East-West Trade

– in the House of Commons at 12:00 am on 13 June 1958.

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11.5 a.m.

Photo of Dr Horace King Dr Horace King , Southampton, Itchen

I beg to move, That this House, believing that the relaxation of artificial barriers in trading relations between Communist and non-Communist countries would be a contribution not only to full employment in Great Britain and to the world economy but also to world peace, calls upon Her Majesty's Government to take all steps commensurate with national security radically to reduce the list of strategic restrictions and urges other Governments on both sides of the Iron Curtain to take similar action. At the outset, I should like to thank Mr. Enwright, of the Library Research Department; Mr. Ian Campbell, of the Labour Party's International Department, and Mr. Barratt, Secretary of the Confederation of Shipbuilding and Engineering Unions, for assistance in research for this debate and, in the case of Mr. Barratt, for permission to quote from some of the documentary material of that Confederation.

The subject of East-West trade is a vital one, and I am glad that my luck in the Ballot gives me an opportunity of opening the debate, so that more authoritative spokesmen can continue it. I am happy that my Motion is to be seconded by my hon. Friend the Member for Leeds, West (Mr. C. Pannell), who brings to this debate a lifelong industrial experience, and I am very pleased to see in the Chamber the hon. Member for Louth (Mr. Osborne), who has been doing at what one might call ground level some of the practical work in achieving East-West trade. I am very grateful to my right hon. Friend the Member for Huyton (Mr. H. Wilson) for being here after a very busy Finance Bill week, on what is, I think, an important occasion.

Of all the countries in the world, Britain is one whose life-blood is trade. Fifty million people live on an island which does not contain many of the raw materials on which their standard of living depends. We have a few, like coal, and about half our food; the rest we buy in the world with the products of the skill, science and energy of our people. Any interference with the natural flow of trade hurts the world in general, but hurts Britain most of all. We British are fundamentally free traders; I am sorry that the Liberals are not here to cheer that remark. Any barrier between us and the potential interchange of manufactured goods for somebody else's raw materials must be fully justified before we can feel that we can support its imposition or retention.

Obviously, with the world as it is, such barriers exist. Many of them are not of our own choosing. Some of them are protective and safety measures; some of them are political, and some are in retaliation for similar measures adopted by other countries. But wherever they can be safely pulled down, Britain stands to gain. The case that I want to put is even stronger than that, and I put it in the words of a much more eloquent person than myself, namely, the right hon. Member for Woodford (Sir W. Churchill). On 25th February, 1954, he said in the House: When there is so much prosperity for everybody round the corner and within our reach it cannot do anything but good to interchange merchandise and services on an increasing scale. The more the two great divisions of the world mingle in the healthy and fertile activities of commerce the greater is the counterpoise to purely military calculations. Other thoughts take up their place in the minds of men."—[OFFICIAL REPORT, 25th February, 1954; Vol. 524, c. 587–8.] If this great man was right—and I am certain that what he said was so true that the House may be in danger of dismissing it as a truism—the task of politicians the world over is to create conditions in which traders can get together. Market research is a much more profitable venture for mankind than atom bomb or H-bomb research.

The world is divided into two armed camps which are, at the same time, two separate economic units, although the economic unity of the free world—such is the anarchy of private enterprise—is much less established than the monolithic unity of the Communist world. But neither of these can destroy the other.

In the military field, world statesmen are attempting at the moment to find some means of scaling down the great military forces on both sides. In the political field, both sides are engaged in the task of reducing the sources of political tension between the two sides. No one today on either side of the Iron Curtain advocates piling up arms to the maximum possible in order to destroy the other side. The effort of both sides is to scale down arms and to reach settlements, and this without either side accepting or sympathising with the political system of the other. Similarly, I suggest that nobody with any sense on either side seeks to establish two utterly separate and self-contained halves of the world.

Economic blockade by one country of another may be a logical policy in wartime. One may dislike Communism or capitalism so intensely that one believes every contact with it to be bad and that by isolating it from economic contacts one destroys it. But even in wartime a blockade is difficult to impose, as Napoleon found out in more limited circumstances, and in peace-time when the blockaded is one-half of the world and the blockader is the other half, the policy is just impossible to carry out, even if it were desirable.

The only other general point I would make is, of course, that it is true that as long as the two camps are armed all we say this morning about liberalising trade cannot apply to weapons of war. The Russians have never proposed selling us submarines in return for such things as sewing machines or wrist watches. It would be a betrayal of democracy to sell arms to the Soviets. An arms embargo makes sense. Neither side questions that. An embargo some day on selling arms to anyone will make even more sense when the world has achieved something like a rational pattern of human relations.

At the height of the cold war the free world placed a strategic ban on goods for Soviet Russia. There was a danger that the cold war might develop into a hot war. When China flouted the United Nations and supported North Korean aggression with Stalin's connivance, the United Nations placed a complete embargo on everything to China. That was right; China was at war with the United Nations. But that war has long been over. It is true that the settlement pleased neither side. In our opinion it marked a half victory for the aggressor. But it is over.

I can understand the bitterness of the Americans on this issue. The major casualties in the Korean war were, of course, American boys, and the Americans say, naturally, "It is easy for Britain to forget the Korean war. We Americans bore the brunt of it." This was said to me often when I was travelling in America. But Britain bore the brunt of Hitler's war when we stood alone, when Stalin and Ribbentrop were friends and when America had not yet come into the war. We do not make that a reason for not trading with Germany.

America has always been unappreciative of the fears of Western Europe, and, indeed, Eastern Europe, which suffered aggression twice in this century and does not rush to take a similar risk again. Yet America reproaches us for not wishing to continue a hate war against the Chinese. Japan was guilty of crimes against humanity as bad as those of the Nazis, yet we and America trade with and help Japan. But Britain and America, these two great friendly allies whose friendship is so precious for the world, have been seriously divided over the question of trade with China.

A strategic embargo existed on goods for the Soviet Union; a total embargo on goods for China. Both lists were slowly whittled down, but the great discrepancy remained. At last Britain, in the interests both of good sense and good trade, had to announce on 30th May last year that treatment of China and the Soviet Union would be the same. I hope that in time America will realise that we are right about this and will adopt similar measures herself.

I believe wholeheartedly in British-American friendship, but friends have the right to disagree and to tell each other when they think their friends are wrong. Even as important is the stark necessity of recognising Communist China as the Government of China. The dream of rolling back Communism from China by means of an invasion of the mainland by Chiang Kai-shek has long vanished from the minds of all responsible political thinkers in America. We never had it. Communist China, whether we like it or not, exists. To isolate some 600 million people from the comity of nations is almost as stupid as Coriolanus banishing the Roman Republic.

But the shrinkage of East-West trade did not begin with the embargoes. The fault lies on both sides. Russia's policy has been to wean the Eastern satellites from East-West trade. She boycotted the Marshall Plan, made her satellites do the same and treated anyone who looked westwards as a traitor. The satellite countries went in for industrialisation, getting their equipment from Russia. Since the death of Stalin, however, this policy has to some extent been reversed.

Part of the new policy has been to increase the supply of consumer goods throughout the Communist lands—and this has meant some liberalisation of trade with the West. But the Russians still fiercely control the trade policy of the satellites, and are even now for the second time trying to strangle Tito economically because he believes in the subject of this debate. And British Communists, who prate about East-West trade, make no protest about this. I believe that Khrushchev could render a great service to his people and to the world by extending that liberalisation policy much further, but I also believe it is idle to expect him to do this whilst our own embargoes stand in the way.

We on our side can assist by cutting down the so-called strategic list. All the forces of healthy trade in our country and in other trading countries have been pressing for this for a long time. It is not too much to say that in this debate I am in the unique position of expressing the views not only of the trade union movement, of which I am a member, but also the views of the Federation of British Industries. Many modifications have been made in the list, but only slowly. The list is still far too big.

After all, in the long run, almost anything can have a strategic value. That is why, I suppose, in our worst moments we banned the supply of antibiotics to China. Machine tools, motor cars—anything which builds up the economic potential of a nation—could go on the strategic list. The American total embargo on goods to China makes a kind of morbid sense. But surely, as world tension is relaxing, we are moving away from such a conception of strategic goods.

Considerable advances have been made in the growth of East-West trade in the last years. I have already mentioned our ending last year of the special China embargo. The following figures show some of the interesting expansion in East-West trade. United Kingdom imports from the Soviet Union amounted in 1954 to £41·7 million; in 1957 they amounted to £70·6 million. Nearly double. Exports to the Soviet Union in 1954 amounted to £10 million and in 1957 to £37·3 million. Imports from China in 1954 amounted to £8·8 million and in 1957 to £14·2 million. Nearly double. Exports to China in 1954 amounted to £6·8 million and in 1957 to £12·1 million. Nearly double.

With all the Iron Curtain countries combined, exports in 1954 amounted to £31·5 million and in 1957 to £68·8 million. More than double. Imports in 1954 amounted to £82·1 million and in 1957 to £123·2 million. Nearly double. There were also some useful re-exports via the United Kingdom in 1954 amounting to £9·7 million, and in 1957 that figure had gone up to £16·5 million—nearly double. I apologise for troubling the House with figures.

This is a healthy advance, but it is not enough, and a most disquieting feature still remains. Although there is a steady increase in both imports and exports, Britain still imports much more than she exports. In this respect the position is better than in 1954, when the ratio was practically 3 to 1. But we still import twice as much from the Communist countries as we export to them, and cutting down the embargo list would help at once to improve the balance of trade position with the Communist world. Examples show this.

Chemicals were freed in June, 1957, and at once the export figure of chemicals to China doubled. As the House knows, we have permission under the Co-ordinating Committee agreement to license certain goods on the embargo list. We did so for some iron and steel goods and for a few tractors in 1956. At once we sold £2 million worth. Incidentally, I should be grateful if the Minister would let us know whether that process is still continuing. By 1954, about 50 of the 250 embargoed items had been struck off the list. Other items have been defined less comprehensively so that items in a number of categories have escaped the embargo. All this has played its part in increasing the export figures, as I have just shown. I believe that this list needs to be reduced further and radically.

I have received from the Confederation of Shipbuilding and Engineering Unions a list of Soviet orders placed with British firms and cancelled by the Government on embargo grounds. It includes gear-shaping machines, a milling machine, a hydraulic pump unit, variable capacity pumps, Marconi instruments and signal generators. There is an interesting footnote from the Soviet official. This list is not an exhaustive one. Many Soviet orders for machinery could not be even negotiated with British firms … for instance more than half the items listed in Marconi Instrument exports guide for 1958 are prohibited for export to the Soviet Union and other Socialist countries. I have a second list of types of plant in which the Soviet Embassy indicated to my colleagues in the trade union movement that it was interested, when the Confederation officers met the Embassy officials on 3rd February of this year. It includes 16 items of considerable value as potential trade orders to Britain. At that meeting, Mr. Malik said that trade was a most important link between peoples; that the economies of Britain and Russia were complementary to each other in a large measure; that Russia was not asking to be supplied with military goods but wanted the chance of buying goods which Britain supplied elsewhere. He also said—I believe this is of tremendous importance, as British traders have told me that the same thing was expressed by the Chinese in their discussions together—that when his country was told they could only buy certain products, they were sensitive to the point of preferring not to have dealings on that basis". The existence of a detailed embargo is an affront to the national pride of a country and a barrier to the furtherance even of non-embargo trade.

The matter becomes one of acute urgency at this time when Britain faces the dangers of a recession. Indeed, I am certain that that is why the Confederation has been working so hard on this subject during the last few years. It would be wrong to exaggerate the amount of employment which would be created by merely cutting down the embargo list, but it would be equally wrong to minimise it. On the one hand, Russian trade before the war was only 6 per cent. of our total trade. That is a picture of the amount involved. On the other hand, Russian trade today is only 2 per cent. of our total trade. If we could get that figure of 2 per cent. up to 6 per cent., it must mean employment for quite a number of thousands of British workmen.

Moreover, other countries belonging to the free world, either countries inside the Co-ordinating Committee or countries which do not accept the embargo, are managing tremendously to increase their trade with Communist countries. They include Belgium, Holland, the Scandinavian countries, West Germany and the rest. For example, we refuse, for quite good political reasons, to recognise the satellite State of East Germany, chiefly because we feel that it would be letting down our fellow democrats in West Germany. It is surely ironical that West Germany does far more trade with East Germany without recognising East Germany than we do. It should be possible for us to find practical ways—if the West Germans have done so—of bridging the trade gap between ourselves and East Germany without any political complications.

In 1956, West Germany exported to the Iron Curtain countries iron and steel goods worth 38 million dollars and vehicles worth 23 million dollars. Our exports of those same goods were, respectively, ·3 million dollars and 4·1 million dollars.

Photo of Mr William Ormsby-Gore Mr William Ormsby-Gore , Oswestry

Can the hon. Gentleman break down those figures? How much goes to East Germany and how much to the rest of the Soviet bloc?

Photo of Dr Horace King Dr Horace King , Southampton, Itchen

I could do so, but it would take time to find the answer. Perhaps later in the debate I can give the breakdown. I have the figures here.

Total West Germany exports to East Europe in 1956 were 173 million dollars, whereas ours were 87 million dollars. In 1956, we exported 3 million dollars worth of chemicals to China, but West Germany exported to China 27 million dollars worth, and Belgium exported 15 million dollars worth of chemicals to China. The position becomes fantastic when Britain refuses to sell goods because they are on the list and yet they can be readily purchased elsewhere—oil, rubber and engineering equipment among them. It is fantastic, too, when we sell goods to a middle-man so that he can sell them directly to our potential customers and have the large share of the profits which middle-men proverbially take and all the goodwill which comes from such transactions. Perhaps the supreme anomaly is that, with the ten years' progress of industry and technology inside the Communist world, some of the goods on the strategic embargo list are now exported by the Communist countries themselves.

I welcome all that the Government have done so far, the trade agreements with the satellite countries, which are producing minor results at the moment but which have an enormous potential; the visit of the Parliamentary Secretary to the Board of Trade to China; the visit of trade delegations to China and from China, and their encouragement by the Government; the work of the Federation of British Industries and of the trade unions in this field. Above all, I welcome the initiative and effort of the Prime Minister in Washington at the present time. But I want the House to accept this Motion unanimously as a means of pressing for even stronger action by the Government and by our allies.

By all means let us refrain, and continue to refrain, from selling military equipment directly to the Communists. But let us persuade our allies, especially our great ally America, outside such specifically military lists, drastically to revise the strategic list and to separate from the commonsense precautions which any wise Government must take in an armed world any idea that we can weaken the economic potential of the totalitarian world without similarly and uselessly hurting ourselves; or that we can prevent Russia and China from achieving their own scientific and technological and industrial revolutions by hindering the sales to them of machine tools or high speed cameras. After all, it was Russia that launched the first satellite, one of man's supreme scientific achievements of all times.

The Communist world moves towards industrialisation and a better standard of living for its people with or without our aid. The peoples of both sides stand to gain if they pool their "know-how" and sell to each other large surpluses of raw materials or of finished products. By the same token, as the Communist world marches forward, the free world and Western Europe climb out of the devastation of the Second World War without the co-operation and indeed against the hostility of her wartime ally. Both sides could have achieved ever so much more in the last ten years if they had moved together.

At the same time, I would urge our Government to encourage the initiative of all our traders who seek markets across the Iron Curtain. The Chinese delegation told the Confederation of Shipbuilding and Engineering Unions that the Chinese hardly know a thing about British industrial achievement and potential. They know only of Japanese equipment and Japanese industry from the period of Japanese occupation, and possibly a little bit about American industrial achievement.

Britain has much to give the world and much to sell the world, and much to trade with countries like China to help the emerging nations. It will be to the advantage of the emerging nations and of our own people. Let our salesmen be allowed to travel the world freely, show our goods advantageously and, above all, take orders, knowing that they are permitted by Her Majesty's Government to execute those orders.

The Motion shows that what I have to say goes for both sides of the Iron Curtain. Russia has geared the satellite states to her own economy. She boasts, as Zolotaryov recently did in an article in the Soviet "Bulletin", that 81 per cent. of her foreign trade is with Communist countries. But she also says that the Communist world is prepared to trade with the capitalist world. On our side, we can ensure, with equal justification, that our own trade with the free world, with the Commonwealth, with Europe and with America continues to develop. When we press for East-West trade expansion, we are not suggesting any decline in our own efforts to build up our trade inside the free world. Our own percentage of trade with the free world is even higher than the exclusive percentage of Russia's trade with her satellites. Both sides, in their own interests and that of the world, need to move away from economic autarky, even if the autarky is one-third of the world. No country should have all its 'eggs in one basket. I believe Stalin once said that to some of our Labour colleagues when they visited him in Moscow in 1946.

It is difficult for America and Russia, who are nearly self-sufficient, to see this, but to Britain it is plain stark necessity. Yugoslavia might well become some day a bridge between the two great power-complexes if the Russians would play a little less imperialist power politics themselves. Then China might become a vast bridge so great as to transform the whole picture, if America would become a little more practical and realistic and a little more forgetful of the Korean War.

It would be a pity on every conceivable count if China, in the second half of this century, were to complete her great transformation from an agricultural state into the mighty industrial state that she is bound to become—if allowed to do it—on her own shoestrings and those of Russia. This must be the inevitable result if we keep closed every door between East and West.

There are only two alternatives. One is to keep the two mighty world groups apart, each indulging in every form of cold war and piling up weapons for the hot war that would destroy them both. I believe that mankind has turned away from that course and is stumbling and fumbling towards a better way. The alternative is to seek patiently to break down barriers and to move, however slowly, towards the integration of human society. It may be that the commercial traveller can yet, in the second half of this century, be an important ambassador for world integration. I would plead, then, that both sides should open their doors to human intercourse. Let Russians Chinese, Americans and Britons meet freely and talk about almost everything in the world, except politics: about music, literature, films, education and even vital statistics. Every football match played between a British team and a Russian team is a microscopic contribution to world peace.

Let apparently unwilling buyers meet apparently unwilling sellers and haggle out prices for the merchandise they really desire to sell to each other. I am under no illusion that the mere removal of political barriers will solve the hard problems of selling and trading, but at any rate, as our own contribution from the free world, let ourselves and America go through the strategic list with a toothcomb and leave in it only what the other side would agree it would be madness to sell to each other until greater problems have been resolved.

I have one last word. This morning's Daily Express carries a suggestion that the drastic revision that we ask for is on its way. I hope that as this debate continues the Minister who is to reply will be able to give us the latest official picture on that subject. I am certain that if Eisenhower and the Prime Minister, acting in the spirit of this debate, cut down seriously the strategic list, while that will not be a major contribution towards the solution of the world problems, it will be a useful beginning and one of particular value to the economy of Britain.

11.36 a.m.

Photo of Mr Charles Pannell Mr Charles Pannell , Leeds West

I beg to second the Motion.

I am sure I am expressing the will of the whole House in stating our admiration for the remarkable speech to which we have just listened from my hon. Friend the Member for Southampton, Itchen (Dr. King). It had sweep, dignity and style about it which make it all the more difficult for the one who is to second the Motion. I shall not attempt to compete with it on those lines. We congratulate my hon. Friend not only on using the luck of the Ballot for the initiation of a debate on this subject but for addressing himself to the subject so well. We commend him also for the enormous industry that must have gone into the building of that speech.

I am under no illusion about the depth of emotion in America in regard to China. I have spent three months in the United States. I remember visiting one of those high schools just outside Pittsburg. It had 3,500 children, five orchestras, three swimming baths. The orchestras had harps, which was just as well because the children between them owned 367 motor cars. The car park was in the playground.

As I walked round the school with the headmaster I said to him, "In our country we criticise schools of this sort. We say they are so big that the headmaster cannot know all the pupils." The headmaster replied, "I don't know about knowing all the pupils. I think I know all the kids' Christian names but I am not so sure that I know all the staff." A teen-age bobbysoxer asked me, "Are you a British Member of Parliament?" I said, "Yes." She skipped away. As we came round the next block she came up again and said, "Why didn't you let Princess Margaret marry". I cannot go into that subject, I cannot even tell the House what I told the little girl, because the Royal Family is never mentioned within these precincts.

