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Commercial policy in the European Community
251 Villa Colombella Papers on Federalism, A.Breton, G.Galeotti, P.Salmon and R.Wimrobe (cds.),
European Journal of Political Economy, Special Issue, Vol.3, No. 1 + 2 (1987) Copyright Transfer Verlag, Regensburg, FRG.
COMMERCIAL POLICY IN T H E E U R O P E A N C O M M U N I T Y Alberto Majocchi* Universit~ di Pavia, Italy 1. If we wish to consider general commercial policy trends in the light of various forms of government, to wit unitary, c o m m u n i t y and federal states, it is vital at the outset to define the m e a n i n g of these terms. Oates for example uses the term 'federalism' in a much wider sense than political scientists do. "For an economist (...) what is crucial is simply that different levels of decision-making do exist, each of which determines levels of provision of particular public services in response largely to the interests of its geographical constituency." (Oates, 1972, p.XVI). U n d e r this definition, practically any system is federal or at least possesses federal elements. A narrower definition such as the one found in Wheare's classic study is necessary when comparing different forms of government. Wheare takes the principle of federalism to be: "the method of dividing powers so that the general and the regional governments are each, within a sphere, coordinate and independent." (Wheare, 1967, p.10). H e then enlarges on this definition as follows: "In a federal system, the functions of governemnt are divided in such a way that the relationship between the legislature which has authority over the whole territory and those legislatures which have authority over parts of the territory is not the relationship of superior to subordinates, but it is the relationship of coordinate partners in the governmental process." (Wheare, 1943, p p . 2 3 - 24). O n this basis, it is
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a relatively simple matter to distinguish federalism from decentralization, whereas Oates' definition includes both. As regards the unitary state, it is convenient to refer to the E u r o p e a n national state, which Albertini defines as follows: "the national state is characterized not merely by independence, but, in addition, by exclusiveness (inasm u c h as it prevents all those who belong to the nation from belonging, with equal rights and freedom, to a region or a federation)" (Albertini 1980, p. l l ) . The centralized bureaucratic state whose ideology is nationalism is at the opposite end of the spectrum from the federal system of independent, coordinate governments defined by Wheare. T h e c o m m u n i t y is at an intermediate position. We can take the E u r o p e a n C o m m u n i t y as the model of that form of government. It is difficult to provide a precise definition of the C o m m u n i t y ' s institutions i n a s m u c h as, unlike the normal situation where institutions are the fixed reference framework for h u m a n behaviour, in the case of E u r o p e a n integration what remains constant is the nature of the process, while the institutions gradually become transformed from a simple system of states, to the same system plus transitional institutions, and then to a federal system. Generally speaking it m a y be said that the E u r o p e a n C o m m u n i t y is confederal in its form in that the final decision-making power lies with the M e m b e r States, but federal in its dynamics particularly since, following direct elections to the E u r o p e a n Parliament, the C o m m u n i t y has entered into the phase of constitutional gradualism. 2. H a v i n g thus defined (at least for the state forms relevant here) a spectrum ranging from the national unitary state, to the c o m m u n i t y and to the federation, we may now turn our attention to the social and historical basis for the supranational process which is taking m a n k i n d from one pole - national states - to the opposite extreme the federation via such intermediate forms as the c o m m u n i t y . This basis m a y be defined as "the growth by means of broadening the interdependence of h u m a n action beyond state boundaries
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in the field of material production and hence in social, political and cultural fields as well". If this statement is placed in its historical context, it becomes clear that "in the first stages of the industrial revolution the growth of m a n ' s interdependence occurred in depth, within each state. With the liberal and democratic struggle of the bourgeoisie against the aristocracy and the socialist struggle of the proletariat against the bourgeoisie, this process first intensified and then overcame the division into classes of evolved societies. H o w e v e r , because of this integration, this process at the same time re-inforced the division of m a n k i n d into separate groups m a d e up of bureaucratic states ideologically represented as based on blood and other obscure ties: the nations. T h e growth by means of b r o a d e n i n g the interdependence of h u m a n action will cause the division of m a n k i n d into nations to come to an end" (Albertini, 1979, p p . 2 5 3 - 4) We m a y define this supranational phase of the historical process as the progressive unification of the world market. This process, heralded with great foresight by M a r x during the first industrial revolution, has been stepped up by the rise of the scientific mode of production. T h e problem that concerns us is that of establishing in just what way this process must be accompanied by an evolution of political institutions in the national state - c o m m u n i t y - federation sequence and, in particular, in what way foreign commercial policy is used in the course of this process. 3. Even liberal economists would seem to have recognized the current trend towards progressive unification of the world market. And in this respect, it is only fair to correct an error wrongly attributed to this school of thinking, namely the idea of establishing an international free market without any corresponding changes in institutions. In other words, liberal economists may have appeared to be suggesting an international organization of the economy, and a national organization of politics. But Robbins clearly stated the correct liberal position when he wrote: "but it is in just this most elementary requirement of a comprehensive international
