§ Mr. Mohammad Sarwar (Glasgow, Govan)I am grateful for the opportunity to debate the future of British shipbuilding. Events in recent weeks have given the debate great relevance, particularly for workers at the Govan shipyard in my constituency.
United Kingdom shipbuilding has a proud past and a rich heritage. Britain's empire and wealth were based on our shipyards employing huge work forces. The Clyde yards in particular were pioneers of innovation and shipbuilders of quality. The first iron ships for the British Navy were built in Govan. At one stage, one sixth of the world's shipping was launched from Clydeside berths.
However, the present day has seen an industry in decline for a number of years. It is now readying itself to meet the challenges of the new millennium. Up to 30,000 people are directly employed in shipbuilding, repair and conversion, and an estimated 50,000 are employed by subcontractors, suppliers and support industries. United Kingdom yards now compete strongly for orders, with up to 30 vessels being built annually. Our capacity allows us to build almost as much again.
Shipbuilding and ship repair work generates £2.6 billion per annum in Britain. In facing new challenges head on, our industry is gaining a reputation for repair and conversion work. Conversion is increasingly seen as a genuine alternative to new building. Europe has about 40 per cent. of the world market, with the UK among the top three converters in Europe.
Our industry knows that it can shape its own future. Market conditions can be influenced, and Britain's shipbuilders are seeking new opportunities for work in an intense marketplace. They are changing practices and influencing policies that help the industry to improve its competitiveness in the world market.
I praise the work of the Minister's predecessor, my hon. Friend the Member for Leeds, West (Mr. Battle), in instigating the shipbuilding forum. Only a Labour Government would have established the shipbuilding forum and the Scottish shipbuilding forum within months of taking office, bringing the Government, the unions and the industry together to make real progress in British shipbuilding. It has provided real support to the industry, and encouraged practical recommendations that benefit shipbuilding in the United Kingdom. It has also facilitated broad co-operation between shipbuilders, the Shipbuilders and Shiprepairers Association, the British Marine Equipment Association and the Chamber of Shipping.
The Minister will recognise the value of continued co-operation in the forum in allowing the industry to flourish in the future. The nature of competition faced by British shipbuilders will shape the future for our shipyards. I urge the Minister to remain responsive to the concerns of Britain's shipbuilders about our direct competition in Europe. While I recognise that significant work has been done by the European Commission to remove barriers to fair competition across the European Union, it is important for our own industry to remain vigilant and to work closely with the Government when there is perceived unfairness through hidden subsidies on the continent.
265WH I welcome the increased co-operation at British level, through the SSA, to promote the industry as being at the cutting edge of technology and innovation. Shipbuilding is a high-tech industry that combines the most advanced technologies in production and operation. Our shipyards have a key role in a knowledge-driven economy. They have a proud heritage of achievement, but they will have a future only if they work together across the board to increase productivity and to remain the most advanced shipbuilders in the world.
Operating aid granted under the shipbuilding regulations will be essential for the industry across Europe in the current global market. The second report of the European Commission to the Council of Ministers on the situation in world shipbuilding has proved that Korean yards continue selling new ships at prices that do not cover their cost. Those predatory practices undermine the market.
Last year, South Korea succeeded in replacing Japan as the world leader for incoming orders. The agreed minutes in April of discussions between the European Commission and South Korea offer a real opportunity for fair competition, and address problems in tariff practices and financial transparency. That followed hard negotiations and an ultimatum requiring South Korea to bring its shipbuilding prices into line or face action before the World Trade Organisation. The agreed minutes are clearly a step towards solving the problem, but the solution requires a level playing field in the market. Market conditions will not change dramatically overnight, but it will soon become apparent whether the South Korean Government intend to introduce fair competition or are simply trying to win time for their yards.
I hope that the Minister will outline the Government's position on British shipbuilders co-operating with European competitors in the preparation of a case to bring before the WTO, so as to safeguard against the eventuality of no change in Korea. A watchful eye must be kept on Korean ship prices and the pervasive influence of Government-controlled banks on Korean shipbuilding. We must all hope for fair competition to prevail. There may be the prospect of a multilateral agreement through the Organisation for Economic Co-operation and Development being initiated—an agreement that even the United States may no longer be restrained from ratifying.
