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Mr. Hurd: I might mention that towards the end.

All the subjects I mentioned take up much time in the Foreign Office. They are all important. If hon. Members raise those subjects, my right hon. and learned Friend the Secretary of State for Defence will do his best to cover them when he replies to the debate. I know that my right hon. and learned Friend will speak specifically about the peace process in the middle east; he has just returned from that region.

I start with a subject that is very much in the news today. The House will have heard the news from Dublin that the Taoiseach resigned this morning. I think that it is right to thank Mr. Reynolds for his work in the past three years, and my right hon. Friend the Prime Minister has written to him today. Under his leadership, the Irish Government have established support for the peace process throughout the political spectrum in Ireland.

We have no doubt that the peace process will continue. It does not depend on any one person, and it has the overwhelming support, not only of both sides of the House, but of the people of Great Britain and of Northern Ireland and those of the Irish Republic. Therefore, we shall press ahead. My right hon. and learned Friend the Secretary of State for Northern Ireland and my right hon. Friend the Prime Minister will press ahead and, as we have already announced, we shall begin exploratory talks with Sinn Fein and loyalist political representatives before the end of the year.

Bosnia takes up a great deal of the time and emotions of Ministers, the House and many people in many countries. It is reasonable to ask first: what is the British

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interest in Bosnia? It has three parts. Stability in Europe is essential for our security, so we want to do what we can to bring the war to an end and to prevent it from spreading. Secondly, we want to end suffering and save lives. Thirdly--I emphasise this to the House today--we must not allow the strains created by Bosnia to disrupt the transatlantic partnership. The danger is there for all to see and I shall work with all my energy to prevent such disruption. The realities of Bosnia remain as they have been throughout, with one important exception. It remains true--as it has always been true--that the international community will not impose a solution by force. It follows that the fighting will stop when, and not before, the parties fighting are persuaded to stop. What has changed in recent months is the willingness of President Milosevic in Belgrade to accept the plan prepared by the international community and to put pressure on the Bosnian Serbs to do the same. That is an important change, as the House will recognise, and we must put that change to good effect. We must use the machinery at our disposal as effectively as we can. That means using aid, using the United Nations' force to mitigate the suffering and using the contact group of Russia, America, Britain, France and Germany to promote a solution.

It is still hard to be optimistic about that. The latest outbreaks of fighting have been destructive rather than decisive. The Bosnian Government have attacked, Bosnian Serbs have counter-attacked, and villages have changed hands and been destroyed. There are more blackened ruins and there is more hunger as the third winter of the war approaches. There are more corpses, but there is no outcome. No one has gained and no one will gain a decisive military victory. That setback follows a period during which some signs of normal life returned to Bosnia. A year ago, every day 1,500 shells rained down on Sarajevo and every day civilians were killed by snipers. For most of this year, people in Sarajevo have known days on end when there have been no shells and no sniper casualties. Schools have reopened in many parts of Bosnia and more than 90 per cent. of aid convoys now get through-- before the ceasefire barely half did so. All that is at risk and now lies in an uneasy balance between peace and war.

Our aid workers and troops remain hard at work. Our aid workers have used the lull in fighting to restore gas supplies, reconnect 71, 000 people to mains water and electricity, and restart medical services. Our troops have rebuilt bridges, reopened roads and defused dozens of small local crises that never reach the newspapers. The aid workers and the soldiers of UNPROFOR perform deeds of quiet heroism every day. They cannot impose peace, but where a fragile peace exists they can soften the suffering. That is why I say that General Rose and all his troops deserve our strongest support. We share his concern about the recent upsurge in fighting. Our troops can stay there doing their job of building peace and saving lives only if they can do so without unacceptable risk--that is a crucial "if" as we have all made clear, repeatedly, to those involved.

UNPROFOR and our aid workers work to keep people alive and to maintain a fragile peace on the ground. In the contact group we have to work to keep the prospect of peace alive. Only the Bosnian Serbs now block that way to peace as they constitute the only party involved to have rejected our plan. We cannot simply turn off the engines

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and wait. We have to find additional routes to a settlement, new ways and a wider solution. Tomorrow I shall be discussing with the Russian and French Foreign Ministers how to keep pressing forward. Soon after that I shall talk to the American Secretary of State and the German Foreign Minister. I am sure that only a united effort by the contact group will succeed.

Meanwhile, we must continue the arms embargo in the Adriatic. There has been much publicity about that operation, which must now adjust to the change in the American role announced last week. But it should remain effective. My right hon. and learned Friend the Minister of State and I listened in Holland on Monday to a careful analysis of this by the new Secretary General of NATO. Having heard that, I am confident that the NATO action can remain effective. We must not inflate what is certainly a difficulty into a disaster for NATO, and we should avoid giving the problem a political weight that it does not deserve.

