§ Sir Thomas Arnold (Hazel Grove)I am grateful for the opportunity to address the House on British trade with Cuba. I am delighted that my hon. Friend the Under-Secretary of State for Corporate Affairs will reply on behalf of the Government, not just because he is a parliamentary neighbour of mine but because I know that he is a man of culture. He will appreciate the reference when I say that earlier this year Channel 4 showed a delightful film called "Weekend in Havana" starring Carmen Miranda and other famous film stars. The film was made in 1941. When I saw the film, little did I realise that a few weeks later I, too, would spend a weekend in Havana. I did so at the end of February as the guest of a British business man who believes that we should develop closer trading links with Cuba. I invite the House to see the declaration that I have made in the Register of Members' Interests.
While I was in Havana, I had a long discussion with Dr. Ricardo Alarcon, the chairman of the National Assembly of People's Power. I was left in no doubt that he was promoting change and reform and was committed to that process. Therefore, I was delighted that my hon. Friend the Member for Poole (Mr. Ward), in his capacity as chairman of the British group of the Inter-Parliamentary Union, decided to invite to Britain a parliamentary delegation from the Republic of Cuba, led by Dr. Alarcon. Indeed, the delegation has been with us in the House for most of this week. The visit has been a success. We have had the opportunity to explain to the members of the delegation some of the finer points of the procedures of the House. Although in certain matters they may be as mystified as I still am after 20 years, I think that they have enjoyed themselves and the House has certainly enjoyed having them with us.
Yesterday afternoon, Dr. Martinez attended the Treasury Select Committee to listen to the Governor of the Bank of England give evidence. Dr. Tablada has been very active in asking questions about the health service. Dr. Alneida has been inquisitive on several matters, about which he has asked detailed questions. Mr. Rodriguez has also been with us throughout the proceedings.
I believe that an improvement in relations between Britain and the Government of Fidel Castro has taken place, and that it indicates growing opportunities, above all perceived by British business in Cuba. In some respects, this is a case of trade taking the lead. There is no doubt that most British business men who are familiar with the Caribbean would like to see the Cuban market open up to British business interests. That needs to be done in conjunction with the Government because several knotty problems have to be overcome.
I have referred to the process of change in Cuba. Cuba is an economy in transition facing real and painful difficulties. I was reminded during my visit to Havana of some visits that I made to Moscow towards the end of the 1980s in my capacity as chairman of a company limited by guarantee, using money from the British know-how fund and private sources to assist the Russians in their process of transformation. Many of the problems which are apparent in Cuba are problems that we have seen elsewhere in eastern Europe, particularly in Russia. I am under no illusions about the immensity of the task facing the Cuban 477 Government as they seek to bring about much-needed change and reform. That will not happen easily; nor will it happen quickly, because the habits of mind inculcated by 30 or 35 years of a command economy are not easy to remove overnight. The transition process will require patience and a measure of understanding on the part of those of us who want better trade relations with Cuba and it would be greatly assisted if the United States Government could be persuaded gradually to adopt a different attitude towards the embargo.
It is a pity that the embargo remains in place. My own view—I know that it is not one shared by Washington—is that if the Cubans can get the economy moving there will be further reform. I believe that trade and perhaps even a measure of aid are essential ingredients in improving the living standards of the people of Cuba, getting the economy moving and, thereby, assisting in the reform process.
Britain has always maintained diplomatic relations with Cuba. We have a number of companies that are well established there, not least the sugar company, E.D. and F. Man, which is, at this very moment, hosting a reception for the Cuban parliamentary delegation. I believe that it is the virtually unanimous view of British business men that the United States Government should be invited to review their policy.
We believe that the changes that have taken place are now irreversible and we need to concentrate on the speed at which further reform can be implemented. My understanding is that there has been an acceleration in the process. Among the measures that have been introduced or are expected to be introduced during this year and 1995 are the following: the legalisation of holdings of foreign currency; the introduction of a fully convertible peso; the introduction of a new banking system; the introduction of corporation and income tax—controversial, but necessary; the removal of subsidies from state industries; the introduction of new legislation relating to investment, trade marks and intellectual property; the privatisation of non-essential aspects of the economy; the establishment of autonomous control for most state industries; the acceptance that such measures may lead to unemployment, and probably will; the development of debt for equity swaps; and more active encouragement, on easier terms of investment, in virtually all aspects of the economy. In short, Cuba is undertaking a major structural adjustment programme—there is no doubt about that. The process is introducing market forces within a managed socialist system. It is also leading indirectly to a form of political pluralism as the National Assembly and parliamentary commissions begin to question the solutions proposed by the Cuban Government and the Cuban Communist party.
It is worth commenting for a moment on one piece of background reform and action that should figure largely in the mind of the Cuban Government when attracting foreign investment. While recognising that the economy is doubtless in a serious state, with foreign debt at US$10 billion, plus interest accruing daily, no payment of interest has been made since January 1988, despite Paris Club rescheduling in 1983, 1984, 1985 and 1986. Until then, Cuba's debt repayment record was good. While Cuba undoubtedly needs to show a genuine balance of payments need, the Government should show some signs of 478 willingness and ability to pay something before further rescheduling is considered by the Paris Club. If the Cuban Government can recognise that, they will send a signal to the business community that Cuba is serious about meeting her obligations and, in return, no doubt we can take a more generous attitude to what needs to be done.
There are positive signs in the Cuban economy of a welcome change from the practices of the past. I was pleased to learn that the Government have now decided to send my hon. Friend the Parliamentary Under-Secretary of State for Technology to Cuba in the autumn. I hope that my hon. Friend the Minister will be able to say something about that visit.
There was a Caribbean Trade Advisory Group—CARITAG—mission to Cuba recently. Can my hon. Friend comment on the way forward for the United Kingdom-Cuba commercial relationship following that visit? When the British ambassador formally announced to the media that the Minister was to visit Cuba, and officials accompanying the delegation were able to familiarise themselves with the economic changes taking place, the Cuban Government recognised that we are serious about promoting inward investment and helping British companies to make the most of the opportunities that could exist there.
Will my hon. Friend say a word or two about outstanding commercial debt and how that problem might be resolved? I believe that part of the United Kingdom debt is not covered by the Export Credit Guarantee Department and that CARITAG' s chairman has proposed new ways in which the debt might be dealt with.
I would also appreciate it if my hon. Friend could say a few words—if not now perhaps in correspondence—about ways in which the British Government and British companies might provide technical assistance, through scholarships, training and seminars. I should like to think that we could reach a time when some sort of know-how fund could be set up, because that would greatly assist the reform process. The fund has a proven track record of success in eastern Europe and Russia. With a small amount of adaptation the same principles could be put to work in Cuba.
A great deal is taking place and we should not be impatient with the speed of change and reform. When I was in Havana the very real problems that the ordinary Cuban has to confront daily were striking. I understand that the Cuban economy contracted by about 50 per cent. last year, which is a truly staggering figure and a measure of the problem. Yet, British business men are keen to explore the opportunities, not merely because Cuba is potentially the largest market in the Caribbean, but because Cuba's long-running isolation produces some instability in an area where Britain has important commercial interests.
In that respect the Government have a very real interest in promoting the stability of the Caribbean, not least in view of the location of British territories, such as the Cayman Islands and the Turks and Caicos nearby. I urge the Government to hold further talks with the American, to find out whether the embargo could be eased and then lifted.
Finally, I was impressed by the objectives that the parliamentary delegation from Cuba set out to achieve this week. Clearly, the delegates want to apply some of their findings to their parliamentary system, which is in the early stages. I am convinced of their sincerity in that regard.
479 I am also impressed by the vulnerability of the Cuban economy and I want a situation to arise in which we can assist it, as one of the remaining command economies—I think that it is one of only two in the world now, the other being North Korea—to embark fully on introducing private enterprise, market reforms and all the other measures that are needed to raise the Cuban people's standard of living. To the extent that British trade and investment can assist in that process, it is to the mutual advantage of both our countries. I look forward to listening to my hon. Friend's reply.
§ The Parliamentary Under-Secretary of State for Corporate Affairs (Mr. Neil Hamilton)I congratulate my hon. Friend the Member for Hazel Grove (Sir T. Arnold) on securing this debate. When I discovered that my hon. Friend had been successful, knowing of his interest in Cuba, I insisted on being here myself to reply to the debate in the place of my hon. Friend the Minister for Trade.
There is a growing interest in Cuba and hon. Members will be aware that a delegation from the Cuban National Assembly is here at the moment as guests of the British group of the Inter-Parliamentary Union.
I know that it is a subject which interests hon. Members on all sides of the House, and I welcome the presence of the hon. Member for Kilmarnock and Loudoun (Mr. McKelvey). The Cuban Minister for Basic Industry, Senor Portal, is also visiting the United Kingdom.
Hon. Members may also recall the debate in another place, sponsored by my noble Friend Baroness Young, whose interest in the Caribbean is well known. We must also welcome the efforts of the West India Committee and my Department's own Caribbean Trade Advisory Group —CARITAG—which have led successful business missions to Cuba in each of the past three years.
The Cuban economy has received a series of profound shocks, as my hon. Friend pointed out. They resulted from a number of extraordinary changes in recent years—in particular, the loss of subsidised trade with the former Soviet Union and a disastrous sugar harvest last year. All that was against the background of the long-standing United States trade embargo.
Those shocks, more than anything else, have forced the Cubans to look towards reform of their economy and to diversify their trade away from the old eastern bloc countries. There is, of course, a long way to go, but the fact that reforms are being introduced is a hopeful sign and the Cubans are actively encouraging joint ventures and other forms of economic association with foreign enterprises, which would have been unthinkable only a few years ago.
As my hon. Friend pointed out, Cuba is one of only two countries in the world which could be characterised as command economies. I believe that the Cubans are making tentative steps away from that rather disagreeable position of isolation. We shall then be left with only one, in North Korea, and I am sure that it will not survive indefinitely.
The British Government's policy is to maintain normal commercial relations with Cuba. British companies should be able to trade with Cuba and invest there, if they see it as being in their commercial interests to do so. Moreover, the DTI market branch and CARITAG are actively drawing British industry's attention to the opportunities which are opening up as a result of Cuba's reform process.
480 I agree with what my hon. Friend said about the isolation of Cuba and trade embargoes. I have never been a great believer in trade embargoes. I believe that the embargoes of some countries and the isolation which was enforced upon South Africa did not make it any easier for the reform process to start there. I take a similar view of Cuba. My hon. Friend was quite right when he said that it would require a change in the habits of mind of the people of Cuba, who have been insulated from the real world for so long now that the structural reform process will need to be very significant.
It is undoubtedly true, as my hon. Friend said, that we shall need to exhibit a certain amount of patience. I have had some experiences recently in eastern Europe, talking to people in many of the countries that are also having to undergo difficult structural adjustments. I am going to Romania on Tuesday. In many ways, Romania resembles Cuba several years ago before the nosedive in trade and GDP which the Cubans have recently suffered.
Those countries are also having to contemplate changing how they do things and think about things. The basics nostrums of a market economy have been lost and they have to be recreated. They cannot be recreated if we refuse to trade with them. Only by example, by showing the advantages of trade and investment and dangling the carrot in front of them, can we induce them to make the necessary changes which will transform their position.
Ultimately, there is an element of self-interest, because trade and development benefit the purchaser, the seller, the investor and the country in which the investments take place.
I am very much in favour of reconstruction in Cuba. I was delighted to hear my hon. Friend refer to that notable company E.D. and F. Man. That company was represented when I was recently in Warsaw engaged in the similar task of bringing together eastern European countries with the G7 countries and trying to find a way through their current difficulties in making the transition from command economies to private enterprise economies. I believe that the company has a significant degree of experience that will be of great value and will help us to find a way through Cuba's problems.
I know that the United States of America takes a different view on trade embargoes. That is a matter for it and I have no intention of delving into what the Americans see as their domestic political interest. However, we do not accept that British subsidiaries of US firms should be prevented by US law from trading with Cuba. That is why my hon. Friend the Minister for Trade took action under the 1980 legislation on the protection of trading interests to safeguard the interests of companies incorporated in the United Kingdom, whatever their parentage.
I very much hope that British trade with Cuba will expand in future years. I have always done a modest amount of trade with Cuba, in that I have smoked a large number of its cigars over the years and intend to continue to do so—I hope in ever-increasing numbers. However, on the political side of the argument we enjoy normal relations with Cuba, although there is no doubt that we have our differences, such as different concepts of human rights and fundamental freedoms; different ideas of the role the state should play in everyday life; and different views on the value of a democratic society.
I am pleased that Cuba is embarking on a process of change. I hope that the current economic reform programme will continue and that the first moves that we 481 saw last year towards political change will be developed. It is important that Cuba is encouraged to take those steps and we will do all that we can to help. I look forward to expanding our political relations as Cuba makes progress on those fronts. We very much welcome the fact that the Cuban delegation is in London at the moment. We hope that it has profited as much as we have from the experience.
United Kingdom direct trade with Cuba has suffered from Cuba's economic problems, the lack of foreign exchange and the absence of ECGD cover while Cuba's existing debt commitments remain unresolved. In 1993 UK exports were £14 million, down 50 per cent. on the previous year. That mirrors the fall in GDP to which my hon. Friend referred. Exports are mainly agricultural chemicals, industrial machinery and manufactured goods. Notwithstanding that, there has been an encouraging increase in interest by UK companies attracted by Cuba's potential and anxious to position themselves favourably in a changing market.
However, there have been colossal shocks—it is not easy to circumvent the rapids and rocks. A fall of almost 40 per cent. in GDP since 1990 and a fall of more than 70 per cent. in the capacity to export are formidable problems which, inevitably, will produce great difficulties for any company that wants to trade with Cuba.
As my hon. Friend said, the debt problem is also significant. Cuba's commercial debt has largely arisen since the foreign exchange problems started in the mid-1980s. Before that, it had a good payments record. Recent events have compounded the debt problem. The British embassy in Havana continues to press the issue with the Cubans on behalf of the UK companies that are owed money. However, I am sorry to say that no recent payments have been made on outstanding debts to UK suppliers.
Any foreign exchange available is used to pay for essential imports in the priority sectors, such as agriculture, tourism, biotechnology and health care. United Kingdom companies doing business with autonomous enterprises in the priority sectors that hold their own foreign exchange accounts are in a better position to secure payment for goods supplied. Although Cuban officials have given an undertaking that all debts to United Kingdom companies will eventually be honoured, companies need to be inventive to get round the problem—for example, by agreeing to "roll over" existing debt. There may also be opportunities for "debt for equity" swaps and counter-trade arrangements involving Cuban sugar.
I am afraid that I have no easy answer to Cuba's problems with international debt. One thing is certain, however: Cuba's capacity to repay debt, or even to finance it, will be gravely restricted if trade between it and the rest of the world cannot expand. It is a chicken-and-egg situation. I very much hope that growing trade links—to mutual advantage—will help us to sort out the continuing debt problems.
A recurring theme in the February debate in another place was the call for more official dialogue with Cuba, and in particular a visit by a British Minister. I am pleased to say that my hon. Friend the Member for Derbyshire, West (Mr. McLoughlin), the Parliamentary Under-Secretary of 482 State for Technology, will visit Cuba in the autumn, accompanied by a small group of high-level business men. My only regret is that I shall be unable to go with them. I hope that in due course I shall have an opportunity to become more familiar with Cuba and, indeed, the Caribbean, which I have never visited.
There is no doubt that there are great opportunities for Britain in that part of the world. We have taken the initiative in proposing to the Cubans a bilateral investment promotion and protection agreement, which will set high standards of investor protection and encourage investor confidence. I am glad to say that the Cubans have responded positively.
Cuba is the sleeping giant of the Caribbean. So far the reforms, although encouraging, have been limited, and are being introduced slowly; but I believe that, if Cuba succeeds in making the difficult transition to a more market-led economy, more commercial opportunities will be provided for UK firms to participate in its development.
I think that we should be encouraging and constructive. The British Government can give the Cubans the benefit of our expertise in privatisation and economic reconstruction, which has been exported all over the world in recent years. Many British firms—firms of consultants, as well as those in the industrial manufacturing sectors—have now acquired significant experience of the problems of change from a command economy to one that is more market led. Britain leads the world in many of those fields, and consequently is now a major export and foreign exchange earner. I believe that Cuba offers us opportunities, although it is one of the last countries to embark on such a transition.
I do not say that in an entirely self-interested way, on behalf of this country. I believe that there is room for a spirit of generosity towards Cuba—that we should assist it to make this difficult change. No one should underestimate the pains of transition, as will be plain to anyone with knowledge of the so-called Visegrad countries of eastern Europe, which are miles ahead of Cuba in this respect and have relatively easier prospects. Cuba's problems will be even greater because it is moving from more extreme conditions.
If Albania can achieve such a transition, surely Cuba can. There is no lack of good will in the British Government—or, I would say, among the British people —in helping the process. Cuba is likely to develop its tourist potential. In the 1950s, when it was last connected with the western world, it was one of the major tourist locations of the Caribbean; tourism is potentially a huge foreign exchange earner. It is an attractive destination. Very few people go there nowadays, but every week the New Statesman and Society—which I read—features a full-page advertisement for "progressive tours". I have never taken a progressive tour myself, I hasten to add, but that company advertises the delights of Cuba for those who would like to take advantage of them. Perhaps I am more used to retrogressive tours.
We certainly warmly applaud the opportunity to return Cuba to the mainstream of the world economy, which is not only in our interests but in Cuba's interests, too, and to maintain the stability of the Caribbean—the importance of which was also stressed by my hon. Friend. I hope that we will assist in that transition process, rather than stand in its way.