HL Deb 02 November 1992 vol 539 cc1315-36

3.28 p.m.

Baroness Denton of Wakefield

My Lords, I beg to move that this Bill be now read a second time.

The European Economic Area Bill was introduced in your Lordships' House on 21st October. It implements the agreement in United Kingdom law. It confers on nationals of the member states of the European Free Trade Association treatment equivalent to that conferred for many purposes in UK legislation on nationals of the Community member states and it contains other provisions for implementing existing and future provisions of the agreement into UK law.

Your Lordships may find it helpful if I explain first the main contents of the agreement that creates the European Economic Area, or EEA. The agreement is between the Community and its member states and the states of EFTA. The members of EFTA are Austria, Finland, Iceland, Liechtenstein, Norway, Switzerland and Sweden. It will create an area of 19 countries throughout which the "four freedoms" of the Community will apply. These are the free movement of goods, capital, services and people.

In particular, many of the provisions of the Community's single market will be extended to apply to the area. EFTA countries will have to adapt their legislation to make it consistent with single market rules. Community member states will have to amend their legislation where required so as to cover the whole of the EEA. I shall now refer to the main effects of the agreement.

Provisions on the free movement of goods include the creation of common technical regulations, public procurement rules and intellectual property rules. In addition, discriminatory taxation will he prohibited and customs procedures and rules of origin will be streamlined. These and many other provisions will reduce barriers to trade, benefiting British exporters and improving choice for consumers.

Provisions relating to free movement of capital will cause most restrictions of EFTA states on inward investment to be lifted.

The agreement contains rules on free movement of services. The services covered include transport, telecommunications, audio-visual services and financial services. The establishment of the freedom to provide services throughout the EEA is a major achievement. This will create new opportunities for businesses in which the UK, in particular, has traditionally been strong. This is so especially in the field of financial services, where the EEA will adopt rules based on Community legislation on insurance, banking and securities.

Provisions on the free movement of persons will create a right for Community and EFTA nationals to work anywhere in the area. Community and EFTA nationals will be able to operate as self-employed persons throughout the area and to set up and manage undertakings under the same conditions as local nationals. Community and EFTA companies will be able to establish branches and subsidiaries.

Professionals will be able to practise in any EEA country without the need to go through the process of requalifying. These provisions will greatly help UK companies and nationals who wish to operate in EFTA and consumers in the UK who will have more choice.

For a market to be truly open, it must have rules that ensure fair competition. One of the most important parts of the EEA agreement is that on competition and state aids. The EFTA countries will be subject to competition and state aids rules based on those of the Community. These will include rules on restrictive practices, monopoly abuse and mergers; and cases under the EC Merger Regulation will be assessed by their effect on competition throughout the Community and EFTA.

The agreement also covers other important provisions related to the four freedoms, including consumer protection, the environment, statistics and company law. It will establish increased co-operation between the Community and EFTA in Community programmes in fields such as R&D, information services, education, training and youth, small and medium-sized enterprises, tourism and the audiovisual sector.

The EEA is a dynamic agreement. EFTA will take on new measures related to the "four freedoms" as they are adopted by the Community. The importance of this evolutionary approach cannot be understated. It ensures that the agreement will continue to reflect reality. It also helps explain the provisions in the Bill before your Lordships, which has to provide for the further development of EEA legislation.

There are three other aspects of the EEA which I should mention briefly. EFTA will set up a fund to assist poorer regions of the Community. It will consist of 500 million ecus in grants over five years plus an interest rate subsidy of 3 per cent. on 1.5 billion ecus of loans. Northern Ireland, the Republic of Ireland, Greece, Portugal and most parts of Spain will benefit. The Government fought hard to ensure that Northern Ireland was included.

The second element is fish. The agreement itself contains limited provisions on trade in fish, including the reduction of tariffs between the Community and EFTA which will liberalise trade in fish. But tariff reductions will not apply to mackerel, herring and salmon—three species of particular sensitivity to UK producers. Exchanges of letters related to, but separate from, the agreement will, among other things, give UK fishermen a greater share of fishery resources in Norwegian and Icelandic waters.

The third element is agriculture. The EFTA countries will not participate in the common agricultural policy. But the agreement contains a number of reciprocal tariff reductions on agricultural products.

To ensure that EFTA states comply with the rules in the agreement, EFTA will create a surveillance body with powers similar to the Commission and a court with a role similar to that of the European Court, within their more limited spheres. Operation of the agreement will be overseen by a Council consisting of Ministers, EC Commissioners and the EEA Joint Committee. The EEA Joint Committee will be responsible for clay-to-day running of the agreement, resolving disputes and agreeing amendments to the annexes to the agreement in order to take on new Community measures.

I noted earlier that Community member states will have to amend their legislation where required so as to cover the whole of the area. This is the purpose of the Bill. It will implement the UK's obligations under the agreement and allow us to ratify it.

The Bill contains three main provisions. It makes the agreement a Community treaty under UK law and it contains two general rules that modify UK legislation. I shall describe these provisions in turn. Clause I of the Bill amends Section 1(2) of the European Communities Act 1972 by adding the agreement to the list of Community treaties in that section. Clause 1 will have three main effects. First, provisions of the agreement that are directly applicable under Community law will be given legal effect in the UK by virtue of Section 2(1) of the 1972 Act without any further enactment. Secondly, EEA provisions that have direct effect under Community law will be given such effect under UK law. Examples of such provisions are those in the annexes—including ones about technical regulations and standards. Thirdly, the powers in Section 2(2) of the 1972 Act will apply so that regulations may be made for the purpose of implementing an obligation or exercising a right under the agreement or dealing with related matters.

It remains necessary to complete the implementation in UK law of provisions of the agreement which do not apply directly without national legislation. It is here that the two general rules contained in Clause 2(1) and Clause 3(1) will operate.