Mr. Mike Gapes (Ilford, South): Has the Foreign Secretary seen reports in today's The European to the effect that United States military and intelligence personnel are giving assistance to the Bosnian Muslim side in the conflict, at the same time as the Americans are withdrawing intelligence co-operation from Britain and France in the enforcement of the arms embargo in the Adriatic? Will the right hon. Gentleman take this opportunity to condemn that intervention and to make it clear to the American Government that we do not take kindly to the fact that they are making the task of our troops in Bosnia much more dangerous?

Mr. Hurd: The hon. Gentleman is inadvertently doing precisely what I was warning against. He is taking the fact that two American ships in the Adriatic have had their orders changed and is pushing it forward, quoting reports to which I do not give credence and raising the whole question of future American reliability. That is not justified by what has occurred. If at any time we feel that the risks to our troops become unacceptable, they must be withdrawn; but we do not believe that that is the effect of the change in the instructions to the American ships.

Mr. Patrick Cormack (Staffordshire, South): Will my right hon. Friend repudiate what the hon. Gentleman has just said? He talked about the Bosnian Muslim side. Will my right hon. Friend make it quite plain that we are talking about the legitimately recognised Government of Bosnia, which is not purely Muslim, and that there would be no fighting now had the Serbs accepted, as the Bosnian Government reluctantly did, the contact group proposals?

Mr. Hurd: That is right on both points, but I want to return to the general point that I am trying to make, which is fundamental. It is the firm belief of the Government--and, I think, of the Opposition--that the Atlantic alliance remains the foundation of our defence and that the presence of the United States in Europe must not be discounted or thrown away. I say that because some commentators, here and even more elsewhere-- in Paris, for example--have rushed to rash judgments on this point in the past few days. I do not believe that we should revise those fundamental judgments, which lie at the heart of our foreign policy, because two American ships have altered their duties in the Adriatic. In an age of uncertainty there

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are still some welcome certainties. One of those is the strength of the NATO alliance, and we must keep it that way.

Some reference has been made to intelligence and to the role of American officers in headquarters jobs at NATO--for instance, the admiral in charge of this operation. It has been made entirely clear that Admiral Smith will continue to conduct the NATO operation in exactly the same way as before.

In this context I should like to commend to the House the interesting speech and proposals made by my right hon. and learned Friend the Secretary of State for Defence the night before last, when he spoke to the Pilgrims about forging an Atlantic community. There is no contradiction between our commitment to the Atlantic alliance and the new relationship that we are building with Russia. Russia has joined NATO in one of the most important Partnership for Peace projects. In parallel, the partnership and co- operation agreement between Russia and the European Union was signed last June. We consult, in the same spirit, with Russia at the Security Council, the contact group and the G7 summit, and our British relationship with Russia exhibits a new breadth, openness and warmth. We saw that when President Yeltsin was with the Prime Minister at Chequers in September, and I saw it when Her Majesty the Queen visited Moscow and St Petersburg last month, when the Royal Standard dramatically flew over the Kremlin.

Mr. Christopher Gill (Ludlow): Has my right hon. Friend seen the report by the Frankfurt-based Institute of Soviet Affairs which shows that the institute believes that Russia has 4.8 million men under arms? That is twice the officially recognised number of 2.3 million and even more than the number of men that Russia had under arms at the beginning of the reduction of armed forces in Europe in the late 1980s.

Mr. Hurd: I have not seen that report, but I shall check it. My hon. Friend's question leads me straight into what I was about to say--that we should not delude ourselves that the new dialogue and openness about which I have spoken will be easy or that Russia's interests will always coincide with ours. We cannot be naive but must be hard-headed about that. When we now meet we do so in the hope of agreeing on solutions and not just, as in the past, as a way of expressing disagreement and accepting it as inevitable.

Earlier this year I suggested to President Yeltsin in Moscow that underlying our new relationship was the principle of "no vetoes, no surprises". He agreed, and that is how we should continue to operate. One area on which our perceptions have certainly differed is Iraq. When President Saddam Hussein's troops moved south again last month, we sent two naval ships and a battalion of Royal Marines and doubled our deployment of Tornado aircraft in that region. As a result of that and the American action, the threat was again seen off. But it reminded us that we need to be vigilant, to be prepared to deploy troops in the field and to use our influence and authority in the Security Council.

