PAPER AND BOARD-MAKING INDUSTRY (Hansard, 18 June 1971)

§ Mr. Roger White (Gravesend)
I beg to move, That this House notes with concern the unfair competition from Scandinavia facing the British paper and board-making industry, contributing to the closure of mills and subsequent unemployment; and urges Her Majesty's Government to clarify the British trading relationship with Great Britain's European Free Trade Association partners, particularly now that the negotiations for admission to the European Economic Community are reaching a positive stage. On 27th April last, during the debate on unemployment, I drew the attention of the House to the serious situation facing the British paper and board-making industry and to how competition from Scandinavia was affecting many people in the industry and many of my constituents. The background of the British paper and board-making industry, as far as the recession is concerned, is this. We have seen a closure of nearly 10 per cent. of the industry's 500 machines, and the redundancy of about 7,000 employees, or 8 per cent. of the labour force. This cannot be dismissed lightly in any circumstances.
The present situation did not suddenly emerge. Like Topsy it "growed". It was during the General Election campaign last year that I expressed my personal regret about the redundancies which were appearing over the horizon. Adverse changes in costs and prices completely outside the control of domestic mills, with 939 their earning capacity in decline, has meant that the United Kingdom paper and board operations have not been able to generate sufficient funds for the replacement of plant and machinery. From the national viewpoint, the country's balance of trade in paper and board has been deteriorating at a disquieting rate due to the impaired competitive power of British producers. We have always had a fine and excellent paper industry, in terms of quality and exports, so I say these words with great regret.
I would remind the House of some of the figures that I gave on 27th April. The imports share of United Kingdom consumption of paper and board rose from 2.69 per cent. in 1960 to 35.1 per cent. in 1970. The volume of imports increased from 1.4 million tons to 2.4 million tons in the same period. In value, the increase was nearly three-fold—from £84 million to £231 million.
It is important to remember that, in all these figures, the greatest increase has been in the newsprint and mechanical printings—the magazines, the main commodity for our newsvendors. Scandinavian countries supply 1.9 million tons or 70 per cent. of the total pulp imported into this country, so they are the dominant suppliers and the price leaders.
There is no doubt, in the industry's opinion, that coupled with devaluation and the gradual elimination of United Kingdom tariffs on their paper products, unfair competition has been practised by our E.F.T.A. partners. The total squeeze of the margins of United Kingdom producers which was effected through inflationary pulp prices and the cutting of paper has been accelerated.
If an equitable proportion had been maintained between the rise in prices and pulp costs, accounting for 60 per cent. of the total manufacturing costs, the increase in the price of newsprint between 1967 and 1971 should have been £24.73 a ton, whereas the price actually rose by £16.85. Therefore, the contention of the industry is that disproportionate rises in price constitute unfair trading practices, contrary to Article 2(b) and Article 5(1)(a) and (b) of the E.F.T.A. Convention. I hope that my hon. Friend will be able to verify this.
The Economic Development Committee for the Paper and Board industry, 940 called upon to assess the prospects of the industry, forecast a serious deterioration in the adverse balance of trade of the industry in 1972. This has been further aggravated by the late development of domestic production of newsprint. I hope that my hon. Friend will dispel this very gloomy outlook of an industry which is not only concentrated in part of my constituency but is of national importance.
There is a number of suggestions for assisting the industry. The first is to encourage the use of waste paper and home grown timber. After all we did very well during the Second World War. On another point, I put down a question on 17th May, in answer to which my right hon. Friend said that the present review of forestry policy announced by his right hon. Friend the Minister of Agriculture would take this into account. I trust that my right hon. Friend will do more than take it into account. I hope that he will in due course come forward with constructive proposals in that direction.
There should be an examination of the possibility of reducing charges to the industry for fuel, oil, electricity, water and effluent. Again, in reply to a Question on 17th May, my hon. Friend said that he had not received any representations about the subsidising of fuel costs in Scandinavia. Perhaps inquiry could be made. In the opinion of the trade there is no doubt that something is done in terms of fuel costs to distort the competition which we axe encountering from overseas. The other European coal producing countries all have rates of duty much lower than the United Kingdom rate, according to the latest information, and this is having a serious effect upon our competitive power.
