Examination of Witnesses (Questions 160
- 176)
WEDNESDAY 19 JUNE 2002
LORD BACH,
MR ANDY
MCCLELLAND,
MR BRIAN
WILSON MP, MR
NORMAN BRICE,
MRS ANNE
MCGUIRE
MP AND MR
IAN HOOPER
160. On a slight change of direction, you are
thinking in terms of smaller shipbuilding rather than commercial
and MoD work?
(Lord Bach) Well, what I was referring to in terms
of export, I have not mentioned commercial yet, that is really
a matter for Mr Wilson not me, as far as the MoD ships, Navy ships
are concerned, Mrs Adams, we are not going to be selling many
aircraft carriers but it is quite possible some smaller ships—offshore
patrol vessels, that sort of ship, landing craft, small landing
craft—might well be wanted by other countries and it may
be that is where we should be looking.
Chairman
161. Mr Wilson?
(Mr Wilson) I think it would be appropriate to mention
the role of our embassies around the world.
(Lord Bach) Absolutely.
(Mr Wilson) We have an unrivalled network of embassies
in virtually every country of the world. In many of these we have
military attachés and in virtually all of them we have
commercial departments who are looking for export opportunities.
There are a lot of ears to the ground around the world. I do not
think it is inconceivable that there would be any export opportunity
in this field that the UK Government in the widest sense was not
aware of and was not actively assessing. The same would go to
some extent for commercial shipping. There is the network of Trade
Partners UK. The section of it which deals with oil and gas also
deals with shipbuilding. It would constantly be on the look-out
for opportunities. There is a big crossover there. I was in Azerbaijan
the week before last and while I was there on oil and gas business
I picked up on an opportunity for shipbuilding which might well
come to a British yard and that will be taken forward both by
the DTI but also by Trade Partners UK. In addition to that we
are about to give a grant, I think we have given it, to the Shipbuilding
and Ship Repair Association to strengthen their marketing effort
because we have also got to have salesmen and saleswomen from
the industry go out there and identify these opportunities. The
other thing, the caveat, as Lord Bach says, is there are many
of these orders where they would not think of coming to Britain
because they are looking for the cheapest solution rather than
the best solution.
Chairman: Super response indeed, Minister.
Mr Weir
162. We have heard a lot about the possibility
of commercial shipbuilding on the Clyde. Do you think it is possible
for Clyde shipyards to compete for commercial shipbuilding orders?
Do you think BAE are interested in doing so?
(Mr Wilson) I must add—I have been waiting to
do this—a name to this discussion. When we talk about Clyde
shipbuilding, we are not only talking about Yarrow's and about
Govan, let us not forget Fergusons, which does not have to diversify
into commercial shipbuilding because it has never been in anything
else. It is a remarkable success story and I think it should be
recognised in the Committee's discussions. I think as far as Govan
and Yarrow is concerned, it is very much for the judgment of BAE
SYSTEMS. Clearly they have made their commitment, their business
is in the defence sector, but within my recent experience they
have pursued, also, a non defence order. Sometimes it will suit
them to take that kind of work, sometimes it might even suit them
to take it at a loss in order to maintain the skills base in between
MoD orders. That would certainly have been the outcome if they
had been successful with the BP order a few months ago. Who knows:
if you went back five years in this business, a lot of things
have changed, and if you look forward five years, who knows what
kind of work we will be looking for to supplement the MoD diet
on the Clyde. Certainly the techniques exist and the facilities
exist to do commercial shipbuilding. I think we should remember
there are a number of small shipbuilders in the UK who in spite
of everything are very successful. Just to supplement what has
been said about export orders, certainly as a Scot and at various
times as Scottish Minister, when we are out there in the world
we are marketing the UK. I would never be forgiven by the guy
who runs Appledore in Devon who comes from Port Glasgow and certainly
I would not be forgiven by him if I was too sectarian about this.
Mr Carmichael
163. The payment of subsidies, be they hidden
or otherwise, we have touched on this already with Lord Bach,
is this in the Government's view a fact or fiction in overseas
shipbuilding industries? Are you in a position to give us concrete
examples of malpractice that you have come across?
(Mr Wilson) I think hidden foreign subsidies are one
of the holy myths of this saga, that there always has to be someone
else to blame. If I can just relate that to the oil and gas industry,
again. It has always been darkly rumoured that Norway does things
for its industry that we do not do for ours and nobody has ever
been quite able to specify what they allegedly do. In recent weeks
when it became apparent that the order for the Clair Jacket was
going to go to Norway rather than to a UK yard, I commissioned
some work to try to finally get to the bottom of this, for the
reason that I am genuinely curious, I have been hearing it for
so long that I would like to know whether it is true or false.
