HC Deb 07 March 1988 vol 129 cc156-61

12.9 am

The Minister for Trade (Mr. Alan Clark)

I beg to move, That the Customs Duties (ECSC) (Quota and Other Reliefs) (Amendment) Order 1988 (S.I., 1988, No. 185), dated 10th February 1988, a copy of which was laid before this House on 12th February, be approved. The purpose of this order is to amend the Customs Duties (ECSC) (Quota and Other Reliefs) Order 1987, so that certain iron and steel products originating in the Republic of Korea will no longer benefit from exemption from customs duties. I propose briefly to review the background to this issue.

The decision by the European Community to suspend Korea's benefits under the generalised scheme of preferences came in response to the Korean Government's refusal to extend to member states concessions already given to the United States on intellectual property matters.

New Korean legislation took effect from 1 July 1987 which provided improved protection of intellectual property rights in copyright and patent protection. That, together with Korea's accession to international conventions such as the universal copyright convention and the Geneva phonogram convention, was welcomed by the United Kingdom and other member states. However, the Korean Government had already entered, in July 1986, a separate bilateral arrangement with the United States, which gave United States patent and copyright holders certain special concessions on retroactive protection, as well as allowing them to convert pending applications for process patents for chemical and pharmaceutical products to the more secure product patents.

When it became clear that the Korean Government had no intention of extending these same concessions to their other trading partners, the United Kingdom and the European Community made it clear that such discriminatory action, and the resultant material disadvantage to our firms, was wholly unacceptable. The matter was raised repeatedly with the Korean Government. At the high-level talks in April last year between the Community and the Korean Government, the Koreans declared that equal, if not identical, treatment to that accorded to the United States would be extended to the Community. Clarification of exactly what that meant was promised later in the year.

Following the Anglo-Korean trade talks held in London in September and a visit to Seoul by senior officials from the Commission in November, the Korean Government confirmed that, although they were prepared to extend to European firms the concessions on retroactive protection, they could offer no such equality on the conversion of pending process parients.

Continued discrimination in this area in favour of the United States will have a substantial adverse effect on Community exports of chemicals and pharmaceuticals. The United Kingdom industry estimates that it could cost it $100 million in terms of lost sales in the Korean market alone, and three to four times that amount in sales to third markets. Given such material disadvantage, as well as the fact that an important principle was being contravened, we were left with no option but to carry through the proposal, of which the Koreans were first warned in April 1987, to suspend Korea's benefits under GSP until a satisfactory conclusion was reached.

In our view, failure to take positive action at this stage would have undermined the credibility of the Community and left the door open for more bilateral arrangements of a similar kind, to our further disadvantage. The suspension was approved by the Council of Ministers on 18 December and came into effect from 1 January 1988. The Government's support for this measure took into account the likely effect of suspension both on British manufacturers and on British consumers, importers and distributors.

As the House is aware, the overall purpose of GSP is to help developing countries through promotion of their export earnings, industrialisation, and rate of economic growth. It is, however, a totally autonomous instrument, and we are fully entitled to withdraw privileges from a beneficiary country if that country is applying discriminatory treatment that runs counter to our and the Community's interests. Under the scheme, it is estimated that Korean goods to the value of £172 million per annum enter the United Kingdom duty free.

The current position is that we await an indication from the new Korean Government that they are prepared to return to the negotiating table in order to reach a satisfactory resolution of this issue. We hope that the removal of discrimination on intellectual property matters and the subsequent restoration of Korea's EC GSP benefits will be examined urgently by the new Administration. I am confident that the House will agree with the review, and I invite it to support the motion.

12.16 am
Mr. Austin Mitchell (Great Grimsby)

When the Minister talks of suspending South Korea's benefits, he makes it sound as if we are dealing with some kind of international workfare. However, we are dealing with a basic matter of industrial policy; with an order which is unimportant in itself but which involves important principles. We have the full attention of this packed and tumultuous House, and the presence of a Minister who was a protectionist until he entered the Department of Trade and Industry and, therefore, went into the advertising industry. We still have hopes of the Minister, because when people in the Department ask to see the beef, they see the Minister. When they ask, "Where is the bull?" they are directed to his senior Minister, the noble Lord Young of Graffham, Saatchi and Saatchi and J. Walter Thompson and Co. Ltd. The Minister for Trade is the beef because he has a concern for all industry.

The problem is that South Korea has a rapidly growing steel industry that is a potential threat to our industry and to the industries of others. The figures are quite alarming. In contrast to the steel industries of most European countries, which have cut production in the last few years, South Korea has gone from the production of 8,558,000 tonnes in 1980 to 16,780,000 tonnes in 1987. That is an estimate, but the figures show an increase of 96 per cent. in steel output. That can be compared to a fall in production in Britain and, indeed, in every other country in the European Community. The South Korean steel industry is becoming extremely powerful.

