§ The Chancellor of the Duchy of Lancaster and Minister of Trade and Industry (Mr. Kenneth Clarke)
I beg to move,That this House takes note of European Community Documents Nos. 8560/87, the Supplementary Explanatory Memorandum submitted by the Department of Trade and Industry on 1st December 1987 and 4127–88 on steel policy, 8803/86 and the proposals described in unnumbered Explanatory Memoranda submitted by the Department of Trade and Industry on 7th July 1986 and 15th July 1986 on trade with the United States of America in certain steel products, 8993/86 and COR 1 on aids to the steel industry (1984–85), and the proposals described in the unnumbered Explanatory Memorandum submitted by the Department of Trade and Industry on 19th October 1987 on delivery levels of certain steel products of Spanish and Portuguese origin onto the rest of the Community market; supports the Government's commitment to a Community steel regime which provides a framework for a steady return to free market conditions; and endorses the Government's agreement of measures which place a temporary limit on steel exports to the United States of America, thus safeguarding access to the American market.As the House has now satisfactorily sorted out the problems of the British Steel Corporation privatisation, it is obviously a suitable occasion to go on to this debate where we concentrate on the international, particularly European, aspects of the steel market. [Interruption.]
§ Mr. Speaker
Order. Will hon. Members, particularly those beyond the Bar, who are not staying for the debate please leave quietly?
§ Mr. Clarke
The debate arises from four European Community documents and four explanatory memoranda relating to the steel industry, which have been recommended for debate by the Select Committee on European Legislation. I apologise to the House for the fact that it was necessary in the best interests of the United Kingdom to agree to decisions on two measures, those concerning the future European Coal and Steel Community steel regime, and the RESIDER programme, before a debate could be arranged. Hon. Members who have followed the decisions that we took at the Council meetings before Christmas will accept that on both subjects the Government entered into an agreement which is non-controversial and is accepted on both sides of the House as in the overall interests of the United Kingdom and the steel community.
The documents as a whole deal with the international steel regime. The most important subject which they cover is the European steel regime based on quota shares of the market and an arrangement which protects steel producers against a catastrophic fall in prices. The European quota regime was introduced a few years ago when the European steel industry was going through a period of acute crisis. The regime is generally a tribute to the work of Commissioner Davignon and was brought into play at a time when there was huge excess capacity throughout the European Community. Prices were at risk of collapsing altogether. The likely reaction to a collapse of market prices at that time would have been that the various member states would have gone in for a competitive arrangement whereby each tried to cover the losses of its own industry, and they competed with each other by offering subsidies to try to sustain their industries.
250 The purpose of the system when it was introduced was to try to keep supply and demand roughly in balance to prevent prices from falling to ruinous levels while surplus capacity was removed. The arrangement was always meant to be temporary; it was never intended to be timeless. The aim was to try to create orderly marketing arrangements within the European Community to win time for the necessary changes to take place and for restructuring to be carried through.
As is so often the case with temporary arrangements, the arrangements have lasted for some years. In my discussions with my European colleagues, whether they be Ministers from other member states or people connected with other sections of the European steel industry, I find that inevitably some people are from time to time tempted to regard a quota regime as being desirable in the longer term. Certainly there are those within the steel industry who like to think of the industry as one which is naturally cartelised and is best arranged on that basis. It has the attraction, particularly for the weaker steel producers, that by such means prices are kept artificially high and the businesses can be kept open at levels of capacity far above those which would be necessary for viability if open market conditions were ever restored.
It is certainly not my view that the regime should be permanent or that cartel systems are desirable in anyone's interests. I do not think that it is in the interest of steel producers to try to share markets between basically inefficient producers. Certainly it would not be in the interests of steel users, and we must remember that in this economy, as in any other, more jobs are created by the use of steel than by its production. Anything which artificially inflates the price of steel from the steel producers is of no advantage to the general economy of Britain or Europe.
Therefore, once the temporary arrangements have served their purpose, it is necessary to go back to the reasonably free market conditions described by my hon. Friend the Member for Pudsey (Sir G. Shaw) in the previous debate as desirable and in the interests of consumers and the industry generally. We have reached a stage where the system is beginning to cause more harm than advantage from the British viewpoint. Consumers face higher prices than they would otherwise do, and sometimes encounter shortages, and certainly constraints on the supply of the raw material because of the quota effects on the market.
§ Mr. Clarke
I agree with the hon. Gentleman that that is the great danger. When I meet some of the more robust defenders of the quota arrangements in the European Community, they seem to believe that we should set up a sheepmeat regime for the steel industry as a long-term process. The Government are against that proposal, as it is not in anybody's interests; nor is it in the interests of BSC.
In tonight's Second Reading debate I think we all agreed, in discussing the interests of the BSC, that it will thrive in freer market conditions. It is now among the most profitable and efficient steel producers in western Europe. Indeed, BSC's production costs are substantially lower than those in the United States of America, and in other leading European steel-producing countries. We are 251 looking for a return, in the most orderly fashion possible and as quickly as possible, to essentially free market conditions.
A key problem, however, which is at the root of our debates this evening and on other occasions about the arrangements dealt with in the documents before us is over-capacity. The European market remains dogged by massive over-capacity in European steel production, which means that plant is still in place, providing only temporary jobs, and capable of producing steel that can never be sold in a free market. That is so even after the great restructuring of recent years. Over-capacity is estimated by the European Commission at 30 million tonnes, which is not much less than the amount of overcapacity already cut out as a result of processes in the past six years.
There were reductions of 32 million tonnes between 1980 and 1986, which I shall not trouble the House with this evening. We have made substantial progress in the past two years. Coated sheet and reinforcing bar were liberalised from quota from the beginning of 1986. Galvanised sheet was also liberalised at the beginning of 1987, and, on the Commission's proposal, we finally liberalised wire, rod and merchant bar, which are known in the trade as light long products, from 1 January 1988. The quotas are steadily being removed.
BSC is now the only company in the country affected by quotas, as the private sector steel producers are not affected by them any more. The great problem that remains concerns products usually described as flat products, such as hot rolled coil, cold reduced sheet and plate and also heavy sections. In those products, there is over-capacity of about 21 million tonnes out of the total of 30 million tonnes that I referred to.
Originally, the Commission proposed for these products a new production quota system from 1 January 1988 to last for three years. I was not the only Minister who found the original Commission proposals distinctly unattractive. That was the starting point of discussions by the Council of Ministers before Christmas 1987. I am glad to say that they reached agreements that will bring us steadily closer to the end of the quota system, on terms that we would find acceptable and attractive.
The discussions at the Council of Ministers on 21 September 1987, which was the first meeting that I attended after the long recess, brought unanimous agreement that substantial excess capacity still remained in Europe. The Ministers at least agreed on that as a good starting point, and it was decided that new quota arrangements should not be established for 1988 and beyond unless enough guarantees of capacity cuts were reached to ensure the future viability of the European steel industry. Having agreed that we saw no case for quotas continuing without excess capacity being reduced, I regret to say that in September there was little prospect of the Ministers present at the meeting agreeing on how that excess capacity should go.
