Mr. Jeremy Corbyn (Islington, North) : Is my hon. Friend aware that one of the consequences of the application of free trade ideas in Mexico has been a massive uprising by the very poorest people in the south ? Indeed, the rallying point for most of those who took part in the rebellion earlier this year was opposition to GATT because of the implications for their standard of life, their jobs and their ability to pursue sustainable agriculture.
Mr. MacShane : I am grateful to my hon. Friend who is quite right. The many strikes taking place in southern China, which are very little reported in the press, are being organised by victims of the application of uncontrolled free trade policies. They have risen up and demanded their share.
Column 543The worst protectionism exists when workers do not earn enough to buy what they make or to protect their families, homes and communities from hunger, poverty and misery. That was very much the message of the European elections. In France, the extreme far right Philippe de Villiers' list powered to third place on a solely protectionist programme. In Italy, Mr. Berlusconi and the fascist MSI party also ran on a protectionist, corporatist programme. A worried Europe is voting against free trade and for protectionists such as Jimmy Goldsmith and Mr. Berlusconi.
One cannot divorce trade from the social context in which it takes place. That was recognised in the 19th century by the Tory party. A poem from the 1850s reads :
"We raise the wheat--they give us the corn We sift the meal--they give us the husk We peel the meat--they give us the skin And that's the way they take us in".
That was an American slave song from the mid-19th century. Of course, at that time, slavery was considered to be an acceptable part of the trading relationships between modern nations.
Today's slaves are the 10 million in the prison camps of China. Above all, they are the children who, under free trade, are increasingly being forced to work. I am sure that many hon. Members have sons and daughters, perhaps even grandchildren. How would they feel if one of their children were among the 50,000 aged between three and a half and 15 who work in the match and firework industries of Tamil Nadu in India ? How would they feel if their child were among the 25 per cent. of workers in the glass industry in Uttar Pradesh who are children and who have to carry molten glass on which adults then work ? That is the world of free trade that the Uruguay round, GATT treaty and WTO need to consider if we are not to experience a disintegration into the type of protectionism exemplified by the votes that took place across Europe on Sunday. The Minister for Industry referred to the Havana charter which was to set up an international trade organisation- -an ITO--in 1947. I apologise, Mr. Deputy Speaker, but I must quote directly from the key clause which stated that
"all countries have a common interest in the achievement and maintenance of fair labour standards related to productivity, and thus in the improvement of wages and working conditions as productivity may permit. The Members recognise that unfair labour conditions, particularly in production for export, create difficulties in international trade and accordingly each Member shall take whatever action may be appropriate and feasible to eliminate such conditions".
That clause in the Havana draft treaty was sufficient for the United States Congress to refuse to ratify it so that in 1947 we had only a provisional treaty, not a proper one. I fear that Congress may not ratify the Uruguay round, despite President Clinton's efforts to sell it, because the treaty now setting up the WTO does not take sufficiently into account social and environmental considerations. Even as we debate, the general conference of the International Labour Organisation is taking place in Geneva. I was there at the end of last week and nearly all the speakers--Heads of State and Employment and Labour Ministers--referred to the need for a social clause in the GATT treaty. Some were for it and some were against, but I welcome the call of the President of the Swiss
confederation--that great free trading nation--who wanted a link between the ILO and the WTO. I believe that the House should also welcome such a call.
Column 544I also welcome the call of the Secretary of Labour of the United States, Mr. Robert Reich, who insisted at a meeting that I attended last Friday morning that the full respect of trade union rights was a basic condition for access to the world trade system. The same call was heard from the new Labour Ministers of South Africa and Russia, but, alas, our Secretary of State for Employment was notorious by his absence. When great world issues are debated, Britain is not present. It is not punching above its weight or below the belt--it is not punching at all.
As I represent a steel constituency, I am especially concerned about subsidies. I agree that the subsidies paid to many steel producers around the world create an unfair market in which the technically advanced and highly proficient and co-operative workplaces of our steel industry are finding it difficult to compete.
More important than the question of subsidies are the questions of demand and of manufacturing industry, but, perhaps, that is for another debate. If we are to fight our corner on subsidies--a point raised by Conservative Members--we need to be at the heart of Europe, arguing in every corridor and at every table for our position. We have to be in tune with our partners in Europe instead of opting out from nearly every policy that they put forward.
We also need to be in tune with our trading partners across the Atlantic, instead of, as at Marrakesh, when Micky Kantor the United States Trade Representative spoke out powerfully for social clauses in the World Trade Organisation, our representative, with all the third-world dictatorships, argued against those ideas.
