I WAS at The Hague in the spring of 1948 when Sir Winston Churchill, against the background of a great thunderstorm, called upon the nations of Western Europe to unite. There was plenty of ardor and enthusiasm at that meeting. Those present felt that they were at the birth of a great movement. My own committee (on economic unity) labored long and hard, and did not quail at sitting on hard chairs—with no refreshment—until 6 a.m. on the final night to complete our draft.

In one sense the impetus was the negative one of fear. At that time the Russian situation looked extremely menacing. Here were these ancient countries, having between them sufficient population and resources to match the Russians, finding themselves in fact completely at their mercy. In the actual situation, the opposition to a Russian aggression could be but feeble. Even if one put the best possible complexion upon Russian intentions, it was not pleasant to be in an exposed position, to be dependent on the good will of a strange and, to all outward appearances, hostile Power about which little was known. Yet if these countries could get together quickly and act as one, their relative strength could be radically altered.

It would be wrong to say, however, that the meeting was solely animated by fear of Russia. There was a more positive feeling of pride in the European heritage, and a sense that the countries concerned had fallen into a sorry plight through lack of resolution and coöperation. As individuals, the citizens of Europe were as vital and resourceful as they had ever been; but their political setup failed to galvanize their energies. The proud and ancient civilizations, which had given so much to the world, seemed to be crumbling under our eyes. Revival could not be achieved on too narrow a base. "Europe," nothing less, must be the watchword in future.

And our thoughts concerned the future. Though pride in past achievements formed a background to the thinking, the spokesmen at The Hague represented a wide popular movement which believed that coöperation could bring greater efficiency, higher living standards and quicker progress.

On the wave of enthusiasm, very far-reaching plans were discussed. There should be some kind of political federation. On the economic side, sweeping plans were brought forward for having a single system of taxes and uniform rates of wages throughout Europe. However infected one might be by the atmosphere of the place, one could not help asking oneself whether these aspirations had indeed any relation to reality. Were we living in a dream world? When it came to the point, would the citizens of the countries concerned, with their strong national attachments, really be prepared to sweep aside age-old practices—economic, political and constitutional, or were we simply a band of visionaries? Many of these paper plans were far too utopian. It did not follow that there was nothing at all in the idea that more integration and much closer coöperation were both vitally needed and practicable. Thus, it seemed that much work would be needed in sorting out the wheat of the practicable and needful from the chaff of the visionary and ideological.

Even in this opening phase there was a rather large difference between British and continental sentiment. This did not turn so much on an intellectual assessment of what was necessary as on a subtle and imponderable difference in the popular attitude. I think that it is fair to say that, at least at that time, the peoples of continental Europe had largely lost faith in their own political leadership, and even in their own forms of government. On the Continent, people had the feeling that they had been terribly let down by their political institutions, had little feeling of loyalty for them and were looking about for some new political forms, some European institutions, in fine, to which they could harness their loyalty and their faith. But the people of Britain did not feel that at all. They had no disgust or even deep discontent with their Parliamentary institutions; their traditional pride in them was unimpaired. Some might feel that British foreign policy had been stupidly conducted in the years before 1939; but if the leaders had erred, they had done so in good faith, and their stupidity, if such it was, had been shared by the majority of British people. Consequently, if the British deemed it needful to accord powers to some new European institutions, that would be in the interest of a good cause, and not at all for the sake of finding something which was more worthy of their loyalty than their own Parliament. I believe that this difference of feeling was very profound and has been the main cause of the difference in approach to the European problem in the years that followed. It seemed clear that the British would be most reluctant to hand over to some strange constitutional body all those matters on which they rejoiced to be able to exert their democratic will through their own Parliament. One might as well tell the Americans that, with a view to more harmonious international coöperation, they must put their own Constitution onto the scrap heap.