My right hon. Friend the Secretary of State for Trade and Industry and my hon. Friend the Minister for Competitiveness have made it clear that they will work with the shipbuilding industry to help it to improve its competitiveness and to win orders. The Government have demonstrated a strong belief that the shipbuilding industry has a future as a modern and dynamic part of the manufacturing sector. There has been improved financial support for shipbuilding, with changes made to the home shipbuilding credit guarantees scheme. I appreciate the successful efforts of the Minister in that regard.
The shipbuilding intervention fund has been extended to previously excluded yards such as Ailsa Troon on the Ayrshire coast. Conversion contracts previously excluded from support have also seen support extended, as the British industry develops a reputation in Europe for conversions. The Government positively encourage 266WH increased productivity. Companies are no longer punished by reduced financial support if they reduce their costs. That is a great benefit to well-run shipbuilders across the UK.
New investment has been encouraged, particularly in research and development, which is the clearest way of investing in the industry's future. The shipbuilding intervention fund now allows a 9 per cent. profit element. By no longer basing the grant on break-even basis, we have been able successfully to secure new orders for our shipyards.
Cammell Laird recently won the largest cruise liner conversion ever, worth £57 million. The north-east yard will also build the first vessel on the Tyne in six years. Harland and Wolff worked closely with Government Departments and agencies under great pressure to secure for the work force a conditional contract for four sophisticated RoPax ferries worth £300 million.
In addition to the threat over Harland and Wolff being lifted, Appledore in Devon earlier this month lifted notices on 300 workers following an order. That is good news for British shipbuilding.
The Minister has been attentive to the concerns of the industry over the ending of intervention fund money this year. While the fund did not always help to make our yards competitive, it continues to offer useful short-term assistance for our shipbuilders. Shipyards across the UK now have the common goal of improving productivity to increase competitiveness.
Defence orders are vital to UK shipbuilding, as can be seen at places such as Scotstoun, which is the biggest shipbuilder in Scotland, working solely on naval vessels. It must be stressed that maintaining shipbuilding capacity is also vital to our modern defence strategy, as was shown most recently in the Government's response to the crisis in Sierra Leone. The Amphibious Ready Group was dispatched, including the helicopter carrier HMS Ocean, which was constructed in Govan. HMS Ocean is an excellent example of Clyde-built quality and Govan's commercial build methods.
The yard operates as Britain's biggest merchant shipbuilder and has great flexibility—flexibility which is needed for the modern operations of the Ministry of Defence and which will be of paramount importance in determining future orders for British yards. Last month, the MOD issued invitations to tender for two landing ships logistics. Swan Hunter, Harland and Wolff, Cammell Laird in Birkenhead, Appledore and BAE Systems in Govan are all in the running, with orders expected later this year. Govan's sister yard Scotstoun is involved in designing the new type 45 destroyer. The first class will be assembled and launched on the Clyde at Yarrow. Thousands of jobs will be safeguarded by that decision, which is part of a multi-billion pound shipbuilding programme.
The type 45 destroyer future services combatant and the future aircraft carrier programmes will together create orders with British yards for more than 30 major warships. That is more than was ordered in the whole period since 1979. The MOD's procurement programme signifies a huge investment in the future of British shipbuilding. It gives the industry a long-term stable platform for the next two decades, to invest, modernise and become more competitive in the world market.
267WH Orders should be made not only on the best commercial grounds but in the best interests of our shipbuilding industry. Defence contracts must be rolled out in a manner that ensures a viable, competitive future for UK yards. The Government must fulfil their commitment to work with the industry and the unions to build a world-class industry. I welcome plans by Ministers to hold discussions with Britain's main shipyards and the unions, and consider how we can best meet the challenges and take advantage of the opportunities provided by the MOD programme. It offers us an historic opportunity. Britain's shipbuilders cannot afford to miss this chance.
