§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Archie Hamilton.]
10.32 pm§ Mr. Steve Norris (Oxford, East)The great anxiety in the British motor industry is reflected in the number of my right hon. and hon. Friends who have expressed support for the principle, upon which I shall expand, and the large number of hon. Members on both sides of the House who have expressed interest in this subject through parliamentary questions, written answers and previous debates.
The Adjournment debate is frequently a vehicle for the pursuit of a local interest, and this debate is no exception. I represent first and foremost the interests of my constituents, which are bound up to a large degree with the interests of the Austin Rover group. I am delighted that my hon. Friend the Member for Oxford, West and Abingdon (Mr. Patten) is present, who has a similar interest, as well as many of my hon. Friends who have this interest close to their hearts.
The Cowley operations continue to dominate the industrial life of my constituency. I must declare a personal interest as a garage proprietor, but I doubt whether that is very relevant to the debate.
The problem to which I wish to draw attention is far broader than just the interests of one constituency; it is central to the livelihoods of the many thousands of people whose jobs depend upon a healthy United Kingdom motor industry. Of course, that is principally Austin Rover, but equally important are the components manufacturers, 1254 whose fortunes are entirely interdependent with the indigenous motor industry. Those who supply equipment to the industry are in a similar position.
My hon. Friend the Minister will know that the imbalance to which my debate refers stems from the 1970 agreement entered into between the European Community and Spain, to which the United Kingdom became a party only on accession to the Community. It provided what amounted to developing nation status for Spain, especially in this regard, although the agreement is complex and covers a wide variety of subjects. By a tariff arrangement, the agreement protected what was at that time a nascent Spanish motor industry in a way that may have been thought appropriate in terms of the general relationship between the Community and Spain.
In 1970 the Spanish motor industry hardly existed. Now, however — one must credit the Spanish Government with having taken their opportunities with both hands—Spain has developed, mostly in conjunction with the American multinationals, a motor industry that in 1983 produced 1.14 million units, of which it exported 56 per cent., or some 641,000 units. The irony, which is not lost on my hon. Friends, is that that is 9 per cent. more units than were produced in the United Kingdom. One must ask oneself whether there remain any of the justifications for developing nation status between Spain and the Community.
Yet we now learn that, having allowed the Common Market producers in total 15,000 cars on what is called the reduced duty quota—effectively allowing them in at preferential rates—in 1983–84, the Spanish Government have recently announced that the quota for 1984–85 will be exactly the same. Under the reduced duty quota for the year commencing 1 July 1983, Austin Rover, with which I am especially concerned, received an allocation of 972 cars between 1,275 and 1,600 cc at a duty of 19 per cent., and 1,025 cars between 1,900 and 2,600 cc at a duty of 25 per cent. But when the discriminatory impact of local taxes are taken into account, those reductions still leave Austin Rover with a retail pricing penalty in relation to local manufacturers of 37 per cent., which is the equivalent of at least £1,000 for smaller-engined cars. That increases to 54 per cent., or £1,500, at the full rate of duty of 36.7 per cent.; for larger-engined cars the pricing penalty is about 43 per cent., which can mean an increase of more than £3,000.
Ironically, and despite that, Austin Rover expected to have sold 3,000 units for the year just ended, so about 1,000 of those will have been above the reduced duty quota. The company will have to bear the penalty of the full rate of duty. Unfortunately, it cannot decide to have two prices for one car—one a full duty rate and the other a reduced duty rate—so it is obliged to reduce its overall prices to establish a single level at which the commodity is sold. That means that the profitability of the Spanish market to that manufacturer has almost disappeared.
Austin Rover is there only—this is not only my view but is readily shared by the company—because it is looking to the Government to do something to alleviate its short-term plight and to ensure that that short-term plight does not become long-term permanence.
The first question that I have to pose to my hon. Friend the Minister is based upon the recent announcement that the quota is not to be relaxed by one iota next year. Does he think that it is reasonable of the Spanish Government, 1255 faced with, we are told, the prospect of accession to the EEC in 1986 and therefore the eventual elimination of tariffs over the transitional period, to refuse to increase at all the reduced duty quota? It contradicts those in this House and on the Conservative Benches who I have heard say that the transitional period will be short and that it is therefore an adequate mechanism for the resolution of the problem. All the indications from the Cortes are that they are not the least bit interested in moving towards transitional arrangements. Indeed, if they were they would now be preparing their domestic market for the onslaught of foreign manufactures by the gradual relaxation, perhaps only to the tune of 4,000 or 5,000 units a year, of the reduced duty quota.
