HC Deb 02 April 1987 vol 113 cc1314-22

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

10.1 pm

Mr. Michael Marshall (Arundel)

I am particularly grateful to you, Mr. Speaker, for allowing me to catch your eye at the end of a day in which matters affecting the relationship between this country and Japan have featured largely in the thoughts of many people up and down the country. I am also happy to follow the invitation of my right hon. Friend the Leader of the House to debate trade and investment relationships with Japan as a matter of urgency, and I hope that the debate can be seen as beginning this very night.

Let me start by declaring an interest as parliamentary adviser to Cable and Wireless, which is to be the main burden of my remarks. However, I hope that what I have to say will also be seen in the context of some of the work done by the parliamentary information technology committee, of which I have the honour to be chairman. Anyone who has witnessed recent events in respect of British interests, and particularly in respect of investing in Japan, must share my concern at what has been going on for some years now, and at some of the difficulties faced by financial houses in this country— and, indeed. by British trading interests. It is on investment that I wish to concentrate, my remarks. I have mentioned Cable and Wireless not just because I am seeking to assist one company, but because it is generally accepted—and the Government have made it plain— that it represents a test case.

The test is of Japanese sincerity in moving towards a more liberal trade and investment regime. I should like to concentrate in the short time available to me, on the role of our Government—and, indeed, that of the Japanese Government—as well as the interest taken in the House. That interest has been effectively summarised by early day motion No. 803, which as of this morning stood in my name and in those of 117 other right hon. and hon. Members on all sides of the House. That shows the full extent of the present concern about the position, in which legitimate British interests in pursuit of a more equitable trade and investment balance with Japan are being frustrated.

I shall not broaden my remarks by way of background, but there are other parallel concerns. There is the £3.7 billion adverse trading balance announced last week, the problems relating to the number of British companies working on the Japanese stock exchange—about seven, compared with 40-odd Japanese operators in this country— and the exclusion of British suppliers in the new Osaka airport development. It is very hard to explain away that sort of continued imbalance in terms of a more open trading policy. But, as I shall try to show, I believe that within Japan itself there are arguments between what might be described broadly as the old guard and the new guard. These are arguments in which Britain has a part to play and which should be determined with the help of Japan's friends and of this House.

I shall outline the background to the problems affecting Cable and Wireless. The company was invited to submit a proposal as an alternative international telecommunications network, and that was the so-called second KDD. I emphasise "second" because there was— in KDD— already a 100 per cent. domestically and internationally telecommunications network, and that will continue. We are talking about an opportunity under Japanese law, which allows for up to one third foreign investment in Japan, and not about breaking into a monopoly. We are talking also about a company which is recognised as the oldest and—I think that many would accept this—the most experienced international telecommunications operator, which brings to Japan, together with partners from the United States, an opportunity to be essentially the hub of the Pacific telecommunications scene.

There are therefore great advantages to Japan as well as to the United States and Britain in a proposal, especially through the cable, which would be privately financed between Japan and Alaska, which would be part of a worldwide circle of communication in which all three countries could benefit. That was essentially the proposal which, for brevity, I shall call the IDC consortium. It was a unique Japanese company or a unique Japanese joint venture.

There was put forward at a later stage a proposal by another grouping which, for brevity, I shall call by its initials, which are ITJ. It is dominated by Japanese merchant houses, notably, Mitsubishi, Mitsui and Sumitomo, all of which are users and none of which has telecommunications experience. It is clearly a different sort of company. The analogy that has been presented of oil and water is apt, but I prefer what has since happened to be described as a shotgun marriage. Instead of considering the benefits of the two proposals, as would be normal, certainly in Britain and as is normal practice in Japan, the Ministry of Posts and Telecommunications has sought to make a shotgun marriage. It has not considered the proposals, which, in the case of IDC, come from Japanese as well as British and American interests. It has simply said, "We are not prepared to consider what you have to offer, despite the fact that you have already engaged in feasibility studies covering links between Japan and the United States and your Pacific hub concept." It has said, "You must go away and bring in more partners, and, by the way, the partners must be large Japanese merchant houses and banks."

The effect is obvious. If an agreement is made on that basis, the equity will be diluted, and that will reduce the management role. It seemed certain that, in the early negotiations, this would have precluded board representation. The role of the Japanese Ministry of Posts and Telecommunications was blatant. It was effectively to rule out effective foreign involvement.

The stage has been reached when a distinguished Japanese industrialist, Mr. Watanabe, has put forward the latest proposal. It involves eight companies, one American, one British and six Japanese. All would have equal stakes in the company and all would have directors on the hoard. They would be described as the core companies. I am advised that this is still a vague proposal. What is more, it suffers from the fundamental objection that it is still a shotgun marriage. It seeks to bring together two groups of wide differences in background and experience. It ignores the industrial, economic, financial and national logic of the two groupings.