There is a route for Iraq to return to normality, and it is clearly set out in the Security Council's resolutions. The recognition of Kuwait, which Iraq has just announced, is a step forward, but it is long overdue. However, it is not the only step that is required before sanctions can be lifted. Saddam Hussein, alone in his sumptuous palaces,

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bears responsibility for the suffering of the Iraqi people. The Security Council has made it quite clear in resolutions 706 and 712 how Saddam Hussein can obtain funds to relieve the suffering of his people through the sale of oil. He has repeatedly refused that help. A general point goes to the heart of any sane idea of world order. Under chapter seven of its charter the UN Security Council has the power to pass mandatory resolutions binding all member states. That power should be used sparingly, perhaps more sparingly than in the past. Such resolutions, especially those that apply sanctions and put on embargoes, inevitably cause inconvenience and loss and are unpopular with some member states. That is why they should be a last resort.

I have mentioned the sanctions against Serbia-Montenegro, which are thoroughly disliked in the Russian Duma. An arms embargo applies to all parties in the former Yugoslavia and, as it applies to the Bosnian Government, it is deeply disliked by most members of the United States Congress. Equally, there are mandatory sanctions against Iraq which Russia and perhaps others would like to see lifted before long. All those matters are for legitimate debate and review. At present I think that those mandatory resolutions continue to be observed by the major powers. However, if member states, and particularly permanent members of the Security Council were to ignore or contravene those mandatory resolutions, others would quickly follow suit. The authority of the Security Council and the United Nations would quickly unravel and our hope for a more orderly world would begin to dissolve. We are all aware of the temptations and pressures not to comply, but it is essential that those temptations and pressures be firmly resisted.

Mr. Tim Sainsbury (Hove): While my right hon. Friend is dealing with issues in the middle east, will he confirm that we also need to be vigilant against international terrorism? Will he also confirm that we will do all that we can, including the use of the mandatory sanctions to which he has referred, to bring pressure to bear on all parties that support international terrorism?

Mr. Hurd: I gladly confirm that. As I have said in the past, we are particularly concerned about the policies of Iran, and my right hon. Friend knows what we have been trying to do to focus world attention on terrorism. He will not find us lacking in that regard. Let me turn to a subject that the House has discussed endlessly, but rightly. The future of Europe is always high on our agenda and there are ups and downs. Some people rejoice in the ups and some in the downs, but we are making progress on the things that matter for Europe and for the entire world open trading system.

The GATT agreement was a great success. We now need to ratify the agreement and make sure that the World Trade Organisation gets going as a vigorous decision-making body, keeping up the pace of trade liberalisation. I welcome the decision by the European Court of Justice earlier this week, underlining the role of member states in carrying out the GATT agreement. I commend that judgment to those who tend to believe that the European Court always makes its judgments in a centralising direction. Now the European Parliament--and all of us--can get on with ratifying the agreement and so, I hope, will the United States Congress.

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It has been a good year for enlargement-- another of our objectives. The people of Austria, Finland and Sweden have cast their votes and we now hope the Norwegians will vote to walk through the door that is open for them. The door should stay open; we should not behave like nightclub bouncers letting a privileged few slip in and slamming the door on others outside.

Our association agreements with six central European countries set a course for further expansion and we are encouraging those countries to prepare themselves for membership. We are now beginning to negotiate association agreements with the Baltic states, as they have their place in the European family.

As expansion to the east and to the south takes place, as my right hon. Friend the Prime Minister pointed out, the European Union must continue to encourage greater flexibility to match the greater diversity of its members. It is not a question of dilution. We need and believe in a strong, confident union which demands adherence to legal obligations, but the European Union must be more sensitive to its internal differences. It is already happening to some extent; we can see it in the principle of subsidiarity that is beginning to take root and increasingly in what some of our partners say. I read the speech by my French colleague Monsieur Juppe in the French Assembly this week. He said that he was no enthusiast for the concept of the European super-state, however dressed up in federalism.

I was in the European Parliament in Strasbourg on Tuesday and I was struck by the way in which leaders of both left and right volunteered that there was no real appetite, even there, for an extension of the competencies of the Commission. There will be plenty of argument about the powers of the Parliament, but the idea which used to be orthodox in those circles that the Commission should steadily extend its competencies into areas not now covered by the treaty has reached the high water mark. We have to bring our own ideas and we shall do so.

Mr. Nigel Spearing (Newham, South): The Foreign Secretary mentioned the treaty and what was outside the treaty--presumably he was referring to the treaty of Rome. Does he agree that title I of the Maastricht treaty gives powers to the Commission to generally supervise and be in a supervisory capacity over both the treaty on European Union and the treaty of Rome?

Mr. Hurd: The hon. Gentleman knows what actually happens under the second and third pillars and we can go into more detail another time, but it certainly is not supervision by the Commission. They are intergovernmental arrangements. The Commission is present, but it does not have the same powers it has in the Community itself--the first pillar.