It is necessary at this point to touch on a delicate question. The United States has throughout the postwar period taken a constructive and helpful attitude towards greater European integration. There have, I believe, been feelings of displeasure with Britain for having seemed to drag her feet. A paradox is involved here. It has to be admitted that in the minds of some, although certainly not all, of those most keen on European unity in 1948 there was an anti-American bias. There were fears in certain quarters that the influence of the United States might become too dominant in European affairs and might make inroads upon those features in the European way of life which are different from the American. One might summarize this attitude in the words "a third bloc." Some even went so far as to put as much stress on the function of offsetting possible American dominance as they did on defense against Soviet Russia. By no means all of those at The Hague, however, perhaps not even the majority, favored this idea of a "third bloc." It has of course been a cardinal principle of British policy since the war that the first consideration in foreign affairs should be the closest possible coöperation with the United States. The paradox is that the very "dragging of the feet" by Britain, which appeared unsatisfactory when seen from the United States, was, when seen at this end, in part the manifestation of a reluctance to be involved in any operation that might have an anti-American bias.

Already before the visionaries met together at The Hague, steps had been taken towards European coöperation on severely practical lines. These arose from the magnificent project of Marshall Aid. In the autumn of 1947 the nations of Europe met together to discuss how this great offer should be dealt with at their end, and O.E.E.C. was formed. The prospective flow of funds made necessary mutual consultation about the disposition of them. Furthermore, under wise American influence, the receipt of benefit was to be made the occasion of severely practical measures for reducing barriers to trade in Europe. By successive stages, the plan for the European Payments Union was developed; and this Union is still functioning. At the same time it was arranged that quantitative import restrictions on intra-European trade should be progressively reduced, under the name of "liberalization." This policy, too, is still in operation. Each of these steps, some of them unpleasant, involved definite limitations on the freedom of action of the member countries. None the less, these things were done; and they had a beneficial influence in increasing the flow of trade. Under the influence of American generosity, greater European integration became a realized fact.

There was an aspect of these proceedings that very soon struck one. I have already explained that the British people would be most reluctant to have their Parliament surrender authority in matters on which it enjoyed exercising its sovereign democratic will. Examples of such matters are the system of taxation and all that is related to the system of social security. But it was evident that in the making of commitments, and in the limited surrender of sovereignty in respect to currency (E.P.U.) and trade (liberalization), neither Parliament nor people was conscious of any great deprivation. It followed that while there were some areas in which the people would bitterly resent a surrender of sovereignty, there were others which they would bear with equanimity. And this seemed to point to the right line of progress for increasing European integration.

Among enthusiasts for European unity, two schools of thought appeared, the Federalists and the Functionalists. The former favored a new political setup with the surrender of legislative authority, while the latter advocated the taking over by European authorities of certain specific functions. By the latter approach one might select those functions which could be assumed by European authorities without the people feeling that their native institutions had been gravely impaired. There is an analogy here with a dictum of which the late Lord Keynes was fond. He favored the assumption by the Government of a good many functions, thereby offending liberals and individualists, although he was himself essentially a liberal. He was in the habit of explaining that he by no means wished the state to take on jobs that private enterprise was already doing and could perhaps do more efficiently than the state, but that the state should take on tasks which, if it did not perform, would not be performed at all. Such a task would be the regulation of over-all investment at a level required to prevent unemployment on the one hand or inflation on the other. If the central authority did not do this, no one else could. Might one not apply the same principle to Europe in relation to the separate national parliaments? Europe should not take away from the parliaments tasks that they were discharging well, but should do things that, as separate parliaments, they just could not do.

The European Payments Union may be regarded as an essay in functionalism. The Coal and Steel Community, though limited to six nations, can be taken as another. Britain did not join the latter group, mainly owing to the belief that its functions and objectives were not clearly enough defined. Even now one may be permitted to have some doubts about them. The European Defense Community was on a different plane, but not altogether discordant with the idea of functionalism. I need not go through that chapter of disappointments here, but the uncertainties it engendered impeded progress along other lines for a substantial period.

