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General Agreement On Tariffs And Trade

Volume 181: debated on Friday 23 November 1990

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Motion made, and Question proposed, That this House do now adjourn.— [Sir George Young.]

9.35 am

We are discussing today, albeit on a motion for the Adjournment of the House, an issue which may have the greatest effect upon our future—the need to increase trade between nations, not only developed nations but those which are developing. Obviously, trade is of the utmost importance to any country, but for the United Kingdom, not only today but as a historical fact, trade is at the centre of our economic fortunes, and we cannot in any sense underestimate the degree to which a successful general agreement on tariffs and trade round is vital for increased prosperity.

I hope that we can debate the matter with an understanding that this is not only of importance to ourselves, the European Community of which we are a part, the western world and, indeed, the new countries which have emerged from the socialist east, but to the developing countries for whom access to markets is crucial and to those of us who see the moral responsibility of the west and of rich countries to them.

If that is so, it is the Government's responsibility to see that the negotiations are brought to a successful conclusion, and in that we have support in large measure from all parts of the House. That means that the talks must be brought to a fair and honourable conclusion. There must be a fair exchange, so that trade may be carried out on all sides. I hate the phrase. "level playing field", but unless I introduce it into the debate we will probably not be able to move further. We need a level playing field, and the purpose of the GATT round is to achieve that.

I hope, too, that we shall recognise in the negotiations that all parties have their own axes to grind. Sometimes, people talk as if only the United Kingdom and the rest of the European Community pressed for the coverage of their special difficulties. Most hon. Members recognise that many of the high-flown statements of those with whom we negotiate are specially tailored to press for a particular way of solving problems which just happens to be of value to their industry, services or agriculture. Therefore, I hope that no hon. Member will feel constrained to put forward the special needs of the United Kingdom and those aspects of United Kingdom trade, commerce, services and agriculture which he or she wishes to defend.

We do so realising that the GATT round is essentially a package. It cannot be unpicked. We cannot leave on one side whole areas of activity. That which is important to one country may be less important to others, but it cannot be left to one side.

For this nation, unrestricted access appears to be a danger, yet we are negotiating with countries for which access is the only thing that matters. We cannot suggest that there are simple ways out of some of the problems that face us.

We are seeking in GATT to recognise that trade patterns have changed and that we must adapt the system if it is to survive. If it does not survive, there will be a major interruption in the world's ability to provide for higher standards of living in the rich west and to do something about the appalling living standards in much of the world. We need to wipe out the shadowy trade barriers that have grown in the margins of GATT. We need to strengthen GATT so that no country feels driven to unilateral action and trade war tactics. We need to extend it to encompass trade in services, direct international investment and intellectual property rights. The importance to world trade of all those aspects has grown vastly.

GATT still has the feeling of a system that was produced to cover trade that was largely in manufactured goods, but there has been phenomenal growth, in the developed world in particular, in other aspects which have not been properly covered. We have set ourselves essential goals. That is important now, above all, when nations whose economies have long been crippled by protectionism and managed trade are courageously embracing democratic capitalism.

I feel more than usually passionate about the GATT round because of my visits to eastern European countries. Obviously, agriculture and food are at the base of their problems, but I returned with an appreciation of the devastation caused by protectionism not only to a country's industries and trade but to its very nature. It cuts nations off from their natural intercourse with other nations. It makes it impossible for industries to thrive and flourish, and it ensures that backwardness is the order of the day. Unless we solve those problems, we will be in an infinitely more dangerous position and the GATT round will disappear into a series of bilateral protectionist arrangements.

There needs to be a substantial reduction in the tariffs and other barriers to trade that face British manufacturing companies. We need an agreement for the first time to establish international rules liberalising trade in services because they now account for 55 per cent. of our gross domestic product—an amazing turnabout, which we must recognise internationally. We want better and more effective protection for patents, copyright and trademarks. We must have much more effective measures against counterfeiting. We cannot do without an agreement that will minimise the restrictive rules which can be applied to British companies investing overseas.

We need to agree to strengthen the GATT system, especially the system for settling trade disputes. We need to be able to take more effective action through GATT against overseas Governments who unfairly protect their industries. We need agreement by developing countries, particularly the most advanced, that they will become more fully integrated into the multilateral system and take on a share of responsibilities under GATT that is consistent with their degree of economic development.

It would be wrong to reform GATT in a way that left those developing countries in a position where they were thought of as a separate group that was not able to take a growing part of their responsibilities. In that sense, GATT is a means whereby they can grow into the world community. As that growth occurs, their industries, commerce and standards of living will improve.

If all this is true, the taxpayer stands to gain significantly from reductions in the costs imposed by protection. If we are going to ask for market liberalisation from other people, we cannot expect not to open our markets. Our industries must be free to operate in and adapt to the world of competition. They must be lean, fit and healthy. No country can afford the costs of artificial protection in the long term, penalising every citizen not once, but twice—as a taxpayer and as a consumer.

The particular problems that the textile industry has faced from low-cost imports have been recognised for many years through restrictions such as the multi-fibre arrangement. I am sad that, for reasons outside my control, there was no specific debate on textiles. The Opposition had intended to have such a debate, but I am sure that we will divide the time satisfactorily between the main matters of contention. I am sure that the House agrees that that was a sensible subject for the Opposition to put forward because it is crucial for all of us. It is not easy to answer questions on this issue because the answers pull in opposite directions.

It is particularly helpful that the MFA's future is being considered in the context of the multilateral GATT negotiations. That may be one advantage of debating this matter today rather than earlier. These global negotiations include many matters of great interest to the textile industry and to manufacturing and to services as a whole. Increasingly, restructuring of the textile industry, which has been possible because of the MFA, has enabled that industry to open up markets abroad. Those textile companies are beginning to find that they need access and that the access problem is no longer the one-way difficulty that it seemed to be in the past. They too, recognise that the GATT problems pull in opposite directions.

