Clause 1. — (Relief from Duty on Imported Goods.)

Orders of the Day — Finance Bill – in the House of Commons at 12:00 am on 15th June 1966.

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Question proposed, That Clause I stand part of the Bill.

Photo of Mr Patrick Jenkin Mr Patrick Jenkin , Wanstead and Woodford

I would like to begin by warning the Committee that the omission of a number of names from the list in The Times this morning does not mean that the Committee will be without the services of others of us during this debate. We shall be here and we shall endeavour to press our points on this Bill, and there are many, with all the force that we can command.

I should like to comment, first, by way of introduction, upon the first 10 Clauses of the Bill.

These Clauses may appear to be in many ways uncontroversial and capable of arousing very little argument across the Floor of the Committee, but the Chancellor will be aware that in the course of opening the Budget debate, and during the Second Reading of the Finance Bill, right hon. and hon. Members were given no exposition of the purpose and intention underlying these Clauses. Therefore, we feel that it is right that we should, quite briefly, probe the Government's intentions in introducing what might be regarded as minor administrative Clauses, to find out the reasons why they have been introduced. We shall endeavour to do this briefly, but we must make it clear that if the explanations supplied give rise to a view in the Committee that the Clauses should be amended we would want to table Amendments, to be taken at Report stage, because that will be the first opportunity that we shall have, following an explanation of the Clauses.

Clause 1 of the Bill is a curious Clause. It is long and complicated and, as the right hon. Gentleman the Member for East Stirlingshire (Mr. Woodburn) has pointed out, even if it were read out I doubt whether many hon. Members would appreciate its full significance upon first reading. I found that I had to read it several times before I really understood what it was aimed at. I believe that I now see what it is getting at, and subject to anything that the Minister of State to the Board of Trade, who I believe is to reply today, has to say I believe that we can offer it a cautious welcome. I believe that the Clause should not pass without some explanation as to how it is to work and I have a number of questions.

3.45 p.m.

Before I come to these it would be helpful if I were to try to say what I understand to be the intention of the Clause, and I hope that the Committee will forgive what may appear to be a very elementary introduction. However, I find it helpful, if only to myself, to start from the beginning and then to work through.

The usual position, where goods are imported into the country and later exported, is that either the duty on the goods is remitted and they are subsequently exported free of duty, or, if the duty is paid, it is subsequently repaid.

Similarly, if goods are imported and are subsequently incorporated or used in the manufacture of other goods then, if duty has been paid, the Commissioners allow drawback on the exported goods in respect of the duty which was paid on the imported goods. The drawback on a great many orders stems from Section 9(1) of the Import Duties Act, 1958. This is familiar and for the most part gives rise to no difficulty in theory, though as I am sure the Minister of State recognises, there are often considerable difficulties in practice, and in some cases the difficulties are so intense that firms simply do not find it worth while going through the necessary stages in order to claim the drawback. This is particularly so where goods go through several stages of manufacture and where there are several different imported components which may well have borne duty at different rates.

Until this Clause there has always been a golden thread running through this legislation, namely, that one had to be able to trace back, from the exported goods, right through the various stages of manufacture, to the goods which have been imported and upon which duty had been paid before one could claim the drawback. One had to show that duty-paid goods had been used in the manufacture of exported goods and if one could not show that, one was not entitled to the drawback. One had to be able to trace the position through from the beginning to the end.

Clause 1 introduces what appears to be a novel extension, whereby in certain circumstances this golden thread is departed from, and for the first time, imports can be relieved from duty, or drawback can be claimed where the exports on which the claim for drawback s based are derived from different goods, that is not the same goods which were imported. The Clause adopts the concept of what is called "equivalent aricles", that is to say, exports that have been made from goods which are equivaent to the imported goods. In the long definition in the Clause, in subsection (14,b), the concept introduced is one of interchangeability—that if the goods from which the exports are made are interchangeable, as defined in the subsection, with the imports, and if the imports have borne duty, the exports may qualify for drawback even though they are not made from the imports.

That is what the Clause is about and I hope that the Committee will find it helpful if I give an example drawn from the industry in which I have worked. Suppose a company imports a plastic raw material, let us say polyethylene in bead form, or something of that sort, and pays a 10 per cent. duty, and suppose that it exports a familiar household object, a plastic washing-up bowl, which has been made from that polyethylene, under the law at present the company can claim the drawback on the duty paid on the imported raw material.

This Clause alters that position. It extends it. It does not, of course, in any way withdraw the relief which has existed hitherto, but it does empower the commissioners to give the relief to a manufacturer of a washing-up bowl even if that bowl itself is made from domestically produced polyethylene on which he has not paid any duty, provided that the domestic material and the imported material are interchangeable.

Of course, it is not anything like as simple as that; anyone who reads the Clause will realise that it is hedged about with all sorts of qualifications. The Board of Trade must be satisfied that the granting of the relief or drawback would conduce to the export of other goods and only if exports are encouraged does the Clause operate. Concurrently, the commissioners who are charged with the administration of this legislation must be satisfied that the exports—presumably the goods do conduce to exports—will incorporate equivalent articles; that is to say, that they will be made from material which is interchangeable with the imported material. So that the firm which wants to claim the benefit has from the outset to surmount two hurdles, first, that this will, in fact, encourage exports, and secondly, that the commissioners are properly satisfied that the exports in question were made from equivalent material.

Again going back to my example, suppose that the Board of Trade felt it right to grant relief on the imports of the polyethylene and granted the duty remission because this would increase the exports of washing-up bowls, the commissioners have to be satisfied that the material which goes into the washing-up bowls which are, in fact, exported is interchangeable with the equivalent of the material which was imported.

So far, put in this form, the Clause looks like a fairly simple piece of corner-cutting; it looks as though it avoids this complicated and often almost impossible to prove process of tracing through all these various stages of the imports by the manufacturer to the final exports, and if this were the only purpose this would be obviously a minor administrative convenience and one which could fairly easily and warmly be welcomed. It would avoid a great deal of time of the administrative staffs of firms claiming drawback if they were able to say, "We have mixed them in, we cannot trace them through, but the material which went into common storage was identical with the raw material and we will claim drawback."

This seems to be reasonable, but I am bound to ask whether the Clause goes further. Is there some other purpose which the Clause could well serve? As I understand it, the question depends on how the Clause will be operated, and, in particular, how the definition of "equivalent articles" will be interpreted. It is contained in subsection (4,b), where the Committee will see: … the Commissioners (having regard to … the description, quantity, quality, value and function of those goods and the imported articles … Or—and this is, perhaps, the critical point—they must have regard to such of those characteristics as appear to them to be relevant. They are given discretion to ignore one or some of those five characteristics.

Therefore, one can pose the question from my example by extending the case which I put before the Committee a moment or two ago. Suppose the imported plastic raw material or polyethylene was more expensive than the domestically-produced stuff. That is unlikely, but it might happen in present circumstances that it was imported simply because domestic capacity was below total demand. In those circumstances, can the washing-up bowl manufacturer buy his expensive foreign plastic, and then make bowls with the cheaper home-produced material and claim the drawback on the imported material? The material may be chemically identical with the home-produced material, completely interchangeable.

Can he claim the drawback based on the duty paid on the imports of the more expensive imported material? Because if so does this not give rise to an export subsidy? Would not this, therefore, be contrary to our Treaty obligations under the G.A.T.T. and E.F.T.A., because we would, in fact, be returning to the manufacturer a higher rate of duty, a duty which was higher than that paid for material incorporated in the washing-up bowl being of equivalent value to the imported material? Or is this a case where the value as stated in the Clause would be regarded by the commissioners as a relevant matter so that the materials would not be regarded as interchangeable?

Photo of Mr Robert Sheldon Mr Robert Sheldon , Ashton-under-Lyne

I am following the hon. Member very carefully in his valuable argument, which is one which one comes up against very frequently in marketing exports, but I do not quite follow his point. What would happen to the imported chemicals he has mentioned that firm has purchased? What would the firm do with the chemicals?

