Orchestrating Europe (Text Only)

The explicitly federal implications of the EEC made it superficially unattractive for the rest of Europe.

A variety of political, economic or security reasons confined the supranational course initially to a limited group of countries, albeit a group that comprised more than half of western Europe’s output and foreign trade. Nonetheless the outsiders still constituted a sizeable market of considerable sophistication, one that had shared with the Six the same pan-European movement towards commercial liberalization and growing interdependence. Among these smaller trading economies, in particular Denmark, Sweden and Switzerland, there existed the same drive towards a further relaxation of protectionism that had motivated the Benelux countries, and this drive was reinforced by the fear of what might happen once the mutual preferences, implied by the formation of the customs union by the Six, began to take effect. The government of the United Kingdom was particularly concerned about the possibility of an economic division of Europe and, at the end of 1956, tried to neutralize the effect of EEC preferences with a proposal for a wider industrial free trade area to be constructed inside the OEEC.

The initiative was launched at a particularly testing moment for the Six, since the common market negotiations had still to be concluded and then ratified by national parliaments. The Commission of the EC itself did not begin work until January 1958. If the free trade area offered non-member states a solution to their dilemmas, for the Six it posed a distinct threat. Distrust of British motives suffused the following negotiations but there were more prosaic reasons why the Six were reluctant to embrace the UK initiative. For example, the French, in the final stages of the common market negotiations, obtained a set of favourable conditions and safeguards that they could not replicate in the free trade area. Moreover, the French, Italians and the Dutch had obtained some ‘compensation’ for the opening of their industrial markets through the prospect of a common agricultural policy, but agriculture was exempted from the British plan. Finally, those who hoped that the Community institutions would rapidly develop in a federalist direction were worried that their energies might be dissipated by the Free Trade Area.

The Free Trade Area negotiations dragged on for nearly two years, before finally being terminated by the French in November 1958. Under de Gaulle, France had decided to embrace the Treaty of Rome without recourse to its opt-out provisions. This commitment was worth infinitely more to Adenauer than the dubious prospect of a free trade area and thus the move received German acquiesence, if not support. The Commission, especially under its first president Walter Hallstein, had never liked the British plan and was generally pleased to see the back of it. Indeed by the end of the year, among the Six, only the Dutch government and the German economics minister, Ludwig Erhardt, could be numbered amongst its supporters. In the face of the opposing coalition there was little they could do.

The failure of the free trade area negotiations left the UK without any coherent strategy towards the Common Market. In the absence of an alternative, the idea of forming a smaller free trade area amongst the ‘outer Seven’ (Britain, Denmark, Norway, Sweden, Switzerland, Austria and Portugal) rapidly took over. With the exception of Austria and Portugal, these were already relatively low tariff countries which shared a desire to maintain tariff autonomy towards third countries. They therefore preferred the concept of a free trade area to solve Europe’s trading problems, rather than the more restrictive principle of a customs union. Formal negotiations started in June 1959 and culminated, in January 1960, in the Stockholm Convention establishing the European Free Trade Association (EFTA).

EFTA’s ambitions and its structures were simpler from the start than those adopted by the EEC. It was essentially designed to ‘build a bridge’ to the EEC, thereby obtaining through bilateral negotiations en bloc what the previous multilateral negotiations had failed to deliver. The differences can be summarized as follows:

* The EEC wanted a customs union, EFTA did not.

* The EEC had to build a common external tariff, EFTA did not, but did require instead a ‘certificates of origin’ regime. The common external tariff meant that the EEC needed a common commercial policy, whereas EFTA did not.

* The EEC wanted to eliminate the cause of trade distortions at source and required the machinery to do so; EFTA instituted a procedure to deal with complaints if and when different national practices were felt to have distorted trade.

* The EEC wanted a common agricultural policy; EFTA excluded agriculture but relied instead on bilateral agreements to expand agrarian trade.

In a way, EFTA was almost designed to disappear in the form in which it had been cast. It was only the subsequent failure of the ‘bridge-building’ strategy that forced it to assume the identity of an individual trading organization in its own right.