We have a draft text providing for the phasing out of the MFA over a period of years on the basis of the existing restrictions. The phase-out will be achieved over a period yet to be agreed. That is one matter still open to negotiation. The broad aim of the Commission, supported by the United Kingdom, is to take account as far as possible of the sensitivities of European industry, of which United Kingdom industry is a part.

There is clearly scope for some products, especially those not under MFA restraint, to be integrated immediately into GATT and subject to its rules. If that happened, it would be a good earnest of our intent. If the main textile exporting countries are to agree to the arrangements on textiles—satisfactory arrangements are a condition for their agreement to the final Uruguay round package as a whole—there needs to be an improvement in market access for them at an early stage.

As the Minister said, this is an important subject for many textile constituencies, including Bradford. Before the right hon. Gentleman leaves the subject of textiles, will he say what he has in mind for enforcing all the desirable aims of stopping counterfeiting, setting up anti-dumping measures and so on? How will he insist through GATT that those measures are carried out and are effective, to ensure that the industry survives?

The hon. Gentleman is right in saying that policing and enforcement are vital. Our experience in recent years has been particularly bad on that front in terms of not just textiles but right across the board. Much of the argument about intellectual property rights, counterfeiting and similar matters has arisen because we have not been good at enforcement or at finding out where difficulties have occurred or what the problem has been. That is at the centre of the current argument about better enforcement. The United Kingdom has pressed the Commission on that matter. My right hon. Friend the Secretary of State for Trade and Industry will deal with it in his speech—no doubt at greater length, now that the hon. Gentleman has raised that point.

The hon. Gentleman is right in that nobody in the industry can have confidence in the solutions that are found in GATT unless they believe that they will be imposed on everybody. If they feel that this is a nice deal between those who will obey the law but that it will be flouted by a number of countries that will not obey the law, they, rightly, will not be prepared to accept the difficulties that GATT imposes on them.

As well as enforcement, which is crucial, will the Minister confirm that it is still very much in the Government's mind that the original Uruguay declaration made it clear that access to third-country markets was an essential condition of any transitional phasing out of the MFA? If the Government do not return with some cast-iron guarantees on that linkage—increasing imports at the same time as industries have a chance to export their way out of some of the difficulties that increased import penetration will cause—the Minister will get a rough reception on his return from hon. Members who represent textile constituencies.

The hon. Gentleman is right. We must have the improvements before phasing out the MFA. There must be that linkage and it is all part of the present negotiations. The United Kingdom has been firm in making that clear. The Commission understands that position clearly, remembering that it, too, must sell it, not only to the United Kingdom but to other member states of the European Community, and we are not the only country that feels strongly about it. So there is real pressure on that issue from the Community point of view.

I hope we shall see that the textile industry now has a real interest in opening up markets for our products and in the orderly, over time, removal of protection, which was always intended to be temporary. Members in all parts of the House recognise that there is a contradiction in our minds in that connection. On the one hand, we want to enable people who are starting on the road to improve their economies, stage by stage to find markets. On the other, we cannot do that at the cost of industries which employ our own citizens. There is a balance to be struck and I hope that in all the speeches that we make on the issue we remind audiences of both aspects of the impact.

On a personal note, I found it necessary the other day to repeat something that Dr. Allen Booth, a former head of Christian Aid, wrote in a letter in which he chastised an archbishop, when he wrote that it was all very well to complain about not helping the developing countries, but one should not do that at the same time as objecting to the closure of boot and shoe factories in Northampton. One must recognise that both are part and parcel of the same problem. GATT seeks to cut through that and to find a way of bringing the two difficulties together.

The House will want me to comment on the area in the GATT negotiations with which I have been personally involved, and that is agriculture. I have the issue burnt on my heart because we have sat longer and argued to a greater tedium on that than on almost any other subject I can remember. There was a point at which some of my family wondered whether I had a special arrangement in Luxembourg, because it seemed that it would be easier to commute to London from Luxembourg than to Luxembourg from London. Although they were frustrating discussions and it was necessary sometimes to remind our Community partners of their responsibility to be communautaire. in action as well as in fine phraseology, in the end we got an agreement on a programme to be presented to the GATT round.

I hope that, in retrospect, we can recognise the real problems for agriculture of the proposition that must be faced. It is not easy for the British farming industry to accept the kind of proposition that we have put to the GATT round, and it is no good ignoring the effects of the offer that is before us.

Some people overstate it in the sense that they do not recognise that the 30 per cent. relates to a reduction in support—they sometimes think that it is a reduction in price—and they do not recognise that it has already partly been achieved in the unilateral decision—in this case I am in favour of unilateralism—of the European Community.

I thought I would say that, so giving the hon. Member for Bolsover (Mr. Skinner) an opportunity to intervene.

I am charitable to the hon. Gentleman, whose fascination with agriculture is well known.

My hon. Friend the Member for Hornsey and Wood Green (Sir H. Rossi), the Chairman of the Select Committee on the Environment, will agree that, unless we have a healthy agriculture, the countryside cannot be looked after, and that the healthiness of agriculture demands a return from agricultural activity sufficient to look after the countryside. Those who talk as if we can divorce environmental considerations from reasonable returns for the farming community do not understand the situation in our rural areas.

Agriculture remains the major activity in our rural areas and is concerned with looking after 80 per cent. of the countryside. Much of that involves looking after areas such as the rolling hills of Derbyshire, which would be much less attractive if agriculture did not exist. Indeed, the farmer has created that landscape, as he has created the landscape in the rest of the nation.

It is true that agriculture has always been covered by GATT, but in practice it has been subject to a range of special provisions which have meant that the fundamental disciplines of GATT have not applied to agriculture as clearly or as strictly as they have to other areas of trade. The waiver granted to the United States in 1955 is a case in point.

