ECC 17th Report: Internal Market

HL Deb 13 December 1982 vol 437 cc415-44

6.10 p.m.

Lord Greenhill of Harrow rose to move, That this House takes note of the Report of the European Communities Committee on the internal market (17th Report, 1981–82, H.L. 204).

The noble Lord said: My Lords, the committee are grateful to the House for making time available to debate this report on the internal market. We are also very grateful to those noble Lords who have volunteered to speak at what is a most inconvenient time. Several months have passed since the publication of the report—indeed, it is almost six months. During this time, the international trade situation has deteriorated seriously. We have had a basically unsatisfactory meeting of the GATT, despite the Government's very sincere efforts; and the results of the Copenhagen Summit must be a matter for conjecture. At that summit, the leaders called firmly for agreement on fundamental developments in the internal market. They asked for agreement by March of next year. Frankly, it seems to me that that is very unrealistic; but it is against this background that our discussion takes place this evening.

The sub-committee had a good deal of difficulty with this report. Like other bodies that we know, we had our share of "wets" and "drys". We found it very difficult to come to clear-cut and agreed conclusions, in spite of the great help that we received from our adviser from the Centre of European Studies at the University of Sussex. The centre carries on continuously valuable work in this field. Finally, we settled for concluding paragraphs which we described as the overall picture. In my personal view, the overall picture is a disappointingly sombre affair but others may see glimpes of light in it. The whole subject of the internal market is extremely complex, as the voluminous evidence attached to the report clearly shows. We decided to deal with one comparatively narrow but representative aspect of it, namely, the movement of manufactured goods across frontiers within the Community.

Members of the House will recall that one of the prime objectives of the founders of the European Community was to create a single domestic market, and from this they anticipated would flow notable political and economic advantages. Our report shows, in the limited area we have chosen, how far this has been achieved. It is thus an important indication of the progress to date of the Community as a whole. I do not believe that we could fairly draw anything but a negative conclusion. The inescapable fact is that the political will necessary for the establishment of a real, internal market whatever its merits (and they must be good merits) is still wanting. The events of the last few months will have done nothing to increase that.

In a document issued last month, the Commission acknowledged that almost no progress had been made in the last year or so since the beginning of Commissioner Narjes' energetic internal market campaign. The Copenhagen Summit reflects the Council's dissatisfaction with this state of affairs. Maybe events have brought about a change of heart but, as I see it at the moment, the primacy of the national state remains largely unchallenged and, despite the rhetoric of statesmen and the dedicated work of the Commission, the integrated Community market looks a long way off. As the Commission say, the Council's present indecision contrasts with the proliferation of measures taken in self-protection by national authorities. For there are a surprising array of instruments in the hands of EEC member states, with only ineffective sanctions against their abuse, that permit Governments to frustrate the growth of intra-EEC trade and to apply protectionism within the Community if they so wish.

Some of the origins of this lie in the lack of progress of the EEC programme of technical harmonisation and the associated fact that non-tariff commercial policy remains fairly in the hands of national Governments. They often act in independent ways, especially against third countries, and so effectively fragment the internal market. Perhaps the surprising thing is that these national instruments are on the whole not being used actually to curb existing trade but rather to prevent its expansion.

Members of the House will be aware of the long list of mutual complaints by member states about particular barriers to trade erected against each other, but our report refers especially to the unpredictability of the barriers to trade, and it is this which apparently deters and discourages United Kingdom manufacturers from exploiting the full possibilities of even the existing market. My own feeling is that ultimately it will be the initiatives of industry itself rather than of Governments or of the Commission which will be the decisive factor in the growth of the internal market.

There are some signs that the strongly nationalistic attitudes of some, but not all, European industries are weakening in the face of United States and Japanese technological advance, and that the need for European survival of certain industries will bring them together. The Commission has begun to realise that this could be fostered by differentiating between Community and third country products. But we must not forget that the alternative attraction of association with United States and Japanese high technology partners will inevitably be a distracting influence. I acknowledge that what I have said may be falsified by the Copenhagen decision. It may be that member states will swallow their national rivalries and effectively "gang up" against all comers, but one might be forgiven for being sceptical.

I do not mean to imply by what I have said that no progress at all is being made towards an integrated internal market in any important area, and especially in the area which we have chosen to report upon. A lot of people, both official and unofficial, have been working hard, with a fair measure of success, and the evidence attached to the report reveals this. For example, in sensible and practical ways the systems for processing imports and exports at Community frontiers are being improved. Her Majesty's Customs told us that about half of all exports from this country are now being undertaken with simplified concessionary procedures, and members of the committee were able to see this on the spot at Dover, where they also saw the new computerised entry system. But there is not the reduction in frontier delays, and therefore of frontier costs, which might have been expected and, sadly, good reasons still remain for these delays, such as health reasons and reasons of security.

As the recent White Paper showed, there is greater awareness than ever before of the need for the acceptance and use of internationally agreed standards as a guarantee of quality. The committee heard about a very large number of specialised groups, including, from this country, the representatives of the British Standards Institution. We concluded that their work in the European, and, even more, in the international, field should be given the maximum encouragement. A similar role is played by SITPRO, the British organisation for simplifying trade procedure. Their enthusiasm and zeal has led to the creation of sister bodies in many other member states, and these bodies ginger their Governments and the Commission into action.

Finally, the courts are increasingly active in enforcing the right to trade freely throughout the Community. The European Court itself looks at cases brought by the Commission against member states which, they allege, have introduced illegal protectionist measures. The Cassis de Dijon decision, which is set out fully in the report, could have a far-reaching effect in creating a single internal market. But the significance of this European Court ruling has still to be fully tested.

The Times reported a couple of weeks ago that there were a large number of cases outstanding in the European Court—40 against France, 28 against Italy, 17 against Germany, and so on. There are relatively few—as a matter of fact, nine only—against the United Kingdom, but we should not forget the political antagonism that even a few cases can cause. We have heard recently in the House of the problems of the whisky trade. There has been much press comment about the import of cars from Europe. I can see no solution to either dilemma. National courts are also involved. Individual firms can challenge the legality of national protectionist regulations and, despite the costs and delays, more of them now do so. But formidable obstacles in these and other areas remain.

In particular, the report draws attention to the anomalies in the transport systems of the Community. Others, again, are the obstacles which are inevitably tied up with a system in which the collection of tax remains at national level. Some countries, for example, collect VAT on imports immediately, and others on a deferred basis. This leads to complications and delays and, once again, the tenacity of national views prevents reform.

The even more fundamental obstacle to completely free trade is, of course, the lack of a single Community currency and the rate distortions to trade caused by volatile exchange rates. This was not an aspect which we looked at in detail, and the new inquiry by the Select Committee on the EMS will doubtless do so. But it reminds us all how formidable and radical are the problems ahead, and, maybe, the debate later this week on the Motion of the noble Lord, Lord Lever, will give some guidance.

Finally, it is only by a general understanding by individuals, firms and Governments of the advantages to be gained from an integrated Community market that the political will which is needed to achieve it will be created. But the committee concluded that this political will is largely absent at the moment. One might be forgiven for believing that it is beyond the reach of this generation. Others may consider that patience and persistence will enable the original hopes of the Community to be attained much sooner. Maybe the Minister can encourage us. My Lords, I beg to move.

Moved, That this House takes note of the Report of the European Communities Committee on the Internal Market.—(Lord Greenhill of Harrow.)

6.25 p.m.

Lord Kaldor

My Lords, the noble Lord, Lord Greenhill of Harrow, and his committee are to be congratulated on producing a lively and highly informative report on what the Common Market means in terms of free trade and unhindered competition in manufactured goods inside the Community. We are also grateful to him for arranging this debate today, and for giving us a brief account of what has happened in the four or five months since his report was published.

For most people, the Common Market is a customs union within which, to quote the words of the White Paper of July, 1971, there is a single, permanent, assured and greatly enlarged market". in much the same sense in which the United States or the United Kingdom form a single market protected by a customs frontier at their border. But, as the present report shows, so far as manufactured goods are concerned, the so-called "internal market" of the EEC is nothing of the sort; and the purpose of this report is to explain, as concisely as possible, why it is not. Indeed, on reading the report, one is bound to conclude that the Common Market could best be characterised as a preferential trading system, where goods originating in one member state are treated more favourably by another member state than goods originating in non-member states, but not nearly as favourably as goods produced within the importing country itself.

