WHAT THE COMMON MARKET MEANS TO CANADA

LESLIE F. HANNON February 24 1962

WHAT THE COMMON MARKET MEANS TO CANADA

LESLIE F. HANNON February 24 1962

WHAT THE COMMON MARKET MEANS TO CANADA

LESLIE F. HANNON

WHEN BRITAIN JOINS the European Common Market within the next twelve months — few people here now think there’s any “if” about it — what will this mean to Canada? Will this radical decision by the motherland of the Commonwealth wreck our economy (as the bitterest critics claim) or will it usher in a greater prosperity and security for the free world, in which Canada will fully share (as the most enthusiastic boosters believe)?

In the election year 1962 no questions will be asked more often, and none will draw more vehement and contradictory answers.

The Diefenbaker government entered its crucial year maintaining that the British move was a dire threat to Canada and possibly a fatal blow' to the Commonwealth. The government was supported by the Canadian Exporters’ Association — past-president R. D. L. Kinsman predicted Canada would lose forty percent of its billion-dollar-a-year market in Britain. On the other hand, the Macmillan government here, and the opposition parties in Canada, hail the move as a giant step toward the glittering promise of the Atlantic economic community. Liberal leader Lester Pearson sees this as “the hope of the future” for the western alliance. Dr. H. H. Hannam. president of the Canadian Federation of Agriculture, counsels that we should help, not hinder, Britain to enter ECM.

With such conflicting views and prophecies as these flung at them almost daily, it's no wonder most Canadians are so confused. And the so-called experts aren’t much better off. The Financial Post said recently: “It is only a handful of people in all Canada who possess any sophisticated understanding of what could flow from this involved negotiation. It is doubtful if even half a dozen have any sound suggestions or firm ideas about what stance Canada should take.” An official of the executive commission of the Common Market admitted to me privately that he was certain no one man — not even the brilliant German Professor Walter Hallstein who heads the com-

mission — understood ail its ramifications.

The core of the confusion for Canadians lies in the fact that, with the British negotiations still in the early stages, the vjews of both the doomsters and the boosters are solidly founded. Undeniably, the short-run effect will be bad for some Canadian exports, notably manufactured goods. Just as undeniably, the longrun effect will be good for the major Canadian exports, for which expanding Europe will be an expanding market. But until the details of the British entry are hammered out, product by product, nobody can say exactly which exports will suffer or gain by how much — all is speculation.

SO FAR, IT’S BEEN GOOD FOR THEM...

There's no guesswork, though, in assessing what the Common Market has already achieved for its six founder members — France, West Germany, Italy, Belgium, Holland and Luxembourg. During the past few months I have visited most of their capitals and talked with key men and women — in and out of government — who are trying to speed the unifying process beyond its already astonishing gains. In less than five years since the Treaty of Rome was signed, industrial production in the Six has increased by a quarter. Trade between the member countries is up by one half, foreign investment has soared by $600 millions, and the ECM currency reserve stands at $16 billions. These 170 million people now conduct a quarter of all world trade with only the first phase óf integration completed — they plan to remove all internal trading barriers by December 31, 1969. Their cost of living has risen since 1957, but only half as fast as Britain's. There arc a few unemployment sore spots — southern Italy is one — but broadly across the Six it's capable labor that’s scarce, not jobs.

I glimpsed what this added up to in human terms in a conversation with a schoolteacher's wife in a Paris café. She w'as thirty-eight, and her only child was now an apprentice engineer with the company that makes the Caravelle jets. She worked part-time in high-class stores,

switching jobs frequently for variety’s sake. They’d never been better off, she said immediately. With three pay cheques they could afford a nice flat in Neuilly and a Volkswagen. The shops were crammed with quality goods, now moving freely across the borders, and she had Italian shoes, and Belgian lace in blouses and table settings; in the larder were Dutch cheeses and liqueurs and German spiced meats.

father to my surprise, she went on to tell me that the Common Market (she used the term “Euromart”) had brought much more than material progress. She and her husband, she said, both felt that Europe after its terrible history of wars and hatreds was at long last entering some kind of new era. She felt an air of excitement, of confidence in the future — something that had seemed impossible in the dismal war years of her late teens. I reminded her of the notably insecure state of French politics and she answered cheerfully that she was talking of something above national politics, of Europe as a whole.

