Canada, the Commonwealth and the Common Market: Report of the 1962 Summer Institute, Mount Allison University 9780773592599

Table of contents :
Cover
Title
Copyright
Contents
Foreword
Contributors
I The New Unity in Europe
II A Historical Perspective
III Canada's Present Economic Position
IV Canada and The Common Market: a Symposium
V Great Britain and The Common Market
A Comment
VI The United States and The Common Market
A Comment
VII The Challenge to Canada
VIII The Challenge to The Commonwealth
The Ghana View
India's View
IX Where The World is Going
X Comments and Conclusions

Citation preview

CANADA THE COMMONWEALTH and the COMMON MARKET REPORT OF THE 1962 SUMMER INSTITUTE MOUNT ALLISON UNIVERSITY

Edited by W. B. CUNNINGHAM Mount Allison University

r~LW~LL-å rEi ' PRESS QUEEN'S UNIVERSITY

McGILL UNIVERSITY PRESS

© Copyright Canada 1962

McGILL UNIVERSITY PRESS All rights reserved PRINTED IN CANADA

FOREWORD

The Mount Allison Summer Institute is designed to bring together experts and interested members of the general public for discussion of some topic of national or international importance. In a series of formal talks and less formal seminars, forums, and discussion periods the Institute members examine critically the difficult problems associated with the chosen topic. In doing so the members become more aware, and perhaps more appreciative, of the diverse, and often conflicting, points of view and arguments of different countries and of different interest groups. The significance of this year's topic is self-evident. The most dramatic economic event since the second World War has been the recovery and growth of the economies of western Europe. Related to this has been the movement towards European economic and political union, a movement that many people believe will have farreaching implications for the future of the world. The changes already brought about have demonstrated the need for a continuous and critical review of national economic policies. In a period of rapid economic change and innovation, economic policies may become inappropriate, and may need to be modified or replaced by policies more suited to the changing economic relationships. In a dynamic world of change, complacency is dangerous. Have Canadians been too complacent? In his paper, R. M. Fowler suggests that "Canadians have not taken sufficient account of these rapid changes" and proposes a "free but planned economy" as the economic model most suited to restoring rapid economic growth and achieving a distinctive national identity. What policy changes should Canada make to ensure a desirable level of prosperity, given the new trading patterns arising from the Common Market and those that will arise if the United Kingdom joins the Market? Should Canada try to prevent the United Kingdom from joining? Should we sponsor a Commonwealth free-trade area? An Atlantic free-trade community? Representatives of three political parties, the Canadian Labour Congress, the Canadian Federation of Agriculture, and a Canadian manufacturer present their views on questions such as these.

Lord Amory, United Kingdom High Commissioner to Canada, explains why his Government is seeking membership in the Common Market; R. J. Schaetzel, of the United States Department of State, presents the policy of his country. Following an address by T. E. Nichols on "The Challenge to the Commonwealth", two representatives of Commonwealth countries—T. C. Nylander from Ghana and U. L. Parambi from India—explain how their countries view the United Kingdom's proposed entry. J. Monnet is commonly regarded as the chief architect of European unity. He was unable to attend the Institute, but the Institute members heard a special message from him, recorded earlier by the C.B.C. in Paris. At the regular Summer Convocation, Mount Allison University awarded the degree of Doctor of Laws, honoris causa, to Lord Amory and Professor A. K. Cairncross. In his Convocation address Professor Cairncross provided a historical perspective on economic change, his address serving as an introduction for the Institute sessions that followed. Professor Cairncross having opened the Institute with a look at the past, it was appropriate that Professor H. G. Johnson, in his address at the closing banquet, should peer into the future. Norman MacKenzie, general chairman for the Institute, closed the sessions with his summary comments and conclusions. This book contains the text of these formal addresses. Also included are commentaries on two of the addresses; and statements by three participants on a radio forum. The reader will not find simple solutions to the problems raised for Canada by the growth of the Common Market. He can expect to find information, reasoned arguments, and conflicting opinions. Credit for the success of the Institute is due to many persons and organizations. M. Duckworth, Director of Extension, and R. B. Inch, Director of Public Relations were responsible for the myriad details of its organization. In appreciation of Professor Cairncross' earlier services to the Atlantic Provinces, the New Brunswick Government provided financial support to enable him to receive the honorary degree. The Canada Council was willing to assist in meeting the costs of having J. Monnet attend the Institute; and the Canadian Broadcasting Corporation provided many recording services. Mount Allison University wishes to thank these and many others, including all the participants—speakers, chairmen, and members—and is most grateful for their contributions. W. B. CUNNINGHAM EDITOR

CONTENTS FOREWORD CONTRIBUTORS

vi

I THE NEW UNITY IN EUROPE J. Monnet

1

II A HISTORICAL PERSPECTIVE A. K. Cairncross

4

III CANADA'S PRESENT ECONOMIC POSITION R. M. Fowler

14

IV CANADA AND THE COMMON MARKET A SYMPOSIUM M. Lamontagne, R. Scott, R. N. Thompson, R. B. Bell F. E. Cleyn, and H. H. Hannam

25

V GREAT BRITAIN AND THE COMMON MARKET 63 Lord Amory 74 A COMMENT: H. I. MacDonald VI THE UNITED STATES AND THE COMMON MARKET J. R. Schaetzel A COMMENT: M. G. Clark VII THE CHALLENGE TO CANADA EXCERPTS FROM A FORUM M. Wardell, R. M. Fowler, H. G. Johnson

83 92 98

VIII THE CHALLENGE TO THE COMMONWEALTH 107 T. E. Nichols THE GHANA VIEW: T. C. Nylander 114 INDIA'S VIEW: U. L. Parambi 117 IX WHERE THE WORLD IS GOING H. G. Johnson

123

X COMMENTS AND CONCLUSIONS N. A. M. MacKenzie

188

CONTRIBUTORS RT. HON. VISCOUNT AMORY, United Kingdom High Commissioner to Canada; R. B. BELL, Assistant Director of Research, Canadian Labour Congress; A. K. CAIRNCROSS, Economic Advisor to the United Kingdom Government; M. G. CLARK, Alcan International Limited; F. E. CLEYN, President, Cleyn and Tinker, Limited; R. M. FOWLER, President, Canadian Pulp and Paper Association; H. H. HANNAM, President and Managing Director, Canadian Federation of Agriculture; H. G. JOHNSON, Professor of Economics, University of Chicago; M. LAMONTAGNE, Economic Advisor to the Liberal Party; H. I. MACDONALD, Assistant Professor of Economics, University of Toronto; N. A. M. MACKENZIE, President Emeritus, University of British Columbia; JEAN MONNET, President, Action Committee for a United States of Europe; T. E. NICHOLS, Publisher, The Hamilton Spectator; T. C. NY LANDER, Ghana High Commissioner to Canada; U. L. PARAMBI, Second Secretary, High Commission for India; R. J. SCHAETZEL, Deputy Assistant Secretary for Atlantic Affairs, United States State Department; R. SCOTT, M.P., New Democratic Party; R. N. THOMPSON, M.P., Leader of the Social Credit Party; M. WARDELL, Publisher, The Atlantic Advocate.

THE NEW UNITY IN EUROPE J. Monnet First I would like to thank you for doing me the honour of asking me for this message. I still have no doubt that Great Britain will soon be a member of the European Community. This will be much to the advantage of England herself, of Europe, of Canada, and of the West. The significance of this new unity in Europe is not that it creates a new centre of power but that it introduces a modem method of collective action. What have the Six done in creating a European Community? They have created a customs union, certainly. But they have done much more. They have agreed to consider as common, affairs which in the past were regarded as essentially national. To do this they have accepted common rules and set up common institutions to apply them. And so, whereas in the past problems were dealt with as aspects of the balance of power, now they are dealt with as common interests. Previously international discussion broke down because nations could always withdraw their commitments whenever it suited them. This happened repeatedly in the League of Nations, in which I worked after 1919, and in the United Nations where, as we all know, exercising the veto is a favourite occupation of great powers. As you know, the institutional method of the European Community has developed into a dialogue between an independent European body responsible for suggesting solutions to common problems, and the governments of member countries which put the national points of view in the Council of Ministers. This is a completely new approach. It does not create a central government. But it does result in community decisions being taken within the Council of Ministers notably because an independent European body proposes solutions to common difficulties. This makes it possible to give up the national veto without risk of rule by shifting coalitions. Europe's new method of collective action has replaced the rule of force by that of democratic decision-making on the international scene. When the European Commission makes a policy proposal it is discussed by the Council of Ministers and by the European 1

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

Assembly. Appeal from any decision can be made to the European Supreme Court. In this you get more public discussion of fundamental issues affecting a large number of countries than you have ever had in the past. The policy discussions on tariffs or energy or agriculture, for example, have revealed to Europeans more of the basic facts of the policies of their own countries than they ever knew before. All this has enormous consequences that have only begun to appear. Conflicts that seemed eternal rapidly become out-of-date. France and Germany which had fought one another for centuries have in ten years come to act and feel as partners in a common enterprise. This in itself is a major contribution to world peace. Unity also creates an entirely new attitude to the outside world. Tariffs are a good example of this. Protectionist countries discover when trade barriers come down in the Common Market that they have nothing to fear and much to gain from competition. The loss of fear makes them willing to envisage forms of co-operation that would previously have been out of the question. An example of this is the welcome extended by the Common Market countries to President Kennedy's proposals to reduce by half the European and American tariffs on goods from everywhere in the world. Furthermore, countries which assume community responsibilities every day behave in a similar way whenever major problems arise in the world. I believe that no one who has had close contact with the European Community would deny that a sense of its world responsibilities is growing fast. Last but not least, the creation of the European Community has set up a chain reaction that will very rapidly change the face of world politics. Already Britain has come to realize that she no longer faces a dangerously divided Europe and also that she cannot solve her major problems alone. Her government has decided to ask to join the Common Market and thus opened a new chapter in British history. Britain's prospective entry makes it likely that a few years hence a European economic and political union will exist with a population of 220 million people, more than either Russia or America, and with an immense influence on world trade. What this will make possible is the building up of the West, and this necessarily means giving Canada, Australia, and New Zealand these new opportunities. Today neither Europe alone nor even the United States alone can solve the immense problems which confront the West. This is so in the case of defence. It is equally true for economics. 2

THE NEW UNITY IN EUROPE

The application of a policy of continued economic expansion, the monetary stability of the West, the issues raised by agriculture in an increasingly industrial civilization, aid to the less-developed countries, and relations with those in the process of industrialization —all these problems call for solutions by America and Europe together, for only together have they the necessary resources to deal with them. This is why a partnership of equals between Europe and America, such as President Kennedy called for in his already famous interdependence speech, is a natural extension of the movement to unity in Europe. Obviously many of the problems that I have mentioned affect other countries than the European Community (including Britain) and the United States. Other countries also have contributions to make, as is clear for instance in the Aid to India Club in which Canada and Japan make substantial contributions. The partnership is not exclusive, but it creates the nucleus of a Western approach to world problems. Of these problems the most dramatic is clearly the conflict between East and West. I am convinced that unity in Europe and a partnership with America will play a vital part in creating conditions leading to real peace between East and West. When the partnership of America and a United Europe makes it plain to all that the West may change from within but that others cannot change it by outside pressures, the conditions will exist for a lasting settlement between the Soviet Union and the West. Personally, I do not think we shall have to wait long for this change. The history of European unification shows that when people become convinced a change is taking place which will create a new situation they act on their revised estimate before the situation is established. After all, Britain asked to join the Common Market before it was complete. President Kennedy is seeking powers to negotiate with the European Community revolutionary changes in world trade and envisaging a partnership of equals between Europe and the United States even before Britain has joined. Can we not expect a similar phenomenon in the future relations with the Soviet Union?

3

A HISTORICAL PERSPECTIVE A. K. Caimcross I should like at the outset to say a word in appreciation of the honour which you have just done me, and in this I naturally associate Lord Amory, who for this purpose I may regard as my fellowin-law. I feel the compliment which the University has paid me all the more because it is one that has never been paid me before—any previous doctorate I have had to work for—and also because it is paid in a country which every Scotsman regards as his second home. It is your misfortune today to have selected for this occasion a professor and a Treasury official rather than a politician. If you take my advice, you won't do it again. Professors get into the habit of talking to you, as you may have observed, as if they meant to set you an examination paper afterwards. But politicians always have at the back of their mind the idea that perhaps they may want to ask for your vote; so while the professor sets out to explain something to you, the politician sets out to entertain you and that is a very much more agreeable process. I am not allowed to reveal what a Treasury official does. He does sometimes write speeches for his political masters so he is not entirely innocent of the art of politics. But even if his hand acquires a certain horny skill, his voice, on the rare occasions when it is uplifted in public, is still obstinately Jacobean. I thought it might be useful this morning, as many of us will be talking incessantly about the Common Market over the next few days, if I tried to avoid that subject and give some historical perspective to our subject. If we are to be successful in re-shaping the world economy, we have to be sure that we have understood the economic forces that have moulded it over the past century. It is very easy to fasten one's attention on current dilemmas and judge them on the basis of experience of the very recent past. In this way we may be misled into interpreting existing trends and structures as immutable when they are already in the process of change. I need not remind you, for example, of the history of the dollar problem in the late forties and early fifties when we were assured on all hands with considerable solemnity and emphasis that the competitive strength of the United States was bound to improve from year to year and that it was hopeless to aim at overhauling her. A great 4

A HISTORICAL PERSPECTIVE

deal of that literature reads rather ironically when the United States is hard put to it to balance her international accounts. Again you may have noticed that the necessity of making productivity grow more rapidly has become a slogan on this side of the Atlantic, when it is not very long since it was taken as axiomatic in Europe that productivity must grow more quickly in North America than there. I need not remind you either of the post-war forecasts that primary producers were likely to benefit from continuously improving terms of trade with the industrial countries. These forecasts seem to be made regularly after a major war when the supply of primary produce is disorganized and shortages are particularly acute. Again and again we delude ourselves into identifying short-term fluctuations with long-term trends. This is the theme that I want to pursue in relation to the enormous expansion that has taken place in world production and world trade since the war. Has this expansion been a normal one or an abnormal one? Why is it that it presents so marked a contrast to the experience of the inter-war years? If you take the seventeen years between 1945 and 1962 and compare them with the record of the years between 1918 and 1935, the seventeen years after the first world war, the contrast could hardly be greater. Can we reckon on a continuing expansion along the line of the trend of the past ten or seventeen years, or must we expect something more like the experience that we had between the wars? If we take a very long view of the evolution of the world economy, it is at once clear that the inter-war years were an aberration. In 1962, if you look carefully at figures of world production and world trade, we are more nearly back on the trend that obtained in the nineteenth century than we are following the line of development of the inter-war years; and those years stand out in any graph you like to draw in the form of a precipice and a long trough with a recovery that began only after the second world war. The record of the past ten years is one of very rapid growth indeed. In the case of trade this is particularly true; the expansion from year to year has been of the order of 7 per cent. In the case of industrial production it has been rather lower but still extremely high by historical standards, of the order of 5 per cent per annum. In the case of primary production, and agricultural production particularly, it has been rather lower still, of the order of 3 per cent. But even the lowest of these figures looks remarkably well alongside any corresponding figures for the period from 1913 onwards to 1945. 5

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

Looking at the record over a long period, going back before the first World War, and at the movement of the world economy in that period, we might reasonably conclude that the world merely resumed a trend that had been interrupted between the wars. I need not remind you of the very rapid development that took place in Canada in the period before 1913. If you were to take the seventeen years from 1896 to 1913 in Canadian history, you would find much more in common with the experience of the past seventeen years than you would with any intermediate period. But it would dearly be a mistake to presume that merely because we seem to be back on trend, that trend will necessarily continue. The fact that in 1929 the trend was abruptly broken and a world slump ensued should put us on our guard against so easy an assumption. We may be having very high rates of growth because of factors that are temporary and ephemeral and suddently find ourselves confronted with an entirely different situation in which the rates have dropped discontinuously. If we compare the most recent period with the period before 1913, it is obvious that we are now living in a rather different world from the world at that time. In those years—and this is most obvious if you are in Canada—the world was developing in response to pressures that were pushing out rather than pushing in. There was a geographic frontier that was being gradually extended, most obviously in North America and in Australasia, in what are now referred to in discussions in Europe as the Temperate Zones, the zones from which temperate produce has been shipped in large quantities to Europe. That development took place largely on the basis of the British market. It represented a shift of population, of capital, of technique outwards to the growing countries from the old industrial centres of western Europe. It was accompanied at the same time by a willingness on the part of those countries to see their own agricultural production decline, to see a shift in the location of farming, to put it very briefly, towards lower cost areas of the world. In the process the amount of trade that was generated was enormous. There was a period in the middle of the nineteenth century, from 1850 to 1860, when the rate of growth of world trade may have been over 10 per cent per annum, higher than it is even now in what seems to most people an extraordinarily favourable period. At that time there was not just a growing specialization and a growing enrichment in the world; there was also a displacement of production away from the old industrial centre towards newer points of growth. It is obvious that this physical displacement is to a large extent a thing of the past; the frontiers that we have to deal 6

A HISTORICAL PERSPECTIVE

with today are not to the same extent geographical frontiers. You may still be conscious of these geographical frontiers in Canada, particularly when you look to Labrador; and there are areas of the world where there are still large resources that have to be brought within the whole economic system. But, by and large, the frontiers that we have to deal with today are scientific frontiers, frontiers dictated by the pace of technological progress, and that pace is set, not in the primary producing countries, but in the major industrial countries. There is, therefore, in that respect an enormous change from the motif of the nineteenth century when development took place largely at the periphery and pulled the industrial countries along. We are now more nearly in a world where development takes place in the industrial centre and that in its turn may bring production forwards in the countries engaged in exporting primary produce. I have digressed a little from the main point that I wanted to develop, which was the contrast between the two periods following the two wars. It was apparent after the first world war that a great deal of steam had gone out of the world economy. There was much less rapid development and in fact the whole pre-first-World-War basis of development had collapsed. It is apparent to anyone looking back now that the British market was no longer in a position in the inter-war period to supply the momentum that was necessary for world economic development. Industrial leadership had passed to the United States and although the British market was still large and growing and of great importance, particularly to the Commonwealth, it was not, as it had been in the nineteenth century, the hub of the development of what had till then been underdeveloped countries. In the period since the second World War, however, we have not had to reconstruct the world economy in the way we did in the inter-war period. We have been faced with a situation where the United States was clearly in the lead and where it was alive to its responsibilities. And here I associate Canada with the United States, since it has been truer to say that it has been North America that has been alive to the new responsibilities that had already emerged before the second world war but have been shouldered more consciously since then. If I am asked why the experience after the second World War has been so much more successful than the experience after the first, my answer must be in part in terms of this contrast in the sense of responsibility exercised in the real industrial heart of the world system in North America. But there have been other factors. One in 7

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

particular I should like to dwell on because it contains a number of non-recurrent elements and therefore some elements of danger to its continuation. I am thinking here of the shortage of capital which has been responsible more than any other factor for the high levels of employment and activity throughout the world. This shortage of capital has expressed itself in high levels of investment which have meant more work, more employment, more output, and a much more prosperous world than the one that we knew in pre-war days. It is important to look at the elements behind the shortage of capital to see whether it has within it the power of self-renewal; whether it is something that is likely to continue and put steam into the system or whether it is something that in time is likely to evaporate. If you look back to the inter-war period, there are grounds for supposing that round about 1929 what had been a shortage of capital, brought about in part by the war and the interruption in ordinary economic activity in wartime, had to a large extent been overcome. One reason why we have been more fortunate after the second World War is perhaps, paradoxically enough, the much greater degree of damage that was done during the war and the much greater amount of capital, therefore, that had to be restored and replaced, once the second war was over. This dearly accounts for some of the pressure on the supply of capital and the pressure on manpower that nearly every country in the world has felt in the post-war period. But it does not account entirely for these phenomena since, as is obvious to anyone, the major effects of post-war recovery were over by the middle fifties and we are now nearing the middle sixties. We are a long way on from the time when one would expect to see effects of that kind. A number of other factors contributed to the prolonged shortage of capital and the prolonged high level of investment. For example, after the war when we maintained a higher level of output than in pre-war years by absorbing the unemployed, this by itself created a shortage. It meant that more factory space was needed, more houses were required, and all forms of capital had to be expanded in order to get into step with the higher level of economic activity. It is true, too, particularly during the last ten years, that a great many of those who would normally have been left unemployed have been absorbed into employment. The reserves of manpower in Europe most obviously have been drawn upon, and in countries like Germany and Italy millions of men who would normally have remained 8

A HISTORICAL PERSPECTIVE

unemployed, certainly in the inter-war period, have been able to find jobs. This has added to the level of activity and in turn to the pressure on capital. If you look at one particular country which is of special importance, the United States, it is clear that the United States entered the post-war period with a shortage of many forms of physical capital, which in 1919 were not short in the least. There had been a building boom before 1913, but all through the thirties very little building went on in the United States, so that there was an enormous legacy of arrears to be made good from the pre-war slump. That is a legacy that has been largely exhausted over the past ten or fifteen years but to some extent it may still continue. Another factor, which is more noticeable in Europe than in North America, has been the spread in the ownership of consumers' durables. The fact that people in Europe are now beginning to be the possessors of automobiles or washing machines or refrigerators, on an unexampled scale in relation to experience in pre-war days, has maintained the pressure to produce in a way in which it does not appear to have been maintained in North America. There are some indications in America of a drooping of the demand for consumers' durables, while in Britain and western Europe the demand remains buoyant. With this has gone a great deal of further investment in roads, electric generating capacity, and all the facilities that are needed if people are going to use consumers' durables. You cannot just make cars and then leave the road system as it was; you have got to spend a great deal of money improving it. This is the kind of situation that has obtained in Europe. One other factor has been the increase in the birth rate, and the increased requirements that this involves—for house space, for instance, and for many other things. Population changes have helped to maintain the level of demand and improve the prospects for production. Many of the forces that I have been outlining are of a once-andfor-all character. You recover from a war, you make good the arrears, and then there is no need to proceed further. If these were the only forces at work, it would be quite reasonable to take the view that we may be faced in the next few years with a rather dangerous situation. But they are not in fact the only forces at work. I want to mention two or three which are of cardinal importance and operate continuously, not discontinuously. I mention two in particular which are perhaps the central ones. First of all, there does not seem to be a great deal of doubt that the 9

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

rate of technical development in the world is much faster than it used to be. We are absorbing the fruits of science more quickly, more systematically, and more fruitfully than we did in the prewar years and still more than in the nineteenth century. Here is a force making for world prosperity, and a growth in output, much more powerful than any that operated fifty years ago in the only corresponding period of prosperity that we can think back to. I do not mean that there was no technical development in those days— there clearly was—but it is fair to say that it is today much more organized and more rapid than it was at that time. This is something which does generate of itself a need for capital. It is necessary to have the capital to exploit technical developments and therefore to have a higher level of output and income and eventually still more investment. An even more important change that has taken place is the change in ideas. It is not just that economic forces are different today; it is also that we look on them in a different way. In pre-war days there was a tendency to take unemployment as an act of God and assume that not much could be done about it. Today it would be very difficult to maintain that attitude. There is a greater understanding of the way in which unemployment arises and of the measures that are necessary to cope with it. In particular there is a greater appreciation of a connection of government policy with the level of unemployment and of the need for the government from time to time to adjust either its expenditure on the one side or its taxes on the other; and not to make these adjustments as any private individual would make them, but to make them taking into account their impact on the whole of the economy for which the government is responsible. This may mean doing things that seem at first sight rather foolish. It may mean that the government at certain stages has to run into debt just when its tax revenue is falling off, and no individual likes to run appreciably into debt just when he is wondering how he can discharge his existing debts. However, with governments it is different; and if the ideas that I have been alluding to are widely accepted, if a government abiding by them can command the support of the population, then I see very little reason why the governments of the world should be unsuccessful in riding out any changes in the level of demand arising within the private sector of their economy. There should be no need to contemplate a recurrence of depressions because if it is found that there is no use for additional savings, or if it seems as if the pressure of investment 10

A HISTORICAL PERSPECTIVE

is being reduced, a government can itself offset these forces by saving rather less, e.g. by running smaller budget surpluses or an actual budget deficit. If I have entered some caveats it is because not everybody appreciates that outlook. There are people who think it is wrong for a government to run into debt and think that budget deficits at all times should be avoided. If these views are widely held, then this reduces the freedom of action of a government and it may in fact run into the very slump that the people holding these views would Iike to avoid. Even though there should be no reason, however, for a world recession on any major scale, it is not necessarily true that we can maintain the pace of development that we have enjoyed since the war. It is one thing to say that we should be able to maintain a more stable rate of progress; it is not quite the same thing to say that we should be able to maintain as fast a rate of progress. Moreover, there will always be some areas of the world in which the rate of progress that is achieved is less than elsewhere. One cannot have completely even progress in every country or in every part of any one country, and therefore the mere fact that one should be able to look forward to more stable, fairly rapid world growth does not guarantee that everywhere, at all times, there will be prosperity. One other facet of this is what is likely to happen to trade as distinct from production. When I quoted figures earlier, you may have noticed that the growth in world trade was substantially more rapid than the growth in world production. Now that is an unusual situation and not one that will necessarily continue. I would judge that it is a little less likely that world trade will go on expanding at the rate experienced over the past ten or fifteen years than that world production will go on achieving the same rates. But this is a matter partly of government policies. If governments are prepared to lower tariff rates and to improve the facilities for trade with other countries, there is no reason why the growth in trade should not remain as fast as, and indeed faster than, the growth of production. The chief reason why trade has grown faster than production in the past ten years is precisely the effort of liberalization that has gone on in Europe and elsewhere to making that trade possible—reducing the barriers, such as quota restrictions, by which trade has in the past been hampered. One factor in the growth of trade may be of limited duration. The big increase has been in trade between industrial countries, not 11

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

in the trade of primary producing countries, and it has been particularly dominated by western Europe. The major growth has been there rather than elsewhere. In the twenty years 1937 to 1957, the growth in world trade in manufactures has been three times as fast in the trade between industrial countries as it has been in their trade with the rest of the world. This is a completely new phenomenon, not at all characteristic of the last century. It used to be true that trade between industrial countries grew at about the same rate as their trade with the rest of the world. Today the trade of the industrial countries with one another is growing much more rapidly. But this is in part because of the recovery of Western Germany. The great expansion in trade that has taken place in Europe in the past ten years has been dominated by German trade. Seventy per cent of the growth has been German, either at one end on the import side or at the other on the export side. The situation therefore that we are faced with today is one radically different from that before 1913. We are no longer in a world where the growth in trade is itself dominating the growth in production; the situation is rather the inverse that it is the growth in production that is giving rise to an expansion in trade. I want to sum up at this point the main conclusions that I should like to leave with you. First of all, we are living in a world in which production and trade are expanding rapidly. There have been some exceptional elements in post-war growth but there is no reason why with the right policies it should not continue. It may well, however, be a little slower. That is my first conclusion; that we should be able to look forward to a continuing expansion in world production and world trade, even though some of the exceptional elements giving rise to the rapid growth since the war may disappear. Secondly, the rate of expansion has been particularly rapid in trade, especially trade in manufactures between industrial countries. If the barriers to trade continue to fall, trade may go on outstripping production, but in time some slowing down is likely. If the barriers to trade were to rise, the situation would change rather dramatically and one could not then expect to see any expansion at all; but the immediate prospect is one of continuing expansion. Thirdly, it is more important to world prosperity that production should grow fast and that there should be no other check to the process of growth than that particular trading relationships should be made doser or looser. If one is taking a long view of trade it is remarkable how little difference has been made by large changes in 12

A HISTORICAL PERSPECTIVE

tariffs within a period of even several years. It is equally clear what an enormous influence on the level of trade any change in employment and in activity in the major industrial countries can exercise. It is much more important to your trade and to every other country's trade that we should have a continuing expansion in output and demand than that we should have any particular set of institutional relationships with one another. Finally, while the industrial countries are now more closely integrated with one another, there is a danger that the pre-industrial countries, the so-called underdeveloped countries, may become less closely integrated with the world economy and may not share fully in its growing prosperity. This is not a point that I can develop at the end of my address but there is an important reservation here to the gist of what I have been saying. The major expansion that I have discussed has been an expansion felt chiefly by the industrial countries. The underdeveloped countries as a group have also had a very large expansion. But if one analyses the forces dominating the growth of the world economy one cannot be as confident as one might have been ten years ago that these countries will benefit as much from continued growth as the industrial countries. The forces at work today are much more in favour of large industrial centres than they used to be. They favour groups of industrial countries entering into trade with one another, rather than primary producers seeking to find markets for their produce.

