Lords Sitting of 18 July 1938

Preamble
The House met at three of the clock, The LORD CHANCELLOR on the Woolsack.

LANARKSHIRE ELECTRICITY ORDER, 1938.
Special Order in respect of certain parts of the County of Lanark:
Laid before the House (pursuant to Act) for affirmative Resolution and referred to the Special Orders Committee.

FINANCE BILL.
Brought from the Commons, endorsed with the Certificate from the Speaker that the Bill is a Money Bill within the meaning of the Parliament Act, 1911; read 1a; and to be printed.
WAR DEPARTMENT PROPERTY BILL. [H.L.]
Returned from the Commons, agreed to.
MINISTRY OF HEALTH PROVISIONAL ORDER (BUCKS WATER BOARD) BILL.
House in Committee (according to Order) on re-commitment of the Bill: Amendments proposed by the Committee made.
MINISTRY OF HEALTH PROVISIONAL ORDER (CIRENCESTER) BILL.
House in Committee (according to Order) on re-commitment of the Bill: Bill reported without amendment.
MINISTRY OF HEALTH PROVISIONAL ORDER (WATH UPON DEARNE) BILL.
House in Committee (according to Order) on re-commitment of the Bill: Bill reported without amendment.
MINISTRY OF HEALTH PROVISIONAL ORDER (CHURCH STRETTON) BILL.
House in Committee (according to Order) on re-commitment of the Bill: Bill reported without amendment.
ESSENTIAL COMMODITIES RESERVES BILL.
House in Committee (according to Order): Bill reported without amendment.

ANGLO-TURKISH (ARMAMENTS CREDIT) AGREEMENT BILL.
Order of the Day for the Second Reading read.
LORD TEMPLEMORE: My Lords, His Majesty's Government have lately concluded three Agreements with the Government of Turkey, which Agreements were all signed on May 27 last. They are contained in Command Papers 5754, 5755 and 5756. One of these Agreements provides for guarantees up to £10,000,000 through the Exchange Credit Guarantee Department in connection with export of goods to Turkey required for capital development. For this no legislation is required. Another provides for improvements in the Anglo-Turkish Clearing Office, and I think that Order was brought before your Lordships' House by my noble friend Lord Munster, representing the Board of Trade, some few weeks ago. The third Agreement, which is printed in the Schedule to this Bill, is the one with which I am now dealing, and it is the only one which requires legislative sanction. By this Agreement His Majesty's Government undertakes to advance by loan to the Turkish Government such sums, not exceeding £6,000,000, as may be payable by the Turkish Government under contracts concluded by them for the purchase in the United Kingdom of material necessary for the defence of Turkey. This Agreement applies only to purchases made from this country, and also only to contracts which have the prior approval of His Majesty's Government. This is in order to secure that our own Defence programme shall not be interfered with or delayed, and it will be found laid down in Article I of the Agreement printed in the Schedule on page 3 of the Bill.

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As regards the rate of interest, until January 1,1943, the rate will be either 1 per cent. above the current bank rate or 3 per cent., whichever is from time to time the greater. After that date it will be the rate certified by the Treasury as the appropriate rate for a Government guaranteed loan of a similar term, again with a minimum of 3 per cent. Up till January 1,1952, this interest will not be paid to the United Kingdom Government but will be added to the amount of the original advances. As regards the repayment, the advances, with accrued interest will be repayable in equal half-yearly instalments over the ten years beginning January 1,1952. The significance of this date is that it is expected that by then the advances made to Turkey under the Export Credits Agreement will have been repaid, but the Turkish Government have the option to repay advances made for armaments in part or in whole before 1952.
In Clause 2, your Lordships will see that regulations are laid down as to how this money is to be raised. The clause gives the Treasury power to raise the necessary money in the same way as under the War Loan Act, 1919. This, in effect, means that the Treasury has discretion to raise money by the issue of securities of any kind whatsoever. This enables them to use the method most suitable to market and other circumstances of the time. It does not mean that there need be a special issue for this purpose. Another consequence of the provision is that the interest will be met out of the fixed debt charge. The clause is in common form. There is a similar section in the Defence Loans Act, 1937, and I think I may say that the recent successful Defence Loan issue confirms the wisdom of the provision. If your Lordships will turn to Article 4 of the Schedule, on page 4 of the Bill, you will see there is a provision that the Agreement shall be ratified and the instruments of ratification shall be exchanged at Angora, and that the Agreement shall enter into force on the date of the exchange of ratifications. This country will be ready to exchange ratifications after the Bill has passed this House and has received the Royal Assent. This Bill is certified as a Money Bill under the Parliament Act.
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Speaking for myself I have often thought—and I dare say the same thought has occurred to your Lordships—how little we have heard of the country and Government of Turkey during the last few years, and I think that is all to the good, because it means that the Turkish Government are getting on with their job in running their country. Indeed, those who have studied the matter consider that the progress made by the Government of the Turkish Republic during the last sixteen years, in their programme of re-organising the economic life of the country, of promoting domestic industry and of utilising the country's very considerable mineral wealth, is quite remarkable. On behalf of His Majesty's Government, I desire to say that we are extremely glad that the ancient friendship between ourselves and Turkey, which has always endured except during the unfortunate years of the War, and for a short time afterwards, is once again on a secure basis. I may say also that this friendship is not directed against any country, but that both countries have the same objective—namely, the peace of the world. In order to attain that object, and promote the welfare of her people, Turkey finds it necessary, as has this country, to be strong in armaments, and it is for the purpose of helping Turkey to arrange for her armaments, and to promote her ideals in both foreign and domestic affairs, that His Majesty's Government have entered into this Agreement. It is for that purpose that I present this Bill to your Lordships and move that it be read a second time.
Moved, That the Bill be now read 2a.—(Lord Templemore.)
LORD STRABOLGI: My Lords, this is a very important Bill, partly because of the sum of money involved and partly because of the principle enshrined in it. It gives me all the greater pleasure therefore to be able to congratulate His Majesty's Government on this Bill and on the policy which has led up to the Bill, and to say that I hope it will be successful in cementing and strengthening the bonds of friendship between ourselves and the Turkish State. I have a particular pleasure myself in throwing these bouquets across the Table, these ususual bouquets, because ever since I have been able to take part in political life I have advocated the restoration of the old