In this sense, the common internal market resembles the preferential system of the British Commonwealth, as it existed after the Ottawa agreement. Indeed, in some ways that system represented, in its heyday, a more genuine effort of economic co-operation than the EEC as it actually developed, though it did not employ such dramatic language or labels, nor did it proliferate an enormous bureaucracy and a common parliament, with large expense accounts but with very limited powers. The Ottawa agreement meant that members accorded to each other preferential treatment, by way of remission of duties of 10 per cent. ad valorem; and that there was free trade in agricultural goods, and a fixed levy of 10 per cent. for agricultural goods imported from outside. With one exception, members were part of a common currency system, the sterling area, which meant that relative exchange rates were fixed, and control of currency and capital movements between members was virtually non-existent.

The EEC can boast of a common agricultural policy which is an extremely costly instrument, not for the promotion of competition between producers in different member states, but in order to prevent such competition from taking place, by making it impossible, or uneconomic, to drive out high-cost producers in one part of the Community by low-cost producers in another. The common agricultural policy was designed to create uniform prices throughout the Community in staple agricultural goods and, while uniform prices are sometimes the result of free competition, it is not true the other way around. You can have uniform prices without there being any competition, and this is what the CAP was really aiming at. This is brought about by means of market intervention in all local markets, which ensures that local prices conform everywhere to the fixed Community price. So the uniform price is not the outcome of competition between high-cost and low-cost producers, but of the introduction of a purchasing system which makes such competition unnecessary.

In the case of manufactured goods, with which the present report is concerned, the situation is totally different. Here, uniform prices were expected to result from the unhindered movement of goods, just as water tends to find an equal level in a series of interconnected tanks. The present report enumerates a number of different reasons why nothing of the kind has resulted from the adoption of a common external tariff and the abolition of import duties between member states and their EFTA associates.

The report identifies a series of obstacles to the attainment of a truly common market. One is formed by the very existence of border controls which can be highly vexatious and time-consuming, and which tend to delay and in many cases prevent altogether the passage of goods across the borders. Such prohibitions can arise owing to differences in the required specification of goods, whether technical or otherwise, in different countries, some of which—though by no means all—were rendered illegal by the Cassis de Dijon judgment of the European court to which the noble Lord, Lord Greenhill of Harrow, has just referred. As he said, however, it is by no means certain how much weight will ultimately be given to it.

Another obstacle takes the form of lengthy procedures of verification, causing costly delays or the filling up of endless complicated forms required for one purpose or another, such as the repayment of VAT in the exporting country and its reimposition, normally at different rates, in the importing country. There are also unwritten obstacles to free trade due to

the preferences in procurements accorded to home suppliers by private firms or by Governments and public agencies. In some fields, such as equipment for electricity generation or distribution, or telecommunication equipment, intra-Community trade is virtually non-existent because the purchasers in each member country deal only with producers of that country, to the exclusion of others.

However, in my view none of these factors is sufficient in itself to explain why there is so little economic integration in Europe as compared with a truly integrated economy such as the United States or, for that matter, the United Kingdom. One kind of evidence for this is provided by figures showing how much of the manufactured goods produced in any one country are consumed within that country as against others. An OECD study, published some years ago, showed that in engineering goods each major producing country of the EEC reserves the great bulk of its output—80 to 90 per cent.—for use within that country, with only a relatively small proportion being exported or imported. As against that, if you take the great centres of engineering production in the United States, like the State of Michigan or the State of New York, the greater part of the output produced there is destined for other states; and correspondingly, much the greater part of local requirements are imported from other states. In fact, how much of your total use comes from within one country and how much is destined for other countries I consider to be the best test of the degree of economic integration.

Other evidence for the absence of integration on which the present report lays some stress is the existence of large price differences between the different countries inside the Common Market which could not exist if there were genuinely free competition. The most conspicuous example of this, which received a lot of publicity recently, is the difference in the prices of motor-cars of identical makes and models sold in different member states, which can account for as much as 20 or even 30 per cent., after making due allowance for differences in taxation and transport costs. You can buy a Ford, or a BL car, or a foreign car made for the United Kingdom market and carrying the United Kingdom type approval certificate, for 20 or 30 per cent. less in Belgium or in Paris than in London.

I think the explanation for this, which is not given in the report—not even in the written evidence submitted by the Ford Motor Company which is printed at the end of the report and which devotes a lot of space to this particular subject of prices—is that the competition between car makers is of the special kind which economists call "oligopoly with price leadership". This arises when the number of producers is relatively few. So the individual producer has only a limited market which, however, is highly sensitive to the prices charged by others. You cannot sell more than a certain amount, but whether or not you can sell it depends very much upon whether your price is in line with the price of other cars. In those circumstances, one of the producers—normally the producer with the lowest cost or with the highest share of the market; the two criteria often coincide but not invariably—assumes the role of price leader, and determines not only the prices of his own makes but, with differences due to quality and so on, the prices charged by other producers. I believe that there is an understanding among the world's producers (probably an unwritten understanding but certainly an unpublished one) and this is a necessary supposition for explaining what actually happens, that in each particular market the price leader should always be a local producer and not a foreign producer, even though the foreign producer could easily assume that role owing to his comparatively low costs. This means that a low-cost foreign producer—say a Japanese or a French producer—will not undercut the local price leader. A Renault of the same model sells in Britain at 30 per cent. more than it sells at in France, because otherwise it would be undercutting Ford, and it is not going to undercut Ford because of the understanding that you leave the role of price leader to the local price leader and do not try to wrest it from him—for, I suppose, good political and commercial reasons in the long run.

This, to my mind, is the real explanation of why it is that you can buy all kinds of cars, always competitive with one another in regard to price, but different in each producing country—different in Belgium from France, different in Germany from Belgium and from Britain, and so on. The fact that prices are much the highest in Britain is nothing but a reflection that it is our currency which is overvalued in relation to all the other currencies. The report also reveals that relative prices show large differences between member countries. The prices for men's clothing are the cheapest in London while the prices of household appliances are cheapest in Amsterdam.

Finally, there are some fields in which the Common Market means nothing at all. This, I believe, is the case in pharmaceuticals. If you go to a chemist or a pharmacy in London, Paris or Rome you will find that in each place the products offered are different. Very often their names are quite different. They have little books which show that some product, which goes by such-and-such a name in England, goes by some other name in France, Italy and elsewhere. But in all cases they are products manufactured in that particular country, even if in a few cases they carry a common brand name. For example, Bayer's aspirin is a world famous mark, but Bayer's aspirin is produced in France, Britain and Italy, as well as in Germany.

It is evident from the tone of the report that the authors consider that the prevailing situation is highly unsatisfactory, not only on account of numerous legal obstacles but, as the noble Lord, Lord Greenhill of Harrow, has emphasised today, owing to the uncertainty of the situation in respect of that which is permitted and that which is not permitted—as well as on account of the spirit or manner in which they are administered, which shows a desire to minimise the effect of a common customs area by administrative action. This is a game in which Britain is at a comparative disadvantage. British officials are not very good at being vexatious or devious and are comparatively ignorant in the ways of operating a "dirty tricks department". I cannot imagine Her Majesty's Customs and Excise opening a small customs office in, say, Crewe or Corby, which is designated as the sole place for the importation of video cassettes into this country—a role assumed, according to newspaper reports, by the small customs office at Poitiers.

On 1st January, it will be 10 years since we joined the Common Market. Speaking for myself, I always considered entry into the EEC a most disastrous decision, partly because of the highly disadvantageous features of the common agricultural policy, but mainly because I felt that, in the circumstances, we were bound to be on the losing side in industrial competition. Industrial competition, on account of the economies of large scale, does not lead to convergence; on the contrary, the more competition one has, the more one creates a divergence between different producing centres.

Nothing which has happened since 1971 has made me change my mind. It was a disastrous decision from the point of view of the future of Britain. It was a decision in which both political parties and the people at large were almost equally involved. In a referendum, the people voted in favour of by a 2:1 majority, so no one has the right to blame anybody else for what occurred. The damage caused by this can never be wholly undone. None the less, after reading a brilliant book which has just appeared, written by Mr. Richard Body, a Member of another place and, I believe, of the party of noble Lords opposite, I feel that the case for cutting loose from the EEC is more urgent than ever.

In the field of agriculture, there can be no question that our membership causes very serious harm both to the people of Britain and to the third world outside Britain. To the people of Britain it means that they pay an additional £3,000 million on food, of which only about £1,000 million accrues to our farmers. The rest is needed to subsidise uneconomic production here and in Europe. In other words, the people of Britain pay £3 for the purpose of ensuring that £1 reaches the pockets of the people whom we intended to have it. To the people outside Britain, it means that production is discouraged—both by the highly artificial extension of fields devoted to the production of cereals in Britain, thereby narrowing other people's markets, and by the Community's policy of dumping surplus food, which is an additional factor discouraging production.

