Westminster Hall Sitting of 2 February 2000

Preamble
[MR. MICHAEL J. MARTIN in the Chair]

Military Exports
Motion made, and Question proposed, That the sitting be now adjourned.—[Mr. Touhig.]
9.30 am
Dr. Vincent Cable: I express my appreciation through you, Mr. Deputy Speaker, for Madam Speaker's having given me the chance to initiate the debate, which is topical on two levels. First, the systems of the Export Credits Guarantee Department are currently being reviewed. Secondly, it is topical in terms of the debate on the arms trade. There have been recent controversial cases involving Indonesia, Zimbabwe, Pakistan and other countries. The debate provides an opportunity to bring the two issues together.
I wish to argue that the use of the ECGD to support British arms exports undermines our ethical foreign policy, that it is a bad use of taxpayers' money, that it undermines development and that it adds unnecessarily to the shroud of secrecy that surrounds Government business. I have agreed a division of labour with my hon. Friend the Member for Richmond Park (Dr. Tonge); I shall concentrate on economics and my hon. Friend will concentrate on ethics, in which she is much better qualified than I am.
I shall start with an anecdote. Almost exactly 25 years ago, I was a Foreign Office official in the Latin American department. I was a first secretary, and much of my time, along with my colleagues, was spent running round worrying about General Pinochet and the chaos in Argentina. Among other things, the British arms industry was very active selling goods to Latin American Governments, who were mainly dictatorships. On one occasion, I think that it was Yarrow which was in the middle of trying to secure a large contract with Ecuador. I was approached by the Ministry of Defence and the Department of Trade, which thought that it would be a good idea if the Foreign Office lobbied the Treasury. The Treasury had dug its heels in and said, "We are not willing to give export cover through the ECGD for Ecuador."
I sent what I thought was a rather convincing minute to the then Foreign Secretary, now Lord Callaghan, which included phrases that I thought would appeal to a Labour Foreign Secretary. It was all about jobs on the Clyde. Somewhat to my surprise, he sent a rather curt minute, which read, "I am sorry but I have absolutely no intention of writing to the Treasury on this matter. I think that it is a bad use of British taxpayers' money to be suggesting that it should be used to subsidise toys for admirals in Ecuador." I felt rather snubbed at the time but I think, on reflection, that it was an extremely wise judgment and one that increased my respect for Lord Callaghan.
Many of the arguments of those days reverberate today, and essentially they are the arguments that I am advancing. The context is one in which the arms
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industry is a relatively small but quite important part of Britain's export business. It makes up about 2.5 to 3 per cent. of it. However, it has a much larger profile in terms of the ECGD. When I was involved, it was about 10 per cent. of ECGD business, and that continued throughout the 1970s and 1980s. In the 1990s, it increased to more than 20 per cent. Last year, more than half the business written by the ECGD involved the armaments trade. It has become extremely important.
The key factor is that, however we dress up the language, the trade is subsidised. It is often said that the ECGD operates on a self-financing basis, but, in underlying economic terms, it does not. It is important to set out the reasons for that, and I rely quite heavily on some very good analytical work done by the centre for defence studies at the university of York, by Professor Keith Hartley and Steve Martin among others. The point they make is that taxpayers' subsidy for arms exports through the ECGD consists of various elements. One is an interest subsidy, which operates in some instances. There is a difference between the interest rate paid by the customer and the interest rate charged by the banks, and the ECGD covers that difference.
In addition, and probably more important, the ECGD provides political risk insurance. There is a market for such insurance, but, in many instances, the cost would be prohibitive. In effect, the ECGD provides a subsidised rate.
Another perspective is public investment. If London Transport or the Post Office were borrowing money for a new investment, the Treasury would expect them to earn a return of about 6 per cent. in real terms. The ECGD is not expected to earn that return. Instead, it is expected to break even. With a little work on a calculator, it is clear that the present value of a loan—it is the difference between a 6 per cent. return and a nil return—can be substantial when large sums are involved.
That is a generous interpretation, because the public accounts show that the ECGD is not even breaking even. Last year, there was a net deficit of £217 million. The Government's three-year public accounts projections include an expected deficit of more than £800 million in 2001–02. We are talking about something that is clearly sub-economic, and that applies to the armaments business in particular.
Attempts have been made—I have referred to the York economists—to quantify the cost to the taxpayer. The figures are obviously imprecise because there are no definitive numbers, but the economists have come up with figures that seem plausible. They have estimated that about £240 million a year is the cost to the taxpayer of arms exports alone, within the ECGD's portfolio. They have taken account of the losses over the past 10 years and applied 30 per cent. of them, which is the estimate of the rough proportion of arms business to the total. Having thought about the figures, I find that estimate rather conservative. For example, 40 per cent. of the ECGD's outstanding debts stem from arms business. Therefore, 30 per cent.—
Mr. Gerald Howarth: The hon. Gentleman has initiated an extremely important debate and I am sorry that I was not present at the beginning of his remarks. It is extraordinary that there are no Labour Members present apart from the Minister, who looks bereft.

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I trust that the hon. Gentleman will not examine only one side of the balance sheet. Will he look at the other side too? That would show that, without these defence exports, Britain could not afford to buy equipment for its armed forces that had been manufactured in the United Kingdom. The economies of scale would be such that it would be prohibitively expensive.
Dr. Cable: The hon. Gentleman is correct in an economic context. I accept that. There is a balance of views in terms of reducing the cost of procurement, to which the hon. Gentleman has correctly pointed. There are also debits which I have not mentioned. There are many Ministry of Defence costs involved in the selling process. Much equipment should probably have been bought abroad on economic grounds, but it is manufactured here because of the support that the industry receives from the arms export business. The York studies to which I have referred suggest that, when all the economic factors are taken into account, including the important point that the hon. Gentleman has raised, the outturn is a substantial negative.
Mrs. Angela Browning: Does the hon. Gentleman agree that there is a slight distortion in the statistics inasmuch as, for 1998–99, the figures show that more than half of ECGD funding was defence related? However, that was a one-off because it was the result of the Asian financial crisis. When account is taken of a longer period, we see that the average annual funding is about 13 per cent. When we talk about percentages and what is funded via the ECGD, recent years have shown blips and distortions, which perhaps give a rather different picture from the norm.
Dr. Cable: There are blips and distortions, which is why I said a few moments ago that I would not regard the figure that I quoted as a mechanical slide-rule projection of what will happen in future.
It is useful, however, to think about some of the reasons that might trigger future defaults. I had not seen the detailed figures until I prepared for the debate, but a large part of British outstanding export credit debt is owed by Indonesia. That arises from the Hawk contract, which involves £750 million. About £50 million of that has already been written off. I understand that the Indonesians are continuing to service their interest. It is not difficult to imagine circumstances in which the Indonesian political environment might completely unravel. We know that there is a virtual civil war in several parts of that country. I can envisage circumstances in which all the outstanding debt would have to be written off.
A large part of the lumpiness to which the hon. Member for Tiverton and Honiton (Mrs. Browning) refers relates particularly to contracts with Saudi Arabia and Brunei. It may be that, in 10 or 20 years' time, those countries will be stable and continuing to pay their debts. However, one of my last jobs in the oil industry before entering Parliament was to examine the public finances of Saudi Arabia. It was not a terribly happy scene. The Saudis have enormous private assets overseas, but their public sector financing is vulnerable. I shall be surprised if they remain solvent for the next
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five or 10 years, particularly if the oil market becomes adverse to their interests. There are blips—the hon. Lady is right—but it would be unwise to be complacent about the ECGD's capacity to continue to have its debts serviced.
In addition to taxpayer costs, there are a couple of other reasons why one should worry about this part of ECGD business. One is the impact on development. Even someone as hard-headed as Mr. Camdessus of the International Monetary Fund has argued that it is undesirable for western countries to use the ECGD, or a comparable export credit agency, to provide debt-related financing to many developing countries. The simple reason is that they acquire a fixed interest obligation, not a productive asset.
The logic of that is accepted by the Chancellor of the Exchequer. Under the Mauritius agreement, the Government have agreed that export credit guarantees for armaments will not be applied to, I think, 63 developing countries; initially, it was 40.
Mr. Gerald Howarth: The hon. Gentleman raises an interesting point. Is he aware that the Chancellor's much vaunted ethical dimension to export credits is totally, utterly and completely meaningless? Of the 63 countries that he says will no longer be eligible for credit guarantees in respect of defence exports from this country, only one has received ECGD defence credits since 1987: Kenya, which accounted for, I think, £60 million. It is complete and absolute nonsense. The Chancellor is posing as a friend of the third world. It is totally hypocritical.
Mr. Deputy Speaker: Order. It would be easy for the hon. Gentleman to get into the debate without long interventions. They are not helpful.
Dr. Cable: I was aware that most of the countries were off cover. I had not realised that the position was as extreme as the hon. Gentleman describes. He makes a valid point. If the Chancellor accepts the logic of withdrawing export credit cover for armaments to low-income countries, why will that not be applied to all low-income countries, including those on cover? Indeed, why will it not be applied to all developing countries? All sorts of inconsistencies are creeping into the admittedly more developmentally minded approach that the ECGD has adopted under the Government.
There are all sorts of anomalies, which the Minister could perhaps explain. For example, as of the end of last year, all exporters have been required to fill in a questionnaire on environmental sustainability, but armament exporters are spared that chore. Why? If it is a serious restriction, why will it not be applied to them?
In addition to the cost to the taxpayer and the impact on development, export credit guarantee support of arms exports creates an additional tier of secrecy in a part of Government that should be more open. The ECGD annual report of 1997–98, when about one quarter of British exports through the ECGD were armaments, devoted two and a half paragraphs to arms exports. That was rather less than was devoted to a public transport project in Panama. Last year, when the share of arms in the ECGD's portfolio grew to 50 per cent., the coverage in the annual report contracted to two lines. That is absurd.

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Many Members who table parliamentary questions often find that the answers are cryptic in the extreme. It is an area of secrecy, which is not necessary. Major General Sharman, chairman of the Defence Manufacturers Association, has said as much. He sees no reason why there should not be much more openness.
The Minister may be able to explain why it is not possible to break down—perhaps he will—British arms exports through the ECGD by country and by contract. Why cannot we be told which British companies benefit, in order of merit? There is an assumption that British Aerospace benefits most, but it would be useful to know. Why can we not know? Can we not be given a breakdown of the business by country, by contract and by sums of money? Can we not be given a breakdown of the debt outstanding to the ECGD by country, by project and by sums of money? All that would help us to understand what is going on. The fact that we are not given that information, or not given it easily, creates an impression that something is going wrong, when it may not be.
The conclusion is that continuing to support arms exports through the ECGD is unattractive. There is quite wide political consensus on that point. A short time ago, we tabled early-day motion 191, which 95 Members have supported, most of them Labour Back Benchers. On the other side of the political spectrum, one of the most scathing and penetrating criticisms of the way in which the ECGD operates was provided by the hon. Member for Chichester (Mr. Tyrie), as he now is, who was special adviser to two Chancellors and who exposed many of the arguments that I have advanced.
Moreover, one of the most articulate criticisms of the use of the ECGD for export credit cover is provided by the free market economist Sam Brittan, who clearly believes that people who believe in competitive markets should not support the practice. Across the spectrum, there is growing criticism of the practice.
The Parliamentary Under-Secretary of State for Trade and Industry (Dr. Kim Howells): Is the hon. Gentleman referring to Sam Brittan's article in the infamous free market New Statesman?
Dr. Cable: I was, but before Sam Brittan defected to the New Statesman, he was saying much the same thing in the Financial Times. I do not know his politics, but I have read his eloquent writings, which are very much in a free market vein and with much of which I agree. My point is that the criticism is eclectic. It is not driven from any particular standpoint.
I go over some of the arguments that are advanced for not stopping the practice. The first is about jobs. There is, of course, a compelling argument here. None of us wants to be flippant about people's jobs. It is estimated that roughly 150,000 jobs, mainly in the aerospace industry, are effectively subsidised by ECGD export credits for arms: roughly £2,000 a job. It is not clear why those jobs should be subsidised, rather than others. We go back to the argument about why we have such selective intervention by the taxpayer, but if the Government feel that a particular segment of manufacturing industry needs public support—perhaps it does; perhaps there is a special argument about capital goods, although I am not sure what that is—why can that not be dealt with by developing the civil side of the ECGD business instead?
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If the Minister talks to the Confederation of British Industry or the Engineering Employers Federation, he will find much frustration—it relates partly to the point that was made by the hon. Member for Aldershot (Mr. Howarth)—that many countries are currently off cover. A good recent example was a big public transport contract with Iran, which other export credit agencies were willing to support and the ECGD does not. If there really is a feeling that the ECGD should be used to promote British exports and jobs in that sector, why can that not be done by rebalancing the portfolio in favour of civil products?
Mrs. Browning: The hon. Gentleman will have noted with some interest—which is why I am surprised at his last comment—the third report of the Select Committee on Trade and Industry on the future of the ECGD. One of its conclusions states:
"Some suggest that defence exports close out other exports; we have received no evidence to indicate that ECGD is biased towards defence-related exports, nor that there is a substantial default rate."
Dr. Cable: As the hon. Lady implied in the first sentence of her quotation, there is a debate as to whether there is a real opportunity cost. It is an open debate. As there are well-developed lines of communication with the big armaments exporters such BAe, it is easier to continue to support the arms business. Of course it receives much political support as well through Ministers and intergovernmental relationships, but I should have thought that, with a major effort, there is no reason why the balance of the portfolio should not be shifted and why dependence on arms export trade should not be reduced.
The next argument advanced could be encapsulated in the question, "Why should Britain do it on its own?", and in the belief that, if it is a desirable policy, we should do it as part of a multilateral initiative. There is some sense in the argument. However, I sometimes fail to understand why we take the view that we should not stop harming ourselves unless other countries agree to do the same. It is a fallacy pervading much of trade policy.
In many respects, the Government have given the lie to that argument in their debt relief initiatives. British Governments—not only the current one, although the current Chancellor has done much very good pioneering work on debt relief—including the two previous, Conservative Chancellors, have gone out on their own on debt relief for low-income countries. It is part of the multilateral initiative that we should relieve debt before other countries do so, and we implicitly accepted that, by our writing off some of our debt, the Japanese, the Germans and the Americans might recover their debt rather sooner. Therefore, if policy is right, it is better to implement it both unilaterally and multilaterally. I argue for doing both in parallel.
Some people argue that there are countries that, for perfectly good reasons, want to acquire our armaments, and that there are perfectly good reasons for letting them have them. I am not a pacifist and see good reasons why many developing couples might wish to arm themselves.
India, for example, is a democratic country—at least as democratic as we are—and is well run, with a relatively successful economy and a reasonable standard

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of governance. It is threatened from at least two directions and might wish to acquire British arms. However, if it does wish to acquire British arms, there is no reason why it should not buy them on the market. If we want to help India as a developing country, we could help it through the aid programme. There is no justification for keeping the ECGD's role in all of this as a disguised way of helping India or other worthy developing countries to acquire the armaments that they need for their defence.
I believe that Britain should cease to provide ECGD credit cover for armaments by phasing it out. We should do so on our own, but simultaneously try to develop a multilateral initiative. I hope that, as a first step in the debate, the Minister will open up the whole subject and lift some of the secrecy enveloping it.
9.52 am
Mr. Gerald Howarth: I am delighted to speak in this debate, although I have to confess that initially I had not intended to do so. Last week, I saw on the Order Paper that the hon. Member for Twickenham (Dr. Cable) had been successful in securing this debate, on an extremely important subject, and so it did not come as a complete surprise to me.
I was very interested in the hon. Gentleman's comments. He comes from an oil background and will know probably better than I that Britain's most important and largest defence export arrangement is the Al-Yamamah contract with Saudi Arabia, which is based substantially on the oil market. It is a complicated transaction, but essentially involves defence exports for oil. My view of the contract—to which I shall return later—is not as pessimistic as his, as I think that there are important lessons to be learned from it.
My background, before being elected to the House, includes 12 years in international banking. I now represent the Aldershot constituency, which includes Farnborough, where the headquarters of what we now have to call BAe Systems are located. Formerly, the company was known to us all as British Aerospace, and I suspect that—despite the efforts of the company's management—it will continue to be called British Aerospace.
Nevertheless, BAe Systems is not only Britain's most important defence contractor, but is now the third largest defence contractor in the world. It is therefore an extremely important company not only to my constituency, but to the whole of the United Kingdom.
My association with British Aerospace goes back over many years, but was particularly close when I was in the City, in international banking, and acutely aware of the importance of defence exports. I had discussions with British Aerospace about various projects on which it was seeking to secure support.
I am bound to tell the hon. Member for Twickenham that he is living in cloud cuckoo land if he thinks that there is a realistic prospect of withdrawing ECGD support for export sales without a markedly damaging effect on Britain's most successful manufacturing industry—the aerospace industry. The reality—as was
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brought home to me every time I discussed these matters with British Aerospace and other defence contractors—is that other defence manufacturers around the world enjoy the support of their domestic equivalent of the ECGD, whether it be COFACE, in France, or the American organisation, the name of which I cannot remember—
Dr. Cable: Ex-Im bank.
Mr. Howarth: No; it might be federal military sales. In any case, United States industry benefits from the financial support of the United States Government.
I therefore tell the hon. Member for Twickenham that—however much I am impressed by his adherence to free market economics, which is a belief not always expressed by Liberal Democrat Members; I certainly welcome the philosophy that he has expounded—the practical reality of the world in which we live is that if we withdrew support, we should be doing great damage to our own defence manufacturing base, which is a very important component of the United Kingdom.
The hon. Gentleman lightly dismissed defence manufacturing as 2 to 3 per cent. of Britain's economic activity, but the fact is that it employs 400,000 people in the United Kingdom.
Although the Minister is not supported by a great many other Labour Members today, he is a formidable man in his own right and is worth 10 of his Labour colleagues. I have no fear that he will not be able to rise to the challenge that he has been offered by the hon. Member for Twickenham. Nevertheless, the truth is that many Labour Members represent constituencies in which defence contracting is a very important component. I am honestly surprised that none of those Labour Members are participating in this debate, because they are always evident in the House for Defence Question Time.
How do I address you, Mr. Chairman?
The Chairman (Dr. Michael Clark): I am just discussing that very point, Mr. Howarth. I think that it would be correct if you called me Dr. Clark.
Mr. Howarth: I am delighted to be guided by you, Dr. Clark. Now that I know how properly to address you, I shall continue.
For an hon. Member who, like me, was elected to the House in 1983, rested between engagements—between 1992–97—and returned to the House in 1997, to the most privileged seat to which I could ever aspire, Aldershot, home of the British Army and birthplace of British aviation—I think that I am a round peg in a round hole—one of the most astonishing and fascinating features of being in the House is to see how the Labour party has changed.
Dr. Clark, you will remember that, when you and I were first elected to the House, ranged against us were all those Campaign for Nuclear Disarmament people, beating swords into ploughshares. What are we faced with today? We are faced with one Labour Member after another standing up and demanding that the Government buy bigger and better weapons, preferably from their own constituency.
Mrs. Browning: I totally agree with the point that my hon. Friend has just made. However, perhaps he will add a caveat—that among the Labour Members of the European Parliament, perhaps in the person, for example, of Mrs. Glenys Kinnock, we hear the old Labour-CND message still coming through.
Mr. Howarth: My hon. Friend is right. I gather that the Labour Members of the European Parliament are part of what is called the Socialist group. That word has been expunged from the new Labour dictionary, so what they do is probably a source of discomfort to the Prime Minister and the other promoters of new Labour. I suspect that you will call me out of order, Dr. Clark, if I carry on with that argument.
There has been a fascinating change in this country. There is a consensus on the importance of defence and defence exports. There are three reasons why defence exports are not just good for the United Kingdom, but essential. Those reasons go beyond the desire to protect 400,000 jobs in the UK. I made that point to the hon. Member for Twickenham because I felt that he was belittling the contribution of defence contracting to the United Kingdom's industrial base; but I am not in the business of giving subsidies to keep jobs in a particular sector. That would be inconsistent with my philosophy and that of my party over the past 20 years.
The first reason is that, without defence exports, we could not afford to buy domestically produced aeroplanes, missiles, heavy artillery and similar equipment, because there would be no economies of scale. I shall illustrate that with one example. As the country wrangled over what was going to succeed the Tornado combat aircraft—we now know that it is to be the Eurofighter—there was serious concern at British Aerospace, because the production run was coming to an end with nothing to put in its place. What happened? The Al-Yamamah contract with Saudi Arabia provided a large enough order to keep the production line open. Saudi Arabia then made an attrition buy—a technical expression in the trade for replacing lost aircraft that crash, fall out of the sky or are shot down—of a further 12 Tornado aircraft. That kept the production line going until the Eurofighter—or the Typhoon, as we now call it, which is a much better name—came on stream.
If we had simply relied on domestic demand for Tornado aircraft, the unit cost would have been prohibitive. The Public Accounts Committee would have said that it was ridiculous and that we should have bought some other aircraft off the shelf, such as the F 16 from the United States. That would have left us dependent on the United States for the supply of critical equipment and would have cut us off from the supply of the next generation of combat aircraft. As a result of the defence export services provided by the Ministry of Defence and the fantastic effort of the Government—even the Foreign Office—and industry coming together in concerted UK activity, we were able to sell Tornado aircraft to Saudi Arabia, bringing the unit costs down and keeping us in the business of producing high-tech combat aircraft.
The second reason why defence exports are essential is that they help our foreign policy objectives. Supplying our friends with military equipment is a practical way of demonstrating our support. That is not a euphemism for propping up corrupt regimes. Few countries can match
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our commitment to liberty, our devotion to democracy and our belief in fair play. Few countries play cricket and even fewer play cricket like we do, unfortunately. Other countries fall short of the standards that we set.
Defence exports help us to influence events in critical parts of the world. This Government, like their Conservative predecessors, are keen to demonstrate Britain's influence in the world. The Prime Minister is extraordinarily keen to play soldiers around the world. I do not object to the principle of that, although I have some doubt about his motives. By supporting defence exports, we are able to make friends and influence events around the world. Some of the key countries to which we export, such as Malaysia and Saudi Arabia, are very good allies of the United Kingdom. Defence exports help to strengthen those ties.
The third reason is that defence exports enable us to exert further influence. If we supply critical defence equipment to a country where the Government change and the new regime behaves unacceptably, those exports give us a hold over them. I am astonished that, while the Foreign Secretary trumpets an ethical foreign policy, when he had the chance to influence events in Indonesia and Zimbabwe, he signally failed to do so. There has been a huge amount of wringing of hands over Indonesia, but the Foreign Secretary has allowed the Hawk contract to go ahead. In my view, last year was the time to say, "No more." That would have enabled us to exercise influence, but the Government chose not to do so.
It is appalling that the Government will continue to supply Hawk parts to Zimbabwe—a country that, in the league table of corruption and incompetence, must surely be if not at the top then at least in the top 10. The idea that we have an obligation to continue to supply spare parts to the disgustingly corrupt and incompetent Mugabe is profoundly offensive. The Government should have said, "If you go ahead and nationalise the land of white farmers in your country, do not expect a single spark plug for any of your Hawk aircraft, 'cos we ain't gonna supply it. Talk some common sense and run your country in a proper fashion and we will resume the supply."
Dr. Howells: I agree with much of what the hon. Gentleman says about Zimbabwe. I was there recently and saw the appalling politically motivated spiral of decline in a country run largely by incompetent people. However, I have figures showing that between 1987 and 1994 the previous Government supplied Zimbabwe with £61,584,983 of defence of equipment. Did the Conservatives see the decline coming, or was the Government of Zimbabwe okay in those days?
Mr. Howarth: I shall probably surprise the Minister by saying that I would not have done that had I been a Minister, but, as he probably knows, I have a slightly different view of Zimbabwe. I think that it should still be called Rhodesia. I find it ironic that people should complain about the current system there or make excuses for Mugabe when some of us remember the days

