HL Deb 23 January 1991 vol 525 cc229-64

3.13 p.m.

Lord Williams of Elvel rose to call attention to the negotiations taking place under the auspices of the General Agreement on Tariffs and Trade; and to move for Papers.

The noble Lord said: My Lords, my noble friends and I decided to invite your Lordships this afternoon to debate the current GATT negotiations, known for the purposes of shorthand as the Uruguay Round, not merely by way of respite from the Gulf crisis but because the outcome of the round may in the end prove to be, in terms of the world economy, as important as the result of the conflict in the Gulf. Even in times of war we must give attention to the problems of peace. That is what we shall do today.

The Uruguay Round, as your Lordships will be aware, was given that name because it opened in Uruguay—to be exact at Punta del Este—in 1986. It followed previous rounds —this is the eighth—which have had as a common objective the liberalisation of world trade. Its predecessor was the Tokyo Round, which took from 1973 to 1979 to negotiate. The Uruguay Round is trying to deal with many of the issues left unresolved by its Tokyo predecessor, such as non-tariff barriers, agriculture, subsidies and safeguards. But it has also introduced some new elements: trade in services, trade-related intellectual property rights and trade-related investment measures. It is a full agenda.

In introducing the debate, I should like to comment briefly, since that is all that I can do in the time available, on some of those issues and to reflect upon the possible consequences of a failure of the round. At the outset I wish to make it abundantly clear that although this is not in any sense a party matter, we on our side will work in whatever way we can for its success. I can only echo the words of the General Secretary of the TUC, who said in Tokyo last month: Jobs in British industry depend increasingly on the expansion of trade and the growth of the world economy as a whole". That is a theme that I wish to develop.

There is no serious analysis of the post-war world economy of which I am aware that does not recognise the importance of the liberalisation of trade as a motor for growth. There is no analysis of third world economies of which I am aware that does not recognise how vital it is that the present round is successfully negotiated. But I am afraid that we are some way from achieving that desirable end at the moment. The round was due for completion at the end of 1990 to allow for the appropriate procedures to be followed in the United States Congress—known as "fast track" approval. The last bout of negotiation before the year end failed. We have to admit it; it failed. We are now near the absolute and final deadline for the fast track process to operate. That is why the next few weeks are so vital and why my party believed it to be right to bring the matter before your Lordships for debate today.

When I say "we" I have to make it clear to whom I am referring. It is no good me or any other noble Lord merely saying we want this, that or the other and expecting it to happen. Negotiations are conducted on our behalf and on behalf of all members of the European Community by the European Commission. So from the British point of view—the point of view of the House, if I may say so—there are, as it were, two steps. The first is to persuade our partners in the Community and then to help the Community negotiate constructively for all 12 member states. It would be naive to deny that both steps are fraught with considerable difficulty.

Apart from the politics, the issues themselves are of course extremely complex. In today's debate we shall not be able to do justice to them all. There are, after all, over 100 countries participating in the negotiations and 15 major areas upon which agreement is needed. I am sure that noble Lords who are to speak this afternoon will wish to roam over many of those areas, but I should like to identify the three issues which seem at present to be at the top of the agenda for negotiation and offer one or two thoughts on them.

The first, which will not surprise your Lordships, is agriculture. By way of background it has now become clear that the United States is determined to reduce not just its own agricultural subsidies, which are playing havoc with Federal finances, but, and perhaps more importantly, the subsidies paid to European and other farmers, and, in particular, subsidies paid to traders trading in European products on the international markets. The Cairns Group, as it is called, led by Australia, has the same objective, as indeed have those of the third world who wish to sell the produce of their lands; and let us not forget that in some cases it is the only product that they can export to the rich markets of the developed countries.

On the other hand (because in these matters there is always, I am afraid, another hand) in this country we must take note of the present dramatic decline in domestic agricultural incomes. It would be folly to destroy a major industry—which is by international standards extremely efficient—by reckless ill-considered action. I say, with all due deliberation, there is no doubt that the level of agricultural subsidy in Europe is too high. Moreover, we in Britain have a particular grievance. We are net contributors to the Community in agriculture and the CAP costs us dear. We pay through the CAP a social subsidy—there is no other word for it—to the small, continental, sometimes part-time, farmer. The Government, in my view, have been quite right to reject the most recent proposals for farm subsidies that have been put forward in Brussels in the past day or two.

But—and it is a large "but"—if we are to reduce subsidies to agriculture, it cannot be done indiscriminately and suddenly. We—by which I mean the Community—must be prepared to phase out subsidies over an extended period. If by doing so we can enhance the cleanliness of our environment and the beauty of our landscapes, that can only be a plus. However, it must be properly planned. Simple reliance on market forces will give us all the wrong solutions: a bankrupt agricultural community and a much poorer environment.

Nevertheless, some deal on agriculture must emerge if the round, at this late hour, is to have any hope of success. It would be agreeable—I put it no higher than that—if the whole common agricultural policy could be renegotiated. The Government would gain great credit if they could manage that. But we must recognise that the agricultural problem is not the only problem that is an obstacle to successful negotiation of the round. Indeed, some countries have blown up the agricultural problem in order to obscure the difficulties that they have in other areas. There are still formidable problems in the negotiation of a liberalised trade pattern in services. In particular, the United States have shown themselves very protectionist when it comes to two sectors of vital importance to us in Britain: telecommunications and banking. Bilateral deals in these sectors are apparently on the agenda, quite contrary to the spirit of GATT.

Therefore, the second issue to be addressed, the second major obstacle, is how to achieve freer trade in services. Ideally, this means quite simply freedom of establishment in all countries for service companies. We recognise that that will not be achieved overnight. Many third world countries, not to mention the United States and Japan, are instinctively hostile to the idea. But if we are to give on agriculture then they must give on other sectors. There is a trade off between the two issues.

The third issue that I wish to talk about is the integration of the textile and clothing trade into the general agreement. To date, as your Lordships will be aware, this trade has been regulated by the Multi Fibre Arrangement which has worked well in providing a framework for the restructuring of the textile industry worldwide. If the MFA is to be discarded—and it is perfectly reasonable to argue that it should be—there must be adequate safeguards in the form of a longish phasing out period. This is particularly important for us in Britain where we have nearly half a million people employed in the industry, frequently concentrated geographically in the north of England.

I have picked out these three issues not because they are necessarily the most important objectively, but because they give the most trouble in negotiations. There are many other points on which agreement is —or perhaps I should say was —near: protection of intellectual property, prohibition of local content requirements in inward investment, the settlement of disputes and the strengthening of the rules on what safeguards are available to signatories to the agreement. The progress on these issues seemed to form the basis for a sensible package if the three major problems that I have outlined could be solved.

However, alas, they were not solved. Last month was due to be the final month of negotiations; it ended in failure. The situation now is that we must try, the Community or the participants must try, to pick up the pieces. The simple fact is that we must come up with a better package on agriculture. That means that Germany particularly, and France as well, must be prepared to exercise the qualities of leadership for which we look. The German elections are now out of the way but it must be a major German and French contribution to the package that will make it successful.

I said that I would talk a little about the consequences of failure. I do not believe that I am over-dramatising the situation if I say plainly that those consequences would be quite disastrous. They would be disastrous for growth in the world economy, since there is no doubt at all that failure would spark off a trade war, as well as the formation of protectionist blocks such as the North America-Mexico block and, let us face it, perhaps the European Community. Not only would world trade suffer, but the consequential effects on employment in the advanced countries and on life itself in many of the poorer areas of the world hardly bear thinking about. Furthermore, we parochially in Britain would be major sufferers since a high proportion of our national product goes for export and always has done.

Thus I believe it is in everyone's interest to bring these negotiations to a successful conclusion. But in this matter there is something more than simple self-interest. What is at issue is the kind of world we wish to live in. Is it to be a world that lapses into protectionism, lives by beggar-my-neighbour politics, where the richer countries show no responsibility at all for their poorer brothers? We had that kind of world in the 1930s and we know where it led us. Or is it to be a world in which we have the political will to reach over frontiers and across seas and to recognise that, with the advance of technology, the world economy is and must be single and indivisible, and that the world economic product must be shared equitably among all its inhabitants?

That is the underlying, rather philosophical question posed by the GATT negotiations that are at present taking place. However, unless that underlying question is recognised, I am very much afraid that the technical matters will reassert themselves and we shall fall at the last hurdle. It is to encourage the Government to redouble their efforts to see that this does not happen that we have the debate this afternoon. I beg to move for Papers.

3.28 p.m.

Lord Young of Graffham

My Lords, I am grateful to the noble Lord, Lord Williams of Elvel, for bringing before your Lordships' House this subject which I believe to be of the greatest importance in the world, certainly for the next decade. The noble Lord must be right in saying that this cuts across party lines for I must confess that rarely have I agreed with so much of what he said this afternoon.

I raised this matter previously in your Lordships' House at the time of our debate on the Queen's Speech. I fear that all the events which at that time I was afraid would happen have now come to pass. I believe that the future of the GATT Round is an event far more important than the events which we read about day after day in the papers or watch hour after hour happening in the Gulf. That will be settled, I hope, no matter how awful and terrible the task, in the months to come. Before we take the chance of putting GATT in jeopardy, we should consider, first, the benefits that it has brought us and, secondly, the penalties which we shall pay if we fail.

GATT has existed for 43 years. From 1947 until the end of the Tokyo Round we have succeeded, mainly as a result of GATT, in reducing world tariffs from an average level of 40 per cent. to 5 per cent. In that time the volume of world trade increased eightfold. I am told by those who can calculate these matters that another 30 per cent. reduction in the existing levels of tariffs would boost European Community exports by 1.5 per cent. and create some 340,000 jobs.

The Organisation for Economic Co-operation and Development states that the cost to the EC taxpayers of the common agricultural policy is close to 100 billion dollars a day. That is equivalent to the gross domestic product of Denmark for one year. When a halt was called in the talks in the European Community for any changes in the agricultural policy in the early part of December, it was more effective than any Patriot missile in bringing down the negotiations. What are the penalties of failure? To obtain the closest parallel we must go back to the early months of 1930 when the Americans introduced the Smoot Hawley Bill which effectively made the United States a protectionist nation. World trade in manufactures fell by 40 per cent. and world manufacturing output fell by 35 per cent. in three years alone. All of us know well enough what unemployment, misery and degradation resulted from those events. I believe that that situation led directly to the more awful decade of the 1940s. Lest we in this country think that all that is academic, I remind the House that today we still export more per capita of manufactured goods than Japan. We are probably more dependent upon exports than any other nation in the world for our survival and our standard of living.

