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Lord Willoughby de Broke: My Lords, I am grateful to the noble Lord for giving way. It may well be that those in Parliament were able to look at the first paragraph of the Treaty of Rome, but the British public at large were unable to do that; they were simply asked whether they wished to remain in the Common Market.

Lord Watson of Richmond: My Lords, all I can say in response is that at the time I was a broadcaster involved in many BBC programmes. I recall frequently putting up on a screen the opening clause of the Treaty of Rome. On the whole, I believe that BBC viewers and the voters of this country were well able to read and understand something of such obvious clarity. Whether they agreed with it is another matter, but I am sure that they were able to understand it.

On these Benches our position is that if the true implications of withdrawal from the European Union are assessed in terms of the economy, national security and the constitution--the three criteria in the Bill--the consequences are deeply worrying and in some cases disastrous. I should like to focus briefly on one aspect of the economic consequence. In this debate many noble Lords have referred to the economic dimension. One factor that is worth looking at closely is the implication for foreign direct investment flows (FDIs). It has been said on both sides of the argument this afternoon with some satisfaction--we are all very pleased about it--that the United Kingdom remains the top destination inside the European Union for FDIs from outside the EU. The UK accounts for 28 per cent of the total, which is a very high figure. However, one startling factor appears if one looks at the figure more closely. Of Britain's top 20 exporters, 10 are foreign owned. Of those 10, 60 per cent of their exports go from the UK to other parts of the European Union. That is a highly significant factor.

A number of my noble friends have quoted from the report by Andersen Consulting entitled Business, Britain and Europe: the First 25 Years, with which I had some involvement. The report states that the companies which I have just described,

Whatever else is to be examined by the body proposed by the noble Lord, it would certainly need to listen very carefully to those 10 companies and to others as to the actual impact.

Lying behind this debate is the question which some have made explicit but all noble Lords recognise as being implicit: if Britain withdrew from the European Union what would its position be? Would we retire into splendid isolation? Would we become, as I believe

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the noble Lord, Lord Lamont, once said, an offshore island--in effect, the independent merchant venturers of the 21st century--with the same privileged status in world trade as Singapore and other such places? That is one possibility. The other possibility is perhaps that the UK would seek to negotiate some kind of free trade association with the European Union; and it might also seek to negotiate an arrangement with the North Atlantic Free Trade Association.

As to all those options, if we look at the risk and price of staying within the EU how much more so must we rigorously examine the risk and price of the alternatives? The risk of the North American Free Trade Agreement is of extraordinary proportions.

The team in the United Kingdom at present--I believe that there are over 30 members--will report to Congress on the implications of UK withdrawal from the EU and possible membership of NAFTA. I checked yesterday with the United States Embassy on the detailed terms of reference. They specifically disallow the team, first, from examining the feasibility of either of these two courses of action being in practice negotiable; and, secondly, they explicitly exclude the geopolitical dimension of either course of action. Both those issues need to be well considered. I think that the chances of successfully negotiating a relationship with NAFTA which would give us a degree of influence in NAFTA commensurate with the degree of influence we have within the European Union in shaping the future are unimaginable.

I turn to national security. I have noted in recent months that one of the gentlemen most frequently quoted in this House is Mr Strobe Talbott. I wonder whether he knows the compliment that we continue to pay him. We all quote slightly different paragraphs of the same speech. Nevertheless, as the noble Lord, Lord Vivian, quoted the unfortunate Mr Strobe Talbott, perhaps I may have a go at him again. It is worth listening to him on the question of the ESDI. He said:

    "As for ESDI, I think I should repeat what I said ... There should be no confusion about America's position on the need for a stronger Europe. We are not against; we are not ambivalent; we are not anxious; we are for it. We want to see a Europe that can act effectively through the Alliance"

--and this is the key part of the quotation--

    "or, if NATO is not engaged, on its own. Period, end of debate".

That is one man's view. It is the view of the Administration at this point. But to fool ourselves when talking about the national security dimension that somehow the clear American position is that we move would be quite wrong. As the new Secretary-General of NATO, the noble Lord, Lord Robertson, said in a significant article some weeks ago, the position post-Kosovo where Europe does not play its full and equivalent part, where we do not have an identity in defence terms, is not sustainable politically.

