EUROPEAN ECONOMIC COMMUNITY (BRUSSELS NEGOTIATIONS)

§ Mr. James Callaghan (Cardiff, South-East)

I am not sure that hon. Members were fully attending to the words in the name of the Prime Minister which you read from the Order Paper, Mr. Speaker. Perhaps they should be repeated. That this House expresses its full confidence in the determination and ability of Her Majesty's Government to deal with the political and economic situation"—

§ Hon. Members

Hear, hear.

§ Mr. Callaghan

At least, I got a louder cheer when I read it than the Prime Minister got when he sat down yesterday. Perhaps I make it sound as though right hon. and hon. Members opposite are determined, as though they have some life in them. But, my goodness, after the day we endured yesterday, with the Prime Minister's speech at the begining and the funeral ode at the end from 1119 the Secretary of State for Commonwealth Relations, I cannot help wondering. The Secretary of State for Commonwealth Relations certainly felt deeply about the failure, and he conveyed the depth of his feelings to the House in the speech which he made.

The Secretary of State for Commonwealth Relations has, of course, been associated with many ill-starred ventures. Despite the massive nuclear deterrent strategy with which the right hon. Gentleman was associated, we are asked still to feel full confidence in him, in his determination and in his ability. We are asked still to feel full confidence in him after his ventures into Central Africa. We are asked still to feel full confidence in him after the way in which he messed up the negotiations in Malta. Now, as one of the columnists said in the papers this morning, the right hon. Gentleman is an embittered Common Marketeer.

I put it to the right hon. Gentleman that he should consider seriously whether he ought to resign as Secretary of State for Commonwealth Relations. I do not believe that he has ever, except in one speech which I heard him make on the subject of South Africa, felt about the Commonwealth the sentiments which unite most of us in the House. The Prime Minister was discussing at Question Time the possibility of raising the status of junior Ministers. One way in which he could do it would be by inviting the right hon. Gentleman to employ his talents in some other Department and promoting the Under-Secretary of State for the Colonies. In that way we should get someone—I hope that I am not embarrassing the hon. Gentleman—who speaks about the Commonwealth as though he really meant it. The present Secretary of State for Commonwealth Relations never does, and he should seriously consider whether he is doing the right job.

It is important that we should have the right Minister in his job if we are now to turn round and reverse our policies. I do not know whether we are to do that. After listening to the Prime Minister, I was undecided about whether he wished to resurrect the dead or was, in fact, turning to new and hopeful policies. He gave no indication in his manner or his approach that he was intending to do the latter. He seemed to 1120 be glancing nostalgically back over his shoulder the whole time. We cannot have a country which is divided in its leadership in this sense. If the Prime Minister still believes that we must do our best to get into Europe on the basis we were trying to get in on before, the alternative policies which he was laying down will fail. They will fail because his heart is not in them.

The Prime Minister could have done a greater service to this country yesterday if he had told us clearly that he is not ready to go into the Common Market on the terms which were agreed so far, but that he is prepared to associate with Europe on terms which are more consistent with our national interest as well as with the national interest of a great many other countries with which we have trading relationships today.

I find a great contrast between the attitude of a number of leading European statesmen when they are concerned with their interests and the attitude of the Prime Minister when he is concerned with this country's interests. I have no reason personally to have any feelings for the Prime Minister except those of friendship. I say that advisedly. But I must say that it would be difficult to imagine President de Gaulle or, perhaps, even Dr. Adenauer going to the country on the basis of coining a phrase such as—If I may put it in unidiomatic French—"Moi, je suis content, Jack." To show that I have it idiomatically right as well, perhaps I should say "Ça me va bien, merci". I did not have the education which the right hon. Gentleman enjoyed, but I have done my best to remedy the lack since.

I was depressed, as I think many hon. Members were, by the Prime Minister and, even more, by the Secretary of State for Commonwealth Relations. But let us try to set out some sort of balance sheet of where we stand at this turning point in our fortunes. Exports are critical for our health. This is agreed on both sides. It is one of the standard sermons which come out when no one can think of a different peroration. [An HON. MEMBER: "A good one."] It is a good one, I agree. But sermons oft repeated tend to lose their first sting. [HON. MEMBERS: "Hear, hear."] I promise the House that I shall do my best to avoid falling into that error.

What does the breakdown of the Common Market negotiations mean to Britain 1121 in terms of our world trade? Eighty-four per cent. of our world trade is unaffected by the breakdown of negotiations. Eighty-four per cent. of our trade will still depend on whether we can still sell goods at competitive prices, whether they are of the right design, whether the quality is good enough to compete with others, and, perhaps as important as anything else, whether we can provide the after-sales service.

Sixteen per cent. of our trade is affected by what has happened in Europe, but that 16 per cent. will not vanish. It will not, of course, grow as rapidly as the right hon. Gentleman and others—all of us, indeed—hoped that it would. The rate is bound to slow down. We shall have greater difficulties in getting over the tariff barriers, but, as we all know, our trade in Europe was growing, and there is no reason why it should not continue to grow even with the handicap of the tariff barrier over which we shall now have to jump.

Some work has been done on the effect of the tariff changes on flows of trade in manufactures, and I should like to convey to the House what I understand the conclusions to be. Had we entered the Common Market, imports into this country would have risen, initially, more than our exports to the Community. Now it will be harder to export to the European Common Market, and the tariff reductions with the Free Trade Association will also come into effect. It is estimated that the net result is that imports from the Free Trade Association will rise as fast as exports to it, mainly because we are a relatively high-tariff country.

The size of the immediate loss, and this I want to get across to the House—I only wish that the Prime Minister had done that yesterday—is small. The total loss resulting from all the changes that will take place as a result of the Free Trade Association negotiations and all the losses that would have taken place if we had entered the Common Market, can be made good in 1963 by additional exports of under £100 million. That is the short-term effect. Our total exports amount to about £3,800 million a year, and they grew last year at the rate of about 3 per cent. That would mean putting up our export rate by another 1 per cent., or 1½ per cent.

1122 Is anyone telling me it is such a tragedy —I do not comment on whether or not it was right—that we cannot make up a loss of exports of £100 million? If the Government believe that, and come here with their funeral garb arrayed upon them and tell us that there is no alternative, and how tragic the whole thing is, they should not be in office, because clearly this problem is well within our grasp.

If we take the measures which are necessary, of course we can increase our exports. I do not say, and I do not want right hon. Gentlemen to misunderstand me, that it would not be easier if we were in the Common Market. Of course it would be, but we are not in, and the question is: what do we do now? I believe that it is quite within our compass to tackle the problem, and that not only is it within our compass but in our national interest to do so, and to get on better terms with our own economy and our own strength before negotiations are resumed.

I find fault, too, with the Government's approach, which has been instinct through every report we have had, that linking Britain with the Common Market countries is a matter of all advantage to us and none to them. It is a matter of very great advantage to the Common Market countries, too. If a link is not established—and this, in my view, is the case for a link—there will be the danger of a grave and growing split between the Common Market countries and the rest of the world, and that will be as much against the interest of the Common Market countries as it will be against the interests of the rest of the world.

We have never played this card in this way. It is not as though we had all the time—the Lord Privy Seal laughs; maybe he has taken a different attitude in the negotiations, but the impression that the Government have given publicly to someone like myself is that they have been on their knees.

Our task, and the Prime Minister said this in a half-hearted way yesterday, is to place our full weight behind the Kennedy round of tariff negotiations under the G.A.T.T. I think that we shall be up against great difficulties. In the same way, in the short run, it may appear to the Common Market countries that the Common tariff is the only symbol that unites them because, politically, they have reacted against some of the events that 1123 have surrounded the breakdown in our negotiations. It may, therefore, be more difficult for us to secure the lowering of tariffs that it is in our interests we should try to get, but we must place our full weight behind these negotiations when they start, and the United States, ourselves and the Commonwealth should be battering at the common tariff surrounding the Common Market countries.

