HL Deb 13 March 1985 vol 461 cc209-23

5.11 p.m.

Lord Ezra rose to ask Her Majesty's Government what success is being achieved in the establishment of an effective internal market within the European Community.

The noble Lord said: My Lords, I believe that this is an appropriate time to raise the question of the establishment of an effective internal market within the European Community. Last year much of the time of the Council within the Community was taken up with what appeared to be the intractable problems of the budget and of the common agricultural policy. A start has been made in dealing with those problems and attention has now, rightly in my opinion, been focused on the question of the internal market.

At the Fontainebleau meeting on 25th and 26th June, the Prime Minister said: We must now create the genuine common market in goods and services which is envisaged in the Treaty of Rome". The subsequent nomination of the noble Lord, Lord Cockfield, as commissioner responsible for the internal market gave support to that view.

It is also noticeable that M. Delors, the new president of the European Commission has put this as one of the major objectives in his period of office. It figures prominently in the programme which the Commission has recently submitted to the European Parliament for their work for 1985. It is therein stated that full implementation of the programme for consolidation of the internal market will remain a major objective in 1985.

M. Delors has stated in a speech to the European Parliament that he hopes that by 1992 the internal market will have been successfully and fully established and all impediments removed. I was glad to note that in an article written at a subsequent date, Mr. Rifkind stated that Britain fully endorsed this objective and their only comment would be that they hoped that the date of achievement could be advanced by two years.

Therefore, what is clear is that within the Commission—certainly in the minds of the British Government, and in indeed in the minds of all other governments who have commented on this question—there is a desire to ensure that the internal market is brought into effective operation; so now is a good time to have a look at where that market stands at the moment and what needs to be done to achieve these desirable objectives. May I stress to your Lordships that the stakes for which we are playing in seeking to achieve this are very considerable indeed because the Community at present represents a market of 270 million persons, soon to be increased by some 35 to 40 million by the accession of Spain and Portugal and, if you add to that the associated EFTA countries, there are another 30 to 40 million. Therefore in its size, importance and sophistication it is more than equal to the other major markets in the world and particularly the competitive American market. Anything that is done to mobilise that massive market into a single unit in order to stimulate production, productivity and efficiency and thereby to lead to greater job creation, is wholly desirable.

The Treaty of Rome lays down that the objective within the Community is to create a free market for goods, people and services. So I suggest that we look at each in turn. Where do we stand in that establishment of the free market for goods? At a relatively early stage in the creation of the Community the tariffs on the movements of goods within the Community were progressively eliminated, and now of course they have been eliminated for some time, and a common external tariff was created. But an unfortunate aspect of this removal of the tariffs was the emergence of the so-called non-tariff barriers. These are the barriers of a protective nature which were established or maintained in different countries in order to continue to support and protect their own enterprises in the face of increasing competition from neighbouring Community countries by means of standards, safety regulations and other matters of that kind. Indeed, during the course of last year, a great deal of trouble was created by the difficulties at frontier stations within the Community and this is another aspect of the non-tariff barriers.

It is satisfactory to note—and no doubt the noble Lord the Minister can give us more information when he replies—that a good deal of progress is being made in this field at the present time. So far as standards are concerned, for example, the big stumbling block has been the slow pace at which European standards were created. What is now intended—and I understand according to an article in this morning's Financial Times that the noble Lord, Lord Cockfield, is fully in support of this—is that standards within each of the Community countries should apply throughout the Community so long as the safety elements in those standards are acceptable. This will make a very great difference and will lead to the elimination of what has been for a long time one of the major non-tariff barriers. The Customs formalities are being looked at with increasing vigour since the difficulties at the Italian frontier stations a year ago.

Another aspect of the need to harmonise and co-ordinate within the Community is in the field of research and development. Here, too, the first steps seem to have been successfully taken. There are such projects as the Airbus development, the Esprit programme in information technology, the Jet nuclear fusion programme, and the European Space Agency, which are illustrations of the real efforts now being made to get a European dimension in the higher technological field.

We cannot stop there. The fact is that in many ways the individual European countries are together spending more in developing their technologies than the Americans and the Japanese but getting much less for it because this expenditure is fragmented. It is therefore increasingly necessary that we extend the area in which there can be a co-ordination of research and development and quite clearly telecommunications and bio-technology play a major part in this. No doubt the Minister can tell us something about developments in that connection. Therefore, there is a great deal yet to be done to make sure that there is an effective free movement of goods. There are signs that the problems are being tackled in a practical manner.

