NEW PATHS FOR WORLD TRADE BY DAVID HOWELL

THB world trading system is in upheaval. It is no exaggeration to say that there is scarcely a single national commercial system-in an age when nations are multipl at a formidable rate-which is not under

as part of some wider scheme of tariff reform. The forces and influences which have combined to sweep away the

established commercial order of the post-war world and bring about this new fluidity of thought and policy really fdl into three broad . First, and nearest home, there is the movement amongst c:%come Western countries towards fieer trade in manufactured goods-a movement marked by agonizing interruptions, at times fiagmented and at present brought to a virtual halt, but nevertheless a trend of vast political and economic significance and the dominant influence on current commercial policy in Britain. Secondly, there is the growing cohesion of the less developed countries in their demands that the world trading system should be organized so as not to operate against, and if possible operate positively in favour of their develop- ment as irations. Thirdly, there is growing attention being paid to the

the same time, while all these changes are going on, both the expansion of trade between industrial countries and the growing needs of less developed areas are creating an ever more pressing need for radical improvement in the mechanism of international credit.

The free trade movement in the West has, of course, been intimately and at times inextricably linked with the drive for European unity. It was the decision of the Rome Treaty powers to cut tariffs between themselves regionally and to harmonize their external tariffs against the outside world which led to Britain’s various attempts to join a larger low tariff area in Europe and which led America to initiate the Kennedy Round of tariff negotiations. Like the creation of the European Economic Community the British attempt to join cut right across the traditional preferential ties between individual industrial powers and commodity producing territories which had been the dominant trade feature of the preceding age. Where the Commonwealth preference system, or France’s tradmg arrangements with her former overseas Empire, were designed primarily to facilitate the free exchange of raw

review, under challenge P om some quarter or in process of adjustment

place o P centrally-planned economies in the world trading system. At

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materials and frnished goods between colonial countries and the mother industrial power, the new movement rightly recognizes that those days are finished. The developing countries s t i l l want to sell their commodities, but they also want to foster industry-which means protection against outside manufactures. And they want access not just to one, but to all existing high-income markets.

The trouble with the freer trade movement round the Atlantic basin is that while it has recognized these new needs in principle it has been far from adequate in responding to them in practice. Ideally, the drive for lower tariffs between manufacturing countries should have gone forward in parallel with a drive for improved access for the developing countries to reach developed markets. While the common external tariff of the Community has already been cut by 20 per cent, and a fbrther cut is under negotiation in the Kennedy Round, the fact remains that access for low wage manufacturers to the Common Market is strictly restricted. The agricultural support system, too, while operating mainly against commodities from other temperate high-income countries, nevertheless takes its toll in sustaining animal fat competition against vegetable oils, and beet sugar competition against cane.

When it came, in the Brussels negotiations on British entry, to reconcdmg the EEC common external tariff with the Commonwealth preference system, the condition facing Britain was not simply that she should scrap an admittedly crumbling bilateral preference system in fivour of a wider arrangement giving the Commonwealth access to all Europe. It was that she should abandon even the remaining advantages (to certain individual countries still very substantial) in favour of an arrangement which appeared to take less account of the developing countries' needs. Small wonder that there were hesitations as it became apparent that this was what the bargain involved.

Yet there was another side to the coin. To the African Common- wealth countries the Six made the economically generous offer of Associate status-with free access to the Common Market and aid. And when the British bid failed, it had at least awoken Commonwealth countries to the need to do something for themselves. Duty-fiee access to the British market mi ht be of vestigial use, even if it did have to be combined with s m a f preferences to imports from Britain. But if' preferential access to the EEC could also be secured, obviously the gains would be much higher. What Britain was unable to get a number of Commonwealth countries have therefore begun to seek on their own. India and Ceylon have been helped by the removal of the tarSon tea. Nigeria and the three East African nations are negotia- ting for trade agreements or a form of association.

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For African countries the need for accommodation with the Six has special urgency. The longer ex-British African territories remain outside tarif€ arrangements with the Six, while ex-French A&ican territories have favourable access through the Association system, the greater the threat to the export earnin s of the Commonwealth

to be rejected by these countries as unacceptable-for reasons whch are not always entirely clear-terms of entry at least comparable with those enjoyed by the former French territories are in fact vital to them. Thus both the development of the EEC and its African appendage, and the Brussels negotiations with Britain, have set in motion a powerful series of pressures on the developing countries to seek a realignment of their trade position vis-2-vis the industralized world. This tendency, which seems a secondary matter compared to the dynamic force for change of a uniting Europe, will ultimately be the primary influence on the reform of the world trading system. This was the force behind the United Nations Conference on Trade and Development in Geneva in Spring, 1964. The central theme of this historic gathering was, quite simply, that the time had come when trade should become an instru- ment for accelerating the development of the poor half of the world. This meant not merely that there should be still freer trade-although that alone would be a gain for some developing countries trying to export their manufactures to Europe and America. It followed that the world trade system should now be tilted to provide preferential rules and conditions for the developing countries. GATT rules and the GATT mechanism might be suitable for developed countries seelung to reduce tariffs between themselves. Developing countries, however, should be allowed to enjoy both continued protection against manufactures from outside and fiee access or at least access on non- discriminatory terms, into the rich markets.