I was in the United States only a week ago. I mentioned this matter when I returned. If one talks widely to Americans on the issue, it is not top of their agenda--certainly not in their election year. But they are irritated by the inequality of contribution that is made. They will not always be willing to bail us out.

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They will not always be willing to make up the logistical gap. It is perfectly true that at this point we cannot fill that logistical gap. The satellite systems are not there; the lift capacity is not in place. There are many factors which are not in place. But for us to say, "Well, even to talk of doing anything about this would call into doubt the American alliance", is self-delusion.

The final part of the Bill goes to the heart of the emotion of the debate; it is important to recognise that emotion. It is about the constitution, democracy and sovereignty. There are clearly differing views in the House about sovereignty. I believe, as I think do these Benches, that for sovereignty to be real today it has to be pooled and shared. In the interdependent globalised world it is unreal to try to hold on to the idea that on your own you will be able to shape key elements. After all, sovereignty is not only a defensive concept; it is a pro-active concept. It is not only that we can say no; it is also that we can say, "We would like to. We can. We want to shape things. We want to change things". Pooling sovereignty to that end has had enormous effect.

It is an honour to us that the noble Baroness, Lady Thatcher, is in the Chamber listening to the debate. Surely it is an important factor of her premiership that the decision to proceed with the single market, with all that that involved, meant that in that dimension of the construction of Europe Britain had an enormous influence. We shaped, altered and set the pace. We would never have done so had we not been playing a full part.

As regards democracy, many factors were present in the Iberian peninsular and now in eastern Europe to bring forward its cause. But we would be wrong to discount the impact of the EU. The fact is that no country is able to join the EU unless it can demonstrate that it is a genuine multi-party democracy. I remember well the period when Greece's negotiations for membership were suspended because the junta took over in a coup. I remember the fury and disbelief on the part of that ghastly regime in Athens that that had happened and that the door had been closed. But, most certainly, the door had been closed and that was an important pressure.

I believe that when the history of what is happening in eastern and central Europe becomes more clearly know, the great magnet and pull of democracy as part of EU membership, the confirmation that in belonging to the EU they belong to a modern, pluralistic, forward-looking international community, will have exerted great influence.

A question in the debate is: from what do we draw our confidence? There are those who would say--and the noble Lord, Lord Shore, expressed it as eloquently as only he could--that at the end of the day the confidence with which we face the future should be born of our history. We should draw from the well of our national experience and achievement. Given that history, we do not need the buttress, the support, of belonging to this or that. That is one view.

Another view is that Europe is a great risk, a juggernaut and an octopus and it is at our throats because it is not at our feet. It is also that we do not win

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the arguments in Europe; that somehow, if this great thing rolls forward yet again, we shall not be there leading it and steering it; that we may not be able to influence it; and that we probably will not be able to break it. We are losers and therefore we should get as far away from this as possible.

It is my powerfully held conviction that we are in an incredibly fortunate position inside the EU. That is not to revert to the old theory of the three circles in its original Churchillian form, but there was a great truth in it. Our language has become the language of the world. It has also become the majority language of the European institutions. Interestingly, it is increasingly the language of the European construction. It gives us a huge advantage and it is a major reason why we have huge direct investment flows. So let us use it.

The special relationship with the United States is a real factor, but it is not an alternative. In the language of corporate strategy, we should "lever" it in order to maximise our position in the EU; so, too, our friendship and traditional links with the Commonwealth. The moment that we start to see those things as alternatives to the European Union and not as the means for our great success within the European Union, the pessimism that underlies the Bill will be justified. I believe profoundly that it is not.

3.24 p.m.

Lord Moynihan: My Lords, our commitment to membership of the European Union does not relieve us of the task of discussing and debating legitimate questions about the future ambit, the purpose and the running of the European Union; nor should it. Therefore, today I welcome the many contributions that have been made. I welcome the presence of my noble friend Lady Thatcher, who, characteristically, has been in her place throughout the debate. My noble friend gave me my first job on the Front Bench some 14 years ago, among other things, to introduce football membership cards throughout the 1992 league grounds. I feel that I face a similar challenge this afternoon in winding up the debate from these Benches.

