HC Deb 15 June 1966 vol 729 cc1553-86
Mr. Ronald Bell (Buckinghamshire, South)

I beg to move Amendment No. 155, in page 6, line 37, to leave out "and will not be".

The Temporary Chairman (Mr. George Rogers)

I suggest that it would be for the convenience of the Committee to take, with this Amendment, the following Amendments:

Amendment No. 156, in page 6, leave out line 38.

Amendment No. 157, in line 39, leave out "or becomes".

Amendment No. 158, in line 43, at end insert "of which he has knowledge".

Amendment No. 159, in page 7, line 10, leave cut "and will not be".

Amendment No. 160, in line 11, leave out from "goods" to "and".

Mr. Bell

I wonder whether it would be more convenient, Mr. Rogers, since Amendment No. 153, in line 14, leave out from "above" to end of line 17, is also selected, if we took together Amendment No. 155 to Amendment No. 160, but not No. 158, so that we would then take No. 158 with No. 153, since those are rather more cognate points. I think that that, while substantially the grouping you propose, may be more convenient for the Committee.

Mr. MacDermot

Amendment No. 153 could be the subject of a separate debate, or it could be taken with the group of Amendments you suggested, Mr. Rogers. It is really up to the hon. and learned Member for Buckinghamshire, South (Mr. Ronald Bell) to decide, subject, of course, to the view of the Chair. I also understood the hon. and learned Member to say that he wished to discuss Amendment No. 158 separately.

Mr. Bell

No. I suggested that Amendments No. 158 and 153 be taken together.

The Temporary Chairman

I have no objection to that course if the Committee has none.

8.0 p.m.

Mr. Bell

The effect of this series of Amendments would be to limit the liability or disentitlement of an exporter to export rebate due to the operation of the export rebate. The Clause is described in its side head in these terms: Restriction on export rebates for goods consigned to Convention area. That refers to the European Free Trade Area. The export rebates are those provided for under Section 7 of the Finance (Number 2) Act, 1964. They are reliefs in respect of duties on hydrocarbon oils, vehicle excise duty and Purchase Tax incurred in connection with the production or movement of the products concerned.

Article 7 of the Stockholm Treaty makes it clear that drawback of Customs duties is not consistent with the enjoyment of the advantages which flow from that Treaty. Section 2 of the European Free Trade Area Act, 1960, makes the Convention rate of duty—which is the reduced duty enjoyable under the convention—inapplicable if, first, drawback was allowable in the country of origin, and, secondly, the Commissioners of Customs and Excise are not satisfied that drawback has not been and will not be allowed.

The words "and will not be", which are identical with the words that the Amendment seeks to strike out, are in that Section of the 1960 Act. I imagine that the parallel will be used in justification of the words appearing in the Clause; indeed, those words may have taken their origin from that Act.

But that Section of the 1960 Act goes on to provide that if the commissioners find later that drawback on Customs duties has been allowed in the country of origin they may recover from the importer in this country the additional amount of duty. That provision is for the protection of British interests in Britain. It relates to drawback of foreign custom duties in the country of origin, and the penalty or burden is imposed upon the importer.

This Clause deals not with drawback of Customs duty, but rebates of internal duties. It is put forward not for the protection of British interests, but for the placating of foreign complaints, and the penalty or burden falls upon the exporter in this country. This unusual proposal derives from a dispute inside the European Free Trade Association which I find it difficult to understand, since Article 7 of the Treaty seems plainly to apply to rebates of internal duties. The Clause represents a compromise or bargain struck at a recent meeting of the E.F.T.A. Ministerial Committee.

The general effect of the Clause, which my Amendments do not frontally challenge, is that British exporters are to be disadvantaged and pushed around when they sell to E.F.T.A. countries so that the export rebate system shall not be formally challenged in E.F.T.A. or G.A.T.T., and that there shall be no further grumblings about the surcharge between now and 1st December next. I hope that I have correctly described the terms of the bargain, explicit or implicit.

There remains the question raised by the Amendments—how far should British merchants be pushed around in this doubtful cause? I can appreciate that certain difficulties will arise if the Amendments are accepted. There will be a risk that in some cases—although I would expect them to be very few—the export rebate would be paid in respect of goods on which, ultimately, the Convention rate of import duty was paid.

I emphasise that there would be no disadvantage to Britain, and in my view there would be nothing contrary to the Treaty and nothing that is not common practice in almost every European country. The issue arises simply whether our E.F.T.A. partners—and one in particular—would feel satisfied with a Clause 8 that left out these wide and comprehensive precautions about future transactions with the goods. If, on the other hand, the Clause is not so amended, there would be disadvantages for the British exporter. I do not want to overstate them. In a straightforward direct sale, made from a usual supplier to a regular customer, they would hardly exist, but in more complicated transactions there would be a risk of hardship, and a fruitful source of misunderstanding.

The rubric rightly refers to the restriction of rebates, and the effect of the provisions has been explained by the Board of Trade and the Chancellor as giving the exporter the choice of taking either the export rebate or the Convention rate of duty.

It is at this point that the difference between Section 2 of the European Free Trade Area Act, 1960, and this Clause is clearest. If not always, at least usually, the import duty is paid by the importer. Without claiming any expertise in foreign laws, which I certainly do not possess, I would expect that the liability for import duty would always lie upon the importer. In addition to that difficulty, I understand that, in practice, the British exporter is expected to choose the rebate in preference to the Convention rate of duty for one class of case, where the purchasing country has no multilateral tariff, and might have a marginal preference for the rebate where the multilateral tariff is less than the rebate, and will choose the Convention rates in other cases.

The foreign importer's interest will in nearly every case be to pay the lower rate of import duty. So, in many cases, we start the bargain with a conflict of interests, and whether or not there is a conflict depends on the import duty category into which the goods fall. Where there are supplies from one seller to one buyer of a variety of goods—perhaps in one consignment—there is a most fruitful source of genuine misunderstanding between the seller and buyer about which goods are to go, through which of these optional channels.

All this is difficult enough in the past tense but when assurances for the future are sought the position is surely most unfair to the United Kingdom supplier. In the words of the Bill he is required to satisfy the commissioners that a Convention rate of duty has not been, and will not be, applied to the goods at any time after the exportation. How does he satisfy the commissioners of that? How does he satisfy himself of that?

Suppose a variegated supply of goods goes in bulk to one E.F.T.A. destination, consigned to one of a variety of mercantile agents. Incidentally, I must confess that I have never been quite sure what constitutes a mercantile agent; but anyway, let us suppose that a mixed consignment is sent to one of these various kinds of agents, some of whom are not agents at all, and then the bulk is broken and the goods are resold in parcels, still in bond, at an E.F.T.A. destination and are sent to different destinations and different buyers.

How does this affect the British merchant who is party to the goods and has been paid to keep track of all that goes on between foreign merchants thereafter in which varying rates of import duty are paid on the goods? That is the burden that is put upon the British merchant in Clause 8 as it stands.

