THE COMMON MARKET AND PROPOSED FREE TRADE AREA

HL Deb 28 July 1959 vol 218 cc666-740

2.39 p.m.

THE EARL OF SWINTON rose to call attention to the problems of the Common Market and the proposed Free Trade Area; and to move for Papers. The noble Earl said: My Lords, I think it will be generally agreed that this Motion which has been standing in my name on the Order Paper for a long time will now give rise to a singularly well-timed debate. It is a supremely important subject, and in recent weeks a great deal has been happening. Almost as soon as the long-drawn out negotiations with the Rome Powers, as they are called—the European Economic Community—broke down, negotiations started between the seven other free European countries. They have now come to a conclusion—I am glad to say a satisfactory conclusion—and only this morning (it has not given noble Lords much time to study it, but that is no fault of the Government; they produced it as quickly as they could) we have had the White Paper giving the Stockholm draft plan on which an international Convention is to be based. It may also be a well-timed debate because this may well be, or at any rate may possibly be, the last occasion on which the Government will be able to expound their policy to Parliament before they return after the next General Election to implement it for another period of five years.

Let me deal first, as the Motion does, with the Common Market. What I would say to the House, speaking in the light of to-day, is this. When we come to consider the Common Market we really must be realistic. It is no good any of us arguing whether we think a Common Market is a good or a bad thing; whether, if it had rested with us, we would have had a Common Market in Europe. To day that is all quite beside the point. To-day the Common Market exists: good or bad, whether we like it or not, it is there. I think there would be general agreement in the House—except possibly among one or two Liberals—that we could not have joined the Common Market as full members. I am glad that my noble friend Lord Henderson concurs in that. It would have been wrong from a domestic point of view. It would have made it, I think, impossible, or certainly would have greatly handicapped us in carrying out what is an agreed agricultural policy between the two Parties, and it would have been quite wrong vis-à-vis the Commonwealth, because it would have involved us in breaking or altering those agreements which have subsisted for thirty years ever since Ottawa, and to which we and the Commonwealth attach great importance.

At the same time, I think there will be equally wide support for the view that it is in the interests of this country and the Commonwealth that we should be associated with the Common Market in a Free Trade Area. That is not a matter of speculation. Fortunately, the Commonwealth were able to consider this, and to consider it exhaustively, at the Conference at Montreal last year. In the Report of the Montreal Conference (Cmd. 539) all the countries asserted this: It"— that is the Conference— reaffirmed the conviction of Commonwealth countries that an outward-looking Free Trade Area in which trade would be increased rather than merely rechannelled would contribute to their common objective of an enlarging world economy.

May I consider for one moment, and ask the House to consider, why a Free Trade Area in which we should be parties is, as I think, so enormously important to this country? It is axiomatic to say that we live by export; that we have to export, and shall have to do so more and more, at strictly competitive prices. I do not want to lecture the House on economics—I am not competent to do so. But even as poor an economist as myself knows from business experience that costs and prices depend upon the volume of sales that you have, and the amount you can produce and sell. Therefore, we need the widest possible market.

As I see it, there would be a serious danger to our trade if the European Economic Community pursued a protective policy which increasingly excluded the United Kingdom from the six European markets. We should suffer in at least three ways. In the first place, our trade would be increasingly cut out of a market of 160 million of the richest customers in the world. In the second place, the industries within this Customs Union, and particularly the West German industries, would have the benefit of their great protected home market; and with that protection they would be able to reduce their costs and undersell us, not only in that protective market, but in all the other markets of the world. The third way in which I think we should be injuriously affected is less apparent, perhaps, but I think the House will accept it as obvious and important—indeed, the Government will know more about this than I do. From what I have heard, there are already evidences that this risk to which I am going to refer is already more than theoretical.

In the past, Americans, whose costs of manufacture in the United States are high, have constantly established factories or associations in Europe in order that they could manufacture in Europe for sales to the whole Continent of Europe and, indeed, for export to many countries outside Europe. Fortunately, in a great many instances the American firms have come to this country, and have either established subsidiary companies here or, which is even better, associated themselves with a British firm, to the great advantage of both. That is the very best way in which we can get American capital into this country, because it is not loan capital which can be taken away or called back as a loan if the industry gets into trouble: it is equity capital, which is put there and stays there, for better or for worse. It brings us dollars. It brings great employment to this country. It promotes Anglo-American goodwill, and for every reason it is a movement which I think we should all agree is all to the good.

If the most lucrative set of customers in Europe are within a protective enclave which it will become increasingly difficult for exports from this country to enter, it stands to reason that American industry seeking to establish itself and manufacture in Europe is going to be much more likely to establish itself inside the Customs Union of the six countries than to come to this country. Those are three pretty good reasons why a Free Trade Area is important to us. I think there is another reason. We should also suffer in finance and merchanting at a time when the strength and convertibility of sterling is making such a marked contribution to our trade balance and to the strength of the pound.

So much for the economic side. But the danger is not only on the economic side. I am not sure that an even more serious danger is not what I may call the political, the international, side. I do not think anybody in this House will deny that more and more the cold war will intensify itself on the economic front. We are seeing it already. I am sure that more and more the combined security of free Europe is going to depend quite as much on economic co-operation as on combined defence. I do not think it is too much to say that the whole structure of European defence—built up by Ernest Bevin, carried on by successive Governments, brought to so successful a state in recent years—would be weakened and in time might be, I think would be, completely undermined if free Europe were to be divided into two opposite economic blocs.

That does not mean that we should, or could, have remained impassive. I am sure it was right that the other countries in Free Europe should form their own trading area and make their own reciprocal trade arrangements. I know that some industries are anxious whether they will be able to stand up to the increased competition which a Free Trade Area will bring, and they may look to me as one of the formulators and protagonists—I have to admit it; I think I wrote most of it—of the general tariff; it was behind that tariff that they sheltered. It was not meant necessarily to be a shelter for all time, and, broad and large, I believe that British industry, given a great expanding area, is strong enough, active enough, inventive enough and resilient enough to stand quite a lot of competition.

But there are some industries which will be up against peculiar difficulties. There are the paper-makers, who are quite an efficient industry, if I may say so respectfully; there are probably one or two of them in the House. They are, as I knew when I was Minister of Materials, quite efficient. But, apart from the fact that I think that in the Scandinavian countries there are some cartel agreements which probably would not be allowed here, the Scandinavian paper manufacturers, by reason of the con- tiguity of the forests to the factories, enjoy a peculiar advantage, in that they can bring the raw material very easily to the factory. Not only that; they can, rather like running a steel mill or strip mill, run a continuous process of pulp-making and paper-making in the same place. That is a serious matter.

I have been looking—hurriedly, because I had it only for an hour or two; I could not have had it earlier—at the Stockholm draft, and I see that there are provisions made for industries that are, or may be, particularly hard hit. If your Lordships look at paragraphs 19 to 24 of the draft you will see these provisions. There is one provision—I think it is the one at the end, probably paragraph 24—which suggests that in special cases the rate of reduction of the tariff might be slower. The general plan is that in the first year there shall be a 20 per cent. cut in all the tariffs, and then that that should go on by, I think it is, a 10 per cent. or a 5 per cent. cut in subsequent years. But there is the provision that it might be arranged in particular cases that the initial reduction should not be as steep as 20 per cent. There is also a provision that an industry which is very hard hit might protect itself, at any rate for a period of eighteen months, and then it would be subject to consideration by what I think they call the institutional authority, whatever that is.

There is rather an odd phrase. It speaks about the possibility of a "spectacular decrease" in domestic demand due to foreign imports. I put some very odd words into Acts of Parliament; my noble friend, Lord Taylor—or was it the noble Viscount, Lord Alexander of Hillsborough?—was reminding me about safeguarding industries, in a rather more kindly way, I must say, than I remember at the time when I was piloting these Bills. I did put some rather odd phrases in about employment. On the whole, they worked very well, or fairly well. But I never put the word "spectacular" into an Act of Parliament, and I should rather like to ask the noble and learned Viscount on the Woolsack whether he would, by an intervention or after-thought, tell us how he would construe "spectacular" as regards imports if he found it in an Act of Parliament. At any rate, there are these provisions.

But, my Lords, all economic policy involves a balance of risks; indeed, I am not sure that all policy to-day does not involve a balance of risks, and competition is a risk which has to be faced in any Free Trade Area. I am quite sure that it is a risk which this country, to whom export to the widest possible market is more vital than to any other country, must accept, because against the risk of competition there is the certainty that if you do not accept it there will be less trade all round and we shall be increasingly pushed out of these common markets.

As Montreal affirmed, we have to safeguard our agricultural and Commonwealth interests. Fortunately and wisely, this country—and it has been common policy between our two Parties—has based its agriculture on a system of guaranteed prices, and that enables us to harmonise our agricultural and industrial and trading interests. Your Lordships debated the pig agreement the other day. You will find various references to agriculture in the Stockholm draft, and you will also find at the end a document, put in, I think, by the Danish Government, a sort of statement of what the Danish Government would like to see in what they consider a perfect world—something that few of us will see on this side of the grave; therefore I take it that it has not necessarily got binding force. I think that the pig agreement is all right in itself—and a much better authority than I supported it in this House, and he is a great addition to our membership—and it is certainly all right as a price we have to pay, because when you make bargains you cannot have everything entirely on one side, unless you happen to be making a trade treaty with a satellite State, and we have not got any satellites in Europe.

I think we want to make quite sure—and I am sure the Government will; perhaps the noble Earl will say something when he replies—that the Convention which is to be drafted, and which will come up some time in the autumn, does not in any way hamper our agreed agricultural policy, and that it does not go beyond the bilateral agreement which we have made with Denmark and which I think most of us are prepared to accept. Fortunately, we can also make satisfac- tory mutual arrangements with European countries without sacrificing or prejudicing our Commonwealth interests. I do not propose to argue that point, but I think that the Commonwealth have accepted it; and the Danish agreement is so skilfully drafted that it scarcely touches the cheese which we get from the Commonwealth. Therefore, I would say that we should welcome the Stockholm agreement and encourage and support the Government in their further negotiations. In passing, I should like to say that I am glad that the seven countries on the Stockholm side include our old Ally Portugal, which has recently had such a successful trade exhibition in Lisbon, and which I think will be much to our mutual advantage.

But let us just look at the alternative if we did not join the Stockholm countries. There would be a second large Customs Group in Europe from which we were also excluded, and we should be reduced to living not on each other's but on our own washing. I do not think that that would greatly raise the standard of life in a Welfare State or any other State. The detailed arrangements of a Free Trade Area would, of course, be most complicated. One has only to read the Stockholm draft—and it does not cover everything—to see what a number of things have to be provided for. One thing I would say, as an old negotiator of commercial treaties, is: whatever you do, for Heaven's sake write it in clear language which everybody can understand! Those on either Front Bench who have had to deal with American tariffs know the hopelessness of the situation when the question of some new commodity arises. For months, probably for years, you do not know under what section of that odd tariff the commodity will come. Let us be so clear that he who runs, he who competes, and he who trades, may read.

I do not want to get bogged down by a lot of particulars; but there are some matters which are of such importance that I think they ought to be mentioned, even in a general debate. In the first place, there must be clear rules as to what goods are to be entitled to free trade area treatment. That has given rise, even under most-favoured-nation clauses, to all sorts of difficulties in the past, and I see that a pretty good attempt has been made at Stockholm, in, I think, paragraph 25, to deal with that matter. Your Lordships will see the criteria which are proposed for testing what are goods of the home country's origin; and special provision, incidentally, is made about textiles.

The next thing I would say is that there must be clear and promptly effective rules about export subsidies and dumping, otherwise the whole Free Trade Area may be undermined, and instead of the maximum of goodwill you will get a maximum of ill-will. In paragraph 44 of the Stockholm draft, an attempt is made to deal with that. It is not very informative, and I do not know whether or not it is adequate. What I am quite clear about is that the Government ought to go into that question. Therefore I am glad that they are negotiating to get the matter perfectly clear, and to see that the rules are prompt and effective. I do not want to raise controversial issues, but if it is merely that it would be permissible under the General Agreement on Tariffs and Trade, I am not sure that I am very happy about it. Because while G.A.T.T. may have all sorts of virtues that I have been only partially able to appreciate, I do not think that it is much good when it comes to dealing with dumping. We are making a new start in this Free Trade Area; and the whole idea—it goes through both the preamble and all the details—is that we really are going to deal with each other absolutely on an equality basis. If that is so, and we want a fresh start, let us have some simple practical definition of dumping and a way of preventing it quickly as soon as it shows its ugly head. If we have that, then I am not afraid of any competition that we may have to meet.

There are two other points. As I read the draft, I think every attempt is being made to provide that all the members must be given access to raw materials on non-discriminatory terms. Finally, I would say that the timetable of the reduction in tariffs, and the reductions in quotas and other discriminations, should be reasonably flexible, not to enable any of us to get out of it, but to permit of a. mutual alignment between the reductions of the Stockholm Powers and the reductions of the European Committee who are associated under the Rome Treaty. I welcome this scheme and the full association. I welcome it for its own sake. Above all, I welcome it because I believe it will be easier for the Seven together to negotiate, as a team, with the Six than to try to make a great many bilateral agreements with an individual Power which may be determined not to make any agreement if it can possibly avoid it, and because I am quite certain that a wide Free Trade Area must be our constant aim, not only in our own interests but in the interests of the whole of free Europe. My Lords, I beg to move for Papers.

3.8 p.m.

LORD PETHICK-LAWRENCE

My Lords, I feel that I myself, and I think the whole of the House, are greatly indebted to the noble Earl who has brought forward this Motion, because it is most timely and it coincides, first of all, with the ending of this part of the Session and, secondly, with the exceedingly interesting White Paper which was put into our hands only to-day. I should like, speaking not only for myself, but I think in the main for all those who sit behind me, to say that, in broad outline at any rate, we are in full agreement with the point of view put forward by the noble Earl. If I have one slight difference from him—it is probably more a difference of degree than of essential—I think he under-stressed a little the semi-political side both of the Common Market and of this agreement. It is quite true that both the Common Market provisions and this new proposal for the union of the seven countries are primarily economic; but I think that behind or beyond the economic objects in both cases a political element was there, and is there, and will I think be more noticeably so in the days to come.

When it came to the Common Market, with which I shall deal only briefly, it became increasingly clear, I think, that what was aimed at was an end to the political animosity in Western Europe which had bedevilled European affairs for the last thousand years. I think it was because a number of peace-loving people in France and Germany felt so deeply that they never wished again to have a conflict along the Rhine that this Common Market bit so deeply into their humanity and made them desirous of seeing it an accomplished fact. I think there is a little more of a political character in the present proposals than perhaps the noble Earl did justice to.

Coming to the economic side, I have had a good deal of experience of the battles between protection and free trade. I go back to the days when the famous saying of Benjamin Disraeli was current, that "Protection is not only dead but damned". Then I saw the tremendous campaign of Joe Chamberlain for an Imperial Zollverein. I remember very well the first and second Labour Governments, who were then strongly for free trade, fighting losing battles to protect the tradition that Great Britain was the great free trade area of the world in opposition to the other countries of Europe. I remember Mr. Baldwin saying that it was no good pottering along until he could have the opportunity of bringing in protection. We have had this protectionist doctrine for the last twenty to thirty years and we are now beginning to see that old free trade which was buried in the middle years of the first half of this century coming back into its own again; and I am very glad to welcome the noble Earl as a recruit to the cause of free trade.

