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The Earl of Dartmouth: My Lords, does that mean that the noble Lord considers that the mere fact of party donation should disqualify someone from any dealings with government? Should that not also encompass such a process as appointment to director-general of the BBC?

Lord Clinton-Davis: My Lords, that is a highly relevant intervention which I propose to ignore.

There is another salient concern; namely, that the countries that are weak, impoverished, vulnerable and too dependent on a specific staple product--in this case bananas--in the Caribbean, African and Pacific areas helped by the Lome arrangements are essentially incapable of being able to diversify their economy without enormous help from Europe and the United States. That is a fact of life.

Parenthetically, perhaps I may mention other problems in relation to the current procedures if justice is to be done and be seen to be done in relation to these developing countries. I refer to the question of unequal legal combat because of totally unequal representation before the WTO panel. Representation of developing countries on the panel itself does not exist, although there has been, as chairman, a former United States congressman.

Those are matters which give rise to an unfortunate perception on the part of countries which are adversely affected. The banana dispute which has featured prominently recently, as with all disputes, is a complicated and difficult matter. Many disputes arise between the super powers which are far less adversely affected although, of course, the unilateral imposition of sanctions by the United States could still have serious effects on us and a number of trades. On the United

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States' side, supporting as it does some Latin American countries, the argument has been that its enterprises suffer from discrimination in the banana trade.

The United States does not grow bananas. On the other hand, the European Union has claimed that the preferential commitments for traditional ACP suppliers go back to the original Lome Convention and apply to the present one. But what is clear beyond doubt is that, first, social unrest and unemployment, and possibly resort to major drug dealing in conflict with the interests of the United States, could arise on a substantial scale in consequence of the decision that has been made. The noble Baroness, Lady Young, has made that point over and over again to great effect.

Secondly, three United States companies--Chiquita, Del Monte and Dole--dominate the world market. It is alleged by trade unions internationally that those companies exploit labour on short-term contracts. Thirdly, they have engaged in excessive use of pesticides--banned in the United States, incidentally, for health reasons--as well as engaging in other adverse environmental behaviour.

Although those issues may not assume major proportions vis a vis the WTO, they are not irrelevant in the wider perspective. But having said all that, the fact remains that we are now legally obliged to bring the European Union banana regime into line with WTO requirements. I do not seek for one moment to resile from that. But we must also face up to the consequences, although the scale of compensation is far removed from that which the United States was originally hoping for, having been scaled down substantially in the decision of a few days ago.

I turn now to other actual or potential disputes. We know that dangerous and damaging precedents have been deployed by successive United States administrations: the assertion of notorious claims for extra-territorial jurisdiction; the Helms-Burton legislation relating to trade and investment with Cuba; the Iran-Libyan Sanctions Act; and even the Jones Act dating back to 1920 which debarred non-United States flag shipping from engaging in its coastal trades. Yet in relation to multilateral negotiations with the United States, it appears to be a no-go area.

There are further issues on the horizon such as the threat to ban Concorde flights if the European Union proceeds with a law banning older aircraft fitted with hush-kits from landing at European Union airports. Negotiations are in train to try to introduce amendments to that provision and to make the proposed law more palatable to the United States. I welcome that. But the wholly disproportionate threat was made by the United States which, incidentally, refused to negotiate the issue through the appropriate body, the International Civil Aviation Organisation. In relation to development of airports people must be assured that action against unduly noisy aircraft will be undertaken.

We should not omit to recall that even larger issues predominate. The next stage in seeking to achieve a more ambitious international trade settlement will be through the millennium round--not far away. Endeavours to open up still further trade in goods and

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services, textiles, steel, audio visuals, foodstuffs and agricultural, will be part and parcel of that. Many of those areas are currently subject to trade barriers of the most complicated kind. All that must be viewed against a factor of major substance; that is, the United States' trade deficit of 300 billion dollars which could all too easily, especially in a pre-election period and with an isolationist Congress, lead to further protectionist measures.

In fairness, we must realise that although there is potential for danger, for many years the United States has carried, albeit not always successfully, huge responsibilities for developing international trade and economic growth and a more than fair share of international defence and political responsibilities. To defuse some of the trade challenges is an imperative. We must ensure that the contagion of bitterness arising from the present disputes is not spread. But how? The United States must understand that with so many sub-federal problems, especially in terms of liberalising services, the EU and indeed others are confronted by huge difficulties. The most open market in the world is claimed by the US federal authorities but is simply not compatible with some sub-federal administrative laws covering among other things banking, professional qualifications and public procurement, all of which have a major impact in impairing multilateral trading arrangements.

We have to face up to the fact that on the EU side as well--especially, for example, in the field of audio visuals but in other areas too--there are what I referred to in another context as "no-go" areas. It is therefore essential that we enhance the process of reform as rapidly as possible.

There are faults on both sides. We must address them without, I hope, the rancour, of the past few weeks and months. That must entail putting aside a temporary triumphalism in winning, wholly or in part, a battle in the WTO. The WTO must not be seen or be perceived to be the plaything of the United States or the European Union while others are lectured on the benefits of multilateral trade liberalisation. Developing countries must be enabled to play a full part in the WTO and in its decision-making in a spirit of partnership. That is the only way to build confidence in the organisation. It is essential too if the millennium round is to succeed and make a major contribution to the elimination of poverty.

