§ 6.22 p.m.
§ Lord Greenhill of Harrow rose to move, That this House takes note of the report of the European Communities Committee on the United Kingdom's changing Trade Patterns subsequent to membership of the EEC. [7th Report, 1983–84, H.L. 41.]
§ The noble Lord said: My Lords, I am sure that we turn with reluctance from the pleasant and relaxed consideration of Scottish affairs to the more worrying question of the pattern of United Kingdom trade since our membership of the EEC became effective. I am afraid our report on this subject is a very bulky document and has a price tag which puts it quite out of reach of any casual reader outside the House. But it does record some interesting facts and gives a very good insight into the changes that have taken place.
§ Historically speaking, our belated accession to the European Community will be one of the landmarks of the latter half of this century. The reasons why we hesitated so long can be well understood in retrospect, given the attitudes which the Government and the people of this country took up in the aftermath of an exhausting but nonetheless victorious war—a war in which we felt in part let down by the Europeans and in part saved by the Americans. Eventually when we came round to joining the Community it had succeeded beyond all expectations. Fierce controversy preceded our accession and continued afterwards to the detriment of our interests. This controversy is not dead, although the opponents of membership seem to stop short of complete withdrawal. But a reform of the 607 Community must surely be inevitable within the next few years and the reform will in part be shaped by those who have previously opposed our membership completely.
§ The inquiry which led to this report was started before the general election and was interrupted by it. For this reason it has taken longer than we would have wished and may in some respects be a little dated. But I believe its central message holds good and the report will always be a very useful source of reference. The purpose of our inquiry was to try to clarify one of the main issues in the controversy about membership and by so doing help accurate conclusions to be drawn and sensible judgments made in the future. The main issue which interested us was how far membership of the community has affected the pattern of our external trade. Was membership beneficial or was it damaging? Did it help to solve our trade problems or merely create new ones?
§ Statistics have been used by the protagonists in this argument to reach absolutely opposite conclusions. Such independent studies as have been carried out on the whole have been designed for a specialist or academic readership. The sub-committee identified the need for an objective study for the general reader of the effects of membership on Britain's external trade. That is what we set out to do and your Lordships must judge how far we have succeeded. Personally, I found the conclusions of the committee less clear-cut than I had hoped, through no fault of the committee but because the effects themselves were so hard to unravel. I was also surprised to find the fact of membership so much less important in trade than I had once imagined.
§ We must thank our many witnesses for their cooperation. There was no shortage of persons who volunteered to come forward. I commend the evidence to your Lordships. It is almost all of an extremely high standard and expressed with great frankness. It is invidious to make a selection of the witnesses, but I believe that your Lordships will find of particular interest the evidence of the redoubtable Mr. Ian MacGregor, the then chairman of British Steel; the views of Mr. Sallitt and his colleagues; of BEAMA, and of Mr. Horton and his Chemical Industry Association partners. Particularly refreshing was the evidence of the enterprising representatives of the British clothing industry. Of particularly topical interest are the important but somewhat disturbing views of the Society of Motor Manufacturers and Traders.
§ I do not suppose that I am alone in this House in having difficulty in finding a way through statistics. They are kept to a minimum in the report, but I should like to thank Government departments for their determined efforts to get their statistical products understood—certainly by the chairman. I also thank the distinguished economists who from time to time clarified and often confused the issues. We were piloted through these minefields by our specialist adviser, AnnMorgan, who was equipped with both the expertise and the common-sense needed. The committee have tried to set out their general conclusions in a way which will encourage and facilitate the debate. They are set out in paragraphs 95 to 102 and 608 summarised in paragraph 103. I do not want to take up your Lordships' time by reiterating them. Members of the sub-committee participating in the debate will, I am sure, speak on those conclusions which interest them particularly.
§ I should like to confine myself to five points which are illustrative of our findings. First, what is clear at once is that the high initial expectations of a surge of increased trade with Europe following our accession were not fulfilled. The onset of the recession after 1973 of course obscures the extent of the change. It would certainly be true to say that our membership of the Community did reinforce the necessary and desirable shift of trade towards Europe which was already under way before we joined. But the advertised dynamic of membership cannot be identified. Europe was of course bound to replace many of our former traditional markets.
§ The second point I want to make is this. Membership of the Community itself was rarely considered by witnesses as a major influence on the flow of imports or exports. Far more influential than the fact of membership were the volatile exchange rates characteristic of the period and our woeful lack of competitiveness in many important areas. It is this lack of competitiveness which again and again is seen at the root of most of our trade problems, not only with Europe but with the other parts of the world.
Thirdly, most industrial witnesses nevertheless were of the opinion that membership had, on the whole, been beneficial. They usually expressed enthusiasm for the political aspects of the Community but were rather more uncertain and restrained from an economic point of view. Indeed, one of the witnesses, Mr. Grierson, a director of the General Electric Company, while yielding to no one in his political enthusiasm, went as far as to say that, from a trading point of view, membership was an irrelevance. None of the significant witnesses advocated withdrawal. As we say in the report:
Quite simply membership is regarded as essential to the future well-being of British industry".
§ Fourthly, no more than anyone else was the sub-committee able to arrive at firm quantitative conclusions about the effect of membership on the pattern of trade. One cannot know what would have happened had we not joined, and truly comparable statistics are extremely elusive. But there can be little doubt that membership played an important part in sustaining trade and industrial activity in the United Kingdom in the recent difficult years and helped to attract investment to this country from overseas. It also encouraged some investment within the country.
§ Fifthly, opponents of membership have made much of the alarming growth of the adverse balance of United Kingdom trade in manufactures with the rest of the Community. From this it has been argued that accession has delivered a deadly blow at our industrial base. However, we concluded, with appropriate supporting figures, that this decline is not due to membership; other causes are dominant. This is confirmed by the fact that there is a comparable decline in manufactured trade with other industrial countries. This is shown on chart 4 on page xl.
§ It is of course an extremely serious matter. Earnings from service industries, buoyant as they are, cannot fill 609 the gap. Your Lordships will also see in the report some interesting evidence from the invisible export committee. But the basic remedy for this adverse balance lies very much in the hands of our own industry. Good products, competitive in price, ingenious and modern in design, well marketed and well serviced, will go a long way to solve this problem.
§ On listening to witnesses one could not escape a feeling of disappointment that membership of the Community has not had a more beneficial influence on our trade. It has to be recognised that industry's response to membership was tardy in many cases, and even now the less successful business men have a great deal to learn from their more prompt and successful colleagues. Also the members of the Export to Europe sections of the Department of Trade are now extremely well equipped to help and advise. Having seen some of them at close range recently, I pay tribute to their enthusiasm and tenacity. Among many business men there are revived hopes for the future. These revived hopes spring in part from the fact that some of our industries are now markedly more competitive than they used to be. Competition from the Continent was in many cases a shock—a shock which was sometimes beneficial and sometimes fatal.
§ Now that the United Kingdom membership has been endorsed by the electorate, we are entitled to hope that the views of Her Majesty's Government will be more sympathetically received by other members of the Community and the Commission, now that our commitment is clearer. There is not much evidence of this so far but since the Stuttgart meeting the Government have a plan of action which has been published and which covers many facets of the Community's work. The recent news from Brussels is more encouraging.
Nowhere should the Government work harder than in seeking to remove the non-tariff barriers in trade and services constantly mentioned during our inquiry as a cause of difficulty. As the report observes:
Trade is not yet free and the Community is not a common market.
There is at least a decade of hard work ahead, and the competitiveness of our industry is fundamental, as well as a solution to the damaging volatility of exchange rates.
§ The Treaty of Rome related to political and economic conditions at the time of its signature. These conditions have long been overtaken, and we live in a totally different world. There is an urgent need to see that this basic instrument of the community reflects contemporary conditions. Her Majesty's Government should work hard to see that it does, and it is in that direction that we should direct our effects. I beg to move.
§ Moved, That this House takes note of the Report of the European Communities Committee on the United Kingdom's changing Trade Patterns subsequent to membership of the EEC.—(Lord Greenhill of Harrow.) [7th Report, 1983–84, H.L. 41.]
§ 6.38 p.m.
Lord Bruce of Donington
My Lords, the House will be extremely grateful to the noble Lord, Lord Greenhill of Harrow, for having introduced this 610 Motion this evening. If I may say so, he has delivered his observations in a most thoughtful and moderate tone which becomes the gravity of the situation with which we are confronted in relation to the Common Market itself. I hope that the House will have the opportunity to hear the maiden speech of the noble Lord, Lord Kaberry of Adel. I was not fortunate enough to be in another place at the same time as he was, but we know here of his distinguished career. We look forward eagerly to his maiden speech and indeed to his continuing and, in so far as possible, full-time attention to the affairs of this House. The noble Lord's speech will be very welcome indeed here tonight.
The speech of the noble Lord, Lord Greenhill of Harrow, and indeed the report itself, and its preparation, reflect an understandable anxiety concerning Britain's membership of the EEC. This impression is not in any way diminished by the knowledge that the European Commissioners are also extremely anxious about the Community, since, as we learned from the press the other day, even in these times of financial stringency, the Commission is devoting £3 million to advertising the virtues of the European Community prior to the EEC elections that are due to be held next year. Had the virtues of the Community by now been obvious, and well understood and experienced by everybody, it might have been unnecessary to undertake that kind of expenditure.
Two types of anxiety are reflected in the report. The first is the anxiety of the original and passionate protagonists of EEC membership as an essential prelude to eventual European union. The report itself, as well as at times interventions by members of the committee, show that those people involved were almost trying to prove to themselves that the hope to which they gave voice so long ago had turned into actuality. There is also reflected a wider anxiety, covering the whole perspective of our actual relationship with the EEC and with various other parts of the world.
As the noble Lord, Lord Greenhill of Harrow, has already said, the report did not really arrive at any firm conclusions. I put it to your Lordships that perhaps one reason why it was unable to arrive at any firm conclusions was that there was still a subjective wish to justify British membership of the EEC. I would make it clear that I am not in any way trying to deride that. People are entitled to their own passionate beliefs. If people have no aims, there is no progress, and therefore one can understand, especially after a period of about 10 years, the subconscious wish to be able to justify the high hopes that were once held.
The difficulty met by the committee in trying to arrive at firm conclusions arose to some extent from the nature of the data provided to it, in particular that from the Department of Trade and Industry. Wading through the mass of statistics that have been incorporated—only in part, one should imagine—in the report, one finds every now and again a queer, immediate shift from a rendering of actual figures to a string of percentages. If one wants to convert the percentages into actuality, one has to read across all the columns. Undoubtedly this has complicated the report. I am quite sure that the noble Lord, Lord Lyell, will agree with me that we are not all statisticians—not even distinguished Members of your Lordships' 611 House—and I venture to suggest that these matters could have been presented with rather greater clarity than has been used in the report.
There have been two main developments in British trade and industry since we joined the Community. There have been two principal developments; for the moment I am purposely leaving out the question of the provision of services. The first development relates to agriculture; and I make no apology for introducing agriculture because it is dealt with to a very large extent in the report itself, replete with all kinds of figures that have been provided from the Ministry of Agriculture and elsewhere.
I believe it is important that at the outset we deal with the agricultural development and the industrial development quite separately. True enough, they are interrelated, but the first point that we must bear in mind, whether or not it may be palatable to all the various interests involved—and agriculture is not wholly unrepresented in this place, in the Cabinet, or in another place—is that the workings of the agricultural part of the European Community and those of the industrial part are quite separate and distinct, and are actually in conflict.
The agricultural system enshrined in the CAP completely violates every kind of competitiveness—free enterprise competitiveness—that is the characteristic, or is supposed to be the characteristic, of the industrial side. Therefore, there are two opposing philosophies within one system. Though I would not for one moment suggest the proposition, nor seek to argue its feasibility, what would happen to agriculture in Europe if it were openly exposed to the same degree of competitiveness as there is in industry?
Certain effects have arisen from the situation, and one of the trends has been a very considerable increase in agricultural trade and, indeed, agricultural exports. However, no understanding of the anxieties concerning the European Economic Community is complete unless one appreciates the cost of the common agricultural policy in both money and price terms. Any suggestion that this factor can somehow be overlooked and swept under the carpet is not conducive towards getting to the root problems of the European Community.
I shall not trouble the House with many figures; my noble friend Lord Stoddart of Swindon will later deal with this aspect in greater detail. However, according to the Economist, the total impact of the CAP, in terms of an average figure over all farms, means an annual subsidy of £20,000 per farmer. I emphasise: an annual subsidy of £20,000 per farmer. This has been achieved by the operation of the CAP, the extent of which every year has been criticised by succeeding Governments and by almost every party of state in the United Kingdom.
Does it not occur to someone that just as one may on occasion have to apply cash limits to Government expenditure so, too, one ought to apply cash limits to the common agricultural policy itself? For some estimate as to the effects of the CAP one has only to look—and your Lordships may care to take the reference because I am quite unable to read it all—at the Financial Times of 13th October where there 612 appeared an article by Mr. Samuel Brittan who I can assure the House is not a paid-up member of the Labour Party or, for that matter, so far as I know, even a sympathiser. I am given to understand that he always has the reputation of being a financial commentator of the utmost rectitude. In his feature on 13th October he put the costs of EEC membership—and he is referring to the CAP—in 1980 in terms of £4,450 million and the benefits at £1,895 million giving a net loss of £2,555 million per annum. The source of the figures he quoted was the Institute of Fiscal Studies. Incidentally, those figures included not only the customs duties and VAT payments that have a direct impact on our budget, but they also reflected the higher prices paid by the consumer.
The reason why I mention the latter—the higher prices paid by the consumer—is that it is estimated that the prices we pay in the United Kingdom are, on average, some 10 per cent. higher than they would have been if we had not had the rather dubious benefit of the common agricultural policy. That means that wage claims, which have an impact upon industrial costs, are bound to be set higher due to the fact that the worker in this country has to pay rather more for his food.
Dealing with the industrial side, there can be no doubt that the stark effects are shown in the graph which is reproduced in the report on page xl; Chart 4 shows the balance of trade in manufactures by areas. The visual impact is immediately clear. Can it really be an absolute coincidence that from 1972 onwards our deficit in manufactures progressively decreased? Is it really conceivable that this is entirely a coincidence?
Unfortunately the figures shown in the report only go up to 1981 and they are not always shown in the DTI report in a comparable form. So I obtained some figures through the computer of the DTI which revealed the comparable figures in the case of manufacturing industry in 1972 as compared with 1982. Apart from two items there is very little essential move in any of the adverse or favourable balances. There is nothing of very great significance that can determine an immediate and easily perceptible trend, except in the case of manufactures. I am talking under SITC classification Nos. 6, 7, and 8 which cover manufacturing goods. In 1972 we had a trade surplus of £40.4 million; in 1982 we had an adverse balance of £4,802 million; and 1983 bids fair to have an adverse balance of £5,000 million. At the same time—and this is the other trend—whereas in 1982 in lubricants and mineral fuels (SITC classification No. 3) we had a surplus of only £101.7 million, in 1982 we had a surplus of £4,742 million. Those are the two principal changes that have taken place and they are quite unmistakable.
