Hallmarking (Hansard, 20 June 2003)

§ Mr. Mark Lazarowicz (Edinburgh, North and Leith)

I begin by congratulating the Under-Secretary of State for Trade and Industry, my hon. Friend the Member for Bradford, South (Mr. Sutcliffe), on his appointment as Minister with responsibility for consumer affairs. I believe that this could be his first appearance in the Chamber in that capacity, and I wish him well in his new post, as I am sure that other hon. Members here today will.

My interest in the future of hallmarking arises from concerns raised with me by the Edinburgh assay office in the heart of my constituency, which is one of four such offices in the UK. The others are in London, Birmingham and Sheffield. Between them, they continue a tradition and legal obligation that has lasted 600 or 700 years—that gold, silver or platinum articles may not be legally described as such unless they are hallmarked by an independent agency to show who made them and what their precious metal content is.

The concern raised with me by the office in my constituency is now being raised by all four offices: for many years, the European Commission has been considering the introduction of legislation to harmonise the market in such items"in the interest, it says, of promoting freer trade in the Community. That is a worthwhile ambition, but it is important to emphasise the fact that harmonisation should maintain or enhance the consumer protection standards that we in the UK and other member states enjoy in this area. Harmonisation should not weaken or jeopardise those standards. Hallmarkers and the craft and jewellery industry are concerned that the hallmarking proposals before the Commission could threaten those high consumer protection standards.

When the European Commission presented a draft directive in 1993, the UK opposed it. The measure could not proceed because few member states actively supported it, and it has languished, for lack of active interest. However, there are strong indications from the trade that the Italian Government, who will hold the European presidency from 1 July to the end of the year, appear determined to revive progress on the directive and committed to achieving harmonisation that would dispense with the high customer assurance provided to the consumer by the hallmarking system operated in the UK.

Italy is one of four member states that use only a manufacturer's mark to certify the quality of gold or silver items—that mark is uncertified by any third party—whereas five have voluntary hallmarking schemes. Six member states, which comprise the greater number and include the UK, have compulsory hallmarking regimes. The core problem with the draft directive lies in annexe III, which, reflecting the Italian position, allows manufacturers or their representatives to claim conformity with the proposals and that the item in question is properly hallmarked by the use of a manufacturer's mark applied by the manufacturer without verification by an external agency.

681 The concern involves not only items produced in the EU, but the fact that the system would make it easier to import from third countries outside the EU gold and silver items that have no proper independent verification. That could include imports from countries where there has been much systematic fraud over a number of years.

Precious metals are not used in their pure form for jewellery, silverware and so on. They are used in alloys, and not even an expert can tell by sight or touch what the precious metal content of such an alloy is. If an expert cannot tell, the ordinary consumer certainly cannot—so customers risk being deceived, which is why it is important to have some guarantee of quality. The key to the debate is whether that guarantee is best provided by the manufacturer, his representative, or an independent third party with no commercial interest in the article. Of course, the latter position applies in the UK. I am told that last year, under the hallmarking system, the four assay officers between them identified and rejected more than 66,000 items that were below the standard claimed for them.

The Edinburgh assay office has drawn my attention to evidence from other countries that should make us reluctant to move away from the current system of compulsory and independent hallmarking. Finland abandoned its compulsory hallmarking system at the end of 2001, since when investigations into the market as it has now developed have shown that cases of serious swindling have increased, and cases of low fineness, in which the proportion of precious metal is found to be less than was claimed are now much more serious than before the abolition of compulsory hallmarking.

In Denmark, where a similar situation applies, a survey showed that 3 per cent. of goods marked by manufacturers were substandard. If the same percentage were applied to the total number of articles marked in the UK each year, 1.5 million substandard articles would be offered for sale each year, as opposed to the 66,000 that were found to be substandard last year.

Given the nature of precious metals, even small reductions in fineness of an item of gold or silver jewellery can, if made tens of thousands or even millions of times, result in large sums of money being wrongfully retained by the people who have incorrectly stated the proportion of precious metal in those articles.

There is also powerful evidence from outside Europe. In the United States of America, studies were carried out in a county in New Jersey, which found that over a four-month period in which random tests were carried out, two thirds of the articles tested did not meet the Federal Trade Commission's carating standards. A similar investigation showed that eight stores in Florida had been charged with such behaviour. In Princeton, a large variety of chains, rings, charms and earrings were tested, almost all of which responded to magnetic testing, which showed that they were not what they were claimed to be. Those items were stamped as products of Italy or Thailand. That problem is rife in many parts of the USA.

Interestingly, I am told by the Edinburgh assay office that checks carried out on the jewellery purchased by 8,000 consumers in India showed that 4,800 of them—60 per cent.—had substandard fineness of gold and 682 silver. It is not surprising that many countries that currently do not have an independent hallmarking system, including China and India, are showing interest in introducing such a system in their countries.

