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Trade Barriers (European Community)

Volume 138: debated on Thursday 20 October 1988

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Motion made, and Question proposed, That this House do now adjourn. — [Mr. Fallon.]

10.26 pm

I begin by expressing a measure of sympathy for my hon. Friend the Minister who is to reply to the debate. He is having to defend a position to which the Government are acquiescing but which goes against virtually all their stated objectives of encouraging consumer choice, deregulating and fostering industrial efficiency.

Although we have heard a great deal of noise over the past year or so about 1992 and the opening of the European market, we have heard less about the corollary of that, which is that many civil servants within the European Commission believe that as we open our internal market we should steadily close the external market to prevent non-EEC manufacturers from taking advantage of our more open internal market. Therefore, as we are seeing barriers within the European Community being broken down, we are seeing a fortress-Europe mentality being introduced by many within the EEC establishment.

For example, many car manufacturers are already talking about introducing a 15 per cent. EEC import quota for Japanese cars after 1992 to replace the series of national quotas which currently exist. Britain now has an 11 per cent. import quota for Japanese cars, France has a 3 per cent. quota and Spain and Italy allow only a few thousand Japanese cars to be imported each year. Most of the other EEC countries have no quotas or import restrictions. Therefore, a 15 per cent. quota in 1992 will in many cases mean less consumer choice and more protection than at present.

Apart from the quotas being proposed there is already a wide range of EEC-wide quotas. The EEC currently imposes quotas on imports of compact disc machines, videos and televisions. Significantly and topically, there are also quotas on imports of steel. It is almost impossible for non-EEC producers to import steel into the European Community. That has severe ramifications for steel-consuming industries within the EEC.

Apart from the quotas already in existence and those being proposed and taken seriously within the Commission, the increasing use of what I consider to be spurious anti-dumping duties by the Commission is dangerous. In recent years, the Commission has imposed severe anti-dumping duties on imports of photocopiers, computer printers and electronic typewriters. I understand that it is proposing duties on imports of facsimile machines and microchips.

The 1982 regulations, which are the basis for the anti-dumping regulations, have been drawn so widely that the Commission can say that almost anything is dumping. I should like to draw the Minister's attention to two particular examples. The first concerns constructed prices. Rather than send its investigators to Japan and Europe to find out at what prices the products are being sold, the Commission artificially constructs prices. The structures by which it does so are different in Japan from those in Europe. In Japan, the price includes much of the overheads and marketing costs, but in Europe it does not. That obviously makes the European cost at which the Japanese are selling far lower than that of their home market, thereby making a large dumping margin when in reality there is none.

The second example is the system whereby the Commission can say that any company or industry selling products on the EC market at a loss is automatically dumping. It is well known that start-up companies, especially when they are opening a high-volume factory, may for the first year or two not reach full economic volumes. By the Commission's regulations, they will be selling their products at a loss on the European market and will therefore be dumping. A penal anti-dumping duty will be imposed on them, with the result that the Commission will have the power to strangle almost any new non-EC entrant to the market at birth.

In its defence, the Commission says that the European Court has ruled that it is imposing its anti-dumping duties legally, which is right. Companies that fought the Commission in the European Court found that the court expressed much sympathy but said that the Commission was working well within its own regulations, even though they are drawn up unfairly.

The other excuse that is used is that the anti-dumping regulations fall within the general agreement on tariffs and trade. The problem is that the GATT guidelines are drawn so widely and vaguely that almost any regulations would fall within their parameters. I do not consider that to be a defence to the Commission's stance.

I have mentioned these problems to European industrialists, European civil servants and the many defenders of protectionism, including many Socialists. In their more candid moments, they admit that these measures are blatantly protectionist, but their main justification for them is that the Japanese have been protectionist so we must be protectionist ourselves. Everyone knows that the Japanese were very protectionist in the 1950s and 1960s, but we fool ourselves if we believe that Britain, Europe and the United States were not and are not extremely protectionist in a variety of ways. The fundamental difference is that, while the Japanese are making genuine efforts to reduce their protectionist barriers, we in Europe, and to a large extent America, are erecting ours.

One of the reasons why people mistakenly believe that Japan is a protectionist country is that the Japanese market is difficult in a variety of ways and many western manufacturers have come to grief by trying to sell the wrong product and not persevering. The Japanese, with a relatively small home market, have had to sell their products in the west, whereas for many western manufacturers it has been far easier to sell into the linguistically and culturally similar markets in Europe and the United States, or to old colonial markets, which were protected and offered substantial advantages. There has not been the incentive for western manufacturers to sell into the Japanese market in the same way that there has been a necessity for Japanese manufacturers to sell into western markets. That is one reason why Japanese export penetration into Europe has been higher than western penetration into Japanese markets. Anyone who studies the Japanese market will find many examples of western companies, producing the right product at the right price, that have done extremely well.