I expect to he told in familiar language that this scope of responsibility upon the British exporter is necessary, that without it there would be evasions and that if there is the risk of evasion, our E.F.T.A. colleagues, bruised already by the surcharge, will object. I expect to be told that they will say that the Chancellor has not carried out the undertaking which I know he gave them at, I believe, the April meeting of the Ministerial Committee. On practical grounds, I doubt that. I also doubt whether the matter is not workable with the Amendments to which I am speaking.

If, starting from the doubtful point of Article 7 of the E.F.T.A. Treaty, the other E.F.T.A. countries are pressing for so exact a proscription of the export rebate in convention dealings, then the question should be solved by telling them that this country will not object if they c loose to pass domestic legislation like Section 2 of the European Free Trade Association Act, 1960, applying the rebate on internal duties as well as the drawback on customs duties, but, so far as we are concerned, doing the thing backwards as Clause 8 is doing it, and the wrong way round—that is to say, not addressing oneself to the country of arrival and to the importer who is liable for the import duty, but addressing oneself as Clause 8 does to the exporter in the country of origin who is ultimately to pay the export duty.

As I say, let it be done the wrong way round, as Clause 8 does. We are not prepared to go further than Clause 8, amended as I am proposing it should be—t nat is to say, without the requirement that the British exporting merchant shall give a guarantee about the future transactions with goods and the duty which ultimately comes to be paid upon them.

I hope that the Financial Secretary will agree that this is a reasonable point of view and that we should not be shut out from doing that by the fact, which I appreciate, that the British representative in the April meeting gave certain assurances to his colleagues in the European Free Trade Area.

8.15 p.m.

Mr. Geoffrey Hirst (Shipley)

My hon. and learned Friend the Member for Buckinghamshire, South (Mr. Ronald Bell) has explained these Amendments extraordinarily well and very lucidly so that there is not much that I need say. However, I readily appended my name to his Amendments because I would go further than my hon. and learned Friend and say that I do not like the Clause at all. On the other hand, I concede that one might have to compromise a little with the obligations—to me, undesirable—which Her Majesty's Government have undertaken.

I am surprised that this point was not mentioned during the Second Reading debate, because a point of principle is involved. Some reference to this matter would have been more helpful than the extraordinary waffle that we got from the Chief Secretary on that occasion, to which I drew somewhat elaborate attention. This is a matter of principle. It is not only a question of not helping British industry and placating foreign interests, but it attaches considerable penalties which are most unreasonable. I cannot understand the Government, with their obviously sincere desire to increase this country's exports, putting such a difficulty and disadvantage upon many British interests.

As I know from personal experience, one deals with one's business affairs—for example, in the textile industry with which I was not concerned, and in the chemical industry with which I was concerned—through export houses, as principals and not as agents, involving a considerable number of people engaged in considerable joint selling. They are the people who would claim the rebate if there was one. With agents it would be a different story, but they are acting as principals and are handling a large number of articles.

I have in mind an instance in my pharmaceutical career, in which I am not engaged now, where such a principal brilliantly handled something like 4,200 items. That is a rather large number, but hospital items soon add up. How such a person can give an assurance about the possibility of convention rates I do not know. I have perhaps taken an exaggerated case because it happened in the Middle East, but the firm in which I was interested exports the same things to the E.F.T.A. countries. I have no idea what goes on these days, but how such a firm can give an assurance about the future I do not know.

Some very good explanations should be given for this Clause. I trust that in the explanation that we get we shall not be told that the purpose of the Clause is to placate or make easier the feelings of our E.F.T.A. partners irrespective of what difficulties are presented to British merchants. If that is the explanation, the Clause should not be in the Bill at all for it would be quite irresponsible.

Mr. Peter Bessell (Bodmin)

The Committee is indebted to my hon. and learned Friend the Member for Buckinghamshire, South (Mr. Ronald Bell) for introducing these Amendments, if only to enable us to have some clarification of the Clause. I hope that the Financial Secretary will be able to answer the valid points which my hon. and learned Friend and my hon. Friend the Member for Shipley (Mr. Hirst) have raised.

I do not want to go into the detailed question concerning the quid pro quo which may have been entered into by Her Majesty's Government in order to appease the E.F.T.A. countries in relation to the 15 per cent. import duty, although I think it is a question which ought to be answered and I hope that we may have some clarification upon this when the Financial Secretary replies.

One feature of the Clause which bothers me is that, while it may not have any very serious disadvantages to exporters, it complicates the machinery of exporting. At a time when every possible incentive is needed to encourage manufacturers to export, it is a pity that any Clause or regulation should be introduced which could be even a minor discouragement. The disadvantages are chiefly administrative, but it is my experience, at least, that the difficulties in persuading manufacturers to embark on an export programme can frequently be summarised as being administrative.

For this reason, again, we need a very clear explanation of the reasons behind the Clause.

Mr. MacDermot

I join in agreeing with hon. Members opposite that the hon. and learned Member for Buckinghamshire, South (Mr. Ronald Bell) put this Amendment to the Committee with great clarity. It is a helpful Amendment, which raises the whole underlying point of the Clause. It is not in order for us on an Amendment to discuss widely the whole purpose of the Clause, but the hon. and learned Gentleman stated sufficiently for the present purpose the general effect of the Clause and the circumstances in which it came into being. I would not adopt his language in describing it, but it is well known that the Clause implements an agreement which was reached at the Ministerial Conference of E.F.T.A. last October and further discussions held with the Norwegian Government, in order to resolve certain reservations which they had made at the time of that agreement.

We take the view, and have always taken the view, that our export rebate scheme is something which we are entitled to introduce both under the E.F.T.A. agreement and under the wider G.A.T.T., but we recognise that there are people who do not share our confidence in that matter. At one time it was being strenuously attacked.

The agreement which was reached within E.F.T.A. was reached following the very helpful consideration of this problem by a working party under the Secretary-General of E.F.T.A. Put shortly, the conclusion reached in the end was that, within E.F.T.A., the scheme was acceptable provided that the British exporter was, in effect, put upon his option either to claim the rebate or to allow the goods to benefit from the E.F.T.A. tariff treatment when they were received into the receiving country; but that the goods could not qualify for both.

The hon. and learned Gentleman put the matter rather as though these two things were more divorced than I suggest they really are, as though the application for export rebate was, as it were, solely a matter for the exporter, that it was the importer who was concerned with the tariff treatment, and that there was, as it were, a conflict of interest. But, of course, exporting is the result of a bargain struck between exporter and importer. The terms of that bargain will be influenced depending on whether it is the exporter who will have the benefit of the export rebate or the importer who will have the benefit of the tariff treatment.