A couple of years Ago, the Department of Trade and Industry carried out a survey into the UK jewellery sector. It examined the hallmarking system and came to the view that the present system has a neutral impact on UK competitiveness. As a result of that, the Department held a series of meetings, which resulted in a declaration of intent by the British Hallmarking Council, the British Jewellers Association, the National Association of Goldsmiths, the assay offices and the local authority trading standards body, in which they stated that a single market for precious metals in the European Union was desirable. That wide range of organisations also thought that the hallmarking of articles sold in the UK must be given the same protection as is given by the present independent system, so that people can have the same confidence in it. For that reason, the proposals in the draft directive—specifically those in the third annexe, to which I referred—were totally unacceptable to that wide range of organisations, drawn from retailers, producers, independent agencies and local authorities.

I want to highlight a third issue that is of particular importance to Edinburgh, to my constituency, of course, because the assay office is located there, and to the rest of Scotland. Acceptance of a directive in anything resembling its present form would probably lead to the eventual closure of the Scottish assay office and end the existence of the Scottish hallmark, which is particularly sought after by tourists—especially those from the USA, Canada and Japan—as well as by consumers from this country.

Besides the almost certain loss of most, if not all, of the 40 jobs in the Edinburgh assay office, there would be other serious consequences, which would have a much wider impact. For example, I am told that a national retailer, John Lewis, has launched and promoted a range of hallmarked silverware in Scottish branches and its sales have increased by 40 per cent. as a result.

In addition to sales lost to the Scottish economy, the closure of the Edinburgh assay office would end the funding that it provides to art colleges in Scotland, to promoting design and craft skills and to staging major exhibitions at a number of galleries in Scotland. I understand that the assay offices in England also offer such support for the wider community. All that would be put at risk, and could be terminated very quickly, if the current independent hallmarking system were to end in this country.

My hon. Friend the Minister will know that I recently asked a number of parliamentary questions on this subject, and I greatly welcome the assurances that I was given in answers by the then Minister, who has now moved to another Department. The positive response from my hon. Friend's predecessor was a tribute to the campaign of those concerned about the future of the industry, and, of course, to the many Members of Parliament on both sides of the House who have supported my early-day motion on the subject. I hope that my hon. Friend will reiterate the commitment given by his predecessor, but also that he will be able to take that commitment further. 683 As hallmarking is one of those issues subject to majority voting in the European Union, it may not be enough for the UK—to put it in the terms used in the answer to my question last month—simply not to support the draft directive. I would ask the Minister for a commitment to go further, positively to oppose the draft directive if it is introduced in Brussels, and to take every step that he can to ensure that any move to reintroduce that directive is blocked in the EU institutions.

Finally, it would be helpful to myself and those who are also interested in the issue if my hon. Friend would tell us what is his information about the support for, or dissent from, the draft directive in its present form among member states. There have been rumours that the member states that will join the EU next year have been told by some sources in the European Commission that they must give up independent hallmarking as part of the process of joining the EU. I hope that those rumours are unfounded. I am sure that my hon. Friend would agree that if they are not, that would be a totally wrong position for the Commission to take. I look forward to his reassurance today, or at a later date, that those rumours are unfounded and that the British Government would resist any such move.

My hon. Friend the Minister, and the House, will know that I am a strong supporter of British membership of the EU. Of course, to be a supporter does not mean that one does not fight vigorously for the interests of one's constituency and one's country, as I am sure my hon. Friend will agree. This is one such example. The adoption of the draft directive would mean less protection for consumers, extra costs for manufacturers and Governments and, if imports with lower safeguards were let in unchecked, it would undermine the tried and trusted British hallmarking system.

I welcome the Government's statements to date on the issue, and I invite my hon. Friend the Minister to reiterate their opposition to the draft directive and to commit the Government to pursue that opposition in the most vigorous manner open to them.

§ The Minister for Employment Relations, Competition and Consumers (Mr. Gerry Sutcliffe)

I thank my hon. Friend the Member for Edinburgh, North and Leith (Mr. Lazarowicz) for his kind remarks about my elevation to the post of Minister for Employment Relations, Competition and Consumers. Nine years ago, I made my maiden speech in the House. Some of the thoughts that ran through my mind then are running through my mind now. That is why I am pleased to be with my hon. Friends the Members for Poplar and Canning Town (Jim Fitzpatrick) and for Scarborough and Whitby (Lawrie Quinn), who are supporting me in the venture of answering this Adjournment debate.

It is an important debate and I congratulate my hon. Friend the Member for Edinburgh, North and Leith on securing it. As he said, the Edinburgh assay office is located in his constituency. He has a keen interest in the proposed EU directive on hallmarking and the effect it may have on hallmarking in the United Kingdom. The 684 Scottish hallmark, which is a castle—I have a document here that shows how wonderful it is—is viewed as important both to the Scottish jewellery trade and to tourism in the area.

