GATT

HL Deb 16 December 1993 vol 550 cc1467-76

3.57 p.m.

Lord Wakeham

My Lords, with the leave of the House, I shall now repeat a Statement made in another place by my right honourable friend the Prime Minister about the General Agreement on Tariffs and Trade. The Statement is as follows:

"With permission, Madam Speaker, I should like to make a Statement on the successful conclusion of the world trade negotiations.

"In Geneva yesterday, trade negotiators from 117 countries reached the most wide-ranging agreement ever. After seven years of long, hard and often fraught negotiations, it is a superb outcome. It is a result for which industry, commerce and consumers alike have pressed. It is a conclusion for which this Government have worked tirelessly through many crises, when protectionism threatened British markets and British jobs.

"The new GATT settlement will: help British industry by bringing down barriers to exports of manufactured goods and services; give manufacturers greater protection against piracy of their copyright, patents and designs; bring down prices for consumers, particularly of food, electronics and other manufactured goods; and, strengthen the world trading system against unfair practices by individual countries.

"Britain is the fifth largest exporter in the world of goods and commercial services. We export more, per person, than either the United States or Japan. Our markets are already among the most open. So we stand, therefore, to be one of the biggest gainers from cuts in worldwide tariffs, quotas and other restrictions.

"Sharp reductions in some very high tariffs in the United States and Japan will help Britain in strategic markets. The overall tariff reductions—across all countries of the world—will be around 40 per cent. An independent study has indicated that a new GATT settlement could add up to 4 per cent. to our national output—generating up to 400,000 extra jobs over the next decade.

"The European economies as a group are estimated to be the biggest single gainer. So the GATT deal can be expected to give a much-needed boost to confidence and recovery in our biggest market. As late as last weekend, there was a real and frightening danger that negotiations might unravel. The world faced the choice between a retreat into protectionism, slump and higher unemployment—or free trade, growth and jobs. Happily, it has made the right choice. The Director-General of the CBI has rightly called this, 'a momentous and welcome event'.

"The Government have fought consistently to keep negotiations going. It has been a long struggle. Last year, we faced the prospect not only of failure but of a lurch into trade war between Europe and the: United States. Exports from Europe were threatened by new and punitive American tariffs. We were able to use our Presidency of the European Community to get both sides back to the negotiating table and to make progress on farm trade.

"We encouraged the new United States Administration to extend Congressional authority, in order to permit the GATT round to be concluded. We pressed for the agreement on tariffs at last summer's Tokyo summit—another crucial building-block in the final result. And at this autumn's Commonwealth summit, we launched a special mission to all the key governments of the developed world. This sent the clearest possible signal—on behalf of a quarter of the world's population—that free trade was a prize for developing countries too. Trade, more than aid, is the most certain route to economic development.

"Great credit is due to Sir Leon Brittan, the European Community's negotiator; and to Peter Sutherland, the Director-General of GATT. But others have played a crucial part, including the US negotiator, Micky Kantor. All three had the courage to take on their tasks at a time when it was far from certain they would be rewarded by success.

"Madam Speaker, let me now outline the main features of the agreement. First, industrial goods, where final details are still being worked out. A number of our largest export markets will move towards the total abolition of tariffs in industries which include pharmaceuticals, steel products and spirits. For example, the Scotch whisky industry, which already has exports totalling about £2 billion a year, will benefit from the complete abolition of Japanese tariffs.

"Cuts in high US tariffs on scientific equipment, chemicals, steel and ceramics, for example, will help us in one of our biggest markets. Our textile manufacturers will gain from tariff cuts in the United States, and gain greater access to many economies along the Pacific Rim.

"Secondly, agriculture, which for the first time will be fully covered by GATT rules. Tariffs are being cut and subsidies reduced substantially, offering families in this country the prospect of lower prices for staple foods.

"In Europe we have already begun the process of reducing farm production subsidies. Overall, these cost every family over £20 a week. The changes to the CAP already agreed—if passed on to the consumer—should over a period lead to price cuts equal to 20p off a pound of beef, 6p off a pound of butter. Under the GATT agreement, other countries—notably Japan and the United States—will have to cut their agricultural subsidies too.