This feeling, abstract as it is, is palpable to the visitor — “exhilarating” describes my own reaction. All the Common Market capitals report the biggest-spending Christmas ever — a Brussels store was cleaned out of powered kiddies’ racing cars at $350 each. When the figures are finally totted up, they're sure to show that 1961 was the biggest trading year in western European history.

...AND ALMOST AS GOOD FOR US

Canada is already profiting by this prosperity. Our exports to the six “United States of Europe” rose thirty-nine percent between 1959 and I960 — from $314 millions to $436 millions — and early figures indicate another massive increase for 1961. Those exports (wheat was the largest single item) are already successfully hurdling the ECM tariffs which, bv the way, arc generally speaking lower than previous tariffs. The common tariff levels are computed by, first, taking the average of the national customs duties in force in the six countries on January I, 1957. This

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Expensive new bungalows offer a “Canadian kitchen.” To British wives, this means “dream kitchen”

figure was 9.1 percent. After making some cuts as a concession to GATT’s desire to liberalize world trade, the ECM average tariff now amounts to 7.4 percent. The common tariff is thus lower, for instance, than Britain’s present average tariff against continental exports and far lower than Canada’s average tariff against foreign imports.

Those prophets who say the addition of fifty-two million Britons to the Common Market — and the additions of Denmark, Norway, Ireland and others later — will turn out to be a good thing for Canada, are further convinced by the knowledge that all of these European countries still have a long, long way to go before they catch up to the general standard of living in North America. Consumer spending in the Six — something over $100 billion a year — is still running at less than half the U. S. rate alone. Though they're difficult to compare accurately, wage rates in Belgium stand at only about one third the Canadian equivalent. Germany still has only about sixty washing machines per 1,000 population against the American rate of 250.

The Europeans naturally aren't satisfied with this picture — far from it. As thenprosperity grows, they’ll be demanding more and more of the world’s goods, to eat, to wear, to use, and just to enjoy. This means bigger markets for the raw materials that are Canada’s chief exports, and it also means that efficient and adaptable Canadian producers stand to benefit from this tremendous demand. This is the long-run view.

In the short run, it’s equally obvious we’ll take some knocks. Canadian goods are now mostly entering Britain duty-free while European products are paying tariffs that run from the nominal up to thirtyfive percent. When Britain is behind the ECM tariff wall, and when all internal barriers are down between the members, it will be European products that come into Britain free while the Canadian product will eventually have to pay duty. This is what has been dubbed ominously, and in advance, as “reverse preference.”

What this could do to Canada’s exports of wheat to Britain, for instance, is a major worry. France already grows more wheat than she can sell easily, and expects to be growing even more if she eventually has to repatriate European farmers from Algeria. The ECM tariff on wheat reflects this situation — it’s planned to level out eventually at twenty percent. On the face of it, then, after Britain joins she will be admitting French wheat free and charging twenty percent against Canadian.

Following the same line of simple reasoning, some of our other large exports to Britain — pulp and paper, aluminum, steel and lumber — would both lose their preferential free entry and pay the common tariff expected to work out around ten percent.

Some other items that make up only a fraction of our total sales to Britain are nonetheless very important to individual Canadian industries. Canned salmon is an example. British Columbia salmon now enters Britain duty-free, and non-Commonwealth suppliers must pay a five percent tariff. With Britain inside the Common Market, this five percent preference in Canada’s favor would presumably be replaced by a twenty percent duty against our fish. This could spell disaster in an average year for some of our canneries.

There are. of course, many Canadian products that would not be affected by the British entry. Raw materials are needed

in the Common Market — now and in the future — as the basis of its manufacturing prosperity. Our iron ore. copper, nickel and so on — and. for example, Australia's wool — would continue to flow in free of duty, and welcomely. But, generally speaking, our producers of manufactured goods will feel the rub unless they can offer products of high quality or advanced de-

sign that can compete against the more routine goods from lower-wage countries.