I should make important points about the general rules before describing each of them. The first point is that the Bill does not attempt to make individual amendments to all the Acts, subordinate legislation and other instruments that will be affected. Instead, the two general rules will modify all existing relevant legislation. The second is that both rules apply only to matters covered by the agreement on the date that it comes into force and to UK law that exists before that date. The rules will not implement future amendments to the agreement, and they will not modify future legislation. The third is that both rules modify only legislation that relates to a matter to which the agreement relates. Legislation relating to Community matters not covered by the agreement, such as the common agricultural policy, will not be affected by the Bill.

Lord Harmar-Nicholls

My Lords, I should like to ask my noble friend a question. If they are not to be committed to the terms of the common agricultural policy, how does that affect any contribution that they may make in order to pay for the running of the EC as a general proposition? If they are not benefiting or suffering from one section, how does that affect their general membership?

Baroness Denton of Wakefield

My Lords, I must tell my noble friend that their membership will be affected by those parts of the Community legislation with which the Bill is concerned. There are other areas besides the common agricultural policy which stay entirely out of the scope. Of course, not every member of EFTA has applied to join the Community.

Clause 2(1) contains the first general rule. The principle behind the rule is straightforward. Where legislation contains references to the Communities (or some connection with the Communities, such as member states) those references will be substituted by corresponding references to the European Economic Area—or some connection with the area—or to both the Communities and the area. The substitution will apply where the legislation is limited in its operation by the reference to the Communities. In that way, EFTA nationals will be treated under the legislation in question in the same way that Community nationals are treated. We have decided to confer equivalent treatment on EFTA nationals in matters to which the agreement relates whether or not that is required by the agreement, subject to a few exceptions. We have adopted that approach for two reasons. If we were to do no more than to implement our obligations, the effect on UK legislation would have been very complicated. In some areas, we would create one regime for the Community and another for EFTA. Companies and people in the UK would have to operate under an additional regulatory structure. That would create a burden that had little or no balancing advantage to justify it.

Lord Harmar-Nicholls

They have done that, my Lords.

Baroness Denton of Wakefield

My Lords, I should point out to my noble friend that we are now talking about a Bill to create the European Economic Area.

We believe, in any event, that it is right to treat EFTA nationals in the same way as Community nationals. The EFTA countries are important trading partners. Four of them have applied to join the Community. A fifth—Norway—may do so shortly. Providing equivalent treatment for EFTA nationals is consistent with the Government's desire to see early enlargement of the Community to include the EFTA countries.

The second general rule—that contained in Clause 3(1)—will operate only where the first does not apply. Clause 3(1) modifies provisions in UK legislation and certain other instruments where equivalent treatment will not be conferred by Clause 2(1). It modifies those provisions only in so far as is necessary to implement the UK's obligations under the agreement.

There are three circumstances in which Clause 3(1) rather than Clause 2(1) will apply. First, Clause 2(1) applies only to Acts and subordinate legislation. It does not apply to other types of instrument that have to be modified if the UK is to comply with its obligations. Those are instruments made by a person against whom the Community doctrine of direct effect may operate. An example of such an instrument is the articles of association of a company in which the Government have a controlling stake. We do not think it right that equivalent treatment should be imposed on such instruments by the Bill where the agreement does not require it.

Secondly, Clause 2(1) will not apply to exceptions provided for in the schedule or by regulations under Clause 2(2) (b). For certain specific provisions of UK legislation, it is not appropriate that equivalent treatment should be conferred. One example is the regulations in the schedule that implement the Community public procurement directives. Some EFTA states will not have to implement those directives immediately. We do not think that it would be correct to give their contractors or suppliers rights in the UK that ours will not enjoy in their countries. Thirdly, Clause 2(1) may not effectively implement provisions in the agreement that contain adaptations to Community measures. In those circumstances, Clause 3(1) will implement obligations arising from the adaptations.

I have described the three provisions that form the core of the Bill: making the agreement a Community treaty in UK law; affording equivalent treatment to EFTA nationals; and implementing the UK's obligations where the first two provisions do not apply.

There is one other set of provisions to which I should draw your Lordships' attention. These are the new enabling powers in Clause 2(2) and Clause 3(2) and the extensions in Clause 2(4) and (5) to the powers under Section 2(2) of the 1972 Act. I have already referred to the power in Clause 2(2). It may prove necessary to add to the exceptions listed in the schedule. The power in Clause 3(2) allows effect to be given to suspensions of part of the agreement. They may arise where EFTA fails to agree to take on a new EEA rule, or where there is a dispute between the Community and EFTA.

The extensions to Section 2(2) of the 1972 Act are in subsections (4) and (5) of Clause 2. They are necessary for the following reasons. The modification of some legislation by the general rule in Clause 2(1) may leave the effect of that legislation unclear. Clause 2 extends Section 2(2) to permit it to be used to make express provision to provide equivalent treatment for EFTA. Section 2(2) may, of course, also be used to implement our obligations. We will be able to implement obligations arising from future EEA measures by using Section 2(2) in its unamended form. However, it would not be possible to use Section 2(2) to provide equivalent treatment for EFTA nationals where that is not required by the agreement. Section 2(2) would be extended by the Bill to allow such treatment to be conferred.

Finally, I should draw attention to the fact that the Minister for Trade has agreed with your Lordships' Select Committee on the European Communities suggesting procedures for the scrutiny by Parliament of proposals for new provisions to be added to the agreement. Our intention is that these should be firmly based on those that apply to Community proposals and, indeed, that any new EEA provision should be considered wherever possible at the same time as the related Community measure.

Those are the main provisions of the Bill. Although the Bill is short, it is complex. I have concentrated only on the main features. The detailed text will doubtless receive close attention from your Lordships in Committee. However, I hope that the purpose of the Bill—that is, to give effect to the European Economic Area agreement—will command your Lordships' general support. The agreement is perhaps the most ambitious and wide-ranging to be entered into by the Community with third countries. It will create the world's largest single market with 375 million consumers responsible for almost half of the world's trade. It will lead to benefits for both consumers and companies throughout the 19 countries. It will provide for closer co-operation between the Community and its closest European neighbours.