I turn to the actions of Her Majesty's Government. I wish to pay tribute to the work that has taken place over a long period that my right hon. Friend the Prime Minister has undertaken in writing to the Japanese Prime Minister. I was glad to hear my right hon. Friend say in reply to my question earlier today that the Japanese Prime Minister has indicated his personal interest and involvement in the issue, and I am pleased that it is being treated in that way. I also pay tribute to the work of my right hon. Friend the Secretary of State for Trade and Industry on his visit to Japan in November. That work has gone on continuously through his Department, and will continue in the future.

I want to ask my hon. Friend a few specific questions, and I hope that he can assure the House that the Government have them well in mind as we look to further steps. The orders under the Financial Services Act are obviously designed to meet the problems of imbalances for banks and insurance houses. I am sure that it will not have escaped my hon. Friend's attention that Sumitomo, one of the houses that operates in London and Tokyo, has been proposed as one of the eight core companies under the latest Watanabe proposals. Those proposals do not say that the core companies will exclusively occupy 12.5 per cent. each. I fear that other companies will be invited to join in the lower equity brackets, as has hitherto been the case. Anything that my hon. Friend could tell us about that would he of interest.

The immediate laying of orders particularly affects the imbalance and the problems that face British finance houses that are seeking entry into Japan. Will my hon. Friend assure the House that Her Majesty's Government will not hesitate to bring forward further legislation if need be, to meet the problems that have been highlighted by the Cable and Wireless investment proposals? The latest suggestion has highlighted the fact that Sumitomo finance house is involved in the proposals that are now being recommended to the Japanese Government. Depending on how matters move along, if further legislation is required, I hope that the Government will not shrink from introducing it.

On the merits of Cable and Wireless's argument, I hope that my hon. Friend will agree that the present proposal is widely seen to be in the interests of Japan, the United States and the United Kingdom. Does he agree that it is reasonable to ask that the IDC proposal for those three major interests should be considered on its merits and given a response?

My hon. Friend must agree that it is not too much to ask that any such proposal that is put forward in good faith under Japanese law should be given the courtesy of consideration. If, at the same time, further consideration of the alternative IIJ consortium suggests that two licences are needed, why not accept that? I do not think that that should necessarily be regarded as a bad outcome.

Will my hon. Friend confirm that the wider international interests to which I have referred are suffering at the present time? Incidentally, I understand that the President of the United States has written to the Japanese Prime Minister to express his concern about the present restrictions in the Japanese telecommunications market. My hon. Friend must agree that, in the wider international interest, there is a common cause between the United States and this country. He may also want to confirm my understanding that, in Japan, the Prime Minister, the Foreign Office and MITI are in favour of the kind of proposal for inward investment in Japan that I have described to the House. It is certainly clear that the Ministry of Posts and Telecommunications is out on a limb on this matter and is trying to block that development. Although I understand my hon. Friend's scepticism, that is the position that has been enunciated in many quarters. It is important for us to have that confirmed or denied.

All this should be viewed in the context of a British concern that is the largest single purchaser of Japanese telecommunications equipment. It is also the oldest international operator in the Pacific basin. It has followed the Japanese way of doing things and has sought to work in every way to meet not only the law but the spirit of Japan, including, for example, meeting suggestions from the Japanese Government as to the nature and content of staffing at its organisation in that country.

I certainly do not want to advocate a trade war with Japan. As chairman of the parliamentary information and technology committee, I welcome the kind of Japanese investment that we have seen through companies such as Sony and Hitachi in Wales, and through other companies in the north-east and midlands. They have brought important technical know-how and jobs to these parts of the country.

I was heartened by the comments of my right hon. Friend the Secretary of State for Trade and Industry on radio and television tonight. He said that the orders that were brought before the House were no idle threats. I was also heartened when my right hon. Friend the Prime Minister, in response to my question earlier today, made it plain that she was following the matter closely and personally with the Prime Minister of Japan, and pointed to the relevance of the orders before the House in considering Cable and Wireless investment. As my hon. Friend the Minister with responsibility for consumer protection and corporate affairs sets out for Japan this weekend, I am sure that the House will want to send him best wishes for what is an important mission, both in terms of financial services and the problem to which I have drawn attention. I have tried to show that it is not only a two-way trade but is perhaps a tripartite interest in which all three countries stand to gain a great deal. Failure to agree would be to the loss of all of us, including the many hon. Members who continue to follow the matter with the greatest care and attention.

