Orders of the Day — Shipbuilding

– in the House of Commons at 10:16 pm on 20th November 1990.

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[Relevant document: European Community Document No. 9416/90 on the shipbuilding industry in the Community in 1989.]

Photo of Edward Leigh Edward Leigh Parliamentary Under-Secretary (Department of Trade and Industry) 10:30 pm, 20th November 1990

I beg to move, That this House takes note of European Community Document No. 8097/90 relating to aid for shipbuilding; and supports the Government's intention to agree to the adoption of this Directive as a further step towards establishing a soundly based shipbuilding industry in the European Community. The document is the European Commission's proposal for a seventh directive on aid to shipbuilding, following the sixth directive which expires on 31 December 1990. The final rounds of negotiations on the directive are under way in Brussels and it forms a substantial item in the Industry Council's agenda for 26 November, at which I hope to represent the Government.

The sixth directive is generally considered to have worked well in that it has enabled the Community's industry to survive by providing production and restructuring aid. The proposal for the seventh directive was, therefore, based closely on the text of the sixth. The Commission proposes that it should last for two years.

Photo of Mr Robert Hughes Mr Robert Hughes , Aberdeen North

Will the Minister take this opportunity to rectify a flaw in the directive because of which naval shipyards that were put into the private sector to compete on merchant shipping orders have been denied intervention fund assistance? Does not he realise that companies such as A and P Appledore (Aberdeen) Ltd. in my constituency have suffered badly because of this flaw? If he wants straight competition, let him have it, and let such yards have access to the intervention funds on which their existence may well depend.

Photo of Edward Leigh Edward Leigh Parliamentary Under-Secretary (Department of Trade and Industry)

That point concerns many hon. Members, especially in the light of the Cammell Laird problem and of the other problems that the hon. Gentleman has just mentioned. We have checked this with the European Commission. A watertight agreement was made, when those yards were privatised, that they would not be eligible for state aid. The Commission has made it clear that it has no objection to merchant shipbuilding taking place at Cammell Laird, but under no circumstances will it countenance our returning to the Commission and receiving state aid. That is the problem. We have gone over this ground again and again. I wish that I could help the hon. Gentleman, but I hope that I have at least described the position clearly.

Photo of Frank Field Frank Field Chair, Social Services Committee

The Minister says that a watertight agreement was made. The words "exceptional circumstances" were included in it. Given the support that the European Community is to give to east German shipyards, are not we facing exceptional circumstances?

Photo of Edward Leigh Edward Leigh Parliamentary Under-Secretary (Department of Trade and Industry)

I am aware of those words. We went over that ground with the Commission. Unfortunately, it is unwilling to budge on that point. I shall deal in a moment with east German shipyards. Our view is that we should stand firm against the Germans on the restructuring of east German shipyards. It would add to the existing overcapacity in shipbuilding.

Photo of Edward Leigh Edward Leigh Parliamentary Under-Secretary (Department of Trade and Industry)

I am in the hands of the House. This is a short debate and a number of hon. Members want to take part in it. I am happy to give way and answer questions, but it will lengthen my speech.

Photo of Mr Bob Cryer Mr Bob Cryer , Bradford South

Can the Minister summarise the position as outlined by my hon. Friends by saying that the right hon. Member for Cirencester and Tewkesbury (Mr. Ridley) appears to be absolutely right?

Photo of Edward Leigh Edward Leigh Parliamentary Under-Secretary (Department of Trade and Industry)

I am not sure what the hon. Gentleman is referring to. As the most junior member of the Government, I think that I should be wise to stick to the sixth and seventh directives.

Photo of Edward Leigh Edward Leigh Parliamentary Under-Secretary (Department of Trade and Industry)

If the hon. Gentleman wishes to intervene later in the debate, I shall happily give way, but I want to make some progress. That is only fair to hon. Members who wish to take part in this short debate.

The new directive should be viewed against the background of improving markets in shipbuilding throughout the world and a diminishing gap between prices in Europe and the far east. The justification for a programme of state aid to shipbuilding in Europe has always been the low prices charged by shipbuilders in Korea and Japan in particular, which, over the last 20 years, have enlarged the supply base against a decreasing market for ships. The prices charged by far east suppliers in years gone by cannot be explained by superior efficiency. In the more recent past, all shipbuilders have suffered because of initial oversupply, followed by the combined effects in the 1980s of a downturn in world trade and an excess of ships. The prospects now are for an improvement in trade and in shipping rates and, at long last, for an end to the life of ships that were built so cheaply 20 to 25 years ago.

There is a price improvement in far east yards. The European industry, having rationalised, is catching up. We can probably see an end to contract-related production aid within the lifetime of the seventh directive. If the hon. Member for Birkenhead (Mr. Field) wishes to intervene, I am happy to give way to him now.

Photo of Frank Field Frank Field Chair, Social Services Committee

The Minister's introductory remarks suggest that the Government went in to bat for changes to the seventh directive. Logically, therefore, ought not he invite the House not to accept it, so that his negotiating position is improved rather than weakened?

Photo of Edward Leigh Edward Leigh Parliamentary Under-Secretary (Department of Trade and Industry)

I believe that the seventh directive is an improvement on the sixth directive. It is clearer. Given the worldwide improvement in shipbuilding prospects and the fact that we have gone through so much pain in restructuring our industry, there is everything to be gained by working with our Community partners to get the seventh directive on the stocks. We have restructured our industry, having reached agreement with our European partners, and therefore we can look forward to a rosy prospect for the shipbuilding industry. Nothing would be gained by the House not agreeing to the seventh directive.

As for other international negotiations that are taking place in the Organisation for Economic Co-operation and Development in Paris to increase the powers of the revised general agreement on shipbuilding—the RGA—to which the United Kingdom is already a signatory, the increase in powers will seek to bring to an end all state aid for shipbuilding among all OECD members, including Korea, which joined specifically for these negotiations. Although there is no formal time limit, it is hoped to complete the OECD negotiations in 1991 with implementation in two to three years.

Photo of Mr Roy Beggs Mr Roy Beggs , East Antrim

Can the Minister give the House any assurance that other countries will not use secretive means to continue to support their shipbuilding industries to the detriment of the United Kingdom and what remains of our limited industry in Northern Ireland?

Photo of Edward Leigh Edward Leigh Parliamentary Under-Secretary (Department of Trade and Industry)

The hon. Gentleman has made his point. I do not think that he would expect me to comment on it in detail except to say that the European Commission keeps a close eye on what is going on. We keep a close eye on what is going on elsewhere in the Community and others keep a close eye on us. Within the terms of European aid and what is allowable in terms of subsidies to shipbuilding, the opportunities for cheating within the European Community are very slight, if not non-existent. However—I hope that the hon. Member for Antrim, East (Mr. Beggs) will accept this—having done so much to restructure our industry, surely it is in our interest to see subsidies phased out in an orderly and sustained way throughout the Community. If they are not phased out, we could be in even more difficulties in relation to competition with shipbuilders in southern Europe.

Photo of Edward Leigh Edward Leigh Parliamentary Under-Secretary (Department of Trade and Industry)

If the hon. Gentleman will allow me to make some progress, I shall give way to him with pleasure. I am anxious to be a servant of the House in these matters and I want to let hon. Members make their points.

I believe that such an agreement would be of great benefit to shipbuilding world wide. I heartily commend it to the House. The OECD negotiations are also relevant to the required duration of the seventh European shipbuilding directive—a contentious issue to which I shall return.

Three areas of contention are due to be discussed and, we hope, resolved at the Industry Council on 26 November to which I have referred—the duration of the directive, the extension of a transitional introductory period for Spain and whether a commitment to a progressive reduction in subsidy levels should be written into the text. Other areas that have proved contentious and where negotiated solutions are in sight are whether the directive should cover only new building or also—as in the sixth directive —ship conversion, a German request to exclude from the scope of the directive a proportion of the aid offered to ship owners, a tightening of the rules on investment aid and United Kingdom concern at the proposal that shipbuilding yards closed with closure aid could not be reopened without the Commission's prior approval. I shall discuss those in turn.

