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Lord Selsdon: My Lords, perhaps the noble Lord will forgive me for intervening. I may, indeed, be wrong on this matter. But in general it is because the capital investment over there is into the raw material, natural resource industries that we require over here, as we have no natural resources of our own. Certainly that should be compensated for by increased British exports, but we are not very successful.

Lord Peston: My Lords, I take the point. Perhaps we have made a mistake in interpreting South America too much as a land of natural resources and not as a land to which we can sell goods and services and in which we can help in the production of goods and services. That is something that I should like to happen. Indeed, the Germans, French, the Spanish and others are trading with those countries. Why aren't we?

I am an ignoramus in this field and I accept the remarks made by noble Lords about how supportive the Government and the Foreign and Commonwealth Office

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have been. That is fine. However, I sometimes wonder whether we are playing a fair game in terms of free competition and free trade. I wonder whether covert subsidies and covert support are being provided by other nations whereas we, because of our principles, are not engaging in that. Perhaps we are losing markets because we are too honest and straightforward. We have certainly seen that happen in other areas of competition, so I hope that we can look at that point.

I have said that I do not believe in poking my nose into another country's affairs. I truly believe that. I think that in the end people have to make their own decisions on such matters and that it is not for us to pontificate on what other people are doing. I know that many noble Lords find that difficult to resist. However, if I were advising the South Americans, I would suggest that they proceed on a step-by-step basis and put in place whatever free trading arrangements they can bilaterally between themselves and then within their own continent, rather than assume that plunging into the grandiose Free Trade Area of the Americas is the easiest thing to do. In other words, I would adopt a practical approach to these matters.

I do not say that to denigrate the United States. I am an alumnus graduate of Princeton University and no one is a stronger supporter of the United States than myself or is more aware of the leadership that the US has given the advanced industrialised world in our lifetime. However, if I were a South American, I would still want to go my own way first rather than say, "Let the US do it first and we will follow". I think that that is immensely important.

I do not have a great deal more to offer although I should like to venture one other comment which relates to cause and effect. It is a quasi-political point. I do not want to tell the South Americans how to run their affairs, but I truly believe--and I think that the events of the past decade show this--that, on the whole, trade is conducive to democracy. In the end, it works and if you get used to trading with foreigners, you get used to having a more open society. I think that that will apply to even Cuba in due course. We have seen some pretty awful things--not just there, but everywhere--but I remain an optimist. I believe that as long as we do not interfere excessively in other countries' affairs, as long as we are willing to trade there and as long as our Government, of whatever political complexion, are supportive of those who wish to trade, there will be a happy ending in South America.

Therefore, I simply repeat my thanks to the noble Viscount and hope that the next time that we debate South America we shall be able to say that our share of its trade has increased considerably.

4.53 p.m.

Lord Fraser of Carmyllie: My Lords, I am very grateful for the opportunity provided by my noble friend Lord Montgomery to develop the impact of the proposal to develop a Free Trade Area of the Americas. Like all of your Lordships, I know how much of his time my noble friend devotes to discussing the development of the Americas. With his strong presidential connections with

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Canning House, my noble friend has been instrumental in bringing the issue of the economic and political prospects in the Americas, and particularly in Latin America, to a wider audience. This debate is particularly timely in view of the very welcome and, I believe, successful visit by the Vice-President of Bolivia last week. I respectfully agree with the noble Lord, Lord Wright, that it is also timely that the debate should be held a week before President Zedillo visits the United Kingdom.

We welcome any new proposals that will lead to the removal of barriers to international trade and investment. We believe that by liberalising trade we create wealth and make economies more efficient. I entirely agree with the noble Lord, Lord Peston, because we also believe that open trade relationships create political stability. The example of Europe since 1945 shows that a commitment to open markets and regional integration can bring lasting peace to areas which have previously suffered terribly from the scourges of war and political upheaval. The wide acceptance throughout the world of the benefits of open economies is underlined by the commitment that has been made to the GATT and now to the World Trade Organisation, the principles of which have given and will continue to give tremendous gains for our economies from the reduction of trade barriers and from the application of the principles of most-favoured-nation and of national treatment.

The desire to create a FTAA is therefore to be welcomed. It illustrates that the case for markets that are open to trade and investment is widely accepted in that region. It is the natural result of a number of developments in recent years to create free trading groups within the region, for example the North America Free Trade Area members have agreed to remove all tariffs and a wide range of other trade barriers by 2008; and Mercosur's members have agreed to remove all barriers to intra-regional trade by 1999 and to achieve full convergence on a common external tariff by 2006.