We have been stressing for a long time in the United Kingdom and within the EU that these are essential components of the trade policy that we need to follow. Co-operation between multilateral agencies, especially with the World Bank, involving capacity building, is also crucial, as indeed is the need to work together to ease the burden of heavily indebted third world countries.

I have spoken for nearly the full time I am allotted. I hope that some of those thoughts will be taken up by your Lordships in what I believe, as I said at the beginning, to be a matter of the gravest importance, not only to the European Union and to our country, but also

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to the West and all developing countries. Having a sucessful multilateral, international trading organisation is of crucial importance. I beg to move for Papers.

Lord Bridges: My Lords, before the noble Lord sits down, perhaps he can enlighten the House on one further point. From his knowledge and experience, I am sure he can. The noble Lord referred to the agreement assumed by the European Union on the Lome Convention. My understanding is that the GATT fully agreed the principle of multilateral preferences which that embodied. However, it now appears that the World Trade Organisation does not. Can the noble Lord say whether or not that is the case? If so, can he tell us how it arises?

Lord Clinton-Davis: My Lords, with respect, I do not think that I should engage in such a discussion. I have already spoken for nearly 20 minutes. Therefore, it would be improper to take up the time of others in the debate. I shall try to return to the point when I conclude the debate. Perhaps the noble Lord will be kind enough to remind me of it.

3.30 p.m.

Baroness Miller of Hendon: My Lords, I would first like to thank the noble Lord, Lord Clinton-Davis, for having introduced this important and timely debate. We are fortunate to have the benefit today of his knowledge and experience as a former European commissioner. We are also fortunate that the noble Lord is not an hereditary Peer, so that his specialised expertise will not be lost to us--as will that of so many of your Lordships--when, sadly, the hereditary Peers are expelled from Parliament.

Perhaps I may preface my remarks by saying that they are not made more in sorrow than in anger. They are made in sorrow, but without anger. The United States of America is a country that I admire greatly, as well as its people. I have a large number of cousins of differing degrees of remoteness who are citizens, as well as very many American friends.

It pains me to have to criticise the USA, but it is right to say that an honest reprimand from a well-wisher is worth more than an undeserved compliment from a stranger.

In my view, the conduct of the United States of America over the banana problem and the draconian sanctions that it has imposed are a very sad way for a great and powerful nation to behave. There is no doubt that if one went out into the streets of, say, New York, one would find that hardly anyone would know what his or her government are doing in their name.

Let us begin by looking at what, or whom, the United States is trying to protect. Is it some major home industry? Is it to prevent rising unemployment in any of the 50 states? The answer to both those questions is, no. Will the sanctions produce any more jobs in the United States? Not one. Will they produce any more income for the low-paid workers on the South American plantations? As the noble Lord, Lord Clinton, said, quoting a trade union, the answer to that is, no. What it will do is increase the profits of three major US

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corporations--three major greedy US corporations--which, between them, already supply 78 per cent. of the EU banana market compared with the Caribbean producers' mere 9 per cent. The Caribbean, African and Pacific growers between them supply only 20 per cent. of the EU market.

We are talking about three major US corporations, one of which has as its head Carl Lindner, who is one of the biggest bankrollers of the American political process, as the noble Lord, Lord Clinton-Davis, has already told us. Three major US corporations which are not content with controlling two-thirds of the world banana market nevertheless want to snatch even more from the poor people in the Windward Islands, where bananas provide 60 per cent. of their export earnings and 40 per cent. of their adult employment.

So at the behest of this powerful cartel, the US Government seek to impose what I have already called "draconian" sanctions. The amount sought in extra tariffs is no less than 520 million dollars--a number seemingly plucked out of the air, because the World Trade Organisation (WTO) reduced it in short order by almost two-thirds to 191.4 million dollars. So where were the sanctions directed? They were carefully targeted to inflict very serious economic damage. I will refer only to the sanctions applied to the United Kingdom. I stress United Kingdom because it is something to which I shall shortly revert.

We all know about the threat to the cashmere industry, now happily removed. The USA does not seem to have given a single thought to the collateral damage to goat herders in Mongolia, who actually produce the wool and depend upon it for their meagre subsistence. I doubt very much whether many people living in Ulan Bator have ever seen a banana, let alone know why demands for their product suddenly fell off. Candles are another item on the American hit list. They are not very important in the grand design of the universe, but vital in North Cornwall where candles provide work and income in an area of specially high unemployment.

What did Her Majesty's Government do about this situation? Did the Prime Minister get on the telephone to his friend Bill and call in some of the many IOUs that the USA owes to this and previous governments?

Of course, we shall never know, because what happened was that instead of sending the Secretary of State for Trade and Industry to argue with the Americans, he sent over none other than the Secretary of State for Scotland, to whom the Prime Minister has generously given all the credit for the concessions that have been secured, concessions for which we must all be gratified.

However, what are those concessions?--Scottish cashmere garments, Scottish shortbread (with English sweet biscuits benefiting from the broad definition). Of course, it is only a coincidence that there is an election going on in Scotland and that the Scottish Secretary has ambitions to be the First Minister. But what concessions have been achieved by the Government for the rest of the United Kingdom? The items remaining sanctioned are valued at £27 million in annual exports, with, for example, lead acid storage batteries alone producing

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some £14 million, to say nothing of the smaller trades on which many people depend for their livelihood no less than in any other industry.

