Sovereign State

Trade fallacies

An Industrialist

Jilly Cooper did us all a great service by revealing in the Sunday Times the powerful thinking of our top man at Brussels. The following profound remarks are among the jewels of her collection:

"There's no problem in getting the European aircraft off the ground, the difficulty is to gain height . ." (Commissioner Soames analyses the EEC predicament.) "All we need is to give an enormous heave-ho." (Commissioner Soames solves Britain's economic problems.) "Why don't you tell your chaps to get off their asses and do some work?" (Commissioner Soames solves America's economic problems.) "Sod that for a lark." (Commissioner Soames sums up Franco-Italian reactions to a trade proposal.) "The Commission is where all the thinking is done." (Commissioner Soames on himself.)

It is easy to believe that our senior Commis

sioner "dislikes reading long reports" if the level of his discourse is accurately reported.

The tired old clichés, the crude images and cruder phraseology betray a superficiality and a lack of mental rigour that are extremely depressing. Still more unfortunately, the 'great debate' is largely conducted from the pro-Market side in just such terms, and consequently the same shallow phrases, the same loose metaphors, appear to dominate the minds of many people, including most of our businessmen. The impending question of whether Britain should remain a member of the EEC is discussed as though being 'inside' meant in some tangible sense being behind a sheltering wall. ("It's damned cold outside," to quote Commissioner Soames again), as though Italy were protected from inflation or Denmark from unemployment by a stout, warming physical thing which we might be about to abandon. Clumsy though most Of this metaphor-mongering has been, the pro-Market lobby must be credited with inventing one very compelling pseudo-concept: "a larger home market." It is quite literally meaningless, yet it appears to encapsulate the whole EEC promise to business: huge gains in sales volume, safe from foreign competition, opportunities for 'economies of scale,' and so forth. Indeed, at the single-company level the evidence appears to corroborate the idea — for are not our exporters exporting more to the continent, and our importers importing more from the continent?

Foreigners have an irritating habit of remaining foreign, of preferring different things, having different rules, even understanding

different languages: the Italian taste for orange squash and fish fingers has yet to be awakened and one suspects that it will sleep for ever. But such is the power of positively platitudinous thinking that businessmen at large appear to be overwhelmingly in the pro-EEC camp. Indeed, one forms the impression that it would be very improper for them to be otherwise: after all membership has been endorsed by the CBI.

Perhaps, therefore, it is not surprising that the business view of the EEC appears to be quite unshaken by the appalling deterioration in our balance of trade with the other members. Comparing the monthly average of exports to the other eight members in 1972 with the monthly average for 1974 we find an increase of 87 per cent from £245 millions to £459 millions: A special series of articles dealing with various aspects of Britain's membership of the EEC in the light of the forthcoming referendum.

splendid! Unfortimately, that is well exceeded by the spectacular 120 per cent growth in imports from £293 millions to £643 millions per month, with the result that our EEC trade deficit has virtually quadrupled from £48 millions to £183 millions per month: the sort of trade deficit that would once have been regarded as excessive as an annual figure for our trade with the world, rather than the monthly figure for our trade with only a portion of it. As a result, trade with EEC countries accounted for 96 per cent of our non-oil deficit last year. On capital account the situation is even worse: the London Chamber of Commerce and Industry recorded 158 mergers and takeovers by British companies in 'the Eight' in the first year of membership compared to only three in the other direction. Hansard reports (January 23, column 433): "a range of £330 millions to £410 millions for.UK outward direct investment in other EEC countries and around £50 millions for inward direct investment from other EEC countries" in 1973.

It is arguable that the companies involved in trading and investing themselves regard the transactions which go to make up these figures as favourable developments. If an exporter sells more, that appears to be good; if an importer buys more, that also seems to be good; if either of them makes a potentially profitable investment on the continent, that again must seem to be good. The net consequences of unfavourable balances do not in any immediate cash-measurable way have an impact on the individual firm. Only companies which find their home trade facing increasing competition from the continent, or find that their exports outside the EEC are increasingly hampered, or are excessively irritated by harmonisation proposals and other irksome restrictions that have the commercial incentive, whether or not they have the candour, to express opposition to continued membership.