What does it all amount to and what are we trying to do? The Common Market, composed of the six countries, set out to reduce their tariffs against one another and to have a kind of Zollverein in which those six countries would have no tariffs against one another but would have a tariff against the outside world. We tried to get—not exactly inside the fence, but we tried to be lookers-on through the interstices of the fence, and get some of the crumbs thrown out from The bread inside. I should like, at this juncture, to pay tribute to Mr. Maudling. I think he has tried very hard. I remember his addressing a body of members of my Party and getting a great cheer at the end for the work he was doing. I think we are to-day providing a consolation prize to Mr. Maudling and I am sure he is quite welcome to it.

This is something which is, to my way of thinking, of very great importance and worthy of our full support, with one or two small reservations which do not detract at all from the spirit of it. I am very glad that it is getting forward. I particularly welcome what the noble Earl said, and I believe it would be the view of all of us. I think it would be unfortunate if this new body were regarded as a rival and antagonistic to the Common Market. I was very glad to see in the White Paper the statement that the intention was that this should lead up to negotiations. I will read the actual words: Ministers affirmed that in establishing a European Free Trade Association it would be their purpose to facilitate early negotiations both with the European Economic Community and also with other members of the O.E.E.C. who have particular problems calling for special solutions. These negotiations would have as their object to remove trade barriers and establish a multilateral association embracing all members of the O.E.E.C. That is on page 3 of the White Paper.

I welcome that because I think it would indeed be tragic if Europe, already split by those countries on the East side of the Iron Curtain being cut off from the West, were to be split again by the Western countries dividing into the Common Market and the Free Trade Area. But I do not think that that is the intention in forming the Free Trade Area. I think it is intended to have two groups of countries who will be friendly to one another and may possibly come into federation with one another before many years to come.

There are one or two points on the purely economic aspect of this matter. The noble Earl, I thought, brought forward some very good arguments. They were the arguments free traders have used for years and I expect that the noble Lord, Lord Grantchester, will have something to say about them. They have been persistently pursued for generations, and it would be quite foolish for anyone except the Liberal Party to enunciate them all again to-day. Pulling down tariff walls does expose people to competition from other countries. On the other hand, it exposes other countries and their manufacturers to our competition, and we hope to gain as much on the swings as we lose on the roundabouts.

But there is this great difference in the modern outlook on this question of competition from what it was sixty or seventy years ago. Then people said, "Competition is competition, and if you can win your way, well and good, but if you cannot you can go to the wall. Everyone for himself and the devil take the hindmost!" But it is not the attitude to-day: certainly not in this country. We say that if it is good for the country as a whole, let us have it; but let us take some steps, at any rate, to prevent suffering and misery to the people for whom it is not a good thing. They may be on one side of the social fence or the other. They may be employers and manufacturers or the workers. Taking trade unionists as a whole, one found that a little while back they were rather unfavourable towards free trade. Some of their trades had been built up under protection and they were a little unwilling to have the walls of protection pulled down. They have now come along and seen that it is the interest of the whole that matters. They must subordinate individual sectional interests. As we say in our prayer, "Putting aside all partial affections"—not "Party affections" as I was reported the last time I quoted that. We must do things for the expansion of trade and the furtherance of the life and strength and health of the community as a whole. But we must not forget that, if there are individuals who suffer in consequence of this, we have to do what we can to prevent their suffering and make up to them in some way. There is not only this great difference to-day in this matter, but in many other things our outlook is different from that of sixty or seventy years ago.

I have said almost enough about the economic position. I want to say a few words about the more general position. I will begin by reading, also from page 3, this sentence: The object of this association would be to strengthen the economies of its members by promoting expansion of economic activity, full employment, a rising standard of living and financial stability. That, I think, is of supreme importance and, as I gathered, the object both of the Common Market on its side and of the Free Trade Area on this new side of ourselves and six other countries which are coming in is to build up prosperity generally, not through economic means alone but by some form of integration of our constitutional existence. I use the word "constitutional" because I want not to overstate the thing. I do not think it is an integration of our polities; I think that would be putting the matter too high. This thing does not go so far as to attempt to make a federal government for these different countries, but it goes some little way in that direction. It tries to integrate social and economic life.

In that connection I should like to read this paragraph, paragraph 60, of the White Paper. It says: With regard to capital movements, some delegations suggested that Members might be in a better position to surmount difficulties which were a consequence of the Association if they could be given freer access to the capital markets of other Members. There we have a sort of suggestion that it will not be merely a matter of free trade that is involved, but some help from other members of the Association towards capital difficulties. It is in integration in that sense that I believe this matter has a potential future of very great importance.

Of course, equally with the pulling down of economic barriers, so the reduction of the political barriers carries with it an element of grave difficulty; and it is that reservation, as I said at the beginning, that some of my Party had and, only naturally and correctly, have. There are grave dangers involved. To take a simple illustration which is familiar to all your Lordships, we know the phrase "exporting unemployment." A country that is in difficulty itself tries to export its unemployment to other countries. So a country that is getting into financial difficulties or anything of that sort may try to export its financial difficulties and make other countries suffer. We have to guard against all that. We have to guard against unemployment being produced in this country because of the flood gates of relationship to the other countries of Europe and the world being opened wider. We have to prevent the dangers of monetary instability, the pound being injured because of the too great freedom of dealing throughout the world.

All those are dangers which are felt both by the well-to-do and the employing class on the one side and also by the workers who might suffer unemployment as a result. That is where I say we have reservations. All those things have to be watched; but, granted that all those things are watched, I am quite sure—and my Party agree with me—that this new scheme is a thoroughly good one which has to be supported.

Just one word more relating to two of the paragraphs in the later pages of this Paper. In paragraph 61 it is stated: It has been found premature at this stage to make recommendations on the question of voting. The present draft plan has mainly been based on the principle of unanimity. That word is a nicer word that "veto", but it means the same thing. I am not suggesting that this proposal is wrong. I think that certainly in the earlier stages it is essential that everybody who comes in should be in agreement, and if one country is not in agreement its grievance should be met. At the same time, I think we ought to have a word of caution, because if "unanimity" does mean "veto", and if some one country chooses to stand out on some point which is not vital to that country but just because it is pig-headed, that presents a considerable danger and has to be watched. But what is important is what is said in the next paragraph, No. 62: The Board should also keep under review the operation of the Convention and make such suggestion to the Council in commercial, economic and financial matters, as may be useful to ensure smooth administration and to intensify progressively co-operation between the Members. If that spirit is really carried out—and there are paragraphs in this White Paper which indicate that that at any rate is the present intention of the members—I believe this will be a most beneficent association; and speaking, as I say, both for myself and for my Party, I give it our sincere and fervent blessing.

3.26 p.m.

LORD GRANTCHESTER

My Lords, we are indeed indebted to the noble Earl for raising this subject and it has come at a very appropriate time. Speaking personally, I do not think any useful purpose would be served by speculating what might have been if soon after the war a British Government had played a more direct part in laying a foundation for European unity. But I will go this far with the noble Earl who introduced this Motion: that, given the background and the tradition in this country of political non-commitment in Continental Europe, the hesitancy of successive British Governments can be understood.

What is interesting and very pertinent to-day is why, when the initiative in Central Europe has produced the Treaty of Rome, the very genuine and, I am sure, sincere attempts to reach an agreement for a wider association with "the Six" have so far failed, and failed equally with two quite different types of French Government. I agree with what the noble Lord, Lord Pethick-Lawrence, said when he referred to the political aspect of this matter. My own feeling, after listening to many people involved in the discussion on these matters, is that the British and French have not been speaking the same language. I do not, of course, mean the difference between French and English; but all through the British approach has been in terms of economics or trade, whereas quite different considerations have prompted those who drafted the Treaty of Rome. They were ready to sacrifice economic advantages for political gains, and in spite of the change of Government in France I think the French still believe that in the economic field they have made sacrifices. Until they see, in practice, the extent of these sacrifices, they are unlikely to be willing to go further.

We ought not, I think, to underestimate the service which France has rendered to Europe in bringing about a political association and such a close economic tie-up with Western Germany. It is regrettable that this has not yet extended into the military operational field as well as to the supply field as was proposed in the European Defence Community. It is perhaps natural that the outward signs of national prestige will be the last to go and that this must follow and not precede the integration of foreign policy among "the Six". My impression is that, on the political side, steps to union—or perhaps I should call it "thinking to union"—has progressed further than anyone would have expected, even when the Treaty of Rome was signed. We have to convince the French that our entry would not be a disturbing and distracting influence on European political development towards political unity.

It is no doubt true that, in the long run, there are economic gains to be derived from a Common Market in Europe; but there is no gainsaying that some of the consequences, in the short term, will be uncomfortable for some people. The noble Lord, Lord Pethick-Lawrence, has already mentioned this aspect of it; and the noble Viscount, Lord Elibank, when he asked a Question on behalf of some Scottish paper firms, was not half as vocal as have been the paper manufacturers in France to their own Government. As your Lordships well know, I am a convinced free-trader, but I have no illusions about the creation of a Free Trade Area causing disturbances. So did the Government's restrictive practices legislation. So does competition always. But, as a free-trader, I believe that free competition is in the interests of efficiency and so of the consumer. I also believe that stability for the producer is possible only when production is based on natural, rather than artificially created, advantages. I think that has always been the case for free trade. I emphasise the inclusion of this element of stability for the producer, which was not mentioned by the noble Lord, Lord Pethick-Lawrence.

The French have always been very conscious of the disturbances to their manufacturers to which they would be subjected in an extended Free Trade Area; and I think they rather resented the emphasis we put on the economic advantages of a Free Trade Association. The difference is, perhaps, some-what psychological; but there is, I think, an inherent difference in the approach of our manufacturers, among whom no one likes to be dubbed "inefficient". The efficient are prepared to go out and meet competition; and with the right of establishment embodied in the Stockholm Agreement, as it was in the Treaty of Rome, most efficient British manufacturers will probably be satisfied that they can meet the competition they have to face. The French manufacturer, on the other hand, has always tended to look to a protected home market, without much interest in establishing himself outside French territories.

I will not presume, my Lords, to offer any advice to Her Majesty's Government, but I would suggest that if any new approach is made to the Common Market countries, that approach should be on a political level and not on economic grounds. I have the greatest respect for Mr. Maudling's handling of the economic negotiations, and for the ingenuity he has shown, so what I am saying is not intended to be any criticism of this Minister: but I suggest that any new attempt should be handled by a Minister more directly concerned with the political aspect rather than the economic aspect. Nor should it be assumed that only France is difficult in this matter. It seems to me that all the members of the Six are very conscious of their aim and of the political considerations involved; and though their ideas on an economic association may be less rigid than that of the French, I am sure that they will not wish to play with countries outside the European community at the price of weakening their new community.

In time, no doubt negotiations on a wider economic association may be possible between the Six and the Seven; but I very much doubt whether negotiations are likely to be welcomed by the Six until they have settled down as a community, and until they see how their new community and how the new association of the Seven develop. I think a start in what I believe is being called to-day "bridge-building" between the Six and the Seven could begin most fruitfully in the field of European foreign policy, to secure a common outlook and united action.

I always welcome the prospect of an extension of the area in which tariffs and other barriers to the free movement of people and goods are to be removed, so I welcome the Stockholm Agreement and congratulate Her Majesty's Government on their success. They have been helped greatly by the long drawn-out negotiations and discussions which took place in Paris under the aegis of O.E.E.C. I welcome particularly the provision that any member may, if circumstances permit, reduce its tariffs more rapidly than is provided for in the draft agreement before us. I hope advantage will be taken of this provision, particularly by this country.

I have already said that I expect political integration among the Six to proceed much quicker than expected; and, if so, the pace of economic integration may also be quickened. If Europe is not to suffer from conflicting blocs, it is important that the level of external tariffs, the external tariffs of these blocs, should be kept low. This is desirable for other reasons also—for instance, in determining the relationship between a European bloc and other parts of the world. I should like to see the Seven set an example in this matter. Such groupings as the Six and the Seven are not so detrimental to other nations if their external tariffs are low. It is quite a different matter if the level of their external tariffs is high.

The Danish Agreement has high-lighted the whole question of the sub-sidisation of agricultural production. This was the basis of New Zealand's complaint against the Common Market countries. It would be possible in the Common Market countries so to sub-sidise agricultural production as to exclude almost all agricultural imports. Sooner, rather than later, surely, European producers will have to adjust themselves to free competition, for high tariffs and high subsidies are incompatible with the interests of developing territories. This is very much a Commonwealth problem, and we shall be continually pressed about it by Commonwealth territories. It is beginning to be clear to the most ardent protectionist that if the poorer and developing countries are to be included, as they must, in the general drive for prosperity, the barriers must come down. Pious resolutions to assist development in the less developed countries make nonsense if the results of that development are to be excluded from the markets of the world.

I am a little disturbed to read in the White Paper that every member remains free to retain its own fiscal system. These words appear under the heading "Revenue Duties", and may not be intended to be of general application, but I think it is important to foreshadow in an agreement like this that consultations should produce, for instance, some standardised common form for the presentation of national accounts. Nor should the door be closed, as the noble Lord, Lord Pethick-Lawrence, has already indicated, to some form of federal institution assuming all-over responsibility in defined areas of activity. I should like to know at some time the names of the senior officials referred to in the last paragraph on page 3 of the White Paper, who are drafting the Convention and will become (and it is because of this that I am suggesting that we may know their names) an official Committee to advise Governments on questions affecting other countries and on negotiations with the European Community.

May I add one final word? We have recently celebrated the tenth anniversary of the establishment of the Council of Europe. The members of that Council are now split into three groups—the Six, the Seven and the Five. The O.E.E.C., the instrument of eighteen Governments, has been left abandoned without direction, because its directors are split. Difficulties must soon arise also upon the working of the European Monetary Agreement. What are the ideas of Her Majesty's Government about the future of O.E.E.C.? There is another point I should like to make. The citizens of the eighteen countries represented in the Council of Europe still face the same old delays, the same frontier formalities, as they did ten years ago. European unity, in the eyes of many, has become but the concern of experts and the subject of speeches by politicians. The ordinary man does not believe that we are sincere and he is not impressed. I never cease to wonder why the queues of tired travellers at European frontiers do not decide to take our professions at their face value and refuse to comply with the nonsense of recording their birth dates at every frontier.

We are now preparing a Convention for the removal of barriers between seven like-minded European peoples, with a common tradition and a similar way of life. How soon will anyone be able to move from one of these countries to another without a passport? How soon will the irritating Customs examination which travellers experience when travelling from one of these countries to another be dispensed with? How soon will anyone be able in one of the universities of these seven countries to do a little study and at the same time earn a little money in his spare time to help to keep him while he is studying, without the gracious permission of some authority? Remember that we could have done just that four of five hundred years ago before so much so-called progress had been made in Europe. Shall we still be restricted in where we can spend our own money, or may it be moved from one of these countries to another?

