HL Deb 20 October 1982 vol 435 cc201-16

8.15 p.m.

Lord Greenhill of Harrow rose to ask Her Majesty's Government what are their objectives for the GATT Ministerial Meeting in November 1982. The noble Lord said: My Lords, when I put my Question down for debate I did not anticipate that it would come to this House at this rather unsocial hour, and I am sorry that your Lordships' day has been prolonged for this discussion. But these are matters of some moment, and I think that at the present time it is very useful to have a short discussion on the coming GATT Ministerial Meeting. It is 10 years since such a meeting took place, and it is, I think your Lordships will agree, long overdue.

I think one could be easily cynical about a meeting where 70 or more Ministers arrive with complex briefs, but I believe that this coming meeting is one in which Ministers may be able to achieve what officials have been unable to achieve. Although some interesting ministerial statements have been made on this subject, particularly by the Minister for Trade, Mr. Rees, we cannot ignore the inestimable advantage of having the responsible Minister in this House, and we know we can rely upon him for lucid exposition.

The present state of international trade must be a matter of the greatest concern to all of us, and what is profoundly disturbing is the spectacle of deeply bitter conflicts between countries we normally regard as our friends and to whom we customarily look for cooperation in the solution of current problems. I see by Reuter's "ticker" that there have been fighting words this afternoon in the other place about our quarrels with the United States, and these are very unhealthy symptoms. The GATT was designed to minimise these conflicts and to try to resolve them by the operation of mutually accepted rules. The present situation should not be permitted to continue, and we must look expectantly to the coming meeting.

It is obvious that discussions will be exceedingly difficult, and, of course, I shall not be asking the Minister to anticipate positions which he will reveal in the course of the conference. But I think the House would like to hear some general observations in response to a series of questions which I should like to put to him. The first is: What are the future prospects of the GATT? The whole system is by no means universally accepted. The developing countries are latecomers, and in many cases understandably show varying degrees of hostility towards it. But the founder members and the traditional supporters in the present difficult trading conditions also show scant respect for the rules. I assume that Her Majesty's Government will reaffirm the aims of GATT but will seek also to improve the existing organisation rather than explore alternatives to it.

The second question I want to put is: Is the Minister satisfied that in the forthcoming negotiations we shall be able to take advantage of the collective strength of the EEC? If I remember correctly, in our debates on the Tokyo Round two years ago we concluded that the United Kingdom in fact benefited from its membership of the EEC. Will this be true again? I understand that the EEC is to be represented not, as one might expect, by one delegation; but by Ministers from all member countries plus the relevant commissioners. This may well be inevitable, but it will be very unfortunate if the full potential of the EEC is not going to be collectively employed in the discussions. What has the Minister to say on the prospects of this?

Thirdly, there is a justifiable view that the GATT has been ineffective in the matter of agriculture. It has tended to rely upon outdated agreements and, moreover, the EEC are here very much on the defensive with a rather unconvincing case that somehow these agricultural matters are internal to the Community and not within the scope of GATT responsibility. Is there not a need to negotiate new understandings that treat agricultural trade more like trade in manufactures? Not for the first time, the agricultural industry has a privileged position to the detriment of good international relations.

Fourthly, the Department of Trade representatives who gave evidence to our sub-committee rightly reminded us that the GATT has a twin purpose. It is an instrument for the liberalisation of world trade in goods and in services and also a policing instrument. In both these functions, the present situation is far from satisfactory. While the majority of Governments loudly proclaim the virtues of an open trading system, they all quietly intervene to expand their regulatory roles. There is therefore an increasing grey area between the white of the open trade system and the black of full protectionism. I wonder whether this is necessarily wrong. I am inclined to think not. Must we not in the present situation accept selective protectionism on an increasing scale, acting both as a nation and as a Community? A resounding call at the ministerial meeting to roll back the wave of protectionism which is advocated by some is surely inappropriate. One of the tasks of the ministerial meeting should be to clarify the safeguard procedure and I should like to hear the Minister's view of the possibility of this.

Fifthly, may I make a special reference to the liberalisation of services? This is a matter of increasing importance to this country, bearing in mind that the private sector trade in services, including return on overseas investment, accounts for around one-third of the total United Kingdom foreign earnings; and our service trades encounter many obstacles overseas.

I would draw the Minister's attention to a report that he will be receiving, or may have received, on this subject from a sub-committee of the Committee on Invisible Exports. It merits careful study and I hope will become the basis of Her Majesty's Government's policy. In his speech to which I referred earlier, Mr. Rees referred to inching forward on these matters. Maybe that is a correct and realistic view of these difficult problems and the speed with which they can be tackled; but I hope that the Minister will have something more optimistic to say.