Moving to persons, there are still impediments in the free movements of persons across frontiers. Although it has now become easier if one has a Community passport to move around within the Community countries, what still remains to be dealt with is the right of establishment, the freedom to take jobs easily in the different community countries, and above all the acceptance of professional qualifications as between one country and another. The Commission, to be fair, has made many recommendations over the years about the need to get agreement on the acceptance of professional qualifications—for example, medical qualifications. But, so far, the veto has played a large part in preventing, say, British professionally qualified persons, who so wish, from practising in France, Belgium or Germany. It is therefore necessary that further steps be taken in that direction.

When we come to services, I am afraid that the situation is somewhat worse even than in the case of the movement of goods and persons. Here, there has been relatively little progress. On insurance, for example, a Community agreed basis has not been achieved. In Germany, in particular, there are rules still applicable which prevent the free operation of insurance companies from other countries. Steps are being taken to overcome this. It has been regularly referred to, and again in this field there are proposals from the Commission.

The question of mortgages is interesting. Hitherto, it has not been possible for mortgage companies to operate in different countries. British building societies have put forward proposals to get this put right. A recommendation was made by Mr. Tugendhat, one of the outgoing commissioners, at the end of last year, to enable the mortgage arrangements applying in different countries of the Community to be acceptable in all the other countries pending the time when common mortgage arrangements could be arrived at. It seems to me that to proceed on this sort of basis, similar to the basis that we want to achieve on standards and professional qualifications, is a good way forward. I hope very much that it will have the full support of the Government.

Where there has also been very slow progress is in the free movement of capital. This is, or course, due to the fact that some countries within the Community—Britain is one of them—operate a free movement of capital into and out of their shores wheras others operate exchange controls. The free movement of capital is therefore difficult. But the operation of the European Monetary System, debated in your Lordship's House on a question raised by my noble friend Lord Diamond on 5th March, has limited the discrepances between the currencies of the different member countries. This is generally accepted by all who have looked at this question. The increasing emergence of the ecu as a currency in which more and more bank deposits are being made and in which more commercial transactions are taking place shows that there is a prospect, if this trend is reinforced, of stimulating the free movement of capital throughout the Community.

I should like to reiterate, as my noble friend Lord Diamond and myself did in the debate on the exchange rate mechanism, that if Britain is really serious, as I am sure the Government are, about establishing an effective internal market within the Community, one of the most important ways of doing it is to join the exchange rate mechanism and to show thereby that we are fully committed to creating this effective internal market. We would gain immeasurably, I believe, from taking that step. It is our reluctance to do that one thing that still causes doubt in the minds of our continental colleagues.

Furthermore, the City of London is regarded and rightly accepted as one of the three major finance centres of the world. How much stronger would that become if we were fully in the exchange rate mechanism system; if we fully, therefore, supported the movement to the creation of the ECU as a currency that could be built up with the full backing of Western European countries to face up to the dollar and other external major currencies!

I should like to conclude by saying that I believe that the creation of an effective internal market within the European Community is now overdue. It is encouraging to know how seriously this is now being taken particularly by our own Government. Britain has indeed much to gain from such developments, particularly in establishing a free and unfettered market for services in many of which we excel. We also need to, and will, gain undoubtedly from the co-ordination of research and development in high technology.

I believe, however, that we need to give something as well as to gain something. What we need to give is to adopt, at long last, without qualification, the exchange rate mechanism that has been of benefit to those countries that have adopted it by restricting the variations between their respective currencies. This could undoubtedly reinforce the role of our financial expertise and provide greater exchange rate stability in our most important market, namely, the West European market. Above all, it would in my opinion lessen the prospect of the re-emergence of protectionism that tends to rear its head every time economic difficulties arise.

5.27 p.m.

Lord Bethell

My Lords, one has only to walk down an ordinary British high street and look into a shop window, or to venture into an ordinary British supermarket, to realise how much has been done in establishing a true common market between our ten countries. By the same token, though, one only has to be involved in import-export within the Ten, or to be involved in the European institutions that monitor such movement of goods, to realise how much remains to be done. So much has been achieved and trade has expanded to such an enormous level between us that we have now reached, unfortunately, something of a bureaucratic bottleneck. This is shown by the phenomenon of trucks and railway wagons stacked up at frontiers, non-tariff barriers and problems that arise because too much is apparently being moved for customs authorities and immigration authorities to deal with.

