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875 UNIVERSITY D'OTTAWA - ECOLE DES GRADUES
EUROPEAN ECONOMIC INTEGRATION
by J . P . Reny
Thesis presented to the Faculty of Social Sciences of the University of Ottawa as partial fulfillment of the requirements for the degree of Master of Arts
Ottawa, Ontario, 1961
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UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
UMI Number: EC55729
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TABLE OF CONTENTS
Pages
INTRODUCTION v
CHAPTER
I * BACKGROUND TO CONCEPT OP ECONOMIC INTEGRATION. 1
A. Voluntary Economic Integration 1 B. International Economic Interdependence.... 4 C. International Trade and the Classical
Approach 8 D. The International Monetary System 11 E. Breakdown of the Gold Standard 13 F. Breakdown of Multilateral Trade 16 G. The Role of the U.S 19 H. The Unemployment Problem 21 I. Attempts at Recovery 22 J, Discouraging Results 27 K. Economic Cooperation Considered 32
II - THE PROCESS OF GRADUAL INTEGRATION 36
A. Introduction 36 B. Benelux 40 C. The North Atlantic Treaty Organization.... 45 Do Organization for European Economic
Cooperation (OEEC) 50 E. European Payments Union (EPU) 58 F. European Coal and Steel Community 59
III - THE EUROPEAN ECONOMIC COMMUNITY 65
A» Introduction 65
B. The Institutions of the Community 71 1 • The Assembly 72 2. The Council of Ministers 73 3. The Commission 74 4. The Court of Justice 75 5. The Commit tees 75
UNIVERSITY OF OTTAWA SCHOOL OF GRADUATE STUDIES
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TABLE OF CONTENTS
Pages
C. The Customs Union 76 1. Internal Trade 76 2. External Trade 78
D. The Broader Economic Community 79 1. Agriculture 79 2. Transportation 80
E. Free Movement of Persons, Services and Capital 81 Persons and Services 81 Capital 82
F» Associated Overseas Countries and Territories 82
G. Financial Provisions 84 1. The European Social Fund 84 2. The Development Fund 85 3. The European Investment Bank 85
H. Early Developments 85
I. Implications 91 1. Internal Effects 91 2. External Effec ts 97
J. European Free Trade Association 100 Views on EEC and EFTA 104
IV - IMPLICATIONS FOR CANADA 110
A. Introduction 110 B. Most Important Export Markets 113 C. Major Export Commodities 115
The United Kingdom Market 115 D. The European Economic Community 123 E. Other E.F.T.A. Countries 131 F. Future Prospects 137
CONCLUSION 146
BIBLIOGRAPHY 151
APPENDIX A 157
APPENDIX B 162
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA - ECOLE DES GRADUES
LIST OF TABLES
Pages
I.- Comparison of Imports of Manufactured Goods
to Manufacturing Activity 6
II.- Industrial Production 28
III.- Percentage Change from 1929 in a) Volume of Industrial Production, and
b) National Income 31
IV.- Economic Progress of OEEC Members 56
V.- Major Export Markets for Canadian Products... 114
VI.- Comparison of Major Canadian Exports to Selected Areas of the World 116
VII.- Breakdown of Canadian Exports to the United Kingdom 117
VIII.- Canadian Exports to Countries of the European Economic Community 124
IX.- Breakdown of Canadian Exports to the European Economic Community 126
X.- Canadian Exports to Countries of the European Free Trade Association 133
XI.- Breakdown of Canadian Exports to Norway, Sweden and Switzerland combined 134
XII.- Index of Industrial Production and Volume of Foreign Trade of EEC Countries 138
XIII.- Comparison of Selected Commodities Exported from Canada to the U.S.A. and the World During 1960 142
XIV.- Breakdown of Canadian Exports to Belgium and Luxembourg 157
XV.- Breakdown of Canadian Exports to the Netherlands 158
XVI.- Breakdown of Canadian Exports to France 159
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
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LIST OF TABLES iv
Pages
XVII.- Breakdown of Canadian Exports to Italy.... 160
XVIII.- Breakdown of Canadian Exports to Germany.. 161
XIX.- Canadian Exports to Norway 162
XX.- Canadian Exports to Sweden 163
XXI.- Canadian Exports to Switzerland 164
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
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INTRODUCTION
The process of economic integration presently taking
place in Europe constitutes a gigantic and revolutionary step
for this traditionally nationalistic area of the world. In
terms of the economic and political composition of Western
Europe prior to World War II, what is happening in these
countries at this time verges on the miraculous. Of equal
importance, however, are the implications which these develop
ments hold for other trading nations of the world. Canada,
as a leading world trader is understandably concerned as to
the possible effects of these developments upon its foreign
trade•
The point of this research is twofold. This study is
directed to establishing both the nature and implications of
the process of economic integration taking place in Western
Europe.
Recent developments in Europe have led to the forma
tion of two separate trading groups. The first was the
European Economic Community (EEC) which linked France, Ger
many, Italy and the Benelux countries in an economic union.
The Treaty establishing EEC provides for eventual free trade
amongst member countrie s, a common external tariff and com
plete economic unification under supra-national institutions.
In effect, when Treaty provisions become fully implemented,
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
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INTRODUCTION vi
these countries will be only one step removed from political
confederation.
Other countries of Western Europe, while admitting
the potential benefits of economic integration, did not wish
to sacrifice much of their political and economic autonomy
as required by that economic unification. Thus, the United
Kingdom, Sweden, Norway, Austria, Switzerland, Denmark and
Portugal decided to form a free trade area known as the
European Free Trade Association (EFTA). While the EFTA calls
for the abolishment of tariffs and other impediments to free
trade amongst member countries, it does not provide for the
establishment of a common external tauiff, nor does it pro
vide for eventual economic union. Member countries will
retain their individual external tariffs for imports origina
ting outside the free trade area.
Although the introduction of EEC is looked upon as a
most significant economic, as well as political development,
the numerous preliminary undertakings in economic cooperatioi
in Europe cannot be ignored, since it is due, in great part,
to the experience derived from their successes and short
comings that this latest, and most ambitious step was made
feasible. It is therefore of great importance to study what
previous developments led to, and rendered possible, the
implementation of EEC, and which lent economic logic to the
formation of EFTA. A study of the various preparatory schemejs
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
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INTRODUCTION v i i
i s e v i d e n t l y a p r e r e q u i s i t e to a sound u n d e r s t a n d i n g t o p r e
s e n t happenings i n Europe .
Another a s p e c t , which i s j u s t as impor tan t and
meaningful as p a s t expe r i ence i n economic c o o p e r a t i o n , i s the
e v o l u t i o n of economic t h i n k i n g , r e f l e c t e d i n government p o
l i c y , which l e d t he se c o u n t r i e s to choose economic coopera
t i o n and i n t e g r a t i o n r a t h e r t han n a t i o n a l i s m and p r o t e c t i o n i s m .
Thus, a l t hough one of t h e main p o i n t s of t h i s r e s e a r c h w i l l
be to de t e rmine the n a t u r e of EEC and EFTA, an a t t empt w i l l
a l s o be made to d i s c o v e r the n a t u r e of e a r l i e r developments ,
and t h e i r c o n t r i b u t i o n i n making t h e s e l a t e s t s t e p s a r e a l i t ;
The second p o i n t of t h i s s tudy i s to show the i m p l i
c a t i o n s of t he se t r a d i n g and economic developments i n Westert.
Europe upon Canada ' s f o r e i g n t r a d e . Since t h e s e c o u n t r i e s
c o n s t i t u t e impor tan t markets for Canadian p r o d u c t s i t follows
t h a t changes i n t r a d i n g p a t t e r n s w i l l undoubtedly have
meaningful e f f e c t s upon Canada ' s f u t u r e expor t p r o s p e c t s .
The a n a l y s i s under taken i s no t i n t ended t o s t u d y t h i s a s p e c t
of Canadian e x p o r t s on a p r o d u c t - b y - p r o d u c t b a s i s , bu t r a t h e i
i t i s i n t ended to gauge whether or not economic i n t e g r a t i o n
i n Europe w i l l prove b e n e f i c i a l i n t h e long run t o bo th
European and Canadian economic s t r e n g t h and s t a b i l i t y , and
t o world t r a d e . B r i e f l y , t h e r e f o r e , t h i s study i s i n t ended
t o p o i n t out the f u l l n a t u r e of the changes which a r e t a k i n g
p l a c e i n Western Europe and to de te rmine what b e n e f i t s may
be d e r i v e d . UNIVERSITY OF OTTAWA ~ SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA - ECOLE DES GRADUES
INTRODUCTION v i i i
The approach used i n the e x p l o r a t i o n of t h e problem iii
t h r e e f o l d . The e m p i r i c a l approach i s used w i t h r e s p e c t to
the s t u d y of the e v o l u t i o n of economic t h i n k i n g tfiich g r a
d u a l l y , i n r e sponse t o the problems of a changing economic
s e t t i n g , passed through phases of f r e e t r a d e , p r o t e c t i o n i s m
and b i l a t e r a l i s m , r e g i o n a l i s m , and i n - t o d a y ' s r e f i n e d form
p r o v i d e s j u s t i f i c a t i o n for economic i n t e g r a t i o n . The second
approach i s h i s t o r i c a l , w i th r e s p e c t to the d e s c r i p t i o n of
the v a r i o u s s t e p s p r e c e d i n g the fo rma t ion of EEC and EFTA,
i n c l u d i n g the d e s c r i p t i o n of these two most r e c e n t deve lop
m e n t s . The t h i r d approach i s a n a l y t i c a l , w i t h r e s p e c t t o the
i m p l i c a t i o n s of these developments for Canada and Western
Europe .
The g e n e r a l problem of economic c o o p e r a t i o n i s n o t a
new concept f o r European c o u n t r i e s , bu t i t i s one which i n h e
r e n t l y c o n t a i n s impor tan t p o l i t i c a l c o n s i d e r a t i o n s , and t hus
h a s always r e c e i v e d much a t t e n t i o n i n t h e l i t e r a t u r e . I n the
pos twar p e r i o d c o n s i d e r a b l e body of l i t e r a t u r e , both o f f i c i a l
and i n t e r p r e t i v e , has emerged based on t h e development of
i n s t i t u t i o n s fo r c l o s e r economic c o o p e r a t i o n . However, the
main c h a r a c t e r i s t i c of t h i s l i t e r a t u r e i s t h a t i t cove r s only
one a spec t or one i n s t i t u t i o n , or a t t h e most a few, a t one
t ime , wi thou t p r o v i d i n g any r e l a t i o n s h i p between the numerous
developments i n the f i e l d of economic c o o p e r a t i o n . The
problem of economic i n t e g r a t i o n , as such, i s much more r e c e n t ,
UNIVERSITY OF OTTAWA SCHOOL OF GRADU -\TE STUDIES
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INTRODUCTION ix
having been brought to the forefront by the formation of EEC,
but already the literature is voluminous. Unfortunately, the
topics are selective, some dealing with the institutions,
others with the meaning and implications for specific areas
of trade. Except for a few articles in the professional
economic literature and in government publications, the
Canadian position has not been explored. One purpose of this
study is to combine the various partial approaches to the
problems of economic cooperation and integration in Europe
and to provide, as much as possible, an overall picture of
the present state of practical developments and their impli
cations for Canada.
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
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CHAPTER I
BACKGROUND TO CONCEPT OF ECONOMIC INTEGRATION
A. Voluntary Economic Integration
Voluntary economic i n t eg ra t i on amongst countr ies i s
a r e l a t i v e l y new economic policy concept today only inasmuch
as i t s meaning has been adapted to f i t a new set of circum
s t ances . But economic i n t eg ra t i on often fo rc ib ly imposed in
i t s wider sense i s a concept as old as wars, colonizat ions ,
annexations or confederat ions. The f r u i t s of the v i c t o r in
war have always included economic cont ro l and, i f des i red,
i n t e g r a t i o n ; the growth of the Roman Empire contained obviotjs
signs of economic i n t eg ra t i on ; the defeated country could
expect t ha t i t s economy would be in tegra ted , to some degree
a t l e a s t , with the economy of the v i c t o r s ; a successful ly
administered colony formed an i n t e g r a l p a r t of the mother
coun t ry ' s economy - the colony supplied the raw m a t e r i a l s ,
or precious metals, and provided a market for the mother
count ry ' s f in ished products . The mother country supplied
the investments, and t h e i r r i s k s could be considered almost
as safe as those involved in domestic investments, although
they usual ly were more remunerative. Annexation of one
country, or p a r t of a country, by another most obviously
includes some form of economic i n t e g r a t i o n , while in
UNIVERSITY OF OTTAWA ~ SCHOOL OF GRADUATE STUDIES
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BACKGROUND TO CONCEPT OF ECONOMIC INTEGRATION 2
confederation voluntary economic integration is always one
of the basic considerations.
The rise of Germany as a great economic and poli
tical power near the end of the nineteenth century coincided
with such a process of economic and political integration.
Economic unification was achieved through the Zollverein, th 5
German customs union of 1830, which was completed by 1840.
Friedrich List, who made the major contribution to the
establishment of this customs union, conceived of economic
unification as a prerequisite to sound national economic
development. In his view, every nation should follow a
policy of free trade only until it had advanced to the point
where it could undertake manufacturing for itself. At this
stage of development, a system of protection should be
employed to allow the growth of domestic manufacturing indus
tries. When such industries had reached the stage where
they could meet foreign competition, the national policy
should revert again to free trade. Although this - his
doctrine of "stages" of economic development - was not novel
as a theoretical economic concept, the practical conclusions
he drew from it for Germany proved beneficial. He became
convinced that Germany had reached the stage where further
1 Joseph A. Schumpeter, History of Economic Analysis, New York, Oxford University Press, 1954, pp. 504-505.
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BACKGROUND TO CONCEPT OF ECONOMIC INTEGRATION 3
economic progress would require the establishment of an
extended and conveniently bounded territory, together with a
vigorous expansion of manufactures and commerce throughout
the territory. The practical solution was to introduce judi •
clous protective legislation within a customs union compri
sing all German lands. The successful application of his
ideas to the formation of the German Zollverein undoubtedly
laid the necessary economic foundation to the political uni
fication of Germany in the Reich established by Bismarck in
1870.
However, despite the familiarity of the concept of
economic integration in its wider sense, the current meaning
which it connotes differentiates it from all past experien
ces. In its present day usage "economic integration" implies
voluntary cooperation of two or more countries with each
other; it excludes the sovereignty of one over the other as
in the case of conquest by war, colonization or annexation;
and it excludes any immediate political integration as in
confederation. It thus becomes a new concept whereby autono
mous nations desiring to preserve sovereignty are nonetheless
ready to integrate "economically". It is a new concept
because it implies that, although it is desirable to remain
politically independent, it is equally desirable to integrats
on a cooperative basis for economic reasons.
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA - ECOLE DES GRADUES
BACKGROUND TO CONCEPT OF ECONOMIC INTEGRATION 4
B. International Economic Interdependence
The recourse to economic integration as a solution
to various economic problems is supported by past interna
tional trade theories and empirical studies. It is based on
the belief that this sort of arrangement will provide both,
the advantages to be gained from free trade - at least on a
regional basis, and the benefits of increased strength vis
a-vis competitors. That economic integration is today, for
certain countries, a desirable economic goal implies of ne
cessity a changing outlook towards international economic
interdependenc e.
Adam Smith in his "Wealth of Nations" provides a
good insight into the classical approach to international
interdependence. In part he contends that " the natural
advantages which one country has over another in producing
particular commodities are sometimes so great, that it is
acknowledged by all the world to be in vain to struggle with
them".2
He accepts the economic dependence of one country
upon others as a fact and bases this dependence upon differ
ential costs. Such interdependence is quite obvious when
dealing with agricultural commodities and industrial raw
materials, since the inequalities are due to natural advantages
2 Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Edwin Carman Edition, New York, The Modern Library, 1937, p. 425.
UNIVERSITY OF OTTAWA ~ SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA - ECOLE DES GRADUES
BACKGROUND TO CONCEPT OF ECONOMIC INTEGRATION 5
n o t e a s i l y overcome. But even i n t h e more complex i n t e r n a
t i o n a l t r a n s a c t i o n s of i n d u s t r i a l i z e d n a t i o n s , where n a t u r a l
advan tages a r e no t so e a s i l y d i s c e r n i b l e , economic i n t e r
dependence i s n o t e l i m i n a t e d . To the c o n t r a r y , t he i n t e r d e
pendence r e f l e c t e d i n the l e v e l of t r a d e amongst i n d u s t r i a l i
zed c o u n t r i e s , i n c r e a s e s wi th t h e growth i n domest ic i n d u s
t r i a l a c t i v i t y . U n t i l t h e c o l l a p s e of i n t e r n a t i o n a l t r a d e
i n t h e e a r l y 1 9 3 0 ' s , the growth of manufac tur ing s e c t o r i n
i n d u s t r i a l c o u n t r i e s f a r from r e n d e r i n g t h e s e c o u n t r i e s inde
pendent of f o r e i g n t r a d e i n manufactured a r t i c l e s , s t imu
l a t e d the import of such a r t i c l e s .
1'he growth of b o t h manufac tur ing a c t i v i t y and
impor t s of manufactured a r t i c l e s i n t h e f i v e i n d u s t r i a l i z e d
c o u n t r i e s covered by Table I i n d i c a t e s a c e r t a i n p a r a l l e l i s m
between the se two f a c t o r s . From the p e r i o d 1881-1885 t o
1911-1913 growing domest ic manufactures were g e n e r a l l y accom
pan i ed by i n c r e a s e d impor ts of manufactured p r o d u c t s i n each
one of the c o u n t r i e s cove red . The d e c l i n e i n manufac tur ing
a c t i v i t y i n France , Germany and t h e Uni ted Kingdom du r ing
the p e r i o d 1921-1925 was e q u a l l y accompanied by a f a l l i n
impor t s of manufactured p r o d u c t s i n t o t h e s e t h r e e c o u n t r i e s .
On the o t h e r hand, i n the Uni ted S t a t e s and Sweden where
domest ic manufac tur ing a c t i v i t y d id no t d e c l i n e dur ing t h i s
3 League of Nations, I n d u s t r i a l i z a t i o n and Foreign Trade, Economic, Financia l and Trans i t Department, Geneva, 1945, pp. 76 to 8 1 .
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
(O TABLE I
Comparison of Imports of Manufactured Goods to Manufactur ing A c t i v i t y ( Index Numbers; 1913 = 100)
France Germany U.K. U.S .A. Sweden I m p . 1 Mfg.B Imp . 1 Mfg.* I m p . 1 Mfg.2 I m p . 1 Mfg.2 Imp. 1 Mfg.2
1881-1885 1886-1890 1891-1895 1896-1900
1901-1905 1906-1910 1911-1913 1921-1925
1926-1929 1930 1931-1935 1936-1938
52 48 48 49
62 82 106 54
61 98 71 52
41 44 50 60
64 80 97 95
131 140 114 118
45 52 51 54
64 85 97 68
95 87 61 50
27 34 40 56
69 81 97 78
112 102 91 138
44 50 58 64
89 81 96 72
112 119 83 92
57 61 65 74
77 83 93 76
93 91 92
122
59 63 61 53
69 88 95 95
140 112 78 94
24 32 38 45
66 79 92
129
164 148 118 167
47 58 61 68
76 86 93
105
154 199 159 254
18 23 33 58
70 84 95 96
134 154 161 223
1 Quant i t a t ive value of imports of manufactured a r t i c l e s . 2 Quan t i t a t ive value of manufacturing a c t i v i t y .
Source: League of Nations, I n d u s t r i a l i z a t i o n and Foreign Trade, Geneva, 1945, pp . 130, 162, 163.
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BACKGROUND TO CONCEPT OF ECONOMIC INTEGRATION 7
p e r i o d , impor t s of manufactured a r t i c l e s were m a i n t a i n e d . The
1926-1929 p e r i o d shows i n c r e a s e s over the p r e v i o u s p e r i o d i n
a l l f i v e c o u n t r i e s , f o r b o t h domest ic p r o d u c t i o n and impor t s
of manufac tures , whereas t h e d e c r e a s e s expe r i enced i n 1930 by
Germany and the Uni ted S t a t e s and the i n c r e a s e s i n France and
Sweden l e n d f u r t h e r suppor t t o the e x i s t e n c e of t h i s p a r a l l e
l i s m . The exper i ence i n t h e U.K. i s the e x c e p t i o n , however,
s i nce a s l i g h t dec r ea se i n domest ic manufac tur ing i n 1930
from t h e p r e v i o u s p e r i o d , was accompanied by a s l i g h t i nc rea se
i n i m p o r t s .
I n the two s u b - p e r i o d s i n d i c a t e d by Tstbl.e.\I f o l l o w
ing t h e year 1930 the r e l a t i o n s h i p between p r o d u c t i o n and
t r a d e appears to have been severed i n those c o u n t r i e s which
took s t e p s to deve lop t h e i r manufac tur ing a t t h e expense of
i m p o r t s . The i n c r e a s e d domest ic manufac tur ing a c t i v i t y i n
France and Germany du r ing t h e p e r i o d 1931-1938 was accompa
n i ed by a dec rease i n impor t s of manufactured p r o d u c t s . I n
t h e Uni ted Kingdom, d u r i n g t h i s same p e r i o d , a r e co rd l e v e l
of domest ic manufac tu r ing a c t i v i t y was accompanied by on ly a
smal l i n c r e a s e i n i m p o r t s . The p r o t e c t i o n i s t p o l i c y of t h e
Uni ted S t a t e s i s a^asindicated d e s p i t e the growth i n impor t s
of manufactured p r o d u c t s i n t o t h a t c o u n t r y du r ing t h a t p e r i o d .
While i t s manufac tur ing a c t i v i t y was s l i g h t l y h i g h e r t h a n
the l e v e l r eached i n t h e 1926-1929 p e r i o d , t h e index of
impor t s dec reased from 140 to 94. Amongst t h e s e f i v e coun-
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BACKGROUND TO CONCEPT OF ECONOMIC INTEGRATION 8
t r i e s only Sweden con t inued the growth p a t t e r n expe r i enced
p r i o r to 1930.
I t would seem, t h e r e f o r e , t h a t t h e s e l f - s u f f i c i e n c y
which could be assumed t o grow w i t h i n d u s t r i a l i z a t i o n i s
e v i d e n t l y a f a l l a c y - u n l e s s i t i s an imposed s e l f - s u f f i c i e n c y
th rough h i g h t a r i f f s , quotas and o t h e r b a r r i e r s to t r a d e .
C. I n t e r n a t i o n a l Trade and t h e C l a s s i c a l Approach
Desp i t e t h e f a c t t h a t c e r t a i n c o u n t r i e s may have orif-
g i n a l l y sought i n d u s t r i a l i z a t i o n as a means t o i n c r e a s e d
s e l f - s u f f i c i e n c y , t h i s ve ry development l e d to i n c r e a s e d
i n t e r n a t i o n a l i n t e r d e p e n d e n c e ; and as i n t e r n a t i o n a l t r a d e
grew b o t h i n volume and i n complexi ty , c l a s s i c a l t heo ry of
i n t e r n a t i o n a l t r a d e , mainly based on R i c a r d o ' s t heo ry of coaj-
p a r a t i v e c o s t s , found i t s e l f i n c r e a s i n g l y want ing i n the
f ace of p r a c t i c a l development .
According t o c l a s s i c a l t h e o r y , f r ee t r a d e enabled
each coun t ry to s p e c i a l i z e i n the p r o d u c t i o n of those goods
which i t cou ld produce r e l a t i v e l y cheap ly and import t h o s e
i t ems which f o r e i g n c o u n t r i e s could produce a t a compara t ive
a d v a n t a g e . I n t heo ry , t h e r e f o r e , f r e e t r a d e l e d t o t h e o p t i
mum a l l o c a t i o n of r e s o u r c e s and to some form of i n t e r n a t i o n a l
4 Stephen Enke and Vi rg i l Salera, In t e rna t iona l Economics, New Jersey, Pren t ice -Hal l , 1947, pp. 201 and seq.
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economic equilibrium based on the rules of the gold standard,
In this way any international disequilibrium could be recti
fied through readjustments in the quantity of money and the
price structure in the domestic economy. Thus, stability in
the domestic economy was a secondary consideration to equi
librium in the world economy.
Classical theory of international trade assumed that
domestic considerations, such as full employment, distribu
tion of income and price stability could, in effect, be
secondary to objectives of international equilibrium. It
emphasized the role of money flows and their impact upon
corrective price adjustments, and the restoration of a compe
titive pattern of international prices and costs, while prac
tical developments placed greater emphasis on the mechanism
of income transfers and their impact upon domestic economic
activity and employment. This did not weaken the classical
views as to the effectiveness and equilibrating tendencies
of balance of payments adjustments, but it raised serious
doubts about the theoretical desirability and practical
acceptability of such mechanism wherever its main burden fel .
upon domestic economic activity and employment.
In supporting free trade, the classical approach was
increasing the vulnerability of one country to the economic
conditions of its trading partners; and this, together with
the general "laissez faire" approach to domestic activity,
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provided no defense for the domestic economy against extern
ally produced instabilities. A study made by the National
Bureau of Economic Research shows the parallel movements in
business conditions in seventeen countries of the world bet-
ween 1890 and 1925. It is evident the gold standard system
linking these countries contributed a great deal to this
parallelism, through the adjustments that this system required
of each domestic economy, especially in their price struc
ture, in order to reach a position of equilibrium vis-a-vis
the rest of the world. Despite certain irregularities, a
general tendency towards parallelism in the trends of busi
ness activity - depression, recovery, prosperity and reces
sion - is conclusively demonstrated by this study. The interL-
sity, timing and importance of cyclical movements varies
from one country to another, but it is the exception rather
than the rule for any country to have remained unaffected by
major booms or depressions occurring within the economies of
its trading partners.
However, the increasing importance of domestic econ
omic considerations in the nineteen thirties necessitated
certain rigidities in internal price, cost and wage structures.
These latter factors could no longer be submitted to the
5 League of Nations, Economic Stability in the Postwar World, Department of Economics, Geneva, 1945, p. 88.
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external fluctuations inherent in free trade policies under
the gold standard system. Some solution was necessary to
lessen the impact of international adjustments upon the leva,
of domestic economic activity and employment. International
trade theory could no longer concern itself strictly with
problems of trade, but had to give increasing consideration
to the problem of vulnerability of each domestic economy to
the soundness or instability of its trading partners.
D. The International Monetary System
Although the gold standard was a method of relating
the value of national currencies to each other it was, in arrangement
effect, far more than just a "world currency'/. It was a
system which provided the almost automatic co-ordination of
the multitude of national economies and national economic
policies; it was in fact the framework of an integrated worl|d
economy. Consequently, as demonstrated by the experience
of the thirties, the problems raised by its breakdown could
not be solved by monetary reforms alone.
The gold standard system had two distinctive featu
res. First, it provided a fixed value for all national cur
rencies in terms of gold. This meant that any disequilibria
in the balances of international payments could not normally
be corrected by adjustments in exchange rates, but had to be
corrected by adjustments in national price, cost, and income
levels to the fixed exchange rate3. UNIVERSITY OF OTTAWA ~ SCHOOL OF GRADUATE STUDIES
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The other, perhaps even more essential, feature of
this system was its inherent relationship to a competitive
market economy within which the numerous adjustments to eco
nomic change could be absorbed. To perform its function as a
world monetary system and co-ordinating mechanism, the gold
standard required adjustments of balances of payments to
every change in volume and flow of international trade and
international capital movements;it necessitated adjustments of
national price, income and employment levels to the require
ments of equilibrium in the balance of payments; it also re
quired adjustments of the volume of production of particular
goods and services and of the amounts of capital invested
and the number of persons employed in particular industries
to meet all the aforementioned international economic
factors, such as balance of payments equilibrium.
It is apparent therefore that as long as the gold
standard functioned, the countries accepting it were, in
fact, voluntarily surrendering a substantial part of their
autonomy in determining their domestic economic policies. It
follows, therefore, that once enough countries would refuse,
even if only tacitly, to follow the "rules of the game", the
system would inevitably fall.
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E . Breakdown of t h e Gold Standard
Although the breakdown i n m u l t i l a t e r a l f o r e i g n ex
change c o n v e r t i b i l i t y can be p a r t l y a t t r i b u t e d t o p s y c h o l o
g i c a l f a c t o r s , mainly a g e n e r a l l o s s of conf idence by more
and more c o u n t r i e s i n the e x i s t i n g system, s e v e r a l o t h e r mor|s
t a n g i b l e causes a r e a l so d i s c e r n i b l e . Gold s tocks h e l d as
f o r e i g n exchange r e s e r v e s were becoming i n c r e a s i n g l y uneven
l y d i s t r i b u t e d i n favour of the Uni ted S t a t e s . This unba
l anced d i s t r i b u t i o n was mainly due to t h e f a i l u r e of most
c o u n t r i e s a t one time or another t o obse rve , i n t h e i r i n t e r
n a l monetary p o l i c i e s , the r u l e s of t he gold s t anda rd
sys tem. Under a system of f i x e d exchange r a t e s such as the
go ld s t anda rd imposed, t h e maintenance of e q u i l i b r i u m i n the
b a l a n c e s of i n t e r n a t i o n a l payments r e q u i r e d each c o u n t r y to
a d j u s t i t s domest ic p r i c e , c o s t , income l e v e l t o t h e s t a t e
of i t s ba l ance of payments . A " s u r p l u s " c o u n t r y had t o
i n f l a t e , a " d e f i c i t " c o u n t r y to d e f l a t e , i t s domest ic c r e d i t
s t r u c t u r e . Thus, accord ing t o the r u l e s of the game, the
U.S.A. i n 1927-1929 should, i n view of h e r l a r g e s u r p l u s ,
have i n f l a t e d a t t h e r i s k of s t i m u l a t i n g s t i l l f u r t h e r the
runaway boom. Great B r i t a i n should have , a c c o r d i n g t o t h e s e
r u l e s , d u r i n g the same p e r i o d , d e f l a t e d s t i l l f u r t h e r i n o rder
6 H.W. Arndt,"The Economic Lessons of the Nineteen T h i r t i e s " , Royal I n s t i t u t e of In te rna t iona l Affa i r s , London, Oxford Univers i ty Press , 1944, p . 287.
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to reduce costs, and so stimulate exports and curtail import
The fact that both countries, in common with most others,
refused to adhere rigidly to these rules automatically ren
dered the gold standard system of adjustment inoperative. In
addition, there was also the failure of the supply of gold
to increase proportionately to the growth in international
trade. The failure of Britain to increase its exports, the
tendency towards relative over-production in world agricul
ture and primary products, with its unfavourable effect on
the balance of payments position of most primary producing
countries, were also important indications of the eventual
breakdown in the world monetary system.
The historical origin of the breakdown in the inter
national gold standard, however, may well have stemmed from
France's decision in 1928 to accept nothing but gold in
settlement of the enormous surplus accruing to her from repaj-
triation of capital and from its current balance of payment
surplus.^ This move, together with the eventual introduc
tion of exchange control by Germany, to halt the depletion i|n
its already dwindling foreign exchange reserves, placed
London, the traditional financial center, under heavy pres
sure. The wide usage of the Pound Sterling in international
payments made it one of the most commonly held foreign cur
rency in most exchange reserves.
