The twelve labours of Harold Wilson

COMMON MARKET

Hercules earned immortality by performing twelve tasks of immense difficulty and danger: if Harold Wilson is to achieve political im- mortality by leading Britain into the Common Market he, too, has twelve major obstacles to overcome.

1. Agriculture

The nub of the problem is that Britain protects her farmers by subsidising them so that the consumer enjoys cheap home-produced food as well as cheap imported food, while the Six protect their farmers by fixing high food prices buttressed by levies on all food imports from outside the Common Market. These levies are paid by the importing country into a Common Agricultural Fund which then uses them as a means of further support for Community farmers.

This gives rise to four difficulties (but only the second two are serious): First, higher food prices would mean (roughly) a 3 per 'cent rise in the cost of living (over a period of years— see below) which would also in turn have some slight impact on wages, hence industrial costs and prices, hence exports (see Balance of Pay- ments). Second, the import levies would act as a barrier to the Commonwealth's biggest ex- ports to Britain (see Commonwealth). Third, the payment of import levies to the Common Fund would mean, for a major food importer like Britain, a substantial loss of foreign ex- change. Much the same would apply to the extent that we switched to levy-free but high- cost Community sources for our food imports.

Fourth, although British farmers as a whole would benefit, there would be swings and roundabouts. Grain producers (especially large ones) would never have had it so good, while many pig, poultry and dairy farmers (especially small ones) would be hard hit. A transitional period to allow British farmers to adapt to a new pattern of production is therefore essential, and this is the heart of the strictly agricultural problem. Britain isliltely le ask for seven years and accept a minimum of four: an offer by the Six of a transitional period of only two years would almost certainly lead to the breakdown of negotiations.

The Common Market farm pricing system is economically indefensible, but its acceptance is agreed by all the Six to be a basic condition of entry. Recommended British strategy: (i) grow more food at home; (ii) press hard (assuming entry) for reduction in Community food prices when these come to be reviewed in 1969. Main source of resistance (to latter course): Germany.

2. Balance of payments

Perhaps the most formidable labour of all. From Britain's point of view, our already shaky balance of payments would have to absorb (a)—the most serious extra burden—a payment of some £200 million a year (on the basis of existing Community and world food prices and Inc food output, although rather less on more -realistic assumptions) in levies to the Common Fund (see Agriculture); (b) a loss of exports from the ending of Commonwealth preferences and perhaps from the indirect results of higher food prices too (see, again, Agriculture); (c) the fact that the reduction (and ultimately elimina- tion) of Inc industrial tariffs might well lead to a bigger rise in imports than the rise in exports due to the corresponding dismantling of (rather lower) Common Market tariffs; and (d) free- dom of capital movements, which would prob- ably cause a net outflow of portfolio investnient (eg German firms raising capital in the City of London). At the existing £ exchange rate a major balance of payments crisis looks in- evitable if and when Common Market entry seems assured—especially since EEC rules pro- hibit import controls and/or export subsidies. In the long run all this may well be outweighed by the (unquantifiable) benefits to British in- dustry of the increased competition, larger markets and (in Mr Wilson's own word) 'élan' from being inside the Common Market. But in the meantime, short of an economic miracle, devaluation (which must occur before, rather than after, entry) becomes more imperative than ever.

From the Six's point of view, at the existing £ parity, all this merely adds to the serious doubts felt about admitting a new member with a history of balance of payments weakness, no evidence of a lasting recovery, and £900 million of debts still to repay. Will the Six have an- stantly to be going to the aid of a new, sick, member? Or will Britain run to America for re- newed aid (see Special Relationship)? Will the Six catch the sickness themselves? Main sources of resistance: France, Belgium, Germany, Hol- land (central bank but not government) and Common Market Commission. Recommended British strategy: (i) earliest possible entry while pound is temporarily riding high and avoidance of reflationary measures which might reinforce pressures on, and doubts about, sterling (but see Labour party); (ii) devaluation while the going is good (by, say, 15 per cent-74 per cent to cover existing balance of payments problem, the other 7+ per cent to meet additional foreign exchange cost of entry to EEC).

