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Published online by Cambridge University Press: 07 November 2014
The first day of January, 1959, saw the opening moves in the formation of the European Economic Community, the most spectacular experiment in regional economic integration to occur in recent history. If no hitches occur, within fifteen years West Germany, France, Italy, and the Benelux countries will have formed something between a customs union arid a full economic union, with internal free trade, a common external tariff, partial freedom of internal factor movement, partial co-ordination of economic and social policies, and a common framework of agricultural protection and control. There is a small and wildly fluctuating probability that this “common market” will become embedded in a larger European free trade area organized by Great Britain and including Denmark, Norway, Sweden, Switzerland, Austria, and possibly other small European nations.
1 Corden, W. M., “Australia and European Free Trade,” Economic Record, XXXIV, no. 68, 08, 1958, 163.Google Scholar
2 Simkin, C. G. F., “Commonwealth Countries and the Common Market,” New Commonwealth, XXXIII, no. 7, 04 1, 1957, 302.Google Scholar
3 McIvor, R. Craig, “Canadian Foreign Trade and the European Common Market,” International Journal, XIII, no. 1, winter, 1957–1958, 7.Google Scholar Also see Judek, S., “Proposals for Free Trade in Europe and Their Possible Impact on Canada's Trade,” Revue de l'Université d'Ottawa, XXVIII, no. 2, 04-juin 1958, 180–90Google Scholar; his more optimistic conclusions rest, however, on an analysis which stresses the growth of Canadian exports to Europe over a period during which substantial liberalization of, trade has occurred, and largely ignores the common market's probable impact on the structure of trade.
4 See Secretariat of Interim Committee for the Common Market and Euratom, Brussels, Treaty Establishing the European Economic Community, and Connected Documents. The English edition is available from H.M.S.O. Two of the summaries of the treaty are: Federation of British Industries, European Free Trade Area: A Survey for Industrialists (London, 1957)Google Scholar; and Macdonald, H. I., The European Common Market, Behind the Headlines Series, XVIII, no. 4 (Toronto, 11, 1958).Google Scholar
5 Harry G. Johnson has rightly pointed out that this argument is fallacious in its crude form; after the E.E.C. tariff changes are completed, presumably excluding some British exports from the Continent, there is no reason why the remaining British exports should grow any less rapidly than before the process began. Indeed, they might even grow more rapidly, if Britain's greatest comparative advantage proves to be in products facing high income-elasticities of demand. (See Johnson, Harry G., “The Economic Gains from Freer Trade with Europe,” Three Banks Review, no. 39, 09, 1958, 5.)Google Scholar None the less, the argument can be rehabilitated in slightly fancier form. During the decade and a half in which the E.E.C.'s tariff changes are taking place, British exports to the E.E.C. countries can be expected to grow more slowly than if the Community were not coming into being. This is scarcely a negligible period of transition.
6 A great volume of literature exists on the British position. See Black, J., et al., “The Trade Proposals: A Symposium,” Bulletin of the Oxford Institute of Statistics, XIX, no. 1, 02, 1957, 3–72 Google Scholar; Harrod, R. F., “Britain and the Common Market,” Foreign Affairs, XXXV, no. 2, 01, 1957, 225–37CrossRefGoogle Scholar; Bareau, Paul, “Britain and European Free Trade,” International Journal, XII, no. 2, spring, 1957, 128–37Google Scholar; London, Economist Intelligence Unit, Britain and Europe: A Study of the Effects on British Manufacturing Industry of a Free Trade Area and the Common Market (London, 1957)Google Scholar; Sargent, J. R., “European Free Trade: The Choice for Britain,” Oxford Economic Papers (N.S.), X, no. 3, 10, 1958, 265–76.CrossRefGoogle Scholar
7 This proposal is set forth in Cmd. 72, A European Free Trade Area (Feb., 1957). The plan was found technically feasible by a group of experts under the auspices of the Organization for European Economic Co-operation (O.E.E.C.); their conclusions can be found in Report on the Possibility of Creating a Free Trade Area in Europe (Paris, 1957).Google Scholar
8 It is plain from a casual study of British imports that the great bulk of Commonwealth exports to Britain whose shares of the British market significantly depend on Imperial Preference margins are agricultural commodities. Thus it seems fair to say that the economic significance for trade patterns lies in Britain's wish to exclude agriculture from the F.T.A., not in the maintenance of her own discrirninatory tariff structure. If Britain were to adopt the E.E.C. common external tariff in a customs union that excluded agriculture, the major repercussion on Commonwealth exporters would be to subject their agricultural shipments to slightly more competition from non-European and non-Commonwealth producers.