Photo of Mr Patrick Jenkin Mr Patrick Jenkin , Wanstead and Woodford

The answer is that the firm would use them to supply the home market, putting their costings of exports on the footing of the cheaper domestically produced material.

It would avoid any question of dumping, because the firm would not be producing below cost under the G.A.T.T. and anti-dumping legislation in other countries, and would be supplying the home market which for finished products might be a protected market.

But the question is, in those circumstances; is the difference between the cost of the imported and domestic materials a relevant factor so as to preclude the commissioners from giving the relief by way of remission or drawback on the exports of the washing-up bowls?

Indeed, I could put the question in the reverse way. I am bound to say this is the much more likely situation, namely, that the imported raw material is somewhat cheaper than the domestic material. Clearly, it could be used directly; that is to say, out of imported material, washing-up bowls could be made for export.

This is something wholly admirable. It means we have gained, as it were, some progress from the process of the materials. 3ut suppose that the cheaper imported material is somehow used to depress the general price level of the material in the domestic market. This could be looked at in two ways. In one way it could be a very welcome intensification of competition, a way to get round the extent to which tariffs are used to restrict competition in the country. Or, on the other land—it depends, perhaps, on which particular hat one is wearing—this could mean a loss of very valuable protection, a protection without which we could not hope our industry would survive.

Therefore, my first question to the Minister of State is: is the purpose of the Clause purely administrative corner-cutting, a piece of administrative simplification, so as to save the problem of tracing these raw materials through? Or is it intended to be either a means of reducing the effective level of tariff and encouraging competition in the home market; or is it intended, conversely, to be an indirect subsidy? I have no doubt that the Minister will be able to answer that question.

On the latter point, the export subsidy, we shall come to Clause 8 later, but we must remember how sensitive our partners overseas are to even innocuous arrangements to help our exports. If this is to he a subsidy, then this should be made clear at this stage.

4.0 p.m.

My second question is: how far will interchangeability have to go? Can relief be claimed if the domestically-produced material used in the exports is the preferred material from the point of view of consumer satisfaction, where the imported material, though perfectly serviceable, gives products of not quite the same quality? Will any difference in the material be countenanced by the commissioners when they come to administer the Clause or will minute differences be ignored, so that it is simply a question of degree? The words in the definition Clause are pretty general, and one would welcome some indication from the Minister of State as to how the commissioners will interpret the question of interchangeability.

My third question is: what about the time scale? How long must elapse between the import and the export? The Committee will appreciate that if one is dealing with the same goods, goods which are imported, use is made of them, and they are exported, it does not matter how long elapses between the import and export. Duty is paid on import and, provided one satisfies the necessary burden of proof, one can claim drawback when products are manufactured from those imports and exported.

When dealing with the Clause, however, the time scale must be important, because the whole concept of the Clause is that there should be some nexus between import and export in respect of which relief is claimed on the exports which are conduced to, and which are made from interchangeable goods. So that if there is to be some form of time limit imposed, some idea that one cannot just import goods "on spec" and then at a later stage find that one can export other goods made from interchangeable products and then claim back the import duty on the goods which one has imported, that ought to be known. In other words, must the imports in question have been made with a view to promoting the exports in respect of which drawback is claimed?

Another question which arises on this is that the Board, under subsection 1(a), must be satisfied that relief will "conduce to" the export of other goods. That is a rather vague phrase. I paraphrased it in my opening remarks as "leading to the encouragement of exports". It must "conduce to". How heavy will the burden of proof be on the manufacturer to satisfy the Board of Trade that exports will be very much affected as a result? Will it be that he will have to satisfy the Board that, unless relief is given, the additional exports will not happen at all? Will he have to prove that extra exports will be made, or is it sufficient to say that they will be less likely? Will it satisfy the Board if the firm is able to say that without the drawback exports would be a good deal less remunerative and, in the long term, might result in its having to give up the market? How far is the burden of proof to be interpreted?

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

Is not the proper thing to do to eliminate the word "conduce" and substitute "contribute", which is a word that everyone understands as being practical and explicit, and it explains precisely what is wanted?

Photo of Mr Patrick Jenkin Mr Patrick Jenkin , Wanstead and Woodford

If my hon. Friend thinks that that would be an appropriate improvement to the Bill, I have no doubt that he will put down an Amendment on Report. "Contribute" might be held to require a physical connection between the two, which it is the whole purpose of the Clause to avoid. However, I see that my hon. Friend is not wholly with me on that, so I shall not pursue it.

Photo of Mr Patrick Jenkin Mr Patrick Jenkin , Wanstead and Woodford

Subsection (1,a) of the Clause requires that in addition to the Board of Trade being satisfied as to the conducing of exports, it is expedient in the national interest, and in this legislation it follows the pattern of Section 9 of the Import Duties Act. How will that be interpreted in this case? I would have thought that virtually all exports were in the national interest, though in reply to a Question from my hon. Friend the Member for Yeovil (Mr. Peyton) yesterday, the Prime Minister seemed to imply that some exports were better than others. On the spur of the moment, that was quite clever, but it does not mean very much. How will "the national interest" be interpreted, and what considerations will the Board of Trade have in weighing up those words?

Under subsection (1,b) the Board of Trade has to have regard to the interests of domestic producers of comparable articles. If relief were given without such consideration, the domestic producers of goods equivalent to imported goods might find themselves cut out by tariff-free imports. Will they be consulted in every case? In the case of import duty exemptions there is an opportunity for domestic producers to object. They are consulted. They are given an opportunity to make representations and their views are taken into account formally. Will that happen under the Clause, or will there be some informal consultation?

There appears to be no Statutory Instrument involved here. It is a wholly administrative discretion, and it could be used to depress prices and intensify competition. It would seem right that there should be an opportunity for domestic producers to express their views.

Discretions abound throughout the Clause. It is as full of discretions as the usual discretion statement is full of indiscretions. The Board must be satisfied that it conduces to exports. It must be satisfied that it is in the national interest. The commissioners must be satisfied that equivalent articles will be used. The definition of "equivalent articles" is as follows: The expression 'equivalent articles' means goods of any description which, in the opinion of the Commissioners (having regard to such matters … as appear to the Commissioners to be relevant in the particular circumstances) are sufficiently similar … They have power to impose conditions. They can make conditions as to the method of relief, as to how relief is to be given and as to the amount of relief.

All sorts of administrative discretions are inevitably involved in the Bill. The Bill is a formidable battery of administrative safeguards. What the Committee and industry will want to know is what means is to be used to publicise the method whereby the Board of Trade and the commissioners will exercise those discretions. We shall want to know that there is no misuse of the Clause and, having regard to the purpose underlying the Clause which I am sure the Minister of State will explain to the Committee, that it is not to be used for some other purpose.

Industry will want to know in what circumstances imports have qualified and where applications have been refused, why they have been refused. People will want to know especially that where the Board has given notification under subsection (1) to the commissioners that it is in the national interest and that exports will be encouraged, the commissioners have, nevertheless, refused relief.

This is a substantial armoury of questions, but I do not apologise for asking them. We were offered no explanation in the Budget debate or on Second Reading as to what the Clauses are aimed at. They are certainly novel provisions, and they make a new departure in the administration of our protective tariffs. They could be relatively minor. On the other hand, they could have wider implications and represent a quite radical departure from the pattern which has been operated hitherto. I am sure that t le whole Committee will welcome an explanation from the Minister of State as to what the Clause means and as to how it is to work.

Photo of Mr Frederick Bellenger Mr Frederick Bellenger , Bassetlaw

The purpose of the Government in placing this legislation before the Committee is clear and helpful. As I understand, these very complicated Clauses have been designed to assist our export trade and, in that respect, they will have the approval of the whole Committee.

