SPECIAL REPORT

Our risky place in the grand design for the Atlantic

BRUCE HUTCHISON IN OTTAWA AND WASHINGTON

December 16 1961
SPECIAL REPORT

Our risky place in the grand design for the Atlantic

BRUCE HUTCHISON IN OTTAWA AND WASHINGTON

December 16 1961

Our risky place in the grand design for the Atlantic

SPECIAL REPORT

BRUCE HUTCHISON IN OTTAWA AND WASHINGTON

For reasons largely beyond its control, and certainly beyond its present comprehension, Canada is hurtling toward the hardest decisions, outside war itself, in the nation’s modern experience. Whatever emerges from the tidal wave of events now in flow, one thing is already sure: our future in the North American economy, in the Commonwealth and in the world will soon be changed fundamentally and irrevocably for better or worse.

This many-sided process revolves around four centres; it contains three dimensions and is moved by two historical forces. The centres are Ottawa, Washington, London and Brussels, capital of the Common Market. The dimensions are economic, political and military. The historic forces are the advance of communism and the will of free men to meet it.

In all these mighty affairs Canada can be an influential participant, a passive spectator, a momentary obstacle or an isolated victim, depending on its own choice. But up to now no choice has been made. The new facts of our national life have not been grasped. The public debate concerning them has become the most confused since the Tower of Babel. Yet within a year Canada must face its shaking moment of truth.

The immediate fact that Canadians must grasp is President Kennedy’s resolve to launch the largest economicadventure in American history, far larger in its world-wide effects than even Franklin Roosevelt's NewDeal. During this century at least, only Woodrow Wilson's vain crusade for the League of Nations offers any parallel to Mr. Kennedy’s impending battle for nothing less than a revolution in his nation’s commercial policy and, through it, a basic shift in the balance of world pow'er.

The heir of Wilson could end in another heroic tragedy, or he could propel the free nations into a new epoch of wealth, unity and strength. Whether he succeeds or fails, no nation will feel the consequences more deeply than his closest neighbor. Canada.

Months ago, while his strategy of force was reeling to fiasco in Cuba and while Berlin was starting to heat up, a young president of iron nerves and neat business-machine mind was quietly devising a strategy of peace in three separate advances.

First he encouraged, where his predecessor had feared. Britain’s entry into the European Common Market, even though this move was calculated in the short run to damage the United States’ sales in Europe, a third of its exports. Ele accepted the economic unification of Europe as desirable, inevitable and the logical outcome of the Marshall Plan, another daring American intervention which had revived the devastated continent after the war.

Second, he undertook to use immediately the presidential authority to reduce various American tariffs by 20 percent over four years, an authority inherited from but left in abeyance by his predecessor and scheduled to lapse next June. The president's negotiators believe, after their secret bargaining of

many months, that by this year’s end they will sign a substantial tariff-reducing deal with the Common Market.

All the resulting trade benefits in the European and United States markets will apply to the goods of every nationmember of GATT, and while they cannot be large in total they may prove valuable to Canada as they affect some of our important exports. The true significance of the deal cannot be reckoned, however, in trade figures, no matter how large. For the president the deal is supremely important not in its specific contents but in its direction.

Deeds instead of words

By reducing American tariffs now, even if the reduction is small, he will persuade the Common Market to reduce its external tariff by about 20 percent on a variety of products. This in itself would be highly important since the Common Market's external tariff, at its proposed level, would gravely injure both American and Canadian exports to Britain and Europe. More important. the president would prove to Europe by deeds instead of words that the United States seriously intends to reverse the protectionist system of more than a century’s standing and thus begin to construct an economic bridge across the Atlantic.

His third decision, taken against the solemn warning of trusted lieutenants in the executive and the legislature, is to carry his fight for a new commercial policy into the Congress right away. His decision could be canceled at the eleventh hour, but at this writing it appears firm.

The president’s new commercial policy is not what many excited headline writers suppose. It is not, to begin with, an attempt to take the United States into the Common Market. Neither the United States nor Canada could accept the vague political commitments of the# Rome Treaty. Neither could they accept the Common Market’s external tariff for themselves.

But wdthout directly joining the economic community of Britain and Europe, the American administration proposes to erect an economic community embracing the entire free world by a steady, phased and reciprocal reduction in tariffs. As Douglas Dillon, secretary of the treasury, puts it, the United States must "revolutionize” its trade laws with the "eventual elimination” of all industrial tariffs as its goal.

