§ Motion made, and Question proposed, "That this House do now adjourn."—[Mr. Butcher.]
§ 12.23 a.m.
§ Mr. Kenneth Thompson (Liverpool, Walton)
I hope to draw the attention of the House to a matter of great public importance and of considerable urgency. This country is living by buying raw materials from abroad and applying the native skill of our people to the making of goods and the selling of these goods abroad in the markets of the world. Our own food and our own raw materials come from the profits of this process. The efforts of our entire industry now and in the future may depend upon agreements reached between Governments at what are frequently called high level conferences, far away from the manufacturer or his markets.
The influence of Governments has, in fact, now become supreme at every stage of the process of trade. This may be a good thing or a bad thing, but I will not weary the House with discussing that at this time of night. But it is a fact, and because it is a fact, it lays very great responsibility upon the Government to perform its commercial functions not only with care and prudence, but with courage and foresight. The merchant venturer of today, on whom we still rely, travels the world with his bag stuffed full of samples, and his pockets full of licences and permits; and to help him over some of the difficulties which he must encounter in the world today, we have the Export Credit Guarantees Department.
As the House will know, this Department has performed a vital covering and insuring function for the aid of the exporter who had to be assured that he would get paid for his goods, not only in the face of ordinary commercial risk, but also in spite of political and currency manipulations. Under this umbrella, in the sunny export weather of the post-war years, this country built up an important export trade with Brazil. Indeed, the Brazilian market, in 1951, was fourteenth in order of importance of all British export markets of the world, and we have kept many thousands of our people usefully employed in this trade. In return, Brazil has sent us coffee, cotton, pinewood, and hides, among other goods, and 1482 it has been a mutually advantageous trade which has roughly balanced between us over the years.
But now a blight has fallen on it—a sort of commercial foot-and-mouth disease. Several times in the past, Brazil has found herself in difficulties over foreign exchange; she has found herself short of sterling, and several times she has had to resort to quantitative restriction of imports until she has been able to bring her trade more nearly into balance and could see her way to pay her creditors for the goods she has bought. There was such a period in 1951, with no sterling, poor exports, selective limitation of imports, and the whole familiar paraphernalia of controls.
We, over here, naturally observed Brazil's difficulties, and the Export Credit Guarantees Department was compelled to act to protect itself from the likelihood of heavy and increasing losses. The rate for cover for exports to Brazil was raised sharply. There were increased premiums, and exporters had to raise their selling prices. They read the signs in the Department's action, and proceeded to trade with more caution until the situation improved. Insurance rates were reduced, and sterling began to come back. This was a proper insurance operation, and Brazil's trade this year has followed a similar pattern, except that the difficulties seem to have been rather more pronounced. Once again, Brazil has found herself short of sterling to pay for the imports she has taken, and for which the Department had issued a high proportion of cover.
But, here is the important point. This time, the Department has acted very differently. This time, there was no treatment for the disease; it went straight into the slaughter policy; there was no "foot-and-mouth" treatment. At the end of May, exporters were informed that, in two months' time, all cover would be withdrawn. In other words, so far as trade with Brazil is concerned, E.C.G.D. ceased to exist. Of course, one recognises the Department's difficulties, but I think that this action can properly be described as panic action. The consequences threaten to be very serious for our own workers.
In the letter notifying policy holders of this decision, the Department said it would watch events closely, and would 1483 restore cover on a general basis as soon as possible. If that means anything at all, it means that, in spite of Brazil's general problems, there is every reason to have confidence in the future of this great South American country. Brazil has taken very vigorous steps to preserve her stability and economic strength. Imports are by licence only, and one of the conditions of her import programme is that 90 per cent. of the imports must be certified as "essential" goods, or "semi-essential" goods. In her expanding and developing economy, this means capital goods, in the main, which will eventually add to the country's capacity to pay. Other countries are optimistic about Brazil's future.
The British Ambassador in Brazil, addressing the Chamber of Commerce on 17th June, took particular care to emphasise the importance of the sterling market, and to recommend principals that they should impress on their members at home that the present difficulties were not permanent. It seems to me that in his own department his own commercial Minister might have sent precisely the same message to his own Departments here at home.
At the same time, other countries have a high opinion of Brazil. America has made a number of important commercial loans to Brazil. The Export-Import Bank has just announced a 60 million dollar loan for railways. The World Bank continues to lend gold and dollars to Brazil, and Brazil is in the process of negotiating trade agreements with France, Yugoslavia, Germany, Italy and Japan.
