Commercial policy - 14 September 1956

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Commercial policy - 14 September 1956

P.T. 

Decn. to-day, tho' important, is not final.  Want leave to canvass idea with Comm. Fin. Ministers & to report again to Cab. in Oct.
 Two features of our comm. policy – i) Imp. Pref.  ii) Elsewhere m.f.n.  We have thus enjoyed best of both worlds.  But both are crumbling.   On i) Austr. have taken initiative : they want to abolish pref. on cap. goods : we have to negotiate dift. settlemt.  N.Z. will follow.  On ii) Messina countries are seekg. to form customs union – with tariff v. rest of world, incldg. U.K.  It may fail, but somethg will emerge to our disadvantage.
 Thus, we can't easily stay put.
 Object of our plan : turn these developmts. to our advantage.  By securg tradg. area in wh. we have free access – large enough to compare in scope with U.S. & S. Russia – and at same time  keepg. specl. reln. with Comm.  Summary in C.P. 208.
 Advantages :  i) tradg. area of adequate size.  Industry now needs mass markets – & none now available to us.
    ii) provides for increasg. competn. with Europe.  We must face that anyway – to keep export markets.
    iii) must have sound internal economy – but we ought to have that anyway.
    iv) if we take lead in Eur. now, we can shape their policy.
    v) not merely commercial considns. involved : this wd. tie Germany into West.
 Political questions. a) Diffies. of course.  But likely to win support of best in Br. industry.  b) Cd. carry Tory Party on it.  Motions on these lines are tabled by Tories & by Socialists.  c) Pol. diffies. of doing nil are by no means easy.  Shall be forced into series of separate negotns. with Comm. countries – & shall emerge with lower preferences.


H. 

Increasg. tendency of Can., A. & N.Z. to look to U.S.  Risk that this will be accelerated if U.K. seen to be turng. to Europe.
 Most C. countries are developg. 2ndary indies. : & on their products their prefces. here, as cpd. with Eur., will disappear after 10 yrs.  To make this plan at all palatable to them, we must give them more on primary products – wh. isn't easy.
 If it's good for U.K., we shd. try to sell it to C. countries.  But until we are sure of this, we shd. make only a v. tentative approach to them.  For unless we can do much more on primary products than I can see at present, I wd. have to advice v. this.


H.A. 

Positive policy wh. will benefit U.K.  Unless we are competitive with Eur., we are done : this will force us to be.  Therefore I favour trying it out on C.  If we can convince them tht. it will strengthen U.K., we may sell it to them.  Qua Tory Party, vital tht. C. shd. support it.
 Farmers.  Will be suspicious.  i) We must be firm on excludg. foodstuffs fr. the outset.  ii) No intn. of varying agric. policy or, in particular, encouraging redn. of output.  iii) See no spectacular concession we can make to C. on food imports.
 Wd. be dangerous to promise perm. free entry to C. manufactures because low future prices fr. Asian Doms.


R.A.B. 

Collective approach.  We put it to U.S. early in '53.  In early stages we benefited by others' belief tht. we were movg. to a one-world trade & sterling as world currency.  That fell off twds. Electn.  Agree we need a new intiative to graft on to coll. approach – but don't abandon one-world philosophy.
 Coll. approach faltered because i) internal measures were not strong enough ii) imports got out of hand.  Right therefore to look for new impulse.
 Diffies. of this plan.  a) G. competn. will involve internal measures even stiffer than those wh. we have h'to bn. unwilling to face.  E.g. doubt wtr full emplt. policy cd. be m'tained: for we shan't soon get mobility of labour thro' Europe.  b) Cotton, dyestuffs & other industries will suffer – fr. greater imports – and "big new facilities for exports" are not in sight. 
 H.M.'s feeling for more "dirigisme".  May need it.  But will be v. unpopular in Tory Party.
 This plan will involve decns. for Cab. more diff. than those involved in coll. approach plan.
 Tories will press, in return, for control of imports.
 On draft lr. to C. countries, it looks as tho' U.K. will take main knock.
 Agriculture : clear there wd. be no increase in our prodn.  Our farmers won't like that.  Nor will they appreciate need for big concessions to C. agricultural products.  If we have to make  those, instead, at cost of Argentine, that may not benefit either sterling or one world trade pattern.
 For these reasons I recommend only the most tentative approach to C. countries.
 Remember b/p. – and effect on it of increased imports.


R. 

Qua f. policy, this is attractive.  A lead to Europe.  Helps to safeguard Germany.
 May be drawn further into Eur. affairs, to prejudice of our wider interests.  Shall need to watch that.


D.S. 

Imaginative & inspiring plan.  Need a new look on econ. policy.  Wd. have preferred an Imperial one : but must recognise tht. isn't practicable.  Imp. Pref. is on its way out. 
 This plan is full of dangers – to emplt., sterling & T. Party.  But those are with us anyway.  We must be competitive & are becoming less so. Threat is there already.  This will give us a jolt : but we need it.
 This offers great opportunities.
 We are too small a unit.  We must find larger sphere.  Choice – U.S. or Eur.  In first we shd. be minor partner.  In second we cd. lead.
 Hope we shall have courage to go fwd. on these lines.


D.E. 

Support D.S.
 If Can., Austr. & N.Z. are turng. twds U.S., it is because their  capital resources are so much greater.  If we want to keep them, we shall have to increase our resources.  Investment is becomg. more important than preferences on current trade.
 Managemt. is getting more powerful in reln. to ownership.  Power is increasingly with managemt.  Plan G., played cleverly, wd give us managemt.  Channelling thro' Ldn. the savings of Europe for investment outside Europe – v. attractive.  Operatg. thro' consortia : with Ldn. as issuing centre for prospectuses.  Shan't achieve tht. unless we are in their free market.
 We can't secure full emplt. w'in tariff barriers.
 This is turning point for us.
 Gt. risk in allowg. G. to dominate common market of 200 m. people in Europe.