In manufacturing industry, the link with the EEC—aggravated no doubt by our own economic policies—has accelerated the deindustrialisation of Britain. The full effects of this will remain concealed for a number of years on account of North Sea oil, but unemployment in Britain has already passed its prewar peak and will continue to grow. As the oil bonanza begins to run out, our standard of living will suffer a catastrophic fall unless we succeed in reversing these trends in the meantime. Of this there is no sign, despite frequent optimistic pronouncements by Ministers.

A study of the figures leaves one with no doubt that joining the EEC had negative dynamic effects on the British economy; it had dynamic effects but they were of the wrong kind. It has slowed down our productivity growth and caused our imports of manufactured goods from the Six to increase much faster than our exports. Up to the early 1970s, we had a surplus of trade with the Six which existed almost every year. We then moved into a growing deficit in our trade in manufacturers so that by 1980, as Table II of the report shows, the adverse balance of our trade in manufactures amounted to £3,000 million or 20 per cent. of imports—most of which occurred in our trade with Germany.

Between 1973 and 1981, manufacturing output in Britain fell by 18 per cent. whereas in the rest of the EEC manufacturing output rose on average by 9 per cent. Perhaps it is unfair to make our entry into the EEC responsible for all this. The greater part of the relative deterioration occurred after 1979, since when Britain's output shrunk by nearly 20 per cent. whereas the rest of the EEC has shown a shrinkage of only 2½ per cent. So the EEC can hardly be held responsible for our present troubles any more than can the world recession, which is another favourite excuse of Ministers. World recession shows a fall in manufacturing output of 2½ per cent. but not of 20 per cent. What I can say with some confidence is that, by preventing the adoption of alternative strategies as well as by encouraging import penetration, joining the EEC has caused us a serious loss quite apart from the cost of membership of the common agricultural policy, and the diversion of trade from its traditional channels—and it would have done so even if Mrs. Thatcher had never existed.

6.48 p.m.

Lord Gladwyn

My Lords, I must begin by saying that, for reasons which I have explained to the noble Lord who is to wind up this debate, I may not be able to stay until the very end, although I hope to do so.

The ordinary and uninitiated reader of this excellent, if rather long, report—if there is such a person—may well ask how the European Economic Community manages to function at all! The difficulties in the way of even most normal trading transactions seem at first sight to be so formidable, so indigenous and even so incurable as to make a nonsense of the Community as a genuine free trade area; that is to say, an area in which trade is supposedly as unhampered as it is in Australia or in the United States of America. That is the impression one might get on first reading the report. All the old protectionist or nationalist impediments to free trade seem increasingly to be raising their disguised heads against the principles which are laid down in the treaties. I would not deny that, "Naturam expellas furca lamen usque recurrel". Translated, that means, "You may throw out nature with a pitchfork but she will always come back"!

Fortunately, as I think, the first impressions of a discerning reader of the report may well be too pessimistic. Let us look at some of the contrary evidence, including that quoted in the excellent speech of the noble Lord, Lord Greenhill of Harrow, submitted to the committee, and the rather contrary conclusions eventually reached by it. On page 41 of the report a representataive of the Food and Drink Industries said that though uncertainties were a strong disincentive to United Kingdom manufacturers he could quote no case where a firm had actually slipped back from making the effort.

On page 102 the Confederation of British Industry, who surely ought to know what they are talking about, are quoted as saying: Setbacks within the Community should not cause too much despondency and must be kept in perspective: there is little doubt that the special disciplines of EEC membership have worked to keep markets more open. Member States know very well that an overt and substantial retreat from their free trade obligations will bring retaliation from their EEC partners in one form or another, and that their governments must therefore seek workable compromises where domestic measures touch upon the major trading interests of other Member States. Then, at page 113, the Association of British Chambers of Commerce, which I think is possibly an equally representative body when it comes to speaking for industry, said: When one looks at the accessibility of the European market one sometimes wonders why some of our exporters try so hard in other extremely difficult markets. The problems there are much greater than they arc in Europe. The British Leyland conclusion, which I think is fairly relevant and deserves reading (see page 208) says: In the normal course of events BL does not encounter significant problems in its own trade with the Community, although the growth of tied imports has. in BL's view, detracted from the United Kingdom motor industry's competitiveness. The emergence of price differentials"— —to which the noble Lord, Lord Kaldor, referred— has created a unique situation and severe commercial problems. BL is confident that it can cope with these problems successfully provided it has time to adapt and that the operation of market forces is not hastened by legislative action". The Ford comment is a little further on, at page 226. I think this was also referred to by the noble Lord, Lord Kaldor. It reads: The paradox is that the European Community seems to offer the right economic dimensions to tackle present-day problems of industrial adjustment, but the Member States do not put enough trust into the venture to allow it to perform and to succeed.". Finally, at page 243, we read from the first paragraph of the memorandum submitted by the Retail Consortium, a body of some importance: After initial hesitation. United Kingdom retailers have slowly come to regard the European Economic Community as one market in which to buy and sell goods.". All this, I think, explains to some extent what is said in the report itself, namely, that in spite of everything: The continuing growth of the European Economic Community's trade in the post-1973 period indicates that whilst governments may have the means of frustrating further movement towards European integration at their disposal they have resisted protectionist measures to a notable degree.". This judgment supports the rather astonishing fact—at least, when I read it myself I found it rather astonishing—which I think slightly contradicts what the noble Lord, Lord Kaldor, recently said (see page xxiii, paragraph 60) that in 1980 just over 40 per cent. of all United Kingdom external trade is with our neighbours, compared with only 30 per cent. in 1973, and moreover that our deficit in the exchange of manufactured goods was—if I read the figures correctly in the 1981 column on page xxiii—proportionately (I emphasise proportionately and taking account of the fall in the value of money) much the same in the one year as in the other. So what general conclusions can we therefore draw from all this?

Lord Kaldor

My Lords, if the noble Lord would allow me, is he referring to trade in the EEC or trade overall with the world?

Lord Gladwyn

With the EEC.

Lord Kaldor

Trade with the EEC is given at Table II on page xxiii. The trouble is that that Table begins in 1976, and we entered the Community in 1973. If you went back a few more years you would find that before we entered the Community we did not have an adverse balance of trade.

Lord Gladwyn

That is quite true; but what is significant, I think, is that the proportion has not varied very much since then.

What conclusions do we draw from all this? One of the conclusions is drawn by the noble Lord who has just spoken, to clear out because it is just no good staying in. But I think few would disagree with the essential conclusion which is drawn by the committee and referred to by the noble Lord, Lord Greenhill of Harrow, namely: It is only by general understanding by governments and peoples of the advantages to be gained from an integrated Community market that the 'political will' needed to achieve it will be created. At the present time the committee regretfully conclude that this will is absent.". I myself would not disagree with that; I think that that will is absent.

But we can also surely logically think that either a partial or a complete withdrawal from the Community, as now recommended by the Labour Party, would be the equivalent of a national disaster. It is all very well to say with the "antis" that our partners would be reluctant to contemplate any reduction in their existing and very profitable exports to this country, but to believe that, for instance, any large reduction of, say, our imports of French wine or Renault cars would not result in a corresponding reduction in our exports of Scotch whisky or Leyland Minis to France is, I should have thought, to give evidence of considerable naivety or wishful thinking.

Yet there is no doubt—and we must recognise the fact—that if the present recession continues the Community may be in danger, if not of collapse, at any rate of becoming a rather meaningless organisation. Since the beginning of the world slump, that has become increasingly evident, and it is not the fault of the Community but of the world recession as such. But before that happens, and protection really gets under way, there must surely be at the least some dramatic change of heart on the part of the Governments, resulting in that "will" to make the Community work which the committee now rightly says is lacking. Adoption of, for instance, the proposals of the Three Wise Men or Mr. Tindemans, together with the reform of the CAP, which I certainly would admit is essential, but which should coincide with an enlargement of the Community's own resources to a very considerable extent, well beyond the present limits of 1 per cent. of VAT, are essential, and of course we should also contemplate reform of the collection of VAT, as the noble Lord, Lord Kaldor, said.