I do not believe that I am being unduly suspicious about the way the Government have handled these sanctions. Soon after the list was published, the Government announced that they would finance the deposits that would be required from the exporters of cashmere, as the Minister for Home Affairs and Devolution, Scottish Office, proudly reminded the other place in the debate there on 22nd March. Did the Government offer to help any of the English or Welsh companies innocently caught up in this wrangle? No, not with a single penny. This is despite the fact that the Scottish Office Minister admitted in the same debate:

    "This is an issue not only for Scotland, but for the UK and the European Union".

Moreover, bananas are not the only problem. Looming up on the horizon is the question of hormone-treated beef. The treatment is to fatten up the beasts. I do not know whether it is good for one or bad for one, but judging by the fact that America has one of the generally most over-weight populations in the world, I suspect it stays in the food chain. However, that is not the point. Rightly or wrongly, Europeans mostly do not want it. But the next food war will be when the beef farmers of the USA try to force it down our throats--literally.

Then we have genetically modified soya. Here is a product that I happen to believe has nothing wrong with it, and has been subjected to a lot of scaremongering. However, my opinion is irrelevant. There are many people who do not want it in their food. Until they change their minds, that is their right and should be their choice. Monsanto will soon be increasing the quantity of its GM soya, and is already surreptitiously slipping it into general supplies. This is a company which is also pushing the marketing of bovine somatropin milk--whatever that may be. I do not know what it is, but I have to say that it sounds horrible. It is something that greatly concerned the honourable Member for Nottingham South in the debate in the other place.

If the EU decides that, conforming to the wishes of its population, it wants to prohibit or inhibit the marketing of these products, what will happen? Well, if sanctions worked once, the USA could undoubtedly try them again. I gather that the Government already have the list and that it includes raspberry jam, sugar confectionery, cough drops and mustard.

There are two final but very short and important points that I have to make. First, one of the reasons advanced for the existence of the EU--whose trading relations with the USA are the subject of this debate--is that it was going to form a powerful bloc which would be able to compete because of its size with other large trading blocs. That brings me to my second point; namely, that the United States of America is unquestionably legally within its right to retaliate with sanctions against the EU over the banana issue. Indeed, it ought to be noted that this is only the second occasion in the 50 years of the GATT and the World Trade Organisation that sanctions of this kind have been officially endorsed. This does I suppose show how far

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the Americans think that the European Union is out of line. Therefore, however much we may dislike the situation, we have to understand that there has to be an even-handed look at this particular problem.

Shortly there is to be another round of negotiations about the trading rules in Seattle. I very much welcome the statement by the Minister for Trade that the Government are preparing themselves for these by consulting with trade unions, non-governmental organisations and representatives of trade and industry. We have heard often recently that the United Kingdom has much influence in Europe. I know that we all wish the negotiations well.

I very much hope that the new rules will take into account world social considerations, including the effect of the revised trading rules on the economies of poor nations so that they will never again be sacrificed on the altar of the bottom line of multinational corporations. I hope also that they will take into account ecological and environmental considerations.

3.41 p.m.

Baroness Williams of Crosby: My Lords, it is a well known piece of etiquette in this House to thank those who introduce debates. On this occasion, however, our thanks to the noble Lord, Lord Clinton-Davis, go much further. This matter, in the view of our party--and I am sure in the view of Peers in many other parts of the House--is a matter of overwhelming significance and importance. It is far more than a technical issue of trade. It is perhaps one of the most difficult areas we have had to confront since the end of the Cold War and one that could certainly affect our relations with the United States which are central and crucial to the conduct of the war in Kosovo and, extending far beyond that, to the whole global strategy of Europe and of North America in sustaining democracy and sustaining countries in transition.

Therefore we on these Benches make no apology for the fact that the three Front Bench members of our team involved in this debate cover foreign policy, defence and trade. We believe that this is much more than a trade issue; we believe that it is an issue of absolutely crucial foreign relations and has to be considered in that light. Having thanked the noble Lord, Lord Clinton-Davis, for introducing the debate, I must say that I believe that the serious tensions which now exist in trade--not only individual areas of abrasion and difficulty but going much wider than that--frame the potential for a possible clash between our two major continents.

I shall say a few words about the often neglected political background which makes it not easy to resolve some of these difficulties. It is widely thought in many European countries, not least in our own, that one deals primarily with the administration of the United States. We tend consistently to underestimate the separate power of the American legislature. Any American president trying to hammer out policies for that country is continually striking bargains with Congress in order to get his decisions through Congress and normally arrives at a final position which is somewhat different

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from the one he started with. As many noble Lords know, the present Congress has a greater orientation towards the south and the west than was characteristically and traditionally the case. This means that the influence of the eastern seaboard--which was predominant between the wars and for a long period afterwards--is today considerably diminished. It was the eastern seaboard above all that understood and gave priority to Atlantic relationships. Today Pacific relationships are at least as important to the United States as Atlantic ones.

