Free movement of workers in the EU - European Scrutiny Committee Contents

Examination of Witnesses (Questions 1-19)


9 MARCH 2009

  Chairman: Welcome Minister. I am not sure how you wish to be addressed all the time.

  Lord Mandelson: Call me anything you like. Green Warrior!

  Chairman: We are very pleased that you could take the time. I know you have a very busy schedule but, as the Secretary said in the report to us, we did receive a document, as you know, from the Commission on the movement of workers within the EU which just happened to come at the time where there was some controversy about a number of items in the public domain. We thought it would be very useful to use that document to take some evidence to try and get behind the rhetoric of what was being said given that that is our duty as a Scrutiny Committee. I believe you would like to make a statement to begin the session and we would be happy for you to do that at this time.

  Lord Mandelson: Thank you very much for inviting me. I think you are going to have the Immigration Minister later this week and he will have greater expertise than I on the particular Commission document. If I may, perhaps I could just set out some introductory remarks on the subject of the free movement of workers and to provide some context about the very important and substantial benefits that I believe the UK receives from the open EU market. Statistics alone paint a clear picture. Half of the UK's exports go to the 27 Member States of the EU making the European Union our biggest market. 3 million to 3.5 million UK jobs are linked to our trade with the European Union and roughly half of all UK inward investment is from the European Union which is worth about £315 billion a year. Over 320,000 British-owned firms are operating in Western Europe. You will see that the importance of the EU, its single market and its openness to trade and the circulation of capital and workers is of immense economic importance to Britain. In view of these benefits, it is my firm belief that there is no advantage for the UK whatsoever doing anything to deny ourselves full access to the European single market and therefore any openness to protectionism, in the light of the current recession, would be a very grave error in the government's view. This would only lead to an erosion of the single market. It would lead to a tit for tat inexorable closing of markets and opportunities for trade for us in this country. It would lead very quickly to a race to the bottom as people tried to hang on to what they had and to exclude others which would very quickly create a downward spiral. It is also, in our view, very important to keep our labour market flexibility. This is the best way to ensure that people can move between jobs and to other jobs as the economy adjusts and recovers as it will. The UK has always been a firm supporter of the free movement of workers in Europe which is why we fully implemented the Posting of Workers Directive which has been in force now for some years in the EU. We have also supported the Commission's work with social partners and with enforcement authorities to look at the operation of the Posting of Workers Directive and we look forward to the results of that examination by the social partners. We will continue to resist calls for additional burdensome employment legislation, including from the EU. In particular we will fight to retain the right of individuals to opt out of the Working Time Directive's maximum 48 hour week. It is very important if British workers are going to compete for supply chain opportunities both in Britain and in Europe that we maximise their skills and productivity capability and that is why John Denham and I commissioned an independent review of the skills and productivity in engineering construction in Britain which will identify specific factors influencing success for UK-based companies bidding for UK and foreign engineering construction contracts. It will shed light on the current state of skills in this sector and it will shape our strategy of investment in the future. I think this is particularly important in the light of the unofficial disputes, strikes and stoppages that have been present in this sector in recent months and which of course it is very important for us to seek to avoid in the future. With those introductory remarks, I would be happy to take any questions from you and members of the Committee.

  Q1  Chairman: You do come before us with a substantial and even illustrious background coming from the Commission and you have seen this in operation. We all know that Article 39 of the EC Treaty was there when we signed up to join. That right was there for the EU masses to move freely to any Member State to take up employment but the report that we are looking at that has caused us to call this evidence session a report from the Commission on the impact of free movement of EU workers in the context of EU enlargement. That is the context in which a lot of the comments have been made. To be fair, some people—and that means some people in the employment area and some people in the trade union movement and some people in the political sphere—think British nationals are unemployed, or at risk of losing their jobs, because of migration from the new Member States. It may not be within your remit at the moment but do you have any sense of the scale of how many people from the new Member States have actually taken up jobs? In the report they give us some percentages on that. What we are trying to ask is, is it a real fear or is it a fiction?