The UK has had a system of compulsory hallmarking since about 1300. It is the UK's oldest form of consumer protection. In the UK, the testing and marking of items of gold, silver and platinum are done by four independent assay offices, which are located in London, Birmingham, Sheffield and Edinburgh. That ensures that they conform to legal standards of purity; offers UK consumers a guarantee that goods are what they claim to be; and provides a high level of consumer protection. The system has worked well for the UK.

Last year, the Italians announced that they wished to revive the draft EU directive on hallmarking during their presidency in the second half of this year. The directive aims to harmonise practices across the European Union, allowing the free movement of articles of precious metal. It offers a choice of three ways of marking items of precious metal: marking by manufacturers to standards regulated by an accredited quality assurance scheme in annexe II; marking by manufacturers making a declaration of conformity in annexe III; and third-party marking by independent bodies, which is roughly equivalent to the UK's system of hallmarking by the assay offices, in annexe IV.

Although the Italians have scheduled a Council working group for July, they still have not made any formal proposal on the directive, and the starting point is likely to be the existing draft directive that was last discussed in 1996. In 1995, it was debated by Committees in both Houses of Parliament, which decided that it was unsound because annexe III lacked sufficient safeguards. At that time, the UK formed part of a blocking minority that would have been able to veto the directive had it been voted on in the Council of Ministers. In the event, however, no vote was taken, as member states were unable to reach a common position.

When the subject was raised again last November, it was clear that, in the intervening years, things had changed in other member states. In the past few years, more states that previously operated a third-party marking system have moved to a manufacturer marking system. That has left compulsory third-party hallmarking states such as the UK in even more of a minority. Other member states that were formerly opposed to the directive, such as Germany, have also indicated that they are ready to consider it again.

When the Italians raised the prospect of resurrecting the draft directive, officials in the Department looked again at the evidence, consulting stakeholders, including trade associations such as the British Jewellers Association, representing manufacturers, and the National Association of Goldsmiths, representing retailers; some manufacturers and retailers; assay offices; the British Hallmarking Council; trading standards and consumer organisations.

At that stage, it became clear that there was still little support for a change to the UK system. The UK system is self-financing—manufacturers and importers pay the assay offices to have their goods checked and hallmarked—and ensures that all articles are independently checked and marked, whether they are from a UK manufacturer or abroad, creating a level 685 playing field for all jewellery sold in the UK. That gives the consumer a guarantee that the items that they are buying are what they say they are. It also means that enforcement agencies are able more easily to spot items that are on the market illegally, keeping enforcement costs down.

It is true that a number of larger manufacturers would change to a manufacturer marking system were the draft directive to be adopted, but even they accept that the current system works well, and that there could be enforcement problems under the proposed directive.

As my hon. Friend has asked me about it, I want to make the Government's position clear. While the directive would not do away with the UK's system of independent marking by assay offices, it would permit three different systems of testing precious metals to run alongside each other. Those would offer different levels of protection against fraud, which would effectively weaken the level of protection enjoyed by the consumer, which we could not and would not support.

After re-examining the evidence and talking to stakeholders, it also became clear that there is no real support in the UK for changing a system that has worked well for more than 700 years. Any formal proposal on the directive put forward by the Italians is likely to be based on the same draft that could not be agreed to last time. My predecessor as Minister with responsibility for the consumer, my hon. Friend the Member for Welwyn Hatfield (Miss Johnson), announced on 12 June that if the Italians revive the hallmarking directive in its current form, the Government will not support it. I can assure the industry, consumers and my hon. Friend the Member for Edinburgh, North and Leith that I share those concerns about the directive and strongly support retention of the UK system. I am pleased to say that, following oral questions in the other place yesterday, we also enjoy unanimous, cross-party support from their lordships on this issue.

686 I know that my hon. Friend is particularly concerned about the future of the Scottish hallmark. Under the directive, the use of assay office marks, which identify where an item has been marked, will no longer be compulsory; instead, an "E" mark, showing that an item has been marked in the European Union, will be used. However, there is nothing in the directive to prohibit marks such as the Edinburgh Assay Office "castle" mark being used in addition "E" marks. I hope that that has reassured my hon. Friend about the future of assay office marks, should we be unsuccessful in stopping the hallmarking directive. I reiterate that, of course, the Government do not support the directive.

I note my hon. Friend's concern that the Commission has applied pressure on the accession states to give up independent hallmarking systems. Although it is true that this may have been suggested in 1995—the year in which the draft directive was last discussed—when there may have been some expectation that it would form part of the acquis communautaire, I am not aware of such a suggestion having been made in recent years, and nor would I expect the Commission to do any such thing. I agree that such a move would be totally unacceptable, and we will monitor the situation. It is perhaps worth noting that although the accession states cannot vote following any forthcoming discussions on this issue, they are permitted to be present and to speak. That will make it difficult for other member states to ignore their views.

I should like to reassure my hon. Friend that the UK Government have no intention of altering a hallmarking system that has served the UK so well for so long. We understand the level of concern expressed in the UK by industry and consumers, and we shall not be supporting the directive.