On the duration of the directive, article 11 proposes a two-year life for the directive and we support that. To do anything else would compromise the Community's negotiating stance in the OECD discussions to remove all subsidies from shipbuilding. A longer period would suggest to the other participants that the Community did not take its proposal seriously. Italy, Spain, France and Belgium have argued for a four-year period. Greece and Portugal have proposed three years, while Germany, Denmark and the Netherlands would prefer one year but would settle for two. It is unlikely to be left to the Council for final settlement.

On the extension of the introductory period for Spain, the Spanish have claimed that they have not had sufficient time to rationalise their industry in line with the requirements of the sixth directive. After intensive bilateral discussions, the European Commission and the Spanish authorities have produced a plan designed to complete restructuring of the industry by the end of 1992. The plan, which will be strictly monitored by the Commission, calls for aid to be provided for only one additional year rather than the two years for which the plan is designed to run. Given the efforts that we in the United Kingdom have made to rationalise our industry, I believe that we should not support the Spanish request to the Council.

The Commission's original proposal in article 4(3) on progressive reduction of aid ceilings was not only to review the aid ceiling every year as at present, but to make a commitment to reduce it progressively every 12 months or more often if circumstances warrant it. The United Kingdom argued that changes in the subsidy rate should be market led, based closely on surveys of European and far east prices, as at present. In practical terms, it seems certain that demand will continue to increase in general and that the gap between Community costs and far east prices will diminish during the life of the directive.

The Commission has changed the proposal and redrafted article 4(3), returning to the original wording of the equivalent article in the sixth directive, which did not mention a commitment to progresive reduction. As a quid pro quo, it has insisted that article 4(2) should be strengthened by a joint Commission and Council declaration in the minutes as follows: The Council and Commission note that the Commission's assessment of the prevailing difference between the cost structure of the most competitive Community yards and the prices charged by their main international competitors will be solely based on an objective technical analysis of the prevailing market situation at the time the ceiling is set. A basic element of this assessment will be a study carried out by an independent consultancy plus other relevant market information. That has the merit of removing the commitment to progressive reduction, no matter what, while tying aid ceilings to the best possible information on the market and to no other considerations. Denmark, Germany and the Netherlands believe progressive reduction of the aid ceilings to be politically important and will raise that in the Council. Those are the major areas of contention.

Photo of Mr Jim Sillars Mr Jim Sillars , Glasgow Govan

Is the Commission talking about a reduction in the aid ceiling from 20 to 11 per cent.?

Photo of Edward Leigh Edward Leigh Parliamentary Under-Secretary (Department of Trade and Industry)

Negotiations are in hand. It would be unwise for me to forecast their outcome, but the hon. Gentleman is right that the present aid ceiling is 20 per cent. A shrewd observer would conclude that it is very likely that it will be reduced, but not much below 10 per cent. I shall not give any commitment on behalf of the Government.

Photo of Edward Leigh Edward Leigh Parliamentary Under-Secretary (Department of Trade and Industry)

I am not giving any commitment on behalf of the Government, but negotiations are being conducted. As we have restructured our industry, it is in our interests that subsidies should be phased out in an orderly fashion. If they remain high, that can only benefit our competitors in southern European yards. The shipbuilding subsidy—the shipbuilders intervention fund, or SIF—will riot be phased out entirely; that would take some years. I should be surprised if the subsidy remained as high as 20 per cent., but should be equally surprised if it were cut much below 10 per cent. That is a matter for negotiation.

Photo of Peter Robinson Peter Robinson , Belfast East

Will the Minister confirm that the United Kingdom's representative sought to have it reduced below 10 per cent.?

Photo of Edward Leigh Edward Leigh Parliamentary Under-Secretary (Department of Trade and Industry)

I do not know where the hon. Gentleman gets that information from. He said that the United Kingdom's representative sought to have it reduced below 10 per cent. That is not my understanding of our negotiating position.

Photo of Ms Joyce Quin Ms Joyce Quin , Gateshead East

Surely the Minister owes it to the House to explain clearly the Government's position on the aid ceiling. What figure do they favour?

Photo of Edward Leigh Edward Leigh Parliamentary Under-Secretary (Department of Trade and Industry)

It would do our negotiating position in Brussels no good if I were to tell the House exactly what we had proposed. I have been more than open with the House. I have explained that the present subsidy is 20 per cent. and have given a prognosis that it will undoubtedly be reduced. I do not know what it will be reduced to, because different countries have presented different proposals. It would be unwise and unhelpful if I were to suggest the outcome of the negotiations, because they are still proceeding. No doubt we shall find out what will happen on 26 November, which is not far away.

I have dealt with the major matters of contention. The remaining changes are all improvements to the sixth directive. The United Kingdom, supported by the Netherlands, Denmark and Germany, has questioned the coverage of the directive. We believe that ship conversions should not be eligible for subsidy. The United Kingdom does not at present provide subsidies for conversion and our shipbuilders have lost business to those European yards that do. A compromise has been suggested which would link support for conversion work to the level given for building ships. There is, of course, a higher level given for large ships, as the House will know. Other member states have agreed to the compromise so, reluctantly, we have had to follow, although we should have preferred abolition.

The German concern on the aid that they give to shipowners to purchase ships is that some of that aid is spent in foreign yards. They see it as unfair that all aid given via shipowners should be counted within the production aid ceiling. The United Kingdom gives all its contract-related production aid as defined in the directive directly to shipbuilders. This is the SIF, to which I referred and about which all hon. Members will, no doubt. have heard. It is an entirely transparent scheme.

Our other scheme, the home shipbuilders credit guarantee scheme, operates within the credit guidelines of the Organisation for Economic Co-operation and Development and outside the directive. We therefore have not offered support to the Germans in their efforts to make an allowance for this wastage of aid and nor have any other states.

To prevent investment aid—either regional aid or, in our case, closure aid—from being used to enlarge capacity before markets have returned to normal, the following amendment in article 6 is likely to be agreed: Investment aid, whether specific or non-specific, may not be granted for the creation of a new shipyard or for investment in an existing yard unless it is linked to a restructuring plan which does not increase the shipbuilding capacity of that yard or unless it is linked directly to a corresponding reduction in capacity elsewhere in the same member state within the same period. This should not cause the United Kingdom any problems, because, while we have given closure aid, we have an iron rule that no selective assistance should be given to expand shipbuilding facilities in the present circumstances. The new article 6(1) has greater clarity than its predecessor in the sixth directive and lays down conditions under which investment aid could be given.

The United Kingdom does, however, have some concern about closure aid, and I know that this will be of interest to certain hon. Members. We have complained about the proposal in article 7, which would require a member state to obtain the Commission's prior approval to reopen any yard for which closure aid has been given. The yard would have to remain completely closed for the first five years and could reopen only with Commission approval at any time after that. We have made it clear that our concern focused on legal and practical difficulties. The Commission has accepted our argument that keeping a yard closed for ever posed difficulties in land law, as it is difficult to place a binding covenant on a freehold and most purchasers prefer to purchase a freehold. The Commission has therefore accepted an amendment to the original proposed article as follows: If, after a period of five years, but before the 10th anniversary of closure, a member state wishes nevertheless to reopen a closed shipbuilding or ship repair facility, it must obtain the Commission's prior approval. Other member states have acquiesced to that amendment, but would prefer closure to be permanent and irreversible without time limit.