3. Commonwealth

Once considered a major politico-econothic obstacle, this is generally agreed to be much less important today. A three-year transition period desirable for food imports to enable Common- wealth producers to adjust to new system, Tariff-free or low tariff import quotas should be negotiable after entry for Commonwealth supplies of aluminium and newsprint, %%tile main hope for Commonwealth exporters of low-cost manufactured goods (especially India, Hong Kong and Pakistan) must be pressure for EEC liberalisation after entry. Longer term arrangements, which must be negotiated before entry, are essential for Commonwealth sugar and New Zealand dairy produce. Main sources of resistance: France and Brussels Commission. (On New Zealand, add Denmark.) On Com- monwealth generally, see also rigriculuire, Labour party and EFTA.

4. EFTA

Although not normally regarded as a serious obstacle in British pro-Market circles, this labour could provide France with excellent opportunities for delay. This arises first from .the case for parallel negotiations between the Six and Denmark and Norway—both of whom also seek EEC entry: attempts to postpone this until after British entry would be resisted by the two countries themselves plus France and the Com- mission. Second, the Treaty of Stockhohn (which regulates the European Free Trade Association—has Mr Wilson read it?) lays down that departing members (eg Britain) must give one year's notice. Other EFTA countries would try and insist on this: they would also strongly resist the erection of tariff barriers be- tween former EFTA partners before any form of Association between those who wished it (Sweden, Switzerland, Finland) and the Six had been negotiated. On the other hand, any attempt by Britain to break EFTA rules (as we did over the 15 per cent import surcharge in November 1964) would not only risk breaking up EFTA be- fore securing EEC admission, but would be cited by France as evidence of Albion's perfidious- ness. Recommended British strategy: Promise to take care of EFTA interests once inside Com- mon Market. Unlikely to work. (See also Labour party.)

5. Defence

Nuclear. Britain's special nuclear relationship with the United States, exemplified by the Nassau deal, was partly responsible for de Gaulle's veto last time. To this has now been added Six-wide anger over Britain's support for the Russo-American-inspired non-prolifootion treaty which discriminates both between and against existing members of the Common Mar- ket. France's own deterrent is more highly de- veloped now and the General is for the moment apparently concentrating his defence policy on a purely national effort—witness his departure from NATO—SO that resentment of British policy in this sense has much diminished.

East of Suez. Not a major obstacle as such. but (a) military expenditure outside Europe widely held to be contributory cause of balance of payments troubles, and (b) nature of East of Suez role as American auxiliary, and depen- dence on us military equipment, leads to doubts about Britain's genuine Europeanness (see Special relationship). Main source of resistance: France; but to non-Proliferation treaty Germany. Italy and Brussels Commission.

Recommended British strategy: (a) offer to work towards European nuclear force based on Anglo-French cooperation; (b) opposition to any non-proliferation treaty unacceptable to existing Common Market countries; (c) ex- peditious withdrawal of British troops from Middle and Far East. Although perhaps not quite as crucial as last time, the right approach to defence questions is one of the most im- portant keys to UK entry.

6. De Gaulle

See also: Special Relationship, Defence, Monetary System, Nature of the Cotnmunity. While successful entry depends on France and not on the Five, any crude attempt by Britain to support France at the expense of the Five (eg over supranationalism) would simply be used by de Gaulle to demonstrate to the Five Britain's unfitness to be a member. No evidence to show that de Gaulle wants Britain in on Mr Wilson's terms; on the other hand, although the General is believed to be mortal, there is no evidence either to support the Foreign Office belief that entry will be easier after he is dead— especially if the successor French government is passionately supranationalist. His tactical weapon is likely to be procrastination : his ulti- mate strength the knowledge that, whatever happens, in the last instance the Five will not allow the Common Market to break up over the issue of British entry (or anything else, for that matter). Recommended British strategy: avoidance of every possible opportunity for procrastination. Unfortunately, however, pro- longed delays seem inevitable.

7. Labour party

Although determined opposition to entry as such is no longer widespread in the Labour party, an important group within the Cabinet could become seriously obstructionist (pressing for unattainable conditions for Agriculture, Commonwealth, EFTA) if negotiations actually looked like succeeding. In addition, over the next twelve months, Labour backbenchers will be increasingly pressing for reflation as unem- ployment rises, thus embarrassing Mr Wilson in his attempt to prove to the Six that the balance of payments is sound as a bell at the existing sterling parity (see Balance of Pay- ments). Harold Wilson, himself represents a further problem, largely because of the credi- bility gap caused by his habit of saying different things to different audiences (eg to LB], de Gaulle, Kiesinger and the parliamentary Labour party). Recommended British strategy: replacement of Harold Wilson by Roy Jenkins. Unlikely to occur.

