The Americas: Free Trade Area

HL Deb 24 January 1996 vol 568 cc1041-70

3.20 p.m.

Viscount Montgomery of Alamein rose to call attention to political and economic opportunities in the proposed Free Trade Area of the Americas (FTAA); and to move for Papers.

The noble Viscount said: My Lords, I must begin by declaring an interest in that for the past 41 years I have been employed in different capacities by various companies in the promotion of British trading and investment in Latin America. I have also held numerous honorary positions in many societies, chambers of commerce and institutions involved with British-Latin American relations. Perhaps the most significant was that from 1987 to 1984 when I was honorary President of the Hispanic and Luso Brazilian Council, better known as Canning House, in which position I have been succeeded by my noble friend Lord Limerick, who unfortunately is not here today.

In October Canning House organised a most successful major conference on the proposed Free Trade Area of the Americas known generally as the FTAA. The conference was chaired by my noble friend Lord Limerick with speakers from Latin America, the USA and Europe. I shall return later in my speech to the proposed follow up to that major event. However, it is important to look a little at the past in order to understand where we are at present. As there have been various attempts at hemispheric integration it may be helpful if I sketch in briefly some of the background.

The first significant post-war initiative was the formation of the Latin American Free Trade Area (LAFTA) in 1960 which was based on a proposal by the Economic Commission for Latin America. The objective was the promotion of manufacturing industry on a regional scale, with particular emphasis on import substitution. At the time, the general economic philosophy emphasised centralised planning. This naturally suited the military dictatorships which were then prevalent in Latin America with only pockets of democracy. For various reasons that I shall not go into it did not prosper. However, intra-regional trade started to grow rapidly during the 1960s and 1970s.

In the aftermath of the 1982 debt crisis, when democracy swept through the region, the concept of trade liberalisation and market forces became the accepted norm. Governments began to look again at the possibilities of closer regional integration and various sub-regional groups were formed. Indeed some, such as the Central American Common Market, had started and stopped during the intervening period. I accept that that is a rather cursory and superficial generalisation of 40 years of intense activity in the region but it is intended to paint only a general picture.

I turn to the present. The Free Trade Area of the Americas (FTAA) was launched at the summit of the Americas in Miami in December 1994 when the leaders of 34 countries from North, Central and South America plus the Caribbean agreed to establish a free trade area for the entire Western Hemisphere from Alaska to Cape Horn by the end of 2005. The Organisation of American States, revitalised under the leadership of Cesar Gaviria, the former President of Colombia, together with the Inter-American Development Bank, were charged with the implementation of this very ambitious project. A number of working groups have already been formed, and more will follow, to discuss the harmonisation of trade between the various countries. Unfortunately, Cuba is excluded due to a thoroughly flawed US policy. However, I am glad to say that my noble friend Lady Young, who has led several very successful trade missions to Cuba, will speak about that in the gap. I am grateful to my noble friend because she has had a busy week dealing with other pieces of legislation.

The interesting point about the initiative is that it is a logical extension of a growing number of existing bilateral and sub-regional agreements. During the past four years 26 bilateral free trade agreements within the region have been signed and a further eight are under discussion. The North American Free Trade Area, better known as NAFTA, comprising Canada, the USA and Mexico, is already in operation, as is Mercosur, the Southern Cone Common Market of Argentina, Brazil, Paraguay and Uruguay. A number of countries, led by Chile, arc hoping to join NAFTA.

If Mercosur grows into a South American Free Trade Area, which I suppose will be called SAFTA, a logical extension would be towards integration with NAFTA. The whole area would he one great free trade area. Whereas historically the countries of South America have concentrated solely on trade outside the region, the recent years have seen a massive increase in intra-regional cross-border trade and economic activity. Of course, all this is very much a reflection and a repeat of what has happened in Europe. It is interesting to note that the process is essentially economic with no suggestion of political overlay. Therefore, the dream of Simon Bolivar for a unified continent from top to bottom is still some way in the future.

The object of this debate is to draw attention to the implications of those developments for Britain, in particular for Britain within Europe, since Mercosur is already in direct discussions concerning trading arrangements with the European Union. Britain has historic links with Latin America and is a natural ally and point of entry for Latin America into Europe. We are the second largest foreign investor in many countries of Latin America, but, sadly, our percentage of trade is still less than 2 per cent.

The total population of the countries which will comprise the FTAA is over 750 million with a GDP approaching 9 trillion dollars. That would be the largest single integrated trading area in the world, and is therefore seriously important. Obviously it will be difficult to achieve and probably not within the time-scale of 2005, especially given the present internal difficulties in the USA between the Administration and Congress.

In the aftermath of the long drawn-out negotiations on GATT and NAFTA, I fear that there may be signs of trade fatigue in the USA, and that there will be little concrete progress until some time next year. However, in the long run, delay is less important than maintaining momentum towards the ultimate objective of a unified hemispheric trading area. It is a goal worth striving for.

In conclusion, I turn to the possible follow-up. One of the difficulties for Canning House, LATAG (The Latin American Trade Advisory Group), and other organisations concerned with promoting Latin America in Britain, is getting the interest and attention of major company chairmen. To that end, I have from time to time, both in letters and in conversations—and also in the 1990 debate on Latin America—suggested a high level conference which would be organised by the Department of Trade and Industry in conjunction with the Foreign and Commonwealth Office and opened by the Prime Minister. Obviously institutions such as Canning House, LATAG and the CBI would lend close support.

I should remind the House that the last major conference along those lines took place in 1972. That led to a substantial surge in interest. Therefore, the proposal is now more valid than ever, especially as a follow-up to "Link into Latin America" which was launched last year by the now deputy Prime Minister but the then President of the Board of Trade. I very much hope that my noble and learned friend Lord Fraser will be able to say something positive about that idea today.

There are many things that I have overlooked in this huge subject, but I am sure that they will be picked up by other speakers. What is important about the proposed massive free trade area is that Her Majesty's Government should take it seriously as the opportunities for British trade and investment are so enormous. My Lords, I beg to move for Papers.

3.33 p.m.

Lord McNally

My Lords, when I made my maiden speech, just a week ago, a number of noble Lords said afterwards that they thought I was a little controversial for a maiden speaker. My only excuse, apart from the impetuosity of youth, was that my noble friend Lord Jenkins of Hillhead and the noble Lord, Lord Jenkin of Roding, were in such rumbustious form that I forgot myself and thought that I was back in the other place. However, I shall be under no such illusion today because I am sandwiched between two cerebral contributors. I am followed by the noble Lord, Lord Wright of Richmond, who, when I was a political cuckoo in his Foreign Office nest, treated me with great kindness when I worked as a political adviser there in the 1970s. Moreover, we have just heard a masterful introduction by the noble Viscount, Lord Montgomery, who, quite rightly, pointed out his long association with Latin America, not least through his presidency of Canning House.

The issue that we are discussing today— the proposed Free Trade Area of the Americas"— is, in many ways, challenging us in Europe because at some stage we may be looking at similar issues and problems in relation to Africa. For example, how does a rich north deal with a less rich south and work a proper, stable relationship both politically and in trade? Perhaps in this ambitious project our colleagues in the Americas are setting us an example that we will follow.

As the noble Viscount pointed out, there is certainly a great interest in what happens. Indeed, 16 per cent. of Britain's visible exports go to FTAA countries as does about 37 per cent. of foreign direct investment from the UK. However, the lion's share of both those figures goes, of course, to North America, the United States and Canada.

The interesting point about our relations both with North and South America is how that is very much today a matter of a relationship not just between the UK and those continents, but one between the European Union and those continents. It is extremely encouraging that, in developing its policy, the European Union (which is often criticised for its straight bananas and for interfering in the minutiae of our lives) is, I believe, showing great imagination and leadership.

I suspect that much of the debate will be about Latin America, but perhaps I may say something about the northern part of the FTAA. In working out both its trade and foreign policy, it is important that Europe should take care to ensure that its relations with North America are in good order. I remember that in the 1970s Dr. Henry Kissinger had the idea of "a year of Europe" to refocus American thinking about the importance of North American European links.

