Don't Blame De Gaulle

By NICHOLAS DAVENPORT THE way things are going at Brussels it looks as if the Prime Minister will really be forced to play the card which he has been keeping up his sleeve all this time—suspend negotiations because the terms likely to be offered to New Zealand are impossible. An appeal to the country

would then steal the Labour Party's anti-Market thunder and with cries of 'Good old Mac! He's standing by the Common- wealth!' the electorate might be induced to send him back again to Westminster. But as I am not supposed to write politics in this column but economics, I hasten to add that if the nego- tiations are perforce suspended it will be due not to politics, but to pure economics—to the difficulty of fitting Great Britain in, agriculturally and financially, if she clings to Commonwealth

trading.

Everything in the negotiations was more or less plain (if difficult) sailing until we came to the agricultural clauses of the Rome Treaty. The European Economic Community is vir- tually self-supporting in the main staples of life, but the UK is producing under half the total food it consumes and drawing from the Commonwealth large quantities of beef, mutton and lamb, butter and cheese. The following per- centages of self-sufficiency in foodstuffs are drawn from an EEC survey of 1960:

Percentages of Self-sufficiency in Foodstuffs

5) CI 0.■

tc

U

92 80

35 74 25 97 10 45

94 89 101 99

Since 1960 food production has been in- creasing in Europe more rapidly than consump- tion and there are now some sizeable surpluses Which make the producers particularly sensitive to outside competition. Obviously the European farmers would expect us to buy more foodstuffs front them and less from New Zealand, Aus- tralia and other cheap producers overseas (not forgetting the US), and this is precisely what we would be forced to do if we joined up on the basis of the existing agricultural clauses. For we would have to stop subsidising our own farmers immediately (the French are insisting 4.'41 this) and pay a levy on the foodstuffs we Import from outside the EEC, the levy being the difference between the cheap world price and the average (relatively high) European price. As We and the Germans are the biggest importers and the French the largest producers of food- stuffs, we would find ourselves subsidising French farmers at the expense of our Commonwealth Which, particularly those in New Zealand. which, economically, seems daft.

On the grounds of sanity and political com- mon sense, Mr. Heath has asked for a period time for the abolition of our own farm sub- $idies and for a free import quota for New

EEC

U

-Ts n— ma oti

57 91

0

60 99

Zealand's main producc for another period of time. But the amounts are large--New Zealand is sending us about £200 million of meat and dairy products a year—and the Europeans can fairly ask what is the point of the UK joining their club if it is to claim exemption from their main agricultural provisions. Why should the British be allowed to go on eating cheap New Zealand lamb and mutton when all the other members have to eat dear European veal? They might rightly claim that the British Commonwealth, being a world food-producer, is much too large for them to accept as associate members of a small European club.

I cannot see all this as French intransigence. Certainly the agricultural provisions of the EEC have a nasty restrictionist selfish flavour and could be made to work harshly against food producers overseas, but the Eurocrats have enough sense to see that it is bad economics to beggar their foreign customers or to make their internal prices for foodstuffs so high as to sup- port their most inefficient producers. We might trust to their good sense, join up and use our influence inside to keep food prices down and the levies low, but that would give no immediate satisfaction to New Zealand, who is hoping for a free high quota in the British market for many years. No Tory Government could win an election, I imagine, on dear (European-priced) food replacing cheap Commonwealth food on their dinner-tables.

Then there is the question of sterling. The EEC members have, of course, a common eco- nomic policy—the usual full employment, stable prices and external balance—and a Monetary Committee has been formed to advise them how to achieve these economic objectives. If a member gets into balance of payments trouble after following this advice the Commission `shall, after consulting the Monetary Committee, recommend to the Council the granting of mutual assistance and the appropriate methods therefor.' Another sort of 'Paris club' on IMF lines is apparently envisaged. If the UK joins, members must presumably come to the help of sterling if we are in balance of payments trouble. But sterling is a so-called 'reserve' currency. It is held by foreigners and by the Commonwealth countries as a monetary reserve. Indeed, sterling liabilities of this nature amount to over £3,500 million. But our gold reserves arc only just over £1,000 million, leaving a deficiency of around £2,500 million. The greater part of this net liability is towards members of the Common- wealth. Are the reserves of the EEC to be brought in to provide support for this unique indebtedness? At the moment the reserves of the EEC members are $16,000 million, their foreign liabilities under $4,000 million, leaving a net surplus of around $12,000 million. It would be wonderful if the UK could look to this surplus for support, but not so exciting for the EEC.

The monetary position of sterling might there- fore be very embarrassing to the European club. The usual pattern of trade for the rest of the sterling area outside the UK (RSA) is a surplus with the non-sterling area and a deficit with the UK: Cumulative total in £ million 1953-55 1956-58 1959-61 RSA trade with non- sterling area .. +592 +238 +406

RSA trade with UK —327 —483 —294

Net balance with rest

of world .. +265 —245 + 112 If the rest of the sterling area is to see its trad- ing position in the UK worsen when we are members of the EEC and its trading deficit grow larger- at a faster rate than its surplus with the non-sterling area rises—then it will start drawing upon its sterling deposits. The EEC members, called upon to help sterling in this awkward situation, might well argue that British monetary obligations to the sterling area conflict with their obligations to the EEC.

Agricultural and monetary difficulties in the way of our joining this exclusive European club are much greater than the British public imagines. It is unfair to blame General de Gaulle for these difficulties, for they are inherent in the vastly different economic and financial set- ups of the EEC and the sterling area. In the long run the two systems will be able to merge: in the long run the tide of history will carry us politically into Europe. But it would be wise to acknowledge the technical difficulties of the moment and if necessary suspend the present negotiations—if they can be resumed with greater understanding and a smoother technique next year.