The situation in the Gulf has certainly complicated the negotiations. If it were not for the Gulf, the negotiations would be headline news day after day. However, I believe the situation in the Gulf has also increased the stakes, for it has adversely affected the penalties of failure. Over the past few months I have spent a considerable amount of time in the United States. I was there only last week for a few days. Many people there, on the Hill and elsewhere, are looking at the contribution which Japan and Germany have made to the coalition forces in the Gulf. People have been telling me that Japan for one is a beneficiary of a free trade in oil and that Japan and Germany are probably the greatest beneficiaries in the world of a free track in manufactured goods.

This time we do not have the luxury of the seven years which were taken up by the Tokyo Round. American legislation is on a fast track. That effectively means that the Senate and the House of Representatives have to approve the round of negotiations as a whole or not at all. The time limit for doing that expires at the end of February. If we do not have an agreement that can effectively pass through Congress by the end of February, the Senate and the House of Representatives will cherry-pick away. Enormous pressure is mounting every day —it will increase even more when land fighting breaks out in the Gulf—for the United States to adopt a protective and defensive policy in the negotiations.

Is there a prospect of success? The penalties of failure are far too high. The existing common agricultural policy costs each family of four in the EC £13.50 per week on top of their food bills. That has to be measured against an average food budget of no more than £40 to £45 per week. The costs of the common agricultural policy are felt throughout the whole of Europe and the effect on poor countries is even greater.

Half of Europe's gross domestic product comes from service industries. Some 60 per cent. of Europeans are employed in the service industries, but that area is being placed in jeopardy. The multi-fibre agreement adds £70 per year to the clothing bills of each family of four in this country. It has been calculated that if we can conclude this round of talks successfully, the Community exports to the United States and to Japan would each increase by over 2.5 billion dollars over the next five years.

Lord Harmar-Nicholls

My Lords, when the noble Lord, Lord Young, and the noble Lord who opened the debate said that we were placing certain matters in jeopardy, were they referring to Britain or to the European Community? If the noble Lords were referring to the European Community, we should try to do something about it.

Lord Young of Graf ham

My Lords, I must make it quite clear that I was referring to the civilised and uncivilised peoples of the world. It is the 104 nations gathered together for the GATT talks which must face the consequences of what they are doing. Time is limited, but I must conclude by saying that as the terrible and awful events are being played out in the Gulf today, the real determinant of peace and prosperity in the world is being decided behind closed doors in Geneva. I hope that a signal can go out to those nations in Geneva from your Lordships' House. Unless we can put these negotiations back on the rails and reach a successful conclusion, I fear that the 1990s and the first decade of the next century may replay the awful saga of the 1930s and the 1940s.

3.36 p.m.

Lord Mackie of Benshie

My Lords, the main difficulty in this matter appears to be the position of agriculture, which is holding up progress in the negotiations. We on these Benches realise that the talks are enormously important for the future of world trade and world prosperity. As a farmer I fully appreciate the importance of the talks, as do the other farmers of this country. We know that the talks must succeed.

I wish to examine the position of farmers throughout Europe in regard to the common agricultural policy. I wish to determine what can be done to alleviate the position of farmers as we are talking in terms of reducing support for farmers by a figure of approximately 40 per cent. That is a savage blow for any industry to face.

We need to examine the attitude of the United States. That nation is enormously pious with regard to EC subsidies when one considers that America subsidies agriculture and the export of food on to world markets to a considerable extent. The best figures I have found have been those produced by the Organisation for Economic Co-operation and Development. That body has worked out a formula which is referred to as the producer subsidy equivalent. The formula takes into account tariffs, the taxpayer and everything else. It has been broken down into subsidies per farmer. The figures are interesting and relevant. Australia forms part of the Cairns Group. The subsidy per farmer there is 4,000 dollars. In Canada the subsidy is 13,000 dollars, while in Finland it is 26,000 dollars. In Japan it is 15,000 dollars and in Norway it is 32,000 dollars. In Sweden it is 25,000 dollars; in Switzerland it is 26,000 dollars and in the United States of America it is 20,000 dollars. New Zealand is the only honest country in the Cairns Group and its subsidy is 2,000 dollars per farmer. The subsidy in the EC is 8,000 dollars. Those figures show that the problem is a worldwide one. It is not confined to the EC. That fact must be brought home to the US in the negotiations as that nation is the main pusher for a solution to the problem of oversubsidisation of the farming industry.

I happily admit that the failure of the Council of Ministers to follow the advice of the Commission as prices rose throughout the Community has in itself generated extra costs. A great deal of correction is needed in the EC at the moment. We must also realise that we in Europe are entitled to produce our own food and to protect our farmers. However, we are not entitled to produce a surplus with which to depress world market prices and ruin many third world farmers and whole countries. I firmly believe that such a practice is not permissible. The objective that we should set ourselves in the EC should be to reduce our production so that we produce what we need and can use ourselves, plus a reasonable carry over. If that happened we should solve the problem and we should not disadvantage the third world.

There is a lot of talk about the big farmer who is wallowing in money and drives a Bentley, and so on, and that the small farmer should receive the money. That is nonsense. In Europe a big farmer is considered to be someone with more than 100 acres. However, the man in the agricultural industry who is hardest hit is not the small part-time farmer who has another job. It is the man trying to make a living on between 100 and 200 acres. It is nearly impossible for him to make a living which is as good as that of the average industrial worker in this country.

There are many programmes in front of us to deal with the position but no definite policy. I suggest that the policy is a simple one. We have to reduce prices over a period of time, but we have to do so in a manner which is fair. We should use the present EC budget to alleviate the undoubted distress which will be caused to a great many people in the farming community. If we have a level playing field the best farmers can produce and make a living. We should do so in such a way that we preserve the land so that it can be used if the droughts which have reduced world stocks below the safety level in the past five years return.

If we do that I believe that we might solve the problem. We might produce an agricultural industry which is competent. However, the policy will need to be thought out and applied sympathetically over a period of years. If that happens there should be every prospect of industrial prosperity.

3.42 p.m.

The Lord Bishop of St. Albans

My Lords, despite the clarity of the opening speech of the noble Lord, Lord Williams of Elvel, I cannot help saying that the Uruguay Round has been described as the most complex set of trade negotiations of the post-war era. Therefore, it seems unwise for the Churches to make any contribution and I hope noble Lords will forgive me if I rise to my feet to say a few words. As the negotiations have proceeded over the past four years they have raised important issues of social justice and human responsibility which the Churches cannot ignore—social justice because trade is the lifeblood of many of the world's poorest countries and vital to their well-being; human responsibility because policies in the industrial nations, including our own, mould the external trading environment of the South.

My concern in this subject was prompted by a meeting which I had in this House some four years ago with the Anglican Bishop of Jamaica. We discussed the possibility of establishing a partnership between my diocese of St. Albans and some dioceses in the Caribbean, of which Jamaica was one. To my surprise his reaction was to say that although we could have a friendship expressed in reciprocal visits, correspondence and prayer, there could be no partnership unless we could play our part in seeking justice for the people of Jamaica in the face of massive debt problems and trade sanctions which effectively crippled his country's ability to grow to maturity and which ground many of his people into a humiliating poverty.

Therefore my modest and highly amateur contribution to this debate is to express my concern that the Uruguay Round may miss a vital opportunity to change the present inequality in international economic relations and that its outcome may undermine rather than enhance the prospects for sustainable economic growth and food security in developing countries which are in an even worse plight than Jamaica.

For the world's poorest countries the past 10 years have been a lost decade. It has been a decade of falling living standards, deteriorating human welfare and declining investment. Of all the indices confirming that worsening human situation perhaps the most graphic is the rise in infant mortality evident throughout the developing world. According to UNICEF the reversal caused by the economic slow-down was claiming the lives of an additional 10,000 African children daily at the end of the 1980s —though we can easily be blinded by figures that represent a large number of families in the congregations of my brother bishops.

It is not for me to discuss the reasons for that or the appropriate strategies for recovery. However, there is a widespread consensus that a worsening trade environment has played a major role in the crisis and its improvement is essential to renewed growth. The one plea that I want to make is to stress the importance of the industrialised countries undertaking substantial initiatives to address those twin problems of commodity trade and debt.

Perhaps I may make a specific reference to agriculture, which, as has already been said, is the most contentious item of unfinished business in the talks. From the outset the GATT deliberations on farming policy and reform have been dominated by the United States and the European Community. Their failure to overcome their differences remains the greatest obstacle to a settlement.

Paradoxically, however, agriculture is of relatively marginal significance to the economies of the United States and the European Community, accounting for about 4 per cent. of employment and GDP. That contrasts sharply with the situation in developing countries where it typically accounts for more than 60 per cent. of employment and a quarter of GDP. Despite that fact developing countries, so I am told, have had almost no influence on the GATT agricultural trade negotiations. The fact that a reformed GATT will for the first time exercise a major influence on their farm policies surely makes that unacceptable.

Last month in Brussels Church leaders from around the world rejected the free market position as a basis for GATT rules extending to developing country agriculture. A statement issued by the European Ecumenical Commission for Development, endorsed by the World Council of Churches, the Caribbean Council of Churches and a number of bishop; and archbishops, both Catholic and Protestant, from Europe, North America and Africa, urged the negotiators to reflect on the very different circumstances which face farmers in the North and in the South. The statement said: As Christians, we cannot accept that the most basic right of the human community, the right to food, or our collective responsibility to prevent hunger, should be subordinated to … the arithmetic of the market place". The statement went on to urge governments in the North to recognise the distinction between subsidies such as those applied in the United States which result in over-production and distorted world markets and subsidies in the South which are aimed at enhancing food self-reliance and protecting employment. With the Geneva talks resuming against a background of famine in sub-Saharan Africa and growing malnutrition elsewhere, that is a distinction which I believe the GATT must accept as a basis for securing the most basic of all human rights—the right to food and thus to life itself.