I suppose that the time has passed for such an idea, but it is important and welcome that both the European Union and, indeed, President Clinton have shown a high priority for North American-European relations. Indeed, the recent European Summit in Madrid committed itself to promoting better and closer links between the business communities, between our science and technology communities and between educational and training establishments at all levels; and, perhaps as important, made a commitment to improve parliamentary links between North America and Europe. I say that because it worries me sometimes that those Republican freshmen who are giving President Clinton so many problems at present may turn their attention to the United States' links with Europe in a way which may not be entirely to our lasting advantage.

I believe that the noble Viscount quite rightly concentrated his remarks—and, indeed, I suspect that other speakers will do likewise—on the question of the opportunity side; that is, the opportunity that Latin America offers as a trading and political partner. The noble Viscount was correct to refer to the large number of groupings and associations which have grown up in Latin America over the past few years. I have in mind the Rio Group, the Group of 3, Mercosur and NAFTA. All those organisations are, in some ways, the best kind of flattery for the European Union. I say that because they obviously represent an attempt to emulate the kind of co-operation that European countries have shown and led by.

As I said before, I recommend that noble Lords should read the European Commission's document entitled The European Union and Latin America: the present situation and prospects for closer partnership 1996–2000. Those in Brussels do love snappy titles for their documents! Nevertheless, it is a good document because it sets an agenda for Europe that incorporates not only co-operation with the regional groups—for example, the Andean Pact, Central America and Mercosur—but also country-based initiatives with Mexico, Chile and Cuba.

The key to EU policy is institutional support and consolidation of the democratic process—something to which the noble Viscount referred—indeed, the very welcome return of democracy and the extension of human rights in Latin America in recent years; help to strengthen efficient legislative, judicial and police institutions and help to combat poverty and social exclusion. I know that the charity The Street Children Consortium does immensely good work with street children in many Latin American countries. We need to offer help with health and rural development and support economic reforms and co-operation in the fields of industry, science, technology and the information society. We also need to offer help with infrastructure and with education and training programmes.

As I say, this document is quite literally an example of the European Union at its best. However, this is not simply altruism because here we are dealing with an area of the world which has stewardship over two problems which, if they are not dealt with properly, will come to haunt us. First, there is the management of the environment. Unless we help the countries of Latin America not only to expand and to grow economically but also to hold in trust for all mankind their vast natural resources such as the Amazon Basin, great damage can be done to the global ecology.

Secondly, there is the matter of the drugs trade emanating from Latin America which affects both North America and Europe. Unless we offer positive help to those countries to give them alternatives to that trade we could find the problems which arise there very much on our own doorstep. The Madrid Summit announced that, It will continue to step up, by means of specific measures and projects and through co-operation in the appropriate fora, joint action to combat the production and social effects of drugs and drug-related crime". Indeed, I hope that is so. I hope very much that MI5, MI6 and our other secret services are actively engaged in the war against drugs. We must regard drugs as a threat to our national security. We should deploy all the resources at our disposal to combat those dangers.

The noble Viscount referred to Cuba in the FTAA. I said that I thought that the EU policy document was sensible. It states, Cuba seems to be entering a period of change which the union is ready to back. To that end, the Commission has proposed the initiation of a dialogue aimed at examining the conditions for stronger relations with the country". That must be a more sensible approach to a transition back to the mainstream of political and economic life for Cuba than continuing isolation. As someone who has always considered himself a friend of the United States, I believe it would be a disgrace if the United States continued to treat Cuba as a pariah to the point where the, present regime collapsed and was replaced by a regime as repugnant as the one Castro himself replaced. We should remember that it is not just a pack of liberal democrats waiting in Miami to return to Cuba. To allow Cuba to be a haven for organised crime would be a crime and a disgrace to the United States.

I should add that I am under strict instructions from my noble friend Lady Thomas, who cannot participate in this debate, to pay a graceful compliment to the noble Baroness, Lady Young, for her continuing support in these matters. I gladly do so.

In initiating this debate the noble Viscount has enabled us to focus on some important areas of foreign and trade policy. Over the years our relations with Latin America have been fitful. I remember the noble Lord, Lord Chalfont, being charged by Harold Wilson as Prime Minister to take a special interest in Latin America in the mid-sixties. We seem to have had a roller coaster of interest. I am pleased that the Chancellor of the Exchequer recently visited the area. That was a most welcome development. The noble Viscount has reminded us that across the Atlantic there are worthy partners for an outward looking Europe, and that we must seize this opportunity and develop relations. We wish them well in this bold endeavour.

3.45 p.m.

Lord Wright of Richmond

My Lords, I, too, wish to congratulate the noble Viscount, Lord Montgomery of Alamein, on his initiative in proposing this short debate. I express my thanks to that ex-cuckoo in the Foreign Office nest, the noble Lord, Lord McNally, for his kind remarks and my apologies for having missed his maiden speech. I also share good memories of our co-operation together not only in the Foreign Office nest hut also in the nest across the road.

I cannot myself claim anything like the experience or expertise which the noble Viscount has acquired on Latin America as a whole and on Argentina in particular. Indeed, I hope I shall be forgiven if I say that my education on Latin America has been somewhat selective. I shall therefore be brief. I never served in that region of the world during my 36 years in the Diplomatic Service although my first job in London was on the Central America desk in the Foreign Office and my last job, as permanent under-secretary, involved me in visits to several of the Latin American governments including, incidentally, Cuba. However, I was aware throughout my career of a sense of frustration and disappointment in the Diplomatic Service and in the Department of Trade and Industry that British business was not taking sufficient advantage of the opportunities which that region seemed to offer for exporters and investors alike.

Since my retirement from the Diplomatic Service I have seen at rather closer quarters what some sections of British industry are doing in the region. Indeed, I should declare an interest as non-executive director of three companies which are exporting successfully, and investing heavily, in several of the countries of Latin America. But I think it is still generally true that British exports to, and investment in, the sub-continent of Latin America do not match the opportunities which now present themselves with the reduction of tariffs, a general decline in protectionism, and falling inflation in a market which grew at an average of 17 per cent. a year between 1990 and 1993, and which is second only to Asia in the speed with which it has grown in the 1990s.

I have also seen for myself on a recent private visit to Argentina the wealth of goodwill which still exists there towards Britain in spite of our differences over the Falkland Islands. Any British visitor to Latin America must be struck by the continuing reminders of the historical role which this country played both in the struggle for Latin American independence and in the heavy investment which British business put into the infrastructure of many Latin American countries over the past century, particularly in the transport and energy sectors. I hope that the Minister will tell us something of the impressions which the Chancellor of the Exchequer received during his recent visit to a number of countries in the region.

The Minister will also, I hope, tell us something of the other measures which I understand the Government are taking to encourage British industry to take better advantage of these opportunities. I am delighted to learn that the Diplomatic Service has been able to strengthen its commercial sections in the region, including the opening of three new commercial posts in outlying cities of Brazil and Mexico in spite of the formidable pressures on the service in both manpower and finance.

Following the signature of the Treaty of Asuncion in 1991, intra-Mercosur trade has doubled to 10 billion US dollars. Both the Mercosur countries and the countries of Central America have made significant progress towards reaching agreement on a common external tariff, reflecting a change in philosophy throughout the sub-continent towards the conduct of economic policy which has led to a significant increase in the European Union's investment and trade with Latin America. I am glad to learn that British investment now represents over 40 per cent. of European investment in the region; and that British exports to Latin America increased by over 60 per cent. between 1991 and 1994. But, as the noble Viscount, Lord Montgomery of Alamein, has implied, our market share is still much less than it could or should be—significantly lower than that of France, Germany or Italy.

It is nevertheless encouraging that the Government, both bilaterally and in co-operation with our European partners, have taken steps recently to upgrade our political links with many of the governments in the region. The signature of a European Union Mercosur Co-operation Agreement in December, and agreement on negotiating mandates for co-operation between the European Union and both Mexico and Chile, are important steps forward. I should perhaps mention, as chairman of the Royal Institute of International Affairs, that I much look forward to the visit which President Zedillo of Mexico is paying to Chatham House next week.