The Canadian electric stove — in fact, all Canadian kitchen equipment — provides a good talking point in this field. New expensive bungalows here, in the $12,000to $15,000-class, in a country where $60 a week is a high wage in manufacturing, often advertise a "Canadian

kitchen.” To British housewives, the w'ords are roughly translatable into “dream kitchen.” Dream is the right word because, for the great majority, the gleaming Canadian units are sky-high in price. Even Canadian residents here are puzzled that the basic items are so expensive. In the bigger appliance supermarts around Toronto a firstclass electric stove can be bought for

around $175 cash or terms; the same Canadian stove here costs about $350. A topgrade English stove costs less than $200. Shipping, of course, costs money and there are other burdens the imported product must carry, but the harsh fact is that — tariff or no tariff — we can’t make much headway in Europe at those prices.

The British have declared, and repeated over and over with increasing weariness, that they will not sign the Treaty of Rome unless they can protect the vital interests of the Commonwealth trading partners. Duncan Sandys, the New Zealand-born Secretary of State for Commonwealth Relations, recently stated that he would resign before he would be party to any act of Britain’s that would imperil the Commonwealth. The sincerity of the British is beyond doubt; but what do they consider vital?

When I was in the Common Market capitals 1 usually put that question to officials. Without exception they would mention New Zealand’s dairy and meat trade. It’s the perfect example. Little New Zealand, so far away, sells fifty-six percent of her exports to Britain and buys forty-seven percent of her imports from Britain. Canada, by comparison, depends on Britain for only 17.1 percent of its export market and buys only 10.7 of its imports here. “We really must look after the New Zealanders,” says a senior British diplomat, “or they’d be ruined.”

There are other factors, too, outside the percentages. New Zealand’s main products happen to be those in heaviest supply in the mainly temperate farming areas of the Common Market, and New Zealand hasn’t any other solid money-earners to fall back on. Also, there is a psychological factor working in her favor — in Britain and on the continent there’s a steady, warm regard for the New Zealanders’ achievement in becoming, from so isolated a position, the world’s most efficient agricultural producers and exporters per head of population. It may well turn out that, on the ECM side of the table at the Brussels negotiations, there’ll be an avuncular act of minor self-sacrifice and a corner of the tariff curtain will be hiked up to let the New Zealanders in.

Canadians generally would applaud this, but such a British success would leave little good will to be spread over Canada’s many affected products. Also, it’s obvious to me that in the minds of the responsible officials in Britain and on the continent, Canada simply doesn't appear to be facing

really serious problems on the international trading front. I was told bluntly several times that Canada was squalling before it was hurt.

Our hard wheat is much preferred over the soft French variety by British bakeries and they’ll pay higher prices, if they have to, to get it. Our steadily increasing hardwheat sales to the present Common Market, over the tariff wall, are underlined. What about our pulp and paper market in Britain — worth $108 million in 1960? “No producers of forest products in the Six,” says the London Daily Telegraph, “are in the position to move into the British market at the expense of the Canadians.”

A French official connected with the Common Market executive said to me: “You Canadians are great worriers. Surely anybody considering the present balance of power in the world can see that we must find acceptable terms for Britain that will keep the multilingual, multicolored Commonwealth prosperous and secure.” But it can be taken for granted that this basic sympathy for Commonwealth problems will stop far short of protecting Canadian industries from European competition. The kind of protectionism that currently succors Canadian industry is exactly what the Common Market was set up to erase.

Jean Monnet, the former French finance adviser who is now president of the Action Committee for the United States of Europe, put it to me bluntly in his Paris headquarters: "If your manufacturers can only exist under protected conditions, they would have no place in the Common Market.”