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plan that our present organization is most conspicuously lacking. T h e r e is world e c o n o m y . But there is no world polity. T h e different national states each a r m against the other. Between their m e m b e r s there is not the ordered freedom of the liberal state but the brutish a n a r c h y of the state of nature. T h e o p p o r t u n i t i e s of division of labour m a k e us m e m b e r s one of another. But for lack of p r o p e r g o v e r n m e n t a l m a c h i n e r y we m a k e war or prepare for war continually." (Robbins, 1937, pp.239). R o b b i n s also clearly saw the solution: " O n l y the s u r r e n d e r of sovereignty, of the right to m a k e war, by the national g o v e r n m e n t s can r e m o v e the d a n g e r . But a completely u n i t a r y world state is neither workable nor desirable... If i n d e p e n d e n t sovereignty is chaos, the unrestricted u n i t a r y state m i g h t be death. T h e r e is only one solution to this s t u p e n d o u s p r o b l e m . . . . T h e r e m u s t be neither alliance nor complete unification, but Federation; neither S t a a t e n b u n d , nor Einheitsstaat, but Bundesstaat." ( R o b b i n s , 1937, p p . 2 4 4 - 45). This quote clarifies a point which has often left liberal t h i n k i n g in the dark: the progressive unification of the world m a r k e t m u s t be a c c o m p a n i e d by' an end to the division of h u m a n i t y into national states. It is, therefore, not e n o u g h to achieve free trade b e t w e e n sovereign states, but indispensable that a s u p r a n a t i o n a l a u t h o r i t y g u a r a n t e e law and order, i.e. it is indispensable to create a legal f r a m e w o r k in which e c o n o m i c ties can be d e v e l o p e d on a world scale. 4. We have defined the reference f r a m e w o r k for our analysis: the evolution in the m e a n s of p r o d u c t i o n generate pressure to b r o a d e n the i n t e r d e p e n d e n c e of h u m a n action over a n d above states. T h e p r o b l e m is to see in w h a t way historically this process takes place, in the light of the fact that what we start with is a system of sovereign national states a n d what we end up with is a world federation. C o m m u n i t i e s are an i n t e r m e d i a t e step in such a process; they tend to develop into regional federations. We shall consider c o m m e r c i a l policy against this b a c k g r o u n d .
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The starting point for our analysis is the belief that the second industrial revolution with large-scale production made possible by Taylorism took place in the U.S.A., which already had a domestic market of Continental dimension. During the same period, European states were kept restricted to national proportions: economic policy was characterized by autarky, that is, by rigid protection of domestic markets and by imperialism in foreign markets designed to capture the 'vital space' needed for the development of modern industry. International commercial policy - to the limited extent to which trade existed was rigidly conditioned by bilateralism. After the Second World War, politics no longer hindered the development of productive forces in any decisive way. The international economic organization that emerged with the creation at Bretton Woods of the International Monetary Fund and the International Bank for Reconstruction and Development, based on fixed exchange rates and an available pool of funds to finance loans to countries in need of capital, and subsequently of the GATT, based on non-discrimination and multilateralism, all favoured a more open world. The drive towards free trade already apparent at the time of the Marshall plan within the Organization for European Economic Co-operation was strengthened by the creation of the European Coal and Steel Community. The political basis for this acceleration is identified by Albertini as: "the de facto eclipse of national sovereignty," a very noticeable phenomenon in European countries after the Second World War. This process, notwithstanding the collapse of the European Defence C o m m u n i t y project, flourished with the EEC. Unlike after the First World War, the commercial policy of the European national states - encouraged by an increasingly international free-trade climate - was characteristically very open and as early as 1968 reached the customs union stage. 5. The facts confirm that the EEC's foreign commercial policy has not been protectionist. Admittedly, at the same time that customs tariffs were abolished for
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i n t r a - C o m m u n i t y trade, EEC M e m b e r States implemented a c o m m o n external tariff for other countries. H o w e v e r , this external tariff is a m o n g the most liberal: it was d r a w n up on the basis of the arithmetical average of domestic tariffs previously levied and therefore the highest tariffs were sharply reduced. As a result of G A T T negotiations, the average tariff levied by the C o m m u n i t y against third countries will be further reduced from 9% to 7.5% between 1982 and 1988. It should not, however, be forgotten that for a long time there has been a dispute betwen the C o m m u n i t y and the United States in particular as regards agricultural trade. Criticism of the c o m m o n agricultural policy would seem to be a constant A m e r i c a n attitude towards the C o m m u n i t y . T h e U.S. contends that the C o m m u n i t y has a policy of "subsidies" enabling its farmers to compete unfairly with A m e r i c a n imports. T h e C o m m u n i t y has constantly replied that it sells at world prices and that the cobt