Her next question was, "Why did you recognise Red China?" I said, "When I was a little boy about your age, I used to sing a rhyme entitled, 'Every fifth man was a Chinaman'. It is more now. The Chinese are a lusty race. You cannot cut out one-fifth of the world from world trade. It doesn't make sense." When she came to the fourth question, which I will not repeat, I said to the headmaster, "What is all this about?" He replied, "In addition to the amenities which you have seen, we have a school psychiatrist. When she came here she was an introvert." I leave it at that.

It is a fact that America has made a terrific emotional investment in China through missions to China. If we try to appreciate the spirit of the Americans and understand the background, we recognise that it seems to them the greatest betrayal that China should turn away from them. I sympathise with that, although I think it is more than a trifle wrong and certainly rather muddleheaded.

I think I have a fairly good record on this subject in this House. On 18th September, 1950, there was a debate, with the Labour Government in power, about the export of a couple of boring mills to Poland. It followed the intervention by the right hon. Member for Woodford (Sir W. Churchill) who objected to the export from Messrs. Craven Bros., of Stockport. In that debate the present Lord Chandos led against us. I struck the only discordant note on the then Government benches because I thought it was not right to prohibit those machine tools going to Eastern Europe. All that I said then has been proved right. With a majority as narrow as we had in that Government and the fact that our Front Bench probably had no more than a nodding acquaintance with the engineering industry, they may be forgiven for being vulnerable on the question of the export of machine tools; but, with all the "know-how" on the Conservative benches, hon. Members opposite agreed with that Government that the export should be prohibited.

I went to the Barnbow factory near Leeds and had a look at these same machines, so that I should know what I was talking about. In my day, I have had more than a nodding acquaintanceship with the industry. I have in my hand a photograph of an identical boring mill made by a Czech firm which has been exported from Czechoslovakia to William Simons & Co. Ltd., of Renfrew. The only effect of our prohibiting the export of those two boring mills has been to cause Czechoslovakia to build that sort of thing which previously provided a market for us. It is not often that one is proved right quite so quickly. I regret that, because Eastern Europe is a great traditional market for our engineering industry.

I am glad that we live in a period of full employment and when I consider the question of my child going out into the world the question of employment for her is not difficult, but it should be borne in mind that in 1932 Eastern Europe took more than 80 per cent. of our machine tool trade, in the depth of the depression. As one who during those years had over a year of the first three years of married life out of work, when I was an operative engineer, I know that these are the sort of things which burn into the memory. I repeat the words of the late Mr. Daines, who said in this House that people who have gone through such experiences never forget them. Sometimes when we look back on the old angry days and hon. Members opposite who have never had such experiences get a little impatient, we should remember that if they had had the same experience they would feel as poignantly about them as we do.

The one thing I fear more than anything else and the justification for my being in this House—I always give it priority in my election addresses—is the maintenance of full employment. I would sacrifice a great many things for that. The Government of the day have always to make up their mind on this simple question, the answer to which they will not get from the Treasury or the Foreign Office, "What is a machine tool?" A machine tool is anything which will make other tools. When we are considering war material we have to understand that a sewing machine is war material. We have to get away from muddle-headedness, and I suggest that a definition of a machine tool should be sought from the Shipbuilding and Engineering Union, because engineers in discussion with civil servants cannot get down low enough.

I shall try to make a speech based on practical examples, because my hon. Friend has already dealt with the philosophical trends of this business. Mr. A. S. Dick, President of the Society of Motor Manufacturers and Traders, who, I opine, is probably not a member of my party, had something to say about this question in a recent article. He wrote: Exports to China of both cars and commercial vehicles, owing to political factors operating both at the point of export and import, are sporadic and of little significance, Embargoes imposed by Britain and the United States on export of vehicles to this market have now largely been lifted at least by the U.K., but the "vehicle starvation" imposed on China in the post-war period has had the effect of causing the Chinese to establish their own vehicle factories. There is thus some reason to believe that, in time, the Chinese may become self-sufficient in vehicle manufacture, an unfortunate economic result as far as British vehicle manufacturers are concerned. I think it a bad thing to distort the pattern of trade for political motives. We have considerable advantage in this terrain because the Americans have not adapted the diesel engine to the extent to which we have in the manufacture of commercial vehicles. Anyone who knows the conditions for operating vehicles in territories like China knows the advantage of the diesel engine. Britain was in a specially favourable position to take advantage of the U.S. export position in this field owing to the dollar starvation. This question has not been looked into sufficiently.

When we first lifted the embargo on goods to China we lifted it on cars such as Austin 7s, but not on four-wheel drive vehicles. The hon. Member for Solihull (Mr. M. Lindsay) will know about the question of the Land Rover. Those are the vehicles which China needs. The peasants there have not reached the stage of affluence of wanting Austin 7s, but they do want Land Rovers.

Photo of Sir Martin Lindsay Sir Martin Lindsay , Solihull

The hon. Member will know that that market has now been opened and there are in fact Land Rovers now in China.

Photo of Mr Charles Pannell Mr Charles Pannell , Leeds West

If I did not make myself clear, I am sorry. I said we first lifted the embargo on the normal two-wheel drive, but it was only later that we lifted the embargo on four-wheel drives. That can be connected with the quotation I made from the article by Mr. Dick. It will be seen that the embargo was lifted too late so that now the Chinese are trying to do something for themselves in a manufacture which affects the employment in the constituency of the hon. Member for Solihull.

The fact is that the Chinese bitterly resent any embargo at all in the same way as the Russians bitterly resent any embargo. It is a question of the rights of a sovereign State. Nations, like young people, are particularly sensitive when they are growing up. Anyone who has dealt with the emergent territories in Africa knows that well enough and China is in that stage of development.

I assume that the great industrialists of this country who usually have opposed my trade union when we have been asking for better wages, are not members of my party. The great industrialists have joined the chorus for the lifting of embargoes and the liberalisation of trade. Sir Greville Maginness, who leads the Engineering and Allied Employers' National Federation and is chairman of Churchill Machine Company, has called for the complete abolition of the embargo list, leaving the export of warlike goods to be embargoed by existing licensing procedure. I am sure that if we did that, it is no more than what the Russians are doing at present. I might say, in parenthesis, that Russia has never exported asbestos or manganese to us. Russia does not need to have a strategic list because she controls the whole of her economy and she can do it secretly. She therefore gets some propaganda out of it. Nobody need doubt that there are all sorts of things which Russia has no intention of letting us have. I am not making a heavy point of this but merely suggesting that there is no reason why we should not do the same.

Sir Greville Maginness has been joined by the present president of the Machine Tool Trades' Association, Mr. J. C. Robinson, who referred to the visit last year to China of the Parliamentary Secretary. I had imagined that the Parliamentary Secretary would be here this morning. We are pleased to see the present occupants of the Front Bench, but we think that the Parliamentary Secretary might have given us some authentic "know-how."

Photo of Mr John Vaughan-Morgan Mr John Vaughan-Morgan , Reigate

The hon. Member will be interested to know that my colleague is in Poland

Photo of Mr Charles Pannell Mr Charles Pannell , Leeds West

There are other right hon. Members of the Front Bench who would be far more advantageously employed if they went to places further away. We hope that the Parliamentary Secretary brings back as interesting a report from Poland as that which he brought to the Engineering Advisory Council from China.

Referring to the Parliamentary Secretary's visit, Mr. Robinson said: … we look forward to supplying many of the machine tools she (China) will inevitably require for her industrial expansion. He expressed the desire to see "all unnecessary restrictions removed."

Sir Lionel Kearns, past-president of the association, referred to the fact that various types of machine tools which are on the embargo list are being manufactured in the Communist countries and that the competition from Eastern European countries in the export market may well have been fostered by the embargo. I am not saying necessarily that the country can be run by industrialists. Heaven forbid. It is like war being run by generals. I am merely asking questions on a trade basis and not trying to make a party political speech. I am saying that these people need to be answered with very good political arguments to show why they cannot export in this way at a time when there may be a recession, and why they cannot do so to put people of my trade union in work.

I gather from the Parliamentary Secretary's report, which he made to my friends in the engineering industry, that he agreed that though China was massively dependent on the Soviet Union, there are now signs that China wants to reduce that dependence and does not want to be bound hand-and-foot to the Soviet Union. Is not this an opportunity? I recall, as a young man, at the time of the Russian Revolution in 1917, saying, "This is probably the greatest event of my lifetime." Of course, Russia has turned full circle since then, and the measure of her dominance in world affairs is the measure of her retreat from Socialism. She has not built a classless society but a class society more steeply graduated than ever we now know in aristocratic Britain.

I now believe that probably the greatest event in my lifetime may be the emergence of China. When we consider these two great nations, who will say that China will for long allow the Soviet Union to be her dominant partner? After all, people care for the sort of things they know and love, and deep in the wells of man's being is a fierce patriotism. The Chinese have an ancient culture. They are not barbarians. We shall see the kind of things which will emerge there when they have set right many of the undoubted wrongs which were rampant under the old Chinese oligarchy. Is not this, therefore, the time when we move in?

Of course, China does not seem to be entirely appreciative of the efforts of her friends here. There was an interesting speech by Mr. Carron, president of my union, to the National Committee of the A.E.U. He had seen the Chinese Ambassador. The Chinese trading mission was over here at the time. He had asked for a list of items which China needed and about which there was difficulty. He asked for that list three months ago, but he has not received it yet.

This is not a one-way street. No one can accuse my hon. Friend of attempting to come down on one side or the other in moving the Motion. It is East-West trade and West-East trade, and we shall try to speak bluntly this morning and put some of the responsibility where we think it lies.

I was interested to read the other day the speech of Mr. D. Macgarvey, in his presidential address to the Conference of the United Society of Boilermakers, Shipbuilders and Structural Workers, in which he said: If the principles of Socialism as contained in the political dogma of the countries of Eastern Europe are those practised by the actions of their spokesmen, then this off-handed manner of theirs will do more harm to good relations between the workers of East and West than all the anti-Communist cliques ever formed. He was talking about the brush-off which he had received in broaching matters of East-West trade with official Russian sources.

The Soviet Union needs our goods much less now than she did. In any event, Soviet trade was only 1 per cent. of world trade before the war. She has now developed technically to the point that she is almost self-sufficient and she wants only what she cannot produce herself at the right price. If we cannot compete with other nations, treaties will not bring trade. It is not just a matter of East-West trade, it is a matter of goods at the right prices. Treaties alone will not bring trade.

I should like to call my hon. Friends' attention to some interesting remarks about the experience of the Labour Party when we were in office. My right hon. Friend the Member for Rochester and Chatham (Mr. Bottomley), who was responsible for overseas trade after my right hon. Friend the Member for Huyton (Mr. H. Wilson), said this at the Labour Party Conference in 1952: I think it is as well to remember that pre-1939 the economic policy of the Soviet Union was one of self-sufficiency, and they did only 1 per cent. of the total world trade. After the last war by Japanese and German reparations, they began to build up still more their self-sufficiency programme, and then they took the Eastern European countries, which normally traded with the rest of Europe completely into the Soviet economy. He also said: My colleague, Harold Wilson, who preceded me as Secretary for Overseas Trade, signed a very good agreement with the Russians. Under that trade agreement they were to send to us coarse grains and timber, and we were going to send them in return scheduled goods. They sent their supplies, they kept their promise; when they got the money they spent it on wool, rubber and other things—about which there was no complaint—but in due course, when they came to see me, they complained that they could not buy the goods which Harold Wilson had said they could have. On making investigations, it was found that they wanted the goods at lower prices than those scheduled, and those lower prices could be obtained only by cutting the workers' wages. He is referring to our workers' wages, not Russian workers' wages. I do not know whether they have much in the way of wages at all. He said: They wanted them before earlier orders placed by the Commonwealth countries and before home demands were met. That could not be agreed. In due course the Russians accused us of breaking the agreement and many comrades, who were ill informed, really thought the Labour Government had failed. It was my task to tell the Soviet Trade Delegation that we would not, under any circumstances, sign another agreement of that kind. We would buy their timber, we would buy their grain and they could have our sterling and buy goods; it is true we said they could not buy goods which definitely had a war potential, but there was no objection to their buying the rubber or the wools or other manufactured goods which are as essential to their economy as the coarse grain was to ours. They have never agreed to let us have certain goods such as manganese and asbestos. I only put that in for the benefit of hon. Gentlemen opposite, in case they should think that all this trouble started when the Tory Government came into power. Actually, it did not. I imagine that hon. Gentlemen came in suffering from the phobias from which they usually do suffer where the Communist countries are concerned. They can never get themselves straight on that, any more than some hon. Members on this side can on Spain. The only trade agreement they had negotiated up to 1952 was one for herrings, I think, nothing heavier than that—and I suppose that even that was as a result of the prodding of the hon. Member for Aberdeenshire, East (Sir R. Boothby)—

Photo of Mr Charles Pannell Mr Charles Pannell , Leeds West

Then I give my right hon. Friend the credit there.

Another thing that we should have on the record is that this is not only the concern of America. We are dealing with a Committee in Paris that consists of representatives of the N.A.T.O. countries—excluding Iceland, but including Japan—and, of course, we have had to proceed on the general idea of the solidarity of the West. If I have to match the solidarity of the West and the preservation of the Atlantic Alliance on the one side, against a few strategic goods on the other, there is no doubt where I come down, and I say that straight away.

Apart from anything else, the Government have shown that we have been in favour consistently of liberalisation of trade, but, of course, Russia herself is not in favour of any liberalisation of trade. We have only to mention the Marshall Plan, when Czechoslovakia went in but was forced out because she was not a free State. Russia has used trade for political ends—and there is also the little matter of the suspended £100 million loan to Yugoslavia. We must have the record straight here. Any number of people, and I am afraid some of my own friends, think that this is just a simple matter, which it not always is. However, I think that I have said enough about that, and if I say no more in favour of East-West trade, it is not because I cannot but because I think it is unnecessary to say more.

Now I want to say something about what the Soviet might do to put America and ourselves in a better frame of mind. The obstacles to East-West trade are the indefinable things of life. Generally speaking, whether it concerns members of one party or another, or even the social life between hon. Members on one side and the other, it is what we know about a man that matters, and the degree of good faith that there is between us. We judge people, not by the things about which we argue but by the hurts that we remember. Therefore, before Russia blames us about this lack of East-West trade—which I do not think is a significant part of her economy, in any case, though goodness knows, I want all members of the A.E.U. to have work—the first thing that she must do is to remove impediments to trade.

There is, first, the censorship of news and information. Any journalists who have been to Russia will tell one of the difficulties that they encounter, though they are skilled people and can probably get by. The Tass Agency is Government-controlled. It is not like the Press Association. During the Suez business, the leader of the Opposition here had as much right as had the Prime Minister to go on the B.B.C., but the Russian opposition—[An HON. MEMBER: "They have not got one"]—they have, but they do not last long. One recalls when the Tass Agency once pleaded diplomatic immunity, and Lord Justice Tucker upheld that.

Then there is the radio jam. The only thing with which I found fault in my hon. Friend's speech was when he suggested that a football match was only a "microscopical contribution to world peace." It is no such thing. That is the biggest poppycock that has been put out. I can remember the famous occasion when the Moscow Dynamos came here, with all their commentators and the rest of it. They were going to broadcast to their fans in Russia to tell them how their team won—I forget whether they did or not.

The B.B.C. said, "All right, fair's fair. You stop jamming our broadcasts to what few British fans there may be in Russia about how we are losing the match." They said "No, we refuse to stop the jamming." So the B.B.C. said "All right, then you won't broadcast." No wonder the old Daily Worker had an apoplectic fit, but that seemed to me to be just good trade union practice. It is real reciprocity to be as awkward as the other bloke. Reciprocity is not just turning the cheek all the time for this damned nonsense. That is not even self-respect.

Therefore, I suggest that when my hon. Friend makes that admirable speech again—as he probably will on other occasions—he should leave that bit out. It did not strike me as being too sensible. It does, however, indicate that radio is jammed. We can have the lot here, but the Russians are not allowed to hear any messages that go out from this country. That being so, how can the Russian people understand these arguments about world trade, which are not always easy for us to understand?

Then, of course, there are the tourist restrictions. They have been lifted to a degree, but tourism in Russia is still not free enough, and there is still a tendency to insist that people go with official parties. I know that, when I have been abroad, the first thing I have tried to do is to slip out of the way of my guide. If one can speak to people on the factory floor, especially to men doing the same sort of job that one has done oneself, and if one finds the foreman being the same sort of so-and-so that one knew in the old days, one really does understand about being brothers under the skin. I believe that photography risks for tourists in Russia are enormous.

Even more than that, one thinks of the cultural values. If one reads some of the modern Russian authors one finds that they are still stylised, and one appreciates that thought is shackled there. The following article is a fair example, and if there are any of my hon. Friends who really yearn to defend the Russians, perhaps they can defend this bit. The writer is Vladimir Nikitin, the Tass correspondent in London in 1947: After speaking of the speedy restoration of war damage in Moscow, he said: '… New, wide thoroughfares and whole blocks of handsome buildings have come into being … housing construction is proceeding on a vast scale …Then he went on: 'When I came to London the rubble and wasteland … were cluttered with refuse … Trees sprang up in the mass of stone on Ludgate Hill … The general appearance of the streets is somewhat marred by the sidewalk artists, musicians and singers often to be met with. They are usually war invalids trying to make a living.' I have been a propagandist in my day, and have used all the legitimate, and sometimes the illegitimate, exaggeration of advocacy in my time, but if people think that that gem falls within that scope at all, I will give just one more quotation. After speaking of the happiness enjoyed by the workers in the Iron Curtain countries—and whether it is so or not I do not know, because I have not been there—another writer says: Other things are in store for the worker in the capitalist countries. He draws his belt tightly about him, aimlessly stumbles through the foggy alleys of London and Birmingham, through the dirty streets of New York and Chicago, and through the sombre slums of Naples and Rio de Janeiro. He puts in from 12 to 15 hours of exhausting labour in the mines, factories or workshops, and then, slowly dragging his feet, returns home and falls back on his mattress. But millions of workers in capitalist countries are looking even for this convict work. In Russia there are enormous sales of the works of the nineteenth century novelists—Mrs. Gaskell, George Eliot, Charles Dickens and the Brontes. The Russians reprint those works which mirror the worst conditions of the Industrial Revolution, and they hold up this mirror as though it reflects things taking place today. This is a statement of fact. When one has spent a lifetime attempting to build up not only conditions in the workshops but the dignity and self-respect of the British chaftsman, one resents that sort of nonsense. We in this country have reached far beyond that stage, and our workpeople are no longer suppliants on our knees but are men on our feet, and hon. and right hon. Gentlemen on the other side of the House know it.

Then there are trade obstacles which the Russians themselves put up. Political considerations are the real considerations in their trade. Trade in the Soviet Union is not looked at on its merits as such but is used as a political weapon. It was so used not only against Yugoslavia but it was so used again in the embargo placed on Australian wool at the time of the Petrov affair in 1948. Whenever those sorts of events occur the Russians are prepared to use trade as a political instrument.

Though I appreciate that America has not been as liberal in this as I would wish her to be, I would say that she has not been as liberal probably because her economy does not demand liberalisation of trade to the extent ours does demand it. She can be almost completely self-supporting.

Therefore, our Governments—and I use the plural advisedly—have pursued the course of the liberalisation of trade in a way consonant with our national security. I have tried to point out one or two examples how, unless we are careful, our concern for national security can lead to things which in the last resort are foolish and compel our competitors to make the very sorts of things we ban.

If there has been a failure in East-West trade and in East-West relations, in this matter as in matters of the hydrogen bomb and nuclear tests and that sort of thing, I place the responsibility flatly on the Soviet Union. There may be sins of omission on our side; we may have been dragging our feet on certain occasions, but there have been sins of commission on their side, and they have pursued the path of sheer perversity in cultural relations which really should not receive any commendation in any part of this House.

What we want to see is trade opened up in a way which will stop any incipient recession, which will put our workers back in work, and which will be in accord with the resolutions passed by the Amalgamated Engineering Union, because we know that in these days of the hydrogen bomb there are very few machine tools which are of great war potential value at all. What we have to look forward to, particularly on this side, is this—trade which will build a warless world and which, together with a classless society, is the ultimate aim of intelligent human endeavour.

