Economic Disintegration in Europe

THE European Economic Community, or E.E.C., has been in operation since the first of this year. Products from France, Germany, Italy and the Benelux countries are now circulating among these nations with greater freedom than ever before. Within a few years' time these products will be in a position to compete freely with local goods in all six home markets. No one whose heart is set on economic expansion can have anything but praise for the creators and architects of this undertaking; we are used to hearing grand words nowadays, but the E.E.C. is in truth a major enterprise.

Nor is the goal of the E.E.C. confined to the creation of a common market among the Six, or to the alignment of their tariffs. From the start, the Six governments have looked beyond the "great European market" to the harmonization of economic legislation and agricultural policy--to the creation, in other words, of a broad economic zone in tune with the modern age and one which could contribute toward the prosperity of Europe and of the world. This is all to the good of Europe and its partners and friends everywhere.

It is not at all surprising that both the prospect and the operation of such a grand scheme have resulted in a number of acute difficulties. These have been sharpest in regard to the so-called Eleven, the countries that have enjoyed, with the Six, the advantages of common membership in the O.E.E.C. but now find themselves for all practical purposes excluded from what is in fact a preferential customs union. In discussion of this situation, it is generally the opposition of the United Kingdom that is stressed. But Britain can actually meet the Six on equal terms: only 14 percent of its total exports go to the Common Market countries and, after all, it has world-wide interests. The other ten O.E.E.C. countries have, however, been the traditional suppliers and above all the traditional customers of the Common Market area.^[i] For them, easy trade with the Six is a vital matter. It is therefore totally false to regard criticism of the Common Market and of its relations with other nations as nothing more than a British plot against European unification. There is every reason for more acute concern in continental capitals than in London.

Let us look more closely at some of the effects of the almost total exclusion of the Eleven from the E.E.C. Clearly, the political effects have not been good; the extended and often exacerbated negotiations that led to the present division have resulted in much strain, particularly between France and Britain. This problem even played a part in Germany's most serious internal political crisis since the war. It is at the root of present misunderstandings in the Western world.

On the economic side there are a number of fears. For example, within a very few years the E.E.C. will have a common external tariff which is expected to average nearly 18 percent. The Eleven, on the other hand, particularly the smaller countries which are substantial importers from the Six, have very low tariffs, the average level of import duties being between 5 and 9 percent. How to meet such a situation is already causing considerable anxiety. To be sure, the E.E.C. has extended most of its initial tariff concessions and quota reductions to the Eleven, but there is no assurance, nor any likelihood, that these will be continued when further barriers are removed within the Community.

Concern is also being caused by the argument often heard among the Six that, because their volume of trade with the outside world makes them perhaps the biggest importing and exporting unit in the world, they should above all forge links with the underdeveloped countries. The E.E.C. has already started to look for important responsibilities in other continents. It has already begun to evade its responsibilities toward its neighbors and partners in Europe.

The countries on the threatened fringes of Eastern Europe--Greece, Turkey and Austria--are particularly vulnerable economically. Under the new scheme, these nations will no longer be treated as equal partners in the great markets of continental Europe. German goods will have preference over Austrian goods in Paris, Brussels and Rotterdam, as well as in Milan. Oranges and tobacco from Macedonia and Anatolia can no longer be offered in Hamburg on equal terms with the products of Italy or of the overseas territories of the Six. In other words, the European countries which for reasons of geography or economy are the most vulnerable will no longer enjoy most-favored-nation treatment in the great Western European market. This may be consistent with the GATT agreement and may even be regarded by some as consistent with the aim of strengthening the European continent. But the question will certainly be raised one day as to whether the concentration of strength in Western Europe sought by the Six was not purchased at too dear a price of indifference to the fate of Central and Southeastern Europe--isolated and made an easy prey to external forces.

Others among the Eleven argue against the Common Market on a different basis. Portugal, Norway, Sweden, Denmark and Switzerland buy more from the Common Market countries as a whole than they sell to them. In spite of this, the market of the Six absorbs from 30 to 60 percent of the exports of these small nations. And, in the bargain, these countries enrich the Common Market through their adverse trade balance with it.