Much mention has been made of Sir Leon Brittan and Peter Sutherland. Mr. Sutherland, as many hon. Members will know, is leaving GATT and, from the Opposition side of the House, I should be happy to nominate Sir Leon to succeed him. Certainly, if the Government keep on running Sir Leon as President of the European Commission, he stands no chance. In his most recent book and speeches, he has started to acknowledge the importance of a social Europe and of linking trade to social accountability and responsibility. It may be simply an election address, but I take him as a serious man. He puts pen to paper and publishes pieces and we take him at his word. We also need to pay tribute to President Mitterrand, to Prime Minister Balladur and to US Trade Representative Kantor for their insistence throughout the winter and into the spring that the linkage of trade and workers' rights is important in the new world trade system which we are creating.
I believe that the House would like to see a link between the World Trade Organisation and the International Labour Organisation. I hope that it happens soon, as my hon. Friends sit on the Government Benches arguing for that link and instructing our diplomats and civil servants to argue for it. We need a social clause based on ILO conventions Nos. 87 and 98 and the elimination of child labour as a fundamental pre-condition for access to the world's trading system. The hon. Member for Somerton and Frome (Mr. Robinson) referred to the need for business to plan. I agree completely with him, but, as business has to plan, so we need an active Government who plan. The hon. Gentleman did distinguished work for the Commonwealth Secretariat and we need such international organisations to link up and to plan. He called for an action programme and I agree with him. We need an action programme for social and environmental rights, which are built into the new world trading system that is being set up. Yes, I am for a world
Column 545of free trade and trade that is fair. The way in which to make it fair is to ensure that trade adds not only to the wealth of nations, of multinationals and of banks, but to the wealth of all individuals and the communities in which they live, wherever they be in the world.
Mr. Ian Taylor (Esher) : I am delighted to be able to follow the hon. Member for Rotherham (Mr. MacShane), who entered the House not long ago and who has a certain deprecating tone in his speeches, which, in time, I am sure that he will justify.
The debate is timely because the results of the GATT negotiations are lying in front of the House and it gives us an opportunity to consider carefully their implications and the prospects for the future of world trade. Several hon. Members have rightly paid tribute to the people who were most notably involved in ensuring that a deal was struck at Marrakesh--Arthur Dunkel initially, followed by Peter Sutherland. My hon. Friend the Member for Somerset and Frome
Mr. Taylor : Somerton and Frome ; I almost got it right. My hon. Friend pointed out that we tended to focus on the European-American negotiations, but when all the rest of the countries--about 111, or perhaps more--tried to come together to agree, it was a complicated procedure. So, credit is undoubtedly due in that respect, as the GATT organisation performed miracles. I add my own tribute to Sir Leon Brittan for his mastery of detail. One of the attributes of a Commissioner who is handling trade disputes is a brain that can get round some rather complicated and somewhat arid details. He undoubtedly did that, with great gusto, and was more than a match for his opposite numbers, such as Carla Hills and others from the United States. Sir Leon's work galvanised the arrangements and was warmly supported by the British Government.
Nevertheless, the point that I stress is that the European Community was negotiating as one. It is a classic example of the Community as a single unit being in the British interest. Certainly, in trade negotiations, the Community has the right and the responsibility to negotiate on behalf of the contracting parties to the GATT series of talks. I do not believe that we would have got anywhere near a deal if all 12 individual member countries of the EU had negotiated separately. Indeed, it is almost certain that we would never have reached a starting point for negotiations. Also, we would never have got as good a deal in the face-to-face negotiations with the Americans if we had not been negotiating as a trading bloc of 340 million people with one spokesman. Let us put the European elections behind us and concentrate on what benefits a positive approach by Britain to our role in the European Union can give to the people of Britain, because there is no doubt that that unified, single negotiating position on behalf of all the individual contracting nations was a good example of the reason why I believe that Britain's membership of the European Union is absolutely critical to furthering the interests of the British people.
Free trade is an essential part of the progress of the economic well-being of the people of this country. We are
Column 546a trading nation, and there is no getting round that. Since 1947, the world has seen a reduction in tariffs from about 50 per cent. across the board to about 5 per cent. on average and almost an 800 per cent. increase in the volume of trade. In the period between 1947 and the end of the Tokyo round, volumes of world trade in manufactures had increased by more than 800 per cent. and world output by 300 per cent. There is no doubt that the post-1940s boost to the western economies has been based on the principle of removing trade barriers and of promoting the growth of the interchange of goods and services. In those circumstances, we are now in a situation where, although there were considerable impediments, which was the reason for the Uruguay round, we have long since put behind us any doubts about the benefits of opening up borders to trade and the removal of non-tariff barriers.
