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Motor Cars (Trade With Japan)

Volume 884: debated on Wednesday 22 January 1975

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1.47 a.m.

The subject which I wish to raise is one that I have mentioned frequently over the last two years or so under successive Governments. It concerns the imbalance in trade between this country and Japan in motor car exports and imports. I wish to make clear from the outset that my call tonight is not for a ban on the importation of Japanese cars, but for the British industry to obtain a basis of fair trading in which British manufacturers can export to Japan in the same free and unhindered manner that Japanese manufacturers can export to Britain.

Perhaps I should give figures in order to put the House completely in the picture. In 1973, the last complete year for which we have figures, Japan exported to the rest of the world more than 2 million vehicles. Imports of vehicles into Japan amounted to just 37,000. That in itself is a startling comparison. I will not go into details of individual countries except for Britain since the statistics are important for the purposes of the debate.

In 1973, the last year for which we have complete figures, the United Kingdom managed to export to Japan 1,266 vehicles. We imported from Japan 81,841. In January last year the penetration of the Japanese industry into the British domestic market was4·65 per cent. This rose to an admittedly abnormal level of 12·69 per cent. in November. Over the year penetration rose from 5·7 per cent. to6·6 per cent. at a time when the car market in Britain was in fairly rapid decline. That did not hold up Japanese exports. They were able to take advantage of the situation and increase their degree of penetration. Anything I say in the debate has the backing of not only all the trade unions involved but every section of the industry, including the manufacturers in every area.

Why should we be concerned? First, there is the obvious point that we are losing some of our domestic market to overseas competition. That in itself is not unreasonable, but it is unreasonable when we are losing it to people who are deliberately hindering the ability of this country to match, car for car, the import penetration that their country can make into our market. This is done by a process of totally unfair practices. The Japanese Government have been supported by our Government in saying that there are no import restrictions, but the investigations to which I have referred have revealed the following eight areas of restriction of the ability of the British car industry to export to Japan.

The first is the extreme difficulty the British car manufacturers come up against in the matter of type approval and the interpretations of the drafts of those type approvals—that is, the various standards that a car and its components must meet according to the standards of the country concerned.

The second area of difficulty is the delays in getting design approvals for foreign vehicles. Anyone who wants to export a car to this country must receive approval of design specification from the various standards bodies here. The same goes for any British manufacturer wanting to get into Japan, but there are extreme delays.

Thirdly, any slight change in the design of a British car or any part has taken a long time to be examined and to receive ultimate approval.

Fourthly, the Japanese authorities show an inadequacy in notification of changes in Japanese design requirements. That makes it difficult for British manufacturers to retool or to redesign the cars they hope to export to Japan.

Fifthly, Japanese emission requirements are found by British manufacturers to be over-stringent. They demand a far more complex standard than is demanded anywhere else in the world.

Sixthly, and probably one of the most critical areas, British manufacturers have found extreme difficulty in making necessary financial arrangements within Japan to sell cars.

Seventhly, in comparison with Britain and other parts of the world, there are close links between the domestic manufacturers and the dealers. I am assured by people who are in a position to know that it is almost impossible for foreign manufacturers to break into that spiral and obtain outlets for their products.

Lastly, even if a manufacturer can get a foreign car into the Japanese market there is a high mark-up, which makes it prohibitive from a sales point of view.

Quite apart from all those factors, there are a number of others concerning the import level at this end. Japanese manufacturers and dealers have been prepared to cut corners to gain the depth of penetration they now have into the British market and are currently offering cars at rates of interest on hire-purchase agreement of 8½ per cent., which is approximately one-third of what would have to be paid to buy a Britisht car. That is felt by British manufacturers to be an unfair trading practice.

But if the past has been bad enough, the future looks equally bleak. The Japanese Government agency concerned, the Japanese Ministry of International Trade and Industry states that a very careful analysis which it has made of the way the Japanese domestic car market will go in the coming years suggests that by 1980 they will have a domestic vehicle market of 5,490,000. They project that imports will number only 150,000, or 2½73 per cent. of the market. Their estimate is that by 1985 their vehicle market will have increased to 6,080,000 but that imports will be only at a level of 300,000 or 4½93 per cent. of the market.