From the early stages the removal of tariff barriers very naturally figured prominently in discussions about integration. Obviously something of this sort was called for. None the less, the complete removal of protection might involve vast economic upheavals. It must be remembered that industries in European countries compete hotly with one another along various lines. A removal of tariff barriers might cause great displacements of capital and labor and involve much temporary hardship. This was a project therefore that governments were bound, in the ordinary discharge of their duties to their citizens, to approach very cautiously.

At this point we must refer to a particular of American ideology. The United States draws a sharp distinction, which it is not always easy for non-Americans to understand, between a group of countries coming together and completely abolishing their mutual tariffs, and a group of countries coming together and giving each other mutual preferences. One might suppose that these two alternatives were either both good or both bad; it is not on the face of it clear why a stigma should be attached to the latter, while the former is regarded as praiseworthy. The effects of the reduction of mutual tariffs must surely be the same in kind, although not in degree, as those of total abolition. It may be ventured that this distinction, which seems so clear to the American mind, flows not from any rational premises, but from the accidents of American history. I will return to this point in another connection. The countries of Europe would have preferred to make a beginning with mutual preferences, and this might indeed already have been done had the countries been completely free to follow their own choice. It is true that a partial reduction of duties, on a preferential basis, is permitted by GATT provided there is a firm commitment that this partial reduction is to be an opening step towards the final stage of complete abolition. But it is about this final stage that the governments of Europe have had doubts; and it would not have been honorable to proceed with the opening steps of a partial reduction unless they were prepared from the beginning to commit themselves fully to the final stage of complete abolition.

However, the project of complete abolition continued to be discussed for a number of years, not only by visionaries but also in responsible circles in Europe. In view of her traditions, so strongly rooted in free trade, Britain should not have been more reluctant than other European countries to contemplate such a revolution. But one great difficulty stood out from the beginning—her relation to the rest of the Commonwealth. In the early days the existence of the Commonwealth may have served as an excuse for lazy-mindedness, for not considering carefully the various obstacles to the abolition of tariffs and whether they could be surmounted. The Commonwealth may have provided a sort of alibi against the duty of hard and painful thinking about this matter. Indeed, on certain occasions, enthusiasts of European integration canvassed opinion among members of the outer Commonwealth and brought representatives to conferences on the European question. The enthusiasts sought to show that there would be no obdurate resistance to European integration coming from the outer Commonwealth. None the less, there were certain difficulties that were very real.

I propose to consider this crucial and central problem in two stages. In the first stage I shall ignore completely the existence of Imperial Preference. The Commonwealth difficulty does not turn on that alone.

(1) It is quite clear that Britain will not consent to discriminate against goods coming to her from the Commonwealth. There are, I suppose, some who consider the Commonwealth obsolete and belonging to the dead past. But it is not so in fact. The pages of history cannot be torn up at short notice. The various parts of the Commonwealth remain bound together, both by history and by ties of present friendship. Britain believes that the Commonwealth is still a useful entity in the further development of civilization, and that it makes some contribution to stability in the world as a whole. Britain cannot be expected to place the Commonwealth on a lower level than continental Europe and to give more favored treatment to European goods than she gives to Commonwealth goods. Now an essential feature of the project for abolishing trade barriers in Europe would be that European goods would be admitted into Britain free of duty. From the British point of view this would mean that Commonwealth goods would also have to be admitted free of duty; otherwise there would be discrimination against the Commonwealth. But how does this admission of Commonwealth goods free of duty square with the European plan?