13

CANADA'S PRESENT ECONOMIC POSITION R. M. Fowler I must confess, at the outset, that I have been unable to find for you any quick answers—and, still less, any pat answers—to Canada's present economic problems or to the new problems emerging as a result of developments in Europe and elsewhere throughout the world. I am certain your committee could have found others more competent than I to discuss these important and difficult matters. But I have no doubt at all that these problems must be discussed by Canadians, with the help and advice of good friends from other countries. There is great value in such conferences as this—which bring together individual Canadians, to speak as individuals. I am sure that all responsible citizens, whatever their political affiliations may be, want to contribute whatever they can in discussions such as this to the forward progress of our country. So long as you accept the fact that I am speaking as an individual Canadian—and, so far as it is humanly possible to do so, without political bias—I will try to start off on the discussion of the theme of this conference. At least, I may be able to raise some issues that you can discuss, and disagree with, and fight about in the next two or three days. I will begin, if I may, with the afternoon of 23 July 1962. It may turn out to be one of the most exciting and important moments of modern history. Many of you, no doubt, saw and heard the first Telstar television exchange between Europe and North America. As some of you may know, I had a fleeting acquaintance with broadcasting a few years ago and had some rather harsh things to say about its weaknesses and inadequacies. But on July 23 it was vital, and exciting, and immensely important not only for the passing moment but for what it revealed of the state of the world in which we live. For a total of slightly more than half an hour, 400 million people living around the North Atlantic could see and hear simultaneously —and as they occurred—events taking place in Lapland and Sicily and Cornwall—a baseball game in Chicago—opera under the stars in Rome and the Mormon choir at Mount Rushmore—and also street scenes from the hearts of Belgrade and London and Washington and Paris. There could be no more vivid demonstration of the new 14

CANADA'S PRESENT ECONOMIC POSITION

community of interest that is forming around the North Atlantic. For some time we have suspected that centripetal and unifying forces were at work in this area. Now we have visual proof; events can be seen and heard as they happen throughout this whole vast, wealthy, dynamic region. It would be easy, I suppose, to become quite terrified of the uses that might be made of this new method of communication. Much that is ugly and trivial and tawdry could be bounced into the defenceless homes of hundreds of millions of people in the Atlantic world. But so far as it went on this first experiment it was a good show. I found the selection of what was shown, and said, interesting and revealing. Apart from the social pictures of people enjoying a concert or a holiday, we saw from Europe such things as the Euratom research laboratories in Geneva, a steel mill in the Ruhr making steel shapes for the mounting needs of the European Common Market, and trials of the new British hovercraft at Cowes. From the United States we had a glimpse of space research at Cape Canaverel and saw American democracy at work in the President's press conference in Washington. The master of ceremonies for the sixteen participating nations of Europe summed up the whole thing when he said, "This is the continent that now awaits you." There was a minor, and perhaps unimportant, Canadian impression from the broadcast on July 23. We too were participating and Canada was represented by a quick shot of Niagara Falls, some dancing in the streets in the quaint old city of Quebec and a few lines from the Stratford production of "Macbeth." You may be inclined to think, as I do, that it was not an unfair or inaccurate picture of Canada's participation in North Atlantic affairs. What part do we have in these major developments occurring in the Western World? How ready are we to participate in them, if that is our choice? If I am to discuss "Canada's present economic position facing the Common Market" I suppose I should start with a brief look at our present economic position. It is natural to begin with the balance-of-payments crisis in which we find ourselves today. After the floods of campaign oratory during May and June—which, depending on the point of view, ranged from ringing assurances of prosperity, stability, and full employment to dark predictions of doom—we awoke a week after the election to find ourselves in deep financial trouble. It was revealed by the crisis in our international balance of payments. Canada's gold and foreign exchange reserves, which stood at over two billion dollars at the beginning of the year, fell rapidly and with 15

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

increasing speed to $1,100 million on June 24. Nearly $400 million or 45 per cent of the total drain disappeared in the first three weeks of June. Through capital withdrawals by foreign investors and the continuing deficit on current accounts, the situation took on aspects of a run on the Canadian dollar. You know the emergency measures taken to protect the dollar. A surcharge tariff on large classes of imports was imposed; exemptions on tourist purchases abroad were reduced; and government expenditures are to be pared by $250 million. In addition, over a billion dollars of new borrowing and credits were arranged through the International Monetary Fund, the Export-Import Bank, and central banks in the United States and United Kingdom to bolster Canada's exchange reserves. There was also a $60 million advance payment by France on an old post-war reconstruction loan. These emergency actions had the immediate effect of halting the run on the Canadian dollar and reversing the short-term capital outflow. These are highly technical matters which I am not competent to discuss. But some general comments can be made. For one thing, as Mr. David Rockefeller pointed out in his recent exchange of letters with President Kennedy, "The hard truth is that a nation's balance of payments mirrors all those forces that help shape our economic life." This crisis was not caused by some temperamental mischiefmaking of foreign investors or some upheaval in other countries which caused them to withdraw their Canadian holdings. The problems were largely of our own making and caused by no one else. We had nine consecutive years of deficits in our international balance of payments totalling nearly $9' billion. We had five consecutive budget deficits aggregating nearly $2,200 million. During this period the deficit in international accounts was made up by various forms of capital inflow—of which much the largest element was direct investment in Canadian productive facilities. In some ways, our method of calculating and reporting the balance-of-payments position distorts the picture. We show the merchandise transactions—imports and exports—as a net surplus or deficit on trading accounts and add to it the balance on non-merchandise account (interest payments, tourist expenditures, service charges, and so on) . The resulting figure is shown as the balance-ofpayments position—for Canada, usually a substantial deficit, and we regard it as a bad thing. In fact this is an incomplete picture. It omits capital movements in both directions—many of which are normal and natural. A country with a balance-of-payments "surplus" does not wait until it is in 16

CANADA'S PRESENT ECONOMIC POSITION

hand and then hunt around for other places to put it. Nor does a country with a "deficit" scramble around (except in times of crisis) to borrow foreign money to balance its accounts. All the time there are movements of capital, often tied to movements of goods and services, which are a normal part of the nation's balance-of-payments position. There is nothing wrong with a growing country borrowing money from abroad to speed its development. Every young and expanding country does so, and if a net inflow of capital is put to constructive uses it is a sound national policy. Admittedly, foreign borrowing used to buy consumer goods which we otherwise could not afford is a dangerous business. But investment in capital goods, if sound, has a good chance of earning its keep. In exactly the same way a young married couple may be unwise to borrow money to pay for their groceries, but if they have reasonable prospects of going ahead in the world they are quite justified in borrowing to acquire a house or a motor car or household equipment; and so long as their private little economy is an expanding one they will easily be able to pay off their loans or carry them indefinitely. A young couple, or a young company, or a young nation is not "living beyond its means" (except in the most rigorous Calvinistic sense) if it borrows sensibly for its more rapid economic growth. Canada is a young country and is, or ought to be, a growing country. And Canada has borrowed a great deal. In nearly every year since the war we had a balance-of-payments deficit if we look only at the total of merchandise and non-merchandise trade. But we had a healthy inflow of capital to speed a growing economy, and in any real sense we had no balance-of-payments deficit and certainly no balance-of-payments difficulties except on two occasions, one in 1947 and one today. We should be quite clear that the difficulties in 1947 and 1962 were quite different in their nature and their seriousness. The troubles in 1947 came at a time of some inflation when Canadian manpower and productive capacity were fully employed. We were going too fast and trying to import too much too quickly while making large loans to Britain and Europe and thus financing a substantial part of our exports on credit. We had to control the excess steam by monetary and import restrictions. But neither form of restrictions produced any unemployment of men or machines or any other real economic distress. By their nature and causes the restrictions could be quickly removed. 17

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

The present balance-of-payments difficulties are much more serious and quite different from those of other countries that have had post-war balance-of-payments crises. The causes of our current difficulties are more deep-seated and the same kind of correctives, which in 1947 were relatively painless, are likely to have quite damaging results today. And the restrictions are going to be much more difficult to remove. The present crisis in our balance of payments comes at a time when there is extensive unemployment and much idle capacity. There is no excess steam to be let off. Unfortunately too they come at a time when most economists feel that a downturn in the economic cycle is due in a few months, and monetary and import restrictions can only hasten and deepen that downturn. This time, measures to ease the crisis are almost certain to increase unemployment and idle capacity. Tight money will do little to stimulate investment, domestic or foreign. Higher tariffs, imposed unilaterally and contrary to our obligations to GATT, are more likely, with today's preoccupation with trading problems throughout the world, to provoke retaliation against Canada. (There are already some rumblings of this in Europe.) Moreover, if these new trade restrictions are maintained for any length of time they may well hamper, rather than help, the growth of productivity and efficiency which is at the heart of rising standards of living in a modern industrial economy. All in all, it looks like a long, hard winter ahead. This is not to say that the restrictions introduced on June 24 were unnecessary or ill-conceived, or that they do not require the loyal support of all Canadians. However, it is right to recognize the added economic distress that this necessary medicine will cause and to recognize also that it is emergency treatment to save the life of the patient and not a cure of his real maladies. Indeed the positive cure will be somewhat more difficult to apply because of the emergency first-aid treatment that has had to be administered. At a time when we need more rapid economic growth, these high interest rates, new restrictions on trade, and additional non-productive debt are unlikely to have a stimulating effect on the economy. We have to find ways not only to cure the chronic malady but also to get over the effects of the emergency treatment we had to be given. The chronic economic weakness remains. It is lack of economic growth for several recent years. The per capita gross national product, in constant dollars, rose fairly steadily for a decade after the war, but it has remained slightly below the level attained in 1956 in every year since. The most serious and distressing result of this 18

CANADA'S PRESENT ECONOMIC POSITION

lack of economic growth is the continuing problem of unemployment, which is the major challenge facing both Canada and the United States in the sixties. We need a million new jobs in Canada in the next four years if we are to achieve reasonably full employment. That is roughtly five thousand new jobs a week. We must prevent the human losses and frustration, particularly among the large numbers of young people coming to working age, that uncertain employment or prolonged unemployment causes. And we must achieve this task amidst the confusion of rapid changes occurring both internally within Canada and externally in the world in which we must trade if we are to prosper. There is much to suggest that Canadians have not taken sufficient account of these rapid changes—both internal and external— and have failed to adapt policies to these changes. We have virtually the same education and training system, the same taxation system, and the same trading system we had in 1945. It is surely not surprising that the economic policies and machinery developed to meet the conditions of rapid expansion immediately following the war have proved inadequate to deal with totally different and rapidly changing economic conditions both inside Canada and throughout the world. The focal point for an attack on both the balance-of-payments problem and on unemployment should be, I suggest, expansion of trade, both domestic and foreign. This is not to say that trading policies can cure all of Canada's economic ills. They must be supported by sound and flexible policies for education and training, by fiscal and monetary policies, by measures to reduce costs and increase efficiency, and by taxation and other policies designed to increase savings and attract investment both domestic and foreign. And there are other things, not directly related to trade, that we should be doing in Canada. The whole point is that we cannot successfully and adequately handle our many national problems unless we have a trading policy that fosters rapid and sustained economic growth, which alone will make it possible to pay the cost of other desirable and necessary policies. Externally, beyond everything else that is happening in economic affairs, the most important single factor is the development of the European Common Market and the American reaction to it. The developments in Europe are dramatic and important to Canada in themselves. But we make a mistake if we look at them in isolation. We must also view European developments in the context of the influence they are having on American thinking and policy. It is the 19

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

action in Europe and the reaction in the United States, or vice versa, that is of vital importance to Canadian trade. Between these two new forces on opposite sides of the Atlantic Canadian economic policy is caught in a vice, and we cannot escape or have an effective national policy unless we are prepared to work with these new forces and to participate in changes now taking place to bend these new forces to serve our interests. Otherwise Canada will be crushed between two powerful mill stones. The story of the European Economic Community and its historical background and surprising achievements is well known to all of you. I will not burden you with the details again. I will simply point out that it is one of the resounding success stories of modern times; and, like all successes, it is attracting new adherents to an almost embarrassing degree. I believe that, with or without new entrants, the Common Market will continue to be one of the most rapidly expanding economies in the world, that, for example, the last French economic plan will be substantially achieved. It forecasts, as you know, an increase of 24 per cent in French production —an average rate of 5.5 per cent a year, which you can set beside the average growth rate of between 2 and 2.5 per cent in Canada and the United States in recent years. This development in the present Common Market has already had important consequences for Canadian trade. Although relatively small in volume the growth in Canadian trade with the Six has been faster than with any other area of the world except Japan. And this growth can continue. Nations that are growing rapidly are good customers. As living standards rise they will need not only our raw materials and agricultural products and basic manufactures in increasing quantities but they will need, and be able to buy, more of the manufactured products that we can make competitively as to price, styling, service, and quality. But, to achieve real results, we need something more than a succession of two-week trade missions. We need some hard work done to determine what we can sell and where we can sell and how we can sell, and we must be willing to make some trading arrangements and concessions with Europe to accept their goods so that we can sell to them. I believe also that in spite of the long agony of negotiations in Brussels, Britain will succeed in entering the Common Market. This decision to apply for entry was one of the crucial decisions of modern times. It was taken with open eyes—recognizing both the logic of events and the difficulties and dislocations it would cause to established patterns of trade especially within the Commonwealth. 20

CANADA'S PRESENT ECONOMIC POSITION

But the compulsions were strong. The British economy has been virtually stagnant for several years. Britain has staggered from one economic crisis to another ever since the end of the war. Her industry and labour needed a new stimulus to become effective competitors in world markets. And she turned to the only place in the world where there was a real chance of improving her economy. Moreover, Britain saw the importance in world politics of adding her strength and influence to that of Western Europe. Who are we to say that either the economic or the political decisions made by Britain were wrong? Should we not instead recognize the basic soundness of the British decision and its long-term potential for us, and take action to realize that potential? If Britain enters the Common Market, there is no doubt at all that it will profoundly affect our trade. It is quite impossible for her to protect every single egg in our British trading basket. It is naive to think for a moment she Ø. Britain must adopt the common external tariff and this will mean tariffs on some commodities entering Britain that formerly entered free. Faced with this certainty I think we might try to do two things. First, we might select those commodities for which we have a real chance to expand trade—not only to Britain but to the whole enlarged Common Market—and press for their favourable terms of entry to all of Europe. If we choose wisely we might easily make up on the swings what we lose on the roundabouts. Secondly, we should, I suggest, recognize that there will be serious short-term difficulties for some Canadian industries and workers, arising from Britain's entry into the Common Market and also from any new trading arrangements we might make with the enlarged European community. These are losses caused by changes in the national trading position and policy, and it is grossly unfair that an undue burden should be placed upon particular segments. Those industries seriously affected by change in Europe will need to be reconstructed, perhaps by new investment, to become more efficient and competitive in the changed trading world; perhaps by turning to other forms of production with better trading chances. They will need assistance in making these adjustments—both for the firms involved and, even more essential, for the workers in them. The companies will need technical help, loans, or tax benefits, or a combination of all three. Their workers will need re-training for new jobs, allowances while out of work when the adjustments are being made, and in some cases provision for moving to other areas 21

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

where jobs are available. This is a necessary and complicated program and we should be preparing detailed plans for it now. Suppose Britain does not succeed in entering the Common Market? In spite of recent news from Brussels I think this alternative is unlikely, but it remains a possibility. In that event Canada cannot expect the British market to remain as it has been in recent years. The forces that led Britain to seek entry into Europe will continue to operate. If the British economy remains stagnant or declines further, Britain will have a declining demand for Canadian products. If she encounters new balance-of-payment problems, Britain cannot continue to buy substantially more from us than we buy from her, and may be forced to re-impose quotas and other import restrictions against our goods. In this event we face either a reduction in the present British market, or we must enter into new trading arrangements with Britain which will enable her to buy present or increasing amounts of Canadian goods. This will not be easy for us as the hard fact is that entry into Britain is already free of duty for 97 per cent of Canadian goods, and Britain therefore has almost no more trading concessions to give us. The concessions to maintain and expand trade with Britain would have to come from us, with major impacts on many Canadian industries. Whether Britain succeeds or fails in entering the Common Market, Canada is faced with trading losses and difficulties over the short term. The chances are that over the long term, if Britain enters and the experiment is a success, there will be a substantial increase in demand for Canadian products not only from Britain but from the other countries of the Community as well. But individual industries and companies may well wonder if they will stay alive to enjoy these distant advantages. We thus face some hard and tough trading decisions in the near future. Either alternative is a somewhat gloomy one for Canada over the next several years. But there is one hope for us. It is the American response to the Common Market and its probable enlargement to include Britain and most of Europe. President Kennedy's bold initiative in proposing the Trade Adjustment Act of 1962 now, to the surprise of most people, seems likely to succeed. This Act gives broad powers to the President to negotiate reduction and elimination of tariffs generally in GATT and specifically with the Common Market. If its powers are used effectively it could reduce tariff levels on both sides of the Atlantic and open new trading opportunities for Canada, not only in Europe but with the United States as well. But we cannot reasonably expect to get these benefits for nothing. 22

CANADA'S PRESENT ECONOMIC POSITION

We cannot sit on the sidelines and win in this game. We must be prepared to participate actively in it—giving tariff concessions to gain new trading opportunities. We should be ready, and getting ready, to take part in coming trade discussions both with the United States and with Europe. Beyond merely commercial considerations, this is the great hope for the Western world. The real reason we should welcome and encourage European unity and Britain's entry into the Common Market is that both are probably crucial in maintaining the American initiative. There are still in the United States strong forces of isolationism and protectionism. If the economies of Europe falter, if Britain fails to enter the Common Market, there could easily be an American retreat into protectionism, and the free world would again become fragmented. If Europe is united and strong and the United States goes forward towards an economic partnership with Europe, there will be created an economic force such as the world has never known. It will confront the Soviet bloc with a power more conclusive than any number of atom bombs in storage. It and it alone will be of a scale to cope with the tasks of developing the poorer nations. As Mr. Justice Holmes expressed it nearly fifty years ago: "And so beyond the vision of battling races— I catch a dreaming glimpse of peace." I would like to see this country participate in that dream and bring its peculiar talents to aid in its realization. One last point about the impact of the European Common Market on Canada—and it may be, in national terms, the most important point of all. We are naturally and rightly concerned about maintaining our national identity, despite the strong gravitational pull of American economic and cultural forces. This concern may have led us into illogical, ungracious, and immature criticism of American influences and American investment in Canada. But the underlying concern is valid enough. Until now we have had only two choices of economic models. One was the totalitarian model which for us was unthinkable. The other was the American model of individualistic and unrestrictedly competitive free enterprise. We have struggled to achieve the same level of affluence as we see just across the border, and by the same methods and system. I wonder if this pursuit of the American economic dream makes any real sense for Canada. At least I wonder if there is any sense in our attempting to do it by the same exuberant and often wasteful methods that the United States can perhaps afford. After all, despite our relative wealth and great resources, we, too, are an underdeveloped country. Our population is inadequate, 23

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

our distances and therefore our costs are high, our climate adds costs ranging from more expensive buildings to withstand winter conditions to the largely unavoidable seasonal variations in employment. We probably cannot succeed by following the American model in achieving anything like their results. And if we do continue to adopt American techniques we will become an undistinguishable adjunct of the United States. Europe now offers us a third choice of economic model. It is the choice of a free but planned economy. To adapt it to Canada will require profound changes in our economic system, our attitudes, and our laws. We must, first of all, accept the fact that economic planning to help guide the economy towards a more rapid rate of growth is a respectable and desirable enterprise in which to be engaged, and does not in any sense run counter to our democratic or parliamentary system. We must enlist in the planning the co-operation of government, labour, and business as the Europeans have done. And we will probably have to throw off the tyranny of words and phrases, such as "government interference", "undue limitation of competition which is the right of everyone", and perhaps the darling of them all, "free enterprise"—although not, I hasten to add, "private enterprise." Something like the European economic model, appropriately adapted to Canada, may offer the best chance of restoring rapid economic growth in this country. It may also give us the best chance of achieving a distinctive national identity. In the same Telestar broadcast with which I began, an American speaker quoted Abraham Lincoln. The words apply to Canada today as she faces a rapidly changing world. "The dogmas of the quiet past are inadequate for the stormy present—so we must think anew."

24

CANADA AND THE COMMON MARKET A SYMPOSIUM THE LIBERAL PARTY VIEW: M. Lamontagne Since the beginning of the Cold War the Liberal party of Canada has favoured the establishment of an Atlantic Economic Community, as a long-term objective to be attained gradually. Although this goal was vague to begin with, its first concrete formulation was embodied in Article II of the North Atlantic Treaty Organization with the active support of the Liberal government. No serious attempt was made, however, to implement Article II of the Treaty because NATO members, especially the United States, were not yet aware that, with the emergence of the Soviet bloc, they had become interdependent in the economic as well as in the military fields. The Treaty of Rome, establishing the European Economic Community and the Common Market, came into force on January 1, 1958. Mr. Pearson immediately saw the challenge and opportunities which that major development presented to Canada and the Western world. On January 24, 1958, just a few days after he had been elected leader of the Liberal party, Mr. Pearson clearly defined the issue and urged the Canadian Government to react positively to the new challenge. I would like to quote some excerpts from that speech. If then [said Mr. Pearson] we do not wish to weaken the western coalition; and if, in Canada, we do not wish either to face the United States alone or become too dependent economically on it, then surely the best policy for us is to seek economic interdependence within the North Atlantic Community through freer trade. . . . For Canada, a North Atlantic area with the freest possible trade would certainly mean a much greater export market in the U.S.A. and in Europe; lower costs of production for many Canadian industries, and Iower living costs, I would hope, for Canadian consumers. . . . There are undoubtedly certain industries that would have to receive special consideration in any such freer trade agreements, just as such consideration is being given in Europe to special economic situations in the negotiation of the free trade area there.... This is an appropriate time to present and push this proposal.... This is a challenging prospect and is surely worth serious and immediate consideration, negotiation and planning. Could there be a finer initiative for Canada? [Mr. Pearson knew, of course, that his proposal would not be easily accepted.] All this is, of course, long range policy. But the discussions and negotiations looking towards its conclusion should, in my view, begin at once. In any event, they are bound to be long, complicated and difficult.

25

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

This has been, in substance, the attitude of the Liberal party toward the Common Market since 1958. Even then we assumed that it would be in the best interests of the United Kingdom to join the European Economic Community and we came to the conclusion that freer trade arrangements between Europe and North America were desirable from an economic as well as from a political point of view, not only for Canada but also for the free world. After some hesitation, the New Democratic party and more recently the Social Credit party have repeated more or less what we have said all along since the Treaty of Rome came into force. In 1958 the Conservative government did not take the initiative proposed by Mr. Pearson. It failed to grasp the significance of what was happening in Europe because it was trying to revive a Conservative tradition and to give to Canadian trade policy quite a different orientation. Although it had turned down the British free-trade proposal the Conservative government was seeking, as Mr. Bennett had done twenty-five years before but under quite different conditions, to improve Commonwealth trade. The failure to understand the full impact of the European Economic Community and the new trade patterns emerging in the world explains to a large extent why the Conservatives were surprised and shocked when, on August 9, 1961, the United Kingdom Government decided to apply for full membership in the European Economic Community. When the attempt to improve Commonwealth trade failed, Canada was left without a clear and positive commercial policy. This is what Mr. Wilgress really means when he makes the following statement: "Up to now Canadian policy has been to take a position reflecting strong reservations concerning British entry into the Community, to leave to the United Kingdom the task of fulfilling its undertaking to safeguard the essential interests of the Commonwealth and to take a favourable, but reserved, position regarding President Kennedy's initiative." This is not very impressive as a response to European integration, which Mr. Wilgress describes as "the most far-reaching development in the world economy since Great Britain repealed the Corn Laws in 1846." Such an attitude is not surprising, however, if it is considered in the light of the following statement made by Mr. Fleming in his Budget speech of June 20, 1961: "We shall, of course, have to adapt to changes in the world around us. . . . For the moment at least, the situation is much too unsettled to consider seriously a sharp reorientation in our policies ..." 26

CANADA AND THE COMMON MARKET: A SYMPOSIUM

In other words, let us wait and see, let us change our policy, if necessary, only after other countries change theirs and when it may be too late to safeguard, let alone promote, our own interests. We will not promote necessary change, but we will adapt to changes which are made by others and forced upon us. Surely this is not good enough for Canada at this most crucial time. What we need is a positive, dynamic, and imaginative trade policy along the lines advocated by Mr. Pearson and the Liberal party since 1958. This is precisely what President Kennedy has done in the United States in spite of a powerful opposition. It would have been quite unrealistic, given the climate of public opinion, for the President to propose an Atlantic Free Trade Area even as a long-term objective. Chapter 2 of the Trade Expansion Act of 1962, however, contains provisions that incorporate some of the features of a free-trade area. For instance, the President is authorized to completely abolish the tariff on all articles of any category when the United States and the European Economic Community together account for 80 per cent or more of total world exports. Observers have described that feature and the other aspect of the American program as a bold, imaginative, and almost revolutionary step. Canada lost another opportunity when President Kennedy outlined his program in a speech last December. Following that announcement the Canadian Government should have initiated negotiations at once with the United States Government and sought to include Canada as well as the European Economic Community in the determination of the required 80 per cent of total world exports. This would have transformed the American program into a North American offer and would have considerably extended its scope, especially with respect to categories which are important to us, such as newsprint, nickel, and aluminium. Because of the special relationship we have with the United States it would have been very difficult for the American Government to turn down such a Canadian proposal. It is probably not too late to make it, even at this stage, and if it were accepted it might well solve some of the most important difficulties that we have to face as a result of British entry into the Common Market. The attitude of the present Canadian government has been described by impartial observers as "a plague on both your houses" attitude towards the United States and the European Economic Community. It has also been called a hands-off policy. It amounts to a negative form of economic isolationism from the two great trading 27

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

blocs whidi constitute our main markets at a time when those two blocs are working out a new association. Canada cannot afford to isolate herself from those leading trading powers. On the other hand, even if it were possible, it would be undesirable to associate ourselves with only one of those partners. It would very likely be impossible to join or to become associated only with the Common Market. It would certainly be undesirable to do so because, among other reasons, this would endanger our position on the American market which is bound to remain the main outlet for our exports. A customs union with the United States would be more easily feasible and would make more sense in strict economic terms. In making such an arrangement, however, we would not improve our trading position in Western Europe, which has become the most dynamic market for industrial goods and raw materials. Moreover, Canadian public opinion is not prepared to accept such a proposal. Canadian policy should never abandon the long-term objective of free trade in a free world. But it would be very naive and unrealistic to ignore the trend towards regionalism. In this rapidly changing world with emerging regional blocs, the gradual establishment of an outward-looking Atlantic Economic Community is the only happy solution for a country like Canada. Such a solution is certainly compatible with a closer European integration and with the leading role played by the United States in the free world. The Atlantic approach is also the only satisfactory solution to the problem of Western unity which is so essential to world peace and progress. The danger of perpetuating the present situation with the division of the Western world into two or three rival economic groups should not be overlooked. Unity in defence and isolation in trade are hardly compatible in a world faced with the Soviet global threat. Mr. Pearson was one of the first world leaders to become conscious of the potential danger of that situation and to put forward the Atlantic solution. Canada, because of her position in the world, should have been the first country to take the initiative and propose that solution to her Western partners. But after three years of inaction it was left to the United States to assume the leadership and to present concrete proposals in the right direction. The Atlantic Economic Community is not, of course, for tomorrow or next year. Its creation will present many difficulties and require long negotiations. 28

CANADA AND THE COMMON MARKET: A SYMPOSIUM

THE NEW DEMOCRATIC PARTY VIEW: R. Scott In attempting to formulate a policy for Canada with respect to the European Common Market one is immediately impressed by the boldness and imagination which this group of countries has shown in its attempt to deal with its internal and external economic and political problems. I think it is safe to say that the development of this trading community is the most far-reaching development in the world economy in the last hundred years. It presently involves a community of 170 million people including some of the most industrialized and economically powerful nations in the world. It presently accounts for one-third of the world exports in manufacturing goods. In 1960 it was the world's largest importer of all kinds of goods-30 billion dollars worth. Recent studies indicate that over the next ten years its imports from the rest of the world will increase by 45 per cent. One is greatly impressed by the concerted action which its members have taken to assist each other and to surrender to each other certain forms of national rights for the common good. Indeed plans are presently under way to turn it into a fully integrated economic union. Looking at its objects one is almost awed by the imaginative approach. These objects, as I understand them, are the elimination of customs duties between the members, the erection of a common tariff against outsiders, the abolition between themselves of obstacles to the free movement of persons, services, and capital, the building of a common agricultural and transport policy, the maintenance of competition, the co-ordination of their economic policies, action on their internal balance-of-payment problems, a social capital fund to train workers and move them to areas of labour shortage, and a European Investment Bank to assist development and expansion. This experiment in international planning and co-ordination presents the rest of the world with an astounding phenomenon. The results of their experiment to date have been truly startling. Internal tariffs have been reduced by 50 per cent. Trade within the Community grew by 39 per cent between 1957 and 1960. Imports grew by 19 per cent and exports by 33 per cent between 1957 and 1960. Economic growth of the member states has varied from 7 to 15 per cent yearly. France has forecast a yearly average growth of 5.5 per cent as against 2-2.5 per cent for the U.S. and even less for Canada. The Community has virtually wiped out unemployment. For example, in France job applicants are less than 1 per cent of the 29

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

labour force, while in Germany the main limitation on continued growth is a shortage of labour. The Community has developed the free movement of labour so that a man can move anywhere in the Community and retain his social security benefits. Wages have gone up but have done so in relation to increased productivity; action is still continuing to equalize wages, increase the mobility of labour, and retrain and settle labour in needed areas. Government, labour, and management have all worked together to bring new vigour, new strength, and new enthusiasm to the co-operative solution of national and international goals and plans. The immediate future of this new trading community would appear to be one of continued growth. Britain has applied for full membership and appears on the threshold of entering the group. The treaty admitting Greece will go into effect in September. She will undoubtedly be followed by Denmark, Norway, and Ireland, who have applied for membership. Austria, Switzerland, and Sweden have applied for associate membership, and preliminary enquiries are being put out by Spain, Israel, Iran, and Brazil. Indeed it is becoming clear that every major European Country this side of the Iron Curtain will eventually seek either full or associate membership. If Britain and the other countries do join they will create a trading community of 256 million people, Iarger than either Russia or the U.S.A. It will be the world's fastest growing market for consumer goods. Such a realignment of world trade presents Canada with a supreme challenge, for we must find some way to live with this new trade entity and to find our place in the world trading community. Failure to take early steps to forge new trade links could result in a long-term decline in our standard of living. On the other hand, if an effective trading partnership can be worked out between the European Common Market and North America, Russia will be confronted with an economic force far superior to her own and one such as the world has never before known. Such a force is capable of, and may be the only one capable of, developing the underdeveloped lands of Africa, Asia, and South America. At this stage it is difficult to state with precision the effect of British entry upon Canadian—U.K. trade. This is due to the fact that we still do not know the terms of entry obtained by the U.K. and the degree of protection which will be afforded to our traditional preference position. Recent events indicate that there is still considerable bargaining ahead, but there seems to be a general 30

CANADA AND THE COMMON MARKET: A SYMPOSIUM

consensus that Britain will be admitted upon some terms. Part of the difficulty seems to be that Britain is bargaining from a position of weakness. She seeks to enter at a time when the Community is strong and prosperous, and its members are not likely to grant concessions which will upset their present balance. If Britain does not join, her economy will likely stagnate in the face of strong competition from the Community; this, in the Iong run, would have serious repercussions for Canada. If she does join, however, the immediate effects on our trade are likely to be drastic. The theory proposed is that in the long run a strong U.K. and a strong Europe offer us our best chance, but in the short run the loss of British preferential treatment will be hard felt. In 1960, Canadian exports to the U.K. totalled $915 million. Of this amount, $28 million, or roughly 3 per cent, were subject to duty, and $376 million enjoyed preferential treatment. Clearly the loss of this preference even if gradual would have serious repercussions internally on the Canadian economy. In addition to the gradual loss of the British preference, Canada of course will also be faced with the problem of meeting the common external tariff erected by the member nations to the rest of the world, while goods of the member countries will enter our traditional markets duty-free. A few examples make only too clear our difficulties in this direction. Chemicals face a loss of tariff preference between 10 and 33 per cent and face a duty of between 5 and 40 per cent. Electrical cooking ranges will lose their preference of 10 per cent and face a duty of 19 per cent. The wrapping paper trade faces a loss of 14 per cent preference and faces a duty of 18 per cent. Wood products in particular face very serious and difficult adjustments. Our flour sales face a loss of 10 per cent preference and will face an external duty as also will cheese sales. Canadian canned salmon faces a loss of 5 per cent preference and a duty of 20 per cent. One of our greatest problems of course arises in the sale of wheat and agricultural products. In this field the Common Market group are exhibiting a good degree of protectionism, making the problem all the more serious for a country like Canada highly dependent upon large exports of such products. However, the member countries have still not arrived at a common agricultural policy, which would seem to make action by Canada all the more imperative before their agricultural pattern is too strongly set. The examples that I have quoted are only a few of the likely economic dislocations which Canada will face as the Common 31

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

Market grows and expands. They are sufficient to show that the growth of this new trade giant confronts Canada with a disruption in her traditional trade patterns such as we have never known before. We may not be able to forecast the exact pattern that trade will follow, but we can be sure that the patterns of the past are, or soon will be, altered forever. Confronted with this new trade world, what approach can Canada take? It is sometimes helpful in such circumstances to eliminate certain possible courses of action and then examine what remains. In the first place, the one approach we cannot afford to adopt is that which may be called a "wait and see what happens" attitude. It seems to me that such an approach is fatal because while you are standing back and waiting you lose all power to participate in and alter the decisions which others are making. In the end you are confronted with new patterns and decisions which may well leave you on the outside looking in. Similarly it seems unwise for us to rely on other countries to protect our interests. At the present time Britain, in her negotiations for her own entry into the Common Market, is sincerely attempting to obtain concessions which will protect the traditional interests of Commonwealth countries in British markets. Negotiations to date, however, do not lead one to feel undue optimism about her chances of success. The Common Market group, at least in the field of agricultural products, exhibits a strong leaning toward protectionism. Recent reports would seem to indicate very little inclination on its part to give the necessary guarantees in this field. The various parties, because the Common Market is functioning strongly, are not likely to make concessions which they feel will upset their present balance. From negotiations to date it appears to me that Britain will probably not be able to obtain for us the strong economic guarantees for which we had hoped, and that we must prepare ourselves to face this likely eventuality. We must prepare now programs and policies to meet such a situation. Strong leadership must come from the Government. As an internal approach, we could launch a massive detailed study of the effects of these new trade patterns upon our export trade, product by product. Such a study should seek the views of all parties in the trade. It should seek to discover precisely how each product will be affected and what type of assistance will be necessary to carry that industry through the transitional stage when adjustments will be most difficult. Such assistance may take the form of financial and taxation help, the retraining and relocation of workers, 82

CANADA AND THE COMMON MARKET: A SYMPOSIUM

the development of alternate products or markets, etc. Such information does not appear to exist at the present time, yet without it we simply cannot plan an intelligent approach to the solution of these problems. Since the economy as a whole will benefit, the economy through the government should absorb the costs of any dislocation caused to workers, community, or companies. With respect to our relationship to the Common Market itself we can also discard certain possible approaches. It seems quite certain that full membership for Canada is not possible, since full membership is restricted to European countries. Other sources have at times advocated an Atlantic free-trade area. Such a solution, however, appears excluded because of the position of U.S.A. An Atlantic free-trade area would necessitate the participation of the U.S.A., but the U.S.A. has made it clear that it will not enter regional trade blocks because of her commitments in other parts of the world. This attitude would appear to rule out the Atlantic freetrade approach. Elimination of these possibilities appears to leave two courses of action open to Canada. These are associate membership under Article 238 of the Charter or, failing this, the conducting of negotiations along the lines suggested by President Kennedy under the American Trade Expansion Act 1962. We would suggest that Canada explore energetically the possibility of associate membership. There have been suggestions that associate membership is not open to countries such as Canada, and some sources have interpreted Article 238 to exclude associate membership for industrialized nations. However, Article 238 does not have any such distinction, and we think that this possibility should be thoroughly and extensively canvassed. It is important to remember that if we wish association with the Common Market it is we who must take the first step and press our case as strongly as possible. We must go to them rather than wait for them to come to us. If our attempt to obtain associate membership should fail, then we feel that negotiations should take place along the lines suggested by President Kennedy under the Trade Expansion Act 1962. The American Government, to its credit, has been quick to comprehend the significance of the Common Market. In order to minimize its impact they are attempting to negotiate tariff concessions with the Community and in this way to keep the Common external tariff reduced as much as possible. Under the terms of the Act the President will have power to reduce rates of duty up to 50 33

