is that, as even the hon. Member for Solihull should know, there was a war from 1939 to 1945 and during those years Western Europe was occupied and, therefore, unable to trade with the United Kingdom. Therefore, from 1938 to 1946, strangely enough, because the Commonwealth helped us in our need, Commonwealth trade rose as a percentage of total British trade. Then, strangely enough, after 1946 Western Europe recovered and began to trade again. Therefore, if one takes the second phase only, one naturally finds in terms of percentages a slight rise in trade with Western Europe and a slight fall in trade with the Commonwealth. All that that tells us, as any child should have known, is that there was a war after 1939 and it came to an end in 1945.

The interesting point is that if we take the whole period from 1938 to 1961, we find that Commonwealth trade is a higher proportion today of our total trade than it was in 1938; and it is a notably higher proportion in terms of our exports. Therefore, what these figures show is that over the whole period there is plainly a trend for Commonwealth trade to rise, as a proportion of our total trade, and that in the years of the war and afterwards, when we were in great need of essential imports and essential food and raw materials, the Commonwealth came to our help and did all it could to supply us with these essential goods.

If one looks at the facts, therefore, one gets a rather different picture from what we have heard from some of this propaganda. I want to make only one other point. Let us also look at the facts and make a dispassionate estimate ami not indulge in all these egregious, tendentious statements about the value of Commonwealth Preference in the Commonwealth countries to British exports. What the hon. Member for Soli-full did, which is typical of this sort of propaganda, was to mention one type of export to one country-—I think that it was wood pulp, or something similar, to Australia. We have, however, had scientific examinations made by economists of the likely effects on the whole of British exports of this operation. The most dispassionate and accurate of them is that of Sir Donald MacDougall, who is now the chief economist to the National Economic Development Council, which was published a few months ago in the Rotterdam Bank Review.

Since there is not much time, I will merely give his conclusion. He points out that since our exports to the Commonwealth are 35 per cent. of our total exports, and our exports to the Six are only 14 or 15 per cent., quite a moderate preference on the large amount of Commonwealth trade is worth much more than a similar preference on a smaller amount of trade. He goes through the figures and tries to work out the net effect of abandoning Commonwealth preference and substituting the European preference instead.

His conclusion is: Entry into the Common Market would thus involve a preferential abolition of duties averaging 10 to 15 per cent. on about one-sixth of our present exports (those to the Six), and a loss of preferences, or potential preferences, averaging around 10 per cent. on about one-third of our present exports (those to the Commonwealth and E.F.T.A.). I should have thought that one-third was a slight under-estimate, but let us take this figure— These rough figures suggest that the losses on British exports might outweigh the gains. That is the effect of one of the few really serious attempts to analyse the situation. Such others as I have seen by economists have come to the same conclusion.

Sir Donald MacDougall goes on to say: Looked at as a purely commercial deal, and ignoring the indirect consequences, it is thus by no means obvious that entry into the Common Market"— on the terms now being proposed— would be a good proposition for Britain. It might well tend to worsen the balance of trade. That is Sir Donald MacDougall's conclusion. He then states: Adverse effects on the balance of payments could emerge quickly "— and alter a certain amount of other argument he says: It is not impossible that joining would neces-site a devaluation of the pound. This is the most careful and dispassionate economic examination that we have had of this proposition. I think that it deserves from the point of view of purely economic argument, rather more serious examination than the hon. Member has given to it. The fact is that on examination of the figures we reach this conclusion; that present preferences, whether we are in favour of them or not, because they cover such a large volume of our exports are at present distinctly valuable to us; and that, cm the evidence, any abandonment of their return for a preference in Europe may well result in a net loss of exports to us.

Therefore, we are left with the conclusion that even if we adopted the policy which the hon. Member for Solihull is urging, we would raise the price of our imports and diminish our exports on balance. That must mean, of course, a serious deterioration in our balance of payments, which we all agree is our greatest national problem, at any rate in the economic sphere.

We cannot just blindly accept a lot of "phoney" figures and arguments which suggest that, somehow, the economic advantages of this change are such that we ought to accept all sorts of serious political handicaps for the sake of the economic advantages which on examination turn out not to be advantages at all, but disadvantages.

Finally, I would add this. The hon. Member for Solihull also produced a remarkable calculation by which the Commonwealth appeared to include about 30 million people. Of course, it includes 650 million people. It also happens to include those parts of the world where the population is increasing faster because, strangely enough, people emigrate from this country, from Germany, Italy and France to Australia, Canada and New Zealand. They do not emigrate from Australia to Germany or from New Zealand to Italy. Therefore, if we look ahead not just to the next few years concerned in the calculations that I have given, but twenty, thirty or forty years ahead, there is no doubt wide areas of the Commonwealth will not only have a population over three times that of Europe, but a much more rapidly increasing population. Also, of course, that scope for development and for raising the standard of living will be far greater in those countries than it can possibly be in the older countries.