"Thirdly, Madam Speaker, for the first time we have an international set of rules for free trade in services—the fastest-growing sector of the world economy. Services account for two-thirds of our output in the UK, but only about a quarter of our exports. So if we can break down barriers to trade, there is great potential for growth. The services covered range from insurance to consultancy. Many countries have made commitments on financial, telecommunication and transport services.

"This is only a start. Further negotiation with the United States must follow on maritime and on financial services. But we have meanwhile maintained the freedom of the City of London to attract new international business.

"Fourthly, so-called 'intellectual property', where, Madam Speaker, in too much of the world, the law of the jungle still rules. Expensive research and development by British pharmaceutical companies can be pirated—that is, stolen —by countries which offer no protection of patents. The same is true of Britain's record industry, which estimates that as much as half its market in the developing world is stolen by pirate goods. For the first time, we now have an agreed set of international rules, on which we can begin to rely in our fight to give these industries the markets they have a right to expect.

"Madam Speaker, free trade increases the need for businesses to be internationally competitive. But in Britain, we have world class companies, ready for the challenge. This new GATT settlement removes the threat of collapse of the world trade system—a system on which economic growth has been based for nearly half a century. It extends the benefits of trading rules into vast new areas of business. It brings further, welcome reductions in tariffs on British goods.

"It is a platform for recovery, growth and jobs—in Britain, the European Community, and the rest of the world. I commend it to the House".

My Lords, that concludes my right honourable friend's Statement.

4.6 p.m.

Lord Richard

My Lords, I am grateful to the noble Lord the Leader of the House for repeating the Prime Minister's Statement that was made in another place. As he said, these negotiations have taken seven long and eventful years, and it is a tribute to the staying power of the negotiators involved that a conclusion has finally been reached. We on these Benches welcome this agreement and we hope it will provide a significant boost to world trade at a time when many economies are experiencing recession and unemployment.

We should place on record our congratulations to the three people most directly involved in this settlement; namely, Mr. Kantor for the United States, Sir Leon Brittan on behalf of the European Union and Mr. Peter Sutherland on behalf of GATT itself. We should congratulate them not only on their negotiating skill but also on their collective commitment to the efficacy of creative insomnia. It seems to me that more has been achieved by their staying awake at nights over a period of time than has ever previously been achieved in international negotiations.

I am sure noble Lords on all sides of the House appreciate the importance of the conclusion of this agreement. It will cut tariffs; it will, hopefully, open up markets and it represents an historic opportunity to kick-start the global economy. However, it is vital that the signatories to GATT recognise this and translate the full potential of this agreement into growth, jobs and investment. I wish to ask about three specific matters which were dealt with in the Statement.

First, as regards trade in financial services, can the noble Lord the Leader of the House confirm that access to the United States will still be limited? If that is so, where do we go from here? What sort of negotiations—and in what forum—does he envisage in order to persuade the United States that their commitment to free trade in financial services should be as great as their commitment to free trade in other sectors?

Secondly, I wish to comment on French agriculture and the changes to the Blair House agreement. Can the noble Lord the Leader of the House confirm that, whatever changes take place to the Blair House agreement, that in no way prejudices the reform of the common agricultural policy, and indeed would not add any burdens to Community expenditure on the CAP? Thirdly, will the noble Lord the Leader of the House recognise that, while for the developed world this may be a great breakthrough, and indeed probably is, for some developing countries it will cause immediate problems? That is certainly true for some African countries. If the Government recognise that, what steps do they propose to take—as they should—to try to alleviate the difficulties that some of the primary producing countries are bound to experience as a result of this agreement, which will almost certainly result, initially at any rate, in a fall in the export prices of their primary products? I should be grateful to hear the Minister's comments on those three points. In summary, it was important for the world economy that this agreement was successfully concluded and successfully negotiated. We are pleased that that occurred and we hope that we can now build on the agreement.

Lord Jenkins of Hillhead

My Lords, we can certainly agree on expressing general satisfaction at the outcome of the negotiations and join in the congratulations, particularly to Mr. Peter Sutherland and Sir Leon Brittan. In good wishes to Sir Leon on Monday I indicated that in my view he has found his ideal métier as a high-grade international negotiator of complicated matters.