The hon. and learned Gentleman implied that we had not sufficiently defended the interests of the British exporter in this matter. I put it to him that, once it is accepted that we had to reach a compromise decision on this matter, we have reached a compromise which is e artinently satisfactory to the British exporter inasmuch as he is the one who has the option. It may, of course, enter into the bargain. It may be part of his bargain with his purchaser. As part of that bargain, he may agree himself not to claim the export rebate and that the importer will claim the E.F.T.A. tariff treatment. But, so far as our law and this provision is concerned, the choice rests fairly and squarely with him, and this is accepted by our E.F.T.A. partners as being the right way in which we should legislate.

These Amendments would restrict that which we have agreed with our E.F.T.A. partners in this way. It is suggested that the entitlement to export rebate should be withheld only if the person receiving the rebate—who is, of course, the exporter in the technical sense for the purpose of the export rebate, the person who enters into the contract to export goods out of the country—knows at the time he applies for it that the goods in question have already been given privileged tariff treatment on importation into another E.F.T.A. country; that the goods would not be disentitled to export rebate if their privileged tariff treatment in the other E.F.T.A. country were accorded after the export rebate had been applied for or paid in this country; and that the person receiving the export rebate could disclaim ail knowledge or interest in whether the goods subsequently entered another E.F.T.A. country with the benefit of the E.F.T.A. tariff treatment.

Such a provision would not be in accordance with the agreement, and, moreover, it would not be in accordance with the fairness or justice of the matter. The point which is overlooked is that, before E.F.T.A. tariff treatment can be successfully obtained by the importer in the other country, he will have to secure the co-operation of the British exporter to establish his entitlement to that privilege by obtaining a certificate of origin in accordance with the E.F.T.A. rules. The British exporter will have to give a certificate for the purpose of that claim. This, I think, answers the question put by the hon. and learned Gentleman—how will he know that a claim is being made or that a subsequent claim is made?

One can examine this by examples. One must take it in stages. First, one can envisage the case of goods exported from this country on, say, 30th September. A claim for export rebate can be made the following day. This is an extreme case because they are normally dealt with quarterly and it would in the ordinary course of events be a longer interval; but the claim could be made within a very few days of the actual export. The goods may not reach their destination within E.F.T.A., for example, Austria, until a few days later, after that claim has been made, and the question of E.F.T.A. tariff treatment in Austria may not be settled until a subsequent date.

The next stage would be a similar example except that the goods, on importation into Austria, are stored in a Customs warehouse and not delivered to the Austrian home market until, perhaps. two or three months after the time of their physical importation into Austria.

A third case which might arise is the case which the hon. and learned Gentleman instanced. Goods might be exported from this country to a mercantile agent in a non-E.F.T.A. country—say, Germany—and stored in a bonded warehouse and exported for eventual sale. They might be exported to a buyer within an E.F.T.A. country some months later, and qualify for E.F.T.A. tariff treatment. The question of their E.F.T.A. tariff treatment would arise after the exporter has already claimed and been paid the export rebate.

I imagine that in those circumstances the normal procedure would be for the exporter at the time to make it clear to his agent with whom he was dealing that this was a case in which he had decided to claim the rebate, that it was in his interest to do so and that, in those circumstances, the claim would not be made for the E.F.T.A. tariff treatment at the other end. But if it were subsequently made, again the eventual buyer seeking to establish E.F.T.A. tariff treatment would have to obtain his certificate of origin and to get in touch with the original exporter to establish the origin of the goods.

Mr. Hirst

Normally, the certificate of origin is part of the export parcel. When one exports, the certificate of origin is part of one's documents.

8.30 p.m.

Mr. MacDermot

If that has happened, he knows at the time of his export that he has issued a certificate of origin with a view to a claim being made by the importer. Therefore, he will not claim the rebate. He will not do the two things at the same time. He will not both issue a certificate of origin for the purpose of claiming the rebate and make a claim in this country for the export rebate.

Mr. Hirst

The certificate of origin is normally required by most countries to ensure entry. Whichever method the exporter adopts will have nothing to do with that. It may be necessary from the Treasury point of view that the export should be proved. The certificate is a normal shipping document. That is the case in the Bradford trade and in the cotton trade in Manchester. Certificates of origin are part and parcel of the proof that it is a British export. That does not pre-decide how the transaction should be handled from the point of view of rebate or Convention.

Mr. MacDermot

I take the hon. Gentleman's point. But he will know at that stage, when he is exporting, whether the certificate is being provided with a view to a claim being made by the importer for the tariff treatment. This will be the normal case. If he does, then he will not claim the rebate in this country. I agree that there may arise circumstances in which he does not have this knowledge at the time but acquires it subsequently. If he has already claimed the rebate, his duty—it is provided for in the Clause—is to acquaint the authorities of the fact which has come to his knowledge and he will become liable to refund the rebate if a claim has subsequently been made in the receiving country.

As I say, this will be quite an exceptional case. Normally, it will be covered by contract at the time of exporting the goods. In other words, the goods will be marked at that time as goods in respect of which the exporter has decided to claim the rebate or it will be left free for the importer to claim the tariff treatment.

Mr. Sheldon

There is a class of business in which documents are passed on to whichever customer might require their use. Until the documents have reached the final buyer, the goods are stored in a bonded warehouse or possibly a free port. What will the certificate of origin show in this case, because it is not sufficient for a report to be made back to the original exporter? Something in the original documents should show that the export rebate has been claimed. Can something be done to satisfy this?

Mr. MacDermot

I will look into the point which my hon. Friend has raised. I am not aware at the moment of the answer to it. but I can well see that there would be a clear practical advantage if some procedure were devised to deal with the matter, whether it is something for us to do as the Government or something which will arise as a trading practice. I can see clearly that if an exporter has decided to claim rebate but is automatically supplying, in the way mentioned by the hon. Member for Shipley (Mr. Hirst), a certificate of origin, it should be made plain either on that certificate or on some accompanying document that the rebate has been claimed so that it will not produce this sort of confusion of a claim being made made in both countries, and acrimony resulting later with the nuisance, bother and awkwardness of rebate having to be made subsequently. These are matters of procedure and I will gladly look into the point which my hon. Friend has raised, as to whether we can do anything by way of documentary procedure to avoid that sort of difficulty arising.

The hon. Member for Shipley also raised the added complication, which I agree arises, that in the case where the exporting is done through the British exporting house, the claim for the rebate will be made not by what one generally regards as the exporter, the manufacturer, but by the exporting house. Naturally in such a case there is very close liaison between the exporting house and the exporter. Often the treatment of the rebate is a matter for negotiation between the two parties, and clearly, here again, this is a matter which will call for co-ordination between the exporter in the loose sense and the technical exporter, for purposes of obtaining the rebate, in order to achieve the object I have mentioned, namely, to see that confusion does not subsequently arise as a result of the importer not being aware of the decision made by the exporter at the time of the export.

Mr. Patrick Jenkin

This has been a useful debate, airing a point which could clearly in certain circumstances give rise to difficulty and embarrassment. The point made by my hon. and learned Friend the Member for Buckinghamshire, South (Mr. Ronald Bell) and also the points raised by the hon. Member for Shipley (Mr. Hirst) have made it clear that there is something here which requires to be watched fairly carefully.

