Western Trade MODEST SERIES OF TARIFF CUTS

Press, Volume CI, Issue 29802, 19 April 1962, Page 12

Western Trade MODEST SERIES OF TARIFF CUTS

(By "LYHCKVS- of the -£coaomi«") (Ftotn the "Economist" Intelligence Unit I

London. March 20.—0 n March 8 the Governments of the United States, the United Kingdom, and the six countries of the European Common Market simultaneously cut by one-fifth their tariffs on a wide range of industrial imports from most parts of the world. This was the outcome of almost a whole year of tortuous bargaining at the Geneva headquarters of the General Agreement on Tariffs and Trade (G.A.T.T.); and it has been hailed as one of the more significant postwar developments in international trade. It all started with the formal request by the Common Market countries for G.A.T.T.’s approval of their new common external tariff. This is unified tariff that they will in time apply to all imports from the rest of the world. Now the imposition of the common tariff is bound to hurt the interests of some third countries Under G.A.T.T. rules, these countries are entitled to compensation. To smooth the path of the negotiations, the Common Market offered to cut its common tariff by 20 per cent, all round, provided its main trading partners, the other countries of western Europe and North America, did likewise. Challenge Accepted The challenge was accepted. Broadly, this is what has now happened. The United States and the Common Market countries have cut import duties on goods which, in 1960, were traded between them to the value of £lOOO million. Britain cut duties on imports from the United States valued at £73 million, in return for concessions on British exports valued at £7l million; in addition it obtained reductions in United States duties on British exports which (in 1959) had been valued at £lOO million, as a by-product of the American agreement with the Common Market. The United States automatically applies tariff cuts to all its trading partners. This, however, is not the end of the affair. In the first place, there is a parallel bargain still under discussion between the British and the

i Common Market countries. I This is needed because there i are a number of items which • do not feature in Common Market-United States trade, but which are important to i Anglo-European trade. Much of the interest has gone out of this negotiation since the British Government applied tor membership of the Canmon Market; for if the application succeeds, tariffs must come down on both sides anyway. However, a new complication has arisen, as the British Government has demanded a cut, not in the common external tariff on European imports from Britain, but in the national tariffs of the two most protectionist countries —France and Italy. This demand is most unlikely to be met. “Declaration of Intent” But perhaps of more immediate interest to the world at large is the “declaration of intent” with which the Common Market Commission accompanied the announcement of March 8. The duty cuts applied almost exclusively to industrial products. But to many non-European countries the restrictions on agricultural Imports are what really matter. On these the Common Market countries had refused to yield to American appeals for liberalism during the negotiations. But they did agree, in their declaration, to discuss with the Americans later in the year the price at which imports of the key agricultural commodity—hard wheat—would be permitted into Europe. They also, by implication, accepted President Kennedy's challenge (made at the beginning of the year) to negotiate further and much more sweeping cuts in duties on imported industrial goods. What, it may be asked, is "modest” about all this? Tariff reductions are often less impressive than they sound. Take the United States tariff on imported cars. It has been cut by more than 20 per cent; but in hard cash this means that duty on an imported car costing £5OO c.i.f. will now be £32 10s instead of £42 10s. A difference of £lO will not sell many extra Dauphines or Volkswagens. Moreover, in this instance, some of the most highly protected industries were specifically exempted from having to face fiercer competition. This was because of constitutional limitations on President Kennedy’s power to cut tariffs, which in turn provoked the Common Market into excluding a range of chemical import duties from the list of concessions they were intending to offer. Delayed Effect

Finally, the Common Market Six were bargaining, not with their existing national duties, but with the common external tariff which they will eventually apply, fn other words, the big reduction (from 29 to 22 per cent.) in their duty on imported cars will not have any immediate effect. What it does mean is that when—probably later this year—the Six take their next step towards aligning their individual tariffs with the common tariffs, Italy must cut its tariff on imported cars by 4 per cent, instead of 2 per cent., and France s tariff will come down by 2 per cent instead of remaining unchanged. The other four countries will raise their duties on imported cars less than they would have had to nave done in the absence of agreement in Geneva.

In any case, this is all merely a prelude to the great bonfire of western Europe's and North America’s industrial tariffs which will be lit next year, if President Kennedy has his way. But one feature has puzzled many observers in London. Not many months ago, British Ministers were panting to cut British tariffs just as soon as they could. Now, however, the enthusiasm has gone. All the emphasis in London is once more on the need not to yield an inch in advance of anyone else: hence the demand for cuts in French and German tariffs. Yet with the British application for the Common Market stili pending. this is hardly the moment for timiditv. It is to be hoped that this is a temporary phase—a momentary resurgence of the protectionist school at the Board of Trade. For the effects of IS years of high tariffs on British exports and the balance of payments are as obvious as ever.