In some respects, it might be said that while exporters understand their own trade, they do not always understand the ramifications of the Commissioners of Customs and Excise. I endorse the remark made by the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkim that someone—if it is not the Treasury, then certainly the Board of Trade or the Customs authorities—should issue for the information of exporters some explanation of precisely how they can claim either drawback or exemption from this duty.

I rise only to put one or two questions, some of them bearing on the remarks of the hon. Member for Wanstead and Woodford. Through my experience of being connected with a chemical importing firm I am aware of some of the difficulties which exporters in this country have in competing with firms or organisations overseas. I should, therefore, like to ask the Minister to elaborate on a question put to him by the hon. Member for Wanstead and Woodford as to the time limit between the import of commodities, and the export of manufactured goods of which those imported commodities are a part.

Considerable business is done in the importation of chemical substances from certain countries because of the quality of these chemicals. It is perhaps surprising to relate that even big firms like I.C.I. import large quantities of chemicals. To keep up supplies for those importers who want them for their exports of manufactured articles, or even for the home trade, large quantities of imported commodities have to be warehoused in this country. The purpose may be quite clear, that the importer wants to be sure of his supplies in advance of his manufacture.

It is, therefore, important that the importer should know whether certain commodities or chemicals which may be warehoused in this country for some time will be eligible for drawback by the time he comes to manufacture and export them. I think that that was the purpose which the hon. Gentleman had in mind when he asked for an explanation of the time limit which would be allowed for drawback to be claimed.

It is easy to understand that when duty has been paid on imports, drawback is claimed on that duty after a certain period, but is it possible to remit the duty altogether on the importation of that commodity, subject to certain assurances and certain guarantees? It is possible that a considerable sum of money will be locked up, as will be the case with the Selective Employment Tax, which may be recoverable after a certain period. A certain portion of the duty will go to the Government's coffers, perhaps a substantial portion of it, and the Government will get the use of that money for some time, subject always to the time limit not being fixed for claiming drawback. I think that this could happen. Indeed, I believe that the Clause uses the word "remission" as opposed to "drawback".

I hope that my right hon. Friend has grasped the point that I am making, but I am more concerned to ensure that exporters in this country are placed on just as favourable terms as exporters abroad who, because of the absence of this duty, 10 per cent. or otherwise, can export to markets which perhaps we have been supplying.

If I may say so to the hon. Member for Wanstead and Woodford, I do not think that that would be unfair according to the G.A.T.T. provisions, because already, apparently, Continental and other overseas exporters are at some advantage compared with people in this country, in that they pay no duty, whereas, for some reason or other, we impose a duty on the same commodities as they use for the manufacture of similar articles.

Photo of Sir Arthur Harvey Sir Arthur Harvey , Macclesfield

Has the right hon. Gentleman thought of leaving these materials in bond until they are required for manufacture?

4.15 p.m.

Photo of Mr Frederick Bellenger Mr Frederick Bellenger , Bassetlaw

I am not technically conversant with those provisions, but I should have thought that it was up to the Government to say whether it was possible to do that, and that is the purpose of my question.

If the Government are genuine in their intention to help British exporters who may be able to find the same commodity produced in this country, but if it is used in the manufacture of the article to be exported may mean us losing markets because our competitors can produce more cheaply because of the absence of the duty, they should consider the suggestion that I have made about helping our exporters. This is all that I am concerned with, and I hope that my right hon. Friend has followed my argument.

When dealing with such a complicated mater as this, it is not sufficient to tell the House of Commons in a comparatively short speech, which is probably all that my right hon. Friend will make to the Committee this afternoon, what the Government propose to do. This should be set out in printed form, and it will have to be extensive if manufacturers are to understand not only what the Government are after, but how people can obtain the benefits which flow from this Clause.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I should like to begin by congratulating my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) on his dissertation on this extremely complicated and difficult Clause. It was largely academic in character, and, like many academics, he called the substance of industry washing-up bowls.

I wish to talk of something rather more important than washing-up bowls. I speak with due humility when I say that I have a long history of association with the matter referred to in Clause 1 of this Bill. I sat in the office of the then Chancellor of the Exchequer in 1961 as part of a deputation of manufacturers drawn from British industry, and I was being asked, as were my colleagues, how the Government, and notably the Treasury, could help British exporters.

The major point that I made to the then Chancellor of the Exchequer, my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd), was that it was important to facilitate and to make easier and more simple the recovery of import duty paid on raw materials, part manufactured and manufactured goods which subsequently were ingredients in British exports.

There was a good deal of controversy, and subsequently a letter arrived from my right hon. and learned Friend inviting me to go to Kings Beam House, the headquarters of Customs and Excise, to tell the commissioners what I had in mind. I said to them, "I shall give you the most difficult case of plywood, a raw material which is extensively used for packaging British exports". About 60 per cent. of British exports are packaged, and there is this curious anomaly, going back to 1932 and the Import Duties Act of that year, that softwood and hardwood brought into Britain are not dutiable, whereas plywood, which, in the last 35 years, has largely supplanted softwood and hardwood for the packaging of exports from Britain, is subject to an import duty of 10 per cent.

A large part of this plywood coming into Britain today, notably the cheaper grades, is brought in from Russia. I declare my interest at once. I am a director of the largest importer in Britain of Russian plywood, and I am also a director of the largest manufacturing company in Britain of plywood export containers.

Therefore, I lay claim to have played a part in the transposition of Russian raw materials, dutiable upon import, into packaging material and protection for British exports and how a scheme could be devised for drawback for the 10 per cent. plywoods import duty, on proof that the plywood concerned had subsequently been employed for plywood packing of British exports. I know that my hon. Friend the Member for Wanstead and Woodford will now feel that I am justified in saying to him that the commodity which I have selected—plywood—is vastly more important than his plastic washing-up bowls.

What then happened was that the Customs and Excise said to me—and this is all on the records in Kings Beam House, so the Chancellor of the Exchequer and the Minister of State, Board of Trade may check for themselves—" This is exceptionally difficult. How is it possible to trace millions of pieces of plywood coming into Britain which are subsequently converted into 10 to 15 to 20 times as many million pieces of plywood in order to form components of packing cases subsequently sewn up with steel and manufactured by a container manufacturing firm which is not itself the importer and then supplied to a multiplicity of British firms which are exporters, when the 1932 Act, as re-enacted by the 1958 Act, requires that it is the exporter, the firm which is actually sending the goods abroad, which is liable for claiming the drawback or relief on the import duty paid earlier?"

It took two and a half years, between 1962 and nearly the end of 1964, before I, with Customs and Excise, had evolved a formula—[HON. MEMBERS: "Hear, hear."] This is all on the record and I will give the references in a moment—a formula with the Board of Trade. [Interruption.] I am referring to the former President of the Board op Trade. I shall make a reference to the right hon. Gentleman in a moment.

An Hon. Member:

What a Government.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

It is not a question of "What a Government", because it was immensely difficult as it then existed.

The Customs and Excise said to me, as did the Board of Trade and the Inland Revenue, "We cannot deal with this matter simply until the Import Duties Act, 1932, and the 1958 Act are amended to allow Customs and Excise to remit an import duty outright, subject to it being substantiated at a later date that the dutiable goods brought in have subsequently been exported." In my interpretation of the Clause, that power will now be vested in Customs and Excise, but I am not sure. It is one of the questions which I want to ask the Minister of State, Board of Trade.

The right hon. Member for Bassetlaw (Mr. Bellenger) seemed to me to be a little critical of services at the Board of Trade. I have used those services for 20 years as an exporter and I have found them admirable, notably the information services. There is no need for the Board of Trade to publish a list of the raw materials and commodities and manufactured good to which the Clause, if enacted, would apply.

All that any manufacturer has to do is to lift the telephone and get through to the Board of Trade information services and ask, in the case of plywood, to which I have been referring, "Is the import duty recoverable for plywood, and if so, how do I do it?" The Board of Trade will tell him in five minutes. That applies to hundreds and hundreds of commodities and manufactured goods. What is needed is simplification pf the procedure.

