An Uncommon Impact

To the Brussels headquarters of the European Economic Community last week came a message from "the British government formally requested admission to the Common Market. Hours later in Washington, President Kennedy declared that he was "gratified" by the step, but added: "The enlargement of the European Community will necessarily result in some changes in the pattern of trade." By any standard, this was an understatement. If Britain does, in fact, negotiate its way into the Common Market, the impact on the $20 billion-a-year U.S. export trade will be profound. Among the likely consequences:

P: There will be short-term hardships but long-term gains for U.S. business. Britain is the U.S.'s best European customer, buying some $1.4 billion worth of goods in 1960. If the British enter the Common Market, they will be obliged to cut their tariffs on what they import from the six continental partners by some 50%*--which will put U.S. goods at a new disadvantage. But the freer movement of goods, capital and labor within the Market will spur Europe's overall growth, and in turn stimulate Europe's demand for U.S. products and raw materials. Two key indicators: 1) the six member nations have been growing much faster economically since they formed their Common Market, and 2) though trade among the Six increased 25% last year, U.S. sales in the Common Market rose 44% (see chart).

P: European demand for U.S. raw materials should grow. Common Market duties will remain low on the materials and fuels that Europe needs to feed her burgeoning industrial machine. Thus there will be an increase in the shipments of U.S. ores, fibers, scrap, raw chemicals, and non-mineral oils, which constitute 30% of current U.S. exports to the Continent. Exports of food and tobacco, which make up another 30% of the U.S. total, should remain about even, as rising European demand is balanced by rising protectionism for Europe's farmers,

P:U.S. finished products will be hit harder. This includes high-duty products that compete directly with Europe's fastest-growing industries, such as finished chemicals and steel, machinery and electrical equipment, cars and trucks. But there should always be a brisk market for U.S. specialties, ranging from automated gear to wash-and-wear fabrics. In this year's first quarter. Common Market imports of U.S. office accounting and computing machines more than doubled, to $23 million. Says the Chase Manhattan Bank: "Those U.S. exports will fare best that are unique --in performance, design or cost.''

P:| U.S. investments in Europe will jump. Last week Commerce Secretary Luther Hodges said that U.S. capital spending abroad will amount to $4.5 billion this year--more than 20% above 1960--and he predicted that the upswing would be "accentuated" by any expansion in the Common Market. Not only will U.S. entrepreneurs feel a growing need to slip under Europe's tariff curtain, but they will find it easier to do. Instead of having to set up plants in each of two rival camps, a U.S. businessman will be able to sell to the continental Six from a subsidiary in Britain, and vice versa. Since the Common Market got going three years ago, U.S. business has started more than 600 new operations within the Six, v. 120 in Britain. Now the emphasis is likely to swing back to Britain, which offers the advantages of a common language, time-tested political stability, excellent banking and shipping facilities.

P: The market for non-British goods in other Commonwealth nations is likely to increase. As part of the price of entry into the Market, Britain will probably have to give somewhat less preferential treatment to Australia, Canada, India and the other Commonwealth countries. As Brit ain buys less from them, they will buy less from Britain. Already some Midwestern manufacturers believe that Canada may quickly open up to more imports from the U.S. tool and die industry. On the other hand, there will be stiffer competition in markets of the Commonwealth from such Common Market powers as Germany, France and Italy.

P: Pressures on U.S. industry to improve quality and hold the price line will increase. U.S. exporters are beginning to talk about the immediate need to tailor products for foreign markets, e.g., lower prices, smaller appliances, instructions printed in foreign languages. Perhaps the best answer to how sharply the expanding Common Market will affect U.S. business came last week from Jack Camp, foreign-operations vice president of International Harvester Co.: "It will be strict ly a matter of how competitive we are in relation to the rest of the world."

*Current members--France. West Germany, Italy, Belgium, The Netherlands and Luxembourg--are pledged to eliminate all internal tariffs by 1966.

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