8.25 p.m.

Lord Banks

My Lords, I am sure that the House will be grateful to the noble Lord, Lord Greenhill of Harrow, both for raising this Unstarred Question this evening and for the way in which he has done so. I think I am right in saying that the noble Lord, Lord Cockfield, has already set out some of the Government's aims in a speech last month, and we look forward to hearing him elaborating on that and perhaps filling in some of the details which may not have appeared in the British press.

As the noble Lord, Lord Greenhill, pointed out, this ministerial meeting next month is crucially important. As he reminded us, some 80 trade Ministers will be meeting together for what is the first meeting of its kind since 1973; and they meet at a very critical time. I think that the world has to choose—and perhaps in this I take a slightly different line from that of the noble Lord, Lord Greenhill—broadly speaking, between the multilateral trading system and the system of managed trade through bilateral deals. As the noble Lord, Lord Greenhill, said, the nations continue to proclaim their faith in the first while they keep moving towards the second. We on these Benches have no hesitation in stating once again our belief in the free multilateral trading system.

At a meeting last month of world business leaders and economists, Mr. Kenneth Durham, who is the chairman of Unilever, warned that there would be enormous unemployment unless countries abandoned their "beggar-my-neighbour" policy aimed at keeping out imports. During the 10 years prior to OPEC, 1963 to 1973, the volume of trade increased by 8½ per cent. per annum and the volume of trade in manufactures by 11 per cent. In the following eight years both figures were halved, and last year there was no increase at all.

In spite of the attention given to them in the Tokyo Round, non-tariff barriers have been taking over from tariffs as the principal obstacles to trade. There is a complex system of so-called voluntary restraints, orderly marketing arrangements, quantitative restrictions, surveillance of imports and administrative barriers to trade. As I said earlier, and as the noble Lord, Lord Greenhill, said, the world has been moving away from the multilateral system to a system of managed trade.

Article 19 of the GATT provides for action against the imports of a particular commodity from all the sources, from all the countries supplying it, where there is a sudden surge of imports. Increasingly, however, this provision is not used; but countries make the selective arrangements to which the noble Lord referred with particular countries outside the GATT. The rate of imports affected by these selective arrangements outside the GATT in 1980 was 13 times the value of imports affected by the implementation of Article 19. I should like to join in asking the noble Lord, Lord Cockfield, what are to be the Government's proposals with regard to the future of Article 19? Would they amend it in any way? Can he give any indication at this stage of what their safeguard policy is?

My Lords, we all sympathise with the position of declining industries or distressed industries and understand their problems. The Multifibre Agreement is an attempt to deal with one such industry, but it cannot be denied that it is a serious source of friction with the developing world. Again, it operates outside the GATT and it has been described in the Economist magazine as a figleaf for protection. Are the Government in favour of that difficult subject being on the GATT agenda? It would seem that it should be.

Another distressed industry is steel. I believe that an agreement on that between the EEC and the United States is imminent. One would be glad to see the matter solved for the moment, an agreement reached and trade war limited. As the noble Lord, Lord Greenhill, has said, it is highly unsatisfactory that there should be this degree of trade hostility between allies. On the other hand, I think that I would have very strong reservations about this particular type of solution, even if we are forced into it in the meantime, because it is another example of voluntary restraint outside GATT.

The noble Lord, Lord Greenhill, referred to agriculture, which is virtually outside the GATT, and he raised the question whether it should be brought more fully within it. Again, we find that the United States is at odds with the EEC over agricultural exports. The present United States Government, though proclaiming its faith in multilateral trade, is, as a recent report to the European Parliament has pointed out, less prepared to oppose protectionist trends in the United States than its predecessors.

The United States Government complains about the common agricultural policy. They object to the subsidisation of exports. Yet the United States Government of the day specifically accepted the common agricultural policy during the Tokyo Round discussions, with its import levies and its export refunds, and the common agricultural policy is accepted by the GATT. The Community is the biggest net importer of agricultural products in the world. However, the inconsistencies of United States policy are no reason why the EEC agricultural policy should not be exposed to GATT scrutiny, particularly its effect on third world countries—and agriculture is of enormous importance to the third world. I hope that the noble Lord, Lord Cockfield, will tell us that the British Government favour the inclusion of agriculture on the agenda. I believe that there is a proposal from Australia for a cease-fire on all protectionist measures. I wonder whether the noble Lord is in a position to say exactly what is meant by that and whether he can give some indication of the Government's reaction to it.

