There is one Government policy of great concern to the Caribbean business community: the air passenger duty. This tax is charged on every airline ticket from the United Kingdom. The problem is that it is based on a price-banding system related to the distance to a country’s capital city. That means it can be cheaper to fly to more distant locations in the United States than to destinations such as Jamaica or Barbados. The levy is set to rise each year by the rate of inflation, pricing many in the UK Caribbean community out of being able to travel to the region on business.

The Select Committee did not have a lot to say about diversity but the issue is crucial to Britain’s future economic growth. The Prime Minister set a target of doubling UK exports by 2020. Does the Minister feel we can attain that target? This is an excellent report but it has to be acted upon if the target is to be achieved.

8.31 pm

Lord Mitchell: My Lords, I was a member of this Select Committee when it began its hearings. I was getting myself all fired up to contribute to a subject that means a great deal to me when the rug was pulled from under my feet. On my giddy elevation to the Front Bench, I was ordered to stand down from the committee. Of course, I had no option—the rules are the rules—but I was sad to leave.

That said, it is with great pleasure that I welcome the opportunity today to debate Roads to Success. What a tour de force it is: forensic, totally focused and clearly written. Throughout its pages the very clear fingerprints of its chair, the noble Lord, Lord Cope, are distinctly visible. From these Benches, I congratulate him and his colleagues on producing it. I have two reservations, which I would have pushed had I been on the committee. First, the digital revolution is barely addressed. Secondly, I am not convinced that it reaches out to the new, young entrepreneurs—those who dress in T-shirts and jeans, and are for ever plugged in to their music. That apart, I am much heartened by its contents.

I very much hope that the report will attract the attention it deserves within government but somehow I doubt it. The truth is that Select Committee reports produced by your Lordships’ House get scant attention in the corridors of Whitehall. I have had the honour to sit on several Select Committees. On each occasion, noble Lords are chosen to serve and have impeccable backgrounds, the witnesses are grilled and the clerks and advisers are of the highest calibre. The reports produced, just like this one, are outstanding—but what happens? They disappear into the bowels of the relevant department and eventually the Government produce their answer, just as they did for this report. It is always the same. It is obfuscatory, avoids the

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recommendations and sends the report back to Parliament with the clear intention of kicking it into the long grass. This is not an attack on the parties opposite. It also happened when we were in government. So often Ministers and their civil servants regard our Select Committee reports as a pain to be endured and they treat us accordingly. This is my second rant in your Lordships’ House today. Enough is enough—it is time to stop. This high horse will be ridden no more.

When I was in my 20s—light years ago—I remember an advertisement in Piccadilly Circus. The noble Lord referred to, “Export or die”. I remember, “Either exports go up or Britain goes down”. As I remember it, there was a little flashing Union Jack underneath it—nothing new there. Low exports and low productivity have been the bugbears of our post-war economic performance. Small businesses are critical to our economy; everybody is agreed on that. They employ 60% of our workforce and—a hugely important point—they are the route back into employment for many of our long-term unemployed.

Much of our time is spent looking for ways to support the UK’s small businesses; encouraging them to export is a good way of doing this. New research from the Enterprise Research Centre shows a clear correlation between exporting and growth in businesses of all sizes, and we have touched on that this evening. EU companies that export grow twice as fast as companies that do not, and internationally focused SMEs are three times more likely to introduce an innovative product. My view is that it is in the mindset of a management that is interested in new projects and developing in all areas, not just exporting.

Today, we rightly focus closely on the many important recommendations made in the report. However, we should also look at ways to encourage innovation in British companies, given this strong link between companies that innovate and those that export. The latest EU figures suggest that the UK is currently 32nd out 35 countries when it comes to innovative products and processes, and 25% of UK SMEs are innovative, compared with the EU average of 34%. Recent figures from the Big Innovation Centre, which works with government, higher education and industry, illustrates how the difficulties of getting finance stifle innovation.

More than one in three innovative firms looking for finance in the period 2010-12 received none of the credit that they wanted. There is no shortage of statistics to support the diagnosis that the lack of support from our financial institutions harms businesses in the UK. We know about this, it is discussed almost every day in your Lordships’ House and it is a big problem that we have in this country. The report shows that the three-month average rates of lending to small businesses have been negative since August 2011. Looking at the Bank of England figures, I also count only three individual months over that period when net lending to small businesses has been positive.

The lack of small business lending harms innovation and exports. We need a laser-like focus on improving access to credit for these companies. The Government’s expansion of Funding for Lending this April was a positive step, but it is clear that to resolve the market failure at the core of this issue, we need to be more

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radical and look at structural change. Many noble Lords will no doubt have shared my surprise on reading that between March 2011 and August 2012, UK enterprise finance helped 31 companies, of which 21 were SMEs. Noble Lords could be forgiven for thinking that a couple of zeroes had fallen off these numbers.

This cannot be enough. Will the Minister please tell us whether there are any plans to co-ordinate the activities of UK enterprise finance and the Business Bank? The case study within the report of Alderley plc, the engineering business that felt that it was being harmed by credit decisions being made in London rather than regionally, is compelling. It is a scenario that we often hear about and was mentioned by the noble Lord, Lord Young of Graffham, in your Lordships’ House yesterday. The end of relationship banking has harmed small businesses, which find that instead of local bank managers who understand them and can use judgment about whether they should have credit, decisions are now made on a centralised basis, which is often also computerised. Ticking the boxes is not the way to proceed.

I also agree with the committee’s recommendation that more attention should be paid to SMEs when the Government draw up trade agreements. The EU-US trade negotiations are critical and I would like the Minister to update the House on how these talks are proceeding. I am by any assessment a serial entrepreneur; my businesses were in IT services. To me, overseas activities were always crucial. Our customers were international, how could we provide a service if we were not international too?

Of course, you actually have to like abroad. You need a feeling for other people’s culture. My language skills are halting, but I forced myself to learn enough German to be able to stand up and make presentations in Frankfurt. Whether they understood me is another question, but they were too polite to say. Today, new technologies such as Google Translate are coming to the rescue, but nothing—nothing—replaces being with your customers and being able to talk to them.

I have to say that doing business in other countries is really good fun. It is testing, of course, but if you roll up your sleeves and are prepared to catch early planes and attempt to speak your customers’ languages, it really pays off. I have also found that taking just a little time to brush up on another country’s politics—what is the story of the day—and even talking about football works a treat.

I really enjoyed the speech of the noble Lord, Lord Teverson. I feel that I have a soulmate in him, although I have to say that when he started on the subject of speed dating, I began to keep my distance. I agree. There are many lifestyle companies out there, many of them are static and we must not confuse them with the small and medium-sized companies that are dedicated to growth.

I was disappointed that the report barely touched on the digital revolution. When I give speeches, I highlight how the world is changing and the speed of that change. If businessmen are not having sleepless nights about digital changes—if they believe that the digital revolution does not concern them and that it is

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just a passing phase—they are in for the chop. Ask Jessops, HMV or Blockbuster video—many more will follow them. Competitors in every country are obsessed by changes in the digital revolution, and we should be too.

My final point is about young entrepreneurs. If I were a young tech city entrepreneur, I doubt that UKTI would have much appeal to me. It is too uncool by half. Does UKTI have a branch in Shoreditch or on the Cambridge Science Park? That is where the action is. Its people need to take off their ties, get themselves personal iPads and drink skinny lattes, just like everyone else there. They need advisers in their 20s, not in their 50s.

In summary, this is an outstanding report. Despite my pessimism, I hope that the Government take serious note of its contents. One day soon, I hope that the lights in Piccadilly will read, “British exports up yet again”.

8.42 pm

The Minister of State, Department for Business, Innovation and Skills & Foreign and Commonwealth Office (Lord Green of Hurstpierpoint): My Lords, I begin where everyone else has by congratulating my noble friend Lord Cope on securing what I believe passionately to be an important debate on trade and investment relating to small and medium-sized businesses. My noble friend has long supported British business and British exports, as, of course, have all the committee members. He and his committee undertook the inquiry thoroughly and asked searching questions not only of my officials and of businesses and business support bodies but of me and my colleague and friend the Business and Enterprise Minister.

Of the 23 recommendations in the report, I think that I can say truthfully that we agree. We have essentially fully accepted all of them, with one or two exceptions where we may not agree with the specific recommendation but absolutely share the intent behind what is proposed. Above all, on recommendation 1, which concerns a report back next year and the year after, I am happy on behalf of the Government to endorse and accept that.

This is an important topic for us all. More than one noble Lord has called attention to past advertisements saying “We export or we die” or, “Exports go up or Britain sinks”. Briefly, I go back even further than that, prompted by the recent Diamond Jubilee of the Queen’s coronation, to remember that in 1953, the UK’s total exports were just £3.6 billion. Last year, they were £488 billion. More importantly than the nominal figures is that in 1953, the value of exports to UK GDP was about 10%; it has now risen to 30%, which reflects how Britain is participating more in an increasingly international economy. The bad news is that Germany’s percentage is more than 40%, so we may have come some way since the 1950s, but we still have some way to go.

