HC Deb 08 February 1949 vol 461 cc209-31

Motion made, and Question proposed, "That the Clause stand part of the Bill."

Mr. R. A. Butler

I think this Clause raises the main issues of this Bill, and we would not be ready to agree to this Clause without some further explanation from the Economic Secretary in answer to some of our doubts and anxieties. It is possible to use highly technical language in dealing with these matters. I may, perhaps, be forgiven if I go to the other extreme and use as simple language as possible. What this Clause appears to make certain is that there will be a rigid intra-payments system—we are discussing the Intra-European Payments Account—which will, in fact, impose itself on the terms of trade and be the master of the terms of trade, instead of the alternative of a monetary system as the servant of trade. We understand how such a system has to be introduced, but there is no doubt that it assumes in this Bill, and as far as we can study the matter, a great rigidity.

Therefore, we want to ask the Government, in the first place, whether they are satisfied that this is quite the right way to achieve the greater development of intra-European trade and expansion of world trade, or whether they are not depending too much on the bilateral system, whether, in fact, they are not introducing so much rigidity that they will defeat their own ends. The Economic Secretary would go some way to alleviate our anxieties if he said that there are proposals—we may discuss them in more detail on Clause 5—for an amendment of the scheme at a later date which would render it more flexible and more adjusted to the real needs of trade.

The second criticism I should like to make is that it would appear that this system gives no effective incentive to debtor countries. It would appear to be the case that the debtor countries have no incentive really to improve their position, because, to put it bluntly, they know what they are going to get under the grants which are coming to them. We feel also that what has been described as the "small Marshall plan" has not in it the same element of efficient supervision and control that the main plan carries with it. It is rather an extraordinary thing that the machinery by which the plan is carried out should include in it less supervision, control, and incentive to do better, than the main plan itself. Perhaps, the hon. Gentleman will give us some answer on that which will give us some satisfaction.

An extreme example would be of a country's using its drawing rights even if it meant paying a higher price for imports. That would be going against all our principles of making trade better, and of making it flow more easily in Europe. Then I want to ask the hon. Gentleman what happens if creditor countries do not exercise their drawing rights. I realise that this matter is set down in the Economic Co-operation Agreement, in Article XVII, and that we have an opportunity of understanding that matter by studying the terms of the Co-operation Agreement itself; but I would value from him some more detailed example of how he thinks it is to work out.

Then I want to revert to something I first put to the Government in September of last year, and which we raised again on Second Reading. Where are the sums paid out of the Intra-European Payments Account to debtor countries to be expended, and on what are they to be expended? We have had so far only some preliminary answers on this point. If these sums are to be expended in the sterling area, we want to know upon what they are to be expended. I should like to support what my hon. Friend the Member for Chippenham (Mr. Eccles) said in the Second Reading Debate, that we do not think that the Government have approached this whole problem sufficiently from the angle of the sterling area itself, but seem to have approached the problem of settling the intra-European payments from the angle of this country alone—as I myself described it—turning it into a sort of autarchic economy, rather than approaching it from the angle of the sterling area itself and our own interest.

If the hon. Gentleman will carry further the arguments the Chancellor of the Exchequer attempted to give about where this money can be spent, and on what it will be spent, he will be helping us. If it can be spent only in the sterling area, as the Government have implied, what arrangements are there for making the limitation effective? I do not believe these sums will be spent only in the sterling area. The Government have implied this, and, perhaps, the hon. Gentleman could take the matter a little further and make his answer more explicit. If, in fact, they are to be spent in the sterling area, what limitations are to be imposed to ensure the expenditure is there made?

I said that we should be able on Clause 5 to carry a little farther our investigations into the future and into the possible amendment of the Intra-European Payments Agreement, but I think it is essential for us to look further ahead than the Government appear to have done so far in this matter, because our whole object in receiving Marshall Aid is to improve European trade and to develop intra-European trade. If we adhere to a rigid system of this sort we shall suddenly find ourselves at the end of Marshall Aid with a rigid system which does not suit the needs of the moment.

Therefore, I hope we shall hear from the Government that it is intended that there shall be amendments not only in the system of intra-European payments but also in the machinery of O.E.E.C. itself. We have seen a certain amount in the Press on the subject of the possible amendment of the O.E.E.C. machinery, which is not in itself entirely satisfactory—leaving aside the obvious tributes we should like to pay to the many personalities who have introduced themselves into the picture, and whose initiative has helped us to launch the scheme. Leaving that aside, can the hon. Gentleman give us any particulars of the possible amendment of the O.E.E.C. machinery itself, and can he tell us whether he intends to make the intra-European payments scheme rather more flexible in the immediate future?