It is a hopeful sign that instead of the product-by-product basis of negotiation and argument, we shall be discussing the tariff reductions across the board. It will make things easier in some ways, although I do not under-rate the difficulty we may have with the protectionism of United States industries as well as the protectionism of our own industries. The Government should seriously consider how we can ameliorate the very grave difficulties that will be felt by some of our own industries if we do pursue, as I suppose we shall—and it is in our interests and those of the world—the path of lower tariffs.

I should like to see the Government paying some attention to what can be done to ease the burden on some of our traditional industries at the same time as we go into this round of negotiations, because it would be a tragedy if, because of protectionism in American industry, or in our own industry, either President Kennedy's Government or our own were to find their own position undermined as the result of local pressure at home.

The story of agriculture of one of out and out protectionism, whether it be in Britain, in the United States, or in the Common Market. It is true, as, I think, was said in yesterday's debate—which, apart from one or two notable exceptions, I must say that I found extremely interesting and informative—that this is, and seems to be, endemic in all advanced industrial countries. There is no doubt that we seem to regard agriculture as an exclusively domestic matter quite unaffected by foreign trade considerations. I believe that the world, and especially the advanced countries, must try to break away from the habit of looking at their own agricultural systems. The Common Market is encouraging a system of subsidised exports at the expense of traditional exporting countries, and that was one of the grave objections I had to the system that was being negotiated.

1124 For the moment, the world has been spared that—and so, I may say, has the British housewife. World food exporters, both those in the Commonwealth and those outside it, have been spared the crisis that would undoubtedly have been precipitated, had other arrangements not been made, once we got into the Common Market. Now we can take advantage of the breakdown—and I am looking for the advantages coming from that breakdown rather than weeping about what has happened. I can understand the depth of feeling there is on the Government Front Bench, but it is our job to look at what can be done about the current situation.

I gather from the Prime Minister that we shall start soon with negotiations, but we must remember that the countries concerned are not only the advanced industrial countries like the United States, Canada, Australia and New Zealand, but also some of the less advanced countries that are outside the tropical zones and whose balance-of-payments position is very much affected by what happens to their traditional food exports. I am relieved, to put it at its lowest, that at least they are not to be faced with a breakdown at a very delicate moment in world trade when we might—though I trust not—be going into a downward spiral of world trade. That would be an additional handicap to put on the backs of those countries—and I speak of the less advanced countries—which are less well able to bear such a burden.

It is sometimes assumed that it is only the consumer countries that have an interest in stable commodity prices, but both the developing countries and the consumer countries have an interest in securing commodity agreements, and I was glad to hear the Prime Minister say that the Government believe that there is something to be done here. I am sure that many of my hon. Friends recall the attacks that used to be made on the Labour Government, ten or twelve years ago, when we were trying to follow a similar policy. But they learn, these right hon. and hon. Members opposite, even though they learn late, and even though it costs the country a lot while they are learning.

Now we are coming to a system which was advocated a long time ago and which was successful. If we do not come back to this, the alternative for this country, 1125 if its export trade is to prosper, the alternative to good and stable prices and long-term agreements, is either soft loans or even giving away our exports. There is no alternative if we wish to develop our own trade.

May I say a word about semi-manufactures? This country—I say this for the Government—has taken the problem seriously. There is no doubt, perhaps because of political considerations, perhaps because of the links with the Commonwealth, that we have taken a good share of the semi-manufactures that have come from the developing countries. It is easy to say that this must be done. It is much more difficult to get it done. But the Government must press the problem. Once again, it is in the interests of the developed countries as of the developing countries that their semi-manufactures should be allowed to enter the traditional developed markets.

I know that it means awkward short-term adjustments for the advanced industrial nations. But it is in their interests. This question is not confined to textiles. It is becoming a growing problem in many other fields and we must be prepared to shift production in this country from consumer goods of that nature to consumer durables and capital goods. I can find good in the breakdown of these negotiations because in many ways I believe that it removes the danger which we face, which was shared by Ministers and by civil servants, of becoming immersed in regional trade agreements. We were putting our energies the whole time into Europe when there were far more things to be done in other countries.

I know that I shall not command universal support when I say that some of the Common Market countries' policies seemed to me to savour of claustrophobia. I am glad that the fresh wind of world trade may start to blow more freely, because I am certain it is in the interests of this country and the world as a whole that it should do so. In certain quarters—certainly, after listening yesterday to the speech of the Secretary of State for Commonwealth Relations one would think so—it would seem to be unpopular to believe in the virtue of trade with the Commonwealth.

1126 But everyone who has visited the Commonwealth comes back with the same story about the natural advantages which we possess in this country. Men who have been educated here, and have their parents here, frequently live with their families in the Commonwealth countries. Anyone who has been in countries of the Commonwealth knows that the people there turn to us and say, "We want to buy British. Of course we should like to buy British. But you cannot supply us at the right price and at the time we want"—[HON. MEMBERS: "Oh."] Is anyone seriously saying that that is not a fact?

§ Mr. Callaghan

The hon. Member for Louth (Sir C. Osborne) interrupted one of my hon. Friends three times yesterday and then made his own speech. Why does not the hon. Gentleman give someone else a chance?

§ Mr. Kenneth Lewis (Rutland and Stamford)

Surely the hon. Gentleman must know of occasions when the Commonwealth has got into difficulties. Frequently Commonwealth countries have cut down on, or stopped altogether, the quotas of manufactures from this country. While the Commonwealth countries may not necessarily be blamed, those are the facts of life, and the hon. Gentleman knows them perfectly well.

§ Mr. Callaghan

That, if I may say so, is a different point from the point which I am now making. It is a point with which we can deal on a different occasion.

I am astonished if it is denied by anyone that there is increasing trade among the Commonwealth countries and that this is being taken by Germans, by Italians and by Japanese—by everybody but Britain. Our share of this trade is falling and what I am saying to the House —surely this cannot be argued—is that if this additional trade is there, we have more advantages than any other nation in trying to get it. I do not see how that can be disputed.

If the hon. Member for Rutland and Stamford (Mr. K. Lewis) will excuse me, I shall not deal with the point which he raised now, as to do so would take me from my theme, which will be—

§ Mr. Geoffrey Hirst (Shipley)

Oh.

§ Mr. Callaghan

The hon. Gentleman need not snigger. I have plenty of other things yet to say.

There was a very interesting proposal by Mr. S. C. Leslie in the Statist last week. He called for a Commonwealth Export Council to be set up as a counterpart to the European Export Council. The European Export Council has done -excellent work. I think that Sir William MacFadzen and his colleagues have served Britain well. If we are working on this policy—as I hope—to get a better posture and better treatment, so that we do not look like an overweight, rather flabby heavyweight boxer, why should not a similar piece of machinery be set up for the Commonwealth?

I have only one text around which I wish to range my remarks. I believe that our influence in the world, our policies in the world, our alliances in the world and the attitude of the rest of the world to us, will rest on one simple fact, and that is our economic strength at home. They will not rest on peevish gestures, such as we have seen recently, or upon whether we possess Polaris. They will not rest on the pictures of Beefeaters which are now bestrewn across journals and magazines They will rest on the economic strength here, and for that reason I should like to devote the rest of my speech to that proposition.

The Prime Minister said—the right hon. Gentleman was right and I agree with him, he often says these things, but we do not have any conviction that action will follow—that the most urgent need is to expand industrial production in this country. Ernest Bevin said it many years ago—"Give me 10 million tons of coal and I will give you a foreign policy"—and of course, he was right. It is right today. If we could have the exports—[Laughter.] Why should hon. Gentlemen opposite laugh at the failure of this country?

§ Mr. Stan Awbery (Bristol, Central)

Because they are ignorant.

§ Mr. Callaghan

Is it because they think it better to score party political points than to try to fact the situation?

