Canberra, 5 May 1961
Secret
Possible Association of the United Kingdom with the
European Economic Community
1. In Submission No. 996 of 9th February, 1961,1 I reported to Cabinet on developments in connection with the possible association of the United Kingdom with the European Economic Community (the EEC or the ‘Six’). A paper attached to that Submission described briefly some possible courses of policy for Australia but emphasised that the position was complex and fluid. It was pointed out, however, that a situation could quickly develop in which major Australian trade interests would be very much involved and that it might be necessary for us to make prompt decisions on what to do to preserve and, if possible, advance those trade interests.
2. This Submission is intended to alert Ministers to important recent developments and the serious implications of them.
Recent Developments
3. Since the middle of last year, the United Kingdom has been pursuing what she describes as ‘exploratory’ discussions with members of the Six. The object of these discussions has been to explore whether a basis can be found for negotiations which would lead to an association between the United Kingdom and the EEC. The discussions have been concerned with the problems that would have to be overcome to make such an association possible. These problems are formidable. They include the ‘free entry’ opportunities enjoyed in the United Kingdom market by most Commonwealth products; the mutual Commonwealth preferential arrangements; the ‘cheap food’ policy of the United Kingdom, with domestic agriculture supported mainly by subsidies, and the conflicting arrangements in the Six where domestic agriculture, supported by tariffs and quotas, results in high consumer prices; the United Kingdom’s special relations with her partners in the European Free Trade Association (the ‘Seven’); and the extent to which the surrender of national authority to the institutions of the Common Market would mean far-reaching integration on a wide front.
4. Up to now, it must be said that the United Kingdom’s ‘explorations’ have not revealed any obvious inclination on the part of the French to meet her half-way in any negotiations for British association with the EEC. Other members of the EEC appear to be more anxious for a settlement with the United Kingdom but the attitude of the French appears likely to be crucial, as it has been in the past.
5. The United Kingdom proposed having further talks with the Germans in the last week of April and the French in the first week of May. The matter will be again discussed at a Ministerial meeting of the Council of the Western European Union on 6th May. The United Kingdom expects to be in a better position after these meetings to judge whether the French, in particular, and the rest of the Six are willing to make progress towards substantive negotiations.
6. However, it is already apparent that there is a quickening tempo and a sense of urgency attached to the United Kingdom’s efforts to find a way of associating with the EEC. At a meeting of the Western European Union (comprising the United Kingdom and the Six) on 27th February, 1961, the Lord Privy Seal (Mr Heath) made a statement indicating certain ways in which the United Kingdom was prepared to move in order to get an association with the EEC. In particular, he indicated formally for the first time that the United Kingdom was prepared to consider a common tarif with the Six on raw materials and manufactured goods from countries other than the EFTA and the Commonwealth, ‘if the Six can meet the United Kingdom’s Commonwealth and agricultural difficulties’.2
7. The Prime Minister (Mr Macmillan) had talks with President Kennedy and Mr Diefenbaker in April. It appears that the United States expressed its support for the United Kingdom’s association with the Six, provided the United Kingdom was prepared to accept the full political implications of the EEC. It was also reported to us from Washington that the United States in response to a United Kingdom question, said they would oppose the exclusion of agriculture from such an association, because it would jeopardise the balance that had been achieved in the Treaty of Rome. This would be consistent with the United States’ general attitude towards the EEC. However, United Kingdom officials say that the United States has not taken up the position that agriculture could not be excluded from an association.
8. In a message to the Prime Minister on 15th April,3 following his North American discussions, Mr Macmillan put the view that ‘ … on economic grounds alone we have to recognise that the real choice may well be between maintaining a system of Commonwealth preference with a United Kingdom of declining economic strength and surrendering some of the advantages of the preferential system in return for a stronger United Kingdom and a wider European market’. (In passing, it may be noted that the idea that Commonwealth producers would secure adequate compensating advantages is very difficult to accept, at least with respect to many commodities.)
