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Anglo-Brazilian Trade

Volume 531: debated on Thursday 29 July 1954

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10.9 p.m.

I wish to discuss a subject tonight in which, I am afraid, a great deal of political interest has not been shown lately, and to which a little time might be devoted now.

There has been a great deal of talk in political circles in this and other countries about the need for the development of trade with the East. Generally, that does not include Japan; Japan is not a Communist country, and, therefore, there does not seem to be a great deal of interest in trade with her.

I want to talk about another non-Communist country. I want to talk about the need to concern ourselves a little with West-West rather than East-West trade. I want to talk particularly about Brazil.

Brazil is a country in respect of which trade difficulties with this country are in some ways the same as those which exist between Great Britain and China, but they are not complicated by such questions as strategic considerations. In the last two years, something has gone wrong with trade between this country and Brazil, as was pointed out in a very important and striking article in "The Times" of 17th February this year. Three years ago, Brazil was one of our best markets in South America. In 1951, only 14 countries offered better markets for British goods than did Brazil. "The Times" drew attention to the situation in these words:
"Never before in the history of Anglo-Brazilian relations has the trading atmosphere been as dark as it is today … The Anglo-Brazilian Payments Agreement has soured relations all the more, and the recent visit of Mr. Heathcoat Amory, Minister of State at the Board of Trade, did little to sweeten the air."
It behoves us to ask ourselves why we have got into this serious state in our trading relations with Brazil, when only a few years ago our reputation and trading connections stood higher, possibly, than they did in any Western European country.

First, the House ought to know what is the picture of trade relations with Brazil. In 1951, we imported from Brazil £66 million worth of goods; by 1953, our imports had fallen to £29 million worth. We exported to Brazil in 1951 £55 million worth, and in 1953 only £17 million worth. These figures are sufficient, without going into the tables year by year, to indicate how serious was the drop in those two years.

The case is pretty well-known to everybody. It is that of the commercial debts that exist between Brazil and this country. The House knows that this commercial debt position arose from a quite unexpected and unprecedented situation that occurred in 1950, when Brazil, like many other South American countries, was persuaded that there was a great possibility of war within the next few months, the result being that there was a considerable amount of panic buying and sterling resources were exhausted. This was followed, when the war scare disappeared, by inflation, and many Brazilian goods were driven from the markets of the world.

The immediate result from our point of view was seen in the fall in cotton purchases from £32 million in 1951 to £1 million in 1952. Total sterling debts at that time developed to about £65 million or £67 million. I understand that the position was not made any better by the fact that the Export Credits Guarantee Department decided to suspend cover on Brazilian trade. The immediate result of that was the situation which was reported in "The Times" article, to which I have already referred. Our trade relations with Brazil are worse than they have ever been.

I must confess that my attention and interest was drawn to this matter by the reports which began to appear in the Press followng "The Times" article, and representations made to me by some of the steel firms in Sheffield which are interested in Brazilian trade. I should like to quote a few lines from a report which was circulated by the managing director of one important Sheffield steel firm only a few months ago, following a visit to South America in March and April of this year, in which he tried to develop trade between Brazil and the Sheffield steel industry. He said:
"This market"—
"is closed to British steel and likely to be for some time unless our policy alters … one of the largest importers … can easily take 100 tons of Sheffield steel per month."
He goes on:
"We called at the following Brazilian ports: Bahia, Rio, Santos. I walked the lengths of the docks at two of the ports, and part of the other. There were plenty of imports, agricultural machinery from U.S.A., machinery and parts from Germany, steel and tubes and pipes from Japan, wire from Belgium, etc., etc. At each port I asked if I could be shown any British material on the dockside—alas, no."
I know that this picture is true of other places, but I am dealing with Brazil, which may be even worse than other places.

