HC Deb 28 February 1951 vol 484 cc2105-14

Considered in Committee.

[Major MILNER in the Chair]


4.12 p.m.

Colonel Crosthwaite-Eyre (New Forest)

I beg to move, in page 1, line 11. to leave out "or indirectly."

When we debated the Second Reading of this Bill a number of questions arose about the scope of the powers that were given granting guarantees of subsidiaries. I asked a specific question whether the guarantee would be dependent upon the shareholding of the British parent company and we were told by the Secretary for Overseas Trade that that was not so. We were told that in fact the guarantee could be given to a company which had only 35 per cent. of its capital owned in this country, provided that the Board of Trade were satisfied that, through some arrangements between the parent company and the subsidiary, direct control was possible.

It became clear that the Government were asking for unlimited powers on their behalf to select whatever type of subsidiary they thought might be necessary or advantageous for the furtherance of the work of the Board of Trade. I do not think that is right. I think that we want to have in this Bill a limitation that we should only extend these guarantees where there is direct control by this country over the subsidiary overseas.

I give one example. The Secretary for Overseas Trade said that under the existing Acts offshore purchases could be financed and guarantees given. One could have the position of offshore goods being bought by one British subsidiary and transferred to another British subsidiary for end sale in another country. That is most dangerous and is extending too far the powers for which this type of legislation was envisaged. We should go far enough if we left it where a company has direct control. By all means let us extend the facilities which this Bill was designed to provide, but when it comes to companies "directly or indirectly" owned obviously it can cover anything.

The President of the Board of Trade (Mr. Harold Wilson)

I think I can see what the hon. and gallant Member for New Forest (Colonel Crosthwaite-Eyre), is getting at in this Amendment because he gave us some introduction to his views on Second Reading. I think I can satisfy him that these words "or indirectly" are a desirable and necessary part of the Bill. His arguments were mainly deployed to deal with the case in which he might feel the control was to some extent ineffective. I agree that it would be most undesirable if these powers were used where there was not effective control by the parent company in the United Kingdom. But the words "or indirectly" do not, in any way, raise the question of effectiveness of control.

4.15 p.m.

Perhaps I might illustrate this by a simple example, and I assure the hon. and gallant Member that the example I am taking is based on a particular fact, on a particular company and subsidiary which has made an approach to the Export Credits Guarantee Department. I am sure the Committee would not press me to give the name of the company, for obvious reasons. Here is a very well-known firm in this country which contributes greatly to export trade in many overseas countries. Like many other companies, it does overseas sales by means of subsidiary companies covering a wide area. It might, for instance, cover Western Europe, South-East Asia, or North America—whatever it might be.

For reasons which seem good to this company, perhaps because of individual difficulties within a country in such a wide area, it does its sales in a particular country in that area through a subsidiary of its first subsidiary. It is obviously necessary in order that the parent company's export drive can be fully maintained, that there should be powers in this Bill to provide cover in respect of the transactions of the "sub-subsidiary," if I may use that expression. There have been cases of that kind. The case I have mentioned is based on a well-known company.

I agree with what I think is in the mind of the hon. and gallant Member for New Forest that the important thing is that the sub-subsidiary should be effectively controlled by the main subsidiary. If we delete these two words "or indirectly" I am advised it would not be possible to provide cover for the third company, that is the sub-subsidiary. But I accept the principle that there should be effective control, and I assure the hon. and gallant Member that the Export Credits Guarantee Department, who have the administrative responsibility for this, carry out to the full the intention of the hon. and gallant Member in ensuring that the company in respect of which cover is sought is effectively controlled by the parent company in the United Kingdom, however that control might be exercised.

The mere fact that it goes through a second party to the main subsidiary does not derogate from the effectiveness of the control. I can assure the hon. and gallant Gentleman that this point has been very fully discussed by the Department, but if we accept the Amendment in the form in which it is put it would limit the powers of the Export Credits Guarantee Department to provide very valuable aid for this particular form of overseas sales.

Mr. Leslie Hale (Oldham, West)

It seems to me that the words "directly or indirectly" might very well be omitted altogether. The effective word is "controlled" and I quite accept my right hon. Friend's point that the sub-subsidiary may present difficulty. There is another difficulty. There are cases now, and they are increasing, where one has one or two com- panies which jointly form a subsidiary in America or elsewhere and where one has one or two companies very often in different lines joining together in forming a subsidiary to promote export trade. Neither of these companies actually has control. They could come within the provisions of this Bill but it seems that they do not come within this Clause at all. The word "controlled" is the effective word. That emerged right through the speech of the Secretary for Overseas Trade.

So long as the word "controlled" remains it does lay down something that can be capable of legal definition, and I should have thought that it meant there is some clear control of voting power. Whether it be through shares or articles of association, there must be a voting power. It may be a joint voting power. Therefore, I suggest that my right hon. Friend might consider that point and see if there could be some variation which would make it clear that so long as control is exercised by appropriate firms it does not matter whether it is by only one firm.