Before being fortunate enough to be elected to this place, I worked in the information technology industry, editing a business consumer magazine which covered many of the products that are subject to EEC Commission anti-dumping investigations or have had duties imposed on them. I know that the Japanese succeeded primarily because they produced the right products at the right price and marketed them creatively.

The Japanese have done well with photocopiers because they produced in volume. Because they did that, they were able to incorporate features in their machines which were formerly the preserve of the top name products. The Japanese also marketed creatively, cutting costs by introducing dealer marketing rather than direct sales. Many European industries and even Xerox, the American-owned company, were slow. They did not sell the right products and were not agile in marketing. The Japanese have succeeded not through predatory guile but by producing and selling the right products at the right price and delivering on time.

Unfortunately, it is far easier for European manufacturers who have failed in the Japanese market, and failed against Japanese competition in their home markets, to whinge, whine and complain about unfair trade practices. If they can palm the blame off on to the Japanese, it obviously means that they are not at fault.

The other major argument to justify protectionism is that protectionist barriers forced the Japanese to set up in Europe. Examples in Britain which have recently been given much publicity are the Nissan car factory in the north-east and a variety of typewriter and office equipment factories. I make it clear that I welcome with open arms foreign investment of all types. If that investment is represented only by assembly plants, that is better than nothing. If that foreign investment comes into this country only to jump over import barriers, the rest of the economy must pay the price.

I should like to quote Nissan as an example. Obviously, it has been of great benefit in the north-east and people there have warmly welcomed the Nissan factory. The company has also been of benefit in a wider sense by its example to the British economy in general. But it is important to recognise the disadvantages. Although it may deny this, Nissan came to Britain largely because of Britain's 11 per cent. import quota on Japanese cars, the so-called gentleman's agreement which was introduced in 1976 by a Labour Government, supposedly to give Austin-Rover a breathing space. However, that plan does not seem to have done much good. I believe that it is a good argument against protectionism.

Although Nissan brought many benefits in its train, the quotas which brought the company here in the first place have resulted in an annual extra cost by distorting the market for United Kingdom car buyers by about £1 million a year. That sum represents the costs over and above the costs that should be paid by British industry which are diverted from efficient and productive industry into less efficient, less productive industry.

Import barriers can also be damaging to the rest of the economy because they limit choice. Once again, I shall adduce Nissan as a good example. Nissan produces in relatively low volumes in this country. It has to have longer product runs to make those volumes competitive and economical. The company cannot introduce in the British market the new models that it would introduce in a free market. For example, the Nissan Bluebird, which is produced in the north-east, is. an obsolete model. In far eastern markets, Nissan introduced a new Bluebird more than a year ago. Nissan denies this, but the fact is that, because the company needs long production runs to make its plants economic, it cannot introduce new models as quickly as it might otherwise do, so choice is limited.

Exactly the same has happened with the Rover Group, which has an agreement to assemble certain Honda products. Most of the group's product line are Honda-designed and developed.

Rover produces a car called the Rover 200 that is effectively the same car as one that it assembles for Honda, which is called the Honda Ballade. That, in turn, is the old Honda Civic model, which has long since been replaced in other markets but because the Rover Group had to have long runs of this model it will be unable to replace it until next year. By limiting consumer choice, such practices make our market less competitive, and that damages not only consumers but the industry.

My hon. Friend said that the Nissan car company came to this country because in doing so it was able to leap the protection barrier. Would he say that the grants that were made available to this company when it came here were not significant or did not enter into the company's thinking when it planned to open the new plant?

My hon. Friend is right. I said that import quotas were one of the reasons why the company came here, but I agree that another was generous assistance from the Government. Furthermore, it found that Britain, compared to other countries, was a good place in which to do business, and we should recognise that. However, import quotas were a major element when it made the decision to come here, although the company might deny that.

I hope that my hon. Friend will forgive me if I do not give way again, but I have to leave enough time for my hon. Friend the Minister to give me a considered reply.

I know that the Minister is concerned about screwdriver and anti-dumping duties. On top of proposing a series of protectionist duties, which, to an extent, encourage Japanese industry into Europe, now that the Japanese have come to Europe, the Commission is saying that they must use a high proportion of local components. That is not necessarily in the interest of the assembling country, and it is not always possible for the companies to find high quality components locally. That is damaging, and it compounds the damage already done by the protectionism that is the result of many of the Commission's policies.