What is happening is shown by the three extracts from the report of the Sheffield director, to which I have referred. This report can be elaborated, for example, by a report in the American "Journal of Commerce" dated May, 1954, to show how our competitors are cashing in on the situation. This report, which is not directed to Britain, says
"Japanese and Brazilian officials are negotiating the renewal of the commercial agreement between the two nations that will regulate exchange of goods expected to reach a record value of more than 100 million dollars both ways this year. … Japanese purchases of Brazilian raw materials and goods reached the astonishing level of 55 million dollars in 1953, moving Japan up from 14th to seventh among the South American nation's world customers.
At the same time, it became apparent by the end of 1953 that Japan would obtain a much larger slice of Brazil's total imports this year than it did during 1953."
The article concludes:
"Japan … will … continue to ship to the South American country finished textiles, raw silk, chemicals, machinery, iron-steel products, coastal craft, and sundries."
That is the position of trade between Brazil and Japan, and I have no objection to it. If Japan can get the markets she is as much entitled to them as is anybody else. However, we have to consider our own position and to get our share of the markets if we can. It is not only a matter of Japan. The same thing can be said about other countries. The article in "The Times" drew attention to the fact that Germany is cashing in very much on this market and that, for example, British cars are off the market altogether.

Need this situation go on indefinitely? It is true that we have a debt problem, but so have other countries. I understand that Germany had a very much heavier debt in Brazil than we did. Germany has been in the market for only two years and now has a credit of some £90 million, and has not ceased to give credit to Brazil, realising that Brazil is a developing country and a fairly safe investment. As a result, her exports are soaring in that country.

There has been a slight improvement in recent months. I saw reports in some of the Brazilian commercial magazines, such as the Chamber of Commerce Magazine, that English Electric has recently sold locomotives to Brazil worth about £7 million, but I am also told that there was a long and bitter struggle before the company could get cover for that money. I believe that a certain amount of television equipment is going to Brazil from this country, which is all to the good. I understand that the result, up to date, is that our imports from Brazil have gone up from £29 million in 1953 to £18 million for the first six months of this year. Of course, that does not mean that our imports this year will amount to £36 million, but it does represent an increase.

What is important is not just the total figures. Assuming that we take imports at £36 million based on the first six months of the year—ignoring the seasonal changes which take place in trade—as against the £29 million of last year, that looks good; but when one takes the figure in relation to the existing debt and looks at the arithmetic of the thing, it does not look so good. If we take the total amount which we import from Brazil and which we pay for in sterling, including the oil from the sterling countries, that gives Brazil £36 million to play with and with which to pay for goods from this country and the sterling area.

We have a fixed agreement for £15 million for payment with the sterling area, and then there is the question of the debt payment which is likely to amount to some £12 million. On top of that, we have, of course, the invisibles, including the interest on the debt, which is estimated at £5 million. This accounts for £32 million out of the £36 million, leaving £4 million for current purchases from this country for the whole year.

I believe that the Bank of Brazil has only just released £1 million, which means that £3 million remain in the kitty for the rest of the year. What kind of prospects are there for any substantial development of trade or for the cutting in on markets which have been so considerably exploited by our competitors, so long as that situation exists? On 25th May, I asked the President of the Board of Trade, in a Question, what the debt position was and what reduction had been achieved under the 1953 Agreement. He replied:
"Commercial debts owed by Brazil to the United Kingdom have been reduced by about £20 million since October last and now stand at approximately £40 million."
That is a reduction of roughly one-third of the total in six months. He added:
"It is not to be expected that normal trade will be fully restored with Brazil so long as Brazil is in balance of payments difficulties."—[OFFICIAL REPORT, 25th May, 1954; Vol. 528, c. 17.]
I now want to examine why it is not possible, and whether, in fact, some modification of the position cannot be made, because here we have a credit—that of the £60 million commercial debt, of which, in the first six months of the Agreement, Brazil has repaid £20 million due, I quite agree, to special considerations such as the borrowing of up to £10 million from the International Monetary Fund and the heavy cotton buying which took place at the end of 1953 which enabled Brazil to accumulate a sterling reserve. The fact is that, on top of that, Brazil is continuing to pay towards the reduction of this debt.

I understand that she paid £1 million this month, and on that basis it will take 5 or 6 years to repay the whole debt unless there is, for instance, some more heavy buying of cotton or an arrangement for spreading the debt. Does not the Minister think that, as Brazil has not only repaid a considerable portion of the debt in such a short period, but has shown evidence of wishing to clear off the remainder as speedily as possible by allocating a considerable amount of the very little sterling which she gets from exports to this country, we can consider making a bolder approach towards the development of trade by giving a little more credit and by showing a little more confidence in that way?

