London, 9 September 1970
Confidential
Visit to Australia of the Chancellor of the Duchy of Lancaster
Mr Rippon is to visit Australia from 15 to 17 September in connection with his visit to Hong Kong and New Zealand on EEC matters. I submit a brief for the visit which has been cleared with SWPD, News Department and Commodities Department in the FCO, with the Board of Trade, the Treasury, the DEP, the Home Office and the MAFF.
2. In discussing this visit with the Prime Minister on 11 August, Mr Rippon agreed that it was important to avoid getting into detailed argument with the Australians on matters of substance, and to avoid any commitment to issue a communiqué at the end of his talks. The brief has been drafted to take account of these points, and the relatively tough line the Prime Minister took with the leader of the Canadian Opposition on 27 July.
3. The British press picked up a Press Conference given by Mr McEwen, the Deputy Prime Minister of Australia, on 16 August, following his tour of Europe. Mr McEwen took a pessimistic view of Australia’s prospects following Britain’s entry to the EEC. The background (paragraph 2) refers. The British press speculated that Mr Rippon would face a ‘major row’ with the Australians during his visit. The prospect of this was enhanced when Mr Rippon1 made a strong attack, in the Australian Parliament on 20 August, on aspects of our entry to the EEC. (At this time Sir H. Nicolls, MP called for a reply from someone of equal standing in Britain). The full nature of the present brief is intended to avoid a row if at all possible. […]
4. […] Mr Rippon wrote to Mr McEwen that we should seek for Australia and ourselves the longest transitional period we thought possible.2 The background (paragraph 1, 8 and 9) refers. The Board of Trade have pointed to the importance of the Australians being clear that a long transitional period should apply only to agriculture products. They were the main concern of the aide memoire, although there was also a brief mention of industrial products. For the latter ministers had agreed that we should seek a relatively short transitional period (though we may not get it). Mr Rippon may wish to take the opportunity of his visit to clear up any misunderstanding on this point which the Australians may have.
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Australia, the UK and the EEC
Background Brief
We have kept in close touch with the Australian Government over previous years on our application to join the EEC, and the possible effects of this on Australia. The latest such consultation took place in July this year when the Deputy Prime Minister of Australia and Minister of Trade and Industry, Mr McEwen, saw Mr Barber during a tour of European capitals. The atmosphere at his meeting with Mr Barber was good but his poor reception in other capitals of the Six appears to have soured him somewhat further in his prejudices against the EEC.
[ matter omitted ]
2. On his return to Australia, Mr McEwen made no secret of the fact that he had failed to achieve much in his European junketings. At a press conference on 16 August he proclaimed his misgivings about Britain’s entry to the EEC. These misgivings he later expounded in a major speech to the Australian Parliament on 19 August. In particular he hit out at the protectionist nature of the CAP, and what he claimed would be violations of the GATT in the event of Britain joining the EEC. He undertook on behalf of Australia to prevent damage to her interests from Britain’s entry. It is fair to say that some of his antagonism can be ascribed to domestic political pressures upon him. (See below paragraph 7.)
3. At the same time it should be remembered that even Mr McEwen, in his conversation with Mr Barber, admitted that our entry to the EEC would not be successful if there were any suspicion on the part of the Six that we would try, as members, to change the CAP. He said ‘the Australian Government did not oppose our entry’. The Australian Press in recent months has taken a favourable view of Britain’s entry to the EEC.
4. Australia’s position. Considerable time and effort was spent during the 1961-63 negotiations on attempting to achieve preferential terms for Australia. The results were much less than had been hoped. For this reason, and because there had been a substantial change in Australia’s own position in the meantime, ministers decided in 1967 that there was no reason to ask for more for Australian exports to the UK than the application to them of the Common External Tariff and levies over whatever transitional period was negotiated. Ministers confirmed this position in 1970.
5. The 1961–63 negotiations acted as a stimulus to moves already under way in Australia to divert trade from the UK to other, largely non-European markets. Together with the mineral boom this has produced a new picture in which the Australian dependence on the UK market has been reduced over the last ten years from 27% to 13%. The USA is now Australia’s main supplier, and Australian exports there have recently been growing at a rate of 13% a year, although this rate may be difficult to maintain. Japan is her main export market with Australian exports increasing by 21% a year.