I hope that the Minister of State, Board of Trade, will reply to the debate, because I want to put a point to him. I took this identical manufacturing process into the European Economic Community and made it my business to find out how the Six deal with this matter. In the Grand Duchy of Luxembourg, one of the members of the European Economic Community, I saw the head of Customs and Excise and the Minister of Economic Affairs three years ago about this identical problem. I said that the external tariff of the Common Market was 13 per cent. for plywood coming from Leningrad into the Grand Duchy, but it was all used for the manufacture of export containers, carrying E.E.C. goods outward as exports. I asked if they needed a system comparable with the extremely compendious and complex system now being operated in Britain or would they give me carte blanche and remit the whole import duty on the plywood, subject to an auditor's certificate at the end of the year that all the plywood had been used for the manufacture of articles contributing to the export trade of the European Economic Community? It took me one month to get agreement. It has taken me five years in Britain to see this Clause proposed, though it has been on the stocks for a very long time.

I want to ask the Minister of State, Board of Trade, whether the Clause means that the Customs and Excise can, by agreement with British manufacturers seeking to increase their exports, remit the import duty subject to auditorial and accountancy proof at the end of the year that these raw materials, or part-manufactured or wholly manufactured goods, have found their way into British exports?

I turn now to the Financial Secretary to the Treasury. During my short absence from the House of Commons, I sent him details of this case. I called in aid the Financial Times of 6th January, 1964. The feature "Men and Matters", displaying my own picture. There were three columns defining as bureaucracy run mad that millions and millions of book entries had to be made to recover the import duty on plywood for export packing cases. So colossal is it that the hon. Gentleman's own Department—I invite the Minister of State to turn up the Financial Times of that date—is now allowing 25 per cent. of all the import duty recovered as administrative charges for the process of recovery. With 25 per cent. administrative charges, the exporter is getting back only 75 per cent. of the import duty paid. That is the extent of the tens of millions of book entries that are required to substantiate the amount of import duty paid.

The Financial Secretary broke off his correspondence with me. He had no idea that I was returning to the House. [Laughter.] I make him look foolish today. He broke off his correspondence and said that the matter was not worthy of further consideration.

Photo of Mr Niall MacDermot Mr Niall MacDermot , Derby North

My recollection is—the hon. Gentleman did not tell me that he intended to refer to this matter, or I should have looked up the correspondence—that I broke off the correspondence because of the discourteous manner in which the hon. Gentleman was conducting it.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I apologise if the hon. and learned Gentleman thought me discourteous. My original correspondence—I tell him this so that he may go and check it—was with his right hon. Friend the President of the Board of Trade, who is primarily responsible for the promotion of British exports. I am intimately concerned with the promotion of British exports, and have been for 20 years. It was in pursuit of that ideal that I was trying to knock some sense into the Board of Trade and into the Treasury, but the Financial Secretary broke off the correspondence. He did not think that I was returning to the House. The fruits of my labours will be manifest this afternoon.

The Minister of State, Board of Trade, will happily confirm what I have said about the efforts I have made. I did not wish to delay the progress of the Finance Bill by tabling such a simple Amendment as to substitute "contribute" for "conduce", but I commend to the Government that "contribute" would be a more definitive term, having regard to all the surrounding circumstances. I hope that on Report the Minister of State will table an Amendment to substitute "contribute" for "conduce". If he does not do so, I shall do it for him and advise my right hon. and hon. Friends to divide if he does not accept the Amendment.

The Minister of State will be able readily to establish from his permanent officials the truth of every practical example I have put to him this afternoon. I have done all this in his Department and with the Customs and Excise. I want him to confirm that, for example, in relation to the extremely important contribution made to British exports by plywood packaging, which forms the bulk of the packaging for the heavy consignments going out of Britain today, the Customs and Excise will be able to say, when the Bill is enacted, "We will no longer charge import duty to manufacturers of plywood containers on the plywood which they are employing for manufacturing, subject only, in retrospection, to the exporters being able to prove that the full quantity of dutiable plywood imported and appropriately delineated, has indeed found its way as a contribution into British exports".

If the hon. Gentleman can give me that undertaking, I shall happily support the Clause, otherwise I must reserve judgment on this compendious and complex Clause and seek to amend it at a later stage.

4.30 p.m.

Photo of Mr Robert Sheldon Mr Robert Sheldon , Ashton-under-Lyne

The hon. Member for Worcestershire, South (Sir G. Nabarro) attaches great importance to obtaining drawback in respect of the plywood used in the manufacture of certain items of packaging for goods for export. However, I am sure that there are other items which may be more important than the one with which he is concerned. I know of no exports which have been frustrated because of the inability of an exporter to claim the drawback on the plywood content of the packaging.

Photo of Mr Robert Sheldon Mr Robert Sheldon , Ashton-under-Lyne

When one rises one does not sit down immediately.

In the main, the 10 per cent. import duty and the drawback that is obtainable in respect of this does not weigh very heavily in the minds of the manufacturers of the export goods concerned. The hon. Gentleman is presumably considering his own position. I am considering the position of the exporter of a wide range of products. When he adds up all the factors, I doubt very much whether such an exporter spends many sleepless nights considering whether he will be able to get the drawback on plywood for packaging.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

The hon. Gentleman has imputed to me the use of the word "frustrated". I did not say that any British exports had been frustrated. I said, though, that the cost of British exports was inflated by the difficulty of securing the recovery of the import duty. The rule should be never to charge import duty on raw materials or on part-manufactured or manufactured goods which are subsequently exported. This should be the Chancellor's axiom.

Photo of Mr Robert Sheldon Mr Robert Sheldon , Ashton-under-Lyne

The emphasis now seems to have shifted from his questioning the importance of the points raised by the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin), covering a wide range of imported plastics, to a question of principle.

I am on a much wider point. I am considering the pattern of international trade and the changes which have taken place, especially over the last few years. What I am concerned about is the greater specialisation in products and services, particularly in sophisticated Western European countries, which has gone on for some time now. Nowadays, completed products are very frequently made from a number of components and services coming from a number of countries. This is increasingly becoming the case. This country sells such components and provides services to people abroad who may be making them up into one completed product and selling it.

We must take part in this trade, in which we ourselves buy products from one country and services possibly from another country and retain here in our own country the right to complete the finished and final product, in order to be able to export competitively. It is important that we have control over the final product, largely because very many types of further business flow from this. Control over the final product means that such component orders as there are for the final product are the more likely to be placed in this country because of proximity, ease of communication, and so on. This in itself can be of very great value.

In the past, it was not necessary to be quite so flexible. Then we had a full range of industry able to supply both the products and the services used in creating the final product. In the new type of international competition which exists today, if we wish to retain our share of trade we must be competitive, not only on one final product but on each of the component parts within that final product.

This is becoming more difficult as countries in Western Europe, in particular, are able to send goods from one to another and so establish their own particular specialisations. If we wish to compete effectively, we shall have to take greater advantage of this specialisation in Europe and, consequently, ease the task of claiming drawback.

I am sometimes disturbed at the concern that Customs and Excise show about the avoidance of Customs duty. We see this, for example, in Customs-free zones at airports, a question which we shall be dealing with later in the Bill. Customs-free zones have come to Britain rather later and less fully than they came to other countries. This excessive concern with avoidance is somewhat reminiscent of the Inland Revenue's obsession with avoidance. However, there is one crucial difference. When the Inland Revenue is concerned about avoidance, there is greater cause for concern, because taxation has, among many other attributes, the qualities of increase of equality, elements of fairness in some of the taxes raised, and raising of revenue.

These elements of social justice and raising of revenue are not found in the import duty to anything like the same extent. The import duty is almost solely concerned with assisting industry, with assisting exports, and with diminishing imports. Judged by these standards, there is less of a case for such excessive concern about avoidance. Because of this, I am very happy to see the new definition of "equivalent articles".

