HL Deb 20 March 1979 vol 399 cc1115-42

8.24 p.m.

Lord TREVELYAN rose to call attention to the 11th Report of the European Communities Committee on State Aids for Steel (R/1135/78) (HL 69); and to move for Papers. The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper. The 11th Report of the Select Committee on State Aids for Steel discussed some rather involved questions of importance to the European steel industry in the present severe depression in the steel market. Over the past few years, the Commission has introduced a number of measures in order to try to improve the position of European steelmakers, by raising prices and restricting output, but the action taken between 1975 and 1977, such as quarterly programmes of recommended outputs, largely failed to counteract the effects of the recession.

In December 1977, the Council of Ministers therefore adopted a more comprehensive set of measures, generally known as the Davignon plan, involving stronger price control and the introduction for the first time of measures to restrain imports of steel from third countries. Fifteen agreements were made with supplying countries, providing for volume restraint and agreed price levels. The Commission felt itself unable to go much further in introducing measures to strengthen the market, and the success of the plan therefore depended largely on the ability of the producers themselves to impose discipline on the market by adhering to minimum prices and restraining output, though the Commission was given some powers of enforcement.

The intention was that the short-term measures in the Davignon plan should be supplemented by a longer term restructuring of the industry to increase its competitiveness, involving the reduction of the capacity of the European industry, which, it was calculated, would have about 25 million tons of excess capacity in the early 1980s. It is, I understand, the view of the British Steel Corporation, with which the Select Committee agrees, that restructuring should be carried out on the level of the Member States and of individual steel enterprises. They do not consider it profitable that the Commission should draw up a detailed plan of restructuring to which firms in all Member States would be required to conform. The Commission, however, comments that the restructuring of the European steel industry not only involves the modernisation of installations but to a high degree requires consideration. Restructuring measures on a national or individual firm basis would, in their opinion, endanger the balance. Accordingly, the Commission place at the European level.

Surely there is no need for a head-on collision on this point. Individual countries must be responsible for the detailed restructuring of their steel industry, but it must be designed with reference to the Commission's general plan for ensuring the balance of supply and demand. The Committee accept that indiscriminate subsidies by Member States' Governments could impede the restructuring process, and therefore agreed with the principle and aim of the Commission's draft decision on State aids. They had, however, strong objection to the Commission's earlier proposals, which they felt involved discrimination between private and public undertakings, would give the Commission as great a measure of control over the British Steel Corporation's operations as that exercised by the British Government, and could slow down the restructuring programme by creating an additional layer of official control over the Corporation's action. They therefore supported the Corporation's opinion that it was not appropriate to seek to extend the Commission's powers at this stage for the sake of a European restructuring programme which had yet to be drawn up.

At this point, the Council of Ministers showed itself ready to compromise on the most objectionable features of the Commission's proposal. In particular, they now decided that there must be no discrimination between undertakings, especially as regards the system of ownership, public or private, or in the method of assessment of aid, whether of national, regional or local origin. The United Kingdom's representative noted the statement of the Commission on these lines, but entered a reservation on the legal position. The Commission was instructed to draw up new proposals consistent with the Council's statement of principles. Sub-Committee B of the Select Committee has considered the new proposals with the aid of members of the Department of Industry. The Committee's views have been expressed to the Minister of State as follows. It was pleased to note that the new draft decision goes a considerable way towards meeting the criticism against its predecessor. The fact that it deals only with specific aids to the steel industry, and not with regional or general aids, greatly reduces the scope of the draft decision and avoids some of the problems that the Select Committee pointed out in its report. The Sub-Committee was pleased to learn that the draft decision no longer discriminates unfairly between publicly-and privately-owned steel undertakings. To this extent, it is consistent with the resolution of the Council of Ministers of 19th December 1978 and is an improvement upon the previous draft decision.

The Sub-Committee is, however, concerned at the extension of the Commission's powers that appears to be entailed by Article 6 of the new draft, which would give the Commission powers to require the repayment or other withdrawal of aids which have been granted but which are contrary to the provisions of the draft decision. This seems to be a considerable extension of the powers in respect of State aids that the Commission currently possesses under the Treaty of Paris, notably by virtue of Article 88, which provides for a procedure for appeal to the European Court.

The Sub-Committee is also concerned that many of the objections to the previous draft, although avoided by the present draft, might be reintroduced by a further measure covering general and regional aids to the steel industry, since Article 1(2) of the draft decision appears to contemplate a separate régime under Articles 92 and 93 of the Treaty of Rome, covering general and regional aids. I may add that the Sub-Committee had considerable doubts whether Articles 92 and 93 of the Treaty of Rome can be applied to the steel industry in the light of Article 232 of the same Treaty. But one can be over-legalistic in this matter.

However, in their 11th Report the Select Committee stated that they agreed with the principle and aim of the Commission's proposals on State aids; namely, to ensure that they do not distort competition or conflict with the restructuring of the steel industry. The Sub-Committee acknowledges that the aims of the present draft decision remain the same. They therefore urge the Government to ensure that the powers given to the Commission do not go beyond the terms of Article 88 of the Treaty of Paris; and that the decision does not prejudice the future consideration of further proposals on regional and general aid to the steel industry.

We understand that the Government, throughout these negotiations, have endeavoured to ensure that the Commission does not extend its powers beyond those contained in the Treaty of Paris and that it does not encroach upon the policy and operation of the United Kingdom's system of regional and general aids. It is to be hoped that the talks now being held between British officials and the Commission will be able to find a way of drafting this decision which will overcome the remaining objections, and that the Council will be able to agree on a draft on 3rd April, the date fixed by the Council for further consideration of this matter. I beg to move for Papers.

