ECC 41st Report: Outward Processing of Textiles and Clothing

HL Deb 19 November 1981 vol 425 cc624-49

7.5 p.m.

Viscount Rochdale rose to move, That this House takes note of the Report of the European Communities Committee on Outward Processing of Textiles and Clothing (41st Report, 1980–81 H.L. 269).

The noble Viscount said: My Lords, outward processing is, I am afraid, rather a forbidding term, but nevertheless I beg to move that this House takes note of the Report of the European Communities Committee on Outward Processing of Textiles and Clothing. Early in the summer I was asked by the Select Committee if I would take the chair of a small subcommittee, an offshoot of Sub-committee B, to go into this problem, which was raised by two draft regulations of the Commission. I accepted to do so, Subcommittee B itself at that time being otherwise very heavily committed on another issue.

Outward processing, although perhaps basically simple I believe in commercial concept, raises some complicated technical questions of procedure. We were also as a sub-committee under some pressure of time, a not unimportant point which I shall come back to later. Outward processing can be regarded as a perfectly legitimate and sensible practice. It is nothing less than the shipping of Community material, whether it be yarn or cloth, woven or knitwear, to low cost manufacturing countries overseas for further processing, and then they are returned either in the form of cloth or more usually in the form of garments for final attention. In fact, it is little more than a form of subcontracting which we all know so well. Outward processing can be regarded by different people in different ways. By some it is feared; by others it is regarded as an opportunity to be taken advantage of, the opportunity of averaging prices at home. I noticed in a very valuable paper that the Commission produced the other day it referred to it as …a valuable form of industrial co-operation mutually advantageous both to the Community and the processing countries overseas". One would only be able to accept that provided always that the extent of the practice was kept under review and control; but you cannot control unless there is first of all an adequate degree of knowing what exactly is going on; in other words, to use words which came up frequently in our inquiry, an adequate degree of transparency. That is an important part of the two draft regulations and therefore an important part of our report.

The draft regulations also provide for total or partial relief for import duties on outward processed goods where duties would otherwise be applicable, provided again that certain conditions or rules are fulfilled. The question of procedures, rules and conditions is another important aspect of our report.

Our report, therefore, deals basically not with the wider aspects of protection which, of course, very strongly influence the two industries of textiles and clothing. In other words, it is not about major issues of tariff, duty free entrants, preferences, quotas and so on. Those are important issues, of course, but they come within the Multi-Fibre Arrangement—MFA, if I may use the shortened term. This report and our debate this evening deal mainly with statistical returns for outward processing—and again I shall use the shortened term "OP" throughout my remarks, as it will save time—and harmonisation between member states of OP procedures, all aimed at making OP activities in the Community, when practised, more transparent and therefore more acceptable.

I mentioned a moment ago the question of the time factor. The overall protective arrangements for the community textile and clothing industries come under the MFA—a very much wider matter altogether—which in turn stems from procedures laid down by GATT, and the current span of MFA 2, as it is called, ends on 31st December 1981. Therefore, it ends in a few weeks' time. The negotiations for MFA 2's renewal started only yesterday, 18th November, in Geneva.

We have seen in recent days, as late as Tuesday night in Brussels—or perhaps I would be more correct in saying very early Wednesday morning because it was after midnight—how difficult member states found it to arrive at what might be regarded as a common negotiating position. Fortunately, they did arrive at that position. So it is surely extremely timely that we should be considering OP today, because in my view it is bound to come up in the negotiations. If one looks at the reference to those negotiations in today's edition of The Times, it may well be that it will be a very important part of those negotiations. It is, therefore, very important that any arrangements reached on the MFA negotiations in Geneva do not lend themselves to being bypassed or undermined by inadequate rules for OP. In other words, rules should be established so that OP is under reasonable control and does not undermine the MFA.

I turn to another matter. I have the feeling—and I hope that this applies to no one in your Lordships' House at the moment—that outside the two industries of textile and clothing there will be those who will feel like throwing up their hands in disgust at any suggestion of further, as they might regard it, protection for these two industries. One can almost hear them saying, "Ah, here they go again. The textile and clothing lobbies are urging for more protection, more help—perhaps help down the drain. They are old-fashioned industries that could well be allowed to die to the advantage of some of our own more modern industries at home". One can almost hear some people say that sort of lie. But while I am not one to like setting up a row of ninepins and then knocking them down again, I feel very strongly that that point of view would be totally ill-informed and totally misconceived. I wish briefly to say why I take that view because I think this is an important part of our discussions this evening. I want to get OP into its right perspective.

It may come as a surprise to some if I say—and I say this without any hesitation at all—that the United Kingdom's textile and clothing industries are not only among the largest employers in United Kingdom manufacturing industry today—over 600,000 still—but they are also still one of the largest contributors to our national wealth. In 1979, which is the latest year for which census of production figures are available, their net value—and by "net" I am referring to value added—was about £4,500 million, or as large, if we try to get this into perspective, as the whole of the motor vehicle manufacturing industry; twice as large as the iron and steel industry and twice as large as the coal mining industry. If people say that we are only talking about the older industries, then let us take a very modern, advanced technology industry—the computer industry. It is seven times as large as today's computer industry. In the years 1978, 1979 and 1980 the exports of these two great old industries exceeded £2,000 million. Against that background we have excellent industrial relations. Investments between 1970 and 1979 at 1975 prices have totalled £2,000 million. Productivity has increased substantially higher than in most of British industry as a whole.

Those figures are by any account impressive. They give an impressive, broad picture and that is absolutely right. I am sure that one could point to individual real success stories. But, sadly, there is another side, a much more serious side, which has manifested itself during 1980. I am referring to the fact that 400 mills have had to close down, and there have of course been further corresponding redundancies of the order of six figures.

Today it is difficult to assess exactly what is the present picture, and it has not been made any easier by delay in getting important statistics following the Civil Service strike. However, what I think stands out very, very clearly is that these two industries—textile and clothing—are of immense importance to our national economy and certainly not expendable, as some people feel. But, like their counterparts in other member states of the Community, they are at considerable risk, and that makes the current negotiations now taking place in Geneva over the MFA so desperately important. It is against this general background that we have tried to report and make recommendations on the Commission's two draft regulations, the one of 1979 and the other of 1981. In so doing we have had very much in mind the two main interests: the interest of the maintenance of employment and the interest of the consumers, and, with them, the retail trade.

At this point I should like to go, as it were, further afield on the Continent and to consider the situation there as I have considered it at home. In so doing, may I point out that in our report there emerged a certain number of conflicting issues. I should like to mention a few of them. They are discussed in much greater detail in the report itself, but I think that they need to be highlighted. The first is that the Community is the second largest world market for textiles and clothing—second only to the United States, and forgetting for a moment Hong Kong, to which I shall return a little later on. But it is also the least protected textile market. In addition, its exports overseas meet with the minimum degree of reciprocity from most of our customers round the world. It incurs, particularly in the United Kingdom, the greatest degree of penetration—a degree which, if present MFA negotiations do not decide otherwise, could again make it open to an automatic yearly increase regardless of current market demand, regardless of recession, and regardless of any possible so-called surge of imports from new producers. That is the first very important point to emerge.