By the mid-1980s, the costs of agricultural support had grown to unprecedented levels. The OECD estimates that the costs reached about $290 billion in 1987. Many developed countries had in place extensive and complex systems of support which, combined with increasing productivity and stable demand, led to the emergence of substantial surpluses.

That is why agriculture must be part of the Uruguay round, and I am sure that hon. Members will not argue that one could have a GATT round without agriculture being part of it. But we need real progress towards substantial, progressive reductions in agricultural support and protection, sustained over an agreed period, resulting in correcting and preventing restrictions and distortions in world agricultural markets. That is the agreed position of GATT.

Hon. Members will recall that I had to be sharp, particularly with the Germans and French, because, having agreed to that, the propositions that they were putting to the negotiating team from the Commission were clearly not meeting it. One cannot make the statement and then say, "We shall not change the CAP", or, "We shall not reach out to any of our partners in the negotiations." I fear that that was part of the problems involved in the recent discussions in Luxembourg and Brussels.

But there was a second aspect which many people missed. We spent too long pretending that the GATT round would not come about. I am amazed at the degree to which people, particularly in this country, had not faced up to the issues. Opposition Members will agree that, in our discussions with people in the countryside, we found that farmers and non-farmers alike had no idea what GATT would mean for them, for the rural community and for the consumer. None of that had been brought out into the open, and some of the organisations which represent farmers and others should have got the issues on their agendas much earlier.

The difficulties involved in grappling with agricultural reform are obvious from the long arguments that we have had in the Community. But I hope that we recognise the strength of the position that we have now proposed. I cannot propose in the world forum anything that would do down Community farmers as against other farmers in the world.

We must have a basis of measurement that is fair. An aggregate measure of support is vital to any proper solution. It casts doubt on the credibility of some of the proposals when one sees how long it has taken some of our partners outside the Community to feel that they can accept an agreed measure of support. They were suggesting that their form of support did not count, but that everybody else's did. There is still too much of that attitude in the propositions that are being presented, especially from the other side of the Atlantic.

That support, measured on an aggregate basis, will be reduced by 30 per cent. over the 10 years from 1986, the start of the Uruguay round. That is not an artificial date that has been picked for the convenience of a specific nation—1986 is the year when we started to negotiate the round. It is the date from which the European Community recognised that if it was to give the sort of response to which it was committed under the Uruguay round, that would have to be put under way.

If the process did not start then, it would be too big a thing to ask of our farmers. Therefore, it would be wholly improper not to count in the calculations the significant amount, varying between 11 and 15 per cent.—depending on how it is measured—which has already been achieved as a result of the Uruguay round, not out of any other ulterior motive.

The provisions cover the period from 1986 to 1996 and will take into account what has already been done and the pain that we have already borne. It focuses on the level of support for commodities and, above all, it faces the fact that the European Community has an integrated system, parts of which cannot be dissociated from others.

Some people are attracted by the views of the United States, which suggests that we should do something special about export refunds. We can do much to ensure that export refunds are affected equally across the board by the 30 per cent. reduction. Some fear that reduction will not have the same effect on export refunds as on the other parts of the CAP and that, in other words, we can make it much more transparent. The idea that the whole system can be distorted by a special operation relating to export refunds is advanced only by those who do not understand the system. We must take that point seriously.

In any case, our proposals lead to other changes in the CAP. They will mean a switch from a variable levy to a new system of charges on imports from third countries, together with the "rebalancing" which is a sort of Community code. I wish that we could have a group of people in the House who could prepare what I would call "real English" rather than "Euro-English" for some of these phrases. We get so used to using this language that we forget that the majority of people could not possibly understand what "rebalancing" is. In fact, it would even up the present level—[Interruption.] I am prepared to be anti-anybody if I think that that person is wrong. That is why I am so often anti the hon. Member for Bolsover—he is wrong so often. I should like our language—real English—to dominate and not some pseudo pidgin English, which we encounter all too often.

The hon. Gentleman does not like the word "communautaire". Perhaps he could give me a good alternative. He has been giving the Prime Minister some good ideas, so perhaps he could do the same for me.

In addition, it has been accepted that there will be a category of policies that will not be subject to the programme of cuts. That has come to be known as the "green box". This country must ensure that we provide help for farmers for environmental reasons. We must keep sheep and cattle in the hillsides because they are crucial environmentally. We must also ensure that the costs of caring for the countryside and of improving the countryside are fully met. That, too, may mean extra help.

We must recognise that Britain has been the leader in this area. Britain's environmental proposals have all-party support. My right hon. Friend the Member for Westmorland and Lonsdale (Mr. Jopling) put such proposals to the Community when Britain had the chairmanship. Those proposals have now become the basis for most countries' environmental activities. The establishment of environmentally sensitive areas represents one of the major changes in the environmental package in Europe and elsewhere. There are also many other measures that can be used as a means of enabling the farming community to carry out one of its major jobs, which is to look after the countryside.

Does the Minister agree that, given the drop in market prices for livestock in the past 12 months in Britain—especially in the beef and sheep sectors, in which there has been a drop of 25 per cent. in some cases—although the environmental support measures are welcome, the resources that are provided are insufficient to make up for the drop in market prices for the livestock farmer?

The hon. Gentleman has raised a crucial point. We all agree with the burden of his comments, but I am surprised that he referred to "the drop in market prices … in Britain". The first thing that we must recognise is that there is a drop in market prices throughout the Community. We must be careful not to isolate the British agricultural position from that in the rest of the Community. This is a Community problem. The drop in prices is a European and, indeed, a wider problem. The hon. Gentleman should be careful about making that direct link.