This is an exciting and encouraging moment in the economic and political development of Latin America. I hope that both Her Majesty's Government and British industry will strive even harder to build on the major opportunities presented by these changes throughout the sub-continent and will give careful and positive consideration to the proposals put forward by the noble Viscount, Lord Montgomery of Alamein.

3.52 p.m.

Baroness Hooper

My Lords, nobody—but nobody—has done as much over so many years to establish and maintain links with Latin America as my noble friend Lord Montgomery. Even today, it is thanks to his foresight in tabling the Motion and his good fortune in being drawn in the ballot that we are able to debate this important topic in your Lordships' House at a very early stage in the development of this Free Trade Area of the Americas. I am happy that we are debating the issue which includes South America and Central America as well as North America.

In my case my own first-hand experience dates back some 30 years to when I spent a postgraduate year at the Universidad Central of Quito. As a law graduate the course I chose to study in the Institute de Derecho International (the Institute of International Law) compared the then regional associations within Latin America with those of Europe.

In those days the United Kingdom was not yet a member of what was then the European Economic Community, but we did belong to EFTA. In Latin America, as has been said, there was then a Central American Common Market, the Latin American Free Trade Area, and the embryonic Pacto Andino. Of all those organisations, only the Pacto Andino remains, although in a somewhat different form.

In a sense, nothing is new. But there have been major changes and developments in the intervening years. What I celebrate particularly about the proposals for a Free Trade Area of the Americas is, first, that they represent a widening of the region. This it is to be hoped will overcome the rivalry, and perhaps I may say paternalistic attitudes, which dictated the relationship between Anglo-Saxon America and Latin America. Secondly, the new arrangement recognises and reinforces the principles of free trade and greater openness and transparency in trade practices which we all seek to ensure. None of that would have been possible without the strengthening of the democratic institutions and the disciplines of economic reforms throughout the region, to which reference has been made.

However, it is interesting that in Europe we, too, have experienced not similar but equally dramatic changes with the enlargement of the European Community, now the European Union, and the opening up and developing of relations with central and eastern Europe.

Like others in the debate—the noble Lord, Lord McNally, has already referred to it—in focusing my remarks on Latin America, I should like to draw attention to two developments which I believe augur well for the proposed free trade area. The Americas have always been a section of the world (if I may so put it) rich in natural resources. But it is interesting that today it is oil, not gold, which attracts attention. School children no longer learn just about Texas oil wells. They are quite familiar with the fact that Venezuela is rich in oil and that Mexico too, has oil production. They may even be aware of Ecuador, Columbia and Peru in that context.

One of the most exciting developments in the region is the dramatic change and opening up to international competition of the oil industry in Latin America. I learned only this morning that in the first four allocations in the current Venezuelan oil round two areas have been allotted to European companies and two to United States companies. There are six further areas to be allotted, but even in old fields, new technology is making finds never dreamed of and it is vital that this global industry remains part of the important international trade.

I am happy that the need to keep the oil industry open and international has been recognised and that a seminar on energy sponsored by the European Union will take place in June in Caracas. It will be followed by a seminar in London in September on Energy in Latin America. The London seminar is being organised by the Centre for Global Energy Studies, of which I am a governor, and will again be supported by the European Union. I feel sure that in the years between now and 2005 there will be many other follow ups in that area to encourage stability and free trade norms in this sector, and to ensure the observance of internationally recognised environmental standards. However, the oil industry represents global interests and big business.

The other area to which I wish to make special reference is the development of links for small businesses, whether exporters, importers or hopeful partners of joint ventures. That is the area with which the United Kingdom Government links to Latin America programme is principally concerned, as has been mentioned.

Last year I had the pleasure of carrying out duties in Ecuador for the Government in connection with a successful British season there. My visit coincided with a mission organised by the London Chamber of Commerce and Industry which included representatives of some 20 companies and businesses ranging from Rolls-Royce to a specialist manufacturer of pipe couplings and repair products.

Useful contacts were made and I could see the possible development of commercial relationships which were being established. I hope to hear of progress in the two-way trade that should develop and I shall make a point of finding out the result of any joint ventures that were being discussed. At the time of that visit, it was evident that the DTI's initiative on links to Latin America was proving effective. A representative of a secondee to the DTI in the programme was present, he was extremely helpful and I am sure he will ensure that there is a follow through.

More recently, at the end of last year, I was privileged to lead a trade mission to Argentina and Chile, sponsored by the DTI but organised by the British Argentine Chamber of Commerce and the British Chilean Chamber of Commerce. Again I was able to see at first hand the benefit of direct links and contacts, principally for small businesses which might not have dared to charter such unknown territories. With perhaps one exception, all 29 businessmen in the group were there for the first time. They were able to reap the benefit of all the preparatory work that had been done, with the support and back-up which going in a group of that kind provided for them.

In that context, perhaps I may pay a tribute to the British Embassies in both places, in particular to their commercial departments. The service which is now available to British businessmen who wish to develop links is most impressive. I imagine it applies for anywhere in the world but I saw it at first hand in Argentina and Chile. The same has to be said for the embassies of those countries over here. Everyone is prepared now to recognise that the development of world trade is a priority and that it must be achieved by starting at the grass roots and developing small business contacts.

It was also interesting on that visit to find that, in a sense, expectations did not entirely match up with what was found. For example, there can be no doubt that the 29 small businesses represented in the trade mission had intended to learn about the market in Argentina. As well as low inflation, rising GDP and a warm welcome, what they found unexpectedly was that it was not just the market in Argentina that they were considering. Establishing a business in that country would give them an entrée into the wider market represented by Mercosur. Similarly in Chile, we were not just looking at the market there but at the countries with which Chile has established bilateral arrangements and at its future relationship with both Mercosur and NAFTA.

The noble Lord, Lord McNally, referred to the European Union and Latin America. I am happy that on a regional basis we are making an effort. Along with the noble Lord, I shall be even happier to see in the future that British participation in that effort is even greater than it has been. In particular in relation to the agreement which was recently signed between the European Union and Mercosur, it should be underlined that it is a promising way forward. As a first step, it seeks to support the creation of an internal market for agricultural products, with special emphasis on improvement of sanitary quality, as they put it. That seems to me the kind of thing which would make our business people, food processors and food manufacturers, look at what is going on there to find out what opportunities exist.

There are many more ways in which the United Kingdom can make a positive contribution and take a particular interest in the development of the Free Trade Area of the Americas. After all, we have a special relationship with the United States and we certainly have a very special relationship with Canada. We have much to contribute and many links to follow up with the various countries of central America, South America and the Caribbean. We have not heard too much about the Caribbean so far but I feel we shall soon have that pleasure.

There are other matters such as languages and the opportunity for more English-speaking people to learn to speak Spanish or Portuguese. There are many links and contacts in the educational field which must be developed, for which the atmosphere is right at the moment. I should be interested to hear from the Minister, when he winds up, what future he sees for educational and cultural links, particularly through the vehicle of the British Council, as well as in relation to various specialised missions which I know have taken place.

I realise that in such a debate we should basically dwell on broad strategies, general principles and multilateral links. But at the end of the day it is through the enthusiasm and efforts of people, individuals, that progress is made. When we talk about world organisations, regional organisations or individual countries, it will be the people in those countries who will have to see things through. I very much hope that this new Free Trade Area of the Americas will be a suitable vehicle to enhance that individual effort and improve the common lot.

4.7 p.m.

Viscount Waverley

My Lords, I remember well that the noble Baroness, Lady Hooper, spoke after my maiden speech on Latin American affairs, and it is a pleasure to follow her today.

The noble Viscount is to be congratulated on inviting serious consideration of this important subject. I believe, however, that the proposed free trade agreement must be seen in the wider context of the agreed principles of the 1994 Miami Summit. It is intended to encompass not only the promotion of prosperity, through economic integration and free trade, but also specific measures for the eradication of poverty and discrimination through improved access to education and health care. The strengthening of the role of women in political, social and economic life; the guarantee of sustainable development and conservation of the natural environment; support for democracy, migrant workers' rights, eradication of corruption, money laundering; and a volunteer corps of people to tackle natural disasters, for development needs and emergencies, are also part of the package designed to integrate substantial areas of the hemisphere. All that has great merit. not least going a long way to deal with the concerns of the noble Lord, Lord McNally.

