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5.31 pm

Dr. Vincent Cable (Twickenham): I congratulate Plaid Cymru on identifying a topical subject. I do not know whether it owes more to good luck or good management, but the party's timing in introducing a debate on steel the day before the American announcement was certainly deft.

The central charge made by Plaid Cymru was that the Government had acted wrongly in accepting political donations from a man and a company said to have acted against United Kingdom interests. The problem is that one charge is right and another probably not right. The right charge, emphasised by the hon. Member for Maldon and East Chelmsford (Mr. Whittingdale) for the Conservatives, is that Mr. Mittal has campaigned for tariffs in the United States. If that is true, that action is damaging. Its impact would be somewhat diluted, however, if the Minister for Industry and Energy was correct in saying that Corus had done exactly the same. If that is true, Mittal is just one of a series of lobbyists who have behaved badly, but he is not unique in that.

I have greater difficulty with the other charge, which is that Mittal activities in Romania are contrary to the interests of the British steel industry. The Secretary of State made some telling points on that. I fear that I detected in at least some of the remarks of the hon. Member for East Carmarthen and Dinefwr (Adam Price) a strong hint of economic nationalism. That did not increase the force of his many good points.

The logic of what will happen with Mr. Mittal's venture in Romania is either that it will have no impact on the UK industry or that it may even prove favourable. There are two reasons for that. First, one of the consequences of privatisation in eastern Europe is that it effectively stops the normal practice by which state-owned steel companies dump products by selling below cost or at variable cost. When a company is privatised, there is no incentive to do that. Why should Mittal sell at a loss? He is interested in short-term profit and it would make no sense for him to sell at a loss. The argument that he would undercut British workers' jobs is patently implausible. In fact, Mr. Mittal's intervention will probably increase discipline in the industry.

The second point is that Mr. Mittal is, to put it bluntly, an asset stripper. He will remove a lot of capacity from the Romanian industry. That is probably why he has taken it over. One of the central problems with the steel industry, globally and in eastern Europe, is that capacity

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is too great. He is not doing it for idealistic reasons, but Mr. Mittal will, because it fits the logic of his business, probably act in ways that will, in a back-handed way, turn out to help our steel industry.

Mr. Simon Thomas: The hon. Gentleman makes an optimistic assessment of the likely effect on the steel industry. Will he consider an alternative scenario that is not an imaginary but a real one? When Ispat took over steel in Ireland, it had a five-year contract to keep the plant open. Two weeks after that contract ended, the plant closed. As a result, several companies, including Allied Steel and Wire in Cardiff, lost a huge amount of money owed by Ispat—one of Mr. Mittal's companies. That company now finds it hard to obtain lines of credit in the United Kingdom because so many investors have had their fingers burned by Ispat's dealings in Ireland. Now the hon. Gentleman may be right—

Madam Deputy Speaker: Order. Interventions are meant to be brief.

Dr. Cable: I did not entirely follow the hon. Gentleman's rather complicated story, but if it is true that the Irish plant was shut, as he says, I would have thought that that undermined his argument that Mittal is investing overseas in a capacity that competes with UK workers. None the less, on this particular charge, the argument that the Romanian enterprise is taking jobs away from British workers is extremely flimsy.

The serious issue, which the Conservative spokesman and the right hon. Member for Newport, East (Alan Howarth) were right to emphasise, is the damaging consequences of what may happen tomorrow. Whether or not we get a statement from the Secretary of State for Trade and Industry, we should spend some time reflecting on this matter. The problems in the United States steel industry have very little to do with trade. There are two central problems, one of which is that there has been a big technical change in the industry. The mini-mills, which represent the new technology for steel production, are gradually replacing the big mills, and the big mills are losing vast amounts of money.

The second problem for the American steel industry is that the dollar, like the pound, is massively over-valued for manufacturing industry, which is losing pots of money. Manufacturers are running to the Government—just as they do here—to appeal for help. As the right hon. Member for Newport, East mentioned, there is a way to help. If the American Government were seriously interested in the welfare of the workers, there would be plenty of ways of helping them—through retraining or pensions, for example.