I hope that the hon. Gentleman will accept that in every area in which I can do so under Community rules, I have sought to help the less favoured areas. The hon. Gentleman is a member of a party that is inclined to refer to its "communautaire" nature, but I notice that his party is communautaire in general but rather nationalistic in particular. Perhaps we should be common in both regards, which is what I try to be.

The Community is putting forward a tough package but it would be phased in over a number of years and that would, I believe, allow farmers adequate time to adjust. It will mean continuing price cuts. Those will, I appreciate, come on top of several years of pressure on farm incomes—not least in the United Kingdom where profitability has been at historically low levels for most farm enterprises. The House will also know that the United Kingdom has strongly and consistently supported the Commission proposal since it first emerged in September.

Our reputation in the Community has been enhanced by our willingness to take that Communautaire stand. I have been less than pleased by the attitude taken by some people in this country, who are sometimes inclined to attack the Government for not taking such a stand, but who have then complained about it in the very area in which we have taken such a stand, and to such effect. There is no doubt that, in all essentials, this package is what was proposed by the Commission in the first place. Without Britain's support, that would not be the case and we would not be able to start the negotiations.

I must explain why we think that this is essential. It is a coherent proposal, which covers all that it ought. It is a realistic proposal and is the minimum that stands a chance of being negotiated. The United Kingdom must face the fact that the United States and the Cairns group have asked for what appear to be more radical goals—of a 75 per cent. reduction in internal support and a 90 per cent. reduction in export subsidies. However, that is very much less than it appears.

I hope that the United States has now stopped the megaphone diplomacy that has characterised its approach so far. Headline totals are not what they seem: they do not cover the same range, or start with the same dates, and they contain curious information about income aids and deficiency payments. Although some aspects of the proposals may be helpful and, although if one examines the two sets of proposals on a common basis, one finds that they are much closer than those who pursue megaphone diplomacy would have us believe, there are significant differences. The United States has put forward proposals that are closely allied to its own interests in such a way as to suggest to some of the popular media—which may not have had time to read the proposals in detail—a world view or a special moral position.

We should remember that the United States is trying to treat its deficiency payments solely as internal aid despite their impact on exports, and virtually to abolish export subsidies—a position that is perfectly acceptable to the United States because it does not make much use of such subsidies. But support under deficiency payments will have exactly the same direct effect on the cost of products in the market. Whether one gives £100 in deficiency payments or £100 in export subsidies, the potential export price will be diminished by £100. One cannot ignore that; it is a clear economic fact, and anyone who suggests differently is suggesting that the British farmers should be disadvantaged vis-a-vis their mid-western counterparts.

There is one important issue that divides the Government and the Opposition: the Opposition have sought to disadvantage British farmers by accepting the mid-western farmers' proposals. This Government and this Minister will not disadvantage the British farmer, and I hope that every farmer in the country knows that the Opposition are determined not to fight for a level playing field to enable the CAP to be regarded on equal terms with the United States proposal.

If we are to pursue the negotiations, our major partners must realise that they have set their sights too high. They have done so because their farming is different from ours. One can leave aside large tracts of prairie without causing great concern to environmentalists, townsmen or suburban dwellers. We cannot do that in the United Kingdom or the rest of Europe. Most of our countryside lies within 15 miles of a major town and we cannot leave it to go to rack and ruin. Our farmers must be able to gain sufficient resources from the market and support to enable them to look after the land.

If we are not prepared to go as far as some would like, it is because we are not prepared to betray our countryside. However, we are prepared to go as far as we can, bearing in mind our farmers' difficulties. We are determined to do that without dismantling or abandoning the CAP, because freer market conditions are necessary for our farmers to prosper. In addition, the advantages that will flow to the rest of the economy are essential if we are to give our farmers the support that they need. The support that farmers need must come from somewhere and it cannot come from a nation whose trade, industry and services are debilitated as a result of protectionism.

The success of the GATT round is important to farmers directly because it will open up the market and indirectly because it will enable them to operate within a Community that is rich enough to pay for the environment that it demands. We cannot expect our farmers to enter the next five years without some reduction in support, and the support provisions therefore need to be considered most carefully. But if we are to provide extra help or to reassess the way in which we help farmers, we must do so on a fair basis.

As I said at the outset, we want a level playing field; we want the Community of which we are a member to be on equal terms with the rest of the world. It is also vital that we should have a level playing field within the Community. I am not prepared to accept discrimination between the countries of Europe, however much it is dressed up as rural help of one sort or another, although I accept that it is necessary to give help in certain circumstances.

One important change that we discussed has not been sufficiently noted. The French farming leaders have suggested that France and Germany failed to secure the changes for which they hoped, and I believe that they are right. But Britain secured one important change in two separate parts of the negotiating brief—the introduction of the word "non-discriminatory" in both the negotiations and in the measures introduced by the Community following the GATT round. We were absolutely right to do that.

The Council has pressed the Commission to come up with assurances that cuts in market support will be accompanied by measures to offset the impact on certain regions and certain groups of producers. The Commission has to make formal proposals and the Council will then debate them and reach decisions in accordance with the normal procedures. The first proposals may emerge very soon—possibly before the end of this year—and, to judge by indications given so far, we shall have the further development of certain schemes such as set-aside and extensification. New measures may be proposed. The process would not amount to a complete transformation of the CAP but, rather an evolutionary shift towards more direct and targeted payments.

What would be the implications for British farmers if the Community's proposal were implemented? It would mean lower levels of support and some shift in the balance between support given through management of markets and support given by direct payments.

The support reductions need to be seen in their proper perspective. I fear that percentage targets set by the Community and elsewhere cause more alarm than is justified. We do not yet know how cuts will fall or what their main effects will be. That will have to be discussed by the Community.

