Paradise Re-examined

Export-conscious U.S. businessmen are not sure whether the Common Market still looms ahead as a Promised Land or has dissolved into a Paradise Lost. To reassure them, President Kennedy at his press conference last week took time away from policy splits in NATO and lurking Russians in Cuba to argue that the Trade Expansion Act--so widely hailed by business--was still a promising gate to open the Common Market's new tariff walls. The trade act presumed Britain's entry into the European Economic Community when it gave the President the power to wipe out tariffs on items in which the EEC and the U.S. control 80% of world trade. Without adding in Britain, few items come under the 80% rule. The President reassured businessmen that his remaining power to reduce tariffs 50% is enough to work with. Yet neither the President nor businessmen could avoid the fact that the Common Market without Britain had suddenly become as much problem as opportunity for the U.S.

The U.S. has high stakes in the future of the Common Market. Last year U.S. industry shipped 19% of its exports, worth $3 billion, to the Common Six; U.S. farmers sold them nearly $600 million worth of agricultural products. Moreover. 1,500 U.S. companies have invested more than $3 billion to set up operations within the Common Market. U.S. businessmen are so deeply involved that anything De Gaulle may do is a cause for some concern.

New Limits. Even before the French veto, U.S. investments in the Common Market had begun to slacken, largely because Europe's boom has sagged somewhat and investment opportunities are fewer. Now that Britain's rejection cuts down the size of the potential market, many U.S. firms that might have made the trip to Europe are sure to reconsider. The Europeans do not seem seriously bothered by this possibility. France has clearly shown that it wants to limit U.S. investment. The West Germans and even the usually accommodating Dutch have already started making it more difficult for U.S. businessmen to thread through the red tape of setting up shop in their countries.

When it comes time for trade talks next year, the U.S. may find the Common Market nations harder to deal with than they would have been with Britain's free-trading influence. Europe already feels that it gave the U.S. more than it got in the 1961 "Dillon Round" of talks ($1.6 billion in concessions in return for $1.2 billion). Moreover, without Britain the next Kennedy Round has lost the grandeur of negotiations between two trade blocs that could have set effective trade standards for the entire free world. The psychological effects of bargaining toward maximum cuts of only 50% may make the actual tariff slices smaller than they would have been.

Crucial to the success of the Kennedy Round will be the outcome of the debates over agricultural tariff cuts. Both the U.S. and Europe are archly protective of their farmers; agreements that might be reached with ease on manufactured items may collapse because cuts on farm produce cannot be wrapped into the package. This will be particularly true if the U.S. insists on lumping agricultural and nonagricultural commodities together.

Covetous Glances. Still, many of Europe's businessmen have come round to the long-pushed U.S. philosophy of freer trade, and are not likely to turn back even for De Gaulle. They have learned from freer trading with one another that fewer restrictions mean more business. Besides, as their own economies reach full maturity, Europe's industries are casting covetous glances at the lucrative U.S. market, which would open wider to them under freer trade laws. While they want to strike the best possible bargain with the U.S. in establishing those new laws, they cannot afford--and do not want--to alienate U.S. business. Says Treasury Secretary Douglas Dillon: "I don't think we've seen any indication that France or the other members of the Common Market want to exclude the U.S. from trading with Europe." If both sides can trade off concessions with enlightened self-interest, the U.S. and Europe can continue to share in each other's growth.

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