HC Deb 23 March 1982 vol 20 cc905-12

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

11.32 pm
Mr. Hal Miller (Bromsgrove and Redditch)

I am grateful for the opportunity of raising some of the questions posed by the Government's announcement more than a year ago now of the Nissan project—a plant on 800 acres to produce some 200, 000 cars a year and employing up to 5, 000 people. I am glad that my hon. Friend the Member for Maldon (Mr. Wakeham), the Under-Secretary of State for Industry, will reply, in view of his wide business experience including, I believe, several motor dealerships and his continuing interest in industrial and commercial problems.

There has been widespread public interest in this Nissan project, but also widespread uncertainty about its progress to date—we have only to think of recent articles in the daily, Sunday and weekly press. Since the original statement, there has been no chance of debating the issues in this Chamber—there have been only a series of parliamentary questions eliciting, I fear, but scant response from the Government. I cannot say that I expect much more progress on that front tonight.

The issues are important and should be raised. Although I believe the project itself to be at least as far away as the originally announced target of 1984 to 1986, judging by the fact that British components have yet to be homologated—that is, tried, tested and put in production models—that a plant must take two to three years to build, and given the probability that the Japanese would wish to introduce a new model in this country, which must be about four years away, none the less I shall be asking that every effort be made to announce an early decision on this project.

Indeed, if one considered the calls of the official Opposition for withdrawal from the EEC and the introduction of planning agreements, despite the experience at Chrysler, that would merely add more force to my argument for early progress. However, I know that Labour Back Benchers are falling over themselves—from Newcastle to Neath, from Fife to Flint—to secure this plant. I draw comfort from that activity, which leads me to suppose once again that there is no chance of official Opposition policy being put into effect, whatever the result of the election.

Although I have previously described this project as a potential Trojan horse, let me say at once that I welcome the prospect of inward investment accompanied by the transfer of technology from Japan. The importance of Japanese investment is highlighted by the continuing and increasing imbalance in EEC trade with Japan, which is currently a major political problem. Throughout the EEC Governments are faced with unemployment and the need to expand trade.

United Kingdom interests are much the same as those of Japan. We are both island people. We are both heavily populated. We both depend on manufacture and export to sustain our standard of living. But Japan's concentration on exports in limited lines and the difficulties facing imports into Japan have resulted in unemployment and a mounting adverse trade balance. In Britain we think of motor cycles, zip fasteners, ball bearings and television tubes. Now the motor industry is threatened. The United Kingdom market is at present particularly attractive to importers, at a time when our industry is still largely uncompetitive and the exchange rate favours the importer.

To compete, our industry needs more investment in assembly and components and in improved technology. That is why I believe that the Nissan project should be welcomed. But safeguards are needed to ensure that technology is transferred, new jobs are created and Government aid is not spent to the detriment of private firms and other Government-aided projects.

There has been much talk of conditions stipulating minimum local content, minimum exports, changes in the current SMMT-JAMA voluntary industry arrangement and import substitution. It is unreasonable to expect the Japanese to agree to more discriminatory conditions being applied to their project and the provision of Government aid than were applied to other multinational investors and projects.

Equally, the Japanese should understand what is expected of investors here with regard to local activity. I believe that the difficulties can be met by clear understandings about the inclusion in the Nissan project of local manufacture of the complete drive train within three years of start-up and on the percentage of local production to be exported. Indeed, I am sure that prospects for exports to the rest of the EEC depend largely on the extent of local content in the product.

I welcome the fact that the BL/HONDA Acclaim has been passed for import into France and Italy. But the project is on an entirely different footing from the Nissan project, and should not be taken as an example that could be safely followed by a much stronger competitor with a much stronger financial base and a stronger product range.

There is a fear hanging over the European industry because the Japanese motor industry already produces 7 million cars as against a domestic market of under 3 million. It is thought that that capacity is being extended by a further 3 million vehicles. With the American market closed and our already concluded voluntary industry undertaking, there must be concern as to where the additional volume of production will be sold, especially as signs are already appearing of a downturn in the Japanese market.

Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)

I had an Adjournment debate on a similar issue in June 1980, when we got rather short shrift for the idea that we would come to an understanding with the Japanese. Does my hon. Friend agree that understandings have proved not to be enough and that we must have firm agreements? If his figure is right about an excess capacity of 3 million to 4 million cars, the Japanese will sell those in any way that they can. If our industry is not to be destroyed, in the Midlands especially, does my hon. Friend agree that we must have a firm agreement, not an understanding, or we shall become a Meccano factory instead of a car-manufacturing enterprise?