9. These and many other indications of the United Kingdom’s thinking all point to the conclusion that the United Kingdom before very long may feel sufficiently confident of finding solutions to the problems facing her, or feel that the need for her to reach a settlement on the best terms she can get is sufficiently powerful, that she will move from the position of ‘exploratory’ talks to substantive negotiations.
10. During the Prime Minister’s recent visit to London he secured a re-affirmation, in explicit terms, that before this stage was reached, the United Kingdom would afford Australia and other Commonwealth countries full opportunity for adequate consultations.4 It can be argued that the United Kingdom, as the party seeking to alter the status quo, should be obliged to take the initiative in working out solutions which accord with her declared desire and objective to safeguard Commonwealth interests. But the danger in this approach is that the United Kingdom, in formulating her ideas to accommodate the requirements of the Six, will reach a position where proposals have crystallised, leaving no room for effective consultation and exploration of alternatives more acceptable to us.
11. A meeting of Senior officials from all Commonwealth countries is to be held in London on 24th to 26th May, and the United Kingdom will take this opportunity of bringing Commonwealth countries up-to-date on her position. This meeting, however, with representation from countries with widely divergent interests on this question, is unlikely to get down to detailed discussion with the United Kingdom on the implications for Commonwealth trade interests of an association between the United Kingdom and the EEC. Certainly, it is not an occasion on which we could expect to effectively explore the United Kingdom’s thinking on trade problems of particular concern to us.
12. With this in mind, the Prime Minister when in London foreshadowed the need for separate talks between Australian and United Kingdom officials. The United Kingdom has accepted this, and will be ready to talk shortly after the Commonwealth meeting. However, she has suggested that it may be helpful to bring New Zealand in, and has indicated that a later date may be more useful.
Implications for Australian Trade of the United Kingdoms Association with the EEC
13. From the beginning of the United Kingdom’s efforts in 1956 to achieve an association with the EEC countries through a free trade area in Western Europe from which agriculture would be excluded, our general attitude has been that: primarily for broad political reasons but also because of the importance to the Commonwealth of an economically strong United Kingdom, our interests lay in not seeking to prevent the United Kingdom from achieving an association with Europe which was satisfactory to her, provided our major trade interests in her market were safeguarded.
14. When the United Kingdom had to abandon its proposal for an industrial free trade area in Western Europe, we made it quite clear that we were not prepared to commit ourselves in advance to acquiesce in any arrangements the United Kingdom might contemplate under the new circumstances. We have always been completely uncommitted as regards acceptance of any arrangements between the United Kingdom and European countries which offered a threat to our trade with her in agricultural products and indeed any arrangements under which we would lose existing free entry to the United Kingdom market on any products.
15. The United Kingdom is still Australia’s most important single market. Even though she now takes only 28% of our total exports (average of three years ending 1959/60) compared with 51% before the war (average of three years ending 1938/39), a considerable part of this 28% consists of products which we could not expect to sell in the same quantities to other markets and for some of them the United Kingdom is the only regular market. The United Kingdom is our most important market for such commodities as wheat, sugar, butter, cheese, meat, canned meat, fresh fruit, dried fruit, canned fruits, wine and leather. She has been our most important market for wool, but for 1959/60 Japan has claimed first position. The United Kingdom is an important market for our export of sheepskins, other hides and skins, lead metal, metallic ores and concentrates, barley and a variety of processed foods.
16. If the United Kingdom were to achieve an association with the EEC and this included agriculture, some £140–£150 million, or 55 to 60%, of our recent exports to the United Kingdom could be affected, according to the nature of the arrangement. This figure does not include our trade in wool and ores and some other raw materials whose conditions of entry to the United Kingdom would not be affected.
