HC Deb 22 July 1985 vol 83 cc809-32 7.53 pm
The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Alex Fletcher)

I beg to move, That this House takes note of European Community Document No. 9427/79, draft Directive on the approximation of the laws, regulations and administrative provisions of all Member States concerning liability for defective products and of the Explanatory Memorandum by the Department of Trade and Industry dated 1st July 1985; and supports the Government's intention to have the Directive adopted at the earliest opportunity. The subject of product liability is not new to the House. The Select Committee on European Legislation considered the subject in 1976 and again in 1979, and it was debated by the House at some length in November 1980.

The anomalies in our existing laws governing product liability are well known. A purchaser who is injured by a defective product is entitled to compensation from his supplier, usually a retailer, in strict liability, that is without proof of default, under the law of contract. A victim other than the purchaser, however, can recover damages only under the law of tort—or delict in Scotland—if he can show that someone in the chain of supply has been negligent. For many years now, it has been recognised that this state of affairs is unjust.

As the House will be aware, the Scottish and English Law Commissions examined the question of product liability and published a joint report in 1977. They were critical of the existing law on a number of counts and recommended that the United Kingdom should introduce a system of strict liability. They recognised that it was desirable to impose liability on those in the chain of manufacture and distribution, who were in the best position to exercise control over the quality and safety of a product, and to insure against possible defects.

The Royal Commission on civil liability and compensation for personal injury—the Pearson commission—also reported on this subject in March 1978, and made a similar recommendation. It was against that background that our support for the underlying principles of the proposed directive developed.

The proposed directive is a harmonisation measure introduced under article 100 of the Treaty of Rome. In putting forward its proposal, the European Commission recognised that the divergence in the laws of member states might distort competition, influence the free movement of goods and lead to different levels of protection for the consumer. The extent to which such distortions have occurred is extremely difficult to measure, but we must recognise, considering the experience some British companies have had in exporting, for example, to the United States, that differences in potential liability and in insurance costs arising from different regimes can, indeed, have an influence on marketing decisions and on the terms of trade.

When the House debated an earlier draft of the proposed directive in November 1980, there was a general consensus that a harmonised European regime based on strict liability was the right way forward, but a number of problems with the text of the directive were pointed out. My right hon. Friend the Member for Gloucester (Mrs. Oppenheim) pointed out that, although the Government agreed with the aim of establishing a common system of liability throughout the Community, the draft could not be accepted as it stood.

One of the most important changes that we considered necessary was the incorporation of a development risks defence. It is sometimes referred to as a "state-of-the-art" defence. We accepted the argument put to us by industry that the extension of liability to a producer, even when it was impossible to have detected the defect in the product at the time it was put on the market, could substantially inhibit innovation, especially in high-risk industries. We have, therefore, sought to incorporate this defence, to make a number of other changes, and to seek clarification on other points raised during the extensive consultations we have undertaken.

In Brussels, differences of opinion between member states have persisted on one or two points, in particular on the development risks defence and on the imposition of a financial limit on a producer's total liability. Those differences could not be resolved and, therefore, a compromise package was put forward earlier this year. It incorporated the development risks defence based on the principle of strict liability without financial limit.

Individual member states are, however, allowed to derogate on both those points, subject to certain limitations. On financial limits, for example, no member state could introduce a total limit for a single manufacturer's liability on a single product of less than 70 million ecu—about £40 million. Experience of operating under those derogations would be reviewed after 10 years to consider their effect and to explore the scope for coming closer together on these points.

We would, obviously, have much preferred a completely harmonised regime throughout the EC, with a development risks defence but no financial limit, but the course of the negotiations made it quite clear that a common regime on those lines would never be agreed, and that the only alternative to accepting the compromise was to continue for another decade. or more, without reaching agreement.

In those circumstances, we believe that the compromise package, on which the revised text of the directive is based, should be supported. If the directive is adopted in this form, we shall be free to introduce, in our implementing legislation, a system in the United Kingdom of unlimited strict liability with a development risks defence. Many of our partners will do the same, although some will exclude the defence, and some will impose a limit on total liability. Although such differences are regrettable, we consider that the common features in the directive—especially the common establishment of the principle of strict liability—are more important than the two differences.

The circumstances in which the development risks defence can be successfully invoked are likely to be rare. It sets a tough standard, and the minimum financial limit is set high so that it should have a minimum effect, if any, on the cost of insurance.

The package should be seen as a whole. It includes all the other elements in the proposed directive, which have received less attention during the past five years than development risks and financial limits. We have managed to secure some substantial improvements to the text on these points, and to secure clarification on the interpretation of some of the articles, in response to the concerns raised in this House and elsewhere since the first draft was published. For example, hon. Members will notice that we have secured a much more satisfactory definition of "a defective product", and of the scope of products covered by the directive, and we have secured some important changes and extensions to the defences listed under article 5.

On property damage, we have limited the application of the directive to damage done to purely personal property, with a minimum claims limit to exclude trivial claims. Although some hon. Members might have preferred property damage to be excluded altogether, I hope they will agree that, with these limitations to the scope and definition, the provision is now acceptable.

Some anxiety has been expressed about the effect that the directive might have on the cost of insurance against product liability claims and on the consequent extra burden on industry at a time when the Government are making special efforts to lift such burdens.

Every study of which the Government are aware, including comparative evidence from countries with different regimes, has shown that the provisions in this directive should lead only to a marginal rise in insurance premiums. This is not surprising. Industry is already subject to strict liability in contract and to liability subject to proof of negligence in tort.

Mr. Teddy Taylor (Southend, East)

How wide are the Department's consultations? Has my hon. Friend heard of an organisation called the Society of British Aerospace Companies Ltd, and has he consulted it as to whether the effect of insurance costs will be marginal?

Mr. Fletcher

We have had wide consultations with industry, including the CBI. Even if we did not consult the industry to which my hon. Friend referred directly—I cannot answer his point now, but I shall try to find out—I hope that its representations were included in those made to my Department by the CBI.

Mr. Taylor

The Minister said that his Department may not have had consultations with the aircraft industry, but that it consulted the CBI. This morning, I received a letter from the CBI saying that the change would result in significant increases in insurance costs for the consumer. My hon. Friend will know that I am worried about this, especially about rubbers. The Minister said that the CBI agrees with him, but I say that it does not. Would he check this with his Department, because my view is confirmed in a letter from the CBI?

Mr. Fletcher

One of the joys of being a Member of the House, at least for the remainder of the time that I am here, is realising that my hon. Friend will never allow me to forget about rubbers. For those who do not understand the reference, I should explain that we are talking about scented erasers. We have discussed this matter at length with the CBI, whose representatives I met only a few weeks ago.

My hon. Friend said that the change would result in increased costs to the consumer. The insurance costs will be borne by the consumer. Of course, if the increase is significant, it will be passed on to consumers through the pricing mechanism. However, we have had detailed discussions with industry, and we have made the best attempts that we can with the British insurance industry, taking into account experience elsewhere, to judge what the increase in insurance costs would be. The answer is that it will be negligible. I know what the CBI says in the letter to my hon. Friend and to other hon. Members, but the letter does not display any expertise on insurance costs.

