Free trade is not enough

COMMON MARKET JOCK BRUCE-GARDYNE

Monday 1 July passed off quietly enough in Brussels. There were no ceremonial hatchet-men chopping down the frontier posts, no cele- bration telephone calls between Paris and Bonn, Rome and the Hague. Yet 1 July was the day on which the European customs union came into operation with the elimination of the last remaining tariffs between the six member nations and the consolidation of the common external tariff against the rest of the world.

Of course there was a ghost at the wedding. France had waived the rules, and in place of her residual tariff had erected against her partners (and the rest of the world) far more formidable quantitative barriers and subsidies to exports. But this was not the only reason why the his- toric occasion went so largely unnoticed. Since the Treaty of Rome was signed eleven years ago it has become apparent that between mod- ern industrial democracies, and governments which have come to accept a degree of respon- sibility for the day-to-day material wellbeing of their electors undreamed of thirty years ago, it takes more than the elimination of customs duties to create a single market.

The evidence of integration is unmistakable in the supermarkets of the European Com- munity as it is in the trade returns. More than half of the external trade of the Benelux coun- tries is now conducted within the EEC. Even the Germans, the most 'outward-looking' of the Six, now send 36 per cent of their exports to their partners, and receive 38.5 per cent of their im- ports from their partners in return. The mem- ber countries experience the burdens of inter- dependence as well as its blessings: the German recession of 1965-67 had a serious impact throughout the European Community.

But the dramatic cleavage of western Europe into two economic fragments, predicted almost with relish by British ministers at the time of the original. Free Trade Area negotiations in 1957-58, has not occurred. Indeed the propor- tionate share of British trade conducted with the European Community has grown more shartoly than that of the member countries them- selves. What we have witnessed over the past ,decade is more of a transformation of global patterns of trade from the exchange of raw materials and foodstuffs against manufactures between northern and southern hemisphere to the exchange of manufactured goods between the countries of the northern hemisphere them- selves (that is why the current fashionable heart- searching about the increase in our imports of finished articles is hardly more logical than the Kaldorian distaste for service industries).

Nor have the fears understandably aroused by the inauguration of ultra-protectionist agri- cultural policies within the European Com- munity so far been realised. It is true that the Six have become more self-sufficient in food. Between 1958 and 1967 trade in foodstuffs with- in the Community increased three and a half times. But imports of food from the rest of the world increased by 56 per cent, and the Com- munity still imports twice as much food from outside as it purchases internally.

Similarly, while many fears have proved liars,

some hopes have turned out to be dupes. To many protagonists of European integration, both inside and outside the European Com- munity, one of the biggest attractions of a wider tariff-free market was that it alone would pro- duce industrial companies of European scale which would be able to compete with the giant firms of the United States on equal terms. This has not happened. The handful of continental companies which can claim to use the whole of western Europe as their home base -Philips, Unilever. Royal Dutch - almost all existed on an international scale long before thz European Community had been thought of. and as Jean- Jacques Ser.% an-Schreiber has pointed out in Le D(Vi americain it is the American firms which have effectively exploited the inteeration of mar- kets. This, one likes to hope (and M Servan- Schreiber himself endorsed the point), is where British influence could be most beneficial.

Notwithstanding the periodic setbacks, of which the recent German recession and its re- percussions was the most serious, the Com- munity has enjoyed by British standards an en- viable record of economic expansion coupled with balance of payments strength. Over the five year period to 1966 the average annual rate of growth in the Community's gross national product was a highly respectable 4.9 per cent (compared with Britain's 3 per cent). Neverthe- less this was a significantly slower rate of ad- vance than the six countries experienced over the previous quinotiennium, and it was comfort- ably beaten by the United States (not to men- tion Japan). The case for believing that the creation of a customs union has enabled wes- tern Europe to enjoy a more rapid advance of prosperity than it would otherwise have done is, therefore, at best non-proven.

