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Clause 4

Volume 927: debated on Tuesday 8 March 1977

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Amendments Of Export Guarantee Act 1975

I beg to move Amendment No. 2, in page 3, line 10, leave out 'and' and insert:

(c) to fix a limit on the commitments entered into by ECGD with those countries described in its annual accounts as "centrally controlled economies," and '.

With this amendment we may take the following amendments: No. 4, in Schedule 1, page 6, line 27, at end insert:

'of which no more than 10 per cent. shall be with those countries described in the annual accounts of ECGD as centrally controlled economies'.
No. 5, in Schedule 1, page 6, line 38, at end insert:
'of which no more than 10 per cent. shall be with those countries described in the annual accounts of ECGD as centrally controlled economies'.
No. 7, in Schedule 1, page 6, line 43, at end insert:
'of which no more than 10 per cent. shall be with those countries described in the annual accounts of ECGD as centrally controlled economies'.
No. 8, in Schedule 1, page 7, line 4, at end insert:
'of which no more than 10 per cent. shall be with those countries described in the annual accounts of ECGD as centrally controlled economies'.

Here we are suggesting that the "centrally controlled economies" should be restricted in the amount of ECGD support they obtain to 10 per cent. of all ECGD loans. The extent of ECGD credit extended to the Comecon countries and the centrally controlled economies has risen quite fast in recent years. Two years ago it was 10·3 per cent., in 1975 it was 11·4 per cent., and last year it reached 12·1 per cent., according to the ECGD report. It appears to be a proportion which is rising significantly.

Before we allow the new credits to be given under the Bill, we should ask ourselves whether we are happy about the trend that that proportion shows. For example, the credits that we now give to the centrally controlled economics are now greater in proportion than the amount of credit we extend to the rest of Western Europe, and greater than the credit we extend to North America. The credit that we extend to the centrally directed economies amounts to 43 per cent. of the total volume of exports from this country supported by ECGD credits. The proportion of the volume of exports supported by the ECGD is greater to the centrally directed economies than it is to the EEC and greater than to North America. While we give considerable support to our trade with the centrally directed economies, we get nothing back from their side. They are not extending credits to us. In all probability the position with other European countries or North America would not be the same.

It is right to ask whether the centrally directed economies are now such good risks. I understand that the hard currency debt of the USSR now amounts to 14 billion dollars. It could be said that that is not huge in relation to the USSR's total assets, although its indebtedness is greater even than that of this country, which takes some doing. The Soviet Union has not been in surplus with the West since the 1960s. It looks as though there will be a net deficit on its balance of payments for last year of about $3·5 billion, These are large sums. The debt servicing ratio in Russia now amounts to 21 per cent., which is a significant figure.

Russia is by no means the country with the largest proportion of debt with the West of all the Comecon countries. Poland, for example, is in an even worse position. I understand that Western credits extended to Poland now amount to about $9 billion, and that Poland's debt service ratio is even higher than the Soviet Union's, at about 25 per cent. We have a picture of a deteriorating trade position in the centrally controlled economies, and it is right to ask whether we are wise to extend such large credits towards those economies rather than to the rest of the world, including the developing countries.

Apart from these export credits, what are we to make of the separate credit that the right hon. Member for Huyton (Sir H. Wilson) arranged on his last visit to Moscow? Why should we be subsidising the Russians in that way? It will be interesting to hear the Minister's reply. He told us in Committee that it was the Government's objective to switch as much as possible of the financing of the ECGD from sterling to dollars. He felt confident that a good deal of our trade would be switched in that way, and I hope that he is right. It is difficult to know, because we do not have much direct experience, but the hon. Gentleman knows—because I have shown him the letter concerned and sent it to the Treasury—that at least one company is finding great difficulty in trading with the Russians in dollars. So far the Russians have refused to negotiate on any terms other than sterling. This matter lies at the root of the Bill, certainly the export credit side of it.

The whole idea of the export credit scheme is to save public expenditure by switching the financing of ECGD from sterling to dollars, but the Russians, who are getting an increasing part of our ECGD business, are refusing to trade in anything other than sterling. The Minister, who knows this is true, should tell us what our companies will have to do if they want to use the big line of credit which was negotiated by the right hon. Member for Huyton and of which the hon. Gentleman has boasted so much himself. How will they be able to trade if the Russians will not deal in dollars, and if they are to deal in sterling what will happen to the increase in the public sector debt, which will be the inevitable result?

I understand that the rate of interest offered to the Russians under the credit is 7 per cent. We had quite an amusing time in Committee discussing with the Minister what the rate was. He said that he was not prepared to disclose it, that it was all very confidential, but we now know that it is 7 per cent. I also understand that part of this line of credit has been drawn at 7 per cent. and deposited in London at 14 per cent.

The Minister must come clean about this and make a clear statement. Though I find it very difficult to believe, this is what I have been told. It is one thing to give the Russians generous credit to buy our goods. It is another thing to give them a present, a sort of unrequited overseas aid of large sums of money. This is a very important matter. We want to know whether a penny of the money has been drawn without being used to buy British goods. I hope that the hon. Gentleman will be able to deny what I have been told.

We do not know how long the Russian credit lasts. It may be for as long as seven years. If that is so, and if the rate of interest is 7 per cent., we are effectively selling the Russians our goods at half price. I do not know how wise that is. I believe that there are many other countries to which we could give generous terms, although I am personally against such concessions of any kind. I believe that we should trade in proper terms and without large subsidies on every side.

The COMECON countries largely depend on the Euro-currency market. There are considerable strains within those countries' economies, and it seems to me extraordinary that we should deliberately lighten the task of the Soviet Union and the other COMECON countries by offering them such generous rates of interest, both through ECGD and the line of credit negotiated by the right hon. Member for Huyton. The Minister told us in Committee that it was difficult to draw a distinction between aid to the developing countries and to the centrally directed economies. The fact is that the centrally directed economies, notably Russia, are spending a great deal of money on increasing their armaments. The developing countries are doing no such thing and even if they were they would be no particular danger to us.

5.30 p.m.

Therefore, we are giving substantial sums, selling goods at half price, to the Russians, while they are increasing their expenditure on armaments every year. Of course we are not the only country that does this—many other Western countries extend aid to the Russians—but we should have a sensible initiative. Why do we not get together with other Western countries, perhaps within OECD, and come up with a sensible policy on trade with Russia? What can be the point of giving the Russians generous terms of trade from which they can benefit directly by increasing their arms?

Surely it would be better to frame a common policy of trade with the centrally directed economies, so that they trade with us without any advantage. Such a policy would mean that the Russians and the other Communist countries had to think carefully about their future policy. It is likely that they would have to reduce their overall level of defence expenditure and increase their expenditure on other products.

Might it not also have the effect of obliging the Russians to reduce their expenditure on maintaining a police State? While we complain about the lack of liberties enjoyed by Russian citizens within their own borders, are we not in this area effectively subsidising the kind of State terrorism which is maintained in Moscow?

My hon. Friend makes a valuable point. It is true that the centrally controlled economies are under great strain at present. Certainly the satellite countries are. It is becoming increasingly clear that the Russians are insisting that those countries become more and more dependent on the Russian economy. If the Russian economy—as is the case—looks as if it will be consistently in debt with the West, I see no prima facie case for the West to help it out.

It would be much more to the point if we got together with our Western allies and other countries with a common interest in these matters so that the Russians and the other centrally directed economies then had to look carefully at their policy and possibly reduce their defence expenditure. That seems a positive way of getting a reduction in their arms spending, and this group of amendments would help to secure that objective.

At the very least we should be careful about continuing to give ever-increasing credits to Iron Curtain countries. We know where their extra expenditure is going—not on peaceful trade but on armaments. The purpose of that spending is to make life much more difficult for us in the West, and I see no reason why we should help the process.

I agree with what has been said by my hon. Friend the Member for Horsham and Crawley (Mr. Hordern) and wish only to amplify it a little.

When I was in the position that the Minister now holds, in what was then the Department of Trade and Industry, I was sent to Moscow to negotiate some great deal with the Russians, which so far as I can remember involved our supplying the plant for a large factory, for which we were going to pay with ECGD credits on impossibly soft terms and for which the Russians intended to pay with tomatoes over a period of years, plus some of the factory's products.

I tried to protest about the deal but I was told that it was marvellous business. I was astonished to discover that the Russian Minister of Trade felt that he was getting the worst of the bargain. In fact, he abused me. The meeting had to be called off because cordial relations no longer obtained. I was hoping to be able to catch the next aeroplane back to London, having reported success, in my terms, or failure, in the terms of my brief. But I was hauled back. A humble apology came from the Russian Minister, and I think that the deal was eventually signed.

I remember another such visit that I made to Czechoslovakia. There I managed to divert my salesmanship activities into a discussion of industrial relations in the factory that I visited. I was amazed to find that they had no strikes and that there had been no industrial relations problems of any sort. I probed and said that perhaps I could meet the unions. There was an embarrassed silence. Finally I was told that, since the trade unions were armed, perhaps it would not be a good idea for me to meet them because I might get the wrong impression—or the right impression, whichever way one looks at it.