One does not like the idea of firms exporting goods which then pass outside their control and then something happening to those goods which may result in a liability falling upon that firm. I was much attracted by the suggestion made by the hon. Gentleman the Member for Ashton-under-Lyne (Mr. Sheldon), that somehow the documents should be marked to show that the export rebate has been claimed or that it is intended to be claimed as part of a claim involving other goods. Thereafter, everyone would be put on notice that the goods would not qualify for E.F.T.A. treatment. I am sure that the whole Committee is grateful to the Financial Secretary for having said that he might look at this.

In the circumstances, it appears to me that the Financial Secretary has gone a long way to alleviate the anxieties which might reasonably be felt and which have been reasonably expressed in the Committee. I hope that in the circumstances my hon. and learned Friend will think fit to withdraw the Amendment.

Mr. Ronald Bell

I have been conscious from the first of the difficulty of taking this series of Amendments to a Division, because I am aware of the difficulties which would arise from their acceptance. I also remain conscious of the difficulties which will remain because the Financial Secretary does not feel able to accept them. It is clear from his speech that he is also aware that cases may arise where acrimony will be caused because the goods will still qualify for the Convention rate of duty, and if someone chooses to insist upon it, hardship and difficulty may be caused.

However, I recognise that my solution has difficulties, just as the existing wording has. Because the Financial Secretary is not able to accept these Amendments it must have some effect upon my attitude and perhaps the attitude of other hon. Members to Clause 8 as a whole and may predispose us to think that the right way to do this, in view of the admitted difficulties, is by the procedure which we followed in Section 2 of the E.F.T.A. Act, 1960, that is to say by domestic legislation in the other E.F.T.A. countries, and not by trying to do it back to front and landing ourselves in these very appreciable complications. Therefore, I ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Ronald Bell

I beg to move Amendment No. 153, in page 7, line 14, to leave out from "above" to end of line 17.

The Deputy Chairman (Mr. Sydney Irving)

I think that it will be convenient if we discuss with this Amendment Amendment No. 158, in page 6, line 43, at end insert "of which he has knowledge".

Mr. Bell

Amendment No. 153 would leave out words which put the burden of establishing his innocence—if I may borrow a term from the criminal law—upon the British merchant.

As to Amendment No. 158, subsection (2) as it stands at present provides that if the exporter who has in fact chosen to receive the export rebate rather than the Convention rate duty and something happens subsequently which dissentitles him to the export rebate—that is to say, in one of those cases we were discussing on the previous series of Amendments—and somebody somewhere takes the Convention rate of duty so that the British exporter loses his rebate, he must repay the rebate.

I suppose that that follows logically enough from the provisions of subsection (1), though we may not like it, but it also goes on to impose on the British merchant a duty to inform the Commissioners of any event giving rise to such a liability that is, a liability to repay the export rebate. That is an absolute obligation on him, to inform the Commissioners of any event giving rise to such liability. It does not require that he should be aware of the offence.

I may be told that the Attorney-General, or the Financial Secretary in his own wisdom, if he is allowed to use his legal judgment in his present office—which is, perhaps, forbidden by Government procedure—takes the view that the words which I propose are not necessary, and that that obligation can only arise if the exporter has actual knowledge of the event. If I am positively assured that the Law Officers of the Crown have given that advice and that the Financial Secretary has accepted it, I shall not persist with my Amendment, whatever I may think of the advice which has been given or of the acceptance of it.

The point I want to raise is simple enough, and I do not think I could make it simpler if I talked any longer, and it is that the exporter must not be under a duty to disclose something he does not know about.

Amendment No. 153 is to leave out the words at the end of subsection (3). They say that in proceedings by the Commissioners to enforce that liability against any person for the recovery of the amount of the rebate it shall be for that person to prove that he is entitled to retain the sum sought to be recovered. This is becoming a habit, and I suppose that I must say that it is becoming a habit with me to resist this form of words whenever I come across it. I seem to have been doing it for a good many years now.

I confess that I have not had great success in resisting such provisions, whichever party has staffed the Front Bench opposite, but I continue in my belief that this is a bad thing to do, that it is a habit which naturally commends itself to Governments and Departments of State. It is always excused by the convenient form of words, that the burden of proof is put upon the person who is accused "because the facts are peculiarly within the knowledge of the accused". That is the phrase used when it is a criminal matter, but this is a civil liability.

8.45 p.m.

Is it true that the facts are peculiarly within the knowledge of the merchant who is said to be liable to make the repayment? I do not think that it is. Considerable difficulty may arise in some cases either for the Commissioners to prove that an event has occurred which disentitles the exporter to keep the rebate, or for the exporter to prove that it has not. I can see great difficulty in both directions. My complaint about these words is that no one is bothering about the difficulty on the merchants. Everyone is obsessed by the difficulty which the Commissioners may encounter.

Let us look at the nature of the case. The sort of occasion when it would arise is the one which we were discussing on the last Amendment when goods are sold in bulk, go to a bonded warehouse, the bulk is broken and the goods go to different destinations. It is difficult for the exporter in Britain to follow them, and if one of the E.F.T.A. countries finds that goods have arrived in it, the Convention rate of duty has been paid and then a trade competitor draws attention to the fact that the goods may possibly come from a supplier in this country who elected to take the export rebate, how is the unfortunate exporter to trace all the goods and establish his right to keep the money, the burden of proof being on him?

The Clause says, in effect: "We claim the money back. If you think that you are entitled to keep it, you must prove your case up to the hilt". I say that that is not fair.

In the 1960 Act where, for our own protection, we have that provision in Section 2 in respect of drawback which has been claimed in a foreign country, in Section 3 we give to the Commissioners the most far-ranging powers, requiring any person who appears to have been concerned with the goods in any way to provide any information called for by them. If he fails to do so, he is subject to penalties. Those are the sorts of powers which we have given to the Commissioners of Customs and Excise for our own protection in chasing a case where there has been drawback in the country of origin.

Armed with powers like that in our own country, the Commissioners would be in a strong position to arrive at the truth, but the merchant is not able to compel anyone to inform him. He is helpless. Why is it true that these matters are peculiarly within his knowledge or within his ability to find out? The reverse is true. The Commissioners are in a specially privileged position to find out. We have diplomatic representation in these countries. Through our embassies and trade missions, we can ferret out the truth, but the merchant cannot.

In my view, the ordinary, everday rule of law should apply. Proof should lie on the claimant as it does in every other case, and the Commissioners should prove their case. If it is said that this is very difficult for them, my answer is that it is much more difficult for the merchant, and it is extremely harsh to put this burden on him. It is only because it is the Government in effect that this is being done, and it is the Government who promote legislation.