In this connection, the Government could help us also if they would reassure us that the overlapping of economic organisations in Europe is not to be more intense than it is at the present moment. We understand that the Government are intending to unite all their efforts at achieving the economic recovery of Europe within the O.E.E.C. machinery. It is, therefore, important that this machinery should be flexible to the maximum degree and that in the period at the end of Marshall Aid we should be quite satisfied that it is possible to have a scheme which will work in a more flexible manner.

The last point which I wish to put to the hon. Gentleman is a technical point to which, if he keeps up his batting average today, he will give us an immediate answer. That is to ask him if any Category 2 compensation has yet been accepted. Category 2 compensation is that in which the debts can be switched from one creditor to another. Will he tell us whether any such arrangement has been made because, according to our researches, none has been made hitherto.

I conclude, in introducing a discussion on this Clause, by saying that the present system, however necessary it may have been to start the scheme off, is in our view too rigid. It encourages to too great an extent bilateral as opposed to multilateral European trade. It does not give an incentive to countries to build up their surpluses in mutual trade, and it seeks to give too big an encouragement to debtor countries to sit back and say that things are looking pretty and not to be prepared to put forward their best efforts. There seems to us to be too detailed a form of planning really to encourage incentive and development in the trade of Europe. We trust that the Government will be able to reassure us about these matters before we agree to the passage of this Clause.

Mr. Benson

I think that the right hon. Member for Saffron Walden (Mr. R. A. Butler) is asking a good deal of the Economic Secretary to outline future reforms of the machinery of intra-European payments, as the machinery has only just been set up. We surely must proceed on a basis of trial and error. There will be flexibility, I think inevitably, in that the intra-European drawing rights are fixed only for 12 months and will have to be reconsidered every year. I have no doubt that with reconsideration year by year such experience as not only this country but the other European countries have had will enable them to increase the efficiency of their machinery. The fact that our drawing rights are fixed only for 12 months surely gives O.E.E.C.—not merely this country—the power to put some pressure upon those debtors who do not appear to be making any real effort to balance their overseas payments account.

With regard to multilateral trading, it is very nice to notice the complete conversion of the opposition to multilateral trade which, of course, is our ideal. But our experience of the attempt to make sterling multilateral currency in 1947 surely does not encourage us to go too rapidly in that direction, even on the very much smaller scale of intra-European drawing rights. It is, as I suggested on an earlier Clause, theoreticaly possible that the 200 million dollars worth of sterling which has been granted under the intra-European agreement with France can be used to purchase materials in this country to be sold either to Switzerland for gold or to the United States for dollars. I fancy that there has been in the past, prior to Marshall Aid, an attempt on the part of some European countries to purchase in this country for sterling and soft currency materials which were very valuable to us as dollar earners, and to trade them to dollar countries, the result being that we got soft currency and the purchasing country got dollars. That is still possible, I think, under these drawing rights.

I hope that the Economic Secretary, although I am quite sure that he like myself and, I think, everybody on this side of the House is strongly in favour of a return to multilateral trade as rapidly as we can, will see that these drawings are not used to our detriment to the extent that they enable the recipient countries to use these drawing rights indirectly to earn dollars or gold.

4.15 p.m.

Mr. P. Roberts

I feel after listening to the Debate, that this Clause does not go as far as I should like it to go. Questions which I put to the Economic Secretary earlier verifies my opinion. As has been already mentioned, I fear that we shall get into a position where our trade with other European countries will be so rigid and fixed that we shall not be able to deal with the dollar deficit from the Western Hemisphere. I would quote what the Chancellor of the Exchequer said the other day when he was putting the problem and, I think, was suggesting an answer. I thought that this might have been the answer that he was suggesting, but it appears that it is not. He said: Just as the European countries must plan their long-term programmes to overcome the dollar deficit by increased production, so they must devise ways of getting rid of the persistent deficits in the payments between one European country and another."—[OFFICIAL REPORT, 27th January, 1949; Vol. 460, c. 1116–7.] He did not go on to say how we were going to get rid of these "persistent deficits." I had hoped that through these drawings, if they had been made flexible, it might have been possible to achieve that result.

The great danger which I see is that if we go on trading in the way we are, exporting to France or to Italy merely the amounts which they are prepared to send back to us, we are faced in 1952 with this position: We have to export a surplus of 600 million dollars to Europe and the other sterling and non-sterling countries in the hope that the surplus will get to America in order to correct the deficit of 291 million dollars which we shall otherwise have to meet, although, at the end of 1952, we shall have an overall balance which will depend upon the surplus exports of those countries which are the non-dollar countries. If that is so, I fail to see from the point of view, for instance, of the exporters of Sheffield and Yorkshire that in facing an export surplus of 600 million dollars with no sterling to pay for them we shall have to accept foreign currency. I cannot see traders at the moment being prepared to accept francs if France was the country concerned.