A number of noble Lords have referred to the various targets and challenges that we have set ourselves: those of doubling trade exports by 2020, getting 100,000 new SMEs into international markets, again by 2020, and doubling the client base of UK trade in investment from 25,000 to 50,000 by 2015. We are well on track

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with the last of those. The client base of UKTI is growing rapidly. The target of doubling exports by 2020 is a challenge. Frankly, if we got somewhere near it we should feel extremely pleased. It would involve increasing exports as a share of GDP to over 40%, which is where, as I have just mentioned, the German economy now is. This is not a completely unfeasible challenge, but it is certainly a demanding one.

I assure the noble Lord, Lord Mitchell, that we shall take this report very seriously. I am not going to allow it to gather dust. There are a number of important suggestions in it. There is repeated reference in it, and in comments by noble Lords, to the awareness issue. UKTI gets good satisfaction ratings. They are not as good as they could be and could be better, but they are in the mid to high 70s. I would like to see them at around 90%. Dissatisfaction levels are low, at around 6% or 7%. This is clearly a case of “good but could get better”.

The level of awareness is not satisfactory. For UKTI this is in the mid 50s. For UKEF it is in the 20s. This is not good enough. It is a priority for me and the Government to ensure that we raise awareness of these important services that are available. In particular, as we speak we are running a pilot marketing programme in the north of England to raise awareness of UKTI and UKEF. I will be analysing carefully the results of that pilot when they are complete in the next few weeks. If we get encouraging figures, we will consider extending that advertising campaign to the rest of the country.

In the short amount of time available to me, I will try to cover a number of issues that have come up in your Lordships’ comments, especially language, intellectual property and the reference that my noble friend Lord Cope made to the Bribery Act at the start. I say to the noble Baroness, Lady Coussins, that I share her passion for languages. I am a linguist by origin. This was admittedly a long time ago, but I strongly believe that not only do we need to invest more in languages, but that investing in languages improves your English. To paraphrase Rudyard Kipling, what does he know of England who only England knows, or what does he know of English who only English knows?

This important area is quite complex. It is unrealistic to expect an SME, unless it has a Chinese speaker, to be able to gear itself up in Mandarin to the point where it can speak business Mandarin in pursuit of business opportunities in China. We must be realistic about what is achievable. We have recently updated a brochure on language management strategy. We will continue to work on it. I would like to write to the noble Baroness on some of the complexities of the language issue. There are some long-term issues about the teaching of language in schools, and noble Lords are aware that the Government have recently focused much more attention on this. That will take quite a long time to pay dividends. In the mean time—and I do not just mean in the mean time—we need to celebrate the fact that, because of the diversity in this country, we have a terrific language base on which to draw, in terms of skills that can be brought in for marketing, for example, with an appropriate language attached to it. I assure the House that we take the issue of languages seriously.

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Finance is quite properly of concern to a number of noble Lords. The noble Baronesses, Lady Coussins and Lady Drake, made a detailed analysis of some of the issues that we face. Given my former career, I am perhaps better placed than many to reflect on the weaknesses of commercial and business banking in this country. From that experience and from my experience going round this country in the past two and a half years and meeting businesses of all shapes and sizes, there is indeed an issue. It is quite plain that there are circumstances where companies with legitimate financing requirements cannot get financing because the normal templates are being required and inadequate imagination is being applied to the topic.

What I think has happened over not just the past three or four years of the financial and economic crisis but over the past 20 years is that the skill base of business banking in high street banks has been deteriorating. This has happened partly because average career bankers with a reasonable dose of ambition have wanted to head either for the excitements of corporate and investment banking or for the sexy end of the retail banking market and did not see themselves spending the rest of their career in a relationship management role in, let us say, Rotherham. The central functions have responded by disempowering those relationship managers, so we have the result that the noble Baroness, Lady Coussins, commented on. If I have some good news, it is that all the CEOs with whom I have regular dialogue and the heads of commercial banking are focused on this and are determined to address the problem. I hold regular round tables with the banks under the auspices of the British Bankers’ Association. The general problem, I have described. In international trade, in particular, there is even more of a problem with the skill base. They are focused on that. The challenge is that it will simply take time to turn the supertankers.

In the mean time, we need to be doing two things—first, to ensure that as it gets going the business bank is able to challenge them on the way in which business lending is provided and, secondly, to encourage new challengers. There are some new challengers. There are a number of new challenger banks, and a number of noble Lords referred to the various other techniques for financing that are gaining some traction, although I do not believe that those other financing sources can ever be an adequate alternative to, or substitute for, a properly run business banking presence on our high streets. This is an important issue, and we will continue working at it.

Specifically with regard to UK export finance, I can report, first, that there is an awareness issue, to which I have already referred, and secondly, that new products are beginning to get more traction. Like noble Lords, I have been extremely disappointed by the take-up. I put it down to a considerable extent to lack of awareness. We have therefore put export finance advisers in every English region and in Scotland, Wales and Northern Ireland. We had one in place in each of those areas by the end of last year, and I have just authorised a doubling so that it will go from one to two in each of the regions, plus in each of the devolved Administrations. I have also started putting export finance advisers in key locations overseas. We have one in Singapore,

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we are going to have one in Dubai, and I have authorised the recruitment of further EFAs in other markets of importance to us around the world, in Brazil and in Africa, where I think we need one in the Francophone part and one in the Anglophone part, on the ground at that end, whose job is, first, to help incoming British companies, and secondly, and very importantly, to negotiate sponsor credit lines with the sponsors of big infrastructure projects around the world so that British companies can get access to finance as they seek to win business as part of those infrastructure projects. So we are on that case.

It is early days to tell what quantitative results this is going to have, but there is anecdotal evidence. The most recent was at lunchtime today when I was with the Suffolk Chamber of Commerce, which reported that the presence of the UKEF financial adviser is making quite a lot of difference to a number of its members. I hope that we will have more specific hard evidence when we report next year.

My noble friend Lord Cope raised the important issue of intellectual property. The British Government will continue to work hard at lobbying in international fora for better protection and recognition of intellectual property. As I think the House is aware, we have started putting intellectual property attachés in some of the key markets—China and Brazil—and will look at how that is working in the course of this year. We will consider expanding this coverage at the end of this year if it looks as though it is delivering value to British companies that are worried about theft of intellectual property as they go into those markets.

Finally, I assure the House that I take this report very seriously, as do the Government, and that this is a long-term commitment. If there is anything in public policy which needs to be treated with a sort of apolitical consistency over the years, this is it. As a number of noble Lords have mentioned, we have lived with a constant weak trade position in all of our working careers—I can safely say that. It has not got any better of late; again, one or two comments have been made about the first quarter, which was not good. We suffer from the headwinds from the eurozone. Roughly speaking, our exports are still growing quite nicely to the emerging markets, but they were down in the eurozone. We have a long way to go.

I find myself saying regularly to my ministerial colleagues, to my official colleagues, to the media and to anyone who will listen, that this is a marathon, not a sprint, and we have to stick at this as a national collective effort over at least the next 20 years. The good news is that we can do it. I mentioned that I travel round this country a great deal—I visit each English region and the three devolved Administrations at least twice a year. I have seen businesses from every sector, of every shape and size—some of them the mid-cap companies—and I see companies that are taking on the world. As the noble Lord, Lord Mitchell, said, it is fun to do that. If you are not the kind of person who finds other countries and cultures fun and interesting, you will never be a successful exporter. You find these people across the range of the sectors of our economy. This is not just about high-tech or manufacturing but about all sectors.

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Finally—another finally—I say to the noble Lords, Lord Haskel and Lord Mitchell, that clearly the digital economy is becoming more important. We are obsessed with making sure that the support that we provide to small businesses takes into account the increasing importance of digital trading. That is partly about ensuring that they know how to use online trading and that they think about language in the design of their websites—all those kinds of things. It also involves participating in the negotiations within the European Union about the implementation of a digital single market. There are still too many barriers to cross-border digital commerce in the single market and we need to work hard at that.

On international trade negotiations, the noble Lord, Lord Mitchell, asked about the state of play on the US-EU negotiations. The truth is that we have only just started. Clearly, it is as important to SMEs as it is to the rest of the economy that we do our best to complete a successful free trade agreement with the US, as well as with Japan—another major country with which negotiations are under way. This will be a difficult and, I suspect, quite long haul, even though we are publicly committed to achieving heads of agreement by the end of next year if we possibly can. We all know that the prize is huge, and the prize for SMEs is very significant. We should never forget the linkage between that and the importance of realising a full single market within the European Union. If we are to complete a deal with the Americans, they will demand a deal that covers the full single market, so we have a job of work to do, not only to negotiate with the US but to see through the full implementation of the single market.