I.M. 

Support the plan.  But formidable labour diffies. – & on these I agree with R.A.B.  Mobility of labour, tho' right economically, may be impracticable humanly.  Can't believe T.U.'s will welcome this.  Objns. will be clearer to them than the advantages.  Redundancies, esp. in cotton & cars, & in dev. areas.
 Diffies. of fixed time-table for reducg. tariffs etc.,  If there are strikes, it will be hard.
 Even so, I think I shd. do it.
 But because of these diffies., I doubt wtr H. is right in recommendg. a tentative approach to Doms.  Wdn't be right to be tentative with T.U.'s.  If we are to put this over, we shall have to speak as tho' we believed in it.  I wd. sooner put it across from a posn. of strength.


H. 

A.L.B. has pleaded for time to consider.  Has also said tht. agric. measures wh. I suggest for Doms. wd. have to extend to Colonies.


L.P. 

Worried over pol. aspects of this.  Great centrifugal tendencies in Comm.  Canada, despite loyalty, is detached.  India & Ceylon are neither loyal nor attached.  So, prob., is S. Africa.  Pak., tho' loyal, has v. difft. b'ground.  A & N.Z. alone are 100% loyal & even they are drawn to U.S.
 We in U.K. put our C. relationship v. high.  C. "family."
 If we now enter a new "family" & seek pol. leadership of Europe, this must weaken C. bonds.  Will encourage A & N.Z. to look twds U.S. economically : and U.S. will encourage that, for they won't like a large common market fr. wh. they are excluded.
 Wd. wish therefore to be more convinced than I am of its econ. benefits.
 Approach to C. countries shd. therefore be tentative.
Sel. Most of emphasis here is on manufactures.  Is it not likely tht. materials will be more crucial in future than markets.  How wd. this plan be affected by such a developmt. 
 Attitude of U.S.  They dislike our preferences : will they like this?


Ll.G. 

Our reln. to Eur. is comparable with that of Can. to U.S.  At least Can. cdn't object to our havg. closer reln. with Europe.


P.M. 

This problem has bn. approachg. for some time.  We near the point where we must take a view.
 How shd. we m'tain our posn. if common market got going w'out us & invaded 3rd. markets with added strength?
 W'out us, Eur. union wd. be dominated by G.  But, if we joined, cd. we stand G. competn. in U.K?
 If food were excluded – concessions to Doms. suggd. in H.'s memo. will not be enough to balance this.  Is there no more we cd. do, on things we don't grow ourselves?


H.A. 

There is no more we can do – in addn. to existg. preferences.


RAB. 

Final sentence of para 6 of Annex II. of C.P. 208.  Cd. that be excluded?


P.T. 

Object wd. not be to swing up tariffs v. U.S.  This is all it means.


RAB 

But, if we are going into Regional group, I shd. want to discriminate.


P.T. 

We shall in fact be discriminatg.  Shall retain right to use E.R. in b/p diffies. 
 U.S. Econ. Minister in Ldn: "much less interested in rules v. discrimination than in making Europe strong enough to be multilateral."


R.A.B. 

U.S. haven't done much to help.


H.M. 

P'ponemt. wd. be a decn. against.  If we felt risks were too great, our course wd. be to work for break-down of Messina effort.  But that wd. not serve our long-term interest, for it wd. Balkanise Europe.
 When we do decide, we can't present it as balanced argument.  We must advocate it whole-heartedly.
 Doms.  H. exaggerates – unless he is thinkg. mainly of moral not material as is L.P.  For imports of manufactures fr. Doms are v. small & w'in those the vulnerable ones are negligible.  And, if they are fearful of future, …..  On the moral argument, we shd. have to say we were link betwn. Europe & Doms.
 At home, of course, we are v. vulnerable.  Our democr. system is ideal for preventg. Govts. fr. doing what they shd.  When our economy gets out of line, we take it on reserves – instead of adjusting our standards or acceptg. unemplt.  That can't last.  We shall have the crisis, unless we adjust.  But if we do Plan G., that will get the blame for adjustments.  On other hand it may make it easier to make them. 
 Protection won't suffice to support a non-competitive economy.  This plan will bring pressure on economy to become competitive.
 T.U.'s on that a/c will dislike it.  But their international traditions may make it hard for them to oppose it.
 But as crises are inevitable – there is somethg. to be said for having a policy.  At present neither Party has a theme.  Gt. advantage, politically, in having one.
 Recognise tht. arguments are balanced.
     | May we have authy. – on basis that this Plan offers a basis for
 x  | discn. with Doms. on understanding that Cab. must consider this
     | again in the light of their reactions.  I must at least be able to put
     | it as somthing I'm disposed to support.


L.P. 

Don't go beyond : this is the way our minds are moving.


H. 

I'm content with x/.
 But if we eventually go fwd. with it, we must sell it to them.  And I doubt if we have enough (on food concessions) on which to persuade them.


P.T. 

Remember how little A. is offering to us in return for taking 1 m. tons of wheat.


H.M. 

Not much "family" feeling about McEwen!


H. 

But our posn. depends on our leadership of C.  And we must therefore carry C. with us.


R.A.B. 

On draft letter a) last sentence of para 3 obviously untrue. b) Add para. (qua U.K. as central bank) to effect that Cab. realise tht. this will mean stiff internal measures here.
   Agreed : Despatch letter : clearg. draft with Dpts.
     Resume Cab. discussion on Tuesday.

Taken from C.M. 65(56) - Meeting held on 14 September 1956.