I hope that the Financial Secretary will look at this very carefully. I think that there is a risk of oppression and hardship, ant I am sure that neither the hon. and learned Gentleman nor his colleagues would want that to happen. This is not the protection of the Revenue, it is the placation of our E.F.T.A. partners. With all due regard to that, I ask the hon. and learned Gentleman to look at this carefully, and if he cannot accept the Amendment, as I hope he can, will he at least give an undertaking to pursue his best endeavours to see that the difficulties which I have brought to his notice are overcome?

Mr. MacDermot

The hon. and learned Member for Buckinghamshire, South (Mr. Ronald Bell) has spoken to two Amendments, and perhaps I might deal with them in the same order as he has done.

Amendment No. 158 proposes to add some words to subsection (2). My view, for what it is worth, is that the Amendment is not necessary, but I will say at once to the hon. and learned Gentleman that I have not taken specific advice on the point that he has raised, because I regarded it as part of the series of points which he raised on the last Amendment we were discussing.

My view is that the subsection as worded could not give any liability to inform the Commissioners of a matter of which a person had no knowledge, but I shall gladly look at that and undertake that if I have any reason to go back on that view I shall put down an appropriate Amendment. It clearly would not be right to seek to impose a duty on someone to do the impossible.

On his second point, the same point occurred to me on reading the draft of the Clause. I think that any lawyer looks carefully at anything which proposes to put the onus of proof on the defendant in any proceedings. As the hon. and learned Gentleman said, the general principle on which at times it is thought right—and it has been approved by the courts as being right—to put the onus of proof on the defendant is when the facts are peculiarly within the knowledge of the defendant.

I confess that before the hon. and learned Gentleman moved his Amendment I was inclined to feel that this was a case which fell within those principles, in the sense that if the Commissioners had reason to think that an event had occurred which gave rise to a liability to make the repayment, in other words, that E.F.T.A. tariff treatment had been granted in the other country, both parties in this country would be in a difficulty of proving what had happened in another country, but it seemed to me that, generally speaking, if not always, it would be the exporter who would have the means of knowledge in relation to the certificate of origin.

I am impressed with the points raised during the debate that we have just had on the other Amendment. I think it is clear from our discussions—or if it is not clear it is certainly possible—that there might be cases where the exporter would not have any means of proof, whatever his state of knowledge, and I think one can assume that the Commissioners would not think of taking proceedings of this kind unless they had very firm information that E.F.T.A. tariff treatment had been granted in the other country, they had demanded the repayment, and the exporter had refused to repay.

In some cases the exporter's refusal might be genuine. He might say, "I am not satisfied that you are right. My information is otherwise". In such a case it might seem harsh to put the onus of proof on the exporter. Being impressed with the arguments and instances that have been adduced, I should like to look further at this. The inclusion of the provision was based on precedent. There is a very similar provision relating to the export rebate in the 1964 Act, and I am told that there are precedents in earlier Customs legislation.

What we are doing in the Clause is perhaps rather more unusual. It depends on the proof of facts concerning something which may not have occurred within our jurisdiction, but which may have occurred in another country. I should like to look more carefully at this, if the Committee will allow me, and, if necessary, bring forward an appropriate Amendment on Report.

Mr. Ronald Bell

I am grateful to the right hon. and learned Gentleman for that reply. In the light of what he has said, I gladly beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Question proposed, That the Clause stand part of the Bill.

Mr. Patrick Jenkin

We have had two useful, short debates. I congratulate my hon. and learned Friend the Member for Buckinghamshire, South (Mr. Ronald Bell) on the response which he evoked from the Financial Secretary. I only hope that in now speaking to the Question I do not evoke from him a similar reponse to that which there was from him the last time that I spoke on such a Question.

I believe that it is right that we should look at the situation underlying the Clause, examine its origins and parentage to some extent, and obtain more explanation than we have had so far from the Financial Secretary as to why it is in the Bill. There is no doubt, and I think that the Financial Secretary would not contest this, that it represents a major concession to our E.F.T.A. trading partners, and could have far-reaching consequences.

It is because of these possible consequences, and the implications which it might have for the future, that we are justified in spending a minute or two in looking at it. The first hint to reach the outside world that something of this kind was to be exacted from this country by our E.F.T.A. partners came in the communiqué issued after the Ministerial Meeting of E.F.T.A. in Copenhagen, on 28th and 29th October, 1965.

It will be remembered that that meeting was heavily overshadowed by the controversy, and indeed the bitterness, which the import surcharge had created among our partners, who regarded it as a grave affront to the whole scheme of the E.F.T.A. agreement and the Stockholm Convention. They had been told that it was temporary and when they asked, "How long is temporary?", they read in the British Press that the Question had been put to the First Secretary and that his only answer was, "How long is a piece of string?".

The Ministers went to the meeting last October determined to announce their decision that it was to last for at least another 12 months, and they knew that this would be a thoroughly unpalatable announcement to their partners. In those circumstances, it was not surprising that the First Secretary did not attend the meeting, but sent the President of the Board of Trade. On 30th November, the Chancellor of the Exchequer told the House that the surcharge was to be kept on.

There were two brief paragraphs in the E.F.T.A. communiqué which are relevant to this Clause, and I should like to read them. The first stated: Ministers decided by a majority that, as from 31st December 1966. when the tariffs on E.F.T.A. industrial goods traded within the Area are reduced to zero, such goods may not benefit both from E.F.T.A. tariff treatment and from drawback". My hon. and learned Friend the Member for Buckinghamshire, South referred to Article 7 of the E.F.T.A. Convention, which made it quite clear that drawback is inconsistent with Convention treatment. Then came the paragraph with which this Clause is concerned: Ministers discussed the positon of rebates of internal taxes on exported goods in a completed free trade area. They reached agreement in principle on a solution, with a temporary reservation by the Norwegian Delegation. The question of drawback passed easily. No fuss was made. It was envisaged in the Convention. There can be no conceivable objection to the disallowance of drawback in these circumstances. After all, it stems from the very nature of a free trade area that a drawback cannot be allowed. A free trade area is like a Customs union in that there is a freedom of internal trade. It is unlike a Customs union in that there are different external tariffs. A country like ours, with a high external tariff, represents a valuable market to other Convention countries. Therefore, the extent to which that high tariff is eroded or eliminated by drawback represents a deprivation of the rights of E.F.T.A. members. Therefore, from this point of view this step is quite right.

9.0 p.m.

Coming to the question of the rebate of internal taxes, which is what the second paragraph referred to, the position is wholly different. This is dealt with in the. E.F.T.A. Convention, as subsequently amended. Article 13 makes it clear: Member States shall not maintain or introduce (a) the forms of aid to exports of goods to other Member States which are described in Annex C".