It is questions such as these that will be the test by which the ordinary man will judge the Stockholm agreement. He is getting a little impatient. Even the delegates to these European meetings are getting a little impatient of the way their efforts are thwarted. When the Convention is presented to us in a few months' time. I suggest that it must not only provide for the free movement of peoples and goods in ten years' time; there are also many little annoyances and restrictions which could be removed at once in order to demonstrate to the ordinary man and woman that something real has been achieved, that the peoples of the seven countries have been brought nearer together as kinsmen. I earnestly hope that Her Majesty's Government will see that these important and practical aspects of this matter are not overlooked.

3.47 p.m.

LORD CORNWALLIS

My Lords, the Motion put down by the noble Earl, Lord Swinton, is To call attention to the problems of the Common Market and the proposed Free Trade Area. I should like to speak specifically about one problem. The most vocal objection to the proposals has come, so far as we know, from the pig and its parents, some members of the agricultural industry. I could say a lot about the effects of the suggestion we have heard concerning the free importation of Danish bacon on the small farmer and small bacon producer, but a junior member of my family has already burst into print on that matter and has been summarily dealt with in your Lordships' House. A squeal from the pigs has produced a guarantee from the pockets of the taxpayer. I am just wondering whether we may take it that an anguished cry from another industry will produce fair consideration, even if no monetary compensation.

To-day, I have a serious task. As an employer of labour, as an industrialist and as a Member of your Lordships' House, it is my bounden duty to speak to your Lordships about the paper and board industry in this country. I shall try to explain to your Lordships the implications, repercussions and possible serious effects that this little Free Trade Area may have upon this industry. But let me say at once, and make it quite definite, that we in the paper and board industry understand the political and economic case for a general and complete European Tree Trade Area on the lines that were originally proposed by the British Government.

I suppose that, before I speak to your Lordships, I should, as all directors are bound to do, declare my interest, as chairman of one of the greatest paper, board and packaging groups in the United Kingdom. It is with that background that I wish to express to your Lordships a few doubts regarding the potential value of the little Free Trade Area not only to the paper and board industry but also to our general British economy. I have only this morning seen the White Paper, and I hope that the noble Earl who is to reply to the debate on behalf of the Government will confirm in quite definite language the safeguards on special sections and dumping. I would again stress that any criticisms that I may make refer not to the general all-embracing European Free Trade Area, but only to the Outer Seven.

I think we all realise that the economic effects of this little Free Trade Area will be a diversion of trade, rather than reduced prices to the consumer, large-scale production, specialisation or even a better division of labour. The market open to us internally in the little Free Trade Area will be no more than 88 million, as compared with the United. Kingdom population of just over 50 million. By contrast, the population of the Common Market is 165 million, and the population of a general, comprehensive Free Trade Area would be 280 million. We know the object of this Outer Seven, and it does seem that this is really a case of a sprat to catch a mackerel. It must be obvious that, relative to the size of their domestic economies, the other countries of the Outer Seven must gain considerably more than Britain. Gains to the United Kingdom in exports may not be very significant, because the area of enlarged market is very limited, and, since our tariffs are higher, the sacrifice that we make for entry is considerably greater. In view of this, are we, at least on economic grounds, quite so certain that the little Free Trade Area would facilitate the formation of the general Free Trade Area that we all want?

The paper industry is a case in point where exactly the opposite is likely to be true, for the following reasons. First, the adoption of a common external tariff by the Common Market will lead to increased protection in Germany and the Benelux countries against Scandinavian exports at the same time as British protection is taken away. Secondly, the Scandinavians will therefore have a golden opportunity to divert their exports from the Common Market to the United Kingdom, with considerable benefit to themselves. It follows that both inside and outside the Common Market there will be built up important interests that will not readily wish to see the situation changed later on. No doubt there are political considerations, as we have heard to-day, and they may be the main motive for the establishment of this little Free Trade Area. If they are the main motive, it is, I feel, not only fair but essential that no single industry should be sacrificed on such dubious grounds and for such limited compensating benefit. Distortions may arise in the intra-European trade structure. Once those distortions are there, it may be very difficult to correct them; and, I again emphasise that, if they cannot be corrected, they will reduce the chances of successful negotiations for a general Free Trade Area.

I must give your Lordships a brief synopsis of the status of the paper industry. The imports of wood pulp and paper into this country are the largest single industrial item, representing nearly 30 per cent. of our total industrial imports from the little Free Trade Area countries. It must be known to those who have considered the implications that the paper and board industry is a very substantial employer of labour (and I would emphasise this to the noble Lord, Lord Pethick-Lawrence; I think it was he who mentioned it), particularly in certain areas. Moreover, it is the very small paper makers who create the employment in certain specified areas; and speaking from my own knowledge I can say that local effects from any serious setback to this industry in certain parts of England and Scotland could be very serious.

The approximate capital investment in this industry at replacement values is no less a figure than £350 million, and investments in additional fixed assets in the eight years between 1950 and 1957 inclusive was of the order of £130 million. I should at this stage warn your Lordships that if any substantial part of these assets were to become redundant, they are so specialised that they could not be converted to other uses and would constitute an absolute capital loss to this country. I do not think anybody in this House will realise—there is no reason why he should—what it costs to put in a new paper machine: it is of the order of £5 million, and probably means five to seven years' planning in advance.

The potential tonnage of paper and board available for diversion to the British market is as much as 17 million tons—and that is without any increased production on the part of the Scandinavian countries. British output of paper grades based on imported wood pulp, excluding newsprint, which bears no tariff, amounts at the present time to 14 million tons. As the total output of paper and board in the United Kingdom is about 3.4 million tons, the tonnage that it has been shown possible to be replaced by diversion to this country, of no tariff, is no less than 40 per cent. of the total output.

In spite of an article in the Financial Times which accuses the paper trade of exaggeration, I hope that your Lordships will realise that if this little Free Trade Area comes into being on the present suggested terms, there will be nothing to stop the imports of wood pulp being replaced by the imports of finished paper. If this should become a fact, the additional cost in imports to this country could be as much as £60 million. When you consider that the total estimated exports gain to the United Kingdom is probably no more than £150 million, the paper and board industry could represent an offsetting factor of more than one-third of this figure. I think your Lordships will feel with me that this establishes for the industry the very strongest claim for insisting that its case should receive proper and detailed attention from the Government before—not during or after, but before—any final conclusion is reached on this proposal.

Now let me come back more to home. I was talking the other day to a very distinguished Member of your Lordships' House who asked me whether it would be possible for the leading paper and board makers in this country to use the substantial amount of wood which will be available from the forests in Scotland in 1965. That could well be impossible if we were to allow finished paper and board from Scandinavia to replace any substantial part of the paper at present manufactured in this country. In that case, all ideas of pulp development in Scotland and other areas, and the opportunities for employment that have been envisaged, may well be frustrated. We should realise that the very large amounts of wood which will result from the forest developments that have been and are being promoted—which have been and are still being encouraged—can effectively be used only if the paper and board industry is prepared to develop pulp mills in this country.

It has to be realised that the formation of a little Free Trade Area would not provide any compensating benefits by way of improved access to Continental Europe, such as the British paper and board industry might enjoy in a general Free Trade Area. For this reason, and also in order to reduce to a minimum any trade diversion effects that might ensue from a smaller Free Trade Area, this particular British industry is on firm ground in asking for certain provisions to be made. In order to allow the industry sufficient time to plan and to re-align resources, the proposed transitional period should be extended from ten to twenty years (twenty years is only just sufficient time for us to lay down our great big machines, if it has to be done), and the initial tariff reduction should not exceed 10 per cent.

In order to avoid the distortionary effects that would result, from the diversion of Scandinavian sales from other countries to the United Kingdom, a tariff quota should be established, based in the first instance on, say, the amount of 1958 imports, but to be gradually relaxed thereafter. In order to ensure the same access to raw materials—and this is a serious point—even to the extent of allowing British firms to undertake operations in Scandinavia (I do not know whether that is wanted), specific rules should be introduced to ensure freedom of establishment, liberalisation of capital move- ment and fair competition. These, I promise your Lordships, are not just safeguards. They are amply justified in that they would remove some of the inequitable features of the present proposals. They are the minimum required if you are to preserve this great industry within the little Free Trade Area, thus enabling it, at the appropriate time, to utilise and develop the forest resources of this country about which I spoke earlier. They should be acceptable to the Scandinavians, because they will still benefit very considerably from the proposals.

The paper industry, the sixth largest in monetary value in the United Kingdom, is not one that sits down and weeps over its sorrows. It is one that has a tremendous amount of use for the natural assets of this country. Its planned expansion implements and necessitates a great deal of capital expenditure. It is a go-ahead industry which continuously intensifies its research for new methods of using paper and board of all kinds, and to meet the incessant demands for paper products. If some of your Lordships would come with me to visit some of the mills, you would be astonished at what is being made out of paper. It certainly is not an industry that should be sacrificed for political expediency without considerable investigation. I would emphasise that we are quite prepared—the noble Lord, Lord Grant-chester, mentioned this—to meet any competition if the quite objective claims for the little safeguards that I have made are met.

There is one other point that I want to stress to your Lordships, because I know that there have been put about rumours which are not correct. I should stress that the whole industry is united in its fears against the treatment that is suggested for this industry. We ask the Government seriously to consider the implications of what they propose to do, and to find out from those who know the possible repercussions on this very efficient industry before they sacrifice it to such a doubtful advantage

4.7 p.m.

LORD MACPHERSON OF DRUMOCHTER

My Lords, like many of your Lordships I was brought up as a free-trader, but we must all recognise, whether we like it or not, that we are now living in a protectionist world. The Common Market is now an established fact, and we must face up to its implications. Its success, by the way, is by no means a certainty. They are strange bed-fellows, the Germans, the French, the Dutch, the Belgians and the Italians. The present impasse in the coal trade in Belgium is a sample of the kind of troubles which lie ahead.

The Common Market itself is not exactly a closed shop with the same hard and fast rules for all its members and the products it deals with. Like the last speaker, the noble Lord, Lord Cornwallis, I take comfort from the fact that the Common Market arrangements are full of reservations, special arrangements, exceptional conditions and qualifications. I hope also that he and his great industry for which he has been speaking will take comfort from the earnest plea made to the Government by my noble friend Lord Pethick-Lawrence to-day, to see that special consideration is given to special industries in special circumstances, and that what has happened in the Common Market will provide for the organisers of the Free Trade Area an example to do something similar. In my opinion, the worst feature, and one which put the possibility of our joining the Common Market out of the question, is the fact that, anyhow to my mind, the whole idea is the ultimate objective of political unity, culminating one day in a kind of United States of Europe. I may be old-fashioned, but I have never seen anything in Governmental or political systems in the Continent of Europe, or even in the United States of America, that I should like to see this country join in or change for their systems.

In present circumstances, we in this country must look after ourselves, and the Free Trade Area, I think, is something we should all support: first of all, so that we can do something to repair the damage which the Common Market is designed to do to our export trade to the six countries. We can do this to a certain extent by making arrangements with other European countries to join up with us to protect and further our mutual interests, as is proposed under the Free Trade Area scheme. Secondly, I support the project in the hope that when the Free Trade Area is well established we shall be able to negotiate from a stronger position to create a Free Trade Area for all the members of both groups. The point on which our earlier negotiations with the six countries fell down was our commitments to the Colonies and to Commonwealth countries. But is it appreciated that the overseas territories of France, Italy, Belgium and Holland are all associated members of the Common Market, and with a few exceptions all the preferences enjoyed by the six countries are shared equally by their colonies?

I should like to urge the Government to try to persuade other countries, in addition to the proposed seven, to join the Free Trade Area with us. For example, I have in mind Yugoslavia, a young country courageously fighting to rebuild its economy, and hemmed in on its frontier by seven other nations, including Italy, which is in the Common Market, and four other countries adhering to Russia. Yugoslavia is eager and anxious to develop her import-export trade with the United Kingdom, and I shall be grateful if Her Majesty's Government will have a look at this suggestion.

In conclusion, may I urge the Government at all points in their negotiations to set up the Free Trade Area and, where the trade and commercial interests of our country are affected, to maintain the closest possible consultation with the organised trade and business interests concerned in the United Kingdom? There is some criticism that this is not always done. If the Government wish to take the goodwill of the United Kingdom trade and industry with them in this great new project, they will be well advised to watch this point carefully.

4.13 p.m.

LORD BALFOUR OF INCHRYE

My Lords, when my noble friend Lord Swinton moved his Motion and gave us the opportunity of this debate this afternoon, he prefaced his remarks by advocating a realistic approach to a situation that exists rather than debating the merits or demerits of a Free Trade Area—an approach with which I am naturally in entire agreement. But I must say that it did occur to me to wonder whether some of your Lordships have read Robert Graves's book, Goodbye to All That, because there are sitting quite near me in this House now those who fought elections on the traditional Conservative policies—I fought them myself—maintenance and expansion of Imperial Preference, tariff discrimination for the home market, reserved first for the home producer, second for the Commonwealth producer and third for the foreigner, and the Ottawa Agreements that my noble friend did so much to bring about in 1932 and the results of which I believe pulled this country through the then depression quicker than any other country in the world. Even in 1950 and 1951 there were the brave words spoken in their Election literature by the Party to which I have the honour to belong as to what they would do to G.A.T.T. when they got into power. I think the thought of Goodbye to All That is not inappropriate, because little remains of that to-day except the shadow of Imperial Preference that is not to be extended; and of Ottawa little remains except the precious principle of free entry into our home market of Commonwealth production.

In place of this we have the biggest free trade Government there has ever been. We have an implicit belief to-day in the doctrine of non-discrimination in international trade. And let me remind your Lordships that at the same time we are about to enter one of the biggest areas of discrimination the modern world has seen, which I will say a word about in a moment. It is The old order changeth, yielding place to new ", and it is no good jobbing backwards; but since 1946 successive Governments have followed in the economic footsteps of Mr. Gladstone. To-day I believe there should be alongside the statue of Mr. Cobden in Manchester a new statue. Your Lordships know that lovely statue The Three Graces; it would be The Three Graces of the Conservative Party—economic graces: Amory, Eccles and Maudling. It is indeed a change!

But, having said that, let us give credit where credit is due. The country rides high to-day in a turbulent world. Our currency is strong and our trade position is an improving one. If some of us have some back thoughts on the knife edge on which our economy rests in relation to the rest of the world, and some of us sometimes feel fearful at the narrow margin of our balance of payments posi- tion, while we rejoice at what the economy is doing to-day, you can write us off as gloomsters and doubters. To-day we accept that now we are on the brink of big new developments brought about not only for our own economic needs but, as the noble Lord, Lord Pethick-Lawrence said, for political unity in Europe, and I would also say for the questions of N.A.T.O. defence of Europe against the menace to the free world. Those are factors which to-day have an implication on economic policies. In the old days one could deal with economic policies in one compartment, political policies in another, defence policies in another; but to-day they are so interwoven that one cannot be separated from another.