I repeat: Is it to be said that this is purely a coincidence? Evidently the report thinks that it is. Evidently the report attaches no particular significance to this progressive trend which is displayed by those two stark figures. It is said that there are alternative reasons for this. One is the onset of the recession. I cast my memory back to the time when we entered the Community and had the referendum campaign, the reason for our joining the European Community was precisely that in joining a larger unit of this kind it would be possible to avoid recession. That is what we 613 were promised. Nor is there any real logical reason why there should have been a recession in Europe at all—there is no reason at all in the light of the fact that there are still very large unsatisfied demands in Europe and a large number of unemployed people who are capable of fulfilling those demands.
It can be said—and said with some justification—that one cannot altogether blame the Community for not having avoided the recession because, of course, as is well known and recognised now, it was unfortunately this country that led Europe into a recession, and in fact led the world into a recession. This was mainly because of the idiotic application of severely deflationary policies instanced in the first place by a ridiculous rise in interest rates of some 5 per cent. towards the latter end of 1979, and the application of disastrous monetary policies, which everybody now admits were wrong anyway.
In a way that perhaps supports the case of the committee and the arguments put forward by the noble Lord, to the effect that we cannot really blame this all on the European Community. I would say that there is justice in that, but that the Community was itself designed and the Treaty of Rome was concluded in the confident supposition that by the binding together in closer unity of all these nations recession could be avoided.
There are two sides to the equation involving the determination of the adverse balance of trade. An adverse balance of trade can be caused by a shortfall in exports, by a considerable surge in imports, or by a combination of both. As regards exports, it is perfectly true to say that the volatility of the exchange rates—but, above all, the disastrous level to which they were driven by an insane monetary and interest policy—undoubtedly had an effect on the competitiveness of British exports abroad. Of course, this was denied at the time and has been denied for the past two or three years, but the denials now, particularly from the Government, are not very obvious.
There is also the question of some degree of obstruction to British exports into Europe in the Community itself. In his evidence the noble Lord, Lord Kearton—and he will be speaking at a later stage in the debate—raised this; and, indeed, there is abundant justification for it. That is one of the characteristics which we have tended to meet in Europe. By and large, Britain honours her obligations to the letter and, apart from the slight hiccup over the tachograph, has honoured every obligation to Europe. She has been more communautaire than the rest. Very often it is in the rest—particularly in the case of France and, as I am quite prepared to show in detail, in the case of Germany—that there has been obstruction.
However, the other side of the equation is the terrific surge of imports into this country, which is beyond doubt. Once again, this has been due very largely to the effect of exchange rates, which have acted as a subsidy for imports into this country. As we all know quite well, there have also been hidden subsidies for energy and matters of that kind which, to a very large degree, have been dealt with in the national press. However, above all, owing precisely to the deflationary policies that have been followed, British industry's costs here at home for domestic consumption have been 614 unnecessarily increased by reason of the cash flow difficulties that have been imposed upon British industry by a deflationary policy followed to its extreme by Her Majesty's Government.
I think I speak with common knowledge when I say that if one goes into a store to buy British products, time after time one finds that delivery will take five, six or even 10 weeks. The stores are not prepared to carry stocks because of their cash flow difficulties, which are an inherent part of a policy of deflation which is pursued by the Government; whereas our Continental competitors are prepared to send vast quantities of goods either on sale or return or on extended credit terms, and, therefore, firms here are more willing to stock them.
These are matters which of course have to be tackled at a national level, but they have their Community overtones. If it were so minded, even within the limitations of its devotion to free enterprise in industry, the Community has the institutional means of being able to carry through the necessary reforms to ensure a uniformity of exchange rates, a uniformity in terms of standards, a uniformity in terms of interest charges, and all the rest. But it is no nearer doing that now that it was 10 years ago. In fact, it is farther away.
The other factor which has operated and which is referred to in the report is investment. Unfortunately, it is a fact that since we joined the Community there has been a net outflow of funds for investment purposes into the Community of £2,691 million. On top of all this, over the nine years that we have been a member we have spent £2,659 million from the purse which has gone into Community funds. That is our net contribution, after rebates, for nine years. Many may think that we have paid a great deal for a very little—except, of course, the agricultural community.
What, therefore, should our verdict be? I do not think that we can isolate our membership of the European Community, or that we can exempt it, from a partial responsibility for the state of our trade with the Community or for our own state of affairs here. I think that other factors have exacerbated it. One of the factors that has exacerbated it more than anything else is the quite ridiculous provisions of the Treaty of Rome, which virtually are a sanction for free enterprise without restriction throughout Europe—free and open competition in the true, old monetarist conception of the term. We think that that has failed.
What we need in Britain—and, indeed, what the Continent needs—first is a radical reform of the common agricultural policy; and by "radical reform" I mean radical reform involving cash limits. Then we have to work together with our Continental colleagues—not necessarily confined to the EEC—to seek a plan which will involve the changing of the Treaty of Rome, providing for the planned co-operation between members states, their industrial enterprises and their financial institutions, and providing for a planned objective not only for Europe but for developing countries and the remainder of the world.
I am all for co-operating to the utmost with our European colleagues. I think it is vital that we achieve as wide an area of co-operation as we can. Yet I cannot help feeling that we have a responsibility to the 615 Commonwealth as a whole, which comprises some quarter of the world's population and whose representatives are now meeting in conference at a most critical time. I cannot help feeling that, however much we may seek to co-operate with our European colleagues, the whole of our history beckons us to cement, to strengthen and to extend our relationship with the Commonwealth itself.
§ 7.9 p.m.
§ Lord Ezra
My Lords, I should like to join with the noble Lord, Lord Bruce of Donington, in congratulating the noble Lord, Lord Greenhill of Harrow, on the way in which he presented this very important report. As someone who has been involved for many years in the operations of the European Community, the report struck me as being extremely well-balanced, judicious and careful in its findings. It was charting territory which is extremely complex to chart, because it was trying to identify the Community effect on trading patterns, which are inevitably influenced by a whole variety of factors. I believe that the conclusions reached are as fair and as proper as anyone could reach in a study of this sort on this subject. I believe that the work done by the sub-committee will considerably enhance the growing reputation of your Lordships' Select Committee on the European Communities.
It is a fact, as the noble Lord, Lord Greenhill, stated, that unfortunately we joined the European Community too late. Had we joined it 10 or 15 years earlier we should undoubtedly have shared in the great period of growth that was witnessed during the 1960s. We of course had our period of growth then. I believe it would have been further enhanced. We should also have been able to have a moderating impact on the CAP, about which the noble Lord, Lord Bruce of Donington, spoke.
As it was, we joined in 1973 on the eve of the most serious adverse repercussions in the world's industrial and commercial affairs since the end of the second world war. The impact was almost instant, because no sooner was the ink dry on the document of accession than of course there was the serious blow of the oil price increase. So far as our trade pattern was concerned there is not the slightest doubt that that had the biggest impact in that year. I have the figures here, and in the year 1973 our oil, which we were then importing altogether—we had not, as yet, exploited the North Sea—cost us £941 million. In the year 1974 that was £3,357 million. It went up nearly fourfold. There is no doubt that that had much the most important impact at that time on our overseas trade.
The report presented by the noble Lord, Lord Greenhill, did absolutely the right thing early on in paragraph 5 in identifying all the other factors which were certainly collectively, and possibly individually, more important in affecting our trade at that period than the single effect of going into the European Community. I should like to remind your Lordships of some of those factors. There were not only the oil crises of 1973–74 and 1979, and also the recession to which they gave rise; the policies which individual governments then adopted to deal with that recession, which of course varied and had a variable impact on 616 their trading situation; the problem of inflation; and the problem of fluctuating exchange rates. It is difficult to distinguish the impact of these various factors.
The report nevertheless shows up one disturbing conclusion about which we are all aware. As a result of the combination of all these uncertainties and difficulties which have arisen in the decade since we joined the Community and which were largely outwith the Community in their cause, we have suffered substantially in our visible trading balance. As we well know, and as the figures show in the report at Table 4, it is clear that the rising earnings on oil, which has been so effectively exploited in the North Sea, have masked the declining contribution from our manufactured trade.
I should like to mention the figures which update Table 4 for the first 10 months of this year which I have obtained from the Department of Trade and Industry. If we take the overall balance as it was revealed in the October figures, we were showing a surplus of £3.6 billion for the 10 months of last year: for the 10 months of this year, that has fallen to £0.4 billion—that is, £400 million. If you take the oil, on which we achieved a surplus of £3.3 billion in the 10 months of last year, the surplus earned on oil in the first 10 months of this year is £5.3 billion, an increase of £2 billion. That is a fantastic improvement in performance, for which there must be congratulations.
If, however, we look at the manufacturing position, I am afraid to say that the position is bleak indeed. We see that for the first 10 months of 1982 the net surplus earned on manufactures was nearly £2 billion: £1,925 million. For the first 10 months of this year, regrettably, the balance on our manufactures is minus £2,092 million. That is a swing of no less than £4,000 million. I do not believe that this has ever happened in our industrial history before. I have looked up the figures for 1931, which the noble Lord, Lord Lyell, gave in answer to a question. The swing then was that in 1930 we earned £42 million on our manufacturing account, and in 1931 we lost £7 million. I do not know how these terms translate into today's money, but that is the only evidence of such a swing in peacetime in something like 150 years—the period for which the statistics exist.
We are, therefore—and this report has underlined it—for a whole variety of reasons which are not due to our membership of the Community but to wider factors external to the Community, worldwide factors, and some internal factors in our own country, facing this critical situation where we can put alongside the trend in our manufacturing trade the likelihood that the oil earnings will start diminishing in the next two to three years. We face a serious situation indeed.
If your Lordships would turn to Chart No. 3 on page xx of the report, you will see that that is a chart which shows the index of our performance in manufacturing trade. It starts at a figure of something like 220 in 1963–100 would represent a balance—and it falls to just over 100 in 1982, but in fact the position, as the report makes clear, fell to an index of 94—that is, we were showing this negative position—in the first three months of 1983, and the latest figure that the Department of Trade and Industry has kindly supplied me with shows that for October it had fallen to 89.
617 I do not know whether this is a trend. Let us hope it is not. If it is, let us hope it will be reversed. But if this trend goes on, on the one hand, and if the oil surpluses begin to diminish, on the other, then this is the time when surely we ought to be addressing ourselves very seriously indeed to this question. I believe that the excellent report which the noble Lord, Lord Greenhill, has put to us today should form the basis for a further inquiry, a wider inquiry, into our overseas trade. I put forward the suggestion for a special Select Committee on this subject on a previous occasion recently, and the noble Lord, Lord Lyell, said that he would sympathetically consider it. Therefore, I should not like to press him further on it; but shall merely say that I believe that the report which we have heard today should be the first step in trying to investigate fully, and to determine, the causes of and the possible remedies for the serious situation that we face.
There are some, of course, who would argue that an inquiry of this sort ought really to be addressed to the total economic and industrial structure of the nation. There is some substance in that, because obviously the two are interlinked, as our overseas trade accounts for something like 20 per cent. of our GNP. It is a large proportion. Nevertheless there are special aspects of the problem. Much work has already been done within the NEDO organisation into those industries which, in certain circumstances, could contribute more to export earnings. We should do well to bring those together. A great deal of work has been done to inquire into the impact of fluctuating exchanges. Indeed, your Lordships had a very informed debate the other day on the whole subject of the European Monetary System and the possible timeliness or otherwise of our joining that system to get greater stability of exchange rates. Here is a vitally important question to be further pursued.
There is the whole question of competing more effectively with imports, because that is the essence of the problem. It is the imports flowing in which are causing the difficulty, rather than the exports going out, which are continuing to rise. It is the ever-rising tide of imports that creates the difficulties. We should consider how we can compete with them more effectively.
Finally we should be considering whether the aids and the assistance which are provided for exports in full conformity with our various international treaties could not be increased and substantially improved. I believe that there would be merit in following this effective and balanced inquiry into our trading relations with the Community with a further inquiry, taking into account all the good work that has been done here and in no way duplicating it, and widening that out to cover the issue which is touched on in the report and which I believe should be delved into more thoroughly.
§ 7.21 p.m.
§ Lord Kaberry of Adel
My Lords, I am deeply appreciative of the honour I have in being able to address your Lordships for the first time and I am equally aware of the obligations placed upon me on an occasion of this kind. I am, however,. helped very much by the wide-ranging subject matter before us which involves not only the future prosperity of our 618 people. It not only concerns our manufacturers, traders and wage earners who struggle with many problems to overcome changing patterns of trade, but it is upon their success that all people in these islands depend for the increasing standards for which they all search.
We are considering a report which, in effect, is a report of an inquest on the pattern of our trade since we joined the EEC. Quite rightly it gives an open verdict and within the terms of such an open verdict the debate can range, I trust, widely. I hope it can, because, as I have seen, our patterns of trade in this country have been continuously changing from time immemorial. They are changing today and I hope that they will continue to change in the years to come.
I remind your Lordships, who must have personal knowledge, of the many changes in industry and trade which have taken place in the parts of the country which you know best. I recall that as a boy in Leeds I heard of the closure of the Leeds steelworks. Over the years I saw the disappearance of the famous Leeds engineering works, the products of which works had been spread over the whole of the then known world. I saw the decline of the railway foundries, the disappearance of many of our large tanneries, and changes in our chemical works. This was compensated in time and part by the rise of the readymade clothing industry, to which reference has been made already today. That was a success; now it largely depends on which manufacturer one speaks to to get a straight answer about whether it is a success.
That was followed by the rise in warehousing and administrative centres and other new buildings which took their place. It was the resilience of our people to adapt to change and to wage a continuous struggle to find newer forms of industry and trade. Perhaps the greatest asset we have and always have had is the innate capacity, knowledge and determination of our great wage earning forces in this country. They seek to make collectively the finest goods—at least we think they are—in the world and to sell them in the face of the most difficult competiton.
I hope your Lordships will forgive me if I refer especially to those qualities which still exist and have existed for many generations in that part of the country which best I know. In the cities, towns, villages and hamlets which bestraddle our Pennine range, they cover and have done over the past 150 years many industries which have been built up from small beginnings, largely without any of the governmental assistance which has been so readily and lavishly poured out in recent years. There was no limit to their horizon for selling and they were urged on by a spirit of independence, of competence and of adventure. There were difficulties in developments. I have no doubt that many of your Lordships can point to many skeletons of buildings across that range, but, by Jove, today there are many new creations taking their place.
I now briefly refer to the report. With respect and a degree of humility, I offer my congratulations to the chairman and members of the committee for the skilful way in which they carried out their duties. As one who for many years past in another place was a member of Select Committees, or as chairman of the Select Committee on industry and trade and on nationalised industries, I know a little—perhaps only 619 in part—of the time which members spend on studying the vast number of reports that are showered upon them like confetti once anyone outside is invited to send a report. There are problems of waging the proper conduct of the examination of witnesses who appear before them. On this occasion the members asked 607 questions. They had answers some of which I would describe as being better than others, but they were all rather helpful in the process of coming to a decision.
After the time spent on this study from January to July this year the committee finally produced this most interesting document, and the least I can do is to thank your Lordships very much for putting before us the many problems which concern us today in our trade and industry. The report ranges over a wide spectrum of industries and finance. It covers (to show that at least I have read the report) questions ranging from the price of cereals to the price of suits in West End stores, from problems about ladies' dresses from the EEC and from sugar to men's shirts. I discovered the interesting fact, in the answer to Question 536, of what is called the "French shirt syndrome"; here it is said,No matter how much money a Frenchman has he buys five shirts a year".A syndrome of that kind perhaps helps us better to understand other nationalistic syndromes which apply to other countries both within and without the EEC.
