In 1960, 67 percent of the total foreign direct investment in the United States came from the countries of the European Economic Community and European free trade area. In turn, U.S. direct investments in Europe were 20 percent of our total. This represents $6.4 billion, of which $2.6 billion was invested in the Common Market countries and $3.8 billion in the countries of the free trade area. [Reprinted from February 1962 AFL-CIO American Federationist] THE COMMON MARKET AND THE UNITED STATES "But the greatest challenge of all is posed by the growth of the European Common Market. Assuming the accession of the United Kingdom, there will arise across the Atlantic a trading partner behind a single external tariff similar to ours with an economy which nearly equals our own. Will we in this country adapt our thinking to these new prospects and patterns-or will we wait until events pass us by?"-President Kennedy in his 1962 state of the Union address. Why should the people of the United States be concerned about the European Economic Community or, as it is more popularly called, the Common Market? Just what is this organization and how and why did it come about? questions are important to every American and answers are needed. THE SIX Such On January 1, 1958, the Treaty of Rome, establishing a European Economic Community, came into effect. The chief purpose of this organization was to mold the six signatory nations of Belgium, France, Italy, Luxembourg, the Netherlands, and West Germany into a single economic unit by 1970. A precedent had already been set for European economic integration when, in 1951, under the guidance of Robert Schuman, the European Coal and Steel Community Treaty was signed in Paris. After it became operational in 1953, the Coal and Steel Community established a comomn market for coal, steel, iron ore, and scrap among the six countries. The Common Market itself was but one of three European organizations, the others being the Coal and Steel Community and Euratom, that are part of a conscious plan to eventually integrate both politically and economically the whole of Western Europe into a United States of Europe. This is a long-term aspiration, but in the meantime it can be fairly said the Common Market has done much to convince not only its members but all Europe of its feasibility. In compliance with the terms of the Rome Treaty, all barriers (customs, duties, quotas) to the free movement of goods, labor, and capital are to be removed throughout the territory of the six countries during a transition period originally fixed at 12 to 15 years. The territory of the Common Market countries is 450,000 square miles in area with a population of 165 million, 73.5 million of whom are in the labor force. Their population and labor force are, therefore, about the same as that of the United States. Not only will goods move freely but the aim of free movement of labor means that a worker will be able to take up a job in any of the Community countries. In addition, freedom for capital movement will enable firms to set up new factories, branches, and agencies, and insurance companies, banks, and wholesale and retail distributors will be able to offer their services anywhere in the Community. Thus these six European states have agreed to have, within a short period of time, completely free trade among themselves. In the United States, section 8 of article I of the Constitution, relating to interstate commerce, guarantees such freedom of trade between the several States. However, during the period immediately prior to the signing of the Constitution, tariff barriers existed between the States. Connecticut used to level a tariff duty on hay imported from Manhattan. Although we are used to a completely free interchange of goods and labor in this country, such a situation in Europe is new and revolutionary. What is probably at least as important from the standpoint of the United States is that the Common Market countries intend to replace the national customs tariffs of the member countries with a single common external tariff. This process began on January 1, 1961, 1 full year ahead of schedule, and it is to be achieved in stages by lowering the barriers in the high tariff countries and rais 1959 * 2309 XP to low who will ing those in the low ones until the median tariff level is reached. As far as individual nations are concerned, Germany and the Benelux group will be required to increase tariffs considerably and France and Italy to lower theirs. ・tariff Eel Germany and the Benelux group-the low tariff members. Thus, it is likely this In 1959, two-thirds of U.S. exports to the six Common Market countries went to establishment of a common tariff against all foreign goods will have direct implications for American industry and labor. For example, at present Belgium has no tariff against automobiles and auto parts produced in the United States. As a result exports to Belgium of these commodities are the largest for any European country. When a common external tariff comes into being Belgium will be required to raise its tariff against our autos and parts and this could well result in a reduction of their imports of these goods, particularly as there will be no tariff restrictions if they buy German- and French-made autos. Now only 3 years old, a good deal of success toward these ends already has been attained. Internal tariffs so far have been reduced by 30 percent and a further 10 percent cut became effective on January 1, 1962. TABLE 1.