PARLIAMENTARY DEBATES

HOUSE OF COMMONS

OFFICIAL REPORT

First Standing Committee on European Community Documents

PROPOSALS DESCRIBED IN THE UNNUMBERED EXPLANATORY MEMORANDA SUBMITTED BY THE DEPARTMENT OF TRADE AND INDUSTRY ON 15TH AND 27TH OCTOBER 1987 AND 25TH NOVEMBER 1987 ON NEGOTIATIONS BETWEEN THE EUROPEAN COMMUNITY AND JAPAN UNDER GATT ARTICLE XXIV &, ON 15TH OCTOBER 1987 ON SUCH NOGOTIATIONS WITH ARGENTINA AND ON 21ST MARCH 1989 ON SUCH NEGOTIATIONS WITH CANADA.

Wednesday 7 June 1989

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1

The Committee consisted of the following Members:

Chairman: MR MICHAEL LATHAM

Blaker, Sir Peter (Blackpool, South)

Cash, Mr. William (Stafford)

Clark, Mr. Alan (Minister for Trade)

Clark, Sir William (Croydon, South)

Cryer, Mr. Bob (Bradford, South)

Curry, Mr. David (Skipton and Ripon)

Davies, Mr. Quentin (Stamford and Spalding)

Davies, Mr. Denzil (Llanelli)

Dickens, Mr. Geoffrey (Littleborough and Saddleworth)

Dorrell, Mr. Stephen (Loughborough)

Evennett, Mr. David (Erith and Crayford)

French, Mr. Douglas (Gloucester)

Garrett, Mr. Ted (Wallsend)

Harris, Mr. David (St. Ives)

Kennedy, Mr. Charles (Ross, Cromarty and Skye)

Madden, Mr. Max (Bradford, West)

Quin, Ms. Joyce (Gateshead, East)

Shore, Mr. Peter (Bethnal Green and Stepney)

Ms. E. C. Samson, Cttee Clerk

2 3 First Standing Committee on European Community Documents Wednesday 7 June 1989

[MR MICHAEL LATHAM in the Chair]

PROPOSALS DESCRIBED IN THE UNNUMBERED EXPLANATORY MEMORANDA SUBMITTED BY THE DEPARTMENT OF TRADE AND INDUSTRY ON 15TH AND 27TH OCTOBER 1987 AND 25TH NOVEMBER 1987 ON NEGOTIATIONS BETWEEN THE EUROPEAN COMMUNITY AND JAPAN UNDER GATT ARTICLE XXIV 6, ON 15TH OCTOBER 1987 ON SUCH NEGOTIATIONS WITH ARGENTINA AND ON 21ST MARCH 1989 ON SUCH NEGOTIATIONS WITH CANADA.