So whatever conclusions we come to on this problem, do let us look at it on the basis of the facts and with a real understanding of what has been happening, and is happening, and not on the basis of fairy tales, propaganda and misrepresentation of the whole economics of the case.

12.14 p.m.

The Minister of State, Board of Trade (Mr. Alan Green)

There have been moments in the debate when I thought that it might have been more appropriate if a Foreign Office spokesman had taken my place.

Mr. Jay

Thank heavens, he is not.

Mr. Green

Perhaps some of the points raised could only be answered by that Department. That is the point that I make.

We have had an interesting debate, which has ranged extremely widely and I do not think that I can answer all the policy aspects that have been referred to. I do not at all object to the argument that has gone on. It is an argument that has to go on. I have no objection to make about that at all, but I must confine myself to certain aspects of the matter.

I agree with the right hon. Member for Battersea. North (Mr. Jay) that this is much better tackled upon a basis of fact. We all say that and then we ail wonder what are the facts. The figures that have been mentioned of export-imports from the Commonwealth recently are, of course, published by the Board of Trade and are in Statistical Abstract No. 81 of 1960. They show, as everyone would expect, a very substantial increase in our inward and outward trade since the war ended. That was the point made by the right hon. Gentleman. Of course, we would all expect that.

They show in more recent years, from 1956 to 1960, that exports from the United Kingdom to the Commonwealth have increased, in terms of millions of pounds sterling, from £1,451 million in 1956 to £1,515 million in 1960. The increase has not been even. In one or two of those years it has actually declined. In the same period, our exports to the rest of the world—which at this point is perhaps the best way to put it— have increased from £1,835 million to £2,163 million, the rate of increase with the rest of the world having been a little faster than with the Commonwealth. There are perfectly good reasons for this which, I suggest, have nothing to do with the controversy to which I have been listening.

One of the reasons has been the depressed conditions of world commodity prices which are bound to have an influence upon those countries which primarily depend upon trade in commodities and less completely on trade in the more sophisticated type of goods. I do not think that I need give the figures of imports into the United Kingdom which are available in the Abstract. Broadly speaking, they reflect the same tendencies.

I accept the mixing up of the Common Market with Commonwealth Preferences in the course of the debate, because I agree that it is impossible to dispose of any particular subject without relating it to other subjects. This is quite inevitable. The House, I think, came to that conclusion on Wednesday. Until we know the terms of reference, the debate is likely to be academic. That is perhaps the guiding light, if I may use the phrase, for me today.

Mr. Jay

Out of date.

Mr. Green

I do not think that the terms of reference, or the need for keep- ing ourselves clear about our terms of reference, ever can be out of date, if I may say so, with the greatest deference, to the right hon. Gentleman.

The terms of reference and the actual argument for Common Market or Com-monwealth Preferences, one against the other, cannot be clearly set out until we know the terms offered for entry into the Common Market. These negotiations are still proceeding, and I do not believe it would be wise of me to speculate how they might proceed.

Preferences are a perfectly sensible pragmatic instrument the value of which depends on the circumstances of the time. Because I believe this is so, and because our fellow members of the Commonwealth have acted in a way which supports my belief, I want to spend the rest of my time, if I may, in setting out as concisely as I can the story of Commonwealth Preferences to date.

My hon. Friend the Member for Wembley, South (Mr. Russell) was correct when he said that Commonwealth Preferences have been in existence for a very considerable time. They did not start at Ottawa, and I am not at all sorry to hear him say that. They were relatively unimportant for many years, and the reasons, again, anybody with any historical knowledge or interest can clearly understand. Two or three hundred years ago there were not many nations which had anything much in the way of industrial capacity. There were very few nations which could really move about the world readily, and the speed of movement was the speed of the horse and the sailing ship.

Consequently, preferences as between ourselves and the then Empire were not likely to be tremendously important because the volume of trade was quite obviously less and the circumstances did not permit a vast volume of trade. The needs were wholly different and the whole organisation and set-up was entirely different.

The big extension of Commonwealth Preferences took place after the Ottawa Conference in 1932, and the reason for it—and this is, I think, very important— was the desire of the Commonwealth countries to protect themselves against the deep existing world recession. It is not unimportant to mention that it was only after substantial negotiation at Ottawa that we in fact got the preferences. Negotiation was as necessary there, I suggest, as perhaps it is in another context at the present time.

Mr. Jay

It was negotiation.

Mr. Green

The right hon. Gentleman says it was negotiation. I can assure him that this is negotiation, also—but perhaps we had better not go into speculation, because I know tine right hon. Gentleman does not care much for speculation.