Regionalism, shared resources, dialogue, democracy, together with free trade, are the essential ingredients for an equitable and safer world. I wonder what lessons might be drawn from this initiative that could have an equally beneficial impact on other regions of our global community. Could its principles be adopted—and adapted—to Africa's advantage? Could that be the blueprint for a new world order? I was delighted that once again the noble Lord, Lord McNally, touched on this subject.

I should mention one important caveat to this agreement which relates to the less well-off states. We in the UK are all aware of the difficulties that face mono-crop economies. Yet fair trade on a level playing field, as a result of being competitive, remains the goal.

Aid is not the answer, nor can preferential access survive in these new contexts, although it is difficult to envisage, for example, micro-states of the Caribbean competing effectively in the short or medium term without special assistance. So it is with relief that one notes in the declaration of principles and plan of action the following: As we work to achieve the Free Trade Area of the Americas, opportunities such as technical assistance will be provided to facilitate the integration of the smaller economies and increase their levels of development". Many will be greatly heartened by that, even if the true test of such commitment arises only at the implementation stage.

The agreement looks for negotiations for progressive elimination of barriers to trade and investment to be completed by 2005, with a commitment to substantial progress by the turn of the century. I understand the concerns of the noble Viscount when expressing his doubts about keeping to that timetable, but at least there is a timetable, without which this initiative would not pass "Go".

The trade ministers meeting in Denver last summer did not move forward as much as had been hoped. There was a difference of view as to whether the agreement should be an expansion of NAFTA or a fusion of the existing trade groups. In addition, President Clinton still needs a fast-track authority in order to conclude any trade agreement. This would give the authority to negotiate, with Congress relinquishing the ability to amend.

The noble Viscount also spoke about the importance to the UK of Latin markets. Perhaps I may be permitted to say a few words in support. We were reminded this afternoon of the sad fact that the United Kingdom's returns with the Latin region do not correlate well with our direct investment programme. We are, after all, the second largest investor. But perhaps of greater concern is the loss of market share over the past 10 years. That situation can, and must, be reversed.

The opportunities are now more pronounced than ever, with our products and services highly competitive due to the devaluation of sterling against the US dollar, and the goodwill generated by the many exchanges of visits by high-ranking government Ministers. With the creation of trading communities such as Mercosur, Caricom and the Association of Caribbean States, and in anticipation of the enormous opportunities that will be created by this hemispheric free trade area, market size and potential now justifies involvement by the largest of our companies. There are many projects, both large and small, in the pipeline; and we have the knowledge and competitive edge to secure a stake in them. However, we shall secure a major share only by working from within, negotiating and serving customers where they are comfortable: on home turf and in their own language. We must therefore prepare and proceed accordingly.

4.14 p.m.

Lord Selsdon

My Lords, as has been usual in most of my trading life, I find myself breathing down the neck of my noble friend Lord Montgomery—a man, a visionary, a missionary. I suppose that the only time he breathes down my neck is on the ski slopes. As we know, since the war the pound sterling has depreciated by 94 per cent. against the Swiss franc. I have not spoken in this House and bored noble Lords on the subject of trade for such a long time that I thought I would try again.

Sometimes we get bored out of our minds and keep repeating the same rhetoric again and again. I recently re-read some of the histories of merchant banks and of countries that I had never heard of. I started to read Winnie the Pooh, and came across the extract: Sometimes I sits, and sometimes I thinks, and sometimes I sits and thinks". I have done a lot of sitting and thinking. Some of the "beat-up" parts of the world I have visited do not have very reliable transport. The plane that you are bound to get on does not exist, or does not arrive, and you cannot find a foreign newspaper, so you sit and think. And after nearly 33 years as an outpatient in this strange form of university in which I find myself today, I wonder whether I have learnt anything. And I realise that I have learnt a lot, but probably know nothing.

Recognising that those on the Labour Benches do not seem very enthusiastic about trade—there are so few speakers from that side—I want to ask the noble Lord. Lord Peston, if he can help me with a question that worries me. I should like to read a good essay, whether of a few words or a few thousand words, on the economic and political future of the United Kingdom—not about other parts of the world, but about ourselves at home.

I declare an interest. I have served on various trade boards, all unpaid; I am currently president of the British Exporters Association; I chair the international side of the Engineering Industries Association. I started my life in asbestos. All I seem to do is work in declining industries, and I realise that I am part of a dying breed. I suppose I am a peddlar, a tinker, a trader, or maybe even a privateer.

That is the word I come to in regard to the matter of trade with various parts of the world. Like myself, noble Lords know well that there are 5 billion people in the world. We churn these figures out as so many millions to whom we must sell. But surely we should examine our own economy and learn a little from the past.

Our great Industrial Revolution was not based upon ourselves; it was based on attracting foreigners—foreign technology and foreign investment. A hundred or so years later, we have reached the stage when the United Kingdom should never again use the word "export". Britain is no longer simply a national country. We no longer have an empire. But we are probably the sole successful international country in the world.

I think we became lazy. By good fortune rather than initiative and drive, we have attracted to these shores a remarkable collection of international people of all cultures, who have helped to restore and revitalise parts of our economy. The initiatives that Government have taken have been very good—because Government have not taken much initiative; nor should they. They have withdrawn from their role in trade; they never traded. If you ever ask, "What are the barriers to trade?", usually it is Her Majesty's Government. They find reasons why you should not go there.

I quote but one small example from the time when I first thought it would be a good idea to go to Cuba. I knew that people of Socialist leanings had close relationships with Cuba, so I asked the late Lord Walston, who had been a Foreign Office Minister, whether he would be kind enough to open the door for traders to Cuba. He told me the story of how, as a Minister in the Foreign Office, he had wanted to visit all his territories. The Foreign Office said that he could not visit Cuba because it would be misinterpreted as an official visit. However, it came up with the cunning idea that he could visit a country in the Caribbean on the way to visiting his own plantations in St. Lucia. So as a Minister he made a private visit.

I have learnt that the reasons why British trade and investment developed with many of those countries was that somebody thought it a good idea at the time. The reasons why they thought it a good idea were simply a question of gain, not of greed or glory. It was a development of the natural resources, to which my noble friend referred. As noble Lords know, throughout history, all cultural development has been related to the development of natural resources: the copper belt, and now perhaps the oil belt.

In that great area of the world we have a problem. We have been so successful in GATT discussions—the Uruguay Round—and free trade, that geography is no longer necessarily important in terms of the development of trade. If we study the development of our own interests historically, they were trade related, not geographically related. I regret now that I cannot find a single school that includes geography in its curriculum. I remember having to learn the rivers with those pictures of what mineral was located where and why. But people's own knowledge and knowledge of countries, to which my noble friend has referred, is remote and distant.

I do not know what the word "yore" means, but in the days of yore British companies had agents and representatives who would promote and develop their interests around the world, particularly in Latin America. When one speaks to people out there now there are a few left who say, "My father used to do a lot of business with the British". There are quite a few who say, "My grandfather used to do a lot of business with the British". There are more and more who say, "I think that my ancestors once traded with the British".

I do not believe that this Government can do much more to help and support trade. I have tremendous respect for the Department of Trade and Industry, having worked closely with it in many areas of the world over a vast number of years. What I believe we are missing, and my noble friend referred to it, is initiative by industry or British commerce itself; not by the public sector nor do I like the phrase, "private sector". It is extraordinarily difficult to go to a senior company in this country and say, "Here is an opportunity for you in a country with which you are not trading today" and to get them to go there.

Because they feel nervous, they like to go with a Minister. Over the years Ministers have spent an enormous amount of time taking businessmen abroad, failing to recognise that the businessman in general is going only so that he can have a discussion with the Minister about the row over high salaries in his industry or others. The people who trade are usually at a lower level. Those over the age of 35 years were always sent back from the Empire as being too old.