It is also worth noting that the outcome is a considerable triumph for the European Community, or Union as I shall have great difficulty in getting used to calling it. I have no doubt that in the tough and protracted negotiations, had we been dealing with the power of the United States as fragmented, individual nation states of 50 million people, the Americans would have carved us up to a much greater extent. I do not believe that they have done so. People often ask what are the concrete benefits of the Community. Here is one very clear and large benefit.

We must recognise that the main beneficiaries of the agreement are Europe, the United States, Japan and the other Pacific rim countries. It is a classic example of to those that hath shall be given. In a way it is right that that should be so because I am in favour of providing a stimulus to the OECD and industrialised world at present. However, we should be aware that some do much less well. Compensation is a rather hallowed word in the GATT, and the Government and other comparable governments should give great consideration to the compensation, whether in the form of aid or of trade benefits, which they are prepared to give to those who come out of the agreement much less favourably than we and other rich countries.

Lord Wakeham

My Lords, I am grateful to both the noble Lord, Lord Richard, and the noble Lord, Lord Jenkins of Hillhead, for their remarks. I am very pleased that they used such warm words. They are right to congratulate, as the Prime Minister did in his Statement, those who had the principal responsibility for negotiating the agreement. It has been a formidable exercise and it has involved many thousands more people than just the leaders. I should like to pay a personal tribute to my right honourable friend the Prime Minister whose personal involvement, I know from my own experience, was essential at various times during the round. He played a very large part.

I shall comment on the points raised by the noble Lords. When we achieved this agreement my reaction was one of relief because the alternative to reaching the agreement would have been utter disaster. The agreement provides us with formidable opportunities.

The noble Lord, Lord Richard, asked me about financial services. For the first time financial services will be included under the trade rules. The agreement includes many worthwhile commitments which will increase the opportunities for UK companies to expand their overseas markets. It is disappointing that the United Kingdom has not obtained as much as it hoped in the opening up of financial services. The position regarding the United States is that the existing access will be maintained but negotiations are continuing to open other markets further. Those negotiations will be undertaken by the United States and the EC, whose interests on these matters are very similar.

As regards the position of French farmers and agriculture, no special measures are needed to compensate EC farmers for the effect of the agreement. Indeed, at the European Council meeting in Brussels on 10th and 11 th December it was made clear that any further measures must be financed within the financial limits on expenditure agreed at the Edinburgh Council.

The third point which the noble Lord raised concerned the under-developed world. The noble Lord, Lord Jenkins, also asked about that. First, it would not have been possible to reach agreement on world trade unless the other major trading blocs had agreed. Other trading blocs, particularly the Cairns Group, have consistently been among its strongest supporters and have welcomed the agreement. In addition, the Limassol agreement of the Commonwealth countries, both developed and developing, demonstrated the desire of developing countries to see a conclusion to the negotiations. It is important to remember that developing countries earn three times as much from trade as from aid. The other important safeguard is that the changes will be phased in over a period, in some cases of 10 years. Therefore, there will be opportunities for both developing and developed countries to adjust.

4.16 p.m.

The Earl of Onslow

My Lords, should not my right honourable friend and Her Majesty's present Administration be congratulated on pushing so hard for free trade and free access? Is it not also true that it is the. European Union which has benefited from this savage push for free trade which is so necessary?

Having said that, when the agricultural positions finally come into being in 2005, how much subsidy will still exist in both the United States and the European Community on agricultural products? Is it not now time, to start thinking about the potential of Eastern Europe and the Ukraine, despite the appalling mess which exists at the moment in relation to their agricultural produce, bearing in mind that that area exported in the region of 15 million tonnes of grain in 1913?

Lord Wakeham

My Lords, my noble friend is right. It is a complex agreement. All the details do not emerge at once and we do not have them all yet. The EC itself has more than 10,000 separate tariff lines.

I am not sure that I can answer my noble friend's question in relation to agricultural support. However, under the agreement there is a commitment to a steady reduction in EC tariffs on imported agricultural products. For consumers that means an average reduction of 36 per cent. and not less than 20 per cent. for any particular foodstuffs over the six years. In addition, where there was previously low or minimal access for agricultural imports the agreement provides for improved access at reduced rates of tariffs. It is certain that the agreement will lead to a cheaper and wider range of food imports. I am not able to give the exact figure and I doubt whether it is known.