The original Annex C dealt with this. Perhaps I need not read that but can turn to the amended Annex C dated 15th March, 1961. The paragraph dealing with internal tariffs listed as one of the export aids which were to be banned The exemption, in respect of exported goads, from charges or taxes, other than charges in connection with importation or indirect taxes levied at one or several stages on the same goods if sold for internal consumption, or the payment, in respect of exported gods. of amounts exceeding those effectively levied at one or several stages on these goods in the form of indirect taxes or of charges in connection with importation or in both forms. That paragraph of Annex C makes it perfectly clear that the repayment in respect of exports of indirect taxes is perm tted, provided that it does not exceed this amount that has been paid. The words are: of amounts exceeding those effectively levied". If it exceeds those amounts, it is illegal. If it does not exceed the amount levied, it is perfectly legal.

It is, therefore, necessary to examine the export rebate scheme. I want to quote the Chancellor of the Exchequer's own description of this scheme, which he gave on Second Reading of the Finance No.2 Bill, 1964. It is important that one should recognise just how carefully drawn up this export rebate scheme was. Clearly, Ministers must have had this in mind when they considered it. The Chancellor said this: Some elements of tax paid at earlier stages of the process of production enter into export costs, but cannot be precisely identified in the cost of the exported goods. These include vehicle licence duties, the hydrocarbon oil duty, and some elements of Purchase Tax, for example, on business stationery. We estimate that the unrelieved element of tax in export costs due to these may approach £75 million a year, and the purpose of the new scheme is as far as possible to relieve the export trade of these elements of taxation."—[OFFICIAL REPORT, 24th November, 1964; Vol. 702, c. 1100.]

As the Bill went through subsequently, it was linked with these excise taxes and it was carefully calculated so that the rebate was in no circumstances greater than the amount of the tax which was levied. This was the intention and I believe that it was carried out with great skill by the Government statisticians. The intention was that the amount returned in rebate should accurately reflect the amount of tax which had been levied during manufacture.

It is curious that during the debates on that Bill there was no suggestion, either from the Treasury Bench or from the Opposition benches, that there was any fear of this export rebate offending any of our treaty obligations. On the Third Reading, my right hon. Friend the Member for Barnet (Mr. Maudling), just after midnight, suggested in relation to the export rebate: Clearly, many difficult problems Hill arise in the operation of the scheme and there will be arguments as to who should benefit—the export merchant, the manufacturer and so on. He went on: I think that its legality internationally is at the least doubtful. The Chancellor jumped to his feet and said: Why? He may have been siting down, but he was obviously immediately provoked. My right hon. Friend went on: I think that it will be acceptable in the circumstances of the greater illegality of the surcharge. It is sad that he was proved in the event to be wrong.

The Chancellor said a little later, on the same occasion: The right hon. Gentleman misunderstood me. When the legality of this is being challenged by those who are not friends of this country overseas, I wondered why he felt that he had to give comfort to them by lending his authority by casting doubts on its legality. My right hon. Friend replied: The question of legality is a question of fact."—[OFFICIAL REPORT, 7th December, 1964; Vol. 703, c. 1240–41.] That is, of course, obviously right.

The indignant repudiation by the Chancellor that there was any suggestion of this export rebate being contrary to our Treaty obligations has been reinforced on a number of occasions. In response to a supplementary question from me, the Minister of State to the Board of Trade said categorically on 10th February, 1965: This export rebate scheme is not incompatible with the existing rules of E.F.T.A."—[OFFICIAL REPORT, 10th February, 1966; Vol. 724, c. 607.] That is what the Minister of State said in February, even after the E.F.T.A. meeting to which I have referred.

Yet, just before that, on 21st January, there was a Treasury announcement which, as reported in the Board of Trade Journal for 28th January, said: … certain indirect taxes, i.e. those on auxiliary materials, equipment and services … were no longer to be allowed as rebates within the E.F.T.A. An agreement had been reached by the countries. I emphasise the words in the announcement, "certain indirect taxes". This means that certain specific indirect taxes, which clearly came within the Treaty, had been picked out and isolated from other indirect taxes—those or auxiliary materials, equipment and services. It looked as if that provision had been expressly and specifically aimed at the United Kingdom.

In another Answer to my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne), the Minister of State specifically said that there were no other E.F.T.A. countries which had anything similar. The Board of Trade Journal, to which I referred, also said that there had been—this was the first we had heard of it—a report from the Secretary-General to the E.F.T.A. Council of Ministers. I do not think that the Report on which that decision had been taken has been published. It is not available in this country; although I have made efforts to see a copy, I have been unsuccessful.

On the basis of that Report, a specific exception was made to Annex C, which allows the repayment of indirect taxes paid during the course of manufacture aimed directly at our own export rebate. The export rebate, we now know, has been declared illegal or contrary to the Stockholm Convention, and is to be banned. Manifestly, there is no corresponding advantage from the other members to this country.

Therefore, in these circumstances, I am bound to ask, "Why?" Why have Ministers in these negotiations gone to these apparently great lengths to single us out for this unfavourable treatment? I know, of course, what the answer is. The whole country knows what the answer is. It is because they were going to have to say that the surcharge would be kept on for another 12 months and as a sop to our outraged partners, who knew that they would have to face this highly unpopular and, from their point of view, damaging surcharge, the Government knew that they had to give way on something. But the real sting was that the surcharge was only temporary. We now know that it is to come off this autumn. We have been told that it will not be replaced by quotas. We shall wait and see. But the sop, the compensation, which the Government found it necessary to give, is permanent.

That is not all. We are now not going to be able to have the export rebate—something perfectly legitimate and clearly within the terms of the Stockholm Convention as amended by Annex C—for goods that qualify for Convention treatment. The question arises of how much else would be covered by this. Will someone else come along and say, "What about turnover taxes"? The Prime Minister told us the other day in a speech in another part of this building that the Government were looking again at the T.V.A. I welcome this. I believe that some of the arguments which the Richardson Committee used in recommending that no T.V.A. should be introduced in this country did not tell the whole story, and it is right that it should be looked at again.

But suppose we introduce a T.V.A. and shift part of the burden of Corporation Tax from profits to turnover, which would in many ways be a good thing to do. The advantage to exports would be considerable in that under the G.A.T.T. and Stockholm Conventions it would be possible to remit the T.V.A. on goods exported to other Convention countries. The clear distinction between direct and indirect taxes shows that the greater the weight of indirect taxation the greater the assistance to exporters.

It looks to us as if the Government have struck a very poor bargain for Britain. They have made a long-term concession to placate a short-term, but no doubt embarrassing, hostility. There may be another explanation. If so, the Committee and the House have yet to hear it, and there have been plenty of opportunities for Ministers in reply to Questions and debates to give the other reason.

I would ask the Financial Secretary to deal specifically with this point. Why was it necessary to take this action? We were doing something which was perfectly legal under the Convention and which had clearly been envisaged when the Convention was drawn up. Why was this done in terms which appear to pick out the United Kingdom export rebate in circumstances where we get nothing in return? Clause 8 is the opportunity for the Government to come clean on this and give the Committee a full explanation of why they thought it necessary to do this. If the explanation is not satisfactory, we shall find that this is another instance of where the Government have engaged in international negotiations and come away with a very poor bargain.