Even before the establishment of EFTA, the Macmillan government had begun to consider applying for full membership of the European Community. By late 1959, it had become increasingly apparent that the UK would be unable to negotiate a settlement which aimed at a parallel removal of barriers within the EEC and EFTA and between the two blocs. The ‘Hallstein Report’ of 1959 which outlined the EEC’s foreign policy perspectives left little room for a purely commercial settlement in Europe. Moreover, the United States, faced with a mounting balance of payments problem, made clear that it would not accept the discrimination implied by an interim settlement unless it conformed with GATT rules. That meant that any solution ended in a forseeable time and according to a fixed schedule, with the complete abolition of trade barriers. At the time the most that was on offer was a Benelux plan for the mutual exchange of the next scheduled tariff cut.

Throughout 1960, the number of voices from the press, business circles, and certain politicians calling for a reappraisal of the UK’s relations with the Six, grew considerably. However, the strongest statement seeking a drastic change in course came in May 1960, from an interdepartmental committee headed by Sir Frank Lee. It advanced the view that Britain should abandon attempts to negotiate loose economic agreements with the Six and instead seek full membership of the EEC. The Committee’s arguments, based more on political than economic considerations, can be summarized as follows:

* The offer of a purely commercial ‘bridge’ between the EEC and EFTA would never be acceptable to the Six.

* The UK would face a relative decline in its political significance if it remained outside the EEC.

* The danger of a European federation would be mitigated if the UK joined while de Gaulle, who was notoriously anti-federalist, was still in power in France.

* Special arrangements for UK problems, such as Commonwealth trade and domestic agriculture, could be negotiated.

Macmillan was anyway predisposed to accept these arguments. Although he had been its victim, he had been impressed by the power and influence of France and Germany within the EEC. He saw in it the reinforcement of traditional great power diplomacy within which Britain could easily function, somewhat missing the point that the attraction of these arrangements to both Adenauer and de Gaulle was their exclusivity. Yet it was more than a year later before a formal application was made. This was primarily because of the daunting array of individuals and organizations which had to be persuaded of the desirability of EEC membership (from the party to the parliament, the press and public, not to mention the Commonwealth and EFTA). Macmillan also faced the ‘presentational difficulty of explaining why a policy which had been repudiated inflexibly since 1948 had now become both desirable and necessary’.

In July 1960, Macmillan appointed Edward Heath as lord privy seal, with special responsibilities for Europe. His major task in the ensuing year was to appraise the attitude of the Six, and France in particular, to the prospect of British entry. There would be little point in even considering a membership application if the French remained determined to keep Britain out. However, by summer 1961, it was evident that the French would not discuss possible concessions to UK interests prior to a formal commitment to negotiate. Indeed many, including President Kennedy, felt that de Gaulle had no desire whatsoever to share French leadership of the Six with Britain.

This placed the Macmillan government in an extremely difficult position. Speculation in the press and business circles had already anticipated an announcement on Britain and Europe. Thus, rather than make an open commitment to EEC membership, it was decided to open negotiations with the Six to see whether suitable arrangements could be made. It was hoped that this fine distinction would put an end to public uncertainty, and keep Britain’s options open in Europe. The formal announcement was made in the House of Commons on 31 July 1961.

The three major problem areas of negotiation with Brussels were the Commonwealth, EFTA, and British agriculture. In each case, Britain held outstanding commitments which, in the absence of special arrangements, were incompatible with EEC membership. The negotiations that opened in October 1961 proceeded extremely slowly due to a mutual unwillingness to offer concessions. It was not until May 1962 that the first specific agreement was reached on Commonwealth industrial goods. By the end of July, arrangements for most Commonwealth countries had virtually been finalized, although these often fell short of Commonwealth demands. However, it was the issue of agriculture which finally brought the negotiations into deadlock. The British system of guaranteed prices and deficiency payments to farmers was manifestly incompatible with the artificially inflated prices of the Common Agricultural Policy (CAP). Disagreement on the best means to reconcile the two dragged on into December 1962, when the EEC Commission appointed a committee under the direction of Commission vice-president, Sicco Mansholt, to explore possible solutions.

