The Government have now completed their examination of the Textile Council's Report on Cotton and Allied Textiles.
The report addressed a number of recommendations to both the Government and the industry, and these have been the subject of continuing consultations with the council.
The recommendations to the industry concerned, in particular, the need to increase the rate of re-equipment, to extend multi-shift working, and to develop closer technical and commercial links between the different stages of production and marketing. I attach great importance to these three requirements, and I am working closely with the Textile Council on their implementation.
The main recommendations to the Government concerned future policy on imports and financial assistance to encourage re-equipment.
On import policy, the council recommended that the present quota system should be replaced by a tariff on imports of cotton textiles from the Commonwealth preference area at a rate not less than 85 per cent. of the most-favoured-nation duties. On cotton cloth, the main item of trade, this would mean a duty of 15 per cent. The council believes that a tariff would be a better solution both for the industry and the country than a continuation of quotas. It would offer a margin of protection that was both stable and predictable, so enabling the industry to plan ahead with confidence. A continuation of quotas, on the other hand, would not give the industry the confidence or the incentive to undertake the investment needed to make it more competitive.
Imports of cotton textiles into Britain, the greater part of which enter duty-free, have now reached 53 per cent. of total domestic consumption. This is a far higher proportion than in any other major developed country. In these circumstances, we have the alternatives of re-negotiating the present unsatisfactory quota arrangements, or adopting a tariff which would be broadly in line with those of other developed countries.
The Government have decided that the right course is to introduce, as from 1st January, 1972, a tariff on imports from the Commonwealth preference area on the lines proposed by the Textile Council. From that date the existing general quota system would be terminated; and the Government would consider the use of quotas only on particular products under the Long-Term Cotton Arrangement of the G.A.T.T., and only if total imports of cotton textiles rose significantly above the present level and caused disruption to the market in those particular products. These decisions would, of course, be subject to any modifications that might be required if we joined the E.E.C.
In reaching this decision I have taken account of the fact that a number of countries in the Commonwealth have rights to duty-free entry into the United Kingdom market; and I shall now initiate the necessary discussions with the Governments concerned. I am equally conscious, on the other hand, that cotton textiles have long been treated internationally as a special case; and this decision will not create a precedent for further departures from our traditional policy on Commonwealth trade in advance of any general change of system which might be required by our entry into the E.E.C.
The effect of the new arrangement should be to reduce imports from the developed countries which have benefited markedly from the existence of quota restrictions on imports from the developing countries. There is no reason to think that, with the possible exception of India, the developing countries of the Commonwealth generally will be able to export less to Britain over a tariff of this amount than they would under a continuation of the quota system.
So far as India is concerned, the Government will, when the time comes to determine the level of aid to India after 1972, take into account, against the background of India's general aid requirements at that time, any adverse effects on her exports arising from the tariff.
I turn to the question of financial assistance to the industry. The Textile Council proposed that firms in the traditional textile areas should be offered the 40 per cent. rate of investment grant which is payable in the development areas. The Government have decided against this both on general grounds of regional policy and because in present circumstances, including, in particular, the position on public expenditure, we would not be justified in singling out this industry for financial assistance on such a scale.
The council also proposed that plant worked on a multi-shift basis should qualify for a higher than normal annual allowance for depreciation. The Government attach importance to any proposal which might increase the utilisation of new machinery, and the Inland Revenue is prepared to consider an application by the Textile Council for an increase in the depreciation allowances on textile machinery.
In addition, the two consultants whom I have appointed to advise me on mergers between medium and small-sized firms in the industry are in close touch with the I.R.C. They have seen more than 70 firms, and enough progress has been made to enable the I.R.C. to begin discussions on prospective mergers.
The proposal to replace quotas by a tariff forms an essential part of a developing policy designed to help this industry to survive and compete in an international environment. I have already announced decisions on the structure of the industry which should give the large firms the stability they need to proceed with their internal reorganisation and integration, while encouraging a much-needed process of amalgamation amongst the small and medium firms.
Today's decisions carry the policy a crucial stage further. Successive Governments have failed to come to grips with the industry's basic problems; and the industry itself has failed to adapt sufficiently to changing circumstances. I hope that the decisions that I have announced, provided that they are accompanied by a clear determination on the part of both sides of the industry to carry out the changes recommended by the Textile Council, will enable the Lancashire textile industry once again to take its place in the forefront of British industry.
This is a departure from the Ottowa Agreement and, although it is in connection with the textile industry, which occupies a unique position in our international trade, a number of questions need to be asked.