The casual listener—I accept that there are not many casual listeners here tonight, but I trust that I am not immodest in hoping that some people will read this debate —may think that I am arguing on behalf of Japanese industry. I should like to emphasise that I am not. I am arguing for our industry because I believe that protectionism damages our industry in a number of ways. First, it increases prices, often of industrial feedstocks. For instance, the import quotas on non-EEC steel mean that our steel consumers, which include the car industry, have to pay more for their steel than they would if they were buying it in another country.

Another good example are microchips. Not only has the EEC placed anti-dumping duties on Japanese chips, but there is already a ludicrous system whereby the import duty on non-EEC chips is higher than the import duty on fully built computer boards and computers. That means that it is often far cheaper to import fully built-up boards than to import the chips, which can be used to build products here. That is largely the result of lobbying by the big European chip makers—Siemens, Philips, Thomson and SGS ATES. The result is that assemblers of products using chips, such as the Amstrad company, find it cheaper to import fully made-up products, whereas, if the duties were equal, they would find it more economic and preferable to assemble the products here.

Protectionism not only increases the cost of feedstock to our industry, but indirectly helps the Japanese, by creating artificially high markets from which they are able to profit. The Japanese make huge profits out of selling cars to the protected European markets—Britain, France, Italy and Spain—and those profits are repatriated to Japan, so that helps. Ultimately, protectionism does not help the industries that it is supposed to protect. It puts off the time when those industries have to sort out their own houses and become efficient and effective. Thus, it compounds and continues their inefficiencies. If a company cannot compete in its home market with the Japanese, how does it expect to be able to compete in overseas export markets?

There is a further danger in protectionism because, if we allow ourselves to be convinced by failed European industrialists that the Japanese have succeeded as a result of predatory trading practices, we shall have no incentive to improve ourselves and to learn the many valuable lessons that they can teach us to help us sort out our industrial problems. Some of the real reasons for the success of the Japanese are not so much predatory guile, but rather the fact that, ever since the war, they have had consistently right of centre Governments who have followed extremely sound economic policies. They have a first-rate education system which churns out a highly skilled and literate work force, and the country as a whole has not suffered from Socialist anti-business and anti-profit attitudes, but has a solidly and robustly pro-business, pro-enterprise ethos.

I therefore urge my hon. Friend to look carefully at the protectionism which exists and is being built up by the Commission because that protectionism runs counter to the Government's avowed policy of deregulation, industrial efficiency and consumer choice. I accept that my hon. Friend probably does not know a great deal about the protectionism because much of it that arises in the Commission probably comes on to his desk or those of his colleagues with a little note from civil servants saying, "This is all right. Sign." Many anti-dumping orders are probably signed without my hon. Friend and his colleagues knowing what they are signing. I am sure that, if they realised what they were signing, they might well have second thoughts. Ultimately, it is extremely dangerous for European industry, if it knows that it has an easy path, to go whingeing to the Commission asking for protection rather than sorting itself out.

10.46 pm

I congratulate my hon. Friend the Member for Amber Valley (Mr. Oppenheim), first, on having gained this opportunity and, secondly, on having used it so skilfully and, in his usual measured way, having deployed a formidable and detailed range of knowledge of a difficult subject. He will understand that one or two other matters were occupying my mind today, but, none the less, I am grateful to have the opportunity to reply to the serious and well thought out points that he has made.

There is not all that much difference of opinon between my hon. Friend and me. He knows that the Governments stance is essentially a liberal one in respect of trade. We are not a protectionist Government. We reject protectionism, for very much the reasons that he set out. He talked about the way in which the single European market is likely to develop; and the way in which it is perceived to be developing is as important as the way in which it does develop. There is no doubt that it is crucial to the long-term success of completing the single market that it conducts its external trade relations after 1992 in a sensible way.

With the United States and Japan, the Community is one of the world's three great trading blocs, and that imposes great responsibilities which we have to live up to. We are already deep into the Uruguay round of trade negotiations which aims to reinforce the system by which the international rules of trade are multilaterally agreed and applied. We are seeking major reforms in that system so that it can better serve the interests of all trading nations in the decades ahead. The Community, and especially the United Kingdom Government, are well aware of the benefits that we draw from open trade in terms of growth, investment, technological advance and consumer satisfaction and we have therefore made it clear right from the start that, in our view, there can be no question of a "fortress Europe" or of us using the completion of the single market to raise external trade barriers. That would make no sense and would tend to isolate the Community from developments elsewhere.

The Secretary of State made our position absolutely clear in the White Paper, "The Department for Enterprise", which he published in January. It is worth pointing out that the European Council strongly reaffirmed the same principle at Hanover in June of this year, as did my right hon. Friend the Prime Minister in her speech at Bruges last month, but, as I have said before, it is not just what the Community does; it is how it is perceived that matters.