I close where I started, by thanking my noble friend Lord Cope and his committee for a report that will not gather dust. I am happy to commit the Government to giving a report on what we have done and on further progress in the course of next year.

8.59 pm

Lord Cope of Berkeley: My Lords, it has been an interesting debate and I am grateful to all those who have taken part, both members of the committee and the others who have come and joined in and for the kind remarks about myself. I would also like to congratulate those who took part in the debate for very nearly sticking to the advisory time limits, which is more than you can say for the previous debate.

The noble Lord, Lord Mitchell, was concerned that the report might sink below the parapet. I know exactly what he means, but as the Minister has just been emphasising, this is an ad hoc committee which has, if I can put it this way, life after death. That is to say, we are promised a further update on these long-term matters. These are not matters which will be solved quickly. We are promised an update and we are promised further debates, next year and the year after. I am very grateful to the Minister for his positive approach to all our recommendations and, indeed, to his duties as a whole, and the way in which he is carrying them out. I do not want to go back over the ground we have been discussing today, but I thank everybody who took part in the committee and in this debate.

Motion agreed.

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The Future of EU Enlargement

The future of EU enlargement

Motion to Take Note

9.01 pm

Moved by Lord Boswell of Aynho

To move that this House takes note of the Report of the European Union Committee on The Future of EU Enlargement (10th Report, Session 2012-13, HL Paper 129).

Lord Boswell of Aynho: This Motion invites the House to take note of the report of your Lordships’ European Union Committee, which I have the privilege of chairing, on the subject of the future of European Union enlargement. I am conscious that the comparatively late start to these proceedings may have led to some attenuation of the speakers list and, possibly, compression of the debate. Nevertheless, I am pleased that this debate is so timely, given the immediate accession of Croatia as the 28th member of the European Union; the first accession to the rotating presidency by Lithuania since its accession in 2004; and the imminence of the possibility of discussion about future accession and enlargement at the upcoming European Council later this week. This is a very timely occasion.

The European Union has a long history of enlargement. Our country was part of the first and what is still the largest wave of enlargement when we joined what was then known as the European Community at the same time as the Irish Republic and Denmark in 1973. Since then, there has been a steady stream of countries seeking to join the European Union. We are now about to embark on our seventh enlargement with Croatia. There are currently five candidate countries and three potential candidate countries, so the enlargement agenda shows no sign of halting.

Our report considered the process by which aspirant countries moved towards readiness for membership. In doing so, we revisited many of the questions asked in our previous 2006 report, The Further Enlargement of the EU: Threat or Opportunity?. With the benefit of the passage of time and the benefit of hindsight, we reflected on lessons learnt from the 2004 and 2007 enlargements.

I also express my gratitude to all the witnesses who gave evidence to the inquiry, particularly those from countries which have recently joined and those which are on track to join the Union now. It almost goes without saying that we drew immensely on the expertise of our staff in drawing up this report.

Enlargement is formally a reactive process. It is for individual countries to apply to become member states. However, the Union has always had an enlargement agenda, because enlargement is an integral lever for development and has been accepted as such both in the founding and successive treaties. The current agenda has two main drivers: the first, safeguarding stability and security within wider Europe; and the second, achieving economic prosperity and growth. I believe those two objectives to be intimately connected. Historically, enlargement has had a transformative power. I would evidence that by the political changes seen in recent years in what are now comparatively

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older member states such as Spain, Portugal and Greece. Furthermore, we should remember that the single market is of enormous benefit to all members—new ones and existing ones, too.

The euro area crisis and questions about the role and governance of the Union have led to enlargement slipping down the political agenda. It has been suggested that some countries, such as Germany and France, may have lost sight of its importance. The United Kingdom Government are to be commended for their commitment to enlargement, and we share the view of many of our witnesses that the momentum in this vital work must not be lost.

The Copenhagen criteria of the EU set out three key standards that a candidate country must meet to be eligible for membership: political, economic and the ability to take on the obligations of membership. Although these were devised in anticipation of central and eastern European enlargement, we were persuaded that they still represent the right starting points for any future enlargements. In acknowledging this, we were critical of the Union’s failure to apply the criteria rigorously in the cases of Romania and Bulgaria, which meant that on joining they were not at a point where they could meet the full obligations of membership. This, in turn, led to the creation of somewhat unsatisfactory post-accession instruments. The Copenhagen criteria are helpful and should not be weakened.

The road to accession for candidate countries is, rightly, not just the warm political one; it also involves significant legal, technical and administrative work. The first step of the official enlargement process is an application for membership. After granting official candidate status, the European Council must take a unanimous decision to open formal membership negotiations. A candidate country then conducts negotiations with Ministers and ambassadors of the Union Governments regarding the European Union’s body of secondary legislation—the so-called acquis communautaire. There are 35 chapters of the acquis, such as justice, freedom and security, judiciary and fundamental rights, and freedom of movement for workers. Necessary reforms must be implemented and demonstrated, and we support the rigorous approach to this that has recently been shown. The requirements made of countries have continued to grow and, while this is justified, the Union must take care to ensure that the burden of work it places on candidate countries is not insurmountable—criteria should be strictly necessary, taken in good faith, and should be consistently applied across the board.

I do not wish to dwell on events in any particular country, but I would say that experience shows that we have far greater influence over our near neighbours and candidate countries when it is clear that together, as a Union, we are serious about enlargement and serious about conditionality—that is, that real reforms are followed by concrete progress in the accession process and that there are also consequences when there is any regression. Yesterday, at a European conference in Dublin, we heard from Valentin Inzko, the high representative for Bosnia-Herzegovina, about the importance of developing in that country a political

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culture of tolerance and compromise. With his great experience, the high representative was very clear about the importance of that conditionality.

The Instrument for Pre-Accession Assistance seeks to provide financial support for aspirant countries’ reforms. We were disappointed to note the many instances of failure to convert funds from commitments to actual spending, and so we recommended that the next IPA should focus more on the strategic aims of the enlargement policy and the needs of candidate countries. Furthermore, a more rigorous approach must be taken to any backsliding over reform, with the Union being willing to slow or halt the enlargement process and turn off the funding tap. If I may express a personal view slightly beyond the remit of our report, I am increasingly attracted to the option of offering western Balkan countries in particular an opportunity to work together on what might be termed self-help projects to which an appropriate degree of challenge money could be made available by the Commission, with the countries themselves being the generators for this process.

The Union must learn some tough lessons regarding the resolution of issues between countries. The entry of Cyprus in 2004 without reconciliation or conclusion between its Greek and Turkish populations has led to a continuing entrenched dispute. That has diminished the Union’s leverage in encouraging both sides to reach a settlement. It is distressing and it is difficult to see the best way to handle disputes such as this. On the one hand, using Cyprus as an example again, resolving the dispute was rightly not a condition of joining the Union, otherwise Turkey would simply have gained a veto over its membership. On the other hand, without a resolution having been found, Turkey’s accession process has itself become more challenging. The Union must strive to find a way to keep disputes between countries from slowing down or halting the enlargement process altogether, while also encouraging practical solutions. There are a number of very substantial disputes that must be resolved before the accession of the current aspirant countries. I welcome the plan for normalisation of relations between Serbia and Kosovo, which has been agreed under the auspices of the High Representative and Member of this House, the noble Baroness, Lady Ashton of Upholland. This has opened the way for both Serbia and Kosovo to move forward along the road to eventual membership.

I have already touched on the political and economic advantages of enlargement. In spite of the economic crisis, the new member states from 2004 and 2007 have seen rapid economic growth after joining. Similarly, compliance with the requirements of accession means that political and, indeed, business landscapes are often changed for the better, with a healthier balance of power between domestic parties and an increased role for opposition parties being fairly common features in new member states.

The benefits of enlargement are also two-way between old and new member states: the Union is better equipped to deal with its neighbours, and existing member states see economic benefits from the expansion of the number of consumers in the single market. United Kingdom exports to central and eastern European

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countries almost trebled between 2001 and 2011, reaching close to £14 billion in 2011. I am sure other Members will want to speak in greater detail about the risks to certain policy areas represented by enlargement but I shall, for now, limit myself to suggesting that it should be possible to overcome such issues and they should not be seen to deter, let alone to act as a bar, to any future enlargement.

Debates about enlargement and the future of the Union more generally, often tend to focus on a perception that free movement of labour might prove a risk to domestic labour markets. We heard compelling evidence that this was not the case and that migrant workers had often filled gaps in the labour markets of older member states that were otherwise unfilled by nationals. However, it would be remiss not to acknowledge that there have been some negative impacts from the free movement of persons. For example, the relocation of businesses to exploit cheaper labour costs may have impacted on member states economically, and there is undoubtedly a risk of non-workers travelling to receive social security benefits. However, the free movement of workers is a treaty right and an important element of the European Union’s internal market. Member states need to communicate generally the many advantages to their populations and to work collectively to address any genuine concerns that remain within the existing policy frameworks and within those broad objectives.

