TRADE WITH CHINA (Hansard, 13 December 1960)

§ Mrs. Barbara Castle (Blackburn)
The question I want to raise is one which is of quite serious importance to this country's export trade and which has arisen out of the crisis in our car industry, associated with the recent acquisition of the total holding by an American company of Fords, of Dagenham. But the question goes wider than that: it is the question of how far the increasing penetration by the United States into British industry will import into this country the restriction on exports which arises out of purely American policy.
I am raising this matter because I think the consequences of the present situation could be quite serious to us. I think the President of the Board of Trade will be the first to agree that we are not in a position at present to be complacent about our export trade. There has been a steady fall in our exports in the first three-quarters of this year, and the alarming fact is that since 1955 this country's share of world trade has been shrinking and that it has fallen from 19.7 per cent. in 1955 to 16.8 per cent. in the first half of this year. That means we are not in a position to sit back complacently while any of our industries are denied access to export markets of any kind anywhere.
Yet as a result of American policy in relation to exports to China, and the steps which the American Government are taking to impose that policy on American owned or controlled firms in this country, we have a situation in which an artificial and unnecessary barrier is being placed between British firms and a new and expanding export market. It is rather ironical that at the very moment when the Government are making sermons to manufacturers about the need to expand the export trade, the Government should be refusing to do anything to remove this barrier.
What is the exact position about this American intervention? I will quote here from one of the documents of their 369 Department of Commerce, "Highlights of U.S. Export Controls": There is a total embargo on commercial shipments to Communist China and North Korea. And this embargo applies not only to companies in the United States, but to exports from any United States controlled business here.
The Minister has admitted it and the United States Embassy confirms it, because the position is that any person subject to the jurisdiction of the United states is prohibited from exporting any goods to China without a licence from the United States Treasury. In the Foreign Assets Control Regulations anyone subject to the jurisdiction of the United States is defined as follows: Any partnership, association, corporation, or other organization wheresoever organized or doing business, which is owned or controlled by persons specified … This, first and foremost, means that a very important point of principle is involved—that we are compelled as a result of the operation of these regulations over certain firms in Britain to surrender control over our own export policy. The President of the Board of Trade himself, in answer to Questions in the House the other day, said that he did not know of instances in which problems had arisen under these regulations, but their practical effect is this. China is interested in importing tractors from this country, and since 1956 two English firms, Massey-Ferguson and David Brown, have shipped about £2 million worth of tractors to China. As a result of the American majority holdings in the firm, Fords cannot and have not participated in that export trade. Nor has another firm which specialises in the manufacture of tractors, International Harvesters, in which there are also American majority holdings.
Let us take the example of passenger and commercial vehicles. Since 1953, three English firms—Standards, Austins and Rootes—among them have exported about £1,300,000 worth of passenger and commercial vehicles to China. This is clearly a vital export range which should be developed by other firms, but if they are firms in which the United States obtains a majority control those exports will no longer take place.
370 There has recently been a rumour that Chryslers were to make a bid for Standards. That has since been denied but, as the Financial Times pointed out today that kind of denial is becoming a little suspect and it may well be that before we know where we are that bid will be resurrected and we shall have Chryslers buying Standards, in which case Standards' export markets in China will dry up.
Let us take the example of chemical plants. American controlled companies here, Kellog International, for example, had inquiries from China about this matter, but as soon as it was found that those inquiries came from China that was an end of the matter, because the firm concerned knew that such exports were contrary to Washington policy.
We know that there is a growing penetration of United States business into English companies. What will the consequences of that be to our export policy if the present regulations obtain? We know that China is very interested in the development of automation. Firms in this country like E.M.I. and Elliott Automation, which make electronic controls, computers and instrumentation for automation, are the sort of firms which could develop exports to China, and E.M.I. has already supplied colour television cameras for medical and industrial purposes.
Those are the types of industry in which the United States is beginning to invest. They are the sort of modern, forward-looking industries in which American capital is interested. That investment could go on steadily, sub rosa and through the Stock Exchange in the normal way, without any of us in the House being aware of the developing danger until we suddenly found that majority control had got into American hands and that interference with our trade with China had suddenly become a reality.
I think that the President of the Board of Trade himself is one who has always been interested in developing that trade with China, which has grown encouragingly. In value, our exports to China have risen from £11 million in 1956 to a rate of about £30 million in the current year. This is a developing market which we ought not to ignore. But there is a danger that in time, as a result of its 371 quarrels with other countries and some of the accusations of being Communist that it makes against them, the United States will extend this embargo to cover those countries.
Recently, for instance, it has embargoed all its trade with Cuba. The Financial Times today has a most interesting report about the bad feeling which is now growing up between the United States and Canada because Canada is not prepared to observe the United States embargo on exports to Cuba. We all know that Canada is one of those countries which has suddenly awakened to find that about 50 per cent. of its industries has passed into American hands and it is no longer economic master in its own house.
In this connection, the report in the Financial Times today is a warning for us. It says: Mr. Herter, United States Secretary of State, says he has failed to get Canada's co-operation in the American embargo against Cuba, but will keep trying for it. Then it adds this sinister phrase: American statements suggest that if Canada trades with Cuba the United States will look less kindly upon products from Canada. When I raised this matter in the House the other day the President of the Board of Trade said: The regulations have been in force since 1951, and we have not so far found any reason to make representations about their operation."—[OFFICIAL REPORT, 28th November, 1960: Vol. 630, c. 197.] The right hon. Gentleman added that he would look into any particular point that was made about them. That misses the whole point, because the present position is that United States subsidiaries in this country dare not make an official protest against this embargo. They just accept it. These facts obviously do not come to his attention. He does not seem to be aware that in 1957 Remington Rand, in England, received an order from Shanghai for typewriters and actually signed a contract, but that the American parent company then got to hear of it and raised the legal issue with the result that it was confirmed by the American Embassy here that it was within the embargo and the contract was cancelled.
The American Embassy cannot give me any example where American manufactured goods have ever been exported 372] to China. We know that this intervention is not only operated here, but in Canada. The Chanceller of the Exchequer said in answer to a Question by my right hon. Friend the Member for Huyton (Mr. H. Wilson), who asked about American interference with a Canadian car deal with China, that he did not think my right hon. Friend had got his facts right. Her Majesty's Government do not know what is going on in the world.