The UK is particularly well placed to take full advantage of the agreement. By geography, and our previous membership of EFTA, we have well-established trade links with all seven EFTA countries. In 1991 we earned £7.5 billion in visible exports to EFTA. That business has been won by a wide range of industries, many of which will enjoy additional benefits as a result of the EEA. There are opportunities across the board. They will come, for example, as a result of opening up public purchasing, the extension of Community standards making, and shared R&D programmes.

There are also specific sectoral benefits. EFTA markets will be opened up to cars meeting Community environment standards, and a wide variety of consumer goods manufacturers will benefit from EFTA states' recognition of EC product packaging and labelling requirements. There is substantial potential for the services sector. Financial services will be able to "passport" into EFTA countries. The aviation market will be opened up. UK professionals will be able to offer their services across all 19 member states of the EEA.

The creation of the EEA is an important part of the Government's desire to develop a Community that is open, outward-looking and market-oriented. It will facilitate accession to the Community by the growing number of EFTA countries which wish to apply, and it will ensure that trade within the larger part of Europe is based upon the principles of an open market and economy that we hope will extend one day throughout the whole of Europe.

Approval of the Bill by Parliament is essential if the UK is to be able to reap the benefits of this agreement, and I commend the Bill to the House. I beg to move.

Lord Jay

My Lords, before the Minister sits down perhaps she will answer a question. Does not this all mean—to make it rather simpler—that had the UK remained a member of EFTA we should now have enjoyed industrial free trade throughout EFTA and the EC, and most of the alleged benefits of the single market, without the burden of the CAP?

Baroness Denton of Wakefield

My Lords, I understand the sentiments expressed by the noble Lord. Lord Jay, but had we done that we should not have been involved in EC decision-making.

Moved, That the Bill be now read a second time.—(Baroness Denton of Wakefield.)

3.53 p.m.

Lord Peston

My Lords, it gives me great pleasure to congratulate the Minister on her fascinating speech, and to welcome the legislation. Towards the end, I was a trifle out of my depth with the various clauses and subsections, but I assume that they are all OK. This proposed legislation represents a considerable achievement. I shall address it in its own terms and deal with it in the way that your Lordships usually do on Second Reading; namely, deal with the principles. I shall not discuss the Maastricht Treaty or get ourselves an easy Maastricht debate under this heading. I am going to concentrate upon the legislation.

Lord Harmar-Nicholls

My Lords, that means that the noble Lord has not quite made up his mind on Maastricht.

Lord Peston

My Lords, no; the noble Lord will have heard me speak in favour of Maastricht more than once. I have no difficulties with Maastricht.

We welcome the legislation. In particular, we welcome the underlying principle which is to extend the single market to the EFTA countries. That is intrinsically a good thing, and not one about which any rational person would argue. Equally, as I sat here, I was somewhat echoing the thoughts of my noble friend Lord Jay. When the Minister reminded us that the EFTA countries are not joining the CAP, my thought was, "Lucky them! ". That does not lead me to oppose the Community; but it reminds me that the one outstanding piece of reform that we shall have to face some time is to introduce something more akin to a free trade in agricultural products. We shall have to face up to that matter.

With some exceptions, the treaty introduces free trade in goods, services, capital and workers but leaves out the anomaly of agriculture. In connection with that, I like the Minister's use of the word "dynamic" because, with respect to the single market, many people are under the impression that at the end of the year the single market will be all over and done with. Somehow we have done it, and there it goes. In fact, the reverse is true: at the end of the year we start to get down to the real business of making the single market work as a single market. The introduction of these new countries merely emphasises that fact.

That brings me to a matter that I should have warned the Minister about. She perhaps will clarify or write to me about it. It occurred to me only while I was sitting here. It also relates partly to the question asked by the noble Lord, Lord Harmar-Nicholls. What will happen to VAT regimes in this context? As I understand it, there is nothing in the Bill relating to taxation; but different VAT rates are an important distortion of the market. Discriminatory taxation on goods and services is prohibited in the Bill, but I do not know what that means in relation to VAT. Perhaps the Minister can tell us or write to us.

I am also a trifle lost on the subject of' fish. Am I right that essentially the fish regime—if I may use the expression the "fish regime"—will come somewhere between the CAP and the single market? There will be something closer to free trade in fish but it will be a long way from the equivalent free trade in industrial products. That is my interpretation of what is happening. I should like some comment on that point.

Generally, what stands out is the fact, as the Minister pointed out, that as a result of the Bill we shall have the world's largest common market. It is an astonishing achievement. When the whole issue of EFTA was mooted just a few years ago, I took the view that we would be unable to move in that direction as rapidly as it turns out we have. For once, the relevant European countries have got their acts together. That is excellent. Indeed, reflecting on Adam Smith and The Wealth of Nations, I should have thought that he would have welcomed, from his grave as it were, the fact that at long last Europe—perhaps for the first time in history, although there may have been an equivalent period in the 19th century, but I am not so certain—will have more or less a single market. That is marvellous.

However, I cannot discuss the EFTA move in economic terms without asking the Minister whether she has any more news on what we might call the political timetable. She reminded us that some of the countries have applied to join the Community itself. I have not been able fully to keep up with these matters, but I thought our aim was to get them in within the next four or five years. Is that plan still on schedule, so to speak? Can we expect them to join the Community within the next four or five years? One reason I ask that—apart from its intrinsic desirability—is that the countries that are likely to join first the free trade area, and secondly the Community, have GDPs above the average. The point I made in a speech a few months ago in your Lordships' House was that it is very much to our advantage to have countries joining whose GDPs are above the average because our other ambition—certainly mine, and I know it is shared by many noble Lords—is to get into the Community the emerging democracies of Eastern Europe. Since they will for many years have outputs per head well below the average, it is nice to be able to share the burden with one or two richer countries as well.

