Select Committee on Foreign Affairs Minutes of Evidence

Examination of Witnesses (Questions 1-19)


13 DECEMBER 2005

  Q1 Chairman: Good afternoon everybody. Welcome to the Foreign Secretary and his team. We are pleased to have you here, Jack. We know you are extremely busy this week, as always. We want to obviously focus on the presidency of the European Union and the preparations for the summit and other issues that are going on. Perhaps I could begin by asking you about the EU budget. I know you are in the middle of negotiations, and we appreciate that sometimes you do not want to reveal everything, but, nevertheless, could you tell us at this moment how many other states support our position?

  Mr Straw: I am not, with respect, going to offer a view about that, because we are not at a stage where we can make that assessment. This is an iterative process where we put forward proposals, we listen to what colleagues have to say. We are in the process of revising these, so the situation is this. We put forward proposals last week and they were made available to the House at the same time as they were made available to European Member States. We have been listening very carefully to reactions to those proposals. I ran what was delicately called a "conclave" of European foreign ministers to discuss just this last Wednesday, and since then there have been bilateral meetings, as you will be aware, between the Prime Minister and heads of government of almost every one of the other 24 Member States. I have had a series of discussions with my colleague foreign ministers, Douglas Alexander with his colleague Europe ministers, and of course at official level there has been very intensive discussion. We are currently agreeing some of the revisions to the proposals, and they will be made available tomorrow, including, may I say, by way of written ministerial statement tomorrow morning, so we will be publishing the statement with the full details annexed. I am doing it tomorrow morning because in the afternoon there is a debate on the prospects of the European Council, effectively a debate about the budget, so that colleagues on all sides of the House have an opportunity to study the revisions before the debate. So that is where we have got to. These are complex negotiations. They always are; they always will be. I have never been in a negotiation of this complexity within the European Union where people disclose their final hand until they have to, and I am not going to offer a view about whether or not there is success on Thursday, Friday or Saturday. One of the other problems about budget negotiations, as we saw at Luxembourg, is that it is literally, to use the cliche, a zero sum game. There is an issue about the overall size of the budget—the bigger the budget the better it is for those who are benefiting from the budget net, the worse it is for those who are contributing net—and within that overall budget, at the very level of budget, there are very important issues about new benefits from what spending, so it is difficult. For our part, we are doing everything we can to get a deal, but we are not interested in a deal at any price.

  Q2  Mr Horam: Could I come back to what you did make public last week, i.e. your negotiating position. Part of that was a link with the Common Agricultural Policy?

  Mr Straw: Yes.

  Q3  Mr Horam: That is one of your points. A review conducted by the Commission to be submitted in 2000?

  Mr Straw: The review, yes.

  Q4  Mr Horam: Right?

  Mr Straw: Yes.

  Q5  Mr Horam: You are proposing a review of the CAP?

  Mr Straw: Yes.

  Q6  Mr Horam: It is the case, I want you to correct me if I am wrong, that in 2002 the Council did agree that there would be no change in the funding of the CAP until 2013?

  Mr Straw: Not quite, is the answer. I can get you the exact text of what was agreed because I was there, but part of the conclusions for that section relating to the CAP began with the preamble, words to the effect that, "This is without prejudice to decisions on the financial perspective for 2007/2013". I am sorry, I should have introduced David Frost and Tim Barrow. Tim is the Deputy Political Director and David is one of the Deputy Directors Europe. But it is words to that effect. It related, as I recall, directly to direct payments, which is a big chunk of CAP spending. It is one of the debates we are having with the French, because they say that back in October 2002 we set the CAP in stone between 2007 and 2013. It is not the case. I would be very happy to provide you with the conclusions that I, indeed, set up.

  Q7  Mr Horam: You contend that is not the case?

  Mr Straw: I do not only contend that, I was there, and, as I say, the rubric is clear. We can send out for the conclusions. Let us do so.

  Q8  Mr Horam: You are saying it is subject to what might be agreed at this Council?

  Mr Straw: I am saying that, as I recall the paragraph, it opened with the words—and it was to do specifically with direct payments, which is part, although not the whole, of CAP spending—"This is without prejudice to decisions on future funding in the financial perspective 2007 to 2013."

  Q9  Mr Horam: So that is what you are relying on?

  Mr Straw: We are also relying—. It is never the case, even if there had been that decision, that it is impossible to change subsequently a decision made now getting on for four years ago, and by the time the review happens it would be six years ago, so it is always the case, as with Parliament. Parliament can decide one thing one day, and, if there is a majority, two days later it can change, but, as it happens, these were difficult negotiations that took place in October 2002 and they went through to 2003. I was there then, I know what was decided and it was a process of reform of the Common Agricultural Policy, first of all. So it is also inaccurate in its own terms to suggest that the CAP was going to remain static, because it has not. Just in the last week we have had this good news on the negotiations in respect of the Sugar Regime. So it was a process of reform, plus the fact that the conclusions made clear, as I said, that it was without prejudice to future decisions on the financial perspective.

