§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Fallon.]1.55 am
§ Mr. Deputy Speaker (Sir Paul Dean)
Order. I have proposed the Question. If the hon. Gentleman speaks he will take time out of the debate. Does he still want to raise a point or order?
§ Mr. Harris
Yes, Mr. Deputy Speaker. Can you inform the House of the position on the carry-over motions for various Bills? I have a constituency interest in the Penzance Albert Pier Extension Bill. To my knowledge, no reference was made to those Bills during the time for private business.
§ Mr. Deputy Speaker
I understand that the Chairman of Ways and Means will put them down again tomorrow.
§ Mr. Anthony Coombs (Wyre Forest)
At this late hour it would not be wholly accurate to say that I am delighted to be bringing before the House the important subject of the multi-fibre arrangement. It is important for the 480,000 people who are employed in the textiles and clothing industry in this country—it is the fifth largest industrial sector. It is important for consumers—every man, woman and child has textile products. It is crucial for the textile industry worldwide, which is worth about $160 billion, and it provides opportunities for development in the poorer countries. Most of all, it provides the opportunity to explore the relationship between the interests of consumers and the maximising of economic growth worldwide and the desire for stability and the steady restructuring of industries in the developed world which are involved in the textile industry but which have a natural cost disadvantage compared with developing countries.
It is apposite that we are considering this matter now as the Uruguay round of GATT expires in 1990 within which discusions on the multi-fibre arrangement, through the EEC, will begin in July 1990 and, we hope, be concluded in July 1991. These are not easy questions and there are no simple answers on whether the MFA should be abolished and, if so, when. Perhaps we should begin with the basic premise of the general agreement on tariffs and trade, which is that multilateral trade should be as free as possible and should be impeded only by tariff barriers, and that even those should be brought down gradually. Through that and through the process of comparative advantage, wealth will be maximised because countries with particular advantages, either on a labour or a technological basis, will be concentrating production on those areas where they have the greatest expertise. As a result, wealth throughout the world will be maximised because countries will be producing the products that are most appropriate for them.
From the outset, GATT was weighted in favour of the developing countries. It allowed them tariff-free access to the developed world and it laid down that the developed world should not raise non-tariff barriers. The MFA is specifically a derogation from GATT and from its liberal, 1293 free trade principles. To that extent, it is an anomaly to allow the developed world, in particular the textile producers, to restructure against the threat of low-cost imports from the developing world.
When the system was first introduced in 1974 it was regarded as being temporary, yet 15 years on it has been renewed three times and now covers 45 countries with 26 bilateral agreements under MFA4.
I should emphasise that the MFA is a protectionist measure that discriminates against low-cost producers in the developing world and imposes costs upon consumers throughout the world. It is the most protectionist measure in any manufacturing sector in the world, and only this October it was called by Barber Conable, the president of the World bank,one of the most particular protectionist measures called for by the industrialised West.In the Uruguay round, the EC and the British Government, who are signatories to GATT, have called for the phasing out of restrictions under the MFA and other restrictions on textiles and clothing not consistent with GATT rules and disciplines on a progressive basis and subject to restrictions. Even the apparel, knitting and textiles alliance agrees with the principle of ending the M FA.
Nevertheless, the abolition of the MFA is politically sensitive, as we saw on 9 December 1988 when every speaker, bar one, in a debate in the House spoke for the producers who would be affected by it. They argued that it provided relative stability in the United Kingdom's textile industry, despite the fact that employment in the industry has dropped from 700,000 to 480,000 in 20 years; it averted trade conflicts of the kind into which the United States has been tempted recently, and to a certain extent it allowed for a gradual restructuring and concentration of the industry which has invested £2 billion in the past five years, although the number of establishments in it has dropped during that period.
The arguments that hon. Members put forward in December last year were that the British textile industry needed protection from high interest rates, although they have been a relatively recent phenomenon; from high exchange rates, although between 1980 and 1987 the effective exchange rates for British textiles fell; and particularly because of unfair trade practices. For instance, there was a total ban on imports of textiles by Pakistan, high tariffs on textiles by Turkey, adding up overall to about 199 per cent. of basic value, and South Korea erected non-tariff barriers on the basis that its balance of payments was heavily in deficit. That is one of the things that can be done under the MFA, yet it had a trade surplus of $4.2 billion in 1986 and $11.4 billion in 1988.
It was argued that the MFA should be retained indefinitely to protect home industries. In the words of the Opposition Front Bench spokesman, the hon. Member for Newcastle upon Tyne, North (Mr. Henderson),we can have free trade only if we have fair trade."—[Official Report, 9 December 1988; Vol. 143, c. 567.]To be fair, those are arguments that the Government have taken seriously and, to their credit, they have commissioned reports from Professor Silberston in 1984 and 1989, upon the latter of which they are still consulting.
1294 Equally, it is a disgrace that the EC, which will effectively be doing the substantive negotiations on the MFA, did not commission such reports and wrote to an important part of the textile industry recently saying:The Commission itself is not undertaking scientific studies on the effects of the MFA, because it is lacking the resources which would be necessary to carry out a comprehensive assessment.Nevertheless, it is my contention that the MFA should be phased out as quickly as practicable—within five years rather than the seven to 10 years favoured by Professor Silberston and the 10 years-plus favoured by the industry, for the following reasons.
First, the MFA is only a finger in the dyke of more fundamental economic forces that have seen the clothing exports of developing countries' share of the British market increase from 10 per cent. in 1955 to 48 per cent. in 1982. Secondly, the rate of import penetration has increased over that period. Textile imports have increased from 8 per cent. to 48 per cent., and clothing imports from 12 per cent. to 38 per cent. Thirdly, despite the panoply of controls under the MFA, five sixths of textile imports apparently come from countries not covered by the agreement, and two thirds of those come from Europe, which accounts for no less than £1.75 billion of our £3.6 billion textiles deficit.
Silberston makes the point that the MFA masks a rather awkward truth: that Britain's textile industry was not doing very well in its home European market, having exported to that market only 15 per cent. of its turnover, compared with France's 21 per cent., West Germany's 34 per cent. and Belgium's 80 per cent.
Fourthly, the Retail Consortium has argued that quotas mean that developing countries concentrate on higher value-added, higher-priced and higher-margin products which compete directly with the British textile industry and, as a result, militate against the United Kingdom's poorer consumers, who should be helped most by the developing countries' specialising in lower-value products.
The final argument is the strongest of all: that the MFA is, in effect, a very regressive tax. According to Silberston, the British people pay £900 million a year to subsidise an industry that would otherwise be restructuring itself—as Japan's textile industry has done—or diversifying to higher value-added products. Opposition Members—none of whom is present at this time of night—argue strongly against a progressive eye test and dental charge that raises £110 million a year, while supporting and seeking to retain a regressive £900 million tax that falls mainly on the least fortunate
Ending the MFA would, of course, lead to a loss of jobs in the short term—Professor Silberston mentions a figure of 33,000. Even if that figure were doubled, however, the amount saved in terms of consumption would be twice the average pay of each worker. There is little doubt that the additional spending power available to British consumers, and the additional opportunities for British firms to export to newly industrialised countries, would mean the creation of more jobs to compensate.
Everyone recognises that ending the MFA would have transitional effects, particularly in certain regions of the United Kingdom—the north-west, Scotland and Northern Ireland are cited by Silberston. British export opportunities, and opportunities for import substitution in the home market, would depend on a level playing field, and 1295 on the developing countries' obeying GATT rules after the downgrading of the MFA quota system. I am sure that the Government are aware of that: the Minister will have seen the comprehensive statement made in July by the European Economic Commission's negotiating group on textiles and clothing, which mentioned a number of important respects in which GATT must be improved if the MFA is to be abolished without undue disruption of the British textile industry.
I nevertheless feel that the MFA should be gradually reduced over a five-year period, and that quotas should be progressively increased, provided that GATT is strengthened. Article 9 of GATT provides safeguards for countries which believe that imports are threatening a sector of their economy. They should be made more selective. Action should be allowed against particular countries, and it should be possible to take action more quickly. The article should be interpreted on a national rather than on a continental basis, or EEC imports, coming particularly via East Germany to West Germany, may be targeted on the British market and may disrupt our industry to a far greater extent than in other EEC countries.
The investigative powers of the textile surveillance body, or its equivalent body when the transitional period ends, should be improved to allow sampling against the state subsidies that are likely to cause disruption in the textile markets.
Settlement procedures for trading disputes should be made more effective through majority voting, not consensus.
In that way, the MFA could gradually be phased out over a five-year period and integrated into a strengthened and more comprehensive set of GATT rules. A significant restrictive trade practice, which has a bad effect on consumers, particularly poor consumers in this country, could he removed. Wealth throughout the world could be improved through greater specialisation and efficiency, to our comparative advantage. A balance could be held between consumers, retailers and producers in Britain and abroad. I am sure that the Government will wish to ensure that progress on the gradual abolition of the MFA is vigorous, responsible and speedy. I trust that the Minister will be able to give me that assurance.
§ The Parliamentary Under-Secretary of State for Corporate Affairs (Mr. John Redwood)
I am grateful to my hon. Friend the Member for Wyre Forest (Mr. Coombs) for initiating this most important debate. The only sadness for both of us is that it has to take place at this hour in the morning, owing to the problems over earlier business.
My hon. Friend has put the case against protection and for maximising growth by liberating trade extremely well. He has stressed its importance to our consumers and to developing countries. His speech will stand alongside those of other hon. Members who in previous debates have put the case for the textile industry, which is well known to Ministers. I am delighted to have his ideas on record. We are conducting consultations, having studied the Silberston report.
The textiles and clothing sector is of great significance to the United Kingdom economy and to all of us as consumers. Textiles and clothing is our fourth largest manufacturing industry, employing 9 per cent. of those 1296 employed in manufacturing. In 1988 it had a total output of approximately £12 billion, of which over £3.6 billion was exported. As consumers, we spent in the same year some £17 billion at retail prices.
The present MFA protocol, MFA IV, expires in July 1991. Since the MFA was established in 1974 to replace earlier arrangements relating only to cotton products. the arrangements have been renewed three times. The difference this time is that the future of the MFA is not being looked at in isolation but as an integral part of the GATT Uruguay round, which is due to end in 1990. These are ambitious negotiations, in which the Community is only one of the players. With more than a year to go, not all the cards are yet on the table, but I can reaffirm the Community's objectives.
There are based on the commitment made by all GATT contracting parties in the Punta del Este declaration at the beginning of the Uruguay roundto examine the modalities for the eventual return of textiles and clothing to strengthened GATT rules".The MFA is a major exception to GATT rules, justified as a temporary measure to allow industry in developed countries to restructure in response to orderly growth in low-cost competition.
For developing countries, better access for their textile and clothing exports is a key objective for the Uruguay round. In their view, many of the other issues in the round will be of advantage principally to developed countries. They believe that this proposal will maximise growth in their own countries. For countries at an early stage of development, textiles and clothing are one of the few manufactured products they can successfully export. Such countries would certainly argue that, if they are to achieve sustained economic growth—and hence in due course become attractive markets for our exporters—they must have the opportunity to sell the products in which they are competitive. Textiles offer them a path to prosperity.
Community views of the MFA are not just a response to pressure from developing countries, important though that is. Any effective import restriction also imposes costs on the consumer. It is clear that the complicated network of MFA quotas also distorts international trade by providing an incentive for internationally mobile industry to move to unrestricted countries or to switch to products outside quota control even where these might not otherwise be rational choices. In addition, the continued existence of such an important exception to the GATT rules tends to undermine the whole multilateral system. For this reason, the Community is committed to negotiate about phasing out the MFA on acceptable terms.
I must stress that this is a matter for the Community as a whole, and not for the United Kingdom alone. A common commercial policy was created by the treaty of Rome, and it is the Community that is a party to the NI FA and to the bilateral agreements negotiated under it with exporting countries. EC regulations implementing the arrangements have the force of law in the United Kingdom. It is also the Commission that negotiates on behalf of the Community in the GATT round, although on the basis of general policy positions agreed by the member states.
There is therefore no question of the United Kingdom going it alone. Of course, we want to play our full part in internal Community discussions. That means keeping in close touch with developments in the GATT and with the views of industry and other interested parties in the United 1297 Kingdom. The objectives are set by the Community as a whole and, at the end of the Uruguay round, it will have to decide collectively whether they have been achieved sufficiently.
The essential issues in the GATT negotiations will be the timing of the phasing out, the method and the conditions. The Community set out its general objectives in a paper presented in July to the GATT negotiating group on textiles and clothing, which proposes that the gradual integration of textiles and clothing into GATT would proceed in parallel with the application of strengthened rules and disciplines. These ideas will need to be translated into more precise proposals.
To assist us in playing our part in more detailed consideration of the EC's negotiating position, we commissioned Professor Silberston to prepare a report on the MFA and its implications for the United Kingdom economy which was published on 19 October. We have invited comments on it.
The report runs to some 120 pages and provides a number of facts and estimates. Professor Silberston estimates that the extra competition brought about by ending MFA restrictions would result in an average fall of about 5 per cent. in retail clothing prices in the United Kingdom, leading to some increase in demand. The fall in yarn and fabric prices would be rather lower. He estimates the gain to consumers as some £980 million at 1988 prices. He has given a range of estimates of the effect on employment, while accepting that any overall estimate is bound to be crude, as there are considerable differences in the vulnerability to competition of particular sectors.
The effect on employment would be spread over a number of years, and there would be offsetting effects over time in other sectors of the economy that might benefit. We welcome further comments on these estimates, and I hope that they will be backed up by reasoned arguments. While there will always be disagreement about exact figures, every study of the MFA that I am aware of has concluded that the restrictions impose a net cost on the economy of developed countries.
Because we are awaiting other comments on the report, we will have to consider all the responses carefully before forming a detailed view. The main issues for discussion in GATT are clear. It is accepted that the integration of textiles and clothing into GATT could only be gradual and progressive. My hon. Friend agrees. He is tonight debating the exact time involved. There will have to be further debate about just how long a period this implies, in the light of our consultation findings. Timing is an issue on 1298 which the Community has not yet adopted a precise negotiating position, so we are still in time to influence that debate.
We shall also need to consider carefully what arrangements would be appropriate for the transitional phase. A steady increase in quota growth rates is one obvious option, but there are other possible techniques and we must consider whether certain categories of product or certain kinds of exporting country should be given special treatment.
The controversial issue in the negotiations is the interpretation of the Punta del Este declaration on the strengthening of GATT rules and disciplines if the MFA is to be successfully phased out. The Community paper made clear its view that strengthened rules and disciplines included more effective safeguard measures, greater market access through the reduction of tariff and non-tariff barriers, particularly in newly industrialised economies, and the creation of fair competitive conditions in relation to unfair trade, protection of intellectual property and access to raw materials. This is an ambitious position, but these aims form part of the Community's wider objectives for the round as a whole and not just in relation to textiles. They will have to be judged against that background. A more effective GATT framework is, in our view, in the interest of all participants.
I know that there is already concern in the industry about increased imports, although not all of them are from countries covered by the MFA. I can understand the fears about job losses, even if restrictions are phased out gradually. Clearly some sectors are more vulnerable than others to competition from low-cost imports. In addition, nothing that we can negotiate in GATT will prevent taste and fashion from changing the prospects for particular businesses. Under the spur of competition, however, the industry in the United Kingdom has made considerable gains in productivity, partly as a result of investment in new technology. High-quality products hold their own in export markets as well as at home, and the United Kingdom industry must be able to respond quickly and flexibly to the demands of increasingly sophisticated consumers in the domestic market. The right balance is to work with our Community partners for greater competition and consumer choice within the framework of more effective GATT rules and disciplines.
The Government will consider what further representations to make to the EC about the handling of the negotiations once we have seen all the replies to Silberston and once we have had a chance to sift the evidence about the balance of advantage on the issues that I mentioned.
§ Question put and agreed to.
§ Adjourned accordingly at twenty one minutes past Two o'clock.