One other reason why I particularly welcome this legislation is that I and all noble Lords see it as a step on the road to the broader Europe which we all, including the East European countries, wish to see. I regret that it looks as though the accession of the East European countries will be slower than one had hoped. It is a pity that it is difficult to see any of them coming into the Community practically this side of the turn of the century. We will be lucky to see them come in then, but at least this is a step in the right direction.

Perhaps the noble Baroness would clarify another technical, economic matter for me. The department's own documentation states quite correctly that the European Economic Area will not be a customs union. As I understand it from the briefing I have seen from the department, the different countries will keep their own external tariffs on goods from third countries. This does not seem to me to be a viable position in anything other than the short term. Clearly, if there is free trade between the countries and if there are any significant differences in tariffs, then free trade will undermine those rapidly. The goods will come in via the lowest tariff entry point. Therefore, even if the EEA is not a customs union in practice, it must become one before very long. I should very much like to hear what the noble Baroness has to tell us on that.

Noble Lords will be happy to know that I do not wish to say a great deal more; but there is one other matter, again technical, which I wish to raise before reiterating my welcome to the Bill. I do not fully understand the point. What is happening at present is that the EFTA countries will accept all the relevant pieces of legislation of the Community as they apply to the single market. We ourselves will adapt our legislation to accommodate their entry. However, it then appears that what happens is that if the Community then changes or introduces new pieces of legislation in connection with free trade, EFTA as a body—and this what I do not understand—will have to choose whether it accepts or rejects new EC legislation.

It seems to me that there are two problems here. First, I am puzzled as to why it should be EFTA as a body and why it should not be up to individual countries once they come in. The second worrying point is that it complicates matters as to how the new EC legislation would work in the single market. In other words, there is a complication here which I find a little troublesome.

I have one final question. We shall go ahead with the legislation and I am quite certain that it will pass through both Houses because, if I may make my usual snide comment, we have not had many examples from this Government but it is an example of rational legislation which ought to be welcomed. Therefore I do not think we shall have difficulty with it. The noble Baroness may already have said this, and I missed it; but I should like to ask her whether other EC countries have already amended their legislation. Are we the last, the first or somewhere in the middle? Can she tell us what progress has been made by our fellow Community members, and whether difficulties have arisen in any of the other member countries of the Community?

It has for once been an easy task for me today to deal with the Second Reading of the Bill. I accept it both in principle and in detail and I hope that we on this side can give it a fair wind.

4.4 p.m.

Lord Thomson of Monifieth

My Lords, like the noble Lord, Lord Peston, I join in welcoming the Bill and the treaty that lies behind it. Like him, I also join in thanking the noble Baroness for explaining the complicated constitutional, legal and economic issues. I believe that I did less well than the noble Lord, Lord Peston, in following the references to Clause 2(1) (b) and its interaction on Clause 3(3) (b). I got lost in the maze. Nevertheless, it is important that these matters should be put on the record, as the noble Baroness has done.

The Government have been almost excessively conscientious in the drafting of the Bill in order to try to tidy up so far as possible the various legal consequences of the agreement and its impact on our membership of the European Community. It confirms me in my view that nothing relating to the European Community ever seems simple. I am glad that this is a non-controversial Bill and that no one has proposed a referendum on it, because the drafting of the question might have presented us with difficulties.

I am also glad to hear from the Minister that arrangements have been made that your Lordships' Select Committee on Europe should be able to deal with the application of the European Economic Area to the Community issues with which the Committee already deals. It seems to me that the Bill is almost the only uncontroversial development in Community affairs. I well understand the reluctance of the noble Lord, Lord Peston, to expand beyond the Bill to anything touching on the wider issues of Maastricht. Perhaps he will understand if I do not exercise the same self-denying ordinance.

The Bill is undoubtedly of immense importance. The noble Baroness said that it was the most ambitious Community agreement dealing with non-Community countries in the whole history of the Community. As she said, it creates the world's largest single market with almost half of the world trade. It is good for the United Kingdom and its exporters, and it is a dynamic operation. So we very warmly welcome all those points.

However, equally important is the fact that the treaty is a stepping stone, seen by the EFTA countries who have engaged in it as a halfway house to full membership of the Community. As the noble Baroness said, most, if not all of them are former partners in EFTA, seeking full membership of the Community. I was glad to hear the Minister say that the Government welcome that and want enlargement. When it comes about, it will mean that all the remaining Western European democracies who share with us a common economic and political system will be full members of the European Community. As the Minister reminded us, they are also Britain's former partners in EFTA, where we used to be the leader. We therefore have an obligation to help them in their aspirations. That is one more reason for Britain remaining, in the Prime Minister's words, at the heart of the European Community.

What has seemed significant to us on these Benches is that the free trade area concept reflected in the treaty and the Bill, so beloved by some Euro-sceptics, is not enough for the countries of EFTA. They presumably share the view put forward in the powerful letter in The Times today from the President of the CBI and an impressive list of the leaders of British industry. The letter stated and I believe this is the answer to my former noble friend, the noble Lord, Lord Jay—that: The single market is more than a free trade area: it requires regulation and enforcement to ensure that barriers to competition are removed". I would add—and I believe I carry the noble Lord, Lord Peston, with me—that the single market also requires a social dimension, a social charter to balance the rigours of an increasingly wider marketplace.

The Government, in preparing for Wednesday's historic debate in another place, should ponder on the fact that these EFTA countries feel the welfare of their peoples will be best served by enjoying the rights and accepting the obligations of a closer European union. They are ready to accept the full acquis communctutaire, including, as I understand it, the future obligations of the Maastricht Treaty. When even Switzerland with its long tradition of neutrality—I believe it is not even a member of the United Nations—wishes to be a full member of the European Community, it is surely strange if Britain were in any way to drag its feet over the process of ratifying the Maastricht Treaty.

