Heck, Harold

English

Archive of European Integration

. ,l I I I ! I l I ! l l l I l I f i I 1 ; I l l J ! j i U.S. competitive response to Common Market preferences has been surprisingly good thus far. Dollar volume continues to mount, and though the overall percentage share has weakened, the loss is less than many anticipated EEC Tariff Walls: ·No Ministep But No High Hurdle Either HAROLD HECK THE HEART of a preferential trading arrangement, be it a common market or a free-trade area, is simply this: the "ins" drop trade barriers among themselves while retaining them against the "outs." This sets the latter to worrying about the survival of market posi-tions in the integrated area. Their best hope is that the trade-creating effects of the arrangement will offset its trade-diverting aspects. Trade creation occurs when wider geographic mar-kets and reduced obstacles to commerce within a given region ( 1) stimulate efficiency through in-creased competition of an acceptable type, ( 2) pro-mote a better allocation of economic resources, ( 3) increase investment opportunities, and ( 4) raise eco-nomic growth. When this happens import demand increases and countries outside the preference area end up supplying more goods to the affected region than formerly. At the same time the added dose · of efficiency streamlines the export industries of the trade-group area, thereby creating more selling op-portunities outside the bloc. Trade diversion, on the other hand, means the simple replacement of one supplier, who can't hurdle tariff walls, by another supplier, who is safely en-sconced inside these walls. This may mean that business is diverted from low-cost outside producers to higher-cost inside producers. For their part out-siders hope and urge that preferential arrangements 47 : f . I ! ; \ •, . I I l remain "outward" rather than "inward" looking: in other words, that the possibility of harm to outsiders is duly considered by the bloc membership and is deliberately avoided. The leading economic union in the postwar period is, of course, the European Economic Community. And the leading outsider is naturally the United States. Until recently the effects of the Common Market on this principal outsider's sales have been hotly debated but highly conjectural. Now, how-ever, statistics are available to provide factual evi-dence of what the exporter's experience actually has been. Before and After . This article contrasts U.S. performance in the EEC market in 1965 ( in most cases the latest year for which figures are available) with that in a base period ( 1958-62 average). This base period covers the five years just prior to the effective "bite" of most EEC preferences. However, it should be recognized that, along with the preferential elimination of tariffs within the Common Market, there has been a steady decline in the use of nontariff trade barriers, with concomitant benefits to outside suppliers as well as those within the market. The outstanding case is the rather complete lifting of quantitative import restric-tions and of rigid import licensing, which had been serious impediments as recently as 1962. The analysis of the U.S. experience is based on import statistics of the Common Market itself. All data are taken from or based on the annual EEC Analytical Tables-Import published by the Statistical Office of the European Communities. Currently Chairman of the Department of International Trade and Transportation at Georgetown University, HAROLD J. HECK sports impressive government as well as academic credentials. He was commercial attache in the U.S. Embassy in Paris from 1957 to 1962, and then director of the International Trade Analysis Division, Department of Commerce. Among his publications: "Foreign Commerce" and "The Most-Favored-Nation Principle." 48 Columbia Journal of World Business EEC imports from the United States during the period were: U.S. Share Year Value($ Million) of EEC Total 1958-62 average ._$3,349.0 12.29 1963 3,395.0 12.47 1964 5,046.7 12.09 1965 5,687.8 11.61 1966 6,021.0 11.22 Of course, an overall statistic showing U.S. partici-pation in a foreign market necessarily clouds the performance of individual industries or products that make up the total. To remedy this deficiency one must, figuratively, put on bifocals. This is done by means of a~ analysis of the 177 groups in the Stan-dard International Trade Classification (SITC). This is the finest detail in which import statistics are reported. Since an across-the-board reduction of trade barriers within a customs union might be expected to result in a rather widespread displacement of out-side suppliers as insiders reap the benefit of their competitive preferences, this analysis is based on group performances relative to those in the base period, regardless of the absolute importance of the individual