We are working out and will bring forward our own ideas and energy to the work of preparing for the 1996 conference. The House will have many occasions to discuss that. We have a more immediate problem that was raised by my hon. Friend the Member for Twickenham (Mr. Jessel) during the business statement. We need a clear and effective strategy to root out fraud against the Community budget.

This week the Court of Auditors published a report which highlighted the scale of the problem. It was using for the first time the greater authority which we, the British, insisted it should have and which was put into the Maastricht treaty.

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It is for the Commission and the European Parliament to tackle fraud effectively. It should be at the top of their agenda, not in some half-baked postscript. Europe can never be healthy, robust or successful if that cancer is not adequately treated. That is why my right hon. and learned Friend the Chancellor of the Exchequer is pressing for better financial procedures, more rigorously applied. It is also why my right hon. and learned Friend the Home Secretary, through the new intergovernmental system, has launched an initiative to ensure that fraud is treated as seriously in other member states as it is in Britain.

I repeat what I said this week at the European Parliament. I believe that the newly elected Parliament and Commission have the opportunity to prove their energy and clear-sightedness. They should gain a reputation for themselves by cleaning out the stables and insisting that member states do the same.

Mr. D. N. Campbell-Savours (Workington): I remember an occasion in 1981 when my hon. Friend the Member for Blackburn (Mr. Straw), who was then a junior Treasury spokesman, replied to a debate on that very issue. Ministers assured the House that they would deal with the problem of fraud in the Community. That was 13 years ago, and every year since then Ministers have given assurances to Parliament and to the country that something would be done.

Even people like me--a committed European for more than 35 years--are beginning to question their loyalties because the Government have repeatedly refused to act. Why cannot some changes be introduced in the Community now, so that some form of international police force is given access to each member state to root out fraud in the way the Parliament and the people of this country expect?

Mr. Hurd: It was precisely in response to the sort of feeling that the hon. Gentleman has expressed that during the Maastricht negotiations the British Government insisted on new powers. That is why we have a report. The treaty came into force last November and it is now for the Commission, the European Parliament and the Finance Ministers to push ahead with implementing that. My right hon. and learned Friend the Home Secretary has tabled a proposal for joint action. The Commission has tabled a proposal for action by itself, which we shall consider sympathetically.

The hon. Member for Workington (Mr. Campbell-Savours) is right to say that the matter has dragged on for far too long. Now, thanks to this country, there is an opportunity to deal with it effectively, not just through declarations-- [Interruption.] The hon. Gentleman and I will exchange further views on this matter in a year's time and then we can see how we are getting on. However, I assure him that we are on his side.

Sir Ivan Lawrence (Burton): Before my right hon. Friend leaves the question of fraud, I remind him that yesterday my right hon. Friend the Prime Minister said, in an otherwise brilliant speech, that we should give greater powers to the Court of Auditors to investigate fraud in the United Kingdom. Is it the Government's policy to allow international investigators to come here and investigate

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our frauds? Or will that investigation be carried out by our police and our Serious Fraud Office, in the usual, accepted way?

Mr. Hurd: My hon. and learned Friend asks an important question. To some extent, the responsibility lies with the Commission. It must put its house in order. It has tabled a proposal, which we are studying, that would provide greater efficiency in that process. Of course, the responsibility also lies with member states as 80 per cent. of spending is by them. That is why my right hon. and learned Friend the Home Secretary has tabled a proposal for member states to be compelled to carry out their responsibilities more effectively. Both sides of the issue are important.

Mr. Skinner: I listened carefully to what the right hon. Gentleman said about the British Government having pushed for the new powers. He said that the system would be cleaned up. Why, then, did the Chancellor of the Exchequer go to an intergovernmental meeting a few weeks ago and vote to write off more than £500 million that the Italians had swindled from the rest of the nation states? The Foreign Secretary talks about a massive clean-up campaign, but the Chancellor of the Exchequer went along with other member states and voted to write off that £500 million, which means that the British taxpayer has to pick up the bill.

Mr. Hurd: The hon. Gentleman has that example entirely wrong. Let me explain it to him. Everyone recognised that the Italians and the Spaniards had, to put it mildly, over-benefited from the milk quotas. The Commission proposed a fine of 2 billion ecu for the two countries. We thought that that was not enough and we took the matter to court. The compromise that my right hon. and learned Friend accepted means that Italy and Spain will be paying a fine of not 2 billion ecu but 3 billion ecu--1 billion ecu more entirely as a result of the action taken by the British Government. That is not bad. [Interruption.] I hope that when the hon. Gentleman, who is not doing a great deal of listening this afternoon, has studied the figures he will recognise that he was wrong and pay the appropriate compliments to my right hon. and learned Friend on a good success. I want now to move on and say just a word about another part of UN work which has not been really noticed since the disasters in Rwanda faded from the television screens. Rwanda has tested the UN system almost to destruction. I do not think that any of us, looking back, can be satisfied with the way in which the international community responded. Action, not hand-wringing, is now needed. We have made our contribution and we continue to do so.