12.15 p.m.

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

I rise warmly to support the Motion, and I hope that the Minister of State for Foreign Affairs will do the same when he speaks. I should like to pay tribute to the excellent and reasonable way in which the Motion was proposed by the hon. Member for Southampton, Itchen (Dr. King). I cannot hope to follow the amusing way in which the Motion was seconded by the hon. Member for Leeds, West (Mr. C. Pannell), but I agree with most of the things he said.

It used to be said that trade followed the flag. I believe that peace in the future will follow trade, and that every trade agreement which is reached should be a bridge upon which peace can be built. I am glad to see the right hon. Gentleman the Member for Huyton (Mr. H. Wilson) here today because he, like myself, has been to Moscow on more than one occasion seeking trade, though I think I am the only one who has carried a bag of samples to Moscow to try to get trade. I want to put to the House one or two lessons I learned from that.

First I would pay tribute to the civil servants in the Board of Trade for the help they have given to my friends who for many years have tried to foster this difficult trade. A number of my friends are deeply involved in the Anglo-Russian trade and they have tried to get into the Chinese market, and they have always told me that the Board of Trade officials have done everything they possibly could at all times to help them. I think that tribute should be paid to those officials.

When about three years ago I went to the Ministry of Foreign Trade in Moscow I was received most courteously, most promptly, and I was struck by the fact that almost everyone there could speak English, whereas I learned only two words of Russian. They knew a great deal about our country and they knew their job. As I went from group to group, each group dealing with its own section of the trade which I was trying to put in front of them, I found them to be competent people.

The real, practical problem is this. When I had finished arguing they said to me in an almost whimsical way, "We are much obliged to you, and we will put your proposals in front of our clients." It seemed to me almost amusing because one cannot see their clients. In normal, free world trade one finds the man who is going to decide, who makes the decision, who is going to buy. In Moscow the problem is that though one meets men who really understand what they want to buy or sell, who are first-class technicians who know their job, the decision is not theirs. They have to refer it back. It is part of a big, national package deal where politics play the major part.

When we are considering East-West trade, that is the practical point we must bear in mind. It is not the technicians in the Soviet who really decide. They have to fit in with the political decisions which someone else makes. While we say that East-West trade should be increased, and we are all in favour of that, and since any bargain to be a satisfactory one must benefit both buyer and seller, both countries alike, this trade cannot be easily done because of the very set-up in the Soviet Union and the difficulty of getting to the man who makes the decisions.

I support this Motion because increased trade is so vital to our country. There is still a long way to go if we are to reach even the position we held with the Communist bloc before the war. Before the war the Communist bloc took from this country 7·3 per cent. of our total exports. In 1957 they purchased 2·7 per cent. of our exports, even though 1957 was easily the best year since the war. Therefore, to catch up even with the trade which we did pre-war we have almost to treble the amount of trade we are now doing with the Communist world. There is a long way to go.

The other basic consideration why this trade is so important is that London's pre-eminence was based and built upon the world being one economic entity. London's banking, shipping, insurance and entrepôt trade was built entirely on the ability to deal with the whole world. If the world is cut in half and the Communist world is thrown back on itself and builds a counterpart to London, then London and British trade behind it can never be as great as they should be. Therefore, we stand to gain a good deal more proportionately than any other country in the world if East-West trade can be developed.

I want to ask my right hon. Friend the Minister of State for Foreign Affairs one or two questions arising from the action of the Co-ordinating Committee in Paris. My friends who are engaged in East-West trade say that the strategic list is not so important as it was. There are so many relaxations that it is not really a vital controlling factor in East-West trade. If East and West did all the trade that is allowed at present by the Co-ordinating Committee we should treble the quantity of trade that is done.

Nevertheless, there is a feeling that Co-corn is dominated by America. It should be made clear in this debate that Co-corn is only an advisory consultative body and has no executive power. This is proved by our recent action in equalling our trade with China as with Russia on our own. Nevertheless, in the Communist world the impression still survives that Co-corn is an agency of the United States.

When I discussed these trade matters with Mr. Khrushchev in Moscow last October he said that Russia was a proud country and would not buy from us merely what the Americans were pleased to allow us to sell to Russia through Co-corn. There is a great deal to be said for his point of view. I hope, therefore, that my right hon. Friend and the Government will make it quite clear that we are not prisoners of the Americans in the matter of Co-com.

There is an important backing to this false impression. Exports from America represent about 3 per cent. of America's national product. Our country exports about 20 per cent. Therefore, other things being equal, anything which restricts our trade and America's trade at the same time hits us six times heavier than it hits the Americans. People on the other side of the Iron Curtain are well aware of this and they ask, "Why do you let the Americans restrict your trade to this extent?"

Another point on the activities of Co-corn was put to me by Mr. Khrushchev when he said, "You have so many things on your stop list that we too are manufacturing. I shall soon be having my own list against you." I saw him on the day that the first Sputnik went up and he said, "This has been produced by a highly-geared precision engineering world and it is stupid for you to continue to prohibit trade in goods which we both make." I understand that Co-corn is meeting in Paris now and is considering these restrictions. I plead with my right hon. Friend and the Government to do their utmost to liberalise this change. I gathered from talks with my American friends that they will not offer much opposition. They realise how important it is to us and to the people of the world.

There are other aspects of East-West trade besides the Russian and Chinese, and I want to put before the House the case of two smaller countries. The first is that of Poland. In this country, especially as a result of the action taken by the Polish people in 1940 and afterwards, there is a great deal of sympathy for the Poles. If we could help them in trade and help ourselves at the same time, the majority of our countrymen would welcome it. But there is danger in exaggerating what we can do to liberalise East-West trade.

My right hon. Friend will know that exports to the United Kingdom from Poland in 1955 and 1956 were valued at £29 million each year. Our exports to Poland in those two years were £7 million and £9 million respectively, leaving a wide gap which was filled by Polish imports of tin, rubber, zinc and other materials from the rest of the sterling area. Last year, however, Polish exports to this country fell from £29 million to £23 million, even though Polish imports rose from £9 million to £11 million. I want the House to face this practical issue.

Why did their trade fall? It was almost exclusively due to the action of a nationalised industry in this country. The Poles depended to a large extent for the sterling which they needed to buy our goods on receipts which they got from the National Coal Board. In 1955, the Poles sold to this country 1,355,000 tons of coal worth £9,670,000. In 1956 these sales were cut down to 818,000 tons valued at £7,215,000, but last year the National Coal Board did not buy an ounce of coal from the Poles. It is no good blaming the Poles. They cannot buy more from us if we change our policy at home so very drastically that it leaves them with no sterling to pay for the things which they would like to buy.

It may be said that this is part of the changing trade pattern of the country, for our total coal imports dropped from 11,300,000 tons in 1955 to 5,400,000 tons in 1956 and to 2,800,000 tons last year. Therefore, Polish imports from us were compelled to suffer. Because of the Coal Board's action, which was inevitable, the Poles had to find alternative markets for their surplus coal. One of those markets was Sweden. Complaints have been made recently that the Poles have been selling coal to Sweden at as much as 70s. a ton below our price.

The facts should be stated. The niggers in the woodpile were American exporters. Because transatlantic freight rates dropped by £5 a ton, the Americans could land coal in the Swedish markets at a much lower price. The Poles in sheer self-defence, their own market having been shut out, were compelled to get in line with the Americans. The importance of this to the British coal miner is that if freights rates across the Atlantic fell so drastically as to enable the Americans to dump coal in Sweden at this price and compel the Poles to follow suit the outlook for British exports of coal is poor indeed and the effect on the miners in this country will be serious.

Again, looking at East-West trade from the point of view of the Poles, at the very time when they lost the ability to get sterling they put before my friends in the Board of Trade proposals for the import of between £50 million and £60 million of extra electrical equipment badly needed for their railway from Gdynia to Silesia. This is over and above their normal trade, and they cannot afford to pay for it. I believe they have been asking for longterm credits. I should like to know from my hon. Friend what is to be the position on credits for that scheme, because it would be valuable for the electrical side of our engineering industry if this order could be accepted.

I saw the Poles once or twice because they wanted to export, amongst other things, a considerable amount of meat. This would have affected our farmers, and since I represent a farming constituency it is my job to watch the interests of my constituents, which I try to do. The Poles put it to me that there is a quota over and above which they cannot import extra bacon, ham and other meats into this country, whereas for Western Germany there is no quota. Since the Poles were not allowed to sell their extra pig meat, etc. in this country, the pigs were driven across the West German frontier, canned, and sent into this country without restriction. We purchased the products but, instead of British engineering products going to Poland in exchange, Western Germany's engineering products were sent. If that is true, something ought to be done about it.

I hope my right hon. Friend will reply to this point. When I was in Warsaw two-and-a-half years ago I stood in the office of the Trade Commissioner and noticed French buses on the street. He told me that the Poles wanted to buy a large number of Leyland buses. Leylands were prepared to supply them, but again it was a matter of long-term credit. I believe their order was for 800 buses and that it was cut down to 80, the balance being bought in France, Italy and Czechoslovakia largely because those three countries could and would provide the credit which we failed to give. I cannot vouch for the facts, but this is what I was told. This affects our workers and, if the other three countries could provide the necessary credits, why could we not do so?

I turn for a moment to another small Iron Curtain country with which trade could be improved, Czechoslovakia. The Czech position is much smaller than the Polish as the Polish is much smaller than the Russian. There has always been in this country a good sentiment towards the Czechs. In 1955 our imports from Czechoslovakia were £4¼ million, in 1956 they were £5½ million, and last year they were £8¼ million. This is good, but our exports to them were only £3½ million, £3½ million and £5 million, respectively.

The Czechs claim that the difference in amount between their imports and exports was made up largely of the £2 million they paid to British shipping interests for bringing in their imports and taking out their exports. Last year, they paid £520 million in respect of the nationalisation of British assets which they took over, and no less than £300,000 interest on their funded debt. If I may have the ear of my hon. Friend the Minister of State for the Board of Trade, I will make a special plea for the small country of Czechoslovakia.

If my hon. Friend cares to look at the London Stock Exchange List, he will find some extraordinary prices for Eastern countries bonds. As far as I can ascertain, Czechoslovakia is the only country which is paying the interest on its pre-war debts, the others having all failed to do so. This affects the credit-worthiness of a country in respect of future trade, because if a country pays its debts one is prepared to trade with it more and more in the future. The Bulgarian 7 per cent. Bonds are quoted at 2–3 per cent., the Hungarian 4½ per cent. Bonds are quoted at 4½–5½ per cent., the Rumanian 4 per cent. Bonds are down to 1⅞–2⅜ per cent., the Russian 5 per cent. Bonds are down to 1¾–2¼ per cent. and the Czech 6 per cent. Bonds are quoted at 98–100 per cent.

Therefore, it seems to me reasonable to ask that the Board of Trade should look with a specially favourable eye on Czechoslovakian trade, since it is a reliable trade entity and, if we have a favour to give, these people might be considered. I was told by one of them that it was complete nonsense to consider Czechoslovakia as a political risk and, in view of the facts I have given, I would like to know if more trade with that country is not possible.

Again, in discussing the matter with the Czechoslovak representatives, I was told: The majority of the countries which are members of Co-corn in Paris are much more flexible in their attitude to Co-corn rules and orders than the British exporters proved to be. Will my hon. Friend take a note of that because, if this be true, it should be put right. If the other members of Co-Corn are trading with Czechoslovakia to an extent which we refuse, it is unwise and should be put right, other things being equal.

The same representative said to me: I can assure you that if the embargo rules were abolished the British export to Czechoslovakia in machine and electronic industry could be at least doubled. If this is possible and reasonable, compatible with the safety of our country, it should be done.

Finally, on financing, this representative said that his country could get easier credits elsewhere than could be obtained from this country. Since prices are often almost the same, financing makes all the difference. He said: The insurance premiums which the British exporters have to pay to the Export Credit Guarantee Department are in our opinion the main reason— This is Government policy— why the British credit conditions are much less competitive in comparison with the credit terms offered by other West European countries.

Photo of Mr John Vaughan-Morgan Mr John Vaughan-Morgan , Reigate

Mr. Vaughan-Morgan indicated dissent.

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

My hon. Friend shakes his head. I am glad to see that, because if this is untrue it should be on the record so that the untruth should not continue to circulate. If the Czechs mistakenly believe that trade is lost to us because it costs more for that trade, they should be corrected. Since my hon. Friend indicated his dissent about that, I hope that he will see what can be done.

I want to refer to Russian and Moscow trade. If we can increase our trade with Moscow, our trade with satellite countries will automatically increase. If we can convince Mr. Khrushchev and if we can get Mr. Khrushchev's support, there will be no opposition. He is the boss, and we should recognise that. The key is in Moscow, and if we can improve the atmosphere there—and that is the real problem—and make the organisation in Moscow easier, the other Iron Curtain countries will follow suit.

The hon. Member for Southampton, Itchen said that trade with China had increased by so much, but the amounts are footling. Last year trade with China was about £12 million or £14 million, but the population of China is 600 million and that trade represents about 6d. per head per year. We have not even scratched the surface. We have not even tried to trade. Although the figures are encouraging, we have hardly started.

However, Russia is the centre of the Communist bloc, and it is trade with Russia which is of greatest importance. Our imports from Russia in 1955 were £62+ million, in 1956 they were £55 million, and last year they were £70+ million. They are still nothing like what we did with Russia before the war, and I doubt if in real terms they are better than our trading figures with Czarist Russia before the revolution. There is an immense way to go.

There is another side to East-West trade which must not be overlooked, which is probably the most important. When Russia has completed her industrial revolution—and she is about half-way there—she will be the greatest industrial country in the world and probably the greatest military Power at the same time. The question then will be not what Russia wants to buy from us but how we can compete with her exports. That is a problem which we have to face. It will not be a question of the Russians not buying enough from us. Our problem will be to keep our place in world markets, especially as the standard of living in Russia and its labour costs per unit are about one-third of ours, so that, other things being equal, Russian prices can be 15 per cent. to 30 per cent. below our prices in world markets.

The important point which we must impress on our constituents who are so keen on Soviet trade is that the Communist world is so made up that if it so desires it can sell at what I call political prices rather than economic prices. The Communists can offer their goods in world markets at prices which would destroy our trade—if they so desired—at any cost to themselves, and thus they would bring absolute ruin to our workers and industrialists.

This week the Daily Express had a front page story about the Russians' new jet airliner, and the Daily Express said that it looked a winner. That newspaper gave a description of the quality and workmanship of the aeroplane and described how beautifully it handled and how well it flew. If it flies better than the jet in which I flew to Moscow, it will be wonderful, for the TU104 in which I flew to Moscow took only ten minutes to reach 36,000 feet and to fly at 600 miles an hour. If this new aeroplane is so much better, our people are up against it.

The important point which I leave with the House is that the Daily Express expert in Moscow, Mr. Arthur Brenard, said that the Russians were offering this new jet airliner at 1 million dollars—much less than we or the Americans could produce ours. Obviously, the Russians are selling it at a political and not at an economic trading profit. The Daily Express quoted a Belgian airline authority who said his firm had been offered the Moscow—that is the new jet airliner— at $1,000,000—and delivery within four months— We generally talk about delivery in four years. 'The Moscow is a fine plane he said. 'The mystery is how the Russians can offer it at such a low price. Quite obviously the airlines of the world will have to consider it seriously as the price and delivery dates are so attractive.' It is only fair to say to our industrialists and our workers that there is another aspect of East-West trade which is seldom considered and which is suggested by that one report. Just as the Russians can now produce the machine tools which we refused to sell them a few years ago, they can if they wish—that is the important point—sell them in world markets far below what we do, and not on a business profit and loss basis, but for political ends. Thereby, they can destroy OUT standard of life and our very way of life. As the Russian industrial machine improves and develops, so the Russians' ability with their political background will grow, enabling them, if they wish, completely to destroy us.

Finally, I want to see the maximum trade between our two countries because that could lead to understanding, understanding which would lead to the toleration which is so necessary if the world is to survive. That understanding would help us more than it would help anyone else. Whatever the difficulties in East-West trade—and I do not minimise them—I plead with the Government to do their best in Paris in the coming months to see that every barrier is removed, so that all traders who wish to try their arm are helped and so that the strategic list is abolished as soon as possible.

12.49 p.m.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

The House will find itself in agreement with a great deal of what the hon. Member for Louth (Mr. Osborne) has said. In particular, I was very much in agreement with the end of his speech when he said that it is the economic rather than the military power of the Soviet Union which we may have to fear.

I well remember in the important debate on German rearmament in February, 1954, when many hon. Members opposite were utterly preoccupied with getting German rearmament at all costs, that I ended my speech by saying that we were arming against the wrong enemy and that the real Russian menace to this country was an industrial rather than a military menace. Now that those words have been echoed by Field Marshal Lord Montgomery and now that even generals say that the contest is economic, the time is long overdue when that should be generally accepted.

With regard to the other remarks by the hon. Member, I found a little strange his complaints about reduction in coal imports when so many members of his party over the past few years have complained about the fact that any coal imports were necessary at all.

When the hon. Member talked about his experiences in Moscow, he said something—it struck a chord in my memory—about the frequent use of the phrase, "We shall have to consult our clients." I am not sure that he is entirely up-to-date in this matter. The point is that the Russian trading system is based on monopolistic trade corporations which cover a certain field, and since they are purely foreign trade organisations they have to go back to their clients. If it is a question of textile machinery, they have to go back to the managers of the textile plants to see whether they want the machinery. If it is some other kind of equipment, they have to go back to the ultimate users.

The hon. Member was wrong to deduce from that that the ultimate decision is a political one. I do not think it is. It is a technical decision by the people who, as the hon. Gentleman said, are not in the front line of the negotiations. After that, account has to be taken of the total cost. Many of the Russian technicians would like to buy far more goods from the West, but when all the orders are added together the total may exceed the programme of purchases considered reasonable by the Ministry of Foreign Trade.

Photo of Mr Ian Mikardo Mr Ian Mikardo , Reading

I agree with what my right hon. Friend says about the practice of the state trading organisations and the interpretation which he puts upon their consulting their clients rather than that given by the hon. Member for Louth (Mr. Osborne); but I wonder whether he is aware that in recent months, as I know from my own experience, people from abroad have been introduced by the foreign trade corporations to the ultimate users far more than was the case a year or two ago.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

That is exactly the point I was about to make. In the first place, in any big negotiations in the Soviet Union over the sale of certain plant, not only is it the fact that representatives of the client department are in on the negotiations, but in one case of which I have had recent experience the man who had been scheduled to be the ultimate manager of the factory to be built was in the trade negotiations from the very beginning, and he was certainly a user and a client.

It is a fact that a large number of technical missions have been coming to this country from the user departments and the using factories and corporations, and the new pattern now seems to be much more that a mission of technicians in a certain field will come to this country and will then return and try to make a case for the allocation of foreign exchange for the purchase of the goods. Although within the field with which the hon. Member was concerned—I have had experience in that in Moscow—it was usual to refer the matter back to the clients and then perhaps nothing was done, it is much more usual now, especially in the case of heavy plant of every kind—chemical plant, engineering plant and building materials plant—for the technicians to come to this country before any decision is taken.

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

I was merely giving my experience of two and a half years ago. Ii the situation has changed, I am glad to hear it.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

It has changed particularly in respect of heavy equipment.

I join other hon. Members in congratulating my hon. Friend the Member for Southampton, Itchen (Dr. King), not only upon his success in the Ballot and his choice of subject, but on the remarkable speech with which he opened the debate.

I wish also to refer to the terms of the Motion. It is a fact that over the past few years the Opposition have shown the very greatest restraint, because although we have been bitterly critical of the Government's delays and procrastinations, we have not embarrassed them in the House. The last major debate on East-West trade that we had was in March, 1954. When my hon. Friend drafted his Motion it would have been easy for him to be critical and condemnatory, for such an attitude would have been fully justified, but he has done it in a way which would make it easily possible for the Government to accept it, so that they could go to the international negotiations in Paris taking the unanimous view of the House as expressed in the Motion. In doing that, the right hon. Gentleman would have the right to say in the negotiations that it is the unanimous view not only of the House but of the country.