Commodity prices at that time had fallen disastrously and there had also fallen the demand in the world for manufactures. In that sense, it is difficult to compare that period of time with this period of time. Commodity prices today, it is true, are depressed, but no one can say the same of the world demand for manufactures. The other Commonwealth countries did not then have the diversified economies which they do now have. The growth of manufacturing industry in most of them had been steady, but it had been limited. They were all desperately concerned to find outlets for their primary commodities. It was, therefore, possible to make a bargain, and this was the essence of the bilateral agreements which we made— and they were bilateral—with Canada, Australia, New Zealand, South Africa, Newfoundland, India and Southern Rhodesia.

In those days of a world depression we sought to get trade mowing again in that big area of the world over which we had the most direct influence and the biggest power to help, and the instrument chosen at that time was bilateral agreements with each of these Commonwealth countries. They had to be bilateral because the conditions internally in each of the Commonwealth countries were different. This was the reason why they had to be bilateral. Since then conditions really have improved, and I hope I make it plain that that is important to remember when it comes to negotiating and deciding with whom we Will negotiate.

Since then every one of those countries has sought, and, generally speaking, has sought successfully, to diversify the basis of its own separate industries and its own separate economy. Each of them sought and with fair success to turn itself into a multilateral trading system instead of a bilateral trading system.

It is because that process of change is taking place within the economies of each of the Commonwealth countries as well as elsewhere that we have had varying experiences with each Common-wealth country of the preferential system between them and us. This is quite inevitable. I make no complaint, of course, about this whatsoever, because it is so much part of our duty in this country to recognise the changing character of the economy of each separate Commonwealth country and to try to deal with it as pragmatically as we did deal pragmatically with the Commonwealth as a whole at Ottawa.

However, it does follow—does it not? —that as their needs change, as they become industrialised, as they seek additional markets to our own—and I think the word is "additional" rather than "different" markets—we are bound to move into a quite different set of considerations when we think in terms of Commonwealth Preference.

Mr. Jay

Is the hon. Gentleman suggesting that it is impossible or difficult for this country to trade with highly industrialised countries, because in that case, presumably, we could not do much trade with France or Germany?

Mr. Green

I am not making any such suggestion at all, and the right hon. Gentleman knows that all the facts and figures of external trade would not support me if I did attempt to make any such suggestion. The truth of the matter is, as he knows perfectly well, that it is much easier, in fact, for highly industrialised nations to trade between themselves than it is for them to trade with others.

This is undoubtedly true, and I think that we must make steady and strong efforts to secure that all the highly industrialised trading nations do have an outward look in their trading arrangements, and this, of course, is the central purpose, as my right hon. Friend the Lord Privy Seal has often said in the House, of the negotiation now proceeding with the Six, and I am quite sure that that objective and that purpose commands the support not only of the right horn. Gentleman but of everybody in the House. The only argument about it is whether we are using precisely the right method, whether we are doing it at precisely the right time, and so on; but I am perfectly certain that the central purpose commands the full support and respect of the right hon. Gentleman. It would be astonishing if it did not.

The history of these preferences reflects, I suggest, perfectly clearly and very consistently the economic history of the world itself. At the time they were produced they were to get world trade moving again. They were not the best possible weapon to get trade moving again, but they were the only weapon genuinely to our hands which could be used in an area over which we had influence, and they to a great extent succeeded in their purpose. We were able to produce greater freedom of trade over a wide area at a time when all other nations were desperately restricting trade by every art and device. That is the story of these preferences.

I should like to assure the House that we have not lost sight of the significance of the Commonwealth Preference system. How could we? But it is not less important to work for an expanding Britain and an expanding Commonwealth in expanding world trade. That is the context we must always bear in mind. It would be a mistake to lose sight of the great opportunities for world trade by concentrating our attention exclusively on tariffs and preferences. Most Commonwealth trade today has grown without preferences. It has grown in value over the years as the proportions of preferences and the margins of preferences have declined, though trade still benefits from preferences.

In my anxiety over exports I have taken good note of what my hon. Friend has had to say. I have had to do so. But this is all built on many other things, besides preference, which have enabled us to be the main market, the main supplier and the main source of overseas investment for almost every Commonwealth country. Contacts and associations built up over generations, and co-operation in trade and economic development, will not be easily broken. Certainly, we have memories of standing shoulder to shoulder in two world wars. There are the great bonds of language, and of customs and standards, and the basic attitudes to life. These have stood the test both of the preferential system and of the free trade period that we once had.

We do no service to the Commonwealth if we believe that all these sure and abiding links are in jeopardy because of changes in one single economic instrument, and I hope that it will not go out from this House that any particular link is the only Commonwealth link that we have. That is most certainly not true. We have deeper and more significant links than merely the preferences, important though they have most certainly been in our history.