I must not venture too deeply on an occasion such as this into problems associated with membership. However, may it suffice for me to say that membership of the EEC is not—and was never planned to be—a king of leaning post against which some idle traders could lean and pick up the orders as they went past. That just does not happen. Rather, it should be some form of starting block to give them greater impetus in their urge to manufacture and to trade. The report brings in a large number of factors which apply to our trade worldwide as well as to membership of the EEC.
May I, with your Lordships' consent, briefly refer to one or two matters which have been referred to in previous Select Committee reports. For example, how necessary it is to have some common standards worldwide and to have some international authoritative body which not only can lay down the standards but in fact can have some form of enforcement. Reference has already been made to the urgent need to deal with non-tariff barriers to our trade. They are applied still in a very subtle manner, difficult sometimes to define. But clearly it is a problem which will have to be resolved if we are to have ultimately the fair trade for which we seek.
It is clear still that, despite all the rules and regulations in or outside the EEC, quicker and more effective action will have to be taken with regard to dumping. We have to deal with the unfairness of foreign tariffs, often unilaterally applied against us without any quick response on our part. I appreciate in that regard that we are conditioned in the EEC by our membership of it and that their speed becomes our speed. It is therefore necessary for us to have a lively body urging constant action by the authorities of the EEC. The fundamental facts of free trade must mean some fair trade on equal terms, with no national 620 subsidies. Many people believe, even on the Continent, that there are too many hidden subsidies, too many hidden advantages given to our competitors in the EEC.
There is also the question of languages. I feel that our educational establishments could still pay greater attention to the universal teaching not only of the EEC languages but also of the languages of the Far Eastern countries, which would enable our representatives the more easily to penetrate into the interior of Japan or China whenever the conditions may prevail. Everyone reading this report is struck by the detailed attention that the committee pay to the necessity of doing something and of not just sitting back and making complaints about the situation as it is at the present time. I believe that the spirit which urged our forbears to go out to manufacture the best and to sell it in the face of the fiercest competition will still see us through many of the difficulties which confront us at the present time. I hope that this debate will never end—that it will not finish with the conclusion of the last speech made by your Lordships in this Chamber this afternoon. I am certain that trade organisations and all organisations associated with trade and industry will carry on the debate. I, for one, am deeply grateful to the committee for giving a lead, for setting out so clearly the many problems which confront us; and I shall rejoice to have the opportunity at some time in the future of taking part in a further debate on this matter.
§ 7.35 p.m.
§ Lord Rhodes
My Lords, we owe our thanks to the noble Lord, Lord Greenhill of Harrow, for introducing this matter this afternoon. We who sat on the committee were privileged to sit under his chairmanship because he proved himself one of the best chairmen that ever I have sat under. To the noble Lord. Lord Kaberry, may I give a welcome from an old friend who spent a lot of time in his company in the other place. He has the best characteristics of a Yorkshireman; and, although his Government in 1974 tried to make me into a Greater Mancunian, I am very delighted to say that I still remain a Yorkshireman. I am very glad indeed to have the privilege of congratulating him on a very good speech and to hope that we hear him many times again. To the noble Lord, Lord Bruce (who is a lot younger man than I am) I say that I am not going to rake up the subject of whether we should be in or out of the Common Market.
I remind him that it takes a long time to change direction in human affairs. It took Moses 40 years to bring the Israelites out of Egypt; it took 40 years for the disassembling of Empire; and—mark my words!—it will take 40 years before the true integration of Europe comes about. We are in it and we cannot get out of it because we have nowhere else to go. If he had been able to accompany me to the Far East on the five journeys that I have made, he would rapidly agree with me that to take our place in world affairs we need the countries of Europe working together. It is up to Government—this Government—to do something about what we have in this report.
The noble Lord, Lord Greenhill of Harrow, drew attention to the first paragraph in the study. He quoted the words: 621The Committee therefore saw a need for an objective study of the effects of membership on Britain's foreign trade designed for the general reader".It is a bit of a tall order for a general reader. Who is the general reader? The report is priced at £14.45. They are not queueing up at any of the branches of the Stationery Office, I am sure, to buy something like this at £14.45. But it is worth every penny of it to somebody who is in trade or who is a student of affairs in Europe. The primary object of any committee sitting upstairs, as we do, is surely to assist this House in carrying out its responsibilities in a particular field of inquiry. The committee sat upstairs for six months sifting through evidence and coming to what I think were first-class conclusions.
You cannot have discussion on a subject like this without its having repercussions outside this House. So you have in front of you the question of the dual role, and if we accept the fact that we need to be able to bring matters to the notice of people outside the House, then we have to consider how we can get the information to them. My complaint about the way in which Select Committees have been wrong is the way in which their reports have been distributed. What is the use of doing months of work if it does not get to the place where it needs to be read? If we accept that outside this House there is interest in this subject, we should make a new channel of communication, making this House more important, in terms of its usefulness, than ever before.
How are we going to do it? What happens when a report is being made? First of all, there is the oral evidence, which is typed out and available. The investigations leading to this report are nearly 12 months old. Is there a way of getting the information to the people who matter more quickly? What can be done? I do not know whether everybody here got through the post today this document from the London World Trade Centre Association: it makes a criticism of our report which, in my opinion, is absolutely first class. There is no doubt that it indicates a way in which we could spread the knowledge that is acquired, and the opinions that we have come to, to turn our conclusions into reality.
This report says:Clearly any attempt at direct contact with individual companies would require an enormous effort with a high level of likely waste. There is, however, a much more manageable channel through intermediaries. For trade and industry subjects, these would include business journals, including British Business and the Financial Times. Over 80 Chambers of Commerce are reached through the Association of British Chambers of Commerce—the CBI with over 200 individual associations, a relatively small number of other active trade bodies, departmental press officers—including, where appropriate, that of the BOTB".I put that to the Government because of experience I have had in the past when I have pursued this question of where these reports get to. On one classic occasion when we did a report on textiles, 160 copies were sent to the Holborn Stationery Office—I am sure they are very, very interested in textiles in Holborn—but when they sent six to Manchester I thought it was a bit thick. If this is going on at the present time we would like to know about it; and in the hope that it may spur somebody on to take a little bit of action, I will have aword now about the summary of conclusions, paragraph 103, sub-paragraph (vii): 622the British Government should in particular work for the removal of non-tariff barriers to trade within the Community".It goes on to talk about what should be done also in the way of disseminating information and encouragement. This report is really a continuation of the report we produced on the internal market, and the same things are cropping up time and time again. This is one of the things that crops up not only in the internal market but also in the one that we are discussing.
The main feature of all barriers to trade is uncertainty. Administrative barriers are hard to estimate in advance and deliberate Government policies to restrict imports are difficult to detect or predict. Here one remembers in evidence what the French produced in terms of trying to obstruct the entry of video recorders into France. There was a flood of video recorders en route for France and they switched the port of entry from the normal one which could deal with the job to Poitiers, which had hardly an office at all and which effectively and successfully impeded the video recorders from getting into France for 12 months. There was a famous case called the Cassis de Dijon which left in its trail a whole series of doubts as to the legality of barriers and doubts about what firms were expected to do. This haziness has had a most unfortunate effect in that many firms have given up trying to find their way through this jungle of barriers.
It would be interesting if the Minister could tell us what action has been taken by the United Kingdom Government since we produced our report on internal conditions and internal trade and the one that we are discussing today. For instance, has the customs documentation been simplified? Have steps been taken to shift many administrative and financial transactions associated with Community trade away from the frontiers and to reduce the documentation to one sheet of paper?
If no representations have been made, what on earth were we doing when we were sitting for so long on the inward market report? We want to know from Government what action has been taken on these matters. Have any steps been taken to get rid of national differences in VAT procedures? These are matters of current importance. What are we doing about Italian state aid? If we cannot stop it, what about harmonising it? However, despite all these difficulties, there is no doubt, from the statistics available to us, that both for the United Kingdom and for the EEC as a whole trade liberalisation outweighs restrictive measures. Well over 40 per cent. of all United Kingdom trade is with other member states, as compared to 30 per cent. in 1973.
Another very important thing which readers of this report must take on board is that the witnesses who gave evidence before our committee said without exception that they were better off within the Common Market than out of it.
Unfortunately, there is a general lack of understanding by Governments and people of the advantgaes which are to be gained by having an integrated Community. Consequently, the political will is not there to achieve it. I say that we are in. We cannot come out. We have nowhere else to go and we should do all in our power to revive our situation. Otherwise the time will come when we shall regret this 623 inaction. When much of our industry has disappeared, and the Pacific nations dominate the consumer and the consumer durable market, it will be too late to regret the fact that we have not done enough in our day and generation to make this integrated Europe work.
§ 7.50 p.m.
§ Lord Hayter
My Lords, I confess to finding myself very cynical about lots of matters in connection with the European Economic Community, but I join the noble Lord, Lord Rhodes, in saying how adroit, expert and tactful our chairman was throughout this committee and he has cured some of my cynicism. But I also follow the noble Lord, Lord Rhodes, in talking about the dissemination of this report and I would be presumptuous enough to make a suggestion to a general reader who happens to come across it. There are 424 pages and I suggest that the first thing to do is to forget all about the statistical pages. That will solve part of the problem. Having done that, I suppose that, logically, one should also ignore the witnesses who claimed to be economists. Of course, some of them were brilliant, as the noble Lord. Lord Greenhill of Harrow, said, but they were so boring. If one does that, one gets to the rest of the report and is faced with the question: so what?
From an industrialist's point of view, the report makes most interesting reading. It is always good to know what the other chap has been thinking, and some of the witnesses were most frank about the conversations that they had had in the various committees, their associations and their board meetings. Then, again—a point that was mentioned in the excellent maiden speech—one can follow the subtle influence on industry of the country's foreign policy. I have been mixed up with a company which has been going for 160 years. and I read about how in Victorian times our thoughts were naturally led towards what I tactfully call the senior members of the Commonwealth. Then at the turn of the century we, for our part, turned to tsarist Russia and to South America and then, more latterly, to the Far East, the Near East and now, finally, to Europe.
I have to admit—I do not know whether with pride or with shame—that our company went into Europe a long time before this country went into Europe, because we suddenly realised that that was going to be the market of the future. The difficulty that arose from that was the simple one that we set up factories in Europe, to the detriment in a way, I suppose, of our factories here, because had we been in the European Economic Community our goods would have been manufactured here and we should have been concentrating on marketing in Europe as a whole.
Serving on this committee has emphasised to us, as one person after another has said tonight, the difficulties of the non-tariff barriers, of which, in my own case, I think standards the most important. Standards of design, standards of quality, standards of performance—all of these can he manipulated to make a very bitter experience for those people who are novices going into Europe. By the way, I forgot to give your Lordships one very good example about statistics, which, as our report said, show a lot of discrepancies because of trade definitions and revisions to 624 more recent data. One of our best witnesses, the British Electrical and Allied Manufacturers'Association—gave an excellent example of this, when the export of mobile radar equipment worth over £1 million was, instead of being credited to them, credited to the car industry because it had wheels. That shows what can happen so far as statistics are concerned.
But, to get back to standards and to the bitter experience that can follow from them, there used to be talk in the old days about perfidious Albion, but I can assure your Lordships that we have nothing on France or Germany when it come to some of these troubles. The report states very clearly that trade is not yet free and the Community is not yet a Common Market, and I blame standards, administrative procedures and the state aids about which the noble Lord. Lord Rhodes, was talking. Of course, there comes into one's mind the phrase, "What's sauce for the goose is sauce for the gander", but long term I think most industrialists know that the famous word "harmonisation" will be the correct answer. When the time comes for a European standard in the various industries which are trying to make a living in Europe, then we shall have gone a very important step forward.
We have lost 15 years' momentum and we have to make up that loss. One of the reasons why we have to make up that loss is not only the economic one but the political one. A long time ago, I was privileged to hear Sir Robert Menzies speak in Australia about our entry or our possible entry—because we did not go into it at the time—into Europe. He said that it was a political concept, but one that had kept us free from war in this continent of ours for the best part of 40 years. That is why we have to support it and that is why we have to make our way.
The Motion asks that this House will take note of the report. I am sure that the House will take note of the report. I hope that industry, too, will take note of it, because there are points there of interest to anybody. And I certainly hope that the Government will take note of it. As has been mentioned, we had some excellent witnesses from the Department of Trade and Industry and it was they who saw, and indicated, the way in which they could combat the problems of the non-tariff barriers. They have a big part to play. Individual industries cannot do very much; even the trade associations can do but little more. But with the help of the Government, I am sure that we can make a really good contribution to the future of our conduct in Europe. We are there to stay and so we had better get on with it.
§ 7.58 p.m.
§ Lord Molloy
My Lords, may I first congratulate the noble Lord, Lord Kaberry, on his maiden Speech and say how pleased I was to hear again that voice which I heard so often over very many years in another place, and I am sure that he will not feel too upset at hearing my voice again. The compliments that have been paid have been very well deserved.
With regard to the committee under the chairmanship of that very able chairman, I do not know whether to congratulate them or to commiserate with them. It has been an extraordinarily difficult task. One must be fair. What we all suffer from—some of it makes us angry, some of it makes us a little upset and 625 some of it makes us feel deceived, whatever side we are on—is the enormous propaganda campaign, some of it downright lies, some of it pointing out so many wonderful things, as if we had been a little offshore island in the North Sea which the world had forgotten about. Now, after we had been tossed around for so many years, this wonderful EEC would allow us to join it and, therefore, to be successful.
But there would not have been many of those great countries in that EEC if it had not been for this country, and it would have been a totally different Europe altogether. I sometimes think that that should now and then be said.
We must never forget the political abomination which decided to wipe out an entire people by the million. They could have won, and almost did win, and there was no Common Market around at that time. We must never forget the role which this island played, followed later by the Soviet Union and the United States of America.
Therefore I agree with those who say that perhaps our greatest mistake was not to join the Iron and Steel Community right from the beginning. We made a massive contribution from 1945 to 1950, when France, Germany, Holland and Belgium were laid waste and the economy was run on a couple of fags, a bar of soap and a bar of chocolate. We made a generous contribution but we ought to have been in the Iron and Steel Community right from the beginning. We should have been the foremost member discussing the matters which resulted in the Treaty of Rome. But now we are in the difficult situation of knowing that all is not well. Nevertheless, we have to be realistic. This Chamber should acknowledge that it is not the EEC which has led to failure. The failure lies with the gross exaggerations of big business, which campaigned on the basis that all was going to be lovely if we joined the EEC. It is unfair to blame our membership of the Community. We must never again allow those who embarked upon one of the greatest deceptions I have ever known in my life to say such things. When asked, people say, "I voted to go into the EEC: I was all for it". The vote for entry into the EEC was overwhelming because of the power of propaganda. During that campaign the biggest casualty of all was truth.
The members of this committee have made, by their report, a sensible contribution which will help us to understand what really is the position. It would be quite useless now to say that some of us are for staying in the EEC and that others are against it. We are in Europe whether we like it or not. However, we should not be made scapegoats, as we already have been. During the summits to be held in May and June of next year the voice of this country has got to be asserted. Europe must remember that the ultimate ideal is a common market. Very few of the trade barriers have been removed. People say that we have got to remain in the EEC. We must resist that assertion and ask, "How on earth did we manage before we joined the EEC?" We must move forward to a new era and take a leaf out of the activities of EFTA, which is still doing many remarkable things. When one looks at the EFTA countries—we belonged to EFTA at one time—one sees the absolutely remarkable progress that they have made. They have moved into an 626 alliance with Yugoslavia. This may be a pointer to the future. Instead of hurling terrible weapons at one another, the countries on either side of the iron curtain ought to begin trading with one another. The EEC has failed hopelessly in this connection.
