Ec — United States Trade

– in the House of Commons at 10:12 pm on 12th March 1987.

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Photo of Mr Alan Clark Mr Alan Clark , Plymouth, Sutton 10:12 pm, 12th March 1987

I beg to move, That this House takes note of the unnumbered explanatory memorandum dated 31st January 1987, submitted by the Department of Trade and Industry, describing a draft Decision concerning the Agreement between the European Community and the United States of America for the conclusion of negotiations under General Agreement on Tariffs and Trade (GATT) Article XXIV.6, and European Community Document No. 5062/87 and the Department's unnumbered explanatory memorandum, dated 23rd Feburary 1987, on the implementation of the Agreement; and welcomes the Agreement as the means of averting an exchange of retaliatory and counter-retaliatory trade measures between the United States and the Community which would have very serious consequences for EC-US trade, for the multilateral trading systems and for progress in the new round of multilateral trade negotiations now beginning in GATT.

As my right hon. Friend the Secretary of State explained to the House on 3 February, in view of the urgency of settling the dispute by 30 January, we considered it better not to delay adoption of the Council Decision regarding the agreement until the Select Committee had had an opportunity to consider it. I should like to assure the House that no disrespect was intended in not following the normal scrutiny procedures on that occasion.

I should also inform the House that, in addition to the two implementing regulations described in the explanatory memorandum dated 23 February, the Commission has now submitted two further proposals to deal with the technical administration of the tariff quota and the technical administration of the tariff quotas for dried onions and plywood. These proposals were produced only yesterday in Brussels as informal working group documents, and they will be subject to the normal scrutiny procedures as soon as possible.

The motion that we are debating recognises the terms of settlement of a trade dispute between the European Community and the United States which, had it been allowed to escalate, could have caused severe damage to the trading prospects of certain industries on both sides of the Atlantic. The Community held firm under duress and in the face of threats to its trade from the United States which were not justified. The trade of several member states, including the United Kingdom, was directly threatened with prohibitive duty levels in the United States. We continued to work—in the end successfully—for a negotiated settlement, while making it clear that if the United States raised tariffs illegally and unilaterally we would respond.

There is, from time to time, talk in the press and other media about "trade wars" between the Community and the United States. Trade wars start like other wars— that is to say, in a mutual or perhaps unilateral view that the customary diplomatic processes of negotiation are no longer valid.

One side takes the view that the other side is applying unfair discrimination against its exports and takes retaliatory action against imports from the other side, which then leads to a series of further counter-retaliatory measures. The United States and the Community have not fallen into that trap. There has been no trade war. But the risks remain, with United States' protectionists continuing to make much of the estimated $170 billion United States trade deficit last year.

Hon. Members will have read reports of a series of disputes over trade matters between the Community and the United States. The background is as follows. The United States Congress passed a number of measures last autumn which have had an adverse effect on imports, including imports from the United Kingdom. Consultations on, and objections to, these measures are being pursued by the Community—as they should be—in the general agreements on tariffs and trade under established procedures. The same is true of certain discriminatory measures taken by the United States Administration.

The United States has made an agreement with the Government of Japan to monitor the price of semiconductors exported not only to the United States but also to third markets including the Community. It has also made approaches to some other countries about limited exports of machine tools to the United States in a way which is contrary to the undertaking made at the GATT meeting last September not to introduce new trade restrictions outside the framework of GATT. It is true that the United States Administration has resisted many calls for protectionism in Washington and deserves some credit for that. The proposal once more that the Community should impose a tax on oils and fats to improve revenue under the common agricultural policy and narrow the price differential between dairy products and other oils and fats is plainly undesirable. The United States has threatened retaliation against Community trade if this proposal is adopted. My right hon. Friend the Foreign and Commonwealth Secretary has made clear the British Government's opposition to that.

Although there are a number of disputes with the United States, there is as yet no trade war. That is important because British, like United States, industry has a great deal to lose in transatlantic trade. Last year, our exports to the United States were worth £10·3 billion, and we took in return imports of £8·5 billion, making a surplus in our favour of £1·8 billion. For the Community as a whole, two-way trade with the United States in 1985 was over $110 billion, with an advantage to the Community of $13 billion.

Before I turn to the details of the motion itself I should like to emphasise one important point. It is said that nobody wins from a trade war, but at the same time the United Kingdom and its Community partners have to defend to the full their legitimate trade interests. The House would be disturbed if I argued otherwise. The Government are therefore extremely concerned by the introduction in the United States Congress of the Textile and Apparel Bill. That is claimed to accord with GATT, but since the agreement in Punta del Este on a standstill on protectionist measures, to which the United States was a party, it clearly does not.

My right hon. Friend the Secretary of State has already told the United States Administration in plain terms that that Bill would, if enacted, have extremely damaging consequences for our textile and clothing industries. If the Bill is enacted, despite the stated opposition of the Administration, the United Kingdom would be bound to consider with its partners in the Community what retaliatory action against United States exports would be appropriate in accordance with our international obligations.

I shall now deal with the detail of the motion we are discussing tonight. When Spain and Portugal joined the Community last year, that fact was reflected in changes to the common customs tariff of the Community. Under the terms of GATT, articles XXIV and XXVIII, in such circumstances the partners in a new customs union are required not to apply levels of protection which would be higher overall than those previously applied by the constituent parties; and if the level of protection is increased, appropriate compensation must be offered to the other GATT members affected by the increases, in the form of concessions elsewhere. The United States stood to lose markets in Spain for corn and sorghum as a result of the imposition in 1986 of the Community system of variable import levies on cereals which created a large preference for supplies of those and similar cereals from other Community countries. The United States estimated the value of that trade at some $400 million.