The hon. Member for Chesterfield (Mr. Benson) mentioned the question of convertibility and what happened to the previous Chancellor of the Exchequer. There, of course, convertibility was allowed at fixed rates so that money went from London because a better rate could be obtained for a similar asset elsewhere. It seems to me obvious that unless there is fluctuation of currency which can be a guide we are going to get into this fixed state of trade the fear of which my right hon. Friend mentioned.

I should like to ask one or two questions of the Economic Secretary because we have not enough evidence upon which to make up our minds on this problem. I know that in Tangier at the moment there is what is termed a free market where the dollar is quoted in relation to the pound. Is it possible to get any idea of what would at the moment be the free exchange if all restrictions were taken off between the dollar and the £? I am not now quoting the rate which could be got for the £ in New York, because obviously that entails having to bring the proceeds back across the Atlantic and into this country, risking going to prison in the process. However, I think we ought to have some indication from the Economic Secretary of what he considers the position would be if in this account we were allowed some form of flexibility to start with.

A possibility is that we might be able to have some form of flexible convertibility within these drawings which would be an indication of the way future currency purchases might be made. Unless something of this sort happens I believe that the whole of this scheme will fail. In other words, we have not found the solution for which the Chancellor said we should look. I am particularly worried about this agreement into which we are now entering, particularly the agreement with regard to the drawings from one country to another. As far as I could understand the Economic Secretary when I questioned him, it is only drawing on a sterling basis, and there is no chance of moving those currencies within the European organisation. If that practice is followed we shall find that, with the best will in the world, we shall not be able to get the surplus export necessary to balance our imports and exports with the Western Hemisphere by 1952. Therefore, I feel that at this stage I cannot support the Government on this Clause, because I believe that in the long run it will lead us into greater difficulties.

Mr. Eccles

I agree with my hon. Friend the Member for Ecclesall (Mr. P. Roberts) that there is a basic disequilibrium in trade in Europe today, and we ought to look at this intra-European payments system as a step towards overcoming the obstacles. I do not, however, agree with him that we could overcome them by having fluctuating exchange rates. Something very much more drastic than that has to be done. I should like to make my observations about this Clause in the same form as I did on a previous Clause: namely, to discuss first what is paid into the account, and then how it gets paid out.

I am dissatisfied with this drawing rights system, and I very much hope that it will be drastically amended in the second year of Marshall Aid. As far as I can ascertain, the drawing rights which govern the amount of money paid into this account were the result of adding together very hasty guesses at the import surpluses of the Marshall Aid countries. Naturally enough, in the short time available the countries who thought they might get some conditional aid of this kind pitched their import surpluses very high; probably the United Kingdom was, as is usual, far and away the most honest in the statistical calculations, and ours is very likely the only calculation that bears any relation to reality.

One of the conditions which should have been taken into consideration when calculating what would be the deficit of any of these countries was the ability of that country to earn foreign exchange by normal trade. That is to say, the figure for the drawing rights that we have given to France, for example, which constitute more than half the amount of money going into this account, should not have been struck until after we had taken into account all the various ways in which the French could earn sterling. Indeed, the Chancellor himself said on Second Reading that part of the whole system is adherence to certain rules of commercial practice, and, to use his own words: creditor countries should be as liberal as they reasonably could in their import policy. Well, of course, that policy would be to our advantage in order to cut down the size of the drawing rights that we have to give to a country like France. We all know that we have not been as liberal as we might have been, either in taking goods from France or in the travel allowances to British tourists going to France, and at Question time today I was glad to hear the Economic Secretary say that this matter was under consideration. But it must be absurd to put up in this country for the benefit of France free sterling which France is perfectly willing and able to earn. I hope that next year some changes will be made in that direction.

The Chancellor also said: Some drawing rights, almost certainly, will not be used."—[OFFICIAL REPORT, 27th January, 1949; Vol. 460, cc. 1115 & 1117.] That is evidence, of course, of the miscalculation of the import surpluses at the time when this system was established. As my right hon. Friend has already said, we want to know whether we should lose any unconditional dollars if one of the countries to whom we have given drawing rights does not exercise them. I have in mind Italy particularly. Now, no payment ought to be made out of this account if the country to whom the drawing rights have been given has not used the available sterling that it has in balances in London obtained by other means.

I think it is necessary to show to the Committee how it is that a payment is made out of this Intra-European Account in order that I may explain this matter intelligibly. The first operations that take place when compensations are made each month between the Marshall Aid countries are Category 1 compensations, which are perfectly simple, since no new balances are created. When the Bank of International Settlements, whose duty it is to collect all this information, sees how many Category 1 compensations it can make, it then proposes to the Marshall Aid countries Category 2 compensations. My right hon. Friend asked about these. I believe it to be a fact that not a single Category 2 compensation has gone through; that obstacles have been put in the way of every proposal so far made. But we want some accurate information about that.