All this could of itself spark off that recovery in world trade which is now languishing largely, I would say, as a result of the complete failure of the United States' market to pull itself together. As the ideas of Keynes were largely responsible for pulling us out of the last great slump, so the European idea, if only we have the sense to apply it, could be our salvation some 50 years later. When one thinks of it, it is absurd that, having formed a trading and economic bloc, if not a free trade area altogether, which is three times the size of the Japanese equivalent and, indeed, the largest such area in the whole world, we potter about in our little backyards never really seeing the wood for the trees. I can only hope that if towards the end of next year the Liberal-SDP Alliance has anything to do with policy it will see to it that the necessary lead is given and that a new impetus is created for the recovery of the whole of the non-Communist world.

7.1 p.m.

Lord Soames

My Lords, I shall resist the temptation of following the noble Lord, Lord Kaldor, in using this debate on a very detailed and specific matter of internal trade within the Community, to widen it to a debate on whether or not it is good for the United Kingdom to be in the Community. I shall not follow him in that line because it would be wrong to do so and to take well over 20 minutes in doing it. I hope that the noble Lord does not in any way think that my refusal to follow him signifies any agreement with almost anything that he said.

I should like to join with other noble Lords in congratulating the noble Lord, Lord Greenhill of Harrow, and his colleagues on the sub-committee, on this most excellent and valuable work. I hope that it will be widely spread and read among the Governments of the member states and in the Commission and in Parliament, for it highlights the extent to which member states continue to thwart and to obstruct the free movement of trade within the Community by a whole web of technical, administrative and other barriers. As the noble Lord said today, and as is written in the report, the committee decided to concentrate on trade in industrial products. I hope very much that it will be possible for another report to be written in future on services, for there is certainly a great deal to be said there, too.

Much of the report is necessarily of a detailed character but I should like, if I may, to make three general points. I shall make them as briefly as I can. The first is that I hope that the report will be well studied by the Commission. As the noble Lord, Lord Greenhill of Harrow, said, and I agree, its heart is in the right place and it has, particularly in recent times, done its best to encourage member Governments to break down the barriers and to liberalise trade, and to break down the non-tariff barriers of which there are all too many highlighted in the report. But, in the ultimate, it is only the Commission, if it has the strength and the will, that will be able to give the impetus to greater liberalisation and, as it were, to shame member states into action.

In saying that I am aware, of course, that there is a limit to what we can expect while all countries in the Community are going through terribly difficult times in a period of recession. The committee happens to have considered this aspect at this time, and we must bear in mind the circumstances in which we are discussing the report. I hope that at least member states will not make things worse during the recession and use the recession as an argument to increase the various barriers to trade. I suppose that this is the most and the best that we can expect at present, but that does not mean that there should not be considerable discussion about the extent to which it would be possible, and should be possible, to liberalise trade as the world moves out of recession into brighter skies. I hope that in all I have had to say it will be understood by your Lordships that I am speaking against that background of the awareness of the difficulties forced on all member states by the recession.

Leaving the recession on one side—and this recession has been in existence ever since the Community was created—we have this trouble of the fault lying not with the Commission or the European Parliament but with the Governments of member states who, in varying degrees, have proved themselves all too determined to hang on to various ways of obstructing intra-Community trade. I do not believe that in any way can Her Majesty's Government be put into the dock among the most guilty. Far be it for me to say that we are in a white sheet, but I was privy to the thinking of Her Majesty's Government and involved to some extent in shaping policy in this area at about the time when Mr. Douglas Hurd made a most excellent speech in the European Parliament, referred to in paragraph 4 of the introduction to the report. I should like to quote a sentence or two from it: Speaking in the European Parliament … Mr. Douglas Hurd … endeavoured to give a lead and spoke of a wider range of issues. He drew attention to the elimination of technical barriers to trade; the creation of a single market for services; the easing of frontier formalities; improved competition in transport including air transport; and action to stimulate competitive European industry in new technologies.". Very good. All good stuff. The report rather nicely adds, with, I thought, a wealth of meaning: The speech was well received but the inherent difficulties remain.". That is a delightfully expressed sentence with, as I said, a wealth of meaning. I hope that the sentiments there expressed by my right honourable friend Mr. Douglas Hurd will still remain, a long and recessional year later, the policy of Her Majesty's Government and that they will continue to pursue it with vigour.

My next point concerns relations with third countries. Paragraph 54 of the report refers to the fact that whereas it is absolutely right and reasonable that the EEC should set itself upon an international basis as speaking for all member states on matters of tariff reduction, it is indeed difficult to warrant the EEC speaking with one voice on matters of non-tariff barriers.

I should like to say a few words flowing from a personal experience when I was commissioner responsible for external trade during the period leading up to the Tokyo Round. I must say that I felt that I was on very strong ground talking with our trading partners on matters of tariffs, but I felt that my successor—for the Tokyo Round did not, in fact, take place in Geneva until I left the Commission—was going to be on exceedingly weak ground when trying to represent the interests of the EEC in matters of non-tariff barriers. That was a great pity because we did have, and we continue to have, within the European Community a very great strength in world terms, in world affairs, in matters of trade where tariffs are concerned, flowing from the fact that we have a common tariff.

But, equally, we do not get anything like the advantage that we could get if we could stand up and say as far as non-trariff barriers are concerned, "These are ours; this is what we have got. This is what we do not like in yours. We want you to reduce", and so bargain on non-tariff barriers in exactly the same way as we should be able to bargain over tariff barriers. But we are not able, alas! so to do. I hope that we will be able to make a real effort to be in a stronger position for the next round in the GATT once the recession is out of the way and we can move again into greater liberalisation of trade.

My third and final point relates to the difficulties experienced by industrialists exporting to other Community countries, owing to the wild fluctuations of exchange rates. That was highlighted frequently in evidence given to the committee, particularly by the Society of Motor Manufacturers. There are much greater difficulties for us trading into the Community, into countries that are members of the EMS, rather than for them trading among themselves. It is a fact that the fluctuation in parities within the EMS has been notably less in the last five years, for example, than it has been between countries of the EMS and those outside it. including our own. There is no doubt that there is ample proof that trade within the EMS countries is facilitated and encouraged by virtue of the comparatively small movements of parities. We would reap that advantage if we were to become full members of the EMS including, of course, the exchange rate mechanism.

When we debated the EMS my noble friend Lord Cockfield—who I am glad to see here and who will be winding up this debate—pointed out the difficulties, and two in particular: first, that sterling was a petrocurrency; and secondly, that it remained to some extent an international currency like the deutschemark. Incidentally, although he said that those who spoke in favour of the EMS tended in that debate to put great emphasis on the advantages and not to mention the disadvantages, in the speech that I made in that debatei referred in fact to those very two difficulties myself. I would only say the following to him this evening. Surely we on these Benches believe that the duty of Government in regard to industry is that, generally speaking, we should seek to provide the best possible environment to facilitate our industry in its efforts to export. We should not be trading ourselves; we should not be telling industry what to do; but we should be creating the best environment possible and then saying, "Go at it, boys". That is what we are about, in marked contrast to other parties represented in this House. If we are going to do that within the Community, it would be far better if we could get inside the EMS, and I hope noble Lords will realise that by that shorthand I of course mean the exchange rate mechanism. Every day we stay outside makes things harder.

When we get swings of 20 per cent., 30 per cent. and 40 per cent. every two or three-year period between the pound sterling and other currencies within the Community; when we look at that has been happening recently with inflation falling rapidly in this country, with the North Sea oil price having increased consid- erably over recent years and with our productivity better than it was some years ago, we find that the pound is weaker today than it was in the days when that situation did not obtain. The pound in fact should have strengthened, but who knows? the Government, my noble and right honourable friends, say that they have no policy as to what the parity should be. I hope they have, and I rather think the evidence shows that they do have an idea at least, if not a policy, as to where it should be. Anyway, what I find so thwarting is that, whether sterling be right up or down, whether oil be expensive or cheap, there is always lip service paid to the advantages of joining the EMS, but it remains something of rhetoric.

I must say that I do not put myself alongside some of my right honourable friends who remind me sometimes of what Lord Palmerston once said: he only wished that he was as sure over one thing as Tom Macaulay was over everything. Of course one cannot be sure; of course there are advantages and disadvantages—we all know that. But I believe that it would facilitate our ability to trade within the Community to a great extent if the disadvantages which we all know exist can be overcome. I believe that the advantages would dominate.

I am delighted that this report has been written. I congratulate the noble Lord, Lord Greenhill of Harrow, and I hope that there will be many more reports to come, including a report on the EMS and one on services.

7.19 p.m.