Why do we go on with these deals, and why are they shrouded in secrecy? How much has been drawn in credits by the Russians and the satellites, and how much of what I might call the special offer of the right hon. Member for Huyton (Sir H. Wilson) has been taken up? I have asked ECGD for these figures, but it says that it is not the custom to publish details of transactions with individual countries. Why not? I thought that we now had open government and that we believed that it was right for us to know everything that the Government did.

The Minister owes us at least an explanation of exactly how much of our money has been lent or pledged to the satellite countries and to Russia in the way that my hon. Friend described. I hope he will also confirm that we are lending at 7 per cent. That is the figure that one hears on all sides, and I am sure that it is true. Certainly the Government should confirm that that is the figure of these long-term credits to the Communist bloc.

I have frequently heard Ministers say that British industry desperately needs investment and that the private City markets have let it down by not providing adequate long-term capital. I do not believe that that is true, but what sort of a Government are they who are prepared to lend £1,200 million to Russia at 7 per cent. but are not prepared to make such terms available for their own home industry, which instead they castigate for not investing?

If we could provide credits at 7 per cent. for British industry, hundreds of small and medium-size businesses could get off the ground and grow. Hundreds of large firms could expand. It would indeed be one of the keys to unlock the industrial deadlock in this country. But no—it has to go to Russia.

There are several reasons why this is not only economically damaging but also bad for British industry. In the deal in which I was involved, part of the contract was that the English manufacturers of the plant would take a proportion of the product—in this case, I think, tractors. So the credit and the capital goes abroad, in return for which we get a large number of tractors dumped on the market, thus reducing the opportunities for British workers to make tractors and to remain employed. I do not know what the results of that deal were, but the very concept is obviously counter-productive to our own economic interests.

I have with me a booklet published by the Institute for the Study of Conflict, which goes into what each of the varying countries has recently afforded in credit to the Communist bloc. It concludes that in 1975 the Soviet indebtedness to the West had reached $11,000 million, of which our share was probably about $2,000 million at that time. Since then it has grown a great deal. The effect is to remove both from this country and from other Western countries capital which could be made available for more fruitful purposes. It gives to the Russians technology which for some extraordinary reason they are totally incapable of inventing for themselves. Many of the things they buy from us are bought in order to take them to pieces to see how they are made.

One of the extraordinary things is that the centrally-controlled and immensely disciplined economy which is the USSR has always had to buy its technology, mainly from the Americans but in many cases from us. I wonder whether we should go on helping them and financing them in this way. There is the example of an American space suit which was sold to the Russians for $180,000 although it had taken over $20 million in research and other costs to develop. This crazy policy of giving them everything we can as cheap as possible must surely be wrong.

The argument of my hon. Friend the Member for Horsham and Crawley that this helps the Russians to build up their military potential is a strong one with which I would agree. Certainly the cheap loans, the manufacturing capacity and the ability to export the products through the contract to buy is highly beneficial to the Russian economy and highly inimical to our interests. My hon. Friend was quite right when he said that it allows the Russians to develop their war potential against us and is of considerable aid and comfort to them.

It seems odd that successive British Governments have operated this policy. We should now like to know the full figures and the full facts. They should be brought out for public examination. I also find it odd that none of the Labour supporters of this policy have come today to cheer. I thought that we would be a small group on the Opposition Benches pressing this unpopular point of view upon the serried ranks opposite who believed that this was the right thing to do. Imagine, for instance, if a Conservative Government were to give undisclosed sums of credit at 7 per cent. to the Greek colonels, or perhaps to Ian Smith or to whatever bogy man is at present uppermost in Labour mythology. But when it comes to giving aid to the Russians, it is assumed that this is perfectly right and proper.

The Minister will probably use the argument that this is the only way we can get the business. I have heard that argument often. It is a fallacious argument, because there comes a time when it is not worth getting the business. If some mug is prepared to offer long-term credit at cheap rates of interest to take part of the product of the factory that he is financing, that mug had better be given the job and pay the price of buying the work.

In our parlous state, borrowing heavily from the IMF and short of surplus foreign exchange, it cannot be right that we should buy work under the sort of terms that my hon. Friend has outlined. There are many other ways for us to earn our living rather than giving away, at advantageous terms, that which has been made in this country and which has cost us to import the raw materials to make.

5.45 p.m.

I say to the Government in all sincerity that this is an opportunity for them to come clean about the facts. Perhaps the facts stated by my hon. Friend and myself are wrong. If the Minister wants the House to accept the policy followed by the right hon. Member for Huyton and by successive Governments before that of making these cheap loans to the Russians, we should have a full statement and all the information that the Department of Trade can give us. Perhaps independent business advisers should be asked to assess whether this is in the commercial interests of the United Kingdom. I am certain that the answer would be "No".

I speak as one who has been engaged in trying to negotiate some of it. I can only tell the House that my conclusion, from that particular poignant and personal experience, was that what we were doing was wholly in the commercial interests of the Russians and that it was only the innate conservatism of the policy that we inherited which allowed it to be pursued. I hope that the Government will take this opportunity to agree that it has been a mistake.

I am delighted to support my hon. Friends. A month ago I had a talk, which lasted a couple of hours, with the very distinguished Russian dissident recently exiled from the Soviet Union, Andrei Amalrik. I asked him what advice he would give us about our policies towards the Soviet Union. He replied " The first thing is to look at your policies for extending credit and selling technology to the Soviet Union. It looks to me, and to a lot of my friends, as if you are absolutely mad. You should realise that only if you use the weapons available to you in the economic sphere can you put pressure on the Soviet Union to liberalise its internal repressive régime. The Soviet Union is a command economy which involves the loss of liberty. Only when we force it to liberalise that economy can it become more efficient, and only if it is liberalised will there be more freedom for the individual."

He regarded our policies as absolutely mad. If he had heard what my hon. Friend the Member for Horsham and Crawley (Mr. Hordern) said about the Russians having drawn part of their credit at 7 per cent. and deposited it back here at 14 per cent., he would have thought we were even madder still. I find it astonishing that successive Prime Ministers—the right hon. Member for Huyton (Sir H. Wilson) and later the present Prime Minister—have pressed this £950 million credit on the Russians. There is no doubt that that is what they have done.

In March last year, when Mr. Gromyko was in this country, a statement was issued saying that the then Prime Minister had urged him to see that his Government took up the full £950 million. Just before last Christmas a report appeared in the Press that the present Prime Minister had urged the Russian Ambassador that his Government should make greater efforts to take up this amount of credit. That seems quite extraordinary when the balance of advantage is so clearly in favour of the Russians.

I hope that when replying the Minister will tell us more details about the terms. My hon. Friend said that the rate of interest charged is 7 per cent. That recently appeared in the Press. We know that it cannot be more than 8 per cent. because it was stated by the Secretary of State for Trade in a Written Answer that
"The terms and conditions on which support is made available for exports to the COMECON countries are broadly competitive with those available from our major competitors".—[Official Report, 12th July 1976; Vol. 915, c. 48.]
The White Paper Command 5924, issued in February 1975, after the then Prime Minister had come back from Moscow, said that it was agreed that the United Kingdom would make every effort to provide these credits on the most favourable terms possible. That means in practice that it must be between 7 per cent. and 8 per cent. I should like confirmation of that from the Minister. I should also like to know from him whether it is in fact 7 per cent.

My hon. Friends and I are drawing a distinction between the centrally-controlled economies, meaning, for my purposes, the Soviet Union and Eastern Europe, and those of the rest of the world. This is a valid distinction to draw. After all, the object of the Soviet Union, which it repeats weekly, is to destroy us, our economy and our way of life. Therefore, we are entitled to make sure that we do not help the Soviet Union to do this.

I believe that this sort of credit is of great assistance to the Soviet Union in its objectives. It is a good bargain for Russia, for a number of reasons. The first is that Russia is now a deficit country. My hon. Friends have quoted figures. My hon. Friend the Member for Horsham and Crawley quoted the figure of a hard currency accumulated debt of $14 billion at present by the Soviet Union.

The second reason why it is a good bargain for Russia is that Russia has a very inefficient economy. I am told that, as of April last year, the average industrial wage in the Soviet Union, making the conversion at the official rouble rate, was £12·50 a week, on top of which had to be added a social wage of £2·60 a week, which is a very small social wage compared with our own.

I do not think that there are many contracts between the Government of the Soviet Union and the rest of the community there.

We saw a couple of years ago the grain disaster in the Soviet Union when the grain harvest fell 70 million tons below target. It was about one-third down on the target. What is true of Soviet agriculture is true of Soviet industry as well.

There are only a few sectors in which the Soviet Union is efficient. They are the military sector, the space programme and the winning of medals at the Olympic Games. They are efficient in the military sector because they are exposed to competition. Internally, they have a controlled economy and there is no competition. Hence the difference between the two sectors. In the space programme they have competition from the United States. The winning of Olympic gold medals is done for prestige purposes with the object of giving the rest of the world the impression that Russia is a wonderful place in which to live.