Although the Spanish domestic market is somewhat depressed, over 500,000 cars are still sold in the Spanish domestic market each year. Set against that number, a quota of 15,000 for the EEC is not a figure which could not be exceeded if there were the goodwill to do so. Will my hon. Friend address himself particularly to that? I sense that several of my colleagues take the view that I now hold that there is no evidence of a desire on Spain's behalf to move towards the circumstances in which a transitional arrangement could take place.
Let me deal in the short time available with the other side of the coin—Spanish vehicle imports into the United Kingdom. In January this year the tariff on those imported vehicles from Spain was reduced under the general agreement from 4.4 per cent. to 4.1 per cent. Therefore, Austin Rover sales in Spain of 2,068 in 1983 have to be compared with sales of Ford Fiestas and Novas in the United Kingdom of 49,000 units. Broadly, while in 1983 Spanish-sourced car sales in the United Kingdom were not as high as the peak of 70,000 in 1980, it is clear that 1984 will be a big year indeed for the Spanish. If the first three months are at all representative, we are talking of an equivalent annual sales rate this year of over 100,000 units.
The second recent development is that SEAT, the Spanish Government-owned and highly subsidised motor manufacturer, has declared its intention to set up a network of 250 dealers in the United Kingdom with the objective of selling over a period 30,000 cars a year. That is in addition to those imported by the multinationals. That means, in effect, that in total we shall be taking in the order of 130,000 units a year, every one of which will be imported at the 4.1 per cent. rate. That is the comparison we now have—about 2,000 vehicles and an average duty rate of about 37 per cent. and about 100,000 vehicles at a duty rate of 4.1 per cent.
My hon. Friend will not be unaware of the points that I am making. I simply reiterate them because they are so stark and so in need of reiteration. I hope that my hon. Friend can see why tonight I am certainly not going to deal with the detail of the distribution of the EEC reduced duty quota.
My hon. Friend the Member for Bromsgrove (Mr. Miller) has touched on the problem himself in questions. That is a valuable exercise, but, frankly, I am concerned with the real underlying fact that Austin Rover alone could, in a free market, or in the equivalent of a free market, sell not 2,000 or 3,000 cars but 10,000 cars, and, as the market develops, perhaps substantially more. When one compares those 2,000 or 3,000 units at a rate of duty 1256 of about 30 per cent. with over 100,000 vehicles on a rate of duty of 4 per cent. one sees the heart of the problem. Frankly, in that context an adjustment of 100 or 200 is neither here nor there.
At the nub of this is the principle of equity. It has long been the view of Conservative Members, and I am sure that my hon. Friends tonight, to whom I am most grateful for listening to me on this subject, will agree that tariff barriers generally, and protectionist barriers in particular, have no place in a healthy free market economy. I accept that such arrangements should be entered into only when there is a real necessity to do so. I believe—I know that my belief is shared by many hon. Members—that the time has come for us to be far more vigorous than we have been to date to restore the gross imbalance that I have described.
I would much rather avoid the erection of any barriers to Spanish vehicle imports, and I know that that view is shared by Her Majesty's Government. Austin Rover can and will compete on equal terms with the best in the world, but I must stress "on equal terms". It seems that the actions of the Spanish Government so far, especially the lack of any movement on the reduced duty quota and the announcement from SEAT, show clearly that they believe that they hold all the cards. I hope that my right hon. Friend the Minister for Trade will show in his reply that he, too, is prepared to fight for British interests in this vital area and ensure that in this game both players have an equal hand of cards.
§ The Minister for Trade (Mr. Paul Channon)My hon. Friend the Member for Oxford, East (Mr. Norris) has done the House a great service by raising this topic at a peculiarly appropriate moment. He deserves the congratulations of the House on seizing the initiative and raising the issue at this moment when it is especially hot and important. The Government much welcome the opportunity of listening to him. It is clear from the presence of so many of my hon. Friends—my hon. Friends the Members for Oxford, West and Abingdon (Mr. Patten), the Under-Secretary of State for Health and Social Security, for Luton, North (Mr. Carlisle), for Solihull (Mr. Taylor), for Mid-Worcestershire (Mr. Forth), for Staffordshire, South-East (Mr. Lightbown), for Bromsgrove (Mr. Miller) and for Meriden (Mr. Mills)—that there is deep concern among Conservative Members about the points that my hon. Friend has raised.
My hon. Friend the Member for Oxford, East has raised an important matter, because the Community's negotiations with Spain about the industrial conditions of its membership are now seriously getting under way. It is a moment which the British Government have awaited with growing impatience. We are glad that our increasing pressure to embark on this subject, which will be a difficult chapter for both parties to the negotiations on enlargement, has now set events in motion.