Therefore, the Council agreed that we would invite the Commission to appoint three persons, who almost inevitably became known as the "three wise men", to advise by mid-November on how adequate commitments might be obtained. The idea of going to three outsiders with industrial experience certainly appealed to me. It was a German proposition put forward by the German 252 Minister Martin Bangemann, and strongly supported by me on behalf of the United Kingdom. The three wise men thus began their consultations.
After the consultations with steel producers and Governments, the wise men reported that firms were not ready to give commitments to the level of capacity reductions that were being sought. They failed to come up with the necessary commitments. I am glad to say that the wise men recommended a phasing out of quotas to provide a gradual return to a free market.
That was the background to the Council of Ministers which I attended on 8 December, which considered revised proposals from the Commission along the lines of the wise men's recommendations. Quotas for flat products and heavy sections would be phased out over a six-month period, but with a possible extension until 1990 for some products if adequate guarantees of restructuring could be obtained.
In that Council I pressed for the earliest practicable return to a free market and for progress with the further restructuring which was necessary for the long-term stability of the market. The Council at that stage simply deferred the final decision on the future steel regime to a further Council meeting to be held on 22 December. The Commission was asked to make a further effort itself to secure from Governments clear and credible indications of willingness to reduce capacity by a sufficient amount. That took us to 22 December.
At that stage, after a long discussion, the majority of the Council were satisfied that we had at least got promising indications of willingness to remove excess capacity in plate and heavy sections, but some members, including me on behalf of the United Kingdom, were extremely anxious that we should not simply roll forward the quotas because we were making promising progress towards restructuring. We wanted the quotas extended for a very limited period while those indications were turned into some practical and credible signs that closures would take place in the countries in which they were needed.
The result was that we finally agreed that it was worth while to maintain the quotas on the products in question for six months, during which time binding guarantees of capacity reductions would be sought. If such guarantees, amounting to 75 per cent. of the over-capacity, were forthcoming, quotas would continue until 1990.
For hot rolled coil and cold reduced sheet, we put precise figures. We agreed that there should be a possibility of prolonging these quotas, provided binding guarantees of 7.5 million tonnes of capacity reductions in hot rolled coil were given by 10 June. I pressed hard to have these precise figures for capacity reductions required in the Council's conclusions, and they are there, as hon. Members will see if they look at the reports that I have given to the House in the past.
I believe that, if that very demanding target of 7.5 million tonnes is achieved, we shall have taken a very worthwhile, major step towards achieving a healthy and viable Community steel industry. If we do not get that restructuring put firmly in place as a commitment by our June meeting, under the terms of the Council's conclusions quotas for these categories will end. I must also say that, as a legal point, prolongation beyond June is dependent upon the Commission's being satisfied that the conditions of the treaty are met—in other words, that a state of manifest crisis, to use the terms of the treaty, still exists for hot rolled coil and cold reduced sheet.
§ Dr. Jeremy Bray (Motherwell, South)
Can the right hon. and learned Gentleman make it clear that the 7.5 million tonnes which he is seeking in capacity reductions will not involve closures in the United Kingdom or include the output of the hot mill at Ravenscraig? Secondly, can he explain how it came about, if there was that 7.5 million tonnes of excess capacity in Europe, that there is currently such a shortage of hot rolled coil in Europe, and why the delivery period has gone up to 17 weeks?
§ Mr. Clarke
I can give the answer that the hon. Gentleman would prefer. There is no question of the British Government offering any undertakings of closures to meet any of the targets. One obvious reason for that is that I wish quotas to be phased out as quickly as possible. Therefore, there is no way that I shall go to the Council of Ministers offering to restructure to help to achieve the targets. If other countries want quotas to continue, they will have to come up with the necessary closures.
Secondly, for all the reasons discussed in the previous debate, it is obvious that the British industry is far more advanced in the necessary restructuring than any of the other European industries. Therefore, no one could reasonably look in our direction. We believe that people should look first to the unprofitable centres of production and consider taking the difficult steps needed to get that unprofitable production off the market and permanently closed down.
I have no ready explanation for the shortages of products from mills. Sometimes supplies of products are interfered with by the quotas, which inhibit the ability of companies such as the BSC to move in quickly when there are delays in supplies, because it is not possible—
§ Mr. Clarke
I do not think that the hot mills are working flat out anywhere in western Europe. They are working flat out up to their present manned capacity. To the best of my knowledge and belief—I shall look into the matter because the hon. Gentleman is extremely well informed in these matters and almost as close to the steel industry as I am— [HON. MEMBERS: "Oh."] I say that I am closer only because I am a Minister in the Department. I do not believe that the United Kingdom hot mills have been working up to their full capacity for many years. The problem in the British industry is that our hot rolled mills normally work at a lower capacity than those elsewhere in western Europe. We shall leave it to the corporation to decide that problem in future years. Everything depends on the ability to respond to the market, which will be helped if we can get rid either of excess capacity in western Europe or of quotas, or preferably both.
Let me return to the Council's conclusion of 22 December. If sufficient guarantees of restructuring are not received by 10 June, quotas for all products will end on 1 July 1988. I am determined to stick to those conclusions and I hope that the other Ministers will do likewise. In my experience, Council meetings sometimes start as though the conclusions of the previous meeting had never been reached. In practice, we have built on previous conclusions, and the conclusions of 22 December were agreed by us all to be binding on all member states.
I have already said that I shall not offer any restructuring for the United Kingdom. I believe that if sufficient capacity reductions are not given voluntarily to 254 retain quotas, the ordinary pressures of the free market will force out the less profitable capacity, leaving profitable and efficient producers such as the BSC to take advantage of the opportunities in a more competitive market. We must ensure that we do not then return to competition in state subsidies. To ensure that companies do not cheat by falling back on subsidy, I shall continue to urge the Commission to enforce the ban on state aids as strictly and effectively as it has hitherto. I am sure that Commissioner Peter Sutherland is determined to do that.
§ Mr. Teddy Taylor (Southend, East)
The Minister says that under the existing decision, if the commitments are not delivered by 1 July, quotas will simply stop. Could not the Council, by a majority at its next meeting, decide to extend quotas once again? The Government would not be in a position to veto such a decision, made by majority vote.
§ Mr. Clarke
It is not like that. I shall give my hon. Friend my understanding of the position, and if I get it wrong I shall correct myself by letter. The Council is governed by the treaty of Paris and not the treaty of Rome with which my hon. Friend and I are reasonably familiar.
As I understand it, if the Commission put forward a proposal, that proposal could be carried by a majority. However, if the Commission put forward no proposal, there is no way that the Council could impose its own regime, except unanimously. If the Commission takes the view that there is no need or legal basis for further quotas and that the undertakings have not been forthcoming, it would require the unanimous vote of all the member states represented in the Council to overrule the Commission's decision. There is no prospect of my failing to support the Commission in that situation. I am quite sure that at least one other Minister—the Dutch Minister—would not move from his position either.
Only if the Commission is induced, contrary to our conclusions at the last Council, to put forward proposals despite the fact that the commitments have not been forthcoming, will we reach the position where in certain circumstances majority voting will be an issue. Given all my dealings with Commissioner Narjes, it would be extremely unlikely if, at this late stage, after all the meetings that I have described, any such proposition were forthcoming.