  Lord Mandelson: I think it is important to note at the outset that the nationals coming here from the original eight new accession countries (the other two being Romania and Bulgaria), those whom for these purposes I would call A8 nationals, are helping to fill gaps in our labour market which British nationals are either not available to fill or are unwilling to fill. We have seen the expansion of vacancies in key sectors, not just hospitality and retail but in others, where the growth of these sectors has been unable in many cases to find British nationals to fill the vacancies that have been created. In many cases too, A8 nationals are supporting the provision of public services and very few claim benefits. The government's own research has found that there has been no statistically significant impact on wages from A8 migration, and indeed if you look at the state of the labour market at any recent time, and still to an extent now as well, there are around half a million vacancies available in the UK labour market. This shows that there are jobs available for British nationals despite the circulation of workers that has resulted from EU enlargement. In the case of A2 workers from Bulgaria and Romania, these are very small numbers we are seeing coming to the UK and we do not have any specific evidence on the impact of their movement on the UK economy but by inference I would conclude that it is very, very slight indeed. The last point I would make is that there are over 600,000 more UK nationals in employment now compared to 2001 and so the accession of new Member States to the EU does not seem to have had any discernible impact on the higher activity rate in the labour market against British nationals. Over nine out of every ten people in employment are UK nationals and over half the employment increase since 1997 is attributed to UK nationals. I think that from this evidence one can only conclude that there has not been an adverse effect on the employment of British nationals and, on the contrary, the addition to our workforce of EU nationals has filled jobs and vacancies that would otherwise have remained very difficult to fill by British nationals and, therefore, they have had a positive contribution to the UK economy as a whole.

  Q2  Chairman: Can I quote from the report of the Commission which says that one of the study's estimates is that the increase in average EU15 unemployment rate because of the flow is in fact only 0.04%, which is 1/25th of 1% difference and they say it will have a neutral effect in the long run. From our point of view, what is the basis of the government's statistics on employment of nationals of other EU Member States and how reliable do you believe the figures are?

  Lord Mandelson: I have no reason to believe that the figures are unreliable but of course one has to look at this from a British point of view in the overall context of the operation of the single market and of course the immense opportunities that our companies and our nationals receive from their ability to circulate freely in the single market. The latest figures show that quite apart from the British migration to European Union countries, those who are seeking to resettle and work in other EU countries which is well over a quarter of a million UK nationals, 47,000 UK workers have been posted to the rest of Europe and that is the fifth highest number by member state. These are people, our own nationals, who are working for UK companies, posted or seconded to EU countries, in contrast to something in the region of 10,000 fewer EU nationals who are acting as posted workers in the UK. There would seem to be a strong balance in our favour of those posted workers from the UK taking advantage of opportunities to move with their companies to work elsewhere in the European Union.

  Q3  Mr Laxton: You raise the issue of the half a million or so vacant jobs. I am not going to say they are wholly and exclusively jobs in the low skilled, low pay area but I would suggest they are predominantly that. I have families and individuals in my constituency who are highly skilled and have worked for many years in the power construction industry. Although no-one condones or supports the unofficial action that has taken, they ended up with a reasonable expectation that when one contract finished they would move on to another one and they found that was not the case and they were left unemployed. One can sympathise with the fact that they were extremely aggrieved about that. Can I go on to say that I do not think it necessarily helps the case where people talk about British jobs for British workers, a title that is quite inappropriate in many respects. For example, in my constituency, the rail industry, there is only one rail manufacturing company left in the UK, Bombardier, and they lose a £7.5 billion contract to Hitachi of Japan. There are real doubts and concerns about what impact that will make upon skilled engineers, skilled technical people and design people in the railway industry. Many of us have real doubts about how much of that will find its way into the UK when it could have been awarded to a UK-based company that could do that work and could sustain plenty of jobs. This just exacerbates individual's fears about what the future holds for them particularly in these skilled and technical areas.

  Lord Mandelson: I think that in the light of the recent disputes, for example at Lindsey oil refinery, Staythorpe and Isle of Grain, the rather misleading impression has been created that the workforce there is drawn almost exclusively from countries outside Britain and that somehow Portuguese, Italian, Spanish or whatever, are essentially comprising the workforce at these locations. That of course is very far from the truth. People were generalising about those locations as a whole from the particular subcontractors around which there was some temporary controversy. If you look at those locations as a whole, well over two thirds of the workforce as a whole are British nationals. Of course there will be similar sites and contractors operating in sites in other countries of the European Union where there will be British nationals who are working there. You just have to take the example of the oil and gas industry to see the opportunities that are created by British companies operating elsewhere in the European Union offering jobs in those out of British sites for British nationals. You folded into your remarks a reference to Bombardier and Hitachi which is a separate albeit related subject. I know why you folded it in but it is in a somewhat different category of issue.

