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Baroness Miller of Hendon: My Lords, I certainly did not say anything like that. Perhaps the noble Lord should read what I said tomorrow in Hansard.

Lord Razzall: My Lords, I say to the noble Baroness that I could not resist the dig!

As a committed free trader, I commend the behaviour of the European Union and the United States since the Second World War. After all, the countries of the European Union and the United States have been the most consistent and close participants in every iteration of multi-lateral trade talks, beginning with the first round of the General Agreement on Tariffs and Trade in 1947. The European countries and the United States have been highly instrumental in the establishment of the World Trade Organisation and are indispensable to its further strengthening. Therefore, having listened to the speeches of noble Lords, it is important to put on the record that the European Union-US trading relationship over the past 50 years has been a massive success.

That extraordinary record does not mean, as many noble Lords indicated, an end to our economic disagreements. A number of noble Lords concentrated on individual disagreements that have disfigured our discussions with the United States in recent months. People touched on the aircraft issue. People wonder why there appears to be no liberalisation of US routes for UK and European aircraft, despite the pressure from the US aircraft industry and government for liberalisation for European routes to them. Some people mentioned that it is odd that a European Union ship cannot pick up cargo in one US port and take it to another US port under the existing restrictions that apply in the United States.

We are well aware of the disputes regarding tariffs and subsidies to which many noble Lords referred this evening. They affect particularly textiles, the motor car industry, non-ferrous metals, and obviously the agricultural industry of which bananas are the flavour of

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the month. Many noble Lords concentrated significantly on the problems of bananas and I shall return to that later.

Some disputes have significantly disfigured relationships between the European Union and the United States; for instance, intellectual property rights. The noble Lord, Lord Puttnam, gave an excellent exposition of the power of the United States' movie industry, but we are all aware of the never-ending dispute between French perception of Hollywood domination as against a French desire for the French language to maintain its predominance in France in television and the movie industry. That issue influences and affects all sorts of attempts to liberalise world trade and has done so for many years.

Many noble Lords expressed concern about the United States' attempt to impose extra-territorial sanctions legislation. It used to be trade with Libya and Cuba that was affected. The jury is out as to what will happen vis-a-vis Libya now that sanctions appear to be suspended. But in relation to trade with Cuba, many European countries are disadvantaged as a result of what we regard as discrimination in the Helms-Burton legislation in the United States.

Having said all that, as I indicated at the beginning, I feel that the record of European Union-US trade is impressive, notwithstanding the problems that have been indicated. I should like to suggest a number of proposals. It is all very well for us to debate these issues and express our concerns, but I hope that on behalf of these Benches I can bring forward some practical proposals in the context of noble Lords' speeches as to what we would like the Government to do.

First, there is a legitimate concern expressed in the United States as to the insular nature of the European Union vis-a-vis trading matters. The United States has a legitimate concern that the United Kingdom and the European Union cannot get their collective act together to join them in attempting to deal with a number of issues that affect the world economy and are outside Europe. The obvious one, on which my noble friend Lady Williams touched, is the regional and global implications of the Asian economic crisis. There is a feeling in the United States that we left it to them and ignored the issue. There is a feeling in the United States also, which I share, that the European Union has not done enough to join the United States to put pressure on Japan to introduce the litany of Keynesian recommendations that clearly any rational economist would attempt to persuade them to put into place.

There is a strong feeling that the Government need to pressurise our European partners to join with the United States in reforming the G8 financial architecture to enable Asian and Japanese crises of the future to be better predicted. That would also involve pressure on the United States to work with the United Kingdom and the European governments to ensure reform of the International Monetary Fund.

Secondly, within this global area there is the question of Turkey. That has not been mentioned during this debate, but there is clearly a significant difference of opinion between the United States and the European

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Union as to what to do about Turkey. Turkey is a major potential trading partner of the European Union. In the United States' eyes, it was a major strategic partner during the Cold War, and the United States, the United Kingdom and the European Union, again need to get their act together in relation to what global policy ought to be adopted to bring Turkey more into the comity of nations.