The facts of East-West trade have been fully set out by my hon. Friend the Member for Itchen. There has been a considerable expansion in the past few years, reflecting, I think, two things. The first is the freer availability of goods on both side of the Iron Curtain. The difficulties referred to by my hon. Friend the Member for Leeds, West (Mr. C. Pannell) in my 1947 agreement with the Soviet Union were caused by the fact that we had not the goods. The Russians wanted steel rails which we could not supply, and they were short of grain and timber and many other things that we wanted to buy from them.

The second factor is the greater willingness and, to some extent, the greater ability of the Soviet Union to enter into peaceful trade with us. Herrings have been mentioned. They provide a good example. Night after night in 1947 we argued with the Russians and pressed them to resume their prewar trade in buying herrings. This was long before there was any prodding or pressure by the hon. Member for Aberdeenshire, East (Sir R. Boothby). We pressed this night after night, and it came to the point when Mr. Mikoyan regarded it as a joke, and one night when we did not mention the subject he called special attention to the fact that we had not done so. He recalled it many years later. When I saw him again in 1953 he said that the Russians were buying herrings. He told me that in 1947 they were poor and could not afford them, but now they were better off and could afford to buy such things for their people.

Reference has been made to the Anglo-Soviet Trade Agreement of 1947. All the post-war trade has been entered into against the background of the first postwar trade agreement, which made this trade possible.

Photo of Mr Hilary Marquand Mr Hilary Marquand , Middlesbrough East

There was an agreement in 1946.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

Yes, but the first general Anglo-Soviet Trade Agreement was in 1947. That trade agreement was basically an exchange of scarce goods. I well remember the one referred to by my right hon. Friend, which included the settlement of payments for wartime Service supplies.

As a result of this exchange of scarce goods on both sides we got, I think, about one-third of all our imported feeding stuffs, which included coarse grains, and a considerable proportion of the timber that we needed for the housing programme. Then we ran into the period of strategic restrictions. I make no apology for the fact that strategic restrictions were considered necessary by the Labour Government in those very difficult conditions. At the time of the Berlin air-lift when they were imposed, I think it was right to put some limitation on the shipment of goods of military value, and with the outbreak of war in Korea it was even more essential that there should be some limitation. Obviously it must be a judgment, a question of degree, as to how far one goes in these things. One has to consider how near the danger of real war is.

As my hon. Friends have said, once we got the armistice in Korea that created a new situation. I think the Government were extremely dilatory in not acting on the new situation created by the Korean armistice. I remember that in 1952 a number of us pressed the Government to take action so as to be ready for the armistice when it occurred, and in 1953 also we pressed them very much on this point.

In 1953 occurred Stalin's death. That led to a very big change in the Soviet attitude towards trade, particularly the new emphasis on consumer goods. It did not mean that they were going to buy much in the way of consumer goods from this country, and they have not done so. What they were interested in doing was increasing that part of their industrial base, developing their industry in certain fields, which would make a big contribution to Russian manufacture of consumer goods for their own people.

When I went to the Soviet Union just after Stalin's death I was made aware of this very big change and the possibilities. On my return, I said in the House and in the Press that enormous new prospects were opened up to us. At that time the Government were still extremely critical and cool on the question of Anglo-Soviet trade, and they tried to discourage a very important visit by business men to the Soviet Union at that time. In the end, the business men went under different auspices. Every business man who went to Moscow that winter came back with the same story.

The truth was that the Government were unwilling to challenge the fundamental and basic American philosophy on this matter. Then we had a debate, strangely enough, on German rearmament, and the right hon. Gentleman the Member for Woodford (Sir W. Churchill), then Prime Minister, who, as it appeared to us, was most unwilling to say very much about German rearmament, made a most helpful intervention, not on German rearmament, but on the subject of East-West trade. Once he had said that the whole attitude of Her Majesty's Ministers changed. We thought that it was overdue, but we, welcomed it when it happened. So we got not only the debate in March, 1954, but the negotiations in July of that year, which led to a partial but very limited relaxation of the strategic list. As far as that went it was welcome, and it has led to more trade, but it did not go far enough.

I want to underline what has been said by hon. Members on both sides of the House about certain developments which have taken place since the last review of the strategic restrictions. First, strategic restrictions are still being broken abroad right and left by some of our trading partners in the Co-ordinating Committee. If the Government do not know it, it is about time they did. I have mentioned before the fantastic case of insulated cable. Before 1954 it was allowed to be sent to Russia, whereas uninsulated cable was not. We all remember the story of how certain European countries used to ship insulated cable to Russia, and how a Soviet workman sat on the floor of a factory stripping off the insulation—until a certain country invented a machine for removing it, so that they could ship the cable in in insulated form. That went on until some more ingenious country began to supply insulated cable with a zip fastener running along it so that it could be stripped off without even the aid of a machine.

There are many more examples like this. They are difficult to produce, but we know that they are happening. Every business man knows it. The Chinese and Russian authorities will give chapter and verse, although they will not go too far because they fear that if they did the British Government would stop even such leaks as now occur.

The second development is the change in the world strategic situation. We must ask how relevant are some of the strategic restrictions in conditions when our military experts tell us that what we are planning to prevent is a push-button war and not a military war of the kind that we knew before. The third development is the big change in the world economic position, and I shall say more about that later. On the question of the strategic situation, however, in the debate in 1954 many of us warned the Government that our restrictions were inimical to our best strategic interests, because they were encouraging the Soviet Union to develop strategic industries. I should like to quote some words that I used on that occasion. I said: We are not in any way limiting the military potential of other countries by these strategic restrictions. They can get these goods elsewhere. If we do not ship machine tools to Russia she will set up capacity herself to create those tools. I ask the right hon. Gentleman which he thinks is more in the interests of our defence, that we should, by shipping machine tools, maintain the capacity of our own machine tool industry, or encourage other countries to set up their own machine tool industries?"—[OFFICIAL REPORT, 22nd March, 1954; Vol. 525, c. 898.] That warning was uttered four years ago. What has happened? We had a statement in a London evening paper on 27th May quoting the words of Mr. Robert Asquith, a leading figure in the machine tool industry, with long experience of Anglo-Soviet trade, and who is in the Soviet Union at present. Referring to these strategic restrictions, exactly bearing out what I warned the Government about four years ago, he said: It has merely caused the Soviet machine tool industry to grow four times as much as it would normally have done. Do the Government think that the restrictions which I suggested should be removed in 1954 have worked in the best strategic interests of this country? Of course they have not.

I should like to give another example. On one of my visits to Moscow, in January, 1956, I was discussing this question with Mr. Mikoyan, the Soviet First Deputy Premier, and he said. "We wanted to buy ships from you. You refused us those ships, because they were said to be strategic. So what happened? We have doubled our shipbuilding industry. We still got the ships; you have lost the market permanently, and the only result is that we have increased the size of an industry which you deem to be strategic." In any case, how can anyone suggest for a moment that in the kind of military situation that the House debates from time to time—push-button warfare, inter-Continental missiles, H-bombs and the rest—the security of this country depends upon not shipping to Russia trawlers, small cargo vessels or icebreakers if they can travel above a certain speed?

This list is completely out of date. I do not think that any hon. Member, on either side of the House, has been prepared to defend this situation, at any time during the last three or four years. Similarly, I remember, last November, in the Soviet Union, again talking to Mr. Mikoyan and referring to the fact that the House was due to debate a Prayer that evening concerned with the increased control over printed electronic circuits for use in television and radio sets. He just laughed, and said, "You are bothered with controls over printed circuits when we, only a month ago, put a Sputnik into the upper atmosphere?"

It is a fact, as my hon. Friends have said, that for a long time the Soviet Union have been shipping strategic goods to this country and other countries in the West. For a long time they have been shipping certain strategic metals, including manganese, as my hon. Friend the Member for Leeds, West has said. I think that he is basing his reference upon what happened in 1952. They have shipped platinum, and other strategic metals which we are not allowed to ship to them.

We must ask ourselves what would happen if anyone in this country were to buy some of these strategic metals or machine tools and try to re-export them to the Soviet Union. He would probably go to prison for endangering the security of this country. We have reached a ludicrous situation. In addition to these strategic metals, as was pointed out by my hon. Friend the Member for Leeds, West, Russia is now exporting precisely similar machine tools to those which are on our strategic list.

The other big change is in the world economic position. I agree with my hon. Friend; I do not think that it is any longer an exaggeration, or propaganda, to say that in some industries full employment depends upon more trade with the East. We all recognise that a great deal of nonsense has been talked about the possibilities of East-West trade—about how, overnight, it could solve our dollar and economic position, and transform the whole employment and export situation. Of course it could not, and there has been a great deal of exaggeration. But remembering what my hon. Friend said about the pre-war experience, far instance, in the machine tool industry, and recognising that we are now facing a world of dwindling trade in the West with, so far, no sign of any re-expansion, I do not believe it to be an exaggeration to say that there are industries in this country where the maintenance of full employment depends upon increased shipments to Eastern Europe and elsewhere.

Photo of Mr Charles Pannell Mr Charles Pannell , Leeds West

On the question of machine tools, the point is worth making that there is no export worth talking about to America, because in Cincinnatti America has the greatest machine tool industry in the world.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

That is certainly true. At a time when there is an investment recession in the Western world machine tools are hit even more than most other lines of exports.

What do the Soviet Union want to buy from this country? They have their traditional purchases, but they are also interested in new developments, not necessarily strategic. They are very keen to expand their consumer goods industries. In my talks with them they have emphasised that they would like such traditional imports as textile machinery, but they also mentioned that they wanted to buy from this country materials to build the largest factory in the world producing safety razor blades I have no doubt that the Foreign Office may consider razor blades to be strategic, and one can understand that in certain circumstances they could be used in a hostile manner, but I do not think that in any future war we are likely to come to grips with any possible enemy so closely as to make them relevant for this purpose. They have also said that they want to buy plant for the making of suitcases. They are not for strategic purposes. That is an indication of what various hon. Members have said about their desire to expand consumer goods production. They are also having a big drive in the food processing industries—food packaging, canning and tinning, bread baking, milk bottling and a number of other food processes.

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

Would the right hon. Gentleman not agree that the very bigness of orders, as typified in the recent year by the order of £13½ million for the Russian rubber tyre factory, may necessitate the co-operation of others? We have not the organisation to face such a big order as that. It has to be done through amalgamation, and that in itself causes great problems for us.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

There are two things. Some of the food industries can be operated on the traditional basis, but when it comes to one of the major plants like the tyre factory, I agree that a consortium is essential, just as it is with other countries in the export of atomic energy plants, and so on. The Soviet trade authorities have indicated to people in this country that they want to place some vast orders for chemical plants, namely, in the oil chemical field, and very largely directed to improving supplies and the quality of consumer goods. I should not be surprised if those orders added up to a total of £150 million.

I have seen the lists, and studied them. But a very serious difficulty has arisen. In nearly every case—not for the whole plant, perhaps, but for some important part of it—the process depends on American patents. Therefore, even when we have set up a consortium of the kind referred to by the hon. Member for Louth, the whole process is dependent, perhaps, on one part of the plan involving an American patent. In many cases the American companies would like to co-operate, but when they have been to their own Government Departments they have been told that they may not for political reasons, as mentioned by the hon. Member. In one case, the answer specifically related to the question of the negotiations for summit talks. That is really nonsense, and that is doing just the same thing as hon. Members have quite rightly blamed the Russians for doing in relation to Yugoslavia.

Owing to this attitude, this country is in danger of losing orders adding up to £100 million or £150 million, because the Russians are going to buy anyhow and the Germans are supplying them. The Germans have no inhibitions of this kind, and we are, as I say, in danger of losing a vast new market for this equipment. In the negotiations now going on in Paris, we are all agreed, of course, that we do not want merely to ship really strategic goods within the field of atomic energy, and all the rest of it. The Russians understand that perfectly plainly. Nor would they ever think of supplying such secrets or equipment to us.

What I think Her Majesty's Government have still to break down, not so much in their own minds but in the American mind, is this blockade mentality. There is still prevalent in the United States the idea that we can by these minor irritants hold back the whole process of Soviet development. The Americans think that if we say that we cannot ship this machinery or plant then we shall be able to operate a stranglehold on the Soviet industrial machine. That is utterly unrealistic. Even in the period of maximum strategic embargo Soviet industry has been expanding more rapidly than that of the West.

I have never held the blockade theory. I took the view that when the danger of war was near it was wrong to ship the weapons and munitions of war to the countries involved. As I say, I have never held the blockade view, and I do not think that Her Majesty's Government have really taken that view.

I turn, in conclusion, to the question of China. As my hon. Friends have reminded the House, China has been on a different basis ever since the United Nations boycott Resolution of 18th May, 1951. I thought that Resolution was wrong, and I opposed it at the time, both in this House and outside. But, as I have said, right or wrong, the end of fighting in Korea ended any justification there might have been for that boycott. We kept on raising this matter in the House, and Her Majesty's Government made excuse after excuse for maintaining the boycott. First, they said that they wanted to see a full peace treaty in Korea. When that did not materialise they then said that there was also the trouble in Indo-China. Of course, as we all know, the thing was absolutely senseless strategically because, of course, there is the Trans-Siberian Railway. If those goods go to Soviet Russia they can get to China quite easily. There are also the shipping services of the Eastern world. So the boycott was not an effective economic control system. It was a piece of political hypocrisy.

Finally, to their credit and after very strong pressure from this side of the House, and after, I think, an undue time, Her Majesty's Government decided to go it alone in the matter and began a partial relaxation of the boycott last year. I have always said in the House that China ought to be on the same basis as Eastern Europe, and that is pretty well the position the Government have accepted, they having said that there shall be a further considerable streamlining of the East European list.

Since my visit to China earlier this year, I am not sure that I was right to take that view. China is in a much earlier stage of trade development. It is not interested in equipment with which to produce consumer goods. The Chinese do not want razor blade and suitcase factories. They want basic, elementary equipment for the early stages of China's industrial development. China's Premier, Mr. Chou En-lai, with whom I discussed the matter, said that the high-powered technical mission which visited Britain last year found a very wide range of products which China needed, but that 95 per cent. of the products it wanted to buy were on the embargo list. There is no doubt that China is going to carry through an enormous development plan. The Chinese announced that they were going to reach equality with Britain in industrial production in fifteen years—not equality per head, but equality in the size of basic engineering, steel, engineering and the rest of it. The Premier said to me quite frankly, "If you carry on your embargo you will, of course, hold us up, but only slightly, and you will be losing markets."

The various trade Ministers and heads of trade corporations whom I met in China made it pretty clear that they want to buy a lot more from this country. There is, of course, the difficulty to which my hon. Friend the Member for Leeds, West referred. I think that my hon. Friend regarded it as a piece of discourtesy on the part of the Chinese that they were not in the position to say what goods they wanted to buy. I do not think it is really a matter of discourtesy but of bureaucracy, because the Chinese have not yet got out the details of their second five-years plan and, until they have done so, they have not decided what goods they want to buy.

There is no doubt that they will want to buy a lot of heavy machinery, machine tools, plant for the steel industry, precision instruments and technical equipment. They mentioned specifically atomic energy equipment for peaceful purposes. I do not really think that there is any danger involved in that, because, if the Russians want China to have the hydrogen bomb, China will have it. We shall not make any difference to the position by refusing to supply, say, an atomic generating station or something of that kind.

Then there is the question of tractors to which both my hon. Friends referred. They have one phrase which I heard every Chinese Minister repeat, beginning with the Premier, who used it more than once. "Why," he said, "do you ship tractors to us and deny us the oil to run the tractors?" They are half threatening this country that they are going to soft-pedal the purchase of tractors until we deal with the question of the oil embargo. I ask the Government, why should not we ship oil to China? What difference will it make in terms of the security of this country? The Chinese Minister said that of course they understood if we did not want to ship aviation spirit, but what about oil and petrol for their motor cars, tractors and all the rest of it? Another thing they want more of is certain types of chemicals, especially reagents.

I asked the Chinese Ministers whether there was an evasion of the boycott by other Western countries. They said, frankly, that certain Western European countries—they named them, but I do not want to name them in this House—and also Japan—I do not think there any difficulty about naming Japan—were evading the boycott, especially in operating much less stringent conditions for special steels.

Hon. Members may well ask how can China pay for all this trade? It is a question we always get. China has her traditional exports, which are well known, and they get pretty heavy volumes of remittances from Chinese overseas. I should not like to ask in every case about the circumstances underlying those remittances. The Ministers told me that they keep 100 million currency units as a float. When I asked what was a "currency unit", they told me, sheepishly, that they meant American dollars—they had not liked to say so. These are mainly earned through their trading surplus with Hong Kong. I think that generally their trade balances with the rest of the world outside Hong Kong, but they have a surplus of about 200 million dollars with Hong Kong and they are willing to use about half of that in the expansion of trade immediately.

The Motion and the speeches of both my hon. Friends refer to the need for reciprocal action, although I think in that connection they are wide in their definition. They referred to the need for two-way trade. I think it right that there should be criticisms frankly stated when we have something to criticise. I wish to criticise two things which have happened. I am a firm believer in greatly increased trade, but I think it would be wrong not to speak frankly today about things which I think ought to be said.

I think the Chinese Government made a mistake in cancelling their steel trade agreement with Japan. That agreement was signed while I was there, and they told me about it with a great flourish. But, for political reasons, they cancelled it. With very few exceptions, the Soviet Union have not let politics interfere with the fulfilment of agreements into which they have entered. They have been scrupulous in carrying out such agreements. The only exception was their boycott of oil shipped to Israel. By and large, the Soviet Union have honoured the agreements which they have signed, certainly, so far as I know, every agreement they have made with us. For China so early in her new phase of economic history to cancel an agreement for the motives stated is a very bad beginning, and I hope that there will be second thoughts about that sort of thing.

The second matter on which I think something should be said relates to the treatment by the Chinese Government of United Kingdom nationals in China, particularly those associated with some of the old trading corporations which have been in China for many years. I do not think it would cost the Chinese anything to treat them more generously. It would greatly help to improve the Chinese reputation in economic affairs generally throughout the world. Those of us who have been trying to get a better understanding of this problem, and have been pressing for more East-West trade—particularly more trade with China—would find our task greatly eased—not only in this country but abroad—if the Chinese Government would overrule some of their local bureaucratic officials—it is a question of local bureaucracy in this matter—and behave reasonably with some British trading interests there.

I am sure that the Minister, who knows the sort of thing to which I am referring, will wholeheartedly endorse what I have said. I mention this only because I feel that if we are to embark on a big expansion of trade as we wish to do, we should have the right, and even the duty, to speak frankly with our trading partners.

China has embarked on a great development programme, equality with this country in fifteen years. Our trade restrictions will not hold that back, but, of course, the big problem is the attitude of America. My hon. Friends have said quite frankly what kind of considerations were in the minds not only of the American Government but of the American people because of the war in Korea, and for other reasons. My hon. Friend the Member for Itchin made an extremely powerful point when he said that on this argument we should not ourselves be trading with Germany or Japan, still less helping them, as we did immediately after the war.

The American attitude towards China, even more than towards the Soviet Union, is one of blockade. They regard the Chinese Government as an evil thing and they will have no truck with it. They have a mentality about this as though the Chinese revolution was a dream, and that if we can only hang on long enough and have nothing to do with it we shall wake up and find that it was just a nightmare and that Chiang Kai-shek is back in the seat of power, and so on. That is completely unrealistic. We speak of the difference between our Foreign Office and the American State Department, but with all the criticisms that we sometimes level at our Foreign Office, it is true that the British Foreign Office usually bases its policy on realism and not upon dreams and fantasies of the kind which I have described.

I was told that 61 factories in China have been built and equipped by the Russians, and 33 others by other Eastern European countries, and that other factories are in the course of construction. I am sure the House will agree with what was said by my hon. Friend, that it is nonsense—political nonsense and not only economic—to be driving the Chinese Government and people into such utter dependence upon the Soviet Union. I do not want to go into all the arguments about whether the two countries will ever ultimately diverge. My hon. Friend referred to that consideration, and it is one which ought to take up a great deal more of our thought and argument in debates on foreign affairs. But certainly it is wrong. Just as it is wrong to drive the Chinese into dependence on the Soviet Union for representation at the United Nations and for putting her point of view, so it is wrong to drive her into such dependence economically.