This is why I welcome very much the short debate initiated by the noble Lord, Lord Ezra. I hope that this enormous subject that deserves perhaps more than one or two speakers on an Unstarred Question can nevertheless be tackled seriously as a matter of urgency by Her Majesty's Government. We know that the Government set great store by the implementation of a true common market. We know that they agree with the emphasis placed on this matter by President Delors in his speech to the European Parliament a few weeks ago. Ministers point out frequently the undeniable truth that we do not yet have a common market or that we have it only in certain areas and that the conspicuous gap in the Common Markt occurs in the area where this country excels—in particular, the service sector.

The Foreign and Commonwealth Secretary has pointed out again and again the need to establish freedom of trade in banking, insurance, and of course in air travel. The idea that we may have to wait until 1992 to achieve freedom in these areas is very distressing and disappointing. I want to pay a tribute here to the work done by my European parliamentrary colleague, Mr. Basil de Ferranti. I am sure my noble friend the Minister has heard of his group—called the Kangaroo Group—which draws attention to the flaws in the Common Market through publication, meetings, lobbying and careful preparation for the improvements which we hope will come soon.

Examples abound in the publications of that group of nonsenses at frontiers, quotas placed on the movement of lorries from one place to another, the absence of new technology to be used by customs officials in dealing with the forms which are being presented, and the need of some lorry drivers to present as many as 40 documents if they wish to cross a European Community frontier. This is a very far cry from the pledges of President Delors and the hopes of Her Majesty's Government. We must hope that these barriers will be overcome.

Every week Members of the European Parliament receive complaints from traders about problems caused by value added tax, by differential rates and by different rules from one country to another in the imposition and timing of the levying of VAT. All this causes important barriers to trade.

As the noble Lord, Lord Ezra, mentioned, perhaps the most disgraceful elements of all in this equation are the disguised import controls, the so-called health checks, the so-called safety checks on automobiles, the confinement of import points to one airport or seaport. All this is done not to make trade easier but to make it harder, and particularly to prevent imports of one product or another in order to protect the market. It can be done through restrictions on labelling of ingredients. It has been said, whether accurately or not I cannot swear, that, taking a tube of Smarties as an example, the red ones may be illegal in Italy because their safety laws prevent the use of cochineal whereas the blue ones may be illegal in Germany because the particular dye in them is not considered safe in that country. An absence of harmonisation—that dreadful word which is sometimes used in order to criticise the Community—is responsible for hold-ups and barriers which do none of us any good.

I should like therefore to put specific points to the Minister and hope that he can encourage the idea that we are making steps forward and that the 1992 date is at least realistic. Can he tell us anything about the windscreen card—the sticker that can be placed on an automobile windscreen travelling across the European Community frontiers whether on the Continent or arriving at Dover? It would permit a car with its passengers and goods to travel without let or hindrance subject only to spot checks by immigration and customs officials. I understand that this has been proposed by the Dooge committee. Can the Government say whether or not it will be accepted?

I should also like to draw attention to a red herring, a false trail which is sometimes laid in the discussion of this matter. I refer to the twin scourges of terrorism and drug abuse. Whenever we talk about dismantling immigration or customs control we naturally hear cries of protest from those who believe that it will increase the danger from terrorism and drug abuse. I should like to turn that argument on its head and say that an increase in European co-operation, and an increase in the pooling of information and intelligence through the Pompidou committee on drug abuse and through other institutions yet to be set up on terrorism, would be a positive act by the Community to stamp out those two evil activities. It is surely not beyond the wit of human invention to make our Community an extra shield against terrorism and drug abuse instead, as some people do, of using them as a pretext for saying that we cannot dismantle controls on frontiers.

I do not believe that the average terrorist or drug-pusher is particularly deterred by checks at frontiers. What we need, I suppose, if we are to stamp out those two evils, are more checks at other places: within cities or within places where the terrorists or drug pushers work. The frontier may be purely incidental to this. After all, a criminal makes very careful provision if he is crossing a frontier and the time to catch him is when he is off guard, not necessarily when he is going through a frontier well-prepared and well-armed with forgeries and ready to deal with any danger which might arise. I hope that the Government will be able to indicate what they are doing in these two areas.

