European Union: Steel Subsidies (Hansard, 24 November 1994)

The Minister of State, Department of Trade and Industry (Earl Ferrers)
My Lords, the Commission reported at the Industry Council on 8th November that the minimum cuts of 19 million tonnes, which had been identified in the Braun plan, had not been achieved and that most of the measures, which had been introduced to support the restructuring process, would therefore come to an end.
My honourable friend the Minister for Energy and Industry stressed the view of Her Majesty's Government that further restructuring of the European industry is vitally dependent on the stricter control of state aids.

§ Lord Ezra
My Lords, in the light of the Minister's last comment, does he agree that the real issue here is not so much surplus capacity but subsidised capacity in countries such as Germany, Italy and Spain? In those circumstances, would not it be right to try to find a solution during a period of economic upturn rather than to wait for the next recession to try again, because two attempts to do so in those circumstances have failed?

Earl Ferrers
My Lords, I go part of the way with the noble Lord. The problem is caused by subsidies, but it is also caused by overcapacity. Of course, the one exacerbates the other. We intend to do all that we can to ensure that the European Community reaches a common agreement on the reduction of subsidies. British Steel is only one of two major European companies to have made a profit in the past year. We believe that it is unfair that it should be prejudiced because its competitors are being subsidised.

§ Lord Varley
My Lords, is the Minister aware that when the then Minister for Industry, Mr. Tim Sainsbury, gave evidence earlier in the year to Sub-committee B of your Lordships' European Communities Committee after attending the European Council at which he failed to veto new subsidies to the Italian and Spanish industries, he said that he would ask Department of Trade and Industry officials, together with our embassies abroad, to monitor the situation in those countries? Will the Minister tell us what those monitorings have produced? If the same situation arises again, will the Minister give the House an assurance that they will take a more robust attitude in future?

Earl Ferrers
My Lords, the UK had little support from other member states for the line that it was taking. 358 We believe that we were right, but others did not support us over that. If we had continued to refuse to approve the derogation for the six cases in question the result would have been a continuation of the status quo, which was the giving of illegal subsidies. The present position is that the subsidies which are being given are legal until such time as we can get them removed.

§ Lord Peston
My Lords, of course we were right because—does not the Minister agree?—this goes to the heart of the nature of the European Union. If one cannot deal with these subsidies and unfair competition, and if people insist on continuing with the excess capacity in this way, what is the point of any member state agreeing to play by the normal rules? This is the most discouraging thing imaginable, especially for those of us who regard ourselves as strong supporters of the European Union. It is not a matter over which to criticise Her Majesty's Government; they are probably doing the best that they can. However, it must still be recognised—I hope that the Minister agrees—what a blow this example is to the hope of achieving progress within the Union.

Earl Ferrers
My Lords, I understand the noble Lord's concern over this, which I share. We were enormously frustrated by the fact that we have an unsubsidised industry but have to compete with those which are subsidised. The noble Lord will also remember from the days when his party was in power that the strains of achieving an economic industry are great. Our competitors within the European Community are having to suffer those strains in order to reach what we want them achieve.

§ Lord Geddes
My Lords, in reply to the noble Lord, Lord Varley, my noble friend said that subsidies are presently legal. Is it not more the fact that legal subsidies are being used for illegal purposes?

Earl Ferrers
My Lords, no, previously the subsidies were illegal. We tried to have the subsidies removed. What the Community has agreed is that there should be some subsidies to those companies within Europe, which makes them legal. Had we not approved that, they would have continued the illegal subsidies which may have gone a great deal further than the six companies which have been referred to.

§ Lord Campbell of Alloway
My Lords, was not the essence of the problem touched upon by the noble Lord, Lord Peston, a moment ago: that under EC law the Court of Justice has insufficient jurisdiction to deal with the problem of state subsidies?

Earl Ferrers
My Lords, whether it has insufficient jurisdiction or not is a matter for the court to decide. I do not believe that there is any particular reason for saying that the court has inadequate jurisdiction. What will have to be decided is whether the countries concerned are breaking European law. If it is a legal subsidy, that is not a breaking of the law.

§ Lord Peston
My Lords, will the Minister clarify his answer to me, because I do not understand. I thought that subsidies were legal if they led to restructuring. If 359 the restructuring is not occurring, and it is wilfully not occurring—it is not that it is hard, they just are not going to do it—does not that make the subsidies illegal? I thought that that was the point. Is the Minister saying that that is not right?

Earl Ferrers
My Lords, I think that I am saying that that is not the point. I had better give the noble Lord strict chapter and verse as to what is legal and what is illegal rather than give an off-the-cuff answer from the Dispatch Box. The point that I was trying to make was that the subsidies were illegal until we tried to get the Community to dispense with them. We could not get it to agree to that, so we agreed that there should be a derogation for the countries concerned with regard to the six companies, which would make all the others illegal.

§ Lord Harmar-Nicholls
My Lords, is my noble friend saying that our partners in Europe are only legal when they think that it suits them to be legal, but, when it does not, there are other steps that they are entitled to take?

Earl Ferrers
My Lords, my noble friend has a crafty way of turning answers into a way that suits him. I did not say that. I said that the European Community agrees derogations—our country has derogations—and when they are agreed to by our partners, then they are legal.

Lord Bruce of Donington
My Lords, what is the position of the European Commission in respect of this matter? The Commission is specifically charged with enforcing the treaty. Did it come out in favour of the arguments put forward by Her Majesty's Government, did it sit on the fence and do nothing or did it support everyone else?

Earl Ferrers
My Lords, the Commission made various proposals. The first was that additional finance should be made available to relieve the consequences of closures. The second was that internal guidelines on production and sales were to be made. The third was that it would deal with proposed mergers more expeditiously and the fourth was that there would be measures to restrict imports from the former Soviet Union and the Czech and Slovac Republics. The majority of those proposals were agreed. The first, which dealt with closures, did not receive unanimous approval and, therefore, those proposals, as a whole, came to an end. That is why we agreed to the derogation.