The world recession has greatly strengthened protectionist trends. As someone said: "Recession has proved the mother of protectionist invention". The deflationary policies adopted voluntarily by some nations and at the behest of the International Monetary Fund by others have deepened the recession and increased protectionist pressure. The recent Brandt Report dealing with North-South relations was staunchly in favour of multilateral free trade, but it also advocated the maintenance of a high level of world demand. It seems to us on these Benches that it is in the context of what we might well call this global Keynesianism that protection is most likely to be defeated.

8.33 p.m.

Lord Mottistone

My Lords, I should start by telling your Lordships that I am advised on what I have to say by the Food and Drink Industries Council; and, furthermore, I declare an interest in that I work for two of the trade associations that form part of that council, the Cocoa, Chocolate and Confectionary Alliance and the Cake and Biscuit Alliance. My main remarks will be concerned with the problems of the food and drink manufacturing industries which of course have a very special interest in these discussions and in their results.

First of all, I should like to thank the noble Lord, Lord Greenhill, very much for introducing this subject. It offers to us an opportunity to give it an airing and more especially to hear my noble friend the Secretary of State tell us his views on it. I agreed broadly with what the noble Lords, Lord Greenhill and Lord Banks, had to say about agriculture in general.

Regarding food and agricultural trade matters, I understand that the GATT secretariat have identified three principal areas of concern: market access, competition and the impact of national farm support measures. I should like very briefly to mention those points within those three headings that I think your Lordships may find interesting and on which in certain cases I hope my noble friend the Secretary of State can give us some guidance.

First, market access. There is a need to focus attention on the worst obstacles. An example of such an obstacle is that import restrictions remain in force in the United States as a result of the United States waiver on agriculture which allows the United States Government to ignore GATT rules whenever domestic policy dictates.

Another area is quantitative restrictions, and technical barriers in other major markets such as Japan and many of the more advanced developing countries are still a major problem for our exporters. Market access is also affected by measures such as voluntary restraint agreements—export limitation: for example, manioc from Thailand—variable levies permitted under Article XXIV (which allows the establishment of free trade areas) and state trading, none of which is regulated by GATT. We would welcome the proposed annual review of state trading where greater transparency would obviously be an advantage. Voluntary restraint agreements, on the other hand, are best left as bilateral instruments and not brought under GATT, since their eventual replacement by other measures could lead to greater protectionism. Variable levies form part of the common agricultural policy and are allowed by GATT in principle. I shall have more to say about that in a minute. But for certain products these variable levies give rise to a degree of overprotection, thus adding to processors' costs. This is specially the case for products not available within the EEC in sufficient quantity or quality. I also hope that greater efforts are made to reduce substantially the tariff barriers for all types of product.

I turn now to competition. This is the section that concerns the food and drinks industries most. Work should start on clarifying existing rules and on throwing light on the agreement struck between the United States and the EEC in the Tokyo Round on export subsidies. The major preoccupation of exporters is that export refunds on processed products could be placed in jeopardy. Exporters of processed food and drink products do not regard the refund as a subsidy. The function it performs is not to confer an advantage but to cancel out a disadvantage, namely, the high levels of EEC raw material prices arising from CAP support regimes. There is no doubt that without the refund EEC processed food and drink exporters would not be able to compete in world markets and would cease to function.

I should add that this is particularly important not only for this country but for the other countries in the Community, because food and drink processing is the third highest industry in this country and I believe the fifth highest industry in terms of investment in the EEC as a whole. So it is a major industry for us and it is extremely important that it is not hampered as a result of a misconception about what the refunds are for.

In March 1955 GATT passed resolutions on the disposal of surpluses and the liquidation of stocks which have become deadletters. GATT has now proposed to revive them and to set up consultation and notification procedures. This could act as a further discipline to restrict the EEC's use of large export refunds to dispose of surpluses of agricultural commodities resulting from overproduction at high cost. I emphasise that we make a distinction between refunds on surplus basic products and refunds on processed goods containing those basic products as ingredients.

It is important, as I hope your Lordships will agree, that this distinction should be made. Export credit sales, aid and long-term supply contracts are measures giving competitive advantage to certain countries. One of the hidden ways in which the United States, for example, can compete unfairly vis-à-vis the EEC is through sales to developing countries which include favourable credit and other aids. Credit and aid tied to specific commercial transactions should be subject to international discussion and discipline.

I now turn to the national agricultural policies. GATT is likely to agree proposals that there should be a new framework for co-operation among the main agricultural producers on domestic farm price and income support policies. If that were to happen, the trade effects on domestic policies would be examined and a formal notification procedure covering such policies would be introduced, making them available for scrutiny and challenge.

