§ 11.32 a.m.
§ Lord Aldington rose to move, That this House takes note of the report of the European Communities Committee on Relations between the Community and EFTA [14th Report, HL Paper 55].
§ The noble Lord said: My Lords, this report is based on an inquiry that began just before the Christmas Recess and lasted until mid-May. It included the taking of evidence from a number of distinguished witnesses, a visit to the headquarters of EFTA in Switzerland and to Berne to meet members of the Swiss Government. I express the warmest thanks of my colleagues and myself to all who helped us with evidence and guidance. I thank my colleagues on the committee for their constant devotion to our task and the remarkable tolerance shown to their chairman. All of us pay tribute, not for the first time, to the sub-committee's clerk. This House is much blessed by the fine quality of the Committee Office clerks.
§ Lord Aldington
My Lords, I also thank the noble Lords who will be speaking in this debate, many of them no doubt at some inconvenience because it is a Friday and because we were not given much notice. I observe that the working hours of your Lordships' House appear to be moving up towards 46 each week when other people are claiming that they should work for only 38 hours a week. I am particularly glad that my noble friend the Minister is able to be here to speak after me despite the fact, as I know, that he has a full list of commitments today. I know also that he has one very important engagement which will take him from the Chamber after he has spoken and I am sure that your Lordships will share with me a full understanding of his need to leave us.
The House will be aware that the process towards improving the trading relationship between the Community and EFTA countries from the original free trade area arrangements was begun at Luxembourg in 1984, which set up the idea of a European Economic Space, as it was called. Some people call it a European economic area. However, that agreement provided for the process of advance to depend upon individual discussions, negotiations and agreement on individual items and did not lead to quick enough progress.
The movement to start a further stage in these relationships was given new momentum by the speech of President Delors to the European Parliament in January 1989, which was welcomed 1177 by the Ministers of the EFTA countries in Oslo in March. Following further discussions sufficient common ground was identified to envisage the possibility of negotiations leading to an overall European Community/EFTA agreement covering the four freedoms of the single market; that is, goods, services, capital and persons, and including what were called flanking policies. Among those were competition policy, research and development, environment, consumer protection, working and social conditions, and education.
The starting point for the negotiations was agreed to be the rules, regulations and law developed by the Community on the matters to be covered. That is called, in the jargon of the Community, the Acquis Communautaire. On 19th December 1989 Ministers of the Community and of EFTA agreed that exploratory negotiations should start. The proposed agreement for a European Economic Space was not to cover the common agricultural policy, a customs union or tax harmonisation.
It was at that point and on the basis of a communication from the Commission dated 23rd November that our inquiry began. We realised at the outset the importance of the goal of a wider single market, adding to the single market of the Twelve the markets of the six EFTA countries—six has become seven now we talk about Liechtenstein—which together formed the largest trading partner of the Community. It may not be known by all noble Lords that since 1986 the Community has exported to the EFTA countries more than it has exported to the United States of America and Japan combined. However, there are still barriers to trade, incomplete freedom of the services, of the movement of capital and also of persons. The Community's competition rules and other rules against protection do not apply to EFTA. Nor is EFTA able to count on the four freedoms in its relations with the Community. There would be gains for all the countries involved in a wider single market, including Britain. The freedom in financial services offered obvious opportunities for Britain, as does the removal of barriers to trade and fairer competition in goods.
While it appeared at first that the EFTA countries had the strongest wish to make a success of the negotiations so as not to be left out of the new single market, it soon also become clear that the Community had as strong a political will to make a success of them, to widen their opportunities and to strengthen their relations with their Western European partners. However—and this was accepted at the outset by EFTA—the Community insisted (we thought rightly) that it must keep its own autonomy of decisions and that nothing should be agreed which would weaken its power or deflect its efforts to complete the single market and to carry on its progress towards closer unity.
That would apply particularly to decision making on new proposals after the European Economic Space has been established and to institutional arrangements found necesssary to implement and enforce the agreement and its rules. It also meant that the existing rules could not be altered to cover 1178 the particular needs of any EFTA country. It is in these two areas that the negotiators found, and will find, the greatest difficulty.
The report has much to say both on the derogations which it is believed that EFTA is requesting to meet the special needs of some countries—we give the examples of Iceland and the Nordic countries on different points—and on the institutional and decision-making arrangements. We hope that our suggestions will be found to be not only sensible but useful. I shall mention some of them. On the derogations that are being put forward by EFTA—we guess that it is establishing a strong negotiating position and might be prepared to abandon some—we say in paragraph 76 that the derogations must not be too many; in paragraph 77 we say that the derogations must have a time limit; and in paragraph 78 we say that the Community can be more flexible over the requests for derogation on the movement of persons. Finally, in paragraph 80, we say that the balance-of-advantage principle must be kept in mind.
We went into the problem of decision making at some length in the paragraphs following paragraph 81. It seemed to us that EFTA must be enabled to influence the content of future decisions made about the space. We suggest that that influence should be by informal discussion and consultation at the earliest stage and again after publication of the legislation proposals by the Commission. We think that there needs to be general consultation between the EFTA countries and the Community and that general consultation should include a joint council of ministers of all member states which would meet at occasional but regular intervals.
We stress that the Community's normal legislative process which involves the European Parliament too, must not be interfered with. In paragraph 85 we point to the greatest of the difficulties that arises at the final stage when the two pillars as they are called in the proposed European Economic Space—the Community and EFTA—take a decision. An EFTA member state that objects strongly must be enabled to opt out in exceptional circumstances subject to very strong deterrents. The position of EFTA member states in this regard is different from that of member states in the Community which will or could have been involved throughout in the deliberations leading to the legislation. It is not recommended that that provision be given to EFTA members.
As regards the legal situation, we note that as yet EFTA has no supranational institutions for adjudication or enforcement. On adjudication we set out three options: (a) the extension of the jurisdiction of the European Court of Justice, (b) what we call the Lugano Convention method, about which your Lordships can read in the report, and (c) a new court for the European Economic Space. There are difficulties about each. We recommend that the European Court of Justice should be fully consulted before a decision is reached. It is then for the Community and EFTA to make the choice.
In paragraph 92 we explain the problem of monitoring and inspection in certain fields where the Commission has its own role for the Community.
1179 We doubt whether EFTA will accept that, but point out the dangers of a separate body for the European Economic Space or for EFTA. In paragraph 95 we say that in our view the Community must insist on the EFTA countries giving direct effect to space law in the same way as members of the Community do for Community law.
Those are some of the detailed matters that are the subject of the negotiations. We raise some points in our general conclusions. As our inquiry proceeded we became more and more aware of the important wider questions raised by this dynamic proposal—for dynamic it is—for a European Economic Space. I am sure that some of your Lordships will be more concerned with them than with those points which I have outlined and which are most closely related to the actual negotiations that have now been formally started.
Events were moving fast during the course of our inquiry both inside and outside the Community, particularly in Eastern Europe. The Community is intent on becoming both deeper and wider. Those points which are outside the details of the negotiations to which I have referred are set out in paragraphs 94 to 98. I shall touch only on some of them before I sit down.
Would it be better to wait for EFTA members to apply and join as full members of the Community rather than set up this new idea, the economic space for Europe? We explain why in our opinion that is not a real option though we have heard some members of the European Parliament argue that it is. We know that Austria wants to join the Community as soon as possible, but nevertheless Austria is taking a full and sincere part in the negotiations for the space.
There is no certainty that any other EFTA country will wish to apply soon. There is evidence that some of its members will not apply for some years. The value of a stronger and wider Western European economic area is compelling in the face of world events and particularly in the face of the much-welcomed turn of Eastern European countries to democracy and market economies. The Community is right to attend to her relations with her closest European partners as soon as possible and not to wait until each feels able to apply to join.
We became convinced that there was nothing in the proposals for the space which would deter or delay applications for new membership of the Community. Indeed, we saw the completion of the new space as assisting EFTA countries to understand how the Community works, and so make joining easier for them. We also saw the possibility of associating individual Eastern European countries with the space when their economies have developed sufficiently.
Finally, we thought it right to emphasise the importance of the decisions that will have to be taken if the negotiations are to succeed, as we strongly hope that they will. We expressed the hope that, despite all the many important matters under discussion within the Community, adequate time and effort will be given to allowing the issues raised by the 1180 economic space discussions to be fully discussed and understood not only within governments but also among the peoples of each country. We hope that our report will help in that understanding.
Moved That this House takes note of the report of the European Communities Committee on Relations between the Community and EFTA [14th Report, HL Paper 55].—(Lord Aldington.)