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friendship with Turkey, which I have always held should never have been broken. With proper handling, I believe that the whole situation could have been saved at the beginning of the late War, or at any rate that Turkey could have been kept neutral. I have always maintained that it was of the greatest interest to the British Empire, the greatest Moslem power, to be on good terms with the Turkish Government. In my opinion, the Turkish peasant is the finest character that I have ever met, and everyone who knows the Leader of the Turks, Ataturk, or as he was formerly known, Mustapha Kemal, admires his great qualities as a soldier, as well as a statesman, and the Leader and rejuvenator of his people.
I also have a personal interest in the Bill, because but for the action of mine in another place this Bi11 would not have been necessary, and would not have been brought in at this stage of the Session, and so have given me an opportunity of saying what I have said. On the Bill relating to overseas trade credit and insurance, I had the pleasure in another place of moving an Amendment, which was accepted, that it was not to apply to munitions of war. The result is that the part of the credits to be applied to warships and munitions of war secured in this country has to receive special Parliamentary sanction.
Having said that, I want to ask His Majesty's Government whether, in view of the good reception that this Bill has received in both Houses of Parliament, and I believe among the public generally, they will not now look round and see whether they can extend this principle to other countries. We are suffering at the present time from a languishing of our export trade. The balance of trade is adverse, and gives cause for alarm, as the noble Lord knows better than any of us because he speaks for the Board of Trade. Unemployment is rising in this country. Anything that would improve our markets abroad deserves very careful attention. There is a part of the world where there are immense potential markets but where, for one reason or another, British trade has not been very active—I refer to the Danubian and Balkan countries. Turkey is, to a certain extent, still a Balkan country, and it is only natural to look a little further north than Turkey to see whether those immense markets could not
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be taken advantage of. We cannot be so sure of the Indian market in the future, we cannot be so sure of some of our former great markets in South America, and in eastern and south-eastern Europe is an immense country, with a teeming population and great natural resources, where we ought to be more active in our trade. And here before us is an example of how the use of our powerful credit as a nation can help our trade and our traders.
The noble Lord, Lord Templemore, has spoken about fostering friendship with Turkey by means of trade. We can also foster friendship with such countries as Hungary, Yugoslavia, Rumania, Bulgaria and Greece, and this is all the more important and necessary at the present time because of the action of Germany, in particular by the use of her clearing machinery in monopolising more and more of these Danubian and Balkan markets. In what I am going to advocate I am not suggesting that we should attempt the economic encirclement of Germany. Nothing of the kind; our high policy should be to open the channels of trade everywhere, to everyone. But I think we have a duty to prevent the monopolisation of certain great markets by a single country, as is happening at the present time through the use of these clearing arrangements and the German currency. I am also not for a moment advocating that we should stimulate and boost up our trade, if I may use that expression.A market of that sort is not a permanent market; but where there are natural outlets for our trade, as I submit there are here, and where we can exploit those markets by using our strong credit, I think we have a duty to do so.
The noble Lord spoke about the strengthening of our armaments, and said that it was necessary to help the Turks to strengthen theirs. Well and good. Our Army, Navy and Air Force are not our only means of defence; part of our defensive system consists of our friends and allies, the people who may be at our side if these great armaments are put to the final test. And I believe we could strengthen our friendships with those countries because, particularly at the present time, they are suffering owing to the monopolistic efforts of the great total-itarian economic machine at the disposal of the German leaders to-day. It would be fair to them and fair to ourselves to