A further possibility is that the major food trading nations, principally the EEC and the United States of America, would reach tacit agreement on world market prices and exports of the main commodities.

This could result for some products in an increase in the level of world prices and a reduction of the level of EEC prices, thus narrowing the gap between the two. This latter possibility is not one that our industries would support as a long-term policy. It would be potentially disadvantageous to third world countries. It could reduce the apparent cost of surplus production without reducing its real cost. What the food processing industry wants is freer markets and less Government intervention in the markets, not more.

Finally, the ministerial meeting should set in train a work programme devoted to greater international cooperation on farm support policies, on export policy, including especially the unregulated areas, and on the removal of waivers and other non-tariff barriers which are no longer strictly justified. I would hope that my noble friend the Secretary of State can give me an assurance that the three points I am about to mention would be ones that he would be able to support in the discussions. These are the key factors that we pick out as being of special concern to the food and drink processing industries.

First, no concession must be yielded by the EEC in respect of import refunds on processed products. Without them our industries could not compete on world markets. Secondly, greater access to third world country markets in the United States, Japan and other countries would be secured by the removal of non-tariff barriers to those markets, coupled with a substantial reduction in tariff harriers in countries like Japan. Thirdly, advantage should be taken of every opportunity to reduce the level of import protection on products not available in adequate quantity or quality within the European Community.

8.44 p.m.

Lord Bruce of Donington

My Lords, the House will be grateful to the noble Lord, Lord Greenhill of Harrow, for putting down this Unstarred Question. It will afford the noble Lord opposite an opportunity, which I am sure he will welcome, of defining with his customary precision the objectives that the Government have in mind when this conference takes place. The noble Lord himself, I think, would be the first to lay down that it really is no good talking of objectives in general terms, because they can get so woolly at the edges that at the end of the generalised statement one is left with a feeling that perhaps there is more of an element of wishful thinking and hope than a specific series of objectives.

I have no doubt that the noble Lord will seek to comply with that and will say with the utmost precision just what the Government's objectives are. There was a preview of them in the document issued by the Department of Trade in July, where the memorandum said that it looked as though the issues would be grouped under three broad headings: (a) a political declaration; (b) decisions—and I underline the word "decisions"—to be taken by Ministers; (c) a residual "sweep-up" of the problems which it is agreed that GATT should study. I always like that last "sweep-up" clause on objectives. It is very often done at party conferences. Questions are remitted to the executive for further consideration—which means, of course, that they will be shelved more or less indefinitely for the future. I look forward, as others of your Lordships will, to the dénouement that the noble Lord will seek to lay before the House as to just what the objectives are.

I thought that the noble Lord, Lord Greenhill of Harrow, made his six points very well, and I will not take up the time of the House in repeating them. He asked a general question as to what is the future of GATT. That seemed to me to indicate a certain lack of conviction as to its general utility; and indeed, if one goes to the proceedings of the Select Committee on this and turns to the examination of the witnesses, one finds that this degree of pessimism has a certain echo in the evidence that has been given by the witnesses, and particularly, if I may refer to him by name, by Mr. John Meadway. I am referring now to page 3 of the evidence. To quote what he says, he comes to the world-shaking conclusion, when asked about the progress of GATT: I would say that since the Tokyo Round it has probably been slightly on the ascendant. These are not exactly sentiments of any great confidence in progress. I am not reproaching the noble Lord with that. They are made with the sole object of reminding him, if indeed he needs reminding, that the problem is going to be a very big one and he starts off with the disadvantage, in effect, of having very little to show for the GATT situation as it now is or for any progress that has been made by GATT since the Tokyo Round.

The reasons are not far to seek. Indeed, the noble Lord, Lord Banks, as the House may think, gave a very good analysis of the basic problem when he said that the cries and the moves towards liberalisation of trade always progress much more satisfactorily and are pursued with greater enthusiasm during a period of expansion; in other words, when the economies of the world are working at, or near, practicable capacity. And, of course, no country can work to full capacity—few factories can. When the productive apparatus of the industrial nations is working smoothly, when output is going up and when things are expanding, it is more easy to achieve liberalisation of trade and to work with others to achieve that end. That is because they are all expanding, though perhaps unevenly, and it is in everybody's best interests that the maximum number of outlets should be obtained for the great variety and quantity of goods and services that have been produced.

But we do not have that now. We have massive deflation, in which Her Majesty's Government have played a leading part. They refer from time to time to world recession and the effects that world recession is having on trade. What they do not say, with an appropriate degree of modesty, is that they have been the principal architects and cause of the recession itself. They have led the world into the recession. But this is not the time to reproach them with that; there are other occasions.

