Why Don’t We Join?

October 20, 1958

LONDON—The first thing that impresses the traveler who makes infrequent visits to a country is the change in the physical appearance. London in 1947 was still in large part a scene of ruins. By 1951 incredibly little progress had been made. Today, though there are still here and there jagged brick walls and unfilled excavations, the restoration, with many modern office buildings and new housing developments, seems almost complete. The improvement in the dress of the people, since 1947, is dramatic. The shops present a similar contrast—but the prices seem incredibly high, and comparing them with British wage statistics, one wonders where the purchasing power comes from.

The physical change in England is, of course, confirmed in the national income statistics, in the improvement in dollar and gold reserves, and in the strength of the pound sterling. Transferable nonresident sterling has reached practically complete convertibility. One of the most remarkable developments of the postwar period, in retrospect, has been the way in which the British have been able to maintain the pound sterling as the dominant currency of international trade, though it is tied, not to gold, but to the dollar. The tail, so to speak, has triumphed over the kite. The explanation is complex; but part of it is the superiority of British banking brains and British financial know-how.

COUNTERPROPOSALS

A chief topic of discussion here is the new common market and the British counterproposals for a free-trade area. The common market (or European Economic Community, EEC) is now, at least on paper, a fact. Under the Treaty of Rome the six countries of Belgium, France, Germany, Italy, the Netherlands, and Luxembourg have established a customs union which is to reduce and finally abolish tariffs among the six over a period of twelve to fifteen years, and maintain a common tariff, equal to the present average tariffs of the six, against all non-member countries.

The British, partly because of their ties with the other countries of the Commonwealth, and partly because of the political nature of the proposed common market, have refused to join but have proposed, as an alternative, that Britain, the six, and ten other countries, now members of the OEEC (Organization for European Economic Cooperation), form a free-trade area that would reduce and abolish tariffs among the seventeen members over a fifteen-year period, but would allow each to retain its own tariff schedule against non-member countries.

Reginald Maudling, who heads the committee negotiating for Britain, has objected to the proposed common market of the six on the ground that British goods would have to pay a higher rate of duty in the Dutch market, say, than German goods. He regards this as “discrimination.” He has expressed the fear that the six countries may pursue “inward-looking” or “trade diverting” policies rather than “outward-looking” or “trade creating” policies—in other words, they may concentrate more on expanding trade among themselves than on maintaining imports from “traditional suppliers.”

DOUBLE STANDARD

All these objections seem thoroughly justified. But if they seem valid for the British, they seem equally valid for ourselves. Why have American officials encouraged a common market from which the U.S. is to be excluded? Why, for that matter, are they encouraging a free-trade area from which the U.S. would be excluded? One can understand how they might take the position that it is no business of ours either way—unless discrimination against American goods turned out to be more serious, on net balance, after the EEC or the FTA became actualities. But it is a strange double standard of economic theory or economic morality for our officials to give their direct encouragement to a common market or a free-trade area for other countries, on the ground that freer trade among them is the best economic medicine, while we ourselves refuse to have anything to do with it, preferring to maintain protection, high tariffs, quotas on imports, and export subsidies, and dumping as a result of our farm price support program, and even accept discrimination against American exports in order to go it alone with our protectionism.