groups. In each of the 177 SITC groups, some imports were reported by the EEC from the United States in at least one year since 195S. But since many of these are of no significance, those classifications in which imports did not amount to at least $1 million in any year since 1958 were eliminated in order to make the mass of data more manageable. There were 31 of these undersized entries, which left 146 groups with an annual volume of $1 million or more. Not Outpriced Yet A raw count of the groups, regardless of individual importance or size, discloses that in 121 there was an increase in dollar value in 1965 as compared with the base period, while in 23 there was a decrease. In two, the dollar total remained the same. In 70 product groups the U.S. share of total EEC imports ... , I I \ I J I I i l l I I .; j •. : ! ' J .. (i.'1.::Glw; intr.i.-EEC tr.idc') n.ist'. whilt' in 7-! dasst'S it .dipped. Shares remained the same in two. In 69 groups there was an increase in both dollar value and U.S. sl1are, while in only 22 groups was there a decrease in both dollar value and market share. This record is revealing and encouraging. It shows a broad and generally consistent pattern of the com-petitive dynamism of the U.S. economy. It seems to demon11trAte thg,t the U.S. has not priced itself out of world markets-at least not out of the most com-petitive one. It suggests that, given a chance, the American economy responds fairly effectively-though it must be remembered that exporters in 74 groups found themselves supplying less, relatively, than in the base period. As may"have been expected, U.S. business with the EEC is inconsequential in many SITC groups, while it is very important in others. The leading five groups in 1965 accounted for 25% of U.S. exports to the Common Market. The leading ten represented 40% of total exports. The relative performance of these ten is shown in Table 1. The U.S. seems to have held its own, compet-itively, against EEC and/or other suppliers of corn; coal, coke and briquettes; oilseeds; feed for animals; and tobacco. These are items in whose production it has some natural advantages. On the other hand, it appears to have lost ground to EEC and/or other suppliers of nonelectrical machinery and appliances; I of ain'raft: org,.mk l'ht·tnil·ah~ vth\·r ~·kdril\ll nM-chinery and apparatus; an<l cotton. These arc items in which the natural or technological advantages are not so great. While some of these developments may have been due to special circumstances that are un-connected with normal competition-such as a large order in one year instead of another for aircraft-it may be that the majority represent the simple work-ing out of comparative cost and speQialization advan-tages in a changed set of circumsta~pes. A3 such, they may adumbrate logical shifts in the pattern of inter-national trade. In order to narrow down the individual groups to those of consequence, a cutoff point of $10 million each was selected. The 85 groups whose volume was in this range constituted 88% of total imports from the U.S. in 1965. In 43 of these 85 more important groups, United States exporters not only held their own; they took a larger share of the market. The total dollar value of these 43 groups in 1965 was $2,328 million. In the other 42--with a dollar value of $2,655 million -American exporters lost ground, sharewise, but in only nine cases did both dollar value and share decrease. One is led to inquire whether the percentage losses suffered by the United States in the 42 groups were to EEC members themselves. In other words, did the U.S. hand over its shares to those producers that were favored with preferences, or were third parties in-Table 1: Ten Leading Items Imported by EEC from U.S. in 1965 Gain Of' LonJ,rom 1958-62 EEC Import.I Ai,erage in haftl Supplied from u.s,. 196$ (In% of Total EEC Impom) Item, (J Milon) U.S. EEC Corn 379.9 +13.6 +11.6 Machinery and appliances, 283.9 - 1.2 + 4.1 other than electric Coal, coke and briquettes 277.9 + 1.2 - 3.6 Oilseeds 271.1 +11.3 + 1.1 Aircraft 228.4 - 3.8 + 9.0 Organic chemicals 212.8 :_ 2.4 + 2.3 Other electrical machinery 178.1 - 1.6 + 3.0 and apparatus Feed for animals 152.8 +12.1 - 3.4 Tobacco 116.8 + .5 .1 Cotton 110.4 · -15.2 + .2 49 I i l l I I , .. ~. f :" "' ttttstfff I C X tt# I 'St rt¥ t#!f%fr'ft tNtr· »·: dt' ('t'Mt r· , r r , as ·) ·> t't . k t t Columbia Journal of World Business Table 2: Comparative U.S. and EEC Record in Selected Groups, 1965 vs. 1958-62 Import• from U.S. Point Change in Share Product8 1965 U.S. Share EEC Share $Million Duty Range Loss Changel Wheat & meslin, unmilled $73.2 variable -2.2 14.3 Meat, fresh, chilled or frozen 66.5 5-variable -5.4 3.4 Barley, unmilled . 