ANGLO-GERMAN OFFSET AGREEMENT

HC Deb 01 April 1968 vol 762 cc31-6

The following Questions stood upon the Order Paper—

5. Mr. FRANK ALLAUN

To ask the Secretary of State for Foreign Affairs if he will make a statement about the British Army of the Rhine offset talks in Bonn.

54. Mr. RONALD ATKINS

To ask the Secretary of State for Foreign Affairs if he has succeeded in negotiating with the Government of West Germany their payment of the whole of the foreign exchange costs of the British armed forces in that country; and if he will make a statement.

77. Mr. ELDON GRIFFITHS

To ask the Secretary of State for Foreign Affairs what progress has been made towards securing agreement in Bonn on offset support costs for the British Army of the Rhine.

The Minister of State for Foreign Affairs (Mr. Frederick Mulley)

With permission, Mr. Speaker, I would like now to reply to Questions Nos. 5, 54 and 77.

As I told the House on 21st February, negotiations began in Bonn on 8th February for a new Anglo-German Offset Agreement to replace the Agreement for 1967–68 which expired yesterday. Further talks between State Secretary Lahr and myself took place in London on 21st February and in Bonn on 11th March and on 27th and 28th March.

At the meeting on 28th March we reached agreement on the following proposals for offsetting the foreign exchange costs of British forces in Germany during the financial year 1968–69, which are expected to run at approximately £90 million. The Federal German Government will take steps to bring about offsetting payments to the United Kingdom in that year to a total value of DM510 million—about £53 million. This sum will be made up of about £22 million from purchases of defence equipment and services, at least £21 million from civil purchases by German public authorities, and about £10½ million from certain civil private purchases which the Federal Government will help to promote. These arrangements are comparable with last year's Anglo-German Offset Agreement, under which the Germans undertook to bring about payments in these three categories to a total value of DM550 million—approximately £49 million before devaluation. The element of defence purchases will, however, be slightly higher, and the element of civil public purchases somewhat lower, than last year.

In addition, the new Agreement will include a clause in which the two Governments declare their intention to broaden and intensify technological collaboration, both bilateral and multilateral. Such collaboration will serve the broader purposes of European unity and can be expected, in the longer term, to bring benefit to our balance of payments.

These will be the main elements in the new inter-governmental Agreement. Over and above this, arrangements are being made in the offset context whereby the German Federal Bank will invest the sum of DM200 million, or approximately £21 million, in a medium-term United Kingdom Government bond. This will bring in foreign exchange in the year 1968–69. In addition, we of course continue to receive valuable support from the Federal Bank in the wider financial context.

The total effect of this will be that some 82 per cent. of the estimated foreign exchange requirements of our forces in Germany will be covered by these arrangements.

In addition, we expect to benefit again in 1968–69 from the expenditure in the United Kingdom of the United States Air Force units transferred to this country under the arrangements which were reached tripartitely for 1967–68 and reported to the House by my right hon. Friend the then Minister of State for Foreign Affairs on 2nd May, 1967. Last year this brought us an estimated £7 million in foreign exchange. Taking this into account some 90 per cent. of our estimated foreign exchange costs in 1968–69 will be covered.

Mr. Allaun

As nearly £20 million of precious foreign exchange will not be offset, would it not be sensible for us to reduce our forces in Germany to that extent?

Mr. Mulley

The stationing of our troops in Germany is not the result of a bilateral arrangement between ourselves and the Federal German Government. It is in pursuit of our commitments to the N.A.T.O. Alliance. That commitment remains.

Mr. Atkins

Does my right hon. Friend remember the promise made by my right hon. Friend the present Home Secretary in his Budget Statement nearly two years ago to the effect that the foreign currency cots of the British troops in Germany would be totally met by sales, not by credits? Would my hon. Friend fulfil that promise, incidentally taking Field Marshal Montgomery's advice to withdraw British troops from Germany?

Mr. Mulley

The main point raised by my hon. Friend is the same as that raised by my hon. Friend the Member for Salford, East (Mr. Frank Allaun). Our commitment to be in Germany stems, not from a bilateral arrangement with the German Government, but through our commitments in the N.A.T.O. context. In terms of neutralising the effect on our balance of payments in this difficult year, we have gone further this year than ever before in meeting that obligation.

Mr. Griffiths

I leave aside the question of over-promises which have been made. Will the right hon. Gentleman give an assurance that, in the light of this fairly satisfactory Agreement, there is now no question of any further unilateral reductions in the Army of the Rhine?