The second is that the growing impact and relevance of OP in the Community is very evident. This OP work is largely with low-cost, Mediterranean basin and state trading nations, but of course it could also be with far-distant countries such as Taiwan, South Korea, and Hong Kong, although so far as I can ascertain, commercial viability with these far-distant countries is, for geographical reasons, perhaps open to question. At the moment, as I see it, the volume of this trade with far-distant countries is not very great. None the less, there are possibilities here which have to be borne in mind, and these negotiations must surely provide something for them.

I come to the third point that emerged—namely, the varying OP trading practices that the different member states of the Community employ, resulting in a lack of harmonisation of OP procedures. Indeed, in this context we found some very strong opposition to harmonisation from certain member states. The fourth point is the fact that some countries—for example, Germany, France and the Benelux countries—have specific quotas for OP outside the main textile and clothing quotas, with different rules; whereas, in the United Kingdom we have no specific OP quotas, and consequently have virtually no statistics or administrative rules.

Fifthly, we recognised the need for flexibility in any rules so as at best to cater for variations in member states' current practice without at the same time encouraging distortions of trade, such as, regrettably, we also found was practised in some countries—and I have a note here suggesting Belgium and Italy.

Sixthly, there was the difficulty—and this was a real difficulty—of equating any import quota system which was aimed at giving fair shares as between member states with the Community's recognised policy of non-discrimination and free circulation. This was a real difficulty. Finally, the last point that emerged was the uncertain effect of Community enlargement.

It was against these difficult and, as your Lordships will see, often conflicting considerations—the difficulty compounded by lack of information—that we came to our main recommendations. I would emphasise that these main recommendations were made on the very important assumption that MFA in some form continues.

The first recommendation that we made was that in principle the two draft regulations of the Commission should be supported, though perhaps subject to detailed further consideration and certainly to some clarification. I should like to give your Lordships one particular case where clarification seemed most important, and this was a point that was brought to our attention by the TUC. It was the doubts as to the position of multinational companies in this whole affair.

Our second main recommendation was that British industries would be best protected by the introduction of special or specific OP quotas in the United Kingdom. We realise that this recommendation would mean a change in Government policy. It could add some administrative costs. But we regarded it as most important and we would urge its adoption. However, I want to underline a point here; lest there be any doubt at all, these special quotas should come within—that is to say, should come as part of—the ordinary quotas and should not be additional to the normal, overall textile and clothing quotas. On reading our report, I recognise that perhaps we did not make that sufficiently clear, but it is a very important point. We assumed that these specific quotas or sub-quotas—or whatever one likes to call them—should be reserved for manufacturers, the size of allocation to any one manufacturer to be limited to some accepted percentage of his own domestic manufacture, to be decided by each member state. A moment ago I mentioned that one of the points that emerged was the need for flexibility. This last point—that of the percentage to be decided by each member state—would be an example of possible flexibility in the operation of these rules.

Before I come to the third major recommendation that we make, I should like to say a few words about our friends in Hong Kong. The present negotiations taking place in Geneva are, of course, worldwide. A large number of different countries are taking part. Many of those countries will have different points of view to varying degrees; some agreeing with us, many perhaps not. It seems to me that in such cases it would always be useful to hear an opposite point of view, especially if it comes from friends. So a little while ago I wrote a letter to the noble Lord, Lord Kadoorie of Kowloon, who made his maiden speech in your Lordships' House just the other day, and asked him if there was any chance of his being with us this evening. Regrettably, he said no, but he took a great deal of trouble, with great courtesy, to give me three points that I could pass on and which I think are helpful.

First, he wondered whether there was a possibility of trying to put OP within the framework of existing bilateral textile restraint arrangements, or whether in the event that might prove to be self-defeating. Secondly he wondered whether it might be contrary to the United Kingdom's GATT obligations to confer most favoured nation treatment to all contracting parties. I will not pursue that except that my own personal feeling is that, as the MFA itself comes under GATT, I should have thought it would have overridden the other obligation to which he referred, but other noble Lords—perhaps my noble friend Lord Bellwin—may like to comment on that. I am not an expert on the interpretation of that.

Thirdly, the noble Lord reminded me that Hong Kong is the world's largest importer of textiles. It is a free market, and the United Kingdom accounts for only the tiniest little percentage of that market, despite the fact that, as I have already told your Lordships, we have a very large export trade indeed. I thought it was worth just mentioning those points to your Lordships in order to give a fuller picture to the whole matter.

My third main recommendation, which is an important one, was that the Commission should use its powers under Article 115 of the Treaty of Rome to the fullest possible amount to protect industry. We urged this having very much in mind what we said in paragraph 43 of the report, where we referred to the potential conflict between the Community's principle of free circulation and non-discrimination on the one hand, and a background of national quotas on the other, especially when some of those national quotas may not be fully taken up.

There are other important recommendations in paragraph 42. I am not going into any detail on those, except that I would just mention one. That is the one mentioned in paragrah 42(c), where we urge the criterion of volume rather than value added for determining each manufacturer's share of OP quotas. We were persuaded that that would be very much clearer and less open to abuse. We have directed our attention for the most part to matters likely to concern United Kingdom industries. But, speaking for myself—and I hope my noble colleagues who were on the subcommittee with me will agree; I feel they will—issues raised have their counterparts very much, though in varying degrees, in all the textile member states of the Community. Indeed, they are bound to have their effect far wider in international trade.

I suggest that efforts to solve them will be far more likely to succeed on a Community basis than when approached by individual member states. That was why I was so pleased, as I mentioned earlier, that at the eleventh hour member states agreed on some sort of common negotiating position for the discussions in Geneva. We certainly did not claim to have all the answers in these abstruse, difficult and complicated matters, but I very much hope that our report will have helped to concentrate thought to the advantage of ourselves in this country, and I beg to move.

Moved, That this House takes note of the Report of the European Communities Committee on Outward Processing of Textiles and Clothing (41st Report, 1980–81 H.L. 269).—(Viscount Rochdale.)

7.35 p.m.

Lord Rhodes

My Lords, when I came this morning I had no idea that I was going to make a Front Bench speech. May I say that I am very pleased indeed to have the opportunity to support the noble Viscount, Lord Rochdale, who was the chairman of this committee, in what he has had to say about it. It says in our report that the second proposal that we are discussing was made earlier this year as part of the preparations for the MFA negotiations. Therefore, in a way it is tied into the MFA negotiations which are taking place. They had a meeting on 27th October, they had a meeting in Geneva on 10th November, and they had one yesterday. I wonder whether the Minister when he replies would give the House some indication as to what has happened up to date. Are they still "argy-bargying", or what is happening?

Outward processing, as the noble Viscount, Lord Rochdale, has said is not new. It has been going on for hundreds of years. Indeed, in 1955 I attended a celebration in Prato, Italy, commemorating the six hundredth anniversary of a character called Francesco Datini, who straddled the wool trade of the world. He bought his wool in the Cotswolds and Spain, and he had it spun by the deft fingers of Andalusian women. He wove the yarn in Prato. He did it to exploit the best craft skills and the cheapest labour in the world.

He himself wrote 150,000 letters; 48 account books were on exhibition at Prato University. The work of one man, who was probably the forerunner of what we know to be outward processing. But the modern version is something quite different. It aims at averaging prices to remain competitive. The two draft regulations are the EEC Commission's answer to the clamour from the clothing and textile industries about imports, which include outward processed goods.