  Q10  Mr Horam: As you have just said, we have had some recent news about the Sugar Regime, for example. As I understand it, the reforms that flowed from 2002, reforms of agricultural practice, are still coming in, will come in this year, some more will come in next year. One of the criticisms of your position could be that it is rather early to be having a review?

  Mr Straw: By the way, I have just had the precise wording passed to me. "It was explicitly agreed without prejudice to future decisions on the CAP and financing of the European Union after 2006", and it set ceilings, not targets, for expenditure. I am not in any doubt that what we are proposing is fully consistent with what was agreed in 2002. It is simply wrong to suggest that, as I say, the decisions made in 2002 were set in concrete. I am sorry, you were asking me a question about sugar.

  Q11  Mr Horam: No, I do not want to talk about sugar. I was just saying that, given this is a continuous process of reform of the agricultural system in Europe which is happening this year and happening next year as a consequence of decisions taken in 2002, some would say it is a bit early to have a review of the whole system.

  Mr Straw: I do not think it is at all. I am sorry, we may just have to disagree about that. I think that it is exactly the right moment, indeed some would say it is overdue, to have a review of the policies and the funding of those policies of the European Union. There has been change, let me make that clear, and the proportion of the total budget spent on the CAP has been going down in recent years—it is a process we have been pushing—as has the total size of the budget relative to Member States' economies also been gradually reducing, and that is a process we want to accelerate within this budget; but if you look at the negotiations which opened in Hong Kong today, which are directly linked to this, there is a big agenda of change.

  Q12  Mr Horam: Market access?

  Mr Straw: It is market access, essentially, so that we open up our markets for agriculture. Let me say, we get other people's markets for agriculture opened up as well, and I believe that the French and the British and many other farmers will be able to do very well in exporting to third countries, so this is not a situation where we are going to impoverish rural areas as a result of these changes, but the balance of agriculture will change and in return for that, of course, what we get to is non-agricultural market access, including manufactured goods and services, so it is a big agenda. I cannot predict what is going to happen in Hong Kong, nobody can, but what I am clear about, Mr Horam, is that this pressure for change in the Common Agricultural Policy will not and cannot go away because there is a changing reality in the rest of the world.

  Q13  Mr Horam: I understand that completely.

  Mr Straw: It is called globalisation. It is also the called impatience by developing countries who are not going to tolerate for very much longer these very high levels of subsidies being paid to European, American and Japanese agriculture.

  Q14  Mr Horam: What opinion have you formed over the last six months while we have been the Chair about the reaction of other Member States to your view as expressed now?

  Mr Straw: Many are happy about this; some are not. It is inevitable within negotiations, those that are not particularly happy, that you have to goad for persuasion and negotiation, and it is hardly a secret that the French government have reservations, to put it at its mildest, about a review which could impact in the next financial perspective. That is another of these negotiations.

  Q15  Chairman: Can I ask a specific question about the detail of the proposals that we are putting forward. As I understand it, although your proposal is for a reduction of the expenditure level that was originally proposed by the Commission and lower than Luxembourg, you are arguing for a substantial increase in some aspects of the European Union funding, particularly common foreign and security policy. Why is that necessary?

  Mr Straw: Let me give you some totals here. The Commission recommended a budget set at 1.24% of what is called GNI (gross national income) of the European Union Member States, which would have been €1,025 billion over the seven-year period, and that was impossible. The Luxembourg Presidency recommended a budget of 1.06% of GNI, which is €870 billion. We are proposing in last Wednesday's negotiating box a budget of about 1.026, and it is 847 billion. The budget for the common foreign and security policy was €16 million last year. It has been put up to €100 million this year and there are some proposals for it to increase further per year in the future. First of all, these are small sums compared with the total, Chairman. Secondly, why they are necessary is because, not least under our presidency, the common foreign and security policy has been made operational. It is no longer just a rhetorical policy. We are operating it in negotiations, as we are in respect of Iran, but also in respect of these missions, and so we have had a mission to Aceh—we got very little coverage, but a really important mission there, as important in its own way as the decommissioning programmes undertaken in Northern Ireland and the European Union have run it entirely—we have also got the continuing mission in Rafa, and I gather from one member informally that you were impressed with what was going on, but these things cost money, that is why.

  Q16  Chairman: You are revising your proposal. Is it likely then that the figure that you have just quoted (1.026) is actually going to be significantly raised tomorrow in order to try and get an agreement that will end up somewhere near where the Luxembourgers were when we finally got an agreement.

  Mr Straw: I am not going to, if you do not mind, make predictions about where this may end up, not least because I cannot, but if Luxembourg had been acceptable to us we would have accepted it; so would the other four Member States who turned it down. There will, indeed, be some revisions, but they are going to be revisions around the level we have proposed.