8.33 p.m.

Baroness ELLES

My Lords, we are grateful to the noble Lord, Lord Trevelyan, for introducing the 11th Report on State aids to the steel industry. I should like also from these Benches to thank all those who took part in formulating the report and making it available to your Lordships. As usual, I think it is true to say that it maintains the very high standard that we now expect from the Select Committee on European Community affairs. As the noble Lord has informed the House, the draft decision contained in R/1135/78 which was the subject on the Order Paper as being superseded by another draft decision, R/4627/79, which has met some of the objections raised during discussions of the original draft. In particular I should like to draw attention to the difficulty in the definition of "State aid". There has now been some recognition of the fact that the original definition of what is State aid has had to be looked at again, mainly because of the nationalised industry, the British Steel Corporation. How, really, can there be a clear line between what is ordinary working capital engaged in restructuring and what is plain subsidisation to prop up an ailing industry?— both at the expense of the British taxpayer.

From the Annual Report of the British Steel Corporation for 1977/78, the financial requirements are to the extent of £875 million for 1978/79, borrowings of £3,000 million at 1st April 1978, and a permitted borrowing limit of up to £5,500 million. This is the measure of the kind of capital involved. How much of this is State aid; and how does it come into the definition contained in the decision? Some of it may be justified but do we know what the borrowing limits are in other member States? There should be some form of comparability between what is called State aid in other member States. That is not made clear in the report, neither did I see evidence called to this effect.

In free capital markets there is not the same difficulty in identifying private investment and State support. Therefore, it would be helpful to know what conclusion the Government have come to in this particular aspect. I do not expect to have an answer tonight from the noble Lord, but I think that there should be some statement from the Government as to how they see this particular problem, particularly if there is to be no distortion of the market not only within the United Kingdom but within the Community. What we are concerned with in this question of the steel industry is the need for action on a Community level, and, if so, what sort of action, to assist the ailing steel industry both in this country and in other European Community countries to adapt so as to meet world-wide international competition. The problems facing the United Kingdom steel industry are similar to if not identical with those of other member States. The Davignon plan to which the noble Lord, Lord Trevelyan, has referred was supported by Her Majesty's Government, as far as I can make out from evidence in the report before us, as a means of mitigating a pretty unhealthy situation. The main factors, minimum prices within the Community and price guidance for imports from third countries, as well as successful negotiations by the European Community with third countries as to quantities, have gone some way to mitigating the situation.

It would be helpful if the Government would confirm that they are grateful to Commissioner Davignon for the work that has been done in view of the "knocking" that the Community is getting at the moment. Certainly, from the evidence available, both orally and by fact and result, it seems that the Davignon plan has contributed to at least stopping some of the ill effects affecting the steel industry at the moment. But these are short-term measures to meet what is an underlying long-term problem. The Davignon plan, a short-term measure, should not be regarded as a long-term measure. Some drastic steps must be taken if we are to put our own house in order. We see from the 1977/78 Annual Report of the British Steel Corporation that it has declined in production from something like 18 million product tons in 1973/74 to 13.4 million product tons by 1977/78. That is a reduction of about one-third of steel but with a reduction of only about 23,000 employees—something about 10 per cent. of the employees in the British Steel Corporation.

It is not therefore surprising that we have a low productivity rate both in relation to other member States but also in relation to third countries such as Japan. Taking the hours worked per tonne of crude steel, for France it is 10; for the Federal Republic of Germany, 8; for Belgium, 6; and for the United Kingdom in 1978, 16.5, as opposed to 14.9 in 1976. We are the only country in the list of member States which has actually increased its manpower in relation to the amount of crude steel being produced. That is not a good record for the United Kingdom. Of course, I admit that sometimes statistics may be faulty or misleading, but these nevertheless indicate the way things have been going in this country as compared with those in other member States.

Faced with a decrease in percentage terms of world production from about 25 per cent. to 20 per cent., due partly to developing countries now entering world markets and at the same time within the Community having something like 40 million tons of over-capacity, how is the Community to deal in the long term with this problem? Are we to continue to prop up with taxpayers' money—it was something like £443 million last year to meet the losses of BSC; and something like £300 million is apparently estimated this year—an industry which will not be able to work to full capacity and extent and meet the demand for its products?

It is already a fact that the European Coal and Steel Community had something like £700 million in low interest loans, housing loans, research grants and so on. The European Community has assisted very considerably the steel industry over the past few years since we joined the Community. If the industry is to be restructured, which is one of the proposals and purposes of the draft decision, how is it to be done, who is to control it, and—the crucial point—who is to pay for it? Above all, what we must not forget is this. What will be the future of those whose jobs will be at risk if there is no restructuring as well as the future for those who are made redundant in the course of restructuring? These are both major problems which must be involved in this general proposal.

It has been proposed that the contribution towards restructuring should be made by member States by means of levies being paid over to members of the European Community. At present, as I understand it, we pay something like £8 million to £9 million a year; if we are to envisage the European Community proposal, the figure I understand now will he something like £11 million. However, although we happen to be one of the main beneficiaries under ECSC loans and grants—I believe the figure is something like 34 per cent. of the total—it was somewhat surprising to see in the European Community Bulletin 12/1978 reference to the fact that, in order to finance restructuring measures, the Council noted that eight delegations agreed, subject to completion of national parliamentary procedures, to a contribution from member States amounting to 32 million European units of account. I would ask the Minister whether there is any significance in the fact that only eight delegations agreed, and whether by any chance we happened to be the ninth, the one that disagreed? It does not state which particular member State that was.