We have separately questioned the Commission on whether it would seek to apply this article retrospectively on closures made under the sixth directive. This would take in closure of North East Shipbuilders' yard at Sunderland, which is of particular interest to hon. Members. The Commission has argued in the Council working group that the new article 7 is more flexible than the equivalent article in the sixth directive, which stated that closure after closure aid assistance must be "genuine and irreversible". The Council minutes for the sixth directive, which are not legally binding, said: genuine and irreversible closure should last for at least five years. There was no support among other member states for any notion that the new article would be retrospective even if it applied to closures made under the sixth directive, as the Commission already insists on closure for at least five years and will not even countenance preparations made for reopening for shipbuilding after that time. In practice, if the amended article 7 is carried, the Commission is likely to treat closures under both the sixth and seventh directive as "genuine and irreversible", to be inflexible up to five years, to show flexibility after five years and to lose interest after 10 years. It is a complex issue, but if one considers it in those terms, one can make sense of it.

Photo of Mr Robert Clay Mr Robert Clay , Sunderland North

Having been through that complex matter, will the Minister accept that, on the interpretation he has just given the House, it boils down to the fact that the seventh directive will be more draconian on closures than the sixth directive was? If the sixth directive had remained as it was and if the North East Shipbuilders yards were still there, they could have reopened after five years, whereas now they will need the Commission's approval. That part of the directive is retrospective. Is the Minister asking the House to approve such retrospective legislation after all that the Government have said over the years about it?

Photo of Edward Leigh Edward Leigh Parliamentary Under-Secretary (Department of Trade and Industry)

The hon. Gentleman asked whether the seventh directive is more draconian than the sixth directive. He cannot sustain that point, because the sixth directive says: closure after closure aid must be genuine and irreversible". Nothing could be clearer. At least we are now moving towards a practical compromise. Closure aid is given for the obvious reason of trying to cut down general shipbuilding capacity. We are moving towards a generally understood position, with which I hope that we can all live. I know that the hon. Gentleman, whose diligence and skill in these matters we all admire, has his own problems in Sunderland. However, we can live with the proposition that the Commission will not countenance reopening in the first five years. It is prepared to be flexible between five and 10 years, and after 10 years it will lose interest. That seems to be a reasonably sensible middle way with which all countries are prepared to live.

Photo of Jim Cousins Jim Cousins , Newcastle upon Tyne Central

The Minister will realise that one of the tests of irreversibility advanced in the sixth and seventh directives is that no activity predicated on the basis of a return to shipbuilding within that period should be allowed. Can the Minister assure the House that construction work for the oil rig industry, which is a boom industry at present and which it is in the national interest to promote, will not be caught on the ground that such activity predicates a return to shipbuilding?

Photo of Edward Leigh Edward Leigh Parliamentary Under-Secretary (Department of Trade and Industry)

Will the hon. Gentleman allow me to take some advice on that point? It is only fair that I should do so and I will come back to that point in my closing remarks. I should like to give as accurate an answer as possible.

The time limit of 10 years which we have obtained is the best deal that we are likely to achieve and I have no hesitation in commending it to the House.

The final area of interest in the seventh directive concerns the absorption of East German shipyards into the Community. Some weeks ago, the Commission published a proposed amendment to the directive giving special treatment to East German yards, similar to that accorded to Spain and to Portugal in the sixth directive. Officials on the Council working group were informed on 31 October 1990 by Commission officials that the amendment had been withdrawn because of the substantial orders available in the yards concerned. German officials have subsequently renewed the quest for a derogation as many of the orders were taken in unconvertible roubles and will have to be renegotiated. Although the Council working group accepts that the renegotiation of the contract may cause difficulties for the former East German shipyards, it does not believe that enough is yet known of the extent of the problem to justify the provision of special treatment.

Adoption of the seventh directive on aid to shipbuilding will conclude a series of working group discussions which have been more protracted than expected given the success of the sixth directive. Hon. Members will have questions, but I have no hesitation in commending the seventh directive to the House.

Photo of Ms Joyce Quin Ms Joyce Quin , Gateshead East 10:59 pm, 20th November 1990

I am glad at least that the debate is taking place in advance of the forthcoming discussions in the Council of Ministers, although I strongly regret that the time available to us for a discussion of a complex and important issue is so limited.

I welcome the new Minister to his new appointment and wish him well. It has to be said, however, that there has been a kaleidoscope of 12 Secretaries of State for Trade and Industry over the past 11 years. We have seen also a kaleidoscope of changing Ministers with responsibility for shipbuilding. Few have managed to get their feet under the table before being moved on. I do not know whether to wish the current Minister a longer tenure in office than his predecessors. Given the Government's overall problems, it seems rather unlikely that he will have that experience. The fact that there have been so many Secretaries of State for Trade and Industry and so many Ministers with responsibility for shipbuilding shows that the Government have not taken the shipbuilding industry seriously enough, nor industry generally, over recent years.

The documents that we are considering cover the proposed seventh directive on aid to the shipbuilding industry and the most recent of the periodic reports that are prepared by the Community on the shipbuilding industry as a whole. It is clear that at long last there is an upturn in the industry, and we welcome that. It has been a long time coming and there are some uncertainties, not least the situation in the Gulf. On the whole, most people think that it is a sustainable upturn. The DTI's brief on the subject expresses the view that at least the upturn should continue until the middle of the decade.

There will be a renewal of the world's aging fleet. The proportion of ships in that fleet that are more than 10 years old has increased to more than 63 per cent. With tankers, the figure rises to a dramatic 73 per cent. The Opposition are worried that the prospects for Britain's share in the market—where there is the upturn I referred to—do not look good. We have already lost more shipbuilding jobs than any other comparable EEC country, and the reduction in our share of world output has been dramatic. It decreased to about 1·5 per cent. in 1988, and it is still declining.

I was surprised to hear the Minister say that the sixth directive had successfully defended the industry. It is arguable, although I should question that personally, that it has defended the position of EEC shipbuilding on the world market, but it has not defended the place of British shipbuilding within the European Community or within the world as a whole. We have noticed the tendency of Conservative Members to think that shipbuilding is a declining industry and that that decline is inevitable. The attitude seems to be, "It is an old industry—let it go " That hardly squares with the fact that the world's No. 1 shipbuilder, which accounts for about 50 per cent. of world output, is Japan. Japan is hardly a backward or declining industrial nation.

There are many orders at present, but with the British capacity being so small it is unlikely that we shall be building a significant proportion of the ships that are on order. For example, only in the past few days orders have been announced by Malaysia and Abu Dhabi for liquefied natural gas carriers. The yards that seem likely to benefit are those either in Japan or possibly, in the European Community, in France. No British yards seem in line for the orders.

Events in the British shipbuilding industry have been especially tragic over the past two years. We have seen the closure of the Sunderland shipyards. The Southwick yard was one of the most modern of shipyards. Cammell Laird is experiencing difficulties on Merseyside. As a result of the downturn in warship building, it seems that the yard will have to look for merchant orders. Unfortunately, as has been made clear tonight by the Government, as on other occasions, it will have to seek those orders on an uneven playing field. Cammell Laird will not have access to the intervention fund from which competitor yards in Europe will benefit. That is a shame and something on which the Government should negotiate.

Discussions on European directives take a long time to complete and once they have been agreed they tend to be difficult to change. That certainly applied to the passage of the sixth directive. The Sunderland yards and the Cammell Laird yard have been the losers because it has been difficult to change the rules which were agreed at the time of the recession in shipbuilding and which are not suitable for the present upturn in the industry.

The Government have negotiated strongly with the Commission about the continuation of the Sunderland yards and about intervention funds for Cammell Laird and other yards. It is ironic that under the present. Prime Minister the Government claim to be talking tough in Europe, but in reality they have been prepared to accept every minor and major interpretation of the shipbuilding rules by the Commission that has disadvantaged Britain. The Government have not challenged any of those rules.

The Government should be more open with the House and give us an assurance that secret agreements will not govern the conclusion of this directive, as was the case with the sixth shipbuilding directive. I am aware of what happened then as I was the shipbuilding spokesperson in the European Parliament when the sixth directive was agreed. We were amazed and dismayed to discover that, once the directive had been agreed, it was governed by an unpublished agreement of the Council of Ministers that had not been scrutinised by national Parliaments or by the European Parliament. That was deplorable and it should not be repeated.