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when it was properly run. In those days, there was freedom for those who were law-abiding and the country was prosperous.
Dr. Jenny Tonge: Will the hon. Gentleman give way?
Mr. Howarth: I think I know what the hon. Lady is about to say.
Dr. Tonge: I am sure that the hon. Gentleman does. Some time ago, during a debate on Sudan, the hon. Member for Louth and Horncastle (Sir P. Tapsell) said that it used to be a great country with "the blues ruling the blacks". Is the hon. Gentleman suggesting that we should take back all the old British empire countries and run them directly from London? Would that please the hon. Gentleman?
Mr. Howarth: The hon. Lady poses an interesting question. To be quite candid, the answer is, in part, yes. It is a complete absurdity for us to imagine that we can continue in the present fashion, where corrupt and incompetent dictatorships around Africa continue ruining the lives of their people and demanding money from the international community, from agencies such as the International Monetary Fund and from us. However, that is a subject for another debate.
I shall conclude, as I know that my hon. Friend the Member for Tiverton and Honiton (Mrs. Browning) has some important remarks to make. I have given three reasons why it is absolutely essential that we recognise the role of defence exports. It is a most honourable profession that greatly benefits the British people, British industry and the countries that we support.
In regard to the Al-Yamamah contract, having been the parliamentary private secretary to Baroness Thatcher, I do not think that people recognise just what a fantastic deal that was. The personal chemistry between the noble Lady and King Fand of Saudi Arabia was probably responsible for securing more jobs than any other contract in the history of these islands.
In answer to the hon. Member for Twickenham, who based his remarks principally on the role of ECGD, I would be most reluctant to withdraw from the British defence industry the availability of ECGD support. It would make us totally uncompetitive overseas, so we would be cutting off our nose to spite our face.
I was amazed to hear the Chancellor of the Exchequer trumpeting the announcement that 63 countries would be denied the availability of ECGD support for defence exports, when only one of them had ever benefited or was likely to benefit anyway. I found it extraordinarily—
Mrs. Browning: Bogus.
Mr. Howarth: Exactly. I look forward to hearing the Minister's reply to the debate. I am sure that he will agree that it is important for the United Kingdom to continue to support our defence industry, which not only generates jobs and wealth, but is a source of tremendous innovation and excitement.
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10.14 am
Dr. Jenny Tonge: First, I congratulate my hon. Friend the Member for Twickenham (Dr. Cable) on his success in introducing an Adjournment debate on this important subject. Last week, I tried to get a debate on arms exports and an ethical foreign policy, so I shall concentrate rather more on the ethics, which I consider to be an even more important subject. I congratulate my hon. Friend on his excellent and well-informed speech.
I was also interested in the speech by the hon. Member for Aldershot (Mr. Howarth). I see the beginnings of an entirely new Conservative party policy. The shadow Cabinet has been reshuffled and now the hon. Gentleman is proposing not only that we pull out of Europe, but that we break our ties with the United States and re-form the British empire. I expect his next proposal will be that we send an expeditionary force to Washington.
Mr. Gerald Howarth: I thank the hon. Lady for giving way. How on earth can she make those assertions on the basis of what I said? I made no suggestion that we should cut ourselves off from the United States—far from it. I made no remarks about withdrawing from Europe or re-establishing the British empire. I simply said that one or two countries could well benefit from the expertise that we used to give them and under which they flourished.
Dr. Tonge: The hon. Gentleman must realise that I have every right to extrapolate his ideas and develop them.
The Chairman: Order. This is not a debate about empire. Will hon. Members please get back to the subject in hand.
Dr. Tonge: I apologise, Dr. Clark. I could not resist making that point.
I have do not have the background to speak on the economic arguments in relation to the ECGD and arms exports: my profession is the medical profession, which has been severely humbled in recent days. My only connection with the subject is that, until a few years ago, there was a big British Aerospace factory—which used to be the old Hawker factory—in the Richmond Park constituency. So my interest is not a current one.
I understand the economic argument that has been made for arms exports and the arms industry. I am not a pacifist; I do not want to stop arms exports. I understand that they are part of the real world. However, I question some of them—especially those that are supported by export credit guarantees—that involve countries whose economies may be in a parlous state or unstable. Suppose that the export credit guarantees are never paid off and the arms sales result in an extremely expensive war—they did in the case of Iraq—and a military campaign to which we have to contribute; and suppose that our Government have to provide humanitarian aid and then development aid to rebuild a country that has been destroyed by war. In such cases I question the economic arguments advanced by the hon. Member for Aldershot. They may be good in

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the very short term, but ultimately it seems to me a crazy policy which places a heavy burden on the British taxpayer.
Let us consider the jobs argument. Of course there would be job losses if the arms industry contracted, but if we cut out only the part of the industry that supplies arms under export credit guarantees, it might not affect such a large proportion of total arms exports. People who work in the arms industry are generally highly qualified and employable. Every year, hundreds of thousands of people change jobs or retrain, so I do not find the jobs argument insurmountable.
Mrs. Browning: The hon. Lady will know that I represent a seat in Devon and that military issues are of great importance in the south-west. I remind her that for many years I have listened to the right hon. Member for Yeovil (Mr. Ashdown), who has Westland Helicopters in his constituency. The helicopters produced there are used both for peaceful and for military purposes. The right hon. Gentleman advocated a rather different view of job losses at Westland and in the west country.
Dr. Tonge: So would many Members with arms manufacturers in their constituencies, but, at some point, we shall have to bite the bullet. People in many industries have to consider retraining. One example is the farming industry, on which the hon. Lady used to speak on behalf of her party. I do not see why the arms industry should be immune. I would also remind her that my right hon. Friend the Member for Yeovil (Mr. Ashdown) is no longer our party leader and is quite entitled to express his opinion.
The other argument advanced by the hon. Member for Aldershot—the old adage that if we do not do it, someone else will—was ably dealt with by my hon. Friend the Member for Twickenham. Sometimes, we must take a lead on these issues. We took a lead on debt. Indeed, the previous Conservative Government took a lead on debt, which was followed up by the Labour Government. Both British Governments in recent years have spoken and acted honourably on debt. Why can we not do the same in relation to the arms trade? Why can we not take the lead? No wonder this country does not know where it is going if we cannot make a stand occasionally.
The Government have made some fine attempts to give moral leadership. I was in the Locarno room—a wonderful place—in the summer of 1997, and found it difficult to control my emotions as the Foreign Secretary described his new foreign policy with its ethical dimension. He told us how the world would be changed and that Britain would be a good boy after all.
On many occasions, I have heard how passionately the Secretary of State for International Development feels about the prevention of conflict and about the need to restrict arms sales to countries which are unstable or are in need of development. I suspect that she is frequently overruled.
Dr. Howells: As the Minister who has to sign off all the arms export deals that we send out—and I have been in this job since a year ago last July—I point out to the hon. Lady that there has never been one on which we have not consulted the Foreign and Commonwealth Office
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and the Department for International Development. We have done that for every export and have never received one—
Dr. Tonge indicated dissent.
Dr. Howells: The hon. Lady may shake her head, but I am the guy who has to sign off those exports. Never once have we received from the DFID or the FCO an objection to anything that we have signed.
Dr. Tonge: I thank the Minister for that intervention, but I was really referring to the annual report on arms sales. During the last Session, I was a member of the Select Committee that reviewed the annual report. I think that some arms exports to Eritrea were refused by the DFID, but that was overruled by the Department of Trade and Industry—or whoever it was. The Minister is not correct. Decisions are overruled. Indeed, when the annual report on arms exports is produced, the Secretary of State for International Development does not sign that report as other Ministers do, even though she is a member of the Government.
Dr. Howells: I have learned much since I entered the Government about how difficult and complicated government is. Surely, the hon. Lady must realise that, as the DTI is responsible for sponsoring exports, one Minister has to sign them off. There cannot be an arrangement whereby every Minister in every Department signs off every export contract. That would be nonsense. Surely the hon. Lady has enough experience to understand that.
Dr. Tonge: I do indeed understand the point, but in the context of the Government's declaration that they would have a foreign policy with an ethical dimension, and that they would adhere to the UK and the EU code of conduct on arms sales. I shall explain how they have not done so. I stick to my guns: whichever Minister signs off the sales, he or she should take into consideration the opinion of the Department that is concerned with development and the prevention of conflict. If that is not done, there will be more trouble for this country and more expenditure in the long term.
Dr. Howells rose—
Dr. Tonge: I shall not give way again, because I want to make progress.
I refer to the Government's response to the International Development Committee's report on conflict prevention. I was a member of the Committee. The report included the recommendation that
"the Government extend indefinitely its moratorium on the use of export credits for unproductive expenditure and urge the Government to exert further pressure for the adoption internationally of such a commitment."
The Government responded rather cryptically:
"The Government welcomes the Committee's support for the Mauritius Mandate"—
to which my hon. Friend the Member for Twickenham referred.
"The Government remains committed to limiting our export credits to Heavily Indebted Poor Countries"—

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the hon. Member for Aldershot pointed out that that was no great matter—
"to those for productive expenditure."
The Government were not upholding the foreign policy with an ethical dimension about which we had heard so much. They were not even upholding the commitment not to sell arms to countries where there was an identifiable risk that the equipment might be used for internal repression or for aggression against another country. I shall return to that matter later in my speech.
This foreign policy has been trampled over by the Government's response to arms exports—whether or not they are supported by export credit guarantees. The Government have recently stated that they would not resume the sale of arms to Pakistan—everyone agrees that Pakistan is extremely unstable and no one knows how matters in that country will progress—but they will consider each sale case by case. They get themselves out of the hoop in that way.
As we have already heard, the decision has been taken to resume selling arms to Indonesia, when that country is subject to huge internal upheavals. We have not yet sorted out East Timor; East Timorese refugees are still being held in West Timor and are not being allowed to return home. All that is happening, and even though the Indonesians have not paid off previous export credits, we are selling them more equipment—presumably backed by more export credits.
Three quarters of the countries in sub-Saharan Africa are engaged in armed conflict, or are confronted by a significant threat from armed groups. Arms exports to the region almost doubled last year. Excluding South Africa, spending on arms in sub-Saharan Africa increased by 14 per cent., at a time when the region's economic growth rose by less than 1 per cent. in real terms.
There are at least 11,000 Zimbabwean troops in the Democratic Republic of Congo. Zimbabwe, Namibia, Angola and the President of Congo are all fighting a war against Rwanda, Uganda and the Congolese rebels. There is a terrible mess in the Democratic Republic of Congo, and Zimbabwe is involved in it.
The estimated cost of the war for Zimbabwe is £1 million a day. That is in a country whose economic situation is regarded as extremely serious. The country is heavily in debt. There are record levels of unemployment; the inflation rate is 57 per cent; and an AIDS epidemic has reduced life expectancy to less than 50 years. Despite all that, we are selling arms to Zimbabwe. As the hon. Member for Aldershot said, what a foolish decision that was.
Furthermore, to return to the Minister's point, those sales are not compatible with the European Union code of conduct to which we have signed up. Both in criterion 4 and criterion 8—I carefully dug them out last night—we fail vis-a-vis Zimbabwe. We are not obeying the code of conduct by resuming arms sales to that country. Whither, then, our ethical foreign policy?
When are the Government going to regain the moral leadership of which we had such high hopes early in this Parliament, for goodness sake? Are we to go on
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indefinitely feeding wars and human misery? Will that new foreign policy with an ethical dimension never be reinstated?
One of the researchers reminded me of some lines from Milton's "Paradise Lost":
"So here the Archangel paused,
Betwixt a world destroyed and a world restored."
I want to see a world restored for the sake of my children and my grandchildren. I feel strongly about that. I am not a pacifist, but I want the world restored. To do that, we must bring back the ethical dimension that the Government have lost. We can make a start by stopping the subsidy on arms exports.
10.30 am
Mrs. Angela Browning: May I say how pleased I am to contribute, on behalf of the Conservative party, to this debate? Clearly, matters have been raised over which we must accept that there is a philosophical divide. There is a difference between the views of the Liberal Democrat speakers and those that I shall set out and the points made by my hon. Friend the Member for Aldershot (Mr. Howarth). Quite where the Minister stands remains to be seen, but I shall leave him to make his case.
On 27 July 1997, the Secretary of State for Foreign and Commonwealth Affairs said:
"The Government is committed to the maintenance of a strong defence industry, which is a strategic part of our industrial base, as well as of our defence effort."
Those sentiments were also underlined in the strategic defence review, which said:
"The British defence industry is outstandingly successful and a vital national asset."
In the recent defence White Paper, the Government committed themselves to
"ensuring the survival of a successful British defence industry".
The hon. Member for Richmond Park (Dr. Tonge) is clearly disappointed with the Labour Government. I do not want to say too much about that because it is for the Minister to respond to her disappointment. However, from the statements that I have quoted, the Government appear genuinely to want to support our arms industry. They realise the economic and strategic importance of defence manufacture in this country, and we wholeheartedly agree with them on that. However, I agree with the hon. Lady in that those statements do not relate to statements made elsewhere about a so-called ethical foreign policy, particularly as it relates to arms. I shall come to that point shortly.
The defence industry is important. I listened carefully to the hon. Lady when she said that she was not a pacifist. However, if her argument were taken to its logical conclusion, it would surely lead not just to the withdrawal of Government financial support through export credit guarantees, but to this country's not supplying arms at all. Who finances arms sales is an academic issue if one's philosophical position is that it is bad to supply arms to certain countries or to supply certain types of arms.
Dr. Tonge: On a point of explanation, I made no suggestion that we could not sell arms to countries such as our fellow members of the European Union or to