If we export our technology to the Russians, we are helping them to get over this inefficiency. We are helping to compensate them—for example, with the Rolls-Royce deal for £100 million recently signed for compressor plans for the pipeline in the Soviet Union—for their inefficiency.

Recently, I have been looking at a study made by the Stamford Research Institute in the United States, which is a highly respected body. It concerns the benefits to the Soviet Union of exports of technology from the West. The institute has made a calculation based on an economic model of the Soviet economy. Its conclusion is that in 1968 there was a sudden increase in exports of techno- logy from the West to the Soviet Union associated with the beginning of detente. That increase in exports continued over the next few years. In the five years between 1968 and 1973, what the institute described as "the detente effect" meant that Soviet industrial production increased by 33 per cent. as opposed to 28 per cent., which was the previous record. There we have a significant increase in Soviet industrial production.

The institute estimates in the same study that the efficiency of installed machinery imported from the West is three to four times greater on average than that of Soviet-produced machinery, even after allowing for the additional costs of installation of imported machinery.

There has been another interesting study by Philip Hanson, of the University of Birmingham, of the manufacture of mineral fertilisers in the Soviet Union. He shows that, over the period from 1960 to 1975, $2 billion worth of Western equipment and associated know-how imported into the Soviet Union was producing, by the mid–1970s, $4 billion worth of output per year. That is a very high rate of return on imported Western machinery. Not only are we improving the efficiency of that very creaky Soviet industry; we are also helping the Soviet Union to give the impression abroad of efficiency which is so appealing to undergraduates in Asia, Africa and this country as well.

Conversely, this bargain is bad for us, for the reason that my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) mentioned. We are lending to the Soviet Union at 7 per cent. when our own manufacturers have to borrow at 14 per cent. or 15 per cent. It is bad for us because it enables the Soviet Union to build up a base from which to compete, very often at unfair prices, with our own industry.

I was interested to learn that at a NATO meeting in December the then Secretary of State for Foreign Affairs, whose death I regret greatly, pointed out that there was a great danger when the West transferred resources to the Soviet Union that not only would it enable the Soviet Union to carry out its objectives in the Third World but it would also enable the Russians to sell goods back to us at unfair prices. Looking at the White Paper issued in February 1975, we see that it provides expressly for buy-back deals in such sectors as polyester fibres and knitted outerwear. I can imagine what will be thought of that arrangement in Yorkshire when knitted outerwear starts to come back from the Soviet Union at unfair prices.

The next reason why this is a bad bargain for us is the cost to the taxpayer resulting from the interest rate differential. My hon. Friend the Member for Horsham and Crawley said that he thought it might even amount to half the cost of the goods over the period of an average credit. I do not find that my sums produce such a very large figure. My own calculations, which I mentioned to the Under-Secretary in Committee on another occasion last year, is about £250 million. That is based on a simple calculation of an interest rate differential of 4·5 per cent. over a mean period of five and a half years. assuming that the average length of credit is nine years. The fact that I have arrived at a lower figure than my hon. Friend is possibly due to the fact that I am assuming that the rate of interest would be paid only on the reducing balance, and I am not sure that my hon. Friend makes the same assumption.

I should like the Under-Secretary to come back to this. Last year he said in Committee that my figure of £250 million was wildly out of the target area and that the total cost to the taxpayer of the interest rate differential could not amount to anything like that. I wonder whether there was a misunderstanding. Did he imagine that I was talking about the figure per annum? I am not talking about that. I am talking about the total interest rate subsidy for the total £950 million over the total length of the credit. I do not see how it can be very much less than £200 million, if not £250 million.

6.0 p.m.

The other reason why this is a bad bargain for us is that it helps the Soviet Union put more into arms. That means that the Soviet Union becomes more dangerous to us and that we have to put more into arms as well. The Government's argument is that the business men like it. Of course they love it; they get taxpayers' money. But it is up to the Government to set out the terms in the national interest. The Government should say that they do not intend to spend taxpayers' money in this way.

I have seen quotations from the Prime Minister which make it clear that he believes that trade prevents war and that it we have more trade with the Russians we are less likely to have war with them. That is nonsense. One has only to look at history to see that the opposite is very often true and that war occurs between nations which have a great deal of trade with each other. Examples of this are Germany and the rest of Europe in 1939, Japan and the United States before 1941, and England and Spain in the sixteenth century. Therefore, the Government's argument does not stand up.

The Government also say that if we do not extend these credits to the Soviet Union other countries will do so. We must get together with our allies and friends to work out more sensible arrangements. The Russians are openly contemptuous of the inability of the capitalist world to regulate competition between its own members with the result that the Soviet Unon is the beneficiary.

Last year in Standing Committee I quoted something from Lenin. I shall quote it again because it is a remarkable quotation. Lenin said in a memorandum to Chicherin, who was the commissar for external affairs in 1921:
that is, the capitalists—
"will open up credits for us, which will serve us for the purpose of supporting Communist parties in other countries. They will supply us with the materials and technology which we lack and will restore our military industry, which we need for our future victorious attacks upon our suppliers. In other words, they will work hard in order to prepare their own suicide."
That is what is happening. It is up to us to take the lead because this trend is more damaging to us because of our high interest rates. We should make it perfectly clear to the Russians that we will not be so stupid in the future and that we will stand up for ourselves.

I hope that the House will accept that in making these remarks I am not being offensive or oppressive to the Russian people. I want to show respect and friendship to those people, but not to the regime directing them. I think that the attitude of my hon. Friends is right.

When we talk about a subsidy to the Russian people, we should also consider the effect on the Soviet Union's banking interests. While we may be supporting Russian arms, we are also supporting the Russian banking industry and encouraging the Moscow Narodny Bank to build up its staff in London. It is worth noting that the last time a change was made in the staff of that bank was when Lord Home asked a large number of Russians to leave this country. One wonders to what extent the bank's needs have been built up at the expense of the British people.

We are talking about a huge amount of money—an overall increase in the export credit guarantee buiness of 40 per cent. in 1976 compared with 26.6 per cent. in 1975. We are talking about limits of £40,000 million and £25,000 million in special drawing rights. That amount is astronomical and it deserves a packed Chamber to discuss it, not the thin attendance we have this afternoon, justifying Parkinson's law on the matter.

I should like to quote from an article in the Financial Times of 18th February 1975. It said:
"Export finance is a way of bribing goods into exports. It is a system of subsidising credit geared to exporting at the public expense, of inviting the customer to buy cheap money rather than to pay the going rate for the goods which meet his specifications for performance, delivery and price."
We should bear that in mind before greatly increasing the growth of the export credit business. In fact, we should ponder on whether we should increase it all.

That question was posed by the person who was responsible for running the Export Credits Guarantee Department and is now Chief Executive of the Stock Exchange, Mr. Robert Fell. I quote from a speech by Mr. Fell reported in the Financial Times:"
Export credit has become the servant of industrial and political objectives, with the cost to the taxpayer and the country almost forgotten."
He went on to say that he had found over the years two myths among British Ministers. He said:
"The first is that there is a bonanza for British industry in Russia. The second is that there is a bonanza for British industry in Latin America. Some Ministers have been able to support both myths at the same time."
He pointed out that the desire to give special terms to Russia had caused the "gentlemen's agreement" on export credit to falter at its most hopeful point He went on to say:
"Export credit has reached a dangerous stage in the terms being offered, partly for the balance of payments of the donor country and partly from the point of view of the debt being assumed by the recipient country."
We are entitled to ask why there should be this love affair between the Labour Government and East-West trade. Why should trade be given to Russia with love? The cost escalation cover is a straight subsidy from Government to exporter. We cannot continue to see export credit expand in this way, and we must look at ways of reducing it. Why should the Russians and the Eastern bloc countries be considered for the greatest-ever trade initiative that has been mounted in export credit? Why should we give support to the regimes of the Eastern bloc when there is such benefit from the difference between export credit terms of 7 and 8 per cent and a current borrowing rate of 15 per cent.? Why should the benefit of the interest differential go to the Russians and other Eastern bloc countries? There is a real need for disarmament of export credit.

The countries to which we are referring here are those with centrally-planned economies—the Soviet Union, the German Democratic Republic, Poland, Czechoslovakia, Hungary, Romania, Bulgaria, Albania, North Vietnam, Mongolia, China and North Korea. My hon. Friends have spoken particularly of the Soviet Union, but if we are to trade with these countries we should consider directing that trade towards Eastern bloc countries other than the Russians. Why direct trade towards a country that is the linchpin and controller of the whole Eastern bloc? What has Russia to offer us, and why should we support that country instead of Namibia, Chile, Bangladesh, India and Turkey? Why should the Russians receive special treatment?

I support the amendments that have been put forward. I consider that £4,000 million, and £2,500 million in special drawing rights—that is 10 per cent. of the total limits of the ECGD—is quite sufficient, and I urge the House to accept the amendments.