It is funny that it coincides with what we are discussing, but may I say that this week is one of the most poignant for me that I have ever had in my life. It is just 60 years since I started my own textile factory, after two and a half years in hospital after the war was over, with my wound gratuity. It was in a wooden hut with looms that I bagged off a tip. Every year for 40 years there was not a year where I did not extend it to something. Never working a minute's short time. And to protect the continuation of the factory I sold it in 1961, but this week all the work-people have received their notices, some of them having worked there for 40 to 50 years.

Not all closures are due to imports, but from our industry we have lost scores of thousands of wage earners. Nothing makes me more cross than when I see a TV announcer referring to this as "getting rid of surplus labour". Getting rid indeed! The cynics say that the slimming process which has been going on will produce a more streamlined and efficient industry. That may be so, but we should not forget that while industry can shake out surplus labour to improve its balance sheet, a country cannot do that. The result is that the United Kingdon is now like a company which needs extra production to absorb its fixed labour assets. That is what outward processing is about and what our report is about.

We live in a turbulent world and the only likely alternative to the sensible development of any Multi-Fibre arrangement is not free trade, however desirable, but an even greater closing of frontiers as governments react to their domestic forces. We must therefore shape a system by which we can retain as many of the advantages of market decisions as possible, and as few as possible of the disadvantages of partial or one-sided restrictions. The system we adopt must be simple, with clear rules, and in our report we have attempted to suggest what some of those rules should be. The present MFA system towards which the world has groped its way has been a good attempt to solve the problem, but it is far from ideal and perhaps some of the suggestions we make will not fall on deaf ears.

The first proposal really begins in 1979, but it has since become out of date because of the change which has taken place as a result of the enlargement of the Community. Incidentally, the first proposal ran into the sand. The second proposal was made earlier this year as part of the preparations for the Multi-Fibre Agreement negotiations, and from the dilatory way in which the Commission handled the first proposal, I got the impression that the Commission had no heart in it and that it was a perfunctory gesture. However, I want to correct that now because something happened this week which has changed my opinion. The Commission has come up with an appraisal of the present situation in textiles and clothing in Europe which is the best I have seen come out of the Common Market for many a long day; it is absolutely first class and I recommend the industry to study it. At long last they are appreciating what the situation really and truly is on a worldwide basis.

We must remember, however, that the proposals we are looking at tonight are non-starters so far as we are concerned because they apply only to countries which at present have outward processing quotas. So although we in our committee have been examining and discussing the suggested outward processing regulations, as a point of fact they have no relevance unless a country has an outward processing quota. The countries which have specific quotas are Germany, France and the Benelux countries. But their monitoring systems are far in advance of ours. Moreover, the ones with quotas resolutely refuse to divulge the size of them. It is about time they were asked to do so.

A question on that point might not go amiss: If we adopt a quota system for outward processing in the United Kingdom inside the total ceiling of existing quotas for textiles, as we recommend in our report, would the proposed rules then apply to us as well? I hope the Minister understands what I mean; if we as a country adopt a system whereby we have quotas for outward processing inside the ceiling which we have, would we come under the rules as suggested in accordance with what we are discussing?

A word on quotas might be apposite. At the moment, United Kingdom outward processed goods are treated no differently from the other exports from an exporting country and are subject to the same quotas. The Multi-Fibre Agreement, and bilateral agreements, with state trading nations, contain textile quotas as a whole. These are broken down to quotas for individual member states and they are fairly well monitored because, for those imports, there is a dual licencing system. Let us be sure on this question of quotas that we understand what is meant. Licences are issued by the exporting countries, and matching licences are issued by the importing countries so that the risk of abuse might be minimised. But it is from the Mediterranean countries that the threat comes because only one licence is issued there, and that is by the exporting country itself. That is very important. It is ineffective, it is abused and it should be stopped, and the dual licensing system should be adopted forthwith.

Another abuse arises from the principle of the free circulation of goods within the Community, and this is not implicitly understood even by members of the trade. I will try to clarify the point. Supposing France and the United Kingdom are each given a member state quota, and then France finds she does not want the stuff. There is then nothing to prevent France from exporting those goods here. The only remedy we have is under Article 115 of the Treaty of Rome, and then only when we find that our quota has been exceeded by a minimum of 20 per cent. Only then can we apply to the Commission for permission to stop any more coming in, and by then the damage has been done.

If noble Lords go to the trouble to read through our report they will see that one of the departments—I think it was the Department of Trade—was represented by experienced people and that when the question arose as to the application of Article 115 and the ability to stop imports which we were not entitled to receive, we were told that even the Commission itself did not believe that the application of Article 115 to those imports was legal. I should like that to be confirmed or denied because it may have been a slip. I do not know, but certainly the suggestion was that even the Commission did not believe in the validity of Article 115 when applied to Mediterranean countries.

I have said before that the United Kingdom has no separate quotas for outward processing goods. Now listen, my Lords, to this recital of what we have not got. No record is kept of the proportion of textile and clothing imports represented by OP. There is no record of OP goods which enter this country duty-free under one of the Community's preferential agreements. No information is available about the levels of OP goods entering this country from other member states under the Community's free circulation provisions, and there is no information of the amount of OP carried out by retailers and traders as compared with manufacturers. What we need are better communications, better statistics, better information all round.

The Government departments hazarded a guess as to the importance and the relative size of the outward processing trade, and they said that £3½ million out of a total of £2,000 million can be attributed to OP. I think that this lack of information leaves us in a very weak position. It is really time that it was tackled seriously. The opinion of the Committee is set out in paragraphs 39 to 43 of the report and, by and large the noble Viscount, Lord Rochdale, has enumerated some of the points. We have of course had reactions from pretty well all the elements in either the textile or clothing industry. So far as I can make out the only recommendation that has had any doubt thrown upon it was that contained in paragraph 41, where we said that we should introduce specific quotas for OP. The British Textile Federation had second thoughts about that, and it might he that the interpretation of what we had in mind has not been adequately conveyed in paragraph 41. However, I would ask those noble Lords who are in possession of the report to look at page 21, where I asked: Is not the nub of all this that in the absence of agreement in Europe to get common rules that everybody understands and can be carried out, we in this country need rules of our own? The answer was, Yes, indeed, that was right. I specifically said that in the absence of agreement in Europe we should do what we say in paragraph 41. That is only one small point on which there has been any kind of difference between the recommendations that we have made and the opinions of the people in the trade

The trade is faced with the most critical period that I have ever seen facing it during the whole of my lifetime, and I began in the industry at 12 years of age. I do not believe, for instance, that we have reached rock bottom in terms of numbers employed in the industry, and in many ways what is happening shows up the weakness and the dilemma that the whole industrialised world is in at the present time. I believe that there will be many more redundancies, and they will be caused on two accounts, apart from cheap imports. The human form has baffled the automatic experts for a generation, but my information is that with the introduction of the microchip this is likely to be overcome. It is now partially in operation in Finland, and is wholly in operation in one large factory in Japan. If that is so, there is going to be an absolute revolution in terms not only of textiles, but of clothing. We have noticed that during the last 20 years there has been a revolution. We have had jeans. Perhaps it was the desire of those who wear jeans to be anonymous—like the beard. The period of austerity that we are entering will step up this desire for anonymity, and extend it to the older people. So we are in a dilemma there.

Because of automation by microchips we shall lose operatives, or if not through microchips it will be due to lack of competitiveness, because we have not got microchips. We are at a serious juncture. In the Committee we have made an attempt to be constructive, to help to tide over until better times emerge.

7.57 p.m.