§ 11.50 a.m.
§ Lord Trefgarne
My Lords, as my noble friend said at the outset of his remarks, I shall be unable to stay to hear all of your Lordships as I shall be attending a lunch for His Royal Highness the Crown Prince of Morocco. I hope therefore that your Lordships will forgive me if I leave before the debate is over. My noble friend Lord Reay will respond for the Government towards the end. I promise all noble Lords that I shall study carefully what is said in due course.
I am very grateful to my noble friend Lord Aldington and to his colleagues for the report we are debating today. It is a comprehensive and most valuable account of the opportunities and problems presented by the current negotiations between the European Community and EFTA. I am pleased to say that I can endorse virtually all the report's conclusions. Not only that, but the proposals made there are very largely reflected in the Community's negotiating position, agreed only this week.
Indeed, this debate is a miracle of timing. A week ago, the EFTA countries met in Gothenburg to celebrate EFTA's thirtieth birthday and to agree their own negotiating position. Then, on 18th June, the European Community Foreign Affairs Council agreed the mandate for the Commission in the forthcoming negotiations. I shall come to the details of that in a moment. On 20th June, the first formal negotiating discussion was held. Naturally, that was rather short. But the negotiations should now quickly begin in earnest. The Commission will speak for the Community but, of course, we will follow the negotiation extremely closely and will put in our own views and ideas whenever appropriate. In doing so, we shall certainly want to draw on the suggestions in the committee's report.
Before moving on to the detail, perhaps I may report one minor negotiating triumph which we have already secured. The Community has a horrible tendency to talk about "spaces"—a mistranslation, I fear, of the French word "Espace". Used in a term like the European Economic Space, it is quite inappropriate as it implies that there is nothing in the concept. I think that we have at last succeeded, though the efforts of my right honourable friend the Foreign Secretary, in securing use of the term European Economic Area which gives a much better idea of what we are trying to do.
After all, the intention of the EEA is to bring together the EC and EFTA countries in a real single market—19 countries in all with a combined population of more than 350 million. This is a unique undertaking. Nothing similar has been attempted before. Creation of the EEA should be in the economic interest of all its participants. It 1181 remains a United Kingdom and European Community priority in our external relations. Of course, its very uniqueness means that both the content of the agreement and its institutional aspects will require careful consideration. There are some real difficulties ahead, but on both sides there is a real commitment to success.
I should perhaps underline that the EEA should be treated on its merits. It is not an alternative to full EC membership nor some sort of waiting room, though for some EFTA members it may turn out to be a stepping stone. Austria, for example, has participated fully in the EEA discussions, despite having already applied for full EC membership. One can speculate endlessly about whether and how the EEA negotiations might affect eventual enlargement of the Community. But I am not sure that that is very useful. For us, the key points are that the EEA must be worthwhile in itself and must not close the door to further EFTA applications.
I have mentioned the mandate agreed by the Foreign Affairs Council earlier this week. It may be helpful if I spell out the major principles lying behind it. First, the Community is aiming for an agreement—under Article 238 of the treaty—with the EFTA countries speaking with a single voice. I must underline that last point. Agreement will become very difficult indeed if the EFTA countries all start to seek special bilateral arrangements. This does require a change in the EFTA way of doing business, but so far the EFTA countries have succeeded admirably in staying together.
Secondly, the EEA is intended to cover all four freedoms—free movement of goods, services, capital and people. Exceptions can be possible only in so far as they are intended to safeguard fundamental interests, another vital point, as an agreement with numerous derogations would not represent much advance over the present situation.
Thirdly, agriculture will be excluded, although we will be seeking better access to EFTA markets. It is also not the intention to go as far as full Customs union. So there will be a continuing need for border controls and arrangements to deal with products from non-EEA countries.
Fourthly, the mandate sets out the EC's general ideas on the various institutional issues, a point to which I shall return.
The mandate is a fairly general one. It quite rightly does not attempt to spell out all the details of a final agreement. That is a matter for the negotiations. It is right that we should leave the Commission with some flexibility. However, member states will be closely involved with the negotiations and will be able to advise the Commission throughout.
It is all very well to describe the Community's position, but it is in the nature of a negotiation that the other side will have its own views too. I should like therefore to turn to what we see as the main problem areas in the negotiations.
The scale of possible EFTA derogations has been the subject of much speculation. EFTA Ministers restated their acceptance in principle of the relevant acquis at their meeting on 14th June while linking 1182 this to satisfactory arrangements for the joint management and development of EEA legislation. At the first meeting with the Commission on 20th June, the EFTA side said that it had identified about a dozen particularly sensitive issues. These included certain aspects of direct investment and acquisition of real estate, land transport, telecommunications, audiovisual services, insurance, company law and social policy. No further details are yet available. We will of course want to consider the EFTA case carefully on each issue. But I must repeat that too many derogations, particularly if they imply continuing barriers to trade and investment in goods and services, would undermine the new agreement in a serious way.
I take the central aim of the agreement to be the completion of the liberalisation process begun by the free trade agreements of 1972–73 and in this respect I share the committee's view that common competition rules will be essential for the proper functioning of the EEA. An institutional solution is necessary because the policing of the EC's competition regime is the responsibility of the Commission. No counterpart exists in EFTA. The mandate therefore stresses the need for EFTA to create a collective authority or mechanism to tackle abuses of competition. I regard this as a main priority for the negotiations. It is simply not feasible to leave the control of state aids, for example, to national authorities. EFTA must develop new structures to make the two-pillar approach to co-operation a practical reality. I believe that EFTA understands this, although there are real practical difficulties.
The committee has made some useful suggestions on reducing social and economic disparities within the EEA—the issue known as cohesion. The mandate has identified this as an important objective. I am convinced that the best course lies in improving access to EFTA markets for agricultural produce. A list of Mediterranean requests in this area was submitted to EFTA some time ago and I hope that the negotiations will allow a more vigorous approach to be taken towards these concerns.
In the end, I believe that the success of these negotiations will turn on satisfactory solutions being found to the institutional questions. The aims and principles have already been stated: the preservation of autonomies on each side; EFTA participation in the shaping of decisions affecting the EEA; effective surveillance and enforcement of obligations. But most of the detail remains to be filled in.
The committee is right to emphasise that arrangements on decision-shaping should be kept as simple as possible and should not risk delaying single market legislation—still the Community's top priority. The mechanism for information and consultation must allow a Community decision to take effect within the Community regardless of its acceptability to EFTA.
This raises the difficult issue of divergent legislation resulting from the exercise of autonomies. The mandate binds the Commission to include in the agreement appropriate procedures to be used where substantial differences arise between the two sides.
1183 As to enforcement of obligations, I part company slightly with the committee's report. I would not favour the extension of the Commission's powers over EFTA, nor do I believe that this is negotiable. The mandate sets out the aim of creating a judicial body based at the European Court of Justice to which EFTA judges would be attached. This would be responsible for interpreting the provisions of the agreement. An EC/EFTA joint committee will be charged with the management of the agreement, including the settlement of disputes between the parties. Where points of law were at issue the case could be referred to the judicial body. I have to say that these ideas have not yet been fully thought through on either side. I believe that the key to success will be a workable dispute settlement mechanism which, nevertheless, preserves the autonomy of both sides. Much hard thinking will be necessary to forge the new institutions demanded by the EEA..
Finally, I note the committee's views on the wider importance of this agreement. I have already said that the process should be treated on its merits. But it will be watched very carefully by the Community's neighbours in Eastern Europe and the Mediterranean, some of whom have already stated their desire for membership of the EEA. I am sure that a successful conclusion to these negotiations will give a major impetus to the new liberal economies now being created on the Community's borders.
Perhaps I may conclude by again thanking my noble friend and his committee for all the work they have done on the report. This is a timely debate on a key area of the Community's external relations. We shall listen carefully to the contributions today so that they can inform our own position as the negotiations continue through the summer and the autumn.
§ 12.2 p.m.
§ Lord Cledwyn of Penrhos
My Lords, we are all grateful to the noble Lord, Lord Aldington, and also to the other noble Lords and my noble friend Lady Serota who sat with him on Sub-Committee A of the Select Committee for this most timely report on relations between the Community and EFTA. This debate could not have been held at a more appropriate time because EC Foreign Ministers and EFTA governments, as the noble Lord, Lord Trefgarne, said, have been discussing the implications of closer relations and possible amalgamation this very week.