10.30 am

The Minister for Trade (Mr Alan Clark): I beg to move, That this Committee takes note of the proposals described in the unnumbered Explanatory Memoranda submitted by the department of Trade and Industry on 15th October 1987 and the Supplementary Explanatory Memoranda submitted by the Department on 27th October and 25th November 1987, relating to negotiations between the European Community and Japan under GATT Article XXIV.6, on 15th October 1987, relating to negotiations between the Community and Argentina under GATT Article XXIV.6 and on 21st March 1989, relating to negotiations between the Community and Canada under GATT Article XXIV.6; and endorses the Government's view that the agreements with these countries are satisfactory given the Community's obligations under GATT. Certain aridities are inseparable from discussion of GATT matters, as is clear from the motion. We are dealing with a technical matter arising from the Community's GATT obligations. We are now almost in the closing chapter of a long process which originated from the accession of Spain and Portugal to the Community in January 1986. As a result of that enlargement, the Community was obliged to enter into a series of negotiations under GATT article XXIV.6, with some of its major trading partners. My Department has submitted a series of explanatory memoranda informing the House of progress in those negotiations. On the Floor of the House on 12 March 1987, I explained the terms of the settlement reached between the Community and the United States under article XXIV.6, and I welcome the opportunity to complete the picture in respect of negotiations with Japan, Argentina and Canada. I shall first set out the nature of the obligations that arise under GArr article XXIV.6. The EC is a customs union with a common external tariff. Formation of a customs union or enlargement of one, such as the Community, necessarily requires adjustment in the external trade regimes of newly acceding members to bring their tariffs and those of existing member states into line. Frequently, certain tariffs will increase. In such circumstances, article XXIV.6 requires that an offer of compensatory 4 adjustments be made to other GATT contracting parties which have a principal supplying interest or negotiating rights for relevant items. Generally, no more than one or two trading partners have such rights for each tariff line. Such adjustments may take the form of reduced duty rates on imports of interest to the affected partner, or removal of other trade restrictions. However, third parties are not bound to accept an offer of compensation from a customs union and if, after negotiation, no acceptable solution can be found, retaliatory measures may be implemented. The potential for conflict arising from the aticle was amply demonstrated by negotiations with the United States. When Spain and Portugal joined the Community, some GATT contracting parties, including the three identified today, exercised their right to compensation. I shall briefly describe the negotiations with each country. Japan benefited from the enlargement of the Community, because of the reduction and removal of restrictions imposed by Spain and Portugal, which led to a significant opening of markets for manufactured goods in both countries. The negotiation with Japan under article XXIV.6 was, therefore, unusual, because the Community sought extra concessions from Japan, which would reflect the benefits accrued by that country from enlargement. The Foreign Affairs Council, supported by the Government, mandated the European Commission to negotiate with Japan under article XXIV.6 to secure such concessions. Japan finally agreed to reduce its import duties on a range of manufactured goods, and to ease market access to other, mainly agricultural, products, by removing certian non-tariff barriers. The Japanese Government resisted the idea of the EC claiming such a credit, and because the Community's argument had not been tested in GATT, the negotiations might have led to a damaging spiral of counter-retaliation. Although our Government considered the Japanese offer to be inadequate, a majority of member states accepted that the offer was the best that they could achieve in the circumstances. In November 1987, the Foreign Affairs Council approved the European Commission's recommendation to accept the proposed tariff and non-tariff adjustments. The Community had considered taking unilateral action against Japan by unbinding certain tariffs, mainly on electronic goods, in the expectation that the tariffs could later be increased without compensation. The Government favoured that course of action. By contrast, discussions with Argentina were standard article XXIV.6 negotiations. I stress that the negotiations arose because of the European Community's obligations to GATT contracting parties, and do not affect the United Kingdom's bilateral trading relationship with Argentina. Argentina claimed that the volume of its cereal exports to the Community was reduced because of implementation by Spain and Portugal of the common agricultural policy. The House has already debated a similar argument deployed by the United States. The European Commission was again mandated to negotiate on the Community's behalf. In October 1987, the two parties agreed to increase the quotas on Argentine beef and hake, and to reduce EC levies on wheat and bran. The House was informed of the agreement in an explanatory memorandum, which was subsequently endorsed by the Foreign Affairs Council. 5 The negotiation with Canada exemplifies the complex and often protracted nature of discussions under article XXIV.6. Those negotiations have not yet been completed, but they are advanced enough to justify a report to the House. Canada seeks compensation from the Community under article XXIV.6, because the enlargement of the Community has led to the impairment of some Canadian exports, including wet salted cod and barley. Lengthy technical consultations have ensued, devoted mainly to the status of Portuguese tariffs on cod. I hope that a settlement can be reached within a reasonable time. The House will be informed of progress through a supplementary explanatory memorandum when the details are clarified. The agreements will have a minimal effect on United Kingdom trade, but the negotiations were a necessary consequence of the member states' membership of GATT, and the rights accruing to other contracting parties. I believe that the settlements reached with other countries under article XXIV.6 strike an appropriate balance and I commend them to the Committee.