Lord Mackie of Benshie

My Lords, following his noble friend's question, can the noble Lord the Leader of the House confirm that the present agreement, that a reduction of 30 per cent. in agricultural prices will be compensated by area payments, will not be affected?

Lord Wakeham

My Lords, that is my understanding of the position, but I shall check for the noble Lord.

Lord Harmar-Nicholls

My Lords, it is pleasing to note the unanimity of acceptance of the outcome of the negotiations. However, there is one item which I believe ought not to pass and which worries me a little. In relation to financial services the noble Lord, Lord Richard, implied a criticism of the United States in not having given even more. It is sad that that, even as an implication, should be on the record because the United States moved considerably. In answering that point, my noble friend seemed marginally to agree with the noble Lord, Lord Richard. If we begin, even by implication, to criticise the Americans for what they have not given we may encourage people on the other side of the Atlantic to criticise France for perhaps asking for too much. That atmosphere ought not to be allowed to develop in these early stages if we can possibly avoid it.

Lord Richard

My Lords, before the noble Lord the Leader of the House replies, perhaps I may give this information to the noble Lord who criticises me. The Americans gave nothing on financial services. It is not a question of saying that they have given a bit and that they should have given more. As I understand it, on financial services the position remains identical to what it was before the agreement was negotiated.

Lord Wakeham

My Lords, I shall do my best to answer both points of both noble Lords. I believe that the noble Lord, Lord Richard, is wrong. The fact is that the United States has agreed that financial services will come within the trade rules for the first time. That is a substantial move in the right direction. However, I do not believe that I am criticising anyone particularly. It is a wonderful agreement and everyone had to give and take a little to achieve it; but it was absolutely vital that we did so. However, the British negotiators would prefer to have more access to the United States market for financial services. The United States recognises that as a reasonable request, and we continue to negotiate. That is in no sense a criticism; it is in the context of seeking to make improvements for the future.

Lord Taylor of Gryfe

My Lords, we are all encouraged and delighted at the result of the negotiations. Quite specific estimates have been made as to the growth in world trade, employment, and so on, as a result. Have any specific calculations been made on the impact of the agreement on the third world? There is a suggestion, in particular from representatives of the African states, that it is a triumph for a rich man's club and that those states will not benefit greatly from the new agreements. Since any subsidies paid from the European fund will be limited within the total budget, as the noble Lord mentioned, will subsidies, assistance or aid programmes to the third world be limited to the overall claim on the European funds from the common agricultural policy, television companies, and so on? Have any calculations been made of the total impact on third world countries? Is the agreement defensible on those terms?

Lord Wakeham

My Lords, at least the developing countries think it is defensible. They very much supported the agreement for a number of reasons. For example, they believe strongly that the agreement provides protection by proper rules on intellectual property rights. That will encourage western companies to invest in factories and plant in their countries and will provide many advantages.

However, everyone gains in the long run from a more liberal trade regime. It is not possible to work out a fixed gain/loss scenario. Some studies were done before the round was completed but they have all been based on assumptions about the balance of tariff cuts which may or may not be the final outcome. There will no doubt be other detailed analyses of the precise impact on specific areas but they will not be available for some time. Most of the previous analyses were done before the final outcome was known.

Lord Campbell of Croy

My Lords, the agreement has been a remarkable success despite the ingrained protectionism in some areas, which included some proclaimed protection of culture. Is there any doubt whether the agreement will receive the necessary number of ratifications within the time required in order that the actions intended can be carried out?

Lord Wakeham

My Lords, I do not believe that anyone who signed the agreement in Geneva does not expect that his country will ratify the agreement, but the process has to be gone through. The United States Congress has to ratify. By achieving the 15th December deadline it ensures the fast track procedure. It is hoped that there will be a final signing ceremony; I believe some time in the spring in Marrakesh or somewhere rather pleasant.