7 League of Nations, International Currency Experience, Lessons of the Inter-War Period, Geneva, 1944, p.39.
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Under the heavy and anxious foreign repatriation of
gold, the U.K. government was forced to suspend the Central
Bank's obligation to sell gold in exchange for silver in
September 1931. Thus the gold exchange standard, which had
maintained convertibility of currencies, fell and was re
placed by inconvertible currency blocs, fluctuating exchange
rates and exchange controls.
As early as 1933 four groups of currency systems
were in effect. The Gold Bloc, which comprised France, Swit
zerland, the Netherlands, Italy (until 1934), Belgium and
Luxembourg (until 1935), maintaining the parity of their cur
rencies and full convertibility. These countries had to
depend mainly on high tariffs and import quotas on a large
scale in order to keep their trade in balance, since their
currencies were, for the most part, overvalued as a result
of depreciation in numerous other countries. The second
group was composed of countries maintaining an artificial
parity by means of exchange control such as Germany,and
Italy (after 1934). In these countries, quotas were supple
mented by the rationing of foreign exchange for the purchase
of imports. Exchange control was soon developed by these
countries into an instrument of further economic warfare by
minimizing the need for, and maximizing the acquisition of,
free exchange currencies. It was, in a sense, a return to
mercantilism. The third group of currency bloc was composed
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of those countries with depreciated and controlled exchanges
most Latin American countries, and some European, such as
Greece and Czechoslovakia. For this group, extreme measures
of trade restriction were not required to supplement initial
depreciation and control, while at the same time these coun
tries could pursue policies of domestic reflation, although
not all did. The fourth group of countries depreciated thei
currencies, but maintained convertibility. These included some
the U.K.,/British Dominions, the Scandinavian countries undefr
the Sterling Bloc; also the U.S., whose dollar was allowed
to depreciate in April 1933.
F. Breakdown of Multilateral Trade
With the collapse of the world monetary system and
its replacement by separate currency blocs, multilateral
trade was replaced by a general move towards bilateralism.
This move was due, not only to the impossibility of conduc
ting multilateral trade with inconvertible currencies, but
also as a means to prevent any further deterioration in do
mestic economic conditions.
The serious internal economic conditions facing most
countries demanded immediate attention. The drastically re
duced levels of production and income accompanied by mass
unemployment required that governments give increased atten
tion to domestic problems.Priorities were forcibly reversed
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domestic problems had to be attended to first and foremost,
even at the sacrifice of international economic considera
tions. Any further deterioration in the internal situation
of individual countries had to be prevented to all costs.
Employment and production levels had to be revitalized, and
most countries attempted to do just this through replacement
of imports by domestic production. It therefore followed
that, since trade could not be dispensed with completely, it
should at least be controlled in a manner most advantageous
to domestic production and employment.
In this way discriminatory trading agreement became
more and more prevalent as each country sought to restrict
its trade to those countries with whom it felt some advan
tage could be gained. Such arrangements were intended to
foster a certain stability in a country's international trad^
which, in turn, would promote greater stability in domestic
production and employment levels.
In many cases, however, bilateral agreements became
instruments of commercial warfare. The degree of instability
which this move towards bilateralism produced was such that
by 1935, when the Economic Committee of the League of Nationb
was requested by the Council to examine the feasibility of ai
international agreement whereby changes in tariffs and other
restrictions would be announced one month in advance, it
reported that there was "no chance at present of achieving
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such an a g r e e m e n t " . 8
B i l a t e r a l t r a d e was a l s o used i n an e f f o r t t o reduce
d e f i c i t s i n ba l ance of t r a d e . No longer suppor ted by f o r e i g n
l e n d i n g , t r a d e d e f i c i t s had t o be conver ted i n t o s u r p l u s e s or
a t l e a s t i n t o ba lanced a c c o u n t s . Thus w i t h e x p o r t s f lounderipig,
most c o u n t r i e s adopted p o l i c i e s to curb impor t s th rough wide
use of q u a n t i t a t i v e c o n t r o l s and h igh t a r i f f b a r r i e r s . Even
the Uni ted Kingdom, where the t r a d i t i o n of open c o m p e t i t i o n
and f r e e t r a d e was s t r o n g e s t , d id no t remain immune t o t h i s
move as i t adopted the Import D u t i e s Act i n February of 1 9 3 2 . 9
Of a l l B r i t i sh imports, over 80 per cent had been allowed frep
e n t r y . From then on, however, only 25 per cent of goods im
ported remained untaxed; these l a t t e r were mainly raw mate
r i a l s and a few foodstuffs .
Despite the general adoption of b i l a t e r a l agreements
and import r e s t r i c t i o n s and the increases in t a r i f f s , the
depressed s t a t e of domestic p r i c e s , production, t r ade and
employment continued to d e t e r i o r a t e , and new measures had to
be continuously introduced to prevent s t i l l fu r ther dec l ines ,
which many countr ies feared would r e s u l t i n complete economic
chaos. Quotas and exchange r e s t r i c t i o n s were increased, and
they soon overshadowed a l l previous r e s t r i c t i v e measures.
8 League of Nations, Commercial Policy in the Inter-Wu? Period, Geneva, 1942, p , 7 1 . '—
9 I b i d . , p . 72.
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The speed with which this movement towards bilatera
lism, with its many accompanying barriers to trade, spread tc
almost all countries of the world, does not only prove the
anxiety of each country to find a solution to their internal
problems, but also serves to amplify the manner in which the
passive and active trade balances of each country depend upor
one another, and form only one single global trade balance
within which all countries must either stand or fall.
G. The Role of the U.S.
As discussed earlier in the chapter the problem of
international vulnerability to the spread of economic depres
sions and inflations was brought to the forefront during
these years of widespread economic depression. This fosterec
a psychological approach to the situation whereby smaller
countries readily blamed larger economies for part of their
trouble s.
The most commonly accepted premise, in this respect,
was the blame placed by Europe upon the U.S. economy as the
main cause, both for the extent and the intensity of the de
pression. Europe maintained that although a downturn in eco
nomic activity had been evident in several less industrialized
countries and in Germany between late 1927 and the middle of
1929, their collective economic weight was not sufficient to
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spark a worldwide collapse.1^ It was not until the downturn
of industrial activity in the U.S. in July 1929, followed by
the stock market collapse in October of that year, that condi
tions became increasingly worse in the U.S. and in Europe.
The main consequential aspects of the U.S. depressior
for European countries were the abrupt fall in U.S. imports
and dollar investments. The level of world trade and econo
mic activity prior to 1930 had been partly supported by U.S.
purchases of foreign goods and services and by new invest
ments abroad at a level of $7.4 billion per annum for the
three years 1927 to 1929. However, by 1933 such income for
foreign countries had dropped by 68 per cent to $2.4 billion,
This drastic decline in U.S. purchases from foreign
countries, and in the world supply of dollars must rank as a
very severe disturbance directly contributing to depressing
business activity abroad and producing foreign exchange pro
blems. The level of economic activity in Europe could not be
expected to remain unaffected by such a sudden and severe
contraction in the supply of dollars, and thus the U.S. was
widely blamed for the breakdown of the international currency
system and for its devastating effects.
I® U.S. Department of Commerce, The United States in World Economy, Economic S e r i e s No. 2 3 , Washington, 1943, p . l € 9
1 1 I b i d . , P« ir74, Table 2 . Actually, i f fixed repayments are taken in to account, ne t U.S. d o l l a r payments abroac had f a l l e n by 77 per cent to $1.5 b i l l i o n .
11
the
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H. The Unemployment Problem
The v a r i o u s economic measures , such as i n c r e a s e d
t a r i f f s , q u a n t i t a t i v e import r e s t r i c t i o n s , cu r rency deprec ia
t i o n s , and exchange c o n t r o l s , adopted by most c o u n t r i e s
du r ing the d e p r e s s i o n were, i t i s t r u e , i n t ended t o overcome
imbalances i n i n t e r n a t i o n a l t r a d e and payments p o s i t i o n . But
t h e y were a l s o used as means to salvage any remnant of domes
t i c economic s t a b i l i t y .
Mass unemployment p r e s e n t e d the most obvious and
overwhelming problem of economic i n s t a b i l i t y . 1 2 During the
w i n t e r of 1931-1932, the number of unemployed i n the U.K.
r eached 2 .5 m i l l i o n s , r e d u c i n g about 25 p e r c e n t of the whol<
working c l a s s p o p u l a t i o n to t h e d o l e . By 1932 some s i x t o
seven m i l l i o n German workers were unemployed. The e f f e c t s
of t h e world d e p r e s s i o n i n France were s l i g h t l y de layed by
the e x i s t i n g p r o t e c t i o n a g a i n s t f o r e i g n c o m p e t i t i o n . Gradual
l y , however, t h e French economy began t o s u f f e r , i n p a r t i c u
l a r , from d e c r e a s e s i n e x p o r t s and i n t o u r i s t r e v e n u e s . The
d e p r e s s i o n f i r s t h i t s e v e r a l l a r g e French b u s i n e s s u n d e r t a
k i n g s which i n the t h r o e s of bankruptcy had t o appea l t o the
S t a t e fo r a s s i s t a n c e . Continued expor t l o s s e s s t e a d i l y
deepened the i n d u s t r i a l d e p r e s s i o n , and l e d t o mass unemploy
ment . At the c l imax of the d e p r e s s i o n i n France 1.5 m i l l i o n
1 2 H. W. Arndt , The Economic Lessons of the Klnetesen T h i r t i e s , p . 250 . t —
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were unemployed. While this figure may not appear high in
comparison to those of the U.K. and Germany, it was for this
country, who normally employed annually several hundred
thousand seasonal foreign workers, absolutely catastrophic.
Faced with such dangerous unemployment levels, most
governments viewed the curtailment of imports as a necessary
measure to prevent any further deterioration, and possibly
even bring some amelioration. The popular thesis was that
goods previously imported would now be manufactured domestic
ally. In turn this additional internal productive activity
would mean jobs for the unemployed. Of course the inadequacy
of this approach to cope with the large and overwhelming
problem of unemployment was immediately obvious. While poli
cies of protection undoubtedly brought a certain measure of
relief to the situation much more was needed.
I. Attempts at Recovery
The breakdown of the world-wide multilateral system
of settlements engendered the establishment of restricted
areas of international settlements and the introduction and
extension of discriminatory measures to insulate domestic
economies from foreign competition. Unfortunately the various
measures to restrict, control and stabilize international
trade and payments positions did not lead to the coveted
domestic economic recovery.
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To lift Europe out of near economic chaos required
action from within each country affected. However, the
success of internal policies for recovery were hampered by
the division of Europe into many small markets. Taken as a
whole, Europe represented one of the greatest concentrations
of wealth and productive capacity. However, this capacity, being /dispersed among several countries, was rather inefficient.
The economic drawback resulting from the existing divisions
of markets were even more pronounced as each economy became
increasingly segregated through protectionism and duplication
of industrial development.
Nevertheless each country adopted those policies
which it believed would bring some relief to the situation.
The policies of the various European countries differed con
siderably one from another. Their only common feature, duri:ig
this period extending from 1930 to World War II, was the lacl:
of effort toward greater international economic cooperation.
Each country tried to achieve and maintain recovery through
the implementation of national policies, paying little atten
tion to considerations of international cooperation.
Most countries pursued different policies on the
basis of different theories and circumstances.13 The effects
1 3 Paul Alpert, Twentieth Century Economic History of Europe, New York, Schuman, 1951, pp. 117-165.
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of t h e d e p r e s s i o n i n France were main ly f e l t by a g r a d u a l l y
i n c r e a s i n g s t r a i n on he r ba lance of payments, domest ic indus
t r i a l i n a c t i v i t y , and growing budget d e f i c i t s . To overcome
t h e s e d i f f i c u l t i e s every e f f o r t was made to pursue t h e then
o r thodox p o l i c y of d e f l a t i o n which, i t was hoped, would s t i
mula te r e c o v e r y e i t h e r by r e s t o r i n g p r o f i t a b i l i t y to p r i v a t e
e n t e r p r i s e or by l e a d i n g to a f a l l i n i n t e r e s t r a t e s which i i i
t u r n would encourage p r i v a t e i n v e s t m e n t .
I n t h e Uni ted Kingdom, t h e new t a r i f f of 1932 becam<
a v i t a l element i n a r ecovery based on "cheap money" and the
abandonment of t h e gold s t andard i n 1 9 3 1 . This l a t t e r measure
removed the immediate p r e s s u r e on t h e B r i t i s h ba lance of pay
ments p o s i t i o n . This , t o g e t h e r wi th the incoming flow of
f o r e i g n c a p i t a l paved t h e way f o r t h e adop t ion of a vigouroui
p o l i c y of "cheap money". However, U.K. p o l i c i e s were a s s i s t e d
by o t h e r deve lopments . The expans ion of t r a d e was ach ieved
ma in ly through d e v a l u a t i o n of the Pound S t e r l i n g and Imperia]
P r e f e r e n c e s dev i sed i n 1932 . The l a r g e r e s i d e n t i a l b u i l d i n g
boom 1*1 i c h began i n 1932, and t h e f a c t t h a t Grea t B r i t a i n
had never f u l l y shared i n the i n f l a t i o n a r y p e r i o d of t h e
t w e n t i e s , were of g r e a t a s s i s t a n c e i n d e t e r m i n i n g the success
of B r i t a i n s r e c o v e r y .
German p o l i c i e s for r ecove ry d id no t e n t a i l monetary
measures a l o n e . To the c o n t r a r y monetary measures were secon
d a r y t o innumerable d e v i c e s of p u t t i n g the unemployed
UNIVERSITY OF OTTAWA ~ SCHOOL OF GRADUATE STUDIES
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BACKGROUND TO CONCEPT OF ECONOMIC INTEGRATION 25
directly to work through such schemes as compulsory labour
service, a compulsory year on the land, and discrimination
against the employment of women. Such direct measures were
coupled with an expansionist monetary policy based mainly on
large scale public spending. By the end of 1934, even before
the indirect effects of public expenditures upon consumer
demand had made itself fully felt, unemployment had fallen by
more than three million and the volume of Industrial produc
tion had increased by 30 per cent. Of course the success of
the German policies was facilitated by re-armament, and
autocratic powers of control over individual economic acti
vity in the country. The series of controls over consumption
labour supply and investments which had to be implemented a-s
a result of the initial policies of recovery are only further
indications of the near impossibility of adapting such measu
res to a democratically governed economy.
The Swedish experiment,14r acclaimed as a model of
trade cycle control, was greatly assisted by favourable deve
lopments in foreign trade resulting from devaluation, "cheap
money", deficit financing and stability in world demand for
its raw materials. The recovery policies of the Labour Goverji
ment elected in 1932 did not really get under way until 1934,
•^ H. W. Arndt, The Economic Lessons of the Nineteen Thirties, p. 207.
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BACKGROUND TO CONCEPT OF ECONOMIC INTEGRATION 26
These policies were characterized by the introduction of com
pensatory or double budgets and planned public works. In
adopting a compensatory budget the government no longer had to
balance the whole budget, but only the current items. The
capital account of the budget could be balanced over the
trade cycle as a whole. This permitted more leeway in organ
izing public works programmes Sweden already had some expe
rience with public works as a method of counteracting or alle
viating unemployment. Since 1920 it had been the practice to
create work for the unemployed rather than provide cash
relief; and in 1924 a State Unemployment Commission had been
set up to co-ordinate public works programmes. With such
administrative machinery already in existence, the task of
expanding the role of public investment to counteract the fall,
in the private sector, was facilitated to a great extent.
Whether the policies adopted by individual countries
were reflatlonary, deflationary, whether they included mone
tary measures, or public investments and works programmes,
they were all intended to provide work for the unemployed.
Although these policies were divergent they did have one
common point, they were generally accompanied by national
insulation from outside economic fluctuations. But Europe
soon realized that national planning and regulation of foreigh
trade are interdependent. Each restriction on imports required
further regulation of the industries concerned, and in th©
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BACKGROUND TO CONCEPT OF ECONOMIC INTEGRATION 27
aggregate meant the control and regulation of competition,
both domestic and foreign, in order to be effective. Thus
the doctrine of full employment, monetary and credit manage
ment, price and wage controls and public investments conceived
within economic boundaries insulated from the pressures of
foreign competition could only lead to progressive dispari
ties of prices and wages, and to a constantly growing separa
tion of economies and nations, without providing any enduring
solution to the basic problems of that time.
J. Discouraging Results
Despite the serious efforts made by all countries
affected to achieve economic recovery, progress was slow and
even discouraging.
As evidenced in Table II, it was not until 1936 that
most countries in Europe reached the level of industrial
production attained in 1929. It should also be noted that in
the United States, France and the Netherlands, where the paiij
ful process of deflation and balanced budget was pursured
most assiduously, until 1936, the recovery was slower thai
in the U.K. and Sweden.
The more noticeable improvements in the U.K. and
Sweden were attributable in part to their success in main
taining a more favourable export level than in most countries
Of course, the effect of the planned budgetary deficits and
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BACKGROUND TO CONCEPT OF ECONOMIC INTEGRATION 28
TABLE II
INDUSTRIAL PRODUCTION1
(Index Numbers; 1929 = 100)
1929 1932 1933 1934 1935 1936 1937
World
U.S.A.
U.K.
Sweden
France
Netherlands
100
100
100
100
100
100
70
53
84
89
72
84
78
63
88
91
81
91
86
68
99
110
75
93
96
79
106
123
73
90
111
94
116
135
78
91
119
103
124
149
82
103
1 Quantitative value of industrial production.
Source: League of Nations, Commercial Policy in the Interwar Period, Geneva, 1932, p# 168.
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BACKGROUND TO CONCEPT OF ECONOMIC INTEGRATION 29
public works programme in Sweden are also evident in the
comparatively rapid growth of industrial production in that
country beginning in 1934.
During this pre-war period world trade floundered and
did not reach the level achieved in 1929, indicating that the
restrictive foreign trade policies inherent in most domestic
recovery programmes had, at least, been effective in reducing
foreign competition and aggregate volume of international
trade. But the obstacles to foreign trade were in themselves
hampering the rate of growth of domestic industrial produc
tion. This is supported by earlier statistical data in
Table I, and can be explained by the fact that domestic pro
duction mainly for the home market was of necessity at a
lower level than domestic production geared to world demand.
In addition, a lower level of production during the initial
period must have left idle means of production, which had
previously been employed in the field of exports, and even in
concurrence with a larger import market. The resulting na
tional income, the growth of which was now mainly dependent
upon internal developments, no longer supported by the inflow
of foreign capital, could not but stagnate and be unduly slow
in its recovery.
This contention, that the low level of foreign trade slowness
contributed to the / Qf recovery in most countries, is also
supported by favourable developments in the Sterling Bloc.
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In this area, enjoying relative currency stability and free
dom from excessive trade restrictions, trade expanded consi
derably. This trend was accompanied by comparatively faster
recovery in industrial production in these countries than in
those countries where trade was restricted.
As can be seen from Table III, the volume of indus
trial production in the United Kingdom, Sweden, Norway and
Denmark increased regularly from 1935 to 1938, along with
increases in national income. These countries, belonging to
the Sterling Bloc experienced relative stability and growth
in their foreign trade, especially amongst themselves. The
contrasting results in the Gold Bloc countries and the
"Dollar" countries were quite remarkable. In these groups
trade was restricted by high tariffs and quantitative impedi
ments.
Thus, developments following the great depression
were partly characterized by a noticeably slower recovery in
those countries adopting protectionist policies, than in
those countries which managed to maintain a continued and
increasing flow in their foreign trade transactions. °f cours|e,
as seen earlier, other factors than foreign trade contribu
ted to the earlier recovery achieved in the United Kingdom
and Sweden. Nevertheless, this variation in the rate of re
covery between these two groups of countries, indicates that
sound policies of domestic economic recovery were assured a
UNIVERSITY OF OTTAWA ~ SCHOOL OF GRADUATE STUDIES
TABLE III
Percentage Change from 1929 in ^ a) Volume of Industrial Production, and b) National Income
Selected Sterling Bloc
Countries
U.K. Sweden Norway Denmark
Gold Bloc
Countries
France Netherlands Belgium
Dollar
Countries
U.S.A. C anada
1935
5.6 23.0 7.6 25.0
-26.92
- 9.8 -17.8
-20.9 - 9.0
(
1936
15.8 35.0 18.2 30.0
-21.7 - 8.6 -13.3
- 6.4 2.0
a )
1937
23.6 49.0 29.6 36.0
-18.1 2.8
- 2.8
2.7 12.0
1938
15.5 46.0 29.1 36.0
-23.9 4.1
-21.3
-20.0 1.0
1935
5.5 2.5 7.4 9.5
-30.9 -26.5
-33.1 -54.3
(
1936
12.1 10.1 6.4 13.5
b )
1937
20.9 24.2 21.2 18.9
-24.0 -14.9 -24.8 -20.2
not available
-22.1 -25.6
-14.2 -15.7
1938
14.5 29.4 32.9 24.3
-9.1 -16.6
-22.9 -17.5
1 In current currency values 2 Minus signs indicate a percentage reduction.
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BACKGROUND TO CONCEPT OF ECONOMIC INTEGRATION 32
greater measure of success by the inclusion of appropriate
foreign trade considerations. Conversely, it would appear
that domestic recovery programmes implemented at the expense
of foreign trade requirements could achieve only limited
success. To put it very briefly, outright protectionism did
not prove to be a true solution to the economic difficulties
of the nineteen thirties.
K. Economic Cooperation Considered
During this period of faltering economic activity,
the need for economic cooperation was not completely ignored.
It was felt as far back as 1930. Even before the depression
had given evidence of the overwhelming dependence of segre
gated European markets upon the economic stability and strength
of the United States,16 this idea of unifying the European
markets into a larger entity to make it more efficient, to
coordinate its inherent economic wealth and growth potential,
was being voiced. The objective was to create a European
Federal Union involving political and economic cooperation
between member states.
In May 1930, Mr. Briand, then Prime Minister of France,
elaborated his views in a memorandum to all European govern-
15 T. Balogh, "The United States in the World Economy", Bulletin of the Oxford University, Institute of Statistics, October 1946, pp. 309-325.
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ments Members of the League of Nations. He referred to the
desirability of the "establishment of a common market" for th>
products of all European countries.1® At the same time he
criticized the creation of bilateral agreements with the
objective of raising trade barriers against outside countries,
This proposal received the unanimous support of forty-five
countries, but owing to the economic exigencies of the time
discussion of this broader issue was eventually sacrificed to
considerations of more immediate nature.
That economic cooperation should not have received
more practical attention at that time is quite understandable,
This was a time when economic autarky and the export of unem
ployment by raising trade barriers were the accepted means of
action for all governments to combat the evils of the depres
sion. The main concern was the revitalization of each economj,
the end to chronic unemployment and industrial stagnation.
But, despite these immediate and pressing problems, some mean3
had to be found to insure future economic stability. This
was the birth of "Keynesian" economics whereby government
participation and planning in economic activities would pro
vide the required controls for avoiding repeated significant
economic fluctuations, and provide some assurance of full
1 6 United Nations, Customs Unions, A League of Nation? Contribution to the Study of Customs Unions, Lake Success, U.N. Department of Economic Affairs, 1947, p. 38.
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employment and a reasonable level of economic activity.
Growing markets, expansion of trade, economies of mass pro
duction, increasing productive efficiency and capacity were
problems of the future, and so too, therefore, was economic
cooperation. Not only did they overlook the presently
accepted tenet that economic advantages are to be found in
cooperation amongst fragmented economies such as existed in
Europe,1" but even the concept that economic unity would hav«
to preceed any "peace promising" political or military unity
was overlooked. Concerned with grave problems in their res
pective domestic markets, governments could not appreciate
that the only lasting solution would have to be found in
terms of their position and economic strength in the world
economy. Moreover, apart from economic considerations, thert
were no evident international forces such as exist today to
popularize the acceptance of cooperation and unification as
the solution to European problems.
However, the policies adopted did not prove successful,
and the economic activities of European countries in the
thirties continued at regrettably low levels. The economic
i? Today it is a widely accepted fact, especially reflected in GATT discussions and negotiations, that freeing international trade of discrimination and restrictions is an essential requirement to assure economic growth and to raise standards of living in both the industrialized and less developed economies alike. Economic integration is likewise considered as a step further in this direction.
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BACKGROUND TO CONCEPT OF ECONOMIC INTEGRATION 35
s t a g n a t i o n which faced Europe d u r i n g most of t he p re -war
p e r i o d ampl i f i ed the drawbacks of p r o t e c t i o n i s t p o l i c i e s and
d i v i d e d m a r k e t s . The i n e q u a l i t y between t h e small and mar
g i n a l European marke t s compared t o the U . S . market l e d many
to b e l i e v e t h a t bo th g a i n s and l o s s e s would con t inue t o be
o n e - s i d e d , to t h e d i sadvan tage of Europe, a s long as t h i s
d i s p r o p o r t i o n i n p r o d u c t i v e and d i s t r i b u t i v e c a p a c i t y remained
between t h e s e two a r e a s .
The normal development and g e n e r a l acceptance of the
concept of u n i f i c a t i o n through c o o p e r a t i o n was d i s r u p t e d by
the e x i g e n c i e s of war . This c a t a s t r o p h e , a p a r t from i t s d e
v a s t a t i n g consequences , added more ev idence t o the d i s advan
t a g e s of European d i s - u n i t y . 1 ® I t a lso gave g r e a t impetus
to p u t i n t o p r a c t i s e some form of economic c o o p e r a t i o n .
18 R.G. Hawtrey, Western European Union, I m p l i c a t i o n s f o r t h e Uni ted Kingdom; Royal I n s t i t u t e of I n t e r n a t i o n a l A f f a i r s , London, 1949, p . 2 6 .
UNIVERSITY OF OTTAWA ~ SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA - ECOLE DES GRADUES
CHAPTER II
THE PROCESS OF GRADUAL INTEGRATION
A. Introduction
With the end of the hostilities, Europe's economic
problems, no longer overshadowed by matters of military ne
cessity, assumed their position of primary importance.
Europe was a devastated market, and in many instances, in
ternal economic troubles were compounded by the loss of colo -
nial dependencies. In addition, the imminence of a second
giant market, the U.S.S.R. and its satellites, represented a
potential threat militarily anieconomically to the weak and
comparatively divided Western European economies.
The desirability of some sort of unified front, to
meet both the economic and military problems of the time, thhs
became widely accepted. However, the driving force behind
economic cooperation was military. The fear of renewed war
and devastation convinced these historically individualistic
countries, that cooperation was their only hope. The first
step in this direction was taken in March 1948 when the U.K.
France and Benelux were united in the mutual defense Treaty
of Brussels. The immediate fear of renewed war gave the
desire for union an even stronger motive than exists today,
Mr. Churchill described these feelings in a speech in 1946,
UNIVERSITY OF OTTAWA -- SCHOOL OF GRADUATE STUDIES
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THE PROCESS OF GRADUAL INTEGRATION 37
when he said in part: "What is the sovereign remedy? It is
to recreate the European Family, or as much of it as we can,
and to provide it with a structure under which it can dwell
in peace, in safety and in freedom. We must build a kind of
United States of Europe."1 At that time, however, the U.K.
had no intentions of joining such a union, but thought, in
Churchill's words, that the U.K. and the Commonwealth "must
be friends and sponsors of the New Europe, and must champion
its right to live and shine."2 At the Hague "Congress of
Europe" of 1948, the desirability of either a formal federa
tion of European States, or something not far short of it,
was contemplated. It was as a result of this, that one year
later, the Council of Europe was put into effect. Although
it did not provide European Federation, it did indicate the
desirability for economic and political cooperation in Europe ,
while at the same time recognizing that such steps would have
to be taken gradually.
While there is no doubt that Europe seriously desirec
to implement some form of united action to maximize its
efforts in dealing with its economic problems, it is equally
obvious that the strong support and encouragement it receivec
1 R.G. Hawthrey, Western European Union, Implications for the United Kingdom, London, Royal Institute of Interna-tional Affairs, 1949, p. 26.
2 Ibid., p. 27.
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from the U.S. hastened the development of practical measures
towards this end. American motives in promoting European
unity were basically two-fold. First, they believed their
own history had been fundamentally changed by the union of
the States, and that any other area of the world which adopted
the same formula could look forward to the same future.
Secondly, by promoting what they firmly believed would resul ;
in a stronger economic unit in Europe, they were at the same
time promoting their own welfare in terms of a larger export
market for U.S. goods, stronger allies in military matters
and, eventually, the possibility of some relief in their lar
ger scale economic aid to less developed nations.
Economic cooperation in Western Europe became a
practical political issue as a result of General Marshall's
offer of American financial aid in the reconstruction of
Europe. This was seized and the possibility furthered by tho
Report of the Committee on European Economic Cooperation,
representing the sixteen nations which had accepted the U.S.
offer. In the more practical considerations of the Marshall
Plan, Europe realized that although the need for cooperation
was imminent, a more gradual approach than immediate poll tics.1
unification was highly preferable. Europe also realized that
it was up to them to find the best means of implementing
economic cooperation, for as Mr. Marshall had indicated in
his speech of June 5, 1947, "there must be some agreement
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THE PROCESS OF GRADUAL INTEGRATION 39
among the countries of Europe as to the requirements of the
situation, and the part these countries will take in order
to give proper effect to whatever action might be under
taken."3 In these words, Mr. Marshall expressed the official
U.S. view, that the initiative to introduce practical measu
res of economic cooperation would have to be originated by
Europe itself. The U.S.'s contribution would be simply to
lend support to this initiative.
The practical considerations, of re-construction and
rehabilitation of whole economies envisaged by the Marshall
Plan, led to the formation of the Organization for European
Economic Cooperation in the latter part of 1948. The sense
of urgency in these matters, however, was progressively re
placed by the European preference for gradualism. Europe
was genuinely intent on preventing any possibility of renewe<,
German military strength, and this fear was only compounded
by the growing military disparities between East and West
Europe. As hope for peaceful agreement between East and Wes ;
faded, Western Europe gradually accepted the fact that there
would be need for cooperation, not only on an economic basis
but also on a military basis.
By the end of 1948 there were two main bodies of co
operative action in Europe; the Brussels Treaty especially
3 R.G. Hawthrey, Western European Union, Implication!i for the United Kingdom, p. 29.
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THE PROCESS OF GRADUAL INTEGRATION 40
i n t e r e s t e d i n the c o l l e c t i v e s e l f - d e f e n s e of i t s members and
the OEEC concerned w i th economic m a t t e r s . However, i n a d d i
t i o n to t h e s e two developments , t he r e was a l s o a t t h a t t ime
ano ther p l a n for economic c o o p e r a t i o n be ing s e t i n motion i n
t h r e e European c o u n t r i e s . Although t h i s p l a n was no t Europe-
wide, i t d id c o n t a i n the seed of those very i d e a l s which the
whole of Western Europe would soon come t o a c c e p t as i t s own.