The Prime Minister said—here, I wish to differ from the right hon. Gentleman because I believe that he has got his priorities wrong—that a vital condition 1128 is to adopt and make effective in practice a reasonable incomes policy. The right hon. Gentleman said that everything rested on this. I will claim this much for myself, that over the last eighteen months I have spent as much time as anybody in this House or outside not only in negotiating wage agreements but also in discussing with economists, trade unionists and employers the basis of an incomes policy; and I will return to this in a moment because I want to face the question.

I say to the Prime Minister that I believe his emphasis is wrong. We do not start with a wages policy. I use the term "wages policy". We can call it an incomes policy to disguise reality if we like, but when it comes down to rock bottom it is a wages policy that people are talking about. We do not start with that, and that has been the mistake of the Government all the way through, ever since that horrible day in July, 1961, when the former Chancellor of the Exchequer tore down the collective bargaining system without substituting anything in its place.

The need is recognised. I find that practically no one who accepts the position dissents from the need for a wages policy. The question is: how are we to get it? I will tell the Government this —they never seem to recognise it. It will result only from the general context of the Government's social and economic policies and their acceptance by the nation as being fair and reasonable. I will return to this later. My conviction is—and this was referred to by my right hon. Friend the Member for Huyton (Mr. H. Wilson) yesterday—that we want to start from a national industrial development plan. It is respectable for me to say this, because Mr. Paul Chambers said it in my constituency ten days ago, so I do not even get any jeers from hon. Members on the Government benches when I say it. This is where we should start.

I believe that we have a task to make British industry "age", to make it efficient and responsive to changing world demands by switching the emphasis to industries which demand highly technical skill. The first way that we will do this is by organising the collection of facts about industry—enough of them and in good time. We need to be able to compare the efficiency of firms 1129 in industry, their export performance, their costs, their profit margins and their potential expansion. I said this to some industrialists who came to talk to me the other day. I believe that they think that there will be a Labour Government next time. They said,"People will not give you that information." I said, "That is exactly what some trade unionists tell me when I ask them for a national incomes policy".

If industrialists start off on this basis we shall never get a national incomes policy and we shall never have real, steady and permanent expansion in industry. Everyone must give up some cherished beliefs; everyone must give up something. Therefore, I have no hesitation in saying that if we were the Government we would ask for the support of the Opposition in telling their friends that if they want Britain to succeed they must be prepared to make sacrifices in their own cherished freedom.

It is necessary to organise the collection of facts in the regions, in Scotland and in Wales. Industrialists need to forecast their skilled manpower requirements and to foresee the decline in industries. They need to take account of the public service requirements, the need for retraining and the drift of industry into and out of the regions. A great deal of this can be done on a regional basis. I referred to this in the recent debate on unemployment. I am sure that if we have planning along these lines with industry and the great regions of this country co-operating we shall have the beginning—it is only the beginning—of a policy for real expansion.

It is necessary to call in the employers, trade unions and skilled economists from the beginning and to ask their advice. The Government should place their information before them and should build up their plan with them. They should work out their targets together. This is the precursor to a wages policy. The Government must be ready to associate those who have to operate the policy with the antecedent decision which will determine whether they are ready to consider it or not. In this way we shall have a picture of Britain as it is and a picture of Britain as it could be. That is the start.

1130 It would then be for the Government to make their own policy decisions—on exports, on social priorities, whether housing, hospitals, roads, or whatever it may be and on investment and its appropriate level. The trade unions and the employers are bound to have views about these matters. We cannot limit their view about what is right in a wages policy because the level of investment influences what is available for wages and the level of profits influences what is available for distribution elsewhere. That is why the attitude to wages will depend on the Government's attitude to social and economic policies. If the Government will only realise this, we shall be on the way to a sensible economic policy. Both sides of industry must be associated with the making of the plan right up to the decision which the Government must take.

The Government must make it clear that the purpose of the wages policy is not to restrain wages or to restrain increases in living standards, but to keep prices down. Indeed, that is its main function. Therefore, the Government's policy must have equal concern with the level of prices, the level of dividends and the level of rents and with monopolies. All these things must come under review and must be examined by the people concerned with them.

Our tax system needs to be revised. This artificial distinction between income and capital must go. The six months' capital gains tax was just another gimmick. It is as much a gimmick as the Government's nuclear-powered ship, which was announced by the Prime Minister yesterday—something stuffed into a speech to get a headline in some quarter or another. It is no use right hon. and hon. Members opposite looking aghast. When I was at the Admiralty, in 1950, we were discussing a nuclear-powered merchant ship. Unless I miss my guess a former Civil Lord, the hon. Member for Dorset, West (Mr. Wingfield Digby), was associated with those discussions. Yet not until 1959 did the Government place the contract. In 1961, they cancelled the contract. Now, at the beginning of 1963, the Prime Minister comes up with this "great new advance". The Americans already have the "Savannah" at sea. The Russians have had the "Lenin" in Arctic waters for years. 1131 Yet here we are, the greatest shipbuilding nation in the world, with the Prime Minister, to divert criticism, trying to get a headline out of our new nuclear ship.

The capital gains tax was much the same sort of gimmick and it is time that it went. I should be willing to reduce tax on earnings—and if it would attract hon. Members opposite, I should reduce tax on high earnings—if I could get permission to tax capital and wealth as well. This would be one way of getting a measure of equality and of encouraging earnings and those who wish to move ahead.

Against this background it would be possible, in my view, to agree with the trade unions on a general level of increase in wages which would be a real gain in standards, but would not involve a rise in prices—a kind of Plimsoll mark below which the boat should not be loaded with the various types of cargo which make it up. I have seen various detailed mechanisms at work. Skilled economists and others have produced very clever schemes showing how it is possible to evaluate jobs, to police breakdowns and to deal with wage drift. From such experience as I have had in wage negotiations and from the conversations that I have had, I do not believe that any of these things would work. The pay pause, of course, was a catastrophe and the National Incomes Commission is doomed to failure.

I will tell the Government what I think they should work for. I hope that they will do this. If they do not, we shall do it. First, there must be long-term agreements extending over periods of two or three years. I am glad to see that the Confederation of Shipbuilding and Engineering Unions and employers are working out a scheme along these lines. Secondly—and this will be very difficult —we must work to encourage the unions to take a general view of the problems of their workers and their move forward instead of a particular view. It is easy to take the general view on National Insurance or safety precaution matters, but it is very difficult to get an individual union to stand back when it sees another union moving forward.

But this is what they do in Sweden, although I know that the problem is different there. To all of us engaged in 1132 British trade unionism it is an astonishing feature of the Swedish system that a miner may be ready to say, "I will not take this increase this year so that the metal workers, the nurses, the public servants, or whoever it may be, shall get it". This is a striking feature of trade unionism which considers the workers as a whole. I should like to see us move towards this, and, given the leadership and the national will, we can. Alterations of rates to simplify wage structures or recruitment for unattractive or expanding industries and other considerations must be taken into account on a national basis.

I now come to an obvious point. The Government should abolish the National Incomes Commission before it gets them into deeper trouble and should set up in its place an industrial tribunal to which both sides can go and to which both sides can take the other. But the Government should keep out of it. I believe that this would be a much better means of tackling this problem than by having a National Incomes Commission which has no respect from one side and which is regarded as derisory by the other.

Again, I go back to what was said by Ernest Bevin, and I do not mind saying so. One of the things he was strongest on was the need to honour agreements on both sides. I believe that there has been a great weakening in this by both sides, employers as well as trade unionists on the shop floor. There is no basis for industrial discipline or for a real expansion of our industry unless agreements which are made are honoured and brought to an end only in accordance with the machinery which set them up.

The next point I make is to encourage the Government to make agreements on the basis of long-term comparability with the wage rates in the case of their own public servants. I believe that that would be an advantage. Public servants comprise 20 per cent. to 25 per cent. of the total employees. This would have an influence in other fields. This does not deal with wage drift which arises on the factory floor. I know of no means of dealing with that other than in a Communist or Fascist way. We cannot do that there; at any rate we cannot start there.

Nor does what I have said deal with the policing of breakdowns arising from 1133 the "rogue elephant" employer or trade unionist who breaks through an agreement. We cannot get there to start, so we have to start where we can. I believe that there are things which can be done because this is a problem which is recognised as something which has to be tackled. It is recognised as a problem which is holding up expansion and putting up prices unnecessarily. In the general recognition given to the social and economic background and framework of Government policies there will be a willingness on the part of those in industry to play their part, but we must not rely on exhortation.

Trade union leaders can do some exhortation at annual conferences and it might have some influence on the delegates, but delegates are the only people who hear it. It is on the shop floor in the factory that the real decisions to press for claims is taken. Exhortation is not enough. One has to have a policy which is clearly designed to be in the interests of the workers on the shop floor and in the factory, and which can be seen to be in their interests. Then one can ask the trade union leaders for confidence because they will know that they are serving the interests of their members as well as the interests of the nation. I deny the assumption constantly implicit in Government policies that the interests of the workers in the factories are contrary to those of the nation as a whole, and that if they are put in their proper context they will not be accepted as the same.

I have a number of suggestions about how to get stability in home policy. I do not know whether we shall hear the Chancellor's plans tonight, but I shall run over these suggestions because this is an occasion on which to examine what is wrong and see how we can put it right. Over-emphasis on monetary policy as a means of control has been one of the weaknesses of Government policy over the last few years. They have been doing too much too late.

The Chancellor is in danger of this at the moment. I am not saying that he has done it. That will rather depend on what he does in the Budget. If we have a give-away Budget—it will depend on what he does—there will be a very great danger once again of his doing too much too late, putting the engines 1134 into reverse at the time when the economy is moving in the opposite direction already. Then there would be great danger. If he is considering the future of the country, I ask him not to yield to his colleagues in the Cabinet to try to get a quick win for himself and his right hon. Friends.

Over-attachment to control of investment as a means of getting growth operates too lumpily and at the wrong period of the cycle. The Government should use consumption more as a regulator. It acts more quickly. What about the P.A.Y.E.? Why not use the regulator of P.A.Y.E.? I give the idea to the Chancellor. These ideas take about ten years to get through, so I am confident that we shall have to do it and the present Chancellor will not. Never mind, I put these ideas out to get them considered.

What about monopolies? We have not heard a word about that yet, but how can we take seriously a Government who refuse to deal with some of the scandals of monopoly in the country at the present time? One big company with a complete monopoly was investigated by the Monopolies Commission. I asked a Question about it last November, because recommendations had been made by the Commission. The Commission found that the prices of the company, to use the words of the Commission, were "unjustifiably high." The Commission went on to recommend that a review of the company's prices should take place at intervals of two, or at the most three, years.

I asked the President of the Board of Trade what was being done and I got the reply: There is nothing in the … undertakings which provides for the company's prices to be approved by the Board of Trade. Naturally, I got a little angry and I was rather expletive. In reply to a supplementary question, I got the answer: it was not accepted by the then President of the Board of Trade that the Board of Trade should control prices …"—[OFFICIAL REPORT, 27th November, 1962; Vol. 668, c. 193.] of this company. This was in the face of a finding that the company's prices were "unjustifiably high" and a recommendation that the prices should be reviewed at intervals of two or three years. The Board of Trade flatly refused to take any action in respect of 1135 this monopoly. I quote that as an example. This runs throughout other fields. Does the President of the Board of Trade wish to intervene? Perhaps he would like to correct me.

§ The President of the Board of Trade (Mr. F. J. Erroll)

I wish only to say that we took other action. It is not correct, 'therefore, to say that we took no action.

§ Mr. Callaghan

The right hon. Gentleman says that he took other action. In fact, he took no other action. The plain truth about this company is that its prices are unjustifiably high. My Question was prompted some years after the investigation of a complaint of a further increase in prices, a complaint made by the consumers of this company's products in South Wales. The right hon. Gentleman has taken no action at all either to control the profits or prices despite recommendations made by the Monopolies Commission. I shall not linger on this case, but I should like to go on to talk about tax reforms.

Before doing that, there is one other subject on which I should like to say a few words, but tax reforms are most important. We have talked about it long enough, but nothing has been done about separating personal Income Tax from the profits of companies, but if we got it translated into action I do not believe that that would be enough. I recommend the right hon. Gentleman to read an interesting lecture by Mr. Turvey, of the London School of Economics. The President of the Board of Trade may get some interesting ideas from it.

We ought to have a word or two about sterling, because it is of vital importance to the future of this country. It was argued, I think with some force, that entry to the Common Market would have given us backing for sterling as a reserve currency because of the large growth in the reserve currencies of those countries, but we would also have suffered strain from a higher import bill as well as the strain from the import and export of capital. We might have had additional American capital coming in, but additional British capital would be going out.

Sterling today is vulnerable. We must always recall, and not be frightened of discussing, the fact that sterling is vulnerable and will remain vulnerable so 1136 long as we have such a low level of reserves to finance the world's trade. It is vulnerable because we combine domestic trading with overseas balances. The effect of this, as is well known to the Prime Minister and the Chancellor of the Exchequer, is the constant risk of interference with our domestic expansion.

There has been a post-war failure over eighteen years, for which the Government must bear major responsibility, either to build up our reserves or to disentangle domestic sterling from banking and trading sterling. In a crisis, the City of London and the Chancellor of the Exchequer always put the banks' customers first—by which I mean Britain's customers—even though this has meant, as it did particularly in 1957, holding up British domestic expansion.

At present, both the United Kingdom and the United States are running deficits on their balance of payments. The Europeans are running surpluses. We have a common interest with the United States in this field that is not yet recognised fully by the United States, but which must be the responsibility of the Chancellor of the Exchequer to try to bring home. We need to transform sterling—indeed, the key currency system as a whole—so that every major nation has a share in supporting and supplying the world's international liquidity. We cannot afford balance of payment problems, because they interfere with our expansion.

What steps should, and could, the Chancellor take? He tried—I congratulate him on his effort, as I did in September—at the International Monetary Fund, but he did not get far, because the Americans expected and wished us to enter the Common Market and they were not ready to discuss the future of sterling in the context in which we would soon be mixed up with European currencies in any event.

The things at which the Chancellor should aim are, first, a unified interest-rate policy. I know that it will be difficult to isolate long-term from short-term rates, but every effort should be made to stop short-term money flowing across the exchanges. A unified interest-rate policy would obviously be a means of achieving this. We have heard renewed interest in the Organisation for Economic Co-operation and Development. This is a subject which should be taken up 1137 urgently by the Government so that we may safeguard our own expansionist policies as well as increasing world liquidity.

Next, exchange controls. If movements of capital hamper growth, exchange controls may be necessary and should be faced. Already, there are signs of one or two of our companies moving their capital across to Europe because of the breakdown in negotiations. It would be extremely unfortunate if the unemployed were to feel that capital was fleeing out of the country because of that aspect of the matter.

The Government and the Chancellor should tell companies that in the present state of affairs, they would be behaving in a way that would make for greater economic difficulties for the country, certainly in the short term, if any capital flees to Europe until the situation settles down. If they do not respond to that appeal, the Chancellor must be ready to take other action.

Next, growth of currency swap arrangements and more definite arrangements for short-term loans in times of crisis. There is every reason why the £ and the dollar should support each other, but there is need for a multilateral approach. I want these steps to lead to a genuine multilateral organisation in which I would hope to see each member depositing a proportion of his resources with the central body.

I have tried to discuss Britain's economic position. I do not believe that I have yet mentioned President de Gaulle. [HON. MEMBERS: "Yes, at the beginning."] I forgot. At least, he has not been a central theme running through what I had to say. Most of us believe that our salvation lies to a great extent in our own hands. I believe that the attitude of other countries to us, our attitude to them and our strength in the world depend upon what we do about these problems. We can have all sorts of gimmicks, arrangements and alliances, but unless we get this right they will all fail.