In relation to strict trade issues, I urge the United Kingdom Government to continue the pressure for further trade liberalisation within the World Trade Organisation. Agricultural talks are due to be completed in 1999; talks on services are due to be completed in 2000. From these Benches we urge the United Kingdom Government to continue to pressurise the United States to co-operate in the liberalisation of world trade within that organisation.

Thirdly--a statement of the obvious--we want to put pressure on the Government (having listened to recent debates I am sure that the Government require no further pressure) to come to a satisfactory resolution of the banana dispute, in particular in relation to the points made by a number of noble Lords concerning the Caribbean.

One point that concerns me about the Caribbean is the fact that we are in danger of creeping into the feeling that the only solution to the banana problem there is a trade one. In other words, the only solution is to allow bananas from the Caribbean to be sold into Europe, albeit in breach of WTO guidelines.

There are no solutions to the Caribbean islands' problems which do not necessarily mean breach of WTO guidelines. I think we talk, at our peril, about aid not being a solution because there are many different forms of aid. Clearly aid in the form of a cheque given to those countries is not a solution. There is the whole structure that the world community has learnt to put in place for developing countries to encourage alternative forms of agriculture--for example, soft loans, guarantees and grants. Indeed, certain forms of industry, like tourism, need to be looked at as a matter of urgency by the British Government. I hope that the Minister will be able to confirm that that is happening.

Fourthly, we need to press the United States for the removal of the Cuban liberation and solidarity Act-- the Helms-Burton legislation. As the noble Baroness, Lady Young, indicated, that discriminatory piece of legislation ought to be removed as far as concerns trade with Cuba. I am sure that I am pushing at an open door with the Minister, but I believe that the British Government need to do everything that they can to encourage the United States Administration to resist the siren voices of protectionism that we so often hear and which, I suspect, now result from the ending of the Cold War and the sense that the US can, once again, retreat into its inner roots.

Finally, perhaps I may return to the fundamental point with which I started. Please can the British Government not allow the small problems--they represent only 5 per cent of all the problems--as regards US/European trade and investment to deflect us from the achievements of the past 50 years?

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5.52 p.m.

Baroness Denton of Wakefield: My Lords, I should also like to thank the noble Lord, Lord Clinton-Davis, for bringing forward today's debate. It was a great achievement because it moved the issue way beyond bananas and what has happened in the past. Indeed, it has rather been known as "the banana issue". That does not make it a matter of lesser concern, but I believe that we have today identified what an enormous area the issue covers. I should like to thank the noble Lord, Lord Puttnam, who probably brought back happy memories for everyone. However, my own favourite was "The Wizard of Oz", although "Follow The Yellow Brick Road" seems to remind me of the current Government's transport policy!

I was lucky. Two years ago I went to a renaissance weekend run by the current American Ambassador to the United Kingdom, Mrs. Lader. It was at that event that I spoke to the first American that I had ever met who did not agree with sanctions. That was quite an achievement. However, there was also a general resentment there of the fact that Ministers of the United Kingdom travelled with people from British companies to find trade and investment. It was only when a former Secretary of State joined their team that they began to realise that this was a joint effort from industry and government to bring business into the economy. The dismay that they expressed took me by surprise, but I believe we changed their view.

However, what was most important was discovering that the US has always been described as "the most powerful nation on earth"--not the most educated, the most caring or the fastest growing, but the most powerful. What can you do with the most powerful? Do you attack or referee? Anyone who has been in Northern Ireland will tell you that refereeing is no great fun. Alternatively, do you stand still and put up the barriers?

My noble friend Lady Miller was suspicious as to why the Secretary of State for Scotland was in Washington on St. Patrick's Day. My own observation would be that cashmere is more New Labour than bananas. But, more seriously, what will the policy be after devolution? Will the Scots, the Welsh and the Northern Irish all race for a noisy but lovely concord? Can the Minister tell me how we will deal with the issue when we have four areas all looking to make their case heard? Was it not the UK--I do not say this with absolute certainty--which first blocked retro-fitted noisy planes, which resulted in the Concorde issue being raised in retaliation?