I am not being a cynic, but I believe that our problem lies not with government, not with export credit, not with aid, but with the need for a new thinking process about trade. The last mission I took abroad was not to that part of the world. I was horror-struck to find that I had four non-British out of nine people on the trip. I wanted to object. In fact, the British Government were making no contribution to that trip, although in the past they had kindly paid for things with which I have been associated. I also had paid for things with which they were associated. It has been a very fair and reasonable relationship.

But when one is trying to move a complete industry and a psychology back towards the former trading partner of Latin America, the Caribbean or even Canada, it is an uphill battle. I am not quite sure what we can do about it. The conference idea is not a new one. If only it were possible to get the key decision-makers together where the private sector and government draw attention to the opportunities, that would go a long way. The Government themselves have often forgotten that because of the desire always to get the state to pay, that they have within their walls vast goodwill and relationships where often a phone call from a Minister or a senior civil servant to a company saying, "I shall be most grateful if you would look at Argentina or Chile" or whatever, does an enormous amount of good.

We are talking about a part of the world about which very few people who are working in business today have any knowledge. The premature retirement age or the early retirement age, means that people who leave their company at the age of 57 or 60 are replaced by those who, although better trained than their predecessors, have no international experience or relationships. Most of the trade outside the G7 is still dependent on very close, long-standing, personal family relationships, and that is particularly true in the Caribbean and Latin America. Sadly, here we have destroyed many of the family-owned businesses of the past—and I make no further comment on that—and the relationships have died with them. Anyone in the branded goods field will say that to revitalise a brand is an extraordinarily uphill and difficult battle. The only way it can be done is to buy oneself into the market.

That leads me to the final point I wish to make. For a long time we were trying to encourage foreign investment over here. Although there were many of us who were extremely anti-Japanese in the beginning, we now do nothing but sing the praises of the success of Japanese investment in the United Kingdom. We then stopped trying to encourage British investment abroad, forgetting that trade and investment are totally linked. At this particular time we should be moving all out to encourage the maximum possible British-led investment in that part of the world. Why? It may be said that we are the largest foreign investor. It is not us, but money that comes to, and passes through, London. It is quite incredible how the globalisation of international markets has provided a financial base that can support, without any detriment to the British economy, vast investment around the world. Therefore, I believe that our future should not be export-led, but investment-led.

4.25 p.m.

Baroness Young

My Lords, I apologise to the House for speaking in the gap. I believe that some of my noble friends have decided that I can speak only on family law. I do sometimes address other subjects. I indicated that I wished to speak in this debate last week.

I am very glad to do so because, like other speakers, I particularly admire what my noble friend Lord Montgomery has done in building up very strong relations between Britain and Latin America: nobody has done more. He has promoted debates in your Lordships' House and constantly goes on trade missions to Latin America. I believe that no one in your Lordships' House knows that area better than he does.

I first became interested in that part of the world when I was a Foreign Office Minister and had ministerial responsibility for all the Americas including Latin America. I was fortunate enough to be able to make eight visits there during that time. I was also ministerially responsible for the Caribbean. It is to that area that I wish to address my remarks this afternoon because it is a part of the world that has not yet been covered. I can do so in my current capacity as president of the West India Committee.

I wish to say something about the Caribbean because the incorporation of the Caribbean into the Free Trade Area of the Americas by the year 2005, presents to those small countries a very great challenge indeed. They already have a number of changing patterns of relationships. The Caribbean has special links to Britain, France, Spain and to the European Union. The decision to pursue joining the Free Trade Area of the Americas is causing Caribbean governments to develop policies which react to four convergent, but rather different processes.

First, how can the Caribbean position itself between Europe—particularly the European Union—and the United States, as the European Union begins to accelerate its special relationship with Latin America, referred to earlier in the debate, through the development of special economic and other ties with the nations of Mercosur, the San Jose countries of Central America and with Mexico and Chile? That is one area.

Secondly, how can they position themselves as regards the changing relations with Latin America as a whole and the European Union and the development of policies that will affect any agreement that the Caribbean and the ACP might achieve when Lome IV ends in the year 2000?

The third and rather complicated process, is how the countries can determine how much weight they should place on the US Administration's long-term commitment to the free trade area, and how its requirements for full reciprocity might be phased in and structured in such a way that the United States in particular recognises that special provisions will be needed for the successful integration of the smaller economies of the Caribbean countries. Their needs are so different. For instance, one considers St. Lucia, which was referred to, and Dominica, and these very small and fragile economies which are so unlike the enormous economies in Latin America and the United States itself. The fourth process, which is also a difficult one, is the decision to take forward the Association of Caribbean States as a body that will in the long term assist the Caribbean Basin as a group to participate fully in the global economy in such a way that it can take advantage of both the free trade area and the European Union.

To bring those four processes to a successful conclusion, Caribbean governments will need to address a number of complex situations. And they have, of course, relatively small populations with which to address them.

The United Kingdom's overall concern must he how the small Caribbean nations—for example, Dominica—will be able to come to terms with the free trade area. Clearly, a nation of that size, with a population of only around 100,000, will not be able to cope with a free trade Brazil, Mexico or Chile, let alone the United States. Britain therefore needs to work closely with the Caribbean and with the European Union to ensure that there is a lengthy period of transition during which the special concerns of small island economies are taken into account.

This is not the time or the debate to go into the complexities of the banana regime, which has been raised in the House before, but we need to remind ourselves that a number of economies depend upon one crop and that if that is taken away there is a danger that it could be replaced by something difficult and unpleasant, such as drugs. I am not suggesting for one moment that it necessarily would be, but it is a possibility.

In all these complex arrangements with free trade areas we have a great responsibility towards the smaller countries of the Caribbean. We need our European Union partners to develop a European Union approach which supports the policy we are adopting and makes quite clear to the United States that regional stability, which is of great interest to the United States, will depend on a gradual and supported transition to open markets.

The noble Lord, Lord McNally, kindly referred to the visits I have made to Cuba and passed on greetings from his noble friend Lady Thomas. As part of my interest in the Caribbean I have in the past two-and-a-half years paid two visits to Cuba. It is a country which I expect to visit again later this year. I am currently chairman of what is known as the Cuba Initiative, which is an organisation of a number of businessmen and women with business interests in Cuba. It has a corresponding committee in Cuba itself. Its purpose is to promote trade between Britain and Cuba. It works closely with the Department of Trade and Industry and I am pleased to say that my honourable friend Mr. Ian Taylor, the Parliamentary Under-Secretary at the DTI, has paid two very successful visits to Cuba. I hope very much that I can encourage my noble and learned friend Lord Fraser to follow his example and visit Cuba before too long.

Cuba has been excluded from the free trade area. Conscious as I am of the remarks of my noble friend Lord Selsdon about trade missions—I hesitate to say that I have led two trade missions to Cuba—it is a country which to anyone is extraordinarily interesting to visit. I say that—I have already spoken in your Lordships' House on it—because it is a country very much in transition and experiencing change. No one can go there without being struck by the country's efforts to move towards a freer economy. Last time I was there I had a fascinating visit to a market which was freely operating, as would any market in any industrialised country, selling food and other things. After I had been around and had seen all the goods and the varying prices, with people pressing me and everyone else to buy things, I was asked what I thought. I said, "This is a market. This is the operation of a private enterprise organisation. This is capitalism". And, indeed, it was. There were other markets. I was taken with great pride to a farm where a man said to me, "It is now a farmers' co-operative and we are determined to get our fruit to the market before our competitors". One began to see the number of real changes taking place.

In relation to the remarks made about American policy towards Cuba, I think that it must surely he in the interest of Britain, the European Union and, if I dare say so, the United States to try to encourage as far as we can these developments towards a free enterprise economy. That is one of the purposes of taking trade missions, of having the Cuba Initiative and of encouraging visits between the two countries. On the political front, which is another matter, Cuba is not a democracy but it has taken one or two steps in that direction. It now has a national assembly and there is a certain amount of discussion and, what is more, criticism—it may be behind closed doors but it is there—of some of the things the government have done. It must surely be in our interests to encourage democracy in Cuba.