Some of the current figures are remarkable. Merchandise trade represents 33 per cent. of world gross domestic product and, if trading services are included, the corresponding figure is about 40 per cent., compared with 26 per cent. in 1963. Even more significant are the changes in the composition of trade. Trading in manufactured products today accounts for more than 70 per cent. of merchandise trade, compared with 50 per cent. 30 years ago. The growing percentage of that trade is in intermediate manufactured products. For the major industrial economies, intermediate manufactured products make up as much as 50 to 70 per cent. of their imports and, for some major economies, anything up to 50 per cent. of exports and 30 per cent. of imports take place within multinational companies. The opening up of financial markets is even more remarkable. In the past decade foreign investment has grown three times faster than trade and four times faster than world gross domestic product. Those figures can be found in a speech made by Sir Leon Brittan at a conference in Portugal at the end of last November, when I had the honour of sharing a platform with him, just before the final agreements. Sir Leon said :
"The world financial market has taken the place of national markets, easing world liquidity but reducing each individual country's macro-economic independence."
That is an important point to underline.
Although I do not make any pointed references, it is ironic that those who are most in favour of opening borders to free trade sometimes also regret the passing of national sovereignty which accompanies the opening of those borders. If one believes in free trade, one has a consequential problem in also believing in the importance of preserving national sovereignty at all costs. The world economy now has a big influence on trade and financial markets in respect of what a national Government can do.
The foreign exchange markets have tripled in terms of turnover since 1986 to reach $900 billion a day. The yearly turnover of cross-border equity transactions corresponds to 7 per cent. of world gross domestic product. Those figures provide an idea of the magnitude of what is being achieved and show the importance, for a country like ours which believes in opening borders and welcoming the prospect of free trade, of the limitations that the Government face in respect of domestic arrangements taken in isolation. We will not be able to attempt to introduce domestic policies that do not pay attention to international competition. I hope to return to that point later.
There is also now no doubt that the results of the GATT round will have a significant benefit in terms of the growth
Column 547of world trade. The Organisation for Economic Co-operation and Development and the World bank have estimated global annual economic welfare gains of $200 billion to $275 billion as a result of the successful outcome of the Uruguay round. However, the gains are likely to be even greater over a longer period. One estimate suggests that the total annual gain could be $2,000 billion in 10 years' time, the equivalent of more than 0.5 per cent. added to world annual growth rates in the next decade. That is a very significant benefit and a target that we can set ourselves which would benefit enormously people in Britain and elsewhere.
I am aware of the arguments that the agreements may be less beneficial to developing countries in certain specific respects. My hon. Friend the Member for Broxtowe (Mr. Lester), who hopes to speak later, is more knowledgeable than I am about the developing world and I will leave him to concentrate on those issues. However, I do not accept that the developing world will not benefit from the expansion of world trade and the removal of barriers to its goods and services. If we analyse what has happened over the past 30 or 40 years, I do not believe that one can sustain the argument that developing countries are penalised if they follow sensible economic policies. Reference has been made to problems that are on the horizon. Once a treaty has been proudly proclaimed and tabled, we assume that its ratification is almost inevitable. We had an example last year where that was perhaps a rather mistaken view. However, in this case, having fought very hard to get the treaty through, we assume that its ratification is taken for granted.
I was in America not long ago and I believe that that view is exaggerated. The American Senate and Congress appear to have exhausted their free-trade instincts by passing the North American Free Trade Area agreement. In the event, that was slightly easier than had been forecast. Ross Perot made a bit of a fool of himself in opposition to NAFTA. However, the anti-free trade instincts on Capitol hill were clear.
There is another problem with GATT on which it would be wise for the House to focus for a moment. America is obviously the most critical of all the countries that are required to ratify the agreement. Because of American rules, it is necessary to replace dollar for dollar the loss in revenues from tariff reductions. It is estimated that, in the first year, between $10 billion and $14 billion will have to be found from other tax-raising measures in order to equalise the budget. Although I am no expert, I believe that it is possible that reductions in expenditure could compensate for that. However, I am not entirely certain about that. The debate on Capitol hill is about what revenue can be raised in compensation. Over five years, the cost to the US in revenue lost through tariff reductions could be as much as $40 billion. When we make the bland assumption that it is going to be all right on the night, we should remember what American politicians are now wrestling with. They are trying to decide how to make up for the tariff reductions. When I listened to Carla Hills and others, I wondered whether American politicians forgot to tell their people that there were implications in the battle against Europe and the threats of trade wars. I do not believe that those politicians told the mid-west farmers that there might be changes in the way in which their subsidies were treated or with regard to price supports.
Column 548To use an agricultural analogy, the chickens are coming home to roost. American politicians are now having to admit that the free trade push to break down barriers to their goods in Europe and elsewhere has a domestic cost which may not be evenly spread. My next point about ratification has already been referred to, but I do not apologise for raising it again. The only Parliament to have a clear responsibility in terms of ratification is the European Parliament. At the moment, it is difficult to tell what the character of the European Parliament will be. We now know the members because the elections have been completed, but the Parliament's character is still uncertain.
