INTER-COMMONWEALTH TRADE

HL Deb 02 April 1952 vol 175 cc1288-327

2.39 p.m.

LORD BALFOUR OF INCHRYE rose to call attention to the desirability of amending international agreements entered into by Britain which, in their present form, have the effect of limiting the extent and restricting the development of inter-Commonwealth and Colonial Empire trade; and to move for Papers. The noble Lord said: My Lords, I rise to move the Motion standing in my name on the Order Paper. I think there is no difference in any quarter of your Lordships' House as to the desirability, in general, of expansion of inter-Commonwealth and inter-Imperial trade. Indeed, the issue that I raise to-day does not introduce any political Party considerations at all.

It is interesting to note that though a bi-partisan foreign policy, which has been a feature of our Government for many years, is apparently being departed from in some quarters, we are gradually. I believe, evolving something approaching a bi-partisan economic Commonwealth policy in this country. It is also interesting to recall that in February of this year in another place, for the first time in fifty years, a Resolution in favour of Imperial Preference was passed without a single dissentient vote from any quarter. Within the boundaries of the evolution of this bi-partisan economic Commonwealth policy there are differences; and, of course, there will continue to be differences—differences as to the part the State should play, differences as to the part private enterprise can play. But I believe that these differences can be reconciled, and that if we look at the points of agreement, rather than at the points of disagreement, we shall be able to go forward in a policy which will give inestimable advantages to ourselves and to our partners in the Dominions.

My Motion deals, in particular, with certain commitments which Great Britain has accepted and which limit and prevent the growth of Imperial trade. Before dealing with the particular limiting agreements, I would ask your Lordships' permission to look for a few moments at the broad background of our economic Commonwealth position. I think that the old "Free Trade versus Tariffs" controversies are dead. The most earnest believer in a revival of non-discriminatory world multilateral trade cannot foresee the conditions which would be necessary for the revival of that trade in any measurable time in the future. What are the chief considerations? Non-discriminatory multilateral trade in the world would need free convertibility, free movement of populations, and free play of the price mechanism; it would mean abolition of quotas, the abolition of tariffs and, above all, an international equilibrium which we are far from enjoying at the present time.

Since the war Britain has been forced to pursue policies in direct disregard of the principles embodied in the commercial and monetary policies which the United States tried to persuade the world to adopt. It is interesting to think that 23 out of the 34 signatories to the General Agreement on Tariffs and Trade have, since the Agreement was drawn up, imposed new import restrictions. I submit to your Lordships that it is now an accepted fact that nations must steer their trade along selected channels, and in the present state of unbalanced world economy it is the duty of the Government of this country to guide our trade along lines most advantageous for Britain's short- and long-term interests.

The Chancellor of the Exchequer has introduced emergency measures which are necessary, but in themselves these measures provide no lasting cure for the weakness of our economy, which has shown itself in crisis after crisis ever since 1946. Therefore, I believe these emergency measures must be accompanied by a bold and prompt policy in order to put our economy on a stronger basis than hitherto. For a hundred years we have relied on an unbalanced economy, trusting to our competitive efficiency and to our invisible exports to put us in a position to pay for our necessary imports. The world has now narrowed and we find that other nations are determined to balance their economies. The competitive powers of other nations have increased and they have adopted policies for the exclusion of British competitive goods. I believe that, through concentration on the policy of the development and extension of our Colonial resources and our Commonwealth trade, we can give that additional strength to our economy which has been lacking in the last few years.

I should like to quote words recently used by Mr. Harold Wilson, President of the Board of Trade in the last Government. Mr. Wilson said: Anyone who could have thought that our balance of payments problem could be solved and our standard of living maintained—much less progressively improved—without an intensive development of Commonwealth sources of supply and a much closer degree of Commonwealth economic co-operation, is ignorant of the fundamental realities of our economic situation. That is only one quotation of the views of the Party opposite in support of my contention that we are evolving a bipartisan view on Commonwealth economic problems. Within the British Commonwealth there exists all the material and all the human resources needed for building a unit large enough in primary and in industrial production to give expansion within the boundaries of that unit and to give a balance in our external trade sufficient to protect us from the impact of the fluctuations of United States economy.

Many of us feel that one of the great dangers is that in two or three years' time American rearmament may have reached its peak, prices will fall, there will be a recession in America, a drop in American imports and an over-spill of American exports. We saw that in the 1930 recession. Then came the Ottawa Agreement, and the American recession of 1937 had a far smaller effect on us, because of the strength we had built up in the sterling area, than would have been the case otherwise. In 1949, we saw a slight recession in America and there was an immediate effect on this country, which gave considerable weight to the position which forced us to devalue the pound. The impediment which prevents this country from achieving that safety which will insulate us from the fluctuating effects of American economy lies chiefly in the General Agreement on Tariffs and Trade, to which Britain adheres, to a lesser degree in the American Commercial Treaty of 1938 and to some degree to the Congo Basin Treaties.

In case any of your Lordships have forgotten what the General Agreement on Tariffs and Trade does, may say that it freezes all preferences at existing levels, it prevents the restoration of any preference once it has been lowered and it forbids the creation of any new preference. It lays down that if a country wishes to raise a tariff against any particular import, that tariff must be raised against all other countries at the same time. The General Agreement on Tariffs and Trade was born of the Atlantic Charter. It has the impetus of ten years behind it. The acceptance of the principle of non-discrimination in this Agreement was one of the conditions we had to pay for the acceptance of the American Loan of 1946. I have no wish—and I am sure your Lordships would not wish it—to reopen old controversies, and particularly the one concerning the American Loan, but I must say that none of the prophecies which were made by those who so ardently supported the American Loan has been fulfilled. There has not been that revival of world multilateral trade which we were told would be brought about by acceptance of the Loan. Convertibility was tried, and that failed. To-day dollars are scarcer, tariffs are no lower and restriction quotas are as severe as ever. Meanwhile, this country carries the burden of those limiting provisions on the expansion and development of new markets in directions where I believe our hopes are highest.

This General Agreement on Tariffs and Trade hurts us in two ways. First, it prevents us from raising our tariffs to protect the home market against any ruthless importer or any aggressive dumper; secondly—and I think this is more important—it prevents us from making any worthwhile offer to our partners within the Commonwealth and Empire of an advantage in our markets, in return, for which we should receive advantages from them. I should like to quote once more an example that has been quoted before—namely, that of Pakistan. When India was divided into two it was found that Pakistan was receiving preference from Great Britain on goods valued at £4,000,000, while Great Britain was receiving preference from Pakistan on goods valued at £16,000,000. Naturally, Pakistan objected. But because of the General Agreement on Tariffs and Trade we were unable to offer anything to Pakistan to alleviate the disadvantage under which she was suffering. What is the result? To-day Japan has replaced Britain in Pakistan as the supplier not only of consumer, but also of capital, goods. In 1951 60 per cent. of Pakistan's capital requirements came from Japan. In nine months in 1951 Japan exported 198,000,000 yards of grey cloth to Pakistan, while Britain exported 36,000,000 yards. This, I submit, was because Great Britain was unable to make any offer to Pakistan to redress the unfairness which existed in the proportions of £16,000,000 to £4,000,000. But for the General Agreement on Tariffs and Trade there is no doubt that we could have made a new bilateral arrangement which would have enabled us to retain much of these markets for Great Britain, and would have allowed Pakistan in return to have a secure share of our markets.

If Britain regains freedom to offer bargains worth while in our traditional markets, I believe we shall give encouragement to other countries, where our goods have hitherto been accepted, to stop unlimited imports from other quarters. To-day we see Oriental competition to an increasing degree; tomorrow we shall see German competition to an even heavier degree. I believe it would be wrong for Her Majesty's Government to hesitate to take steps to protect Britain's markets at home and overseas because of fear of the reaction of the United States, politically or commercially. I believe that it would be wrong for us to hesitate in a course that we feel is right merely because of somebody else's possible reaction. And I do not believe the Americans themselves would expect us to do any such thing. I am quite certain that in any trade recession one of the first things that will happen will be that the United States will take steps to protect her domestic trade and her domestic position. Already we are seeing it. A few weeks ago I had the opportunity of going to America on a coast-to-coast lecture tour. Take the case of motor-cycles: we make the finest motor-cycles in the world, and we have swept the market in the United States. What has happened? There is a lobby in Washington which has succeeded in taking steps to limit the import of British motor-cycles into the United States. The same thing has happened in regard to bicycles. Our push-bicycles are becoming ever more popular. But there is now a movement to check the importation of British push-bicycles into the United States. If you look: at the comparative exports of push-bicycles from this country you will see that the markets in West Africa, Malaya, India and Pakistan are worth infinitely more than the comparatively small market we have had in the United States.