I personally find it irrational and curiously humiliating that, when so many of our former EFTA partners want to join the Community, there are those ready to hide behind the skirts of Denmark and who wish to wait to see whether 50,000 Danes—that was the size of the majority in the Danish referendum—can be persuaded to change their minds and accept the advice of their own government.

Britain may no longer be a world power but we remain a major Western European nation alongside France and Germany. In that respect we are different from Denmark with different national interests and a bigger role to play in the leadership of the Community. I therefore find it particularly sad that the Labour Party, for whatever tactical reasons, should have fallen for the temptation to follow this course of waiting for the Danes. We on these Benches share the total lack of confidence held by the official Opposition in Her Majesty's present Government, but this week it is confidence in Britain's role in Europe that is the issue. I therefore hope the present situation is a temporary aberration and that the noble Lord, Lord Bruce of Donington, to whom I always listen with great interest, will not feel he has converted his own Front Bench to a change of policy.

Lord Bruce of Donington

My Lords, I am most grateful to the noble Lord for having correctly anticipated my reaction to these matters. However, I hope I may take this opportunity to remind him that he has just uttered a complete inaccuracy. The EFTA countries are not bound in any way by the Maastricht Treaty and do not in fact subscribe to it under this agreement.

Lord Thomson of Monifieth

My Lords, I believe the noble Lord, Lord Bruce of Donington, has misunderstood what I said. I said that, in applying for the full membership of the Community, those countries have said they are ready to accept the full acquis communautaire which at this moment includes the post-Maastricht obligations. That is my view of the situation. I do not believe that our former EFTA partners, whom we welcome in this Bill into the European Economic Area, and who want to join us in the post-Maastricht Community, will begin to understand why Britain for domestic party reasons undermines and does serious damage to our capacity for leadership and influence over future developments. In passing this Bill today these greater issues are in all of our minds.

4.13 p.m.

Lord Desai

My Lords, I thought this was a fairly straightforward technical Bill. I am surprised that I have become entangled in it in that I am speaking in today's debate. However, I shall resist the temptation to speak to the matter to which the noble Lord. Lord Thomson of Monifieth, has spoken. Today I do not wish to address the issue of what the Labour Party should or should not do on Wednesday. I have my own views on that matter which I may express on Wednesday. That will be an appropriate time to do so.

Like my noble friend Lord Peston and other noble Lords, I welcome the fact that we are extending the free trade area to a larger number of countries and to a larger population of people. The Zolverein and the United States are good examples of free trade areas where a single government and a single currency soon followed. Thus these will not be long in coming, but I am not impatient about that. I am willing to wait for that for another 30 years or so. We look forward to a prosperous Western European economic area.

I have only two matters that I wish to raise in detail. I do not require an answer from the Minister at this moment as I have not given her notice of the two matters I wish to raise. However, I hope she will reply to me at some stage in the future. First, I am somewhat surprised that an exception to the provision of the Bill is made in the schedule as regards education. I declare an interest here as I teach at an institution that attracts many European students. It appears that EFTA students will not benefit from this provision to the same extent as students from the European Community. That is a pity. If we are to allow the free movement of labour, services, capital and goods, we should allow the free movement of human capital, as it were. We in the UK can contribute a great deal in the field of higher education. We should strive to attract as many EFTA students as possible on the same terms as EC students. That would benefit us enormously. No doubt that step would cost money; but everything costs money. That money would be money well spent. No doubt the powers-that-be have thought about that matter and have excluded higher education from the provisions of the schedule. If I am wrong about that, perhaps the Minister will correct me.

The second issue I wish to address concerns a slightly more complicated matter. The Explanatory and Financial Memorandum refers to financial costs. Am I to understand the costs are to change not because these countries will join the common agricultural policy but because there will be a bilateral reduction of tariffs? I understand that that in itself will cause some change in the financial costs and contributions that we make to the Community. What I am really saying is that I do not understand the paragraph on page iii of the Bill which concerns costs. However, those are minor quibbles. I am willing to await a written reply from the Minister or a discussion with her. In the meantime, I welcome the Bill and I look forward to a swift Committee stage.

4.17 p.m.

Baroness Hooper

My Lords, as has been said, this Bill represents the latest step in the European integration process, but that is not a new shocking step as some people would have us believe. In that respect I regret that my noble friend Lord Aldington cannot participate in this Second Reading debate. I understand that that is because he has lost his voice, which is an unusual occurrence in the case of my noble friend. I was looking forward to hearing his contribution but no doubt he will participate in later stages of the Bill.

It follows from the facts of life that these seven EFTA countries we are discussing, which are our closest neighbours geographically, historically and culturally, should wish to join in closer links with us. We are all developing together and we are developing more closely than ever if for no other reason than the increased speed of communications. Since the day the United Kingdom left EFTA to join the European Community nearly 20 years ago close relations and special agreements have been established between the European Economic Community and EFTA. In my view, access to the four freedoms—that is, free movement of goods, persons, services and capital—constitutes a natural process of evolution.

I need dwell no further on those freedoms as my noble friend the Minister gave us a clear and helpful outline of the way in which they affect us all. I have always hoped for and worked for the day when the European Community should be enlarged further to include other European countries. As a next step I believe that the EFTA countries should lead the way in being part of that enlargement. I expect that in due course that enlargement will encompass other countries in Central and Eastern Europe. Like the noble Lord, Lord Peston, I regret that at this stage that development seems to be receding further into the future, but I take hope. I noted with satisfaction the agreement and accords of the so-called Visegrad countries in London last week. That is very much a step in the right direction.

But the seven countries with which we are concerned in this Bill are tied to us not only by trade links and agreements from the past but also by common membership of the Council of Europe. As I have said before in your Lordships' House, I am a new member of the Parliamentary Assembly of the Council of Europe. In view of the committees on which I sit and in which I participate, I have been privileged to work with colleagues from Iceland, Finland and Switzerland in particular on a wide variety of issues—for example, social, health and educational. It may come as a surprise to many that we already comply fully with the Council of Europe's Social Charter which affects not only the existing European Community countries but also the seven EFTA countries. Clearly, that affects and will affect the interpretation of the social provisions brought into effect by the Bill.