I am sorry that the Minister could not be more frank about the level of aid that the Government are supporting in Brussels. While we do not want to undermine the negotiations, we should at least like to be assured that the Government are standing up for the British shipbuilding industry. That does not seem to be the case on the evidence presented to us tonight.

Photo of Chris Mullin Chris Mullin , Sunderland South

The arrangements in relation to Sunderland appear to have been so secret that the Secretary of State for Trade and Industry at the time did not know about them. He was soliciting publicly for bids for the yards that would not require subsidy and when such a bid was forthcoming it had to be vetoed on the ground that some arrangement, of which he was not aware at the time, had been agreed by officials at his Department that forbade the bid going ahead.

Photo of Ms Joyce Quin Ms Joyce Quin , Gateshead East

My hon. Friend has made a valid point. The Government did not seem to understand what they had agreed with the European Commission in December 1988. The murky details surrounding the Sunderland closures have never been made public. Because the Government did not understand, would-be purchasers of the Sunderland yards who in some cases wanted to operate the yards without subsidy were misled for a considerable period. Their disappointment was acute when at the end of the day they were told that they could not carry out shipbuilding on the Wear. The disappointment was also acute in Sunderland and that feeling persists today.

The system of determining aid ceilings in the new directive is virtually unchanged from the system in the sixth directive. We shall look closely at the negotiating position that the Government adopt next week for the aid ceiling. If we feel that the Government are arguing for a lower ceiling than we approve of, we shall not hesitate to make the matter public as loudly as we can and we shall inform the industry and the people who work in it of the Government's attitude in those negotiations.

Photo of Ms Joyce Quin Ms Joyce Quin , Gateshead East

I would desire a ceiling that was higher than the 11 per cent. for which the Government appear to be calling. There have been rumours that the Government wanted an even lower ceiling. Eleven per cent. represents a halving of the present ceiling. That reduction is far too drastic given the still precarious position in shipbuilding.

We are concerned also—this point has been made in briefings to hon. Members by the Ship Builders and Ship Repairers Association—because the costs operating in one yard, a Danish yard, have been the key element in the Commission's proposals governing aid ceilings. The Ship Builders and Ship Repairers Association feels that that has led to a distortion in the figure that has been proposed, in particular because the yard in question is owned by Denmark's largest shipowner and the yard was built almost exclusively for its owner. Although Denmark is opposed to shipbuilding subsidies, it has one of Europe's most generous tax systems for investment in ships. I should like the Minister to respond to that specific point because it is of considerable concern not only to Opposition Members but to the shipbuilding industry throughout the United Kingdom.

It is said that all aid will be included in the directive. We certainly approve of transparency of aid, but of course there are some exceptions, including, in particular, aid given for investment and for research and development. What use do the Government intend to make of aid for research and development, and do they intend to promote research and development within our shipbuilding industry?

There are also exceptions for development aid. The documents accompanying the directive say that one state in the European Community has overused that exception to its benefit. Perhaps the Minister can tell us which member state is referred to in that category and whether we have attempted to use development aid as one way of getting orders for our shipyards.

The Minister referred to the definition of a closure. The economic committee of the European Parliament has recommended that the period be reduced to three years and that that matter will be debated by the European Parliament. Why, in particular given the situation at the Sunderland yards and at Cammell Laird, are the Government not in favour of, perhaps, a three-year limit rather than the formula that the Minister gave, which represents little change from the terms of the sixth directive?

On Sunderland, is not it tragic that the equipment there has been dismantled in recent days and has made the site much more difficult for a resumption of shipbuilding, despite the fine and proud traditions in Sunderland and along the River Wear? I am sure that my hon. Friends will refer to that matter if the opportunity arises.

The principle of degressivity is referred to in the directive. Although people may say that it is a good idea to try to reduce the amount of aid that is being given, I should like to be assured by the Minister that the principle of degressivity will not override the reality of the situation in world shipbuilding. If it is clear that more aid needs to be given in European yards, the principle of degressivity should not override the need to give aid if the circumstances arise.

On the definition of ships under the directive, the Minister did not mention whether the Government had been arguing for the ships that Aluminium Shipbuilders want to build to be excluded from the directive. It seems astonishing that the previous Minister with responsibility for shipbuilding did not, in front of the European Commission, defend the need or the possibility for Aluminium Shipbuilders to build ships at Sunderland. The Government seem to have failed to take up the issue with the European Commission, and I should like to know whether the present Minister is to adopt a change of policy on that matter.

The Minister mentioned the special regime that will be offered to East German shipyards. The accession of East Germany into the Community will make a huge difference because, on its own, East Germany is the No. 2 shipbuilder in the European Community, and West Germany is the No. 1 shipbuilder, and combined they will be dominant in the Community shipbuilding industry. Although I can understand that the European Commission may worry about the ensuing capacity for the European Community as a whole, the British Government should be concerned at the huge contraction that has taken place in British shipbuilding and should be concerned to ensure that we do not suffer any further disadvantage.

It is important also to address the lack of monitoring of the rules. That has certainly been a problem under the sixth directive, and we want to make sure that action is taken under the seventh directive so that countries respect the rules. It is a great pity that respect for the rules has been so lax up to now because that has put our shipbuilding industry at a considerable disadvantage.

I refer to a related issue, which does not arise under the directive, but which is being considered in Brussels—the aid that is available to shipbuilding areas under the RENAVAL programme. The Government have been slow to act over RENAVAL and made a strange choice of areas to benefit from it at the beginning. The traditional shipbuilding areas, such as Strathclyde, Tyne and Wear and Merseyside, were given RENAVAL programmes much later. That is unacceptable because the money could have been put to good use earlier in those areas.

What is the Government's attitude towards the accompanying social measures, which, so far, have been blocked in the Council of Ministers? Are the Government in favour of reaching an agreement on the accompanying social measures that have been envisaged by the European Commission?

Shipbuilding in Britain has lived through tragic times in the past 11 years. Although some closures were inevitable, the scale of the decline was not. There are murky episodes, such as the agreement that closed the Sunderland shipyard.

I remind the Minister that shipbuilding is an industry with a future, and perhaps he should be reminded of a few simple facts. The majority of our trade is seaborne and will continue to be so—and the same is true of most of world trade. Both for reasons of obsolescence and because of poor environmental standards, many older vessels are likely to be scrapped or to be laid up in the next few years. I also remind the Minister of the clear links between the traditional industries, such as shipbuilding, and the products of the new technologies. These days, even the simplest fishing vessel is likely to have a range of technological gadgetry on board, Unfortunately, however, it is likely that at present neither the ships nor the technology on board will be British-built.

The Government need to work actively with the industry to win orders and require the determination to do so. We should look, for example, at the way in which the Japanese Government have worked with the Japanese industry on the promotion of collaborative research and development across that country's shipbuilding industry.

I was interested to read in Lloyd's List a few days ago about the work of the European shipyards in Spain, France, Germany and Italy, which are co-operating to develop anti-pollution and environmentally friendlier vessels. Again, it is a great pity that no British yard seems to be involved in the venture. A Labour Government would wish to work with the industry to promote research and development, to win new orders, and to promote a view of what the industry in Britain should be trying to achieve in future in terms of a market share both in the European Community and in the wider world.

In conclusion, the Government have sold the industry short. As a result, not only our shipbuilding industry but our general industrial future has been damaged. I urge the Minister to take a more positive view. From what we have heard tonight, that is unlikely to happen. Once again, it is the Labour party that is the party committed to industrial revival and to our future industrial prosperity.

Photo of Mr Barry Field Mr Barry Field , Isle of Wight 11:18 pm, 20th November 1990

I am prompted to speak on the directive, not because the Chancellor of the Duchy of Lancaster will be making an application for a grant following this evening's result or to repair the damage that has been done to the ship of state by the recent mutiny among the crew, but because this is a much more serious issue. The shipbuilding industry in my constituency has recently suffered a setback as one island shipyard announced the redundancy of 20 workers at Souters the other day.