In the meantime, de Gaulle had become increasingly concerned about the political consequences of British membership. Although Macmillan was aware of these views, neither he nor any of the delegations in Brussels anticipated de Gaulle’s unilateral statement, at a press conference on 14 January 1963, that Britain was not yet ready for the full commitment of EEC membership and that therefore there was no point in prolonging the negotiations. De Gaulle referred to the deal with the United States on Polaris nuclear weapons as evidence of Britain’s ‘special links’ outside the Community structure. However, it is now clear that such objections were used to mask underlying fears of a British challenge to French leadership of the Six. The veto came as a monumental blow to British aspirations in continental Europe and the wider world. It also generated considerable illwill and mistrust between the Six, which in turn impaired the prospects of further political initiatives. Finally, it also served to repudiate the approaches of other states for membership or association with the EEC.

The applications of Denmark, Norway and Ireland

for EEC membership had been essentially a reaction to Macmillan’s decision to negotiate with the Six. Denmark was the strongest supporter of this decision, as it provided the opportunity to bring its two largest customers, the United Kingdom and West Germany, together in a single market. The breakdown of the British negotiations was crucial to the Danish position. Although de Gaulle had offered prime-minister Otto Jens Krag membership for Denmark separately, this was turned down after consultations with the British.

Norway was somewhat less enthusiastic in applying for EEC membership. Einar Gerhardsen’s goverment was uneasy about opening Norwegian fisheries and agriculture to foreign competition but the simultaneous application of important trading partners like Denmark and Britain led many to the view that Norway could not afford to remain outside. Before any application could be made, the constitution had to be amended to provide for the transfer of sovereign powers to an international organization. This amendment was passed without difficulty by the Storting in March 1962, followed soon after by the EEC announcement opening negotiations. Only one meeting at ministerial level had taken place, however, when the collapse of the UK application brought the Norwegian case to an equally abrupt end.

Ireland’s membership application was perhaps even more closely linked with that of the United Kingdom. Ireland had not taken part in the EEC/EFTA split of the late 1950s, but had special trading arrangements with Britain dating back to the time when it formed part of the United Kingdom. Edward Heath specifically mentioned Ireland in his opening speech to the EEC governments in October 1961, expressing the hope that their trading relationship would be ‘subsumed in the wider arrangements of the enlarged Community’. The EEC Council of Ministers signalled the start of negotiations with Ireland in October 1962 but, as in the case of Norway, substantial negotiations never actually opened.

The return of de Gaulle to power in France on 1 June 1958 was decisive for the EEC’s development. Given his long antipathy towards the integration efforts of the Six, nobody expected him to look favourably upon the new supranational organization emerging in Brussels. After all, he viewed France’s participation in the ECSC, the EEC and EURATOM as the humiliating policies of a previous regime ‘more concerned with pleasing others’. Thus it was with considerable relief that ‘Europeanists’ saw his early recognition of the Rome Treaties. In part, this reflected the support in French industrial and especially agrarian circles for the EEC. It also marked an appreciation of the usefulness of the Treaty, and its safeguards, for the liberalization of the French economy upon which the regime embarked at the end of 1958. However, it soon became evident that the General had his own concept of ‘Europe’ which differed markedly from the federalist ideal.

At a press conference in May 1960, de Gaulle launched his proposals to develop political cooperation among the Six. He announced his intention ‘to build western Europe into a political, economic, cultural and human grouping organised for action and self-defence … through organised cooperation between states, with the expectation of perhaps growing one day into an imposing confederation’. The use of the phrase ‘une cooperation organisée des Etats’ was particularly significant and reflected a desire to ensure that any future political integration of the Six would not be at the expense of French national sovereignty. De Gaulle obtained the support of Adenauer for this position on 29 July at a meeting at Rambouillet. Central to the plan was the establishment of a permanent political secretariat of the Six in Paris, responsible to a Council of the Heads of Government. It would comprise four permanent directorates; dealing with foreign policy, defence, economics and cultural affairs. There would also be an assembly of delegates from the national parliaments.

The scheme ran into strong opposition from federalists such as Walter Hallstein and Paul-Henri Spaak who feared that the inclusion of defence and economics within the competence of the new organization would tend to undermine both NATO and the existing Economic Community in Brussels. These problems were discussed by the heads of government of the Six in Bonn in July 1961. The outcome of the meeting was the ‘Bonn Declaration’, which tried to allay doubts about the plan by including references to political union as a means for ‘strengthening the Atlantic Alliance’ as well as an affirmation of the intention to ‘continue at the same time the work already undertaken in the European Communities’. However, the Declaration had been cleverly drafted to conceal the many points of disagreement, and the illusion of consensus proved to be short lived.