I do not accept comparisons with the American experience of product liability as proof that a strict liability regime brings in its wake automatic increases in insurance costs. With punitive damages, contingency fees for lawyers and jury trials for civil liability cases, it is not surprising that companies in high-risk industries have had special difficulties with product liability insurance in the United States. In our view, however, the vagaries of the United States legal system, not the concept of strict liability, caused the so-called "crisis" in product liability insurance in the United States some years ago.

This directive does not represent a burden on business. The best British companies take their responsibilities for potential defects in their products very seriously; they already insure against possible disasters, and they pay up when it is clearly established that innocent victims have been damaged by their products. This directive will make it clear that all manufacturers and, equally important, all importers must reach these same high standards.

It is no longer acceptable that retailers, but not manufacturers, should be subject to strict liability, or that the innocent victims of the occasional disaster caused by a defective product must bear the burden on their own. Ultimately, the burden must be shared by all those who benefit from the product, as any increase in insurance or testing costs resulting from strict liability will be passed on to consumers through the pricing mechanism.

Mr. Taylor

If it is so desperately important to look after consumers' rights and to give them compensation, why has the Minister excluded agriculture? Is that not an area where people suffer damage and death because of problems with products?

Mr. Fletcher

My hon. Friend is correct to say that the directive excludes primary agriculture, on the basis that farmers cannot be held personally responsible for the vagaries of climate and conditions outwith their control. However, once agricultural produce is processed by manufacturers, it will come within the scope of the directive.

All products supplied in the EC will be covered by the directive. So British companies will not be placed at any competitive disadvantage. I repeat that it will apply also to all importers, regardless of where the products originate.

The directive in its present form represents a long-needed advance in consumer protection throughout the EC. I invite the House to agree that we should adopt it without delay.

8.9 pm

Mr. Paddy Ashdown (Yeovil)

I tried to jot down the Minister's last words. I believe he said that this was a long-needed advance in consumer protection. I am happy to support that view. The ludicrous state of our law until now has meant, as the Minister explained, that only those who had purchased an item and could prove negligence could claim consequently. An example would be a woman who had bought a defective hot water bottle. She could sue if she was scalded, but not if her child was scalded. In the cases of thalidomide, and, more recently, Opren, people seeking to claim compensation have been unable to do so because of the lack of a compensation provision for third parties. As the Minister has said, this is a welcome strengthening of the Act.

The Minister spent a good deal of time on the state-of-the-art defence. The Minister said that it was at the United Kingdom behest that the state-of-the-art defence was included, and it is that which gives me the greatest cause for concern. There is concern in many areas that this may be widened to include design defects, and the National Consumer Council in its brief expressed concerns which are widely held, and which I certainly support, that this will give the possibility of the reintroduction by the back door of the concept of negligence.

The Minister did not address himself to why we need this provision. He will no doubt know the details better that I do, but we must be just about the only country in Europe to have sought this state-of-the-art defence. In his speech, the Minister said that the reason for it was that if we did not do it it might cut back on some of the development and research in the British pharmaceutical industry. Look at what happens elsewhere in Europe. Germany has a thriving pharmaceutical industry but it has seen no need for a state-of-the-art defence and its industry prospers and survives. The likelihood is that Germany, France and Denmark will derogate from this position and will not call into effect the state-of-the-art defence.

Mr. Fletcher

It will be helpful if I mention the countries which are for and against the state-of-the-art defence. The countries in favour are the United Kingdom, the Republic of Ireland, Italy, the Netherlands, Denmark and Germany—except in pharmaceuticals. The countries against are France, Greece, Belgium and Luxembourg.

Mr. Ashdown

There is a significant schism and the interesting point is that Germany does not seek this for pharmaceuticals, yet it has a thriving pharmaceutical industry. Why does the Minister believe that it is so important for us? Does he not concede that there is a possibility, however strict his definitions, that there will be a back door return to the concept of negligence? Other countries do not have it. Is it not also true that those countries which have the state-of-the-art defence, like Britain, may be used as test beds for research and development?

The Minister mentioned the Pearson commission and I should like to draw his attention to what it said about the matter. It described the position very clearly when it said: to exclude development risks from a regime of strict liability would be to leave a gap in the compensation cover, through which, for example, the victims of another thalidomide disaster might easily slip. Is that not precisely the gap we want to close? The Pearson commission made that point strongly. The Minister gave a brief explanation, which was much too weak and inadequate, about why he wishes to see the state-of-the-art defence maintained. We can give this piece of legislation two cheers, but not three. The inclusion of the state-of-the-art defence means that the legislation has within it a gaping black hole through which it seems quite possible that many cases of injustice and inadequate compensation will slip.

Particularly in the case of another disaster like thalidomide, as the Pearson commission said is it not the case that that defence leaves that massive hole? When the Minister comes to sum up, I hope he will take time to explain to the House why precisely he wishes to see the state-of-the-art defence continued when other countries think it is not necessary and when the Pearson commission in particular has recommended the opposite approach.

8.16 pm
Mr. William Cash (Stafford)

As a recently appointed member of the Select Committee on European Legislation, I am concerned that this directive has been around for many years. The information I have received is that the Select Committee called for a debate. I was not a member of the Committee at the time that happened. In 1980, this subject first obtained in scientific journals the sort of coverage it deserved. Since then, there has been a tendency for the subject to be rushed and I suspect that perhaps what the Minister said about the need for achieving a breakthrough has led to a compromise that will leave many people in industry rather perturbed.

I understand the need for getting on with legislation in the European Community. Apparently, it gets bogged down sometimes, but at times there are important matters of this kind which have been around for a long time, and one is left wondering why the matter has been brought forward and effectively, it can fairly be said, pushed through at short notice after inadequate discussion towards the end of a consultation period. I am informed that, when the previous Minister was considering this matter. assurances were given that the United Kingdom would seek as major objectives, first, the achievement of a common regime and, secondly, as has been mentioned on several occasions, the incorporation of the state-of-the-art defence.

It has also been made clear to me that the present compromise neither adequately safeguards either of those two objectives nor excludes liability for damage to property. As I understand it, the directive will not lead to the harmonisation of European laws. The Minister fairly pointed out that several countries do not subscribe to the directive in its complete form. Therefore, it will add an extra burden to industry and create an uncertainty of approach which is likely to harm further investment decisions.

The main concerns raised with me are, first, that if strict liability without proof of fault is introduced it must be a specific requirement and claimants collectively should prove that the product was defective, that the injury was caused by the defect, and that the defendant was the producer. Secondly, it must also be open to the manufacturer to prove that he did not put the product into circulation, and that if he did the product was not defective when it was put into circulation, or that the product was not put into circulation in the course of business.

