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Lord Ezra: My Lords, I shall be brief. I should like to remind the noble Lord that I was referring primarily to the visible account. He seems to be concentrating on the invisibles.

Lord Boardman: My Lords, I am concentrating on them both. They are both involved. The jumbo to which I referred is a very visible purchase. The same applies to a great deal of plant and machinery purchased from abroad, which is expected to have a long life.

When one looks at the cash balance, whether it is a deficit or a surplus, that probably indicates a trend. We should be alert and not by any means ignore it. I accept that, as the noble Lord said, we should watch to see the way any trends are going. We should also look behind the figures to see whether they result from far more people going skiing in Switzerland rather than far more people buying widgets from Germany and not selling them anything in return, or whatever the case may be.

I have looked at the 1985 Select Committee report. I had the honour to be a member with the noble Lord, Lord Ezra, and my noble friend Lord Selsdon. Some of the conclusions are wrong. We said that oil would probably run out by 1980. Thank goodness it has not, and will not do so for a long time ahead, I hope. However, it contributes less to the economy than it did in 1985.

We also referred in the report to the national attitude. As we said, that was having an adverse effect on our trade. I believe that the national attitude is much better now, but this is an area where much progress can still be made. Much of that progress involves education. Improvements in educating young people are needed to enable them to develop an aptitude for manufacturing and not just to enter it unskilled. A great deal is being done in that field but much more still needs to be done. There is also a national attitude towards manufacturing which I find disappointing in that people become excited if their son or nephew obtains a management job in the City but not so excited if he obtains a similar management job in--I was going to say British Rail workshops, but that does not exist now--a manufacturing business. We do not attach enough pride to the achievements of those who play an important part in manufacturing. I hope that we can do more in that field.

We referred in the report to competitiveness. There have been great improvements over the past 10 years in the competitiveness of British industry. Our industrial relations were at a low ebb at the end of the 1970s and the beginning of the 1980s. We now have excellent industrial relations and great credit is due to both sides of industry--if I can still use that term--for what they have achieved, and are achieving in that field. We referred to productivity in the report. Productivity in this country has grown faster since 1980 than that of any other country in the G7. That is no small achievement. The noble Lord referred to lack of investment, but our investment has been rising in an extremely satisfactory

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way. I believe that our investment in plant and machinery has been increasing at a rate of something like 10 per cent. per annum, certainly in recent years.

We referred in the report to the problems of interest rates and taxes. The noble Lord said that interest rates and taxation were both two sides of the same coin. It is an argument which I hope he will reflect on when we debate EMU in this House. He will perhaps consider that argument relevant in that context in separating control of fiscal policy from the control of monetary policy.

Export promotion was another subject which we made much of in the Select Committee. We are doing a great job in this area. We have an outlay of about £200 million a year on export promotion. Business Links--on which I hope my noble and learned friend will comment--is doing much to help in this field. We have made considerable achievements but we must not be complacent about them. We export more per head than Japan or the USA. That is something which does not seem to be generally recognised. If one told someone in the street that we export more per head than the Japanese, he would think that one was telling tales. However, it happens to be true and it is an important truth. We attract 40 per cent. of Japanese investment in Europe and 40 per cent. of the USA's investment in Europe. That is a success story; the task is to make it even better.

6.24 p.m.

Lord Peston: My Lords, I welcome the fact that the noble Lord, Lord Ezra, has introduced this debate. I say that with all the sincerity I can muster. We have to have such debates but I, for one, cannot think of anything new to say. However, I hope that other noble Lords will do so. In welcoming the noble Lord, Lord Blyth of Rowington, I am certain that he will have something new to say; it is his chance to say something we have not heard before. I look forward very much to hearing that. If one cannot say anything new, one may as well recycle something that is old, and that is what I shall do for the next few minutes.

Let me start with the general question of why trade is important. We have the classic Ricardian theory we were taught as students that we are better off as a result of specialisation and competition and that we gain from variety. What is interesting about the modern trading world is how different it is from the Ricardian world. In the Ricardian world one imported some things and exported others. What is absolutely astonishing about contemporary modern world trade is that we import and export precisely the same things. Equally, we trade overwhelmingly with countries which are similar to ourselves. Ricardo would have been puzzled by both those phenomena.

Having said that, what we were taught, and what I still strongly believe, is that trade is intrinsic to the welfare of an advanced industrialised country; that we benefit from free trade; and that one of the great glories of the post-war world has been the massive rise in international trade relative to GDP. I believe that each

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enhances the other but what is remarkable is the extraordinary rise in international trade. That is something that I, and I think all of us, welcome.

Our country, typically at one time ran a trade surplus, plus an invisible surplus, which financed a deficit in raw materials and things of that kind. However, in the past 10 years that has changed and we run a visible trade deficit. We run the transfers deficit to which the noble Lord, Lord Boardman, referred, but we have an investment income surplus. I agree that we should always be careful about figures, but that for 1994 is most peculiar. The investment income figure increased tenfold. There is something unbelievable about that figure. The obvious explanation is that our foreign assets are denominated in foreign currency terms, that the fall in the value of sterling will make it look as if our investment income is that much higher but that it does not represent any real growth in any valuable sense. However, we ought to be careful about that.

Wearing my academic hat, what is interesting is that I have taught all my career that one cannot run a balance of payments deficit indefinitely. However, we have been running a deficit for 10 years which is about as indefinite as one can imagine. Again, wearing my economist hat, I say it cannot go on. But it seems to be going on, and that is a puzzle. There is also the fact that the effective sterling exchange rate has been falling in value continuously for the past 15 years. We have been devaluing at about the rate of 2.5 per cent. per annum. There is obviously a connection but, with the pound floating, we do not have a balance of payments crisis. Whether that is a good or a bad thing we shall debate again one day when I hope the economists among us will get a chance to discuss EMU rather than leaving it in the hands of those who think it is a political matter. The only way I shall ever get into the debate is if we can somehow debate it as an economics matter.

I am totally in agreement with the noble Lord, Lord Ezra, in the belief that trade matters--I do not think any of us disagree--in a macro-economic sense. If we expand the economy too rapidly we shall pull in exports of manufactures in which case either the balance of payments will become adverse in a totally uncontrollable way or the inflation rate will get out of control. Echoing the views of the noble Lord, Lord Ezra, on macro-economic policy, with which I agree, I find it startling that despite the low inflation rate and the fact that GDP is growing at less than its underlying rate, the Bank of England is already panicking about inflation. I do not have a high view of the Bank of England, and never have, but its present macro-economic stance is extraordinary.

I now turn to what I consider the central issue. I say this again with an air of puzzlement and not really with a view to scoring political points off the Government. Without doubt there has been a distinct improvement in the rate of rise of manufacturing productivity. In my judgment we have somewhat closed the gap in productivity terms with our main competitors. The Government have favoured business in every way they can. They have attacked the trade unions: one may wish to use a less pejorative term. They have certainly freed

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labour markets. Again, on the plus side, our share of world trade has stopped falling. I have spent a lot of time thinking through this issue without finding any answers. The puzzle is why we have not done better in terms of total output which, if we are that much more competitive, should be much larger and, secondly, why we have not improved our trade account. I disagree with the noble Lord, Lord Boardman. I believe that the problem must lie with investment. The noble Lord said, I think, that the investment position is satisfactory. I must beg to disagree. The ratio of manufacturing investment to manufacturing output is now higher in broad terms than it was when this Government came to power. I am not criticising the Government. In view of all they have done the ratio should have risen drastically. Manufacturing capacity should be that much higher. We, in your Lordships' House, should not be moaning to the extent we are.

I can hypothesise but I just do not know why investment is not higher. Those of our friends from abroad who have acquired stakes in British industry have a high propensity to invest. What that says about our own management and boards of directors is almost too horrible to contemplate. The answer must clearly lie with management; I include boards of directors and not merely hands-on management. There is something wrong in that area.

I agree with my honourable and right honourable friends in the other place who stress strongly the need to improve the quality of the labour force, training and so on. One wants to see that happen. I remain of the opinion that that will help, but it will not solve the problem of what it is that frightens senior British management. There must be something. I am coming very close here to abandoning economics and suggesting that they may need psycho-therapeutic help rather than anything else.

I reiterate that I am not attacking the Government in this area. In a sense, given their approach, they have done all they can. They have asked industry to respond and in my judgment--I am sorry that I must disagree with the noble Lord, Lord Boardman, because we agree on so many other things--industry has not responded satisfactorily.