Mr. Miller

My hon. Friend is very perceptive and has the interests of the West Midlands at heart. I was choosing my words carefully because of the need to avoid over-discrimination against Japanese multinational companies investing in Britain. However, what my hon. Friend said reinforces the need for a clear understanding about the basis on which this project can be allowed to proceed.

In that connection, I point out that the unofficial industry arrangement—rather than agreement—has been observed. Although I broadly welcome the inward investment and the transfer of technology, safeguards are needed and I shall come to that aspect shortly.

I was referring to the concern throughout not only the EEC but the rest of the Western world about the apparent increase in Japanese production capacity, despite the appearance of a decline in the Japanese market. That may be one reason why the decision has been delayed, because of difficulties of convincing the Japanese unions that there will not be a cut in Japanese production if there is a substantial production investment in Britain. I urge on the Japanese the need to consider carefully the political background to the decision. My hon. Friend has just referred to one aspect. I referred earlier to the political unacceptability of the continued imbalance in trade. There is a need for early action.

The Nissan project raises once again the question of the direction of Government aid. Aid to motor industry projects should be examined on the grounds of the needs and opportunities of the motor industry and should not be based on the location of the various plants. Our industry has suffered too much already from the operation of regional policy and we need only think of the forced direction of expansion in Merseyside and in Scotland, with such tragic results that are now much discussed. Investment decisions have been distorted by our aid policy, and the West Midlands especially has been denied new projects and new skills. We have been locked into a shrinking industrial structure with declining opportunities and prospects. We have been discriminated against to the extent that we have the highest rising rate of unemployment in the country and higher absolute unemployment than Glasgow or Liverpool. That is why I say that safeguards are needed.

An early announcement would be in the interests of all concerned. Other manufacturers are in the process of launching new and increasingly expensive models. They and the component makers need to know where they stand. The Government and their EEC partners need firm evidence of Japanese intentions to do something positive about the overwhelming imbalance in trade. The British people need reassurance about the project's implications for jobs.

In my opinion, the Japanese would be well advised to take advantage of the present favourable climate for the project, which may not continue for ever. Therefore, I hope for an early and positive decision.

11.46 pm
The Under-Secretary of State for Industry (Mr. John Wakeham)

I recognise the long-standing interest of my hon. Friend the Member for Bromsgrove and Redditch (Mr. Miller) in the motor industry in the United Kingdom. He has raised several important points about the possibility of Nissan coming here, and I welcome the opportunity to explain how the Government see the position.

I am afraid I shall not be able to be as forthcoming with the House about the details of this project as I might normally like to be. But the House will understand that I really cannot go into details on the company's proposals at this stage. Discussions between the Government and Nissan are still going on, and this is obviously a matter of great commercial sensitivity to the company. While I shall do my best to cover the general issues raised by the Nissan project, I hope that the House will forgive me if occasionally I come up against quite proper commercial inhibitions. Many hon. Members will know how difficult it is to discuss commercial negotiations without seeming completely unhelpful. I certainly hope not to do that.

We need to look at the possibility of Nissan coming to the United Kingdom from several angles. First, there are the general arguments about a major inward investment into the United Kingdom. Then, we must look at the implications of a particular project for the sectors of industry in which it operates. Lastly, there are obviously special circumstances surrounding investments by the Japanese motor industry, against the background of trade between Japan and the United Kingdom in cars.

As the House knows, it is the policy of this Government, as of previous Governments in recent years, to welcome and actively to promote any inward investment which can improve the United Kingdom industrial base through the introduction of new technology, with new production and management methods, and which is of net overall benefit to the United Kingdom economy. That policy applies on a general basis to Japanese companies, in the same way as to companies from other countries.

Investment by Japanese firms is particularly welcome, both because existing Japanese direct investment is relatively small—with only 25 manufacturing subsidiaries in the United Kingdom—compared with the hundreds of American and European firms which have plants in Britain, and because Japan has something special to offer to our industrial structure in terms of new production technology and an enlightened approach to management. The balance of payments advantages and, of course, the additional employment which such investment brings are very important to us.