B. BENELUX
Before the concept of Europe-wide economic and p o l i
t i c a l c o o p e r a t i o n , t h r e e European c o u n t r i e s were s t r i v i n g t o
wards some form of economic i n t e g r a t i o n . The t h r e e were
Belgium, the Nether lands and Luxembourg whose endeavours qu ick
l y came to be known under the name of Benelux . Although thei:*
a s p i r a t i o n s were l e s s encompassing i n s i z e t h a n c u r r e n t p l a n s
fa r European economic i n t e g r a t i o n , they d id p rov ide the p r a c
t i c a l exper ience neces sa ry t o f a c i l i t a t e the soundness of subj-
sequen t l a r g e r u n d e r t a k i n g s .
In October of 1943 the g o v e r n m e n t s - i n - e x i l e of Belgiuji ,
t he Ne ther lands and Luxembourg, whose c o u n t r i e s were s t i l l
under German occupa t ion , s igned an agreement on monetary c o
o p e r a t i o n . This agreement was on ly the f i r s t s t ep towards
t h e Benelux Customs Convention which was s igned i n September
of 1944 i n London. 4
4 James E. Meade, N e g o t i a t i o n s fo r Benelux: An Annotat e d C h r o n i c l e , 1945-1956, P r i n c e t o n U n i v e r s i t y , S t u d i e s i n I n t e r n a t i o n a l Finance No.6, Dep t . of Economics and Soc io logy , TyOYT^ P • y . UNIVERSITY OF OTTAWA _ SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA « ECOLE DES GRADUES
THE PROCESS OF GRADUAL INTEGRATION 41
The 1944 Convention outlined a plan for the creation
of a customs union between these countries in several stages.
Three Councils were set up by the Convention - an Administra
tive Customs Council, with the task of proposing measures for
the unification of laws and regulations; - a Council for Eco
nomic Union, to give advice on the measures which the partner
countries proposed to take to regulate trade by quantitative
restrictions and similar measures, and for the establishment
of a common regime of trade controls and subsidies; - and a
Commercial Agreements Council, to coordinate commercial agree|-
ments with third countries. It was clearly the intention
that the common tariff and the general removal of customs
duties between the partner countries would eventually lead to
some form of full economic union.
This attempt at economic union did not signify the
immediate abandonment of past restrictionist approach to trad e
The tasks assigned to each Institution points this out very
clearly. This was not to be an outward-looking grouping, in
tent on reducing obstacles to trade on a multilateral basis.
These two countries,3 like most others had followed their OWE
national policies completely on an independent basis prior to
the war with the result that substantial divergencies in their
5 Belgium and Luxembourg were already partners in an economic union started in 1921. Therefore, for purposes of simplicity "Belgium" will be used to denote both that country and Luxembourg.
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
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r e s p e c t i v e economies could not be evened out w i thou t e f f o r t .
The d ive rgence i n domes t ic economic, f i n a n c i a l and s o c i a l p o l i
c i e s between the p a r t n e r s themselves had t o be narrowed before
any sound and p r a c t i c a l c o n s i d e r a t i o n s i n the r ea lm of m u l t i
l a t e r a l c o m p e t i t i o n could even be e n v i s a g e d . Whether or no t
t h e f i r s t a r c h i t e c t s of Benelux had env i saged the slow and
l a b o r i o u s road ahead, exper ience soon showed t h a t any p r o g r e s s
towards complete economic union would be a g r adua l p r o c e s s . 6
One of the more immediate problems was t h e r e c u r r i n g
d e f i c i t s i n the Nether lands ba lance of payments p o s i t i o n
immediately a f t e r the war . The r e s u l t a n t i m p o s i t i o n of r e s
t r i c t i o n s on impor t s and on the movement of c a p i t a l even
w i t h i n t h e a rea f r u s t r a t e d any r e a l p r o g r e s s . I t a l s o soon
became e v i d e n t t h a t a common market fo r goods and s e r v i c e s
and f o r l abour and c a p i t a l i s much more d i f f i c u l t t o e s t a b l i s h
i n p r a c t i c e than on p a p e r . Concrete s o l u t i o n s had to be four*,
to such problems a s , d i f f e r e n c e s i n t h e r a t e of s u b s i d i e s or
t a x e s on the p r o d u c t i o n of s i m i l a r p r o d u c t s ; d i f f e r e n c e s i n
measures of p r i c e c o n t r o l over s i m i l a r p r o d u c t s ; d i f f e r e n c e s
i n the r a t e s of i n t e r e s t payable on c a p i t a l funds due t o
d i v e r g e n t n a t i o n a l monetary p o l i c i e s . 7
6 F.G. Eyck, "Benelux i n t h e b a l a n c e : problems, s h o r t comings and achievements , P o l i t i c a l Science Q u a r t e r l y , No.69, March 1954, p p . 65 t o 9 1 .
7 The Post-War Monetary P o l i c y of t h e Benelux Count r i e s and i t s e f f e c t on Fore ign Trade , A S e r i e s of L e c t u r e s on I n t e r n a t i o n a l Banking and F o r e i g n Trade d e l i v e r e d a t Oxfor<. U n i v e r s i t y i n S e p t . 1955. London. The I n s t i t u t e of Bankers . 19£5. P P . 7 2 t O 1 0 0 . UNIVERSITY OF OTTAWA ~ SCHOOL OF GRADUATE STUDIES
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THE PROCESS OF GRADUAL INTEGRATION 43
The difficulties inherent in the objectives which
these countries had taken upon themselves to achieve were
significantly increased by the very fact that such objective*
meant the abandonment of pre-war economic policies and a re
versal in the well-established effects of such policies. Thusi
it was not until 1948 that the common Benelux customs duties
were put into effect and that the ordinary customs duties on
trade between the member countries were abolished. This was
the first real tangible step put successfully into effect
towards full economic union. But even then, the Benelux
could not agree on the Inclusion of agriculture in the free
common market.
For the next ten years progress was gradual but en
couraging. Attention had to be focussed on the more diffi
cult problems of economic union.$ The unification of rates
of excise duties threatened not only budget revenues but als>
the future freedom of individual action by member countries
in bringing changes to such rates for budgetary or other
reasons. This involved the introduction of central adminis
trative control over the collection of such duties and over
the future alterations in the unified rates. Another most
difficult problem encountered in the early negotiations
8 Alan Valentine, "Benelux: pilot plant of economic union", Yale Review, No. 44, September 1954, pp. 23 to 32; W. Robertson, "Benelux and the Problems of Economic Integration, Oxford Economic Papers, New Series No. 8, February 1956, pp. 35 to 50.
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towards economic union was the necessity for some assurance
of balance of payments equilibrium within the area. Based on
the separate domestic monetary and fiscal policies of the
partners any imbalance would have to be rectified through
the re-imposition of restrictions on trade and payments. Solu
tion to this problem was fortunately facilitated by the re
gional convertibility of most European currencies through
the facilities of the European Payments Union, and through
gradual strengthening of the Dutch balance of trade position
vis-a-vis Belgium. The Dutch were able to finance any defi
cit within the Benelux by their earnings from third countrie i
in Western Europe. With the all around strengthening of
European currencies, and with the smooth operation of the
EPU, this difficulty slowly began to disappear. Moreover,
with the participation of Benelux in the moves for the forma
tion of a European Economic Community, the real solution
would now have to be sought within this larger economic
grouping.
Having demonstrated to the world that a sound approach
to economic union must be gradual, these three countries
signed the Treaty establishing the Benelux Economic Union on
February 3, 1958. This represented the result of almost
fourteen years of negotiations. However, even after all tha ;
time, an escape clause had to be incorporated in the Treaty
which extends until 1962 the time-limit for the creation of
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C. The North Atlantic Treaty Organization
Soon after the end of the Second World War Europe cam>
to realize that the main threat of aggressive militarism did
not lie in a renewal of German military might, but rather in
the attitude and policies of the growing "Soviet Empire", The
Treaty of Dunkirk signed in March 1947 had bound the U.K. and
France in resisting a revival of German aggression. But now
some form of military cooperation was needed for the military
consolidation of the whole of Western Europe. The serious
ness of dangers was underlined very early in 1948 by the
Communist coup d'etat in Czechoslovakia. This development
may well have hastened the signing of the Brussels Treaty in
that same year whereby the U.K., France and the Benelux were
joined together in common defense against aggression in
Europe. This move received the support of the U.S. and
Canada, and shortly after its inception talks were held in
Washington to study the possibility of more comprehensive
military cooperation under a proposed North Atlantic Regional
Pact which would include Canada and the U.S.
The creation of the North Atlantic Treaty Organizatioln
(NATO) in April 1949 was the subsequent result of these talks
and united most of Western Europe with Canada and the U.S.
under one policy of defense.9 With the realization that
9 The European members of NATO were Benelux, Denmark, France, Iceland, Italy, Norway, Portugal and the United Kingdom; Greece and Turkey joined in 1952 and Germany in 1955.
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German participation in Western defense would have to be
accepted some day, France proposed the formation of a Europealn
army. The view at that time was that German rearmament would
be acceptable only on the basis of German participation in ar
integrated European army. To this end a European Defense
Community (EDC) was proposed with the objective of setting up
a supranational defense community with common institutions,
common armed forces and a common budget. Arrangements were
also being completed within NATO for an integrated force in
Europe, with fewer characteristics of supranational!ty, to be
contributed by participating governments, and to be under one
command. It may well have been that these new developments
in NATO, which minimized the need for supranational authority
while at the same time providing common defense, influenced
the outcome of EDC. With the failure to implement the EDC
Treaty, Germany was not accepted as a member of NATO until
1955. This was a practical demonstration of Europe's indeci
sion and preference for gradualism in cooperative endeavours
demanding the sacrifice of domestic autonomy. It also indi
cated that Europe still feared a Germany under arms.
With its growing military strength and stability and
the increasing recognition of the need for cooperation, NATO
did provide Europe with an immediate sense of security. But
10 Central Office of Information, Western Cooperatior A Reference Handbook, London, H.M. Stationery Office, November 1955, pp. 5 to 8.
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the T r e a t y was no t s o l e l y concerned w i th d e f e n s e . In
A r t i c l e 2 of t h e Trea ty member c o u n t r i e s had endorsed t h e
concept t h a t an e f f e c t i v e p o l i c y of defense fo r t h e f r e e world
must be based on economic expansion and p r o s p e r i t y , and t h a t
i t s cohes ion depends more on c l o s e r s o c i a l and p o l i t i c a l con
t a c t s between i t s members than on s t r i c t l y m i l i t a r y " e n t e n t e s " .
Thus th© importance of c l o s e r economic c o o p e r a t i o n , t he expar -
s i o n and l i b e r a l i z a t i o n of trad© were problems which f e l l
w i t h i n the in t ended scope of NATO. Such a s p e c t s of NATO,
however, proved more d i f f i c u l t t o p u t i n t o p r a c t i c e than t h e
p u r e l y m i l i t a r y o b j e c t i v e s . In an a t t empt t o overcome t h i s
d e f i c i e n c y the M i n i s t e r i a l Meeting of December 1955 dec ided
t h a t t h e Counci l should "examine and implement" a l l measures
conducive t o c l o s e r c o o p e r a t i o n between member c o u n t r i e s , a s
env i saged i n A r t i c l e 2 of the T r e a t y . As a r e s u l t of t h e
d i s c u s s i o n fo l l owing t h a t meet ing the Counci l dec ided , i n
May 1956, t o appoin t a Committee of T h r e e 1 1 " t o adv i se t h e
Counc i l on ways and means t o improve and extend NATO c o
o p e r a t i o n i n n o n - m i l i t a r y f i e l d s " . 1 2 In commenting on t h e
work of the Spec i a l Committee Mr. Pea r son s a i d , "what A r t i c l e 2
env i saged was n o t so much the p r o d u c t i o n of t a n g i b l e r e s u l t s
1 1 Mr. Halvard Lange, Foreign Minister of Norway, Mr. Gaetano Martino, Foreign Minister of I t a l y , Mr. L.B. Pearson, Secretary of S ta te for External Affa i rs of Canada.
1 2 Department of External Affa i rs , External Affa i rs , Ottawa, Vol. 8, No. 5, p . 110.
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but the creation of a frame of mind which would accustom
sovereign states to thinking of their allies in the forma
tion of their political and economic policies."13
The Report of the Committee of Three on non-military
cooperation in NATO was presented at the Paris Ministerial
Meeting in December 1956. The Report recognized the impor
tance of consultation among NATO governments and stressed
the need for members to develop common policies by full and
timely consultation on issues of common concern. This would
not require new institutional arrangements nor organizationa:,
changes but could be achieved through sustained political wi:,-
lingness to form policies through consultation. The Report
was also concerned with differences which might arise between
members and suggested procedures to facilitate the settlement
of such differences.
The Report indicated that while economic cooperation
was desirable it was also difficult to achieve in practice,
and the only tangible means it could offer was increased con
sultations amongst member countries. In an address to the
American Council on NATO in New York, in January 1957, Mr.
Pearson supported this view when he said, that unity within
1 3 Edgar Mclnnis, "Three Wise Men Look for Ways to Develop and Strengthen NATO", Canadian Business, Canadian Chamber of Commerce, Montreal, March 1957, p. 88.
14 Department of External Affairs, External Affairs, Ottawa, Vol. 9, No. 1, January 1957, p. 12.
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NATO
must be based on something deeper than defence cooperation alone if it is to survive. As we wrote in our report 'there cannot be unity in defence and disunity in foreign policy'. That seems to me to be obvious, but some years of participation in international affairs have led me to the somewhat cynical conclusion that the obvious is often more difficult to implement than the obscure. 3
Thus, even today, the non-military objectives of NATO
remain secondary to military considerations.
The question of financial aid through NATO has been
the subject of divergent views, and it should at least be men
tioned here. If NATO - fundamentally a military organization
was to allocate funds for aiding the underdeveloped countries
such could be looked upon as military rather than economic,
and would imply, for propagandists at least, some form of
military "rapprochement". Such considerations have tended to
frustrate the economic initiative of NATO. But there does
exist another area of aid which NATO could properly regard as
its own without fear of adverse political propaganda. NATO's
economic aspect could be tested in its economically less fa
voured members, such as Greece and Turkey, and even in some
parts of Italy. This would benefit not only the recipient
country, but also the Organization as a whole. And in the
1 5 Department of External Affairs, External Affairs, Ottawa, Vol. 9, No. 2, p. 78.
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l i g h t of the developments i n the U . S . i n t e r n a t i o n a l accoun t s
the moment would seem a p p r o p r i a t e fo r the a d o p t i o n of a p u r e
l y NATO i n t e r n a l development fund des igned t o s t r e n g t h e n the
economic s i d e of the A l l i a n c e as a whole . Th is would mere ly
be g i v i n g e x p r e s s i o n t o A r t i c l e 2 of the T r e a t y which d e a l s
w i t h s e l f - h e l p and mutual a i d .
I f s o l u t i o n s to the problem of economic a id and co
o p e r a t i o n w i t h i n NATO were l e f t want ing , t h i s O r g a n i z a t i o n
d id p rov ide a s t r o n g c o o p e r a t i v e approach to E u r o p e ' s mi l i ta r jy
p rob lems , even between Germany and France , which may we l l
have f a c i l i t a t e d the achievement of success i n o t h e r European
c o o p e r a t i v e endeavours more d i r e c t l y concerned w i th economic
m a t t e r s .
D. O r g a n i z a t i o n for European Economic Coopera t ion (OEEC)
E u r o p e ' s b a s i c problem i n 1945 was economic. Most
of E u r o p e ' s c a p i t a l equipment had been des t royed or run-down
wi th the r e s u l t t h a t p r o d u c t i v e c a p a c i t y was s t a g n a n t , and e\|en
d e t e r i o r a t i n g . Moreover many overseas i nves tmen t s had been
r e p a t r i a t e d f o r the war e f f o r t , whi le i n t e r n a t i o n a l indeb ted
n e s s had i n c r e a s e d . In a d d i t i o n , the normal sou rces of
supply of many e s s e n t i a l raw m a t e r i a l s , e s p e c i a l l y i n South-
E a s t As ia , had been s e v e r e l y d i s t u r b e d by t h e " Japanese War",
These c o n d i t i o n s were r e f l e c t e d i n low l e v e l s of p r o d u c t i o n ,
s h o r t a g e s of f u e l , i n f l a t i o n a r y p r e s s u r e s , budge t a ry d e f i c i t s
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and h e a v i l y adverse t r a d e b a l a n c e s - p a r t i c u l a r l y w i th North
America, which,pending the r e h a b i l i t a t i o n of o the r p re -war s o u r
c e s , was the main s u p p l i e r of impor tan t f o o d s t u f f s and raw
m a t e r i a l s .
During t h i s p e r i o d d e f i c i t s i n payments were covered
by drawing down remaining d o l l a r r e s e r v e s , and th rough f i n a n
c i a l a i d and l o a n s , such as from the Uni ted Na t ions , Canada
and t h e U.S.A. By 1947, however, most of t hese e x c e p t i o n a l
means of f i nance were n e a r i n g e x h a u s t i o n . Europe was faced
wi th a p o s s i b l e r e d u c t i o n of s u p p l i e s of f o o d s t u f f s and raw
m a t e r i a l s t h a t could have r e v e r s e d the t r e n d towards economic
r e c o v e r y , and p r e c i p i t a t e d unemployment and acu t e s o c i a l
d i s t r e s s . 1 6
I n a d d i t i o n , the l ong - t e rm f u t i l i t y of t h i s type of
uncoo rd ina t ed a id was g r a d u a l l y r e c o g n i z e d . G r a n t i n g sepa
r a t e a s s i s t a n c e t o i n d i v i d u a l European c o u n t r i e s , whose p r o
d u c t i o n , f o r e i g n t r a d e and inves tment p o l i c i e s , not only
e n t i r e l y l acked c o o r d i n a t i o n , but were to a c o n s i d e r a b l e ex
t e n t c o m p e t i t i v e and c o n t r a d i c t o r y , was to say t h e l e a s t a
f u t i l e u n d e r t a k i n g . The need for economic c o o p e r a t i o n became
even more ev ident i n t h e face of growing dichotomy between
e a s t and west Europe . This s i t u a t i o n he lped to spur t h e U .S .
i n t o a c t i o n t o f i nd some sound s o l u t i o n to E u r o p e ' s p r e d i c a
ment .
16 Uni ted Na t ions , A Survey of the Economic S i tua t io r , and P r o s p e c t s of Europe, Lake Success , Department of Economic A f f a i r s . 1948. p p . T0T^153.
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The i n t e r e s t of the U.S. i n t h e economic r ecove ry of
t h e non-communist c o u n t r i e s of Europe, which o the rwi se might
become easy p r ey to Sov ie t m i l i t a r y or economic a g g r e s s i o n ,
was more t h a n p o l i t i c a l . P o l i t i c a l mot ives were, of course ,
g iven g r e a t d i s p l a y s i n c e p u b l i c op in ion could g ra sp t he se
more e a s i l y , b u t t h e r e were a l s o very s e r i o u s economic reason*,
The gene ra l expansion of imports and r e d u c t i o n of e x p o r t s vis
a - v i s t he D o l l a r Area was c a u s i n g ever i n c r e a s i n g d e f i c i t s i n
th© merchandise t r a d e of Western Europe . While i n 1938 the
t r a d e d e f i c i t of t h i s a r e a wi th the U.S. had amounted to only
$700 m i l l i o n , i t reached $3 .5 b i l l i o n i n 1946 and #5 b i l l i o n
i n 1947. Developments i n the ba l ance of payments s i t u a t i o n
l e d t o d e f i c i t s of $4 .2 b i l l i o n i n 1946 and $ 5 . 4 b i l l i o n i n
1947, compared to $400 m i l l i o n i n 1 9 3 8 . 1 7 The problem of f i
n a n c i n g t h e s e enormous d e f i c i t s was g a i n i n g i n s e r i o u s n e s s ,
and t h e U.S. knew too w e l l t h a t c u r r e n t p o l i c i e s of a i d would
no t p rov ide the coveted recovery i n Europe . I t was t h e n f e a r id,
on the b a s i s of p a s t expe r i ence , t h a t E u r o p e ' s ch ron ic d e p r e s
sed c o n d i t i o n s would e v e n t u a l l y make i t s e l f f e l t i n a d e c l i n e
i n U.S. e x p o r t s . The i d e a of f o s t e r i n g p r o s p e r i t y i n Europe
was t h e r e f o r e grasped by the American government as a p o l i c y
of n e c e s s i t y t o i n su re con t inued U.S. economic a c t i v i t y i n
t h e f u t u r e j u s t as much as f o r p o l i t i c a l r e a s o n s .
1 7 Pau l A l p o r t , Twent ie th Century Economic H i s t o r y of E u r o p e , p p . 3 7 0 - 3 7 1 .
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On June 5, 1947, the Secretary of State of the U.S.,
General Marshall, made a historic speech at Harvard Universit
in which he invited European nations to join in detailing
their common needs for consideration by Congress. European
governments responded by setting up a "Committee of European
Economic Cooperation" to determine their needs. Although suc]Ji
response was welcomed it had not really been expected by the
U.S. The proposal formulated by Mr. Marshall applied to the
whole of Europe, both East and West, and it had been expected
that the newly established U.N. Economic Commission for Europo
would provide the technical and administrative machinery for fche
implementation of the Marshall Plan. The Soviet Union, how
ever, refused to accept the Marshall offer and forced all
18 countries under her control to do likewise. With the Sovie
refusal, the plan became the natural basis of the Western Bio
Sixteen countries of Europe19 set to work on a plan for
European reconstruction, which led to the response from the
"Committee", and in effect made it impossible for the U.S. to
pursue its aid plan through U.N. facilities.
The aim of the plan was to raise industrial and agri
cultural production, on the assumption of American aid over a
1 8 Poland and Czechoslovakie first accepted the Marshall offer, but subsequently refused it.
19 Austria, Belgium, Denmark, France, Germany, Greece Iceland, Italy, Luxembourg, Netherlands, Norway, Portugal, Switzerland, Sweden, Turkey and the United Kingdom.
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f o u r - y e a r p e r i o d . A j o i n t r e p o r t by th© s i x t e e n n a t i o n s was
p r e s e n t e d t o the U.S. government i n September 1947. Outs ide
of be ing a remarkable p o l i t i c a l and economic achievement i n
i t s e l f , t h i s r e p o r t a l s o d i s p l a y e d E u r o p e ' s new b e l i e f i n th<
soundness and n e c e s s i t y for economic c o o p e r a t i o n . While the
U .S . p r epa red i t s machinery t o a d m i n i s t e r t h i s p l a n and t o
d i s t r i b u t e the f u n d s , 2 ^ Europe pursued i t s e f f o r t s , which cu!.
minated i n the s i g n a t u r e of a m u l t i l a t e r a l conven t ion between
the p a r t i c i p a t i n g c o u n t r i e s and the s e t t i n g up of th© Organ
i z a t i o n f o r European Coopera t ion on A p r i l 16, 1948 . Subse
q u e n t l y , the U.S. Economic Coopera t ion A d m i n i s t r a t i o n (ECA)
e s t a b l i s h e d l o c a l m i s s i o n s i n each of t h e p a r t i c i p a t i n g coun
t r i e s r e c e i v i n g d o l l a r a id , and b i l a t e r a l agreements were
s igned between the government of each of t h e s e c o u n t r i e s and
t h e U .S . government. Europe had thus o f f i c i a l l y e n t e r e d the
e r a of p r a c t i c a l economic c o o p e r a t i o n .
Although, a t f i r s t , the OEEC was looked upon mainly
as a means to f a c i l i t a t e the a d m i n i s t r a t i o n and d i s t r i b u t i o n
of American a i d , i t soon showed i t s e l f t o be much more. The
g r a d u a l development of OEEC i n t o something more t han a
" d i s t r i b u t i o n agency" l e d to i n c r e a s i n g c o o p e r a t i o n i n near ly
a l l f i e l d s of economics.
2 0 On Apri l 3, 1948, President Truman signed the U.S Foreign Assistance Act. This embodied the Economic Cooperat i o n Act, which authorized j u s t over $5 b i l l i o n in aid to Europe in th© f i r s t year .
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OEEC became the agency th rough which the c o u n t r i e s of
Western Europe took th© i n i t i a t i v e i n s o l v i n g t h e i r r e s p e c t l v >
economic d i f f i c u l t i e s . One of i t s main p r e - o c c u p a t i o n s soon
became the l i b e r a l i z a t i o n of t r a d e and payments, which i t
c o n s i d e r e d as an e s s e n t i a l c o n d i t i o n for the achievement of
i t s o b j e c t i v e s of g r e a t e r p r o d u c t i o n , b e t t e r s t anda rds of
l i v i n g and sound ba lance of payments p o s i t i o n . R e l i e f was
sought through b i l a t e r a l t r a d e and payments a r rangements a t
f i r s t , and then through i n t r a - E u r o p e a n payments s c h e m e s . 1
D e s p i t e the doub t s , t h e d i f f i c u l t i e s and t h e se tbacks
which accompanied t h i s new v e n t u r e , Europe s lowly began to
demons t ra te impress ive economic g a i n s . As may be seen from
Table IV, between 1947 and 1951, OEEC c o u n t r i e s as a whole
n o t mere ly r e g a i n e d , bu t c o n s i d e r a b l y su rpassed th© pre -war
l e v e l i n most of t he main s e c t o r s of p r o d u c t i o n and t r a d e ;
a f t e r 1951 f u r t h e r p r o g r e s s con t i nued . Most of t he se coun
t r i e s a l so a t t a i n e d a much h igher degree of i n t e r n a l f i n a n c i a l ,
s t a b i l i t y .
In the p r a c t i c a l a p p l i c a t i o n of economic c o o p e r a t i o n
Europe r e a l i z e d i t s many b e n e f i c i a l e f f e c t s . Q u a n t i t a t i v e
r e s t r i c t i o n s were s lowly d i sman t l ed , t r a d e i n c r e a s e d and most
c o u n t r i e s invo lved soon recogn ized t h a t th© p r o g r e s s ach ieved
had been g r e a t l y f a c i l i t a t e d by the new p o l i c y . Thus economi J
2 1 Rober t T r i f f i n , Europe and t h e Money Muddle, New Haven, Yale U n i v e r s i t y P r e s s , 1957, c h a p t e r s 4 and 5 .
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TABLE
Economic Progress
Volume index of gross national product: (1951 = 100)
Volume index of private consumption: (1951 - 100)
Index of agricultural output for consumption: (1950 . 100)
Index of industrial production: (1950 = 100)
Volume of imports: (1950 . 100)
Volume of exports: (1950 . 100)
Volume of intra-European trade: (1950 . 100)
Source: OEEC, No. 4,
* Average of years,
** 1948#
1938
83
89
91*
82
100
78
80
Statis Paris
IV
of OEEC Members
1947 1951
75 100
94 100
75 102
80** 110
81 110
52 114
48 110
1952
101
102
106
111
107
109
106
1953
106
107
115
116
114
120
119
bical Bulletins 1955, , July 1955,
1934-1938.
p. 157.
56
1954
111
112
115
127
126
132
135
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cooperation was instilled in Europe as a sound and beneficial
policy from which it would be foolish to retreat. In accepting
economic cooperation as a worthwhile and workable principle,
Europe was approaching another stage in its change of atti
tude from pre-war policies. The next logical step would be
to determine the degree of intensity of economic cooperation
most beneficial to the countries concerned. Based on the
success already experienced from economic cooperation it was
then only a question of time before some country would sug
gest that even greater benefits could be theirs if they were
to accept economic integration as their new basic policy.
As events showed, however, this question, with its political
overtones, did not receive the full endorsement of all OEEC
countries as had their first less encompassing endeavour.
Nevertheless, the success of OEEC did provide the turning
point in European trade policy away from pre-war protectionism,
and, as such, marked the most important single economic develoj-
ment in Europe following the war. It paved the way and ren
dered possible the practical developments towards economic
integration taking place today in Europe. It represents the
necessary precedent and offers the required experience where
by Europe may some day be united politically as well as
economically under some form of United States of Europe.
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E . European Payments Union (EPU)
The i n t e r n a t i o n a l flow of goods and s e r v i c e s i n
Europe a t the end of t h e war was s e r i o u s l y impeded by a n e t
work of q u a n t i t a t i v e r e s t r i c t i o n s and exchange c o n t r o l s . I n
o rde r to t r a d e w i th each o t h e r European c o u n t r i e s had to r e l y
on b i l a t e r a l a r rangements . However, t h e fo rma t ion of t h e OEEC
and t h e a p p l i c a t i o n of economic c o o p e r a t i o n i n o t h e r f i e l d s
l e d t o t h e i n t r o d u c t i o n of i n t r a - E u r o p e a n monetary coopera
t i o n . In 1948-1949 and 1949-1950, the In t r a -European Payments
Agreements were developed whereby c r e d i t s a r i s i n g from c u r r e n t
t r a d i n g between OEEC member c o u n t r i e s were reduced by month
l y c l e a r i n g o p e r a t i o n s . However, t h e s e payment a r rangements
were e s s e n t i a l l y b i l a t e r a l , and t h e i r drawbacks were e v e n t
u a l l y overcome on J u l y 1, 1950, when t h e European Payments
Union came i n t o o p e r a t i o n and prov ided machinery fo r a mul
t i l a t e r a l system of payments between OEEC c o u n t r i e s .
Each member coun t ry was t h u s p l aced i n the p o s i t i o n
of be ing ab le to ignore i t s ba lance of payments wi th each of
the o t h e r s and to c o n c e n t r a t e s o l e l y on i t s ba l ance w i t h t h e
group as a whole . EPU did no t propose t o e s t a b l i s h the u l t i
mate s o l u t i o n t o Eu rope ' s ha rd cu r rency p rob lems . I t was no t
expec ted , for i n s t a n c e , to so lve the " d o l l a r s h o r t a g e " p r o b l e n
a t t h a t t i m e . I t was merely des igned a s a temporary e x p e d i e n t
t o "permi t the maintenance of d e s i r a b l e forms of s p e c i a l i z a
t i o n i n t r a d e , whi le f a c i l i t a t i n g a r e t u r n t o f u l l
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multilateral trade and ..... to the general convertibility of
22
currencies." The suspension of the former bilateral pay
ments agreements and their transformation into a multilateral
payments system were not only worthwhile achievements in them
selves but also contributed to increasing competition amongst
European countries. Thus EPU contributed to the removal of
the major instruments and financial incentives to discrimina
tion and bilateralism in Europe, and facilitated any subse
quent steps towards the creation of a common market.
In addition to its direct achievements, EPU established
a sound basis of international cooperation at the administra
tive level. Out of the numerous negotiations and the con
crete problems to be solved by the experts concerned, arose s
broader understanding of European problems. This was in con
trast to the traditional nationalistic approach quite incom
patible with successful and lasting integration at the econo
mic level.
F. European Coal and Steel Community
In the summer of 1952 Europe took a revolutionary
step towards supranational cooperation. Under a new body
called th© European Coal and Steel Community (ECSC) Benelux,
France, Germany and Italy joined together in the production
and consumption of coal and steel in Europe. A cooperative
22 OEEC, Preamble to the Agreement for the Establishment of a European Payments Union, signed on Sept.19. 1950. Paris. 1952.
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©ffort such as ECSC had been sought as an economically desi
rable arrangement, but it was the political events of the
time which assured its early implementation.
In 1949 Benelux, France, U.K. and U.S.A. took over
control of the Rhur coal and steel industry as a power re
served for the Allies under the original Occupation Statute.