The commitment made by the American nations to create a free trade area is to be warmly admired for its ambition. The only point on which I disagree with my noble friend Lord Montgomery is on the population figures. As we understand it, the total population of the region today is not 750 million, but some 850 million. A move to trade and investment without tariff barriers in the region would create huge dynamic effects that would spur wealth creation and promote cross-border trade and investment. It would offer opportunities not just for those inside the region, but also for any business selling its goods and services in that market, and for any business that is an investor in that market. The region has already come a long way in recent years in the development of open economies.

Much of the debate has been focused on the Latin American countries. Those countries have made remarkable changes to the way in which they operate their economies. My noble friend Lady Hooper was right to highlight the changes that have been made in the oil and gas industries.

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As yet, the FTAA is in a very early stage of development. Its membership would cover a huge variety of economies--from among the richest nations on earth to some of the poorest. Income per head in the US is about 25,000 dollars: compare that with a per capita income for Bolivia of 800 dollars. The FTAA nations have a long way to go to establish how their free trade area would work, and in certain areas they are still--not unnaturally--working on the groundrules. Furthermore, the FTAA will require sustained political commitment from the region's governments if it is to come to fruition over the long period being allowed for negotiations.

I agree with my noble friend Lord Montgomery and the noble Viscount, Lord Waverley, who indicated that the short-term prospects for the FTAA may be limited by the proximity of the presidential election in the United States. But I am sure that the noble Lord, Lord Peston, is right that there seems to be little sign that the enthusiasm of the Latin American nations for regional integration is waning.

Notwithstanding that there may be short-term problems, there is every reason for United Kingdom businesses to maintain their efforts to penetrate the markets of North and South America. The United Kingdom's strong investment position in the region means that our companies should be in a good position to take advantage of the liberalisation that is now taking place. We have, of course a strong position in the North American markets, particularly in the United States, based on long-standing trading and business links. It is our aim to strengthen that position even further. As for Latin America, it is our aim to ensure that businesses in the UK recognise how much the region has changed. In 1982 when Mexico defaulted on its debt and the debt crisis plunged that continent into what became known as the lost decade, who could have foreseen the remarkable recent developments, including growth in the region of nearly 3 per cent. per annum during the early 1990s?

Some might say of course that compared with average annual growth of some 6 per cent. during the 1970s that is not impressive. But what is important is that growth was not achieved by sheltering industry behind high tariff barriers. When that was the case, it was not sustainable. High periods of growth alternated with periods of excessive inflation, with several countries experiencing the pains of hyper inflation. The new policies of open markets, internal deregulation, privatisation and fiscal prudence, while painful in the short term, provide a much more solid foundation for future growth. In 1990 four countries in Latin America had four-figure inflation. By last year all these countries had inflation under 20 per cent.

On the political front too, the change has been remarkable. Apart from Cuba--there are changes under way there--democracy is universal and has been further consolidated by a series of peaceful and open elections, most recently in Argentina, Peru and Guatemala. Civil war has been effectively eradicated in Central America.

That change in economic philosophy was evident in the increasingly positive role which the Latin American countries played during the Uruguay Round negotiations

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which led to the creation of the World Trade Organisation. The positive spirit in which the negotiations were generally carried out was greatly enhanced by the recognition of Latin American countries that there is an absolute economic benefit to be gained from market reform and the removal of trade barriers. The unilateral action taken by many Latin American countries during the late 1980s to reduce tariffs and open markets contributed greatly to the spirit in which the Uruguay Round was conducted and ultimately to the wide-ranging result which was achieved.

The Mexican crisis last year and its after-shocks brought difficult times, but I believe that we are now sailing into calmer waters, with belief in the fundamental correctness of the policy of openness unscathed. Indeed the enthusiasm of the Latin American countries for new regional integration agreements suggests that they have emerged from this period with their commitment to open markets and the FTAA made all the more robust.

While we welcome those dynamic regional developments, I must stress that we continue to believe that a truly open world trading system is best guaranteed by a strong World Trade Organisation which has a wide membership, and in which those members have made commitments to maintain open access to their trading partners. We therefore believe most strongly that the development of free trade areas like the FTAA must be in line with the rules that the WTO membership has set itself. Those rules permit the development of preferential trading areas as long as those areas do not raise trade barriers against nations outside, and as long as they create trade, rather than simply divert trade flows from one place to another.

A number of points were raised during the debate and I shall do my best to answer them. At one time my noble friend Lord Selsdon indicated that Her Majesty's Government were obstructive in their approach to trade. If he wishes to visit Cuba he will not merely go with a warm blessing, but I have no doubt that my noble friend Lady Young and others will be only too pleased to assist him in making the visit.

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