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Lord Strathclyde: My Lords, on a point of clarification, I asked about harmful tax competition and whether a definition of that existed. Perhaps the noble Baroness will write to me on the point. As regards the euro, I did not seek a justification for the Government's desire to join the euro; I asked whether they were happy with the level of the pound vis-a-vis the euro.

Baroness Jay of Paddington: My Lords, as I understand the position, the pound is at roughly the same level vis-a-vis the euro as it was this time last year. Noble Lords may feel that that was because of an inflationary situation in the earlier period. However, the balance has probably worked both ways. Whether one is in favour of the pound being in a position of strength vis-a-vis the euro depends on one's situation. I refer particularly to those involved in the manufacturing industry.

As regards tax competitiveness, I am perfectly happy to write to the noble Lord about the details of the Council's resolutions on that. As regards the need to preserve the important mainstream tax sovereignty--if one wants to put it that way--the Government have always taken the view that we would protect and

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preserve that position. Tax harmonisation could perhaps be relevant in some areas where it could offer an advantage. However, as regards mainstream tax issues, the United Kingdom maintains--unfortunately this worked to our disadvantage on the question of duty free goods--that unanimity is required in the Council before any changes can be made.

5.2 p.m.

Lord Shore of Stepney: My Lords, I too thank my noble friend for repeating this Statement. I shall not pursue the question of Kosovo on this occasion, partly because of the rapid changes that seem to be taking place almost hour by hour in the negotiations there and also because, frankly, we need a debate on the matter. I shall content myself with simply urging my noble friend to arrange an early occasion when we can give our full attention to this serious and still unfolding tragedy.

I turn to other points in the no fewer than 39 pages of the presidency conclusions. In particular, I wish to ask my noble friend some questions relating to this obvious drive now to create a European security and defence capacity. The words are used, "An autonomous European defence capacity". I wish to ask the following questions. First, in defining the purposes of that capacity--I refer to the mention of the Petersberg tasks--am I right in believing that the business of actually waging war (that is, engaging enemy forces in a hostile rather than a permissive environment) is not covered by the Petersberg tasks definition? If it is covered by it, can my noble friend tell me what is the advantage, as it were, of creating and duplicating such facilities as to make the waging of war possible on a European Union basis? Why should it be better, and more likely to lead to success, than using NATO, which brings North America, with all its resolve and its power, to the assistance of its European friends and allies?

Finally, whatever arrangements are made with the European Union, will my noble friend assure me and others that the UK will maintain sufficient capacity under its own direct control to carry out tasks involving security and the use of force outside Europe (that is, in places such as Iraq and elsewhere) and that we shall not be, as it were, corralled into purely European Union and European continental actions in the future?

Baroness Jay of Paddington: My Lords, I thank my noble friend for his comments. As he will know, any discussion about whether we should have a full-scale debate on these matters would have to be agreed through the usual channels. It is appropriate that we discuss these matters in detail. I think my noble friend will agree-- I hope that the House will agree--that there have been opportunities during the past few weeks to do this on a regular basis. If this matter becomes continuously relevant--as the noble Lord, Lord Strathclyde, suggested--I am sure that the usual channels will make arrangements to hold those discussions.

As I understand the position, the Petersberg tasks are essentially directed towards the peace-keeping arrangements rather than war-making, to use the rather

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graphic expression of my noble friend. NATO will of course retain the primary role in any kind of involvement that our forces are engaged in.

As regards the matters which have been discussed under the common and foreign security policy arrangements, the emphasis is on a more effective use of European forces rather than engaging in some new, pro-active initiatives which might stretch our forces, as my noble friend suggests. There is nothing to suggest that we are going against any of the broader and more widespread recommendations which were agreed under the Strategic Defence Review which would naturally enable this country to maintain its own independent forces.

Viscount Cranborne: My Lords, in view of the comments of the noble Baroness about tax harmonisation, can she tell us whether that means that the City of London no longer has to fear a European imposed withholding tax? As regards Kosovo, does the noble Baroness agree that what we now face is a long-term protectorate, not only in Bosnia but also in Kosovo, backed by military force? As that is the case, and in view of the fact that the Armed Forces--and the Army in particular--are already scrabbling around to find reserves to fulfil their existing commitments, where will the Army find the soldiers not only for the first six months' tour but also for subsequent tours in the Balkans, particularly if we face increasing demands on our troops to fulfil a role in Northern Ireland?

Baroness Jay of Paddington: My Lords, I am happy to tell the noble Viscount that the progress report on tax arrangements which was agreed and endorsed in Cologne--the reinforced tax policy co-operation--referred specifically to,

    "the need to preserve the competitiveness of European financial markets". I imagine that the City will feel reasonably reassured on that point.

As regards the noble Viscount's concern about the long-term situation in Kosovo, my right honourable friends the Prime Minister and the Foreign Secretary, and everyone else who has spoken on this subject, have made it clear that there is undoubtedly a long-term commitment in Kosovo, as it is obvious from everything that has happened and from everything that has been reported in the past few days that there is no question of refugees feeling confident of returning if all they are provided with is a short-term escort which did not subsequently maintain a presence.

As regards our ability to fulfil our obligations, there will of course be many other nations involved in the force. As I said in my initial response to the noble Lords, Lord Strathclyde and Lord Rodgers, we can be proud of the leadership role which the British forces have played and will play in this situation. However, there will be many others involved, including people outside NATO. Noble Lords can feel confident that we would not accept an undertaking which we did not feel we could fulfil and in many instances lead.

Lord Clinton-Davis : My Lords, does my noble friend agree that the real possibility of peace in Kosovo

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arises very substantially from the strong resolve shown by the Prime Minister and others--but notably by the Prime Minister--in the face of some equivocation, particularly on the part of the Opposition in another place? Does my noble friend further agree that without that resolve the possibility of building up an enduring state of peace and some prosperity for the people of Kosovo would have been quite impossible?

Is my noble friend prepared to say something about the preparations that are being undertaken to bring stability to the people of Kosovo and the other areas affected through a massive programme of reconstruction following a peace situation?

Baroness Jay of Paddington: My Lords, I endorse what my noble friend said about the role and the resolution of the Prime Minister. One must also reconfirm and restate the enormous importance attached to the fact that NATO and the 19 countries which have been involved in the military action in the Balkans have stayed together in a positive alliance. That has enabled the kind of progress to be made which I hope we are able to say is reaching some sort of peaceful conclusion today.

My noble friend is concerned about some of the remarks which have been made in another place in a more "political atmosphere", if I can put it that way. But I repeat what I said in my earlier remarks--which both of my noble friends sitting beside me on the Front Bench will reconfirm--that the support for the action taken has been very important in this House. I know that my noble friends have been grateful for that, as indeed have I and other Ministers.

As to the question of long-term reconstruction, that is the major issue which will concern everyone once the military organisation is in place. It will be an enormously important and probably very expensive task. Not only in terms of money but in terms of technological assistance, it will require international co-operation on a scale that is being talked of in the context of the Marshall Plan in Western Europe after the Second World War. Some preliminary discussions are under way through the international organisations, both those concerned with the monetary side, for example, the IBRD, and the organisational side through certain of the UN agencies. They are beginning to look at the matter. It is at a preliminary stage but I can assure my noble friend that urgent international discussions are going on. As I have said, this is the long-term problem which we all now have to confront.

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