Despite that gloomy news, the shipbuilding intervention fund has been of exceptional assistance in bringing innovation and new manufacturing methods to our island shipyards. By judicious use of the grant, FBM Marine has designed and built a new high-speed ferry for service between Naples and Capri and has produced a revolutionary design for a catamaran to serve Madeira. That order was won against fierce competiton from Australia and Norway.

Perhaps the jewel in the crown is the order for the high-speed catamarans for Red Funnel to run between Cowes and Southampton. Associated British Ports—a privatisation success in itself—which is now the owner of Red Funnel, has placed the order with an island shipyard, FBM Marine. The order will replace the Italian manufactured hydrofoils. My hon. Friend the Minister may imagine my joy at an island community using island craftsmen to produce the fine new vessels, which will not only serve the people of the Isle of Wight but will be used as a shop window for all those who travel across the Solent to place valuable orders with us.

My hon. Friend's predecessor declared himself a friend of the grant. I am concerned that, having personally assisted island shipyards to obtain fresh funds totalling many hundreds of thousands of pounds, from the Department of Trade and Industry on no fewer than four occasions, all that may now be threatened. I pay tribute to the civil servants in my hon. Friend's Department, who have always dealt with me most efficiently and provided a very prompt service when I have had a tight deadline for obtaining an intervention fund for the island shipyards.

The Shipbuilders and Ship Repairers Association, to which the hon. Member for Gateshead, East (Ms. Quin) referred, and which represents a large proportion of the industry, wants certain points to be addressed. I ask my hon. Friend to comment on them when he replies to the debate. The report by Tecnecon to DGIV is dominated by one Danish yard. The Danes want to phase out subsidies as they aid the ship owner, not the builder. The abolition of shipbuilding subsidies will make no difference to Danish yards because they do not receive them now. However, the tax system for a Danish owner building a ship in a Danish yard produces the equivalent of a 30 per cent. subsidy on the price of the ship.

The association would like article 4(2) to be amended so that it reads, "competitive Community yards". For 1991, the responsible Commission directorate, DGIV, is proposing a ceiling of 11 per cent., with 9 per cent. for small ships. That is based on a study by United Kingdom consultants, Tecnecon, based on eight ship types. One Danish yard supplied data on five of the eight ship types. Each time its cost was lowest on one ship type by as much as one third, against two highly efficient German yards. I am sure that my hon. Friend does not need me to convince him that that is a serious position because it is hardly likely that German yards would be considered inefficient. That is the weight behind the proposed amendment, which would make the system more widely spread.

The association wants the resumption of degressivity qualified by a presumption that it should be the market that determines the level of aid. The wording of the seventh directive appears to prevent denationalised yards from applying for grant, which could be prejudicial. Article 4(3) should be amended to prevent those yards with a full order book from being penalised by the three-year rule. I am sure that my hon. Friend will accept that the more successful yards will need a longer time before they can begin building, so it would be wrong if they lost grant because of that.

I know that my hon. Friend has a reputation for being something of an interventionist. Indeed, I believe that it is an open secret that, before gaining his exalted position, he regularly intervened in the affairs of the Labour party, and today he may even have intervened in Room 12 on behalf of our right hon. Friend the Prime Minister. I am sure that he would like some reassurance from me about the self-help on the island. Through the excellent offices of the chief executive of the British Marine Industries Federation, Paul Wagstaff, the Isle of Wight has received a grant from the BMIF to study the shipyards and the related industries on the island, in advance of our training and enterprise council launch, to identify the future strengths and highlight the weaknesses of the island's marine industries. It is the only study of its kind in the United Kingdom.

My hon. Friend already enjoys a reputation as one of the statesmen of the House. I am sure that we can rely on his considerable multilingual skills as well as his well-known Anglo-Saxon wit to ensure that the interests of British shipyards and ship repairing are properly defended in the EC and that the directive is suitably amended.

Photo of Mr Robert Clay Mr Robert Clay , Sunderland North 11:24 pm, 20th November 1990

I do not want to be sectarian, but the Government's attitude to what is happening to German shipbuilding is extraordinary.

The seventh directive will come into effect on 1 January, but for the past few months no restraint has been imposed on the activities between the former East and West German shipyards. West German shipbuilders have been buying into East Germany and work has been subcontracted backwards and forwards. It is clear that the West German Government tore up the existing sixth directive several months ago. Now they have the audacity to suggest that Germany should be allowed to derogate from the new directive and that all sorts of special arrangements should be made. It is now reported that the West German shipbuilding industry wants to put DM6 billion of restructuring money into the East German yards. Therefore, the country that already had the largest capacity by far in the Community now has more than doubled that capacity by adding a whole range of quite good but cheap labour shipyards to its capacity. The British Government have made no complaint and just sat there. I should not object so much to that if it were not for the fact that, in the meantime, they allowed Sir Leon Brittan and the Commission to nit-pick in a most ludicrous fashion about the reopening of British yards. I should have thought that the Government had learnt their lesson by now.

The Minister's comments on the background to the directive contradict its contents. He spoke about how the market is picking up and how prices are improving, but all his predecessors told us that the market was hopeless. The Opposition argued that the industry should be supported because there would be an upturn in the market, but the Government refused to accept that. They let good British yards close, but now the upturn has arrived, they allow the Commission to keep those yards closed. That is a shameful record.

The nit-picking about Sunderland—I make no apology for mentioning it—is appalling. For the first time on record the Minister mentioned the problem that the Government face, about how one can keep yards closed for ever as well as the problems connected with the freehold of such yards. We are now learning what happens when someone buys a shipyard to use for some other purpose because it is not allowed to reopen as a shipyard. There are many problems arising from covenants and lease conditions. That buyer would face even more difficulties should he wish to resell the yard to another owner. That buyer would then have to impose all the covenants and legal restrictions imposed upon him by the Department of Trade and Industry on that next buyer. Even after a few days in office, the Minister is aware of the nightmare that now faces the Government and the Commission as a result.

It is a fundamental irony that the sixth directive, which was intended to reduce subsidy and to protect the best of the European shipbuilding industry, whether we agreed with it or not, is now operating to prevent the reopening or continued existence of the most modern merchant yards in Europe at Sunderland. Under the Government's privatisation proposals people were prepared to buy those yards at a commercial price and operate them without any subsidy. However, a directive that was designed to reduce subsidy has been used to prevent modern shipyards in Britain operating without subsidy. That turns the logic of the directive on its head. That has happened not only in Sunderland but, for example, at La Ciotat in France, where a Swedish-American company said, in effect, "We shall take the yard over, pay for it and build tankers without subsidy," only to be told that it could not do so because the Commission obliged the French Government to oppose it.

That happened because the Commission became so obsessed with recession mentality—with cutting and restricting capacity—that when the upturn in the market came and European yards could start taking advantage of the situation, expanding the industry a little, the Commission's actions effectively prevented any forward movement occurring.

In Sunderland we have ended up in a truly extraordinary situation. I do not have time to relate the nonsense of what has happened. It would be a farce if it were not so tragic. People say, "We shall move the equipment out of yards that have been closed and put it in another site on the river and try to build ships there." Sir Leon Brittan replies, "No, you cannot do that." We have never been told whether only the NESL—North Eastern Shipbuilders Ltd.—yards were closed or whether there is a bar on shipbuilding along the whole of the River Wear. If the latter, may we be told why, and, if so, by what law?

One bureaucratic nonsense leads to another. It seems clear that Ministers at the Department of Trade and Industry did not even understand what the people in Brussels were telling them, and vice versa. Consider the farcical situation involving the small, successful and unique British company, Aluminium Shipbuilders Ltd., the only European licence holders for the most successful aluminium hulled, jet foil designed catamaran in the world. The company needs to move from its present premises in the south of England, because they are too small, and says that there is only one suitable place in Britain where it can go, and that is Sunderland, where there is available the only covered berth large enough for its activities. We are speaking of only a tiny proportion of the total NESL yards, but even that move is not allowed.