I hope that the free-trading instinct, which has characterised discussion in this House, will exist in the new European Parliament. As this is the first debate since the European elections, may I say that I hope that the loss of so many excellent Conservative Members to that Parliament will not be a blow to free-trading instincts in the European Parliament when it reconvenes in a few weeks' time. The rules set out in GATT are very important. The documents are so voluminous that it is impossible to go into them in detail. However, I shall summarise them under four headings.
First, the anti-dumping rules are extremely welcome. The second heading relates to subsidies provisions. In the speech to which I have already referred, Sir Leon Brittan drew to my attention--this point may be useful for the House--the difference in subsidies, or the definition or use of subsidies, in Europe and the United States. He said :
"The EC systems of government tend to favour more direct forms of subsidy, such as price support, programme support, regional or social aids. In the United States, however, subsidies are more indirect, perhaps in the form of income support, research and development assistance through the NASA budgets, or pensions cover for Chapter 11 bankruptcy cases. Resolving this issue lies at the core of many of the most difficult EC/US trade disputes."
That point is worth noting. Trying to determine what is actually a subsidy when one person's subsidy is not the same as another's is a very intricate problem. Again, I pay credit to Leon Brittan for cutting through those difficulties.
The third heading is trade-related investment measures and non-tariff barriers. There is no doubt that there are various ways of skewing investment so that it affects trade, and they have been itemised and exposed in the GATT negotiations.
The final heading is connected with safeguards and transparency of dealings. Those rules which have characterised the GATT talks are extremely important and I am sure that we will follow progress under each of the headings.
There are matters outstanding, and I share the frustration that financial services were not fully part of the original deal. I certainly do not blame the British Government. Of course, we would be anxious, given the excellence of our financial services industry, to make sure that that was part of the deal. I know that we are now pushing for conclusions, but the Americans did not like opening up their market to other pressures and certainly in the financial sector they are still fairly restrictionist.
There is also a hidden problem of which I am sure my right hon. Friend is well aware--it applies particularly in respect of the Americans, although they are not the only people, of course, who use it--and that is tit-for- tat agreements, which are almost bilateral arrangements, with
Column 549the Americans attempting to use their own power to obtain corresponding benefits from other countries. Of course, there is their trade Act and their Super 301 provisions. I am not an expert on either, but I certainly know that the Americans can use them very much for their own national benefit, regardless of their talk about free trade. We must be very careful to watch what they are doing. The cultural aspect is another subject that will be of continued interest. I do not think that it is just a matter for the French. I have certain sneaking sympathies with the French position. Having lived in France for three years, I know how fond the French are of their language. We should be careful not to allow the swamping of a culture. Therefore, French worries about the impact on the French language and culture by a complete opening up are ones that I do not discount entirely, but the problem is that the French are somewhat erratic in the way in which they push their arguments. Certainly, when they were saying that we must protect the French film industry, French people were flocking to see "Jurassic Park".
Mr. Corbyn : I have some sympathy with the hon. Gentleman's arguments about the French film industry and the dangers to it. Does the hon. Gentleman accept that there are also dangers to other people's film and publishing industries, particularly the film industries in Burkina Faso, in Africa generally and in India ? In the Indian case, they are well developed and under threat from the power of Hollywood unless protection is offered to them.
Mr. Taylor : Remarkably, I agree with the hon. Gentleman. What we then mean by protection is something that I would like notice about before I answer, because it is very easy to hide behind a threat to culture and then put up all sorts of barriers. The desire in the modern technological visual age not to swamp local cultures is one that I share, because in the long term it will do great harm to nations, whether they be France, India or anywhere else. But we must not use that as a simple excuse then to put up all sorts of barriers. It is a very complicated aspect of detailed negotiation.
There is a certain point on which the House would be wise to concentrate when discussing GATT, because I sense widespread enthusiasm in the Chamber for free trade. Sir Jimmy Goldsmith, a man whom I used to know and used to admire--I think that making too much money goes to one's head--possibly alone has put forward rather pertinent points which should cause us to think carefully about our enthusiasm for free trade--not to change our views but to attempt to refine our arguments. In an article in The Times of 5 March, which I recommend people to read, he talked about the threats from opening up trade and the dangers to competition in places such as western Europe from the new markets that are opening up in the rest of the world, with the 4 billion people who have entered the world economy with liberalisation or progressive liberalisation. He cites "China, Indochina, India, Bangladesh and the nations which used to be part of the Soviet Union, those of Latin America, and so on." The 4 billion people who are increasingly becoming interested in being customers and whose literacy is rising--in some cases, far too slowly--nevertheless receive wages that are as much as 90 per cent. or 95 per cent. less than those in Europe. Sir Jimmy Goldsmith's argument is
Column 550that free trade between regions is not desirable. I can understand what he means. If we in this country say yes, we believe in free trade and that we will therefore have to adjust our domestic conditions to be able to compete with the newly emerging capitalist economies of the far east, clearly we will have some problems if wage discrepancies are so great.