The preparatory work was entrusted to a new commission, chaired by the French ambassador to Denmark, Christian Fouchet. Its brief was to submit ‘concrete proposals concerning meetings of the heads of state and the ministers of foreign affairs, as well as all other meetings that might appear desirable’. In November, the French government presented a draft Traité d’union d’Etats which became known as the Fouchet Plan. The Fouchet Plan adhered firmly to de Gaulle’s earlier position and, as such, represented some backsliding from the text of the Bonn Declaration. Most notably, the draft treaty included the key issues of defence and economics within the scope of the Political Union, despite the earlier protests by France’s partners. Negotiations among the Six on the Fouchet Plan commenced in early 1962, with numerous redrafts of the treaty submitted by the Five. However, as the negotiations progressed, a further point of disagreement emerged among the Six, over the issue of British participation in the Fouchet negotiations.

At this time, simultaneous negotiations were being held in Brussels on Britain’s application to the EEC. The Dutch, in particular, were adamant that the UK should also be included in the discussions on political union. Their foreign minster, Joseph Luns, saw British participation as essential to ensure the primacy of NATO and to keep a check on French ambitions. This was in stark contrast to the French position, that Britain would have to make a separate membership application to the Political Community, if and when it came into existence. Throughout the spring of 1962, this divergence of opinion became an ever greater source of antagonism among the Six. Meantime, the British themselves had begun to take a more active interest in the Fouchet negotiations, which, after all, coincided with Macmillan’s preferences for Europe’s organization. In April, at the Council of the Western European Union, Edward Heath made a long statement indicating Britain’s desire to participate directly in the discussions. Coming at a crucial stage in the Fouchet negotiations, his announcement had the effect of rallying Belgian support for the Dutch position. Spaak now declared that he would not sign any proposed treaty until after Britain had been admitted to the EEC. The negotiations were then formally ‘suspended’, and the Fouchet Plan was abandoned.

The failure of the Fouchet Plan represented the first of many political complications to emerge among the Six in the 1960s. Moreover, by stiffening French resistance to British intervention in continental affairs, it had a marked effect on the atmosphere of the Brussels negotiations on British accession. Four weeks after the suspension of the Fouchet discussions, de Gaulle held a press conference in which he defended the Fouchet Plan and delivered one of his most scathing attacks on European federalism. His response to Belgian and Dutch intransigence was to proceed with negotiations on a political treaty with Germany alone. The summer and autumn of 1962 were marked by a number of high profile meetings and state visits. This process culminated, a mere fortnight after the collapse of the first British membership application, in the signature of the Franco-German Treaty of Friendship and Cooperation – a treaty which has also been described as a ‘bilateral version of the Fouchet Plan’.

Despite these external threats, and perhaps partly even because of them, the early years of the EEC were startlingly successful. In 1958, it had yet to start its day-to-day operations and still had to recruit its staff. Although its president, Walter Hallstein, was welcomed in Washington almost as if he were a head of state, his position as the head of the secretariat of Europe’s smallest and newest international organization meant he was virtually shown the tradesmen’s entrance in the United Kingdom. Nonetheless, the Commission quickly became a formidable force in European politics. This was partly because it was remarkably well-staffed. For example, Walter Hallstein himself had been involved in European affairs since he had led the German delegation in the Schuman Plan negotiations. Sicco Mansholt, an ardent federalist, had served as an agricultural minister (not usually a post renowned for its length of political tenure) for over a decade. Hans von der Groeben had already served as his country’s representative to the High Authority of the ECSC. Each of these men recruited highly skilled and experienced personal staffs.

Its success, however, was more than a question of personnel. At an organizational level, the Commission was quickly able to establish its own priorities and, still more importantly, to implement them. This, in turn, was facilitated by the compactness of the Commission itself, as evidenced by its small number of portfolios. Only later, when the EEC was merged with the ECSC and EURATOM, did its focus become blurred; it was then further diluted by the addition of new commissioners to satisfy new members in 1973. It is also undeniable that political factors played an important part. Early support from the Americans had certainly helped to increase the legitimacy of the new organization. Additionally, foreign policy challenges, an area in which the Rome treaties had given the commission an important role, presented themselves in the form of GATT trade rounds and in preparing the response to UK initiatives. Finally, the favourable economic climate provided new opportunities in the shape of an accelerated creation of the common market and thus created new areas for the Commission to exercise its influence at an early stage.