It is very difficult indeed, however, to seek a further liberalisation of trade when the industrial countries are suffering, in many cases, from mass unemployment, when production and output figures are depressingly down and when, consequently, the battle for the diminishing markets, in terms of effective consumer demand, gets stronger and stronger and produces internal antagonisms as well as external ones. As witness—and noble Lords have referred to it—there is the attitude taken at the present time by the United States in regard to steel imports. The decline of the steel industry in the United States as reflected in the unemployment in the steel industry and its diminishing profitability, has undoubtedly brought stresses within the United States. These have, in turn, sought their political expression and have impressed themselves on the Government; and, as the noble Lords, Lord Banks and Lord Mottistone, reminded us, Governments tend to break the rules when it suits them.

I am hopeful that the noble Lord will feel constrained to indicate to the House just how far other countries, however friendly, are allowed to go in breaking the rules before we ourselves call a halt and say, "Well, if you aren't going to be bound by the rules, then nor are we." I know the feeling of noble Lords opposite concerning unilateral disarmament in the military sphere. I venture to suggest that, if the argument is applicable there, it is applicable in double force on questions of trade, which are, after all, of a more peaceable nature. But what we do not want is unilateral disarmament in the field of international trade agreements and the GATT. We do not want a situation in which we feel constrained to obey all the rules ourselves, if other states insist on disobeying them or getting round them.

I believe that one of the objects of the meeting is to review Article 19 of the original treaty, which deals with emergency action on imports of particular products. We should like to know what is the attitude of the Government to the further clarification of Article 19 of the original agreements. Do they think that it ought to be more closely defined? Are they prepared to discuss with other Governments a means of giving it a greater degree of particularisation? And, if they cannot, are they prepared to take more advantage of it? Clearly, these are matters of national concern.

The noble Lord, Lord Greenhill, mentioned the association of the EEC in these talks, and we are given to understand that the EEC team of commissioners, or part of them, will be in session, together with the Ministers from the various countries. May we have some clarification as to the differentiation of the roles? I do not know whether the noble Lord himself will be there. One devoutedly hopes that he will be. He showed an excellent spirit in regard to the unilateral action by the United States concerning the pipeline, which showed that he himself may be a man of steel.

Therefore, I hope that when it comes to dealing with such illustrious characters as Herr Haferkampf, who give one confidence, he will find himself adequate to deal with any points made by the commissioners that have an adverse effect on British interests. We shall be delighted to hear, in enunciating his objectives, how he proposes to deal with these objectives, if he finds them at any point in conflict with those put forward by Herr Haferkampf or Herr Vredeling. Or are we to take a more insular attitude?

As the noble Lord, Lord Banks, has already said, and as I have sought to emphasise, the existing conditions of deflation make it very unlikely that this new meeting of Ministers will make any substantial progress, and the reasons are very clear. If Ministers, as such, can speak and can direct their own country's affairs and exercise an influence upon its trade, it is possible, nation by nation, to reach some kind of negotiated settlement on many of these matters. But, of course, the fact is that Ministers are not masters in their own houses, because they do not speak for labour and capital combined. Labour in all the countries, aside from a marginal emigration or immigration, is immobile. It has to make its contribution to the production of goods and services within the geographical boundaries of the nation states in which people live and in which they have their families.

Capital has no such constraint. It can transfer itself across boundaries in a matter of seconds, from one side of the world to the other. And the very movement of capital and its investment, whether it be short term, medium term, long term or permanent, can itself have a profound effect on the importing and exporting capabilities of the countries wherein it moves. So a large part of the whole movement of trade is outside their hands. It is a matter of complete caprice. Indeed, as the noble Lord, Lord Thorneycroft, said in a speech on a different subject altogether, when referring to the whole question of the production apparatus of the country and its progress: "There is little Governments can do."

I do not know what Mr. Joseph Chamberlain would have said had he been alive at the time because Mr. Joseph Chamberlain moved in what was at one time, I believe, the good old Tory tradition which seems to have been deserted by the party opposite these many years. They believed that when the national interest, both capital and labour working together, demanded it, protectionism was quite in order and there could be bilateral agreements between states. What the GATT system is doing in the existing circumstances is to propound a multilateralism in trade, or to facilitate a multilateralism in trade which, in terms of its national impact, is bound to be distorted by the mass movements of capital to which I have referred.

It may be that I have anticipated the noble Lord. The noble Lord is, after all, in the best traditions of the late Joseph Chamberlain. It may be that he will tell the House that after giving the matter very careful consideration the Government are bent on securing the maximum flexibility under Article 19 of the original treaty. If he does so, he will receive the utmost support from this side of the House and we shall be greatly indebted to him.