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

per cent and in certain special circumstances he may go as far as free entry. The bill further envisages trade-adjustment assistance to industries experiencing dislocation. This approach shows only too clearly the concern which the Americans feel. At the same time, to their credit, they have realized the political consequences of the Community and have given it strong support while seeking to minimize its effects on their own economy. We think that Canada has much to gain from such an approach, and that we should support the American actions and at the same time participate in such negotiations with a view to obtaining similar concessions on our own behalf. Such an approach should be followed by active participation in GATT, and we should examine our own position carefully to see in what areas we can offer tariff reductions. We should determine in what goods and areas we can be competitive and in such areas be prepared to offer free trade. Thought should also be given to the gradual elimination of preference to Britain, and we should explore other sources of trade with other areas of the world as alternatives to the loss of certain of our European markets. Because of the changing circumstances and because the details of Britain's entry are not yet clear, we must be reasonably flexible. However, we think that a policy based on the lines I have suggested represents our best approach to the difficult days ahead. In this whole question of the modern problem of free trade we are involved in one of history's great debates. How we answer it and how we conduct ourselves will decide our fate and our future, perhaps forever. One thing is certain, and that is that we cannot stand still. Great changes are inevitably coming and we must be prepared to meet them. The Common Market presents us with great risks and great challenges, but its goals are worthy of our best efforts. We must accept it and show the people of Europe that we understand their existing aspirations, that we understand the visions they hold, and that we are not thinking only of the short-run economic dislocations that we will experience. We must extend our vision beyond our own natural frontier. It is our view that, given strong government leadership together with the united efforts of the business and labour communities, Canada can measure up to these challenges and successfully meet them. If we have the courage and imagination and enterprise to strike out in new directions, great opportunities await us. In this way the 34

CANADA AND THE COMMON MARKET: A SYMPOSIUM

problems and crises of today can become the accomplishments of tomorrow, and Canada can continue to grow and prosper in the years ahead. THE SOCIAL CREDIT PARTY VIEW: R. N. Thompson Our concern at this Conference is the European Economic Community or, as it is more generally called, the European Common Market, and the implications of Great Britain joining it under the provision of the Treaty of Rome. And well we may be concerned over this issue here in Canada, for in my view it is an issue which has far-reaching implications, not only for the people of Britain, but for every member of our Commonwealth family—yes, and for every loyal subject to Her Majesty, the Queen. Here in Canada, the ECM has been presented to the public as beng essentially a customs union of six European nations who have derived great benefit from the resulting co-ordinated and freer trade privileges they have enjoyed with each other and who now look forward to Britain becoming the seventh member. The attitude of those who favour joining the ECM has been that if Britain joins that union she will gain great benefit in terms of increased trade, and that this would mean a stronger British economy and also a stronger Commonwealth—provided that the established trading dependence of the other Commonwealth countries with Britain is safely guarded. We are told that if Britain were part of this new, strong, stabilizing, and prosperous world power situated in a location previously characterized by conflict, it would mean added strength to the Commonwealth. The proposition to the Commonwealth for the most part has been presented in this light. "Surely," the argument went, "it is entirely a question for the British Government and the British people whether they enter the Common Market or not. If it is good for Britain, we should not stand in her way." Press coverage has largely been directed that way, while spokesmen for various trade and industrial groups have given support to that line of throughtassuring Canadians, as well as Australians and New Zealanders, that in the long run they would gain and not lose by Britain's intended action. Britain's intention of joining the ECM on these grounds has been as clear as the handwriting on the wall, a fact which I referred to in my acceptance speech as leader of my party in July, 1961. Let me confess that, with the information which was made available to us, I was inclined to accept that point of view. But that was 35

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

before I was aware of the contents of the basic document of the Constitution of the European Economic Community, namely, the Treaty of Rome, which was signed by the representatives of France, West Germany, Italy, Belgium, The Netherlands, and Luxembourg on the 25 March 1957. I wonder how many persons who are giving their enthusiastic support to the entry of Great Britain into that union have read the Treaty of Rome? Contrary to general opinion that treaty is not primarily a document by which the member countries enter into an economic alliance or a customs union. If it were simply that, then there would be little basis for my remarks now. The provisions of the Treaty of Rome, however, make it plain that it is an indissoluble federation of a group of countries who have undertaken to surrender their sovereignty and their nationhood to a supernational authority which would have jurisdiction over a wide area in the lives and workings of the countries concerned. This draws our attention to the fact that Britain is proposing to join not just a European Common Market but rather the political organization correctly termed "The Euro pean Economic Community." This has been made plain by Professor Walter HalIstein, President of the European Economic Community and, I understand, one of its architects. Speaking before a joint meeting of Harvard University and the Massachusetts Institute of Technology on May 22nd, 1961, he told his audience: "We are not in business to promote tariff preferences, to establish a discriminatory club, to form a larger market to make us richer, or a trading bloc to further our commercial interests. We are not in business at all; we are in politics. Our aim is to help ourselves, and so help others; to rid Europe of the crippling anomalies of the past, and enable her to pull her full weight in building tomorrow's world." Again, Dr. Konrad Adenauer, of West Germany, in an official publication entitled "Towards Political Union in Europe", issued by his government, has stated: "In the final analysis, the aim of European policies is a political one. Economic policies are an indispensable prerequisite and complementation. It was wise and right first to bring about economic unity in Europe, for economic unity offers the most solid and resistent basis of political unity. Political union must, however, now be added to economic merger, for it will now become more and more inevitable to take political decisions concerning both the internal economics and the external relations of the Community." 36

CANADA AND THE COMMON MARKET: A SYMPOSIUM

The organization of the European Economic Community, provided for in Part Five of the Treaty of Rome, is built around: (1) An assembly eventually to be elected by universal suffrage of the Member States, this body to be advisory and supervisory; (2) A Council of Ministers, with powers to take decisions on certain matters and ensure the coordination of economic policies of Member States; (3) A Commission of nine in which the real power in both policy making and decision are vested; (4) A Court of Justice consisting of seven judges whose judgements shall be binding on Member States. Under Article 3, this supranational authority shall have jurisdiction over tariffs; the free movement of persons, services, and capital; agriculture, transport, trading conditions, economic policy, and national laws "to the extent required for the Common Market to function in an orderly manner"; and these powers can be extended by a majority vote of the community. In the limited time at my disposal I can do no more than touch upon some of the salient features of this amazing document. However, I must here quote verbatum, one of its provisions—Article 189. This reads: For the achievement of their aims and under the conditions provided for in this Treaty, the Council and the Commission shall adopt regulations and directives, make decisions and formulate recommendations or opinions. Regulations shall have a general application. They shall be binding in every respect and directly applicable in each Member State. Directives shall bind any member state to which they are addressed, as to the result to be achieved, while leaving to domestic agencies a competence as to form and means. Decisions shall be binding in every respect for the addressees named therein. Recommendations and opinions shall have no binding force. [Emphasis added]

I hope I have made it plain that what is involved in Britain's application to join the European Common Market is a political merger with six European countries of which at least two are today politically unstable. Hers will be a minority voice in that federation whose institutions will have wide powers over the national life of the British people. The extent of those powers can be realized by the implications of the Treaty of Rome in the legal field. Mr. Norman S. Marsh, Director of the British Institute of International and Comparative Law, has stated: It is essential to the working of the Community that is should be able to make regulations and decisions which operate as part of the internal law of the member states as if they had been included in the original treaty. The question

37

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET may be asked, by what authority these regulations and decisions could operate here. It might be said that parliament, by adopting the treaty, had delegated certain powers to the different organs of the Community. But if we stick too closely to the English pattern of delegated legislation, we would expect such regulations to be laid before parliament, and this clearly would be inconsistent with the terms of the treaty. This is another reason why it might be better to recognize that adherence to the treaty would mark a surrender of sovereignty by parliament, because the power to make decisions vested in the Community can only be related to a European constitutional framework set up by the treaty.

This means that the EEC could make laws and regulations which would override established British Law in the fields of foreign trade and customs, the movement of labour and capital, agriculture, economic policy, monetary policy, transport, energy, iron, steel, and coal mining, and social welfare. In all these and complementary fields the Parliament of Great Britain would be subservient to the overriding authority of the EEC institutions. Let us make no mistake about it. If Britain enters into full membership of the EEC she must surrender her national sovereignty in many essential aspects of national life, to her continental neighbours. The Treaty of Rome provides neither for the limitation of the power to be assumed by the Community in the future through a majority vote binding on all Member States, nor for contracting out of the Community by any Member State. For the British people this means the end of their Constitution, evolved over a thousand years and the envy of all freedom-loving nations. It will mean the progressive replacement of British Common Law, the bulwark of freedom for the individual, by a Byzantine Roman Law of the European continent. It will mean the decline of the nation's vitality as national sovereignty is whittled away—in fact it will be a backward step because it will weaken fundamental British self government. It will mean a further decline in Britain and the Commonwealth as an international force. The Commonwealth is the world's most promising political association, and the free world will be weakened by the loss of its example and leadership. Those who say it will be replaced by a stronger united Europe just do not face the grim reality of present and historical facts. How does this concern us in Canada? In the Commonwealth? I contend that it concerns us very deeply. How can a Britain subservient to an external and alien authority in matters of trade— to take just one sphere—maintain her position within the Commonwealth? How can the Crown in Britain cease to be the focus of national sovereignty and maintain, unimpaired, its significance for us in Canada? 38

CANADA AND THE COMMON MARKET: A SYMPOSIUM

The stark, ugly fact we must face is that if Britain insists upon going into the Community of Europe she will cease to remain the focus of the Commonwealth. Such would mark the beginning of the end of the family of free and sovereign nations we know as the British Commonwealth—a family of nations unique in human history, a pattern for all the world of what national relationships could be. The decisive factor in world politics during the twentieth century, that of Anglo-American friendship, would be weakened as well. Britain's unique influence in the world, and the Commonwealth itself, would inevitably disintegrate and dissolve. What is the alternative? We are told, and with some justice, that Britain with an increasing population of over fifty million, crowded into a small island with greatly depleted and rapidly depleting resources, must establish a new economic pattern. These are inescapable facts. I submit, however, that she will not reach the desired objective within Europe with its political instability, conflicting interests and limited resources. I am convinced that she can do it far better within the Commonwealth—with its greater political stability, strong bonds of respect, understanding, and affection, and its available unlimited resources. However, to do so will involve major adjustments within our economies and their inter-relationshipsadjustments which will be in the best interests, not only for Britain, but of Canada, Australia, New Zealand, and our other sister nations, and of Europe and the U.S.A. as well. That is the choice we face. I have attempted to outline the basic objections to Britain's entering into the European federation of EEC, not only from the Canadian viewpoint, but from that of our Commonwealth family. However, we in Canada have no right to tell Britain what to do; and the British Government has the right to ask, "But what alternative have you to put forward?" Canada, as the senior member of the Commonwealth and the richest nation in the free world in terms of natural resources, has a clear responsibility to suggest such an alternative. As we do so we must bear in mind the impelling realities which have driven the British Government to seek such a drastic solution to the country's problems. The United Kingdom is but a small island and a half (less than half the size of my native province of Alberta) , with a rapidly increasing population of over fifty millions. With greatly depleted and progressively depleting resources, exhausted by taking the brunt of two devastating world wars, she inevitably faces an economic crisis of the first magnitude. With the depletion of her resources, with the changes in the Commonwealth pattern as independence 39

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

has been granted to one after another of her colonial territories, with the economic nationalism that the post-war years have brought to our Commonwealth, Britain has reached the point where she must now face and overcome in advance this looming economic crisis if she is to remain the pivot of the Commonwealth. It is under this impelling economic urge that she has turned to the lure of the European Common Market. To our shame, we, her Commonwealth partners, so ready to make every sacrifice in war, are failing her—and ourselves—in this hour of peacetime need. If we in Canada continue to impose increased tariffs on British products we will but add to the pressure which is forcing her to look more and more to Europe. Let us not forget that in 1960, 42 per cent of Britain's trade was with the Commonwealth, while only 14 per cent was with the European Common Market countries. Britain and the European nations do not need more industrial competition—they need raw materials and markets. In fact the Commonwealth has the three basic essentials of any economic growth: a bountiful wealth of raw materials, the industrial ability to convert them into manufactured goods, and consumers to purchase them. With the evident decline of the supply of natural resources in the U.S.A., it will be necessary for this great nation to import more and more of her raw materials from the Commonwealth. The European countries likewise must in the future depend more on the Commonwealth raw materials as their own consumer demand and outside markets develop. The Commonwealth itself has one of the greatest market areas in the world—that of some 700 million people. Many of these are underprivileged people who live under conditions that border on privation and misery. It is not only our moral responsibility but also our economic privilege to improve their lot. In Canada alone we have sufficient iron ore to meet the world's needs for a hundred years. Most of the petroleum needs of this continent will be met from Canada's reserves. The Canadian reserves of nickel, aluminum, asbestos, and other essential minerals are tremendous. The petrochemical and the forest industries are potentially as great. The agricultural wealth of Canada also is able to meet far greater demands than it has at present. During the past forty years Canada has increased her population by three times and her gross national product even more. Projecting our thinking briefly forty years into the future—and this is a comparatively short period of time— it is not at all presumptuous to 40

CANADA AND THE COMMON MARKET: A SYMPOSIUM

believe that we can expand at least as we have in the past. Progress demands this. In forty years the population of Canada may be fifty million, of Australia, thirty million, of New Zealand, ten million. In addition, the raising of living standards in the newer Commonwealth Nations will provide a growing market for manufactured products. Combining the dynamic and potential of the Commonwealth, and its resources, with the family spirit and incentive for progress along with the industrial and productive know how, the opportunity for development is beyond our comprehension. The economic strength of the Commonwealth, in a day when the world is desperately struggling for survival, is potentially greater than the combined political and military might of all the free world. I agree that, "The struggle to contain Communism and safeguard freedom is not an exclusively European affair. It is global and the Commonwealth can make a unique contribution." The Commonwealth instead of breaking up, could be a far greater force for peace and positive good than was ever dreamed of in the past. What we in Canada—and for that matter our brethren in Australia, New Zealand, and elsewhere—must realize is that this crisis which Britain faces is not her crisis only, it is just as much ours. We must be prepared to face the realities of the situation and to make some drastic adjustments in our national affairs now for the benefits which will accrue later. Let us not, in trying to solve our short-term problem, destroy our Iong-range hopes for a greater and more secure community of free nations. It is good that we take note of just what the Commonwealth has become during our present generation. The Empire has been replaced by a free association of mature self-governing nations working together in co-operation and amity. It has become a prototype for tomorrow's peaceful world where co-operation exists without the use of force. It is the antithesis of the Communist world police state. If we believe that "the best government is at the lowest level," the Commonwealth is progressing—not breaking up as emerging nations attain self-government. There is no reason why this voluntary association of free nations should not be extended—particularly in the field of economics. As nations develop and living standards improve, as new trade policies permit a freer exchange of goods, as financial problems are eased by more functional financial policies in tune with the needs of the times, then can we hope to see ushered in 41

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

the greatest era of development and expansion known to man and his civilization. I do not propose to lay before you a complete blueprint of the alternative to Britain joining the EEC, which I believe we in Canada should advance. I shall do no more than sketch for you its broad outline. First, I believe that the Commonwealth Economic Committee should be given the authority and responsibility to formulate immediately plans for the development of Commonwealth trade and that these plans be submitted to a Commonwealth Economic Conference to be called this fall or early in 1963. The EEC countries, the U.S.A., and other friendly nations should be invited as observers. The objective of freer trading patterns which would ultimately lead to closer economic integration is most desirable, apart from all political implication and overtones. Britain, Canada, Australia, and New Zealand are in a position to spearhead this economic integration, with the younger Commonwealth countries fitting in as quickly as possible and with the opportunity for other friendly free nations joining hands in associate membership as they desired. Secondly, it is essential that steps be taken to study, and to provide for, new arrangements for external exchange standards and settlements. Consultation between the senior Commonwealth members is urgently needed to work out an alternative set up of Commonwealth payments. Primarily, we face a gold-reserve crisis because of the I.M.F. payments which are based on gold. As the gold standard broke down internally in the thirties, so the external gold standard is now breaking down. As an alternative, consideration should be given to a new goldbased accounting system (Bank of Venice type) for the Commonwealth, which could be extended to other friendly countries including the EEC if they want it. This could usher in a common market without breaking up the Commonwealth, as Lord Keynes suggested at the close of World War II. As sterling is already the major trading currency of the world it would not be difficult to establish an External Payments Organization, or perhaps it might better be called a Commonwealth Settlement Bank, with member countries enjoying the benefits of a common currency measurement which would facilitate the settlement of the balance of external payments. Some such arrangement must be developed. If it can, and I am positive that it can, then it would be potentially possible financially to exchange all that we can physically produce according to the needs of the people who either wallow in the throes of fin42

CANADA AND THE COMMON MARKET: A SYMPOSIUM

ancial instability and threatening economic chaos or who suffer in want and privation because of the lack of the basic elements of life. Thirdly, Canada must take the lead in solving her own balanceof-payments problems. The critical situation, in which our foreign debt has increased by nearly 8 billion dollars in the past five years, cannot continue. Increased tariff barriers and tight money policies can never solve it. Rather they weaken the whole foundation of the nation's economy and enforce unnecessary hardships on the people. Without our going into the internal adjustments necessary to produce a buoyant and expanding economy, suffice it to say at this point that the time is urgently upon us for the setting up of an Import-Export Bank as an arm of the Bank of Canada. This would permit the outworking of a basic two-price system which would facilitate the export of all the surplus finished goods and raw materials that Canada could produce, and which Britain and the other member nations of the Commonwealth and the free world are so desperately in need of today. Here is the immediate and long-range answer to Britain's economic crisis and it can be the means through which the emerging people of the Commonwealth can have their own economies developed and living standards raised. It is good that we think through these problems carefully. However, Rome burned while Nero fiddled. To spend long months and years in discussion and study while people suffer and die in privation elsewhere in the world, while the foundations of freedom crack, and while factories, mines, and farms produce at only partial capacity, is to admit we are impractical and illogical men. The world awaits leadership and action and the Commonwealth can give it. By rising to this challenge we can aid the development of the most amazing achievement in the history of mankind—a Commonwealth of Nations bound together by invisible bonds more powerful than any written constitution could ever achieve. I can foresee within the framework of such an arrangement the rapid development of Canada as the economic heart of the Commonwealth, a powerhouse and source of inspiration for our Commonwealth family—and for the world_ A TRADE UNION VIEW: R. B. Bell In a discussion of this kind, my task is made a little easier because I am one of those who have long believed that Britain's membership in the European Economic Community was inevitable. Once having come to such a steadfast conclusion we are not obligated to ponder 43

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

the alternatives to Canada should Britain not become part of the EEC. It may appear that those of us who hold this unshakeable conviction are being somewhat presumptuous, in view of the very difficult negotiations which are now going on in Brussels and the strong opposition from circles in both the Conservative and Labour parties who do not seem to want membership on any terms. Be this as it may, I believe that the facts support Prime Minister Macmillan and his chief negotiator, Mr. Heath, when they point out that if left outside the EEC Britain's economy will stagnate and probably even decline. Economic stagnation can only result in the rapid decline of Britain as a political power. I cannot believe that many Englishmen will regard such a prospect lightly. With Britain's membership in the European Economic Community becoming imminent, and with the Community itself rapidly becoming a fait accompli, various suggestions are being made as to what our role must be. There are still those who suggest that Canada should join the European Economic Community, and they speak in terms of "associate membership," but to my knowledge they have not defined what they mean by "associate membership" for Canada. Whatever the merits or demerits of such membership, it is quite apparent that at this stage in the historical development of their Community the Europeans are not at all receptive to any such idea. Some have suggested the formation of a "North Atlantic Trade Alliance," to include those countries in the European Economic Community, the European Free Trade Association, the United States, and Canada. President Kennedy, however, has stated that the United States, because of her world-wide commitments as a leader of the free world, could not join any trade alliance which would discriminate against the trade goods of those outside of the alliance. One of the most powerful and influential Europeans, Dr. Walter Hallstein, the President of the Commission of the European Economic Community, in an article entitled "The Value of Atlantic Partnership," also repudiates the idea of any such alliance with North America. He says this: It is not only economic purposes which explain the particular structure of the European Economic Community. That structure is not only due to the intention of creating inside that Community a situation approximating that of an integrated national economy as closely as possible, but it is due even more to the conviction of its makers that the economic integration of Europe is not an end in itself but a means to the end of political unification, for, indeed, the final goal is political unity.

44

CANADA AND THE COMMON MARKET: A SYMPOSIUM The situation is quite different as regards the Atlantic area. No Atlantic government has been contemplated. The source of the ideological strength of the European Community is Europeanism, whereas the United States is not only an Atlantic power, but also a Pacific power and an exponent of Americanism. The economic and commercial rules aimed at for the Atlantic partnership should not discriminate between insiders and outsiders but apply to all according to the provisions of the General Agreement on Tariffs and Trade. EEC quarters in Brussels are realistic enough not to think in terms of a confederate structure of the Atlantic area, desirable though it might be.

On the other hand, there are some who would have us join with the United States to form a "North American Common Market." For example, some months ago an issue of U.S. News and World Report featured an article on this subject. It stated: "Many businessmen in Canada predict privately that there will be full economic union with the United States within ten years. They see no alternative to merger with U.S. as the world organizes into huge trading blocs." A customs union with the United States would necessitate tremendous internal adjustments for us and would, in my opinion, create many more problems than it would solve. Furthermore, it is not at all clear, for example, whether such a major increase in the economic integration of our two countries would not soon seriously erode the political sovereignty of this country, until it became another, if somewhat larger, Texas of the United States. Some may reply "So what?" However, I do not believe that the vast majority of Canadians would approve of either economic or political union with the United States, and therefore I think that it is entirely unrealistic to consider policies that would lead us in that direction. If we reject the notion that Canada should submerge herself in some trade bloc, what alternative is there left? In my view the only suitable alternative, given our geographic position, our desire to maintain our independence, and the unique economic problem with which we are faced, is to seek to expand trade with everybody on as liberalized a basis as possible. Let us, for example, negotiate trading agreements with the European Economic Community which are in our mutual interests. This is an entirely different matter from binding ourselves with their common external tariff. Let us continue to expand our trade with Japan, let us seek new markets in Latin America, and wherever possible in the underdeveloped countries of Africa and Asia. Yes, and let us continue to expand our trade even with the United States! The European Economic Community could pose an economic threat to Canada and the rest of the world if it established a high 45

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

external tariff. It is in our interest, therefore, to do everything within our means to see that this does not happen. President Kennedy is attempting to bring about virtually revolutionary changes in the American tariff in exchange for major reductions in the Common Market's external tariff. The sweeping revisions which the President has in mind are dearly indicated in the following words addressed to the U.S. Congress: "The traditional technique of trading one brick at a time off our respective tariff walls will not suffice to assure American farm and factory exports the kind of access to the European market which they must have if trade between the two Atlantic markets is to expand. We must talk instead in terms of trading whole layers at a time in exchange for other layers, as the Europeans have been doing in reducing their internal tariffs ... Trading in such an enlarged basis is not possible, the EEC has found, if traditional item by item economic histories are to dominate." President Kennedy went on to make this important point with respect to other trading countries, such as Canada. "In our negotiations with the Common Market, we will preserve our traditional most-favoured-nation principle under which any tariff concessions negotiated will be generalized to our other trading partners. Obviously, in special authority agreements where the United States and the EEC are the dominant suppliers, the participation of other nations often would not be significant. On other items, where justified, compensating concessions from other interested countries should be obtained as part of the negotiations. But in essence we must try for a non-discriminatory trade partnership with the EEC. If it succeeds only in splintering the free world, or increasing the disparity between rich and poor nations, it will have failed to achieve one of its major purposes. The negotiating authority under this Bill will thus be used to strengthen the ties of both `Common Markets' with, and expand our own trade in, the Latin American Republics, Canada, Japan and other non-European nations—as well as helping them maximize their opportunities to trade with the Common Market." If the United States and the European Economic Community sharply reduce their tariffs, this should make it easier for our manufactured goods to gain access to the world's two largest markets. But it most certainly cannot be a one-sided benefit. We shall also have to make tariff concessions. Easier access to such large markets as the U.S. and the EEC could provide advantages of "long-runs," the economies of mass production, which the smaller Canadian market has not always been able to provide. But such advantages would not be automatically forth46

CANADA AND THE COMMON MARKET: A SYMPOSIUM

coming. Certain structural changes in some secondary industries may be necessary. In some instances, there are too many small and inefficient Canadian firms competing among themselves, as well as with imported goods, in a small Canadian market. Foreign firms which are able to produce on an optimum scale, as in the United States, naturally have a decided advantage over our firms which are not able to produce on an optimum scale. We shall soon be confronted with the same problem with respect to firms in the European Economic Community, once all internal tariffs are eliminated and a mass consumption market is established. If we are to adapt our economy to the rapidly changing world economy and technology, we may have to begin by making some substantial internal adjustments. This may require the rationalization of secondary industries in Canada which have too many small and inefficient firms. The merging of small and inefficient firms into larger efficient units would not lead to monopolies if we, in conjunction with the U.S. and the EEC, maintain the lowest possible tariffs. Under such liberalization of trade, our industries would be subjected to ample foreign competition. Whatever rationalization of industry is necessary must, of course, be done gradually so as to cause as little dislocation of labour as possible. Furthermore, there must be adequate compensation for any employees and employers affected by such a program. It is important to emphasize that in any plan for streamlining our industries, the important principle is that the total cost must be borne by the entire public, and most certainly not by individual employees or by individual employers. In addition, programs for retraining workers who need new skills or for financing mobility of workers must be adopted. This again must be a public responsibility, and not the responsibility of individual employees. I should like to sum up at this point by saying that, in my opinion, we have essentially two alternatives from which to choose. We Ø go our own way, and build a higher and higher industrial tariff wall around this country. But the consequences will be grim. We shall become less and less efficient as an industrial nation, until it will not be long before we become a backward industrial economy relative to the United States, Europe, and even Japan. Our living standards will decline. Or we can work with the United States and the European Economic Community and others to bring about, in an orderly manner, trading relationships which are as liberalized as possible. This may require the kind of internal adjustments to which 47

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

I have alluded. But only such a policy, in my view, will enable Canada to keep pace with other industrial nations, instead of falling behind. Since I am from the trade-union movement, I shall assume that I am expected to say something about the difference in wage levels between Canada and the EEC and the effect that such differences may have on our ability to compete in trade with the European Community. This is, of course, a very difficult problem to explore, because one would need satisfactory productivity data, as well as adequate information on wages and other employee compensation, to make reasonably accurate comparisons based on unit labour costs. Such comprehensive information is difficult, if not impossible, to obtain. I think, however, that an examination of how wages in the past few years have been increasing in Europe in comparison with wage increases in Canada shows a significant trend. Over the last three years, 1959 to 1961 inclusive, the rate of earnings in most of the European countries rose substantially above the rate in Canada. Indeed, the rate of earnings has actually declined in Canada over the last three years. For example, in 1959, earnings in Canada increased by 3.6 per cent, in 1960 by 3.5 per cent and in 1961 by only 2.8 per cent. This contrasts with Germany, where earnings rose 5.1 per cent in 1959, 9.4 per cent in 1960, and 9.9 per cent in 1961; with France, where rates increased 6.3 per cent in 1959, 6.7 per cent in 1960, and 7.6 per cent in 1961; with Italy, where earnings increased 2.4 per cent in 1959, 4.9 per cent in 1960, and 6.6 per cent in 1961; with the Netherlands, where rates rose 2.3 per cent in 1959, 9.1 per cent in 1960, and 4.9 per cent in 1961; with Norway, where earnings rose 8.8 per cent in 1959, 4.2 per cent in 1960, and 7.3 per cent in 1961; with Sweden, where earnings rose 4.4 per cent in 1959, 6.6 per cent in 1960, and 8.8 per cent in 1961; with Switzerland, where earnings rose 2.4 per cent in 1959, 5.3 per cent in 1960, and 6.8 per cent in 1961; with the United Kingdom, where earnings rose 3.8 per cent in 1959, 8.3 per cent in 1960, and 6.6 per cent in 1961; with Denmark, where earnings rose 7.7 per cent in 1959, 6.5 per cent in 1960, and 11.5 per cent in 1961; with Austria, where earnings rose 6.6 per cent in 1959, 7.1 per cent in 1960, and 10.5 per cent in 1961. Belgium appears to be one of the few countries in Europe where wages have not risen markedly over the past three years, with a 1.5 per cent increase in 1959, 3.8 per cent in 1960, and 3.6 per cent in 1961. (AIl the above figures on wages have been taken from the Bank for International Settlements, Thirty-Second Annual Report.) 48

CANADA AND THE COMMON MARKET: A SYMPOSIUM

The above figures would, of course, be much more meaningful if they were related to productivity changes in the various countries. Nevertheless, they suggest that wage standards are rising rapidly in Europe, and I see no reason why this trend should not continue. A MANUFACTURER'S VIEW: F. E. Cleyn For some time now, there has been growing concern in Canada about the economic changes which are taking place in the world around us. Many of Canada's traditional trade flows appear to be threatened, and many of her familiar trading ties appear to be going by the board. Powerful new trading blocs are being established, and with them new trading patterns and affiliations are emerging. Ask most Canadians for their opinion about the future relationship between the three "C"s—Canada, Commonwealth, and Common Market—and I think you will find that they simply do not know. You will also find a widespread, nagging suspicion that whatever the relationship eventually turns out to be, the changes that are being wrought and the new arrangements that are being fashioned will be neither to our liking nor to our advantage. Indeed, judging by our recent record, we in Canada have just cause for concern. In the past two or three years, Canada's economic growth has been slow and painful. As measured by per capita gross national product, we have in fact had a negative growth-rate. Unemployment is uncomfortably high and will probably get worse before it gets better. The profitability of industry leaves much to be desired; excess capacity abounds in many sectors of the economy; and the rate of new capital expansion is slight. To this has been added, more recently, a major international balance-of-payments problem, which has forced the Canadian Government to put the country's economy on an austerity footing. None of these factors augur well for the future, particularly when one considers that further tests and challenges undoubtedly lie ahead for the Canadian economy by virtue of the changing patterns of world trade. Yet before we are all overcome by a wave of pessimism or selfpity, it would be well to keep in mind, I think, that Canada is not the only country in the world to languish under a cloud of economic difficulties. Indeed, a great many other nations at present find themselves in very much the same boat. In the past year, I have had the good fortune to be able to visit a number of foreign countries. And in the course of my travels I have been struck by the fact that a certain similarity underlies all their fundamental economic problems. 49

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

In most, it is either the balance of foreign trade or the unemployment problem which is uppermost in the minds of the people and their elected representatives. Indeed, some countries—such as Canada and the U.S.—are cursed with both problems at the one time. It is not necessary to be very much of a student of political science to realize that any government in any of these countries, if it wishes to get elected and stay elected, must solve these two problems to the satisfaction of its electorate. In the final analysis, I therefore submit, the future course of international trade will be determined in close relation to the national economic and political requirements I have just mentioned. This is to say, in the course of international bargaining over tariffs and markets, the deals that are made, the changes that are wrought will, in the long term, have to satisfy the respective unemployment or balance-of-trade requirements of the participating countries. Stated simply, no country can be expected to give away a significant portion of its domestic market unless it is compensated by a satisfactory improvement in its balance-of-trade position, and unless it can, in point of fact, "afford" the additional unemployment that the giving away of domestic markets entails. Equally, potential improvements in foreign trade will be gauged in terms of their effect on domestic unemployment. To assume anything else is to assume that a country will knowingly and willingly give a piece of its prosperity to another on a silver platter—an assumption which is most unrealistic in today's highly competitive world. Indeed, I think that it is pretty safe to surmise that the universal goal of international bargaining for tariff and trade concessions will be the improvement of both the employment and balance-of-trade positions of each of the bargainers. This is clearly shown by the fact that virtually every country of the world has announced its avowed intention to "export more and import less." This universal determination to sell more and buy less raises just one question. Who, pray tell, is supposed to buy the avalanche of exports that every country is trying so eagerly to sell, when each of the very same countries, by definition, is equally determined to import less? All of this is by way of saying that while we are undoubtedly on the threshold of a new trading era, the new trends that will most likely develop will be a far cry from the theoretical sort of "free trade" that involves universal or almost universal reciprocity. A good many years ago, Prime Minister Disraeli observed: "Free trade is not a principle, it is an expedient" It seems to me that his point is just as valid today as it was then, and that Canada will have to 50