I should like to turn briefly to a point raised in the previous debate: the problem of criminals from this country taking refuge in other European countries. We have problems with one member country (the Irish Republic) and in one applicant country (Spain). I believe it would be absurd if Spain were to join the Community and were at the same time to remain a place of refuge for people wanted in this country on criminal charges. There must surely be "free movement of criminals", if one may call it that, as well as free movement of goods between Community countries. If they are wanted in Britain it must be possible to remove them from Spain or anywhere else, and the idea of taking political asylum in another Community country must be the ultimate absurdity.

I should like to conclude by adding my voice to that of the noble Lord, Lord Ezra, who moved this debate, and others, on the question of the European Monetary System. The noble Lord, Lord Ezra, is quite right, and those of us who spend a lot of time on the Continent will fully realise that he is quite right to stress the political importance of this country joining the EMS as soon as possible. It is seen very much by our colleagues as a litmus test; an earnest of our good intent in the European Community. Sadly, not everyone on the Continent believes that we in Britain want a true European Community. Many people there believe that all we want is some sort of a free trade area and they see Britain's commitment to Europe as being something less than wholehearted. Sadly, they quote the very poor turn-out in last June's European elections as evidence of Britain's general lack of enthusiasm for and interest in the European enterprise.

I know that the Government want a true common market, true European political co-operation and closer European unity. But there is a crediblity gap, and, spending as much time on the Continent as I do, I believe that our credibility will live and flourish there if we join fully in the European Monetary System. I hope very much that we shall do so. I have emphasised the political reasons for doing so; there are, of course, financial and economic reasons as well.

If this can be done, I believe that we shall make progress over the areas which are emphasised by the Foreign and Commonwealth Secretary in drawing attention to the need for a common market in services. Britain would make tremendous gains and profits if this could be done. There are trade-offs in Europe. I believe that if we were to join the EMS there would not be a straight trade-off for the common market in services, but it would be so much easier politically for Continental leaders to concede these points and give a common market in services, which would be greatly to Britain's advantage. Therefore, I look forward very much to my noble friend's answer to these points. I know that they are being studied very carefully and in great detail by the committee under the chairmanship of the noble Baroness, Lady White, so this debate is only one of many that will take place on this vast subject. It is one of the most important areas of parliamentary concern. I look forward to what the Minister will say, and I am grateful to the noble Lord, Lord Ezra, for introducing the debate this afternoon.

5.42 p.m.

Lord Rhodes

My Lords, may I intervene very briefly without having my name down to speak. I have just returned from Australia, where I have had several weeks of discussions of all kinds. One of the main requests to me was that for information about our progress in the Common Market. I think that we are treating our old trading partners very badly. We are far too insular and far too inclined to look inwards. We should be telling our old partners precisely why we went into the Common Market and what progress we are making. I implore the Government to get the Central Office of Information, or whoever it may be, to disseminate this information as soon as it can possibly manage to do so.

Last year we on Sub-Committee D on the EC investigated the question of motor-cars. It was stated at that time that the EEC's new regulations were aiming at preventing car prices from differing by more than 12 per cent. from country to country. This is a prime example of how it is not a common market. I want to make a plea for the firming up of the regulations which were aimed at preventing car prices from differing since the time we debated this question last year. Motor-car manufacturers' profits and losses must not be the only criteria in assessing the benefits of competition in the EC market. Lower prices for cars would increase the real income of most households in this country, and the consequential increase in spending power would, in turn, mean more consumption and so lead on to more output and more jobs.

High prices have attracted importers to the British bonanza. Surely, whatever the exact size of British Leyland's loss, it is the height of folly to subsidise that company by rigging the whole of the British car market, and incidentally helping British Leyland's competitors more than British Leyland itself. What is happening is that practically every car the Japanese make and distribute in this country—one of the most lucrative countries in the world to sell in—represents an extra subsidy to the Japanese so that they can modernise their factories. Would it not make more sense to pay the subsidy to British Leyland out of taxation and thus enable the British consumer to get his car at a fair price? Sooner or later we shall have to do it. Why not now?