9.1 p.m.

The Secretary of State for Trade (Lord Cockfield)

My Lords, I am sure the House will be most grateful to the noble Lord, Lord Greenhill of Harrow, for the efforts that he and the Select Committee have made to illuminate the issues that will arise in the course of the GATT Ministerial Meeting next month. I shall certainly study what he has said with very great interest—and also the speeches of the noble Lord, Lord Banks, my noble friend Lord Mottistone and the noble Lord, Lord Bruce of Donington.

I do not propose trying to answer in detail the specific questions which have been put on individual points. I think the right thing for me to do would be to review the field and give an indication of what the Government's approach to these problems is. What actually emerges at the GATT Ministerial Meeting will be the result of a process of discussion, consultation, agreement and possibly even disagreement among the 87 nations who will be represented on that occasion. I propose, therefore, to start by setting out some of the basic facts and pressures which determine the United Kingdom Government's policy towards these matters. The fundamental soundness of the open multilateral approach to international trade is well demonstrated by the experience of the 1950s and the 1960s. Then the dismantling of the high tariffs and severe quantitative restrictions left over from the prewar era was undoubtedly one of the factors contributing to economic growth round the world.

This does not mean that the Government should blindly and unthinkingly follow a liberal trade policy for all sectors and in all circumstances. Our necessarily tough policy on textile and clothing imports is as clear a demonstration as possible that within the general framework of a liberal trade policy we must protect the interests of our own country and of our own people.

The policy questions for Governments become more difficult as major departures from open trading, or fears of such departures, increase. The economic history of the 1930s shows that once a major participant in an interdependent trade system shifts to a protectionist policy, others will follow suit. Access to its home market is the main negotiating lever a trading power has to secure access for its exporters to foreign markets. It is unreasonable and unrealistic to expect that any major trading country will continue to keep its own markets open to exports from another country if its exporters are shut out of that country's domestic market.

It is for this reason that the world is watching, with interest and real concern, how the United States Administration is coping with strong pressure in the United States Congress, fuelled by the recession, for new United States trade legislation. That could easily, in the guise of "reciprocity" or in the guise of "domestic content", bring the United States into conflict with its mutilateral trading obligations in the GATT. These fears are much accentuated by the behaviour of the American Administration in relation to steel and the pipeline.

A development of this kind—that is, a movement on the part of the United States in a protectionist direction—would be one of the biggest blows a great market economy could deliver to the open international trading system. For the same reason it is a complete delusion to imagine that universal import controls of the kind advocated in some quarters in this country can be indulged in without major damage to our own exporting industries. The noble Lord, Lord Banks, made this point very forcefully in his thoughtful speech. It is, thus, indisputably in the interests of the United Kingdom and of other trading nations that the GATT open trading system, which is one of the Bretton Woods institutions that has served the world so well, should be preserved. If it crumbles, and higher or, indeed, much higher barriers to trade go up round the world, we shall be all much worse off, whether as producers or as consumers. This, I think, is the answer to the question raised by the noble Lord, Lord Bruce of Donington, about the future of GATT. It is an essential part of our international trading structure but, of course, it may well need adaptation, modernisation and development.

There is much consensus therefore that the GATT Ministerial Meeting needs to succeed. But when we look at what the various countries to be represented in Geneva feel that the content of that consensus for success should be, the real difficulties of the operation become clearer. Different countries and different groupings of countries have very different patterns of trade.

It is natural, therefore, that they should want to push the GATT system in different directions. These differences of approach mattered less in the 1950s and 1960s when rapidly growing world trade enabled pressures to be accommodated relatively easily. But when there is little or no growth the process becomes much more difficult and each country in turn may feel that changes to meet the priorities of others can only be at their own expense.

Agricultural trade—and this point was raised by every noble Lord who spoke—is a key issue for countries heavily dependent on agricultural exports, such as Australia and New Zealand, and also for the United States. By and large, protection has been higher in trade in agricultural products than for industrial goods. Correspondingly, the process of liberalisation of trade in non-agricultural goods has gone further and faster than for agricultural products. Regulation of agricultural markets, both domestically and internationally, is very deeply entrenched and the agricultural lobbies are very powerful.

It is unrealistic to imagine that great changes can be made overnight. But there is a range of practical problems and grievances about the operation of international trade in agriculture which have not been recently addressed to any significant extent in the GATT; and it could be useful for the ministerial meeting to set in hand a thorough programme of work which will look at the areas where the various parties feel improvements are needed and see what practical solutions can be devised.