After Category 2 compensations have been turned down there remain certain deficits and credits. At that point the drawing rights come in, and the debtor countries are allowed to take money out of this Intra-European Account. But the Committee will see that it is of first-class importance to His Majesty's Government that before any of this free sterling is drawn out of this account the countries concerned shall have used up their abnormal sterling balances. There is provision for this in Article 6 of the Agreement for Intra-European Payments and Compensations, which reads: Each Contracting Party undertakes not to cause abnormal balances in the currencies of other Contracting Parties to be held by banks other than central banks or otherwise to place such balances so that they will not be available for the purpose of compensations. Can we know whether the Italians have tucked away a lot of sterling that they have been earning by their export trade on which we cannot get our hands? It must be proved that there is no sterling that can properly be used for the drawing rights made available.

4.30 p.m.

As part of this whole system, we have agreed that by the equivalent of some 209 million dollars, sterling balances in London shall be reduced. We have never had details of those 209 million dollars of sterling balances. Are we quite certain that none of those countries, to whom we have given drawings, is holding either in its old sterling balances or sterling which it may be earning by its current trade, money which could be used to make the payments for the goods which it wishes to buy in the sterling area? It would be wrong to provide new money until the old balances have been drawn down. What is the American view about this? Americans used to be rather difficult to deal with about these sterling balances. Could the Economic Secretary tell us whether the American Government today fully realises that it is far better for us to reduce sterling balances than to give drawing rights so that we may get rid of these sterling balances which we have here?

I want to take up a point which was made by my hon. Friend the Member for Ecclesall (Mr. P. Roberts). We feel that some extra effort towards transferability in Europe should be made. We feel that this is a very rigid system, and it is going to impose a trade upon Europe which is tied up to what is purely temporary—that is Marshall Aid. It is very desirable that before 1952 European payments should become more flexible. The hon. Member for Chesterfield (Mr. Benson) rightly reminded us of the fiasco of convertibility in 1947. I do not doubt that both in the Treasury in Whitehall and in Washington the memory of what the Chancellor of the Exchequer did dies very hard, and that we are now over-timid because he was over-rash.

Mr. Benson

It is not a question of the rashness of the Chancellor of the Exchequer at the time. The point was that convertibility was forced upon us by the Loan Agreement. When the world knew that sterling was convertible they re-converted into dollars in every possible conceivable way. It had nothing to do with the Chancellor of the Exchequer.

Mr. Eccles

The hon. Gentleman is completely wrong. He ought to know that the Americans came to the Chancellor at that time on several occasions in April and May and warned him that this would happen if he went on with it. He took no notice whatever.

The Deputy-Chairman (Mr. Bowles)

What the hon. Gentleman is saying has got very little to do with the Clause and has nothing to do with what we are dealing with now.

Mr. Eccles

I beg your pardon, Mr. Bowles, but I was led away by the remarks of the hon. Gentleman opposite. I return to the question—can we make these drawing rights more transferable? They can only be used for the currency in which they are given, but I assume they can be used to pay debts in those countries with which we have the transferable sterling system as well as those in the sterling area. Could the Economic Secretary give us some hope that more countries will be brought into the transferable account system? There is Denmark, for instance. We want to widen the use of sterling as much as we possibly can.

I should like to go even a little further. I know that His Majesty's Government have been the chief opponents of making these rights transferable, because they feared that sooner or later sterling would get round to Belgium and Switzerland and entail gold payments. Could the Economic Secretary give us any kind of estimate of what is the risk involved? How much gold would we stand to lose, because the expansion of trade and the strengthening of sterling everywhere within the Marshall countries to make sterling transferable is an enormous question on one side, but on the other is it outweighed by the prospective loss of gold? I quite agree we should not wish to finance the holiday of every European in Switzerland. I should not want His Majesty's Government to have to find the foreign exchange for that sort of thing, but, with appropriate safeguards, a few more risks in the direction of freeing the currencies of Europe surely would be worth taking. Some further remarks on the same subject would be better raised on Clause 5, and I therefore leave Clause 3 at that point.

Sir Arthur Salter (Oxford University)

I only want to say a word or two in support of one point made by my hon. Friend the Member for Chippenham (Mr. Eccles). It is of extreme importance that in this inter-European payments scheme we should behave as we always say we wish a creditor country should behave. As the Chancellor of the Exchequer said the other day, this is a little Marshall scheme within the Marshall countries, and within this little scheme we are, of course, in the same relationship to a country like France as America is to us in the general world system. This is of great importance, because when the temporary aid of the Marshall Plan has come to an end, it will make a very great difference to the prosperity of the world, and in particular of a country with an economy like our own, whether the new equilibrium is on a low level or on a high level of international trade. The difference will depend upon whether the burden of adjustments falls, in fact, solely upon the deficiency countries or is lightened by the policy of the creditor countries.