of subsidizing a farmer is less in the C o m m u n i t y than in the United States (in 1979 for example, it was 1.05 E C U ' s in Europe as c o m p a r e d with 1.28 E C U ' s in the United States). F u r t h e r m o r e , G A T T rules do not prohibit subsidies. T h e y merely bar the trading partners from u n d u l y increasing their market share. In this respect, it should be noted that the C o m m u n i t y is the world's leading importer of agricultural products, and that its agricultural trade deficit with the U.S. from which it buys 4 times what it sells was 5 billion E C U ' s in 1980. Moreover, between 1970 and 1980 the C o m m u n i t y ' s share of world agricultural trade decreased from 16.6% to 14.9% while the United States' share increased from 38.9% to 44.8% T h e problem, however still exists and it is necessary to try to provide a coherent interpretation within the scheme that we are trying to develop. It is a fact that precisely in the agricultural sector, where the C o m m u n i t y has m a n a g e d to i m p l e m e n t a c o m m o n policy of fixed E u r o p e a n prices, there is a more protective structure of international trade, with import levies and export subsidies, in order to balance out the internal price structure with the world price structure. In the industrial
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sector, however, commercial policy is more open and, at the same time, there is no common policy, although the possibility of undertaking such a policy has long been discussed. Thus free trade exists both internally and externally in the industrial market while in the agricultural sector internal interventionism is matched by external protectionism. The explanation for this dichotomy in the Community's attitude is to be found in decisions influenced by the founding fathers' political philosophy and by the current economic climate in Europe. The Treaty of Rome is essentially liberal in its inspiration, and this is reflected in the principles relating to the industrial sector. But in the agricultural field a liberal European policy was unthinkable since it conflicted excessively with the interventionist practices of all the Member States. Hence a common price-support policy designed to protect farmers' incomes has been implemented. And this policy has been backed up by a fairly protectionist commercial policy keeping the established price level. There have been many loud protests against this commercial policy both inside and outside the Community. The restrictions placed on agricultural imports have been contested and it has been argued that with the levy system, agricultural prices (and hence the cost of living) are higher than those on the world market thus penalizing the European consumer. This is not the place to go into a detailed assessment of the common agricultural policy, but it is important here to stress that the choice of this type of commercial policy was mainly determined by the limitations caused by the Community's institutional framework. Indeed, the EEC has no independent decision-making power, unlike a federal state. The decision-making body is the Council of Ministers in which the representatives of the Member States participate. The Member States have the final word in any decision. In these circumstances the Community has been able to achieve a common agricultural policy only by isolating the internal market from the international market and by stabilizing farmers' incomes with a precarious pricing
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policy, which every year causes haggling and wrangling until a compromise satisfying the various national interests is worked out. A policy more open to the world market would have required an efficient internal economic policy, capable of tackling and solving the-structual problems of the European economy. But this has not been possible since no decision-making can be operated because of the EEC's institutional weakness. Whence the argument that with the strengthening of the Community, with the introduction of real federal institutions, an efficient structural policy could be implemented in the agricultural sector and a more open commercial policy that would lead to a closing of the gap between European and world prices. 6. While the Community's institutional weakness explains its protectionist policy in the agricultural sector, it also explains why implementing a common industrial policy has proved so difficult. It is well-known that the common agricultural policy was made possible only by the French government's blackmailing tactics, which it used because it was eager to gain the advantages of a dommon market in the agricultural sector so vital to the French economy. In the industrial sector, on the other hand, the achievement of a customs union did not apparently require a common policy since trade liberalization alone was considered sufficient. The situation has been profoundly modified over the years, due, firstly, to the need for major changes in the structure of production as a result of the scientific revolution and, secondly, to the emergence of newlyindustrializing countries (NIC's) who can compete efficiently with the earlier-industrialized countries particularly in 'mature' sectors. Both these factors make it vital to produce a common industrial policy rapidly. But although such a policy has been discussed for years, nothing concrete has emerged. The reason here, too, is the Community's institutional weakness which only with great difficulty manages to mediate between opposing national interests, for example in those sectors deep in recession (steel, shipbuilding). Certainly the Community