The Minister has always stressed that competitiveness in shipbuilding needs and demands a strong supplier base. A wider look at the industry is essential for decisions that protect and enhance our shipbuilding capability. That is a lesson that has been taken on board in my constituency. The west of Scotland defence and aerospace network has looked at the wider economy based around the Govan shipyard. At present about 1,200 people are employed directly by BAE Systems at Govan, with more than 2,000 employed at Scotstoun. Almost 5,000 are employed in and around Glasgow by suppliers and subcontractors to the Govan yard. That is a huge number of jobs reliant on shipbuilding in Govan, and it is not exclusive to Glasgow or even Scotland.
Up to 200 jobs in the north-east of England could go if the MOD order for roll on/roll off ferries is not awarded to Govan as part of the Sealion bid. The northeast defence diversification project, a networking organisation for the defence industry, predicts that 76 small firms in the region which would supply specialist parts and skills to the Govan yard could lose valuable orders. Although my focus is understandably on the Glasgow, Govan constituency, the placing of the contract elsewhere would have a major long-term impact on Scotland and the north-east for many years to come, as more than two thirds of the work would be carried out by sub-contractors. The order could provide employment to hundreds of workers in the north-east, not only during the building of the ferries but over the entire 25 years service of the ships.
Let there be no doubt: the Prime Minister and many other Ministers have assured me on numerous occasions that no decision has been made on this order. I anticipate my hon. Friend the Minister for Competitiveness doing so again this afternoon. There is everything to play for as the Government scrutinise the bids. My own position is also clear. The necessary skills and experience are in my constituency. Govan is ready to build the ships immediately. As the local Member of Parliament, I am grateful to the many colleagues who have constituents employed at Govan for the total support that they have shown in lobbying for this order and for future work. The message is clear in Scotland—we are fighting for Govan.
Our argument has moved on from attempting to secure this order to working effectively as a team to secure the long-term future of shipbuilding on the Clyde. Workers at the yard, through shop stewards led by yard convener Jamie Webster, the trade unions, Members of this House and of the Scottish Parliament are all united in support of Govan shipyard. When my 268WH right hon. Friend the Secretary of State for Scotland, brokered the deal that saved Govan last year and saw Kvaerner sell the yard to BAE Systems, it was cause for real celebration in my constituency and across Scotland. The shipyard is the major employer at the heart of Govan, but it is a great symbol of pride across Scotland.
People appreciate that Govan has a justifiable reputation for Clyde-built quality—building ships to last, on budget and on time. Scottish MPs have mounted a positive campaign and made a persuasive argument on the strong merits of the Govan yard. Across Scotland, we have taken our campaign to the streets and asked our constituents to sign a petition in support of Govan. Thousands of people continue to express their full support for Govan. They believe that Clyde shipbuilding has not only a proud history but great potential for the future and they know how vital this order is for Govan. Work would be guaranteed for at least three years. Up to 200 additional workers would be needed. Apprentices could be taken on for the first time in three years. That is vital in an industry that desperately needs young recruits able to learn skills for the future.
Our argument has to be persuasive, as work ends at the Govan yard in a matter of months. Closure would rip the heart out of a community and be an economic and political disaster for Scotland and Britain. Earlier this year, BAE Systems announced plans for substantial future investment in Govan and Scotstoun as a centre of excellence. The two yards worked closely as one in partnership with the sister yard at Barrow. Govan needs the work offered by the ro-ro order to bridge the gap until key projects such as the type 45 destroyers come to fruition.
The future can be bright if political will and industrial competitiveness continue to work for the common goal. The dedicated and skilled work force at Govan and their families have suffered greatly through the uncertainty of the past year and a half. I have shared their rollercoaster ride and realise how unbearable the stress can be. They know that the future of shipbuilding depends on flexibility and technology. They deserve the chance to continue proving themselves. This is a vital time for shipbuilding in the UK. Nowhere is that more true than at the Govan shipyard. The Labour Government have worked hard for an end to boom and bust in British shipbuilding. I know that the Minister will continue his good work with colleagues in active and creative support of the industry. I also urge the Government to meet the challenges of securing the future for Govan.