The Community recognised that the terms of GATT entitled the United States to some compensation in these circumstances. But the Community argued that United States exporters stood to gain—though the benefit could not of course be quantified — from the progressive reduction of tariffs and quantitative restrictions on imports of manufactured goods into Spain and Portugal during the transitional period.

The United States did not accept that interpretation of the GATT provisions. It announced in May 1986 that unless the Community was prepared to negotiate appropriate compensation with it, essentially at levels which were clearly excessive, it would impose restrictions on imports from the Community. Some suggestions were made as to the classes of goods which might be subject to retaliatory measures. In practice, and despite an interim agreement during our Presidency that a negotiated settlement should be sought by 31 December, it was impossible within that deadline to narrow the gap between the two sides. Accordingly, the United States announced on 30 December 1986 that, unless agreement was reached between the two sides by the end of January, the import duties applied by the United States to certain imports from the Community would be increased to 200 per cent. The products specified included bottled gin and cognac, several types of cheese and other agricultural products.

Photo of Mr Colin Moynihan Mr Colin Moynihan , Lewisham East

Does my hon. Friend accept that the position adopted by the American Government in January regarding for example, the export of Beefeater gin to the American market was unacceptable and intellectually irrational in view of American support for Spanish and Portuguese accession to the Community? Does my hon. Friend agree that if the Americans try such protectionism again the Government will strongly oppose it?

Photo of Mr Alan Clark Mr Alan Clark , Plymouth, Sutton

Yes, it would certainly be extremely damaging. The American action was highly discriminatory as it was directly targeted on the United Kingdom. My right hon. and learned Friend the Foreign Secretary and my right hon. Friend the Secretary of State for Trade and Industry emphasised to the Commission the Government's extreme concern about this. Certainly that was reflected in the resolute and ultimately successful negotiating position taken by the Commission.

All the products concerned would have effectively been shut out of the American market by such high duties. As my hon. Friend the Member for Lewisham, East said, that would have had especially penal results on the United Kingdom's gin exports. British exports of bottled gin to the United States are alone worth $75 million a year. In return, the Community announced on 15 January that, if the proposed United States measures were implemented, it would retaliate with an additional levy on United States exports of corn gluten feed and rice.

The Commission's objective was to negotiate with the United States Administration an agreement that, consistent with the Community view on what was clue, satisfied at least in part United States domestic pressures. On 30 January the Council agreed to a package under which for a period of four years from 1987 to 1990 Spain will import not less than 2·3 million tonnes of feed grains at reduced levy rates, albeit reduced by the volume of imports of certain cereal substitutes into Spain. Most of these feed grains can be expected to be provided by the United States. Further, the Community agreed to reduced tariffs on certain agricultural and industrial products for the same period. These included certain fruit juices, avocados, roasted nuts and bourbon. Industrial items include various bromides, anti-knock preparations, epoxy resins and aluminium.

Photo of Mr Alan Clark Mr Alan Clark , Plymouth, Sutton

I do not know if it is the absurdity of the list or some innate desire on the part of the House to lighten the atmosphere, but I believe that it is faintly ridiculous.

Photo of Robin Cook Robin Cook , Livingston

What about the bromide?

Photo of Mr Alan Clark Mr Alan Clark , Plymouth, Sutton

The bromide is being administered, but it is the stimulant that perhaps is lacking.

The tariff reduction is autonomous; in other words it has not been made permanent in GATT. These arrangements will be reviewed in July 1990, and in the event of Council approval on 16 March the tariff changes will be implemented, three days after their publication in the Official Journal of the European Communities, on the basis of the proposal from the Commission, described in the explanatory memoranda noted in the motion.

In addition, the Community has agreed to re-bind in GATT the duties previously bound for the Community of 10, subject to the duty rates specified for Spain and Portugal during the transitional period. Both sides have agreed to raise the ceilings under indicative and non-restrictive quotas on certain classes of goods which were imposed last summer because of a similar but lesser, dispute about access to Portugal of United States oil seeds. Consequences of this settlement are positive in that the newly-enlarged Community has won formal and political recognition as a negotiating entity. There will be formal recognition by the United States ratification in the GATT of the trade consequences of enlargement and political recognition by the success with which a united Community has conducted a difficult negotiation.

In financial terms, the Commission estimates that the tariff concessions will result in a loss of about £35 million ECU of customs revenue. To the extent that United States corn displaces home-grown feed grains from the Spanish market, there could need to be higher Community expenditure on export refunds or on purchases into intervention. Against that can be set additional income from levies on United States corn. These should amount to between 200 million to 300 million ECU per year.

These sums are small beside the possible damage that might have resulted from escalation.

Photo of Robin Cook Robin Cook , Livingston

The Minister has said that to the extent that American grain displaced European grain there could be an additional effect on the budget for intervention. Surely that is inevitable if there is an American sale to the Spanish market. As it is apparently possible for civil servants to put a figure on the income from American grain, surely it is possible for them to put a figure on the cost of buying into intervention the equivalent amount of European grain.

Photo of Mr Alan Clark Mr Alan Clark , Plymouth, Sutton

The hon. Gentleman has raised a point that occurred to me. I made inquiry, but I understand that it is not possible to give an answer to the question that would have any high level of precision attached to it. For that reason, the information was omitted.

Photo of Robin Cook Robin Cook , Livingston

I accept that it is not possible to achieve an arithmetically precise figure down to the last ECU. I assure the Minister, however, that I would accept a low level of precision and a broad order of magnitude. There must be a figure available similar to 230 million ECU that is accurate at least to the nearest 10 million.

Photo of Mr Alan Clark Mr Alan Clark , Plymouth, Sutton

That seems a reasonable request and I shall ensure that the hon. Gentleman is informed. Perhaps a written question could be arranged so that the House is aware of the approximate answer. That can appear in the Official Report.