In my opinion it is sheer madness for us to tolerate such blatant, unfair trading practices as that and to raise no objection. It is not good enough for the Secretary of State for Trade, who sent me a letter today on this very subject, to say, as he says in the final paragraph of his letter, that
"to impose discriminatory import restrictions against a country which supplies only a fifth of our car imports and whose car exports to us have declined by 13 per cent. over the past year would do little to solve these problems. Instead we should invite retaliation by the Japanese against our own exports".
That is a misuse of statistics. Although it is true to say that Japanese imports into Britain have declined, the total market has declined. As I have pointed out, the Japanese penetration as a percentage of the total market has increased.

If we examine the whole field carefully, we find that we are playing with someone who has quite openly and, it seems to me, consciously said that as far as Japan is concerned it is self first, self last and, if there is anything left, self again. The joke has gone on long enough. We have been prepared to play a game which the Japanese have never been prepared to play by the same rules with us.

I urge my hon. Friend the Under-Secretary, although I recognise that it may be impossible for him to say so now, to give serious consideration to the possibility of opening up immediate negotiations with the Japanese Government in the same way as we negotiated two or three years ago on television sets and say that we are totally dissatisfied with the current trading position and that if some kind of reciprocity cannot be arrived at within 12 months we must take unilateral action and apply some kind of ban on Japanese imports into this country. Failure could lead to the kind of disaster that we have seen in other areas of the British economy, and especially electronics, where Japanese imports have completely undermined our ability to sustain our domestic electronics potential.

The country is now fighting on the broadest front for its economic life. The car manufacturing industry is at the heart of our whole industrial activity. In the West Midlands, where Chryslers have gone onto a two-day week and Jaguars onto a four-day week, these matters are taken with perhaps rather more seriousness than in the rarified atmosphere of the southern areas of England.

We must at the earliest opportunity seek to get some redress. I hope that we can get a satisfactory answer from the Minister. I assure him that if we do not get such an answer there will be a uniting of all sections of the British car industry, from the shop floor right through to the upper levels of management, to ensure that the industry, far from imposing any kind of ban on the importation of Japanese cars, at least gets a fair crack at the Japanese market. In doing that we shall be doing a service not only for ourselves but for the rest of the world.

I must repeat that in 1973 the Japanese car industry managed to export to the rest of the world 2,300,000 vehicles. In the same year it imported only 37,000 cars Incidentally, half of those vehicles were from Germany. There is a serious problem. It is a critical situation from the point of view of the British car industry. I hope that the Minister can give us a satisfactory reply.

2.3 a.m.

My hon. Friend the Member for Birmingham, Northfield (Mr. Carter) has made a virtually unanswerable case in the economic interests of his constituency and also of my adjacent constituency.

I shall briefly emphasise the plea that my hon. Friend is making to the Government. As a Government and as a trading nation we are committed to the principle of freeing international trade. In general terms that makes good sense. However, I suggest that Japan is a special case. Japan does not subscribe to the general basic principle of seeking to free world trade. It pursues in a rigorous and self-seeking way the expansion of its own trade at the expense of the trading activities of other manufacturing nations. That can lead only to Japan hurting the trading activities of other nations and to the outbreak of a trade war.

The Japanese economy is powerful, and in the present economic circumstances of a world recession it is natural that each nation State should be anxious to protect its own interests. There is the danger of panic setting in and of each nation seeking to find its own salvation in unilateral measures which we all know from economic history are self-defeating and mutually destructive. That is the situation in which we find ourselves.

It is important not only for the economy of the West Midlands but for the British economy in general that we should forcefully inform the Japanese Government that we see their trading activities as a special case. I believe that other industrialised Western nations are coming to that view. The apparent failure of the British motor car industry in the Japanese economy is, as has been vividly demonstrated in my hon. Friend's speech, a defeat by a nation State which is pursuing self-interest in a rigorous way. That apparent failure fuels certain myths, legends or half-truths about the British motor car industry. In fact, it is one of the most successful exporting industries in the British economy when it is able to compete on equal terms with other motor car industries. It has weaknesses, of course. Some of them are exposed by the strategies of multi-national companies. But the case of Japan stands out very clearly and vividly.