I once asked a senior official with a lifetime of service in the Commission, what the difference was between an inter-governmental organization, with a large and efficient secretariat, and a supranational community, controlled by a Council of Ministers (often voting with unanimity) and a large and efficient Commission. He replied that often there was no discernible difference, especially if there were sources of disunity within the group. However, if the political or economic constellation were favourable, a supranational community could respond more quickly and effectively to issues to which an inter-governmental agency might not be able to respond at all. He argued that the first Hallstein Commission was fortunate to find itself in such a situation.

Small, uncertain, and untried, the new Community soon found itself basking in a golden age, and inspiring a whole branch of theorizing among political scientists into the bargain.

The Six’s first step in economic integration was the building of a customs union for industrial goods. All tariffs and quotas on trade between members were to be reduced gradually to zero and a Common External Tariff (CET) installed. The first 10 per cent tariff cut on intra-EEC trade took place in January 1959 and, according to schedule, bilateral quotas were multilateralized, while those quotas that were extremely restrictive (less than 3% of output) were expanded. At the same time, the benefits of the tariff cuts (other than those on tariffs already below the planned CET) were extended unilaterally to other GATT members. This was partly to anticipate criticism in the GATT that the EEC would develop into a closed organization and partly to cool the row that had erupted after the failure of the free trade area negotiations, which would have been aggravated had the Six immediately begun tariff discrimination against the rest of Europe.

The next two tariff cuts of 10% each were to take place in July 1960 and December 1961. Hallstein suggested accelerating the schedule, ostensibly to take advantage of the favourable economic climate but also to accentuate the EEC’s own identity at a time when there was still an active interest in subsuming its commercial arrangements into a wider European grouping. As a result, in May 1960 the Council of Ministers decided to proceed, on schedule, with the July reduction but to make the next cut a year early, in December 1960. Similarly, in May 1962, the Council decided that the state of the economy allowed the 10% cut scheduled for July 1963 to be brought forward a year. Due to these accelerations, tariffs between the EC members were dismantled completely by July 1968, two years ahead of schedule.

The creation of a customs union by the Six also implied a common level of tariff protection towards the outside world. This too was completed ahead of time. The first problem was to define the tariff itself. The CET should have been calculated as the unweighted average of tariffs in four areas, but for a number of products (mostly in the semi-manufactured and petro-chemical sectors) this formula was opposed. Due to lack of time in the Treaty of Rome negotiations, these goods had been consigned to List G and left to be decided by January 1962. Because of the need for a complete tariff schedule before entering GATT negotiations, this operation was completed by March 1960 and the outcome, moreover, was far less protectionist than had originally been anticipated.

Because the timetable of internal tariff cuts had been accelerated, so too was the realignment of national tariffs. In January 1961 and July 1963, the margin between national and projected rates was reduced by 30% each time, and the gap was finally closed in July 1968.

Although the Commission boasted that the level of the CET was moderate and its incidence considerably narrower than the British tariffs, Paxton stresses that ‘in practice, the common external tariff as originally fixed was higher and more restrictive than the average incidence of the 1957 tariffs.’ Germany had already in the mid–50s been concerned that their first post-War tariff had been fixed at too high a level and had already engaged in some unilateral reductions of their own. The Dutch too had been alarmed at the upward revision of tariffs on semi-manufactured goods especially. Neither country had been happy with the upward drift in protection that the CET implied. They therefore welcomed the call in 1958 by US under-secretary of state, Douglas Dillon, for a new multilateral tariff round in GATT. So too did the Commission. The Treaty of Rome had constituted a single bloc from four, already large, trading entities. Under GATT rules which applied to negotiations between major suppliers, this enhanced its importance and its international recognition, especially in relations with the United States. Moreover, since the Treaty also allocated the Commission a specific role in preparing and negotiating foreign commercial policy, the Dillon Round immediately promised it a prominent role in the national policies of the Six.