It is further put to me that the defence of contributory negligence should be maintained, particularly where it could be clearly adduced that the manufacturer issued with the product clear instructions or a warning drawing the consumer's attention to the need to exercise care in the use of the product. I suspect that those arguments are familiar to the Minister, but what may have gone on behind the scenes and what representations may have been made to the European Legislation Select Committee have not previously been heard in the House.

As I have said before, I am in favour of moving the log jam of legislation which has been snarled up in Europe for a number of years. But there are priorities which must be applied, and it has been put to me most strongly that there has been inadequate consultation in the run-up to the adoption of this directive. Adopting it is effectively what we are doing today. As a new member of the Select Committee, I hope we do not find that the removal of a log jam means that things suddenly get rushed through the House.

This matter has not been the subject of public debate in Britain for five years or more and consultation at the last minute is inadequate. Moreover, the proposed directive does not comply with the Government's previously stated position. The people who are greatly concerned about this would have liked to see the achievement, both in the common regime and in the specific requirement, of the incorporation of the state-of-the-art defence.

I shall be interested to hear the Minister's view. I understand that there are difficulties in getting through directives of this type given the problems in Europe at the moment. However, it has to be done in such a way as to ensure that those who have been consulted in the past are adequately consulted as the matter proceeds to a final conclusion. That is precisely what we are doing in this debate.

8.20 pm
Mr. Teddy Taylor (Southend, East)

It would be wrong to approve the motion without conveying that there is real concern in industry about the proposals in the directive. The Minister mentioned the CBI. It should be put on record that the CBI has made it clear that it believes that the regulations will be contrary to the main policy objectives outlined by the Government and will expose industry to the possibility of precisely that degree of liability that the Government declared was unacceptable.

The CBI also points out that the directive will not lead to harmonisation, though that has been mentioned, that the proposals will mean extra burdens on industry just when the Government are seeking ways to lessen them, and that it will introduce further uncertainties at a time when industry is working hard to remain competitive in the face of increasing insurance and other costs.

There is no doubt about the insurance position. Although the Minister has had consultations with someone, the CBI has no doubt. It says that the directive will involve very substantial additional insurance costs and that it will be very serious for industry

It is not just the CBI that is saying that. Other organisations such as the Federation of British Electrotechnical and Allied Manufacturers' Associations makes it clear that in its view the directive will do enormous damage to its members, to jobs, to profits and to trade. The Minister should make it clear that, although he may think that it will not do a great deal of damage, our major industries, especially those on the heavy side, think that these are very damaging proposals.

It is not just trade associations which take this view. This morning I spoke to people running a number of firms in Southend. If the Minister has any doubt about what industry thinks of the proposals, he should speak to the giant MK Electrical Company, which is greatly concerned that the proposals will have a very serious effect on jobs, on investment, on profits and on its future.

I want to ask the Minister a few basic questions. Why is he so confident that the effects on insurance costs will be marginal? In this connection, I sought the views of the Society of British Aerospace Companies. After consulting top aviation underwriters, the society accepts that for those involved in the production of boots or blankets, for example, there will probably not be an enormous difference in insurance costs, but for anyone involved in a technical or developed product in a special or high-risk industry such as aerospace there will be a devastating effect on insurance premiums. The society—not one or two renegades in it but a society which represents British aerospace—has made it clear that not only does it think that these proposals will add enormously to the insurance costs of its members but that in some cases there will be great difficulty in getting insurance cover at all.

It must also be made clear that we are not achieving a great deal, if anything, by these proposals. We shall not get the famous harmonisation which the Common Market is obsessively keen to secure. These are not harmonisation proposals. Countries will still be different.

The Minister also said that we had the protection of the state-of-the-art defence, that the Government thought that this would be a good idea and that we should see it within three years. But let us add three years to 1985. In 1988, although I hope that it will not happen, we could have a different Government. We might have a Labour Government. By and large, the Labour and Conservative parties, in different ways, are concerned for the welfare of industry. I do not suggest that Labour does not care because in a different way the Labour party cares a great deal about jobs and investment, just as Conservatives do. But we also have these strange creatures, the Liberals, who pop into debates such as this for five minutes, speak from a Consumers Association brief and then disappear. It should be recorded that when we are debating a very important motion which will affect the future of British industry, jobs and investment, there is no one present to represent the Liberal party and no one from the Social Democratic party. Instead, a representative popped in to say that the Consumers Association was a grand idea, and then shot out to have a cup of tea. The hon. Member for Yeovil (Mr. Ashdown) said that the Liberals believed that the Government should drop the state-of-the-art defence.

Although I know that the chairman of the Conservative 1922 Committee and all members of the party will fight hard to make sure that we have a Conservative Government next time round, it is just possible that, because of events outwith our control, there will be a change of Government. If the Liberals and the Social Democrats held the balance of power, they could say that one of their conditions for doing a deal with one of the major parties would be to drop the state-of-the-art defence. That would have a devastating effect on industry and on jobs in any company involved in technology or heavy industry. To that extent, it is desperately important for the Minister to realise that here we have uncertainty, which is the one thing that we do not want at present, as the CBI says.

Within the three years of implementation, we could have a change of Government. We could just have the alliance, which wants to drop the state-of-the-art defence, having effective control by holding the balance of power. What, then, would be the position of industry? The Government are bringing in uncertainty for industry at the one time that it does not want it.

There is a second uncertainty. In 10 years, this directive is to be reviewed by the EEC Commission. At that time it will review how the derogations are working out. We know that all kinds of exciting developments are expected from a conference on a treaty of European union and more majority voting. As I understand it, the Government's position is that we do not want a treaty but that we want to see more majority voting. My hon. Friend the Member for Stafford (Mr. Cash), who spends all his time studying European matters, will confirm that the British Government accept that any review will be done by a majority vote. So far the majority of the European nations—and certainly they will by then—think that the state-of-the-art defence is one that they are not too keen about in Britain's case. We could in 10 years' time find the state-of-the-art defence being thrown out simply because of a majority vote. Even if the 630 Members of this House say that we do not like it, it will not matter two hoots.

Mr. Cash

I should point out that I have on a number of occasions expressed my disquiet at some aspects of the Dooge report and also at too rapid a movement to majority voting. I have gone even further and said that I have grave reservations about it.

Mr. Taylor

I am delighted to hear that. My hon. Friend is one of the sincere hon. Members present. He is saying that he does not like the Dooge report and that he does not like majority voting. But I am saying that he will be able to do nothing about it, apart from complain, in a few months. He knows that we have a vote about the extra cash, which means the end of reform of the EEC. We are now going on to discuss extra majority voting. More and more Conservatives are saying that they are not happy with the way that the Common Market is working. They do not like the jobs that it is losing for Britain. They do not like the extra taxes. They are worried about the effects on industry. It goes on and on.

With this directive the Commission will have the power to propose to the Council of Ministers that by a majority vote the state-of-the-art defence will be got rid of. If that happens, it will be a bad day for British industry.

