DTI Policies (Environmental Implications)

– in the House of Commons at 2:02 pm on 25th January 1991.

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Motion made, and Question proposed, That this I louse do now adjourn. —[Mr. Neil Hamilton.]

Photo of Simon Hughes Simon Hughes Opposition Deputy Chief Whip (Commons), Shadow Spokesperson (Education) 2:34 pm, 25th January 1991

I am grateful for the opportunity to debate a matter—the environmental implications of DTI policy and counter-trade deals—which, although from its subject title might appear somewhat dry and technical, will, I hope, be understood by hon. Members on both sides of the House to be a matter of importance.

The theme that links both the subjects of my debate is the international global environment, about which the Government say that they have a strong concern, and on the subject of which they have produced a White Paper saying so. My concern is that some areas of Government activity affect international matters, but they do not always seem to be consistent with their environmental policy objectives.

Earlier this week the House debated the Export and Investment Guarantees Bill, as the Minister for Trade knows. I welcome the hon. Member for Hove (Mr. Sainsbury) to the Front Bench again today. I apologise for landing him here on a Friday, but the day is not my fault, and I am glad to have the opportunity of this debate. The Bill will effectively privatise that Government activity, and I read what the Minister had to say on that occasion and followed the debate. That Bill does not change the nature of my subject matter or the appropriateness of this debate.

I shall give examples, as that is the best way to illustrate the problem and my complaints about current Government practice.

The first is a specific example of the role of the Export Credits Guarantee Department in relation to a loan taken out in 1985, when the Bank of Scotland won a mandate to provide a £10 million credit line to the Bank of Ghana. That was guaranteed by the ECGD on the basis that the loan was for equipment and management services for timber rehabilitation. In the early 1980s, timber exports from Ghana had hit an all-time low. In 1983 production was running at only 16 per cent. of capacity. There had been an internal agreement between the industry and the Government of Ghana that there should be redevelopment of the industry but that it should be carried out on a sustainable basis. This is an area which has tropical forests which are important to the global environment as well as to the economy of Ghana.

Ghana and its timber industry sought world assistance. A loan was obtained from the Bank of Scotland, as well as loans from other countries, including Canada and Saudi Arabia. However, the loans did not provide sufficient resources to ensure the required expertise and personnel and to achieve a sustainable forestry pattern. As a result, forests containing old trees were felled, but there was no corresponding reforestation and, by 1987, the rate of deforestation had reached about 22,000 hectares per year, whereas only 4,000 hectares were being replanted, a much smaller amount than a decade earlier. The rate of deforestation was five times that of replanting.

The link with our Government was the fact that the ECGD supported the loan from the Bank of Scotland. It was a private sector loan and not a Government loan, but the loan, and the fact that it was approved by our Government, caused environmental damage to the forestry of Ghana, which is an important part of the world for forests.

The question that is common to that example and to the subject that I shall raise in the second half of my speech, is how Government Departments co-ordinate their assessment of the environmental implications of their actions abroad and, more importantly, the activities of British companies or individuals which have environmental implications abroad. I do not believe that that assessment is carried out properly yet. The ECGD would have played the Government role in this case.

I have discussed the matter with a Minister of State in the Ministry of Defence during the course of a deputation from the campaign against the arms trade. Three Departments are always involved in arms deals, two are involved in others—the Department of Trade and Industry and the Foreign and Commonwealth Office. The Foreign Office advises other Government Departments on the suitability of an activity—if it is Government activity—or on the suitability of commercial activity, by disapproving deals which were unsuitable from the perspective of human rights, for example. Notionally the Foreign Office also takes responsibility for our overseas environmental policy.

I discovered in the context of debate on Antarctica, that the lead Department in foreign environmental policy is the Foreign Office, not the Department of the Environment. In this case it appears that the DTI, through its soon to be privatised but still in-house agency, the ECGD, agreed to support a loan, but there had not been a full environmental assessment of the project's impact on Ghana, so environmental viability was not assessed together with financial viability when approval was given. I hope that there is no doubt about whether this was an approved loan. It was approved, however inconsistent with Government environmental policy.