9 The stumbling block seems to be French and Italian objections to Britain's plan which rest partly on self-interest, partly on technical objections to the proposal. See Corden, , “Australia and European Free Trade,” 164.Google Scholar
10 International Monetary Fund, International Financial News Survey, XI, no. 24, 12 12, 1958, 189.Google Scholar
11 There is at least one other plausible interpretation of these changes. Viewed along with the intent of the French and Germans to use the E.E.C. common tariff as a bargaining weapon to get United States duties down, they suggest that the common market may never come to anything but a supplement to the General Agreement on Tariffs and Trade-a transitional device aiding in the reduction of world tariff levels.
12 Newsprint might once have been classified thus, but European exports have now become a minor factor.
13 Professor Joe S. Bain's research on a small but critical group of United States industries suggests that economies of scale do riot explain the existing degree of concentration in American industries if we exclude economies of scale in nation-wide sales promotion. See his Barriers to New Competition: Their Character and Consequences in Manufacturing Industries (Cambridge, Mass., 1956), chap. iii.Google Scholar There is a large volume of earlier evidence for the United States which is more or less consistent with this conclusion. Most of it contains serious methodological slips that make the results unworthy of comment in detail.
14 Scitovsky, Tibor, Economic Theory and Western European Integration (London, 1958), chap. iii.Google Scholar
15 This is not meant to imply that these classes of commodities are homogeneous and can be thought of as having a single market. The actual degree of competition among sellers can be estimated only by a much more detailed study of statistics on commodities.
16 To assume that small market shares are marginal is of course an extremely crude approach. The stability of such shares depends not on their size but on the supply-elasticity of the Canadian product, the supply-elasticities of the competing regions' goods, and the demand-elasticities for these goods within the E.E.C. and also in other areas where they are or might be sold. The only justification for presuming that holders of small shares of a European market are marginal is the supposition that such small shares are probably also a small portion of the selling industry s total market, and hence might have high supply-elasticities.
Naturally, little can be said factually about these elasticities. It is only Canada's agri cultural exports that depend on European markets for large portions of their total sales. Thus one might argue that these are the only goods Canada exports to the E.E.C. whose supply-elasticities are low enough to render her share of the European market “non-marginal.” None the less, it is wrong to assume that Canadian manufactures with toe-holds in the European market can be readily dislodged. One reason why they might not be is the well-known effects of product differentiation. Another lies in the fact that to develop markets for fabricated goods abroad involves significant fixed costs. As a European market goes sour, a Canadian exporter might find his average costs of doing business there no longer covered, yet hang on for some time because he could still more than cover his variable costs.
17 This paragraph and the ones following draw on a large amount of current information, especially Foreign Trade, published by the Department of Trade and Commerce, which will not be cited explicitly.
18 These propositions come close to being generally true of Canada's manufactured exports to areas other than the U.S. and U.K. For a useful statistical tabulation, see “Canada's Exports to Third Countries,” Foreign Trade, CVII, no. 10, 05 11, 1957, 6–9.Google Scholar
19 Verdoorn, P. J., “A Customs Union for Western Europe: Advantages and Feasibility,” World Politics, VI, no. 4, 07, 1954, 488–9Google Scholar; Scitovsky, , Economic Theory and Western European Integration, 48–50.Google Scholar