I turn now to Europe. Trade, wherever it is, is valuable. Not long ago, I took part in a debate on South America. I learnt a great deal from just taking part in that debate. It is an area about which we hope to hear more. We must, however, realise how overwhelmingly important the European Community is to our trade. It represents more than half of our exports and more than half of our imports. We run a deficit with it but, as the noble Lord, Lord Boardman, pointed out, we run more of a deficit with the non-EU part of Europe. There are those who tell us that we should be part of North America. But our trade with that region is now quite small. Therefore those--happily, they are not taking part in our debate--who emphasise the need to distance ourselves from Europe or even leave the Community altogether (I cannot find any other words for them) are insane. Our economic commitment is, and must be, to Europe.

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I have a further black note to raise about what the future holds for the country. However, it is a black note which should have a happy ending. I look forward very much to the speech of the noble Lord, Lord Blyth, because he is in the pharmaceutical sector. That is one area in which we have had enormous success.

Essentially, in advanced countries such as ours--and despite all the talk, we are still one of the major producers of the world--we engage in innovation, and it is on that which our future depends. We live by exporting the innovative products in which our national genius is embodied. We sell those products abroad. But gradually foreign countries copy those products. They simplify what we do and standardise it. They have lower wage costs and produce a similar and perhaps even slightly better product. We cannot then compete; we must innovate again.

My final conclusion is one I have put to your Lordships before. We are on a kind of innovative treadmill. If you want to stay rich and ahead of the game, you must find a new success every year. It is never over; you can never relax. That is why I still welcome the fact that your Lordships debate these matters. I thank the noble Lord, Lord Ezra, for giving us the opportunity to do so today.

6.35 p.m.

Lord Blyth of Rowington: My Lords, I thank everyone for their welcome and I thank the noble Lord, Lord Ezra, for initiating this debate: your Lordships will shortly understand why. I was introduced to this House in October last year and only now am I rising to speak. I could claim pressure of work or overseas travel and so on. In fairness, there is a large measure of blue funk involved. It is not high Tory electric blue but more of a feeble periwinkle. But I do have a bit of experience at this exporting game--and game it can be--which I thought I might share with your Lordships. I hope that your Lordships will forgive the intertwined personal history.

For the first dozen years of my business career, in the 1960s and early 1970s, I worked exclusively for American companies; and American companies at that time were in their heyday as exporters. Their export success was based on strong domestic demand, manufacturing efficiency, outstanding marketing--in my view--competitive pricing and, at the time, a very competitive currency.

By the time I was running a British company with strong export potential in the late 1970s--Lucas Aerospace--life on the other side of the fence was rather less comfortable. Our main domestic customer, Rolls-Royce, was still recovering from its 1971 bankruptcy. Labour relations consumed 20 per cent. to 30 per cent. of my management time, and the dollar was at 2.40 to the pound.

To put that in industrial perspective, it took nearly five years of 12 per cent. per annum productivity increases in that company before we took the export content of the business to over 50 per cent. of sales--and that when the UK market represented less than 10 per cent. of the world market.

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As head of defence sales at the Ministry of Defence in the 1980s, I started the negotiations and eventually won the agreement of Saudi Arabia on the highly valuable Al Yamamah programme. Our main product, the Tornado, was not the cheapest on offer to the Saudis--it is probable that the French Mirage 2000 was--but the Tornado was competitive with the rival American aircraft in performance and price and it outperformed the Mirage 2000 in its strike capability. More important, we had enormous political and industrial determination to get the order. That determination ran from the Prime Minister all the way to the assembly line at Warton.

At Boots, where I am now chief executive, I have responsibility for a fair-sized over the counter pharmaceutical business with two-thirds of its sales overseas, and that percentage is growing rapidly. Pharmaceuticals, of course, as has been mentioned, are second only to oil in their export value to this country--a £2 billion trade surplus in 1995. The industry sustains more than 300,000 jobs.

What lessons have I learned from all this that I can share with your Lordships? First, exports are a vital spur to domestic competitiveness. Secondly, the search for competitive advantage is all-important. The imposition or importation of social policies or working practices that reduce competitiveness should be eschewed. Thirdly, a competitively priced currency is as important as competitively priced products. Even the Germans and the Japanese are discovering that fact. Finally, organisations--indeed, countries--need to be export-focused to succeed. Their marketing has to be of a quality that allows genuine advantage to be gained from genuine competitiveness.

If we have any doubt about that, we should look to the tiger economies of the Pacific Rim. There lies the real competition. Moreover, taking the point made by the noble Lord, Lord Ezra, on investment, generally speaking, the hurdle rates applied by organisations in those countries are dramatically lower than those applied in the West. This country has been a great exporting nation for 200 years. It has not always provided the ideal climate for its exporters. Its present success--and we are successful in industries like pharmaceuticals and aerospace--has to be nurtured.

To that end, we must cease to regard membership of the European Union as any sort of long-term protection for our exporters. It seems to me that the route to commercial impotence is obsession with a sterile debate over the rules in one trading bloc while missing the importance of maintaining competitiveness in the world-wide marketplace. Governments of whatever hue must understand this and legislate accordingly. Most importantly of all, perhaps, exports will not thrive in a culture of ministerial--be it domestic or European--interference, but in one of lightly applied support.

6.41 p.m.

Lord Desai: My Lords, it is my pleasure and privilege on behalf of the whole House to congratulate the noble Lord, Lord Blyth of Rowington, on his excellent maiden speech. I am sure that all noble Lords

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will agree with me when I say that the noble Lord has shown us the depth of his wide experience in the real economy. In a surprisingly short speech, the noble Lord covered a variety of issues about which we are all concerned. I sincerely hope that he will come again and again to the House to give us his views. He will indeed be welcome.

I must also thank the noble Lord, Lord Ezra, for introducing the debate. I am very much in the same situation as my noble friend Lord Peston. As both he and I have never done anything in the real economy, we can only stick to academic issues. Therefore, I shall address myself to the questions that my noble friend raised.

There is an interesting comment to make on the matter. Yes, it is true that the UK has a visible trade deficit and, indeed, has had one for some time now. It is also true that invisibles correct that deficit slightly because we do very well in that respect. However, the question arises: how can any country carry on with such a deficit for a long time? I believe that we should--and I am sure that my noble friend Lord Peston will agree with me--look at the capital imports. Any country which finds itself with a deficit on current account must be importing capital. There is no other way that you can square the accounts.

One way of understanding what has happened to the British economy is to recognise that the discovery of North Sea oil was a major event. Indeed, if it had not happened, the adjustments would have been much more painful on the balance of payments side. They would also have occurred much more quickly. We would not have been able to afford to run such balance of trade deficits. North Sea oil gave us a certain crock of gold in the sense that, as noble Lords may remember, sterling was over-valued in the early 1980s. That deepened some of the crises that we have had in British manufacturing industry. Some of the manufacturing industry was just not viable; it was just not profitable. There is no way that it could have survived except by very large subsidies which, I must say, we did not pay.

The next time a Select Committee is set up on overseas trade, I hope that it will take an overall view of capital and trade. I say that because our exchange rate may become non-competitive, as the noble Lord, Lord Blyth, said, which would affect industry considerably. No matter how competitive an industry is, it has to go through the exchange rate loophole to be able to sell. That is an important point.

However, there was a substantial increase in the capital assets of the UK economy. That enabled us to import much more than we would have otherwise have been able to. That is one of the rather obscure but important points, and it is something which has not quite been taken on board in our debates. If one looks at the position of the UK and the USA in the 1980s in terms of foreign assets, it will be seen that the United States, while running its deficits, changed from being a net creditor country to a net debtor country. The reserve position is much stronger in the UK because North Sea oil represented a substantial addition to our wealth. In a

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sense, it has been both a blessing and a burden. Having said that, I believe that we should put all those aspects together at some stage.

I have another point to make, although it is not a matter that I have gone into in great detail. In the light of what the noble Lord, Lord Blyth, and my noble friend Lord Peston said, I believe that we should look at the industries in which we have a positive balance. We should have a positive balance in those industries which are research and development intensive; in other words, those which are innovation intensive. It does not much matter if we run a deficit in the production of more traditional products because those products will be made better in East Asia and we will not be able to compete. I have in mind pharmaceuticals, aerospace or, indeed, defence equipment, and so on. We should be able to say that those are the sectors in which our future lies. We ought to ensure that those industries have appropriate financial support.

I should mention the important point about hurdle rates to which the noble Lord, Lord Blyth, referred. It is one of the great mysteries of the British economy that businesses face extremely high hurdle rates when they make their investment plans. The only reason for that is, perhaps, the peculiar nature of the lenders--that is, broadly speaking, the financial institutions, including the pension funds and, indeed, the insurance companies which buy equities, as well as banks. Those involved in such work tell me that, despite the very efficient way in which the City operates worldwide, there is the problem that hurdle rates faced by British businessmen are rather high. It is not an insurmountable problem; it is, perhaps, a matter of another sort of innovation. It will have to come from the market; we cannot dictate that. However, I am surprised that we have not seen the kind of innovation which would make it possible for British businesses to have such money.