Lord Bonham-Carter

My Lords, perhaps I may press the noble Lord the Leader of the House on the issue of third world countries. He is quite correct that no estimates have been made of gains and losses since the agreement was reached. However, I believe that I am right in saying that the OECD calculated that the loss to the poorest countries is likely to be of the order of £9 billion a year. If one gives or takes £2 billion a year, that is a substantial sum of money. I hope and believe that Her Majesty's Government and other signatories to the agreement, in particular the European Community, are taking urgent steps to consider what compensatory arrangements can be made to compensate for that substantial loss, which will afflict the poorest people in the world.

Lord Wakeham

My Lords, I am not prepared to accept the premise of the noble Lord's question that there are losers. I am sure that some will gain more than others; and I believe that there is a proper analysis of the matter. Certainly the developing countries have very much welcomed the agreement. I was referring to the OECD study when, in answering the noble Lord on the Labour Benches, I said that the assumptions of that report were not necessarily those in the final outcome. No doubt we shall return to the subject.

Lord Rea

My Lords, I believe that all nations, even those who might be held to lose under the agreement, will share the noble Lord's relief that agreement has been reached. The round was becoming known as the "general agreement on talking and talking", as some noble Lords may have read.

I believe that the organising, disciplinary body that will be set up to head a GATT will be called the Multilateral Trading Organisation. Does the noble Lord have information on how that body will be composed? Will there be a majority representation of the richer countries? Will the representation be based on population, region, or what? Will there be a rotation of nations which serve on that body? It will be necessary for the developing countries to have good representation on that organisation in order to put their views forward and make their concerns known to everyone in the organisation.

Lord Wakeham

My Lords, I do not have the full details; I doubt whether they have been worked out. However, I should have thought that every signatory to the agreement would be represented in some form or another on the world trade organisation. The organisation will put the international trading system on a permanent institutional basis for the first time. That has been welcomed by the developing countries and by the more developed countries. The organisation will be able to apply effective disciplines on unilateral action and set up better systems for settling trade disputes. That has to be done in a manner that is considered by all signatories to the agreement to be fair and proper. Most importantly it will have tougher powers and will be able to act more quickly than in the past. That must be in the interests of those who believe in world trade and in fair world trade.

Lord Monkswell

My Lords, it is surprising to support the noble Lord the Leader of the House for his Statement today, but there is anxiety that there may be losers. The continent of Africa has been referred to as a possible loser. I accept that it may be too early to make projections. However, I hope that the Government will consider the evolving trade situation and will bear in mind that it is of the utmost importance for the stability of the world at large that there are not seen to be losers, and that living standards do not drop as a result of the new regime. I hope that the Government will take active steps to ensure that that does not occur.

Secondly, what plans do the Government have to take advantage of the increase in world trade from this agreement? Specifically, what plans have they to invest in British shipping and containerised trans-shipment points so that British companies can take advantage of the increase in world trade? Bearing in mind the sad decline of our merchant fleet over the past 15 years under this Government, what plans have the Government for investing in a modern merchant fleet which can take advantage of the increase in world trade?

Lord Wakeham

My Lords, the noble Lord kindly started by saying that he agreed with much of what I said. However, I am sorry to disagree with him on his other points as I do not believe that he has the matter in the right perspective. A substantial increase in world trade will flow from the agreement. I do not believe that anyone would have signed it if they thought they would be worse off. They will all be better off. It is possible that some may be better off than others and if there are problems no doubt they will be addressed in the future. However, we do not expect that to be the case. Certainly the developing countries have welcomed the agreement.

The noble Lord's last point was that the Government should use the additional trade and aid that we obtain to invest in this and that. First, I thought that we had gone past those stages years ago. Secondly, the new agreement almost certainly makes that kind of government subsidy no longer permissible.

Lord Stoddart of Swindon

My Lords, will the noble Lord help me with one question? He said that there would be a substantial increase in world trade as a result of the agreement. I hope that that is absolutely right. However, I have heard figures bruited abroad that the increase will be 200 billion dollars a year, on a total trade of 4.5 trillion dollars. I calculate that to be just under a half of 1 per cent., which is not a substantial increase. It may be that I am completely wrong, and if so I should like it explained to me.

Lord Wakeham

My Lords, the figures I have and which I quoted are an increase of 4 per cent. in our trade. I would expect that to be reasonably fair across the world, although we may have done slightly better than others. The estimate is of 400,000 extra jobs in this country as a result of the agreement.