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stable countries in the rest of the world. My point was that we should adhere to the European code of conduct on arms sales and not sell arms to unstable countries or when they could be used for aggression or internal repression.
Mrs. Browning: The principle of where the arms are sold must be taken into account and it is, indeed, taken into account through the licensing process. However, the hon. Lady will recall, as I do only too well, that, at times of conflict in our own lifetimes, we have sold arms to some of our nearest and dearest neighbours only to find them used against us. Her proposition is no guarantee that there would not be what she would regard as unfortunate recycling or that we would not be the target of our own bullets.
As a percentage of gross domestic product, the United Kingdom has the world's second largest defence industrial base, employing—and this is important—355,000 people, who make up approximately 10 per cent. of the UK's manufacturing and industrial work force. That translates as 11 per cent. of the country's industrial and manufacturing output, equating to 50 per cent. of the aerospace and shipbuilding manufacturing that takes place in the UK and 40 per cent. of the electronics industry.
I declare a constituency interest. Electronics companies in my constituency supply the defence sector and they are at the cutting edge of technology. I have had no hesitation in supporting the work that they do and their attempts to bid for contracts. I have given them my full support.
The primary function of the defence industry is to supply military equipment to the UK armed forces. Problems with supply of essential war material during the Falklands and the Gulf wars have underlined the importance of an adequate domestic defence industrial base. However, the industry cannot be sustained by Ministry of Defence procurement alone; exports are essential to its survival. In recent years, defence exports have been a British success story, with the UK regularly taking more than 20 per cent. of the world defence export market. Defence exports reduce the MOD's procurement costs by allowing longer production runs and lower unit costs.
At this stage, I wish to point out that Members who are interested in defence matters are concerned at reports about the standard of equipment that has been supplied to our armed forces. Cost is a factor, but the quality of what we provide to our armed forces is of primary importance.
The commercial exploitation levy adds between £350 million and £400 million to the defence budget. More importantly, a third—approximately 130,000—of defence industry jobs depend on exports, with more than one third of production going abroad.
It has been alleged that the defence industry receives an unfair preference when it comes to ECGD cover. The most often cited figure is the one that I gave to the hon. Member for Twickenham (Dr. Cable) in an intervention. The 1998–99 figures shows defence cover at more than half the total of ECGD funding for that year. That figure, as we know, was the result of the Asian financial crisis and it is important that it does not distort the figures for previous and subsequent years in which
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cover dropped to as low as 13 per cent. The average figure for defence cover in the period 1988–89 to 1998–99 is just under 28 per cent. The Select Committee on Trade and Industry concluded that there is
"no evidence to indicate that ECGD is biased towards defence-related exports".
Other countries provide far greater assistance for their defence industries. Both France and Germany provide direct financial assistance to their defence companies and both countries are far more generous when it comes to export cover. My hon. Friend the Member for Aldershot was right to mention the United States. Defence procurement and the provision for defence manufacture in the United States is important and we must bear in mind the huge global market in second-hand defence equipment that comes from the United States. In itself, that has an effect on the price of defence procurement around the world. However, the United States helps its exporters with long-term subsidised loans as part of the foreign military sales scheme.
Dr. Cable: Is the hon. Lady advocating that we try to match such contributions or does she agree with her parliamentary colleague who was the special adviser to the previous Prime Minister and who said:
"It is illogical to indulge in a competition to give away our own exports through an auction of subsidies … companies should reduce costs and make themselves competitive, not rely on state aids."
Does the hon. Lady agree with that?
Mrs. Browning: Given my earlier remarks about the primary importance of defence manufacture to underpin our domestic requirements, if taxpayers' money has to be used to underwrite the guarantees through the ECGD, I thoroughly support its use. There is no doubt about that. We did that in government and we shall continue to support its use. We must consider the sector and its strategic importance to the UK's military and defence provision.
Mr. Malcolm Savidge: The hon. Lady referred to what happened under the previous Government, but am I not correct in thinking that, in 1997, the bad debts to the ECGD included military support that had been given to China, Indonesia, Iraq and Nigeria, which at the time was under a dictatorship? When she says that she is happy for taxpayers' money to subsidise the defence industry, does she not feel at all uncomfortable with those examples?
Mrs. Browning: No, I do not. Although I do not have to hand detailed information about every one of those countries, I do not agree with the hon. Gentleman for the simple reason that, under the process by which ECGD cover is given, at the time when the cover is underwritten and signed off as the Minister described, every grant is considered on its merits and the balance of risk. The nature of the scheme means that there will be times when that risk is such that the Government have to step in. That is a matter of balance.

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I refer the hon. Gentleman to the third report by the Select Committee on Trade and Industry on the future of the Export Credits Guarantee Department, which covers that matter in detail. It is not over-critical of the process.
Mr. Gerald Howarth: Is not the answer to the question asked by the hon. Member for Aberdeen, North (Mr. Savidge) that he has selectively listed countries that have at some time been in default, whereas many other countries that have been beneficiaries of defence exports for which ECGD credit has been available have continued to honour their obligation, and their premiums are helping to defray the cost of meeting the credits on those countries that are defaulting?
Mrs. Browning: My hon. Friend describes the process correctly. As I said at the beginning of my speech, there is a philosophical divide. If one is opposed per se to public money underwriting or providing a safety net for such transactions, clearly one will not find any formula under which those transactions are acceptable. That is what divides us in the Chamber today.
Mr. Savidge: I am not talking about being opposed per se to subsidising our defence industry. However, many people in this country might feel slightly unhappy if they knew, for example, that we had subsidised Saddam Hussein's military build-up. That is why I chose the countries that I mentioned in my intervention. I could have listed other countries, and many people in Britain would be disturbed to find that taxpayers' money was being used to subsidise the build-up of those countries' military might.
Mrs. Browning: The hon. Gentleman will know the history of the situation as well as anyone else in the Chamber. When those arms were sold, the political situation, particularly between Iraq and Iran, was very different from the present situation. He cannot expect any Government, of whatever political persuasion, to second-guess what might happen several years later as a result of a change in political leadership or situation.
Dr. Howells: In response to the point made by my hon. Friend the Member for Aberdeen, North (Mr. Savidge), I have been reliably informed—I hope this helps the hon. Lady—that there never was any ECGD cover for defence business in China or Iraq.
Mrs. Browning: I am most grateful to the Minister. We could make a very good team on this subject, and I offer him my services unreservedly in case he ever needs to call on me as a running mate in future debates on the matter.
Export sales have helped the UK to retain essential capabilities at a time of a huge defence budget reduction and a reduction in the defence equipment market overall. The ECGD's work to underpin strategic industries in this country is extremely important.
It has been argued that the ECGD is not the right organisation to evaluate the development or ethical implications of defence exports. It does not have the
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expertise or the staff to carry out the necessary background research. That was recognised by the International Development Committee, which said:
"Criticisms of arms exports to particular countries and of the application of human rights criteria are being considered in detail"—
in the course of its inquiry. It continued:
"ECGD should not have to second-guess or duplicate the system for the scrutiny of export licence applications."
We agree with that. Legitimate ethical and other matters should be considered in the scrutiny of licence applications, and they are not the primary responsibility of the ECGD.
The Conservative party is committed to a strong defence industry. We are conscious of the need to consider the impact of defence exports, particularly in the developing world, but such consideration can best be done through the licensing process, not through the deliberations of the ECGD.
The debate overall has clearly concerned a division between the Liberal Democrats and their friends in the Cabinet. I say to the Minister that, although the debate has clearly arisen from a philosophical divide, we, too, are concerned about the way in which the ECGD operates within the DTI.
I draw the Minister's attention to two points from the third report of the Select Committee on Trade and Industry. It says:
"There is some evidence of a lack of joined-up thinking between ECGD and parts of the DTI."
I do not know when the Minister intends formally to respond to the report. The report also states:
"One ex-underwriter stated that 'ECGD services are little understood within DTI and FCO'".
Those are criticisms by a Committee of the House, which has studied the matter in great detail. We want the ECGD to work effectively and to continue to underwrite risk, particularly in this important sector.
I should be grateful if the Minister, in his concluding remarks, assured us that those matters are being addressed and gave us a little more detail about how he evaluates the views of the Ministry of Defence and his Department in supporting our defence industries. My hon. Friend the Member for Aldershot and others have outlined what seem to be bogus remarks from the Foreign Office about the Government's so-called ethical foreign policy.
10.47 am
The Parliamentary Under-Secretary of State for Trade and Industry (Dr. Kim Howells): I congratulate the hon. Member for Twickenham (Dr. Cable) on securing this debate. We have heard interesting observations. I shall try in the few minutes left to answer some of the major questions, but first I must underscore the points made by the hon. Members for Tiverton and Honiton (Mrs. Browning) and for Aldershot (Mr. Howarth) about the importance of the sector.
As someone who has lived through the death of a large industry—the coal industry—I know that such transformations are extremely difficult. A decade and a half later, we are still suffering the problems of transition. There is also a read-across, which no one has mentioned; for example, the ability to manufacture advanced aircraft has a read-across to civil aircraft.

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I do not know whether the hon. Members for Twickenham and for Richmond Park (Dr. Tonge) are opposed to the production of civil aircraft. I do not know whether the Greens have leaned on them to that extent, or whether they have modified their policy. I should like to hear about that.
There has always been a read-across between industries. That is clear when one considers the great aircraft manufacturers, including Boeing and, in this country, British Aerospace. The Government are not about to surrender that industry, and we do not need to.
I want to clear up a couple of important points made by the hon. Member for Richmond Park in her passionate plea. No hon. Member, whether Liberal, Labour or anything else, has a monopoly on feeling passionate about the world being reconstructed rather than destroyed. I have young children, and I do not want them, or anyone else's children, to go through another war. The very notion that the Government's policy is contributing to an escalation of conflict in the world flies in the face of events.
I do not know who has been spinning against the DTI over recent months, but it irks badly. I notify all Departments of all licence applications that I receive. If those Departments want to comment on them, they can do so. I take no decision on any contract unless the Foreign and Commonwealth Office and the Ministry of Defence have seen it. If the Department for International Development also wishes to comment on any licence application, it can do so.
It is untrue, for example, that DFID's advice on Eritrea licences was overruled. In the Government's response to the International Development Committee report, it is clearly stated that DFID's advice was not overruled on the cases identified by the Committee. I reinforce that point. The hon. Member for Richmond Park did not want to give way to me on that point, which was interesting. Perhaps she does not want the facts to get in the way of good rhetoric and a passionate story. If I were signing off deals that clearly breached human rights issues, and so on, I would find it very difficult to live in my house. My wife would know about it very quickly; the hon. Lady is not the only one to feel such passion.
Dr. Tonge: Will the hon. Gentleman confirm that the Foreign Office and the Department for International Development have never had reservations or objected to the granting of a licence that the DTI has then overruled?
Dr. Howells: If there are disagreements between Departments on any licence application, the matter goes to ministerial level and stays there until there is agreement. That is the way in which such matters ought to be sorted out: it is joined-up government and takes account of all the difficult issues concerning present, likely and marginal conflicts that are awkward to judge. The hon. Lady should have the good grace to understand that. She shakes her head, but clearly does not want to hear the truth. Very often, as politicians, we do not want to hear the truth, but I have just given it to this Chamber. DFID's advice is never ignored. I do not know who has been spreading the word that it has. I thought that it was perhaps from our own ranks, but it might be from the Liberal Democrats.
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We have heard a great deal about the burden that the ECGD places on the taxpayer and the ways in which it is having to carry much of the finance that is made available to cover exports. That is not our reading of the situation. As the hon. Member for Twickenham said, there is a break-even clause. In fact, we expect ECGD to do a good deal more than break even.
I turn to the basis of the hon. Gentleman's case: the study at York university. The study was based on information that was several years out of date; made some heroic assumptions; averaged ECGD claims and assumed that defence business was in proportion, country by country, to civil business—but it was not. Past major claims markets, such as Nigeria, Poland and Brazil, involved very little—none in the case of Poland—defence business. Furthermore, in being so out of date, the study failed, in using the figure of £239 million, to take account of either the £1.6 billion received by ECGD in recoveries over the past three years or its vastly improved performance over the best part of the past decade. That is a very important point.
Let me now address the question whether ECGD gives defence business priority over other businesses. The decision on whether ECGD provides cover to a country is based on a risk assessment. If that assessment is favourable, cover is available on a first come, first served basis to all eligible exports, whether civil or defence. There have been no instances of defence business crowding out civil business. That point must be made, and clearly.
Two years ago, the Chancellor of the Exchequer announced that ECGD cover should be available only to 41 heavily indebted poor countries—HIPCs, as I learned last night—for exports that support their economic and social recovery and development. On 11 January, he announced the extension of the productive expenditure criteria—a wonderful phrase—to a further 22 countries. The UK's unilateral stance on the policy has not to date been followed. The hon. Member for Richmond Park should take that into account as well. She paid some tribute to it, but far from enough.
Mr. Gerald Howarth: The Minister is extraordinarily brave to deal with this subject. What prospect has the UK ever had of selling arms to Vanuatu?
Dr. Howells: The hon. Gentleman is quite right; he can have a poke at that one. Let me give him another. One of the countries on the initial HIPC list that I saw last night is Vietnam. That country very badly needs some arms to protect its exports and imports from pirates, gun-runners and smugglers. Are we to deny Vietnam exports? Of course we cannot. The country is on the list; the system is complicated: it is not black and white, as the hon. Members for Richmond Park and for Twickenham implied it was.
I am afraid that such real situations occur all too often in this world. I am not about to refuse to sign off such an agreement if it means that heroin will pour into this country from places such as Vietnam because it has been denied the ability to defend its trade, towns, estuaries and rivers from smugglers and pirates.
In the three remaining minutes, I shall turn to the two circumstances in which ECGD cover is denied. Under UK policy, those circumstances are, first, where it is

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clear that exports of particular goods should not be made to a country, and, secondly, where a country is assessed as unlikely to be able to pay. Any extension of those categories risks imposing our own views on other sovereign nations—an important point that nobody has mentioned in today's debate. Export credits are not aid but commercial loans that we expect to be paid in full and on time. It is not right for us, as a rich and powerful nation which is able to defend itself, to tell others who have a right to self-defence and security and can afford to pay that they cannot spend their money on those things.
Why does the ECGD rely so heavily on export licensing? If the UK decides that certain goods should not be exported to a country, the policy is enacted through the export licensing scheme. The presence of a valid export licence is a condition of ECGD cover. If a licence has been granted, the Government have no objection to the export and there is no reason for ECGD cover to be withheld.
I shall finish on the following point because I know that the next debate is about to begin. The Secretary of State for Trade and Industry set up a review last year into the ECGD's mission status. It is expected to be concluded around Easter. I shall ensure that the views that have been expressed in this debate—a very useful debate—are put to that review. I do not wish to prejudge its outcome. I very much hope that hon. Members present will contribute to it because it is valuable and timely.
10.59 am
Sitting suspended.

European Union Development Fund
11 am
On resuming—
Mr. Tony Worthington: This debate is timely, for two reasons. First, we now know the new structure for development within the European Commission: the former Danish Development Minister, Poul Nielson, is, by and large, the Development Commissioner for the European Union. In theory, that is a great improvement on the previous structure, whereby all sorts of Commissioners appeared to have responsibility for development in various parts of the world. The new arrangement should not only ensure consistency in the implementation of development policy in different parts of the world, but make it easier to tackle the issue of coherence between development policies and other community policies such as those on trade, agriculture and foreign policy.
However, the role of the External Affairs Commissioner, Chris Patten, needs to be explained. It is reassuring that he is well known to the House and that he has a development background in this country; but the confusion of external affairs and development has held back development, both in this country—under the previous structure whereby the Overseas Development Administration was part of the Foreign Office—and in Europe. Let me give an example. In May 1999, the Council of Ministers, the European Parliament and the Commission—that is, every part of the EU structure—reached agreement on the European Community budget. However, the agreement on the external budget did not acknowledge the EU commitment to tackle poverty in developing countries, even though that is prioritised in the EU's development co-operation objectives set out in the Maastricht treaty.
The second reason why the debate is timely is the successful conclusion of negotiations on the Lomé convention. I believe that this is the first opportunity that the Minister will have had to address hon. Members since the successful conclusion of the renegotiated Lomé agreement; I congratulate him on his role in that respect. I hope that he will take this opportunity to point out the gains to be derived by developing countries from Lomé. It is a great relief that Lomé did not become caught up in the Seattle debacle, although, at some stage, Lomé will have to be superseded by an arrangement that is World Trade Organisation-compliant. It is interesting to note the different scales of the publicity given to the successful conclusion of the Lomé negotiation and that given to events in Seattle.
The importance of the debate arises from the fact that 30 per cent. of our own aid money—British aid—is distributed by Europe; that figure has increased from 12 per cent. in 1980. The proportion of aid for which the EU is responsible has been rising all over Europe as the amount of aid has fallen. Because, by international treaty, we are pledged to give a certain amount to Europe and because Europe has been so inefficient in spending effectively, the fall in the sums devoted to aid—not in this country, but elsewhere—has been even more catastrophic. Sixty per cent. of development assistance in the world is given by the European Union, either collectively or by nation states. There is not the slightest

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chance of the world community meeting its ambitious anti-poverty targets—on reducing poverty and establishing universal primary education and universal access to reproductive health services—by 2015, unless Europe gets its act together. Up to now, the record has been very unsatisfactory and has cheated the poorest people in the world.
European Union development funding has been criticised for a multitude of reasons. First, there is no sense of co-ordination: there are multiple outlets for development or external assistance. Will that now stop? Secondly, there is confusion between development purposes and external affairs: EU activity has not been focused on poverty, and that trend has increased in recent years. Thirdly, there are huge delays between commitment of expenditure and its disbursement. If people are told that they have the money, they are well advised not to hold their breath while they wait for it; if they do, they might pass on before they receive it. That is not satisfactory.
Fourthly, there has been a substantial underspend, so that the large falls in aid that have occurred in recent years—not in this country—are made even worse by the sums committed not being spent.
Fifthly, the Commission and its staff have lacked the capacity or skills to disburse large sums of money, but have refused to decentralise to local offices. According to ActionAid, the European Union has only two gender experts and one education expert. How on earth can they deal efficiently with hundreds of projects? All that adds up to gross inefficiency, a lack of strategic vision, and a rising demand to return aid to nation states if matters do not improve. If matters do improve, there is a case for a large role for the EU. If European aid were administered effectively, everyone could gain.
Let me explore each of the issues that I have listed. What is the thinking behind the new European Union structure and what commitments has the new Commissioner given to improvement in terms of the focus on poverty? Development assistance is not skewed to the poorest countries, and that trend has been worsening. The most recent figures indicate that, leaving aside the special circumstances of the former Yugoslavia, the countries that receive most European aid are countries such as Morocco, Egypt, Tunisia, Jordan. Those are Mediterranean middle-income countries, not the poorest countries in the world; aid to sub-Saharan Africa barely registers.
There appears to be a chronic underfunding of Asia—the region in which the highest numbers of the poorest people live: 73 per cent. of the world's poorest people live in Asia. However, the European Union does not have a spending package spread over several years for Asia, unlike its programme for the countries covered by the Meda programme—measures to accompany the reform of economic and social structures in the framework of the Euro-Mediterranean partnership—or for sub-Saharan Africa. Instead, the EU budget for Asia is a yearly budget, which becomes squeezed.
What can the Minister tell us about the Meda programme for the Mediterranean and middle east, which ought to be reduced if the EU development budget is to be poverty focused? That programme also ought to be reduced because it underspends and the resources could be used elsewhere: in 1997, only
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64 per cent. of allocated Meda funds were spent. I understand that Meda is being renegotiated and that a conclusion will be reached within the next few months. What stance are the British Government and other Governments taking on that failure to focus on the poorest countries in the world and on the inefficiency of the Meda programme?
What steps are being taken to make a much clearer division between development assistance and external assistance? That is a serious issue. The UK and the EU vote funds that are intended to contribute to the achievement of international targets on cutting poverty. That money should be spent on the poorest people in the poorest countries; unfortunately, much of it has been used for other political purposes. Some of those purposes have worthy goals on which money should be spent, but they should not be called development purposes. Let me quote a couple of examples. It is right that those countries that want to join the EU should be helped to adjust. Large funds have been made available through the Phare programme of Community aid for central and eastern European countries, and through the Tacis technical assistance programme for independent states of the former Soviet Union and Mongolia. Those countries trying to adjust their agriculture should be assisted through agriculture funds, which form the largest part by far of the EU budget. The money that we allocate to development should not be used for those purposes.
Similarly, in the case of the Meda budget, money is used to reduce immigration from the Mediterranean countries into the EU. That is understandable from the viewpoint of countries in southern Europe, but, again, it is not a development priority—it is a political goal.
What assurances can my hon. Friend the Minister give that, under the new structure, there will be a more scrupulous definition of development? I have no doubt that the importance of development and the quality of aid have been enhanced since the Department for International Development was established and escaped from the preoccupations of the Foreign Office. We should seek to achieve the same kind of independence in Europe.
Over the years, a surprisingly small amount of European Union aid has been allocated to social sectors such as health and education. Rising sums have been allocated within the EC, but we would be deluding ourselves if we thought that that has meant increased commitment to development for the poorest people in the poorest countries, both because of the underspending on those programmes—allocated resources budgeted by the member states but not used in that year by the Commission have led to a loss of resources for overseas development assistance amounting to 3 billion ecus per year—and because of the diversion of those funds to political funding, rather than development funding.
Although it is quality that matters, I welcome the assurance of the Commissioner that the next European development fund will allocate more to health care and that, as was stated in a letter to the Danish family planning association, there is likely to be an increased role for the European Union in the matters of reproductive health and population aspects of the third world. However, despite changes in policy rhetoric, more than 60 per cent. of Commission development