The same thing applies to agricultural products from Italy. I have a cutting from a Los Angeles newspaper showing how the agriculturists of America are succeeding in checking the importation of agricultural products from Italy, because of the severe effect that it was having on the American producer. Then we can take the case of tuna fish. When I was on the Pacific coast the administrators were being pressed, and were agreeing, to limit the importation of Japanese tuna fish, because it harmed the Pacific tuna fishermen. Under the General Agreement on Tariffs and Trade America is perfectly entitled to do that. What she does is to raise the tariff against everybody exporting tuna fish, and raise the tariff on everybody exporting motorcycles; but in practice only Japan exports tuna fish, and only Britain exports motorcycles. To that extent, America has a great advantage over Great Britain in regard to the General Agreement on Tariffs and Trade.

I think there will be no difference of opinion in any quarter of your Lordships' House that this is an unsatisfactory position. I am sure it is hardly necessary for me to remind Ministers of this fact. The Conservative Party, in Britain Strong and Free, if I may remind Ministers of this document (I am sure that they know it almost by heart, because it is after all the document on which we stand, and the strong arm of our policy), say: We shall retain an Imperial Preference and uphold the right to grant and receive such preferences as are mutually agreed with Empire countries. The document goes on to say: It is our intention to call as a matter of urgency an Empire Economic Conference including representatives from the Colonies. I submit that it is impossible for Her Majesty's Government to fulfil the pledge in Britain Strong and Free so long as the General Agreement on Tariffs and Trade continues in force in its present form.

I would ask the Government this: Would they not agree that now is the time to amend the Geneva provisions of the General Agreement on Tariffs and Trade in respect of the limiting clauses which prevent us from steering trade along the channels which we consider most advantageous to ourselves and to our partners? I do not ask for the whole of the General Agreement on Tariffs and Trade to be denounced—there are many good things in it—but I do ask that it should be denounced in respect of those limiting clauses. There are many factors in favour of the course that I am advocating, although, since I must be honest, I admit that there are also some against it. I know that it is easier to criticise than to carry out any alteration, but even so, I believe that on balance it would be worth while for this country to take unilateral action and to denounce these particular provisions. If we did that, we should revert, as I understand it, to the 1938 tariff position with America. Certain tariffs might go up, as compared with their present levels, bit I repeat that, on balance, the advantages would far out-weight any small individual disadvantages. I believe that the Government, at the same time as they denounce those particular G.A.T.T. provisions, should declare at once that Imperial Preference is regarded as part of our permanent, irrevocable policy, to be developed to the fullest extent, both unilaterally and in co-operation with our Commonwealth and Colonial partners.

I do not come to your Lordships' House to say that Imperial Preference is everything—of course it is not. Alone it is of some use, but it should be accompanied by a really bold policy—a Commonwealth migration policy, a Commonwealth aviation policy and a Commonwealth shipping policy. Imperial Preference, expressed in the form of preferential remission of customs duties, is the most convenient and, in the long run, I believe, the most effective way of stimulating complementary production. It needs no new machinery and, above all, it needs no new officials. In another place on February 22 the Minister for Economic Affairs dealt with this matter on behalf of Her Majesty's Government. In a sentence he said: We are consulting our partners. With respect to the Minister of Her Majesty's Government, that is not quite good enough. I believe that we should go ahead unilaterally now. After all, Britain's historic rôle is leadership in the Commonwealth. Let us remember that it was Sir Wilfrid Laurier who in 1897 took unilateral action as Prime Minister of Canada; and because of his action in introducing Imperial Preference he persuaded the Government of the day to denounce the then Anglo-German and Anglo-Belgian precluding Treaties. It was unilateral action on the import duties that stimulated production of American-type motor cars in Canada, so that in a very short time American manufacturers were building factories at Windsor, Ontario, just across the United States border, and a large industry was brought to Canada.

It is always easy to find reasons for delay, and policy must wait upon discussion and agreement. But meanwhile, precious time is being lost. The impact of those emergency steps which the Chancellor took will be lost if it is not accompanied at once by the introduction of the broader policy. The Minister for Economic Affairs said nothing about the second of the Conservative pledges in Britain Strong and Free. That was the calling … as a matter of urgency, an Empire Economic Conference including representatives from the Colonies. I know that we have had a meeting of the Finance Ministers of the Commonwealth, but I am sure that Her Majesty's Government will not claim that a meeting of the Finance Ministers fulfils the pledge given for an early Economic Conference, including representatives from the Colonies. I hope that there is no issue between noble Lords in this House as to the unsatisfactory effect on Britain's position disclosed by the working of G.A.T.T. I hope there is no difference anywhere on that. There may be some discussion as to whether or not it is wise for Britain to take unilateral action, and I have tried to submit to your Lordships that it would be wise to do so.

In conclusion, I have three requests to make to Her Majesty's Government. First: take steps now to get rid of the G.A.T.T. limitations, without waiting for the agreement of all our partners; second, with the precious possession of freedom, and something to offer our partners, call the Imperial Economic Conference which is envisaged in Britain Strong and Free; third, follow what some of your Lordships may remember was the procedure adopted after the 1911 Imperial Conference, when a Commission was appointed to examine and report on Commonwealth and Colonial resources and the best means for their development. That 1911 Commission was restricted in its scope because it was told to keep right off the fiscal issue. The Liberal Government of the day said: "You must not touch the fiscal issue." To-day, the whole Free Trade controversy is over. It is possible to appoint a Commission following the holding of an Imperial Economic Conference without any restrictions as to its scope. That first Commission of 1911 produced a most valuable Report, but unfortunately it came out in the middle of World War I. To-day, there is an opportunity for another Commission to report—a Commission which would have infinite scope without any limiting conditions. I believe that such a Commission could produce a Report of tremendous value. Those are the three things I ask the Ministers of Her Majesty's Government to do: Get rid of G.A.T.T. limitation now without waiting for our partners; call an Imperial Economic Conference, and follow up that Conference with a co-operative examination, with recommendations as to the development of the resources of the British Commonwealth and Colonial Empire. I beg to move for Papers.

3.7 p.m.

LORD OGMORE

My Lords, I, for one, feel very grateful to the noble Lord, Lord Balfour, for bringing this subject before your Lordships' House. In my view it is the sort of subject which we cannot discuss too often. It is one which really goes to the root of practically the whole of our economic position, because what the noble Lord is asking Her Majesty's Government to do is, in fact, to turn the wheel of the last few years; to cease the policy of multilateral trade; to go back to bilateral agreements and furthermore, to foster and encourage Imperial Preference. So far as the last is concerned, about which I shall say more in a moment, he has no more ardent supporter than I, but I am not at all sure that it will do all he hopes of it.

Let me turn to the first point that he has raised against the general background which I have described—namely, the position of the agreements under the General Agreement on Tariffs and Trade—known colloquially as G.A.T.T. As the noble Lord has said, this Agreement arises from the Atlantic Charter, signed in August, 1941, at a time when most of the senior members of Her Majesty's Administration were either Ministers or advisers to the Government in one capacity or another. Therefore, there can be no political question in this. The present Government are as much committed to the Agreement as were the late Government. It is as well to look for a moment at what was hoped in the Atlantic Charter, so far as trade was concerned. The Charter states that it is hoped … to bring about the fullest collaboration between all nations in the economic field, with the object of securing for all improved labour standards, economic advancement and social security. The document describing the origin of G.A.T.T., after quoting the passage I have just read, goes on: In the Mutual Aid Agreement signed in February, 1942, the two Governments agreed to take action designed to eliminate all forms of discriminatory treatment in international trade, and to reduce tariffs and other trade barriers. We start off from that, as it were, and, as I say, the noble Lord has asked the Government to turn the trencher and go against all that was agreed at that lime.

The general attitude of the late Government—and I presume it is that also of the present Government—was that a general low tariff policy was conducive to the restoration of the multilateral trade system which it was their object to promote. They believed all through that this policy could best be implemented through international negotiations carried on in accordance with the principles of the Charter of the International Trade Organisation. We found, I think it is true to say, that modern conditions and world opinion did not quite live up to the language of the Atlantic Charter; and at Torquay last year no agreement was arrived at because the United States made unacceptable proposals affecting Imperial Preference, and we refused to make a permanent agreement on tariffs and trade until these unacceptable proposals were withdrawn. If the multilateral system is no longer acceptable for the reasons given, what are we left with? We are left, as the noble Lord said, with bilateral agreements and with Imperial Preference. Let us look at Imperial Preference.