This controlling body was known as the International Rhur
Authority. Th© main purpose of the Authority was "that the
resources of the Rhur shall not be in future used for the pur
pose of aggression, but shall be used in the interest of
peace; that access to the coal, coke and steel of th© Rhur,
which was previously subject to the exclusive control of Ger
many, be in the future assured on an equitable basis to the
23 countries cooperating in the Common economic good "
With this purpose it combined the hope of lowering trad© bar
riers and facilitating cooperation in Europe, including a de
mocratic but controlled Germany.
Of course Germany resented this tutelage and was
seeking for a wider international regime on a basis of equal
rights and duties. Dr. Adenauer's address to th© occupying
powers, on taking office as Federal Chancellor in September
1949, expressed th© desire quite frankly: "We see another
opening for creating a positive and viable European Federatio 1
2 3 E. Strauss, Common Sense about the Common Market, London, Allen and Unwin7 1958, p. 61.
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in the hope that the control of the Rhur region would cease
to be a unilateral arrangement and that it would gradually
grow into an organism which would embrace the basic Industrie
of the other European countries as well". 4 This suggestion,
although not very palatable to the other European countries,
corresponded very closely with a need for the harmonization o
the production and consumption of coal and steel which was
being expressed at that time in Europe. The plan for the
"pooling" of French and German coal and steel production, put
forward by France in May 1950, was the outcome of these cir
cumstances. It was also the starting point of the "Schuman
Plan", which culminated in the formation of ECSC in the summej?
of 1952. The basic purpose of the Schuman Plan, from th©
French point of view, was to keep Germany from regaining
exclusive control of the coal and steel industry. From the
political point of view ECSC promised to confer international
power on a body largely free from the vote of a single governf-
ment and equipped with powers to direct the activity and
development of two vital European industries to th© benefit
of all. From the economic point of view ECSC was to obtain
for all its members,a strengthening in the export of ste©l,
better prices to the consumer, increased efficiency in pro
duction and distribution. It would obviate the re-instatemen
2 4 Ibid., p. 62.
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of p re -war c a r t e l a r rangements d e t r i m e n t a l t o c o m p e t i t i o n , tc
the p u r s u i t of e f f i c i e n c y and t o the consumer, and c o n t r i b u
t i n g to was t e fu l and uneconomic expans ion of t h e s e i n d u s t r i e s
i n seg rega ted m a r k e t s .
For such a scheme to succeed i t was n e c e s s a r y t h a t
no member should su f f e r unduly from t h e adve r se economic
e f f e c t s of f r e e c o m p e t i t i o n . On the o t h e r hand the se c o u n t r i e s
wanted t o p reven t a renewal of pre-war monopo l i s t i c and c a r
t e l a r r angemen t s . I t was t h e r e f o r e agreed t h a t , i n o rde r to
b e n e f i t from the advantages of c o m p e t i t i o n w h i l e o b v i a t i n g
i t s u n d e s i r a b l e consequences , a c o n t r o l l e d compe t i t i ve marke
should be e s t a b l i s h e d . The success of ECSC i n i n c r e a s i n g
c o m p e t i t i o n and i n f r e e i n g t h i s market from t r a d e b a r r i e r s
has been q u i t e r emarkab l e . Most of the g l a r i n g forms of
d i s c r i m i n a t i o n such as s u b s i d i e s , p r e f e r e n t i a l t a r i f f s , quo
t a s , customs d u t i e s and import and expor t l i c e n c e s have now
been e l i m i n a t e d . In a d d i t i o n dur ing the seven-year p e r i o d
1951-1957, s t e e l ou tput of member n a t i o n s i n c r e a s e d by 43 pei
c e n t , wh i l e t h e i r t r a d e i n s t e e l p roduc t s more than d o u b l e d . f 3
Whatever i t s p a r t i c u l a r achievement , ECSC did prove
economic i n t e g r a t i o n to be p r a c t i c a l . However t h e i n h e r e n t
drawback of t h i s "Plan" was t h a t i t was on ly p a r t i a l i n
s cope . The l e v e l of economic a c t i v i t y i n s t e e l and c o a l was
25 Wil l iam Diebold , J r . , The Schuman P l a n , A Study i n Economic Coopera t ion 1950-1959, P u b l i s h e d for t h e Counci l on Fo re ign R e l a t i o n s , New York, P raeger , 1959, p . 569, T a h l A TT. anrl p . R77 T » M « 1 a
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obviously dependent on the overall economic conditions in
Europe, but only in that particular area was there specific
cooperative action. Being subject to the rest of the economy,
these two industries could not be guided and developed in tho
most effective manner. By its limited approach to unifica
tion, ECSC was, in itself, either an intermediate step to
more embracing integration, or a step back towards eventual
segregation of these two industries from the rest of the
European markets. But ECSC was not intended to be an end in
itself. It was hoped that from its experience there would
rise a greater spirit of economic and political cooperation
especially between France and Germany.
The parties to this "Plan" realized that a united
Europe could not be achieved within the near future, but
they hoped that it would serve as a first step, a concrete
example, which would encourage the formation of additional
pools, and even pave the way to an eventual political and
economic unification of all continental Europe. It was con
sidered to be a plan much wider in scope than the problems
of these two heavy industries to which it was initially
being applied. In the sixth Annual Report of the ECSC, it
was reported that:
Although the industries in a common market constitute a good test of the competitive ability of an economy, experience has shown that governments do not manage their general economic policy on the basis of the competitive conditions of two of their
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industries, however important they may be. The effectiveness of the measures (with respect to coal and steel) have been limited. The High Authority firmly believes that economic policies will be more effectively and spontaneously coordinated as integration becomes wider, and each country's stake in integration is extended.26
This indicates that not only was wider economic
integration desired, but that it was also desirable in
order to gain the full benefits from such cooperative
efforts.
There is no doubt that the economic solidarity in
Europe which grew out of these efforts, became an efficient
means of unified action equal to the problems at hand; and
the treaty establishing the European Economic Community was
the fruit of the experience and achievements of the European
Coal and Steel Community.
2 6 High Authority of ECSC, Sixth General Report on the Activities of the Community, Luxembourg, April 1958, p. 15.
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CHAPTER III
THE EUROPEAN ECONOMIC COMMUNITY
k. Introduction
Although there had been signs of interest in economic
cooperation within Europe prior to World War II, that war
gave powerful stimulus to renewed action in this direction.
The idea of economic integration is not something which swept
across Europe to be accepted without question. Rather this
concept followed logically from the success and benefits
already achieved through post-war economic cooperation dis
cussed in the previous chapter. Many of the reasons for the
remarkable degree of post-war cooperation in Europe were
equally valid in support of attempting economic integration.1
1 Subject matter covered in the "Introduction" and "The Institutions of the Community" is based mainly on information contained in, Department of External Affairs, "The Economic Integration of Western Europe", External Affairs, Vol. II, January 1959; Ibid., Vol. II, No. 2, February 1959; William Diebold, Jr,, The Schuman Plan, A Study in Economic Cooperation", p. 636-668; Committee for the Common Market and Euratom, Treaty Establishing the European Economic Community, and Connected Documents, Brussels, Secretariat for the Interin Committee for the Common Market and Eur atom, 1957, 378 p.; Royal Institute of International Affairs, "The Treaty for a European Economic Community - A Critical Analysis", The World Today, Vol. 4, No. 7, Oxford University Press, July 1958, pp. 304-315; Political and Economic Planning, European Organizations, London, Allen & Unwin, 1959, pp. 292-298; Political & Economic Planning, The Spaak Report - a summarized translation of Part I - The (Tommon Market, London, Allen & Unwin,
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Among th© more fundamental causes had been the feeling
that the state organization of 1939, along national lines,
had failed and that a wider political grouping was necessary
in order to eliminate the intra-European animosities. There
was also the feeling that Europe was in no position to re
instate currency and trade barriers on the same basis as in
the thirties, if it was to share eventually in the technolo
gical advances, which had characterized U.S.A. growth, and
which called for a large single market at its base. There
was, as well, the favourable background of geographical
proximity within Western Europe, and the unfailing support
from the U.S.A. for all movements directed towards greater
unity in Europe.
In view of the success of the ECSC, the next logical
step was to extend the pattern it developed for coal and
steel to all trade and other economic activities. The pre
sent Treaty creating the EEC is essentially based on the
experiences of ECSC, and it testifies to the success the
latter has achieved.
At one stage in the developments towards a common marj-
ket of wider scope, it seemed as if the whole movement woulc
founder. The success of ECSC encouraged the supporters of
December 1956, 98 p.; E. Strauss, Common Sense About the Common Market, pp. 72-106; The European Economic Community, New York, Societe Generale (FrSnce), no date, approx. 1959, 46 p.; The New European Market, New York, The Chase Manhat-tan Bank, July 1958, 40 pagesT
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i n t e g r a t i o n to move fur ther - but as i t turned out - with
too much h a s t e . They attempted to c rea te a European array
and a s ingle defence policy for Europe under the European
Defence Community. Work was also begun on the formation of
a European P o l i t i c a l Community. But the loss of French par
liamentary support for EDC i n 1954, brought a l l these p lans
to a more p r a c t i c a l l e v e l . Economic i n t e g r a t i o n soon came
to be accepted as a p r e r equ i s i t e to p o l i t i c a l union.
Almost immediately a f t e r the defeat of EDC, the six
countr ies now members of the Common Market, along with Brita:
provided a subs t i t u t e - Western European Union. Like EDC,
i t provided for combined defense, but i t c a l l ed only for
inter-governmental cooperation and es tab l i shed no important
supranat ional au tho r i ty . This seemed to express the p o l i
t i c a l r e a l i t y of the time - t ha t i n t e g r a t i o n of armies shoulfi.
be made only a f te r a so l id economic and p o l i t i c a l foundation
had been l a i d .
However, the blow which the defeat of EDC deal t to
the advocates of broader economic i n t e g r a t i o n was merely
stunning, not deadening. The winter of 1954-1955 was marked
by a r e v i v a l of discussions about the best approach to econ
omic i n t e g r a t i o n . Included i n such debates were a number of
plans for a European Currency Commission, a Federal Reserve
System and even a common currency. The main drive was
towards adoption of s imi la r na t iona l p o l i c i e s , eas ie r f inan-
n,
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cial transactions across national frontiers and a revival of
th© cooperation of central banks. On the whole, discussions
exposed the general view that no major measures of economic
integration could succeed, if they were confined either to
particular industries or to trade alone. Even the BENELUX
governments, partisans of partial integration, shifted their
support to the broader approach early in 1955.
In the light of the many conflicting and competing
views, and because most of its members were basically inte
rested in further integration, the Assembly of the ECSC calljod
on th© foreign ministers of its member states, in May 1955,
to organize a conference to look into the possibility of
broader economic integration. Of course, th© personal
efforts and persuasive force of such men as Mr. Spaak and
Mr. Schuman contributed to the progress achieved in this
drive towards a broader approach to European economic pro
blems.
The conference of the Six in Messina, Italy, in June
1955, gave practical consideration to the feasibility of
economic integration. This conference, known as the "Messing
Conference", led to an agreement amongst the Six, that the
time had come for a new step on the road to European unity.
Serious consideration was to be given to some form of joint
action in the development of atomic energy and, ultimately,
to the establishment of a common market. During the autumn
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and w i n t e r of 1955-1956 a committee under Mr. Spaak ( then the
Be lg ian fo r e ign m i n i s t e r ) examined the means f o r a c h i e v i n g
t h e s e e n d s . I n A p r i l of 1956, the "Spaak Repor t " , c o n t a i n
ing a comprehensive p l an fo r the j o i n t development of atomic
energy , and a somewhat l e s s d e t a i l e d p l an for the p r o g r e s s i v e
e s t a b l i s h m e n t of a European common market , was p u b l i s h e d .
In May, t h i s r e p o r t was endorsed by the f o r e i g n m i n i s t e r s of
the S ix as a b a s i s for t h e n e g o t i a t i o n of d e f i n i t i v e t r e a t i e s .
Two t r e a t i e s emerged from t h e s e n e g o t i a t i o n s , c r e a t i n g -
The European Atomic Community, known as Euratom, p r o v i d i n g
for the e s t a b l i s h m e n t of a common market for n u c l e a r energy
and r e l a t e d p r o d u c t s , a s w e l l as f o r j o i n t n u c l e a r deve lop
ment - and, the European Economic Community.
By autumn of 1957, a l l the p a r l i a m e n t s of t he s i x
member c o u n t r i e s of ECSC had r a t i f i e d the T r e a t y , and on
January 1, 1958, i t came i n t o f o r c e , j o i n i n g t o g e t h e r , on
an economic b a s i s , the BENELUX, France , Germany and I t a l y .
At f i r s t s i g h t , the Common Market T rea ty might we l l appear
to be a r e p l i c a of the ECSC Trea ty , but i n s p i t e of b a s i c
s i m i l a r i t y i n concept between the two, t h e r e are impor t an t
d i f f e r e n c e s of emphas is . The e x e c u t i v e body which was known
as the High Au tho r i t y under ECSC became the Commission i n
the EEC. The v a r i a t i o n was more than j u s t a change i n name.
One of t h e e s s e n t i a l f e a t u r e s of the e a r l i e r Trea ty was the
s u p r a - n a t i o n a l element which was ves t ed i n t h e High A u t h o r i t y .
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The Commission in the Common Market also has important powers,
but greater importance was given to the Council of Ministers,
and the emphasis on supra-nationality was minimized. This
change in emphasis should not be interpreted as a withdrawal
from the ultimate objectives of a united Europe under common
institutions, but rather it shows that the experience gained
from ECSC and from the failure of EDC initiated a more cau
tious approach, which was well in keeping with the greater
complexities of common economic activities. The Common Market
Treaty shows a more cautious approach in its lack of details,
It is a more flexible document, leaving to the Council of
Ministers and to the Commission the task of working out de
tails.
In general, therefore, it may be said that while the
Treaty creating the European Economic Community was basically
similar in terms to the ECSC Treaty, its provisions were draim
more widely, permitting the adequate flexibility which the
much wider scope of this new undertaking required. Although
the Treaty deals mainly with economic and social integration
of its Members, the political objectives of such a union re
mained in the background. This underlying political influence
was present in the Spaak Report which was based on the pre
mise, that the ultimate purpose of this new scheme was to be
the creation of a "third force" between the United States
and the Soviet Bloc.
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In formulating the more immediate purposes of the
Treaty however, political objectives came second to economic
considerations. The main purpose of the Treaty is to seek
the strength, progress, improvement and stability in the ecor
omic and social conditions of their peoples through unity of
action. It also declares that its Members are "determined tc
establish the foundations of an ever closer union among the
European peoples", and as such leaves the door open for
future political integration.
No specific and inflexible provision could ever be
drawn up which would deal adequately and efficiently with th<
numerous problems facing the administration of such a colossi1
undertaking uniting these historically segregated economies.
It was therefore a very practical approach to lay emphasis on
the requirement for a spirit of cooperation if success was t<
be secured, while concentrating mainly on the establishment
of concrete, yet flexible, provisions to be administered by
adequate and quasi-independent institutions.
B. The Institutions of the Community
In the creation of its institutions the Common Market
has recognized the need for some form of supra-national control
in cooperative undertakings of this nature, and although this
2 Preamble to Treaty Establishing the European Economic Community.
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element i s only a t the nucleus s tage, i t i s a t l e a s t a f i r s t
s tep in the d i r e c t i o n of potential p o l i t i c a l un i ty , at which
time a supra-nat ional au thor i ty w i l l have slowly emanated ou
of the p r a c t i c a l developments, ready to take on the task at
hand.
Ar t i c l e 4 of the Treaty provides for the Ins t i tu t ion! !
of the Community. "The achievement of the tasks ent rus ted i n
the Community sha l l be ensured by - an Assembly , a Commission
and a Court of J u s t i c e . " "The Council and the Commission
sha l l be a s s i s t ed by an Economic and Social Commit tee. . ." .
1 . The Assembly
The Assembly, or the Parliament of the Six, forms tho
center of de l ibe ra t ion and, t o some extent , p o l i t i c a l control,
wi th in the Community. I t i s composed of de lega tes from the
par l iaments of member coun t r i e s . These delegates are, a t
p resen t , appointed by t h e i r respect ive governments. Germany,
France and I t a l y have 36 r ep re sen ta t ives each, and the BENELlfx
has 32 . One of the tasks of the Assembly cons i s t s of
drawing up proposals for the uniform procedure of e l ec t i ons
by d i r e c t un iversa l suffrage in a l l member s t a t e s .
The Assembly reviews the annual r epo r t submitted by
the Commission and can censure any a c t i v i t i e s of the Commis
sion by a two-thirds majority vo te . The Assembly may also
d i scuss , and suggest modifications to the proposals submitted
by the Council . Various provis ions in the Treaty requ i re
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t h a t t he Assembly must be c o n s u l t e d be fore a c t i o n i s t a k e n by
th© Counci l or th© Commission. I t must , f o r example, be con
s u l t e d i n the e l a b o r a t i o n of the p r o v i s i o n s about a g r i c u l t u r e of b u s i n e s s and movement of l a b o u r ,
the r i g h t of e s t a b l i s h m e n l / a n d the implementa t ion of a common
t r a n s p o r t a t i o n p o l i c y .
The Assembly i s a common organ of t h e European Econo
mic Community, the European Atomic Energy Community and t h e
European Coal and S t e e l Community. I t r e p l a c e s the Common
Assembly of ECSC.
Although the a c t i v i t i e s of the Assembly appear some
what s u p e r f l u o u s , e s p e c i a l l y i n comparison t o the wide execu
t i v e powers g iven to the Counci l , i t n e v e r t h e l e s s remains a
very impor tan t i n s t i t u t i o n of the Community. I t r e p r e s e n t s
t h e nuc leus of a t r u e c e n t r a l p a r l i a m e n t which would be r e
q u i r e d to achieve p o l i t i c a l u n i f i c a t i o n , o r some form of con
f e d e r a t i o n .
2 . The Counci l of M i n i s t e r s
The Council i s the po l i cy-making body, the e x e c u t i v e ,
of t h e Community. I t i s composed of s i x r e p r e s e n t a t i v e s , one
from each member c o u n t r y . I t has impor t an t powers of decision,
and i s r e s p o n s i b l e for e n s u r i n g the c o - o r d i n a t i o n of g e n e r a l
economic and soc i a l p o l i c i e s of member c o u n t r i e s . During t h e
f i r s t s t a g e of t r a n s i t i o n most of i t s d e c i s i o n s must be t a k e n
by unanimous v o t e ; t h e r e a f t e r , p a r t i c u l a r l y when the Counci l
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w i l l be ac t ing upon proposals formulated by the Commission,
a qua l i f i ed majority w i l l be s u f f i c i e n t . 3
The Council may be viewed as the most important i n s
t i t u t i o n of the Community not only because i t i s responsible
for the execution of the Treaty, but also because i t i s both
a l i n k between the Community and the s ix na t i ona l governments
and i s the p r i n c i p a l policy-making body of the Community.
3 . The Commission
In e f fec t , the Commission i s the Community's c i v i l
se rv ice , i t s adminis t ra t ive body or s e c r e t a r i a t . I t has nin«
members chosen for t h e i r general competence and independence,
with not more than two members having the n a t i o n a l i t y of the
same S t a t e . In supervising the day-to-day operat ions of th<
Community, i t works c lose ly with the Council . I t may formu
l a t e proposals for Council dec is ion; i t administers Council
dec is ions and ensures they are put in to ef fec t by a l l members
concerned.
Although, as indicated above, policy-making decision!
are the r e s p o n s i b i l i t y of the Council, the Commission exercisjes
3 To reach a qua l i f i ed majori ty, twelve votes are required and the votes of the member count r ies are usual ly weighted as fo l lows: four each for France, Germany and I t a l y , two each for Belgium and Netherlands, and one for Luxembourg In cases where the Council i s not ac t ing on a proposal of th€ Commission, the twelve votes must include at l e a s t four member s t a t e s ; the three large countr ies w i l l , therefore , have to have at l e a s t one of the Benelux count r ies i n agreement with them.
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certain powers of decision of its own. The most important of
these powers relates to the use of escape clauses in a balance-
of-payments crisis, or where there are serious difficulties
likely to persist in any sector of economic activity, or dif
ficulties which might impair the economic situation in any
region. In these cases the Commission, not only authorizes
the country affected to take action, but specifies the precise
measures to be taken. Similarly, where disparities in mone
tary and commercial policies give rise to serious difficulties
in particular areas or in one country, the Commission can
authorize protective measures, specifying their nature and
duration.
4. The Court of Justice.
The Court of Justice, composed of seven judges, has
the duty of hearing complaints referred to the Commission by
member states, and of passing judgements on the legality of
the rules and decisions adopted by the Community. In brief,
its duty is to ensure the observance of law and justice in
both the interpretation and application of th© Treaty. As in
th© case of the Assembly, the Court of Justice applies to
Euratom, ECSC as well as to EEC.
5. The Committees
A continuing Economic and Social Committee with con
sultative status has been appointed by the Council. It is
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represent the interests of all economic sectors in the Commu
nity. The Committee includes specialized sections in such
fields as agriculture and transportation. To initiate speci
fied measures, as provided in the Treaty, the Council or Com
mission must consult with the Committee.
In order to promote policy co-ordination and stabili' y
in monetary matters and to study related problems, a Monetary
Committee has also been formed. It is composed of two repre
sentatives from each Member State and of two, named by the
Commission.
C. The Customs Union
The initial purpose of the European Economic Community
is the establishment of a customs union. It is on© of the
most important features of EEC since it is an immediate and
concrete commitment. The adoption of its principles by Mem
ber States will result in the abolition of customs duties an<.
all charges with equivalent effect on the exchange of goods
between themselves and the adoption of a common customs
tariff for trade with countries outside the Customs Union.
1. Internal Trade
The Treaty provides for the abolishment of customs
duties and all equivalent charges in this sphere of trade ovor
a period of at least 12 years and not more than 15 years.
Based on the duty applied in each country on the I
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f i r s t of January 1957, reductions in t a r i f f s would be made ir
stages of four years each. The f i r s t stage included an i n i
t i a l reduction equal to 10 per cent, one year after the entry
into force of the Treaty, with two other reductions of 10 per
cent each to follow at 18 month intervals thereafter to achie ve
a 30 per cent to ta l reduction by the end of this four-year
period. Similar reductions would be made in the second four-
year stage. Reductions covering the remaining 40 per cent
would be carried out in the course of the third stage, with
their timing fixed by decision of the Council. The proposed
twelve-year t ransi t ion period may be altered by permissible
one-year extensions of the f i r s t stage, but, in any event,
the total t ransi t ion must not exceed fif teen years.
In order to achieve a true position of free trade bet
ween countries, not only must t a r i f f barr iers be abolished,
but also quantitative r e s t r i c t i ons . Impressive progress was
already made in reducing quantitative res t r i c t ions on trade
under OEEC arrangements. Such res t r i c t ions have now been
placed in the position of exception rather than general rule
The remaining quantitative r e s t r i c t ions will be removed over
the t rans i t ion period, eventually achieving complete aboli t ion
of these impediments to trade. As an i n i t i a l step, the Treay
specified that , in general, quotas of a b i l a t e ra l nature wil:.
be converted to Community quotas by the end of the f i r s t year.
Thus any quotas which France might apply against certain
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imports from Germany would become open to all members of the
Community. Exceptional cases and individual problems such as
restrictions equivalent to quotas will receive due considera
tion by the Commission and the Council. Activities of State
monopolies will also be adjusted progressively under the gui
dance of the Commission to ensure the early abolition of dis
crimination against competitive trading.
2. External Trade
Under this section of the Treaty, Member States are
committed to negotiate adjustments in their individual tariffs
in such a way as to effect a common tariff by the end of the
transition period. In general, the basis of the tariff sche
dule which will ultimately apply will be the arithmetical
average of individual tariffs in effect on January 1, 1957,
subject to maximum rates for specified lists of goods in the
respective general categories of 3 per cent for industrial rsw
materials, 10 per cent for semi-finished goods, 15 per cent
for inorganic chemicals and 25 per cent for organic chemicals.
The difference between the basic duty of each country and the
ultimate common duty is to be adjusted by 30 per cent respect
ively during the first and second stages, with remaining adjust
ments to follow during the last stage. In addition, a more
uniform application of legislation and administration is to
be sought by Member Countries in regard to customs matters.
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D. The Broader Economic Community
As the name implies, the European Economic Community
stands for much closer economic unification than the mere ere
tion of a customs union. In order to achieve the intended
broader objectives, it was necessary to realize a solid basis
of co-operation and to determine the more detailed problems
to be resolved. This called for the creation of various ins
titutions belonging to the Community to provide the required
degree of uniformity and control. It also called for deliberja
tion and the determination of principles and methods which
would ultimately integrate the segregated economic activitie
of Members into a uniform economic entity. Member Countries
recognizing the impossibility of attaining such unity through
rigid treaty provisions have limited themselves to promulga
ting general principles of approach, leaving to subsequent
negotiations and discussions the more specific solutions to
be enacted.
1. Agriculture
As might be expected, agriculture presents to the
Community a particularly difficult problem. Agriculture is
generally a Government subsidized industry, and to withdraw
such support would perhaps be politically unwise. Thus, in
their attempts to include agriculture in EEC, Member Countrie
have agreed in the Treaty to initiate a common agricultural
policy. With a view towards increasing productivity,
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s t a b i l i t y and prosper i ty of the a g r i c u l t u r a l sec tor , t h i s
pol icy may embody such fea tures as pr ice con t ro l s , subs id ies ,
s t ock -p i l i ng arrangements and common import or export controlls
I t i s apparent that as fa r as t h i s area of t rade i s concerned},
the object ive wi l l be l imi ted to obtaining a uniformly pro
t ec ted market divested of d iscr iminat ion r a the r than a com
p l e t e l y f ree one.
2 . Transportat ion
The broader problems of co-ordinat ion, s tandardiza t ion
and cont ro l over t r anspor ta t ion are not provided for in de
t a i l i n the t r e a t y . The t r ea ty simply ou t l ines the objec t ives
and the means of achieving an eventual common t ranspor t policy
To t h i s end, the Council ac t ing on proposals from the Commis
sion, and af ter the Economic and Social Committee and the
Assembly have been consulted, i s to lay down common ru l e s
appl icable to t ranspor t wi thin the Six. Uniform regula t ions
are to be es tabl i shed on inter-member t r a f f i c , including con
d i t i o n s and cont ro ls under which a c a r r i e r w i l l be permit ted
to ope ra te . All d iscr iminatory r a t e s and condi t ions based or
the country of o r ig in or des t ina t ion w i l l be el iminated by
the end of the second s tage . Rates or condit ions established
for the purpose of p ro tec t ing or subsidizing a firm, or an
indus t ry , w i l l , i n general , be prohib i ted a f te r the f i r s t
s tage , unless spec i f i ca l ly authorized by the Commission. Thesje
provis ions w i l l apply to t ranspor t by r a i l , road and inland
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waterways. Similar action may also be taken concerning sea
and air transport, if the Council so decides.
It is quite clear, serious attention will be given to
adjust rates, charges and subsidies applicable to internal
transportation, without difference or discrimination between
member states. However, such adjustments will be made only
if they do not result in serious economic distortions in indi
vidual countries or industries. In effect, solution to the
transportation problem will be sought with a view towards the
overall objectives to the treaty, but subject to considerable
flexibility, with immediate results limited to the reduction
of unjustifiable discriminating practices.
E. Free Movement of Persons, Services and Capital
Persons and Services
By the end of the transition period, citizens of mem
ber countries should find no discrimination or added difficul
ty in seeking gainful employment in any of the member coun
tries. Adjustments to this end will be managed by the insti
tutions of the Community and will Include progressive approxi
mation of labour laws, employment policies, social security,
even municipal laws related to this problem, and elimination
of any other impediments to the freedom of movement and
establishment of citizens. Similar rules will be devised to
effect elimination of restrictions on the free flow of servi-
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ces within the Community, such as in the field of insurance,
banking, financing and the liberal professions.
Capital
During the period of transition, existing restrictions
on the movement of capital between member countries will be
removed. Should any protective measure be introduced by a
member country to restrict the freedom of capital flow, it
will require the sanction of the Council. Inasmuch as fluc
tuations in exchange rates and differences in economic poli
cies between member states will affect the freedom of capital
flow, closer cooperation in these matters will be sought, and
both the Commission and Council will take appropriate measure
to this effect.
F, Associated Overseas Countries and Territories
The Treaty provides for the association with the
Community of the non-European countries and territories that
have special relations with Belgium, France, Italy and the
Netherlands. Before any of these countries or territories hafe
reached complete independence or special independent status,
they were: French West Africa including Senegal, the Sudan,
Guinea, the Ivory Coast, Dahomey, Mauretania, the Niger and
the Upper Volta; French Equatorial Africa including the
Middle Congo, Ubangi-Shari, Chad and Gaboon; St. Pierre et
Miquelon; the Comoro Archipelago, Madagascar and dependencies
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the French Somali Coas t ; New Caledonia and Dependencies ; the
French se t t lements in Oceania; the Southern and Antarc t ic Ter-'
r i t o r i e s ; the Autonomous Republic of Togoland; the French
Trusteeship Ter r i to ry in the Cameroons; the Belgian Congo and
Ruanda-Urundu; the I t a l i a n Trusteeship Ter r i to ry i n Somaliland;
and Netherlands New Guinea.
In br ief , the provis ions for overseas t e r r i t o r i e s in
the t r e a t y foresee the opening of the Common Market to them,
and spec ia l f inanc ia l ass is tance through the Development Fund,
Eventually, any common market country should be able to inves1;
in , and trade with, any of these overseas members on the same
condi t ions as those accorded the "parent" country . Although
the complete abol i t ion of customs t a r i f f remain the ul t imate
goal , a f f i l i a t e d countr ies w i l l r e t a i n some freedom to main
t a i n du t i e s in accordance with budgetary needs and development
requirements, provided such act ion sha l l become progress ive ly
non-discr iminatory. No provis ion i s made for these countr ien
to adopt the common external t a r i f f of the Community. Conse
quently, any one of the Six may be allowed to take p ro t ec t ive
ac t ion against th© p o s s i b i l i t y of d ivers ion of trad© which
may a r i s e as a r e s u l t of the e x i s t i n g l eve l of external cus
toms du t i e s i n any of the t e r r i t o r i e s .
Recently, several of the overseas t e r r i t o r i e s men
tioned in the t r e a t y have reached independence. I t has not
yet been decided whether such independent count r ies w i l l be
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permitted, or in fact will desire, to participate as affilia
tes in the Common Market.
G. Financial Provisions
An annual Community budget is drawn up to cover the
estimated revenues and expenditures of each institution, in
cluding those relating to the European Social Fund. Expendi
tures under the budget are balanced by member contributions,
fixed in accordance with two scales of percentages provided
for that purpose. One scale of contributions is intended to
meet the expenses of the European Social Fund, while the other
applies to the general expenses of the Community.
The treaty also provides that the Commission study the
possibility of replacing financial contributions of members
by the revenue eventually accruing from the establishment of
the common external tariff. This provision, if it is carried
through, would strengthen the Community inasmuch as it implies
the creation of a central body to administer and collect
duties,
1. Th© European Social Fund
Under the administrative authority of the Commission,
the European Social Fund covers fifty per cent of individual
members' expenses to ensure re-employment of displaced labour
and to facilitate labour mobility. Although the effects of
the common market upon labour will be different in each member
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country, the costs of relieving financial and other difficul
ties accompanying labour displacements, will be shared propor •
tionately by all, through contributions in the annual budget.