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funding is still spent on infrastructure projects—projects that may well be attractive to EU countries because of the money that they bring to European firms.
There are further important issues. I noted in the Lomé agreement negotiated by my hon. Friend the Minister that there were provisions to suspend development assistance where there was substantial corruption in the recipient country. That is a bold step forward and a welcome one. Can my hon. Friend give us more details?
Was there agreement within Lomé, and elsewhere in the EU, that there should be much more decentralisation of decision making to country offices, to end the appalling delays between the commitment of funds and their distribution? What progress is being made to end aid tying? I believe that there are substantial differences of opinion between member countries on this issue. Aid is given, with the specification that it must be spent on personnel or firms in the donor country.
At the ministerial summit meeting—presumably of the G8—in Okinawa, a move to untie aid is on the agenda. Will the EU agree that that should occur? Will we press for the untying of aid? Are we winning the struggle to ensure that aid is made more effective and that the needs of the recipients come first?
The EU development fund has tended to be project rather than strategy oriented. What steps are being taken to improve the quality of the work and the monitoring of that work? European development fund activities have tended not to be transparent, and not to involve the local community and civil society. What proposals are there for greater transparency and for capacity building and ownership to be at the centre of development?
I welcome the proposals that there should be short-term measures within Lomé to help countries whose revenues suddenly fall for reasons such as a collapse in commodity prices. That will be an improvement on the previous arrangements, such as Stabex—the stabilisation of export earnings. I particularly welcome the European Union commitments to providing duty free access to its markets to virtually all products from the least developed countries by 2005 at the latest. It is good that that will go ahead, despite the collapse of Seattle.
I should be grateful if the Minister would share his thoughts with us on how he sees Lomé gradually being integrated into the WTO world, as it must be, and if he would tell us more about European development funding and the changes that he helped to negotiate.
11.15 am
Mr. Christopher Chope: The hon. Member for Clydebank and Milngavie (Mr. Worthington) has delivered a serious indictment, but he is dreaming an impossible dream if he believes that the situation can be resolved. If the past is used as a guide to the future, the prognosis is grim. I am surprised that he has not called for the repatriation to our own country of decision making about the overseas aid budget.
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We are speaking of British taxpayers' money. When we in the House could decide on expenditure and hold Ministers to account, we had much greater control over that money and could ensure to a much greater extent that it was well targeted and well invested.
Mr. Worthington: Does the hon. Gentleman agree that there was less money every year?
Mr. Chope: As the hon. Gentleman acknowledged, what is important is not the amount of money, but its effectiveness. Throwing money at a problem is not the same as solving it. More money is going into aid through the European Union, but, as the hon. Gentleman said, it is not achieving the desired results.
I agree wholeheartedly with comments made by the Secretary of State, for International Development particularly in her speech on 28 July last year. She called for a number of changes. I shall not recite them all, but one of her most important points was that we need a more effective poverty focus in allocating resources. She pointed out that the share of European Community assistance going to the poorest countries had fallen from 75 per cent. in 1987 to 50 per cent. in 1997, and said that that was a scandal. I agree. She said that she found it impossible to reconcile EU policy statements on poverty.
Mrs. Cheryl Gillan: I thank my hon. Friend for giving way and hope I that am not interrupting his train of thought. What is his opinion of the intervention by the hon. Member for Clydebank and Milngavie (Mr. Worthington)? I have a table produced by the Department for International Development, showing the share of the DFID budget channelled through the European Community between 1980 and 1997. The hon. Gentleman is wrong. It was only in four years that the amount dropped. In the remaining years between 1980 and 1997, the amount of aid money going from Conservative Governments to the EC programme rose. Has my hon. Friend seen that table?
Mr. Chope: I have not, but I am grateful to my hon. Friend for drawing it to the attention of a wider audience. I, perhaps naively, took at face value the assertion made by the hon. Member for Clydebank. My hon. Friend has told me in no uncertain terms that I was at fault for doing that.
Mr. Worthington: So that we may draw the matter to the attention of an even wider audience, my point is that, when the Conservative party came into office, we were giving 0.51 per cent. of our gross domestic product to overseas development. When the Conservative party left office, that was down to 0.26 per cent. Because of the way in which the funds are disbursed, that would mean a larger amount going to Europe, but less going to the bilateral programme.
Mr. Chope: I recall that, when the Labour party was in opposition, it made all sorts of rash promises about increasing the proportion of gross domestic product that would be spent on aid. Those promises were never fulfilled to the people who were taken in by them.
Dr. Jenny Tonge: I cannot refrain from putting in my oar. Does the hon. Gentleman agree

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that neither the Conservative Government nor the Labour Government made significant progress towards the internationally agreed 0.7 per cent. of GDP for international aid? Many of our Scandinavian partners have achieved that target.
Mr. Chope: The hon. Lady speaks for the party whose commitments to spending taxpayers' money know no bounds. She enthusiastically represents a party that believes in much higher personal and corporate taxation. I disagree with her about that. The money that taxpayers already contribute to aid programmes should be spent more effectively.
In her speech last July, the Secretary of State said that the United Kingdom, with Ireland, the Netherlands and Sweden, had asked the Commission to introduce proposals to increase the proportion of EU assistance to low-income countries every year from 2000 to 2006, reaching 70 per cent. by 2006. I hope that the Minister will tell us whether he is satisfied that that objective will be achieved.
The Secretary of State made approximately 10 recommendations in her speech. Her final recommendation was for a formal, published annual report. She said:
"The Commission should prepare a detailed, comprehensive report each year providing analysis and information on the EC's role in international development and detailing progress against agreed targets. Virtually all development agencies, from the World Bank to bilaterals and NGOs already do this. The report should cover all the external assistance programmes, and how our trade, investment and wider policies are contributing to our development goals. I would like the new Commission to agree to publish the first such report next year."
The need for such a report is apparent, not least because of the European Court of Auditors' continuing evidence of money going astray and not being accounted for, and non-compliance with the Commission's procedures.
Hon. Members who had the chance to peep at the Official Journal for 3 December 1999, which details the Court of Auditors' annual report for the financial year 1998, would have read a strong condemnation of the way in which the European Commission has run the programme and continues to fail to fulfil successive promises, made year after year, to try to put its house in order. My patience is running out. That is why I began my remarks by saying that we are dreaming an impossible dream if we believe that the Commission will provide an aid budget that is as effective as the budget that we could provide if it were under our control.
I shall not refer in detail to the range of criticisms and recommendations in the European Court of Auditors' report, but I shall provide a flavour of it. Paragraph 60 states:
"The Court has repeatedly drawn attention to the need for adequate accounting standards, policies and procedures to be established and consistently applied. The Commission continues not to apply consistently its accounting principles, which are explicitly mentioned in the financial statements and the accounting plans for the sixth, seventh and eighth EDFs."
What a serious indictment of the arrangements. That abuse has continued for years.
Paragraph 64 states:
"The accounts are qualified due to both the absence of a table of revenue and the incompleteness of the table of debts despite the disclosure of this information being defined in detail by the Financial Regulations"—
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which are set out in a series of articles—
"and furthermore in respect of the errors arising from the issues dealt with in paragraphs 65 to 67."
Paragraph 85 states:
"For 1998, even though the situation had improved since 1997, there was a significant incidence of formal errors across most instruments of the EDF."
Paragraph 79 states:
"Contrary to Article 311(1) of the Lomé IV bis Convention, the Commission did not appoint the Chief Authorising Officer of the eighth EDF, who is responsible for managing the resources of the EDF, until July 1999. This leads to a situation where all actions taken in 1998 which were to be taken by the Chief Authorising Officer, as well as those to be taken by all persons acting under subdelegation of powers, are not covered by the formal authorisation."
If Ministers or civil servants came before the Public Accounts Committee and admitted such errors, they would be forced to resign. I have described an intolerable position. The Commission remains arrogant beyond all bounds and takes the European Court of Auditors' criticisms inappropriately lightly. I hope that the Minister will explain why he has confidence, which I do not share, that the Commission will put its house in order.
The Official Journal for 29 September contains a special Court of Auditors report, numbered 499. That report gives many specific examples of non-payment or misappropriation of money that was allocated to the development programme for needy countries. I commend all those who naively believe that there is a way forward with the European Commission to consider those examples.
The Parliamentary Under-Secretary of State for International Development (Mr. George Foulkes): I am intrigued by the hon. Gentleman's line. He says that he has no confidence in the new Commission. He will recall that the old Commission resigned and was replaced. Does his lack of confidence extend to Chris Patten, a former Conservative Development Minister, who was very effective?
Mr. Chope: I do not totally lack confidence in him. However, the burden of my comments is that the system is so riddled with corruption that even someone as able as my noble Friend Lord Patten will be unable to cope with it.
Mrs. Gillan: Neil Kinnock, who is vice-president of the Commission, recently said that there was a new sense of responsibility in Brussels. Does my hon. Friend believe that the reports to which he referred are embarrassing to the vice-president of the new Commission?
Mr. Chope: Certainly. In my enthusiasm for Chris Patten, my former right hon. Friend, I ennobled him. I am sure that he will be ennobled in due course. That will be warmly welcomed by hon. Friend the Member for Chesham and Amersham (Mrs. Gillan) and me, if not by Labour Members. I hope that my admiration for the new Commissioner is not in doubt, but I despair that even he, with all his talents, will not be able to change the system. Doing that is of paramount importance.

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I hope that the Minister will explain why he retains such confidence in the system, and why he does not believe that it would be far better if provision for aid was repatriated to this country so that the House could control it.
11.29 am
Dr. Jenny Tonge: I congratulate the hon. Member for Clydebank and Milngavie (Mr. Worthington) on securing this debate. The issue is serious and deserves much more airing than it has received. However, the debate is developing into the usual scene—the Euro-sceptics descend, like a pack of hyenas on a corpse, as soon as anything bad is said about Europe. It is a sad little pack of hyenas this morning, but they are doing quite a good job. The matter is also of great interest and concern to the Europhiles, among whom I count myself. As a Liberal Democrat, I am a great supporter of the concept of the European Union.
Mrs. Galan: I think that the hon. Lady would agree that it would be wrong to keep quiet when one reads such headlines as "Brussels wastes £18 million in Ivory Coast aid fraud". Also, she should withdraw her remarks about those who are anti everything about Europe and her description of my hon. Friend the Member for Christchurch (Mr. Chope) and me as hyenas. I hope that she understands that it is our right and duty to speak out against fraud and wastage, in particular when it involves money that is to go to the poorest people.
Dr. Tonge: I thank the hon. Lady for her intervention. I described the Euro-sceptics descending like a pack of hyenas upon the corpse. If she wants to include herself in that description, she can, but I did not necessarily intend her to be a part of it.
I said that the matter was also of great concern to Europhiles. I am concerned and worried about the issue. The hon. Lady knows, because she has heard the story before, although I am going to repeat it, that my introduction to the problem was as a member of European Standing Committee B when it discussed a Court of Auditors report on European Community development aid to South Africa. I think that the hon. Lady has a copy.
I remember telling the Committee that I had sat down the night before with a glass of wine to read the report, expecting to be asleep in five if not 10 minutes. I did not take it seriously. However, I became crosser and crosser as I progressed through the report, which was a ghastly tale of inefficiency and ineffectiveness.
Given my medical experience, I was particularly affected by the fact that, in 1994, a lot of money had been earmarked for an HIV-AIDS prevention project in South Africa, but, by 1996, none of that money had been touched—the project had not even got off the ground. Now, the HIV-AIDS infection rate in South Africa is 25 per cent. One wonders how many of the present cases were due to that two-year delay—I expect that it would be several thousand in that part of Africa. That was disgraceful. That is one small example and we have
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heard many others from the hon. Member for Christchurch (Mr. Chope), who has obviously done his homework well.
I have three questions. First, should we be spending one third of our aid budget on European aid, which goes to Europe to be spent with that from other European countries? The argument is always that it probably is a good idea because some projects are best done with small amounts of money by individual countries working alone, others are done much better by larger organisations such as the World Bank, the International Monetary Fund, the African Development bank or whatever, but European countries pooling together can be much more effective for some other projects than one country working alone. Therefore, we must agree than an argument can be made for effective European aid and working together.
My second question, with which the hon. Member for Clydebank and Milngavie dealt well, is whether development aid is going to the right countries. The most up-to-date chart that I could find gives EC development aid by income group for the countries that receive European aid. In 1986–87, 50 per cent. of European aid went to the poorest countries but, by 1997–98, only 35 per cent. went to such countries. In 1997, Morocco was the biggest recipient of European aid, which had far more to do with French politics than with alleviating poverty.
The White Paper on the aims of development, which has never been debated but which was published by the Government in 1997—[HON. MEMBERS: "It has been."] I do not think that we have debated it, but the aim was to relieve poverty—the number of people living in poverty was to be halved by 2015. The European Union made a commitment to tackle poverty in the poorest countries, but it is not included in the Commission's Agenda 2000 proposal; nor is it in the financial outlook for 2000 to 2006. It seems to have been dropped altogether. However, I understand that that commitment to the relief of poverty was in the Maastricht treaty. I want to know where it has gone. The Minister must answer that question.
The Commission's agenda makes no reference to people living in extreme poverty, 75 per cent. of whom live in Asia; nor is there any reference to sub-Saharan Africa, which includes two thirds of the least developed countries. The emphasis has been switched to Europe's near neighbours: central and eastern Europe, the old Soviet bloc and the southern Mediterranean. We must try to bring the agenda back to the alleviation of poverty and the poorest people.
My third question is, is EU aid efficient? I do not need to reiterate that matter. I have seen an example in which it was wholly inefficient and the hon. Member for Christchurch gave us many other examples, so it clearly is not.
We should consider those questions and suggest solutions. First, we must have some sort of assurance that European aid has to be refocused on the least developed countries. The non-governmental organisations are suggesting that 70 per cent. of the financial perspectives—in the external actions budget—should go to the least developed countries. Our Government should be pushing for that.

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Also, we must ensure that humanitarian emergency aid, which is always needed somewhere, is not reduced. We must keep up our contributions to such aid and it must be adequately protected in those financial perspectives to meet all the United Nations appeals for relief, which happen every year, year in and year out.
My third suggestion is that the three directorates in the European Union that all deal with development issues cause terrible confusion and delay. Problems are tossed between the directorates. They must be streamlined into one and I think I see the Minister assuring me that they have been.
Is monitoring and reporting back sufficiently frequent and accurate? Do we know where the money is going? The report by the Court of Auditors that was considered in the European Standing Committee that I mentioned—some of us were members of that Committee—was for 1986 to 1996, but we were discussing it three years later at the end of 1999. That is no good: that is not the efficient monitoring of projects. It is ridiculous. We need to monitor the situation on a yearly or even a six-monthly basis.
Furthermore, if aid is to be combined and the money is to come from all the countries in the European Union, one member country could be targeted as the lead country for a project. It could be financially responsible as well as responsible for setting up the project, taking it through and reporting back to the EU and member states on how it was progressing. I do not see any other way to manage projects efficiently. A key group of people has to work on them and be in overall control. At the moment, the system is chaotic. Having a lead country for every project would help considerably.
If the present muddle continues and, in three years, another European Standing Committee B is considering another Court of Auditors report and we are all sitting around stroking our beards and agonising about how inefficient things have been, I for one will begin to think that we should indeed suspend our contributions until the European Union can get its act together.
11.39 am
Mrs. Cheryl Gillan: I congratulate the hon. Member for Clydebank and Milngavie (Mr. Worthington) on obtaining a debate on this worthwhile subject, and my hon. Friend the Member for Christchurch (Mr. Chope) and the hon. Member for Richmond Park (Dr. Tonge) on their contributions.
I am delighted that our proceedings are being observed by the Chairman of the Select Committee on International Development, my hon. Friend the Member for Hertford and Stortford (Mr. Wells), who has joined us from Select Committee business, which shows how important the subject is, particularly to Conservative Members, although hon. Members on both sides of the House show a great deal of interest and concern for the subject.
The hon. Member for Clydebank and Milngavie did not roll over and take an ameliorating line with the Minister, and I was delighted to hear him pose many questions to which I hope the Minister will reply. I am sure that the Minister is delighted to have such a generous amount of time in which to deal with the serious issues that have been raised. That commonality
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is to be welcomed, but there are some hard questions to which he must respond. This is a probing debate, in the spirit of a probing amendment.
I have the most sympathy with my hon. Friend the Member for Christchurch, who made a valuable contribution. He described the hon. Member for Clydebank as dreaming the impossible dream. Like him, I too, am surprised that the hon. Gentleman stopped short of calling for the repatriation of funds. The hon. Member for Richmond Park certainly gave the impression that she was calling for the repatriation of funds, or moving towards calling for that as a result of the evidence that she had received.
Whether our contributions to the EC have diminished or decreased over the years, they remain high. The expenditure profile of total contributions to the EC range from £533 million in 1997–98 to £760 million in 1998–99 and £750 million in 1999–2000. Of that total, the European development fund received £137 million in 1997–98, £228 million in 1998–99 and just under £250,000 in the current financial year. As the hon. Member for Clydebank said, those are sizeable sums. They have risen from 12 per cent. to more than 30 per cent. as a proportion of the total aid spend. Such sums must be effective and properly scrutinised.
I understand that the United Kingdom has a backlog of payments for Stabex under the EDF totalling about £65 million, which I believe it has been agreed with the Commission will be paid over future years. I should be grateful if the Minister would give us an update of the position and fill us in on that particular annotation.
The Department produced a document entitled "Working in Partnership with the European Community, in December 1998, which I read with care, and with some of which, like others, I can agree. It states:
"DFID wishes to strengthen its collaboration with the EC in order to improve the quality and effectiveness of efforts to promote international development."
No one can quarrel with that. However, I hope that the Minister will tell us how DFID has strengthened its collaboration with the EC and what progress has been made on that valuable aim, where that has taken us and how it has manifested itself.
The document also states that
"patchy implementation of project cycle management techniques impairs the quality of the Commission's programmes. These difficulties are reinforced by inappropriate staffing, and systems which centralise most authority in Brussels. It is important to note that weaknesses in the EC's programmes arise partly from constraints imposed by member states."
Will the Minister update us on what action has been taken to remedy the inappropriate staffing, who has been moved on, retired or fired, who has been taken on and with what expertise, what detailed constraints have been imposed by member states and what efforts have the Government made to persuade other member states to change those constraints? What success have the Government had on that agenda? There is no doubt that the difficulties and the lack of accountability are causing great concern, as has been reflected in all of today's contributions.
My hon. Friend the Member for Christchurch referred to the recent Court of Auditors' annual report, published on 3 December 1999, and I make no apologies