Mr. R. S. Hudson (Southport)

We are very grateful to the President of the Board of Trade for his explanation, and I think my hon. and gallant Friend the Member for New Forest (Colonel Crosthwaite-Eyre) will probably be willing to ask leave to withdraw the Amendment. I am not a lawyer and I am, therefore, at some disadvantage, but it seems to me that the difficulty arises from the definition of the word "control." The right hon. Gentleman has been at pains repeatedly to use the phrase "effective control." I do not know whether the difficulty could be surmounted by asking leave to insert the word "effectively" to make clear what both sides of the Committee have in mind. Perhaps the hon. Member for Oldham, West (Mr. Leslie Hale) would tell us if that would add to the effectiveness of the words, but I think it would be desirable to make clear in the Bill that what the right hon. Gentleman has in mind is effective control. If he would consider that, it might solve the problem for the moment.

Mr. H. Wilson

Taking first the point of my hon. Friend the Member for Oldham, West (Mr. Hale), I must confess that I think he has got something when he says that it might not spoil the Bill and might improve its clarity and brevity to delete the words "directly or indirectly." I agree that what we are after is control; and, speaking as a layman, I should have thought that if we say "control" we mean both direct and indirect control. I am advised, however, that there might be some lingering doubt in some places about that, and that is why we have inserted the words "directly or indirectly." I agree—and I think some lawyers would agree—with my hon. Friend the Member for Oldham, West, who speaks with far more authority than I do on these legal aspects that the word "control" would cover the point we all have in mind.

In reply to the point made by the right hon. Member for Southport (Mr. R. S. Hudson), I am sure we are all after the same thing—namely, that the control must be effective. It became clear when the hon. and gallant Member was moving his Amendment that effectiveness is what he is after, and I did seriously consider in advance whether it would be desirable at some later stage to insert the word "effectively." But after full consultation with the Export Credits Guarantee Department I can give the Committee the most complete assurance that they neither intended in the past nor intend in the future to make use of the powers given in this Bill unless they are completely satisfied about the effectiveness of the control.

I am sure that hon. Members who have had experience of the Department know that however adventurous they are in their general overseas dealings, they are at the same time extremely cautious in this kind of case where the question of the value of the risk is concerned. I hope the Committee will be prepared to accept my assurance that the Export Credits Guarantee Department have in mind exactly what the hon. and gallant Gentleman has in mind, and will give effect to it.

Mr. Leslie Hale

May I make this point to my right hon. Friend? Suppose three companies, A, B, and C, in Britain, all making different things or dealing in different trades, join together to form a wholly-owned subsidiary in New York or Montreal. Does that come within the Clause? Each of the controlling companies has a 33⅓ interest but has not any control by itself.

Mr. Wilson

I see my hon. Friend's point. This is a point which I know the Department have in mind, and I should like to consider it against the background of the Bill. I think the point is that the Department want to be satisfied that there is direct control by one of the companies before they are satisfied about entering into this business. If they thought that the control exercised by one of the companies on behalf of all three was sufficient, then under this Bill they would he prepared to give the cover necessary.

Mr. Hale

Perhaps I may just emphasise this point. Here is a wholly-owned subsidiary, but no one company exercises control by itself; that is a deliberate point of policy. But all three together have complete control. It is deliberately arranged that no one company shall have control, for reasons which are quite obvious.

Colonel Crosthwaite-Eyre

I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause ordered to stand part of the Bill.

Clause 2 ordered to stand part of the Bill.

New Clause.—(SECTION I NOT TO APPLY TO PERSON OR COMPANY IN COUNTRIES DISCRIMINATING AGAINST U.K.) No guarantee given under section one of this Act shall apply to any person (whether a company or not) situate in a country which at the time such guarantee is made by the Board has discriminatory financial provisions in force affecting the interests of the United Kingdom —[Colonel Crosthw aite-Eyre.]

Brought up, and read the First time.

Colonel Crosthwaite-Eyre

I beg to move, "That the Clause be read a Second time."

This Clause covers only a small point. but I hope that both, sides of the Committee will agree that we do not want to see credits given and trade encouraged by the use of public money when the country to which the goods are to be sent is one which is using financial discrimination against this country. I have particularly in mind cases where the country has a special rate for export payments which is very different from the internal value of her currency. A country which falls under that heading straightaway is the Argentine where the rate of pesos for export is something like half what it is for internal transactions.

I also have in mind the case of countries which refuse to honour their existing financial arrangements with this country: for instance, a country which will not allow remittances to be sent to this country. We do not want to see the Export Credits Guarantee Department used to facilitate trade with such a country. Where satisfactory conditions exist then let us use this Department, but let us only use it when we are satisfied that the benefit coming back to us will be a true and proper one, and that we shall not suffer because of the action of the country to which the goods are to be exported.