-Gross national product, industrial production and consumption, selected countries, 1953-60 EEC.. Belgium.. West Germany. Netherlands.. United Kingdom. &C mokes for labor mobbility United States.. NOTE.-EEC totals include Luxembourg. Source: OEEC General Statistics, July 1961, No. 4. Once European manufacturers realized how fast the Common Market was moving ahead they pressured for a speedup in abolishing existing restrictions. Such was their success that all internal quotas (i.e., ceilings on imports) on industrial products were eliminated by the end of 1961-instead of 1970 which was the original deadline. If current recommendations are accepted and praeticed the full Common Market may be achieved 3 full years ahead of schedule. In the area of labor mobility a European social fund has been established that will reimburse member nations for 50 percent of the cost of retraining workers together with temporary unemployment or supplemental wage grants in the cases of conversion to other forms of production. Funds are available for economic development in the less developed countries through the Eurpean Investment Bank, capitalized with $1 billion. It is intended that the funds be used not only for the development of particular regions but also for the financing of projects of interest to the entire EEC. On March 19, 1959, it granted $24 million to four investment projects, two of which were in Sicily, one in southern Italy, and the other on the border of Germany and Luxembourg. Furthermore, one of the most essential aims of the Community steadily coming to fruition is to raise the standard of living of the European worker and his family by spurring the modernization of industry, and it is intended the costs of such modernization will not be borne by the laborer himself. Historically, the problems and also the costs of modernization, insofar as they entail the installation of new plant and equipment of a more efficient nature, were borne by the worker. Unemployment and social hardship were the price paid. But it is the conscious policy of the new European Economic Community that the problems of adjustment be solved with little or no harm to the individuals directly affected. this end, the representatives of organized labor have an important role ay in this program. The trade union movement has a voice in policymaking through the Social Affairs Committee of the European Parliament and in Economic and Social Committee which the European Commission and the ning Council of Ministers must consult before making important decisions. addition, the two main groupings of non-Communist trade unions in the munity countries the free trade unions and the Christian trade unionsformed a special Community-wide federation whose task it is to concert action in affairs of the Common Market. It is also notable that trade à representatives, together with representatives of employers and governs, participate actively in the special committee set up to aid the European mission in administering the European social fund. TABLE 2.-U.S. trade with Europe, 1960 [In billions] бель US trade by Ger by main prof 1960 + BSC, OFT e: "European Economic Community and the United States," by Robert R. Bowie and Theodore Subcommittee on Foreign Economic Policy of the Joint Economic Committee, U.S. Congress; siness Week. THEIR GROWTH can be seen in table 1 the rate of economic growth, measured by the ine in total national production, enjoyed by the countries of the Common et since 1953 has been considerably greater than that of the United States. s also exceeded the growth rates of the other countries of Europe that to remain outside the market. The figures for the largest of thesein-exemplify this. ween 1953 and 1960 the gains made in the Common Market were impresOver this period the total national production (real GNP) increased by rcent in the Common Market countries. In the United States the correing figure was only 19 percent. Per capita gross national product (in erms) went up 36 perecnt as against 6 percent in the United States. Simiwhereas per capita private consumption was up by 12 percent there, ure for the EEC was 31 percent. Perhaps most striking are the changes ustrial production-for the Common Market the figure is 71 percent, nearly imes the United States showing of 19 percent. The Common Market 1 is expected to continue. The United States growth is expected to conThe United States has a problem. It must keep abreast and ahead of >wth of the EEC or lose its position of influence. AND THE SEVEN Why UK, mi original hesitant nations, led by the United Kingdom, stayed out of the Common t and formed the European Free Trade Association. In the case of Kingdom, the reasons she did not join were many. First of all, the tradition of the nation made the Government most unwilling to enter y association that would eventually threaten the political sovereignty of ion. The ties of the Commonwealth through imperial preference and the cated situation of agricultural price supports were also major consideraAbove all it was not felt the new Common Market would be an unquali ccess. ounterbalance the potential power of the six EEC nations, Britain was nental in setting up the EFTA, composed of seven nations: Austria, EFIA desiics link MY LEC Sweden, Norway, Portugal, Switzerland, Denmark, and the United Kingdom. The EFTA was much more loosely organized and had no grandiose longrun political aims. However, the "marriage of convenience" among the seven did not prove too successful and many member countries have