Our cargo planes were the first to land back in April. Our aid specialists were there on the ground when the refugees started to arrive. Since August, 600 British troops--this has gone almost unnoticed--have been with the UN force in Rwanda. They will be coming home this weekend. I pay tribute to the excellent work that they have done. The media have hardly done them justice. Our soldiers have literally kept the aid effort on the road, carrying out more than 800 repairs on UN vehicles, rebuilding bridges and treating 125,000 people in the field hospital.

There are lessons to be learnt from that, and we are trying to learn them. We need to be better equipped to prevent such conflicts. When we cannot do that, we must

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be better equipped to respond quickly. I put forward some ideas on that to the UN General Assembly in September. We want to work with other members in developing a coherent structure for conflict prevention in Africa. We are following up those ideas with the Organisation of African Unity and we hope to have a meeting in Africa to carry them further fairly soon.

Mr. Chris Mullin (Sunderland, South): Will the right hon. Gentleman give way?

Mr. Hurd: I shall give way to the hon. Gentleman, but I shall not give way again until towards the end of my speech.

Mr. Mullin: Is not one of the lessons to be learnt that we should not keep selling arms to those tinpot regimes?

Mr. Hurd: I shall come to that later. I pass over, as Cicero used to say, the hon. Gentleman, one of the most progressive Members of the House, and the way in which, when it suits him, he describes third-world countries as tinpot regimes. Such a patronising attitude causes immense irritation in the countries that used to belong to colonial empires.

I come now to our own last remaining large colonial territory. Hong Kong will cease to be British in 1997. But the value to the region of Hong Kong's amazing dynamism must continue--and will continue if the transition runs smoothly. There is a huge British stake in the territory--3.5 million British passport holders, 1,000 British companies and investment worth more than £90 billion sterling. But there is more to our responsibility than that. There is the duty to 6 million people in the territory to hand over Hong Kong in a way that preserves their confidence--everyone's confidence--in their territory. We have a duty to the world and to ourselves to achieve the transition in good order.

The Hong Kong Legislative Council has accepted our view of the right constitutional arrangements for the territory. We now want to turn that page and tackle and resolve the many outstanding questions. We have just had the welcome agreement on financing the new Hong Kong airport, which I have seen being built. It is on time and it is the biggest single engineering project now going ahead in the world. That is an important step. In the months ahead we shall be working for similar progress in other areas. With China, we need to put aside the sensitivities and suspicions of the past and press ahead with practical co-operation.

I will refer next to the recent High Court decision on the Pergau dam project--which, understandably and rightly, has aroused a certain amount of comment. I will not go over the whole background. [Hon. Members:-- "Oh."] I am willing to do so, but that would take time, and I would be repeating the evidence that I gave to the Foreign Affairs Committee, by which I stand. The Committee's inquiries, made under the chairmanship of the right hon. Member for Bethnal Green and Stepney (Mr. Shore), went wider than the court judgment. It examined the events of 1988 and the political and commercial background, and the court did none of that.

The court was not asked to enter and did not enter into the question of arms sales. I understand that the court had nothing to say on that point. My understanding--and I

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will explain why it is only an understanding --is that the court has for the first time interpreted the Overseas Development and Co-operation Act 1980 under which the aid programme was given and decided that the Pergau project falls outside it. The court has not yet produced its written judgment. When it does, I shall study it and decide whether to appeal.

We must decide whether the Overseas Development Administration can live within the new judgment and yet continue to run an aid programme of benefit to this country as well as to the recipients of aid. I am thinking particularly of the aid and trade provision designed by a Labour Government in 1977, to benefit British industry as well as the recipient country. We shall study that point as soon as I receive the court's written judgment. Subject to any appeal--and we can decide on that only when we receive the judgment--we must of course fully comply with the court's judgment. Meanwhile, I have asked the ODA carefully to review all the projects and activities that it funds, to see whether any others approved under our previous understanding of the 1980 Act fall outside the interpretation of that legislation, which was given for the first time last week. I have read newspaper reports of that interpretation and have a transcript, but I do not yet have the full judgment. In a matter of this importance, clearly I need the full judgment before taking a decision.