The example given by the hon. Member for Wanstead and Woodford was of considerable value in showing that when imported goods are placed against other goods in the home trade and exported there could be some avoidance of import duty. However, this is covered by the safeguard in subsection (2,b). I admit that this gives a greater administrative discretion, but I do not find this so distasteful as perhaps do some hon. Members. We have to take some risks if we are to find all the export opportunities available to us. The problem which my right hon. Friend the Member for Basset-law (Mr. Bellenger) mentioned—about chemicals coming in and duties being paid, with the consequent loss of interest on those payments—could be covered by an increasing leniency in the way in which articles are admitted under bond.

I should like to see an easing in this respect. This is something which could be quickly done and would be administratively simple. An easing in the way in which articles were allowed in under bond could put this matter right.

One of the great advantages of the new definition of "equivalent articles" concerns the large number of goods which are imported and whose product finds an outlet both in the home trade and in the export market. This is a problem for many manufacturers. They may produce a particular article from home trade sources entirely which is too dear for the export market. If they import the article, on the other hand, the duty makes it too dear for the home market.

They are, therefore, in a dilemma. They either have to have one line of home-produced goods and another of goods which have ben imported or they have to deny themselves the advantage of having long-production runs in which both can go concurrently. In some production runs, this is impossible and, so, in many industries, as a result, exports have been sacrificed. The notion of equivalent quantities, by which one can be set off against another, will lead to an increase in exports of many types of goods and as a result, I am happy to welcome the Clause.

Photo of Mr John Peyton Mr John Peyton , Yeovil

I think that the Committee will be indebted to the hon. Member for Ashton-under-Lyne (Mr. Sheldon) for one of those flashes of insight which occasionally illuminate our discussions on Finance Bills. When he told my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) that when one rises one does not sit down, he said something which needs to be extolled and noted in our records.

During this interesting and stimulating debate, I have taken the opportunity to reread the Clause. In my view—I do not intend to expand it at great length, because I realise that Treasury Ministers have other things to do than listen to this—the Clause is shot through with many phrases which I dislike.

On page 2, line 10, are the words, "Commissioners are satisfied". Later, in line 20, are the words "as appears to the Commissioners to be appropriate". In line 30, again, "as appear to the Commissioners to be appropriate". In line 33 are the words: shall be subject to such conditions as the Commissioners see fit to impose". In line 46 we see, "the Commissioners are satisfied that". There are further examples on the following page.

Over the years, Governments may come and go, but the Customs and Excise goes on for ever and it is exceedingly skilful in extracting from successive Governments this kind of legislation, which vests in it very wide powers and very large discretions. I sometimes wonder which side the Customs and Excise is on. Is it on our side? Is it really in favour of British trade, or is it there simply as an obstacle?

I know that this is to a certain extent a difficult and unfair question, but I have long been moving towards the belief that it is time that somebody had a look even at such an unchanging institution as the Customs and Excise. One of its objects in life seems to me to rewrite the Book of Genesis so that it would start with the announcement: In the beginning, God created the Customs and Excise", and the rest of the seven days, we should be told, he spent making the remainder of the world to fit the contours of Customs and Excise.

I am not making a flippant interjection in the debate. I am concerned that this remarkably powerful and rigid body, which is vested so often in our legislation with such wide discretions and powers, should modernise itself and be made to realise that it should be on the side of British traders and that at all costs tedious and tiresome delays in the sacred name of evasion must be avoided. Before the hon. Member for Ashton-under-Lyne leaves the Chamber, I want to say that I agreed with his views on this point.

4.45 p.m.

I hope that Ministers will realise that this is not particularly a party point. As I conceded at the beginning, Customs and Excise legislation is something for which successive Governments have been responsible and very often the same rather tiresome phraseology is repeated in it.

Photo of Mr Roy Mason Mr Roy Mason , Barnsley

Perhaps I ought to intervene at this stage to explain what this long and complicated Clause is designed to do. It seems unusually long—nearly three pages—and seems to be very complicated. This is, however, because we have to embody in the Clause much of the wording embodied in earlier legislation and we are referring specifically to Sections 7 and 9 of the Import Duties Act of 1958.

The Clause makes two additions to drawback. We are, in the Clause, making an effort to help exporters a little more. The two additions are what is loosely described as "equivalence" and an amendment to the arrangements for the payment of drawback on containers. The hon. Member for Worcestershire, South (Sir G. Nabarro) will be particularly interested in this.

Drawback is a simple matter. There is no difference between the two sides of the Committee on this. It has been agreed upon—this has been in operation for many years—that, if an ingredient or part is imported into this country which goes into a finished export product, the exporter may receive the drawback of the import duty. That is a clear and simple process of getting his drawback of the import duty where he has to import a part which has gone into an export product.

We discovered during the operation of drawback that there are one or two cases, not very many, in which, on occasion, a person has been importing a part or an ingredient, and, for one of many reasons—it may be lost at sea or delayed—he has been obliged to get a domestic part or ingredient which has then gone into the export product. We have decided in this Clause to call them "equivalence" and to allow the exporter the import duty drawback, provided that he still imports the ingredients similar to those which he has put into the export product from the domestic market.

This is an easement to the exporter. There are not many cases, but that is what the word "equivalence" means——

Photo of Mr Frederick Bellenger Mr Frederick Bellenger , Bassetlaw

Although drawback will be allowed on the equivalent because, for one reason or another, the manufacturer has not been able to import, must he use the import which he eventually brings into the country in the same way to produce goods for export, or could he use it for the home market?

Photo of Mr Roy Mason Mr Roy Mason , Barnsley

The person concerned can use it for home market production or for export provided that he imports a similar part to that which he is obliged to get from the domestic market to put into the export product.

The other addition is the Amendment about drawback on containers. In the past, this has been so tightly drawn that when there has been a wrapping around an export product, that wrapping alone has been entitled to the drawback. For example, if we were exporting herrings and they were wrapped in a Cellophane wrapping, only the Cellophane wrapping would be entitled to be recognised—[Interruption.]—if it were eligible, and not the wooden crate which surrounds the Cellophane wrapper.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

The hon. Gentleman misunderstands me. He said "if it were eligible". I intervened to say something. I apologise for doing so sedentarily. But I notice that the Chancellor of the Exchequer is much more sedentary. He is fast asleep, and I must wake him up. What I said was "dutiable", not "eligible". That is a very different matter.

I am on the nub of the issue on the matter of export containers, and the hon. Gentleman must be very careful to tread warily in this matter. I carefully explained that softwood and hardwood coming into Britain for use in export containers are not dutiable on import, but plywood is dutiable. Therefore, in the realm of heavy containers it is the import duty on plywood only, at 10 per cent., which should be remitted in order to prevent a compendious and complex process of recovering it under drawback.

Photo of Mr Roy Mason Mr Roy Mason , Barnsley

The hon. Gentleman misconstrues what I am saying. I am referring to our amendment about the packaging of an export product. The provision has been so tightly drawn that only the initial cover—it might have been a Cellophane bag—and not the crate was eligible. I cited the export of herrings, where there is a Cellophane wrapping and then a crate. Because of the tightness of the law, only the Cellophane wrapping was recognised and not the wooden crate—the timber which the hon. Gentleman might have imported going on to an export product. Those are the two additions.

The hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) raised a number of points. He complained about a number of firms who had to make an effort to prove drawback, and said that the effort was so much that they did not think it worth while. The Committee will agree that it must be seen that ingredients have been imported and then exported in a finished product. The revenue must be protected, and no exploitation must be allowed. If firms think it worth while they will make the effort to apply for drawback.

The hon. Gentleman asked whether this Clause and its complications, referring to equivalence, means that the Government want some administrative corner cutting. That is not really it. It is an easement for exporters.