  Q17  Mr Horam: Can I ask you one quick question about the Luxembourg suggestion, which was, if I remember rightly, a freezing of the UK rebate, which would mean it would be the same each year as opposed to at the moment a fluctuating amount, which has some disadvantages because it means that sometimes we do not bid for things because we know that it will reduce our rebate. Would you be in favour of a steady amount rather than—

  Mr Straw: Look, what happened with Luxembourg, Luxembourg was under pressure to meet various expenditure claims by other Member States which they did, and then they effectively gave us the bill. Just to give you some of the ball park figures, our net contribution in this financial perspective, which ends next year, is €39 billion over the period. Without any change in any of the financial arrangements, including the rebate regulation, our net contribution for the next financial perspective from 2007 to 2013 inclusive is due to rise to €50 billion, and that is principally but not wholly to pay for the costs of enlargement. What the Luxembourgers said is that, having risen already by 11 billion, it should rise by a further 25 billion to 75, so it was an increase of about 93% on 39, and they were going to do that by freezing the abatement, and it is simply unacceptable and it is unacceptable because of the cost to us and it is unacceptable in principle as well. What we have said in our proposals is that we recognise, number one, that when the rebate regulations were negotiated in 1984 there was no expectation whatsoever that within a period of 20 years the European Union would expand to take into its membership what at that stage were Soviet satellites. The issue before the Union was essentially making up membership within Western Europe, not that, and nobody has ever suggested that the UK, as one of the more prosperous countries, should not make a fair contribution towards the costs of enlargement and of expanding those economies, and that is why we have made proposals in this negotiating box for an increase over the 50 billion starting point, default setting, of around eight billion euros, but we have also said very clearly that that is linked to the abatement or what would otherwise be the abatement, on structural and cohesion funds in the enlarged accession countries, the A10 countries. Where we are adamant is that the rebate should be untouched in respect of any spending inside the pre-existing 15 Member States and agriculture anywhere in the European Union, unless and until there are the major reforms that we have been seeking. So, that is the background. Chairman, you did ask me earlier about are some budget headings going to increase. It is not just the FSP which will be increased. Structural cohesion fund spending to the accession ten countries will increase very significantly by a factor of five, I think, on current levels of spending, and there will be corresponding reductions.

  Q18  Sir John Stanley: Foreign Secretary, I do not know whether you have given consideration to yours and the Prime Minister's negotiating strategy on this, but has it not been a pretty disastrous misjudgment to take up a position sustained over months, if not years, of the British rebate as non-negotiable only to come to a position where it is patently obvious it is now wholly negotiable and with a bottom line for reasons that we understand at this particular moment? What credibility are you and the Foreign Office and the British Government going to have in future EU negotiations when you take the position that something is non-negotiable when you have been so clearly driven from that particular position on this particular occasion?

  Mr Straw: I do not accept that we have. I have certainly never used the word "non negotiable", as far as I recall. What I have said is that the rebate is fully justified and, moreover, we are not negotiating on the rebate as it was agreed in 1984. I have just spelt out the fact that the rebate will not be affected by a cent or a penny in respect of any aspect of spending within the E15 nor any aspect of agricultural spending anywhere inside the Union. What, however, I note is that nobody in all the debates on accession on any side has ever said that the much poorer countries inside the accession ten states should effectively pay their share towards our rebate, because the rebate was never designed like that. The rebate, let us be clear, was designed to ensure that there was equity between otherwise similar states, principally France, Italy and the UK, in terms of our contribution to the EU. There was not equity because of the imbalance in spending towards agriculture, and that was a reason why the rebate was obtained. Let me say to you that there has not been equity until very recently, and one of the things that is going to happen under our proposals is that there will in future be a broad equity in spending between France, Italy and the UK for the first time ever, something that the then Mrs Thatcher was unable to achieve. As I say, going back to the core of your point, I think our partners understand our position exactly. It was precisely because we were not willing to negotiate the rebate away in June that the Prime Minister and I dug in and one of the reasons why there was no agreement, but we were joined by four other Member States, and so, far from Member States drawing the conclusion you suggested, Sir John, they have drawn the opposite one, which is that we are tough negotiators and if we think a deal is unsatisfactory for the United Kingdom, and I may say for the European Union, we will simply not agree it, and they all understand that.

  Q19  Sir John Stanley: Are you assuring the Committee that as far as the element of a rebate is concerned which is applicable to the previous Member States before the recent enlargement, that the value of that will be wholly maintained in the negotiation?

  Mr Straw: Yes, and it goes back to points the Prime Minister has made and, indeed, I note from recent debate in the House of Lords, Lord Howe, who was there at start, has made, but the rebate is an anomaly, but it is an anomaly built on a much bigger anomaly, namely the distortions of spending throughout the European Union. It will remain unamended within the existing 15 Member States unless and until there is agreement to remove the underlying causes of the rebate, and if there were and we have then got into a more rational overall pattern of spending and revenue raising, then the case for the rebate would fall away, but in my judgment that will be a long way off, and it is certainly not for these negotiations.

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