The Dillon Round was delayed by the need firstly to construct the CET and then to get it approved by the GATT. Once underway, the Commission suggested a 20% ‘linear’ reduction in the CET, subject to reciprocal concessions by other countries. This idea foundered on the inability of the US to react to an offer framed in this way, but it is far from certain whether it would have been endorsed by the Six anyway. Thus the negotiations proceeded bilaterally on a product-by-product basis. No less than 4400 bilateral deals were made covering trade worth $4.9 billion and resulting in tariff cuts of about 7%. This outcome, however measured, was twice a good as that of the previous ‘round’ in Geneva in 1956 but was still considered disappointing. However the Dillon Round did have one important side-effect in that it convinced the Kennedy administration, in framing the 1962 Trade Expansion Act, not only to reopen tariff negotiations but to empower the US to negotiate across-the-board tariff cuts.

The Kennedy Round lasted from May 1963 to June 1967 and resulted in the largest tariff cuts in modern history, although the across-the-board method was not employed, since the EEC argued that the disparity in US tariffs, compared with those in Europe, would lead to inequitable results should that method be used. Nonetheless, over 8000 deals were made with a trade coverage of $40 billion and an average reduction of 35%. In over two thirds of cases, with the steel and chemical sectors especially heavily represented, tariffs were reduced by more than half. Textiles, on the other hand, recorded only minor gains. Equally, little progress was made in grains, meats and dairy produce which were rapidly being embraced by the Common Agricultural Policy (CAP) and where the French, especially, were reluctant to make concessions. The need to conclude the CAP, and the ‘crisis’ that had accompanied it, served to delay progress. More importantly, it prevented the tradeoffs that might have made deeper cuts possible elsewhere. Nonetheless, despite the tensions that inevitably accompanied the process of establishing a single position, the Commission emerged from the exercise with its international status considerably enhanced.

The Commission also suceeded in making the EEC the focus of international relations with the wide range of African territories that had made up the previous French and, to a lesser extent, Belgian and Dutch empires. These countries were overwhelmingly dependent on Community markets for both exports and imports, and on the metropolitan countries for much of their capital. Their future had been introduced at a late stage into the Treaty of Rome negotiations as a way of reducing the burden of their upkeep on the French budget in return for France’s renunciation of its bilateral preferences (or, more to the point, the multilateralization of those preferences). Thus the Six would remove tariffs and quotas on imports from these areas in the same way as those on intra-trade. By March 1963, tariffs had been reduced by 50% for manufactured products, by 30% for most of the liberalized agricultural products and 35% for the remaining agricultural products. It was not foreseen that these reductions would be strictly reciprocal, but protection retained by the overseas territories had to be applied equally to the Six.

After a five-year period, the association agreements were put on a new basis with Yaoundé I, negotiations for which lasted from mid–1961 to July 1963. These negotiations were difficult insofar as many territories had ambivalent feelings towards their colonial and excolonial masters and towards the prospect of neo-colonialism on a European scale. Moreover, the European member states were far from identical in their views of these countries. Whilst France shared with the Commission a desire to renew and extend the association, the Dutch were rather critical. Large Dutch economic interests in Commonwealth Africa led them to demand an agreement that could accommodate these territories and they linked the outcome of Yaounde I to the question of British accession. Only when the French veto blocked this possibility could real progress be resumed. The principles of the agreement were:

* Free trade area, dismantling of tariffs and quotas

* Technical and financial aid payments and capital liberalization

* Freedom in rights of business establishment and services

In 1969, after only six months’ negotiations, Yaoundé II was concluded to govern the relationship for another five years. These talks were much easier since many of the earlier problems had passed, though not without traumas: in essence, France and Belgium had accepted their post-colonial status. The issue of widening the association had been resolved by the Arusha Convention of July 1968 which put relations with Kenya, Tanzania and Uganda on a new footing. Finally, and most tellingly, the agreements had had positive effects on the development of the African territories concerned.

The preferences established by the association clauses and by Yaoundé I and II have prompted much criticism. Non-associated countries in Africa, Asia and Latin America were opposed to the arrangements. So too were the United States and the United Kingdom. From the very beginning, the arrangements were condemned as incompatible with GATT and this discussion remained alive throughout the period. George Ball, then US secretary of state, suggested that it ‘tends to result in a poor use of world resources’. What he said was true, but efficiency in the global allocation of resources had not been the Commission’s main objective. Its first General Report defended its association policy in unambiguous terms: