Elkinton, Charles M.

English

Research Papers in Economics

EUROPEAN  ECONOMIC  INTEGRATION
Charles M.  Elkinton
Assistant Administrator for International Affairs
Foreign Agricultural Service,  U. S. Department of Agriculture
A couple  of  weeks  ago  one  Mr.  S. S. Enid from  Oklahoma  wrote
to Walter Scott,  author of the weekly  news feature "Personality  Parade"
and  stated,  "I've  been  told  the  most  important  treaty  signed  in  the
twentieth  century  is  the  treaty  of Rome.  What  is  it?  Who  signed  it?"
To  these questions Mr. Scott replied:
The treaty of Rome signed in 1957  is the basis  of the so-called  "com-
mon  market."  It  is  an  agreement  by  Six  European  countries - West
Germany,  France,  Belgium,  Italy,  the Netherlands,  and Luxembourg  -
to  abolish  all  economic  barriers  between  their  respective  countries  by
1970.  The  men  behind  it:  Monnet,  Schuman,  De  Gasperi,  Spaak,  and
Adenauer.
I gained  a firm  impression  in visiting the Common Market  capitals
early  this summer,  that the leaders and the people of the member coun-
tries  are  tremendously  enthusiastic  about  their  undertaking,  and view
it as the momentous  event of the century.  They see in this great under-
taking  a  way  to  a  better  life,  membership  in  a  powerful  club  which
can  hold  its own  in international  affairs,  and  a way to  reduce or elimi-
nate  the  ancient  conflicts  that have periodically  beset  their members.
How is the Common Market  viewed by others?
Latin  Americans  have  a  continuing  interest  and  concern  in  the
effects  that Common  Market  regulations  and agreements  may have  on
their  future  competitive  position  and  exports  of tropical  products.  On
the  other  hand,  a  group  of  countries  in  Central  America  and  another
group  in  South  America  are  making  a  start  at  forming  their  own
Common  Market.
The  member  countries  of  the  European  Free  Trade  Association
are  now all  seeking  membership  in,  or association  with,  the  Common
Market.  Assurance  of  future  trade  access  to  that  important  trading
area  is probably  the  magnet  which  is drawing  the  EFTA  toward  the
Common  Market.
The  Soviet  Bloc  has  repeatedly  attacked  the  Common  Market,
declaring  it,  among  other  things,  to  be  an  exploitive  monopolistic
union.
The  United  States  has  not  only steadfastly  supported  the  develop-
ment of the European Common Market but has actively participated  in
20laying  some of  the foundation  stones of the  new edifice.  The  Marshall
Plan  encouraged  the countries  of  Western  Europe  to  enter  into joint
economic  recovery  planning,  and  the  OEEC  was  established  as  a
mechanism.  This  was  followed  by  NATO  for  common  defense,  the
Coal  and  Steel  Community,  and  Euratom.  From  joint planning  and
action  under  these  and  other  measures  the  Treaty  of  Rome  seems  a
momentous  but natural  step.
The  U. S. sees  in  the  Common  Market  a great  viable  economic
area-desirable  as  a future  friendly  trading  partner.  An economically
strong  and growing  Western  Europe  in turn  suggests  a strong  area  of
defense.  Finally,  a  prosperous  European  Community  may  share  in
greater  measure  with  the  U. S.  the  burden  of  aid  to  less  developed
areas of the world.
The  successful  organization  of  the Common  Market  clearly  offers
great  prospective  advantages  for  the  U. S. Can  we  assume  that  this
shaping of a great unified economy  in Western Europe  will result in no
disadvantage  or  problems  for  the  U. S.?  In  considering  this  question
we  may  well  ask  if  the  trade  policies  of the  Common Market  will  be
more  restrictive  than  were  the  prior trade  regulations  of  the  member
countries.  Will  policies  and  programs  for  self-sufficiency  and  restric-
tions  on trade with the outer  world reduce or eliminate  the prospective
gains  from  the  new  mobility  of  capital  and  labor,  and  economies  of
scale  associated  with  the  new  mass  market?  Will  the  phenomenal
growth in national  income continue?