The hon. Member spoke about imports of an expensive ingredient and the possibility of there being a cheaper ingredient at home and wondered whether there would be a hidden export subsidy if one or the other went in. I can assure hull that the Commissioners will take into consideration the difference in values between an imported ingredient and a domestic one. I also assure him that there is no attempt here at export subsidy. If there were an export subsidy, it would contravene G.A.T.T. and E.F.T.A. The practice that we are introducing is used in other countries, particularly France, Sweden, Italy and America.

The hon. Gentleman also talked about interchangeability. There must be similarity when one is using a domestic ingredient in an export product because an article from abroad may be delayed and the export order may be delayed. The items must be similar, but we must give Customs some flexibility. It might be wire, and the colour of the outer covering might be different—blue or red. If it is a non-essential item it can be ignored, but there must be similarity. I emphasise that we must give Customs some flexibility in that regard. The hon. Member also mentioned the burden of proof. It rests upon the Board of Trade in the sense that the Board must be satisfied that it is an export order, and the Customs must be obliged to check it afterwards.

Photo of Sir Raymond Gower Sir Raymond Gower , Barry

Surely the burden of proof lies with the person who is exporting. He has to establish it with the Board of Trade. It does not lie with the Board of Trade, as the hon. Gentleman said.

Photo of Mr Roy Mason Mr Roy Mason , Barnsley

The Board of Trade has to be satisfied that it is an export order. The person exporting, logically, would be making an application and would have to fill in a form and explain it. The burden rests with the Board of Trade to determine that it is an export order. When exporters are claiming drawback they have to fill in a long, detailed form, and there has to be physical examination by Customs afterwards.

Photo of Mr Patrick Jenkin Mr Patrick Jenkin , Wanstead and Woodford

My point was not exactly where the burden of proof lies. That is clear in the Clause. It states that the Commissioners must be "of the opinion". That presumably means that the applicant must satisfy them. My question was how heavy was the burden of proof that exports must be conduced to or encouraged that they would not take effect without the relief being granted, or that it would merely be an assistance to them, or that the exports would be more remunerative? These are three very different degrees of the extent to which "conducing to" can be interpreted.

Photo of Mr Roy Mason Mr Roy Mason , Barnsley

I will not get involved in the argument between the hon. Gentleman and his hon. Friend.

Photo of Mr Patrick Jenkin Mr Patrick Jenkin , Wanstead and Woodford

This is not an argument between my hon. Friend and myself. It is a question of how far one must go to satisfy the Board of Trade that exports will be "encouraged", to use a neutral word.

Photo of Mr Roy Mason Mr Roy Mason , Barnsley

How far one must go to satisfy the Board of Trade that exports will be encouraged? We have introduced a whole range of exports assistance and encouragement. This is just another one. If a person importing ingredients for export products makes application for drawback there must be Board of Trade examination followed by a physical examination by Customs. This is the general procedure. The hon. Gentleman is talking about explaining to firms how best we can do this. I should have thought that the mere fact that it is in the Finance Bill advertises it. Also, the Board of Trade will obviously explain in detail how it is to come into operation. If any hon. Members can think of ways and means of helping us to publicise it, we will consider them.

My right hon. Friend the Member for Bassetlaw was right. This is another help to our exporters among the battery of aids that we have already introduced. There is no set time scale when one imports a part and it is going into an export product, but a connection must be seen between the imported ingredient and the exported product. In most productive processes this can be seen.

The hon. Member for Worcester talked about his packaging——

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I am not the hon. Member for Worcester. I am the hon. Member for Worcestershire, South. I do not want to be mixed up with my hon. Friend the Member for Worcester (Mr. Peter Walker) on the Opposition Front Bench.

Photo of Mr Roy Mason Mr Roy Mason , Barnsley

The hon. Member for Worcestershire, South referred to the problem that he had been having with regard to his plywood packaging. I have been led to believe, even before the debate began, that he has been helped considerably by the Customs on this and that the Customs are doing their utmost to make sure that his problem is eased a great deal. However, I am sure that he will be interested in subsection (7) where a further step is being taken to help him by loosening the definition of packaging so that it is not the immediate cover which counts but a wooden crate as well.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I am not helped, neither are exporters helped, unless the hon. Gentleman will be unequivocal in reply to this question. The Clause says in subsection (2,a,ii) "either by remission". The gravamen of my case to cut out the vast amount of paperwork between Customs and Excise and thousands of exporters is that we want to get the import duty on plywood removed so that it is not paid at all, subject to confirmation later that the plywood has been used for the purposes of contributing or conducing to exports.

Photo of Mr Roy Mason Mr Roy Mason , Barnsley

I am advised that what the hon. Gentleman is asking for would not be possible. It would undermine our basic concept of drawback.

I agreed with my hon. Friend the Member of Ashton-under-Lyne (Mr. Sheldon) that discretion must be given to Customs on the question of equivalences, especially in respect of production runs. In a production run there may be domestic ingredients going through with a small percentage of imported ingredients, and if there were a sudden demand arising from an export order one could not separate the whole process and have a complete, detailed check on the imported ingredients throughout the run just to make sure that the man was validly getting drawback. This is where Customs must have leeway to determine how best the matter can be dealt with.

There will not be many such cases. Our estimate is that about £500,000 of revenue will be involved in the cases which may be recognised in respect of equivalence assistance. These are helpful additions for exporters, and I hope that the Clause will commend itself to the Committee.

Photo of Sir Raymond Gower Sir Raymond Gower , Barry

We can agree that the addition to the drawback principle which has obtained for some time increases the benefit to the exporter, but it covers only a limited territory.

There is one main point which the hon. Gentleman has not answered. It is vitally important that this power, as far as it goes, should be exercised to the very maximum. There may be some concern in the minds of hon. Members on both sides whether the wording referred to by my hon. Friend the Member for Yeovil (Mr. Peyton) may lead to a mystique being applied in the administration of these powers, and whether it may mean in some cases that they will not be used to the maximum. We should have liked an assurance from the hon. Gentleman that terms such as "in the opinion of the Board" and "as the Board see fit to indicate" do not mean that these powers are designed as an absolutely basic and essential protection for the revenue and no more.

As a simple example of contrast, I cite the powers in respect of grants under B.O.T.A.C. Such powers are different. Those grants cannot be allocated to every person who applies. But in the case in question surely it should be the objective of the Government and the Board of Trade that these powers should be applied in every instance where the circumstances are appropriate for them to be used. Can the hon. Gentleman or his right hon. Friend give an assurance that the wording is not designed to narrow the application of the powers? He has not done so yet, but it is important that he should.

5.0 p.m.

I agree with the hon. Gentleman. I was not quite sure when I heard the speech of my hon. Friend the Member for Kidderminster——

Photo of Sir Raymond Gower Sir Raymond Gower , Barry

I am sorry. I mean my hon. Friend the Member for Worcesteshire, South (Sir G. Nabarro).

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I accept my hon. Friend's apology.

Photo of Sir Raymond Gower Sir Raymond Gower , Barry

I was not quite sure when we heard the speech of my hon. Friend the Member for Worcestershire, South whether he had drawn this Clause himself, or had received some modest drafting assistance from the Government, but when I heard the Minister replying I realised that it was a Government-drafted Clause.

I want also to emphasise—and I hope that the Minister will take note of this—that I believe that this equivalence doctrine may become of greater importance as industry, our economy and the economies of other countries tend to become more sophisticated, because although we are now discussing what is perhaps a minor part of the whole range of exports, circumstances could make this a part of increasing importance. I hope that it will not be minimised because it is now of relatively smaller importance.

Photo of Mr Michael Alison Mr Michael Alison , Barkston Ash

There is a drafting point in the Clause which I believe to be of some importance and significance, a view which is borne out by the Minister's use of the word "ingredients". Lines 11 and 12, on page 2, use the phrase: manufactured or produced from, equivalent articles. I am sure that the Minister will agree that as the drafting stands that could be held to apply not to ingredients, but to what could be called producer goods. I would wager that if the importer of a machine tool, for example, went to the High Court on the basis of interpretation, he would win his case for saying that "manufactured or produced from" referred not to an ingredient, but to a producer good.