I believe that we have to stay in the EEC. The Government have said that they will help people in all sorts of ways, by providing financial help and information. We all acknowledge that Britain's foreign trade has shifted towards the EEC. If it has shifted towards the EEC, one has to ask: from whence has it been shifted? We ought not to be too happy about the answer to that question. Britain's foreign trade has shifted from some of those countries which in our hour of need said, "We stand beside you foursquare". In other words, it has shifted from many parts of the British Commonwealth. Many Members of your Lordships' House know that when they go abroad on IPU or CPA delegations this is still pointed out to them. We cannot dismiss this as just an emotional spasm. They still feel very deeply about it. We should have created a balance. The EEC could have joined us in obtaining better trading arrangements within the Commonwealth and, indeed, within the EEC. It is not too late, I believe, to achieve that aim. I should much prefer us to work along those lines than to sustain the ugly, offensive practice of keeping prices up, resulting in butter and beef mountains and wine lakes.
I do not know whether the committee realise—when I read the report I saw no evidence of it—how much it costs to build these massive warehouses in which to keep the butter, the beef and the thousands and thousands of barrels of wine. When one realises that the cost of building those warehouses, storing the surplus products and maintaining security would keep London going for 18 months, it makes one think. So we have to say loudly and clearly that surely there must be a better way.
I hope that I shall not be regarded as being too heavily anti-Russian. I am not against the Russian people. I do not like the political system in Russia, but when I hear voices in Europe telling us that we must have nothing to do with those awful people in the Eastern states, but that they can help us out by buying millions of tonnes of our beef and butter which we will not allow the British or the French old age pensioners to have at a reduced rate, and then I hear that these magnificent administrators have discovered that they sold too much and must buy back from the Soviet Union at a dearer price than that at which they sold the beef and the butter, particularly the butter, it is far from good enough.
I do not suppose that many of my fellow Britons will read this remarkable report. A previous speaker said that its cost—£14.45—is a deterrent. That is perhaps the reason why people will not read this astounding report. However, the balance which is sought is sensible. Certainly the report is not sycophantic on the one hand or offensive on the other. The report contains points which we shall ignore at our peril. There is little doubt that the private enterprise system comes out of it very badly indeed. The leaders of industry in this country are shown to have very little initiative.
The figures which were read out by the noble Lord, Lord Ezra, were disturbing. We have heard statements 627 made by Treasury Ministers on the Front Bench opposite. Somebody is not telling the truth. Either those Treasury Ministers were not telling the truth, or the noble Lord, Lord Ezra, who read out that data, was wilfully untrue. Therefore I ask the Minister to get hold of Hansard, take it to the Treasury Ministers who sit on the Front Bench and ask them either to confirm what they have said about this massive improvement or to admit that they, too, were led up the garden path and must withdraw some of the things they have said over the past 12 months. Either we have to accept what they have been saying or what the noble Lord, Lord Ezra, and this report is saying. When we had a big debate about the EEC before we went into the Community, truth was the greatest casualty. One of the great things about the report is that it shows no bias, it is courageous. and it is as factual as can be. Those qualities must be acknowledged.
An article which was published in The Times on 7th July had this to say:Britain has been slower to adapt its attitudes to a number of EEC markets than member states who have been playing the game longer".One cannot blame the Common Market if our initiative is not there. On the other hand, the article went on to state:Britain exported over £13,874,000 of manufactured goods to the EEC last year. But, to the continuing embarrassment of the pro-EEC establishment, our net trading position has clearly deteriorated on the job-creating manufacturing side since we joined the market a decade ago".The article continued with these words:Ten years of surpluses before entry have given way to ten years of deficit since".Whether one is pro- or anti-Common Market, statistics of that kind can give pleasure to no one. One may be violently anti-Common Market but on reading such a statistic, one has to acknowledge that such a situation hurts and damages Britain; that it helps to create that most vile of all conditions—unemployment within the ordinary British family and the loss of work by the breadwinner. which is a very dangerous situation. So even those who are anti-Common Market should not feel too much glee at such facts in the report or in The Times.
If both the report and the debate in this Chamber are examined by Government Ministers in depth, they should give some indication as to what should be done to set matters aright in the forthcoming summits with regard to the EEC. I was never in favour of Britain joining but the vote to join was overwhelming, and therefore those who would oppose it afterwards can only label themselves as being totally undemocratic. Once we went in, we gave of our best.
Another point I should briefly like to draw to your Lordships' attention is the farce and tragedy of the European Parliament. Nobody knows who sits there. Nobody knows who they are. Nobody knows whether they make any speeches. They all seem to be doing their best to get into another place rather than stay where they are. It is a fiasco. It was not always like that, I can remember when I was a Member of the European Parliament. I remember that Conservative Members. Liberal Members and Labour Members—particularly my noble friend Lord Bruce of Donington 628 —were almost hated by the commissioners. My noble friend's great crime was that he knew his stuff better than they knew theirs. The commissioners did not like me because I could not get out of the habit of that lapsus linguae of referring to them as "commissars".
The fact was that we could stand up and say—as we did very often from all parties in that European Parliament—"We are not satisfied with what has happened here today. We do not accept the commissioners' explanations. We believe that our country is not getting a square deal". Then would come the line that frightened and concerned them: "We will go back to our Parliament and explain what has happened". That used to have most beneficial effects—not merely beneficial for Britain but also for the principle of the European Economic Community. That has been lost and is probably gone for ever.
As the report before us is very comprehensive. I intended to speak about it at great length but I realise that other noble Lords wish to speak as well. There is one other element of which I should like to make mention: I should like to see more concern shown with regard to the handicapped of Europe. The handicapped people of Europe are an integral element of EEC social policy. But surely social policy does not amount to much if it is mentioned only once every five years.
I believe that the principle of reciprocity of our National Health Service ought to have much more attention within the Common Market than it has. It is a great principle and I hope that Mr. Ivor Richard, the Commissioner for Employment and Social Affairs, if he reads of this debate. as a former Member of the other place, will see to it that the principle of reciprocity within the NHS is given far higher status than it has at the moment.
To unite on health is the greatest cause and therefore must hold the prime position in all countries and all segments of public life within the EEC. If that aspect was given a much higher status and more attention throughout the Common Market countries, there would be a feeling that at long last, on fundamentals, we are getting together, because health is the handmaiden of peace and contentment.
The European Parliament needs overhauling. The British Parliament and other parliaments should see to it that we can no longer depend on cut throat competition and that what is really required in the EEC is ECP—namely, economic community planning. If there is proper, decent and sane economic planning within the Community, then we can make a success of it and we shall not I hope have to wait for the 40 years adumbrated by one of my noble friends earlier in this debate. If we are to make a success of it, it should not be for all the politicians and all the commissioners; and not for all the businessmen, bankers and financiers but for the real people who count: the ordinary folk. When the ordinary folk of all these countries can see that it is worthwhile joining and that it will achieve not merely an economic victory, it will make a massive contribution to world peace.
§ 8.17 p.m.
My Lords, may I start by adding my congratulations to my noble friend Lord Kaberry of Adel for his very interesting and important maiden 629 speech? The noble Lord, Lord Molloy, will forgive me if I do not follow him in everything he said. But I was extremely interested in what he had to say about the European Parliament. I agree with some of the points he made—particularly the point he made right at the beginning of his speech: that we should have joined the Community right from the word go, just as the noble Lord, Lord Greenhill of Harrow, said.
I was privileged to be a member of the sub-committee which produced the report. I should like to say straight away how much I valued sitting once more under the chairmanship of the noble Lord, Lord Greenhill of Harrow. He carried us along through a very difficult maze of information, which is something that many chairman cannot so easily achieve.
As other noble Lords have said, and as the report says right at the beginning, we were trying to provide an objective study of the effects of membership on Britain's foreign trade designed—and this point has been mentioned over and over again—for the general reader. I believe that the report as it has appeared has demonstrated how important that need was. For myself, and no doubt rather naively, I hoped that we might go rather further and that we might even have produced a report that would be a sort of child's guide to the situation. But the report itself shows how very wrong I was; how impossible such a thing would have been. It leaves me in no doubt at all as to the complexity of the subject with which we are dealing. The very fact that the report brings out that complexity shows, to my mind, that it has done a very important job of work.
It is true, and this point has also been mentioned, that the outcome of the past two general elections has gone a long way to consolidate our membership of the Community as our permanent niche. Yet during those campaigns, and since then, one has heard over and over again opinions voiced to the contrary, sometimes, no doubt, put forward with sincerity, but, in my view, based too often on over-simplification of a very complex situation—over-simplification which resulted in a quite wrong expectancy of results in the early days; and over-simplification today of the reasons for our actual experience during the time of our membership.
The question we had to answer, to my mind, quite a simple question, was has our trade benefited or otherwise from membership? Was membership a help or was it a deterrent? During the course of the inquiry we, of course, had access to an enormous amount of statistics, but statistics that were by no means always calculated on the same basis, which made their interpretation exceedingly difficult. To my mind, it is that difficulty that has added to our problem.
Already there were in existence various trends, various changes, various motions affecting our world trading position which had nothing whatever to do with our membership of the Community. Let me just mention one or two. There was the growth in the world of the new industrial countries. There was the restrictive trading from some former Commonwealth markets. There was the erosion of the Commonwealth preference system. There was the fall in Britain's share of world trade. And in consequence of many of those trends—and there may be other reasons as well—there had been as a result a shift of our trade into Europe, 630 which again had really nothing whatsoever to do with whether we were going to be a member of the Community or not. Those situations were there.
What I have mentioned are just a few of the underlying long-term changes affecting the pattern of our trade. Others are mentioned in the report, and have been mentioned in your Lordships' House this afternoon, which were going on long before our entry into the Community and obviously they blur any easy assessment of the consequences of our actual entry into the Community. That did not make our job in the inquiry any easier.
Looking at the situation once we had become a member, there are other factors which again make an easy and clear assessment of the situation more difficult. One of the most interesting points that the report brings out is the different ways in which membership is affecting different industries; and not only that, but the different ways in which membership affects different sectors of the same industry. It all makes a very complex picture, so that it is not easy to say that being a member has been an advantage or it has been a disadvantage.
Let me mention just very briefly two or three examples. For instance, the chemical industry, as the report says, has an almost uniquely successful record, both within the Community and elsewhere, and has been really little affected by membership. The steel industry, with all its problems, and its need, along with the steel industries of all the Western countries, to be streamlined, seems able now to find important export customers in Europe, always provided that its continued improvement of efficiency can be maintained. Then one looks at the mechanical engineering industries, the electrical engineering industries, and they illustrate the point so well of the widely different degrees of success, or lack of success, in Europe experienced by different sectors of those industries.
The motor industry, seemed to have a fairly neutral experience from membership; textiles had a not entirely unworthy record in Europe, but like textile industries of all the Western European countries it was more affected by other outside industry from further afield, from the Far East. No doubt these various industries are strengthened by common membership and working together.
The clothing industry, which one noble Lord has mentioned, shows an encouraging record and again one where membership no doubt provides co-ordinated defence against low-cost competitors from far afield. Of course, the clothing industry has done extremely well in pursuing and exploiting a very selective market in Europe, and I think it is to he congratulated on the success it is having there.
Having said all that, there are one or two industries I have purposely not mentioned. I have not mentioned processed food; no doubt the noble Lord, Lord Sainsbury. will be referring to that. But the different industries can show very different results, and this complicates a clear picture of advantage or otherwise. There are, however, certain common threads, I believe, in our experience which stand out and are very important. Undoubtedly membership has been a spur to competitive effort throughout British industry, and 631 to greater efficiency. This, I believe, has been a valuable lesson.
Undoubtedly our membership has re-emphasised the enormous importance, particularly in a sophisticated market like Europe, of good marketing. While marketing in such circumstances may be easier for the large firms, marketing for the small firms, we learnt in our inquiry, is often very difficult. With world trading conditions as they are today, both these lessons—greater competitive effort and better marketing—must be of value generally to British industry, not only in Europe but for the trade that it is doing around the world. So our membership has taught some good lessons.
Again, having said all that, the really significant fact that comes out in our inquiry, with all its complexity, is that notwithstanding all the evidence we received. whether from those who have been and are successful in Europe or from those finding matters very difficult, from none did we meet other than a strongly voiced view, from the point of view of British trade and industry, that it would be nothing less than a disaster to contemplate withdrawal at this time.
It may be that when membership was being advocated in the early days, and no doubt advocated with great sincerity, the political advantages that might be experienced were sometimes overstated. It may be that as a result there have been disappointments. There have been disappointments. Unexpected obstacles have emerged. Many references have been made this afternoon to non-tariff barriers. All these have emerged. But, for all that, we found no case for thinking that a wrong step was taken at the time when the country decided to enter Europe.
I hope that this report will be carefully studied. It is expensive but it has an enormous amount in it of importance. I hope it will prove to be a valuable tool, helping to point the way as different obstacles are overcome, so that we can go forward as a unique world trading bloc of ever-increasing strength, perhaps with different countries specialising in different industries where best they can—whether by industries or by sectors of industries. That may well involve a degree of adaptability which in some cases could be a little painful: but specialisation is something that we heard about and is something that can pull together an industry as a body. I am thinking of the motor industry where parts are made in one country and assembled in another. and so on. It will produce a trading bloc in which British industry will be able to contribute to the full and to a very marked extent.
§ 8.32 p.m.
§ Lord Sainsbury
My Lords, I venture to take part in this interesting and important debate because agriculture and food obviously play a part in the pattern of trade. Moreover, they are subjects which have concerned me for many years as a member of Subcommittee D. The report points to the level of agricultural self-sufficiency in the United Kingdom which has increased by a considerable amount during our membership of the Community. It is unfortunate that members of the Community have interpreted—in my view incorrectly—one of the objectives of the common 632 agricultural policy as being the attainment of a high level of self-sufficiency.
I am sure that your Lordships are all well aware of the huge agricultural surpluses which have resulted from the operation of the CAP. Experience shows that a policy aiming for a high level of self-sufficiency, coupled with open-ended price guarantees, invariably produces surpluses. The high price levels have encouraged considerable productivity gains while demand for food has increased but little. I must emphasise that the increase in the level of self-sufficiency has been a consequence—some may say an unfortunate consequence—of the operation of the CAP. It is not explicitly stated in the Treaty of Rome as being either the objective or an intention of the CAP. The objectives of the CAP, as stated in Article 39 of the Treaty, include the stabilisation of agricultural markets and the assurance of the availability of supplies. As Mr. Buckwell, from the University of Newcastle-upon-Tyne, so rightly pointed out when giving evidence to the committee, stability and self-sufficiency are two quite separate things. There are means of stabilising the market and ensuring adequate supplies at any level of self-sufficiency.