17. The United Kingdom has said categorically that she could not ‘join the EEC’ in the sense of accepting unreservedly the provisions of the Rome Treaty. If she felt impelled to do so in the last resort, the consequences for our trade could be disastrous[…] The wheat clause in the Trade Agreement gives us assurance of sales to the United Kingdom of 750,000 tons about £18 million. We would certainly suffer substantial—perhaps complete—loss of the United Kingdom market. The diversion of wheat from Australia and other suppliers affected would inevitably depress returns in other markets. For butter (about £20 million per annum) and cheese (about £3 million per annum)—for which we rely so heavily on the United Kingdom market—the outlook would be worse. In the case of dried and canned fruits (about £16 million per annum), we would lose our important preferences, with serious consequences for both the volume and prices of exports. The loss of preference on wine (about £700,000 per annum) could wipe out our trade. For meats (including canned meats) (about £47 million per annum) the consequences are more difficult to prejudge, but we must expect some loss. For sugar also (about £16 million per annum) the outlook, at best, is uncertain and the Commonwealth Sugar Agreement would be at risk. This is not by any means a full list of our agricultural exports to the United Kingdom which would be affected by [sic] simply a selection from among our most important export products for purposes of illustration.
18. In the case of manufactured goods (now about £6 million per annum) there is encouraging evidence that this trade could be substantially expanded, in terms of both value and diversity of products. However, the loss of preferences, and the fact Australian exports would pay duty while those from the EEC would not, would seriously impair our existing trade and virtually eliminate the prospects of future growth.
19. Fortunately, wool, hides and skins and ores (about £80 million per annum) would not be affected, and on most other raw materials (metals, etc) the implications would be tolerable.
20. In considering the trade implications of an unqualified adherence by the United Kingdom to the Rome Treaty it must be borne in mind that the United Kingdom would be obliged to pursue the common commercial policy of the group. This would affect the United Kingdom’s attitude on such important matters as international commodity policy; import restrictions imposed for balance of payments reasons (including the treatment of dollar imports); policy with respect to State Trading countries; and trade problems being considered in the GATT. Again, any special arrangements of the kind that have been made in the past between the United Kingdom and Australia, such as the long-term Meat Agreement, would hardly be predictable.
21. Obviously, a policy decision by the United Kingdom to ‘join the EEC’ in a way which would lend to such drastic consequences for us—and other Commonwealth countries similarly affected—would call for a complete re-orientation of all our trade policies.
22. Having regard to the totality of the United Kingdom’s relations with us and other Commonwealth countries, I think we can assume that the United Kingdom will go as far as she possibly can to avoid unqualified acceptance of the Rome Treaty. The United Kingdom recognises that it cannot, in the light of its experiences in 1958, afford a second failure. It therefore seems clear that once she has embarked upon negotiations it will be imperative for her to go ahead on the best terms she can get.
23. It appears that when the United Kingdom moves into the stage of ‘negotiating’ a basis of settlement, the practical issues are likely to be what modifications to the detailed Rome Treaty provisions she can persuade the Six to accept and what sacrifices she (and her Commonwealth partners) must accept as the price of her entry. On agricultural trade, of vital importance to us, it seems clear that she would have to go to a considerable distance to satisfy the Europeans. In greater or lesser degree, according to the actual arrangements finally negotiated, we are bound to be adversely affected on a wide range of commodities exported to the United Kingdom.
Possible Next Steps
24. Since events could move quickly over the next few months, the immediate objective for us is to get ourselves sufficiently acquainted with the United Kingdom’s thinking so that at the appropriate time we can promptly assess the developing situation and decide our course of action. We cannot afford to wait on developments and rely upon the United Kingdom’s being in fact able, as she has promised, to consult with us in a way, and at times, that would ensure that our views did have a real influence upon the progress and outcome of the negotiations. Accordingly, it would be foolish not to contemplate beforehand what we would do in a situation where the United Kingdom was faced, possibly at short notice, with the fact that the only kind of arrangement which could be negotiated was one which involved far-reaching changes in her treatment of imports from the Commonwealth. This makes it necessary for us to understand far more fully the thinking of the United Kingdom and the Six and the United Kingdom’s assessment of her negotiating position vis-a-vis the Six.