The other aspect of the decision which is of some concern is the use, as the noble Lord, Lord Trevelyan, referred, to Articles 92 and 93 which deal with regional aspects. No doubt the Minister will be dealing with the legal aspects of this matter; but it will surely be necessary, if there is to be a comprehensive and effective steel industry in Western Europe, at least to co-ordinate development and closure plans so that current and future needs can be forecast. It is not something which can be done haphazardly. I do not say that the Commission should have the power to decide; this must be left to individual market forces. Nevertheless, it is inconceivable that one can close down a plant in one part of the country and not affect as a whole the steel industry in other member States.

The Commission have shown understanding on the side of industrial development, but we are of course facing rapid progress and development in technology and industry and a great deal of competitiveness in world markets. Unfortunately, of course, human beings do not change so rapidly and easily and we cannot disregard—and neither must the Commission disregard—considerations affecting human and social matters, such as moving house, changing job and changing type of job; and, above all, in the training of men who are leaving the steel works there should he urgent consideration of the kind of employment that they are going to take up. We sec so many training schemes being put forward but not the end result of whether there arc going to be any jobs at the end of the day. This is a crucial element.

While there must be the minimum of interference in decision-making processes regarding closures and capital investment, measures must be to some extent taken in line with those being taken by other member States. If there is to be any criticism of this report—and I do it very hesitatingly—it is that nothing is mentioned about the steps being taken in other member States; but since the report is about Community decisions, they must be relevant in the overall context of the development of the steel industry. Further, there seems to be a certain lack in the report of evidence concerning the private sector of the steel industry which is, after all, a major part of it. There seems to be rather too much emphasis on the Government role and the British Steel Corporation, and not so much information as to how these measures will affect the private sector. That does not mean to say that the report as a whole has not been extremely useful in order to provide a basis for this discussion tonight.

Whatever measures are taken in this country and other member States, they simply cannot be done in isolation. They must all have the same objective of making the steel industry in the member States of Europe as a whole competitive in the world markets in the future if we are to save the jobs of our own people in this country and return once more to a better economic state in the United Kingdom.

8.47 p.m.

Lord TANLAW

My Lords, we too are grateful to the noble Lord, Lord Trevelyan, for this opportunity to discuss the Select Committee's excellent work in their report before us. It might also be suitable to take an opportunity for myself —if one has not been made before—to pay tribute to Jean Monnet, who died on Friday last week. We should recall and put on record that it was his determination and breadth of thought that led up to the Schuman declaration and the Coal and Steel Community which was created in 1950. I feel sad that today, 30 years later—admittedly in an election year—I have to ask the Government for some reassurance that they are not going to listen to the voices that are encouraging the Government to remove us from that Community of which Jean Monnet is referred to as the founding father. Furthermore, it might almost be worth asking for reassurances from the Opposition that they will not add steel to the list of companies which they intend, if successful in the election, to denationalise.

Uncertainties of this kind make it very difficult to plan and restructure an industry which has to span the next five or 10 years—a very critical period in its life. I remind myself, and perhaps other noble Lords, of the difficulties that the Committee had in finding regulations that were suitable for the different countries involved in the steel plans which were discussed by the Committee. One should consider that only three months ago France appointed Government Chairmen to take over the two largest steel companies, which account for three-quarters of the market. Germany is slightly different, in that the steel industry is privately owned except for the third largest company, which is 75 per cent. publicly owned and accounts for 10 to 12 per cent. of the total German market. In Italy the situation is different again. Sixty per cent. of steel production is controlled by the Government. It is 70 per cent. publicly owned with a 30 per cent. private participation. In Belgium the situation is different again. The Government have been putting a lot of money into the steel industry, which is privately owned at the moment, but it is only a matter of time before the Government take a considerable stake in the largest company.

For a start, one is seeing the steel community—if one can call it that—in Europe undergoing major changes in which the Governments of member countries of the Community are taking an active interest. They are therefore fully concerned with the restructuring for the future because they have primarily to provide the finance. At this stage I think I should declare an interest, in that I am an outside director of a steel fabricating company in the private sector: I shall make reference to this again shortly.

The report before us really covers the three main points which the first two speakers have already covered, but I should like to touch briefly on the short-term problems of the industry, which is seeking to maintain base prices and also to limit production under the Davignon plan. I am advised that this plan is not operative at the moment because natural market forces have lifted up prices and the base prices have been exceeded; and therefore the Davignon plan is acting as a sort of safety net. I am not sure that everyone stuck to the Davignon plan for the short period it was in operation, but at least it is there, with a semi-agreed limit by which individual countries can "cheat", so to speak. It is there as the protection again serious abuse by any single member country, which could throw out the whole pricing structure of Europe.

In the longer term, the restructuring of the industry cannot be done in isolation. Unfortunately—and I do not wish to refer to this again—during an election year people indicate that we in this country can do things differently from what is happening in Europe, because it is better or because the Europeans are inefficient or do not understand our problems, and so on. We have in steel a universal problem throughout the world, in which the various governments and industries, in private and public sectors alike, are facing the same kind of problems, difficulties and experiences. Therefore, one cannot take major decisions on restructuring for the future in isolation, because in the medium as well as the long term that can only end in disaster.

This, I think, is where the Committee did considerable good work in trying to bring together the different interests in the countries involved to provide, if you like, some ground rules as to how we were to restructure. But that brought us again to one of the main areas of contention which were mentioned by the first two speakers—the definition of what amounts to State aid. It is quite unrealistic for the Commission, under its first draft before the Council, to demand the full powers of control with which it wishes to provide itself and to question almost every aspect of the day-to-day policy of the British Steel Corporation. I believe the feelings of the British steel industry have been conveyed to the Commission quite forcefully, and I understand that there are now before us revised proposals which are somewhat less unpleasant than the first ones, though they still do not satisfy either the Government or the steel industry in this country.