Also we must remember another influence that has brought about the position that we are entering to-day, and that is the dominant influence of the United States, who have certainly since 1946 never ceased to urge on this country policies of non-discrimination while themselves holding very firmly to their own self-contained bloc and being very reluctant to relax the discriminatory position which they enjoy. I believe that this policy of Britain entering the Seven is justified only if it prises open to us an amalgamation with the markets of the Rome countries. It must lead to that or, indeed, it may lead to increased dangers of dividing Europe into two for all time. Therefore my support for the doctrine is based upon the conditional coming off, as it were, of the gamble. Bring off the gamble and it is well worth while; if we do not bring off the gamble we may find ourselves in a very difficult position. We have to remember that the Seven represent about 9 per cent. of our trade; the Rome Treaty countries represent about 13 per cent. of our trade and the Commonwealth represents about 50 per cent. of our trade.

We are told that there must be a price willingly accepted by certain industries for Britain's entry into the Free Trade Area. I should like to say a word about that. We are told that some may suffer. In modern government parlance it is called "readjustment"; but in fact it means that people may be put out of their traditional employment, as we have heard from the speech of my noble friend Lord Cornwallis. We are told that that is a price which must be paid by specific industries in the general interests of great multilateral trade. It is all right to talk in general terms, but when you come down to a position such as that which my noble friend Lord Cornwallis deployed in regard to West and Central Kent, where the whole economy of the area depends upon that single industry, then indeed it is something more than can just be brushed off by the phrase "readjustment" or "re-deployment of labour." It must be measured in terms of loss of trade and of human tragedy for those affected.

There was a letter in The Times of to-day from the knitwear trade. We know that the optical industry and the cutlery industry are going to suffer. It may be that they are going to meet competition, but of course that can lead to dangers to those industries. There is agriculture. My noble friend will no doubt be speaking to your Lordships with far greater authority than I, but undoubtedly agriculture is going to run into dangers. I do not feel able to say whether they are going to be able to avoid them or not, but there will be new dangers. Then there is the Scottish timber industry. As a result of our policy of non-discrimination abroad, we are unable to help the West Indies any more with their citrus products. Equally, the Rhodesian tobacco industry may be in difficulties. We must be careful that we do not divide industry by this policy of multilateral agreement into victors and victims. Let us be very careful to see that those who suffer have a measure of protection that I find it difficult to read into the White Paper.

I hold in my hand the Customs Duties (Dumping and Subsidies) Act, 1957. I want to ask the Minister a definite question, if he would be so good as to deal with it in his reply. It is: does this Customs Duties (Dumping and Subsidies) Act, 1957, apply within the free trade area of the Seven? Secondly, I would ask, can we apply the operation of this Act without having to get the permission of our partners in the area? If the answer to the two questions that I have put is "Yes", I personally shall feel that we have a degree of safety for the protection of those who are likely to suffer such as I do not feel at the moment.

Let me suggest to your Lordships that we rid our minds of the idea and the fallacy that free trade areas mean free trade—they do not. They are merely the union of protected areas larger in size than we have been accustomed to. These areas reserve to themselves the internal trade of themselves, with little consideration of the effect of their policy on the outside world. In regard to the Rome Treaty, we felt our interest in Britain to be with those countries if we could have formed a common market. So we tried the common market proposals. But France, quite logically, felt that there was no reason why she should share with us and the O.E.E.C. countries the exclusive empire of discrimination which she had been helping to create. Therefore we could not try it. We have now got this little Seven. I repeat that the main point that I should like to suggest to your Lordships is that we are justified in going into this little Seven only if we obtain eventual amalgamation with the Rome Treaty countries.

My last word is this. We are told that the Commonwealth has been kept informed of developments. I would suggest that more should be done than that. As and when what I have called the gamble comes off and we get the Seven and the Five together, then let us call a Commonwealth Conference to see where we can bring segments of Commonwealth production of raw materials and industrial products into this vast area. So, while maintaining our preferential treaties—they are not much stronger than that, fine as they are to-day—we should at any rate arrest the worrying drop in Commonwealth trade which is going on at the present time. We all want all the trade that the world can produce. We all want to see that increased. So I would urge the Government to put into effect with the Commonwealth the strength and enthusiasm that they have so rightly put into bringing about the present Free Trade Area as a first step to larger moves.

4.26 p.m.

LORD FERRIER

My Lords, my noble friend Lord Polwarth had put his name down to speak on this Motion, but the change of date has prevented him from attending and has given me an opportunity of making at least one point that I know he proposed to make. I will not conceal from your Lordships my delight at the fact that the noble Lords, Lord Cornwallis and Lord Balfour of Inchrye, have dealt far more ably than I could have done with the broad point of the paper industry's approach to the proposals as we have them before us to-day. I will therefore confine myself to two points.

The first is, as it were, to dot the "i's" and cross the "t's" in regard to the point made by the noble Lord, Lord Cornwallis, which applies particularly to Scotland—more so perhaps than to England; that is, that the paper industry there is situated in rural or semi-rural areas, and by virtue of that very fact, added of course to the specialised nature of the buildings and the plant involved, the industry as a whole is one which it is not possible to re-deploy in the event of difficulty. As Lord Cornwallis said, it is a total capital loss if it has to go under in the face of competition which it cannot meet.

The other point from the Scottish angle which I should like to make is that, important as the percentage of workers is in this industry in England and Wales, in Scotland the proportion is of even greater importance, in that the numbers are a higher percentage of the overall working population than they are in the South. Therefore, damage to that industry comes with greater impact upon the labour situation in Scotland, if it is to come at all. I think it is fair to say that, like other noble Lords who have spoken, I am one who, in general terms, welcomes the breaking down of trade barriers. But it is clear that there are real reasons why a warning finger should be held up in order to make sure that the effect of these measures may not bring difficulty and distress to this country.

Then, also from the Scottish point of view, there is the question of the provision of wood pulp. I can see from the list of speakers that there are other noble Lords who are much better qualified than I to approach the matter of the potentialities of the wood pulp industry in the North, whose main consumer would be the paper trade. As I said to begin with, I am delighted that my main points on the subject have been made by other and more competent people than myself. But I would add, in broad terms, that I feel that, so long as industries which are likely to suffer inordinately are prepared, the prospect of the breaking down of trade barriers is one which as a whole can be welcomed.

4.31 p.m.

THE DUKE OF BUCCLEUCH AND QUEENSBERRY

My Lords, the Stockholm proposals are presumably welcome to British industry as a whole. But among the less satisfactory problems likely to arise is the effect on British forestry and the post-war forestry programme. It may be too early to say much, but the dangers appear sufficient for it to be necessary to speak to-day on behalf of State and private forestry. If I should declare once again a personal interest in forestry, perhaps I may also say that I have worked hard and long for all who are in forestry.

SEVERAL NOBLE LORDS: Hear, hear!

THE DUKE OF BUCCLEUCH AND QUEENSBERRY

The policy of Parliament since the war has been one of expansion. I should like to refer to the large national and private investment in forestry. Successive Governments have invested big sums in the growing of trees, and woodland owners have been urged to do the same. We believe that the present Government will not wish to jeopardise the success of recent policy and to lose the money invested. The future of forestry, especially in Scotland, with the trend towards conversion into chipboard, hardboard and pulp, through various processing methods, will depend much upon sales of our produce for these purposes, as well as upon the vast sales which we make now, and hope to continue to make, to the National Coal Board.

At present, thanks to the helpful co-operation of the National Coal Board, a large and increasing volume of home-grown timber is being used in the mines. The Annan chipboard factory and the new Bowater pulping mill on the Mersey are amongst other great assets, and most helpful. In five years' time, and thereafter, forestry will be much more dependent upon new processing plants either for board manufacture or pulp. The official forecasts of the volume of conifer thinnings available for sale by 1965 and again by 1975 indicate a vast increase from Forestry Commission and private woodlands combined. For Scotland, the volume of under 12 million cubic feet in 1959 will increase to nearly 18 million cubic feet by 1965, and to 28 million cubic feet in 1975. The Government and their advisers will have in mind the main purposes for which this can be marketed, and have probably been considering the proportion and volume which can be used by the National Coal Board and which will have to go into chipboard and pulp.

In view of the principles agreed at Stockholm, I feel bound to express concern on behalf of forestry and to ask whether there is serious reason for anxiety about increased Scandinavian exports. There will, in any case, be much increased competition to papermakers and board mills, and new ventures will be discouraged from starting. And how can we tell how much existing ones will be injured? I was grateful to the noble Lord, Lord Cornwallis, for the way in which he brought forestry into his statement concerning the paper industry, and he, too, showed clearly how the forestry programme may be injuriously affected if the paper industry is also injuriously affected.

I should like to add a few words to support what has already been said on behalf of the paper industry. From my long family association with Midlothian I should naturally do all I can to urge upon the Government the importance of the wellbeing of the paper mills, large and small, up and down the little valleys in Midlothian and other parts of Scotland, and of the families dependent upon them. I was pleased to see a Report from Sweden yesterday that the outlook here should be better than was thought and that there is no intention in Sweden to injure our paper industry. I hope that is helpful. But I must also emphasise that the prosperity of these paper mills is very necessary to forestry, and will be more so if, as time goes on, a principal outlet must be for pulping. In many European countries the connection between paper mills and forestry is very strong, and we hope that one day it will be so here, too.

I am sure that my many timber-growing friends in Sweden, and also in Norway, do not wish to destroy a young, growing industry here by excessive interference with the sale of our produce. I feel that there is scope for useful conversations by our ministerial representatives with persons in those countries. I think that there is provision for such conversations, and also for special cases of this kind to be specially considered. Examples can be given of other industries using wood, which are essential to forestry, and which are experiencing severe competition already and are anxious in case they may have to close down.

If some words about forestry itself are needed to support the claims for its future, I would say that now more than ever previously—perhaps partly due to Government encouragement in recent debates to growers to be more active in selling their timber, and to the principal consumers in this country to use it—we are making an increasingly determined effort; and the response from the National Coal Board, British Railways, Government Departments and the larger wood-using industries is very friendly. We find a readiness on the part of all to try to use more home-grown timber, provided that we produce it of the quality and specifications required. This is being developed, and at no time have the co-operation and willingness to buy and sell in this country been better. A setback now would be most unfortunate.

Apart from the forestry and industrial aspect, I feel that we can all agree about the importance to the people of Scotland, especially in the Highlands, and of those in many parts of England and Wales, that the expansion of forestry should continue successfully. Britain is not over-provided with these natural resources, which are most needed nowadays. We have land, parts of which, assisted by a favourable climate, can be developed to make a far bigger contribution for the benefit of our growing population and to provide more families with employment and a way of life out of the towns. I think that any of us could develop those few words much further, especially in regard to the Highlands where this is such an essential part of the life of the people. There is a tremendous amount of work continuously to be done in the woods, wisely directed and skilfully executed, in order to produce efficiently and economically timber of the quality and the sizes required. We are a small industry, as your Lordships know, and we should like to feel that the Government will give helpful consideration to any fresh problems which may now be arising and will relieve us of worry and uncertainty. We are trying to recover from the war-time sacrifices and devastation of all the best trees, which certain other countries were fortunate not to suffer. I trust that I am justified in my remarks, and if the Government do see any danger I hope that they will find ways to overcome it.

Without going too much into detail to-day, may I suggest some of the ways in which they could help? If prices to growers have to be reduced further, in order to enable timber users to buy economically in this country, would the Government consider afresh the financial help at the planting end and during the thinning period, bearing in mind that the thinning grant was recently withdrawn? Will they also consider financial help, as I understand is done in Northern Ireland, for the provision of factories, ex cetera, for processing? And will they also in their negotiations endeavour, so far as possible, to slow down the pace of reduction of tariffs? My Lords. I believe that my remarks are understated. I know that many foresters to-day have cause for worry. I wanted to put on record some of the reasons and ask the Government to do all they possibly can—and even a bit more.

4.43 p.m.

THE EARL OF BUCKINGHAMSHIRE

My Lords, I am sure we are all grateful to the noble Earl, Lord Swinton, for putting down this Motion, if only because it gives us an opportunity, which has already been taken, to point out the fears of some of the minor industries and some of the major ones, such as paper. The noble Earl rightly welcomed the formation of this "Outer Seven" Free Trade Area, and he welcomed it because he hoped it would be a bridge to a wider association with the Common Market. It is in that spirit that I make these few remarks, and in the spirit of acceptance of that, and I hope that the Ministers who are going to reply will appreciate that our remarks are made in that spirit. In the debate on the bacon agreement last week my noble friend Lord Waldegrave expressed surprise that the Motion of the noble Lord, Lord Silkin, did not express anxiety or doubt but spoke of "disaster". I should like to reassure him that that is not my intention. I am sincerely expressing some of the anxieties and doubts felt.

I am sure we are all grateful to the noble Lord, Lord Cornwallis, for his very strong plea from the angle of the paper industry. In that plea he expressed the fear that is felt in a number of industries, such as his and my own, forestry: that if the Outer Seven do not join the Six Common Market members to enlarge the Common Market, certain countries may flood our country with such things as paper. My Lords, what has not been said yet is that the paper industry is the customer of a number of other industries, such as coal, transport and shipping. There are other industries, I believe, as well, which I will not mention to-day; and of course it is a very big customer of forestry. It is about this matter that the noble Duke, the Duke of Buccleuch and Queensberry, made his few remarks, and I want to dot a few i's and cross a few t's.

As the noble Duke said, if the paper industry's fears come true there will be a very big effect on forestry which could be very serious. And not only that; we may get direct imports of timber as well. I sincerely trust that forestry is not just to be treated as a pawn for relatively modest gains to British industry. It would be tragic if that were the case. The duty on timber is very low, and I believe is non-existent for such things as pitprops, telegraph poles and pulp. I understand that it is 20 per cent. on wall boards; £2 15s. per ton on wood wool; 17½ per cent. on hardwood flooring blocks; 12½ per cent. on box boards and 20 per cent. on furniture. I live near High Wycombe, in a furniture trade area, and although all the firms are big importers of timber I am sure they would not wish the duty to be reduced any further.

I am also given to understand (I have this information secondhand, so it may not be correct) that timber merchants, particularly in the North of Scotland, say that only 5 per cent. of all the timber that is bought is from home-grown sources, and it would be of tremendous advantage to them if this 5 per cent. were put to the top. I regret that I did not give notice of the point that I have just made, as I heard of it only this afternoon; but I understand that is the case.

I should like to ask Her Majesty's Government three questions. The first is: what effect will this agreement have on such industries as wood-turning, pulp and wallboard? Secondly, how will it affect the supply of timber for trunk-road fencing and sleepers for railways? And, thirdly, are there to be any safe-guards to British forestry such as have been made for bacon? In that connection, as other noble Lords have said, all of us have only just had the White Paper on the draft agreement, and it looks as though the answer is in paragraphs 19 to 24. I sincerely hope that that is the case, and I hope that the noble Earl who is going to reply will be able to assure us on these points. Timber growers stand to lose far more from the loss and the absence of markets if this Agreement comes about than they can gain from grants and subsidies, and we are very anxious to see that our markets, as the noble Duke said, are safeguarded. I hope that we may have some reassurance on these matters this afternoon.

4.48 p.m.