Many of your Lordships will remember the discussions and the controversy that was aroused on this question in the early years of this century, when some noble Lords, particularly the noble and learned Viscount, Lord Simon, and the noble Viscount, Lord Samuel, were slender pillars of Liberalism—the present Prime Minister at that time was perhaps not a slender pillar but a flying buttress of Liberalism. The principle of Imperial Preference aroused at that time acrimonious controversy, as the noble Lord, Lord Balfour, has said. Much of that has now ceased, and most Parties in this country are agreed that some measure of Imperial Preference is desirable. Can we say that the object of Imperial Preference is mutual aid within the Commonwealth and the fostering of the resources of the Commonwealth by this, the, Mother country, and other countries? Has Imperial Preference succeeded? I think that to some extent we can say that it has. Certainly before the war, with regard, for instance, to sugar in Jamaica, as no doubt the noble Viscount, Lord Swinton, will agree, it did succeed.

The object which we have in mind is the fostering of our resources by the aid of Imperial Preference. Lord Balfour of Inchrye has said that it was only one of many weapons which he mentioned. There are other weapons which he did not mention. We must not disguise from ourselves, since we are asked to extend the system, that Imperial Preference has its disadvantages, as well as its advantages. In the first place, the Commonwealth cannot become an exclusively trading organisation.

LORD BALFOUR OF INCHRYE

The noble Lord said that I stated we were left only with bilateral agreements and Imperial Preference. I am sure he would not wish to misrepresent me. We are left with Imperial Preference in the sterling area, in the Commonwealth, and in Western Europe as well.

LORD OGMORE

Certainly I do not wish to misrepresent the noble Lord. I want to be clear what he had in mind as definite propositions. There will, in fact, be a series of bilateral negotiations, but that will perhaps develop at a later date.

The second disadvantage is the jealousy of nations. I am myself an advocate of Imperial Preference, and I should never have thought of these disadvantages. But about three years ago I read an interesting book by a member of your Lordships' House, the noble Viscount, Lord Cecil. It is called All The Way. No doubt many of your Lordships remember it. After describing the old Imperialists those of the pre-Imperial Preference Imperialist school (I suppose his father, the third Marquess of Salisbury, who was Prime Minister, and others of that era), he goes on to say: The new Imperialists, as I understood them, did not reject these ideas, but they modified and added to them. They sought to strengthen the bonds of Empire by the creation of economic advantages to those countries within the Empire which would not be possessed by outsiders. That was the origin of the movement which afterwards came to be known as Tariff Reform. Its centre was preference—that is to say a provision by which certain duties would be paid in respect of imports coming from foreign countries into the Empire which would not be paid, at least at the same rate, in respect of goods going from one part of the Empire to another. No doubt any move in any part of the British Commonwealth to show friendliness to those living in other parts is a good thing and in that sense and for that purpose Imperial Preference is desirable in the same way as the interchange of presents helps to keep members of a family united. But the moment it is treated as a matter of business, the grant of a pecuniary advantage is as likely to lead to acrimonious dispute as the reverse. I have always understood that the Ottawa Agreements on this subject led to a good deal of angry feeling. Nor have I ever heard from any of the Diminions that one of the reasons they stood by us so magnificently in war-time was that they did not wish to lose the Preference. Such an idea certainly never entered the head of anyone concerned. Without disputing, therefore, that Preference has had its value as a 'gesture' I do not think that it went very far. On the other hand I believe that its international effect has been unfortunate. Now this is the part, my Lords, that particularly concerns you and me: It has long been true that the extent of our Dominions has been a grievance worked by those ill disposed to us in other countries. Treitchke and his school habitually referred to England as a 'robber state'—a small, almost insignificant country which, by a mixture of fraud and force, had extended its possessions all over the globe. It was this sentiment which was largely the inspiration of the German Colonial Party and, in the eyes of the Emperor William II, justified the creation of the German Fleet. Traces of the same feeling could be found in Russia and France, and even in the United States. But so long as we accepted the policy of free imports it was difficult for our foreign critics to show that our Empire did them any harm. That is a point of view which I think any of us who have had anything to do with international affairs find to some extent to-day among the people and the Government of the United States. They are obsessed by the fact that, because they have free trade conditions within their own boundaries, everyone else ought to have free trade—at any rate so far as the admission of their goods is concerned, and regardless of the fact that the free trade area within their own boundaries is protected by high tariffs. Any success our exports achieved over perhaps 5 per cent., as Lord Balfour mentioned, is immediately met by retaliation from the particular bloc or lobby concerned with the article affected.

The third objection to Imperial Preference—and this, I think, is the most serious of all considerations—is that a Commonwealth Customs Union does not commend itself to certain of the other Commonwealth countries. Pakistan, India, Australia, and others have been able to secure fairly easy markets since the war. Indeed, they have not shown themselves anxious for a Customs Union since the war. Certainly a lot of spade work would have to be done with them and other countries before they would accept the idea of a Commonwealth Customs Union. It must be remembered that many of them, particularly Australia and Pakistan, are building up secondary industries, and we are not always getting preference with regard to goods which might affect the goods made by those secondary industries. Fourthly, and last, in post-war conditions the sellers market has meant that in many respects Imperial Preference is not as important as it was in the old days when there was a buyers' market. It may come back again, of course, and then we shall find that the producers of the Commonwealth will be much more anxious for preference than they have been in the last few years.

Nevertheless, in spite of these disadvantages, on balance I would say that we on this side believe that Imperial Preference should be retained. We certainly consider it an important weapon in Commonwealth development. There are other and perhaps equally important, if not more important, weapons in development. Apart from the weapons that the noble Lord, Lord Balfour of Inchrye, mentioned, there is the provision of finance, of capital goods, of research facilities, of technical skill, of pilot schemes, of bulk buying and of long-term contracts. There is no easy path, as we know, to Commonwealth development. There is on the Order Paper for to-day a Motion which wilt deal with one of these developments in the Commonwealth, and we shall see that here, as elsewhere, development of a good deal of the Commonwealth is accompanied very much by "sweat and tears," partly because much of the cream has long been skimmed off and we are left with the skimmed milk underneath. One of the great difficulties that the noble Lord and all of us who are interested in these matters have to face is the almost complete lack of interest in these problems taker in this country. Until we can get public opinion to back these solutions, such as the noble Lord has described, I do not see how they can come about. It is an unfortunate thing—as the noble Marquess knows, having long been concerned with the Commonwealth—that the enthusiasm of the few in this country for Commonwealth development, Colonial interest and so on, is equalled only by the apathy of the many. How we are to change that I confess I do not know. Sometimes I become very depressed about it.

I should like to say, both to the noble Lord who is to reply for the Government and to the noble Lord, Lord Balfour of Inchrye, who has dealt largely with economic matters, that the economic, aspect is only one arrow in the quiver. There is also the constitutional aspect. I have mentioned this before. This is neither the time nor the place for me to go into it at any length, but I should like to refer to it again. I suggest, first, that there are going to be quite a number of Colonial territories which will not be able to stand on their own feet. The noble Marquess referred the other day to a "ladder." That is his favourite illustration in this connection—and it is a very good one. But what happens when they come to the top of the ladder? Do they balance on it if they cannot step off, as it were, on to a plateau? Do they balance on top of the ladder? Because there are going to be, I should say, something like twenty to thirty territories which will not be able to stand on their own feet.

I have suggested to your Lordships that we should think about a Council of Empire, consisting of this country and those territories which will not be able to stand on their own feet. By agreement with us in that Council of Empire, they will be able to work out some of these economic problems which, after all, affect them as well as us. Here in Parliament we can, bring pressure to bear (or we hope we can) upon Her Majesty's Government, who will then seek to bring pressure upon, or make suggestions to, other Governments. We have not got—and this is a great weakness—any central council where these matters can be discussed. The noble Lord, Lord Balfour, has been quoting, yet another broken promise.

LORD BALFOUR OF INCHRYE

No, no. I did not say "broken promise"; I said "promise yet to be fulfilled." I have every expectation that it will be fulfilled.