The picture is not a happy one, and I know that hon. Members representing constituencies with paper mills feel as I do. My attention was drawn to the substantial reductions in manpower which are taking place on 29th January this year on the closure of the Inveresk Mill close to my constituency. I quote here from the notice which was issued by the company at the time: In recent years, the United Kingdom paper industry has sustained substantial increases in the cost of wood pulp and other raw 941 materials, wages, salaries, fuel and other services. These cost increases have been accompanied by severe competition from overseas producers, many of whom operate integrated pulp and paper mills which are substantial suppliers of paper as well as pulp to the domestic market. Be that as it may, there is one small chink of light on a rather dark horizon. In the National Westminster Bank review on the Common Market, this was said about the paper and board industry: At present the industry faces strong competition from the Scandinavian countries, mainly a result of the final removal of tariffs within E.F.T.A. at the end of 1966. Within an enlarged Community, the United Kingdom industry would suffer less competition (though to what extent is not clear) the main reason being that Finnish and Swedish exports would then face the C.E.T. Within the E.E.C., the nil tariff might allow British manufacturers to expand sales. I do not expect my hon. Friend to be able to comment in detail on that at this stage. We are all awaiting the final outcome of the negotiations with the E.E.C. Clearly, the paper industry will be looking forward to the announcement with much interest.
The paper and board industry has been the subject of many Questions from hon. Members over the past few months. I understand the difficulties which the Government inevitably have in seeking information from those who are our friends in trade and commerce, but I hope that in the not too distant future we shall have far more information about whether the representations which have been made to me and to others regarding unfair competition are true or can be dispelled.
I look forward to a time—not too long ahead, I hope—when these representations can come into the open and the Government can make a statement about their attitude towards the paper and board industry.

§ Mr. R. J. Maxwell-Hyslop (Tiverton)
My hon. Friend the Member for Graves-end (Mr. White) has made many of the points of substance which need to be made, but I wish to press two other matters on the Minister. First, when representations have been made to him—when I say "to him", I really mean to his hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley)—along the lines indicated by my hon. 942 Friend the Member for Gravesend, to the effect that there are unfair trading practices resulting from the vertical integration of the industry in Sweden, one hopes to have more than a mere denial.
The vertical integration to which I refer enables a company which produces pulp to charge an artificially high price and thereby make a large profit on pulp production. Even though the use of that pulp for manufacturing is then less profitable, and this may not be immediately apparent because the pulp producer sells at the same price to its own vertically integrated subsidiary for processing as it does to export suppliers, this is nevertheless an unfair trading practice.
The response which one has from my hon. Friend the Member for Cirencester and Tewkesbury is merely to deny that this happens rather than to give concrete evidence that the assertion is inaccurate. I hope, therefore, that my hon. Friend the Member for Eastleigh (Mr. David Price) will be able to tell us why the Department of Trade and Industry denies the assertion. It is not, as I say, sufficient merely that it should be denied.
This is not a new situation. Before the last war, there were I believe, a number of steel works owned by companies which also owned coal mines. Other coal users believed that they were in a disadvantageous position vis-à-vis companies vertically integrated in that way.
The second matter which I urge upon my hon. Friend the Under-Secretary of State is that there are some costs which have been imposed by Statute upon British paper users which are not necessarily common to their competitors abroad. It is significant that almost all our major paper factories are situated adjacent to rivers. The manufacture of paper entails using, not consuming, large quantities of water. When in the early 1960s we passed the Water Resources Bill into law, there were strong representations from the paper industry on the effect that it might have on the industry's profitability and levels of employment, since those levels could not be dissociated from levels of profitability.
I would be the last to say that an industry which uses large quantities of water should not have to do so responsibly, but if startlingly increased costs for social, as opposed to commercial, reasons 943 are laid upon certain industries, we should pause to consider whether that increased burden of cost should not be shared by society as a whole rather than be lumped entirely on an industry which may not be in a position to meet it in a highly competitive market.
In so far as the lack of competitive power of the industry is due to increased costs and restrictions concerned with the use of water, the Government should consider whether they cannot take other measures, not to ease those restrictions, but to ease their financial consequences—for instance, by giving more relief in fuel taxation or the like—because it is demonstrably the case that we cannot in the long run compete with industries in other countries if we have to bear burdens which they do not.
I limit my remarks to that, so that my hon. Friend the Under-Secretary may have the opportunity of replying to some of the points which have been made.

§ The Under-Secretary of State for Trade and Industry (Mr. David Price)
Obviously, in the time available I cannot reply to all the points which have been made. I would like first to say how pleased I am that my hon. Friend the Member for Gravesend (Mr. Roger White) succeeded in introducing his Motion. Nothing is more frustrating than having the second Motion on a Friday and not being able to move it.
What my hon. Friend has said does not come as any surprise to me. We in the Department of Trade and Industry have received, as my hon. Friend the Member for Gravesend and my hon. Friend the Member for Tiverton (Mr. Maxwell-Hyslop) know, a number of deputations. The result is that we have heard about the difficulties of the industry and have explained what, in our view, can be done to alleviate them.
Because of the shortage of time, I would like to go straight to the point made by my hon. Friends about the allegation of unfair trading practices by Scandinavian pulp and paper producers, because this is probably the most important of all the points they have raised. I should remind my hon. Friends that those allegations relate only to three 944 grades—namely, newsprint, mechanical printing and sack kraft—which account for about one-third of the total output of the British paper industry.
As my hon. Friends will know, there are a number of conflicting views on this subject. Some people claim that there is nothing whatever behind the allegations. Others say that there may be truth in them, but that their importance to the well-being of our industry is exaggerated.
The Government have always taken the view that we are prepared to take up this question with the Scandinavian Governments concerned, and we have taken it up with the Scandinavians on a number of occasions. That remains our present position. That is not to say that we regard the industry's case as incontrovertible and that we subscribe to every syllable and statistic that it contains. All we are prepared to say it that we are sufficiently impressed by it to be prepared to make arrangements for its further investigation.
My hon. Friends will be interested to know that following discussion of this issue in the E.F.T.A. council at Reykjavik in May this year, we arranged with the Scandinavian Governments that the matter should be discussed on a bilateral basis, industry to industry, with Governments represented by observers. Indeed, the four Governments concerned have all expressed their willingness to participate on this basis. The proposals have been put to British industry, and we now await its decision.
I very much hope that the industry will take up those proposals. At first, I understand, it was not very happy about it because it did not feel that the Government were playing a sufficiently central and positive rôle. I assure the House, however, that we have gone carefully into the various possibilities. I can state firmly, having regard to the merits of the industry's case and the general political climate in which it would have to be argued, that the Government do not think that any arrangement other than that which has been negotiated with the Scandinavian Ministers and put to the industry is practical. In these circumstances, I very much hope that the industry will reconsider its position and agree to come to the negotiating table.
945 I should remind my hon. Friends that bilateral possibilities must be exhausted between E.F.T.A. countries before the E.F.T.A. Council, looking at matters collectively for the whole of E.F.T.A., is prepared to take them up. There would be no question of the E.F.T.A. Council taking up this matter until bilateral talks of the nature which I have briefly described have taken place.
My hon. Friend the Member for Tiverton spoke of what he described as the unfair pricing policy of integrated Scandinavian mills. On a Government basis, we cannot get any admission from the Swedes that this happens. They claim that their integrated mills do not have pulp available to sell abroad, and this is typical of one of the issues of fact which can be resolved only by the sort of talks I have described.
Although the Government will be observers, they will also have a sort of general catalytic rôle, and this will give the industry some of the assurance it needs that these talks will really get to the heart of this issue.