A few weeks ago, coincidental with E.C.G.D. stepping out of the trade, there was a Government mission visiting the capitals of Europe for the purpose of negotiating the terms of trade for the future. They did not come to Britain and I would like to know why, when we knew the situation that was developing. They were not even asked to come. After visiting Germany, France, Scandinavia and Switzerland, they reported, on their return to Rio, that they had been greatly impressed by their reception.
Several firms from the Continent are proposing to establish branch factories in Rio to make the things that Brazil needs. A German firm has promised to take over machinery and skilled labour 1484 to make bicycles. The "Financial Times" had this to say:It must be assumed that these enterprises have taken the future into account and have weighed up what more cautious interests elsewhere cite as the speculated elements in long term undertakings here.I have here some correspondence from a firm which has an export trade of £200,000 per annum with Brazil. They have orders and import licences, but no E.C.G.D. cover. Their export manager has written to E.C.G.D.:Brazilian interests will realise that with the lack of supplies it might be worth their while to put up a Brazilian factory. This would not be extremely difficult. By the time that we were in a position to go to the market, a vested interest and a powerful Lobby would already be established.There are three dangers by which we are now faced. First, Brazil, in her shortage of sterling, will force herself to do without the goods she has formerly bought from us. Already her Government are realistically and properly restricting the issue of import licences to the amount of sterling she has or expects to obtain.
Second, Brazil will make the best arrangements she can with competitors of ours to take her goods in exchange for the things we will no longer supply. I have mentioned some of the negotiations. Brazil has recently arranged a contract with Iceland for the supply of canned fish at a time when our own fishing and canning industries are having as difficult a time as ever before.
Let us be clear about the fact that once we are out of a market like this we are out for a long time, if not for ever. Some exporting houses in Liverpool which I represent have done business in Brazil for 100 to 150 years. Many British firms have spent huge sums in organising their sales and developing their trade. They have a close and intimate knowledge of the country and its people. They are confident of the future of Brazil. I think they fear more for our future if we fail to embrace every opportunity of trading whenever it presents itself and whatever the problems.
Third, Brazil will fill the gaps in her markets by developing industries in her own country to make herself as independent as possible of vagaries of our export policy.
1485 This is an ominous recital not of what might happen, but of what is happening. In the midst of urgent exhortations to "Export or die," we are in danger of precipitating a crisis from which we will not easily emerge. What is happening in the case of Brazil is also happening elsewhere. We have restricted purchases from Europe. They are becoming short of sterling and are restricting their purchases from us. Australia has cut her imports. Israel is in a similar position. In other South American countries the same situation is developing. As each market gets more and more difficult the danger is that we will tend to withdraw more and more into our shell, with less trade, more unemployment, and lower living standards in this country.
I began by saying that this was a serious situation, and I am sure that my hon. Friend realises that it is. Serious it is, but not hopeless; but it seems to me to call for urgent vigorous action by all concerned. I am grateful to my hon. Friend for the interest he has shown in this matter, and for the efforts he has made. It has not been an easy subject to deal with on taking up a new appointment.
It seems to me that the exporters and manufacturers who had done so much to build up this trade are entitled to some clear, authoritative statement of the, Government's intentions. By that I mean the Government as a whole and E.C.G.D. in particular, for although E.C.G.D., acts as a commercial organisation on a strictly commercial basis, it cannot be separated from its function as a Government agency. Exporters can only succeed in today's conditions with support of the kind which they get from E.C.G.D., and they ought to know firmly what support they can expect over as long a period as possible.
As an immediate step to stave off what looks like disaster, I suggest to the Department that it ought to restore cover for a further stated period. This cover should be limited in proportion to a basic trading period perhaps excluding certain classes of goods for which special arrangements may be made. The Department would fix realistic rates for this cover taking the risks fully into account. 1486 This is an essential step in restoring the position and making good some of the damage which has been done. But it would be of no value unless the respite which it gave were properly used. It should be used for an immediate conference in this country.
The whole economic policy of the country is involved in this matter, not just trade between this country and one other. The Chancellor of the Exchequer should call together representatives of the Board of Trade, the Department of Overseas Trade and the Foreign Office, as well as manufacturers and exporters, and there should be a frank and complete pooling of ideas. The Department of Overseas Trade should at once prepare the ground for talks with Brazil, either here or in Rio. I would like to see at these talks men who have personal knowledge of this business—the true merchant adventurer as well as the civil servant—the man who gains or loses by his own judgment.