I cannot believe that, when the sixth directive was drafted, the bureaucrats who drafted it and Ministers who agreed to it thought that it would cover a different type of vessel, including the type of catamaran to which I referred. Such vessels were not invented when that directive was drafted. But because the document refers, in its bureaucratic language, to metal hulled, ocean-going vessels, Aluminium Shipbuilders Ltd. cannot, even without subsidy, relocate in an empty yard in Sunderland, where 400 high-tech jobs would be created. Instead, the firm is having to consider going outside the United Kingdom. What a disgraceful state of affairs.

The Government have yet to explain the real nature of the secret agreement that has led to the most modern shipyards in Europe being dismantled. There may be 20 small yards in Britain capable of building ships of up to 1,000 tonnes, but that does not mean that one of them can build a ship of 10,000 tonnes.

Even if the Government came to their senses and allowed intervention funds for Cammell Laird and Swan Hunter, the result would still be that only Cammell Laird, Swan Hunter, Govan and Harland and Wolff would be capable of building ships in Britain of over 10,000 tonnes. What an extraordinary state of affairs. With the market in its present state, British ship owners—who should have been more loyal in the past to our yards—as they come to their senses and as prices begin to rise, will be obliged to order abroad because there will not be the capacity in Britain to handle the orders. It is shameful and, even at this stage, the Government should come to their senses.

Photo of Peter Robinson Peter Robinson , Belfast East 11:34 pm, 20th November 1990

I intend to make only the briefest of contributions so that I do not keep anyone else from making their comments on the seventh directive. It is easy for me to do that because, by and large, the comments made by the hon. Members for Gateshead, East (Ms. Quin) and for Sunderland, North (Mr. Clay) are ones with which I can easily concur. That allows me to concentrate solely on that part of the directive relating most closely to an issue involving Harland and Wolff which one might expect me, as the hon. Member for Belfast, East, to have as my angle of vision—what the Minister called the levels.

There may be some misapprehension about that because we are talking about mandatory limits. The levels can be anything under those limits. I was shocked at the Minister's attitude, because I know that the Commission's present reference involves 11 per cent., whereas the officials from the Department of Trade and Industry went into negotiations, trying to bring down the level to less than 10 per cent. The Minister chided the hon. Member for Gateshead, East by saying that he cannot give away any figures because that might prejudice negotiations. Is he trying to negotiate the percentage up or down? I suspect that he is trying to negotiate it down. If he does that, it will have a catastrophic effect on shipbuilding in Belfast.

The Government, through the House, pushed the issue of the privatisation of Harland and Wolff. I was not enthusiastic about it, as the Minister will see if he looks at the debates. But his colleagues pushed the legislation through the House and set up a privatised yard in Belfast. It seems the strangest of logic to attempt to damage the incubation period of that new yard by making it more difficult for it to make a profit.

The Minister will be well aware that a percentage point of subsidy can make a world of difference in terms of whether an order costs a yard money or it will clean its nose on it. The Minister should be in there, helping. I thought that the Tory attitude was that they should battle for Britain. That attitude has not been displayed during the Minister's comments in this debate. I want the Minister to say that he will enter negotiations on the basis of attempting to increase the percentage figure. He should remember that, if he does increase it, it will not bind him to anything, because he can later agree a smaller subsidy.

Most of the arrangements have worked to the advantage of the Danes who, through their system, are able to give a tax advantage of about 30 per cent. subsidy to their shipowners and shipbuilders. The Minister is doing down British shipbuilding and giving the Danes the advantage by riot giving a proper and decent subsidy to the European yards. Many of the shipyards in the United Kingdom accept that the subsidy will go, indeed, some of them argue that it should go. But they want it to go in an orderly fashion. No one could contend that cutting it from its present level of 20 per cent. to about 10 or 11 per cent. is orderly.

We are looking to the Minister to fight for Britain on this issue, increase the level of subsidy and ensure that he does not strangle at birth the privatised Harland and Wolff company.

Photo of Alan Beith Alan Beith Shadow Spokesperson (Treasury) 11:38 pm, 20th November 1990

Much has changed since we debated the sixth directive in 1986 and we have moved out of the recession in shipbuilding to a period of significant improvement. It is not clear whether that improvement will be sustained. However, it seems that European policy, originally directed towards reducing capacity, is in danger of becoming a policy against competition and the existence of a free and competitive industry. The Government must address that issue in their negotiations.

Nowhere is that fact more apparent than in the Sunderland yards, and the whole sorry story of Sunderland—a tale full of misleading information, misunderstanding, misdirection and, in the case of Sir Leon Brittan, even self-misdirection. It seemed that Sir Leon was suggesting not only that there was a limitation on the ability of the yards to reopen, but that even when the period came in which permission could be sought for the yards to reopen he was not ready to consider it. That was certainly the impression that he eventually managed to convey to Ministers, who at first failed to understand what he was on about.

As a result of all this, yards that could have been competitive have been murdered by policies which were misapplied and, it is now clear, misunderstood at several stages by some of the people who were supposed to be applying them. Some of that sorry tale was unveiled by the hon. Member for Sunderland, North (Mr. Clay) and we in the north-east know how many more such sorry tales there are and what a miserable saga it is.

Even at this late stage the Government should unravel the mess that has surrounded the Sunderland yards, and ensure that the right of trades people of Sunderland to exercise their skills in a competitive shipbuilding market is not permanently removed. Many hon. Members, when the Sunderland yards were first threatened, said that these were the very yards that could be competitive in the future if they could only get through the following 12 or 18 months. What has happened since then has vindicated what they said.

Secondly, we need a genuinely level playing field across Europe, across the world shipbuilding industry and within the United Kingdom. We do not have one now. Swan Hunter faces, and has succeeded in the face of, unequal competition, because it, like Cammel Laird, has been excluded from the benefits of the intervention fund. There is no level playing field because a number of companies, due to an accident of United Kingdom history, are excluded from those benefits.

As the hon. Member for Birkenhead (Mr. Field) pointed out, the situation has changed dramatically. The bringing into the ambit of this policy of shipyards employing 44,000 people in East Germany makes such a dramatic difference that the Community cannot stand on the arguments that originally led to the creation of the limits. The Government, therefore, have a perfect basis for renegotiation of the provisions so that there is a genuine level playing field and so that intervention fund assistance is available. Swan Hunter has done remarkably well in spite of the absence of that assistance and has been a successful candidate for a management buy-out.

I pay tribute to what has been done in that yard and I look forward to much success for it in future, but the essence of the Government's stance must surely be the securing of equal competitive terms for firms throughout the United Kingdom, across the Community and ultimately throughout the world. It does not make sense for the market in shipbuilding to be hopelessly distorted by massive subsidies. We should have fair competition, and policies should be directed towards securing it.

Photo of Mr Barry Field Mr Barry Field , Isle of Wight

We both have shipyards in our constituencies and the fewer interventions there are, the quicker hon. Members will be able to make their speeches. Northern Ireland Members are over-represented in this House, and an hon. Member from Merseyside has the Floor.

As I was saying, what an irony it is that for weeks we have witnessed Conservative Members destroying a Prime Minister who takes what I believe is a correct stance on Europe. Within the Community, each country must defend its national interests. Tonight we debate a document which, if passed, will lock our shipyards into further decline. We should not pass it unless the Minister explains what he means about the exceptional circumstances of British yards, and then writes that into the order.

Exceptional circumstances derive partly from the higher proportion of national income that we used to give to defence. It is now being pushed down towards the European average. Part of that defence budget was spent on naval shipbuilding. The labour force in the naval shipyards will soon be reduced from more than 22,000 to about 8,000. If the Government take no action, that will mean massive redundancies on the Clyde, in Tyneside, in Barrow and in Merseyside, and a lack of job opportunities in Northern Ireland.