My opinions on relationships with Europe or with the United States are worth no more—but I hope no less—than those of any other hon. Member; that is not the field which I have been commissioned to study. When, however, 1138 Hugh Gaitskell asked me, about eighteen months ago, when my right hon. Friend the Member for Huyton went on to foreign affairs, to look after economic and financial affairs, I was delighted to do it because I believed that this is the whole key to the revitalisation and modernisation of Britain.

Once we get our economic and domestic arrangements right, once we follow social policies that will command the support and the overwhelming agreement of the nation, I have no doubt that the country can make what arrangements it pleases with its allies and that they will be delighted to make arrangements with us. It is ridiculous nonsense to talk about 52 million people being unable, because of certain technological developments, to do a great deal of these things. It may be true of the Concord—possibly, there are one or two things like that—but they are marginal in one sense. We have a great future as a nation. I only wish that we could have heard that from the Prime Minister yesterday.

§ The Lord Privy Seal (Mr. Edward Heath)

On 10th October, 1961, I opened negotiations in Paris with the European Economic Community. In the reply which the Community made to my statement, the spokesman welcomed the statement which I had made and said that everyone sincerely hoped that the negotiations would be carried through to success. At six o'clock on 29th January, 1963, the chairman of the conference said that he was forced to record the fact, with great regret, that the member States of the Community were prevented from continuing the negotiations. I should like to tell the House what led up to this situation.

The hon. Member for Cardiff, South-East (Mr. Callaghan) has devoted the greater part of his speech to the future. Before I come to the lessons of the negotiations and to future policy, I should like to tell the House about the situation in Brussels in January. After the Commonwealth Prime Ministers' meeting we all recognised thas this was the last stage of the negotiations. We put forward proposals for speeding up the meetings and they were accepted. Everybody in Brussels foresaw that exactly as in July and August there had been a long meeting, so, at the end of this stage, another prolonged meeting would be necessary, at 1139 which we could survey the picture as a whole and reach the final settlements.

Shortly before Christmas, the two meetings in January were arranged. Their object, as everybody recognised, was to break the back of what remained. We had all been moving individual items into the position where that could be done. As a preliminary to the meeting, I had the usual contacts with all the delegations, including the French delegation in Paris. Let me now say what remained to be done.

The right hon. Member for Huyton (Mr. H. Wilson)—I am sorry that he has now left the Chamber—and the right hon. Member for Smethwick (Mr. Gordon Walker) both said yesterday that we were trying to create the myth that we were on the point of settling the remaining issues when the negotiations were broken up. There is no myth. The view that these negotiations could be settled reasonably in a comparatively short time was, and is, held by the five other countries in the Community and also by the Commission. They know full well the negotiating position of the United Kingdom and of their own Governments. [An HON. MEMBER: "Surrender."] The right hon. Member for Smethwick is fond of bandying the word "surrender" about the Chamber. It makes no sense whatever in the terms of the negotiations. Shortly, I shall tell him why.

§ Mr. J. J. Mendelson (Penistone)

The right hon. Gentleman has asserted that the other five countries shared his view about the conference being near to success. Does the Chancellor of the Federal Republic of Germany share that view?

§ Mr. Heath

The Government of the Federal Republic of Germany certainly share that view and it was Herr Schroeder who took the lead in putting forward this view in Brussels.

Let me, then, deal with the items which remained to be settled. First of all, on domestic agriculture there were the transitional arrangements and on these a great deal of work had been done before Christmas and during the Christmas Recess by the Mansholt Committee, on which the right hon. Gentleman the Minister of Agriculture was playing a 1140 very large part. The situation had been clarified and it was quite apparent that compromises were possible.

Secondly, the supplementary provisions for agriculture. The right hon. Member for Huyton said yesterday that the whole of the permanent arrangements for agriculture had to be settled. That is completely untrue. We had accepted the common agricultural policy and put forward supplementary proposals, namely, intervention in the special regulations for pigmeat and eggs, but these were discussed in the Mansholt Committee and the situation was clearly seen there.

Thirdly, there was the question of horticulture and on this, as I said last night, in interrupting the right hon. Member for Smethwick, there had been a great deal of discussion by working parties, officials and Ministers. The issues are quite clear—they were issues of timing, of the transitional period and of the arrangements for the continuation of tariffs and for grading.

The second item which we had to deal with was the completion of the agreement on temperate foodstuffs which included the infra-Community preference, on which the Community was going to make a further proposal to us, and the subject of New Zealand. I wish to make it plain that it has always been necessary to negotiate the arrangements for New Zealand because they could only be negotiated when it was seen what would happen to the products in which New Zealand was interested, in order that the special arrangements could be completed.

The third item was outstanding tariffs. Here, some 30 items remain and at that meeting I brought them together so that they could be considered across the board. When the Treaty of Rome was signed the Six themselves had 68 items unsettled which were put into the G list. In relation to that ours is a comparatively small number.

The other questions were the institutional arrangements and one or two smaller but still important questions such as Hong Kong and the Federation. The hon. Member for Huyton referred to the question of the African countries. That had already been settled and it remained for the countries to make their 1141 application if they wished to do so. He also referred to the Sugar Agreement; that had already been extended to 1970 and sugar would take its place in the common agricultural policy when we became members and we would have had our full rights there.

The remaining items were beef and veal, of our products, and rice and the financial regulation. On none of these had the Community itself got a position and, therefore, we could not negotiate. If they were not to be settled before the conclusion of the negotiations then, obviously, there had to be a participation arrangement in which our rights would be fully safeguarded. That, too, was known.

The last item mentioned by the hon. Member for Smethwick was that of E.F.T.A.

§ Mr. Frederick Peart (Workington)

Is it not a fact that the Government were quite prepared to jettison completely the main safeguards of the 1947 and the 1957 Acts and to accept fully the agricultural policy, even by 1970?

§ Mr. Heath

Really, the fatuous expressions used by the hon. Gentleman. I wish to describe later what is involved in going into an economic community.

§ Mr. Peart

Absolute surrender.

§ Mr. Heath

I now come to the question of E.F.T.A., to which the right hon. Gentleman referred yesterday. We have always made our position clear about E.F.T.A. in the negotiations, and it is on the record for anybody to see. The only point I wish to make is that it was quite possible for us to conclude our negotiations before other countries in E.F.T.A. concluded theirs, because the undertaking was that once they were all concluded they would come into operation on the same date. It is impossible to carry on seven negotiations of this kind simultaneously and bring them to a conclusion at the same time. Therefore, we would have been able to conclude our negotiations and to bring them into operation at the same time.

When we came to our first meeting in January we began to make progress. The Community put to us the proposal for the drafting of the necessary documents and a working party was set up. Then the Community said that they could accept 1142 the proposals we had made about the institutions. The right hon. Gentleman the Member for Huyton said yesterday that he was completely unable to accept this, that he did not in any way accept a total collapse of what should have been our position on voting rights and on the extent of the veto."—[OFFICIAL REPORT, 11th February, 1963; Vol. 671, c. 964.] I completely fail to understand what he means by this. The proposal on institutions which we put forward was that the principle behind the Treaty of Rome that qualified majorities should be two-thirds should be continued in the enlarged Community. The right hon. Gentleman and his hon. Friends seemed to take the view that the blocking power should remain one large and one small country regardless of the fact that the Community had been enlarged. It has never been the intention of the E.F.T.A. countries that they should try to maintain a veto in the enlarged community as a whole. Therefore, I cannot accept the argument that our institutional proposals were bad ones.

The Mansholt Committee completed its report and it was presented to the full conference. At this point I said if suitable transitional arrangements could be obtained we would accept 31st December, 1969, as the end of the transition period, provided that horticulture was exempt from that. I would ask the hon. Gentleman the Member for Workington (Mr. Peart) whether he would not consider these matters on their merits and ask himself whether British agriculture could not have made this change by 1969, because I believe it could.

Following this a compromise began on the particular items with which we were dealing in the transitional period. The next day we met we made proposals dealing with tariffs right across the board and the conference began shaping its decisions, but on the Thursday the leader of the French delegation intervened and asked for the suspension of the negotiations.