The noble Lord, Lord Trefgarne, explained the Government's reaction to those meetings and to current negotiations. We are grateful to him for so doing. I noted that he is able to accept the conclusions of the report. I thought that his observations on the mandate were interesting. This is something that we shall need to study again.
When this issue is raised in conversation, everyone to whom I have spoken gives general support to the proposal that the six countries—seven, if Liechtenstein is included—should join up with the EC. They reflect the view expressed in paragraph 70 of the report, which says: 1184For political as well as economic reasons, the Community and the EFTA states make eminently suitable partners. They share the ideals and key characteristics of Western European democracies, and the historical evolution of relations points to a developing European Economic Space".I agree with the noble Lord's comments as regards the word "space". I accept his suggestion that we should use the word "area".
Of course, Britain could provide a very suitable bridge in the developing negotiations for the reason that we were founder members of EFTA and should therefore have a sympathetic understanding of the problems of both sides; and problems there are, as the report makes abundantly clear, not least the possible strain on Community resources. The report refers to the cumbersome structure of the process set up at Luxembourg in 1984. Given our relations with the seven EFTA countries, it should be possible to set up a smooth negotiating procedure. Perhaps the noble Lord, Lord Reay, will comment on that aspect in his concluding speech.
Like other noble Lords, I read the evidence to the committee with interest and appreciation. I am grateful to the distinguished witnesses who took part. However, I am bound to say that reading it took a little of my time over the weekend. I was naturally interested to see what the ministerial witnesses had to say. For example, I noted that Mr. Francis Maude said that it seemed to him to be,very much in our interest and in the interests of all of us that we should take these steps to create this larger economic space".He pointed out that EFTA is the largest trading partner of the Community.
Mr. Maude then answered questions put to him by the noble Lord, Lord Aldington, about the negotiations which he said would be conducted by the Commission. These negotiations were described by Mr. Jones-Parry of the Foreign and Commonwealth Office as "normal Community practice", but which would be subject to the Council of Ministers. I understand that perfectly well. However, on a matter of such importance I should like to think that Parliament would also have an opportunity for a debate. I should make it clear that we on this side of the House would like to see EFTA apply for full EC membership. I believe that that view is shared by M. Delors; but I note, with respect, the committee's view on this, which was underlined by the noble Lord in his speech.
Mr. Jones-Parry, the FCO witness, also said that,any agreement must be finally subject to approval by the Council itself".That of course means that the Government have approved it; but perhaps the noble Lord, Lord Reay, will confirm that both Houses will also have an opportunity to debate the agreement. I mention this because we have talked a great deal about accountability in recent debates and we must ensure that that is not overlooked.
I am jumping the gun when I talk about the agreement because a number of prickly problems have to be resolved before we reach that stage, and the report makes that very clear. The agreement will rest on the Acquis Communautaire and this means the four freedoms of goods, services, capital and people as defined in the treaties and in EC legislation 1185 and case law. However, this does not include the CAP, the customs union or tax harmonisation, but I recognise that it means a substantial and, as the committee says, a mutually beneficial move for the EC and EFTA. I should like the negotiations to proceed to a discussion of full membership. But for the time being, as the noble Lord, Lord Trefgarne, said in his speech, we must be content with the position as it is. The leaders of the EFTA countries have every reason to be pleased if they can go thus far without having to worry about the CAP.
Paragraphs 76 to 80, which deal with derogation, are also important and it is of interest to note that the committee supports a limited list of temporary derogations from the agreement. Again, these were dealt with by the noble Lord in his speech. That would be a very important concession and would make it very much easier for some countries to reach agreement. Different countries have different interests which they regard it as essential to protect. For example, Finland wants to keep foreigners out of its forests; Iceland is preoccupied with fish, as I know only too well from bitter experience; and Norway wants to limit the intake of labour.
As I understand it, the EC wishes to keep those exceptions to the bare minimum and cover vital national interests only. However, the committee suggests that the EFTA countries must make some sacrifices in return. That may create some difficulties although they should not be beyond resolution.
The evidence given to the committee by the noble Lord, Lord Trefgarne, was interesting. The noble Lord made the point—it is to be seen at page 14—that the negotiation with the EFTA members was not a device to get them into the Community by the back door or to get them into the waiting room for Community membership; it was to create a better and freer market for both sides. That was a colourful way of putting the point. I suppose that it might be right to call it a half-way house. The noble Lord has enlarged on the point in his speech today.
I also enjoyed reading the evidence of the noble Lord, Lord Cockfield. I should like to acknowledge the efforts he made as a Commissioner to bring the Community and EFTA closer together. The noble Lord made the point that the institutional problem is the most difficult of all to resolve. His analysis appears on page 116 at paragraph 610. That, again, is something upon which I should value the comments of the noble Lord, Lord Reay. I noted also that the noble Lord, Lord Trefgarne, agreed that the institutional problem is the most difficult and most important. I am sure that the noble Lord, Lord Reay, will agree that EFTA members must be ready to relinquish some national sovereignty.
There are of course other factors involved in a complex negotiation. These require further thought. A week ago Hungary, Poland and Czechoslovakia signed co-operation agreements with EFTA and joint committees are to be established whose objective will be to examine the possibility of setting up free trade areas with all three Eastern European countries. Again, does the Minister think that that can be reconciled with the move towards the Community or does it open another door between 1186 East and West? Those are all matters we must ponder carefully. Perhaps the Minister can tell us what role, if any, the Government envisage Eastern European countries having in the proposed European Economic Space.
What emerges clearly from the evidence, or so it seems to me, is that the witnesses, covering a wide range of interests, welcome the forging of closer links between the EC and EFTA. That is obviously something that the Government will take seriously. An example of the consensus may be seen in the conclusions of the CBI (page 124) and the European Trade Union Confederation (page 134). Of course there are some reservations, some different shades of opinion on certain issues. But the central theme is one of general support. I noted in particular the CBI's support for M. Delors's comments to the European Parliament on 17th January when he said that,the crux of the current debate is the decision making process. There will have to be some sort of osmosis between the Community and EFTA to ensure that EFTA's interests are taken into account in major Community decisions. But this process must stop short of joint decision making".That is a point to be borne carefully in mind. The ETUC, as we would expect, stresses the need for a strong social dimension, and we support that. I wish that EFTA would accept the founding principles of the EC on the free movement of goods, services and capital, together with the relevant 1992 legislation in exchange for access to the single market. However, the majority of EFTA countries have balked at that. I hope that the negotiations will succeed, not least because failure would gravely, or could gravely, undermine EFTA itself.
Austria's application for membership, as we have been told, is already in; Norway's may follow. It is a complex process, but I am sure that the Government will wish to facilitate it.
In conclusion, perhaps I may once again thank the noble Lord, Lord Aldington, and his noble colleagues on a first-class report and for enabling us to have this important debate.
§ 12.15 p.m.
§ Lord Greenhill of Harrow
My Lords, I shall be brief. I hope that what I have to say is not inconsistent with the report. As a member of the committee that prepared it, I agree entirely with its findings. I do not believe that at any time in history have there been so many related international negotiations in progress and pending and so many governments seeking solutions to profound questions which will affect their futures in the next century. The EC/EFTA negotiation is not the most important; it is just one of several of those negotiations, and the report clearly illustrates the difficult problems involved. They have been repeated in the speeches today. I wish that I felt more confident about the successful outcome of the negotiation within the timetable which has been set.
I start from the point that full membership of the EC by the EFTA states is desirable. They are eminently fitted by history, politics and economics to play a significant part in the future organisation of Europe. The extent of their trade relationship 1187 with the Community is emphasised in the report. In the United Kingdom we feel a special kinship with several of the EFTA countries. Their membership of the Community would give great satisfaction in England and Scotland.
I am not convinced that all the members of the Community and its bureaucracy share that view. Among the present membership there is an element which would find it more comfortable to keep the present Community to 12 members or fewer. That is reflected not only nationally but within certain parts of the Commission and among some Members of the European Parliament. It has been confirmed in evidence received by another committee. Their preference is to see the Twelve continue to dominate European arrangements. I ask myself therefore whether the Commission's negotiators in the coming talks are genuinely seeking a compromise which would permit—I emphasise the point—the EFTA countries to proceed to full membership in a reasonable period of time. One of the Community Commissioners talked about 10 years at least in Scandinavia recently. That is not good enough. We have to wait to see, of course, how the negotiations proceed. I hope that I am mistaken about some members of the Commission wanting to drag their feet. But it is up to Her Majesty's Government to use their influence to try to ensure that the way is kept open for an enlarged Community which will include, as a matter of priority, our natural friends and allies.