The essential achievement of the negotiations is that we have preserved United Kingdom export markets in the United States worth at least $75 million. There may be some increases in United States deliveries of products on which duties have been reduced, but I do not believe that such increased imports will put any part of the United Kingdom industry at risk, especially when we view the settlement in the light of the larger risks to our trade with which we were faced. More broadly, the successful settlement of a politically troublesome dispute within the terms of the general agreement should enhance the GATT's standing. This is important at the outset of the Uruguay round of multilateral trade negotiations, of which the start of the substantive phase coincided with this deal.

This settlement marks a successful end to a serious dispute. The outcome is in many ways encouraging, not least because it arose in the framework of existing GATT rights and obligations on both sides, and was ultimately settled within that framework. It differed from the other separate disputes which I have mentioned previously. But these disputes relate to American actions which are to a greater or lesser degree contrary to the terms of the GATT. The lesson which both sides have, I hope, learnt is that restriction and retaliation in international trade can be profoundly damaging. The enlargement dispute has shown that the United States and the Community, however loud the rhetoric on both sides, can manage their trade relations with one another sensibly, and must continue to do so in the series of rather different disputes that we still face. I hope that this message will not be lost on those in Washington who would prefer a different approach.

Photo of Robin Cook Robin Cook , Livingston 10:29 pm, 12th March 1987

As the Minister has said, the document marks the descent of the House from the high field of arts policy to trade in dried onions and plywood. It is no doubt an important matter for debate, but it appears to have rather more limited appeal than the arts. It may help to put the Minister's mind at rest if I assure him now that it is not the Opposition's intention to divide the House at the end of the debate. After all, we are considering the terms of settlement of what might be described as the cheese and cocktails war. As the party of peace, we are happy to accept a peace settlement on whatever terms.

For the record, it is important that we make our position clear on the negotiations and on the demand that sparked them off. It is our position that the United States action was wholly unjustified. As the hon. Member for Lewisham, East (Mr. Moynihan) reminded the House in an intervention in the Minister's speech, the United States warmly and strongly supported the accession of Spain and Portugal to the Common Market. Indeed, it is possible to find American congressmen who spoke more warmly and strongly in support of the accession of Spain and Portugal than some hon. Members. The Americans saw political and strategic advantages in the accession of Spain and Portugal. They also, although they might not have talked about it in quite the same terms, saw economic advantages from that accession — that is, indirect economic advantages from the faster growth of the economies of Spain and, to a lesser extent, Portugal, which were anticipated by their Government, and direct economic advantages from the reduced manufacturing tariffs that that accession necessarily produced.

The Americans could not expect such advantages to come with no price. A clear price that they might well have anticipated at the time — it was wrapped up in protracted negotiations—was that the Spaniards and the Portuguese would meet their future cereal needs from the large cereal surplus of the Community that they were about to join. Nobody suggested that the United Kingdom would be compensated for the additional budgetary burden that we now bear as a result of the increased cost of CAP caused by the accession of Spain and Portugal. It is a bit much for a third party to suggest that we should play a part in compensating them for the cost of such accession.

Not only was the United States action unjustified but it was wholly disproportionate. As the Minister said, we have narrowly avoided an escalatory spiral of retaliatory action. Over what? Over a modest amount of maize exports amounting to between £350 million and £400 million, which, I understand from a calculation that has been relayed to me, amounts to 20 minutes' worth of the United States federal budget.

We have come to the brink of a trade war over what is, both literally and in budgetary terms, chickenfeed. It is certainly the case that a major problem underlies the negotiations. That problem stems as much from the nature of the CAP as from anything else. The problem is that the major Western blocs of Europe and North America have substantial agricultural surpluses and are having increasing difficulty in finding a market in the rest of the world in which to dispose of them. That is an ironic position to be in at a time when much of the Third world faces greater hunger. It would appear that a rational solution to the problem would be either to find non-market ways of meeting the needs of the Third world or, alternatively, reducing the CAP as an engine for further increasing the advanced world's surplus of agricultural products. Oddly, this settlement would appear, far from diminishing the CAP, to give it additional impetus by increasing the stocks to be held in intervention that ultimately will probably work their way through to the world markets.

The American action was not only unjustified and disproportionate but illogical. A major consequence of the United States proposals would be that the price of gin in New York would rise from £7 a bottle to £13 a bottle, with predictable effects on United Kingdom exports to America. It is difficult to see why it is either fair or logical for British distillers to be hit because Spain is now buying maize from French farmers. There is no logic or fairness to that proposition. It is based solely, one suspects, on the wish of the United States to maximise political pressure from their measures by ensuring that there is pressure on different Governments within the Economic Community.

Photo of Robin Cook Robin Cook , Livingston

I am inclined to say that it would be one additional reason why Britain might have been better to have stayed out of the Common Market in the first place and thereby not put its head in the noose. It is ironic that political pressure should be applied in this way to a United Kingdom Administration who have done so much to further American interests. They have bought AWACS from the Americans and sold Westland to the Americans. It might be a hit much to expect the Americans, in return, to buy more of our weapons, but one might have expected them, in gratitude, to drink more of our gin.

We have to conclude that the American action was unjustified, disproportionate and illogical. Therefore it is disappointing that the Americans appear to have got so much of what they wanted out of the negotiations and that the counter-bluff—because that is what it now appears to be—of the Common Market was called. After the agreement, the president of the National Farmers Union was quoted as saying that the concessions had gone too far and that the agreement would aggravate the EEC surplus problem, drive more grain into intervention and add to the cost of the Common Agricultural Policy. Producers cannot be expected to bear the costs of what is essentially a political decision. The succint nature of that statement conveys two familiar themes of the farming lobby—first, that there ought to be more money to spend and, secondly, that it must not come out of their pockets.