3.49 p.m.

Lord Bruce of Donington

My Lords, I do not often find myself in agreement with the noble Lord, Lord Young of Graffham. However, in his reference to the long-term consequences of a failure of the GATT negotiations he was dead right. The consequences will be most grave for the world as a whole, particularly for third world countries and not least for ourselves. It is important that we should realise the reasons for the breakdown of the negotiations on 7th December last year.

There were references by my noble friend Lord Williams of Elvel to the outstanding matters relating to the Multi-Fibre Arrangement and the necessity for a freeing up in the financial services area. Of course, the latter occupies only an insignificant amount in terms of world exports (about 7 per cent.), and even though progress there is desirable it is obviously not of such vital importance as the trade in merchandise.

There can be no doubt that the negotiations broke down quite simply because of the European attitude as expressed by its representatives in relation to the Common Agricultural Policy. The noble Lord, Lord Young of Graffham, has already referred to its cost to us of £15 per week per family of four. He could also have mentioned the fiscal cost to us in terms of £2,000 million per annum of extra taxation out of the Consolidated Fund. There can be no doubt that it is the breakdown over the whole structure of the CAP that is at stake.

As The Times put it in its issue of 8th December: The EC's refusal to dismantle the fraud-ridden market-rigging cartel it calls the common agricultural policy … drove the talks on to the rocks. The world is poised to enter a cycle of protectionism and 'managed' trade which will exact a dreadful price in jobs, inflated consumer prices and market opportunities, and cripple the economic advance of the Third World and Eastern Europe". The Times puts it in even more moderate terms than I would in normal circumstances.

The CAP as such has never had any friends in this House who are prepared to justify its structure or results. In fact, the House has been almost unanimous in its condemnation of the whole structure of the CAP, and that is also true in the case of the European Parliament. Everybody agreed that it was wrong but nobody was prepared to do anything about it.

In the limited time at my disposal I propose to make a few suggestions as to what might conceivably be done. Obviously it is no good looking to the Council of Ministers under conditions where by a qualified majority the Germans and the French together would be quite sufficient to secure any rejection of the CAP's amendment, or where by unanimous vote even the vote of Luxembourg would be sufficient to veto any change. It is quite clear that given its present mood, particularly in France and, I regret to say, in the United Kingdom, the attitude of the Council is most unlikely to change. We cannot change the situation there.

What about the Commission? The Commission has had a go, but I cannot recall M. Jacques Delors breaking his deafening silence over the past two months to make any constructive suggestion for resolution of the problem, although there has been some revised plan which according to today's press our Minister of Agriculture and the French have already rejected. Quite clearly, we are unable to look for very much help from the Commission itself, despite the fact that the CAP contributes only 3 per cent. to EEC GDP at an annual cost of 100 billion dollars.

Can we expect anything from the European Parliament? I have listened to many speeches in the European Parliament on the necessity of reform, but it cannot initiate any proposals; it can only discuss and act on such proposals as the Commission permit it to. In any case, out of the 518 Members, only 300 (some 60 per cent.) take an active part in the proceedings of the Parliament as a whole. Indeed, on the Motion on the Gulf last week, 311 out of the 518 turned up.

We come back to the Government. What can the Government do? The Government can and should tackle the matter root and branch. At the moment the Government are involved in an intergovernmental conference in which amendments are sought to the Treaty of Rome. They should use their power now to insist on amendments to Articles 38 to 47 of the Treaty of Rome and go for a radical restructuring of the whole of the common agricultural policy. As a Government, they should adopt at home such suitable income support measures as are necessary for the preservation of our agricultural community and the standard of life to which it is entitled.

3.56 p.m.

Lord Sanderson of Bowden

My Lords, I thank the noble Lord, Lord Williams, for bringing this debate before the House today. As a former agriculture minister I will resist the temptation to become involved in that part of the discussion which is already occupying your Lordships, but I declare an interest as a director of a United Kingdom textile company which relies heavily upon exports of high-quality goods. It is to that area—the area to which the noble Lord, Lord Williams referred—that I wish to address my remarks.

The importance of the GATT Round to the textile industry in Great Britain cannot be over-emphasised. We need to ensure free and fair competition throughout the industrialised world in this regard. As has already been said, the price of failure could mean real problems for that industry. Time is running out. The Congress deadline for report by 1st March, if the fast track approach is to have any success, is very important for this House and, beyond this House, for every party to these negotiations to understand. I refer to the Punta del Este Declaration of 1986 that the textile and clothing trade should be integrated into GATT, which is EC-speak for phasing out the MFA. I do not object to that. I congratulate the Government on that declaration and the work they did to get that declaration, but it was based on the strengthening of GATT rules and disciplines.

I hope that my noble friend the Minister in replying to this debate will give us an assurance that that declared intention has not been overcome by events. United Kingdom industry will compete on free and fair terms, but where is the fairness in excessive tariff rates, which for the export of some textile goods to Australia are more than 50 per cent? There are penal import duties (now running at 36.1 per cent.) on the United Kingdom export of cloth to the United States, as I have known only too well to my cost for many years. South Korea's £2.5 billion subsidy scheme for textile and clothing does not seem to me to be free and fair when it comes to competition in the ultimate result. There is also Turkey, a producer which gets subsidies and cotton supplies at below world prices. I do not want to see any eleventh-hour compromise which torpedoes that declaration on strengthened rules and disciplines.

I agree with the noble Lord, Lord Williams, that if the MFA is to be phased out, let us do it on a timescale to which the industry itself can adjust; let us not bring it in at a politician's whim and in circumstances where the industry has had no time to adjust. But I believe it is more important still that effective means of enforcing and respecting those strengthened GATT rules are agreed and applied. We are talking about an industry which exports £4.5 billion worth of goods. It is not an old-fashioned and outdated industry any more. It is an industry which produces some of the finest quality goods in the world.

I believe that we have a fight on our hands. That fight may well be most difficult with the strong developed countries in the world. In the end, they could undoubtedly be the biggest stumbling blocks to achieving success in free and fair competition for industry in this country and many others.

4 p.m.

Lord Donoughue

My Lords, nobody can doubt that the breakdown in the GATT talks was very worrying and that a successful resumption is critical to the future welfare of world trade. If GATT finally collapses, there will be acute danger of the world drifting into three protectionist blocs—North America, Europe and Japan—with the poor South excluded, and a growing danger of trade wars between the blocs.

As the world slips into recession it is inevitable that calls for protection will grow. We must resist them. In fact trade liberalisation offers the best non-inflationary way to restore growth to the world economy. It is especially in the interests of Britain which, as a major exporter, is dependent on international trade for its economic prosperity.

Certain items under discussion in the Uruguay Round also offer great benefits to us. I have in mind the proposed liberalisation of services, the proposals for intellectual property, and of course any prospect of modifying sensibly the European agricultural policy (which was at the heart of the breakdown in the talks in December). The gaps between the sides on agriculture remain great. It is tempting to join the USA and perhaps some others in denouncing the EC for its inflexibility. It is especially tempting to those who believe that European agricultural policy contains much nonsense and should be radically changed. However, having accepted all the familiar sins of European agriculture, it does not follow that the EC should be battered into massive concessions; nor is there in reality any prospect of that happening in the short run. If the resumed talks depend on that, they will fail.

The central political point to remember (and for the USA to bear in mind) is that the EC is in a very difficult negotiating position on agriculture. The Commission represents twelve partners with very different interests who often basically disagree on agriculture policy. Having reached a precariously agreed position, it is difficult to become flexible in the GATT negotiations without splitting the unity of the EC. That is the political reality.

Quite apart from the structural problem, which will persist, is a profound problem relating to policy; namely, that the EC is being pressed—as we ourselves press it—to make changes in its fundamental agricultural support system. I and many other noble Lords would welcome such changes. But that is not the point at this moment. The political fact is that the Commission in Brussels does not yet have a mandate for such fundamental changes. The Government should take this opportunity to press for such changes, but we must accept that countries such as Ireland, France and Germany will not easily give up the benefits of the present system. The USA must accept that reality in the present talks. They must not have exaggerated expectations. They should recognise that demands for cuts of 90 per cent. in subsidies and 75 per cent. in farm support are probably unrealistic.

On a more positive note, and looking for ways forward, we should be actively thinking—there has been some thinking already—of policies which will meet some of the genuine anxieties of our EC partners who support the present system, in order to make it possible for them to accept change. I have little sympathy for the French desire to keep their so-called small farmers comfortably subsidised by the British taxpayer. We need a stricter definition of what is a genuine small farmer. But I sympathise with the French fear, which is shared in Scotland, Wales, Ireland, parts of Italy and Germany, that genuine rural life will be destroyed if we do not continue to give significant agricultural support. However, we need to address that problem with particular solutions. Current thinking about setting aside farmland to protect the environment and encourage leisure employment in rural society is promising.

Whereas the EC has suffered most attacks for the failure of the talks so far, we should note that the negotiating position of the United States is not wholly virtuous. Interestingly, the Japanese representative put most blame for the breakdown on the United States. One particular problem of the December talks was the regrettably hectoring and bullying tone of the United States trade representative, Carla Hills. Perhaps we can gently indicate to our American allies that a more diplomatic style would help the talks along and what we might call the Schwarzkopf approach is more appropriate to Baghdad than to Brussels.

Nor must we forget the dilemma for the third world. Poor agricultural countries often suffer in these talks. We should remember that to a poor developing country the liberalisation of trade may mean more of a threat than a promise. Poor agricultural countries need to protect their food production. Developing countries need protection in the services field. How can they ever develop indigenous banking or computing facilities if the American, European and Japanese giants are already there on the ground?

However, our main anxiety is that the GATT talks should resume successfully. It will require compromise and I trust that our Government will put maximum pressure on our EC partners and our American allies to achieve that aim. The best hopes for compromise seem to lie in the Europeans applying specific limits to food exports, allowing greater food imports and perhaps in a move away from variable levies toward fixed tariffs. As for the United States, they must be more flexible and less bullying. They must be more realistic in their demands for concessions from the EC. Her Majesty's Government must use their special relationship with Washington to press for that. Then it is to be hoped that we can achieve success which in the long term, as my noble friend Lord Williams rightly said, may be as important as success in the other more dramatic battles in the Middle East.

4.7 p.m.

Lord Cockfield

My Lords, there is an obvious flaw in the drafting of the Motion. It refers to negotiations taking place, yet the whole problem is that negotiations are not taking place. They have been deadlocked. They have been deadlocked primarily because of disputes over the international trade in agricultural products.

I hold no brief for the United States of America. It is a highly protectionist country. It shows scant regard for its obligations under the GATT. Its negotiating tactics leave much to be desired and it subsidises its own agriculture to a very substantial degree. Nevertheless it is absolutely clear that unless the question of subsidisation of agriculture is addressed and solved, there is no hope of relaunching the negotiations and achieving success.

The problem is perfectly simple: namely, that prices in the Community have been set at an excessive level. That leads to excessive production. The excessive production is reflected in stockpiles. The stockpiles can be sold only by heavy subsidisation. That disrupts international trade and gives rise to the kind of problems that we face.

The extent of the reductions that would be necessary in order to clear the market—that is, to achieve a balance between production and consumption—are very great indeed. The proposals that were tentatively put forward over the weekend by the Commission and on which a discussion started in the Council of Ministers yesterday—although it had to be adjourned because of a certain tragic event—envisage a 50 per cent. reduction in the guaranteed price for wheat, a 30 to 40 per cent. reduction in the price of other cereals, a 15 per cent. reduction in the price of butter and a 10 per cent. reduction in the price of milk. Let me say that these proposals were put forward not in the context of the GATT but in the context of time to avoid a further financial crisis facing the Community. But the reductions that would be necessary to achieve a market clearing basis for the GATT negotiations would be every bit as big as this.

The effect of these reductions, which would clearly have to be spread over time, would be appalling for agriculture in this country and probably in many other countries is concerned. The problem so far as we are concerned is that successive governments in this country, ever since we joined the Community, have tried to face both ways at once. They have denounced the CAP for excessive expenditure and they have given their own farmers every possible encouragement to expand their production in order to take advantage of this huge flow of fool's gold which they could see running in front of them. The effect has been greatly to exacerbate the problem in the Community itself.

When we joined we were 50 per cent. self-sufficient in temperate foodstuffs. Today we are 100 per cent. self-sufficient in temperate foodstuffs. In effect, we have greatly contributed to the build-up of the surpluses ourselves. But in addition we have ploughed up our grasslands, we have extended agriculture into land not suited for it and we have used vast quantities of fertiliser which have had all sorts of deleterious effects. This has driven up the price of land, it has driven up rents and it has meant that the farmers are now heavily in debt to the banks.

The farming industry in this country already faces a financial crisis. The position will become infinitely worse if the problem is addressed in the way that it has to be addressed. Nevertheless there will be no solution if we back away from the necessity of dealing with it. Anything which has to be done to protect the individual farmer, whether in this country or in the Community generally, must be in a form in which does not encourage additional production.

The greatest problem of all here is that these matters are dealt with by agriculture ministers and the duty of an agriculture minister is to look after the interests of the farmers, not to look after the national interest. This is true not only in this country; it is true in every other country as well. In 1982, when I was talking to "Mac" Baldridge who was then the Secretary of Commerce in the United States, he said, These problems will never be solved as long as they are left to ministers. At the end of the day they will have to go to the heads of government to be solved". That, I believe, is what will have to be done.

4.14 p.m.

Lord Jay

My Lords, in my six minutes I would say, first, that the refusal of the EC to make more than inch-like concessions on the common agricultural policy is the real obstacle at this moment to a new GATT agreement. Of course the United States has made difficulties over financial services and other things. But, though they are important, they represent only a fraction of the total value of trade damaged by the common agricultural policy.

The primary harm done by the CAP is not the surpluses and subsidies about which we hear so much but rather—and here I am glad to agree with the noble Lord, Lord Cockfield—the excessively high prices caused by import restrictions, quotas and outrageously heavy import levies which almost prevent food from the outside world being imported into the EC at all. There are no surpluses in the real sense of more food being produced than people can consume. The trouble is that the prices are so high that the consumer cannot buy the food that he otherwise would buy.

The United Kingdom is of course hit worst of all. In a world of free trade the UK would import very little food at all from the EC. But we are now forced to buy high priced EC food by this whole system of import levies and quotas and, in the case of Australian and New Zealand food, outright restrictions and vetoes on imports. In the 1980s, on average, food cost the EC consumer 70 per cent. more than consumers outside.

In recent years the import levy in the UK for wheat and barley stood at 150 per cent. of the import price, for meat it was over 50 per cent. and for dairy products it was as high as 200 per cent.; and this, as the noble Lord, Lord Young, said earlier today, is costing the UK consumer something like £4 or £5 per week per head of the whole population in this country. Altogether the CAP is costing the EC taxpayer about £20 billion sterling per year. Nor is it true that subsidies in themselves are the cause of the evil. There is all the difference in the world between the deficiency payment or the income support paid to the farmer, which works on the whole as a subsidy to the home consumer, and a subsidy to the exporter to sell his goods abroad below world prices with great damage to other countries.

The EC subsidies, which they politely call "restitutions', are the consequence—I think that the noble Lord will agree with me here—of the intolerably high internal prices which generate the apparent surpluses, which then have to be sold abroad at one-half or even one-quarter of the EC prices. The EC subsidies are almost wholly of this kind.

The real choice, as I see it, from the farming point of view is between supporting the farming community by deficiency payments or income support, and import restrictions and taxations which force up prices. Indeed, the deficiency payments in force in this country right through from 1947 to 1972 allowed free importing and ensured low world prices for the consumer and a fair living for the efficient farmer at the same time.

I believe therefore that the interests of the UK in these crucial negotiations are very much in line with those of the United States and of the other great food exporting countries in the Cairns Group. For it is not just the United States today which is lined up with the Cairns Group against EC protectionism but a number of other countries, including Canada, Argentina, Australia, New Zealand and indeed some third world countries.

Our interests in the UK, whatever is true of the EC, are almost wholly identical with this large and representative group of countries. However, I fear that the Government have given too much the impression in these negotiations, particularly the present Minister of Agriculture, that they have been bullied by EC protectionist pressure onto the wrong side and have come very near to fighting for the narrow interests involved against most of the rest of the world.

I hope that that is not true. But the Government can prove that it is not true by fighting vigorously, even at this twelfth hour, in the resumed negotiations —and I presume that they will be resumed—for a far more liberal solution and for really major cuts, no doubt over a period, in EC price levels which alone will make a new GATT possible. But there is very little time left.

4.20 p.m.

Lord Boardman

My Lords, I congratulate the noble Lord, Lord Williams of Elvel, on having introduced this debate because it is a most important subject to us all. I agree with a great deal of what he said, although not all of it. He said that there were three particularly sensitive issues and I have an interest to declare, either past or present, in two of them: in farming, where I have a small interest in a farming partnership, and in banking, where I had some previous involvement. However, there is not time in six minutes to put right the problems involved in both major sectors, and so I shall confine myself to agriculture.

My concern over what the noble Lord has said, and which has been echoed in other places if not in here this afternoon, is that, to use his words, there must be "a trade off''. It worries me that in order to secure the agreement which we seek someone has to suffer and something must be sacrificed. The general message which has come from many quarters, both today here and from other quarters, is that it is agriculture that must be sacrificed to reach this agreement.

I believe that is a danger of which we should be aware, and certainly it is one which I feared when earlier our Government offered a 30 per cent. reduction in subsidies, over a period, which was not agreed by the other members of the Community and which of course was turned down by the United States of America and the Cairns Group. In isolation we are doing that at a time when farming is going through a tremendously depressed period.

The noble Lord, Lord Williams of Elvel, said—and of course he was right—that we need to get agreement from two sectors: from the Community and from GATT. Neither of those will be easy. Within the Community we have had and continue to have massive problems under the CAP. I am convinced that this country has failed to get its fair share of what has been going round, whether it be excessive or not, for a long time. We have only to look at what has happened and is still happening as regards the green pound where, despite the efforts made last year by the Minister of Agriculture, Mr. Gummer, to get some reduction and some alleviation of the penalty, it still will be the end of 1992 before we get on level terms.

Perhaps I ought to correct—if I am right, as I think I am —something that was said by my noble friend Lord Cockfield a few moment ago when he referred to this country as being self-sufficient in food. According to the ministry publication, Agriculture in the United Kingdom 1990, which has just been issued, the UK self-sufficiency of food, as a percentage of all food, is 56 per cent., and of indigenous-type food and feed is only 73.3 per cent.—not, as I understand it, the 100 per cent. to which my noble friend referred. I think it is important, if I am right, that that point should be made.

The United Kingdom agriculture industry is going through a very depressed time. This year alone, as the book shows, 6,000 farmers have left the land. Farming incomes are down by 22 per cent. These are very severe blows on an industry which was already suffering, however prosperous it may have been in the past. I shall not attempt to apportion blame or to say what the remedy might be as between the CAP or GATT or indeed the United Kingdom Government, but I should like in the few moments I have left to say something about the importance of British agriculture to our economy.

I believe it is too often taken for granted and perhaps too often overlooked as regards what it does contribute. I believe we have one of the most, if not the most, efficient agriculture industries in the world. Certainly we employ only 2 per cent. of the population, or something just over that, whereas Germany employs more than 5 per cent. and France nearly 7 per cent.; yet in rural areas the population dependent directly or indirectly upon agriculture varies between 15 and 30 per cent.—so many cities the whole length and breadth of the country, such as Lincoln and York, Market Harborough and the like, are dependent upon a prosperous agriculture. Woe betide any government who forget that message and allow the industry to go into a deep recession.