If the readjustment to a normal defence programme does not constitute exceptional circumstances, I would like to know what does. As we were so dependent on naval orders when we were at the bottom of the recession, many of the yards moved over to naval work; it was all the work that there was. The expectation was that after the recession they would be able to move back to merchant shipping work. Shipyards that can take merchant work are beginning to fill up. Yards that could benefit from merchant work are locked into naval work, unless the Government defend British interests.

Unless the Minister is prepared to say that there are exceptional circumstances in this country, the House ought not to agree to the directive without voting upon it. It will result in many workers in many shipyards going down the road towards unemployment.

Photo of Mr Ken Maginnis Mr Ken Maginnis , Fermanagh and South Tyrone 11:45 pm, 20th November 1990

For those of us who are concerned for the future of this industry and who take albeit a passing interest in marine affairs, a crucial issue is the annual review by the competition policy directorate of the Commission when the market-driven basis for fixing the level of intervention funding for new ships is decided. This attempt to quantify the lowest far east price compared with the lowest European production cost has now been carried out and tabled by the consultants.

Those directly involved have suggested to me that there are, inevitably, weaknesses and inconsistencies within the current study. This year's study was, for example, carried out prior to the Gulf crisis which has had a negative impact on shipping freight rates. This, in turn, has caused a fall in the value of ships, which could ultimately affect new-build prices. I understand that the Commission will, after consulting member states, be bringing its recommendation on the level of aid for 1991 to the Council of Ministers towards the end of this month.

Having taken account of the current unsettled state of shipping and the new-build market, it appears that, apart from Denmark, and perhaps Holland, there is strong support in Europe for the idea of maintaining the current level of 20 per cent. aid for a further six months at least. Depending on the Gulf crisis, it should then be possible to carry out a further review, with the objective of reducing subsidy in a market which, I hope, would have stabilised, but it is my understanding that the United Kingdom Government have not, in line with the majority of member states, taken this sensible and pragmatic view of the situation. Rather, they appear to support a figure closer to, if not below, 10 per cent.

Given the uncertainty of the market and the difficulties in exactly defining the price-cost differential between far eastern and European yards, would not the Government be wiser to show greater flexibility by agreeing, for another six months, to the present level of intervention funding?

Recovery is still a fragile path for our shipbuilders, but they are striving with determination and are making an effort of which we in this House and the nation should be proud. Their effort must not be undermined. They require consideration, understanding and support, not indifference. That is particularly important in the United Kingdom context. A sensible level of intervention funding for 1991 will be vital to the two most recently privatised major yards, Kvaerner-Govan in Glasgow and Harland and Wolff in Belfast. The House will recall that the latter was bought from the Government just over a year ago through a management-worker buy-out.

Significant progress is now being made, after all the painful reconstruction that Harland and Wolff has undergone over recent years. It would be wrong if it, and Kvaerner-Govan, were not to have the benefit of a committed and involved Government approach. Surely it is obvious that there are both regional and national benefits to be achieved by this nation aligning itself with the majority of European Governments and supporting a realistic level of intervention funding that would help to ensure the winning of new orders for the United Kingdom yards in 1991.

Photo of Mr Jim Sillars Mr Jim Sillars , Glasgow Govan 11:50 pm, 20th November 1990

As hon. Members' contributions have demonstrated, this is not a theoretical argument. It is about real people and the impact upon real jobs in our communities. I represent the constituency containing Kvaerner-Govan. It employs a core group of 1,600 men and women and is up to about 2,000 at present. It makes a £35 million plus contribution to the local economy and is engaged in an investment programme of £26 million to improve the yard's productivity. However, if faces severe difficulties in adjusting from our historic past to the present and moving to a future where it can compete at an international level with anyone in the world. Given time, the management and the workers could do so.

The managers and trade unions at Kvaerner dispute—I join them in this—the rosy view of the world shipbuilding industry presented by the Minister and the Commission. On page 8 the Commission's consultative document talks about the situation in the shipbuilding industry. It says that the recession … may be slowly coming to an end". It goes on to say: all aspects of the situation improved … these developments if sustained—may lead to a situation where competition distorting measures can be eliminated. That comment is laced with qualifications such as "may", "perhaps" and "if".

I have a letter from the managing director of Kvaerner—Govan. It says: I can also divulge to you that, as a result of the Gulf crisis, several shipowners have postponed discussions with us on new contracts until the market situation is clarified. The customer for our last LPG tanker order recently decided not to make use of an option we had agreed for an additional ship, again because of uncertainties arising out of the Middle East situation. In other words, until the crisis is over, the market is flat.

What concerns people in Kvaerner and other parts of the country is the role of the Commission under the seventh directive. My information—I am certain that it is accurate—is that the Commission's proposal is to move from a ceiling level of 20 per cent. to 11 per cent. Disgracefully, in the negotiations the Department of Trade and Industry has been talking about 10 per cent. or lower. The last time there was a precipitate change in the level of aid from 26 per cent. to 20 per cent. Kvaerner lost two ships. Given the current margins, a drop from 20 per cent. to 11 per cent. or 10 per cent. will be a severe handicap in the competitive international world.

I want to lend my weight, for what it is worth, to what was said by the hon. Member for Gateshead, East (Ms. Quin) in respect of the Commission's so-called study, which builds up to the argument about the correct ceiling level for aid. It is a deeply flawed study, particularly when five of the eight ship types are taken from a single yard in Denmark, with a tax regime that is heavily weighted and is probably worth a subsidy of about 30 per cent. The Minister asked the hon. Member for Gateshead, East what level of ceiling aid she wanted. I can tell him what I want. I want 18 per cent. That is a reasonable position for yards such as Kvaerner to be in now. That is what we want from the Department of Trade and Industry in its discussions with the Commission.

Photo of Edward Leigh Edward Leigh Parliamentary Under-Secretary (Department of Trade and Industry) 11:52 pm, 20th November 1990

I am grateful to be given an opportunity to try to reply to some of the many interesting points that have been made in the debate. Having spent nearly eight years on the Back Benches, I have always wondered at Ministers who come to the House with prepared texts. I have always thought that it would be far more impressive if they tried to reply to the points raised. I am not sure that I will succeed in doing that, but I will do my best.

The first question to me came from the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins), who asked whether work on the oil rig industry will be allowed. The answer is yes. The Commission has said that it will not allow operations predicated upon a return to shipbuilding. If a project is viable without necessitating a return to shipbuilding it is okay with the Commission. Work for the oil rig industry is not regarded as shipbuilding in general, so it is not caught by the directive. I hope that that answers the hon. Gentleman's point.

The hon. Member for Gateshead, East (Ms. Quin) asked many questions, as is her right. I have little time, but I shall try to answer as many as I can. The first concerned that appalling word "degressivity". I made it clear in opening that the directive would not require automatic degressivity. Any change will be based on objective criteria after inquiry by consultants.

The hon. Lady and the hon. Member for Sunderland, North (Mr. Clay) asked about the treatment of East German yards. Whether we like it or not, those yards are part of the European Community[Interruption.] So are our yards, as we fully accept.

I failed to mention earlier that the German Government have been undecided about special treatment under operating aid. They have changed their mind twice already, and at present are asking for special treatment. I make it absolutely clear that we shall oppose it. We expect a major restructuring programme. The Germans have big problems, but we shall scrutinise the Commission's treatment of the problem and the degree and rate of restructuring of the yards. Far from our being complacent, I hope that the hon. Member for Sunderland, North will accept that we take a robust view.

The hon. Member for Gateshead, East asked about research and development training. R and D in shipbuilding and marine engineering is supported by the Government through our "Wealth From the Oceans" collaborative R and D programme. We also support the Eureka programe, Euromar and the Community's Mast and Euram programmes.

The hon. Lady asked about RENAVAL. Approval of RENAVAL programmes for Plymouth, Tyne and Wear and Teesside are expected from the Commission this year. RENAVAL programme applications should be ready to go to the Commission for eligible parts of Fife, Strathclyde and Merseyside. I much regret, however, that in calculating REVANAL grants the Commission is proposing not to take account of job losses suffered in 1990. This week, I asked Commissioner Milian in a letter to reconsider that, but I have not yet received a reply.