The increase in agricultural productivity and the production of surpluses have naturally affected the trade pattern, not only of agricultural raw materials but also of processed and manufactured foods. As is to be expected, the ratio of food and drink imports to consumption has fallen rather slowly from 1972 to 1978; but thereafter it fell sharply. In the past 10 years there has been a fall in the United Kingdom's volume of imports of all foods. Exports have more than doubled. although it was a doubling of a comparatively small figure. The United Kingdom's trade deficit for food rose in value but this was because prices of imported food more than trebled. Perhaps more significant has been the shift in the direction of the United Kingdom's trade towards the Community.
An interesting figure brought out by the report is that the Community now supplies almost half of all United Kingdom food imports. as against one-fifth or so in the early 1960s. This shift in the direction of trade has been to the detriment of many of our former trading partners. It is of concern that at a time of increasing protectionism and bilateralism these countries are losing their markets in Britain and in the EEC. The most current issue is of course that of the special access arrangements for New Zealand butter which are under review. The European Commission's proposal for reducing even further the import quota for butter will do serious harm to New Zealand's dairy industry and its economy. Britain, as opposed to most other members of the Community, has always been a net importer of food. Unfortunately, this has caused a conflict of interest between members because Britain, by paying the high prices for imports of products protected by the CAP, has effectively been making budget transfers to the Community. The reduction in the United Kingdom's imports has reduced the total amount of these transfers but not to an extent that is great enough to alleviate the conflict.
In discussions on the CAP, its effect on the food manufacturing industry is often overlooked. In particular, the industry is disadvantaged by EEC raw material prices which are sometimes considerably 633 higher than world prices. For example, Community prices exceeded world prices on 1st December 1982 by 68 per cent. for common wheat and 149 per cent. for white sugar. Not only have there been these added costs to the industry but also sometimes increased difficulty in obtaining raw materials.
Although the food manufacturers justifiably complain about the operation of the CAP, they show a positive and commendable attitude towards membership of the Community. The Food Manufacturers' Federation is quoted in the report as saying:We happen to believe there is quite a bit wrong with the Common Agricultural Policy. We do not see the way to solve that particular problem is by coming out".Certainly we all accept that the CAP is in drastic need of reform. However, despite the disadvantages incurred by this policy, membership of the Community does provide the food industry with valuable scope for improved export effort.
So often Britain's consumer interests are neglected when policy decisions are taken in Brussels. Although consumers may have benefited from a wider choice of foodstuffs as a result of food imports from the Community, they have certainly paid higher prices for some foods. The Ministry of Agriculture, Fisheries and Food has estimated this additional cost of food imports from the Community in recent years as being between £200 million and £300 million. Given these figures, it is possible to challenge that the CAP has achieved its objective of ensuring that supplies reach consumers at reasonable prices. Consumers would claim it has not.
In conclusion, may I add my congratulations to the noble Lord, Lord Greenhill of Harrow, and his colleagues. I hope the report, detailed and extensive though it is expensive as it is—will have a wide readership. It illustrates that in spite of all the Community's imperfections, our continued membership is so vital to the future of our economy.
§ 8.43 p.m.
§ Lord Brimelow
My Lords, if this debate has demonstrated anything, it is our tendency to stray outside the strict terms of the subject under debate. I think that we have touched on pretty well every aspect of the Community of which we disapprove. The terms of reference of the report as stated in the sub-title are:The United Kingdom's changing trade patterns subsequent to membership of the European Community".I emphasise the term "subsequent to"; it is not "consequent on" or "caused by". The temptation to explore whether a temporal sequence justifies the assumption of a cause and effect relationship is irresistible. Sub-committee B succumbed to that temptation and we have succumbed to it this evening. In that I see nothing bad. The exploration has shown that, in the matter of the trade patterns subsequent to our joining the Community, the terms "subsequent to" and "caused by" are not congruent.
In trade in agricultural products it is possible without difficulty to demonstrate that there is a causal relationship between the CAP and the changing patterns of our trade. The noble Lord, Lord Sainsbury, drew attention to that. I share the apprehensions he 634 expressed about the Commission's present proposals with regard to our trade with New Zealand. But the sub-committee's report also showed that when we move from trade in agricultural products to trade in manufactured goods it is far more difficult to establish what the effect of our membership has been on the changing patterns of our trade. In many industries it is clear that membership has not been the dominant factor. From this I think one conclusion emerges. That is that the relationship between our membership and the patterns of our trade is not clear and is not the same in all industries. There is a temptation always to make simple assertions on that subject. Simple assertions are nearly always wrong.
I now pass to the one reservation that I have about the recommendations in this report. I was not a member of Sub-Committee B when the oral evidence was being taken. I became a member at its last session, when the draft was already being considered. I, too, pay tribute to the noble Lord, Lord Greenhill of Harrow. I have worked under him in different capacities. I think he has steered the committee very well in producing this report. But I have one reservation about Recommendation (vii) in paragraph 103. That recommendation begins:the British Government should in particular work for the removal of non-tariff barriers to trade within the Community".Several previous speakers have supported that recommendation. Given the complexity of the relationship between our membership and trade, the difference between industries and the difference between commodities within a given industry, I find that recommendation a little bit too sweeping.
Let us take for instance the motor industry. On page 173 there is a reply to Question 321 by Mr. Turnbull, the President of the Society of Motor Manufacturers and Traders. He was very reserved on the question of getting rid of non-tariff barriers to trade in so far as the motor vehicle industry in this country might be affected. What he said was:it is always a possibility that the industry' will decline virtually to nothing with negligible investment in the motor industry in Britain. At that stage we would have to import substantially more vehicles than we do today. The balance of payments could change adversely to the effect of almost £7 billion, as we have already pointed out to the Treasury. This shocked the Chancellor and his colleagues but we have said it is a very real possibility unless we have some long-term strategy planning for the industry".In other words, the establishment of a true common market, with no barriers at all, could be bad for the health of the motor industry.
The report is discretely reticent on the methods which have been used to give the motor vehicle industry such modest degree of protection as it still enjoys. The report is equally reticent on the very large sums of money that have been transferred to foreign motor vehicle manufacturers as a result of the high prices which they are able to obtain in this country. These are not consequences of our entry into the Community. In so far as Community-manufactured motor vehicles are concerned, they appear to be derogations from the conditions of the Treaty of Rome. Nonetheless, I think that the recommendation needs to be looked at a little carefully as regards the motor vehicle industry.
If your Lordships look at the evidence of Mr. Grierson on behalf of the General Electric Company, 635 you will see that he, too, was somewhat reserved about the concept of a truly free common market. I have in mind his answer 390, on page 216. That is my reservation.
I should like to make one broader comment. With regard to many commodities, chiefly manufactures, it cannot be demonstrated that our membership of the Community has made much difference to the patterns of our foreign trade. Some people in this country have been tempted to argue on that basis that in relation to those commodities our withdrawal from the Community would not make much difference, either. That is a non sequitur. What the report brings out is that the patterns of trade are affected by many factors additional to the simple fact of being in, or not being in, the European Community.
Those who have thought with care about the consequences of withdrawal are aware that, after our withdrawal, the subsequent patterns of trade would be influenced not so much by the mere fact of withdrawal as by the trade stategies, and in particular the protectionist policies—if we were to adopt the alternative economic strategy—which we followed after withdrawal, and also by the reaction to our policies of our trading partners throughout the world, and not only within the European Community.
If we were to withdraw, we should be facing problems quite different in nature and in scale from those reviewed in the report which we have been debating tonight, and in my opinion the only conclusion which can be drawn from the report about the handling of a post-withdrawal situation is that we should need eyes on every side of our heads all the time.
My own approach to the European Community is sceptical and beady-eyed. I do not have a very high regard for the institutions of the Community. I follow the historian R. H. Tawney in the observation that institutions tend to develop into parodies of the hopes originally placed in them. But nothing in this report has undermined my belief that we are better off in the Community than we should be if we were to withdraw from it.
§ 8.55 p.m.
§ Lord Hatch of Lusby
My Lords, I must start by thanking the noble Lord, Lord Greenhill of Harrow, for his chairmanship of the committee and the production of the report. I would also express my sympathy with the noble Lord, Lord Lyell, who once again, in yet another debate on economic issues, is having to sit on the Front Bench without the presence of the eager-beaver businessmen who give such support to the Conservative Party.
I should like to take up two points that have been made—first by the noble Lord, Lord Bruce of Donington, and then by the noble Lord, Lord Molloy—about the effect on the Commonwealth that is shown in the report of the changing of British trade as a result of membership of the EEC. But I do not want to pursue that aspect simply on the issue of the Commonwealth, because I should like to pass on from referring to those two noble Lords to what the noble Lord, Lord Ezra, said tonight, as he said it on a 636 previous evening, in a wider context; namely, the effect of British membership of the EEC—and a variety of other issues, too—not just on the Commonwealth but on our trade with the whole of the developing world, indeed with the half of the world market which is at present closed.
The noble Lord will not be surprised if I repeat some figures. I have only one point to make, and it is contained in paragraph 8 of the report. on page ix. The paragraph states:Despite the changes in world trading conditions during the 1970s, certain long-term influences continued to affect United Kingdom external trading patterns in the same fashion as in earlier years, and in particular to promote the exchange of goods with members of the Community. During the 1960s, the importance of external trade relative to domestic output grew steadily; manufacturers accounted for an increasing share of imports; and the share of trade with other industrial countries, particularly the six original members of the EEC, the USA and Japan, rose while that with other developed countries outside Western Europe and with the rest of the world diminished".None of us can be complacent about the situation that we are discussing tonight. Only this week it has been revealed that in the month of October there was a trade deficit—a trade deficit of£269 million. Already in the Autumn Budget Statement the Chancellor had reduced the budget forecast from a forecast earlier this year of a balance of £1½ billion to a balance of half a billion pounds. We now know that in October imports rose by £508 million or 10 per cent. to a record figure, while exports fell by 1½ per cent.
It may be that the Chancellor will achieve his revised objective—revised from £1½ billion to half a billion—but surely the trend is quite obvious and is bound to endanger the economic future of this country for the rest of this century once North Sea oil begins to decline. That surely is the danger to which we should be addressing ourselves and the issue about which we should be asking ourselves when we question what effect membership of the EEC has upon our trading pattern.
I am one of those who for over 20 years have opposed British membership of the EEC, but I have done so on totally different grounds from those of many of my own colleagues and, indeed, Members on the other side of the House. Some of my colleagues have supported British membership of the EEC as an internationalist gesture. I believe that it is the opposite. I believe that it is basically joining a rich white man's club, excluding many of our traditional trading partners who are neither rich nor white.
However, having joined the EEC and bearing in mind that the decision has been confirmed by the electorate—and we must fully admit that, although we are still entitled to criticise the effects of membership of the EEC—it is our job to ensure that the EEC performs its highest ambitions and does not just bumble along on the lowest common denominator. It seems to me that what has happened since we joined the EEC has borne out the fears of many of us that we were cutting ourselves off into a segment—admittedly a big segment—of world trade, but a segment that is circumscribed by the particular effects of the Industrial Revolution of last century which has given us a wealth which separates us from the vast majority of mankind.
There is a certain degree of complacency or limitation in the report which could be overcome by 637 the proposal put forward by the noble Lord, Lord Ezra, for a committee of this House to look into the whole trading pattern of Britain including not only the EEC but also the EEC in relation to the rest of the world. As a member of the EEC I believe that we should be taking a lead. There are others in the EEC who would certainly support us—for example, those who have supported the concept of the Lomé Convention and who want to see the Lomé Convention greatly widened and greatly strengthened.
What in fact has happened has happened not just because we joined the EEC but because we joined the EEC and then removed all restrictions on the export of foreign exchange. That was done in 1979. What have been the results? The results are shown not just in the figures of the report but in the figures which I have given the House previously and which I make no apology for repeating. In the last recorded year the United Kingdom sent 18 per cent. of its exports to the non-oil developing countries. In the same year Japan sent 31.1 per cent. of its exports to developing countries and the United States sent 31.8 per cent.
. Why is there this disparity? Why is Britain with its long, historic relations with Commonwealth countries—previously with colonial countries—so far behind those who foresee that the future prosperity of this country and the people of this country, and particularly the future prosperity of the present generation—the younger generation of this country—depends upon our relations with the world that today cannot buy our goods? Since restrictions on the export of capital from this country were removed, although British domestic capital has increased by only 15 per cent. our outward direct investment in Western Europe—in other words, in our competitors in the developed world—has increased by 700 per cent. That is the kernel of the issue.
If we are to take the report seriously we must expand it—as the noble Lord, Lord Ezra, has suggested—into a whole examination of our export policies, the way in which we support our exports, the markets that we seek in other countries and the manner in which we enable, assist, and develop those markets which today lie fallow before us. We shall then be able to use this valuable report as a starting point rather than as a final document.
§ 9.8 p.m.
§ Lord Kearton
My Lords, it was a privilege to sit on Sub-Committee B under the chairmanship of the noble Lord, Lord Greenhill. We dealt with a complicated subject. We had masses of documentation and masses of statistics, but the noble Lord, Lord Greenhill of Harrow, steered us through this maze with calm efficiency and courtesy which it was really an education to experience. The way in which he brought out the best in all our witnesses was also something which betrayed his long experience in the diplomatic field. It was also a pleasure to be here for the maiden speech of the noble Lord, Lord Kaberry. The noble Lord, Lord Kaberry, was not only eloquent, but he demonstrated by his comments that he had actually read the report. At least, he had certainly read the part of the report which dealt with textiles, and he made some extremely interesting comments on it.
638 It has also been fascinating to hear the different contributions, which have covered most of the points of detail in the report which one might have wanted to bring out. The oratorical styles in this House are extremely stimulating to listen to. Anyone who has come from the very calm atmosphere of business finds the cut and thrust of this House quite startling, although I have reason to believe that the cut and thrust in the other House is even more vigorous. However, in this House it is conducted with a charm and good nature which adds to its effectiveness. Therefore, in my few comments I shall try to use a rather broad brush.
Entry into the Common Market, with the elimination of tariff barriers, was a sensible thing to do. As the committee found, entry did not cause any violent shift in trading patterns. Trends which were already well established were moderately reinforced. The mutual trade between the other members of the Common Market and ourselves has expanded and will continue to expand, and any interference with this process could only be harmful to us.
It can be argued that in some areas our Common Market partners have been more vigorous in opening up our markets for their products than we have been in penetrating theirs. It remains true that nationalistic buying is still in evidence in some key activities, such as telecommunications. Each state in the Community reserves some products for domestic manufacture. It is also true that the dismantling of non-tariff barriers to trade has proceeded more slowly than was hoped, and in this country we maintain a reserve towards the European Monetary System which is deep-seated.
Among the members of the Community, no matter what is sometimes published, there has in effect been little abrogation of national sovereignty. Except in the area of the common agricultural policy, the Common Market is closer to a customs union than a truly common market. As the noble Lord, Lord Ezra, pointed out and as the report makes clear, the real upheavals in trade since our accession have been due to rises in energy prices, to our emergence as an important producer of oil and to exchange rate fluctuations. The high exchange rates of 1980 and 1981, coupled with high interest rates, followed nearly a decade when some branches of industry failed to keep up with overseas productivity achievements and product development. As a result, in the early 1980s there was a scrapping of some of our industrial capacity. There were essential productivity gains in the remaining installations, with the effect that we experienced a rapid fall in manufacturing employment and an increase in total unemployment conservatively calculated at 3 million.