As matters stand at the moment we can expect more and more cars to be imported. Our car industry is not big enough to cope with the world's great giants any more. There will have to be a subsidy for motor-cars. Why not make it a direct subsidy? That is all I wish to say. This debate has given me an opportunity to get this off my chest. I have spent a lot of time on it in the sub-committee upstairs. I should like to know what progress has been made towards making a better common market for motor-cars. Sooner or later we shall have to do it, and it might as well be now.

5.46 p.m.

Lord Barnett

My Lords, I, too, should like to congratulate the noble Lord, Lord Ezra, on raising this most important topic. I am glad that my noble friend Lord Rhodes was able to give us a few words, using his own long experience in industry and trade. I want to make it quite clear that I am only too well aware of the problems that Ministers have in making progress in this area. Anybody who has attended Council of Ministers' meetings would not wish to criticise a fellow Minister, or a successor Minister, for not having made progress. In those days it was not even 10 Ministers. I am very much aware of the problems, and I do not want to say to the Minister or the Government that they are to be seriously criticised because we have not got a fully integrated market at the present time. The noble Lord, Lord Bethell, talked about bureaucratic bottlenecks. I wish they were only bureaucratic, but I fear it goes rather deeper than that, as I am sure he will agree. Indeed, he gave examples where the problem clearly goes much deeper and goes, unfortunately and sadly, to the root of political decisions made in member countries.

I must say it has been a pleasure that in this brief debate we have got away from the sterile arguments we sometimes have when we debate the Common Market, whether one is pro-market or anti-market. I see that the last time this matter was debated in this House, on 13th December 1982, my old and trusted noble friend who years back served (if that is the right word) with me in the Treasury was once again seeking to blame the Community for most, if not all, of our industrial problems; although I am happy to say that on that occasion even he was willing to recognise—I quote him—that: the EEC can hardly be held responsible for our present troubles any more than can the world recession, which is another favourite excuse of Ministers".—[Official Report, 13/12/82; col. 423.] So even my noble friend Lord Kaldor, on that occasion, having quoted some of the figures of trade between 1973 and 1981, was willing to recognise that the problems are not ones relating to making the case for or against our membership of the Community. The fact is we are members, and I would hope that all of us would want to see it work as well as possible, not only in Britain's best interests but in the interests of all the people of the Community, particularly workers in the Community and in our own country who are now unemployed but who would not be unemployed if we had a more integrated market.

Having said that, I should like to say that it is obvious, as the noble Lord, Lord Ezra, said—the noble Lord, Lord Bethell, also made the point very clearly—that we do not have a fully integrated market. Both noble Lords gave examples of the lack of progress. In view of the lateness of the hour I shall not mention some of those I had in mind, because I should only be repeating the points they made. I know that the noble Lord, Lord Ezra, will understand if I do not repeat them. I think the major case was made very well in the report of our own Select Committee in the Session 1981–82—the seventeenth report.

The part to which I was particularly attracted is contained in paragraph 66. There the committee said: The main common feature of all the various types of barriers to free trade in the internal market of the EEC is uncertainty". Anyone who has had anything to do with trying to export to the Community—and I have had a little experience and know of many others who have had greater experience—will know that one of the main reasons companies decide not to bother any more in the case of some countries is the certainty that they will have great difficulties in getting through the barriers that are put up against them. It is that certainty, and the uncertainty in other cases when companies know that so many problems will be put in their way and so many barriers of one kind or another will be erected against them, that makes traders in this country say "What the devil, I might as well look elsewhere".

I do not wish to take up the points made by the noble Lords, Lord Ezra and Lord Bethell, about the EMS and the exchange rate mechanism. I think that I have upset my own party enough for one week and so I shall not repeat my arguments on that front—they are well known. The noble Lord, Lord Bethell, said that there is a lack of credibility as regards Britain among member states of the Community. I do not think that we need to be too defensive about that because there are many member states other than Britain who put up real, practical barriers of the kind to which the noble Lord referred. When those member states criticise us for not wishing to be in the EMS—and in my view it is wrong that we are not in the EMS—we have a good reply for them. We can say that they, too, should learn to be purely communautaire in their actions, rather than use words in relation to the barrier which they actively support in their own countries to prevent a truly free trade across borders.