Lord Rhodes

My Lords, I, too, should like to congratulate the noble Lord, Lord Greenhill, on his speech this afternoon. I have had the pleasure of sitting under his chairmanship for many months, during which time this report has evolved. I would say to those who are pessimistic arising from a perusal of the report that it is far too early to start talking about going out of the Common Market: we have not been at the job 10 years yet! It takes 40 years for anything of a major nature to have an impact on mankind. I bear evidence from World War I and carry it round with me day after day. When I think of World War I, I think of the way that Europe tore itself to bits, and then, leading up to World War II, much of what we have been talking about this afternoon and previously is very academic.

Before I begin my speech I should like to ask a question. I do not expect the Minister to reply to it today because it would be unfair to ask him to do so. How many copies of this report have been printed? How many copies have been distributed? Where have they been distributed, and to whom? But most important, have any gone to members of the European Parliament? Are we ensuring that there is a wide distribution of the work that has gone into this report?—and, my goodness, some work has gone into this report under the chairmanship of my noble friend Lord Greenhill. If it has not been distributed in that way, why do we not get on with it? I raised this before on one occasion when the noble Lord, Lord Soames, was a Minister, and he came up with an adequate answer. Nevertheless, it was not a very good one. I do not expect an answer immediately. But I hope he will answer in due course.

I shall begin with some background. The western nations have been pre-occupied during the past few weeks with the sorry state of their economics, and their inability to do much about it. First, there was the meeting of GATT for trade talks, and everyone who attended knew that they should take firm action to ward off a new war of protectionism. Instead, they all trooped off home knowing that they did not have the necessary political power to persuade their Governments back home either to reduce existing barriers to trade or to prevent new ones being erected.

History is definite on this matter. Subsidies, quotas, tariffs, all conspire to weaken the basis of world trading and the big misfortune is, of course, that all the western nations have massive unemployment and all of them are desperately trying to stop any further erosion of their own industries. There is nothing new in all this. When I was forging my business inbetween the wars I saw vividly the economic breakdown in the 1920s and the 1930s, and that breakdown led to a vast war of protectionism which heralded the second world war. The change did not come until 1937, when firms were flooded with armament orders. We do not want the same thing to happen again.

Only a matter of days after the GATT delegates departed for home another conference took place in Copenhagen. It was a meeting of the EEC heads of state. It has been said before and I will say it again: they discussed ways of reducing national trade barriers within the Common Market, but I am afraid they spent more time on how to increase external barriers. Indeed, President Mitterrand, supported by our own Prime Minister and many other heads of state, made a clarion call for the reconquest of the European internal market". Out of it came new moves to protect its declining trade and its infant technology industries, but at the same time it proclaimed attachment to the international free trade order. Mr. Thorn, an advocate of protectionism, said that it would take at least five years for the EEC high technology industries to catch up with Japan. What a challenge!

This report is one of the best that has ever come out of the EEC Select Committee. It is superbly put together. If anyone here has not read it, they should remedy that at once. It is set out in absolutely superb style. In Part II it deals with the "Types of trade barriers". First, there are the technical trade barriers. It gives what they are. The next one is the administrative barriers. Then it goes on to deal with the policy of private firms and what monopolies and arrangements between firms can do in the Common Market. Then we come to Government policies and relations with third countries. In a comparatively short speech, such as the one I propose to make, it is impossible to attempt to do justice to this report, so I shall concentrate on two particular points.

In the administrative section of this report, at paragraph 42, we come to "Transport Quotas". I wish to demonstrate the illogicality of some of the things that are going on and to indicate what we can do to prevent the situation from getting worse. The present bilateral quotas for road transport between member states are not consistent with a genuine common market. Quotas are awarded only to established firms and it has to be an exceptional case if this principle is departed from. So there is a temptation to charge what they like. Also, the present system of licensing can lead to heavy costs when licences for a particular country are used up and goods have to be rerouted through another country. So all kinds of anomalies exist.

In evidence to us it was stated that it is often quicker to enter Hungary or Yugoslavia than to enter France at Calais. Dover is open seven days a week, 24 hours a day, but Calais shuts down at 1600 hours on a Saturday until midnight on a Sunday. The Eastern bloc can deliver to us, but we cannot deliver to them with our road transport. The West Germans are anxious to control road transport in their country because of their desire to shift goods back onto the railways. They have a bilateral agreement with Russia far more liberal than the one they have with us.

My next point is a follow-up to the point made by the noble Lord, Lord Soames. It concerns the relationship with the third world. I wish to repeat practically word for word what he said. Under Article 9 of the Treaty of Rome goods from third world countries on which duty has been paid are "in free circulation", exactly the same as goods between member states. It is logical that the EEC should negotiate with GATT because we have a common customs tariff in the EEC. On such a matter the EEC speaks with one voice. What I am trying to demonstrate is, if we spoke on more things with one voice how powerful a voice we should have in the councils of the world.

Now what about non-tariff barriers? In this the EEC does not speak with one voice. If anybody has the report at their fingertips, I wonder whether they would look at page 163, because it is a most interesting document. We have 12 examples of complaints about non-tariff barriers, and only one addressed to the EEC: quantitative restrictions on imports from third countries, along with export restraint agreements. I must say that there is an exception in that in textiles there is an EEC full agreement. Today in Brussels they are signing a new multifibre agreement which has been made possible by everybody agreeing to that particular piece of policy. It is a strong thing when the EEC speaks with a collective voice.

The number of products to which these restrictions apply varies from country to country. France and Italy have controls on 121 products; we have controls on 65; and Germany 31. The point I am trying to make is that where you have national quotas and the degree of protection differs from one country to another, goods are being routed through one market for another and by-passing the national quotas, or indeed goods from one member state are being what they call deflected to another as a result of third country exports. This is causing considerable worry to manufacturers in this country. We need a common voice on this. I believe that the negotiating position of the EEC will be strengthened tremendously if non-tariff barriers are harmonised at EEC level.

I finish on one note. The noble Lord, Lord Greenhill of Harrow, sounded rather pessimistic. However, the last but one recommendation in paragraph 82 hits the nail on the head: It is only by a general understanding by governments and peoples of the advantages to be gained from an integrated Community market that the 'political will' needed to achieve it will be created. At the present time the Committee regretfully conclude that this will is absent. If we continue to accept that the will is absent we shall go into failure after failure. But if all the countries were to get together and really try to educate their subjects and bring to bear the knowledge that they have already acquired, there is no doubt that we could make progress.

The major challenges of the next 20 years will centre on information technology and kindred sciences. I reckon that protection is death for Europe. You cannot base the future of Europe's development on an increase in world trade and at the same time put up barriers to its own market.

7.35 p.m.

Lord Brimelow

My Lords, I agree with the noble Lord, Lord Rhodes, that this report of which your Lordships are invited to take note does not constitute an argument for leaving the Community. I should like to dwell on that for a moment. It is one of a series of reports by the Select Committee on the European Communities which draw attention to imperfections in the working of the Community institutions and which suggest ways in which these imperfections might be remedied, or at least alleviated.

Take the cumulative effect. The result is a lengthening list of imperfections, and also a lengthening list of recommendations not all of which have been, or will be. implemented. These lists can be used, and may be used, by those people—and they are numerous —who think that this country was ill-advised to join the Community and would now be well-advised to leave it. But the question of the general balance of advantage of staying or leaving is a difficult one. There are so many considerations, and the considerations are disparate, and because they are disparate they cannot be aggregated in any persuasive way.

Given the difficulty of forming any general balance, I think it is desirable, when each successive report of this kind comes before your Lordships' House, that somebody should attempt the more modest task of assessing whether this report weighs in one scale or the other. I am in no doubt that this report weighs in favour of our staying in the Community, in spite of all the imperfections to which Lord Greenhill's sub-committee has drawn attention.

The report is right in saying that we shall have to chip away on a large front at these imperfections and obstacles of various kinds. In that task, as it is, we have allies and we have support: we have the Treaty of Rome; we have the Commission, which is in favour of working against the obstacles to trade; we have the European Parliament, which in general is of the same persuasion. In the last resort we have the European Court of Justice. If we were to leave the Community we should have no allies; we should not have the goodwill which we have in this task; we should be working from the outside: we should be on a losing wicket.