The most important of the six major producers in South Korea is Pohang Iron and Steel, or Posco. It is Government-controlled and has 67 per cent. of the total crude steel output. It has plans for a rapid and substantial expansion, and its new plant on the south coast, which I visited, is alarmingly efficient. The ore in vessels comes in at one end of the plant, goes round the bay in a circular process and finished steel is taken out in vessels at the other end. It is an extremely efficient, integrated unit of production that added 2.7 million tonnes to the company's overall capacity. It has plans to take production to 20 million tonnes as early as 1993, and that in an industry whose wage rates are about one third less than the average rate in the EEC. It will be an extremely competitive industry.

We are now withdrawing developing country status from that industry because of what the Minister described as something that cannot help but seem a somewhat silly but fortuitous row. In other words, we are using the excuse of an argument over intellectual properties to do something that we should have done anyway to protect our steel industry and steel industries in the rest of Europe, where there is over-production of about 20 million tonnes.

The removal of a generalised system of preference status is a small bite. The cost to Korean exporters in extra duties will be only about £34 million in higher EEC customs duties. That is an extra cost on the deficit in trade with South Korea that is rising very rapidly. In 1986, there was a deficit of £815 million, and it is estimated that the 1987 figure will reach $2 billion. The deficit is big, and it is growing, and the order will not have much impact on that.

It is crucial that we stop the rapid drive to major steel production status. Korea's output is now only slightly smaller than that of the British steel industry. That is inevitable. A developing, newly industrialising country will build up a steel industry as the basis for its manufacturing sector. The steel industry, along with car manufacturing —the plants are close to each other—will be the basic drive motor of expansion in South Korea. This expansion is occurring at a time when there is world over-capacity in steel of nearly 100 million tonnes.

There will be a major challenge. It is unrealistic to argue, as some people do, that South Korean steel is of inferior quality. I have heard steel importers in this country say that Korean steel is cheap but the quality is not as consistent or as good as ours. That may have been true some years ago. It is true that Korea is weak in special steels, but the quality is improving all the time.

Why should the EEC not operate a concerted policy of denying hope to the expanding market? So long as there is the prospect of sending those exports to Europe or the United States — the United States is taking action through quotas and voluntary restrictions—the Koreans will continue to invest in their steel industry and expand it. They will continue to build up capacity in a world in which there is over-capacity.

We shall face a challenge unless we take action not to close the market, but to deny the easy prospect that our market has been offering the Koreans to continue to invest and build up their steel industry. I do not like restrictions, but we must think about British industry and jobs. I wish that the Government would think more seriously and more continually about British industry and the effects of this type of international agreement on jobs in this country.

Did our Government urge the withdrawal of the system of preferences from South Korea? We know that the French Government were strenuous in their attempts to urge the EEC to seize the opportunity of the argument over intellectual properties to withdraw GSP status. It is alarming that it took that row to achieve the necessary withdrawal that is an important protection for our industry and for Europe, where there is such overcapacity.

The one thing that characterises the EEC facing this type of threat from developing countries is that we must realise that today's developing country is tomorrow's newly industrialising country and the day after tomorrow's Japan. The rate of development is very rapid, nowhere more so than in South Korea.

In July 1986 Sir Robert Scholey reported to the Select Committee on Trade and Industry: It seems that the future is going to be very competitive still for steel. We were recently told by Mr. Narjes, Vice President, who is in charge, as you know, of industrial matters in the Commission, that we could not really look for much, if any, peripheral protection for European steelmakers from Third World penetration; whatever protection there might be afforded to it would have to be found under the Tokyo Round of the GATT negotiations. That, in a way, is rather cold comfort. He then goes along"— Mr. Narjes, that is— and says, 'Well, of course, these Third World countries all are owing the Western wealthier countries a lot of money. How are you expecting them ever to pay off their debts if you don't help them to sell in your market whatever they're making?' Again, that is rather cold comfort. It is cold comfort indeed for a European industry that has over-capacity.

A nation is building up a powerful industrial economy predicated on continued access to European market and growing competition with European steel producers, and we need a policy to deal with that. We need a measure of protection for basic industries such as steel. It is ludicrous not to be able to expand the European economies collectively because of the danger that imports will come pouring in. If the Government will not co-operate with industry—if their stance is "Hands off"—we need EEC protection even more, because it is right that jobs should come first.

The measure provides slight protection from a competitor that is growing more powerful and efficient all the time and will very shortly out-distance our steel industry in capacity. However, it is ludicrous that that has been arrived at by this back-door process. This happy accident is result of a somewhat trumped-up row rather than a matter of considered policy. It makes it look as though Europe staggers into change by accident —indeed, as though it staggers from accident to accident: some of them, including this one, benign but many of them malign.

We would like the Minister to declare in ringing terms that the Government will push for a policy of considered protection for basic industries such as steel, so that developing countries are not offered the prospect of limitless access to our markets to threaten our industry. We would like that to be a basic strategy, whereas we have arrived at this order by accident. If we had that, the Common Market would be doing something useful for Britain instead of bleeding this country white.