The European Community has entered into the GATT round with every intention of making it a success. I believe such success to be vital for the whole country—consumers, manufacturers, commercial people and agriculturists alike. We cannot afford to fail. The success of the round is essential if we are to achieve the increase in world trade that will so greatly improve opportunities for all our people.

It is especially important for our farming community that we secure an agreement which enables it to continue to look after the land and to provide the food that we need but which also brings it closer to the market and so gives it new opportunities. Only a richer, more effective trading community can create the wealth on which support for our farmers can be based.

I give farmers and the House the pledge that in these negotiations the Community, fully supported by the United Kingdom, will negotiate for a fair deal in the world for Community farmers. It will also negotiate for the same sort of deal for Community industrialists, manufacturers and traders. I also pledge that the United Kingdom's continued and constructive aim and utter determination is to ensure a fair deal for British farmers in the Community itself. That can be achieved only if the changes in support systems and the reorientation—to use another horrible Euroword—in the CAP are on the basis of equality and non-discrimination and aim at preserving competitive agriculture.

There is no place in Europe for a policy which suggests that we should solidify, stratify and significantly ossify agriculture in its present state. That is not the way to compete with the rest of the world, to protect our food supplies should there be a future shortage, or to give British farmers a fair deal. It is not the way to ensure that the consumer gets good food at reasonable prices.

The GATT round is a necessary part of the liberalisation of trade and of the improvement of agriculture. It must be followed by changes in the common agricultural policy which adapt but do not destroy it and which ensure that Britain's farmers continue to have a fair deal in the world for their products. It must also ensure that our farmers have the kind of support which protects their non-discriminatory position in a Community that is constantly inclined to look backwards to older methods and circumstances. We need competitive agriculture that is properly protected so that the environment can be looked after by the only people who can do it, those who have contributed so much to our landscape and our nation, Britain's farmers.

10.21 am

I shall begin by agreeing with the Minister. That comes naturally to the Opposition when we understand that unity is required. I wish him well in the negotiations because we want them to succeed. The House will agree that GATT has served the world well for the past 40 years. In that time, we have seen the global economy grow consistently at a rate of 4 per cent. Trade has grown even faster, at a rate of 6 per cent. That success has meant that a repeat of many of the worldwide depressions that occurred in the years prior to GATT have largely been avoided.

As we move to update GATT under the Uruguay round, success is vital. As the Minister has reminded us, failure in negotiating this round would mean disaster for world trade and international relations and would be especially damaging to the British economy. Failure would lead to extra protectionism, and that would be accompanied by reduced exports and increased unemployment. I am afraid that Britain will be among the worst affected. Our interest rate is 14 per cent., the highest among the G7 countries. Inflation is touching 11 per cent. and 1·7 million people are unemployed. Only yesterday, we heard that the balance of payments deficit for October was £1·1 billion. For the last full year that deficit was £23·8 billion.

All independent economists agree that our economy is already in recession. Failure in GATT will make the position even worse. I say without pleasure that the Uruguay round may fail. Carla Hills, the trade representative of the USA, recently warned OECD members that trade wars could break out if substantial agreements were not reached in financial discussions later this month. A trade war between the United States and the Community would have catastrophic effects not only on us but on the wider world.

It is ironic that, at the very moment in post-war history when the barriers between east and west are coming down, we may be erecting new trade barriers and creating other blocs in the world. Increased protectionism would be especially damaging to the economies of the developing countries and to the emerging democracies of eastern Europe as they emerge from their communist past into a more democratic future. The rightful aspirations of the people of those countries can be met only by an expansion of world trade. For all those reasons, we cannot countenance failure in the Uruguay round.

We appreciate that there are many difficult issues, some of which were raised by the Minister. We appreciate that there has to be a trade-off, not only between nations and blocs but between the developed and the underdeveloped countries. We want to gain some benefits and so do they. We recognise that issues such as intellectual property rights, services, textiles and cars are difficult. However, as the Minister rightly said, the key to the whole round is agriculture because, in a sense, that sphere of activity has not been covered by GATT as tightly as other spheres in the past 40 years.

A liberalisation of world agricultural trade is vital. In that sphere protectionism is rife, with the result that the economies of many developing countries are suppressed, leading to the excruciating poverty that we all abhor. Something must be done. As the Minister also said, in general terms or, to use the American expression, in ball-park terms, the Cairns group, representing 14 agricultural exporting countries with a population double that of the EC and the United States combined—that is an amazing statistic—has suggested that all agricultural support should be swept away. One of the countries in that large group, New Zealand, has just done that.

As the Minister said, in the same headline terms the United States has suggested a compromise position of a 75 per cent. reduction as a generality. The EC is entering the negotiations with an offer of 30 per cent., half of which has already been achieved. I listened carefully to the Minister who said that that was our starting position. Am I right in thinking that, during the course of the negotiations, that percentage may change? It will have to change if we are to be successful.

I would not like the hon. Gentleman to be misled. If I use the term "starting position", it is because it is precisely that: we have started with it. I do not think that there is much elbow room there. If the hon. Gentleman thinks that our farmers will be able to accept very much more than that, he has spoken to different farmers from those to whom I have spoken. We are battling for that, because the Community is already greatly stretched in its proposals.

The Minister said that the proposal was the minimum which stood a chance of success in the negotiations. Those were his precise words. We must contrast that with the statement by the American secretary for agriculture that that bid was not even in the ball-park, to use his colourful jargon. We are in a serious position. Before I explain our specific approach, I remind the House of the declaration of intent signed in Uruguay in 1986 by our Government and more than 100 other Governments. It said:

"There is an urgent need to bring more discipline and predictability to world agricultural trade by correcting and preventing restrictions and distortions."
We should have pursued that stated intention with vigour, and taken the opportunity of these GATT talks to achieve a fundamental reform of the CAP, which does not serve well either the consumer or the farmers, who are so beloved of the Prime Minister.