What does the economic future hold for these countries if their exclusion from the Common Market continues? Their adverse balance of trade with the Six will increase because they will export less to the Six than before. They will have to surmount the common external tariff of a great Community, free-trading within and protectionist toward the outside world. Experience shows that tariff obstacles tend to be heightened by others which, though indirect, are no less effective than tariffs in restricting trade.

It is clear therefore that the Eleven will sell less to the E.E.C. if developments continue along their anticipated path. Will they buy more? Possibly, as the result of the rationalization and standardization of production in the Six countries. But will not the Eleven in their turn take action against imports from the new Community, so as to restore some semblance of balance to their trade with the Six European partners? Will they not place increased obstacles in the way of imports from the Six? Can their right to do so really be contested from the economic point of view? Anxiety over their balance of payments and their employment situation, as well as the law of reciprocity, will compel them to do so. We would then witness declining trade and economic war between Europeans. A sorry outcome for the efforts to achieve greater European unity! In bitter fact, European unity has never been more remote than it has been in recent months.

II

The present situation is particularly disheartening because, from July 1956 to the end of 1958, strenuous efforts were made to prevent the schism that divides the Six from the Eleven. It is even more disheartening because the plans that were worked out were technically feasible; they failed only because of obscure political motives and legal and political sophistry.

Let us retrace the chronology of events briefly. In June 1955 the Six, meeting at Messina, decided to begin the examination of a Common Market, a decision that resulted in the generally favorable Spaak Report of April 1956. In July 1956, in response to a British proposal, the Council of the O.E.E.C. in its turn decided to set up a Working Party to study the possibilities of some sort of free trade area between the Six and the other O.E.E.C. nations. That a free trade area of such dimensions was technically possible was made very clear in the Working Party's unanimous report in January 1957 and on a number of occasions since.^[ii] To put it in very general terms, the Eleven proposed that the free movement of goods within the Common Market be extended on a reciprocal basis to all the interested countries of Western Europe, starting with the O.E.E.C. countries. Those nations that belonged to the free trade area but not to the E.E.C. would retain control over their individual tariffs, but the free movement of goods among all seventeen O.E.E.C. nations would be encouraged by a variety of means. For the sake of argument let us concede that the United Kingdom actually launched this project and that it took the lead in the negotiations. Let us also forget for the time being that the Six may possibly have no real intention or inclination to welcome outsiders into their group!

Drafting and negotiation on a free trade area took a great deal of time. By November 1958, however, there was agreement, or near agreement, on 15 specific points relating to a close economic association among the Seventeen. Its structure was to have been brother to that of the E.E.C. The Seventeen were also not far from agreement on general and common economic problems, such as the harmonization of wages and taxes and a certain degree of alignment of external tariff and trade policies. There was agreement that the extension of freedom of commerce to goods from the Eleven would involve special regulations applying to chemicals, textiles, engineering, pulp and paper, and non-ferrous metals. A start had also been made on the study of the individual and differentiated terms on which especially "aggressive" products from the Eleven could be admitted to the attractive market of the Six.

Further cause for optimism was to be found in the July 1958 proposal of the European Commission of the Six that a provisional multilateral agreement, to come into effect no later than the starting date of the E.E.C. on January 1, 1959, be signed by all Seventeen nations. The general purpose of this agreement was to enable the Seventeen to stand on an equal footing by the time the E.E.C. was launched. Also important in evaluating the course of the discussions was an E.E.C. memorandum of October 17, 1958, which stated: "The European Community solemnly reaffirms that it is determined, both for economic and political reasons, to arrive at an agreement which will make it possible to associate with the Community on a multilateral basis the other Member States of the O.E.E.C."^[iii] Important suggestions were made in this document concerning two serious obstacles to final agreement: the external tariff freedom of the Eleven and the matter of relations with the British Commonwealth. In both cases the suggestions were optimistic.