May I turn now to textiles. Textiles and clothing is another sector of great sensitivity as these industries remain large and important employers in developed countries. They are also sectors which developing countries can move into at an early stage of their industrialisation and compete very successfully on world markets. In order to limit the pace of change to socially tolerable levels, sectoral arrangements, of which the Multi-Fibre Arrangement III is only the latest, have been negotiated in the GATT for the past 20 years. The ministerial meeting is likely to fall at a very sensitive stage in the negotiations under MFA II of bilateral agreements between the Community and some of its main suppliers. It is too early therefore to say what forward-looking work GATT Ministers as a whole may wish to put in hand.

I turn now to safeguards and voluntary restraint arrangements—another subject which featured largely in the contributions which were made to the debate. "Safeguards" is the term used for a group of issues which arise regarding the escape clause—Article XIX, to which the noble Lord, Lord Bruce of Donington, referred—which comes into operation when imports rise so sharply as to cause or threaten serious injury to domestic industry. Sharp surges of imports of particular products are capable of causing serious damage to our industries, and evoke correspondingly strong pressures for protective action. This is particularly so when such imports, whether from Japan or other newly-industrialised countries or, indeed, from the United States, are encouraged by distorting domestic policies. Arrangements to deal with import surges are, understandably, also of great concern to poorer developing countries which may become, or may hope to become, competitive in limited areas.

Not surprisingly, there is a large area of disagreement between those countries who are, or hope to become, aggressive exporters, and those who have mature industries which are under threat. The controversial questions include the criteria and disciplines that might be adopted to limit the invocation of Article XIX to genuinely serious cases of injury.

Then there is the issue of selectivity: the question whether emergency action under Article XIX has to be taken against all suppliers or can be taken selectively against those suppliers whose imports are causing the disruption. Differences of attitude and interest on this issue are so great that finding a comprehensive agreement defeated the negotiators in the Tokyo Round, and appears also to be causing great difficulty this year in the efforts made in the preparatory process for the ministerial meeting.

A particularly controversial facet of the safeguards question has been that of grey area measures. This term covers measures not involving the formal invocation of Article XIX, but having a similar effect. The basic point is that the levels of imports are negotiated rather than imposed as in a formal Article XIX action. Grey area measures are undoubtedly more widespread than they used to be. To show how central they have come to be I need only cite two examples of measures that fall in the grey area.

An agreement between the Community and the United States regarding EEC steel exports to the United States would be a classic example of such a grey area agreement, and however much one may dislike the circumstances which have given rise to such an agreement if one is negotiated, nevertheless the importance of reaching a successful agreement is of immense importance both to the countries concerned and to the survival of GATT itself.

Another example of grey area measures are the agreements on sheepmeat imports into the European Community negotiated a couple of years ago. It has been argued—both the noble Lord, Lord Banks, and the noble Lord, Lord Greenhill of Harrow, put this point—that the proliferation of grey area measures is a major cause of danger to the GATT open trading system, and that it is imperative at the forthcoming ministerial meeting to bring this process to a stop. I do not think that in the real world this is a well-founded argument. Grey area measures have been adopted not inadvisedly or lightly, but almost always in circumstances where recourse to Article XIX could have been justified. They represent progress by agreement rather than by litigation. The opponents of grey area measures may believe that if this option had not been available free and unrestricted open trade would have prevailed. I do not believe this.

If you look at a list of the products concerned, they are ones where economically or politically the rate of change raises very sensitive issues which Government could not stand aside from—steel, automobiles, sheepmeat are all examples of this. If the option of grey areas measures had not been available the alternative would almost certainly have been much greater formal invocation of Article XIX and more friction and conflict all round.

So I do not accept the analysis that the proliferation of grey area measures is one of the main causes of difficulties the world trade system finds itself in. Rather it is a practical solution devised to minimise trade friction and prevent worse damage being done.

As the noble Lord, Lord Greenhill, himself said, such measures are not necessarily wrong. If there are to be substantial changes in the rules and practices of international trade from the position as it was left in 1979 at the end of the Tokyo Round, the Government intend to ensure that they are not detrimental to the position and negotiating strength of the United Kingdom. A prohibition on new grey area measures is unnecessary and undesirable and would be unhelpful to the GATT system. Those measures have made a significant and helpful contribution to handling in a difficult situation import problems not only in the United Kingdom but in several member states in the Community.

If we were to accept modification or restriction in this area, it would be essential that it should be accompanied by significant progress in those areas of other people's trading policy which cause us difficulties or about which we have reservations. This would certainly have to include the import policy of some newly industrialised countries which seem to us no longer to reflect their economic contribution and what they can legitimately be expected to do in the development of a more up to date set of international trading rules.