  Chairman: I suggest that we do not want to take on the world trade debate right at this moment.

  Lord Mandelson: Could I very briefly make this point since Mr Laxton raised it? It would be unfortunate if the impression was created that because Hitachi is a Japanese company it is neither going to be based in its manufacturing and production of trains here in Britain and because it is Japanese it is not going to be employing British nationals. Of course that is not the case, and before awarding this contract the government secured a very clear understanding and conditionality for this contract which will benefit British workers and a British-based supply chain.

  Mr Laxton: I hope that is the case.

  Chairman: I recall that when I had the pleasure of joining the1992 Congress in their training week, Robert Reich was made the Labour Secretary in the middle of that session at Harvard and he said he did not care what kind of flag flew outside the factory as long as they paid in dollars and hired American labour. I think that is a lesson for all of us.

  Q4  Angus Robertson: Lord Mandelson raised a very important point relating to the oil and gas industry. There are literally tens of thousands of people in that sector who work out of Aberdeen. Many of them live in the north of Scotland but elsewhere in UK as well. A great many of them work in other sectors of the North Sea, so outside the UK sector of the North Sea, and some even further afield. It has not been well reported but a great many of them are very concerned about the calls that have been made for a more restrictive approach to the movement of labour within the EU or other countries. Is the Minister aware of that and can he categorically rule out any changes, or the acceptance of changes, by the UK government which would mean that these people would no longer be able to work in these other sectors of the North Sea or elsewhere?

  Lord Mandelson: I can categorically rule out any introduction of restrictive measures that would prevent British nationals, including tens of thousands of workers from Scotland, benefiting from these opportunities overseas. We have to understand that half of all Scottish oil companies' revenues are generated abroad. There is a very good reason for this and it is that our history of North Sea oil exploration has given UK-based companies a wealth of experience and expertise in operating in very difficult environments and this of course leaves them very well placed to compete for exploration work around the world. These are companies who can supply workers with a wealth of technical, operational, professional skill and expertise who of course built up that experience and expertise because they are gaining from working on foreign contracts during the course of their career. Just to offer two examples, the Wood Group, founded 30 years ago in Aberdeen, employs more than 28,000 people worldwide and operates in 46 different countries. AMEC employs 23,000 people in 30 countries worldwide based on the experience and expertise they have built up in North Sea exploration. Of course the last thing we would like to see is any restriction being placed on those companies and those workers as a result of any temptation in Britain to adopt protectionist measures of our own.

  Q5  Mr Borrow: You mentioned earlier that citizens of the EU can generally work anywhere within the EU but that is not a complete right in that there are restrictions of flexibilities within that. I notice that the government has altered the rules as far as seasonal agricultural workers are concerned by increasing the numbers of Bulgarian and Romanian workers that can come and work in the UK. I see that is a response by the government to pressure from farmers, such as those in my constituency, to have greater flexibility around that issue. I would be interested to know whether, as part of looking at the flexibility of existing rules, the government is currently in discussions with the European Commission about possible changes to the rules within the flexibility of the overall package of measures around Article 39 that can be brought in to recognise the need for some changes given the increasing level of unemployment in the European Union.

  Lord Mandelson: The Worker Registration Scheme which was introduced in 2004 has helped us to monitor access to our labour market by migrants from the eight non-Bulgarian and non-Romanian accession countries. We are currently considering exercising our option to maintain this scheme rather than to scrap it in April of this year which was the original thought. The point of this is that it does give us the chance to monitor carefully as a transitional measure the migration that is taking place and to help us manage this migration. It has helped us to monitor access to our labour market and to make adjustments as appropriate where it is in our economic interests to do so, where there is a demand for such labour, where there are vacancies in the UK that have not been filled by British nationals and where those companies and that economic activity will be helped by looking for those vacancies to be filled from beyond our borders. We will maintain that flexible approach. If you look at movement of labour outside the EEA area, we have, as you know, a points-based system that helps us meet our business and economic needs with employees with skills that we need. We will continue to build on our experience of that points-based system in order to manage migration in a flexible and appropriate way which helps meet our economic needs. As you know, adjustments were announced just in February by the Home Secretary and we will continue to keep the operation of that system as a whole—and of course that does not apply to the EEA area—in a way that meets our economic needs.