CANADA AND THE COMMON MARKET: A SYMPOSIUM

tackle her trade problems in this light if she is not to be left at the post. Let us turn now to the more specific problems that the changing patterns of world trade are creating for Canada's manufacturing industries. The crux of the problem, of course, is whether Canadian industry can compete both at home and abroad under the new trading conditions which are being established. In looking at our specific problems we see, therefore, that each segment of the manufacturing group will, of necessity, have to assess its competitiveness. This, of course, is not easy unless we know precisely against whom we must compete and on what terms. Yet it should be kept in mind that when it comes to meeting and beating the competition, Canadian industry is no novice. Because of the dramatic economic achievements it has wrought, there is an unfortunate tendency on the part of many people to regard the Common Market principle as a European invention of recent origin. This, of course, is not in keeping with the facts. The British preference trading system—a system which has held sway since before the turn of the century—was, in point of fact, the Common Market of its day. Just as the European Common Market provides preferred tariffs and trade treatment for its members and less advantageous treatment for non-members, so the British preference system provided preferred treatment for Commonwealth countries at the expense of non-Commonwealth countries. And just as the Common Market is creating intensive competition among its own members, so the British preference trading system created very substantial competition among its members. As a member of the Commonwealth, Canada, of course, has been subject to that competition. We have also been subject to intensive competition from the United States. The U.S., it should be recalled, by virtue of its size, industrial diversification, and large population, qualified as a "common market" in its own right. Competition from this quarter has been the more serious for Canada because of the close proximity of Canada to the U.S. (some 86 per cent of our total population resides within a hundred miles of the U.S. border) , and by virtue of the fact that Canadian tastes and preferences parallel closely those of the U.S. In addition, our industries have been subject to competition from many other quarters of the globe. It is generally conceded that foreign manufacturers have had easier access to Canadian markets than we have had to theirs. We have also tended to adopt somewhat of a "boy scout" attitude in our international trade bargaining. 51

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

We have tended to adhere scrupulously to both the letter and spirit of international trade agreements into which we have entered. Unfortunately, the same spirit has not always been reciprocated by other nations. To sum it all up, then, I suggest that Canadian manufacturers, for a considerable number of years, have been severely exposed to the winds of international competition. Indeed, that so many of our industries have been able to survive under these conditions is a tribute to the resourcefulness and determination of Canadian manufacturing. So much for the past. Now, what of the future? How will the changing patterns of world trade affect us and, more precisely, what should we do? When I talk of the future, I mean the next ten years or so. Also, it is important to keep in mind the nature of the changes that are taking place in the world around us. The first fact of economic life which we must accept is that a new economic-political order has been created in Europe. This order is the powerful and highly successful European Common Market. It would be well to keep in mind, I think, that the European Common Market is probably as much a political device as it is an economic expedient. Indeed, some observers have suggested that the Common Market is an endeavour to create through the "back door" of economics that which could not be created through the front door of politics, namely, a United States of Europe. Down through the centuries, Europe has been torn asunder by war after war—the last two of which, incidentally, involved us as well. If the Common Market can now bring harmony and political stability to Europe, as well as great prosperity, it ill behooves us to complain. In short, what I am saying is that the Common Market is without doubt in Europe's own best interest, even though it may not be to our trading advantage. A second fact that is to be considered is that new nations and new economies are arising in Africa, Asia, and elsewhere out of what, until a few years ago, were merely lines on a geographer's map. These nations, too, must find their proper niche in the changing pattern of world trade. If they do not—if they cannot find a way to economic development and raise standards of living through the free-world channels of commerce—they will surely be driven into the communist camp. And from this, no nation in the free world would stand to benefit. Finally, I think we must accept the fact that Canada, economically and from the standpoint of population, is but a very small force in the momentous changes that are taking place in the world around 52

CANADA AND THE COMMON MARKET: A SYMPOSIUM

us. We cannot—and should not—expect to be able to alter the new patterns of world trade that are now emerging. Rather, all that we can do is to accommodate ourselves, as best we can, to the new conditions which will be created by others. What, then, should Canada do? As I mentioned earlier, the ability to compete is the key to both survival and progress. Thus, in looking at our problems, each segment of the manufacturing economy will have to assess its own present degree of competitiveness. And in order to do this, some assumptions as to the possible nature and source of competition will have to be made. There seem to be three major questions which we should examine: (1) Is the Commonwealth trading system going to continue if Britain joins the Common Market? (2) Should Canada join the Common Market or some other trading group? (3) Should Canada form an economic union with the U.S.? Let us look at these three propositions. In the first place, I think it is reasonable to assume that the Commonwealth trading system will come to an end—or at least will be vastly diminished in importance—if Britain joins the Common Market. Granted, the sun may still not set on the British Empire, yet as far as international trade is concerned it is already starting to shine on the Empire with a quite different economic light. Indeed, the current difficulties Britain is experiencing in trying to safeguard Commonwealth interests in negotiations with the Common Market should be sufficient warning to dispel any doubts as to the ultimate fate of the Commonwealth trading system once Britain joins. Further, concessions which Britain is able to exact from the Common Market on behalf of the Commonwealth may not necessarily be shared out equally. In Europe, I think there is fairly widespread opinion that of all the Commonwealth countries, Canada is the best able to take care of herself. While this may be flattering to the Canadian ego, it doesn't augur well for the extent of any concessions that may come our way. As for joining the Common Market ourselves, that is a sheer impossibility. We are not geographically part of Europe nor do we share many economic interests in common with Europe. Some have suggested that Canada should seek associate membership in the ECM. Unfortunately, associate membership is reserved for the underdeveloped territories, possessions, or affiliates of Common 53

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

Market members. As a result, Canada would sØcely qualify under this heading. As far as joining any other trade blocs is concerned, there simply don't seem to be any which we could join. If the Atlantic trading community which President Kennedy has envisioned ever becomes a reality, there would undoubtedly be a place in that bloc for us. Yet the creation of such a trade bloc, at present, seems to be well beyond the forseeable future. Finally, there is the matter of economic union with the United States. I, for one, firmly believe that while we can accelerate or retard such a union, we cannot prevent it. Historically, our development has always been closely linked with that of the United States. Geographically, we are neighbours. Topographically, the natural channels of communication in North America run north and south, not east and west. Culturally, we share the same language and to a very large extent, the same tastes, Iikes and dislikes. When I say that we will draw ever closer to the United States, I am of course taking a long-range view. Certainly no formal economic union is likely to take place for a very long time—possibly not for another fifty or a hundred years. Yet, informally, the drift is in that direction. To sum up, then, I think that we in Canada will largely have to go it alone. And under these circumstances, our competitors will, in the main, be: the Common Market, the U.S., and the cheap labour areas of Asia. Before examining this competition in detail, I would like to dispose of an economic generality that can be very confusing, to say the least. This generality is the "free-trade" myth. Ever since the coming into being of the European Common Market and its subsequent, dramatic economic achievements, "freer trade" has become an increasingly fashionable cure-all remedy which a great many people are wont to prescribe for virtually any economic ailment. If only "freer trade" can be achieved among nations, we are led to believe, universal prosperity will descend upon mankind. After all, "freer trade" brought enormous prosperity to the Common Market Six, so why should it not bring prosperity to us, as well? This, of course, is an unfortunate and drastic oversimplification of the basic economic facts of life. Prosperity, alas, cannot be tailor-made by juggling national tariffs and rewriting trade laws. If it could be, I dare say it would have been many long years ago. It is important to keep in mind, I think, that "freer trade" can neither work miracles nor can it, in the short term, make any really 54

CANADA AND THE COMMON MARKET: A SYMPOSIUM

significant contribution to greater prosperity. After all, "freer trade" is only a device whereby nations provide greater and easier access to each other's national markets. Thus, while it may change individual shares of any given market, "freer trade" cannot—initially—change the size of that market. And, as we all know, in the long run, greater prosperity depends on baking bigger pies, not merely re-apportioning the slices of a pie that already exists. It becomes obvious, therefore, that if Canada—in any burst of "free trade" enthusiasm—were to adopt a uniform tariff structure vis-å-vis all our competitors, we would, in effect, be assuming that we face the same sort of competition from all quarters. Obviously, this is not the case. In point of fact, we in Canada face competition from the Common Market, the U.S., and a few other countries where mass production techniques and the standard of living are comparable— or at least will likely become comparable in the period under review —to those which prevail in Canada. This is one kettle of fish. Yet at the same time, we are also faced with competition from the low-wage countries of Asia and elsewhere. In the case of this group, mass production techniques already do—or at least can— equal our own. Yet their standard of living is so far below ours and those prevailing in the U.S. and the Common Market countries, that parity or a common level cannot possibly be reached in the period under review. This, as you see, is quite a different kettle of fish. It follows, therefore, that any attempt to accord competitors from both groups identical tariff and trade concessions can only result in disaster for us. This problem, I might note, is by no means confined to Canada. Both the U.S. and the European Common Market are compelled to live and compete with the low-wage countries of Asia and elsewhere. They, too, have come to the realization that the idealistic type of free trade can hardly be applied on a world-wide basis. With this background in mind, I would like to consider briefly how the Canadian manufacturing industry can and will meet the competition that I visualize. To achieve this end, I think we would do well to borrow a leaf from the Common Market book itself; it the Common Market is anything, it is an eloquent exercise in the art of successfully meeting competition. As I mentioned a little earlier, it is not "free trade" per se that brought prosperity to the Common Market. Rather, the remarkable prosperity of the Six was occasioned by the threat of greater competition which accompanied 55

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

the gradual and orderly reduction of tariff and trade barriers called for in the Treaty of Rome. What the Treaty of Rome did, in short, was to create a "wolf", which appears to menace the economies of the six Common Market countries. This wolf of competition shook the Six out of their complacency. On all levels—industry, labour, and government—people got down to brass tacks, worked harder, raised productivity, and increased efficiency. As national production, employment, and income rose, so did the demand for goods and services. This, in turn, further stimulated production, and in this way, the wheel of prosperity was set in motion. Yet it should be kept in mind that the wolf of competition that the Treaty of Rome created was no ordinary run-of-the-economicforest monster. Because of the Treaty's many provisions for the orderly and gradual reduction of trade barriers, the wolf was a carefully schooled animal, indeed. He had been trained to snap hard enough to be convincing and to throw a good scare into the Six, but he had also been taught not to take a significant bite out of any of them. As I pointed out a little earlier, we in Canada have also been exposed—and severely exposed at that—to the wolf of competition. But in our case, alas, the wolf has not had the benefit of training in the Euromart "obedience" school. Our wolf has bitten us hard and often, and he has been responsible for the outright demise of a not inconsiderable portion of Canadian manufacturing industry. Consult anyone in the textile industry on that score just to mention one segment of the economy. I am firmly convinced that greater competition for Canada's manufacturing industries is yet to come as a result of the changing patterns of world trade. There is no magic formula—no hocus-pocus—which can save us from it. Yet what we can do is to ensure that we are in the best possible condition to meet this threat, and we can also do our utmost to blunt some of the fangs of the wolf of competition, so that the transition will be as easy and as painless as possible. As a nation, I think we have already taken some steps to do battle with the wolf. We have reduced our living standards vis-i-vis some European competitors through devaluation of our dollar. The current drive on the part of government to curb its own spending in order to bring the budget more nearly into balance will also help restore vigour to the economy and enable Canada to enhance her ability to compete. Various taxation reforms and incentives introduced in the past year or so should give Canadian industry better tools of production and more research. This should enable us to 56

CANADA AND THE COMMON MARKET: A SYMPOSIUM

make production gains, which again will enhance our ability to compete. More such steps are urgently needed. We now have a productivity council, and this is a good thing. But what we desperately need is a nation-wide publicity program, supported to the hilt by government, industry, and labour, which will show the Canadian people what we are up against and what we must do about it. I am convinced that the Canadian public would respond to such leadership—in fact, I am convinced that such leadership would be welcomed. In the final analysis, I think it fair to assume that the leaders of all of our political parties agree that Canada is caught in a worldwide race for productivity, a race in which there will be both winners and losers. Canadians, I am afraid, have come to regard the second highest standard of living in the world, which they have enjoyed to the present, as something sacred and timeless, something which is theirs merely for the asking. The blunt fact, however, is that every nation in the world today is trying to improve its standard of living, often at the expense of that of its neighbours. Whether we in Canada can improve our living standards—indeed, whether we can maintain the ones we presently enjoy—in the long run will depend entirely on whether we are less complacent and more competitive than those who seek to improve their lot at our expense. We have been told frequently by political pundits that there may well be another federal election in Canada within a year or so. If this is the case, then I recommend that the large sums of money that are used for partisan political purposes should, by mutual agreement, be used at least partially to prepare the Canadian public for the tests that lie ahead. Be it noted that, although tinkering with tariffs and trade flows may, for a limited time, control the relentless universal struggle for higher living standards, yet, in the long term, our share of prosperity, in a world where prosperity is so desperately sought by so many, will depend entirely on how hard we work and how acutely we manage our own affairs. Like charity, economic progress, of necessity, must begin at home. AN AGRICULTURAL VIEW: H. H. Hannam The effects of the rise of the Common Market on Canadian farmers are likely to be both bad and good. For Canadian farmers the short-run difficulties are likely to be greatly intensified if the United Kingdom joins the Common Market 57

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

Community. And as Hon. Dana Wilgress said, in a report issued by the Canadian Trade Committee: "the long-term advantages will have to be very great to compensate Canada for the loss of the preferential position now enjoyed in the United Kingdom market." Observing from a distance, our farmers feel that much depends upon: (1) how high-protectionist the Common Market countries prove to be in their shaping and implementing of a common agricultural policy and how self-sufficient in farm products they may aim to be, and (2) how successful the United Kingdom proves to be in negotiations on behalf of Commonwealth producers with particular references to temperate foodstuffs, that is farm exports from New Zealand, Australia, and Canada. Incidentally, it appears generally agreed that the part of the Common Market program which has given rise to the greatest difficulties is that which related to agriculture. Ever since the Common Market issue took shape, we have had repeated discussions with the national farm organizations of the Six in meetings of the IFAP (International Federation of Agricultural Producers) . The officers of those organizations have assured us that they are not planning to be a high-protectionist trading bloc, determined on benefiting themselves, inside the Common Market, at the expense of those outside. As the common agricultural policy of the ECM develops, however, one cannot feel confident that this viewpoint clearly predominates. For example, among regulations adopted by the European Council which apply to wheat and coarse grains, there is one which says that a member state may close its borders against grain from another member state or from outside if its grain market becomes "subjected to or threatens to become subjected to serious disturbances." Moreover, if a member state closes its borders against grain from another member, it must automatically close its border against grain from abroad—subject to the concurrence of the Commission and the Council of the Community. A feature of this regulation disturbing to Canada is that it makes no distinction between high quality milling wheat and feed wheat or coarse grains. More encouraging is the announcement made by Canada's Minister of Trade and Commerce on July 16, 1962, that through GATT tariff negotiations Canada has received assurances with respect to its rights of access to the European Common Market covering nearly $250 million of Canadian trade. These GATT negotiations included 58

CANADA AND THE COMMON MARKET: A SYMPOSIUM

an agreement on quality wheat. (And the definition of quality wheat includes Manitoba Hard Western, Nos. 1, 2, 3, 4, and No. 5, destined for milling, also Canadian Durum.) Since wheat is the largest single export item to the Common Market from Canada, naturally policy decisions regarding wheat by the Community are of vital importance to us. The Minister's statement says: "By virtue of these agreements, and of the definition of quality wheat, the negotiated settlement should cover Canada's normal and traditional export of wheat to the territories of the European Economic Community." Of total wheat moving in international trade the Six take 15 per cent and the United Kingdom 20 per cent. Last year Canada supplied 24 per cent of wheat imported by the Six and 25 per cent of wheat imported by the United Kingdom. As an indication of our trade with the Common Market in other farm products, the GATT negotiations included agreements relating to: (a) free entry for flax seed, soybeans, rapeseed, sunflower seed, and oil cake and meal; (b) other products, on which tariff rates are bound mostly at lower tariff rates than prevailed before; these include crude linseed oil; rapeseed, soybean, and mustard seed oil for industrial purposes; a number of grass seeds; canned fruits; apples; maple syrup; cheddar cheese; seed potatoes; purebred cattle; horsemeat; dried apples and pears; dried peas; raw fur skins; and tobacco. The import levy on farm commodities which went into effect on August 1, is the ECM program feature which will best express the measure of protection the Common Market countries are determined to apply. This levy will apply on all farm commodities except fruit and vegetables which are left under import tariffs as formerly. The rate of levy will be determined by each country and later by the Community as a whole. The rate generally will be the amount required to raise the import price to the level of price support established in each country and later in the Community. This means that a high or low support price in any country or in the Community will automatically provide a high or low rate of import levy. It could be of course that the average rate of import levy into the Six may not be more than the average rate of import duty which applied formerly. In that case, Canadian producers would be under no serious disadvantage as a result of the rise of the ECM in Europe. However, if the United Kingdom joined the Common Market and 59

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

were required to apply its general regulations, our Canadian producers would be under serious disadvantage regarding access to the British Market—unless some special arrangements could be worked out in Common Market negotiations by the United Kingdom. In accordance with the agreement under GATT, the import levy does not apply at present on high-quality wheat. How soon it will apply seems somewhat uncertain. As for United Kingdom negotiations with the Six, we considered Rt. Hon. Edward Heath's speech, putting forward the United Kingdom's application for full membership in the ECM, a masterful one. In it, he set forth the case for Commonwealth producers in an effective manner. Then in critical discussions of recent weeks it has been gratifying to us to see the United Kingdom negotiators hold out firmly for some specific guarantee of "comparable outlets" for Commonwealth farm products whose long-time traditional market has been in the United Kingdom. If the United Kingdom joins, we not only face a gradual elimination of Commonwealth preferences which our farmers have enjoyed for the past three decades but we are to be up against "reverse preferences"—which means that agricultural producers within the Community will get preferences and Commonwealth countries will be outsiders and dealt with accordingly. To organized agriculture in Canada, one of the brightest features of long-time policy is the emphasis which is being placed upon the possible use of international commodity agreements. Negotiators are apparently suggesting the use of international agreements to cover wheat, coarse grains, beef, butter, and sugar. The thought is that the international commodity agreement is a technique which could best surmount the difficulties of trade in agricultural products between the Common Market on the one hand and Commonwealth producers and others in non-member countries on the other. Also, interest is growing in agricultural circles in many countries in the technique of international commodity agreements—fashioned somewhat along the lines of the international wheat agreement— which offers a procedure to overcome the worst aspects of national price supports. This could, it is felt, both achieve farm-price support on a basis mutually beneficial to all producers concerned and, at the same time, provide a program which could contribute toward and be harmonized with a policy of expanding world trade. While not an official statement, what appears to us to be a good summary of the progress in negotiations on farm commodities 60

CANADA AND THE COMMON MARKET: A SYMPOSIUM

between the United Kingdom and the Six appeared in the Wall Street Journal of August 6. It said: Among points of agreement were: Endorsement of world-wide commodity agreements with points clarified, amplified and set out more effectively; Holding of an annual review of agricultural policy in the Community; Elimination of the 18 per cent Common Market tariff on tea; Admission that New Zealand butter should be treated as a special case, with provisions established to guarantee continued outlets for this butter in the enlarged Community; Clarification of provisions to guarantee continued markets in the enlarged Community for India, Pakistan and Ceylon, and for financial help to these nations. Some clarification of what should be done if Commonwealth exports suffer as a result of British entry; Opening of Common Market doors to eight independent Commonwealth countries as associates should these countries so desire; Offer of association to dozens of British dependencies (54) ranging from Kenya in Africa to the Falkland Islands in the South Atlantic; and Clarification of the Community's price policies in agriculture.

In the same article, it is reported that Dr. Mansholt, VicePresident of the Commission of the EEC, declared yesterday that "a world agricultural conference could be called next year, probably next autumn, to start the move to formalize world farm commodity trade." World statesmen, I believe, are coming to agree that trade policies which are acceptable and satisfactory for the goods of secondary industries are not adequate or effective for trade in farm commodities. This has become the conviction during the past decade and a half of our world farmers' organization (IFAP) . For the past fifteen years they have been promoting together their common hopes for a more orderly system of international marketing and distribution. "Farming interests," says Roger Savary, Secretary-General of IFAP, "must be reconciled through international agreements or they will suffer more and more everywhere." Our CFA carries this thought into its appraisal of the European Common Market. We support continuing effort to achieve unity through working together, through consultation and negotiation and by means of a greater and greater measure of intergovernmental agreement and co-operation. We do not hesitate to face the challenge of a rapidly changing world. We do not hesitate to face the risks and difficult adjustments necessary to meet the challenge of a new era in trade relationships. Last autumn our CFA issued a policy statement in which, amongst other things, we declared: "The CFA has looked upon the 61

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

development of the European Common Market as being, in principle, a policy of statesmanship and wisdom. It has recognized the dangers of the agricultural policy of the Six taking a protectionist turn that could seriously jeopardize our markets in some commodities. But it has believed that the right answer to these problems lies in acknowledging the rightness of the Common Market concept, and bending our energies through consultation, agreement, and enlightened trade policy on our part, toward turning to our benefit the trade potential which should be opened up by the huge market of a united, strong, prosperous and expanding Europe."

62

GREAT BRITAIN AND THE COMMON MARKET Lord Amory I am very glad indeed to have this chance of participating in these discussions on a subject, as I think, of the utmost importance to Britain, Canada, and the Commonwealth, and indeed to the rest of Europe and to the United States as well. The organizers of this conference have displayed an uncanny sense of timing. No moment could be much more hazardous for Professor Cairncross or for me to pour out our thoughts on this subject with our natural buoyancy of spirit and freedom from inhibitions. Like King Agag I must walk delicately. I have not even Mr. Cairncross's status of Economic Adviser to the British Government, a designation which carries with it an implication of independence of judgment. I must clearly conduct myself as it is said that a porcupine makes love—very carefully. Because the Treaty of Rome which set up the E.E.C. confined itself specifically to economic and trade collaboration and because Britain's present negotiations have been concerned with these problems, there is a natural tendency to concentrate our thoughts and anxieties on the Customs Union and Common Market aspects. We perhaps do well therefore at the start of our discussions to remember that the E.E.C. came into existence as part of a movement for European unity. And that, although progress to date, deriving from the Treaty of Rome, has been limited to the economic field, the inspiration and aim behind it is an urge towards closer association in the political sphere. How far such political association should go is something the Six themselves are not agreed on. But the will and intention are there to achieve some degree of closer political association, and that is an aim that the British Government have supported. So I am going to ask you to accept at the start three premises. The first is that this is a historic and imaginative venture, pregnant with consequences for the whole world and one which is already under way and gathering increasing momentum day by day. The practical question is therefore not whether there should be such a drawing together in Europe—it is happening—but what our attitude should be to it and how we should attempt to influence its development.

63

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

The second premise is that we have to consider this issue against the background not of a static world but of one in which the rate of change is accelerating all the time. Quite apart from this European venture we are all going to be faced by great changes. We cannot keep things as they are, and therefore the relevant consideration is whether this European movement is in line with the trend of world changes or not. And the third is that the Commonwealth itself is changing as fast as the world and that therefore we must consider this question of Britain's membership of the E.E.0 against the background, not of the past or the present or a theoretically conceived future Commonwealth, but of the Commonwealth as it appears to be developing in fact. From now onwards I am going to talk mainly about how this issue appears to the British Government, and why my Government feel most strongly that if we can become members on reasonable terms we ought to do so, not only in our own national interest but in the long-term interest of the Commonwealth too. It would not of course be true to say that opinion in Britain is at all unanimous about this. It is in fact divided and confused by the complications the divisions cut across normal party lines. There was in fact a remarkable measure of agreement a year ago in favour of entering into negotiations, covering all three political parties and the representative bodies of employers and the Trade Unions. But almost everyone reserved final judgment and still does until the end of the negotiations discloses the possible terms. My Government at the start of the negotiations said that while the decision was obviously one ultimately for the British Parliament to decide, they would throughout the negotiations do their utmost to safeguard essential Commonwealth interests and would take Commonwealth views into consideration before reaching a decision. While not promising in fact to succeed in safeguarding Commonwealth interests, they stated that if the consequence of Britain's entry would be the disruption or severance of Britain's links with the Commonwealth or fundamental damage to Commonwealth economies it would be too high a price to pay for British membership. They also said that the terms must be fair to British agriculture; and that the interests of their partners in the European Free Trade Area must be safeguarded, either by the opportunity for membership or by association or in other ways. I will only deal very briefly with the history of this venture. 64

GREAT BRITAIN AND THE COMMON MARKET

In doing so I would like to pay a tribute to the excellent pamphlet by Dr. L. D. Wilgress sponsored by the Private Planning Association of Canada. The idea of European unity was launched by Sir Winston Churchill in his speeches at Fulton, Missouri, and at Zurich in 1946. Here are two excerpts: "The safety of the world requires a unity in Europe from which no nation should be permanently outcast"; "The remedy 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." A number of enthusiasts in Europe—and most notably M. Monnet in France, more than any other one man the inspiration of the E.E.C.—have been working wholeheartedly for this ideal since the end of the war. The Americans from the time of the Marshall Aid Program had consistently urged the nations of Europe to unite and maximize their strengths. British Governments, both Labour and Conservative, saw the advantages but mistrusted the means. They were inclined to be suspicious of the supranational institutions proposed, and saw practical difficulties in reconciling the proposals with existing Commonwealth trade arrangements, notably the preferences, and with the methods by which the British Government supported our agricultural industry. So our Government tried to get European support for a wider, looser form of industrial free-trade association which would include the Six with their tighter E.E.C. association. After more than two years' effort these negotiations failed, and Britain then, with the other countries who felt they could not join the E.E.C. on the literal terms of the Treaty of Rome, formed a freetrade association—not a customs union—of their own, the EFTA. The essential difference in the trade sector between this and E.E.C. is that while both groups aim at the gradual removal of all customs barriers between the members, E.E.C. aims also at a common external tariff, whereas each member of EFTA retained its own tariff against third countries. EFTA was so designed as to facilitate a merger with the E.E.C. if opportunity arose. A year or so was then spent probing and sounding the members of the E.E.0 in an attempt to find a basis for amalgamation of the two groups. At the end of that time the British Government concluded, with I think the concurrence of their EFTA partners, that if there were to be an inclusive association it would have to be substantially on the lines of the E.E.C. The Six were clearly not willing to water 65

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

down their ideas to get any more countries in, or risk the destruction of the concept of a customs union. But the British Government made it clear in entering into negotiations that certain concessions or special arrangements would be essential on the part of the Six to meet Britain's traditional relations with the Commonwealth and its obligations to its own farmers and the individual difficulties of the then EFTA countries. The British Government believed and still believes that such special arrangements would be possible without damage to the fundamental aims and concepts of the E.E.C.—that is, within the scope of the Treaty of Rome. It was confirmed in this belief in view of the special arrangements agreed to meet France's obligations to her dependencies. I would now like to summarize shortly why my Government believe that if we can negotiate reasonable terms we ought to join the E.E.C. The first reason is that twice in the lifetime of many of us Europe has almost destroyed itself and endangered the whole of civilization by internal strife. Excessive nationalism and jealousies have embittered relations in peacetime and bedevilled economic progress. Faced in particular with the dominant danger from the other side of the Iron Curtain it must be sensible and right for the free nations of Europe to adopt policies of co-operation in place of the old destructive rivalries. In particular any scheme which promised to find a final answer to the traditional Franco-German rivalry should be wholeheartedly supported. American financial aid to O.E.E.C. was meant to be an emergency pump-priming operation and if it was to be justified must be replaced by positive mutual help on the part of the nations of Europe themselves. These arguments are overwhelming; but, if this is a sound project for Europe, Britain should not only approve but seek to support it positively. The second reason is that many times in our long history Britain has tried to isolate itself from events in Europe. We have never for long succeeded. Always we have felt compelled at some stage—often very belatedly and in awkward circumstances—to intervene and influence policies and events. The historical and geographical truth is that Britain as well as being part of the Commonwealth is part of Europe. And that is a fact whether we like it or not. The third reason is the danger that lies in the continuing existence of two economic groups in the E.E.C. and EFTA, which if 66

GREAT BRITAIN AND THE COMMON MARKET

allowed to develop in rivalry might well produce increasing political strains and controversies. Europe can not afford to run such a risk if it is to maximize its strength. It is dear that, if we avoid a hot war as most of us probably believe should be possible, we are in for a period of intense economic rivalry between the Communist and free nations. If that is so we must not waste our combined resources. The fourth reason is that Britain's livelihood depends on trade. We must, to survive, compete successfully with the manufacturers of Europe and North America in the markets of the world. Today and still more in the future—if present technical trends continue—efficient manufacture calls for big-scale production units and large unobstructed markets to justify the degree of specialization called for. We cannot with equanimity envisage the existence on our doorstep of a market of 170 million people with a rapidly rising purchasing power from which we might be excluded. The last reason is a firm conviction that an economically strong Britain is likely to be of much more use to the Commonwealth, both as a trading partner and as a provider of capital and of aid to the underdeveloped countries, than a Britain struggling to maintain her existence. Equally a Britain with an influential voice in the councils of Europe will be of more value than a Britain isolated from European political decisions. Mr. Thompson yesterday said that he feared the entry of Britain would mean the end of the British constitution and of the Commonwealth. I am sure he knows that my Government would not recommend our entry if for one moment they thought that. Our legal experts—the Lord Chancellor and Attorney Generalhave assured Parliament that the sovereignty of the British Parliament would not be abrogated or eliminated. What Parliament would be doing would be to agree to the exercise of the power of regulation within certain limited fields by the Community. As regards the monarchy there are of course already two monarchies and a grand Duchy within E.E.C., and they do not seem to fear any danger to their constitutions. As to the fear of the end of the Commonwealth it is I think important to remind ourselves that the Commonwealth has no constitution and no binding collective policies. There is today no common allegiance to the Crown, no common foreign policy, no common defence policy, no common economic or social policies. So Britain's political obligations to the E.E.C. need not conflict. 67

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

The fear has been expressed that a stable Britain would be associating with an unstable Europe. If indeed there is a measure of political instability in Europe, perhaps that is one more argument why Britain should contribute a stabilizing influence. Britain's influence as a member would not we believe be inconsiderable. Outside it would be far less effective. Those are the reasons, and you will see that they relate to political association as well as economic collaboration. I want to emphasize that the views of my Government and the decision to enter into negotiations were not conclusions hastily arrived at. They are the result of deep thought about world developments over the years ahead and numerous appraisals of policies and their consequences carried out over the past ten years. I think perhaps the greatest difficulty confronting those who reject the arguments I have just described is in finding a positive alternative policy. No doubt Britain will not succumb if she does not join E.E.C. She will find as she has always done some way of earning a living. It might be more comfortable in some ways for us not to join, as our entry will mean the removal of quite substantial tariff protection for our manufacturing industry, which will face the full blast of European competition in the home market. But it is significant and I think encouraging that most British industrialists realize that we must be efficiently competitive with European industry, anyway, if we are to compete in third markets and that we had better face up to it, let in the fresh winds of competition in the home market, and get down to it. Some of our industries no doubt will face quite painful competition. But British industry seems ready and anxious to face the challenge and believes in the long run it will benefit from doing so. There is one positive alternative policy that has often attracted the most serious study on the part of British Governments. Could the British economy be based fairly and squarely on trade with the Commonwealth? It is an idea that has great sentimental attractions, but unfortunately the more carefully it is studied the less realistic it is seen to be. It does not stand up to examination. At present Britain does a little more than forty per cent of its trade with Commonwealth countries, and over recent years the proportion has been tending downwards. In past days, of course, Britain's role was accepted as being the manufactory of the Commonwealth, exchanging manufactured goods for food and raw materials. Every Commonwealth country has sought to diversify its economy and build up its own industry behind 68