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use our credit in order to help to redress the balance.
This matter, your Lordships will agree, is one of great importance and I am going to make that the excuse for giving a few figures. I am taking the 1937 figures of trade of the countries I have mentioned. Take the case of Hungary. Last year the exports of Hungary to this country were valued at 42,000,000 pengoes, and to Germany at 241,000,000. Her imports from this country were valued at 25,000,000 and those from Germany at 210,000,000. There is a very striking contrast there. Next take Yugoslavia, with these figures: Exports to this country, 465,000,000 dinars; to Germany, 2,209,000,000; imports from this country, 409,000,000; from Germany, 2,232,000,000. Then Rumania: Exports to this country, 2,795,000,000 lei; to Germany, 8,409,000,000; imports from this country, 1,178,000,000; from Germany, 7,175,000,000. Bulgaria, which after all has a seaboard, is a very striking example, with an old traditional friendship with this country. The figures for Bulgaria are: Exports to us, 695,000,000 leva; to Germany, 2,365,000,000; imports from us, 232,000,000; from Germany, 2,865,000,000. The case of Greece is, of course, a little difficult because of debt difficulties with the Greeks, which I hope will soon be adjusted, but Greece and ourselves are not the only two countries which have troubles over debts. The figures for Greece are: Exports to us, 922,000,000 drachmas; to Germany, 3,125,000,000; imports from us, 1,668,000,000; from Germany, 4,516,000,000. That is very extraordinary. There is a maritime country with which we have done much trade in the past, and we seem to be losing trade every year to German merchants and manufacturers.
In what way can we improve trade with those countries? The trouble of course is that most of their exports are agricultural produce, and there is a strong movement in this country to grow more of our own food here. I entirely support what Lord Addison said last week on that subject. I think we ought to grow more of our food at home, but the Government say, "We cannot do that, we must import much of our food from abroad." If that is the case do not let us have the worst of both worlds, let us import food from our potential friends.
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All those countries are great producers of wheat and maize; Yugoslavia and Rumania produce timber, Greece and Rumania tobacco, Rumania, oil; and—now we come to a very important matter, in regard to which I think we can do something practically at once without upsetting anything at all—Yugoslavia, Hungary and Greece are great producers of non-ferrous metals. I would like to see the suggestion carried out which has been made from certain informed quarters that we should use our credit to buy up stocks of non-ferrous metals from those countries and store them in this country in case of emergency. Those are the constructive suggestions I make to the Government. How it shall be done I do not propose specifically to suggest. It might be done on the lines of this present proposal to Turkey. It might be done by direct loans to enable those countries to devalue their currencies, stabilise them, and link them to sterling.
I should have liked to see this same principle applied with regard to China. If rumour is correct, we were at one time almost on the point of making a loan to China, which it badly needs at the present time. It is altogether in our interests that China should come through her present troubles satisfactorily, and a comparatively modest loan would have enabled China to support the present struggle more easily than she is at present doing. But apparently what I may call the pro-Fascist section of the Cabinet were so friendly to Japan that they overrode the more far-seeing section, who saw that our interests as an Empire lay in a strong and peaceful China.
Another point I venture to make is this. Here we are enabling Turkey to arm herself, but we are refusing the same sort of facilities to the Spanish Government. We are going through this ridiculous farce called non-intervention, under which our potential foes arm and strengthen the Spanish rebels, while we are prohibiting the Spanish Government, who have the money available, from purchasing arms for the restoration of order in their country. At the same time we are giving a loan to Turkey which has not the money to enable her to buy arms—a Gilbertian situation. However, at the moment we are dealing with the particular Agreement which is before your Lordships in the form of this Bill, and that at any rate is something to the good. I