What other industry in the country can show a labour productivity to match that of agriculture? What other industry over 10 years has kept price increases to something under 40 per cent. of the general increase in the RPI? During that period water has gone up 162 per cent. and rail by 142 per cent. The RPI has gone up by 103 per cent. and yet food at the farmer's gate has gone up by only 44 per cent. Food represents a very small part of the total household budget. Out of a total expenditure on food and drink of more than £78 billion, food at farmer's gate prices represents, at gross product output, something like £7 billion. Prices for food from the farmer's gate have tended to go down and down in real terms and they have to be compared with prices which appear in the shops. As an illustration of that, today beef prices are down very substantially whereas the price of beef in the supermarkets has gone up. Agriculture and the farmer must not be blamed for that.

I see that my time is up, but I should like to urge that the Government, in their continuing negotiations in GATT and within the Community, are mindful of the contribution made by UK agriculture to our economy and that because of its importance it will be allowed to prosper.

4.27 p.m.

Baroness Lockwood

My Lords, the crisis arising from the suspension of the GATT talks has focused on agriculture as that appeared to be the crucial issue causing the suspension of the talks. However, like other noble Lords, I believe other interests were also at work, and not least in the United States, which were tending to hide behind the agricultural issue.

I want to follow the speech of the noble Lord, Lord Sanderson of Bowden, and talk about the position of the textile and clothing industry in the light of the phasing out of the Multi-Fibre Arrangement in July of this year. Because of past crises in the textile industry many people in this country seem to think that there is no such thing as the United Kingdom textile industry left. That is quite wrong. On the contrary, as has already been indicated, the textile and clothing industries together have a workforce of under half a million people. It is the fifth largest sector in manufacturing industry in the United Kingdom. The annual sales of the sector last year amounted to some £15 billion, of which £5.4 billion is added value. Its exports in the last year were something in the range of £4.5 billion. That indicates the importance of the industry to the British economy and in the present GATT round, if it resumes as we hope it will, these interests must not be minimised by the Government.

The ending of the Multi-Fibre Arrangement is causing concern to the industry in terms of employment. As we are all aware, the employment force in the textile industry in particular has been seriously depleted by past crises in the industry and there are fears that it will be further depleted by the phasing out of the Multi-Fibre Arrangement. There are some differences of opinion as to the extent of the employment problem. Professor Silberston, reporting under a commission from the Government, estimated possible losses in the industry of 33,000 people. The industry itself is more pessimistic and feels that the Silberston report is flawed. The TUC suggests that more than 100,000 jobs will be lost and the European Textile Industry Association estimates that in the Community as a whole more than 1 million jobs will be lost. Therefore, it is a problem. The problem in the UK is worse than in Europe as a whole. Industry in the United Kingdom was slower than the rest of its European competitors in restructuring and modernising, although in the past five years it has made substantial investment.

The position now is that, although low-cost imports from the developing countries are still a critical problem for industry in the UK, more than half our imports come from EC countries. Therefore, it is essential that, first, the GATT rules are adequate to cover the situation in all ways and, secondly, that British industry receives the same support as other European industries.

As the noble Lord, Lord Sanderson, indicated, not all the problems we face lie with the developing countries. He gave indications of evasion of the disciplines which should apply under the MFA. However, in relation to the developing countries we need to distinguish between those developing countries such as Lesotho which need help and protection, and other countries such as South Korea which are now in a position to take care of themselves. That distinction should be made in whatever emerges from the new arrangements which we hope will be made.

Although the Government seem now to have stiffened their position on the GATT talks in relation to textiles and clothing, I should like the Minister to give us an assurance today that they will press for a minimum of 10 years for the phasing out of the MFA and that they will support the proposals of the European Commission that increases in import growth rates will be limited in the first stage of the phasing out period and then increase gradually. We need assurances from the Government on those points and their assurance that the new arrangements will be even stronger than those which are being phased out.

4.32 p.m.

Lord Wade of Chorlton

My Lords, I should like to add my thanks to the noble Lord, Lord Williams, for introducing this debate. I intend to restrict my remarks to the food trade. I should explain that I have an interest in that I have been a farmer all my life and still try to make a living from that now very precarious occupation. If anybody would like to talk about buying a farm, perhaps he would meet me in the Peers' Lobby later. I am no longer commercially involved in the food business but I have been for most of my life.

Before we entered the EC we had other financial systems supporting agriculture—the price support system. Under those systems farmers received a payment which made their income up to what was considered to be a satisfactory amount. However, the products were sold into the market place at the market price, which fluctuated up and down according to supply and demand. The food trade bought its products from the farmer at normal market prices which were heavily influenced by world market prices.

Since moving into the EC there is now a different system. I wish to make a point which is sometimes not appreciated—namely, no farmer ever receives a cheque from the EC. All the money paid by the EC to support food prices is paid through the trade. The food trade receives money either in terms of internal subsidies or for export refunds which help to adjust prices to what would otherwise be world price levels.

That means that the food trade in this country is now able to operate on a world trade basis. That system, which I admit is extremely complicated and into which I shall not go here, enables the food trade to sell at world price levels the food bought from the farmer. If one looks at the European food trade, of the 20 top food companies in Europe, 14 are British. Of the top 100 food and drink companies in Europe, 23 are British. Therefore, we have many more food and drink companies than any other country. People in the textile industry talk of how big their industry is, but the food industry is by far the largest. It operates 14.5 per cent. of total manufactures in food and drink and some 600,000 or 700,000 people are employed in it. One sees the scope and the scale of the business about which we must be concerned. The key issue from the food trade's point of view is that, if we are to maintain that strong position in Europe and continue to export about £2 billion worth of products outside the EC, it must still be in a position to buy its raw materials at world prices, which it now does through the EC intervention system.

My noble friend Lord Cockfield explained the latest MacSharry proposals which will have a drastic effect upon the agriculture industry. If one ties those in with the United States proposals in the GATT negotiations, then most of the export refunds will be abolished. I must make clear that those refunds are not a subsidy to the food trade, but they make it possible for the food trade to sell and manufacture its goods at world prices.

As regards the current negotiations, I am concerned that, on the one hand, the food trade is losing its opportunity to buy products at world prices and, on the other, we continue to find systems of supporting the marginal food producers in terms of agricultural producers. Therefore, we shall end up with a system where in Britain particularly and in Europe generally we shall not be producing our food at world prices. Therefore, the food trade must buy its raw materials at inflated prices but will be expected to compete with a world market based on world market prices.

The impact will be that the UK producer particularly will not have the enormous market in the food trade which he now has. The food trade buys 70 per cent. of all food produced on British farms. What concerns me is that the latest MacSharry proposals, so well defined by my noble friend Lord Cockfield, will make life difficult for the more efficient producers while placing more money with the less efficient producers. However, if we are to solve the problem, we need to take out the marginal producers so that those who are producing our food—and it will be an enormous quantity of food—are at least producing it in the most efficient manner possible. If British farmers are able to produce in the most efficient manner possible, the food trade can buy its food from them very competitively and we can maintain our market.

Another point which I must make is that the food trade is not exporting goods in order to get rid of them. We have no more than our accepted share of the world trade, which, as your Lordships have rightly said, is a growing business. We should continue to share in that growing opportunity.

Therefore, I should like to say to the Government that in these negotiations it is very important that we do not end up with a system which takes away the food trade's ability to compete on the world market while at the same time maintaining support of agriculture which makes it impossible for our food producers to run as efficiently as they should. In other words, they will all become 50 per cent. producers. We cut back here and cut back there and give financial support to the marginal producers which, quite frankly, should be out of business altogether. We are now wending £22 billion per year on supporting the CAP. That money could be better used to take out from business marginal producers.

4.40 p.m.

Baroness Carnegy of Lour

My Lords, I wish to turn your Lordships' attention, I hope quite easily, from food to whisky. I want to say a word about GATT in regard to the Scotch whisky industry and other spirit drinks industries in the EC. I wish to mention the industry's most recent submission to GATT, and ask the Government whether they are prepared to back that submission.

In world markets Scotch whisky and the other Community-produced spirits face a considerable array of tariffs and tariff-based barriers to trade. It is a significant problem for the Community as a whole as well as for the UK. Scotch whisky volume sales for export exceed those of all other Community-produced spirit drinks put together and are six times those of cognac. Within the UK, with 85 per cent. of sales exported—£1.4 billion worth —Scotch whisky is among the top five UK export earners.

Because negotiations on spirit drinks are part of the GATT agricultural negotiations, there has always been the danger that they will not receive adequate attention amid the wider agricultural debate. That is the reason the European Community association of spirit producers, on the initiation of the Scotch Whisky Association, has consistently pressed our Government, the Commission and the GATT secretariat to ensure that the industry's problems are properly assessed.

I am advised by the Scotch Whisky Association that detailed evidence was submitted in 1987 identifying a vast range of barriers to trade. Those barriers existed in 84 GATT countries. There were more than 40 instances of tax discrimination in favour of countries' locally produced drinks. There were more than 130 examples of discrimination by means of excessive customs duty, and, most insidiously of all, some 200 non-tariff barriers ranging from import embargoes or quotas to monopolies, systems of prior deposits, restrictive import licensing or analytical procedures.

An example of a GATT contracting partner which protects its own domestic spirits in that way is Korea. Its liquor tax on home-produced soju is 35 per cent.; on whisky it is 200 per cent. On top of that it adds value import duty of 25 per cent. on imported brandy and 40 per cent. on Scotch whisky and other spirits.

Since 1987 the dossier containing that evidence has been constantly updated and discussed with our Government, with the Commission and with GATT. Most recently, on 10th January this year, a fresh submission was made. It was specifically tailored to 27 markets which the Commission had identified as its priorities. The submission reiterates the industry's principal objectives. They are, first, the elimination of all import duties and equivalent charges on a reciprocal basis between countries; secondly, the levying of excise tax on the basis of alcoholic strength and at the same rate whether the spirit is domestically produced or imported; and, thirdly, the removal of all non-tariff barriers.

Neither the Scotch Whisky Association nor the European Community association has ever sought protection in domestic or other markets. They have consistently backed the reciprocal elimination of the European Community's common customs tariffs on imported spirits or, should that prove unattainable, the bringing into line of the present differing CCT rates at an identical and reasonable level on the basis of alcoholic strength and to the exclusion of all other import duty equivalent charges.

In view of all that perhaps I can ask the Minister, first, whether the Government would agree that the submission to GATT on 10th January by the Scotch Whisky Association and others seems likely to secure fair trading in export markets for those industries. Secondly, are the Government prepared to support that initiative? I hope that when my noble friend responds he can give me an answer.