Turning to the future of the enlargement process, it is right that the Union should have a rigorous process for the admission of candidate countries, not least to ensure that necessary reforms are introduced and entrenched. The eastern partnership countries must undertake significant reforms before they can be considered for candidacy, but equally their desire to be considered should not be forgotten in discussions about future enlargement. I hope that the eastern partnership summit to be held in Lithuania in November is helpful in this respect. We recognise that there is some reticence regarding future enlargement, and we recommend, frankly, that the Commission and national Governments together do a better job of explaining its benefits and warning of the costs of non-enlargement. It is not a cost-free exercise to remain with the status quo.

In conclusion, the Union has a long history of supporting enlargement. One could almost argue that it is within the DNA of the Union to promote enlargement. That is the process that we in the UK have long been associated with and from which we have benefited. Lessons must be learnt from recent experiences, but the current economic crisis and debates about the future role of the EU should not distract us from this important enlargement agenda. The future economic and political stability of Europe in many ways depends on it and it is an intimate part of that process. I beg to move.

Lord Wallace of Saltaire: I simply remind noble Lords that the advisory speaking time for this debate is eight minutes.

9.16 pm

Lord Foulkes of Cumnock: My Lords, I am most grateful to the noble Lord, Lord Wallace of Saltaire, as always. I say to him and to others that as the

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minutes ticked by earlier this afternoon and this evening, I realised what a dedicated lot members of the European Union Select Committee are. I particularly congratulate the noble Lord, Lord Boswell. Before the noble Lord, Lord Roper, disappears, I would like to say how wonderfully the noble Lord, Lord Boswell, has taken over from the excellent work that the noble Lord, Lord Roper, did previously.

Earlier today, in the debate on Scottish separation, one of my colleagues said to me, “You are one of the usual suspects on Scottish separation. Why are you not taking part in this debate?”. Well, obviously, it was because I wanted even more to participate in this debate this evening. There is a connection. If the people of Scotland were unwise enough to vote for separation in September next year, Scotland would have to join the queue for accession as a new member. We deal with this in our report. We point out that it can take a very long time for everything to be agreed, even for a state which had been part of a member state previously.

I welcome the report’s support for enlargement. As the noble Lord, Lord Boswell, said, there are benefits to Britain in terms of our exports to central and eastern Europe which trebled in the decade between 2001 and 2011 and also in terms of the political benefits—the greater stability that we have in Europe as a result of the strengthening of the European Union. Conditionality has been so successful in putting leverage on the applicant countries to democratise, to ensure the rule of law in their countries and other improvements. That power of conditionality has been much more effective than any urging or other kind of pressure might have been.

However, the report expresses some concerns about the loss of momentum on enlargement. I share those concerns. After Croatia, no new countries are expected for a decade. That means a real halt in the process of enlargement that has been going on for some time and it will be disheartening for the applicants. I take in particular the case of Turkey. My own view is that recent events in Turkey have increased rather than decreased the need for Turkey to move towards EU membership. Whether it is any likelier or not is a different matter, but I certainly think that it would help. The Government promised to “re-energise” the accession process for Turkey. Can the Minister clarify what progress has been made in re-energising this process, particularly in making sure that the objections from Cyprus and France are dealt with in the discussions?

I have two caveats in relation to enlargement. The first, as we say in the report, is that there should not be a rush to agree to countries being allowed in as members without sorting out difficulties first. The noble Lord, Lord Boswell, mentioned Cyprus. That teaches us that border disputes must be resolved first. This is a message to Serbia in particular which I hope goes out loud and clear. It is a precondition of Serbia’s ultimate membership that the dispute over its claim to Kosovo is resolved. Bulgaria and Romania remind us that we should not rush to agree membership until all the acquis have been complied with. We should not expect that they can be sorted out afterwards.

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My second caveat in relation to enlargement is a personal one, probably not shared by all—or any—of the other members of the Select Committee. Europe is not infinitely elastic on the eastern side. The northern and western boundaries are clearly defined by the oceans, the southern boundary is defined by the Mediterranean Sea, but the eastern boundary is not clear. I have personal reservations about countries self-defining themselves as European and then being accepted as long as they satisfy the acquis. We should not be straying into taking over—annexing, in effect—what are essentially Asian countries just because they want to classify themselves as European and be members of the European Union.

We then come to the question of differential membership: flexible geometry, two-tier, associate membership or however you would like to describe it. Our Prime Minister sometimes seems to hanker after some kind of associate membership for the United Kingdom but the Government’s response to our report, thankfully, rejects a permanent alternative to full membership. Perhaps, if I am not asking too much of her, the Minister could explain this apparent schizophrenia coming from the Government. Perhaps it is because she is in one party and the noble Lord, Lord Wallace, is in another or some such underlying effect. The noble Lord, Lord Wallace, tells me they are joined at the hip, I do not believe that.

Finally, because I want to keep well within my time, all of this assumes that we stay in the European Union. My clear, strong, unequivocal view is that we benefit greatly from European Union membership and that, as an important corollary, other countries benefit from the United Kingdom being a member of the European Union, which is not an unimportant matter. The isolationist, Little Englander argument of UKIP is exactly the same as the one used by the SNP trying to break up Britain. Exactly the same arguments are being used and they are equally wrong.

Of course the European Union needs reform, but we should not arrogantly believe that we are the only ones who see the faults in the European Union—in the Commission, in the structures, and other aspects of it. Other countries do as well. We should, however, seek reform from within, building alliances with those who share our views on the necessary reform. There will be different alliances with different countries on different issues. It takes work and time but it can, and should, be done. We should not be idly threatening to leave the Union if it does not do what we think is right.

This report, like the others from the European Union Select Committee, represents a very constructive part of the process of necessary reform within the European Union and I strongly endorse it.

9.25 pm

Lord Teverson: My Lords, I start with the Arab spring, which I was discussing with some friends and colleagues here on the Terrace outside the River Restaurant. We were having a cream tea there—it is almost like a Cornish cream tea and it reminded me of home—and we got onto the Arab spring. I found myself getting into a political cliché by saying, “Yes, of course there are problems in Egypt, Tunisia and Libya, let alone some of the other areas, but democracy is never linear. Things can get worse and then get better”.

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Then I thought, “Stop for a moment. Let us think of the biggest revolution we have had in the past 20 or 30 years”. Of course, that is the disintegration of the Soviet empire, when we had linear improvement in democracy, in market economy, market liberty and security. We had all of that as 10 or a dozen states that had been part of a repressive communist regime moved to liberal democracy as members of the European Union, and as members of NATO. That linear movement was one of the greatest effects of the European Union and one of the ways in which we can see that soft power —that leverage and conditionality to which the noble Lord, Lord Foulkes, referred—has worked. That is one of the greatest benefits from the European Union for world peace and prosperity, and that is definitely not an overstatement.

It is that benefit and the enlargement instrument that have shown how powerful the European Union can be. One of the great attributes of all UK Governments is that they have been a fundamental motor of that process and that wish to include states, rather than to put to the side or exclude them from the European Union and its predecessors. I certainly believe that process should be spread, if perhaps not everywhere. In fact, in researching for this debate, I noticed one thing which I had forgotten: that Morocco was rejected when an application was made, I think quite rightly. I believe that we should extend European Union membership and candidature, if not as far as possible, then certainly to the east. Perhaps I slightly differ in that from the noble Lord, Lord Foulkes. As long as the states meet all those criteria, we should extend it whether it is to Ukraine or Moldova and even to Belarus, if that could ever be the case, or Armenia. I agree that there may be certain issues in going slightly further east, but that should be our aim. All organisations, as we know, eventually start to move backwards if they are not moving forward.

As has already been said, one very important area that came out of this report is that ultimately there is no alternative to full membership. Those states would not be satisfied with it, nor would it work. There is the European Economic Area, the associate membership that Turkey has had and the neighbourhood policy for the south and east, none of which is sufficient to satisfy what we would want from European expansion.

I find I am very critical of how one area has been handled in the European Union. That is the way in which we have been very selective about the timing of candidate countries. When it comes to Turkey, its first application was made in 1987 and 12 years later, in 1999, Turkey became a candidate country. To date, we have opened 13 chapters and closed only one, so there is all that uncertainty. Turkey is a very important economy and candidate country, and Europe is mismanaging that process. Frankly, the worst case of all, which shows all the specific European divisions, is Macedonia. Its application was made in 2004 and its candidature was agreed in 2005 but the number of chapters opened—let alone closed—still stands at absolutely zero. That is utterly unacceptable. We know why this situation exists. It is again because of boundary disputes, particularly name disputes, between that country and an existing member state. We must make sure that we are far more consistent about that.