GREAT BRITAIN AND THE COMMON MARKET

whatever tariff protection was necessary. And such policies are quite understandable. Today Britain is buying from Canada $5 for every $3 Canada is buying from Britain. In any particular circumstances each Commonwealth country has felt free to put its own economic interests first and has done so. Memorable exceptions of course have been the two world wars when the old Commonwealth countries rallied to Britain and subordinated their own interests singlemindedly to the collective needs of the combined war effort. As time has gone on Commonwealth tariff preferences have tended to diminish in relative importance, partly as a result of the impact of specific rates on a higher level of prices, partly by the erosion of preferences given to Britain, partly by the GATT rule against any new preferences and partly by lack of interest on the part of some of the newer independent Commonwealth countries. It surely cannot be maintained today, whatever may have been the case previously, that Commonwealth tariff preferences are really the basic foundation on which the Commonwealth stands. At no Commonwealth economic meeting have any Commonwealth Governments except Britain proposed any closer or more positive trade links. Any idea of formalizing or institutionalizing existing links has invariably been opposed. So no Commonwealth policies through which Britain could find any solid central basis for her trade which would enable her to ignore European outlets has yet appeared over the horizon, and no Commonwealth Government seems to have any such policy to propose. More's the pity. If it had it would have been eagerly accepted by public opinion in Britain, which would have rejoiced at the opportunity of fortifying its links with the Commonwealth. So Britain with her population of more than fifty millions must exploit every possible market in the world with the greatest energy. While Britain is in favour of closer political association there are obvious limits to the degree of political integration that Britain could accept. Some limitation on national sovereignty on a functional basis, we should be ready to accept. Indeed national sovereignty today is a danger when carried to excess. The nations already accept practical restrictions on their independent action through membership of such bodies as the U.N., GATT, N.A.T.O., etc. It is in fact a normal element in any treaty. It is true that in the case of E.E.C. no provision is made for withdrawal from or termination of membership. 69

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

But whatever forms and degrees of political association are agreed on eventually within the E.E.C. will require a new treaty, and the acceptance of the obligations will require unanimity. So there is no question of accepting unknown commitments blindfolded. Britain would I am sure never accept a commitment that would conflict with our monarchy or any other fundamental part of our constitution. We could not envisage forming part of a European federation as closely integrated as the United States. A looser form of confederation of the sort favoured by General de Gaulle might well be sensible. I will not refer in any detail to the recent negotiations. The subject matter is immensely complicated and highly indigestible. An immense amount of painstaking work has been done. The British negotiating team has had a formidable and exhausting task over the past ten months. They have had to argue with six national delegations and the Commission, the defenders of the 'ark of the covenant' of the E.E.C. The main problem has been that of reconciling the concepts of the E.E.C. and its common external tariff with continuing outlets for Commonwealth trade. From the start the British Government promised that they would keep Commonwealth Governments in close consultation throughout the negotiations and seek their views at every stage. This has scrupulously been done and Canadian Ministers have expressed themselves satisfied with the degree of consultation which has taken place. Trade problems have been broken down and considered under the following headings: (i) Traditional Commonwealth exports of temperate foodstuffs, wheat, meat, dairy products, fruits, etc. (ii) Commonwealth exports of tropical products (iii) Commonwealth exports of industrial raw materials (iv) Commonwealth exports of manufactured products (v) The special problem of cheap textiles, etc. from the less developed countries of the Commonwealth (vi) Associated membership for appropriate less-developed Commonwealth countries (vii) Reconciliation of the agricultural policy of the Community with arrangements for the support of agriculture in Britain Quite soon it became evident that the permanent maintenance of Commonwealth preferences could not be reconciled in practice with the common external tariff which the Six regarded as of basic importance. 70

GREAT BRITAIN AND THE COMMON MARKET

And now where have the negotiations got? The hope and aim was that by the end of July they would have reached a stage at which British Ministers would know the specific terms on which entry by Britain could be effected and be able to consider the package as a whole. In spite of the greatest efforts this has not in fact proved possible. The bargaining on both sides has been tough. The Six, though most of them much want Britain to join, have been determined not to dilute or weaken the essential principles of the Community as they see them. France has been particularly insistent about that. The British on their side, though they have recognized that the Commonwealth preferences cannot be permanently reconciled with the common external tariff of the Community, have pressed hard for comparable opportunities for the sale of traditional Commonwealth exports. A good deal of progress has been made. As regards manufactured goods from the industrialized countries of the Commonwealth there would be a tapering off of the preferences over the first eight years and after that the common external tariff would apply. As regards the products of the underdeveloped countries of the Commonwealth it has been agreed in principle that opportunities to develop their trade ought to be provided (though the mechanisms have not yet been decided) and it has also been agreed to reduce the 18 per cent Common External Tariff on tea to zero. The British demand for nil tariffs on the more important Commonwealth exports of raw materials for industry such as lead and zinc, aluminum, woodpulp, newsprint and timber, and some other items have only so far been met as regards woodpulp and some minor items. A list of British dependencies to whom associated membership should be offered has been agreed, and it will also be available for independent Commonwealth countries in Africa and the Caribbean who so desire it. A scheme for an annual agricultural economic review for the Community, and for remedial action if such a review shows it to be necessary, has been agreed. This would go some way towards meeting the anxieties of British farmers. The stiffest difficulties have, not surprisingly, been found in the fields of temperate foodstuffs and processed foodstuffs. For the more important of the latter we have demanded nil tariffs. The problem for temperate foodstuffs has been to reconcile the continuance of opportunities for traditional imports from the Commonwealth into Britain with the aim of the European Agricultural Policy for 71

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

progress towards greater self-sufficiency. It has been recognized that here the price and production policies of the Community are the crucial factor. The whole problem centres round the question of how protective the Community's agricultural arrangements are going to be. If price and production targets are high, uneconomic production will be encouraged and the opportunities for outside countries will be curtailed. The Six have said that they will pursue reasonable price and production policies and leave reasonable opportunities for imports. The British negotiators have not been content with such a vague phrase and have demanded more specific formulae and assurances. A real difficulty is that on this important matter the Six themselves have not really reached an agreed policy—the French and Germans being quite out of step. Agreement has therefore not yet been reached in this very important sector, though all are in accord that the longer-term solution for many of the difficulties should be sought in world-wide commodity agreements. As regards the other EFTA countries there is not yet much to report. The British Government has been keeping their EFTA partners in very close touch with the negotiations. The three neutrals—Sweden, Switzerland, and Austria—have themselves been negotiating for some form of association. Denmark and Norway will negotiate for full membership as will Ireland. Portugal and Finland may apply for some kind of association. You will note that I have not said much about the attitudes of Commonwealth countries. This is partly because my subject was "Britain and the Common Market" and partly because it would be rather an impertinence on my part to state or forecast their individual attitudes. I will only say this. It would be understandable if every Commonwealth country had some anxieties on the short-term effects at any rate of the changes in trading arrangements that would be entailed. It is clear that Commonwealth preference on imports into Britain would be phased out, and in many cases would be replaced by an import duty or some other form of fiscal protection. But the existing preferences are not the sole foundation of Commonwealth trade. Indeed of recent years there has seemed to be a decreasing enthusiasm for them. You will not mind me, I am sure, reminding you that in the past Canada has not always been among the most fervent advocates of the maintenance of the system at all costs. The question, and it is a big and speculative one, is whether compensating or more than compensating gains are likely to be 72

GREAT BRITAIN AND THE COMMON MARKET

realized in the long term through the growth and expansion of the huge market of about 250 millions that would result from the entry of Britain and the other EFTA countries—the largest trading unit in the world. It is significant that both Canada and Britain have increased their exports to the Six faster than to any other part of the world during the past two years. My Government believe that the potentialities for a dramatic future expansion of sales of Commonwealth products to Britain are somewhat limited by the comparatively slow growth of our population. Commonwealth countries will therefore in any case have to look for new markets for their expanding production. Trade diversion may well reduce the share of the European market held by outside countries but enhanced growth should increase the size of the market. The trouble is that the possible long-term gains are intangible and impossible to assess while some losses in the short term are more measurable. But the existence of a huge, expanding European market would in the long term almost certainly offer very valuable opportunities for expanded trade to Commonwealth producers, particularly in the field of raw materials and semiprocessed goods, and in the long run for manufactured goods too. Much, of course, depends on how outward-looking the Community will be. One can only say that some of the Six genuinely seem to want it to be outward-looking, and if Britain were in it her influence as a great trading nation would be used strongly to see that it became and remained an outward-looking association with as low an external tariff as possible. The gains to the Commonwealth through such British influence inside the E.E.C. might be very substantial. Indeed, if the British Government thought that the E.E.C. was going to become an inward-looking, self-sufficient, highly protected community, it would not, I am sure, dream of associating itself with it. What is going to happen now? The talks will be continued in late September. It is recognized that the room for manoeuvre for both sides is now narrow. The British will report to the Commonwealth Prime Ministers on September 10 the progress made and the situation that has been reached. After that further progress in negotiation will be sought with the outstanding matters, in particular with formulae dealing with future trade in temperate foodstuffs, and the treatment of raw materials and processed foodstuffs. It is not yet possible to forecast what the final result will be. When the outcome is known as a whole 75

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

as well as in parts, then it will be for the British Government, in the light of the views expressed by Commonwealth Prime Ministers, to decide whether they can recommend Britain's adherence to Parliament. It is a tremendous issue, and a decision that we must all hope will be reached calmly, dispassionately, and without rancour. It will be a historical decision for Britain, for Europe, and for the Commonwealth, and a precedent of vital import for the whole of the free world. And so the note I would like to end on is this. We are living in a revolutionary world. However much we might like to do so, the one thing we cannot hope to do is keep things as they have been or are now, or freeze the existing patterns of trade. Whether Britain goes into the Common Market or not, big and in some cases no doubt awkward changes are in store for all of us. The comparison is not between British membership and the existing situation, but between the situation with Britain in and that with Britain out. What will happen if Britain stays out? The big question there is whether this closer European political and economic association makes sense against the background of the kind of world that is opening up—a world in which science has made nonsense of present boundaries, time-honoured restrictions, excessive nationalism, and past concepts of time and space. My Government believes that, with the vitally important provision that it is an outward-looking body regarding itself as a step on the road to still wider forms of association, it does. The recent courageous initiatives in the trade field of the President of the United States are surely immensely significant and encouraging and should receive the whole-hearted support of us all. They open a way to an extension of this European venture to a far wider field. I can assure you that Britain has no intention whatever of losing interest or playing a less active part in the Commonwealth. What we want to do is to put ourselves into a position where we can play that part with strength and influence. The proof of this European venture is whether it will contribute towards the growing unity of the free world. It is because they feel that it can and should that my Government want Britain to participate fully in it. A COMMENT: H. I. MacDonald I should like to say how pleased I am not only to participate in the formal discussions of this Conference, but to appear on the same platform as Lord Amory. In view of the rate at which British 74

GREAT BRITAIN AND THE COMMON MARKET

Conservative spokesmen have recently been displaced, any Canadian in my position might be expected to feel some anxiety about presenting a critical commentary on his very frank address. Of course, I am exposing Dr. Amory to no such hazard. According to the privileges attached to the honorary degree which was conferred on him yesterday, he now has a guarantee of full academic, if not diplomatic immunity at this Conference. In fact, as you know Sir, I am fully in accord with the British decision to seek membership in the European Community and, during the past year, I have exerted some considerable effort and spoken not a few words in trying to convince some Canadians of the ultimate wisdom of such a policy. I believe it is wise not only for Britain and Europe but, in the long run, for the world and even for Canada, although I am not implying that these last two categories are mutually exclusive. My reasons for supporting the British decision so whole-heartedly are not unlike your own. At the outset, I would like to summarize them briefly. In the first place, I believe that tighter bonds in Western Europe are of paramount importance for the unity of the West, for this is the first step on the crucial path to some form of established "Atlantic partnership." I am fully aware, of course, of the logical pitfall in this statement. If the offshore island of Britain must be tied to Europe to consolidate one pole of the partnership, then surely Canada must be wedded to the United States at the other. I shall resist the temptation to comment that we already are, and simply suggest that there are strong pragmatic, if not logical differences at this pole of the Atlantic community. Secondly, if it is logical for Britain to go into Europe, then it is even more desirable that this should happen for the first time in history during conditions of peace rather than war. An association born in peace and based on consent could well fulfill the dreams of Charlemagne for a fully united Europe. In turn, I believe the prospects for continued peace in Europe and the world will be the greater as a result of new British responsibilities shared with her neighbours. Thirdly, the future attitude and shape of Europe is important not only for the unity of the West itself, but in particular, for that part of the world that must soon attain the higher standards of living sought in the revolution of rising expectations. I believe that both Britain and Europe will be strengthened by economic union; to that extent, they will be able to contribute more to the economic and technical growth of the developing countries. 75

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

Fourthly, I believe that membership in Europe is important to Britain for much more subtle reasons than are popularly described. I believe that membership will pose a tremendous challenge to British ingenuity. By this, I do not mean the "cold shower" stimulation of competition and economic growth described by Mr. Macmillan. Rather, I think of the inspiration for the mother of parliaments to adapt her political and parliamentary skills to the creation of a united Europe. I can foresee this challenge providing the same impetus to British life as the development of parliamentary democracy did in the past. Although the Treaty of Rome is presently sacrosanct, it is also true that the EEC is a changing and developing institution and that Britain can contribute greatly to the liberal appearance of the new Europe. However, notwithstanding my own undisguised enthusiasm for Britain in the EEC, I sense that at this Conference I am probably expected to play the role of devil's advocate and to question rather closely some of Lord Amory's statements and Britain's sentiments. By casting myself in that role, I do not use the term in the literal sense of finding out and reporting on every possible piece of evidence against the moral character of a candidate for canonization, and presenting every possible reason why he should not be regarded as a saint. With respect, Sir, no one expects Britain to be a saint, nor indeed should it be necessary to present a statement of moral suitability to the company of Europeans. Equally, I do not wish you to feel that as devil's advocate, I thereby become a spokesman for the Canadian Government. Certainly, the results of the recent election have made it abundantly clear that the devil needs no advocate in either the Maritimes or Western Canada. Rather, it is because I am anxious for the negotiations to succeed and for the results to be satisfactory that I wish to pose some questions which I believe must be properly considered and to formulate issues which, once resolved, can only strengthen Britain in the EEC. I wish to concentrate largely on political problems or, at least, on broad questions of political economy. It is true that the present negotiations have made economics the prominent issue, but by that very token, there is a danger that the fundamental, long-run, political questions may be ignored. Yet, these are the very questions that must be answered if the project is to be a lasting success. At this time, I believe it is fair to say that the economic pros and cons for Britain are fairly evenly balanced. As a European official once suggested to me, the production of aircraft is probably the only industry 76

GREAT BRITAIN AND THE COMMON MARKET

where the British market does not already provide for full economies of scale. On the other hand, it is also true that it is difficult, if not impossible, to assess all the economic consequences of a more subtle kind. For example, British participation in the common transport policy and common energy policy may bring in its wake broad advantages that could transform the face of the British economy. In another area, I have heard it suggested that if Britain does not enter the EEC, then there will be a flight of capital from Britain to EEC that would be disastrous not only for the British economy, but also for the whole Commonwealth. On the other hand, if Britain goes into the Common Market, it is possible that there will not only be greater home investment in Britain but greater American investment also. If this American investment represented a diversion of capital from Canada to Britain, that alone should be sufficient to reconcile many Canadians to the British decision. However, I am more immediately concerned by the nature of the sticking point in the present negotiations, for it represents the expression of an economic attitude that is highly undesirable in Britain, but totally inappropriate in the Commonwealth and Canada. I refer to the phrase that has been used with respect to temperate zone agricultural products, "comparable outlets". Is this really a sensible approach? Does it not smack of preservation of the status quo? Are we really prepared to settle for "comparable outlets" when we should be seeking to participate in a growing market? It is this very attitude that has disturbed me about the older Commonwealth countries, because it suggests that we are merely wanting a guarantee that we shall not be worse off, rather than seeking ways to assure that we will be better off, that we are prepared to accept the comfortable Commonwealth that we know, rather than to work for a new relationship between Commonwealth, Common Market, and Britain that might be even more suitable. There can be no exact meaning to Mr. Sandy's assurance that if "our admission to Europe should involve the disruption of the Commonwealth, that is an entrance fee which we are not prepared to pay." British membership must, by definition, disrupt the Commonwealth. Moreover, it is meaningless to say, for example, that "Canadian trade interests would be safeguarded." Does this mean that arrangements must preserve the same level of trade, offer compensating trade opportunities, protect products whose trade is vital to our economy? Or does it mean that arrangements would be made for trade negotiations with Europe on a bilateral basis, or within GATT? Is the intention that world commodity agreements would 77

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

be a sine qua non of British entry? Yet, this is precisely the vague phrase which Mr. Macmillan has used and which Mr. Diefenbaker has approved. I insist that we must be more exact, not because I believe that we must be left in precisely the same quantitative position, but because I believe we must know what commercial policy to adopt in order to improve our position. However, as I have suggested, the political questions are dominant, for even the negotiations themselves are matters of political manoeuvre rather than economic analysis. As Professor Hallstein has said of the EEC: "We are in the business of politics." In the first place, I would ask a question which must occur even to the most trusting. Is Britain's decision to apply for membership more altruistic than political, and is it really intended as a means of preserving Britain rather than the Conservative party? Rush and haste now could be disastrous for Britain and ultimately lead to unfortunate consequences. At this point, there is some wisdom in traditional British reserve because Europe, like any fair damsel, should be courted diligently but from a position of strength. However, that is more a matter of procedure than persuasion. Secondly, it is important that all the side effects of the present negotiations should be fully weighed and assessed. For example, we are concerned about the position that may result for Canada, New Zealand, and Australia from the present bargaining over temperate zone products and agriculture, and we believe that world commodity agreements might be the most satisfactory solution. However, we must not be content just to talk about world commodity agreements to protect the interests of Africa, Asia, and Latin America as well as the Commonwealth; rather, we should insist that these be established at the same time. Of course, this cannot be done at Brussels alone, but world negotiations should be proceeding on a parallel basis. Not only will this allay the suspicions of the raw-material producing nations of the world that the industrial nations are really only concerned with the formation of a "rich man's club," but such an agreement would have important settling effects on the world economy as well as making foreign aid more effective and economical. In the third place, great effort must be directed toward the resolution of the dilemma that assails Africa: whether to join Europe and submit to the so-called neo-colonialism, or stay out at an economic disadvantage vis-å-vis the French territories. The Economist put the point nicely when it said: "... it is not clear whether Nigeria, for political reasons, would find it easy to seek 78

GREAT BRITAIN AND THE COMMON MARKET

association on lines similar to the close and preferential arrangements made for ex-French and ex-Belgian Africa. Their links are felt by many Nigerians to be too close and to portend a relationship in which European economic interests would remain paramount." It is true that associate membership carries preferences and foreign aid advantages; on the other hand, the Africans object to the political overtones. Would it not be wise for Britain to strive for similar terms of preference and aid for Ghana and Nigeria, for example, without the implied political association? In effect, this would put an end to the special association of the French overseas territories with the EEC, and set off a search for a more general world solution. Fourthly, one hopes that Britain is giving full thought to planning for the problem of Commonwealth immigration once her membership in Europe is concluded. Ultimately, politics is people, and I believe that the thing that could drive the last spike in the Commonwealth coffin would be a situation where Europeans were free to move into Britain, while Commonwealth members were faced by restrictions. If the Commonwealth is to have any meaning, it should be in terms of citizenship. May I add that this should apply to Canada as much as to Britain. Fifthly, this last point suggests the importance of the sovereignty issue. The question is this: does Britain feel that her power in the EEC will be sufficient to wipe out any firm moves to federalism, or does she simply presume that, once the marriage is consummated, no one will care about her previous identity? The present situation has recently been complicated by the apparent determination of some Europeans, inspired by last month's Paris-Bonn entente cordiale, to pursue the line of political unity independent of the Six, without necessarily waiting for the conclusion of the Brussels negotiations. This must make the British uneasy; certainly they are entitled to demand clarification of the exact attitude of the EEC members on the question of European political integration. In this matter, the French position is still highly ambiguous, and I should want to know precisely what motivations underlie their policy. It has been argued that when the advocates of European integration insisted in the past that the Six should erect their political institutions before Britain's entry, their aim was obvious: to establish the principle of supranationality to which the British would then, pari passu, find themselves committed. But the French have also opposed this. What is their new motive? Perhaps, after all, we can only resort to the 79

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

psychological suggestion that was once put forward by a French journalist: "The French have never forgiven the British for the liberation of 1944." Sixthly, the face and future of the Commonwealth itself revolves less about the Treaty of Rome than about the political character of the new Europe—confederation or federation. There is no reason why Britain, in the EEC, could not play an even stronger part in the Commonwealth. However, if she is to belong to a federal state of Europe, it is difficult to see how Britain could easily divide her loyalties. In this case it is quite proper to consider the interesting question of the Commonwealth without Britain. Would it simply be a ship without a rudder? I am not satisfied that sufficient attention has been given to the future of the Commonwealth in political terms, with or without Britain. Presumably it can be what we will, but so far we have only reflected nostalgically on what it may be no longer. Full attention must be given to this question not only if the negotiations succeed, but even more importantly, if they fail. Let us not forget that Britain had her fingers burned in 1958-59 and had to backtrack into the unsatisfactory alternate of EFTA. I believe that Britain's hand would have been greatly strengthened in the present negotiations if she had prepared a hard-and-fast alternative economic system with which to confront Brussels, saying: "You need us for certain reasons. However, unless we get satisfactory terms, then we have a ready-made alternative." That would have given her a real bargaining position. Nor is it too late. I would suggest that during this interval, the Commonwealth Prime Ministers should find an alternative. Let them not complain about preferences betrayed and other economic losses, but show what they are prepared to do to make the Commonwealth a vital institution. Is there thinking about this in Canada, New Zealand, Australia, or is the statusquo mentality such that it has strangled the imagination? Mr. Diefenbaker has said that Canada will rely on Mr. Macmillan's assurance that Commonwealth interests will be safeguarded. Is he prepared to counter by showing how it could be strengthened? Finally, I do not believe that there has been sufficient attention devoted to the American position. There has been some conjecture as to whether Britain jumped or was pushed toward Europe. In turn, there is a legitimate suspicion that British entry would merely provide a Trojan horse in Europe to disgorge American influence. The Europeans question whether they want that influence, in dis80

GREAT BRITAIN AND THE COMMON MARKET

guise or otherwise. The Europeans are anxious to avoid an American threat to their prized independence. Their suspicions, of course, are encouraged by speculation about the degree of political influence which Britain could exert if she were not simply the American agent. The main issue that concerns the Europeans is their role in Western defence policy, and in particular, the possibility of becoming an independent nuclear power. In this matter, the future role and appearance of NATO cannot be disentangled from a full discussion. Yet, these are the very items that have been glossed over in public debate, and even, it would appear, in official policy-making. They must be faced immediately; otherwise, we not only put the cart before the horse, but we risk the danger that there will be no horse when the time comes for it to start drawing its load. Ultimately, we must determine the precise meaning of the popular concept "Atlantic partnership," a phrase employed by people as different as Professor Hallstein and President Kennedy, a phrase that makes me uncomfortable by its intentional vagueness. Perhaps the key is provided by the new Atlantic jargon, "interdependence," a word that dominated Kennedy's remarkable speech of July 4, and was used earlier by Macmillan, perhaps not without coincidence, in his New York speech of April 26. I believe that it is vital for Britain, before entering Europe, to know how firm the future Atlantic community may become. In fact, certain problems of wide consequence arising from British membership in EEC can only be determined when the future of the Atlantic areas is known. For example, it is conceivable that a large North Atlantic free-trade area within OECD could provide Britain with all the economic advantages she seeks, without the political risks which she might regret. Canada hopes that the magic of an Atlantic community will soften her uncomfortable choices. The wand might also be waved in the direction of Britain. In turn, the future policy of OECD will be crucial in determining how the rest of the world reacts to Britain in the EEC. We must, therefore, strive for a liberal, outword-looking combination of Atlantic industrial areas adopting policies that will help the developing parts of the world in trade and aid. As Professor Meade has suggested: "It is necessary that at the same time as the UK joins the EEC, all the highly developed, industrialized countries of the North Atlantic should together reduce their restrictions on imports from each other and from the rest of the world.... The exercise would in fact be to a large extent an exercise in aid through trade given on 81

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

general non-discriminatory principles by the developed to the underdeveloped countries." As you can see, I have decided to use the opportunity to comment rather more on the subject than on the strict lines of Lord Amory's paper. In this sense, I trust that my remarks may have raised some questions for consideration that I could not have mustered without this "prepared impromptu" form of commentary.

82

THE UNITED STATES AND THE COMMON MARKET J. R. Schaetzel "Why does the United States support the Common Market?" The question produces a rich array of answers. The answers reveal in some distortion national attitudes, confusion, fears, but most of all, further evidence of the impact of the Common Market on world affairs. Some French observers seem sincerely puzzled at why the United States supports the Common Market at all. And the more suspicious wonder if United States support of the British decision to seek entry in the Common Market is not a veiled attempt by Washington to achieve American control of the European Community—a British Trojan horse from which Americans will pour once the animal has been wheeled across the Channel and into the Common Market. And in England we have heard some Tory backbenchers—and a few members of the Labour Party—assess American support of an enlarged Common Market as evidence of a dark American ambition to take over the Commonwealth. A few Commonwealth observers seem to join in this gloomy judgment. Some Australians have suggested, with their special candour and directness—a trait they share with us—that our support of the Common Market in general and British entry in particular is sadly misguided. Then there is that handful of Commonwealth citizens who condemn American policy in support of the European Community as little more than a callous device whereby we gain the windfall trade benefits for our own exports from the dismantlement of the Ottawa preference system which will be one result of British membership. This kaleidoscope, of course, does not represent either national attitudes or government positions. But it does perhaps convey the uncertain mood of the world and the mounting interest in European unity. It is possible, however, to cite statements by another nation with absolute assurance that they reflect with high fidelity government policy. In May Pravda said, "U.S. ruling circles, which formerly played the role of behind-the-scenes producer of Western European integration, but formerly stood aside, are also gradually beginning 83

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

to change their tactics.... The program of the formation of an Atlantic economic community, put forward by President Kennedy, gives a new scale and new features to 'imperialist' integration... . This [Atlantic] union at the same time aims to prevent the newly liberated peoples from achieving economic independence and to put on them new chains of colonial exploitation." The Communist world is clearly in the throes of theological gymnastics as it tries to square European integration with Marx. Not to be left behind, Ulbricht has offered a variation on the themes. He insists that the integration movement is merely a technique whereby the West German leaders can subject other members of the EEC to their control. Further Ulbricht embroidery points to West Germany as engineering the split between the EEC and EFTA as a means of forcing Britain into the Common Market. Against these varied and conflicting views and suspicions what have been American motives and policies? In point of fact, American policy on European integration and the broad support this policy enjoys in the United States is perhaps easier to define and easier to explain than almost any other aspect of our foreign policy. In a word, this support rests on the solid basis of what we conceive to be enlightened American self-interest. Since 1948 there has been a consistent stream of American policy endorsing the principle of the unification of Europe. Americans, legislators as well as executives, Republicans as well as Democrats, have felt that within the framework of European unity the historical and disastrous enmity between French and German, which has brought such tragedy to the world, could be eliminated for all time. In addition, we have believed that the economies of scale available to a united Europe would bring the promise and the fact of economic growth and stability and that, with this prosperity, the security of the West would be enhanced. There are obvious additional considerations. The United States of America, with its balance of power and federal-state division, is the unique political experiment in federation about which we are proud and self-conscious. We believe that our system works. It is a natural human reaction to believe that it might also work for other people. Washington is not the best vantage point from which to judge American opinion and attitudes. Nonetheless it is probably fair to say that the support for the European integration movement, the excitement the idea generates, rest not on precise knowledge, or on full awareness of the problems that lie ahead both for the Europeans 84

THE UNITED STATES AND THE COMMON MARKET

and for us, but rather on impressions and on the visceral considerations I have just outlined. It is a kind of optimistic by-passing of detail. A New York friend reports that on the commuting train to Bronxville he asked his seat companion what the latter thought of the Common Market. The response was, "I suppose you mean that new super-market down in White Plains." On the Pacific Coast, just to prove that parochialism is no monopoly of the Atlantic area and to emphasize the baroque working of some American minds, a lady in Pasadena insisted, "Why should we join the Common Market after all we have already done for Europe?" I am convinced that the broad and swelling current of support for the European Community and the closer American relations with this dynamic force rest on a sound although instinctive judgment that North America and Europe share a destiny which is rooted in our common religious, cultural, legal, and ethnic development. A judgment common to almost all walks of American life is that we must build on this two thousand years of common experience if the things we value are to survive. American enthusiasm for the Common Market derives not so much from economic or security compulsions dearly seen as from a sense of optimism about the future. Jean Monnet has frequently observed that one of the special American virtues is our willingness to accept change. Change is in the air and Europe is feeling its full force for the first time in hundreds of years. We feel in America the secondary effects of this new European atmosphere. Much of this positive reaction rests on a native optimism which Brogan suggested arose from the early history of the United States. "It took optimism to cross the Atlantic, optimism or despair and anger at the old world from which the reluctant pioneer had come." Curiously enough there are today a few signs in Europe of their "despair" at the slow pace and reaction of North America to the pioneering efforts of the New Europe. Frederick Turner concluded that the moulding force of the American character has been the conquering of the frontier, which is another way of saying "optimism" and "change." In this connection it might be well to recall American attitudes toward Canada in the late nineteenth and early twentieth centuries. The United States looked apprehensively on the economic development and industrialization of Canada. Questions arose as to whether this would not produce a competitor and thus deny us our existing market in Canada for industrial goods. As we all know, the opposite has been the case. Both Canada and the United States look on the other as its largest and most promising market. 85

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

The American attitude towards the Common Market, while basically one of hopeful anticipation, is not without its shadow of apprehension. A good deal of the favourable anticipation on the part of the business community correlates with the disproportionate growth of our exports to the European market as contrasted with the movement of American goods to other markets. In view of the great load which the United States is carrying in the field of military and economic assistance we consider this volume of trade and the imbalance in our favour as not only desirable but indispensable. Canadian exports to the Continent in important categories have also continued to grow in volume well beyond the expansion of trade to the other areas, except for the tremendous flow that moves both ways across our common border. Canadian exports to the EEC countries rose from 6.4 per cent of the total in 1951 to 8.5 per cent of the total in 1961. Japan, another great trading nation, also apprehensive about the impact of the Common Market on its exports, has nonetheless seen its exports to the EEC grow by 70 per cent from 1958 to 1961. American policy towards the Common Market has entered a new phase. The decisions made by the Council of Ministers in January on the Common Agriculture Policy, on further reduction of the internal duties within the Community down to 50 per cent of their pre-Treaty levels, and the movement to the second phase of the Treaty mean to us that the Community has passed the point of no return. These decisive actions and the prospect of British entry in the Common Market caused us to face squarely the issue of how the United States could best prepare itself to work with an enlarged European Community. Our initial response to this new challenge was the decision by the President to seek radical new trade authority from the Congress. The principal objective of the Trade Expansion Act is to permit us to engage in far-reaching tariff bargaining with an enlarged European Community. The bill was passed by the House of Representatives with an impressive majority and is now before the Senate. We hope to use this authority, not to seek any special benefits from the European Community, but to produce mutually beneficial reductions in the tariff barriers of the two great common markets of the world—the EEC and the United States. We believe that the resulting reductions will be to the immediate selfinterest of the United States and to the immediate self-interest of Europe. 86

THE UNITED STATES AND THE COMMON MARKET

As the tariff reductions will be on the most-favoured-nation basis, substantial benefits will accrue to other exporting states. We assume that such beneficiaries will be prepared to make their appropriate contribution and join in this great effort to reduce trade barriers. The immediate economic motive behind our Trade Expansion Act is self-evident to any responsible observer. But there seem to us to be other important objectives served by these prospective negotiations. The Community, through the adherence of new members and by taking perhaps in 1963 the first step toward political union, enters a new phase. In the coming year or so, and in this state of malleability and experimentation, it will and must make broad policy decisions which will profoundly affect the future development of the Community. In addition, the great business of building Europe threatens so to tax the energies of its leaders that even such a major trading area as the Common Market could become preoccupied with the internal affairs of the Community. This is the moment then to attack decisively the Common external tariff and the American tariff. The timing capitalizes on the recent experience of European business and labour groups which have found quite to their surprise that the elimination of barriers is helpful and stimulating rather than harmful. It is a period of full employment in Europe and of high levels of economic growth. All of these considerations demonstrate that now is the time to act. We have also felt, as have many Europeans, that a prosperous, self-confident and unifying Europe is in a position and will wish to be an important contributor of capital to the less developed countries. Through the Development Assistance Committee of the Organization of Economic Cooperation and Development (OECD) we have been working with the more affluent European members of the OECD and the European Community to seek ways to enlarge the volume of capital moving into the development process, to improve its terms, and to achieve a higher degree of co-ordination. Substantial success has marked this effort. Today the volume of assistance from the European Community has gone up from $953 million in 1957 to $1,273 million in 1961. In addition to increasing the volume of aid, the Six governments and the EEC Commission, through engagement in the affairs of the Development Assistance Committee, have set their sights beyond their traditional ties with Africa. This again meets a conscious objective we have set for ourselves to see extended the interests and the responsibilities of an expanding Community beyond the borders of Europe. 87