§ Mr. Harold Wilson (Huyton)
On that particular point, my information came from the Canadian Government.

§ Mrs. Castle
I am sure that it is official. I too, have been checking.
The facts are that in 1957 Mr. Marshall Johnson returned from China with an order for 1,000 Ford cars. Washington intervened directly and stopped the deal. The American controlled firms in this country will not even pursue the many inquiries, because they know that this will happen. The attitude the Government should take is that as long as this American control persists the American firms and subsidiaries, or American controlled firms in this country, will just not try to export to China and, therefore, it is no good the Government talking about the possibilities of the Chinese market when this kind of barrier exists.
The only hope, I suggest, is for intervention at Government to Government level. It should not be left to individual firms to get into this kind of situation and then have to run to the Board of Trade saying, "Please teacher, will you take this up with the American Embassy?" That is a ridiculous way to do it.
This arrangement can be made, because I have made careful inquiries and have found that there is a loophole in the embargo to this extent—that there is an opportunity for discretion to be exercised by the United States Treasury. The embargo does not mean that there is no legal possibility of exports being made. It merely means that they can be made only under validated licence given by the United States Treasury. I therefore ask the President of the Board of Trade to approach the United States Treasury without further delay and to 373 secure an understanding that there will be no refusal by the United States Treasury of licences for firms operating in this country to export to China goods which are not embargoed by us.
This is an issue of high principle—the issue of our own economic freedom inside our own country. It is a question whether British firms and workers, producing goods in this country, shall be subject to the policy of their own Government or to a foreign Government. I suggest that if a foreign Government control us, the situation is intolerable, and I ask the President of the Board of Trade to remedy it.