I was most impressed by the powerful way in which my hon. Friend and neighbour the Member for Horsham and Crawley (Mr. Hordern) moved the amendment. Finance for Industry, the bank specifically formed in this country to provide medium-term finance for industry, issued its most recent loan stock at a rate of interest of 14 per cent. It is astonishing to compare that rate with the 7 per cent. which, we are told, the Russians are paying on this large credit which was pressed on them by the right hon. Member for Huyton (Sir H. Wilson). There could be no more immediate incentive for the recovery of industrial investment in this country than to be able to say to British manufacturers "We will now, through Finance for Industry and other institutions, make money available to you for industrial investment purposes at a rate of 7 per cent." The Russian interest rate must seem to any outsider an absurd paradox when domestic interest rates are so high. Finance for Industry must be lending to industry at a rate of 15 or 16 per cent. It is absurd that the interest rates to the domestic market should remain so high while at the same time we provide such a large loan on cheap credit to a major competitor—a nation that competes with us in the market for exports and which, as we have heard from my hon. Friends, is building up its military might in potential confrontation with ourselves.

On the question of the interest rate on the credit line with Russia, I hope that the Minister will say what it is. He will remember that in this Chamber last week we took note of an ECGD document particularly on the guidelines for export credits in which the interest rate for rich countries—and I presume that Russia comes within that category—is stated to be a minimum of 7¾ per cent. for credits of between two and five years and 8 per cent. on credits of over five years.

We took note of that document, and it is understood that Ministers of Finance in the EEC at their meeting on 14th March are likely to approve those guidelines. Can the Minister say whether the rate offered to Russia was below the guidelines to which we are now agreed, and, if so, whether it will be raised? It would be wrong at one and the same time to offer Russia credit at 7 per cent. and to say to no other industrialised nation that we shall make offers of export credit at below 7¾ per cent.

My hon. Friend also touched on the question of bad debt exposure with the centrally-controlled economies. I believe that that is a most important point. In a centrally-controlled economy, if the system goes sour, all goes sour. That was the notable result recently in North Korea where too much credit had been accepted by the North Koreans. All the Western banks offering credit to North Korea found themselves in severe trouble in respect of North Korea. There had to be a moratorium in respect not only of debt repayment but also of interest. That is typical of a centrally-controlled economy, because if one pulls out one card from the pack the whole stack of cards will collapse.

It would help the House to know what is the bad debt experience in ECGD in terms of the centrally-controlled economies and to be given the percentage of bad debts to liabilities and to know whether it is increasing or diminishing over the years.

My hon. Friend the Member for Horsham and Crawley pointed to the extent to which the liabilities in centrally-controlled economies have grown as a percentage of ECGD totals from 10·3 per cent. of total liabilities in May 1974 to 12·4 per cent. in March 1976. This is clearly due to the fact that contracts with centrally-controlled economies tend to be credit contracts. We could expect this trend to continue to be upward unless there were a limit of 10 per cent. on total liabilities. I do not know whether that suggestion would be accepted by the Government. One can only hope that it will be.

6.15 p.m.

In this debate it is proper to ask whether the availability of guarantees from ECGD should be used as a means of exerting political pressure—and, indeed, of favouring certain export markets in preference to others. I think that this is a proper form of pressure to exert, because export credit has become a means above all of achieving political aims. We as free traders may regret this but it is a sad fact of life. Therefore, I support the amendment.

I only regret that I cannot add to the amendment, because the amendments that I tabled with my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) were not selected. Therefore, I cannot add to the centrally-controlled economies the markets of Uganda and Cambodia. Cambodia is suffering under a brutal Communist regime, and I include Uganda for reasons I need hardly state. Uganda is under the rule of an extraordinary man—the Flashman of the African world, somebody who shows all the bullying characteristics of Flashman in his early days but who displays none of the enduring characteristics that Flashman showed afterwards.

There are very few means available to this country of exerting pressure on Uganda at the present time. I think we should say that the ECGD should guarantee no further export contracts to Uganda for a period of a year. It would be in order to use that sort of pressure as a means of obtaining political change in Uganda. Furthermore, it could be vital for the Government to do this because Uganda must now be a bad credit risk. I hope the Minister will suggest to ECGD that it should think about putting such a moratorium on the guarantees to Uganda at present.

I shall not take up the remarks of my hon. Friend the Member for Mid-Sussex (Mr. Renton) dealing with "Tom Brown's School Days".

I rise briefly to support the amendment, which seeks to limit the credits available to centrally-controlled economies. I do not propose to elaborate on arguments which the House has already considered on this subject, but I wish to raise a matter that I suspect may be in the minds of the Minister and some of his colleagues who feel that the credits we supply to the Soviet Union and other centrally-controlled economies, bear some similarity to the credits we supply to the developing world. Indeed, it has been asked why we should be against credits on advantageous terms to the Soviets and their satellites and yet be in favour of credits to the developing world. The answer is simple. Most countries in the developing world are either non-committed and non-aligned or are members of the Commonwealth, and almost all of them pose no threat to Britain's national security.

What worries many Opposition Members is the fact that the United Kingdom proposes to continue offering advantageous credits to people who are our potential enemies. In his technical and very able speech, my hon. Friend the Member for Gosport (Mr. Viggers) mentioned the desirability of curtailing the cost escalation insurance scheme.

I wish to draw attention to a document which has recently been circulated to some hon. Members by the British Electrical and Allied Manufacturers Association which touches precisely this point. We read, on page 4 of that document:
"While your Association strongly supports the need for immediate action to restore incentives, profitability and industrial confidence in the United Kingdom, there must still he adequate recognition of the need to stimulate the United Kingdom export effort if British industries are to obtain a larger share of the world markets."
The document continues:
"Government support schemes, such as aid to exports, need to be continually reviewed,"
the Association will be glad that we are taking that line today—
"but also they should be minded to match the degree of aid provided by the Governments of competing nations."
The Association acknowledges that some improvements have been made to a number of ECGD guarantee schemes but suggests that further changes are necessary to provide a wider band of cover.

It adds:
"There is an acute need for streamlining and simplification of ECGD administrative processes."
It says that the Government should give consideration to
"a reduction in the minimum qualifying contract value for all demand band export and for buyer credit arrangements."
It asserts baldly that the cost escalation insurance scheme should be retained and, where possible, improvements should be introduced. I wonder whether my hon. Friend the Member for Gosport would care to comment on that assertion of what policy should be.

This is not a conspiracy, but I was warned by my hon. Friend that he proposed to raise that point. I agree with my good friends on BEAMA—whom I know in my capacity as the link between the electronics industry and the Tory Party—that as long as inflation rages away at the rate that has been allowed to operate over the last year or so cost escalation schemes are necessary. One would like inflation to be reduced and then to have disarmament in export credits—including the cost escalation schemes with other countries—brought in as soon as possible.

I am entirely satisfied with that explanation. I thought that my hon. Friend did well at short notice. I wanted to get on record BEAMA's comments on this subject because they are a valuable contribution to the debate on the clause.

What has been remarkable about this debate is the schizophrenia that exists among the Opposition in their attitude to Eastern bloc countries and their attitude to the injection of a political interest into the handling of ECGD matters. Several hon. Members have made clear that they believe that we should inject a new and essentially political direction into ECGD operations. I suggest that that is distinctly contrary to the other selected amendment in which the Opposition take the view that it is not in the national interest and is undesirable that there should be political implications. One cannot have it both ways.

There is a particular contradiction in what has been said by some members of the Opposition. The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) fulminated against any credit agreement with the USSR and indeed, if I understood him aright, said that credit agreements should be done away with. Yet the hon. Member for Horsham and Crawley (Mr. Hordern), in introducing the amendment, made clear that, so far from agreeing with his hon. Friend he took the opposite view. He said that there was a risk of a firm in his constituency losing business under the credit agreement as a result of the switch to foreign currency financing. I shall come back to this in a moment.

The Minister is trying to create a distinction between my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) and myself when none exists. In two separate parts of my speech I was talking about the special arrangements made by the Government on dollar support for the ECGD and sterling. That was one point. The other point in my speech—with which my hon. Friend agreed—is that it is wrong to provide massive credit for a country that is building up armaments against us.

The hon. Gentleman cannot escape so easily. The import of his remarks about the firm in his constituency—about which he has spoken to me—was that he is extremely anxious for good constituency reasons that the business should go ahead and that the advantages of the export agreement should be available. That is an argument than can be understood by every hon. Member, but it is contrary to the view that he was seeking to promulgate in the rest of his speech, as was the hon. Member for Cirencester and Tewkesbury, who waxed eloquent in saying that we should do away with the export agreement altogether, either because we are dealing specifically with the USSR—and the Opposition have well known views on that subject—or because the credit terms are too generous.

The hon. Gentleman had better wait until I return to that point, as I shall later.