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for doing the same. I see the Minister nod. I hope that he does so because he is intimately familiar with the document. I assume great knowledge on his part and I am sure that I am not mistaken.
I am extremely concerned by that report, including the Commission's responses, which overall give the impression of much complacency. What action has the Minister taken following receipt of that report? What are his views on the Commission's responses and what does he see as the way forward to deal with an increasingly difficult problem?
Chapter 2, paragraph 7, on technical co-operation, states:
"In 1996, the Court carried out an audit of technical cooperation activities … the results of which were communicated to the Commission by early 1997."
More alarmingly, the report said:
"In the follow-up inquiry, carried out on a number of aspects of technical cooperation, it was found that in most cases the problems identified earlier were still persisting."
Obviously, no effective action has been taken in that case.
Mr. Foulkes: Will the hon. Lady tell me again what year that was?
Mrs. Gillan: The report was published on 3 December 1999 and I was referring to chapter 2, paragraph 7, on technical co-operation. The audit was carried out in 1996 and was communicated in 1997, but no action was taken. I hope that the Minister will be able to allay my fears on that.
Similarly, paragraph 23 on regional co-operation under the sixth EDF, states:
"Nothing had been done in response to the Court's observation that a report needs to be submitted to the discharge authority every year on the overall implementation of regional cooperation and on the state of progress of and adjustments to the RIPs."
I hope that the Minister will also address his mind to that comment and consider whether any action that he has taken could result in an improvement in performance in that area.
Paragraphs 30 and 31 relate to putting works contracts out to tender. Paragraph 31 is a short simple sentence, but it reflects the worsening performance of the organisation. It states:
"The Court has not obtained any information which indicates improvement in this area."
Despite criticisms and constructive suggestions, there have been no improvements. That, Mr. Deputy Speaker, seems to be a pattern that is being constantly repeated.
The Chairman (Dr. Michael Clark): Order. It is pleasant to be called Mr. Deputy Speaker, but I am not an appointed Deputy Speaker, although Mr. Winterton, who follows me, is. Therefore, while I am in the Chair, it would be better to address me by my name.
Mrs. Gillan: I apologise, Dr. Clark. I thought that you had been elevated to great station. I shall continue to refer to you by name.
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My hon. Friend the Member for Christchurch pointed out the qualifications of the audit, but it is worth looking at the summary of the Court of Auditors report. No table of revenue was included and the table of debts was incomplete, despite being an explicit requirement of the financial regulations. He referred to two other matters: in respect of the eighth EDF, the chief authorising officer as well as all persons with sub-delegated powers had acted without being covered by formal authorisation and the audit showed a significant number of formal errors. In addition, the audit showed a high incidence of failures to comply with regulations affecting the assigned funds of the eighth EDF and often indicated both a failure properly to apply control procedures and—where no direct effect on the amount involved in the transaction was identified—formal errors. The court's audit again revealed a significant incidence of formal errors affecting the primary commitments and continuous substantive errors, as evidenced in the summary.
What sort of confidence can we have in an organisation that is responsible for taking taxpayers' money and distributing it on their behalf to the poorest around the globe when an audit report carries such severe indictments? I said in an intervention that we have a duty to challenge what happens when we see headlines such as "Brussels wastes £18 million in Ivory Coast aid fraud". A newspaper reports that, according to a document seen by it,
"up to 37 times the market price for health equipment such as stethoscopes and baby scales"
was paid. The document is highly critical of the European Community team that was in-country, but none of its members will face disciplinary action.
I hope that the Minister will tell us whether he has called for a full investigation and disciplinary action and his reaction to what has been described as a scandal that
"represents the worst single abuse of aid funds in European Union history."
These events are embarrassing for the new Commission vice-president, Neil Kinnock, who only a couple of weeks ago promised a "new sense of responsibility" in Brussels spending. What is the Minister's assessment of whether this matter could lead to further resignations of Commissioners? After all, 20 resigned last March after disclosures of fraud and mismanagement. The report goes on to say that local companies in the Ivory Coast had for almost a decade
"routinely over-billed and produced false bills"
without Brussels noticing. Most of the missing money was intended to boost the African state's health sector. Perhaps he will join me in condemning that corruption and give me the reassurance I need that he is hot on the trail of rooting out such examples of fraud and corruption.
I have obtained a list, which runs to 12 pages, of projects that are in line for future funding from the EDF. I am sure that the Minister is familiar with them and hope that he will tell hon. Members—perhaps not during the debate, but by placing evaluations in the Library—his view of the individual projects that have been suggested. Following reports such as the audit to which I have referred, there will be a great deal of concern about the way in which money is spent. We need to know our own Government's attitude towards the

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proposal to spend 18 million euros on environmental and human resources development programmes in Fiji. Those programmes may be worth while, but I want our Government to make a detailed evaluation of all projects that are suggested, whether for Jamaica, Kenya, Mauritius, Mauritania, Mali or Mozambique. I hope that he feels able to respond on each project, stating our Government's view on whether it is worth while.
In a speech on 28 July 1999, the Secretary of State said:
"The question is always, will the money be better spent directly by member states or through the EDF. The EDF money is not additional. If the instruments of the EDF are ineffective it is obviously better spent directly by member states."
I hope that the Minister will tell us to where the Secretary of State's thinking has moved since she made that speech. Is she now of the view that the instruments of the EDF are ineffective and does she believe that the money would be better spent directly by the member states? She went on:
"I want to hear the EC praised for its speed and efficiency, not criticised for delay and bureaucracy. I want to be confident that the quality of all the EC's programmes will be lifted up to the standard of its best ones."
Sadly, those are impossible dreams and that has clearly not happened with the EDF.
I shall be generous with the time that I leave for the Minister. We need to know what steps have been taken to establish real accountability and his assurance that the fine words, which have been echoed by him and the Secretary of State, are being followed through with action. We need greater transparency and we must ensure that the money that the British taxpayer gives to Brussels to spend on the poorest in society is spent effectively, not wasted in fraud and corruption.
11.57 am
The Parliamentary Under-Secretary of State for International Development (Mr. George Foulkes): This is my first opportunity to reply on behalf of the Government to a debate in the new environment of Westminster Hall, which takes some getting used to as we have seen this morning. This is also my first debate under your distinguished chairmanship, Dr. Clark, and it is a great privilege to participate. I have known you for many years and co-operated closely with you on all-party matters.
Other hon. Members have referred to my hon. Friend the Member for Clydebank and Milngavie (Mr. Worthington) as the hon. Member for Clydebank, but I am able to pronounce his constituency perfectly and can give him his full title. Like others, I congratulate him not only on obtaining the debate, but on seeking it in the first place and on the commitment and concern he has shown over many years. I am glad that he is a member of the International Development Committee. Its Chairman—the hon. Member for Hertford and Stortford (Mr. Wells)—is also present and I am sure he agrees that my hon. Friend makes a significant and positive contribution. For the benefit of readers of our proceedings, I should say that he is nodding.
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In Lisbon last week, I had the pleasure of attending the informal meeting of Development Ministers—the informal Development Council—which focused principally on the role of the European Union in security, democracy and development in Africa. All the discussions and all the other Development Ministers present reminded me once again of not only the importance but the current weaknesses, of EU development assistance, which have been eloquently described by others. I notice that hon. Members quoted extensively from the Secretary of State's speech, so I am sure that they will acknowledge that the Government have been on the job on this matter. The hon. Member for Chesham and Amersham (Mrs. Gillan) referred to that. Above all, we focused on the steps that need to be taken to maximise the potential of all the European Union programmes to eliminate poverty. That potential is there, but it needs to be realised, as the Government recognise and have for the two and a half years of their lifetime.
Mrs. Gillan: I assure the Minister that I am not going to become part of a mutual admiration society. I quoted from the Secretary of State's speech because I wanted to know what progress had been made. Hon. Members need to know that this is not all hot air.
Mr. Foulkes: Hon. Members will know what progress has been made when I can make progress with my speech.
I remind the hon. Lady that our White Paper was the first development White Paper for more than 20 years. In all the years of their existence, the last Government never produced one. In our White Paper, we said that the single biggest challenge the world faced in the new millennium was that one in four of our fellow human beings was living in extreme poverty. That is an awful indictment.
In a series of United Nations conferences in the last decade, all the Governments of the world have committed themselves to a series of targets for poverty eradication. We cannot alleviate awful, grinding poverty; no sticking plaster will help. Such poverty must be reduced, and ultimately eradicated. The main goal is to halve the proportion of the world's population living in such abject poverty by 2015. Associated targets include universal primary education, access to basic health care and reproductive health care for all, and sustainable development plans, including commitments to reverse the loss of environmental resources in every country.
Those targets were agreed in all those international conferences. It is this British Government who have taken them off the shelf, dusted them down and placed them at the forefront of our policy. The contents of our White Paper have been taken up by other countries throughout the world.
I remind the hon. Member for Richmond Park (Dr. Tonge) that a statement made in the House of Commons on 5 November 1997—I hope that she was present—provided an opportunity for all sorts of questions to be raised about the White Paper. There have been opportunities to discuss it throughout the

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country in various forums, and it has been discussed in the Select Committee. We have not shrunk from discussing the White Paper and all its aspects, including international development targets, either in Parliament or outside.
Dr. Tonge: Does the Minister recall that, at the time of the statement to which he referred, the Secretary of State assured me that the aims of the White Paper were fully supported and applauded by every Department?
Mr. Foulkes: Absolutely. I shall follow that up shortly.
The international development targets are practical and achievable, but to achieve them we need to generate the political will, mobilise the resources and adopt the right policies, not just in this and every other bilateral donor country but internationally. My right hon. Friend the Secretary of State made an announcement last week—she was going to do so in oral questions, Mr. Deputy Speaker, but you and your colleagues managed to ensure that that was not possible—[HON. MEMBERS: "Not true"] She therefore made the announcement in the form of a written answer. She said that the Government planned to produce a second development White Paper—as I said, none were produced in the lifetime of the last Government—that would place the challenge of globalisation at the heart of our development policy. There would be no change in direction, but our work would feature a greater depth and more detail. I hope and expect that there will be a great deal of consultation before and after the publication of the White Paper.
My hon. Friend the Member for Clydebank and Milngavie emphasised the importance of European Community development assistance to meeting the challenges that I have described. The statistics speak for themselves, and are worth repeating. The EC is the world's second largest multilateral donor, spending approximately 5 billion euro each year. Together with the bilateral programmes of its member states, the European Union provides two thirds of global development assistance. That is a formidable amount. Through our Department, the United Kingdom contributes about 15 per cent. of EC aid resources, which, as my hon. Friend said, take up about 30 per cent. of our budget.
Incidentally, the percentage was agreed at a European summit in Edinburgh, where I received my university education, in 1992. It was not my party that was in power at the time.
Let me tell the hon. Member for Christchurch (Mr. Chope) that—as my hon. Friend pointed out—in 1979 United Kingdom development assistance amounted to 0.52 per cent. of gross national product. Under the last Government, it fell to 0.26 per cent. What the hon. Gentleman does not realise is that it is now on its way back up, surely and steadily. It is now at 0.28 per cent., and we intend to go even further. The hon. Gentleman
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is out of date in that regard, and I regret to say that some of his other comments were based on out-of-date facts and perceptions.
Mr. Chope: Will the Minister tell us the Government's present target for aid as a percentage of gross domestic product? Does it differ from the pledges given before the last general election?
Mr. Foulkes: We have adopted the United Nations target of 0.7 per cent. of GNP, and we aim to move towards that figure steadily. Indeed, we have already done so: each year we have shown that we are moving up. We shall move up next year and the year after that, and throughout the 15 or 20 years of Labour government.
Mrs. Gillan: Obviously the Minister is backing his commitment to move towards the 0.7 per cent. target, but he must surely agree that the words he utters are meaningless unless he gives us a timetable. Will he put us all out of our misery, and tell us in which year the Labour Administration will achieve the target? We need to know the year now.
Mr. Foulkes: What a familiar question. I could have predicted it. I did not have it written down, but I had it in my head.
Of course we will achieve the target as quickly as possible, and the fact is that we are already moving up. I can tell the hon. Lady that, if we had continued at the level established by the last Government, by 2020 we would not be spending anything on development assistance.
If we are to meet the international development targets, we must deploy the full potential of the international system, and that includes the European Community. As everyone has said, however, the effectiveness of EC development assistance is far below its potential. Independent evaluations have highlighted a range of problems. Too much effort has been focused on spending and input, and not enough on achieving an impact and monitoring it. The Community lacks an overall and coherent development policy, which means that decisions have no clear development focus. As a result, a decreasing share of EC development assistance has been going to the poor countries—54 per cent. in 1997, compared with 75 per cent. 10 years earlier.
The hon. Member for Richmond Park asked for a target. We accept that a minimum of 70 per cent. should be our target for assistance to the less developed countries: that is what we are achieving in Britain, and we want to increase it. Most other member countries are doing the same, and we think it sensible for the EC to adopt that policy.
The major recipients of EC aid, which a decade ago were the poor countries in Africa and Asia, are now—as the hon. Member for Richmond Park pointed out—the better-off countries of the southern Mediterranean, and poverty has not diminished in those poorer countries. These trends seriously impair the EC's contribution to the international poverty eradication strategy.
There have been references to the report of the European Court of Auditors. We welcome the report. The Court of Auditors is a good and careful watchdog

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and monitor of what is happening with the expenditure of the Commission and what is happening in the Community. It makes valuable recommendations for improvements. We need these criticisms to highlight weaknesses and to enable us to know what we have to tackle. It is wrong, however, to say that it is only in the Commission that there is fraud or misappropriation that needs checking.
For example, the Public Accounts Committee discovers certain things that are happening in the United Kingdom from time to time. France, Germany and other member states have not been without their own problems. The Europhobes, who are so paranoid about Europe, think that things go wrong only within the European bureaucracy, but they go wrong within member states.
It has been said that given what has been revealed in the Court of Auditors report, the members of the Commission should resign. That is precisely what they did, in an entirely unprecedented act. The entire Commission resigned following scandals and revelations. It was the right decision. A new Commission was appointed, which gives the EU a chance to make radical improvements to its development programmes, which we believe it is starting to do.
There have been two main changes. First, instead of five Commissioners responsible for different aspects of development, there are now only two. That is a great improvement. The two are Poul Nielson, the former Danish development Minister, who is now the Commissioner for Development and Humanitarian Aid, and Chris Patten, a former Conservative development Minister, who is the new Commissioner for External Relations. We welcome the simplification and we welcome also the two appointments for the personal qualities that each individual brings to the job.
Mrs. Gillan: Will the Minister give the House his view on whether anybody should take responsibility for the £18 million that has gone missing in the Ivory Coast? I hope that you will think, Mr. Deputy Speaker, that this is a good time to raise the issue. I would like the hon. Gentleman's comments on Georgio Cocchi, who runs the Ivory Coast desk in Brussels, who has said that £18 million
"is a negligible amount, you must remember that it forms part of a budget of around £70 million annually."
Does the hon. Gentleman agree that it is a serious amount, and that people must be held accountable and removed from their positions if they cannot account for £18 million?
Mr. Foulkes: I intended to mention the matter later but I shall do so now. I raised the matter at the Development Council meeting at Lisbon. Poul Nielson told me that the money has been returned and that the matter has been and is being dealt with.
Poul Nielson is responsible for development issues worldwide and Chris Patten is responsible for political relations world wide. As we know from our own experience, successful development policy depends on having a clear and strong development focus, and then
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working closely with our colleagues who are responsible for political relations, trade policy and international finance, for example. It is what we describe as coherence.
Both Poul Nielson and Chris Patten have stated publicly their commitment to poverty eradication. I know that they work closely together, and that is essential. Although Poul Nielson has global development responsibilities, direct control of non-Lomé aid and the programmes for central and eastern Europe, Latin America and Asia are with Chris Patten. However, both Commissioners are determined to tackle the procedures for implementing the Community's programmes, which remain slow and inefficient. They are reviewing all of the arrangements that are currently in place with a view to improving them.
Mr. Chope: The Minister asserts that as a result of the resignation of the previous Commission, everything is now hunky dory. How is that consistent with the Commission's complacent reply to the special report No. 4/99 of the Court of Auditors, which was published on 29 September 1999, which states:
"The Commission considers that its financial management information system provides all the necessary information"?
It goes on to make a complacent statement.
Mr. Foulkes: I did not say that everything is now hunky dory. I said quite the reverse. I said that things are improving but much more needs to be done. I will continue saying that.
That brings me to the second main change following the appointment of the new Commission—the commitment to reform. Chris Patten and Poul Nielson can make some progress within the systems for which they are directly responsible, but some changes must be made throughout the Commission. That is why Neil Kinnock's proposals for reforming the financial and staff management of the Commission are so important and need to be implemented. We need fundamental changes in financial procedures—such as delegation of authority to local officers and more rational audit arrangements—that will improve financial responsibility and cut unnecessary delays. It is not enough to design good aid programmes if they are delivered too late to address the problems that they are meant to tackle. The hon. Member for Christchurch cannot say that I am claiming that everything is hunky-dory.
We also need fundamental improvements in staff management in the Commission so that it can develop the skills that are needed to design and deliver modern aid programmes. The Commission needs to be able to meet the standards which other developing agencies, including my Department, have set. I tell the hon. Member for Richmond Park that we have seconded 20 officials to the Commission to help to improve its efficiency and effectiveness.
The new Commission is a crucial opportunity for improvement. The key Commissioners have strong development backgrounds and the Commission as a whole is committed to reform. We support it and urge it to carry this reform through as quickly as possible. However, we are not complacent. Change is always

