HC Deb 02 December 1976 vol 921 cc1335-46

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Coleman.]

12.1 a.m.

Mr. J. W. Rooker (Birmingham, Perry Barr)

I propose to raise in this Adjournment debate the subject of the dependence of the multi-role combat aircraft on Russian supplies of strategic materials. I raise this subject as someone who has been a Member of this House for almost three years and has yet to cast a vote in favour of defence expenditure. That might seeem a paradox, but this debate concerns an employment problem. There is nothing I or my colleagues can say or do that can in any way prevent production of the MRCA. That is not an issue to which I wish to refer. In late July I received representations from the British titanium industry the chief firm of which is in my constituency—about the problems of the industry generally, concerning tariff barriers and Japanese and American imports. I asked several Questions on the matter and wrote to the Minister. During the Recess I visited the company in my constituency. While I am an engineer, I am not a metallurgist, although I just scraped through the metallurgy part of my degree. That was long before titanium was in the syllabus. I said to the firm "Give me a brief I can understand. What is titanium? Where does it come from? What does it look like?"

I was given certain documents, one of which was prepared by the British titanium industry for the use of the Common Market Commission in the GATT negotiations dealing with the question of tariffs on titanium. This document was dated 28th April 1975 and contained a paragraph which is worth placing on the record. The paragraph said: It is particularly important to recognise that in large sectors of the EEC aircraft market non-EEC titanium may be brought in duty-free either as a result of special agreements between the governments concerned in international projects (e.g. Concorde and MRCA) or because of normal duty drawback procedures where exports are involved. Whilst it must be accepted that little can be done about the latter case, it is patently absurd that national governments should, by deliberate and special agreements even on military projects such as the MRCA, expose the materials suppliers to the aircraft industry to open competition from foreign sources, particularly when those sources themselves have complete protection in their own markets. As someone with an eye to the main story, and concerned as to what I could raise on the titanium issue, I asked for a translation of that paragraph. I was told that, broadly speaking, the position is that the MRCA is an Anglo-German-Italian project and that the German subcontractors and the British sub-contractors of the MRCA. building the aircraft, each require to use titanium for the parts of the aircraft they are building. There is in Britain a titanium metal manufacturer. In Germany there are two. There is one further titanium metal manufacturer in France.

I was further told that the German sub-contractor building the wing boxes of the MRCA—quoted in certain magazines and technical journals as the structural heart of the aircraft-uses titanium produced by Krupps in Germany. But the British company emphasised that in order to produce titanium as a metal it is necessary first to go through a preliminary stage after the ore rutile has been dug out of the ground. That means that a substance called titanium sponge is produced, and that is a necessary first stage in the production of titanium metal.

It was explained to me that in the whole of Europe geographically there are only two producers of titanium sponge. One is in Britain and the other is in the USSR. I was also told that the German metal manufacturer, in order to produce the titanium metal for the MRCA—funded by the taxpayers of Germany, Italy and Britain—is buying his sponge from the USSR.

I expressed disbelief at this, quite frankly. They could not give me anything in writing to prove it, and obviously it was a matter that I wished to take up with the Ministers. I did this on return to the House after the recess. On 25th October 1976 I asked the Secretary of State for Defence what country is the source for titanium sponge used in the manufacture of titanium for the MRCA. I was given the answer that it was Britain and Russia.

A week later, on 2nd November 1976, I asked the Minister of Defence what quantity of titanium sponge has been purchased from the USSR for use in the manufacture of titanium for the MRCA. I was told that certain of the information I requested was not available but that Russian sponge accounts for 35 per cent. of the sponge used in the manufacture of titanium alloy. Since then my hon. Friend has corrected it to 50 per cent. that is received from the USSR for use in the manufacture of titanium alloy.

This is not at all a happy situation, and one has to ask the reasons for it. I have been told that the Germans are doing it because it is cheaper to buy Russian titanium sponge than to buy British titanium sponge. I do not think that this is a satisfactory explanation—first, because of the strategic implications and, secondly, because of the job implications.

As for the strategic implications, it is not just the fact that the MRCA will be NATO's major defence strike weapon of the next 20 years to defend NATO countries, we presume, from Warsaw Pact countries headed by the USSR. There is also the fact that the titanium industry is relatively new, certainly having started within the last 30 years. Britain happens to be, along with Japan and America, at the forefront of world technology in the production of titanium alloy. Titanium alloy will take over from stainless steel as the metal of the next half-century. Certainly it will be used widely in desalination plants because of its corrosion resistance and its extreme strength.

