EEC

The American example

Mark Bole-at

In the 1950s and early 1960s the uniting of Europe was a visionary concept that fired the imaginations of politicians and, to a lesser extent, the public. The European Coal and Steel Community, Euratom and the European Economic Community were established and all seemed to be making progress towards achieving their objectives. However, in the past ten years a malaise has developed in Europe and the process of integration has made little headway. The failure of the European Community, in the past few months, to meet the timetable laid down at the 1972 Paris Summit has further served to increase the sense of disillusion.

Why has the 'European Adventure' lost its way? A change in the external factors acting on Europe is one undoubted cause. In the 1950s the communist threat and the willingness of certain countries to pay a price for international respectability were important forces driving the European countries together. Now, this external pressure has largely disappeared and Germany and Italy have regained their status in the community of nations. Perhaps a more fundamental cause of the malaise in Europe, and one that has received far too little attention, is that too much has been attempted too quickly and, furthermore, Europe has concentrated on the unimportant while leaving aside some of the more truly vital matters. The situation can best be illustrated by looking at the economic and political union that is the United States of America.

The US is a federation — a union of fifty states with widely differing social, economic and political characteristics. However, the. US is clearly one nation, and this is manifest in the willingness of the peoples of the various states to defend and protect the citizens of other states. Economically the US is a single market with state boundaries having little effect on industrial location. Firms regard the whole of the US as their domestic market and consumers similarly regard the fifty states as one source of supply. This economic and political union exists despite considerable differences in the policies and practices of the various states; differences which in many cases exceed those currently existing between the nine members of the European Com munity. It is the professed aim of the European Community to create a single market and eventually a political union and the American experience would seem to be a valuable guide. But, in the economic field at least, Europe appears to be trying to har monise and centralise those matters which are dealt with at the state level in the US, while little progress is being made in some fields which are centrally controlled by the Americans.

The -American Constitution largely lays down the division of economic powers between the Federal Government and the individual states. Washington has complete responsibility for international economic matters, money supply, weights and measures, the Post Office and patents. The states are responsible for all other economic controls although they are prohibited from taxing exports, coining money and discriminating against other states. The Federal Government is empowered to levy taxes but these must be uniform throughout the country.

Europe has made a little progress towards centralising those practices which are so controlled in America. International trade, for example, is largely in the capable hands of Sir. Christopher Soames at the Commission, although in international monetary affairs the Nine are still acting independently for the most part. In the field of patents, welcome progress has been made and this is a major achievement of the Community. The removal of differences in weights and measures and, more importantly today, technical and administrative standards, has proceeded at a disappointingly slow rate. This largely reflects the Commission's obsession with detailed and bureaucratic controls which tend to hinder trade rather than to free it. It is no coincidence that Britain's entry into the Community has been accompanied by a considerable increase in the paperwork required of British firms exporting to the euphemistically-called 'enlarged domestic market.'

One field in which the Community has made virtually no impact is the question of dis

crimination by the member states against other' member states, .a problem that hardly exists lc America. What is indeed ironic is that it is the governments of the member states that ate largely responsible for this discrimination. 111 the European Community the public sector accounts for about 20 per cent of total eg', penditure and governments insist on givinil massive preference to domestically produced goods. A British police force that buYs BMWs or a nationalised industry that bill French equipment is subject to a campaign ° abuse, not only from the press, but also fro' those who should know better. It would, benefit all of the Nine if, for the majority goods (i.e. leaving aside high technology goods which raise separate issues), govern' ments bought on strictly non-nationalistic grounds. This would not mean the 'exporting,. of jobs' as British police forces bough' Renaults; it would mean the more efficient' use of labour as those firms supplying public, services would be able to take advantage 0'