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Two years ago I went to a conference in Brussels on enlargement, arranged by the then-Belgian presidency. I went with the noble Lords, Lord Harris and Lord Bowness, and the conference was very well attended. We debated enlargement fatigue, and that idea was of course rejected by the delegates. There was a great feeling that we should move forward with enlargement, particularly with the western Balkans. There was only one difficulty with that conference. No parliamentarian from Germany turned up, and not one from Spain. There might have been one from France, but none from Italy. It was an example of how for many of the larger nations, particularly those towards the west of Europe, the enlargement agenda had greatly receded. We need to stop that.

As we approach the anniversary of 1914, it is so obvious that I again risk a cliché by saying that the travails of Europe from 1914 through to 1989 started in the western Balkans. If there is a sacred mission for Europe, it is integrating the western Balkans into the European Union, under the right conditions. We could then offer security, freedom, a market economy and the type of atmosphere that we would want to live in, not only to the people living in the western Balkans but to Europe as a whole. As other noble Lords have said, it is an irony that although Britain is still foremost in asking for and promoting enlargement, we have started a feeling within the rest of Europe that Britain is itself heading for the exit. That is not just a paradox; it is potentially a contradiction in our policy. It threatens to dilute our ability to champion the cause of enlargement.

Two months ago I had the privilege of going to the Baltic states for the first time. In Estonia we met the Prime Minister and a number of other political people. One day we went to a town called Kuressaare, on the island of Saaremaa, which looks out across the Baltic. It was of course one of the areas that was formerly part of the Soviet Union, and the authorities were very careful to make sure that it was patrolled. There is a museum about the local Soviet commissars and everything else under the Soviet occupation. Yet Estonia is now one of the most vibrant liberal democracies. The economy is moving upward. The country is a member of the eurozone, and very successful. The country now wants more of Europe to be a part of Europe. We must ensure that that spreads, not only to the western Balkans, but at the right time and under the right conditions to the rest of eastern Europe as well.

9.33 pm

Lord Hannay of Chiswick: My Lords, I speak as a habitual complainer about the dilatoriness of the scheduling of debates on the reports of this House’s Select Committee on the European Union, and indeed of other committees. However, it is only fair on this occasion to congratulate the usual channels on having arranged this debate promptly and in a particularly timely fashion, coming as it does when the EU is taking stock of its further enlargement policy.

The timeliness of the debate is wider than such rather ephemeral considerations. A combination of the distraction of the eurozone crisis, and a certain air of enlargement fatigue, has caused this issue to drift towards the margins of the policy debate about the

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future of the European Union, both in Brussels and elsewhere in Europe. Yet, as is shown by this report, the quality of which owes much to the skilful chairmanship of the noble Lord, Lord Boswell, the further enlargement of the EU is of significant importance to the future security and prosperity of the union, and to its prospects of playing a stabilising role in its immediate neighbourhood and beyond. We would be deluding ourselves if we thought that the process of definitively putting behind us the mayhem which engulfed the Balkans in the 1990s could be achieved without setting all the countries in that region on a sustainable path towards membership. We should equally be deluding ourselves if we thought that we could turn our backs on Turkey, the most vibrant economy in Europe and a rising regional influence, without serious negative consequences for ourselves. We should also be deluding ourselves if we believed that cold-shouldering the European aspirations of countries which emerged from the former Soviet Union to a shaky independence would not further Russia’s ambitions to create for itself a sphere of influence around its borders. Quite a lot is therefore at stake in the way the EU handles its further enlargement, and it cannot be said to be doing so very skilfully or very purposefully at the moment.

In addition to these general geopolitical considerations in favour of further enlargement, I want to focus on three specific issues: first, the need to avoid importing into the EU existing territorial disputes, either between future member states or between them and their neighbours; secondly, the need to guard against backsliding by new member states on their commitment to the Copenhagen criteria for membership after they have joined the club; and, thirdly, Turkey, where recent developments have been troubling for its friends even though they should not, I would contend, have shaken their fundamental support for Turkish accession.

With the benefit of hindsight, most people now recognise that the EU’s handling of the accession of Cyprus with the division of the island unresolved was, to use a diplomatic phrase, suboptimal. The report that we are debating said as much, and it has since been roundly denounced for it by both Greek and Turkish Cypriots—a symmetry of denunciation which in my own lengthy and fairly painful experience of trying to resolve the Cyprus problem normally means that you have got it about right. It is not hard to identify similar disputes in relation to the existing candidates and aspirants: Cyprus, again, in the context of Turkish accession; Serbia and Kosovo; Macedonia and Greece; Moldova and Transnistria; and a whole rash in the republics beyond the Caucasus. That does not make them any easier to resolve. In the case of Cyprus’s accession, one can see that the EU would in theory have done better to make settlement of the dispute a condition of accession. However, to have done that at a time when the leader of the Turkish Cypriots, the late Rauf Denktas, and the then Government of Turkey were making any attempts at compromise completely nugatory would have been to hand them a veto which they would not have hesitated to use. There are parallels with some of the future members. Each case will need to be treated on its own merits and the EU needs to address each in a timely and proactive fashion as it is doing, admirably in my view, in the case

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of Serbia and Kosovo. There is no magic solution, no template, for every case. What one can say is that some unilateral attempts at exercising pressure, such as Greece’s continuing blockage on even opening negotiations with Macedonia, are both counterproductive and deplorable. I entirely agree with the noble Lord, Lord Teverson, on that point.

There is also the problem of backsliding on the Copenhagen criteria and other values and responsibilities of membership. There is experience of that in the cases of Bulgaria, Hungary and Romania. It has become painfully evident that the EU is better placed to handle such problems before a country has joined the Union than it is afterwards, although some instruments are available even after accession, if extremely hard to apply. Again, as in the case of international disputes, there are no obvious, easy and universally applicable solutions, but it seems desirable to ensure that, before a country accedes, the basic values which justify its membership are firmly entrenched in that country’s laws and constitution, and that the machinery to uphold those values is in good working order. I rather doubt whether new dispositions for handling post-accession transgressions will prove either negotiable or operable.

Recent events in Turkey cannot have left any of Turkey’s friends untroubled. Even before the demonstrations in Istanbul, the repression of critical press comment had cast a dark shadow over the remarkable progress made in recent years. The peaceful demonstrations were, from the outset, met with the disproportionate use of force, and the Turkish Prime Minister’s rhetoric has been extremely divisive. That said, it is equally important to say what this is not; it is not a series of events in any way analogous to the uprisings in the Arab world against undemocratic dictators. Turkey is a working democracy, and it is for Turks, using their democratic institutions, to work out their solutions to the problems and protests that have emerged, while above all respecting the rights of citizens to peaceful protest and to express their views through a free press.

What role should outsiders play? They should certainly not, I would argue, block or suspend the already pretty stagnant process of Turkey’s EU accession negotiations. One thing comes clearly through the pages of the report that we are debating: the EU’s ability to influence candidate countries varies in proportion to the progress being made in the technical aspects of the accession negotiations. If that process moves along, long though it may be—and the process with Turkey has a long way to go—and if it is on a clear and sustainable path, the EU can exercise real conditionality and can hope to have real influence; if not, it cannot.

As a steady supporter of Turkish accession, I hope that the Government will maintain that case, while making it clear that Turkey’s eventual accession will require unquestioning and credible adherence to the Copenhagen criteria. In that context, the agreement reached in the Foreign Affairs Council yesterday to delay the opening of the next chapter of Turkey’s accession negotiations until the autumn, while perhaps better than some of the alternatives, merits no more than one cheer.

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As we in this country debate our future in the European Union—and I welcome the Prime Minister’s recent statement that our future lies in the European Union—it is surely essential that we develop a positive reform agenda for the EU as a whole. Within that agenda, I would argue, the further enlargement of the EU should have a prominent place.

9.42 pm

The Earl of Sandwich: My Lords, I thank my noble friend for his balanced introduction to the debate. It has been a pleasure to work on this report because it shows the European Commission at its very best. If we must have an EU referendum, surely the progressive enlargement of the European Union in the Balkans is one of the strongest arguments for a yes vote. The war in the former Yugoslavia is still a recent and bitter memory for the communities involved.

As the noble Lord, Lord Foulkes, said, it is undeniable that there has been greater stability in Europe since the Kosovo war ended with the KFOR-Serbia treaty of June 1999 and the EU in its various forms took over responsibility. Every new member of the EU has benefited economically from trade within the EU —even more recently while the older member states have suffered recession. This debate is timely, not because the UK is quietly marking its ruby anniversary in the EU but because in a few days, as we all know, Croatia will become the latest example of enlargement as the 28th member of the Union, following Bulgaria and Romania.

Perhaps we can now dispense with the phrase “enlargement fatigue”, since more candidate states and even eastern neighbours, such as Ukraine, are in the pipeline to the EU, as the noble Lord, Lord Teverson, said. Perhaps this is a moment for us to congratulate the Ukrainian tennis player, Sergiy Stakhovsky, for conquering the long-term Wimbledon champion this evening. Yet the road to enlargement in most cases will be painfully slow and beset with obstacles, and some may never make it. Indeed, I believe, in the case of Turkey, EU membership may not be an ideal solution.