now applied for Common Market membership. Negotiations are currently underway to admit Britain. Norway and Denmark have both petitioned for admission. Three other politically neutral members of the seven-Sweden, Switzerland, and Austria-in order to solve their current trade problems, have asked for "association" with the Common Market. It is too early to know whether such a relationship can be worked out. The United Kingdom in applying for membership indicated the European Economic Community in the future cannot but help strengthen itself. Considerable pressures were placed on the Government to reconsider its decision of last July. The importance of the United Kingdom's relationships with the Commonwealth and the very difficult position in which home agriculture would be placed were emphasized but negotiations proceeded notwithstanding. When the United Kingdom joins, and it seems this wil be only a matter of time, it will take with it a country of 52.5 million people with a national income of $65.1 billion. It is a nation that in 1960 imported $12 billion worth of goods and exported another $10 billion-much of it to the United States. TABLE 3.-Some chief U.S. exports to the Common Market countries, It is, therefore, almost certain that within 5 years Europe will present to the United States a single united market of at least 10 countries, with a combined population of almost 250 million. Thus by 1967, the European Common Market will be an economic unit greater than the United States in population and labor force. THE U.S. POSITION When viewing the Common Market from this side of the Atlantic certain questions seem to suggest themselves as being relevant: "Just what will be the effect of a Common Market in Europe upon our domestic economy?" "What steps should we take to insure that in our relations with this great newly rising trading bloc we may stand to benefit rather than suffer?" At present Europe 1 is by far the largest single export market for the goods and services produced in the United States. In 1960 it bought over $6 billion of our exports, accounting for 31 percent of our total, and in turn sold to us $4 billion in goods and services, 27 percent of our total imports. The lion's share of this trade with Europe was with the countries of the Common Market. The figures for 1960 (see table 2) show that 19 percent of all U.S. exports went to countries in the EEC whereas we purchased from them 16 percent of all our imports. The rapid economic growth experienced by the countries of Western Europe in recent years has been predominantly responsible for the expanded markets for American products. U.S. exports to Europe increased by $3.3 billion in 1960) 1 Europe in this context refers to Western Europe as U.S. trade with Eastern Europe negligible. Furthermore nearly all American trade with Europe is with the countries of the European Economic Community and the European free trade area, i.e., the Six and Seven. r 1959, a fact that helped to alleviate the impact of the recession in our estic economy. As the standard of living of the West European worker s he is able to buy considerably more consumer goods of the type in which United States pioneered. Refrigerators, washing machines, garbage disposal Es, and dishwashers are but a few. The techniques and know-how of producfor these goods are already well known in the United States and therefore Nation is in a position to export such commodities to Europe. he complete abolition of internal tariffs among the members of the Common ket can be expected to stimulate inter-European trade in many commodities. sident Kennedy and the administration, having foreseen these possibilities, pressing for powers so the United States will be in a better position to gain down the new trade barrier of a single common external tariff around ope and in so doing keep the markets of Europe open to American goods. TABLE 4.-U.S. investments in countries of EEC and EFTA, 1958 to 1960 + EFTA us invest in ce: U.S. Department of Commerce: Survey of Current Business, August 1961. e data show that exports from this country to the Common Market cour e rapid economic growth in Europe that was primarily responsible for the POLICY IMPLICATIONS thing seems to be certain-that unless the European Economic Commuees some signs of willingness on our part to lower tariffs, her continuing al tariff wall will mean serious problems for our domestic economy in of unemployment, idle plant and capacity, etc. he United States adopts a liberal trade policy, besides increasing the total and volume of trade, other repercussions with regard to our relations with e are likely to occur. The present balance-of-payments crisis may well be for not only will increased exports entail a more favorable balance of è trade but if European tariffs are reduced the problem will be alleviated extent that incentives for U.S. businessmen to invest in Europe and thus e behind the tariff wall are weakened. sident Kennedy in his state of the Union message made it celar the adminon is well aware of the problem posed by the Common Market. In order he United States might benefit rather than suffer from the existence of pidly growing trading bloc he asked Congress for certain powers that will this country to bargain down the European tariff wall. Such negotiations sential if American exports to Europe are to be maintained. As has been , the expansion of such export trade is instrumental in building up our surplus which in turn relieves the pressure on the balance of payments. |