I must agree with the noble Lord, Lord Wallace, on the role of education. We should all remember the size of the states and their issues in the USA and put them into that overall jigsaw. However, perhaps I may be allowed a slight non sequitur--and this has happened in your Lordships' House before. I believe that anyone looking at this matter should talk, first, to the City as regards the issues for finance. If we put up barriers against the US, how can we have mergers and acquisitions which give our companies the size to play globally? You cannot play globally with some of the capital bases of our companies at present. I hope that that point will be taken on board.

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The EU runs a consistent trade surplus with North America. When it comes from their boom, the Americans have no problem; but when it comes from EU policies that distort trade, America has no alternative but to retaliate. The situation is not helped by the fact that the euro has declined by around 9 per cent since it arrived on the scene. The recent ECB rate cut for Germany's unemployment benefit--or, possibly, employment benefit--does not help. Although it was a different issue, we cannot be surprised if the US saw it as a protectionist issue. However, the real issue is whether the EU will obey rules that it hammered out or defy them when it suits its purpose. I hope that it is the first option.

5.58 p.m.

The Minister of State, Department of Trade and Industry (Lord Simon of Highbury): My Lords, I must say that I have been greatly encouraged by today's debate, especially by its tone. Therefore, I should specifically like to add my thanks to those expressed to my noble friend Lord Clinton-Davis both for sponsoring the debate and, if I may say so, for setting the tone. Indeed, my noble friend made an extremely thoughtful and wide-ranging speech. It set the right tone, which I believe was taken up by other speakers. That applies particularly to both Opposition speakers who have just spoken; namely, the noble Baroness, Lady Denton, who I am happy to see in her place today, and the noble Lord, Lord Razzall.

We have much common ground in this House about the vital nature of our relationship with the US. I believe that the noble Lord, Lord Razzall, underlined the fact that the scale and importance of that relationship over the past 50 years should never be underestimated or forgotten. The relationship is fundamental to free trade in the world. If there are currently a number of outstanding disagreements within that relationship, we should firmly bear in mind--I believe this is the mood of the House--that these are exceptions to the rule. The vast majority of trade and investment between the EU and the US takes place without difficulty. The Government do not want to see these relatively few, although admittedly important, disagreements colour the nature of the relationship as a whole. I believe that that represents the feeling of the House.

I wish to separate the two main themes that the House has developed. These are the strategic, geo-political issues, which have been sensibly highlighted, and the disputes. I hope the House will bear with me if I spend rather less time on the disputes, as they are complex matters of negotiation, than on the strategic issues. The noble Baroness, Lady Williams of Crosby, and my noble friend Lord Grenfell set out the geo-political relationships that are at risk if we do not look positively at the nature of the relationship between the European Union and the US, and see through the hiccups which are certainly causing us some indigestion--not least in my case--in trying to master the issues. We need to see through those hiccups and discern the real strategic balance that we need to achieve. The point made by the noble Lord, Lord Wallace of Saltaire, in this context is important. Given the tragedy of Kosovo, it is clear to us that the fundamental balance of the relationship between

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security and trade is very much uppermost in the minds of our American friends. That has always been the case. They closely associate the two matters in their geo-political thinking, perhaps in a rather different way than Europeans, because the Americans have a more unified capacity.

We were reminded by the noble Lords, Lord Wallace of Saltaire and Lord Razzall, and most effectively by my noble friend Lord Puttnam, that we require a more unified, cohesive and confident approach from Europe to develop exactly the same balance in security and trade as our friends in America have. Our style may be different--as both the Opposition Front Bench speakers have said--but as a government and as a political body we must seek in the UK and through our good offices, in Europe, to achieve a more unified, more consistent, more effective and reactive decision-making structure vis-a-vis our partners in the United States. Those noble Lords who spoke in the debate on Monday night on our changeover plan for the single currency will understand the extent to which this strategic intent is in the back of the mind of this Government.

I turn to a key issue in the EU/US relationship. It is worth mentioning some figures here. This relationship accounts for 54 per cent. of world income and some 38 per cent. of world exports and 39 per cent of imports. In 1997 the goods trade accounted for 160 billion dollars on either side. The trillion dollar figure accounts for all the services. The relationship accounts for a remarkable 20 per cent. of our exports and some 24 billion dollars of our investment flows. It constitutes an enormous bedrock of confidence and balance between the two continents. There is a depth and a significance in this relationship which is absolutely crucial. I wish to emphasise not only the bilateral relationship--that is not the only reason we must understand each other's attitude to the trading system--but also the impact that has elsewhere in the world. In this context I refer particularly to the small island nations that we have discussed in regard to the banana dispute. Therefore it is vital that these twin pillars of the trading system come together and understand their impact in third party markets.