  Q6  Mr Borrow: Could you confirm that there have been no discussions between the Commission and the UK government, or between the UK government and the governments of other Member States, about altering the existing rules around free movement of labour in response to the current European-wide recession?

  Lord Mandelson: No, there have been no such discussions as far as I know but that is a question you might also give to the Immigration Minister when he comes before you.

  Q7  Mr Borrow: Have any of these issues been raised with the European parliament by UK trade unions?

  Lord Mandelson: No. No UK trade union has asked the government to introduce a more restrictive or protectionist attitude to the free circulation of labour within the EU.

  Q8  Mr Hoyle: Can I take you back to a point you made earlier? You quite rightly said if there was protectionism you would step in and do something about it. Part of the Lindsey Oil Refinery was that the contract went to the Italian company, nothing wrong in that they bid for it, but they would not employ UK nationals. The fact is they would only employ Portuguese and Italian workers who worked for the company and nobody from the UK was allowed to apply for a job on that particular part of the contract. I wonder if you would like to mention what your views are on that?

  Lord Mandelson: It is not true to say that no British national was allowed to apply for that or other labour. It is, however, true to say that in the case of the Italian company, IREM, the contract was, as you know, given to them after the previous subcontractor was unable to fulfil their contract to deliver the work within the timescale that they had originally been contracted to do. This left the core company, TOTAL, in a very, very difficult and awkward situation. Just bear in mind that when a subcontractor fails to deliver the contracted work on time it is the originating company, in this case TOTAL, that has to absorb all the costs of that. They have nowhere to pass these costs on to and for that reason the original subcontractor chose to remove itself from that contract and for that reason the work was transferred to the Italian company who drew on their fixed workforce in order to get the work done. The point I would like to make in this context is that where skill levels or productivity levels are such that British subcontractors are unable to fulfill a contract then our job as a government is to help ensure that those skill levels and that productivity is raised and improved so that British-based companies and their workforces are able to compete and win contracts and fulfil them so that these subcontracts do not go elsewhere. We cannot stop them going elsewhere. There is a freedom within the single market but obviously we want to see as many of these supply chain opportunities being taken up by British subcontractors and British workers but they do have to compete for those and therefore our job is to help them do so.

  Chairman: Just to clarify what has put been on the record, you used the word "fulfil" a few times.

  Lord Mandelson: Carry out.

  Q9  Chairman: Do you mean finish? The contract was unfinished. It was not that it was not started; it was unfinished.

  Lord Mandelson: It was unfinished in the time that they were originally contracted to do this work. I think that within the time prescribed and agreed only 40% of the work had been carried out.

  Q10  Mr Cash: On the Posting of Workers Directive, would you agree that the arrangements under the existing Court of Justice rulings, including the Luxembourg one, should be construed not only as providing free movement but also fair movement for British workers, in other words British jobs for British workers are on a free and fair basis? You have just given us your interpretation of the circumstances in which these matters arose at Lindsey, the Isle of Grain and Staythorpe but the matter did also go to ACAS and, so far as I know, and I may be wrong, the ACAS report has not yet been made available to everybody. You obviously have seen it, or I presume your officials have seen it if you have not, which sets out the circumstances. Do you not agree that it would be very important for everybody to know, in the light of what is at stake—and could you make available that ACAS report which must have gone to the government by now—exactly what it does say and have it placed in the library of the House of Commons?

  Lord Mandelson: The full report of ACAS was published on the day I received it. I have no explanation to offer as to why you personally do not possess a copy. If you would like a copy which is in my file, I will happily leave it with you when I leave the meeting. There is also an ACAS website if you would like to go on the web site and see the report there. Hard copy or net, take your choice.

  Q11  Mr Cash: Would you agree with my point which is at the heart of this that we need to have not only free movement but also fair movement which will ensure that where circumstances arise where British workers are put at a disadvantage, a less favourable arrangement than they have thought they were getting, that they should be entitled to both free and fair treatment?

  Lord Mandelson: I do not follow the question.