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is not capable of producing any incisive growth policy in high-technology sectors n o r of adopting any coherent policy towards newly:industrializing countries. In these circumstances, the risk is that increased protectionism i's liable to be adopted, a solution which has already been used to counter "social d u m p i n g " by the NICs. In this case, too, a federal state with effective decision-making powers at the center would be able to achieve an efficient industrial policy bringing about vital production changes in the E u r o p e a n e c o n o m y and thus m a k i n g it compatible with real T h i r d World growth. In this way, the current temptation to resort to protectionism would fade away in this sector too. 7. We have seen how, both in the agricultural and in the industrial sectors, the C o m m u n i t y ' s confederal nature is the reason why there is no efficient structural policy. The failure to develop such a policy has generated a protectionist attitude as regards foreign agricultural trade and is causing a strong tendency m this direction as regards industry, particularly for those industries which are in crisis and where competition from the N I C ' s is strongest. But this institutional weakness also helps to explain the general inability to formulate truly E u r o p e a n economic policies in all areas. Consider m a c r o e c o n o m i c policies as a case in point. In the current economic climate there is a widespread belief a m o n g economists that instead of maintaining the current deflationary stance, E u r o p e a n governments should undertake t e m p o r a r y fiscal expansion. But this task cannot be pursued at a national level, and thus a coordinated fiscal stimulus is needed. T h e a r g u m e n t is the following. If a country reflates it can either maintain the value of its exchange rate by keeping a high enough interest rate or it can allow it to depreciate. In the first case, a large part of the e m p l o y m e n t benefits flow out of the reflating country. In the second case, the external balance is m a i n t a i n e d and e m p l o y m e n t stimulated, but at the cost of higher inflation. C o o r d i n a t e d expansion solves the problem since the h a r d - c u r r e n c y country does not lose as m u c h of its fiscal
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expansion abroad and the soft currency country enjoys a better inflation performance. Coordination is thus useful for all. But it is very difficult to achieve. T h e reason is that coordination wheather for an open agricultural policy, a liberal industrial policy, or for m a c r o e c o n o m i c policies - is a typical public good. If a country expands, all the other countries benefit from an increase in d e m a n d even though they may not have contributed to supporting d e m a n d with fiscal measures. T h e y cannot be excluded from the benefits (greater demand), but do not partake in the costs (higher deficits). Thus, as is usual in public goods theory, the public good (in this case coordinated action) is u n d e r p r o d u c e d since the rational behaviour f o r M e m b e r States is to be free-riders. Hence, coordination is defeated; the only way of overcoming this difficulty is to have a c o m m o n political decision. 1 T h e impossibility of achieving a Samuelson-type voluntary solution based on revealed preferences by M e m b e r States or by bargaining in a small group club is confirmed by the standstill reached by the EEC in recent years. T h e decision to coordinate must be taken by the E u r o p e a n institutions. But the size of the budget is too small to have a significant expansionary impact on the European economy, and the C o m m i s s i o n is unable to get a decision from the Council of Ministers on this matter. Thus, in this case, as in the cases of agriculture and industry, the implementation of the desired policy is impossible because the institutional m a c h i n e r y is deficient. 8. T h e main conclusion that can be d r a w n from the above analysis is that the EEC has placed the E u r o p e a n e c o n o m y on the road to unification, and has put an end to the tendency which emerged in the years following the First World W a r to pursue extreme forms of protectionism (autarky). The EEC has also played a positive role in sustaining the development of world trade, in particular through the agreements reached with more than 60 African, Caribbean, and Pacific countries within the L o m e Convention. It m a y thus be said that the C o m m u n i t y is
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at a significant stage in the long road leading to the creation of a true world market which is politically controlled. But we cannot overlook the EEC's limitations. Its confederally-based institutional structure has confirmed the limitations that Hamilton, at the end of the 18th century, anticipated with great far-sightedness. The inability to take decisions, deriving from the absence of any independent supranational government, has made it impossible to implement any active policy for controlling the internal market. In such circumstances, external commercial policy acts as a surrogate. Hence agricultural protectionism stands in for a structural policy and industrial protectionism stands in for the failure to implement an efficient restructuring policy. 2 Equally, in the absence a a common macroeconomic policy the EEC is forced to resort to the illusion of coordinating conflicting national policies. The full potential of the process of European unification can only be achieved completely once federal construction has been completed. In Europe the growth (by means of broadening) of the interdependence of human action would thus achieve a political conclusion. Moreover, the community's experience is influencing other parts of the world. Regional federations seem destined to grow in the future and such institutions as the United Nations which can be entrusted with limited tasks of governing the earth's economic resources (Montani, 1983, p.28) would seem destined to be strengthened. (We need only consider the problems of space and underwater resources). The federal completion of the Community experience may thus be seen from Robbin's standpoint noted above, namely, as a phase in the construction of an effective government for the world's economy (Albertini, 1984, p p . 9 - 1 3 ) in which problems of commercial policy would come to be seen as the World Federation's problems of internal economic policy.