The hon. Member for Gateshead, East mentioned Aluminium Shipbuilders Ltd. There is no prospect of excluding aluminium ships from the seventh directive. Their inclusion has been checked. The only reason for excluding them would be so that ASL could build at Southwick. The motion to exclude aluminium ships was defeated in the European Parliament following a proposal from a Labour Member of the European Parliament.

The hon. Member for Belfast, East (Mr. Robinson) made some points. Let me make it clear that officials acting on my behalf did not seek a ceiling of less than 10 per cent. It is true that our aim is to reduce aid ceilings, but that is for negotiation. One does not necessarily begin negotiating at the level one expects to end up with. We must balance the much higher suggestions from the southern member states. I am not in a position to give the House the outcome of those negotiations.

I thank my hon. Friend the Member for the Isle of Wight (Mr. Field) for the kind remarks that he made about me. He centred his remarks on the Danish yards. The Commission's proposal was not based on prices quoted by one Danish yard. It took account of prices from a range of yards in different member states. Danish ship owners receive tax support, but it is not as high as 30 per cent. Production aid in Denmark is monitored by the Commission and converted to grant equivalent. If hon. Members, including my hon. Friend the Member for the Isle of Wight, have evidence that the Commission or those who advise me are missing something, we should be pleased to pass it on to the Commission.

The hon. Member for Sunderland, North (Mr. Clay) made some points. Sunderland yards were not sold because nobody wanted to buy them. They were given closure aid and could not reopen without returning that aid. Many of the difficult negotiations with the Commission have been necessary because the hon. Member and others have tried to wheedle their way around the clear ground rules, which were laid down from the beginning. Many of us admire the diligent work that the hon. Gentleman has done on behalf of his constituents, but those ground rules were laid down clearly and nothing that we could have done would have overcome them.

Photo of Mr Robert Clay Mr Robert Clay , Sunderland North

The hon. Gentleman said that I was trying to wheedle my way around the rules, yet six months after the closure one of his predecessors, the right hon. Member for Braintree (Mr. Newton), argued in Brussels for a reopening of shipbuilding in Sunderland and was told by the Commissioner that that was not on and that he should have known that over the previous six months. That is a fact.

Photo of Edward Leigh Edward Leigh Parliamentary Under-Secretary (Department of Trade and Industry)

The fact is that this story of NESL has gone on for a long time. A closure package has been agreed. Some £250 million of taxpayers' money has been sunk into this shipyard. The Government have done everything they can to keep shipbuilding going in Sunderland, but it has not been possible to keep it going. The saga has continued. It has weaved around and around as the hon. Member for Sunderland, North has refused to accept the economic facts of life.

We must accept that, despite our best efforts, shipbuilding will not return to Sunderland. With the help of closure aid, we have achieved a first-rate package for Sunderland. Sunderland needs to look to the future, not always to the past, as the hon. Gentleman does in his obsessions. We have a first-rate package which will ensure that we get a wide range of opportunities and jobs for Sunderland——

It being one and a half hours after the commencement of proceedings on the motion, MR. DEPUTY SPEAKER put the Question, pursuant to Standing Order No. 14 (Exempted business).

Question put:-

The House divided: Ayes 103, Noes 43.

Division No. 8][12.01 am
AYES
Alexander, RichardChapman, Sydney
Alison, Rt Hon MichaelChope, Christopher
Amess, DavidClark, Dr Michael (Rochford)
Amos, AlanDavies, Q. (Stamf'd & Spald'g)
Arbuthnot, JamesDavis, David (Boothferry)
Arnold, Jacques (Gravesham)Day, Stephen
Arnold, Sir ThomasDouglas-Hamilton, Lord James
Atkinson, DavidDunn, Bob
Baker, Rt Hon K. (Mole Valley)Dykes, Hugh
Baker, Nicholas (Dorset N)Evans, David (Welwyn Hatf'd)
Batiste, SpencerFavell, Tony
Bennett, Nicholas (Pembroke)Field, Barry (Isle of Wight)
Bevan, David GilroyFishburn, John Dudley
Blackburn, Dr John G.Forsyth, Michael (Stirling)
Boswell, TimFranks, Cecil
Bottomley, PeterFrench, Douglas
Bowis, JohnGoodlad, Alastair
Brazier, JulianGoodson-Wickes, Dr Charles
Bright, GrahamGorman, Mrs Teresa
Brown, Michael (Brigg & Cl't's)Gregory, Conal
Burns, SimonGriffiths, Peter (Portsmouth N)
Burt, AlistairHamilton, Neil (Tatton)
Butterfill, JohnHanley, Jeremy
Carrington, MatthewHargreaves, Ken (Hyndburn)
Harris, DavidNicholls, Patrick
Hawkins, ChristopherNicholson, David (Taunton)
Howarth, G. (Cannock & B'wd)Norris, Steve
Hughes, Robert G. (Harrow W)Paice, James
Hunter, AndrewPatnick, Irvine
Irvine, MichaelRaffan, Keith
Jack, MichaelRenton, Rt Hon Tim
Jones, Gwilym (Cardiff N)Ridsdale, Sir Julian
Jopling, Rt Hon MichaelRoberts, Sir Wyn (Conwy)
Kirkhope, TimothyShaw, David (Dover)
Knapman, RogerSteen, Anthony
Knight, Greg (Derby North)Stern, Michael
Knowles, MichaelStevens, Lewis
Lang, IanStewart, Andy (Sherwood)
Leigh, Edward (Gainsbor'gh)Taylor, Ian (Esher)
Lightbown, DavidTaylor, John M (Solihull)
Lilley, Rt Hon PeterTebbit, Rt Hon Norman
Lord, MichaelThurnham, Peter
MacGregor, Rt Hon JohnTredinnick, David
Maclean, DavidTwinn, Dr Ian
McLoughlin, PatrickWakeham, Rt Hon John
Malins, HumfreyWatts, John
Mans, KeithWells, Bowen
Maude, Hon FrancisWiddecombe, Ann
Mawhinney, Dr BrianYoung, Sir George (Acton)
Miller, Sir Hal
Mills, IainTellers for the Ayes:
Mitchell, Andrew (Gedling)Mr. Tom Sackville and Mr. Timothy Wood.
Neale, Gerrard
Neubert, Michael
NOES
Barnes, Harry (Derbyshire NE)Marshall, Jim (Leicester S)
Beggs, RoyMichael, Alun
Beith, A. J.Michie, Bill (Sheffield Heeley)
Benton, JosephMullin, Chris
Canavan, DennisPatchett, Terry
Carlile, Alex (Mont'g)Powell, Ray (Ogmore)
Clay, BobQuin, Ms Joyce
Clelland, DavidRobinson, Peter (Belfast E)
Cousins, JimSillars, Jim
Cryer, BobSkinner, Dennis
Davies, Ron (Caerphilly)Smith, J. P. (Vale of Glam)
Dixon, DonSpearing, Nigel
Doran, FrankSteinberg, Gerry
Ewing, Mrs Margaret (Moray)Taylor, Rt Hon J. D. (S'ford)
Forsythe, Clifford (Antrim S)Trimble, David
Griffiths, Nigel (Edinburgh S)Turner, Dennis
Henderson, DougVaz, Keith
Hughes, Robert (Aberdeen N)Wallace, James
Ingram, AdamWelsh, Michael (Doncaster N)
Jones, Barry (Alyn & Deeside)
Lewis, TerryTellers for the Noes:
McAvoy, ThomasMr. Frank Field and Mr. William Ross.
McKay, Allen (Barnsley West)
Maginnis, Ken

Question accordingly agreed to.

Resolved,That this House takes note of European Community Document No. 8097/90 relating to aid for shipbuilding; and supports the Government's intention to agree to the adoption of this Directive as a further step towards establishing a soundly based shipbuilding industry in the European Community.