In the coming negotiations the Commission has the stronger hand, but it should not abuse it for the sake of what appears to be a short-term gain. The EFTA countries cannot of course have their cake and eat it. They will have to face up to difficult choices which have already been mentioned in the debate. They may not hold together. There are problems of neutrality which must be overcome but which are manageable. I sincerely believe that if the Commission tries to drive too hard a bargain it will prove in the long run to be in no one's interest.
§ 12.20 p.m.
§ Lord Cockfield
My Lords, in certain important respects my views differ from those of your Lordships' Select Committee. I say that not in any criticism of the Select Committee's report which is an extremely valuable document bringing many issues into sharp focus. Nevertheless, there are certain matters on which my views are different from those of the Select Committee and think that I should explain them in some detail.
There are certain well known, tried and tested relationships in the field of international trade. One is the free trade area; another is the Customs union. The EFTA countries have an association with the European Community in a free trade area. The question before your Lordships' Select Committee was: is there any means of developing a closer relationship between a free trade area and full Community membership? The question that we now have to face is whether such a new relationship can be developed and what it would entail.
1188 I agree with the noble Lord, Lord Greenhill of Harrow. There is no substitute for Community membership. But membership is not for everybody. It requires a commitment to Community policies, both present and future, not just for today but for tomorrow as well.
Taken in this light, Community membership would not be everybody's goal. Equally, it is, I believe, complete nonsense to suppose that all the countries of the greater Europe could become members of the Community within any foreseeable period of time. It has always been accepted that countries applying for membership must have democratic institutions and a proper respect for human rights. In practice countries must also have market-based economies of the Western European kind.
The countries of the EFTA group are fully qualified for Community membership on all these grounds. But so far only Austria has actually applied for membership. Perhaps I may say in this connection—and the relevance of the remark will appear in a moment—that there is no justification whatever under the terms of the treaty for refusing to process Austria's application in time for membership by 1st January 1993. That date is critically important: it is the date set for completion of the internal market. By then the legislation on the internal market will be part of the Community acquis and will be binding therefore on any new member state.
However, to try to delay matters beyond that point is unwarranted. Claims have been made that there is a consensus not even to begin consideration of any applications for membership until after 1992. Frankly, that is not what the treaty provides. The obligation in the treaty is to consider applications on an individual basis. That is what ought to be done. Nor—with the withdrawal of Russia from the heartland of Europe, a withdrawal that will not be reversed—is neutrality any longer a problem.
The Commission has already produced its avis on the Turkish application which is the only other live application. There is no reason therefore why it should not now produce its avis on the Austrian application. That, in turn, would enable the European Parliament to proceed and the Council to come to a decision.
This point is relevant to the present negotiations on the European economic area. To the extent that EFTA countries join the Community, it takes much of the strain off the present negotiations. It is one thing trying to negotiate for six countries; it will be quite a different ball game if one is negotiating only for two or three.
At this point perhaps I may return to the general question of Community-EFTA relationships. We ourselves—that is the United Kingdom—were responsible for the creation of EFTA in 1960. We refused to join the European Community when it was launched, first, because we thought it would be a failure and, secondly, because we were convinced that what was needed was a simple free trade relationship and not a Community with wider economic, social and political objectives. When the 1189 Community was set up without us, we retaliated by creating the European Free Trade Association area. However, within a matter of a few years we came to the conclusion that we were wrong and applied for membership of the Community—an application that was promptly vetoed by General de Gaulle.
However, in 1973 we joined, in the company of Ireland and Denmark, and very nearly Norway. In 1986 we were followed by Portugal. Increasingly, the present members of EFTA have come to precisely the same conclusion we ourselves came to; namely, that a free trade area relationship was not itself sufficient. So far, as I have said, only Austria has actually bitten the bullet and applied for membership. In Norway, Sweden and Finland, the question has become a matter of lively national debate. However, it is for these countries themselves to decide whether to apply for membership, not for us to make pronouncements for them.
Short of Community membership, what can be done to develop the Community-EFTA relationship? It needs to be said right away—and this point was made strongly by my noble friend Lord Trefgarne—that the present free trade relationship has been greatly to the benefit of both parties. Its further development would undoubtedly add both to the prosperity and the political cohesion of Europe as a whole. The first step was taken, as your Lordships were reminded, in the Luxembourg declaration of June 1984 which launched the concept of the European Economic Space, as it was then called. A sense of urgency was injected by the publication of the programme for the completion of the internal market in June 1985.
In the event, there was more rhetoric than action. I am most grateful to the noble Lord, Lord Cledwyn, for what he said about my participation. The only areas in which hard progress was made were those where I myself had direct portfolio responsibility. What we now have is a determined effort on both sides to turn the concept of the European Economic Space or economic area into reality.
The negotiations are based on the concept of extending the four freedoms established by the Treaty of Rome; that is, the freedom of movement of goods, persons, services and capital—incidentally, that is the order in which they appear in the treaty itself and in the Single European Act—to embrace the EFTA countries as well as the Community. I am sure that some improvements will be made and that they will be valuable. Nevertheless, I take the view that this approach will fail to achieve the real objective. The reason is perfectly simple.
The key to the whole internal market programme—this is essentially what we mean when we talk about the freedom of movement of goods, persons, services and capital—lies in the abolition of frontiers and frontier controls. It is the frontiers and the frontier controls which divide the Community into 12 domestic markets closed in upon themselves. The frontiers are not just physical barriers. They are psychological barriers as well. The abolition of the frontiers and the frontier controls not only allows unobstructed physical movement; 1190 it also allows the market forces and the forces of competition to operate across borders. It is this, in the end, which will create the single European market. The legislation is the key to the door, but it is the open door and the determination to go through it which will produce the benefits.
The truth is that one cannot get rid of the frontiers and the frontier controls unless one establishes a Customs union. Unless one has a Customs union with a common external tariff and a common external trade policy, one has to maintain frontiers and frontier controls in order to establish that goods being imported come from the countries they are alleged to come from. That this is so produces in turn the need for rules of origin, for certification of origin, for transit procedures and all the formalities of border controls. Of course one can simplify these procedures and during my term of office in the Commission we did much to simplify them. But one cannot get rid of them and once one maintains frontier controls, one maintains the frontiers as well. One ends up by obstructing not only goods but persons and de facto services as well.
The only answer lies in a Customs union. Once goods have lawfully entered the territory of the Customs union they are entitled to freedom of movement throughout the whole territory of the Customs union and this means one can get rid of the internal frontiers and the frontier controls. That this is so comes out very clearly in the structure of the Treaty of Rome itself. The very first words of the very first provision of the title of the treaty dealing with the freedom of movement of goods provides for the establishment of a Customs union.
A Customs union is a well established and well proven instrument of co-operation in international trade. Of course it raises problems but the problems are not as serious as is commonly supposed, nor are they more severe or different in kind from those associated with the approach being adopted in the present negotiations.
It may well be argued that a Customs union is so close to Community membership that the obvious course would be for countries to apply for Community membership. In many instances this would be so. Indeed, at the end of the day we might very well find that, in addition to Austria, Norway and Sweden might also opt for Community membership. But I doubt whether this would be universally true. A Customs union does not involve all features of Community membership. It does not automatically carry with it monetary union, or economic union, or political union. There will always be some countries that would in effect want to draw the line at 1992 and go no further. If we are to accommodate these countries in a stable and prosperous European framework, we need to create a structure which will meet their needs.
Moreover, if one takes the view as I do that Community membership is simply not an option in the foreseeable future for most of the countries of Eastern Europe and that the most we could hope for at present is a free trade area embracing them, it would be highly desirable to provide a stepping stone
1191 to enable them to progress in due time from a free trade relationship to membership of the Community itself.
There is some reason to suppose that the present "fast track" launch of the European Economic Space was designed to head off what were feared to be a large number of applications to join the Community by offering an easier and less onerous alternative. If this was so, I believe it to be a mistake. As regards the EFTA countries, it never has been realistic to suppose that more than two or three would actually apply for membership. Nor would their assimilation into the Community present any great problem. In contrast, the present negotiations to create the European Economic Space present serious problems. They were set out in some detail in the speech of my noble friend Lord Trefgarne. As the noble Lord, Lord Greenhill of Harrow, said, the outcome of those negotiations is far from certain. Moreover, the present approach is at the same time both too ambitious and not ambitious enough. It is too ambitious in that it is trying to do everything and it is not ambitious enough because it is essentially a free trade area approach and thus likely to be less successful in achieving its objective than a Customs union.