Kosovo, one of the potential candidates, which seems to have the furthest to travel, nevertheless at times symbolises the EU’s determination to move forward. Perhaps that is because, as the noble Lords, Lord Foulkes and Lord Hannay, said, it does not want to make the Cyprus mistake again. Peace in Kosovo today is one of the cornerstones of EU foreign policy, stoutly defended by the EEAS through various policy channels. It is a major EU project. In fact, it is the largest recipient of EU investment per head anywhere in the world. Quite apart from security guarantees, there is a huge human and financial investment in Kosovo’s future as Europe’s youngest independent country. Yet, for their own reasons, Cyprus, Greece, Spain, Slovakia and Romania are still refusing to recognise it. Even some of its neighbours—as I will mention later—will not invite it to their regional meetings.

Much depends on Serbia. As a result of a carefully crafted diplomatic effort over the last two years, an important agreement was reached—as the noble Lord,

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Lord Boswell, mentioned—between Belgrade and Pristina in Brussels on 19 April. Indeed, an earlier agreement was announced by Commissioner Füle on the very day that the committee took evidence from him in Brussels. Just two more border points between Kosovo and Serbia had been established. I well remember the excitement in the Commission that yet another small but significant step had been achieved. Implementation followed in May. The noble Baroness, Lady Ashton, met Prime Ministers Dacic and Thaçi last Thursday and reported on Friday that the EEAS had reviewed the implementation plan and that there had been concrete progress and further agreements on justice, police and the forthcoming municipal elections. This is important detail and much is owed to the recent meeting of Serbia’s First Deputy Prime Minister, Aleksandar Vucic, with representatives of northern Kosovo Serbs in Belgrade. There, he commendably laid down the law to the four mayors and councillors.

The EU’s approach is nothing if not methodical and this seems to be achieving political results, which are remarkable when set against the violence of civil war only 15 years ago. Yet we know that, under the surface, the old rivalries are simmering. The worst forms of extortion and corruption can still be found as much within the KLF ex-combatants now in power in Kosovo as among the criminal mafia and the Serb no-go areas in the north. The EU is still, of course, backed by NATO in any emergencies such as shooting incidents in Mitrovica, but the key Copenhagen principles of the rule of law, human rights and democratic government are at stake.

On the rule of law, the EU has a long way to go and even, at times, appears to be losing the battle. The project known as EULEX, the biggest tool in the EU’s armoury, is failing to meet its objectives. The European Court of Auditors reported last October that its assistance had not been effective, as levels of organised crime and corruption in Kosovo remained high and the judiciary continued to suffer from political interference, inefficiency and a lack of transparency and enforcement. The court found that there had been no progress in establishing the rule of law in the north. That is a serious matter but the ECA report did not surprise the people of Kosovo, who for some time have watched the failure of the EU’s flagship project—which employs hundreds of judges, barristers, police and other officials. The UK has been one of the key investors, so can the Minister explain how this vital project has foundered? What action has been taken since to reform and rebuild the EULEX programme?

Beyond Kosovo and Serbia there have been many other concerns about justice and the rule of law in the region. The situation in Romania and Bulgaria has already been mentioned. Our report is another reminder that the co-operation and verification mechanism process used in those countries must come at the very beginning and not as an afterthought. That is also relevant, as has been said, to Kosovo and Serbia. Our report makes much of these processes and formulae such as the Copenhagen criteria. That reminds me that people working on EU issues must be careful not to use too much jargon or too many clever acronyms or we will be seen for what we are: an in-group with a temporary

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knowledge of EU institutions who speak a language only we can understand. Of course, I make a general point.

The committee also notes that the great fears expressed about the effects of enlargement on the Common Agricultural Policy turned out to be unnecessary. The proportion of agriculture in the EU has risen and is still rising with the accession of new members. The NFU and other witnesses have expressed concerns about lower standards of cultivation and flouting of health and safety, but these tendencies have not prevented a healthy trading partnership between old and new member states.

We must not forget that poverty persists in many areas of former Yugoslavia, including parts of Kosovo, where our DfID office has only recently closed, for a reason that I still cannot fathom. While Croatia is level with Hungary in terms of gross national income per head, at about $13,000, the average income in Albania, Kosovo, Bosnia and even Serbia is less than half that, below $6,000 per head. Through the EEAS and the Commission, the EU sometimes has to fill the combined roles of a teacher and a nanny on local government or regional co-operation, and I wonder whether it has the necessary skills.

Take the fiasco of the Ohrid summit this month, for example. It was a regional meeting, scheduled for 1 and 2 June in the Macedonian beauty spot. The summit was cancelled after Albania and Croatia announced that they would not attend because Kosovo had not received an invitation, which was in clear breach of the April agreement. There is no point in having agreements if they are not implemented. Like it or not, the EEAS has to be sure not only that the parties follow them to the letter but that the neighbours do as well. This may be a tall order in the Balkans, but it is the litmus paper of the success of enlargement.

The balance of competence review is coming soon, we hope, and it will confirm that we are on the whole getting satisfaction in Europe. I trust that this understanding continues well beyond the next election.

9.51 pm

Lord Kilclooney: My Lords, I first congratulate the noble Lord, Lord Boswell, and the members of his European Union Committee on this excellent report, which clearly outlines the opportunities and challenges as nations apply to join the European Union as new members. As the noble Lord said, it is timely that this report be debated in this House: not simply because Croatia is likely to be confirmed as a new member this week, but also because there are ongoing issues of major importance at this time. For example, there is the European Union and United States trade agreement; CAP reform, which I hope may be confirmed this week, especially for Scotland and Northern Ireland, where agriculture is important; and the ongoing major issue of banking union within the EU.

I well remember that when I was a member of the European Parliament in Strasbourg, we regularly met the Prime Minister of the United Kingdom. One occasion always stuck in my head. The Prime Minister said: “You should encourage greater enlargement of the European Union, because the more countries that

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join, the more likely it is to collapse”. That was the understanding of what enlargement would mean in practice. There could be some truth in it. Croatia is now about to become a member and yesterday it was agreed to commence Serbia’s accession negotiations and an association agreement with Kosovo as well. Of course, all this is subject to the approval of the European Council, but enlargement is ongoing.

One of the conditions is that new members in the European Union should also accept the euro as their currency. The Chancellor in his Statement on the economy today said that the eurozone is in crisis. That phrase has been used by several contributors to this debate this evening. It is the case in Portugal, Spain, Greece, Greek Cyprus and the Republic of Ireland; you have only to look at the Financial Times today to see the leaked tapes about the banking situation in the Anglo-Irish Bank to realise that there are ongoing problems in the eurozone. There are increasing fears about Italy as well over the next six months. As recently as last week, a senior French Minister said that the worst in France is yet to come. So the question arises: should accession of new members to the European Union require compulsory membership of the eurozone? Why not provide them with the same opportunity as the United Kingdom to be a member of the European Union but not a member of the eurozone?

Turkey was mentioned in the report. I well remember the European Council meeting in Luxembourg. Perhaps Members of our House have forgotten the events of that lengthy session, which went on and on until one minute before midnight, when it came out with a compromise—the deadline was midnight. The compromise was that Croatia and Turkey could apply to join at the same time. That was then agreed by the European Council.

I come from the island of Ireland, and I recognise sectarianism when I see it. As a Member of the European Parliament, I recognised that France and Germany would not agree to 80 million Muslims coming into the European Union. I remain convinced that that is the underlying problem as Turkey tries to become a member of the European Union. As has been mentioned, Turkey has its problems. Democracy in any country is not simply rule by the majority, it also requires the consent of the minority, and that does not seem to apply in Turkey today. We have the decision yesterday to start further accession talks on Turkey, which has aroused opposition from Germany, France, Austria and Greek Cyprus. It seems difficult to foresee Turkey being able to join the European Union, and I say that as one who has been a friend of Turkey for 40 years. It may well be that Germany is right and that a special arrangement with Turkey is now the way forward.

There has also been reference to Cyprus. I am delighted to see that the committee has stated in its report that it was wrong to allow Greek Cyprus to join on its own. The decision to allow EU membership before a settlement was foolishness in the extreme, and many of us said so at the time. However, the application was supported by Her Majesty’s Government on the recommendation of its advisers on Cyprus. They should

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now all hang their heads in shame, and many of them are now publicly doing so. Only last week, I heard one who was involved in the discussions saying so.

Lord Hannay of Chiswick: I am most grateful to the noble Lord for allowing me to intervene to say that I am not hanging my head in shame. I explained the situation in my speech, which perhaps the noble Lord did not hear properly. I did not say, and the report does not say, that Cyprus should not have been admitted. It states that the European Union was not sufficiently zealous at ensuring that a solution was reached before.

Lord Kilclooney: I have to say that I heard the noble Lord’s speech and listened to it very carefully. I have to say that his opinion at the time of the accession of Cyprus was wrong and that some of those who agreed with him at the time now say that it was wrong and are apologising. I hope that, some day, he will do the same.