Here, of course, the Export Credits Guarantee Department comes in. I do not want to develop a debate on that but I understood that that Department was set up for the purpose of encouraging and developing the export trade when the commitments were possibly too risky and too dangerous for private enterprise to undertake, or when private enterprise was unnecessarily hesitant. It seems, however, that the Export Credits Guarantee Department is developing into something like the ordinary commercial concern which is not prepared to look at anything in which there is not the prospect of an immediate and easy profit.

Is it not possible for that Department—which does make a profit I believe in a number of its transactions—to risk those profits? In this case I do not think there is much risk but where there appears to be risk, or where private enterprise is hesitant to undertake it, is it not possible for some of these profitable transactions to be transferred to secure an easing of the situation in several directions? I am no economist and I do not propose to analyse any of the proposals which I put before the Minister. I only put them to him in the interests of my constituents to see whether they have been considered and what the answers are.

Another proposal might be a long-term Government loan to cover the outstanding debt and so release the amount of sterling earned by Brazilian exports to this country which would develop imports by Brazil from this country. Another alternative might be to try, by some means or other to boost imports from Brazil, say this year, from a figure between the £36 million and £38 million which it seems likely to be to something like £45 million. I understand that if by some special boosting we raised the figure above its present rate Brazil would be prepared to consider repayment of her debt on a sliding scale from £6 million to £7 million or £7½ million.

Alternatively, would it be possible—in the light of developments since the 1953 Agreement, the amount paid off and the obvious willingness and determination of Brazil to pay off the rest—to make a new agreement spreading the instalments over a much longer period and so releasing sterling during that period for the development of trade? Amongst a number of letters which I have received on this subject here is one which refers to one disturbing fact. In this letter I am told:
"… it is cheaper to buy Brazilian produce such as, for example, raw cocoa beans for shipment via the continent than for direct shipment to the United Kingdom. The reason for this is that, through the intervention of a dealer on the continent, Brazilian offers in 'Convention' dollars, say to Holland, can be switched into sterling which shows a considerable discount against offers in sterling from Brazil for direct shipment to the United Kingdom. The result of these operations is that the United Kingdom importers are paying continental countries, principally Holland, for Brazilian produce thereby helping those countries with their exports to Brazil and preventing Brazil from earning sterling."
That kind of thing is likely to develop unless we can find ways and means of encouraging direct trade between this country and Brazil rather than driving the Brazilians to these roundabout methods of getting into our markets.

I do not know how far the Government are responsible for the situation. I now find myself in the somewhat embarrassing position of suggesting that, because private enterprise does not seem able to face the position, the Government should intervene, so assisting private enterprise to make more profits—but there is not much point in going into that question. The fact is that we have a Conservative Government. We must rely on private enterprise. If private firms cannot do it we must face the alternative either of letting things slide or of the Government taking steps to enable the trade to develop.

Brazil is bigger in space than the United States. Its potentialities and untapped resources are probably greater even than those of the United States. In one journal recently I read that in the last 10 years there has been in Brazil a 100 per cent. increase in passenger train miles. That is comparatively big, but it can obviously go on increasing by 100 per cent, as the development of Brazil gains impetus in the modern world. Roads are being developed even more quickly than rail and there is therefore every reason for us to have the maximum confidence in Brazil and to take what in other countries—fully-developed countries—might be regarded as unusual risks in credit facilities.

I understand that Sir George Nelson, Chairman of The English Electric Company, Ltd., is in Brazil and has said that he is there with the full support of the British Government in order to improve trade. If he is there with the full support of the British Government, I want to ask the Government what that support represents and how Sir George Nelson will be assisted in any opportunities he may find for developing trade with Brazil. How will he be assisted—by Government action or, alternatively, by some other action; and if by some other action, what action? If he is there with the full support of the British Government, presumably the Government have something in mind to see that his work is not entirely useless.

I am not seeking to criticise the Government; I am asking for information. My constituency of Sheffield is largely dependent upon the steel industry and the steel products industry, for which there is a considerable potential market in Brazil, and we are very interested in this question. I have no doubt that the people of the Lancashire constituencies are also interested in it, because British textiles previously found a good market in Brazil and I understand that at the moment they find no market at all. Our textile industry can do with all the markets it can get. No doubt Binning-ham and other car-producing towns are equally interested.

I am therefore pleased to have had this opportunity of bringing this matter to the notice of the House in order to give the Minister a chance to reply fully to the points which I have made. I hope that he will be able to give us some positive assurance so that we are not left with the thought that Brazil, in which British enterprise, investment and trade have played such a large part, is now to slip through our hands and to find its way into the hands of Germany, Japan and our other competitors.

10.33 p.m.

I am grateful to the hon. Member for Sheffield, Attercliffe (Mr. J. Hynd) for having raised this question. I little thought, when I arrived back from Brazil last night, that on my first day here there would be a debate on the very subject which I have been trying to study on the spot during the last three weeks. That is not the only reason for my gratitude; I am also grateful because the debate gives me an opportunity to congratulate my right hon. Friend, who is to reply, on his new appointment. It must be almost a unique occasion when a Minister of Agriculture replies to a debate on trade with Brazil.

The hon. Member was right when he said that the problem arose from the fact that Brazil bought too heavily as a result of her fears about the outbreak of a world war after Korea. It has made the position astonishingly difficult. No one is more interested than I am in exports to Brazil, but the fact remains that those who have exported to Brazil want to be paid for their goods. The hon. Gentleman spoke of extending credits or loans, but we must realise that this country is not in a particularly happy position for extending loans and credits at the moment. We have not a very large surplus which we can afford to use for that purpose. There are many countries in the Empire which are desirous to take any opportunities in this direction which exist.

Having said that, I must say how much I sympathise with much of what the hon. Member said. Brazil is a country in which we have inherited wonderfully good relations. Apart from our traditional friendship which is a very real factor there is a tremendous feeling of real business friendship in Brazil today, but the brutal fact of sterling shortage remains and is extremely difficult to overcome. I should like to make one point about the question of export credit guarantees. The present system of obtaining sterling in Brazil, which is by auction under the Aranha system, means that when an importer or agent has obtained a licence and the necessary sterling to import goods from this country he creates a guarantee in himself. The great majority of exports from Great Britain to Brazil are guaranteed by the peculiar and interesting method that the Brazilians use to provide sterling credit to finance these operations.

I seriously ask my right hon. Friend to consider the question of extending these guarantees even further, though obviously he cannot give an answer in a debate at this late hour. This is a matter which deserves far greater consideration than we can give to it now. I hope that one day we shall have a full-dress debate on the important question of trade with Brazil. When one talks about trading with Brazil many people think only that one is talking about trade with one of the countries of South America, but the population of Brazil is rather more than that of the whole of the rest of South America put together and in size the country is larger than the United States.

Brazil has made a tremendous effort to pay off her debts and I think that the visit of the Minister of State, Board of Trade, had a successful issue. At the time it created a certain amount of despondency but after consideration I think that it was realised that the douche of cold water was necessary. When I was in Brazil I heard from many sides indications that people were ready to face the realities of the trade situation between Great Britain and Brazil.

Quite soon a deputation of exporters is coming to this country from Brazil. They will not be the official guests of the Government but it is vital that the Government should do their utmost to see that these people have every possible opportunity to meet their opposite numbers, the importers in this country. I am certain that when they arrive they will be ready to do their best to do business. I hope that this will prove a very satisfactory experiment. It is up to the Government to do all in their power to increase trade by increasing exports from Brazil to this country and I am confident that they will make the most of this opportunity.

10.38 p.m.

I am very grateful to the hon. Member for Attercliffe (Mr. J. Hynd), on probably the last occasion that I shall be addressing the House from this Box on behalf of the Board of Trade, for raising a subject which falls fairly and squarely in the field of overseas trade. Whether I shall do justice to it I do not know, because my mind is already being re-filled with subjects like eggs, foot and mouth disease and myxomatosis. I fully understand the hon. Member's concern at the low level of trade between this country and Brazil and I assure him that his concern is shared by Her Majesty's Government.