One of the useful comments that I noticed from the last time that we debated this subject on 13th December 1982 was that the noble Lord, Lord Cockfield—who, incidentally, should now be in a position to do something about this, always assuming that the Council of Ministers will enable him to do so—said, when referring to the 17th Report of the Committee of this House, that he was hoping to see real progress before the end of March 1983. I suppose that as Minister one has to be reasonably optimistic. However, that is perhaps stretching matters a bit; it is now two years later, and there is still much progress to be made.

Ever since that debate we have been told in successive Answers to Questions both in this House and in the other place that, to use the phrase used by the Minister of State Mr. Channon in another place in December 1984, "We shall continue to press", and again in February 1985, "We hope to see this or that in operation very soon". I hope that tonight the Minister will give us some concrete examples as to where some of this progress is in operation now.

In your Lordships' House we should also be aware that not only Ministers and politicians are at fault for the lack of progress in removing barriers to trade, goods, services and people. My own profession, the accountancy profession, and many other professions will find many reasons to put barriers in the way of preventing freedom of movement across frontiers. There are many in industry who complain bitterly about the problems that arise from the barriers that are imposed, who will also bring pressure to bear on Ministers and politicians not to be too quick to remove barriers because they would regard that as damaging their particular industry. Therefore, it is not only politicians and Members of this House who should be taking all the blame; there is plenty of blame to be attached to others, too.

When the Minister replies perhaps he will give us his own realistic assessment as to when he sees some of the specific barriers to which reference has already been made this evening being removed. Above all, perhaps he will give us some indication as to how soon the Council of Ministers—because at the end of the day it is the Council of Ministers rather than the Commission which will have to take the real decision—would hope to see a realistic end at least to some of the uncertainties, so as to enable us to move more freely into the area of true integration in trade, services and persons, which would do so much to help us in Britain, particularly in the field of employment.

5.55 p.m.

Lord Brabazon of Tara

My Lords, first, I must apologise for the absence of my noble friend Lord Lucas of Chilworth, who otherwise would of course have been answering this Unstarred Question. My noble friend is away in Germany and Switzerland promoting trade and inward investment, and I am sure that all noble Lords will hope that he is successful.

We are all grateful to the noble Lord, Lord Ezra, for raising this important question. As the noble Lord said, the time is most opportune. Negotiations are being completed for the entry of two more democracies, Spain and Portugal, into the Community, which will increase the Community's size to 320 million people—a very powerful market base for industry. We also have in Brussels a new Commission who have made it clear that the completion of the common market in both goods and services is their top priority.

It is a priority which the Government share. Behind the Community's common external tariff wall is a single market which offers industry a basis to develop its international competitiveness, and which offers the consumer a much greater breadth of choice. The Common Market is much more than just a free trade area, and I should like to touch further on that theme in a few minutes. But I shall first briefly cover our trading performance and prospects in the Community.

Our deficit with the rest of the Community in manufactured goods has come in for a considerable amount of comment recently. Although our deficit on visible trade was offset by a roughly similar surplus on oil, it certainly points to the scope that exists for increasing our exports of goods to the rest of the Community. And there is, indeed, encouraging evidence that British exporters' attitudes towards the wider Community market are changing. United Kingdom exports to the rest of the Community began to rise strongly towards the end of last year—and that was happening before the recent fall in the exchange rate, which should give a further edge to our price competitiveness in most European markets.

These markets are of course of increasing importance to United Kingdom exporters; 39 per cent. of United Kingdom exports of manufactures now go to Community countries compared with 29 per cent. in 1970. Despite this very considerable realignment of our trade towards the Community, the common market can seem very far from being just an extention of the domestic market.

Part of the problem is that of catering for different consumer preferences and in different languages. Those are the facts of business life which United Kingdom industry has to master in order to sell in Europe. I do not believe that if you build a better mousetrap, the world will beat a path to your door. Industry itself has to get out and sell it in terms that make sense to the consumer. Government can only set the right business framework.

In terms of this framework, doing business in the Community internal market is less straightforward than it should be. Differing national standards and regulations, form-filling, transport permits and frontier delays all add to industry's paperwork and costs. Surprisingly little of this is protectionist in intent. It is largely the accretion of decades of national administrations collecting taxes, trade statistics or MCAs, or responding to legitimate preoccupations about the safety and health of employees and consumers, in their own way. It may produce a system which suits each national administration, but can make life much more difficult than is necessary. Your Lordships' Select Committee on the European Communities produced in 1982 a most helpful and sober assessment of these detailed barriers to the internal markets and so I shall not detain your Lordships further with the problem.