The record of Japanese manufacturing investment in this country reinforces my belief that such investment should be encouraged. The Japanese companies established here have provided stable, productive employment for thousands of British workers, have brought benefit to local component manufacturers and their employees through extensive local sourcing of components, and have contributed significantly to our exports. They have in turn benefited from the major advantages of the United Kingdom to the Japanese inward investor: political stability; an essentially sound, oil-supported economy; first-class communications; a wide range of components suppliers; a well-educated and stable work force; reasonable wage rates; and an attractive cultural and social environment, with the language with which they are most familiar after their own.

That is the general position. Before coming on to how it accords with the Nissan project, it might be right to look at the British motor industry, and the component suppliers who form such an important part of it. It is plain for all to see that our motor industry is not what it once was. Since its heyday, the world motor industry has moved on, through decades of technological improvement and years of increasing concern about the social, environmental and energy resource implications of the motor car. The substantial costs of development and manufacture of motor cars has led to rationalisation of model ranges, and the development of integrated, transnational manufacture, exhibited in the latest "world cars". Volume car manufacture has become concentrated in relatively few countries and companies, where substantial economies of scale can be realised, at high levels of efficiency.

For reasons with which the House is familiar, the United Kingdom in the past has often failed to meet this challenge and there is no doubt that it has suffered a severe loss of competitiveness, not only against the rising Japanese industry, but against our European competitors. It is all too easy to cry foul at the products of the Japanese industry, where special factors certainly apply, but there is no escaping the message from the greater productivity of our EC neighbours. We have fallen behind over a long period, and drastic action is needed if we are to remain with a viable motor industry.

This message is, of course, nothing new. Nor is it confined to the motor industry. However, there are encouraging signs that it is being heeded where it matters most, by the manufacturers themselves, both management and workforce. The year 1981 saw substantial gains in productivity across British industry. In the car industry, there are welcome signs that when producing the latest generation of models from up-to-date manufacturing facilities, United Kingdom assemblers can be up with the performance of other European companies. However, the industry obviously has a fight on its hands.

When looking at the Nissan project, we must also consider the British components industry. The relative decline of the United Kingdom assemblers has naturally affected British component makers, who have faced a halving in the United Kingdom base for their sales over the past 15 years, but they have made considerable efforts to replace this with sales overseas, with notable success. The components industry has proved itself capable of supplying the world's motor manufacturers at competitive prices, with components of high quality. This is clearly an important sector of British industry, and one that deserves our encouragement and support.

In the motor industry, therefore, we have a domestic market that is over half supplied by imports, a car assembly industry which already knows what it has to do to survive in the face of competition, and a components sector that would gladly supply a greater proportion of the home market. Therefore, there seems ample room for a new, efficient United Kingdom car producer. Existing manufacturers should have nothing to fear from this provided that the basic terms are right.

It is against this background that we need to consider the impact of a possible Nissan project on the United Kingdom economy; but there is one more special factor that needs to be taken into account, and that is the arrangements between the United Kingdom and Japanese motor industries governing the import of built-up Japanese cars. For some time now the Society of Motor Manufacturers and Traders has each year discussed the potential impact of Japanese imports on the United Kingdom car industry with its opposite number, the Japanese Automobile Manufacturers' Association. As a result of the understanding developed through these discussions, the Japanese industry has exercised prudence in the level of exports of cars to the United Kingdom. Though these arrangements are the responsibility of the two industries, they are strongly supported by the Government, who recognise the potential difficulties for our motor industry of extreme levels of Japanese car imports.

This is the background to the possibility of Nissan coming to the United Kingdom. In his statement to the House on 29 January last year, my right hon. Friend, now Secretary of State for Employment, said: The Nissan Motor Company has approached her Majesty's Government to seek their views upon the company's intention, subject to a feasibility study, to establish a substantial car manufacturing operation in the United Kingdom. The Government have given a warm welcome to Nissan's proposal and are prepared in principle to give them their approval and support. Let me explain why the Government see the possibility of such a project as offering substantial benefits to the United Kingdom. Nissan—whose products are probably better known in the United Kingdom as Datsun—is the second largest motor manufacturer in Japan, and the fifth largest in the world. It is the leading importer from Japan into the United Kingdom. There can be no doubt of its excellence in design, manufacturing, organisation, marketing, and all the skills appropriate to the modern motor industry. Indeed, it is these very strengths which make it, with other Japanese manufacturers, such a formidable competitor for our industry. In the right circumstances, and on the right terms, we believe that these qualities can be as valuable within the United Kingdom motor industry as they are worrying outside it. It is probably fair to say that those who support the idea of Nissan coming here and those who are doubtful of it, would both agree on the prospect that Nissan would be capable of being a very efficient producer within the United Kingdom. Where they may differ is in their assessment of the effects of such an operation on the rest of the motor industry, and on the United Kingdom economy as a whole.