A fear is often expressed in countries outside the Community that the development of the single market will be paralleled by increased protection against outside competition, especially from the United States and Japan. I have recently visited two or three countries in the far east, where I found that it was accepted as a certainty that that would happen. I hope that I managed to instil a doubt in the minds of those to whom I spoke. Their preconception is very much that Europe is turning itself inwards and closing itself to trade from outside. We must resist such moves. The single market process must help to reduce external barriers, not increase them. Raising Community barriers would be self-defeating. It would encourage inefficiency and a lack of competitiveness. Whatever we were to gain at a cost to consumers and our economies, we would lose internationally.

There is a real danger, if our trading partners misunderstand our intentions, that there could develop a retaliatory spiral of protectionism, with the various trading blocs, which are increasingly developing around the globe, erecting ever more severe trade barriers. I do not need to spell out the disastrous consequences that that would hold. We could suddenly find that there was a clamp on world trade, with serious effects on economic growth worldwide. I hope that all our partners in the Community will express as robustly as we do a commitment to a liberal policy in trade. The consequences of doing otherwise could be severe.

There is already misinterpretation on this side of the Atlantic of the American Trade Bill. It is interpreted as being more protectionist than it is. There is misinterpretation in the United States of what is happening in Europe. Similarly, there is misinterpretation in the far east. Whenever uncertainty and discordant voices emerge from one of the trade blocs, there is a tendency for our trading partners to make an interpretation that is in the worst possible light. There is thus the danger of a retaliatory round of trade barriers being erected. That could happen suddenly and without notice, with serious consequences for world trade.

It is clear that the removal of the internal barriers in the Community will bring great benefits to nationals of other countries and to the subsidiaries of foreign firms that are established in the Community. They will profit from the single market in the same way as Community nationals. That gives the lie to some of the more exaggerated fears that have been expressed, especially in the United States press. Foreign-based firms play a dynamic part in the economies of all the member states and we need to encourage the dynamism, not seek to repress it.

We can look to our partners to continue the process of liberalisation, and we must do so. We are doing this already in the way in which we are negotiating in the GATT to extend the multinational rules to services, with the aim of progressively opening services markets worldwide. We in the Community as a whole will continue with this process. The Uruguay round provides the mechanism with which it will be possible for the Community, in an appropriate instance, to claim credit for the external liberalisation that will occur with the completion of the single market.

My hon. Friend the Member for Amber Valley referred to imports. It is part of the Government's policy to provide an economic climate that promotes the enterprise and prosperity that will enable both the manufacturing and service sectors to compete in world markets. A policy of open markets—of free but fair trade—is an indispensable element in this policy. Imports at fair market prices provide both a significant input to our manufacturing effort and a competitive spur, which help to keep costs down for both consumers and industrial users and to widen choice.

Since 1985, as part of our initiative of competition, we have been reviewing the justification for the voluntary restraint agreements that have typically been concluded between a United Kingdom industry and its counterpart overseas. I answered written questions on 30 March and subsequently which were tabled by my hon. Friend the Member for Darlington (Mr. Fallon), whom I am delighted to see on the Government Front Bench. I am sure that the whole House will wish to join me in congratulating him on his elevation to the Whips' office, even if, as a result, we shall be denied the pleasure of his contributions to our debates for the time being. As I explained in my answer to the questions that he so pertinently asked, in assessing the costs and benefits to the United Kingdom economy, we concluded that in most cases such arrangements were not in our interests, and we advised the industry concerned accordingly. But in the cases in which we believed that there was some justification, we continue to keep those arrangements under review.

My hon. Friend spoke about anti-dumping. He is absolutely right that anti-dumping measures must not be used as an easy way out. When complaints about dumping are made, we have to ensure that the proper procedures are followed. In case my hon. Friend has any doubts about this, I can assure him that I have at no stage signed an anti-dumping order, whether I have read it or not. And I know that my hon. Friend the Minister for Trade, before whom these matters may come, exercises great diligence and care before committing his name to anything.

We need to ensure that these processes are not abused and that, when complaints are made, the proper procedures are followed. For the most part, we believe that that happens. The danger is that, if the procedures are thought to be abused—there is no doubt that in some parts of the world they are thought to be used too freely, and conclusions that meet the anxieties of the protectionist lobby are thought to be too freely reached—great damage will be done to the reputation of the European Community, which is based on economic liberalism.

It was right of my hon. Friend eloquently to raise the other side of the coin. Too often, for Governments and public authorities generally——

The motion having been made after Ten o'clock and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at four minutes to Eleven o'clock.