In terms of a solution considerable progress has been made over the last two years. Heads of Government in December 1982 set the Council of Ministers a number of tasks on the internal market. I am pleased to say that most of these tasks have now been discharged and the results, starting to come on stream this year, should be seen in terms of reduced goods delays at borders, simpler and less paperwork for traders and much fewer of the sudden changes in national regulations which can be so disruptive to exporters. All of these are welcome assistance to industry and free of the annoyance of "harmonisation for its own sake".

That is by no means the end of the task, however. Noble Lords will know well the imaginative and forceful character of the noble Lord, Lord Cockfield, the new commissioner for the internal market. He has made an energetic start. At their February meeting, the Council of Ministers considered a Commission proposal for a much faster and more effective means of removing barriers to trade caused by differing national regulations or standards, as the noble Lord, Lord Ezra pointed out. It rests on the simple premise—embodied in the European Court's Cassis de Dijon judgment—that other things being equal if a product is safely marketed in the United Kingdom its exporters should be able to market it without further ado in Germany, France or wherever. And vice versa. In other words, that there is much less difference in member states' objectives for health and safety than the differences in techical solutions to these objectives would appear to suggest. Of course, if national standards are in principle to be equally valid there need to be safegurds to ensure that the level of protection for consumers and employees is not undermined. The United Kingdom has worked closely with the Commission in developing the detail of this initiative and strongly supports its general direction. The new Commission are also giving high priority to liberalising trade in services in the community which, again, we fully support.

Our objective is to see the City of London as a major financial centre in an increasingly integrated market, enjoying so far as possible freedom to provide services throughout the Community without needing to establish abroad. The Community market in financial services is at present far from free. The rights of establishment and particularly of services are extensively nullified by national regulations, and the free movement of capital is restricted by national exchange controls. I do not underestimate the real problems here in reconciling member states' differing approaches to the regulation of financial and other services; and the legitimate preoccupation with protecting the investor has to be taken very fully into account. But the obstacles to a free market in goods must have seemed just as daunting in 1957; so the challenge is not an impossible one.

The Government will continue to press for a liberal market in non-life insurance, unit and investment trusts and accountancy services. We shall look sympathetically at proposals—as a modest first step—to liberalise non-frontier housing finance in the Community. We have recently received a proposal from the Commission for a directive on freedom of establishment and services in the field of mortgage credit, which the noble Lord, Lord Ezra, mentioned.

I do not want to prejudice the consideration which a sub-committee of your Lordships' Select Committee on the European Communities is currently giving to these proposals, but I hope that we can match the positive interest in cross-frontier business being shown by the building society movement with the Government's strong support for internal market measures which will bring competition and practical help for the ordinary citizen. I hope that we shall be able to work out a good directive on this subject.

We shall press the Commission for increased vigilance on the severity and duration of national exchange controls. There have been some encouraging signs, albeit minor as yet, towards a relaxation of exchange controls in some member states—and we of course have played our part in full—and of moves towards a more integrated capital market for industry with the rapid growth of the Eurobond market and the private sector's lead in developing further the role of the ECU.

Our support for the concept of the free movement of goods, services and capital also extends of course to free movement among the professions. A number of Community directives have already been adopted to ease freedom of movement in jobs and professions. In the medical field for example there are directives permitting suitably qualified doctors, dentists and nurses to practise in all member states. These recognise the key importance of maintaining standards of training which guarantee the preservation of member states' qualities of health care. Subject to the same general proviso that professional standards must be maintained, the Government would like to see continued progress in Community work on the rights of establishment for the professions; for example, through agreement on suitable directives on accountants, pharmacists, architects and engineers. Our own professional standards in these and other fields are a matter for pride, and our professions should benefit to the full from the Community internal market.

I should not like to mislead your Lordships' House that the creation of a genuine internal market is simply a matter of completing unfinished business. In democractic societies there will always be fresh pre-occupations to which governments have to pay heed. The Community faces such an issue at present with the very real environmental and political problem faced by German criticism about damage to her forests. Part of her response is to require the introduction of American emission technology on cars. That risks erecting a new and potent trade barrier to an already hard-pressed European motor industry in requiring a separate production run for the German market.