We must ask ourselves this question. China has over 600 million people. My hon. Friend referred to every fifth—I suppose it is now every fourth—child being a Chinaman and of every three babies born one being Chinese, which has led to certain misunderstandings we have heard about in the past. Nevertheless, there are now over 600 million Chinese. If they become industrialised and if they are to compete with us in the restrictive markets of the Western world, is there any hope for our exports at all? That is the real issue which we are today debating.

Already we have had to put controls on Chinese textile exports into this country, and that is the first sign of what is coming. If we regard them purely as untouchables in the trade world and as competitors, let us be frank, we shall lose the competition in the long run. The answer is that we should trade with them and join in their development programme. If we have to make the choice, do we think of them as 600 million competitors or as 600 million customers, there should be no doubt about our attitude.

Therefore we welcome the Government initiative in sending the Parliamentary Secretary to the Board of Trade there last year. I am sure that he achieved much more benefit for this country than will mark the visit of the President of the Board of Trade to Spain. We welcome the fact that Ministers have taken up these questions. But we ask them to go further. My final suggestion is that not only should they accept this Motion—they will be involved in no difficulty in doing so—but they should take this to the negotiations in Paris as a united and unanimous view of this House. They should be prepared to go a lot further, particularly in relation to China. They should seek to negotiate with the Chinese Government a full operative trade treaty—I am not talking about an exchange pact—covering trade and establishments, including the problem I have mentioned of the treatment of British trading organisations in China. If we are to develop trade in the way I hope, there will have to be rules about the exchanges between us. While the exact sales and purchases may be a matter for the trade organisations, we shall make much more progress if the British Government, after streamlining the trade restrictions, will go ahead with the negotiation of an Anglo-Chinese trade agreement.

1.31 p.m.

Photo of Mr Eric Johnson Mr Eric Johnson , Manchester, Blackley

I support the Motion which was so ably moved by the hon. Member for Southampton, Itchen (Dr. King). We have listened to four very remarkable speeches, all widely differing in style and all not only complementary to each other but complimentary as well.

Never before have I listened to a speech by the right hon. Member for Huyton (Mr. H. Wilson) with such pleasure as I have done today. I must confess that he very often makes me feel glad that I do not suffer from high blood pressure, but today it was most enjoyable to listen to him in the räle of a friendly critic. What has been said has been all the more enjoyable because of the complete absence of attempts to score party points. That is one of the pleasant characteristics of these Friday debates. I hope that the right hon. Member for Huyton will continue that rôle of friendly critic.

The speeches today have been on a very high level in dealing with this matter of East-West trade in general terms. I am unable, like my hon. Friend the Member for Louth (Mr. Osborne) and the right hon. Member for Huyton (Mr. H. Wilson) to refer to conversations that I have had with such people as Mr. Khrushchev, Mr. Chou-En-Lai, and other distinguished people of that kind. I will descend for a moment from that very high level and refer to something much smaller in size although of considerable importance. I refer to an aspect of trade with Eastern Germany to which I made a reference in the Budget debate and which has been discussed in the House from time to time, namely the export of doubled cotton yarn to Eastern Germany.

I believe we are almost the only potential suppliers of that yarn who are without a trade agreement with Eastern Germany. Consequently we are losing very valuable business. I am given to understand that the East Germans would be prepared to take 2 million lb. or more of that doubled yarn from this country, which would give employment to about 800 people in the cotton mills of Lancashire. We want that trade badly in Lancashire but we shall not get it unless we have some form of trade agreement. Her Majesty's Government take the line that because they do not recognise the Government of Eastern Germany they are unable to get a trade agreement, but we are by no means the only country which does not recognise Eastern Germany yet we are very nearly the only country that has not a trade agreement of some kind with that country.

In the debate of 10th February this year, initiated by the hon. Member for Reading (Mr. Mikardo), if I am not mistaken, on the subject of trade with Eastern Germany, my hon. and gallant Friend the Minister of State, Board of Trade, said that Her Majesty's Government could not negotiate a trade agreement with the East Germans because we did not recognise their authorities as a Government. He went on Because we do not recognise the East Germany régime and cannot negotiate with it, the decision whether or not to pursue the negotiations rests with the national trade associations. I should like to know, and I hope we may be told, what progress is being made, if any, with these negotiations. Even if Her Majesty's Government cannot initiate them, the Board of Trade can at least keep us informed of what is going on. I would like to hear more about it. I would also like to know whether Her Majesty's Government are still opposed to the opening in this country of a trade office for the East Germans. If so, for what reason, other than that we do not recognise the East German Government?

It is rather hard to see why it is wrong for the East Germans to have a trade office here if it is quite all right for one of our trade associations to negotiate with them. Could not the Federation of British Industries, for example, make arrangements for the East German Chamber of Trade to have an office here. Even if Her Majesty's Government are unwilling to recognise the existence of that organisation, that seems a reasonable suggestion. On 10th February, in the speech to which I have referred, my hon. Friend the Minister of State, Board of Trade, said, referring to national trade associations: If they reach a satisfactory agreement, we will then willingly make the arrangements to allow it to be implemented."—[OFFICIAL REPORT, 10th February, 1958; Vol. 582, c. 168–9.] If the Government will do that, they will go a fair way to recognising the existence of the East German Chamber of Trade, so why should not it have a trade office here. This is rather a small point in a way and a petty objection, but our trade prospects would be improved if the obstacle could be removed.

I would now make a very general observation on recognising the Government of Eastern Germany. I would not do anything to help the cause of Communism in any part of the world and I have a profound dislike for Governments of the East German type, but I cannot help wondering if it serves any useful purpose to refuse to recognise the existence of something which in fact exists whether we like it or not. In the case of the Chinese Government on the mainland we have said that recognition does not necessarily imply approval. There are advantages to be gained by recognising Governments of that kind.

It would be interesting to know how many Governments which have been set up by force and which we and other nations have refused to recognise for some time, have eventually had to be recognised. An obvious example is the case of the United States and the Soviet Union. It would also be interesting to know how often failure or refusal to recognise an objectionable Government has meant that the Government has collapsed and been replaced by something which we like better. It would be most unwise, and I am not advocating it, for us to do anything by recognising the East German Government which would upset or antagonise any of our partners in N.A.T.O. It is easy to understand why the West German Government have strong views on the subject of the Government in the eastern part of their country, but I do not think that their objections about the East German Government apply to business relationships. I also wonder to what extent we have been taken for a ride by West German industrialists who are cashing in upon our refusal to recognise the Government of East Germany. The hon. Member for Itchen referred to that.

However much we may think there should be a united Germany, a great deal of optimism is required to say that it can come about without Russian consent. I cannot see Russia consenting to a united Germany which is not a Communist Germany. One cannot refrain from reflecting that in the past a united Germany has not been a country which has done us a tremendous amount of good. It is hard to see why Eastern Germany should be put into a different category from nations like Poland, Czechoslovakia or even the Soviet Union.

The Lancashire cotton industry, as the House knows, is going through a very difficult time. Feeling in Lancashire is very strong that Her Majesty's Government are doing nothing to help the industry to overcome its difficulties. I do not share that feeling for a moment, but it is there whether we like it or not. Anything we can do to help the Lancashire trade is not only right but it would be a wise thing for the Government to do it. Trade in doubled yarn with Eastern Germany would give an opportunity for a small measure of help, but a very important one, to the industry and it would help quite a lot of people. That is something which could be done without running into difficulties with other members of the Commonwealth. The figures are not large, but this trade would mean the employment of 800 people in Lancashire.

I hope Her Majesty's Government will be a little more helpful than they have been in the past in facilitating that trade. I hope that when my right hon. Friend replies to the debate he will be able to give Lancashire a little more encouragement on these lines. I hope, also, that he will be able to accept the Motion.

1.42 p.m.

Photo of Mr Ian Mikardo Mr Ian Mikardo , Reading

I join with the hon. Member for Blackley (Mr. E. Johnson) and those who have preceded him in welcoming this Motion and speaking in support of it. A little later I hope to say something in reference to and support of what the hon. Member said about the need for a trade agreement with Eastern Germany and the problems which arise in trying to do trade with that country, not only in yarn but many other goods, unless we have a trade agreement.

First I should like to refer to the Motion and the terms in which it was moved, as others have said, so very well and felicitously by my hon. Friend the Member for Southampton, Itchen (Dr. King). If I had any quarrel at all with the remarkable speech of my hon. Friend it was that he understated the case he was putting. He and the hon. Member for Louth (Mr. Osborne) argued broadly along the lines that, using the figures of years between 1954–57, even though, trade with some of the Communist countries, particularly the Soviet Union, was increasing steadily year by year, nevertheless it still represented only a small fraction of the potential. That is true.

One thing which worries me is that, in addition to that argument, it is very open to question whether our trade, especially in manufactured goods—and that is the trade which means most to us will continue to rise over the next few years in the same way in which it has risen in the last few years. My hon. Friend quoted figures of exports to the Soviet Union in the years 1954–5–6–7. If we bring the picture up to date, we find it even more discouraging. The figures for the first four months of 1958, which are the latest we have, seem to show that in purchases from this country the Soviet Union has made a very considerable change in the pattern of its trade.

I should like to quote some figures to bring up to date the picture of general trends which has been given by my hon. Friends. In the first four months of this year our exports to the Soviet Union have been halved. They have fallen from £12 million to £6 million, but our re-exports have done the opposite; they have gone up from £6 million to £12 million. If we take those two things together, they mean that the Soviet Union is spending its sterling, broadly speaking, on raw materials and semi-finished goods rather than on manufactured goods. Partly that is through deliberate acts, and principally it is a mark of its industrialisation, an industrialisation which to some extent, as earlier speakers have pointed out, we have forced upon the Soviet Union by our own embargo policy. Although it is partly a matter for their choice, it is also partly because there are restrictions on their freedom of purchase of machinery because, in fact, some of the machinery they want to buy they cannot buy.

When one starts to break down into categories those figures for the first four months of this year, one finds that it is particularly in the category of the engineering and shipbuilding trades where we see the most deadly effects of this restriction on the ability of the Soviet Union to purchase in this country the goods it wants. First, in the category of electrical machinery, apparatus and appliances—an area of manufacture in which this country is traditionally pretty good and in which we are trying to build up our trade very considerably and have done very well—there has been a notable slackening in the last few months, so that we cannot afford to waste any opportunities for export sales.

In the first four months of 1955, we sold to the Soviet Union just under £700,000 worth of electrical machinery, apparatus and appliances. In the first four months of 1956, that went up to £1,147,000. In the first four months of 1957, it dropped back to practically the 1955 figure and was just over £600,000. In the first four months of this year, it was £160,000, a quarter of last year's figure. This is where we need to do something now to push up again a flattening-out curve. We have very considerable opportunities, because within this category are included some goods, particularly instruments and the like, in regard to which we are technically ahead of some of our competitors, and people abroad want to buy our designs if they can get them.

The Paymaster-General was present, I believe, at the annual luncheon of the Scientific Instrument Makers' Association when the president of that association put forward the estimate, on the basis of same studies he had made in the trade, that sales to the Soviet Union of the products of that trade could be trebled if the embargo were lifted.

I take the second category of machinery other than electrical and will look at the pattern of our exports in the first four months of each of the last four years. In 1955, in that category we sold a little under £2¼ million worth of machinery other than electrical machinery. In 1956, it was about the same figure, under £2¼ million. In 1957, it had dropped to under £2 million and in 1958 it was well under £1 million—well under half what it was in the first four months of the previous year.

A good deal of that is machine tools. I want to add nothing in detail to what has been said by my hon. Friend the Member for Leeds, West (Mr. C. Pannell) and my right hon. Friend the Member for Huyton (Mr. H. Wilson), as well as by my hon. Friend the Member for Itchen, about machine tools, but we have had quoted to us today some most authoritative opinions from people in the trade, such as Sir Greville Maginness and Mr. Robert Asquith, who have demonstrated abundantly that pretty well all we have managed to do with our embargo on machine tools is to compel the Russians to start some branches of manufacture which they would not have started.

My right hon. Friend quoted Mr. Asquith, who said that the Russians had increased their machine tool a mannfacturin capacity about four times as fast as they would normally have done. The net result is not only that we have lost potential customers for machine tools in the Soviet Union but that we have lost customers in other countries, because the Soviet Union is selling to other countries where we formerly sold our goods machine tools which we compelled them to make because we would not supply them ourselves. I can think of nothing more idiotic than that.

I take a third and last classification of this trade, which is extremely important to our industry, and it is ships and boats. Let us look at the figures for the first four months of each of the last four years. There we see until this year a pattern of sharp growth because of some easement in the restrictions. In the first four months of 1955 we did no exports at all in ships and boats to the Soviet Union. In 1956 it was a little over £300,000 and in 1957 it was just under £1 million, but in the first four months of 1958 that £1 million has dropped to about £⅓ million. There has been a drop of 60 per cent. between 1957 and 1958.

There have been a number of references during the debate to the work of Chin-com and Co-corn, to our relations with our partners in those organisations and in particular to the rôle played in these organisations by the Americans in holding down trade between this country, some other Western countries, and countries of the Communist bloc. I want to be frank and blunt about this. I have no doubt at all that the suspicion which exists in the minds of the Chinese and others, which was described by the hon. Member for Louth, that Co-com is merely a mouthpiece for American policy, is a well-justified suspicion. I have no doubt about that at all because I have seen enough of it in operation at first hand. To describe it as a partnership in which people from different countries—the United States, the United Kingdom and other countries—can come freely and equally together to exercise their influence in that way is either ignorant or else mealy-mouthed. It is not a partnership—nothing of the sort.

Photo of Mr William Ormsby-Gore Mr William Ormsby-Gore , Oswestry

In that case, would the hon. Member tell us how he explains the abolition of the differential last year?

Photo of Mr Ian Mikardo Mr Ian Mikardo , Reading

I explain it very simply. We get some concession out of Co-corn and Chin-com when it suits the Americans to give it to us and only after being a bit rough about it. I am surprised to hear the hon. Member speak of that concession with some pride, because he ought to know from the records of his Department—he will not know entirely from personal experience because this started before he went to his office—how long we have grovelled on our knees and rubbed our noses in the dirt to get even that bit of a concession out of the Americans.

I ask the hon. Member not to take my word for this sort of thing. Let him take the word of an extremely respectable organ like the Financial Times which, even though it is printed on pink paper, is lily-white, I should have thought, as far as politics are concerned in the Government's sight. The Financial Times has been discussing the present series of negotiations—not past history, such as that to which the hon. Member referred. It had a feature on this subject in its issue of June. I will not quote in full, because it is very long, but I will not quote unfairly. The Financial Times said, United States representatives are still fighting a hard rearguard action to limit liberalisation. We all know that they want to limit liberalisation now and at all times.

The Financial Times goes on to discuss a number of the groups of commodities, and in nearly every case the account which it gives is of a battle between, on the one hand, those who want to liberalise, including in many cases the Government—I pay them full tribute for it—and the United States, on the other hand. Referring to the negotiations on Chemicals, it says that all forms of chemical explosives will remain banned. That is understandable. It says that plastics and synthetic rubber have been the subject of heated discussion and substantial relaxation is apparently still opposed by the United States. There is exactly the same story in respect of non-ferrous metals, about which the Financial Times says that the United States delegation at present opposes any relaxation.

This spreads even to some commodities which are not officially on the embargo list. Export licences have been refused for copper wire, not in relation to a position on the embargo list but purely to placate the United States members of Co-com. What happens? I should like to follow this transaction through because it tells us a good deal about the Americans and their motivations in this respect. We refused to sell the copper wire. Where did the Chinese buy it? They bought it in Chile. If hon. Members look at the companies from whom they bought it, they will find that there is a very considerable United States holding in those companies.

I want to be absolutely blunt about it because I hate hypocrisy in these matters. I am firmly convinced that it is United States interests in the Chilean companies which were in the market for selling copper wire to China that induced, and directly induced—I repeat, I am speaking bluntly—them to put such pressures on other countries in Chin-corn as to insure that Chile might be the only place from which China could get the copper wire.

In the House we are always very careful about the motives which we ascribe to people, and it is proper that we should be so. I do not want to violate the cherished traditions of the House in any respect, and certainly not in this respect, but we are now talking about the bread and butter of the British people. This is not an airy-fairy academic discussion; this is what we depend on. I know, because I am involved in it at first hand, that international competition in international trade is a tooth-and-claw business. It is no good going along as a milksop and competing in this arena. We have to have our wits about us, otherwise we shall soon be done down, and amongst the people who are liable to do us down are our friends, and competitors very often, in the United States. That is why I want to have this out in the open.

Photo of Hon. John Grimston Hon. John Grimston , St Albans

Will the hon. Member take it from me that I know rather more about this than he does and that what he said about United States producers is not true? The Chilean sales of copper wire to China were organised by the official Chilean authorities concerned and the United States companies had no hand whatever in the deal. In fact, they used all their strength to oppose it.

Photo of Mr Ian Mikardo Mr Ian Mikardo , Reading

I think the hon. Member must have misheard what I said. I did not say that the United States companies were responsible for it, nor did I say that they were responsible for the export of that copper. What I do say is that the Chilean companies that eventually got the business have a lot of United States capital in them, and I really do not believe—and if the hon. Member thinks about it for a moment and about the toughness of those competitors, I am sure that he will not believe—that the American holders of stock in Chilean copper companies resisted the sale of that Chilean copper to China—

Photo of Mr William Ormsby-Gore Mr William Ormsby-Gore , Oswestry

The hon. Gentleman went very much further. He was suggesting that the American Government adopted a particular line about copper wire because of the interests of American firms who owned capital in the Chilean firms.

Photo of Mr Ian Mikardo Mr Ian Mikardo , Reading

Yes, I did, and I do not go back on it for a single minute, because I know, and the Minister of State knows, how strong are the business lobbies that put pressure on the American Government. There is nothing improper about that. It is quite a proper thing for them to do. I am only sorry, sometimes, that the British Government are not so quick to listen to and to act in accordance with the welfare of British industrialists as are the American Government to listen to and to act in accordance with the welfare of the American industrialists, and as are the West German Government in respect of their industrialists. In many respects, the West German Government, in their external economic policy, are acting purely to ensure the welfare of their industrialists, which again does us down. And that brings us back to East German trade, to which I want to return in a moment.

Like some other hon. Members who have spoken, I, too, have tried to study the motivation of the United States, in particular about China. My hon. Friend the Member for Itchen said that this was due to the hang-over, so to speak, of sad memories of the Korean war. My hon. Friend the Member for Leeds, West said that it was due to memories of and disappointment over all the United States missionaries who had gone to China but had not managed to convert so very many people. My right hon. Friend the Member for Huyton thought that it was due to a blockade mentality.

I am sure that all those three factors come into it, but I do not believe that they are the dominant factors. The dominant factors in this are purely economic and business ones. The Americans think, first, about their own business, and they are quite willing to subordinate any memories of Korea—and certainly any memories of missionaries—to what is in their present economic interest. There is no doubt at all that they are working very hard to keep us back from the China market, whilst working equally hard to prepare, as soon as they get the green light, to go into the China market as hard, as fast, as successfully and skilfully as we know they can when they really go out for a market. That is the major factor in their motivation. They want to ensure that when they get the political green light and can go into the market they do not find too many British firms too well-established in advance.

I have seen, as, doubtless, have other hon. Members, the establishment of the United States Consulate in Hong Kong. I do not know whether the Parliamentary Secretary to the Board of Trade when he was returning from China had a look at that consulate. I do not suppose there are huge numbers of United States nationals in Hong Kong, or huge numbers of their nationals going to it or coming from it. I do not suppose that the staff of the consulate have to spend many millions of man-hours per annum issuing visas or consular shipping documents. Nevertheless, that consulate in Hong Kong looks like the Shell building on the Embankment here—and has nearly as many people in it.

There are nearly as many consuls and vice-consuls there as there are hon. Members in this House. I just do not believe they are there just to issue visas and shipping documents. I believe that that office is the best forward market research and market preparation establishment there is in the world. That is its true function, so let us not kid ourselves that there is any sort of Freudian hang-over memories about this. This is cold, hard, sharp business, and it is that that motivates the Americans, just as it motivates the West Germans.

