I beg to move
That the Clearing Office (Italy) Amendment Order, 1936, dated the eleventh day of November, nineteen hundred and thirty-six, made by the Treasury under the Debts Clearing Offices and Import Restrictions
Act, 1934, a copy of which was presented to this House on the seventeenth day of November, nineteen hundred and thirty-six, be approved.
This is an Order made by the Treasury on 11th November which varies the Clearing Office (Italy) Order made on 10th July, 1936. The position in regard to trade with Italy is that between March and November, 1935, trade payments made between the United Kingdom and Italy were regulated by the Anglo-Italian Payments Agreement of April, 1935, in which it was laid down that sums due from persons in the United Kingdom to persons in Italy in respect of exports to the United Kingdom and freights for carriage of goods between the two countries in Italian ships should be paid to a sterling account at the Bank of England, and should be used to pay debts in respect of United Kingdom exports to Italy or freights for the carriage of goods between the two countries in British ships. There was no compulsion, however, on debtors in this country to make their payments to the sterling account and the agreement did not work very satisfactorily. In the result, debts amounting to about £1,750,000 accumulated in Italy. On 18th November, 1935, the date when the sanctions embargo was placed on Italian goods, a Controller of Anglo-Italian debts was appointed to whom debts due for Italian goods were payable compulsorily. By that means some £600,000 was collected up to 15th July, when sanctions were raised, and this sum was used to reduce the debts due for United Kingdom goods and freights.
On the raising of sanctions it seemed desirable to make sure that sterling derived from Italian exports to the United Kingdom should be used to meet Italian liabilities to the United Kingdom and, as the voluntary system that was in force prior to sanctions had not worked satisfactorily, it was decided to set up an Anglo-Italian Clearing Office, payment to which would be compulsory. This was done, but no agreement was reached before sanctions terminated as to how the sterling collected by the Clearing Office should be distributed, and it was therefore decided that the sterling received by the Anglo-Italian Clearing Office should be placed to a reserve fund pending the conclusion of negotiations.
These arrangements were established by the Clearing Office (Italy) Order made on 10th July, 1936. The negotiations which were started in July broke down on the question of provisions for frozen debts. They were resumed on 24th September, and a Clearing Agreement was signed on 6th November, 1936. The Clearing Agreement provides that all debts in respect of Italian goods imported into the United Kingdom shall continue to be paid to the Anglo-Italian Clearing Office and that the sterling should be allocated as follows:
70 per cent. to current trade debts in respect of United Kingdom goods imported into Italy after 14th July—that is the end of sanctions—and freights for the carriage between the two countries in British ships of goods imported into either country after that date; and
27 per cent. is devoted to commercial arrears. Within the 27 per cent. 18 per cent. is devoted to debts covered by the old Agreement of 1935 in respect of United Kingdom imports into Italy and freight in the period from 17th March, 1935, to 18th November, 1935. The balance of the 27 per cent., namely, 9 per cent., is allocated to commercial debts which were outside the Agreement of 1935, such as debts for goods supplied to Italy from third countries and for goods supplied to the Italian colonies.
Finally 3 per cent. is earmarked for financial debts and remittances. Under this heading provision is made for the transfer of recurrent items in priority to capital items.
The Agreement thus provides for three categories of debts, and allocates 70 per cent. for current trade, 27 per cent. for commercial arrears and 3 per cent. to financial debts. Any balance not required for commitments in respect of current trade which is available at 31st December, 1936, and at the end of each subsequent quarter is to be used for old Agreement debts, for pre-agreement and extra-agreement debts and for financial debts in the proportions 18 to 9 to 3. The sterling collected by the Anglo-Italian Clearing Office from 15th July up to 15th November, 1936, is to be allocated as to 50 per cent. to current trade and 50 per cent. to arrears.
These, broadly, are the provisions of the agreement which makes the present Amending Order necessary. I think it is a matter about which there will be no controversy that, if trade is to be resumed with Italy, the best arrangements that can be made with regard to payment for our goods should be put in operation. It is no use making arrangements for the resumption of trade with Italy unless we make an effort to clear off the arrears which have accumulated in the past, and the agreement is satisfactory in that it provides for the clearing off of these arrears. The Order does not set up a new Clearing Office but merely modifies the Clearing Office system at present in force, in accordance with the terms of the agreement.
I must thank the Financial Secretary for his lucid explanation of a complicated Agreement, but there are one or two points on which I should like more information. In Article 4 certain priorities are given to claimants who put in their claims prior to the agreement coming into operation. I should like to know what opportunity there was for claimants to know about the Agreement. There were only 10 days between the signing of the Agreement in Rome and its coming into operation, and unless there was widespread knowledge of the matter, certain people unquestionably had an unfair advantage. In the second place, does the reserve fund account apply to debts between 15th July, 1936, and 16th November, 1936? It seems to me that paragraph (b) of Article 13 gives an undue advantage to Italian bonds for freights for goods carried in Italian ships. It means that Italian ships can get immediate payment, whereas British ships will have to wait for the operation of the Agreement before they can get freight. Why is there this unfair differentiation against British bottoms?
The real part of the Agreement, however, is Article 7. The working of the Agreement depends on the exchange of goods and current payments. Thirty per cent. of current future payments are to be issued for the liquidation of frozen debts, and 70 per cent. as reserve for the payment of current and future trade. That assumes that if our merchants are to receive reasonably early payments for current and future trade, there must be an adverse balance of trade between Italy and this country of something like 50 per cent. Thirty per cent. of current debts will be put to arrears and 70 per cent. for the payment of our exports to Italy. If one looks at the course of trade there is no reserve, no balance, which would justify putting 30 per cent. to arrears. For instance, in the three years, 1932 to 1934, Italy sent £28,000,000 of trade and took £27,000,000. There was a balance of only £1,000,000.