The Community is urgently engaged in finding a common solution which gives a radical environmental improvement but one which makes sense in terms of European technological development, is effective in its use of Community resources and does not harm the international competitiveness of a key European industry. For international competitiveness is what the internal market is about—free competition as a spur to the increased efficiency which we need in today's harsh world, and free opportunity for industrial co-operation.

In the industries of the future particularly, European firms are at some risk of being overtaken by American and Japanese multinationals. That is why the Government have strongly supported efforts in the Community to give a cost-effective pump-priming stimulus to common research effort as the noble Lord, Lord Ezra, mentioned—and the ESPRIT programme is a good example—and to establish common industrial standards for information technology, telecommunications and robotics. These prevent wasteful duplication of research effort, and to enable European firms to match their area of specialist expertise to create a broadly based set of products to compete with Japan and America. This is important too for users of these products. General Motors in America has shown what can be done to improve efficiency by linking "islands of automation" in their factories. European users cannot afford to miss this chance, either.

My Lords, the Government attach the highest importance to ensuring that industry keeps to the forefront of technical developments. The challenges presented by the new technologies are now so great, the pace of development so fast, and the cost of research so high that no one country can be expected to face them alone. The Community therefore plays an important role in supplementing national R & D efforts by providing a framework in which member states' resources can be pooled together. For this reason the agreement reached by the Research Council held on 19th December 1984 to commit a further 1,225 million ecu—approximately —736 million—towards Community R & D activities for the next four or five years is to be welcomed.

The research council also succeeded in agreeing a number of important new programmes—radiation protection, radioactive waste management, fusion, biotechnology, the stimulation of S & T interchange, basic research in industrial technologies, third non-nuclear energy, reactor safety, and European strategic research and development programme in international technology, which I have already mentioned.

Those accord with our perception of Community R & D in that it should be in appropriate areas and be cost-effective. In general, United Kingdom priorities for future Community R & D remain as research aimed at the efficient management of energy resources and enhancement of the Community's industrial competitiveness, of which the Esprit programme is an excellent example.

The noble Lord, Lord Ezra, my noble friend Lord Bethell, and the noble Lord, Lord Barnett, mentioned the European monetary system. This is the first time that I have spoken on the European monetary system, but I suspect that noble Lords will probably have heard before the answer I am going to give. The Government accept that EMS has contributed to exchange rate stability in Europe and furthered European integration. It is said that the United Kingdom will join the exchange rate mechanism when conditions are right. However, while the oil market remains volatile sterling may be subject to special pressures which would make our participation difficult.

My noble friend Lord Bethell mentioned air transport. We all recognise the efforts which the noble Lord has made to give people better and cheaper air services in Europe. The Government are doing all they can. We have secured new liberal arrangements with the Dutch and Germans, and we are pressing all our European partners to do likewise. Progress in the Community has been poor, but the Council has committed itself to adopting a first group of measures on fares, capacity controls, and competition policy by the end of this year. We shall do everything possible to ensure that this deadline is kept. Air transport is an essential aspect of the Common Market.

My noble friend also mentioned the green sticker system used in France and Germany for motor cars. That system only applies to passenger traffic at land borders and not to goods vehicles, which suffer the most serious frontier delays. Nonetheless, we shall be following the green sticker experiment with interest to see if any useful lessons can be drawn for United Kingdom port procedures.

I was also interested in the comments of the noble Lord, Lord Rhodes, on the Commission's recent regulations for motor vehicle distribution. In the case of motor vehicles, selective distribution can clearly bring benefit to consumers as well as to manufacturers and dealers. The block exemption, which gives greater legal certainty to the parties concerned than a case by case approach, is therefore to be welcomed, but the Government could not accept a situation in which the selection of dealers and the acceptance of territorial or other restrictions by both the dealer and manufacturer resulted in partitioning of the Community market. That would be wholly inconsistent with the objective of a genuine common market. The safeguards in the Commission's regulations are therefore an essential part of the package and the Government will be watching with close interest to see how the Commission applies them in practice.

We have had a most interesting and useful debate. I hope I have managed to answer as many as possible of the questions that were raised. I will read most carefully what has been said and if there are any questions which I have not answered I will endeavour to write to noble Lords.

House adjourned at twelve minutes past six o'clock.