10.17 pm
The Parliamenary Under-Secretary of State for Trade and Industry (Mr. John Butcher)

I am grateful to my hon. Friend the Member for Arundel (Mr. Marshall) for raising this matter at a particulary topical moment. He will know that I have been connected with the issue in the European context, which is getting access for companies such as Cable and Wireless to the international telecommunications requirements of countries such as Italy and Portugal. Our policy in that regard can be transferred, almost in its entirety, to the matter now facing us in Tokyo. However, it is difficult at present to address the matter of investment without saying something about Japan's overall trading position.

Last year, Japan's current account surplus reached $80 billion, of which $5 billion was accounted for by the surplus with the United States, $17 billion with the European Community, and $3.7 billion with the United Kingdom. It is in that context that I shall address the points that my hon. Friend raised—British interests in this trading position, wider international interests, and indeed the relationship between the laying of today's order and the current issues now being dealt with in Tokyo. The reasons for the mixture of surpluses that Japan is operating are complex, but clearly the situation cannot be sustained without a serious threat to the maintenance of the international trading system.

Revaluation of the yen, which has risen by 65 per cent. against the dollar and 41 per cent. against sterling since September 1985, will, in time, work through to the visible trade balance by making Japanese exports more expensive and imports more competitive, but if this process is to achieve its full effect it has to be accompanied by the adoption of appropriate economic policies by the Japanese Government, including the expansion of domestic demand. That is the course of action that the European Community and the United States are now pressing on Japan, but particular emphasis is also being given to market opening so that our exporters can take advantage of the increased competitiveness of their goods.

As the House will know, the Community has now launched a GATT case about discriminatory treatment on alcoholic drinks, and there will be no hesitation about taking other cases where our or other member states' rights to fair access are being denied. Other sectors are under examination with a view to launching exploratory discussions with the Japanese Government. The list includes automobiles, automotive parts and medical equipment, but other products will certainly be taken up as the preparatory work is completed.

On access to the European markets, we make full use of the Community procedures under GATT to protect British manufacturers from unfair trade. Anti-dumping duties have been imposed in recent months against Japanese manufacturers of photocopiers, bearings and weighing machines.

The Japanese Government must recognise the seriousness of purpose of the Community and the United States of America. We wish to see substantial progress across a broad front with real and measurable results within an acceptable time scale. That is what is implied by the European Community's call for Japan to adopt an import target. This is not the occasion on which to speculate about what will happen if Japan does not respond to the pressure for action on her part. As has already been observed today, trade wars are not a solution and once unleashed have the potential to damage the originally aggrieved nation as retaliatory reactions ricochet around the world. Therefore, I can understand why the United States is considering the position carefully following its announcement of a possible retaliatory package. However, hon. Members have given a fair indication of their feelings and I am sure that the Japanese Government will take note of the sentiments expressed by Members of the House and by Ministers.

The British Government's stance on investment is clear. We believe in a minimum of barriers to the free movement of investment according to the commercial judgment of the companies involved, in just the same way as we believe in free movement of goods and services. Abolition of exchange controls pointed the way. Indeed, we have actively encouraged inward investment to the United Kingdom from Japan and other countries. We recognise the advantages that that brings to both sides.

Japanese overseas investments have soared in recent years, the greatest increase being in the far east, but foreign investment in Japan has remained modest. Until the late 1960s and early 1970s, heavy restrictions were placed on foreign investment in Japan. Although some liberalising measures have been introduced, many of the foreign companies which have pursued investment in market opportunities in Japan have come up against a variety of obstacles and have subsequently withdrawn as a result. Full acquisition of an existing local company is generally not possible in Japan. Indeed, the aggressive or disputed takeover of one Japanese company by another is virtually unknown. This is just one of the factors that has hindered the entry of foreign companies into the market.

I shall ńow turn to the specific case of the telecommunications sector. The Government welcomed the liberalisation of Japanese telecommunications in 1985. Among other things, this allowed up to 33 per cent. foreign participation in telecommunications operations. Yet since then we have seen the blocking of any foreign shareholding in Nippon Telegraph and Telephone. Another example is now hitting the headlines in the press. Cable and Wireless, as part of the International Digital Communications consortium, is bidding for a licence to operate as a competitor to KDD, the existing Japanese monopoly supplier of international telecommunications services.

The Government have followed this case closely for many months. My right hon. Friend the Secretary of State for Trade and Industry raised this issue with Mr. Karasawa, Minister for Posts and Telecommunications, last November. He was told that foreign participation in telecommunications was unwelcome, despite the fact that the provisions of Japanese law allow significant foreign shareholdings. Since then, Her Majesty's Government have raised the issue repeatedly, culminating last month in representations from the Prime Minister to Mr. Nakasone. As my right hon. Friend the Prime Minister told the House this afternoon, she received a reply from Mr. Nakasone today. We wish to look further at the matter in the light of the terms of that reply.