I do not understand why Conservative Members shy away from reform; the National Farmers Union, of all bodies, has come out in favour of a fundamental reform of the CAP, so it is not a belief held only by the Labour party. Hon. Members know that the CAP is nonsense. It is not a viable or sensible way to support agriculture. How can we defend a system in which it has been estimated that at least £6 billion a year is lost through fraud?

As Agra Europe pointed out in June:
"the policy is so full of absurd and lavishly financed mechanisms designed to support every small or large, real or imagined weakness in the market, that it is often possible to make large profits merely by moving goods around rather than actually buying and selling."
That is nonsense and simply crazy. It is the only system of agricultural support in which the taxpayer pays a subsidy to farmers only to have to pay for food in the shops at a higher price than if the subsidy had not been paid in the first place. It is an "Alice in Wonderland" scenario.

Is my hon. Friend aware that one of the consequences of the European agricultural policy is the dumping of food exports on Third-world countries, with devastating results for their production capability, and investments in agricultural infrastructure?

As always, my hon. Friend has drawn the attention of the House to an important point, and one that I hope to develop in a moment or so. I am grateful that he has reminded us of a further folly of the CAP.

It is beyond the ken of Labour Members why the consumer should pay such high prices. Why should sugar be anything up to four or five times the world price? Why is wholesale beef costing four times the world price. and why are dairy prices double the world price? It does not make sense.

I am sorry to interrupt the hon. Gentleman, but I hope that we can clear up some or our difficulties in this debate. Does the hon. Gentleman agree that the concept of a world price when there is so much subsidy throughout the world is an artificial one? If we did not have subsidies, the so-called world price would rise considerably. Saying to the consumer that he is paying four times the world price for something suggests that, without subsidies, he would get the product at a quarter of the price, but he would not. Either the food would not be there, or it would be there at a higher price. There are other mechanisms, but that one is particularly misleading.

The Minister is right to say that, if the largest export subsidiser in the world—the CAP—stopped its export subsidies, world prices would rise, because world prices are low—for the poignant point made by my hon. Friend the Member for Islington, North (Mr. Corbyn), that the EC dumps, at a great cost to the taxpayer, so much on the economies of other countries. I shall return to this point later and he Minister may want to intervene again.

The OECD estimates that the cost of the CAP was £52·6 billion in 1989. Last year, the average household of four in the United Kingdom, according to the Government's National Consumer Council, was paying £14 a week more than it should have been towards the cost of the CAP—£8 in higher food prices and £6 in tax—and the figure for this year will be even higher. I remind the Minister that the burden on the poorer families who spend a larger proportion of their income on food is greater. That is simply unfair.

The 1990 EC budget for agriculture allows for an increase in subsidies to 26 million ecu. Even one of the Minister's advisers, Mr. Carden, admitted only last week at a conference in Harrogate that it would be difficult to keep the system running at the present support level because the CAP is simply grossly inefficient. For every £10 spent on agriculture support, only £4 goes to the farmers.

That is the weakness of the system. The hon. Member for Sherwood (Mr. Stewart) speaks like the farmers. Joking apart, he has a good point. The farmers produce food and look after the countryside. When the taxpayer pays £10 for agriculture support but the farmer gets only £4 of it, we want to know why the other £6 goes for storage, destruction and export subsidies. I cannot understand why, if Conservative Members so clearly agree with our logic, they cannot bring themselves to tell the Minister to back the NFU and the Labour party and to press for some fundamental reforms in the CAP.

What does the Labour party propose to do about the agricultural surpluses of Europe—burn them?

I shall come to that point. The real point that needs to be made is that, when the CAP was designed, we were not an exporting Community, as Mansholt, the architect of it, recently made clear. We need to devise an agricultural support system that allows us to avoid creating surpluses, because surpluses cost this country dear.

As the hon. Member has invited me to support his policy, will he, in simple terms, answer my hon. Friend the Member for Weston-super-Mare (Mr. Wiggin) and tell us exactly what he proposes to do and how what he proposes to do will be accepted by the European Community? We can all make propositions, but how does the hon. Member expect the other 11 nations to take this proposition? Which of them does he think will support it?

As always, the Minister raises real issues, and I shall try to deal with them. Neither the Minister nor the Prime Minister were successful, because she had a golden opportunity in February 1988 when the veto did not apply, and the CAP was legally bankrupt. We could have dictated our terms, and the Prime Minister went with the intention of doing so. I remember the economic brief, circulated by the Treasury at the NFU annual general meeting, in which the Prime Minister pointed out the cost of the CAP to the average household of four. She backed down late on the Sunday evening and left us with a tinkered-with system that is not working and will not work. The Treasury economic brief disappeared from the scene and we cannot get hold of it any longer. I shall return to the point about our proposed reform of the CAP later.

The key point that the hon. Member for Sherwood allowed me to make is that we dump our surpluses in the world, wrecking the economies of developing countries. The EC Court of Auditors report this year said:
"Over the past two years, the subsidised export of agricultural produce to countries outside the Community has replaced intervention storage as the principal instrument by which the Community maintains the equilibrium of the internal market. Export refunds have superseded public intervention stores as the keystone of the price guarantee system under the Common Agricultural Policy."
Despite the much-vaunted reforms of the CAP over the past few years, such as the introduction of milk quotas and stabilisers, the CAP is out of control again. We have spent a large sum on export subsidies, but, despite that, and in addition to it, costs are increasing again. The Minister has had to admit that he will have to overspend by as much as £410 million on the CAP and the intervention board this year. If costs this year and for the next two years are added together, we shall have to increase expenditure on intervention by almost £1 billion.

Despite our huge subsidies on exports, we still cannot get rid of our agricultural produce. There is a major increase in intervention stocks. Between October 1989 and October 1990, there was a doubling of the EEC's stores of butter, a fourfold increase in the amount of beef in storage and a 68-fold increase in the amount of skimmed milk powder that is in store. That is crazy.