All this adds up to an embarrassing dilemma for the Canadian government. It's mainly a political dilemma that explains, according to some observers, Canada’s loud and hostile protests against Britain’s decision. Any Canadian government, trying to make a deal with a Common Market that includes the British, will face this painful decision: it must choose between the interests of the export industries that keep us solvent as a nation, and the protected manufacturing industries that make most of our consumer goods and employ the great majority of our industrial workers. This situation is little known or understood over here.

It’s almost an affectionate commonplace in the Dominions to regard Britain, where history and tradition are so honored, as stodgy and unchanging. Now some of the British are applying these same adjectives

to ahe dominions. They see us as trying to perpetuate a trading system set up thirty years ago in vastly different conditions. They, on the other hand, are leaping bravely into the most radical change of the century. The average Briton has onlv the faintest vision of what his government is getting him into, and not any one of the many Whitehall ministries in-. . volved has bothered (or dared) to issue any detailed estimates. But just about everyone I’ve talked to here on the subject feels that something must be done.

Over the past eight years, British sales to western Europe have increased by five percent while her Commonwealth sales have dropped by six percent. British economists see this as a natural consequence of the Dominions’ efforts to develop their ow n manufacturing industries and they expect it to continue and grow'. Where, then, could Britain find an expanding market for her industrial goods?

The British decided they had no choice. Their rate of productive growth was lagging far behind western Europe’s. British workers w'ere w'orking longer hours and

taking shorter holidays than their European cousins yet their wages were rising more slowly. The deficit in Britain's overseas trade balance touched a billion dollars in I960, and the pound sterling fluctuated wildly as the government tried one specific after another—currently, they’re trying the shock treatment of a wage freeze. The British voter has long since taken full employment and cradle-to-grave welfare for granted, and no government could survive if it failed to take every feasible action to maintain prosperity.

One day late last fall, the chief clerk of an insurance office called me up. "The nerve of you Canadians." he spluttered. “You want us to keep up the Imperial Preference so that you can ship all your wheat and stuff in here free, but it’s a different story with our exports to you, hey? You're so proud of your connections with the Yanks—all right, go ask them to buy your exports. We’re joining Europe, and we should have done it long ago." He simmered down anti muttered an apology for .icing so vehement. “But it does seem to us that Commonwealth co-operation is becoming a one-way journey with the British taxpayer always paying the fare.”

The same general view was put with more weight by Sir Norman Kipping, the director-general of the Federation of British Industries — the equivalent of our national manufacturers’ association. “You must forgive the average British businessman,” he said icily, “if he asks why Canadians should be so sensitive about keeping the British market open to Canadian goods when they are proposing legislation that will further curtail British opportunities in

the Canadian market.” Fie was reierring to our hiking of the tariff against British woollens, the plan to alter the tariff' (unfavorably) on British cars, and the closing of the Canadian coastal trade to British ships.

Sir Norman also hammered home what is for many here the fiat answer to Ottawa's agonized cries — last year, as for years past. Britons have bought $5 worth of Canadian goods for every $3 worth of British goods sold in Canada.

With variations, these facts and statements are considered here as answer enough to all the protesting Dominions.

Late last July, Prime Minister Harold Macmillan gave a crowded House of Commons the not-unexpected news that Britain was going through the door of the Common Market that had been left ajar for her since 1957. He promised the voters only a kind of peacetime "tears and sweat.” The effect on British life, he suggested, would be like a cold shower. It offered the hope of electrifying the British economy, bringing it out of the doldrums and into that better, richer life that politicians always see just around the corner.

Few Canadians it seems, now remember

their own prime minister’s promise to the U. K. back in 1957; one of the first major pronouncements of the Diefenbaker government was that fifteen percent of Canada's imports were to be switched from the U. S. to the LL K. Those that do remember it. don't seem to evaluate correctly the letdown (if not indignation) in high British circles when the statement turned out to be as hollow’ as an Easter egg.