At a first glance someone might be disposed to suggest that the European arrangement should include the British Commonwealth. (Such a vast grouping might, however, be interpreted as having an anti-American slant; but I waive that point for the moment.) The project for including the Commonwealth is totally impracticable. The countries of Europe would by no means agree to admit Commonwealth produce free of duty. They have their own targets in relation to protection. It would be one thing, for instance, for France to expose herself to competition from German agriculture; such a concession might be granted with a view to gaining the great benefits of European integration. But it would be quite another thing to ask France or Germany to open their doors to the free admission of agricultural products from all parts of the British Commonwealth. Conversely, the Commonwealth countries would not be willing to admit all the manufactured products of Europe free of duty. They have in varying degrees a policy of protecting their own manufacturing industries. They do not even admit British manufactures free of duty, but only give them moderate preferences. There could be no question of asking the members of the outer Commonwealth to admit all the various kinds of manufactured articles from Europe free of duty. Consequently, the inclusion of the whole Commonwealth in the European scheme for the abolition of mutual duties is out of the question; it does not come up for discussion at all. Here we seem to have a hopeless impasse.

This difficulty is not in fact insuperable. Under the rules of GATT two forms of common market are allowed, the Customs Union and the Free Trade Area. By the former plan the contracting nations must have one common tariff on all goods coming from the outside world. In the Free Trade Area, on the other hand, there is to be a complete abolition of tariffs as between the members belonging to it, but each retains its own freedom to have whatever tariff policy it pleases against the outside world. It is to be emphasized at the outset that those who favor having as much multilateral trade as possible on a world-wide basis should prefer the Free Trade Area to the Customs Union. The former gives those nations that favor low tariffs against the outside world the latitude of continuing with their own chosen policy, although their partners in the Free Trade Area may desire somewhat higher tariffs. If the nations of Europe got together and formed a Customs Union, they would no doubt avoid raising their tariff levels against the rest of the world, although those who favor the "third bloc" idea would surely press them to do so. The idea would be to maintain external tariffs at levels no higher than those obtaining prior to the formation of the Union. But it would be impossible to realize this intention in full. Inevitably, a particular nation will feel that a high tariff on a certain commodity is a vital necessity. Though it may be just able to forego protection within the Union in exchange for demonstrable benefits, it certainly cannot do so in favor of goods from the outside world, e.g. from the United States. In this case the other countries forming the Union may feel themselves forced to agree that they should all have a tariff at a higher level on this commodity. Such instances are bound to be multiplied. It is idle to pretend that, if all nations are forced into the strait jacket of having a single tariff common to them all against each article from the outside world, the general tariff level of Europe will not be higher than if the several nations retain the liberty to proceed with their own policies in regard to external tariffs. The latitude allowed by the plan for a Free Trade Area permits the low-tariff countries to continue their practice, however vital it might be to particular members to have higher tariffs on certain items. Clearly the Free Trade Area is more favorable to world-wide, multilateral trade than the Customs Union.

Now the idea of the Free Trade Area solves one part of the British Commonwealth problem, and it is to be noted that Britain is now pressing for a Free Trade Area. It is possible that the six countries which form the Coal and Steel Community will have a Customs Union, while associating themselves with a larger group of O.E.E.C. countries in the Free Trade Area; that is one available solution. Alternatively, the small group of countries might drop the idea of the Customs Union altogether, and then there would be just one arrangement, a Free Trade Area for the whole group of O.E.E.C. countries.

Under this scheme, the British would be at liberty to allow the import of produce duty free from the Commonwealth. It would thus avoid the necessity of discriminating against Commonwealth produce, which would be a fatal obstacle to her joining the arrangement at all. But the other European countries would not be under any obligation to admit this produce duty free; they could arrange what tariffs they chose, or have at present, against produce from the outer British Commonwealth. Thus the scheme for a Free Trade Area solves the first problem arising from the Commonwealth.

The objection that has been raised to the Free Trade Area for several years is that it is impracticable. It is feared, for example, that goods coming into Britain duty free would then be passed on to other European countries, thus avoiding the tariffs that they imposed on products from outside the Free Trade Area. British experts are not convinced of this, but I shall return to this question presently.