As regards investment in venture capital, I am told that there are very good institutions investing in really innovative developments in biotechnology. Indeed, we have good venture capital available. But in the middle, the small to medium-sized industries which are involved in the regular production and export business face rather high hurdle rates. That is not because our domestic interest rate is so high--a point which I will come to later if I have the time--it is due to something in the financial structure. For example, it is either the cautiousness of those who operate pension funds or other investors or, indeed, the caution of banks. Whatever it is, it turns out that we fix extremely high hurdle rates with very short pay-off periods. If you have a very short pay-off period, you will not be able to pursue certain kinds of innovative strategies which will ensure you achieve long-running success. As I said, a future Select Committee should consider not only trade but also capital and finance together because they are interrelated.

Perhaps I may briefly refer to investment and macroeconomic policy. I, too, am puzzled that the recorded investment GDP ratios have not improved much and are rather flat. At the same time, I am surprised that compared with other countries which invest more, the British growth rate is not that much

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lower. If one compares UK investment with Japanese investment and the growth rate of their economies--the evidence appears in a report by the Commission on Social Justice chaired by my noble friend Lord Borrie--the UK seems to be doing better than most other countries. As it were, it "gets more bang for the buck". I am not altogether sure why that happens, but it is true that while the UK should invest more--I do not deny that--it is also true that the productivity of investment in the UK is high. Whether that is because of the foreign direct investment that we obtain or domestic investment, I do not know.

In conclusion, I entirely agree with the noble Lord, Lord Ezra, about the fiscal and monetary mix. During the 1980s profitability in British manufacture was restored. In the late 1980s it slipped again. The British economy is paying a couple of percentage points of interest rates above the German rates. That is because the markets do not believe that the British Chancellor of the Exchequer will be fiscally responsible. I grant that the situation has been good lately. However, if one has fiscal irresponsibility one has to pay high interest rates in the money market. That is the simple answer. Let us hope that we achieve the other mix: a tight fiscal policy and a loose monetary policy.

6.52 p.m.

Lord Selsdon: My Lords, I am proud to be speaking on these Benches along with my noble friend Lord Blyth of Rowington. He is a modest man, but two words sum him up. He is fearless and tenacious. I have known him in trade for many years. If there were more people like him, we would not have a balance of payments problem--as I doubt that we shall have in the future. His addition to these Benches gives me a little encouragement. I have always felt that trade comes before economics. I can understand why economists are continually puzzled about trade.

The noble Lord, Lord Ezra, will remember that the eminent Select Committee wondered whether it really mattered if we did not export manufactures. I believe that at that time Her Majesty's Government had 236 economists, of whom one-third were of East European origin. One economist of East European origin explained that we need not manufacture any more because everything else would compensate; and that we got it wrong about oil running out. We did not do so, because the price of oil is now at the same level as in 1972. Therefore, to a certain extent, in value terms oil has run out. The dollar has fallen. Oil is no longer important. It is interesting to note that sometimes the British can get it right.

We used to fight the French over sugar. We used to fight other people over coffee, the second commodity. We never fought anyone over oil, although the Middle East and the Arab world were quite convinced that all wars out there were over oil. Your Lordships will know that 1994 was a quite remarkable year when we got it completely right. For the first time ever, oil was placed on the back burner as the leading trading commodity in the world.

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What replaced oil? It was something at which the British are rather good. The commodity is called semiconductors, or microchips. The trade worldwide in microchips now exceeds OPEC oil sales. That area of information technology, of finding a niche market, is one at which we are extraordinarily good. But these opportunities usually arise by accident rather than design and almost all trade issues are accidental--as a result of the next person you meet, or the opportunity gained in a specific country.

Perhaps I may job backwards a little and then look forwards. We experienced several major changes of which we were not aware until long after the event. Obviously, the loss of, or withdrawal from, an empire led us to believe that we were no longer loved anywhere in the world and that we must somehow concentrate on areas in our own backyard called ECSC or EEC, where we were not loved. Historically, they were mainly our enemies and regarded us as major competitors. We failed to look at other parts of the world. We failed to consider that our manufacturing was based on a home market and the home market was a world-wide market. We forgot too, that investment from abroad was often the factor that stimulated our economies.

Some of us were brought up to believe that we would be bust if the automotive industry went up the spout and that everything related to motor manufacture, or to Coventry and Birmingham. When well known British brand names of cars disappeared, we thought that we would never make cars again. We were surprised when suddenly again we were not only a net exporter of motor cars, but the growth of our exports was extraordinarily good.

As has been pointed out in previous debates, in the area of automotive technology, which relates to motor racing, a sport in which my father spent most of his life, we have advanced technology. Eighty per cent. of all racing cars and equipment are produced in this country and small engineering businesses are in the forefront of design.

However, our life does not revolve around the motor car. Nor does it revolve around this phrase "balance of payments" or exports. I have long believed that the word "export" is dead. It is trade--national, international or wheresoever it can be accomplished.

However, we have no role unless it is a world-wide role. We cannot live on trading with a domestic and an EC market. What is the point of trying to compete head on in the manufacture and sale of products to people who make them? It is a point made by the noble Lord, Lord Peston. We are trading each other's product. Surely it is wiser to seek to sell to those countries which do not make the items that we make. But we have also made a mistake. As regards manufacturing, we have a deficit of £11 billion. However, if we remove trade to the developing world our deficit soars to perhaps £16 billion. Most of our manufacturing exports are to countries which do not manufacture the product and wish to develop an industry.

I seek to turn one or two concepts on their head. For a long time we did not want people from this country to invest abroad. We had the dollar premium; we tried to

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stop them. We failed to recognise the relationship between trade and capital investment, as the noble Lord, Lord Desai, pointed out. If we are attracting so much capital investment into this country, we ourselves should be considering substantial capital investment abroad. Whereas historically investment followed trade, I believe that now, to a certain extent, trade follows investment.

As I travel around the world, I am regularly surprised when a foreign Minister making a presentation at a British week points out that the British are the second biggest investors in his country. Wherever I go, we are the biggest investors. We are all surprised by that. Where does the money come from? It is not necessarily our money, but it is someone's money. It comes through us, and to some extent it will stick to us.

I do not believe that the word "invisible" matters any more. However, unless we are fearless and tenacious, we shall ignore perhaps three-quarters of the markets of the world. Who are the fearless and tenacious people? They are not in British industry. Frankly, I believe that some of them are called Ministers. Ministers charge off around the world taking with them many industrialists. Those industrialists are not interested in the country they are visiting; they are interested in going with the Minister. That in itself is good because they take courage from being in gangs. Ministers of great stature travel the world. The stature of the Ministers is increased--and more often than not the Ministers find their girth, too, increases substantially due to these visits.

Ministers in this Government have done an excellent job world-wide, as everyone acknowledges. The support that the Government have given to trade is as good as that given by any country in the world, and that was not the case when the report was published in 1984. I believe the value for money is good. There are a few complications because, as the Government fail to recognise, in trade continuity is important. Thus, while of our Select Committee most of us are still alive, over those 10 years there have been over 40 ministerial changes in the Department of Trade and Industry. Also the reshuffles down the line mean that there is no continuity of knowledge and experience of markets. There are also 17 different agencies and departments involved in export promotion where some form of co-ordination or coming together might be better.

If we think back to the Scott inquiry, we are aware of some of the failings within government and the inability to communicate. We were told that recommendations would come from the Department of Trade and Industry and I look forward to receiving them shortly. We also heard that the DTI had identified 80 target markets around the world that were to be presented to industry. I am afraid that none of us knows which they are: they are a state secret at the moment and we should like to know the priorities.

We must identify and, with no fear but with great tenacity, choose areas of the world and the industrial sectors where we know we are good or where we can be good. Therein lies the problem. It has been said, to use an awful phrase, that "the British are so wet you

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could shoot a snipe off them". In many of the emerging or re-emerging markets of the world, we who were the first are now the last. It is the weakness of our own industry that causes the problems, not of the invisibles, not of the service sectors. It is depressing for an industrialist who may charge his time out at £250 a day to read in the newspapers today that lawyers are being paid £750,000 a year. Regrettably, the quality in industry has fallen, our industrial base has been eroded. We no longer have the scale and capacity that we had before. But something is happening: it is the globalisation of industry where no longer is the word "British" of critical importance. We do not know where people source. We look at a manufactured import and we do not know how much of it is imported quality, how much exported. Those issues could be addressed.

The figures are useless. I do not think there is a role for economists. It is a matter for traders and businessmen and we should give them a kick up the backside.

7.2 p.m.