Mr. Mulley

I do not know why hon. Members keep asking that question. My right hon. Friend the Secretary of State for Defence answered it quite clearly as recently as a few weeks ago when he said that there were no plans further to reduce the size of our forces in Germany.

Mr. Powell

Does the right hon. Gentleman agree that investment by Germany in Treasury bonds is of a quite different character from offset payments, since it represents simply a loan by Germany to Britain? Further, since the right hon. Gentleman still did not answer correctly and clearly the supplementary question asked by my hon. Friend the Member for Bury St. Edmunds (Mr. Eldon Griffiths), will he give a clear assurance that the gap which still remains between our expenditure in Germany and the total, even on the most generous assumptions, of the figures he has given to the House, will not be made the excuse for a unilateral decision once again to withdraw forces from Germany?

Mr. Mulley

I accept the right hon. Gentleman's logic that a loan is not an offset. It is a deferment of obligation in the current year. It will be very important in helping to neutralise our foreign exchange outgoings this year. As so often, I recognise the right hon. Gentleman's logic but find it quite impossible to recognise the conclusions he draws from it. There is no question of a unilateral reduction of our forces, as right hon. and hon. Members opposite have been told many times by my right hon. Friend the Secretary of State for Defence and other Ministers.

Mr. Mayhew

Is my right hon. Friend aware that the Agreement he has reached represents a considerable and valuable advance on the previous Agreement? Why do we have to negotiate each year on this issue? What steps is he trying to take to make a longer-term Agreement in future?

Mr. Mulley

I am grateful to my hon. Friend for what he said at the beginning of his supplementary question. I agree that this negotiation each year is an extremely difficult and complex matter which tends to strain Anglo-German relations, which, in other respects, I am glad to say are developing well. I hope that we can move away from this in the technological clause, which I think will in the long run be of very great importance in encouraging technological co-operation in military research and in the civil field and perhaps make it possible in the longer term to find a more satisfactory arrangement than the annual arrangement I have just announced.

Mr. Maudling

The right hon. Gentleman will agree that purchases will make sense only in the context that they are purchases which would not otherwise have been made. Can he therefore say that all the things that the Germans are to buy would not have been bought by them anyway on normal commercial grounds?

Mr. Mulley

I think that the right hon. Gentleman could well have addressed that very pertinent question to his Cabinet colleagues when they developed this system of accountancy. Nobody can give anyone any assurance of that character. The defence procurement is recognised by everyone as the most satisfactory form of offset against military expenditure. I cannot assure the right hon. Gentleman that, if we had had no such Agreement, certain parts of the defence expenditure would not still have taken place. In each one of these categories we shall benefit as a result of the Agreement I have just announced to the House.

Mr. Barnett

How much of the past offset arrangements has actually been paid? How much does my right hon. Friend expect to be paid of the amount which has not been paid?

Mr. Mulley

Again, my hon. Friend is not so clear on the position. It is not a question of paying money in terms of the German Government's paying money to us. It is a question of their meeting certain targets in expenditure fields. I cannot give the answer for the current financial year, because it ended only yesterday, but the indications are that certainly on the defence side they will be up to their target, and I hope that they will be pretty near their target in the term of public purchases. The only figure which is down on the sums agreed last year is that I have taken DM50 million lower than last year, because we want figures which can be realised in the light of experience. We do not want to write figures down merely to present a nice sum to the House of Commons.

Mr. Ronald Bell

What is the redemptions term of the Treasury bonds which the German Government will buy? Will they be encashable on demand at any time? Is not this merely an increase in sterling liabilities abroad of a kind which we ought to deprecate?

Mr. Mulley

All arrangements of this kind add to one's liabilities. The term is already settled at 4½ years.

Mr. Dickens

Cutting through the maze of offset arrangements, does not my right hon. Friend realise that the basic answer to the problem which we want to see is the withdrawal of the British Army of the Rhine from Western Germany? Is he aware that the offset arrangements do not meet the £212 million of taxpayer's money being spent on maintaining the British Army of the Rhine next year?

Mr. Mulley

I realise that it does not cover the full costs. I spent some time in my opening statement explaining exactly to what extent they were covered. I am aware of my hon. Friend's views about withdrawing the British Army of the Rhine, but I remind him that they are not Her Majesty's Government's views.