Perhaps  we  cannot  yet frame  a  definitive  answer  to  these queries.
At this  stage we must settle for tentative  conclusions  based on declara-
tions of  intent and on  the early lines  of trade policy being  pursued.
The  members  of  the  Common  Market,  in  signing  the  Treaty  of
Rome,  declared  their  intention  of pursuing outgoing  policies-of seek-
ing,  not inhibiting, economic  intercourse  with the outside world.  Thus,
the  founding  principles  are  reassuring  in  terms  of  prospective  trade
policies.
These  principles  were  put to  an initial  test  in  the  trade  and tariff
negotiations  with  the  Common  Market  which  ended  early  in  March
1962.  On this occasion  Common  Market  officials  agreed,  as  a general
rule,  to  limit  the  level  of the  new  community  duties  to  the  arithmetic
average  of the duties  which previously had  been  in effect  in the mem-
ber countries.  Furthermore,  willingness  was exhibited  to moderate  the
common  tariffs  if outside  countries,  including the U. S.,  offer  compen-
sating  duty  reductions.  The  results  of this  initial  negotiation  with  the
Common  Market  were,  in  general,  favorable  to  U.  S.  trade.  Tariff
21reductions  in  this  round  of  negotiations  were  limited by  and  large  by
the restrictions  on offerings  which  U. S. negotiators  could make under
the then existing trade authority.
New  and  enlarged  trade  authority,  such  as  now  being  considered
by the  Congress,  would offer ample  reason to expect that further trade
accommodations  can  be  arranged  with  the  Common  Market  which
will result in expanded,  mutually beneficial  trade.
At  this point  the question  may  well be  asked:  Does  this favorable
prospect  include  trade  in agricultural  products?  European  agriculture,
in  general,  consists  of  a  larger  number  of small,  relatively  inefficient
farm units; also, agricultural protectionism  is a general and deep-seated
policy.  Further,  the agricultural  policy of the Common  Market, agreed
upon  by  the  members  in  January  1962,  provides  for  the  use  of  the
so-called  variable  levy  for  protecting  domestic  producers  of  cereals,
certain  livestock  products,  and  poultry from  foreign  competition.  The
variable  levy  is  especially  restrictive  because  it is generally  calculated
by taking  the difference between minimum CIF price  and the domestic
support  price of the importing  area.
These  considerations,  viewed  separately,  might  well cast a shadow
on  the  agricultural  trade  prospect.  Therefore,  we  must  look  at  the
over-all  agricultural  trade  prospect  to  gain  a better  perspective.
Most  significant  is  the  fact  that  the  common  agricultural  policy
now  in  force  allows  the  entry,  on a  free  or  relatively  liberal  basis,  of
U. S. agricultural  products  which  accounted  for 70  percent  of our ex-
ports to the  Common Market area  in 1961.  This includes,  for the most
part,  cotton, oilseeds,  hides and skins, and tallow. The future  of exports
of  these  raw  material  commodities  to  the  rapidly  growing  Common
Market economy  seems well assured.
Cereals  and  dressed  poultry  are  the  items  of  major  export  im-
portance  to  the  U. S. which are  subject to the  restrictive  variable  levy.
The  Common Market  area is  a substantial  importer  of strong pro-
tein  bread  wheats  and feed  grains.  Experience  has  demonstrated  that
this  area  cannot  produce  strong  bread  wheats  and  must,  therefore,
continue  these  imports  for  blending  purposes.  On  the  other  hand,
careful  studies  show that technical  improvements  will enable  the Com-
mon  Market  area  to  expand  production  of  grain  sufficiently  to  meet
the  increase  in  requirements  over  the  next  seven years.  These  studies
conclude  that  this  production  would  increase  further  in  this  period,
perhaps  by  5 million  tons,  if grain  prices  in the community  were  to be
raised sharply,  say to  the high level prevailing in West Germany.
22If  these  studies  are  correct,  it  follows  that  the  outside  supplier
market  for feed  grain  in the  Common Market  depends  upon the grain
price  policy  pursued  by  the  Common  Market.  A  high  grain  price
policy by  the Common  Market  would  tend to  raise  bread prices,  and,
even  more important,  it would  sharply  increase  the  cost  of producing
livestock  products.  Common Market  officials are keenly aware of these
implications  of  a  high  grain  price policy and  in this  lies  the hope  that
a  low  or  moderate  grain  price  policy  will  be  followed.  If  a  low  or
moderate  grain price policy  is  adopted,  the future  export of  U. S. and
other grain suppliers  will be fairly well assured. The difference between
CIF  import  prices  and a  low  Common  Market internal  support  price
would result in a tolerable  levy.
The  grain  price  policy  in  turn  has  an  important  bearing  on  the
variable  levy  applicable  to  poultry  imports.  This  follows  because  the
cost  of poultry  feed  domestically  as compared  with efficient  producing
areas  abroad  is  an  important factor in  the poultry  levy calculation.  In
addition  to  this  source  of hope  for  moderation  in  the  poultry  import
levy,  the main importer of U. S. poultry in the area has shown willing-
ness  to  consider moderation  of this levy by  invoking  a provision  of the
Common  Market  poultry  regulation  which  authorizes  in certain  cases
a lowering of the levy.
Agricultural  products  of  considerable  importance  in  U. S.  trade
with the  Common  Market  include  fresh  and processed  fruits, and raw
and  manufactured  tobacco  products.  These  and  some  items  of  less
significance,  as  measured  on total  volume  of  trade,  are  subject  to the
common  external  tariff  of the  Common  Market  and  thus  are  subject
to adjustment  in the process  of future  tariff and trade  negotiations with
the  Common  Market.  If  we  assume  that  the  Congress  will  shortly
make  available  new  trade  expansion  authority,  the  general  prospect
for an  expanded  export  outlet for these products  is  good.
What  can  be  concluded regarding  our  agricultural  trade  prospects
with the  Common Market,  as  now constituted,  in the years  just ahead?
First,  if we  assume  that the economy  of the  Common Market  will
continue  to  expand  at  a  rate  approximating  the  high  level  of  recent
years,  that  the  Common  Market  will  pursue  a  moderate  grain  price
policy, and finally that U.  S. trade expansion  legislation is forthcoming,
then  it appears  that we face an  expanding  over-all  market  for agricul-
tural imports  into the Common  Market.
You may  all  now  have  a question-namely,  how  will  our agricul-
tural  trade  prospects  be  altered  if  the  United  Kingdom  joins  the
Common  Market  club?  The  United  Kingdom  alone  imports  from  the
23U.  S. upward  of  half  the  value  of  agricultural  products  imported  by
the present six Common Market countries.
With  some  risk  of oversimplification  and  with  one  or two  qualifi-
cations,  I  am  prone  to  conclude  that  U. K.  accession  (together  with
Denmark  and Ireland)  to  the  Common Market  would  not  materially
or  greatly  alter  the  conclusions  already  reached  regarding  our  future
trade prospects  with the Common  Market as  now constituted.
The qualifications  to be noted are these:  ( 1  ) that trade preferences
now  accorded  by the  U. K.  on  temperate  agricultural  products  to the
members of the Commonwealth  will not be increased  or generalized  to
the expanded  Common  Market  and that they will be  gradually phased
out  over  time;  and  (2)  that  no other trade  preference  to a  Common-
wealth  member  now  accorded  by  the  U. K.  on  products  competitive
with  U. S. exports will  be generalized  in the  Common Market.
This simplification  is  perhaps  less risky than  it would seem  on first
thought  for the  reason  that  the  major agricultural  imports  from  U. S.
by  the  U. K.  are  the  same  raw  materials  that  bulk large  in our  trade
with the Common Market as it now stands.
24

EUROPEAN ECONOMIC INTEGRATION

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