In 1934 the boot is actually on the other leg. Italy sent £8,500,000 and took £9,300,000—nearly £750,000 adverse balance against Italy. This clearance scheme can only work if Italy sends more goods than she takes from us. Otherwise, current trade is likely to have to wait for a considerable period for its payment. I do not know what the present balance of trade is or is likely to be between this country and Italy, and I should like to ask the Financial Secretary whether he thinks that this allocation of 30 per cent. and 70 per cent. is likely to work out.
The Agreement is an enormous advance on that made in 1935. At that time two classes of debts were left out, both of them affecting British subjects. One class was debts in respect of goods shipped to Italy from, say, Canada, and, by negotiations, through London. The debts in that respect were due to British citizens and at that time no provision was made for repayment. There was a second class of goods which were also not taken into consideration. These were goods which had passed through Italian Customs prior to 19th March of that year. In this agreement a great step forward has been made. The Treasury has recognised that an injustice was done to these two classes of debts. After all, they were both classes of debts in respect of British citizens who were owed money from Italian quarters. It was obviously inequitable, in order to push forward the coal trade, to prejudice them. It is no good carrying on trade unless you are to get paid. This Agreement is a great advance on the previous Agreement. There is one point about which I should like to ask my right hon. Friend. At the bottom of page 4 of the Agreement it says:
The Istituto will now convert such lire deposits into sterling at the rate of lire 64·46 to the pound sterling.
Does that fixed rate of exchange still mean that British subjects who were owed money by Italian debtors two years ago will, in fact, lose money on the exchange in view of the arrangements which have recently been made 7 I should be grateful if my right hon. Friend will look into it. I know that it is a complicated question, and if he is unable to give an answer now, I shall be grateful if he will communicate with me. I welcome this Agreement, not by any means as an ideal one, but because I realise that the Board of Trade and the Treasury have done their best in difficult circumstances, and I am pleased that trade relations have again been renewed with Italy.
The answer to the first question of the hon. Member for Chesterfield (Mr. Benson) is that the applications made are those made during the last year or two, when transfers were being restricted and no one had advance information. His second question was with regard to the reserve fund. His dates were correct, namely, between 15th July, 1936, and 16th November, 1936. As regards freights, the exemption from the clearing relates only to freights due by traders in the United Kingdom for the carriage of goods between the two countries in Italian Ships. The hon. Member made the point that this seemed to be discrimination against British shipping. The circumstances are that the question was gone into carefully by those who negotiated the Agreement, and it was decided that the amounts were so small and their collection by the clearing office would involve such troublesome administrative questions, that it was better to leave them outside the clearing. The hon. Member also spoke of the general balance of trade. As he pointed out, the balance of trade between Italy and Great Britain in 1934 was slightly in favour of this country. The figures, I think, were 8½ millions to 9 1/3 millions. In 1935, the tendency was reversed, and in 1936, of course, the trade went all to pieces for political reasons.
It is rather hard to say what the course of trade between Italy and this country will be in the immediate future and how far Italy will again pick up her markets in this country. But it is contemplated that for a period, in order to make certain that funds are available both for current trade and arrears, there shall be a surplus of imports from Italy. What I would emphasise is that if this arrangement succeeds in liquidating the arrears, as we intend it should, it will be possible to negotiate for the future a different arrangement in regard to current trade. But while these considerable debts have to be liquidated we find it necessary to earmark a definite proportion for that purpose.
It is true that this agreement will liquidate the frozen debts, but will it not do so at the expense of the current trader who will have to wait for payment on goods which are being shipped now, unless there is a heavy excess of imports into this country?
I do not hold that view. Under the agreement if trade flows in the way which is contemplated there should be sufficient to meet the proportion required for arrears, as well as that for current trade. My hon. Friend the Member for Penryn and Falmouth (Mr. Petherick) raised a point as to the rate of conversion of the deposits of lire. It is, as he said, a complicated point, but I think I can answer him. In accordance with the normal practice the debtor in Italy is responsible for the payment of sterling debts to the creditor in England up to the full sterling amount due, except in the special case of the pre-agreement and extra-agreement arrears for which the debtor in Italy has deposited lire and received a full discharge under the Italian decree of 20th November, 1935. To meet that exceptional position the Italian Government has agreed that the lire deposited under the Decree in the cases I have mentioned should be reconverted into sterling by the Italian authorities and paid in sterling at the rate of 64.46 lire to the £. That was the last official quotation before the devaluation of the lire took place. Conversion on these terms will mean possibly a slight loss to British creditors varying from 1 per cent. to 5 per cent., but no more than that, on the sums affected. Taking all the circumstances into account and the considerable loss which would have been incurred by the creditors if this agreement had not been negotiated, on account of the devaluation of the lira from 64 to 90 to the £, the agreement, I think, is satisfactory in that no greater loss than 5 per cent. will result from depreciation. I think I have now dealt with the principal points raised by hon. Members, and I hope the House is now ready to approve of the Order.
I cannot say that I like this arrangement, which seems to me to be an attempt to get out of a difficult situation by an unsatisfactory compromise. At the same time it is probably the best that could be done in the circumstances. The Financial Secretary has explained these rather difficult matters with courtesy and lucidity and as far as we on these benches are concerned, we do not raise any objection to the passing of the Resolution.
That the Clearing Office (Italy) Amendment Order, 1936, dated the eleventh day of November, nineteen hundred and thirty-six, made by the Treasury under the Debts Clearing Offices and Import Restrictions Act, 1934, a copy of which was presented to this House on the seventeenth day of November, nineteen hundred and thirty-six, be approved.