There is, after all, a self-interest which we as a country can have in trading with Cuba while the American embargo exists. We should make the most of that opportunity and encourage it. But we should not do so just for that reason. We should encourage it because it will greatly improve trade relations between our two countries and because Cuba is a country which Britain and other countries of the European Union can certainly help bring into the ambit of the western world.

I hope that Cuba will eventually be able to join in the regional integration within the area. I do not believe it is in the interests of the Caribbean, the United States or the European Union that Cuba should remain outside and that Cuba should in any way be destabilised. It is quite the largest country in the Caribbean. We should encourage all these positive and good movements.

I should like to leave not only that message about Cuba but another about the Caribbean generally. When we talk about these important developments in the free trade area with America and about all the other groupings which undoubtedly are leading to greater prosperity we should not forget the very different problems which face the small countries of the Caribbean, with their small populations and fragile economies. We should do all we can to ensure that they prosper too even if it means that we have to apply some special measures to help them achieve that prosperity.

4.39 p.m.

Lord Pearson of Rannoch

My Lords, I do not know whether it is appropriate that I, too, should apologise to your Lordships for intervening in the gap. If it is. I do so. However, when I joined your Lordships' House some years ago I received quite a lecture from the then Clerk of the Parliaments that he felt that when time permitted more noble Lords who had listened to the whole of the debate and felt they had something to say should intervene in the gap.

I join other noble Lords in thanking my noble friend Lord Montgomery for introducing the debate and I should declare an interest as the chairman of a firm of international re-insurance brokers. We trade in almost every country of South America, and I have visited or will visit almost every country there this year.

In that capacity, I should like to confirm what the noble Lord, Lord Wright of Richmond, had to say about the high level of investment—in most South American countries, we are the second highest investor—and the comparatively low level of trade that that brings to us. I also underline the fact that the overall growth rate of 17 per cent. in recent years in that continent is explosive. I do not want to single out any one particular country but at the moment Brazil is perhaps particularly impressive in the way in which recently it has brought inflation so valiantly under control.

The noble Lord, Lord McNally, mentioned Colombia and the drug trade. I should like to put in a plug for Colombia, if I may. When I was there recently I was constantly reminded of the fact that it is our demand which creates the Colombian drug trade. It is not enough for us just to sit here and say that they have to get the drug barons under control. Without the demand, the drug barons would be out of business.

Having taken that commercial view of South America, I want to take issue with some noble Lords who, I feel, have seen too substantial a role for the European Union as such in the future of South America. The noble Lord, Lord McNally, went so far as to say that he felt that some of the groupings—Mercosur and others—which are emerging in South America were emulating the European Union. I have to say that I very much hope that they do not. I hope that they will not emulate the Social Chapter or the absurd interference which comes with harmonising the single market. I believe that our South American friends know that a level playing field and a market are a contradiction in terms. I am sure it is helpful for European Union finance to be available to our South American friends, but I trust they realise that they will need a fairly long spoon when they sup with that particular devil and take advice on political institutions and judicial and educational matters.

My fear about the European Union in this matter is that it is once again merely trying to extend its field of competence, or, rather, incompetence. I very much hope that it will be the separate sovereign states of Europe which will take the enormous opportunities that the South American continent offers us and develop those opportunities with our friends in the countries in that continent.

4.43 p.m.

Lord Peston

My Lords, I join with all other noble Lords in expressing our debt to the noble Viscount, Lord Montgomery, for introducing this important debate. I too am deeply disappointed that so few noble Lords felt able to take part in this debate but, if I may utter the usual cliché, we make up in quality for what we lack in quantity.

This debate is to call attention to political and economic opportunities. I shall concentrate on the economic side because, as I demonstrate in most weeks to your Lordships, I have no understanding whatever of political matters. On the economic side, perhaps I may say to the noble Lord, Lord Selsdon, that I convey to your Lordships my views on the past, present and future of the UK economy at fairly regular intervals and I make those views available free of charge. If he would like more than that, I can give him more, but I have a rather high consultancy fee, especially looking to the future.

Perhaps I may make one other preliminary remark. I agree very much with what the noble Baroness, Lady Young, said about the banana regime and so on. I think she is right that this is not the occasion to debate that matter. I myself published some research on it two or three years ago. Let me just say that I agree with every single word that she said. Perhaps we shall come back to that issue at some time.

I regard myself as someone who is very much committed to free trade. I wish to see free trade generally, certainly in the whole of the American continent. If we eventually end up with the Free Trade Area of the Americas, I believe that not only will those countries gain but the whole world will gain. I certainly see no threat there to the European Union. Nor do I see any threat from the European Union to that area. I am supportive of it.

Having said that, I should like to follow other noble Lords and emphasise the South American aspect, but that is not to detract from the enormous importance of the United States and North America generally. But the point is—I shall illustrate it very clearly in a moment—that one often acts as though there is no such place at all as South America. For most people America means the United States. I am aware of that. In preparing for this debate, I was staggered to find how little I knew about South America and South American economies. That is another reason why I thank the noble Viscount for encouraging me to learn something about them. Until recently, if I had been asked the name of the Brazilian currency, I should not have known that it was the real. Nor would I have known that the Argentines have the peso. Even now, although I could tell the House just like that the sterling/dollar exchange rate up to a few hours ago, I do not have the faintest idea of the sterling/real exchange rate. That is indicative of a lack of knowledge of a very important continent.

As someone who has been an academic for a great many years, I do not recall ever talking about South America in any of my lectures, though I very often talked about the United States. I do not remember even as a student anyone telling me that I ought to know anything about the economy of South America. That is all indicative of a lack of balance, which I certainly should like to see rectified.

In that connection, I should like to say a word about languages taught in our schools. I am not one of those people who say that English is the only language that anybody needs to know in order to succeed in this world. Neither do I think that French is the only alternative language that we ought to use. I was immensely impressed by the pronunciation of the noble Baroness, Lady Hooper, of what I took to be Spanish. I should like to see more people learning some Spanish. I should also like to see them learning some Portuguese. It is all very well to say that other people can speak English. My experience has been that in any kind of dealings with people from abroad, they are immensely appreciative of one's ability to say even a few words in their language and at least to show that one appreciates that they have a culture of their own.

One should not just have a vision of South America as nations which produce great footballers and rhythmic dances. I looked it up and found that South America has five Nobel prizes for literature and five Nobel peace prizes. The Argentines have both a physics and a chemistry Nobel prize. That is not bad going for that part of the world. We have to take those places seriously. It is to our advantage.

That brings me to a matter about which I am puzzled. The noble Lord, Lord Selsdon, referred to it. We know that, in terms of investment, British people and British companies regard South America as a place into which it is very worth pouring capital. And we do. But there is a puzzle and it is a genuine economic puzzle; namely, the scale of our trade is minuscule compared with that. I wonder why that can be so. Those are markets which our competitors find worth going into. Why do we not have the normal correlation between capital investment and trade? I do not know the answer. I shall not necessarily press the Minister to say that he knows the answer. It is a puzzle. But it suggests that perhaps our businesses, as the noble Viscount said in his introduction, do not see the kind of opportunities that are there.

Lord Selsdon

My Lords, perhaps the noble Lord will forgive me for intervening. I may, indeed, be wrong on this matter. But in general it is because the capital investment over there is into the raw material, natural resource industries that we require over here, as we have no natural resources of our own. Certainly that should be compensated for by increased British exports, but we are not very successful.

Lord Peston

My Lords, I take the point. Perhaps we have made a mistake in interpreting South America too much as a land of natural resources and not as a land to which we can sell goods and services and in which we can help in the production of goods and services. That is something that I should like to happen. Indeed, the Germans, French, the Spanish and others are trading with those countries. Why aren't we?

I am an ignoramus in this field and I accept the remarks made by noble Lords about how supportive the Government and the Foreign and Commonwealth Office have been. That is fine. However, I sometimes wonder whether we are playing a fair game in terms of free competition and free trade. I wonder whether covert subsidies and covert support are being provided by other nations whereas we, because of our principles, are not engaging in that. Perhaps we are losing markets because we are too honest and straightforward. We have certainly seen that happen in other areas of competition, so I hope that we can look at that point.