2, The Development Fund
The Development Fund has been set up to promote social,
and economic development of overseas countries and territories.
As provided in the treaty, European States will contribute
$581 1/4 million, of which $511 l/2 million are to be set
aside for development programmes in French Territories, Fur
ther arrangements for assistance to these affiliated members
will be negotiated five years after the commencement of pre
sent assistance.
3 . The European Investment Bank
An initial capital of $1 billion is to be contributed
by member countries in to this bank. These funds will be usei
for development schemes in the less developed regions of the
Common Market area itself. They will be used for reconversio|n
schemes and for large projects of general interest in the
attainment of the overall objectives of the treaty. Member
states will also be required to supply direct loans to the
bank during the course of its activities, if such resources
are not readily available in international capital markets.
H. Early Developments
The implementation of the common market treaty gained
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momentum with the c o n s o l i d a t i o n of s e v e r a l p r a c t i c a l meaa i re s
i n the e a r l y t r a n s i t i o n p e r i o d . 4 The i n i t i a l measures towards
the complete a b o l i t i o n of a l l t r a d e b a r r i e r s w i t h i n the marke
were i n t roduced on January 1, 1959. This i nc luded the f i r s t
r e d u c t i o n s i n t a r i f f s between member c o u n t r i e s and the l ibera- •
l i z a t i o n of q u o t a s . T a r i f f s on t r a d e w i t h i n the Community
were reduced by an average of 10 pe r c en t , whi le i n t h e f i e l d
of q u o t a s , the Six removed the t o t a l value of r emain ing quan
t i t a t i v e import r e s t r i c t i o n s by not l e s s than an average of
20 per c e n t .
I n c o n s o l i d a t i n g t h e s e measures l a i d down i n ttie
t r e a t y , the Six dec ided t o extend most of t he 10 per cen t t a
r i f f r e d u c t i o n s t o t h i r d c o u n t r i e s enjoying most favoured
n a t i o n t r e a t m e n t , p rov ided no i n d i v i d u a l r e d u c t i o n would brinjj;
n a t i o n a l t a r i f f s below the p r o s p e c t i v e l e v e l of the common
e x t e r n a l t a r i f f . Member c o u n t r i e s were p e r m i t t e d c o n s i d e r a b l y
d i s c r e t i o n i n c a r r y i n g out t h i s d e c i s i o n . R e l a x a t i o n s i n
q u a n t i t a t i v e r e s t r i c t i o n s were a l s o g e n e r a l l y extended to
t h i r d c o u n t r i e s , bu t i n d i v i d u a l members were allowed to r e q u i r e
r e c i p r o c i t y , or to ex tend such b e n e f i t s on a b i l a t e r a l b a s i s
o n l y .
4 Ma te r i a l on c u r r e n t developments was accumulated b a s i c a l l y from, Camps, Miriam, D i v i s i o n i n Europe, London, P .E .P = , Occas iona l Paper No. 8, June 1960, p p . 5-12 and 41-54 Department of Trade and Commerce, "European Trading Arrangement s" , Fore ign Trade. Vol . 114, No. 1, Ju ly 1960, p p . 42-46; U.K. Board of Trade, " A c c e l e r a t i o n of Common-Market Time Tab le" , Board of Trade J o u r n a l , Vol . 179, No. 3297, May 27, 1960, p p . 1142-1146.
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Of p a r t i c u l a r i n t e r e s t were the developments i n the
a g r i c u l t u r a l s e c t o r . As env isaged i n t h e t r e a t y , an Agr i cu l
t u r a l Conference was he ld i n Ju ly , 1959, i n S t r e s a , I t a l y . 5
This was t o be the f i r s t s tep towards the e l a b o r a t i o n of a
common a g r i c u l t u r a l p o l i c y . In an agreed r e s o l u t i o n , t hey
s e t f o r t h t h e i r views on the most impor t an t problems connected
w i th a g r i c u l t u r e i n Europe, and r ea f f i rmed the s o c i a l impor
tance of t h i s s e c t o r . At the same t ime, they gave r e c o g n i t i c n
t o the f a c t t h a t p r o t e c t i v e measures , even i n t h i s a r ea , have
c e r t a i n l i m i t a t i o n s beyond which economic c o n s i d e r a t i o n s
should take precedence over s o c i a l o b l i g a t i o n s . The views
were expressed as a formal R e s o l u t i o n and were used , i n l a r g e
p a r t , by the Commission i n p r e s e n t i n g i t s p r o p o s a l s f o r a
common a g r i c u l t u r a l p o l i c y .
The common a g r i c u l t u r a l p o l i e y c o n t a i n s d i s c e r n a b l e
evidence of i n t e n t i o n s to ach i eve s e l f - s u f f i c i e n c y i n a g r i c u l
t u r a l p r o d u c t i o n . The bas ic t o o l of such a p o l i c y w i l l be a
p r i c i n g system aimed a t e s t a b l i s h i n g common p r i c e s f o r a l l
impor t an t a g r i c u l t u r a l p roduc t s based on cos t l e v e l s i n each
a r e a . Th is &ould r e s u l t i n h ighe r p r i c e s , p r o t e c t i o n from
lower c o s t imports th rough l e v i e s and q u o t a s , and even the
p o s s i b i l i t y of p a r t l y subs id i zed e x p o r t s t o r e l i e v e any s u r
p l u s s i t u a t i o n t h a t might a r i s e .
5 The Chase Manhattan Bank, "A European Farm P o l i c y " , Western Europe, i s sued b i -month ly by the Economic Research Department , No. 9, August-Sept ember, 1960, 4 p a g e s .
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In prepara t ion for the succeeding s teps to be taken,
d iscuss ions were held during 1959, and several proposals were
put forward with a view of consol idat ing the measures already
achieved, in the be l ie f tha t such new measures would serve tc
s trengthen the in t eg ra t ion process as a whole. At the meeti ig
of the Council of Ministers held in Strasbourg i n November
of t h a t year, these various discuss ions and proposals were
ass imi la ted and put forward in the form of dec i s ions . At this
meeting i t was agreed tha t the long-term object ive should be
the complete abo l i t i on of cuotas on a world-wide b a s i s . As a
s t a r t they decided tha t the 20 per cent-quota enlargement
scheduled for January 1, 1960, would be extended t o a l l mem
bers of the GATT, at the d i s c r e t i o n of each Member who could
proceed through b i l a t e r a l arrangements i f so des i r ed . Simi
l a r l y i n the f i e ld of t a r i f f s each Member was given the r i g h ;
to decide for i t s e l f whether to extend to t h i r d countr ies thm
in t e rna l t a r i f f reduct ion of 10 per cent envisaged for
July 1, 1960.
Although the quota enlargements were general ly extended
to t h i r d countr ies as proposed, the decis ion regarding t a r i f f
cuts was superseded by the outcome of the meeting of the
Council of Ministers in Luxembourg, in May 1960. At t h i s
meeting i t was agreed tha t a shortening of the t r a n s i t i o n
period was d e s i r a b l e , and t h a t the bes t method for achieving
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i n the Treaty. I t was therefore decided to supplement the
10 per cent t a r i f f reduct ion envisaged for July 1, 1960 by a
20 per cent reduct ion, although the implementation of the add.
t i o n a l 10 per cent cut could be postponed u n t i l December of
t h a t year . I t was also agreed tha t the 10 per cent t a r i f f
reduct ion scheduled for December 1961 should be increased to
20 per c e n t . This reduct ion could also be extended to t h i r d
coun t r i e s , on a most-favoured-nation b a s i s , provided no t a r i f f
were brought down below the l eve l of the proposed common
ex te rna l t a r i f f , and subject to r e c i p r o c i t y .
The Ministers also agreed to speed up the movement of
na t ional t a r i f f s towards the level of the Common Market t a r i f f
by int roducing adjustments scheduled for December 1961 on
December 31, 1960. However, many items were excepted from t h l
acce lera ted s t ep . In addi t ion i t was proposed tha t these
adjustments would be made on the bas is of the proposed common
t a r i f f reduced by 20 percent . However, t h i s move was made
subject to consol idat ion at the GATT Conference table of 1960-
1961, on the basis of r ec ip roc i ty from t h i r d coun t r i e s .
The main signif icance of these various developments i s
t ha t by the end of 1961 i n t e r n a l t a r i f f s amongst the Six wi l l
have decreased by 50 percent ins tead of by 30 percent as
scheduled in the Treaty, a l l quan t i t a t i ve r e s t r i c t i o n s w i l l
have been abolished on i n d u s t r i a l products o r ig ina t ing within
the area, and the f i r s t step in the adjustment of na t iona l
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tariffs towards a common level will have taken place one year
ahead of schedule. One of the main drawbacks of this accele
ration for third countries is that it involves an earlier up
ward movement of those tariff items which are at present belof?
the proposed common tariff level. This is of special concern
to the EEC
to Canada since about 70 per cent of Canadian exports/are ab
sorbed by low tariff countries - Benelux and Germany. In add.
tion, an acceleration in the upward revision of tariff levels
will be prejudicial to the success of future attempts in
international negotiations at bringing about a significant
reduction in the overall common tariff level to be applied in
the final instance. On the whole, achievements to date indi
cate that the EEC is prepared to move swiftly and unhesitantlty"
to the successful attainment of its goal. The problem of
agriculture remains an important threat to significant libera,
developments, although protectionist views in other sectors
have, by no means, been completely abandoned. This is espe
cially true with regards to certain industrial raw materials
such as aluminum and lead. Imports of aluminum are controlled
by annual quotas and enter at a 5 per cent rate of duty, pro
vided it is processed in the country,of import. Any member
desiring to import in excess of the quota for that year must
pay a rate of duty of 10 per cent. Previously, Germany, the
main importer, and Belgium and Netherlands were admitting alu
minum free of duty. Similar quantitative arrangements have
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been a r ranged for unwraught l e ad , and i n a d d i t i o n , I t a l y may
p r o h i b i t impor t s of t h i s p roduc t f o r a p e r i o d of s i x y e a r s .
However, t h e s e va r ious p r o t e c t i o n i s t p r o v i s i o n s a re c u r r e n t l y
b e i n g d i s c u s s e d a t t he 1960-1961 GATT Conference, and the
outcome of t h e s e n e g o t i a t i o n s should b r i n g t h e s e p o l i c i e s i n
b e t t e r f o c u s .
I . I m p l i c a t i o n s
1 . I n t e r n a l E f f e c t s
During the f i r s t few y e a r s of t r a n s i t i o n p r o g r e s s i v e
r e d u c t i o n s i n t a r i f f s and a b o l i t i o n of the few remain ing quan
t i t a t i v e r e s t r i c t i o n s w i l l c o n s t i t u t e the pr imary o b j e c t i v e s
As f a r as q u a n t i t a t i v e r e s t r i c t i o n s a r e concerned, the ex ten
of l i b e r a l i z a t i o n achieved under OEEC does no t l e ave much
room f o r improvement, except t h a t now i t w i l l be more d i f f i
c u l t fo r i n d i v i d u a l c o u n t r i e s to reimpose such t r a d e b a r r i e r ; !
For the remainder of the t r a n s i t i o n p e r i o d Member coun
t r i e s w i l l o b v i a t e any s e r i o u s d i s t o r t i o n s i n t h e i r economien
by r e s o r t i n g to the many "escape c l a u s e s " . C e r t a i n l y , i t
should no t be expected t h a t the t r a n s i t i o n a l pe r i od w i l l
b r i n g g r e a t geog raph i ca l d i s l o c a t i o n s of i n d u s t r i e s , r e -
a d a p t a t i o n of e x i s t i n g i n d u s t r i e s to d i f f e r e n t types of p r o
d u c t i o n , or any wi thdrawal of l a r g e e n t e r p r i s e s from t h e mar
k e t i n the name of e f f i c i e n c y . Such ad jus tments w i l l come
on ly a f t e r the Common Market becomes t r u l y common.
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What may be expec ted to occur i s a p r o g r e s s i v e l y i n
c r e a s i n g flow of i n t e r n a l t r a d e , such as occur red a f t e r OEEC,
EPU and ECSC. A b a s i c de te rminan t of economic expans ion i s
the ex t en t of t h e market , fo r as the market widens so a r e the
o p p o r t u n i t i e s for g r e a t e r s p e c i a l i z a t i o n , p r o d u c t i o n t o s ca l e
and the p o t e n t i a l i t i e s f o r r i s i n g p r o d u c t i v i t y i n c r e a s e d .
These p o s s i b i l i t i e s for dynamic economic p r o g r e s s w i l l a s s u
r e d l y become a t t a i n a b l e w i t h i n the en l a rged Euromart . T rans
p o r t a t i o n c o s t s w i l l d e c l i n e and become e q u a l i z e d throughout
the a r e a . Many e n t e r p r i s e s w i l l amalgamate t o be i n a b e t t e r
p r o d u c t i v e and marke t ing p o s i t i o n . The aggrega te GNP of the
a r ea w i l l enjoy a p p r e c i a b l e i n c r e a s e s and w i l l l end s t r e n g t h
and economic s t a b i l i t y t o the whole marke t . The e f f e c t s of
i n c r e a s i n g p r o d u c t i o n w i l l g r a d u a l l y produce a h ighe r l e v e l
of i nves tmen t s and the e x i s t i n g i n d u s t r i e s w i l l add t o t h e i r
p r o d u c t i v e c a p a c i t i e s , whi le b e n e f i t i n g from the advantages
of "mass p r o d u c t i o n " .
Once the Common Market becomes a r e a l e n t i t y , t hen the
i n t e r p l a y of compe t i t i on w i l l be s t rong enough t o cause r e d i s
t r i b u t i o n and r e - a d a p t a t i o n of e n t e r p r i s e s a c c o r d i n g to econ
omic p r i n c i p l e s . And as i n c r e a s e d p r o d u c t i v i t y , e f f i c i e n t us|e
of r e s o u r c e s and r e g i o n a l s p e c i a l i z a t i o n b e g i n to show t h e i r
r e s u l t s , the Common Market should no t do o the rwise bu t achieve
g r e a t e r economic s t r e n g t h wherein l i e s the p o s s i b i l i t y fo r
i n c r e a s e d s t anda rds of l i v i n g .
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Of course, the process will be slow and many hardships
will have to be overcome to achieve such results, but given
the present desire for unification and the economic principles
upheld by the majority of its leaders, Europe should succeed
in the long run.
No drastic change in investment between member countries
can be expected until the flow and level of trade proves
them to be economically warranted. Harmonization of economic
and social policies may be somewhat delayed by political impli
cations. And the real effects of political attempts at
"harmonization" will not be felt until Members of the Commu
nity come into closer contact with each other through the
freedom of movement of goods, persons and capital.
The establishment of the freedom of movement of persor.s
will not alter the Common Market in the near future. It takes
much more than a legal right to convince a labourer to move
to a different country, with a different language and cus
toms, and in some instances - a past enemy. Moreover the
first problem to be met In this respect will be the provisior.
of adequate housing to facilitate such moves to any appre
ciable degree. This same problem was not overcome during
the first five years of ECSC.
The freedom of movement of capital is not so much de
pendent on the existence of a Common Market, but rather it
depends on the strength of each Member's foreign exchange
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reserves. If the establishment of EEC succeeds in strength
ening European multilateralism, as it obviously should, then
this problem should resolve itself to an even greater extent
than was achieved under EPU alone.
The Impact of the Customs Union on agriculture and on
overseas territories is the most difficult to assess in vier
of th© lack of detailed provisions in the Treaty. It does
seem, however, that both these sectors of economic integra
tion will carry greater external effects than within the area
proper. Agriculture will continue as a protected market and
it is obvious that th© process of unification will tend to
make Europe more self-sufficient in agricultural production.
However, through the use of "minimum prices" any increase in
internal trade of agricultural goods will not directly affec-;
competition or prices. Agriculture will continue to be an
economic problem with major policital and social overtones.
Special tariff and quota concessions granted to Over
seas Territories should be favourable to their economic growth
and stability. In effect, it will as SUBS them preferential
treatment in an expanding European market. Of course, Franc<
also stands to benefit from the strengthening effect such
treatment will have on its overseas dependencies. Moreover,
the provision of the Development Fund means that while French
possessions will benefit from European investments, France
will enjoy a reduction in its financial obligations vis-a-vis
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its dependencies. However, the creation of, what is in effec^,
a unilateral preferential tariff area will undoubtedly hurt
the trade of many primary producing countries outside EEC,
especially producers of such staples as coffee, bananas and
cocoa and industrial raw materials such as aluminum and copper.
Overseas territories will retain their own tariff
schedules so that no direct repercussion should be felt
within EEC proper. However, to the extent that increased
imports from the territories and European investments in
these countries strengthen their economies, an increase in
exports from the Community to these territories should result
Although the Treaty does not provide for the eventual
introduction of a common monetary unit for the Community, it
does call for complete currency convertibility and stabiliza
tion of exchange rates. The implementation of exchange sta
bility excludes the resort to any other corrective techniques
except those of internal fiscal and credit policies. This
implies the harmonization of budgetary, economic and social
policies of Member Countries and the Treaty makes provision
for such developments. In effect, therefore, the economic
obstacles to be overcome in establishing currency convertibi
lity at stable exchange rates are identical with those facing
monetary unification. However, the political elements in the
problem are at variance. Monetary unification implies a popu
lar acceptance of political integration, it contains an irre-
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versible character not present in a stable exchange rate, it
necessitates administrative and institutional changes and the
creation of a central monetary authority.
Although monetary unification contains many economic
advantages it is not a prerequisite for economic integration.
Monetary unification of European currencies may well be an
important aspect of any ultimate evolution of broad political
unification, but it is quite unlikely to precede it.
A very important consideration from a long run point
of view is the extent to which the Common Market will contri
bute to the desired ultimate objective of political integra
tion. In view of the traditional segregation of these coun
tries, unification at the political level may well require it 5
acceptance by a new generation of Europeans. However, this
development could occur with greater haste, given the intensi
fication of international forces towards large political bloc 5.
There is a provision in the Treaty requiring the Assembly to
put forward proposals for direct elections to be held through
out the Community's countries. If such proposals are put into
practice, there will be created a European Assembly directly
responsible to the inhabitants of the six countries themselvei 1,
and not limited to an indirect responsibility through separate
national parliaments as at present. The first step towards
political unification of Europe will then have been taken.
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2, External Effects
The main effects of economic unification in Europe
upon third countries will be in the fields of trade and invest
ment, including the establishment of foreign subsidiary compaj-
nies in the area.
Foreign trade of Western Europe is very large in rela
tion to its production of goods; it is also highly diversified
both in terms of commodities and of geographical areas. Primaf-
ry products play an important part in Europe's imports and
their requirement should increase with the growth in economic
activity. However, th© preferential treatment allotted asso
ciated overseas territories will probably adversely affect
some countries dependent on European demand for the sale of
their goods, especially agricultural commodities.
The effects upon imports of manufactured products will
be dependent upon the cost structure and the degree of pro
ductive diversification which is ultimately achieved in Europ£
Western Europe trades about as much with third countries as i
does within itself, and this trade pattern seems to be highly
influenced by the availability of materials in Europe. The
effects of progressive tariff abolition in Western Europe
should not cause repercussions upon world trade to any great
extent, until the results of the larger competitive market in
Europe have shown themselves in the form of new enterprises,
greater efficiency of production and wider diversification of
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i n d u s t r i e s . But during t h i s t r a n s i t i o n a l period, the r e s t
of the world wi l l have the opportunity to meet the challenge
of these gradual developments by progressive adjustments in
productive capaci ty and trade p a t t e r n . The only countr ies
which should ac tua l ly suffer from t h i s growth p a t t e r n are
those wishing to r e t a i n a s t a t i c s t a b i l i t y based on p r o t e c t i f -
n i s t p o l i c i e s . With Western European economic i n t eg ra t i on
being pursued in an atmosphere of competition and gradualism,
world t rade should not suffer s ign i f i can t ly a t the s t a r t and
should benef i t markedly in the long run by the increased
economic a c t i v i t y permissible in the l a rger s ingle market.
The increase in the l eve l of t r ade , which followed the p ro
cess of i n d u s t r i a l i z a t i o n , technical spec i a l i z a t i on and i n
come growth in countr ies which are now i n d u s t r i a l i z e d , should
a lso be an expected r e s u l t of s imi lar developments in Europe
Contrary to what might be expected from the apparent growth
in se l f - su f f i c i ency , i n d u s t r i a l i z a t i o n promotes an increase
in the quant i ty and d i v e r s i f i c a t i o n of i n t e rna t iona l t rade ifci
the same way t h a t i t promotes an increase i n income and
standard of l i v i n g . The subs t i t u t i on of any one, or even
broad groups, of products avai lable within the Common Market
for goods previously imported wi l l not necessa r i ly reduce the
t o t a l demand for imports. To accomplish the l a t t e r ob jec t ive ,
s t r ingen t curbs on the t o t a l claims on resources by
governments, businesses and consumers would be requ i red .
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However, even with the maximum amount of import substitution
that is realistically conceivable and despite high tariffs, if
such should come about, the EEC's total import requirements
are likely to rise over the decades. As the economies of the
Six move progressively towards higher levels of national in
come and standards of living, new types of imports necessary
to sustain this progress will outweigh any import economies
achieved in other areas.
Th© continued protectionist approach ©xpected of
France and Italy will be counterbalanced by the more liberal
attitude of Germany and the Benelux, and may be subdued by
the political aspects of EEC. The outright adoption of French
policies would tend to place the Community at a cost disadvan
tage with respect to the rest of the world. Moreover, the
strong do not usually submit to the weak indefinitely, and it
is very unlikely that a strong and increasingly influential
Germany will renounce the gains it has earned through the pur
suit of competitive and liberal policies, internally as well
as externally, it seems quite likely that a compromise policy
will evolve from within the Community, in line with the cost
and income structure and the trade policies of the rest of th<
Western world. Thus the effects of the European Economic
Community on world trade may be expected to follow very close
ly the consequences of a compromise policy between liberalism
and protectionism in trade, closely resembling current U.S.
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J . European Free Trade A s s o c i a t i o n
The o r i g i n a l p roposa l fo r a f r ee t r a d e a r e a i n Europe
a n t e d a t e d the s i g n a t u r e of the Rome T r e a t y . I t had i t s o r i
g i n i n the e v o l u t i o n of the n e g o t i a t i o n s , w i t h i n OEEC, which
l e d to t h e Messina Conference.
During the summer of 1956, when the p r o p o s a l s fo r a
European common market were j u s t beg inn ing t o t a k e shape, the
OEEC s e t up a s p e c i a l working p a r t y to study the p o s s i b i l i t y
of a f r e e t r a d e area embracing a l l members of OEEC, i n c l u d i n g
the S i x . 6 This move was p a r t l y des igned to p r e v e n t t h e occu r
r ence of a d i v i s i o n i n Europe, bu t i t was a l s o in tended as an
a l t e r n a t i v e i n case the Six met wi th f a i l u r e .
The r e p o r t of the s p e c i a l OEEC Committee p u b l i s h e d i n
January 1957 concluded t h a t t h e o p e r a t i o n of a f r e e t r a d e arete.
Europe was t e c h n i c a l l y p o s s i b l e . At t h a t t ime t h e r e was, o u t
ward ly a t l e a s t , g r e a t hope for the success of t h i s endeavour
Even the Uni ted Kingdom government, which t r a d i t i o n a l l y had
p r e f e r r e d to remain o u t s i d e of any s t r i c t l y European t r a d e
arrangement of t h i s t y p e , was w i l l i n g to p a r t i c i p a t e a c t i v e l y
i n the fo rma t ion of Europe-wide i n d u s t r i a l f r e e t r a d e area . ' ' '
N e g o t i a t i o n s fo r such a f ree t r a d e a rea were c a r r i e d out
6 France Roge, "Perspectives d'une p e t i t e zone de l i b r e echange", Etudes e t Conjoncture, No. 10, octobre 1959, pp . 959-980.
7 U.K. Information Office, Negotiat ions for a Europeaa f ree t rade area; documents r e l a t i n g to the negot ia t ions from July 1956 to Dec. 1958, London, H.M. Sta t ionery Office, Cmnd
"*•*•> " * i i » -1- J ^ ^ ^ J N ( V t R S l T Y M * OTTAWA SCHOOL OF GRADUATE STUDIES "
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during 1957 and until the end of 1958, when they broke down
and were suspended indefinitely. The impasse was due mainly
to the impossibility of reconciling the conflicting views of
the various countries oh basic issues of commercial policy.
The Six were anxious to preserve the integrity of their new
undertaking and to avoid the erosion of the commercial advan
tages it embodied. The other European countries, and parti
cularly the U.K., were anxious to avoid trade discrimination
in Europe, but wished to retain control over their external
trading relationships.
Faced with the impossibility of achieving a Europe-
wide free trade area, seven of the European countries out
side the Common Market sought to establish free trade on a
separate regional basis. Through such an approach it was
hoped that trade among themselves would grow, thereby minimi
zing whatever trade dislocation might result from EEC. More
over, their unification in a free trade area would improve
their bargaining power for continued access to the markets oi
the Six.
Negotiations towards this end resulted in the esta
blishment of a European Free Trade Association (EFTA) in Q
November of 1959. This new r e g i o n a l g rouping , commonly
8 Convention E s t a b l i s h i n g the European Free Trade A s s o c i a t i o n , London, H.M. S t a t i o n e r y Off ice , Cmnd 906, Novembe r 1959, 55 p a g e s .
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called the "Outer Seven" because of its geographical location
relative to the Six, united Austria, Denmark, Norway, Portu
gal, Sweden, Switzerland and the United Kingdom in the common
purpose of gradually removing tariffs and quotas on industrial
products traded amongst themselves. Special treatment, al
though not necessarily free trade, for agricultural products
is also permissible. The initial tariff reduction of 20 per
cent was effected on July 1, 1960. This placed the level of
transition within EFTA on the same basis as that adopted by
EEC. The remainder of the transitional period follows roughly
the same schedule as in the EEC, and should be completed by
1970.
In other respects, however, there are marked differ
ences between EFTA and EEC. Fundamentally, EFTA is endea
vouring to promote free trade among its members with a minimum
of commitments on their part regarding domestic economic and
financial policies. Most important, EFTA allows members to
retain their individual tariffs toward outsiders, change then
at will, and independently conduct commercial negotiations
with other nations. This is in marked contrast with EEC pro
visions, and the issue of external tariffs was one of the main
reasons for the failure of negotiations for a Europe-wide
free trade area.
The retention of individual external tariffs presen
ted the possibility of "deflection of trade" within the Sever,
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theoretically imports from third countries could enter EFTA
via one of its members with a low external tariff, for tran
shipment (eventually free of duty) to another member with a
higher external tariff. To mitigate such "deflections of
trade", certain "rules of origin" were agreed upon in the
Convention. In general, goods not wholly produced within the
free trade area enjoy area tariff treatment only on one of
two conditions: if less than 50 per cent of the value of such
goods consist of materials imported from outside, or if they
are produced within the area by specified processes.
Since EFTA does not envisage formal economic integra
tion, but simply closer economic co-operation and trade libe
ralization, it follows that its institutional organization
should be less encompassing than that for EEC. It has only
one formal body, The Council, which is composed of one repre
sentative from each member country. Each representative has
only one vote. The Council is charged with the task of imple
menting the Convention and considering whatever further actioja
should be taken to promote the objectives of the Association.
On the whole, except mainly for the provisions con
cerning tariffs, quotas and rules of origin, the immediate
form and provisions of the Convention establishing EFTA have
been kept simple, and the way left open for substantial modi
fications in the nature of the arrangements. This is in
keeping with the very nature of this regional trade grouping
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which does no t f o r e s e e economic i n t e g r a t i o n as i t s o b j e c t i v e s
On the o the r hand i t i s a l s o an i n d i c a t i o n of t h e t a c i t r e a l -
a l i z a t i o n t h a t t h e i r A s s o c i a t i o n w i l l need t o adapt i t s e l f to
the t r a d e and economic c l ima te r e s u l t i n g from t h e u l t i m a t e
achievements of t h e i r c l o s e l y i n t e g r a t e d c o m p e t i t o r s w i t h i n
EEC.
Views on EEC and EFTA
Whereas EEC c o n s t i t u t e s a l o g i c a l a s s o c i a t i o n of coun
t r i e s from the p o i n t of view of geography, t r a d e and economic
c o m p a r a b i l i t y , the same cannot be s a id of EFTA.
EEC c o u n t r i e s a re g e o g r a p h i c a l l y w e l l l o c a t e d i n r e l a
t i o n t o one another and form one common boundary w i t h o u t s i d e
c o u n t r i e s . EFTA c o u n t r i e s a re more or l e s s d o t t e d throughout
Europe, i n many cases s epa ra t ed by l and or s e a .
The e s t a b l i s h e d t r a d i n g p a t t e r n w i t h i n EEC i s f a v o u r
ab le to economic i n t e g r a t i o n . EEC n a t i o n s t r a d e l e s s w i th
EFTA c o u n t r i e s than wi th one ano ther , and l e s s than h a l f of
t h e i r e x p o r t s go t o c o u n t r i e s o u t s i d e E u r o p e . 9 I n c o n t r a s t ,
EFTA c o u n t r i e s s e l l more t o the Common Market than to one
a n o t h e r , and send some t h r e e - f i f t h s of t h e i r e x p o r t s to non-
European m a r k e t s . With in these two r e s p e c t i v e t r a d i n g a r e a s ,
9 France Roge, "L'Associat ion Europ6enne de Libre Echange", Etudes et Conjoncture, No. 10, Octobre 1960, pp.871 884.
UNIVERSITY OF OTTAWA SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA - ECOLE DES GRADUES
THE EUROPEAN ECONOMIC COMMUNITY 105
the element of competition is different. In view of the U.K,
relatively collossal capacity for imports compared to other
EFTA countries, the element of competitive trading would
appear to be smaller in this group. The existence of this onb
large importer provides a much better scope for shifting the
trade pattern of the area as a whole. By switching its
imports away from third countries, the U.K. is in a position
to increase sizeably the exports of its EFTA partners. In
turn, this would strengthen the area as a whole by placing
the partners in a better position for increasing their importjs
from the U.K. The U.K.'s trade deficit alone is equivalent
to nearly 50 per cent of total exports from the rest of EFTA.
Thus, by switching its imports by a value equivalent to its
trade deficit, the U.K. would increase significantly, and
rather easily, the total exports of the rest of the area. No
individual country within EEC has such relative strength vis
a-vis its trading partners. They are more equally balanced
and thus more conscious of competition. Moreover, within
the EEC, the largest importer, also has the largest favourablb
trade balance, so that any increase in its imports from withip
the Six would affect its international trade balance more
significantly than for the U.K. who is already running a high
trade deficit.