Further, the mood of the Congress is currently one of growing protectionism, as the noble Lord, Lord Clinton-Davis, pointed out. It is not only a mood of growing protectionism but to some extent one of growing isolation too. The President has had no fast-track authority to deal with trading matters since 1994. Two Congresses have flatly refused to give it to him. His own influence is unquestionably weakened by the events of the past two years. Congress is increasingly treating his trade initiatives with growing suspicion. That is also the case as regards his monetary initiatives, as shown by the extreme difficulty he experienced in getting Congress finally to agree to increase the American contribution to the International Monetary Fund.

However, the blame does not all lie on the American side. It is worth recalling that the United States feels that it is virtually on its own in carrying the burden of sustaining world economic growth. The Americans are critical of the European Union which they believe has not taken its fair share of imports from Asia and from the rest of the developing world and which, in their view, had until recently pursued too high an interest rate and too cautious a policy towards sustaining world growth. I make no judgment on that. I merely observe as someone who still works part of the time at Harvard University that this is an attitude one encounters over and over again in American political and business circles.

The EU is undoubtedly now becoming a force of equal weight in world trade matters with the United States, as the noble Lord, Lord Clinton-Davis, pointed out. Let us say clearly why that is; namely, because this is one of the few areas in which the European Union speaks with a single voice. That single voice has given it an influence and a power in world trade matters that--I say this bluntly--it does not have in security matters or in foreign affairs matters. Some of us draw lessons from that. However, the development of the euro and the obsession with trying to build the euro that characterised many of our neighbouring states within the European Union has meant that from the American point of view the European Union now presents a challenge that simply did not exist a couple of years ago. Quite bluntly, that challenge concerns where the world decides to hold its reserve currencies. As the noble Lord pointed out, the United States has a heavy trade deficit running at some 300 billion dollars a year. Therefore the United States will be in some difficulties if it can no longer rely on being the world's sole safe reserve currency. That throws up new and difficult issues.

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The other factor about the EU is that the price paid for getting a single position is often to strike bargains among the 15 which are then not easily opened up to further negotiation with the United States. The United States has some reason to complain that the EU is secretive and for that matter unwilling to discuss difficult issues in order to try to sustain unity within its own ranks. As regards steel and, to some extent, bananas, the European Union has been reluctant to try to withdraw some of the poison from these conflicts until the ultimate stage of the trade disputes procedure of the World Trade Organisation.

The noble Baroness, Lady Miller of Hendon, outlined eloquently and precisely some of the strains within the relationship between the two sides. She mentioned in detail the banana dispute and therefore my comments on it will be brief. We may as well be blunt and honest. I believe that one of the problems with the banana dispute is that the greatest advantage of the rent charged on the additional price of bananas which was agreed by the EU has not gone to the poor countries of the Caribbean. It is estimated that they have gained about 150 million dollars worth of additional help through that procedure. The money has gone, to the extent of 1 billion dollars, to the traders in bananas.

I agree with the noble Baroness, Lady Young, that we have a great responsibility to the Caribbean countries. However, I must be quite blunt with the House; it is not clear to me why substantial additional development aid to enable them to make their economies somewhat less dependent on one crop might not be more useful than an extremely complex arrangement which leads to the banana traders being the great beneficiaries of the outcome. Perhaps we on the European side should be honest enough to admit that on this issue not all the guilt lies in one quarter.

I wish to address two other issues. Again, as the noble Lord, Lord Clinton-Davis said, the World Trade Organisation has been a major force in establishing the rule of law in the area of trade. It has also been very important in setting up a disputes procedure which has in most cases--although not all--been relatively successful. It has not been able to cope with some of the most difficult issues of all, such as the American extra territorial sanctions, and it will find it very hard to deal with what can only be described as the very disappointing outcome of the agricultural reform negotiations in the European Union, which will be the source of a great deal of strain between the United States and ourselves. Having said that, as the noble Baroness, Lady Miller of Hendon said, genetically modified foods may prove to be a very great difficulty.

One of the problems of the WTO as it presently exists is that it does not take sufficiently into account some of the rising needs, not only of the developed countries but also of the developing countries. The developed countries are more and more concerned--rightly so--about the protection of the environment. WTO decisions all too often run directly in conflict with that protection. One example is the over-riding of the Mexican Government's objection to toxic waste sites in two of its major local authorities. A second example is the overriding of decisions with regard to, funnily enough,

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the United States' attempt to prevent the turtle becoming extinct by refusing to import tuna caught in nets which also catch the declining proportion of turtles in the world. That may seem minor, but it will not seem minor to us when, in a few years' time, we begin to register the extraordinary speed at which the multiplicity of species in our world is declining.

The WTO does not take sufficiently into account the needs of the developing countries. In the row about bananas, we have neglected to notice, for example, that India lost a major case on the issue of whether it could restrict imports because of its balance of payments problem. India was overridden--perhaps rightly so--but it indicates the problems that even very large and developing countries have in running economic policies that they believe to be in the interests of poverty alleviation in their own countries.