(2) Next there is the vexing question of Imperial Preference itself. In this connection, let me say that I personally was strongly opposed to the Ottawa arrangements, regarding them as retrogressive. None the less, time has passed since then. That the British position on external account was weakened by the Second World War is common knowledge; this fact cannot be ignored. One may hold that all tariffs are undesirable and that one's final target should be to abolish them. But one has to have regard to an existing situation. Certain positions have been strengthened by the moderate protection given to British manufactures in Commonwealth markets under preferential arrangements. The war entailed a vast upheaval and necessitated large-scale adjustments. Britain has had to double her exports, approximately, in order to pay for almost the same volume of imports as she enjoyed before the war; as the proportion of her resources going to produce goods for export was very great even before the war, this has meant a vast strain on her resources and has required sharp austerity for a long postwar period. No British government with a common sense of duty to its citizens can in these circumstances afford to throw away a substantial advantage in this field. This is not to say that there may not come a time when the whole system of preferences can be abolished. But not yet--not in a period for which present statesmanship has to provide.

Once again I am bound to touch on a point in American ideology. In wartime discussions the United States drew a sharp distinction between the reduction of tariff barriers and the elimination of discriminations. It may be granted that both tariffs and, within a tariff régime, preferences, are undesirable, and that the final target should be the elimination of both. It is not clear to the British mind why there should be a difference in kind between the undesirability of discriminations (which ought to be eliminated) and tariffs (which ought only to be reduced). Of course all may join in condemning trade discriminations that have a political bias or serve as weapons in some kind of political or economic warfare. But not all discriminations are of this sort. Discrimination may be due to the scarcity of a currency, and the Americans have generously recognized that this kind of discrimination is proper under the Articles of Agreement of the International Monetary Fund (although the relevant clause has never been brought into operation). Furthermore, it is hard to see why nation A should not be allowed to give more favored treatment to imports from B than it does to imports from C, if C has a higher tariff on its goods than B. Indeed it was a cardinal principle of American economic policy to do precisely this prior to the First World War. Furthermore, Britain holds that the Commonwealth is an organic unity of vital importance to the world, and that special arrangements with it are therefore allowable.

Nevertheless, Britain is committed under wartime agreements to work towards the eventual elimination of discriminations, provided that tariff barriers are sufficiently reduced. No yardstick was set up for determining what reduction would be sufficient as a fair quid pro quo. Looking at the matter from the British point of view, I fear that no one would feel the American tariff policy is yet sufficiently liberal in this regard. This is not to disparage the notable liberalization that has been achieved; great credit is due the United States. But the fact remains that British exporters still feel that as soon as they make substantial progress in the United States market, an increase in duty is liable to be clapped on; or, in cases where this unfortunate result has been avoided, there have been prolonged periods of anxiety about whether it would be clapped on or not. Such anxieties and uncertainties are hopeless obstacles to the steady cultivation of an export market. As a fair quid pro quo, one would need at least to have a succession of Congresses in which there was no longer a propensity to raise tariffs as soon as a particular import made a substantial inroad upon the domestic market.

But what becomes of Imperial Preferences with Britain in a Free Trade Area? The quite modest preferences which Britain enjoys in the outer Commonwealth on her manufactured goods give an advantage which any British government would feel itself debarred from throwing away in existing circumstances. In return Britain gives preferences on certain imports from the Commonwealth. Much the most important of these are in the field of agriculture. It would not be enough merely to allow Commonwealth produce to come in on the same terms—namely duty free—as European produce. In return for the protection she enjoys on her manufactured exports, Britain would feel it necessary to retain some preference for the Commonwealth as against produce from Europe.