It is regrettable that the final settlement should have been so advantageous to the United States and, other than avoiding retaliatory measures against the United Kingdom, that it should have contained nothing for the British. Nevertheless, one views the settlement with relief and we do not wish to stand in its way, for fear that it should trigger retaliatory measures that would have an impact on British distillers. Therefore we shall not oppose this motion. However, it would be appropriate to take this opportunity to put down markers for future EEC-US negotiations that may touch more centrally on United Kingdom interests. I shall refer to two of these. The Minister has already referred to one of them, but the first one, to which he did not refer, is Airbus.

Airbus is a resoundingly successful project. As a passenger plane it has evoked more advance interest than any previous passenger aircraft model. Among the interests it has attracted is that of the United States Administration. At present, United States producers hold 80 per cent. of the passenger aircraft market, and they will resist any serious threat to their dominance of that market. To break into that market will therefore, be tough. There will undoubtedly be pressure—perhaps not directed this time at London Gin—to persuade the European countries to back off that threat to the United States' monopoly of the market. If we are to succeed in breaking that monopoly and if we are to obtain a fairer share of the market for European producers, we shall have to be tougher in the negotiations than we were in the recent confrontation.

Photo of Robin Cook Robin Cook , Livingston

The hon. Gentlemen assures me that the Government are being tough I welcome their toughness, but that toughness will have to go right through the negotiations. What has caused us concern about the recent negotiations is that although the EEC was tough, the agreement suggests that the Americans got very much what they wanted.

My second marker was referred to by the Minister—the attempt to increase textile protection by the United States Congress. I refer in particular to the Bill that was introduced by Congressman Derrick to impose quotas on textile exports from any part of the world, including the EEC—therefore including Britain. That causes acute concern to British producers, as witnessed by the presence in the Chamber of the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) and of my hon. Friend the Member for Bradford, West (Mr. Madden), who takes a close interest in the subject.

Such a quota would not merely affect British exports of £300 million worth of textile goods to the United States; it would have a greater impact on the United Kingdom textile market. Other exporters to the United States would find that their exports were diverted to the United Kingdom domestic market, thus possibly posing an even greater loss of trade than the loss of exports to America. The Bill appears to pose a real threat.

The Jenkins Bill on similar lines a year ago went through Congress. It was halted by the President's veto. When considering the President's veto, Congress voted for the Bill by 60 per cent., only narrowly failing to achieve the necessary 66 per cent. vote to overturn the veto. It must be of concern that in the comparatively weaker state of the President's political authority, his veto is more vulnerabile to being overturned by Congress. Therefore, I strongly support what the Minister said tonight, reflecting the words of the Secretary of State for Trade and Industry that the Government regard this as a serious matter. I assure the Minister that the Opposition regard it with equal seriousness and very much hope that the House will not be obliged to debate future terms of settlement which represent a climbdown in negotiations that parallel the climbdown we are now considering.

The background to the settlement and to Congressman Derrick's Bill is a chronic, gathering, structural deficit in the American balance of trade. All the signs are that as that deficit becomes graver, the Americans will become a much more aggressive trading partner. Congressman Derrick's Bill is, I understand, only one of 400 protectionist Bills currently before Congress. The settlement in front of us reflects only one conflict in the past year, which has also seen conflict between the EEC and the United States over steel, pasta and citrus fruit, a dispute which has been rumbling for 16 years.

There will be other and heavier conflicts in the next year. The document and the motion we are considering reflect the solution to one conflict, but they do not remove the roots of conflict. The House may have to return to the underlying tension between the United States and Britain and the European countries in the trade war. When we return to the matter, the Minister may well find that we shall demand a tougher approach in negotiation and a more advantageous solution than we have before us tonight.

Photo of Bill Cash Bill Cash , Stafford 10:42 pm, 12th March 1987

As a member of the Select Committee on European Legislation I think I speak for other members of the Committee when I say that we understand the circumstances in which this matter has come to the House. Of course, I accept entirely the Minister's remarks on the subject.

However, I feel strongly that we have to improve the way in which we deal with European legislation. I do not intend going into all the matters arising out of the Single European Act but merely point out that at 10.42 pm on a Thursday, in a virtually empty House, we are discussing a matter of the gravest importance to British trade. Just to take one example, those who produce gin were in severe danger of losing the significant market to which the Minister referred. From the correspondence that I have had with the Minister and from the way in which he has conducted the negotiations I know—I do not say this lightly, because I have followed the negotiations with great interest—that there are few members of this Administration or of the House in whom one could have more confidence to defend British interests in these matters.

I took the comments of the hon. Member for Livingston (Mr. Cook) badly, because he damned with faint praise a good result in the negotiations. Here we are at this time of night discussing this important question. I make a strong protest at the way we treat these matters.

On the substantive question, the hon. Member for Livingston made a point about the EEC and how it functions. I am not anti-Europe, but I am distinctly sceptical about how the mechanisms work. Unless we get that in order there will be big trouble in this country over the next few years. The hon. Gentleman said that a whole range of other measures are still to come.

We are poised in a dangerous situation on the United States-Europe front for the next 18 months. We have to ask why we are in that position and what we are to do about it. In a nutshell, significant internal domestic and agricultural problems are facing the farmers and manufacturers in the United States. Whatever the reasons, those pressures have built up and will come through in votes and pressures upon Congressmen in the United States. We cannot and must not kid ourselves that that is the case.