We, of course, hope that to the utmost possible extent the surplus countries like America will facilitate imports from deficit countries. And the conduct we expect and hope from America on a larger scale to some extent at a later date, is now our duty within the Marshall Plan and Inter-European Payments Arrangements to show to these European countries like France, who are in deficit with us. I cannot see on what ground it is our interest or it is reasonable for us to refuse what France can give to our citizens in return for the sterling we supply her. Why should we insist that she shall take the sterling without giving in return either services or goods. Obviously, France not only could but would like to supply us for example, with tourist facilities on a much more liberal scale than is now allowed, and obviously she would also like to supply us with goods which we should quite rightly refuse to buy if their country of origin were a dollar country and we could only buy them with dollars.

Why is it that we prefer to give the money rather than accept a return for it in services rendered? It may perhaps be said, first, that if we refuse to take those services or goods, France will accommodate her economy to the production of goods we need more than what we are now refusing to receive. Well, the extent to which that argument can be pushed, in regard to persons, for example, who run the hotel industry of France, or the people who are working in the vineyards, is obviously rather limited. The only other reason I can think of is that it might involve differential treatment of some of the Marshall countries. Obviously there are Marshall countries in relation to whom we are in deficit and not surplus. The application of this principle might well therefore involve that tourists allowances should be different in regard to a country to whom we are in deficit from what they would be in regard to a country like France, where we are in a surplus position. But this carries its own justification with it.

In all the arrangements that have been made in the last few years in regard to America and the dollar world, this distinction has always been maintained as, at any rate, one which should be applied and observed during this period of transition. Differential treatment is justified in cases where there is a serious fundamental disequilibrium in the balance of payments, as it would not be in cases where the relationship is of countries that are in equilibrium. Surely, if we cannot give greater facilities for the acceptance of services or goods from all the Marshall countries, it is best to make that distinction and to accept goods and services where we are in a surplus position in regard to the providing country. I therefore strongly support the argument of my hon. Friend the Member for Chippenham (Mr. Eccles).

Mr. Boothby (Aberdeen and Kincardine, Eastern)

Having only just come back from France, I should like to put one point to the Economic Secretary. I found over there considerable disquiet about what was alleged to be the nationalistic outlook of our original British plan. They say it was a purely British plan which bore no relationship to the requirements of the Continent. I think that argument can be answered to a very considerable extent, but it is an argument which exists over there. It was rather a pity that the plan should have broken down in the way it did. I think there is also a realisation that we have every justification on economic grounds, having regard to the plan for the economic integration of Europe, for not taking a considerably greater number of French goods than we are about to do, or say that we are going to do.

As the right hon. Member for Oxford University (Sir A. Salter) has just said, we are a surplus country in relation to France. The prevailing view in France is—something should be said about this because it is doing some psychological damage at the present time—that we are disinclined to take French goods not only on economic grounds, for which we have every justification, but on moral grounds, because somehow or other our Chancellor of the Exchequer disapproves of wine and tourists, and generally of enjoyment in any but the most rarefied forms.

Mr. S. N. Evans (Wednesbury)

May we have a definition of "rarefied forms"?

Mr. Boothby

I will leave that to the hon. Gentleman to find out for himself. Usually we call it an austere form of enjoyment. What the right hon. Gentleman says is definitely true. There are even rumours that we have been bringing pressure to bear upon the French to plough up the vineyards of Burgundy and Bordeaux and to turn them over to wheat and linseed. I am sure that that would be an outrage and contrary to any civilized conduct. There is only one trouble with wine at the present time; it is too expensive. The remedy for that is very largely in the hands of the people of this country and I shall have something to say about that later.

I can assure the Economic Secretary that there is widespread feeling in France that we are refusing to take goods that the people of this country would like and which the French would like to send us at the moment. They feel that although we are a surplus country we are—I might use a very forceful expression—pigheaded in our determination to set an example of rigid austerity to the Continent. There is an impression that we think that if we bought a little more wine, or if we went so far on the road to ruin as to buy a little more scent, we would encourage the French people to believe that we were relaxing our rigid programme of austerity. I should like the hon. Gentleman to say a few words on this subject from that angle. If he thinks that the French are not saying these things he is mistaken. They are saying them in large numbers and very forcefully, and that is not doing us any good.

4.45 p.m.