The European Union is a work in progress which must constantly debate its directions, its speed and its geometry, and which must soon change its rules to accommodate the applicants at its door. Its political and economic order are by no means settled. Throughout its history it has constantly outgrown its old treaties as it has added new members and new functions. The model of enlargement for a reformed and reunited Europe is one such legitimate question. Britain's membership of the single currency is another, and remains to be decided, a debate which the disingenuous campaign, "Out of Europe, out of work", regrettably obscures.

As the noble Lord, Lord Bruce of Donington, calmly reflected, the European Union and its institutions are not above criticism. That was made all too clear by the crisis in the Commission a year ago when the report of the committee of independent

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experts revealed widespread fraud and mismanagement as well as a culture of complacency, a lack of accountability, incompetence, arrogance and favouritism in the Commission. Therefore, I welcome this opportunity for debate.

Yesterday, in another place, we called for a debate on the IGC. We need one. Indeed, there is much that should be debated and all too little opportunity to do so: the strengthening of the principle of subsidiarity; the reform of the powers of the European Court; the reform of the European Union budget; an examination of the European aid programme; our approach to the common fisheries policy; the reform, as we have heard today, of the common agricultural policy, which we are all agreed is simply not sustainable in its present form, let alone in an enlarged Europe; and the need to prevent billions of pounds of public money being squandered--at the last count, £3 billion--through fraud and mismanagement. We could spend time profitably discussing any one of those examples.

Likewise, as my noble friend Lady Park of Monmouth highlighted, there are many legitimate questions to be raised with regard to the European defence and security identity and the EU common foreign and security policy. With regard to the ESDI, I shall restrict myself to saying simply that this is a deeply complex subject which, if handled ineptly, could impact disastrously on NATO, particularly in the light of possible ramifications from the recent NATO spy allegations and the reports of disagreements between the French and the United States during Operation Allied Force.

In terms of the CFSP, we have already seen cracks appearing. The statements of Javier Solana, as high representative for the CFSP, on the desirability of an EU representation on the UN Security Council as part of what he calls,

    "the integration project for the next decade",

as well as President Prodi's statements on the need for a European army, raise questions over the extent to which an enlarged Europe of eventually perhaps 30 nations can effectively develop a consensus on foreign and security policy without impairing national foreign policy decision-making.

As my noble friend Lord Pearson, to whom I am grateful for securing time today, has made clear, his Bill seeks to establish a committee of inquiry into the implications of withdrawal by the United Kingdom from the European Union. I shall have a large number of additional papers to read in the Library and, along with a number of my noble colleagues in this House, I shall study the Bill carefully. I note that possibly my noble friend considers himself eligible as chairman and as representative of the constitution of the United Kingdom. I note also that under Clause 1(4) the person nominated under subsection (2)(c), which refers to the constitution of the United Kingdom, should be nominated as chairman of the committee. I believe that there is a typographical error and that that should refer to (3)(c). Maybe it was meant to be slipped under our noses in order that my noble friend would be well positioned to claim chairmanship of the committee.

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My noble friend has done us a great favour. It is important that from these Benches we state very clearly where the Conservative Party stands. I very much welcome this debate, not least because it gives me an opportunity to reject the argument that we should withdraw from the European Union. Indeed, the Conservative Party has always understood not only how important Britain is to Europe, but also how important Europe is to Britain.

We are committed not only to our membership of the European Union but to making a success of that membership. That is why we made the application to join the then Common Market in the 1960s. That is why a Conservative government took the United Kingdom into Europe a decade later. That is why we were the architects of perhaps Europe's most successful project, the internal market, in the 1980s.

We are committed to Europe as a force for good, enhancing prosperity, creating the conditions in which businesses can flourish and jobs can be created. Our membership is crucial to our trade, our wealth and our quality of life.

It is the Government's view, however, that

    "once in each generation, the case for Europe needs to be made from first principles".

I do not agree. Of course, if as Prime Minister one has entered Parliament on a platform of withdrawal one may need to return to first principles, but not us.

As we have seen today, political parties are broad churches and encompass many shades of opinion, which in a democracy is a welcome thing, nurturing and encouraging debate and discussion as it does. I have no wish to trade insults about whose party contains more Europhiles, Eurosceptics or Euro-realists. But I would ask the Minister why Britain in Europe's most recent campaign is "Out of Europe, out of work" when, to my knowledge--a point echoed by a number of your Lordships--withdrawal from Europe is not the official policy of a single mainstream party in this country.