Lord Haskel: My Lords, like the noble Lord, Lord Selsdon, it is not my intention to enter into a debate with the eminent economists on these Benches regarding the figures. I am not sure that the figures are soundly based. With the liberalisation of world trade and the globalisation of finance and technology, business must view the old style boundaries as out of date. International trade is less a matter of national boundaries and more a matter of markets with different cultures. Businesses have to adapt their products and services to cultural needs and demands rather than to those needs and demands designated by national boundaries.

To secure our share of those markets, not only selling but also overseas investment is often essential. However, like my noble friend Lord Peston, I wonder on what our decisions are based. For instance, we invest more in Australia, with a population of 16 million and a low rate of growth, than in all of South-East Asia, with a population of 2.5 billion and a high rate of growth. So it is certainly important to explore our overseas trade frequently and I am most grateful to the noble Lord, Lord Ezra, for giving us this opportunity to do so again.

I say that it is important to explore the subject again since the first debate in which the Minister took part after his appointment was about foreign trade. It was on 10th July last year. During that debate I was able to say one or two kind things about the export promotion services provided by his department. However, since then problems seem to have arisen. Although the joint directorate works well in delivering the co-ordinated overseas trade services of the DTI and the Foreign and Commonwealth Office, other departments such as defence and agriculture, fisheries and food seem to be operating outside this co-ordinated effort. I wonder whether the Minister could tell us something about that.

Also, last July we spoke enthusiastically about the efforts of the export promoters. Indeed, market plans have apparently been written for each market of the 80 markets to which the noble Lord, Lord Selsdon, referred. However, the contents have been kept secret

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from industry. Certainly we need to keep the information from our competitors, but at least our salesmen in the field need to know the strategy. Perhaps the future lies in separating the actual trade promotion work from the Minister's department. Nevertheless, the British Overseas Trade Board has played an important role in drawing on the experience of business and it has helped to improve the professionalism of overseas government staff.

I am sure that that is helped by the welcome efforts of the Institute of Export to introduce a Professionalism in World Trade qualification. It is right to introduce it into the DTI and it sits well with the Investors in People project. I congratulate the Minister on following the lead of the Labour Party in this regard. Will there be a similar approach in the Foreign and Commonwealth Office? Foreign service staff have a key role to play in our world trade. Their increased professionalism can only be an advantage. I too welcome the fact that overseas missions are continuing, and the Minister himself has clocked up quite a few air miles. Those efforts, good as they are, are now unfortunately not good enough because business has become more competitive in overseas markets.

What can we do to secure our place in world trade? The advantages of the 1992 devaluation have run out of steam. Both the Chancellor and the Shadow Chancellor have ruled out further devaluation. I sympathise with the frustration of my noble friend Lord Peston, but I suggest that there are three areas on which we can concentrate: modern manufacturing, information networks and the European Union.

Like the noble Lord, Lord Ezra, I too continue to be worried about our low share of world trade in manufacturing. I worry less about declining employment in manufacturing because it is partly due to labour-saving technologies. Indeed, much of what we sell overseas is precisely those labour-saving technologies--either the technology or the results from it.

But no longer can we just copy the lean production methods of the well-run Japanese companies. We have to move on with a new manufacturing strategy. It is becoming apparent that we can benefit by adding to what we have learnt about lean production in order to make highly customised products with the cost advantages of mass production but with very short lead times and a much greater element of service packaged with the product.

Therefore, as well as identifying selling opportunities, it is important for our overseas trade posts to be aware of the needs and activities of those forward-looking companies in order to assist them. Clearly, the work requires the professionalism about which I spoke earlier, plus excellent communications and information sharing which can only be achieved with modern information technology.

That brings me to the information networks. The networks will not only provide the excellent communications and information sharing which our companies require to be effective in world trade, but a whole new international business is being created.

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"Move bytes not atoms" seems to be the catch phrase for the new trade. We are already seeing it in operation. Music, magazines and newspapers are not only being distributed on discs, tape and paper but also via IT. Radically different ways of seeking business, servicing customers and delivering value are being created every day using this new technology.

As forward looking as ever, your Lordships' Select Committee on Science and Technology is currently examining the information superhighway, and I have the privilege of sitting on that committee. I hope that our report will be as seminal as the Aldington Report. Witness after witness is calling for leadership by the Government. We are told that this kind of world trade is raising all kinds of problems relating to copyright, intellectual property, encryption and the need for a legal framework.

Some said that the regulatory structure is a barrier to progress. The CBI identified the fragmentation of responsibility for information policy among government departments as a problem. Another witness said that there is a need to ensure that the Government exhibit and promote best practice with their own staff. However, witnesses are also telling us that we are good at IT. Countries, like companies, as the noble Lord, Lord Blyth, told us, must be clear about their sources of competitive advantage and act to develop and protect them.

Britain has competitive advantages in information and communications technology--not only because of our excellent telecoms and IT companies, but also because of our cultural infrastructure which provides the product that is communicated; namely, our capabilities in the arts and media, our language and our natural inventiveness and creativity.

We can ensure our place in this kind of world trade if we can achieve a critical mass earlier than our competitors. The DTI has an important leadership role to play here by encouraging our participation, recognising the problems and moving fast to plan a framework to deal with the problems and to get them agreed internationally. At present, all the running is being made by the US Government, clearly to help their industries dominate this sector of world trade. I look forward to hearing the Minister's views on this matter.

My last point relates to Europe. I entirely agree with my noble friend Lord Peston. I do not know how many noble Lords were present for the previous debate on Germany. I found some of the remarks made about our trade with the European Union most worrying. Many business people see the Government as putting our relations with Europe in peril purely to satisfy political needs.

More business is now being done on the basis of long-term relationships. It takes a lot of time, money and effort to build up those relationships to make them work. If Britain is unsure about its attitude to Europe, then Continental firms will be reluctant to put the necessary time, money and effort into building up those relationships with us in case there is a change in our policy towards Europe. The uncertainty is not doing us any good and is probably losing us business.

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I suppose the real test of our position in world trade is whether our economy qualifies for the conditions to join the proposed European monetary union. Putting aside for one moment the rights and wrongs of joining, our ability to qualify is a powerful objective for our economy.

7.13 p.m.

Viscount Chelmsford: My Lords, I begin with an apology. A long-standing engagement means that I shall not be able to stay to the end of this debate. I shall certainly read the balance of the debate with interest tomorrow morning. It has been a very interesting one so far. Secondly, may I say how glad I am that tonight I am not talking about information technology since I am following the noble Lord, Lord Haskel. There has recently been a step change in the Government's attitude towards information technology and we are on the move in that direction.

I am not an economist; I am a trader. I spent 40 years fighting for invisibles in the general insurance industry, to which I shall refer. Perhaps I may begin by getting rid of some statistics. Between 1990 and 1994, the general insurance industry produced almost £20 billion in balance of payments for the United Kingdom. Within the financial services area only the banks did better.

Overseas earnings for 1994 break down quite interestingly between the insurance companies, at just over £2 billion; Lloyd's, at just over £¾ billion; and brokers at a little over £1 billion. I refer to profit coming in. The total is £3.925 billion. Incidentally, almost 50 per cent. of that comes back as overseas dividends, mostly on behalf of insurance companies' overseas offices. The balance is overseas money, profit and commission, coming into the United Kingdom. Our best year ever in the insurance industry was 1993, when we brought in £4.814 billion.

Examining the period between 1980 and 1994 and using constant prices, we find that the annual output per insurance employee grew at an average of some 4.8 per cent. (just about double the national average of 2.4 per cent.). Today, almost 2 per cent. of UK employees are connected in some way or other with the insurance industry.

It is interesting to note that although today there are no UK-flagged ships and not that many UK-owned ships either, in 1993 (the last year to which my statistics relate) the UK remained the world's largest marine insurer, with 28 per cent. of world premium income. Obviously most of that comes from abroad, so it is highly invisibles oriented. Interestingly, we had 28 per cent. Next in the league table was Japan, with 13 per cent.

In addition, 1993 was a good year in aviation. Again, the UK had the largest single share--38 per cent.--of world premium income. The next largest was the USA with 25 per cent.

That success was achieved despite formidable factors which these days act against the UK. We are, after all, a small country. Looking at total premium income, the world is led by the USA with premium income,

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including its very significant domestic element, at 564 billion dollars. Japan is only just behind. Germany is third, with 116 billion dollars. The UK is fourth, with £111 billion. Taking into consideration our land masses, population and so on, the UK does remarkably well to remain fourth.

We taught the world complex insurances; and now the world competes against us. That is one of the factors against us. We have to cope with very many offshore financial centres, which are also tax havens to a greater or lesser degree: Bermuda, Barbados, the Cayman Islands, the Channel Islands, even part of Dublin, the Isle of Man, Singapore and, I dare say, others. In 1993 Bermuda alone wrote just under 18 billion dollars premium income. That is as much as 15 per cent. of the UK's total overseas premium income. Those are some of the factors with which we have to cope.