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congratulate the Government on this good stroke of foreign and economic policy.
THE PRESIDENT OF THE BOARD OF EDUCATION (EARL STANHOPE): My Lords, I should like to congratulate the noble Lord on his foresight in having taken such action in another place as to enable him to make a useful contribution to the debates in your Lordships' House. I may say I agree with a great deal of what the noble Lord has said. To take his last two points first; in regard to Spain he will realise that whatever other countries may have done, the policy of this country has been one of non-intervention. That we have stuck to through thick and thin, through every kind of difficulty, and we hope and believe that at last our efforts are going to come to a satisfactory conclusion, that other countries are going to follow our lead, and that non-intervention will become effective with the final withdrawal of volunteers for which we have been working so long. If we were to sell arms to one side in Spain, that of course would be the end of non-intervention. That would mean assisting one side and would be quite contrary to the policy which the British Government have been pursuing for two years.
With regard to China, I feel somewhat at a loss to understand the noble Lord when he refers to the pro-Fascist section of the Cabinet. I do not know whether he labels me with that phrase, or which of my colleagues he considers pro-Fascist. Knowing them, perhaps, better than he does, I cannot place any of them in that category. The sole reason we were unable to assist China in the way our sympathies perhaps urged us was that the financial position of China is entirely different from that of Turkey. This whole Agreement is founded primarily on financial and economic considerations, and therefore, bearing these in mind, naturally the policy in regard to China had to be a different one from that which we are following in regard to Turkey.
I was glad to hear the noble Lord say that our policy in this respect is in no way connected with the encirclement of Germany and charges of that kind. Statements have recently appeared in the German Press and elsewhere which attribute to His Majesty's Government the desire to eliminate Germany and Italy as customers of the Danubian and Balkan countries and to divert the trade of these coun-
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tries by force from its normal channels. As the noble Lord said, there is no foundation for attributing any intentions of this kind to His Majesty's Government. Germany and Italy have always been very valuable customers of the Danubian and Balkan countries, and no idea of eliminating them as customers has, of course, entered into the mind of His Majesty's Government. On the other hand, the United Kingdom has very important financial interests in these countries, and in the past had a substantial export trade with them which His Majesty's Government want to maintain and, if possible, to increase. The Danubian and Balkan countries, on their side, have a special interest in developing their trade with us. Their exports to Germany and Italy do not, for the most part, afford them free foreign exchange, and they have to get this from their exports to free markets like the United Kingdom. Otherwise, their whole economic development will be handicapped.
We believe that these various interests can be harmonised and that there is an opportunity here of doing something to promote the recovery of these countries and the revival of international trade generally. It is with this object in view that we are examining the possibilities. But, as the noble Lord pointed out, the exports from these countries are largely agricultural, and therefore, unless we are to give them preference in our market, it is very largely a question of price as to where these agricultural imports which are necessary to us here are to come from. The policy of the Government, as he knows, is that after our own home producers we next consider the Empire producers, and after that foreign imports. However much we might wish to help particular countries in such a case, it is a question of price, whether these products can be obtained more cheaply from there or from some other part of the world by dealers in these products in this country. One of the instruments used for the purpose of increasing our trade with foreign countries is the Export Credits Guarantee Department. This Department is assisted by a Statutory Committee of business men, and its affairs are conducted on business and non-political lines in the case of its relations with all foreign countries in all parts of the world. The Armaments Credit Agreement with Turkey, which we are

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now considering, is an Agreement reached to meet the special circumstances of a special case, and is dictated by the desire to assist British industry and by the wish to take an opportunity of being of service to a country whose friendship with us is founded on a firm and lasting basis. The Agreement is not, of course, directed against any other country, and is not part of any general policy such as that suggested in the newspaper articles to which I have referred.
I have thought it necessary to make this statement to your Lordships in view of articles which have appeared in the foreign Press suggesting that His Majesty's Government are pursuing a policy of encirclement or endeavouring to stop the trade of other nations, whereas in point of fact what we are endeavouring to do is to improve the trade of the nations of the world as a whole. We feel that by encouraging free export to a market such as our own we are improving the financial position of these various countries, and until that really happens we cannot expect to get foreign trade both of this and other countries to function in the way we all desire. I am glad your Lordships have welcomed this effort on
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the part of His Majesty's Government. I entirely agree with the noble Lord that Turkey has almost throughout her history been a Power friendly towards us, and it was a most unfortunate series of circumstances which caused her to be in opposition to us during the period of the Great War. I remember that when I was at the Montreux Conference two years ago in connection with the Dardanelles Commission we found ourselves in very happy agreement with the distinguished Foreign Secretary of Turkey. That was one of the few agreements brought to a thoroughly satisfactory conclusion and one to which, we are glad to see, other nations are beginning to adhere. I only hope that the Agreement which we now ask your Lordships to approve will tend to increase our friendship with Turkey, and that Turkey, which has such great possibilities, may find herself getting stronger economically and militarily and will assist us in preserving the peace of the world.
On Question, Bill read 2a, and committed to a Committee of the Whole House.
House adjourned at twenty minutes before four o'clock