10.40 am

Ms. Joyce Quin (Gateshead, East): The Opposition respect our country's commitments under GATT and, given the "take note" nature of the motion, we cannot oppose it. However, the timing of the debate is frustrating, because many of the documents are old and the House of Commons Select Committee on European Legislation presented its report at the end of 1987. The explanatory memoranda are not clear, and an update on them would have been helpful. The decisions were arrived at by majority voting. The Minister said that Britain took a harder line than some member states, at least in the Japanese negotiations. Did the Government have any allies in taking that position? What was the majority in the Council of Ministers in favour of the agreement? The Government said that the agreements will have no major effect on British industry. Will the Minister confirm that, and say whether any industries or regions in the United Kingdom will be affected by what was agreed with Japan? The Opposition are worried, as are many people, about the continuing unsatisfactory trade balance between Britian and Japan, and between the EEC and Japan. There have been years of debate, in the House and other institutions, about the need to get tough with Japan over the trade balance, yet nothing changes. I noted with interest the admission by a senior official of the Japanese Ministry of International Trade, reported in the Financial Times of 2 June: "Japan still has 'lots to do' to get rid of structural obstacles to imports". That problem has been with us for a long time. Does anything suggest that matters are likely to improve, and that there will be a better trade balance in future? How have the concessions by Japan on the items listed in paragraph 2 of the explanatory memorandum of 25 November affected British industry? The explanatory memorandum of 15 October adopts a grudging attitude to the trade concessions offered to Argentina, stating: "The Government regrets the need to grant additional EC trade concessions to Argentina, particularly since that country continues through its own trade restrictions to deprive the United Kingdom of a 6 valuable export market … Moreover, the Government is satisfied that the proposed arrangements are the minimum required to secure agreement." The Government may be taking too hard a line, considering the severe economic problems in Argentina, which are far more dramatic than those of any European country. Britain has a special interest in helping a democratic Argentina, because long-term relations are likely to be better with a democratic Argentina than with one that degenerates into dictatorship and chaos. The agreement with Canada does not pose any particular problems for the United Kingdom, but I am puzzled by the length of time taken to conclude the agreement—the last document on the subject is dated March 1989.

10.46 am

Mr. William Cash (Stafford): I congratulate the Minister on his conduct of the negotiations on the United Kingdom's behalf. It is vital that we get right the negotiations with, for example, the United States over hormone regulation, or with Japan or any other country. That is a difficult task within the European Community, where the European Commission sits in front of the table and the other member states sit behind. That hampers the negotiation of matters that have a direct bearing on events in the United Kingdom. I understand that the decisions outlined by my hon. Friend were reached by a majority vote. I should be interested to know how the voting arrangements worked out. I have no doubt that my hon. Friend put forward a strong case for the United Kingdom in the European Community negotiations. But we have only to consider Nissan, or any of the other matters that directly affect the United Kingdom as distinct from any other member states, to realise that the decisions have a different impact in each country. Although we negotiate in the context of mutual relationships with our community partners, it is absurd to imagine that there are not direct interests that affect each country as well as the Community as a whole. Some of the matters that arise, such as the hormone regulation negotiations, appear relatively unimportant. But when they are extrapolated into issues of principle, which could lead to a trade war, be it with the United States or Japan, they can have a devastating impact on an individual country. Therefore, it gives me great confidence to know that we have a Minister who will do his best to fight for British interests, and I assure him that I and my hon. Friends on the Back Benches appreciate his efforts. I am worried that some of the papers that we have appear to be out of date. Moreover, as usual we are debating the matter very late in the day, but I shall not repeat what I have said so often in the House. I know that the search for practical solutions to the problem of dealing with such documents is in hand. Only yesterday, I received a letter from the Prime Minister acknowledging that the matter is under active consideration and that it will be dealt with. The reason why we have a trade deficit is perhaps more important than its size. Not until we produce goods of a quality and at a price that can compete with Japanese products will we be able to say that we can solve the problem. We can get rid of the unfair practices, the subsidies and the rest, but it comes down to the question of quality. That is what we must achieve in this country.

7

10.50 am

Mr. Bob Cryer (Bradford, South): I note that the Government regret the concessions to Argentina. I am sure that they do. After all, it is only seven years since Mr. Murdoch, that slavish ally of the Conservative party, urged us to "hate the Argies", and the Government embarked on a £2—billion escapade to attack Argentina.

Mr. Clark: No. We did not attack Argentina.

Mr. Cryer: The forces that were attacked were Argentine, although I accept that we did not attack the Argentine mainland. It is richly ironic that the Minister was one of those who urged our forces ever onwards. It gives some satisfaction to those of us who resisted the hysteria and fever that gripped sections of the nation and who voted against the armada to see the realisation of our pridiction that normal relations would be restored—[Interruption.] We voted against the armada.