Comparisons between these two groups from the point
of view of population and economic strength also indicate
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA - ECOLE DES GRADUES
THE EUROPEAN ECONOMIC COMMUNITY 106
basic differences. The total population of the Six is about
170 million with a G.N.P. equivalent to approximately $160
billion. In addition the individual countries within the Six,
(taking Benelux as one country, and except for the south of
Italy) are all closely equivalent in terms of standard of
living and industrial strength. Total EFTA population is
about 90 million, with a G.N.P. for the area as a whole equi
valent to approximately $100 billion. The disparities in eco|i
omic strength between its members are more obvious, such as
between the U.K., Switzerland and Sweden, who have reached
the higher levels of standard of living and Portugal and
Austria who can, by no means, be called strong economic enti
ties.
The various differences between EEC and EFTA point to
the fact that the initial relative economic position of indi
vidual countries within the Common Market were more favourable
to co-operation and integration at the economic, and possibly
even political level. On the other hand the disparities bet
ween partners in EFTA indicate It would be difficult to go
farther than the objectives of free trade, into economic intef
gration. This also confirms that this latter grouping was
motivated not only by the positive desire to increase trade
between themselves but also with the Common Market and on a
broader international front.
The puzzling question emanating from the interplay of
UNIVERSITY OF OTTAWA ~ SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA •• ECOLE DES GRADUES
THE EUROPEAN ECONOMIC COMMUNITY 107
these two groups, is whether a Europe devoted to liberalism,
or one imbued with protectionism will evolve. Certain provi
sions in the Treaty establishing EEC lend evidence of protec
tionist tendencies - for example the eventual commorai tariff
to be established will be higher than exists now in most cour
tries - the inclusion of overseas territories introduces a
new preferential trading system - the provisions for harmoni
zation of economic policies will bring social security costs
to the level of the highest cost country.
On the other hand, since Common Market countries are
also important world traders, the existence of a successful
free trade area right at its doorstep should encourage Europe
to pursue more liberal policies. By its very existence, and
the traditionally liberal trading policies of most of its
members, it will undoubtedly instill a keener sense of compe
tition in intra-European trade.
However, the influence of the free trade area coun
tries upon trade policies adopted by the Six will depend on
the success of EFTA itself. The technical difficulties in a
plan such as EFTA place it at a disadvantage with EEC insofar
as efficient and successful administration is concerned. In
EEC the task of administration is simplified by the fact that
each member relinquishes a certain amount of its national
autonomy to the community's institutions. In EFTA, supra
national authority has been avoided. Problems such as the
UNIVERSITY OF OTTAWA SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA - ECOLE DES GRADUES
THE EUR OPEAN ECONOMIC COMMUNITY 108
determination of origin of goods, proper usage of escape clau
ses, deflections in trade, present quite a difficult adminis
trative challenge in themselves - a task nearly impossible to
accomplish, on an efficient and permanent basis, under the
loose control of an international authority. A co-operative
scheme of this sort is basically dependent on the goodwill of
its members, and seems destined to become only a temporary
arrangement, until some basic disagreement between the part
ners arises and renders the continuation of the project impos
sible, under any other form but one with supranational author |-
ity. Thus, outside the direct economic effects it will have
upon its members, and the indirect effects upon the Common
Market, EFTA can be interpreted as an intermediate step towards
some form of economic community.
Since it is unlikely, the establishment of some form
of economic community will be possible within EFTA, It seems
that the end result will be the accession of individual EFTA
countries to the EEC. One of the most important countries,
in considering this possibility, is the United Kingdom. It
would appear from recent speeches made by Mr. MacMillan that
the U.K. is destined to join the Common Market.1^ How many
1 0 On February 27, 1961, the United Kingdom informed the E.E.C. that Britain was now willing to accept a common or harmonized external tariff on non-farm goods as part of a settlement with E.E.C. The ministers of the Western European Union composing the U.K. and the six countries of the E.E.C. are to meet before the end of May for a more detailed discussion on the matter.- Canadian Manufacturers Association, "New DftVfllonments - European Trade Areas". Industrial Canada. Ani-1 1961, P. 52. UNIVERSITY OF OTTAWA .. SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA -- ECOLE DES GRADUES
THE EUROPEAN ECONOMIC COMMUNITY 109
of the countries of EFTA will follow suit is difficult to
say, although it is unlikely Switzerland will sacrifice its
traditional position of neutrality to some form of supra
national institution. The Scandinavian countries may well
attempt to join EEC as a unit.
Whatever the outcome, it is obvious that EFTA without
the U.K. could never be successful, but it is equally appa
rent that the U.K. would not abandon its partners without ob
taining special concessions or fair treatment from EEC on
their behalf.
The outlook, therefore, is for an extension of free
trade to encompass larger groupings in Europe. The larger
single market thus created will lend support to the extension
of liberalization. It will reduce the influence of the few
highly protectionist countries, by its larger membership.
Moreover, it will introduce a greater degree of competition
within its own boundaries and a greater potentiality for in
vestment and growth. This should minimize the need for pro
tection, even from a point of view motivated by enlightened
self-interest. It seems evident that a united Western Europe
within EEC, or under some other scheme adapted to meet EEC
requirements, will stand a much better chance of achieving
a liberal economic policy, to the same degree that the Unitec.
States and other world traders are willing to pursue.
UNIVERSITY OF OTTAWA SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA •• ECOLE DES GRADUES
CHAPTER IV
IMPLICATIONS FOR CANADA
A. I n t r o d u c t i o n
I n t e r n a t i o n a l t r ade i s very impor tan t t o the Canadiar
economy. Canada i s amongst the f i v e l e a d i n g world t r a d e r s ,
and i t s dependence on e x p o r t s i s g e n e r a l l y r ecogn ized as an
Impor tan t element i n overcoming the drawbacks of i t s small
and d e - c e n t r a l i z e d p o p u l a t i o n . Large manufac tur ing opera t ior j s
i n t h i s c o u n t r y r e q u i r e sus tenance from an expor t market ,
j u s t as does any l a r g e s c a l e development of Canadian n a t u r a l
r e s o u r c e s . The Canadian market , because of i t s s i z e , o r , i n
some c a s e s , because i t i s not s u f f i c i e n t l y c o n c e n t r a t e d , can
n o t j u s t i f y l a r g e s c a l e u n d e r t a k i n g s on an economica l ly sounc
b a s i s . And so, Canadian e x t r a c t i v e and manufac tur ing i n d u s
t r i e s must depend on e x p o r t s t o expand and, i n some i n s t a n
c e s , t o e x i s t .
Th© importance of e x p o r t s to Canadian i n d u s t r i e s i s
w e l l r e f l e c t e d by developments i n the o i l , uranium and
n i c k e l i n d u s t r i e s . The p r e s e n t supply of crude o i l i n Canadt,
s u r p a s s e s the c u r r e n t domestic consumption. This i s p a r t l y
due t o the f a c t t h a t wes te rn o i l i s , i n the main, unable t o
compete I n e a s t e r n Canada w i th o i l of f o r e i g n o r i g i n . This
h a s n e c e s s i t a t e d c u r t a i l m e n t of Canadian o i l p r o d u c t i o n , and
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA - ECOLE DES GRADUES
IMPLICATIONS FOR CANADA 111
on February 1, 1961, Mr. Hees, the M i n i s t e r of Trade and Com
merce , pu t forward what he termed "a n a t i o n a l o i l p o l i c y " . 1
The purpose of t h i s p o l i c y i s t o i n c r e a s e t h e usage of Cana
d i a n o i l i n domest ic marke ts west of the Ottawa v a l l e y . I n
h i s words, "The growth i n domest ic use i s p r e d i c a t e d i n p a r t i
c u l a r on s u b s t i t u t i n g i n Onta r io m a r k e t s , west of t he Ottawa
v a l l e y , p r o d u c t s r e f i n e d from Canadian crude fo r t h e s e now
supp l i ed from f o r e i g n c r u d e " . The need for government i n t e r
v e n t i o n i n t h i s i n d u s t r y shows the d i s advan t ages of geogra
p h i c a l d i s p e r s a l of p o p u l a t i o n and markets w i t h i n Canada ' s
b o u n d a r i e s .
I n the f i e l d of uranium, the e f f e c t s of a c o n t r a c t i o r
of e x p o r t s were q u i t e obvious , even i f d e p l o r a b l e , i n the
town of E l l i o t Lake, O n t a r i o . Subsequent announcement of a
Un i t ed Kingdom i n t e n t i o n to purchase l a r g e q u a n t i t i e s of t h i s
m e t a l p rov ided some a l l e v i a t i o n , but the Canadian uranium
i n d u s t r y w i l l no t be out of t r o u b l e u n t i l a d d i t i o n a l e x p o r t
marke t s a re found.
On the o the r hand, the n i c k e l i n d u s t r y c o n t r i b u t e s as
one of Canada ' s l e a d i n g expor t i n d u s t r i e s , and as a r e s u l t ,
i t has exper i enced growth and p r o f i t a b i l i t y .
The c o n t r a s t i n economic c o n d i t i o n s between the farm
implements and t e x t i l e s i n d u s t r i e s i s a l s o an i n d i c a t i o n of
1 Hansard, February 1, 1961, Volume 105, Number 38 , p p . 1640-164§T
UNIVERSITY OF OTTAWA SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA - ECOLE DES GRADUES
IMPLICATIONS FOR CANADA 112
t h e importance of e x p o r t s i n the development of Canadian mam;
f a c t u r i n g i n d u s t r i e s . The Canadian farm implements i n d u s t r y
i s a c l a s s i c a l example of i n d u s t r i a l growth and expans ion
based on f o r e i g n t r a d e . The development of t h i s i n d u s t r y was
achieved th rough a h igh l e v e l of e x p o r t s . The h igh volume of
p r o d u c t i o n war ran ted by the domestic and expo r t marke ts p e r
m i t t e d t h i s Canadian i n d u s t r y t o a t t a i n an e n v i a b l e compet i
t i v e p o s i t i o n , bo th d o m e s t i c a l l y and i n world m a r k e t s . I n
c o n t r a s t , Canada ' s t e x t i l e i n d u s t r y , unsucces s fu l In the
esqport f i e l d , i s we l l r e c o g n i z e d as being i n c o n s t a n t d i f f i
c u l t i e s d e s p i t e the t a r i f f p r o t e c t i o n i t has acqu i r ed i n th©
domest ic f i e l d .
I t would appear , t h e r e f o r e , t h a t i n a number of la rge
s c a l e u n d e r t a k i n g s , t he Canadian market , of i t s e l f , i s no t
s u f f i c i e n t l y l a r g e , or too d i s p e r s e d , t o p rov ide a sound
b a s i s for an economic volume of p r o d u c t i o n .
In view of t h e importance of expor t markets fo r the
development and growth of Canadian i n d u s t r i e s , i t f o l lows
t h a t the i m p l i c a t i o n s of European t r a d i n g ar rangements and
economic i n t e g r a t i o n a re of s p e c i a l s i g n i f i c a n c e to t h i s cour-
t r y ' s economic f u t u r e . However, developments i n Europe, and
t h e i r i m p l i c a t i o n s for Canadian expor t p r o s p e c t s must be
p l a c e d i n t h e i r p roper p e r s p e c t i v e i f a t r u e assessment i s to
be ach i eved . One of the f i r s t s t e p s i n t h i s d i r e c t i o n i s t o
e s t a b l i s h the r e l a t i v e importance of i n d i v i d u a l marke t s and
UNIVERSITY OF OTTAWA SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA -- ECOLE DES GRADUES
IMPLICATIONS FOR CANADA 113
i n d i v i d u a l commodities or groups of p r o d u c t s i n Canada ' s c u r
r e n t expo r t volume.
B . Most Impor tan t Export Markets
Canadian s a l e s abroad have a wide and v a r i e d d i s t r i b u
t i o n . N e v e r t h e l e s s , of Canada ' s t o t a l e x p o r t s , approximate ly
85 per cen t a r e absorbed by the U.S .A. , t he Uni ted Kingdom,
EEC c o u n t r i e s and o the r EFTA c o u n t r i e s . These markets a r e
the most s i g n i f i c a n t i f any immediate changes i n t r a d i n g p a t
t e r n s should o c c u r .
A f u r t h e r breakdown w i l l , however, p rov ide a c l e a r e r
i n s i g h t i n t o the r e l a t i v e importance of t h e s e m a r k e t s . As can
be seen from Table V, Canadian e x p o r t s t o the U.S.A. over the
p a s t four y e a r s have accounted for approximate ly 60 p e r c e n t
of Canada ' s t o t a l s a l e s abroad . During t h i s same p e r i o d of
t i m e , U.K. pu rchase s from Canada reached a y e a r l y t o t a l of
16 per cen t of Canadian e x p o r t s t o the world, whi le EEC coun
t r i e s bought 8 p e r cen t of Canada ' s t o t a l y e a r l y s a l e s abroad.
Sine© 1957, EEC and a l l EFTA c o u n t r i e s combined have purchased
s l i g h t l y more than 25 pe r cent annua l ly of Canada ' s t o t a l
e x p o r t s a l e s . I t i s c l e a r , t h e r e f o r e , t h a t t h e s e European
marke t s a re of v i t a l importance t o Canada ' s expo r t t r a d e . Of
s p e c i a l impor tance , i s the f a c t t h a t the Uni ted Kingdom r e p r e
s e n t s by f a r the l a r g e s t i n d i v i d u a l market i n Europe fo r
Canadian p r o d u c t s .
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA -- ECOLE DES GRADUES
IMPLICATIONS FOR CANADA 114
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UNIVERSITY OF OTTAWA SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA -- ECOLE DES GRADUES
IMPLICATIONS FOR CANADA 115
C. Major Export Commodities
A few i n d i v i d u a l commodities and groups of commodi
t i e s account for approximately 80 per c e n t of t o t a l Canadian
e x p o r t s . As i n d i c a t e d i n Table VI, t he se e x p o r t s c u r r e n t l y
c o n s i s t of a g r i c u l t u r a l p r o d u c t s , woodpulp and lumber, news
p r i n t , crude me ta l s and chemicals and a l l i e d p r o d u c t s . The
Uni ted S t a t e s market accounts for more than one h a l f of t h e s b
e x p o r t s , whereas the Uni ted Kingdom and t h e EEC purchase abou
15 p e r cent and 5 pe r c e n t r e s p e c t i v e l y .
These major i t ems r e p r e s e n t more t han 80 p e r cen t of
t o t a l Canadian e x p o r t s to th© Uni ted Kingdom; for t h e EEC thi |s
p r o p o r t i o n i s c l o s e r to 85 per cent» The importance of t h i s
group of e x p o r t s i n Canada 's t r a d e wi th the U.K. and t h e EEC
canno t , t h e r e f o r e , be u n d e r r a t e d . I t i s e q u a l l y t r u e , howeveb,
t h a t t h e importance of t h e s e same e x p o r t s to the U.K. and the
EEC should not be o v e r r a t e d , s i n c e they r e p r e s e n t l e s s t h a n
20 pe r cen t of t o t a l Canadian s a l e s abroad . I n c o n t r a s t ,
s a l e s of t h e s e same major i tems to the U . S . r e p r e s e n t about
45 pe r cent of t o t a l Canadian e x p o r t s .
The Uni ted Kingdom Market
The Uni ted Kingdom i s Canada 's second l a r g e s t expor t
m a r k e t . I t pu rchase s more t h a n 15 p e r c e n t of t o t a l Canadian
e x p o r t s - mainly a g r i c u l t u r a l p r o d u c t s and i n d u s t r i a l raw
m a t e r i a l s .
As i n d i c a t e d i n Table VII , t h e t h r e e most Impor tan t
UNIVERSITY OF OTTAWA SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA - ECOLE DES GRADUES
IMPLICATIONS FOR CANADA 116
TABLE VI
Comparison of Major Canadian Exports to Selected Areas of the World
($ million)
Commodities or Groups of Commodities
Wheat
Other A g r i c u l t u r a l P r o d u c t s
Animals and Animal P r o d u c t s
Lumber
Woodpulp
Newsprint Paper
I r o n Ore
Farm Machinery and Implements
Aluminum
Copper
Nicke l - Crude
Uranium
Asbes tos & P r o d u c t s
Chemicals and A l l i e d Produc t s
TOTAL - Major Expor t s
1959
U.K.
147
133
48
26
24
52
22
-
68
48
37
33
9
27
674
EEC
97
26
16
2
10
-
13
-
33
17
12
-
20
22
268
U.S.A.
17
178
229
2 7 1
252
617
119
91
80
82
114
279
45
86
2,460
1960
U.K.
135
133
35
52
31
60
28
-
8 0
68
55
26
9
34
746
EEC
108
30
15
4
12
-
27
*»
54
27
32
-
25
37
371
U.S.A
17
174
205
270
256
631
102
75
54
75
88
237
54
92
2,330
Source: Dominion Bureau of Statistics, Trade of Canada.
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA -- ECOLE DES GRADUES
IMPLICATIONS FOR CANADA 117
TABLE VII
Breakdown of Canadian Exports to the United Kingdom ($ million)
Commodities or Groups of Commodities 1957 1958 1959 1960
Wheat Barley Flour of wheat Flaxseed Tobacco Soya Bean, Oil Cake and Meal Other Agricultural Products Animals and Animal Products Lumber Woodpulp
Newsprint Paper Other Wood and Wood Products Iron Or© Steel Billets, Ingots, Blooms Other Iron and Iron Products Aluminum Copper Nickel - Crude Nickel - Fine
Platinum Lead Uranium Other Non-ferrous Metals& Products 30 Asbestos and Products Chemicals and Al l ied Products Other Exports
127 20 20 22 16 15 22 21 40 29
44 29 24 1 18 79 58 39 6
17 9 -
3 30 8 28 15a
146 47 23 18 14 6 29 40 34 25
46 28 16 -
9 68 45 43 10
15 7 13 25 8 36 25b
147 36 23 18 20 14 22 48 26 24
52 30 22 •
10 68 48 37 9
12 6 33 25 9
27 200
135 29 23 21 21 14 25 35 52 31
60 36 28 18 27 80 68 55 12
15 8 26 33 9 34 20d
Grand Total 737 776 786 915
Source: Dominion Bureau of S t a t i s t i c s , Trade of Canada.
a.
b.
c
d.
Includes Crude Electrodes -
Includes Crude Electrodes -
Includes Crude Ships - $11 million.
Includes Cotton Fabrics, $4 million; Fused Alumina minerals n.o,?
Artificial Abrasives & Carbon Graphite $6 million. Artificial Abrasives & Carbon Graphite $7 million; also Ships - §11 million. Artificial Abrasives - $3 million; also
million; Synthetic Fibres, «*«««.*«», $3 million; and non-metalli< &3 million.
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA - ECOLE DES GRADUES
IMPLICATIONS FOR CANADA 118
groups of commodities which Canada e x p o r t s to th© Uni ted King
dom are a g r i c u l t u r a l p r o d u c t s , n o n - f e r r o u s m e t a l s and wood
p r o d u c t s . Since 1957 these i tems have accounted for w e l l over
70 per c e n t of t o t a l Canadian s a l e s to t h e U.K. C e r t a i n i n d i
v i d u a l commodities a re a l so of major impor tance , and f o r t h e
p a s t t h r e e y e a r s the same seven i n d i v i d u a l p r o d u c t s have r e
p r e s e n t e d more than one h a l f of t o t a l Canadian e x p o r t s t o the
U.K. In 1960, t h e s e were as f o l l o w s : wheat - $135 m i l l i o n ;
b a r l e y - $29 m i l l i o n ; newspr in t - $60 m i l l i o n ; aluminum - $80
m i l l i o n ; copper - $68 m i l l i o n ; n i c k e l - $67 m i l l i o n ; and
lumber - $52 m i l l i o n .
Other impor tan t Canadian e x p o r t s t o t h e U.K. i n c l u d e
woodpulp, canned salmon and c h e m i c a l s . Canadian e x p o r t s of
chemica l s and a l l i e d p r o d u c t s , which t o t a l l e d $34 m i l l i o n i n
1960, a re of p a r t i c u l a r importance s ince the t r e n d i n the U.K.
market has i n d i c a t e d growing demand fo r such p r o d u c t s , and
because these a r e p r o d u c t s from Canada ' s secondary manufactu
r i n g i n d u s t r i e s .
The e f f e c t of U . K . ' a p a r t i c i p a t i o n i n EFTA upon Cana
d i a n e x p o r t s a r e not d i s c o u r a g i n g . Only two s i g n i f i c a n t
a r e a s of p robab le l o s s e s emanate from th© p r o v i s i o n s of t h e
EFTA Convent ion . Maintenance of Canadian s a l e s of wood, wood
p r o d u c t s and paper w i l l r e q u i r e a growing U.K. market capab le
of abso rb ing both Canadian and Scandinav ian s u p p l i e s . Expec
t a t i o n s of growing s a l e s of manufactured p r o d u c t s and chemica l s
UNIVERSITY OF OTTAWA ~ SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA - ECOLE DES GRADUES
IMPLICATIONS FOR CANADA 119
to this market will now be dependent on increasing Canadian
competitiveness due to the loss of tariff preferences, and
in some cases such as synthetic textiles and fibres, the
introduction of reverse preferences.2 However, in accordance
with existing U.K. preferences for Canadian products, any setf-
back due to losses of these preferences will be concentrated
In a sector of trade which accounts for less than 15 per cent
of Canadian exports to the U.K. - mainly canned salmon, cer
tain wood products, synthetic textiles, chemicals and other
manufactured products. However, such are the ahort-run expec|-
tations, and it is quite likely that in the longer run these
very same products will benefit from increased demand, not
only in the U.K. itself, but In the EFTA market as a whole.
The implication of the U.K.'s possible membership in
th© EEC are obviously quite difficult to assess. It is clear
at the moment, that the U.K. will seek special arrangements,
if not concessions, in its bid to join the EEC. However, a
brief study of the volume and type of products which the
United Kingdom imports from Canada is sufficient to indicate
that no drastic change in this trading pattern will occur in
the near future.
2 The introduction of "reverse preferences" means that not only will certain Canadian products lose their preferential tariff treatment, but in addition, they will eventually b© at a tariff disadvantage vis-a-vis other EFTA products entering the U.K. market.
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
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IMPLICATIONS FOR CANADA 120
Of the seven major export items, accounting for more
than 50 per cent of Canadian exports to the U.K., not one of
these is in great danger of competition from European sources
of supply. Although it is expected th© U.K. will negotiate
reservations on farm products presently entering that market
free of duty, the imposition of tariffs on farm products
would mainly affect U.K. consumer prices but would not have a
direct bearing on British demand for such products. Europe
cannot meet completely th© U.K. requirements for farm pro
ducts, and Canadian farm products should be able to compete
successfully with other foreign suppliers.
Th© loss of tariff preference for those Canadian pro
ducts enjoying such a preference is of course a very signifi
cant aspect of Britain's possible membership in the EEC. Hoi-
ever, th© following breakdown of Canadian exports to the
United Kingdom indicates quite clearly that the effects of
such a loss should not be overrated. In addition to the
seven major Canadian commodities which constitute more than
50 per cent of Canadian exports to the U.K., and which enter
that market without significant tariff preference, there is
another 25 per cent of Canadian sales to th© U.K. on which
th© preference is very small - 5 per cent or less. On a
sizeable part of the remaining 25 per cent, th© loss of pre
ference should not affect drastically the flow of trade. For
example, canned salmon, a fairly large individual trade item,
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA « ECOLE DES GRADUES
IMPLICATIONS FOR CANADA 121
has a preference of 5 per cent, but sells mainly on a quality
basis. Canadian barley, flour and flaxseed have a 10 per cen;
duty preference but sell mostly according to market require
ments rather than price. Really significant preferences -
over 20 per cent - apply to less than 3 per cent of exports,
mainly manufactured products. Of some concern, might be th©
loss of th© 10 per cent preference for medicinal preparations
and synthetic rubber, and the 20 per cent preference on
building board and some paper products. These individual
items above account for no more than 5 per cent of Canadian
exports to the U.K.
The loss of tariff preferences may, therefore, be
detrimental to some exports to the U.K., but severe deterio
ration should not be expected. Canada might, for instance,
experience initial losses In such products as medicinal prepaf-
ration, synthetic rubber, building products, some paper pro
ducts and chemicals. These are the important items most likelly
to suffer if U.K. demand for such products remains static. On
the whole, there is clear indication a decline in exports du©
to the loss of tariff preferences should not exceed 10 per
cent, at the very most, of current Canadian sales to the U.K.
Of course certain individual items, as indicated above, may
suffer more than others, but such changes in trading patterns
are a normal occurrence in international trade, unless intro
duced suddenly. And it is almost certain that any withdrawal
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA -- ECOLE DES GRADUES
IMPLICATIONS FOR CANADA 122
of p r e f e r e n c e w i l l be spread ou t over a p e r i o d of y e a r s , p r o
v i d i n g ample o p p o r t u n i t y fo r Canadian i n d u s t r i e s t o adap t thejn
s e l v e s t o t h e new c i r c u m s t a n c e s .
Th i s maximum p o s s i b l e r e d u c t i o n of 10 p e r c e n t i n
Canadian e x p o r t s to the U.K., would r e p r e s e n t l e s s t han a
2 p e r c e n t d e c l i n e i n terms of Canada 's t o t a l e x p o r t s . This
p o s s i b l e l o s s , however, should be viewed i n th© l i g h t of p r e
s e n t economic c o n d i t i o n s i n t h e U.K. Pos t -war economic deve
lopments i n the U.K. have no t been as f avourab le as i n o the r
European c o u n t r i e s . The f a i l u r e of t h e B r i t i s h economy to
ach ieve a s u f f i c i e n t l y h igh r a t e of growth, and i t s cont inued
ba l ance of payments d i f f i c u l t i e s , have a l r e a d y r e s u l t e d i n
government measures in tended to reduce i m p o r t s . And i t i s
expec ted t h a t such " b e l t - t i g h t e n i n g " measures w i l l con t inue
t o be n e c e s s a r y i n t h e U.K. a t l e a s t i n the near f u t u r e . I n
such c i r cums tances , the ou t look for growing Canadian e x p o r t s
t o t h a t market i s c e r t a i n l y not f a v o u r a b l e .
In the face of these r e c u r r i n g economic d i f f i c u l t i e s ,
the U.K. has come t o the conc lu s ion t h a t i t might b© to i t s
advantage t o j o i n th© EEC. B r i t a i n e x p e c t s t h a t by i t s membe^
sh ip i n th© EEC th© s o l u t i o n t o many of i t s i n t e r n a l economic
problems w i l l be f a c i l i t a t e d . I t i s e x p e c t e d , f o r example,
t h a t w i t h i n the EEC, the U.K. w i l l be a b l e to achieve a more
f avourab l e r a t e of growth i n i n d u s t r i a l p r o d u c t i o n , and t h a t
i t w i l l a t t r a c t much of the f o r e i g n i nves tmen t s c u r r e n t l y
d i r e c t e d t o EEC c o u n t r i e s . UNIVERSITY OF OTTAWA SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA ~ ECOLE DES GRADUES
IMPLICATIONS FOR CANADA 123
I n t h e long r u n , membership of t h i s h i g h l y p roduc t ive
and c o m p e t i t i v e i s l a n d i n t h i s wide common market should p r o
duce f a v o u r a b l e r e s u l t s on i t s r a t e of economic growth and or
i t s i n t e r n a t i o n a l ba lance of payments p o s i t i o n . The ou t look
should be for i n c r e a s e d demand fo r Canadian p r o d u c t s , and grejater
p o s s i b i l i t y for d i v e r s i f i c a t i o n i n t h e types of goods which
th© Uni ted Kingdom w i l l be able t o a f fo rd t o buy from Canada
D. The European Economic Community
The European Economic Community i s Canada ' s t h i r d
l a r g e s t and, a t the moment, f a s t e s t growing expor t marke t .
Table V I I I shows t h a t s ince 1950, Canadian e x p o r t s t o th©
EEC have more than ts&pxL-ed. I n 1960, Canadian s a l e s t o t a l l e c
$436 m i l l i o n compared t o $117 m i l l i o n i n 1950.
Table VI I I a l s o i n d i c a t e s t h a t Canadian e x p o r t s t o
i n d i v i d u a l EEC c o u n t r i e s have i n c r e a s e d very f avourab ly since
1950, excep t i n Belgium-Luxembourg. Even i n France and
I t a l y , where p r o t e c t i o n i s t import p o l i c i e s have been p reva le r j t ,
s a l e s of Canadian p roduc t s have more than doubled s i n c e 1950,
The growth of Canadian e x p o r t s to t h e Ne the r l ands dur ing t h e
same p e r i o d has been no more f avourab le t han the i n c r e a s e i n
Canada ' s s a l e s to France and I t a l y . And y e t , t h e Netherlands-
has been c o n s i d e r e d by Canada as hav ing mor© l i b e r a l t r a d i n g
p o l i c i e s t han France and I t a l y . The i n c r e a s e I n Canadian
e x p o r t s t o Germany has obv ious ly been tremendous - from
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
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IMPLICATIONS FOR CANADA 124
TABLE VIII
Canadian Exports to Countries of the European Economic Community
($ million)
Belgium Year Luxembourg France Germany Italy Netherlands TOTAL
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
66
94
104
69
55
53
58
60
70
56
69
18
46
48
32
34
42
53
57
45
43
73
9
37
95
84
87
91
142
152
202
129
165
15
49
53
33
24
28
38
63
30
32
66
9
26
41
42
40
48
55
70
75
54
63
117
252
341
260
240
262
346
402
422
314
436
Source: Dominion Bureau of Statistics, Trade of Canada.
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES _ J
UNIVERSITE D'OTTAWA -- ECOLE DES GRADUES
IMPLICATIONS FOR CANADA 125
m i l l i o n i n 1950 to $165 m i l l i o n i n 1960. I n p a r t , t h i s r e
f l e c t s the f a c t t h a t t h e German economy has expe r i enced t h e
most r a p i d r a t e of growth of t h e S ix , e s p e c i a l l y s i nce 1954.
Thus, i t would appear t h a t t h e growth i n Canadian
e x p o r t s t o I n d i v i d u a l c o u n t r i e s of t h e Six s ince t h e war, has
been a f f e c t e d more by the r a t e of growth i n t h e s e economies
r a t h e r than by t h e i r t r a d i n g p o l i c i e s . I f t h e o p p o s i t e were
t r u e , Canada ' s s a l e s t o Belgium-Luxembourg and t o the Nether
l a n d s would have outpaced the growth i n Canadian e x p o r t s t o
France and I t a l y . Th i s has not happened, i n d i c a t i n g t h a t
Canadian e x p o r t s t o the EEC w i l l most l i k e l y i n c r e a s e i n
accordance w i th the r a t e of economic growth and i n d u s t r i a l
expans ion i n the Common Market, i r r e s p e c t i v e of the o v e r a l l
h i g h e r r a t e s of duty imposed by t h e common e x t e r n a l t a r i f f of
t h e S ix .
For a number of t r a d i t i o n a l Canadian expor t p r o d u c t s ,
t h e Common Market i s of major s i g n i f i c a n c e . Of Canada ' s t o t a | l
s a l e s of wheat , 30 p e r cent h a s been purchased by c o u n t r i e s
of t h e S i x . As i n d i c a t e d i n Table IX, Canadian e x p o r t s of
a s b e s t o s , s y n t h e t i c rubber , pulpwood and f l a x s e e d a re a l s o of
major Impor tance . Of Canada ' s t o t a l e x p o r t s of the fo rego ing
p r o d u c t s , approximate ly 25 pe r cen t i s so ld t o t h e S i x .
