London, 17 August 1962
Secret
Britain, the Common Market and the European Economic Community
Introduction
The Ministerial meeting in Brussels from 1st–5th August can be regarded as marking the close of the first phase of the negotiations for our entry into the European Economic Community. The second phase will begin in the autumn with the resumption of negotiations at the official level in September and at the Ministerial level in the first days of October. This pause in the negotiations provides a convenient opportunity for me to give my colleagues an account of the progress which has been made to date, and to consider.
- the work which still remains to be done in Brussels, and
- the handling of the Commonwealth Prime Ministers’ Conference.
2. The paper which has been sent to the Commonwealth has been circulated separately. This records the position reached to date on each of the main subjects dealt with in the Brussels negotiations.1
3. The negotiations are proving every bit as tough as we expected. The atmosphere throughout has been good and, in spite of a difference with the French during the final session, the adjournment took place harmoniously. Germany, Italy, Belgium and the Netherlands have all made it clear that they are keen for us to join. The French have never been enthusiastic and they will drive a hard bargain, particularly where their own interests are affected, but in my judgment they will be reluctant to accept responsibility for a breakdown in view of the desire of the other countries that we should go in, and of the incalculable results that would follow, both for the Community itself and for the Western world as a whole.
4. The negotiations have been particularly difficult regarding trade in temperate agricultural products. This stems from the fundamental problem of how to reconcile our need to safeguard the vital interests of Canada, Australia and New Zealand with our acceptance of the common agricultural policy. In those cases where this policy has been agreed upon by the Six—often with the greatest difficulty—our need to safeguard the Commonwealth tends to force us to disturb the delicate balance between conflicting interests which has already been achieved. In the cases where the common agricultural policy has not yet been agreed, we have to face the desire of individual countries to protect their own domestic producers. We have always recognised that, left to themselves, the Six might develop into an inward-looking and largely self-sufficient bloc. In my view, based on experience in the negotiations, this is a very real danger. Because of the size and importance of the community, this could constitute—quite apart from the political implications—a serious threat to the future development of world trade and so to our own economic prospects as a world-trading nation.
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C. Manufactured Goods From Canada, Australia And New Zealand
The provisional arrangements on so-called ‘manufactured goods’ from Canada, Australia and New Zealand apply to all industrial products—including some raw materials—shown in the latest available statistics of exports from these three countries to Britain, with the exception of those on which the common external tariff is already nil, and those for which we have asked that it should be reduced to nil.
2. The Treaty of Rome provides for the full application of the common external tariff by 1st January, 1970. But the Six have in practice accelerated their own timetable and it now seems likely that the common tariff will be applied in full by 1966 or 1967. In respect of the products covered by the provisional arrangements, however, Britain will be allowed to delay the application of the common tariff (decal age) and impose it in three stages: 30 per cent of it at the time of accession to the Community, 30 per cent on the 1st January, 1967, and 40 per cent on 1st January, 1970. In addition there is agreement that the enlarged Community should be ready to take part in multilateral tariff negotiations for the reciprocal reduction of tariffs on industrial products. There is also provision for consultation between the enlarged Community and the three countries concerned in 1966 and 1969 (i.e., before the second and third stages of the application of the tariff by the United Kingdom) to examine the development of its trade with them.
3. The broad effect of the provisional arrangements is to give these three countries time to adjust their trade with Britain (most of which at present enters free of duty and with a preference) to a changed situation when a tariff will be imposed. Assuming that the Community adopted the common external tariff in full by 1967, the Commonwealth countries would get an extra three years of adjustment. During the early years of this period they will retain some degree of preference in certain cases, over Community suppliers, and throughout the period of 1970 they would retain substantial, though diminishing, preferences against third countries in most cases.
4. There is also the prospect of reductions in the common tariff, from which Commonwealth countries could benefit, as a result of multilateral tariff negotiations. Possibly in response to the new trade legislation in the United States. (It can, however, be argued that this is not much of a concession, since the Community might in any case be expected to respond to a United States initiative.)