I hope that I have demonstrated to the House that the items which remained to be settled were important, but that, viewed in principle, the greater part of the work had already been done on them and that if the will had been there those negotiations could have been brought to a successful conclusion.

1143 Let me now turn to the reasons given for interrupting the negotiations. They have been given at the Press conference in Paris, in the French Assembly, in the Brussels conference itself, and on television. When one analyses these reasons one sees that some are fundamental. One is that this country is an island—that cannot be denied—and that it has what is said to be a different background from some other European countries. That is a matter for dispute, but the answer to all of these fundamental points is surely this: that they were exactly the same when we began the negotiations.

There has been no change during the course of the negotiations, but they certainly fly in the face of the Treaty of Rome itself, which, in it preamble, says: Determined to establish the foundations of an ever closer union among the European peoples. It then goes on, in Article 237: Any European State may apply to become a member of the Community… The conditions of admission and the adjustments to this Treaty necessitated by it shall be the subject of an agreement between the Member States and the applicant State… Let me turn now to the actual reasons for asking that the negotiations should be suspended. First, it is said that we have not accepted the Treaty of Rome. This has become a parrot cry, unworthy of intelligent men. Article 237, which I have just quoted, says that the conditions of admission shall be the subject of an agreement, which obviously has to be negotiated. Therefore, any special arrangements had to be negotiated on the basis of the Treaty itself.

We accepted the Treaty on 10th October, 1961. Not only did we accept the Treaty, but we accepted all the protocols—the protocol which allows East German trade to be counted as West German trade, the protocol which excluded Luxembourg agriculture until 1970, and the protocol which was specially put in for France. Their balance of payments position was so weak when they signed the Treaty of Rome that it was necessary to maintain their export aids and their charges on imports. We accepted all these protocols. We had no dispute with them. We say that they were justified, and we believe that they were right. We 1144 accepted the Treaty of Rome, and it is pointless for anyone to go on saying that this is the cause of the breakdown.

It was said that we had not accepted the common external tariff, but we accepted this on 10th October. We did not ask for it to be averaged, as we were entitled to do. We accepted the rates. We put in a small number of applications for changes, and when the negotiations were suspended some 30 items were left, but there were difficulties over only four of them.

It is said that we accepted a common agricultural policy, but not the agricultural policy. When I made that statement in Paris there was no common agricultural policy, and I said, therefore, that I would accept a common agricultural policy, reserving the right to negotiate on it. When the common agricultural policy began to be formed, we accepted that with the supplementary points which I have mentioned, which, we believed, could improve the regulations as they were. But is there anything very strange in proposing intervention in those two regulations when intervention already exists in the regulations for cereals?

It has also been said that we would have tried to maintain our present world system and combine it with the Community system. That is quite untrue. As Dr. Mansholt has explained, we had accepted the whole of the mechanism of the Community itself during the transitional period and the Common Market period.

Then it is said that this is a developing club, and that it is very difficult, therefore, for us to join, but this was the position in 1961. Does this mean that no new member can join until 1970, the end of the transitional period, and is it not therefore strange that full membership should have been offered to Denmark a month ago in Paris?

It is said that we made no serious progress in the autumn. We had, in fact, covered a large amount of Commonwealth items, alternative arrangements for association, Aden, Malta, the High Commission Territories; we had dealt with Article 234; we had had discussions about E.F.T.A., tariff movements, processed foodstuffs, and done the groundwork on transitional arrangements for agriculture.

It is said that we had done nothing on aluminium. On aluminium, lead, and 1145 zinc, the Community had no position to put forward for negotiation. It is said that we had done nothing on three agricultural regulations. The Community itself had no position. We were, therefore, not able to negotiate on them.

It is said that we had done nothing about the political undertakings in the financial regulation. These political undertakings, if they exist, had never been presented to us when we were awaiting a further position from the Community on the financial regulation.

Finally, it is said that we had not made the position clear over E.F.T.A. At the last meeting but one before Christmas, which I reported to the House, it was stated by the Community that as regards E.F.T.A. it foresaw that if our negotiations were successful Norway and Denmark could speedily follow. The Community went on to say that it could not foresee the end of the negotiations with the other four members of E.F.T.A. by the end of 1963. We therefore agreed that no decision could be reached on this at the moment, and that we would have to wait and see how the negotiations went.

Our position about E.F.T.A. has always been absolutely clear It has been quite plain to the Community that we should apply the common external tariff to all other countries other than those who were members of, or associated with, the Community or for whom special arrangements were made in the negotiations.

§ Mr. Gordon Walker (Smethwick)

Is not the right hon. Gentleman now admitting that we could not have come to a final decision until 1964 when we would know what had happened to the E.F.T.A. neutrals, and that, therefore, it is not true that the whole thing was on the point of settlement, as he has been arguing for the greater part of his speech so far?

§ Mr. Heath

I nave been trying to explain that the negotiations could have been brought to a conclusion. The Prime Minister said yesterday, and I said in Brussels, that we were on the point of reaching a conclusion to the negotiations. I did not say that we were on the point of going into the Community.

§ Mr. Gordon Walker

Ah.

§ Mr. Heath

"Ah", says the right hon. Gentleman. At last he understands. I am deeply moved to think that after 16½ months of negotiation we have reached the stage at which the right hon. Gentleman understands the E.F.T.A. position.

§ Mr. Gordon Walker

We for our part are glad that for the first time the right hon. Gentleman has admitted it.

§ Mr. Heath

So, with the intervention of the French Foreign Minister, we came to the end of these negotiations.

The right hon. Member for Huyton has often said that we entered into these negotiations to deal with a particular period of economic weakness. Lest he try to make another myth out of this point, I want to deal with it, because it has a bearing on the future of our relationships with the Community with which he dealt at some length yesterday.

This phase of the negotiations began in July, 1960. It began when this House passed a Motion which was very similar to the wording, I think quite unconsciously, of the hon. Member for Cardiff, South-East. The Motion was: That this House recognises the need for political and economic unity in Europe, and would welcome the conclusion of suitable arrangements to that end, satisfactory to all the Governments concerned. The hon. Member for Cardiff, South-East said this afternoon that he thought it was essential to find an arrangement between the economic groupings in Europe to achieve economic unity. I do not differ from him in that, but following on that my right hon. Friend the Prime Minister, in August—that Motion was passed in July, when my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) made a very distinguished and well-remembered speech—went to Bonn, where a communique was issued in which Chancellor Adenauer and the Prime Minister agreed that it is essential in the interests of European unity that a solution should be found of the problems arising from the existence of two economic groups in Europe. They undertook to study, in co-operation with their respective partners"— that was E.F.T.A. for our part, and the Community for their part— all possible solutions of these problems, and to exchange ideas. 1147 This process therefore began in July, 1960, and was continued until 29th January last, and it was not a decision which was suddendly taken in the economic circumstances of July, 1961.

The meeting at Bonn was followed by a series of bilateral discussions with the German, French, Italian and Benelux Governments, and what emerged from these discussions was this, and it is very important for the future. What emerged was that a group arrangement between the Community and E.F.T.A. was entirely unacceptable to the Community. The right hon. Gentleman yesterday suggested that we should consider a group arrangement between E.F.T.A. and the Community. What I am telling him is that this was examined more than two years ago and found unacceptable to the Community. He suggested that the Community should join E.F.T.A. as a single member. This, too, was examined at the same time and found unacceptable to the Community.

§ Mr. Harold Wilson (Huyton)

Then.

§ Mr. Heath

It was found unacceptable then, and I believe it to be unacceptable today. There has never been a suggestion in these discussions that the Community would accept a free trade area arrangement, a group arrangement, with E.F.T.A., or itself becoming a member of E.F.T.A.

What emerged was that each E.F.T.A. country could enter into its own relationship with the Community, and the fourth thing which emerged clearly from the bilateral discussions was that, if we were prepared to apply for negotiation for full membership, the difficulties previously encountered in the free trade area negotiations would disappear, and in that context we discussed the problem of the Commonwealth and of British agriculture.