Success has also been achieved--so far, at any rate--despite our mistakes in two major areas. Our financial and management skills have let us down. That is perhaps the "kick up the backside" mentioned by my noble friend Lord Selsdon. We discovered about Continental catastrophe reserving at least 20 years too late. It is the market's fault, not the fault of the Government or anybody else; it is the insurance industry's own fault. We now realise that these reserves, which are to some extent hidden, are used by Continental insurance companies to enhance their assets as securities against borrowing for takeovers. UK insurers today look considerably weak compared to Continental or US insurance companies. London's power now depends on too much foreign capital. We bring the profits into London but increasing amounts go out in the form of dividends. UK-owned insurance company capitalisation is very weak indeed compared to Continental and US companies.

That must have counted in the recent proposal for the merger between the Royal and the Sun Alliance, which will make it 48 per cent. larger than the Commercial Union, the current leading UK general insurance company. But it will still leave the combined Royal-Sun Alliance only 75 per cent. the size of the Prudential, our large life insurance company, and, astonishingly, even after the merger, only 25 per cent. the size of the Allianz. That is the difference between German and British capitalisation.

What of the future? We need and must have strategic financial know-how. That is essential in both global underwriters and global brokers. We certainly need new blood from outside disciplines within our management. That process has begun but more is needed.

Innovation is needed like never before and it is getting harder. That is the innovative treadmill, mentioned by the noble Lord, Lord Peston, which we tread on at this particular time in the insurance industry. Even when we find the innovation, retaining it for an appreciable time is becoming harder, as other people have the skills to catch up with us more quickly.

We need new insurance products. Indeed we have some. The market is currently working on new financial insurance products and doing quite well with them, so far as I can understand it.

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We have perhaps too many computer networks in different phases of development owned by different people. That is an error. We should try to bring them together. In fact, we have avoided in the insurance market the rows that characterised the attempts to improve the Stock Exchange, but we have done so by seeking consensus. Unfortunately, consensus means that development goes far too slowly for the good of the industry.

We must remember, of course, that if we succeed and improve our networking, good communication cuts both ways. It also allows our competitors to take away our business if they can. We need level tax playing fields, at least with our major international competitors.

We need a strong programme of training and continuous professional development. Indeed, that has already begun and it has begun well. But both training and CPD must stay a market priority to ensure that we have top quality executives.

The UK is a small island. Notwithstanding its North Sea oil it has no natural resources. We have always had to live by our wits. Drake's successors today no longer burn Spanish ships. They go to Madrid and South America to fight for the insurance of them. But people remain the UK's most important asset and nowhere is that more true than in the insurance industry.

7.22 p.m.

Viscount Waverley: My Lords, it is a pleasure to speak in the debate initiated by the noble Lord, Lord Ezra, this evening. I have been reminded by a colleague just how effective the noble Lord is as chairman of a Select Committee in enabling the most complicated of all issues to be understood by all the participants.

The countries that thrive have sustained export growth. The United Kingdom does well, but I feel that we are only touching the surface of opportunities. The noble Lord, Lord Boardman, is quite right when he compares our performance with the Japanese. The President of the Institute of Export, Mr. Davis, was right to say during lunch today that never has the need for exporting been greater. Certainly, exporters need beware. Weakening growth in Europe has seen exports drop, with little sign of recovery.

But there are notable exceptions. Last Friday, for example, I had the opportunity to hear first-hand of British American Tobacco's advance into the Central Asian market, centred in Tashkent. That is British entrepreneurship at its best and is backed up with an investment of 270 million dollars. There are not many new frontiers left, but Central Asia is certainly one.

We must realise that time and again countries would like to consider the UK when seeking suppliers or a business partner. But, oddly, while historically being a trading nation, we are generally not as committed to an export culture as we should be--aggressive in our approach--to take up the challenge. The difference lies in that, while in an age gone by British companies could expect the marketplace to call on them for good, now we must get out there, speak their language and set up distribution and after-sales channels.

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I appreciate that the Government can only do so much to encourage the process. But there are areas where more can be done. For example, I have little doubt that British capital equipment and technology exports would dramatically increase with more favourable export financing to second and third world markets. Many contracts are lost to British companies as a result of more beneficial terms by the likes of Hermes, Saatchi, Eximbank USA and Eximbank Japan. Does the Minister agree with me that a thorough reappraisal of the ECGD could be an enormous stimulus to British exports? I have heard it said that a Brazilian Minister, when asked what the United Kingdom must do to have greater access to the Brazilian market--in other words, what is the impediment?--answered ECGD. What is the Government's strategy towards the Export Credit Guarantee Department? What arguments does the Treasury produce for not taking a more flexible approach? What are the underlying criteria?

I recognise that the NCM is outside the Government's control, but it is a key player in short-term cover. Does the DTI sit down with it to consider what needs to be done to help British companies?

Let me say a quick word about export intelligence. Intelligence is crucial and we have the mechanism to supply it. But I believe that we are squandering the opportunity. The process by which information from our posts is gathered and disseminated for distribution is far from satisfactory. The information needs to be more available and be of a more exact nature, with specifications and general leads allowing for more pinpointed dissemination.

That having been said, it is clear that our heads of missions are much more trade oriented. Our foreign policy must, in large part, facilitate British export growth. But the relationship between the DTI and the Foreign Office perplexes me. What is the degree of interchange between the two departments? How is it decided which department fills commercial posts?

Another area on which the Minister might possibly comment is future plans to utilise the Internet. I understand that the Americans have what they call "Tradenet". The Minister is well aware of my desire to see an all-encompassing database of British companies, with information of a detailed nature describing goods or services offered by the UK.

Finally, I have two questions about business links. Are the greater majority on target to be self-financing? What will happen to those that are not?

In conclusion, I recognise that the Trade and Industry Select Committee is in place, but more attention should be paid to the export field.

7.28 p.m.

Viscount Torrington: My Lords, I echo the gratitude expressed to the noble Lord, Lord Ezra, for introducing the debate. He gave at the beginning of his speech an excellent tour d'horizon of the factors affecting our balance of payments. I am fascinated by the kind of "sub-debate" that has developed over how phantom investment has nevertheless produced a real return. I must say that if two eminent economists and a senior

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banker cannot sort out the matter, I do not suppose that the rest of us can. It strikes me that if one wants an income of £10 a year, it is called clever to invest £50 rather than £100. It is called good business. Maybe--just maybe--it means that we British still know how to turn a quick buck fairly efficiently.

As the sixth speaker after the maiden speaker, I am not supposed to pay tribute to the speech of the noble Lord, Lord Blyth of Rowington. However, he told us so well what are the crucial elements in good foreign trade. There is always one person in these debates who goes off at a slight tangent on a rather narrow subject. That lot probably falls on me tonight. I wish to talk about British trade in the Middle East.

Since the discovery of oil in the region, the Middle East, as we all know, has been an area of very considerable importance in the context of Britain's overseas trade. But our principal trading partners in that area are far from easy customers to deal with and our relations with them seem to go through a series of difficult patches.

The natural growth of our trade in the Middle East region has, in recent years, been disrupted by two or three traumatic events. The first was the fall of the Shah which ended the long phase of economic expansion in Iran and brought to a virtual end Britain's lucrative trade in military hardware, industrial and consumer goods and oilfield equipment. The Hillman Hunters which used to terrorise the streets of Tehran under the name of Peykhans, I am told are now a somewhat faded memory.

With the arrival of the fundamentalist clerics, the West began to see Iraq as the last bastion against the religious bigotry of the new rulers of Iran, culminating in our tacit support for Saddam Hussein's military build-up. We saw the enemy of our enemy as our friend and we were not too picky about that friend's general philosophy. Suffice to say, Saddam in a sense served our purposes by keeping the potentially dangerous new Iran preoccupied with a nasty and bloody little war. Unfortunately, our erstwhile friend won that war and got ideas above his station which, as we all know, ultimately led to the Gulf War.

But what happened in terms of trade? We loyally supported our American allies and went to war against an important trading partner. Yes, of course, we did so on behalf of another, albeit rather smaller but nevertheless fairly important trading partner, Kuwait. But the result? Well, when the scrap was over, Britain suddenly found that while there was masses of work to do in rebuilding Kuwait, America had taken the place over. The US Corps of Engineers was the arbiter of who got what contracts, and guess who got most of them. Certainly not the British.