§ Mr. Teddy Taylor
My right hon. and learned Friend may be in danger of being too optimistic, despite the super fight that he is putting up, bearing in mind that in paper 640 of 30 November, the Commission made it quite clear that it did not agree with all the conclusions of the three wise men.
§ Mr. Clarke
Yes, there is always the danger of being over-optimistic. I am always startled when I get to these Council meetings to find that one or two Ministers will launch upon their contributions as if they had never been present, let alone agreed to the conclusions of the previous Council. But, as we go through the various meetings, they steadily realise that time is running out on that kind of proposition. The expectation that every Minister took away from the previous Council was that, unless commitments to a restructuring of the size that I have described are forthcoming, quotas will come to an end. I have no doubt that some will fight a rearguard action.
I do not want to be over-optimistic, but at the moment I feel extremely confident that we have taken the 255 important step towards getting these restructuring commitments. Removing all that spare capacity from Europe would get to the root of the problem more than anything else. Without restructuring, there will be no quotas but a free market, and, as I have said, no competing state aids within that free market.
§ Mr. Elliot Morley (Glanford and Scunthorpe)
The Minister referred to the danger of state subsidy if the quotas are ended because there is no agreement. I am relieved that the Minister is not prepared to concede extra cuts in our own quota, but is he aware that there have been allegations that the Italian steel industry has already been trying to get around the regulations by such means as giving unrealistic delivery dates with a built-in delivery penalty, thereby not making the delivery date and paying the penalty price as a way of subsidising the price of steel? How would the Minister deal with such examples?
§ Mr. Clarke
I shall deal with the document on state aid in a moment. I have certainly heard such allegations and others. The Commission investigates and enforces the present arrangements. This is a tricky area because several corporations are in such a desperate state that their Governments are seriously tempted to go into state aids. I am glad to say that, whenever this is discussed, in the end the Council unanimously confirms its commitment to enforce the ban on state aids. In the end, it is up to the Commission to ensure that everybody in practice is following that. If there is any solid evidence to support what the hon. Gentleman says, which I do not find too surprising, I would be happy to look at it because we are keen that the ban on state aids is enforced.
§ Mr. Morley
As the Minister will be aware, such evidence is hard to come by, but does he not agree that it is better to have an orderly return to a free market rather than a sudden end to quotas with dangers of the type to which I have just referred?
§ Mr. Clarke
These things are alleged to be going on within the quota regime. There are some horribly loss-making businesses in western Europe at the moment, as the hon. Gentleman will know. At the moment it is quite important that the ban on state aids is properly policed and enforced. Of course, we are in favour of an orderly return to the end of quotas. Those were the words used by my hon. Friend the Member for Pudsey (Sir G. Shaw). I am quite happy to agree to that. Occasionally, that word is used by people who really mean a slow return to a free market and who rather resist the end of quotas. If we do not get this restructuring, 1 July is a perfectly suitable date to bring the quota regime firmly to an end.
Let me briefly touch on the other documents, to which I hope I shall do justice without taking up too much time. One concerns the regional fund. As an integral part of the effort to remove the Community's over-capacity, the Commission has also proposed to introduce a regional programme under the European regional development fund, which will provide assistance for steel closure areas.
That programme rejoices in the name of RESIDER. The Commission also proposed to set up a scheme of special social measures, predominantly funded from the European Coal and Steel Community budget, directed at aid to early retirement and re-employment. In order to cover a funding shortfall for these social measures, the 256 Commission proposed to transfer a sum to the ECSC budget from the general budget of the European Communities.
The RESIDER programme was agreed in principle on 22 December, and adopted on 2 February. I welcome its adoption. The programme provides for some 300 mecu—about £208 million—in the European Community for various measures for small firms, similar to the existing business improvement services produced by the Community in the past, and for infrastructural development. We expect it to support my Department's enterprise initiative. I am anxious to see that as many areas of the United Kingdom as possible will qualify, but it is still too early to judge which those areas will be.
However, the Council did not agree to the proposed transfer from the European Community general budget to fund special social measures. The Council urged instead that the Commission should fund any shortfall in resources for 1988 from the ECSC reserves. On behalf of the United Kingdom, I opposed the budget transfer in view of the tightness of the EC budget, and because I remain to be convinced that the sums required could not be found from the ECSC reserves which I consider to be more than ample for any ordinary purpose, and for this one. I shall continue to oppose any such proposal from the Commission for a budget transfer.
A document has been recommended for debate on state aid. As I mentioned earlier, the continuing strict enforcement of the ban remains an important and integral part of the regime. Document 8993/86 contains a report from the Commission on the application of the rules on aids to the steel industry as required under the previous aids code. The report covers 1984 and 1985, the final years of the old code. The current aids regime imposes a general ban on subsidy to steel.
A document has also been selected—EM 19 October 1987—on the position of Spain and Portugal, which are soon to be integrated fully into the internal ECSC steel regime following the end of their transitional arrangements. In the case of Spain, the arrangements expire at the end of this year; those for Portugal expire at the end of 1990. The memorandum of 19 October 1987 concerns one aspect of the transitional arrangements for Spain and Portugal—the establishment of the permitted levels of deliveries of Spanish and Portuguese steel products to the rest of the Community market.
Restriction of deliveries is permitted during the transitional period, while the Spanish and Portuguese steel industries are restructured and subsidy of their industries is permitted. The Commission proposed in July 1987 to raise the respective delivery limits for 1987. The accession treaty provides for such an increase if the Commission is satisfied with the progress of Spanish and Portuguese restructuring plans. The proposal to raise the limit for Portuguese deliveries was quite acceptable, as their level is negligible and we believe that the industry is genuinely making efforts to restructure.
The increase in Spanish delivery levels, however, caused the United Kingdom and other member states some concern, as we were not satisfied that Spanish restructuring was proceeding as it should. In spite of our repeated requests, insufficient information has been provided concerning progress with restructuring plans, or showing that Spanish firms will have achieved viability by the end of the transitional period as required by the accession treaty. The Government were not prepared to 257 agree the increase, but our position was unfortunately not shared by enough member states to prevent a majority. The increase in delivery levels was accordingly agreed by the Council of Ministers in November 1987.
The final documents—I apologise for the number of documents, but they have all been selected by the Committee for debate — concern the European Community's trade in steel products with the United States. United Kingdom exports of steel to the United States, like those from the rest of the Community, have been subject to some form of quota restriction since 1982. At that time, the EC-US steel arrangement was limited to 10 categories of steel. It has been subsequently extended and now covers 36 categories, semi-manufactured steel products being the most recent addition in September 1986—and also, incidentally, the most difficult to agree.
In early 1986, the United States imposed unilateral restrictions on Community exports of semi-finished steel products. The Community, in accordance with our rights under GATT, responded by introducing retaliatory measures against imports from the United States. Trade disputes are always extremely unfortunate, and we in the United Kingdom took the view throughout that, in the event of the Community and the United States concluding an agreement on European Community exports of semi-finished steel products, it would no longer be sensible for the Community to maintain its retaliatory measures.
