WHAT BRITAIN'S COMMON MARKET BID COULD DO TO CANADA

BLAIR FRASER November 3 1962

WHAT BRITAIN'S COMMON MARKET BID COULD DO TO CANADA

BLAIR FRASER November 3 1962

WHAT BRITAIN'S COMMON MARKET BID COULD DO TO CANADA

BLAIR FRASER

Whether or not we face up to the risks of the American trade pian, we may still have to face up to a British move away from the Commonwealth toward Europe. Here is what that move would cost us-and why Britons think we have no right to complain

MACLEAN’S OVERSEAS EDITOR

ON THE LAST DAY of the Commonwealth Conference in September, after Canadian delegates had been talking themselves blue in the face for nearly two weeks about the threat to Canada’s vital interests if Britain goes into the European Common Market, a British official said to me, “I still don't know what vital interest Canada is talking about. Nobody has ever made it clear to me that any important Canadian export will be seriously damaged if we go in on the terms we have and those we expect to get.”

This failure of communication is not confined to Britain. A good many Canadians are equally in the dark and for the same reason. The government will not accept the political hazard of saying which Canadian interests are truly vital and which are relatively trivial. As a result the whole Common Market argument is a dialogue of the deaf with neither side really listening to the other and each using the same words to mean different things.

Here arc some of the hard facts that the British emphasize and Canadians tend to ignore: Most

Canadian exports will not be affected in any w'ay at all if Britain goes into the Common Market. Of all the goods we sell abroad Britain buys only one dollar's worth in every six. The other five go to

the rest of the world, mainly the United States.

Of the one dollar’s worth that does go to Britain about thirty cents’ worth will still be free of duty after Britain joins Europe. Raw materials like ore and wood pulp go into the European community duty free. So altogether, in the total of five and a half billion dollars that Canada earns abroad each year only about six hundred and fifty million—or twelve percent—are involved in the hard bargaining that has been going on in Brussels and in London.

CANADIANS ARE SUCH CRY BABIES

This is why the British think Canadians are such cry babies—all that fuss about less than an eighth of our exports, many of which arc not seriously threatened anyway. But Britain is a large nation living in a small country, Canada a small nation in a large country and the problems of the two are not the same. Some Canadian exports that are only a small fraction of total sales abroad are nonetheless cornerstones of the whole Canadian economy and the loss of the British market for these would be a national disaster.

Wheat of course is the outstanding example. Our wheat sales to Britain are only a hundred and forty million dollars a year — a trivial percentage of five and a half billion. But Britain is the biggest single customer for the biggest single product of Western Canada, and no Canadian needs to be told what will happen to his country and quite possibly to his own job if the prairie farmer cannot find a market for wheat.

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If we lose only $200 million in export sales we’ll be lucky

If Britain joins Europe, wheat will certainly be affected. Europe's Common Agricultural Policy has yet to be worked out in detail, but all six countries in the European Economic Community are interested like all other countries in protecting their own farmers. They wall be protected by a complicated system of levies to make foreign food more expensive than European. Just how high the levies will be is still a matter of argument inside Europe but they will be high enough to exclude a lot that Britain now buys from Canada, and there will undoubtedly be some levy on imported wheat.

The British do understand that wheat is something of truly vital interest to Canada, but they argue very strongly that the European levy at any probable level wdll not in fact exclude Canadian wheat from Britain. Quality is the reason. They say British millers simply could not use soft European grain because British bakers could not use the flour without a revolution in their system of distributing bread. They say the millers and bakers will have to go on using high quality Canadian wheat even though they will have to pay a bit more for it.

Canadian officials are not so sure. Their experience has been that when prices go up demand goes down, and the price of Canadian wheat wdll certainly go up. They arc also worried by the loss of the British preference on Canadian flour and its replacement by a levy in favor of European flour. In the long run they think there will be a growing and eventually irresistible temptation for British millers and bakers to change to European wheat.

However, they do admit that the British market for Canadian wheat will not disappear. At worst it will merely shrink a bit. For some other important Canadian exports the prospect is grimmer. Aluminum is one such. Ninety percent of all ranadian aluminum is sold abroad, and more than a third of those cvoorp go to Britain. Newsprint is another big export item, and though most Canadian newsprint is sold to the United States the British market means the differ-

ence between profit and loss to many companies. Lead and zinc do not look very big in absolute figures but they are the sole support of some Canadian mining and smelting communities and they rely very heavily on sales to Britain. If all these things had to go into Britain over the European tariff the Canadian producers would be in serious trouble and some would be ruined.

This is one of many vital points still unsettled in the bargaining at

Brussels. Bitain has requested complete removal of the European tariff on these and a couple of dozen similar items. France and perhaps some other countries will oppose the request. which is unlikely to be granted in full and may not be granted at all. On the cheerful side, however, is the fact that Britain’s interest as well as Canada's is very much involved. Free entry for aluminum is important not only to Canada but also to the British aircraft industry. British newspapers, already plagued by high production costs, have no urge to pay more for their newsprint. We may be sure the British negotiators at Brussels will be doing their very utmost to keep the common tariff on these industrial raw materials as low as they possibly can.

Even if the tariff isn't cut to zero it may well be lower than it is now, and for truly competitive producers like the aluminum and newsprint industries this may be good enough. A prosperous Europe would provide them with a huge expanding market and in the long run might do them more good than their present right of free entry into a smaller British market. This no doubt is why aluminum and newsprint spokesmen have not directly opposed the British intention of joining Europe but instead have urged both Britain and Canada to concentrate on getting the European tariff cut as low as possible.