Lord Tordoff

My Lords, it is difficult to follow someone with the experience of the noble Lord, Lord Rhodes, in particular when I can claim so little knowledge or experience of the textile industry. Apart from having been born in Lancashire, and having been a supplier to the noble Lord, Lord Kearton, at some stage in my career in the chemical industry, I have no detailed knowledge of the textile industry. Indeed, I agreed to serve on the Committee largely as a matter of serving my apprenticeship as a newcomer to your Lordships' House. I must say that I welcome that experience, and I have certainly benefited from it by listening to the comments of such experienced noble Lords, and through the chairmanship of the noble Viscount, Lord Rochdale, who took us through this extremely complex matter with great care and skill. I am grateful to him for that.

Speaking as I do from these Benches, it will not surprise your Lordships that whenever there is the slightest whiff of protectionism in the air I become gravely suspicious and perhaps even hostile. I do not need to tell your Lordships the dangers of protectionism: the ultimate loss of competitiveness, the lack of investment, leading I believe eventually to even greater unemployment than we have at the moment. I was pleased to hear what the right honourable lady the Prime Minister said in her Mansion House speech the other night on this general subject. We cannot afford to allow ourselves to become hidden behind the whole barrier of import controls. The dreams of some Marxists in the country that somehow they can set up a fantasy state, surrounded by import controls and high tariff barriers, is total anathema to my colleagues on these Benches, and equally it seems to me hypocritical to welcome the Brandt Commission report, while at the same time exporting unemployment to the third world.

Having said all that, I say the textile industry is clearly in a totally different category from many other industries in this county. It is a great strategic industry. It is an industry that really must be preserved in some form or other in this country if we are to survive at all as an industrial nation. It has, after all, done all that was asked of it over the last 30 years. The noble Lord, Lord Rhodes, says that there may still be some slimming down to do, there may still be jobs to go, and I fear that he is right. But the textile industry has reinvested, it has gone for new technology, it has gone through the painful process of redundancies, and yet it still finds itself in a position where, I agree entirely, in spite of my inhibitions on protectionism, it needs Government intervention, it needs to be sustained and supported.

I find it interesting that outward processing seems to be a system whereby, although not everybody could get the best of all worlds, at least the best could be shared equitably among the people involved; that the modern technology and the skills of the United Kingdom textile industry could be brought to hear on certain parts of the process; that the more labour-intensive areas of the process could be dealt with in the less developed countries; and that at the end of the day the consumer in this country, by averaging the prices, also got a better deal than he would otherwise have got.

So, to come to the committee's recommendations, if those three things are going to be kept in balance it seems to me to be axiomatic that the OP quotas must be restricted to genuine manufacturers; otherwise, we shall be losing part of the benefit which can come to this country, and that, I think, would be a mistake. Furthermore, if we accept that this is going to be an important part of sustaining the textile industry in this country, I think that, as the noble Viscount and the noble Lord have said, we really must have more facts at our fingertips to deal with the problem. I am very cautious of increasing form-filling in this country. I am very conscious of the fact that the Civil Service has enough statistics to play with to keep it busy for quite a long time; but I think that in this particular area there is a need for more information. We found it very difficult, I think, to find our way through this jungle, having no real facts at our disposal, no real numbers to play with.

Of course, the problem is not just one of the collation of statistics centrally; it is also the problem of manufacturers having to extract the statistics and fill the forms in, which is where the cost lies. Too many of our industries today find themselves having to bear unproductive overheads in filling in forms. We all know that. I suspect that we have slightly ducked the issue in the report, and in paragraph 40 we make some slightly sanguine comments. We say, talking about statistic-gathering: Indeed the task may be both cheapened and simplified by modern information technology". So it might; but I would not honestly put all my faith in computers at the moment. My noble friends in the Social Democratic Party have put quite a lot of faith in computers so far as membership lists are concerned, and I think the situation is that they do not know how many members they have.

I happen to believe that in the long run it provides an opening for Government, and it may be that in some years' time we shall find ourselves not receiving forms to fill in but receiving a programme from a Government department to fit into our micro-computer, which will extract the facts and figures that are needed. But, of course, the problems of compatibility of computers are far from being resolved, and I think that is a long way away. So I think, as I have said, we are being a little sanguine about expecting modern information technology to solve the problem of form-filling, but at the end of the day we must have the information if this sytem is to be properly monitored.

I also agree with the recommendation in the report that it is simpler to work on the basis of volume rather than value-added. It seems to me that once we get into the area of value-added it will become the bureaucrats' dreamland. All sorts of hesitations and qualifications will be hedged round the definition of what is value-added. Volume seems to me to be a fairly straightforward way of looking at it. I also agree with the other recommendations, which talk about flexibility. As the noble Lord, Lord Rhodes, has said, we are moving into an established area in terms of Benelux and Germany, and it is unlikely that that situation could be significantly restructured. I therefore think we have to live with it as it is, and therefore there has to be flexibility.

But if there is going to be flexibility then clearly something must be done about free circulation. It is very worrying, as the noble Lord pointed out, that Article 115 may be seen to be an inadequate protection. I hope that this is something that the Government will be able to respond to, because it is crucial, it seems to me, to the whole system. Because if there is free circulation without any control at all, then our industry could easily be swamped by countries, particularly Germany, which rely much more heavily then we do at the moment on outward processing.

Finally, there is just one matter in the report on which I am slightly uncertain, and that is the matter to which the noble Viscount referred. It is the question of whether the OP quota should be inside or outside the total quota. There is no doubt that the evidence we received indicated very strongly that it should be inside the total quota. The only hesitation I have is that if we are going to take a view in the multi-fibre negotiations which is too stringent, then I hope that some flexibility can be allowed at the borderline, as it were, between the total quota and the OP quota. I was worried by the reports that I saw in the press last week that the Government were taking a very stringent line on the Multi-Fibre Agreement, and I hope that they will be a little more flexible than they appeared to be at that stage. I am glad to hear, although I have not read it myself, that the European negotiators have now got their package together and have an agreed stance in the negotiating process.

Having said all that, my Lords, I thank the other members of the committee for being patient with me in my first attempt as a member of a sub-committee, and I thank your Lordships for listening to me tonight. I ask your Lordships to support the recommendations of the committee.

8.7 p.m.

Lord Kearton

My Lords, it was a privilege to sit on this committee, under the chairmanship of my noble friend Lord Rochdale. As he said, it is a complex subject. He guided the committee through it brilliantly and I think his exposition tonight has been a model of lucidity. The very complex questions have been put fairly before your Lordships, and the reasons for the recommendations of the committee have been very clearly and concisely explained. The support he has had from my noble friends Lord Rhodes and Lord Tordoff make it, I think, unnecessary for me to do more than to say that I warmly commend the conclusions of the report, expressed as they are in the form of opinions.

Outward processing is already an important part of the European textile industry. It has played a comparatively little part in the United Kingdom textile industry until now, but outward processing will undoubtedly grow as a factor in United Kingdom trade. There are ways of using and regulating this development to give support to the United Kingdom textile industry, and these are the ways to follow. They are outlined in the recommendations of the report.

The point I want to stress is how important it is, in my view, that outward processing be regarded as a replacement for some of the existing import trade, and not as an addition to it. The textile import penetration into the United Kingdom market is over 30 per cent. by value and over 60 per cent. and nearly 70 per cent. by volume. Two-thirds of the volume comes from outside the Common Market itself and about half is from the low-cost countries. It is worth stressing that the record of the Common Market and of the United Kingdom in taking imports from the low cost countries is better than that of the rest of the developed western world, and particularly better than the record of the United States and Japan. It has been said by the noble Viscount, Lord Rochdale, that the textile and clothing industries of the country are still the most important creators of our national wealth and most important providers of jobs. About 10 per cent. of the jobs in manufacturing industry are in textiles and clothing.

