Ministers play tug-of-war over Korean factory

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It has generated a Whitehall turf war, a formal apology from one Cabinet minister and thousands of air miles into the bargain. Britain's attempt to persuade the South Korean electronics giant LG (formerly Lucky Goldstar) to build a billion-pound plant here is unlikely to feature in textbooks on inward investment. It may, however, go down as a classic Cabinet battle.

The protagonists, William Hague, Secretary of State for Wales, and Michael Forsyth, Secretary of State for Scotland, are relative newcomers to Cabinet office and both come from the Tory right.

The saga of their clash began last September when Mr Hague visited Seoul in support of a bid for Newport in Gwent to be the site of the LG semi- conductor factory. Wales, with its excellent rail and road network, was in a strong position to lure the South Korean giant. Better still, Mr Hague was offering a generous subsidy of, according to unconfirmed estimates, as much as pounds 150m.

The outcome could be 4,000 jobs - and a triumph for the Government's strategy of attracting inward investment through low costs.

Then things started to go wrong. Three weeks ago, the news that Newport had clinched the deal was leaked and briefly led BBC Radio News. In Seoul, LG, which jealously guards its right to make announcements through the proper channels, pointedly refused to confirm the investment plans. Mr Hague blew his top; then, when he calmed down, did his best to pour oil on troubled waters by apologising to LG for the untimely publicity.

Enter Mr Forsyth. On a nine-day visit to Tokyo, Osaka and Seoul, which had already been planned, he decided to drop in on LG. "The Koreans," said one source, "were a bit unhappy about their treatment in Wales; Michael was going there anyway, and then saw an opportunity."

Nobody will talk about the meeting; the Scottish Office, indeed, will not even admit it took place. But we can imagine the Forsyth sales pitch. Scotland may not have Wales's communication links but it can offer a skilled workforce, schooled in a good education system and high rates of productivity, not to mention greenfield sites a stone's throw from beautiful countryside. Locations close to other high-tech firms, in Lanarkshire or Fife for example, were probably discussed. Then Mr Forsyth would have talked money. The territorial departments, as well as some English regions, have generous grants under the Regional Selective Assistance (RSA) programmes to entice foreign firms.

Officially, the two territorial departments draw a diplomatic veil over the contest. Mr Hague and Mr Forsyth get on personally, meet frequently and often join together in alliances, usually against the Treasury. But no-one denies the rivalry.

So what happened to the Committee on Overseas Promotion, whose officials are supposed to co-ordinate the activities of such bodies as Locate in Scotland and the Welsh Development Agency "to prevent duplication in inward investment activity"? The answer is that, when the crunch comes, a territorial Secretary of State owes first allegiance to his own department, and never more so than in the run-up to an election in which 4,000 jobs might swing the odd constituency.

Hywell Williams, special adviser at the Welsh Office until last year and director of Conservative 2000, said: "It is a grotesque process of negotiation that leads to such bids and counter-bids. This sort of sordid scramble has happened on more than one occasion although when I was in the Welsh Office [with John Redwood as Secretary of State] we resisted taking part.

"Ministers will go on missions, usually to Taiwan or Korea. They get hold of some company with which they can justify their trip on the basis of spending even more government money through the RSA.

"It is a deeply demeaning process because it is saying effectively, 'Here is a terrible bit of the country and we will bribe you to come to it'."

Now, it is possible that both Cabinet ministers will lose out. Ireland is also offering cash and a deal under which LG would pay only 10 per cent tax on profits until 2010. In Seoul, Steven Hong, the company's assistant manager, says an announcement will not be made until early August and that the location will be "in the UK - or Ireland".