A recent survey of London Chamber of Commerce members produced an overwhelming majority in favour of staying in the Common Market: 85 per cent, of whom 60 per cent would stay in on present terms. The Chamber was somewhat taken aback by the number of very large firms that were not particularly positive one way or the other, on the grounds that they had subsidiaries in the EEC already and so did not feel that withdrawal would be particularly damaging to them. However, they tended to support continued membership "for the national good." The Chamber's main survey was among medium and small firms, and the results have to be qualified by the fact that only 20 per cent of those sampled had replied at the time that the report was made. Such a low response rate would normally disqualify the results from being regarded as in any way representative, and it is at least plausible that companies less than enthusiastic about the Common Market yet reluctant to be pilloried for unorthodox views, would be less ready to reply than enthusiasts would be.

Although the economy has not grown since the first quarter of 1973 and although most economic forecasters agree that the prospect is of no growth for the next three years either, the most common reason for supporting membership was still the belief that EEC membership was the touchstone to faster growth, the formula for expansion, related to a belief in that mythical 'larger home market' and the supposed economies of scale that went with it. The idea, after all, is a very simple one. Now that it is firmly embedded in the average businessman's mind, it will take a really savage slump to erase it. Paradoxically, however, the worse the economic situation gets the more nervous opinion is likely to be about the consequences of leaving.

On the whole, business opinion does not appreciate that the increase in British exports which we have experienced has had a great deal more to do with devaluing the pound on a trade-weighted basis by 21 per cent — an advantage which has been still more marked when compared with the currencies of our continental neighbours — than with the really very trivial reductions in the low tariff barrier constituted by the Common External Tariff. It follows that even if the EEC would not negotiate industrial 'free trade area' status for Britain on her departure — though that is quite probable — fears about loss of trade are largely groundless.

Perhaps they have been listening too intently to the minatory remarks of Commissioner Soames who, like the fat boy in Dickens, seems determined to make our flesh creep. If they think that he is an authoritative source, perhaps they ought to listen a little harder. If so, they might pick up what he says on official occasions to countries which are neither members nor candidate members of the EEC. They might, for instance, have heard his speech to the Press Club in Canberra where he said of the forthcoming trade negotiations:

We must continue to slice away at the level of industrial tariffs. There are, I know, some who say that they are now so low as to be insignificant but that is simply not true. If you believe that, just listen to the cries from the industries concerned when a government proposes to lower its tariff protection. The Community, which has the lowest industrial tariff among major developed countries, is firmly committed to making a further substantial contribution . . . then a determined attack must be made on the ever proliferating mass of non-tariff barriers.

All public statements by Commissioner Soames need to be taken with a large pinch of salt, but there is no doubt that the Common External Tariff is very low, and has been moving lower. The forthcoming international trade negotiations should see it lower still.

It surely follows that British business has little to fear from Britain leaving the Common Market. On the contrary it would regain its freedom of action to buy and sell in whatever markets it chose. It would escape the dirigiste industrial policies now being formulated. It would also avoid the great cost pressures resulting from Britain's complete adaptation to the Common Agricultural Policy over the next three years and, much more threatening, the debilitating effects on demand and finance of a burgeoning Monetary Union.

Much business planning and investment today is being concentrated on western Europe just when the steam has run out of expansion there. Pragmatism is a great English virtue, but the other side of that coin is a lack of imagination about the future, and a reluctance to plan for it. The member states of the EEC collectively constituted a great economic success in the 1950s and 1960s. The extent to which the Common Market in itself had any effect on their prosperity in the latter part of that period is debatable but, for whatever reason, it is plain that western Europe is no longer an area of dynamic growth. It will always be important for us to trade with western European states, to be sure, but let us try to look ahead to the real business opportunities of the next decade rather than to those of the last. To lock ourselves into a 'continental system' not designed for us, with already settled policies inimical to our interests, and future objectives that are quite incompatible with our wellbeing, would be shortsighted in the extreme.

The author is a director of a major British industrial chemical company