I conclude by saying that if the millennium round, as Sir Leon Brittan recently pointed out, opens up the whole question of the issues of the exceptions, the rules and the special procedures of the WTO, I hope that our Government and the governments of the EU will bring to the table not only their particular concerns--about sanctions, about bananas, about genetically modified food and about agricultural protection--but will recognise the wider issues that now so very much impinge upon the world beyond our borders; the issues of the environment, the issues of the real need for developing countries to be able to help and alleviate poverty in their own midst, the issues of the heavily indebted countries, of which only seven have so far been relieved of the vast burden of paying interest on past debt and not least and finally, the issue of how, to use the words of Renato Ruggiero, the soon-to-retire director general of the World Trade Organisation, it can be recognised that trade has not only an economic but also a human dimension.

3.53 p.m.

Lord Grenfell: My Lords, I am grateful to my noble friend Lord Clinton-Davis for introducing this timely debate. The United States Commerce Secretary, William Daley, recently warned that last year's financial crisis could well become this year's trade crisis. To a certain extent it has. The heat generated by the so-called "banana war" is, of course, out of all proportion to its economic significance, but it shows just how tetchy both the US and the EU have become on trade issues and we need to see now how the temperature can be lowered.

As Europeans, we must begin by acknowledging that neither side can claim to be on the side of the angels. The problem will not be solved if we claim that Europe is always in the right and that the United States is always in the wrong. I read with great interest, and some sympathy, in this morning's Financial Times that the Australian Trade Minister has deplored what he sees as an opportunity missed by the EU for real reform of the CAP at last month's Berlin summit. I very much agree with him. He said:

    "There is now likely to be further intervention and a renewed build-up of unwanted surpluses which will continue to be off-loaded on world markets".

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    I am not sure that that is a foregone conclusion, but he has made an important point.

Equally, the Cairns Group has reinforced this criticism with a statement saying that EU agricultural reforms were insufficient as a contribution to the WTO talks and would continue to shield EU producers from international market signals.

The EU's acting Commissioner for Agriculture, Franz Fischler, has predictably rejected this criticism, saying that it ignored the contribution the reforms had made toward stability of world prices and pointing out that the EU was the world's largest importer of food. Both of those statements are true, but they are not a full answer to the question posed by the Australians. Meanwhile, the United States has also come under Australian fire following the administration's International Trade Commission's proposal last month to impose a 20 per cent. tariff on all lamb imports above 1998 levels. As the US is Australia's largest lamb export market one can understand its frustration and annoyance.

I refer to these irritated and irritating exchanges simply to emphasise the point that American and EU trade policies and regimes have an impact far beyond the transatlantic area. That is one major reason why a new trade round is so vitally needed. We should be grateful to President Clinton for having called so strongly for a new trade round in his State of the Union message last January. One is aware, of course, that it is not just the need to make progress in the liberalisation of global trade that prompted him to make that call. He has at the same time to try to head off growing protectionist tendencies in the US Congress, and we should fully appreciate that.

But the EU should be equally wary of its own protectionist tendencies, particularly in agricultural products. As a recent report of the American body, the Council on Foreign Relations, states:

    "Both sides of the Atlantic should guard vigorously against protectionist pressures, especially in the new, more difficult global environment: the United States and Europe should want more competition based on fair rules of the road and a level playing field, not less".

What prescriptions should one offer to help cure the current malaise? The first and most obvious, I suggest, is to strengthen support on both sides of the Atlantic for the World Trade Organisation, as my noble friend Lord Clinton-Davis emphasised. Precious little of that has been evident on either side in the banana dispute. No matter how genuine the EU's humanitarian concern for poor banana growers in the Caribbean--as the noble Baroness, Lady Williams, pointed out, they are not necessarily the beneficiaries of the regime--its non-compliance and its efforts to subordinate the WTO's rulings to its relations with that area was scarcely supportive of the world body that it claims to respect. The WTO's eventual authorisation of 191 million dollars in US trade sanctions was the inevitable result of that. For its part, the US administration, while loudly trumpeting that the WTO is good for America, itself flouted the WTO rules by

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taking premature and unilateral action, which is a strange way to go about boosting the organisation's reputation.

The European Union now claims that it needs eight months to put a new banana regime in place because of the difficulties foreseen in finding a solution acceptable to all parties and because of possible procedural delays due to this summer's elections to the European Parliament and to the formation of a new Commission. Since the United States has said that it will leave the sanctions in place until a solution has been found, I am rather surprised that a greater sense of urgency does not reign in the corridors of the Commission in Brussels.

The European Union clearly has to take a hard look at its development aid under the Lome Convention. Does an aid regime largely based on tariff preferences still comply with WTO rules? It is not clear to me. I hope that my noble friend the Minister will be able to clarify the point.

I accept that the well known slogan, "Trade, not aid" is not an invalid appeal. I know that direct financial aid has a patchy record as a deliverer of value for money, granted or borrowed. I accept that the EU recognises the importance of diversification as a cornerstone of the solution in the Caribbean, and a difficult one to implement. But I remain convinced, as I believe is the noble Baroness, Lady Williams, that that is nonetheless the route that will have to be taken, however difficult it may be, if the dilemma of preference-based aid is to be resolved and if those economies are to become sustainable economies and not just on bananas.

The second prescription, I suggest, is that the European Union take very seriously indeed the US warning that it cannot for long remain the importer of only resort. While the US current account deficit rose by 146 billion dollars between 1996 and 1999, now reaching somewhere in the region of 300 billion dollars, the combined surplus of the Eurozone, Japan and emerging Asia has climbed to 342 billion dollars, and the Eurozone has run a large and stable surplus throughout this period.

It is true that while US domestic demand has been very high, that level of growth in demand would have overheated the economy were it not for the substantial inflow of relatively cheap imports. But let us not forget that that in flow has largely enabled the global economy to avoid the very worst scenarios that the Japanese recession and the Asian financial crisis could have brought about.

I therefore fully subscribe to the view, indeed I urge, that Europe stimulate demand so that it grows much faster than its trend rate of around 2½ per cent. Asia will certainly play its part in helping reduce the American trade deficit as its recovery gains speed. But that does not let Europe and Japan off the hook. They must stimulate stronger domestic demand and they can afford to do so.

I find it frankly shocking that in some quarters there is a preference for sitting back and letting a weakening euro sustain output as demand slows. Such an attitude will only exacerbate unnecessarily relations between Europe and the United States. Nor can we excuse ourselves by

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claiming, true as it may be, that the expected continued climb in the US trade deficit will be due more to a fall in exports than to a rise in imports.

No, we have to do much better than that. At the same time we must remain vigilant. At the last Davos World Economic Forum, the US trade negotiator, Charlene Barshefsky, was pledging firm resistance to protection at home and the submission of the unilateral use of trade sanctions to the restraint of WTO rules. And yet, since then, the infamous "Super-301" has been re-instated. If that is simply to calm US industries calling for more protection Europe might be able to live with a threat that is not likely to be carried out. But we must remain vigilant. As my noble friend Lord Clinton-Davis remarked in regard to Helms-Burton and other aberrations, these too must be vigorously and continuously contested.

My third and final prescription is this. Europe must somehow avoid doing anything that will make it harder for President Clinton to win back from Congress the "fast track" negotiating authority. His own weakened position, as the noble Baroness, Lady Williams, reminded us, in the wake of impeachment by Congress has not helped him in that respect. It is by no means certain that he can win it back. The noble Baroness eloquently evoked the problems of executive and congressional relations. The administration's protestations that it is fully committed to further multilateral trade liberalisation may be the signal that it feels it must send loudly and clearly to compensate for the possibility that Congress will not give him that authority.

That authority is essential if a millennium trade round is fully to engage the United States and produce the best results. We in Europe must therefore take fully into account in the trading behaviour of the European Union 15 that failure to follow the rules ourselves--for example, on hormone treated beef imports--puts ammunition in the hands of a protectionist-leaning US Congress and lessens even further the President's chances of gaining fast track authority. That would clearly be to shoot ourselves in the foot.

The Uruguay Round in the 1980s was largely launched in response to the strong protectionist pressures weighing at that time on the United States as it saw its current account deficit growing rapidly. A millennium round is therefore needed, not only so that we can fulfil the commitment to negotiations on agriculture and services but also because we must work for the further opening of markets to government procurement, curbs on anti-dumping measures, which are rising rapidly, and better conditions for foreign direct investment.

A serious commitment to a new round can also send a strong message that the further liberalisation of global trade within a framework of mutually agreed global rules is an irreversible process. It will strengthen the WTO as it strengthens the global economy. Both Europe and the United States have a huge stake in seeing that both those objectives are achieved.

4.5 p.m.

Baroness Young: My Lords, I, too, wish to add my thanks to the noble Lord, Lord Clinton-Davis. They are in no sense perfunctory. The noble Lord has raised an

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extremely important issue. I share the views expressed by the noble Baroness, Lady Williams, in her analysis of feeling in the United States and also in the European Union. We have already seen the dangers that can arise from a trade war over bananas. But a trade war continued over some time would be infinitely the most dangerous thing that could happen in the world, short of the difficulties in Kosovo. This is a matter to which people in all areas need to address their minds to see whether a solution can be found to the very real problems that are raised.

I and my colleagues have always supported the talks through the Uruguay Round to find a successor to the GATT arrangement in the World Trade Organisation. I have always been led to believe that the terrible depression of the 1930s was set off not so much by the fall in the US stock market as by the protectionist measures taken by countries afterwards in an attempt to protect their own interests. That is recent history which we should all study and remember, and it should be borne in mind in this important and timely debate.

All noble Lords who have spoken have referred to the problems of the Caribbean. I was interested in the remarks of my noble friend Lady Miller about the effects of the trade situation in our own country. I hope the House will forgive me if I also pursue that matter, speaking in my capacity as president of the West India Committee. As I have said frequently in this House, small islands have an infinite capacity to cause difficulties out of all proportion to their size, as we are seeing in yet a further case.

I wish to address myself to the matter of the Caribbean. The noble Lord, Lord Grenfell, touched on Helms-Burton. That in itself is the subject for a complete speech. I shall not go into it now, save to say that it is a completely deplorable instance of trade protectionism of the worst kind.

One of my anxieties is that the interests of the Caribbean will be marginalised in all these discussions. It is easy for the United States to go to the World Trade Organisation. But what of small, vulnerable states? I was interested in the point made by the noble Lord, Lord Clinton-Davis, and echoed by the noble Baroness, Lady Williams, that trade matters concern more than merely trade. They raise environmental and other issues. There is also the whole problem of small, vulnerable states. The Government clearly attach much importance to having an ethical foreign policy. Do they believe that the principle also applies to trade policy, and particularly to small, vulnerable states?