VISCOUNT COLVILLE OF CULROSS

My Lords, since I am not qualified to talk about the broader aspect of this matter, I hope that I may follow the invitation of the noble Duke and talk for a very short time on the Highland aspect of this problem as it is affected by the forestry troubles that we may perhaps expect as a result of this Agreement. Of course, my Lords, the further North we go, the further the trees are from people who are going to use them in manufacture; and notwithstanding the encouraging news that the noble Duke has given us about the increasing use of British timber, it is the people who grow it in the crofter counties in the North and West of Scotland who feel that added impetus less than anybody else.

I was reading the other day the new White Paper issued in June, Review of Highland Policy. In that White Paper I find that there are five basic industries which are described for the Highland area, and the second of those is forestry. The noble Duke has already emphasised its importance, and we find it there, second in the list. I should like to read to your Lordships what this White Paper says about the importance of forestry in the Highlands. It says: Forestry will continue to play an important part in the programme of Highland development. Apart from its commercial and economic value to the country as a whole"— that is, supplying timber from the place where it can be easily grown— it is a means whereby viable communities are most likely to be retained and in some cases restored to rural areas. Moreover, the employment it provides is very often whole-time and includes specialised work such as operating and servicing mechanical equipment which may well appeal to the younger man. In fact, my Lords, this is the question of preventing the depopulation of rural areas; and it is the same point as was mentioned by my noble friend Lord Ferrier. He said in the small rural communities which are set up around paper-making mills the very danger to their one source of employment is that much greater simply because it is the one source of employment. The same is true, in many parts of the Highlands, of forestry; and it is about the only industry that can be devised at the moment which will induce young men to stay there.

So, my Lords, Her Majesty's Government have announced: As the forests mature every effort will be made to encourage the development in the Highlands of timber-using industries of which the recently announced chipboard factory at Inverness is an encouraging sign. Then they go on to describe the Forestry Commission's proposals for the next five years. They say that this year the Commission are to plant 10,000 acres in the crofter counties—that means Argyll, Caithness, Inverness, Ross and Cromarty, and Sutherland, certainly; but not so much Orkney and Shetland, because trees do not grow there very well—and that, for the remaining four years, they expect to plant 11,500 acres in 1960; 13,500 acres in 1961; and 14,000 acres each in 1962 and 1963. They also say. In addition to this, it is estimated that private owners will plant a total of approximately 20,000 acres during this five-year period. My Lords, what is going to happen to all that wood? There is no doubt that it is difficult to sell now; and there is a very distinct anxiety lest the introduction of the European Free Trade Area may make it even more difficult to sell what there is now, and quite impossible to sell what is about to be planted. The obvious thing to do with that timber in the far North is to use it on the spot in such projects as the chipboard factory in Inverness. But who is going to put up these projects? The noble Lord, Lord Cornwallis, has already given a dire warning that unless very favourable terms are made for his industry they will not be able to do anything very much about it: and I cannot see that the woodland owners themselves are going to put projects into effect when they know that they are up against this tremendous competition from the other side of the North Sea.

My Lords, that is the problem—what is going to be done with the wood? I cannot ask for any specific answers this afternoon, because this is not a forestry debate. But what I hope Her Majesty's Government will be able to do—if not to-day, then very soon—is to give a lead for this area, in particular, and, of course, for the rest of the country. I hope they will be able to tell the Highlands that the programme as laid out in the June Review is not going to be altered: or, alternatively, if it has to be altered, let them say in what respect. And let them give as much warning as they can of the likely impact of this new association on the forests in the North—because, of course, forestry is such a very long-term project that, unless one has the most up-to-date information beforehand, a tremendous amount of money can be wasted very quickly indeed. Therefore, I hope that assurances—or, if necessary, discouragements—will come from Her Majesty's Government on this aspect as soon as possible.

4.56 p.m.

VISCOUNT STONEHAVEN

My Lords, I think it might not be wrong to describe this debate as a "You have been warned" debate. Furthermore, a very reasonable proportion of the noble Lords who have taken part may be here in twenty years' time to tell Her Majesty's Government that they told them so. Nevertheless, I should like, in general terms, to welcome the "Outer Seven" Free Trade Association. I also have my warnings, which I will embark upon as shortly as I can.

Before I do so, I should like to take up a point made by the noble Lord, Lord Grantchester, which I think was rather unfair. I see he is not here, but I will make the point and hope that he will read it. He said, if I understood him correctly, that in his opinion very little indeed had come out of the Council of Europe, and such bodies as that. My Lords, I travelled in a car from Norway through all the Scandinavian countries down to Germany, and back through Holland, and I was asked to produce only an international certificate of insurance, and no other car documents whatsoever. Five years ago it would have been necessary to have a whole ream of stuff. I do think the noble Lord, Lord Grantchester, should give credit for that. However, that scarcely comes into this debate.

One of the chief reasons why I welcome the formation of the smaller Free Trade Association is because the main Free Trade Area fell down on negotiation in O.E.E.C. largely owing to French fears, I think I am right in saying, on the certificate of origin, and one or two other points. There were only about three main points which really worried the French; we either would not or were unable to move on those points; and, therefore, we were out. Therefore, if, as I hope, we can make this smaller association work, the French will see that their fears were groundless; and in a few years' time we ought to be in a very much better position to negotiate with the main Common Market countries than we are at the present. But I think we should not endeavour to do so until we have made some successful working arrangements ourselves. Provided there are reasonable escape clauses, and clauses dealing with unfair competition—as, indeed, were envisaged in the main Free Trade Area, which did not come about—I do not think any permanent harm should come to any industry. Her Majesty's Government have all the experience of those negotations to go on, and I feel quite confident that they will not let us down.

However, I think it must be remembered, that the main products which the Scandinavian countries in the Outer Seven have to sell are timber, pulp, and agricultural products. They are not industrial countries, and we can hardly say to them, "You must buy all our machinery, but we are not going to buy all your wood, pulp, timber, and what-have-you". They must have something to trade in. Therefore, some method of operating must be found, taking account of those facts. It is no good thinking that we can impose terms which are entirely to our benefit and which are not,, at least on paper, equally to their benefit, because they just will not agree. So much for the main point.

I want now to say a few words about Scotland, and particularly about the difficult employment areas. In a way, the whole of Scotland is a difficult employment area, but the remoter and more rural parts are especially difficult. These areas could be assisted by the two industries which have been thoroughly discussed this afternoon—forestry and paper-making. I must here declare an interest in forestry, as so many other speakers have done. Both of these industries could be hard hit by the Free Trade Association. Forestry enjoys very little protection. Wood pulp comes into the country free and the tariff on peeled round softwod is not much more than 1d. per cubic foot, which is a very small sum. If I am wrong in that figure, I should like to be corrected.

The timber trade is already being hard hit by the shrinkage in the box-making trade. One of the chief competitors is the paper-making industry itself, owing to the large expansion in the use of cartons. In this respect the paper-makers are hitting the timber growers quite hard. Then there is the disappearance of the railway wagon trade, because wagons are now made largely of steel. I suppose that that is inevitable. There is also the suspension of the railway sleeper trade. I believe that the Transport Commission are going over to concrete sleepers—certainly they will have to do so eventually. There is also the reduction in stocks of pitwod held by the National Coal Board, and the closure of small uneconomic pits which used to take a large amount of awkward sizes of pit woods. All these developments cannot be blamed on anyone, but they have to be reckoned with. Above all, there is the rise in transport costs, which hits us all.

As we have heard, we have a large number of growing trees but the point not always stressed is that we are starting largely from scratch so that the proportion of young trees to mature saw timber is completely out of balance. As a result, we have a twenty to thirty year period of what I may call extraordinary circumstances to cater for before we get a large production of mature timber. The figures that I am giving I have con- verted into tons, because the paper-makers talk about the tonnage of wood required to make a ton of pulp. The combined approximate total of thinnings in Forestry Commission, dedicated and managed woodlands in Scotland alone in 1959, converted to tons, is expected to be 387,500 tons. In 1965, it is expected to be 590,000 tons and in 1975, 945,000 tons.

At the moment the paper-making industry is enjoying the expanding use of its products, which is very much to its credit. They are selling more products year by year and making bigger profits, as they themselves admit. It seems to me a possible solution to some of these troubles—or at least a point of discussion on them—if the Scandinavian countries would agree not to increase the ratio of their exports to this country of wood pulp and finished paper. If they kept their ratio the same, I do not think that the paper-makers would have the fears that have been so eloquently expressed this afternoon.

A modern pulp mill, on either the sulphate or sulphite process, produces about 100,000 tons of pulp a year. It requires three tons of wood to make one ton of pulp. That means that the 300,000 tons, the total of the Scottish thinnings this year, would be required to keep one pulp mill going on a profitable basis. On the other hand, if we are going to start thinking of building a pulp mill, it would be four years before that mill was turning out pulp. This underlines the urgency of the situation. In four years' time, the product of thinnings is going to be three times the amount required to keep a mill going at full blast. If a road were constructed from about the Linn o' Dee across to somewhere near Balnaspic—a matter of twenty miles—and a pulp mill set up at Fort William, where there is adequate clean water from the tailrace of the hydro-electric aluminium works, deep-sea wharfage available and access to the whole of the West of Scotland, that might be a possible plan to consider. I could imagine the coastal traffic building up, and all that area of Scotland, which is eminently suited to the growing of trees, could be exploited much better than it is at present. In addition, if that road link were built, it would be a great tourist attraction.

Suggestions have been made about chipboard factories, but development of that sort is limited. One pulp mill placed in the West of Scotland, with facilities of access, might solve the whole problem. Again it might not. I put out the suggestion as worth considering. I would also point out this consideration to paper-makers. They know that there are adequate quantities of timber available for pulping, which was not the case before, and I would say that instead of talking about the possibility of operating Scandinavian pulp mills, why not operate a mill in the West of Scotland and support home industry? When all is said and done, the paper-making industry is shouting loudly now, but they did not help us to grow trees to any noticeable extent in the past. Now there is the opportunity to do so. I feel that during the whole of the negotiations between Her Majesty's Government and the paper industry, the part that the paper-making industry could play in helping the difficult areas of Scotland should be brought constantly to their notice.

5.10 p.m.

THE JOINT PARLIAMENTARY SECRETARY, MINISTRY OF AGRI-CULTURE, FISHERIES AND FOOD (EARL WALDEGRAVE)

My Lords, it may be convenient if I reply at this stage in the debate to one or two of the forestry points that have been raised. We have heard some thoughtful and interesting speeches on this subject from noble Lords, and I would particularly mention the helpful and moderate speech from the noble Duke the Duke of Buccleuch and Queensberry and the interesting, challenging and energetic speech from the noble Viscount, Lord Stonehaven, containing many thoughtful ideas as to what can be done to help us here.

I think at the outset I must say that it is a false analogy to compare agriculture with forestry in this context. The noble Earl, Lord Buckinghamshire, said that what we had done for pigs—or some such phrase—we could do for forestry. I must point out that right from the inception of the Free Trade Area talks it has always been agreed that agriculture would have to be the subject of a separate agreement, as the Free Trade Area is concerned primarily with industry. Noble Lords will see from the White Paper, Section 4, that this concep- tion still stands in relation to agriculture and bilateral talks have already been held with the Danes; and we had a full discussion on that subject on the Motion of the noble Lord, Lord Silkin, last week.

THE EARL OF BUCKINGHAMSHIRE

My Lords, I should like to make it clear that I did not mean that we should have a safeguard as in the case of bacon. I was using that only as an example. It may be that in some different way a safeguard could be introduced.

EARL WALDEGRAVE

I am obliged to the noble Earl. I thought it was wise to allay any doubts on that matter at the outset. We must then really face the fact that forestry is not agriculture within this context; and there is no question therefore of forestry being able to contract out of this Free Trade Area and be protected by any system of tariffs, import quotas, restrictions or the like. This undoubtedly constitutes a challenge, and I do not attempt to burke the issue that competition may be, and probably will be, more severe. But I do not think that we ought to be pessimistic about the ultimate outcome of such competition. We must be realistic, as was said by the noble Earl, Lord Swinton, in some of the first words that he used. Home forestry has not been and is not now protected by high tariffs. It has been brought out by the noble Viscount, Lord Stonehaven, in his speech that there are no high tariffs on timber at the present time. Pitwoods from all sources have free entry into this country. The tariff on sawn and round softwoods is about one half of 1 per cent. of the current c.i.f. price. Wood pulp is free of duty. And even some of the end products of pulp are 'free of duty—for instance, newsprint.

Secondly, there has never been any system of assured markets and guaranteed prices for forestry products as there is for agricultural products, although we should remind ourselves that the home forester has assistance from Government grants. Your Lordships are familiar with the various categories—scrub clearance, planting and management grants—and they are due to be reviewed in about two years' time, or earlier if a case is made out. That, I think, is the point that the noble Duke the Duke of Buccleuch and Queensberry had in mind when he was speaking. The management grant which is replacing the maintenance grant is probably the most helpful of these grants; and, in passing, your Lordships may like to know that the first payment of a management grant has already been made. The payment of these grants was contingent upon an effective Woodland Owners' Association being set up, and this has now been done. I feel that we ought to congratulate the woodland owners for having set up associations for England and Wales, and Scotland.

I fully realise that one of the fears of the home timber grower is that the end products of the timber he grows—chipboard, paper and so on—have up to now had tariff protection which will over a period of ten years, but not immediately, fall away in the Free Trade Area. My noble friend Lord Dundee will be dealing specifically with the paper industry when he comes to reply, but at this point of the debate I would say this: that it must be recognised that some of the British timber-using industries may well face powerful competition as the result of the formation of a Free Trade Association, and that this in its turn may have repercussions for forestry.

The draft plan for the Free Trade Association of the Seven does envisage the possibility of special temporary defensive measures which may include either temporary import restrictions or some slowing down of the process of tariff elimination in circumstances which would otherwise give rise to real hardship for particular industries or regions. One must, however, hope, taking into account the fact that the process of tariff elimination will be a gradual one over ten years, that none of these industries will in the event find itself in circumstances which would justify recourse to these special measures. It must always be recognised that the general interests of the United Kingdom will call for restriction in the use of any such arrangements by any country to the cases where otherwise substantial and demonstrable hardship—"spectacular" was, I think, the word used—would occur if the commercial advantages which we expect from the plan are not to be put at risk of being eroded.

Another point I must refer to in speaking of forestry is that there is a huge market for timber and timber products in this country, and so far the home producer has touched only the fringe of it. For instance, home grown softwoods other than pitwood at present represent only 3 per cent. of consumption. Even in pitwood, where the total demand is admittedly falling, but where there is no protective duty, under 50 per cent. is home produced.

VISCOUNT STONEHAVEN

My Lords, I was trying to make the point that one of the reasons why we were in such a state was that we had none of the kind of timber to sell, because it has not yet grown sufficiently big.

EARL WALDEGRAVE

I think it is a little inaccurate to say that in the United Kingdom we have none of that kind of timber. I admit the devastation that there was to our woodlands during the war, but there is a certain amount of mature timber in this country. I am sure we have great opportunities here with this vast market on our doorstep. And surely it is reasonable to expect that processers such as pulp mills, with the new and technically up-to-date factories that they have erected, or will be erecting, in this country, will be able to meet the challenge and take a full share of the vast market for these products which exists on their doorstep, and be able to utilise large quantities of the timber raw material which is grown in this country.