Such an agreement was reached later that year. Under it, I am glad to say, both the Community and the United States agreed to repeal their unilateral measures. The agreement has enabled the United Kingdom to send more semi-manufactured steel products to the United States than was possible under the unilaterally imposed United States quotas. There was in effect a 50 per cent. increase in Community quota for 1986 and annual increases until the end of the arrangement. The Government considered it sensible to enter into that arrangement. The extension to the EC-US steel agreement came into effect on 15 September 1986.
The arrangement is one of several that the American Government have entered into with other steel-producing countries. At the moment, all are due to expire at the end of September 1989. As the House will be aware, political events due to take place in America between now and September 1989 might affect the outlook. Taken together, I believe these measures represent good progress towards our objective of a more open world market for steel. We have taken the necessary steps to safeguard continuing access to the American market for producers of semi-manufactured steel products. Liberalisation of the internal European market is well under way, and might, with good luck, be completed by July. We continue to press for the removal of excess capacity and the enforcement of the rules against state aids.
I commend the motion and ask the House to give its general approval to the stance that the Government have taken.
§ Mr. Austin Mitchell (Great Grimsby)
As the Minister's triumphant and deeply moving peroration, which I thought he read beautifully, will have suggested, we are dealing tonight with a kind of Euro-dustbin of accumulated measures which, frankly, should have been 258 dealt with months before. Indeed, my first question is: why are measures relating to decisions, many of which were taken in December, only just being debated now? Why were we not able to debate them at the crucial time?
I do not want to go on about the detail of the measures; I want to come straight to the nub of the matter—the production quotas on steel—because they suggest that the Community is stymied on this issue. It cannot achieve production cuts and cannot agree to remove the quotas. In that situation, it got the three wise men to travel and deliberate. They reported in November-December that there was nothing in the manger—no infant cuts did the wise men discover which might grow to capacity, eventually matching demand. Indeed, they were between £20 million and £30 million short of the cuts that they wanted.
In that situation, the Minister is right to say that the United Kingdom has taken its share of cuts. Indeed, we are not opposed to him. We support him in saying that. However, we want to be assured that in saying that, he will stick to it and that we shall not have another performance such as we had when the Prime Minister went to Europe, saying one thing loudly and bravely, but coming back, waving a piece of paper saying, "No food mountains for our time." We want to be assured that the Minister will not be rolled over, as has happened in the past.
The cuts in the output of steel in this country since 1975 have been massive and far bigger than those of any other member of the Community. Production is now three quarters of its 1975 level, whereas those of other countries are at 80 per cent. or 90 per cent. and, in the case of Italy, at over 100 per cent. of the 1975 production levels. Like Herbert Smith, of the miners in the 1920s, who, when asked what wage cuts the miners had to offer said, "Nowt; miners have nowt to give", the Minister must say "Nowt" to Europe and say it firmly and absolutely. He must say it without hints, with no lawyers' talk about the fulness of time, and no nods or winks about commercial considerations—
§ Mr. Rhodri Morgan (Cardiff, West)
I seem to recall that historically Herbert Smith of the National Union of Mineworkers used to take his false teeth out first before saying "Nowt". Is my hon. Friend suggesting that as another tactic for the right hon. and learned Gentleman?
§ Mr. Mitchell
Yorkshire men know that Herbert Smith also used to wipe the sweat of his brow with the slack of his belly, but we shall not go into that tonight.
I hope that the Minister can assure us that there will be no nods or winks about the fulness of time and commercial considerations regarding Ravenscraig. Ravenscraig is central to Scottish manufacturing, steel and industry and Scottish national feeling. In Europe the Minister must hold exactly the same line as he has taken here. There must be no European double-talk that allies the possibility of capacity closures with the closure of Ravenscraig.
The steel industry is at a turning point. We are now getting the necessary return on public ownership. The massive investment and restructuring that took place in the 1970s to form five integrated plants and the loss of jobs and the sacrifices of the 1980s are now reaping success. We now have a lean, productive, competitive industry up to and beyond the best in European standards. What do we do in this situation?
The Government's response has been irresponsible and trivial—to seize the moment with gibbering gratitude for 259 a quick return by means of the privatisation programme. The money will go into the Government's back pocket. That is despite the assurances of the right hon. Member for Chingford (Mr. Tebbit) during the election campaign that the steel industry was not an early candidate for privatisation and despite the statements of the chairman, Sir Robert Scholey, that the industry wanted to show a record profit before privatisation. The Government have rushed in to grab the moment for privatisation.
The Government have overridden all the assurances that they had given and they have overridden Sir Robert. They have made their traditional approach of the huckster and demonstrated asinine irresponsibility. They will hand the BSC to the speculators because they need the money and there is a hitch in the privatisation programme.
Given the situation, the response of any Government with the national interest at heart would be to use the new power, competitiveness and industrial strength of the BSC to expand production, compete and win back the ground that was lost over the years and to clobber the European competition. A response dictated by national interest would have been to go for quantity even at the expense of profit to go for output—to rebuild the strength that has been lost.
§ Mr. Kenneth Clarke
Given that the hon. Gentleman is now getting carried away with his arguments about privatisation, is he seriously arguing that our approach should be to go for quantity of steel production regardless of profit? The point of the debate is that we are facing the fact that a number of European companies and Governments have taken such an approach for too long. When the hon. Gentleman comes back to earth and stops being carried away with his own rhetoric, surely he will agree that we must get rid of surplus capacity. Our problem is the need for restructuring. We are trying to close down the kind of plants kept open by people in the Mezzogiorno, who go round spouting the rubbish which the hon. Gentleman is now giving to the House.
§ Mr. Mitchell
I did not intend to give the Minister the chance to amplify his brief, he has already had long enough to read it. As the right hon. and learned Gentleman is more acquainted with silk than steel he should know that we have taken a much bigger cut in production than any of our European competitors. That is why the ground lost must be made up. The Government's motives are suspect. If their motive is to privatise, they want the maximum return on profit rather than the increase in output that is required by the national interest. Those two things are different. Because of the Government's obsession with privatisation, they are rushing through the privatisation of steel, and that is suspect.
If the Government are to rush blindly into privatisation—
§ Mr. Mitchell
I shall give way, but not at this moment.
We must face the fact that the Government intend to privatise the BSC. However, when the European quotas go—we want them to go — it will be a much tougher, competitive business. It is estimated that there are 200 million tonnes of over-capacity in the world, and 30 million tonnes in Europe. The Minister has mentioned 260 Spain. He must be aware that, given that other European countries are building up their steel industries, the BSC is faced with two major disadvantages.
Governments in other European countries have shown that the steel industry is more important to them and their national interest than our Government believe it to be. They have shown that by taking smaller cuts, because they realise the impact of those cuts on the industrial economy, and by declining to take more. That is why the three wise men got such a short response. No volunteers were forthcoming. That shows that they will make every effort to support their steelmaking capacity.