I believe that this afternoon I speak both as a friend of the United States and a friend of the Caribbean; and also as someone who hopes that those in Washington who have an interest in the stability of the Caribbean will speak out at this difficult time.

Perhaps I may touch on some general issues. I wish to ask the noble Lord, Lord Simon, when he comes to reply, whether the Government agree that there is now a real need for a negotiated solution to the trade war in bananas between the EU and the United States. At the same time, will they ensure that the Caribbean is fully consulted in all the negotiations? Most important, can

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the Minister answer the extremely important question put by the noble Lord, Lord Bridges, about whether the Lome agreement still applies? It is of great importance to ACP countries. I am advised that the WTO ruling does not in any way diminish the obligation of the EU to fulfil its commitments under Lome, but it would be helpful to have the point confirmed if that is possible.

I was encouraged to read the remarks, as reported, of Mr. Scher, the United States trade negotiator who said on 6th April:

    "The United States remains open to a negotiated resolution. Our conditions remain simple--a WTO consistent regime and one that enables vulnerable Caribbean countries to continue to export their bananas". That seems to me a positive and helpful statement. I hope that it will be built on and followed up. It appears that the US seems prepared to find a solution to the matter, through direct dialogue with the EU. But of course, as we all know in these negotiations, the devil is in the detail.

The Caribbean banana producers require a regime that gives them certainty and at least 10 years of stability in an arrangement which must continue to honour the Lome treaty commitments. That is to say, they require a system that provides assured access to the EU market and a viable return for traditional volumes of fruit. This, they argue, is only possible if a new WTO compatible system is established that continues to limit the volume of bananas on the EU market. A tariff-only system, as has been suggested by some, would not achieve this, as it would lead to the small volumes of Caribbean fruit being displaced by high volume low-cost Latin and other fruit. If the way around this were to be through additional measures then I understand that there are possible models not too far from ideas previously promoted by the United States special trade representatives' office.

What is Britain's role in this? Surely we have a particular interest, quite apart from our membership of the European Union, important though that is. We are a friend of the Caribbean. The islands of the Caribbean are part of the Commonwealth. It would be helpful to know what kind of solution we have in mind to the problem. The Government have recently produced an important paper on the overseas territories, but they will be greatly involved in the Caribbean if the whole banana regime breaks down. They would be the recipients of economic refugees, for example, just as we ourselves would be under pressure to receive economic refugees.

That brings me to my next point which is a real concern. The Caribbean is already worried about the future of bananas. But we are in danger of seeing the progressive collapse of products upon which the Caribbean depends; bananas today, rum tomorrow and, I am told, a real possibility of sugar in the not-too-distant future. That raises a serious prospect for the Caribbean altogether.

We have touched on aid but in these circumstances it is not the solution. It is difficult to get the aid money to the farmers who require it. I greatly enjoyed the speech of the noble Baroness, Lady Williams, but I felt she somewhat underestimated the difficulties which the

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banana producers have. Of course I recognise the problems with the companies which transit and trans-ship the bananas, but at the end of the day it is the Caribbean banana growers in the Caribbean who are mostly affected by all this.

If those islands are to make that transition which we all want, which is relatively easy to state but extremely difficult to achieve, to enable them to make the transition to other industries such as tourism, off-shore banking and information technology or the better integration of agriculture and tourism, they will need a long transitional period. They will need help and understanding.

I wish to conclude as I began. I believe that this is an extremely important issue. Once again I reiterate the point about the Caribbean and the role of the islands in it; the danger that they will be marginalised, the danger not just for the islands and the indigenous populations for whom I believe we have a moral obligation, even if they are independent countries in the Commonwealth. There is also the danger of our self-interest in the matter. The noble Lord, Lord Clinton-Davis, touched on the dangers that they could turn to drugs if they are denied their opportunities to grow the crops they are able to grow and if they do not get the transitional period for change to other industries.

This is one piece in a big jigsaw. It illustrates how important the whole of the world trading relationship is. Perhaps I may say how important the debate is in drawing attention to the difficult issues which we all need to solve if we are all to benefit from better trading. One thing is absolutely certain: in a trade war, everyone is a loser.

4.16 p.m.

Lord Shore of Stepney: My Lords, like others I begin by congratulating my noble friend Lord Clinton-Davis not only on giving us this opportunity to discuss matters of great importance but also on the range and quality of his speech. He knows what he is talking about when he turns to matters of trade. I speak with some knowledge of that because he and I had the pleasure and privilege of sharing command of the Department of Trade some 20 to 25 years ago. Since then, he has had a second and more recent innings as a trade minister, not taking account of his period of banishment in Brussels where he served in the European Commission. I shall carefully study the written form of what my noble friend said.

Although I know that the trigger for the debate and for our concern is bananas and the banana war, I welcome the reference to the development into the wider, more damaging and potentially dangerous areas of protectionism, non-tariff barriers of a new kind, but above all those that are linked to health and environmental matters. We have not yet sufficiently confronted them and if we--the European Union and the United States-- allow ourselves to be driven into unthinking animosity, we can only do great damage to ourselves, to each other and to the whole international community of which we are an important part.