I am alarmed to discover that while Brazil has been negotiating all these agreements with other countries our trade agreement expired in June last year and nothing has been done to make new arrangements by which Brazil can trade with us. I should like to hear that the experiences of the past few months have brought home that the position of E.C.G.D., requires overhaul in the changed export conditions which now prevail. Clearly, the Department cannot be allowed to operate in a way which compels it to direct the entire trade of the country on the most restrictionist lines.
The bankers' umbrella is a classic example; it is lent when the sun shines, and taken away when it starts to rain. I am not criticising the Department for its action over Brazil, although I think it was over-hasty and too drastic. Its present directives probably compel it to act in this way in these circumstances; but as a trading nation we cannot commit ourselves to the mercy of such directives while our trade withers and we die.
I hope that my hon. Friend will be able to say something which will give fresh hope to all the interests involved—manufacturers, exporters and workers—and enable them to face the future with a little more confidence.
§ 12.40 a.m.
§ The Secretary for Overseas Trade (Mr. H. R. Mackeson)
I am most grateful to my hon. Friend the Member for Walton (Mr. K. Thompson) for raising this subject. How much easier it would be for me to give him the assurances he wants if it had not been that Her Majesty's Government had inherited a situation where our reserves were so desperately low owing to the years that the locusts had eaten.
In the short time at my disposal I should like to say that the Government are more than anxious to co-operate as much as possible with all other Governments, and in particular with the Government of Brazil, so that a high level of trade may continue throughout the world. I think that I can assure the people of Brazil and her Government that no Member of this House will forget that they stood by us in our hour of need in our recent struggle with the Nazis.
I am convinced that Brazil, with an area comprising 6 per cent. of the globe and a population of 52 million, with a density of only 19 people per square mile as compared with about 750 per square mile in this country, will be one of the areas where economic development will be greatest over the coming years—if not in our lives then certainly in the lives of our children.
I agree with my hon. Friend that restriction of trade, especially of the type the hon. Gentleman mentioned, is not in our interest. I must be frank and give the practical view as far as I can, holding the appointment that I do. Exports to Brazil rose from £34 million in 1949 to £54 million in 1951. From January to May of this year they have been running at the rate of £65 million a year.
Imports from Brazil were £23 million in 1949 and £66 million last year. Taking a broad balance, including invisible trade, roughly speaking, last year our trade balanced with Brazil. But this is the serious and vital point. So far this year our imports from Brazil have been running at the rate of only £22,500,000 a year. That unbalance is a very serious matter for a country which has a reserve of only £602 million. Brazil is undoubtedly faced at the moment with a very serious shortage of sterling and, on top of this, arrears of payment for goods already supplied to Brazil are considerable.
1488 One of the major reasons is that Brazilian export prices have been higher than the Government or private buyers in this country, or indeed in any other country, are prepared to pay, because the same goods are obtainable at cheaper prices elsewhere. So far in 1952 the Raw Cotton Commission have made no purchases from Brazil. This is due partly to the recession in the cotton trade but also to the prices which the Brazilians have asked. In the forthcoming buying season, as my hon. Friend knows, 29 per cent. of the purchases of cotton will be made by independent buyers. It is estimated that that will be the figure.
I must say frankly that Brazil's share will depend primarily on whether her cotton is offered by United Kingdom buyers on terms which are fully competitive in price and quality with cotton from other markets. I understand that Brazilian prices have for some time been considerably higher than comparable prices of cotton in other markets. In January they were as much as 16 pence per lb. higher and even today they are 10 pence per lb. more.
In view of the serious situation in our textile industry generally it would be a bold man who would advise us to pay more for our cotton than we need to pay in the world markets. What I have said about Brazilian cotton applies almost equally to other commodities to which my hon. Friend referred such as hides, softwoods, and various other goods. I doubt very much whether a trade conference with Brazil would really help to solve our difficulties, since it seems to me that until Brazilian prices fall to a level which private importers, including the spinners and the Raw Cotton Commission, are prepared to pay, Brazil would ask us to accept goods at prices which we cannot afford, much though we might like to help, and would expect us in return to send them steel, which we can sell in other parts of the world.
My hon. Friend referred rightly to E.C.G.D.'s action. In 1951, E.C.G.D., in effect, issued a warning of the deteriorating situation by putting up their premiums. Later in the year, when trade started to get better, since Brazilian exports largely start to come into this country from April or May onwards, the premiums were duly lowered again. This year, owing to the factors I have men- 1489 tioned, and also to the fact that we have not been buying so much coffee except for re-export, because of the high Brazilian price and because our needs have been met from our own African Colonies, the position is more serious.