the enlarged domestic market which is

present denied to them. Any losses in one fie'" should be counterbalanced by gains in others. In the present-day world buying British make,5 little more sense than if everyone in tins country tried to grow his own food. Discriminatory procurement can be ended at a stroke by governments and, unless they prepared to do so and to educate pub 1 opinion that this is the right thing to do, the) I cannot be sincere in their expressed desire promote European unity; nor will they suc. ceed in creating a single market comparable to the United States. The paradox of European integration is 10 so much that the Community has failed ler, centralise those things which must be con.',4 tralised, but rather that the Commission ls'e trying' to harmonise and centralise those, b things which need not be so controlled O." which are not in the US (and in some cases Is; CI Switzerland, Australia and other fedecsl.tI countries). Nowhere is this more true than IS the field of taxation. The Commission tells es that VAT and excise duties must be hal' monised with common rates and the sail tr goods being subject to these taxes in each °, the Nine. Economists have long argued the', 1). this is unnecessary even if the Communit), does succeed in establishing a moneta0 union.. a America has shown that such harmonisa;is' non is not needed in practice (as indeed Srna'' the monetary union of the United Kingdonl. v; Eire, Jersey, Guernsey and the Isle of Man). PI st the US, excise duties are levied by the Fedete,101 Government at a common rate throughou'ic the country but the states can levy their owIl!‘ taxes at whatever rates they like on top of the In Federal duty. Thus for cigarettes, North Carolina only charges 2 Cents per packet „While Connecticut charges 21 cents; for petrol rtalvaii charges 5 cents per gallon and Connecticut 10 cents; and for alcohol seventeen states charge no tax at all while the maximum rate is $4.43 per gallon in Minnesota. The states do not even all have the anle excise tax systems, something that the ,Lommission assures us is necessary in turope. For cigarettes, for example, most 3,states levy a fixed tax per packet but New nampshire imposes a levy on the retail price and. Hawaii a levy on the wholesale price. , Similarly, for general indirect taxation the '0Mmission, having persuaded the member states to impose a common type of tax, i.e. ,V,T, has now published a draft directive 1:311Pulating which items should be subject to 'tie tax and there are longer-term plans for cornmon rates. In America, New Hampshire flo:1 four other states do not levy any general Indirect tax at all and while some of the other srstates tax gross receipts, yet others tax sales. connecticut claims the highest tax rate at 6.5 ner cent. There are widely varying rules for te„XeMption from the state indirect taxes and

ese do present some problems, for example with respect to cars sold to non-residents. ,„Individual and corporate income taxes show ha

'nnilar variations in the US. The Community , s not yet proposed harmonisation of the inriner although there are plans for the latter. tr; America there is a federal corporate income and forty-three states levy their own tax 11-11 tor) of this. Many of the states tax small listnesses at a reduced rate and most tax rk,nle or all financial institutions at a different 1te from business corporations. Alaska is i;e,,nlque in that it taxes corporations at a per-. ritage of their Federal tax liability, but only lle'n states allow the Federal income tax as an 3 e(1:!ense against state tax liability. Minnesota I t„anlls the highest rate for corporate income 12 per cent for business corporations 3 "u 13.64 per cent for banks. . A Social security is largely centralised in ; 4nerica but even where the Federal Governf prent provides money for the state t , °grammes there are wide variations. This is ticularly true of unemployment insurance re'lere there are vast differences in eligibility quirements between the states. The states are s,,„ solely responsible for selective social 5 su`1,11.rity on top of the government old age, I, v rv.lvors and disability schemes. Such are the rista:lations that it can easily pay one to cross illothte borders if one is about to go blind or t to„"erWise fall on hard times. In twelve states, fi A' example, only short-term aid is given. The e 41111, ericans do not seem happy about the eh`e+r-state variations and there are moves to '1,`ralise further the social security system. eh'!le European Community has already .e"1.eved the essential thing in social security, bi It has ensured that benefits are transferfrom country to country. However, as 11,4",aYs, the Commission has wanted to go h".ner and it has proposed trivia and non1 o'ske that the American states would never 4,ohlitice, e.g. common rules for mass 11 clAndancies. The Commission's favouring of %Mon minimum wage, eventually leading 4ef3romon wage levels, is a gimmick and a vrilgerous one at that. There is abundant Liclence from the US that the common n'teral minimum wage has created 1) h1rien1Ployment and it is significant that k-:Y-seven states have their own minimum te legislation. • utt'ansport is another field in which the le,naUcracy of the Commission has been itl,r1Y displayed. The Commission presses on its expressed wish to harmonise the pL'Irements for holding driving licences. cs the political and economic union of the r0 this? Of course not. The minimum age ev.olding a driving licence is fifteen in New ti'lco, sixteen with parents' consent in seventeen in New Jersey and eighteen

in West Virginia. The cost of a driving licence varies between two and twelve dollars and they are valid for anything between one and five years.