Mr. Peter Shore (Bethnal Green and Stepney): I understand the Foreign Secretary's difficulties in making too bold a pronouncement at the moment, because he has yet to see the High Court judgment and to decide whether to appeal. However, will the right hon. Gentleman give the House an assurance now that if he accepts that judgment, or if he appeals and loses, any funds already paid to the Pergau project from the ODA's budget will be restored to the ODA, and that any future sums to be credited for the Pergau dam against future ODA budgets will be disallowed and that the ODA will be able to spend as though no commitment to Pergau had been made?

Mr. Hurd: I will deal with that point in a moment. I may not entirely satisfy the right hon. Gentleman, but I will go as far as I can today. I would prefer to deal with these matters in sequence. I do not intend to evade the right hon. Gentleman's point because it has been made in many places.

Mr. Ian Bruce (South Dorset): Was Malaysia a signatory to the Rio accord? I believe that the court specifically said that it felt that the way that Malaysia generates electricity is uneconomic, in that it decided to go for hydro-electricity rather than burn fossil fuel. Surely it is strange when a court starts telling countries that they should burn fossil fuel rather than choose clean hydro-electricity.

Mr. Hurd: My hon. Friend illustrates my difficulty, because I do not think that the court said that. None of the reports that I have read touch on that matter. Judging by some comments, the court commented on arms sales, and on this or that. I must have the considered judgment of the two judges in writing before I can weigh those matters and decide how best to respond.

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The judgment, in any case, clearly does not lessen British involvement in the Pergau project. The dam is now 75 per cent. complete and it involves some 200 British companies. We have contractual obligations toward the banks financing the project.

Mr. Harry Greenway (Ealing, North): Will my right hon. Friend give way?

Mr. Hurd: No. I shall make progress, as I have said. What the judgment would mean, if we decided not to appeal, is that the project should not--could not--henceforth be financed from funds voted under the 1980 Act.

I now come to the point of the right hon. Member for Bethnal Green and Stepney. Until we have received and studied the written judgment and decided for or against an appeal, we cannot decide on the implications for the aid programme of the money already spent on the Pergau project or the funds likely to be required--the right hon. Gentleman's point--from this year to 2006. Again contrary to some press reports, no decision at all has been taken or indeed could be taken on those points, and the House will be informed of a decision when it is taken.

I shall give the figures, because some reports go well astray. The total cost of support pledged for the project will amount, on the latest calculation, to £216 million; £24 million has been spent in previous financial years, and £11 million has been spent so far this year. A further £11 million is due to be spent before the end of the financial year, but no payments need to be made in the next few weeks. The remainder, which is £170 million, will be spread over the next nine years, with a peak payment of £26 million next year--that is the most in any one year--and the year after. Until the judgment, those were financed out of the aid and trade provision which I have already mentioned. At present, the aid and trade provision runs at £100 million a year, which is between 5 per cent. and 6 per cent. of the total aid budget. It is useful to have those figures on the record, because it puts those large sums in the right perspective. There has been some attempt, to which the hon. Member for Livingston (Mr. Cook) has lent his mind and his tongue, to prove a link between aid and defence sales to several countries. I would like to make one point clear. During my time as Foreign and Commonwealth Secretary, I have at no time authorised or been aware of any link between British aid and British defence sales to any country anywhere in the world. I hope that the hon. Gentleman and the House will accept that assurance.

Of our 10 biggest aid recipients, all are low-income countries, seven in sub-Saharan Africa, and three in Asia. Nearly 80 per cent. of our bilateral British aid to developing countries goes to the poorest among them. Indeed, the OECD, as the hon. Member for Cynon Valley (Mrs. Clwyd) will know, in the recent review of our aid programme, recognised how British aid focuses on the poorest countries--it wishes that there were more of it, but it recognises that what we spend is focused, as it has always been, on the poorest countries. That picture is far removed from the suggestion that our aid flows are determined by prospects of arms sales. It is absurd to maintain that we should not provide aid to poor countries because they buy our arms, or that we should not pursue defence sales in countries where we give aid.

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There is a certain unreality about some of the discussion. How many employees of British Aerospace, GEC, Rolls-Royce, Racal and other defence exporters would accept losing their jobs for such a specious policy? I wonder what redress those employees would have and what court they would go to for redress for lost employment if the Labour party's policies prevailed in this matter.

Miss Joan Lestor (Eccles): I do not want the right hon. Gentleman to lose the point on the Pergau dam. I would like him to be a little more explicit in his answer to my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore). The question is very simple. Whether or not the Foreign and Commonwealth Secretary decides to appeal--according to one newspaper report, he said that his instincts are not to appeal, but that is a matter for him--if it is shown that the money was unlawfully used, all that we need to know is that it will go back into the aid budget and that the aid budget will not suffer as a result. Surely the answer can be yes or no.