Can the Minister also explain why the director of the National Institute of Economic and Social Research was forced to describe Britain in Europe's portrayal of its support in the campaign as a wilful distortion of the facts? As The Economist put it last month:

    "Quitting the EU is not on the agenda, unless Mr Blair unwittingly puts it there by his exaggerations. What Britons are discussing is whether, while staying in the EU, they should also join the single currency. Instead of taking part in this debate, Mr Blair pretends that the question itself is illegitimate. It is no way to remake the case for Europe".

The central point, which I share with the noble Lord, Lord Shore of Stepney, is that this year is critically important for the European Union. For the European Union today stands at a crossroads. I firmly believe that the way in which we respond to all and any of the issues I have just raised will be shaped by the way in which we choose to manage two key challenges.

The first is the imminent historic enlargement of Europe. The second is the reality of new technology and the new knowledge-based global economy. Europhiles and Eurosceptics alike are all agreed on the

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need for change. The question is not whether Europe needs to change, but, rather, how it will change. Standing still is not an option.

As the noble Lord, Lord Shore, stated, we have the opportunity to refashion our relationship with Europe. Enlargement means that membership of the European Union will almost double. The candidate countries account for 170 million people. If all the candidates join, the European Union will comprise nearly 550 million inhabitants of staggering diversity--from Finland to Malta, from Ireland to Lithuania. From these Benches, we have always been passionate and vigorous supporters of EU enlargement on a basis that is fair and affordable. Such enlargement will serve to enhance European security and is critical for European trade.

Enlargement is also a historic opportunity to advance the principles for which we believe Europe should stand--free trade, free markets, deregulation and co-operation. Yet enlargement is also a watershed. It is a time to assess the Europe which those new members will be joining. An enlarged European Union cannot conceivably continue to operate with procedures designed for 15 members or fewer.

It is not a time to determine whether far-reaching and visionary changes will be required for we know that they will be. Indeed, it is a time to ensure that those new members find themselves in a wider, flexible Europe which has adapted to the needs of a much more disparate group of member states, rather than in a regulatory, interventionist, deeper Europe.

The recognition of the need for Europe to change is wholly compatible with support for enlargement. That need for change is predicated on the realities of a diverse and enlarged Europe within a fast-changing world. We know that one size will not fit all. It is therefore critical to find a way in which the diversities inherent in a Europe of certainly 20 new member states, and perhaps 25 or 26, including the diversities of national interest, can be accommodated without undermining the spirit of the European project but at the same time without attempting to shoe-horn Europe into a rigid straitjacket of uniformity.

The crucial intergovernmental conference this year will present the European Union with a stark choice between two visions and Europe will not be able to shy away from the question of how to develop an effective decision-making process for the newly enlarged European Union, without which it will be paralysed by gridlock.

At the crossroads at which Europe stands, one direction leads to the creation of a modern, flexible Europe of nation states through the introduction of flexibility provisions. Those provisions would provide a basis for a different approach by different member states, reflecting the divergences which inevitably arise as a result of different national circumstances and would provide an effective response to the challenges of the global economy and a reality of a Europe strengthened by its diversity.

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In the other direction lies an alternative vision: where there is talk of the Commission, step by step, behaving like a growing government; where there is talk of a European army, a European government, a single legal area with outline plans for a corpus juris and a European prosecutor and no role for the national veto; where there is talk of deeper integration and harmonisation, more majority voting; where there is talk of one tax policy, one employment policy, one defence policy and one foreign policy.

The latter risks leading to an uncompetitive, inward-looking, protectionist Europe in which a majority of European Union states could override the wishes of a minority through a large extension of QMV. Yet each member state will have different interests, different views, different perspectives. While every member state must accept the rights and responsibilities of the single market and the core elements of an open, free-trading and competitive Europe, can the Minister explain why, outside the core areas, the provision could not be incorporated into the treaty which would allow countries not to participate in new legislative actions at a European level which they wished to handle at a national level?

There is precedent for such flexibility. The Maastricht Treaty calls for subsidiarity. The Amsterdam Treaty, as has been noted in the debate, allows some flexibility. It allows groups of members to proceed at different speeds and allows some to proceed to establish further co-operation among themselves, subject to the provisions of the treaty.