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

In the military field there are three main issues. First, there is clearly need for reappraisal, discussion, and decision within the Alliance on military doctrine. There can be no more serious business for NATO. Our initiative in this matter arises from the changing military environment and the consequent need to relate modern weapon systems to strategy. We must also review the role of conventional arms and take into account a period of growing nuclear capabilities on both sides. Second, we have continued to stress the need for building the conventional strength of the West. We have suggested, I believe fairly, that the European desire for more equal status in the councils of the North Atlantic carries with it responsibility for assuming a greater share of the military burden. It is well to recall that the defence expenditures of the United States, and these are basically expenditures for the defence of North America and Europe, amount to $60 billion as contrasted with a total European defence expenditure of $16 billion. Finally there is the desire of existing members of the Alliance to play a larger role in nudear defence, and their ability to do so as a result of their economic affluence and the progress of European unity. We have responded to this desire by indicating our willingness to consider with the Europeans the question of whether, and if so how, a sea-based multilateral MRBM force such as the President spoke of in Ottawa in April 1961 might be organized. There have been some indications recently of European interest in the principle of a multilateral approach to nuclear problems. There has been discussion of a so-called European nuclear force within the NATO framework. We have encouraged study of various multilateral approaches. We shall be ready and willing in the coming months to provide information to our allies so that they can evaluate the desirability, feasibility, and costs of such approaches. To aid the inquiry we have set forth the criteria which we believe must be met if such a venture is to serve the over-all interests of the Alliance: It must not discriminate against, or be in favour of, individual countries. This would be politically divisive in the extreme. It must be so integrated that no country could withdraw its contribution and reconstitute it as a national force. This means that it must be multilaterally owned, controlled, and manned. It must be closely linked in military planning to other alliance nudear force. In this and other areas the United States has continued to support the concept of a partnership across the Atlantic, as elaborated 88

THE UNITED STATES AND THE COMMON MARKET

in the President's speech in Philadelphia on July 4. The policy is novel. It is a conscious encouragement by a major world power of the development of a coequal power. We do this with full awareness that while Europe and the United States may differ on tactics there can be no disagreement on fundamental objectives. Furthermore, we believe that disagreement on strategy and tactics can be minimized and made manageable by the constant improvement in our consultative habits and procedures. It must be admitted that the American approach to consultation has been neither fully understood nor taken at face value. There are not a few Europeans who find it difficult to accept consultation as not being disingenuous, believing that some devious American purpose exists and needs to be uncovered. What we are working toward is consultation in the economic, political, and military fields, not merely on established governmental policies, but as an aid in determining what government policies should be. In a sense American official and public interest for a closer association with Europe is in advance of European opinion. The Executive Branch understands this situation, but we may have to deal with considerable public impatience. Those who support the idea of European unity must appreciate the work of consolidation to be completed before Europe is fully prepared to play the role of a constructive partner. We are also conscious, as must be the Europeans, of the implications of a partnership concept for third countries—both those of the Atlantic area and those of the other continents of the world. The President has stressed the open, non-exclusive character of this relationship. The test of this Atlantic relationship must be the extent to which it benefits not merely the participants, but the Free World as a whole. Out of these considerations of fact and timing a problem is posed for the next few years, for those both inside and outside the Community. The problem concerns a rather protracted transition period. There is being shaped a grand design made up in the first instance of a unifying Western Europe. We hope to see develop out of this unity a new relationship across the Atlantic. The problem will be to retain the vision and not lose heart in face of the frustrations and abrasions ahead. We have not always found it easy in the past, nor will we find it invariably so in the future, to do business with the Community. Lines of responsibility are still obscure and we are never entirely certain when and how decisions will be made. 89

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

We occasionally have our worries as to whether the Community is going to beat out policies through their commission and Council of Ministers, a process that reflects the lowest common denominator, or whether the Community will rise to the high purpose and the responsibility which has brought it into being. We believe it will be the latter. We think this belief is more apt to become reality if those countries tied by history and culture to Europe take actions which encourage the Community in this direction. I have stressed the transition period which lies ahead. I can repeat that few Americans either understand the present structure of the Community or its stage of development. Even fewer appreciate the reorganization and adjustment of the Community implicit in United Kingdom adherence to the Treaty of Rome. Beyond this, and as President Hallstein said last year in Paris, "It is absurd for us to maintain three separate executives for the three Communities." There is also increased uneasiness about the lack of normal parliamentary control over the executives or the Council of Ministers. In this connection Dr. Hallstein and the European Parliamentary Assembly point to the provisions of the Treaty of Rome which call for preparations for the direct election of the European parliament. In addition to these institutional changes, the entry of Britain and perhaps several other states would have unquestioned effects on the day-to-day operation of the Community's institutions. After all, the six continental members have had ten years of experience in working with and within this unique, quasi-federal structure. The Six have committed themselves to building Europe pragmatically and with perhaps less commitment to traditional forms of constitutional behaviour than the British. This suggests some special transitional growing pains, both for the Community and for the British, as they adjust to one another. The conclusion one draws is that patience and understanding will be required, never easy sentiments to generate and ones especially elusive at this moment when the nations of the North Atlantic are struggling with demanding military and economic problems. Although we may be dazzled by the concept of European unity and enthusiastic about the goal of an Atlantic partnership, this optimism could degenerate in the United States to an irritated impatience over the failure of the new Europe to react quickly and decisively to our common problem. However, the problems confronting Europe are those which Americans, of all peoples, ought to appreciate. We have been conducting our own continuing experiment with a federal society. In90

THE UNITED STATES AND THE COMMON MARKET

deed, not content with the normal frictions inherent in any political environment, our constitution elaborates and then accentuates conflict. If we Americans bear in mind the glass in our own house, we may be somewhat restrained from starting to throw criticisms through the windows of the new house of Europe. Dr. Hallstein pointed out in his series of lectures in Boston last spring that the history of political development is that a federal entity is always constructed against national governments. There can be no question whatsoever that the greater the unity at the centre, the greater the resistance against this unity generated in the capitals of the member governments. In this connection I would like to dispel the canard that the United States has supported the Common Market with the selfserving motive of wishing to see created a United States of Europe closely patterned on our own federal structure. Even the most enthusiastic "Europeans" have no desire to impose the American constitutional system on their society, nor in fact do we have the slightest interest in encouraging them in this direction. All of the participating countries in Europe have brilliant and cherished national histories which they wish to preserve. This richness of culture and tradition makes up the strong mosaic of Europe and it cannot and must not be lost. What seems to be developing in Europe, however, is a new breed—young people at once proud of being Italians, Germans, French or Dutch who are becoming as well, enthusiastic "Europeans." This blending of European peoples into an effective political entity which retains the values of the past while meeting the challenge of the future may be the common denominator of the United States and the new Europe. The excesses of nationalism are so noisily a part of the contemporary scene that we have forgotten the relative newness and novelty of this aspect of man in society. After all, the bright page of modern history was the Age of Enlightenment. The distinguished men and women of the eighteenth century would have been incredulous in the presence of the sharp and arbitrary national divisions of nineteenth century Europe that seem to be an unfortunate part of our legacy to the new nations of Asia and Africa. Preoccupation with the endless details, with the uncertain character and direction of Europe, with the unsolved problems, and with the surface tensions can lead to doubts as to the wisdom of a unified Europe and to nostalgia for the known evil of the past. No one dares predict how it will all come out—least of all Monnet. 91

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

A European soldier-statesman in the seventeenth century said that no man goes so far as the man who does not know where he is going. Neither Europe nor the United States can define the ultimate objective. Man in society is a dynamic relationship. The important thing is that an idea of unity has gained ascendancy where disunity existed before. The idea has caught on at the moment when history needed it. If we Atlantic nations continue on our present course we Ø create a position of such overwhelming but constructive strength that peace can be achieved either by deterrence or by negotiation with the East. We have great constructive work to do and the latent capacity to do it—among ourselves and with the developing nations. It is this combination of strength and constructive purpose that will bring the Soviet world to the negotiating table. A COMMENT: M. G. Clark Mr. Schaetzel has made my task easy. I would describe his address as an address of substance. Had time permitted, I should have liked to pick out and examine these four points: first the Trade Expansion Program; second the political implications of the European Economic Community; third the military and nuclear implications of the Community; and fourth the rather intriguing question of why the United States supports U.K. entry to the Common Market. However, commenting on all these points would involve another address, and I will, therefore, limit my remarks to the Trade Expansion Program. I wish to say at the outset that I believe the United States Trade Expansion Program is very much in Canada's own interest. The relationship of the Program to Canada might be described as that of a life belt to a drowning man. Until recently, there was considerable evidence that we Canadians might prefer to drown rather than grab the life belt. However, discussions at this Institute during the last two days have been encouraging for they suggest that there is a growing body of support for adjusting our policies to exploit the opportunities provided by the Trade Expansion Program. I might illustrate this view by outlining four advantages the Trade Expansion Program offers to Canada. First, I believe that the prime challenge facing Canadians in the 1960's is the achievement of a high rate of economic growth over a long period of time without serious inflation. Growth seems essential for the accomplishment of the fundamental national objectives of a growing population, high levels of employment, rising standards of living, developing public 92

THE UNITED STATES AND THE COMMON MARKET

and social services, and expanding equality of opportunity. Growth appears equally essential for the accomplishment of the fundamental international objectives of a prosperous and dignified Canada which will go the extra mile to meet its obligations to the international community, and particularly its obligation to assist the less developed countries to achieve political, economic, and social equality with the industrialized countries. Growth is, of course, a complex matter which will, in my view, require integrated monetary, fiscal, economic, social, commercial, and political policies. Without detracting from the importance of these other policies, it seems to me that an appropriate commercial policy is essential if Canada is to achieve a rate of growth commensurate with its objectives. I suggest that this commercial policy should be a bold policy of freer trade. The Trade Expansion Program provides Canada with the opportunity to pursue a policy of freer trade. Without the Trade Expansion Program, it would be difficult, if not impossible, for Canada to pursue such a policy. Secondly, the Trade Expansion Program provides Canada with the opportunity to carry out a policy of freer trade through the multilateral trading system based on the GATT and Fund. Any conceivable discriminatory regional arrangement for Canada has either important economic disadvantages, important political disadvantages, or both. Our interests lie in the direction of non-discriminatory trade that is carried out under the GATT and Fund. The Trade Expansion Program will give a strong new impetus to the GATT because the Program will be carried out through that organization. The GATT comprises an attempt to establish a ruleof-law in international trade and the rule-of-law nearly always protects the small and weak against the big and the strong. A relatively small country like Canada moving into a period in which international trade will be dominated by economic giants such as the United States, Common Market, and Japan will receive substantial benefits from a strong GATT. A third advantage of the Trade Expansion Program is that it offers members of the Commonwealth a way out of a painful dilemma. It seems to me that the Commonwealth has done more to bring peace and progress to its members than any group of nations in history. I also believe that the Commonwealth has made a great contribution to the security and progress of the rest of the world. Viewed in the light of the great issues of peace and poverty which now confront us, I would further suggest that the Commonwealth can make a vital and irreplaceable contribution towards meeting 93

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

them. For these reasons, I believe that the Commonwealth should be nourished and strengthened. Unfortunately the Commonwealth has got itself into a difficult situation. If the members of the Common Market persist in imposing terms on the United Kingdom similar to those that they have imposed to date, very substantial damage will be done to the exports of Commonwealth countries. On the other hand, if the United Kingdom decided not to enter the Community because it would damage Commonwealth trade, there is a risk this would alienate an important body of influential opinion in the United Kingdom. It seems that the way out of this dilemma is to help the United Kingdom enter the Common Market on terms that benefit the Commonwealth. It has been clear for some time that the United Kingdom does not have the bargaining power to achieve this objective. However, the Trade Expansion Program could be used to increase substantially the United Kingdom's bargaining power in the interests of the Commonwealth as well as the United States. A fourth advantage of the Program is that it provides the United Kingdom with an economic alternative to entering the Common Market. From the point of view of Canadian interests it is important that the United Kingdom has a workable alternative to the Community. After eighteen months of probing and negotiating, the United Kingdom still does not know the price of entry or whether it will pay the price. Perhaps the most important point to emerge during the last year of negotiations is that France and Germany are reluctant to have the United Kingdom in the Community at this time. The United Kingdom's bargaining power vis-à-vis the Community was not strong at the outset of the negotiations and has deteriorated during the past few months. We have perhaps reached the point where serious thought should be given to alternatives for the United Kingdom if it cannot enter the Community. I do not believe that the Commonwealth is an effective alternative in the economic field. However I do believe that the Trade Expansion Program comprises an economic alternative which is at least equal, if not better, than the Common Market. I have never been convinced that there is a strong economic case for the United Kingdom entering the Community—my views on this point are similar to those of Sir Donald MacDougall and Professor James Meade. Despite these important advantages, it seems to me that the Trade Expansion Program might be changed to provide additional opportunities to advance Canadian interests. There is considerable evidence that Canadians have decided to do more processing and 94

THE UNITED STATES AND THE COMMON MARKET

manufacturing. The decision which remains to be taken is whether we will attempt to achieve this objective by increasing barriers against imports or by securing access to foreign markets. The right course, in my view, is to secure access to foreign markets, for the domestic market is too small for many Canadian industries to obtain production efficiencies on anywhere near the scale that can be achieved in the United States, the European Economic Community, European Free Trade Association, and Japan. To confine Canadian industries to the Canadian market will raise costs and prices, limit their growth, retard research and development, and reduce employment levels below what would otherwise be obtained. It seems to follow that the most effective way to assist these Canadian industries is to secure access to foreign markets for the products they can produce efficiently and thereby provide them with an opportunity to export and grow. We have already made important progress in this direction largely by specializing in certain fields. A review of the Trade Expansion Program in the light of these needs indicates that two provisions might be of use: the basic authority to reduce most U.S.A. tariffs by 50 per cent and the special authority for the European Economic Community permitting the removal of tariffs on products in which the U.S.A. and EEC together account for 80 per cent of free world trade. Reciprocal reductions of 50 per cent in the U.S.A., EEC, EFTA, and Japanese tariffs coupled with further specialization of Canadian industry should lead to significant increases in exports of certain Canadian manufacturers. On the other hand, a 50 per cent reduction in tariffs on certain products could provide U.S.A., EEC, EFTA, and Japanese industries with better access to the Canadian market than our industries would receive in their markets. It would appear that Canadian industries in this situation need reciprocal free entry combined with a reasonable period for adjustment. Unfortunately most Canadian industries will be excluded from securing free entry to the U.S.A. and EEC because Canadian trade is not included in calculating the products eligible for tariff elimination. The fullest possible participation of Canada in these negotiations would appear to be in the interests of the United States. In recent years, United States trade with Canada has been larger than that carried out with the whole of the present European Economic Community and over two-thirds as great as that carried out with the whole continent of Europe. As a market for American exports, Canada is as important as Asia and Africa combined and almost as 95

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

important as the whole of the Western Hemisphere south of the Rio Grande. In terms of American private investment abroad, Canada has an even more dominant position with almost twice as much American capital being invested in Canada as in the whole of Europe combined. Moreover, the fullest possible participation by Canada should facilitate arrangements for the United Kingdom's entry to the European Economic Community. My concluding comments relate to the fact that commercial policy in Canada is largely a political matter. Since the Liberal and New Democratic parties are represented at this Institute by Members of Parliament, I might be permitted to suggest two ways— one negative and one positive—their parties could help secure the adoption of a commercial policy which would advance Canadian interests. My negative suggestion is that the Liberal party should stop advocating that Canada take the lead in forming a North Atlantic Free Trade area and the N.D.P. should stop suggesting that we associate with the Common Market. If I could borrow a word that was used rather frequently during last night's panel discussion, both are "nonsense." I have had some difficulty understanding why a Liberal party led by a former Secretary of State for External Affairs and containing a former Deputy Minister of Trade and Commerce— one of the most able Deputy Ministers of Trade and Commerce Canada has had—began talking such nonsense. A North Atlantic Free Trade Area is not possible, for the United States has rejected it and all the signs indicate that the Common Market would also reject it. Even if a North American arrangement were possible, it is of questionable value, for it would mean that the rich white north would discriminate against the poor coloured south with all the adverse consequences that would inevitably flow from such a course. The N.D.P. policy of associating with the Common Market is also not possible. If association were possible the balance of advantage would, in my view, be strongly against it. Whatever the reasons of the Liberal and N.D.P. parties for advocating policies which cannot be carried out, the effect has been to evade the trade issue. One of the largest trading nations in history has just come through an election at a time when the trading world is undergoing rapid and fundamental changes without debating trade policy. My positive suggestion is that political parties should begin speaking the language of freer non-discriminatory trade. It seems to me that their vocabulary should indude (1) a statement that they would pursue freer trade within the framework of the GATT and 96

THE UNITED STATES AND THE COMMON MARKET

the Trade Expansion Program, (2) a declaration to seek changes in the Trade Expansion Program in order to permit Canada to participate more fully in negotiations under it, (3) a frank acknowledgement that the policy will involve substantial reductions in the Canadian tariff, and (4) an undertaking to establish an adjustment assistance program.

97

THE CHALLENGE TO CANADA EXCERPTS FROM A FORUM THE THREAT TO CANADIAN TRADE: M. Wardell Canada is sure to suffer from Britain's entry into the European Common Market. How much? Canada's exports to Britain amount to nearly a billion dollars: $923 million last year. Over 95 per cent are free of duty—and about half are in a preferential position. About a third, $300 million, are agricultural and fisheries. About a half, $510 million, are industrial raw materials. About a tenth, $105 million, are manufactured and semi-manufactured goods. Mr. R. D. L. Kinsman, past-president, Canadian Exporters Association, has analysed these figures on a number of occasions. He believes that Canada might lose in all three categories as much as a third of the volume and endanger a further third. He thinks we might lose to the Common Market area about half the amount of our present exports, which run between $400 million and $500 million. In all, then, Mr. Kinsman sees Canadian exports to the value of $900 million in jeopardy. Agreements negotiated at Brussels could at the most cushion the shock to Canadian exporters. The Government of Canada sees very clearly the danger to Canada, and the Prime Ministers' Conference in London next month is the result of Prime Minister Diefenbaker's insistence on a free discussion of a matter that can so vitally affect Canada. I cannot share the view that it is not properly the responsibility of the Government of Canada to attempt to dissuade Britain from a course that can grievously damage Canada's trade. Failure to do this would be a dereliction of duty. The British Prime Minister and his Government believe that entry into the Common Market would be good for Britain. Lord Amory has ably sustained that view. I have a contrary opinion. Britain will plunge into competition with the European countries and open her own great domestic market to foreign competition. Britain's decision, however, insofar as it affects Britain, is Britain's own concern. What does concern us is the effect of Britain abrogating the Commonwealth trade agreements. 98

THE CHALLENGE TO CANADA: EXCERPTS FROM A FORUM

Britain grows only half the food she needs. She is the world's biggest importer of agricultural products. She also needs to import practically every raw material used in her industries. In assessing the loss of the Commonwealth preferences as it must affect Canada, let us take two items, wheat and newsprint. Canadian exports of wheat and flour to Britain last year were worth about $160 million—about half Britain's total wheat imports. If Britain joins the Common Market she will ultimately be forced to tax Canadian wheat in order to protect the farmers of France. The Common Market tariff on wheat is not yet agreed, but millers in Britain estimate that Canadian Manitoba hard wheat now selling in the open market at $85 a ton will be priced up by the external tariff to as much as $105 a ton. Such a steep rise in the price of Canadian wheat might well make British people change their taste in bread: sacrifice the quality of bread baked with a high proportion of Canadian wheat for the cheaper style French bread. Indeed, Garfield Weston the baker, Canada's best customer for wheat in Britain, believes that if Britain joins the Common Market he will be bound to buy his grain from France. Then look at the newsprint position. Britain's total import of Canadian newsprint is around 450,000 tons for which the newspapers pay about $66 million. Of that consumption, Lord Beaverbrook's newspapers over there take 170,000 tons—more than a third. AIready Scandinavian newsprint can be bought in Britain at about $7.50 a ton cheaper than the Canadian. The likelihood is that if Britain enters Europe her EFTA partners in Scandinavia will follow her in. Thus it would be Canadian exporters who would be forced to pay a Common Market duty while Scandinavian newsprint would enter Britain duty free. If Canadian newsprint is increased in price through this duty, which could be as high as 7 per cent, the difference between Scandinavian and Canadian newsprint would be so wide that Britain would be compelled to take the Scandinavian. You may ask why does Beaverbrook take Canadian newsprint at higher prices than Scandinavian newsprint? The answer is Dalhousie. It is certain that Canada cannot afford to lose $200 million of trade in wheat and newsprint. The importance of the British wheat market to Canada cannot be too heavily stressed when it is realized that Canada's present large wheat export contracts with Red China can only be viewed as a temporary palliative for her grain surplus. But this is not all. Already in Brussels Britain has agreed to abolish her preferences on Canadian exports to the United Kingdom of 99

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

manufactured goods worth over $100 million. At a time when it is essential that Canada should diversify her economy these preferences are of great and growing value. It seems likely that Canadian exports of aluminum and certain processed metals may also suffer if Britain joins Europe. At present, Canadian aluminum enters Britain tariff free, but the Common Market proposes a duty on this raw material. The export losses to Canada if Britain enters Europe must be considerable. But more than that, Canada's ties with Britain within the framework of the Commonwealth would be loosened and her economic dependence on the American market tightened. The United States has been a vigorous proponent of Britain's entry into the European Common Market. Mr. George Ball, U.S. Under-Secretary of State for Economic Affairs has said that the United States wants to see this happen, not as any economic panacea for Britain but as a stabilizing and cohesive influence on France and Germany. The consequences of such a step would be fundamental for Britain and for Canada. They would lead to a Canadian partnership with the United States, economic, political—or both. A REPLY: R. M. Fowler Mr. Fowler's comments: I hope Brigadier Wardell will forgive me if I disagree with him, rather forcibly I fear. I not only disagree with his opinions, which of course he is fully entitled to have, but I also disagree with him on the facts. I think I could disagree with him on almost every sentence in his statement. For the sake of brevity and giving Harry Johnson a chance here a little later on, I will just pick out two statements in the piece that he has just given you. He said at one point that Canada cannot afford to lose $200 million of trade with the U.K. in wheat and newsprint and he added that we will lose it almost certainly. The second statement is that the agreements negotiated at Brussels could at the most cushion the shock to Canadian exporters. Of course I agree that we cannot afford to lose $200 million annually in trade in wheat and newsprint. We cannot afford it and we will not lose it, if we formulate our policies properly and act as we should be acting. Using these two commodities as an example, if we have a sound policy it will do far more than cushion the shock. It can easily produce for us great new opportunities for expanding our trade in both wheat and newsprint. 100

THE CHALLENGE TO CANADA: EXCERPTS FROM A FORUM

Let us start with wheat. You have heard something about that this afternoon from a man who is much more expert on it than I am, Mr. Hannam, President of the Canadian Federation of Agriculture. I think the facts, however, are fairly dear. The present trade in wheat itself is $135 million a year to the United Kingdom and $100 million a year, approximately, to the Six. It is a complicated business, this wheat problem. It involves, as Mr. Hannam said this afternoon, the whole question of the agricultural support prices within the Community. If they are set too high they may induce more intensive cultivation on the existing acreage in Europe or they may even extend that acreage, thus reducing, or tending to reduce, the imports. No one can be precise about this at any given level of price because of course if the economic expansion in Europe takes place, as it looks as though it will and as it seems to be doing, then the people who are more prosperous tend to eat more and perhaps better and may want more wheat rather than less; but there is a balance between the home-grown and the imports that is difficult to strike. Alternatively, since the proposal in the Common Market is that the coarse grain should be tied in with the prices for wheat and since the demand for coarse grain is much more elastic than that for wheat, even a fairly high support price could place more emphasis on coarse grains and even result in a decrease in wheat acreage within the Community. However, while I think Canada should be exerting every influence to get the EEC support price for wheat set at a reasonable economic level, it is very likely that we will continue to sell our wheat in existing and increasing quantities whatever may be the support price, within reasonable limits. As I say, I am no expert on wheat, but I would like to quote a man that I think we would all regard as a very balanced and careful public official for many years in Canada, Mr. Dana Wilgress. He says that those who are most familiar with the trade in Canadian wheat are confident of the continuation of sales to Europe. They admit the possibility of a decline in total wheat imports into the enlarged Community but they point out that whenever import possibilities become restricted, the greater the proportion of Canadian sales on the basis of the quality of the Canadian product. In other words, the higher the proportion of soft wheat milled, the greater the dependence on quality hard wheat for blending. Canadian wheat is preferred above all others for this purpose and will be bought if the price is not out of line. Mr. Hannam quoted this afternoon an authority whom I am sure Brigadier Wardell will regard with even 101

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

greater respect, and that is the present Minister of Trade and Commerce, who on July 16 of this year announced the new GATT tariff negotiations in which Canada has made certain arrangements with respect to its right of access to the European Common Market covering, he said, nearly $250 million of Canadian trade, including an agreement on quality wheat and defining the quality. This is what Mr. Hees said: "By virtue of these agreements and of the definition of quality wheat the negotiated settlement should cover Canada's normal and traditional export of wheat to the territories of the European Economic Community." So I do not agree with Brigadier Wardell that we are going to lose, as he puts it, our trade in wheat. Now coming to newsprint, which I know somewhat more about. I suggest to you that we have enormous opportunities in both the United Kingdom and on the Continent, not only to maintain our existing volume of exports but to expand them substantially, provided that we work hard and effectively to keep the channels of trade open. We have a very strong case indeed for this commodity, newsprint, and very extensive support for continued free trade both with Britain and with the Six. At the moment newsprint enters without actual tariffs, not only to Britain but also to Germany and to France, the two largest Continental markets. It is true that there is a proposed common external tariff of 7 per cent on newsprint in the Six, but duty-free quotas allow imports of all necessary newsprint from outside France and Germany without duty. There has not been a franc of duty paid on newsprint entering France since 1928. In other words, the duty in the EEC is, and is likely to remain, a largely fictitious one. It is unnecessary and it is opposed by the entire press of Britain and of Europe. Britain has asked that this duty go to zero as one of the terms of her entry; it is one of the five major industrial commodities on Britain's nil tariff list. But the real chance lies in the future growth of demand for newsprint and pulp and paper generally in Europe, and on this we have some fairly definite predictions. There is at present under way and fairly nearly completed a study by FAO in Rome of the entire European requirements for pulp and paper. It estimates that the consumption of all papers and boards, which totalled in 1960 some 18,000,000 tons a year, will rise by 1975 to 36,000,000 tons a year. This is just about a doubling in 15 years, and I personally believe that those estimates are somewhat on the conservative side. The tentative estimates, moreover, are that western Europe as a whole 102

THE CHALLENGE TO CANADA: EXCERPTS FROM A FORUM

including Scandinavia will be 20 million cubic metres a year short of wood to meet this demand in 1975. Twenty million cubic metres in our terms is 8 million cords which is about % of the total consumption of wood by the pulp and paper industry of Canada. Another estimate has been made by the Economic Commission in Brussels itself dealing with the Six alone. They estimate the dependence on imports for newsprint will rise from about 25 per cent today within the Six to 50 per cent of a much larger quantity by 1970. Now if we succeed in getting free entry for newsprint into the EEC a very substantial part of this expanded trade can come to Canada. Now if that's cushioning the shock, I am all for it. But I think that we must do two things to bring it about. First, I think we must press vigorously for the British request for nil tariffs as its term of entry into the EEC. We have done it as an industry but I can find no evidence that Canada has oficially and specifically supported this particular request. Indeed there is no evidence that Canada has defined and urged on Britain specific attention to any commodities in which we have a special interest. It is a general request to protect our trade. The second suggestion I have applies particularly to the provinces of Nova Scotia and New Brunswick. I think we should consider very carefully before letting European countries, who are already short of wood and will be very much shorter, obtain Canadian wood resources for export as pulp wood. This only builds up uneconomic high-cost production in Italy or France for very shortterm advantage to New Brunswick and Nova Scotia, or Quebec or Ontario for that matter. I do suggest with great respect that this is a short-sighted policy. Wood exports are basically uneconomic; you are shipping a great deal of bark and water across the ocean, and we are going to need that wood ourselves to make into much more profitable and permanent trade in newsprint and other products. So I do believe that the assumptions made by Mr. Wardell, and his facts, are in question. I do not think we will lose by Britain's entry any $200,000,000 a year in trade with the U.K. in wheat and newsprint, and I believe that for newsprint, and possibly for wheat, agreements reached at Brussels can do very much more than cushion the shock to Canada. They can open up for us, as I have said, in these commodities specifically which Mr. Wardell chose to discuss and no doubt in many other commodities, great new trading opportunities for Canadians in an enlarged Common Market. 103

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

FURTHER COMMENT: H. G. Johnson Mr. Fowler and Brigadier Wardell have been discussing the question of what British entry to the Common Market is likely to do to Canadian exports. Now I am no expert in that field, and perhaps to preserve the fairness of the situation I should not even commit myself as to whose side I am on, but I would like to argue that the way in which they both approached this problem gives a completely misleading idea of how important it is to Canada. The argument is phrased in a way that many newspaper writers, and others ignorant of economics, are inclined to adopt. You look at the trade; you say: "What is going to be affected?" You see: "wheat, newsprint." You say: "This is terrible. If we lose that trade, all these people will be sitting around wiping the tears out of their eyes with unsaleable newsprint and surviving by eating handfuls of hard wheat." Well this is nonsense, absolute nonsense. In the course of time you try to sell the newsprint somewhere else or the wheat somewhere else; if you cannot do that you turn to producing something different, which an economy like Canada's is perfectly able to do. In the past, Canadian trade has shifted greatly in its composition and shifted greatly in its destination. The economy has become more flexible and not less so in the course of its development, so one would expect that there would be not simply unemployment, wasted resources, but a readjustment. Now, if one looks at it this way, one can make a calculation of how important may be a change in another country's trade policy. The way you calculate this is by asking what is the worst thing that could possibly happen; and the worst thing that could possibly happen is that we would have to cut the price of wheat and cut the price of newsprint enough so that they could enter the European market over the barrier. We know how much we are going to have to cut the price; it is the amount of the tariff against us. We know how much wheat there is, how much newsprint there is. On this basis we can make an estimate of the maximum possible loss that we would have to take. Two such estimates have been made by Canadian economists. Both were published this year and both of them came out with pretty much the same figure as to what the cost of Britain's joining the Common Market would be to Canada; and that figure works out somewhere between $55,000,000 and $70,000,000 per year. Not $900 million as Brigadier Wardell would imply, but $55 to $70 million a year. 104

THE CHALLENGE TO CANADA: EXCERPTS FROM A FORUM

We can look at this as an annual loss, or we can figure how much the capital value of this annual loss is; that is, a loss of so much per year can be equated with an immediate capital loss. The figure we would get if we take the average rate of return on industrial investment as 10 per cent would be something like $600,000,000 or $700,000,000 altogether. Let us look at this figure in comparison with some other figures that we can produce. One of the most impressive tributes to the economic mismanagement that this country has had in the past four years has been the great increase in the level of unemployment. If we calculate the loss of national income that is associated with the shift from 4.25 per cent unemployment to about 7 per cent unemployment in the past four years and figure how much lost output that is, it amounts to something like two and a half to three billion dollars a year. You can see that if we could have had a little higher employment we could have easily done the economy more good than the loss from Britain's joining the Common Market could possibly do it harm. If we could have had higher employment, that could have easily offset any possible loss from Britain's joining the Common Market. This seems to me to be the kind of problem that we ought to be regarding as the major problem of Canada, not only because of the magnitudes involved but also because this is the kind of problem that Canadian policy alone is responsible for, and Canadian policy alone should be able to do something about. With the best or the worst will in the world, the most you can do is to try to persuade the British not to do what they consider is good for them, on the basis of a very poorly documented claim that the Commonwealth is a good economic arrangement. About all we have been able to do so far along this line is to cause a great deal of unpleasantness and lower the reputation of the country in the eyes of the rest of the world. It depends upon the British whether they go into the Common Market. It depends very, very little on the attitude of the Canadian Government. On the other hand, the amount of unemployment in this country is amenable to influence by policy instruments which are entirely within the control of the Government. If we look at the unemployment problem, with which is associated the problem of slower economic growth, we come across a great many different features of it which are tied in partly with domestic mismanagement, and partly with adverse developments in the rest of the world, which our management of the economy has helped to turn into an unemployment and growth problem. If we 105

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

pursued that subject further, I think we would come to see that the real challenge to Canada is not Britain joining the Common Market but the rapid growth and industrialization of Europe which the Common Market in a sense reflects. The challenge is a combination of Europe's recovery (and our trade problems are partly connected with Europe's increasing competitiveness) and the development and industrialization of other parts of the world. The real question that we need to ask ourselves is what sort of policies should the Canadian economy follow, not only to try to improve the unemployment situation but also to fit in a progressive and expanding way into this changing world situation. There we come down to a general set of policies and proposals aimed at making the Canadian economy more efficient and more flexible, and more capable of meeting changes in world markets, absorbing shocks from increased competition, exploiting new markets. I don't see that this necessarily involves a pressure towards joining the United States or anything like that. It does involve conscious policies aimed at flexibility, growth, and highlevel activity; and all of those things I think are within the competence of the Canadian Government and are proper subjects for Canadian discussion. If instead we say: "No, what we want to talk about is whether we should put pressure on the British not to join the Common Market," I think we are diverting our attention from Canada's most important problems onto something which, as I've tried to show by a few figures, is a relatively minor part of our total problem, or challenge.