§ The Minister for Competitiveness (Mr. Alan Johnson)I congratulate my hon. Friend the Member for Glasgow, Govan (Mr. Sarwar) on securing this debate. He has been a persistent and effective advocate for the British shipbuilding industry and has articulated the concerns of his constituents on many occasions in the House. It is indicative of the importance of the subject to the area and the nation of Scotland that we have my hon. Friends the Members for Glasgow, Pollok (Mr. Davidson), for Hamilton, South (Mr. Tynan), for Clydesdale (Mr. Hood), for Midlothian (Mr. Clarke), for Kilmarnock and Loudoun (Mr. Browne)—I apologise for my pronunciation—and for Eastwood (Mr. Murphy) present at the debate this afternoon.
269WH The Government are well aware of the importance of the shipbuilding industry, both to the British economy and to the economy of the constituency of my hon. Friend the Member for Govan, where the largest merchant yard in Great Britain—BAE Systems, Govan—is located. Govan accounts for more than one fifth of all employees in British merchant shipyards.
I am also acutely aware that all British shipyards face difficult challenges. There is fierce international competition. It has been assessed that global overcapacity of about 30 per cent. exists, which, despite increased demand, has led to a significant fall in real prices in the last 10 years. The Government know that British yards are finding it very difficult to win new orders against international competitors. We have been discussing the matter with industry and unions and we share their concerns about the current problems.
Before I deal with those problems, however, I stress that it should be recognised that the industry has not been without its successes. As my hon. Friend the Member for Govan mentioned, last year, Cammell Laird won the £60 million contract for conversion of the Costa Classica cruise vessel, which is the biggest ever cruise conversion. Conversion is more labour-intensive, and therefore creates more jobs, than new build.
I assure hon. Members—as my hon. Friend the Minister of State, Scotland Office did in the recent debate on the future of shipbuilding on the River Clyde—that the Government remain committed to working closely with the industry to help it to face the challenges and to achieve the improvements necessary to win the contracts that are needed.
Despite the current difficulties, I firmly believe that the British shipbuilding and ship repair industry has a future as a modern and dynamic manufacturing sector in today's knowledge-driven economy. There is nothing old-fashioned about shipbuilding. Today's industry is high-tech and requires a strong skills base. In today's industry, modern computer skills are as important as some of the more traditional shipbuilding skills. Modern shipbuilding also calls for a high level of project management and marketing skills.
The key challenges facing the industry—my hon. Friend the Member for Govan articulated them in his speech—are to improve competitive performance and to tackle Korean unfair pricing: and Korean pricing most definitely is unfair.
We are working closely with the industry in both those spheres. We are helping the industry to achieve improved competitiveness through both the national shipbuilding forum and the Scottish shipbuilding forum, which—as my hon. Friend said—were formed in 1998 to facilitate that process. It is worth remembering that, in the whole history of this maritime nation, never before had the industry, the unions and Government sat round the same table, as they have in the forum, created a couple of years ago by my predecessor, now the Minister of State, Foreign and Commonwealth Office, my hon. Friend the Member for Leeds, West (Mr. Battle). The forum is currently implementing all 40 recommendations made by the industry, including enhanced Government financial support for the industry.
Much progress has been made. We have enhanced the shipbuilding intervention fund and the home shipbuilding credit guarantee scheme. In fact, if I had 270WH not been called to today's debate—I make no complaint about that; this debate is obviously the priority and where I need to be today—I would have visited Appledore, to announce more than £1 million of SIF funding to build a fisheries protection vessel for the Irish navy, plus a further half a million pounds regional selective assistance towards a three-year, £6.5 million dry dock expansion project—which will increase throughput, create at least 230 new jobs and safeguard 82 existing jobs.
§ Mr. John Burnett (Torridge and West Devon)I am truly delighted to hear that news, for which I am very grateful to the Minister. It is greatly important to my constituency. However, may I draw his attention to one of the central thrusts of the comments of the hon. Member for Glasgow, Govan (Mr. Sarwar)? Will the Minister assure the Chamber that all Departments will examine very carefully overseas tenders—particularly overseas tenders—for illegal subsidies?
§ Mr. JohnsonI am pleased to see the hon. Gentleman in the Chamber, and I thank him for those comments. Much of my speech, which I have limited time to deliver, will deal with the very issue of unfair subsidies.