Mr. Spearman (Scarborough and Whitby)

I support the plea put forward so ably by my right hon. Friend the Member for Oxford University (Sir A. Salter) that we should take the widest and the boldest view we can in regard to trade. We are forced in this case to be bold and imaginative. To be overcautious would mean that we should be bound to fail. I think I am right in saying that if we were to pay for the amount of imports we had before the war, and if world trade were to be at the level it, was in 1938, we should have to do half the total world trade. If we are going to consider ourselves in isolation, we are bound to starve through taking an ever-larger slice of an ever-dwindling cake. We surely must approach this matter with a degree of boldness and imagination and think about improving world trade, and European trade in particular, in a bold and generous manner.

Mr. Charles Williams (Torquay)

I support many of the things which have been said by my hon. Friends who have just spoken. One of the things which is doing more harm than good and helping to "dismalise" this country and to discourage trade is the appalling idea that the Chancellor of the Exchequer has on austerity. That is doing a great deal of injury to the nation as a whole. He is not really stopping luxury consumption, but is trying to stop certain forms of consumption of which he does not happen to approve. My hon. Friends have put in an appeal for things like scent and wine. I have no objection to those articles whatever. They would do a great deal of good. I am not sure that we should not have a better Chancellor of the Exchequer if, on occasion, he had a glass of something more substantial that would humanise him—

The Deputy-Chairman

The hon. Gentleman should confine his remarks to the matter before the Committee. He must not pursue his present line.

Mr. Williams

I certainly would not dream of pursuing that point. I was merely trying to refer to something which could be usefully imported.

Mr. Beverley Baxter (Wood Green)

On a point of Order. If the personal habits of a Minister are such that their influence is felt in the broader policies, could we not argue from the broader policies to the personal habits of the Minister?

The Deputy-Chairman

We are talking about intra-European payments. That is a very much more restricted field of debate.

Mr. Williams

Thank you very much, Mr. Bowles, for your kind help. I was not attacking the Chancellor of the Exchequer. I was only saying I thought he might be improved.

The Deputy-Chairman

That would be as much out of Order as if the hon. Gentleman were attacking him.

Mr. Williams

It is much too difficult to find anything good of the Chancellor for me to pursue that line. There are a lot of French things which could come into this country without competing with our own. There are one or two lines which I myself favour very much, but as a West Country man I must say that on one or two occasions in the last year there has been a great influx into this country of certain vegetable products from France, with almost disastrous effects. There is a great deal of difference between those products which compete with ours and those which do not. If, for example, the French swamped the whole of our herring industry, I believe that even my hon. Friend the Member for East Aberdeen (Mr. Boothby) would agree that something should be done. I simply put that point forward in a cautionary way, because I realise how difficult it is to keep the Government looking after our industries in this realm of wholesome food.

Mr. Boothby

It is quite inconceivable that the French could swamp the herring market. For my own part, I am not in the least afraid of that, or of their wines swamping the whisky industry.

Mr. Williams

I realise that the French are not likely to swamp the herring industry. My point was that if by some change of circumstances that were to come about in the case of herrings, we should hear a very different point of view. I caution my hon. Friend to be a little careful on these matters. It is possible that he might find some particular Scots product being swamped by some French product in a way he would not like. My hon. Friend knows a lot but not all about Scotland. Scotland will develop in the future, and I hope that it always will. But I cannot go into that matter now.

Sir A. Salter

Is not the hon. Member for Torquay (Mr. C. Williams) rather afraid that American manufacturers may use the kind of argument which he is now using, and do so with much more serious effect upon us than the policy about which he is now addressing us?

Mr. Williams

Yes, but we are not here solely to put forward propositions which are absolutely safe. We must occasionally put forward some point of view of our own people, even if there is a danger in that point of view. I look upon the Americans as kindly and sensible people who will realise that we in this country have to look after our agricultural and market-gardening industries in the same way as they look after their industries. I have not the right hon. Gentleman's knowledge of America, but I believe that they respect us all the more if, occasionally, some of us state the point of view of our own countryside, as I am trying to do. I welcome the effect of this Measure in respect of goods coming from France and other countries, but if they are to compete with and, as was the case in the West Country this winter, even seriously injure some of our producers, there must be some limit in that direction. I welcome the Clause as a whole, and I hope that it will be of immense benefit to us, possibly even to the Chancellor of the Exchequer himself.

