It was almost a year ago on January 14 that President de Gaulle vetoed Britain’s entry into the European Economic Community. The dust raised by the veto and the controversy preceding it has not settled even after a year. Only earlier this week the opposition leader, Mr Harold Wilson, sought an assurance from the Government that it was not planning to seek entry at a later date and was not revising its agricultural policy accordingly. The veto still rankles in the minds of the “Europeans” here. Only a fortnight ago The Economist outlined a possible policy for Britain in the event of continuing deadlock between France and Germany over agricultural regulations leading to the break-up of the Community. The deadlock was resolved within the next few days.
The continuing controversy apart, at the end of the year it has become clear that Britain’s exclusion from the Community has not produced the dire consequences which the supporters of the move to join it predicted. In fact Britain’s exports to the Community rose sharply during the year. The rise was most rapid in the case of France and Italy, 30 and 20 per cent, respectively. Some of the members of the Community, France and Italy, had the highest tariffs in 1958, the reductions since then have also been the biggest in their case.
There is however no single explanation for the steady increase in British exports to the Community since 1959 when its members began to reduce their internal tariffs. Partly it is, of course, due to the rapid rate of growth in those countries. For instance, between 1961 and 1962 the per capita income in Germany rose from £400 to £431, in Italy from £196 to £220 and in the Netherlands from £307 to £326. There is clear evidence that when there is a rise in incomes of this level a sizable portion of the increased incomes tends to be spent on imported manufactures.
Inflation
Secondly, during 1962 and 1963 inflationary pressures became acute in Germany, France and Italy. In Germany for example wages rose by 10 per cent, in 1962 and six per cent, in 1963. As a result domestic consumer prices rose by eight per cent. The rise in the prices of British exports during the same period was only three per cent.
It is also generally believed that the phenomenal export drive in the past one year or so was in no small measure the result of the Brussels negotiations. The British exporters were constantly subjected to bombardment of facts and figures relating to the Community and thus they become alive as never before to the importance of that market. Many British exporters prepared themselves for entry into the Common Market and began to feel that they were already in it in spirit.
President de Gaulle’s veto did not dampen their spirits. British directors now take courses in foreign languages and even packaging has improved – ideas our exporters may do well to follow.
The collapse of the Brussels negotiations immediately focussed attention on the European Free Trade Association, EFTA for short. Here is a group of countries with even higher standards of income than the countries of the European Economic Community. Annual per capita income in Sweden and Switzerland is about £600, in Denmark £482, in Norway £400, in Finland £340. Thus Sweden, Switzerland and Denmark are ahead of Germany, richest of the EEC countries.
Problems
It was however soon realised that EFTA was riddled with internal problems. Denmark has, for instance, vital stake in free trade in agricultural commodities. For Britain it raises the problem of free imports from Canada, Australia and New Zealand. Also since with the exception of Portugal all other members of EFTA have fairly low tariffs their elimination is not expected to lead to any phenomenal increase in British exports. In point of fact British exports to EFTA countries since 1958 have risen by two-thirds while they have doubled to EEC countries.
What concerns us more directly is that during the whole of 1963 not one practical proposal emerged in this country for promoting Commonwealth trade. The explanation is not lack of goodwill. During the Brussels negotiations Mr Diefenbaker, then Prime Minister of Canada, promised to make definite proposals if Britain abandoned the move to join the Community. Nothing was heard of the proposals during the year and the explanation cannot surely be that in the meantime Mr Diefenbaker ceased to be the Prime Minister of Canada.
The difficulty seems to be that the trend towards the erosion of Commonwealth preferences seems to be irreversible even though they are still necessary for the members. Labour party spokesmen have from time to time advocated the negotiation by Britain of long-term commodity agreements with Commonwealth countries producing primary commodities. This is hardly practical because it would adversely affect developing countries which are neither members of the Commonwealth nor associates of the European Economic Community, particularly Latin American countries. This would, apart from the undesirability of the move itself, infuriate America because she has a direct political stake in the well-being of Latin American countries.
The supporters of the Commonwealth in the Conservative Party during the Brussels negotiations advocated that the Commonwealth should seek exemption from the GATT’S rule of “no new preferential arrangements”. Though they did not say so directly the implication was that it would enable Britain to seek wider preference for exports to other Commonwealth countries This is a reasonable inference because the proposal was made in the context of the need to boost Britain’s own exports. It is obvious that such a move to put the clock back to 1932 was neither practical nor desirable. The British Government has not heeded either proposal. In fact the two are interrelated.
This explains Britain’s enthusiastic support for the forthcoming GATT negotiations which are also of great interest to us. Unfortunately prospects do not seem too bright at the moment. The tariff negotiating committee which was set up last year has made only some modest progress. The main difficulties have inevitably arisen because of the difference of approach between France and America. America wants linear cuts across the board and inclusion of agricultural commodities in the negotiations. France on the other hand wants all tariff above 30 per cent to be lopped off and agriculture to be excluded. There are other innumerable difficulties.
Doubtful
Even if prospects of further expansion of trade among rich countries were good the advantages to developing countries remain doubtful. Up to now the GATT has not been successful in persuading highly developed countries to adopt more liberal policies towards undeveloped countries. The traditional exports of primary producing countries account for a decreasing proportion of world trade. Their prices have continued generally on a downward trend. Seven modest agreements that were reached, for instance on textiles, have been circumvented by several countries. It is estimated that the aid underdeveloped countries receive is more or less offset by the adverse terms of trade that have developed in the last decade.
At present the tariff structures of European countries are designed to prevent the development of even simple processing operations in poor countries. To give an illustration the proposed external tariff of the European Economic Community on cocoa beans is nine per cent, but on cocoa butter and powder it is 22 and 27 per cent, respectively. On unroasted coffee the duty would be between 16 and 21 per cent, but on coffee extracts and essences 30 per cent. If poor countries are not to be allowed even to crush oil seeds through the imposition of discriminatory tariffs all protestations of interest in their development is so much sham. Britain on the whole follows a more liberal trade policy.
The Times of India, 11 January 1964