The hon. Member for Horsham and Crawley also drew attention to the rise in volume of credit extended to the Eastern bloc. There certainly has been a substantial increase. It partly reflects the increase in trade with them, but, more particularly, as the hon. Member for Mid-Sussex (Mr. Renton) rightly said, it reflects to a large extent the kind of commodities that are being sold. Large capital goods contracts require longer credit than consumer goods. There are, of course, international terms for such trade and, to a large degree, the figures reflect that.

I should also like to comment on what was said by the hon. Member for Gosport (Mr. Viggers). He made the point that is often heard that the growth of export credit in general is a bad thing. He quoted the new ceilings of commitments under the Bill. I cannot stress too often that 90 per cent. of British exports and 80 per cent. of business insured with ECGD are on a cash or short-term credit basis on which there is no public expenditure or interest rate support. One needs to bear that in mind.

I turn to the concentration of the amendment on the Eastern bloc countries—the COMECON countries. The hon. Member for Horsham and Crawley drew attention to the risk factor involved in increased trading with them. He said that the cumulative indebtedness of the USSR was $14 billion. For all the COMECON countries, it is about $40 billion. I acknowledge the significance of those figures but point out that in the case of the non-oil less developed countries the figure for 1976—and 1976 figures were quoted for the COMECON countries—are about $112 billion.

I fully appreciate that we must watch the development of this debt carefully but in looking at the risk factor specifically—and that is the point of the amendment—it would be wrong to concentrate exclusively on COMECON on these grounds, because the risks in terms of the increase in debt servicing ratios are greater in respect of other countries. Indeed, COMECON countries have been good payers.

Of course, the hon. Member for Horsham and Crawley was referring to the future. Further commitments by Eastern bloc countries, as with other countries, are taken on only after an assessment has been made of the country's ability to service its debts. It is not considered that Eastern countries' present levels of borrowings from Western countries are likely to present insoluble repayment problems. It is significant that that is not the view of the Government only. The Euro-currency market, which is sometimes regarded as having a more independent view, also shares that view.

The Eastern bloc countries' record of repayment has been impeccable and on strict commercial and underwriting terms—the grounds on which we operate—the extension of further credit is justified. But a careful watch has been kept and will be kept on the developing situation in the light of such figures as were quoted by the hon. Member for Horsham and Crawley. This will include close consultation and co-operation with Western colleagues. There is evidence that the Eastern European countries themselves are taking steps to reduce the level of indebtedness in their plans for the next five years.

The Minister cannot say that the record of North Korea—one of the centrally controlled economies—has been impeccable. Far from it. North Korea has declared a moratorium on all debt and interest repayment for some time. How much ECGD credit was extended to North Korea, and how much has it lost?

6.30 p.m.

I was quoting figures for all the Eastern bloc countries. Those are the significant figures. I cannot quote figures for North Korea or for any other countries, either inside or outside Comecon, for reasons which have already been revealed to the House—for the sake of commercial confidentiality for the companies that are seeking to export to those countries. Nevertheless, wherever there is default on payment of debt or a moratorium, whether within COMECON or outside, this would be taken into account in considering the future extension of cover for the country concerned.

It has been suggested that giving help to the USSR which is involved in the credit agreement that we are debating is aiding Soviet defence expenditure. It is not self-evident that East-West trade has made a difference to the degree of Soviet determination or ability to maintain its defence expenditure or its arms programme. That cannot be proved. In the case of the USSR or any other country, it is notional within its budget how the benefits of export credit are utilised. Access to Western technology may have created a degree of Soviet dependence on that access if progress in the civilian sector is to be maintained, and it could be argued that this is highly significant in terms of political leverage.

Contrary to the suggestion of the hon. Member for Blackpool, South (Mr. Blaker), the general experience is that trade tends to encourage trade rather than war. He quoted some instances, but I suggest that they show only that trade rivalries may lead to war. Trade between opposed blocs tends, if anything, to ease international tension rather than the reverse. Indeed, the Soviet bloc's willingness to increase trade with the West is something that we ought to welcome as a form of closer integration of the world economies, with all the opportunities that it brings in terms of closer political understanding.

The hon. Member for Blackpool, South also suggested that export credits had brought us in return only dumped goods. The hon. Gentleman mentioned polyester fibres. But I can tell him that we recently introduced anti-dumping provisions in respect of polyester fibre tops from Romania. If he says that these are not Russian goods, he might like to know that we have also achieved a satisfactory price undertaking from the Russians in respect of large dumper trucks.

Can the Minister quote some examples to support his claim that trade is a barrier to war?

That is the general experience. Historically, it has been found that where there are divisions between blocs and there is not the lubrication of trade to bring them closer, emnities and suspicions are likely to arise, both politically and economically. Such separation is likely to be inimical to the prospects of peace rather than the reverse.

In that case, why are the Government bringing sanctions against Rhodesia? If the Minister wants a better relationship and to ease the situation, surely he should be trading with Rhodesia.

The hon. Gentleman knows the answer to that. There was an illegal declaration of independence. The hon. Gentleman is trailing a red herring, and I shall not follow it.

If we enforced the 10 per cent. ceiling suggested in the amendment, some contracts currently under negotiation would be lost. I wonder whether this is what the hon. Member for Horsham and Crawley intends since one of the firms that would suffer is the company in his constituency that is so eager to take advantage of the terms under the agreement.

I am happy to answer that question. It presents me with no problem. We are concerned with the total level of trade under the present agreement. I am anxious that companies in my constituency should secure as large a proportion of it as possible, but I am happy, in the wider interests of our nation and the West as a whole, that we should seek to achieve a sensible limitation of the amount of credit extended to Russia. That would be the most satisfactory solution of all.

The hon. Gentleman should talk to the management and work force of the firm in his constituency and ask whether they agree with what he has just said. I am convinced that they would not.

Will the Minister answer a question that has been put to him in this debate and on many other occasions? Is it true that a trader seeking to do business with Eastern European countries can go to the ECGD and be told the rate of interest involved, yet the House is not allowed to know that rate? Is this not either absurd or very wrong?

That is a remarkable question from the Opposition's spokesman on trade. The hon. Gentleman must realise that if the terms of the provision of credit and the interest rates were known generally, it would be more difficult for exporters to negotiate the best terms and would make it a great deal easier for buyers to bid up the terms in their own interests.

If I exported capital goods to Russia, could I not go to the ECGD and ask what rates of interest would be involved, and would I not be given the answer? Why cannot Parliament be told that answer?

I have already given the answer to that question. It is not in the interests of exporters in the hon. Gentleman's constituency or elsewhere that this information should be general knowledge. It is commercially confidential, not only in respect of Russia and the credit agreements that are the subject of this debate, but generally. It is in the interests of British exporters that this should be so. No disregard for Parliament is being shown, but it would not be in the national interest for these details to be disclosed.

Is my hon. Friend aware that, if the Opposition are suggesting that all the information should be revealed in these cases, there are many things that I should like to know, particularly about the loans and grants made to companies in the private sector? I am always told that these are matters of commercial confidentiality, but if the Opposition are now asking that everything should be revealed, I am all for it.

That is an interesting proposition, and I am sure that my hon. Friend will pursue it with the Opposition.

I was asked about the switch to foreign currency financing and the effect that it would have on our credit agreements with the USSR. I explained in earlier debates on the Bill that the revised public expenditure and PESC figures make it necessary for there to be a significant switch from sterling financing to foreign currency financing. The active efforts that will be necessary from all parties to bring about this switch are being made. This will be true for Russia as for other countries.

The new policy will be implemented across the board as flexibly as possible to minimise the risk of disrupting exports—I am sure that the hon. Member for Horsham and Crawley will be glad to hear that. The extent to which access to sterling financing for any particular contract or any particular overseas countries will be controlled will depend on the total levels of business being put to the ECGD and the extent of the switch to foreign currency financing which has taken place and is taking place. A significant switch will be necessary, and active steps will be needed to bring this about. But if hon. Members are concerned about particular contracts, I will be glad to discuss them with them if they would like to send me details.

I was asked about the terms of the credit agreement. A great deal of heat but not very much light was generated. First, it is and always has been the case that these matters are commercially con- fidential, and for very good reasons. I can therefore neither confirm nor deny the 7 per cent. figure which has been widely bandied about in the debate.

Why, then, is the premium that the ECGD quotes for particular countries not commercially confidential material as well? It is available. Why is it that the rate of interest on a bilateral negotiation between two Governments is a matter of commercial confidentiality, whereas it is possible to find out the premium quoted by the ECGD in any one of 100 markets? What is the distinction in terms of commercial confidentiality between these two cases?

I repeat that neither in this case nor in others is it in the interests of British exporters that these things should be widely known in terms of the competition that they face internationally. We have made it clear that we were not initiating any special terms with the Russians, but were following the competition already set by France, Italy and Japan. It is not in Britain's interest that these things should be widely discussed.

I was asked also what was the value of the credit agreement in terms of business that has already been contracted for under it. The total value of contracts placed under the credit agreement is £188 million, but substantial further items are advanced in negotiation under the credit agreement within the total of £950 million. The total is not £1,200 million as suggested by the hon. Member for Cirencester and Tewkesbury.