That brings me to the points made by the hon. Member for Blackley about trade with East Germany and the necessity for an agreement with the East Germans. He quite rightly pointed out that the fact that the West Germans do not recognise the East German Government and try to prevent anybody else from recognising the East German Government does not prevent them from doing a great deal of business with East Germany.

Of course, they say, with justification, that East Germany is to some extent their natural market. It is perfectly true that they also say that it is intra-German trade, but that is not so correct, because East Germany and West Germany are two separate countries, and no one does more to keep them separate than does Dr. Adenauer himself. They have, it is true, the natural advantages of a common language and common standards, and the advantage that East German engineers and technicians are used to working with West German equipment and the like.

Nevertheless, the West Germans are doing, not five or 10 times as much trade with East Germany as we are—which, indeed, might be justified by the considerations I have just described—but 75 times as much. I am sure that that cannot be justified. Indeed, they themselves do not think that it is justified, because if one gets them in their expansive moments they just laugh at us and tell us that we are being played for suckers—a word that is now fashionable in the Rhineland. They think of British firms and suckers as being almost synonymous and really laugh at the way we are being held back because the West German Government, who do listen to their businessmen, put pressure through Co-com on our Government, who do not listen to our business men as much as they should. They are doing this business—and making profits, what is more, out of British goods as a result. They are acting as entrepreneurs for a lot of British goods, including some of the yarn that the hon. Member for Blackley was talking about. It is difficult to get into trade with East Germany ourselves, for a number of reasons—of which the absence of a trade agreement is one—but some goes to Hamburg through a German firm, which does very well out of it.

It suits the West Germans very well that we should not recognise East Germany and should not permit the setting up of an East German trade office in London, even though there is one in Paris, in Amsterdam, in Brussels, in Rome and in almost every other country in Western Europe which does not recognise the East Germans.

I understand that Her Majesty's Government have evolved a reason which is clearly on the face of it no more than a rationalisation; that, anyway, we shall do more trade, so it seems to be suggested, with East Germany if we do not have an agreement than if we do. That strikes me as being a bit thin, because it is a case for not having an agreement for anything anywhere at any time. They ask, "Why do the East Germans need an agreement when there is some trade already going on, and that trade is growing?" Of course, one has to admit that it is growing—at a snail's pace. I am prepared to say why we should have a trade agreement, because I have had a good deal of first-hand experience of doing business with these countries.

The fact is that when one wants to sell to a customer one has to sell to him in relation to his needs. It does not matter whether the customer is a Communist or a Zoroastrian, one has to sell things to him according to his needs. The Communists have to operate a planned economy. If they are laying down a development plan for the expansion of this, that or the other industry over a period of five years—and they generally work to five-year plans—and they are programming and phasing the purchase of machine tools or other machinery for this plan, how on earth do we expect the technician in the factory who is doing it today in 1958 to budget on the basis of British machinery if he does not know whether, when he gets to the second stage of his plan in 1961, his country will have the sterling to buy the machinery?

That is why a trade agreement is of more importance to the external trade of planned economy countries than it is to the trade of a country like ours. Therefore, of course, they say, "Let us go to West Germany for the stuff, because although we can have no 100 per cent. guarantee that we shall be able to get the machinery from West Germany in 1961 or 1962, the doubts are far fewer than are the doubts in the case of the United Kingdom."

While the Government, when they are standing on one leg, say, "We can get on better without an agreement," when standing on the other leg, and using the agency of the Federation of British Industries to reach an agreement, they say, "Let us make an agreement as small as possible." Having thought about this and talked to as many as I could about it, and found out what I could about it, I must say I am absolutely puzzled by the whole of this business, and if the hon. Gentleman would throw some light on it I should be very grateful indeed.

As I understand it, the latest proposals from our side for the basis of a trade agreement with East Germany envisage a total volume of trade a little less than is now being done without an agreement. What on earth would be the value of an agreement whose object is to decrease the total volume of trade I really cannot imagine, but since the total volume is certainly no greater, if not a little less, and since the quotas for some goods within the static total have been increased, it follows from the ineluctable laws of elementary arithmetic that the figures for some other goods have been decreased. What is the idea of having an agreement which seeks to decrease British exports to other countries?

The hon. Gentleman the Member for Blackley talked of doubled cotton yarn, in which, as a Manchester man, he naturally shows a special interest, perhaps a constituency interest. I have not that constituency interest, but I have an interest in increasing all British exports wherever we can and of whatever goods we can. I am horrified by this business of the doubled cotton yarn, because, as I understand it, the proposals which have been put forward for doubled cotton yarn in a new agreement with East Germany are for less than two-thirds of the present sales without an agreement. It means that if the Government enter this agreement it will involve a reduction of more than one-third in the present level, and not only do we not get the increased potential which the hon. Gentleman rightly spoke about, but we shall have a cut of one-third in the present level.

As one who has interested himself in this question of East-West trade, not just in the last year or two since it has become a somewhat more popular pastime, but ever since 1945, right through the years in which it was unpopular and when one got no thanks but even a lot of smears for travelling around Eastern Europe trying to sell some British goods for some British firms, and both as a politician and as a practical man of affairs in this matter over a good many years, I want to say, and I say it with some sadness, that I think that the Government are and have been through all the period of which I am talking singularly ill-informed about what goes on in matters of trade in some of the Communist countries.

I well recall coming back to London not very long after the rising in Budapest in the autumn of 1956. I believe I was the first British visitor there who really managed to get some sort of insight into what would be the effect of the upheaval in 1956 on the Hungarian economy and on the possibility of Hungary's purchases from Western countries or sales to Western countries.

When I came back I thought it my duty to offer to the relevant Government Departments what information I had been able to gather. I went along and I offered it. Whilst I was treated, needless to say, with the greatest courtesy, I got the clearest impression that these chaps in the Departments—and they were not all chaps of one sex—thought, "It is a pity we have to waste 20 minutes listening to this chap. True, he has been there, but we know better without going there." There was such an assumption not only of superiority but of infallibility, of omniscience, as I have never seen anywhere in the world, not even in Communist political committees, in our Government Departments dealing with this matter.

My right hon. Friend the Member for Huyton again today, as he has done before, as I have done many times before and as many people have done before, referred to the fact that the Government appear to be the only people in the world who do not know that our Co-com and Chin-com partners are evading some of the regulations; or, at least—shall I put it the other way round?—do not honour some of the regulations as carefully as we do.

Photo of Mr William Ormsby-Gore Mr William Ormsby-Gore , Oswestry

Chin-com does not exist.

Photo of Mr Ian Mikardo Mr Ian Mikardo , Reading

It did, of course. What I was saying is true of when it did, as it is true of Co-com in these days. The evasions were exactly the same. Every business man in the country who had anything to do with those countries knew all about it, had evidence of it, saw examples of it. My right hon. Friend today described the business of the copper wire covered with paper with a piece of cotton through the covering of paper.

I went not long ago to the Metallurgical Institute in Peking, a wonderful place, a mixture of a teaching institution and a research institution, and it is also used to some extent by the purchasing corporations. They have some wonderful equipment there. I had a look at it. Some of it was Greek to me, but some of it I understood. I understood enough to bend down to have a look at the manufacturers' names, and to see where it came from. It was interesting.

Some of it was highly technical stuff. A substantial proportion was embargoed stuff. A few bits were home made, Chinese. Quite a lot, as was to be expected, was Russian equipment. Some was Czech, some Polish, and there were one or two Hungarian bits. Some of the optical stuff came from East Germany—Zeiss products. That was comprehensible. But for the rest there was Swiss equipment, there was Swedish equipment, there was Belgian equipment, there was Dutch and French and Japanese equipment, and three United States machines. But not one single piece in the whole place came from Great Britain: not one single piece.

I have no doubt at all that some of the machines there—I do not profess to know how they got there—came from countries which are our partners in these restrictive arrangements, that ducked under the regulations, where British machines do not. I am really amazed at the bad information which the Government seem to have, or at their unwillingness to take note and make use of good information which, I do not doubt, they get—sometimes, anyway—in all these matters.

When the hon. Member for Louth was speaking today he talked particularly of Czechoslovakia, about the way in which we are disadvantaged in the matter of credit terms. Whilst the hon. Gentleman was speaking the two Ministers on the Front Bench were both shaking their heads so hard that I was afraid that at any minute both heads would fall off and roll across the carpet. But, of course, the hon. Member was right and his right hon. Friends were wrong, as can be proved not out of theory but out of immediate past history.

Only the week before last, I salt in the office in Czechoslovakia of one of the purchasing corporations and saw there two quotations side by side for large pieces of engineering equipment amounting to many thousands of pounds. One was from this country and one from West Germany. They were very close to each other in all technical respects and did not differ substantially in price, but the odds in favour of the West German tender were heavy because the credit terms offered were very much better. I am glad to see that the Minister of State for Foreign Affairs is now moving his head in a direction 90 degrees away from the direction in which he moved it when his hon. Friend the Member for Louth was speaking. If the debate has served no other purpose, it will have been of some use in changing the direction of that movement by 90 degrees.

Like my predecessors in the debate, I hope that the Government will accept the Motion, which is being supported on both sides of the House, and that the House will pass it without dissent. I hope that, after all that has been done, the Government will not just chalk the Motion up on the wall but, for the first time, will go and do something energetic on behalf of British industry in respect of East-West trade.

2.21 p.m.

Photo of Hon. John Grimston Hon. John Grimston , St Albans

The hon. Member for Reading (Mr. Mikardo) made a great deal of the difficulties in and possible evasions of the Co-com scheme which we are operating and which many of our foreign competitors also operate. I hope to have something to say about that later on. It seems to me that the whole sense of the hon. Member's speech and of earlier speeches in the debate was that we are clearly in favour of more trade with the Iron Curtain and Bamboo Curtain countries, for both the negative reason of self-preservation and the positive reason that we shall get some better understanding between the two rival Power groups of the world through trade.

On that last point, there is one lesson which I have learned in the last few years through having been drawn at secondhand into a very large part of sales from this country which have been made to Russia. There is far more personal goodwill in trading with the Russians than one would expect in similar trade in this country with a nationalised body or even a county council or public body which buys on tender in similar ways. One or two people have established an amazing position of confidence, particularly in the opinions of the Russians. Businessmen have succeeded far better than politicians in establishing that confidence.

The business which the Government clearly have to settle most urgently now is that of the embargo list at Co-com, from where we all hear accounts of important discussions. I do not agree with the hon. Member for Reading that the Government have done badly in this respect. I think that they have done remarkably well. I do not find that the officials of the various Ministries are out of touch. My experience is that they know very well what is going on. They may have difficulties in preventing evasion of the strategic list by foreign competitors, but it must be remembered that some of our own traders have not been entirely blameless. One or two notable prosecutions have been brought recently by our own Government in this country.

There are difficulties in policing any agreement of this kind and it would be much better for us as politicians to come down firmly on the side of honouring any agreement which the Government make, rather than on the side of trying to press our officials to try to go behind such agreements. If an agreement is made and other people go behind it, I am quite certain that our officials are right in saying that it is not up to them to help us to meet unfair competition by underhand means.

Although I have no detailed knowledge of the negotiations, I believe that a complete change needs to be made in the conception of what is strategic and what is not. There are many commodities which are half-strategic, as it were, and that seems to me the worst kind of compromise. Either a thing goes into a Sputnik or an atom bomb and must be kept out, or it does not; and to impose an extra cost on the Russians to convert something which is non-strategic into something which becomes strategic again seems to be a compromise which is not worth making. We should make up our minds whether a product is or is not strategic so that if it is not it can be sold in any quantity.

The danger from the Co-ordinating Committee is that it is bound to think in rather general terms about all sorts of commodities and products which would perhaps never be wanted. The difficulty facing a firm which is trying to sell to the Iron Curtain people is that those people work to a system of centralised budgeting. In Russia, the budget is laid down firmly each year so that in October the negotiators are unable to talk about buying anything, even though they have a shrewd suspicion that they will want it. When November comes, they are not only able to talk but they are most anxious to settle the problem overnight. There is a tremendous rush and a great deal of bargaining takes place. If the Board of Trade is unable at that point to tell the British seller what he may or may not send, the seller is put at great disadvantage in comparison with his foreign Co-com competitors. That is a disadvantage which it is within the the power of the Board of Trade to alleviate.

I ask the Government, therefore, to bring this point home to our own officials and to point out that it is no good deciding that this or that may be sold to the Russians and then hoping that they will want it. One must set up machinery which will enable an irrevocable decision to be taken quickly so that the Russians may be told that what they want today can be offered to them tomorrow. I say "tomorrow" advisedly, because it very often is tomorrow. These negotiations take place at very high pressure, very often with high Russian officials who come over to this country specially to settle them and who work to a strictly limited timetable.

The difficulty experienced by the Board of Trade also arises from the extremely centralised nature of Russian institutions. I have already referred to their central budgeting which means that the timetable of their buying is fixed for them. The commodities which they will buy or sell arrive in different lists, so again one has to be prepared to make up one's mind much more quickly than in normal Government procedure as to the attitude to take to any deal which offers.

There is one point I always try to made on these occasions and it concerns a self-inflicted wound on British industry. I am afraid it was inflicted by this Government. It arises out of the Restrictive Trade Practices Act. The Russian buyer is a monopolistic buyer, speaking for a vast country and able to dangle highly attractive orders before the seller. Because of our own Restrictive Trade Practices Act, British sellers are not permitted to get together without putting themselves in the wrong. Therefore we have the silly position of a foreign buyer being able to play all our manufacturers off one against the other because of the law we passed which prevents them from getting together.

Photo of Mr Ian Mikardo Mr Ian Mikardo , Reading

Mr. Mikardo indicated dissent.

Photo of Hon. John Grimston Hon. John Grimston , St Albans

There may be divided opinions on this point. I am prepared to admit that, but the foreign exchange earnings of this country have been greatly reduced by that fact, of which I will give any hon. Member chapter and verse if he wishes.

Photo of Mr Ian Mikardo Mr Ian Mikardo , Reading

I wish the hon. Gentleman would do so, because it is contrary to my experience. My own experience is that any large-scale heavy engineering project of the Russians is known to all the British suppliers in very short order, irrespective of which one it goes to, and it is evident that they have some consultation about the matter before any quotation goes out. However, it is not the purpose of this debate whether that is good or bad.

Photo of Hon. John Grimston Hon. John Grimston , St Albans

I said that if the hon. Gentleman wanted chapter and verse, I would be glad to give it to him, but I do not think a great many figures will alter specifically the point I am making, which is that we have placed this impediment upon ourselves.

The Board of Trade is also in a difficulty when the tonnage or quantity which may be sold to one of these countries is a limited one within the Co-com arrangement. This applies in certain cases—and then the Board of Trade is unable to promise the full quantity to a number of competing makers. It has to treat all competing sellers in this country equally, and the first one who comes with an order gets the licence if there is part of the licence available. On paper that is all right, but when one goes to the buyer and says, "I am sorry, I cannot promise you that I shall get a licence for these goods, but if you will give me an order before giving one to someone else I will do my best and I have every hope of getting a licence," it is a pretty poor story. This is particularly so in the case of the Chinese, who have taken grave exception to sellers acting in this way. They say, "Bring us the licence and then we will give you an order." I have had considerable experience of this having happened, and if we could get over it trade would be greatly facilitated.

The hon. Gentleman the Member for Reading said that the trend of trade with Russia in the first four months of this year shows a disappointing direction. I think the hon. Gentleman will find that this is probably bound up with the budgeting arrangement of the Russians. Their budget is made in November and if in one year they have been rather slow in placing their orders that does not mean that the total in the coming year will be down but that more will be delivered in the second half of the year. This is happening at the moment and I am not upset that the earlier deliveries this year have been relatively low.

I want to underline what has already been said to the effect that, once we have gained the confidence of these people in the integrity of our system, we shall be faced immediately with the dumping of their products in this country, as we have found in the case of one or two commodities. Aluminium is a case in point. They have sold a lot of aluminium at a price below the ruling Canadian price and the Canadians have objected.

In dealing with Communist centralised countries we are dealing with countries which do not subscribe to the theory of markets as basically we do here. If there is no home market in the terms of our anti-dumping Act it is impossible to establish that dumping has taken place, because the price at which goods are invoiced inside Russia bears no relation to the price at which they are available here. Therefore, there are great difficulties ahead of us in our industrial dealings with those countries, and they will be overcome only if we use all the intervening time to convince these people of our desire to trade with them in a decent and orderly way.

Emphasis at the moment is not so much on buying direct goods from this country as has been the case during the last year or two, but in fostering a two-way traffic. The Russians are most anxious that everything they buy from us should be balanced by something we buy from them. Trade agreements may be the answer, but I feel, too, that much greater effort will have to be made by industrialists here to find out what can be done to balance their sales in Russia with purchases from that country. On the thesis that businessmen seem to get on better with the Russians than do politicians, there is a great deal to be said for leaving the balancing of trade in the hands of businessmen.

There is one further point which is a valid one. I am convinced that there is a complete interchange of information between the various trading bodies of the Iron Curtain countries. The negotiators for the Russians know what the Chinese are doing and vice versa. Therefore considerable consistency of treatment, both by individual traders and the Government, will be necessary to convince these people, who are by nature suspicious of our institutions and systems, that they are consistent, that they are fair and that they form the basis on which greatly increased trade can be built.

Hon. Members may already have had the opportunity—and certainly will in the coming months—of visiting the International Exhibition at Brussels. I strongly commend anyone interested in this kind of business to visit it, because a great deal of what has surprised me about the Russian outlook and mentality in business has become increasingly clear in visiting their stand at the exhibition. It is one of the largest stands and it is an incredible mixture of the most up-to-date and farseeing designs in machine tools, aircraft and other things, and an Edwardian hangover of antimacassars in their children's books and children's clothes. A completely different mental approach is necessary for those of us who have the job of trading with the Iron Curtain countries. The exhibition has certainly helped me to understand in the Russian mind something of what they fail to understand in my own.

2.40 p.m.

Photo of Mr Benjamin Parkin Mr Benjamin Parkin , Paddington North

This has been a most refreshing debate, not least for those of us who have taken an interest in this subject ever since the war. It has been refreshing because all the practical, down-to-earth commonsense arguments have been put today by practical businessmen. Even my hon. Friend the Member for Reading (Mr. Mikardo) seemed to be speaking more like a businessman whose intelligence had been insulted than as a previous member of the Keep-Left Group. To that extent one would not wish to reintroduce any old political arguments.

In joining in the congratulations to my hon. Friend the Member for Southampton, Itchen (Dr. King) upon his masterly opening of the debate, I would also congratulate him on the fact that the debate has taken place at a time when we are given very good reasons to hope that the argument is virtually over and that the Government have just about persuaded our friends on the other side of the Atlantic to take some steps along the lines proposed by the Motion. Although it is unlikely that words from a back-bencher could help that decision today, it would be very unfortunate if anything were said to make it more difficult.

Surely the issue—when I was young it was called "the crucial question", but now one has to refer to it as the "64,000 dollar question"—is whether one abandons the notion of strategic control, whether one accepts the view that it is not necessarily wrong to strengthen the economy of someone who may be regarded as one's potential enemy.

The arguments about defining what is a strategic import and export go on endlessly and never come to any conclusion, but the hon. Member for Louth (Mr. Osborne) gave an example of the anomalies overshadowing trade with Czechoslovakia. That is a small country with a small volume of trade, and it is possible to examine carefully what has happened in the history of trade with Czechoslovakia. Surely here we have a typical case where a political decision was made not to encourage trade with Czechoslovakia around 1947 and 1948 just before the coup in Czechoslovakia, the beginning of the cold war. It was then that Foreign Office influence seemed to be in favour of delay, saying, "Do not do anything which might strengthen the Communist element in Czechoslovakia." Therefore, conditions were made about the payment of interest and the repayment of sums due to British interests following nationalisation, difficulties which still exist, as the hon. Member for Louth finds when he tries to do business.