4.45 p.m.

Lord Pitt of Hampstead

My Lords, I should like to join other noble Lords in thanking my noble friend Lord Williams of Elvel for introducing the debate. The crisis that has developed in the Uruguay Round of multilateral trade negotiations is much more serious than generally realised. The blast of publicity which accompanied the disagreement on agriculture, particularly between the United States and the European Community, may have distorted the general perception of the crisis, presenting it as one which has arisen mainly among developed countries.

The issues at stake are much wider and more fundamental than is generally assumed. They include the question of whether the developed countries will give effect to the virtues of free markets at those points where it would require some painful adjustment. The real crisis is how the developing countries will overcome the serious difficulties of adjustment which their fragile economic structures will face if they are exposed to the full impact of market forces. It is that which will be crucial to the future development of those countries.

As has been said, the Uruguay Round is the most comprehensive and complicated system of trade negotiations that the world has ever seen. It includes issues that have been brought into a GATT round for the first time even though developing countries have never been enthusiastic about undertaking the GATT negotiations in those new areas. The question needs to be asked whether those countries in the third world, particularly the least developed among them which have not shared adequately in the expansion of world production and trade during the past decade, and many of which are still burdened by heavy indebtedness, can reasonably be required to undertake new commitments in the current negotiations. That will require even more difficult adjustment.

I am grateful to the right reverend Prelate the Bishop of St. Albans for his contribution. The issue of development has been prominent in the negotiations. Developing countries have agreed all along that the agreements to be concluded on the various items should be such as to promote and not inhibit their development objective. They supported their objective by reference to the mandate agreed for the negotiations in which, among other things, the parties agreed to the principle of differential and more favourable treatment for developing countries.

It was also agreed in the course of negotiations that the developed countries will not expect the developing countries to make contributions which are inconsistent with their individual development, and financial and trade needs. While several provisions in the draft final act submitted to the meeting in Brussels reflected those anxieties, they generally fell short of what had been envisaged in the negotiating mandate. That is an area where the developed countries can and should be more forthcoming. It will certainly be a key factor in persuading the developing countries to subscribe to the final act.

Reconciling the difference which exists between the developed and the developing countries will require among other things more liberal offers by developed countries on market access. That covers a whole range of issues including tropical and natural resource-based products. It also requires more determined efforts to submit trade in textiles and clothing to GATT rules and disciplines and more flexibility in dealing with the outstanding issues concerned with safeguard provisions, trade-related intellectual property measures, trade-related investment measures and services. A start has been made, albeit a small one, by the EC in its acknowledgment that more needs to be done on access for tropical products. That is only a small step. The next few weeks will be crucial for the negotiations.

Since, rightly or wrongly, agriculture has become the linchpin on which future progress in the round depends, an early breakthrough in this sector will be crucial in carrying forward the negotiations. It will not of itself assure a successful completion to the negotiations. For the developing countries the central issue is the alleviation of poverty. That has been stated in the World Bank's statement to the Brussels meeting. It is the contribution of the round to that objective that will be the yardstick by which the developing countries will judge whether or not it is a success.

4.51 p.m.

Lord Mottistone

My Lords, I wish to thank the noble Lord, Lord Williams, for introducing this most important debate at a very important moment in the history of the GATT negotiations. I apologise to the noble Lord, Lord Pitt, for not being able to follow up the points that he was making. When one has a tight timescale one has to concentrate on what one is going to talk about. I shall limit most of my remarks to the need to protect the payment of export refunds on exported processed foods to which my noble friend Lord Wade of Chorlton made quite considerable reference. In doing so, I have to declare an interest as I continue to work for the biscuit, cake, chocolate and confectionery industries.

Before explaining the vital importance of export refunds for processed foods, I must emphasise the equal importance to all industries—especially British ones because we depend absolutely on the freest possible trade—of a successful conclusion to the GATT Uruguay Round. That was emphasised in particular by the noble Lord, Lord Williams, and my noble friend Lord Young of Graffham. It is indeed a misfortune for the food processing industry that its raw materials are subject to the rules of the common agricultural policy. As a result, the prices of those raw materials are deliberately higher than world prices, making the resultant processed products such as biscuits uncompetitive in their world markets unless the manufacturer receives a refund equivalent to the excess raw material price. As your Lordships will appreciate, that refund is in no way a subsidy.

Last December I wrote about that to my noble friend Lord Hesketh. I was delighted to receive a reply earlier this month from his colleague, my honourable friend Mr. Tim Sainsbury, explaining clearly that the DTI understood this absolutely. I am grateful to Mr. Sainsbury and to my noble friend the Minister.

In 1982, at the invitation of the Japanese Government, I led a delegation of medium-sized biscuit and chocolate manufacturers to see how the mutual trade in these products can be improved. At that stage the Japanese tariff on each product was between 30 per cent. and 40 per cent. My noble friend Lord Young of Graffham told us that that level had been reduced to 5 per cent. in the preceding 30 years, but it had not been for agricultural-based products. That enabled such products to be sold only as luxuries in Japan.

I sought to explain to the Japanese that British biscuits and chocolates are high quality products, efficiently produced for the mass market. I managed to get them to recognise that the British food processing industry, in the 30 years from 1947 to 1977, was the most successful in improving its efficiency of all British industries. My noble friend Lord Wade of Chorlton expanded on that by saying that it is also one of, if not the, largest of British industries. I told the Japanese that the food processing industry therefore needed to be seen as comparable to the Japanese car industry and not to their very backward food processors.

At that stage the EC tariff on motor cars was of the order of 5 per cent. and I aimed at that as a yardstick for biscuits and chocolates. I am delighted to say that the Japanese saw the point and decreased the tariff on both biscuits and chocolates to 20 per cent. and below. They might have come lower still if both products had had no sugar components. The Japanese farmers were very hung up about sugar at the time because of a deal that had been done by the Australians which people did not believe to be completely fair. But that is by the way.

That brings me back to the misfortune of Britain's most efficient manufacturing industry having its raw materials subject to the common agricultural policy. Quite clearly, there needs to be appropriate protection for EC farmers (several noble Lords have made that clear) especially in the short run. It would be disastrous for the countries of Europe if their farmers went broke in large numbers, quite apart from the adverse effect on the farmers themselves.

Though none of my farmer friends seems to be very keen on the idea, I believe that the noble Lord, Lord Bruce of Donington, and my noble friend Lord Cockfield might be. Like my noble friend Lord Wade of Chorlton and, I believe, also the noble Lord, Lord Jay, I feel that the success of the food processors in earning valuable export money would be greatly improved if the machinery of the common agricultural policy were replaced by something like the old British system of deficiency payments. The processed food exporters, whose value added is vastly more than that of the farmers, could then be freed from high cost raw materials and the image of being subsidised when in fact they are not.

I commend that approach to my noble friends in the Department of Trade and Industry and also in the Ministry of Agriculture, Fisheries and Food. I hope that something on those lines might be advanced, though I fear that it cannot be in time for the conclusion of the GATT negotiations. However, if we were working in that direction perhaps our critics on the other side of the Atlantic would be mollified and agree to some conclusion that goes in that direction.

4.58 p.m.

Viscount Montgomery of Alamein

My Lords, in a splendid opening speech the noble Lord, Lord Williams, said that the liberalisation of trade would be the motor for growth. He is quite right. No more is that so than in Latin America, where access to free trade with Europe is one of the keys to economic recovery. Latin Americans have unfortunately tended to view the completion of the single market in 1992 as Fortress Europe turning in on itself, whereas the reality is, or should be, quite the reverse—that is to say, Europe will become an area of huge opportunity. However, for that to happen this GATT round must succeed. Their apprehension is quite understandable.

In the very brief time that is available I should like to turn from the general to the specific and outline the situation for bananas, which is a classic case affecting both Latin America and the Caribbean. Bananas are among the most protected products in Europe and have so far received only peripheral attention in the current GATT round. The present UK regulatory arrangements prevent Latin American bananas competing on equal terms with those from the Caribbean. Latin American imports are controlled by quota and tariff restrictions which provide preferential access to Caribbean banana producers.

As I understand it, the United Kingdom quota for "dollar area" bananas, for that is what the Latin American product is called, is governed by the Banana Trade Advisory Committee. This is a group set up by MAFF officials and comprises Caribbean producers but no consumers and no Latin Americans. By the same token, France provides preferential access for Cameroon and the Ivory Coast, and Spain for the Canaries; and so it goes on. By contrast, Germany has a free market for bananas. That is particularly interesting as in Germany per capita consumption of bananas is much higher, prices are much lower and the consumer has already shown a preference for Latin American bananas, something with which I entirely agree.

As a result, in the UK, where the producer cartel is in full swing, the consumer has less choice and pays higher prices. Free trade would introduce dynamism in the static UK market and offer consumers greater choice and higher quality—exactly what this Government have stated they have set up and intend to do.

I appreciate that there is a problem for the Caribbean—this point has been referred to by other speakers. In another place last July, Lynda Chalker spoke of possible aid to help the Caribbean banana producers to improve efficiency and diversify into other products. Like other statements by Mrs. Chalker, who is an exceptionably able and talented Minister, that seems eminently sensible. However, it is very important not to lose sight of the original objective of the GATT, which seeks to establish rules which are equal for all. This is clearly not the case with tropical agricultural products and I have cited one particularly glaring example. We need this round—we all need this round—to succeed, and must continue to strive for freer trade in all products and in all countries.

5.3 p.m.

Baroness Seear

My Lords, it is a pity, not to say an absurdity, that a subject of this supreme importance should be dealt with in a two-and-a-half hour debate in which speeches are limited to six minutes. It is, as the noble Lord, Lord Young of Graffham, said, a matter of the greatest possible importance. When the Gulf war is behind us it will still be of the greatest importance; and it will still be with us. If we fail to renew GATT and if we fail to bring the Uruguay Round to at least a relatively successful conclusion, the consequences could be far more serious than any consequences arising from the war. It is not surprising that I take this line, speaking as I do for the only party which has shown consistent and unswerving support for free trade. I am delighted to find a number of converts to free trade from the most unexpected quarters in today's debate.