Perhaps we can follow this through. If machine tools are included in the ambit of the Clause, a very substantial and interesting departure from Government policy as hitherto announced has been made. To look at the golden thread, to use the phrase of my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin), if the goods in question are a machine tool and the exportation of other goods is the motor vehicle and the equivalent articles defined in paragraph (b) are likewise machine tools, it is perfectly thinkable to interpret this provision as applying to producer goods and machine tools.

I agree that the Government would probably say that they were saved from that interpretation by the phrase in subsection (1,b): the Commissioners are satisfied as to those other goods and by the phrase, "as the Board sees fit", which is the optional permissive discretion which is given to the Board of Trade.

But let us remind ourselves that there is a strong case to be made out for more flexibility in the importation of machine tools. I know that it is Government policy to try to discourage the importation of machine tools—the surcharge is a case in point—by discrimination against manufactured articles. But there are many people who feel that the role of this country is not to try to produce every commodity, but to make some sort of attempt at specialisation, and there are many who, in spite of the surcharge, are continuing to import machine tools because they are essential to exports and cannot be produced in this country.

I hope that the Government will admit that this provision has been deliberately drawn in such a way as to make it possible for machine tool producer goods to come in with relief against import duties, particularly the surcharge. It is of some interest to note that the Government are taking permissive powers—if this is the correct interpretation—to amend legislation which has already been most carefully spelled out in terms of the articles which may be imported and which is not due to expire until November of this year.

I hope that the Minister can assure us that he has drawn this provision deliberately widely to enable manufacturers who export manufactured goods and who need imported producer goods, machine tools, so to get those machine tools without having to pay the surcharge or the import duties. Perhaps in confirming that he will indicate how the Government would propose in respect of the export element of the products of such imported machine tools to determine what quantity or part of the goods produced by machine tools are to be exported and what part will remain an imported good.

5.15 p.m.

Photo of Mr Terence Higgins Mr Terence Higgins , Worthing

Moving the Second Reading of the Finance Bill, the Chief Secretary said: I hope that I may be allowed to depart on this occasion from normal tradition in introducing a Finance Bill, which has been to go through the Clauses one after other, explaining the effect and purpose of each."—[OFFICIAL REPORT, 25th May, 1966; Vol. 729, c. 476.] I am sure that those of us who have listened with interest to the debate will feel that some earlier explanation on Second Reading might have saved hon. Members a great deal of thought and confusion. I also think that in view of the complexity of the Clause the Government might well have considered an Explanatory Memorandum to the Bill, which would have been helpful.

Following the Minister's reply, we find ourselves in an extraordinary situation. He started by dealing with what he said the Clause loosely described as equivalents. We cannot have a Clause of this kind in which the definition of such a vital word is only loosely described.

It has also been stressed by my hon. Friend the Member for Yeovil (Mr. Peyton), among others, that the Board of Trade will be given a great deal of discretion. It seems to have a discretion on the one hand between the very narrow points which the Minister of State has covered and, on the other hand, in the far broader possible interpretations of the Clause which my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) spelled out. Surely we need to clarify whether the Clause is drafted as widely as it appears to be drafted and whether interpretation within these two very wide limits is to depend entirely on the Board of Trade and the Commissioners themselves.

In this connection, it is relevant to stress the points which my hon. Friend made about the need for publicity, because it is not sufficient simply to put the Clause in the Bill and mention it in passing in the Board of Trade Journal without spelling out in some detail in the House of Commons what it means and giving it as much publicity as possible. Are the materials covered by the Clause simply to be notified by the Commissioners as the Board of Trade feels fit, or are people to be allowed to apply to the Board of Trade to have allowance made for them, with a notification resulting from their application?

The Minister's explanation of the Clause dealt with two quite simple matters. He stressed the case in which a raw material could not be obtained from abroad and a domestic raw material equivalent was used instead. What he did not make clear in his explanation in response to an interjection from this side of the Committee was whether, if an additional piece of home material was used, it would be possible for people to claim drawback twice.

From what he said, I am not clear whether that is so. If this is the sole purpose of the Clause, surely it could have been covered much more tightly. It would seem that it is open to the much wider interpretation spelled out by my hon. Friend the Member for Wanstead and Woodford who asked a series of relevant questions. I hope that the Minister will feel able to answer my hon Friend's specific questions.

First, my hon. Friend asked about the time scale, over what period would it be considered whether it had not been possible to obtain the raw material on the basis originally intended, some substitute or equivalent being provided instead. Secondly, my hon. Friend referred to the question of whether it was conducive to exports. It would now appear from what the Minister has said that "conducive" in this sense relates merely to the very narrow point which he made.

In addition, would it also cover the kind of problem in which, for example, there is the import of vegetable oils, some from one source and some from another, and some perhaps from a home source, all going into the same tank and then some being re-exported? Is it his intention to cover cases of that kind as well as the very narrow case which he mentioned?

Thirdly, my hon. Friend asked what was the definition of "equivalents". Surely we ought to have a much tighter definition than we have been offered so far, not merely whether the stuff is of a different colour or something like that, but what allowance is to be made for any difference in price of the goods which could have been imported and the price of those which could be obtained from the domestic market. Fourthly, my hon. Friend asked what criteria of the national interest were to be used in determining whether relief should be given.

Finally, and perhaps most important, he asked about the protection of domestic producers. It appears that domestic producers could be substantially influenced by the possibility of a manufac- turer in this country being able to import goods in substitute for domestic goods, then to be re-exported, obtaining essentially duty-free raw materials. The degree of protection for the domestic producer would seem to be substantially and significantly reduced in the provision of components for export.

I hope that we shall have a clearer definition from the Minister. It appears that the Clause can be very broadly interpreted in the way in which my hon. Friend the Member for Wanstead and Woodford interpreted it. It could be used as a means of encouraging our exports by promoting them rather than removing administrative inconvenience. If the Clause is drafted as widely as that, is it not open to objection from our fellow members of G.A.T.T. and E.F.T.A., because it appears to leave discretion to the Commissioners? Surely it is most undesirable to have a Clause as broadly defined as this relying to so large an extent on the interpretation by the Commissioners.

I hope that the Minister will feel able to answer the very relevant questions which have been put, and we shall listen with interest to what he has to say.

Photo of Mr Norman St John-Stevas Mr Norman St John-Stevas , Chelmsford

I should like, first, to congratulate my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) on the manner in which he opened this very important debate. He was taken to task by my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) for being academic. If it was academic, his speech was academic in the best sense of the word in that it was objective, impersonal, and well-informed. He was accused by my hon. Friend the Member for Worcestershire, South of confusing washing-up bowls with the substance of British industry, but that was an error which seemed to be compounded by my hon. Friend the Member for Worcestershire, South in confusing the substance of British industry with what I thought to be an amalgam of plywood and himself, with the latter commodity playing the dominant rôle.

My hon. Friend the Member for Wan-stead and Woodford put a number of extremely important and probing questions of detail to the Minister. I hope that before the debate on the Clause is over we will receive answers to these questions, some of which were also posed by my hon. Friend the Member for Worthing (Mr. Higgins). I hope, also, that we will have some comment from the Minister on the important point made by my hon. Friend the Member for Barkston Ash (Mr. Alison).

I am concerned not so much with the detail as with the general principle that lies behind the Clause. My hon. Friends and I welcome any relief from taxation and duty, however mild, which may be conceded by the Government. It is, after all, in accordance with our general policy of reducing the incidence of taxation and removing clogs from the export trade.

However, there is an important matter of principle involved amid the verbiage of the Clause because it illustrates the extremely dangerous tendency of the Government to confer wide discretionary powers on civil servants and officials of the Customs service to the exclusion of the rule of law. This was graphically illustrated by my hon. Friend the Member for Yeovil (Mr. Peyton) in his reference to the Old Testament.