That argument also features in discussions within Europe on the social protocol. I have some slightly unpredictable views on that matter, but the reality is that western Europe as a whole simply will not be capable of competing on wages alone. There is no prospect of doing that. All studies of comparative advantage indicate that what we have to develop in Europe-- America will find the same--is value-added and the ability to have high technical skills in the work force.
Attempting to pay cheap labour or low wages in Europe as a point of principle in order to compete in international markets is no solution. There is simply no prospect of doing that. We do not even have to look as far as the far east. I believe that I am right in saying that if we compare current wages in the Czech Republic with those even in east Germany--the eastern Lander--we will find that wages in the Czech Republic are about a sixth of those in the neighbouring Lander. In Poland the figure is one tenth. Even in the broader family of European nations we see almost an inability to compete on equal terms. The answer is clearly not restrictionism. There can be no sense in restricting trade, certainly not from the countries in central Europe which we wish to be stabilised and brought into the wider Europe. In the longer term, there is no point in trying to cut ourselves off from the threat from the far east. Before Opposition Members happily leap to their feet and say, "Aha, a Tory who supports minimum wages," and all the rest of that panoply
Mr. Taylor : I do not support a minimum wage, for the very simple reason that in France, a country which I much admire, there is, sadly, a disproportionately high level of youth unemployment because of difficulty of access to the market. There are arguments, which we sometimes do not treat seriously enough, about a minimum wage, which effectively means companies subsidising the work force at a level which, in terms of their productivity, is not sensible, and then looking to the Government to subsidise them because they are doing so as a social gesture. In other countries that do not have a minimum wage, people are more readily drawn into new jobs and job creation is a bigger part of economic development.
Those are perfectly reasonable arguments. I know what my instincts are, having already said that I am not attempting to force wages down to levels which rival the ability to produce from the far east or even from central Europe.
Mr. MacShane : Is the hon. Gentleman aware that the country that has created the most jobs in proportion to its population in the past 25 years- -the United States of America--has very strong minimum wage legislation ?
Mr. Taylor : I am aware of that, although I am sure that the hon. Gentleman would accept that it varies from state to state in the United States. As he is obviously knowledgeable about these things, I am sure that he would also accept that there is a parallel problem in the United
Column 551States : there is a much larger pool of people who do not get any access to the jobs market, and that tends to be a much more permanent pool. There are social consequences of minimum wage legislation. We can argue the case--it is an argument that we need to have- -but it is not a panacea and there are consequential difficulties.
Nor am I saying that Europe should not pay attention to its competitive position. Many European countries are out of line with other developed countries such as the United States. Non-wage costs are extraordinarily high and Germany is now beginning to feel the pressure of that. In Germany in 1992, the hourly cost per employee in manufacturing was DM42, compared with DM30 to DM35 in Japan and the Benelux countries, DM28 in France, DM25 in the United States and DM23 in the United Kingdom. Non-wage costs, which add 84 per cent. to every deutschmark paid in wages, are the main source of the differential between West Germany and other countries. When we talk about West Germany, we are specifically referring to the West German lander in the united Germany.
Mr. MacShane : I am grateful that the hon. Gentleman mentioned Germany. Is he aware that the OECD has revised upwards its forecast for growth in Germany in 1994 from 0.6 per cent. to 1.8 per cent ? That means that Germany will create an extra $24 billion of wealth this year in the very country that the hon. Gentleman says has high wages, high social costs, strong unions, strong works councils and so on. Germany is on the way back--it is leading the way for a social Europe with wage costs that are taken into account when manufacturers export goods.
Mr. Taylor : I am delighted to recognise exactly the statistics that the hon. Gentleman has quoted from the OECD report. Of course, that is one of the reasons why Chancellor Kohl got the benefit of the doubt in the recent elections. The German people recognised that the German economy was growing. We should be glad about that because there is little doubt that full economic progress in this country depends on economic growth in the rest of the European Union. I point out to the hon. Member for Rotherham that that is not an unmixed blessing from the German point of view. The German record is extraordinary in terms of producing growth. I shall make two points : first, because it works in Germany, its system does not have to be exported elsewhere in the European Union. Indeed, there is a danger in so doing because other economies may not be capable of adapting to it.
Secondly, one only has to look at recent moves by German industry to realise that all is not entirely well with regard to the social costs in Germany. Both BMW and Mercedes have built enormous plants in the United States, employing about 1,500 workers each, because the cost of employing American workers is lower than the cost of employing German workers. That is why companies have moved their workers to where the market is.
Another aspect is that we are seeing considerable continuing investment in other European Union countries by German companies. That is natural but it is related to costs. There is no question about that. More than 150,000 workers are directly employed by German manufacturing companies in this country alone. German costs are not an unmixed blessing and the German equivalent of the CBI has recognised that.