I turn to the development of the Transatlantic Economic Partnership. My noble friend Lord Clinton-Davis said that the concept of process is important. He talked of improving the WTO process. I want to consider the relationship between Europe and the US and ways of improving that process. I believe that the transatlantic partnership that was negotiated under the UK presidency of the EU last year, and agreed at the EU/US summit in London in May 1998, is vital. It builds on an already strong transatlantic trading relationship. The Transatlantic Economic Partnership provides a wide range of opportunities to improve the bilateral trade relationship. Currently we are considering a more positive disputes resolution capacity within our relationship. I am sure this will be discussed at the next summit. As many speakers have said, it would be wiser for us to solve our problems before they reach the WTO. I believe all of us agree that we should like to avoid fighting in that world theatre, given the impact of our relationship on everyone else. We shall take forward the

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capacity to improve the bilateral disputes mechanism. That is best done through the Transatlantic Economic Partnership.

We are considering various elements of the relationship: services, agriculture, the environment, food safety--that was emphasised by the noble Baroness, Lady Byford--and biotechnology. All of these issues can be taken forward. Electronic commerce and further technical barriers to trade will be important elements in that discussion. It is important to mention that process, but I could rightly be asked why we are having so many "barnies"--if that is the right word--when this marvellous new process is being established. One must look at the context of this matter. We need to consider the dispute as seen through American eyes and to underline some of the interesting points that people have made.

Last week I spent three days in Washington and New York talking to the administration and to the banking community. I heard clearly that their deficit was 250 billion dollars--some speakers have said it is 300 billion dollars; I hope it is not at that point yet--in the last quarter of last year. That is an important figure to the Americans. We must understand that two years ago world growth rates in trade stood at a level of nine to 10 per cent. They are now at a level of 3 per cent. That means we are missing between half a trillion and a trillion dollars of world trade that people thought would appear on their books. That is causing an enormous regional adjustment to be made worldwide, as has been clearly said. The Americans regard themselves as the clearing house in this situation. They state that absolutely clearly when one talks to them informally. They rightly ask, "What are you Europeans going to do to improve this situation?" Therefore the debate on bananas must be seen in that light. Noble Lords have rightly said that the huffing and puffing of negotiating rhetoric will not disguise the fact that we have lost this dispute after much prevarication on the European side. It ill behoves us to pretend that the problem is still that of the Americans.

The large problem is ours to share, but the particular issue I am discussing is ours to solve. I say "ours" in a collective sense because I believe it is the European Union's problem. I say en passant to the noble Baroness, Lady Denton, that even if this were specifically a Scottish or a regional problem, everyone would still have to seek a solution in Europe. That is the strength of Europe. Unless we negotiate through Europe, we will certainly be taken apart in salami fashion because, as the noble Lord, Lord Kingsdown, said in Monday's debate--I paraphrase--we should not expect sentiment from the Americans in matters of trade negotiation. I am sure that he will not mind my paraphrasing.

I now turn to the dispute about bananas. The issues are very clear and it behoves us to think very hard about how we want to negotiate. Perhaps I may say to my noble friend Lord Shore that it does not help to imply that it is the EU negotiators who have got this wrong. EU negotiators play the hand largely given to them by

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the nation states. If we give them poor cards they will do a poor negotiation. We need to understand why this has happened.

It is regrettable that the United States chose to retaliate--even though it had perhaps the right in the dispute--because that does not make the position any easier for the other side to negotiate. While I am very happy to see that the threat to sectors such as cashmere, knitwear, sweet biscuits, candles and plastics has been lifted recently and those items have been taken off the retaliation list, it is for the Opposition to wonder why. They expressed their wonder about how this happened and who negotiated it. I would merely say that they probably do not understand how joined-up our government are. It was of course my right honourable friend Donald Dewar who was involved in the negotiation, but then we have many facets to our negotiating capacity and that is something the Opposition should understand.