LORD OGMORE

This is not a political discussion. The noble Lord mentioned it twice in a rather forceful way, I thought, as if he were bringing it very much to the minds of Her Majesty's Ministers. At all events, they have promised in Britain Strong and Free to bring about some sort of ad hoc economic conference. We ought to have, at any rate for those territories which cannot stand on their own feet, a permanent conference or council meeting where these matters can be discussed; otherwise I do not think we shall get a sane and proper solution to our own economic problems. Because there are constant changes; you cannot lay down a policy to-day which is going to last for very long. The whole world is changing frequently and, unless we have some tribunal or commission of some sort which can look at these problems almost from day to day, we shall find that their resolutions are out of date. That is why I say that, whilst supporting on the economic side many of the suggestions made by the noble Lord, I feel that the constitutional side should be considered as well, and that Her Majesty's Government should deal with that problem at an early date. I have nothing further to say on this matter. It is one which commands the greatest respect and attention from us all. I hope that the spokesman of Her Majesty's Government will be able to answer some of the points that have been put to him both by the noble Lord, Lord Balfour, and by myself. I do not necessarily expect an answer on the constitutional point to-day, because I gave the noble Lord no notice of it. Nevertheless, I hope that, even if he cannot answer it to-day, he and his colleagues will do some pretty hard thinking about it.

3.27 p.m.

LORD MILVERTON

My Lords, it gives me great pleasure, if I may say so a double pleasure, to be able to take part in a debate of this kind on Imperial and Colonial affairs in which there is a general background of complete unanimity on all sides of the House. For my part, I do not find anything from which I could differ in what was said by the noble Lord the mover of the Motion, and there is very little indeed about which I would express doubt in what has been said by the noble Lord who has just sat down. I do not think it has been suggested—I did not gather that it was suggested by the mover of the Motion—that there should be a Customs Union of the Commonwealth. If I may, I will now try to reinforce, and perhaps add a little to, some of the things which have already been put before your Lordships.

The noble Lord who moved the Motion has given us the background of the Havana Charter and what is called G.A.T.T., and he has shown how, although the main objective was to increase and encourage trade, the actual effect has been to restrict it. I should like to try, as I said, to reinforce the arguments that he used and his plea for the restoration of our economic freedom. Looking at the world to-day, I suggest, with due humility, that muddled thinking (I am not occupying a detached attitude over this; I confess to having done some of it myself) on the broadest scale of policy is unduly prevalent. The spirit of nationalism and the passionate desire to be master in one's own house is, as we all know, sweeping the earth. Political self-government is the order of the day, with the right to make one's own mess in one's own way. But hard economic facts have bruised some of these theories and have forced from us a general admission that political independence without a basis of economic independence is a hollow sham. The foundations must, after all, be economic. And so we have made haste with Colonial Development Funds and Corporations, and what-not, to say nothing of the Colombo Plan, to try to help on the backward people.

I suggest that one fallacy has succeeded another. We are beginning to see that to regard the United States of America as a kind of global Santa Claus distributing world-wide largesse, is no system on which to build stability in the world. It accentuates, as the noble Lord who moved the Motion said, the appalling repercussions of any recession in American trade. The American Titan cannot for ever support the world. Equally, I suggest that if we are not careful, our system will tend to become one of Imperial "poor relief," with no foreseeable end save collapse under the effort. The motive power, the will to work, the skill and ability, and the resources, must all come from within a country; and any policy which does not contribute to enabling men and nations to stand on their own feet is, I suggest, doomed to failure. By our international trade agreements of recent years we are not only depriving ourselves of the power to help others but we are steadily destroying our own power to help ourselves. In passing, may I repeat something which has been said very often before, and which is still imperfectly understood? In relation to standards of living, no nation has a right to any higher standard of living than it can earn by its own efforts, and we should beware how we set about destroying the system which built up the standard of living that we have grown accustomed to regard, quite erroneously, as our birthright. So I suggest that if we go on being so internationally invertebrate we shall lose not only that standard of living but much more besides; and that, I suggest, is what we have been doing by subscribing to these international aims embodied in G.A.T.T. and the Havana Charter.

The nations to-day, as it seems to me, are divided into dependent nations and master nations—whether we like it or not, that is the position. By that I mean that some have control over their own economic destiny, while others revolve on the axis of those who dominate what is called Western economy. The point I am trying to make is that all the emphasis on nationalism and self-sufficiency for the dependent nations will not be effective if, in the process, we destroy our own self-sufficiency. We cannot help others by undermining our own ability to help them and ourselves. I suggest that is precisely what we have set out to do by adopting the principles of the Havana Charter and G.A.T.T. The international idea of restricting the economic freedom of national units for the sake of what, if you examine it, is a spurious Free Trade, revolving in fact in an American orbit, is in fundamental conflict will the other idea of nationalism insurgent and triumphant. It is apparently the new political philosophy of having your cake and eating it or, to look at it in another way, of cutting off the branch on which you are sitting. I have tried to indicate that, as it seems to me, the two ideas of nationalism and internationalism are mutually conflicting.

My Lords, take the Colonies. As they become self-governing, what fate awaits them save to become, like Ceylon, signatories of G.A.T.T.? In that case, what is the use of talking of self-government within the Commonwealth if we are to be debarred from giving each other preferences and mutual advantages. If I may venture in that respect, to differ from the noble Lord who preceded me in the debate, I suggest that the strongest cement is a mixture of sentiment and enlightened self-interest. And if we are ever to build a sterling stability—

LORD OGMORE

May I ask the noble Lord in what way he differs from me? I did not mention cement.

LORD MILVERTON

The noble Lord did not mention cement, but I think he said that he thought that the advantages of a preferential system were not a very strong binding force. I hope I have not misunderstood him.

LORD OGMORE

I was then quoting the noble Viscount, Lord Cecil. I was quoting a point of view against Imperial Preference.

LORD MILVERTON

I am sorry if I misinterpreted the noble Lord. I gathered he was quoting with approval.

LORD OGMORE

No, I was not.

LORD MILVERTON

In that case, perhaps the noble Lord agrees with me on this.

LORD OGMORE

I quite agree.

LORD MILVERTON

It is a very strong cement, and, as I was saying, if we are ever to build up a sterling stability which will give the Colonies more freedom to use the dollars that they earn in the way they would like to use them, we must get rid of G.A.T.T. and all that it implies.

Protests against G.A.T.T. have come from all over the Empire—from the Colonies, from partners in the Commonwealth—and it is not popular even in America. Why then do we persist in it? At this point I might refer to what the noble Lord who preceded me said about the difficulty of international jealousy. I think that those days have gone by. In the distant past it was probably true that there was a certain amount of jealousy about our position and about our using it to give benefits to people within the same orbit. But I think that feeling dates from the time when the control of the Empire lay in London. What with self-government and other delegations of authority, there is not the same excuse for anyone to feel jealous; and certainly there is no excuse for anybody accusing the British Government to-day of exploitation.

My Lords, surely our aim should be an economic unit large enough to provide an internal balance between the various elements of primary and industrial production. The United States of America is such a unit, though the geographical accident of contiguous land frontiers disguises the fact that 100 per cent. preference prevails within that area between each State and that there is a high tariff wall around the whole. Incidentally, heavy United States prefer- ences are given to Cuba and the Philippines, which are foreign countries and also to dependencies like Puerto Rico. And it is not immediately obvious to me why we should be debarred from following a similar policy. I am not condemning the fact that these preferences exist; I am merely claiming that we should have an equal right to seek our own interests in the same way. In our Commonwealth and Empire, tariffs and preferences have never been uniform, nor have we attempted to eliminate tariffs over a given area; but we have varied them by agreement and negotiation to suit the circumstances of each case.

We are, one may remind your Lordships, in a more vulnerable position because, unlike the United States, we have to import the bulk of our food requirements and practically all our raw materials for our industries. We ask that the right of Commonwealth countries to maintain preferences, to create them and to adjust them upwards or downwards be restored; and to do that, it seems, we must denounce the contrary obligations imposed by G.A.T.T. The inequality of the restrictions imposed by this agreement can be illustrated by many examples. For instance, two South American republics can give advantages to each other on the plea of facilitating frontier traffic, but Australia and New Zealand are debarred from doing precisely the same thing. In the case of our own utility scheme in the United Kingdom, there was a protest by G.A.T.T. countries that freedom from purchase tax constituted a protective measure against similar imported goods which were subject to import duty and purchase tax. So, even within our own gates our field is being restricted.