There can be no doubt that the prospect of improved, and ultimately free, access to the Spanish market after enlargement cannot come too soon for our motor car industry, for my hon. Friend's constituents who depend on its fortunes for their own livelihood and for the constituents of many of my other hon. Friends who are in their places. That will be the view of the motor car industry and it will be viewed with satisfaction by many other sectors of industry, anxious as they are to have a real 1257 chance to compete in a sophisticated market of nearly 38 million people whose prosperity has grown impressively in the past 20 years.
§ Mr. Alan Williams (Swansea, West)The Minister has talked about the support of his hon. Friends, but will he make it clear in the negotiations that this is not a partisan matter and that the Opposition as well as the Government protest strongly and vigorously against the abuse and endorse the line that the Government are taking? There must be a change in the Spanish Government's policy.
§ Mr. ChannonI am grateful to the right hon. Gentleman. We shall not have the benefit of the Liberal view, because there is no Liberal Member present to tell us, but let us hope that they agree with us too.
I must pay tribute to my hon. Friend the Member for Oxford, East for championing the interests of Austin Rover. He has forcefully put before us the frustration of the company and his constituents with the terms on which they are expected to compete with Spanish suppliers in the Spanish and British markets—a frustration that is increased by the knowledge—shared by the House—of the impressive strides made by Austin Rover in recent years. Now—with the launch of the Montego, built at Cowley—the company has a full range of updated models suited to the markets of Europe. Yet last year Spain imported fewer than 3,000 cars from the UK; indeed, it imported from all sources only about 9 per cent. of its total market. It is small wonder that my hon. Friends and the right hon. Member for Swansea, West (Mr. Williams) are deeply concerned.
The Government share the dissatisfaction with a situation in which Spain enjoys the relative freedom in international trade characteristic of the industry but does not offer it in return, and in which it plans to build on that freedom further to expand its exports, but has so far been reluctant to accept that trade privileges cannot be one way.
I want for a moment to look at the various factors that distort the opportunity for healthy competition. My hon. Friend raised most of them. First, I deal with the tariff. The current imbalance is an historical anomaly. Spain's protection of its car industry is the highest in Europe. The anomaly originates in an agreement concluded between the original six members of the Community and Spain in 1970—that is, before we joined. Then the expansion of Spain's industrial economy was just beginning. Now the situation is quite different. Today, Spain is Europe's largest shipbuilder, a major steel producer and it boasts a thrusting motor car industry. As my hon. Friend pointed out, the protection enjoyed by that industry from Community competitors includes a 36.7 per cent. tariff. It is even higher against the rest of the world. Yet we are not talking about a struggling infant industry, as might be supposed. As my hon. Friend said, we are talking about an output of more than 1 million units per annum, based largely on heavy investment by experienced multinational companies.
In the past year our exporters have hammered home the message of the obstacle of the Spanish tariff. The opportunity came in the Spanish concession of a reduced duty quota, which allowed a small number of family-sized cars into its market over a duty of 19 per cent.—instead of 36.7 per cent.—and a rather larger number of cars at the upper end of the scale over a duty of 25 per cent. With 1258 the benefit of those reduced duties, our exports increased by about 70 per cent., from 1,556 to 2,379 units. The Government welcomed that Spanish concession, limited as it was. It signalled some recognition in Madrid of our unremitting representations that the unduly privileged position of the Spanish industry could not reasonably be rebutted simply by Spain standing on its treaty rights. We welcomed even more the response of our exporters to show their competitive ability, which they did. We made it clear that we hoped that this year Spain would move further forward to anticipate the reduction of its tariff after entry into the Community.
It was announced in Madrid last week that those quotas would be rolled forward for another year—with no change in either the level of reduced duties or the numbers covered. My hon. Friend asked me for my view, and I agree with him. I must say that this modest news came as a considerable disappointment. Our hope now is that in the light of the efforts of our own exporters, they will be given the fullest opportunity to build on those efforts within next year's quota.
My hon. Friend addressed himself to the nub of the issue, and that is what we should concentrate on, rather than on 100 or 200 cars here or there. The most critical matter is the speed with which we can secure agreement on the terms of Spain's entry into the Community, which will provide prompt access for our exporters—not only of cars—to the Spanish market by some rapid cuts in Spain's highest tariffs—quick agreement to provide a certain framework for our manufacturers to plan ahead and rapid cuts to narrow the imbalance in protection embodied in the 1970 agreement. Last week, at the Foreign Affairs Council in Luxembourg, I insisted that specific attention must be drawn to the need to deal with the problem of Spain's high tariffs. I am happy to say that the European Community accepted my position in presenting its proposals to Spain for tackling the timetable for eliminating industrial duties. In the weeks ahead, we shall continue to press our determination to find a speedy remedy.