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difficult and our job is to scrutinise the Commission's actions as much as its words, and to maintain the pressure for the improvements that we all know are needed.
It is important to recognise, however, that the Commission, member states and the European Parliament share responsibility for past failures due to the pressure to reach spending targets irrespective of impact, the pressure to spend in the spheres of interest of individual member states and procedural constraints that make it impossible to respond quickly and efficiently. We, too, share the responsibility for making improvements. As the House and the Select Committee on International Development know, the Government have been working with the Commission and other member states to improve the quality and effectiveness of EC development assistance. My Department published a strategy paper—it has not been much quoted and I hope that Members have read it—on this issue in December 1998. My right hon. Friend the Secretary of State set out a number of proposals in a speech in Brussels last July. I know that Members have read her speech because they have quoted from it. We have made some progress in achieving our objectives, but there is still a long way to go.
I agree that we must all work strenuously to secure a clear development policy for the EU which is focused on poverty eradication, and not on using precious aid budgets for political gestures, as has been done in the past. We must all work to equip the Commission with the skills and the systems that it needs to manage the EC aid budget properly, and to deliver real change on the ground in poor countries. We must all work also to coordinate more effectively our development programmes—that applies not only to the EC but to World bank and bilateral programmes—in a way that puts the needs of developing countries first, rather than the short-term interests of companies and contractors in our own countries. We will take on board the suggestion of the hon. Member for Richmond Park about one-country lead. That has already been considered by the European Community and it is something that we would like to consider. I am grateful to her for raising the matter.
We must seize every opportunity to maximise the contribution of EC development assistance to the goal of poverty eradication. One such opportunity is to redress the imbalance in non-Lomé EC aid. European Union Foreign Ministers agreed last July that the Commission should table proposals for the overall allocation of the EC non-Lomé aid budget across the various regional spending programmes for the next seven years. That is a great improvement. It would allow Ministers to discuss EC development priorities as a whole. Without these proposals, regional allocations will be agreed individually and there will be no improvement in the EC's poverty focus. First come, first served is a bad method for setting a global policy. We are asking the Commission to come up quickly with proposals for an overall examination of the EC's development spending.
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Hon. Members have mentioned the disproportionate amount of EC aid that goes to richer countries. EC Mediterranean programmes, known as MEDA, warrant particular attention, as my hon. Friend the Member for Clydebank and Milngavie said, as they receive one of the largest allocations of aid commitments. However, as Commissioner Patten has acknowledged, the Commission has been unable to spend, and the recipient countries unable to absorb, more than an embarrassingly small fraction of those commitments, thus locking funds that could have been spent on more poverty-focused programmes in Asia and sub-Saharan Africa. That matter is being looked at.
My hon. Friend rightly asked what the British Government and other member states are doing to reduce MEDA funding. As our objective is to increase the proportion of EC aid to the poorest countries, we believe that MEDA funds should be reduced. We have argued and are arguing strongly for improvements to the development quality of MEDA programmes. Several other member states share our concerns and support us, particularly Sweden, the Netherlands and Germany.
My hon. Friend rightly objects to the move by the Commission to use MEDA funds to combat migration. That is not a proper use of development money. I assure him and other hon. Members that we are opposing that strongly within the EU Councils. Again, we have support from other member states. We are arguing for any such expenditure to be excluded from all development budgets.
As I have said, instead, we need a comprehensive development policy for the Commission that commits us to working with the international community to meet the development targets. The policy should therefore focus on poverty eradication and should call for a coherent approach across all EC policies, including international trade, agriculture, fisheries and others, so that they do not undermine the EU's development policy. Commissioner Nielson is due to table a draft development policy next month for discussion with EU member states and with civil society. That is a big step forward. I hope that Members realise that and that strong voices, here and elsewhere, will scrutinise the Commission proposal in detail.
We need the underpinning structure and procedures in the Commission, so that it can implement our policy effectively and efficiently. Whatever the successes of EC aid in the past, they have been overshadowed by the appalling delays in implementation. The effect has been to minimise the impact of European aid and has led some developing countries even to reject EC money.
My hon. Friend raised the issue of aid untying for the least developed countries. Discussions on that are continuing in the OECD development assistance committee. A large majority of DAC members are agreed on measures to be taken. However, one or two members still have reservations. I assure him and other hon. Members that we will continue to work for agreement at the DAC high-level meeting in May. It will then be possible to report to the G8 Okinawa summit, as

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he requested, that a successful outcome has been reached, in line with the wishes expressed at the two previous G8 summits.
Mr. Worthington: The key issue is the definition of development. My hon. Friend may not be able to give the answer today, but if there is to be purity and quality in European development, external affairs and development will have to be separated. It is legitimate, for example, to support the middle east peace process, but that should not be categorised as development. Will there be a redefinition of what in the European budget counts as development money?
Mr. Foulkes: That is exactly the sort of comment that can be made in the consultation on Poul Nielson's paper. We will examine that matter.
I come to one of the more positive stories of EC development assistance—there are positive stories—the successor to the Lomé convention. I thank my hon. Friend for his kind remarks about my small part in it. Negotiations are not quite complete. They started in 1998 and were almost concluded last December, but, as I speak, Ministers from African, Caribbean and Pacific countries as well as the EU are meeting in Brussels to tie up the loose ends of the new convention. I hope that it will be agreed today and tomorrow.
As hon. Members know, Lomé is a unique collaboration, covering trade, development and political co-operation between the EU and the 71 ACP countries. The current negotiations mark the most important revision of the convention since its inception nearly three decades ago. The Select Committee on International Development looked at both Lomé and the general EC budget spending on development in 1998 and made a number of helpful recommendations. The Government have been pursuing those and other points in the negotiations.
I am pleased to report significant improvements in the new convention, which will benefit developing countries. They are a direct focus on poverty elimination as the convention's overriding objective; reform of the financial management of the EDF; abolition of the complex and slow procedures—I expect a cheer—notably Stabex and Sysmin, which will be replaced by a new system to provide support to countries whose development efforts are compromised by a downturn in export revenue; and more up-to-date management of development assistance.
In exchange for those improvements, there will be an ample replenishment of the EDF. The importance of good governance is highlighted by making it a "fundamental element" underpinning the new convention. Civil society's role in the convention has been enhanced. For the first time, it will be possible to take action in cases of severe corruption. That could include suspending countries from the convention and will work in the same way as for breaches of the convention's "essential elements"—human rights, democracy and the rule of law. So far, under that rule,
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development assistance has been partially suspended for four countries that have suffered coups d'etat.
I hope that hon. Members will agree that those are significant steps forward, which have been agreed by the British Government, who have pursued recommendations from the International Development Committee, argued the case effectively in Brussels, secured the agreement of other countries, and worked effectively within Europe as a powerful voice.
The new convention, necessarily, does not detail how development co-operation will be implemented. That is the function of a separate agreement between EU member states, which we shall discuss over coming months. We will push for increased decentralisation of authority from Brussels to improve the speed and quality of delivery.
I know that the Commission, which is well aware of current problems, wants to do that, too. We will continue to encourage the Community increasingly to provide its assistance in the context of government-led, joint-donor programmes, rather than stand-alone projects.
One of the most important aspects of the new convention and the one that has involved the most difficult negotiations is a new trade deal that maximises African, Caribbean and Pacific countries' access to the EU market, while promoting their gradual integration into the global economy. The preferential trading arrangements will be maintained until 2008, after which new World Trade Organisation-compatible arrangements will come into effect. Those will be free trade agreements between groups of ACP countries and the EU, but they will initially allow mainly non-reciprocal access to the EU market. To allow ACP countries time to adjust, fully reciprocal free trade would not be expected until probably 20 years from now.
One of the British Government's concerns in the negotiation has been countries that are not able to join those free trade areas in 2008. Two important commitments have been secured. Lesser developed countries—the poorest countries—will benefit from the EU's commitment to allow duty-free access for, effectively, all their products by 2005. For other, more developed countries, the EU has undertaken to examine all possibilities to provide a new, WTO-compatible trading framework with benefits equivalent to those under the current convention.
ACP and EU Ministers have agreed that the EDF will be used to make a substantial contribution to the heavily indebted poor countries initiative. A total of 1 billion euro from previously unspent EDF funds is being made available for debt relief for the poorest and most indebted countries in Africa. It is an ill wind that blows no one any good.
The Chancellor of the Exchequer and the Secretary of State for International Development have been leading the world in debt cancellation. The money released must be used for poverty eradication, education, health, water and sanitation.

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This has been a good debate. I hope that hon. Members will agree that the Government are moving in the right direction—the direction that all hon. Members who spoke in the debate have encouraged us to take.

Peach Report
12.30 pm
Mr. Andrew Dismore: I should preface my remarks by declaring an interest, as a solicitor—but I am sure that my hon. Friend the Parliamentary Secretary, Lord Chancellor's Department will be pleased to know that I have no immediate plans to apply for judicial appointment. I suspect that my right hon. Friend the Lord Chancellor would be unlikely to appoint me even if I were to apply.
I certainly do not intend to repeat arguments that I have made before—on what has become quite a well-worn issue—in debates on the Access to Justice Act 1999 and, in the past year, on the number of judges, but it is important that we should put Sir Len Peach's report in context. The context includes the need to maintain judicial standards and to maintain impartiality and independence, particularly with the advent of the Human Rights Act 1998 cases that are likely to be appearing before the courts: cases on devolution; the increasing use of judicial review; straightforward political cases, such as that of Pinochet; and wider issues of judicial interests dealt with recently by the Court of Appeal.
We have to try to obtain a more representative Bench, reflecting society. It is a disgrace that, currently, only seven of 98 High Court judges are women, and that none of them are from an ethnic minority background. Since May 1997, of the 85 judges appointed, fewer than 10 per cent. were women, and only one judge was from an ethnic minority background. There is also a real disparity in appointments between solicitors and barristers.
Against that background, we shall have to do much to restore public confidence. Public confidence is currently at an all-time low, as evidenced by last year's research by the Nuffield Foundation showing that the general public view judges as being overwhelmingly out of touch.
I certainly welcome the establishment of the inquiry by Sir Len Peach into judicial and Queen's Counsel appointments. The Lord Chancellor must be congratulated on making the report possible—although the inquiry will have to be given two, rather than three, cheers. It is a pity that Sir Len's terms of reference did not include an opportunity to examine some of the more structural and fundamental problems in appointments. Nevertheless, I very much welcome Sir Len's work and the opportunity that I had to meet him and contribute my views to the debate.
The scope of Sir Len's report is important. For the first time, there was a clear recognition of the distinction between the skills needed for advocacy and those needed to be a judge. I was very pleased to read the comments of my right hon. Friend the Lord Chancellor, in his press notice, welcoming Sir Len's report:
"the best advocates do not necessarily make the best judges. Today's judges need to be able to meet the demands of managing cases and to have the personal skills needed to run a court, as well as being first-class lawyers."
My right hon. Friend went on to say:
"The skills and experience needed to be a judge may perfectly well be shown by a successful litigation solicitor as by a leading advocate".

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I should add parenthetically that, in the new world of the Woolf reforms and the new civil justice rules, I suspect that, certainly when it comes to case management, solicitors may have more of the required skills than barristers do.
As for Sir Len's detailed recommendations, he starts off by tackling the most contentious issue: secret soundings. I know that my hon. Friend the Minister denies that secret soundings exist—he said so in answer to a parliamentary question; he prefers a rather longer definition of the process—but, perhaps simply as shorthand, I may use the term. I think that we agree on what we are talking about, even if we do not necessarily agree on the terminology.
Sir Len has not tackled secret soundings head on, but operated within the context of his terms of reference. Nevertheless, he has presented some ideas to mitigate some of the worst effects of the process—or as he describes it, to level the playing field—by suggesting that applicants could nominate their own referees, whose opinions would be weighted accordingly in the overall scheme of things. It is also important that secret soundings documentation will now concentrate much more on the skills requirement of the post, rather than on hearsay gossip, as previously feared.
I was very pleased to see Sir Len taking on some very experimental and far-thinking ideas—particularly his suggestion to establish an assessment centre, where putative judges could be interviewed, and where there could be group exercises and discussions, such as in-tray equivalents, tests, presentations and the need to train assessors for those purposes.
I particularly welcome Sir Len's proposal on psychometric competency testing, to ensure that those whom we appoint to judicial office are temperamentally suited to the position. As one who has occasionally appeared in cases in which I may have questioned the judge's personality, I very much welcome the proposal. Moreover, as one who made the suggestion to Sir Len, I am pleased that he has taken it on board.
I ask the Minister whether the Government will take on board the suggestion to establish assessment centres and testing. If they accept the suggestion, when will centres be established?
I have long advocated the establishment of a judicial appointments commission, as has the Labour party, over the years, in various policy documents. I am therefore pleased that Sir Len is proposing establishing a commission for judicial appointments. However, it is not exactly what I had in mind, and I concur with the Law Society's views on the matter. The commission should have the role of making or recommending appointments to full-time and part-time judicial posts. Commissioners are to be involved in replacing the lay element and in auditing processes. They are also to serve on selection panels, and to be involved in the important function of handling grievances and complaints.
Nevertheless, the fundamental problem with the current system which Sir Len identified remains: the lack of confidence felt by many people in the overall system, notably the consultation system and the judiciary's dominance as consultees.
Sir Len also recommends that the commission should supervise the selection process for silks. It is not quite clear whether the Lord Chancellor will take on board
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that recommendation, bearing in mind that he has immediately accepted the other recommendation. If selection of silks is to be supervised by the commission, it would be useful to know whether the commissioners will be in place for this year's silk round, to provide that additional safeguard.
I was very pleased to see that Sir Len paid great attention to the need for appraisal and self-appraisal by judges. He said—and I agree:
"There is general agreement that the transition from barrister or solicitor to judge is one where training and development is necessary".
Sir Len places particular emphasis on development of tutor judges.
Sir Len also praises the experimental scheme on the Wales and Chester circuit. I pay personal tribute to my hon. Friend the Minister, who has taken great interest in promoting that initiative. I shall be very interested to hear whether he will take on board Sir Len's recommendation that there should be a national roll-out of the scheme, and, if so, when he thinks that that might happen. My experience in private practice is that appraisal and self-appraisal—being on both the receiving and dishing-out ends, though that may be putting it too strongly—are a very useful process, both for personal development and for the career development of oneself and one's staff.
We should not confine appraisals to part-time judges and new appointments, but should find a way of extending the process to more of the current full-time judiciary. I realise that there may be constitutional objections to such a proposal, and I am sure that there would be objections to it by individual members of the judiciary who may not have undergone the process when in practice; but we should at least give more consideration to the proposal.
I am concerned about Sir Len's views on equal opportunity, particularly in relation to gender and race. He identifies many of the problems very well, but does not necessarily propose the right solutions. He mentions the excellent work done by the joint working party on equal opportunities in judicial appointments and silk, and it would be very helpful if the Lord Chancellor's Department responded in detail to that body's 42 recommendations, some of which were dealt with by Sir Len.
I think that, initially, we should try to address the issue by extending parts III of the Sex Discrimination Act 1975 and the Race Relations Act 1976 to appointments to the judiciary and Queen's Counsel. My right hon. Friend the Home Secretary has said that forthcoming legislation on the public sector will be extended to include indirect discrimination. It would be very worth while if such provision were extended also to those appointments.
I also welcome the commissioning of research by Dr. Kate Malleson into some of the factors that impact on applications from women and ethnic minorities. Perhaps my hon. Friend could give us a progress report on that research and tell us whether it will be made public when it is finished.
We tend to overlook discrimination on disability grounds, but it is taken up by Sir Len. I should have focused on it more in the general contributions that I have made in previous debates. Sir Len recommends

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that the Department's informal guidelines be made public. I hope that my hon. Friend will confirm that he accepts that.
Sir Len also identifies the problems facing practising solicitors applying for judicial appointments, particularly part-time appointments, which are essential to allow the putative judge to get a taste of what is involved and to see whether they are up to the job. Solicitors face various practical hurdles with such part-time appointments, primarily owing to the need to maintain a practice and all the overheads that go with that. One's partners do not always welcome a request to be away for a few days at a time. We need to find ways of overcoming that problem.
I am also concerned about Sir Len's comments about the appointment of Queen's Counsel. My views on the subject are widely known and I do not want to rehearse them in detail. Sir Len repeats a suggestion previously made by others—that silk
"could be replaced by professional recognition based on seniority or personal contribution assessed within the representative legal institutions themselves."
That might be a preferable way forward. I am afraid that Sir Len does not tackle the related equal opportunities issues, but we should do so. Some of the recommendations about the judiciary could also apply to the assessment of silks.
I am also concerned about the heavy emphasis on fee earnings, without the balancing factor of pro bono work. Sir Len recommends that a table of fees for successful candidates be published annually. I have achieved that through parliamentary questions over the past couple of years. If the Lord Chancellor's Department does not publish the information in another way, it can expect further parliamentary questions from me.
I welcome Sir Len's report as a contribution to the debate. It is a pity that he was not able to carry out a root and branch investigation into the issue and come up with more fundamental conclusions, but the report is a worthwhile effort to improve the existing system. It may not be an overflowing cornucopia of structural solutions, but the Peach report is at least a modest fruit bowl, with some plum ideas to improve the existing arrangements. It stresses the qualities required of judges and proposes more balance for the consultation arrangements.
Sir Len has come up with some excellent ideas for experimentation to improve the assessment and appraisal system and has strengthened the lay element through the judicial appointments commission—sorry, the Commission for Judicial Appointments. I am not sure why the language has been changed. Perhaps it is to draw a distinction with the wider public debate. He has recognised many of the equal opportunities issues, even if he has not necessarily come up with solutions. The report provides a base that I hope can be used in future to lead to more fundamental root and branch reforms.
12.43 pm
The Parliamentary Secretary, Lord Chancellor's Department (Mr. David Lock): I congratulate my hon. Friend the Member for Hendon (Mr. Dismore) on
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securing the debate and on all his work over the past few years in bringing this important issue before the public and ensuring that we have a vigorous debate on how our judges are selected and on the merits of the status of Queen's Counsel. He knows that the Government do not entirely agree with his views on the best way of organising those important matters, but we are very grateful for his diligent and assiduous work in ensuring that they remain at the forefront of public debate.
Judges perform a vital role. They are a crucial element in a society that depends on the rule of law. In arbitration, judicial review or damages cases, judges make important decisions that can directly affect the lives of citizens. Therefore, the appointment of judges cannot be left to chance. The judicial appointments process must be capable of identifying the best candidates through fair and open procedures and it must reinforce the principle of judicial independence.
There have been many developments in the judicial and QC appointments processes in recent years, in particular the move to open competitions for most appointments. I know that my hon. Friend and others have strongly welcomed that. The Lord Chancellor is constantly seeking to improve the procedures. In July 1999, he asked Sir Leonard Peach to examine them, to see if any further steps could be taken to improve their openness and accountability. Sir Leonard was given unfettered access to the procedures and to individual records, and he held 40 meetings with groups and individuals to obtain a range of views. He has had a long and distinguished career in personnel at the highest levels and brought his unrivalled experience to bear in his scrutiny of procedures. Until recently, he was Commissioner for Public Appointments. In that role, which was independent of the Government, he monitored, regulated and provided advice on departmental procedures for ministerial appointments to various public bodies. We were confident that he would apply his objectivity and expertise and provide an impartial assessment of the judicial and QC selection procedures.
The Lord Chancellor warmly welcomed Sir Leonard's report when it was published on 3 December 1999 and said that he would act promptly on the central recommendation of appointing a Judicial Appointments Commissioner and would consider Sir Leonard's further recommendations in detail, along with other comments and reactions to his report.
Sir Leonard highlighted the potential confusion between appointment as Queen's Counsel and appointment to the Bench. The Lord Chancellor welcomed Sir Leonard's clear distinction between the criteria for QC and judicial appointments. The rank of QC is awarded to the leading junior advocates of the day, including solicitors. The Lord Chancellor readily acknowledges that the best advocates do not necessarily make the best judges, as my hon. Friend has said. That was made expressly clear in the press notice that accompanied the report.
Today's judges must be able to meet the demands of managing cases and need the personal skills required to run a court, as well as being first-class lawyers. In the past, there may have been too great a tendency to promote the best advocates from the Bar to the Bench, without paying sufficient attention to the possibility of promoting others of equal skill and competence who