Any action at all that undermines the basis of our own industry, such as orders which could have gone to Britain going to the USSR—in the case of a product which is funded partly by British taxpayers—can serve only to set back the advance of British technology in this area. That is why I thought that we should have this short debate.

It is a fair point to make that the EEC normal common external tariff of 6 per cent. to 8 per cent. is waived for these Russian supplies.

Why have the Russians got these large supplies of titanium sponge available so cheaply? They could have them available at a much higher price. It is easy to say that they are dumping the material in an effort to undermine NATO. It is more subtle than that. For many years the West has considered that Russia was fairly advanced in the production of titanium metal alloys. The Russians built up an industry. They export titanium metal in various forms around the world. It was widely thought that many of their major defence projects contained vast quantities of titanium metal.

Two or three months ago a Russian pilot flew a Foxbat aircraft to Japan. It was widely thought that that aircraft would contain a great deal of titanium. However, according to a news item in the weekly magazine The Engineer for 4th November of this year, the aircraft was found to contain no titanium whatso-ever. However, it is known that the Russians had built up the industry. The conclusion drawn by the magazine was that the Russians had not perfected the conversion techniques necessary to produce high quality alloys. They had setup an industry to the extent of getting the ore out of the ground and producing the sponge.

The Russians had a surplus of a commodity which was in short supply in the West, because there was only one producer in Western Europe. The Russians had a commodity which they could not do anything with. It was therefore easy for them to come to Europe and say "We have plenty of this material." It was then all right for Krupp to say "We are buying it from a cheap source. It is a commercial deal. We must do our best for the German taxpayer, as the British would for the British taxpayer. We can buy it from Russia cheaper than we can buy it from Britain." That is the argument the Germans would advance.

This is a bad blow for the British industry, which is in many ways the Western European industry, because we have the only plant in the whole of Western Europe producing this stage in titanium.

I do not think that the matter can be left there. My hon. Friend the Minister of State must do some work on this, because the MRCA is only in a preproduction stage. I understand that production of the 800 aircraft at £7 million each will not start until 1978. We are talking about a great deal of taxpayers' money. I should like an assurance from my hon. Friend that an attempt will be made to secure that the material—the sponge—required for the production run of the MRCA will be obtained from Britain.

It will be argued that it is unfair to expect the Germans to take the metal from Britain, because they have their own plant. I should like an assurance, however, that the sponge required for the production run will be obtained from Britain and that the excuse given by the manufacturers—that they can get it from Russia cheaper—will not be accepted.

The defence aspects must be examined. When I have raised these matters the question has been posed to me: once the aircraft are built, what problem will there be if the Russians turn off the supply of sponge? That is a fair point, but in the meantime over the years when the MRCA has been built, if the British industry has been undermined to a serious extent this will be a tragedy.

So far there have been no mass sackings. Many jobs have been lost, but this has occurred through natural wastage. If there are any major turndowns in the in- dustry in Britain, there will be nowhere else for the workers to go to work. Production engineers, technicians and scientists are one-product employees. There are no firms manufacturing metal other than the two subsidiaries of IMI and the ICI company which produces the sponge. This is an industry which must be protected because of the potential the material has for widespread use in future in power station and desalination plants.

In the space of a few years, especially if drought conditions prevail in our summers, we shall have to spend large sums of money on getting salt out of sea water. One of the major problems so far has been the corrosion of materials. Titanium can overcome that problem.

For how long have the Government known that the Germans were buying their sponge from Russia? Has this come to light only in the past 18 months or so? The MRCA as a product has been around for a long time.

I come to what I regard as one over-riding reason why we should persuade the Germans, and use our muscle to do so, that they should buy the British material. I know that many of my hon. Friends are concerned, since the Prime Minister's broadcast on "Panorama" a few weeks ago, about support costs for the British Army of the Rhine. What could be a better way for the Germans to show that they are willing to spend money in Britain to offset the costs of the British Army of the Rhine than to buy the British material? That would not only help the British industry but would help the European industry, too, in which we are the only supplier.

It is important to protect the industry. In the end, if we fail to supply the sponge, the French, German and British manufacturers of the alloy will have no choice but to go to Japan, America or Canada in the event of the Russians turning off the supply. Why should we put them into the position of again having to turn to the Japanese for a supply of the material if we have in the meantime run down our own industry?

That is what will happen unless we treat this most important industry seriously. I realise that the MRCA is not constructed wholly of titanium. Titanium forms only a small part of the weight, but the total production of the metal in Europe is only about 6,000 tonnes a year anyway. It is very expensive, there are very few suppliers, and the potential for use in industry is enormous.