The hon. Member will agree that the basic reason is Brazil's shortage of sterling. The hon. Member has already referred to some of the difficulties and I can illustrate them. In 1951 our imports from Brazil amounted to £66 million. In 1952 they had fallen to £15 million. In 1953 they had risen again to £27 million. This year they are running at the rate of £36 million. That fits in fairly well with the figures quoted by the hon. Gentleman. I am afraid that we must acknowledge that the figure for 1951 was abnormal. It reflected abnormal purchases of cotton.

The point I want to make is that Brazil is perfectly free to earn sterling not only by selling to the United Kingdom but by selling in almost any other country in the non-dollar world. As a corollary to that, she is not only free to earn sterling in those areas but is also free to spend her sterling in those countries, and we can have no objection to her doing that.

Our imports from Brazil have traditionally been cotton—most important, coffee, cocoa, softwood, iron ore, nuts and bananas. In case we feel too depressed about this, it is encouraging that our imports from Brazil are showing an upward trend now, as I hoped they would when I was over there six months ago. It is also interesting that last year Brazil succeeded in earning £6½ million in sterling through sales of coffee in countries other than the United Kingdom.

The hon. Gentleman implied that we were doing nothing to help Brazil in a positive sense, but we are doing something in a positive sense in that we have opened our markets here to the exports of Brazil, making them almost entirely free of restrictions. If the hon. Gentleman says that that is a rather negative thing to do—

Yes, it applies to cotton and all the main exports of Brazil except bananas. Bananas are subject to a quota, but after June next year they will also be on open general licence. When we look round the world and see how few countries that applies to, surely we can say that that is a positive act to assist Brazil.

I turn now to the question of commercial debts. As the hon. Gentleman said, these amounted to about £60 million, though at their peak they rose to £70 million. Today they are something under £40 million. They began piling up, in a rather dangerous way by the latter part of 1952.

The debt agreement arrived at last year provided for an initial repayment of £10 million. As the hon. Gentleman said, this was going to be raised by Brazil by a loan from the International Monetary Fund. Then there was to be an annual payment, not of £12 million but of £6 million, which could be increased on a sliding scale if Brazil's earnings of sterling exceeded the estimate of that time. The figure is £6 million or better, but I do not think that we ever visualised anything like £12 million.

At the time the debt settlement was arrived at the criticism against Her Majesty's Government was not that the terms were too severe but that the repayment was spread over too long a period. Now we are meeting the kind of criticism which the hon. Gentleman has mentioned—that we have spread the repayments, in agreement with the Brazilian authorities, over too short a period. However, when I look at it—I have looked at it on very many occasions—it seems to me to be about right on the whole.

The hon. Gentleman mentioned an estimated earning of £30 million to £35 million sterling. That is a reasonable estimate, but out of it only £6 million is allocated, as it were, for debt repayment. I do not think that that is an unreasonable proportion. I am told that we should not have agreed to the Brazilians spending £15 million on oil, but they would have liked to have spent more. They are spending more, but are making up the difference in dollars. Brazil is short not only of sterling, but of dollars, and I think in all the circumstances that the settlement of the commercial arrears is not far wrong.

I should like to make the point, because sometimes one hears the statement that very substantial proportions of the arrears were covered by the Export Credits Guarantee Department for which the Government, indirectly through that Department, were responsible, though they were less than half.

It is sometimes suggested that the Government should have taken over the debts. That was considered, but the Government came to the conclusion that it would not be reasonable in all the circumstances. If the terms of the payment had been spread over a lesser period it would not have helped Brazil; it might have helped the creditors, but the only way we could help Brazil was to spread it over a longer period.

But our resources are not unlimited. We have from all over the world and from the Commonwealth many demands for loans and investments. What we can afford to do must be related to the surplus we can earn on current trading. In addition we have to consider the claims of one country as against another. If we found ourselves unable, as we did, to spread the repayment over a much longer period, that was because our resources were insufficient. We are very appreciative of the way in which the Brazilian authorities have carried out the debt agreement in the last nine months. They seem to have set to work to carry it out scrupulously.