I have said that I do not believe in poking my nose into another country's affairs. I truly believe that. I think that in the end people have to make their own decisions on such matters and that it is not for us to pontificate on what other people are doing. I know that many noble Lords find that difficult to resist. However, if I were advising the South Americans, I would suggest that they proceed on a step-by-step basis and put in place whatever free trading arrangements they can bilaterally between themselves and then within their own continent, rather than assume that plunging into the grandiose Free Trade Area of the Americas is the easiest thing to do. In other words, I would adopt a practical approach to these matters.

I do not say that to denigrate the United States. I am an alumnus graduate of Princeton University and no one is a stronger supporter of the United States than myself or is more aware of the leadership that the US has given the advanced industrialised world in our lifetime. However, if I were a South American, I would still want to go my own way first rather than say, "Let the US do it first and we will follow". I think that that is immensely important.

I do not have a great deal more to offer although I should like to venture one other comment which relates to cause and effect. It is a quasi-political point. I do not want to tell the South Americans how to run their affairs, but I truly believe—and I think that the events of the past decade show this—that, on the whole, trade is conducive to democracy. In the end, it works and if you get used to trading with foreigners, you get used to having a more open society. I think that that will apply to even Cuba in due course. We have seen some pretty awful things—not just there, but everywhere—but I remain an optimist. I believe that as long as we do not interfere excessively in other countries' affairs, as long as we are willing to trade there and as long as our Government, of whatever political complexion, are supportive of those who wish to trade, there will be a happy ending in South America.

Therefore, I simply repeat my thanks to the noble Viscount and hope that the next time that we debate South America we shall be able to say that our share of its trade has increased considerably.

4.53 p.m.

Lord Fraser of Carmyllie

My Lords, I am very grateful for the opportunity provided by my noble friend Lord Montgomery to develop the impact of the proposal to develop a Free Trade Area of the Americas. Like all of your Lordships, I know how much of his time my noble friend devotes to discussing the development of the Americas. With his strong presidential connections with Canning House, my noble friend has been instrumental in bringing the issue of the economic and political prospects in the Americas, and particularly in Latin America, to a wider audience. This debate is particularly timely in view of the very welcome and, I believe, successful visit by the Vice-President of Bolivia last week. I respectfully agree with the noble Lord, Lord Wright, that it is also timely that the debate should he held a week before President Zedillo visits the United Kingdom.

We welcome any new proposals that will lead to the removal of barriers to international trade and investment. We believe that by liberalising trade we create wealth and make economies more efficient. I entirely agree with the noble Lord, Lord Peston, because we also believe that open trade relationships create political stability. The example of Europe since 1945 shows that a commitment to open markets and regional integration can bring lasting peace to areas which have previously suffered terribly from the scourges of war and political upheaval. The wide acceptance throughout the world of the benefits of open economies is underlined by the commitment that has been made to the GATT and now to the World Trade Organisation, the principles of which have given and will continue to give tremendous gains for our economies from the reduction of trade barriers and from the application of the principles of most-favoured-nation and of national treatment.

The desire to create a FTAA is therefore to be welcomed. It illustrates that the case for markets that are open to trade and investment is widely accepted in that region. It is the natural result of a number of developments in recent years to create free trading groups within the region, for example the North America Free Trade Area members have agreed to remove all tariffs and a wide range of other trade barriers by 2008; and Mercosur's members have agreed to remove all barriers to intra-regional trade by 1999 and to achieve full convergence on a common external tariff by 2006.

The commitment made by the American nations to create a free trade area is to be warmly admired for its ambition. The only point on which I disagree with my noble friend Lord Montgomery is on the population figures. As we understand it, the total population of the region today is not 750 million, but some 850 million. A move to trade and investment without tariff barriers in the region would create huge dynamic effects that would spur wealth creation and promote cross-border trade and investment. It would offer opportunities not just for those inside the region, but also for any business selling its goods and services in that market, and for any business that is an investor in that market. The region has already come a long way in recent years in the development of open economies.

Much of the debate has been focused on the Latin American countries. Those countries have made remarkable changes to the way in which they operate their economies. My noble friend Lady Hooper was right to highlight the changes that have been made in the oil and gas industries.

As yet, the FTAA is in a very early stage of development. Its membership would cover a huge variety of economies—from among the richest nations on earth to some of the poorest. Income per head in the US is about 25,000 dollars: compare that with a per capita income for Bolivia of 800 dollars. The FTAA nations have a long way to go to establish how their free trade area would work, and in certain areas they are still—not unnaturally—working on the groundrules. Furthermore, the FTAA will require sustained political commitment from the region's governments if it is to come to fruition over the long period being allowed for negotiations.

I agree with my noble friend Lord Montgomery and the noble Viscount, Lord Waverley, who indicated that the short-term prospects for the FTAA may be limited by the proximity of the presidential election in the United States. But I am sure that the noble Lord, Lord Peston, is right that there seems to be little sign that the enthusiasm of the Latin American nations for regional integration is waning.

Notwithstanding that there may be short-term problems, there is every reason for United Kingdom businesses to maintain their efforts to penetrate the markets of North and South America. The United Kingdom's strong investment position in the region means that our companies should be in a good position to take advantage of the liberalisation that is now taking place. We have, of course a strong position in the North American markets, particularly in the United States, based on long-standing trading and business links. It is our aim to strengthen that position even further. As for Latin America, it is our aim to ensure that businesses in the UK recognise how much the region has changed. In 1982 when Mexico defaulted on its debt and the debt crisis plunged that continent into what became known as the lost decade, who could have foreseen the remarkable recent developments, including growth in the region of nearly 3 per cent. per annum during the early 1990s?

Some might say of course that compared with average annual growth of some 6 per cent. during the 1970s that is not impressive. But what is important is that growth was not achieved by sheltering industry behind high tariff barriers. When that was the case, it was not sustainable. High periods of growth alternated with periods of excessive inflation, with several countries experiencing the pains of hyper inflation. The new policies of open markets, internal deregulation, privatisation and fiscal prudence, while painful in the short term, provide a much more solid foundation for future growth. In 1990 four countries in Latin America had four-figure inflation. By last year all these countries had inflation under 20 per cent.

On the political front too, the change has been remarkable. Apart from Cuba—there are changes under way there—democracy is universal and has been further consolidated by a series of peaceful and open elections, most recently in Argentina, Peru and Guatemala. Civil war has been effectively eradicated in Central America.

That change in economic philosophy was evident in the increasingly positive role which the Latin American countries played during the Uruguay Round negotiations which led to the creation of the World Trade Organisation. The positive spirit in which the negotiations were generally carried out was greatly enhanced by the recognition of Latin American countries that there is an absolute economic benefit to be gained from market reform and the removal of trade barriers. The unilateral action taken by many Latin American countries during the late 1980s to reduce tariffs and open markets contributed greatly to the spirit in which the Uruguay Round was conducted and ultimately to the wide-ranging result which was achieved.

The Mexican crisis last year and its after-shocks brought difficult times, but I believe that we arc now sailing into calmer waters, with belief in the fundamental correctness of the policy of openness unscathed. Indeed the enthusiasm of the Latin American countries for new regional integration agreements suggests that they have emerged from this period with their commitment to open markets and the FTAA made all the more robust.

While we welcome those dynamic regional developments, I must stress that we continue to believe that a truly open world trading system is best guaranteed by a strong World Trade Organisation which has a wide membership, and in which those members have made commitments to maintain open access to their trading partners. We therefore believe most strongly that the development of free trade areas like the FTAA must be in line with the rules that the WTO membership has set itself. Those rules permit the development of preferential trading areas as long as those areas do not raise trade barriers against nations outside, and as long as they create trade, rather than simply divert trade flows from one place to another.

A number of points were raised during the debate and I shall do my best to answer them. At one time my noble friend Lord Selsdon indicated that Her Majesty's Government were obstructive in their approach to trade. If he wishes to visit Cuba he will not merely go with a warm blessing, but I have no doubt that my noble friend Lady Young and others will be only too pleased to assist him in making the visit.