At 31st March last year, the ECGD had at risk with centrally planned economies a total of £1,263 million, or 12 per cent. of its total amount at risk. The value of the credit agreement with the Russians cannot, as I have said, be quantified, for the very good reason that so many variables are involved that realistic calculations cannot he made, with the best will in the world.

The key variables are, first, the size and nature of the contracts involved, and these affect the length of credit and the rate of interest. The return received by the banks providing the finance is also important. This is related to the levels of commercial interest rates, the level of the deposits of the financing banks and the level of their fixed-rate export lending, against the background of the refinancing arrangements which will apply through the life of the contract. All of these are subject to change over the life of the contract.

But the Anglo-Russian credit agreement covers large single contracts for capital equipment. We do not normally obtain such contracts in highly industrialised countries. If one is to do net present value comparisons, the correct basis of comparison is with the terms that we and others normally give to capital contracts in the more credit-worthy developing countries. In this comparison, there is virtually no difference between the net present value of a typical contract under the Anglo-Russian credit agreement and a broadly similar contract elsewhere.

6.45 p.m.

I was, however, asked whether there had been drawings on the credit for purposes other than the purchase of British goods. I do not know what source of information the hon. Member for Horsham and Crawley had for that idea. Loan drawings under the credit agreement are not made to the Russians. They are made to pay the exporters in respect of work carried out. The payments are made direct to the exporters and not to buyers to invest in London for any other purpose.

It was also suggested that goods were being sold to the Russians at roughly half the actual price on the basis of the difference, it was suggested, between 7 per cent. and 12 per cent. Without in any way conceding that either of these figures is correct, the simple answer is that the general point being made applies to all exports sold on credit. Obviously, it is better to sell on cash terms, but we cannot ignore what our competitors are doing; and credit is a fact of international life, although I agree with the hon. Member for Gosport (Mr. Viggers) that our aim should be to level up and harden the credit terms, interest rates, deposits, the time period, and so on, Some steps have been taken in this respect in the Washington agreement, under the general consensus, and most recently, under the EEC's draft directive.

I mentioned the total figure for the ECGD of £40,000 million and also £25,000 million special drawing rights. The hon. Gentleman has pointed out that 90 per cent. of this is self-financing business, but the remaining 10 per cent. is an enormous amount. I am sure that the hon. Gentleman would not wish to leave the debate without telling us exactly what initiatives the Government are taking to harden up export credit internationally. I think that the EEC initiative, useful though it may be, is not enough at this time. We must see more action.

I am not quite sure what the hon. Gentleman is suggesting. The Government are doing all they can in this respect. It is our hope that, if the Council of Finance Ministers agrees at its meeting on 14th March on the terms of the Community draft directive, it will be the basis for hardening the terms further in future and for extending the coverage of the existing consensus. All the main exporting countries are members of it. But a number, particularly the so-called super-competitive developing countries, are outside it and ought to be brought within it. It is our intention to do all we can to extend it in that way.

The hon. Member for Mid-Sussex asked me what the effect of the Community draft directive would be on the terms of the credit agreement with the Russians. There is a provision that preexisting credit agreements are not affected by the new agreement, but nevertheless I assure the hon. Gentleman that there is a provision for a review of the terms of the credit agreement with Russia later this year, and we will be taking into account international developments such as those I have just mentioned.

The hon. Member for Cirencester and Tewkesbury suggested in particular that we were not sufficiently taking into account the fact that we were giving assistance technologically as well as in credit to Russia. The hon. Gentleman will know, from his own late tenure at the Department of Trade and Industry, that COCOM covers matters of technology as well as military hardware, and that full care is taken to ensure that advanced technology which would be of interest to the Russians or to other Eastern bloc countries is not handed on. There is a firmly-held international agreement to that effect.

I return more specifically to the proposed amendment, on the question of the risk of indebtedness. The ECGD, when issuing guarantees, intends to operate at no net cost to public funds. Business is underwritten on the basis of credit insurance judgments of the political, economic and buyer risks involved. Ceilings are placed on Section 1 commitments precisely in accordance with that.

I believe therefore that it would he wrong for the House to reduce artificially and arbitrarily the limit within the total ECGD commitment for any particular bloc of countries, for political or any other reasons, when the full details of the country to which export credit is being extended are very carefully assessed in economic and commercial underwriting terms.

I hope that I have dealt with all the points raised. I conclude by saying that it would be unwise to proceed with the amendment.

When my hon. Friend the Member for Horsham and Crawley (Mr. Hordern) introduced the debate, he pointed out that the proportion of our trade with Eastern bloc countries had risen very substantially in the two years following 1974 and that in money terms the sums outstanding in March 1976 had almost doubled compared with the figures of less than two years earlier. He also pointed out that it is estimated that the Eastern bloc countries now owe the West a total of $45 billion.

We had variants of this debate in Committee, and again today we have had a very full and interesting debate on the subject. We on this side argued—and no one has argued more forcibly than my hon. Friend the Member for Blackpool, South (Mr. Blaker)—that the West is engaged on a slightly mad race to give the Eastern bloc countries credit which has implictions that go far beyond the commercial. That is the point on which we have failed to carry the Minister with us.

The Minister demonstrated again today in his closing speech that he has not understood the major point that we have been trying to make. His answer is always the same. He argued that if we did not do the business someone else would; therefore, we must not put British exporters at a disadvantage, and so we must give the Russians and other Eastern bloc countries cheap credit.

The Minister was extremely coy, and I confess to thinking that he makes problems for himself in his coyness about the interest rate for the Russians. We are getting nearer to knowing it. We know that it is approaching the limits agreed in the EEC guidelines, and later this year there is every chance that it will be brought within those guidelines. We are getting near to the answer. We can only assume that the credit rate was so absurdly low and generous that the Minister was reluctant to admit it, hence the convolutions into which he gets himself.

We on this side have presented an argument which I find compelling and which the Minister seems totally incapable of understanding. He should consider our own domestic situation. He and his colleagues spend hours arguing to the House that we must cut Government spending, including defence expenditure, so that we can release resources for exports and industry. The Prime Minister argues almost hourly that we must cut expenditure so that more money will be available to industry and to finance exports. He argues that we must cut our defence expenditure—and the Government have cut it—because we cannot afford to maintain a sensible level of defence expenditure and at the same time finance trade and modernise our industry.

My hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) and others have been saying today that we are giving the Eastern bloc countries an opportunity that we are denying ourselves. We are saying to the Eastern bloc countries "You can continue to expand your defence expenditure and maintain and expand your defences, and we shall enable you at the same time, by cheap credit, to finance your industrial development". We are actually making sure that the Eastern bloc countries have an option that our own policies are denying to us, yet Ministers come to the House day after day and argue that we have to continue to do this.

We are not saying that the Government should put British exporters at a disadvantage. What we are saying is much more significant. We believe that it is time for the OECD countries to get together and realise the long-term implications of the mad policy they are pursuing. We urge the Government to call the OECD countries together and ask whether it is really in our interests to give the Russians an option that we are denying ourselves. That is the point we have been trying to make in the hours of debate that we have had on this subject.

My hon. Friend the Member for Blackpool, South talked about the amazement of Mr. Amalrik, Mr. Solzhenitsyn and other Russian dissidents living in the West at the fact that the West does not seem to understand the dangerous situation that it is creating. It is allowing its industrial competitors to finance their development on the cheap and is enabling the Eastern bloc countries, who by no stretch of the imagination are friends of ours, to continue to finance their gigantic aggressive war machines.

We are saying in our amendment—we do not intend to press it to a vote—that there is a problem here which goes far beyond the short-term trade implications, which seem to be all that the Government are capable of thinking of. We urge the Government, before it is to late, to take the initiative with the OECD counries and end this mad credit race.

Amendment negatived.

I beg to move Amendment No. 3, in page 3, line 30, at end insert—

'(4) In section 2 of the Export Guarantees Act 1975, the following subsection shall be substituted for subsection (2):—
"(2) For either of the purposes mentioned in subsection (1) above, the Secretary of State may. after consultation with the Export Guarantees Advisory Council and with the consent of the Treasury, make arrangements for facilitating, in cases in which it appears to him expedient in the national interest so to do, the payment of sums payable under contracts with persons carrying on business in the United Kingdom.".'
It is no secret that when the Bill becomes law the ECGD will have a huge range of credit facilities at its disposal and very substantial sums of credit available to it. It is also no secret that, before the Government can enter into major business under Section 1, the Department and Ministers have to take the advice of an advisory board of experts who look at the commercial implications of the proposed business.

In this amendment we are arguing that in the Section 2 business, the so-called national interest business, there should be a similar process of consultation. At the moment there is no need whatsoever for the Secretary of State to take advice from anyone except the Treasury in deciding whether ECGD should undertake business under Section 2. The Minister can take decisions without consulting Parliament or any outside agency. I know that this is a traditional complaint of Opposition trade spokesmen, and that every spokesman in such debates in recent years has highlighted this problem and complained about it.