These are areas for negotiation, I believe, and here one should try to look forward optimistically in the hope that a solution can be found and accepted by all the countries involved. I think there is a tacit recognition, rather similar to the Davignon plan, that whatever regulations are agreed will never be used but kept in the locker, so to speak; and market forces will again dictate how the countries and the industries in them will operate.

One point did not come out in the report, but perhaps it was there tacitly. The question, not only for the British steel industry in this country but for any country which has a nationalised or the equivalent of a public sector steel industry, is, are you speaking to the Government or to the industry when discussing the subject of steel? This is an area which needs some clarification if possible. I think that clarification can come, and that the steel industry itself should be able to have some form of autonomy so that it can discuss with its competitors across the Channel, as an industry and not as a government spokesman.

In my view, there are lines of confusion in that an industry wants to do one thing and says one thing and tries to create a long-term restructuring policy such as we are discussing tonight. At the same time, the Government are also putting forward their views, and there is a grey area which can lead to misunderstanding —unnecessary misunderstanding—when working out a long-term policy. In particular, when civil servants speak they can only speak with their masters' voice. We are, as I say, in an election year and the Government may change. Therefore, is the whole policy of the steel industry going to change with a change of Government or will a policy be worked out which the steel industry itself will have to stick to, no matter what Government are in power?

I feel that these areas are not clarified and they arc not going to be assisted in many ways during the course of an election campaign when various slogans and exaggerations are used. I hope that during this election year members of all political Parties will be careful in their choice of words when dealing with the steel industry and when they are talking about what they intend to do with its future. I feel this could have a considerable detrimental effect if these lines of policy are not clarified at an early stage in the election campaign.

On a slightly more parochial level, I should like to speak with experience as an outside director of a steel fabricating company in the private sector. The reason I have this job is simply because I am not a steel man. The steel industry has suffered from many problems and one of them, in my belief, is that they have been too inward-looking for far too many years and do not talk to other people unless they are steel men. I feel that only now are they waking up to some of the huge financial problems before them—problems of redundancy and restructuring —and they have to look outside the industry for that kind of further assistance. That is why I think there may be an area of confusion in Government thinking. For example, when a Government give a contract to a steel fabricating company I assume that is a form of assistance or, if you like, State aid; but if that same Government through their government department fail to pay for the work that has been done, this creates untold difficulties in an industry which is already suffering from severe financial problems at the moment. Those problems are critical as to whether a company can go on or whether it goes under.

In the particular case of which I have knowledge, my own company has outstanding claims for more than £1 million. It is only a small company, and these sums are outstanding from the Department of the Environment. They have been outstanding for more than one year, and if these claims are not paid the whole future of the company is in danger. I do not think that my company is in any way different from many others which work for the Government. When it comes to discussing aid, I mention this only as one example, that there are occasions, possibly quite unintentional, when Government policies or policies for payment within Government Departments are not aiding the industry but actively destroying it because every steel fabricating company that fails to continue in business in these critical years means that there is one more customer that the Britsh Steel Corporation has lost. I mention that in passing: it is my only real experience of the industry, and it is not a very happy one.

Finally, I want to touch briefly on a point mentioned in section 23 of the Introduction, which the noble Baroness, Lady Elles, mentioned in her speech tonight. I refer to the problem of developing countries putting on to the market products and steel plate which they have manufactured through their local and indigenous industries, often at very reduced prices. This will affect the future marketing of Community steel products and steel plate. But there is an area on which the noble Lord, Lord Trevelyan, or the noble Lord, Lord Jacques, may be able to assist. If the Community countries can make larger contributions than they have done in the past in World Bank loans—and the United Kingdom has not always subscribed to the extent that other member countries have done in making these loans—it will make available a form of finance for developing countries to be able to use Community, and indeed, British, steel products more successfully than they have done before. If the sterling content of a World Bank loan is taken up by a consuming country, then we have a right to say that they must use their sterling in purchasing British steel products.

In the past, we have tried tied loans but we have kept away from these World Bank loans, because they were not tied. I believe that further investigation could be made into this, because by the United Kingdom subscribing more fully than it does to World Bank loans the sterling content of those loans could be used and channelled by the consuming country into British steel products, or British steel plate. There is no need for the Government to give an answer tonight, but this is an area that has not been fully explored as a means of improving and increasing the marketability of British steel products. On that note, I should like to end, because of the lateness of the hour.

9.1 p.m.

Lord DRUMALBYN

My Lords, I am happy to have the opportunity of following three most interesting speeches. I was very interested in the suggestion of the noble Lord, Lord Tanlaw, for an inter-member State steel organisation consisting of the steel enterprises themselves. I would only say that I hope it will he completely free of Governments and of the Community itself. I really wonder why this has not happened already. Perhaps there are too many different sectors within the steel industry, and it may be necessary to have a series of smaller bodies organised within the main assembly or association. I was very surprised to hear, as we are tonight talking about State aids to the steel industry, the noble Lord, Lord Tanlaw, talk about State aids by the steel industry to the Government, by advancing to them for a year or more funds for the Government to use. It is extraordinary how things work in both directions.

This draft decision is a short-term measure to deal with a particular situation in the steel industry. It is expressed, if approved, to apply until 31st December 1981. It is also capable of amendment with the unanimous assent of the Council. so that after approval, it could, if need be, be amended, to extend beyond that day, if I understand it correctly. The situation with which this draft decision has to deal arises out of excess world capacity, slow growth, stagnant demand, fierce price cutting in world markets and losses by almost every producer in the Community, at a time when many plants in member States need modernisation and some plants need to be taken out of production entirely. Modernisation means investment, which in time of loss-making may well need State aid.