Therefore, despite the somewhat pessimistic tone of the report, and the rather pessimistic ending of Lord Greenhill's excellent introductory speech, it is entirely right that we should plug away determinedly, even if we do not expect any early success, or success across the board. In that respect one ought to remember the motto of William the Silent of the Netherlands when he was beginning his struggle against the Spaniards, that in order to undertake it is not necessary to hope; and in order to persevere it is not necessary to succeed. His cause eventually won, and I feel sure that if we continue to peg away we shall eventually reduce these obstacles to our trade.

I do not underestimate the difficulties. The Community institutions were designed to be difficult to change. The Community practices are also difficult to change. I recall that, when we joined the Community, at one of the very first sessons of the Council of Ministers, the then French Foreign Minister, Mr. Maurice Schumann, warned us against trying to change the institutions and practices of the Community. "They are not to be touched", he said, "save with a trembling hand". He was quoting from Montesquieu. He should have gone on, because, if he had, he would have found a quite different sentence, in which Montesquieu said: If I knew something which was useful to my country and disadvantageous to Europe. I would regard it as a crime". I am afraid that French spokesmen are as selective in their quotations as the French Government are selective in their interpretation of their obligations under the Treaty of Rome.

But one should not point the finger solely at the French, even if they have more cases against them in the Court of Justice than any other member of the community or even if, in the list of non-tariff complaints, which the noble Lord, Lord Rhodes, quoted, they have four against them compared with one against us. But they will persist, and even we, who are not the worst offenders—that point has, rightly, been made—have had an accusing finger pointed against us in some of the evidence attached to the report by the Select Committee. I do not think we shall find the process of chipping away entirely to our liking, any more than the others will, but it is the right course and I hope the Government will follow it persistently, even of it does not lead to early results.

That is really all I wanted to say of substance, although there is a question at the back of my mind which I wish to raise. On page 61 of the report is an estimate of the cost of getting manufactured goods across the frontiers of the Community. The witness, a German Member of the European Parliament, said the Commission agreed that it was about 5 percent. of sales and that the total cost of getting goods across the Community internal frontiers was of the order of magnitude of the common agricultural policy. If that is so, it is a very striking and little-known figure, and it indicates that even if chipping away leads only to small percentage gains, the net absolute figure might be well worth while.

7.43 p.m.

Lord Mottistone

My Lords, I, too, thank the noble Lord, Lord Greenhill of Harrow, for an excellent report, and I agree with the noble Lord, Lord Rhodes, that it is one of the best the Select Committee has produced in recent times. I wish to begin by quoting two points from the report, one in paragraph 10, the introduction, where it says, among other things, that many of the obstacles are unintentional, and the other in paragraph 66, where it says that uncertainty is the common feature. Very similar things were said to the Government in the late 'sixties by Mr. John Bolton, when he made his report on small firms. He was saying that most of the things which were adverse to small firms and were created by Governments were done by mistake. Those points should be taken to heart not only by our Government but by the Commission in looking to see where exactly mistaken actions can, unnecessarily and unintentionally, be harmful.

I shall not delay your Lordships for long, but there are a few matters about which I have managed to acquire personal knowledge which I feel I should mention in amplification of the report. The first relates to the reference in paragraphs 33 to 38 to the simplification of Customs documents and procedures. We have before us, produced at the instigation of and with great enthusiasm by Commissioner Narjes, a paper which should introduce a single administrative document; just one form for taking all goods through the Community. I am sorry to say that while everybody agrees very much with the principle behind it, the document, which has been thrown up for people to use, is so unsuitable—and, to some, incomprehensible—that it is having to go back for further reference.

I make that point for two reasons. One is that it is an example of where the Commission is genuinely trying to be helpful—and it does not always have the support of the Governments of the member states in doing so—but is doing something that is not good enough. It is much more important that it should take trouble to take into its confidence the users of such documents, the actual traders, who have to send their goods across the frontiers—those who the noble Lord, Lord Brimelow, said were having to pay as much as it costs to run the CAP in delayed charges at frontiers. They are not being consulted, and the officials of Governments—in this case Customs officials—do not in many cases know what is needed to simplify and free the barriers to trade.

The second point I wish to raise is the reference in paragraph 40 to the postponed collection of VAT. Here again, the Commission is trying to do the right thing. As the report says, the United Kingdom—and, at the time the report was written, Ireland, and, I think, Belgium—employed what is called the postponed collection of VAT; that is, they did not collect VAT until after the goods had been imported and were in the process of distribution, when it was matched to the ordinary VAT returns, so that, in effect, the Governments carried the cost.

The Commission have instituted a directive to try to bring into force, for all member states, postponed VAT accounting. At the same time the Irish, one of the three member states which have been doing it—in trouble, no doubt, with their own finances—have cancelled their adoption of this principle, and at the moment, as the need for it is optional, they are perfectly entitled to do that. It seems sad that at the moment when the Commission is trying to make things simpler for traders one of the few states which were doing it is going the other way. That is another example of where the Commission's heart is in the right place but the member states are not following it.

Another major stumbling block, in my view, is the understandable view of Governments to retain control of key taxation areas, such as VAT and excise duties. I am not talking about basic taxation, which is different. In this case it would seem a shame, though understandable, that Governments should still find it necessary to retain to themselves total jurisdiction in these areas of taxation. For example, simplification of excise duties would clearly be desirable, and indeed in a speech in a recent debate on the state of the whisky industry I mentioned that point. But of course if the excise duty system is simplified throughout the Community, it is most important that any changes must not lead to a catastrophic tax increase for individual products and create new barriers for existing well-established markets. Because the Governments retain the control of the excise duties—and this is an essential part of their tax-raising facility—unfortunately one cannot be sure that if excise duties are simplified, there will not be a sufferer, and in this country it could well be beer, which would be a disaster. So that is another area where we must work towards a greater common purpose in trying to see our way through to common handling of essential basic functions.

Another matter that I should like to mention, and which is referred to in paragraph 5 3 of the report, is that of state aids. I mention this because Sub-Committee D of the Select Committee recently reported on state aids, and I think it relevant to this debate to repeat the reference that I made in the earlier debate to the need for greater effort by the Commission to devise and implement schemes for finding out about state aids and for publishing the information. It is quite clear that there is tremendous distortion throughout the trading pattern of the Community because of the use of state aids, many of which are not made public, and indeed, as the report itself states, it is particularly difficult for ordinary traders to find out about them. I think that that is a matter that should be dealt with.

My next point relates to the Cassis de Dijon case, which is reported on very fully, and splendidly, in paragraphs 21 to 29 of the report. I should like to remind your Lordships that the basic feature of the principle, as mentioned in paragraph 24, is that, Any product lawfully produced and marketed in one Member State must, in principle, be admitted to the market of any Member State". The report then goes on to explain how various court findings and qualifications do not make that simple principle exactly applicable; but the fundamental is as I have described it. I agree with the noble Lord, Lord Greenhill of Harrow, that the judgment could indeed be far reaching, and one would look forward to there being evolved case law which would more effectively perform the function of harmonisation. There are parts of the report in which this point is gone into in some detail, and with which I entirely agree.

Harmonisation has in many cases been a disappointment, and an example of that in recent times has been the labelling directive, which relates to the labelling of packaged foods, and which was introduced two years ago and becomes effective on 1st January next. The directive refers to over 20 points at which member states can exercise their own discretion about implementation. This is called "taking a derogation". I have a list regarding this, and I had thought of trying to tell your Lordships about it, but it is so long and so complicated that it is quite impossible to summarise. Of the 25 or so areas, one state will take up a derogation under a particular heading, another state will take up a derogation under another heading, and a third state will take up yet another derogation under another heading; and combining the whole lot makes about 100 points of difference within the Community. As has been said, one member state's derogation is another member state's barrier to trade, and the principle of harmonisation, though not entirely eroded—it would be wrong to say that it was—is very much weakened because of the derogations. But it would not have been possible to introduce and pass into law the labelling directive had there not been the derogations, because the member states would never have come to an agreement.

So I believe that the Cassis de Dijon case is a very important move, and one that I hope will develop, because it will by case law create the same background that the harmonisation was seeking to create. I would hope that it will expand greatly. As your Lordships can see from the report, the judgment has frightened the Commission, and I am sorry for them. But if there are to be derogations in directives—and I do not blame the Commission for it—the essential parts of the Common Market will be enforced by the Cassis de Dijon route, instead of by the harmonisation one.