Column 552We need to be careful about costs because of the globalisation of world trade in terms of sales, sourcing, marketing products and technology. In each of those circumstances, it is possible to have a head office in one country and most production units elsewhere in the world without necessarily knowing where the product has been developed, unless one looks at the small print on it. There is nothing wrong with that. There is no point in railing against it or accusing multinational companies, because that is the way in which business is now done, and many developing countries are benefiting from it.
Certain large European countries no longer employ as many people in Europe as they previously employed. Unilever has reduced its European work force by one third over the past few years, despite having grown internationally. That is a real problem that we must watch. We must safeguard our competitive position and our understanding of comparative advantage. We must take on board the slogan, "Get smarter or get poorer".
As part of the discussion on free trade arising out of the GATT talks, we need to look closely at our philosophy of how to keep our economies growing. Unemployment will not fall simply as a result of normal economic growth. The last time that we had clear growth throughout the European Community was in 1986-90. About 9 million new jobs were created, but unemployment fell by only 3 million. As technology changes and as more people enter the labour force, we will constantly have a problem with unemployment in our western economies.
Mr. Jacques Arnold : Is not it particularly noticeable that that was the case at the time because there was growth in the number of people entering the employment markets in those countries ? Today, the situation is somewhat different, and the importance--certainly in this country--of not having the social chapter is relevant.
Mr. Taylor : I accept what my hon. Friend says. We need to encourage as many people to enter labour opportunities as possible, not price them out of jobs. That is important. Certainly, I believe in the benefits of having a job, rather than being on social welfare.
For western economies, the problem remains that, even if we increase our rates of growth, unemployment will not fall sufficiently. That worries me because there is a risk that our desire for free trade could affect people in different ways. Protectionism comes through fear and politicians can play on that fear if they are unscrupulous. There is no doubt therefore that if we do not get our domestic economies or the European economy right, we could open up reactions to the good work that was done in the Uruguay round. I should like to touch on other issues, but I know that other hon. Members wish to participate in the debate. I shall therefore conclude by saying that my hon. Friend the Parliamentary Under-Secretary of State for Corporate Affairs must take on board the fact that within the GATT round there is scope for encouraging British exports. One is not urging on him, and he would not wish to have urged on him, anything that is unfair or outside the rules, but it is important to do the very best for British manufacturers.
Recently, I had a constituency case with British Aerospace Sema. Against fierce competition from Germany, that group won an order from the Korean navy for a command and control fire system for its frigates. The important point is that the Korean navy did not have to buy
Column 553British--there is no doubt that it was a keen buyer in the current circumstances. BAe recognised that it received tremendous help from the Ministry of Defence for the credibility of the system--no financial assistance was offered. The Ministry of Defence was trying to explain to the Korean navy the advantages of working with BAe Sema. That is the sort of assistance which can come from right across the board, and the DTI should be in the forefront of that. Increasingly, the Foreign Office has trade experts in embassies around the world, and that is an area in which we can try to do our best for British industry and for financial services within the rules of GATT. I am sure that a popular application of that effort will work wonders for British industry, which still has a lot to offer based on high value-added, high-skilled and, ultimately, highly paid British workers.
Mr. Malcolm Bruce (Gordon) : I welcome this debate, as I asked the Government a few weeks ago to make time available for such a debate. I am glad that they have done so. I am also glad that, in a small way, I was able to assist in ensuring that the Minister was able to get to Marrakesh, given that there were certain local difficulties in the House at the time. It was my view that it was important that the British Government were there to append their signature to the treaty.
I am not surprised, but I am a little disappointed, that the debate is being held at a time when we have just come back from a two-week recess, and there is not an enormous amount of interest. One must consider that this country is a trading nation which will die if it fails to trade successfully in the new environment.
I honestly believe that we as a nation do not address collectively how we can perform better. It is not a matter of trying to make party-political points about the relative merits and demerits of the Government's policy, although we can discuss them by all means. But we must recognise, especially in the environment which will be upon us once the GATT process gets under way, that we must be much more vigorous in our approach to securing an increasing share of world trade for Britain. If we do not take that vigorous approach, there is a real danger that others who are more vigorous will produce a situation where our share declines.
I understand that many of the speeches that we have heard so far have been somewhat congratulatory about the fact that we have got here. There has been a recognition that it has been very difficult, and that the British Government, the Governments of many other countries, the European Union and the American Government played a part. All those have had to come together, and there have been many delays and obstacles on the way. All that must be acknowledged, but all we have achieved is a new environment. Simply congratulating ourselves on achieving that and not facing up to what it means is not enough. We clearly must move forward, and it worries me.