LORD CORNWALLIS

My Lords, I have tried to point out that the danger is that we shall not be making paper because paper will come in here and take the place of what they send as pulp now. We shall not be requiring any pulp if all the paper is made for us.

EARL WALDEGRAVE

I really cannot accept that all the paper will come into this country. Paper-makers (this is not really my side of the debate—my noble friend will be dealing with this much more efficiently) have a large and expanding market, and to say that all the paper will be coming in from overseas must, I think, be an exaggeration.

There are several most encouraging indications of progress in the home timber industry. I emphasised recently in a debate in your Lordships' House that we must begin to learn to sell our products, and not expect to have a ready-made market provided for us on a plate. The organisations of the home timber growers are being formed. The Home Grown Timber Marketing Corporation Limited has already been set up and has secured a big success, which has confounded the pessimists. When the use of oak for railway wagons began to decline, there were those who said that there could be no other outlet for such timber, and that disaster was round the corner. But already a contract has been secured for the fencing with home grown timber of the new Doncaster by-pass, and I am sure everyone in this House will join in congratulating those who brought this about. There were those who said it was folly for us to have a motor car industry in this country, because we could never possibly compete with Detroit. People who said that look rather foolish to-day. We export motor cars to America.

Though it would be quite wrong for me to suggest to your Lordships that it would be possible to insulate forestry from the effects of Free Trade Area competition, I ask your Lordships to give full weight to the good effects for the country as a whole that this Free Trade Area will bring. This country lives by its exports, and can flourish only if there is a high level of international trade. A prosperous country will provide an expanding market, not only for other members of the Free Trade Area, but for home producers as well. Let none of us forget that it is not only our tariffs that are coming down but the tariffs, pari passu, of the other members of the Free Trade Area. Therefore, it is not only the home market that is available to the timber trade and those who use its products and, indeed, all traders in the country, but the whole vast market of all the seven countries.

5.22 p.m.

LORD NETHERTHORPE

My Lords, I should not have presumed to intervene again in a debate so soon after my maiden speech were it not for the fact that I was sure a certain reference would be made to the agricultural industry during the course of the debate. The Motion of the noble Earl, Lord Swinton, refers to the problems of the Common Market and the proposed Free Trade Area of the Outer Seven. Agriculture has always been regarded as one of the problems inherent in the early concept of the European Economic Community. I think it would be as well if we asked ourselves why this should be so.

Within many of the Western European countries there is a dominance of agriculturists in the population. Most of them are very small peasant farmers. By comparison, for instance, with the United Kingdom, which has only 5 per cent. of its working population gainfully employed in agriculture, something like 33 ⅓ per cent. of the population in France are so employed, and something like 45 per cent. in Italy. In consequence of that distribution of industry in relation to agriculture and the rest of the community, there has grown up a strong tradition of protectionism for their agricultural interests. They have resorted to methods of very high tariffs and quotas, as well as many other less obvious means of supporting their respective agricultures. By comparison, we in this country have, even in the eyes of a most independent body of world economists, under the chairmanship of Professor Harberler, had our system portrayed to the world as the best system for giving support to the agricultural industry against the criterion as to whether or not the system inhibits freer trade in agricultural and other products.

It has been said that if this world is to make progress and get away from the difficulties of the "isms" that are dominating it, we must have a dynamic and expanding world economy. Presumably that means an expansion of trade and of production, and in consequence, we hope, an improvement in the general standard of living of the community at large. If that be so, then it is almost axiomatic that inward-looking nationalism is the very negation of an expanding world economy. Therefore it is in that climate that we have to regard the present situation in relation to world trade and the development of trade associations of a free trade nature.

It was really in consequence of the real problems that beset the countries in Western Europe that the development of the Treaty of Rome carried with it the concept of free movement or freer movement of industrial goods within the European Economic Community, but never for one moment did it ever conceive free trade for agricultural products within even the inner Six. Indeed, rather did it suggest that there should be a somewhat complex system of managed markets. That in no way gave us the impression, on examination at any rate, that free trade was intended even among those six countries. It was against this background that the early approaches for the European Free Trade Area were made by Her Majesty's Government; and they were based primarily on a different treatment for agricultural as compared with industrial products.

If there was any misfortune in those early discussions it was perhaps in the choice of the phrase, "exclusion of agriculture". I think it would have saved a lot of confusion if it had been readily conceded at the outset that there would have to be special treatment for agriculture, not for the United Kingdom's sake but because of the real complexities that existed in agriculture throughout the world, due to the nature of the support that is almost universal in existence though not universal in pattern. The special characteristics of agriculture which mean that the free trade doctrine is unsuitable are, first of all, that in agricultural commodities only a very small change in supplies can react in a disproportionate fall in price; and, secondly, that demand does not necessarily vary in direct proportion with the fall in price. Moreover, the low income of producers is generally relative to the income of the rest of the community. Therefore special treatment on that sort of ground for agriculture in any of these approaches is, I think, imperative. Indeed, when the right honourable gentleman the Paymaster General was having early discussions with the countries within O.E.E.C. with a view to creating a European Free Trade Area, it was in October, 1957, that he submitted a separate agreement for agriculture in order to make possible and facilitate progress in the negotiations for a European Free Trade Area.

The basic concept of that separate agricultural agreement that was put in parallel with the industrial agreement, was, first of all, that there should be confrontation; secondly, fair rules of trade; and, thirdly, commodity arrangements of a multilateral nature intended to create stability in agricultural pro- ducts. But there was one very definite statement in that important proposal—indeed, it has been consistent throughout the submissions of Her Majesty's Ministers, both at home and in discussions with other Governments; and that is that there should be no tariff concessions within the agricultural agreement—at least, there should be no catering for tariff concessions.

What do we mean by "confrontation" in this context? We in the United Kingdom were certainly prepared to face up to confrontation as long as it was universal and two-way. Our experience has been, in fact, that where the system of confrontation of policies with regard to production and price and guarantees, and so forth, has been effected before the agricultural committee in O.E.E.C. its findings have certainly been used and represented to the agricultural industry in consequence. We have, however, had serious misgivings that the same did not apply to other nations' agricultural policies, and that they were not conforming to the spirit and intent of confrontation. So, if it is universally applied and literally implemented, then we have less to fear than some of the other countries may have, and perhaps that is why progress has not been made in this direction.

So far as fair rules of trading are concerned, I agree sincerely with the noble Earl that we must have the necessary safeguards that fair trading is, in fact, operating. But I would go further than the noble Earl, in that I am not satisfied, except in the extremity, that invoking the provisions of the anti-dumping legislation is enough. I think there have to be rules of fair trading even inside the provisions of this particular legislation which deals only with the extremity. I think it was inherent in the proposals that that would be so; if not it should have been so. The agriculturists within Western Europe looked at the Maudling proposals, the preliminary treaty proposals for agriculture, and by and large came to a measure of real agreement on them. Therefore, it could never have been said that agriculture was an obstacle to progress in the development of a European Free Trade Area. I think that is a very important point. We then, of course, had the breakdown in 1958 when the opportunity of prosecuting the European Free Trade Area in a wide sense was denied us by the break-off of the discussions. In consequence, we have sought to develop a bridgehead in the little Free Trade Area or, as we call it, the Outer Seven.

May I say at this stage that I fervently hope, with the noble Lord, Lord Balfour of Inchrye, that it is a bridgehead, and that from it we can develop the concept of slowly coming to agreement on a much wider Free Trade Area than is conceived in the Outer Seven. I say that for this simple reason: that I believe the agricultural problem can never be resolved within the Outer Seven any more than it can be resolved in the United Kingdom alone. I believe that the multilateral trading association of the whole of Western Europe—and, indeed, with room left for the Commonwealth to market in Western Europe, too—is a "must" if we are to develop that expanding economy to which I am sure we are all dedicated. I can see the danger, for instance, of Denmark being shut out of Western German markets if the European Economic Community develops from strength to strength and becomes wholly inward-looking instead of outward-looking. Therefore, it is in my view imperative that we do all we can not to make a permanent rift between the two sections of Europe but rather to close the gap and try to see where our mutual interests lie within the Outer Seven and the Inner Six, or Seven if developments with Greece go on as they are doing.

The danger of not closing the ranks in this particular sphere is that Denmark's products may well have to go to the only other free market in the world, or the only free market for food—namely the United Kingdom. And if that happened the whole price fabric, in my view, would come tumbling around our ears, and theirs, and the ears of the Commonwealth; and instead of an expanding economy we should find the primary producers slowly being denuded of their purchasing power which we believe to be vital in an expanding industrial trade. For this reason, I personally regard it as imperative that the agreement should ever be regarded only as a bridge, and that we should work to the end of a wider Free Trade Area—that is, the one we aim at, coupled, of course, with the necessary negotiation of a broader-based agricultural treaty, to ensure markets for the traditional suppliers into the potentially expanding markets of the industrial economies of Western Europe, including our own.

I should like, if I may, before I sit down, to ask the noble Earl, Lord Dundee, if the policy that was declared by Her Majesty's Ministers at the very outset of the discussions on the European Free Trade Area with regard to the maintenance of the policy of tariffs on the agricultural and horticultural commodities applies equally to the Outer Seven arrangements of the smaller Free Trade Area. I think that some reassurance on that point at this moment of time is extremely important if we are not to create a feeling of mistrust and lack of confidence which is calculated to imperil the progress that I think is in the best national interests to achieve.

5.38 p.m.

LORD AMWELL

My Lords, the whirligig of time in politics is a most interesting study. That the free exchange of commodities goes with logic and common sense is, I think, agreed on all sides of the House, and I support my noble friend Lord Pethick-Lawrence in welcoming the Government's attitude to this proposal with regard to the bridge we have just heard about from the last speaker. But I, too, remember with Lord Pethick-Lawrence the time when we had a campaign in this country, a very fierce campaign indeed for tariff reform, with Mr. Joseph Chamberlain at its head. In those days the Labour movement was solidly behind the Liberal Party in protestation for the principles of Free Trade. The Labour movement owes much to Henry George, and up to the days of Labour Governments protection was anathema.

The noble Lord, Lord Pethick-Lawrence, welcomes the Government's proposals but with a certain amount of reservation, which I think is quite understandable—as they say in the Mikado, a kind of modified rapture. As the noble Lord, Lord Boothby, reminded us in the pig debate the other day, the first Labour Chancellor, Mr. Philip Snowden, was almost fanatical in his defence of Free Trade, particularly what was then called the "free breakfast table". I remember a doggerel that used to be chanted during the tariff reform campaign: Tariff Reform means work for all, work for all, work for all. There was the ribald derision afterwards— Chopping up wood in the workhouse. Our view of the whole tariff reform campaign was that it was a device to bring back protection in its worst form, to increase the cost of living for the people and generally to degrade their circumstances.

During the pig debate to which I have referred, the noble Viscount, Lord Elibank, from the Liberal Benches, put a question indicating his concern about the paper-making industry of South Scotland and the industry's fears with regard to the result of these free trade proposals. Of course, the paper-making industry is not only a Scottish one. It is a highly capitalised industry employing a great amount of labour. Later, my noble friend Lord Silkin defended the pig breeders and bacon curers upon the ground that he did not think that the imposition of a duty was the best way to protect a market; yet, the duty being there, its ruthless abolition could damage an industry. In my view, my noble friend was perfectly right on that point. It is because of the development of modern industrialism that we have, to-day, a different approach, not the simple, pristine conception which used to be called "Free Trade" in older days.

The matter does not stop at pigs and paper. Miners want protection. I know that I am going beyond the proposals of the White Paper, but the same developing idea is in the mind of the Labour movement and of the community as a whole. Miners want protection against their fear of oil imports. They want coal against oil as a kind of protection for their homes and their jobs. There are the paper-makers, too, with, as I say, a highly capitalised industry employing large labour forces. The paper makers want clauses safeguarding them against a flood of paper from Scandinavia which has behind it a kind of planned afforestation with which nothing in this country can be compared. All these people are right, as things are. Labour, Liberal and Tory agree that laissez faire belongs to the past. It seems that there is in politics and economics a kind of Greek cycle as there is in civilisation and philosophies. One might even look forward to the Russians paying homage, as per instructions, to the animistic spirit of the universe.

One thing seems clear—at any rate, it is clear to me—that high-powered industrialisation on competitive lines and push-button factory systems are inconsistent with free trade in its pristine sense or with freedom of any kind. A nuclear-powered world cannot be a free trade world or a trading world. With nuclear power and automation in the ascendant, the mechanisation of exchange would require to be altered upon lines very similar to those of Socialist technique. Otherwise, each country must evolve a technique of its own on the basis of industrial regimentation on a vast scale, for the reason that power saturation is not finally exchangeable. In a power-drenched world, we can but exchange proper surpluses, on the basis of qualitative, not quantitative, factors. Those are fundamental principles which, I believe, have a great deal to do with the change of attitude towards this general subject.

In the meantime, we must protect the farmers and farm workers—that, I think, is accepted—paper-makers, cotton operatives and workers in other sections of our industry, or unemployment and revolt will become rife. That is the price which has to be paid for capitalism, the capitalism in which all parties believe and wish to expand. It is all very well to say that fundamental laws should be left to work themselves out. They are not left in any event, and it is not in- tended that they should be. It looks logically perfect, of course, like a demonstration in Euclid, that a free trade area, wide or restricted, can work, and even loss of employment, and capital, too, in one area or on one side will be made up in new outlets elsewhere. I beg noble Lords to remember that, when we talk about these things, we are not really speaking about statistics or figures. Injury done is injury not to figures but to human beings, their homes and their families.

What of the interim? Perhaps, in time, it will be true that the advantage to the country as a whole will lead to the re-organisation on natural lines of industry so that there will be, both on the side of capital and on the side of labour, a reintegration. I believe in free trade. So do we all. But I believe also in peace, without necessarily accepting unilateral disarmament. This week-end, the Paymaster General said that: the fact is that the real protection of British farming and the bacon industry has always been the subsidy, not the tariff. So far as any additional burden will fall upon anyone, it will fall not upon the farmer but upon the Exchequer. Is that policy to be applied all round? Are we to say to the paper-makers that real protection of their homes and jobs depends upon a subsidy and, if any burden falls on anyone, it will fall on the Exchequer? If that is the general idea, where will it stop? We cannot live by taking in each other's subsidies any more than the people of the Isles of Scilly could live by taking in each other's washing.

In the paper industry, it takes one ton of coal to make one ton of paper. Also, chemicals, china clay and engineering products—that is, paper making machinery—are used. All those industries are involved. Are we to tell the miners, for instance, that they should ignore the torrent: of oil because the Exchequer will see to it that their homes are not again broken up? If we are to take that line of argument about paper, about farming or about anything else, we must apply it logically all round when we come to consider the question of the fluidity of labour and uprooting the homes of the people. Some will suffer unless we write into the agreement—I believe that this is the point which the paper-makers themselves make—a period of grace during which capital can be written down and the employment pattern readjusted. That is the least that can be done. I do not for a moment suggest opposition to it, but, before advantages accrue from this free trade proposal, there will be, or there may be, at any rate, a time of great uncertainty and, perhaps, of acute suffering in many directions.