The attitude of the Japanese Government is in sharp contrast to Her Majesty's Government's liberalisation policy, which made no distinction between United Kingdom and foreign shareholdings. Our policy has introduced real consumer choice in the United Kingdom and an almost unlimited choice of equipment. Japanese companies have not been slow in taking advantage of those developments, and I am sure the British consumer has welcomed the widened choice, innovative services and reduced costs that this has brought.

How different the story has been in Japan. Cable and Wireless is one of our leading companies with longstanding expertise in the provision and operation of international telecommunications systems. Yet another welcome success in Malaysia, announced today, has demonstrated that capability.

Mr. Michael Marshall

Does my hon. Friend not accept that that 51 per cent. Malaysian Government and 49 per cent. Cable and Wireless shows what an enlightened Government can do in such a situation? Surely the lesson is obvious for countries such as Japan?

Mr. Butcher

My hon. Friend is absolutely right. Across the far east the company has pursued a number of policies, with mixtures of collaboration and individual, which have provided an enhanced telecommunications facility in that part of the world. I am sure that our colleagues in Japan will draw the appropriate moral from that.

That company is listed on the Tokyo stock exchange and has close links with many Japanese suppliers. Indeed, it is a major purchaser of Japanese equipment. Yet is has faced considerable obstacles. If that company has difficulties, how will others fare?

Together with the other members of the IDC consortium, Cable and Wireless proposed, at no cost to the Japanese Government, a totally alternative state of the-art system to compete effectively with KDD. This system would incorporate a privately financed cable linking Japan to the United States, thus providing a cost-effective real choice for consumers.

The Government have welcomed the bid to be involved in that sector in Japan. The Japanese and the United Kingdom Governments have agreed that one means of opening the Japanese market is by companies from both countries working together to mutual benefit. The IDC consortium is a shining example of that, combining British, American and Japanese experience. However, seen from here, it has faced considerable obstacles in its attempts to invest its own resources at its own commercial risk. Merger talks have been initiated before any appraisal of the IDC proposal.

We have consistently made the point that telecommunications is increasingly an international business, that foreign participation is expressly permitted under Japanese law, that the co-operation in the IDC consortium is just the type that both Governments have agreed to promote, and that the investment is entirely at the commercial risk of the parties involved. I understand that similar points are now being taken up by the United States Government of behalf of Pacific Telesis and Merrill Lynch, two American members of the IDC consortium.

It is for Cable and Wireless to decide at what level it is prepared to participate in this venture, whether within its original consortium or as part of a merged company. However, it also becomes the Government's business when British companies are faced with what seems like unfounded opposition and discrimination.

The position on this issue changes almost daily. Indeed, we have just received Cable and Wireless's latest public statement, which indicates that Cable and Wireless will discuss, with its partners, the latest proposals from Watanabe. While Cable and Wireless considers its position, we too shall be studying closely the reply from. Prime Minister Nakasone. We shall monitor the position closely as, indeed, we have been doing for several months. However, I should emphasise to the House that no final decision has been taken in Japan on the Cable and Wireless issue. Commercial negotiations are continuing and Cable and Wireless is considering the most recent developments. The Government will continue to play their part.

I note what my hon. Friend said about retaliatory measures. As my right hon. Friend the Prime Minister announced in the House today, we have made an order bringing powers into force under the Financial Services Act 1986.

Let me say a little more about the financial services sector. I recognise the steps that the Japanese authorities have taken since the 1970s to liberalise their financial markets. In 1980 an important measure was implemented in the foreign exchange and foreign trade control law which removed the blanket control on international capital flows in to and out of Japan. The Japanese Government have adopted a step-by-step approach to liberalisation. However, by contrast, it is fair to say that in the United Kingdom we had the full courage of our convictions, and, in just a few strides, achieved our goal of full liberalisation.

Bilateral talks between our two Governments since 1984 have achieved significant progress, but we believe that much more could be achieved. The Financial Services Act, passed by the House last year, allows all who are "fit and proper" to carry on financial business here and we expect no less from other countries. As hon. Members will recall, we considered that it was necessary to include in that Act powers to encourage foreign countries to liberalise. If we are not satisfied with reciprocal access to a country, we shall have the discretion to prevent its firms from transacting banking, investment and insurance business here. We have made it clear that we shall not hesitate to use the reciprocity powers at our disposal, if necessary. This is a message that the Parliamentary Under-Secretary of State responsible for corporate and consumer affairs, my hon. and learned Friend the Member for Folkestone and Hythe (Mr. Howard), will carry with him to Tokyo on Saturday.

As my hon. Friend said, this is a test case. On this and the general question of reciprocal trading opportunities let no one underestimate the seriousness of our intent to see that British companies of all kinds are given a fair chance to test their growing competitiveness in Japan's markets.

Question put and agreed to.

Adjourned accordingly at half-past Ten o'clock.