I feel like saying that if British industry is not excited and scared at the prospect, it damn well ought to be. It should be scared in a negative sense, but perhaps fear will fuel the recognition that there needs to be a real application of thought in a very competitive environment. The Prime
Column 554Minister has said at the Dispatch Box on numerous occasions when the issue has been discussed--a little glibly, I think--that it is estimated that the GATT agreement could, once it is in full flow, lead to additional world trade of over $250 billion a year. It is said almost as if that trade will fall out of the sky. It will not, and it is there potentially for 125 nations to fight for. We must ensure that the United Kingdom is equipped to fight effectively to ensure that we get that share.
There are number of weaknesses that we must address. I make no apology for introducing one or two anecdotal contributions because they are often particularly relevant and practical. I shall give one example. Two weeks ago, I visited a company in the south of England which was extremely successful. It was what we would call a medium-sized enterprise, employing more than 500 people and with a turnover of £18 million. It was exporting 72 per cent. of its turnover to 68 countries. That is impressive, and the company was involved in technology associated with telecommunications. I asked what was the secret of the company's success and I went through a catalogue of issues. The first thing I asked about was finance. The managing director said that it was not a problem, and that his only complaint about the rate of interest was that it was too low, as the company had cash in the bank. It was financed internally, and was owned by private shareholders. I make that point and immediately one is struck by the fact that it is not a typical company. It is an unusual, but successful, company.
I then asked about training. The managing director said that he had served his apprenticeship, and that he believed in apprenticeships. The company still recruited and trained apprentices. It believed in the value of skills. He said, "I am an engineer. I am proud of it, and I could go down on the shop floor and work alongside my workers and sort out problems with them. I do not think that I am typical of British management." I do not think that he is typical either. That brought home to me the fact that there are cultural and structural problems within the British economy which somehow do not always enable us to compete as effectively. I only give that as an example. I am not saying that all companies should be like that. We could not create that, and we must build on what we have. The managing director said that his firm could take a long-term view, and the next question I asked was how the firm approached export marketing. He said that export marketing, which made up two thirds of the firm's business, required long-term planning and investment in the market. He said, "We have a guy in Vietnam right now. We have no business there, and it will cost us tens, if not hundreds, of thousands of pounds over the next three or four years before we get any return on that investment. But we recognise that that is what we must do if we are to build up markets." Too often--I am sure hon. Members on both sides of the House have experienced this--when one talks particularly to small and medium-sized companies, they say that they cannot afford that kind of investment. Worse than that, as far as I am concerned, are companies that get into the export market only because it is tough going at home. They decide that they had better find a market somewhere, and they go abroad. They may start to pick up a little business-- particularly if they have had the benefit of a 15 to 20 per cent. devaluation--but when the market picks up at home, the tendency is to drop
Column 555their new overseas customers and come straight back to the home market. When that happens, a company damages its long-term performance.
I am not suggesting that that is typical of all British companies, but I fear that it happens too often. If one compares small and medium-sized enterprises in the United Kingdom with those in Germany and Japan--and, to a lesser extent, France and the United States--one sees that there is a recognition in those countries that one must develop markets and must take medium-term views. They believe that companies must make investments in developing the market, in developing the product and in innovation to ensure added value. One needs access to finance to support those developments on a competitive basis. That is where the private shareholding in the company to which I referred was interesting.
We have had this discussion quite often, and I think that two things must be addressed. I do not wish to propose a mechanism for giving small and medium-sized companies access to funding on a subsidised basis. Most small and medium-sized companies are looking for access to funding comparable with what is available to larger companies, and where they are not required to put up so much personal security. If they do not have to put up personal security--which substantially lowers the risk to the financier--they are charged premiums on their interest rates, or whatever their financial package is, because they are small or medium-sized companies. They are a greater risk, even though the risk has been reduced by the very guarantees that have been sought. Time and again, I meet companies that complain about that.
Within that context, we must also address an issue that the Chancellor referred to in his Budget speech concerning the relationship in cash terms between large companies and small companies. That is very relevant to the matter of trade overseas. A constituent who came to see me last Saturday is a small business man. He said that, as a direct result of his inability to get prompt payment from his main customers, he had had to lay off two of his five workers. Late payment destroys jobs--simple as that. That man had to lay people off, not because he did not have the business, but because he could not get the cash to pay their wages. His cash flow problems also meant that he had to forgo potential business because he was unable to service contracts. He cited household names that typically kept him waiting between 90 and 120 days for payment. That is unacceptable. We cannot expect our small and medium-sized businesses to develop medium and long-term strategies when their major customers treat them that way. They should also be given help regarding market and product development.
When I intervened during the speech of the hon. Member for Middlesbrough (Mr. Bell), I referred to export credit guarantees and the apparent discrepancy between what is available to foreign companies and our own. I raised that problem with the President of the Board of Trade when he appeared before the Select Committee on Trade and Industry, but he dismissed it in a cavalier fashion by saying that the problem is only cited by business men who are moaning about markets that they are not fit enough to win. I do not think that such an attitude goes down terribly well with business men, nor is it particularly helpful.