25. As indicated earlier, the Commonwealth Senior Officials’ meeting is not a forum in which we could expect to get this knowledge and we have therefore sought informal bilateral talks. In this connection it needs to be remembered that Australia’s commodity interests are substantially different from those of other Commonwealth countries. Although Canada has much more immediately at stake on manufactured goods than we have, the threat to her trade in primary products is not so acute. Her major agricultural export, hard wheat, is not likely to be significantly affected (in contrast to our soft wheat supplies). New Zealand’s heavy dependence on her exports of meat and dairy produce to the United Kingdom give her a vital interest in safeguarding her present access to that market but her position is different to ours because she does not have the same range of commodities which stand to be affected. Exports from the less-developed Commonwealth countries are, in the main their own types of raw materials, tropical products (which may be treated in a different way from temperate agricultural products) or are ‘low cost’ manufactures which give rise to special problems. These divergent interests suggest that even talks between the United Kingdom and Australia, Canada and New Zealand (who have most in common) would not be as satisfactory for our immediate purpose as separate talks. Moreover, the latter would avoid the danger of the United Kingdom’s being able to make play of differences between Commonwealth countries.
[ matter omitted ]
Conclusions and Recommendations
29. Beyond the Senior Officials’ meeting and ‘separate’ talks with the United Kingdom, however, there loom very large and very important issues of policy. It is my view that any association by the United Kingdom with the Six is likely to be on the basis not of the United Kingdom proposals as such, but of modifications (or ‘derogations’) in the Treaty of Rome.
30. The United Kingdom is today the only large market for many foodstuffs—and particularly for the range of foods Australia exports—in the Western world. The Continental approach to agriculture can be applied to Continental countries without critical impact on Australian or other countries’ trade because the Continental countries have, over the years, built up their agriculture to a stage where they are largely self-sufficient with only marginal external trade. But, if you are to apply the Continental approach to agriculture to a world market of the importance of the United Kingdom, you must anticipate a fundamental change in Australia’s traditional total trading pattern—for example, through the disruption of the export trade in such major products as wheat and butter and the elimination or substantial contraction of the only discernable market of size in the Western world for some products (e.g. canned and dried fruit and wine) which, though not critical in our balance of payments, are the mainstay of whole regions of our country areas.
31. If we are to do what may be within our power to do to minimise the damage to our trade under any particular set of conditions for the United Kingdom’s association with the Six, we must face the contingency of the extreme. We can only combat the worst contingencies effectively if we have defined our own position. To do that, we must inform ourselves as best we can and make our best judgements.
32. Accordingly, whilst the actual recommendations in this submission are quite narrow in their scope, I have in mind that we must, by defining our position, be prepared at any point of time from now onwards to take whatever action may be necessary to inform ourselves as best we can and to protect our position as a whole. Of course I shall from time to time inform Ministers of the progress of events and of changes in the developing situation, but in the meantime quite positive action may be necessary to clarify the position of the United Kingdom, of European countries and of our other trading partners so that we can define our ultimate goals and ways and means of achieving them.
33. Until we have done this, I think it is important that we continue to avoid any commitment affecting our trade with Western European countries, including the United Kingdom
I therefore recommend :–
(a) The Australian representatives at the Commonwealth Officials’ meeting on 24–26th May, if they need to state a position, maintain our previous line by recognising the importance to be attached to means of promoting political unity in Europe; but by making it clear that this must be in ways which preserve Australia’s major export interests; and by indicating that we will give a prompt reaction to any specific proposal put forward by the United Kingdom.
(b) The opportunity to be taken later of having very informal talks, entirely without commitment, with appropriate United Kingdom officials, before the United Kingdom’s ideas become fixed. They would be directed essentially to a detailed and technical examination, on a commodity-by-commodity basis, of the ideas which the United Kingdom might have for safeguarding Commonwealth trade interests and especially Australian export trade; and to exploring among the range of possibilities what arrangements might seem to be practical and at the same time likely to best serve our trade interests.
(c) The timing of these and any subsequent talks, and arrangements with respect to New Zealand and Canada, to be left to my discretion.
1 Document 124.
2 See note to Document 126.
3 Document 128.
4 Document 127.
[NAA: A1838, 727/4/2 PART 1]