§ Commander Anthony Courtney (Harrow, East)
I will not take more than a moment or two. I cannot believe that the situation, from a national point of view, is quite as tragic as the hon. Lady the Member for Blackburn (Mrs. Castle)suggests. British firms in which a majority of the shares are held by Americans are inhibited from trading with China, but from a national point of view that is not particularly disastrous, because there are always competitor firms under British control which are given a commercial advantage in this respect. From a national point of view, therefore, I contend that there is little special disadvantage.
The hon. Lady mentioned E.M.I., but E.M.I. has a very large holding in America; there is an American subsidiary of the British firm. As far as I know, neither E.M.I. nor the American subsidiary is inhibited from trading with China.
I therefore suggest that the situation is not quite as disastrous as the hon. Lady makes out.

§ The Minister of State, Board of Trade (Mr. F. J. Erroll)
I am grateful for the brief intervention of my hon. and gallant Friend the Member for Harrow, East (Commander Courtney), because he has drawn attention to an aspect of this matter with which the hon. Lady the Member for Blackburn (Mrs. Castle) did not fully deal. That is that investment goes both ways and that we must also remember that we are important invest- 374 tors in the United States. I agree that we do not follow the practice which the hon. Lady has described.

§ Mrs. Castle
That is the point.

§ Mr. Erroll
One reason that we do not follow that practice is that we do not have the same prohibition on exports to China. But we must be careful not to seek to take steps which might cause British investment in America to be frowned upon, because we are vulnerable both ways, or we have a position of strength both ways, according to how one looks upon it. We have the benefit of American investment in this country and we have the freedom to invest in profitable enterprises in the United States.
The reason why the American legislation is extended so widely is that if they did not extend controls to American owned or controlled subsidiaries overseas, it would leave a very big loophole in their system of prohibition. They could hardly be expected to make a special exemption in favour of British firms which were subsidiaries of or were controlled by American firms. Therefore, it is an understandable attitude which they have taken, although it occasionally leads to certain misunderstandings, which the hon. Lady has described with her usual eloquence.
I accept that the regulations are wide sweeping in their effect. They are designed to cover any "person within the United States" which, in the jargon of the regulations, is defined to include any firm "wheresoever organised or doing business" owned or controlled by residents of the U.S.A. or by corporations organised under the laws of the U.S.A.
This means, in effect, that the regulations are designed to control trade with China by any firms or organisations, wherever located, which are owned or controlled from the United States. I mention this because I do not want in any way to minimise the scope of the United States regulations.
I shall not discuss the legality of the regulations, but I do not think that there is any doubt that, if the United States Administration chose to, they would be perfectly free to proceed against individuals or organisations within the United States, if they were satisfied that it was within the power of 375 those organisations to prevent business With China.
The hon. Lady suggested that in this state of affairs we should approach the American Administration to resolve the apparent conflict between our trade policy and theirs in respect of Chinese business, and should stress particularly the importance of exports to the British economy, to which the hon. Lady was good enough to refer. We are very conscious of the importance of exporting our products to every country in the world, and China is no exception.
The situation we are discussing this evening is not, of course, the only difference between ourselves and the Americans in regard to relations with China. We do not feel that it would be right to approach the Americans on the differences between our attitude and theirs on exports to China in general terms, because the other matters, some of which were discussed during yesterday's short debate and others in Questions addressed to the Prime Minister last week, are of considerably greater importance.
This matter, which is minor in comparison, is not one which we think would be the most fruitful to raise with the Americans in advance of discussing some of the other difficulties or differences between ourselves and the Americans on China.

§ Mr. Douglas Jay (Battersea, North)
Does the Minister confirm that Fords, of Dagenham, regards itself as not free to export to China if it wishes to do so? Do we understand that the Government took no steps to make representations about this before granting permission?

§ Mr. Erroll
The position on Fords is that there is no change as a result of proceeding from 55 per cent. ownership to the proposed 100 per cent. ownership. As far as we can tell, the company was not free before, because the American parent had a majority holding in English Ford. The proposed acquisition of shares makes no difference to the position as it existed.

§ Mr. Jay
The Minister confirms that the company was not free before to export to China and the Government made no representations about this when they were considering the application for permission?