Mr. H. Wilson

I think the hon. and gallant Gentleman's remarks make a little clearer the intention he had when he put down this new Clause. I am bound to say that after reading through the Clause a number of times, even with the help of eminent legal advisers, I found it difficult to see what he was after.

Colonel Crosthwaite-Eyre

I took great pains to inform the Department exactly what the Clause was meant to do before it was put on the Order Paper.

Mr. Wilson

I was going on to deal with that point. By other channels I was made fully aware of what the hon. and gallant Gentleman meant, but I was saying that his remarks have made it rather more clear to the Committee at large than the actual wording on the Order Paper.

I feel that my approach—and, I hope, the approach of the Committee generally —to this point is a little different from our approach to the Amendment which the hon. and gallant Gentleman moved where we were all at one with the purpose of the Amendment, and the only question was whether it was necessary to state the purpose. Here I am bound to say that I think it would have a very serious effect on this Bill if we were to accept this Amendment, and, indeed, if we were to apply the principle of the hon. and gallant Gentleman's Clause to the whole operations of the Export Credits Guarantee Department, because a great part of the utility of the Department would be removed.

4.30 p.m.

The hon. and gallant Gentleman has made two points: first of all, that the Department should not operate the powers given in this Bill in the case of countries where there are these discriminatory financial arrangements. I join with him in deploring these discriminatory financial arrangements and I think hon. Members in all parts of the Committee are well aware of the difficulties they create for our exporters. At the same time, to say that countries with these discriminatory exchange rates, which have caused difficulties, or similar provisions should not be the subject of special cover by the Export Credits Guarantee Department would destroy a great part of the usefulness of that Department.

After all, the Department does not exist mainly to provide cover against the normal risks of fair weather trade. It exists to provide cover against some of the risks we get in the stormy seas through which we have been passing in the last few years, and many of the exporters and potential exporters coming to the Department have had particularly in mind the fact that they would feel doubtful about embarking upon those stormy seas without some insurance policy from the Export Credits Guarantee Department.

On the other hand, I think I am expressing agreement with the hon. and gallant Gentleman when I say that the Department is extremely cautious about the extent to which it would enter into any policies where the discriminatory financial provisions were such as to make it unlikely that the Department would get its money back. The Department has to behave in a commercial manner so far as Section 1 of the 1949 Act is concerned. It operates with the extremely valuable and shrewd advice of the advisory committee, and certainly if the financial provisions and financial discrimination referred to by the hon. and gallant Member were such as to make it unlikely that the Department would see its money back, taking one case with another, obviously that would not be a commercial risk and the Department would not embark upon it, unless it was decided to do so on much broader grounds of policy under Section 2 of the Act.

The hon. and gallant Gentleman gave a second illustration of the kind of thing he has in mind, and I am bound to say that I am much more closely with him on the second illustration than I was on the first. His second illustration raised the question of remittances, and I quite agree that if the Export Credits Guarantee Department were to underwrite business undertaken by subsidiaries or, in the phrase I used previously and for which I apologised, sub-subsidiaries in conditions in which the profits of those companies could not be remitted to this country because of discriminatory exchange regulations on the part of the country concerned, that, of course, would be very bad business for the Export Credits Guarantee Department.

The Department have taken the line on previous occasions, and will certainly take the same line under the Bill now before the Committee, that if the restrictions on the remittance of profits and other earnings were such that the Department felt there was not a good commercial risk involved, then of course the powers in the Bill would not be operated. That would be ordinary commercial prudence on the part of the Department.

In so far as the hon. and gallant Gentleman is concerned about remittances in relation to subsidiary companies, I agree with him and I can give him an assurance, once again, that in their ordinary day-to-day administration the Department will take full account of the point he and I have in mind. In so far as he suggests that we could use the Export Credits Guarantee Department in effect to restrict and penalise business with countries who exercise these unfortunate and regrettable discriminatory financial arrangements, I think that if we were to do so we should be cutting away the ground for the existence of the Department itself.

Colonel Crosthwaite-Eyre

I do not wish to detain the Committee, but I should like to thank the right hon. Gentleman for his very careful answer. It seems to me that when we have only a limited amount of exports it is a pity that they should go to countries from which we receive less in return than would be the case if we enjoyed the normal terms of trade. Undoubtedly, the Department can play a tremendous part in helping exports to reach markets which are in the national interest, and I put down this Clause to try to prevent exports from being wasted by being sent to countries where, because of financial discrimination of one sort or another, they would not earn their proper and just return for this country. I thank the President for what he has said about sub-subsidiaries and remittances. I am sorry he will not go the whole way with me, but I am grateful for what he has said. I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Bill reported without Amendment read the Third time, and passed.