There has been in the last few years a great job loss; 400,000 in the period 1970 to 1980; 120,000 in 1980 alone and, as Lord Rhodes reminded us, the process is continuing in 1981. This job loss of 400,000 is half the total job loss in textile and clothing in the whole Common Market area. We have taken a disproportionate share in the period—40 per cent. of our labour lost their jobs and 20 per cent. of the rest of the Common Market lost their jobs.

The textile industry of the United Kingdom with which I was associated for 30 years has changed enormously in the post-war years. It has been a dynamic industry. One has had the rise of man-made fibres which, coming from a small base, now account for more than half the total fibre usage of our country and of the world. There has been a relative decline in cotton, as Lord Rhodes and the noble Viscount hinted. The decline of cotton has caused a Brest deal of lobbying from Lancashire but at the same time as Lancashire was declining other branches of the textile industry were growing strongly. We have had the growth of knitting; we have had new fabrics with new properties, new finishes, new dyes, new styles of clothing, new fashions in home furnishings, new industrial end uses. There have been great advances in technology. Spinning has been revolutionised by the open end processes which increased productivity by a factor of four to five. In weaving, the advent of wide width looms, airjet and waterjet looms, and so on, which have revolutionised productivity, flexibility and versatility. Development in knitwear machines has been spectacular. Similarly in dyeing, in finishing, and in printing, there have been advances leading to better quality, greater range of end products, and better value.

We have now reached the stage, as Lord Rhodes has said, of getting some automation on the garment side. It began on the cutting side and it is beginning to take effect in some areas of garment production. I should like to draw the attention of the House to the fact that the rate of productivity increase in the textile and clothing industries has been better than in nearly every other branch of our manufacturing industry. This picture of the textile industry as a sorry and declining industry could not be more wrong; it has been vigorous and dynamic and the processes are continuing.

For most of the period since the end of the war job changes and job losses could be accommodated. We had high employment. I sat on a "Neddy" in the 1960s when we were worried about unemployment going to about 400,000, but as people were displaced they could find other jobs. From my own experience, Courtaulds rationalised production in the 1950s and 1960s and more than 10,000 jobs were lost; but all the people concerned were absorbed. In the late 1960s and early 1970s, Courtaulds were engaged in some partial rationalisation with Lancashire Spinning and some 12,000 jobs were lost; but all the people were absorbed. As part of that rationalisation, the productive capacity was increased by 50 per cent. and the people employed in producing it were reduced by 50 per cent., which is an indication of the great increase in productivity which has characterised the industry. Courtaulds became engaged in the rationalisation of some parts of the garment trade, and several thousands of jobs were lost. In my 10 years as chief executive there have been rather more than 30,000 jobs lost, but the people have been absorbed. When Courtaulds shut down on Merseyside strenuous efforts were made to find employment for the people on those sites.

Now it is a different situation. When people lose jobs now, they are not absorbed, and in my view, they are not going to be absorbed. I gave a paper to the London Business School four years ago, when unemployment was at 1.4 million. I forecast the inevitable rise to between three million and four million as we got rid of overmanning and became more efficient, and I made the melancholy forecast that, with radical changes in attitude, our unemployment rate was likely to rise to 20 per cent. or more—in other words, that there would be unemployment figures of five to six million. That was some four years ago, and events have not led me to change my views. My opinions have been strengthened.

It has been claimed that we may have reached the bottom of the current recession. That may be true. Also, Government Ministers say that the climb-out will be slow. In this House, the noble Lord, Lord Cockfield, in the debate on the Address, said that he thought the country would be fortunate to get a growth of between 1 per cent. and 2 per cent. per annum for the rest of the century. If that forecast is true, nothing will stop unemployment from rising very sharply. Mr. Ivor Richard, the European Commissioner, in an interview recently indicated that he was beginning to be alarmed by the thought that unemployment in the Community will rise from over 9 million (the present figure) to between 12 million and 14 million by 1984–85.

In the wider grouping of Western nations, the OECD, unemployment has already reached 24 million and many observers believe that it will inevitably climb to 30 million. We have a situation of low growth, of static, and in many cases mature, markets. The fact that so many markets are mature is only slowly beginning to dawn on people. The great growth in productivity worldwide after the war depended upon the appearance of new products, new wants. The rate at which new products appear now is very much slower than in the past, so that the dynamism of new products which helped to give the great postwar growth seems to be coming to an end. The corollary is that competition for jobs between the industrialised nations of the world will get more and more severe.

There is talk nowadays about how we should get out of the "sunset" industries—and the noble Viscount, Lord Rochdale, indicated that some people think the textile industry is one of these—and enter into the "sunrise" countries. This is a mirage. For Japan, textiles and clothing were very much a sunrise industry for nearly the first 20 years of their growth. Whatever their achievements since in other areas, the Japanese have kept a large, dynamic textile industry. It is still a most important part of the Japanese wealth-creating process. None of the so-called sunrise industries that I have looked at in the last few years, whether it be the development of microelectronics or telecommunications or more technological and biological processes, is labour intensive. The new processes which are making their appearance are not going to absorb a great deal of labour. We all very much welcome the evidence which has been given to set up small ventures. But I think that the idea that a great number of small ventures are going to provide a real great chunk of new employment is like the sunrise industry thesis—a mirage. So, in my view, industrialised countries may have to make jobs just for jobs' sake, not wealth-creating jobs, to keep their people employed.

Turning to Japan, it is very striking that Japan has monumental inefficiencies in certain parts of its internal structure. It has efficiencies which threaten the rest of the world in certain narrow-band and major industries and is most efficient in those industries. There are all sorts of other areas where Japan is grossly inefficient. This is one of the reasons why their unemployment ratio is low. However, because they can run a positive balance of payments, even when they have to spend half their export earnings to import energy, they can still get back, as they have done, to a positive balance of payments because they control their industries very closely and do not permit access to their market very readily. Again, while I am talking of mirages, I think that the idea that the Japanese can be talked into opening their markets to Western production to any great extent is wishful thinking. The only way that they can keep their own economy going, their own country stable, is to make sure that their domestic market is to all intents and purposes protected when it comes to manufactured goods.

I should like to stress that when it conies to textiles and clothing, where we have rather more than 600,000 jobs, we should take every step to protect the jobs that we have. One sees in Northern Ireland and other places vast sums of Government money going to promote the creation of a relative handful of new jobs, while at the same time vast employing enterprises are shut down through lack for a little time, of Government support. This seems absolute nonsense. In the textile industry, if we are going to have a static world market—and my noble friend Lord Rhodes referred to the report —in the recent EEC Commission report their own view of the growth of the textile trade of the developed countries for the next few years ran at 1 per cent. to 2 per cent. per annum.

The inevitable increase in efficiency and productivity in all the different textile processes is bound to mean less employment in the textile industries of the Common Market. If we are going to maintain our own employment in this country at present levels, we shall have to get back some of the production that we have lost. That is not going to be easy. The production of man-made fibres dropped 15 per cent. in the first nine months of this year as compared with the first nine months of 1980. Wherever one looks, the task is very difficult. In its overseas trade the country has quickly become too dependent—frighteningly dependent—on the oil and gas of the North Sea. The value of the production and current money is about £17 billion per annum. If we did not have it we would have to increase manufacturing exports by 40 per cent. to pay for energy imports, a task which in the present state of our manufacturing industry is clearly absolutely beyond us.