If there was any doubt that this directive would be damaging to industry, that the Department was right and that it was not so bad after all, I think that we saw that it was likely to be gravely damaging when the Common Market decided to leave out agriculture. Whenever agriculture is exempted we know that it must be something nasty. For example, rates are a terrible burden but agriculture is exempted from paying rates. If anything is particularly bad or nasty, one usually finds that agriculture is exempt. Although we are told that this measure is needed to protect European consumers, agriculture is exempt. Can the Parliamentary Under-Secretary say what is meant by the exclusion of primary agricultural products? I think it means that foodstuffs are not exempt if it can be proved that they have undergone industrial processing which causes a defect. If, therefore, people are poisoned or deformed as a consequence of a primary agricultural activity it will not be possible to make a claim against those who produced the food. Only if somebody puts paper around the food which is found to be defective can a claim be made.

Mr. Cash

I refer my hon. Friend the Member for Southend, East (Mr. Taylor) to the explanatory memorandum that is attached to the amendment to the proposal which sets out the reasons why it appears to be justified to exclude primary agricultural products. It says: This is by way of contrast to agricultural products industrially produced because strict liability for defects in such products which have been caused by factors extraneous to the activities of agricultural producers could be too onerous without adding why. Such an exemption is even admissible from the point of view of consumer protection for it says that the formulation of the amendment under the present directive when read with article 11 does not exclude liability for fault which generally speaking will not be impossible to attribute. If my hon. Friend can make sense of that, I shall welcome his comments.

Mr. Taylor

What they are saying is quite clear: that it could be too onerous. In other words, if this is applied to agriculture, it could be too onerous a burden for agriculture to carry. But what about British Aerospace? It is not provided with the same protection and subsidy as is provided for agriculture. And what about heavy industry and engineering? It worries me intensely that a Government who are concerned about looking after the interests of British industry and British jobs sadly do not seem to care about them so much whenever agriculture is at stake. It is said that agriculture cannot be allowed to suffer damage. If the Parliamentary Under-Secretary of State thinks that agriculture is so important, what protection will be provided for people who are deformed or damaged because of the various chemicals that are used in agricultural production? As my hon. Friend the Member for Stafford said, the only reason for the exclusion of agriculture is that the liability would be too onerous for agriculture. If it is too onerous for agriculture, what about other industries? Are we not concerned about investment and jobs in British Aerospace, engineering and the whole gamut of British industry?

The proposals will achieve nothing of value. We are not even getting the harmonisation which the Euro-nuts want that would help trade. The proposals will simply add to the burdens placed upon industry and, far more important, will add to the uncertainties faced by industry. Once again we are introducing something that is completely unjust. We are piling further burdens upon industry without putting any extra burdens upon agriculture. It is tragic that something that is so devastatingly bad for British industry and that contains all these wide implications of uncertainty is being debated in a House which, admittedly on a special night, is not quite so full as it should be. If hon. Members knew what was involved and were to think about their effects, these regulations would be thrown out very quickly, whether or not, as is still the case, members of the Liberal party and the Social Democratic party were in attendance.

8.34 pm
Mr. Peter Griffiths (Portsmouth, North)

It is always difficult, in legislation of this kind, whether it originates in the European Community or in this country, to obtain the right balance between obtaining protection for the consumer, which is one of the primary objectives, and avoiding placing upon industry any burden which would make it more difficult for it to provide jobs and compete in the world. We must ensure that industry is not faced with additional costs, when it is the avowed intention of Her Majesty's Government to seek ways in which to reduce complications and costs for British industry.

Mr. Cash

"Lifting the Burden" has just been published and contains a section relating to European regulations. Does my hon. Friend think that this subject ought to be referred back for further consideration?

Mr. Griffiths

My hon. Friend is right. At this point, however, I am simply accepting that we need to obtain a balance between these considerations and protection of the consumer. One of the problems which during the last few years has made the discussion of consumer protection more difficult has been the number of extremely tragic and highly publicised disasters which have been caused by pharmaceutical products. The result has been a particularly strong demand for consumer protection, which has led to the House being in danger of imposing upon industries far wider than that particular sector a burden which is both unnecessary and unhelpful.

In general, industry likes certainty. It likes to know what its position will be in a variety of markets. If these proposals were to lead to harmonisation, I should support them. I, like my hon. Friend the Member for Southend, East (Mr. Taylor), do not support harmonisation for its own ends. Nevertheless, harmonisation of matters of this kind would result in many advantages. It is not simply a question of competing with firms which operate in countries with different legal fegimes. We are also trying to sell in those markets, so we are subject to the national laws of those countries. Harmonisation would therefore be desirable, but unfortunately we are not debating a measure that will result in harmonisation. It will create a new set of uncertainties to replace the existing uncertainties. One wonders whether there is a case for saying that if we cannot have harmonisation it would be better to leave well alone.

I remember that I said a good deal of what I am saying now in our 1980 debate. I congratulate my hon. Friend the Parliamentary Under-Secretary of State for Trade and Industry on the fact that tonight he is able to bring back the fruits of his predecessor's promise: a firm adherence to the principle of a state-of-the-art defence. I wish that the hon. Member for Yeovil (Mr. Ashdown) had remained in the Chamber after making his speech because, if nothing else, he and I have one thing in common. Both he and I have within our constituencies parts of the Westland organisation.

I listened with blank amazement to the hon. Gentleman opposing a state-of-the-art defence, when the subsidiary of Westlands in my constituency is one of the strongest and most vociferous companies impressing the need for a state-of-the-art defence if we are to maintain our position on the frontiers of research and development, particularly in developments in the aircraft and aerospace industries, and also in the development of composite materials, since it is difficult to know in advance how these materials will operate in long-term use. It is essential that a firm knows that state of the art can be put forward as a genuine defence if a defect arises which could not have been foreseen at the time of manufacture because we did not have the scientific ability to recognise it.

I congratulate my hon. Friend the Minister on the fact that that problem has been taken on board, but, like my hon. Friend the Member for Southend, East, I am alarmed that there is a possibility that not only may we find that after 10 years some countries have opted out of accepting that defence within their national boundaries, but that the EEC could decide that the defence should not be accepted in the harmonised legislation which we hope to see at that time. That would be worrying not just in 10 years' time, but in the intervening period, because it is not possible for industries to know in advance what will happen. We are not getting the certainty that we seek.

My hon. Friend the Minister said that the brief that hon. Members had received from the CBI did not show any great expertise in insurance matters. Surely no one would wish to suggest that the CBI does not have that expertise. If the confederation says that there may be cost burdens and additional factors of competitiveness, that should be considered as the view of a respected and responsible body. I wonder whether my hon. Friend meant what he said. Perhaps he would like to rephrase his comments.

I had hoped for a much better agreement from the EEC on harmonisation, based on the general attitude taken by our Government. Aparently that has proved impossible, and I congratulate my hon. Friend on what has been achieved. I hope that our representatives will continue to watch over the interests of British industry in the next 10 years and ensure that we do not have harmonised difficulty to replace existing uncertainties.