Mr. Jay

If I understood the speech of the hon. Member for Torquay (Mr. C. Williams) aright, it was one in support of this Clause. I am grateful to him for that. The right hon. Member for Saffron Walden (Mr. R. A. Butler) asked a number of searching questions. Perhaps I might answer the most technical one first. He asked me whether any Category 2 compensation under the Payments Agreement had yet been carried out. The answer is, "No." The right hon. Gentleman also asked, and this was the main burden of the speeches of hon. Members opposite, whether we were satisfied that this arrangement of the Payments Agreement, which is given effect by this Clause, is likely to lead to greater multilateral trade in Europe and outside. We are at one with the spirit of most of what has been said this afternoon on the desirability of moving towards multilateral trade. I am not sure whether the hon. Member for East Aberdeen (Mr. Boothby) would support his friends in that, but there is not much division between the Government's view and what has been said by them.

The whole European recovery programme, we must remember, is a recovery programme and not a permanent system of international trade. In a number of respects it is temporary, though the O.E.E.C. may well go on. We agree that greater multilateral trade is the aim towards which we should move. Even during this temporary period we are attempting to get nearer to that system in two ways. The first way is by encouraging the maximum multilateral trade within the sterling area, where we have a system of multilateral trade and convertible currency. That applies to some extent also to the transferable account area, of which the hon. Member for Chippenham (Mr. Eccles) spoke. Secondly, we are trying to encourage a greater degree of such trade in Europe by this payments scheme, which I agree is a temporary scheme. The temporary arrangement represented by aid of this kind is certainly to some extent rigid, and is calculated perhaps to restrain trade. Had it been entirely a matter for the United Kingdom, we should have preferred at an earlier stage to argue in favour of a system by which the dollars in E.R.P. would have been handed over with each European country then being free to make use of them in whatever way they pleased. But we were only one of 20 parties to the bargain, including the United States, and after months of negotiation the Agreement emerged in a rather different fashion.

The right hon. Gentleman asked, as did the hon. Member for Chippenham, whether the payments scheme was not calculated to encourage debtors to continue being debtors and have a large deficit. If each year is looked at in isolation, one could argue that the larger one's deficit the larger the grant one receives. That is obviously a danger of which we have all been conscious. The hon. Member for Chippenham said that the United Kingdom was perhaps more honest in estimating its surpluses and deficits than some countries had been in estimating them. It is not for me to say which countries have been most honest; but the test of time has shown up some of our estimates in a rather more favourable light than some other people's estimates.

We have to remember, however—and this is really the answer to the right hon. Gentleman—that each year the amount of dollars available to all the O.E.E.C. countries from the United States will be less. We have asked for a figure in the coming year 25 per cent. less than we are to receive in the present year. That is a hint to countries exercising drawing rights on us that they cannot expect to get as much as they had in the previous year. It is an assumption of the whole O.E.E.C. system that every country that has a deficit endeavours in all ways possible to diminish that deficit over the four-year period.

The right hon. Gentleman also asked what happens if the drawing rights are not exercised by the debtor countries during the year in question. That is one of the questions which is still undecided and which has to be further discussed in the O.E.E.C. All that is certain at present is that drawing rights are not automatically cancelled when the year comes to an end.

The right hon. Gentleman further asked, and the hon. Member for Chippenham touched upon the same point, what guarantee we had that sterling which was made available would be spent in the sterling area. The normal working of exchange control in the sterling area countries should ensure that the sterling made available is freely used only within the sterling area. Exchange control should ensure that it is not used outside. My hon. Friend the Member for Chesterfield (Mr. Benson) asked whether it might not happen that one of the countries receiving this sterling might buy goods and sell them for gold and dollars. That is a practice which did not originate with the Intra-European Payments Agreement. There have been cases of that happening over the last two or three years. Our remedy for that would be to raise the matter with the country concerned within O.E.E.C. and to argue within the organisation that this was an action contrary to the spirit of the Agreement.

5.0 p.m.

Several hon. Members put forward the very familiar argument that it would be better for the United Kingdom to take more goods from France and to allow more tourist facilities for our own people going to France. It is probably not always realised that our visible exchange of goods with France is very nearly balanced. We are taking a very large volume of goods from France, including a great many not altogether essential products. The deficit arises from the purchase by France in the outside sterling area of wool, rubber and raw materials of that kind.

Sir A. Salter

Does it really matter whether one takes just invisible items or not? Is not the argument that I have put forward equally true, whatever is the origin of the deficit of France in relation to ourselves?

Mr. Jay

Yes, I agree. It does not matter in principle; but many people speak as though this country were buying very much less goods from France than France is buying from us, and that does not happen to be the case.

In answer to the hon. Member for East Aberdeen (Mr. Boothby), the idea that we are not taking goods from France because we think they are not the sort of goods which people in this country should have, is entirely untrue. There is no foundation whatever for that suggestion. So far as tourism is concerned, it is certainly our view that it would be sensible to make larger tourist allowances for countries with softer currencies than for other countries where it would cost us gold. But that is a view which is not held by various other O.E.E.C. countries, notably Switzerland, which attaches the utmost importance to the principle of most-favoured-nation treatment for tourism, and we have to take some account of the views of that country.