In the field of anti-trust laws Europe does appear to be following America but the manner in which this is being done is a cause for alarm. In the US anti-trust legislation is centralised and state laws, although they do exist, are of little consequence and are frequently ignored. This is obviously right as firms operate across the entire US and if they are big enough to misuse their strength then they are probably too big to be controlled by the states. In Europe it is premature to say that national control is no longer appropriafe but there is certainly a need for action at the European level in some cases. However, little has been achieved and the Commission's enthusiasm has far exceeded its abilities — as has been illustrated by the time that the Commission has taken to deal with the relatively straightforward Miles Druce/GKN case.

The capital market and banking are yet another field in which Europe's aspirations and America's achievements differ. In the US capital can flow freely across state borders but banks can operate only in one state (and in some states, e.g. Illinois, not even branch banking is permitted). In the European Community, exchange controls have multiplied rather than been reduced and the Commission is encouraging financial institutions to open foreign branches. The free movement of capital and a single source of money supply are undoubtedly crucial factors in making the US a single market and Europe will make little progress as long as exchange controls are needed to protect artificial exchange rates and as long as the Commission pretends that transnational institutions are the key to economic and monetary integration.

How does America survive with all of the varying policies and practices? Does it have a Commission to sort out problems caused by differences between the states? It does survive because the differences are not important obstacles to trade andare more than overcome by free capital movements, the absence of discriminatory procurement, common technical and administrative standards (although even here there are some differences between the states), a common language and the feeling that the US is a single nation.

Institutions do exist to sort out problems. The National Conference of Commissioners on Uniform State Laws, established in 1892, provides for the voluntary enactment of common state laws as an alternative to Federal legislation where differing state practices could be harmful. The Conference drafts model laws which are then introduced into the state legislatures by the normal means. Variations are permitted but the intention is that these should be deliberate rather than accidental. Among the drafts which have been widely accepted are those on narcotics, criminal extradition and simultaneous death. More recently the Multistate Tax Commission has been established to look at the problems caused by the tax differences between the states and to draw up rules to deal with these. Unlike the European Commission these bodies only act where the differences between the states cause problems and not in cases where the differences merely exist. The American states also come together for ad hoc projects which cross state borders. The Tennessee Valley Authority and the Port of New York Authority are the best examples of this sort of co-operation. An obvious analogy in Europe is the Channel Tunnel venture.

While it would be quite wrong to suggest that we should religiously follow the American model, surely this does have some relevance to the present position in Europe. It may be that Europe will never be able to make up for America's advantage of having been able to start from scratch; certainly it is far easier to build a single large economy from its foundations than to merge several advanced economies such as those of the European Community. However, America should at least be able to show to Europe which are the important matters. Before the Commission presses on with tax harmonisation, common driving licences and the like it should explain why these are necessary and why Europe needs them whereas America does not.

The Community must also determine to make progress in what are clearly the major priorities, i.e. free capital movements, the abolition of discriminatory procurement and the removal of the technical and administrative barriers to trade. At the moment one feels that the Community agrees on trivia as a substitute for taking the really important decisions in the belief that any harmonisation is better than none. This surely is wrong; 'Eurobread,"Eurobeer' and the like bring the Community into disrepute rather than bring the peoples of Europe together and issues such as common driving tests and axle weights are capable of resulting in the maximum of dissension for the minimum of potential benefit.

America has shown that a political and economic union does not necessitate harmonisation of fairly important matters, e.g. taxation, let alone the trivia. The Commission should take note of the American experience and should leave alone those matters which can best be handled at the governmental and lower levels and concentrate on its real job; dealing with problems that can only be solved at inter-governmental level. The path to European unity can only lie through taking important decisions, not through taking the easy, but irrelevant, decisions.

Mark Bbleat is an economist with a particular interest in European affairs.