5. The Six have undertaken to consider with the Commonwealth countries the development of this trade in 1966 and 1969, and ‘in the light of all the circumstances and in conformity with the provision of the Treaty (to) take appropriate steps.’ We have at least secured for these countries the opportunity to demonstrate damage to their trade if, as they (but not the Six) expect, damage in fact takes place. Because of the broad coverage of the provisional agreement, the Commonwealth would get the benefit of decalage on all items on which there is some trade at present, whether this is traditional and well established or only in its infancy. There would be no quantitative limitation on their exports.
Commentary
6. We never expected that the Six would agree to indefinite free entry for manufactured goods from Canada, Australia and New Zealand and we made this clear to the Commonwealth countries concerned before the negotiations began. In the case of Australia and New Zealand the value of the trade is extremely small (12.5 per cent and 0.1 per cent respectively of Australia and New Zealand’s total exports to Britain) and it was impossible to argue that serious damage could result from the application of the common external tariff. Nor could we argue convincingly that the tariff would necessarily damage Canada’s trade. Her exports of these products to Britain are much smaller than her exports of the same products to other countries (including the United States and, in some cases, the Six) over a tariff barrier. The settlement seems as good as we could expect in these circumstances.
D. Temperate Agricultural Goods From The Old Commonwealth
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3. My colleagues will remember that, when the negotiations started, our aim was to secure the agreement of the Six to:
- a general formula intended to secure for the Commonwealth ‘comparable opportunity of outlets’, both in the transitional period and in the longer term;
- specific transitional arrangements to achieve this objective; and
- arrangements for a review which would ensure that, after the transitional period, the same objective would be secured by means of whatever arrangements were appropriate at that time.
4. Our original proposals envisaged an understanding with the Six that quantitative restrictions would not be applied against the Commonwealth up to the level of transitional quantities, i.e. , an assured right of access for agreed amounts. This gave the Six—and indeed others—the impression that we were seeking a guarantee of actual sales. Although this was not, of course, the case, it became clear at an early stage that the Six were in any case not prepared to adopt our approach. They felt that such—basically quantitative—arrangements would tend to freeze the pattern of trade, and freeze it, moreover, in a way which would maintain the preferential position of the Commonwealth. This would have been in direct conflict with their view that the longer term policy of the Community should be non-discriminatory.
5. The Six approached the problem in an entirely different way, and I am satisfied that it is only by following their approach that we can hope to reach a final agreement with them. Indeed, it is fair to say that a comparison of the paper which has emerged from Brussels and our original ‘comparable outlets formula’ suggests that the former is likely to be a more realistic as well as a more comprehensive approach towards achieving a solution of the Commonwealth’s basic and long-term problems.
6. The new framework on which we have been working is as follows:
- A declaration about the price and production policies of the Community.
- An agreement about the need for, and the purposes of, world-wide commodity agreements.
- An agreement that specific solutions on a more limited geographical basis, but with the same content, should be negotiated if the wider agreements under (b) do not prove possible.
- Transitional arrangements linked to the operation of the intra-Community preference, and
- Undertakings by the Community about the use of quantitative restrictions, i.e. , about access.
Price policy
7. The agreement which we have reached on price policy (which is without limit) goes further than we had originally thought possible. It is central to the whole problem. In the last resort the price policy of the Community will be the real determinant of Commonwealth prospects for the future. If the price policy were such as to encourage surplus production within the Community, then any other agreements which we might have agreed, would be jeopardised. In fact the Community have now stated their intention of pursuing a policy which will offer reasonable opportunities in its markets for exports of temperate foodstuffs, with a special reference to Commonwealth suppliers. Moreover, they have agreed to a confrontation of price policies in the context of world-wide agreements which will enable interested parties to bring strong pressure to bear on them to maintain reasonable policies. It is significant that the United States appear to be prepared to follow this new lead, as do the Australians, and it seems possible that a new pattern of international consultation may be emerging which we should do well to encourage.