106

THE CHALLENGE TO THE COMMONWEALTH T. E. Nichols The United Kingdom's move to enter the European Common Market is not simply a part of the problem for the Commonwealth —it is the immediate problem. But for Commonwealth misgivings —not all of them too coherent—we would simply be offering up a psalm of gratitude to leaders who were opening a remarkable chapter in Western European co-operation, embracing, in a wide surrender of sovereignty, those very nations which in the past half century have stood in mortal enmity through the two worst holocausts in man's annals. Now something has happened. The Commonwealth has been reintroduced in a climate of dismay and fright; even those who have been the most articulate in certifying its demise have found the coroner's tentative verdict not only invalid but insulting. Our ties are of iron—our commercial ties, that is. Break them and the Commonwealth, maybe the world too, will disintegrate in small pieces. To visit the Far East, as I did recently, confirms what has been so frequently underlined—a tragically frozen caricature of colonialism or oppression that is part of a rigid creed. No one can really oppress unless he wears a British, French, Belgian, or Dutch uniform. That is Asia's double standard—so apparent in Mr. Nehru's troubles with Red China—but it is not only Asia's. The British redcoat, who had marched away and left the Empire to misty headlands and retired colonels' dreams, has apparently returned everywhere else. We Commonwealth countries, having achieved such inspiring independence, are now utterly dependent on the mother hen in London. If the U.K. moves into the Common Market, she has left her brood to ruin and decay and shown utter disregard for the vital interests of her trusting associates. This, let us concede, is not the happiest of prospects. But before we determine the extent of this disintegration it is at Ieast courteous to examine the elements of integration; if we see the Commonwealth falling apart, what held it together? The most careful scrutiny has been turned on the features of the deceased—or the apparently deceased; we still have to ponder the riddle of what kind of an animal it was when it moved and had breath and, in a dramatic moment, was suddenly resuscitated after interment. 107

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

Well, what is the animal? The Commonwealth at this moment covers a fourth of the world's land surface and contains a quarter of its population, yet of this population only about one in eight, or fewer, is of British origin. More than that, only two countries outside Britain—Australia and New Zealand—are truly homogeneous in the sense that their people are of British origin. India and Pakistan, the second and fifth most populous nations on earth with far the greatest proportion of Commonwealth population, are republics. At least three members are dictatorships or heading that way, and among the larger members only Australia and New Zealand retain a final legislative link, through submitting to Britain's Privy Council final judicial appeals. In spite of these anomalies the Commonwealth endures, and let us hope it endures for many moons to come as a stupendous political fact, perhaps the more remarkable because there are no ties of authority, no formal legal links to speak of. The Crown stands, as defined not long after the war, as "a symbol of the free association of the independent member nations and as such the Head of the Commonwealth." The hard metal in this is a deep belief in an evolutionary democracy so eloquently developed and defended through history by the British peoples; we know, without getting swallowed up in abstractions, just what this determination to defend the individual's rights and dignity means and how wonderfully it contrasts at the moment with the sterile alternatives that were once a hope and are now a bankruptcy. Since 1946 there has been such a startling social revolution in the West, not only in attitudes but in solidly accepted social disciplines and terms of authority, that this too will be a long time digesting. In it, what we knew as the British Empire has gone through perhaps the most challenging transformation of any. It is so obvious that I mention it with some trepidation. Here we have a situation where an Empire, based ultimately on military domination by the leading world power, has offered to the static systems an extraordinary example of retaining in its evolution a great bond long after the familiar pattern of its establishment and rule has dissolved. All this in a matter of a few decades; most of it in less than twenty years. In those very areas where its sinking strength, which Kipling foresaw with singular intuition, has been followed by deep change, the change has often been a demonstration of renewed strength. Indeed Britain's relative Ioss of real power has, in a sense, given the association a deeper bond. The wonder is not that Britain had to get out of India and parts of Africa and Asia, as she did, but that 108

THE CHALLENGE TO THE COMMONWEALTH

these countries voluntarily stayed in the British family of nations. This, to me, is a verdict of triumph, of authentic triumph. I don't want to be swept off my canvas by generalities. We are talking primarily about the Common Market and its strains on the Commonwealth ties. We have to arrive at some coherent premise and maybe the easiest way to do this is to treat the predications we find frequently publicized. The first is that the whole fabric of Commonwealth loyalties rests on a system of Commonwealth tariff preferences, which are far newer than most of us remember. If that is all there is, and I don't believe it is so, then there is nothing. We can move pragmatically into whatever blocs and stems we like. If we challenge Britain's motives as being simply in her own selfish interests, how do we weigh the motives of those who are trying to keep her out of the ECM? Especially on the premise of trade advantages alone. Another hardly startling contention is that the Commonwealth is simply a matter of sentiment. This is a pretty liberal and generous approach. Maybe it is only sentiment that unites families and leads men to risk their lives in war, and provokes those greater examples of faith and ardour for which there is not, and never will be, any rational explanation by psychologists or economists and certainly not by newspapermen. Of course there is Commonwealth sentiment, and very powerful sentiment it is. It comes from decades of understanding and common sacrifice. We have been through a lot together. We know each other. We trust each other—except possibly in a time of trade negotiations. Yet for the purpose of these discussions we have to accept some kind of hypothesis. We should assume that Britain will enter the Common Market and that some of the nations of the Commonwealth are going to be hurt. The question of potential damage to Commonwealth relationships is a complex one. Many of the pitfalls we are suddenly aware of are not new, either in the development of the British family of nations or in the chronicles of its individual members. The most casual glance at the map of our world at once warns us against any blunt verdict on the strains to which economic damage might lead. We have to be on guard against interpreting the aggravation of present and looming strains as due directly to Common Market complications. By what yardstick can you measure the durability of loyalty to the Crown of the people of Australia and New Zealand, ominously alone in the Pacific orbit? What new weight will Britain's entry load on the tensions between Nehru 's India and Moslem 109

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

Pakistan, whose differences are so tragically real? We might recall the discomforting lack of welcome Mr. Duncan Sandys had recently in Karachi. But whether President Ayub's anger was due to the thought of how Pakistan was about to be hurt by Britain's move to the Common Market bloc, or whether it was because of his reaction to what he considered Britain's massive supply of arms to India, I don't know and I doubt if anybody knows. I would assume it to be certainly the latter. Now there looms a possible Moslem Confederation of Pakistan, Afganistan, and Iran. I was in India not long ago and, though I speak only as a very well-treated publisher delegate, it was a humbling experience, for there you get pictorially and dramatically a sense of how great a distance the Western world has come in the things that do not matter and how short a distance in things that do. I would suggest that adjustments in trade are only a scratch across the canvas of contemporary political evolution. I mention this because of the enormous imponderables. Would trade changes, for instance, materially alter the tidal moves of Asia? Would they force now independent nations like Ghana and Nigeria the more quickly into a newer Union of African States? How would they bear on troubled Rhodesia, on the Union of South Africa, out of the Commonwealth but still in our trading orbit? And now, for a minute, let us look at the system we call the Commonwealth preferences. They are not old. In one way and another over the decades, it is true, dislocations through specific political policy have been fairly harsh. Canada had its first real shock back in the 1840's when the campaign for cheap food in Great Britain led to the abolition of the corn laws and swept away the preferential treatment our grain had in the old country's market. This let loose a howl of protest. The first editorial in our Hamilton Spectator in I846 was a most intemperate attack on the shortsightedness and general imbecility of the British Government. There was a vigorous move towards annexation with the States, led by Montreal merchants who saw their whole St. Lawrence trade-axis in danger of obliteration. One of them, who deserves a certain immortality for his calm, business-like approach to the disturbance, elaborated what a good many people are saying in a less dignified way about the Common Market now. Even then pristine patriotism could obviously be affected by the taint of commerce. "I would willingly remain a subject of Her Majesty", wrote Jacob Keefer, an Upper Canadian businessman, in 1849, "if I could afford it; but having built my hopes upon the continued prosperity of Canada, 110

THE CHALLENGE TO THE COMMONWEALTH

and that foundation having failed, the reflection that I am a British subject does not afford substantial relief." We got over this, history records, and we got over a lot of similar dilemmas. It can be stated quite safely that whenever Canada moved or was pushed to closer economic association with the United States, which was often and which is again in the cards, there was an inevitable and violent emotional recoil, and this corollary is more impressive in our history than the many explosives of disgust with the way Great Britain was letting us down. So it was with our largely emotional national policy in 1891 and so it was with the famous reciprocity tempest of 1911, which came from nowhere. Always the symptoms were the same. If nothing else, the fear of losing our identity by becoming part of a single North American nation overwhelmed any immediate practical approach to closer ties with the U.S. I do not say such a step would be a bad thing. It may indeed be inevitable; but I am convinced Canadians do not want it today any more than they did a hundred years ago. This is not simply a part of that continuing adventure in sublime agony, the search for Canadian identity. Nor is it altogether a dread of our culture being engulfed, a fear expressed quite often by the type of person whose last serious reading was a leather-bound edition of the Best of Readers Digest of 1947. It is simply to suggest that if there are to be deserters it is of more than passing interest to ask just what their final destination may be. Canada, of course, was not the only country involved over the years in preferential trends. South Africa and New Zealand adopted preferences at the turn of the century, and Australia followed shortly afterward. Britain, leaving free trade in the first world war, started off with duties in 1915 but would not go too far until 1930 when the establishment of a system of preferences for the nations of the British Empire took shape in the famous Ottawa agreements, which were in fact more notable for their add disagreements. It is worth stressing that the Ottawa discussions were prompted by an external force, a momentous collapse in the world's economy. A disastrous depression, which was a secondary deflationary contraction with its roots in the war, was driving everyone into safety shelters. Trading blocs were the order of the day. No one could see at that time the highway to the awful vortex of 1939, but when the leaders of the Commonwealth gathered in Ottawa they were able to set up a unique Empire system, even if in the negotiations they promoted a typical family argument, well-loaded with the familiar elements, frequently illogical, arbitrary, and abusive. If it was a 111

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

meeting in a spirit of goodwill, it was a most curious type of goodwill indeed. Britain's J. H. Thomas called Canadian Premier R. B. Bennett's proposals "humbug"; and Mr. Bennett, anything but an introvert, (he said if there was no other way to do it Canada would "blast" its way into European Markets) was openly scornful of British concessions. Mr. Neville Chamberlain wrote of Bennett "straining our patience to the limit." He also reprimanded Mr. L. S. Amery for "inciting the Dominions to make impossible requests." Mr. Coates of New Zealand said he would not have come if he had known of British opposition to preferential duties on Empire meat. The Australian leader was equally unhappy, and at home the Melbourne Age talked of a "humiliating surrender of fiscal control." What a monument to that ill-fated and most abused of all our Canadian Prime Ministers that this system established thirty years ago now is lauded with such nervous pride as the world's largest preferential area, involving nearly $60 billion of trade annually between the Commonwealth countries! Nor, obviously, can we underrate the tremendous importance of it to countries like New Zealand, which sells over half its exports to the United Kingdom, or Nigeria which sells nearly half, as against 17 per cent for Canada. Yet it was Canada which made the most noise until it became politic for the government to muffle the howls in the interests of a not very successful election. In all this tumult sheer trading statistics are highly deceptive. Of our total Commonwealth trade a third or less is affected by preferential tariffs. There has been a steady retreat from the tariff fences of the Ottawa Agreements, which were never considered binding anyway. Through bilateral agreements, and such approaches as the General Agreement on Tariffs and Trade, preferences have latterly been whittled down. It is not in my province to probe specifically the potential economic dislocations of Britain's move into the Common Market. There are people here vastly more capable than I of appraising them, and some of them believe Britain is not acting in her best material interests. I would imagine, though I may be very wrong, that a great body of opinion is really more concerned about the economic disillusionment than about political disruptions because, as has been said so many times, the idea of Western European unity has gripped the imagination and stirred the hopes of millions in a way no other comparable modern development has achieved. There are some 112

THE CHALLENGE TO THE COMMONWEALTH

signs, and we have to accept them, of a cooling down in Western Europe's Iong and feverish boom. Riots of small-scale farmers; alarm about rapidly climbing money wage rates and new welfare demands; and the uneasy thought that such booms develop in themselves those harsh correctives no government can forestall, might well begin to tell. And Britain's recent restrictions on immigration, with the ugly colour undertone, show how hard it is to avoid soiling a portrait at the most inopportune time. Furthermore I often wonder if, for instance, German industrial products—knowing the efficiency of these people—might, if they make inroads into Britain's sales and employment, cause a more violent emotional antipathy than anything we would experience through reduced business between the Commonwealth and the U.K. Still, we have to start somewhere with a dominant consideration, which surely is that nothing should stand in the way of a strong and co-operative Western Europe. To this goal the United Kingdom could contribute in a vital and important way. Before what tribunal then can Britain's pioneer step across the Channel be sensibly discounted? A weakening Western Europe would be a disaster, a void between the two giant adversaries in what we call the cold war. Western Europe is still the cultural cradle of our civilization; on this side of the water we are profoundly conscious of that. Britain can't be towed away. She is asking the right to enter into constructive confederation with a mainland to which she has twice in half a century been drawn in deadly combat. From the beginning the spirit of European confederation has been political rather than primarily economic, "to substitute [as stated at Messena] for historic rivalries a fusion of essential interests ... to establish the foundation of a broad and independent community among peoples long divided by bloody conflicts." The Coal and Steel Community, an early tangible step in the process, aimed, as Mr. Schuman put it, "at solidarity in production to make any war between France and Germany not only unthinkable but materially impossible." From the Marshall Plan in 1947 through the Brussels treaty, NATO (which drew in the U.S. and Canada) , and the European Free Trade Community, to such contemporary developments as the Colombo Plan (a Commonwealth idea that broadened to take in Japan and America) , there has been no retreat. Western Europe has moved steadily to its goal not only of gradually reducing all tariffs but also of promoting free highways between them for labour and capital. And there is no need to labour the Soviet relationship, 113

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

except to say that from the beginning all moves at authentic European co-operation were boycotted by the Russian bloc. If, in the remarkable flexibility in evolution of the Commonwealth we have nothing to give to a broader evolution, is that not a dead end? ECM could be the first building of a bridge, not a waII. To people skeptical of the United Nations and haunted by memories of Geneva, weary of abstractions and the high pulpits of propaganda, this is the promise of a beginning not the end of a chapter. It might easily happen that this continent, and not for the first time, could be brought into a broader and more enduring democratic alliance with nations that have shown they can make concessions, and very real concessions, to an ideal.

THE GHANA VIEW: T. C. Nylander We in Africa see in Britain's application to enter the European Common Market a perfectly natural inclination towards closer trade relationships with neighbouring countries. There are instances of such groupings all over the world today. One such is the Union of Soviet Socialist States of Eastern Europe. Another, which we think may take shape in the future, is a grouping of the countries of the American continent, similar to the Malaysian group now in the process of formation in the South China and Java Seas. Time alone will tell whether or not these groupings are in the best interests of the countries concerned. What concerns us in Africa is the question of what will happen to our links with Britain when she throws in her lot with the European Economic Community. We are not sure of the answer. But we must accept the geographic fact that Africa is not a continuation of Europe. That is why we recommend that such groupings, whether for economic or political reasons, be made horizontally rather than vertically—and that the countries of Africa be left alone to form their own group. For, unless we do, our new-found independence will become a mere mockery. We who are onlookers from Africa believe that there must be a reason why old established countries, after centuries of progress and prosperity, should now wish to group together. If anything, we believe it is to make one large, viable, and going concern of the economic and political community so formed. It is only natural for us to wish that the grouping together of the countries of Africa could also follow such a pattern. We do not wish to be patched on to 114

THE CHALLENGE TO THE COMMONWEALTH

Britain or Europe, to be an appendage to Europe or, for that matter, to any other Continent. In Ghana, therefore, we maintain that while we do not in principle oppose Britain's intention to enter the European Common Market, although we feel that the whole question is being unduly hurried, we should be free and unfettered to consider plans which would enable us to avert situations that are likely to jeopardize our agricultural reorganisation and so strangle our economic aims, unless Britain can assume a stronger bargaining position in the interest and for the benefit of the Commonwealth. If she cannot, then we consider that, if countries in West Africa are being baited to enter a European Economic Community, we must have something in West Africa that the European Economic Community needs, and needs badly; especially since it pretends to offer a bonus by way of aid to some of our countries in Africa. When we new, untried, and inexperienced states are flattered into European alliances, we must bear in mind that we enter those alliances not as equals but as suppliers of primary or raw products, at the mercy of industrial manufacturers. It seems to us that we are being asked into these alliances to keep our heads empty, our stomachs empty, and our pockets empty. In Ghana, however, we believe that our independence and sovereignty should be used to fill our heads with skills, our pockets with the pecuniary benefits from those skills, and our stomachs and well-being with the good things that the money so obtained can buy. Unfortunately, owing to the arbitrary division of the Continent of Africa—and there are over fifty-one countries and some 210 million people in that Continent—there are some independent countries of Africa, formerly English, French, Spanish, or Portuguese colonies, which do not as yet see eye to eye with us in Ghana concerning Africa's total independence, but rather seek their salvation in associations like the Franco-African Community recently suggested at Bangui. We believe that there is an alternative to the Franco-African or Euro-African associations with their threats, as we see it, against Africa's independence and progress. And here we do not make a secret of the fact that, due to what may be a wrong appraisal of our positions, we already are faced with one difficulty—that of bringing our Casablanca and Monrovia groups together for Africa's sake. Such a union is necessary, for it is in an African Economic Community that we can pool our production and our trade to common advantage. 115

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

It is possible that such an act might be described in some European quarters as a pooling-together of poverty. But we are sure that if this epithet were applied, it would be a simple distortion of the true state of things. It is a distortion because Africa is rich and not poor. Five centuries of persistent and continuous despoliation and extortion well prove that Africa has still a great potential in gold, diamonds, manganese, copper, cobalt, bauxite, iron ore, uranium, asbestos, chrome, oil, and a host of other minerals. Nor is there an end to the range of agricultural produce that can be obtained in Africa. Nay, Africa is far from being poor. It is the Africans who are poor due to the exploitation of the riches in which their Continent abounds. We find it strange, therefore, to watch some independent African countries returning willingly, soon after their independence, into the colonial fold. This time there is no question of their being forced into foreign domination. We find it hard to answer for them why so much effort and so much sacrifice should have been made and why so many lives should have been given up for the achievement of independence in the first place—if it can so quickly and so easily be bartered away again. In the face of this serious threat to our economy and independence, we in Ghana do not believe that it is in our interest to be partners in the European Economic Community. Rather we believe that we must begin immediately to build our own continental African Common Market. We must take this step because we have begun to realize that the European Common Market Organization is aimed at harnessing the African countries to satisfy, with their raw materials, the industrial combines of Europe. If Britain prefers the European Economic Community to the Commonwealth, such a system would force us to remain perpetually in the position of suppliers of cheap raw materials. It would thus be impossible for us to pursue at international levels that independent and neutralist policy which we would wish to follow. For we consider that it is impossible to think of economic development and national independence unless we possess an unfettered capacity for maintaining a strong industrial power. We therefore believe that the activities of the European Common Market are fraught with dangerous political and economic consequences for the independent African States. We are convinced that by and large we are fighting for the reparation of an anachronistic system while our late rulers fight for its perpetuation through other means and by a new name. Independent 116

THE CHALLENGE TO THE COMMONWEALTH

African countries should therefore be circumspect before throwing in their lot with the European Common Market, and before dooming the economy of Africa to a state of perpetual and servile subjection to the economy of Western Europe. For it is clear that African countries, unless they create national industries of their own, will be engaged upon a suicidal policy, against not only their individual countries in particular, but Africa in general. We would therefore advise, if it is not too late to do so, that the whole matter of Britain's entry into the Economic Community continue to be given another and a thorough examination in all its ramifications inside the next five years. INDIA'S VIEW: U. L. Parambi India and Britain have had close political and economic relations for over three centuries. Britain has been the biggest market for India's exports for many decades, and consequently the pattern of India's external trade has been shaped to a large extent by this very important factor. The total value of India's exports to all countries during 1959 amounted to Rs.6158 million (which is equal to U.S. $1,293 million) out of which goods worth U.S. $361 million were exported to Britain. In 1960 goods worth U.S. $363 million were sold by India to Britain. Production in India, in respect of a wide range of commodities has been geared closely to the requirements of the British market; sales to Britain have played a vital role in influencing the level and structure of production and the marketing arrangements for commodities like tea, tobacco, East India kips and other leather products, vegetable oils, woollen carpets, coir products, and more recently, cotton textiles. In the case of unmanufactured tobacco, Britain absorbs about 70 per cent of Indian exports, while more than half of India's total exports of tea, leather goods, woollen carpets, and coir mats and mattings are sold to the U.K. Again a considerable quantity of Indian textiles are exported to the U.K.the total value of such exports amounted to U.S. $34 million in 1960. In the pattern of Indian exports to Britain, the trend towards diversification, in keeping with the changes and developments in the pattern of Indian agricultural and industrial production, is clearly discernible. Britain provides a market for the entire range of Indian products, not only in raw materials and primary products but also in semi-processed and finished goods, such as leather goods, jute and cotton textiles, footwear, sportsgoods, sewing machines, iron and steel screws, etc. 117

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

The dose relationship between India's production, her export possibilities, and the requirements of the British market has been fostered by the duty-free entry which Indian products traditionally enjoy in the United Kingdom. Indian products have enjoyed preferential treatment by virtue of the Indo-British Trade Agreements of 1939; also, because of the imposition of duty on non-Commonwealth goods, Indian goods automatically enjoy a tariff preference, India being a member of the Commonwealth. These are trading arrangements of great magnitude for a developing country like India. If Britain joins the Common Market without providing for special safeguards for India's exports, there is likely to be a substantial drop in India's export earnings, and the basic calculations on which India's third Five Year Plan has been framed will be vitiated. I would like to say a few words at this juncture about India's third Five Year Plan, its main aims, and its dependence on Indian export earnings in financing it. India is the world's most populous democracy and is today engaged in implementing a broad-based and well-integrated program of development, democratically conceived and executed, to cope with the needs of a population growing at an annual rate of over 2 per cent and expected to reach over 495 million by 1965-66. With the assistance of many friendly countries like the U.S.A., Britain, Canada, and others, India has already successfully implemented two Five Year Plans, achieving an increase of over 40 per cent in her national income in a period of 10 years, and an increase of 35 per cent in agricultural production and of 94 per cent in industrial production. The results of these planned efforts have given confidence to the Government and people of India in the paths that have been followed and the techniques that have been employed to step up economic growth. The main aims of our Third Plan are: 1) to achieve an annual increase of 5 per cent in national income, 2) to achieve self-sufficiency in food grain productions, 3) to expand basic industries and establish machine-building capacity so that the requirements of future industralization are met increasingly from internal resources, and 4) to utilize to the fullest extent the manpower resources of the country. The aforementioned plan involves a total outlay of $24,167 million. The foreign exchange outlay of the plan is estimated at $4,375 118

THE CHALLENGE TO THE COMMONWEALTH

million. Additionally an amount of $1,042 million will be required to meet repayment obligations, bringing the total foreign exchange requirement during the Third Plan period to $5,417 million. For this Third Plan also, generous help has been extended in the shape of long-term loans by many friendly countries like the U.S.A., Britain, Canada, France, Germany, Italy, etc., and organizations like the World Bank and International Development Association. In financing essential purchases for the maintenance and development of the economy over the five year period, the Government are proposing to limit dependence on external aid to the above figure of $5,417 million, leaving the rest of the import requirements to be met by earnings from exports. This will be possible only if India's export earnings increase over the five year period to approximately $7,708 million, involving a progressive increase in Indian exports from the current level of $1,385 million per annum to $1,771 million in 1965-66. India's efforts to achieve adequate growth in her export earnings during the Third Plan and in subsequent years can succeed only if she can increase production for exports and organize effective marketing arrangements for sale of her goods overseas. Hence it is a matter of great importance to India that Britain's entry into the Common Market should not lead to the setting of new barriers to India's external trade, but should open avenues for expansion of India's exports to Britain and the European Economic Community. The Government of India are aware that the six governments of the Community recognize the need for expansion of Indian sales to the Common Market. In recent years, some consideration has been given to the relaxation of quota restrictions on imports of Indian products into member states of the community. All the same, Indian exports to the member states face high tariffs, internal taxes, and other restrictions which have played an important part in keeping India's exports to the markets of the six countries at a low level. Only 7 per cent of India's sales overseas are exported to the six, and those have remained virtually stagnant. In the reverse direction, exports from the Community to India have trebled, with the result that, whereas in 1950 India had a surplus amounting to $10 million in her trade with the member states, in 1960 she had a trade deficit of $281 million. This deficit is thrice the value of Indian exports to the Community. With no other trading partner has India such a large deficit. It is known that anxieties have been expressed in industrial circles of some member states lest enlarged imports from India result in market disruption in these countries. These anxieties 119

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

seem to be based more on hypothetical considerations than on the practical realities of India's position as a seller in the world market. India has been unable to make significant sales of cotton, jute, and coir manufactures even to the members of the Community which had a comparatively lower rate of duty and no quota restrictions, e.g. Belgium, Netherlands, and Italy. Besides, as a country in the process of rapid economic development with an ever-expanding internal market, there is no possibility of India wishing or being able to engage in unfair competition with the better organized and export-orientated economies of industrially advanced countries. Low wages do not necessarily mean low costs; in fact, the low wage structure in India is a reflection of the lower level of productivity which actually results in high costs per unit. Hence, in judging the influence of low wage levels on the competitiveness of Indian industrial products, the practical experience of India's performance as a seller abroad and the inevitable differences in the levels of productivity should be given due consideration. If Britain joins the Common Market without making safeguards for protecting India's exports to that country, the common external tariffs of the community will become applicable to Indian goods, with the following consequences to India's trade with that country: 1) the age-old duty-free entry of Indian goods to Britain would cease; 2) in place of duty-free entry, a tariff barrier would come into force, ranging (a) from 5 to 15 per cent on semi-processed products such as vegetable oils, (b) from 18 to 32 per cent on simple industrial products like cotton textiles, jute goods, woollen carpets, etc. and (c) 50 per cent or more on items like unmanufactured tobacco; 3) preferences for Indian products which range from 5 to 20 per cent would be withdrawn; and 4) reverse preferences of varying dimensions would be created in favour of the six members of the Common Market and also in favour of a geographically extensive group of overseas countries associated with the Community. These new tariffs would affect over 90 per cent of India's sales to the U.K. or as much as a quarter of India's total overseas sales. They would also introduce a serious element of discrimination against India, a Commonwealth nation, in favour of non-Commonwealth countries not only in Europe but in other geographical areas. It is, however, gratifying to note that the members of the Community, in recognition of India's problems, have recently agreed 120

THE CHALLENGE TO THE COMMONWEALTH

that special trade agreements should be entered with India (as well as Pakiston and Ceylon) to cover India's future trade with them and replace existing trade agreements with Britain as well as some members of the Community. It is also agreed in principle that dutyfree treatment will be given to some of India's products throughout the enlarged community from the date of Britain's accession to the European Common Market. Unfortunately, so far, proposals for duty-free entry exclude a large number of products in which India is vitally interested. Her concern is not merely for primary products and raw materials like tea, pepper, and cashewnuts, but also with certain types of processed and manufactured items such as vegetable oils, handloom cloth and cotton textiles, jute sacking and hessian, coir mats and mattings, East India kips, woollen carpets, etc. During the course of negotiations for U.K.'s accession to the community, it may not be possible to secure duty-free treatment for a wide range of products which are important from the Indian point of view. These have therefore to be discussed when negotiations for trade agreements with members of the Community are conducted. It is expected that in these negotiations due weight will be given to the existing volume of duty-free exports to Britain, the importance of bridging the gap in India's trade with the Community, and the undesirability of discrimination between one developing country and another. Apart from the fact that the list of items to be given duty-free entry into the community on U.K.'s accession is still very small, another disturbing factor is the proposal that the Community's present external tariff should begin to become applicable in stages, from the date of U.K.'s accession. This could mean that on a wide range of India's major exports, new restrictions will appear where none existed. Their effects on India's plans for trade and development cannot but be serious. It is therefore very important that until the trade agreements with the enlarged Community are finalized, the existing duty-free treatment of Indian products, at least in Britain, should not be disturbed. Should this result in any damage (which is very unlikely) to established industries of the Community, the Government of India would be prepared to adopt measures to restrain her exports and avoid such damage. In the negotiations that are now going on in Brussels between representatives of the Government of India and the Community, some improvements on the original proposals have been reported, but the details are not yet known. It may also be added that unlike those of more prosperous countries of the Commonwealth India's require121

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

ments will not be met by continuing the arrangements which aim at securing her trade at existing levels. Her development plans require opportunities for expanding her trade so as to abolish at the earliest date her dependence on external aid. In this connection, it may be mentioned that the provisions of neither the Rome Treaty nor the GATT require an acceding country to accept the common customs tariff as it stands on the date of such accession. Also there is a provision in the Rome Treaty to ensure that "the rights and obligations resulting from conventions concluded prior to the entry into force of this Treaty, between one or more member states on the one hand, and one or more third countries on the other hand, shall not be affected by the provisions of this treaty." So far, there has been no instance in which the Community has found itself compelled to disown the provisions mentioned earlier or has felt obliged to raise tariffs where none existed before. 'When the Treaty of Rome was negotiated, the trading problems of a considerable number of countries in varying constitutional relationships with the member states of the Community were solved without damage to the interests of the countries concerned. It is therefore hoped that the spirit of accommodation that prevailed in solving the problems of other countries will continue to prevail in finding solutions for the problems now besetting India.