The preliminary result of that, and I will publish the findings
of this, is that it is false. The advantages to Norwegian yards
do not come from backhanders from Government, they come from continuity
of work and, very importantly, continuity of investment. The reason
oil and gas have been more successful is that 30 years ago they
very sensibly went down a policy of having a small number of yards
which could then have a continuous order book. You get all the
advantages from that of a planned and strategic approach. I would
be very wary of an assumption—an unproven assumption—that
anyone who beats us is doing it for reasons which are other than
transparent. I do not say it never happens but I do not think
it is the norm. On the other hand, there is the issue of Korea
which is a different kettle of fish altogether. Certainly it is
my view and the UK Government's view that action against Korea
should have been started in the World Trade Organisation some
time ago because we think there are unfair practices there.
Mr Weir
164. Do you think then that the United Kingdom
yards are able to compete in world markets anywhere? You do not
feel there are any hidden subsidies in Korea?
(Mr Wilson) We think there are hidden subsidies in
Korea and therefore we think that the EU should have initiated
action against Korea some time ago and it has got mixed up with
other issues. There is always this problem of whether you delay
resolving the problem by starting a formal action or whether you
proceed, and in this case if the EU had proceeded earlier they
would be much further down the road now in tackling unfair competition
from Korea.
165. Is the United Kingdom Government pushing
the EU to start the process?
(Mr Wilson) The UK Government has been pushing the
EU within the Council of Ministers for some time to do this.
166. Is there any prospect of it happening soon?
(Mr Wilson) Something happened last Friday.
167. Korea won!
(Mr Wilson) My advisers say not very much so—
Mr Joyce
168. In the previous evidence session we heard
in the United States that if you want to operate in US waters,
including places like the Caribbean to which they refer, you had
to build your civvy ship in America. That seems to be quite a
restrictive practice. Is that legitimate on the one hand and is
there anything we can possibly do about that?
(Mr Wilson) It is called the Jones Act and it is a
fairly classic piece of American protectionism. Whether there
is anything we can do about it or not — It is grandfathered
under the OECD and there is nothing we can do effectively.
Mr Robertson
169. Is there any case for introducing subsidies
for shipbuilding within the European Union?
(Mr Wilson) No, we are very much against their reintroduction.
170. I did not ask if you were against it. I
said is there a case to do it and can you do it?
(Mr Wilson) It is theoretically possible but politically
impossible because there would be a number of Member States in
the same position as ourselves who have gone through the agonies
of getting rid of subsidies who certainly are not going to want
to reintroduce them. There is a proposal which is linked to the
Korean issue. This is the interplay of issues. The opposition
within the Council of Ministers to taking action against Korea
for subsidising their industry is that some Member States want
to counter Korean subsidies by introducing subsidies of our own.
It is another way of tackling the same problem but we think it
is the wrong way of tackling the same problem because it gets
back into an auction of subsidies and a) we do not want that and
b) there is absolutely no reason to think we will win under that
option. We could end up re-introducing subsidies only in order
for ourselves to be more effectively competed against.
171. Part of the evidence mentioned in the previous
session was the fact that Germany had used EU subsidies to upgrade
their yards and that we should have done the same thing.
(Mr Wilson) That was in the very special circumstances
of the reunification of Germany and I think at that time there
was such massive political advantage from that happening that
there was a mood that there also had to be liberality in determining
what the Germans could do with the economy of the former GDR.
172. Do these rules not still exist within the
EU? The one I am thinking of is if a yard diversifies into other
industries then they were allowed EU subsidies to do that.
(Mr Wilson) There may be circumstances in which they
would apply but certainly the general movement is away from subsidies.
I would be very surprised—although I will check and come
back to you—if that were still an option. I think it was
in relation to the particular issue of German unification.
Chairman
173. We will have a look at collaborative working.
Has the Task Force Report led to revised practices within the
UK shipbuilding industry being discussed and, if so, which might
have beneficial consequences for Clydeside?
(Mr Wilson) I think the existence of the Forum points
in the direction of collaborative working and certainly it is
very much in the spirit of the Forum to encourage companies to
work together. There is no doubt that where companies work together
and each ends up with a part of the contract, then everybody benefits,
compared to a situation in which they compete bitterly and someone
else comes through the middle and wins the whole of the contract.
We are very much in favour of collaborative working. Indeed, it
was one of the major conclusions of a DTI study of the Netherlands
because a lot of the success of the Netherlands' industry has
been due to that same approach. Yes, there are individual companies
but there is also a collective entity which is the Netherlands'
industry which is prepared to work together. It is rather like
the Pilot metaphor I was using where companies can find ways of
working together while maintaining their commercial rivalry.
Chairman: Thank you very much.
Mr Joyce
174. I think this is probably a Scotland Office
question although it strikes me that some of this stuff would
be devolved. About 20 per cent, as I understand it, of the employees
in the shipyards are over 56 so they are going to fade out in
due course and the company will need, as BAE SYSTEMS gave evidence
earlier, to attract new people in by up-skilling them. From my
modest knowledge of the private sector, they tend to want, understandably,
to cut the training to the bone so that people are fit for purpose
for doing a very specific thing within their company. Are we confident
that at the moment the workforce is being given additional training
one way or another, through the company, perhaps through assistance
from government agencies, to ensure that they are both flexible
within the company and within the market and, indeed, within the
wider economy?