8.43 pm
Mr. Gerald Howarth (Cannock and Burntwood)

I agree with my hon. Friends that the proposal has been rushed through. Industry is unhappy about it, particularly because of the short notice at which the debate was arranged.

Following what my hon. Friend the Member for Southend, East (Mr. Taylor) said about the Society of British Aerospace Companies, I stress that it represents the whole range of aerospace companies, including Short Brothers and Rolls-Royce, as well as British Aerospace and all the major and minor subcontractors. Those companies have not been consulted about the detailed provisions of the directive. They say: While the various drafts in recent times have been handed around in most other Community countries they have only been shown to SBAC in strict confidence". I understand that open government is operated in Brussels. A hallmark of our Administration has been their concern with open government, but that does not appear to have operated in this case, and that is regrettable. It seems that the proposal will go through, but I hope that the Minister will note that this is not a happy way to proceed.

I welcome the fact that the Minister has ensured that importers will be subject to the same conditions as British industry, but I should like some clarification from him about what will happen when an imported product—a domestic toaster, for example—becomes defective, causes injury and someone sues for compensation.

Unlike the manufacturer, the importer may have only a small operation with £100 capital and his business may merely be importing goods, selling them and making a return on the way. What recourse will the consumer have? What recourse will he have if there is a defect in an imported product that is handled by an importer of insufficient standing? What requirement will there be for small importing companies to insure themselves so that funds are available to meet claims?

I declare an interest as the parliamentary adviser to the Electric Cable Makers Federation. Manufacturers of cable are extremely worried about the implications of the proposal. They produce the cable that goes into appliances such as domestic toasters. If a toaster causes injury, will a cable manufacturer who has merely provided the cable be joined in an action and be subject to unlimited liability, even though his product meets British standards? All British cable meets British standards. However, an imported appliance, to which cable is attached, may not meet British standards and a United Kingdom cable manufacturer could be joined in an action.

I apply that analogy to the aerospace industry. An aeroplane is an amalgam of thousands, sometimes millions, of components. What will happen if a claim is made against a manufacturer who has incorporated a component that has become defective, notwithstanding the fact that it meets all British standards? Will the manufacturer of the plane be liable? Will he be liable if the component comes from overseas? Planes are seldom made from components from only one country. Equally, could a manufacturer of one component be liable for the failure of others? For example, could the manufacturer of the undercarraige be joined in an action because an aeroplane crashed owing to a fault in the navigation system?

Those are serious questions and I have touched on them only briefly. I hope that the Minister will be able to answer some of them, because there is anxiety on the Conservative Benches that the proposal is being rushed through and that it will have serious consequences for British industry, not only in terms of jobs, but in terms of insurance costs. I hope that my hon. Friend will be able to reassure us.

8.50 pm
Mr. Roger King (Birmingham, Northfield)

It is difficult to be a small business man these days. The laws and regulations which are constantly brought before the House make it even more difficult. Large corporations have the funds and resources to take on the challenge of producing high quality products. The smaller manufacturer, employing 20 or 30 people, has severe difficulty in producing the right type of quality products. Under this legislation his task will become more difficult.

I speak from experience because in the late 1970s my small company, employing 25 to 30 people, earned a living producing replacement road wheels and car seating for motor cars. The company exported to Japan, the United States and to most European countries.

The problem particularly in America in the late 1970s when product liability was the in thing was that enormous claims were brought against companies such as General Motors and Ford in respect of cars produced 20 years before, after their occupants had been killed in bad crashes. That trend filtered through to the suppliers of accessories such as my firm. Our insurers were hesitant to underwrite us and our products because they argued that, even though we might have tested our products efficiently, given the levels of testing available on this side of the Atlantic, we did not oversee the fitment of the product to the vehicle. The insurers asked, if our product was all right and the car into which it was put was all right, who would be liable for the fitment if all we did was supply the component and the owner fitted it himself. If our product failed, would we be able to fall back on its being incorrectly fitted? It was a grey area which we never resolved because it seemed that everyone successfully fitted our product.

I hope that the legislation will impose some control over the vast quantity of imported products that enter Britain, particularly spare parts. I have in mind alternators, generators, brake systems, brake pipes and so on which are made in the far east and which are packaged in boxes identical to those used by reputable companies in Europe. Even the names are the same. They are sold here under household names. The products are made to reasonable standards and are good copies, but they are liable to failure. I hope that the legislation will bar scurrilous producers in the far east who seek to gain opportunities here and in Europe by peddling components.

The American experience of unlimited product liability was unhappy initially, and I am worried about the state-of-the-art provision. In two or three years perhaps the users of cars produced today may complain if a vehicle is rammed in the side and a fatality occurs. There is no current statutory requirement to side-impact test a car. Front tests into a concrete block are required and most manufacturers ensure a rear shunt test. The side impact test is voluntary.

The American experience shows that it is possible to challenge manufacturers in respect of that which they did not find necessary. The situation is dangerous enough for the small manufacturer, but it is fraught with difficulties for the larger company. Legions of lawyers seek to exploit opportunities to bring large manufacturers to account for tests which they were not aware had to be undertaken. Fortunately, the British and European motor industries have to be competitive to stay in business. Their products have to be extremely well made and engineered; if they are not, they will get a bad name and lose in the market place.

If we are to have rules in Europe, they should help our industry and discourage importers from selling inferior products here. Harmonisation is a small step in the right direction.

8.55 pm
Mr. Alan Williams (Swansea, West)

I approach the order in the role of gamekeeper-poacher as one who was Minister responsible for consumer affairs when discussions began in Brussels in the mid-1970s and who subsequently became the Minister responsible for manufacturing industry.

It is strange that 10 years after the consultation began complaints are being made about lack of consultation. Lest the Minister thinks that he has found an Opposition ally, I must add that, paradoxical though it might seem, his hon. Friends have a legitimate point.

The CBI says that the recent changes have been so sudden that it has not had an opportunity to comment on them adequately. I received a brief early last week from a European consumer group explaining why it thought it wrong that the Government should change its position and allow exemption for the Food Manufacturers Federation's clients. About 48 hours later I received a draft document which said that those clients were now omitted from the legislation.

I received a telephone call today from the Associated British Chambers of Commerce saying that not only had it not been consulted but that it was able to find information only by borrowing a copy of the directive from the CBI. It was in a desperate position, being unable to brief anyone because it had not had time to deal with the changes.

My hon. Friend the Member for Newham, South (Mr. Spearing), a member of the Select Committee on European Legislation, brought to my attention a comment in a report by that Committee which stated: The Committee have not had time to consult those who submitted written evidence in respect of the original draft Directive. This would in any event have been difficult as no official text of the revised version of the text is available. Our watchdog Committee set up to ensure the proper scrutiny of European legislation did not even have a copy of the legislation about which it was supposed to advise the House.