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Notes
*Dipartimento di Economia Pubblica e Territoriale, UniversitY. di Pavia, Pavia, Italy. a A similar conclusion obtains for national defence (see K. Hartley, 1983, p.300). The same point is made by M. C)lson and R. Zeckhauser (1966, p.278). 2This is partly due to the absence of a common monetary policy (See A. Majocchi, 1984).
R eferen ces
ALBERTINI, M. (1979). I1 Federalismo. Antologia e Definizioni. Bologna: I1 Mulino. ALBERTINI, M. (1980). Lo Stato Nazionale. Napoli: Guida Ed. ALBERTINI, M. (1984). "War Culture and Peace Culture ", The Federalist. HARTLEY, K. (1983). "E.C. Defence Policy", in A.M. EI-Agraa (ed.), Britain Within the European Community, The Way Forward. London: Macmillan. MAJC)CCHI, A. (1984). "The Industrial Policy and the Development of Monetary Unification", in Strategies and Policies of the EC to Improve the Competitiveness of European Industry. Venezia: Cesiv. MONTANI, G. (1983). "I1 Governo Sovranazionale delle Risorse Marine", I1 Federalista. OATES, W.E. (1972). Fiscal Federalism. New York: Harcourt Brace Jovanovich. OLSON, M. and R. ZECKHAUSER (1966). "An Economic Theory of Alliances", Review of Economics and Statistics, XLVII, 278. ROBBINS, L. (1937). Economic Planning and InternationM Order. London: MacMillan. WHEARE, K.C. (1943). "What Federal Government Is", in P. Ransome (ed.), Studies in Federal Planning. London: MacMillan. WHEARE, K.C. (1967). Federal Government. London: Oxford University Press.
European Journal of Political Economy, Special Issue, Vol.3, No. 1 + 2 (1987) Copyright Transfer Verlag, Regensburg, FRG.
COMMERCIAL POLICY IN T H E E U R O P E A N C O M M U N I T Y Alberto Majocchi* Universit~ di Pavia, Italy 1. If we wish to consider general commercial policy trends in the light of various forms of government, to wit unitary, c o m m u n i t y and federal states, it is vital at the outset to define the m e a n i n g of these terms. Oates for example uses the term 'federalism' in a much wider sense than political scientists do. "For an economist (...) what is crucial is simply that different levels of decision-making do exist, each of which determines levels of provision of particular public services in response largely to the interests of its geographical constituency." (Oates, 1972, p.XVI). U n d e r this definition, practically any system is federal or at least possesses federal elements. A narrower definition such as the one found in Wheare's classic study is necessary when comparing different forms of government. Wheare takes the principle of federalism to be: "the method of dividing powers so that the general and the regional governments are each, within a sphere, coordinate and independent." (Wheare, 1967, p.10). H e then enlarges on this definition as follows: "In a federal system, the functions of governemnt are divided in such a way that the relationship between the legislature which has authority over the whole territory and those legislatures which have authority over parts of the territory is not the relationship of superior to subordinates, but it is the relationship of coordinate partners in the governmental process." (Wheare, 1943, p p . 2 3 - 24). O n this basis, it is
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a relatively simple matter to distinguish federalism from decentralization, whereas Oates' definition includes both. As regards the unitary state, it is convenient to refer to the E u r o p e a n national state, which Albertini defines as follows: "the national state is characterized not merely by independence, but, in addition, by exclusiveness (inasm u c h as it prevents all those who belong to the nation from belonging, with equal rights and freedom, to a region or a federation)" (Albertini 1980, p. l l ) . The centralized bureaucratic state whose ideology is nationalism is at the opposite end of the spectrum from the federal system of independent, coordinate governments defined by Wheare. T h e c o m m u n i t y is at an intermediate position. We can take the E u r o p e a n C o m m u n i t y as the model of that form of government. It is difficult to provide a precise definition of the C o m m u n i t y ' s institutions i n a s m u c h as, unlike the normal situation where institutions are the fixed reference framework for h u m a n behaviour, in the case of E u r o p e a n integration what remains constant is the nature of the process, while the institutions gradually become transformed from a simple system of states, to the same system plus transitional institutions, and then to a federal system. Generally speaking it m a y be said that the E u r o p e a n C o m m u n i t y is confederal in its form in that the final decision-making power lies with the M e m b e r States, but federal in its dynamics particularly since, following direct elections to the E u r o p e a n Parliament, the C o m m u n i t y has entered into the phase of constitutional gradualism. 2. H a v i n g thus defined (at least for the state forms relevant here) a spectrum ranging from the national unitary state, to the c o m m u n i t y and to the federation, we may now turn our attention to the social and historical basis for the supranational process which is taking m a n k i n d from one pole - national states - to the opposite extreme the federation via such intermediate forms as the c o m m u n i t y . This basis m a y be defined as "the growth by means of broadening the interdependence of h u m a n action beyond state boundaries