Lord Selsdon

My Lords, perhaps my noble and learned friend will forgive me, I have been to Cuba many times. I led three trade missions there at a time when Her Majesty's Government felt that it would be deemed inappropriate for them to be represented.

Lord Fraser of Carmyllie

My Lords, if my noble friend wishes to take a further trip, on this occasion he will know that he goes with the warm blessing of all parts of Her Majesty's Government.

I agree with the noble Lord, Lord McNally, and my noble friend Lady Young on the importance of our relationship with Cuba. Perhaps I may say as carefully as I can that the UK enjoys normal trade relations with Cuba. It is our policy to support the efforts of UK firms to participate in the growing market as Cuba proceeds with reforms of its markets. As my noble friend Lady Young indicated, my ministerial colleague, the Minister for Science and Technology, has visited there twice. Another important example of the improvement is the coming into force of investment, promotion and protection agreements.

We shall continue to play a full part in strengthening EU relations with the Caribbean, particularly in building the capacities of the private sector of the smaller island economies, and assisting with the diversification of their trade.

My noble friend Lady Hooper referred to EU support for industrial co-operation with Latin America. The DTI is actively promoting the opportunities under the EU programme for UK firms to become involved, for example, through the EC investment partner scheme which has a strong focus on SMEs to which my noble friend referred.

My noble friend Lord Pearson was concerned that EU support for Mercosur might be unattractive or unacceptable, certainly to him. It largely takes the form of technical assistance in areas such as administration and standards, where adopting European norms can be of direct benefit to our exporters. EU capital finance for Latin America provided by the European Investment Bank does so on competitive, commercial terms.

I agree also with my noble friend Lady Hooper that education and training should be a priority. We can play an important part. The British Council, as I am sure she knows, is very active in the region and will continue to be so. Your Lordships may be interested to know also that important education missions last year to Argentina and Brazil were led by my noble friend Lord Henley who was accompanied on one occasion by my noble friend Lady Perry.

Drugs are a real problem. We continue to urge close co-operation. We provide training and detection equipment and the Prime Minister and President Chirac in Madrid last December set up a working party to see how we might achieve yet further co-operation.

So far as concerns a conference, I am aware of the noble Viscount's proposal, and while I cannot offer him a clear decision yet, officials within the DTI and the Foreign Office are giving such a proposal serious consideration.

On the broader issue which came through on a number of occasions from my noble friend Lord Selsdon and the noble Lord, Lord Peston, yes, indeed, we understand clearly that it should not be a matter just of exports—investment has a crucial part to play. Indeed the DTI's trade promotion policy and, in particular, the link into the Latin America Campaign has the issue of investment as a feature.

The markets of the Americas are extremely important for British business. In 1994, 16 per cent. of UK visible exports went to those countries. We are already, as has been observed, major investors in the region which takes some 37 per cent. of our total foreign direct investment. Regional integration will undoubtedly create many new opportunities. Just within Mercosur, for example, integration will give rise to substantial opportunities in infrastructure, transport and energy. The value of infrastructure projects alone already at the feasibility stage, has been put at some 10 billion US dollars.

We are committed to working for open markets between the EU and the Americas. In that context, I wish to note our full support for the EU's work with the US and Canada on trans-atlantic trade regulations and the new generation of agreements between the EU and Latin America, such as that signed last year with Mercosur. I noted with gratification that that met with the approval of the noble Lords, Lord Wright of Richmond and Lord McNally.

It is however a fact that while our investment performance in Latin America is strong, and trade and investment with North America is healthy, regrettably UK exporters have not hitherto given the attention to the Latin American markets that I believe they deserve. It is for this reason that my department launched the Link into Latin America campaign. This campaign and the continuing North America Now campaign will, I hope, help to ensure that UK business is ready for the many new economic opportunities to which the FTAA will give rise.

Wherever we look, we see evidence of the countries of Latin America joining the US and Canada on the world stage. I have already noted the valuable role played by them in the Uruguay Round. We have also seen Mexico joining the OECD, Chile joining APEC and negotiating to join NAFTA, and Argentina keen to join the OECD. There is co-operation over non-proliferation issues and participation in UN peace-keeping.

These changes bring new opportunities for Britain. We once enjoyed a predominant political and economic position in Latin America. We need to work to recover it. The British Government are actively responding to developments. In 1992 John Major made the first ever visit by a Prime Minister to Latin America. The Foreign Secretary has visited three times in the past four years. I can tell the noble Lord, Lord Wright, that, as he might have expected, the Chancellor of the Exchequer in his exuberant fashion very much enjoyed his visit to South America during the Christmas and New Year period. He returned, as do many of us following such visits, with a new appreciation of the genuine warmth and friendship that they would wish to extend towards us. There is a welcome regular and growing flow of Ministers from Latin America to the United Kingdom. Those of us in the DTI make regular visits to Latin America. Indeed, I hope soon to visit Venezuela, Columbia and many of the other Latin American countries within the coming year.

I conclude by thanking the noble Viscount for giving us this opportunity to debate this important issue. As the noble Lord, Lord Peston, honestly said, far too often in matters of public debate in the United Kingdom the importance of Latin America is forgotten. So, too, are the problems and the importance of the Caribbean. I believe that this debate has usefully brought a clear focus on just those issues.

5.15 p.m.

Viscount Montgomery of Alamein

My Lords, I thank all noble Lords who have taken part in the debate. We have had a fascinating discussion. As I anticipated at the beginning, there have been diverse contributions from all quarters of the House. In fact, so much so that I have learnt a great deal, as I might have expected, about the different aspects of the problem. I thank my noble and learned friend Lord Fraser and encourage him to visit the continent with great frequency and to ensure that his ministerial colleagues continue to do likewise. I am sorry that he cannot be more positive about the proposed conference. I hope that he and his colleagues in Whitehall will reach a decision soon as I know that such events take a great deal of planning and foresight if the proper speakers are to be assembled.

It is a great temptation to comment on all the contributions that have been made but time does not allow. I wish to make only one or two comments on particular points. I was grateful to the noble Lord, Lord Wright, for his comments on the increase in the number of commercial posts in Latin America. One of the problems of the past was that there was a shortage of diplomats in that part of the world. The propensity of the Treasury to make cuts in the smallest and most efficient department in Whitehall, the Foreign Office, is wholly deplorable. That is a welcome reversal of the trend and I hope that it will continue.

I was particularly pleased that the noble Lord, Lord McNally, and the noble Baroness, Lady Hooper, spoke of the European arrangements and initiatives in Latin America. That is important and it is a subject which Canning House embraces. It pays particular attention to European Union relations with Latin America.

The noble Lord, Lord Peston, needs no education in economics but I am glad to welcome him to this new area. His point about languages was particularly important. Spanish and Portuguese are the key languages but the noble Lord may not be aware that after Mexico the United States is the most important Spanish-speaking country in the world. More people speak Spanish as the first language in the United States than in Spain. That is a remarkable state of affairs and shows how the language is spreading. It is a welcome extension and—dare I say it?—another issue embraced by Canning House.

It was encouraging to hear several noble Lords endorse the notion that the United States' policy towards Cuba is flawed and that we should trade more actively with that country and encourage others to do likewise. Trade missions are very welcome and perhaps I may remind my noble friend Lord Selsdon that in 1974 I accompanied Lord Walston on the first trade mission to Cuba since Castro came to power. He had been in office for 14 years and on that occasion he made his first ever visit to the British Embassy. I gather that since then he has visited the embassy on many occasions but it was a welcome initiative. Our relations with Cuba are excellent.

One of the factors that has emerged from the debate is that there are a number of sub-regional trading arrangements already in existence. They were mentioned by a number of noble Lords. It is perhaps through the convergence of those sub-regional arrangements that the whole of that vast area will develop. However it develops and however long it takes, it is a vital initiative and it is extremely important that we in this country are able to take cognisance of it, pay proper attention to it and make use of the opportunities that this vast new development will present. I thank all noble Lords who have participated in the debate and I beg leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.