Surely Czechoslovakia was the classic example of the country which became the first victim of the cold war, when neither side would help her to develop her own plan which was intended to emancipate her from dependence on German heavy industry. Czechoslovakia had a plan of her own to balance her industry. She could not get help from the West partly because the equipment required was scarce and expensive but largely because the West did not want to encourage Communism in Czechoslovakia, and she could not get help from the Russians because the Russians were not prepared to site this heavy industry so near a potential frontier.

It is generally argued that the best way to simmer down political and social unrest is to raise the standard of living of the peoples concerned. We are constantly urged from over the Atlantic that the right way to combat Communism is to raise the standard of living, by giving economic and technical aid, of the uncommitted nations. Surely the same argument applies to the under-developed countries which have Communist Governments, because Communism itself is changing in its dynamism and momentum and short-term directive year by year.

Surely what we all want to see is a lessening of fanatical, proselytising enthusiasm and a willingness to sit down and enjoy what they have themselves achieved. Surely, therefore, nothing could be lost but everything could be gained by helping these people. Those of us who have travelled could all exchange stories such as that about the little boy in Yugoslavia looking up at the skeleton of a factory as if it were a cathedral and saying, "Do you think the Americans will let us keep it?" There is also the story of the chairman of the agricultural co-operative in the remote top left-hand corner of China explaining what the revolution meant to the people there. It meant that they had no less than a quarter of an acre of land each, and that to them was prosperity; and one family was even thinking of purchasing a horse. That is the economic objective. That is the revolution in China—the fact that peace and, to them, prosperity are within sight. Surely that is what all seekers after peace should be trying to encourage.

The question is: has that decision now been reached in the mind of the American Government? Can the United States Government accept the fact that trading with the enemy is not just an old-fashioned British habit? We should never have survived unless we had traded with our enemies. I often wonder how the West of England would have fared if it had not traded with Napoleon's armies. However, in the United States they have not quite got to that point, and if they think that we are trying to cheat and get a living in a slightly disreputable way we are not likely to reach agreement.

But if they accept that a rise in the standard of living does just as much to produce peace if it takes place in a Communist country as if it takes place in a country of the Middle East or South-East Asia, then I am sure we are at a very important stage in the development of the work of traders to bring about peace. In the work that they have always done in the past with societies and countries which have reached theological or political deadlock, traders have in the end found a way to interest one side in the other and to rub down the sharp edges of conflict between them until the desire to fight has simmered down.

I think that at this stage we have to get down to brass tacks. I am sure there will be many more discussions, not necessarily in this House, but at the Board of Trade and in the Federation of British Industries, and there will be the pooling of experiences of businessmen in their dealings with China and the Soviet Union.

We must expect two things to happen. First, it is no good our cheering today because there is a rumour in the newspapers that the Prime Minister and the President of the United States have reached agreement, and thinking that now we are all right as regards our own trade future. All the power and skill of the United States' commercial machine will now be put in as competitors with ourselves. Also, we must accept that we now have to solve the problems of dealing with planners and sometimes bureaucrats which up to now we have merely outlined but have not had to solve. We shall have to accept the fact, distasteful as it may be to some political parties in the West, that if we are dealing with planners we must make long-term arrangements.

I am sure that what we need above all is some dispassionate study, preferably by British commercial organisations, of the way Communist financial institutions work. We have been so obsessed with the military considerations since the war, we have given so much thought to the way in which countries have been piling up armaments and budgeting for defence, that we have not had any straightforward study of the way the domestic finances of Communist planning are carried out.

I have tried to find out but have never been very successful. I and a colleague with whom I travelled in China carried out a systematic investigation in one spot where we thought we really could get the answer to the question how a machine tool factory arranged its finances. We got the cost of the raw materials, the cost of the wages, the directors' bonuses, the welfare fund and the rest. Then we got to the point where the profit was added to make the price that was charged to the enterprise in China which would use the machine tools. The critical question came: how was that price arrived at? How could they decide how much to charge the factory which would use the tools? I am sorry to say that we were extremely disappointed to find that they got their price from an American catalogue, and it would have been the landed cost of the American machine if they had been able to import it. That sort of thing does not help a conscientious student of Communist economics.

One might ask the mayor of an East German town about the amortisation of flats and what element there was in the rent for the writing off of the capital investments. The mayor would laugh and say, "They are paid off." From a commonsense point of view, one accepts that they are paid off, but we in this country have not yet reached the stage when flats are paid off if the suppliers of the materials and the workers have been paid. We tend to say that they will be paid off over sixty years. One can understand the East German point of view; they had decided to pay for them out of the current year's taxes.

That does not get us near solving the worry of the hon. Member for Louth who tells us that the Russians can, if they wish, knock a million dollars off the price of an aircraft when selling it in the world market. One does not have to assume that they do it out of political awkwardness, inefficiency or stupidity. They are not particularly anxious to give stuff away. But there must be some guiding principle, and it arises from the fact that they have not got the same system of charging depreciation on their equipment as British industry has. They do not have to take the advice of the same kind of accountants or they do not work it according to the notions of the Commissioners of Inland Revenue. They can probably do what, in practice, British manufacturers do—take the advice of the sales manager as to how much will be written off out of the present year's profits according to what the books say. Once the development of the machine tools has been paid off they can, of course, arrive at a price.

That is very interesting in relation to the prices of aircraft. It might be more alarming still if it came to the question of shirts or hosiery. We have, after all, to discuss not only what we are going to try to sell to these countries but what we are going to buy from them, and I have a feeling that we shall be offered a lot of cheap consumer goods before long. I feel that these will be offered to us in a big way.

They may say that they do not want to sell their cheap rice. Indeed, raw materials and food are not likely to be cheap in the world in the future if the standard of living of the poorer races rises. As they want more nourishing food, more variety and more wheat, the primary foodstuffs will become more rare. As they decide not to let their own agriculture remain extractive but to plough back and to use the grains for mixed agriculture in order to maintain the fertility of their own soil, we may find that there is no easy, cheap export available.

If we are from now on to get down seriously to the development of these projects, some form of trade treaties is necessary, as my right hon. Friend pointed out, in specifically understood long-term plans. This means that a sympathetic study of Communist economics has to be undertaken, not in any political sense but in the sense which I have tried to outline—to find out how it works. It has not been done up to now by any research worker or politician.

I hope that my hon. Friend the Member for Itchen will not only see his Motion accepted by the Government in a few minutes' time but will see the principle in it very quickly implemented and developed into an integral world trading system.

2.55 p.m.

Photo of Mr George Drayson Mr George Drayson , Skipton

I should like to add my congratulations to the hon. Member for Southampton, Itchen (Dr. King) on his selection of a subject for our debate today and on the very find speech he made in introducing his Motion. He was factual and drew his information from both the trade union side of industry and the Federation of British Industries. That has been the general tone which has been followed throughout the debate. In fact, it might well be said, particularly if the Minister of State makes a favourable speech in winding up, that the debate will have been a turning paint in the whole question of East-West trade.

I take part in the debate as one of those hon. Members who has visited Moscow and the Communist countries and felt all along that an increase in the trade between our nations could do nothing but good. We do not question the strategic controls which were introduced at the time of the Korean war, but we say that they have outlived their usefulness. We have passed from a time when East-West trade was a rude word, when Senator McCarthy was in power in the United States and his shadow was stalking the corridors of Westminster. East-West trade has become a respectable proposition about which none of us is afraid to talk and about which we are often approached in our constituencies and asked whether we can explain why so many restrictions are put in the way of this business.

Most of the subjects with which we are concerned have been covered by other speakers, but I should like to comment on the suggestion that the commercial traveller is one of those persons who could do mare to improve international relations than many others who specialise in that subject. I have said before in the House that I often consider that our business men are our best ambassadors. If we can get people together to talk about projects of common interest and for the general improvement of heir country rather than to concern themselves with matters of destruction, at least we are making some progress towards a more peaceful world.

It is when we come to the details of what is known as East-West trade, the strategic embargoes and the attitude of certain countries, such as Western Germany and the United States, that we and our constituents become perplexed. I hope that the time has now been reached when many of the anomalies which have been referred to today can be progressively removed.

There are two special spheres of trade to which I attach particular importance; trade with the Chinese mainland and with Eastern Germany—which, outside the Soviet Union, is now the largest trading community in Eastern Europe. Generally speaking, it is accepted on both sides of the House that an extension of trade with the Chinese mainland is one of the most desirable outcomes from a reduction in strategic controls. Many of us receive through the post once a month, or whenever it is published, an excellent journal called China Reconstructs. We cannot help but be impressed at the tremendous strides being made in that country—by the vast schemes of irrigation; the hydroelectric schemes; the road building, rail construction and factory building which is going on there, and as we look at the complaints outlined in the various articles in that journal we may feel a little sorry that Great Britain has not been able to play her full part in forwarding these programmes.

Anybody who visits China today, I am told—I have not been there myself—can still see evidence of British machinery and equipment in the factories, local authority undertakings and public utility concerns. In many cases these undertakings are denied the right to obtain the necessary spare parts to keep this British equipment going. Bearing in mind the long service that the equipment will have given, we are sorry that we are not able to replace it by the latest products from the factories which have been supplying China for perhaps more than a century.

Therefore, with other speakers, I hope that we may hear—if not from the Minister of State today then from the Prime Minister when he has returned from his visit to North America—that a radical change of policy will take place in respect of goods exported to China. It is an enormous market, as everybody agrees. My hon. Friend the Member for Louth (Mr. Osborne) states that only 6d. per head per annum is spent by the population of China in the purchase of British goods. That is an infinitesimal sum. I certainly put China first in our programme for expansion of trade with the Eastern countries. We can play an honourable part in helping that country on its way.

Some months ago we received a high-powered Chinese delegation. It was shown a great deal of British industry, and the Minister of State went out of his way to acquaint himself with its problems. It has no reason to complain of the treatment it received. The Parliamentary Secretary had already paid a visit to China, and we were a little disappointed that the volume of business hoped for did not result from that visit. I believe that we contemplate holding a trade exhibition of British manufactured goods in Peking in 1960. A final decision has not yet been made, but I sincerely hope that the project will go forward and that when we get to Peking in 1960 with our exhibits we shall not find that the United States of America has got there a few months ahead of us.

I would ask my hon. Friend whether he is aware of the American project for exhibiting its machinery in Moscow in the autumn of this year. It would certainly be interesting to know what sort of machinery the United States of America intends to exhibit. Have we been consulted in any way? Have we been given the opportunity of exhibiting comparable machinery? Is America exhibiting machines which are on the strategic list, or will the exhibition be confined to agricultural machinery? I should like to know the exact position with regard to this American exhibition in Moscow later this year.

I agree with hon. Members opposite who say that the question of international trade is a very cut-throat business. Our customers sometimes feel that we lag behind and allow Western Germany and the United States to take advantage of us because we stick by the rules once we have entered into agreements, whereas those two countries have a more liberal interpretation of the undertakings into which they have entered.

As I said earlier, the debate today has been free from emotion. So often political, ideological and other considerations enter into the subject of East-West trade. It was said, I think, over 100 years ago that Great Britain was a nation of shopkeepers. There is one thing a shopkeeper does not do when a customer comes to his premises to make a purchase, and that is to ask him what his religion or his politics are. If the man is able to pay for the goods on show he is allowed to make his purchase and go in peace.

I hope that that policy will prevail in the future. It is a very easy thing to lose a market, but it is not easy to gain new markets in the world today. This is particularly true in view of what we have been told of the tremendous economic progress now being made by the Soviet Union and that its offensive in the future is going to be in the economic field.

Turning from China, I wish to say a word or two about Eastern Germany, a territory of which I have made a special study. The matter was brought to my attention only a few weeks ago, from a constituency point of view, on the question of yarn exported from this country. I was unable to be here when the hon. Member for Blackley (Mr. E. Johnson) made his speech, but I imagine that he dealt with the points so much in the minds of those who represent textile constituencies.

We were surprised to receive information to the effect that proposals had been put forward that in concluding a trade agreement with Eastern Europe, if that was found possible, the amount of yarn concerned in that agreement would be to the value of £200,000. I had learned previously from correspondence with the Minister of State that cotton yarn to the value of £550,000 was licensed for export from Great Britain to Eastern Germany during the previous twelve months. When I was in Leipzig recently I was informed that the East Germans felt that the value of their total purchases of yarn from Great Britain could be as high as £1 million per annum.

Of course, the reply of the Board of Trade may well be that if the Eastern Germans want to purchase yarn from this country there is nothing to prevent them doing so. We know that, but what the East Germans ask is what will Great Britain take from them in exchange. That, I think, is where the difficulty will arise in reaching an agreement with them—what we are prepared to receive from them in exchange for the cotton yarn and other goods which we want them to buy from us.

I wish to make one plea to the Minister of State in this connection. I have also correspondence dealing with export of herring from the United Kingdom. The right hon. Member for Huyton (Mr. H. Wilson) mentioned this in his speech. The situation has changed from that which prevailed a few years ago when we were desperately anxious to export herring from this country. Recently, the Minister of State told me that during the last twelve months Great Britain has failed to supply £500,000 worth of herring to countries which had made purchases from us. No longer is it a question of our trying to sell our herring and, having a surplus available which we could not get rid of. We have in hand orders for £500,000 worth of herring which we are unable to meet. Where we have such a traditional arrangement, cotton yarn or some other item should be exported. We should substitute cotton yarn exports for herring exports.

I have been in correspondence with the Minister on the subject of Kainet, which I understand is a form of fertiliser used in land husbandry. I am told that for many years it has been the tradition for Kainet to be exported by East Germany to this country and that East Germany took herring in exchange. Herring are no longer available, and I suggest that textiles should be substituted. What is more anomalous, and what has annoyed many people, is that Kainet can come in from West Germany and be paid for under E.P.U. arrangements in gold or dollars with no condition that some soft currency goods be taken in exchange by West Germany. This matter should be examined to see whether, in reaching agreements with East European countries, we can tie up exports of textiles with the things that they wish to send to us, like furniture, ceramics, Christmas tree decorations and other such items.

I have been told by manufacturers that they have been refused licences to import items from East Europe because the same items were readily available from West Europe. That is discriminating against one territory compared with another, irrespective of the fact that the purchaser is satisfied with what he can get from East Europe and that possibly he is able to buy more cheaply there than in a West European market. He may well be able to pay in sterling in East Europe. That sterling would, in turn, be directly used to make purchases from the United Kingdom and not diverted, as might be the case if business were done in West Germany or another West European country. I hope that this discrimination will cease. It would seem that in the past the Board of Trade has been prejudiced against trade with East Europe, irrespective of the desire of firms in this country to make purchases in East Germany. This applies to machine tools and many other items.

I would like to have commented upon whether East Germany is to be regarded as the exclusive trade preserve of Western Germany. My attitude to that has always been that if the whole of Germany is a legitimate area for the United Kingdom, the fact that a line is drawn across one-third of the country does not alter the fact that the whole still remains a trading area for the United Kingdom irrespective of the system of Government that may obtain in either sector.

I have promised to sit down in a minute's time. I would add my congratulations to the hon. Member for Itchen, who has initiated a most useful discussion. I hope that progress will result from it.

3.16 p.m.

Photo of Mr Dingle Foot Mr Dingle Foot , Ipswich

we are all agreed that this has been a most useful and stimulating debate, and I join in the congratulations which have been offered to my two hon. Friends the Members for Southampton, Itchen (Dr. King) and Leeds, West (Mr. C. Pannell) who proposed and seconded the Motion.

Three questions arise. The first is: do the strategic embargoes now serve any useful purpose? The second is: are Her Majesty's Government making every possible effort to liberalise trade between East and West? The third is: quite apart from the question of strategic control, what steps are to be taken to extend the volume of East-West trade?

I would say a word or two on the first of these questions from what my right hon. Friend the Member for Huyton (Mr. H. Wilson) called the blockade point of view. It happens that for five years, from 1940 to 1945, I was attached to a now forgotten Department called the Ministry of Economic Warfare. It had a large number of duties, some of which were less publicised than others. But our principal task was to administer the blockade of Germany and Japan. We did everything we could to prevent goods of all descriptions, especially those of high strategic value, from reaching the enemy world.

That was an extremely complex business. It involved a system of stringent, detailed controls over the trade of practically the Whole of the non-enemy world, especially, of course, in relation to neutral countries. We began with the system of navicerts and ship warrants. No cargo could be carried and no ship could sail without the approval of the Allied Powers. We went on to the rationing of the neutrals, keeping them down in respect of all important corn-modifies to something like 60 per cent. of normal supplies. As the war proceeded we were able to conclude a series of war-trade agreements which contracted more and more the volume of trade between neutrals and the enemy. We were able under our trading with the enemy legislation to blacklist neutral traders who were carrying on trade with either Germany or Japan.

This all rested on one ultimate sanction, the exercise of belligerent rights at sea. I am not making any attack on the Americans. I had the privilege for five years of working literally in daily contact with the Economic Warfare Section of the American Embassy in London and I met a great many of them when I went to Washington. But it happened that the actual business of contraband control was carried out exclusively by the British Navy. The Americans never took any part in it whatsoever.

As a result, there was, I think, a delusion—I repeat that I am not making any attack—in the State Department and in the Foreign Economic Administration that all we needed to do was to pass a law. We did not need to have means of enforcement. I cannot help feeling that the illusion persists to some extent today. We cannot for long maintain an effective blockade unless we have at our disposal the whole apparatus of wartime sanctions and controls. That apparatus is only available for any length of time when we are actually at war.

The question I want to put to the Minister who is to answer for the Government is, when we do not have these sanctions does a system of strategic embargoes serve any real purpose? If we have embargoes which we cannot make effective they act merely as a perpetual nuisance and an irritant. We penalise our own trade without gaining any corresponding military advantage.

There is another consideration which was touched on briefly by my right hon. Friend the Member for Huyton. There are times when a country is not actually at war but on the verge of war. At those times, obviously one is justified in trying to prevent strategic commodities from reaching the potential enemy. We had such a situation in relation to Germany in 1939. I think it one of the principal counts in the indictment against the Chamberlain Government that right up to within a few weeks of war they took no steps to prevent such commodities as nickel from reaching Germany. We had a similar situation in relation to Italy in 1940 and to Japan in 1941.

Those are comparatively limited periods when it is obvious, or fairly obvious, that one is likely to be at war in a matter or weeks or months, but if over a long period we manage to withhold supplies from a potential enemy we might very well defeat our own ends. As a number of hon. Members have pointed out, we might compel him, whether he likes it or not, to become self-sufficient, with the result that in the end he is much less vulnerable to economic pressure than would have been the case if there had been no strategic embargo at all.

My hon. Friend the Member for Leeds, West, gave an example of machine tools which we refused to supply to Czechoslovakia, which the Czechs are now making themselves. I submit that if our embargoes are effective, which clearly they are not, they may have precisely the opposite effect, even from a military point of view, from that intended. Of course, there are other consequences.

One of my hon. Friends has pointed out the effect of the trade embargo on China. It has had the effect of driving the Chinese into the arms of the Russians. They have had to make long-term agreements. That might not have happened if it had not been for the strategic embargo.

The second question arises, what part has been and is being played by Her Majesty's Government? My hon. Friend the Member for Reading (Mr. Mikardo) referred to the article which appeared on 3rd June in the Financial Times. It was with reference to the meeting of Co-corn. There was one sentence in that article which I quote: Whereas it was the United Kingdom which last year led the campaign for reduction in strategic controls and elimination of stricter controls on China trade, this year it is the Continental countries which are said to be keenest on liberalisation. Indeed the reticent attitude of the United Kingdom delegation is believed to have puzzled many delegates.

Photo of Mr Dingle Foot Mr Dingle Foot , Ipswich

The right hon. Gentleman shakes his head. We shall be glad to have his denial of that.

I come to the third question of whether, quite apart from the removal of strategic embargoes, there are other things which can usefully be done on either side to increase the volume of East-West trade. I believe we could have a far more intensive study of the possibilities of such trade. I digress for a moment. I believe if we are to enlarge trade between East and West it may very well be necessary for the Departments, particularly the Board of Trade, to reconsider their attitude towards trade fairs. I am making no sort of attack on the British Pavilion at Brussels, which I have not seen but which everyone speaks of very highly. The last trade fair I attended was three years ago in Vienna. I am bound to say that the British Pavilion there compared very poorly both with those of the United States and the Soviet Union and also with those of several other countries. I know that it has always been the policy of the Board of Trade to leave almost everything to the initiative of the industrialists or traders concerned. I am not sure that that is necessarily the right policy when we are trying to sell goods in Iron Curtain countries.