6. Following British entry to the EEC one-third of Australian exports to the UK (wool and ores) would remain duty free. She would also benefit, were we to get duty quotas for lead and zinc (although this is not something we should wish to tell the Australians at present). Her agricultural exports (wheat, butter, cheese and sugar) would be affected by the EEC levy system and she would lose her preferential position in the UK market for sugar and canned and dried fruits. At a rough estimate our imports from Australia will drop by £50 to £60 million sterling a year (the Australian Government put the figure at £80 million a year). This would amount to a decline of 6% in total Australian exports which have been growing recently at 6% per annum. The chief Australian problem will be the impact on her farming interests. Already she has the problem of [a] highly subsidised dairy industry and excessive wheat production producing a farm economy which is less and less viable with revenue falling further and further behind other sectors. By contrast her sugar producers and her canned and dried fruit industries are highly efficient but concentrated in localised areas heavily dependent on their level of activity. In the medium term both the loss of earnings referred to above and the redeployment of production and social resources which will consequently be necessary must be seen in the context of changing Australian trade patterns, growing investment in manufacturing industry and the prospect that her mineral bonanza is no flash in the pan. During the meeting with the Japanese Prime Minister at the end of June, Mr McEwen is reported to have said he thought Britain’s entry to the EEC was certain in the not too distant future; that ties with Australia would be weakened; and that he accordingly wished for closer economic cooperation with Japan. Mr McEwen is also reported to have told the New Zealand Deputy Prime Minister, Marshall, that Australia had abandoned any hope of obtaining special or permanent arrangements with Britain after our entry to the Community. So far as Australia is concerned, the only question was the length of the transitional period. The Australian Minister for Immigration, Mr Lynch, in an article in the Evening Standard in June spoke of ‘solid mountains of iron ore to move, millions of barrels of oil yet to be sucked from beneath the sea, and land, untold masses of zinc, copper, silver, bauxite—almost any mineral you care to mention’. Further details about Anglo-Australian trade are attached as Annex 3 to the brief.3
Political Position
7. In the short term the political problem posed for the Australian Government by the reaction in the influential agricultural circles (which wield their power through Mr McEwen’s country party with 8½ of the votes cast, but one-quarter of the seats in the Cabinet) will demand action. Such action as is open to the Australian Government is inevitably going to be unfavourable to our interests at certain points.
Australian wishes
8. When Mr McEwen saw Mr Barber he made three main points about Australian wishes:4
(a) the need for as long a transitional period as possible;
(b) the desirability of support for world commodity arrangements as a means of minimising problems; and
(c) the enlarged Community should not become a new monster, dumping agricultural produce recklessly on world markets. Perhaps the only way of controlling Community surpluses would be for these surpluses (by virtue of world commodity arrangements) being incapable of being disposed of on non-commercial terms.
In relation to (a) Mr McEwen also said ‘The Australians certainly expected Britain to put up a strong fight for the longest transition possible given the particular trading relations between Australia and the UK. They could not ask us to do more than that’. He mentioned that even ten years would not see the disappearance of the problems created.
UK Negotiating Position
9. As indicated above (paragraph 4), our negotiating position in respect of Australia is to seek merely a transitional period, both for her produce and our own. This, as has been shown, the Australian Government (pace Mr McEwen in public) accept. The transitional period for agricultural produce we hope to be as long as five or even six years; for industrial products, we wish a fairly short transitional period (though we may well not get it).
CAP/Sugar
10. One subject in particular upon which the Australians may press Mr Rippon is the effect of the CAP on her agricultural exports, and especially the effects of her sugar exports. As a member at present of the Commonwealth Sugar Agreement Australia may expect special privileges. During Mr McEwen’s visit in July Ministers did not tell the Australians that we shall not be doing anything to protect their long-term interests after 1974 if we join the Communities. The present visit will be an opportunity to do so. The Australians must already be aware that we are unlikely to help them over sugar, and we must now make our position clear to avoid any possibility that the Australians might charge us with having misled them.
11. HMG has always recognised the necessity of fulfilling the commitment to other members of the CSA until 1974. We intend to negotiate with the Community arrangements extended beyond 1974 to cover sugar from developing CSA countries and territories. It is not intended to take any special steps in respect of Australia whose sugar exports amount to 3½,% of her total world exports and 8½, of her exports to the UK. Further details on Australia’s sugar production are attached as Annex 4.5
12. In 1967 a British Minister, Lord Beswick,6 told Commonwealth sugar producers, including the Australians: ‘The British Government could see a way of safeguarding the CSA countries on the basis of there being developing countries in special relationship with Britain—a concept which the Six would appreciate. But Australia could not be included on that basis.’ Australia would request an increase in her quota under the International Sugar Agreement (see Annex 4) sufficient to enable her to sell on the free world market all the sugar which she formerly sold to the UK under the CSA. Whether the other members of the lSA would agree to this is open to question. We are anxious to avoid the collapse of the lSA, since this would depress the world price of sugar and so lessen the value of the solutions which we hope to obtain for the developing sugar producers in the Commonwealth. For this reason we would not wish to rule out at this stage the possibility of a short transitional period after 1974 during which we would still take some Australian sugar but on a decreasing scale.
