IMPORT DUTIES (SILICON PRODUCTS) (Hansard, 8 November 1968)

§ The Minister of State, Board of Trade (Mr. Edmund Dell)
I beg to move, That the Import Duties (General) (No. 10) Order 1968 (S.I., 1968, No. 1510), dated 23rd September 1968, a copy of which was laid before this House on 30th September, in the last Session of Parliament, be approved. This Order raises, from nil to 14 per cent. ad valorem, the full rates of import duty on certain monocrystalline silicon, and on products containing more than 99.9 per cent by weight of silicon, both of which I shall call semi-conductor grade silicon. Imports of this material from the European Free Trade Area which satisfy the origin rules will remain duty-free. The material is used in the manufacture of devices such as integrated circuits, transistors and diodes. Tariff protection is intended to secure the viable production of semi-conductor grade silicon in the United Kingdom. Hitherto, we have been the only major market in the world for this material which has given no protection to its domestic producers, and our market has tended to become a magnet for the surplus production which has arisen from time to 1249 time in other producing countries. The duties which the Order imposes are roughly in line with those of the E.E.C., the U.S. and Japan.
Semi-conductor grade silicon must be produced at or near full capacity to reduce unit costs and to earn a reasonable return on investment. Manufacturing equipment becomes obsolete in a few years. Some United Kingdom firms which specialised in the production of semi-conductor grade silicon have ceased to produce for general resale, and over the years the remaining industry, which is centred at present in an area of high unemployment, has found production generally unprofitable. There are indications that the industry, with protection, is already expanding. The tariff application was widely advertised and the trade associations concerned fully consulted.
I realise that the imposition of duties on one of their basic materials will not be welcomed by all United Kingdom manufacturers of semi-conductor devices. United Kingdom production of semiconductor grade silicon should expand more securing given the stabilising effect of the tariff. Some users make their own semi-conductor grade silicon and I hope that those who do not will find United Kingdom supplies increasingly adequate to their needs. In general, the value of semi-conductor grade silicon represents a quite low percentage of the value of a complete device. While I appreciate that there are many variations, I would not expect the introduction of the duties to place in general an intolerable burden on those device manufacturers who consider it necessary or desirable, whatever the reason, to continue to import part of their needs. The Board of Trade will, in any case, consider applications for the repayment of duty of imports of semiconductor grade silicon used for export production. Polycrystalline silicon will remain duty-free from all sources.
Semi-conductor grade silicon represents the output of one industry, in this case a capital intensive one, but also, of course, part of the necessary supply to another sophisticated industry. The latter has enjoyed, and will continue to enjoy, tariff protection and I consider it a not unreasonable compromise between the varying interests now to establish this degree of protection for the former. The duty was left unbound in the Kennedy Round and 1250 there are no international commitments standing in the way of a duty increase.

§ Mr. Peter Blaker (Blackpool, South)
My hon. Friends have made it clear in the past that we believe that applications for increases in duties should be looked at with a jealous eye because we take the view, which I believe is shared by the Government, that it must be in the interests of this country to move in the direction of freer trade.
As has been pointed out on both sides of the House, there have in the last year or two been indications of protectionist tendencies in the world, which are against our interest. I agree, however, with what is implied in the Government's action in this case, because the circumstances here are unusual, particularly in view of the point the Minister made, that the United Kingdom alone among the producer countries has had, until the introduction of this Order, an unprotected market.
In the circumstances which prevail in this industry, this is a powerful argument for this duty, because an unprotected market means, and has meant, that Britain tends to attract more than its reasonable share of the over-production of other countries. This is the main point in the case of the applicants for this duty. I believe, they would be satisfied with equal treatment with their foreign competitors, even if that means a lower duty than the one which is imposed by this Order. I would like to ask the Minister whether any attempt was made, in the Kennedy Round or otherwise, to secure a general lowering of the duties which are in operation in other countries before we imposed a duty of 14 per cent.?
Secondly, I refer to the time that it has taken the Government to make the Order. I believe that some 4½ years have elapsed since application was first made for a duty, and even allowing for some delay caused by the interregnum of the Kennedy Round negotiations, those negotiations finished 16 months ago. That means that 16 months have elapsed while the Government have, presumably, been reconsidering the application.
I understand that representations against this duty have been made to the Government by firms in the semi-conductor industry. The Minister of State has explained in general terms why he 1251 did not feel able to accept those representations but I should like to put to him two particular questions, and perhaps he will be good enough to expand on his opening remarks when he replies.
The first question concerns prices. The main reason why most manufacturers of semi-conductors have opposed the duty—and I believe it is true that most of them have opposed it—is that they fear there will be an increase in the cost to them of pure silicon and, therefore, in their own production costs. Since the application for a duty was first made, devaluation has occurred and this could have been expected to impose a deterrent on imports and to give a shot in the arm to United Kingdom manufacturers. Perhaps the hon. Gentleman can say what the effect of devaluation has been on the prices in the United Kingdom. I understand that the price has not increased significantly in spite of devaluation, so the implication must be that overseas exporters have reduced their prices.
As the Minister of State said, the costs of pure silicon are important to the manufacturers of semi-conductors if they are to remain competitive in both the United Kingdom and overseas markets. Prices of semi-conductors themselves have been coming down regularly. I understand that there is keen competition, and that in spite of the 20 per cent. tariff on imports of semi-conductors there are substantial imports.
It is also true that the exports of our manufacturers have been growing very fast, and that the international market is expanding. If we can remain competitive in this very fast-moving industry there are good prospects of further growth. This is part of the argument against the Order, and I was glad to hear the Minister say that if applications were made for a drawback of Customs Duty by manufacturers of semi-conductors which are exported, those applications would be sympathetically considered.
On the other hand it is part of the case of the applicants for a duty that world prices of pure silicon have themselves come down very substantially in the last eight years. I understand that in the four years to 1964, when the application was first made, they had come down by 50 per cent., and I have no doubt that they have come down even further 1252 since. Perhaps the hon. Gentleman can confirm this.
The House would like to hear a little more about the Minister's assessment of the effect of the Order on the prices which United Kingdom producers will have to pay. Does he expect that the prices will be higher than they were before? Will they be higher than the prices of other producer countries? That is an important aspect. Will there will be a differential between the prices of home-produced and imported pure silicon?
My second question relates to supplies, and this, of couse, is linked with the question of prices. I believe that if United Kingdom manufacturers of semiconductors were satisfied that the one remaining United Kingdom manufacturer of pure silicon was able to supply most of the United Kingdom demand at reasonable cost, and with a good quality product, some of their doubts would be allayed. I believe that it is true that until now the United Kingdom manufacturer has supplied less than half the market, and that demand in this country is rising very fast. Is it the expectation of the Minister of State that the United Kingdom manufacturer will be able satisfactorily to supply most of the market?
I hope that the Minister will be able to answer these questions, since whatever the case for the Order—and, as I have said, I think the point about the United Kingdom being the only producer country out of step so far is a strong one—it is right to have the Government's reasons for the imposition of duty put on record.