This attitude was further endorsed by the speech of the French Foreign Minister, at Strasbourg, in 1961. He said that the idea of creating a free trade area appeared to have been abandoned, and he obviously approved of that. He went on to say: … we ourselves have always said that the Common Market was and would remain open for any other European country to join if they wished. We still believe that for some people at least this is a worthwhile prospect and probably the only satisfactory solution. We 1148 still hope that there will be a change of mind in certain quarters whence the response has so far invariably been negative. Obviously, an indirect reference to the United Kingdom itself.

So it is important to remember for the future that the Community has shown no desire and still shows no desire for a free trade area arrangement, or for the Six to join E.F.T.A., or for group arrangements between the two organisations. In this, I hope that the right hon. Gentleman and his hon. Friends, and, indeed, the whole House, will be realistic. We can never get our relations with Europe right unless we are realistic about what the Community is prepared to do and what it is not prepared to do.

§ Mr. H. Wilson

The right hon. Gentleman does not seem to have been very realistic about what the Community, at the end of the day, was prepared to do after eighteen months of negotiation. We understand his bitter feelings about this. He has shown great restraint. However, is it not a fact that the negotiations of the last eighteen months were all directed to one end, namely, of Britain going in? Naturally, all alternative propositions would be rejected.

The right hon. Gentleman has been travelling on one bus in one direction. Now that that bus has broken down, should he not look again at things which might have been rejected two years ago, or three years ago, or four years ago, to see whether there might not be a willingness to accept them—he may think as a second best, but at any rate better than the present outlook?

§ Mr. Heath

I quite appreciate the right hon. Gentleman's point. I hope that I was not showing any bitterness. I was merely stating this as a matter of fact.

§ Mr. H. Wilson

I did not mean that the right hon. Gentleman was showing bitterness, with us, but with them.

§ Mr. Heath

I hope that I am not showing any bitterness with them, because that is the view they have expressed.

I want to come later to the question of alternative arrangements and say something to the House about it. Before I do so, I should like now to indicate some conclusions from these negotiations. First, I believe that it was 1149 absolutely right to embark upon these negotiations. Yesterday, the right hon. Member for Huyton tried to discount this. I believe that for the reasons I have given—because of the preliminary investigations we made, for the political reasons which the hon. Member for Cardiff, South-East has completely ignored, and for economic reasons—it was right to enter into them. I would have thought that recent events have demonstrated more clearly than anything else the political importance of our endeavouring to become members of the European Economic Community.

The second conclusion about which want to say a few words is this. I believe that there is still in the minds of right hon. Members opposite a fundamental misunderstanding of the nature of the European Economic Community. What they entirely fail to appreciate, as far as I can understand, is that this is a Community based on a Treaty which is itself a Customs union, which believes in the Treaty and believes in the Customs union and is going to maintain both. Therefore, if one enters into negotiations with the Community one is entering into them for membership of a Community based on a Treaty which is a Customs union.

§ Mr. H. Wilson

And the agricultural policy.

§ Mr. Heath

Yes, and the agricultural policy, because that is the policy of the Community.

When considering the approach which one makes to the Community, it must be remembered that we did not go into the negotiations to change it from a Customs union. We did not go into the negotiations to wreck the Treaty of Rome. We went into the negotiations to endeavour to make suitable arrangements for the special interests of the Commonwealth and agriculture. That was the purpose of these negotiations.

Therefore, the right hon. Gentleman's phrases—"surrender" and "continuous concessions"—bear no relevance to a negotiation which is about becoming a member of a particular organisation. If the right hon. Gentleman applies to join an organisation and says that he proposes to stand by the rules, does he therefore say that he has made a surrender or an abject concession? It is a completely 1150 false approach to the whole problem of negotiating with the Community.

§ Mr. H. Wilson

Since the right hon. Gentleman, in his 10th October, 1961, speech, had no intention at all of accepting a final settlement for the Commonwealth, which he looked like accepting when the negotiations finally broke down, since at that time he had no idea of the crippling restrictions which would be forced on this country and the Commonwealth by an agricultural programme which, as he said, he could not have accepted then because he did not know what it was going to be, surely he is wrong now in saying that to have accepted the principle of the Treaty of Rome automatically involved accepting everything he has since accepted? His big mistake, as we told him at the time, was the acceptance of the agricultural programme, with all that it meant for the Commonwealth.

§ Mr. Heath

The right hon. Gentleman may argue that it was wrong to accept it. What I am saying is that if one is to become a member of a community the obligation is to accept the organisation of that community, except where one is able to negotiate special arrangements. This is what we have been doing. [Interruption.] If the right hon. Gentleman wishes to discuss the Commonwealth arrangements I will go on to that question now, because I think the House might well be reminded of what we have achieved in these negotiations in the way of special arrangements.

We reached agreement aver the whole field of economic union with the Community without difficulty. In agriculture, we were able to negotiate the additional factors of the Annual Review and the long-term assurance. For the Commonwealth, we were able to negotiate association for Africa, the Caribbean and the Dependencies. For the Asian Commonwealth, we were able to negotiate special arrangements of a very comprehensive kind. For Canada, Australia and New Zealand we were able to negotiate the whole complex for temperate foodstuffs which I have described frequently to the House. In addition, we were able to negotiate the special undertaking concerning New Zealand. Those were all special arrangements, in addition to which there were Malta, the High Commission Territories, Aden, and so on.

1151 Last night, the right hon. Member for Smethwick said that we had broken our pledges to the Commonwealth. I challenge him openly on that point. There is no pledge we have given to the Commonwealth in these negotiations which has been in any way broken.

§ Mr. H. Wilson

Pledges were given and they have been broken.

§ Mr. Heath

The pledges we have given to the Commonwealth are to protect their special interests. The right hon. Gentleman has constantly gone back to 1957, 1958 and 1959. Those were not pledges in these negotiations. They were pledges concerned with the free trade area negotiations, which was an entirely different conception.

§ Mr. H. Wilson

The right hon. Gentleman is quite wrong. The 1959 pledge was the one on which the Conservatives fought the General Election. They cannot wriggle out of this. I quoted all these pledges. They are on the record—in HANSARD, 8th November. The right hon. Gentleman had better look them up. They were made by the Prime Minister and by the present Chancellor of the Exchequer. If the right hon. Gentleman is now saying that the decision to enter into negotiations meant that these had been repudiated, we should have been told that when they went into negotiation.

The right hon. Gentleman knows that the Prime Minister gave as a reason for not wanting to go into the Common Market his insistence that we should allow free entry to Commonwealth agricultural products. The Chancellor of the Exchequer said, "We cannot get rid of Commonwealth Preference". Will the right hon. Gentleman tell us when those pledges were repudiated before the ngotiations began?

§ Mr. Heath

The Prime Minister's pledge, when he explained that, was during the Free Trade Area negotiations, and the right hon. Gentleman knows that perfectly well. In August, 1961, the House authorised us to go into negotiation with a Customs union. In the statement I made in Paris on 10th October I said that free entry would not be possible. The right hon. Member for Smethwick, yesterday, also said that we had undermined the interests of the Commonwealth in these negotiations. There is 1152 no justification for that statement in what we had negotiated in Brussels.

The next conclusion I want to mention to the House is the impact of the negotiations on the Community.

§ Mr. Heath

No, I have given way so very much.

§ Mr. G. Brown

I think that the right hon. Gentleman should hear me.

§ Hon. Members

Sit down.

§ Mr. G. Brown

I am sorry, but I have to deal with this later. It would be useful to us both to know that we are talking about the same thing. The Lord Privy Seal said that he was authorised in 1961 by the House to go into a Customs union.

§ Mr. Heath

Into negotiation.