Even if we sweep aside financial constraints and economic considerations, the CAP has not achieved its stated objective of retaining those who work in agriculture in the countryside. In 1957, there were 15 million farmers in the original six member states. There are now only 5·6 million farmers. There has been a 62 per cent. decline in their numbers. We in Britain have suffered a similar decline. On every day since the Prime Minister took office, six farmers have been forced off the land and 16 farm workers have lost their jobs. I do not regard that as a very successful agriculture support system.

I gave the figures and the hon. Gentleman should have listened.

If we consider some of the broader perspectives of the CAP we find further oddities. For example, it is ludicrous that 4 per cent. of the CAP's budget goes to both tobacco and vegetables when tobacco is seen to cause cancer and vegetables are believed to help prevent it. The system is faulty in economic terms, in retaining a rural population and in producing healthy foods.

Faced with that, I should have thought that any Government, especially a British one, would have taken the opportunity of the GATT negotiations to put pressure on our EEC colleagues to engage in a major reform of the CAP. Unless we do so the problems will become greater. Unless we succeed, a subsidy war will break out between the United States and the EEC, and the result will be an even more expensive CAP.

This is where the Labour party opposes the Government's approach to the GATT agriculture talks. The Government have failed to grasp the significance of the linkage between CAP reform and the GATT. Despite the condemnation of the Minister, the Government have slavishly followed the United States' linear approach to the problem by examining only how we can minimise the subsidy cuts. It is not surprising that they have been negative.

The Minister made some derogatory comments about the American deficiency payment system. Why has he not been considering the possibility of introducing deficiency payments in Europe? That might be a much more effective. way of providing food at more reasonable prices for the consumer and of providing support for farmers. The system worked well until we entered the EEC. It has not, however, been costed since. It is said that such a system would cost too much, but, remembering that three areas of agricultural support might have to be reduced, why do not we consider the possibility of deficiency payments to ascertain whether they constitute an option? I do not know the answer because the Opposition have been unable to carry out the costings, but the Government have the necessary facilities. They have computers and they could undertake the computer projections. Let us have some statistics.

In effect, the hon. Gentleman says, "Why?" I shall tell him. He knows that there is no point in putting forward propositions that are unacceptable to every other member of the Community. He knows that Britain, in supporting the Commission, managed to secure what I outlined in my speech only after seven extremely long meetings. We did so in the teeth of opposition from most other member states. The hon. Gentleman puts forward a preposterous proposal that is not acceptable to any other member state. That shows how out of date the Labour party is. It could not negotiate within the European Community and, thank God, it will not have the chance to do so.

I recall hearing it said in the House yesterday, and I read in "Today" this morning, that the Chancellor of the Exchequer was urging the hard ecu proposal for the reform of the monetary system in Europe. I recall it being said that when that proposal was first made the United Kingdom was in a minority of one. However, there had been careful costings and the necessary homework had been done. The Chancellor of the Exchequer said that the Government had been able to prove the strength of their case and would have a fair wind in the Community. Why has not the Minister tried to persuade our European colleagues as the Chancellor of the Exchequer did? It is not good enough merely to attend trade lunches and be offensive to our neighbours. That is not the way to persuade them to vote for us. Why have not the Government considered seriously the production entitlement guarantee proposal? That system would give farmers a guaranteed price for a set amount of production. It is a mechanism in which deficiency payments could be used yet again. The amount to be subsidised would be limited and, therefore, the price could be contained. In that way food prices could be brought much nearer to world levels.

Why does the Minister—I use Sir Simon Gourlay's phrase—hit the roof every time the NFU suggests the supply side management of agricultural support? The Opposition recognise the weakness of the approach with its dangers of ossification and rigidity, but at least the NFU has produced some positive ideas and is contributing to the debate. At the same time the Government are purely negative and content with only a damage limitation exercise. By following that line the Government are selling the country short. They are doing farmers a disservice in the long term and costing consumers dear.

The Labour party believes that farmers need to be supported financially. We believe, as does the Minister, I think, in a thriving countryside. We consider that that can be achieved only by having farmers living and working in it. Without farmers the countryside would not be as we like it or as we see it today. To achieve those objectives we must move away from a purely market-supported agricultural system. The Opposition have put forward proposals for the payment of a green premium to farmers who are prepared to do their work in an environmentally friendly and positive mariner. That means that we would start the process of decoupling public subsidy from production.

I was delighted to see our views endorsed, in effect, earlier this month by an authoritative report commissioned by the much-respected World Wide Fund for Nature and the Council for the Protection of Rural England. The report supports the main thrust of the Opposition's case that cutting prices paid to farmers would lead to environmental degradation, even more farm bankruptcy and rural depopulation. The report's conclusions are basically the same as ours. A section of the report states:
"The budgetary cost is large and set to rise; the benefits to farmers are at the expense of consumers and taxpayers; price support, the chief instrument of the Common Agricultural Policy, is an inefficient way of supporting farm incomes: and current policy instruments frequently encourage and exacerbate those aspects of farming which damage the environment."
We agree with those conclusions. The Government should be arguing for a policy reform along those environmental lines.

We do not believe that food production should be rewarded by the market alone, although I cannot help a wry smile when I hear the Minister talk about that. What does he mean by the market? Does he mean the free market or the largely subsidised market? I think that he means the subsidised market. We cannot argue that we should leave it to the free market; the whole system would fall apart.