The peculiarity of the Government's position was demonstrated by the fact that I encountered the document at about 5.30 in the evening with a note saying that the Government Whips wanted clearance to put the matter in the hands of a Committee upstairs. I protested because the issue is far too important to be dealt with tucked away cosily in a Committee from which the hon. Member for Southend, East (Mr. Taylor) would probably be excluded. However, it is not for me to cause mischief between the hon. Gentleman and his Minister. I am sure that he is perfectly capable of creating his own mischief. It so happens that in this case, as with the case of the scented erasers, the hon. Gentleman has a valid complaint about the failure of the Department to carry out consultation on its final proposals. That is the important point. It is all well and good having consultations on the early stage proposals, but the final proposals are those that are likely to operate. Therefore, it is especially important that everyone who has a point of view, especially hon. Members, should be fully up to date on what the Government have in mind.

The point against the Government in their lack of consultation during recent weeks and the attempt to bounce this provision through the House is justifiable—

Mr. Nigel Spearing (Newham, South)

Is my right hon. Friend aware that the House, through its Standing Orders, has made specific provision that if an EEC document is sent upstairs to Committee any Member of the House, even if not a member of the Committee, can participate in that discussion although he may not vote? I mention that because it is a procedure that gives some safeguard—but not, as my right hon. Friend said, as great as having a debate on the Floor of the House.

Is my right hon. Friend further aware that there has been an increase in frequency in the work of the Scrutiny Committee where there has been an early proposal that is changed quite drastically at a fairly late stage in the deliberations in Brussels, providing the sort of situation facing the House tonight? I have one caveat—frequently that is done by other institutions in Brussels because other nations do not have the sort of scrutiny of their national Parliaments that we have instituted in this House.

Mr. Williams

I am most grateful to my hon. Friend for that additional information. I fully appreciate his point about hon. Members being free to attend Committees. I strongly suspect that, in the context of the earlier order to which I referred, the hon. Member for Southend, East (Mr. Taylor) found that in his notification of business for the coming week the relevant item had been erased with one of his perfumed erasers.

We must recognise that there is a difference of interest, inevitably, and also a community of interest between consumer and producer. A consumer wants a product that is safe and as cheap as he can get it, and also wants to be sure that he can be adequately compensated—he does not care who compensates him—if the product should, unfortunately, be defective.

The producer wants maximum productivity. He wants to be able to innovate his product and to have predictability in the marketplace. The Community wants the best of all worlds. It wants the maximum wealth production that can be obtained from the manufacturing sector.

For the consumer, the position has become increasingly difficult. That is not a recent development—it has been the inevitable development of the economic system and the system of production. Products have become more complex—scientifically and technologically and in content and composition. It is therefore virtually impossible for the consumer to assess a product when he buys it.

As a result of the use of sampling techniques in product quality control, there is a risk of errors slipping through the productive system and the consumer becoming the tester of the product—something with which the purchasers of new cars have become thoroughly acquainted. As companies become more international, it becomes increasingly difficult for the consumer to mount an effective case, especially if he has to prove negligence, as he currently must do under our system. Not only is he up against a massive multinational, but one that has, possibly, most of the expertise in the field, the ability to pay for top lawyers and the resources to mount such an expensive law case that it frightens away potential claims. Therefore, the consumer is at a massive disadvantage, something with which the legislation is intended to deal.

It is a little nonsensical that, if a woman purchases an electric kettle and suffers a severe electric shock, she has a strict claim against the seller of the product. Yet if a member of her family, who did not actually purchase the kettle, experienced a similar shock and injury, he would not have the same rights.

Therefore, the law that gives a consumer any defence against the provision of defective products is paradoxical, anomalous and unfair. Thalidomide was the spur that triggered the investigations that led to the current proposal.

As the Consumers' Association has pointed out, because of the escape clause that the Government are providing, even after this legislation is enacted, in the event of another thalidomide tragedy, there will still not be an easier case for the consumer than there was when the concern arose more than 10 years ago. It will be of no help to the victims of Opren who—with 65 dead and more than 3,500 having suffered side effects—are still trying to obtain compensation and recognition from the producer of that defective drug.

There is, clearly, a difference between the Government Front Bench, the Back Benches and the CBI on this issue. The CBI has said that insurance will be a major factor which will add massively to costs. That seems to differ from the view of the insurance industry. Insurers have suggested that they could cope perfectly well with a system of strict liability, even if it meant doubling producers' insurance costs. It is estimated by the insurance companies that this would only increase the actual cost of insurance from 0.01 per cent. of turnover to 0.02 per cent. That was stated in evidence by the Commercial Union Assurance Company in March 1979 to an international conference on pharmaceutical product liability. Further, the Royal Commission on Civil Liability concluded: we have no reason to believe that the total effect of introducing strict liability would be more than a small proportion of product costs as a whole. We think this is a justifiable price for consumers and producers to pay for the benefits which the victims stand to gain by it. We may be told to consider what happens in America, where cases involving massive sums have occurred. The Minister did not go into the detail on that, but there are valid points to bear in mind, such as the fact that the Americans operate a different system. Damages in that country are set by juries, which are notoriously generous to victims. Here, the reverse occurs, with damages set by judges, who are notoriously mean to victims and their dependants.

Mr. Teddy Taylor


Mr. Cash


Mr. Williams

When I have finished making this point, I shall give way to both hon. Gentlemen, who can, if they wish, jump to the defence of the CBI.

The second difference between this country and the United States is that there is an inducement for people there to take action because of the contingency fee system that operates in their legal system. There, it is in the interests of a lawyer to look for a wrong and then find a victim of it, in the knowledge that the lawyer will get a cut if he manages successfully to claim from a company or any other defendant, and the more he gets, the bigger his share.

Nor must we forget that in America much of the extra cost has arisen because of what has happened in the medical sphere. Because of the existence—while it is allowed to survive—of the National Health Service in this country, that is less of an element in manufacturers' costs. However, as the Government achieve success with the spread of private medicine—inadequate though it has proved to be, with its lack of back-up and so on—that aspect will cause manufacturers more concern than has been the case in Britain in the past.

Mr. Teddy Taylor

If the right hon. Gentleman is saying that insurance costs are a negligible part of overall costs, he should consult overseas. Will he accept that every insurance company and every underwriter would agree that to increase insurance costs to the extent that the right hon. Gentleman has described would not have a great effect on articles such as shoes, books and hats? However, it would have a devastating effect on products such as aircraft or anything involving advanced technology. The increase in costs would be enormous. The increase in costs might be such that the market might not be able to carry the load. This is being said by underwriters and by the industries that will have to bear enormously increased costs. I ask the right hon. Gentleman to accept that there is a danger of a substantial increase in insurance costs for companies that manufacture complex products.

Mr. Williams

I am interested in the hon. Gentleman's argument. If the information is available, it is a pity that it was not put before us this evening so that we could judge it for ourselves. The findings of the Royal Commission and the evidence that has been given by insurance companies seem to conflict with what the hon. Gentleman is saying, but no doubt he knows better than they.

Mr. Cash

I remind the right hon. Gentleman that awards made by judges recently have been increasing significantly. There is something slightly unreal with the American analogy. There is a tendency for a significant increase in the amounts that are being paid out by our courts. This is a factor that will have to be taken into account in future.

