NORDIC DISUNION DENMARK’S E.E.C. DECISION UPSETS ECONOMIC BALANCE

Press, Volume CXII, Issue 33050, 18 October 1972, Page 18

NORDIC DISUNION DENMARK’S E.E.C. DECISION UPSETS ECONOMIC BALANCE

(Reprinted from the "Economist" by arrangement)

Denmark’s solid “yes” to the Common Market will make it the only Scandinavian country’ to enter the community, leaving its four Nortiic partners—Sweden. Finland, Norway, Iceland—outside in varying degreof cold. On November 20 the Scandinavian Prime Ministers are holding a summit meeting to discuss Nordic co-operation. But all five know that the economic and political balance between Scandinavia’s 22 million people has been upset.

Since the war the Nordic countries have been building up a small but successful common market between themselves. It had achieved free movement of both labour and capital iong before the E.E.C. has done. Large numbers of Finns work in Sweden. Swedish money has been flowing into Denmark, anxious to get a foothold in the Common Market. Trade between the five Nordic countries has leapt in the past decade by 170 per cent compared with a 110 per cent growth within the European Free Trade Association (E.F.T.A.)—although E.F.T.A. membership has helped with this. Skin-deep unity Some of the unity has been only skin-deep, and the debate over membership of the E.E.C. has thrown the differences wide open. Each country has been resolutely following its own foreign policy; the five have been united largely in their shared xenophobia. It took Iceland 10 years to screw up enough courage to join so inoffensive an organisation as’ E.F.T.A. All five countries restrict inward foreign investment. In Denmark foreign investment in shares or in property is tightly controlled. The shares of even the largest Swedish companies are still not readily negotiable by European investors. Anti-E.E.C. campaigns in both Norway and Denmark drummed up fears of an invading flood of foreign capital and foreign influence. Yet Scandinavia’s wealth is based largely on successful international trade. With less than 1 per cent of the world’s population, the area contributes 5 per cent of the world’s trade and a massive 15 per cent of its shipping. As more than three-quarters of this trade goes to western Europe, the NorwegianSwedish swing towards Nordic isolation and against a political stake in the E.E.C. has been less than rational. The Danes did not imitate it The decisive factor for

them was the massive economic advantage of joining the E.E.C. Almost all their industries are competitive enough to benefit from free trade, which Norway's agriculture and fishing are not. If the referendum had rejected entry, the intention had been to devalue the krone by perhaps 25 per cent this week. Instead, the foreign exchange markets reopened happily on Tuesday; Danish bank rate was cut; and the Prime Minister announced that he was going to resign.

Denmark’s agriculture will, v now benefit from higher, a export prices to Britain, its c best customer (which takes nearly half of its total farmjC exports), and will regain a [access to rich European y i markets from which it has ii been cut off during the past • decade. Denmark used to be t a large bacon and butter F exporter to West Germany, n a natural market for its pro- « ducts. But since it was a excluded from the E.E.C. markets by repeated French vetoes on British entry — which automatically kept v Denmark out too — the f Danish economy has been E held back. t With a substantial trade a deficit year after year, which n had mounted to SSOO million ii by 1971, Denmark had run'ii up a foreign debt equal to 15 It, per cent of its Gross National 1 Product. It was unable to 1: afford much of a foreign s policy and its defence spend- f ing ran down. Its exports were inextricably tied to - Britain with its sluggish eco- a nomic performance. The v referendum will loosen that F drag. Although Denmark’s agri- n culture is probably the most n efficient in Europe, it has — F like everybody else — been F steadily reducing its depend- a ence on farming. Its industry, C which has been chronically F short of capital and entre- P preneurship. should now c receive a large investment a boost from E.E.C. member- P ship. Sweden’s isolation How long will Sweden ■[ maintain its self-imposed j. neutrality and isolation from t E.E.C.? A growing part of j, Swedish industry is pressing c for membership. Few Swedish t politicians relish the idea of Q having to use Copenhagen as j, its spokesman in Brussels j. from now on; especially on ( issues such as trade negotia- t tions and monetary union, on t which Sweden has always in ], the past had quite a loud v world voice of its own. The t European community has 0 made it clear that Sweden, q although the largest non- j applicant country in western 0 Europe, can expect neither a consultations nor influence r on E.E.C. decisions without a full membership. With the highest food prices in the world, Sweden , would not have Britain’s economic and social and j political problems in accept- t ing Common Market fann t prices. As 40 per cent of its ] exports are from engineering £ and metal industries, the industrial policy that will be f forged in Brussels over the next few years will concern Sweden vitally. Mr Olof ( Palme’s government now has only a year left in power until the next elections. , Faced with increasing prices and unemployment, it may ( yet reverse its policy. t The Norwegian decision t not to join the E.E.C. was t met with politely disguised < relief in most of the nine £ countries who w’ere to have f been its partners. Norway’s < application for membership j was studded with special j pleading. Its farmers, the } highest paid and most j heavily subsidised in Europe, j would have needed exemp- t tion from the Common Agri- j cultural Policy, its fishermen, , who earn about 8 per cent of the country’s exports, re- , fused to accept a common j fisheries policy. Any future , E.E.C. regional policy would j have had to spend huge , sums on the 10 per cent of j the Norwegian population ( who live in the northern half j of the country. Treaty for Norway’ j As Norway’s elderly farm- < ers and young environ- i mentalists celebrated the de- 1 cision to reject E.E.C., the i country’s businessmen, who i pay the farm subsidies, were i in despair. A new treaty for ( Norway’s trade with the < E.E.C. must now be worked out. Norway trusts that the , terms will be the same as for , other non-applicant E.F.T.A. . countries: free industrial trade by the time Britain, [ Denmark and Ireland become j fullv fledged members in , 1978. But for Norway ' the deal might not be so straightforward. The country’s two main exports, apart from fish are aluminium and paper. Both are ■ sensitive products within the i enlarged E.E.C. The nine are insisting on long transition ■ periods before thev are given ; tariff-free access to the community. Meanwhile Norwegian industry is on tenterhooks, susnended between a i defunct E.F.T.A. treatv and a • doubtful one with E.E.C. ’ Norway’s main industrial ’, attraction is its cheap hydro- : electric power, which has ’ enabled it to build up the; • largest aluminium smelters ini - Europe. But there is a world ® glut of aluminium: largely bei, cause new and inefficient smelters are coming on