The principle of flexibility should be allowed to work both ways. It would not block some countries from going ahead with new legislation if they wished to do so. We cannot expect to be allowed to opt out of integration in our own interests without them recognising the corresponding rights of other countries to opt in if they perceive it to be in theirs. The model is already in place. It is already used for the single currency and for the Schengen agreement on borders. It would not affect existing legislation at all. It would enable European Union institutions and procedures to cope with a much larger membership. It would safeguard the European Union's future viability and provide genuine accountability, via national governments, for decisions adopted. It would stop non-essential new legislation from being forced upon any other country against its will.

On Wednesday, your Lordships' House discussed the need for policies of free enterprise and deregulation to ensure that European businesses can compete in an increasingly competitive world. A new economy is emerging; an economy which is intrinsically global. Electronic commerce is, and will continue, breaking down national barriers to trade. In such a world, it is precisely the wrong approach for Europe to concentrate on looking inwards, creating new centralised political structures.

We want to see an open, internationalist, outward-looking Europe. That involves seizing the historic opportunity presented by enlargement to set the seal

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on the principles of free trade and free enterprise in the former communist dictatorships. It involves Europe pioneering the idea of international free trade, starting with its immediate neighbours, proceeding with an alliance between the European Union and NAFTA, to extend the free trade zone across the Atlantic--that is what we should be talking about with NAFTA--and moving from there to tackle the challenge of global free trade by 2020. It involves Europe completing the internal market, including electronic commerce and financial services; bringing more choice and lower prices to Europe's consumers. It involves Europe concentrating on the enforcement of competition rules and on a programme of deregulation.

Europe should be realising its full potential and becoming a driving force for greater prosperity. Britain has an historic opportunity to chart such a route and to lead Europe along it so that it is outward looking, low regulation, low tax, free enterprise and flexible.

3.42 p.m.

The Parliamentary Under-Secretary of State, Foreign and Commonwealth Office (Baroness Scotland of Asthal): My Lords, I have listened with great interest to this important debate. A wide range of views has been expressed and many points raised. We have heard some extremely fine speeches; a veritable feast. Some might describe it as "a battle of the Titans". We have had the vigour and rigour of my noble friend Lord Harrison; the skilful and rapier-like erudition of the noble Baroness, Lady Williams, and the noble and learned Lord, Lord Howe; the siren call of my noble friend Lord Bruce of Donington; the passion of my noble friend Lord Shore and the acidity of my noble friend Lord Stoddart; the humour and sagacity of the noble Lords, Lord McNally and Lord Avebury; and the sound commercial good sense of the noble Lord, Lord Sharman. We have been treated also to the calm cogency of the noble Lords, Lord Williamson of Horton and Lord Watson.

We have watched a delightful sight indeed: the delicate tightrope walked by the noble Lord, Lord Moynihan, who had to try to reconcile the irreconcilable difficulties in his party's position towards Europe and clarify its commitment to Europe. That is its official policy. But as Michael Heseltine wrote, in an Independent on Sunday article entitled, "They won't say it but they want us out" on 27th February this year, its unofficial policy is otherwise. Last, but by no means least, I mention the entertaining cynicism of the noble Lord, Lord Pearson, whom I thank for the opportunity to enjoy such richness, although I am not entirely sure that it all suits my digestion. I am pleased to say that the balance of speeches was such as to ensure that the concerns raised by one noble Lord were answered almost immediately by the noble Lord who followed. Thus I am in the happy position of not having to respond to the minutiae of each excellent speech. We have been tempted and delighted by the excellent speeches of all noble Lords today.

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I shall try to be brief and focus on the key themes raised by noble Lords and at the same time make clear the Government's position. There will inevitably be a number of smaller points to which I shall have to respond in writing. However, at this stage perhaps I may reassure my noble friend Lord Bruce of Donington that Sub-Committee A has retained its scrutiny powers and will protect this function jealousy.

In its first incarnation, the Bill laid before this House called for Sections 2 and 3 of the European Communities Act 1972 to be repealed. That would put us in clear breach of our international obligations under the European Treaties and precipitate our withdrawal from the European Union. The Bill now calls for the Chancellor of the Exchequer to set up a committee of inquiry to examine the question of withdrawal.

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