European Community
253
in the field of material production and hence in social, political and cultural fields as well". If this statement is placed in its historical context, it becomes clear that "in the first stages of the industrial revolution the growth of m a n ' s interdependence occurred in depth, within each state. With the liberal and democratic struggle of the bourgeoisie against the aristocracy and the socialist struggle of the proletariat against the bourgeoisie, this process first intensified and then overcame the division into classes of evolved societies. H o w e v e r , because of this integration, this process at the same time re-inforced the division of m a n k i n d into separate groups m a d e up of bureaucratic states ideologically represented as based on blood and other obscure ties: the nations. T h e growth by means of b r o a d e n i n g the interdependence of h u m a n action will cause the division of m a n k i n d into nations to come to an end" (Albertini, 1979, p p . 2 5 3 - 4) We m a y define this supranational phase of the historical process as the progressive unification of the world market. This process, heralded with great foresight by M a r x during the first industrial revolution, has been stepped up by the rise of the scientific mode of production. T h e problem that concerns us is that of establishing in just what way this process must be accompanied by an evolution of political institutions in the national state - c o m m u n i t y - federation sequence and, in particular, in what way foreign commercial policy is used in the course of this process. 3. Even liberal economists would seem to have recognized the current trend towards progressive unification of the world market. And in this respect, it is only fair to correct an error wrongly attributed to this school of thinking, namely the idea of establishing an international free market without any corresponding changes in institutions. In other words, liberal economists may have appeared to be suggesting an international organization of the economy, and a national organization of politics. But Robbins clearly stated the correct liberal position when he wrote: "but it is in just this most elementary requirement of a comprehensive international
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plan that our present organization is most conspicuously lacking. T h e r e is world e c o n o m y . But there is no world polity. T h e different national states each a r m against the other. Between their m e m b e r s there is not the ordered freedom of the liberal state but the brutish a n a r c h y of the state of nature. T h e o p p o r t u n i t i e s of division of labour m a k e us m e m b e r s one of another. But for lack of p r o p e r g o v e r n m e n t a l m a c h i n e r y we m a k e war or prepare for war continually." (Robbins, 1937, pp.239). R o b b i n s also clearly saw the solution: " O n l y the s u r r e n d e r of sovereignty, of the right to m a k e war, by the national g o v e r n m e n t s can r e m o v e the d a n g e r . But a completely u n i t a r y world state is neither workable nor desirable... If i n d e p e n d e n t sovereignty is chaos, the unrestricted u n i t a r y state m i g h t be death. T h e r e is only one solution to this s t u p e n d o u s p r o b l e m . . . . T h e r e m u s t be neither alliance nor complete unification, but Federation; neither S t a a t e n b u n d , nor Einheitsstaat, but Bundesstaat." ( R o b b i n s , 1937, p p . 2 4 4 - 45). This quote clarifies a point which has often left liberal t h i n k i n g in the dark: the progressive unification of the world m a r k e t m u s t be a c c o m p a n i e d by' an end to the division of h u m a n i t y into national states. It is, therefore, not e n o u g h to achieve free trade b e t w e e n sovereign states, but indispensable that a s u p r a n a t i o n a l a u t h o r i t y g u a r a n t e e law and order, i.e. it is indispensable to create a legal f r a m e w o r k in which e c o n o m i c ties can be d e v e l o p e d on a world scale. 4. We have defined the reference f r a m e w o r k for our analysis: the evolution in the m e a n s of p r o d u c t i o n generate pressure to b r o a d e n the i n t e r d e p e n d e n c e of h u m a n action over a n d above states. T h e p r o b l e m is to see in w h a t way historically this process takes place, in the light of the fact that what we start with is a system of sovereign national states a n d what we end up with is a world federation. C o m m u n i t i e s are an i n t e r m e d i a t e step in such a process; they tend to develop into regional federations. We shall consider c o m m e r c i a l policy against this b a c k g r o u n d .