Mr. Geoffrey Dickens (Littleborough and Saddleworth): It cost the hon. Gentleman his seat.

Mr Cryer: That is not true. The advent of Ilkley, stuffed to the gills with tones as a result of the gerrymandering of the Boundary Commission, cost us our seat. It had nothing to do with the fracas with Argentina. It is richly ironic—one or two otherwise rather somonolent Conservative Members are getting quite excited about it—that this proposed trading relationship is with a country wich was once the focus of the Government's hatred and derision. The Government were very much in favour of the accession of Spain and Portugal to the EEC, and the enlargement of the Community. I was rather cautious about it, because I am not a supporter of the EEC. I did not believe that the enlargement would bring many benefits to the United Kingdom, or, indeed, to anybody else. The curious thing is that as a result of the accession of Spain and Portugal, an organisation that is stuffed to the gills with cereals now has to accept reduced levy arrangements on 550,000 tonnes of Argentine wheat bran, and an organisation which has run out of storage space for beef inside the Community-we have been storing it in Austria-now has to accept additional quanities of Argentine beef. It may be outside the scope of this rather narrow discussion, but I should like to know whether that consequence was foreseen when the Government were busy advocating the entry of Spain and Portugal into the EEC, or whether it was an unforeseen complication resulting from the highly technical relationship that exists under GATT. It is clear that market forces are not prevailing here and that Conservative Members and the Minister will be supporting the rather bland motion to take note, which I support. It involves many complicated negotiations, and it is clear that the Government do not rely on the market forces to which they so often express their philosophical attachment. On the question of relations with Japan, I believe that the hon. Member for Stafford (Mr Cash) was right when he said that we had to recognise the quality of some Japanese 8 products. It is a difficult series of negotiations, and the memoranda make it clear that the Japanese are hard negotiators. It is interesting, incidentally, that the Japanese are extraordinarily successful in manufacturing and distributing their products through the world without the need for a common market of 320 million people. The advocates of the Common Market are always telling us that without this huge market, we shall never be able to develop manufacturing industry because we do not have a market that we can call our own and that we can use to develop economies of scale and so met international competition. The Japanese do that all the time without a common market, and no doubt an enthusiastic pro-market fanatic will leap to his feet to tell us why. As I said, the hon. Member for Stafford was quite right to raise the matter of quality. First, the Japanese economy is guided and planned and secondly, the Japanese are tough international negotiators. I should be interested to know what the voting pattern was when the United Kingdom wanted to carry out further negotiations but was outvoted in the EEC.

Mr. Madden: My hon Friend has been listing the many explanations for the Japanese success in economic and industrial activity. Does he agree that another explanation for that success may be that the Japanese have succeeded in avoiding an extremely heavy defence budget, which is clearly a serious barrier to the United Kingdom's economic success?

Mr. Cryer: My hon Friend is right. Only yesterday the Prime Minister said how necessary it was for us to spend money on nuclear weapons. The desirable level of quality to which the hon Member for Stafford referred is reached through heavy investment by the Japanese in manufacturing industry. One of the features of our manufacturing industry is that a large part of it is defence-related expenditure. We choose to spend £11 billion on Trident nuclear weapons. The Japanese do not manufacture or deploy nuclear weapons, but put their resources into intelligence and their money into manufacturing industry. That must be an important element in their enormous success in manufacturing and selling their goods, to the standard described by the hon Member for Stafford.

Mr. Cash: The hon Gentleman is far too clever to fall into the trap into which the hon Member for Bradford, West (Mr Madden) fell, when he spoke about defence without distinguishing between nuclear and other forms. The hon Member for Bradford, South (Mr. Cryer) must know that the Japanese are now the third or fourth largest spenders on defence—

Mr. Alan Clark: Third.

Mr. Cash: Thank you, Minister. The Japanese are the third largest spenders on defence, so the Opposition's comments are blown to smithereens.