The hon. Gentleman referred to the German position. To the best of my knowledge the amount the Germans were owed in commercial arrears was not as large as ours. It was something less than 100 million dollars.

The hon. Gentleman also referred to the Brazilian import policy, and my hon. and gallant Friend the Member for Horn-castle (Commander Maitland) also mentioned the auctioning of sterling. The currency available to the Brazilian authorities after paying for necessary imports is put to auction in different categories. Only £1.4 million sterling has been auctioned so far.

I want to say a few words about the E.C.G.D., because otherwise there might be a danger if I were to accept what the hon. Gentleman said. The Department is under a statutory obligation to pay its way, and it must operate on commercial lines. The hon. Gentleman said that he does not believe that it makes money. For 30 years it has just paid its way. In the last year or two, mainly because of the unfortunate situation in Brazil, it has got in the red. It is in the red now. There again it must have some regard to commercial considerations. It must operate, largely on the advice of the advisory committee of men skilled in finance and commerce.

Can my right hon. Friend tell the House the extent of our indebtedness through the system of E.C.G.D. in the Brazilian market? Is it not the case that if the advice had been taken of those best informed on these matters and the Government had taken action dictated not by political considerations but by commercial transactions the extent of that debt would not be nearly as great as it is today?

My hon. Friend brings a blush to my face because I must acknowledge that there is something in what he says. There is £16 million outstanding to E.C.G.D. in the case of Brazil, but there was a sum of £20 million to £25 million. It is true that our commercial advisers recommended us to stop earlier than we did, but, looking back, I cannot say that the Export Credits Guarantee Department could possibly have postponed withdrawing cover longer than it did. If it made a mistake it was that of continuing too long, and it may be that we could be criticised for having postponed re-opening cover unnecessarily long. But within a few months of the settlement of the debt and the initial payment under it, we have re-opened E.C.G.D. We may be condemned for not doing that sooner, but I hope not.

I should like to add that we have the situation continuously under review and we are hoping that gradually we shall be able to remove the restrictions, such as they are, that we have on E.C.G.D. cover. We did re-open cover only within limitations, but we shall consider the points that have been raised this evening in that connection. We look forward to the time when we shall be able to offer the same cover to Brazil as we do to other credit-worthy countries.

I want to say a few words about the Parliamentary delegation which has recently visited Brazil under the leadership of my hon. and gallant Friend the Member for Horncastle. I wish that there had been more time this evening to hear more about that visit from my hon. and gallant Friend and his colleagues on that delegation. Judging from the reports which we have had from Brazil, the mission was a great success. The Brazilians liked my hon. and gallant Friend and his colleagues from both sides of the House. They did a good job. I have received reports about the visit from members of the delegation, and I should like to thank them for their help. I can assure hon. Members that we are giving them careful consideration, for we attach very great weight to what is said in those reports.

I should also like to refer to the visit which Sir George Nelson recently made to Brazil. We welcome that visit, for it is the kind of visit from our leading industrialists that we like to see. Sir George is a man of tremendous energy and experience, and we hope that many other people will follow his example.

We are delighted that the Brazilian Exporters Association are to send a trade delegation here in the Autumn to study the United Kingdom market for Brazilian exports. That seems to be an excellent thing to do, and it received our support directly we heard about it. Her Majesty's Government will do everything they possibly can to ensure that the delegation's visit will be fruitful from every point of view.

In conclusion, I should like to say that we share fully the hon. Member's concern about the low level of current trade with Brazil, but the key to the whole situation is somehow or other for Brazil to earn more sterling. We should do everything we can to promote and to foster an improvement in that respect, and to help and to promote the sale of Brazilian exports to this country.

As the hon. Gentleman said, the Government do not buy cotton, timber, cocoa, or other commodities. It depends on whether our importers find Brazilian products at the right price and of the right quality. We have every hope that we have passed the bottom and are on the upgrade. We are sincerely anxious to see the volume of trade rise to a better level, and I believe that it will. We agree that Brazil has tremendous potentialities. Her development is going rapidly ahead. Within our powers and the scope of our responsibility we will do all we can to help forward an improvement in the level of trade.