S i m i l a r l y , the Common Market pu rchases about 10 per cent of
3 Appendix A contains f ive t a b l e s showing a breakdown of Canadian exports to individual EEC count r ies for the years 1957 to 1960.
UNIVERSITY OF OTTAWA ~ SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA -- ECOLE DES GRADUES
IMPLICATIONS FOR CANADA
TABLE IX
Breakdown of Canadian Exports tc th© European Economic Community
Commodities or Groups of Commodities
Wheat
Flaxseed
Rapeseed
Other Agricultural Products
Animals and Animal Products
Wood and Products
Iron Or©
Aluminum
Copper
Nickel - Crude
Lead
Other Non-ferrous Metals and Products
Asbestos and Products
Chemicals and Allied Products
Other Exports
Total Exports
Source: Dominion Trade of
1957
112
27
11
23
10
22
46
18
10
9
4
10
23
28
49
402
Bureau Canada
t
$ million 1958
101
18
10
17
8
16
23
20
27
13
5
7
16
27
114
422
1959
97
11
6
9
16
12
13
33
17
12
4
8
20
22
34
314
of Statisticsr
126
i960
108
12
4
14
15
22
27
54
27
32
4
11
25
37
44
436
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Canada ' s t o t a l e x p o r t s of b a r l e y , i r o n o r e , n i c k e l , tobacco
and aluminum.
Table IX f u r t h e r i n d i c a t e s t h a t th© g r e a t e r p o r t i o n
of Canadian e x p o r t s to th© Community - about 80 p©r c e n t -
c o n s i s t s of a g r i c u l t u r a l p r o d u c t s and i n d u s t r i a l raw mate r i a l | s
S i x major expor t i t ems account f o r more than 60 per c e n t of
Canadian e x p o r t s to t h e EEC. In 1960, t h e s e were : wheat -
$108 m i l l i o n ; aluminum - $54 m i l l i o n ; copper - $27 m i l l i o n ;
n i c k e l - $32 m i l l i o n ; a s b e s t o s - $25 m i l l i o n , and, chemica ls
and a l l i e d p r o d u c t s - $37 m i l l i o n .
The common EEC t a r i f f which should e v e n t u a l l y apply
t o t h e s e commodities ar© as f o l l o w s : wheat - 20 pe r c e n t ;
aluminum - 10 per c e n t to 20 per c e n t ; copper - z e r o ; n i c k e l -
z e r o ; a s b e s t o s - z e r o ; and chemicals and a l l i e d p r o d u c t s -
zero to 34 p e r c e n t .
The 20 per cent d u t y on wheat i s s i g n i f i c a n t s i n c e
b o t h th© Ne the r l ands and Germany, the major EEC customers for
Canadian wheat , have i n th© p a s t l e v i e d no d u t y on such imporjt
Of even g r e a t e r concern than the t a r i f f l e v e l , however, i s
the l i k e l i h o o d t h a t v a r i o u s n o n - t a r i f f measures such as s t a t e 4
t r a d i n g , mixing r e g u l a t i o n s , common p r o t e c t i v e marke t ing
ar rangements and minimum p r i c e s w i l l be pu t i n t o e f f e c t .
Although the demand f o r Canadian ha rd wheat i s s t r ong , and i s
4 Th© propor t ion of hard wheat to soft wheat i n b read .
UNIVERSITY OF OTTAWA -- SCHOOL OF GRADUATE STUDIES
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IMPLICATIONS FOR CANADA 128
based on quality rather than price, millers* and consumers'
preferences could be changed over time through government
intervention. There is also the possibility of increased
production of hard wheat within the Common Market as a result
of government support, mainly in France. But, in view of the
volume of Canadian wheat sold in the EEC, it is more likely
that any losses, should they occur, will be felt more In
respect of th© rate of growth of Canadian sales of wheat in
that market rather than in terms of absolute decline in volunje.
Such a prospect does not suggest any significant hardship for
Canada, especially to the Canadian employment situation.
Except for the Benelux countries, the rate of duty or
aluminum In the Six has always been high - between 10 per
cent and 30 per cent. However, duty free quotas were allowec
to meet individual needs. A similar pattern of quotas at
reduced rates of duty from the common tariff level has also
been extended as a result of negotiations amongst the Six.
Thus any losses in Canadian exports of aluminum must be pre
mised on a static European market obtaining its aluminum
requirements from within. This is an unlikely development.
Any effects on exports of aluminum should therefore be expectjed
only In the long run rather than in the immediate future
which, in fact, holds promise of growing demand not satiable
within the boundaries of the Six. In any event, this heal thy
Canadian industry should certainly b© able to adapt itself in
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA - ECOLE DES GRADUES
IMPLICATIONS FOR CANADA 129
t h e l ong run to whatever changes i n t r a d i n g p a t t e r n s ar© i n
s t o r e . Th© s i g n i f i c a n t g a i n s In Canadian e x p o r t s of aluminun
to t h e Common Market s i n c e 1957 a r e no t expec ted t o be l o s t ,
b u t any f u t u r e growth could we l l b© a t a lower r a t e due t o
p o s s i b l e c o m p e t i t i o n from i n t e r n a l s o u r c e s .
The zero t a r i f f on copper , n i c k e l and a s b e s t o s shoulc
c e r t a i n l y no t impede Canadian e x p o r t s of t h e s e p r o d u c t s . I n
f a c t , growing demand f o r such p r o d u c t s by EEC c o u n t r i e s should
favour an expans ion i n t h i s a r e a of Canadian t rad©.
Canadian s a l e s of chemicals and a l l i e d p r o d u c t s con
s t i t u t e an element of t r a d e of s p e c i a l importance s i n c e they
r e p r e s e n t o u t p u t from Canadian secondary manufac tur ing indus
t r i e s . With r e s p e c t to t h e h igh common t a r i f f on some of
t h e s e p r o d u c t s , i t i s s i g n i f i c a n t to no te t h a t a l though France
h a s had some of t h e h i g h e s t i n d i v i d u a l t a r i f f r a t e s on che
m i c a l s and a l l i e d p r o d u c t s , t h i s same c o u n t r y has been by f a r ,
Canada ' s b e s t EEC customer i n t h i s f i e l d for the p a s t four
y e a r s . I t would appear l i k e l y , t h e r e f o r e , t h a t the growth i r
Canadian e x p o r t s of chemica l s and a l l i e d p r o d u c t s w i l l be
more dependent on th© i n h e r e n t q u a l i t i e s , c o m p e t i t i v e n e s s and
s p e c i a l i z a t i o n of such Canadian p r o d u c t s , r a t h e r t h a n on the
ra t© of d u t y .
Thus for those p r o d u c t s which make up more than 60 p e r
c e n t of Canadian e x p o r t s t o t h e Common Market no d r a s t i c l o s
s e s , and i n many c a s e s s u b s t a n t i a l ga in s should be th© outcone
UNIVERSITY OF OTTAWA ~ SCHOOL OF GRADUATE STUDIES
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IMPLICATIONS FOR CANADA 130
of th© implementa t ion of th© Rome T r e a t y . A few o t h e r I n d i v i
dua l p r o d u c t s ar© of s p e c i a l impor tance , such as woodpulp,
i r o n or©, f l a x s e e d , r apeseed and b a r l e y . These i t e m s , t o g e
t h e r w i th o t h e r m i s c e l l a n e o u s a g r i c u l t u r a l p r o d u c t s r e p r e s e n t
approx imate ly 15 pe r c e n t of t o t a l Canadian e x p o r t s t o t h e
EEC. The p o s i t i o n of t h e s e p r imary p r o d u c t s i n f u t u r e t radi r jg
p a t t e r n s wi th t h e EEC i s d i f f i c u l t t o a s s e s s . P r o s p e c t s fo r
Canadian e x p o r t s of t h e s e p roduc t s w i l l b© hampered by gene
r a l l y h i g h e r t a r i f f s , and s ince t h e i r i n d i v i d u a l volumes are
no t exceed ing ly h igh i t i s f eas ib l© some of them could be
r e p l a c e d by p r o d u c t s of EEC o r i g i n . However, of t hese p r o
d u c t s , on ly b a r l e y w i l l r e c e i v e what might b© termed as a
r e s t r i c t i v e t a r i f f . The common t a r i f f f o r b a r l e y w i l l b© 13
pe r c e n t . For f l a x s e e d , r apeseed and woodpulp the ra t© w i l l
b© z e r o , ©xcept on woodpulp fo r pape r making, which w i l l earrjy
a 6 p e r c e n t l e v y . Th© ra t© of duty on i r o n or© h a s been set
under the European Coal and S t e e l Community a t from 3 per eerjt
t o 10 p e r e e n t , and sine© most of Canada ' s i r o n or© e x p o r t s
a r e of a type d u t i a b l e around 5 p e r c e n t , t h e t a r i f f f a c t o r
should no t have any adverse e f f e c t s .
I t i s i n t h e remain ing s e c t o r of Canada ' s e x p o r t s to
the EEC t h a t mor© s i g n i f i c a n t e f f e c t s may be f e l t - mainly or
s emi -p rocessed and manufactured i t e m s . While Canada ' s e x p o r t s
of such p r o d u c t s to t h e S ix may not dec rease i n volume, i t
seems quit© l i k e l y some changes w i l l occur i n t h e t ypes of
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA ~ ECOLE DES GRADUES
IMPLICATIONS FOR CANADA 131
p r o d u c t s expor t ed i n the f u t u r e . However, t h i s group r e p r e
s e n t s l e s s t h a n 3 per cen t of Canada ' s t o t a l e x p o r t s , and i t
i s i n c o n c e i v a b l e , except i n the case of o u t r i g h t impor t p r o
h i b i t i o n , t h a t more t han one h a l f of t h e s e e x p o r t s would be
d r i v e n out of t he Common Market . I n such an u n l i k e l y even t ,
Canada would s tand t o l o s e s l i g h t l y more than 1 per cen t of I t s
e x p o r t t r a d e i n exchange f o r the o t h e r b e n e f i t s t o be der ivec
from the economic u n i f i c a t i o n of Europe . Such an i n i t i a l l o s s
would soon be r e p l a c e d by t h e many p o t e n t i a l g a i n s i n o the r
a r e a s of t r a d e s .
I t t h e r e f o r e appears t h a t the g radua l impact of the
Common Market might r e q u i r e ad jus tments i n Canada ' s expor t
compos i t ion , mainly i n some a g r i c u l t u r a l p r o d u c t s such as
wheat and b a r l e y and i n i t s v a r i o u s smal l manufactured I tems.
But the long r u n e f f e c t s of t h e p r e s e n t European Economic
Community a r e , by f a r , more advantageous t o Canada ' s expor t
p r o s p e c t s than t h e immediate drawbacks i t might p r e s e n t a t 11 s
i n c e p t i o n , and Canada w i l l s u r e l y b e n e f i t from t h e success oi
t h i s economic u n d e r t a k i n g .
E . Other E .F .T .A, C o u n t r i e s
Al though the United Kingdom o f f e r s , by f a r , the l a r
g e s t market for Canadian e x p o r t s i n the E . F . T . A . , a n x i e t i e s
a l s o a r i s e i n r e s p e c t of Canada ' s i n t e r e s t s i n o t h e r E.F.T.A.
c o u n t r i e s . Canada has a c o n s i d e r a b l e s t ake I n i t s e x p o r t s
UNIVERSITY OF OTTAWA SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA - ECOLE DES GRADUES
IMPLICATIONS FOR CANADA 132
of a g r i c u l t u r a l p r o d u c t s , v a r i o u s me ta l s and a few manufac
t u r e d goods, mainly chemica ls and a l l i e d p r o d u c t s , t o th©
o t h e r E .F .T .A . c o u n t r i e s .
As i n d i c a t e d i n Table X, Canadian s a l e s to E .F . T.A.
c o u n t r i e s , exc lud ing the Uni ted Kingdom, t o t a l l e d $133 m i l l i o n
i n 1960. Of t h i s t o t a l , Norway, Sweden and Swi t ze r l and p u r -
chased $117 m i l l i o n , or more t h a n 80 p e r c e n t . Norway a lone
accoun t s f o r more than one h a l f of Canadian e x p o r t s t o E .F .T .A.
c o u n t r i e s exc lud ing the U.K. In a d d i t i o n , s i n c e 1950 s a l e s
t o Norway have I n c r e a s e d more than t h r e e f o l d , from $19 m i l l i c n
t o $70 m i l l i o n i n 1960. 5
Table XI, c o n t a i n s a breakdown of the major Canadlar
p r o d u c t s expor t ed t o Norway, Sweden and Swi tze r l and combined,
fo r the p a s t four y e a r s . These f i g u r e s show t h a t the major
i t ems which Canada has expor t ed to t h e s e t h r e e E .F .T.A. coun
t r i e s have been n i c k e l , copper , wheat and aluminum. During
1960 Canadian e x p o r t s of these four i n d i v i d u a l p r o d u c t s to
Norway, Sweden and Swi t ze r l and amounted to $89 m i l l i o n , o r
more than 60 p e r cen t of Canada 's t o t a l ©xports t o a l l E .F .T .A.
c o u n t r i e s e x c l u d i n g the United Kingdom.
The type of p roduc t s involved i n t h i s major p o r t i o n
of Canada ' s s a l e s t o t h e E .F .T.A. c o u n t r i e s should n o t be
3 Appendix B c o n t a i n s t h r e e t a b l e s showing a b reak down of Canadian e x p o r t s t o i n d i v i d u a l EJP.T.A. c o u n t r i e s for th© y e a r s 1957 to 1960.
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
TABLE X
Canadian Exports to Countries of th© European Free Trade Association
($ million)
Year
1950 1951 1952 1953
1954 1955 1956
1957 1958 1959 1960
Austria
2 2 5 5
3 6 5
7 7 8 8
Denmark
1 6 10 6
3 3 3
4 5 5 5
Norway
19 32 39 37
44 47 58
56 56 62 70
Portugal
6 5 4 4
2 2 2
3 2 3 3
Source: Dominion Bureau of Stati
Sweden
4 12 12 5
4 8 8
12 11 15 21
sties,
Switz.
26 25 27 30
27 26 33
25 29 26 26
Trade of
U.K.
470 631 746 665
653 769 813
737 776 786 915
Canada.
Total
528 713 843 752
736 861 922
844 886 905 1048
O
•a H O CO
3 So
o 6 6 >
UNIVERSITE D'OTTAWA - ECOLE DES GRADUES
IMPLICATIONS FOR CANADA 134
TABLE XI
Breakdown of Canadian Exports to Norway, Sweden and Switzerland combined
C ommoditi © s
Wheat
Aluminum
Copper
Nickel
Chemicals
Other Exports
1957
16
3
13
35
3
23
($ million) 1958
25
3
10
38
4
16
1959
16
6
11
45
7
18
1960
17
7
15
51
4
23
Total 93 96 103 117
Source: Dominion Bureau of Statistics* Trade of Canada.
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA - ECOLE DES GRADUES
IMPLICATIONS FOR CANADA 135
a f f e c t e d a d v e r s e l y . Ra ther i t may be expec t ed t h a t a growing
need for t h e s e p r o d u c t s w i l l favour Canadian e x p o r t s . Should
Norway and Sweden dec ide to j o i n t h e E . E . C , Canadian ©xports
of copper , n i c k e l and aluminum may w e l l be favoured by t h e
p o t e n t i a l i n t e n s i f i c a t i o n of economic a c t i v i t y E .E.C. member
s h i p w i l l have on t h e s e c o u n t r i e s . The e f f e c t of such a
development on Canada ' s wheat s a l e s i n E .F .T .A. should be a l l e
v i a t e d by the f a c t t h a t Swi t ze r l and , Canada 's l a r g e s t and
most r e g u l a r wheat customer i n E .F .T .A . , i s not l i k e l y to
j o i n any t r a d i n g u n i t such as E.E.C. s i n c e the p o l i t i c a l i m p l i
c a t i o n s i n E .E.C. would r e q u i r e t h e abandonment of i t s t r a d i
t i o n a l n e u t r a l pos i t i o n .
Thus, f o r a t l e a s t 60 per c e n t of Canada ' s e x p o r t s tc
o t h e r E .F .T .A. c o u n t r i e s no s e r i o u s se tback should be expectejd,
whether or not two of the t h r e e c o u n t r i e s invo lved dec ide t o
j o i n t h e Common Market.
I n c o n s i d e r i n g the ba lance of Canada ' s e x p o r t s t o a l l
E .F .T .A . c o u n t r i e s exc lud ing the Uni ted Kingdom, p o s s i b l e
l o s s e s should no t be g iven exaggera ted impor t ance . Canada 's
s a l e s t o many of t he se c o u n t r i e s have exper i enced e r r a t i c
f l u c t u a t i o n s fo r a t l e a s t the l a s t t e n y e a r s . Canadian exporfts
t o t a l l i n g $10 m i l l i o n to Denmark i n 1952, f e l l t o $3 m i l l i o n
i n 1956 and a r e c u r r e n t l y i n the o rder of $5 m i l l i o n . Similar | -
l y , P o r t u g a l purchased $6 m i l l i o n worth of Canadian p r o d u c t s
i n 1950, $2 m i l l i o n i n 1954 and $3 m i l l i o n i n 1960. Sweden
UNIVERSITY OF OTTAWA SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA - ECOLE DES GRADUES
IMPLICATIONS FOR CANADA 136
purchased $12 m i l l i o n of Canada ' s e x p o r t s i n 1952, $4 m i l l i o n
i n 1954 and $21 m i l l i o n i n 1960. F l u c t u a t i o n s would n o t ,
t h e r e f o r e , be a new element i n Canada ' s s a l e s to t h e s e coun
t r i e s . The most s t a b l e market fo r Canadian e x p o r t s , amongst
t h e s e c o u n t r i e s , has been Swi t ze r l and - about $25 to $30
m i l l i o n a n n u a l l y s i n c e 1950, Of c o u r s e , i t would be i d e a l i f
a l l had shown r a t e s of growth as i n A u s t r i a - from $2 m i l l i o r
i n 1950 t o $8 m i l l i o n i n 1960, and Norway - from $19 m i l l i o n
i n 1950 t o $70 m i l l i o n i n 1960.
I t would appear t h e r e f o r e t h a t any f l u c t u a t i o n s i n
Canadian e x p o r t s , e i t h e r upwards or downwards, w i l l be d i f f i
c u l t t o a t t r i b u t e to developments i n E .F .T .A. i t s e l f or to
the d e c i s i o n of some of i t s members t o j o i n the E.E.C. Never
t h e l e s s i t i s l o g i c a l to expect t h a t l o s s e s or g a i n s i n these
marke t s w i l l fo l low the same t r e n d s as i n o the r European
marke t s , and w i l l depend to a g r e a t e x t e n t on the u l t i m a t e
t r a d i n g arrangements between E .F .T .A. and E .E .C.
I n any event Canada 's p o t e n t i a l l o s s e s or ga in s t o
t h a t market r e p r e s e n t on ly a very minimal va lue of t o t a l
Canadian e x p o r t s . S a l e s of n i c k e l , copper , aluminum and wheajt
t o Norway, Sweden and Swi tze r land r e p r e s e n t more than 60 per
c e n t of Canada ' s ©xports to a l l E .F .T .A. c o u n t r i e s exc lud ing
th© U.K. No s e r i o u s se tback i s expec ted i n t h i s a r e a of trad|e
And i t would be f o l l y t o expect t h a t new t a r i f f a r rangements
e i t h e r w i t h i n E .F .T .A. or i n E .E .C. could d i s r u p t more than
UNIVERSITY OF OTTAWA SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA ~ ECOLE DES GRADUES
IMPLICATIONS FOR CANADA 137
one h a l f of th© ba l ance of Canada ' s s a l e s t o t h e s e s i x E.F.T,
c o u n t r i e s . I n terms of Canada ' s t o t a l e x p o r t s , t h i s would
mean a maximum l o s s of l e s s t h a n 1 per c e n t . Su re ly , i n the
f a c e of such a s l i g h t r i s k of l o s s , Canada can more r e a d i l y ,
and more b e n e f i c i a l l y , look to the p o s s i b l e t r a d e expanding
p o t e n t i a l i t i e s of t h i s t r a d i n g group i n Europe .
P« Fu tu re P r o s p e c t s
P o t e n t i a l b e n e f i t s from European economic u n i f i c a t i o n
must be p r o j e c t e d on t h e b a s i s of p a s t exper i ence i n s i m i l a r
a r e a s of economic developments . As such, the accuracy , or
t h e wor th , of t h e s e p r o j e c t i o n s may be somewhat wan t ing . Nevejr
t h e l e s s , t h e r e e x i s t some a r e a s of economic p r o j e c t i o n which
a r e f a i r l y dependab le . One of t h e s e a reas i s the p a r a l l e l
movements I n i n d u s t r i a l i z a t i o n and f o r e i g n t r a d e . I t has
been shown i n an e a r l i e r c h a p t e r , t h a t i n c r e a s e d f o r e i g n t r a d e
i s a normal c h a r a c t e r i s t i c of the p r o c e s s of i n d u s t r i a l i z a t i o n
Al ready , t h e growth i n inves tmen t s and i n d u s t r i a l p r o d u c t i o n
i n Europe over the p a s t few y e a r s has been accompanied by an
i n c r e a s e i n bo th e x p o r t s and i m p o r t s . As can be seen from
Table XI I , the r a t e of growth i n i n d u s t r i a l p r o d u c t i o n has
been accompanied by i n c r e a s e d l e v e l s of bo th e x p o r t s and im
p o r t s . This r e l a t i o n s h i p between i n d u s t r i a l p r o d u c t i o n and
f o r e i g n trad© has f avourab ly a f f e c t e d Canadian e x p o r t s to thelse
m a r k e t s . F rance , Germany and I t a l y have exper ienced a f a s t e r
UNIVERSITY OF OTTAWA ~ SCHOOL OF G R A D U A T E STUDIES
UNIVERSITE D'OTTAWA - ECOLE DES GRADUES
IMPLICATIONS FOR CANADA
TABLE XII
138
Index of Industrial Production and Volume
Country
Belgium and Luxembourg
France
Germany
Italy
Netherlands
Sour
of Foreign Trad© of EEC Countries 1953 » 100
Year
1954 1957 1958 1959 1960
1954 1957 1958 1959 1960
1954 1957 1958 1959 1960
1954 1957 1958 1959 1960
1954 1957 1958 1959 1960
Industrial Production
104 119 113 117 125
109 139 145 150 168
112 146 151 162 179
109 138 143 158 182
H I 127 127 139 157
ce: OEEC, General Statisl Bullet .in, No. 4, Jul}
Imports
110 139 137 154 174
109 151 150 147 176
123 192 205 247 294
105 144 143 161 229
125 158 149 169 193
tics, OEEC r i96i;
Exports
109 133 136 154 173
115 131 137 164 192
122 188 195 222 255
112 178 189 232 280
114 136 147 165 187
Statistical
UNIVERSITY OF OTTAWA _ SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA - ECOLE DES GRADUES
IMPLICATIONS FOR CANADA 139
rat© of growth in industrial production sine© 1954 than Bel
gium and the Netherlands. Similarly Canadian exports to
France, Germany and Italy have increased much more rapidly
than Canadian sales to Belgium and the Netherlands during the
same period.
It is fair to expect that this relationship between
industrial production, imports and exports will continue to
be the general rule in European economic developments. Thus, g
it could well be that by 1975, when E.E.C. *s population may
have reached 180 million, and when its Gross National Product
could well be $280 billion, Canadian exports to that market
will total $800 million compared to the current level of
slightly more than $400 million. Such a figure will be reacted
if the ratio of imports from Canada to E.E.C.'s G.N.P. remairs
the same. Of course, a rate of growth of this magnitude would
most likely necessitate greater dependence on imported raw
materials, with the favourable result that Canada's exports
to the E.E.C. fifteen years hence could easily exceed $800
million.
One of the current drawbacks to Canada's t r ad ing pos: -
t i o n v i s - a - v i s western Europe, i s the cost d i f f e r e n t i a l
a f fec t ing i n d u s t r i a l production. $his has proven a disadvan-
6 The projected f igures for 1975 ar© based on a spec ia l study of the E.E.C. published in The F inanc ia l Post , Toronto, August 16, 1958, Volume LII , No. 32, pp. 19-22.
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA « ECOLE DES GRADUES
IMPLICATIONS FCR CANADA 140
tag© t o Canadian e x p o r t s competing i n European marke t s , or
competing a g a i n s t European p r o d u c t s i n t h i r d c o u n t r i e s . Th©
advent of i n t e n s i f i e d i n d u s t r i a l i z a t i o n and c a p i t a l i n v e s t
ments w i t h i n an economical ly u n i f i e d Europe may be expec ted
to narrow such c o s t d i s p a r i t i e s . Indeed, on© of th© long run
purposes of the Common Market i s t o r a i s e the s t anda rds of
l i v i n g i n Europe . The accompanying i n c r e a s e s i n i n d u s t r i a l
and s o c i a l c o s t s which can be expected from such an occur rence
w i l l prove b e n e f i e i a l i n c l o s i n g the gap between c o s t l e v e l s
i n Canada and Europe, t he reby ex tend ing a more compe t i t i ve
p o s i t i o n t o Canadian p r o d u c t s , e s p e c i a l l y those from secondary
manufac tu r ing . This w i l l b© h e l p f u l to Canada ' s expor t p ros
p e c t s i n Europe and i n t h i r d c o u n t r i e s , where European p r o
d u c t s a r e p r e s e n t l y lower p r i c e d .
Higher i n d u s t r i a l p r o d u c t i o n and t h e d i v e r s i f i c a t i o n
i n i n d u s t r i a l a c t i v i t y w i l l I n c r e a s e the p o t e n t i a l f low of
manufactured p r o d u c t s from Europe to Canada and t o o the r world
m a r k e t s . Such a development should b© welcomed by Canada,
for many r e a s o n s . F i r s t l y , i t w i l l pe rmi t Canada to reduce
i t s dependence on impor ts of manufactured i t e m s from th© U . S . ,
t h e r e b y p r o v i d i n g a b e t t e r d i s t r i b u t i o n i n th© compos i t ion of
Canada ' s trad© b a l a n c e . Secondly, the i n c r e a s e i n European
e x p o r t s of manufactured p r o d u c t s t o the world w i l l i n c r e a s e
E u r o p e ' s s t a k e i n i n t e r n a t i o n a l t r a d e . In t u r n , t h i s w i l l
prove a s t r o n g i n c e n t i v e for Europe t o i n c r e a s i n g l y l i b e r a l i z e
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA - ECOLE DES GRADUES
IMPLICATIONS FOR CANADA 141
I t s p o l i c i e s towards impor t s i n o rder t o con t inue r e c e i v i n g
l i b e r a l t r e a t m e n t i n i t s access t o world m a r k e t s . T h i r d l y ,
i t i s f a i r to assume t h a t an i n c r e a s e i n Eu rope ' s economic
s t r e n g t h w i l l a f f e c t t h a t m a r k e t ' s p r o p e n s i t y to impor t , i n
the same manner t h a t such a development h a s a f f e c t e d t h e U.S .
m a r k e t . U . S . r e p r e s e n t s today t h e l a r g e s t market for t h e s a l e
of Canadian manufactured p r o d u c t s . As i n d i c a t e d i n Table XIlJI,
t he U.S . market accounts for the major p o r t i o n of Canadian
e x p o r t s of such manufactured p r o d u c t s as farm machinery, manu
f a c t u r e s of i r o n , copper tub ing and wi re , r a d i o w i r e l e s s appa
r a t u s , t e l e g r a p h and te lephone a p p a r a t u s , e l e c t r i c a l apparatus
chemical f e r t i l i z e r s and drugs and c h e m i c a l s .
And so , i t may be expected t h a t as Europe r e a c h e s a
world t r a d i n g and economic p o s i t i o n s i m i l a r to t h a t of the
U . S . , i t w i l l c o n s t i t u t e a b e t t e r market for t he s a l e of Cana
d i a n goods from secondary manufac tu r ing . This i s of s p e c i a l
impor tance t o t h e expo r t p r o s p e c t s of Canada 's secondary i n d u s
t r i e s , s i n c e t h e p r e s e n t volume and composi t ion of such Cana
d ian s a l e s abroad, r e n d e r them uncommitted i n r e s p e c t of
f u t u r e t r a d i n g developments . In view of t h e small volume of
Canada ' s e x p o r t s of manufactured p roduc t s t o Europe, any d i s
r u p t i o n s i n t h a t a r ea of t r a d e must be e q u a l l y s m a l l . On the
o t h e r hand, Canadian secondary i n d u s t r i e s , which c u r r e n t l y
have no l a r g e s c a l e inves tments d i r e c t e d t o the promot ion of
e x p o r t s a l e s , can be t r u s t e d to adapt t h e i r i nves tmen t and
UNIVERSITY OF OTTAWA SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA -- ECOLE DES GRADUES
IMPLICATIONS FOR CANADA 142
TABLE XIII
Comparison of Selected Commodities Exported from Canada to the U.S.A.
and the World During 1960 ($ million)
Commodities U.S.A. World
Motor Vehicle Engines Mowing Machines and Reapers Treshers and Combines Farm Tractors Adding Machines and Parts Iron Valves
Manufactures of Iron n.o.p. Copper Tubing Copper Wire Radio Wi re l e s s Apparatus Telegraph and Telephone Apparatus E l e c t r i c a l Appara tus n . o . p .
Drugs and Chemicals n . o . p . Nickel - F ine D e n t a l , S u r g i c a l , H o s p i t a l
Equipment S c i e n t i f i c Apparatus
TOTAL
8 6
3 0 4 2 1
4 4 3
15 4 5
27 81
2 4
10 6
32 4 4 2
6 8 5
22 7 7
48 142
3 7
200' 313 4Bfr
Source: Dominion Bureau of S t a t i s t i c s , Trade of Canada.
* Represents more than 7 per cent of t o t a l Canadian exports to the U.S.
** Represents more tiian 5 per cent of t o t a l Canadian ©xports.
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA - ECOLE DES GRADUES
IMPLICATIONS FOR CANADA 143
development programmes to meet any growing expor t s a l e s oppor
t u n i t i e s i n t h e f u t u r e . Unl ike o t h e r c o u n t r i e s , t h i s w i l l
no t e n t a i l the abandonment of e x i s t i n g p r o d u c t i o n f a c i l i t i e s ,
b u t on ly th© development of new ones i n accordance wi th oppor
t u n i t i e s i n f o r e i g n m a r k e t s .