12.27 am
Mr. Ian Gow (Eastbourne)

I hope that my hon. Friend the Minister will not think it presumptuous of me if I congratulate him on a characteristically lucid and excellent speech. This important debate takes place in the absence of a single member of the Social and Liberal Democrats —a fact that was noted by the hon. Member for Great Grimsby (Mr. Mitchell). I hope that my hon. Friend will be able to confirm in his reply that in this case—if not with other recent events in the European Economic Community — it remains for this House to decide whether to act on recommendations and decisions made in Brussels. It will come as a relief to many of my hon. Friends if my hon. Friend can assure the House that we are not acting under instruction from Lord Cockfield or anyone in the Commission.

I warmly welcome the order, because it is putting right what was a manifest injustice. We are debating the order because of the wrongdoing of the Government of the Republic of Korea. To put right something that is wrong is characteristic of my hon. Friend the Minister for Trade.

I have a couple of short points to put to my hon. Friend. Why is it that in the heading, although we are clearly talking about a single statutory instrument, the wording is in the plural? That will be misleading to those who are students of our proceedings.

Secondly, my hon. Friend and I are both deeply suspicious—and my right hon. Friend the Patronage Secretary will no doubt think that we are suspicious with good reason—of retrospective legislation. What do we find in the preamble of the order commended to the House? Is not today 8 March, and are we not told that it comes into force on 15 February? Is that not retrospective legislation, and have not my hon. Friend and I, in days gone by, spoken out strongly against such legislation?

Mr. Austin Mitchell

Vote against the order.

Mr. Gow

No. I have said that I approve of the order, and I have only a couple of modest points to make to my hon. Friend about the drafting of the document.

I have to confess to a sin on my part. Here we find the initials ECSC. I think that I can work out the first two, although my hon. Friend may say that I have got this wrong. I assume that they stand for European Community. I will give way if I have got this wrong.

Mr. George Foulkes (Carrick, Cumnock and Doon Valley)

I believe that the initials stand for European Coal and Steel Community, but I might be wrong.

Mr. Gow

I am grateful for that information. I just want to assist those who are students of the European Community. Would it not be easier for those who will be studying this document in every classroom and public library in the land, after it has been issued, no doubt with the Conservative briefing papers with our weekly issue on Thursday or Friday, if we had a full stop after each of the initials? I commend that thought to my hon. Friend for when he brings forward his next order.

This has been an illuminating debate. We have been enriched by the eloquence and elegance of my hon. Friend the Minister for Trade.

12.33 am
Mr. Alan Clark

I shall answer to the best of my ability the closely detailed questions raised by my hon. Friend the Member for Eastbourne (Mr. Gow). There was one point, before the hon. Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) came to my help, when I was reminded of a singularly disagreeable experience that I once had in a Committee, when I was challenged as to the identity of the initials in the acronym GM BATU, while we were debating some employment legislation. I made several attempts to suggest what they might stand for, and made one or two slight errors. That will not he repeated this evening because the hon. Gentleman has already enlightened the House. "E" stands for European, "C" stands for Community.

Mr. David Harris (St. Ives)

No, for coal.

Mr. Clark

No, I will brook no argument. "E" stands for Europe. "C" can stand for both Community and coal. My hon. Friend the Member for St. Ives (Mr. Harris) is arguing with me. Is my hon. Friend saying that "C" does not stand for Community? "C" can stand for both Community and coal, and "S" can stand for steel.

Mr. Foulkes

Is there not a common misunderstanding in the United Kingdom that there is one European Community, whereas there are a number of European Communities? One is the European Coal and Steel Community; another is Euratom; the third is the Economic Community. Together they are known as the European Community. If all hon. Members understood that fact, they would not fall into the trap into which the hon. Member for Eastbourne fell during this debate.

Mr. Clark

I do not think that my hon. Friend fell into a trap, because he, like me, is steadfastly convinced that the word Community begins with a "C"—

Mr. John Maxton (Glasgow, Cathcart)

So does coal.

Mr. Clark

Yes, so does coal.

The dispute to which the hon. Member for Great Grimsby (Mr. Mitchell) referred was not trivial. It was a fundamental matter of principle and it led to the drafting of this order. The Koreans conducted a separate deal with the United States. Bilateral deals of that kind are deeply destructive of the General Agreement on Tariffs and Trade, and it was perfectly proper for the Community to respond as it did.

The hon. Gentleman's wider question regarding Korea's eligibility for the general scheme of preference, and the damage that that may continue to do to our economy, if it persists, is central to the GATT round that is under way. It is described as the integration and graduation of the newly industrialised countries, but many people believe that Korea has already reached the point, in terms of both its income per capita and its industrial development, at which it is no longer eligible for the GSP. Korea's eligibility for the GSP, as well as that of Taiwan and Singapore, has already been removed by the United States. It is also a strong candidate for removal during the current negotiations on the General Agreement on Tariffs and Trade.

The House appears to be very much of the same mind, and I am sure that it will approve the order.

Question put and agreed to.

Resolved, That the Customs Duties (ECSC) (Quota and Other Reliefs) (Amendment) Order 1988 (S.I., 1988, No. 185), dated 10th February 1988, a copy of which was laid before this House on 12th February, be approved.