I need not list all the examples that we have had—the American aircraft and the other matters which have been debated almost ad nauseam. This is a little instance not involving enormous sums of money, but it is a niggling little point, and the Government have given in, ar d we want to know why.

9.15 p.m.

Mr. J. Bruce-Gardyne (South Angus)

I do not want to add greatly to what my hon. Friend the Member for Wan- stead and Woodford (Mr. Patrick Jenkin) has said about the Clause, because he has covered the ground most thoroughly and admirably. But I want first to clear up one point about it.

The Financial Secretary has several times said that it would be open to the exporter to claim either the rebate or the preferential tariff. This has always been the understanding. But are we quite clear that under the terms of the Clause where, for instance, one of the other E.F.T.A. countries operates a nil tariff vis-à-vis third countries it will be open to the exporter to claim the rebate? I take it that there cannot be any doubt about that.

Equally, suppose one of the other E.F.T.A. countries operates a tariff against third countries which is lower in value than the export rebate. I take it that in that case also the British exporter will be able to claim the rebate instead of the preferential tariff. I do not think there can be any doubt about those points, but they do not seem to be clearly laid down in the Clause, and I should like the Financial Secretary's confirmation.

I turn to the principle of the Clause. My hon. Friend said that this was a relatively small matter, but it is not as small as all that. I notice that the motor car industry reckons that the loss of the rebate may cost it about £24½ million. That is not exactly chicken feed. As my hon. Friend said—I do not think it can be said too often—this is essentially a permanent concession which has been torn from the Government to return for a temporary toleration of the import surcharge.

I have every sympathy with our E.F.T.A. partners about the import surcharge. They have been subjected to the shabbiest possible treatment by Her Majesty's Government, and have every right to complain of the way in which Britannia has waived the rules for the past two years, as it will be before the surcharge comes off.

I have no greater liking for export rebates than I have for import surcharges. I hold that a currency which cannot survive without this artificial corseting is probably in need of attention to its parity, very much as a middle-aged woman who tries to disguise her spread with artificial corseting might be better advised to admit to her real age and real figure.

Nevertheless, the point is that this was a permanent concession in return for a temporary forgiveness, and, therefore, it was a concession that the President of the Board of Trade should never have made. What is more, I cannot help feeling that the President has indulged in discussing this matter before the House with what at my most generous I can only describe as a certain amount of obfuscation. In col. 1111 of the OFFICIAL REPORT of 29th November last, the President told me that the withdrawal of the export rebates was part of a general settlement which applied equally to all other members of E.F.T.A. as well as to ourselves. But on 10th February the Minister of State explained that no other country had applied a specific export rebate scheme. Therefore, this was an exclusive British concession and was not part of a general settlement at all. On various occasions the President of the Board of Trade has tried to confuse the export rebate with drawback, but, as my hon. Friend the Member for Wanstead and Woodford has pointed out, they are quite different animals. I find it hard to believe that the right hon. Gentleman was not perfectly well aware of that.

The definition of drawback in Article 7(5,a) of the E.F.T.A. Convention is: 'Drawback' means any arrangement for the refund or remission, wholly or in part, of duties applicable to imported materials, provided that the arrangement, expressly or in effect, allows refund or remission if certain goods or materials are exported, but not if they are retained for home use. The items included in the export rebate are essentially hydrocarbon oils, Vehicle Excise Duty and Purchase Tax. The last two cannot possibly come within the terms of drawback, although the first might conceivably do so. However, again as my hon. Friend pointed out, the Minister of State has said quite flatly that the export rebate is not incompatible with E.F.T.A.

This is where we come to the very serious crux of the matter. If the rebate is not incompatible with the Stockholm Treaty, why was it withdrawn; and, if it was withdrawn, does not this in itself imply an admission of incompatibility? If this implies an admission of incompatibility, are not the Government in reality saying that the rebate amounts to an export subsidy? And if it is an export subsidy, it offends against not only the Stockholm Treaty, but the G.A.T.T., as well.

Last year the President of the Board of Trade told us: … this is an arrangement that applies by definition within a free trade area and, therefore, could not be applied outside."—[OFFICIAL REPORT, 29th November, 1965; Vol. 721, c. 1112.] If the export rebate is not in conformity with the Treaty of Stockholm, I cannot see how it could be part of an arrangement which applies exclusively to that Treaty. I cannot help feeling—I have said this before and I must say it again—that if the Government maintain this withdrawal, as they are proposing to do in the Clause, when the E.F.T.A. Treaty comes into full operation next year, they will be laying themselves open to the demand from the members of G.A.T.T. that the export rebate should be withdrawn altogether.

I sometimes feel that the President of the Board of Trade might have been better advised to devote more of his energies to discouraging his right hon. Friends from driving a coach and horses through treaties and international obligations into which this country has already entered and perhaps rather less of his time into brow-beating one of our E.F.T.A. partners for maintaining an excise duty which was plainly in accordance with the Treaty of Stockholm at a time when we were plainly in breach of that Treaty.

There is another and murkier explanation of the Government's intention to make the suspension of the export rebate a permanent feature of our relations with the E.F.T.A. countries. My hon. Friend the Member for Wanstead and Woodford hinted at it and I hope that tonight we shall at least get a firm denial from the Parliamentary Secretary. The murkier explanation is that the Government nave it in mind to replace the import surcharge with import quotas. Surely the Government should realise that the waiver of the export rebate will not be enough to deter our E.F.T.A. partners from retaliating against British exports if, after two years of an illegal import surcharge, the Government then revert to import control. They will have to do a good deal more than that to satisfy them.

I cannot see that the Clause will serve any long-term purpose except to damage the interests of British exports to E.F.T.A. This is a concession which should not have been made and which the country has every cause to regret and we want a very good explanation of it from the Financial Secretary tonight.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

I agree with my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) and my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne). This is a most humiliating Clause. I shall not go over all the arguments which have been adduced with much more knowledge and much more skill than I could produce, but I for one have never liked the export rebate, just as I have not liked the import surcharge. I have always been against the imposition of both, because they lull people into a sense of false security. As the country drifted into an uncompetitive position, as our exports would not sell and our imports would grow, instead of trying to cure the root trouble the Government tried to shape the effects by taxing imports and subsidising exports.

The real problem of competitiveness still remains, and we have by these measures somehow lulled manufacturers into feeling that if only the Government would subsidise them all would be well—the attitude expressed quite recently in a wage claim when people said, "If they cannot afford to pay, let the Government subsidise the employers". This is one of the weak kneed demoralising attitudes tnat is about.

However, we have the export rebate, and it is appalling that we should have t-aded it in in this way when the Government have claimed all along that it was legal in regard to the Stockholm Convention. If we now admit, as the Clause admits, that it is not legal—that, in the words of the Secretary General of. E.F.T.A., … it is incompatible with the E.F.T.A. Convention —we must surely admit that it is incompatible with all our other trading agree- ments. One cannot excuse E.F.T.A. for this and say that it is legal for any other part of our trade. It is an important breach indeed.

I gather that our E.F.T.A. exports are running at about 15 per cent. of our total exports—and 15 per cent. of the effect of the Government's policy goes down the chute in this Clause. I do not like the Clause or the policy, but if we are to have this policy it can hardly be called watertight and homogeneous if, in the first year, the Government must exempt 15 per cent. of our exports from being liable to claim the rebate.

What will this exercise save? What is the value of the Clause to the Treasury, remembering that less than would otherwise have been paid out will be paid out? It will surely have sprung to the mind of hon. Members that if E.F.T.A. complains of the export rebate now, what is it likely to say about the S.E.T. rebates? We will come to that later. If the remission of tax on materials and goods is being queried, surely the remission of tax on labour will be queried all the more. Are we then going to have to remit the S.E.T. rebates on 15 per cent. of our exports, particularly those which go to E.F.T.A.?

The complexities of this situation make the mind boggle. It is as if the lady described by one of my hon. Friends as having difficulty getting strapped into her corset was bulging out all over again so that wherever she managed to get strapped into it she merely bulged out somewhere else. The Government's administration of these matters is a quagmire simply because they have been trying to manipulate the figures of exports and imports instead of going to the root of the problems and dealing with the question of the competitiveness of British manufacturers. I think it highly unlikely that the S.E.T. rebates will be legal under E.F.T.A. When a policy gets eroded to the extent of 15 per cent., as this one has, it is difficult to have any confidence in such a policy.

When discussing an earlier Amendment my hon. Friends drew attention to the complexities of this issue, and I will not dwell on them. Suffice to recall that when this provision was announced the Board of Trade Journal claimed it as a sort of victory for the Government. It stated: Exporters now have the privilege of being able to choose whether to get the rebate or the nil E.F.T.A. tariff'. It is not a choice at all. They used to be allowed to have both, but now they will be forced to have one or the other. I wish that when the Government get a major rebuff of this sort they would not try to dress it up as a success.

We must be told whether this rebate is illegal in regard to the Stockholm Convention. If it is not illegal, why did we trade it in, and for what? If, on the other hand, it is illegal, why have we not abolished it over the whole range of our exports, because one cannot pretend that it is illegal for Stockholm and legal for G.A.T.T. These are serious questions, and while I will not go over the whole ground again, I hope that the Financial Secretary is aware that all of this has created an impression of muddle, inefficiency and ill will in our intentions towards Europe. I hope that he will give us an explanation which will answer the questions my hon. Friends and I have asked.

9.30 p.m.

Mr. MacDermot

I hope that my reply on this occasion will not provoke hon. Members opposite to repeat their act of folly of a short while ago on a previous Amendment. I shall do my best to moderate my language and to revert to the more amicable terminology which I had been using before the intervention which caused such offence.

The main question that I have been asked was summarised very succinctly by the hon. Member for Cirencester and Tewkesbury (Mr. Ridley). I am asked whether this export rebate scheme is legal or not, in accordance with our international agreements. If it is legal, why did we need to make an agreement like this, to which we are giving effect in the Clause, and if it is not legal, how can we defend having it at all?

The simple answer is that different views have been held on its legality, and different views will continue to be held, to some extent. We have taken the view that the scheme is legal. The hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) outlined very clearly and forcibly the reasons and arguments why we say that this is a legal scheme and why we are entitled to rebate these taxes within the terms of the E.F.T.A. Convention. We take the view that it is rebating taxes which have been levied at various stages on goods which are being sold and exported.

But there is another argument; it has been put forward against us that these are taxes levied not on goods, but on the process of manufacture. People who take this view seek to distinguish our export rebate scheme from an added value tax scheme which, it is argued, is levied more directly upon goods. This is the issue, and it is a matter about which some of our friends within E.F.T.A. take a different view, and hold it very strongly.

As those who are lawyers know, in these matters among friends one does not want to go to law. All lawyers advise their friends not to go to law, and we have not sought to resolve this matter by going to law; we have sought to reach an agreement between those concerned which was acceptable to all parties.

The hon. Member for Wanstead and Woodford said that we had been forced into doing this, and that we ought never to have done it at all, because of the feeling among the E.F.T.A. countries against the import surcharge. I feel confident that exactly the same argument would have been put forward about the rebate scheme if there had been no import surcharge at all. This is a different view, fairly held. I am myself certain that we would have had that argument irrespective of the import surcharge. I respect the argument that we have reached this agreement—which is a lasting agreement, which we are now embodying in our legislation—purely in order to overcome a temporary difficulty. That is not the case. The agreement secures real advantage for our exporters.

We were chided for claiming this as a victory. I do not know whether it is to be described as a victory—I do not think that it is—but I suggest that we have secured the real interests of our exporters, especially to the extent that the choice lies with them.

May I now proceed shortly to say what the effect of it is? It is that the British exporters will not be entitled to E.F.T.A. tariff benefits as well as the export rebate, and it is the exporter who must choose. In many cases the exporters will probably choose to give up the export rebate because the E.F.T.A. tariff treatment will be more valuable. But it is estimated that there will be a substantial minority of cases where the exporter will opt to claim the export rebate.

This will apply particularly to the two cases which the hon. Member for South Angus (Mr. Bruce-Gardyne) instanced, namely, where there is a nil tariff within E.F.T.A. or where there is a lower differential in the E.F.T.A. tariff treatment than the value of the rebate. I confirm explicitly with a clear and unambiguous "Yes" the two questions which the hon. Member asked me about that.

The hon. Member for Cirencester and Tewkesbury asked me how much the effect would be on the Revenue, what would be the amount of rebate that would have been forgone. Any estimates in this field can only be of a general nature, but the estimate is that the maximum amount of rebate that might be forgone by British exporters, with a consequential gain to the Exchequer, would be about £9 million in a full year. That is reckoned to be the ceiling. What the actual figure would be I would not like to predict, and it is not possible to reach a useful estimate.

The hon. Member for South Angus made the point that the rebate scheme really an entirely different animal from the drawback scheme. With that I would entirely agree. I would accept what he says on that point, but I would also suggest to the hon. Member for Cirencester and Tewkesbury that the e Kport rebate scheme is also an entirely different animal from the import surcharge scheme, both of which he condemned, as it were, in the same breath.

A number of wider questions were raised, into which I do not think the Committee will want me to go now, comparing the added value scheme with this export rebate scheme, and as to whether it was our intention to try to replace the letter by the former. All I would say is that this agreement which we have reached with our E.F.T.A. partners, which is embodied in the Clause, is something which we think produces a workable and fair compromise between two quite genuinely differently held views within E.F.T.A. about the validity of this scheme. I hope with that explanation that the Committee will agree to the Clause.

Question put and agreed to.

Clause ordered to stand part of the Bill.