  Q12  Mr Cash: In the circumstances of the Lindsey refinery there were many people who were coming on radio and television indicating that they thought they were at a severe disadvantage. You are saying, and you are saying the ACAS report says, that there was no real disadvantage as respects the UK workers. How is it that they continue to take the view, Unite and other people in those unions, that they were in fact being treated unfavourably by comparison with the foreign nationals? Do you think they were entirely wrong? Do you think the ACAS report proves they were wrong? Do you think that it should not only be free movement but also fair?

  Lord Mandelson: Do you mean free and fair access to the job opportunities at Lindsey or their movement across the European Union?

  Q13  Mr Cash: I am talking about not only the circumstances as they arise for those three cases that we have mentioned but also with respect to the question of the principles that should be applied. Once a Court of Justice ruling has been given, as you probably know, you cannot change that except with the unanimity of all the Member States. The question at principle is whether in fact you would agree that the arrangements should not only be free movement, which is a fundamental freedom under the European Treaties, but also that it should be fair? Quite clearly Unite did not regard the arrangements as fair.

  Lord Mandelson: The only representative of Unite whose contribution on the media sticks most clearly in my mind was the lay official who said that he would have as much objection to people being employed at Lindsey if they had come from the Isle of Wight or the north of Scotland as from Portugal or Italy. I remember him making this observation twice on two different occasions.

  Chairman: I think the gentleman specified Orkney. I do not know what he has against people from Orkney.

  Lord Mandelson: Your other point about the European Court judgments, you will have to explain to me how you think those judgments affected the fair movement or access of British nationals to those jobs because I do not understand how they did.

  Mr Cash: You are in the position of answering the questions at the moment.

  Chairman: Can I suggest we move on?

  Mr Cash: Your Minister of Employment indicated to me that he did see a connection; you obviously do not.

  Lord Mandelson: If you could explain to me what the connection is, I would be very happy to comment.

  Q14  Mr Clappison: Can I say that I do not dissent from the view which you have taken of the freedoms of the European Union and the free movement of people but I do dissent from you on the statistics and the arguments which you used today to support the government's policies particularly the effect it has had on UK workers. In your introductory remarks to us you chose to highlight the figure of an increase of 600,000 in UK nationals in employment since 2001 and you thereby drew the connection between the number of nationals of this country in employment and the consequences of the A8 accession, but you and I both know that the A8 countries did not join in 2001 but 2004. The figure since 2004 is that since then the number of UK nationals in employment has fallen by 200,000 whilst the number of non-UK nationals has gone up very substantially. Do you think the figure you used was misleading?

  Lord Mandelson: No, I do not. The figures you are drawing on do not contradict our view based on the statistics that over nine out of every ten people in employment in Britain are UK nationals.

  Mr Clappison: With respect, you are now shifting the statistics you quoted originally. The argument which you are making in support of it is that there has been no effect upon UK employment because of the accession countries joining the UK. The figure you chose to use in your introductory remarks was an increase of 600,000 since 2001. Can I spell it out to you? Since those countries joined in 2004, that was the accession date not 2001, the number of UK workers has fallen by 200,000.

  Lord Mandelson: Which is not a very substantial number in the context of the overall UK workforce I think you would agree. Are you saying that the number of UK nationals employed out of the total has had any discernible difference made to it since the accession of 2004?

  Mr Clappison: What I am saying is you cannot use the statistic which you used because it is a misleading statistic. You cannot say there has not been an increase.

  Lord Mandelson: The figure you seem to be alighting on seems to be an extremely insignificant one and one that does not have any discernable statistical bearing on the argument one way or the other.

  Q15  Mr Clappison: It has gone down more or less consistently since 2004. Do you know today how many A8 nationals there are in this country working?

  Lord Mandelson: There probably are, in Mr Newman's briefing, the figure but I do not know off the top of my head what it is. I would be very happy either to give it to you directly or make sure the Immigration Minister when he comes before you has the figure to hand.

  Q16  Mr Clappison: It would be helpful to know. Do you know the estimate which the government made before accession of the A8 countries who were likely to come to this country to work?

  Lord Mandelson: No. Due to very regrettable circumstances I was not a member of the government prior to the accession in 2004 and shortly after I went to Brussels.

  Mr Clappison: The estimate which the government made was about 13,000 people every year. The figure, which you do not know, I suggest would be rather more, in fact significantly more, than that. I would suggest to you that as compared the arguments you have made that this was all carefully planned to fill labour shortages it is not nothing of the sort and that it was really rather chaotic and unforeseen.