More precisely, the aims of the developing countries at the UNCTAD (as reflected in the Conference’s kal recommendations) were (a) to secure removal of all obstacles to expansion of commodity trade, inclu agricultural rotection (militating particularly against cane sugar 2vegetable oil$, to get rid of discriminatory tarif€ and non-tad€ barriers, dumping, and, they rather wildly hoped, uncon- trolled development of synthetics; (b) to elirmnate all discriminatory tarif€ and quota barriers on trade in manufactures (including, particu- larly, the discriminatory tariffs on processed as opposed to crude materials) and to reach agreements with the centrally planned econo- mies for a sig.tllfc&t M e r expansion of trade. Between developing countries it was proposed that trade should be liberalized on a regional basis (conflicting, of course, with the basic GATT approach but

countries. Hence while the original form o 1: Association has continued

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echoing the example set by Europe). It was also proposed that develop- ment aid should be stepped up and untied, that a system of financial compensation for fluctuation in export earnings should be examined and that world monetary reform should be accelerated to ensure adequate liquidity. Dr. Prebisch, the Argentine spokesman for the developing countries, also argued, in his initial proposals, for more international commodity agreements and for actual reverse preferences to operate in the rich markets in favour of developing countries exclusively; but these ideas were not carried by the Conference. The new ideas on commodities pricing, in particular, foundered on fundamental disagreement about their effectiveness in increasing total earnings. Yet the most sign&cant aspect of the Conference lay not so much in its multiple recommendations as in the combined insistence of the 77 developing countries, that the Conference should reconvene regularly and that there should be a permanent organ attached to it- a Trade and Development Board to bring the Conference’s recommen- dations to the point of action by individual countries.

This new Board is not intended to replace GATT. It simply places GATT in perspective as the piece of machmery suited (as indeed it is) to the trade policies and objectives of the already industrialized countries. To organize the needs of the developing countries, and to foster the formation of regional groupings amongst them, trading on the best possible terms with the industrialized world, something more was needed. Similarly, new machinery is plainly required to deal with the centrally-planned economies. Having no tariffs, only quota controls and internal price arrangements amounting to taxes on imports, how is their progress in liberalizing trade to be measured or accelerated? And can an advance be made from the present rigid system of bilateral trading with centrally-planned economies to some sort of multilateral clearance system?

This indicates that the new body is going to have a number of clear and specific tasks to perform in new realms of trade organization. In fact, through Edward Heath, Britain undertook at the Geneva Conference to begin implementing the Conference’s recommendations by offering to remove all discriminatory quantitative restrictions on commodities from the developing world. Britain was also able to point to its not perfect but relatively excellent position on trade in manufactures with the developing countries inside the Common- wealth. All this was commendable. But the fundamental lesson for the future from the UNCTAD was that the days in which nations acting independently can make a worthwhile contribution to world trade improvement have now completely gone.

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Much the same lesson emer es, of course, &om the free trade move-

violent reaction to what will probably be Britain’s last attempt to pursue a defiantly insular commercial policy-the import surcharge. For Britain, therefore, the way forward can only be through effective participation in and influence on the three main areas of change in the world trading system-freer trade in the West, improved conditions and access for the developing world, and f d e r accommodation within the world trading community for the Eastern bloc. How can this participation and influence be maximized in practice? At the heart of this issue lies the question of Britain’s relationship with the rest of the regional grou ing of which it is part-Europe. The import surcharge

problems involved, but they remain as important and as central to every discussion of Britain’s future as ever.

Atlantic free trade involves more than the mere uestion of tarif€ barriers in the way of exports. One has to be aware of il e revolutionary changes in the structure of the industrial world which lie at the root of the matter. Even while tariff obstructions remain in Europe more and more fums are breaking out of national boundaries and rationaliz- ing their production on an international basis. Any rise in tadlevels between, say, Britain and France, would now affect numerous firms in much the same way as an unforeseen production hold-up between one part of a factory and another might affect a smaller national under- taking. The de ree to which large firms can afford to ignore tariffs and get on witf the business of rationalizing internationally is thus coming to govern the pace of technological advance. It is not only tarifi which stand in the way of this kind of advance. For a number of the key pacemalung industries in technology, political involvements lie squarely across the path towards re-organization of production across frontiers. The aircraft industry provides the classic exam le.1 Important branches of the electronics industry dealing with de f ence contracts operate under the same conditions. Without co-operation with other governments, para-statal bodies, or private undertakings on forei n soil, these critically important industries are bound to be

conscious and specific government policy, as well as a general commit- ment to the removal of trade barriers, to provide the right conditions for these industries in the modern world.