Looking back over what has happened I think the wiser approach would have been to make it clear that any application from an EFTA country to join the Community would be processed in time to meet the date of 31st December 1992 set for the completion of the internal market. As regards any countries not wishing to join the Community, the offer should have been a Customs union reinforced by specific agreements on the financial services, and possibly other matters, on an ad hoc basis.
Nevertheless I accept that this is not the path which has been chosen. All I can do therefore is to wish the present negotiations success but say at the same time that in the interests of Europe's future they must not be used to obstruct the path of those countries fully qualified and wishing to join the Community. Let me conclude by saying that the report of your Lordships' committee has been of immense value in bringing these issues sharply into focus and enabling me, and I hope others too, greatly to clarify our views.
§ 12.37 p.m.
§ Lord Benson
My Lords, one advantage of the Select Committee's inquiries is that a wide range of evidence is received and almost by a side wind so to speak, a number of matters of importance are brought to light. Apart from the clear recommendations of the Committee's report with which I of course agree, there seem to me four matters which are worthy of comment. First,—and in this respect I seem to be echoing what the noble Lord, Lord Greenhill of Harrow, has said—the impression left from the evidence tendered to us was that there is no consensus of opinion in the corridors of power nor yet in the marketplace of the Community as to whether and when other nations should be invited or should apply successfully to join the Twelve now present. I believe there is a risk 1192 in this situation and that in the meanwhile the Community will develop into such a tight, self-knit organisation that it will become increasingly difficult for other nations to join if they wish to do so. This indecisive attitude, if it exists as it appeared to do from the evidence, is damaging to the long-term interests of the Community.
Secondly, there is indecision and a lack of consensus of view among the EFTA states themselves. We know that Austria wants to join at once, but each of the other EFTA states is in a state of indecision as to its own position. There is one bond only that binds them wholly and fully together in one immutable stance and that is a desire to take part in the decision-making process of the Community.
My fear is that the EFTA nations my be able, by negotiation, to achieve a situation which is satisfactory for themselves without making any great sacrifices and which will leave them free not to join the straitjacket of the European Community. That would be most undesirable. There can be no possible object in sponsoring a European economic space or area, as it is now called, if there are to be permanent members of that area or space who will remain outside it in perpetuity. I do not believe that that is the intention of the Treaty of Rome.
The third point arises in connection with the European countries now released from the bondage of communism. In that area indecision is a virtue and not a drawback. Until we know what the political and economic policies of those countries will be it is impossible to know how and when it will be right for them to join. The impression left with me from the evidence given is that in the next 25 years, or longer, some of them will wish to join the Community, but in the meantime they will be put through a sifting and refining process such as the European economic area with which the EFTA states are now concerned.
The fourth point which seems to emerge more and more from the Select Committee's report is that it is time for the Community to streamline the top hamper of its administration and to overhaul the institutional framework. It is high time that the political machinery of the Community was put on to a more business-like basis and we were relieved of what is now called euphemistically the democratic deficit.
Changes in the Community's structure are necessary now but they will be necessary anyhow if the European economic area is to operate successfully in the future. Radical changes will be a necessity if the number of member states is to be increased above 12. It is high time that the Community gathered up enough political will to tackle those problems and to bring those changes into effect.
§ 12.42 p.m.
§ Baroness Elles
My Lords, I too should like to join in thanking my noble friend Lord Aldington and the members of his committee for producing an excellent and invaluable report. I should also like to join him in thanking the clerks who worked so hard and 1193 contributed to the success of the report. I am sure that my noble friend Lord Aldington will be extremely pleased and gratified by the very interesting and valuable speeches that we have already heard in this debate highlighting some of the evidence that came before the committee and commenting on the recommendations contained in the report.
Obviously, closer relations with EFTA countries and the EC are a crucial element for prosperity and peace within our region, sharing as we do a long history and common cultural heritage—there are many international and bilateral agreements with EFTA countries in the field of culture—and common membership of the Council of Europe. It is understandable, therefore, that EFTA countries seeing the prospective success of a single European market on their borders should want to share in it. Here I pay tribute to my noble friend Lord Cockfield for his successful work as commissioner for the internal market. However, it should be pointed out that the GDP per capita for EFTA countries is approximately 15,000 dollars compared to 10,000 dollars in the EC. Therefore they are already ahead in the race if one measures prosperity by that means.
The difficulties evidenced in the report are a measure of the progress that has been made since 1957 when the European Economic Community was established. The difficulties evidenced in the report arise because of the progress made both in terms of economic integration—there are now 12 member states, as was pointed out by my noble friend Lord Cockfield—and in terms of the political development and work of the institutions within the Community. It is here that our problems lie.
I should like to refer to four points, some of which have already been raised by other noble Lords. EFTA apparently agrees to accept in principle the Acquis Communautaire, which has existed up to now but may not necessarily form part of future legislation, and the four freedoms. My noble friend Lord Cockfield very cogently pointed out that it seems to be almost impossible to have free movement of goods throughout the European Community and EFTA while 12 member states have a common external tariff barrier and the other seven have no such tariff barrier. I believe that it was the noble Lord, Lord Cledwyn, who pointed out that border controls would have to remain if there is no such structure as a customs union. I strongly support the proposal of my noble friend that Ministers might look at that new approach to a satisfactory agreement.
I do not believe that anyone has yet mentioned that Denmark is a member of the Nordic union and would have problems if border controls are not removed at the end of 1992 with the free movement of persons. As part of the Nordic union Danes have a right of residence and free movement within the Nordic EFTA countries.
The Acquis Communautaire implies enforcement. Is it conceivable that separate courts—EFTA courts—could apply rules imposing the recognition and application of European Community rules? Is it conceivable that EFTA members should sit on the European Court of Justice to deal with EFTA 1194 problems? A proposal put to the European Parliament in a report by Mr. Rossetti was debated earlier this month in the European Parliament. He proposed that the European economic area should involvethe application of a competition policy similar to that of the European Community".It seems a good idea to have similar policies rather than the competition policy being applied, for instance, by the Commission. It is inconceivable that EFTA countries would allow the Commission to investigate breaches of competition policy as it does in the member states. Therefore the idea of having a parallel flanking policy in EFTA countries might be a way of getting over that particular problem.
Any intervention in the decision-making process would be strongly resisted by the European Parliament. The very idea that non-member states could be represented on the many committees set up by the Commission would cause considerable resentment and resistance in the Parliament. Already there is difficulty in trying to scrutinise the acts of the Commission, which after all is one of the European Parliament's functions and duties under the Treaty, in view of the committees which are set up and act in private. There is no record available to the public of any discussions and it is only when decisions come out of those committees that it is known what has been decided. Consequently I believe that such a proposal would be very strongly resisted by the Parliament.
Whatever the view of your Lordships may be of the European Parliament, under the Single European Act it has the task and responsibility of having to agree, by an absolute majority, any agreement concluded between the European Community and any third country or countries. Article 238 is the article proposed for the agreement between EFTA and the EC. Therefore, we should bear in mind that the European Parliament should and will play an important role in deciding whether the Council's proposals are acceptable, and I believe that in the area of decision making there will be problems.
We must realise that, even if those difficulties are overcome—and they may well be—we should not regard that as a blueprint for bringing other countries into the Community. As has already been mentioned, some of the EFTA countries may apply to become members of the European Community, as Austria has done. Working within the European Community mechanisms and with the political progress that we have seen over the past years will undoubtedly change the position of those countries. As has been said, probably Norway and Sweden and possibly Finland may in the end apply to join the European Community, but that will take time. It is not something that happens overnight. Any relationship that is established now between the EC and EFTA cannot be a blueprint for our relationship with Central and Eastern European countries whose economies and political situations are so different and fragile at the present time.
However, as we have looked towards Eastern Europe to join in a wider grouping of European nations, we should give every encouragement, strength and support to those countries, particularly 1195 Poland, Hungary and Czechoslovakia, who wish to join the Council of Europe. It is the Council of Europe which acts as a gateway into the Community in encouraging and strengthening those newly found democracies to develop their multi-party systems and to observe the European Convention on Human Rights.
In conclusion, I wish the negotiations every success. I have grave doubts, but, whatever the outcome, it does not stop us from having to continue to search and to extend and support close co-operation with the EFTA countries.
§ 12.51 p.m.
§ Lord Bridges
My Lords, this debate on the future relations between the EC and EFTA may sound to many people like another battle of acronyms or a fantasy struggle in the style of Jonathan Swift or a bowl of alphabet soup; but noble Lords know better than that and will recognise that such a matter is an important one, even on a Friday morning. I should like to invite the House to look at the larger horizon for a few moments.
In the coming years, the existing members of the European Community will, by their own actions, determine the future political geography of Europe. Those years will probably be the most significant period of political construction in our lifetimes. So far in this century, we have witnessed massive destruction and the disappearance of several empires. Some have passed to our regret; others we were pleased to see the end of. But now, to the general surprise, we have the opportunity of which statesmen dream: the chance to make good the too numerous tragedies of this unhappy century and to create something which could serve our successors as well as the 1815 Treaty of Vienna which functioned for virtually a century in keeping a peace which, notwithstanding a few notable shocks on the way, was a period unrivalled in more recent history. We shall do well if we can create something as useful and lasting.
I make no apology for seeing this apparently mundane matter over the relations between EFTA and the EC in this rather grandiose way. We need to understand the full dimensions of the work on which we are engaged if it is to play its proper part in the larger European edifice.
We can now see quite clearly the various parts of the structure that we have to build. First, the Twelve members of the EC are embarking on an ambitious programme of economic and political reform. We may presume, but we cannot be sure, that that enterprise will succeed. If it succeeds, it will certainly form the core of the new West European home.
Secondly, there is now the group of seven members of EFTA who have benefited from their existing association with the Community and now seek to deepen their ties with us, but without applying for full membership. Thirdly, there are the other existing associates of the Community in the Mediterranean. Some of those, notably Turkey, have applied for full membership and there are others which may aspire to that as well.
1196 Fourthly, we can see in the countries of Central and Eastern Europe a group of states which must be regarded as unquestionably European and some of which may also wish to consider membership in time. But their present pressing priorities are for economic reform, investment and access to our markets.
Fifthly, there is the security element. For us that is and should remain with NATO and the Western European Union. However, the collapse of the Warsaw Pact and the welcome decline in the threat that it has posed to us creates a wholly new situation. It would be wrong to attempt any certain prediction about the future arrangements for European security. For that very reason it would be wise to have in mind, as a reserve in case of need, the potential use of the European Community for activity in the field of political security.
What is important in the matter now before us is to ensure so far as we can that the different parts of the structure should be able to fit together to cohere as the building proceeds. As an example of my meaning, I cite the case of a state wishing to join the European Community which was constitutionally committed to political neutrality. That would not be compatible with my notion of the role that the Community may be called on to play in future. We are building a new system of political equilibrium, and if Europe is to be an effective member of the world balance of power in the next century it must not be constrained by having members who do not fully accept the rules or who may obstruct our future development of those rules.
I emphasise that concept of the balance of power because of a passage in the speech made by the Secretary of State for Trade and Industry delivered to the Bruges group on 5th June. Mr. Ridley referred in a tone of obvious regret to:The concept of the balance of power in Europe so sadly forgotten in present arguments over so-called political union".The future balance of power which will matter is not within Europe; rather, it is the balance of power in a multi-polar world to which Europe makes its proper contribution.
It is with those broad considerations in mind that I suggest that we should study the admirable report before us. Negotiations rest on the idea of a European economic area. Readers of the report may find that a rather hazy notion and in some ways I agree with them. However, what President Delors sought to do in using that phrase was to satisfy the collective desire of the members of EFTA for a closer working relationship with the Twelve—not aiming, as in the words of the Treaty of Rome, at an ever closer union. The European economic area does not and should not mean that we should abandon the Community's effective control over its own policies and destiny. The suggestion is that that closer working relationship with the members of EFTA might be achieved by new forms of consultation, by derogations and by excluding some areas altogether.
Each of those ideas introduces difficulty. More consultation can hardly fail to cause greater delay in the Community's already lengthy decision-making procedure and, as the noble Baroness, Lady Elles, 1197 said, that is liable to create considerable problems for the European Parliament. Derogation is certainly possible, but some of the derogations sought are in areas of crucial importance to the Community; for example, fisheries, transit traffic over the Alps and the free movement of persons and capital. I also note that the EEA broadly speaking would exclude agriculture, which still accounts for over 50 per cent. of our Community budget. There must clearly be limits to such concessions, though I agree with the broad conclusions of the report. We must be careful not to offer too much or to seek agreement at too high a price.
Despite the remarks of the noble Lord, Lord Aldington, when he introduced the report, I am uneasy about one suggestion that is contained in paragraph 85; namely, that we should offer the members of EFTA a kind of Luxembourg compromise of their own—the ability to opt out over the most difficult matters. The Luxembourg compromise, one may recall, is not itself recorded in the treaty. I doubt whether it would be wise for us to offer something in writing to EFTA which the existing members of the Community themselves do not enjoy.
While agreeing with this very clear and thoughtful report, I should like to add some words of caution. In essence, in attempting to create a European economic area we are perhaps trying to square a circle. The basic choice for EFTA remains between continuing the existing association and application for membership by individual members. I hope that it may be possible to find an intermediate point of agreement which is satisfactory to both parties. That is by no means impossible. Both the Twelve and the Seven would have much to gain from such an agreement. However, failure to find an accord, although a disappointment, would hardly be a catastrophe.
Most important, to my mind, is the need to keep firmly in view the broader structure that we shall build in the next few years. We do not want to misalign the EFTA part of the foundations. Correction later on might prove to be very difficult. It is the large ambitious structure which matters most to our future. We should not jeopardise that work by a less than satisfactory agreement with EFTA. But a good agreement with EFTA would support and strengthen our work and be welcomed in this country and throughout the Community. I hope that the Community's negotiators will achieve it.
§ 1.2 p.m.
§ Lord Butterworth
My Lords, as a member of the committee I should like to thank the chairman for his skilful guidance in the matters that we are now considering. I wish to make two main points. First, I am very much in favour of further agreement being achieved with the EFTA countries on the European economic area. But secondly, the agreements must be settled in such a way that they do not become damaging precedents and obstacles which might make it difficult for the Community to create new kinds of relationships with other countries at a later date.
1198 It has already been said this morning that full membership may be appropriate for some countries. I share the view which asks: Why must Austria wait? Austria has a strong claim for consideration as a new member and ought not to have to wait until 1993. The other applicant at this time is Turkey. Turkey has been our ally in NATO for many years and nearly 50 per cent. of its entire foreign trade is with the Community. Moreover, by an agreement of association signed with the Community in 1963, Turkey has enjoyed a continuous relationship with the Community and by that agreement has been encouraged to look forward to full membership at some date in the future.
For other countries full membership may not be immediately appropriate, especially for those in Eastern Europe and the Baltic, as the structure of the Community and the European economic area has been designed with comparatively wealthy countries in mind. It may be that a whole range of co-operative arrangements are needed to accommodate the wider Europe which is now rapidly emerging. However, none of those considerations detracts from our wish to advance our relationship with the EFTA countries. As has been mentioned, not only do we have a common heritage of political and social values but their presence does much to redress the balance between southern and northern Europe.
The report stresses the strength of the EFTA countries. Although they contain only 32 million people, which represents one-tenth of the Community's population, as my noble friend Lady Elles pointed out, their GDP is some 50 per cent. higher than that of the Community. EFTA and the Community constitute an extremely strong group of trading partners. If the 19 nations of the Community and EFTA were put together, 70 per cent. of all their exports and 65 per cent. of all their imports would take place between those 19 countries. Moreover, the EFTA countries have social machinery and social policies—for the sick, the old and the disadvantaged—which are far more generous than those of the Community. Finally, unemployment is far higher in the Community than it is in EFTA.
However, I have some anxieties. For instance, will it be possible in the event to arrange one agreement with EFTA or will there need to be separate arrangements with each country? There must be some doubt as to whether the two-pillar theory as proposed by M. Delors, can be sustained: that EFTA should no longer negotiate as separate states but reach a common purpose. Can the elementary EFTA organization, even increased from 80 to 120, permanently sustain an organisation for six separate states?
But not only is there doubt about the organisational cohesiveness of EFTA. The long list of derogations which we understand that EFTA countries are likely to claim suggests that there is little collective spirit and little sense of a common direction in practice among the six nations. The derogations are very different and reflect different objectives. Austria, Finland, Switzerland and Sweden want limits on the ownership of land. Finland wants special protection for its forests.
1199 Iceland is determined to close its fishing grounds to all while claiming accesss to Community markets for its fish. Again, Iceland wishes to prohibit any foreign ownership of Icelandic ships. Austria and Switzerland want transit traffic to be controlled until a permanent or long-term solution can be found. Norway, Sweden and Switzerland enjoy standards of health, safety and environmental protection that are higher than those applying in the Community. Iceland, Liechtenstein and Switzerland do not find it acceptable that workers from the Community should enjoy unlimited access.
Some of those derogations may be entirely reasonable but as my noble friend Lord Cockfield pointed out to the committee, derogations are temporary measures. Many of those derogations are likely to be requested for unlimited periods. That collectivity of derogations, which EFTA countries are requesting, may make it doubtful whether in the long term EFTA can sustain the unity which its organisation is presumably intended to reflect. One recalls, quoted in the report, the remark of President Mitterrand. He said:There will be no agreement without exceptions being made, but again there can be no agreement based only on exceptions".The differences between the EFTA countries are great. The countries stretch from Austria, which has applied for full membership, and Norway, which appears to be nearer to re-applying, to those countries whose neutrality would appear to be a bar to any closer association at present. Austria does not find its neutrality incompatible with full membership. However, Sweden appears to be inhibited by its neutrality. In that respect Switzerland is an extremely interesting case. While its neutrality as such does not appear to be a bar, the institutional and constitutional arrangements in the country, based upon its system of direct democracy, reflect a situation in which the nearer Switzerland approaches the Community the greater the danger that its three constituent elements may be attracted to their racial origins. Therefore, the very idea of joining the Community may itself operate as a centrifugal force.
Finally, the decision of the EFTA countries to support each other's derogations, irrespective of the merit or demerit of each proposal, while understandable in practice, might be taken to suggest that the EFTA countries are more interested in what they can secure from the Community rather than in what they can contribute to it.
Perhaps I may return to my original point: should there be agreements with EFTA countries? Yes, certainly, but they should be concluded in a way which would not foreclose any arrangements which might be needed in the future to enable the Community to create appropriate associations with other countries. Relations with EFTA cannot be divorced from the rest of Europe. Novel structures may well be needed to deal with the problems of the wider Europe which is now rapidly emerging.
§ 1.13 p.m.
§ Lord Geddes
My Lords, it was a great privilege to serve on the committee under the enlightened 1200 chairmanship of my noble friend Lord Aldington. I thank him sincerely for his stewardship. I join other noble Lords in thanking our clerk, Mr. William Sleath, for his excellent services.
The report has raised many complex issues of European policy but they have been so competently and well discussed in your Lordships' House today that I wish to limit my contribution to concentrating as briefly as possible on just one matter; namely, the question of the potential future of the European Free Trade Association, the European economic area, as we now call it, and the emerging countries of Eastern Europe.
I believe that, unless great care is taken, there is a real danger that the current proposals for the development of the EEA could amount to the creation of a kind of secondary, mini-EC. As the report concludes in paragraph 96:the obstacles on the path to agreement are considerable".While the logistical problems are not, I hope, insuperable, they are enormous and will inevitably place considerable strain on Community resources. It appears to have been accepted by several witnesses that the EEA will create a kind of halfway house to membership of the EC. But it is essential—to endorse remarks made by other noble Lords and as the report states at paragraph 101—that,EFTA states cannot be seen to gain advantages from the European Economic Space without making some sacrifices in return".However, these disadvantages are outweighed by what I see, perhaps optimistically, as the golden opportunity of the future. The great hope must be that the right machinery and organisation will be in place so that in due course it can be extended to include the countries of Eastern Europe. In evidence the honourable Francis Maude MP said that he believed that to be a real possibility. While I accept that it is a vision of the far distant future, it must be the ultimate aim if all the considerable work and efforts now required to develop the EEA are to be worthwhile.
I support Sir Leslie Fielding in his analysis of the more immediate future given in answer to Question No. 195. He said:what is likely to emerge … is a new kind of Europe in which there will be a wider association of all European countries marked by degrees of shading in the intensity of their mutual relationships—first, the Community of the Twelve … then the EFTA countries … and thirdly, the Eastern European countries, each individually associated to a degree according with their level of economic and political development".I hope that the transition to the idea of my noble friend Lord Cockfield—which he gave in evidence in answer to Question No. 630—of a free trade area covering the whole of Europe would follow relatively quickly. His concept of a stable and flexible structure covering Europe—where, for example, an Eastern European country could move into the EEA or an EFTA country could apply to join the EC—is the logical objective.
It is vital that the EC remains at the forefront in developing relations with Eastern Europe. Let us get the EEA in place as quickly as possible so that maximum attention and resources can be devoted to developing trade and economic relations with 1201 Eastern Europe. I hope that Mr. James Moorhouse MEP was right when he gave the following reply to the question of how big he thought the Community would be in 20 or 30 years' time. In answer to Question No. 519 he stated:I think it is more likely to embrace the whole of Western and Central Europe, that is to say, certainly the EFTA countries, certainly Poland, and Hungary and Czechoslovakia and quite probably Bulgaria and, if things settle down in Rumania, that too … Turkey has made an application. If the Lithuanians were free I dare say they would like to join too".I do not wholeheartedly support the creation of the EEA as an end in itself; rather I urge its development in so far as it provides the machinery and a stepping stone to a future united Europe. Paragraph 97 of the report states:There is no doubt that European Economic Space members should be welcomed into the Community in the future and involvement in the European Economic Space should not reduce the attraction of Community membership for EFTA states. The Committee assume that the Community will keep to its undertaking to consider further applications for membership once the Internal Market is in place. As for the European Economic Space, the Committee assume that its membership will also be open to enlargement; the agreement should include a provision making this clear".The report's penultimate paragraph, No. 105, concludes:A European Economic Space should be a dynamic step forward for Europe".I hope and believe that that is true.
§ 1.20 p.m.
§ Lord Bonham-Carter
My Lords, I must apologise for having taken my name off the list last night and for having put it on again this morning. However, I feared that I would be unable to attend this morning. I hope that noble Lords will accept that as sufficient excuse. I shall not detain your Lordships long but I should like to join with noble Lords in thanking the noble Lord, Lord Aldington, and his committee for this admirable and extremely important and timely report.
I shall not repeat what many noble Lords have already said; namely, that the EFTA negotiations are important for reasons that have been given both in the report and in a number of speeches. However, I agree profoundly with the noble Lord, Lord Butterworth, that they are also important as a first effort at developing new forms of association between the EC and other countries. As several noble Lords have said, there are a number of countries which might join or which have said that they wish to join. Austria has applied; Norway and Sweden may apply. As your Lordships have already noted, those countries present no problem through the development of their democratic institutions or in their defence of human rights, or in their economic performance. I would add a fourth element which seems to me important: there is no great cultural gap between us and them.
However, there are others which for a variety of reasons may not wish to join, or which might be in some sense or other unsuitable as members. I have always felt severe reservations about the prospect of Turkey becoming a member of the European Community. I must confess that if other people 1202 share those reservations, it is rather cynical of the Community to allow its participation to remain on the table. My reasons for taking that view are simply that what I call the cultural gap between us and Turkey is very wide and very difficult to bridge; Turkey's record on human rights is far from satisfactory; nor can it be said to have what we would describe as democratic institutions. Because of their size, countries such as Cyprus and Malta clearly wish an association of a rather different nature from other members.
We then have that group of countries which a number of your Lordships have mentioned: Central and Eastern Europe. Clearly new forms of association are required to meet the needs of those differing groups of countries. Those forms of association may be stepping stones in some cases and in other cases of a more permanent nature.
The report has already indicated, and the debate has illustrated, the very real difficulties in developing such forms of association. It was put forward very powerfully by the noble Lord, Lord Butterworth, in his description of the Swiss position. If we are to accommodate countries in Central and Eastern Europe within some relationship to the European Community, the arrangement will have to be rather different from anything that I suspect we have envisaged in the past. The transitional period will have to be of a different order. That was the first point that I wished to make.
The second is very important. In developing those forms of association they must not be used as an excuse for not (what is known as) deepening the institutions of the Community. That I fear was the message of Mr. Ridley's speech to the Bruges group to which the noble Lord, Lord Bridges, referred. That seemed to me to be the motive for his opposition to a single currency and monetary union. If that opposition were successful, if this country found itself left out of the full monetary union, we would then have three intersecting circles: an inner group within Europe; an outer group within the Community; and some form of relationship with EFTA and those other countries. It seems to me that that would be a very dangerous situation for this country. While I hope that the EFTA negotiations succeed and give us experience in developing new relationships between the European Community and other countries, we must not let them prevent us from rightly developing institutions in the Community.
§ 1.25 p.m.