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The starting point for our analysis is the belief that the second industrial revolution with large-scale production made possible by Taylorism took place in the U.S.A., which already had a domestic market of Continental dimension. During the same period, European states were kept restricted to national proportions: economic policy was characterized by autarky, that is, by rigid protection of domestic markets and by imperialism in foreign markets designed to capture the 'vital space' needed for the development of modern industry. International commercial policy - to the limited extent to which trade existed was rigidly conditioned by bilateralism. After the Second World War, politics no longer hindered the development of productive forces in any decisive way. The international economic organization that emerged with the creation at Bretton Woods of the International Monetary Fund and the International Bank for Reconstruction and Development, based on fixed exchange rates and an available pool of funds to finance loans to countries in need of capital, and subsequently of the GATT, based on non-discrimination and multilateralism, all favoured a more open world. The drive towards free trade already apparent at the time of the Marshall plan within the Organization for European Economic Co-operation was strengthened by the creation of the European Coal and Steel Community. The political basis for this acceleration is identified by Albertini as: "the de facto eclipse of national sovereignty," a very noticeable phenomenon in European countries after the Second World War. This process, notwithstanding the collapse of the European Defence C o m m u n i t y project, flourished with the EEC. Unlike after the First World War, the commercial policy of the European national states - encouraged by an increasingly international free-trade climate - was characteristically very open and as early as 1968 reached the customs union stage. 5. The facts confirm that the EEC's foreign commercial policy has not been protectionist. Admittedly, at the same time that customs tariffs were abolished for
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i n t r a - C o m m u n i t y trade, EEC M e m b e r States implemented a c o m m o n external tariff for other countries. H o w e v e r , this external tariff is a m o n g the most liberal: it was d r a w n up on the basis of the arithmetical average of domestic tariffs previously levied and therefore the highest tariffs were sharply reduced. As a result of G A T T negotiations, the average tariff levied by the C o m m u n i t y against third countries will be further reduced from 9% to 7.5% between 1982 and 1988. It should not, however, be forgotten that for a long time there has been a dispute betwen the C o m m u n i t y and the United States in particular as regards agricultural trade. Criticism of the c o m m o n agricultural policy would seem to be a constant A m e r i c a n attitude towards the C o m m u n i t y . T h e U.S. contends that the C o m m u n i t y has a policy of "subsidies" enabling its farmers to compete unfairly with A m e r i c a n imports. T h e C o m m u n i t y has constantly replied that it sells at world prices and that the cobt of subsidizing a farmer is less in the C o m m u n i t y than in the United States (in 1979 for example, it was 1.05 E C U ' s in Europe as c o m p a r e d with 1.28 E C U ' s in the United States). F u r t h e r m o r e , G A T T rules do not prohibit subsidies. T h e y merely bar the trading partners from u n d u l y increasing their market share. In this respect, it should be noted that the C o m m u n i t y is the world's leading importer of agricultural products, and that its agricultural trade deficit with the U.S. from which it buys 4 times what it sells was 5 billion E C U ' s in 1980. Moreover, between 1970 and 1980 the C o m m u n i t y ' s share of world agricultural trade decreased from 16.6% to 14.9% while the United States' share increased from 38.9% to 44.8% T h e problem, however still exists and it is necessary to try to provide a coherent interpretation within the scheme that we are trying to develop. It is a fact that precisely in the agricultural sector, where the C o m m u n i t y has m a n a g e d to i m p l e m e n t a c o m m o n policy of fixed E u r o p e a n prices, there is a more protective structure of international trade, with import levies and export subsidies, in order to balance out the internal price structure with the world price structure. In the industrial
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sector, however, commercial policy is more open and, at the same time, there is no common policy, although the possibility of undertaking such a policy has long been discussed. Thus free trade exists both internally and externally in the industrial market while in the agricultural sector internal interventionism is matched by external protectionism. The explanation for this dichotomy in the Community's attitude is to be found in decisions influenced by the founding fathers' political philosophy and by the current economic climate in Europe. The Treaty of Rome is essentially liberal in its inspiration, and this is reflected in the principles relating to the industrial sector. But in the agricultural field a liberal European policy was unthinkable since it conflicted excessively with the interventionist practices of all the Member States. Hence a common price-support policy designed to protect farmers' incomes has been implemented. And this policy has been backed up by a fairly protectionist commercial policy keeping the established price level. There have been many loud protests against this commercial policy both inside and outside the Community. The restrictions placed on agricultural imports have been contested and it has been argued that with the levy system, agricultural prices (and hence the cost of living) are higher than those on the world market thus penalizing the European consumer. This is not the place to go into a detailed assessment of the common agricultural policy, but it is important here to stress that the choice of this type of commercial policy was mainly determined by the limitations caused by the Community's institutional framework. Indeed, the EEC has no independent decision-making power, unlike a federal state. The decision-making body is the Council of Ministers in which the representatives of the Member States participate. The Member States have the final word in any decision. In these circumstances the Community has been able to achieve a common agricultural policy only by isolating the internal market from the international market and by stabilizing farmers' incomes with a precarious pricing