But it is not the economic record of the Euro- pcan Community which has caused the disap- pointment and frustration evident in Brussels in recent years so much as the conduct of France. By consistently vetoing the attempts of Britain and others, supported by his partners, to join, and then by insisting that France could not be bound by majority decisions which conflicted with her essential interests, the General, it is said, has dealt a mortal blow to the 'Com- munity spirit' and set a dangerous example which others arc inclined to follow.

This grievance is surely somewhat lacking in reality. Whatever his motives may have been, de Gaulle based his resistance to British entry on our political unpreparedness in 1962 and our economic unpreparedness in 1967, and it is hardly disputable that, to put it no higher, evi- dence was available to sustain such doubts on each occasion. Equally, while it is true that the Treaty of Rome contains provisions for majo- rity voting on many important, although hardly decisive, matters, the possibility that any of the three leading powers of the Community would have a majority decision of significance im- posed upon it has been, and is, extremely remote.

Besides, de Gaulle's unforgivable crime in the eyes of many outside the European Community is not so much that he is a French nationalist but that he is a nationalist for western Europe who rejects the concept of an inevitable and per- manent identity of view between the two sea- boards of the North Atlantic. This is not a charge which would be levelled at him by many inside the European Community (except per- haps the Dutch—and not all of them), where the true gravamen of the complaint against him is precisely that his insistence on the most rigid national autonomy makes it impossible to con-

struct the 'European Europe' in which he pro- fesses to believe.

Those close to the Commission in Brussels like to detect a new malleability in the French attitude since the `events' of May. `Apres- Gaullisme' it is said, has already begun. Such a change of attitude would no doubt be a con- solation for the loss of face which the Commis- sion has suffered in having to endorse a series of French decisions in clear breach of the Rome Treaty which it knew it was powerless to reverse or modify. But the evidence from Paris points entirely the other way. While others may be busy scheming for his departure, the replace- ment of M Pompidou, who has been becoming less of a Gaullist and more of an orthodox Conservative with every passing month, by M Couve de Murville, whose only raison d'être

his loyalty to his master, does not suggest that the General himself is spending much time con- templating the pleasures of an early retirement.

Still, the General's reign is drawing to its close. By the early 1970s there is now a reason- able prospect that for the first time there will be a government in France which is neither willing nor able to exclude a Britain which genuinely qualifies for membership of the European Com- munity, and a government in Britain which is European in its priorities and able for the first time to offer its hand from a position of econo- mic strength.

Meanwhile there are dangerous hazards to negotiate. The tide is no longer flowing strongly for freer trade. On the contrary protectionist pressures are gathering momentum. The French quotas and export subsidies, like the earlier British surcharge, have in the end been accep- ted with only minimal retaliation. But in six months' time the French may have to choose between renewal of the quotas and devaluation; and whichever choice they make the risk of contagion will be considerable.

But the greatest immediate threat to the co- hesion of the Community arguably stems from the continuing undervaluation of the deutsche- mark. The imbalance between western Ger- many and her partners can be rendered only more acute by the inflationary settlement of the French strikes. The Commission, like other in- ternational bodies, is inhibited in dealing with a country whose propensity is to underspend abroad; the conventional morality of interna- tional finance is very strong. Yet until the Ger- man government is browbeaten into taking cor- rective action the dominance of German industry within the Community can only grow. And meanwhile, as the German surplus is, in part at least, the obverse of the American de- ficit, the ultimate threat of an American deci- sion to suspend gold sales completely, leading very possibly to division of the western world into gold and dollar blocks, overshadows all.

The first eleven years of the European Com- munity have disappointed some expectations. It is badly in need of fresh blood, which could come only from the adhesion of Britain and her associates, and the road to a real community of interests and policies is still a long one. But It remains as true as it was eleven years ago that it is only by the pooling of its resources, its mar- kets and its influence that western Europe as a whole can recover for itself a proper degree of control over its own destiny and at the same time provide a badly-needed counterweight to the inevitable and growing collaboration of the two super powers. The course of the next twelve months may very well decide whether the oppor- tunity for fresh progress, which cannot come be- fore the present decade is over, will then occur.