§ Mr. Dell
With the permission of the House, Mr. Speaker. I agree with the hon. Member for Blackpool, South (Mr. Blaker) that applications for increases in duty should be looked at with a jealous eye. I also entirely agree with him in saying that one of the factors we had to consider here was that the United Kingdom was the only major unprotected market, and that our principal international competitors in this field have tariffs of approximately this level. On balance, taking account of the representations from both sides on this issue, we decided that it was right to introduce the duty.
This product was on the exceptions list in the Kennedy Round, and the duty 1253 remained unbound at nil. Some other countries, notably the European Economic Community, made their agreement in the Kennedy Round to reduce their duties on high purity silicon products, dependent on the abolition of A.S.P. in the United States of America. The hon. Gentleman will be aware of the supplementary agreement on chemicals negotiated in the course of the Kennedy Round.
It has, I accept, taken time to come to this decision, and the reasons for this were in part pointed to by the hon. Gentleman himself. It was not a decision that we wished to take before the Kennedy Round negotiations were completed, but even when they were completed this was a difficult issue involving contrary interests. We had to go—and, I think, very rightly went—through a period of detailed discussions with all the interests involved, and we have now come to the decision. This is one of those cases in which care is required, because the decisions one can take to protect the interests of one industry can damage those of another industry which is of great importance to the country.
The hon. Gentleman argued that devaluation in itself provided United Kingdom industry with some protection. That is true. We expect devaluation to have an effect on imports. Nevertheless, the argument of principle remains. We have not reduced other duties as a result of devaluation, and on a judgment of the case we decided that, despite devaluation, we should take this step.
The hon. Gentleman asked me what my expectation was in respect of prices. I certainly would not expect prices in this country to rise as a result of this decision, and I would expect the Board of Trade to be involved in discussions with any manufacturer who wished to use this protective duty in that way. It is not my expectation that there will be 1254 any rise in prices. It is my hope that as production becomes more efficient, and taking account of the other factors he mentioned, there may, in due course, even be reductions.
The cost of silicon is important to the manufacturer of semi-conductor devices but, as I said earlier, its importance to them is, I suppose, to be judged in relation to the percentage of the total value of the semi-conductor device the silicon represents, and this is a relatively small percentage. I do not deny that this decision is unwelcome to the manufacturers, but I do not think that it is so detrimental to their interests that we should not have taken this step.
The hon. Gentleman also asked me what my expectations were regarding supplies from United Kingdom sources. I think that one of the effects of our decision will be that production in the United Kingdom will expand. I hope that it will quite rapidly reach an amount which will satisfy most of the demands of the United Kingdom manufacturers of semi-conductor devices, and provide room for exports.
I have no doubt that imports will continue, particularly of certain specialised grades that may not be available here. But it is my hope that, taking account of the existing manufacturers of these products—and at least one other manufacturer has indicated his intention to enter this field now that we have the duty—supplies from the United Kingdom will rapidly form a much larger proportion of total supply than at present.
I hope that in view of this answer the House will accept the Order.