The Government rightly take satisfaction in the fall in inflation since 1979, although it is still higher than is the case with some of our competitors; they take pride and satisfaction in the fall in interest rates, although they are still higher than is the case with some of our competitors; and they take pride and satisfaction in a recovery in output at a rate which, for the moment, seems rather better than that of some of our Common Market partners, although total output is only just regaining the levels of 1979. The Government also point out that investment has begun to show 639 some improvement, although it is still below the spending of a few years ago.
It was obvious to the sub-committee that trade with our partners in the Common Market was subsumed in the larger question of our general trading competitiveness, and here, as various Members have said tonight, the outlook gives cause for some anxiety. As the noble Lords, Lord Ezra and Lord Hatch, have pointed out, we are currently propped up by the North Sea hydrocarbons. Gross oil exports amount to £12 billion a year and net exports—a direct contribution to balance of payments—to £6 billion a year. We are 70 per cent. self-sufficient in natural gas, saving us about £3.5 billion a year in equivalent imports. Yet, notwithstanding these advantages, we shall this year be running a deficit on visible trade of about £2 billion, which the estimated surplus on invisible trade of about the same amount will just about balance. The handsome surpluses of 1981 and 1982 will have vanished.
The pound sterling is currently bumping along at a rate against the dollar which is around the all-time low. Its rate against a relevant basket of currencies is also faltering. A low value of the pound makes imports dearer and exports more competitive, and in the past three to four years there is no doubt that our remaining industry has become leaner, fitter and more competitive than it was. Yet the experience this year is that imports, in volume, are 6 per cent. up on last year and export volume has hardly changed. As has been widely publicised, we have this year failed to match manufactured imports with manufactured exports. We look to a deficit of £3 billion or more. The graph of Chart 3 on page xx of the sub-committee's report has taken a sharp plunge downwards. The recent survey report of the CBI does not give much hope that the graph will show a reverse trend in 1984.
One of the good effects of the common agricultural policy, aided by the efficiency of our farmers, is that we are now more self-sufficient in food than for ages past, and that food imports now form not much more than 10 per cent. of our total import bill. Even this is about half covered by food and beverage exports. It is manufactures which dominate the visible import bill. They represent about 70 per cent. of the total. The deficit on motor vehicles and motor vehicle components will reach a record this year—over £2 billion. Without the rescue of British Leyland it would have been far worse.
Besides helping to finance our imports, North Sea resources also prop up the tax revenues. The total take from oil and gas this year will not be far short of £10 billion—about 8 per cent. of Government spending. To keep taxation within tolerable bounds—although industry would not agree that, so far as they are concerned, the bounds are tolerable—the Government are also selling off sundry capital assets. Without the windfall of North Sea revenues, the situation would be unsustainable.
But we all know that in the North Sea we are rapidly using up assets which cannot be replaced. It is an extractive industry. Extraction rates are now at, or near, their peak and will only be maintained at such levels for another two or three years. There seems 640 bound to be a contraction before the end of this decade, accelerating in the next decade, so that we could be a net importer of energy within 10 years.
How shall we cover such a shortfall? It seems most unlikely that it will be by growth in the surplus on invisibles. The evidence of the sub-committee of the Committee on Invisible Exports was not very encouraging in this regard. The competition in international services is growing, just as the competition in manufactured goods has intensified.
We have a time bomb ticking away in the exhaustion of our North Sea assets. We need to increase our manufacturing strength, along with our manufacturing competitiveness. I strongly support the call made by my noble friend Lord Ezra three weeks ago and again today, and reinforced by my noble friend Lord Hatch, for a wide-ranging inquiry by a select committee on overseas trade in its totality. It could be—I say it could be—that a Government policy of benevolent neutrality in trade matters is not a sufficient policy to carry this country successfully through the transition from an oil exporting to an oil importing country.
If we are to maintain, and indeed increase, living standards and services in this country, it is difficult to see how this will be done without a big increase in efficient manufacturing capacity. The noble Lord, Lord Sieff of Brimpton, recently gave in this House some examples of such developments which his own company had inspired. We must find a way of encouraging other commercial and industrial managements to think and act in the same constructive way.
A select committee could explore all possibilities dispassionately on a non-party basis, and hopefully reach conclusions with positive recommendations which would bite. If we do not start expanding once more the manufacturing facilities of this country, and start immediately, then the time bomb of the North Sea assets will assuredly blow us off course, and blow us off course in a way which will make the recent recession but a minor happening in comparison.
§ 9.18 p.m.
§ Lord Kilmarnock
My Lords, we are all grateful to the noble Lord, Lord Greenhill of Harrow, for introducing this valuable report with his usual lucidity and objectivity. I was a member of his sub-committee but I am afraid that other pressures did not allow me to be as regular an attender as I should liked to be, and it is more as an outsider than as a member of his team that I shall address myself to the report.
First, let me say how much I welcome the contributions of other noble Lords not associated with the sub-committee who have spoken so effectively this evening. The reports of the European Scrutiny Committee, as we all know, are often—and rightly—of a rather technical nature, and this tends to limit the debates on them to those closely concerned in their preparation. On this occasion the importance of the theme has attracted several noble Lords from outside the inner circle of the sub-committee, and this has added weight and breadth to the debate. I think particularly of the speech of my noble friend Lord Ezra, to which I shall refer later.
641 I particularly enjoyed Lord Rhodes' reminder that it takes 40 years for real shifts in human behaviour to take place; but do we have 40 years to complete and extend the market? It is a matter of common knowledge—and indeed the noble Lord, Lord Greenhill, said as much—that this report was originallay designed to give objective guidance to those striving to make up their minds whether Britain would be better off inside or outside the Community. It was impossible to set up any accurate yardstick of what would have happened had we not joined when we did. That remains forever in the realm of speculation. But the sub-committee looked painstakingly at the subsequent experience sector by sector, and concluded that in most cases membership had reinforced trends that were already established prior to membership. In the words of Dr. Shepherd of the University of Sussex in his submission,the gravitation of British trade towards EEC partners clearly predates British membership of the EEC, and was the consequence of GATT trade liberalisation, combined with the "pull" of high economic growth in the EEC".This may make membership sound rather peripheral, but it does not mean we could have gone our own sweet way with better or even comparable results from outside the Community's garden wall. Though entry may have had fewer so-called dynamic effects than we had hoped for, there can be no doubt that the effect of withdrawal would be, or would have been, extremely adverse. This is quite clearly brought out in the report's summary of conclusions in paragraph 103(iii) where we read that witnesses,were almost unanimous in stating that withdrawal from membership would be damaging to the future well being of British industry".That was also the conclusion of the electorate at the last general election, even though they did not have the benefit of the report. Does this mean that we can put Lord Greenhill of Harrow's book—for book it is—upon the shelf? No, it does not. It is obviously true that the report, in so far as it aimed to clear our minds over continuing membership of the Community, has been overtaken by events. But there is a great deal more to it than that because it is, after all, not only about trade with the Community, but about trade patterns with the world at large subsequent to membership. The noble Lord, Lord Brimelow, stressed that the phrase was "subsequent to" and not "caused by". Both the body of the report and the appendices are packed with extremely interesting data and opinions which deserve further study and leave us with much food for thought.
It emerges from paragraphs 15 and 102 that fluctuations in the exchange rate are seen as making a far greater impact on trade performance than the removal of relatively modern tariffs that came with membership of the Community. I quote:witnesses repeatedly stressed the importance of the rise in sterling, and its deleterious effects on their business".But it is not only the rises but the violent fluctuations that cause havoc here. This is a point to which I shall return.
It also emerges from paragraph 23 that:One of the outstanding features of postwar economic development in major industrial countries has been the increasing importance of trade as measured by the ratio of foreign trade (both exports and imports) to domestic output".642 This is presumably a result of the rapid growth of EEC intra-industry trade in the 1970s to which our attention is drawn again by Dr. Shepherd on page 358. It means that the profile of products exported is coming more and more to resemble that of products imported. This appears to be accompanied by the growth of intra-firm trade as a result of the growing importance of multinational corporations in manufacturing investment.
Dr. Shepherd then wrote:This evidence of a rapid and profound change in the United Kingdom's rÔle in the international division of labour—particularly associated with increasing trade in the EEC (though the US and Japan are also important)—needs further consideration".My immediate response is, "You can say that again!" It certainly seems to me to reinforce Lord Ezra's plea for a committee to consider these matters further.
Taking exports alone let us consider the Treasury's economic progress report No. 152 of December 1982, table 1. I have it here. We find that exports as a percentage of GDP have risen for the United Kingdom from 20.2 per cent. during the period 1960–66 to 28.8 per cent. in the period 1974 to 1980. To a layman this would seem to show that while our share of the world export market was halved in the past 20 years, our dependence upon exports has increased. Your Lordships might say that is fine provided that we can keep our current share, but one finds in the same Treasury tables that the ratio of exports to GDP has increased in France, Germany and Italy by roughly comparable percentages. We therefore are not the only people in the world—as we seem sometimes to imply—who depend on a high proportion of exports.
If this level of activity is to be maintained providing opportunities for all it seems axiomatic that world trade will have to expand. If we are locked into a mutual trading arrangement in Europe, valuable though it may be, even if the volume and speed of inter-change of those goods remains at the present level, we shall be extremely lucky to maintain even our present reduced share of world trade, unless there are other markets coming on stream. Lord Greenhill of Harrow's report is also suggestive here. At paragraph 89 we read:Our trade with non-industrial countries still consists principally of the exchange of exports of manufactures for food, raw materials and fuels, despite the increasing flow of manufactured exports from the 'new industrial countries"—that is, the much feared NICs.—"who are included in this group. By its very nature United Kingdom trade (or that of any other industrial exporter) with the non-industrial world generates a substantial export surplus on manufactures, just as it produces a deficit on food, raw materials and fuels".This is admittedly the milk of pure classical theory on the international division of labour, but does it really reflect what is happening? The developing countries are obviously very important to us but if they cannot enter the world market neither we nor they will benefit. All your Lordships, I am sure, are familiar with W. W. Rostow's famous book called The Stages of Economic Growth, from which it is perfectly clear that a self-supporting agriculture with a surplus for export is a vital precondition of economic take-off. If third world agriculture does not get off the ground, nothing else will. Yet we persist with agricultural 643 protectionism and subsidised over-production, to which my noble friend Lord Sainsbury made reference. This has a very damaging effect on tender economies highly dependent on their agriculture and commodity sectors. We clearly need to subject Community policies in this area to very hard scrutiny.
This is not a third world debate and the noble Lord, Lord Hatch, did not turn it into one; but I think it is worth directing your Lordships' attention to the ODI publication, Economic Prospects for the Third World: the 1983 Forecasts by Sheila Page. This, as its name implies, looks at things from the other side of the fence. The developed countries—we and others—take more than two-thirds of the exports of developing countries. It is our external demand which affects the developing countries most directly. By the same token, their imports depend on the purchasing power of their exports and the availability of grants and loans to finance their deficit. Both of these sources are threatened. Transfers from OECD and the OPEC countries have decreased and the median value of forecasts by OECD, IMF and UNCTAD show a decline in the availability of short-term financing while medium-term financing also looks like falling.
Current forecasts of world trade growth are not encouraging. In the slightly longer term the basket of forecasts shows average industrial country growth flickering around 2 per cent. for 1980–85—which is a decline from 2½ per cent. over the period 1973–80 and from 3½ per cent. over the shorter period of 1975–80, despite the oil crises. For the developing countries to achieve a consistent 2½per cent. growth rate, their exports would need to grow by 4 per cent.
Though the World Bank is more bullish than others, the European Community and UNCTAD both suggest that structural factors have permanently reduced normal growth rates, and the United Nations expects "slow growth in 1985–90 because of structural rigidities". The European Community believe that structural change and low investment could lead the European economy into a prolonged period of low growth and even of depression. GATT foresees the worst overall five-year performance for 35 years. None of these things is conclusive. Economic forecasters have perhaps a less good record than political pollsters, but the mood is important and is not without foundation. It does not point to a tremendous upsurge in world trade.
I am sure I have said enough to show that Lord Greenhill's report certainly should not be put on the shelf. It has raised issues which we really must pursue, 644 and I will end my speech by putting four questions to the noble Lord, Lord Lyell. First, paragraphs 15 and 102 of the report both stress the adverse effects of a fluctuating exchange rate. The witnesses were businessmen, not politicians. In view of this and of the debate recently held in our Lordships' House in which a large majority of speakers, and not least the noble Lord, Lord O'Brien of Lothbury, advocated joining the EMS, do not the Government think that the time has finally come to stop shilly-shallying about this? It would be the greatest boon they could possibly confer on exporters, to whose performance they attach such importance. What is the hang-up?
Secondly, what about the export of services? The noble Lord, Lord Greenhill of Harrow, touched only briefly on this, referring to paragraphs 84 and 85 of the report. I do not know if my noble friend Lord Ezra wants to; I hope he does. Annex A of the report submitted by the Committee on Invisible Exports makes interesting reading. The accepting houses do not seem to have done too badly, but what about the British insurers' heartfelt plea for the implementation of the Non-Life Freedom of Services Directive? The droit d'établissement looks very nice on paper but in some areas it is almost meaningless. What plans have the Government to achieve some progress on that?
Thirdly, in view of the forecast I have quoted in respect of developing countries and our trade with them, what steps do the Government propose to take within UNCTAD and other relevant bodies to ensure that the developing countries get a fair price for their agricultural produce and for their other commodities, thus enabling them to pay their debts and to participate to our mutual advantage in the more sophisticated areas of world trade?
Finally, does the noble Lord, Lord Lyell, not agree that the noble Lord, Lord Ezra, has made a very telling case for a committee to study these matters? I think it was the noble Lord, Lord Kaberry, who said that this debate will never end.
§ Lord Kilmarnock
That may be so, my Lords, but it needs a structure, which can only be provided by proper evidence and a proper report. Let us then build on the foundation of the noble Lord, Lord Greenhill, and extend the inquiry into our wider trade relations with the world as a whole. Will the noble Lord take this message to his noble friend the Leader of the House, where I understand it may not find an unsympathetic reception?
§ 9.32 p.m.
§ Lord Stoddart of Swindon
My Lords, I, too, would like to congratulate the noble Lord, Lord Greenhill of Harrow, on his report and indeed on the concise way in which he presented it to the House. I shall certainly deal in a moment with one or two points that he made, but before doing so I should like, with the greatest of pleasure, to congratulate the noble Lord, Lord Kaberry, with whom I have—I hardly like to use the word "duelled"—had some discussions, particularly when we both served on the Select Committee for nationalised industries in another place.
I know that the noble Lord, Lord Kaberry, who has had great experience in many fields—not least in the law, where he has been not only a law maker and law practitioner but a law enforcer as well—is also a man of very keen mind, as indeed we saw from his speech today. I would also say to your Lordships that he is a man of great courtesy—and I say this very sincerely—and also of infinite charm. If any of your Lordships have the opportunity to travel abroad with him on a Boeing 747, or any other form of transport, I recommend it because his charm opens doors which would otherwise remain closed and you getthings that you would otherwise be denied. His charm, as I say, is great and renowned, certainly in another place. His speech in fact referred to the people he has always served and he referred, rightly, to their qualities of resilience and to the capacity of the British people to overcome all difficulties. I agree with him so much. They have always done so in the past, and will do so in the future. The noble Lord said that he would pronounce an open verdict on the report. I can assure the noble Lord that there is no open verdict in this House on his maiden speech. I feel sure the verdict of your Lordships' House is that he made a most significant contribution to the debate and that his future contributions will be very welcome indeed.