On Cyprus, reference has been made to Turkey’s role, but Turkey encouraged the Turkish Cypriots to vote for the Annan settlement—oh yes—and the Turkish Cypriots voted for the settlement in Cyprus. It was the Greek Cypriots who voted against the United Nations Annan plan for a settlement, so it is wrong to finger Turkey, as is suggested in the report; it was others who created the problem.

In foreign affairs and security, the EU has only France and the United Kingdom really to rely on, because they are members of the United Nations Security Council. The others will talk a lot but do very little. As enlargement proceeds, questions should also arise as to whether the EU should cease to have a role in foreign affairs and security.

In conclusion, clearly the European Union needs to revise existing treaties as it considers a revised relationship with the United Kingdom itself.

10 pm

Baroness Hayter of Kentish Town: My Lords, today is quite special for me. It is the first time that I have spoken in your Lordships’ House on Europe, yet I am a child of that project, my life having followed the momentous moves that we have seen on the post-war continent. I was born to a member of the occupying forces in Germany in 1949. I worked in Brussels from 1 January 1973, the day on which we joined the Common Market. I have been involved in the EU as it went from six to nine to 12 to 15, and shortly it will be 28. Particularly on that other 9/11, 9 November 1989, I watched as the wall began to fall. Then I worked in the European Parliament as the enlarged Germany took its place in the then European Community.

The EU, for many of us, embedded post-war security and democracy, then went on to help Greece, Spain and Portugal shake off their pasts and enter the democratic family. As we have just been reminded, just days away we will similarly welcome Croatia. As the noble Baroness, Lady Ashton of Upholland, the EU’s High Representative, has said, Croatia’s membership is good for it, but also for the rest of the EU.

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This is a timely debate. It enables us to pay tribute to those who helped bring this about and to note how this accession of Croatia reminds us of the journey that Europe has made and how far a country like Croatia has come towards a more peaceful and prosperous future. That is not to say that there are no lessons to be learnt. We also pay tribute to the excellent report that is typical of the analysis that your Lordships’ committee brings to its work under the leadership of the noble Lord, Lord Boswell, to which the noble Lord, Lord Hannay, has already paid tribute.

That analysis is much needed when attitudes to Europe are driven by emotion rather than rational calculation of our national interest and when the governing party engages in some meaningless posturing with the European Union (Referendum) Bill, as it will do in the debate in another place next week. Today we are talking not about pulling out, about a smaller Europe, but about EU enlargement, a proud achievement of the previous Government. When Labour came into office in 1997, Europe had dithered for eight years about enlargement after the fall of the Berlin Wall. There was talk of long delays, of eastern countries moving slowly towards membership, with perhaps two or three joining in five years and others perhaps never to join.

Labour took a bolder approach, helped by Lionel Jospin in France, Gerhard Schroeder in Germany and the enthusiastic Commission president, Romano Prodi. Even more, the 1999 Kosovo conflict was a wake-up call, demonstrating the risks that Europe was running post-Cold War. The division of Europe into two opposing blocs had disappeared, but we risked a return of ugly nationalism, ethnic cleansing and mass murder; a risk that the European Union was not prepared to tolerate. Just as, in earlier years, the EU had helped cement democracy in Spain, Portugal and Greece, so now it knew that enlargement could help the new emerging democracies gain independence and self-respect in a framework that guaranteed stability and the rule of law, while the single market and structural funds promoted economic development. Ten new democracies joined in a big bang in 2004, with Bulgaria and Romania set for membership in 2007.

To those who say that the EU can never change, this was the biggest transformation in its history. Did Europe get it absolutely right? The report offers some legitimate points of criticism, albeit in very diplomatic language. Some member states were not as ready as they might have been. There have been concerns about criminal gangs and the functioning of the Bulgarian state. There are allegations of systemic corruption in Romania. In several countries, the legislation for equality of treatment for the Roma has been honoured only in the breach. Some new members even show signs of regression to a darker past. There are concerns about the Government in Hungary. Constitutional changes have packed the courts and the central bank with government cronies, limited the ability of opposition parties to function and even curtailed freedom of the press and of religion. Tragically, anti-Semitism is again literally on the march within the boundaries of the Union.

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However, we would not have solved these problems by keeping those countries out of the EU. Indeed, increasing their isolation and inhibiting economic development would have aggravated those very problems. But once countries are in, they must live up to the obligations of membership. There must be no backsliding, to use the words of the noble Lord, Lord Hannay. There is a suspicion around that the Government have pulled their punches in criticising the Hungarian Government because they see Hungary as an ally in their search for some sort of looser relationship with Europe. Shame on them if that is the case. There should be no loosening of the EU’s commitment to democracy and human rights. If breaches of these principles increase, action must be taken.

The EU can be a positive force for change in applicant states, both before and after entry, as has been made clear during the debate. The EU helped Slovakia on to a democratic path and secured fairer treatment of its Hungarian minorities. Croatia will join on 1 July, having accepted that the price of membership was to surrender suspected war criminals to international justice. It has made great steps in order to satisfy the criteria, to the benefit of its people. Serbia has shown flexibility on the Kosovo question, the incentive being the opening of membership negotiations, as described by the noble Lord, Lord Boswell. That is why enlargement should continue.

What about the argument that enlargement has led to more migrants than we can accommodate? Well, we underestimated the numbers who would come here after 2004, and there were adverse consequences for the wages of the low-skilled, and pressures on housing, but the answer is not to blame the Poles or other migrants or the policy of enlargement. It is to build more housing and to ensure that the minimum wage is enforced. It is exactly in order to prevent wage undercutting that Labour will try to get the posted workers directive revised because, I am sad to report, the Government are failing to tackle the exploitation of foreign workers, which leads to the undercutting of local workers. The Government are failing to enforce the national minimum wage. They have taken no action on agencies recruiting only from abroad and no action to extend the gangmasters licensing legislation. Furthermore, they have failed to champion the enormous contribution EU migrants make to our hospitality and healthcare sectors. Indeed, I sometimes think that our social care system would be near collapse without them, while had we implemented UKIP’s policy of EU withdrawal and sent eastern Europeans home, we would have to handle the return of elderly Britons who had retired to France, Portugal or Spain but who would no longer be entitled to live there.

We stand behind enlargement, as we stand behind our membership of the EU. It has achieved enormous good and it can, and I believe will, achieve far more.


10.08 pm

The Senior Minister of State, Department for Communities and Local Government & Foreign and Commonwealth Office (Baroness Warsi): My Lords, I thank the noble Lord, Lord Boswell, for introducing this important debate and for his and his committee’s role in bringing

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the important issue of EU enlargement under the spotlight in this inquiry. The report and this debate are timely. As many noble Lords mentioned, in just four days, Croatia will join the European Union as the 28th member state. It does so at a time of economic crisis amid debates about the future of the euro area and the Union itself, and as we seek to ensure that the enlargement process remains fit for purpose, having learnt the lessons from previous enlargements.

I welcome the cross-party support shown by this House towards EU enlargement. The Government believe that this support is justified. As the report under debate recognises, enlargement offers benefits to the UK, the EU and the candidate countries themselves. First, there are political benefits, as the power of enlargement drives reform. Secondly, there are economic benefits, as the benefits of political reform help create a larger and more prosperous single market. Thirdly, there is the benefit of security, as better-functioning states, integrated and at peace with their neighbours, reduce the space for organised crime and corruption, and help to spread peace and stability across the region. However, to ensure a credible enlargement policy, progress must be based on candidates meeting the proper standards—as set out in the Copenhagen criteria and the EU’s acquis—through firm, but fair, conditionality. The noble Baroness, Lady Hayter, highlighted some of these challenges. I can assure her of the Government’s commitment to these standards, and to the values of the Union.

Croatia’s accession demonstrates this clearly. Croatia will be the first western Balkan country that was involved in the conflicts of the 1990s to join the EU. That itself is evidence of the transformative power of the European Union. The end of six years of the toughest accession negotiations yet will be marked on 1 July; Croatia is joining the EU better prepared than any previous candidate. As Croatia’s Deputy Prime Minister has said, the reforms have,

“changed the country beyond all recognition”,

with Croatia the first country to negotiate under the new Chapter 23, which specifically addresses rule of law reforms. Our confidence that Croatia would be ready in full by 1 July was further enhanced by the introduction of pre-accession monitoring, when we agreed to close accession negotiations in June 2011.

The process of transformation will not stop when Croatia joins the EU. Membership provides the foundations for Croatia to continue to tackle domestic challenges; offers opportunities to harness the potential of the single market and to co-operate with member states in tackling cross-boundary challenges such as climate change and organised crime more effectively; and provides the tools to help Croatia return to sustainable, competitive growth through access to the world’s biggest single marketplace and to the EU’s structural and cohesion funds. Croatia’s success is important as a catalyst in the region, too. It provides the clearest example for its neighbours that political will and determination to push through reforms are absolutely necessary—but also that the EU also delivers its side of the bargain in return.