Another important open question is which Canadian exports are to be classified as industrial raw materials and which as manufactured goods? This distinction is vital for a lot of lumber and wood products, chemicals, plastics and other things that arc manufactured in the sense of being partially fabricated but are sold to industries and not to the ultimate consumer. If they are classed as low-tariff or no-tariff raw materials, it could make a difference of many millions in Canadian sales abroad.

One thing that will be hit and hit hard is the export of Canadian manufactured goods. There is no argument about this. It has already been agreed at Brussels that manufactured goods will be subject to a European common tariff that in some cases runs up to twenty-five percent. Another group of Canadian exports that will certainly be doomed is farm produce other than wheat. Flour, coarse grains, cheese, apples, canned salmon — the

list is very long and the total sum involved is very considerable. Moreover, almost all these farm products and the manufactured goods as well now enjoy not only free entry into the British market but also the protection of imperial preference — a British tariff averaging about ten percent that is levied against competing goods from outside the Commonwealth. In many cases it is only the British preference that enables Canadian goods to compete. If they now lose the British preference they would lose the market anyway, even without the barrier of a whopping European tariff against them.

Until the terms of entry are more clearly defined it's impossible to say just how much Canada would lose in exports to Britain, but it would certainly be a lot. Almost half our present exports to Britain are protected by the Commonwealth preference. How many could survive without it is a matter of guesswork but we shall certainly be lucky if we lose no more than two hundred million dollars' worth of existing export sales, and it could be twice that much. Even in an affluent society this is a lot of money. Why then do the British refuse to recognize it as a vital or even an important Canadian interest?

Because these are not export industries, that’s why. The total is large but the individual items are small—apples, four million dollars, frozen cod, one million, fancy meats and edible offal one and a half million, inedible tallow three and a half million, and so on. Britain buys practically all the cheese that Canada sells abroad. But eightyfive percent of the cheese we make is sold at home. Canadian exports of tobacco to Britain will certainly be wiped out but they are less than a fifth of Canada’s tobacco output.

Canadians cannot honestly pretend that loss of these sales will wreck any Canadian industry. What they can argue, and what a highly condensed country like Britain has some difficulty realizing, is that ruin is lacing many a small enterprise which may often he an important employer in a Canadian community or even region.

There is a match-splint factory in Pembroke, Ontario, which produces only about a million dollars' worth each year but sells its entire output to Britain. The same is true of a hardwood flooring factory in Fredericton. New' Brunswick. In dozens of small towns across the country small companies arc employing small staffs at work that depends on the Commonwealth preference in the British market. If that preference is taken away it’s an open question how many if any of them can stay in business. And though no one of them would amount to so much as a decimal point in any table of Canadian exports each is a major factor in the economy of its own community.

Any Canadian government in any circumstances would be in honor bound to do all it could for these Canadian producers. For a minority government that got four thousand fewer votes than its principal opposition and that therefore cannot afford to alienate anybody at all. the obligation is even more pressing.

With the Diefenbaker government there is also a third factor. One of its major pledges has always been expansion of Commonwealth trade and its method of fulfilling this pledge has been exhortation. Canadian manufacturers have been urged, sometimes individually and intensively, to take advantage of the Commonwealth preference and develop the British market. Quite a few' have done so. Removal of the British preference would be a blow—in some cases a fatal blow—to the very men who have been most willing to heed the Diefenbaker government's advice.

So it's easy for any Canadian to understand why the government has fought with the bitterness of desperation against the British decision to enter the European Common Market and dismantle the Commonwealth preference system. But it should be equally easy to understand why the British think this is none of their business and a trivial matter in any case.

To Britain the decision to join Europe has been a Herculean effort of will. Far more than economic issues are involved. What’s developing is nothing less than a grand alliance of Western Europe, the burying of ancient hatchets, the pooling of great resources and skills, the creation of a giant new community such as the world has never seen before. To join that community means for Britain “the end of a thousand years of history," as Hugh Gaitskell said in a speech last month. It goes against all the insular instincts of this very insular island. It is rousing such an emotional crisis in the British people that the government may never be able to execute its decision and Britain may in the end stay out. And whether she stays out or goes in. the question is recognized as the greatest that ever faced the nation in peacetime — greater indeed than many a war of long ago.

At this moment of grave urgency, this turning point in a proud nation's history, the British are not only unimpressed but exasperated when Canadians rush out crying. “Stop! You're forgetting our match-splint factory in Pembroke, Ontario."

Even the most patriotic Canadian must admit there is a certain lack of proportion here. And even the most optimistic Canadian producer must see that if the Macmillan government's battle is lost, it won't be for

want of this particular horseshoe nail. The prevailing opinion in London is still that Britain will go in. Commonwealth opposition seems to have had a negative effect according to the most recent opinion poll—a current of approval has replaced the previous surge of hostility, perhaps because Britons w ere annoyed to see all these colonials lined up against the mother country. But regardless of what the average citizen thinks the Macmillan government has firmly decided to go ahead

and will probably execute that decision before the next election.

What this will mean for Canada nobody can tell for sure. It will certainly mean the loss of some protected exports, in amounts that might run into hundreds of millions. It will probably mean the eventual growth of other healthier exports as demand rises in the great new markets of a united Europe. But in any case, all Canada can do is make the best of it. ★