There is a range of issues involving developing countries that can conveniently be looked at together. In particular, the developing countries tend to argue that the GATT open trading system, as it has developed, operates unfairly from the point of view of relatively poor countries heavily dependent on primary products. Consistent themes of this kind are pressure from developing countries to receive more favourable import treatment for distinctively tropical products, which are mostly agricultural; and for action to diminish tariff escalation, a feature which provides a certain level of protection for processing industries in developed countries. These are issues which require consideration, but the scope for progress is limited.

On the other side of the coin are the trade problems created by newly industialised countries. As developing countries, they are in principle entitled to benefit from looser GATT obligations than industrialised countries, and they have also benefited from valuable preferences given by developed countries under GSP schemes.

But as individual newly industrialised countries—or NICs as they are known—develop industries to the point where they are competitive on equal terms with the production of industrialised countries on world markets, their special privileges become increasingly inappropriate. In particular some NICs have continued to use these special GATT provisions to enable them to maintain very high tariffs and other severe restrictions to keep our own manufactured products out of their growing home markets. This is not a situation that we or other developed countries generally think tolerable. The need to improve this imbalance is a major theme which I and my ministerial colleagues stress in our travels round the world advancing British trade interests.

It is too soon to say how these various strands may be brought together in the GATT Ministerial Meeting. The United States has made specific proposals about bilateral negotiations, but their ideas have so far been widely opposed by developing countries. I recognise that it can be argued that, in a world recession, it is difficult to mount negotiations designed to bring about a greater application of GATT rules by the NICs. Be that as it may, there is a perceived inequity in many developed countries in the application of GATT rules, and in my view it would be better to rectify the imbalance by negotiation rather than by unilateral actions. The danger of this is real. The EC has proposed that there should be a major feasibility study and perhaps this will be a practical way forward. But the problem is urgent and something more than a leisurely study is needed.

Perhaps I might now refer to the question of trade in services to which the noble Lord, Lord Greenhill, referred. May I say that I made my own maiden speech in your Lordships' House on the question of our invisible exports and this is a matter of increasing importance to this country. Approximately three out of every five workers in this country are now employed in public or private service activities. The total export earnings of the private sector services industries rose to a record £.17 billion in 1981; our trading surplus on services is second only to that of the United States of America. This is a tribute to the energy and imagination of those who have seen the opportunities in this sector and have worked towards their fulfilment.

We have pressed very hard indeed inside the EEC for liberalisation of trade in services. This is a question that I have raised with other European countries that I have visited. The issue is likely to be important in the GATT meeting as well. I welcome the work done in this field by the Sub-Committee on Invisible Exports known as the LOTIS Committee; that is, the Committee on the Liberalisation of Trade in Services. We will support any movement at the GATT Ministerial Meeting to set up a study programme under GATT auspices, to develop the OECD work of identifying the barriers to trade in services with which the OECD has been concerned to consider possible solutions.

I now come to the question of ensuring that the collective strength of the European Community is employed to ensure a satisfactory outcome of the GATT discussions. This was a point stressed by the noble Lord, Lord Greenhill. I have few anxieties on this point. Ministers from all Community countries will, of course, attend and have the opportunity to speak. What they say will naturally reflect their own particular priorities and concerns, but this will be within the general framework of a Community position agreed beforehand. In the preparatory process the Commission has been the Community's spokesman. While I do not underestimate the complexities of co-ordination, I do not doubt that our membership of a major trading bloc can only benefit the United Kingdom in the preparations for this meeting.

It is important that the GATT Ministerial should make progress and be seen to make progress. But it is no good just bewailing the emergence of protectionist measures. They would not have emerged unless there was good reason for them. Their removal or diminution will come only if the causes which led to their appearance are identified and dealt with. The world has changed a great deal in the 30 years or so that the GATT has been in existence. There are countries which enjoy privileges which were justified in earlier years but may no longer be justified now. There are other areas where privileged treatment may no longer be appropriate; where what were entrenched rights may now need to be modified or surrendered.

This is, of course, a much wider canvas than it falls to the lot of the forthcoming GATT Ministerial to tackle. But it needs a clear recognition of these issues if progress is to be made at the GATT Ministerial itself. The benefits of a liberal trading system are very great. The promotion of such a system requires much more than the removal of barnacles and excrescences. It needs a move towards convergence of trading policies and practices world wide. If my home market is open to you: your home market ought to be open to me on equal terms. The November GATT meeting has the opportunity of taking an important if limited step in that direction. I hope it succeeds in so doing.