Mr. Williams

I am only too happy for consumers that there is such a trend. Even if the hon. Gentleman considers comparisons at the higher levels, as he describes them, he will find that there is an enormous gap between levels in the United Kingdom and those in the United States. In fact, there is no basis for comparison.

I recognise that it is difficult to advance an argument on development risk. However, the Minister eloquently argued on behalf of manufacturers running small businesses. He did not argue on behalf of those running small retail businesses. When referring to the impact of the proposals on small manufacturers, he was describing the fate of small retailers, which will continue until the measure is introduced. That seemed to cause him no deep concern.

Does industry have the right to use the consumer as a guinea pig or as a testing area? The hon. Member for Southend, East shakes his head. I shall present him with an exact example. It is easier to carry out medical experiments on animals in the United States than it is in Britain. On the other hand, it is easier to carry out experimentation on humans in Britain than in the United States. That is the result of the United States strict liability legislation. The Germans have recognised that and they do not want Germany to be used as the test ground for large drug companies. That is why they have introduced strict liability legislation for the manufacturers of pharmaceutical products.

Some of the scare stories do not always bear close analysis. The Japanese Government, for example, have introduced legislation that leads to the withdrawal of products that are deemed to be unsafe. At the beginning of a 10-year period, the Japanese were producing 1 per cent. of new drugs but now, 10 years later—this is despite tighter legislation—they are producing 20 per cent. of new drugs. I suspect that the purpose of many scare stories is to try to frighten us rather than describing what is likely to arise.

The proposals before us would impose a duty on manufacturers to improve the quality of their products. Manufacturers will always tell us that they cannot meet higher quality standards. I remember an occasion when the British television industry was trying to secure sales of components to Japanese television producers in Britain. The British industry argued that the Japanese were sheltering behind a restrictive practice in demanding such high quality of product and component. Eventually, the British manufacturers met the revised standards. That has helped their own component manufacturing. I question whether the consumer should be used as an alternative to proper quality control and quality testing.

First, where does the responsibility lie when a component of a product is defective? Is the case against the producer of the component or against the producer of the consumer product? I assume that it is against the latter, who in turn will have a fall back against the component manufacturer. I do not know, and it is important that we should have an answer. Secondly, if, for example, a product is produced in Taiwan, the British consumer will have no case against the producer. However, will he lose the protection that he has at retail level against those who supply the Taiwanese product?

In France, there is a strict liability. Does the British consumer who suffers damage from a French component get the benefit of the French system and therefore have a claim against the producer of an advanced technology product that in this country would use the state-of-the-art defence, or does the British consumer suffer the disadvantages of the system that we shall be operating?

In saying that we give this proposition a fair wind, we recognise that there is a right of derogation and the possibility of review after 10 years. The Government have, however, been rather ham-handed in the way that they have steamrollered this through the House. Had they had proper consultation with the industry and their Back Benchers, there might have been better good will in the House.

9.17 pm
Mr. Fletcher

With the leave of the House, Mr. Deputy Speaker, may I say that I welcome the views expressed by hon. Members on both sides of the House. As the right hon. Member for Swansea, West (Mr. Williams) said, this directive has been around in some shape or form for about 10 years. Industry and other interests have been consulted extensively during this period and, following a comprehensive consultation on the 1979 draft, informal exchanges of view have taken place periodically as discussions on the directive progressed. I had a further meeting with the CBI just a few weeks ago.

Although a formal round of consultations on the latest version of the draft was not possible, the points made by the industries consulted over the years were taken into account in the recent redrafting of certain details of the text. Further consultation with interested parties will take place before the implementation legislation is introduced. No one who has been involved in consultation over the years should have been taken by surprise by the contents of the draft.

We have had repeated meetings with the Society of British Aerospace Companies. My hon. Friend the Member for Southend, East (Mr. Taylor) asked me to confirm that, and I do so. The Scrutiny Committee has already considered this subject more than once and a full explanatory memorandum, together with the revised text of the directive, was provided to the House on 1 July, as the right hon. Member for Swansea, West, will know.

I am surprised that the hon. Member for Yeovil (Mr. Ashdown) does not support the development risks defence. I cannot understand his unwillingness to accept that companies should not be expected to carry responsibility in cases where the extent of technical knowledge at the time the product was distributed could not have detected a defect in the product.

As I understand from my hon. Friend the Member for Portsmouth, North (Mr. Griffiths), he and the hon. Member for Yeovil share the Westland company. I do not know what consultation the hon. Gentleman has had with that firm, but I should be surprised if it had not urged him to support the development.

Mr. Ashdown

The Minister will know that we are all subject to a good deal of lobbying, which we accept or reject according to judgment. Does he agree that the state-of-the-art defence is not seen to be required by the German pharmaceutical industry, and that even the German compensation laws are stronger than ours in that they require proof that it was not the manufacturer's defect? Does he further agree that the state-of-the-art defence, which he has allowed to be included, would not protect consumers or those who suffer in cases such as those involving thalidomide or Opren? Is he aware that that is the black hole to which we object?

Mr. Fletcher

I was about to deal with pharmaceuticals in Germany. A defective drug in this context will be one which does not provide the safety which can reasonably be expected of it, taking all of the circumstances into account, including its presentation—labelling, warnings, instructions and manner of marketing. My hon. Friend the Member for Stafford (Mr. Cash) talked about reasonable use, although not just in terms of pharmaceuticals. Unreasonable use of a product would be a defence.

A drug would be judged by many factors in addition to its intrinsic chemical and physical properties. It would be for the courts to decide whether a drug is defective in the circumstances of each case. Factors such as the seriousness of the disease being treated and the correlation between estimated benefits and estimated risks will be relevant.

Some people might argue that development risk defence emasculates the directive's provision for strict liability in respect of drugs and that it would let a modern thalidomide off the hook. It should be remembered that the test of the state of scientific and technological knowledge at the time is tough and dynamic. Given our existing knowledge, the manufacturers of thalidomide or of any other product likely to be given to pregnant women and which had not undergone adequate pre-clinical tests for teratogenic potential could not claim the development risk defence if they were to be on the market today. That is the best advice that I have and that I can give the hon. Member for Yeovil.

The regime in Germany does not have development risk defence, but its definition of a defective product contains some of the elements of the state of the art. It is not quite such a black and white comparison as might be suggested.

Mr. Ashdown

I apologise for pushing the Minister further about thalidomide, but I am sure he is aware that it is a matter of great concern. He carefully applied two different time contexts and said that we now have better means of checking products. If another thalidomide case came up under the state of the art, would not those who suffered be covered? Yes or no?

Mr. Fletcher

The hon. Gentleman is presenting his argument starkly and somewhat alarmingly. The directive would go a considerable way to prevent a recurrence. I cannot give a yes or no answer in such circumstances. The directive goes some considerable way to meet the alarm which the hon. Gentleman mentions—an alarm which should not be lightly raised in such matters.