I should like to cite an extract from the British overseas aid 1990 annual review, which sets out the Government objectives abroad and thus shows how the inconsistency arises: One of the ODA's main objectives is to help promote sustainable development in developing countries. That means looking hard at the environmental impact of our projects and funding activities specifically designed to protect the environment. There follows a list of recent developments, and the document states that the ODA now issues a manual on the economics of environmental appraisal". Later, the section dealing with forestry states: We are continuing to work closely with and finance forestry projects run by Non-Governmental Organisations like the World Wide Fund for Nature and Oxfam … We are also funding more than 20 forestry research projects and forestry issues are an important aspect of our economic and social research programme. So there is no doubt that the Government have the expertise in the Overseas Development Administration to assess and evaluate forestry schemes overseas or that the ODA knows how to appraise them economically and environmentally, because it carries out such work for itself. But it appears that the ODA does not influence the authorising of loans by the ECGD.

I hope that the Minister will agree that it is not enough to say that this is a private sector matter and that all the Government have to do is back the money. I hope that he will agree that the Government have an environmental responsibility too. An individual company, the Bank of Scotland in this case, may not be able to make the sort of assessments that the Government have the expertise to carry out.

My second example relates to a counter-trade deal. The same aspects show up in it as in the first. This concerns Liberia, and the case attracted a certain notoriety. In 1989, United Scientific Instruments agreed a £20 million arms deal with former President Doe of Liberia. The supply of arms was to be paid for by giving USI permission to log three areas of Liberian rain forest for five years. The World Wide Fund for Nature estimates that felling on that scale would have resulted in the destruction of rain forest of about the size of Greater London—350,000 acres. Because the deal had to do with arms exports and involved counter trade including arms exports, it required an export licence from the United Kingdom Government. The company did not seek insurance from the ECGD because it had arranged its own in the form of the counter-trade activity in Liberia. Liberia was to provide the guarantee of a flagging fee. We all know that the first thing that people learn about Liberia is that it has more ships flying flags of convenience than any other nation. I understand that the exchange guaranteed the right to have more such ships.

I understand that, before granting the licence, the Department of Trade and Industry spoke to the British consul in Liberia and the Ministry of Defence before the licence was agreed. As far as I am aware no environmental assessment is carried out before any such licence is signed on behalf of the Government. The deal did not go through because political instability in Liberia was such that United Scientific Instruments did not pursue it. As we all know, President Doe was thrown out of office and his regime came to an end. The express view of the Department of Trade and Industry appears to be that this was a perfectly satisfactory and sound arrangment and one that was not discouraged or qualified. In fact the deal was never executed.

But the question arises, how could three Departments give the go-ahead for a deal that involved selling arms from Britain in exchange for rain forests in Africa, in clear contravention of what seem to be clear Government aims in relation to developing countries and our policy in relation to the world's rain forests?

We can all make value judgments about the appropriateness of the arms deal, which was significant. I understand that the arrangement, had it gone through, was for the sale of 10 Scorpion armoured fighting vehicles representing £15·25 million worth of business, a new radio communications system valued at £1·5 million, and a training deal under which Liberian students of weaponry and communications would come here to be trained and we would supply service engineers and freight transport to Liberia at a further cost of £3·5 million. That is a significant international trading deal for a private sector company in Britain.

Obviously, one can make judgments about the Government of Liberia who were willing to lose their rain forests. I do not blame our Government for that decision by the then Government of Liberia, but we did not say that that was unacceptable. I am concerned more about the future than the past. That deal did not go through and in any case it is history, but I am anxious to see Britain secure a system that places an environmental impact assessment on all attempts which involve licences as part of agreements for deals, especially if they are as blatantly controversial as an arms export deal by a United Kingdom company or the Government.

The person in charge of the World Wide Fund for Nature campaign to save the rain forests says that such deals are "ecological terrorism". People take different views on the matter, but it seems to me that if we countenance such deals we are aiders and abetters in the destruction of important environmental heritage that the Government often say they want to support.

I hope that the Minister will give us some assurances on the following points either now or as soon as possible.

While the ECGD remains under Government control, insurance should not be given for deals involving the depletion of natural resources in developing countries. Before the privatisation of the ECGD, a condition of sale should be that the company is bound by law not to give insurance for trading deals that involve the depletion of natural resources, and especially non-renewable natural resources in developing countries. If appropriate and necessary, I shall intervene on Report when the Bill that seeks to privatise the ECGD comes before the House.