To enable Britain to maintain this position, it is proposed that agriculture be excluded from the common market arrangements. Two points may be noted in this regard. First, the overriding argument in favor of a common market for Europe is to get more efficient production. The example of the United States suggests that large economies in production can be secured if there is a large domestic market providing an opportunity for mass production and long runs on the production lines. Under the common market arrangements, the whole of Western Europe would be the domestic market for her factories, and it is hoped that they would gradually be able to build up large-scale production and secure some of the economies in output already achieved in the United States. This is the central argument bearing upon the project in question. It does not apply to agriculture at all. European agriculture may be inefficient in various ways, but these inefficiencies have no relation to the size of the market; in agriculture, unlike industry, a producer can sell at the prevailing price whatever he is able to produce. He may be restricted in his efficiency by lack of know-how, by lack of finance and other factors, but the size of the market is not a consideration. He produces as much as he can with his available resources. So if we bear in mind the real purpose of this common market project, and dismiss from our mind doctrinaire principles, there appears to be no case against the exclusion of agriculture.

Secondly, it cannot be denied that all round the world agriculture is accorded special treatment. I do not say that this is healthy or desirable. In due course the position may be changed. But here and now it would be difficult for the representative of any country to stand up in GATT and cast a stone at the countries of Europe if they asked that agriculture be excluded from a common market arrangement.

The British attitude to the common market is not yet crystallized. Active discussion is now proceeding in industrial and trade union circles and, on the whole, reaction seems to be favorable. I judge that Britain is likely to support the project, subject to the conditions aforementioned, namely, (1) that the common market take the form of a Free Trade Area, and (2) that agriculture be excluded.

It remains to add something on the alleged practical difficulties of the Free Trade Area. British experience in relation to Imperial Preference suggests that these difficulties are exaggerated, since, if they were really insurmountable, the system could not have worked. All countries outside the Commonwealth would have consigned their goods to some Commonwealth area—the Commonwealth is fairly widely distributed around the map—with a view to their being re-consigned to Britain at the preferred tariff rate. Britain would then have found that all her imports came (in name) from the Commonwealth! Yet in fact she has been able to work the system, and leakages have not been a prominent problem. Americans have been at pains to devote capital to the construction of factories in Canada in order to enjoy British preferential rates; this they need never have done if it had been so simple a matter to disguise their products as Canadian merely by consigning them to Britain via Canada.

However, I would not urge that practical difficulties would be altogether absent. I believe that for a wide range of goods the European community should in fact agree upon a common external tariff; it should be for many articles a Customs Union de facto, while being a Free Trade Area de jure. Precisely to avoid the practical difficulties connected with marks of origin, it should seek to have a single uniform tariff over as wide a range of products as possible. But this would start from the great advantage of having a Free Trade Area de jure. Whenever one country wanted to have a lower tariff than the community as a whole, it would be allowed to do this under the Free Trade Area plan without question or argument, subject only to its guaranteeing to provide administrative arrangements to prevent the shunting of commodities through its area. Provided the range of goods on which duties were various was kept fairly limited, the administrative difficulties should be by no means insurmountable.

Britain is said to have had a change of view recently in its attitude to the common market. The main reason for this is that by devoting harder thought to the matter she has perceived that the Commonwealth difficulties should be capable of being overcome along the two lines suggested.

One may go behind this and ask why harder thought has been given recently to the subject. It may be said that Britain for the first time believes that the continental countries mean business, and that she feels that it would be gravely to her disadvantage to have a common market formed on the Continent while she was left out in the cold. There is something to this, although perhaps it suggests too cynical a view. So long as it was felt by busy people at the center of things that the common market was merely a talking point for visionaries, it was perhaps not a good expenditure of energy to devote much hard work to the problem of how Britain might be associated with it; as the project came nearer realization, it became sensible to put in the hard work.

But there is another side to this. There are those in Britain who believe that the common market is a good thing in itself, and that it may succeed or fail of realization depending on whether Britain does or does not show a willingness to participate. Thus the British interest in the common market has been designed deliberately to give a push to the project in Europe. Those who dislike the whole idea are opposed to Britain showing a provisional interest in it, just for the reason that they fear it may give an impetus to the movement. I believe that it is doing so, and that the interest Britain is now showing is for the common good.

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  • ROY HARROD, Joint Editor of The Economic Journal, London; formerly University Lecturer in Economics at Oxford; author of The Life of John Maynard Keynes and other works
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