While it is so marvellous to have the North Sea oil resources, they are finite, they are not going to last more than two or three decades. If we finish up at the end of that period with a manufacturing industry which is not fully competitive with the Japanese or Americans—and in fact is better than the rest of the world—we are going to have a very unfortunate century for our country from the year 2000 onwards.

It is because of all this that I feel, regarding the directives from the Commission, we should do everything we can to sustain our manufacturing industry, including textiles, and take every step that we can to increase it. In this connection, I should like to say how encouraging I have found the recent speeches of some of Her Majesty's Ministers. In the debate on the Multi-Fibre Arrangement in the other place in the summer, I thought that the Secretary of State for Trade was extremely robust in his general attitude. This was very much welcomed by everyone in the textile trade. The events of the past two years have reduced morale dramatically. I trust that the actions of Her Majesty's Government in the next few months will live up to the encouraging words which have been used in speeches.

To conclude, my Lords, the adoption of the recommendations and opinions of the Select Committee which deal with outward processing would greatly strengthen the confidence of the industry and be very well received.

8.25 p.m.

Baroness Lane-Fox

My Lords, most of us who were born and brought up in the West Riding of Yorkshire feel very close to the textile and clothing industries and their impact on the community. It is not only management and employees and their families who are so closely affected but also the voluntary organisations which have in the past received munificent support from generous and inspired industrialists and from the charitable funds of the trades over many years. The real romance of these industries is that they have so often relied on enterprise and dashing initiative to reach success, and on cool courage to get through the troughs. Their manufactured products traditionally are the envy of the world. This is part of the very life fabric of many people in the United Kingdom.

Of course there are recessional and other causes for the current faltering uncertainty as to the future of these industries: but, for about 25 years, the terms "country of origin" and now "outward processing" have hung like a threatening fog over the whole area. The report now debated, which proves to be so topical and in step with what is happening in the EEC, draws attention to the need for more statistical information to be given to the Commission to achieve more transparency—in other words, to try and clear the fog.

I was interested to read in the report some of the evidence given to the sub-committee. The evidence showed that the British Clothing Industry Association considered advice as to the levels and patterns of OP trade from and within the EEC to be sadly lacking. Nevertheless, it is their belief that the outward processing system is growing and here to stay, and that if we do not take part we will be left behind.

The British Textile Confederation has fears of OP and seeks specific provisions to particular problems. But they recommend this report for debate which itself surely is encouraging. Throughout, there is attention drawn to the need for more facts and information. The committee consider that with the effective use of computers, the cost of the extra staff needed should not be excessive. I say this despite the remarks to the contrary of the noble Lord, Lord Tordoff. I say this with hope.

Certainly this progress is essential in terms of helping employment prospects in these industries and too of preserving the skill and marvel of, for instance, the Yorkshire textile industry. I add my support to the report and I ask the noble Lord the Minister to forgive me for being unable to stay for his summing up, which I shall take great pleasure in reading in Hansard.

8.29 p.m.

Lord Arcwick

My Lords, I rise with unaccustomed humility because I do not share the expertness on the textile industries of my colleagues on the sub-committee, and particularly those people who have spoken tonight. Indeed, I am humbled by the vast experience of my noble friend Lord Rhodes, who began when he was a boy of 12 almost eight decades ago. This experience was expanded by his spell as a Minister, and has recently been extended by his trips to China and the United States. I was drafted on to this sub-committee like the noble Lord, Lord Tordoff, because I, too, am a Mancunian. We might have had a rich debate if we had had more Mancunians: for example, if we could have had the noble Lord, Lord Lever, to talk to us about the finance of the industry, or the noble Lord, Lord Sieff, to talk to us about the retail aspects. However, we must make do with what we have got. I think that perhaps a more substantial reason why I was drafted is that I was once editor of a Manchester newspaper and, as such, had to learn something of the industrial, trading and political problems of the cotton trade. Of course, that trade has no longer the central importance that it once had. There is a splendid Welsh entertainer, Max Boyce, who sings a haunting song about the pit closures in South Wales with the chorus: The pithead bath is a supermarket now". I always feel that Manchester should have its equivalent: The Royal Exchange is a city theatre now". It is a very strange thing, but I may say that it is a very good city theatre.

All my experience of the textile world is long past, but in the European Parliament, as I became concerned with the Multi-Fibre Arrangement and other problems, my interest in the vicissitudes and the sparkling achievements of the industry was revived. Indeed, the industry posed one of the most fundamental problems of the Community—a fundamental dilemma not yet resolved. The heart of the current dilemma is that we seem to have developed a chronic imbalance between the number of jobs and the number of people who want to do them: a growing number of workers and a diminishing number of jobs. But we still have a number of industries which employ large numbers of people—labour-intensive industries, as they are called in the jargon of the day—and the clothing and textile industries belong to this class.

In spite of the recession and the lean years since the oil price increases in 1973, as has been pointed out by more than one speaker in the debate tonight, they still employ 600,000 people in the United Kingdom and provide a tenth of all manufacturing employment. The figure for Europe is very similar—about 10 per cent. of the industrial jobs are in textiles. The figure I have for job losses from 1973 onwards is slightly different from that which the noble Lord, Lord Kearton, gave. The figure given to me was 30 per cent. and I think the noble Lord said 20 per cent. However, my figures are figures that were given to me and I did not make the count myself.

In these difficult conditions the industry has had to meet competition not only from the developed but also from the developing nations. Yet the idea of giving textile industries more substantial protection goes against the philosophy and perhaps the material interest of the Community and of this country, for we are world traders, heavily dependent on world trade remaining relatively free—but of course the emphasis is on the word "relatively". Of course there are a few ideologues who would have everything subjected to remorseless competition and trust to our ingenuity to take us into new industries outside the scope of the developing world. But this is a theoretical position which cannot be held by those in the threatened industries, either as workers or owners, because the time lag between the abandonment of old industries and the achievement of the new industries is too long and the cost is too high in terms of wasted human and material resources.

Somewhere between these theoretical extremes of the siege economy—there can be no such thing as that, but there is a concept of it—and classical free trade we have to find a compromise which keeps people at work and leaves room for innovation, while acknowledging our duty and material interest in encouraging the developing countries to industrialise. I may say that I will not reproach a member of the Government for the difference between the words of the Prime Minister the other day and what has actually been going on in Europe. It seems to me that we trust in God at the Mansion House, but we take a more robust view of our interests in Geneva.

It seemed to me when I first went into the European Parliament that the Multi-Fibre Arrangement was a model which other industries could follow by increasing the quotas of low-cost producers as the European economies expanded. That seemed to me a civilised and decent thing to do; but that was conceived in a world which was still full of economic hope, compared with the bleak future which has been making it so difficult during the last few days for the Community to evolve a collective view on what I think is now called MFA 3.