To this end Mr. Kennedy intends to ask the Congress for powers of tariff negotiation far broader than any previously granted to an American president, among them the right to reduce tariffs across the board, in massive packages, where the present law forces him to swap concessions with foreign states on a narrow basis, product by product.

Only such radical surgery, he believes, can possibly assure adequate economic growth in the United States and the free world, the stated target being an increase in production and consumption of 50 percent by 1970. Only an Atlantic bridge can forestall a self-centred, protectionist trading bloc-

in Europe, its conflict with a western hemispheric bloc and an economic quarrel which must split the free world, probably wreck NATO and confirm precisely the communists’ confident prognosis.

Thus, while temporarily maintaining the balance of terror with his country's arms, Mr. Kennedy seeks to preserve peace permanently by uniting and enriching all the noncommunist peoples through an ever-increasing flow of goods between them.

The revolution, as Mr. Dillon calls it. will require time, many years at a minimum, but as the president says, “My judgment is that the time to begin is now.” He is taking the tide at the flood when he still has the chance to direct it, when the unification of Europe alone will reshape the world’s trading patterns and, ill-managed without American intervention, could demoralize them.

The legislation the government has prepared for the Congress is secret and complicated in detail, but its basic principles are known and simple. In the first place, the United States has no intention of making any discriminatory tariff reductions favoring one nation against another. Every reduction must apply to all signatories of GATT. Otherwise, by making special concessions to Europe, for example, or Canada, the United States would fatally injure and quarrel with South America, Africa, Asia and, above all, Japan, the primary base of American power in the Pacific. The core of the grand design is the North Atlantic region because it controls most of the world’s industry and trade, but this ancient community must not be hived off from the rest of the free world.

On the contrary, the Atlantic nations must use part of their increased wealth to aid and attract the poorer uncommitted nations, not only with large gifts to them but with larger imports from them.

Since the president admits that tariff reductions and fiercer foreign competition must “hurt” some American industries, he is prepared to cushion the shock of adjustment by temporary subsidies where real need is proved, by tax concessions, and by retraining workers in new skills. While the American economy undergoes a shift from weak to strong industry these cushions are desirable economically. Also, they are imperative politically.

Nevertheless, the whole program is based on the assumption that fierce foreign competition not only is unavoidable but is essential to cure or eliminate the soft spots of the American economy and purge the free enterprise system of its vices. Competition, in fact, is accepted by the American government, as by the British and European governments, as the only remedy for the continuing cost spiral, for inflation and for economic stagnation where years of pious exhortation have failed.

Another principle of the president’s program would lift agriculture out of the tariff-reducing process and deal with it as a unique and refractory problem that still baffles the Common Market.

The farmer in every nation is so firmly protected by tariffs or subsidies and is so powerful politically that his surplus products must be managed on a global basis by international commodity agreements guaranteeing him ample markets at reasonable prices. Any surpluses that could not be absorbed in normal trade would be given or lent to the hungry peoples, not by the present haphazard and often disruptive methods, but again by international agreement among the surplus producers like Canada.

It is easy for the Kennedy government to proclaim these revolutionary objectives but it will be hard, perhaps impossible, to put them through a Congress now increasingly protectionist as it fears Europe’s increasing competition.

Some of the president’s chief lieutenants on Capitol Hill told me candidly that they could not guarantee to pass his legislation next year and needed more time to wear down the opposition. Like some of his advisers in the White House, they think that if he “goes for broke” now, he may go very broke indeed.

The president’s big gamble

Should he suffer such a shattering defeat he can count some compensating gains. He will have educated the nation in his purposes and prepared his political base for another attack in 1963. Whatever his prospect may be, he must hazard his prestige and leadership, perhaps his re-election, on a momentous gamble. As one of his closest friends in the Congress put it to me, “the boss will have to lay his career on the line.”

The United States thus approaches a Homeric struggle on clear lines of policy. Canada approaches the same sort of struggle, but on lines so unclear at the moment that most of our politicians march toward next year’s election in utter disarray. Time will not wait long for them. They must soon grapple with a brand-new environment cutting clean through all their cosy calculations, in any case the official calculations were wrong from the start.

The Canadian government did not believe until last midsummer that Britain would really join the Common Market and dismantle the Commonwealth preference system on which Canada had built a huge British market. When Duncan Sandys came to Ottawa and announced that the British government would quickly open negotiations with the European Six, then, as a Canadian participant in this bleak confrontation described it, “the roof fell in.”

There followed a reappraisal of peculiar agony, some of the worst moments in our political history.