One could multiply these instances and it is highly desirable that the public should know of them. Another example is provided by the case of foreign-caught fish. If you want to restrict foreign-caught fish imports into this country you must at the same time limit the landing of British-caught fish, because you must preserve the proportion of imports to domestic products prevailing during a previous representative period. I do not suppose your Lordships require many more instances, but I could give you a great many. I could refer to the absurdity—if I may use the word—of the term "trade on equal terms" which is referred to in these agreements, because if you analyse the phrase you realise at once that "equal terms" does not mean anything. It is impossible to define what are "equal terms": it depends on the standard of living in the various countries from which the goods come, and the only way you can have "equal terms." is by equalising opportunity. You can do that only through the means of tariffs or by other devices which are condemned by these selfsame agreements. The noble Lord who introduced the Motion made some reference to Free Trade. I think it is generally agreed that unilateral Free Trade would be suicidal.

If I may, in passing, make reference to another matter which requires consideration and amendment, though not so urgently, I would mention the Congo Basin Treaties. They are fundamentally out of date and in their incidence, are rather absurd. For instance, the line runs quite arbitrarily across Africa. It is supposed to be the watershed of the Congo and adjoining basins, but what does it work out at? It runs across, and includes. Portuguese East Africa, Northern Rhodesia, Portuguese West Africa, French Equatorial Africa, the Soudan, Abyssinia, and Italian Somaliland. In all of these places the principal ports and main distributing centres lie outside of the areas, but, on the other hand, the whole of Kenya, Uganda, and Tanganyika, lie within. The result is that these unfortunate Colonies and Protectorates can obtain trade advantages but can give none. The Treaty of St. Germain confirmed that differential duties might not be imposed on parties to the Convention if they were members of the League of Nations. But in practice all nations, whether they came under that category or not, have been included. The result is that these countries cannot impose differential customs treatment or transit duties.

I suggest that these treaties are out of date, and are ripe either for amendment or denunciation. But the main appeal I make to-day relates to G.A.T.T. the pernicious effects of which are world-wide—I use the word "pernicious" advisedly, because the Agreement is inducing a sort of pernicious anæmia in the economy of the Commonwealth and Empire. If anyone had set himself to devise a scheme which must result in the disintegration of the Commonwealth he could not have bettered G.A.T.T. We live by trade and we must be free to stimulate it and to avert stagnation by every means. As has been said, this is no Party matter. All Parties seen to feel alike, as evidenced by a recent debate in another place. The spectacle before us is the unedifying one of a Commonwealth in chains—economic chains of our own forging. The only way to protect our standard of living is to release the energy, enterprise and skill which is the source of its, being. We have reserved under G.A.T.T. the right to denounce it, or to denounce parts of it, as we suggest, on sixty days' notice. I suggest that we ought to press Her Majesty's Government to consider doing that and, in so doing, to give a lead to the Commonwealth. We can then indeed say to them, to modify a once popular phrase, "Members of the Commonwealth unite, you have but your chains to lose." My Lords I support the Motion.

3.50 p.m.

LORD HAWKE

My Lords, my noble friend Lord Balfour of Inchrye, in bringing forward this Motion, has allowed this Chamber to adopt one of its traditional rôles as the highest forum in the land for examining new policies put forward for consideration. In this instance, the policies which have been put forward are of such immense and far-reaching importance that I, for one, do not expect Her Majesty's Government to be able to give a very definite reply to-day. I know that Her Majesty's Government are greatly preoccupied with our various difficulties, but I think there are important reasons why they should examine the proposals that are being put forward, because it well may be impossible to achieve a long-term solution of our difficulties without a departure from some of the present policies, which spring from conditions which may never occur again. Noble Lords who have spoken have dealt with the details of the matter, but I wish to speak on a somewhat wider issue.

Our present trading economy is based on imports controlled to some extent by tariffs, with some degree of Imperial Preference, but, in the last resort, controlled by financial licensing. This financial licensing is designed to influence our trade towards the countries where we have the best chance of paying and away from the countries where we find we cannot pay—in other words, towards the sterling area and away from the dollar area. As a result, the world is divided into two. We and others have entered into various commitments at these international conferences that we shall throw off our licensing systems at some unspecified date and revert to tariffs, but to a system of declining tariffs and declining Imperial Preferences. If the gulf yawns in spite of licensing, then if we withdraw the power of licensing, surely the gulf will yawn still wider. If that is the case, we have become parties to a projected system which is unimplementable unless some new extraneous factors come along to alter the unbalance.

What chances are there of such factors arising? If the United States were prepared to abolish their tariffs without requiring that the rest of the world should do the same, that might well go all the way to meeting the unbalance. Every United States manufacturer agrees that his country must allow more foreign goods within its shores but those foreign goods must not be the products of a trade in which he himself is engaged. If the United States were to increase its buying price of gold to three or four times the pre-war level, in consonance with the prices of cotton, oil and other goods that the world buys from her, that might make a very big difference. But what chance is there of that happening? Even if the United States were prepared to reverse her synthetic rubber policy it would go some way to helping, but that is probably least likely of all to happen. Perhaps towards the end of this century, when the United States population is likely to be much higher than it is at present and their need to import goods from the sterling area much greater, we may get more into balance; but that is a long time to wait, and even then there is a limit to the amount of sterling area dollar earnings which we can appropriate for our own personal use.

Meantime, is there anything we can do to abolish this gulf?—because we all want to do so. The pound can never be really happy till it is convertible. Moreover, if it were convertible it would breed strength, because there would be American investment in the Empire. This is where the national commitments which my noble friend has detailed begin to become relevant. If we aim to achieve convertibility within a reasonable number of years, we must have the power to limit the field over which convertibility is likely to be practised. We cannot limit that field if our hands are tied in the matter of discrimination. If we cannot control these things by licence, we must have the power to control them by a high tariff system with discriminatory preferences to divert our trade away from those who are buyers but not sellers and towards those who are prepared to take our full range of goods.

To-day our nation is very vulnerable, for three reasons. The first is the loss of most of our overseas investments and the fact that we owe thousands of millions of pounds on short term. The second is that the nature of our export markets has changed. The third is that the nature of world trade itself has changed. Take the first, the loss of our investments: the result of this is that we cannot afford to allow our visible imports to exceed our visible exports by any great amount. Any invisibles we can collect are required for reinvestment and to pay off this enormous short-term debt. That means that we must have a much higher ratio of exports to imports than we have ever had before in our history. When we attempt to do this, we are up against the other two factors of vulnerability. The second factor is that the markets have changed. We are no longer the suppliers of consumer goods to the world. Our customers make their own. Our trade is now to a large extent in capital goods and luxury goods, and these are all marginal. They are the first to be cut at the slightest breath of recession. Moreover, it is sometimes easy to export capital goods by lending money to buy them. They go into the trade returns but they are not paying for the bread and butter we are importing at the same time. It is only the interest on the loan which is of immediate value.

The third factor is the change in world trade. World trade is no longer controlled by tariffs, either revenue or protective. World trade to-day is controlled by financial licensing, ostensibly for financial reasons, but too often for a policy of protection. There are many markets in the world—I will not mention them—where our consumer goods would be welcomed by the population. They would be a great deal cheaper than their own native products. But, instigated by local manufacturers, there is a 100 per cent. effective wall against our goods and they are completely denied entry. This makes us frightfully vulnerable—and I use "frightfully" in its literal sense. It is going to be more difficult than ever before to export enough and I do not believe that we can rely on doing so. We have to remember that if our imports become cheaper and the terms of trade more favourable to us, then automatically it will be more difficult to sell our goods abroad. That is because so many of our exports are purely marginal.

What must we do to deal with this situation? The first thing, on the home front, is that we must tackle the food supplies, without which as a nation we cannot live; we must have far larger production. Secondly, we must seek to redress our lack of acres. We must try to attach to ourselves overseas acres and find countries which are prepared to supply us with food in return for a full range of our exports; and, by tariffs on our general food, mitigated by preference in favour of those countries, we must try and secure our foodstuffs. We want countries whose farmers we are prepared to treat as our farmers, and who are prepared to treat our factories as their factories. Our lack of acres is our chief handicap in the world to-day. If we could overcome that, our exports could pay for our raw materials, especially if they were tied to our economy by our developing the Commonwealth. Those arrangements are precisely the same as those my noble friend Lord Milverton has outlined as existing between the United States and various of the sugar producing countries. It is probable that we should try to do the same in the case of certain specific raw materials. All this, I submit, is what one might call a flexible discrimination. Then there is the question of Japan. Tariffs are quite useless against Japan, and we must have power to impose quotas. The pound can never stand the strain of a flood of Japanese imports, designed to be converted into dollars. Furthermore, if we see the raw materials of the Empire being sucked towards Japan, and paid for with a return of manufactured goods at prices we can never touch, then we shall have lost our place in the world as a great trading nation.

The result of this flexible discrimination would be perpetuation of the sterling area, with a higher tariff round parts of it and a lower tariff between us and the people with whom we have reciprocating arrangements. But against this we should have the possibility of a convertible pound—and the Americans, on balance, might think that was a better prospect. I realise the difficulties of all this. I doubt myself whether there would be sufficiently wide acceptance throughout the Commonwealth of plain, simple Imperial Preference for full-blooded Imperial Preference to be a practicable proposition. For that reason, I put forward the flexible reciprocal discrimination, which could operate in sections of our trade with the Empire, or even with certain foreign countries—I do not exclude them. I couple this with an objective—not the usual objective of pure self-interest, which is the one which always arouses suspicion in the world, but the objective of the convertible pound, which everybody admits would be of great value to the whole world. We cannot possibly achieve this objective, in my view, unless we have the power to discriminate and to raise our tariffs. I hope that the Government will consult with the Commonwealth as to how the matter should be dealt with.

Is this a Party question? I do not think it is. We try to get a non-Party policy for foreign affairs, defence and agriculture; should we not seek a non-Party policy in a matter which may determine our ability to feed and employ our people for a generation ahead? In any policy ultimately designed towards convertibility the Labour Party can play a key part. If they encourage the second thoughts which so many of them are now having as to the rôle of capital in our very existence; if they can drop the persecution of capital from their programmes, they can do a great deal towards making a convertible pound possible—in fact, whatever other steps we might take, I do not believe a convertible pound is possible unless a change of heart takes place. You cannot run a prison without bars unless the gaolers, both present and potential, are known to be benevolent. I appeal to noble Lords opposite to show signs of benevolence in our march towards a convertible pound. To sum up, if we are to move in any way towards convertibility, and if we are to preserve our standard of living and find a way of paying for our overseas food by buying from those countries which will take our goods in exchange, I feel it is absolutely necessary that we should have the power to discriminate; and until the steps outlined by my noble friend have been taken, we shall remain without that power.

4.8 p.m.

LORD NOEL-BUXTON

My Lords, I am sure we are all indebted to the noble Lord, Lord Balfour of Inchrye, for raising this question to-day and for putting before us in the broadest possible way the whole question of the Commonwealth. There is something even more thrilling about the Imperial concept of the future than that of the past; and I think we are in danger, because of the need for a new concept, and a new time, of speaking often on certain past assumptions that are not valid. In talking about Imperial trade we should regard it more than as a trade matter; in fact, as a humanitarian affair. I hope noble Lords are with me in supporting the idea that we need a balance in each of our communities between the two main forms of activity in production—namely, agricultural and industrial—and that we should try to direct our ideas to this balance in terms of Imperial, and international, trade. That is why I was particularly pleased to hear the noble Lord, Lord Balfour of Inchrye, speak of the need for a migration policy—and I gather he meant on some large scale—and also of the important idea of an Imperial Economic Commission.

I should like to quote from a recent article in the Daily Telegraph on Australia, which speaks of Australia's present difficulties, and says they are largely due: to a maladjustment which has developed since the war between primary and secondary industry, town and countryside. … The article suggests that this is what is leading to current economic difficulties. I should have thought that was the wrong way round, and that current economic difficulties there were tied up with this attempt to reach a new stage of balance between the agriculture and industrial aspects. That goes, too, for other countries like Canada and New Zealand. Therefore, we need to avoid at all costs a sort of freezing of the traditional concept of Empire—the mother country as the main industrial producer, the Dominions as the main agricultural producers. I am sure that we are all in agreement that that is an out-dated concept. For that matter, perhaps the phrase "Imperial Preference" needs to be thought about pretty carefully before we go into action with it. Much more important is Imperial cohesion which can result in more balanced communities. Maybe there will come about less inter-Commonwealth trade and it may cease to have the same strength.

To my mind, this whole idea of Empire cohesion is tied up with the question of migration, and particularly of industrial migration. I hope that it will not be thought to be off the beat if I briefly raise this question of migration in talking about Imperial trade. That is why, with great respect to the Prime Minister, I feel that many of us in both main Parties in this country must have thought it unfortunate—when he was asked whether it was a good thing to have a Royal Commission to report on means to encourage large-scale Commonwealth migration—that he showed himself to be against this idea, and suggested that we "have to stay and fight it out here"—as if we were doing something uncourageous in not wishing to remain a community of 50,000,000 people. I believe that Mr. Churchill has in the past spoken otherwise on this question of migration, and I cannot help feeling that that is an unfortunate lead in this matter, and that many of us, on both sides of the House, will agree that it is not just something to be squashed. After all, this question is humanitarian; it is not only a trade question. If it were possible for us to remain on our present basis—if we could sell all the industrial products we need to overseas, and if the Dominions could sell here all the agricultural products they need at prices acceptable to them, we still should not necessarily be a happy or satisfactory community. Look at our great cities. They are far too huge. And look at the undeveloped Commonwealth countryside. Admittedly, some of them also have huge cities. Is there not a colossal opportunity for the development of new urban areas in the Dominions—on a spacious model —and is that not something to which the Commonwealth ought to be moving? In such a position there may be much less inter-Commonwealth trade, because each of our communities would be more self-sufficient both in industry and agriculture.

We still think of migration largely in terms of agricultural migration, and I suggest that this forms part of the statuary of the past, at which we tend to look, and still in some sense worship. I agree with what noble Lords have said, that this is not a Party issue. In fact, I cannot see how we can develop the Commonwealth in a proper way, and in the way in which the Dominions are expecting, without some sort of national policy towards it. But I think it needs some radical new angle on the whole question—that we must not look at the Empire as something unbalanced and must not look at ourselves as entirely "the boss community." I should like again to thank the noble Lord, Lord Balfour, for raising this issue, and to say that although I myself feel excited at his premises I believe we all need to think a good deal further on the consequences of them.

4.15 p.m.

LORD BARNBY

My Lords, my purpose in rising is to add another voice in support of this Motion. My noble friend Lord Balfour is to be congratulated on having given wide satisfaction by raising this matter. His Motion is timely, and I feel very strongly about the subject. His remarks were very comprehensive, very lucid and call for little further reasoning. His speech was reinforced by an exceptionally impressive and knowledgeable speech by the noble Lord, Lord Milverton, so that there is no need for me to take up your Lordships' time for more than a few minutes. Surely we must see that things change quickly in this modern world. The price level changes, and the fortunes of agricultural as well as of manufacturing countries change. It is beyond the foresight of man at any-international conference to avoid the great hazard of agreeing to something which cannot reasonably endure.

I would add emphasis to this point by mentioning two countries with which I have been in touch a good deal just lately. I believe that in Canada there is a widespread desire to be freed from these shackles which have been mentioned. The noble Lord, Lord Balfour, save examples of this, and others were quoted. We know that even the recent attitude of the United States towards Canada with regard to cheese virtually infringed their obligations under G.A.T.T. Uruguay and the Argentine, too, are now presenting to the world, contrary to existing regulations, absolutely ruthless discrimination in the matter of making their exchange available to exporters of particular raw materials and commodities. I believe that in Australia there is a widespread desire to be free from these impediments. Only this morning I received a letter from Australia referring to a deputation to Mr. Menzies to urge the revision of G.A.T.T. The announcement made afterwards was that the deputation could not accept the Prime Minister's decision as more than a regrettable postponement of an inevitable action.

The noble Lord, Lord Balfour, very properly emphasised—and, indeed, Lord Milverton reinforced it—that if a situation arose in the United Stales in which they felt that it would be desirable for them to free themselves of commitments, they would not hesitate to do so. We all know that in matters that fall under the veterinary regulations the United States have not the least hesitation in ruthlessly applying them, in defiance of what may be the international tariff commitments. No doubt because there is this serious outbreak of foot and mouth disease in Canada, there will follow, as a result of the cattle lobby at Washington, very prolonged restrictions against Canada. I should like to reinforce Lord Balfour's remarks regarding the current agitation in the United States against imports from the United Kingdom. He gave bicycles as an illustration but let me take as an example heavy electrical equipment in the North-Western States. When a contract was secured, after competitive bids, by the English Electric Company, a strong protest was raised in Washington against a public utility corporation giving a contract to an English firm.