Therefore, if we, as a member of the EEC, find ourselves targeted in specific trade or agricultural sectors, we must consider how to respond within the mechanism of the EEC legitimately to defend ourselves. Firstly, there is the GATT round. I am confident that the Minister who has responsibility in that field, with his credentials, will conduct himself in a manner which will ensure that we defend ourselves effectively from the worst effects of the kind of trade war which is in prospect.

I have put my protest on the record. I hope that the Minister, and anybody else who has the opportunity, will refer this question to the Foreign Office and to the Leader of the House under the terms of reference of the Select Committee on European Legislation. Our terms of reference are very poor. We do not have the opportunity to consider things as we should. It is essential that we are brought early into the picture, by one mechanism or another, when matters of this kind arise.

That does not mean that we would exercise our powers in any irresponsible or unnecessarily restrictive way, but it would ensure that the power which is reflected in the person of the Minister, who is sitting on the Front Bench, is backed where necessary by the authority of a Committee of this House. Here we are representing the United Kingdom on a matter of great importance after the event and we have not had an opportunity to debate it. I cannot believe that is a sensible way to legislate or to defend the interests of our constituents.

Photo of Mr Eric Deakins Mr Eric Deakins , Walthamstow 10:49 pm, 12th March 1987

I share with my hon. Friends on the Front Bench and the Minister the feeling that trade wars are bad and that fortunately we have managed to avert one. There I part company with the Minister, whose speech was very good when it concentrated on trade, but sections of it—no doubt inserted at the insistence of the Foreign Office—betrayed the Foreign Office's style. The bombast about the Common Market and the way we had stuck together was rather nauseating. I cannot believe that the Minister, if he thinks about it, would have allowed that sort of passage in his speech, which was otherwise a very good factual account.

As both Front-Bench spokesmen have pointed out, the dangers of a trade war are still with us not merely in themselves but in the context of the Uruguay round of GATT negotiations which for the first time will cover agriculture. The present dispute is scarcely a good forecaster of success in those negotiations.

Both Front-Bench spokesmen took the view that when the dispute began the Common Market was in the right and the United States in the wrong, but in my opinion it was the other way round. In April last year the French Minister of Agriculture said: It seems that a more complete study of the consequences of enlargement —with the admission of Spain and Portugal— shows that it will not harm the US but bring it not inconsiderable advantages, particularly in the industrial sector. It may be said that that was just the French Minister speaking, but in November 1986, following a Community Foreign Affairs Council at which the subject had figured prominently, Agra Europe said: At the basis of the disagreement is the US refusal to accept the Community thesis that losses in agricultural exports in Spain and Portugal will be balanced by easier access to the Iberian market for their industrial goods. That may be all right in economic theory, but it is not acceptable under the rules of GATT. Indeed, it is illegal. If there was illegality, therefore, it was on the Community side and not on the United States side. Under article 24 of GATT, when a customs union is created—or expanded, as in this case—any country whose trade is adversely affected specifically by changes in customs duties, tariffs, quotas, and so on, is entitled to appropriate and quantifiable compensation, not vague compensation of the type implied by the suggestion that if industrial tariffs come down it may be possible to sell more motor cars, for example, in the new market. The Community was wrong in its initial approach to the issue and infortunately stuck to that approach even as far as November last year.

The United States reaction was not surprising, although it clearly went over the top. It was certainly ridiculous to claim, as the United States claimed at one stage last year, compensation equivalent to some 12 million tonnes of grain exports to Spain and Portugal when the trade involved had clearly been less than that. Nevertheless, it is important to understand the aims of the United States. They were set out by President Reagan in April last year. Agra Europe stated on 4 April: The President announced that the US would retaliate if the EEC failed to withdraw its quota on Portuguese oilseed and products imports, to remove the Accession Treaty clause which states that Portugal must take 15·5 per cent. of its cereal imports from the rest of the EEC, and to compensate the US for the imposition of variable levies on Spanish maize and sorghum imports. Of those three major objectives, two were unquestionably achieved in the final settlement, so when the Foreign Office part of the Minister's brief suggests that the Community had come out of the matter with honour and glory I prefer to take the view of Agra Europe which, although European, is fairly sceptical about claims that come out of Brussels and Berlaymont. On 30 January it stated: Although both sides avoided claiming victory over the settlement of the long dispute, the US seems to have won the verdict on points. I would go a little further, but there is no doubt that the United States obtained a fair amount of compensation which it would probably have achieved had negotiations under article 24.6 of GATT proceeded as they should have proceeded last year. Neither side comes out of the matter with much credit, and it is not a good prognosticator for what is likely to happen in the agriculture round of GATT or indeed in any future trade dispute between the two parties. It is a classic example of how not to conduct international trade negotiations and shows the difficulties that will arise whenever agriculture, in particular, comes up in the relationships between the Community and the rest of the world.

The financial impact of the documents that are before the House is extremely hazy. My hon. Friend the Member for Livingston (Mr. Cook) referred to this. The Minister did not deal with it in his speech, though he promised to give some information in reply to a written question. My hon. Friend was right to point out that there will he increased cost to the EEC as a result of the agreement. It would have been helpful, in asking us to approve the agreement—which is welcome in all parts of the House, and I share that welcome—if the Minister had given an idea of the financial consequences of what we are being asked to do.

I agree with those who say that the United States is moving in a protectionist direction. But let us beware of presenting the EEC in a white sheet. We do not want to be likened to a pot calling the kettle black. After all, the EEC has always been a protectionist bloc, particularly in its agricultural trade with the outside world.

This GATT round—we are beginning to see some progress—will be crucial. I fear, however, that if it does not succeed, we shall see more trade wars, and I agree with the hon. Member for Stafford (Mr. Cash) that eventually it will become a war in which, at least metaphorically, blood will be spilled.