There seemed to be no doubt then that an economic association could be worked out and that it was in fact close to being worked out. The Six have themselves gone on record to this effect. And the Eleven have never ceased asking that their trade relations with the Common Market be regulated on a basis of parity.

In spite of these positive steps, the years of negotiation led to no fruitful result. A permanent solution inspired by the spirit of coöperation that characterized the postwar years and the Marshall Plan era--in other words, a multilateral, non-discriminatory, pan-European organization--has been rejected, primarily because of the intransigence of France. One cannot escape the conclusion that even members of the Atlantic Alliance are being drawn into opposing economic camps with quite different economic structures. There is no case in history in which the flow of trade has not in the long run also influenced views on foreign policy and defense. Within the Western world, we are already witnessing a policy of disengagement on the primary plane--the economic. Today, the integration of the Six, tomorrow, the disintegration of the rest.

III

In spite of the present discouraging outlook, the question for the future must be: how can a stable and multilateral form of association among the European countries be reached? How can the economic dislocation of the Continent be prevented even while the legitimate and more ambitious interests of the Six are protected? Experts on both sides have submitted any number of plans. They all come down to one thing: it is essential to create here and now a stable organization embracing all Seventeen and subscribed to by all of them. Such an organization would, under the terms of its constituent agreement, give every guarantee of gradual movement toward an economic zone united not only in its trade relations but also by a harmonization of general economic policies in Europe. Everything cannot be done at once; it would perhaps be wise to allow one of the organs of the proposed economic association to decide which products would move freely throughout the zone from the outset and which, being considered "difficult," would not be granted such freedom for the time being. Such an organ, on which the Six could be given a majority vote, would also decide when and on what terms, at the price of what reconversion by certain producers in the Six, a market of 300,000,000 consumers covering practically all items produced in Western Europe, could be achieved. Under such a scheme, the very large majority of goods from the Eleven would compete freely, on a reciprocal basis, in the market of the Six. Admission of all goods from the Six to the markets of the Eleven could not fail to strengthen and develop this great zone of free competition.

In order to realize these purposes, a European Economic Conference should be called to meet outside the existing economic institutions, to reëstablish contact between all the governments directly or indirectly concerned. This Conference should at the outset establish the points on which there are no insuperable difficulties. This done, the immediate resumption of trade on a basis of parity among the Seventeen would follow; after all, this was the practice from 1948 until the E.E.C. first began to operate in January 1959. The Conference should also create organs empowered to make suggestions for the progressive introduction of solutions to problems on which immediate agreement might not be possible. Technical organs operating on a system of majority voting should also be established to decide under what conditions and in what period of time certain products from the Eleven would or would not be likely to disturb the market and producers in the Six.

These steps would reassure the smaller countries that they are not being "expelled" from the European family, and abandoned to an economic fate which could hardly prove constructive for any of the European nations or for the Western world as a whole. A feeling of cohesion, of coöperation and unity would be re-introduced by such a Conference, if successful. Already there exist carefully drafted, relevant plans in the O.E.E.C. and E.E.C. alike. A most constructive scheme, the Scherpenberg Plan, has been prepared in Bonn; others are available in Rome and Brussels. Whatever plan is adopted, it should provide for the admission of non-O.E.E.C. states such as Finland, Jugoslavia and perhaps others,^[iv] so that they also may have an opportunity to progress in the great concert of free economies. Only then can Europe as a whole remain the stronghold of Western economic liberalism.

This is an essential and urgent task. We must put an end to the futile and unaccustomed quarrels which, in the economic sphere, have never reached such a pitch before. Europe must free itself from the sterile doctrinal quarrels that could weaken and degrade it faster than any external threat. There are few examples of good political understanding between countries divided by conflicting interests and polemics.

IV

Since the European Economic Community took the initiative in breaking off negotiations last November, the other O.E.E.C. countries have been given no concrete assurance by the Six that there is any immediate possibility of resuming the move towards a coördinated and comprehensive pan-European economy embracing the Seventeen countries. Even the efforts of the Hallstein Committee, which was set up by the Six themselves and sat last January and February, have not met with the approval of the Six.