And what happened to Iraq? It was simply shut, closed, and had the door bolted by the UN. Meantime we console ourselves that we supported and maintained excellent relations with the richest country in the region, Saudi Arabia. They are staunch friends, the Saudis. Or are they? I sometimes wonder. Every time a British television company makes a film about current affairs or human rights in Saudi Arabia, thousands of British

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jobs hang in the balance and, with apologies to my noble friend Lord Blyth, the aerospace industry bites its nails to the quick. Yes, Saudi Arabia is a good trading partner, provided the level of moral scrutiny we apply to it is not too much deeper than that which we applied to Iraq before it invaded Kuwait.

The point is that we make a hopeless mess of moral judgments about these countries. They have very different ethics and values, however western they may or may not appear on the surface. So why are we so determined to moralise about Iraq? Yes, its ruler is, to our way of thinking, a textbook dictator, an autocrat, a despot, a dinosaur. He has done things to the marsh Arabs and the Kurds and other opponents of his rule which would be intolerable in our society. Ideally, we should do nothing to prolong his reign and all we can to end it. What we are actually doing, or rather have been doing, is to try to starve his own people into doing it for us.

There are thousands of perfectly decent Iraqis who, in a normal country, would be opinion formers and leaders. But Iraq is not a normal country and to the beleaguered middle class Iraqi just keeping his family fed comes a long way ahead of manning the barricades against Saddam.

I have visited Baghdad in the past few weeks and, if anything, I got the impression that life seems to have improved a little over the past 12 months. I simply do not believe that the sanctions policy will succeed, especially now that the UN has permitted oil to be traded for medicine and food. We have in fact dropped sanctions on the only items the shortage of which might ultimately have brought Saddam down. Iraq is nearly self-sufficient in all other basics. But that in itself is really Iraq's main problem.

Iraq should be, and is, I think, learning a very significant lesson from the whole sanctions business which is particularly important for future trading relations. In recent decades Iraq has thrown out foreign business and taken total control of its oil industry, agriculture, manufacturing and distribution. There are virtually no foreign investors in Iraq today; no multinationals with installations or petrochemical plants or fertilizer factories; no desert resort operators; nobody with any stake in its economy. The result is that, in spite of the fact that Iraq holds a sizeable percentage of the planet's oil reserves, the world has been able to lock the door on Iraq and virtually forget its very existence for several years.

If Iraq had not been so economically isolationist and nationalistic, all the usual multinational suspects would have had their tentacles spread through the Iraqi economy and it would have been impossible to impose the sort of sanctions which exist today. The multinationals would have lobbied unmercifully in Washington and Whitehall. They would not have had to bother in Paris because I see that the French opened a trade mission there around three weeks ago and I suspect have not been paying much attention to sanctions throughout the peace. I think Iraq now understands the message that economic isolation does not pay. I am sure that it will act to open up its economy

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when sanctions finally go. Those best placed to take advantage of the opening up should be Iraq's old trading partners. Most middle-aged Iraqis--and even a number of younger ones--were British educated, at least to University level, and look on Britain as almost the mother country. It should be to Britain that Iraq looks but, alas, Baghdad is even now full of French, Russians, Koreans and all sorts of nationalities--anything but Brits.

I hold no torch whatever for Saddam Hussein. But in this competition the UN is now the unwilling and vacillating starter for a race in which every other runner but Britain is already straining at the tapes. Will we yet again lose before we start?

I wondered at the outset whether I should declare an interest as I can see a host of business opportunities in Iraq. I cannot do so because I am not allowed by my Government to have any current interest in Iraqi trade. Few, if any, of our European or eastern competitors seem to feel themselves bound by similar niceties. And if and when the US changes its views, I suspect that, as with Kuwait, the British will be flattened in the rush as the 7th Cavalry of American business goes in.

I suspect that it may well be the sense of shared adversity brought about by sanctions which is one of the main pillars of Saddam's rule. For my money I would rather Britain tried to bring an end to Iraq's economic isolation and encourage it back into the world community than sustain the sanctions which reinforce that isolation. British overseas trade can only benefit from it.

7.37 p.m.

Baroness Hooper: My Lords, I add my thanks to the noble Lord, Lord Ezra, for introducing this debate. Overseas trade for us is vital, important and significant. Our economy has always been based on the fact that we are a trading nation.

I have been fascinated by the debate and believe that the general theme has been well addressed, particularly by my noble friend Lord Blyth in his excellent maiden speech. So perhaps I may follow the lead of my noble friend Lord Torrington and concentrate my remarks on a specific area--in my case, our trade with Latin America. In doing so I am happy that I can comply with the request of the noble Lord, Lord Peston, for more information about Latin America.

I believe that this is an area where there is great potential for improving our commercial and trading links. Historically we have had strong links with many Latin American countries and there is still an amazing amount of goodwill there for the British. But it is fair to say that until recently not only have many countries in that region had closed and chaotic economies with unbelievable inflation rates and bureaucratic centralised systems but, in addition, because of the non-democratic forms of government generally, that our political and other links were also damaged.

Now the picture is entirely different. Tough economic measures are beginning to bear fruit and democracies have emerged which show every sign of remaining stable. Political links are such that scarcely a week goes

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by without a visiting Minister or group of parliamentarians from one Latin American country or another coming to visit us in this Parliament. Now we also see the formation and development of major trading blocs such as NAFTA, the North American Free Trade Area, at the northern end of the scale and MERCOSUR in the southern cone. Indeed, there is a revamping of the Andean pact countries. I was interested to see that the four basic member countries of MERCOSUR--Brazil, Argentina, Paraguay and Uruguay--have in the past couple of weeks worked out a special agreement with Chile, making it a special associate member of MERCOSUR, and talks and negotiations are under way with Venezuela. That is an interesting development.

Apart from those involved in the privatisations, in which many British companies have participated, far too many British businessmen are unaware of the changes that have occurred throughout Latin America. Like my noble friend Lord Torrington, I returned last week from an overseas trade mission. I was asked to lead the trade mission to Argentina, having been on a similar mission last November. In spite of the fact that the United Kingdom is the second biggest investor in Argentina--it is also the second biggest investor in Mexico and Venezuela--it may surprise people to know that the trade balance between the United Kingdom and Argentina is in Argentina's favour. Last year UK imports from Argentina amounted to £253 million; exports to Argentina amounted to £233 million. We are not too far apart and I believe that the gap will be closed.

Last year in Argentina 14 trade missions were sponsored by the DTI. Those represented chambers of commerce and specific organisations. The one I went with last week was the Latin American Trade Advisory Group, which itself is sponsored by the DTI. It looks as if this year there will be an even greater number of such trade missions than last year. The commercial section of our embassy in Buenos Aires has been very busy indeed. It provides good support to our visiting businessmen, particularly to the first-timers. It is a good example of co-operation between the DTI and the Foreign Office. In saying that, I echo what was said by my noble friend Lord Selsdon.

My experience of the two missions to which I referred, the most recent having been organised by LATAG, was that each was composed of between 20 and 24 representatives of small and medium sized businesses. They come from a variety of sectors, from, on my last trip, the manufacturers of closed circuit television inspection equipment for sewers and boreholes to the manufacturers of foetal monitoring equipment and, very appropriately for Argentina, the manufacturers of industrial food freezing and chilling equipment for meat, fish, fruit and other processing industries. They seem to have met with varying degrees of success. They may have established local agents, local joint venture partners or taken some preliminary steps to setting up local offices.

It is what results in the long term from these first tentative steps that is important. We need to know whether these trade missions are successful in the long term. I urge my noble friend the Minister to consider implementing some method of monitoring the results

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not only of ministerial missions but also the many chamber of commerce and other missions which are funded in part by the DTI.

It may be that targeting particular sectors would be a solution. Two such sectors have been referred to in the course of the debate, in both of which I have an interest. One is the pharmaceutical industry and the other is education. The reforms to the education system in Argentina, which has a decentralising approach following very closely on the reforms in this country, mean that the manufacturers of British educational equipment have quite an opening there. In addition, Argentina requires the teaching of foreign languages, a favourite theme of mine. Argentina has insisted that in every school in Argentina English will be taught. That provides many opportunities.

Reference has been made to our membership of the European Union. I believe that we fall down in taking advantage of many of the European Union programmes aimed at stimulating trade with Latin America. There are certainly in place special agreements between the European Union and the MERCOSUR countries and the European Union and NAFTA, apart from a number of bilateral arrangements. There is no doubt that the British companies involved in these projects are very few. I would urge my noble friend the Minister to ensure in every way possible that the United Kingdom plays more of a leading role in this respect.

7.46 p.m.

Lord McNally: My Lords, I approached this debate with some trepidation for two reasons. First, I am a graduate in economics of the University of London but, alas, I spent more time in student politics than studying Ricardo. The thought of following two of the university's economic divas in this debate was quite frightening. However, I am encouraged by what I thought was both the humility and the Angst of the noble Lords, Lord Peston and Lord Desai, qualities not usually associated with academic economists.