The Chairman: Order. Before the hon. Member for Bradford, South (Mr. Cryer) resumes his speech, may I respectfully remind the Committee that there is a list of the products covered by the negotiations, so it would be helpful if we could stick to the documents. The hon. Gentleman made a passing reference to them.

9

Mr. Cryer: I am grateful, Mr. Latham and I am sure that the Minister is pleased —

Mr. Alan Clark: We cannot allow a falsehood to go uncorrected.

Mr. Cryer: I echo the point made by my hon. Friend the Member for Bradford, West (Mr. Madden). Some industries, including the textile industry, have a record of successful exports to Japan. I wish to put on record my appreciation of the fact that the export levy for the wool textile industry has been extended by the Minister. That represents a sensible way of collecting resources through the industry to mount a campaign to facilitate exports. If we ignore such a facility in our exporting, other countries do not. Japan certainly does not ignore the need for collective resources to be put behind export efforts. I mention that because the textile and clothing industries are facing difficulties, although they have a successful export record, especially to Japan. The memoranda make it clear that that is a difficult market to enter and a difficult country with which to negotiate. I wonder why the Select Committee reported the memoranda for debate. The matter is not controversial. If the Select Committee simply wished the matter to be on public record, so much the better. It is a fairly narrow subject, but one of the difficulties that has been pointed out by my hon. Friends is that the matter is being dealt with over a span or two years. Although the negotiations are obviously linked, some of the memoranda are clearly otiose and are provided simply for information, as the matter is finished. We must be able to exercise proper and probing scrutiny of the Common Market arrangements. Parliament cannot exercise its power two years or so after a series of events has been reported. I am sure that the Minister sympathises with my argument and will proffer an explanation why we are dealing with the matter after such a long time.

11.1 am

Mr. Alan Clark: Several cogent points have been made by hon. Members I shall structure them round my response to the hon. Member for Gateshead, East (Ms. Quin). The Committee has made a valid complaint about documents being late. My hon. Friend the Member for Stafford (Mr Cash) played a conspicuous part in drawing to the attention of the House, and the Government, the inconsistency that affects our policy with regard to the timing of such documents. In many cases, they should be scrutinised by the House, either in Standing Committee or on the Floor. But if they ever reach such forums, they tend to do so far too late. There is no doubt that the mood is changing thanks partly to my hon. Friend's efforts and interventions and the opinions expressed by other hon. Members. We should seek to reach a stage when such memoranda can be considered by the House, when necessary, ideally before the matters are debated by the Council of Ministers. I reject entirely the argument that, because of the Single European Act and majority voting, there is no point in bothering to examine the memoranda as we cannot affect the result. That is a bogus and defeatist argument. Even when we anticipate that we will be in the minority, the reaction of the House of Commons to proposals is important. It strengthens our negotiating hand. It carries some weight, certainly when we are talking to the 10 Commission. However, it is of little value if our reaction is demonstrated after the event. The Single European Act and the majority voting rules make it important that the opinion of the House of Commons is fed, at an early stage, into any legislation that may affect us. I am grateful to members of the Committee who emphasised that point. The second point made by my hon. Friend the Member for Stafford was that we should consider carefully memoranda that directly affects United Kingdom interests. In this case, they do not significantly do so, but that should be the criteria by which to decide whether or not the House should attempt to consider documents at an early stage. The hon. Member for Gateshead, East mentioned the alternative that the United Kingdom favoured—extracting concessions from Japan. She asked what the opinion of the Council was about that. I can tell her that the French were wholly supportive of our attitude. The Germans, Dutch and the Danes were frightened of becoming involved in retaliatory action. The Spanish and the Portuguese were conciliated—I try to avoid the words "brought off" — by what we would have regarded as relatively minor concessions. However, we were not strong enough to oppose such opinions. I emphasise that we have extracted concessions from Japan in return for Community enlargement. The hon. Member for Gateshead, East asked about industrial or regional effects, and I can tell her that if there were any, they would be beneficial. We were not conceding anything, we were extracting a concession. The hon. Lady also said that nothing in our trade relations with Japan was changing. That is not strictly correct. She and other hon. Members will recall the great indignation shown by the House of Commons about two years ago when it became apparent that the Japanese were doing nothing to open their markets. That was a valuable and salutary occasion. Much flowed from it. Since then an improvement has been forced in the opening of the Japanese market. Last year our exports increased by 17 per cent. In the first quarter of this year they increased by 37 per cent. There is no doubt that Japan is taking many more of our exports and that our general trade with that country is benefiting from market opening. Of course there is an enormous amount still to be done. The topic may be debated on the Floor of the House later in the Session and I hope, indeed, I am sure, that hon. Members on both sides of the House will contribute effectively to the debate so that the mood of the country will be easier to gauge. I was interested in what the hon. Member for Bradford, South (Mr. Cryer) said about Argentina. The hon. Member for Gateshead, East said that we should look forward to reasonable trading relations with Argentina now that it is a democratic country. That is a legitimate view. The United Kingdom has no restrictions on trade with Argentina. All the remaining restrictions were imposed by the Argentine Government. We are ready to trade openly and freely with that country. I was interested when the hon. Member for Bradford, South revealed that he opposed our military action. He was pro-Argentine, when the Argentine Government, far from being the democratic institution that the hon. Member for Gateshead, East commended, was a dictatorship that imprisoned its own citizens, occupied British territory and announced that British subjects who did not salute the Argentine flag would be put in prison. A foreign dictatorship imposed restrictions on 11 free expression of opinion in a British territory yet the hon. Member for Bradford, South has the gall the admit that he opposed the British military action.