Canada warned Britain publicly and privately against its folly, these protests reaching their climax at the unhappy Accra conference. An angry British press lectured Mr. Diefenbaker and denounced the behavior of Mr. Drew. The quarrel between Ottawa and London became the most bitter since Mackenzie King shot down Lord Halifax’s Titan theory. Mr. Howard Green grimly coneluded that Britain was risking its leadership of the Commonwealth and. judging from his speeches, suspected that the Commonwealth’s ultimate survival was at stake.

REPORT

OTTAWA AND WASHINGTON

Suddenly, in late November, the harsh climate seemed to moderate, presumably because Ottawa had heard at last the hopeful news from Washington. The latest revealing speeches of Messrs. Fleming and Hees indicated that the government was reluctantly accepting the inevitable, trying to make the best of it, and hoping that it wouldn’t be too bad after all provided the United States led the way into a new trading system and actually opened its markets wider to Canadian goods.

Unless all the plans of London and Brussels collapse at the last minute, the inevitable is Britain’s early economic union with Europe, the destruction of the preference system, slow or fast and, if Mr. Kennedy succeeds, the transformation of world trade on which Canada largely lives.

For Canada there is much more to it than that. However it goes, the peaceful revolution now in flow must drastically change our economic policies under the present or some other government. The status quo, even if it were satisfactory, cannot be preserved. Britain’s orientation toward Europe and the United States’ orientation toward the world must compel Canada to revise

the assumptions of the last century.

Apparently the impact of these developments on Canada is better understood. or at any rate more frankly admitted. in Washington than in Ottawa.

No free ride for Canada

"You Canadians.” a major architect of American policy warned me. "needn't imagine that you'll get the benefits of our tariff reductions, or Europe’s, without contributing plenty of your own. There’ll be no free riders on this bandwagon. And don't imagine either that the United States. Britain, the Common Market and Japan can't put the heat on Canada if they have to. Just look a few years ahead, though, and you’ll see that any temporary losses of British preferences would be repaid ten times over by new markets for your goods all over the world. Where does Canada stand?”

Of course, ! couldn’t tell him because at this point no one knows where Canada stands. Assuredly, however, it cannot stand still much longer. But after an interlude of bewilderment and doubtless a convulsion of politics, it will realize that it has three broad options, only three.

It can try to isolate itself from events, raise its tariffs and consequently its prices, restrict its imports, thus precipitating its foreign customers’ retaliation,

and become “the Outer One” of the North Atlantic family—an unthinkable option and counsel of despair. Or. compensating itself for a temporary loss of British markets, it can seek a free trade deal with the United States and thereby commit itself totally to the American orbit, economically and politically—an option probably impossible in politics even if it were sound in policy.

Or Canada can recognize the new facts of life, climb on the AmericanEuropean bandwagon, and revise its tariffs gradually downward as part of a world-wide bargain.

In London and Washington this appears to be the only practical option open to us. but obviously Ottawa has yet to face it and may postpone it until after the next election while waiting to see how the cat jumps in Washington.

If Mr. Kennedy’s dream fails, the United States might revert to a policy of higher tariffs, damaging everybody, especially Canada. If Britain enters the Common Market it will break one of the major props of the Canadian economy, sustained so far by the preference system. F'ven if Britain fails to join the European Six. the status quo must collapse. For in that case a desperate Britain. losing its expected markets in Europe, will insist on wide-open access to Commonwealth markets like Canada. And if that proves impossible, which Britain anticipates, it will turn elsewhere

with wrenching effects on the Commonwealth.

The Commonwealth is in for a pretty wrenching time anyway, as that disillusioned imperialist. Mr. Green, evidently sees without seeing how the present strains can be eased. When he said that "the main aim of the Common Market is not economic but to build up a third world force, in effect a United States of Europe.” and that this force might largely determine British foreign policy, he had hit on one half of the truth.

The greatest British decision in centuries is assuredly as much political as economic. Britain recognizes that its future lies primarily in a united Europe which it hopes to lead later on. It also hopes to retain its leadership of a Commonwealth moving with it closer to Europe, and strengthened by Britain’s prosperity.

The other half of the historic equation. if it can be completed, the only hopeful alternative for Canada and the Commonwealth, is a world-wide economic community—the Kennedy dream. Its success could rekindle the free world, including the Commonwealth, solve Canada’s crisis, and for the first time create an overwhelming power against communism. Its failure could erode the Commonwealth, impoverish Canada, endanger its independence and eventually assure communism’s victory without the explosion of a single bomb. ^