Among its short-term measures, the Commission has already imposed mandatory minimum prices for some sectors of the industry in the ECSC, together with minimum import prices backed by default anti-dumping measures and agreements to restrict the volume of imports negotiated with the main suppliers outside the ECSC. These measures seem to be working well and the Commission, as my noble friend Lady Elles has said, and Viscount Davignon in particular, deserve great credit for this. I do not for a moment disagree that, although prices may he above the minimum level at the moment, the minimum level of prices may have been cut from time to time, such is the pressure of salesmanship.

Of course, State aids may vary in character and amount from member State to member State and the Commission has a duty to ensure fair competition within the Community. Accordingly, some degree of control seems to be needed to ensure that producers in one member State do not gain an unfair advantage over others, whether in the same or another member State. The snag is that Article 4 of the Treaty of Paris expressly forbids State aids to particular enterprises. Presumably, the terms of the Treaty can be varied to meet an unforeseen situation. Whether or not this situation should have been foreseen at the time of the making of the Treaty is irrelevant, but clearly the consent of all parties is required.

The main trouble over this instrument arises out of Article 6 of the draft decision. That requires that the Commission be informed of any plans to grant or alter aids in three sets of circumstances, and forbids member States from proceeding with the aids without the Commission's approval, which may be given either unconditionally or subject to conditions. If the Commission does not either approve or disapprove within two months of receipt of the notification, the member State may go ahead.

The main sets of circumstances are aids in support of investment, temporary aids which form an integral restructuring programme and which are designed to enable undertakings and plants to continue in operation, and emergency aids to keep an undertaking going pending a decision about the future. These are quite different in character from regional aids which are non-discriminatory as between one enterprise and another and one problem and another. These are designed to deal with the location of industry within each member State and they are dealt with in Article 1.2, to which I shall return. The Treaty requires investment intentions involving more than a certain level of investment, which I believe to be 5 million European units of account for each product, to be notified to the Commission —so the Commission already has this information—and empowers the Commission to express an opinion on them which is not binding on the member State or on the enterprise concerned. The new power to sanction State aid or even to veto it if, in the opinion of the Commissioner, it is not compatible with the orderly functioning of the market—which seems to be as near as we can get to a definition—is a very considerable departure from the Treaty. This is the real difficulty with which we have to deal.

The draft decision is in effect a holding operation, pending the issue of further general objectives. I do not want to discuss what happens after these short-term measures have been taken. The last general objectives were issued in October 1976, at a time when world market conditions were changing considerably for the worse, although the measures taken by the Commission, to which I have already referred, led to some improvement in 1978, and the market is more stable.

While the draft decision is to cease to have effect at the end of 1981, by which time the Commission will have to reckon with the Assembly as well as with the Council, by then, no doubt, the Commission will have issued revised general objectives with a view to the restructuring of the steel industry. The power to veto or modify State-aided investment projects, though expressed as temporary, seems to be likely to provide a precedent. It could easily be extended to all investment in steel production, whether or not it is State-aided. We have to be very watchful. Indeed, it might serve as a precedent for the restructuring of other industries in the longer term, so it needs very great consideration.

Your Committee found that the short-term measures proposed for State aids were widely accepted, but the Committee was inclined to the view that restructuring should be carried out—as my noble friend Lord Trevelyan, who opened the debate, has already said—at the level of member States and of individual State steel enterprises. We said in paragraph 24, and I think it is worth quoting: Indeed, they"— that is, the Committee— do not believe that the Commission itself would wish to draw up a detailed plan of restructuring to which firms in all Member States would be required to conform". The Commission may come to that view. It does not seem to be wishing this to happen at the moment, but this needs to be watched.

As my noble friend Lord Trevelyan has already said, some improvements in the draft decision have been made since the report was drafted. In particular, I understand the British Steel Corporation's cause to fear that the Commission would have the power of approval or veto over the content and timing of all the Corporation's investment schemes has been modified. It was based on the fact that the British Steel Corporation derives all its funds either from the State or from loans which have been approved by the Treasury.

I noticed that, included among the loans, there were loans from the ECSC itself and the European Investment Bank. The Commission had originally indicated its intention to decide itself how much of such funding should be treated as aid. I understand that the British Steel Corporation will now be left to decide for itself whether, and how far, any particular project is State-aided and to notify the Commission accordingly—perhaps through Her Majesty's Government; I do not know. I shall be grateful if the Minister will confirm that State aid could include, for example, loans at preferential rates, or the waiving of interest for an opening period, as sometimes happens. I think that it has to be borne in mind that a capital reconstruction scheme might also involve aid, direct or indirect. These are matters which we shall have to meet when we come to them.

Because of the enormous increase in costs of renewal and modernisation, even the step-by-step approach which the British Steel Corporation is adopting involves expenditure, as my noble friend Lady Elles has said, of some £500 million a year. But such levels of investment are, I am sure, needed in this country if the British steel industry is ever to regain viability. We cannot afford not to make them.

As for other steel enterprises, to the extent that their plants need modernisation it is very difficult to see how they can find the necessary funds for it without State aid at a time when virtually the whole of the steel industry in Europe is operating at a loss. As has already been made plain, Article IV of the Treaty of Paris bans all such aids, though Member States have been giving aids in various ways—I understand, by subsidies, or coking coal, or otherwise. However the architects of the Treaty of Paris did seek to provide a loophole in Article 95 to meet unforeseen circumstances, and this is referred to in paragraph 18 of your Committee's report. The draft decision purports to rely mainly upon that Article. However as the noble Lord, Lord Trevelyan, has said, your Committee expressed doubts in paragraph 19 as to whether the Article gives the powers which the Commission seems to think it does.

Your Committee was still more doubtful about the Commission's original attempt to treat regional development grants and loans in much the same way as direct State aid to specific projects. The Commission based its attempt on Articles 92 and 93 of the Treaty of Rome. I would only say this: these Articles deal with State aid which distorts, or threatens to distort, competition by favouring certain undertakings or the production of certain goods. As I have already said, regional aid is by its nature general, not specific; it is designed to encourage investors to engage in any kind of production in nationally designated areas, generally speaking in areas of more than average unemployment, though in this country the Government exercise their influence to steer the development in the desired directions. Quite apart from the question of the propriety of importing into one Treaty the provisions of another, it hardly seems appropriate to deprive investors in one particular production activity of advantages available to all other investors, irrespective of nationality, in all types of production. I hope the noble Lord will confirm that this is the view of Her Majesty's Government. I shall only say in passing that this is not a minor matter for British steel-making. Claims for regional grants made by the British Steel Corporation alone in 1977 and 1978—the two years combined—amounted to just over £160 million. Of course if the EEC would replace this with Community regional grant, so much the better.

The original draft Directive has been amended and Article 1, paragraph 2, still appears to exclude regional and general aid from the provisions of Article 6 of the draft decision. But—and I would stress again what the noble Lord, Lord Trevelyan, has said—rumour has it that the Commission intends to issue to Member States a circular indicating that, where aid is given to the steel industry in application of a general or regional system, the compatibility of that aid with the orderly functioning of the Common Market—and those are the words used—will be subject to appraisal by the Commission on the basis of Articles 92 and 93 of the EEC Treaty. This provision seems to be right outside the scope of the Treaty of Paris. I would ask the Government to tell us what is the state of play on these matters.

On 19th December last year the Council passed its resolution inviting the Committee to amend its draft decision in terms of the resolution. I need not go further into that because my noble friend Lord Trevelyan has already dealt with it. Suffice it to say that the Commission responded with a revised draft on 3rd February 1979.

There are two other matters on which I should like briefly to touch. The Commission has not disregarded the social penalties of modernisation. It does not seek to control what Article 3 calls, aid to defray normal costs resulting from partial or total closure of steel plants". All they ask is to be notified at six-monthly intervals of aid decided on— not spent—in the previous six months. As my noble friend Lady Elles has indicated, these are most sensitive matters—especially redundancies—and the noble Baroness mentioned retraining and taking timely action—as, for example, at Bilston, if one may mention a topical matter— to see that before the period of notice runs out, further employment is provided in the area or nearby for those who will become redundant. The Commission rightly recognises that these matters must be left to Member States and to individual enterprises. I believe that the Commission actually contributes to the cost, and perhaps the noble Lord can confirm that.

There is one other provision on which the Commission might be asked to think again—namely, the provision that if a Member State gives aid contrary to the terms of Article 6, paragraphs 1, 2 and 3, the Commission may require the repayment or the withdrawal of the aid. That is a sanction. There must be some sanction, but there is no such power in the Treaty of Paris. If a Member State fails to notify the Commission of a plan to grant aid or if it disregards an adverse decision, or if it fails to wait for two months before going ahead, the right course is surely for the Commission to take it to the European court, as provided in the Treaty.

The Commission's proposal just does not fit the circumstances of a nationalised industry. If the British Steel Corporation identifies an instance in which aid is given to it, how can it repay it? Unless and until the industry is making a surplus how can the Government withdraw it? I hope the British Steel Corporation will be able to smooth out any differences that may arise with the Commission. In any case, the provision is permissive; it says the Commission "may" impose the sanction. It would be very unwise either for the British Steel Corporation to defy the Commission or for the Commission to antagonise the British Steel Corporation.

To sum up, the British Steel Corporation has to be allowed to carry out its restructuring programme, but the programme needs to be coordinated with the work of other States. The Commission has to be allowed, in its turn, to do its duty of seeing that no one member State acts in such a manner as to undermine the orderly functioning of the Community by unfair methods. That is what the Treaty of Paris is all about. But the Community will fare much better if member States work together with the Commission and if neither provokes the other. Voluntary co-operation is far more effective than dictation on the one side and resistance on the other, and produces much better results. As I said, this is a short-term measure to give a breathing space to each member State for restructuring. The Commission would do well to encourage all member States to observe the spirit of the measure, and I hope they will do so.

9.23 p.m.

Lord VAIZEY

My Lords, I should like to join with other Members of the House in thanking the noble Lord, Lord Trevelyan, and his Committee for presenting this interesting and valuable report. We in Sub-Committee C are meeting with Sub-Committee B tomorrow morning in a joint venture, and therefore this debate has been singularly well timed from the point of view of those of us who are particularly interested in the social aspects of the consequences of the Treaty of Paris. After a good deal of experience with Sub-Committee C, I read the report with something of the sense of whether this is another Community decision about which its friends ought to despair, since we have been spending quite a lot of time upstairs in Sub-Committee C dealing with such important matters as the size of windows on agricultural tractors, which does not seem to me to be central to the harmonisation of Europe, whereas it does seem to me that the future of the steel industry and of the people who work in it is central to the European economy.

I was interested to hear the noble Lord, Lord Tanlaw, say that this report shows —and I think it is a correct observation—that the Davignon plan is not yet fully working itself out, for the reasons he gave. I suspect, in reading this report and the background material which is supplied with it, and thinking over the whole problem, that there is a pretty simple answer why the Davignon plan is going to be uphill work. It so happens that some years ago I was asked to write the history of the British steel industry by the late Lord Melchett, who was then chairman of the British Steel Corporation. This had for me one great benefit, in that I was able to read the archives of the British steel industry, such as survived. Included in the archives were the archives of the European steel cartel. The British steel industry joined the European steel cartel in the 'thirties. Before that it had a certain degree of observer status.

The Treaty of Paris, for all the high-flown sentiments which now surround it, had its origins quite simply in the old-fashioned steel cartel formed by the German industry and around which the rest of the European industry was organised. It was taken over by Hitler during the war, and after the war it was revived and restructured and eventually became the Treaty of Paris. I mention that in passing because it is highly significant as regards the way in which the Commission is carrying out its duties in the steel industry at present.

The proposals which are put before Europe, and which are commented on in great detail in State Aids for Steel and which the noble Lord, Lord Drumalbyn, has dealt with in some degree of detail, are precisely the kinds of detailed control of a contracting industry which are highly characteristic of the cartel which was operating before the war. The type of people who operate these controls are, of course, not the type of people who would be the great entrepreneurial geniuses, the great Jean Monnet and so on, whom one would expect to restructure the European steel industry in its present exceptionally difficult world circumstances.

Therefore, I am not at all surprised that, in paragraph 20 of the report, the Committee castigates the Community for pursuing uniformity for the sake of uniformity, or that the British Steel Corporation in its evidence referred to a highly-regimented system of production quotas. We cannot ask an animal suddenly to change its pattern of behaviour after something like 60 or 70 years of pretty continuous existence since the Germans set it up at the beginning of the century.

I should like to ask briefly how far we can expect in relation to the Davignon plan, when it comes up for discussion—and as regards which this particular item is a holding operation—a radical restructuring of European steel and what sort of restructuring will it be? I ask that because it is of great significance to the United Kingdom. We are, at present, as your Lordships' House knows full well, spending a substantial part of our limited resources on the agricultural programme. In return for that I think that the United Kingdom has a legitimate interest in asking for European assistance in the restructuring of the British steel industry.

The noble Baroness, Lady Elles, was perfectly right to point out the degree to which the British steel industry has slid behind our European partners—if I may say so, that is not something new, because precisely the same complaint was made in the 1920s and 1930s about the British steel industry—and the extent to which aid is already being given and will need to be given if the restructuring is to be successful. If we thought hard about what is to be done in the British steel industry and if we followed the recommendations of the British Steel Corporation and the plans which are, with Government agreement, already being worked out, we have no doubt whatsoever that what we shall see is virtually a desolation of whole areas, particularly in the north of the country, Soctland and Wales. We shall be speaking in terms of a loss of about 100,000 jobs. If I may say so—and I speak subject to confirmation—I think that that is something of the order of the magnitude of the restructuring that has gone on in the European agricultural industry. Therefore, we are talking about a substantial structural change in what has traditionally been a very major British industry which we joined the steel cartel before the war in order to safeguard.

It is no use blinking the fact that, if we are talking about the loss of jobs for something like 100,000 men, the sum that we ought to be thinking of getting from Europe is not £1 billion, but more like £2.5 billion, or two and a half times our present annual subscription to the European club. Unless the Davignon plan actually includes aid and help of that kind for the restructuring of the British industry it is not conceivable that there can be a significant restructuring of the European industry. if there is no significant restructuring of the European industry, I believe that the future of the whole European steel industry will be called into question.

If we look at the pattern of production in the United Nations' figures for the last 50 years, we see quite clearly—and it is mentioned in the report—that the pattern of production is moving to the Third Word countries, to countries like Korea and Brazil and other countries throughout the Third World. If the European Commission is not prepared to take a radical and substantial look and to bring forward serious plans for the reconstruction of the European steel industry, I would suspect that in 20 years' time there will not be a European steel industry left.

9.31 p.m.

Lord JACQUES

My Lords, first, I join with the noble Lord, Lord Tanlaw, in paying tribute to the initiative and the work of M. Monnet, leading up to the Treaty of Paris. He will, of course, go down in history as a great European. The Government as well as the House are grateful to the noble Lord, Lord Trevelyan, and his Committee for the work which they have done on this particular subject and for the report which they have submitted to the House and which has given us a basis for debate. It is up to the standard of the work of the European Select Committee; I do not think that I could possibly put it any higher for the standard is so high. The report and the debate has raised a number of important issues on the Commission's draft proposals to control State aids for the steel industry. They have also paid tribute to the worthwhile nature of the anti-crisis measures. I wholeheartedly endorse those tributes. The anti-crisis measures are helping to restore stability and discipline to the steel market.

There is no disagreement between us and the Commission on basic steel objectives; we are both looking for an efficient, competitive, productive and profitable industry with capacity in line with demand. But present projections suggest that, at least for the next five or six years and perhaps longer, there will be a serious imbalance in the European steel industry. Available markets show no signs of growing sufficiently to match existing capacity together with that arising from new projects to which producers are firmly committed. The anti-crisis measures were thus drawn up to give the industry the necessary breathing space in which the necessary restructuring could be carried out. The Commission has not yet specified its restructuring proposals, but has drawn up a series of general objectives against which the activities of individual companies may be assessed. It is now seeking agreement to a slightly modified form of the draft Decision set out in Document 4627/79, which it regards as in line with these objectives and proposals. The Government understand this aim but in discussion with the Commission and other member States on the proposed decision have sought to ensure the retention of control over the extent and speed of restructuring in the United Kingdom. Recent events in France have shown the wisdom of the Government's step-by-step approach to restructuring and their insistence that no action be taken on closures without proper consultation with the TUC steel committee and the local workforces.