As I said, the noble Lord, Lord Greenhill of Harrow, made a concise speech and he made the point, quite rightly, that the high initial expectations of what membership of the EEC would bring have not been realised. The fact is that those expectations were raised far too high and they were expectations which could never have been realised. It is a great pity that more people did not realise that at the time when we went in, or indeed at the time of the referendum in 1975, because then those expectations would not have been raised and the bitter disappointment which so many of us feel now would not be suffered.
I have taken part in many debates about the EEC in a number of places, not only in the other place but out in the country as well. Over the years the debates about the EEC, certainly in another place, have reminded me of the story of the emperor's new clothes. The emperor is stark naked, but the populace will simply not agree that he is. The experts, the tailors and the courtiers told the people that the emperor had on his fine golden clothes. Although people saw that he was naked, they simply did not believe it, because they had been told that he was garbed in great and beautiful raiments. Eventually, a small boy blew the gaff and the emperor was ashamed.
During the debate tonight I have not had that impression. Indeed, the debate that we have had tonight has been a good one. People are beginning to 646 confront the real problems which face this country within the EEC, and it is only by accepting the realities, by agreeing to the truth of Britain's situation within the Common Market, that we shall be able to take the corrective action which is so necessary.
Of course, as the committee pointed out, there has been a shift of imports and exports to the EEC since we joined. That was inevitable. It was bound to happen because, first, there was the removal of tariffs; and, secondly, we lost preference in EFTA, Eire and the Commonwealth. That made us less competitive there. Indeed, because we stopped buying commodities and goods, particularly food, from those areas they were not then in a position to take exports from this country. There was a virtual prohibition of imports of many basic foodstuffs from our traditional suppliers, such as New Zealand, Australia and Canada, which injured their ability to buy from us. Indeed, New Zealand's ability may be injured further because, as the noble Lord, Lord Sainsbury, said, the 87,000 tonnes of butter which they export to this country is now under threat, particularly from the French and the Irish Republic. If they lose those exports to this country, the economy of New Zealand will be decimated. They will be unable to withstand the shock. Once again, therefore, there will be a further shift of imports, because New Zealand will be unable to buy exports from this country.
The central issue remains the surplus or deficit on manufactures with the EEC and the ratio of exports to imports of manufactures in trade with the EEC compared to trade with the rest of the world. Many noble Lords mentioned that issue earlier tonight. We were told before entry that we should greatly strengthen our trading position and that this would offset the high food prices which would come about by entry into the EEC. In fact, the opposite has happened.
In 1970, the year before our application to join, we had a surplus of £1.9 billion in manufactures, at 1983 prices, with the EEC. In the first nine months of 1983 we were running an annual deficit of £7.8 billion in manufactures with the EEC. That is a total turn-round of £10 billion, equal to getting on for 1 million jobs. That is the situation which was mentioned by the noble Lord, Lord Ezra, but I fear that his figures, as I thought I heard them, understated the position in relation to the deficit on manufactures. In another place on 16th November, in answer to a Question asking the Secretary of State for Trade and Industry to give the current balance of trade in manufactures for the past 12 months with the rest of the European Community, the Minister of State at the Department of Trade and Industry said:Since the second quarter of 1979 there has been a total deficit on trade in manufactures with the other countries of the European Community of £15.1 billion and a surplus with the rest of the world of £28.7 billion.In the year ending September 1983 there was a deficit on manufacturing trade with the Community of £6.4 billion".—[official Report, Commons; cols. 839 and 840.]The deficit was not £2.2 billion but £6.4 billion. That is an absolute disaster.
§ Lord Stoddart of Swindon
Then I misunderstood the noble Lord, and I hope he will forgive me. His figures were correct for total manufactures, but he has enabled me to emphasise those figures, and I thank him for raising the point. That, therefore, is the real situation which we face. The export-import ratio for manufactures traded with the EEC fell by 40 per cent. to 74 per cent. between 1970 and 1982, while the ratio in the case of other countries fell by only 16 per cent. to 111 per cent.
The latest trade figures are even worse. I have no doubt that your Lordships saw them when they were issued on the 24th of this month. Including oil, the figures looked something like this: in 1981, we exported to the EEC £20,940 million worth of goods and we imported £21,718 million, a deficit of only £778 million. In the year up to October 1983 we exported £21,610 million and imported £24,832 million, a deficit of £3,212 million. And that includes oil. As the noble Lord, Lord Kearton, mentioned, we simply cannot go on like this. North Sea oil will indeed start running out before the end of the decade and, unless we can replace North Sea oil with manufacturing capacity which has been run down over a long period of time, then this country will face a catastrophe.
The situation in relation to trade with the EEC is a dangerous one. It is one that will have to be dealt with and we are entitled to ask the Government, particularly in the light of what the noble Lord, Lord Kearton, said, what exactly they will be doing over the next four years to deal with the situation when North Sea oil does run out and what they will do to rebuild Britain's manufacturing base—because our whole future depends on it, and the employment of our people depends on it.
For example, during the questioning by the committee of witnesses from the CBI, my noble friend Lord Stewart of Fulham asked the CBI about their claim that 2½ million jobs would be at risk if we pulled out of the Common Market. The deputy director of the CBI did not seem to be at all sure of himself, but nevetheless admitted to the view that the Common Market was a net contributor to job creation.
Unfortunately, that question was not pursued, but the committee might have pointed out, first, that only 10 per cent. of manufacturing output goes to the EEC; secondly, that only 5.5 million people are employed in United Kingdom manufacturing; and, thirdly, that we now import £3 worth of manufactures from the EEC to every £2 we export to it. whereas in 1970 we imported from the EEC only £4 of manufactures for every £5 we exported to the Community.
Under those circumstances it is quite impossible, as was claimed by the CBI and indeed by the Government, before the election, that there should be 2½million jobs at stake if we left the Common Market. That is a completely impossible situation. I wish that such ridiculous claims were not made by responsible organisations.
648 If one looks at the position in straight terms of trade, if we came out of the Common Market there would be an increase in job opportunities. But we cannot look at it in such absurd terms and I hope that in future when the CBI—which is a highly responsible body—and the Government make estimates of the results of our terms of trading with the EEC, they will deal with the matter much more responsibly.
For example, on the question of cars alone, I used to represent in another place an area where cars were made—and I can well remember that in 1975, at the time of the referendum, the then chairman of BLMC sent out a letter to the car workers stating that if Britain did not remain a member of the EEC, the British car industry would collapse. As it happened, the British car industry just about collapsed because we did remain in it. As a result of EEC membership, we now import 10 cars from the EEC for every one that we sell to it. In 1970, we imported only five cars for every eight we sold. That again shows the extent of the disaster which has hit our manufacturing industry over the past 10 years. The fact that this House has been prepared tonight to begin to face up to the problems which confront us is, I think, entirely good.
Before I finish, I should like to say a few words about agriculture. The noble Lord. Lord Sainsbury, dealt with that aspect extremely well and put the situation as it really is. When he criticised agricultural self-sufficiency he was absolutely correct; it is bad not only for this country but for the rest of the world, particularly the developing world. So long as there is an open-ended subsidy of agriculture, the disaster of food mountains, the disaster of ruination for so many under-developed countries, will be compounded.
The enormous support given by the taxpayer and the consumer to agriculture grows every year; it is open-ended. It was estimated by Mr. Richard Body, who was then the Member of Parliament for Holland-with-Boston, in his book, Agriculture:—the Triumph and the Shame, that we were subsidising agriculture to the tune of£3,350 million a year; that was in his terms, £13,000 for every farmer in this country. Indeed the consumer and the taxpayer together were subsidising the farmer to the extent of 166 per cent. of the farmer's net income.
That is a nonsense situation because not only is it producing food surpluses, not only is it undermining many of the economies of the under-developed world, but it is altering our countryside, it is altering our environment, it is making use of land for growing grain which ought not to be used for growing grain; we are using grade 3 land and we are trying to grow wheat and grain on chalk land. It is a nonsence; it is a waste of money. It is a waste not only of this country's financial resources but a waste of the world's resources in fertilisers which, because they are in short supply, have their price pushed up, thereby making it not only dearer for us to grow grain but dearer for underdeveloped countries to grow grain as well. It is a policy, frankly, which is hurting the consumer. It is making each family in this country pay £5 a week more for food than they need to. As my noble friend pointed out earlier, it is forcing up unit costs and therefore putting pressure on wages; and that in turn affects our ability to export to the EEC or to anywhere else.
649 This crazy common agricultural policy really has to be dealt with. I sincerely trust that the Minister, when he winds up tonight, will give the assurance that he will at least make it absolutely clear to the Government that we expect firm action to be taken by Britain at the earliest possible moment, at the summit, to ensure that there are fundamental alterations made to the common agricultural policy.
If we spent £3,500 million on investment in manufacturing industry every year we would provide very many jobs indeed. However, when it is suggested that we should subsidise the steel industry, that we should spend more on developing coal in order that we shall have adequate fuel supplies when North Sea oil runs out, or that, through the National Enterprise Board (which has now been disbanded) we should use money for investment in manufacturing industry, we are told that it is not right to subsidise single industries. Yet here we are subsidising a single industry to the extent of £3,300 million per annum. At the same time, we are limiting our ability to compete as we should be competing in the markets of the world.
I have very much enjoyed this debate. I hope we shall have many more of them because I believe the subject of Britain's membership of the EEC and our role in the wider world is something which should exercise the minds of your Lordships on many occasions. As the noble Lord, Lord Kearton, mentioned, I believe that our very future as an industrial country is now at stake. Indeed, if the future of our country is not to he safeguarded in this House, where is it to be safeguarded?
§ 9.56 p.m.
§ Lord Lyell
My Lords, after three and a half hours of a fascinating, closely argued and very detailed debate I should like to start by saying how very useful it has been to have this tremendous opportunity of discussing the pattern of United Kingdom trade since joining the EEC. As I am sure all of your Lordships who have sat through the debate will be aware, all the contributions have been of a particularly high quality. Indeed, the tone was set by the notable opening speech of the noble Lord, Lord Greenhill of Harrow. It is my first opportunity to add my compliments to the tremendous volley of deserved congratulations from all parts of the House to my noble friend Lord Kaberry of Adel on his remarkable maiden speech. As your Lordships have already heard, he has a very distinguished record of service, first as a lawyer in his native county of Yorkshire—a worthy representative of the White Rose—and I understand that at some stage my noble friend served in the Board of Trade. Of course, he has a long and distinguished service to his country, a particularly gallant record during the second world war, and has also served in another place in an earlier incarnation.
The United Kingdom has now been a member of the Community for more than 10 years. It is an appropriate time to look back and to consider what the effects of membership have been. Your Lordships' committee, under the able chairmanship of the noble Lord, Lord Greenhill of Harrow, has produced a most valuable report which will be an important work of reference in years to come. Of course, it contains a most thoughtful analysis of the available information 650 and it reaches useful conclusions which help to explain past events and we believe will provide lessons for the future.
I find it most heartening that almost all the witnesses who gave evidence to the committee considered that membership had, on the whole, been beneficial. That is certainly the view of the Government. Of course, it is equally clear to me that the United Kingdom is now so much part of the Community that it would be disastrous for us to pull out. I noted especially that the witnesses were almost unanimous on that score. The noble Lord, Lord Rhodes, added his support to this particular aspect of the report. The noble Lord, Lord Brimelow, rightly pointed out during the course of his particularly relevant and welcome remarks that the fact that we cannot quantify exactly the benefits of having joined does not make any the less real and severe the damage which would result from withdrawing.
I hope that your Lordships will bear with me if in replying to this debate on behalf of the Government I begin by making a few general remarks on the committee's report. As your Lordships will have noticed, the shift towards exporting to the Community was already apparent in the 1960s. That trend has been consolidated since we became part of the Community. The share of our exports going to the Community has risen from 30 per cent. before our accession in 1972 to about 43 per cent. last year. But the report indicates that the number and complexity of factors which have affected the United Kingdom's trade patterns since we joined the Community are such that it is impossible to unscramble the effects of membership in statistical terms.
We have dealt in considerable statistics this evening, and your Lordships will be aware that any consideration of trade in manufactures between the United Kingdom and the rest of the Community must be set against the background of decline in the United Kingdom share of the main manufacturing countries' exports of manufacturers from around 20 per cent. in the early 1960s to around 10 per cent. today. When North Sea oil began to flow it not only affected the composition of our exports to the rest of the Community and elsewhere but also contributed to a rise in the value of sterling—which many sectors of industry saw as the main factor influencing their competitiveness.
We found the committee's analysis of trade in manufactures interesting, thoughtful and most original. Many of your Lordships have pointed out that before the United Kingdom joined the European Community the balance of trade in manufactures with the Community was in surplus each year. Since then it has gone into deficit. For the rest of the world there was a surplus before 1973 and an even greater surplus each year since. It is therefore maintained that this proves that membership of the European Community has been bad for United Kingdom industry. The report of the committee demonstrates that this view is both superficial and incorrect.
The fallacy in this argument lies in the grouping of the rest of the world as a homogeneous economic entity comparable to the European Community. This is not the case. The rest of the world comprises 651 advanced industrial countries such as those in the European Free Trade Association, the United States of America, Canada and Japan, but it also consists of non-industrial countries. By its very nature United Kingdom trade with non-industrial countries must generate substantial export surplus on manufactures. just as it produces a deficit in food and raw materials. It is therefore quite wrong to include this trade in a comparison of trade with the European Community.
The committee has made a correct comparison between United Kingdom trade in manufacturers with Europe and with other industrial countries. In this comparison it is quite clear that our trade with the European Community has shown a similar pattern to trade with other industrial countries. It could be argued that this comparison of balances of trade is too seriously affected by inflation to be reliable. But a rough allowance for inflation can be made by using such a device as the ratio percentage of exports to imports. The noble Lord, Lord Stoddart of Swindon, among others, raised that topic. The deterioration in this ratio has been less for trade with Community countries than for trade with other industrialised countries.
Such indications, and the testimony of the vast majority, of witnesses who appeared before the committee, suggest that the cause of the difficulties of manufacturing industry lies elsewhere than in our membership of the European Community. Detractors of Community membership would do well to reflect on the fact that this comparison shows that between 1972 (our year before accession) and 1982 the ratio for United Kingdom trade in manufactures with the European Community declined by 27 per cent. and with other industrial countries outside the European Community it declined by 35 per cent.
I hope that the noble Lord, Lord Bruce—whose usual passionate speech I shall have much more to say about—will accept that tonight is not the time to go into all his figures. However, as is always the case in regard to my noble professional colleague, Lord Bruce, and as a normal courtesy, I shall certainly read all the statistics that he gave. I hope that I can digest them.
As the evidence which was supplied to the committee clearly indicates, the experience of the past 10 years or so has produced an almost unanimous view within industry that membership of the Community is crucial to its interests. As one might expect, the degree of enthusiasm differs between industries and also between firms in the same manufacturing sector. We found that spelled out in the 103 or so paragraphs of the report of the committee.
The opportunities which are presented by what many industrialists rightly regard as a major extension of their home market have been most readily seized by companies with positive attitudes to the Community, vigorous marketing strategies, and of course competitive products and prices. These companies have seen membership not as a panacea which would remove the need for competitiveness and effort, but as an opportunity to show that they could use these qualities to conquer new markets in Europe. Government and industry must now build on what such companies have achieved.