The fact that it is now widely recognised that the abolition of customs duties is not in itself sufficient to guarantee genuine free trade, and that we must move forward—move a step further in this case—raises no fears of a hidden agenda or a Machiavellian plot. I subscribe to the Government's view that the removal of such impediments as quantitative restrictions, varying technical and bureaucratic requirements, and procurement rules which give preference to national products or enterprise, all hinder the free flow of goods.

The removal of those impediments should boost trade within the European economic area allowing both European Community and EFTA producers to benefit from greater economies of scale. Also, it should increase competition and thus provide benefits for all European consumers, as my noble friend the Minister so clearly pointed out. I feel it unnecessary to dwell further on those aspects since they have been dealt with very thoroughly in the debate so far. However, perhaps I may mention the specific areas of agriculture and fishing since they have been dealt with and questions have been raised on them.

It seems to me that the way forward has been shown by the fact that specific solutions by way of bilateral agreements cover those two areas, and that the agreement—the very bulky agreement with which we are dealing in this Bill—also contains provisions intended to reduce as much as possible technical barriers to agricultural trade arising from differing technical regulations on, for example, animal and plant health.

The Bill before us apparently deals adequately with all the legal, constitutional and financial effects of the agreement and the other matters within its scope. I shall certainly read my noble friend's explanation to be sure that I have understood it correctly. However, I was particularly interested to note in the Explanatory Memorandum that my former department, the Department of Health, will require three extra staff to meet the increased workload as a result of this Bill. I shall he interested to hear in due course what that workload represents in more detail.

I should also be interested to hear from the Minister how many other countries have already completed this necessary legislative step, or at least at what stage they may be, in order to assess how far forward we are in this particular race.

I believe that we are moving in the right direction with the European Economic Area agreement and with the Bill. I look forward to following its progress through later stages, and I have great pleasure in supporting it at this Second Reading.

4.25 p.m.

Lord Bruce of Donington

My Lords, I am very pleased indeed to be able to agree with many of the sentiments expressed by the noble Baroness, Lady Hooper, particularly those referring to the Council of Europe, which I have always found to be an extremely agreeable organisation, the aims and objects of which I have continuously supported.

I make the prediction that when the European Economic Community as at present constituted chokes itself on its own bureaucracy, and a long time after the Maastricht Treaty has become completely irrelevant, the Council of Europe will take an ever-increasing role in our affairs and that ultimately, being in the Council of Europe, we shall probably he nearer the heart of it than we are in Brussels. Although I appreciate the degree of unanimity that apparently exists between the Government's Front Bench, my own and that of the Liberal Democrats—whose role as custodian of the high moral ground in politics I seriously dispute—it will not surprise your Lordships that I should venture to enter a note of caution, almost bordering on dissent, in connection with the Bill before us.

As has been correctly stated by the noble Baroness, Lady Denton, the Bill which we are considering this afternoon deals with the United Kingdom's situation following the agreement which was apparently concluded on 2nd May this year by virtue of which the seven EFTA countries became more closely associated with the European Economic Community. I say that with my tongue slightly in my cheek because the Bill will not come into operation until the agreement is ratified, and the agreement concluded on 2nd May still has to he ratified by the various member states.

I do not want to be too contentious in dealing with the difficulties we are having with the Maastricht Treaty, but here we have a document of some 587 pages, published by the Stationery Office at a price of £37, which is very voluminous and which contains much more than may have been indicated by the very brief and illuminating remarks that have fallen from the lips of the noble Baroness, Lady Denton. Here we have an agreement which occupies a mere 30 pages but which has no fewer than 49 protocols. It has 30 joint declarations, and those who are connoisseurs of the Maastricht Treaty will know what is involved in joint declarations; declarations affecting subject matter as distinct from countries; a further 39 declarations covering individual interests of member states and the exceptions that they wish to make to the agreement itself. Then there are some 280 pages of annexes. This is a document that is not easy to digest, much less to understand. I congratulate the Government. I am quite sure that, as in the case of Maastricht, Ministers have read every word of it and understand every word of it.

We are dealing with the domestic consequences of a formidable document. Despite the extent of that document, under Article 127 the seven EFTA countries which are signatories to the document can withdraw from the agreement by giving a year's notice. How lucky those various EFTA countries are to have the advantage of the deluge of paper that will in due course emanate from Brussels, to be able to digest it, appreciate it and legislate for it; but if they ever get fed up with the deluge of paper and the bureaucracy, apart from subsidiarity, to be able to get out of the agreement after a year. That is a most advantageous agreement.

As my noble friend Lord Jay has already said, here we have an agreement by virtue of which the seven countries can associate themselves with those Community activities with which they agree and from which they can derive some advantage. The reason is very clear. They are not committed in any way to Maastricht. That is a start. The Government's own document on the subject, which they were kind enough to issue earlier this year, states: EFTA will not be bound by the provisions of the Maastricht Treaty on European union. For example, they will not participate in Economic and Monetary Union (EMU) or the Common and Foreign Security Policy (CFSP)". Lucky them, my Lords!

The document makes it clear that those countries will not participate in the common agricultural policy or the common fisheries policy; they will not be bound by the Community's financial and fiscal policies; they will not contribute to the Community's budget; and they will only have a limited share in determining the shape of EC legislation. That makes me, as a mere citizen of the United Kingdom as distinct from a compulsory citizen of a European union, very envious of the agreements which they have been able to achieve.