The Government have supported a number of competitiveness projects that the industry has developed in the forum. We are currently considering proposals by the Shipbuilders and Shiprepairers Association for a programme that will deliver increased competitiveness within the shipbuilding and ship repair industry through productivity improvements and site-specific master classes, which are based on our earlier, highly successful master class programme for the automotive sector. We are also considering the industry's proposals for improving marketing, the main elements of which are the production of an industrywide marketing strategy by a marketing specialist and the creation of a database of shipowners, to help identify potential customers.
We continue to offer the industry significant financial support. As my hon. Friend the Member for Govan said, we pay the shipbuilding intervention fund maximum rate for new ships. We have also brought our financial support schemes into line with our European competitors' practice, in direct response to recommendations made by the shipbuilding forum.
We remain vigilant in seeking to ensure that our European Union competitors do not receive unfair subsidies. When there is hard evidence of such practices, we will take the matter up with the European Commission. However, as we have often said to the industry, there must be firm, not merely anecdotal evidence of such abuse. It is fair to say that no evidence has been produced to suggest that other member states are bending the rules.
We share entirely the industry's concern about unfair trade practices by Korean and other low-cost Asian shipbuilders, as we believe that that is where the major problem lies. We are continuing to make vigorous efforts to address those concerns. At the November 1999 Industry Council, the Council agreed bilateral trade actions to combat Korean unfair trade practices.
Much progress has been made. The Commission has engaged Korea in bilateral talks, which have resulted in an agreement that addresses the EU industry's concerns. 271WH That is a significant advance in our approach to tackling Korean unfair trading practices. The priority now is to pursue Korea under the agreed minutes, as the agreement is called, as vigorously as possible.
The agreed minutes have extracted Korean commitments on financing yards on a commercial basis only, transparency in accounting rules for shipyards, and pursuit of commercially viable ship prices. The agreement has also secured a key consultation mechanism to take up specific cases of unfair competition. At the 18 May Industry Council—just last Thursday—we achieved a very strong outcome on Korea. The Council directed the Commission to press Korea to implement fully the agreed minutes and called for rapid bilateral consultations with Korea on specific cases of unfair competition. The UK took the lead in advocating that tough approach.
If Korea does not respond effectively, the European Union still holds the possible World Trade Organisation anti-subsidy case in reserve. The Government and the Commission are continuing to work closely with the industry in the preparation of a WTO action, should that be necessary. However, we all hope that the problems caused by Korean unfair competition can be resolved through the agreed minutes. That is the desirable way forward, and we are working hard to make the deal that we have struck with Korea work.
In the longer term, we continue to press for the only viable solution to the anti-competitive practices that my hon. Friend the Member for Govan described: to establish effective international trade disciplines, as embodied in the Organisation for Economic Co-operation and Development shipbuilding agreement. We have taken a leading role in advocating that approach both in the European Union and in the OECD. The problem is that we have been frustrated in 272WH our efforts by the failure of the United States—which has a special relationship with South Korea—to ratify the 1994 OECD shipbuilding agreement. Nevertheless, we shall continue to pursue our objectives.
My hon. Friend urged us to remain vigilant to unfair subsidies in Europe. As I said, if we receive any hard evidence of such subsidies, the matter will be pursued vehemently. Although it is true that the shipbuilding intervention fund will be abolished at the end of this year, the United Kingdom industry last year gave its complete support to abolition; moreover, the fund will be abolished across Europe. In all the years for which the SIF has been available, it has done very little to help us in world competition. Therefore, although there has been a change of heart in some quarters about SIF abolition, the UK industry agreed to it unanimously. Nevertheless, as my hon. Friend said, we must remain vigilant on the issue of unfair subsidy.
The fundamental need is for the industry to improve its competitiveness. Operating aid has not delivered the improvements in competitiveness that the industry needs. We do not believe that continuation of operating aid is the right approach to dealing with Korean unfair competition.
I am convinced that the British shipbuilding industry does have a future. We shall continue to work closely with the industry to help it meet the tough challenges of the market, boost its competitiveness, improve its success and win new orders. In the summer, my right hon. Friend the Secretary of State for Trade and Industry will convene a high-level meeting of shipyards and unions for that purpose. The Secretaries of State for other Departments with an interest in shipbuilding, including the Scottish Executive, will be invited to attend.
§ Question put and agreed to.
§ Adjourned accordingly at Two o'clock.