122

WHERE THE WORLD IS GOING H. G. Johnson Legend has it that in the old days, there lived two giants, one called `Gog' and the other `Magog.' Their fates were to run around and around the world. The giant called `Gog' ran around and around the world forwards, never looking backwards. He wanted to know where he was going, he didn't care much where he had been. The other giant was called Magog. He ran around the world backwards, never turning his head to look forward. He didn't care where he was going, he just wanted to know where he had been. For the last three days this Institute has been Magog, considering where the Common Market and the Commonwealth and Canada have just been. Tonight we are to become a Gog and consider where the world is going. Now I must confess to some trepidation about undertaking to Iead a discussion such as this. An economist's professional role is to play the role of Magog, steadily looking backwards with full confidence that the future will be just like the past, only more so. That is why economists who attempt to predict the future so frequently fall flat on their faces. (That's a rather difficult thing to do when you've got your head turned backwards.) Any economist mindful of the profession's sad record in predicting a continued boom in the 1920's, chronic stagnation in the 1930's, a repetition of 1929 after the war, a permanent dollar shortage in the 1940's, and perpetual North American prosperity in the 1950's, must be fearful of coming a cropper in his predictions for the future. Nevertheless, when tempted to predict the future on the basis of a knowledge of the past, most economists are strongly inclined to follow Oscar Wilde's advice about temptation—always yield to it. I am no exception to this professional idiosyncrasy. But if one is a Magog attempting to play Gog, one has to operate by looking at the terrain one has travelled and its distinguishing characteristics, trying to pick out those things that are likely to dominate the territory you are about to traverse. What I shall try to do in this talk is to describe the developments of the post-war period, and to distinguish those trends and developments that are likely to shape the future. In doing so I am going to stand back somewhat from the specific developments and problems in trade policy that 123

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

we have been considering during this Institute, and attempt to deal with what I consider to be the underlying and fundamental phenomena. I am going to take the liberty of my professional status and concentrate on economic phenomena rather than on political, military, or cultural events, although I am going to have something to say about the social and political developments as well. In the development of the world economy in the past fifteen years, I would say that the fundamental characteristic has been rapid economic development and the spread of industrialization around the world. Industrial growth has been the distinguishing characteristic and fundamental determinant of what has been going on. In referring to industrial development I am actually thinking of three separate things that are united by common characteristics. The first, and the one that we have discussed most in the course of this Institute, has been the economic recovery and rapid economic growth of Western Europe, a successful phase of growth which has underlaid the formation and progress of the Common Market. Until the middle 1950's many economists argued, and I must confess I also argued, that this was merely a matter of the recovery of Europe to the status it had before the war and which it lost through the disruption of the war. It is now clear, I think, that there has been a fundamental change, that Europe has not merely recovered but has been forging ahead relative to where it was before. There has, in other words, been a fundamental change in the position of Europe. I think of this as a matter of Europe undergoing what one might refer to as the second Industrial Revolution: the phase of industrialization based on the use of electricity, oil, modern technology, the application of science including scientific management, and so forth. This, I think, is a fundamental feature of our economy. The second thing is the forced rapid industrialization of Russia and more generally the countries of the Soviet bloc. The third thing, whose influence is much more in the future than the other two, is the economic development and industrialization of the underdeveloped countries. This also in a sense is a forced process; it has been stimulated by the rivalry between the United States and Russia in the cold war, the idea that we would get these countries on our side by helping them to develop. It also represents to a certain extent the application of a rather uneasy conscience on the part of the liberal-thinking elements in the Western world, developed during the inter-war period and coming to its fruition in wartime—the idea that we owed something to these countries, that just as we thought we could not tolerate poverty and distress within 124

WHERE THE WORLD IS GOING

our economy so also we could not tolerate poverty and distress and despair in the other countries of the world. It represents also developments within those countries themselves, partly a spirit of emulation, of rivalry with the advanced countries and a determination to equal them, and partly a question of national aspiration, the belief that being a nation involves being industrial and progressive. All three of these, although somewhat different in their nature, are phases of industrialization. I think that if one attempts to predict what will happen in the future, one must start with these developments. They will continue, and they will have important political, social, economic, and cultural implications. In thinking about the economic implications I will have in mind the questions that face Canada at the present time and will face Canada in the future. I am not going to try to indicate at each point the specific implications for Canada; but the argument will be slanted somewhat to the interests of a Canadian audience. Economically, I think what this general development portends is that increasingly ours will be a world of economic competition between industrially developed nations. We have already moved into a phase of intense competition between industrial nations. This picture will be complicated by the emergence from time to time of competition from newly developing nations, nations which are taking over lines of production which they can handle as their skills and abilities develop and as their capital accumulates, lines in which they are competitive by virtue of the initially low level of wages with which they start. Our panel member this afternoon, Mr. Parambi, pointed out quite rightly that there is nothing unfair about low wage competition, and the underdeveloped countries can rightly complain about the vicious unfairness of competition from Iow priced capital and low priced brains which they face in the world markets. The point here is not concerned with fairness or unfairness. The point is simply that, because of the great differences in wages and the fact that countries can—once they catch on—develop very rapidly as industrial producers, there will be large-scale disturbances of trade caused by the emergence of new areas as large-scale producers of goods at competitive prices. In addition to the complications derived from the existence and development of the underdeveloped nations, there is also the problem that, as modern technology develops, increasingly production becomes a matter of high capital intensity. This is not merely a matter of having a lot of money invested but also of having a lot of brains invested. People spend a long time developing skills of particular kinds, and what this means 125

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

is that a change in the pattern of comparative advantage may make a lot of capital obsolete, and this is not only industrial capital but human capital. It may be made obsolete very rapidly and this is part of the problem, I think, of the dynamic nature of the modern world. It is certainly a problem that has appeared in many instances in Canada. These are all factors which create difficulties in this type of world economy. I want to talk about two kinds of problems that I can see as likely to be difficult in this kind of world; one set of problems is concerned with international economic relations; the other is concerned with problems of domestic policy. We have to look on the one hand at the international side and on the other at what it implies about the problems of governing a country or running an economic policy. I think it is convenient to separate these problems, though of course they are interrelated and the one is tied up with the other. If we look first at the international relations problems, we can discern first that there are some special problems of international trade that are likely to be especially serious in this kind of situation. One of these is the problem of the emergence of large-scale competition from countries entering into new phases of development. Problems of competition will arise from areas that are able, all of a sudden, to develop a large productive capacity and compete effectively in world markets. Now the problem here is largely that, because we have areas of the world which are underdeveloped, areas which have a lot of people many of whom are underemployed, these countries can, once they see a competitive advantage, once they develop a market, very quickly increase the scale of their sales. This is vastly different from the competition between advanced countries with a high level of employment, where market positions will change but will change much more slowly. This kind of sudden change in competitive conditions poses a difficult problem because of the heavy investment of money and people in particular lines of production. It raises a problem first for the domestic policy of a country faced with such competition and secondly for the rules of orderly international trade. On the one hand it is the possibility of exporting products of this kind that opens the way to economic development for underdeveloped countries; on the other hand, this possibility can be very embarrassing for the developed countries. So you have a conflict between the desire to assist development and the desire not to have too much disturbance. This problem has already appeared in international trade negotiations. It is a very difficult problem to cope with, and I predict 126

WHERE THE WORLD IS GOING

that this will be one of the major areas in which some sort of policy will have to be hammered out. We do not yet have rules for governing this problem; instead we now have a number of ad hoc procedures that attempt mostly to protect the high income producers from the low income producers and which, if one thinks of it in any sort of ethical way, seem grossly unfair. Not only are the procedures unfair but they are not particularly effective, which perhaps is an even more serious criticism. This leads us to a second problem, which again is associated both with the factor of dynamic change and with the high capital intensity of production. This is the tendency of advanced countries to use unorthodox or administrative methods of interfering in trade in order to protect national producers. We talk about the principles of free trade, but what we really have is a fairly well developed system of administrative interference by which the larger countries are able to protect their producers by devices which are pretty difficult even to discuss in terms of any sensible system of trade, and which they tend to use in order to avoid disruption of their own economies. We have a long history in the world of this kind of intervention, and we also have the fact that resort to this method has been sanctioned by the example of the United States, which has consistently used this method as a way of protecting domestic producers (a problem which people in Canada are particularly aware of, especially now if they are in the lumber trade) and this again represents a method of intervention in trade which on economic grounds is difficult to justify. It is tied up with the whole question of rapidity of change and the problem of capital intensive investment in particular kinds of industries. The third problem which I see as becoming increasingly difficult is that of agriculture in developed economies. There is sometimes a tendency to think of agriculture as unprogressive and industry as progressive. If that were true none of the economics written since about 1850 would be necessary to talk about economic development. We would simply have had higher and higher incomes for farmers and lower and lower incomes for manufacturers. The trouble is that agriculture is also progressive. In fact in an advanced economy agriculture advances as rapidly as industry; but the demand for agricultural products does not advance as rapidly as the demand for industrial products and, for various reasons, it is extremely difficult for people to shift out of agriculture into industry as rapidly as the demand changes. The consequence is that in advanced countries typically you have a problem of too many farmers; and you have a 127

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

low income sector in agriculture associated with the fact that productivity there increases but labour does not move. Partly because the farmers become less and less important economically, but remain important politically, the typical solution to this problem in the advanced country is to subsidize the farmers and then try to dispose of the produce somewhere else or, conversely, to arrange for high prices of agricultural products in the home market at the expense of foreigners who could produce the stuff more efficiently. This solution creates the chronic problem of agricultural support, and of interferences in trade justified on the grounds that this is agriculture and not industry—interferences which can be extremely embarrassing and economically costly to those countries that do have a comparative advantage in agriculture but do not have the capacity to subsidize their farms. The problem of subsidized agriculture, subsidization based on the idea that agriculture is somehow an especially privileged industry that needs to be protected (the way I put this, sometimes, is that agriculture is such a desirable way of life that the people have to be subsidized heavily to put up with it) is particularly serious in relation to economic development. Often the developing countries do have a comparative advantage in agricultural products, or in materials (which are sometimes in the same position) , but their opportunities for development are restricted by the policies of advanced countries that would rather protect their agriculture and save themselves a political problem than allow the law of comparative advantage to work itself out. Not only do we get that sort of situation. We then have these countries saying that the only way for them to progress is to industrialize. Then, of course, the advanced countries come to them and tell them this is a silly idea, that really agriculture is very productive and they ought to have more of it; and we end up in a complicated situation of trying to correct one sort of distortion with another. These three problems then—the problem of what you do about low-wage competition from underdeveloped countries; of how you rationalize and control the propensity of advanced countries to avoid political problems by interfering in trade by devious methods; and of what you do about agriculture, seem to me to be extremely important problems in the organization of international trade for the future. These are, if you like, the problem areas. Another area of international problems is not concerned with trade policy but with the monetary organization by which world trade is governed. This is the system of the International Monetary Fund, a system which is extremely disadvantageous to the future 128

WHERE THE WORLD IS GOING

growth of the world economy for a combination of reasons, centering on the one hand on the fixity of exchange rates and, on the other hand, on the growing shortage of international reserves. The problem raised here is that of a perennial conflict between the need to keep the balance of payments balanced, and the desirability of having a high level of activity and a steadily growing economy in order to participate in the benefits of growth. The basis of the problem is a shortage of international reserves, which is attributable on the one hand to the price of gold and, on the other hand, to the failure to devise means to provide enough credit. One can attribute the problems to the International Monetary Fund system. On the other hand one might say that it is a perfectly fine system, that in principle it could work quite satisfactorily but that in practice it does not. (No economist, of course, should ever draw this distinction between principle and practice. If the practice does not fit the principle then the principle must be wrong.) The IMF was designed to provide a system of stable exchange rates so that countries could trade confidently with each other without worrying about the risk of exchange fluctuations. The system permits countries to change their exchange rates if they get into serious difficulty, and it was intended to provide sufficient liquidity to tide countries over temporary balance-of-payments problems without their having to take stern action with domestic policies. What has happened to this system, in a nutshell, is that it has fallen into the hands of the bankers. The difficulty with bankers is that they believe more in morality than in the function of money. Particularly they believe that it is a question of virtue whether you maintain your exchange rate or not; that it is somehow a loss of prestige to devalue your currency (an idea that I am sure you have all encountered in recent months) . Rather than changing the rate downwards, when it should be so changed, the bankers insist on deflating the economy to make the economy fit the exchange rate; instead of raising the rate when this is appropriate they insist that the other countries should lower theirs because it is their fault that they have not controlled their economies properly. They have fastened a collection of moral principles to this system that have had the effect of restoring the world to the pre-war gold standard, a monetary system which put all the pressure on the side of deflation rather than inflation as the way of curing troubles. There is another factor in this situation. The United States, which has provided a considerable amount of the increased liquidity that the world has had in the past ten years, has taken the attitude 129

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

that the value of the dollar is sacrosanct and that it is up to other people to change their exchange rates to conform to the situation in the United States. This would be fine if other people agreed that this was the way the system ought to work. Instead, there is a tendency for them to feel that if the United States can't balance its balance of payments at the current exchange rate it ought to admit its immoral behaviour in the past, its incompetence in the present, and its intention to reform in the future, by devaluing the dollar. So we get a situation in which no action is taken except that the United States is condemned by the logic of the situation to pursue a contractionary internal policy, or at least a not sufficiently expansionary internal policy, and this, given the importance of the United States in the world economy, is a deflationary influence in the world as a whole. There are two ways in which one might reform the present monetary system so that it would be much more satisfactory. I say two ways when in fact there are at least ten but I am sure that you are not interested in all of these. Broadly you could make it work either by providing much more liquidity or by abandoning the system of fixed rates. Neither of these is regarded as desirable by those in control of things. Instead, what tends to be done is a combination of two things neither of which conforms very well with the principles of efficient economic organization and neither of which is very efficient as a system of managing international finance. The first of these, which the United States has been working very hard to get, is to have the national central bankers who are participating in this international system make up for the shortcomings of the system by lending money to each other so that shortages of liquidity are overcome by a reverse lending procedure. The disadvantages of this way of doing things are probably too obvious to labour over. For one thing it essentially involves the central bankers, or in some cases the departments of finance, having the last word in passing judgment on each others' policies. This is not necessarily a very good system, given the narrowness of outlook or sheer incompetence that occasionally prevails even in such high places. The other way of dealing with the problem, which is usually presented by statesmen as being a very desirable policy for all sorts of reasons, is for each country to have a national wages policy. The idea is that troubles arise mainly because wages rise too fast and the country therefore gets into balance-of-payments difficulties. It is then argued, and this is a line that I have heard repeated from country to country, that responsible leadership on the part of trade unions 130

WHERE THE WORLD IS GOING

requires them to hold down wages so that the country's products will not be priced out of the world market. Now it is possible in some countries to sell this idea, though the country which is most amenable to this kind of appeal—Great Britain—has so far shown no great capacity to make this system work. The country that has the least possibility of adopting this policy is the one that has most recently started to talk about it—the United States. These are both halfway measures to cope with the inadequacy of the international monetary system. Neither of them in my opinion is likely to work; certainly past experience does not suggest that they are likely to work. But these are the kind of things you are driven to if you have a system of fixed exchange rates backed by inadequate liquidity and you are unwilling to change exchange rates in the face of economic difficulties. I think that this is a major problem and likely to be a major problem in the next few years, for the United States in particular, which is in the position of having a weak balance of payments. Perhaps I should not say that. What I should say is that the United States is in balance-of-payments difficulties because of the combination of policies that it has adopted —a large amount of military aid, a large amount of aid for development, a relatively liberal trade policy, and of course the insistence that thirty-five dollars an ounce is the right price for gold. These have put the United States in a position where it must try to overcome its balance-of-payments difficulties, while maintaining a high level of internal activity, by one of these policies of appealing to responsible citizens to do what is not in their own interests. So much for the international problems. Let me now turn to the domestic problems which I see as being likely to be important in a world of the kind I have described. The proposition from which I start is that satisfactory participation in a world of intensive competition between a lot of developed industrial countries requires a particular national economy to be flexible in adapting itself to economic changes, and to achieve somehow a sort of built-in mechanism of technical progress. Now this has some implications for small countries (of which I learned today that Canada is one, a sign of some improvement in the state of public opinion) . One of these implications is that a small country cannot try to do everything simultaneously. It is just not possible to be efficient in everything. The smaller you are the more likely it is that you will get the best pay-off by concentrating on a few things you really understand and by not trying to duplicate everything simply because you feel that it is essential to national pride to do so. Another implication that has 131

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

less application to Canada than to many other countries in a similar position, is that there may be considerable advantages in entering into economic unions of one kind or another, precisely to arrange this kind of specialization while at the same time satisfying the desire to feel that you are still in control of things. Leaving that aside, we turn to domestic policies and the problems that are likely to be important. It seems to me that this kind of world involves governments, particularly in countries which profess to follow the principles of laissez faire or of economic liberalism, in a range of problems which they so far have not considered to be a part of legitimate economic policy. The point here is that a laissez-faire system does not necessarily promote rapid economic growth; nor does it necessarily produce a satisfactory level of employment. It may, if the conditions are good; it will not, if the conditions are bad. And basic to a successful record of sustained growth and high employment are policies aimed at maintaining full employment. (Ten years ago one would not have thought it necessary to mention this because it was thought at that time that governments had Iearned that lesson. Now it is not so clear, particularly in North America, that full employment is regarded as desirable.) There is also a need for some sort of planning in connection with economic growth. By that, I do not necessarily mean that you must have a Russian-style five-year plan, but only that some basis must be provided for predicting the future, if only as a means of encouraging industry to undertake the investment and to make the changes that will be required for the economy to progress. It may well be that this requires very little more than a firm governmental declaration that the economy is going to grow, or that demand is going to be maintained at a high level. But it may also involve organization of those responsible for the management of leading businesses to talk about the growth of the economy and to form some idea as to what sort of future is in store. A further element of policy which seems to me to be required for this kind of world is a mechanism for cushioning the impact of change on particular sectors of the economy. This is not a matter of avoiding the operation of free enterprise but rather of making free enterprise really enterprising, because in our modern systems of government, one of the main things that enterprise is directed at is using (or abusing) the governmental apparatus to prevent the necessity of change. The kinds of intervention that are required, I think, are on the one hand those which facilitate the movement of labour from areas and types of activity which are becoming un132

WHERE THE WORLD IS GOING

economic into new promising activities; on the other hand, various kinds of assistance to industry, perhaps in the form of capital, perhaps in the form of technical research, designed to achieve the same thing for management as the other intervention is designed to achieve for labour, so that areas or industries will not have to stagnate simply because the demand is disappearing, but instead the economy will be able to show the kind of flexibility which a free enterprise economy is supposed to show. I realize that this kind of thinking is all against the ideology on which we were brought up. But it seems to me a basic requirement if you are to make a system of laissez faire and competition work, when you have tremendous investments both in material and in human capital and when you have an economy which changes rapidly so that no one can foresee clearly what the profit opportunities are going to be in ten, fifteen, or twenty years, and where you want people to respond to possible profits as a means of encouraging the progress of the economy. As one final aspect of this subject, I would just like to mention that the evidence seems to point to the conclusion that money capital is becoming less important in modern industry than human capital in the form of brains and trained skill. This raises a very interesting problem for the philosophy of free enterprise, because traditionally in our societies, Canadian and American at least, the provision of human capital has been regarded as a government responsibility. When it comes to providing training, the government provides it through the school system. If human capital is becoming more important and material capital less important, this implies that automatically the government is going to be more significant in the economy. Educational policies rather than property laws are going to be an important determinant of how the economy develops and whether it develops rapidly or not. In that area we are not really free-enterprise economies. We do not have schools with fees, and parents who have to pay all the fees; instead we provide schooling through the tax system, we provide human capital through the tax system. In the kind of world that I see developing this is going to be an important area of government policy—educational policy. Let me just say something briefly about the social and cultural implications of this kind of development. It seems to me that with the spread of industrialization we will also have a process of what might be called, in one of those unlovely Americanisms, a cosmopolitanization of civilization. One can see this very easily if one travels about the world at all. If one notices that jazz is very popular in 133

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

Russia, if one listens to Indian popular music or Chinese popular music, one sees that there are certain kinds of things that people everywhere seem to like. In Canada this is known as American domination. In France it used to be called coca-colonization. What it really means, I think, it that as people's incomes rise, as the masses get richer, they buy the things that suit them, and these things are certain kinds of cultural products and certain kinds of material conveniences. You do not have to be brainwashed by the Americans, as somebody remarked in a recent English newspaper, to find that a refrigerator is a useful item of household equipment, and the same goes for a lot of other things. The cosmopolitanization of civilization seems to me to be a desirable development. Our world is riddled with all sorts of differences of culture and opinion which are essentially reflections of different stages of economic development rather than of genuine and basic differences. Progress in material standards of living will make us all more broad-minded and more able to talk to each other, and this I regard as a very good thing. In the time that remains I want to get off this high level of generality about the world as a whole and talk about some of the political implications of the spread of industrialization. The most important factor which I see here is that along with the process of spreading industrialization will inevitably go a relative decline in the economic importance of the United States and, along with that, of Canada. The relative decline in the position of the United States in the world economy has been very dramatically illustrated, on the one hand by the emergence of the Common Market which reflects the growth of western Europe; on the other hand by the emergence of a chronic American balance-of-payments problem. Now all the lecturing is being done by the Europeans and all the explanations of difficulties and special circumstances which produce this kind of situation are being made by the Americans. But this is only a surface symbol of a more fundamental trend which I consider important and which is still working itself out. During and just after the war the United States, with an extremely rapid development of a sense of responsibility towards the world, a tremendous adjustment of which very few countries have historically showed themselves capable, took on the position of central country of the world, assuming in a very short period of time all of the obligations of a major power that the British had developed gradually over the nineteenth century. In economic terms this meant that the United States took on the responsibility for leadership towards a more liberal system of international trade. This 134

WHERE THE WORLD IS GOING

was a big change for a country that traditionally had been selfsupporting agriculturally, had done very little trade in relation to its national income, and had been protectionist. We can argue about how far they really went; but the change in attitude towards the rest of the world was pretty dramatic. The United States also took on very rapidly the responsibility for providing a tremendous flow of capital to other countries, some for military purposes and some for economic development. Again this was an obligation which involved much more of a change for the U.S., which had quite profitable investment opportunities at home, than it had been for Britain where the investment went into the provision of goods which Britain itself needed to import. Thirdly, and this was not a planned change but one of those accidents that happen and prove awkward forever after, the United States became in effect the world central banker. To replace the gold that was not available, other countries began to hold American dollars instead of gold and the United States gradually drifted into the position of being in effect banker for the rest of the world. This is a fine position to be in as long as everybody believes you are solvent. It's a terribly dangerous situation to be in if people begin to suspect that you aren't. The United States took on these commitments very rapidly, and the subsequent development of the world economy has made these commitments a source of considerable difficulty to the United States. The United States has been quick to recognize the growth of Europe and the Common Market and has also been quick to try to move in the direction of getting the Europeans to take over some of these responsibilities. This in effect is what has been going on: the effort to turn the OEC into the OECD and encourage the Europeans to provide a lot of capital for development of underdeveloped countries, the Trade Expansion Act, the desire to get the Europeans to move in a direction of liberal trade policy rather than protective trade policy, and finally the effort to get the European bankers to behave responsibly in the sense of holding dollars instead of pulling them out and turning them into gold. All of these things represent a very quick recognition of fundamental change—the United States, I think, excels all other countries in the capacity to change around the direction of policy in the face of new developments. All represent an effort to move the responsibilities over to Europeans who are now more able to bear them. But this process has only gone part way—at least in my judgment. While the United States has realized the necessity of passing on the 135

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

responsibility, it has not realized fully that the increased power of the Europeans to bear the responsibilities also implies that European ideas rather than American ideas are going to be the effective ones in the world in the future. I should not, perhaps, put that so strongly because these things are always a question of movements, of changes in relative importance. What I think is lagging in the United States is recognition that the assumption of effortless leadership, which the British so characteristically exercised for so many years and which the Americans have taken over, is no longer a tenable kind of philosophy. The frequent implication that Europe is being adolescent at the present time, that the Europeans will soon learn that the lines of policy laid down by the U.S. are really the wise solutions to problems, seems to me to reflect the failure to realize that with the change in economic position there will be a change in the balance of influence and a change in the nature of the ideas that rule. What seems important is that the Common Market is not simply a rational organization designed to make the European economy more efficient. Behind it lies the idea of building up a political unit to counter-balance the Russians on the one side and the Americans on the other. There is a tendency to think of the Common Market as simply Europe's progress towards recognizing the wisdom of the American system of government. One can also think of the Common Market as having achieved, by negotiation among its members, exactly that European state that Hitler tried to create less than twenty years earlier by military force. I am not implying that the aim of the Common Market is to recreate the Third Reich, but the nature of the system is very similar to the kind of state that Hitler had in mind. The idea of the European state is of course, a longstanding one. I am not implying at all that the Europeans will set out on the war path; but I am suggesting that it may be quite dangerous to think of the new Europe as being simply a more effective version of what it has been in the past ten years, namely, a somewhat recalcitrant junior ally of the United States. Instead, I think it is likely that we will have to get used to the idea that European ideas of how the world should be organized and of how things should be done will no Ionger be simply a sort of demonstration of their failure to grow up completely, but will be effective ideas that we will have to pay attention to. It is clear already from the Common Market negotiations that the Europeans do have quite different ideas on economic organization and on world trade. As they begin to call the tune in international finance, as they become an effective 136

WHERE THE WORLD IS GOING

bargaining bloc in international trade, as they put into effect their own ideas of how to support agriculture, these ideas are going to be influential. It will no longer be enough to speak of them patronizingly at conferences of this kind. Going beyond that and looking much farther ahead one can see that even bigger changes are in store, in as much as the process of industrialization of non-white countries has only just started. One can foresee, I think, a gradual shift in the balance of importance in the world, politically and economically, towards Asia and Africa and possibly Latin America. What this implies for the future of the world I certainly cannot predict. Nor can one predict, I think, just what it implies about the problems of world peace and the cold war. One thing I think is fairly clear. Sooner or later there will be a problem on the world scene of a rivalry between India and China, both of which have nascent imperialistic ambitions. Whether the influence of the smaller countries in these areas will be favourable to peace or not, I do not know. My inclination would be to judge that the development of other nations to positions of economic affluence may well relieve some of the cold-war pressure, because as long as we think of the world as centred on the Atlantic with the Russians and the Americans looking bellicosely at each other over the heads of nations like Canada which are in between, we have a pretty stark situation. If the Atlantic area becomes Iess important, if we come to look at the map from another Mercator projection entirely, this particular rivalry may be reduced to one of much Iess importance; and the development of other nations may, one hopes at least, lead to the establishment of genuinely international peace.

137

COMMENTS AND CONCLUSIONS N. A. M. MacKenzie I should like first to express to all of those who have taken part in the Summer Institute, our thanks and appreciation for the very fine and important contribution they have made to Canadian understanding of the problems connected with Britain's proposed entry into the European Common Market. We have had plenty of evidence here that the issues involved are not only economic, social, and political but are also charged with deep-rooted and very real sentiment and emotion. Certainly on the evidence presented to us it is perfectly clear that Canada and Canadians, like Britain and her people, are divided in their feelings and opinions about both the wisdom and the necessity of this proposed move, and it is in the light of these facts that I shall frame my concluding remarks. I could review the highlights of the addresses given and the discussions which followed those addresses, but I feel that it would be more interesting and from my point of view more satisfactory to give you some of my own personal conclusions and views. The first of these is that those of us who fought in World War I, and even those who took part in World War II, have joined or are joining the ranks of the older generation. Canada, the Empire, the Commonwealth, and the world have changed out of all recognition since we were young, and are in the process of changing, today and tomorrow, more rapidly and fundamentally than ever before in history. Because of this I am rather hesitant to assume that my feelings and views really represent the opinion of young Canada and of the majority of those who will have to live with the decisions that our governments must make in the near future. The second consideration that forces itself upon me has to do with the dangerous nature, results, and aftermath of World Wars I and II. These events were largely responsible for the changes that have taken place in the Empire and the Commonwealth. They resulted in disastrous losses of the young manhood of Britain, of her wealth, and of her overseas investments and relative position in the world. There is no doubt that another world war would be the end of us, for atomic and hydrogen bombs are almost certain to be used, and used in a widespread and devastating way. Such a war would 138

COMMENTS AND CONCLUSIONS

mean the end of Britain and of most, if not all, countries of the Commonwealth—and probably of most of the world that we know and the people in it. This makes me feel that our most immediate and pressing task is to prevent and avoid the coming of another world war. Anything and everything that will contribute to this end should be supported by all sensible and intelligent men and women. The third conclusion is that the United States of America and the Soviet Union have become the two great centres of power in the world, with China and India, because of their potential power and present populations, rising in this area of power politics. The world has become divided between what we call East and West or the free countries and the Communist countries. The results of this position and the outcome of the continuing competition for ultimate control of the world are important to every man and woman in every country of the world. The very nature of the competition and potential conflict means that we of the West cannot hope to maintain our position or succeed in the struggle if we insist upon the maintenance and preservation of our own sovereignty and autonomy in the old-fashioned ways. Only through effective co-operation and the marshalling of all our resources can we of the West hope to withstand the impact and pressures from the Communist world. The fourth thing to remember is that our own economy and that of the United States are not, at the moment, satisfactory since our growth and development, over the past several years, have not kept pace with our productive capacities and our available labour supply. This has meant a high level of unemployment and a substantial amount of unused productive capacity. This is neither good nor healthy in the world we live in, and measures must be taken to change this situation and to provide employment for the increasing numbers of those in our country who want and need it, and to keep our industrial factories and plants in full operation. I listened, as I am sure that you did, to the statements of all of the three representatives of political parties who spoke to us a few days ago, and I think that you will agree with me that the point made by Robert Thompson, national leader of the Social Credit, about this was impressive and moving. It is in a sense the basis, the understandable basis, of the appeal that lies in their program and platform; it does not make sense to have good men and women unemployed when there are areas of need in the world and in our own country. And it does not make sense to have excess production of recreating natural resources, agricultural resources, and forest 139

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

resources, and unused capacity in plants and factories when we could find uses for much of this production within our own country and when it is desperately needed in other parts of the world. I parted company, as I must always part company with men like Mr. Thompson, on his answers or lack of answers, on his solutions or lack of solutions in practical terms of these problems, on the ways and means of making effective use within our kind of economy of these resources that are so important to us. But I do feel and I do insist that one of our major concerns in the countries of the West must be again to find solutions that are not only idealistic but practical and efficient and within them our possibilities in terms of economics and finance. That is why I find appealing the interest shown by so many people in this experiment in Europe and in the proposal that Britain may enter. There is a recognition that this problem which I have briefly and inadequately described should be solved, and that every effort in that direction to which we can give effect should be supported and carried out; subject always to an understanding of the implications that may follow from actions proposed or taken. Now this is, of course, rarely the issue of the Commonwealth, particularly at the emotional and sentimental levels. As I said at the outset, there are people in this country (Brigadier Wardell represented in perhaps a rather extreme form some of those) and there are people in Britain who feel that Britain's joining the European Common Market would not have the desirable and constructive results that some others believe and expect it would have. They believe that it may well result in not only weakening but in due course destroying this unique institution, the Commonwealth of Nations, to which we belong. Now I yield to no one in my devotion to the Commonwealth and to the spirit that animates it. At the same time, I don't think that we will get anywhere or solve anything or meet the situation that confronts us by standing still, by refusing to take chances, by refusing to experiment, and particularly by refusing to co-operate with others in trying to attain common objectives that all of us desire. The general impressions and conclusions that I have gathered as chairman of this conference are as follows: First, the decision as to whether Britain should enter the Common Market or not is Britain's, not ours. We in Canada will accept her decision in a reasonable way and—keeping in mind always, as we should and must, our own interests—will go along with it and 140

COMMENTS AND CONCLUSIONS

attempt to meet the results of that decision whether they are positive or negative, to the best of our ability. And the second conclusion that I seem to have reached is that the probabilities are that within two years, probably less, Britain will be a member of the European Common Market. The third conclusion is that this will probably have short-term adverse effects and results for some Canadian industries and for some of our exports in agricultural products and other natural resources. The fourth is that the long-term results, if the Common Market and the European Community continue to develop and grow and expand, are likely to be beneficial for us and for the nations members of it, and for that matter for all of the nations affected. I have always been one of those who believe that what is good for others is almost certain to be good for me. Although this philosophy may take a measure of optimism and patience to live with, I still find it a good philosophy and a good policy. The fifth conclusion that I have come to is that Britain's entry in the Common Market need not lead to any great weakening of the Commonwealth ties. I do not believe these are essentially economic, financial, or commercial ties. There are other ties of sentiment. I was present at the Duke of Edinburgh's Commonwealth Conference in Vancouver, and one of the things that impressed me about it was the way in which these people from thirty different countries, with different backgrounds and different problems and different attitudes and outlooks—people different in almost every possible way—had become in a sense members of a family and a team interested in maintaining something that they felt valuable and important and in contributing something to this dangerous and troubled world in which we live. For, if they can remain together and be a successful Commonwealth and Community, they can prove that people of different races, creeds, languages, and religions can work together for the common good. Now we in Canada have had a lot of experience in a limited way in this same field of operations and activities because those of the Anglo-Saxon tradition and those of the French tradition have lived together now some three hundred years. We certainly haven't become integrated, we haven't become identical examples of each other; we have each maintained in very emphatic ways our differences. But we have remained together after a fashion and I would hope very much not only because of Canada but again because of the value and importance of this example to the world in which we 141

CANADA, THE COMMONWEALTH, AND THE COMMON MARKET

live, that we could continue this kind of relationship, but perhaps in a more cheerful and optimistic way than has been true in the past. Now Canada is not only Anglo-Saxon, Celtic, and French. We, like our friends to the south, have within our borders representatives of practically every race and every creed, every language and every religion in the world—seventy, eighty, a hundred of them. We are, I think, again experimenting here in a pilot plant, a small laboratory, with some of the problems that confront this changing world in the future. I am also of the opinion that our relationships with the United States have much to offer in this same respect. Perhaps naturally and inevitably, though it must be distressing to our generous friends in the United States, we do as a nation of eighteen millions worry about and concern ourselves about whether we can maintain an identity vis-à-vis that great country. But in terms of history, or in terms of the problems that are Iikely to confront us in the not too distant future, I don't think that these little areas of tension between ourselves and the United States are really important. What is important is that we can show to the rest of the world an example of a great nation and a small nation living together without the necessity of one either taking over the other or absorbing the other through influence, and can show an example of an exchange of peoples, individuals, and ideas in an effective, constructive, and co-operative way.

142