What rules and methods does the DTI employ in assessing the environmental consequences of any trading deal, and how do they work? If the DTI is to be in line with ODA policy, would it be prepared to make an environmental assessment of a deal before agreeing to insurance? I hope that the Government will not say that that is not a matter for them. It is a matter for them, because, by the very fact that they authorise and approve of the deal, the Government become aiders and abetters in the deal. The assessment should not be only of economic risk. Does the DTI use and advise others to use the ODA handbook that assesses the environmental impact of projects in developing countries?

I also have some questions on counter-trade deals and export licences. If a similar counter-trade deal to the one proposed with Liberia comes before the Government in future for approval, will they refuse to grant an export licence? In other words, would they refuse to countenance such a sale if the consequence were destruction of important tropical rain forest or any other natural resource abroad? Have the Government refused export licences because they objected to a proposed counter-trade deal on environmental grounds? In other words, is there any precedent for refusing an export licence because the Government do not wish to be associated with the environmental effects of a project?

Is there any environmental assessment process in the agreement for export licences in the interest of counter trade? If we are deficient in these aspects, can we draw up some guidelines, which will be made publicly available within Parliament and outside, for wider use in government and the private sector so that we know the standards that the Government uphold through the DTI and the ODA, and across the whole departmental structure of government?

I hope that I have given clear factual examples to illustrate the problem. I hope that the Minister can be reassuring and tell us that Government policy, if it is not already along those lines, can be adapted so that we never again are guilty of complicity in bad international environmental practice.

Photo of Hon. Tim Sainsbury Hon. Tim Sainsbury , Hove 2:52 pm, 25th January 1991

The hon. Member for Southwark and Bermondsey (Mr. Hughes) has raised a large number of questions. His rate of questioning increased rapidly towards the end of his speech, and he has not left me much time in which to reply. He has raised a number of different subjects affecting different countries—counter trade, the ECGD, the environmental implications of ECGD activities and export licensing. He referred to Ghana and Liberia.

I thank the hon. Gentleman for one thing. I do not know whether it was inadvertent, but he mentioned the publicity about the transactions with Liberia. I take it that he was accepting that the publicity was not about events that had actually taken place, and that the facts were not as they were described in the press. If so, I thank him for that.

The House is aware of the hon. Gentleman's enthusiasm for what are broadly called green issues, but sometimes his enthusiasm is a little impractical. He seemed to confuse aid with trade—two factors that I understood his party to be keen to separate rather than combine. There was also confusion about the role of the ECGD and of the export licensing department.

Let me make clear the position on privatisation of the ECGD. Earlier this week, the Export and Investment Guarantees Bill was given its Second Reading. In the debate, I explained that the role of the ECGD was to provide protection for United Kingdom exporters against the financial risks of selling abroad by providing insurance against all the main commercial and political risks of non-payment and also the political risks attending long-term investments abroad. Cover is provided by the ECGD for the whole spectrum of exports from raw materials sold on cash terms to process plants for which the financial risks can span decades. As I said, in recent years, the ECGD has increasingly operated as two separate businesses, the insurance services group in Cardiff handling short-term credit and the project group in London handling medium-term credit capital goods exports. May I make it quite clear that it is only the insurance services group that is to be privatised. The ECGD will continue to provide project support to British exporters.

I hope that the hon. Gentleman does not need to be reassured that the Government are very concerned with environmental issues. A large part of my Department's job is to encourage firms to assess all the ways in which their activities have an impact on the environment. However, the lead must come from senior management. One might suppose that a company that was concerned about a particular contract referred to in today's debate had some regrets about what might have happened—but, happily, did not happen—in the case of Liberia. We certainly hope that all firms will respond to environmental issues, whatever their origin.

I have already referred to the ECGD's objectives. Constraints are placed upon it in fulfilling its role, which is financial rather than environmental. While encouraging exports, it is obliged to underwrite risks prudently. When export credits are given in conjunction with concessional aid funding—mixed credits—environmental considerations will be taken into account in the normal development appraisal undertaken by the aid authorities. The Overseas Development Administration always carefully assesses the environmental implications of any aid project.

When it is not mixed credit business, with no aid element involved and the business conducted on commercial repayment terms, environmental considerations do not normally form part of the ECGD's underwriting process. That does not, however, suggest a lack of Government commitment to environmental issues; it is a reflection of the real practical difficulties that would arise if attempts were made to make ECGD a central aim of environmental control.