In April 1959 the E.E.C. set up another body, the Rey Committee, equally entrusted with the task of finding a form of multilateral association between the Six and the Eleven. So far as is known, this Committee is still genuinely looking for the formula which is apparently so difficult to find, but it is encountering grave and so far insuperable difficulties from its own members.

It is therefore not surprising that the more industrialized countries excluded from the E.E.C. have been seeking ways and means of arriving on their own account at a freer and easier exchange of goods. In this way the Seven, as they are known, are trying to put into practice the liberal, non-legalistic and non-protectionist views which they have supported from 1956 to 1958. These efforts have been stigmatized by many authoritative commentators in E.E.C. circles as unrealistic, bogus and even as "tainted by British inspiration."

One of the foremost economists in E.E.C. circles has said that any enlarged economic area not equipped with compulsory rules about the origin of goods, deflections of trade, competition under conditions of protection, manpower, common external commercial policy, salaries and wages, pensions, taxes and so forth would be just a "doodle" and not a workable international economic scheme.

Would it not be fair to leave the Seven to try out among themselves the practical experiment of the free exchange of goods between sovereign countries with autonomous economic policies and no central economic planning? Experience will show whether more is needed than a code of good conduct, broad consultations on economic policy and common decisions where necessary, based on the experience and needs of partners acting in good faith and good will. Some of us do not think it essential that every possible difficulty which might theoretically arise in future should be solved in advance on a priori grounds, with a Court, set rules of procedure and an abundance of conversion funds and substantial commitments in every branch of economic life.

The Treaty of Rome, as at present interpreted by certain governments, takes the view that it is essential to have rigid rules laid down in advance to meet every future difficulty. The Seven, on the other hand, believe that a simpler scheme is workable, consistent with the GATT conception of a free trade area. It now seems possible that starting July 1, 1960, the Seven will try out this less legalistic formula, unless (as most, if not all, of the Seven would prefer) there were general agreement to return to the more informal approach represented by the "Ockrent Paper" of October 1958 (so-called after the Belgian Member). This was produced by the E.E.C. countries as theircommon view and accepted by the other O.E.E.C. countries as the basis for further negotiations among the Seventeen, on the few difficult issues which remained to be settled in November 1958.

It is well known that some of the Seven countries could not, for constitutional reasons, agree to join the Community and abandon sovereign control of their economic life to a supra-national authority. This is the case of Austria (because of international obligations), Switzerland (for many reasons, including her century-old policy of permanent neutrality) and the United Kingdom (because of its obviously intricate links with the Commonwealth and the Sterling Area). Others, for geographical or structural reasons, could not join a customs union. How could these countries be expected to refrain from doing their best in their own way to achieve specialization of production and large-scale exchange of goods--objectives which in the case of the Common Market rightly received everybody's blessing? There are more ways than one of liberalizing international trade and of rationalizing production. There is no greater reason to doubt the motives of the Seven than there is to question the sincerity of those who wrote in the preamble to the Treaty of Rome that their purpose was to "contribute, through a common commercial policy, to the progressive lifting of restrictions in international trade." It is regrettable that their words no longer apply to their actions.

It is not too late to reverse the sorry trend of events in Europe. Close economic links among all European countries are still possible. Such links are even more vitally needed today than in 1948, because there is less agreement among European countries in other areas, and because the challenge--including the economic one--is of an altogether different dimension.

^[i] In 1958 the following percentages of total exports went to the Common Market area: Denmark, 36 percent; Norway, 31 percent; Sweden, 39 percent; Austria, 52 percent; Switzerland, 57 percent.

^[ii] See for example, "Negotiations for a European Free Trade Area," Documents Relating to the Negotiations from July 1956 to December 1958, London: H.M.S.O., Cmnd. 641, January 1959.

^[iii] See "Negotiations for a European Free Trade Area," op. cit., p. 97.

^[iv] Spain became a member July 20, 1959.