World-wide agreements (or more limited agreements)
8. The question of price policy is linked with that of future world-wide agreements. Here, what is proposed is an attempt to work out world-wide agreements designed to deal with the problems of prices, production policies, access and the terms of competition. A recent telegram from Mr Menzies showed the importance which Australia attaches to these new developments.2 Many Commonwealth countries are now concerned not so much about preferences as such, but with the general pattern of price competition which they claim has reduced their returns, even with the benefit of preferences, to unreasonably low levels.
9. It will be a major and difficult task to secure early agreement on the terms of new world-wide arrangements. The assurances about the willingness of the Six and ourselves to negotiate them are, however, valuable. We shall, however, be helped by the willingness of the Six to negotiate agreements on a more limited geographical basis, particularly with Commonwealth countries, if world-wide agreements prove impracticable. This gives the Commonwealth an assurance that progress will not be made impossible by the veto of a country, or group of countries, outside the Community and the Commonwealth.
Transitional arrangements and quantitative restrictions
10. Here we have secured some gains. In the first place the Six have demonstrated to us, and to the Commonwealth, that our concern about the possible application of quantitative restrictions was misconceived. They have agreed with us a form of words which makes it clear that the Community would not require member States—including, of course, Britain—to use quantitative restrictions as an instrument of policy to control access, except as a general Community measure to deal with State-trading countries and as a last resort in exceptional circumstances of serious market disruption.
11. The old Commonwealth has been particularly concerned about the new ‘intra-Community preference’ which, where it applies is designed to give a competitive advantage in the transitional period to Community suppliers which cannot be frustrated by price reductions by third countries. The Six have undertaken to consult with the Commonwealth countries concerned, and to review the operation of this preference, if its application causes a ‘sudden and considerable’ alteration of trade patterns in the United Kingdom market. They are willing to extend this undertaking to apply to all commodities where there is a levy and therefore presumably an intra-Community preference. In addition, they are prepared to agree that, in cases where the Commonwealth at present enjoys a preference in the United Kingdom, they should instead be allowed to benefit from the intra-Community preference, beginning with the whole of it, but gradually diminishing during the course of the transitional period. The rate of this reduction has been left over for further discussion.
12. Apart from the intra-Community preference, we have not been able to secure a preferential position for the Commonwealth in our market (with the possible exception of New Zealand—see paragraph 14 below). In the case of coarse grains, the existing preference of 10 per cent in the United Kingdom appears on the face of it to be much more valuable than an intra-Community preference of 1 per cent (which is the level at which it has been fixed for the first year). The fact is, however, that the intra-Community preference which would replace the old Commonwealth preferences is different in kind. Although it affords no safeguards as regards the price level, a country which has this new preference should be in a position to secure access to Community markets with an absolute advantage over all third countries who do not enjoy this preference.
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New Zealand
14. There has been a new development as regards New Zealand. The Six have taken the initiative in emphasising that they recognise that New Zealand, with its special dependence on the United Kingdom market for its exports of foodstuffs, is a special case, and they have offered to consider solutions for her problems. A separate paper is being prepared on this.3
Commentary
15. The arrangements described above include some elements of considerable advantage for the old Commonwealth countries concerned. But it will not be easy to convince the three Commonwealth Governments, and they may well criticise the arrangements on the grounds that they are not sufficiently precise to enable their exact effects on trade to be calculated in quantitative terms. We can deal with this criticism, and in general we must take the line that the effectiveness of the arrangements must depend on the spirit in which they are carried out by the Community, bearing in mind that, in the circumstances envisaged, we should be members of it.