The noble Lord, Lord Hawke, emphasised the possibility of dealing with Japan. Labour costs in Japan are very much lower than those in Britain. I ask your Lordships' indulgence if I repeat that this is a perplexing situation. I am sure that it must have perplexed many in the ranks of the Socialist Party, and particularly those of organised labour, that there is in Canada a situation in which the same feelings exist towards British subjects as we here express in this country against Japan. I am sure organised labour would feel perturbed about the possibility of unemployment developing here as a result of imports of that character. The problem of the disadvantages of Imperial Preference were made clear by the noble Lord, Lord Ogmore. We all remember the extreme perplexities that resulted from most-favoured-nation clause. But so strong are the reasons in favour of what Lord Balfour of Inchrye said that I think we shall need some enlightenment about this matter in the remarks of the noble Lord who is to reply for the Government. I hope he will give us encouragement for the belief that there may be an early change in what is now a most unsatisfactory situation. I most strongly support Lord Balfour of Inchrye in his Motion.

4.23 p.m.

THE PAYMASTER - GENERAL (LORD CHERWELL)

My Lords, the noble Lord's Motion gives rise to a number of questions of great interest, and I am sure the House is grateful to him for having raised this important topic. In some respects the points at issue seem very simple; but, as those who have listened to the debate will agree, when you come to examine the matter more closely you realise how complicated the problems are. As the debate his shown, we all sympathise with the desire of the noble Lord, Lord Balfour of Inchrye, to develop trade with the Commonwealth. It is, therefore, in view of the complication of the issues, all the more regrettable that it is not possible at this stage to give a categorical answer to his ideas concerning the best method of fulfilling his wishes.

There are very few general propositions in the economics of the modern world. In Victorian times, when currencies were stable, tariffs were generally changed only slowly, and there was usually a reasonable amount of time for industry and trade to adjust themselves to the prevailing conditions. It was possible to get equilibrium, and equilibrium equations give the logical answer at any rate to a first approximation. But things have changed a great deal since those days. We no longer have six or seven Great Powers living, in the main, in peace if not in amity. We no longer have stable institutions and currencies firmly anchored to gold; treaties in some quarters are no longer sacrosanct; nor can we rely on arrangements which have been concluded continuing over a period of years. The noble Lord's proposal, bluntly, unilaterally to denounce the General Agreement on Tariffs and Trade is an example of the possible instability which threatens economic arrangements—I am grateful to the noble Lord for the precedent which he set permitting me to abbreviate the name of that organisation to G.A.T.T.

In this brave new world—I must say it seems to me that it is the people who have to live in it who have to be brave rather than the world—none of the comfortable certainties of the nineteenth century exist. The number of independent nations has greatly increased; Governments change in kaleidoscopic succession; treaties are unilaterally repudiated; currencies fluctuate; and those extraordinary innovations which we may subsume under the heading "Quotas" make it impossible for the industrialist or the trader to look ahead with anything like the certainty which our forefathers took for granted. Add to this the fact that mass production methods involve as much as a year's tooling up before the articles begin to flow off the line, and it will be clear that it is very rare for equilibrium even to be approached before conditions have changed.

The old simple laws of economics, therefore, seldom apply. In Victorian times, when conditions changed relatively slowly, there was usually time for supply to become more or less equal to demand. Nowadays all we can say is that, if demand is greater than supply, supply will tend to increase, and vice versa. We are dealing with problems in dynamics and not in statics. We have to solve differential equations, not simple algebraic ones. As your Lordships know, whereas ordinary algebraic equations usually have definite solutions, the solutions of differential equations depend upon the boundary conditions.

Many of the economic controversies which have enlivened and sometimes bedevilled political affairs are due to con- fusion of this sort. Thus, for instance, the arguments for free trade in a static world living in perfect peace and equilibrium with no changing rates of exchange, still less quotas, are very strong. And these conditions, consequently, are usually taken as a premise, though not always mentioned as such in the arguments of proponents of that doctrine. Much of their case falls to the ground, however, if circumstances are subject to violent fluctuations in a world divided and rent by two great wars in one generation, a world in which countries have to arm against one another, in which tariffs and exchange rates vary and in which quotas or their equivalent may be imposed at any minute. In these circumstances a totally different set of arguments comes into play.

If only the variety of the premises had been recognised, we might have been spared many of the passionate discussions about economic affairs, often conducted with almost theological venom, which have been carried on in the Press and on the platform. I have cited this old controversy instead of some obvious modern ones because I do not want to engender heat or anger. But I think many of the controversies of the present day which are conducted with great fervour, such as discrimination versus non-discrimination, multilateralism versus bilateralism, or convertibility versus non-convertibility, and, indeed, if I may say so without disrespect, the "most-favoured-nation" principle, are not in an altogether different category. In a static world we might argue about these general principles with some hope of arriving at an agreed logical conclusion. But, as I have said, our world, whether we like it or not, is anything but static. The answer must depend on all sorts of considerations—not only on quantitative economic ascertainable facts and political and ideological considerations, but also on the chops and changes (as the noble Lord, Lord Ogmore, said) which are apt to occur and their effect on our welfare and security whilst we are trying to adjust ourselves to the varying conditions. The best course is, I think, likely to be a compromise between extremes. It may well be logically untidy, but there can be no clear-cut answer; there is no nostrum for our economic ills.

It is no use our making blue prints for an ideal world which would suit Britain without taking account of the existence of other countries whose aims and aspirations are naturally not directed primarily by a desire to conform to our wishes. A way of life which might have been admirable in the Garden of Eden may lead to disaster in the jungle. These arguments, of course, tell at least as strongly in favour of Lord Balfour's general ideas as against them—and I am glad that it should be so, for I am sure we all feel instinctive sympathy with his line of thought. Where all is in flux, where you lever know what others may do next, there is a very strong case for trying to build up a self-sufficient group within the family.

But there are two questions which are vital. First, can it be done? And, secondly, can it be done in time? I shall say a few words about this presently. It has always been the tradition and practice of the Conservative Party to take a realistic, businesslike view of problems as they exist in the world. We have never lauded the doctrinaire approach or submitted to the dictation of dogma. We believe in the evolution of institutions, a step by step advance, rather than a leap in the dark It is in this spirit that I think we should approach the Motion before the House. Naturally, we all agree about the importance of developing trade within the Commonwealth and Empire—if I may use this last word without causing pain to noble Lords opposite. That has been one of the main planks in the Conservative platform for fifty years. Of course, we all desire to avoid, so far as we reasonably can, permanent commitments that will retard or prevent profitable development of trade within the Commonwealth. I can assure the noble Lord that there is no difference between us in this. But that does not mean that we should try to shut ourselves off from the rest of the world. Trade within the Commonwealth and trade with the rest of the world are by no means mutually exclusive. We want both; we must have both, and we shall not relax our efforts to secure both.

The noble Lord, Lord Balfour, was much concerned about the "no new preference" rule in G.A.T.T. No one denies that this limits our freedom to try to expand trade within the Commonwealth by means of tariffs. But tariffs have not been by any means the only form of Government intervention affecting the course of trade in recent years. We have only to think of what happened in Australia a few weeks ago to realise that. Before 1914, Imperial Preference played its part in welding the Commonwealth together, as the noble Lord, Lord Ogmore, said. Indeed I think it might have played a very much more important part if it had been more vigorously applied. To-day, as the noble Lord, Lord Hawke, said, tariff agreements are only one of the many facets; directing the flow of trade. We are not at the mercy of the ruthless importer, as the noble Lord. Lord Balfour has said. Nowadays, the Chancellor of the Exchequer can intervene in a far more formidable way than by tariffs if he sees imports from a certain country becoming unmanageable.