Today we are arguing that there are three new features that call for changes in the arrangements. The first is the size of the total national interest business. It is growing fast and it is a considerable sum. The second is the size of the individual contracts and deals which are done under Section 2. The biggest deal so far written by ECGD is for £212 million, a very large sum. Only a few years ago that would have been almost inconceivable, even for ECGD.

The third reason why we believe that steps should be taken is that there have been examples recently of politically motivated decisions, and the House has had one or two of those in recent years which give it cause at least for concern and make most of us feel that it is time that the Secretary of State had to take the advice of outside experts, as he does in almost every field for which he is responsible, before he underwrites Section 2 business.

7.0 p.m.

In Committee we pointed as an example to a transaction which cause us great concern involving the Meriden Co-operative. Two or three years ago the right hon. Member for Bristol, South-East (Mr. Benn), as Secretary of State for Industry, made it clear to Mr. Dennis Poore, who was chairman and managing director of Norton Villiers Triumph, that unless he, through his company, agreed to distribute motor cycles made by the Meriden Co-operative, the Secretary of State would refuse Mr. Poore's company its export credit facilities. Whatever else one says about the Secretary of State for Energy, one has to confess that he is absolutely open in his actions. He made no secret of his motives. He said he knew that Mr. Poore did not agree with him about his vision of the future of the British motor cycle industry but that unless he accepted the right hon. Gentleman's vision of it Mr. Poore would not be allowed to have the export credit which was absolutely vital to his other business.

The ECGD facility was used by the then Secretary of State as a lever to make Mr. Poore do something he did not want to do, to make him take a decision which he regarded as strictly uncommercial. Mr. Poore did not believe that there was room in this country for three motor cycle factories. By agreeing to be responsible for the sales of the Meriden Co-operative motor cycles, he ensured that there were still three motor cycle factories, which he believed was one too many.

The net result is that Mr. Poore's two factories are in a very bad state. His company is almost out of the motor cycle industry, and that industry in Britain has been effectively killed, or at least damaged beyond repair. Mr. Poore was forced to do something uncommercial by a politically motivated Secretary of State, and the results have been disastrous. The lever which was used to promote this totally uncommercial and disastrous decision was the ECGD facility.

A month ago the present Secretary of State announced a bizarre bailing out for the Meriden Co-operative. He announced that Sir Arnold Weinstock, at a fairly advanced age, had decided to become a motor cyclist, and since Sir Arnold never does anything by half he decided to buy £1 million worth of motor cycles from the Meriden Co-operative. Sir Arnold is answerable to his shareholders in GEC for that decision. I am almost tempted to buy a share in the company and go along to the annual general meeting and ask Sir Arnold to explain that decision. He would have to do so if I asked him. Even Sir Arnold is answerable to his shareholders.

The Secretary of State also announced that under the Industry Act £500,000 would be made available to the co-operative so that it could purchase the distribution facilities of NVT. Again, Parliament had to be consulted about that decision and an order will have to be laid before the House and will have to be debated before that money can be made available to the co-operative.

A third commitment in the bailing out was that the £6 million ECGD facility which had previously been given to NVT would be transferred to the Meriden Co-operative. We suggest that this is a hopelessly uncommercial political decision. In case the Minister says that we were arguing for political decisions in the last debate and against them in this one, let me explain the point to him.

We never had any commercial doubts about the ECGD facilities with the Eastern bloc countries. My hon. Friend the Member for Mid-Sussex (Mr. Renton) pointed out one centrally-controlled economy which has welshed on its debts, but I would not suggest that there was any likelihood of the COMECON countries doing that. Commercially the decision is quite reasonable, but politically and strategically it has enormous implications for the West.

We say also that the two decisions that were taken in connection with the cooperative were purely politically-motivated and could have no commercial justification. The Meriden Co-operative has been a consistent loss-maker and has a huge accumulated loss on its balance sheet. It is solvent only because the Government have agreed not to ask for nearly £5 million of their money back and have agreed to defer any payment of that money.

The co-operative has a record of unremitting loss. I agree that, thanks to enormous efforts by the work force—I pay credit to them for this—the company is now probably just about breaking even. But it has been a consistent loss-maker, and by commercial standards its balance sheet must look appalling. It would certainly have no chance of getting the facility which it has were it not the co-operative and were the decision not politically-motivated. If I took 100 private companies with such balance sheets to ECGD, it simply would not entertain the idea of doing business with them.

Yesterday, in a debate on the Consolidated Fund (No. 2) Bill, we discussed the problems arising in development areas from the closure of the Plessey factories. In a slightly ominous intervention, one Labour Member asked what the Minister's attitude would be if one of the factories became a workers' cooperative. Immediately my heart sank and I thought "Oh dear, some more strictly-less-than-commercial business is looming on the skyline for ECGD."

I have used the Meriden Co-operative's experiences with ECGD to show how it can be pressured by politically-motivated Ministers into taking uncommercial decisions which are unfair to the private sector, which would have no hope of obtaining similar facilities. We believe that because of the increase in the volume of ECGD business, because of the increased size of individual deals done by ECGD and because of the rather ominous examples that I have quoted of politically-motivated uncommercial decisions, it is time that in its Section 2 business ECGD had to take the advice of independent outside experts. That is the motive behind our amendment.

I support my hon. Friend the Member for Hertfordshire, South (Mr. Parkinson) in this important amendment. I am horrified at the example he gave of the way in which the application of the Secretary of State's judgment can be used in favour of companies which should not have finance supplied to them by the Department. We are talking about the Section 2 business. If we are to get this into perspective we must look at Section 1, which allows the Secretary of State to provide money for the purposes of encouraging trade with other countries.

When I turn to Section 2(2), I see that the Secretary of State may also, with the consent of Parliament, make arrangements for giving guarantees
"for facilitating, in cases in which it appears to him expedient in the national interest so to do".
It is obvious that Section 2 business will not fall within Section 1. Under Section 2 the Secretary of State may apply his own subjective judgment if he thinks that something is in the national interest, but if it is for the purpose of encouraging trade with other countries the matter will be dealt with under Section 1. Section 2 allows the Secretary of State to provide money in the national interest, but it must be for business that is not for the purpose of encouraging trade with other countries.

The volume of business under Section 2 has expanded from £2,600 million in January 1975 to an estimated £4,900 million in January 1977. The volume has about doubled in a two-year period, and the amounts involved are extremely large.

What disturbs me and my hon. Friends is that the judgment which is applied to Section 2 business is the subjective judgment of the Secretary of State for Trade. It should be possible to apply another criterion. We suggest that it should be comparable to the criterion suggested in the Industry Act in which a panel of judges was set up to act as a check on the Secretary of State's subjective judgment.

The former chief of the Export Credits Guarantee Department, Mr. Robert Fell, has referred to export credit guarantees being clearly ahead of Government expenditure and beyond parliamentary control. The Minister indicated—and it is acceptable—that it is not possible for Parliament to control the minutiae of export credit guarantees even when they are large. It is not possible for Parliament to vet or monitor them all. However, there should be some control other than parliamentary control. I respect the ability of those who have experience in industrial and commercial matters to apply proper judgments to commercial and exporting decisions.

I should like to see an export credit advisory board set up to deal with the subjective judgment of the Secretary of State under Section 2. I would not expect such a board to monitor but I would expect it to deal with appropriate points of principle and with the larger decisions that are made. I would also expect it to give advice, which it would publish, on applications for export credit in such cases as the Meriden Co-operative, for instance.

As someone who must refer to himself as a politician, I have to admit that I lack respect for the judgment of politicians. The pressures upon them are intense. The pressures when they involve employment in different areas can be so heavy that politicians, who are answerable to the House of Commons, cannot say the most difficult thing—that they will take no action. The pressures are so intense that politicians are often forced into bad decisions.

I should like the politicians to be able to refer to an export credit advisory board, take its advice and stand up in the House to defy the pressures. They would then be able to say that a panel of experts had advised them against a course of action that would otherwise be forced upon them. I should like the Minister to feel that he could tell the House that he was taking such advice.

Perhaps it is not right for us to seek increased parliamentary control over the export credit business, but control of some sort should be exercised over Section 2 business. Ideally, we should be able to apply business judgments to Section 2 criteria by taking the advice of a panel such as that suggested in the amendment. I support the amendment.

7.15 p.m.

One of the more engaging things about the hon. Member for Hertfordshire, South (Mr. Parkinson) is his ability to make fluent speeches that have little to do with the amendment under discussion. In the previous debate I resisted the temptation to interrupt him to point out that he was saying that the Opposition's aim was to raise in OECD ECGD credit terms, whereas his amendment said nothing of the kind. It was aimed at putting an arbitrary ceiling on credit to COMECON countries. The hon. Member has done the same thing again. The amendment concerns Section 2(2) of the Act, which has a highly specific use and to which I shall come later. That section has never been used in practice.

More than half the hon. Member's speech was about Meriden, which in terms of Section 2 business amounted to £6 million out of a total section 2 cover of £4,000 million.