16. The arrangements provide for Commonwealth interests to be protected by means of a series of inter-locking assurances of cumulative effect. They apply to the whole of the enlarged Community, not merely—as we were originally asking—to the United Kingdom market alone. In the first place, there is the assurance that the enlarged Community will take an early initiative to secure international agreements covering the key commodities. If, in the case of any commodity, this initiative fails, then the Community will be ready to conclude agreements with the same purposes on a more limited basis—‘and, in particular, with Commonwealth countries’. Secondly the enlarged Community has expressed its intention of pursuing a price policy which will offer reasonable opportunities for exports of temperate foodstuffs. In addition, the Community is prepared to consult about these policies, either within the framework of international agreements or of more limited agreements. They have also undertaken to do their utmost to contribute to the harmonious development of world trade, with a special reference to the Commonwealth. So far as restrictions on trade are concerned, they have given us assurances that quantitative restrictions will not be used except in exceptional circumstances; and that the intra-Community preference will not be operated in a way which causes damage to Commonwealth interests.
17. As I said earlier, much common ground has been established though a good deal of work remains to be done, especially on individual commodities—dairy products, meat and sugar—and in order to give greater precision to some of the proposed arrangements, e.g. , about the intra-Community preference and for New Zealand. But I am satisfied that the approach which has been adopted is the only realistic one. Subject to what may be agreed on individual commodities, we shall not be able to secure radical changes in the arrangements we have negotiated. We should therefore put them forward as a basis for discussion at the Commonwealth Prime Ministers’ Conference, and as representing a fair and reasonable way of safeguarding their vital interests. This conclusion was endorsed by the Common Market Negotiations Committee at their meeting on 10th August.
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Commonwealth Prime Ministers’ Conference
Our primary objective at the Conference must be to impress on Commonwealth Prime Ministers the strength of the broad political case for United Kingdom membership of the European Economic Community. We shall have to explain how we see our future position in the world developing if we join the Six and become a leading power in a united Western Europe, and we shall have to contrast this with the way in which our position is likely to develop if we stand outside. In doing this we shall have to deal with the fears of some Commonwealth countries that our membership of the Community would in some way loosen existing Commonwealth ties and so impair the Commonwealth relationship. In short we shall have to begin by placing the issue in its broad political setting, and we shall have to make it clear that for the United Kingdom this will be one of the historic moments of decision—a decision which, as the Commonwealth generally has recognised, will be for the United Kingdom alone to take.
2. I would hope that we could convince most Commonwealth Governments of the strength of the political case. At least we must make sure that they are left in no doubt of the great significance which we attach to it. I need not develop this line of thought further since it will be dealt with in the briefs for the Conference.
3. Our second objective would relate to the economic aspects—the implications of United Kingdom membership for individual Commonwealth countries. We should seek to convince the Prime Ministers that on the whole the provisional arrangements which have been agreed in Brussels, and the arrangements which we hope to agree in the next phase of the negotiations, would safeguard the vital interests of individual Commonwealth countries. We are on strong ground in urging this view on India, Pakistan and Ceylon, and on the countries in Africa and the Caribbean for which association with the Community—with its substantial economic benefits— is available, if they so desire. We shall probably have more difficulty with Canada, Australia and New Zealand, partly because a number of questions of considerable importance to them has not yet been settled, and partly because the arrangements for temperate agricultural products are not sufficiently precise to enable them to calculate the exact effects on their trade. For these reasons we cannot expect at this stage a final and considered judgement from the old Commonwealth—and probably not from the other Commonwealth countries either—but we should try to secure from them—either in individual or in group discussions—acceptance of the view that the provisional, or prospective, arrangements are on the whole reasonable, particularly when compared, as they should be, not with the position as it is, but as it is likely to be in the future if we do not join the Community.
4. In all this the element of confidence will play an important part. The Six are beginning to learn—no doubt slowly and painfully—to have confidence in each other. We ourselves will have to learn to have confidence in the Community, and we must hope that the Commonwealth too will come to learn not only that our membership is better for them and for the world, but also to have confidence in us to do everything in our power, as members of the Community, to safeguard their vital interests. Above all, we must urge individual Prime Ministers to approach these issues not from the point of view of the ‘nicely calculated less or more’, but with the broadest political judgement.
1 British White Paper, Cmd 1805, August 1962.
2 Document 195.
3 But no details had emerged by the time of the breakdown of the negotiations in January 1963.
[UKNA: CAB 134/1515]