Mr. Hurd: No, because the question is hypothetical. No Minister would answer a question of that kind. I have said that there will be no decisions on any of those points, either on past or future spending. We shall have to take that decision if I decide not to appeal. As soon as that decision is taken, the House will be informed. I shall give way to my hon. Friend the Member for Ealing, North (Mr. Greenway), but I will not give way again.

Mr. Harry Greenway: Is my right hon. Friend aware that Ultra Electronics in my constituency is typical of many companies in other constituencies which are responsible for selling arms? It sells sonar buoys to many parts of the world. Many of the people employed there are not impressed by people in the Labour party and elsewhere who say that their jobs should be given up. They know that other countries will take over-- [Hon. Members:-- "How?"] By cancellation of arms sales for whatever reasons. Sonar buoys are as much a form of arms as anything else and Opposition Members ought to know that.

Mr. Hurd: My hon. Friend, not for the first time, puts a note of reality into the debate. Opposition Members are a little silent on the matter. They know that it is not only, or even mainly, Conservative Members of Parliament who represent industrial constituencies who write to us saying, "You must give an export licence to this project because jobs depend on it." There are plenty of examples of that in the files. Nor is it just Labour Members who write in. Westland is an important export contractor. That is why it is necessary for not only the Government but the House as a whole to get the balance right. I shall now explain in the last few minutes of my speech how we seek to get the balance right.

Mr. Jeremy Corbyn (Islington, North): Will the Secretary of State give way?

Mr. Hurd: I will not give way any further. The whole House will accept that a balance is needed. We recognise, as the United Nations charter recognises, that countries have a right to self-defence. If a country wishes to defend itself it needs good equipment. A great many British companies supply high-quality defence products. That is the chain of reasoning and it is hard to resist. We need to

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ensure that when those products are exported, they are sold responsibly. We need to take careful account of the use to which the equipment may be put.

Mr. Corbyn: I thank the Foreign Secretary for giving way at last. Can he explain why his Government have consistently sanctioned arms sales to Indonesia, ipso facto supporting the invasion and occupation of East Timor and the genocide of 200,000 people in that country? Does he not think that the blood trade of arms to that country has to be stopped?

Mr. Hurd: The reason why we allow--under certain conditions that I shall come to--export sales to Indonesia is precisely the reason put by the Opposition Front-Bench spokesman for defence, the hon. Member for South Shields (Dr. Clark), who said that he supported the sale of Hawk training aircraft to Indonesia because that country was part of a south Asia security system. The Opposition Front-Bench team, seeking to strike the balance that I am talking about, came down on the same side of that balance as the Government on the point that the hon. Gentleman mentions. They were right to do so.

Administering the balance is the job of our export licensing system. If we believe that an application raises concern that equipment is likely to be used for internal repression, we will refuse it. If we are not satisfied about the impact of a proposed sale on regional security, we will refuse it. We have also withheld licences on sales which we thought unsuitable or unfit for the economic or technical capacity of the buyer. That is not academic. In seeking the balance, we refused, often, I expect, against representations from Members of Parliament, some 300 export licence applications last year, including riot control equipment where we were concerned that it was likely to be used for internal repression.

We will not put unnecessary barriers in the way of British companies which responsibly earn revenue and sustain the jobs of the 400,000 people in this country who work in the defence industry, or the approximately 90,000 of those whose jobs depend upon defence sales overseas. We are highly competitive in this field. It comprises only 2.1 per cent. of our total exports. But we are not prepared to dull the competitive edge of that part of our industry to satisfy people who are well-meaning but ill-informed; people who have no responsibility for the prosperity of the British people or for our ability to earn our living in the world.

As I have tried to show, our outlook on foreign policy is worldwide. That is because the interests that we promote and protect stretch across the world. We rely on exports to supply a quarter of our gross domestic product --more than twice as much proportionately as Japan or the United States. As an investor abroad, we are only just behind those two. As a home for foreign investment, we are second only to the United States. We are a European power with interests that reach far beyond Europe.

Protecting those interests, which is our daily job, is not done through some grand design or idealistic vision. It is done through hard work and, I hope, accurate perceptions--taking the world as we find it, identifying British assets and those things that we are strong at and

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setting them to work as effectively as we can, in the interests of prosperity and security for our people and inthe interests of a more stable and prosperous world.

3.50 pm

Mr. Robin Cook (Livingston): There could not be a more appropriate moment for the House to debate foreign affairs than the day after the Gracious Speech, given that they provide most of the text of the speech this year.