Preferences
13. Mr McEwen is also reported in Tokyo (see paragraph 6) to have talked publicly of Australia dismantling her preference system with the UK if the latter entered the EEC. He refuted a suggestion that these preferences would then be offered as negotiable items to other countries e.g. Japan. We enjoy preferences over mfn suppliers, mainly of 7½,% to 10%, covering 80% of our exports to Australia (£318 million in 1969). We must in any case expect a tendency to put up duties on British goods to the mfn levels where there is an Australian domestic industry to protect. Where our competitors are third countries there are arguments from the Australian point of view (in the absence of an urge to retaliate against us) against hastily raising duties on British goods and even against removing our margin of preference by bringing down the mfn rates except in the context of a trading bargain with mfn suppliers. Should the Australians hint at the temptation to retaliate, it might be worth asking them to comment on what arrangements they would visualise being able to fix up with Australia’s mfn suppliers (particularly Japan and the USA). In any case we should wish the Australians, as mentioned in the Speaking Notes, not to take precipitate action on removing our preferences. This would only be fair in recognition of our own transitional period.
14. In his Press conference of 16 August and speech of 19 August Mr McEwen said that the terms of Britain’s entry would rule out traditional trade links with Commonwealth countries. By this presumably he meant that certain developing countries in the Commonwealth (especially in Asia) and the developed Commonwealth would, over the transitional period, lose their preferential treatment in the UK market. This is indeed true but it is not quite what Mr McEwen has been interpreted to mean. Certainly trade between Britain and the Commonwealth, with all the established investment connections between us, is not going to evaporate overnight.
GATT General
15. On 20 August Mr McEwen made an important Parliamentary statement on the consequences for Australian trade of British entry to the EEC. The main body of his statement consisted of a very strong attack on the Community’s common agricultural policy which he described as a ‘virtually impenetrable barrier to many products’. If Britain joined and this policy were preserved the loss of the British markets for certain major primary commodities would ‘threaten the very existence of major sectors of Australia’s primary industry and major sources of foreign exchange earnings’. This he said would be completely incompatible with the GATT principle that common markets should not be formed at the expense of increasing barriers to trade against third countries. He went on to suggest lines of action for Australia to take in common with other third countries in the GATT to protect her basic interests.
There are good grounds for the Australian views about the CAP which has been attacked in the GATT by US and other suppliers, though one has to recognise that in general agricultural questions have not undergone the same rigorous scrutiny in the GATT as have industrial questions.
Compensations/GATT
16. Compensation is payable under the GATT for increases in mfn rates of duty which have been bound under Article II. (The rules relating to such compensation are set out in Article XXVIII.) As far as customs unions are concerned, Article XXIV(6) lays down that ‘if a contracting party proposes to increase any rate or duty inconsistently with the provisions of Article II, the procedure set forth in Article XXVIII shall apply’. In providing for compensatory adjustment, due account shall be taken of the compensation already afforded by the reductions brought about in the corresponding duty of the other constituents of the union.
17. In our view there is nothing in the GATT which requires compensation to be given for loss of preference. The only cases in which compensation under the GATT might arise are those in which the CET is higher than a bound rate in our mfn tariff, though we would maintain that, even here, there would be no liability to compensate unless the average rate of our tariff in respect of the trade of the country concerned was higher after entry into the Community than before. We have no items bound to Australia in the GATT. In any case, claims for compensation by individual contracting parties would be a matter for bilateral negotiations with the enlarged Community under Article XXIV of the GATT after British entry. Any resulting compensation would, of course, be a matter for the enlarged Community; after entry, we would not be able to offer compensation in our tariff.
18. The Australians may argue that Article XXIV(9) of GATT requires us either to continue our preferences or to grant equivalent compensation. Article XXIV(9) reads as follows:
’The preferences referred to in paragraph 2 of Article I shall not be affected by the formation of a customs union or of a free trade area but may be eliminated or adjusted by means of negotiations which contracting parties affected. This procedure of negotiations with affected contracting parties shall, in particular, apply to the elimination of preferences required to confirm the provisions of paragraph 8(a)(i) and paragraph 8(b)’. In our view, Article XXIV(9) is purely permissive, and imposes no GATT obligations either to maintain preferences or to grant equivalent compensation.