I have raised the defence aspects of the matter tonight, and I shall raise other aspects with other Ministers on other occasions. Butthe defence aspect is important, and so far the greatest use of the material has been in defence projects. The position is the same, however, in the Concorde project, a civil project. I am told—I am waiting for confirmation—that the French suppliers of the material for the Concorde project are buying titanium sponge from Russia. That sort of thing is outrageous, when both projects are funded in the various countries involved at enormous cost to the taxpayer. The cost to Britain will be over £2,000 million over the years. There ought to be a policy that purchases are made within the countries producing the project if at all possible. It is clearly possible to buy the material from one of the three participating countries in the MRCA project: namely, Britain.

12.18 a.m.

The Minister of State, Ministry of Defence (Dr. John Gilbert)

First, I congratulate my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) on getting this debate. I know that it involved him in considerable persistence. In fact, he tried in the last Session and was unfortunately thwarted by an untimely Prorogation. I am grateful to my hon. Friend also for his courtesy in giving me notice of the points that he wished to raise.

My hon. Friend has drawn attention to his concern over what appears to him to be an unhealthy reliance on Russian supplies of strategic materials for the MRCA project. I should, therefore, make clear at the outset that the titanium sponge which is used for the production of the titanium alloys is the only material employed in the production of the MRCA —or the Tornado, as it is more popularly known—which is, so far as I am aware, obtained either from the Soviet Union or from any other of the Warsaw Pact countries. Furthermore, about half of the titanium used in the procurement of the MRCA is obtained from United Kingdom sources, using United Kingdom-produced sponge.

Having said that, I concede that my hon. Friend's concern about the use of titanium based on Russian sponge in the Tornado by firms in the Federal Republic of Germany and in Italy is quite understandable. But I think that we should look at the question in the context of the fact that the Soviet Union is the world's main producer of titanium sponge, and the high levels of exports to the United States and Western Europe have been made possible by the relatively low price at which she has been prepared—I emphasise "at which she has been prepared"—to sell this material.

It has been appreciated for some time that the Soviet Union has acommanding position in the titanium sponge production industry, at present producing about 55 per cent. of world supply and the bulk of her exports going to the United States and Western Europe.

It appears to us—here I take mild issue with my hon. Friend—that the Soviet Union's prime motivation has been to meet her urgent need for foreign currency. Indeed, she has pitched her prices below the generally prevailing levels. That has had a severely depressing effect on the ability of ICI—the one Western European titanium sponge producer—to remain commercially viable. Given the likelihood that Soviet as well as world requirements for titanium will increase in the period ahead, it seems to us probable that the Soviet Union will not be able to increase its exports markedly from their present levels.

However, it would remain open to Russia either to increase her exports in the interests of undermining the existing Western sponge production industry or to reduce her exports for strategic reasons. But while her requirements for foreign currency remain, there will be pressure against her adopting the latter course.

From the point of view of the purchasers of the MRCA—as my hon. Friend pointed out, in the last resort they are the taxpayers in the United Kingdom, West Germany and Italy—there can be no doubt that the use of this source of supply has reduced the costs of production of the project. It has thus been a matter of good financial housekeeping for the German and Italian firms involved in the Tornado project to purchase their alloy derived from this source of sponge. They have merely been following good commercial practice.

It is worth considering the question of costs in dealing with the use of materials in a project of this kind. Very close attention has been given at all stages of the project to the control of costs. I have already informed the House that, after allowing for changes in economic conditions and exchange rates over seven years, the cost of the Tornado has risen by about 40 per cent. of the estimate made in 1969. That is a substantial increase. But since the start of full development, which is the more appropriate base from which to measure change, it has been only about 20 per cent., which is an exceptionally small increase in real terms during such a programme. This emphasis on close cost control, which has characterised the handling of this project, is a factor which no doubt played a part in the decision of the firms concerned within the Federal Republic of Germany and Italy to use alloys derived from Russian supplies of titanium sponge.

I should make it absolutely clear that, whatever the considerations put forward by my hon. Friend—I have a certain sympathy with what he said about employment problems in his constituency—it is always a matter of judgment when making a procurement decision involving foreign purchases where the balance of advantage lies between a low-cost source and employment considerations in one's own country. I have no power to instruct our allies where they should buy their raw materials, let alone to seek to induce them to buy from other than the lowest cost sources, assuming that the quality of the material supplied is adequate. On that last point, I hasten to add that I am advised that there are no technical risks involved in the use of Russian titanium sponge.