There is not a single discretion in the Clause. There is a double one. First, there must be a recommendation from the Board of Trade that the granting of relief is conducive to the exportation of other goods. Bound up with that is a further discretion, even at this stage, when the Board of Trade's officials and the Minister may impose such conditions on the granting of relief as … would be expedient in the national interest What an extraordinarily vague phrase that is. After having got through that ambiguity, one finds another exercise of discretionary power by the Commissioners of Customs and Excise, who may give or withhold relief, apparently at will. In these circumstances, with discretion so broad and a Clause so vaguely worded, it is vital that some guidance is given—I hope it will be given today—about the principles on which this discretion will be exercised, because we have had no indication of that so far.

Another consideration of vital importance is that provision should be made for decisions about relief in particular cases to be widely publicised so that businessmen and industrialists may judge whether or not the goods in which they are dealing qualify for relief. In a slightly different form this point was made by the right hon. Member for Bassetlaw (Mr. Bellenger).

I had hoped that the Minister would say what plans he has for letting all the interested parties, including hon. Members, know what is going on. But there was no sign of any such plan—of any grasping of the importance of spreading this information to the interested parties as widely and as quickly as possible. Only if this is done can there be an assurance in practice that these powers are not being misused.

It should be remembered that there may be a conflict between the two discretions. The Board of Trade may recommend relief while the Customs authorities may withhold it. What is the unfortunate importer or manufacturer to do in those circumstances? Surely there should be some provision for him to escape from being ground between these two millstones.

We accept that there must be a degree of discretion in this matter, but the Committee is entitled to assurances about the manner in which this discretion will be exercised. We therefore ask, as a minimum, for an indication of the predictable lines of principle on which the Minister intends that the Customs authorities will act, for the widest publicity to be given to the decisions which are taken and for an assurance that any decisions which are taken will be speedily made public.

Photo of Mr David Howell Mr David Howell , Guildford

The Minister's remarks helped to clarify some facets of this incredibly obscure and complex Clause, but he said, rather revealingly, that this was part of a battery of aids which the Government were bringing to exporters. If this is part of the campaign to raise exports at this critical juncture, what an incredible place to hide it.

It would be helpful if the Minister would say what part the Clause, and this extension, is in the overall export strategy, if there is such a strategy, of the Government. At present, many businessmen and exporters are bewildered at the variety of export aids; export rebates, cheap credit for exporters, the S.E.T. rebate, overseas trade missions, and now the one we are discussing. Against the background of the extremely gloomy trade figures of the last few days and the critical situation which exists, it is time to think about consolidating and clarifying all these ideas on export aids so that something may be done and that businessmen and exporters can understand exactly where they stand.

Photo of Sir Harmar Nicholls Sir Harmar Nicholls , Peterborough

From the way in which my hon. Friend listed those export aids it might appear that a great deal is being done. In fact, none of them amounts to a row of beans for helping exports, and that should be on the record.

Photo of Mr David Howell Mr David Howell , Guildford

I thank my hon. Friend for reinforcing what has been said about the depressing position of exporters.

Before we part with the Clause it would be interesting to know from the Government how they see this provision as part of their strategy and whether it is intended to supplement the rebate through the S.E.T., which will have a small effect in offsetting the damage which the S.E.T. will do to exporters by taxing services. Will this extension help to offset the effect of the S.E.T. on the services used by exporters?

In short, is the Clause an additional ingenious device to offset the effects of the unhappy and misconceived S.E.T. because, if it is, it would be helpful if the Government came clean and said exactly for what it is intended and what damage it is designed to repair? At present, we do not know whether it is a serious weapon and part of a genuine export strategy, which I hope it is. If it is, my only comment is that it seems peculiar that it should be buried in this obscure and complex Clause. Even more peculiar is this ill-defined arrangement between the Board of Trade and the Customs for deciding who is entitled to what.

We want to know whether this is part of a serious strategy to increase the competitiveness of British exporters or whether it is a bright idea thrown into the Bill and one which, therefore, will add to the mass of muddle for which this Administration is becoming justly famous.

5.30 p.m.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I rise for only two minutes to press the Minister of State, Board of Trade, about the case with which I illustrated my arguments. I must point out to my hon. Friend the Member for Chelmsford (Mr. St. John-Stevas) that I do not accept his sneers about my advocating the case of plywood. Evidently he did not listen carefully to my speech. Plywood is the most important single commodity employed in packaging British exports. It is brought into this country with a duty of 10 per cent. I declared my interest, very properly, as a director of the largest plywood importers and distributors in Britain. I have, therefore, a healthy stake in the export trade. I am sorry that my hon. Friend descended to sneers.

Photo of Mr Norman St John-Stevas Mr Norman St John-Stevas , Chelmsford

I was not sneering at my hon. Friend; I was protesting at the sneering of my hon. Friend, directed to a colleague earlier in the debate.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Worcestershire South

I am sorry. I did not hear that.

I declared an interest and I related my personal experiences from the Chancellor of the Exchequer's room in 1961, right up to date, in this context, which has possibly produced this Clause in a Finance Bill. It is, therefore, with much regret that I heard the Minister of State gabble—I was not quite sure what he said, because he spoke so quickly—an implication that the Clause would not make any difference to the position in relation to these large quantities of dutiable plywood imports, on which, I readily concede, the import duty can be reclaimed by the exporters—but only after a huge amount of work.

I refer to the point made by the right hon. Member for Bassetlaw (Mr. Bellenger), who pointed out that it often takes nearly 12 months for the Customs and Excise authorities to repay import duty, all of which industry has to finance. If the Minister of State has conceded that the position in respect of plywood is not ameliorated or improved as an aid to exporters by means of the provisions of the Clause, I want him to tell the Committee why.

I should also like to know why the words to which I drew his attention, "either by remission", are not applicable to the most formidable case that I have put forward to aid the British exporter— the case at which my hon. Friend the Member for Chelmsford glibly sneered. I hope that the Minister will now apply himself to the point and tell me why the phrase "either by remission" does not apply to the complex plywood drawback situation.

Photo of Mr Roy Mason Mr Roy Mason , Barnsley

I do not intend to reply to the point made by the hon. Member for Worcestershire, South (Sir G. Nabario)——

Photo of Mr Roy Mason Mr Roy Mason , Barnsley

—because he has run this personal campaign for a long time. He is trying to extract from the Government wholesale remission on all plywood imports and not merely those which go into material which is re-exported. The export has to be proved, and particulars of the trade have to be produced. Until it is proved he will not get full remission. I shall not go into that question further.

I thought I had already answered some of the points which have been raised, especially by the hon. Member for Worthing (Mr. Higgins). One point concerned the time scale. No time scale is laid down. It cannot be laid down. Nevertheless, it is essential that there should be a connection between the import and export of goods. In many production processes this can be related, and a time scale can be roughly worked out.

Another point concerned domestic producers. One or two may be concerned about the situation, but there is no real cause for anxiety. The interests of these producers will be constantly watched. Some cases have come forward during recent operations which have illustrated that there is some worry about the matter, and we have now introduced the principle of equivalence to help them, to the extent of £500,000 a year. The question of imported oils going into a production process alongside domestic oils was raised. There may be a temporary shortage or a slow-down in the supply of foreign oils and the whole production process could be done with domestic oils. In that case equivalence could be claimed, provided that at a later stage foreign oils came in again.

Subsection (3) covers the question of claiming drawback twice. It is put in to make sure that this cannot be done. There was also the question of the wording of the Clause in connection with machine tools. The whole of this wording has been taken from the 1958 Act, and I can give an assurance that machine tools are not involved in the way suggested. Finally, it was suggested that the Clause was too loosely worded. The point is that the Customs and Excise authorities and the Board of Trade will not be rigid in their application of this provision. The spirit of the Clause is to provide help.

Question put and agreed to.

Clause ordered to stand part of the Bill.