It is no use refusing to see the difficulties of creating a strong system of Imperial Preference. The members of the Commonwealth are independent nations. They are rightly jealous of any hint of encroachment on their independence. As the noble Lord, Lord Balfour said, anything that we do must be mutually agreed, for nothing but harm would come of any attempt to foist upon them any arrangement tending to benefit us if it placed undue burdens upon them. In certain cases, they might claim that Imperial Preference would be of greater value to the United Kingdom than to other members of the Commonwealth. It is not as though we had a choice of a whole array of countries anxious to send us food and raw materials from which we graciously singled out our compatriots abroad. It is the members of the Commonwealth which have a large choice of countries from which they can buy motor cars or radio sets, or whatever it may be. Our preferential arrangements with them give their consumers an incentive to purchase our goods instead of the foreigner's, even though a priori they might prefer the foreigner's goods. Patriotism, tradition and loyalty may induce the members of the Commonwealth to go some way in such a system, but we must not place too great a strain upon these virtues. As the noble Lord, Lord Balfour, indicated, and as the noble Lord, Lord Ogmore, also said, it is by no means certain that all the other members of the Commonwealth are itching to increase Imperial Preference.

The second point we must hear in mind is the time element. It is no secret that our balance of payments position is exceedingly grave; so, for that matter, is that of some European countries and, indeed, of some of the Dominions. Measures which have had to be taken underline this fact. I am sure the noble Lord will agree that, however perfect a system of Commonwealth trade we may be able ultimately to build up, it cannot be done in a matter of weeks, or even months. In the meantime, it would surely be madness to do anything to interrupt the flow of trade on which our solvency depends. Whatever our objective, a gradual transition is what we should aim at, not a catastrophic lurch. It would certainly not be in our interest, nor would it be right, for us to throw the world's trade into confusion, and perhaps cause unemployment in friendly countries, by a sudden reversal of the policies we have pursued for the last six years.

All these matters have to be explored and tested before we jump to conclusions. And we shall continue to consult with our partners and investigate and examine all the relevant facts with the greatest possible care. In the meanwhile, we shall abide by existing agreements. We cannot just denounce certain clauses in an agreement which happen not to suit us and keep those which we consider advantageous. If we denounce G.A.T.T., we denounce it as a whole. We cannot just pick and choose. After all, no one can say that G.A.T.T. is entirely deleterious to us. It does protect us, to some extent, from the raising of excessive barriers against our exports and from the creation of other preferential systems from which we might be excluded. It has enabled us to negotiate substantial tariff concessions with the United States and other foreign countries. Let us not forget that the agreements now operative have not, in the past few years, prevented a great expansion of inter-Commonwealth trade. After all, that is what we are aiming at and in the main it is coming about. We must beware lest precipitate action endangers it. It is true that the high-minded, idealistic people who conceived G.A.T.T. may have been over-optimistic in their estimate of the time required for recovery from war, and for the restoration of balance and stability in world trade. Non-discrimination and convertibility have many advantages, but in an unsettled and unbalanced world you may have to pay too high a price for them in contraction of trade, unemployment, and so on.

This country has certainly not gained by the changes which have come over the world since the war. We used to be the world's biggest buyer and, as such, we had some control over prices. Despite this, we had a substantial balance of payments surplus. To-day, American imports exceed those of the United Kingdom, and yet they form only a small fraction of American consumption. A slight recession in America, or even a lowering of their inventories, due to tightness of money or any other reason, may cause a huge drop in the demand for the sterling area's raw materials and a corresponding drop in prices. The vestige of a boom may lead to a great increase in demand and a big increase in prices. I think that the main reason for the difference we observe here between the depressions in America in 1937 and 1949 was the fact that American imports to-day are so much greater than they used to be.

Of course, these fluctuations in the sterling area's trade throw an enormous strain on our reserves. The question is: how are we to cope with this strain and with the danger of continuing dollar scarcity? One approach might be to concert arrangements with the United States by buffer stocks or the like, to even out purchases, and thus reduce the fluctuations. If this were done, it might be that we could achieve some of the objectives of the framers of G.A.T.T. Then again, an attempt might be made to get the non-dollar countries into a large economic combine, rather like an expanded sterling area, in which trade would be as free as possible and imports from the dollar countries could be regulated to balance the exports of the area as a whole. In a more extreme form (for which I do not think the noble Lord was pressing) the possibility of welding the Commonwealth and Empire into a tariff union, which might conceivably be large enough for the purpose, might be considered.

All these are very attractive ideas, but when you begin to think out the financial and political details, and study the impli- cations of the various possible plans, you realise their great difficulties. There is, for example, the danger of retaliation by countries outside the favoured circle. Or again, if we were to attempt to fuse the economies of Commonwealth and European countries, would our manufacturers willingly accept the full blast of competition from imports of European goods, and the sharing of their preferences in Commonwealth markets with their European competitors? Are the Commonwealth countries ready to share their preferential position in our market with farmers on the Continent? Are Europeans themselves prepared to give preferential treatment to Commonwealth products? I do not profess to know the answers to these questions, but to say the least, they are certainly not obvious. All these ideas and combinations and variants of them are objects of continuous and anxious study. Everyone will admit that they present terrific problems. All of them have to be thought out and worked out, and this can be done only in the light of the facts and figures and the political situation and outlook in the countries concerned. It is impossible to say offhand how the pattern of world and European trade will develop. I doubt whether anyone would be bold enough to say with confidence how he thinks it ought to develop. In the circumstances, we think that it would be entirely premature straightaway to terminate unilaterally international agreements without a great deal more consideration. After all, G.A.T.T. does provide a code of rules, tending to prevent necessary discrimination from degenerating into bilateral barter. Whilst by no means perfect it includes provisions for altering this code. And, as I have said, we have certainly profited in some directions.

Perhaps I may remind the House, that if we were to withdraw from G.A.T.T. we might well lose the concessions we have gained in the United States tariff. The rate or whisky, for example, under the Hawley-Smoot tariff of 1930 was just over three times the present rate. Under the 1938 Agreement, and subsequently under G.A.T.T., we have secured reductions, first of 50 per cent. and then of a further 40 per cent. Again, with all its defects, the "most favoured nation" principle does safeguard our rights in many markets. As the noble Lord, Lord Hawke, and I think the noble Lord, Lord Milverton, said, we are in a very vulnerable position. It is by no means certain that we should come out best if reduced to ruthless bilateral bargaining. True, we are a huge market, but you will not get a cheap meal at the Ritz merely because you have a huge appetite. As I have said, the Government will continue to examine all these complicated questions in the light of the facts and figures available and the information about the outlook in the countries of the Commonwealth as well as other foreign nations, which are matters absolutely vital in this sphere. We shall not allow ourselves to be fettered by any dogma or preconceived idea.

The House will realise, however, that it would be very rash to jump to conclusions, and even rasher to give utterance to half-formed views about questions of such magnitude surrounded by so many complicated considerations. If we take wrong decisions, we nay commit the country to a course from which it will be very difficult to draw back, and which may involve disastrous effects upon the standards and the livelihood of this country for generations It therefore behoves all of us, and, above all, members of the Government, to spare no effort, to shirk no toil, in order to arrive at the right conclusions. After all, only two months' notice is required to withdraw from G.A.T.T.

In the light of what I have said, I am sure the noble Lord will agree that it would be wrong to give any undertaking in such a vital matter without a great deal more consideration and consultation with all those concerned. There is little, if any, difference between us on aims and objectives. We all want the maximum profitable production in this country from farm and from factory. We all want the maximum economic development of the great resources of the Commonwealth; this is a vital interest of the whole free world. We all want the freest possible flow of goods and services between the members of the Commonwealth and the rest of the world. We believe in the international division of labour, and in an expanding world economy. We all want to contribute our long experience and "know-how" of commerce and finance to the development of world trade. These aims are not mutually exclusive, but complementary. They are aims which the whole Commonwealth shares, and we must consult continuously with our partners in the Commonwealth to determine how best they can be attained.

4.47 p.m.

LORD BALFOUR OF INCHRYE

My Lords, in asking leave to withdraw this Motion, I should like to thank noble Lords who have been good enough to take part in the debate to-day. Particularly I would thank the noble Lord, the Minister, who has just spoken, for rarely have I been turned down in such delightfully phrased and gaily illustrated words as those that I have heard this afternoon. I am not in any way going to re-argue the case. I was impressed with his statement, that it would be entirely wrong to take any action now, that nothing can be done in weeks or months and that there must be gradualism and not a "catastrophic lurch." He said that we must be careful, do nothing sudden, and that meanwhile we will explore. What is more, of course, he said that we are not bound by any dogma or preconceived idea. My Lords, when does a Party programme—a Party pledge, cease to be a Party pledge and become a preconceived idea? I will just leave that one thought with the Minister. With my thanks once more to noble Lords who have taken part in this debate. I ask leave to withdraw my Motion.

Motion for Papers, by leave, withdrawn.