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So one says straightaway that this is a diplomatic failure of a serious kind. Frankly, it does not speak well for the trade representatives of either the United States or the European Union that matters should have come to such a pass.

The noble Baroness, Lady Young, referred to our concern with the Caribbean. I well remember, during the earlier days when we were negotiating or trying to negotiate entry into the then Common Market, that the interests of the Caribbean and New Zealand were among the matters which we tried to safeguard. I believe that to a very great extent we did so. Added to that was the Lome Convention which was already in force among the six.

I should like to make one point straight away that arises from the speech of the noble Baroness, Lady Young. As I understand it, the ruling of the World Trade Organisation is that it is the European Union's licensing scheme which is unlawful and should be banned, not the quota tariff preference, which is at the very heart of the banana regime, the protocols and the other matters that we negotiated.

If I am right about that, that is a very important point at which to begin to look for a solution. It is not being wiped out. We should also remember that, although financial interests are clearly operating strongly in the US Congress in an unhelpful way, it is not just United States interests that are set against those of the Caribbean countries, for which we have a genuine concern. The far from prosperous countries of the northern part of Latin America, some of which have recently been ravaged by nature in the form of hurricanes and damage of all kinds, are themselves exporters of bananas and have very great problems of poverty and under-development.

Having said that, perhaps I may say a little more about the banana issue before dealing with some general points about world trade, how I see the future and how the matter can best be remedied. There is only one point on which I question my noble friend Lord Clinton- Davis. He referred--I believe a little unfairly--to the American concept of "Three strikes and you are out" in approaching these matters. I have a piece of paper that gives a potted history of the banana dispute and perhaps I may give the salient dates.

On 19th May 1993 the GATT panel found against the restrictions in EU states. On 18th January 1994 the panel found against the EU's new Regulation 404. On 22nd May 1997 the WTO panel found against the EU regime. On 9th September 1997 the WTO appeals body upheld the panel's finding of EU violations. On 25th September 1997 the WTO disputes settlement body adopted the reports of the panel and appeals body. Finally, one had the judgment in April this year. According to my arithmetic, that is not three strikes but at least six. I believe that on this particular issue the clumsiness and insensitivity of the European Union negotiators has been very reprehensible. If one tries to give a balanced view of the handling of this matter by the European Union, the scales come down against the European Union.

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On the wider issues very properly addressed by my noble friend, we must get it right and adopt procedures. The problem of hormones in beef has yet to be resolved. We had a four-year ban on our own meat exports but there is a ban of 10 years on American meat exports on the ground that it is a potential threat to health. In addition, there is the issue of genetically modified foodstuffs. On top of that, my noble friend Lord Grenfell referred to the possibility of a huge collision between Europe and America on the question of aircraft noise and the threat of retaliation against our own rather noisy Concorde. It is a splendid aircraft but nevertheless it is one that breaks most of the normally accepted limits. There is so much at stake that we must get it right.

The noble Baroness rightly reminded us of the tragedy of the pre-war years. The cause was not just the stock exchange disaster; that was part of it. Above all, it led to protectionism which in turn led to the contraction of the world's economies in a way that so fostered hatred between nations that totalitarian parties and governments emerged in Europe. One of the great successes and triumphs of the post-war period has been our capacity to generate and share prosperity and expansion. I confess that I have not always believed in it. From time to time I have been in favour of protecting particular interests and limiting trade, generally during the transition period between the end of the war and a more affluent and relaxed period in terms of our own trade. Clearly, taking one thing with another the world has benefited from the removal of trade restrictions. There have been temporary disadvantages but overall the pluses greatly exceed the minuses. That regime must not be put at risk. We have a great vested interest, not just because we are British or are part of the European Union or the Atlantic community, but because we are part of a world community whose hopes and prosperity for the future rest upon our ability successfully to grapple with these problems.

I turn finally to what I should like to see done immediately. Here I disagree with the noble Baroness. First, the maintenance of the tariff quota seems to be all right, but beyond that there should be compensation. If we are not getting that aid through, for heaven's sake let us recall from the European Union our own aid programme. We handed over one third of our development aid budget to the European Union. It has not exactly been successful in the use of either our money or anyone else's in helping to foster and help the economies of the countries which that money is intended to assist. Whether we do it directly ourselves--we are one of the major traders with the Caribbean--or through the European Union, we should ensure that the money goes where it is needed: into the pockets of the growers.

Secondly, let us use the period before the millennium round to take a good look at the World Trade Organisation. If, as I suspect, reforms are necessary--my noble friend hinted at them--let us try to make adjustments before the new round gets under way. Thirdly, we should accept that the disputes committee procedure under the World Trade Organisation is a good one but perhaps one or two modifications should be made to it. It must not be insensitive to the impact of its rulings on the social and economic conditions of the

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countries that are adversely affected. But it makes sense to have an arbitrator in this matter. Different interests are bound to come into collision. We must do our best to mobilise the very best scientific advice that is available. The matter will always be open to challenge. We must find ways to reassure publics that the right decisions are being made.

This is an opportunity for us to open up a prospect for the future. I am very grateful to my noble friend for giving us this chance to debate a matter of the utmost importance, which I am sure will fill the pages of the press when the awful tragedy of Kosovo has departed.

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