AN "ECONOMIST” SURVEY COMMON MARKET AND THE COMMONWEALTH: THE ISSUES

Press, Volume CX, Issue 32474, 8 December 1970, Page 16

AN "ECONOMIST” SURVEY COMMON MARKET AND THE COMMONWEALTH: THE ISSUES

(Reprinted from the "Economist" by arrangement)

When Britain tried to get into the Common Market in 1962-63, its negotiator, Mr Edward Heath, constantly ran foul of the Commonwealth. Canada even made a fuss about the danger of lost Commonwealth preferences for its exports of files, rasps and ecclesiastical vestments. Opinion in Britain nowadays is not so easily agitated by threats to the Commonwealth. Wartime memories of the Commonwealth have faded. Above all, trade links are less close than they were.

Britain’s own trade has grown faster with the Common Market than with anywhere else (70 per cent in real terms between 1958 and 1969). Trade with the Commonwealth has stagnated. And year by year the Commonwealth’s interest in the sluggish British market has slackened (despite Commonwealth preferences on tariffs and generous quotas).

Faster growing outlets like Japan and the United States have taken an expanding share of the Commonwealth countries’ trade. By the time Britain has transferred fully to the rules and common tariffs of the Six in, say, January, 1978, a full 16 years will have passed since the Commonwealth countries were given formal notice that Britain intended to seek membership of the E.E.Q. But three major problems (New Zealand, Commonwealth sugar and Hong Kong) still survive from earlier negotiations with the Six; and the first two of them are readily conceded as possible trouble spots by the Six.

New Zealand’s position New Zealand is a wealthy place; its 2.8 m people have one of the higher average personal incomes in the world, as Common Market politicians are not slow to point out. But New Zealand’s high standard of living depends on two things: on imports of capital to build up its manufacturing industry; and on a phenomenal 43 per cent of farm gross national product being earned by farming exports. The makeup of New Zealand’s total exports has changed over the years. But the figures reflect both a conscious though weak effort by New Zealand to get out of unwanted wool and butter and into meat, and also difficult markets for wool itself. British entry into the Common Market will not add to New Zealand’s problems with wool; there is no E.E.C. tariff against wool. But the import levies imposed by the Six’s common farm policy spell trouble for New Zealand's butter and cheese. Some 40 per cent of Britain’s butter comes from New Zealand, in contrast to the Six, whose high protected' prices create surplus production of butter every year. Virtually all of New Zealand’s dairy exports go to Britain. Special deal Britain has asked that New Zealand be given a special deal to protect this market. It suggests that during Britain’s own transition period New Zealand be allowed to export to the community under a special levy nearly 5m metric tons a year of milk products (equal to its present butter and cheese im-

ports into Britain). One year before the transition period is up, says Britain, the arrangement should be reviewed.

To this, the E.E.C.’s reply has been hesitant. The reason is that nobody in Brussels dares to forecast what might happen when Britain, Denmark, Norway and Ireland are members of the E.E.C. Together with France they might vote the price of butter downwards. Otherwise, as Britain’s butter price rises to the E.E.C. level, British consumption would fall. High consumption would allow room in Britain for both New Zealand butter and E.E.C.’s present butter surplus, although outsiders like Australia would be cut out. But to talk too soon of lowering the E.E.C. butter price would produce uproar among E.E.C. farmers. Instead the commission has to show the Six governments it is being stem. It objects to the “permanent” look of Britain’s proposal. It suggests that New Zealand’s cheese exports to Britain be phased out altogether and that butter exports be considerably reduced during the transition period in return for the contradictory—but typically Brussels—inducement of allowing New Zealand a higher price on what little] butter it may still sell (perhaps by charging a lower import levy on it). When the transition period is over, the E.E.C. would call a world butter conference (which New Zealand has long wanted), a suggestion that offers scope for compromise. One thing thaVYhas prevented New Zealand diversifying its butter markets has been the constant dumping of butter at knockdown prices by the Six. There is no problem yet over New Zealand’s mutton and lamb exports. The Common Market does not eat much of either and so far has not included “sheepmeat” in its protected farming policy. However France keeps threatening to get it put in, and may yet succeed. The sugar problem British entry is a serious problem for Commonwealth growers of sugar. Again, Britain has a large deficit which it satisfies mostly by imports from small Commonwealth countries (Mauritius and the Caribbean) for which, under the Commonwealth Sugar Agreement, it pays more than the present world price. Britain’s sugar market is stagnant. In the E.E.C. sugar consumption per head is (except in the Netherlands) much lower than in Britain. It is growing. But production seems to be growing faster. It is encouraged by a high intervention price but is not significantly discouraged by the Common Market’s system of production quotas. Britain is suggesting that when its commitment to the Commonwealth Sugar Agreement runs out at the end of 1974, the Six should take up its contracts with all the Commonwealth sugar producers except Australia (which would be left to fight for quotas under the International Sugar Agreeement).