Those i n favour of a s t a t i c p a t t e r n of t r a d e e x p r e s s
t h e f e a r t h a t Canada w i l l l o s e i t s a g r i c u l t u r a l markets i n
Europe . I t i s agreed t h a t Europe ' s need for a g r i c u l t u r a l pre
d u c t s w i l l grow. However, the f e a r i s t h a t r e s t r i c t i v e p o l i
c i e s w i l l p reven t such i n c r e a s i n g needs from be ing f u l f i l l e d
by f o r e i g n c o u n t r i e s . At p r e s e n t , a g r i c u l t u r e i s bo th a po l j
t i c a l and economic problem i n Europe, w i t h " too many fa rmers 7
on too many smal l f a r m s " . Approximately one q u a r t e r of
E . E . C . ' s work fo r ce i s c u r r e n t l y engaged i n a g r i c u l t u r a l pro
d u c t i o n , compared t o about 8 pe r cent i n the U.S.A. Moreover
European farms a r e g e n e r a l l y smal l , family-owned e n t e r p r i s e s ,
More t h a n t w o - t h i r d s of farms in t h e Common Market - comparec
w i t h about o n e - q u a r t e r i n the U.S. - a r e l e s s t h a n 25 a c r e s
i n s i z e . The Common Market Commission's plan f o r a common
a g r i c u l t u r a l p o l i c y r e c o g n i z e s t h a t the S ix must so lve t h e i r
b a s i c a g r i c u l t u r a l problem - too many smal l f a rms , t oo many
f a rmer s , t o o much i n e f f i c i e n c y , too much p r o t e c t i o n i s m and
7 The Chase Manhattan Bank, "A European Farm P o l i c y " , Western Europe, i s s u e d b i -month ly by the Economic Resea rch Depar tment , No. 9, August-September 1960, New York.
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IMPLICATIONS FOR CANADA 144
too many government controls. As a high cost producer of foo
th© E.E.C. realizes the long run economic dividends of gra
dually shifting resources from some lines of agriculture to
Industrial production. Such a shift in the composition of thb
labour force from agriculture to industry, will be facilitateji
by the increased industrial economic activity in Europe fol
lowing the intensified capital investments in Industry which
has already begun. A shift of this type is a normal effect
of industrial growth and there is no reason why E.E.C.'s agri|-Q
c u l t u r a l s ec to r should be an exception.
These long run developments in Europe's a g r i c u l t u r a l
production w i l l r e l i eve ag r i cu l t u r a l policy-makers from preseht
p o l i t i c a l pressures in t h i s f i e l d . With fewer people direct ly-
engaged i n ag r i cu l tu r e , p o l i c i e s may be expected to be formu
l a t e d more on the bas i s of economic considera t ions r a the r t h a i
p o l i t i c a l impl ica t ions . The increases in Imports of foodstuff
which economic considerat ions wi l l suggest, w i l l , moreover, bp
supported by consumers who expect the Common Market to br ing
lower food p r i c e s ; by the importing and food processing Indus
t r i e s of Belgium and Holland, whose influence has , up to now,
been confined to the Benelux; and by an increasing number of
i n d u s t r i a l i s t s who r e a l i z e tha t Europe must l i b e r a l i z e i t s
8 Richard H. Holton and David C. Smith, "Canadian Economic Growth in the Early 1960's, The Business Quarterly, Vol. XXVI, No. 2, Summer 1961, School of Business Admlnistra-t i o n , Univers i ty of Western Ontario, London.
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IMPLICATIONS FOR CANADA 145
agricultural import policies in order to export more indus
trial goods. Thus, with the relative decline in importance
of agricultural production in the E.E.C. as a result of inten
sified industrialization, the growing demand for foodstuffs
may be expected to favour foreign suppliers, including Canads.
It seems obvious, from the foregoing, that providing
the E.E.C. achieves its goals concerning such factors as in
dustrial production, income growth and higher standards of
living, Canada stands to gain much more in the long run com
pared to whatever losses or disruptions may affect its trade
initially. The future potentialities of a united Europe
favour not only the growth in Canada's exports of agricul
tural products and industrial raw materials, but also will
provide opportunities for the development of a sound export
specialization in secondary manufacturing products. In effect,
Canada must look hopefully towards the successful attainment
of the economic and political goals of the European Economic
Community.
UNIVERSITY OF OTTAWA SCHOOL OF GRADUATE STUDIES
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CONCLUSION
Canada's t rade with Europe has been shown to consis t
mainly of a g r i c u l t u r a l products and I n d u s t r i a l raw mater ia l s
with manufactured items playing a very minor r o l e . The imme
d i a t e outlook, r e s u l t i n g from t rad ing and other economic
arrangements i n Western Europe, i s for t h i s t rading p a t t e r n
to continue without any s ign i f i can t loss or d e t e r i o r a t i o n i n
any one area . I t i s i l l o g i c a l to foresee a decl ine in Cana
dian exports of i n d u s t r i a l raw mater ia l s to Western Europe
In the face of increas ing needs for such products as a resul l
of growing i n d u s t r i a l product ion. On the other hand i t i s
inconceivable t h a t Europe's a g r i c u l t u r a l requirements w i l l
subside suddenly, j u s t as i t Is inconceivable tha t foodstuffs},
such as wheat, which the U.K., Germany and Benelux purchase
in la rge volume from Canada, can be replaced by EEC or EFTA
production i n the near fu tu re .
In the f i e ld of manufactured products, Canadian
exports to Europe have been low in volume, high in p r i ce s an<.
q u a l i t y . They have had to surmount ex i s t i ng high t a r i f f
b a r r i e r s , and should not suffer from the new t a r i f f r a t e s
adopted by EEC. Moreover, Canadian manufactured products
have been i n i t i a t e d t o compete agains t the p r e f e r e n t i a l t r e a
ment extended to intra-European trade through OEEC and EPU,
a t l e a s t u n t i l 1958, so t h a t i n t e r n a l t r ad ing preferences
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CONCLUSION 147
inherent in EEC and EFTA should not dislocate this trade.
It is mainly In the long run that significant posi
tive effects upon the pattern of Canadian exports to Europe
may be expected.
Just as the unifying trading and economic character!s
tics of the OEEC resulted in activating industrial production
in Europe, so too the integration aspect of the EEC is ex
pected to have similar results on the industrial growth of
its members. In turn, the parallel movements between indus
trial production and foreign trade, which have been shown as
empirically true, should also hold for future trading pros
pects with these markets. Thus it may be expected that long
run growth in Industrial production within these markets will
be accompanied by greater import requirements.
A successful European Economic Community implies the
gradual formation of an integrated market whose benefits will
consist of an increase in economic activity, a growth in
industrialization and investment, and a higher level of incomle
A united and growing population forming a single large market
with eventual income growth creating a higher level of demand
for all goods, logically means more, rather than less, trade.
Thus any tendency to replace Canadian goods by European ones
will diminish as the market grows progressively. This would
not obviate any tendency of possible reductions in imports
of particular Canadian goods, but should enhance th© possi-
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CONCLUSION 148
b i l i t y of increas ing and d ivers i fy ing overa l l Canadian exportjs
to tha t market.
Of special s ignif icance i s the p o t e n t i a l i t y for
increased demand i n fu l ly manufactured produc ts . I t i s i n
t h i s area of t rade where Canada must u l t imate ly seek i t s
future expor t s . A cont inuat ion of present t rends in the pre
dominance of a g r i c u l t u r a l and raw mater ia l s exports w i l l
prove disadvantageous to the future development of the Cana
dian economy. Increas ingly more products w i l l have to be
processed domestical ly p r io r to export i f Canada i s to sus ta i r
an adequate l eve l of employment. The Common Market, as i t
grows i n economic s t rength and d i v e r s i f i c a t i o n , wi l l undoub
ted ly provide g rea te r oppor tuni t ies for Canadian secondary
manufacturing to en te r the export f i e l d . Of course, Canada's-
secondary i n d u s t r i e s w i l l have to adapt themselves to new
demands emanating from Europe, but the minor ro l e these Indus
t r i e s cur ren t ly have in Canadian exports to Europe, place
them In a very good pos i t i on to meet the changing demands of
future t rade p rospec t s .
The evolut ion of Europe in to an economic un i t compa
rable to the U.S.A. w i l l not only provide a welcome comple
mentar i ty to Canada's present t rading dependence v i s - a - v i s
the U.S . , but i t w i l l also be benef ic ia l to Canada's export
prospeets to t h i r d coun t r i e s . The increased European demand
for the products of foreign count r ies , Europe's p o t e n t i a l
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CONCLUSION 149
r o l e in foreign c a p i t a l ass i s tance and investments, wi l l pro
vide more countr ies with the means whereby they can purchase
Canadian goods in g r ea t e r quan t i t i e s and v a r i e t y . Thus the
e f fec t s of the Common Market upon Canadian exports may not
so le ly be r e f l ec t ed in an increase i n sa les to t h a t market,
but a l so i n expanded purchases by countr ies who presen t ly
must r e s t r i c t the i r imports due t o a lack of foreign exchange
or low standards of l i v i n g .
Given a stronger and more economically viable Europe,
i t w i l l p a r t i c i p a t e more ac t ive ly in the f i e ld of foreign
investments, and w i l l i t s e l f a t t r a c t investments from abroad,
The benef i t s to be gained from an increasing l eve l of foreigr.
investments in Europe w i l l go further than i t s cont r ibu t ion
to i n d u s t r i a l i z a t i o n and income growth. Foreign investments
w i l l , i n f a c t , hasten the development of a la rge economic
area comparable to any other i n the world. And eventual ly
Europe w i l l become a strong c red i to r area capable of lending
important c a p i t a l ass i s tance towards the development of under
developed coun t r i e s .
Th© normal process of economic growth should permit
Europe t o enlarge i t s scale of expor ts , and i t may be expectejd
t ha t European investments in the Canadian market w i l l grow.
A g rea te r i n t e r e s t i n foreign trade combined with a p a t t e r n
of cross- inves tments w i l l , no doubt, promote the c r ea t i on of
support ing and complementary i n d u s t r i e s in each area, and
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CONCLUSION 150
w i l l give r i s e to unwri t ten and se l f -enl ightened t rad ing
arrangements benef ic ia l to both EEC and Canada.
I t can therefore be concluded t h a t the gradual Impact
of the Common Market w i l l r equ i re adjustments i n Canada's
expor ts , mainly in manufactured products . But the long run
e f fec t s of present European t rading and economic arrangements
c o n s t i t u t e , by fa r , the most promising developments for the
export prospects of Canadian secondary manufacturing.
Despite the i n i t i a l drawbacks, which have yet to show
themselves, Canada must meet the chal lenge of future t rad ing
p a t t e r n s since t he re in l i e s the f e a s i b i l i t y of growing out
of i t s pos i t i on as a "hewer of wood and drawer of water" for
the American co lossus .
UNIVERSITY OF OTTAWA SCHOOL OF GRADUATE STUDIES
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BIBLIOGRAPHY
Alpert, Paul, Twentieth Century Economic History of Europe, New York, Schuman, 1955, XIII-455 p.
Describes and analyses the different methods adopted by the more important countries in Europe to solve the problems Inherent in the transition from the classical capitalism of early twentieth century, with special attention to the necessity of conciliating economic security with political freedom.
Arndt, H. W., The Economic Lessons of the Nineteen-Thirties, issued under the auspices of the Royal Institute of International Affairs, London, Oxford University Press, 1944, 314 p.
The historical study of economic conditions in the nineteen-thirties points to the fact that international economic problems and domestic economic policies cannot be divorced. While it is true that a few countries could hope to maintain prosperity and progress at home regardless of happenings in the rest of the world, it is equally true that there was little hope of achieving an ordered world economy so long as the major countries were unable to cope with their domestic economic problems.
Balogh, T., "The United States in the World Economy" Bulletin of the Oxford University, Institute of Statistics, October, 1946, pp. 309-323.
The United States is feared and blamed by many countries for numerous economic problems affecting their individual strength and stability. The author depicts in a very enlightening manner the major economic influence of th© United States on the world economy.
Bok, Derek Curtiss, The First Three Years of the Schuman Plan, International Financial Section, Department of Economics and Sociology, Princeton University, 1955, 79 p.
Gives a detailed account of the experiences, achieve ments and deficiencies of the European Coal and Steel Community.
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BIBLIOGRAPHY 152
Caves, R ichard E . , "Europe ' s U n i f i c a t i o n and Canada's Trade" , The Canadian J o u r n a l of Economics and P o l i t i c a l S c i e n c e , Vol . 25 , No. 5 . August. 1959. p p . 249-258 .
The au thor s t u d i e s i n d e t a i l t h e p o s s i b l e impact of EEC and EFTA upon Canadian t r a d e , p r i o r to U . K . ' s a p p l i c a t i o n fo r membership i n EEC. He conc ludes t h a t Canada should n o t be a d v e r s e l y a f f e c t e d by t h e s e deve lopments .
C e n t r a l Off ice of In fo rma t ion , Free Trade i n Europe, an O f f i c i a l Account, London, H.M. S t a t i o n e r y Off ice , May, 1957, 31 p .
Why d id the U.K. choose a Free Trade Area, and how i t conceived of I t s o r g a n i z a t i o n and s t r u c t u r e . This i s an o f f i c i a l paper on the p r e l i m i n a r y views of the Uni ted Kingdon on European economic i n t e g r a t i o n .
C e n t r a l Office of In fo rmat ion , Western Co-ope ra t ion • A Reference Handbook, London, H.M. S t a t i o n e r y Off ice , 1955, 119 p .
Although d y n a s t i c r i v a l r i e s , and the r i s e of n a t i o n a l i s m d i d , i n t h e p a s t , dominate the European scene, t he n e c e s s i t y and a d v i s a b i l i t y of c o - o p e r a t i v e a c t i o n i n Western Europe e v e n t u a l l y became widely accep t ed . This book provides a c h r o n o l o g i c a l s k e t c h of the major developments i n Western c o - o p e r a t i o n , and p o i n t s out some of the economic, m i l i t a r y , p o l i t i c a l and s o c i a l f a c t o r s i n v o l v e d .
Diebold , Will iam J r . , The Schuman P lan , A Study i n Economic Co-ope ra t i on , 1950-1959, New York, F r e d e r i c k A. P r a e g e r , 1959, VII -750 p .
P rov ides a thorough d e s c r i p t i o n and a n a l y s i s of the problems and achievements of the European Coal and S t e e l Community du r ing i t s fo rmat ive y e a r s , and i n d i c a t e s th© draw backs and f u t u r e p r o s p e c t s of p a r t i a l economic i n t e g r a t i o n .
Economic, F i n a n c i a l and T r a n s i t Department, I n d u s t r l a j -l i z a t i o n and Fore ign Trade, Geneva, League of Na t ions , 1945, 171 p .
The p r i n c i p a l o b j e c t of t h i s s tudy i s t o i n d i c a t e the e f f e c t s of i n d u s t r i a l i z a t i o n on f o r e i g n t r a d e . I t conc ludes
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BIBLIOGRAPHY 153
t h a t the spread of i n d u s t r y , t o t h e e x t e n t t h a t i t i nvo lves an i n c r e a s e i n the w o r l d ' s wea l th , i s normal ly accompanied by a r i s e and d i v e r s i f i c a t i o n i n f o r e i g n t r a d e . Empi r i ca l a n a l y s i s i s used e x t e n s i v e l y .
Economic, F i n a n c i a l and T r a n s i t Department , I n t e r n a t i o n a l Currency Exper i ence , Lessons of the In te r -War P e r i o d , Geneva, League of N a t i o n s , 1944, 249 p .
Based on the expe r i ence of the p a s t , t h i s s tudy shows the importance of i n t e r n a t i o n a l cu r rency s t a b i l i t y i n maint a i n i n g o rder and p r o s p e r i t y i n t h e wor ld . Although t h e Importance of exchange s t a b i l i t y i s w e l l r ecognized , domest ic economic s t a b i l i t y remains a p r e r e q u i s i t e to exchange s t a b i l i t y .
GATT, The P o s s i b l e Impact of the European Economic Community, i n p a r t i c u l a r t he Common Market, upon World Trade, Trad© I n t e l l i g e n c e Paper No. 6, Geneva, 1957, 64 p .
C o n c e n t r a t e s on t h e "customs union" a spec t of the EEC, r a t h e r than the b roade r economic community. Gives a ve ry d e t a i l e d aceount of European t r a d e w i t h the world, and s e t s out impress ive p r o j e c t i o n s . This i s a m e t i c u l o u s l y p r e pa red s t u d y .
GATT, Trends i n I n t e r n a t i o n a l Trade, A Report by a P a n e l of E x p e r t s , Geneva, October, 1958, 138 p .
Mingles t heo ry wi th h i s t o r y of p a s t t r e n d s i n world t r a d e . Delves i n t o t h e developments , f l u c t u a t i o n s and p r o s p e c t s fo r wor ld t r a d e , g i v i n g a t t e n t i o n t o r e l e v a n t t r a d e p o l i c i e s . This i s a thorough s tudy of the problem, d e s p i t e i t s b r e v i t y .
H a r r i s , Seymour E . , I n t e r n a t i o n a l and I n t e r r e g i o n a l Economics, Toronto , McGraw-Hill, 1957, XI-552 p .
Th i s volume i s concerned wi th t h e theory of i n t e r n a t i o n a l economics , i n c o n n e c t i o n wi th world problems du r ing the p e r i o d 1946-1956. In p a r t i c u l a r , t he au thor s t r e s s e s t h e d i s e q u i l i b r i u m of t h i s p e r i o d and t h e r e l e v a n c e of the t h e o r y to e x p l a i n i t . The i nadequac i e s of the or thodox t h e o r y of f r e e t r a d e a re p o i n t e d ou t , and s p e c i a l emphasis i s p l a c e d upon such problems as t h e d o l l a r shor t age dur ing
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BIBLIOGRAPHY 154
that period and various International institutions. This is a well presented study of developments In international and interregional trade.
Hawthrey, R. G., Western European Union - Implications for the United Kingdom, London, Royal Institute of Interna-tional Arsirs, 1949, 126 p.
This is a study of the causes, problems and implications of economic co-operation in Europe prior to the conception of the European Economic Community or the European Free Trade Association. It does not cover all the facets of European union, but rather confines itself, more or less, to the position of the United Kingdom in relation to such a union.
Lutz, Friederieh A., The Marshall Plan and European Economic Policy, Essays in International Finance No, 9, Prin ceton University* 1948, 20 p.
The author sees financial aid for Europe as merely a catalyst but not a solution. The ultimate return of European countries to multilateral trade depends on their own economic policies rather than on the volume of aid received. This is a worthwhile study of this basic problem in Europe at that time.
Meade, James E., Negotiations for Benelux; An Annotated Chronicle 1943-1956, Department of Economics and Sociology, Princeton University, 1957, 89 p.
This book describes and analyses the negotiations which took place between the Netherlands, Belgium and Luxembourg, between 1943 and 1956 in their efforts to initiate th« Benelux Economic Union. The study also outlines the general economic background against which negotiations took place. It presents a good case study of the problems and difficulties which must be overcome in the formation of an economic union.
OEEC, Report on the Possibility of Creating a Free Trade Area in Europe, Working Party No. 17 of the Council, Paris, January, 1957, 31 p.
A country by eountry study of the reasons for, and the problems to be met in establishing such unity in Europe.
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P r o v i d e s a good i n s i g h t of t r e n d towards i n t e n s i f i e d economic c o - o p e r a t i o n i n Europe immediately p reced ing the fo rmat ion of EEC.
Quin, Marc, The OEEC and the Common Market, P a r i s , OEEC, 1958, 32 p .
The au thor draws up a ba lance s h e e t of n e g o t i a t i o n s amongst OEEC c o u n t r i e s on the q u e s t i o n of the fo rmat ion of a f r e e t r a d e a r e a . He m a i n t a i n s t h a t t h i s p r o p o s a l was not c a l c u l a t e d t o p r e j u d i c e the success of t h e Common Market, bu1 to a s s o c i a t e w i th i t e l e v e n o t h e r c o u n t r i e s , to s t r e n g t h e n the European p o s i t i o n i n the world and to improve the l i v i n g c o n d i t i o n s of i t s p e o p l e s . The r o l e of t he Common Market i n a f r e e trad© a r e a , t o g e t h e r w i t h the v a r i o u s problems i n h e r e n t i n such a development, are g iven good a i r i n g i n t h i s s t u d y .
P a t t e r s o n , Gardner , and Edgar S. F u r n i s s , J r . , NATO -A C r i t i c a l A p p r a i s a l , Department of Economics and Socio logy, P r i n c e t o n U n i v e r s i t y , 1957, 107 p .
The a u t h o r s m a i n t a i n t h a t the economic approach to NATO h a s been sub j ec t ed to p o l i t i c a l and m i l i t a r y o b j e c t i v e s , Th is s tudy shows t h a t success i n the l a t t e r two o b j e c t i v e s i s dependen t , i n t h e long r u n , on p rope r a t t e n t i o n being g i v e n to economic problems f a c i n g NATO c o u n t r i e s .
P o l i t i c a l and Economic P l ann ing , European Organ!za-t i o n s - an o b j e c t i v e survey, London, Al len and Unwind 1959, XVI-372 p .
As the t i t l e i n d i c a t e s t h i s p u b l i c a t i o n p r o v i d e s an o b j e c t i v e survey of the c o - o p e r a t i v e o r g a n i z a t i o n s i n Europe, t h e i r o r i g i n s , i n s t i t u t i o n s and ach ievements . B r i e f consider a t i o n i s a l s o g iven to the t o t a l impact of t h e s e o r g a n i z a t i o n s i n terms of world economic developments .
S e c r e t a r i a t of t h e I n t e r i m Committee fo r the Common Market and Euratom, The Trea ty E s t a b l i s h i n g t h e European Economic Community, and connected documents, B r u s s e l s , 1957, 378 p .
This document conta ins a l l the provis ions and s t a t u t e s for th© European Economic Community. This i s a basic document, a p r e r e q u i s i t e to any study of t h i s development.
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BIBLIOGRAPHY 156
S t r a u s s , E , , Common Sense about the Common Market , London, A l l e n and Unwin, 1958, 168 p .
This book surveys the p r e - h i s t o r y of the Common Mark e t a long with r e c e n t economic developments I n Europe. Much a t t e n t i o n i s devoted t o the p o l i t i c a l sphere , and p a r t i e u l a r l l y t o Germany's r e v i v a l as a l e a d i n g European power. The author| c l a ims t h a t t h e new developments a r e bound t o i n c r e a s e Germany's economic l e a d , and uses t h i s premise i n h i s c r i t i cism of European economic I n t e g r a t i o n . F i n a l l y the au thor d e a l s w i t h the cha l l enge t o the Uni ted Kingdom. This i s a sound s tudy p r o v i d i n g good background as we l l a s a n a l y t i c a l m a t e r i a l , t o c u r r e n t economic developments i n Europe.
T r i f f i n , Rober t , Europe and the Money Muddle, New Haven, Yale U n i v e r s i t y P r e s s , 1957, VI-341 p .
D e s c r i b e s and a n a l y s e s monetary problems i n Europe a f t e r th© war . Gives a sound a p p r a i s a l of economic p o l i c y i n E u r o p e ' s monetary r e c o v e r y , and d e r i v e s a number of conc l u s i o n s f o r domest ic and i n t e r n a t i o n a l monetary p o l i c y .
Un i t ed Na t ions , Gustoms Union, A League of Nat ions C o n t r i b u t i o n t o the Study of Customs Union Problems, Lake S u c c e s s , 1947, 98 p .
A conc i s e h i s t o r y of customs un ions , not only i n Europe , bu t th roughout the world, i n c l u d i n g Canadian Confed e r a t i o n . This s tudy no t only d e s c r i b e s t h e s e developments b u t a l s o d e l v e s i n t o the r e a s o n s for t h e i r downfa l l s , where a p p l i c a b l e . Pe rmi t s a good i n s i g h t i n t o the numerous problems c o n c u r r e n t w i t h t h e fo rma t ion and maintenance of s u c c e s s f u l customs u n i o n s .
UNIVERSITY OF OTTAWA SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA ~ ECOLE DES GRADUES
APPENDIX A
TABLE XIV
Breakdown of Canadian Exports to Belgium and Luxembourg
($ million)
Commodities or Groups of Commodities
Wheat
Flaxseed
Other Agricultural Products
Animals and Animal Products
Wood, Wood Products and Paper
Iron Ore
Aluminum
Copper
Lead
Nickel
Other Non-ferrous Metals and Products
Asbestos and Products
Chemicals and Allied Products
Other Products
Total Exports
1957
23
4
3
1
1
2
1
-
2
-
2
4
2
15*
60
Source: Dominion Bureau of of Canada
* Includes Aircraft -** Includes Aircraft -
$8.5 $20
Year 1958
23
2
3
-
2
-
4
1
3
1
1
2
1
27**
70
Statistic
million million
1959
19
2
1
3
1
2
4
2
2
6
2
4
1
7
56
s. Trade
1960
19
2
1
2
2
3
6
3
2
11
2
6
2
8
69
UNIVERSITY OF OTTAWA ~ SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA - ECOLE DES GRADUES
APPENDIX A
TABLE XV
Breakdown of C a n a d i a n E x p o r t s t o t h e N e t h e r l a n d s
($ m i l l i o n )
Commodi t i e s o r Groups of Commodi t i e s
Wheat
Rape Seed
Soya Bean O i l
F l a x Seed
O the r A g r i c u l t u r a l P r o d u c t s
A n i m a l s and Animal P r o d u c t s
Wood, Wood P r o d u c t s and P a p e r
I r o n Ore
Aluminum
Copper
O t h e r N o n - f e r r o u s M e t a l s and P r o d u c t s
A s b e s t o s and P r o d u c t s
C h e m i c a l s and A l l i e d P r o d u c t s
O t h e r E x p o r t s
T o t a l E x p o r t s
1957
24
2
1
10
4
3
3
7
2
-
2
2
3
7
7 0
Year 1958
29
5
2
7
4
3
2
7
**
5
2
2
4
3
75
S o u r c e : Dominion Bureau of S t a t i s t i c s , of C a n a d a .
1959
16
1
M
3
1
4
2
6
1
2
3
2
5
8
54
Trade
158
1960
17
-
-
5
3
4
2
8
1
4
2
3
7
7
63
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA - ECOLE DES GRADUES
APPENDIX A
TABLE XVI
Breakdown of Canadian Exp t o France
($ m i l l i o n )
Commodities or Groups of Commodities 1
Wheat
F laxseed
Other A g r i c u l t u r a l P roduc t s
Animals and Animal Produc t s
Woodpulp
Newsprint Paper
Other Wood, Wood P roduc t s and Paper
I r o n Or©
Aluminum
Copper
Nicke l
Other Non-fe r rous Metals and P r o d u c t s
Asbes tos and P roduc t s
Chemicals and A l l i e d Products
Other Expor t s
To t a l Expor t s
Sou rce : Dominion Bureau of of Canada.
957
6
6
1
1
6
3
1
2
1
7
-
1
7
11
4
57
o r t s
Year 1958
<m
7
1
m
3
2
1
1
2
10
-
«->
5
11
2
45
S t a t i s t i c s ,
1959
4
3
-
1
2
1
*•
-
9
6
1
**
5
8
3
43
Trade
159
1960
13
3
2
1
4
1
1
1
4
8
7
1
5
17
5
73
UNIVERSITY OF OTTAWA ~ SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA -- ECOLE DES GRADUES
APPENDIX A
TABLE XVII
Breakdown of Canadian Expor t s to I t a l y
($ m i l l i o n )
Cr»tT)mod1 t i es or ... ... Groups of Commodities 1957
Wheat 6
F l axseed 3
Rape Seed 6
Other A g r i c u l t u r a l P roduc t s
Animals and Animal P roduc t s 2
Woodpulp 2
Other Wood, Wood Produc t s and Paper 2
I r o n Or© 18
Aluminum 5
Copper 1
N i c k e l 3
Other Non-fer rous Metals and P r o d u c t s 2
Asbes tos and Produc t s 3
Chemicals and A l l i e d P roduc t s 5
Other Expor t s 5
T o t a l Expor t s 63
Year
1958
2
-
2
1
2
2
1
4
1
3
4
1
1
3
3
30
S o u r c e : Dominion Bureau of S t a t i s t i c s , of Canada.
1959
6
~
5
1
3
2
1
-
4
1
1
1
1
3
3
32
Trade
160
1960
19
-
4
1
3
3
3
6
9
2
5
1
2
4
4
66
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA - ECOLE DES GRADUES
APPENDIX A 161
TABLE XVIII
Breakdown of Canadian Expor ts to Germany
($ m i l l i o n )
Commodities or Groups of Comm<
Wheat Rye Barley Rape Seed
Tobacco Flaxseed Other Agricultural Animals and Animal
3d! ties
Products Products
Woodpulp Other Wood, Wood Products and Paper
Iron Or©
Aluminum Copper Lead Nickel
Other Non-ferrous Metals and Products
Asbestos and Products Chemicals and Allied Products Other Exports
1957
53 1 7 3
1 4 5 3
2
2 17
9 2 2 6
3 7 7
18(a)
Year 1958
47 1 1 3
1 2 3 3
2
1 11
13 8 2 8
3 6 8 79(b)
1959
52
1
1 3 4 5
3
w
5
15 6 2 4
2 8 5 13(c)
1960
40
3
1 2 3 5
5
1 9
34 10 2 9
5 9 7, 20(d
Total Exports 152 202 129 165
Source: Dominion Bureau of Statistics, Trade of Canada.
(a) Includes Aircrafts and parts, $11 million. (b) Includes Aircraft engines and parts, $5 million; and
Aircraft and parts, $67 million. (c) Includes Aircraft engines and parts, $4 million; and
non-metallic minerals, $2 million. (4) Includes Aircraft engines and parts, $6 million;
steel sheets and strips, $2 million; non-metallic mi nerals, $4 million: and bookkeeping, calculating ma-
UNIVERSITY OF OTTAWA SCHOOL OF G GRADUATE STUDIES
UNIVERSITE D'OTTAWA -- ECOLE DES GRADUES
162
APPENDIX B
TABLE XIX
Canadian Expor t s to Norway ($ m i l l i o n )
C ommodi ties 1957 1958 1959 1960
Wheat
Flaxseed
Copper
Nickel
Non-ferrous Ores
Chemicals and
Other Exports
Allied Products
4
2
8
33
5
1
3
5
2
7
36
1
1
4
5
-
9
40
-
3
5
7
«•
10
45
m
2
6
Total Exports 56 56 62 70
Source: Dominion Bureau of Statistics, Trade of Canada.
UNIVERSITY OF OTTAWA SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA - ECOLE DES GRADUES
APPENDIX B
TABLE XX
163
Commodities
Aluminum
Copper
Nickel
Chemicals and
Other Exports
Canadi
Allied
an Exports to ($ million)
Products
1957
2
2
2
1
5
Sweden
Year
1958
2
-
2
2
5
1959
2
••
5
2
6
1960
3
1
6
1
10*
Total Exports 12 11 15 21
Source: Dominion Bureau of S t a t i s t i c s , JtMft of Canada.
* Includes , Radio and Wireless Apparatus, $2 m i l l i o n .
UNIVERSITY OF OTTAWA - SCHOOL OF GRADUATE STUDIES
UNIVERSITE D'OTTAWA - ECOLE DES GRADUES
APPENDIX B
164
TABLE XXI
Canadian Exports to Switzerland ($ million)
Commodities
Wheat
Flaxseed
Barley
Synthetic Fibres
Aluminum
Copper
Asbestos and Products
Chemicals and Allied Products
Other Exports
1957
12
1
-
-
1
3
1
1
6
Ye 1958
20
-
-
-
1
3
1
1
3
ar 1959
11
-
1
1
4
2
1
2
4
1960
10
-
1
1
4
4
1
1
4
Total Exports 25 29 26 26
Source: Dominion Bureau of Statistics, Trade of Canada.
UNIVERSITY OF OTTAWA SCHOOL OF GRADUATE STUDIES