8. Monetary system

One of the most important keys to UK entry. The simple essence of a complex problem is that the United States is pressing for the earliest Possible agreement on a new unit of interna- tional credit to supplement the dollar; while the Six oppose any agreement that will allow America to go on running balance of payments deficits. Britain supports the us. Next stage of rov. scheduled for International Monetary Fund meeting in Rio in September. Main sources of resistance (to Anglo-Saxon attitude): France t because privilege of us alone to run deficits assists American commercial and industrial domination of Europe); Holland (central bank only), Germany (central bank and half govern- ment) and Belgium (because of primitive in- flationary fears and belief in 'financial disci- pline'). Recommended British strategy: (a) dis- sociation from us position, (b) willingness to consider increased gold price as possible alternative, (c) proposal of European Monetary Fund and European quasi-reserve unit. In general, the Monetary labour offers a possibly crucial and certainly important test of Britain's Europeanness. (See also Special Relationship.) 9. -Nature of the Community This is a new argument put forward by France which could be powerful if accepted by any of the Five, especially Germany. In essence, it is that the Community, which has been going for ten years now, has found its own way of life: the entry of a great power like Britain could cause wholesale new problems which could shake the Community (and the delicate system of checks and balances on which it is based) to its foundations. It is not, as many people suggest, an argument about supra- nationalism such as that which raged in the early 'sixties. The French approach is more subtle: it says that questions like the degree of supranationalism are difficult enough to solve among old friends, they would become even more so if the Community were enlarged. Par- ticularly since it is not simply a question of Britain entering, but Denmark, Norway and Ireland also at the same time. And what would this mean for the balance of voting power within the Community? (At present France, Germany and Italy have four votes each, Bel- gium and Holland two each and Luxembourg one. Voting rights for new members are a matter for negotiation.) Main source of resistance: France. Recom- mended British strategy: take care of the other labours and hope that this one will take care of itself.

10. Special relationship

The fundamental obstacle, underlying most of the others. Since the political dynamic of the Common Market is more than anything else the desire of European countries to determine their own destinies—and help shape the world's—in an age of super-powers, it is a matter of some concern to the Six that Britain, because of her 'special relationship' with the United States, appears readier on vital issues to act as a willing subordinate of America than as an indepen- dent European country. At the present time, on

all key issues where there is a difference of view or conflict of interest between the Six and the Americans Britain is found alongside the United States: Vietnam, the Kenneep Round of tariff talks, world monetary reform, the non-proli- feration treaty, etc etc. Main source of resis- tance: France chiefly, but also the Commission and Germany. Recommended British strategy: a genuine reappraisal of where Britain's own national interest really lies, followed by at least one major and irrevocable act of dissociation from Washington. Main source of resistance to recommended British strategy: the Foreign Office.

11. Sterling area

Although much is made of this by the French from time to time, it is unlikely to become a

major obstacle provided that the Balance of Payments (see above) problem is solved. The Six's ostensible fear is of a sudden run-down of the balances held by sterling area (especially Commonwealth) countries in London; and of Britain then calling on her Common Market partners for financial support under Article 108 of the Rome Treaty to meet this. Mr Wil- son has promised he will not invoke this article, but this (a) raises the possibility of Britain seeking us aid instead (see Special Relation- ship) and (b) means that Britain is not fully a member of the Community. Main sources of resistance: France, Belgium, Commission. Recommended British strategy: (a) get balance of payments right; (b) express willingness to consider sympathetically any European plan to reduce reserve currency role of sterling.

12. Technology

For once not really a labour at all: rather a card to be played. The idea is that American technology will dominate Europe unless Europe combines, and that potential British contribu- tion to European 'technological community' is far greater than any of the Six can muster. Recommended British strategy: (a) propose European Procurement Agency for modern weapons and products of advanced technology, so that notional benefits of large market may actually be realised. Weaknesses: (i) known de- pendence of UK on us arms industry in im- portant areas for many years ahead; (ii) lack of agreement over Defence (see above) which must determine military procurement policies; (b) Convert 'European Technological Community' from empty slogan to worked-out proposal. In general, this is a moderately useful card but Mr Wilson must beware of grossly overplaying it.