Sir: Your leader-writer and steelindustry correspondent (July 3) respectively make errors of commission and omission.
The former suggests that, once in ECSC, the British government will no longer be able to finance uneconomic expansions of the steel industry (or expansions on which the High Authority frowns for some other reason) in the face of prohibition from the ECSC High Authority; the relevant Article 54 of the Treaty of Paris in fact reads " ... the (High Authority's) unfavourable opinion ... . shall have the effect of prohibiting the enterprise from resorting to resources other than its own funds to cariy out such a project . . ." (my italics).
This restriction on the source of funds renders the article and prohibitive powers it provides anodyne, since a national government has only to fund an investment opposed by the High Authority through increased share capital; there is a precedent in the High Authority's inability to veto the Hoogovens blast furnace expansion a few years ago, and none for the successful application of a veto on an expansion scheme. However, there is also no precedent for any one enterprise's proposing so absurdly large an expansion (17-18 million ingot tons, or some 65 per cent of current UK and some 16 per cent of current ECSC production) as BSC is proposing for its next round of expansion to 1980.
Obviously this restriction in BSC's case to expansion capital funded as public dividend (when, 0 when?) capital will be welcomed by BSC, since this form of funding, as the taxpayer knows too well from BSC's first capital reorganization, carries obligations neither to pay interest nor to repay capital.
The latter — your anonymous correspondent's article — ignores the point that the only financial salvation likely for BSC is if its excessive expansion-proposals are drastically pruned, either by public good sense or official veto (but this will have to be from the British taxpayer, because of the toothlessness of the above ECSC vetopower).
There are good reasons (which there is no space to give here but which I summarised in the Times on June 25) to be sceptical of a future domestic and export demand increase for steel of anything like the 17-18 million tons on whose realization BSC wants the taxpayer to gamble £2,000 million; so if the gamble were made, the new facilities created at this enormous cost would simply be in competi tion with the current round of 1968-75 developments. The latter cost £1,000 million and are admit ted even by BSC's deputy chairman, Dr H. M. Finniston, to have only one half the productivity of their competitors abroad (and presumably also of their anticipated successors at home).
The real problem of the BSC will be the same whether it is in ECSC or not: a dilemma between two dreadful courses: either to restrain capacity to something approximating to realistic forecasts of demand and ' stick ' and the Scunthorpe, South Welsh, and Teesside developments coming on stream in the next few years, or to go ahead and overbuild with higher-productivity, more competitive ' greenfield ' facilities. The first option means resigning from
cost competitive international steelmaking for a generation, and the second means keeping abreast (not ahead) of steelmaking technology by having modern works costing £2,000 million which are bankrupted by the excess capacity which they imply.
At the beginning of the 'sixties the Macmillan government showed us the second option in miniature, by spending £200 million (one tenth of the sum now in question) by putting down Llanwern and Ravenscraig to meet over-optimistic demand forecasts. In view of the subsequent near-bankruptcy of RTB and Colvilles, there are arguments in favour of the first option, but BSC evidently wants to try the second option again on a scale ten times as large as before. ECSC would certainly be happy to see caution prevail, but there is no evidence that the High Authority would have effective power to stop the British taxpayer from splurging £2,000 million on BSC's gamble if he so decides.
James Taylor 6 Westover Road, Wandsworth Common, London SW18
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