The noble Baroness gave some account of the impact that the treaty, when and if ratified, will have upon the United Kingdom. Clearly, considerable attention has been paid to Clause 2 of the European Communities Act. Subsection (2) of that clause—one of the most significant provisions, of which the president of the Commission, M. Delors, makes considerable use—provides that: Subject to Schedule 2 to this Act, at any time after its passing Her Majesty may by Order in Council, and any designated Minister or department may by regulations, make provision—

  1. (a) for the purpose of implementing any Community obligation… "
and so on.

That will apply to all legislation, which will now come from another source, because under Article 7 of the treaty we find that: Acts referred to or contained in the Annexes to this Agreement"— all 280 pages of them or in decisions of the EEA Joint Committee shall he binding upon the Contracting Parties and be, or be made, part of their internal legal order as follows:

  1. (a) an act corresponding to an EEC regulation shall as such be made part of the internal legal order of the Contracting Parties;
  2. (b) an act corresponding to an EEC directive shall leave to the authorities of the Contracting Parties the choice of form and method of implementation".
So now we do not have to deal only with the President of the Commission and his acolytes; we have to deal with another body, an EEA Joint Committee. That is to be set up as part of the new series of organisations and bodies, mainly comprising civil servants but not necessarily so, which are to be set up under this particular agreement. If your Lordships will bear with me for a moment I shall outline the particulars which have already been provided by the Government as to the new bodies which are to be brought into existence. It should be borne in mind that the moment one creates a new body one brings in new civil servants, new interpreters, new car pools and new schedules of expenses, which may or may not be liable to taxation in the various countries.

What will be necessary in order to implement the agreement? There will be an EEA Council, which will consist of Ministers of EC and EFTA member states—and representatives of the European Commission. I thought so! It will provide political direction to the EEA, making decision by consensus of the two sides. We welcome that concession because it is better than qualified majority, so at least we have some control over what is to happen.

The EEA Joint Committee, which will be composed of EC and EFTA officials—and although it is not stated one can bet one's life that COREPER (the Committee of Permanent Representatives of the EC, which is the powerful body of civil servants which runs the Community) will be there. There will be a new EFTA Court, to be set up by the EFTA countries. It will have seven EFTA judges—one from each country. There will be an EEA Joint Parliamentary Committee composed of Members of the European Parliament and EFTA parliamentarians, which will meet from time to time. I do not know where its headquarters will be, what travel facilities there will be or the paraphernalia and documents which members will carry with them. Then there will be an EEA Consultative Committee which will consist of members of the Community's Economic and Social Committee and the corresponding EFTA consultative committee. Some of those bodies will also have advisory bodies.

It does not need a jaundiced person—as I may appear to some to be—to imagine the bureaucracy that will grow up around such an arrangement. It will not function on its own. Moreover, it will place an incredible strain on individual Ministers. Your Lordships will recollect that I have said that one of the defects of the running of the European Economic Community is that Ministers, whether of the United Kingdom, Germany or any other member country, have very little detailed knowledge of what is happening in the Community. They are informed by their civil servants, on the basis of summaries produced by civil servants and on the basis of draft decisions submitted by their civil servants, which Ministers read mainly on board planes as they fly to Brussels, Luxembourg or Strasbourg. All we are doing is adding to that burden. Anything that can simplify matters will be of great advantage.

I have no objection to the seven states joining on the most advantageous terms. As a quid pro quo they have agreed to contribute to the structural funds, which is a very good thing indeed. We in the EC would have been remiss if we had not insisted that we received something in return for the manifold benefits which the EFTA countries will receive. However, we must face the fact that today the battle for democracy is no longer a battle against an ideology, whether it be Fascist or Communist inspired, but against bureaucracy. Bureaucracy throughout the world, in the EC, and probably in this new organisation too, will progressively restrict the ordinary liberties of the individual, whether that individual be a member of a large organisation, an independent and self-employed person or in service or manufacturing industry.

Among all the euphoria with which this new enterprise is being launched, let us remember the moral contained in the fairy story by Hans Christian Andersen about the emperor having no clothes. Despite the euphoria and statements of optimism which exist at present, within its own definitions and limitations, within its own philosophy stated against its objectives, the European Community has been an abysmal failure. Its gross domestic product has increased by far less than that of either Japan or the United States. It has failed to deal with unemployment which now runs at between 16 million and 17 million throughout the Community. It has failed to arrest the large differences between the rich and poorer countries of Europe—the class structures of poverty and great wealth within each member state.

Let us remember those factors and let us hope that the injection of new blood, albeit on a one year's notice basis, will bring some new vigour into what otherwise threatens to become a decrepit and "bureau-ridden" Europe.

4.42 p.m.

Baroness Denton of Wakefield

My Lords, although a short debate, it has been most helpful. I thank your Lordships for your overall endorsement of the European Economic Area. I hope that the caution expressed by the noble Lord, Lord Bruce, was an overriding factor and not dissent. I recognise that it is a small Bill which has a large task and is exceedingly complex. I shall try to address as many of the points raised during the debate as possible, I acknowledge with a little help from my friends. However, I hope that noble Lords will understand if I do not cover all the points. I shall check against Hansard to ensure that the information is given to your Lordships.

The noble Lord, Lord Peston, drew attention to the fact—as I did—that there is no fixed point in the development of Europe; that it constantly is evolving. It is important that we recognise that. He asked specific questions. What happens to VAT regimes? The EEA does not extend to VAT, nor to other areas of taxation. The EFTA countries will not be obliged to apply VAT. As and when they join the Community as full members, they would do so. The same applies to customs union. There are no plans for the European Economic Area to become a customs union. EFTA is not a customs union. The seven EFTA states have different external tariffs. It would not have been possible to negotiate a customs union for the European Economic Area. However, on becoming full members of the Community, EFTA states will have to join the union.

Several noble Lords raised the question of not being subject to the common agricultural policy and asked therefore how the EFTA countries can perform their obligation. The European Economic Area's agreement covers only some aspects of the Community. It does not extend to the common agricultural policy or to any of the obligations of the member states which relate to the CAP. That means that the EFTA states will have no obligations of financial or other nature relating to CAP. It is worth noting that some EFTA states have agriculture support schemes which are more generous than the common agricultural policy.