Mr. Boothby

Cannot the hon. Gentleman explain to the Swiss that the most-favoured-nation clause is an archaic document of the 19th century, and no longer applies today?

Mr. Jay

I am sure the Swiss will read the hon. Gentleman's speech in the OFFICIAL REPORT. In spite of that, it remains true that over this period of recovery the European countries must, to some extent, adjust their productive capacity to the demands of the post-war period and to the present distribution of income. They cannot justify the claim that they should adhere to the precise production pattern of the 1920's and 1930's, which was based on a different distribution of income, and that everybody as a matter of right should be asked to buy whatever they choose to offer. We must make that clear as well.

The right hon. Member for Saffron Walden asked whether we were satisfied with the machinery of O.E.E.C., whether we were making proposals and whether we have had discussions to make it more flexible. We are not entirely satisfied, and discussions are now going on about the machinery of O.E.E.C. We agree that, now the Organisation has got to embark on the much bigger job of coordinating the various long-term programmes of the 19 countries, it will probably have to be strengthened. As the Committee know, my right hon. and learned Friend the Chancellor of the Exchequer will be going to Paris next week, partly for the purpose of taking part in those discussions, and indeed it is because he is preparing himself for that strenuous task that he is taking a few days' rest and is not here this afternoon.

The right hon. Gentleman also inquired about the overlapping of the various European economic organisations. It is true that we have the O.E.E.C. in Paris and we have the Economic Committee for Europe in Geneva. There has been a close liaison and working agreement between the secretariats of those two organisations, and although there may be some overlapping on paper, I do not think any serious harm has resulted. However, we unquestionably put our main emphasis and energy into the building up of the O.E.E.C. because it is the keystone on which the whole European recovery programme depends.

Mr. C. Williams

Before we pass this Clause. I should like to say that I was not happy about one point which has been omitted from the answer of the Economic Secretary to the Treasury. I do not know whether he quite realises the amount of feeling that exists among those who run hotels and other amenities of that kind at seaside places in this country. I have frequently been asked to put this point. There is a very strong feeling that the Government could do—and it could certainly do so under this Clause—a great deal more to encourage the trade which would come if we could have far more tourists from France in this country. I believe the hon. Gentleman will keep that point in mind because he is being pressed on all sides about it, but I was rather disappointed that in his reply he did not give some assurance that this matter would occupy an important place in the Government's mind. By getting French people over here we should be helping to remedy the unbalance of payments which exists.

Mr. R. A. Butler

The Minister has given us answers on nearly all the points which we raised and we are obliged to him for doing so. There is, however, a question of the exhaustion or the nonuse of drawing rights. In my opening remarks, I referred to Article 17 of the Agreement for Intra-European Payments and Compensations. Machinery is set up to decide what shall happen either to the creditor who maintains and satisfies the Council that the whole or any part of drawing rights established by it are no longer required by a debtor for the purposes for which they were established, or to the debtor who satisfies the Council that it has been unable to use the whole or part of its drawing rights. It says later: The Council shall establish apppropriate bodies to deal with cases arising under this Article. Can the Minister tell us whether any such body has been set up by the Council, or could he further elaborate his point? The matter still seems to be uncertain.

Mr. Jay

No such body has actually been set up as yet, according to my information. This is one of the points which have been left over and will be discussed in the near future. The O.E.E.C., of course, has done a great deal of work and has settled a great many problems in the last few months, and, since this is not one of the most urgent problems, it has not been finally settled.

Mr. P. Roberts

The Economic Secretary said that he would go a certain way along the road of multilateral trade. Could he give us any indication of what he considers would be the position with regard to sterling and the dollar if convertibility were reintroduced?

Mr. Jay

I am not sure that that point arises on this Clause. Although we regard greater multilateralism and greater convertibility as an aim, I think it would be a great mistake to try to establish them before we have cured the deficits in our current trade which might undermine their working. We must get the two problems in the right order. We must solve the fundamental dollar deficit first, and then we can talk about convertibility afterwards.

Mr. Eccles

The Minister has answered nearly all the questions I put, but he did not say anything about sterling balances. I asked him to tell us whether he is satisfied that no drawing rights are taken up by any country which has in London sterling balances aggregating to more than what it normally requires for its trade and finances. Could we also have details—perhaps not now, but at a later date—of the 209 million dollars equivalent to sterling balances which it is agreed shall be drawn on before the drawing rights come into operation?

Mr. Jay

We naturally watch that point very carefully. We have no evidence that any country has attempted to act in that way. If we had evidence, we should raise the matter with the country concerned.

Question put, and agreed to.

Clause ordered to stand part of the Bill.