stream in the E.E.C. and Britain. European industry may now seize the chance to build up protectionist walls against Norway. An even glummer fear in Oslo is that Norway might not now be able to use its massive oil finds in the North Sea to establish its own petrochemical industry. Crude oil is not subject to E.E.C. tariffs, but manufactured products are. Norway will also be badly placed when the E.E.C. starts its common energy policy moving; it will seek to get a special clause written into its trade treaty, as Sweden did, providing for consultations. Access for Norway’s fish catch to Europe's markets is also open to question, and will probably only be solved in the wider context of fishlimits. There is a danger that the blow to Norway’s prosperity after the referendum might make Norway decide to extend its territorial waters, as Iceland has done. Iceland and Finland Iceland’s free trade treaty with the community is being held up in Brussels by the British and Germans until the problems of fishing limits are solved. The British should not bully Iceland by keeping it out of E.E.C. markets; but its fish exports could be curtailed if the cod war persists. There is no question of Iceland’s tiny population ever seeking anything approaching full membership. Most Finnish businessmen —like their Swedish, Danish and Norwegian colleagues—would like to join the E.E.C. Finland’s experience with E.F.T.A. has proved much more successful than even the most optimistic Finns had predicted. Since 1967, when Finland devalued its currency and introduced what became (at least temporarily) Europe’s most successful prices and incomes policy, the country has enjoyed an average annual growth of 5.3 per cent in real G.N.P.. mostly thanks to an export-led boom. Although Finland is now less dependent on Russia than it used to be, 20 per cent of its trade still goes through the Iron Curtain, and Russia is keeping a powerful brake on any Finnish desire to enter the E.E.C. The recent E.E.C. offer of free trade with Finland had only been initialled by the last Prime Minister, just before his resignation this summer. Finland is particularly disappointed at the long transition period on which E.E.C. is insisting before it removes Its tariffs on timber products and paper The new Finnish Government is still canvassing public opinion on the agreement In all probability, it will be ratified. Paper war Trees provide half of Finland’s exports; the proportion would be higher still had the E.E.C. not raised protective tariff walls against paper and timber. Britain, Finland’s largest single market is already making use of its new E.E.C. membership to hide behind these barriers, protecting its own paper industry which had been feeling the edge of competition as Finnish paper flooded cheaply into Britain under E.F.T.A. agreements. This paper war has already caused much resentment between Britain and Scandinavia. Now Britain is directly to flout the rules of the General Agreement on Tariffs and Trade and reintroduce an 8 per cent tariff against Scandinavian paper, to fall into line with the rest of the E.E.C. There will be extensive duty-free quotas; but Finland, Sweden and now Norway will have to wait until 1982 before they get free access to the British market again. Although these new economic pressures will not isolate Scandinavia from the rest of Europe, Brussels does intend them to hurt enough to keep the incentive alive in Sweden and Norway to reapply for entry some time in the next 10 years. The political need for Finland to stay neutral is accepted. Finland is the one Scandinavian country with a large Communist Party, and its ties with Russia have kept it from contributing towards Nordic union. In 1970 Finland had to back out of Nordek, the treaty establishing Nordic economic co-operation.

But the same problems of neutrality do not apply to Norway, which is an enthusiastic member of the North Atlantic Treaty Organisation: nor to Iceland, also a N.A.T.O. member, nor to Sweden which, although having steered clear of political alliances, has a higher defence budget than strict Swedish neutrality might appear to justify. Political and economic involvement in Europe may become tasty fruit in time.

Mr J. D. Dalcety of Wei. lington, has been apnoirted to the board of directors ol the National Airways Con noration to replace the lati [Mr J. N. Laurenson, the Mini lister of Transport (Mr Gon idon) announced in a stata ment yesterday. Mr Dalgett is a senior partner in a Wei lington law firm. He will stat on the board for the remain der of Mr Laurenson’s tern which expires on SeptembJ 30, 1973.