Broadly, the best way for Britain to meet this situation at the present stage seems to be a) to pursue vigorous policies of technical co-opera-

projects and weapon developments generally) indicated above; (4 to

ment under the GATT- f indeed even more painfully from the

fracas has un B oubtedly weakened Britain’s authority to set about the

subjecte f to a kind of technological starvation. It therefore requires

tion in the kind o I industries (aircraft, electronics, nuclear power, s ace

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throw every conceivable effort with the GATT Kennedy Round negotiations and in the new Trade and Development Board. But these, of course, are only expedients. The processes described in the para- graphs above must necessarily force governments into supra-national methods of reaching decisions. A house cannot be designed by a committee. A vast technological project cannot ossibly be managed by the traditional methods of international cons s tation and exchange of views, followed by the taking of decisions in the various national capitals. The lo ic of t h i s points unavoidably to the Community

to operate in these advanced fields becomes possible: so does a degree of political control over the executive.

Is this another way of simply repeating the old chorus h e that Britain must re-apply to join the EEC when France d allow it? In a sense it is saying much more than that. What is being said is that the development of the British economy on modern and competitive lines makes industrial integration with neighbouring economic countries imperative. Every practical means of accelerating this integration must be tried. In practice, this can ultimately only lead in one direction-to a steady merging and blurring of independent national entities within a Community framework and therefore, auto- matically, to a greater and greater need for political partici ation in the administration of Community affairs. Much the same kin B of prospect offers itself when it comes to examining the best way forward in reforming the trade relationship between the rich countries and the developing world. The aim is fairly clear-continuing pressure for the removal of discriminatory restrictions on goods from all the low income countries, combined with more and better organized capital and technical assistance.

Immediate opportunities arise for pressure for these changes to be exerted in three key areas: first in the co-ordination of agricultural policies. Ideally, this ought to involve more than a straightforward change in Britain from its old subsidies-plus-free-entry philosophy to a regime of tariff or levy protection on continental lines. W i h the Community Britain ought to be able to persuade Community countries to move slightly away &om total reliance on price SUppOrF as she moves slightly more towards it (via standard quantities, etc.). Such a change is already beginning to happen, for whde Britain has adopted a price support system in grain marketing, West Germany has been allowed to introduce an element of subsidy to maintain its farm prices above the new level agreed by the Community. The dficulty is that outside the Community, Britain’s opportunities for influencing the situation are narrowly limited. The Community remains both the largest

method. Inside t f e, or a, Community, an executive system necessary

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potential market for agricultural products in the world and the largest potential producer of surpluses. It is its policies which will ultimately decide the level of world prices and the broad dimensions of markets for overseas producers. Co-ordination of aid-giving machhery is another field for effort. And there must be a readier response to liberalization programmes emanating from the new Trade and Development Board-the permanent organ of UNCTAD.

All these activities must eventually create a need, first for more formal machinery linking the existing Community of Six to other countries such as Britain, and then for full British participation in the Community. The amount of disruption which would be caused by removing all discriminatory tariffs on manufactures from developing countries would not be impossibly large in relation to the transition problems that a modern and efficient economy should anyway be facing and overcoming all the time. But if these big changes are to be accepted, the impact of competition from the new nations must be spread throughout the developed countries. The idea behind the Geneva cotton plan was good, even though the execution has Men short of hopes. Common trading policies are essential. So are joint programmes of social readaptation and retraining of the kind the Coal and Steel Community has pioneered.

Regional collaboration between lower income countries is also essential to their development, for there is even greater scope for growth of trade in manufactures between them than for trade with developed countries outside. Trade between India, Japan, South East Asia and Afirica has been growing faster than trade between these groups and the Atlantic world. Preferential ties between developed and developing countries can limit this regional collaboration. As at present constituted, the AOT Convention, which forbids associated countries to give more favourable trade terms to third countries than to the Six, shows signs of having a deterrent effect. Hence the necessity to open it out to include other African countries-which British membership of the Community could help to do. The Trade and Development Board could also provide a vital link in the chain of communication with the centrally planned economies in East/West trade reform. Britain, the Six and other NATO countries must anyway work towards a common trade policy towards Eastern Europe.* The Board, by placing the same kind of demands on both the centrally planned and the free economies, throws them both together in the search for ways of opening their markets without internal disruption. It could emphasize the common interests and problems of the developed countries as they face the obligation to open their market to the 'third world'.

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It should be plain that no effective progress is going to be made in these directions unless the country is prepared to operate within a wider economic and political framework. It must press and agitate through every possible channel for combined efforts to achieve world trade reform. But in whatever direction this country turns--to deal with agricultural surpluses, open markets for Asian manufactures, trade with the communist world, the signpost points towards closer co-opera- tion with Europe. Britain alone cannot wield the economic influence in the world which it would like to. It is by influencing and sharing problems with the Community of Six that it can do more.

1 See article by John Pindec, pp. 246-259. f See a& by Christopher Layton, pp. 274283.