Public support for farmers should be focused on the environmental factors that the market cannot meet. A Labour Government would develop an environmentally based system of payments to farmers that would be integrated into wider agricultural policies. There would have to be a transitional period, and there would have to be payment for production during that time. Specific arguments might be made for farmers who wish to switch towards more benign methods of food and animal production, or who produce healthier food. Such a scheme would have to be phased in, but we could start by extending the environmentally sensitive area concept that has worked so well and has received support from both sides of the House. Such a scheme has been shown by the CPRE, the World Wide Fund for Nature and the Countryside Commission to be a much cheaper system of supporting farmers than the current one. As the hon. Member for Sherwood again pointed out, only £4 out of £10 goes to the farmers. The current system is inefficient.

The Uruguay round provides the opportunity for reform, and it must succeed. It is inevitable that subsidies to support agriculture will be reduced, so we must try to achieve reform. It is necessary to support farming on the grounds of both food production and the environment.

We are pressing for a sensible reform of the CAP which would enable us to reduce the amount of public subsidy for farmers while not reducing the actual amounts that they receive. By that means, we can achieve an agreement on GATT that will benefit the service, manufacturing, and other industries which make up 97 per cent. of the gross domestic product of the European Community.

10.52 am

The crucial subject of the GATT round, with particular reference to agriculture, appears to have come to our attention somewhat late. We, as interested Members of Parliament, should have been briefed about and had our attention drawn to the importance of the subject many months ago. The National Farmers Union, which has been rightly concerned about the immediate profitability of agriculture, has lamentably failed its membership in this matter. I am sorry to be critical of that organisation, but it is reasonable to say that if the GATT round were to fail as a result of the obduracy of the European farmers and, for that matter, the American trade negotiators—I suspect that both groups need their heads knocking together—agriculture will be held to be responsible for a serious reduction in world trade. I have heard that$3 trillion is at stake in the GATT round.

I am no great expert on trade matters, but on such an occasion it would be wrong not to declare an interest. All the outside interests that I declare in the Register of Members' Interests will be affected, in some way or another, by the outcome of the GATT negotiations. I suspect that all hon. Members with outside interests will be in the same boat.

To say to our beleaguered farmers that they must take a cut in support is a serious political proposition. I listened with some care to the hon. Member for South Shields (Dr. Clark), but I must admit that I should not know what to say to my hon. Friend the Member for Sherwood (Mr. Stewart) about the planning of his farm. The Opposition spokesman left him in no doubt that on the one hand the CAP should be abolished, while on the other it should be reformed—and at the same time my hon. Friend must grow environmentally suitable crops, whatever they may be. We have not yet been told.

There has been a chronic decline in farming profitability. Since 1977, farm gate prices have risen by only 60 per cent., compared with a rise in the retail prices index of 150 per cent. Real farming income has fallen by an average annual rate of 2·4 per cent. since 1979. High interest rates and inflation, the premium on vacant land, persistent green pound short-changing and poor marketing power against the supermarket giants have all contributed to that decline. One-off factors, such as the food scares that affect consumer confidence, new competition from eastern Europe, disruptions in the French lamb market, the drought and the Gulf crisis have all added to the woes of our farmers.

The Select Committee on Agriculture, which I chair, has just visited the United States of America and Canada, and their farmers are in no better a position. Canadian farmers have suffered a drop of 50 per cent. during the past two years in the real price of their products. We have considerable sympathy for world agriculture. The Cairns group has a clear and specific objective, which must be understood in the context of the geography of the world.

The fact remains that wheat can be grown in Canada and Australia far more cheaply than it can be grown in northern Europe. Beef can be produced in Australia and the Argentine more cheaply than it can in northern Europe. In fact, almost every basic commodity can be grown more cheaply outside this country, and then imported, than it can be grown in Britain.

The only alternative for Governments is to find a way to support the farming industry—that is, if we believe that it is important to have that industry. I find it extraordinary that, yet again, I am having to argue that we must support our agriculture. We have been on the brink of starvation twice this century. It is somewhat righteous to argue that that cannot happen again, because until the events in Iraq apparently there was no necessity for armed forces. Hon. Members should just think about the size of the Army that we have sent to the Gulf. I do not believe that, for strategic reasons, we should be wise to allow our agriculture to move into a state of total decline.

We must take into account the social aspects of the CAP—a policy that I have always thought to be more social than agricultural. It was designed to keep prosperity and people in the countryside, whether they be the hill farmers of Scotland or the olive growers of southern Italy. Without assistance, the countryside of Europe will collapse from one end to the other.

The hon. Gentleman made valid arguments about keeping jobs in agricultural areas. Does he agree that the same arguments apply to textile areas? Is not it important, for social as well as for economic reasons, to keep the textile industry buoyant and developing?

The hon. Gentleman has pre-empted a point that I had intended to make. The multi-fibre arrangement is extremely costly; it supports his constituents at a vast cost. We have to decide whether we provide such support, or whether we do not. The Labour party cannot support the multi-fibre arrangement and oppose the CAP. That would be illogical. If it supports both, that is a different matter.

When the hon. Gentleman answers the point raised by my hon. Friend the Member for Bradford, South (Mr. Cryer), will he also comment on the balance between support for agriculture and agricultural workers and the support given to those who work in the textile and other industries? Is not it true that currently more than half the budget goes to agriculture, with only a small percentage going to other industries?

I am happy to reorder my comments to deal now with that aspect.

The National Consumer Council issued a brief stating that the average increase in retail prices as a result of the multi-fibre arrangement is 5 per cent. That affects the lower-paid in particular, because cheaper garments are very often those that they purchase. One of my companies imports more than £400 million a year of textiles from abroad, and that cost is translated to about £28,500 per worker in the hon. Gentleman's constituency.

Does my hon. Friend agree that there is no use telling a housewife living in any textile area that she may enjoy a reduction in the cost of the items that she must buy for herself and her husband if they have both lost their jobs?

It being Eleven o'clock, MR. SPEAKER interrupted the proceedings, pursuant to Standing Order No. 11 ( Friday sittings).