My hon. Friend the Member for Stafford mentioned a provision on contributory negligence, especially when warnings are properly given. There is a provision in article 582 for contributory negligence. The importance of warnings and other aspects relevant to the presentation of the product is pointed out in the definition of "defective product" in article 4. I hope my hon. Friend finds that helpful.

I should like to refer to my hon. Friend the Member for Southend, East and his attack on the agriculture industry, or the fact that it is not included in the directive. In my opening remarks I gave the reason why. The exemption was considered necessary because farmers could not be expected to take responsibility for the vagaries of the climate, the soil and pollution caused by extraneous factors outside their control, all of which can cause the product to be defective. However, if it goes through any industrial processing, it comes within the terms of the directive. The producer of processed foods would have recourse against the supplier of defective meat, not under those terms, but under the normal contract. For example, if someone canning salmon or beef received a consignment that was off, he could take action against the supplier under normal contract terms.

My hon. Friend was also firm in his comments on the aerospace industry. We accept that there are good arguments for a common regime without any derogations. That is what we are trying to achieve. We can see its importance, not least in the aerospace sector itself, which is international. The composition of the product, like the market, is almost certain to transcend national frontiers. However, the same can be said of other sectors that are dealt with in the directive, such as shipbuilding, drugs, computers and so on.

I have to disagree with my hon. Friend when he says that the increase in insurance on aircraft would be devastating. If that were the case, the United States aircraft industry would have gone to the wall a long time ago. I see no reason why he should assume, in terms of insurance costs, that anything devastating would happen to our aircraft industry. That is one of the reasons why I criticised the comments made by the CBI about the cost of insurance. I do not believe that those exaggerated comments are justified.

Mr. David Mudd (Falmouth and Camborne)

Can my hon. Friend help us in establishing the truth on the likely increase in insurance costs for the aerospace industry? Has he had any discussions with insurers and can he give us an idea of his views on that?

Mr. Fletcher

I shall make some further comments on insurance in a moment. I wanted to refer to the point made by my hon. Friend the Member for Southend, East.

Our evidence on insurance and the evidence collected by the European Commission came from 35 industrial sectors and conflicts with the remarks made by the aerospace industry itself. We believe that we have gone round all the industries with which we could reasonably discuss the matter and obtained their views as well as the views of the insurance industry, taking into account the situation in other countries and the regimes in those countries affecting product liability.

My hon. Friend the Member for Southend, East also referred to the absence of proper harmonisation creating uncertainty. We believe that the proposed package provides greater harmonisation and certainty and that it is the only realistic alternative to continuing to debate the matter, as we have done for many years, or taking the path of no harmonisation at all. That may suit my hon. Friend, but the Government could not support that view.

Mr. Teddy Taylor

My hon. Friend said that he was not creating uncertainty. Does he accept that the derogation can be overturned by a majority vote in the Council of Ministers in 10 years' time, whether or not the Government want it, and whether or not 630 Members of Parliament vote against it? If that is not uncertainty, what is?

Mr. Fletcher

I do not accept that the derogation could be overturned by a majority vote in the Council, because under article 100 of the treaty a unanimous vote is required. [HON. MEMBERS: "Will the Minister stick to that?"] Yes, of course I stick to that. I cannot foretell what changes will take place in the Community during the next 10 years, but any changes would require a unanimous decision. Clearly, my right hon. and hon. Friends, who will consider these matters at a conference which will take place shortly, will take into account, not merely the immediate position of the United Kingdom, but matters concerning our future.

Mr. Cash

As my hon. Friend says, the directive is introduced under article 100, which deals with the harmonisation and approximation of laws, as set out in the title to the debate. I am puzzled that harmonisation under article 100, which requires unanimity, could be changed only if at a subsequent date the voting arrangements in the treaty were amended. What is the point of introducing a provision under article 100 in an attempt to achieve harmonisation when, by virtue of what my hon. Friend has said, it is clear that many member states are not prepared to accept the provisions of the directive? It leaves me with a degree of disquiet that we are following the route of article 100 when the objectives of the directive are not accepted by member states.

Mr. Fletcher

The objects of the directive are accepted by other member states. Two derogations hav e been agreed—one on financial limits, and one on development risks. My hon. Friend will not wish to exaggerate the position, because the directive achieves considerable harmonisation on product liability within the Community.

Mr. Teddy Taylor


Mr. Fletcher

I am trying to answer all the questions that my hon. Friend the Member for Southend, East asked.

Mr. Taylor

This is my last question. My hon. Friend explained that at present article 100 regulations are subject to unanimous vote, which is an important safeguard. The Government put forward proposals to the Council of Ministers about reducing the impact of the veto and said that we would agree to remove the veto on many issues, except those involving a supreme issue of national importance. Will he assure us that article 100 of the treaty will still require unanimous consent? Is that the Government's position?

Mr. Fletcher

That is the present position. My right hon. and hon. Friends are probably going into discussions on these matters, and I cannot say during this debate what position they will take.

My hon. Friend the Member for Southend, East asked what would happen in the next 10 years if there were a change of Government. I am sure that he can think of many actions which a Labour or Lib-Lab Government could take which would be much more damaging to British industry than changing this directive, which they could do. Indeed, if one is producing a list of the damage that such a Government could do to British industry, one would not begin with the subject under discussion this evening.

My hon. Friend the Member for Portsmouth, North supported the directive, and I am grateful for that. He was worried about what might happen during the next 10 years. I believe that I have just answered that point. He and my hon. Friends the Members for Cannock and Burntwood (Mr. Howarth) and for Birmingham, Northfield (Mr. King) asked whether there might be a burden on business. I answered that point in my opening speech, when I said that it is not an unnecessary new burden on business. It merely corrects an anomaly in existing law and puts the large manufacturer and the importer on the same footing as the small retailer. That point was made by the right hon. Member for Swansea, West. My hon. Friends seem to have forgotten that the small retailer is already subject to strict liability under the law of contract.

The question which the House will wish to address in concluding the debate is: who benefits from the directive? The consumer will benefit from the injection of certainty into this area of the law throughout the Community, and will benefit especially from the ability to claim compensation without having to prove negligence. Retailers will benefit, to the extent that consumers will now be able to sue the manufacturer of the product, or the importer, direct, whereas at present only the immediate supplier—usually the retailer—is strictly liable for defective products.

British industry will benefit from the clearly stated development risks defence. Although it will not be given the protection of that defence in export markets, where the importing country does not have such a defence, British industry may have a slight advantage over its competitors in that it will be protected from development risk liability in its domestic market.

Question put and agreed to.

Resolved, That this House takes note of European Community Document No. 9427/79, draft Directive on the approximation of the laws, regulations and administrative provisions of all Members States concerning liability for defective products and of the Explanatory Memorandum by the Department of Trade and Industry dated 1st July 1985; and supports the Government's intention to have the Directive adopted at the earliest opportunity.

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    4. AGRICULTURE 47 words