In the past few months, I have visited a number of companies and I have asked their representatives whether they think that there is anything that the Government could
Column 556or should do for them. It is an open invitation for those business men to offer the Minister's reply, "I don't want to know about Government. I don't need them. I am a free marketeer." Many of them say that they do not want much intervention from the Government, but they also say that the current export credit guarantees provision does not compare with that offered to their competitors.
I do not want to be churlish about the extension of those guarantees, which was welcome, but business men still tell me that our Government, unlike the Governments of their competitors, are not prepared to offer cover in more risky markets. It is a matter of judgment, but such hesitancy could be a major error. I appreciate the possible dangers of trading with the republics of the former Soviet Union. They may be high-risk markets, but investing in them should not be governed by sentiment. Should those countries achieve an economic upturn in the long term, those that take the risk in the early stages of their development will reap great benefits. Those republics will remember those countries that were not prepared to take that risk.
I was told of a major construction project where the Italian Government were prepared to make export credit guarantees available on the basis of an 8 per cent. premium. The British Government said that their premium was 13 per cent., non-negotiable, even though it was made clear that if they were able to provide comparable cover to that offered by the Italians, 80 per cent. of the contracts would be placed with United Kingdom companies. That project was worth £100 million, but the net result was that the contracts were awarded to Italy. It is difficult to give all the relevant details, but it is a matter of great concern that such a large project was lost to this country, apparently on the basis of ECG cover. I hope that the Government will recognise that such cover should be governed by a proper strategy so that there is a clear understanding of what we are trying to achieve.
I pay tribute to the President of the Board of Trade to the extent that he specifically employed experts from industry to develop market profiles and to offer informed business advice. That helpful and valuable policy has been generally successful ; I have had good reports about it and I am more than happy to give credit where it is due.
I am also happy to note that, increasingly, I hear good reports about the efforts made by our consular officers and embassies. We no longer have an empire or the political influence and clout that we once had, so, in many parts of the world, such offices no longer have any primary purpose apart from sustaining our trade performance. Businesses now need advice and local knowledge about foreign markets to prevent them from making fatal mistakes that may prejudice market development.
Brand-name world leaders from Britain can take on and beat anyone in the world, but many small and medium-sized companies need guidance, because the cost of competing on their own is proportionally much higher than the costs incurred by those world leaders. I accept that those companies must have the will to compete and should put up their own money, but the quality of the help that they receive from the Government is critical.
The hon. Member for Esher (Mr. Taylor) referred to competitiveness in relation to wage costs. Last year, I visited southern Germany. I noted the business men's sharp appreciation of the problems facing their economy and the importance of social costs and its relationship with the economy. What concentrates the minds of those
Column 557business men sitting in Munich is the fact that they are just 100 miles from the Czech Republic. The wages in the Czech Republic are just 10 per cent. of the wages in Bavaria. The social costs issue is marginal to the fundamental disparity between the basic wages. The attitude of those German business men was simple. They had decided that they would locate their expansion plants in the Czech Republic because they knew the country, spoke the language and it was just over the border from Germany. They felt that that was the way to protect their companies.
That strategy was understandable, but those business men also appreciated that it was just part of the policy designed to secure the long-term future of the Germany economy. They appreciated that by relocating they would help to raise the standard of living in the Czech Republic to the point where the gap would be narrowed and the ability of Czechs to buy German goods would increase. That is what free trade is all about--it has a positive benefit if it raises purchasing power. The necessary adjustments can, however, be painful.
The Germans also recognise, however, that they must continue to innovate and stay ahead of the market technically. They appreciate that they must always produce enough with which to compete because they know that they must be the world leaders, not countries such as the Czech Republic. That is why German business men value engineers and maintain their spending on research and development.
The recent report of the Select Committee on Trade and Industry on the competitiveness of our manufacturing industry drew attention to the fact that throughout the recession British companies continued to maintain dividend levels even though profits were down. The report noted that, on average, dividends rose from about 20 per cent. of profits to about 65 per cent. That obviously undermines our ability to make the necessary investment to create a strong platform for recovery once the recession ends for certain and world trade starts to move again, partly because of the end of the recession and also because of the benefits from GATT. The contradiction inherent in those dividend payments weakens our ability to take full advantage of the markets available to us.
The arguments about the social chapter and social costs may be a legitimate part of the debate, but they are in danger of being used as a political canard to obscure the fact that we must be competitive right across the board. Those who advance those arguments know that in most cases social costs are not the definitive problem. Within the European Union, Portugal has the lowest wages. Portugal also has the highest unit labour costs. Germany, which has the highest wages, has the lowest unit wages costs. That matter is not difficult to follow. Britain is in the middle. A tennis analogy was put to me today. Someone who had just gained a qualification as a tennis coach told me that the basic instruction was, "Step to the net or stay back on the baseline. Don't get caught in the T." That is where Britain is in danger of being caught.