The dilemma which we face here in protecting people, their homes and their jobs, is the price we pay for running after false gods. My noble friend Lord Pethick-Lawrence eulogised Lord Keynes the other day, and he has done the same on several occasions. I do not wish to criticise the Keynes theorem, but I believe that Keynes, more than anyone else, has been detrimental to Socialist thinking in this country, and he has made a great difference to the attitude of the Labour Movement towards fundamental principles. After all, his theorem is one of priming the pump. It does not touch fundamental questions at all. It is no alternative to a natural, economic law, and it is no substitute for Socialism. High wages, high profits, and high prices must, theoretically, cancel out in the long run. I know that they do not immediately, and I know that there is much to be said for encouraging here and there, for incentive here and there; but those things do not touch the fundamental issues of human life, human industry and human progress. The point is that that Keynes triology—that is why I introduced that as a last note in what I had to say—is incompatible with free exchange. So is high-powered industrialism; so is trade unionism. Free exchange is compatible only with world co-operation as Socialists used to understand it. It is the very antithesis of the competitive system.

That is all I wish to say. I do not pretend for one moment to be a master of the technical issues that are involved; that is why I did not intend to take up much time. I have read, rather sketchily, the White Paper because there has not been much time to analyse it. I think that that White Paper dispels some of the fears, although I am not quite sure. I agree with the principle of the Seven-Power agreement, and I wish the Government well. But I ask them to consider most carefully all that it may imply, especially in regard to the question of employment and the uprooting of families from their existence in any industry to which the effects of a free trade may apply.

5.52 p.m.

LORD GRENFELL

My Lords, enough has been said in this House this afternoon to impress on Her Majesty's Government the vital importance of assisting in every way members of the paper industry. I have no interest in the industry except that it seems to me to be the one which is really hard hit, or which may be hard hit, in this Free Trade Area Agreement. I have had the advantage of talking to a few of its senior members, and there is no single one of them to whom I have spoken who has not said that it is quite obvious that for the benefit of industry as a whole this scheme should go through, and they wish it luck. But, they said, we do ask Her Majesty's Government to give us safeguards, and as much time as possible to write down our capital, to see what the situation is going to be in the future, and to avoid the inevitable unemployment among the smaller companies in the rural areas which may be hit the hardest and might, in the extreme, have to close down altogether.

The managing director of the Swedish paper mills said in an interview that there would be no question of the Swedish industry simply abandoning some of its major export markets in order to try to gain a monopoly position in the British market, and also that there were safeguards written into the draft agreement. Those are rather encouraging words, but we must look to the whole future and examine these safeguards most carefully. The noble Lord, Lord Grantchester, I think, said that future negotiations should be on political and not economic grounds. With due respect, I would say that economic grounds should come first. As the noble Earl, Lord Swinton, to whom we are so grateful for initiating this debate, said, the whole situation must be put in good plain words which everybody can understand.

Perhaps I may look for a moment at the safeguards which are to be found at page 10. From the paper industry point of view that becomes the most important page in the whole of this document. Paragraphs 19 to 22 deal with such things as "an appreciable rise in unemployment" in any section, and they indicate that in this case quotas could, by agreement, be put on. This is the first point that I should like to make. What exactly is meant by "an appreciable rise"?—I emphasis the word "appreciable". We must not fall into the trap of shutting the door after the horse has fled. "Appreciable unemployment" may easily mean that several factories will have to close down, with the result that the unemployment will be fairly considerable. Let us remember that once a factory has to close down it is almost impossible to get it going again at short notice. I think my noble friend will agree with that. Hence, I think we have to be most careful about the phrase "appreciable unemployment".

Throughout the transitional period Her Majesty's Government, I trust and hope—indeed, I feel sure—with the help of the industry itself, should gradually watch the situation as it develops and as the tariffs are reduced, and should look ahead; and if there is any chance in the near future—not after it has happened—of seeing that the smaller firms are gradually being overcome, then negotiations should be entered into with the various members in Europe so that time can elapse in which, as always happens with negotiations, the talk goes on, and quotas can be agreed before the actual crash comes.

Paragraph 23 deals with a slowing-up of the reductions in tariffs if, for the same reason, unemployment or hardship is being felt. But it is significant that although paragraph 24 allows for a review of these safeguards, the Agreement allows for the safeguards only in paragraphs 19 to 22 and not in paragraph 23. This leads me to believe that the quota system is thought to be rather more important perhaps than the slowing down, because the slowing down, under the rules, can be slowed down only to the degree of the transitional period. I personally believe that, of the two, the quota system is the better. I hope that this will be used should the necessity arise.

We must carefully consider these people. Let us remember one point which is of great importance to us all. Supposing many of these firms had to close down, though some of the bigger firms who, through their greatness, were, to a certain degree, able to come through the storm, the amount of paper actually made in this country would be very much smaller than it is at the moment; the remainder would come from abroad. In case of a war—which God forbid!—we must keep in mind that that supply might be cut off. I think that enough has been said to-day to see the danger of the situation from the paper manufacturers' point of view. It is a big industry with great potentialities. Let us do all we can to see that their trust, in the fact that they agree that this scheme should go forward for the sake of the whole of British industry, is not betrayed. Let us be sure we do all we can to safeguard their interests in the future.

6.1 p.m.

VISCOUNT BRIDGEMAN

My Lords, the noble Lord, Lord Pethick-Lawrence, when he addressed us earlier, out of the wealth of his experience gave us a flashback to the old days before the First World War, of the conflict between the supporters of Free Trade and Tariff Reform. I thought he was trying to lead us to believe that now the free traders of these days have been proved right in the end. But his words brought back to me very vividly some words of my father, whom I heard quite often in those days answering questions at Election time. When asked his views about Free Trade and Protection, he said that Free Trade and Protection were not two religions between which one must choose, but were two expedients which one applied in greater or less degree in accordance with the needs of the time. That, I should have thought, was borne out very much by the situation we are discussing to-day.

One thing which I think is worth recalling in this context is that the technical means of regulating the amount of free trade or protection are infinitely better to-day than in the days of Chamberlain or the big and little loaf. It is very important and gratifying to see paragraphs 19 and 20 and others in this White Paper dealing with the expedients to be adopted if special difficulties arise. But I do not mean to take the time of the House in talking about the economic factors of this problem, because so much has been said this afternoon by so many who well understand it. But I was going to say one or two words about the strategic effect of these proposals. Although that is not referred to in the White Paper, it is one of the many golden silences, you might say, in the Paper.

There is a strategic effect and perhaps it would be worth while taking a minute or two on it this afternoon. When we are hearing arguments about the dangers of entering into an agreement of this sort—the dangers may be to a particular trade or industry—there always seems to me to be an underlying assumption that if we do not enter into these agree- ments things will go on very much as they have done in the past. I believe that that is usually a very dangerous assumption, and certainly from the strategic point of view it is a particularly dangerous one to make. I cannot conceive anything more damaging strategically than for us to be odd man out both of the Six and of the Seven.

These agreements are being discussed at a moment when I think we should all agree that the position of N.A.T.O. is far from being as healthy as perhaps it was a little while ago and as we should all like to see it at the present time. I feel that N.A.T.O. is going through a time of very special difficulty and that these difficulties, however much they may arise from military or strategic considerations, are bound to be accentuated if, in the union of countries which compose N.A.T.O., there is not a sound economic and financial basis. Therefore this Agreement is one step towards developing that economic and financial basis.

Here I should like to say how whole-heartedly I agree with my noble friends Lord Balfour of Inchrye and Lord Netherthorpe and others who pointed out that the full benefit of this agreement will be realised only if it is in fact a step towards union of the Six and the Seven. I only hope that we shall not succeed in reaching that very unlucky number thirteen; but perhaps some way can be found round that. We should regard this Agreement as a step towards the union of the Six and the Seven from the economic point of view.

If it is important from that point of view, then it is even more so from the strategic aspect, because a strategically sound N.A.T.O. could not really be built on two communities, the Six and the Seven; it must be developed on a community of economic interest between the whole of the European countries affected. If anyone were to point out that there are, in this present Agreement, three countries which are not in N.A.T.O. I would say, never mind, the greater includes the less, and if the economic base is broader than it needs to be for the N.A.T.O. countries, what does it matter? The damage would be if it were not broader but narrower. But in a state of economic weakness and disunity how can there be any real incentive in the military sphere for the N.A.T.O. countries to put their best foot foremost and make the N.A.T.O. plans and arrangements worth something more than the paper they are written on, and a real plan to deal with possible threats, which we need not discuss this afternoon but which we all know about?

After all, N.A.T.O. was designed not merely to stand the test of a possible cold war, or a possible hot war, or even a possible Summit Conference; it was designed also to stand up to political pressures and economic pressures; and that is why I think that N.A.T.O. and the interests of N.A.T.O. are the gainers by what has happened over the Stockholm Agreement. If we were to go back a few years, I think that most noble Lords would agree that the real start of the effectiveness of N.A.T.O. was the moment when West Germany came in and we were able to take account of West German territory and West German manpower in our strategic plans. The noble Lord, Lord Pakenham, opposite would have a clear recollection of that. That step was really brought about, in fact, almost made inevitable, by the European Coal, Iron and Steel Agreement. It was that which really set the course for N.A.T.O. as it is now. In the same way I fancy that any future economic getting-together, or any arrangements that will make the currency of Western Europe more freely convertible, are bound to increase the strength of N.A.T.O. and therefore also, our strategic power to achieve the results at which we are aiming in the economic sphere by this Agreement. I feel certain that that is right.

I feel sure that unless we go on those lines, as I said just now, N.A.T.O. will become a pure façade, dependent more and more, or for all I know less and less, on shots in the arm from the Pentagon. Neither we, nor the French, nor any other country can escape the realities of this; and if, as other noble Lords have said, the agreement of the Seven leads to agreement with the Six, we shall be returning again to a realistic and sensible course in the strategic sphere.

6.11 p.m.

THE EARL OF DUNDEE

My Lords, before attempting to reply to the debate, I am sure your Lordships would like me to thank my noble friend Lord Swinton for what I think was one of the most interesting speeches we have ever heard him make; and that is saying a good deal, because we have heard him make a great many, and I hope we shall hear him make a great many more. The first speech I ever heard my noble friend Lord Swinton make was in 1923, when he kindly came down as the guest of an undergraduate political club at Oxford. At that time I think he had just become President of the Board of Trade for the first time.

THE EARL OF SWINTON

The fourth time, I think.

THE EARL OF DUNDEE

In 1923?

THE EARL OF SWINTON

I thought my noble friend said 1933.

THE EARL OF DUNDEE

It was thirty-six years ago. I think it was the first time he held that office, an office which he often held again later. The main topic of interest at that time was Monsieur Poincaré's invasion of the Ruhr in order to seize German coal which was owed in kind in payment of reparations. There was a newspaper, I remember, which used to have a headline every day saying something about, "Hats off to France!" but the British Government and Great Britain did not join with France in entering into the Ruhr. My noble friend Lord Swinton spoke about this subject when he talked to us.

I could not help thinking as he was speaking to-day about the long tragic succession of events which followed from the attempt to extract impossible reparations from Germany, and I could not help thinking what a good thing it is now for all of us that France and Germany are co-operating, instead of trying to injure each other economically. So many of the most ravaging wars in Western Europe since the time of Charlemagne have been caused or aggravated by Franco-German antagonism. If they cannot co-operate, I think it is unlikely that the civilisation which they have both inherited from the Roman Empire will survive.

Under this Common Market not only are they now moving towards economic unity, but it seems possible that it will be accompanied by some kind of political integration as well. I think that is one of the best things which has ever happened in the modern world, and I rejoice at it, even although our own country, for the time being, is excluded from its commercial benefits. As my noble friend Lord Swinton said, we could not join the Common Market for two reasons: one, because of our agricultural policy; and the other, because of our Commonwealth policy. As I believe my noble friend Lord Balfour of Inchrye said, about half of our trade is done with the Commonwealth: we send about half our exports there, compared with only about 13 per cent. to the Common Market countries. It would be unthinkable that we should sacrifice our Commonwealth policy of Imperial Preference, but we felt it was perfectly possible to reconcile that with a European Free Trade Area in which the other members of O.E.E.C. would be associated with the Common Market. As I think your Lordships know, the Commonwealth was consulted about this as early as 1956, and all the Commonwealth countries heartily agreed with what we were trying to do. Though there has not yet been time to ascertain their reactions to the agreement with the Stockholm Group, the European Free Trade Association, I have not the slightest doubt that they will fully approve.

The reasons why we did not succeed in getting the complete European Free Trade Area, as again my noble friend Lord Swinton said, do not matter so much as the question: Where do we go from here? And I think we certainly do not want to have any recriminations about what has happened. We must recognise that the French were passing through a time of great economic difficulty; and now that your Lordships have listened to so many able speeches about the paper industry in Great Britain, you can no doubt imagine the feelings of the French Government when similar representations were made to them, not about one but about a hundred French industries which thought they would be ruined by the establishment of a European Free Trade Area. I think we must be patient with the French and persuade them that in the long run it will be to their advantage to join with us in an association of this kind. We must do it by persuasion and not by quarrelling with them.

What we have done now is to form an association with the Outer Seven, and as many of your Lordships have said, and as is made plain in the White Paper, the primary purpose of this association is to provide a bridge which will make it easier for the wider object of a complete European Free Trade Area to be achieved as soon as may be practicable. If I may just try to assuage the superstitious fears of my noble friend Lord Bridgeman, I would say that he may have noticed two days ago that Greece has now joined the European Economic Community so there are now Seven—it is now Seven-all—so that if they all dined together it would not be necessary for one of them to sit at a separate table.

We think that this European Free Trade Association, as the Outer Seven Association is called, will help in many ways to lead to the wider association which is our real goal. For one thing, it is much easier to negotiate with two parties than with seven or eight. If we have a whole lot of separate independent European countries carrying on negotiations with the Common Market Six—or the Seven, as they are now—it is much less likely to produce a quick and satisfactory result than if we have another organisation which is intended, not to divide Europe into two rival camps, but to help Europe towards greater unity. It will be much easier to negotiate all together than separately; and we also think that we may help towards the larger object by the example of this Outer Seven Agreement.

I think that when the rest of Europe sees how it works, suspicions which, as we all know, have been entertained among some people in the Common Market Area—suspicions that our real object in proposing a Free Trade Area was to upset the Common Market out of a commercial jealousy—may be removed when they see a Free Trade Association such as we have agreed on actually working; or the suspicion that we were trying to get the advantages of belonging to a club without paying our subscription; or the feeling, which was fairly widespread, I think, in some circles in France, that a Free Trade Area was much too complicated and would interfere with the simplicity of the Common Market arrangement.

It is for these positive and constructive reasons that we think that our E.F.T. Association, which we are now forming, will help us towards the complete O.E.E.C. Free Trade Area. The last thing we are thinking of doing is to use this as a kind of threat against the Common Market to force them into negotiations, by threatening to injure them if they do not do it. What we want to do is not to start a trade war of any kind, but to help Europe to unite and to show the Common Market Powers by our example, by the way this Stockholm Free Trade Area works in practice, that they have nothing to fear and everything to gain by agreeing to the larger association which we all want.

