Industry and the Common Market—i

The Stimulus of Competition

By RICHARD BAILEY

ECEN1 discussions in Brussels have concen-

trated so much attention on the Common- wealth that the problems facing British industry have been rather pushed into the background.

To judge by the reports in the financial press industrial firms are divided about equally be- tween cautious optimists and headlong pessimists. It is becoming increasingly rare for a chairman to get through his annual statement without some reference to the Common Market, although the proportion of clichés to the column-inch is still depressingly high.

Feeling in industry about the Common Market has gone through three main stages. In the first, back in 1957, when the pages of the Rome Treaty Were still largely unturned, the reaction was that the whole thing could be solved by setting up a free trade area including the Six, Britain and anybody else who wanted to join. This device had the great advantage of giving British in- dustry free access to the Common Market with- cut having to go through the tedious business of harmonising economic policies. It also pre- served Commonwealth Preference intact, and left the British farmer contemplating a long vista of annual price reviews, each with its own par- ticular set of deficiency payments. How the Six decided against the free trade area project is now a matter of history.

Next came the EFTA stage, when it was de- cided that those who could not join the Six for One reason or another should set up an organisa- tion of their own. The seven-member EFTA was Very much of a pis alter, for which enthusiasm within industry has always been muted. There is a certain symbolism in the fact that Britain's tiggest trading approach to the Scandinavian countries, the Stockholm Fair, should have taken place just when Britain's negotiations to enter the Common Market look like bringing EFTA to an end. The main objection to EFTA is that its members are spread out around the fringes of the Six and, although its living standards are high, its population is split up into small units of five or six trillion.

The third stage began early last year, when it became increasingly clear that EFTA was in no sense an alternative to the EEC and that the disadvantages of staying outside the Common Market looked like outweighing the disadvan- tages of going in. Even so, Mr. Macmillan's announcement in the House of Commons on Jail/ 31 came as something of a shock to many businessmen. Behind this was the gradual realisa- tion that jaining the Common Market was not Just a matter of freeing trade. The Treaty of Rome was found to contain sections requiring its signatories to adopt common policies for agri- culture, transport, energy and the regulation of cartels. Another set of provisions obliged mem- °ers to harmonise their policies on such matters as the free movement of labour and capital, cqual pay for men and women, company law a. nd social-security benefits. At the present time It is very difficult to gauge how far British firms

are really informed about the Common Market and how far they are putting on a bold front.

The Government's efforts at informing them re- semble nothing so much as a fond father's attempts at giving his son a wedding-eve briefing en the facts of life. So far as can be judged, however, it is probably true to say that any firm already exporting to the Six or seriously contemplating doing so has a good idea of how the Common Market will work. It is certainly true that the large and medium-sized firms have cone their homework. It is the small firms, mostly working for the home or Commonwealth mar- kets, that are likely to be caught unprepared. It is to this sector that the arguments of anti- Marketeers have most appeal.

What are the main consequences for industry of British membership of the EEC? The tariff changes are on the whole well understood. Since the 1930s British industry has had a generally high level of tariffs, with consumer goods especi- ally well protected. Compared with the Six the United Kingdom tariffs are a little below those of Italy, at or above the level of the French and well above that of Germany and Benelux. The Six have now reduced tariffs on trade between themselves, but not the outside world, by 50 per cent. This is the immediate obligation facing industry when British membership of the EEC becomes effective.

At first glance a halving of duties seems a very severe ordeal for British firms. However, what matters is the comparative level of tariffs on particular items. Goods on which British tariffs are substantially higher are clearly vul- nerable. But other factors have to be taken into account. Broadly speaking it is true to say that the more sophisticated the market, the less the importance of tariff levels. And parts of the Common Market are very sophisticated indeed. in these areas the quality and style of the goods offered for sale are important. Delivery dates and the ability to submit and keep to an exact speci- fication are also highly important matters, and perhaps most important of all, the selection of the appropriate sales and distribution channels.

But although tariffs are not necessarily the biggest problem facing industry vis-a-vis the Six, they will pose considerable problems in relation to the Commonwealth. In the first place, the adoption of the common agricultural policy of the Six means the end of free entry for tem- perate foodstuffs from New Zealand, .Australia and Canada. What effect this will have on food prices will not be clear until the Six have fixed their own price schedules. But the doubts are simply on the amount of the increases, not on whether they will take place. Some raw materials r:ow imported duty free will go up in price unless Mr. Heath succeeds in negotiating zero tariffs for them. Chief among these are aluminium, pulp, paper, lead and zinc.

The changes to which it is most difficult to adapt, however. are those covered by the term `harmonisation.' No one knows at the present time exactly what will be the effect of moving on to continental systems of taxation, levels of social security, benefits and methods of payment, monopoly regulations. patent legislation, com- pany law and a host of other adjustments in the regulative framework within which industry works.

In assessing the effect of these steps into the unknown it is only possible to say that there are no stock answers that will apply to all firms in a particular industry. Some generalisations are possible, however, in terms of the kind of situa- tion that will be to the advantage of a particular firm or will put it right out of court. Many of these refer to production costs. Firms where unit costs can be reduced by increasing output stand to gain in the wider Common Market. So do those for which transport costs do not add considerably to price. Another factor is an industry's present tariff position. Firms enjoying a high level of protection now are likely to feel ti effects of increased competition most keenly. The size of a firm in relation to its particular industry in this country, and in the Common Market as a whole, is anothe'r key consideration. The bigger the better is the rules except for tradi- tional industries now in decline, such as cotton textiles. But what happens to the individual firm will largely depend on the people running it. A keen, energetic management team will respond to the stimulus of competition represented by the Common Market, whatever their product. There will be the odd firm that will manage the equivalent cf selling cameras in Stuttgart, or pasta in Italy. Many factors go to make up what i= called competitiveness besides price. Quality, design, service, credit terms and plain hard slogging salesmanship all play their part.

What is likely to happen as a result of British membership of the Common Market is a period cf adaptation for industry, the length of which will be determined by the competitiveness of the individual firm's products. For some firms the Common Market will mean a short, sharp shock, for others it will mean a lift to higher production, sales and profitability. The broad conclusion is that British industry can make the adjustments needed.

Two succeeding articles will discuss the likely gains and losses by British industry in the Common Market. and the prospects for the Six in the British market.