§ Mr. Erroll
It is not my business to try to interpret American law. What I am saying is that the proposed acquisition by the American parent of the outstanding balance of shares makes no difference to the position which existed before the announcement of the proposal. The position is one for the American Ford Company to satisfy itself on. It is not our business to interpret American law to American companies.

§ Mr. H. Wilson
It is a British company operating under British law. Even if this ridiculous state of affairs has been going on and no representations were made, when the Ford Company asked for permission to acquire the remaining 45 per cent. of shares the Government had them by the short hairs. Why did not the Government get a new agreement about this?

§ Mr. Erroll
Because we did not see that it made any difference to the position as it stood before the change. I hope that hon. Gentlemen opposite will allow me to continue. I have only five minutes left. I appreciate the interest they are taking in the debate, which is, I recognise, an important and serious one.
There would be little value in taking up a hypothetical case. In our view, we can only proceed usefully with this matter if we have clear and specific evidence. [An HON. MEMBER: "What does that mean?"] I will come to what that means, if I am allowed to do so, in the few minutes left to me. It is not as though our trade with China is being particularly damaged. We are, in fact, increasing our trade with China very satisfactorily.

§ Mrs. Castle
We could increase it still more.

§ Mr. Erroll
It is questionable. There might be more competition for our existing share of trade.
United Kingdom exports to China have increased during recent years. Our exports from January to October this year amounted to £26 million, compared with £17 million in the same period last year. We are not able to approach China as though it was a free market. It is a market which is strictly closed and controlled by the Chinese State Trading Corporations. The 377 market for some of the products to which the hon. Lady referred is not nearly as big as might be imagined.
During the first ten months of this year, we exported to China only 32 motor cars, 14 commercial vehicles and 14 tractors. [Interruption.] I am not being pleased about it. I am only showing that this trade, Which, hon. Members opposite claim, is banned to British firms or firms operating in Britain which are controlled from the United States, is not a very big trade at present. It is clear that the trade that is available is amply and adequately filled by British firms who are free to trade with China.
If, in the light of the political, financial and other considerations, China chooses to buy from the United Kingdom, it is more than likely that all her requirements can be met from the wide range of resources of the thousands of United Kingdom manufacturers and traders who are not in any way affected by the American regulations.
We feel that if we can have a specific case or a concrete problem, we can, and would, most certainly approach the United States Administration with a view to finding a solution.

§ Mr. Jay
Would the Minister—

§ Mr. Erroll
Not now; I have not time.
We think that the best prospect of achieving anything in the way of modification of the American attitude is only on the basis of discussing a particular case or specific problem. There is an additional good reason for our adhering to this policy. There may be purely commercial reasons why a United Kingdom subsidiary, whether on its own initiative or on instructions from its United States parent, may not wish to accept business with China. It may be a matter of not wishing to let the design get into Chinese hands, or there may be marketing arrangements round the world.
378 Unless, therefore, United Kingdom organisations are prepared themselves to advise us that it is refusal of permission by the American authorities which prevents them from exporting to China, we would be in danger of interfering—wrongly, in my view—in the internal affairs of the companies concerned. [HON. MEMBERS: "Rubbish."] Hon. Members opposite may say Rubbish," but we feel that this is an important principle.
Possibly, as a result of tonight's discussion, American-controlled companies in this country will not be inhibited from applying to the United States Administration for specific authority if they see possibilities of exporting to China.

§ Mr. Jay
Are we to gather from the right hon. Gentleman's remarks that if there is an application by Chryslers to purchase Standards, or some other motor company, he will, therefore, refuse it as a concrete case?

§ Mr. Erroll
I am not prepared to discuss a hypothetical take-over bid. The right hon. Gentleman will not expect me to reply to that one.

§ Mrs. Castle
Am I to understand from the right hon. Gentleman's reply that if an American-controlled or owned company applies for a licence to export to China, but is refused by the American Treasury, the company should approach the right hon. Gentleman, who will then put up a ferocious battle on its behalf with the American authorities?

§ Mr. Erroll
If we were given a specific example by such a company, we would look at it carefully with a view to making an approach to the United States Administration.