My other fear was that the whole debate would turn into some kind of Euro-brawl. Most of the Euro-phobes seem to be absent. Perhaps they are blancoing their webbing after the Prime Minister's call to arms yesterday. In both debates today we have managed to concentrate on the topics in hand rather than indulge in old skirmishes.

I have always been fascinated by the way both our Houses treat trade policy. Trade has probably split more parties and caused more wars than even religion. In the four years I spent in the other place there was one full-scale debate on the broad thrust of trade policy. Perhaps it was wise to avoid such philosophy.

We are all grateful to my noble friend Lord Ezra for initiating and provoking a debate of quality. At heart, like perhaps the noble Lord, Lord Peston, I am free trade man, but I am also a European--a European on the basis that if you are a free trader it is common sense to trade with your nearest neighbours. Those are not incompatible aims. The approach I take--and to be fair, it is also that taken by the Government--is to see our

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membership as promoting an outward-looking Europe rather than a fortress Europe. I hope there will continue to be a cross-party approach to using our influence within the Community.

A number of noble Lords have mentioned other areas such as Latin America, the Middle East and South Africa. Those areas deserve our attention and the interest of our entrepreneurs. I have never understood the idea that some kind of secret clause in the Treaty of Rome prevents our going to the Pacific Rim, Latin America or wherever. What the Community offers is a very sound and secure trading base. I do not want to delay the House with too many statistics, but 80 million Germans bought British goods to the value of £17.7 billion compared with £16.9 billion-worth purchased by 240 million Americans. France spent £13.7 billion on British goods, which is almost as much as that spent by the entire Commonwealth. Holland, with only 15 million people, took exports worth £9.7 billion from Britain, which is more than that taken by the six Asian tigers, plus China, Indonesia and the Philippines. We sold more to Sweden than to the whole of Latin America from Mexico to Cape Horn. I give those statistics not to hammer home some pro-European message but simply to get over the basic fact that our big market at the moment, and for the foreseeable future, is Europe. It makes sense in planning any trade policy to make sure that that European policy is sound as well.

Like many noble Lords, I have contacts with representatives of Commonwealth governments, Latin American governments, and those of the Middle East and Asia. What has always intrigued me is their message that they want us to use our influence in Europe. They see that as an important role for Britain in promoting trade and an outward-looking Europe. I say to the noble Lord, Lord Blyth--I believe the point was echoed by the noble Baroness, Lady Hooper--that I would like to see British industry using more of the opportunities that Europe creates as regards trade. I pay tribute to Sir Leon Brittan who has conducted Europe's trade policies with great vigour and imagination. He has resisted the protectionist fortress Europe arguments within the Community. Europe has put in place a range of agreements which are now there to be exploited. As regards the North American markets, the Madrid summit with President Clinton heralded the opportunity for new co-operation. The summit with 24 heads of government in Bangkok in March reached similar accord as regards South East Asia.

As I said before, I believe that there is no need for a Euro-brawl on these issues. Let us see the European market as the strong base that it is and then look at how we can explore and exploit other opportunities in the world. I was once an adviser to a Labour Government which asserted their right to trade with the world. I understand that it is not always practical to make too many moral judgments as regards trade policies because one gets into all kinds of difficulties, as the noble Viscount, Lord Torrington, indicated. However, I do not believe that one can totally absolve oneself from moral judgments. I was pleased to hear the other day the noble Baroness, Lady Miller of Hendon, asserting the

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Government's strong policy about exporting instruments of torture. There is not an absolute in trade. We have to have limitations on these matters.

Conversely, I see trade policy underpinning sound political movements in the world. The noble Baroness, Lady Hooper, referred to the growth of democracy in Latin America. We consider our attitude towards eastern Europe and the Middle East peace process. We also look at the peace process for South Africa. In those areas trade can play a very important part in underpinning such processes and in making them last.

Governments should not be too humble about their role in trade policy and not penny-wise, either. I would like assets such as the training of overseas students, the BBC World Service and the staffing of British missions to be fully kept up. Ministers should go abroad on trade missions. Last year one newspaper wrote about the rise of sleaze in political life. It pointed out that Mr. Richard Needham had travelled abroad more than any other Minister. Surprise, surprise! He was the Trade Minister. Was it expected that he should carry out his business from a telephone box at the end of Whitehall? Ministers should be very bold in this matter. I am very pleased that the Deputy Prime Minister is in China at the moment with a large trade delegation. We have to encourage that kind of development and do so boldly.

I saw a television documentary a week or so ago about renovating an old steamer on the lake in Berlin. It was not the point that the film was making but it came over that the engine of the steamer had been made in Glasgow. There is always a tendency for nostalgia in trade debates; to recall the good old days when everything was Clyde-built or Sheffield-made and cotton was king. The noble Lord, Lord Peston, put his finger on the matter when he said that what we really face is the innovative treadmill. That does not always refer to the new industries; it can mean looking at other opportunities.

One Michael Caine-type statistic which attracted me is that the United States earns more from its film and television exports than it does from its aerospace exports. It has always struck me that film and television is a base that we should develop in exporting to the world, especially as we have the English language to build on.

The simple lesson as regards tonight's debate is that the choice has never been Europe or the open sea; it is to use the strength of Europe to fulfil Britain's historic and age-old skills at exporting to the world. If governments of whatever complexion invest in the skills and ingenuity of the British people and take a global attitude to trade, then we shall prosper.

7.59 p.m.

The Minister of State, Department of Trade and Industry (Lord Fraser of Carmyllie): My Lords, I am grateful to the noble Lord, Lord Ezra, for initiating this debate. In the tradition of this House, it seemed to me to be a debate that was inquiring and intellectually curious. The contributions made were based on a solid rock of either expertise or experience. I also congratulate my noble friend Lord Blyth on his maiden

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speech. It seemed to me that, within a very short compass, he managed to include comment of great value to your Lordships and in a very short space of time. I very much hope that he will continue to contribute to debates in your Lordships' House. His long and distinguished career in industry, his service as head of defence sales at the Ministry of Defence, and his chairmanship of the Advisory Panel on the Citizen's Charter, mean that he has much to contribute. I am grateful for his contribution this evening.

I welcome the opportunity for this debate. This country has a tremendous history as a trading nation. The noble Lord, Lord McNally, may rightly comment that we should not simply look back to the past, but the legacy of that great history is still with us. The UK earns around a quarter of its GDP from trade and our day-to-day lives would be unimaginable without it. We must therefore keep a close watch on how we are doing, as this debate indicates.

Let me take two views of the trade situation, one long term--over the past 25 years--and one medium term--over the past 10 years. From 1970 to 1995, the G7 countries have accounted for a remarkably stable half share of world exports. Over the same period, rankings of G7 countries by share have been constant--the UK in fifth place behind the US, Germany, Japan and France. The UK has lost share of world trade, dropping gradually from around 6 per cent. to around 5 per cent. Out of the G7, Japan has shown the clearest improvement in share, from 6 per cent. to 9 per cent. The other country to suffer a decline is Canada, with a share drop of 5 to 4 per cent.

Over the medium term, the picture is less gloomy. Since the mid 1980s our share has stabilised. We have found that this can be explained in part by higher than average growth in our traditional overseas markets. However, it also reflects the improvements in our overall competitiveness that we saw during the 1980s, to which my noble friend Lord Blyth rightly drew attention.

It is good news that we have halted that decline. Our aim must now be to see how we can reverse it. We in government have an obvious role to play. We need to continue to make every effort to break down those barriers which stop UK companies from making the most of markets abroad. Systems of tariffs and regulations can damage the prospects of the most effective and experienced operators. We shall be working hard through the multilateral trading system based on the World Trade Organisation to drive that forward. We need to build on the achievements of the Uruguay Round and press for a new multilateral negotiation round to be launched before the end of the decade. Our ultimate goal, as recently expounded by my right honourable friend the President of the Board of Trade in his widely applauded speech "20:20 Vision", is global free trade by 2020.

We also have to seek to ensure that we can bring about the maximum degree of UK participation in that global free trade. The primary responsibility for that, once we have broken down regulations and trade barriers, must rest with UK business. To try to

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second-guess the expertise of business is not a past mistake that we intend to repeat. However, that does not mean that government should not be involved. On the contrary, since the last general election we have followed an aggressive policy of supporting, equipping and assisting our businesses to make a greater export effort. As the noble Lord, Lord McNally, pointed out, there is no more visible example of that than the presence of the Deputy Prime Minister in China at this very moment with our largest-ever trade mission to that country.