34.2 variable -15.5 23.6 Fruit, fresh, & nuts ( not incl. oil nuts), fresh or dried 28.2 10-15 - .2 3.8 Fruit, preserved, & fruit preparations 44.0 20-25 -4.6 2.4 Vegetable roots & tubers 9.6 20-25 -3.3 6.1 Crude rubber (incl. synthetic & reclaimed) 52.8 5-10 -3.1 13.7 Cotton ll0.4 0-5 -15.2 .2 Synthetic & regenerated ( artificial) fibers 19.1 10-15 -6.2 12.7 I Waste materials from textile fabrics ( incl. rags) 14.6 0-5 -5.8 6.9 r Iron & steel scrap 33.4 0-5 -17.0 18.9 I ' Nonferrous metal scrap 38.4 0-5 -12.2 13.5 ' 1 Petroleum products 64.1 5-10 -2.3 14.4 Animal oils & fats 48.9 5-10 -6.3 4.2 i: Organic chemicals 212.8 10-15 -2.4 2.3 I I Inorganic chemicals: Elements, oxides & halogen salts 24.9 0-5 -10,9 11.7 I Pigments, paints, varnishes & related materials 11.8 10-15 -4.9 7.4 Medicinal & pharmaceutical products 42.2 15-20 -8.2 5.0 ! Plastic materials, regenerated cellulose & artificial resins 88.0 15-20 -9.6 15.9 Chemical materials and products, n.e.s. 80.2 5-10 -6.2 12.8 Leather 12.0 5-10 -3.9 4.5 I Textile yarn & thread 22.1 10-15 -1.3 7.6 f Textile fabrics, woven, other than cotton fabrics 16.0 15-20 - .3 11.3 I Special textile fabrics & related products 12.0 10-15 -4.5 9.2 I Pearls, precious & semiprecious stones 20.7 0-5 - .2 2.5 [ Universals, plates & sheets of iron or steel 13.5 5-10 -5.6 6.1 ' Tubes, pipes & fittings of iron or steel 9.9 10-15 -1.4 4.8 !Copper 136.5 0-5 -4.2 8.5 Power generating machinery, nonelectric ll7.4 10-15 -2.0 1.3 l Agricultural machinery & implements 26.2 10-15 - .9 12.5 I Metalworking machinery 51.8 5-10 -ll.l 9.5 t Textile & leather machinery 31.4 10-15 -1.8 2.7 ! Machines for special industries lll.l 10-15 - .3 4.2 Machinery & appliances, nonelectrical 283.9 10-15 -1.2 4.1 I Telecommunications apparatus 50.1 15-20 -4.0 2.2 I Other electrical machinery & apparatus 178.1 10-15 -1.6 3.0 I Road motor vehicles 80.1 15-20 -3.0 4.4 Aircraft 228.4 10-15 -3.8 9.0 l l Clothing ( except fur clothing) 19.1 15-20 -1.5 .2 I l I' • I Scientific, medical, optical, measuring & controlling instr, I I & apparatus 99.6 10-15 -2.5 1.6 ! Musical instr ., sound recorders & reproducerJ & parts & l accessories 22.8 10-15 -2.3 -6.5 I t Printed matter 14.9 0-5 - .2 .2 t Increase unless otherwise indicated 50 1-i r " I I· L ! I j I ! I I -/ f i SEPTEMBER-OCTOBER 1967 volved? Table 2 indicates the share points lost by the U.S. and picked up by the EEC. In sum, out of the 42 groups listed, the U.S. share loss was fully captured by the EEC in 30 cases. It was partially captured in 11, i.e., EEC suppliers gained, but not so much as U.S. suppliers lost; and the EEC loss was greater than that of the U.S. in one case. Table 3 was developed in order to determine whether there is a noticeable correlation between the ranges of duty and the U.S. position compared to that of the EEC supplier. The data do not suggest any /clear relationship between rates of duty and relative \ferfonnance. For ins.tance, while the U.S. lost ground in 23 groups on which the duty range was 10% through 25%, it also dropped in 16 groups with a duty range below 10%. And though it gained in 22 groups with low rates of duty, it also picked up in 18 product areas where the tariff was high. It even in-creased its share relative to that of the EEC in quite a number of cases in which the duty range was 10-15 percent and above. All of this seems to indicate that the preferences thus far available to them did not materially help EEC producers, and that factors other than the rate of duty are more important in determining the flow of trade. A side observation is that the true casualty in many cases is not the United States so much as other sup-pliers. No attempt was made to determine which countries were the major losers, by product, in the competitive race, but perhaps some research could profitably be slanted in this direction as more statis-tics become available. Overall, the major loser, competitively, appears to have been the EFT A countries as a group. Changes in overall share of the market captur~ by principal suppliers were, from year to year: Changes in Percent of Total EEC Import Market Supplied by Selected Areas and Countries ( compared w,th preceding year) Year EEC EFTA U.S. UlC 1963 +I.41 -.12 -.01 +.23 1964 +1.28 -.58 -.38 -.30 1965 +1.52 -.61 -.48 -.44 1966 +1.00 -.58 -.39 -.14 Such, in brief, are the facts. Let us review eight tentative conclusions based on this and related information. 1. Increased demand by the EEC countries ( due in part to the group's very formation) has generated strong response by U.S. export businesses. The re-sponse was increased sales to the EEC as reflected in its imports. However, part of the increase is trace-able to price increases and to U .S.-government-aided exports. 