I am very glad to hear that it looks as though that particular problem has been solved, but it is in the context of all that we have been saying, and all that the noble Lord, Lord Kearton, has said with such eloquence and expertise today, that we have to consider the report on outward processing. Of course, it is only an extension abroad of the most ancient practices of the textile industries and indeed of the clothing industries. It is not very different, I suppose, from sending waistcoats for button-holing from Savile Row to the East End of London, except that the East End is now perhaps the Far East or the Middle East, shall we say? This processing is sometimes carried out abroad in countries where the cost of labour is lower than it is here. The question that has to be decided is not whether this is to be done at all but how much of it is to be done and how the abuses it makes possible are to be checked.

Of course OP confers some immediate benefits on people in this country who are able to provide consumers with goods cheaper than those produced in Britain, and firms which have used OP are said to have been able to compete more effectively in world markets because the system enables them to reduce their costs of production. To some extent it may save some British jobs which might otherwise be lost. So much for the benefits, but there is one immediate penalty, too, because work is being done by people in other countries which could be done by people here, and at a time when unemployment is at an unacceptably high level and shows little sign of being reduced. A Germany whose industrial success has produced a more robust psychology looks upon OP as an opportunity. Here we have more concern about the effect of it on employment. But how many jobs are being lost in Britain we do not know. There is an impression that OP is increasing. How much effect it is having in this country we really do not know, because only a minority of such goods are subject to a tariff and it is only when a rebate of a tariff can be claimed for the proportion of work done in this country that we get an OP statistic. Other OP goods come in under the quota of the country where they have been processed and so are indistinguishable from goods produced wholly abroad.

The Government seem to have a peculiar reluctance to collect the statistics, seemingly because of the cost of such an exercise; but our committee, as has been said earlier, came unanimously to the conclusion that the Government should reconsider their policy. Perhaps they would find that the exercise would be less onerous and less costly in these days of new information technology. The evidence we received suggested that we should have specific quotas for OP goods, just like fellow members of the Community. Again, there was a strong feeling, which was very strongly supported by the industry, that this should not be a means of allowing more imports to enter the British domestic market; rather should it be used to keep the system within reasonable bounds. It must not be a loophole through which goods from low wage and state trading countries can pass and avoid the EEC restraints upon them.

And there should be a check to the abuses. The noble Baroness, Lady Hornsby-Smith, who regrets very much that she is unable to take part in today's debate, gave me the other day one or two examples of the kind of abuse that she has come across, contrasted with legitimate use of the system. The kind of justifiable co-operation occurs when valid manufacturers provide cloth from the country of origin and have it made up abroad. Some German firms, for example, co-operate with firms in East Germany to such an extent that they actually go across and supervise the quality of the work on the spot. That seems to be quite reasonable. Or there may be well-made dresses in the United Kingdom, which can be sent to Tunisia or Morocco for individual embroidery.

But there is abuse when garments are made outside the EEC—90 per cent. of them are made outside the EEC—and are imported by agents with a minute workroom, who simply add buttons and bows and a local label, and then circulate them freely across the EEC frontiers. There are dark stories, too, about suits being imported from a state trading country at prices below any economic cost. Then the vital labels are added—say, perhaps, "Italy"—with a few additions to the garments, and then they can circulate as Italian-made goods. That is the kind of abuse—how much of it exists, I really do not know—which could surely be prevented.

It seems that the Government's policy remains unchanged; that they still believe that outward processing must simply be subjected to the overall quotas for textiles and clothing from the countries concerned. I hope that the Government will think again and consider the advantages of specific quotas, in the light of the draft instruments and the Commission's recently declared belief that it is essential to ensure that the development of outward processing converges from one member state of the Community to another.

8.43 p.m.

The Parliamentary Under-Secretary of State, Department of the Environment (Lord Bellwin)

My Lords, I should first like to thank my noble friend Lord Rochdale, and I so very much agree with what the noble Lord, Lord Kearton, said as to the clear and concise way in which my noble friend has tonight drawn the attention of the House to the committee's report on outward processing of textiles and clothing. This is particularly opportune, given the present stage of the discussions on renewal of the Multi-Fibre Arrangement and the European Community's position, to which I shall return in a few moments.

The committee's report is a valuable contribution to consideration of the right approach to outward processing and I have listened to views expressed in this debate with great interest, not least because I, too, come from the West Riding of Yorkshire and am not without some knowledge of the textile and clothing industry. Indeed, my own family business, in which I spent at least 35 years, was in manufacturing and distributing machinery for certain sections of that industry. So it is not without some irony that my first appearance at the Dispatch Box, as a spokesman on industry matters, should be in a field with which I am not entirely unfamiliar.

My noble friend Lord Rochdale was so right in stressing, as did other noble Lords tonight, the importance of the clothing and textiles industry to this country. Too often, the full significance of textiles and clothing to the United Kingdom is not appreciated. With, as the noble Lord, Lord Kearton, said, some 600,000 jobs now and a turnover of around £9 billion, it is one of our major manufacturing industries exporting—again, as my noble friend Lord Rochdale said—about £2½ billion worth of goods in 1980. The Government cannot be, and I assure your Lordships are not, indifferent to its fortunes and do not for a moment consider that it is expendable. At the same time, we are deeply conscious of the serious difficulties which the industry has been, and still is, facing. And we understand, too, the concern that is felt about the problem of imports from low cost suppliers. The Government—I say again—are fully committed to providing a trading climate in which the textiles and clothing industry can work to secure a viable future.

It is for these reasons that the Government have sought to ensure that the EEC's policy under the current Multi-Fibre Arrangement is implemented as effectively as possible—we have approximately 600 quotas and other restraints on textiles and clothing imports from low cost countries—and we have been stoutly defending the United Kingdom's interests in the Community's discussions on renewal of the current MFA when it runs out at the end of this year. We are committed to the negotiation of a tough and enforceable successor to the current MFA, with growth in quotas in line, as far as possible, with the expected low growth in consumption over the next few years.

It is, of course, in the context of the Community's arrangements under the MFA and associated measures, that we and other member states have been considering the Commission's proposals to regulate the administration of outward processing. The committee's report raises the central problems, including the internal differences within the EEC which led to difficulties in agreeing a harmonised Community approach. So far as the United Kingdom is concerned, outward processing in textiles and clothing has not, I think it is reasonable to say—I take the point made by some of your Lordships about the need to know more than we do know, and that is something which we shall, perhaps, have to take away and think about—been undertaken in this country on a very large scale. Your Lordships might ask: How large is large? That is why I would reply that that is something we need to know more about.

Some OP is carried out here, but on nothing like the scale undertaken by, for example, the Germans. We do not have the same geographical proximity and historic economic links with low labour cost countries. And it is open to question to what extent OP with distant countries in, say, the Far East, is an economic proposition for United Kingdom firms. Nevertheless, we can, and do, understand the concern of United Kingdom firms who see their competitors in other member states gaining an advantage from carrying out this kind of operation in nearby East European and Mediterranean countries.

Officials at the Departments of Trade and Industry are keeping in close touch with the United Kingdom's textiles and clothing industry on the outward processing issue, and there is general agreement on the lines that we are pursuing. Our fundamental position is that any outward processing should be done within normal restraint levels and should not create additional clothing imports from low cost countries.

The various industry sectors and the Government are, I think, at one on this. We do not consider that a special régime for outward processing quotas is necessarily good in itself. But if it is necessary for negotiating purposes with the Community's low cost suppliers to have outward processing quotas, then, as my noble friend Lord Rochdale said, they should be within the Community limits that are set for "normal"—non-outward processed—imports.