We wholeheartedly agree with many of the objectives set out in the Gracious Speech. We welcome the support that is expressed for the development of political democracy and a multi-racial society in South Africa. Many Opposition Members worked to support the struggle to end apartheid and we share with the Government the objective of building on that victory to provide a stable future for the peoples of South Africa.

I would also add our voice to the support in the Gracious Speech for the middle east peace process. I hope that, in the year ahead, there will be surer progress towards that peace.

We shall co-operate, whenever possible, with the Government on developing their agreement with China to secure the long-term future of Hong Kong on the basis of the joint declaration.

On all those matters, the Opposition share much common ground with the Government on the role that Britain should play in the world. I endorse the Foreign Secretary's observations on General Rose and the troops under his command. We fully support their dedication and commitment and appreciate the dangers that they face in Bosnia. We support the commitment in the Gracious Speech to achieving a peaceful settlement in the former Yugoslavia.

I must enter one word of caution--the terms that may offer the best hope for an immediate ceasefire are not necessarily the best basis for a long- term solution. The conditions under which it may be necessary to obtain a ceasefire may mean the partition of Bosnia. I press the Government to recognise the fact that Britain must observe those United Nations resolutions that call for a long-term solution in Bosnia--a solution that will both recognise refugees' rights to return to the areas from which they have been evicted and respect the integrity of Bosnia's borders. I invite the Government to support any initiative that could restore Bosnia as a multi-ethnic and pluralist society and not to leave it for ever in a European version of apartheid, based on ethnic partition, as we celebrate the decline of apartheid in South Africa.

I concur with what the Foreign Secretary said about the United States's decision on the arms embargo and the North Atlantic Treaty Organisation. I am sure that NATO will be robust enough to withstand that difficulty. I am sorry that the Foreign Secretary did not focus on where that decision leaves the United Nations. There are clear United Nations resolutions on the matter of the arms embargo on all the countries of the former Yugoslavia. The United States has frequently used the United Nations in ways that have been harmonious with its foreign policy. We have the right to tell the United States that the legitimacy of those resolutions that it wishes to get through the United Nations depend on it in turn observing those UN resolutions with which it might not entirely agree.

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Each of those issues is very important, but I recognise that the balance of the Gracious Speech, by devoting most of its time and space to the rest of the world and only the minority to Britain, is not a tribute to the importance of world events but an admission that the Government do not have much to offer on domestic issues. It is a further measure of the thinness of the Gracious Speech on domestic issues that what has dominated comment on the Gracious Speech has been the reaction to the European legislation contained within it. Yesterday was our first day back and before we have had a single vote in the new Session, the Prime Minister has named which vote he will regard as a vote of confidence.

The device may well work, and I rather suspect that the rebels will be dragooned into line. I should not be surprised if that happened, because the threat to call a general election is a very potent weapon with which to threaten Back Benchers since, on the present polls, half of them would lose their seats. The Prime Minister has demonstrated that he does not dare let his own Back Benchers vote on the merits of the issue because his own party is too deeply divided over Europe.

I am advised that in foreign affairs a more bipartisan tone is required than is customary. I shall endeavour to rise to that unusual demand. May I therefore congratulate the Foreign Secretary on trying to knock some common sense into his party over Europe at the Conservative party conference? He will recall that, in a speech to that conference, he warned the party that

"we can get just a little high on xenophobia".

We know who the right hon. Gentleman is worried might get a bit too high on xenophobia for their own, and the party's, health. They are the same people whom the Chancellor this week described as fanatical anti-Europeans--people such as the Secretary of State for Employment, whose speech to the conference did not just get high on xenophobia, it positively turned on the booster rockets and entered the stratosphere.

Any of our European partners observing the foot-stomping in Bournemouth which greeted the call of the Secretary of State for Employment to "stop the rot" from Brussels is unlikely--I put it diplomatically, as befits this role--to be more favourably disposed to British interests the next time they are negotiating with the Foreign Secretary and his colleagues in Brussels.

The House will be aware that I come to this brief from the Department of Trade and Industry, and it may therefore be appropriate to put in the context of my experience at the DTI and what I learnt there how I view our relationship to Europe.

The broad landscape of the development of trade and industry around the world shows that, at the turn of the century, the world will be dominated by three industrial blocs--north America, the European Union and the newly emerging industrialised countries of the far east. It will be a very lonely world for any industrial country trying to survive outside one of those blocs. Europe is the only one to which Britain can realistically belong. The issue is not whether we are in Europe, but what kind of Europe we are going to belong to. The Gracious Speech referred--grudgingly, I thought--to the intergovernmental conference which is coming in 1996. Our view is that we should not approach the IGC as something to be feared, whose advent is to be

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