Hague seeks salvation in the US

WILLIAM HAGUE will spend Christmas pondering whether he should change the nature of the European debate by proposing a trade pact between Britain and America next year.

Critics see the move as a council of despair but the idea of greater economic co-operation between the US and the UK is now being taken seriously by the Conservative party and Democratic and Republican senators in the US. The IoS revealed last week that members of the Shadow Cabinet have already met Republican senators for talks about future British membership of the North American Free Trade Agreement (Nafta).

It is understood William Hague sanctioned the talks in a bid to provide a credible alternative to Britain being a member of the EU. A Tory insider said: "Instead of `are we in Europe or out?' the debate would move to: `do we stay in Europe or join America?' " Shadow Transport Secretary John Redwood confirmed discussions had been taking place between "senators of a Republican persuasion and senior members of the Conservative party". He said the idea had won support in the US.

Recently, Senator John McCain, the closest challenger to George W Bush for the Republican nomination, said: "I would welcome any country into Nafta that would lower their barriers to US goods and services, but I would prefer somebody like the British because we have such commonality of interests. "

Last month the Senate's Banking and Finance Committees gave the US's International Trade Commission, which is an independent body, nine months to make a study of the effects of Britain joining Nafta and produce estimates of the impact on trade, GDP, employment and investment.

However, the involvement of William Roth, chairman of the senate finance committee, Phil Gramm, chairman of the senate banking committee and Daniel Patrick Moynihan the most senior democrat in the Senate has changed the complexion of the debate. Mr Gramm said: "I have long believed that both the US and Great Britain would benefit from freer trade between our two countries."

The Tories are also strongly indicating that they would see no problem in adopting membership of Nafta as party policy.

"Various leading party spokesmen believe it is a good idea for Britain to join up," a senior Conservative source said. "We are strongly in favour of free trade and there is no reason why we can't be a member of Nafta without causing problems in Europe." But Britain would have to leave the EU to join Nafta. EU trade policy is made by the European Commission, and a unilateral decision to join Nafta would cause a political schism.

It is understood that there is a groundswell of opinion at the top of the Tory party in favour of forming a so-called North Atlantic Confederacy - a political alliance with the US.

Whitehall sources have also confirmed that the idea of the UK joining Nafta was gaining currency during the final months of John Major's administration. "It is something they were beginning to push in government just before the election," a Whitehall source said.

Britain accounts for two-thirds of all European investment in America, and is the largest foreign direct investor in the US. The US is the UK's largest single export market with combined annual exports of goods and services worth pounds 31bn. Pro-Europeans point to the fact that between 50 and 60 per cent of UK exports go to Europe and British industry is geared to the European market.

Michael Fabricant, Tory MP for Lichfield, who has consistently argued that there needs to be a debate on the possibility of joining Nafta, said the best reason for signing up was the issue of cost. "We put pounds 20m a day into the EU and get pounds 11m back - that's not good business."

But for Charles Grant, the director of the Centre for European Reform, said: "No one in the Clinton administration has ever taken this idea seriously - it is just dotty."