The section has a potential use but has never been applied. Assurances have been given to the House by my right hon. and hon. Friends in the past that the power to match unusual credit terms will be used sparingly and only where it is clearly in the national interest. The United Kingdom is opposed to the principle of credit mixte arrangement because they disturb commercial credit terms. They blur the distinction between commercial credit and aid and tend to attract aid away from the countries that most need it. We have not, however, been successful in persuading other countries to cease making available such terms in the past and it has therefore remained a necessary weapon.

The other use of the power is, as my right hon. Friend the Secretary of State said on 15th December, to make arrangements to enable loans to be made in connection with the foreign currency financing of export credit. This is a contingency provision. We hope that the market will be able and willing to provide the necessary finance for this business Those are the purposes for which Section 2 is designed. They are for specific purposes.

The concept of the national interest is not new. It has been used by successive Governments in different measures. For example, it was used by the last Conservative Government in their Industrial Relations Act.

Consultation with an advisory council or an export credit guarantees board, as the hon. Member for Gosport (Mr Viggers) suggested, would not be favoured by the Export Guarantees Advisory Council itself. I argue that it is unnecessary on the basis on which powers are exercised. It is not for the council to judge what is in the national interest. That is not its rôle. Judging what is in the national interest is clearly a function of the Government, and I hope that that will be accepted. The Government are the institution that is able to judge an issue of national interest. although I am aware that there must be criteria by which they do so.

The use of Section 2—the national interest section—is misunderstood. I do not blame the hon. Member for Hertfordshire, South for the emphasis he put on Meriden, but he got the issue out of perspective. I shall spell out why. Section 2 really constitutes what is conservatively construed as non-commercial risk insurance rather than being involved with Meriden-type insurance cases. These are extremely few and far between. One can count on the fingers of one hand the number of such cases that have been given Section 2 cover over the last decade. As I say, the amount in the Meriden case is infinitesimal as compared with the total commitments under Section 2. These are the criteria that are used.

I am slightly puzzled by what the Minister is saying. I am not reading from the departmental brief but looking at the accounts of the Exports Credits Guarantee Department, in which it is said that the remaining 5 per cent. of ECGD's export credit insurance business, for instance, is underwritten in the national interest under Section 2 of the Act. I do not quite understand what the Minister is saying. Is he saying that the Section 2 business is a tiny element or that it is a considerable element? This is a point of information.

I was coming on to a clarification of Section 2. I was saying that the "political" kind of case that the hon. Gentleman was citing, illustrating his case with Meriden, is exceedingly rare. I was saying that Meriden, with its total of £6 million, is a minute proportion of the £4,000 million which is the total Section 2 commitment at present. Section 2 is quite considerable, but it is not to be construed using the example of Meriden.

The point I was making is that the hon. Gentleman gave much of his speech to talking of Meriden, which is not indicative of Section 2 at all. Perhaps I could spell out the criteria used for Section 2 commitments. Business taken under Section 2 can include very sound business which is not taken under Section 1 simply because in commercial terms it does not offer an adequate spread of risk, or because of the size of the contract or the horizon of risk involved—for example, where there may be a credit period of seven to 10 years.

Of course, this explains precisely why the hon. Member rightly drew attention to the fact that very large contracts are found under Section 2. He cited one of £212 million. They are, of course, par excellence the buyer credit contracts, and most of these are very large. They are relatively few out of the total number of contracts with which ECGD deals. They are very large items that form the great bulk under Section 2.

New facilities—these are further criteria that I am giving that lead to inclusion within the Section 2 category—are also operated under Section 2 until experience has been gained of them. Thus, in the early days of the scheme all buyer credits were taken under Section 2, but many are now taken under Section 1. That does not indicate that they have suddenly become less political. Of course, it would be quite wrong to construe them in that way. At present all performance bond guarantees are taken under Section 2, but the advisory council will no doubt be reviewing the position in due course.

I think that this explains why Section 2 is so large. It also explains why it would be quite wrong to see it as indicating in any way at all the extent to which the Government were using political criteria for the provision of export credit cover. However, where this is thought to be the case, in the example of Meriden that the hon. Gentleman cited, for example, it was precisely because it was exceptional that a full statement was made to the House, first by my right hon. Friend who is now Secretary of State for Energy and then again, on the transfer of cover from NVT to the Meriden Cooperative, by my right hon. Friend the Secretary of State for Industry.

I conclude by saying that obviously it is not the intention that ECGD should underwrite—to use the phrase coined by my right hon. Friend the Member for Huyton (Sir H. Wilson) in 1949, I think, when he stood at the Dispatch Box as President of the Board of Trade—unduly hazardous or quite crazy risks. I think that that is a striking phrase and quite a good illustrative phrase.

In covering business under Section 2 in the national interest, ECGD has access to the advice of other Departments and, of course, to outside sources, as may be necessary, and it operates such credit insurance at no net cost to public funds. The very fact that that goal is very substantially met, indicates the constraints in the use of Section 2 just as much as in the case of Section 1.

I hope, therefore, on the basis of these arguments, that the hon. Gentleman will withdraw the amendment.

The Minister said that I had an engaging ability to make very strong speeches which had nothing to do with the amendment. I should like to reciprocate the compliment and say that he has an engaging ability to misunderstand the argument that I am putting forward. His answers are very often to points that I have not made and are very rarely to those that I have made.

I gave three reasons why I believe that the amendment made sense: the volume of business and the fact that it was growing so rapidly, the size of the individual business that we being done under Section 2, and the political flavour in one or two of the recent decisions, particularly those affecting Merdian.

The Minister chose to answer only the last of those points. He seemed to suggest that that was the only argument I had used. He said himself that quite often now business which was previously written under Section 2 is transferred to Section 1 and, therefore, comes under the aegis of the Export Credits Advisory Board. He seems to imply, therefore, that the business is almost interchangeaable, but he says that we should have a board giving advice in one area and that the same board should not give advice in another area, although the business could have been taken under either heading. That is not consistent and it is certainly unconvincing.

It might help if I clarify the point. The reason why business is provided with cover under Section 2 is precisely the fact that it is regarded by the advisory council at the time as noncommercial risk insurance.

I thank the Minister for that intervention.

I believe that the arguments are becoming more and more compelling for advice of the kind mentioned in the amendment to become available to the Secretary of State and to be part of the arrangements. However, this is not the moment to press the matter. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Motion made, and Question proposed, That the Bill be now read the Third time.

7.28 p.m.

I started the Second Reading debate on this very important Bill by saying that it was, in fact, three Bills in one and that they were three very important Bills.

Once the Bill receives Royal Assent, the United Kingdom will have adopted the new articles of the IMF and will have said an official goodbye to the Bretton Woods Agreement. We shall have adopted our new quota with the IMF, a quota which recognises our changed status within the international economic community and the growing power of the OPEC countries.

In the second part of the Bill we are increasing the ECGD limits to a gigantic £56 billion, and when the Bill becomes law the ECGD will have at its disposal facilities that will make it one of the biggest export banks in the world. ECGD will be able to write business totalling nearly $100 billion—a huge responsibility for those administering it.

In the third part of the Bill we shall be increasing the borrowing limits of the much-admired and much-praised Commonwealth Development Corporation.

It is fortunate that the House has been able to give this important measure rather more careful scrutiny than it might otherwise have had. I suggest that it is absolutely right that a measure such as this, with far-reaching implications, should be discussed by the House not in the middle of the night, but at a time when hon. Members can deploy proper arguments without thinking that they are keeping their colleagues out of bed.

I am happy that the House has given such examination to this important Bill. This measure contains important provisions which will produce benefits not only to those in this country who depend on trade but to countries which depend on the IMF. It will also give the Commonwealth Development Corporation the resources to enable it to expand its activities in some of the poorest and most deserving parts of the world.

7.31 p.m.

I, too, found the debates extremely valuable in coming at a time when we are all wide awake in the early part of the evening rather than, as had been expected at the earliest, after 10 o'clock. As a result, we have had a longer debate than might otherwise have been the case. But those who share my interest in these matters will not deplore that outcome.

We are dealing with a Bill covering a fairly limited range. I pay tribute to the debut of the hon. Member for Hertfordshire, South (Mr. Parkinson), who has conducted himself in his new duties in the very manner that we expected of him. Quite rightly, he has probed various matters. Following Second Reading, the Committee stage upstairs, Report and now Third Reading, I am sure the hon. Gentleman shares my feeling that we have been round this course pretty well and know most of the markers fairly accurately by now. The hon. Gentleman made nearly all the points which I thought he would be likely to make and, as is not surprising, brought out others which I had not appreciated. I pay tribute to him for that.

This is a valuable Bill. We have taken account of some of the critical issues in the international monetary sphere, we have dealt with the problem of financing the increasing amounts which we shall need to extend our trading activities overseas, and we have given valuable assistance to the Commonwealth Development Corporation. The work has been done well. I think that the House should be pleased with the way that it has handled the Bill.

Question put and agreed to.

Bill accordingly read the Third time and passed.