As I am not a Minister for MAFF, I had hoped not to become involved on questions about fish. However, there will be increased access for Community fishermen to Norwegian and Icelandic grounds, and reduced tariffs for trade in fish between the Community and EFTA. However, as noted, there are some exceptions to protect the Community. We are a large part of that protected salmon, herring and mackerel interest. However, the Bill does not amount to an extension of the Community common fisheries policy to EFTA.

The noble Lord, Lord Peston, raised the complication of legislation, which I much appreciate. Why must EFTA accept or reject as a body and not as individual states? It would not be a practical matter for individual EFTA states to be able to accept or reject new Community legislation as they chose. It would undermine the objective of simplifying trading conditions or removing barriers to trade. I hasten to assure the noble Lord, Lord Bruce, that that is at the core of all our anxieties. There would be little point in creating the carefully designed system of the European Economic Area if individual states could opt out on particular measures as and when they chose.

I thank the noble Lord, Lord Thomson, for his contribution. I appreciated his remark that much of what I said was a matter of putting it on record. I appreciate the support of the policy that our industry and commerce need a European market.

The noble Lord, Lord Desai, raised the question of education. I have not touched on that at this stage. Perhaps I may reassure him that the children of EFTA nationals working in the United Kingdom will be able to study on the same terms as those of Community nationals. Not to have extended would have meant that educational establishments would have been unable to charge overseas fees. As noble Lords rightly recognised, it was on the question of funding that decisions were taken.

On the meaning of the paragraph in the Explanatory and Financial Memorandum on the effect of agriculture on the Community finances, I have stated that the EFTA member states will not join CAP. However, the agreement reduces some tariffs between the Community and EFTA on agricultural products and a reduction in tariffs charged by the Community on EFTA imports will reduce finances going directly to the Community. It will have to be made up by direct contributions from Community member states.

I stress that we are all very conscious of a matter to which the noble Lord, Lord Peston, drew attention: that it is the rich nations which are joined in this agreement.

I was pleased to listen to my noble friend Lady Hooper. I was sorry to discover the reason that my noble friend Lord Aldington is not participating today. His loss of voice is our loss; we regret that. I hope that he will be involved in future stages of the Bill.

Both my noble friend Lady Hooper and the noble Lord, Lord Bruce, raised the question of ratification. The Austrian and Norwegian parliaments have passed legislation necessary to ratify. The European Parliament also gave its agreement last week. We are informed that everyone is on course to ratify in time. We have no reason to doubt that resolution.

I, too, was intrigued to know what the three extra staff in the Department of Health are to do and I was amazed by the preciseness of their calculations. It is estimated that the possible three extra staff will process additional claims for health benefits made by EFTA nationals. Those will result from the extension of the social security regulations to the EFTA nationals. I stress that they are not part of a high paid bureaucracy but are at administrative and executive officer level.

Perhaps I may be so hold as to point out that there was some strength of hindsight in some of the comments which were made today. The EFTA countries which have taken the benefits that were claimed have applied for full Community membership because they wish to play a full part in the Community decision-making process and in the other aspects of membership. It is difficult to participate and to be on the outside. There is no strength in that. Indeed, I have seen industries suffer on occasions when they have tried to do so.

Any legislation benefits from the eagle eye of the noble Lord, Lord Bruce of Donington. I am sure that the Bill will have been well and truly examined by the completion of all its stages. I certainly do not argue its complexity nor the ministerial stress of new bodies. However, I assure the noble Lord that at least one Minister coming from the private sector late in life has a nose for such matters. I should never comment that the noble Lord's view was jaundiced but it is based on true concern which we appreciate. I hope that the Government's stress on deregulation on every possible occasion will give him some comfort.

The situation is not a failure of the market; it is evolving. As a result of my work with small firms I know that only now are they beginning to realise the benefits which they can obtain from cross-research development and cross-trading opportunities. I see the firms which are now involving themselves sharing the benefits with others and I hope that things will move more quickly.

The Government believe that the Community should continue to develop as a competitive market with open trading relations with third countries. Our view of the benefits of the agreement is the same as that for the single market. It will improve trading conditions by eliminating harriers to trade and ensuring fair conditions of competition.

The EEA broadens the original vision of the Single European Act and the work of my noble friend Lord Cockfield in his important White Paper on completing the internal market. I was delighted to see him in his place today when the Bill was introduced. The EEA also lays firm foundations for the future enlargement of the Community. Four EFTA countries—Austria, Finland, Sweden and Switzerland—have already applied for Community membership and Norway may decide to do so very soon.

A major objective of our presidency is to take forward as far as possible the applications from EFTA countries to become members of the Community. The conclusion of the agreement has demonstrated already the ability of those countries to take on the economic and trade obligations of membership. It has significantly reduced the issues which will need to be addressed—and thus the time to be taken—during the enlargement negotiations.

UK business has welcomed the agreement. Our exports to EFTA are £7.5 billion, which is equivalent to two thirds of our exports to the USA. That is a significant opportunity for our manufacturing industries in particular.

For the fishermen there will be more cod to be caught; for airlines there will be greater liberalisation; and for consumer goods manufacturers there will be easier access to the market. There will, in short, be increased opportunities and a major reduction of burdens and costs to companies. All focus will be on achieving that. My department is playing its part in drawing those opportunities to the attention of companies, most recently by publishing a guide to the agreement which the noble Lord quoted.

The EEA is an important element in a wider government policy to encourage the Community to be more outward-looking. In a period of worldwide economic problems and with the attendant risk of trade protectionism, the EEA offers genuine prospects of growth and prosperity.

The agreement and the Bill will bring benefits to businesses and consumers alike. I recommend that the Bill be now read a second time.

On Question, Bill read a second time, and committed to a Committee of the Whole House.