Beyond those highly visible activities of trade missions, to which I shall return later as I have been asked a number of questions, perhaps I may point out that any individual company seeking to export can plug itself into the full range of export services that the Government have to offer, for example, companies can get advice from our export promoters--skilled exporters seconded to the Government from the private sector for that purpose. I hope that those who have had contact with them will agree that it has been a remarkably successful innovation. Companies can get advice from DTI country desks with their expert knowledge of particular overseas markets. They can use information collected by the Foreign Office's network of overseas posts. Perhaps I may advise the noble Lord, Lord Haskel, and others that the Foreign Office now devotes as much as one-third of its resources to overseas commercial work. Businesses, particularly first-time exporters, do not need to visit the markets; they can obtain information from either the DTI or the FCO. They should be able to have access to all those services through their local Business Links.

I appreciate that there is some concern that we should continue to be as expert as we possibly can be, within both my department and the Foreign and Commonwealth Office. For that reason, I certainly welcome the involvement of the Institute of Export in the development of the professionalism in trade qualification. A decision on the awarding body for the qualification will be taken shortly. I am afraid that I cannot say more than that at present. However, the Foreign and Commonwealth Office is already a major player in the interchange programme of developing skills by experience in other posts relating to trade promotion. Although there is a regular interchange at present, I hope that it will expand yet further.

The importance of information networks is also readily understood. Running the information society initiative as we do, we recently had a DTI export challenge to trade associations which gave awards to trade association proposals using the Internet to promote exports. I hope that that will meet with noble Lords' approval.

There is, of course, no point in pouring considerable sums of the taxpayers' money into promoting exports if that does not yield results. Some, if not all, of your Lordships may be aware of the recent National Audit Office report which looked into our services to exporters. As one might expect from the NAO, it analysed our work carefully and found areas in which it considered that we could improve our performance.

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However, the main message of the report was exceptionally encouraging. Perhaps I may quote just one statistic. Its analysis of our work in the key South-East Asian market found that some £4.5 million in public expenditure had helped to generate export business worth £345 million. Furthermore, that effort resulted in some 500 new entrants to the market. I hope that your Lordships will agree that that represents excellent value.

Beginning with the noble Lords, Lord Ezra and Lord Peston, a number of broader macro-economic points were made. I shall try to address some of them, but I should say first that I have been pleased that this debate has not attempted to address exports exclusively. I fear that sometimes even in 1996 there is something of a tendency to do that. We need to look at our export effort in the very clear context outlined by my noble friend Lord Boardman. We should consider not only our outward investment, but our inward investment. One fascinating statistic which, curiously, is seldom deployed is the fact that those companies that we have attracted to the United Kingdom as inward investors are now responsible for some 40 per cent. of our exports. To pick up a point raised by the noble Lord, Lord McNally, I would guess that if we were to look at that figure in the context of the European Union, the proportion might be significantly higher than 40 per cent.

I listened with interest to the criticisms and comments made about investment. In typical fashion, the noble Lord, Lord Desai, analysed the possible problems of the high hurdle rates which appeared to be encountered in the United Kingdom. I should simply like to add a point without coming to any clear conclusion. It is interesting that while those inward-investing companies in the United Kingdom account for only 1 per cent. of total UK enterprises, they represent something like 32 per cent. of our capital expenditure. It is difficult to analyse the figures with any great certainty, for the following reason. Noble Lords may recall that in the second White Paper on competitiveness we concluded, basing our information on an OECD source, that business sector investment in machinery and equipment as a proportion of GDP had been similar to other members of the G7, apart from Japan, since 1980. Manufacturing invested a similar proportion of its output to Germany and the United States over the last complete economic cycle. There are a number of figures which indicate that we are maintaining our level of investment.

The example of my noble friend Lord Boardman of the purchase of a fleet of Boeings and how that would enter into the balance of payments, compared with the services that might be earned over the next 20 years, was an extremely interesting one. I was grateful to my noble friend Lord Chelmsford for his expert appreciation of our position in relation to insurance. However, one wonders whether the division that we have traditionally followed of visibles and invisibles remains as helpful as we have accepted it to be. Perhaps we should analyse the following situation more carefully. When we enjoy a significant flow of inward investment by Siemens, Samsung and the like, at first the companies tend to bring in capital goods as they set

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up their factories. As the example of Nissan indicates, later they begin to develop their own domestic (in our terms) supply chains. Those are matters which are probably better dealt with in a debate on inward investment at a later time.

The issue of the visible deficit was raised on a number of occasions. The visible deficit of something under £0.6 billion in November and December widened to £1.4 billion in January and £1.5 billion in February of this year. I stand back in the presence of the economists on the Benches opposite, but I believe it is generally accepted, correctly so, that that widening was attributable to a general slow-down in the economic growth of our major trading partners, resulting in a slower growth of our exports. Clearly, that is a matter that must be watched carefully. However, 1994 and 1995 have seen the lowest visible deficits since 1987.

It is correct that market plans are not revealed to one and all in their entirety for the very good reason that they are primarily working documents which are subject to continual review and adjustment. They are not appropriate for straightforward publication, but they are made available to industry through our area advisory groups. We accept that there is a case for making them more widely available. Summaries have been made available through Business Links, and more readily available on request. This is a rolling process. Summaries are produced as individual plans are revised.

My noble friend Lord Selsdon indicated that he was unaware of the 80 markets. I can give that information to him, although I shall not do so at the moment. If he wishes to know how we rate any particular country or company at any time I am more than willing to provide him with that information.

The noble Viscount, Lord Waverley, asked about ECGD cover. If he analyses what has happened in recent years I believe he will appreciate that our cover for key markets has increased substantially. In particular, over the past four years ECGD has come back with cover for over 25 markets, often faster than other countries' export credit agencies. I believe that our rates are now much more competitive. Over the past four years political risk rates have been reduced by approximately 25 per cent. I understand that they are now generally comparable with those of most of our G7 rivals.

Both my noble friends Lord Torrington and Lady Hooper referred to specific markets and areas of the world. I am very pleased that they have done so. In reply to my noble friend Lord Torrington, while the Iraq sanctions are in place we are bound to abide by them. However, my noble friend can be assured that the Government are very much alive to his point about the need to ensure that British companies are properly positioned to compete when those sanctions are lifted, as we all hope they will be, when a satisfactory state of affairs is arrived at.

I am most grateful to my noble friend Lady Hooper for leading a trade mission to Latin America. I have just come back from the Middle East, but next month I shall visit Brazil and Argentina. She makes a very good point about the importance of follow-up. If we do not follow up the exercise may be a waste of public money. I go

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back briefly to the NAO report. That appears to indicate that the type of activity that we are undertaking, where follow-up is an essential part of planning, reveals that, while we do not have it exactly right, it is undoubtedly an integral part of the strategy that we are following.

I am conscious that this evening some noble Lords who usually contribute to such debates are not present because there is a rival attraction at Canning House where my right honourable friend the Foreign Secretary is reporting on his recent trip to Latin America. However, in my right honourable friend's remarks at Canning House this evening, he will announce that we are proposing to hold a major conference on Latin America in January or very early next year, as my noble friend Lord Montgomery has repeatedly requested. We will wish to highlight the position of the United Kingdom as a gateway to Europe and to draw attention to trade and investment in Latin America. There are undoubtedly opportunities in that part of the world, and I am grateful to all those who have appreciated how important that is.

If I have failed to respond to particular points I hope that I shall be forgiven. I am grateful to all noble Lords who have contributed to the debate this evening. We see this as an important partnership between the Government and the private sector, with a common purpose. We do not seek to dictate but hope to assist and support. I hope that we can conclude the debate on an optimistic note. Over the past year the export effort has been sustained and is growing. It is not simply to be noted in terms of the number of missions, although the NAO report believed that they were an extremely worthwhile way to go forward. I believe that my noble friend Lord Selsdon, a little unkindly, indicated that Ministers who led such missions suffered the danger of a widening girth. I thought that that was a little on the personal side. However, knowing his expertise on this subject, I welcome his contribution otherwise.

The figures for some of our key markets look very encouraging. The Netherlands has been mentioned. The value of our exports to the Netherlands increased by 25 per cent. last year. The equivalent figure for Japan was 27 per cent. and for Indonesia 44 per cent. It has been a worldwide exercise and effort. I am grateful that there should be such encouragement on all sides of the House for the national effort now under way.

8.19 p.m.

Lord Ezra: My Lords, I should like to thank all noble Lords who have participated in the debate which has been a wide-ranging one, as the Minister said in his response. We have ranged through major issues of policy to particular sectors, covered so admirably by the noble Lord, Lord Blyth, in his maiden speech, to particular markets, and to the wider significance of exports, spoken to by my noble friend Lord McNally. I hope that we have given the Government a great deal of food for thought. Our aim is to help and stimulate. I beg leave to withdraw my Motion for Papers.

Motion for Papers, by leave, withdrawn.


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