Here too the commission’s recent suggestions show how distasteful it finds any "permanent” arrangement. It has merely hinted that by the end of 1974 (by which time Britain will presumably be a voting member) it should be possible to find “reasonable room” for Commonwealth imports in a future sugar policy in the enlarged E.E.C.

Hong Kong a neurosis Hong Kong is an industrial neurosis in the community mind. Its textile prowess largely caused the original cotton textile agreement which has limited textile exports to the developed world from all less developed countries. Its ability to jump tariff walls against domestic competition, in almost anything it turns its many busy hands to has made it art awkward negotiating problem. As a dependent territory of a new member Hong Kong ought to be entitled to associated status automatically. Because its industry is so competitive, the Six will not allow this. But because Hong Kong is a dependent (territory, nor will they ini' chide Hong Kong on their list | of countries to be eligible for 'generalised preferences now being discussed in Geneva. Nor will Japan and the United States; Yet all include Taiwan and South Korea, whose goods directly threaten the crucial export earnings of Hong Kong’s 3m restless people. Hong Kong is like a gaggle of other Commonwealth problems which nobody yet has time to think properly about, and which could therefore very easily become the pretext. or occasion for pulling up the talks just as they reach the home stretch. Gibraltar is a European territory “for whose external relations a member state is responsible.” Under Article 227 (4) of the Treaty of Rome it will probably qualify for full membership with Britain; this prospect could just possibly be upset by its status as a free port and Spain’s likely fury that Britain’s claim should be recognised in Brussels. Most of Britain’s other de-

pendent territories are tiny. >Some sell tropical products which could upset the Six’s 1 own uneven arrangements for some tropical products, like bananas with other tropical countries. Such territories are the Pitcaims. St. Helena, St. Kitts (and Anguilla), the Virgin, Ellis and Falkland Islands, the Bahamas, Bermuda. Malta is in the Mediterranean and so will shortly complete an association deal with the E.E.C. as Greece, Morocco, Tunisia and Turkey have already done. Cyprus can too. Extending Yaounde The African countries of the Commonwealth raise a different problem. Britain and the Six broadly agree that they should be put on the same footing as the (mostly French) ex-colonial countries in Africa which are signatories of the Yaounde convention; the renewal of this until 1975 is now awaiting ratification. Kenya, Uganda and Tanzania already have association agreements with the Six. But they are nothing like so generous on aid and tropical products as the terms of Yaounde.

A serious difference of view threatens to break out between Britain and the Six over the Caribbean Commonwealth countries. The Six believe (wrongly) that if the sugar problem can be solved then the Caribbean problem will have been solved 'too. They fear the Yaounde will become unwieldy and unnegotiable in 1973-74 if a pack of Caribbean countries are added to the African Commonwealth countries already seeking full Yaounde association. The United States, increasingly uneasy about the commercial power of the Common Market, has made it plain that it does not want the E.E.C. trading preferentially in its Caribbean back yard. The Six made a declaration of intent in 1962 which said that association would be open to all Commonwealth countries with similar economies .to the African associates of the E.E.C. At the time both sides understood that this included the Carribbean. But there are signs that the Six now want to limit it to Africa. Geneva schedules Much of the damage that might be done to India, Pakistan, Ceylon, Malaysia and Singapore by the loss of Commonwealth preference will be mended by the generalised preference schedules being worked out in [ Geneva. Tea, rubber and other raw materials already enter the E.E.C. tariff free. Britain would like to get these countries trade agreements with an enlarged E.E.C., but this does not seem high on the

list yet. The losers on paper are Canada and Australia. The most important of the list of a dozen products which Britains wants to be allowed to import on a system of duty free quotas from outside the E-.E.C. after entry—like pulp and newsprint,

aluminium zinc, lead happen to come from Canada and Australia. Little else is being done for them —not for the cane growers of Queensland nor the machine makers of Toronto. But the calculation of Australia .and Canada—and of the rest of the Commonwealth —is that historic links with a Britain inside the Common Market will be worth more than continuously rotting trade links with a Britain left outside.