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undertake slightly different functions in the legal system. The skills and experience needed to be a judge can be found in a successful litigation solicitor as well as a leading advocate. That has already been proved by the appointment of solicitors to the Bench. The Lord Chancellor wants to appoint the judges with the best potential, regardless of whether they come from the ranks of barristers or solicitors. I am grateful for the opportunity to make that clear.
My hon. Friend has repeated his concerns about what he calls secret soundings. He suggested that Sir Leonard did not tackle the issue head on. I must respectfully disagree; he looked at it carefully. I do not like the expression "secret soundings". I understand the concerns, but it would be more accurate to talk about confidential assessments of a candidate's suitability. Sir Leonard acknowledged that the consultation process is controversial, but, having looked at it in detail, he said:
"as an experienced selector, my conclusion is that to abandon the consultation process would be a neglect of a valuable input into the assessment."
I stress that it is one part of the assessment and is not conclusive. The system has been approved and enhanced by the report and the Lord Chancellor is committed to retaining that part of the process. He is reassured by Sir Leonard's view.
Assessments are provided in confidence, but that is an inevitable part of any high-level appointments process, whether to the Bench or to other high-level positions. Candidates for the judiciary are told which judges and members of the profession will be consulted and are asked to name others who can assess their suitability. I welcome that development, as does my hon. Friend.
The assessments are provided in writing and are now made against the criteria for appointment. The Lord Chancellor requires consultees to be objective in their assessments and to provide evidence to support them. He disregards any comments that do not appear to be based on that approach and no one person's assessment is or could be decisive. There is nothing to prevent consultees from volunteering information directly to applicants about the assessments they have made of them, but that must be a matter for the consultee alone to decide.
We must accept that in any open competition for judicial posts, more people will be unsuccessful—and therefore to some extent disappointed—than successful. Unsuccessful candidates are able to talk to officials in the Lord Chancellor's Department who will give feedback on the assessments made. The feedback includes, on a non-attributed basis, information about matters contained in the assessments. If the candidate was interviewed, the feedback will also cover how he or she fared in the interview. It is important to note that many candidates take up that offer, and last year about 500 feedback interviews were conducted. Sir Leonard Peach found the feedback system to be "a remarkable feature" and "most impressive". I hope that my hon. Friend—who is also learned—will accept that that is an important part of the confidential assessment process.
Sir Leonard also says that there needs to be confidence in the relevance of the information being provided and that it is based on evidence and not on hearsay. Although that is the aim—and assessments from consultees are already sought on forms which ask
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for ratings against the criteria and for narrative evidence—Sir Leonard advises on improvements to the system. The Lord Chancellor is happy to take those on board promptly.
My hon. Friend rightly mentioned the additional recommendations for a one-day assessment centre and certain psychometric tests. The recommendations are that we pilot a one-day assessment centre and that psychometric and competence tests be commissioned. The Lord Chancellor intends to take forward those two recommendations together. He appreciates that an assessment centre is to some extent the Rolls-Royce of selection methods and recognises that to set up a one-day pilot assessment centre where psychometric and competence tests will form part of the selection process will be a considerable step forward, entailing considerable effort. None the less, it is important to get it right and we do not envisage being able to take assessment packages off the shelf. Appointing for judicial office is a unique and important function.
The assessment centre, as envisaged by the Lord Chancellor, will have to be tailor made for judicial appointments, so there will have to be a considerable amount of work over the next one to two years to set up the pilot. However, I can assure my hon. Friend that the matter is being taken forward.
The Lord Chancellor has accepted in principle Sir Leonard's proposal that there should be a Commission for Judicial Appointments. He envisages appointing this year a first commissioner, who will be supported in due course by a team of deputy commissioners. The commissioners will be drawn from a range of backgrounds and the commission will undertake the tasks outlined by Sir Leonard.
I can tell my hon. Friend, as he raised the matter specifically, that this year's silk round—that is, those who are to be notified at Easter this year—will not have the benefit of the Commission for Judicial Appointments, but we hope that all open competitions for the judiciary later in the year and next year's silk round will have the benefit of the commission.
Mr. Nick Hawkins: I thank the Minister for giving way. Will he confirm that the terms of reference of the judicial appointments commissioners will be published and that it is his and the Lord Chancellor's wish that there will be no element of political correctness or any artificial concept of gender and ethnic balance? We want the very best people for all these appointments. Will that be clearly set out in the judicial appointments commissioners' terms of reference?
Mr. Lock: I can certainly assure the hon. Gentleman that the terms of reference for the Commission for Judicial Appointments will be published. As for political correctness, I assure him that we are looking for the best candidates for the judiciary and those candidates will be drawn from those who apply.
I accept that we have only 10 women on the High Court Bench. To some extent, that is a reflection of entry into the legal profession some 20 to 25 years ago, retention within the legal profession, and the processes of advancement within the private legal professions that have brought about the circumstances where those who

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apply with suitable experience and eminence come from a relatively limited pool. However, as I said earlier, the Lord Chancellor remains concerned that that group should be identified according to their true characteristics and experience of judicial office, which is much wider than just the best advocates appearing on the front row in the courts today. I hope that that will expand the pool and result in more people applying.
Mr. Dominic Grieve: Will the Minister give way?
Mr. Lock: Certainly.
Mr. Deputy Speaker (Mr. Nicholas Winterton): Order. Although the Minister can indeed give way, in such a debate as this he is under no pressure or obligation to do so as it is a debate between one hon. Member and the Minister. However, as the Minister has given way, I hope that the intervention will be brief.
Mr. Grieve: I shall indeed be brief. Will the Minister confirm that the statistics available would suggest that the pool is expanding and that, for instance, the number of women who are likely to be eligible to apply for the judiciary will be much larger than it was 25 years ago and is increasing?
Mr. Lock: I can certainly confirm that the pool is expanding. Hon. Members may be interested to know that there are now one solicitor, 10 women, but unfortunately no High Court judges of ethnic origin. At the lower levels, the figures are more encouraging. Of 634 appointments filled by means of open competition in 1998–99, 23.5 per cent., or just under a quarter, were women; 5.4 per cent. were of ethnic minority origin; 46.4 per cent. were solicitors; 37.1 per cent. were junior barristers; 5.7 per cent. were Queen's Counsel and 10.9
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per cent. were non-practising lawyers. Although there is a good spread across judicial appointments generally, I accept that we still have work to do at senior levels.
My hon. Friend has raised a large number of issues and I anticipate having to write to him on those that I do not have time to cover. I am happy to confirm that the Kate Malleson research into race and sex discrimination, which covers an important matter, is due to be published this month and of course will be made public.
My hon. Friend also referred to appraisal—an important but delicate issue. The pilot in north Wales involving deputy district judges is impressive and appears to be going well, but it would not be appropriate to roll out any pilot until we were confident that we had managed to assess its full impact and learned lessons from it—otherwise it would not be a pilot.
I can assure my hon. Friend that we approach appraisal very much for the benefit of the people being appraised and not as a quasi-disciplinary stick to be held over part-time judges as a reason for not appointing them. It is all part of the process of ensuring that we get the best judges available for our courts. Appraisal issues in respect of the full-time judiciary are very much more delicate and must, in essence, be a matter for the judges themselves, without straying into their judicial independence. As my hon. Friend realises, I am sure that there are delicate issues of constitutional propriety involved.
In essence, Sir Leonard's report gave the team in the Lord Chancellor's Department very good marks for their work. He said that the overall impression of the Department's work was one of thoroughness, competence and professionalism. However, there are clearly areas where we can improve and we are grateful to Sir Len for highlighting them. The work will be carried through quickly and thoroughly. It is a very important area and we must make sure that we get it right. I am grateful to my hon. Friend the Member for Hendon for introducing the debate and I hope that I have answered many of the points that he has raised.

Energy for Democracy (Serbia)
1 pm
Mr. Bowen Wells: I quote from a fax sent by Ms Emilja Kiel to the UK Committee for Peace in the Balkans, made available to me by the hon. Member for Halifax (Mrs. Mahon). The fax states:
"Yesterday in Belgrade a baby girl of six months died of cold. She was a Serbian Kosovo refugee whose parents along with a group of other Serbs from Kosovo found shelter in the ruins of a (NATO bombed) concrete factory."
The family of the little girl had been ethnically cleansed from Kosovo and left unprotected by NATO and the United Nations. At present, Serbia and Kosovo are covered in snow, with temperatures down to minus 20 deg centigrade; that is to be expected each year in that part of Europe and is thus predictable. Indeed, it was predicted by the Select Committee on International Development in our report on Kosovo. The situation was not unforeseen.
The European Union imposed sanctions against Serbia during the bombing, including a ban on oil exports that it has steadfastly refused to lift since the bombing ceased. Council regulation No. 2111/1999 of 4 October confirmed the prohibition of the sale and supply of petroleum products.
The EU has knowingly deprived Serbia of the capacity to keep its people warm. It has thus endangered the lives of young children and the elderly by exposing them to hypothermia. That was a deliberate EU policy, supported by the UK Government. We have bombed Serbian power stations and oil refineries. By bombing the bridges, we have blocked the main supply line—the Danube.
The objective—although it was steadfastly denied was to depose President Milosevic and his party from office in the former Republic of Yugoslavia. However, the EU action has had the opposite effect. NATO and the EU are blamed for the suffering of all the people of Serbia and the estimated 900,000 refugees in Serbia-100,000 of whom have been ethnically cleansed from Kosovo.
Cynically—or perhaps from feelings of guilt—the EU decided to launch a programme entitled Energy for Democracy, supported by the UK. The programme is described as humanitarian and is thereby exempt from the EU's own sanctions.
I remind hon. Members that humanitarian aid must have two characteristics. The first is that it must be administered impartially to all people in need regardless of whom they support. Secondly, those who administer humanitarian aid must do so with the consent of all authorities on all sides of a dispute. The obvious example is the work of the International Committee of the Red Cross which, without such an agreement, would be unable to operate on both sides in a conflict or dispute.
One definition of the objective of humanitarian assistance states that it should be
"to prevent and alleviate human suffering, to protect life and health and ensure respect for the human being. This definition provides for protecting and re-establishing livelihoods, not just saving life … From this follows the principle of impartiality: humanitarian actors should not discriminate as to nationality,
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race, religious beliefs, class or political opinions; resource allocation being guided solely on the basis of needs of individuals, prioritising the most urgent cases of distress."
The principle of independence follows from that:
"The ability of humanitarian organisations to operate legally and safely in a conflict situation is determined by their ability to demonstrate their independent character. Actual and perceived involvement of a donor government in the workings of international humanitarian organisations potentially compromises this independence."
We offend against those principles of humanitarian aid. In particular, the Energy for Democracy programme offends against them on almost every count. It aims to supply 350 tonnes of heating oil to two Serbian towns—Nis and Pirot. That was the first part of a 4.4 million euro project to supply the cities until April this year. The reason that those two cities were targeted was that their mayors did not support the Milosevic Government. NATO and the EU wanted to demonstrate to the people of those cities that NATO cared for them and that the alliance's quarrel was only with the Milosevic Government.
I might have some enthusiasm for the objective of subverting Milosevic, but that NATO action cannot be called humanitarian. It is partial and it is not administered with the agreement of the authorities in Serbia. It is certainly not impartial; nor is it independent.
Where does the money come from? After much research, I found that it was provided from the European development budget, to which the UK Government make a significant contribution—as the Chamber has already discussed this morning. The appropriation comes from a budget designed for the reconstruction of parts of former Yugoslavia—later Kosovo.
The appropriation of such money for bluntly and blatantly political purposes is almost certainly illegal. It will have to be referred to the Court of Auditors, which has, sadly, become accustomed to the gay abandon with which the European Commission spends our money on projects that are unauthorised by this Parliament or by the European Parliament.
If we are sincere about trying to help Yugoslavia in its reconstruction, we should ensure that all those who have suffered from the Milosevic regime and the NATO bombing have sufficient heating oil to keep them warm this winter. That would be a truly humanitarian and magnanimous gesture to the people of Serbia. It might begin to heal some of the wounds and begin the reconciliation and reconstruction necessary for the achievement of the just Balkan settlement for which our Prime Minister agreed to bomb Serbia—one of his major aims in the war against Serbia. However, this partial, illegal and cynical gesture of the Energy for Democracy programme is more likely to exacerbate the hatreds and jealousies within Serbia and against the EU and NATO.
I ask the Minister of State to answer the following questions. First, why have the Government not tried to lift the EU sanctions on heating oil supplies to Serbia? Is it because we are acting as the poodle of the United States in those matters?
Secondly, why have the Government agreed to break their own sanctions by supplying heating oil to Nis and Pirot? Thirdly, how can supplies of heating oil to those

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cities be justified as humanitarian aid when no such supplies are provided to the rest of the Serb population and when they do not have the approval and agreement of the Serbian Government?
Fourthly, what assessment was made of the likely reaction of the Serbian Government of President Milosevic to the initiative? Fifthly, why did the United States refuse to support the Energy for Democracy scheme? Sixthly, how do the Government justify the use of aid money, voted for the reconstruction of the former Republic of Yugoslavia, for blatant, cynical, political blackmail?
The Government claim to have won the war against Serbia by bombing that country. They are certainly losing the peace by such ill-considered, blatantly political, possibly illegal schemes as the Energy for Democracy programme. A Government who were truly pursuing a humanitarian aim would support France, Greece, Italy and other EU nations in lifting EU sanctions for the whole of Serbia, and in permitting the supply of heating oil throughout Serbia on humanitarian grounds during the extreme weather conditions that are always experienced in the region at this time of year. That would prevent the black market and the entry to Serbia of Russian-supported oil supplies via Hungary and Romania. The distribution of those supplies is of course controlled by President Milosevic—thus increasing his grip on power and his ill-gotten wealth.
1.9 pm
The Minister of State, Foreign and Commonwealth Office (Mr. John Battle): We thank the hon. Member for Hertford and Stortford (Mr. Wells) for initiating the debate. I was tempted to say "again", because we discussed the matter during the debate on Kosovo in which our colleague my hon. Friend the Member for Halifax (Mrs. Mahon) also took part.
The hon. Gentleman is the most appropriate Member to raise matters of humanitarian aid and assistance and to remind us of what the term may mean in practice. He has a long and honourable record on, and experience in, overseas aid and development matters. He speaks on them with a disinterest and seriousness that sets an example so I take seriously his contribution to our deliberations on the topic. I shall do my best to reply to the 10 or more questions that he asked.
In this short debate, we do not need to go over the cause of the traumas in the Balkans or the role in Serbian history of Slobodan Milosevic. I want to approach the subject from another angle and to point out that, on the figures for gross domestic product, Serbia is the poorest country in the whole of Europe—it is now poorer than Albania. Given that Yugoslavia was one of the wealthiest countries in the socialist bloc in the 1980s, we must focus on what has happened, why it has happened and on the future and rebuilding. In that spirit, I shall try to address the issue of how people keep warm in winter and the relationship between fuel supplies and sanctions.
I want to say something elementary about the difference between the central and eastern European countries that emerged from the Soviet bloc in the first
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half of the 1990s and Serbia under the direction of Milosevic. In a sense, the essential services, commodities and state monopolies were used to secure the loyalty of his key supporters in the Socialist party of Serbia, the SPS.
Let me provide a practical example. The present boss of Jugopetrol, which controls the import and distribution of oil and oil derivatives on a national basis is a man called Dragan Tomic. He is also the Speaker of the Serb Parliament and, of course, a key figure in the SPS. Basically, he has been put in charge of the oil industry as a reward for loyal service to Milosevic and he is now making—I dare suggest—massive profits from the sale of imported oil and petrol. He does not use the prescribed channels and state petrol stations, in which the price is set by the Government, but uses the black market to provide him with his profits. That is a key fact. The problems of the Serbian economy relate not just to analyses of economic mishandling, but to such direct manipulative interests.
In the short time that I have left, I shall discuss the Energy for Democracy programme. That European Union programme was first proposed by an independent group of Serb economists, the G-17 group, in the summer of 1999 in the aftermath of the Kosovo conflict. Its idea was for the EU to show its solidarity with the people of Serbia—as opposed to the regime—by donating mostly heating oil to Serbian towns, which were expected to struggle to provide sufficient heating for their citizens through the current winter. The idea was taken up by the member states of the EU and turned into an official EU programme in the autumn of 1999. The United Kingdom played a supportive role and it helped the G-17 group to visit several European capitals, including London, to explain and spell out its ideas. We have since supported that programme.
The programme began in November 1999 with the pilot project towns of Nis and Pirot, and I emphasise that it was a pilot. The towns have received regular tankers of heating oil since December and the EU is now switching to rail transport to improve the speed and reliability of the deliveries. Supply has been running behind schedule because of administrative difficulties, but, by the end of January, those towns had received more than 2,000 tonnes of heating oil.
One misunderstanding about the Energy for Democracy programme needs to be cleared up. It is not designed to compensate for a shortage of oil in Serbia; it is designed to compensate for a shortage of money to buy that oil. That difference is crucial. In other words, the municipal authorities that have been the beneficiaries of the Energy for Democracy programme have always been free to import oil and oil products from certain neighbouring countries or from further afield, but they have not had the money to do so. The programme involves the donation of heating oil.
Mr. Wells: The Minister referred to the towns' capacity to buy oil, but would they not have to buy it outside the European Union, because the EU has imposed sanctions against the supply of oil to Serbia? Is that not right?
Mr. Battle: The hon. Gentleman has put his finger on the precise point, so I shall try to spell out where supplies

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come from and where the EU anticipates that they will come from. I hope that that will become clear. However, if the hon. Gentleman wants to press me on the matter, I shall be more than happy for him to intervene again.
The EU oil embargo on Serbia has been changed specifically to allow the sourcing of oil from EU countries for the Energy for Democracy programme. In practice, however, imports have all come from refineries in Macedonia. Had the municipal authorities been given adequate funding by central Government, they could simply have bought oil supplies from domestic suppliers or imported what they required for their needs from Macedonia or perhaps Bulgaria.
The hon. Gentleman asked on whose authority the EU introduced sanctions on the Federal Republic of Yugoslavia in 1998. It did so on its own authority using the established procedures of the EU common foreign and security policy and the competences vested in the EU by the treaty of Rome and subsequent treaties. The sanctions included the specific oil embargo on the Federal Republic of Yugoslavia. In September 1999, the oil embargo was lifted in respect of Montenegro and Kosovo.
From the very outset, a humanitarian exemption was written into the EU oil embargo. That still applies. In other words, any organisation that wants to import oil or oil products into Serbia from a member state of the EU may do so, having submitted an application to the European Commission explaining that the oil is for humanitarian purposes. I hope that that goes some way to answering the hon. Gentleman's question. Such imports have taken place in at least one case.
The Belgrade office of the United Nations High Commissioner for Refugees applied to import 40,000 tonnes of heating oil from Germany, and this application was approved on humanitarian grounds. It is possible for oil to be bought from European countries, and approval is a relatively simple process. Any international humanitarian organisation operating in Serbia is free to follow that route. I hope that my answer goes some way to allaying the hon. Gentleman's worst fears. It can happen, it does happen and it can continue to happen.
I stress that the EU has not broken its own sanctions, as the hon. Gentleman put it. Apart from the humanitarian exemption that is written into the embargo, the EU has also changed the text of the oil embargo regulation to allow EU companies to supply oil under the Energy for Democracy programme. In practice, however, the heating oil supplied by the EU has been purchased from Macedonia for reasons of efficiency. Macedonia and other neighbouring countries, such as Bulgaria, do not have national restrictions on selling oil to Serbia. The EU oil embargo applies only to EU member states, and to those associate member states that choose to affiliate themselves to it.
The EU anticipated that the Energy for Democracy programme would be vulnerable to administrative obstruction by the Serbian authorities. That was the primary reason for beginning the programme with a pilot project of just two towns. As we suspected, the Serbian authorities made life as difficult as practically possible on the border, and we discussed that here in our previous debate on the subject. There were blockages, but they did not persist, not least because of local
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popular pressure. The delay of more than two weeks that the first consignment suffered has not been repeated. The first trucks were greeted with cheering in Nis and Pirot, and Milosevic has not dared to make himself even more unpopular by restricting or blocking the import of heating oil—it is getting through.
I am glad to say that, contrary to some reports, the United States has offered political support for Energy for Democracy. Indeed, in the autumn Mrs. Albright mentioned in public that she hoped that the programme could be extended to the town of Cacak. The US has been supportive of the programme during the EU's discussions with the US and Yugoslav opposition in the so-called trilateral process. Cacak became the third town to benefit from the programme when Norway decided to support Energy for Democracy with a programme of deliveries of heating oil.
Apart from the Norwegian bilateral contribution, Energy for Democracy has been funded by the European Commission from the Obnova regulation budget, which exists to fund projects in the Federal Republic of Yugoslavia. Obnova is not a budget for classic humanitarian aid, as it has been defined by the hon. Gentleman. The EU's aid programme in Serbia is run through the European Community humanitarian office in Belgrade, which has not been involved in Energy for Democracy. The humanitarian office is responsible for Serbia's and Montenegro's share of the total regional allocation for south-east Europe in 1999 of 378 million euros.
Energy for Democracy is humanitarian in motivation, but it is not classified as strict humanitarian aid, as the hon. Gentleman spelled out. Imports of heating oil by the municipalities in question are treated as straight commercial transactions. The municipalities pay the customs duties, and the external suppliers invoice the European Union direct. I am glad to say that the UK's Crown Agents have been involved in the logistics of operating Energy for Democracy.
The humanitarian dimension of the programme is obvious: the imports of heating oil have been used to keep residential accommodation, schools, hospitals and municipal facilities warm through the depths of the winter in Nis and Pirot. Not all dwellings in those towns are connected to the municipal heating system, but most citizens will still have benefited. I understand that the Norwegian programme in Cacak and the prospective EU programme in Kragujevac will concentrate on schools, hospitals and similar institutions. In an ideal world, we would be supplying fuel for warmth to the entire population of Serbia, but clearly we have to prioritise.
Mrs. Alice Mahon: How does one prioritise when a child is dying in a bombed-out concrete factory? How does one say that one town cannot have oil while another town can? That is not humanitarian, and I am shocked that my Government are going along with something as obscene as deciding who lives and who dies in Serbia.
Mr. Battle: I defer to my hon. Friend's insistence that we keep people's names and faces in front of us so that we do not make judgments that put people's lives on the line. However, there are practical problems.