The right hon. Gentleman said that the main impact of these tariff proposals would fall on exports from the developed countries. Would he tell the House what proportion of total domestic consumption of cotton textiles now comes from developed countries?
Secondly, will he tell us what proportion of total domestic consumption of cotton textiles, remembering that it is now a multi-fibre industry, will come from all imports after 1972? It is now at the large figure of 53 per cent.
Thirdlly, not once in his statement did the right hon. Gentleman mention a point on which the Textile Council laid enormous emphasis—that the change from quota to tariff must be accompanied, in the view of the council, by stronger action against dumping. Will the right hon. Gentleman tell us whether the Government propose any action to protect the British industry from exports from countries which indulge in hidden export aids and other dumping practices?
Will the special depreciation consideration to be given for the multi-shift use of textile machinery be extended to other industries whose machinery is used on a multi-shift basis?
The right hon. Gentleman promised that when he made this statement he would give the Government's answer to the Monopoly Commission's recommendations in connection with rayon cellulosic fibres. Will he now give the Government's answers on those recommendations.
I do not have a precise figure for the proportion of consumption that comes from imports from developed as opposed to developing countries, but, being a mathematician, the right hon. Gentleman can work it out if I say that one-quarter of total imports come from developed countries and that total imports take 53 per cent. of domestic consumption—these are volume figures—I leave the right hon. Gentleman to work out the exact answer.
Naturally, one cannot give any precise figure of the proportion that imports will take of the the total market after 1972, but I judge that it will be lower than the present proportion of 53 per cent.
I have told the Textile Council that in my view the powers we now have to deal with dumping, powers that have been strengthened in legislation which went through Parliament last Session, are fully adequate to deal with any of the problems which the textile industry may meet in that respect.
As for extending the higher depreciation allowance to other industries, I prefer to wait and see what happens when the industry makes its application to the Inland Revenue.
I answered a Question about the Monopolies Commission's recommendations on cellulosic fibres which was put this afternoon by my hon. Friend the Member for Oldham, East (Mr. Mapp).
Is my right hon. Friend aware that his announcement of the substitution of tariffs for quotas will be generally if not universally acclaimed in the industry? To what extent do his proposals fit in with the discussions which I presume he and his Department have had with the employer and trade union organisations in the industry?
I am obliged to my hon. Friend for his first question. I am sure that he is right to say that the decision will be welcomed by all the most progressive elements on both sides of the industry. The main discussions which I have had since the publication of the Textile Council's Report on 31st March have been with the council itself, which, of course, represents both sides of industry.
Is the right hon. Gentleman aware that, in so far as his statement gives certainty to the industry, it will be welcome? However, does he recognise that the fact that there is to be no transitional period, coupled with the fact that he has refused the 40 per cent. investment grant, will place a great number of small firms in an extremely difficult trading position? Will he re- consider the question of the advisability of having an intermediate transitional period particularly to protect that type of firm?
I agree with the hon. Gentleman that an element of certainty is the key to the whole problem. This is one of the strongest arguments for the tariff solution. There will, of course, be a transitional period of one year, 1971, while the present quota system is continued before the tariff comes into effect on 1st January, 1972.
I thought closely about the 40 per cent. investment grant, but, given the fact that many large and medium-sized firms have money which I think they will now spend on investment following the decision that I have announced, and that there are amalgamations among the smaller and medium-sized firms, which I hope will be encouraged by the I.R.C., I did not think that one could make out a case for singling out this particular industry for this kind of exceptional treatment.
While the industry will, of course, be grateful for anything that happens along these lines, may I ask my right hon. Friend whether he is aware that there is at least one dissentient voice on the question of the 15 per cent. tariff, particularly if it is to be limited to Commonwealth countries? Would he explain why the Government are repeatedly so adamant on the question of the most effective method of dealing with our problems? I refer to import controls. Would he explain the effect of his statement on the E.F.T.A. countries?
It comes as no surprise to find that there is one dissentient voice. Indeed, I shall be surprised if there is only one such voice as the discussion on this decision develops. My hon. Friend asks why we have not imposed import controls as opposed to a tariff. The reason is that I have been convinced by the careful arguments made by the Textile Council that this is the best method of restricting imports. The E.F.T.A. countries are not affected by this decision; in other words, imports from E.F.T.A. remain duty free.
Would the right hon. Gentleman clarify what he has said about the level of the tariff? Does he realise that all depends on the level of the tariff, since the industry may find that it has thrown away the shield of quotas and has received an even flimsier shield in exchange?
The level of the tariff is the level proposed in the Report of the Textile Council; that is, 6½ per cent. on yarn, 15 per cent. on cotton cloth, which accounts for the greater part of the trade, and 17 per cent. on most garments. It is, therefore, the same level as that proposed by the council.