652 I should now like briefly to turn to the comments in the report on individual sectors. First, I note, as indeed did my noble friend Lord Rochdale, that the committee praised the "almost uniquely successful record" of the chemical industry. I agree with that comment. I agree also with the views which were expressed by the chemical industry itself on both the beneficial effects on productivity which have resulted from Community membership and the catastrophic results to that industry which would follow withdrawal from the Community.
We should also consider steel and textiles, which are two of our other major basic industries. As your Lordships will be aware, for a number of years these two industries have experienced severe difficulties. How has membership of the Community enabled these sectors better to face the effects of the dramatic decline in steel demand throughout the industrialised world since the late 1970s and the relentless import competition from low-cost textile producers?
In the case of steel—which was once again mentioned by my noble friend Lord Rochdale—there was the three-month strike by the British Steel Corporation in 1980. This had a lasting effect on steel users, who naturally switched to foreign sources for steel. Secondly, and more generally, falling demand for steel has resulted in depressed prices and, regrettably, soaring losses by steel companies. That has not been unique to the United Kingdom, and it has led various countries to subsidise steel production in an attempt to retain their market share.
This trend has coincided with the emergence of a number of efficient and low-cost third country producers. The Community's response has been to take concerted action through the Davignon anti-crisis measures, which are designed to restore the steel industry's competitiveness and viability and to re-establish market stability. As I am sure various experts among your Lordships will be aware, this policy has three strands: first, production quotas; secondly, capacity cuts, the vast bulk of which will in the future fall upon other member states; and, thirdly, voluntary restraint arrangements with third countries. Such concerted measures, from which, I would stress the United Kingdom industry is deriving much benefit, would not have been possible without the Community.
I wish briefly to turn to textiles. We have seen very fierce competition from low-cost textile producers, and this has forced United Kingdom and other Community manufacturers of basic yarns and fabrics to concentrate more and more on producing higher value-added specialities. This rationalisation of product ranges and the concentration of production facilities led to an intensification of intra-Community competition. Of course, until around 1979 the United Kingdom industry sustained a creditable performance, but it subsequently lost its competitive edge in many subsectors. The industrysees the high exchange rates and, indeed, high inflation as the main contributory factors. But of course it is now—
§ Lord Lyell
My Lords, I have to try to reply to the supporters of the noble Lord. If he can retain his patience, I will come to him at the end. I ask the noble Lord to retain patience. In common with most other industries, our textile firms will only prosper if they concentrate on producing products of the quality and the price which customers require.
The report also identified the mechanical engineering sector as one which has not yet succeeded in benefiting from the opportunities of the enlarged home market which is brought about by Community membership. Although of course this sector has made strenuous efforts to overcome competitive weakness by cutting costs, reducing over-manning and improving design, efficiency and above all productivity, I think that many people in the industry would agree that much remains to be done. Of course future growth prospects increasingly lie in the application and exploitation of new technologies and the introduction of modern plants and equipment. Government support schemes will play their part in promoting this process of change.
Various noble Lords who have spoken this evening brought the motor industry into the arena. This industry may at first sight seem only to have reaped limited benefit from Britain's membership of the Community. Although exports to Europe have grown, so too have imports. Helped initially by the dismantling of tariff barriers, imports from the rest of the Community far outstrip our exports. But there is little reason to suppose that imports from the Community would be much lower if Britain were outside the Community. The retention of tariff barriers would have been a greater impediment to British exporters over the past 10 years than to the more efficient continental companies wishing to sell in the United Kingdom.
As is borne out in the conclusions to the report, Community membership has helped to facilitate the rationalisation of the industry on a more European basis, providing vehicle assemblers with greater potential for economies of scale. At this point, I would briefly turn to the component makers in the motor industries. If they are competitive they are able to benefit from increased export opportunities. The Community market is becoming increasingly important for the British motor industry. This has been the only area of real growth.
However, here as elsewhere we come to the word which has featured in at least five of the speeches which have been made in the debate this evening. I am referring to competitiveness. That is the key word. Industry's ability to compete with European manufacturers would have been critical whether or not Britain was a member of the Community. The Government warmly welcome the great strides which have been made by British manufacturers in improving their international competitiveness. Only in continuing these improvements will our industry be in a position to take full advantage of the benefits and the opportunities provided by continued membership of the European Community.
I would stress to the House that the battle for competitiveness is being won. I would remind your Lordships that United Kingdom cost competitiveness has improved by over 20 per cent. since early 1981. 654 This of course reflects lower wage settlements than abroad, higher productivity growth and the depreciation of sterling from its admittedly high level in 1979–80. But there have also been signs of improvements in non-price factors, such as design and reliability, which are a particularly important aspect of the competitiveness of exports.
I should like to touch on investment by overseas companies. Your Lordships will be aware—and it is certainly in the report—that investment of overseas companies in the establishment of United Kingdom-based operations is particularly welcomed by the Government—especially investment in manufacturing industry in this country. According to the last census of production in 1979, only 2½per cent. of manufacturing establishments in the United Kingdom were foreign-owned, but those establishments accounted for 14 per cent. of employment in manufacturing and no less than 22 per cent. of net capital expenditure. In the years 1980 to 1983 we expect some 45,000 jobs to have been created as a result of inward investment.
Of course, the point we should stress is that the great majority of new inward investment in manufacturing is made by non-European companies wishing to establish a manufacturing base inside the large European tariff-free market. In so doing, they produce goods that would otherwise be imported, and they export goods to other Community states. This is a very valuable twofold benefit to our balance of payments in manufactures. The evidence submitted to the committee by industry, the views of potential inward investors expressed to Government officials and of course independent opinion research all agree that our membership of the Community is a key factor in any decision by a non-European company to locate facilities in the United Kingdom.
I think that the question of the common agricultural policy was raised by virtually every speaker in considerable degrees of strength. Of course, we should have to look at the agriculture and food manufacturing industries aided and abetted by the very germane and valuable comments—for which we are grateful—of the noble Lord, Lord Sainsbury. When we do this we are faced—as, of course, the committee recognised—with the problem of assessing the effects of membership without knowing what national policy would have been had the United Kingdom not been in the Community. Of course, it is impossible to say what food prices or, indeed, the costs to the Exchequer would otherwise have been, and, while one can point to trends such as the growth in the United Kingdom's self-sufficiency in food, one cannot simply judge how far this is a result of membership.
However, I would stress two things to your Lordships in this especially interesting area. First, it is a key feature of the common agricultural policy that imports from other member states are cheaper than those from third countries. This has been a crucial factor in the development of trade patterns, leading the United Kingdom to take a higher proportion of its food imports from other countries in the Community.
The other point, which I would stress, is that it is recognised throughout the Community that the common agricultural policy needs an overhaul. A fundamental review is now taking place, with major 655 decisions due to be taken at the Athens Summit in a few days' time. I believe that the noble Lord, Lord Molloy, referred to next year's summit. As he is aware, the Greeks still have the presidency and a summit is taking place in Athens very early next month. I would stress to the noble Lord and to your Lordships that the Government continue to press hard for action on prices and, above all, on surplus production. I hope that the noble Lords, Lord Molloy and Lord Bruce, and above all the noble Lord, Lord Sainsbury, will accept our strong insistence on this.
The question of the internal market was referred to. As your Lordships are aware, this was debated about a year ago and my noble friend Lord Cockfield made a powerful and impassioned reply. In its conclusions, this report calls for Government action on non-tariff barriers within the Community. As my noble friend Lord Cockfield made clear in the debate on your Lordships' very valuable report on internal barriers to trade a year ago, the Government are committed to making a reality of the internal market for goods and services. The Council of Ministers has, for the first time, this year devoted time to purely internal market matters. I believe that this confirms the importance that the Community as a whole gives to freeing trade from those obstacles that remain.
However, I would hope that your Lordships would agree that we must keep the problem in perspective. Forty-three per cent. of our total two-way trade is with our European partners. This suggests that a great deal of trade is already free and open, but, as we have heard from your Lordships—and indeed, we have to admit it—the situation is not yet perfect. We think that a good start has been made on removing obstacles to trade in goods, but progress on freeing the market in services has been lamentably slow. The Government will continue to push for action on both fronts. The noble Lord. Lord Rhodes, might accept that as an answer to his question.
The committee drew attention at the end of its report to the difficulties which were created for British industry by the high rates of inflation which were experienced in this country during the last 10 years, as was so well explained, as always, by the noble Lord, Lord Ezra. The damage which inflation inflicted on British industry and on society in general was substantial, but I am sure your Lordships would join with me in celebrating the fact that the fight against inflation is being won.
Rates of inflation which were up to 20 per cent. and higher are now a thing of the past. There is still more to be done, but I would remind your Lordships, in view of the various friendly noises that are coming from across the Chamber, that even at a rate of 5 per cent. inflation prices double every 14 years or so. From industry's point of view the important thing is that our rate of inflation is no longer widely out of line with that of our main competitors.
May I attempt to cover some of the points raised by your Lordships in the course of this debate. The noble Lord, Lord Molloy, in the course of a wide-ranging speech suggested that the Community might take a leaf out of EFTA's book by making agreements with Yugoslavia and possibly other countries. The noble 656 Lord will be interested to learn that the Community indeed has a trade agreement with Yugoslavia, as with most other countries of the Mediterranean basin. The noble Lord, Lord Molloy, also mentioned the Commonwealth. The Community's Lomé convention with the African, Caribbean, and Pacific states provides a better and freer trade régime between the United Kingdom and Commonwealth countries than existed before we joined the Community.
The noble Lord, Lord Kilmarnock, asked me four questions. I hope I can try to get some way towards them tonight. He raised first the question of insurance services. I am sure that he will agree with us that the industry expects a marked increase in the export of United Kingdom insurance services as and when the services directive is implemented. Any of your Lordships who have enjoyed listening, as indeed I have, to the noble Lord, Lord Bruce, over the years will be aware that this too is one of his especially dear projects. I would hope that this will be relevant to his questions as well.
Although this is bound to be compensated by the import of services from other European Community insurers, we confidently expect that the balance will be in favour of the United Kingdom. The net benefit to the United Kingdom balance of payments is expected to be around £70 million in the first year after implementation of the directive. The noble Lord, Lord Kilmarnock, also asked me about the Select Committee. I certainly could not go any further than any of the remarks I made in the course of the last debate that we had when I was attempting to answer the question raised by the noble Lord, Lord Ezra. This is a matter for my noble friend the Leader of the House. The noble Lord also raised the question of agriculture in developing countries. I shall certainly pass on to my right honourable friend the Minister of Agriculture the germane comments raised by the noble Lord, Lord Kilmarnock.
The noble Lord, Lord Hatch, raised among other things the question of the white man's club. He likened the Community to a white man's club. He mentioned the Lomé Convention. As he and your Lordships will be aware, this provides non-reciprocally duty-free access to the industrial goods of the ACP states. It also provides many other provisions of great benefit to those states: such systems as Stabex, development aid and suchlike. This goes to show that the Community does not shut itself off from the rest of the world.
The noble Lord, Lord Stoddart of Swindon, and others of your Lordships raised the question of access of Commonwealth products, such as New Zealand butter, to the Community. I am sure that the noble Lord will be pleased to know that New Zealand butter imports to the EEC are regulated under quota and the United Kingdom is campaigning particularly strongly to retain New Zealand access to the European Community market.
The noble Lord, Lord Brimelow, raised the point of the motor industry. I was fascinated to read Question 321—the noble Lord mentioned that question—where I found some particularly germane comments. I will not weary your Lordships with them tonight. Perhaps we can all take our copies home and read them with a glass of milk later tonight. The noble Lord, Lord Brimelow, raised the question of non-tariff barriers 657 and the motor industry. Surely the long-term survival of the United Kingdom motor industry depends on its being, above all, competitive and not protected by non-tariff barriers. I drew attention to this in my earlier remarks on the motor industry. I hope the noble Lord will accept that we can also argue that the retention of such non-tariff barriers would be a greater impediment to United Kingdom exports than to the efficient European countries selling their motor cars in Britain.
§ The Earl of Longford
My Lords, I hope that the noble Lord will not think me very impolite if I point out that he has been speaking for half an hour. There is a very important debate to follow and I wonder if he would bear that in mind.
§ Lord Lyell
My Lords, perhaps if the noble Earl would bear in mind that I spoke to his noble colleague. The debate continued for 3½ hours before I rose to reply. I am trying to restrict my remarks, but I hope the noble Earl might just accord me the thought that his noble friends Lord Bruce of Donington and Lord Stoddart of Swindon, though they made germane points, spoke for a total of 53 minutes. I am trying, with the courtesy of your Lordships, to reply. I can see perfectly well; though my sight is getting worse, I can see. If I could get on, I hope the noble Lord will think this is important. I have sat for 3½ hours and I hope the noble Earl will bear that in mind.
The noble Lord, Lord Bruce, in a particularly passionate speech, as always, raised many points. I hope I have covered some of them. I promised to read his comments very carefully and if there is anything I have missed I shall take care to write to him.
The noble Lord, Lord Ezra mentioned the question of competitiveness. I hope I covered that.
I know that it would be convenient and it is the wish of your Lordships for me to conclude my remarks. The importance of the United Kingdom's membership of the European Community cannot be over-emphasised. Besides being the world's largest trading unit the Community is able to play a much greater role in world affairs than any one member state could on it's own. I said at the start of my remarks that 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. and six out of seven of the United Kingdom's top export markets are members of the European Community. While the winds of protectionism continue to blow around the world the United Kingdom's unrestricted open access to this vast market is invaluable.
We have therefore a crucial interest in the development of the European Community as a whole and to improve our position within it by taking full advantage of the trading benefits which continued membership of the Community offers. The Community must continue to move forward by becoming larger, by adopting new policies to promote Europe's development and by removing the remaining barriers which hinder truly free trade between member states. The Community must sort out the internal problems on the budget and on the common agricultural policy which are distracting it from making progress on these other fronts. We look to the 658 European Council in Athens to take the decisions necessary to implement the declaration which was made earlier this year at Stuttgart which spoke of "broad action to ensure the relaunch of the European Community".
§ Lord Hatch of Lusby
My Lords, before the noble Lord sits down, was he aware when he referred to competition in textiles that seven times as many textiles are imported into this country from the developed countries as from the developing countries?
§ Lord Lyell
I was not, my Lords. I shall note the noble Lord's comments with interest and gratitude.
§ 10.30 p.m.
§ Lord Greenhill of Harrow
My Lords, it is tempting to take advantage of the last word, but I will resist it. On behalf of the committee, I would like to thank the noble Lords who have complimented us on our report. The report, I hope, will continue to be useful but tonight it prompted a debate of the kind which we had very much hoped for. I should like particularly to thank the noble Lord, Lord Bruce of Donington, and the noble Lord, Lord Ezra, for the excellent start which they gave to the debate. I did not envy the Minister the task of replying to such a long debate, but he did so with his customary zest and fluency—which sometimes strengthens his arguments and sometimes conceals their weakness.
I leave the debate this evening with two impressions. The first is that some of the wasteful bitterness has gone out of the debate on the membership of the Common Market, and, more importantly, there is a general recognition of the very grave problems which face us which were so succinctly set out by the noble Lord. Lord Kearton. I only hope that this recognition will enable us to work together to try to solve them.
§ On Question, Motion agreed to.