It would be too much to say that the 1957 Canadian plan caused Britain to refuse to join the Common Market at the outset — when the special terms she’s now

fighting for would have been much easier to obtain. But, nevertheless, London took Ottawa at its word and, soon after, suggested Britain and Canada should join in an industrial free trade area—a kind of miniature common market for the two of us. It happened to be Viscount Amory, the present British High Commissioner in Canada (he was then Derick Hcathcoat Amory, slated to become Chancellor of the Exchequer), who brought the glad tidings to Ottawa.

The Canadian government’s response was one of shocked horror. Free trade with

anybody, Britain or anyone else, was something they shuddered to contemplate. Relations between Ottawa and London have never been the same since.

Another set of misunderstandings developed on the Canadian side. Although Britain’s intention to join the Common Market had been clearly evident for more than a year, Canada’s high commissioner in London, George Drew, did not believe it. As late as last July he was still telling friends to pay no attention to newspaper stories; no matter what the misinformed press might think. Britain was not going to enter

the Common Market. So when, on July 31, Macmillan announced the formal decision to seek full membership, it musj have been a real shock to the Canadian ministers. This may account for the mystification of a certain Canadian official in London who told me, when the Ottawa-London cable was crammed with veiled hostility: “They don’t seem to understand, or want to understand, just what’s going on here.” Certainly, viewed from this end, Canadian official behavior on the Common Market question has been dismayingly unrealistic.

Yet another major centre of confusion

lies in ignorance about the grand political strategy that, in turn, provides a high-voltage undercurrent to the Common Market. This is, I believe, of deeper long-run significance than the relatively simple goal of lining everyone’s pockets. Yet in Canadian statements available here, there’s practically no reference to it and one must assume the average Canadian has only the dimmest idea of what’s going on behind the thunder and scream of the machine tools.

The Treaty of Rome does not spell out any terms for the political unity of Europe, the Common Market statesmen edge toward the subject cagily, and Whitehall says soothingly that parliament could pull Britain out of the ECM if the federalists make the pace too hot. But, in the capitals of western Europe—and particularly in Brussels, where the Common Market executive resides—1 was left in no doubt that nothing less than a United States of Europe, politically as well as economically, is the goal. Jean Monnet, of France, believes that the Common Market will break up eventually unless political union follows the industrial unity.

It is common, but unverified, gossip across Europe that the United States gave Britain the advice early last year to get into Europe as fast as possible. Why? The answer that’s offered is the voting card in the general assembly of the United Nations. The uncommitted nations, if they act together, now rule the roost at the U.N. But the Common Market, renamed the United States of Europe—and including eventually probably every country from Norway’s North Cape to Greece’s Cape Matapan— with interlocking relationships with North and South America, with Africa and India, and with the Pacific democracies, could start to shape up as the world’s ruling power bloc.

Here are three shortened quotes from three men that illumine this view: Senator J. W. Fulbright — “The single most encouraging trend in recent years toward the strengthening of the free world is the movement toward European unification.” British Lord Privy Seal Edward Heath—“The whole issue is greater than tariffs and trade . . . the Community is going to have a great and growing influence on political affairs.” Lord Gladwyn—“We should be creating a new focus of economic power, a great lamp before whose rays the cancer of the cold war might one day shrivel and die.”

Prime Minister Macmillan’s words of last summer are also worth repeating: “I believe that our right place is in the vanguard of the movement toward the greater unity of the free world and we can lead better from within than from without.”

Early in the New Year here, it was the general opinion that the negotiations for British entry to the Common Market would continue their quiet and dignified course until about midsummer of 1962, when what is called “the crunch” would come. This will be the moment when the concessions on both sides have been matched up. Not until then, officially, will the Canadian public get a clear look at the future pattern of trade with Europe.

But some things are obvious already. Canada will not become an associate member of the Common Market—this relationship is reserved for European countries like Greece and likely Austria and Switzerland. Canada cannot get the special kind of treatment France originally insisted on for her “commonwealth”—that’s only for undeveloped countries. Canada must adapt to the idea that Britain is going to join the European club and that Imperial Preference is just a hang-over from the preatomic age.

We must, above all, get it into our skulls that, mature nation that we are, nobody is going to run interference for us any longer. *