Having highlighted those points—and I am sorry to see that the noble Lord, Lord Kaldor, has left the Chamber—I would say to your Lordships most emphatically, as have other noble Lords, that, notwithstanding all the difficulties, I strongly disagree with the noble Lord, Lord Kaldor. As a wise German official of the Commission said 10 years ago, in answering questions about the Community, the Common Market can never be seen as an overnight achievement; its details will take many decades of painstaking co-operation to become fully effective. I think that what that wise German said was exactly what the noble Lord, Lord Rhodes, said to your Lordships in the opening part of his speech here tonight; and I believe that it is absolutely fundamental. I very much hope that my noble friend the Secretary of State will be able to tell us that the Government take the same view. I hope that we shall take courage from paragraph 67 of the report, which states that all the people consulted were full of hope and methods to try to make the internal market work. We must forge ahead with simplifying customs administration, making state aids public, encouraging Governments to harmonise taxation systems, initiating action to extend the Cassis de Dijon principle, and a host of other things that I have not had time to mention to your Lordships. Above all, I would hope that we should not expect instant results.

7.59 p.m.

Lord Oram

My Lords, as a member of the subcommittee which was chaired by the noble Lord, Lord Greenhill of Harrow, let me frankly reveal that at one time during our deliberations a number of us were rather afraid that we had bitten off more than we could successfully chew. But the fact that we finished the meal was very largely due to the skill of chairmanship of the noble Lord, Lord Greenhill, and I am sure that he has been gratified to hear the complimentary remarks about the report which have come from all sides of your Lordships' House.

I believe that the report is indeed a very useful one, not so much for any major recommendations, since they are few, but for the way in which it gives a frank description of the existing barriers to free trade within the Community, bearing in mind the way in which those barriers particularly create uncertainty for businessmen and frustrate the achievement of what all who favour the Community would wish; namely, an integrated internal Common Market.

The report is long on descriptions of problems and short on solutions. I believe that in dealing with this subject the report is none the worse for that fact. It sets out most usefully the nature of the barriers. They have been mentioned by various speakers; I will mention a few. There are the complicated administrative arrangements particularly at frontiers between member states. There are the differences in VAT procedures; there are the bilateral quotas for road transport, exclusive dealerships and inadequate standardisation of, particularly, engineering products. The sub-committee, in connection with those difficulties, puts forward a number of suggestions for overcoming them.

At the same time, our report is obviously pessimistic in its general conclusion, as the noble Lord, Lord Greenhill, has repeated in his speech. We as a subcommittee are afraid that industries in member countries, in concert with their national Governments, are so preoccupied by short-term aims that they will forgo until it is too late the international, competitive advantage of a large internal market. That is why we concluded that what is needed is a greater political will to achieve it and that that political will at the moment is absent.

One of our witnesses, Mr. Hugh Corbet of the Trade Policy Research Centre, helped us to see these difficulties in a wider international setting. I should like briefly to quote from the evidence that he submitted to us on page 7 of his submission. It, too, is a pessimistic statement. I quote from paragraph 38 of the report's minutes of evidence: In this deteriorating international situation, the European Community is fast losing its original inspiration and, worse, its ability to act constructively on the world scene … Being fully pre-occupied with the internal balancing of short-term advantages, the Community cannot work out a role for itself … That, though pessimistic, I believe to be true, but I conclude from that pessimistic picture, as did my noble friend Lord Brimelow, that in the face of that depressing picture and those difficulties the thing to do is not to quit but to persevere. That I believe to be our task in this country and in other member states.

That quotation that I have put before your Lordships describes the very great difficulties of the overall situation of the EEC within which our sub-committee had to examine the internal sitution. In one sense, the task that faced us was highly technical and, in a sense, narrow in its focus. But when you come to examine all its ramifications, in another sense what is involved is an examination of very wide issues indeed. I hope, and I believe, that our sub-committee did not fall between those two stools and come a cropper. I believe, as I have said and as others have said, that, faced with that difficult task, we have produced a most useful report.

Those who take the time not only to study our report but also the evidence on which it was based, will be in a better position to understand the internal difficulties facing the EEC at the present time but also the external difficulties. Those external difficulties are partly caused by, and partly the cause of, the internal difficulties. From the report I hope that there are many lessons of details to be drawn, but in my view there are two major lessons to be drawn. The first is that the nature of the world economy in which the EEC operates today is very different from the world economy of the 1950s. Many important changes have taken place; and it is a question of adapting to those changes. The internal stresses by which we were sometimes appalled are largely the result of those changed external circumstances.

I would mention two of the changes. There are others, of course. For one, I would say that the greater expectations of third world countries in today's world are very different from what they were two or three decades ago. Another is the changed attitude of America towards the Community. This is an important difference of which we need to take note. As I have said, the internal stresses very largely arise from those external changes. The sad thing about present world conferences and actions by national Governments is that these changes, these problems, are leading to increased measures of protectionism, both overt and covert. These moves to protectionism are manifest both within the Community and in its relations with the outside world.

Therefore, I believe that the second lesson that we should learn is that protectionism is the instrument by which nations seek to resist change and, in my view, if you try to resist change you are doomed to stagnate. Instead, you should adapt in order to grow. In my view, protectionism will not work; because the forces that make for change are too strong to be resisted by that method. In my view, unless the Community consciously sets about developing a liberal trade posture vis-à-vis other countries, it will inevitably be faced by increasing internal dissension and the problems which we have tried to analyse, of achieving integration in the internal market, will be increased rather than diminished. I hope that our report will have helped somewhat in the argument that is inevitably going to take place on those points.

8.9 p.m.

The Secretary of State for Trade (Lord Cockfield)

My Lords, I have listened with very great interest to the speech of the noble Lord, Lord Greenhill of Harrow, as I imagine did all your Lordships. It would perhaps be trite to say that this report on the internal market produced by your Lordships' Select Committee is an interesting and valuable document. The noble Lord, Lord Oram, in his introductory remarks, described it as "a useful one". I would give it significantly higher marks than that. It really is of great value to have major issues of this kind probed both in depth and in detail. The decision by the Select Committee to concentrate on one particular feature of the internal market and examine it in detail was entirely right. I agree with the noble Lord, Lord Rhodes, that the report deserves a wide circulation. The noble Lord, Lord Kaldor, has a very personal and peculiar view of what the European Community is really about and how it works. If the noble Lord's view of the Community were an accurate one, I should not be at all surprised at the Labour Party wishing to withdraw from it. But in fact the noble Lord's view is not one that I accept and is not one that is accepted by the great majority of your Lordships here tonight.

Lord Kaldor

My Lords, if I may interrupt for a moment, if the noble Lord looks at my speech, he will see that most of my examples of points were taken from Lord Greenhill's report.

Lord Cockfield

My Lords, I am very glad indeed that the noble Lord read the report produced by the Select Committee. I am only sorry that it made so very little impression upon him, and I would recommend him to read it again. The vigorous defence of the Community by my noble friend Lord Soames and the noble Lord, Lord Rhodes, was particularly effective and encouraging. I was also impressed—as I am sure your Lordships were—by the careful analysis of the situation by the noble Lord, Lord Brimelow, which led to the same conclusion.

The European Community is about much more than economics. It is an attempt to weld together the people of Europe in a way which will guarantee peace and harmony inside the Community and present the strength of unity to the outside world. We must never forget this when we are immersed, as we inevitably and all to frequently are, in the internal affairs of the Community. But, if the community is about more than economics, nevertheless economics is an integral part of the tapestry and the most visible element of the design.

The intention of the Treaty of Rome was free trade at home and a common—but very modest—tariff wall against the rest of the world. It was the development of this tariff-free internal market which was designed to provide prosperity for all the members of the Community. Much of the strength of the United States derives from the fact that it provides for manufacturers a free internal market of over 220 million people enjoying between them 24 per cent. of the world's gross national product. Europe—with a rather larger population but a similar gross national product—offers a comparable market and a comparable opportunity.

But, 25 years after the signature of the Treaty of Rome, and close on 10 years after our own accession, the free internal market is still far from a reality. The fact that the summit at Copenhagen 10 days ago declared the strengthening of the internal market a priority goal is both a demonstration of this and more importantly a sign of determination to tackle one of the great outstanding problems of the Community. The actual words of the communiqué issued at the end of the summit were these: To decide, before the end of March 1983, on the priority measures proposed by the Commission to reinforce the internal market". So there is both a sense of urgency as well as a sense of priority here.

The noble Lord, Lord Greenhill, said that the timetable was unrealistic. I hope that he will forgive me if I say that it sits a little odd that he should start by complaining, quite justly, about the slowness of the progress which had been made, and then find fault with the speed of the timetable that the Commission now wish to adopt. My noble friend Lord Soames made a very valid point which we need to bear in mind; that is, there is a limit to what we can expect to achieve in a period of recession. But it is equally true that we need to look forward to the world into which we shall enter when the recession is over.