Is there not some evidence to show that the dissentient voice on the Textile Council had some merit in that at least some of the 15 per cent. could be absorbed by foreign textile producers? Before agreeing to remove the quota system altogether, would my right hon. Friend make inquiries abroad to see just how this will affect the total imports of textiles into this country?
Further to the question asked by my hon. Friend the Member for Stalybridge and Hyde (Mr. Blackburn), since E.F.T.A. countries like Portugal will be able to continue to export to us, is my right hon. Friend aware that this will be viewed with considerable concern in that Portugal will be able to continue exporting to the detriment of Lancashire?
Portugal is only one of a number of problems that will arise under the tariff solution. I must make it clear that the alternative solution—that is, a continuation of quotas—besides being much less satisfactory for the industry would have led to as many, if not more, international complications than the imposition of a tariff.
The answer to my hon. Friend's question about the likely effect on imports is that I have made the best calculations that I can and I believe that this decision will have the effect of reducing imports as a proportion of total consumption.
I join hon. Members in welcoming the end of uncertainty, thus enabling the people of the North-West to get on with the job at long last. Would not the right hon. Gentleman agree, however, that perhaps his statement will do more to help the industry than the places in which the industry has hitherto been placed? In other words, might it not have been better to have done more to implement all of the Hunt Report?
Is my right hon. Friend aware that the scope of his statement will be generally welcomed on this side of the House, by the industry and by the country? Did he consider—and, if so, did he ultimately reject—the idea of having a common tariff for the multi-fibre industry, thereby rejecting the idea of having separate proposals, one for multi-fibres and the one he has announced today?
Would my right hon. Friend consider opening negotiations, possibly of an informal nature, with E.F.T.A. countries such as Portugal, Austria and the Irish Free State on this subject? Although his statement will be broadly welcomed, has he considered the possibility of it opening back doors for those countries to the detriment of Lancashire?
I considered the question of having a single tariff for all textile fibres, whatever sort they are, but I did not think that the case was sufficiently made out for it, although the tariff which I have announced is broadly the same as the one we now have for man-made fibres. I do not have any intention at present of entering into the sort of consultations my hon. Friend mentioned at the end of his questions.
Is the right hon. Gentleman aware that the quota system at least has the advantage of discriminating in favour of Commonwealth producers? Is he satisfied that the new system will not sacrifice the interests of Pakistan, India and Hong Kong to Japan, Korea and other equally more or less underdeveloped countries?
One must take the countries separately. It is impossible to generalise. One must consider them one by one. I said that India may possibly come out less well under a tariff system than under a quota system, though, in practice, I think that even under a quota system India's exports might have dropped. For this reason I particularly referred to India. I think it unlikely that either Hong Kong or Pakistan will suffer significantly under a tariff system.
Is my right hon. Friend aware that his statement will be doubly welcome in North-East Lancashire, since it follows the announcement of massive Government help for that area? Without wishing to be grudging, will my right hon. Friend look at the position of Portugal, the levels of imports from which have all along been of great concern to the Lancashire industry?
I am grateful to my hon. Friend the Member for Accrington (Mr. Arthur Davidson) for his opening remarks. I assure him that I am very much aware of the concern which is felt in the industry on the question of Portugal. This is, naturally, an issue which I keep very carefully under review.
Is my right hon. Friend aware that his acceptance of many of the recommendations of the Textile Council will be widely welcomed, as will his claim that he expects to see the proportion of imported textiles reduced? Will he assure us that if that does not happen he will propose further action to ensure that the industry is protected?
I, too, urge the right hon. Gentleman to reconsider the position of Portugal. Is he aware that Hong Kong might suffer badly from the institution of tariffs and will feel particularly resentful at the position of Portugal when Hong Kong is our largest dependent territory overseas?
I have said that I carefully and closely watch the case of Portugal. However, one must not get Portugal out of perspective in considering this matter. Our imports from Portugal over the last year or two have been running at substantially lower levels than they were three or four years ago.
Would my right hon. Friend assure the House that in reaching this decision he has got a correct balance between the needs of Lancashire and the various other needs of, for example, the developing countries along with our own needs, taking into account the movement of capital goods and goods of a technological character in the export market?
I think that this is a solution which preserves a balance between these various factors. I am certain that it is the right solution for Lancashire. On the other hand, on the best calculations that we can make, the effect will be felt not so much in the developing countries as a whole as in those developed countries which have recently significantly increased their exports to us, partly because of the existence of quotas on the developed countries.