I agree with what was said a little earlier by my hon. Friend the Member for Leeds, West that not all the faults are on one side. We have serious cause for complaint against the Iron Curtain countries. If there is to be a substantial increase in the volume of trade we shall have to persuade them in one way or another to alter some of their trading methods. For example, when a manufacturer sells a machine to an Iron Curtain country he has no means of following up that machine. A self-respecting manufacturer often feels that his duty to his customer does not end with the sale. He wants to know how the machine operates in practice, but that is quite impossible for him, at any rate in the great majority of cases, where he has made a sale to an Iron Curtain country.

Secondly, there is the general question of patents and of royalties. I was given an example only today of a Russian oil drilling machine which is working under licence today in Texas. There is no reason why there should not be such an arrangement the other way round, but we all know that there is a very common practice in Iron Curtain countries of ordering a small number of prototypes and then making a large number of copies in the country concerned. That is one of the matters which I believe will have to be taken up if we want to see a significant increase in East-West trade.

Thirdly, there is the question of regularity of orders. It sometimes happens that Communist Governments will come to a British firm or a firm in some other Western country and will seek to place a very large order. That presents the suppliers with a considerable problem. It means that if they meet the order they will have to expand their plant, and that plant may be left idle on their hands after the order has been fulfilled. It is therefore necessary that we should impress on the Iron Curtain countries the desirability or almost the necessity of placing their orders rather differently.

There again we run into questions of strategic controls, because it may be that the existence of strategic controls and the possibility that these controls may again be tightened in the future leads to the placing of bulk orders of the kind which I have described.

We have reached a remarkable degree of unanimity in this debate. We on this side of the House have made it clear that no one of us would desire in any way to weaken or to undermine the Anglo-American alliance, but we believe that the present system of strategic controls does nothing effectively to diminish the military potential of Communist countries and at the same time it involves considerable loss to the West and in particular to our own trading community. We have not put forward this Motion in any hostile spirit, as I am sure the Minister of State for Foreign Affairs appreciates. We hope that he will accept it on behalf of the Government and we believe that if he does it may very well strengthen their hand in the negotiations in which they are now engaged.

3.29 p.m.

Photo of Mr William Ormsby-Gore Mr William Ormsby-Gore , Oswestry

First of all, I should add my words of praise to the hon. Members for Southampton, Itchen (Dr. King) and for Leeds, West (Mr. C. Pannell) who, in introducing this Motion, made balanced and extremely helpful speeches. They set a tone for the debate which I am very glad has been followed throughout. I am glad to be able to say also, at the outset, that the Motion generally reflects the views of Her Majesty's Government, and we will, of course, accept it.

We want to expand East-West trade. The relaxation of the artificial barriers would be a contribution to full employment and to the expansion of world trade, and also, I am sure, contribute to world peace. I assure those who have spoken today that Her Majesty's Government are taking, and will continue to take, all the steps open to them "to reduce the list of strategic restrictions" to the lowest level "commensurate with the national security"—to use some of the words of the Motion.

We trust, and, I think, can even expect, that the countries of the free world will see these questions in the same light as ourselves and will act accordingly, and we hope, equally, that the countries beyond the Iron Curtain will reduce the very considerable and real obstacles to trade which exist, at present, on their side. Several hon. Members have quite rightly made reference to these. Clearly, then, Her Majesty's Government welcome the continued development and expansion of trade between East and West, and, indeed, they will do what they can to promote and assist it.

Let me, first, give the House a few facts and figures about the present position, so as to put our trade with the Communist countries in perspective. The hon. Member for Itchen gave a certain number of figures. Mine do not, in every respect, correspond with his. Therefore, I think that, perhaps, I should repeat them.

In recent years there has been some steady increase in the volume of this trade—not a dramatic increase, but a very real one. The increase is not nearly as great as we would wish. The figures show that trade between countries which are members of the Soviet bloc is increasing about twice as fast as trade between the bloc as 4 whole and the rest of the world. Since the whole of the foreign trade of the Sino-Soviet bloc countries both between themselves and with the rest of the world, still amounts to less than 10 per cent. of the total of world trade, it is clear that that part of it that is conducted with the rest of the world is not very great. Nevertheless, the trade of Western Europe with the Sino-Soviet bloc in 1956 was worth just about double what it was worth in 1950, and the United Kingdom has shared in this expansion.

Between 1950 and 1957 our imports from the bloc nearly doubled, from £73 million to £124 million. In the same period, our exports, including re-exports, nearly trebled, from £35 million to £90 million. These increases were mainly in trade with the Soviet Union itself. Our imports from Soviet Russia rose from £34 million in 1950 to £71 million in 1951. Exports nearly quadrupled, from £14 million to £52 million. In the case of China, our imports in 1952 were about £3 million, and our exports £4·6 million. In 1957, the comparable figures were £14·2 million and £12·2 million.

As many of those who have taken part in the debate will know quite well, our principal imports from the Sino-Soviet bloc are raw materials and foodstuffs, and our principal exports cover a wide range of machinery and equipment, including electrical machinery, ships and other transport equipment, chemicals, metal semi-manufactures and textiles. Among the primary commodities, sugar, raw wool and rubber occupy an important place, but, as I have said, these increases are not nearly as great as we would have wished, or as they certainly could have been.

Why, then, is this? The fact is that an expansion of trade cannot be brought about unless both sides are willing. Over a really vast range of goods, we are willing to sell but, so far, the other side has not shown quite the same readiness to buy.

Apart from the strategic controls, with which I will deal later, the Government place no special restrictions on trade with the Sino-Soviet bloc. Generally speaking, the countries of the bloc are free to sell as much of their principal export commodities such as industrial materials and basic foodstuffs to the United Kingdom as the market will take, and there are no special restrictions applicable to United Kingdom firms wishing to place orders for Soviet goods. The great bulk of the Soviet exports to Britain are admitted without any limitation. In the other direction there is tri fact a very wide area of trade completely unaffected by the strategic controls which even at their present level are certainly not the principal obstacle to a further expansion of East-West trade.

The Government are perfectly prepared to negotiate trading arrangements with the Governments of Sino-Soviet bloc countries under which we could grant them quotas for manufactured goods in return for facilities for the export of comparable United Kingdom goods. Such agreements do not normally apply to essential goods such as raw materials and foodstuffs, the trade in which, as I have said, is generally without any limitation.

We have at present such special trading arrangements with Poland, with Czechoslovakia, with Bulgaria and with Hungary. We have not at the moment got such an agreement with the Soviet Union. The Soviet authorities do not appear at the moment to want such an agreement, and in any case it is doubtful whether the absence of an agreement has any substantial effect on the volume of trade between us.

Reference has been made in the debate to the question of trading agreements with the Eastern Zone of Germany. I would say that as—

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

The hon. Gentleman will confirm, I take it, that the payments agreement is still in force with the Soviet Union—the one signed at the same time as the trade agreement in 1947?

Photo of Mr William Ormsby-Gore Mr William Ormsby-Gore , Oswestry

What I said re-referred only to trade agreements.

As to the East German trade, to which I was referring, of course this kind of trade obviously does not require a Government agreement because very few countries in the world recognise the Eastern German authorities as the Government of Eastern Germany. Quite a number of them, as has been pointed out to us today, nevertheless carry on a very considerable trade with Eastern Germany. There are, however, negotiations going on at the present time. On our side the negotiations are being conducted by the Federation of British Industries. The Government have frequently made it clear in the House and elsewhere that they would be glad to see a satisfactory arrangement concluded. The main obstacle so far has been the East Germans' unwillingness to negotiate on the basis of quota lists which would be equally advantageous to both sides. It is not really just a question of gross totals but of balancing specially desirable United Kingdom exports such as cotton yarn against imports which the East Germans wish to send to us, such as cameras and furniture in which we are not particularly interested.

I think that in this respect trade between West Germany and the Eastern Zone is on a very different footing. The exchange of iron ore in one direction and coal in another introduces an element into the trade between the eastern and western parts of Germany entirely different from the trade between the United Kingdom and Eastern Germany.

As to the question of trade with the Soviet Union, it is specially disappointing that the flow of trade has not increased much more, particularly when we remember the "shopping list" of goods, worth, I think, between £800 million and £1,000 million, which Mr. Bulganin and Mr. Khrushchev put forward during their visit two years ago. It is significant that although about two-thirds of the items on that list lay outside the field of strategic controls altogether, yet in 1957 the Soviet Union purchased only £52 million worth of goods from the United Kingdom, when we might have expected, on the basis of the "shopping list," to have exported something like £130 million worth of goods. In the same year, 1957, the United Kingdom imported goods to the value of £71 million from the Soviet Union.

As to the question of trade with the Soviet bloc as a whole, there is a limit to what Her Majesty's Government, and Western businessmen in particular, can do about the situation. Since all foreign trade in countries of the Sino-Soviet bloc is under State control, the facilities and freedom enjoyed by the business community in other countries are obviously lacking.

The Prime Minister drew the attention of the Government of the Soviet Union to some of these points in his letters to Mr. Bulganin during last summer. The Prime Minister pointed out means by which the Soviet Government themselves could ease the difficulties on the Soviet side in the way of an expansion of trade. These included providing facilities for British businessmen to have direct access to Soviet enterprises which are interested in their products. I understood from the right hon. Member for Huyton (Mr. H. Wilson) that there had been some change in the atmosphere in that respect. My right hon. Friend also suggested giving more freedom for Soviet trading agencies to place orders for goods of interest to Soviet purchasers for which no specific provision has been made in Soviet economic plans, and also the carrying out by the Soviet authorities of the purchasing programme which they announced when they were here in 1956.

It would, however, be misleading and perhaps over-optimistic to assume that in spite of the undoubted size of the potential market in Eastern Europe and in China we can hope for a very great increase in trade. From time to time, Soviet orders have been of great benefit to particular British firms, or branches of industry, for example, to some machine-tool manufacturers in the 1930s, as the hon. Member for Leeds, West reminded us. But in practice, these markets are not and have never been freely open to our exporters, and there are many difficulties limiting the possibilities for expansion.

Controlled economies with a marked tendency towards autarky are likely to be unwilling to remain dependent to a great extent on external supplies if they can avoid it. I think perhaps one or two hon. Members speaking in this debate have slightly exaggerated the effect of the embargo in driving Communist countries to set up industries of their own. It may have had a marginal effect, but from what we know about planning in Communist countries I think that there was a very definite trend and there is always likely to be a trend towards dependence upon their own industries for a very wide variety of products; and it would be possible to exaggerate the extent to which the embargo has assisted this trend.

In general, they are more likely to buy samples and the samples, of course, may be very large indeed; and they may be prepared to give very big orders for individual items. In addition, as my hon. Friend the Member for Louth (Mr. Osborne) said, their markets are difficult to reach by ordinary methods of trade promotion as we know them in the West. Their practice of balancing their trade largely on a bilateral basis, in our case with the sterling area as a whole, means that the volume of their purchases from the sterling area would be limited by the amount of sterling they earn by their own exports. This certainly tends to make them ask from time to time for long-term credits.

I know that we are criticised quite often, and we have been criticised in this debate, for not offering such good credit terms as our competitiors, but I would remind the House that such complaints are also heard quite often in Western Germany. The Export Credits Guarantee Department uses exactly the same criteria in considering applications for credit guarantees whether they are for goods for such countries as the Soviet Union on the one hand or, for example, for Sweden or Iran on the other. Of course individual foreign firms may well give better terms than individual British firms—I think this deals with one of the hon. Gentleman's points—where there is equal treatment in regard to the Government's cover for such credit.

As regards credit insurance, our practice, under the Berne Union, is in line with that of other Western competitors and we all recognise that it would be extremely damaging if we all broke away from the agreement under the Berne Union and started competing against each other in respect of credit insurance, but there is competition between individual firms about the amount of credit they are prepared to give.

I was referring to the shortage of sterling and this may be a severe limitation, since countries of the Sino-Soviet bloc are finding it increasingly difficult to provide sufficient goods which can be sold readily in Western markets. The main reason for this difficulty has been the emphasis they have placed on industrialisation, so that they no longer have that substantial surplus on the foodstuffs and raw materials which they have exported traditionally, while the products of their new industries are frequently not of good enough quality to sell easily in competitive United Kingdom markets. That obviously does not apply to all their goods, but it is generally so. Therefore, considerable changes in both thinking and practice by Governments of the Sino-Soviet bloc will be necessary before we can be assured of a chance to develop to the full the opportunities for trade which undoubtedly exist.

I now turn to the vexed question of the strategic controls. There are two not uncommon misrepresentations of these controls. One is that they are a weapon aimed at a political target in a cold war, a weapon that we ought now to discard as a contribution to an improved political atmosphere. The other misconception, which is perhaps linked with the same mistaken view of the purpose of the controls, is roughly to the effect that the only real believers in the controls are our American allies. The hon. Member for Reading (Mr. Mikardo) made it clear that this is his belief, although when he says that it was, of course, in the interests of the United States to allow the abolition of the China differential, I would remind him that they were entirely opposed to it up to the last minute. In fact, when the China differential had been abolished, they continued to have a complete embargo on trade with China.

I have put these two misconceptions fairly baldly but I doubt if what I have said exaggerates the view often taken of these controls. I do not believe that either of these contentions is justified. They are controls which, whatever their imperfections in detail, are not imposed for any political purpose. They are not an apparatus of economic warfare. They are, as the right hon. Gentleman the Member for Huyton rightly said, a product of the insecurity of our relations with the countries against whom the controls are imposed. The case for restrictions, as I am glad to see the Motion implies, lies simply and solely in the need to preserve our national security.

I will come back in a moment to the problem of how a sensible and reasonable line is to be drawn with regard to security. That is the crucial question, but it is as well to be clear about the basis for an international control system such as Co-corn. Here again the principle is the quite simple, and I submit useful one, that it would be impossible to keep any kind of balance between our strategic and our legitimate commercial interests if we and our friends and Allies were each to run our own private systems of control and each to have our own private list.

Hon. Members have often voiced understandable misgivings about possible evasions of the agreed embargoes, and these we have always offered to track down, given adequate chapter and verse. Indeed, in those cases where we have been able to make full investigations—and I readily admit there have been cases—we have Never found that any breach of the embargoes has been committed with the knowledge of the Government concerned. Where we have established that there have been evasions, the Governments concerned have always co-operated with us and taken appropriate action immediately against those responsible.

I suggest to the House that there would be very considerable chaos, and one can easily imagine the conflict of interest which would arise if there were no agreed international system in the first place. I think this is obvious enough, but if we accept it the difficulties are also clearly obvious. They consist in working out and agreeing with our-partner countries, fifteen of them, through all the changes and developments of defence technology over the years precisely which items are to be controlled. This is not a particularly easy task with so many countries involved, and we cannot expect always to see eye to eye with them, nor to get a result which is 100 per cent. of what we should like, but a result arrived at after such discussion is at least 100 per cent. better than the chaos of having no international system at all.

We have somehow to hammer out what is the agreed level of security that the participating countries will observe in their commercial dealings. This, of course, leaves any individual country which chooses to be more severe than the agreed norm free to impose its own higher level of controls without involving the others. The obvious example is the United States of America. The important thing from our point of view, however, is to have some generally agreed policy so that in our own controls we are not just applying a self-denying ordinance. It follows from what I have said that we or any other member countries may agree or disagree on this or that item of the controls, and perhaps even on the general scope of the controls, but we are nevertheless all agreed that some controls are necessary in the general security interests.

As an illustration of the point that I have been making about the strictly strategic purposes of the controls, there was our action last year in the abolition of the China differential. When it became clear that a part of these controls, those which related to China only and were not applied to the Soviet bloc, had ceased to have any more than a political significance, Her Majesty's Government took steps to bring this part of the controls to an end.

Photo of Mr Ian Mikardo Mr Ian Mikardo , Reading

Several years too late.

Photo of Mr William Ormsby-Gore Mr William Ormsby-Gore , Oswestry

Better late than never, as the hon. Member knows. With the general approval of the House, 207 items, the embargo on which was neither effective nor justified on strategic grounds since China could get most if not all of them through the Soviet bloc, were freed altogether from control.

Photo of Mr Ian Mikardo Mr Ian Mikardo , Reading

Can the right hon. Gentleman tell me how our security as a nation is preserved by our refusing to license the export to China of a small spare part for a twenty-year old British-made piece of power plant which is used to run the tramways in a Chinese city?

Photo of Mr William Ormsby-Gore Mr William Ormsby-Gore , Oswestry

The hon. Gentleman is confident in the awareness that he has a greater knowledge of that item than I have, and I will not deal with it now, but I think he will understand from the general tenor of my remarks that I should not feel that that was an export which would be particularly worth preventing.

In taking the action which we took over the Chinese differential, Her Majesty's Government reaffirmed their intention to continue their established policy of co-operating with their friends in a system of controls on trade with both the Soviet bloc and China in the mutual security interest.

We have, therefore, to reach some sensible agreement on the scope of controls to be imposed. Although, as I have tried to show earlier, there are many other barriers to trade with the Communist countries besides the strategic controls, Her Majesty's Government are fully aware that a satisfactory and defensible list of embargoed items must be arrived at if we are to be sure that we are not missing any legitimate opportunities for furthering our vitally important export trade.

Photo of Mr Hilary Marquand Mr Hilary Marquand , Middlesbrough East

Is the right hon. Gentleman aware that there are commodities entering into this trade in which the policing of the controls is in the hands of the British exporter, who is required, before he exports his commodity, to ascertain from the overseas buyer for what purpose he will use it, and is obliged in this way to ask awkward and unpleasant questions of customers who may be very good ones, whereas German, Swiss and other firms on the Continent apparently do not do this? Would not it be a good thing to get that kind of commodity at any rate off the list altogether?

Photo of Mr William Ormsby-Gore Mr William Ormsby-Gore , Oswestry

I think we shall have to see how the negotiations go. It may well be that commodities of that kind will come off the list, although obviously I cannot prophesy this afternoon.

Leaving on one side individual changes which are made from time to time in the control lists and leaving aside the abolition of the China differential, the last major review of the controls took place in 1954. Much has happened since then, in my view, to modify the broad strategic and technological assessments against which the importance of controlling the individual items has to be measured. It is legitimate, therefore, to ask how far the present control lists are consistent in detail with the security objectives desirable and attainable today. This is the question which we are now studying with all the other interested countries in Co-corn. In this review it is the Government's policy, as stated in the House by the President of the Board of Trade to confine the embargo lists to goods which are still—that is to say, in present conditions—of strategic significance.

In formulating our proposals to the other members of Co-corn, we of course take into account the views expressed by representative bodies of industry. The negotiations are inevitably a somewhat laborious process. Scores of items and a host of sub-items have to be so considered. Flighty technical expert opinion has to the sought and considered. Perfectly sincere differences of view as to the technical and strategic significance of particular items have to be reconciled.

All this inevitably takes time. We cannot yet say, therefore, when an announcement will be made on the outcome of the review, but it is my hope that the review will be concluded during this summer. It is our firm hope and belief that the review will result in freeing an important range of goods for export to the Sino-Soviet bloc.

If, consistent with security, agreement can be reached on relaxations, the Government will welcome the opportunity presented to United Kingdom exporters to secure a larger share in these markets. Any substantial increase in East-West trade, either now or later, must however, to a great extent depend on whether the countries in the Soviet bloc are willing to avail themselves in good faith of the greater opportunities offered to them of developing trade with the West. I have every hope that this debate will help us in achieving the objectives which I believe we all desire in all parts of the House.

Question put and agreed to.

Resolved,That this House, believing that the relaxation of artificial barriers in trading relations between Communist and non-Communist countries would be a contribution not only to full employment in Great Britain and to the world economy but also to world peace, calls upon Her Majesty's Government to take all steps commensurate with national security radically to reduce the list of strategic restrictions and urges other Governments on both sides of the Iron Curtain to take similar action.