The Minister has assured us that aid will be invigilated. How closely and intensively will he invigilate the invigilators? How can we be sure that no indirect state aid will be given behind the door? I have a copy of the 1985 report by the National Economic Development Office on indirect state aid in the EEC and its impact on the EEC steel industry. It is an impressive piece of research. I shall read some extracts from the document, as it is the fashion of the Government to turn to the executive summary rather than to the full deployment of the arguments. The report states that the term "indirect aid"includes improvements in general infrastructure where industry does not subsequently meet the full costs (eg new ports), the region of social services which industry would otherwise be required to pay (eg certain severance payments), reductions in the costs of local services etc.".The report distinguishes two areas where European Governments have been strong in support of their steel industries. In respect of transport, the report states:All of the four countries subsidise their railways. The level of subsidy varies, being highest in Italy. France and Germany subsidise inland waterways to certain extent and some aid is available in the UK; all subsidise ports (with the exception of the UK). Road transport aid is harder to define".The report also deals with labour cost reductions. It states that there are schemes for employees threatened with redundancy available in Germany and France. The report gives the figures for the total estimated indirect aid to the steel industry in Europe. In France, labour-related schemes receive £36.7 million and £94 million of transport aid is provided. At the other end of the scale, in the United Kingdom, labour-related schemes receive £12.4 million and a measly £2 million of transport aid is provided. In other words, a massive total of indirect aid is going to the industry in France, Germany and Italy, which is not going to British industry.
France provides a total of £2.25 to £7.22 of indirect aid per tonne of steel produced. The United Kingdom provides £0.78 to £1.66 of indirect aid per tonne of steel produced. Italy provides £2.88 to £6.18 of indirect aid per tonne of steel produced. Other countries provide a considerably higher proportion of indirect aid per tonne of steel produced than Britain does. The British industry is therefore asked to run in a competitive race with a ball and chain around its leg. The Government, who believe in the free market, also believe in slanting that free market in favour of finance and against manufacturing industry. They put up the value of the pound. In real terms, the pound has gone up by 13 per cent. since the last quarter of 1986, which removes the competitive advantage that British Steel has gained in the fall since 1986.
The Government have increased interest rates, which are a burden on the industry, and they are about to increase electricity charges, which are an even more 261 considerable burden on the industry. The Government expect the industry to run with a ball and chain around both legs.
§ Mr. Quentin Davies
The hon. Gentleman talks as if it were a virtue to maintain unproductive steel capacity. How can the hon. Gentleman expect the Government to go on pouring money down the drain or proceeding with this massive distortion of resource allocation which he now appears to be advocating?
§ Mr. Mitchell
I should never give way to the hon. Gentleman. He looks more intelligent than he is. We are competing against those who support the industry indirectly in a way that we are not. That is not equal and fair competition. The Government say that they believe in the free market, yet they are slanting that market against the domestic manufacturing industry to which that industry is central.
As for the increase in electricity charges, I quote from a letter sent to my hon. Friend the Member for Rotherham (Mr. Crowther) by the chief executive of United Engineering Steels:the proposed increase of 15 per cent. will put up our company's cost by at least £7 million … the 15 per cent. increase is equivalent to reducing our sales margin by 25 per cent.If that is the cost for one steel producer, what will it be for the entire British steel industry? That is yet another burden that the industry is being asked to carry because of the Government's doctrinaire obsession with fattening electricity for privatisation for more money than they will get from the privatisation of British Steel. If the CBI has managed to get up from its knees and say that this is monstrous, it really must be.
The papers before us tonight are not the real issue. That is, what will happen to the industry in the 1990s, amid intensified competition? It is all very well for the Minister to smile blandly, because he is irresponsibly going for a quick profit while the window is open for privatising the industry—he will grab the cash while it is there. If that is the Government's record while steel has still been a public corporation, when they have been able to draw off money from steel through the external financing limits and to skimp on necessary investment—there has been no major authorisation for two years — how much worse will steel fare when it is flogged off and the Government have washed their hands of it, having given their limp, wet handshake to British Steel and told it to get out into the world?
If the Government weight the odds against British Steel in this way, we shall be launching it into an extremely difficult position, in a highly competitive European market, against competitors that are more effectively supported by their Governments than our Government have ever shown themselves willing to do. Unless the Government commit themselves to doing better by manufacturing industry, by supporting it and running the economy for growth, jobs, expansion, investment and steel, they will launch British Steel on a sea of troubles and wash their hands of the consequences of their own irresponsibility.
§ 11.3 pm
§ Mr. Kenneth Warren (Hastings and Rye)
When I read the motion on the Order Paper, I was worried by its tone, 262 but having heard the speech of my right hon. and learned Friend the Minister, I was reassured that at last we had a Government who would go to Brussels and tell the people of the Common Market that time has run out and they must get themselves organised. The hon. Member for Great Grimsby (Mr. Mitchell) said that the Government—I quote his excellent rhetoric as accurately as I can—had extended to British Steel a limp, wet handshake. That is to ignore the billions of pounds that this Government, and the last Labour Government, have given British Steel to put it in the competitive position in which it finds itself today.
The standards of performance in the integrated strip mills in Ravenscraig, Llanwern and Port Talbot are as good as anything to be found in West Germany or Japan, in price, quality and delivery. We should be proud of those plants for what they have done. It is fascinating that, should any hon. Member want to go to any of those steelworks, he will amost certainly be taken around, as Opposition Members know, not by the management but by the trade union leaders. That is a measure of the confidence and integration of managers and workers in those companies, and of their belief in the future of the enterprises.
It is welcome news that, as my right hon. and learned Friend said, 1 July will mark the end of quotas. The ending of quotas is long overdue. British Steel and the Government have prepared our steel industry for the competitive nature that it will have to exhibit to stand up to its competitors in the Common Market and the rest of the world. We must stand for no more nonsense from the other members of the Common Market, which have had years in which to put their businesses in order. They have had plenty of time to get their work done, and we have set an example which they are long overdue to follow. When we look at the chances of success of British Steel, the sooner the quotas are lifted and the British companies can exhibit their qualities in the world market, the greater will be the profitability and employment in the steel industry.
I agree with the hon. Member for Grimsby also on indirect aid, which is totally unfair. It had been concealed effectively until recent investigations brought out that foreign Governments are prepared to go to Brussels, put their hands on their hearts and say that they will restructure industries, while shovelling money into the support of those industries, against what they plead are the grave and real intentions of the Common Market.
I agree with the hon. Member for Grimsby on one final item—electricity prices. It is gravely worrying that there should be an increase in the cost of the prime commodity which defines the nature of the production of steel—energy. We must not, if we can possibly avoid it, load that great organisation which has been built up with a burden which is not of its own making, which other Common Market countries are not burdening their companies with, and which will hinder the competitive capability of British Steel.
§ Mr. Warren
If I may conclude, I will be delighted to hear my hon. Friend's contribution later.
It would be wrong not to give credit to a former Member, who is now in another place, Lord Joseph. At a very difficult time in the steel industry he stepped out of 263 the line of policy which one might have expected from him. He went straight into the heart of the Treasury and produced the resolute determination from the Government to get the British Steel Corporation on to a footing which it could get on to only by putting yet more taxpayers' money into it to make it the success it now is. British Steel, when it is privatised, will aptly repay the taxpayers for what has happened.