  Lord Mandelson: I am afraid that is a conclusion you are entitled to draw.

  Chairman: Can I just make the point, Mr Clappison? The figures should be available because the Home Office minister said in January that the government had not yet decided whether to require workers from the A8 countries to continue to register on the Workers Registration Scheme after the 1 May 2009, which means they are at this moment registered and therefore should be available. My conclusion would be that since it is a very useful statistic to have we should not withdraw from asking people to register under that scheme.

  Mr Clappison: Chairman, you will know that the purpose of that scheme is not actually to register how many people are working in the country but to entitle them to claim benefits which is rather a different thing because, as the Secretary of State said, there are many people who come to this country without seeking to claim benefits. The figure of the Workers Registration Scheme is much smaller than the number actually working in this country. The figure, if I can assist the Secretary of State on this, which the Office of National Statistics gives you is half a million but that does not include many of the A8 nationals. That does not include people working here for less than 12 months or living in hostels and I believe the figure is actually much more than that.

  Lord Mandelson: I can only suggest that the Immigration Minister is a handier port of call for you to obtain these figures from than the Secretary of State for Business.

  Mr Clappison: Perhaps in future you will have a little more caution in brandishing some of the statistics which you use in your opening remarks as justification for the government's policies.

  Lord Mandelson: The justification for the government's policies is the huge economic benefit which I do not hear you contesting.

  Mr Clappison: I said at the beginning I was not dissenting from the arguments but from the statistics which have been misleading and ill thought out, the arguments you have used which have been wrong and the policy of the government which is chaotic. I am not arguing against the free market.

  Lord Mandelson: What are the policy implications that you are seeking to draw from this exchange and what would you like me, as a member of the government, to take back to my colleagues from this interesting exchange?

  Mr Clappison: One would be the need to command the confidence of the public which can only be done through the honest presentation of statistics, something which is very important and something your colleague coming to us on Wednesday is attacking and seeking to bully the Statistics Authority.

  Lord Mandelson: Are there policies that you would like us to change in relation to the free movement of people or goods?

  Mr Clappison: The government itself changed its policy over the admission of the A8 and the A2 countries because whereas it admitted the A8 countries with unrestricted access, for the much smaller number of people involved in the A2 countries the government then chose to impose restrictions on them which would suggest the government's policy has not been as well thought out as you believe.

  Lord Mandelson: I will take that as a no then. There are no policy implications or changes that you would like me to take back to my colleagues.

  Chairman: We will now move on and people can read the record and reach their own conclusion as to the policy implications of your questions.

  Q17  Mr Borrow: Following on from Mr Clappison's point, he did mention that the government treated the A8 in a different way than the government did as far as the A2 are concerned and one could interpret that as being a recognition that circumstances had changed between the first wave of new entrants and the second wave. Within the provisions of the accession treaties it does allow, in exceptional circumstances, for the government, even when they have given free movement for the A8, to go back and re-address that as a later stage and impose further restrictions. I would be interested to see if there are any circumstances where the government would consider going back and looking again at those original decisions in light of the circumstances in 2009 or is the government satisfied that the decisions they made originally in respect of the A8 should continue? In respect of the A2 I think you mentioned earlier that you were not inclined to lift the existing restrictions in April of this year and leave them as they are.

  Lord Mandelson: If there are adjustments to be made then the time to make them I think would be in the context of our review of whether or not to continue the scheme beyond April 2009.

  Q18  Mr Borrow: At that point of the review when you come to a conclusion in respect of the A2, that would be the point at which, if you were to, in exceptional circumstances, look at the A8 policy you would make such an announcement?

  Lord Mandelson: I do not have public responsibility for the operation of the scheme. The Home Office is going to be here so I do not want to pre-empt what my colleagues in that department might do. All I am offering you is an observation that if adjustments were to be made that would seem to be an opportune time to do so.

  Q19  Chairman: As the Secretary of State for Business, Enterprise and Regulatory Reform you must surely then be anticipating making a serious input to that and your assessment of the condition of the UK economy at that time I presume.

  Lord Mandelson: The Home Secretary has already indicated that she is attracted to keeping the Worker Registration Scheme in place and I have no view in my mind at present that might lead me to oppose that.

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