The danger, however, is that people will reach conclusions about the British motor car industry which misrepresent that industry—for instance, that the industry is failing because its work force is not delivering the goods. We hear that repeated so often in different contexts. From the speech we have just heard, we know that it is far from the truth. The British industry produces cars of a quality which will match any, and could succeed if it was allowed to succeed. The obstacles which are placed in the way are placed there deliberately to produce this disastrous effect.

To suggest that if we acted against Japan, Japan would act against us is ludicrous as our effective export trade with Japan is marginal and any retaliation that the Japanese Government might mount would have a very peripheral effect on our already modest performance, and therefore a very marginal effect on the total performance of the British economy.

Finally, I reiterate the demand—and it is a demand—made by my hon. Friend that the British Government should act and act now, and be seen to be acting with determination. Because Japan is a special case. Japan is not playing the game. If Japan insists in acting in this way, she should expect that we, in our own way, would retaliate in self-defence and in our own interest.

2.6 a.m.

My hon. Friend the Member for Birmingham, Northfield (Mr. Carter) and my hon. Friend the Member for Birmingham, Selly Oak (Mr. Litterick) have raised a subject for debate tonight which has given cause for concern to many people in the British motor industry in recent months. I must apologise now for the fact that I am left with slightly under 10 minutes in which to reply to the debate, there being only half an hour available for the Adjournment debate. If I cannot complete my remarks, I apologise.

It is perhaps natural, at a time when the industry and its employees are facing great difficulties, which I readily acknowledge, that there should be calls for restrictions on imports. I can understand why these calls have been directed against imports from a country with which we have an undeniably large imbalance of trade in motor cars. I sympathise with the fears which prompt such demands; but I do not think that it would be right for the Government to accept the logic which seeks to justify them.

Imports of motor cars from Japan have grown rapidly in recent years. The main cause was the expansion of domestic demand in 1972 and 1973. In many fields British industry was unable to meet this demand. Imports poured in and in a number of cases secured for the first time a significant foothold in our market. Imports of cars alone doubled in this period. By this time last year import penetration had increased to 30 per cent. of the home market—an unprecedented state of affairs. If blame is to be attributed, it lies partly with a Government who created such favourable conditions for our foreign competitors, partly with management, which failed to invest sufficiently to satisfy this demand, and partly with a work force which sometimes engaged in unnecessary strikes, which in turn led to the under-utilisation of existing capacity. Certainly one can scarcely blame the foreign motor manufacturer, whether in Japan or elsewhere, for filling a gap which our own industry could not meet.

Nevertheless, as soon as domestic demand began to fall at the beginning of 1974, we also saw a fall in imports. In the first 11 months of 1974 total imports of motor cars fell by 27 per cent., and those from Japan by 13 per cent. The recent modest increase in the Japanese share of the market has largely been at the expense of other imports: as I have said, the absolute volume of their sales was 13 per cent. less in 1974 than in 1973.

At the same time—and my hon. Friend should take encouragement from this—the decline in the British share of the market has been reversed. In the first 11 months of 1974, imports accounted for 28·6 per cent. of the market, compared with 30·9 per cent. in 1973. For the first time for many years, our motor industry is able to meet demand for the great majority of its products. Of course, the industry is at present experiencing serious difficulties. But these difficulties are not directly the result of imports but rather of such factors as inflation, higher petrol prices and depressed consumer demand in OECD countries. Import restrictions directed against one supplier would do little to solve the problem.

My hon. Friend has drawn attention to the very large imbalance in our motor trade with Japan. We have had larger deficits in trade in motor cars with such countries as France and Germany. But only in the case of the Japanese is it suggested that obstacles in the way of our exports justify retaliatory action against their sales here.

There are many reasons for the relatively low level of import penetration in Japan. It is an unfamiliar and distant market for many of our exporters. They know that until the mid-1960s it was highly protected, and that they were not permitted to invest in the transport, distribution and servicing which is required for a market of that size. Unfortunately, it is all too often not realised how extensively the market has now been liberalised.