Although we want to work together with our Community partners in tackling the massive problems of the steel industry, it must remain the Government's policy to do this within the provisions of the treaties. The Minister of State for the Department of Industry made this very clear when he spoke on this subject at the Council of Ministers last December. He has also explained to the Council the extent of the restructuring which has already been achieved and how this is being carried through. It is right therefore that in this House we should look very critically and carefully at any proposals, in whatever form, whose effects amount to treaty amendment.

Noble Lords are aware that at the December Council of Ministers the Council resolved that a conclusion on the Commission proposals to control State aids would be reached as soon as possible and by 1st April at the latest. At the Foreign Affairs Council on 5th March this deadline was effectively extended to 3rd April when the Council next meets. In the time leading up to this date, bilateral discussions are taking place between British officials and the Commission to see whether there is any way of reformulating the draft decision so as to overcome the legal difficulties which noble Lords and the Government see contained in it. However the latest draft of the Commission's proposals still lacks a sound legal foundation.

The Government's fundamental legal objection to the decision is that its contents more properly warrant amendment of the Paris Treaty, because they alter the balance of power between the institutions of the Community and the member States. The decision sets out criteria by which aids may be considered compatible with the Common Market, and under these criteria the Commission seek to authorise the giving of finance or aids by member States although these criteria are not derived from the Treaty of Paris. By requiring prior notification and enabling the Commission to approve such aids, the decision would alter the balance between the Community institutions. Article 3 of the Treaty of Paris makes it clear that institutions of the Community shall act within the limits of their powers; therefore, Article 95 of that Treaty cannot be used to alter the constitutional structure of the Community organs. Such a change properly requires formal amendment of the Treaty, which is covered by Article 96 of the Treaty of Paris. This provides for a special conference of member States and for formal notification by all member States in accordance with their respective constitutional requirements, of any amendments before they are put into effect. Parliament would thus have an opportunity to consider all the implications.

While Document 4627/79 no longer seeks to make regional and general aids for the steel industry subject to Articles 92 and 93 of the Treaty of Rome, it is drafted in such a way as to imply that these Articles could be applied to activities covered by the Treaty of Paris. The Commission has indicated that it proposes separately to seek prior notification of regional and general aids by having recourse to these Articles. The Government take the view that this is unacceptable because these aids are covered by Article 67 of the Treaty of Paris. They cannot therefore be covered by the Rome Treaty provisions because Article 232 of that Treaty lays down that the provisions of the Paris Treaty establishing the European Coal and Steel Community shall not be affected by the provisions of the Rome Treaty.

The Government attach considerable importance to our freedom to offer regional assistance and have made it clear that any attempts to curtail this freedom are unacceptable for reasons of both principle and practice. In any case, any attempt to introduce prior Commission approval for the giving of regional aids would be very difficult to implement in practical terms, particularly so far as regional development grants are concerned.

To sum up the Government's position, I should again stress that we share basic objectives for the steel industry with other member States and the Commission. We believe that the United Kingdom must be free to proceed with restructuring in the light of the circumstances in our own industry, taking full account of wider economic and social implications. We consider it important that common policies are established strictly within the provisions of the two treaties. Creeping assimilation of the provisions of the two treaties by backdoor means is not acceptable to us. Thus, I hope your Lordships will agree that, without important changes in the text of the decision to overcome our legal objections, the United Kingdom must regretfully continue to withhold its assent.

A number of questions have been asked and, so far as I am able, I will answer them. I am pleased to advise the noble Baroness, Lady Elles, that the ninth member State which objected to the 32 million units of account contribution was not the United Kingdom. I can tell the noble Lord, Lord Tanlaw, that we are very mindful of the way in which aid, whether directly from ourselves, in the form of loans directly from ourselves or from the Community or from the World Bank, can lead to increased demand for the products of the iron industry and especially the steel industry. We have that especially in mind, but we shall nevertheless take account of the point he made.

The noble Lord also raised the question of opportunities for the British Steel Corporation to voice its views within Europe. There are good opportunities for this. The BSC is a member of Euro-SA, which is an association of Community steel producers which meets with the staff of the Commission frequently and, as necessary, with Commissioner D'avignon directly. The noble Lord, Lord Drumalbyn, raised a number of points. For example, he wanted to know what was the state of play with proposals to regulate regional and general aid to the steel industry. The Government's understanding of the Commission's current intention is much as the noble Lord indicated; no formal proposals have however yet been put to the Government. He also raised the question of preferential rates on loans. The answer is Yes, in principle; where finance is provided on less than commercial terms, it is likely to be regarded by the Commission as containing an element of aid. With or without a State aid decision, the prospective restructuring of BSC's capital will involve consultation with the Commission. Lord Drumalbyn also raised the question of the contribution of the Steel and Coal Community to closure costs. The answer is, for individuals, 50 per cent. of income support measures; and for new employment, loans at favourable rates of interest to new enterprises in steel redundancy areas. My Lords, that covers all the questions to which I have answers. We will look at the Official Report and if there are answers which should be given and which I have not given, they will be communicated to those noble Lords who raised the issues.

9.43 p.m.

Lord TREVELYAN

My Lords, this has been an interesting debate. We were interested to hear the careful exposition by the noble Lord, Lord Jacques, of Government policy, which we shall study very carefully and I think our position is substantially in accord with that of the Government. I hope very much that further negotiations by officials of the Department with the Commission will enable an agreement to be reached. I must tell the noble Baroness, Lady Elles, that it is perfectly true that we could have gone over wider ground, but I am sure that there will be many opportunities for further examination of the Community's steel industry. Meanwhile, the Select Committee has done its proper job of scrutinising the policy of the Commission. I beg leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.