Mr. Rooker

My hon. Friend said that the Russians sell a lot of titanium sponge to the United States of America. That is fair. Perhaps I am moving away from a defence point, but the Americans stick a 25 per cent. tariff on it, unlike the Common Market which has reduced tariffs to zero, and that has a direct effect on undermining the British industry.

Dr. Gilbert

If my hon. Friend will bear with me, I shall be coming to the question of tariffs. I am trying hard to meet the time constraint under which I am labouring. I was talking about quality control. I was about to say that rigorous quality control is exercised at the stage when the alloy is produced. The risk of manufacturing defective alloy is considered to be no greater when using Russian sponge than any other.

Some British titanium alloy is already used by Germany and Italy within the MRCA project. This could be a profitable area for future expansion of the British industry as we approach peak production on the project. British produced titanium is already used for the British element of the Tornado programme. Therefore, whatever the future purchasing practice among our partners, the United Kingdom's titanium industry will benefit greatly from the project as production reaches its peak level in the years ahead.

My hon. Friend is properly concerned about short-term problems. Apart from having to compete with Russian supplied titanium sponge at low prices abroad, ICI has been obliged, under the anti-inflation policy, to sell its sponge at levels well below world prices within the United Kingdom.

Both ICI as a producer of sponge and IMI as a producer of wrought titanium enjoy some protection for the United Kingdom national defence aerospace projects. I concede at once that that protection does not extend to multi-national military aerospace projects, civil projects, or non-aerospace activity, and so the effects are now rather less significant than they have been.

The Government have not been un-aware of the general considerations raised by my hon. Friend. The Department of Industry, the Department responsible for the formulation of Government policy for the British titanium industry, has been keeping a close watch on the position. It has been holding regular discussions with both ICI and IMI, and has recently told the industry that it proposes to examine the future aerospace requirements of the Ministry of Defence in this area with a view to establishing a firmer basis for future production levels, and to do what it can to improve the tariff position for the United Kingdom industry through GATT negotiations.

My hon. Friend referred to EEC tariffs. That is a matter for my right hon. Friend the Secretary of State for Trade. I understand that, as my hon. Friend said, at present there are no EEC tariffs imposed on the importation into the EEC of any titanium sponge. The current order to this effect is due to expire in June 1977. I understand that the Department of Trade has been going through an annual exercise of consulting the industry about this tariff in January. In the course of that consultation it has spoken to ICI, the sole United Kingdom producer of sponge, which has not objected in the past to the nil tariff. However, the Department of Trade intends to have further consultations with the industry next month with a view to taking up aposition about the expiry of the order next June.

I can assure my hon. Friend that the Department of Industry is anxious to maintain the present level of production both of titanium sponge at ICI and titanium alloys at IMI. The Ministry of Defence has been monitoring the position for some time and both Departments have been engaged in a study of future requirements for titanium, the likely future capacity of the British industry, the continued availability of overseas supplies and the likely future price of titanium on the world market.

I agree with the fears that my hon. Friend expressed about the danger that this important project may become over dependent upon Russian supplies of sponge. We and our partners must keep a close watch on the balance of advantage and all the factors involved. I appreciate the need not to overlook other factors in weighing the advantages to the overall cost of the project by seeking to buy titanium at its cheapest market price. However, I am confident from the re- searches that I have undertaken since my hon. Friend first raised the issue with me that if supplies from the Soviet Union were suddenly interrupted for any reason, neither the MRCA nor important domestic requirements would be affected. However, we shall be keeping the supply and demand position under the closest scrutiny in conjunction with my right hon. Friend at the Department of Industry.

My hon. Friend has dwelt at some length upon the need to capitalise on the work opportunities arising from this project, a desire that I naturally share. I must make it clear that under the arrangements agreed with our partners the work is distributed among the partner nations as far as possible in proportion to their eventual purchase of aircraft. The importation of Russian sponge for the MRCA does not count against the United Kingdom share of production work, which should amount to about 47.6 per cent. of the total employment generated by the project.

I hope that I have been able to say enough to set at rest at least some of the fears expressed by my hon. Friend about certain aspects of this extremely important project. It is a programme that at present is providing about 16,000 jobs in this country. Including supporting work, it can be expected to provide approximately a further 20,000 jobs at the peak level of production. This gives some indication of its great importance to industry.

I hope that I have been able to reassure my hon. Friend that the Government are concerned to see that the health of this important industry, in which his constituents have a keen interest and which he has sought to protect tonight, will be assured for the future.

Question put and agreed to.

Adjourned accordingly at half-past Twelve o'clock.