The problem lies essentially in the difficulty of identifying those goods or components which at first sight might appear entirely uncontroversial but which could be used in a harmful way or could form part of a wider contract whose ultimate purpose was not known. For example, a set of pipes and valves could be used for purposes that were not only innocuous but extremely helpful in the production of medicines and the improvement of water supplies, or they could be used for environmentally harmful purposes. When providing support for the export of such material, it is impossible for the ECGD to determine the end use or the environmental impact.

The hon. Gentleman referred to the Montreal protocol. All the European producers of chlorofluorocarbons and halons have undertaken not to transfer the technology for their production to other countries. That is an important achievement. The 66 parties to the environmental protocol, which became effective in the United Kingdom in January 1989, on substances that deplete the ozone layer have undertaken, under article 4·6 of the protocol, to refrain from providing new subsidies, aid, credits, guarantees or insurance programmes for the export to states not party to this protocol of products, equipment, plants or technology that would facilitate the production of controlled substances. The 66 parties to the protocol are in the process of discussing the implementation of the provision. Certain practical difficulties have been identified. The most obvious is how to determine the use to which materials or machinery might be put. The ECGD, in conjunction with the Department of the Environment, is considering the practical measures that might be implemented in the United Kingdom. The ECGD is also consulting its counterparts—the other credit insurance agencies in other countries—to co-ordinate action.

The hon. Gentleman raised the issue of counter-trade, which is an umbrella term for a range of commercial mechanisms for reciprocal trade. In general terms, counter-trade is sought for one or more of four reasons: to finance trade which a lack of commercial credit or convertible currency would otherwise preclude; to exploit a "buyers' market" position to obtain better terms of trade or similar benefits; to protect or stimulate the output of domestic industries, including agriculture and mineral extraction; and as a reflection of the political arid economic policies of importing Governments who seek to plan and balance their overseas trade.

Less-developed countries form the bulk of counter-trading nations. Counter-trade is a characteristic of the trade in such countries. The growth in requests for counter-trade largely reflects the effects on their external trade of the international recession, which resulted in the loss of currency-earning capabilities because of depressed commodity markets. Sometimes there is also a desire to improve their access to western markets and industrial know-how.

The ECGD does not provide cover for counter-trade transactions or risks. It can, in principle, consider support for transactions that involve some indirect element of counter trade, but only—I stress the word "only"—where there is an unconditional obligation for the buyer or borrower to pay in money. The ECGD will not insure transactions where payment is dependent on the counter-trade operation. That would give rise to a wide range of risks which would be extremely difficult to assess and quantify and which go far beyond the ECGD's normal underwriting criteria.

Against the background of that assurance about the ECGD, I should like to say that counter-trade is not a mode of trade which the Government would advocate for its own sake, but we recognise that there are situations and markets in which accepting an element of counter-trade can be the only way of securing export orders. It is a matter for the commercial judgment of firms whether the costs and risks involved in a particular deal are merited. The Government offer guidance to exporters but in general are not prepared to become involved in particular counter-trade transactions.

The hon. Gentleman referred to a specific transaction concerning Liberia and the grant of an export licence. I am sure that he has looked at the answers which I gave the hon. Member for Meirionnydd Nant Conwy (Dr. Thomas)—I hope that the House will forgive me if my pronunciation is not as good as it should be. I said: ECG has been unable to identify any credit underwritten … in 1989 in respect of the export of military equipment to Liberia."—[0fficial Report, 14 November 1990; Vol. 180, c. 151.] I can say little more on that point except to confirm that the ECGD did not cover any transactions involving military equipment for Liberia. Any press comments to the contrary were incorrect.

During 1989, the ECGD insured British exports to Liberia, provided that any credit extended to the buyer did not exceed six months and then only on fully secured terms; thus payment must be secured by irrevocable letters of credit conferred by banks outside Liberia which are acceptable to the ECGD. The House will not be surprised to hear that there is virtually no demand for cover for exports to Liberia.

I should like to repeat the Government's concern about environmental matters and our wish that all companies—exporters or otherwise—should take full account of those matters in all their transactions. The ECGD is not involved in counter-trade. It would not, in practice, be practical to expect the ECGD to take account of an environmental assessment in its judgment of whether to provide insurance cover for the hundreds and thousands of transactions over the years—

The motion having been made after half-past Two o'clock, and the debate having continued for half an hour, MADAM DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at four minutes past Three o'clock.