There are no longer restrictions on imports of cars in Japan. They were removed in 1965. The import duty has been steadily reduced, and now stands at 6·4 per cent. as against our own tariff of 11 per cent. Safety and anti-pollution regulations apply equally to both imported and domestic manufacturers.

As a result, Japanese imports have been increasing sharply in recent years and now account for about half the Japanese market for vehicles of 2,000 cc and above, but still a minute 2·1 per cent. of the total market. Nevertheless, it is reasonable to assume that Japan will become a large and growing market for imported cars. Many foreign manufacturers have already begun to increase their sales efforts in Japan.

Let me give the House some examples. German manufacturers have seen their exports grow by more than three times in the last three years. Volkswagen alone already sells more cars in Japan than the whole of the British industry sells in France or Germany. All the major American companies have rapidly ex panded their sales in Japan. They have established marketing arrangements with Japanese firms which are planned to lead to substantially greater penetration in the next few years. Even smaller manufacturing countries like Sweden have increased their interest in the market. Volvo has recently formed a joint venture sales company in Japan aimed at selling 10,000 cars by 1978 or about six times present British car exports to Japan.

Clearly, firms of this size would not waste their time if Japan was really surrounded by impenetrable barriers. There are undoubtedly difficulties in selling, but these have been exaggerated. Where they exist, the sad fact is that, while our competitors have been increasing their efforts in Japan, British industry has seen its share of the market fall from 18·8 per cent. of all imports in 1965 to 3·4 per cent. in 1973. We now sell half as many cars in Japan as we did a decade ago when the barriers to imports were much greater than today. This suggests that the obstacles to selling to Japan—in my hon. Friend's words, of getting a fair crack of the Japanese market—may be more of our own making than of the Japanese.

The fact is that there are excellent prospects for many of our high performance cars in Japan. Consumers there as anywhere else appreciate the quality of our vehicles. But, until recently, we have been unable to meet the demand in our existing markets at home and overseas, let alone to service a new and distant market on the other side of the world. I understand that it is the practice of Ford, Chrysler and General Motors to supply Japan primarily from their German and American plants. At the same time, British Leyland has been unable to expand very rapidly its sales of expensive saloons and sports cars when these were precisely the models in greatest demand elsewhere.

In considering any case for import restrictions, the British Government must have regard to their international obligations. It is not in the interests of a country which exports twice as much per head of the population as, say, Japan, to flout these rules. This would only encourage others to do the same.

Restrictions against Japanese cars would be in breach of our obligations under the GATT. The criteria for imposing import restrictions are clearly set out in the agreement. Moreover, the agreement insists on the non-discriminatory application of import restrictions. We cannot impose them on Japan alone.

Even if there were not serious legal objections, there are practical considerations which must influence any British Government. Many items in our growing trade with Japan show a very substantial balance in our favour. To introduce restrictions on imports would lead to retaliation against these British exports with a consequent loss of employment in the industries concerned.

To return to these policies of the 1930s would lead to a rapid deflation of international commerce to the disadvantage of the United Kingdom. We should be even more cautious about establishing such a dangerous precedent at a time when the balance of world trade is so precarious, and in an industrial sector, namely motor cars, where the United Kingdom is itself a substantial net exporter.

The present imbalance in our motor vehicle trade with Japan has one common root—the inability of the British industry in recent years to meet demand, either at home or in Japan. As this situation is remedied so I hope we shall see an improvement in the trading situation.

This Government will give every assistance to the industry in this respect. We are always ready to consider and, if justified, make representations about, any allegations of unfair trading practices in Japan. More positively, we have already opened informal discussions with the Japanese authorities on ways of improving the present arrangements for testing the motor vehicles which our industry exports to Japan.

In the Exports to Japan Unit of my Department and in the very strong commercial section of our embassy we have a professional expertise which is not matched by the official services of any other country. This specialist knowledge of the Japanese market and of Japanese conditions is fully at the disposal of the British motor industry. I can promise the House and the industry that we will provide all the help we can. Nothing would give me and my Department greater satisfaction than to see a rapid expansion of car sales to Japan.

That is the best way to maintain production and investment, assist the balance of trade and safeguard employment.

Question put and agreed to.

Adjourned accordingly at sixteen minutes past Two o'clock.