Getting out of the Market the mechanics and consequences

Sir John Winnifrith

It is not so long since the cry was raised, "It is no longer a question of if but when we join the Common Market." Now within the coming year another call will beheard: "Do we stay in or do we come out?".

The Cabinet, including those members Who feel that we ought to stay in, have said without any proviso that they are bound by the manifesto on which-the Labour Party won the election. That commits them to put this issue to the electorate and to abide by its decision. The electorate, which had no say when Mr Heath's government took us in, may say that they want us out. If so, out we shall come.

In the coming months, even before the result of the re-negotiations are known, great will be the company of the preachers urging one course or the other. Last doe the favourite texts were, "You are bound to do better in a market of 250 million people," and on the other side, "Your food will cost you more." This time, I guess, the slogans will be rather different — "We can't afford not to be in" countered by "Set Britain free from Brussels." Whatever the slogans, the people of this country will decide, by the same mysterious but sensible processes which led them to select the party they want to govern, and they may well decide to take us out of the EEC. No one can deny that it will be quite a job to reverse the engines but will the process be as traumatic as those who want us to stay in suggest?

Part of the process will be sweet simplicity. Many of those who want us out dislike most — of all the consequences of being in — the fact that the laws of the Parliament elected by the British people can be overidden by decisions taken at Brussels. This incidentally is one of the issues which is no mysteryeleut easily understood by every citizen. FortuDately the erosion of British statute and common law, though it has started, has not gone. very far. The judges have accepted, as of course -Vey had to, the proposition, clearly defineel in Mr Heath's accession statute, that, where community law conflicts with our lave, Zeinmunity law must prevail. The practical application however of this principle has been minimal and it needs only a one-clause Act of Parliament to restore the sovereignty of the British Parliament, and any citizen injured by the rulings of the courts can seek his remedy without much complication.

No problem arises, either, as regards the EEC proposals for monetary and political union, since no headway has been made at Brussels in these spheres. The main fiscal features to be dealt with are the payment of the annual tribute to the Brussels treasury and the common external tariff. Both can be reversed without legislative or practical complications. VAT, on the other hand, will set the government a problem. If you. believe the brave words uttered by the Conservative government when in office, this tax was introduced not because it was an inevitable part of our joining the EEC system but just because it was a jolly good tax. The Labour Government will have a wonderful chance to abolish or at least make substantial modifications in this impost. It is manifestly unfair socially. It fosters inflatibn. But to raise direct taxation sufficient to compensate for this highly productive tax will call for considerable courage.

Of course, by far the most difficult part Of the business will be to return to free trade from the protectionist system of the EEC. We shall have to leave the customs union of the EEC insofar as we have got into it. We shall have to break away from the highly protectionist common agricultural policy and we shall have to rebuild some of the trading arrangements damaged as a result of our EEC membership. This is where the wordy warfare will be loudest. Unfortunately also this is where the issues are hardest to understand. Very little of the mysteries of the trading policies of Brussels have ever been properly explained. Undoubtedly partisanship does not aid the process of explanation.

The main claim for accession was that our trade was bound to prosper in a market of 250 million people. It is not likely to be mentioned, during the next round, but we shall be told that we can't afford not to remain in the Community. What the public will want to know is what will be the effect on our trading if we decide to come out. Many points will have to be canvassed. The first I suppose is to make it clear that our departure from the EEC does not mean that all trade with the Community will come to a full stop. On the contrary, in this, as in every other market, our exports will sell provided that our goods are wanted, that they are of good quality and that the price is right. Western Europe has always bought our goods, it will go on buying them.

The second point is much more controversial. The electorate will want to know whether, from the point of view of trade, leaving the EEC will be a good or a bad thing. The test, or at any rate, a very important test, will be the effect on our balance of payments with the community. In this matter it is of the utmost importance for the facts to be established. Mr Peter Shore has published Department of Trade statistics to show that since we joined the EEC the small adverse balance of payments of E70 million had increased to the disastrous total of £2,000 million. The onus of proof lies on those who • want us to stay in to deny the validity of these figures. On the face of it, they will need highly special pleading to prove their argument. If Mr Shore is right, the consequences of coming out will be to improve our balance of payments. One thing is certain. If we secure our freedom from the EEC system we shall no longer be bound by community preference or by free trade with the community. In our present critical overall balance of payments we shall be free to reduce our substantial imports from Western Europe. The painful consequence of our joining has, alas, been that the two hundred million people in the community have done all too well in our market of sixty million. We have had a very poor look in with our exports to their market.

In general it seems fair to claim that departure from the EEC will not be disastrous to those seeking to export from this country to Western Europe, On the contrary our departure will create an opportunity for improving our balance of payments.

One issue in this context will be decisive — our control over North Sea oil and gas. Whatever may be said to the contrary, it is conceivable, if we remain in the EEC, that we shall not be free to handle this vast addition to our national resources in the way best calculated to promote our national needs. On the other hand, given our independence from control by Brussels, we shall be at complete liberty to develop this great source of energy as we think best and in the process to solve our long term overall balance of payments problem. The certainty that we shall be able to conteol our oil and gas in the samef' way as we control our coal is one of the strongest arguments for getting out of the EEC.