Mr. Cryer: I know that the Minister would not want to leave incorrect notions on the record, so I must explain that to oppose the Prime Minister's mad armada was not to be pro-Argentine. The Minister will recall vividly that the effect of the armada was to unite Argentina when the Argentine workers had organised a strike against their Government. They stopped that effort in order to back the Argentine Government against the armada. The British Government's position was counter-productive.

Mr. Clark: We are straying into the realms of history, Mr. Latham, I am afraid, but the effect of what the hon. Gentleman calls the armada was to unseat the Government of the dictators and have them all put in prison and put on trial. The result was free elections. Our action was doubly beneficial both in recovering British territory and freeing British subjects, and, indirectly, in restoring democracy in Argentina. The only remaining unanswered question was about Canada.

Ms. Quin: Before the Minister deals with Canada may I explain that when I spoke about our trade with Argentina my argument was that although it may be fair to have no trade restrictions against that country, perhaps we should consider, given Argentina's present special financial and economic circumstances what positive initiatives could be taken on trade between the EEC and Argentina.

12

Mr. Clark: That is a question so much wider than what we have been discussing that I prefer to leave it for discussion at another time—perhaps during Question Time. Such a decision would be a matter for the Commission and the Community. What form it might take could be discussed in a different forum. The Canadian negotiations continue. As for the hon. Member for Gateshead, East said, they have been extraordinarily protracted. That can often happen; indeed it is a characteristic of exchanges of view among experts. The more technical and arcane the subjects, the longer the discussions can continue. However, the United Kingdom interest is minimal and we expect the discussions to finish very soon. I commend the motion to the committee.

Question put and agreed to.

Resolved, That this Committee takes note of the proposals described in the unnumbered Explanatory Memoranda submitted by the Department of Trade and Industry on 15th October 1987 and the Supplementary Explanatory Memoranda submitted by the Department on 27th October and 25th November 1987, relating to negotiations between the European Community and Japan under GATT Article XXIV.6, on 15th October 1987, relating to negotiations between the Community and Argentina under GATT Article XXIV.6, and on 21st March 1989, relating to negotiations between the Community and Canada under GATT Article XXIV.6; and endorses the Government's view that the agreements with these countries are satisfactory given the Community's obligations under GATT.

Committee rose at eleven minutes past Eleven o'clock.

THE FOLLOWING MEMBERS ATTENDED THE COMMITTEE:

Latham, Mr. Michael (Chairman)

Blaker, Sir P.

Cash, Mr.

Clark, Mr. Alan

Clark, Sir W.

Cryer, Mr.

Davies, Mr. Quentin

Davies, Mr. Denzil

Dickens, Mr.

Dorrell, Mr.

French, Mr.

Harris, Mr.

Madden, Mr.

Quin, Ms.