I understand that, like me, the Minister is a free trader. Subsidies to exports are just as damaging to international trade as are barriers to imports. A basic principle of the CAP is that exports of agricultural products should be subsidised. The Minister did not comment on that. I should like to know his views on the subject and the views of the Department of Trade. Once one bloc starts playing with export subsidies, other blocs are encouraged to follow suit. Indeed, in recent years the United States has passed legislation to enable that country's Departments of Commerce and Agriculture effectively to subsidise United States agricultural exports to the rest of the world because they have been losing out to subsidised agricultural exports from the EEC.

Although there may have been economic advantages to accession for Spain and Portugal—there have certainly been political advantages—I am not sure that the same can be claimed for Britain, which I believe has suffered disastrously economically since we joined the EEC. Considering our trading balance with the original Six and then the Nine, until the admission of Spain and Portugal, it is clear that we have not done well. It is to be hoped that matters will prove more encouraging for Spain arid Portugal than has been the case for this country.

Photo of Mr John Farr Mr John Farr , Harborough 10:58 pm, 12th March 1987

I, too, welcome the agreement and, like other hon. Members, I fear that another US-EEC trade war is looming on the horizon. The hon. Member for Livingston (Mr. Cook) spoke of the possibility of a measure coming before the United States legislature shortly on a matter to which I shall come.

Trade wars and the threat of them cost jobs in the long run. There are no winners. For that reason, I particularly welcome the agreement that has been reached and hope that we shall do our utmost through the Community to avert any trade war with the United States. With no winners, both sides lose jobs, many of which may be lost for ever.

I wish to refer in particular to the textile and clothing restraint measure which, as the hon. Member for Livingston said, was presented to Congress last month. That United States Bill presented in the Senate by Senators Thurmond and Hollings and in the House of Representatives by Congressman Butler Derrick, proposes the introduction of global quotas for all textile arid clothing imports including those from EEC countries and, as a result, will include those from the United Kingdom. Based on 1986 import levels increased by 1 per cent. per annum, United States tariffs would be reduced by a total of 10 per cent. spread over five years—a ludicrously small amount. To give the House an idea how small that is, the lowest present United States tariff on wool cloth is 33 per cent. so that would apparently be reduced to 29·7 per cent. after five years.

The United States Bill would prohibit any other United States tariff reductions under the new round of GATT multilateral trade negotiations now taking place. As the hon. Member for Livingston (Mr. Cook) mentioned, there is a possibility if the Bill passes in both Houses in the United States of it being vetoed by the President. That happened with the Jenkins Bill to restrict textile and clothing imports in December 1985. It was a matter of touch and go whether that was defeated. Of course, the President's veto can be overturned by a two thirds majority in each House—and that only narrowly failed with the Jenkins Bill in August 1986.

Should the United States Bill be enacted, it would clearly be a very serious matter for British exporters to the United States. As has already been mentioned, our trade with the United States in clothing exports was over £300 million in 1986. The result of the Bill, a measure to limit our access to the United States, which has already been presented to Congress and the Senate would be that Britain and other countries would have to fight for a share of very limited global access to the United States. All the other suppliers including the low cost suppliers from the far east would join in. If the quota operated via a licensing system, based on individual importers' previous level of imports, it would also give extra bargaining power to United States importers when dealing with overseas suppliers.

This is a short debate, and as hon. Members have already stressed tonight, this is a matter of extreme consequence and great importance and it should not be channelled into a slot late at night in a debate lasting for an hour and a half gives us the opportunity to make the United States Administration and Congress aware that the enactment of such a Bill would result in large scale trade conflict spreading beyond textiles and clothing with counter measures hitting many United States industrial and agricultural exports.

When my hon. Friend replies, I hope that he will give the House an undertaking that he is, if necessary, ready to back up the warnings that have already been made by my right hon. Friend the Secretary of State in Washington on 4 March and support those by being prepared to introduce immediately through the European Commission a list of counter measures if the American Bill becomes law.

My right hon. Friend the Secretary of State said in Washington a few days ago that any such Bill introduced in the United States would meet with considerable opposition and counter measures. I would have thought after the report that appeared in the Financial Times of 5 March that possibly my hon. Friend when he replies might be able to give us some idea of the type of counter measures that we have in mind ready to be introduced should that be necessary. Many other countries have protested about the introduction of the Bill. There have been objections worldwide. I hope that my hon. Friend the Minister will reassure the House that, if the Bill proceeds, we will be ready, with the Community, to do our best to adopt these counter-measures.

Photo of Mr Archy Kirkwood Mr Archy Kirkwood , Roxburgh and Berwickshire 11:05 pm, 12th March 1987

I should like to follow the remarks of the hon. Member for Harborough (Sir J. Farr) and others and welcome the EC-US agreement. There have been three principal strands to this debate, to which I have listened with interest. First, the hon. Member for Stafford (Mr. Cash) made the important point that the way in which we deal with these matters leaves a great deal to be desired. I hope that his impassioned and earnest plea will be considered by the Leader of the House and the other authorities with a view to improving the present position.

The second important strand concerns the way in which the Community as a whole is responding, and shaping up, to the difficult international trade position that is developing. The third strand concerns the way in which the Americans have been acting during the dispute which has culminated in the EC-US agreement. I agree with the argument of the hon. Member for Livingston (Mr. Cook) when he said that the American conduct had been unjustified and its response disproportionate in scale. That is true in view of the value of United States exports at stake. The hon. Gentleman said that it was 20 minutes' worth of United States expenditure. We are therefore talking only about approximately $400 million. My information is that the United States budget is about $350 billion, so I concur with the hon. Gentleman's argument.

More important still is the worrying and high-handed attitude of the United States. It does not augur well for future EC-US trade negotiations. A series of future negotiations about equally important matters may be difficult to handle.

I listened with interest to the hon. Member for Walthamstow (Mr. Deakins). I concede that he may be technically right in his interpretation of article 24—he said that the benefits were vague and difficult to substantiate—but I believe that some of the benefits to the United States are substantial. They are principally political and military, but there are also industrial benefits and benefits in terms of reduced tariff access for soya and maize gluten. The hon. Gentleman considers those to be insignificant benefits—that is a matter of judgment—but I believe that, on balance, the Americans did not get all that had a deal. I do not think that the $400 million about which they were arguing was worth the aggravation and hassle caused to the relationship between the trading blocks of the European Community and of the United States.

The position will get worse. All the evidence shows that, in view of the Democratic influx in the last United States autumn mid-term elections and the fact that President Reagan is perceived, rightly or wrongly, to be more of a lame duck President than anything else who cannot necessarily depend on a majority in the Senate, there are obviously difficulties on the horizon. If it does nothing else, this debate should strengthen the Government's resolve firmly to face those questions if they arise.

I shall now turn to the direct implications for cereals. On checking the statistics, it is clear that the immediate implication of the agreement is that the amount of grain sold by the United Kingdom to Spain will be substantially reduced this year compared with what we sold last year. The International Wheat Council's statistics show that in the first 10 months of 1986, the United Kingdom sold 612,000 tonnes of barley and 634,000 tonnes of feed wheat to Spain. That was a considerable increase on a near zero level of sales in 1985. That may be due to the fairly unique geographical and climatic conditions during 1986. We are right to recognise that those sales were of substantial assistance in dealing with some of the surpluses in Britain.

The hon. Member for Livingston quoted the president of the English National Farmers Union as saying that it must be recognised that agreements of this sort will aggravate the problem of cereal surplus, will drive more grain into intervention and add to the cost of the common agricultural policy. The view of the National Farmers Union is that the concessions have gone too far.

I certainly hold no brief for farmers such as the barley barons of East Anglia, but I represent a constituency where the cereal farms are largely in marginal areas of Scotland, and I can tell the Government that such producers cannot and should not be expected to bear the cost of what is essentially a political agreement. The Government should bear that fully in mind, although I understand that it is not really directly in the jurisdiction of the Minister's Department and overlaps into the Department of Agriculture, Fisheries and Food.

I hope that the Government will look again at the longterm agricultural implications of agreements like this as they apply to the ninth GATT round in Uruguay. The hon. Member for Walthamstow was right to refer to that, because if we start to allow the Americans to make the running by insisting that things such as direct export subsidies should be used as the only criterion, we may start to forget that the United States loan rate scheme finances American agriculture to the extent of $25 billion.

I hope that the Government will take the advice of the NFU and found heavily on the OECD analysis that is shortly to be produced. Hopefully, that will provide a more objective and rational basis for evaluating the concessions and changes that will need to be made in the course of the multilateral trade negotiations that are currently under way.

Exchange rates are also important both to agriculture in general and to farmers in my constituency in particular. I hope that the Minister will use his influence with the Government to try to get more exchange rate stability because nothing is more destabilising to the international agricultural market than the fluctuations that we have seen in exchange rates in the recent past. The NFU takes the view that we have to bear in mind that any proposals to solve the problem of cereal surpluses must be accompanied by a slightly tighter control on the import of substitutes.

Textiles are an important part of EC and US trade negotiations. The hon. Member for Livingston has already advanced eloquent arguments about this. The new Butler Derrick Bill is a substantial threat and, as the hon. Member for Harborough has told the House, global quotas could have dire and far-reaching consequences. I make the unashamedly constituency point that they would have a disastrous effect on the high-quality, high-volume hosiery industry, and especially on the cashmere hosiery industry in my constituency. The compensation that is being envisaged in the course of the Bill being considered in America would not go any way towards meeting the difficulties that the industry would face if the measure is allowed to hit the American statute book.

I reiterate what the hon. Member for Harborough said—that the Government should take the opportunity this evening of making a clear statement that European Community retaliation would result. I give the Government credit for the position that they have taken so far. They have been fairly robust, but it would help if the Minister felt able to make a clear statement that retaliation would result, and would be directed to areas where it would hurt. That means using retaliation under article 19 of the measure in the US farm sector.

I am told by experts who know far more about the intricacies of some of this potential American legislation that the Butler Derrick Bill is supposed to be GATT-proof. I subscribe to the view that is reported to be taken by Mr. Willy De Clerq,the EC trade commissioner, in the Financial Times today. About the Bill, he said: it would fundamentally change the way in which the world trade in textiles has been conducted for the past 25 years. The article goes on to say, that it would also call into question the recent extension of the Multifibre Arrangement between developed and developing countries. After all the work, about which the Minister will know because he put a great deal of work and effort into getting the agreement that we have, the legislation could potentially blow a hole in that agreement and render everybody's work over the past 12 months nugatory.

The issue of distortion of trade by substantial diversion from the US has been properly raised by the hon. Member for Livingston, and I support his argument. The view of the experts whom I have consulted is that there is as much as a 50–50 chance of the legislation being enacted in America. If that happened, the sort of high-quality, high-volume business in my constituency, which considers access to the US markets to be vital, will find it difficult to operate. It is a fashion-based industry, and fashion is seasonal. If quotas are introduced, and the quotas are taken up in the first quarter of the trading year, it is impossible to export the products of a fashion-based industry without disastrous consequences. The compensation, such as it is, being offered at the moment is of no real value unless exporters to the US can stay in the market for five years, because it takes five years for the full extent of the compensation to mature.

The United States market available to the hosiery industry in my constituency has taken years of hard work to develop, and the Bill could sweep it all away. The competition from other countries would make price bargaining much tougher, as the hon. Member for Harborough said. It would put an awful lot more power into the hands of American negotiators when it came to discussing prices of goods, if they knew that they had behind them the strength of a limited access quota. The ability of the industry to develop alternative markets would be next to impossible.

I have a clear constituency interest. I know that the Minister pays close attention to these matters, and I give him credit for having done so over the detailed negotiations for the MFA. I know, too, that we have the 1988 cashmere bilateral still to negotiate with China, which is another continuing cause of uncertainty in my constituency.

I hope that the Minister will accept these arguments in the constructive way that they are intended. The House should strengthen his arm so that he can go back and argue strongly within the EC, and stiffen its resolve to negotiate toughly with the United States, not just on the agreement that we are debating tonight, but on the wider issues and other subjects we shall have to deal with in future.

Photo of Mr Alan Clark Mr Alan Clark , Plymouth, Sutton 11:18 pm, 12th March 1987

This debate has been extremely useful and encouraging for me. It has not been couched on party political lines. I entirely take the point made most forcefully by my hon. Friend the Member for Stafford (Mr. Cash) that it is desirable that there should be a closer liaison between the Select Committee, the House and my Department so that such matters as this are debated before the House is presented with something on a take-it-or-leave-it basis.

The point that the hon. Gentleman and my hon. Friend the Member for Harborough (Sir J. Farr) made that we find ourselves debating this so late at night demonstrates the importance that the Government and my Department attach to the subject is a misplaced one. We are here at 11.30 pm because those who manage our business in such matters failed to appreciate the obsessive taste for self-congratulatory speeches on the arts which affects so many of our colleagues, and which turned what was meant to be a very short debate on the arts into a full-scale debate from 3.30 to 10.00 pm.

None the less, this is a highly important subject. The general feeling of hon. Members is that we are not out of the wood. There was general agreement that we must be vigilant and ready to resist any development that may return us to the extremely dangerous situation from which we have escaped.

There was a clear disagreement between the hon. Member for Livingston (Mr. Cook) and the hon. Member for Walthamstow (Mr. Deakins) as to who was to blame for this dispute. I find both of their arguments entirely convincing. The hon. Member for Livingston made an interesting point, from which I would not dissent, that much of the difficulty is endemic to the economies that still abuse their treatment of agriculture and surpluses. Until that is sorted, the problem will recur in one form or another. The Government are foremost in the Community in attempting to get that dealt with. The OECD conference of last April demonstrated the direction in which OECD countries had to move. Some progress has been made and there is wider realisation that that is the key to solving many of the economic problems that are so prevalent at the present time.

The hon. Member for Livingston was right to raise the question of the agricultural budget. I shall attempt to give him an answer now, but I must warn him that it rests on a number of interlinked assumptions, one of which, if it is subsequently found to be invalid, may vitiate the conclusion. If we assume that over the four years of the agreement, Community grains take 15 per cent. of the Portugese market and all Spanish grain import needs, world grain prices do not change, EEC support prices do not change and EEC production levels do not change, intervention and storage costs will be offset by gains levy income. I am told that as good a guess as any is that the net additional cost of the agreement will be £100 million for each of the four years. That is subject to a wide margin of error of about 50 per cent. each way and represents a small factor of the CAP budget of £26 billion.

The hon. Member for Livingston mentioned the Airbus—

Photo of Mr Alan Clark Mr Alan Clark , Plymouth, Sutton

The hon. Gentleman has only just come in and did not hear what his hon. Friend said, or the substance of his argument, which did not relate to that in the slightest. If the hon. Gentleman wants to continue with his constituency correspondence he might be better advised to do it elsewhere. I have responded vigorously to questions on the Aibrus during questions to the Department of Trade and Industry. I fully appreciate that the Boeing apprehensions are undoubtedly leading the Americans into vigorous lobbying for protectionist measures but I am confident that they will be strongly resisted. I attach a great deal of importance to that, as I believe does the House, given the exchanges when these matters were ventilated at Question Time.

Virtually all hon. Members who have spoken mentioned the Textile and Apparel Bill. We are most concerned about the consequences of that. The Bill is not consistent with the GATT. It would represent another breach of the United States standstill commitment. The hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) referred to the Financial Times article which referred to Commissioner De Clercq and I agree that the Bill could not be enacted by the United States Administration while the United States remained within its MFA commitment. There is no MFA justification for those restrictions being provided and it is the reverse of the liberalisation provisions envisaged ultimately in the MFA protocol.

The House has registered its concern at the same time as its relief. There is a general measure of relief that a retaliatory cycle has been avoided, but at the same time there is the clear knowledge that many of the essential elements that are causing discordances in the trade field remain and the dangers of their raising their heads again are plain.

However, the House can at least draw some comfort from the fact that a combination of vigilance, patience, diplomatic skill and resolution prevented the dispute from proceeding to the extremely dangerous denouement that at one time threatened. If we continue to apply those qualities on future occasions and the House continues to show the single minded purpose which it has done this evening we shall fare well in the future.

Question put and agreed to.

Resolved,That this House takes note of the unnumbered explanatory memorandum, dated 31st January 1987, submitted by the Department of Trade and Industry, describing a draft Decision concerning the Agreement between the European Community and the United States of America for the conclusion of negotiations under General Agreement on Tariffs and Trade (GATT) Article XXIV.6, and European Community Document No. 5062/87 and the Department's unnumbered explanatory memorandum dated 23rd February 1987, on the implementation of the Agreement; and welcomes the Agreement as the means of averting an exchange of retaliatory and counter-retaliatory trade measures between the United States and the Community which would have very serious consequences for EC-US trade, for the multilateral trading systems and for progress in the new round of multilateral trade negotiations now beginning in GATT.