But, my Lords, I could not agree with my noble friend Lord Balfour of Inchrye, that if we were to fail in that purpose there would then be no point in this Stockholm Agreement. On the contrary, I think that, even if we were to fail in our major object of a general European Free Trade Area, this more limited area which we have now achieved will nevertheless be of the greatest value to our trade. If I may take the least wealthy country first—that is, Portugal, with a gross national product of only about £40 or a little more per head of the population—as the noble Earl, Lord Swinton, said, the Trade Fair which we have recently had there has been a success which has surpassed all expectations. Orders for British goods have increased very much indeed. Portugal is a country with whom we have long commercial and political associations, and we think there is a great field for export expansion there.

Then there is Austria, which has a larger gross national product per head than Portugal—about £200 per head. But, of course, the countries with the highest standard of living are the other four—Norway, Denmark, Sweden, and Switzerland. Between them, these four countries have a population of about 20 million, and their gross national product is well over £400 per head of the population, rather higher than ours in Great Britain. The total imports of all these countries with whom we have formed this association amount to £3,000 million worth a year. We have only been sending them, up till now, about £300 million worth. And, of course, these high-standard-of-living countries with whom we are now associating have a great propensity to import all the high quality goods which we can produce. I think, my Lords, that even if it were to lead to nothing more, this Stockholm Association will be of the highest value to British exports and to British trade.

LORD BALFOUR OF INCHRYE

I do not want to go on the record incorrectly. I do not dispute anything that the noble Earl says. The point I was trying to make was that if, in fact, the two groups did not get together, we should, I think, be doing something pretty dangerous—that is, ranging Europe into two opposing groups economically and, I am afraid, inevitably, later on, politically. That seems to me to be the danger.

THE EARL OF DUNDEE

My Lords, if that were to happen, I do not think it would be the fault either of ourselves or of any other member of the Stockholm group; and I would again repeat that our main purpose is to lead to the larger association.

Now, my Lords, as for the possible disadvantages to British home industry, I think the only example which has been canvassed by your Lordships this afternoon is the position of the paper industry in Great Britain and the indirect consequences which that may have on home-grown timber. On both these things I am myself, naturally, very sensitive; because as my noble friend Lord Ferrier, I think it was, pointed out, in Scotland a higher proportion of people are employed in the paper industry than in England.

THE EARL OF BUCKINGHAMSHIRE

May I interrupt the noble Earl for a moment? I tried to make the point. I said the consequences would be indirect and direct from the forestry point of view.

THE EARL OF DUNDEE

I beg my noble friend's pardon. I am afraid I was having a cup of tea when he made his speech, to my great loss. I would rather not go into that, because I do not want to take up too much of your Lordships' time on the question of whether there has been direct as well as indirect injury to the timber industry. But certainly I well understand the grounds for the concern which your Lordships have expressed.

Let me first say that we intend to do everything we can to ensure that there are fair conditions of competition. Lord Balfour of Inchrye, particularly, asked about dumping, and with your Lordships' indulgence I should like to give him a full reply on that point. There is nothing, my Lords, in the Convention of the Association which will prevent us from continuing to be able to use our own powers to impose anti-dumping duties on goods exported from fellow members. These are the powers under the Customs Duties (Dumping and Subsidies) Act of 1957, by which we can take action against dumped goods where material injury is caused or threatened. We shall be able to act against goods from fellow members, where necessary, in precisely the same way as we can against non-members. Moreover, all member countries will be obliged to readmit to their own country without duty or other restriction any such goods which have been exported to another member; that is to say, the dumping country will be obliged to allow the dumped goods to be dumped back again if we want to do so.

LORD AMWELL

In this particular context, can the noble Earl give us any idea of the standard by which he defines the term "dumping"? I do not see how it is applied.

THE EARL OF DUNDEE

I prefer not to do that, because I think that what my noble friend wanted to know was whether there are any reductions in our powers under the Anti-Dumping Act, which powers are well known: and the answer is that there are not. Members of the group and non-members will be in exactly the same position so far as dumping is concerned.

Now, my Lords, the noble Lord, Lord Cornwallis, in speaking of the paper industry, wanted to know what conditions we should try to secure with regard to fair trading in the Convention which will be made in the Autumn; and he asked about our access to the raw supplies of pulp. What we intend to seek is rules of fair competition which will prevent exploitation of Scandinavian pulp supplies by restrictive practices or export controls or export taxes. These would safeguard on level terms the United Kingdom industry's access to supplies of Scandinavian pulp, to which it normally looks for a substantial part of its raw material supplies. I would add that I do not think, so far as I know, that there is any reason to expect that the Scandinavians will not be perfectly ready to agree to these rules.

The noble Lord, Lord Cornwallis, also asked about the possibility of establishing new businesses. We intend to ask that provisions should be inserted in the Convention to ensure that the possibility of establishing new businesses in any part of the Free Trade Area would not be restricted in ways which might put the United Kingdom industry at a disadvantage. Now the paper industry may have had some apprehensions, but they were not the same kind of apprehensions as were entertained in regard to the former proposals for the larger European Free Trade Area. What they now feel is that, having this smaller limited free trade area, the Scandinavians will be obliged to divert their supplies from Europe to Great Britain, with deleterious effects on our homegrown paper industry. I have no figures about this, and I do not know what the Common Market tariff on paper from Scandinavia is going to be: it has not been decided yet. One would expect that it would be higher than the existing German and Dutch tariffs, but whether it would be less than, or the same as, the existing French tariff, I do not know. In other cases, they have usually taken an average as the Common Market tariff. But I do not know what it is going to be in the case of paper.

I would suggest that we ought not to assume that the tariff imposed by the Common Market against Scandinavian paper is going to be a prohibitive one. They are accustomed to taking a large quantity of their paper from this source, and I do not know of any reason to think that they mean to make themselves entirely self-supporting in paper production, or that the result of this tariff will mean a very large reduction of Scandinavian exports to the Common Market, though no doubt it will mean some reduction. I do not think that we should assume that the increased exports of Scandinavian paper to Great Britain will be so large that they will inflict ruin upon our home industry. After all, our demand is expanding and there is room for increased consumption.

I am reluctant to suggest to noble Lords that their fears may be exaggerated, because I know from my own experience how annoying it is to be told that when you are arguing the case of an industry in which you are interested. Nevertheless, I think it is possible that the position is not quite so gloomy as has been suggested by some noble Lords who have spoken. Newsprint, which forms about 10 per cent. of United Kingdom production, is already wholly free of United Kingdom import duty, and other types of paper and board are subject to duties ranging from 14 to 20 per cent. ad valorem. These would be removed only over a period of ten years.

Although it is true that the Scandinavians would have a strong competitive advantage in certain types of paper and board, they would not have such an advantage over the whole field. The strength of the Scandinavians lies in their ready access to ample supplies of cheap pulp-making timber and cheap hydroelectric power, and this favours them in the production of certain mass-produced types of paper and board that can be made in large integrated plants on high speed machinery. But for some other types, the United Kingdom producers have the advantage of proximity to a large consuming market and the possibility of integrating paper-making with the making of paper manufactures. The types of paper and board on which Scandinavian suppliers would be likely to have the most substantial competitive advantage, in the absence of a United Kingdom tariff, account for about one-fifth of the total United Kingdom paper and board production. It is also the case, I am informed, that the more expensive types of paper are the least vulnerable.

Several noble Lords, in particular the noble Lord, Lord Grenfell, spoke about the escape clauses, which are defined in Sections 19 to 24 of the White Paper. I am not going to try to define what is meant either by "appreciable" or by "spectacular", but I am sure that your Lordships will understand that these escape clauses are intended to be used only in really exceptional circumstances, and that if we were to start using them in circumstances which were not exceptional, then of course other members of the Association would be entitled to do it too, and the whole purpose of increased free trade between us all would largely disappear. I think that it is perhaps appropriate to mention that, whilst we fully appreciate and will keep in mind the natural concern of this industry, when the Federation of British Industries sent out a questionnaire to their members about the proposed Stockholm Agreement, as it was then, the number of favourable replies they received from industries of every kind, who thought they would benefit from the proposal, was overwhelming—too long to read out to your Lordships. I am glad to say that it includes the Scottish woollen manufacturers, which may be of some interest to some of my noble friends from Scotland who are here.

The noble Duke, the Duke of Buccleuch and Queensberry, in a speech which your Lordships will agree was very helpful and moderate, talked about the possibility of helping factories to be established in the Highlands, and my noble friend Lord Colville of Culross asked whether the European Free Trade Association was going to make any difference to our Highland policy, as explained in the recent White Paper. I certainly hope that it will not make any difference, and I hope that concerns using timber which are thinking of establishing themselves in the Highlands will not be discouraged from doing so.

The noble Duke asked if we could help them in the same way as they have been helped in Northern Ireland.

THE DUKE OF BUCCLEUCH AND QUEENSBERRY

If necessary.

THE EARL OF DUNDEE

I do not think that it would be right for me to mention a particular industry as a possible candidate for Government assistance in this matter, but I would say to my noble friend that I do not think that this Free Trade Area will make any difference to the traditional policy of all British Governments of helping to establish new industrial undertakings in areas of high unemployment, or potentially high unemployment, of which the Highlands have always been recognised as one, or in areas where it is considered desirable in the public interest that there should be a greater diversity of industry.

One or two of your Lordships have spoken about the general question of free trade and protection, and have suggested that the Government are departing from the protectionist policy for which many of us fought politically for a long time. I always thought that one of the strongest arguments against British free trade was that it was always unilateral. We were the only free trade country, and were surrounded by protectionist countries, all of whom imposed duties against our exports to them. Surely one of the strongest arguments we all used to use in favour of protection was that we had nothing to bargain with, and that if we had protective duties ourselves we should be in a position to make reciprocal trade agreements with other countries for our mutual benefit. That is exactly what we are trying to do now.

I have already mentioned that we do not propose to make any change in the system of Imperial Preference. That, indeed, is the reason why we could not join the Common Market. The noble Lord, Lord Netherthorpe, particularly asked for assurance about agricultural protection. There is no intention of providing for tariff reduction on agricultural products as on industrial goods. In our view—we are not alone in this and I think that it is generally agreed—separate arrangements about agriculture will have to be made, such as the arrangement with Denmark, on which the noble Lord made such a fine speech to your Lordships the other day.

If your Lordships want to take a long view, as you probably will, of the purpose behind the projected European Free Trade Area, I think one of the strongest reasons for pressing on with that project is that it would enable Western Europe to export a great deal more capital to the more backward countries of the world which need it so badly. If you consider a great Free Trade Area like the United States of America, it is easy to see how the production of capital goods has developed and grown up there on a tremendous scale which would not have been possible if the United States had consisted of seven or eight different countries all of whom had had protective tariffs against each other. In a European Free Trade Area there is no reason why the production of capital goods should not be developed upon a scale fully comparable to that of the United States. Of course, the larger the scale of production the greater the amount that will be available for export.

We have been so successful in fighting disease in the world that the world's population is now increasing more rapidly than it has ever done before. When some of us were at school the figure was 1,600 million; now I think it is about 2,700 million; and if we are spared extermination by nuclear war, I am told the figure may double again in not much more than a generation. But although the number of people in the world is increasing at this tremendous rate, their wealth is not increasing uniformly; indeed, hundreds of millions of people in the world now are actually poorer than they were in the same countries twenty or thirty years ago. When you have these teeming masses of people who are living in primitive and desperate conditions of poverty, they are very easily led into the belief that a totalitarian Government will remove their poverty much more quickly than a free Government can. The human values which we all want to prevail in the world are not, of course, material values, but they cannot be made to prevail if there continues to be so much poverty among so many people in so many parts of the world as there is now. They need a great deal of capital, and they need it soon. If they are to develop in the way of life which we believe to be right, then they will have to get a great deal more help than they are getting now from Western Europe, as well as from North America.

We mean to continue the work for the establishment of a comprehensive Free Trade Area in Europe, and, meanwhile, I think we can claim that this Free Trade Association which has now been agreed on is a most valuable advance towards our object of making Western civilisation economically strong so that it may be able to lead the rest of the world on the road to freedom.

6.43 p.m.

THE EARL OF SWINTON

My Lords, I am sure that the whole House is grateful to my noble friend for his frank and comprehensive reply, just as I am grateful to him for some very kind things he said about me at the beginning of his speech. I am proud to think that in his brilliant youth he was my political pupil; he has certainly profited greatly by it, as we have learned in this House. I think the debate will have been helpful to the Government in the negotiations which will now go on in preparation for the draft Convention. I noticed that my noble friend was unwilling to define "appreciative" or "spectacular". He reminded me a little of the days when I was piloting the Safeguarding of Industries Act through the House of Commons in the early 'twenties (my noble friend opposite may remember it) and the Opposition tried to move the adjournment of the debate, because Sir Burton Chadwick, who was one of my Under-Secretaries, having been asked to define a blank, said: "Well, a blank is a blank." That was considered to be an insufficient definition.

I entirely sympathise with my noble friend in his unwillingness to define these words, but, after all, they are in this draft document; and this draft document is adopted as the basis on which the Convention will be drawn. I hope that we shall get to a little plainer language. Incidentally, I do not know that it would matter so much if we are the judges, or the country which is the aggrieved country is itself the judge, of whether it puts on the quota, which would then be on for the eighteen months, after which it comes up for review. But it is certainly better to have language which everybody can understand, because we then know where we are from the start and there is no ill-will. I am glad that the noble Lord, Lord Netherthorpe, reinforced that point.

This Agreement is rather different. Hitherto in these trade matters we have made a commercial treaty, but in some sense each country has had its own tariff and we have remained a little on the defensive one against the other. Here we are going into what will ultimately become a Free Trade Area of the Seven, and we are going into it in a spirit of partnership. So it is all the more important that the fair conditions of trade—and we shall all want to trade fairly with one another, because unless we do the whole business would break down, and I am sure that that is not the intention—should be as clearly defined as possible; and the more so because the clearer the language laying down what the practices are, the less necessity is there likely to be for any individual country to have to employ those sanctions or defences which have to be enshrined in these escape clauses.

One other word. I agree with the Minister of State that the noble Lord, Lord Balfour of Inchrye, put it too high. Certainly we all want the Free Trade Area, but I think it would be quite wrong if we did not join this group of Seven. After all, that is going to be there whatever happens, just as the Common Market is there. We could not have a much more disadvantageous position than to be excluded from both great groups in Europe, as I think I said at the beginning. But I entirely agree—and I know the Government take this view—that the big Free Trade Area remains always the main objective.

I think the noble Earl, Lord Dundee, said some wise things to-day about not rushing things too much and about letting the nations in the Common Market see how our association works. Above all, I do not want to have any threats in the matter. That is not the best way. But I am quite certain that we need not be anxious that every effort will not be made, because it is just as much the interest of every one of our partners in this grouping of Seven to get the Free Trade Area as it is ours. I am sure that some of the countries inside the Common Market believe it is their interest, too, and I think that, as time goes on, what I am sure is economically, politically, internationally, profoundly true will be realised: that the great Free Trade Area is equally in the interests of every single one of the countries which will constitute it. I beg leave to withdraw my Motion.

Motion for Papers, by leave, withdrawn.