After Brussels KEY IMPORTANCE OF U.S. TRADE ACT

Press, Volume CII, Issue 30066, 26 February 1963, Page 12

After Brussels KEY IMPORTANCE OF U.S. TRADE ACT

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(From the “Zconomist” InnSUpence Unit)

Loudon, February 5.—-we have lost a battle. We have not lost the war.” Thus General de Gaulle addressed his countrymen from London the night after Marshal Petain had appealed to the Germans for an armistice in 1940. The words might well have been repeated in London and Washington on the morrow of the General’s suspension of the British negotiations in Brussels. No time is to be lost in preparing the strategy of the next round of the struggle between General de Gaulle and “the Anglo-Saxons” for the future of Europe. The key to this strategy is clearly to be the American Trade Expansion Aet; and with the visit of President Kennedy's special trade representative, Mr Herter, to London at the beginning of this month, joint planning has already begun. The Trade Expansion Act authorises the President to negotiate with the Common Market reciprocal reductions in import duties of up to 50 per cent over a period of years. But as the act was drafted on the assumption that Britain would join the Common Market a special clause was also inserted allowing the President to eliminate duties altogether in the case of those goods for which the United States and the enlarged Common Market would together have accounted for 80 per cent of the world trade. Continued Value At first sight, therefore, the collapse of the Brussels negotiations might be thought to have robbed the act of

much of its value. Thu, however, need not neceasan); be true. For Congress could (and. under the circumstances, very likely will) amend the act to allow the “80 per cent, clause" to apply, the Brussels failure notwithstanding Besides, it must be an open question whether the President would ever dare to cut the really sensitive American tariffs (which are almost by definition the ones that interest Western Europe most) by more than 50 per cent, in any case. •

On the other hand, the act has many enhanced attractions in the new situation. Its appeal to the great exporting nations of Western Europe, and particularly to Germany, is if anything even greater than that of the prospect of British entry into the Common Market.

The Americans will now have the full backing of the British Government, frustrated in its attempt to bring down European tariffs on its own account; and they will be able to participate directly themselves, instead of having to offer advice and encouragement from ’ the wings as they did during the British negotiations. Last, but by no means least in the present mood of the Western alliance, the Trade Expansion Act has the merit of being particularly distasteful to President de Gaulle.

But this, unfortunately, is just the trouble. It can br taken for granted that if another big bonfire of tariffs on both sides of the Atlantic cannot be stopped in any other way. General de Gaulle will repeat his performance of January 14: he will simply veto any reductiona in the European common external tariff (as he is empowered to do, at least until 1966, by the Treaty of Rome). What will happen then? The British and American Governments may well be hoping that at this stage the General's partners would rebel. They might: but the fact remains that they are mote wholeheartedly wedded to the Common Market than he is. and it is much more likely that, after much grumbling, they will once more come to heel before the ultimatum from Paris.

So the prospects for an early and substantial reduction in tariffs between the United States and Western Europe can hardly be described as rosy. Of course, the Americans may then decide to make the best of a bad job, and either negotiate the best tariff cuts they can with countries like Britain and her E.F.TA. partners, Canada, and perhaps Japan, or go into some sort of preferential trading arrangement with tnese countries in rivalry with the Common Market But the first course would have what, in present circumstances, might seem the grave drawback of giving the Common Market something tor nothing; while the second course would conflict with what has, up to now, been a golden rule in United Slates trade policy—that tariff adjustments must be on a “most favoured nation” basis (i.e. in favour of all the non-Conununist world).

The strategy adopted by the Common Market countries themselves looks like being a rather different one. As soon as the Brussels negotiations were oVer, Frances five partners were busy turning their minds to the idea of some sort of graduated system of entry for Britain and other European countries This might take the form of a customs union or free trade area, embracing most of Western Europe, and being created over a period of years The attraction of this plan is that it might very well correspond with what lay behind General de Gaulle's cryptic offers to Britain of association with the Common Market. But it, too, suffers from serious drawbacks. For the Five (as they are now being called) would certainly want any agreement of this kind to contain a clear promise that full membership of the European Community would be extended to Britain at the end of a period of transition. General de Gaulle is most unlikely to agree to this. And even if he did, the British Government in its present mood would almost certainly reject anything less than immediate full political participation in Europe. There has been general agreement on all sides (except perhaps in Paris) that the breakdown of the Brussels negotiations faces the West with its worst political crisis since the war. But there has been less recognition of the extent of the economic dangers now facing the free world. If it becomes British and American policy to force a showdown with the General at every point, then not only could all prospect of freer world trade be postponed indefinitely; but we could very well be heading for increased discrimination all round, and a return to the restrictive policies of the 1930’5.