Having got that off my chest--and having put the accolade where it is due--I wish to be quite clear that the WTO panels have now ruled that the EU's banana regime is not fully compliant with WTO rules. Perhaps I may respond to the question of the noble Baroness, Lady Young. The WTO ruling on bananas recognises the EU's right to a waiver to provide a degree of preferential access to the ACP banana suppliers. In other words, the WTO ruling does not prevent our still meeting commitments under the Lome Convention. The noble Baroness, Lady Williams, said that the real problem was the licensing and the vast amounts of money going to the wrong places. We all have to sort out that negotiation. We would now like to see rapid movement to resolve the dispute. That is very clear. I heard the request from the other Benches for the Government to take forward that matter. We certainly need urgent consultations with all the parties involved in the dispute, including the Caribbean, on the option for reforming the banana regime, and including the timetable, the process and the possibilities for an interim solution. I place the interim solution there because there are still retaliations which will affect British industry if we do not come to an interim solution during what some people have said may be an eight-month negotiation to reshape the regulatory basis.

Perhaps I may turn to the question of hormones. As my noble friend Lord Shore made clear, the European ban on hormone-treated beef has been in place for more than 10 years. The WTO found in 1998 that the ban was inconsistent with WTO rules because it did not follow a properly conducted risk assessment. The EU was given until 13th May this year to comply with the ruling and it looks as though the EU will not meet that deadline. On 22nd March the United States published a draft retaliation list covering 900 million dollars' worth of EU goods compared with the 500 million dollars for bananas. World Trade Organisation rules require that trade measures put in place to protect human, animal and plant health must have a sound scientific basis. Governments can and do apply restrictions to protect their consumers but those must be in line with international standards or justified by a risk assessment

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where they are more stringent than international standards. If these rules were not in place countries could impose restrictions which were simply designed to protect their domestic industries but disguised as consumer protection measures.

In the hormone cases, as in all other cases, we must therefore recognise the importance of sticking to scientific principles. In this case the WTO found that the risk assessments carried out by the EU were deficient. The Government believe that the new assessments being carried out by the EU should have been done well before now, as the WTO has said. However, in the meantime we must continue to engage in serious dialogue with both the US and Canada, the other complainants in this dispute, in order to find a satisfactory way through. The Government are encouraging the US to discuss compensation as an alternative to retaliation and labelling options, which were mentioned by the noble Baroness, Lady Byford--we think they are very important in this dispute--and hope it will take into account the ongoing scientific assessments. In that way we hope to avoid further escalation of the hormone dispute into another damaging trade war.

Perhaps I may now turn to the issue of the hush kits, which was raised by my noble friend Lord Montague of Oxford. When I tested the phrase "hush kits"--my noble friend asked whether people would understand what it means--my children thought it was my new language for my old carpet slippers in the sense that I was trying to be modern. I agree with my noble friend that no one knows what the dispute is about--but it will not go away. That is absolutely clear.

The proposed EU regulation on noise pollution from older-generation aircraft fitted with hush kits seems to address a genuine environmental problem. However, it is clear that it poses problems for US airlines and hush kit manufacturers. There were intensive negotiations between the EU and the US over this issue in the run-up to the Transport Council meeting on 29th March this year. The adoption of the regulation which flowed from those negotiations was delayed for a month to allow more time in which to address the concerns of the United States on the technical and trade policy fronts. Solving the dispute would be very welcome and would be proof--that is important given the nature of the sequence of disputes--that it is possible to resolve differences through a serious bilateral negotiation designed to recognise the concerns of each side. How the hush kits play out will be a serious issue given that we have a month's moratorium. I think the noble Lord, Lord Montague of Oxford, mentioned that once you have lost a negotiation it is easy to go on losing. The noble Lord, Lord Clinton-Davis, reminded me of my title at that point and said, "That didn't happen to the Arsenal". I want noble Lords to think about the impact of Manchester United in the sequence and then Wimbledon. I suspect--without wishing to bring this to a lower level--that we can all take confidence from the fact that we do not always lose twice running, which

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was the impact of the encouraging remarks of the noble Lord, Lord Clinton-Davis. One can see how trade negotiation happens in our office upstairs.

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