Perhaps I may now turn from these rather broad issues of policy to more practical matters. I know from my own experience of numerous instances where our exporters to other member states have run into difficulties that they might reasonably expect to avoid in a genuinely open market. I can understand that they find it hard to reconcile with the principles of the internal market measures such as those which the French have recently announced. I am aware too of the widespread concern that continental state aids, notably in Italy, are distorting fair competition and acting as a barrier to free and open trade.

I want however for a moment to ask your Lordships to stand back to look at those legal and administrative requirements imposed by some of our partners in Europe which our own exporters find so frustrating. If we are to be frank, we must acknowledge that this frustration is sometimes reciprocated, though, as the noble Lord, Lord Greenhill. said, with very much less justification. We need to recognise that all Governments have social and administrative concerns which are legitimate—concerns, for example, for the health and safety of their citizens and for their citizens' rights as consumers. Business has to be conducted within the framework of these legitimate concerns. Firms cannot avoid the trouble of informing themselves of the legitimate national requirements which result.

Then there are requirements, equally legitimate, and fully compatible with Community law, but which are more onerous and tedious than they need to be. On these, it is possible to make progress—deperately slow at times; nevertheless, it is possible to do so—through Community action: for example, the work being undertaken to harmonise different national requirements through what is known as the Article 100 programme. Such progress may also be made bilaterally by negotiation; or through Community action to limit the impact of such requirements on trade—for example, through the work of the Simplification of International Trade Procedures Board (SITPRO).

The noble Lord, Lord Greenhill, paid a handsome and well-deserved tribute to the work of SITPRO. In contrast with what might be described as these legitimate barriers are those barriers to trade which are cynically imposed for short-term national advantage. We find barriers to the internal market in this category totally unacceptable. I assure your Lordships that in cases of this kind the Government do and will make it abundantly clear to the member state concerned, and to the Commission, and in the Council, that we are not prepared to tolerate measures of this kind.

There is a further major area of frustration to British business, which your Lordships' Select Committee did not explore on this occasion. It is the question of the infrastructure which underpins the internal market in goods; namely, the internal market in services. The freedom to transport goods, to insure them, to finance them anywhere in the Community is a critical part of the Common Market. I look forward to the opportunity when your Lordships' Select Committee return to that subject, which we regard as crucially important so far as the United Kingdom is concerned.

We are also concerned about the national permit quotas on lorry journeys, which is a matter to which the noble Lord, Lord Rhodes, drew attention. These restrictions have no place in a free internal market. The noble Lord also drew attention to the variation of national quantitative restrictions as between member states of the European Community. If I understood the noble Lord correctly, perhaps I might say that there is a Community procedure to avoid the problem to which he referred. Article 115 of the Treaty of Rome allows the Commission to authorise member states to prevent their national quantitative restrictions being evaded by imports from outside the Community coming through other member states. We make full use of Article 115.

The Government themselves must and will make their full contribution to help British industry take full advantage of our internal market. The Government's initiative on standards, set out in the White Paper published earlier this year, has this very much in mind. Standards, certification and accreditation need to be increasingly widely adopted and internationally orientated if British goods are to compete in this larger market provided by the European Community. Similarly, the Government have made important improvements in our Customs services. We are increasing the use of computer facilities and of other simplified procedures to speed the flow of trade.

This brings me directly to the issues on which the report to your Lordships concentrates. We recognise that underneath the technical detail standards are of crucial importance to the ability of industry to sell their goods throughout the internal market. We have therefore given our strong support to the efforts within the Community to ensure that standards are used to promote competitiveness and efficiency, and not as non-tariff barriers.

The Commission are pressing three priority areas for action. These fit in well with the specific concerns expressed in the Select Committee's report. The first two are proposals for unblocking the Article 100 programme and for procedures to ensure transparency in the making of standards and technical regulations. The third is concerned with frontier facilitation. All these measures command our strong support in principle. We will be doing all we can to secure the adoption of the frontier facilitation directive later this week. It promises to simplify and speed up inspection, to cut down waiting periods and generally improve co-operataion between neighbouring frontier posts. Frontier formalities and the collection of statistics with Customs documentation are also themes covered closely in the Select Committee's report.

The Government fully recognise the importance of simplifying Customs formalities. Current features offered by United Kingdom Customs which simplify trading are: computerised entry processing, special procedures for large regular imports under the period entry arrangements, and the postponement of VAT payments to the time when an importer submits his quarterly VAT returns to the Customs.

But import and export procedures and documentation still leave room for improvement. More needs to be done to accelerate the movement of goods within the Community, particularly by reducing the amount of paper work. The Government have instituted a number of reviews of Customs procedures. We have strongly supported the European Commission in its efforts to automate information exchange on imports and exports. In particular, our Customs are at present discussing with the trade the possibility of further automation of Customs import formalities. Similar work on the Continent is also well advanced.

My noble friend Lord Mottistone also referred to the single administrative document proposed for intra-Community trade. I acknowledge that doubts are being expressed as to whether the Commission's proposals represent genuine simplification. Both the enabling regulation and the document are still under discussion, and officials are consulting with trade associations to ensure that the user's views are taken into account.

Looking ahead to the mid-1980s, we hope that exchanges of information in bulk by electronic means will become commonplace. The United Kingdom has accordingly given full support to the CADDIA project, which is about to begin in Brussels. This is a Commission initiative: to give it its full title, Co-operation in Automation of Data and Documentation for Imports/Exports and Agriculture. This is an ambitious project, the purpose of which is to examine the way in which the flow of data concerned with trade within the Community can be expedited by using computer returns. The Government support initiatives aimed at securing those genuine and practical simplifications of Customs formalities which will complement the simplified procedures already operating in this country.

Another subject covered by the Select Committee's report is what is known as the parallel import of motor vehicles—a subject which has been raised during the course of this debate. The Government have specifically decided not to intervene in this trade. We recognise that the price differential which has led the British consumer to purchase elsewhere in the internal market is in part outside manufacturers' control, being due, for example, to exchange rate variation. But motor vehicles are not uniquely affected by such factors in such a way as to justify interference with the right of all Europeans to shop in any part of our internal market. The real solution lies, and can only lie, in increasingly competitive pricing by the British motor industry effecting a long overdue improvement in its cost-competitiveness.

My noble friend Lord Soames and other noble Lords raised the question of the Eueopean monetary' system. This lies outside the scope of the present debate; but may I briefly say this. While the Government are committed to the aims of the E.M.S., and in particular to the achievement of greater exchange rate stability within the Community, my right honourable friend the Prime Minister said in another place on 7th December—and I quote— At present we do not intend to enter the E.M.S. We believe that unless underlying economic conditions are conducive to exchange rate stability, sterling's participation might intensify realignment pressures. The question of sterling's participation is kept under review.

The Community has an external as well as an internal aspect. To the outside world, also, it is a single trading unit. This unity of aim and of purpose is more than ever crucial in the face of the pressures and difficulties arising from the world recession. Against this threatening background, the modest success achieved at the recent GATT ministerial meeting was encouraging. Today, I would point in particular to the recognition that the GATT is going to have to concern itself with international trade in services as well as in goods, and the work on an improved procedure for settling disputes. It is not enough for the world trading system to be an open one; it must also be fair. We will need the combined strength of our Community of 10 member states to bring pressure to bear to achieve these ends.

It is impossible to exaggerate the importance of the ' European market to this country. In 1973, when we joined the Community, some 30 per cent. of our exports went to European Community markets. Today, the figure is close on 43 per cent. We have, therefore, a crucial interest in the development of the European market as a whole, and in the removal of internal barriers in that market. The European summit at Copenhagen 10 days ago marked an important step forward. We must build on that. Our prosperity—and the prosperity of Europe as a whole—depends upon it.

Lord Greenhill of Harrow

My Lords, there are many speeches to follow in a subsequent debate, and it would be unfeeling of me to speak for more than a moment or two. But, on behalf of the sub-committee, I should like to thank the House for the kind things that were said about the report. The committee will be very happy that it has prompted speeches revealing and reflecting great experience, profound erudition, compelling sincerity and even, sometimes, a little prejudice. I should particularly like to thank the Minister for his painstaking and characteristically clear answer to the debate. I am sorry if he regretted my reference to the Copenhagen timetable. I do not complain about the timetable; I doubt whether the train will run on time. I beg leave to withdraw.

Motion, by leave, withdrawn.