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Not all dwellings in my hon. Friend's town of Halifax have heating connected to a central system. That technical difference is important because we have chosen towns where an oil-fired municipal heating plant is the key source of heating. Unlike Britain, the former Soviet Union has combined heat and power systems that work. That means that if we put oil in the central boiler, all flats are heated. That is not the system in Britain, where we would have to heat houses and flats on an individual basis with a separate fire. Not every house has a chimney, so we could not supply coal to every house to keep it warm.
Technical challenges are posed by the heating systems, so there is not a deliberate decision about who lives and who dies. We have chosen towns where a working oil-fired municipal heating plant is the key source of heating or where other facilities need oil for generators. Provision is linked to the location of the generators; it is not done house by house.
There are three reasons why we have so far limited the programme also to municipalities run by the parties of the democratic opposition. First, they are much less likely to be corrupt than municipalities run by the SPS and its allies. Secondly, opposition-run municipalities have been the subject of systematic discrimination by the central Serbian authorities, which have limited their funds and done everything possible to damage their standing in the eyes of the electorate. Those towns are usually last on the list for the distribution of Serbian state oil supplies.
Thirdly, the regime-linked municipalities have largely refused to co-operate with Energy for Democracy. A questionnaire sent out by the Association of Free Towns and Municipalities asking for technical details of their heating systems for the Energy for Democracy programme was ignored by every SPS and allied town.
On the general international humanitarian effort in Serbia, I can confirm that the International Committee of the Red Cross and Red Crescent, the UNHCR, UNICEF and others are active in Serbia, with our support, along with numerous other charities and nongovernmental organisations. The Department for International Development works alongside and maintains close links with the UN agencies and other
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bodies. The UNHCR has supplied some 40,000 tonnes of oil to Belgrade and the whole of Serbia, while Energy for Democracy has supplied 2,000 tonnes. The UNHCR has therefore been providing the bulk of the supplies. We have supported those programmes.
Mr. Wells: Why, then, do not our Government support the lifting of sanctions, at least on oil for heating, throughout Serbia?
Mr. Battle: The block sanctions remain for the whole of Serbia. This is an exception which means that we can get energy through, but we have to choose where it goes. I set out the three reasons why it is not apposite to send oil everywhere—it would be lost in the corrupt system and would not reach the people who need it, to whom my hon. Friend the Member for Halifax referred. That is why we focus supplies on two particular towns.
The EU General Affairs Council, which met on 24 January, concluded:
"In the light of the latest positive developments and of the outcome of the pilot project in Nis and Pirot, the Council invited the Commission to prepare the extension of the Energy for Democracy initiative, as suggested by Serbian opposition forces after the Berlin trilateral meeting of 17 December 1999."
As I said, the Commission plans to start with the town of Kragujevac. The other towns identified as immediate priorities are Novi Sad, Sombor, Subotica and Kraljevo.
The humanitarian exemptions written into the EU sanctions regime on Serbia and the EU's commitment to the Energy for Democracy programme have shown that we care about the fate of the ordinary people of Serbia and are not indifferent to their plight. Thankfully, the threatened humanitarian disaster did not transpire this winter—action was taken to pre-empt it—but we have no illusion about the economy of Serbia, which is in a bad state.
As I said at the outset, Serbia is now the poorest country in Europe. Living standards have plummeted. All that can start Serbia back on the path of economic recovery is a change in the regime and a strategy for the nation's well-being. There is not much evidence of that. Those factors were the source of the conflict in the first place. The Energy for Democracy programme is a small but serious effort to ensure that the poorest and hardest hit do not always pay the highest price.

Taiwan
1.30 pm
Mr. Tom Cox: At the outset I declare an interest as the co-chairman, along with the hon. Member for Macclesfield (Mr. Winterton), of the all-party British-Taiwanese group. We are an active group. We have an excellent relationship with His Excellency the Taiwanese representative to the United Kingdom, Mr. Loui Tzen, and his colleagues in London.
Taiwan and the UK enjoy an excellent relationship. Taiwan has been and is a major investor in this country, locating some of the most modern industrial enterprises here. With such investment have come some of the most advanced technological developments and many jobs throughout the country. One has only to speak to hon. Members to hear of the respect in which those companies are held by their work forces and local communities.
There are excellent commercial and financial arrangements between our two countries: 80 per cent. of Taiwan's European investment is in the UK. The British-Taiwanese business council is a very active organisation which discusses trade between our two countries. It held a major conference in London in January. More than 70 constituencies contain a company or companies of Taiwanese origin. That shows Taiwan's involvement in this country.
Yesterday, I showed around the House a group of young Taiwanese diplomats who are on a year's study at Oxford. Given that there were no financial restrictions on their studies, they could have chosen to go to any country. Each year, a further 13,000 Taiwanese students study here.
Taiwan has a population of 21 million and one of the strongest economies in the world—at present, ranking 15th strongest. Against that background, it is appropriate to highlight the call on the British Government and their people to support Taiwan's application for observer status in the World Health Organisation.
As a major world economic power, Taiwan has an excellent health service. Its doctors and nurses have trained or studied in some of the world's major medical schools. One of the most modern hospitals in this country, St. George's, Tooting, in my constituency, was recently visited by the Taiwan Health Minister, himself a doctor. It soon became clear in discussions during that visit that Taiwan's wide range of medical and health services are equal to anything in the United Kingdom. Despite such quality, it is not a member of the World Health Organisation. Let us be frank, that is not because of its medical standards, but because of political attitudes. In my view and that of many others, that is totally unacceptable.
I chair the Social, Health and Family Affairs Committee of the Parliamentary Assembly of the Council of Europe. In Strasbourg last week, we discussed a report on European health policy, which I have with me today. The debate highlighted how much the Council of Europe's 41 member states appreciate the opportunity to meet and discuss relevant health issues and progress in treatment and research. Taiwan seeks
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such involvement in WHO, which would enable its medical professionals to share their knowledge and skill with their international colleagues.
As Taiwan does not have WHO observer status, it cannot discuss wide-ranging and often complex technological developments or disease control with WHO members. It can neither obtain information on new health care and policies by working directly with WHO and its members nor take part in seminars or training programmes that are organised by WHO. How can that be realistic or fair?
Governments are not always those with skills for or the sole agents of world health developments. The medical profession uses its skills to build health policies, sustain health activity and broaden health strategies, which we all know are wide ranging and affected by economic and social behaviour and scientific and technological development. Countries such as Taiwan want to exchange skills and to learn about other countries' medical developments. Such exchange, above all else, is the role of the World Health Organisation—and why Taiwan seeks observer status in it.
This country enjoys excellent medical services, but we share our skills, learn from other countries and are actively involved in WHO. So many of the developments that we talk about have been made as a result of international co-operation. We have been able to progress our skills in the fields of primary health care, vaccines, AIDS and HIV, family planning, health insurance policy, health information and expenditure and immunisation through co-operation with other countries. We have been able to work together to promote health and the welfare of people not only in this country but world wide. That is what Taiwan seeks in observer status.
In recent years, Taiwan has sent more than 400 medical personnel, who work in different areas of health care, to countries such as the United States of America, the UK, Japan, Australia and New Zealand for advanced health and medical training. On that ground, Taiwan is more than worthy of WHO observer status.
The case that I have presented is very strong, but support for Taiwan's application can be found in organisations that are far more influential. A letter dated 12 January from Professor Vivienne Nathanson, head of the professional resources and research group of the British Medical Association, states:
"It would certainly be desirable for the medical profession in Taiwan to enjoy the advantages offered by links with the WHO, and we should therefore certainly support its application for observer status."
That is a very powerful endorsement which cannot easily be ignored.
The other comment I wish to quote is drawn from a document of the 106th Congress of the United States of America, dated 6 January 1999 and headed "Concerning the participation of Taiwan in the World Health Organization". It states:
"The World Health Organization … set forth in the first chapter of its charter the objective of attaining the highest possible level of health for all people … Taiwan's population of 21,000,000 people is larger than that of three-fourths of the member states already in the World Health Organization … Taiwan's achievements in the field of health are substantial, including one of the highest life expectancy levels in Asia, maternal and infant mortality rates comparable to those of western countries, the

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eradication of such infectious diseases as cholera, smallpox, and the plague, and the first to be rid of polio and provide children with free hepatitis B vaccinations … The World Health Organization allows observers to participate in the activities of the organization … In light of all the benefits that Taiwan's participation in the World Health Organization could bring to the state of health not only in Taiwan, but also regionally and globally, Taiwan and its 21,000,000 people should have appropriate and meaningful participation in the World Health Organization."
That is a powerful recommendation and expression of support for Taiwan.
What is the view of the British Government? We have a good relationship with Taiwan, whose people have brought great benefit to the United Kingdom. I have quoted correspondence that clearly supports Taiwan's request for observer status within WHO. Does the UK support that request? If we do, what shall we do to support Taiwan in the coming months before the next WHO meeting in the Geneva? If we do not, will my hon. Friend the Minister clearly state the reasons in his reply? In my view and that of many others, Taiwan should be supported in its request. Taiwan and its many friends here in the UK Parliament, in business and in the financial community in this country, will be greatly interested to learn of the views of the British Government and their attitude to Taiwan's request for observer status within WHO.
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The Minister of State, Foreign and Commonwealth Office (Mr. John Battle): I am grateful to my hon. Friend the Member for Tooting (Mr. Cox) for having raised the subject of Taiwan and its relationship with the World Health Organisation. He is well known and rightly respected for the disinterested fashion in which he draws attention to Taiwan and ensures that it is not forgotten by the House of Commons. His efforts and his serious interest in Taiwan are appreciated.
Although there are obvious political constraints on our relationship with Taiwan, I fully agree with my hon. Friend that we need to take Taiwan seriously. I assure the House that the Government do so and that we are looking for ways to strengthen and develop that relationship. I welcome and fully concur with my hon. Friend's remarks on the excellent state of relations between Taiwan and Britain. I hope that we can continue to build on that.
It is fair to say that the question of Taiwan's relationship with WHO, or with any other international organisation or element in the international community, cannot be considered without taking into account the complex issue of Taiwan's international status and the effect that that has on Taiwan's ability to play a fully recognised international role. The whole international community, not only the UK, are involved in that issue.
The House will be aware of the UK Government's formal policy on the status of Taiwan, which was laid down in 1972 when the UK upgraded relations with the People's Republic of China to ambassadorial level. In a joint communique agreed with the Chinese Government and announced on 13 March 1972, the UK Government of the day stated that the UK recognised the Government of the People's Republic of China as the
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sole legal Government of China, and acknowledged the position of the People's Republic of China that Taiwan is a province of China. That remains our policy and forms the foundation of our dealings with Taiwan.
It follows that the UK has no formal political or diplomatic relations with Taiwan. That is not an unusual or unique position; it is shared by most other countries in the world, including our European partners and other close partners such as the United States. Although the precise formulation may differ slightly from one country to another, all have adopted a similar view and operate under similar constraints in their political dealings with Taiwan and its authorities. Only a handful of countries currently afford full diplomatic recognition to Taiwan as the "Republic of China". That position is unlikely to change significantly in the near future.
Taiwan's lack of widespread international recognition has obvious consequences for Taiwan's aspirations to membership of international organisations, especially those, such as WHO, whose membership is limited to states. As neither the UK nor the United Nations, where the People's Republic of China has had a seat since 1971, recognises Taiwan as a state, it follows that we cannot support Taiwan's membership of international organisations that only states may join.
However, we are keen to find creative ways in which Taiwan can play a role in the international community, consistent with our policy on recognition while allowing Taiwan's commercial and economic significance and its medical expertise to be properly reflected and embraced by the international community. For example, we look forward to Taiwan joining the World Trade Organisation, under the right terms, in its capacity as the customs territory of Taiwan, Kinmen, Matsu and Penghu.
Although there are constraints on the extent to which we can develop a political relationship with Taiwan, in many other respects—including, but not solely, trade and commerce—we are trying to build a strong and fruitful relationship with Taiwan and its people. As my hon. Friend said, Taiwan has a vibrant, powerful economy: it is the world's 14th largest trading entity and its transformation from an almost entirely agrarian economy to a leading industrial economy is phenomenal—one of the economic miracles of Asia. Its economy is shifting to new technologies to become a high-tech knowledge-driven economy of the future. Taiwan is at the leading edge.
We have a long history of trade and economic relations—and personal relations—with Taiwan. I am grateful that my hon. Friend has shown people around the House to make sure that those personal relationships deepen. That and his showing a representative of Taiwan around a hospital in his constituency are much appreciated. In the past decade, with one or two blips such as in 1998, during the Asian financial crisis, our exports to Taiwan have shown a steady upward trend. The 1999 figures will show a slight recovery: although they will not achieve the £1 billion of exports that we achieved in 1997, there may be a marginal increase on 1998 levels, which shows that the tide is turning.

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Imports from Taiwan are now well over twice the level of exports and are rising steadily. As my hon. Friend spelt out, Taiwan is an important investor in the United Kingdom. We are pleased that Taiwan sees Britain as a gateway to Europe. We have attracted almost 85 per cent. of Taiwan's total investment in the European Union. Major developments include the Chung-hwa picture tubes factory in Scotland, which was opened by Her Majesty the Queen in October 1997. That brought 3,000 new jobs to Scotland and is the largest single Taiwanese investment in Europe. We want more investment from Taiwan. At the same time, we are substantial investors in Taiwan and we are working to support British investors there. The Government are keen to promote those activities. The British trade and cultural office in Taipei, our unofficial representation there, is specifically tasked to support British trading and business interests.
We encourage private ministerial visits to Taiwan by Ministers whose responsibilities lie in areas in which our links with Taiwan are strong. The Minister of State, Scotland Office, my hon. Friend the Member for Cunninghame, North (Mr. Wilson), who was the Minister for Trade at the time, visited Taiwan last year. The present Minister for Trade, my right hon. Friend the Member for Sheffield, Central (Mr. Caborn), will visit Taiwan in two weeks. We want to keep ministerial visits, although they are private, as continuous, close, personal links with Taiwan, and we hope that there will be many more such visits in both directions in the future.
The relationship is far more than simply commercial. It is not based solely on trade and commerce. My hon. Friend spoke eloquently about medical exchanges and the development of Taiwan's medical contribution internationally. I welcome his words and look forward, as he does, to deepening those highly professional exchanges. I welcome the fact that the Taiwanese Minister for Health was one of the first senior Taiwanese visitors to this country since our Government took office.
Britain and Taiwan have much to learn from each other in medical practice and training, and that is precisely the sort of exchange that we should develop, so that we can learn from each other, to mutual benefit and the benefit of our planet. We are eager to promote people-to-people exchanges in education, culture, science and medicine.
As my hon. Friend said, Taiwan is a highly educated society which places a high value on education at all levels. We are pleased that the UK has been an important destination for Taiwanese people who want to study abroad. There are 15,000 Taiwanese studying at British universities and other institutes of further education in Britain. They are most welcome. They bring new perspectives to our institutions. They make a contribution; they do not just study, collect information and go away again. They help to transform the environment in which they are studying. According to the latest figures, more than 50,000 Taiwanese tourists came to Britain in 1997. Such exchanges are important and help to bind us together.
The key question posed by my hon. Friend was Taiwan's relationship with the World Health Organisation. He made an eloquent case expressing the desire of the Taiwanese authorities to gain observer status at WHO. It is no part of my purpose to deny the
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strength of those feelings or to question them. We believe that, wherever possible and appropriate, Taiwan's aspirations should be considered sympathetically.
However, the political realities and China's likely objections cannot be ignored and wished away. Taiwan's health care is undoubtedly of a high calibre, as befits a highly developed economy such as that of Taiwan. It is therefore no surprise that the medical profession in Taiwan should seek to be associated with the World Health Organisation, one of the world's principal medical forums, and that there should be strong backing in parts of the international medical community for contacts with Taiwan. The House and my hon. Friend are aware of the practical problems.
I have outlined the problem of Taiwan's membership of international bodies whose membership is limited to states. One possible way forward that has been canvassed is for Taiwan to seek observer status. Some organisations, including some non-governmental organisations, are already observers. There is no formal mechanism whereby entities that aspire to such status may apply to become observers. I believe that I am correctly informed that Taiwan has not applied for such status.
I understand that the director general of WHO has discretion to confer observer status on a non-state entity where its participation would be non-controversial. She has not done so to date, but there is no harm in considering that as a possible way forward.
The only route to the attainment of observer status is for a proposal to be made in favour of the aspirant by a full member of the World Health Organisation at the annual meeting of the World Health Assembly. It is open to the Taiwanese authorities to pursue that route, as they have done for a number of years. Any application put before the assembly's general committee stands to undergo rigorous examination by all member Governments, including the Chinese. If Taiwan and China could agree between themselves on suitable conditions for Taiwan's entry, that would ease the process considerably.
I hope that I have made it clear in response to my hon. Friend's passionate and well-reasoned case that our Government are fully aware of the medical work undertaken in Taiwan, and of the importance that Taiwanese authorities attach to the possibility of Taiwan's playing an international role within WHO. We hope that a satisfactory solution can be found.
We cannot be starry-eyed and simply wish our way into the future. There are practical and political obstacles on the way, but we should do our best to set out the case and to enable negotiations to take place, so that the medical expertise that exists in Taiwan can be afforded its true status and recognised internationally, and so that Taiwan can make an international contribution, which could be to the benefit of the whole of humanity.
Question put and agreed to.
Adjourned accordingly at three minutes to Two o'clock.