Free Trade/Tariff Cuts
19. The Australians may well ask us what prospects there are, immediately after the conclusion of our negotiations, if they are successful, for another round of tariff cuts along the lines of the Kennedy and Dillon rounds. Although it is tempting to give them an optimistic answer on this, just as it is tempting to encourage the Americans on this, it would be unwise to do so. We might be giving the world the impression, which we should not wish the Six, particularly the French, to receive, that on entering the EEC we should be changing it into a massive world free trade area. We shall need to play this one very close to the chest for the meanwhile and avoid giving any commitment to the Australians on the possibly of another round of tariff cuts.
Immigration
20. The question of Commonwealth Immigration into the UK after our entry to the EEC is a complex one in which several issues including that of nationality will need to be clarified in the course of negotiations. It is true to say that we hope to persuade the Community that our entry should not upset our rules on Commonwealth immigration for employment in the UK. Community regulation 1612/68, however, provides for an 18-day priority for EEC nationals (i.e. over nationals from other countries) as regards notification of job vacancies which the member-country concerned cannot fill from its own national labour market. Nevertheless, the position of Commonwealth immigrants could be helped by another Article (in the same EEC regulation) that does not affect the obligations of member states arising out of special relations or existing or future agreements with certain non-European countries or territories based on institutional ties. It is our hope that this safeguarding Article will enable those Commonwealth citizens whom we admit (or have admitted) to this country for the purpose of employment to receive priority in the UK labour market equal to that given in existing EEC countries to the nationals of their former or present comparable territories outside Europe.7
Papua/New Guinea
21. The former is a dependent territory and the latter a UN trust territory of Australia. The Australians fear that we are not fully seized of the impact on Papua and New Guinea in relation to their tropical products, especially coconut oil, for which the UK is an important market.
22. The value of UK imports from Papua and New Guinea in 1969 was about £7 million, of which coconut oil formed 41% with the Common External Tariff ranging from 4%-20%. Copra formed 31% of exports and the CET on it is nil. It is true that as the CET is applied over the transitional period to tropical product exports from these countries, they would consequently be helped on this problem by the proposed UNCTAD Scheme for Generalised Preferences for developing countries, since the Scheme is related in the main to manufactured and semi-manufactured goods.
23. For similar problems of the developing independent Commonwealth countries and our own dependent territories, we intend to seek solutions in negotiations by arranging for them to become associated with the enlarged Communities under a renegotiated Yaounde convention. Since, however, Papua and New Guinea are linked to Australia, not a member of the EEC, there is no way in which they can be assisted.
24. Therefore, there is very little we can do for Papua and New Guinea, though this is not to say that their export markets in tropical products would collapse overnight following our entry into the EEC. The transitional period should enable them to attain new markets. When it comes down to it, it will be for the Australian Government as the responsible power to ensure that the Papua New Guinea economies remain viable in the face of any losses they may suffer in the British market. When the points in paragraphs 22 and 23 were put to Mr McEwen by Sir C. O’Neill, he did not react.
Australian Access to the London long-term capital market
25. A particular concern of Australia may be that her right of access to the long-term capital market in London should not be impaired by UK adherence to the EEC’s directives on the freedom of capital movements within the Communities. Article 68(3) of the Treaty of Rome expressly precludes borrowing by EEC Governments and public authorities and bodies in the market of another Member country, unless that country is in agreement. This Article thus provides both us (and Australia) with a complete safeguard. In addition, as the two EEC Directives stand at present, there is an escape clause in Article 3(2) of the First Directive which allows Member countries to maintain restrictions on access to their market for private sector borrowers. The UK will wish, of course, to make use of this escape clause to continue such restriction as necessary. If a Third Directive, which has been in draft for several years, were agreed, Member countries would have to permit access by private EEC borrowers subject to agreed annual limits. This would not debar access by Australia, although it would add to the total burden on the UK. So far as we can see, there is no reason for Australia to fear that her right of access to our capital market might be formally altered by our joining the EEC.
1 Presumably meaning Mr McEwen.
2 Document 267.
3 See UKNA: FCO 30/803.
4 Document 264.
5 See UKNA: FCO 30/803.
6 Frank Beswick, Under-Secretary of State for Commonwealth Affairs, 1966–67.
7 See generally Part 4 of this volume.
[UKNA: FCO 30/803]