§ Lord Reay
My Lords, it has been a highly stimulating debate and I should like to thank noble Lords both for their contributions today and for the report of the Select Committee presented so admirably and helpfully by my noble friend Lord Aldington. It is a most valuable body of work on an extraordinarily important and indeed fascinating subject. I have no doubt that it will be of great value to many people concerned in the negotiations in the months ahead.
The creation of the European economic area shows that the Community means what it says about maintaining an open, outward-looking trading 1203 position as the single market is completed. The proposed agreement with EFTA will break down the same barriers that we are successfully tackling in the 1992 single market programme.
The benefits to the United Kingdom are, as always, difficult to be precise about in terms of GDP but there will undoubtedly be improved opportunities resulting from market-opening measures particularly in services. The European economic area is not therefore a vague concept. It is essentially the extension of the new single market to embrace the whole of Western Europe.
The mandate for the Commission has left much detail to be clarified during the negotiations but the United Kingdom's concerns on substance, principally the need to ensure equal conditions of competition throughout the European Community/EFTA area, have been fully met. It is a basic requirement for the success of the agreement that there should be adequate policing of competition within the EEA and for this EFTA will have to develop some form of collective authority to complement the Commission's role within the Community.
The report rightly underlines the need to weigh up economic benefits against the costs of creating new EC/EFTA structures in the form of a decision-shaping process, surveillance and enforcement procedures, and a joint judicial body. The manadate for the Commission is very clear on the preservation of the EC's autonomy but we should be mindful of another guiding principle put forward by the committee: that whatever institutional arrangements are devised they must be kept as simple as possible and not be burdensome on the Community's already stretched resources.
I have been asked a number of questions to which I shall do my best to respond. The noble Lord the Leader of the Opposition expressed hope for a smooth negotiating process. The negotiations will inevitably be complex. It is likely that there will be a number of working groups at all of which member states will be present. The Commission is confident that it has the resources to cope with the negotiations. I hope that that will indeed be the outcome.
The noble Lord expressed a wish that there should be a debate in Parliament on the agreement. The final agreement will be subject to the scrutiny procedures of both Houses. There should therefore be an opportunity for debate.
The noble Lord favoured full membership of EFTA within the European Community. I refer him to the words of my noble friend Lord Trefgarne when he pointed out that it was difficult to foresee what the effect of the European economic area will be on enlargement. However, I agree with him that the area must not prevent further applications for European Community membership from EFTA countries. Nor do I see it in that way. I do not see the European economic area as an obstacle in the way of enlargement.
The noble Lord put his finger on the major point regarding institutional issues. They will of course be difficult and will have to be worked out during the 1204 negotiations. Provided that the autonomy of the European Community decision making is not undermined, we shall wish to be flexible about how EFTA is involved in influencing decisions.
The noble Lord asked what role there would be for Eastern Europe. There is a growing co-operation between EFTA and the East European countries and we welcome that. It parallels the steps which the European Community is taking, particularly in the negotiation of association agreements which was first put forward by the United Kingdom. We see no conflict between those developments; rather complementarity.
Finally, the noble Lord asked if I would agree that EFTA countries must be ready to relinquish some national sovereignty. It is inevitable that the European economic area will mean some loss of sovereignty for EFTA countries, but they are already so integrated into the European Community economy that they have to adopt much Community legislation without any say in the matter at all. In that sense membership of the European economic area would be an improvement, even if it fell short of full joint decision-making, because they would be playing a part in the forming of decisions.
The noble Lord, Lord Greenhill, wondered whether the Commission was committed regarding applications to the Community. He wondered if it wished to prevent EFTA membership of the Community. The Commission is fully committed to negotiations on enlargement. Like the council, it agrees that we should not contemplate enlargement before 1992. At present it is examining the Austrian application. We have no reason to believe that the Commission is seeking to put off further applications or to block the Austrian application. Like us, it believes that the European economic area negotiation is a matter which should be treated on its merits.
My noble friend Lord Cockfield, in his interesting observations, raised the question of the Austrian application. The Commission is working on the Austrian application and the only agreement that there has been is that there should be no new members before 1993. Meanwhile the processing of that application will take place.
My noble friend Lord Cockfield was sceptical of the impact of the European economic area. He was quite right to point out that without a Customs union frontier controls would continue. We have not ruled out a Customs union in the longer term, nor has the Community. However, I suggest we should not try to run before we can walk.
The noble Lord, Lord Benson, expressed the fear that the EFTA countries may be divided among themselves. The EFTA countries have had difficulties but what is more remarkable is the extent to which they have stayed together. I agree that decision making will be the key issue for them. Wider issues were raised regarding the procedures of the European Commission. That is an issue which was very much in the forefront of the second intergovernmental conference on institutional issues which is likely to be agreed at the Dublin summit next week.
1205 My noble friend Baroness Elles expressed support for the Customs union. The Customs union is not essential to achieve the European economic area. We should remember that there are difficulties on both sides. For example, EFTA has so far declined to embrace the common commercial policy without which a Customs union would not work. Nevertheless, as I have said, the possibility for future discussions is open.
With regard to my noble friend's other point, that it would be better to have similar competition policies than enforcement by the Commission, the danger is that similar but not equal competition policies would lead to distortions of trade within the European economic area. EFTA must develop a collective structure to enforce the competition regime. However, I agree that that should not be done t y the extension of Commission powers.
The noble Lord, Lord Bridges, said that there would be a danger if EFTA could opt out of its obligations. I agree that divergence between the European Community and the European economic area legislation should be justified only by fundamental interests. Negotiations will address the need for appropriate measures in the agreement to take effect if major problems occur because of such differences.
My noble friend Lord Butterworth also referred to the Austrian application. He said that it should not have to wait until 1993 for its application to be handled. As I said, the application is being considered by the Commission in line with the normal European Community procedure. The Commission will produce an avis on the application for discussion by the council.
My noble friend also expressed scepticism as to whether it would be possible to reach agreement with EFTA collectively and suggested that we may find ourselves reaching agreement on a country by country basis. EFTA has so far spoken successfully with one voice. The Community view is that a series of agreements with EFTA countries would not achieve the goal of the European economic area. The recent EFTA ministerial meeting in Gothenburg underlined their commitment to strengthening EFTA structures.
My noble friend Lord Geddes mentioned the countries of Eastern Europe and hoped that they could be included within the European economic area. The European economic area is not conceived of as an exclusive club, but for the time being the EC and EFTA countries must press ahead with the programme of work that they have under way. It will be some time before Eastern European countries may be ready to join the European economic area, but I agree that membership could be appropriate as their economies develop. With that in view it becomes even more important that we get the structural arrangements of the European economic area right.
I am sure that other points were raised by noble Lords. I shall consider them and if I discover any that I omitted perhaps I may write to noble Lords. The need to keep in view the wider Europe has been brought out very clearly by the report and the debate 1206 we have had today. As my noble friend Lord Trefgarne said, our neighbours are watching us, and getting the arrangements right for the European economic area will make an important contribution to the architecture of the new Europe. We do not underestimate the difficulties ahead, and on both sides we are committed to resolving them.
The report of the committee covers all issues in depth and raises many interesting questions, not all of which we have had time to explore. I thank noble Lords again for providing so much food for thought and useful guidance for Government policy during the course of the negotiations ahead.
§ 1.38 p.m.
§ Lord Aldington
My Lords, I am sure that the whole House would like to thank my noble friend for his very competent and comprehensive reply, and for the terms in which he and my noble friend Lord Trefgarne addressed the subject. We are most grateful.
I should like to say how grateful I am—as is the committee—for the reception given by your Lordships in a number of highly stimulating and carefully thought out speeches, to the work we did in producing the report. I sense one or two noble Lords attempting to find a difference between the report and what they thought was right. My noble friend Lord Cockfield mentioned the Customs union. In Paragraph 75 we showed that we agreed with him, so there is no difference there.
My noble friend Lord Trefgarne made a point on the option that we set out in relation to the extension of jurisdiction of the European Court of Justice. We did not recommend that. We said that it was one of the options. I think the Minister liked our third option, and, frankly, so do I.
The point about opt-out was raised. If my noble friend Lord Bridges looks very carefully at paragraph 85, in which we deal with that, he will find that we were as nervous about that as he is. We explained why we did not think it prejudiced the position inside the Community.
I end the debate with a feeling—I hope that my noble friends who were members of the committee feel the same—that the whole House is in support of not only the work that we have done but of our suggestions and conclusions. I thank the House for that and I ask for agreement to the Motion.
On Question, Motion agreed to.