(Mrs McGuire) You are maybe aware that the Task Force
has undertaken a skills audit and that work is on-going at the
moment. I understand that the DTI is creating a database of the
skills that are available. Obviously the unions are very, very
keen on us investing to upgrade the skills. You have identified
a clear issue there that as the workforce gets older we have to
reinvigorate and refresh and perhaps establish new skills for
those who are younger. We have certainly been working with the
Task Force to encourage that skills audit. You are right, some
of that work has been undertaken by the Scottish Executive and
links into ourselves or the Task Force.
(Mr Wilson) If I can confirm that. One of the major
areas of concern for the Task Force was that this is an ageing
workforce and that if new people are going to be attracted into
it there has to be both an upgrading of skills and also a long-term
future in the industry. It is correct that the DTI, working with
the Department of Education and Skills, has just signed a contract
to compile a database of workers in the shipbuilding and related
industries, which again includes oil and gas, and that will give
details of the age, address, CV of workers and that will be generally
available within the industry. Also they are working with the
MoD and it will be possible to link skill shortages which the
MoD is encountering with the database, and hopefully that approach
will lead to men being matched with jobs.
(Lord Bach) Could I just say a word, with your permission
Chairman, the Rand Corporation, a non-profit, American corporation
that looks into defence matters—they are the ones that had
a big say in our Type-45 procurement strategy—are involved
in work to assess the shipbuilding strategies of the two competing
aircraft carrier prime contractors. They have visited the prime
contractors, been to the shipyards which could be involved (and
that obviously involves the Clyde) in aircraft carrier construction.
They are analysing their data. They are going to report their
findings both to the MoD and to DTI later this summer. That will
help us decide who wins that particular contract. Much more important
than that in the sense of this question, it will assist in establishing
the skills that will be required to support the large aircraft
carrier programme and other programmes that Mr Wilson and Mrs
McGuire have been talking about .
(Mrs McGuire) The timing of all this is vital because
the skills assessment is currently on-going and we have to make
sure we do not lose the opportunity when the next tranche of work
comes on-stream.
Chairman
175. You will be glad to know that we have come
to the last question and I would ask you all to get your crystal
balls out. Lord Bach touched on it earlier about the future of
the Clyde. Can you give us what your assessment of the future
of employment in shipbuilding on the Clyde might be?
(Mr Wilson) I think everything we have said and I
am sure everything you have heard from BAE SYSTEMS points to the
fact that there is now a more stable platform for security and
growth than there has been in many years, and therefore I would
take an optimistic view. I think maybe the most significant thing
about the Task Force was the way the stewards who were on the
Task Force came round to that view as well, albeit with some doubts
from Yarrows because they are so dependent on export orders. They
realise that although they had shed jobs (and at the end of the
day it was fewer jobs than had been feared) that once that hump
was got over, there was then ten years of work there. There are
not many industries and certainly it is a novelty for shipbuilding
in my experience to be able to say there is ten years of work
there. Therefore I have every reason to be optimistic. I want
that optimism to include Fergusons because I think it is tremendously
important that we maintain a merchant shipbuilding capacity on
the Clyde hopefully and also for growth in the future.
(Lord Bach) I agree with everything Mr Wilson has
said. From an MoD perspective we have placed a considerable amount
of work with Marine Clyde Shipyards recently. I repeat what I
am sure you have heard many times before, no shipyard can depend
on MoD work alone and we expect the company which runs these yards
to be rigorous in its search for other customers. From an MoD
perspective, of course, I must say this: there are several good
warship builders around the UK and obviously the MoD must treat
all parts of the industry on a fair and equitable basis. I know
that is what the Committee would expect me to say. It does look
good in the future, as Mr Wilson says. I think the Committee should
look ahead of the next ten years, with respect. That is the time
when a feast is sometimes followed by famine. It would be very
sad if that happened in this case.
176. Unusual as it is, we will let the woman
have the last word!
(Mrs McGuire) I obviously do not disagree with any
of the sentiments that have been expressed before, but I think
the Clyde is in a good position. Historically, 12 out of the 16
Type-23s are Clyde-built and two out the five serving Type-22s
are Clyde-built but, in saying that, we cannot afford to rest
on our laurels. There is a good solid baseload of work there from
the MoD but the export market is still vital and certainly that
is a role that the Scotland Office will look forward to playing
in encouraging the exports and also in highlighting the opportunities
abroad for very good, skilled Scottish shipyards.
Chairman: Thank you very much indeed, Mrs McGuire.
Ladies and gentlemen, can I thank you very much for coming along
this morning and for giving us very full and frank answers and
for co-operating with us in this inquiry. We are very grateful
to you and we are sure that your evidence will be very useful
to us when we come to compiling our report. Thank you very much.
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