One cannot sensibly discuss this project, or any other investment project in the motor industry, without looking closely at the question of "local content". This establishes the amount of local components, materials and labour within the finished product, and directly affects the way in which the project influences the United Kingdom economy. One could envisage somebody wanting to set up a car plant in the United Kingdom solely to assemble kits of cars manufactured in Japan. Such an operation—which I emphasise is not proposed by Nissan—would have a very low local content, amounting to very little more than the direct labour involved in assembly. It would provide no opportunities for our component industry, it would displace the products of other United Kingdom manufacturers, with a higher local content, in the domestic market, and it could actively damage the United Kingdom economy, since it would have muh the same effect as an increase in the level of imported cars sold.

Such an operation would certainly not merit any welcome or support from Her Majesty's Government—we would join hon. Members interested in the motor industry in opposing any project of this type—but, as I have heard said, this is not Nissan's proposal. In the statement to which I have already referred, my right hon. Friend said: It is Nissan's intention to achieve a very high level of local content involving United Kingdom and other EEC suppliers. The local content at the start of production would be 60 per cent. and the company's objective would be to increase this to 80 per cent. as soon as possible after full production is reached."—[Official Report, 29 January 1981; Vol. 997, c. 1079.] Looking at the way in which a project of this sort could benefit the economy—

Mr. Hal Miller

Full production might not be reached for a number of years in a plant area of that size, and there is already grave concern that the target of 200, 000 cars a year does not justify its own engine line. The danger is that other British manufacturers will be forced to compete on the basis of imported components also, thus doing further damage to our component industry, unless there is some rather clearer timetable than my hon. Friend has given us.

Mr. Wakeham

As I have said, we are in the middle of some difficult and sensitive negotiations and I do not think that my hon. Friend could reasonably expect me at this stage to say any more than I have said. I have listened carefully to the point that he has been making.

Looking at the way in which a project of this sort could benefit the economy, it is helpful to separate two different kinds of effect, which I might characterise as static and dynamic.

The first kind of effect is the direct impact of a new motor manufacturer on the existing market and productive operations in the United Kingdom, and is probably most simply thought of in terms of employment. The new plant will employ a number of people directly on its own operations, and support the employment of more people in its United Kingdom component suppliers. Offsetting this, those of its sales on the United Kingdom domestic market which displace other United Kingdom manufacturers' sales, will tend to displace employment in those manufacturers, and in their component suppliers. Exports from the new plant, and sales at the expense of importers, will, of course, all benefit.

Then we come to what have been called the most dynamic benefits. I referred earlier to the Government's general welcome to inward investment projects which could improve the United Kingdom industrial base—for example, through the introduction of new technology, production and management methods. I think that the phenomenon of the Japanese motor industry over the past decade speaks loudly enough about the possible dynamic benefits that we may gain from having a representative of the Japanese industry manufacturing cars here in the United Kingdom—as we have benefited to date from the operations of American-owned companies.

Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)

Will my hon. Friend give way?

Mr. Wakeham

These benefits will come to our other motor manufacturers, although I quite understand their natural hesitation about welcoming a new competitor, and they should certainly extend to our component industry, which can only benefit from the relationships with what will be a critical and sophisticated customer.

Mr. Beaumont-Dark

Will my hon. Friend give way?

Mr. Wakeham

These benefits are of course very difficult to quantify with any confidence. The static effects depend on predictions about sales patterns from various manufacturers in the future, and the dynamic effects are by their nature immeasurable—though none the less real for that.

Mr. Beaumont-Dark

If my hon. Friend will not listen, why should I stay?

Mr. Wakeham

If my hon. Friend will allow me.

The heart of the analysis is clearly whether Nissan will be a genuine European manufacturer of car—

The Question having been proposed after Ten o'clock and the debate having continued for half an hour Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at one minute past Twelve o'clock.

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