We recognise, too, that the industry has a strong case in pressing for manufacturers to be the main beneficiaries of any OP quotas, although there are other considerations which we have to take into account. The draft EEC regulations which led to the committee's report are, of course, designed to harmonise the administration of outward processing arrangements within the Community. We see the need for this and we have participated fully in the Community discussions in the attempt to achieve an agreed position.

The regulations in themselves do not set limits for the total amount of outward processing which might be undertaken by member states under a special OP régime. These would be fixed separately and are one of the matters which have been exercising the Council of Ministers in the recent MFA discussions.

The Commission's proposals, as set out in the draft outward processing regulations, including provision for manufacturers to benefit from any future OP régime, have been making progress in the Community but no final decisions have yet been taken. We had hoped that the extent to which individual manufacturers might be able to benefit would be defined in the final regulation, but this has not proved possible. It will be left to member states to decide how much outward processing an individual manufacturer could undertake within any future OP régime. We are generally in sympathy with the industry idea but again, as both my noble friend Lord Rochdale and the noble Lord, Lord Tordoff, mentioned, the amount should be related to the individual manufacturer's output on a volume rather than on an value-added basis. But further discussion with the industry on this will be necessary, if and when the regulation is adopted.

We do not consider that limiting the benefit of any future special EEC/OP régime to manufacturers need create difficulties for other United Kingdom trading interests, which could, if the Commission's proposals were approved, still continue to operate, as at present, within the normal import régime.

We hope, too, that the regulation would prove useful in enabling us to monitor outward processing done in the United Kingdom and elsewhere in the Community. This point was referred to by both my noble friend Lord Rochdale and the noble Lord, Lord Rhodes. If, of course, in the future we have specific outward processing quotas covered by the regulation, we would gain a better overall view of the extent of UK/OP as well.

The committee's report also stresses the need for the Commission to use its powers under Article 115 of the Treaty of Rome, which constitutes a derogation from the Community's normal free circulation rules, to protect industry to the full. We agree that Article 115 must, wherever possible, continue to apply to outward processing traffic, otherwise there could be a serious erosion of the protective value of national quotas. In fact, the Commission's proposals as they now stand would not change the existing arrangements, although we have to recognise that the Commission consider that there is no legal power for them to use Article 115 in the case of imports, outward processing or otherwise, from the Community's Mediterranean associates or other preferential suppliers. In other words, as the noble Lord, Lord Rhodes, said, at present outward processing is covered by Article 115 in the same way as normal MFA quotas, but imports from Mediterranean countries cannot, in the opinion of the Commission, have Article 115 used against them once they are in the Community country.

Detailed work remains to be done in the Community on other aspects of the draft regulations, including some of those mentioned in the Select Committee's report, which noble Lords have touched on: We agree, for example, that under any OP régime, only limited manufacture should be undertaken abroad, and that the draft Commission proposals should be amended in this respect We agree, too, that there should be some flexibility in the requirement that goods sent for outward processing must be of EEC origin. There is already flexibility in the Commission's proposals for cases where EEC production is insufficient. And as requested by the textile industry, we have been seeking an amendment for woollen cloth exported from the Community for outward processing abroad, under any special régime, whereby it would have to be woven in the Community rather than simply have acquired Community origin (for example, by being dyed or printed in the Community). In conclusion, and at the risk of repetition, before I comment on one or two of the observations which have been made, again may I emphasise that while so far there have been no special outward processing quotas for the United Kingdom, there is no barrier under existing arrangements which prevents anyone from carrying out outward processing, if they wish to, as part of the normal import régime. It is not our objective to stop United Kindgom firms doing outward processing, but we do not want to see any special EEC outward processing régime resulting in imports front low cost sources being higher than would otherwise be the case. We are aware of the overriding importance which the United Kingdom industry attaches to the need to keep total low cost imports at as low a level as possible.

Meanwhile, we are continuing to play our part in the Community discussions on the Commission's proposals for regulations to harmonise the administrative arrangements for outward processing in the EEC. Such arrangements will be appropriate in the United Kingdom only if and when any new import régimes involving outward processing come into force. This would involve negotiations with supplying countries which have not yet started.

The noble Lord, Lord Rhodes, asked whether I knew the position regarding the MFA negotiations. "Were they", he asked, "still argey-bargeying about them?" I cannot think of a better way of putting it than that. I can tell the noble Lord—he must decide if it is still "argey bargeying", (I would have my own view but I am less able to express it as easily)—that the Lord Privy Seal made a Statement in another place yesterday, and I understand that the Minister for Trade will be making a more detailed Statement there next week. The position, I understand, at the moment is that no decisions were taken on the levels of outward processing, nor on the levels of non-outward processing goods for any future EEC régime. The Commission will be exploring with major low cost suppliers the possibilities of converting part of existing quotas into special outward processing quotas. The Council has agreed that the Community must define global ceiling figures for outward processing and other imports from low cost countries before it can take a final decision on its participation in the new MFA, and it will be looking again at the overall position next month. I am sure that the noble Lord, Lord Rhodes, will have his views about that.

May I also answer the point made by my noble friend Lord Rochdale about the compatibility between the MFA and OP with GATT and most-favoured-nation status. The Multi-Fibre Arrangement is a specific derogation from the GATT rules and I do not believe that the problem which my noble friend mentioned is a substantive one. I have touched on the point which was made by the noble Lord, Lord Ardwick, about the need for more information. I would not quarrel with that. I would say to the noble Lord, Lord Kearton, who is so qualified to speak (as he did) on this subject that I thought—and I am sure he would agree with me—that he painted a gloomy prospect for employment in the future, with some of which it is very hard to argue. All I would say to him is that while nobody can know what can be done in terms of real numbers to help the position, through small businesses, the fact is that what is being achieved in some countries is quite impressive. While I do not for a moment seek to say, "Eureka, we have it. This is the solution", I know that the noble Lord would be the first to agree with me that we must certainly do all we can to try to make sure, through that route, that we get the maximum additional employment. I assure him that that we shall continue to do.

In the EEC discussions we shall continue to take full account of the valuable points made in the committee's report and of the views expressed by your Lordships tonight. Again may I sincerely thank my noble friend Lord Rochdale and all noble Lords who have contributed so constructively to this most serious, important and, some would say, most urgent matter.

8.59 p.m.

Viscount Rochdale

My Lords, before I ask your Lordships to approve the Motion, I should like to say a few words, more by way of thanks than anything else, to all those who have spoken and who have contributed their profound wisdom and experience, in particular the noble Lord, Lord Rhodes, my noble friend Lord Kearton and others. It has been a valuable debate and I am grateful to them.

Turning to my noble friend Lord Bellwin, I get great encouragement from what he said. Obviously many of the things in the report, and what has been said today, need to have a great deal further examination and thought by his department, but on the other hand I was encouraged when he made one or two points so emphatically. He said emphatically that the Government were committed to providing a good trading climate for the industry. He said emphatically that they recognised the importance of the need to know more of what was going on—and that was a point that everyone has made this evening. He said emphatically that in considering OP it should be within the normal limits laid down by the MFA, and other things. I am glad also that he confirmed the point raised on Article 115 of the Treaty of Rome and also that I need have no fear about the point he made on "most favoured nation". I am most grateful to him and I feel certain that the industries as a whole, when they study what he has said, will also feel that. I merely wish good luck to all the further efforts he is going to make along the lines suggested. Finally, I wish to thank all the members of the committee who worked so hard in producing this report and also express my thanks for the efforts of our hardworking clerk.

On Question, Motion agreed to.