In May of this year, the Advisory Council, which has some of the functions of a trustee or governing body, in relation to the E.C.G.D.'s power to issue policies under Section (1) of the Act, decided the time had come when E.C.G.D. had so much money at risk, that some action must be taken to see they did not risk losing any of our small reserves. I do not think, perhaps, that my hon. Friend is quite fair in saying it was a slaughter policy, because the letter which was sent out stated that E.C.G.D. would guarantee shipments against contracts covered by existing policies. In addition, cover will still be maintained for shipments which can be completed by the end of the month, so that there was, in effect, two months' notice of E.C.G.D.'s decision.
The Department decided, on the advice of its Advisory Council, which consists of prominent bankers, industrialists, merchants, and members of the trade union and Co-operative movements, to maintain cover under its contracts policies over the next nine to 12 months for shipments of an estimated £12 to £14 million of orders placed before its cessation of cover. The Department took this decision, and though E.C.G.D. only covers some 30 per cent. of the exports to Brazil, I agree, that it is a serious matter for the firms concerned and, particularly for the firms about which my hon. Friend is concerned, which are comparatively small ones selling consumer goods rather than capital equipment.
The House should know, however, that the E.C.G.D. still risks having to pay out between £750,000 and £1 million a month on claims. Bearing in mind the fact that the amount that the E.C.G.D. had at risk was £22 million, obviously the Department's Advisory Council, to whom we, in this House, should be grateful, would not take the risk of continuing cover. I was relieved that my hon. Friend did not press me to ask the Government to implement Section (2) of the Act, which would mean invoking our power, as a Government, to start using £150 million to prime the pump. It would be a tempting idea, but nobody 1490 would wish to see this artificial restoration of trade.
The Advisory Council will watch every case with the greatest care and attention and I only hope, and think, that it is possible that Brazilian prices will fall and that the time will come, quite soon, when we shall be able to buy, above all else, the cotton which is their vital export and also their coffee, to some extent.
My hon. Friend referred to the delegation which came over to Europe. I have heard about this, and since it caused me some anxiety I have made most careful inquiries into the matter. The delegation was organised and paid for by the Sao Paulo Federation of Industries, whose President, Dr. Ferraz, came to this country and was invited to call at the Board of Trade. He was entertained at the British Industries Fair, and the delegation concerned, which was only a semiofficial delegation, split into component parts of one or two and visited various countries. Dr. Ferraz, the leader of the delegation, informed the Board of Trade that he thought it would be very difficult indeed to get the delegation as a whole to come to this country; but said at the same time that he very much appreciated his reception and treatment in this country.
This is a matter of great importance to our foreign commercial and financial policy. I am certain that no responsible Member can treat it lightly. But when my hon. Friend makes reference to other countries, I must tell him that, in view of the overall deficit of Brazil, it is more than possible that we shall find a situation in which other countries will find it difficult to continue to give unlimited credit to that country, great though her eventual potentialities are.
Within the last few days we have received information that the Brazilians themselves are finding that, owing to their exchange situation, they are obliged to impose restrictions, not only on British goods but on German goods. We simply cannot afford, in our present situation, to export goods unless we get a reasonably quick return for our money, and I doubt very much whether other countries will be able to afford, from a long-range point of view, to continue their present credit policies.
It is to be hoped that the present situation will resolve itself by Brazilian goods 1491 becoming available on the world markets at reasonable prices, so that she can buy not only the capital equipment which she must buy, and the oil, coal, steel and heavy equipment which she needs, but also consumer goods and textiles which will be of so much value to her people. We have an open mind on this, and we should be more than prepared to receive representations. I, personally, shall be only too glad to answer any questions or correspondence on this matter, but I must be firm and frank on behalf of Her Majesty's Government.
We cannot risk our resources in any way, for if we fail to maintain the value of the £ and allow our slender reserves to slip away we shall not only be deserting the interests of our own people and risking full employment in this country, but we should also be doing untold damage to our friends in the sterling bloc. Above all else, we would cause harm to people of the Commonwealth of Nations, who are 1492 doing so much now to try to stop any losses of sterling, after suffering so grievous a blow during this recent period when, unfortunately, the sellers' market has gone and the buyers' market exists.
I think and hope that the Brazilians will find it possible to offer us their cotton and other raw materials at a price at which we can afford to buy. They know well that there is nothing but good will in all parts of this country towards them, but under the existing circumstances, we shall do our utmost to resolve this difficulty, having regard to the fact that it is principally a commercial matter.
§ The Question having been proposed after Ten o'Clock on Wednesday evening and the debate having continued for half on hour, Mr. SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
§ Adjourned at Six Minutes to One o'Clock a.m.