§ Mr. G. Brown

No. In fact, the right hon. Gentleman seemed to me to say that he was authorised to go into a Customs union. This will show hon. Members opposite why it is important to clear the matter up. As I understand it, the Prime Minister in August, 1961, asked only for authority to negotiate to see whether a basis for negotiation existed.

§ Mr. Peter Kirk (Gravesend)

No.

§ Mr. G. Brown

I have sent for the quotation, so the hon. Gentleman had better be careful.

§ Mr. Heath

I said that we were authorised to enter into negotiations with the European Economic Community. That was the position. [HON. MEMBERS: "When?"] On the basis of the Resolution of the House of Commons and the House of Lords.

I would now like to say a word about the impact of all this on the Community itself. It is a fact that the Community, after these negotiations, will not be the same again, not only because of the way in which the negotiations were broken off but because of the impact of the arrangements we made on the Community; those for the reasonable price levels, reasonable outlets, world commodity agreements, comprehensive agreements and agricultural reviews and assurances. Many of these may not come to pass, but their impact has been made and will remain.

1153 The next point to remember is that, for our part, we learned much about Community policy which is not in the Treaty of Rome or the regulations. The one particular thing to which I wish to call attention is this. The Community is fully prepared to have special and preferential arrangements towards the underdeveloped and developing countries of the world; and those we were able to negotiate to a large degree. The Community has decided as a matter of policy that it will not discriminate against the remaining countries of the world. This, therefore, was the problem which always faced us regarding Canada, Australia and New Zealand after the end of the transitional period. This argument was always fully and fairly put—that three highly-developed countries with standards of living above those of any European country or the United Kingdom were not entitled in a multilateral system of world trade to have preferential arrangements continuing after the transitional period. That was one of the most important items of policy we met at Brussels during the negotiations.

I turn now to the form of the negotiations. It was between the Six Governments, the Commission and ourselves. We understood the reason for this, but it was not a very happy arrangement. At times we got away from it. At the time of real negotiation there were seven Governments around the table—and the same applied in the Mansholt Committee. I believe that the same procedure would have worked well in the last stage.

We often discuss speed in the House of Commons. On every occasion the British delegation took upon itself the onus of pressing for the negotiations to move forward, commensurate with thoroughness, and we were able to achieve a considerable amount. In this connection, I would like to comment briefly on two things. The machinery in Whitehall and in the delegation, which was a new creation for this purpose, worked extraordinarily well, but even more important, the consultation which went on continuously in Brussels and London, with the Commonwealth and E.F.T.A. countries, worked most successfully. I can recall only one slip over one item in the whole of the negotiations and I believe that it is because that consultation worked so efficiently with all these countries that 1154 there has been no damage to the Commonwealth or to E.F.T.A. Indeed, I believe that we have come closer together in the course of these negotiations.

What about our own part? To obtain these special arrangements it was necessary to justify each item on its merits. We were negotiating with people who were looking at hard economic facts in a very realistic way—a salutary process which deserves to be continued. In particular, we had to apply it to individual items of Commonwealth trade and agriculture and it gave us an insight into the strength and weaknesses of our trading pattern and agricultural structure.

It is interesting to note the view of industry over these past two years. It started with many fears about many industries. It has now changed, not only to the general desire to enter the Common Market but to a deep anxiety that we should go in, with the realisation that the people who would have had difficulties would have been the marginal firms in particular industries. It was there that greater efficiency was required. In one or two places in agriculture a major effort would have been required, but I believe that it could have been achieved.

The next point I wish to make concerns the work of the Commission and this has been much discussed. It took a major part in the first stage, very little in the second and a prominent part in the last. It has a place in our modern technological society which is not just administrative. It has a major task to play in the putting forward of proposals. The power of decision rests with the Ministers and there is no doubt that more democratic control is required, and the Community is well alive to that fact. But the machinery was created for positive action in a modern technological world, no longer a world of the nineteenth century—of liberal administration and nongovernmental interference—but a world requiring creative, positive action based on a full knowledge of the facts, razor-edge analysis and constructive thought. Whatever one may say about the Commission, it is a notable attempt to deal with the problems of a changing world.

The last conclusion to be drawn from the negotiations is this. In making this application to enter the negotiations we 1155 were prepared to face up to the need for change in almost every aspect of our national life. We examined the whole basis of our policies and looked at all the assumptions on which they stood. The right hon. Member for Huyton and the right hon. Member for Smethwick yesterday said that we must have confidence in ourselves. They were the first to undermine that confidence in ourselves in the negotiations. [HON. MEMBERS: "No."] Yes, it was hon. Members apposite who played on fears and said that we would be outwitted by the other members of the Community. They made demands for complete and absolute safeguards on every item of our national life, not only now but for ever.

When the members of the Community heard this and heard hon. Members opposite talking about us being a great Power they thought that this was incompatible. In fact, they expected us to use a great deal of influence. They knew that we could do so. They wanted us to and in those negotiations, had we succeeded, we would have been able to use our influence in the Community for the good of the Community.

I now turn to the present position. We recognise that the way to full membership is at present barred. It is a great loss to the Community countries as well. The Five countries recognise that, but it is also a loss to France, and they recognise that their farmers will not be able now to obtain a share of the British market. They recognise, too, that the likelihood of getting world commodity agreements at good prices in cereals is much less. This was fully recognised throughout the negotiations.

The question asked was whether there could be some other relationship short of full membership. No alternative arrangements have been offered to us by the Community and it does not lie in the hands of one country to offer that. In particular, the French Government have never discussed this question with us, either privately or in the negotiations. They have never explained what President de Gaulle meant by "association", but they mentioned it to many other people as long ago as last spring. We recognised it then as a kite being flown to see whether we were prepared to accept just the economic arrangements, 1156 so that it could be said that we had no genuine interest in the political union of Europe. I have often explained our reasons, both the political and the economic ones. Those criteria were always before us during the negotiations and any alternative must be judged against those criteria; political and economic.

Some hon. Members have talked of association; broadly speaking, the position is this. Full membership gives one all one's rights in all the activities of the Community. As an associate one does not have such rights. One tries to use one's influence and these facts must be weighed in the balance if or when any alternative arrangement is put forward. I do not wish to go further into the details of this, but I think that we agree on three things.

First, if there is to be any alternative arrangement, whatever it may be, it must come from the whole Community. Secondly, it cannot involve another long set of negotiations; and that point was made by the Opposition Front Bench yesterday. Thirdly, the good faith of all those in the negotiations must be demonstrated from the beginning. The will to succeed must be there, as apparently it was not there in our negotiations for full membership. If any alternative is put forward in this way then, of course, it is bound to receive consideration.

What of future developments of another kind? The right hon. Gentleman the Leader—[Laughter.]—the right hon. Gentleman the Member for Huyton castigated my right hon. Friend yesterday for, as he said, not putting forward any alternative proposals. But what happened when he himself came to that point? He did not propose any alternatives. What he said was: What we are really discussing today is not a packaged alternative to the Common Market, but a plan for the future of Britain…"—[OFFICIAL REPORT, 11th February, 1963; Vol. 671, c. 967.] The right hon. Gentleman put forward a list of countries with which we could trade—incidentally, the list was already known to us—and various other minor proposals.

Surely the important point is that we continue to develop trade on a multilateral basis. Everything that the hon. Member for Cardiff, South-East said confirms that the basis for our trade should 1157 be multilateral agreements. I know that some of my hon. Friends do not agree with this and would like to see increased development of a preferential area, but that is not the basis on which our trade has been developing since the war. It is interesting to note that whereas, in 1938, our exports and re-exports covered less than 60 per cent. of the cost of our imports, in 1955, under multilateral trading arrangements, they covered 75 per cent., and by 1962 88 per cent. That is in the multilateral trading world.

We have been asked to play our full part in the Kennedy Round. Of course, we shall do that. I did not quite understand the right hon. Gentleman's point about everyone sitting on one side of the table with the Community on the other. Surely the confrontation is bound to be between the United States and the Community, because they are the two major economic forces, and we play our part in addition—and the Commonwealth, of course. It would