I view with some scepticism the Americans' attitude to access to their market. In another context I have dealings with American exporters around the world. They seem often to slip past Cocom, just ahead of us, but it is not always easy to get into their markets with traditional products. I hope they will realise that GATT is there for the protection of the whole world. They have perhaps been caught napping on that and may learn from it.
A statement was made in London today by the Japanese ambassador who, recognising the fortitude and capability of the management and workers of British Steel, said of British business that if an Olympic games were held today, our managers and men would be winning the gold medals; and that goes for British Steel.
§ 11.9 pm
§ Mr. Richard Livsey (Brecon and Radnor)
I am speaking on behalf of my party as the Welsh affairs spokesman and as a member of a family who for three generations have worked in the steel industry in south Wales. For the past seven years we have lived with the European quota system; now we see a real sign of it ending. We welcome that, but we wonder whether Europe has the will power to bring that about. We are pleased to hear that the Minister hopes to phase out quotas by 1 July, but we wonder whether that will become a reality. Removal of the quotas would allow United Kingdom production to expand competitively; there is no doubt about that.
Our hot strip mills are running well below capacity, at around 70 per cent., which means that the fixed costs of the industry are not favourable in relation to output. As the Minister said, our production is the lowest of any EEC country. As hon. Members have said, our current competitiveness has been obtained only at great loss—the loss of 100,000 jobs in the British steel industry. Many of those jobs were in Wales. Before the cuts in the British steel industry, our work force represented 24 per cent. of the steel industry work force in the Community. Now it represents only 14 per cent. That has caused real hardship and has wiped out completely such plants as East Moors, at Ebbw Vale, and Shotton and Corby. There is a massive list of plants that have suffered in England, Scotland and Wales. That is because we have played the game.
There must be no further cuts whatever in the British steel industry. Our capacity is now about 13 million tonnes, which is low in comparison with the possible output of the industry. We are opposed to any further cuts in British Steel, particularly at Ravenscraig, where it is vital that the plant should be kept going. The production in Llanwern and Port Talbot has been outstanding. The investment in those plants has paid off because of the dedication of the work force, and has produced profitable steel at a high output. They are the profit powerhouse of British Steel, and the work force has responded magnificently to that investment.
If we agree to quotas in future, the future of Ravenscraig will be in severe doubt. If quotas remain, 264 3,000 jobs will be on the line, and 2,000 more jobs in support industries. However, if we are allowed more of a free market, Ravenscraig may eventually get increased investment, but that depends entirely upon what happens with the privatisation of the steel industry. If the Government privatise the industry, there is a need for more market opportunities. Clearly, the market must be freed.
Quotas are not the only factor. An analysis in the Financial Times of 13 November put the crux of the problem rather well:The British Government has promised not to reconsider the future of Ravenscraigfor the time being. It continues:West Germany is refusing to give up any of six hot strip mills on the ground that they are among the EC's most efficient, a position further complicated by the age-old rivalry between Germany's two biggest producers, Thyssen and Kloeckner. On top of that, the Italian and French Governments could suffer political crises if there were major plant closures at Italsider and Usinor-Sacilor.Therefore, immense political problems are bound up in the business of quotas.
It is no accident that many of the steel plants in Europe are sited in areas of high unemployment. In the past, investment has been deliberately made to overcome some of those problems. It will take great political will on the part of those European Governments to grasp the nettle. I am not convinced that the Minister can push them hard enough and that he can provide cast-iron guarantees that the quotas will be phased out. Therein lies the rub.
The fluctuations in the pound also need to be considered, as they can affect the level of competitiveness. Indeed, I request the Minister to urge the Government to join the European monetary system as soon as possible. That would provide greater stabilisation of prices in Europe, and those prices would not be distorted.
The hon. Member for Great Grimsby (Mr. Mitchell) and others spoke about state aid. There is no doubt that it is almost impossible to police state aid. It is one of the most difficult subjects that the Minister has to tackle. It is difficult to identify hidden state aid. Some of the plants that are under threat in Italy are in the south of the country. That area is very poor, and very difficult political decisions will have to be made.
There must be cast-iron assurances about the policing of state aid and the phasing out of quotas so that the British steel industry will be able to benefit from its newfound competitiveness.
§ Mr. Teddy Taylor (Southend, East)
My worries about this proposal are reinforced by the speech of the hon. Member for Brecon and Radnor (Mr. Livsey). There is a great similarity between what we are doing tonight and what the Prime Minister announced last week. She announced that we are to give an enormous amount of additional money to the Common Market because we have received assurances that things are going to get better and that agricultural spending will be curbed. When we pointed out that we had received exactly the same assurances in 1984, we were told that we were spoiling everything and that instead we should talk about all the exciting new developments that will arise because of stabilisers, restraints and goodness knows what.
Every hon. Member knows that the agreement to pour more money into the Common Market will lead to exactly 265 what happened last time. Even if the so-called curbs were to work, the Commission could get round them quite easily by means of accountancy devices. Everybody I speak to in private conversations knows that it is a sick joke and that all we have done it to pour more money into the Common Market to finance what is already being done.
In 1985 we were given solemn, binding pledges, recorded in Hansard, that there would be an extension of quotas for a maximum of three years. We were told that three years might not be needed, but that three years would provide more than enough time to sort out the European steel industry. Tonight we are being asked to extend the quotas in the hope of obtaining assurances. But the cuts are not agreed. We are told only that the Government hope that they will soon be agreed and that quotas will come to an end.
The Minister referred to an extension of six months, but he did not have time to explain that it will not be just for six months. For plate and heavy sections there will be an extension to the end of 1990. According to my calculations, subject to metric measurement, that is not exactly six months.
§ Mr. Kenneth Clarke
My hon. Friend is referring to the proposal. We have agreed to a six-month extension, after which the quotas will come to an end, unless there is a commitment to restructure the industry.
§ Mr. Taylor
I am referring to the paper that was presented to us today by the Under-Secretary of State for Industry. If the restructuring pledges are not made and if the Commission then proposes another six months or a year, is there anything that the Government can do about it if a majority of the member states say that there should be yet another extension? Despite the solemn pledges of 1985, I fear that we have agreed to another extension, in the hope that something will turn up.
The British steel industry is at least as competitive as those of other European states, but what about the rest of the world? In its relations with the rest of the world, Europe is becoming more and more protectionist with every day that passes. We talk about competitiveness and free trade, but we impose the most horrendous restrictions on trade with the Third world and other areas where the costs of production are very low. I fear that we are making the Common Market into an organisation that will try to live by taking in other people's washing.
As to costs, Europe is becoming a high-cost economy, covered with protection in almost every area. Europe is awash with unemployment. The Minister from his previous position may be able to confirm whether I am right in saying that the current level of unemployment in the European Community is higher than in any other country or group of countries in the world with the exception of Tibet and E1 Salvador, where there are special considerations.
I fear that on agriculture and steel we are just getting pledge after pledge. We are congratulating ourselves in the hope that something will happen in the future, but all we do is pour in more money, become more uncompetitive with the rest of the world and thereby dig our graves on competitiveness.