Embedding rule of law reforms in accession countries is fundamental to the success of enlargement. Rule of law reform has been central to Croatia’s progress,

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as the EU took on board the lessons learnt from the previous accession. The process continues to evolve. Under the “new approach”, Montenegro and all future candidate countries will address rule of law issues up front in their accession negotiations, which will maximise the time available for implementing and embedding reforms.

It is not just the political conditionality that is evolving. In the context of Europe’s economic challenges, the Council’s conclusions on the European Commission’s 2012 enlargement strategy flagged that enlargement must also deliver economic success, not least given the current requirement for new member states to join the euro area. This is also crucial to ensuring that EU membership remains a strong incentive for aspirant countries. The Government are committed to the principle that eventual membership is open to all European countries, so long as they meet the criteria as set out in the EU treaties. We share the view set out by the committee in its report that there are no viable alternatives to EU enlargement.

My noble friend Lord Teverson referred to other, looser associations for aspirant countries to have with the EU, such as the European Economic Area. However, I agree with him that the prospect of membership is often the only thing strong enough to overcome the powerful vested interests that too often stand against political and economic reforms. It is therefore vital that the EU both maintains momentum on the enlargement process and ensures that it delivers on its side of the bargain. We should not forget the opportunity costs of turning countries away from Europe.

The risk that candidates may tire of the struggle if rewards are not forthcoming is real, as the committee’s assessment notes. That is one reason why the UK has supported innovations in the enlargement approach, such as the new approach to rule of law issues. Ensuring that candidates can start to feel the benefits of their reforms early on can help reinforce the necessary political commitment. It is the responsibility of every member state to ensure that this momentum is sustained. Artificial pauses, which some call for to resist what they fear is an inexorable expansion, are misleading and damaging. They can damage the confidence of aspirants in the EU’s credibility and impact on the long-term benefits of EU enlargement. Such calls are also predicated on the misunderstanding that enlargement is inevitable: progress towards accession is based on candidates’ own merits, and is far from guaranteed. It is also important for the integrity and continued momentum of the enlargement process that bilateral issues are managed constructively and do not affect EU enlargement policy or any candidate’s accession negotiations. Ensuring the continued centrality of the spirit of good neighbourly relations is therefore vital. As long as the accession process remains adaptable to the conditions of each country, able to respond flexibly to new pressures and to learn from past mistakes, the process of negotiations should not be a barrier to individual countries’ progress.

The noble Lord, Lord Foulkes, and my noble friend Lord Teverson referred specifically to the Prime Minister’s view. The Prime Minister’s vision for a better Europe is central to our conditions-based approach to

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enlargement. We take strength from the EU’s expanding membership, which is essential in bringing creativity and expertise to the EU. In fact, further enlargement increases this diversity and creativity, but further enlargement does not simply mean more Europe.

The noble Lords, Lord Foulkes, Lord Hannay, and Lord Kilclooney, and my noble friend Lord Teverson raised the issue of Turkey. The Government continue to support strongly Turkey’s accession. In December, the UK worked hard with other pro-Turkey member states to secure enlargement conclusions endorsed by the European Council, which reaffirmed the EU’s commitment to an active and credible accession process. The Turkish Government welcomed these. The enlargement conclusions we secured in December 2012 were forward-looking and gave the Irish presidency and EU institutions a strong mandate to make real progress in 2013. We welcomed recent improvements in relations between France and Turkey and France’s decision to lift its block on Chapter 22 on regional policy. We are pleased that, despite last-minute German concerns, a deal was reached on Chapter 22 allowing a technical opening. I note the concerns of the noble Lord, Lord Hannay, but, like him, I believe, and the Government believe, that progress on the accession process is the best way to support Turkish reform. Now more than ever the EU needs to engage with Turkey. The recent protests serve to highlight the strategic imperative of EU support to Turkey’s accession process as a driver of domestic reform.

The noble Lord, Lord Foulkes, also raised the issue of Serbia’s recognition of Kosovo. I agree with the conclusions of the report that bilateral disputes should not play a role in the accession process. The pull of the EU has already delivered considerable progress in the normalisation of Serbia’s relationship with Kosovo. Part of the April dialogue agreement was a clear commitment from Serbia not to block or encourage others to block progress on Kosovo’s EU path.

My noble friend Lord Boswell also raised the issue of the IPA. The Government share fully the committee’s view of the importance of a strategically targeted instrument for pre-accession assistance. We have pressed strongly for a more results focused instrument closely linked to the objectives of the enlargement strategy for the period 2014 to 2020.

My noble friend Lord Boswell and the noble Lord, Lord Foulkes, also questioned whether enlargement was losing its momentum. The strategic benefits of enlargement for both current and future members will be realised only if the process is an economic and political success. To achieve this is likely to need time, with each country only moving forward as and when it is ready, once it has addressed its specific challenges. Clear results over time will enable us to communicate and demonstrate the ongoing benefits to EU citizens. The EU needs to facilitate enlargement, but the rate of progress needs to be determined by the aspirant countries themselves.

The noble Earl, Lord Sandwich, asked about Kosovo and specifically about the EU’s rule of law mission in Kosovo. The Government believe that this has a vital role to play in enabling Kosovo to meet EU standards in the rule of law. The mission has had several successes,

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including customs standards, integrated border management and the return of the remains of nearly 300 individuals missing since the war. The UK currently seconds around 37 staff to the mission.

The noble Lord, Lord Hannay, spoke of the impact of bilateral disputes. He mentioned Cyprus as a clear reminder of the need to seek ways to avoid the importation of bilateral disputes into the enlargement process. On this, the Government share the committee’s views fully. We will continue to work with the Commission and other member states to encourage an open and transparent approach to resolving disputes and to explore mechanisms to protect the momentum of the enlargement process.

EU enlargement remains as relevant today as it ever has been, notwithstanding the changing economic and political landscape in Europe. It is a vital tool for Europe in promoting democracy, encouraging freedoms and increasing the potential of the single market to the benefit of aspirant countries and existing members. The Government’s vision of a reformed EU is therefore not just compatible with but mutually supportive of a robust and successful enlargement policy that delivers increased diversity and a larger single market, ensuring that countries are fully prepared to contribute positively to a more effective EU upon their membership.

The next step in the process of reuniting Europe lies in tackling the remaining challenges of the western Balkans and reinvigorating Turkey’s accession process. Rule of law, migration and other challenging issues can and must be addressed, through rigorous conditionality, to deliver the foundations for secure and successful future member states, maintaining the credibility of enlargement as a lever for reform and ensuring that the benefits it promises can be realised.

Therefore, once again, I welcome the committee’s report. It is a reminder that, although there are challenges to be addressed, we remain unwavering in our support for further EU enlargement, that to sustain the momentum the EU needs constructive approaches from its member states, and that the EU and its member states need to better communicate the benefits of enlargement to people across the EU and to aspirant countries.

This Government will remain an active champion of further conditions-based EU enlargement. I therefore warmly welcome the European Select Committee’s support for the enlargement agenda. The thoroughness of the committee’s examination of these issues will continue to provide a valued contribution to our policy formulation.

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10.22 pm

Lord Boswell of Aynho: My Lords, at this late hour, it would perhaps suffice if I were to comment on the quality and absorbing nature of this debate, and on the remarkable staying power displayed by my colleagues on the Select Committee and others who have participated in it.

However, I think that I should take just a moment further than that to reflect on the fact that, while there are always differences of emphasis and occasionally of substance, generally there has been what I would describe—I include in this both Front Benches and the other contributions—as a steely consensus behind getting on with this job and a belief that it is possible, not in a spirit of recrimination or rehashing the past, to learn lessons and get on with the next stage of enlargement. That I find very encouraging.

It would be inappropriate to comment on each speech, but perhaps I may break from that and refer just for a moment to the noble Lord, Lord Teverson. He has made a distinguished contribution tonight but I should like, in particular, to reflect on the fact that he has recently left the chair of our External Affairs Sub-Committee, which he served with great distinction. That has in no sense been diminished tonight and we are very grateful for his contributions both tonight and on earlier occasions.

It is generally the case that, in this House at least, matters connected with the European Union are treated seriously, sensibly and constructively. I think that we have generally met those obligations. Equally, there is a sense of diffidence or restraint because we know that this is not an area in which the United Kingdom would expect to take unilateral action or where we should expect magic solutions immediately. We need to continue to work patiently with other member states and with our friends who see this agenda as important. I should perhaps have recorded that we need to continue what has been a very constructive dialogue with Commissioner Füle and his Cabinet and other members of the Commission who are also committed to these objectives. We need to keep the process very much at the forefront of our attention. I think that what we have done in our report—I add modestly—is at least to set the climate for doing that and to point to the opportunities and benefits of doing so.

Motion agreed.

House adjourned at 10.25 pm.