Of all the changes to be made on leaving the EEC, the readjustment of our food and agricultural policy to its traditional lines may involve the greatest difficulties. These must be overcome. A successful issue to this problem will make a great contribution in the fight against inflation, and the electorate must be shown what is at stake. The mysteries of the common agricultural policy in detail are virtually incomprehensible. So, for that matter, are the details of the more complicated features of the British agricultural price support system. The principles, however, of the two systems are clear enough. Equally clear, if not bedevilled by detail or partisanship, are the consequences of the two systems. The principle of the European system is extremely simple. With a large population of farmers — in France farmers are one 'of the largest electoral groups — the West Europeans set out to ensure that the farmer gets a sufficient income to keep in business. To promote this result they 'manage' the market in farm produce so as to keep the price at the level needed to maintain the farmers' income at a sufficiently high level. This they do in two ways. First, as we did in the time of the Corn Laws, they exclude imports whenever they might cause the market price to fall. Secondly, if, despite this, there is still a glut produced by their home farmers, they buy up sufficient of the surplus to restore the market price to the level the farmer needs, A striking example of this latter manoeuvre was the butter buying campaign which led to the notorious butter mountain. This 'support' buying is, of course, paid for by taxes levied in all countries of the Community, including our own.

The consequences of this system are startlingly clear. Prices paid by the consumer are pushed up to the level needed, however high, to keep the farmer in business. The consumer and the taxpayer both pay to keep prices up. With inflation the cost rises every year. The British system, followed till we joined the EEC, was based on the completely opposite principle. The price for our consumers was set at the lowest price at which food could be bought on the world market. Insofar as this produced a price for the home farmer less than was needed to keep him in business, he was paid out of the Exchequer a 'deficiency payment' which gave him an addition to the market price. The practical consequence was that the British consumer got the cheapest food in the world, whilst the British farmer was kept in business by payments out of taxes. This is the system to which we shall return. It offers the prospect of a far lower cost of food to the great benefit of the consumer. At the same time home agriculture will thrive, thanks to the guaranteed price ensured by the deficiency payment. It is noticeable that those who were keenest on our joining the EEC originally claimed that the common agricultural policy was something to be tolerated as the price of all the other, benefits to be secured. Now they admit that this policy has defects which need remedyine. Recent propaganda suggests, however, that we shall hear the arguments that the EEC policy has actually given us cheaper food and that anyhow a return to free trade in food will gain us no advantage because there no longer is any cheap food anywhere in the world.

Both arguments are, I suggest, misleading. It is true that the world market in wheat and sugar has rocketed in the last year and that we have benefited from the, by comparison, cheaper prices in the EEC. But world prices have recently been quite exceptional and there could well be a return to more normal levels. Meanwhile EEC prices for other foodstuffs are above world levels.

The second argument that there is no longer any cheap food in the world is equally misleading. Food prices will, alas, probably never return to earlier levels but it is an incontestable fact of agricultural science, that food will always be produced more cheaply and economically in some parts of the world than others. Some countries are always favoured by a better climate so that inevitably food is produced there more cheaply than in countries with harder natural conditions. The classic example is dairy production in New Zealand. There the grass grows for ten months in the year. The cows produce all the milk needed for dairy products on grass and hay. They need no housing. All this is the gift of climate. Farm organisation in small units also keeps down the cost of production by reducing labour charges to a minimum. Even with the increased cost of transport, oil and fertilisers, dairy products from New Zealand can be brought to this country at prices far below what are needed to pay European farmers for all that they have to spend on housing their cattle and feeding them On cereals and protein through the winter. The same is true of lamb and beef produced both in New Zealand and Australia, and in South America. Cost of production will always be less than in countries where the grass does not provide feed throughout the year. There will, therefore, always be food to be bought in the rest of the world at cheaper prices than those which will have to be paid if we remain in the protectionist system of the EEC. It only remains to show that despite the break which our accession to the EEC has made in our relationship with our traditional suppliers, those relationships can be restored. It has been argued that the New Zealanders, Australians and South Americans have no more use for us and will no longer supply us with the quantities of food we need at the prices to which we have been accustomed. I believe this to be totally false. It is quite obvious, of course, that so long as we remain committed to the EEC, the New Zealanders, for example, will not be interested in planning a resumption of trade with this country. Still less will the Australians with their far greater spread of resources. Once, however, our traditional suppliers know that we are in business again, they will, not out of sentiment but, as a matter of good commercial sense, be anxious to resume the export, admittedly at a rather higher price, of the primary products they produce so abundantly. Their potential for expanded production is great and no country is going to deny itself the prospect of exports. A long-term sugar agreement can also be secured. The cane sugar growers know all too well that sugar beet production can be expanded indefinitely in Europe and will want to safeguard their future sales. We shan't get the prices of recent years but we shall get reasonable prices and be able to resume our balanced beet and cane sugar industry.

So long as inflation continues, food prices will go on rising. The best hope of checking that rise and eventually reducing the cost of food lies in resuming our traditional free trade policy in food.

Sir John Winnifrith was formerly at the Board of Trade, the Treasury and the Ministry of Agncu/ture, Fisheries and Food, where he was Permanent Secretary until 1967