§ Mr. Hal Miller (Bromsgrove)Do I understand that my right hon. Friend thinks that the best way of alleviating this grotesque imbalance—as one of his predecessors described it—is to make a reduction in the high rate of tariffs rather than seek to expand the reduced tariff quotas? Is that the sense of my right hon. Friend's remarks?
§ Mr. ChannonI do not want to throw away any card in the negotiations, but that is the nub of the issue. In the long term, we must get the duties down.
I press on to other problems, apart from customs duty. Spain's discriminatory tax structure and certain other legal provisions distort the market. The current Spanish fiscal structure is complex, as I believe the Spanish Government would agree. In particular, the so-called home compensation tax, imposed on imports, is strictly intended to equal the sum of cascade taxes paid on equivalent domestic production, but it is in many cases set at a higher level and on an artficial basis and it can constitute significant extra protection. When Spain joins the community it will have to abandon this regime and replace it by VAT. That discriminatory instrument will then disappear. That will be an upheaval for Spain, for its business men and for its Government machine. But Spain has already committed itself to that obligation. We hope to see the changes in place before accession.
1259 We must not forget Spanish requirements obliging certain car manufacturers to export a high proportion of their production and to maintain a high ratio of Spanish content. These rulings distort competition and are incompatible with the Treaty of Rome. Their removal will be of considerable significance. Spain will have to remove its export ratio requirement on accession and I shall push for a reasonable solution to the local content requirement.
That is the picture. I hope that I have shown that the Government are not just alert to the facts, and highly sympathetic when our manufacturers ask how long they will have to put up with them, but are active in the pursuance of our car manufacturers' interests in Europe. Mr. Musgrove and his team are in touch wih my Department. If he or hon. Members believe that we have omitted anything, we shall be pleased to pursue the matter further. My hon. Friends will remain active and vigilant. The Government have made their position unequivocally clear to Spain. I cannot complain about the Spanish Government's determination to build up their industrial economy. Why should I? The Spanish Government are entitled to build up legitimate trade.
The United Kingdom has benefited substantially from the operations of the United States multinationals over the years. We must not be surprised if they invest also in other European countries. These are commercial decisions, which must be for them to make. I know that the multinationals, too, are conscious of the anachronistic trading relationship between Spain and the United Kingdom, and of the resentment that the resulting imbalance causes in the industry and the public here. Mobility of investment in a climate of fair competition is a reality which we should not seek to deny. After all, we have endeavoured to create a competitive climate to attract investment here. We are not going to criticise Spain when it does no more than the same thing by means of fair measures.
We do not seek to deny Spain the right to healthy export industries competing with our own. We are not asking 1260 Spain to accept terms of entry into the Community enabling suppliers from the United Kingdom and other member states to flood its markets overnight. We are not asking anything so unreasonable and unreal. But it is reasonable to ask for rapid movement towards fair competition. That is what we expect the Spanish Government to achieve. Our aim is to put competition on an honest footing in the climate of the mid-1980s and not to spend too much time arguing from an agreement established in the very different circumstances of 1970.
I do not pretend that easy formulae are available to meet the genuine and proper pre-occupations of all the parties to these negotiations, but I believe that there is a healthy understanding by all concerned—certainly by the British Government and by the House, if I understand its mood, and I hope and believe by the other Community Governments and the Spanish Government—that formulae must be found to meet a clear injustice highlighted in my hon. Friend's valuable speech. I can assure the House that in the next few weeks the Government will do their utmost to negotiate with Spain as part of Community negotiations, to ensure that the formulae will be found in the reasonably near future.
We all want to see Spain join the Common Market on the date that has been approved. We all want to see the negotiations completed by the date which the Heads of Government reconfirmed at their meeting at Fontainebleau earlier this week. But we must insist on and work towards an agreement that will allow Spain to come into the Community on terms fair to Spain, but also fair to the United Kingdom, fair to the motor car industry and fair to the other industries that have been threatened for so long by far too high tariffs—a burden that would be intolerable for British industry to bear for too long.
I am grateful to my hon. Friend. I shall bear in mind the points that he and others have made, both tonight and privately on other occasions. We shall do our best to meet the points raised.
§ Question put and agreed to.
§ Adjourned accordingly at Eleven o'clock.