The manufacturers—the companies—which are very close to the Bush Administration are not interested in that, however. They want something that will increase their profit margins, and the best way of doing that is to introduce a tariff, because that pushes up their domestic prices. This is naked self-interest by the producer interest groups in the United States, backed by the United States Administration.

This battle—this trade war—could well have wide ramifications not only for the steel industry but for many others if it gets out of control, and the issue that we must

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now face is how we are going to respond to it. There is one sensible response and one very unhelpful one. The unhelpful response is to start clamouring—as one or two Members did—for Europe to put up its own barriers against so-called cheap imports. I think I heard the phrase "floods of cheap steel" being used, in the context of needing to put up our own barriers against them. That would be wholly unhelpful. First, that response would do nothing to deter the United States, which is not an exporter of steel. Secondly, it would do great damage to our own steel-using industries, which employ far more people than the steel industry. It is an entirely perverse, illogical response that would do a great deal of harm.

What ought to happen—I agree that it is difficult—is that the European Union, pushed by the British Government, should act within the framework of international law. The World Trade Organisation has shown that it has teeth. Only a few weeks ago, it instigated a powerful action against the United States over illegal subsidies. There is no doubt that the European Union, acting within the rules—I think it is article 19 that applies to the kind of safeguard actions that obtain in the US—has every right to introduce targeted retaliatory action against the United States.

The real test for the Government is not how the Prime Minister responds to Mittal but how he responds to his friend President Bush. The Prime Minister has invested an enormous amount in that relationship, and he may well now have to confront him on the ground that the American Administration are doing something very damaging to the western world, to Britain and to international trade—something which will have to be fought. That is the issue with which we may well be confronted in the coming weeks.

A second issue relates to the lobbying that took place on behalf of Mittal. The Plaid Cymru spokesman expressed genuine shock at the way in which British officials and ambassadors cheerfully run round doing errands for companies—in this case, one with a rather tenuous relationship to the United Kingdom. He is right to be shocked. It may surprise him to learn—I do not think that it will surprise the Conservatives, because they saw this in action when they were in government—that, unfortunately, this is the way British Governments of all parties behave.

I know that because, as a civil servant, I drafted many of the letters that go to British ambassadors telling them to fight for company X or company Y. Many of the mainstream British companies with a lot of jobs here are just phantom companies whose representative a Minister may have met at a cocktail party. I do not know whether such companies gave donations. There is a deeply embedded tradition—based on the old idea of Great Britain Ltd.—that it is the job of Ministers to run errands for companies that portray themselves as British. It is a dangerous tradition, particularly in a world of globalised companies. As the Secretary of State rightly said, Toyota and Ford have more right to be called British companies because of the jobs they create than many companies which call themselves British and fly the Union flag.

The system whereby British officials and ambassadors and the Ministers who direct them are running round the world, as the Foreign Secretary did with BAE Systems last week, selling Hawk jets to India, is not the sort of thing in which the British Government should be engaged.

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I hope that the Government will take to heart the painful lesson learned from the Mittal affair—that that is an area of Government activity that needs to be tightened up.

Another area where Government activity needs to be tightened up is that of political donations. No one pretends that the Government are unique in accepting money from companies, but we are travelling down a slippery slope, heading towards an American type of system whereby Governments of all parties take money from large companies who expect favours in return. It may well be that no commitment to return the favour has been entered into, but the expectation is there.

In the United States, that process has reached an advanced stage. Companies give money and they expect ambassadorships and to be on commercial delegations for negotiation purposes. Here the process is much less advanced, but it is a dangerous and corrupting process. If the Government saw the danger that is being created, they would stop it.

The way to stop the process is to put a severe cap on donations to political parties. The Government have taken the first step in political reform, which the Secretary of State rightly described as a major step forward, by making the process of donations transparent. The next step is to say that companies should not give money to political parties. Companies such as BP and Shell do not do it anyway because they realise that it tarnishes their image. That should now become part of our electoral law. There should be a strict limit on individual donations to political parties. A combination of that reform, possibly augmented by state funding, is needed to clean up British politics. If Plaid Cymru's motion helps us a little along that road, it will have performed a public service.

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