The Press SATURDAY, JUNE 23, 1956. TOWARDS FREER TRADE

Press, Volume XCIII, Issue 28002, 23 June 1956, Page 8

The Press SATURDAY, JUNE 23, 1956. TOWARDS FREER TRADE

International trade will be one of the main preoccupations of the Commonwealth Prime Ministers when they meet in London next week; but the trend of the discussions is unlikely to give much comfort to the Imperial protectionists and others who yearn for some kind of a Commonwealth economic exclusiveness. The forces that have driven Britain—and other important units of the Commonwealth, too—to seek a wider and freer commercial intercourse are pressing more urgently than ever before. Not the least potent of these forces is the comparative inelasticity of the Dominion markets—as demonstrated, for instance, by the inability of Australia and New Zealand to provide an assured market for British exports, uninter-

jrupted by the recurrent imposition of import and exchange controls. iNor has the General Agreement on and Trade realised all the hopes and expectations reposed in it for the opening of the American market. Successive rounds of tariff negotiations have brought Britain and the Commonwealth some substantial advantages in this respect; but they are not, by themselves, enough. Lately it has become increasingly apparent that even this augmented trade with the dollar world is dangerously vulnerable to such periodic “ pauses ” and “ recessions ” in American economic activity as occurred in 1949 and 1953-54, and which may well occur again this year and at more or less frequent intervals. Although the experience of 1953-54 shows such a result is not inevitable, the Commonwealth must expect such i a pause or recession to reduce American demand for sterling-area raw materials, which in turn must diminish the ability of overseas sterling-area countries to buy British goods. The “ Imperial ” Fallacy Emphasising that it is no answer, in such circumstances, for Britain to impose general import restrictions to protect its reserves, as this would weaken foreign confidence in Britain’s desire for freer trade (and therefore foreign confidence in the pound), the “ Economist ” recently examined the possibilities of building up a larger block of freer, non-dollar trade. The journal remarked that, politically, the easiest and most popular thing to say was that this should be a “ sterling Commonwealth club ”. This answer, it went on, must be dismissed as “ expensive and “ dangerous nonsense ”, for the following reasons: 1. It is expensive because only part of the Commonwealth is in the sterling area, and that in turn is only a part of the non-dollar world; to restrict advance to this Commonwealth part is unnecessarily to limit the economies that can be gained from the largest possible freer market. 2. It is nonsense because it amounts to saying that since the trade of the sterling area—which is heavily dependent on exports of tropical raw materials and marginal British manufactures—is especially vulnerable to American recession, we should, during an American recession, rely much more exclusively upon it.

3. It is dangerous because it invites protection of declining industries instead of encouragement of advancing ones. This is illustrated by the “new ideas on Imperial preference,” which Mr Menzies is renorted to be bringing to the Prime Ministers’ Conference. At the moment, perhaps the main value of Imperial preference to an expanding Britain is that it gives us an advantage over America in Canadian markets; for the rest. Imperial preference is very largely a system whereby we buy some relatively dear Commonwealth products in return for their buying the products of certain declining British industries. Mr Menzies’s plan is apparently that Britain should switch from buying relatively cheaper Canadian wheat to buying relatively dearer (because less suitable) Australian wheat, thus annoying the Canadians; in return. Australia might offer to buy more Lancashire textiles. It is difficult to think of any scheme that would be more flatly inimical to Britain’s longterm prospects of prosperity.

Opportunity in Europe Britain and the Commonwealth must look for new and wider trading opportunities outside the dollar area; and the possibilities are limited to free Europe, Communist Europe, and Asia. Only free Europe offers reasonable scope in the present state of international politics. Much attention has been given to this question lately in Britain; and one of the most interesting lines of thought revives the proposal of a few years ago for a common European and Commonwealth market. Recent developments in Europe provide both a spur and an opportunity. The European countries have shown a good deal more vision and far more enterprise than Britain in seeking opportunities for freeing and expanding their trade; and one of the striking economic facts of the present day is the vast expansion of the European industrial market while Britain’s proportionate share of the world’s trade has been falling. Britain clearly must pay more attention in future to its relations with the European market. Indeed, as the “ Financial Times ” remarked recently, “ Britain’s in- “ difference to past moves towards “ European economic integration is . “ now seen as not only unco- . “ operative, but as contrary to I “ Britain’s own interests.”

Germany, France, Italy, and the Benelux countries have lately been exploring the project for a

“ common market ” —the extension of the principles of the European Coal and Steel Community to all intra-European commerce. There are still formidable difficulties in the way; but if it becomes an accomplished fact Britain will be faced with the prospect, as the “ Economist ” said, “ that Germany “ may be selling in Europe over “ diminishing tariff and trade “ barriers, while Britain has to sell “ over existing ones ”,

The Greater Cause for Fear Britain has often been accused of “ dragging its feet ” on projects of European economic integration. It has always claimed that its special position as the head and the banker of the Commonwealth makes its active participation in such projects as the Coal and Steel Community difficult or impossible. The “ Financial Times ” records a gratifying change of official attitude towards this kind of question. “ There is an increasing impression,” it said, “ that for the first time “ since the war a British Govern- “ ment is looking towards Europe “in terms of opportunity, and not “ merely in terms of responsibility ”, Many Commonwealth countries, including Australia and New Zealand, have recently begun to recognise the same need to find wider markets for their products. The ingrained habit of protection makes them reluctant to accept the corollary of this policy—opening their own rather exclusive markets more widely to foreign trade—just as it led them, unwisely, to hold Britain back from closer trade association with Europe a few years ago. But even those whose fear of competition blinds them to all the advantages of freer and wider trade should by now be aware of the far more serious danger—that the sterling section of the Commonwealth may find itself, in some future economic recession, cut off from both the dollar area and from a European customs bloc that might, in the not too distant future, encompass Russia and the East European satellites as well. The Commonwealth must try to keep a foot firmly in both camps. It would be economic hara-kiri to stay out of both.