That ‘Common Market’

November 17, 1958

ROME—The clash between the British and French over the proposed free-trade area for seventeen countries versus the common market for six has underlined the fact that the difference between the two is not merely technical but one of basic concept. The free-trade area contemplates a mutual lowering of tariffs among seventeen European nations over a period of fifteen years, with each nation free to set its own tariffs against nonmember countries. The common market plans a mutual lowering and final abolition of tariff barriers among six nations (France, Germany, Belgium, the Netherlands, Luxembourg, Italy) over twelve to fifteen years, but insists these countries must maintain a common tariff, equal to the present average tariffs of the six, against all nonmember countries.

Each plan has its difficulties. The French point out that in the proposed free-trade area exporters of nonmember countries could ship their goods to whichever of the seventeen countries had the lowest tariff for their particular products, and that it might be extremely difficult to prevent transshipment free of duty to other countries within the free-trade area. The French seem to have little faith in the British schemes for certificates of origin, compensating duties, and so on. On the other hand, when the two projects are compared, it becomes increasingly clear that the British proposal for a free-trade area would really tend toward freer world trade, whereas the French-inspired common market might tend toward a perpetuation of protectionism, discrimination, planned economies, and inflationary pressures.

WORKABLE? DESIRABLE?

There are two main questions to be asked about the common market. Would it work as planned? And, assuming that it would work, would it be desirable?

When we consider the first question, we are confronted by a problem that is being treated very lightly and casually but which is central and crucial. This concerns the soundness and stability of each national currency. If any nation of the six has more inflation than another, if the real value of its currency falls with relation to the others, it is obvious that the common market will break down. Unless there is complete convertibility of each currency into the others, the common market is merely a name. But if there is such convertibility, and if one currency, say the French franc, is overvalued in the official rates of exchange, then France will develop a chronic deficit in its balance of payments, and the other countries will not be willing to extend it credit indefinitely for the purpose of subsidizing its internal inflation.

Even if we assume that this problem can be successfully surmounted, however, we must ask whether the common market would be desirable. And in regard to this question there have been rising doubts, not only among officials in countries outside the proposed common market, but among thoughtful persons within the common-market countries, and among genuinely liberal economists.

THE DANGER

Outstanding among the critics, for example, is the German-Swiss economist Wilhelm Röpke. Röpke points out that if each country concerned were willing to return to an internal free market economy and monetary discipline, and to lower tariffs of its own free will, for the benefit of its own consumers, there would be no need of a formal common market. On the other hand, if any one of the member countries fails to accept a market economy and monetary discipline the common market cannot function. The common market will not relieve any member country of the necessity of re-establishing free convertibility for its money.

Yet there is great danger that the countries in which inflationary pressures, the welfare state, a planned economy, and a philosophy of “full employment at any price” have gone farthest will push the other member countries in the same direction in order to “harmonize” production costs by raising rather than lowering them. And the greatest danger is that the common market, instead of “integrating” Europe, may disintegrate it by breaking it into rival blocs discriminating against each other.