Unless we get an agreement on the continuation of GATT and on the liberalisation of trade through GATT—in other words, should this round fail—there is a very serious danger of retreat into protectionism, the results of which will be far-reaching and devastating. We in the industrialised countries are already in a recession. A retreat into protectionism would deepen and lengthen that recession, with consequences of poverty and social disruption of a very grave kind.

The second reason why the subject is extremely important was referred to by the noble Lord, Lord Pitt, and other noble Lords. One of the major issues facing the whole world is the plight of developing countries in trying to grow out of poverty. They must do so because of their population problems, because of their social needs and also because they are potentially very important markets. They must do so for their own sake and for the sake of the rest of the world.

Unless the Uruguay Round develops in such a way that markets in the developed countries become increasingly open to the developing countries, that will not happen. Many of those countries will sink from a level of poverty, already by our standards unbelievable, to a standard that is totally intolerable. The future of the developing countries—one of the world's great issues for the next decade—will depend to a considerable extent on the way in which we handle the Uruguay Round.

It is of the greatest benefit to consumers that the Uruguay Round—and the liberalisation of trade which depends on it —should go ahead and go ahead fast. The developed countries have been held back by the policies of parties in this country and elsewhere in putting the interests of producer groups—be they employer producer groups or employee producer groups—ahead of the interests of consumers. We have to reverse that policy and make sure that policies are developed first and foremost for the benefit of consumers and not for the benefit of any of the producer groups. Of course the interests of producer groups must be taken into account but they can never dominate, as they have dominated far too often in past policies and as they are dominating now in the difficulties confronting the Uruguay Round.

These are issues of the very greatest importance. If at this last moment, at five to twelve or five past twelve —I know that difficulties have come from elsewhere and that in some ways the Government have attempted to make the round successful—the Government cannot revive the Uruguay Round, the consequences for this country and for the world as a whole will be very serious.

Agriculture is experiencing great difficulties. We have heard a great deal about it during the discussions on the Uruguay Round and in today's debate. The farming interest must of course be taken into account. But there is not just one farming interest. There are a great many different farming groups with different problems. Surely it is possible to break down the policy in such a way that one does not have to subsidise successful farmers in some areas. One drives through France and sees extremely wealthy farmers in Picardy. They are doing very well indeed out of the common agricultural policy. It is ridiculous that we should go on supporting people of that kind.

I refer not only to little farmers. The noble Lord, Lord Mackie, referred to little farmers. His idea of a little farmer is not a very good representative of little farmers and is not the same as other people's. Some small farmers do have particular problems; but not all small farmers are poor. As the noble Lord, Lord Williams, said, many small farmers have other sources of income. Their farming has become little more than hobby farming. They do not need the same kind of support. Surely we can find ways of easing the problems of farming. This is a small issue in comparison with what is at stake in the Uruguay Round for the world as a whole.

5.8 p.m.

Lord Peston

My Lords, anyone who has studied the economics of free competition and of free trade is aware that many arguments have been put forward to justify protection in specific cases. The point of a special case is that it is special; it is not the general rule. It is a contradiction in terms if every case is a special case. Those who have experience of these things in government are aware of the paradox that all sections of industry and commerce are ardent free traders except when it comes to themselves. They are then able to justify all manner of restraints on trade and restrictive practices and want the Government to aid and abet them. The noble Lord, Lord Young of Graffham, with whose contribution I so much agreed, when he was Secretary of State had ample experience of this. But it is not a party matter. All Ministers are subject to the pressures of those who want to be able to buy everything they need in the cheapest competitive markets here and abroad but also want their own home markets protected. Therefore, my judgment, without totally rejecting the theory of protection in particular circumstances, is that, overall, the bias must be in favour of free entry into markets and that the special cases—one or two of which have been referred to today—must be very special and very rare indeed.

In the present context the problem is more complicated. Every country supports GATT and is in favour of free competition—except when it comes to its own vital interests. It is important, therefore, that the Government of the United Kingdom should recognise where our interests lie. Our national interest as a trading nation in goods and services must push us in the direction of free trade. However, given the scale of protection elsewhere, our negotiating position along with that of the Community must be to demand fair trade; in other words, we must have a level playing field.

We must remove trade barriers as rapidly as we can. But it would be foolhardy to remove them more rapidly than our competitors. That would complicate government policy, perhaps much more so in the case of the present Government than for the next Labour Government. If other countries find ways within the GATT rules to help their industry and commerce, fair competition requires us to do the same within reason. For example, fair competition implies that the tax burden placed on our firms cannot differ markedly from that placed upon our competitors. I shall give your Lordships a present example. I think we all agree, with the possible exception of government Ministers, that the Statutory Sick Pay Bill is intrinsically pretty silly. But one overwhelming reason for opposing it is that it imposes costs on our firms which are unnecessary at this time. The same point applies to the scale of industrial training and to the way it is financed.

I change tack slightly. Perhaps I may refer to the problem of agricultural protection support. The cynicism implicit in my earlier remarks is multiplied severalfold when it comes to farmers the world over. I take it for granted that there will always be farm subsidies. I am duly grateful, as several noble Lords have pointed out, that one thing which we in the advanced world—I emphasise the term "advanced world"—have not suffered for many decades is a shortage of food; indeed, it is a blessing. However, I am equally aware that the Cairns Group, whatever its rhetoric on fair competition and efficiency, is certainly negotiating in its own interests. We must bear that fact in mind. Nevertheless, having said that, the group's criticisms of the CAP, and those made today by several noble Lords, are all valid. From our point of view the CAP is a wasteful use of public funds, falling down both on the criterion of equity and also on the criterion of efficiency. There is no need for me to reiterate the point that a system as arcane and bureaucratic as the CAP is ready-made for fraud.

My hope, therefore, for agricultural policy is as follows. I believe first that we must respond to external criticism of the CAP and that we should remove those elements which excessively distort world markets in agricultural products. Secondly, we must grasp the opportunity which this gives us to reform our system of agricultural protection. Certainly the system in operation before the CAP, to which several noble Lords have referred, is, I am convinced, the correct way forward. But, thirdly, in the overall negotiations, I believe that we must give nothing away for nothing. I refer to remarks made by the noble Lord, Lord Boardman. I stand second to no one in my support for principle. However, the word "negotiation" actually means negotiation; in other words, it means giving up some things in order to obtain others. We must face that reality in this GATT round as well as in everything else. While we must make some concessions in this part of the GATT round, we must not be so naive as to make them in ways which grant us nothing in return.

Perhaps I may now turn to what I believe to be a much more important aspect of the GATT round which has not received sufficient attention thus far. I refer to the part dealing with international transactions in services. They are extremely important to the United Kingdom as services now contribute a very large proportion to the GDP. And they will become even more important as we move towards completion of the single market and towards EMU.

I agree that services create special technical problems. That is partly because they involve the direct use of labour and therefore create problems in regard to work permits and immigration. Services are also "invisible" at national barriers. This means there are serious problems in enforcing any GATT arrangements which come into existence. However, I am convinced that none of those problems is unsolvable.

In the case of services—whatever you think about the problem of goods—we have an enormous range of protection measures which need to be removed. I do not hesitate to say that they need to be removed in Britain's national interest. It is certainly true that important questions of regulation arise dealing with investor protection, the quality of services, and so on. I am not convinced that free competition between regulatory systems will lead to a fully satisfactory outcome. However, I believe that, taking the lead which we gave with respect to the single market and the services, we can apply that general approach on a world scale.

Therefore, my view is that in trying to succeed in what remains of the GATT round—I am rather more pessimistic, I think, than most noble Lords about whether it has any chance of success—we must try to create the equivalent of a single market in services. We must liberalise transactions in them, ensure that non-discrimination is an essential part of any agreement and, finally, seek to achieve full market access.

I agree very much with the noble Baroness, Lady Seear. It is a great pity we do not have more time to discuss the matter. There are many more technical points to be made. Nevertheless, my conclusion is a simple one. It is to the advantage of the United Kingdom, of the European Community and of the world at large that the Uruguay Round should be a success. Perhaps I may add a consideration which has not been raised, partly, I imagine, on the grounds of lack of time. Nearly all the leading experts in the field also agree that free trade is most essential to Eastern Europe. The competitive route is certainly a prerequisite if those economies are to be revitalised.

Far too little progress has been made in too many areas. The danger of collapse is still there. The forces for protection in the United States are stronger and becoming more so. However, they are not negligible in this country. Moreover, they are always strongest when there is a recession. It would help if the Government could switch to sensible economic policies, but they seem determined not to do so. Notwithstanding that, it is the duty of Her Majesty's Government, with their European Community partners, to make one last valiant effort to help restart and then successfully conclude the Uruguay Round.

5.18 p.m.

Lord Hesketh

My Lords, I think that it would be entirely appropriate if I were first to declare an agricultural interest, especially in the light of today's valuable debate for which we are most grateful to the noble Lord, Lord Williams of Elvel. I discussed the matter with my noble friend the Minister of State for Agriculture, Fisheries and Food. She addressed me in terms that she felt that the common agricultural policy and agriculture would be the salient and main features of the debate. I assured her that that would not be the case. However, I could not have been more wrong.

These are times of great uncertainty, when the structures that underpin world growth and world peace are being tested to their limits. Freedom and democracy can be undermined in more ways than one. Economic freedom and economic growth are essential to the survival of any nation, to its peace and prosperity. Democracy cannot flourish without them, nor they without it. But the future of the multinational trading system, on which continuing world growth and development and our own prosperity as a major trading nation depend, are under threat. Pressures towards protectionism are once again building up around the globe. Nations are succumbing to the temptation to take disputes into their own hands rather than abiding by agreed multinational procedures designed to ensure that the weak are not victimised by the strong and that all nations share in the benefits derived from progressive market opening.

The GATT has been the foundation of the growth in world trade from which we have all benefited since the end of the Second World War. It has presided over an unprecedented expansion in world-wide wealth creation. But its foundations are now buckling under the weight of its responsibilities. We are faced with the task of rejuvenating the GATT to face the challenges of a new century, on pain of seeing it collapse.