I have two brief questions which I think deserve answers. We have been told that this is just for another six 266 months and that if we do not get pledges of some kind in six months, quotas will stop. What happens if we get pledges? What happens if they say, as the farmers have said, "We will try to cut back." I am sure the hon. Member for Brecon and Radnor will appreciate that it is difficult for farmers to give such assurances. The assurances they have given are like those one would get from a 12-year-old child if one said, "I promise to increase your pocket money if you guarantee that you will not grow by more than an inch a year." Most children would sign such a pledge quickly and mean to keep it, but it is very difficult for children to promise not to grow.
That is what has happened on the CAP. The farmers mean well, and the countries mean to do it, but they cannot, because of the pressures. What happens if we get assurances? What happens if the countries agree to cut their steel industries? Does that mean that quotas continue, or does it mean that they stop?
Secondly, if the countries do not agree, and give no commitment, what happens then? The Minister has been studying this for a long time and I am in no sense an expert. But my understanding is that, because this is under article 85, the Commission simply puts forward a proposal for an extension: the majority of member states agree, and quotas go ahead as before.
Finally, does the Minister not think that there is merit in the suggestion that, while we may be becoming more competitive within the EEC, we are becoming, in the rest of the world, more and more protectionist and high-cost, and therefore more and more awash with unemployment? Britain stands out like a beacon because of the Government's policies. Our unemployment is down, while Europe's unemployment, sadly, is the worst it has ever been. Therefore, we must ask ourselves if it is a good thing to have a reunion.
After the solemn pledges that it would be an absolute three-year maximum, with no question of it being continued, is there not a danger that the Minister will come back in another six months with the assurance that the countries are going to try to cut back, like the child and the pocket money pledge, or with a statement that he is afraid that we shall have to have another six months of quotas because the majority voted against doing anything?
§ Dr. Jeremy Bray (Motherwell, South)
The Chancellor of the Duchy has been handling the negotiations with considerable skill and determination in the short time that he has been Minister. I am sure he is aware that the problems which he has been dealing with in the steel industry go back many decades. He should not get too frightened about the talk of a necessity to work at 90 per cent. capacity. Other industries which are less capital-intensive have managed to survive with 70 to 90 per cent. capacity without the trauma that there is in the steel industry.
The problem comes from the incontinent behaviour on pricing. Selling steel is fairly complicated. Late delivery and such things make it difficult to identify a clear market price. Thought should be given to less incontinent behaviour that would ease the transition to a fully competitive regime. It should be possible to see beyond the preoccupation with excess capacity to the next stage, that of inadequate capacity. It takes about 50 years for the steel industry to work through that well-established cycle.
267 If one is reasonably optimistic about the course of development in world trade, with reference to the latest report by MEPS Europe that was used in the Arthur Young study, that points to the coming danger of inadequate capacity.
The problems that will arise if we reach a better balance in production concern the cyclical behaviour in the steel market, with stockists screwing the thing up totally and there being mystery about what is happening. Demand for steel will decline because orders are banged in quickly to get delivery in time. That trend tends not to affect final levels of demand, but it produces many headaches for producers who get into difficulties concerning allocation and plant scheduling.
Without wishing to add to the Minister's problems, I expect that this transition will be easier if the European Community begins to look outside at what is happening in the rest of the world. In industrial terms, the biggest tragedy of the modern world is its failure to use the immense industrial capacity of Japan. The loss of human capacity, in the rundown of Japanese industry, including steel, is a great loss to mankind.
The imbalance that that represents is the inability of the developing world to buy steel, to invest adequately and to build up infrastructures to meet its huge needs. There needs to be a shift of balance between the great funds that Japan has to invest overseas, the inadequate servicing of debt to American banks and the wish of the developing world to invest in infrastructure. That position could begin to change if the steel community was less obsessive about its capacity problems and more understanding about the directions of development of world trade.
I am not offering an easy or short-term solution. If the Minister is dealing with problems of inadequate supplies of steel a year from now — and that is possible in Europe — he will need to look much more widely for opportunities and sources, and study the nature of world trade then, and the problems at that time.
Dealing with the specific question of hot rolled coil, the problem is not in relation to capacity of hot mills, but the long pipeline of supply. Llanwern does not have sufficient continuous casting capacity and is not able fully to load up its hot mills. There are blockages in supply, and although there are manned capacity problems, they cannot be corrected overnight in the steel industry. There are very difficult problems to face in a planned market; there are considerable advantages in a much freer market, for which we are heading. But moderation of behaviour is needed from the steel industry in its commercial practices, which will be quite a test for it in the next few months.
§ Mr. Rhodri Morgan (Cardiff, West)
I have just one question to put to the Minister. Did I hear him say that, on one aspect of the European Coal and Steel Community's job creation provision for helping to staunch job losses in steel closure areas, he hopes to be able to get most of the money for the United Kingdom for the enterprise initiative that he announced a month ago?
If that is correct, is he not saying that this is a reference to article 15 of the new regional development fund programme that was announced some two years ago? Will he confirm that since then his Department and the Treasury have been having a running battle with the fund as to whether the article 15 money is to be spent by local enterprise agencies, which is the view of the European 268 Community, or, as is the view of the Treasury — naturally enough, given its interest in clawing back all the EEC money for central Government plans—is to be used as a way of saving the Government the money it wants to spend on regional development in this country?
Does the right hon. and learned Gentleman not agree that it was rather naughty of him to claim one month ago that the enterprise initiative was a great new initiative that was going to create jobs in the regions? What he meant, if I understood him correctly tonight, was that the EEC would be paying for it, and, if he was not able to persuade the Community that that was a proper use of article 15, local enterprise agencies that could do the job very much better would be able to get their money from the EEC in the way the European Coal and Steel Community intends.
§ Mr. Kenneth Clarke
The last point was rather ingenious, bringing in the whole argument about additionality and wider issues on the European regional fund, rapidly switching to article 15 and the fund generally.
Some of the difficulties that we have encountered in making local propositions for funding to the European Commission have recently been resolved. To answer his point, I will let the hon. Gentleman have a note of where we are in trying to sort out the relationship between local government applications and the Government's view of European funding.
What I have described is the early days of the RESIDER programme. I do not think that we have yet addressed the issues that he is describing. It is certainly true that one of the principal beneficiaries of the funds from the RESIDER programme will be the enterprise initiative, but there will be more to it than that.
I will deal briefly with the points that have been raised in a debate which at one point was arousing rather more passion than I had expected.
The hon. Gentleman the Member for Great Grimsby (Mr. Mitchell) said that there had been some delay in arranging this debate, and that is certainly true. That is a matter that has to be discussed through the usual channels to try to ensure that we get on to these European debates in reasonable time in future.
From what I have heard, I do not think that the Government have taken any decisions in this field with which any hon. Members who have spoken disagree, so Parliament's interest has not been prejudiced in any way. It is also the case that large numbers of documents are referred for debate. I took up some time earlier giving the necessary detailed explanations of the documents on the agreements between the United Kingdom and the United States and the arrangements with Portugal and Spain. It was not surprising that these did not command wide interest in the debate that followed.
Not surprisingly, the debate concentrated on the key point of the future of production quotas and the effect this will have on the privatised British Steel Corporation when we get back to a free market. My hon. Friend the Member for Southend, East (Mr. Taylor) was very scathing about our prospect of ending quotas as we are going at the moment. We have now ended quotas altogether on long products. They came to an end at the end of last year. We are dealing now with flat products and heavy sections, and 269 quotas on those two products will not continue beyond the end of June of this year unless credible assurances are forthcoming on getting the excess capacity out.
My hon. Friend asked again about the constitutional position. I am simplifying it, but I hope accurately. If the Commission puts forward a proposition, majority voting determines the outcome on the proposition by a system of weighted voting that is applicable to the Council. But if the Council of Minsters wants to put forward a proposition despite the Commission's opinion, unanimity is required for the Council to impose its own solution. No unanimity will be possible on anything that extends quotas, despite a lack of assurances, because the British and Dutch—I can speak confidently about the British—will not agree to any such Council proposal going forward.
It is possible that people will put pressure on the Commission to put forward a proposal, but the Commission so far has been resolute on this matter. Commissioner Narjes has been clear in his opinion, and I would regard it as an extraordinary reversal of every previous assurance on its part if it went back on them. It is not altogether true that it has gone back on matters in the past.
§ Mr. Clarke
I shall not tonight be drawn into the wider issue of the EC.
My hon. Friend the Member for Southend, East waxed lyrical about what he described as solemn pledges given in 1985 and made it sound as though they had been given at least on cub's honour, if not stronger. In fact, the then Minister of State, Department of Trade and Industry—before being interrupted by my hon. Friend the Member for Southend, East—said in the debate in 1986:The Commission also proposed the progressive liberalisation of the system to reflect the improvements now being seen in the market and designed to pave the way towards the return to a free market in 1988 or 1989".—[Official Report, 12 March 1986; Vol. 93, c. 1032.]That does not strike me as the most binding guarantee of the kind that my hon. Friend now says has been violated, and we have not yet reached 1989. Perhaps quotas will have come to an end by then.
I think I interpret correctly the remarks of the hon. Member for Great Grimsby when I say that, in the end, we have all been talking about the ending of quotas— that it is an agreed objective that we should, at a sensible pace, end quotas. As the hon. Member for Brecon and Radnor (Mr. Livsey) said in one of the more understated points of the debate, it is essentially a political problem and a matter of political will in other countries.
As for where the unprofitable capacity is and where we are looking for the closure of steel plants, we are looking at some of the older industrial parts of western Europe; we are looking to the Mezzogiorno, to parts of the Saarland, to places near the border with East Germany and to parts of Belgium and Luxembourg which are heavily dependent on older industries.
That explains the difficulties which other Ministers encounter. I made some less than complimentary remarks about the behaviour of some of them at meetings. One is asking colleagues from other European ministries to do the equivalent in their parliaments of announcing the end of Ravenscraig. I suspect that I would find myself in some difficulty if I were to do that here.
270 Economic arguments and logic point to their doing that because we have surmounted some extremely similar hurdles in our time, leading to the closure of much of our unprofitable and surplus capacity. They must do the same if anybody is to have a secure future. We have that behind us and we are now into a more profitable stage. We are therefore able to say that we will not offer anything towards the restructurings proposed. We do not mind if the quotas go, anyway, so we have no motive to offer any further restructuring. We made our position clear on Ravenscraig in the last debate. We are in that position because we have a profitable British steel industry ready now to take advantage of the more open market.
Where I got nearest to misunderstanding the hon. Member for Great Grimsby was when he gave a long description of our level of output and the level of state aids that other countries give. I agreed with the analysis in the report to which he referred. I suspect it is true that indirect state aids are much higher in some other western European countries than they are in this country. That underlines how well the British Steel Corporation is performing; it is profitable compared with them.
The hon. Gentleman made it sound as though he was expounding a case for raising our output regardless of profit. Indeed, he said so at one point. He spoke as though he envied those great state aids and thought we should pour more of them into British industry. He will appreciate on reflection that that is exactly the conduct that all three parties in the House have been deprecating on the part of other member states and companies. It is the behaviour we propose to bring to an end, and it would be a disaster if Labour Members got drawn back into advocating it. They used to follow it, but I trust it is no longer their line.
§ Mr. Austin Mitchell
That has been the case ever since the present Secretary of State for Wales was Secretary of State for Trade and Industry. My point concerned raising output, if necessary at the expense of profit, but not going for profit as the Government are.
§ Mr. Clarke
I repeat that at the moment we are suffering from no particular lack of capacity. It was quite the reverse over Europe and the world as a whole. Some Members took a somewhat wider view. In the earlier debate, the hon. Member for Cardiff, West (Mr. Morgan) acknowledged the wisdom of some of the strategies being considered by British Steel, which is going more for the finishing and added value end of the process rather than simply increasing the quantity of steel being produced in this country.
The hon. Member for Motherwell, South (Dr. Bray) dealt with our surplus capacity in hot strip—yet again. I made it clear that at the moment the mills are working to full manned capacity, but that that is only about 70 per cent. of the potential capacity. That remains one of the lowest uses of capacity in western Europe and reflects a particularly high level of demand throughout western Europe at the moment but one that the Commission does not think is likely to be sustained. We should all be delighted if the market recovered to the extent that we could sustain 90 per cent. capacity. That is not impossible. There are other industries that do.
The hon. Gentleman said that the mills were threatened by incontinent pricing. The cut-throat commercial practices that occur in the steel business and attempts to 271 go in for very aggressive pricing when the opportunity arises reflect the excess capacity in western Europe, which we need to tackle and which lies at the root of the debate.
As we return to a more liberalised regime in the EEC and between Britain and the United States, and as the world's industry is sorted out, those in the steel industry will be able to address themselves to potential markets in Japan and so on. I particularly look forward to the management of the privatised British Steel Corporation addressing itself to the issues. As we emerge from the closed, cartelised and protected world imposed as a necessity on a steel industry in chaos, the British steel industry is emerging as the industry that has gone through the most effective restructuring and undergone the most dramatic changes in its production and marketing. It is now profitable and has low production costs and can look forward with great confidence to the future. The general view of the House is that we should ensure in our European negotiations that we get rid of the remaining impediments to BSC's competitive position in the European market and enable it to take full advantage of all that it has won so far, thanks to the achievements of its management and work force.
Question put and agreed to.
Resolved,That this House takes note of European Community Documents Nos. 8560/87, the Supplementary Explanatory Memorandum submitted by the Department of Trade and Industry on 1st December 1987 and 4127–88 on steel policy, 8803/86 and the proposals described in unnumbered Explanatory Memoranda submitted by the Department of Trade and Industry on 7th July 1986 and 15th July 1986 on trade with the United States of America in certain steel products 8993/86 and COR 1 on aids to the steel industry (1984–85), and the proposals described in the unnumbered Explanatory Memorandum submitted by the Department of Trade and Industry on 19th October 1987 on delivery levels of certain steel products of Spanish and Portuguese origin onto the rest of the Community market; supports the Government's commitment to a Community steel regime which provides a framework for a steady return to free market conditions; and endorses the Government's agreement of measures which place a temporary limit on steel exports to the United States of America, thus safeguarding access to the American market.