2. The U.S. competitive position in the EEC (as compared with all suppliers, including those within the EEC) has improved in not one or a few, but in many lines of products. The improvement was in both dollar value and, more surprisingly, in the share of Table 3: U.S. Share Increases or Decreases, According to Duty Ranges ( Figures in table indicate number of SITC groups) 0-5 5-10 10-lS l5-ll0 JIO-llS Variable A-Product Groups in which U.S. Share Decreased ( 42): U.S. share decreased, EEC share increased U.S. share decreased less than that of EEC, but both decreased B-Product Groups in which U.S. Share Increased ( 43): U.S. share increased, EEC share decreased U.S. share increased more than that of EEC U.S. share increased less than that of EEC 8 7. 4b 3 8 3 5 • S percent to variable withiD one poup • In one cue, EEC tbare wu uncbanaecl 14 1 6 1 3 1° 2 9 2 2 • EEC abare WU unchallled 51 2 1 ~: :, r t. .! r I} l I • :, .i i' • • I . I . •• the EEC market captured by some U.S. exporters, although the overall U.S. share of the market has dropped. However, the 1965 results are less encour-aging than the 1964 figures. The U.S. share in 1965 increased in 60 groups over what it was in 1964; it decreased in 105, and it was the same in 12. 3. The U.S. performance reflects good response to competitive opportunity, despite the preferences that EEC members are granting each other by the pro-gn•ssiw t•liminntion of tnriffs nnd other internal bar-riers to trade. With few exceptions, intra-EEC tariffs are only 20$ of what they were in 1957, and by mid-1968 they will be completely eliininated. These pref-erences mean, in many cases, an added competitive hurdle to be overcome by the U.S. and other non-member exporters. On the other .hand, the removal of quantitative restrictions on most products gave U.S. exporters a previously unavailable opportunity to cultivate the EEC's growing market. This was no doubt a factor in the relatively favorable dollar-volume showing by American exporters across the board after 1962. 4. In only a few cases in which the U.S. export position has been captured by EEC suppliers are American investments in the EEC known to have been important. Examples are crude rubber ( which includes synthetic and reclaimed), synthetic and regenerated artificial fibers, and petroleum products. Quite possibly investments and/or licensing in the industries represented by the machinery and fabrics arens of the SITC played an important role in the pil'lurt\ but supporting dlltll are not available. On the other side of the ledger U.S. direct-investment enterprises have proved important outlets for U.S. exports. The Department of Commerce estimates that about 25% of U.S. exports ( one-third of nonagricul-tural exports) go to subsidiaries and affiliates of U.S. firms overseas. Obviously part of the strength of U.S. Columbia Journal of World Business export performance should be attributed to the enlarged flow of its direct investments in the Com-mon Market. 5. It remains to be seen whether the common agricultural policy agreed to by the EEC in 1966 will result in increased output of several products and in the exclusion of U.S. products through the variable import levy. Some of the products affected are so important, in volume, that they could noticeably. influence competitive performance in its entirety. 6. The apparently encouraging U.S. trade picture might change materially in a short time if Common Market membership is enlarged, and particularly if any additional countries having duty-free access to the EEC markets can supply important industrial and agricultural products in one or more categories. 7. Whether this all means that a moderate duty is not an effective trade barrier, or that the vastly enlarged EEC production capacity has not yet made its full force felt, or that the resiliency of the Ameri-can economy can meet and overcome most price competition, given the opportunity to trade, are ques-tions which may be clarified by subsequent special-ized analysis. 8. The Kennedy Round of GA TT negotiations, completed in June, will assure continued and increas-ing opportunity for American exports to the EEC. Without the negotiations, this opportunity may not have existed and trade could have been impaired by a significant spread between the next year's zero EEC internal tariff and its Common External Tariff. The latter has now been scheduled for substantial reduc-tion over the next five years. The opportunity has thus been negotiated. If U.S. business continues its highly competitive performance, which should prove possi-ble unless tariff cuts are negated by an extension of the still substantial nontariff curbs, fears of exclusion may be substantially allayed. NOTE The author wishes to acknowledge the statistical assistance given him in the preparation of this paper by Stephen P. Farrar, a graduate student at Georgetown University. 52 • .. •. "' \4 f I ' I I I . ...... . 

EEC Tariff Walls: No Ministep But No High Hurdle Either

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