The benefits that the Uruguay Round could confer are particularly necessary at such a time as this. The world economy badly needs the sort of noninflationary stimulus a successful GATT Round can provide: encouraging trade and competition through lower tariffs and the removal of trade barriers. In addition, the round is concluding at a time when the Western alliance faces two great challenges: in the Gulf and in the Soviet Union. If the round succeeds it can reinforce the partnership of nations on which our responses to those crises must be based and give us a solid basis from which to tackle the economic problems that they may pose. If, on the other hand, the round is allowed to fail, we risk sending the message that the principles we espouse are too weak to face the challenge of national self-interest, let alone anything larger. That must not be.

As a major trading nation, the UK stands to make very important gains from the market opening and strengthening of multilateral rules that a successful round would produce. For instance, our service industries (which account for 55 per cent. of our GDP) stand to gain by the creation of an agreement on trade in services which will for the first time be able to provide a framework of agreed and equitable rules for trade in that important area and progressively enable world markets to be opened up. Trade in services now accounts for over 20 per cent. of all trade, and yet it is still governed by the law of the jungle. An agreed and equitable system of rules is in everybody's interests.

Our exporters also stand to gain by agreement on minimum standards of protection from piracy and counterfeiting where that protection does not already exist. At present our drug industry loses £50 million a year through such practices and our record industry £1 billion. An agreement to prevent counterfeiting and protect patents, copyright and trade marks is a high priority for us.

More and better opportunities for UK firms to invest overseas will also be opened up if we can achieve an agreement on removal of trade-distorting restrictions and conditions on investment. Our exporters will be able to obtain greater market access for their products world-wide through the removal and reduction of tariffs. If we are able to attain the Uruguay Round goal of a further 30 per cent. cut in tariffs, our exports outside the Community will be boosted by at least 2 per cent.—a very large sum in real terms.

The negotiations in the Uruguay Round cover 15 separate subject areas; they are the most ambitious ever undertaken. Work has proceeded inch by painful inch over the past four years towards a revitalised trading order able to meet the challenges of a new century. We had hoped that those efforts would be brought to fruition last December in Brussels. I am very sorry that they were not. But we still have our shoulders to the wheel. If all participants show the flexibility and commitment the GATT deserves, we can still bring this round to a successful conclusion. The European Council at its December meeting reaffirmed the Community's determination to achieve success, and I believe our negotiating partners want that as much as we do.

As your Lordships are aware, the main stumbling block to success has been lack of agreement on the liberalisation of agriculture. No one has come well out of the debate on agriculture. The US has been too ambitious and offered too little on its own main form of trade-distorting agriculture support. Japan has shown no inclination to compromise; and others were too ready to suspend negotiations, so that the Community's scope for compromise was never fully explored.

Agriculture accounts for just 3 per cent. of the Community's GDP. Clearly there is no question of dismantling the CAP or leaving our farmers without any form of support or protection; but we must retain our sense of proportion. Is the whole of our economic future to be jeopardised by fear of rural change?

It is important to recall that in every past GATT round there have been industries which have feared the consequences of reductions in trade barriers. Their fears have proved greatly exaggerated. Indeed many of them are the principal champions of a successful outcome on this occasion. It is also important to recall the fact that the benefits of each successive round have always been even greater than had been hoped originally.

If the round fails we face the prospect of US unilateral action against EC agriculture trade barriers and a trade war in which EC trade interests, especially agriculture, would inevitably suffer. That is no solution. Far better to agree to sensible and evolutionary change, and do it through the GATT.

Rome was not built in a day. If our efforts succeed in bringing agriculture fully under GATT disciplines for the first time, that will in itself be a great achievement. We shall need to go on to build on it over the years and in the rounds to come.

Today, intensive work is continuing around the globe to try to rescue the round. The world at large could be forgiven for thinking that agriculture was the only subject under discussion. Let me spend a few moments at least to tell your Lordships what else is at stake. There are some important subjects which form part of the total package that I have already mentioned: services, intellectual property, investment and tariffs. Some of those areas taken alone represent vast and ambitious efforts for which we have good prospects of success—the massive 107-way negotiation on tariffs, and the even more Herculean task of devising a regime for services from scratch, to cover everything from tourism to tax consultancy, from aviation to architecture.

There is more within our grasp. We are on the verge of an agreement to liberalise world trade in textiles. Here is a subject of great importance to the UK. There will be adjustment costs over a reasonable transition period to be borne by all those countries that have been keeping out the competition. But there will also be great new opportunities for the efficient and competitive UK firms which have so far found many markets shut against them. We look forward to free and fair trade in textiles, which will allow each country to exploit its natural strengths and give the consumer the benefit of lower prices and wider choice.

Let me touch on one more important subject. Under present GATT rules the findings of a dispute panel require the consent of all parties before they can be implemented, and so can be blocked by one of the parties to the dispute. That fundamental weakness has been steadily sapping the authority of the GATT over the years, and with it nations' loyalty to the multilateral system. The United States infamous Section 301 crowbar is only one example of what nations have been driven to by the GATT's failings. At last it seems that we shall be able to put that right. Reforms are within our grasp which would give the GATT real teeth at last and bring all justification for unilateral initiatives and alternatives to an end. What a gain that would be, especially for the poor countries of the world which inevitably lose out against the economic giants.

My noble friend Lady Carnegy of Lour referred to the position of the Scotch whisky industry. We have not seen the Scotch Whisky Association's latest submissions, but I stress that the Government are well aware of the importance of gaining improved access to third country markets not just for Scotch whisky producers but for spirit drink producers throughout the EC and further afield. We have consistently supported the Scotch Whisky Association's line that market access for such products should be improved and have frequently made representations to the European Commission to that end.

The right reverend Prelate and the noble Lord, Lord Pitt of Hampstead, referred to the Church's position with regard to the free market in agriculture. It is fair to say that if one goes to Eastern Europe there will be many who will say that a right to food, which does not exist there, would exist if there were a free market in agriculture. The noble Lord, Lord Donoughue, quite rightly pointed out to your Lordships that the extension of trade was the best non-inflationary way of the world avoiding a recession by extending the economy. I am sure that we all agree with that.

The noble Lord, Lord Wade, and my noble friend Lord Mottistone referred to the interests of the food industry. The European Community has throughout the GATT negotiations on agriculture made it clear that there can be no question of dismantling the CAP or completely abandoning particular policies such as export refunds. European Community markets will continue to be supported with regard to these products and processed products because when they are exported they are initially bought at the EC/CAP price for the product that goes into the can.

The noble Lord, Lord Cockfield, referred to the US showing great disregard for the GATT rules. Unilateral action taken by the United States to settle trade disputes is, we believe, a serious problem. The noble Lord, Lord Sanderson of Bowden, referred to the confirmation that he would like as regards the MFA; namely, that it would only be phased out on the basis of strengthened GATT rules and disciplines.

The fact is that Her Majesty's Government and the European Community remain committed to phasing out the MFA as part of the overall Uruguay Round settlement on the basis of strengthened GATT rules and the disciplines. The important sectors are the effective and lasting opening of markets, the creation of fair competitive conditions and the improved safeguard discipline.

The noble Lord, Lord Bruce of Donington, has always provided your Lordships with a unique insight into, as he sees it, the problems and difficulties that exist within the European Community and particularly with the CAP. He takes a radical view, admirably as always, but I am not sure that I can go so far as his desire for the abolition of Articles 38 to 47 in their entirety. However, I shall certainly pass on his comments to my right honourable friend the Secretary of State.

The noble Lord, Lord Jay, mentioned the possibility of the United States' system of deficiency payments being preferable to those export subsidies that exist within the European Community. I do not believe that we can agree with that because at the end of the day they are a panacea, a different subsidy: but the final result is that a subsidy is a subsidy is a subsidy.

The noble Lord, Lord Williams of Elvel, referred to favours granted to part-time farmers—favours which are granted essentially in other parts of the Community. This is an area where we always need to move with a certain amount of caution. It is perfectly possible to say that the 50 acres which were no longer viable yesterday and the 100 acres today may be the 200 acres of tomorrow. The argument that he deploys does not work in a world with a fixed acreage. It may become a floating and not so flexible friend in his argument in the longer term.

The noble Lord, Lord Mackie, dealt with the OECD figures on farm units. There is a case for taking the real cost or the volumetric cost of a particular commodity. He produced figures which showed that the EC, under the CAP regime, had the least subsidised farmers. However, if we take a volumetric figure, we come out with a different set of figures as regards the level of subsidies which is worth comparing with the noble Lord's figures. We start at the top with Switzerland at 75 per cent., followed closely by Norway with 74 per cent. and closely thereafter by the Japanese at 72 per cent. Then we come to the European Community at 38 per cent. and the United States in volumetric terms—which at the end of day will decide the market—at 27 per cent. as regards overall subsidy.

The noble Baroness, Lady Seear, referred to the Liberal Party's unequal commitment to the free trade principle. With the greatest respect, I refer the noble Baroness to the immortal memory of Lord Peel.

Baroness Seear

The noble Lord would have to go back 150 years!

Lord Hesketh

My Lords, I only hoped to go to the fount of all knowledge. Perhaps I may return to the two figures mentioned at the start, both by the proposer, the noble Lord, Lord Williams of Elvel, and my noble friend, Lord Young of Graf ham. There is a historical memory that we must never forget which puts into context the importance of this GATT Round. I refer to the fact that in the great depression manufacturing output fell by 40 per cent. and the world manufacturing trade fell by 35 per cent. We must never allow that to happen again. The most important reason why it should never happen again was put forward by the noble Baroness, Lady Seear. The greatest loser of all, if we fail to achieve a successful result, will be the poorest of the poor. That should never be the basis of allowing anything as important as the GATT to fail.

Lord Williams of Elvel

My Lords, I am most grateful to all noble Lords who have taken part in the debate. We have covered a great deal of ground and I am grateful to the Minister, the noble Lord, Lord Hesketh, for his full reply. As all noble Lords have said in the debate, it is a most important matter. I was glad to see that the Government take this matter extremely seriously. All we can do as a House is express our hope that the Uruguay Round can be salvaged and brought to a successful conclusion. We wish the Government every success. Meantime, I beg leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.

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