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policy, which every year causes haggling and wrangling until a compromise satisfying the various national interests is worked out. A policy more open to the world market would have required an efficient internal economic policy, capable of tackling and solving the-structual problems of the European economy. But this has not been possible since no decision-making can be operated because of the EEC's institutional weakness. Whence the argument that with the strengthening of the Community, with the introduction of real federal institutions, an efficient structural policy could be implemented in the agricultural sector and a more open commercial policy that would lead to a closing of the gap between European and world prices. 6. While the Community's institutional weakness explains its protectionist policy in the agricultural sector, it also explains why implementing a common industrial policy has proved so difficult. It is well-known that the common agricultural policy was made possible only by the French government's blackmailing tactics, which it used because it was eager to gain the advantages of a dommon market in the agricultural sector so vital to the French economy. In the industrial sector, on the other hand, the achievement of a customs union did not apparently require a common policy since trade liberalization alone was considered sufficient. The situation has been profoundly modified over the years, due, firstly, to the need for major changes in the structure of production as a result of the scientific revolution and, secondly, to the emergence of newlyindustrializing countries (NIC's) who can compete efficiently with the earlier-industrialized countries particularly in 'mature' sectors. Both these factors make it vital to produce a common industrial policy rapidly. But although such a policy has been discussed for years, nothing concrete has emerged. The reason here, too, is the Community's institutional weakness which only with great difficulty manages to mediate between opposing national interests, for example in those sectors deep in recession (steel, shipbuilding). Certainly the Community
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is not capable of producing any incisive growth policy in high-technology sectors n o r of adopting any coherent policy towards newly:industrializing countries. In these circumstances, the risk is that increased protectionism i's liable to be adopted, a solution which has already been used to counter "social d u m p i n g " by the NICs. In this case, too, a federal state with effective decision-making powers at the center would be able to achieve an efficient industrial policy bringing about vital production changes in the E u r o p e a n e c o n o m y and thus m a k i n g it compatible with real T h i r d World growth. In this way, the current temptation to resort to protectionism would fade away in this sector too. 7. We have seen how, both in the agricultural and in the industrial sectors, the C o m m u n i t y ' s confederal nature is the reason why there is no efficient structural policy. The failure to develop such a policy has generated a protectionist attitude as regards foreign agricultural trade and is causing a strong tendency m this direction as regards industry, particularly for those industries which are in crisis and where competition from the N I C ' s is strongest. But this institutional weakness also helps to explain the general inability to formulate truly E u r o p e a n economic policies in all areas. Consider m a c r o e c o n o m i c policies as a case in point. In the current economic climate there is a widespread belief a m o n g economists that instead of maintaining the current deflationary stance, E u r o p e a n governments should undertake t e m p o r a r y fiscal expansion. But this task cannot be pursued at a national level, and thus a coordinated fiscal stimulus is needed. T h e a r g u m e n t is the following. If a country reflates it can either maintain the value of its exchange rate by keeping a high enough interest rate or it can allow it to depreciate. In the first case, a large part of the e m p l o y m e n t benefits flow out of the reflating country. In the second case, the external balance is m a i n t a i n e d and e m p l o y m e n t stimulated, but at the cost of higher inflation. C o o r d i n a t e d expansion solves the problem since the h a r d - c u r r e n c y country does not lose as m u c h of its fiscal
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expansion abroad and the soft currency country enjoys a better inflation performance. Coordination is thus useful for all. But it is very difficult to achieve. T h e reason is that coordination wheather for an open agricultural policy, a liberal industrial policy, or for m a c r o e c o n o m i c policies - is a typical public good. If a country expands, all the other countries benefit from an increase in d e m a n d even though they may not have contributed to supporting d e m a n d with fiscal measures. T h e y cannot be excluded from the benefits (greater demand), but do not partake in the costs (higher deficits). Thus, as is usual in public goods theory, the public good (in this case coordinated action) is u n d e r p r o d u c e d since the rational behaviour f o r M e m b e r States is to be free-riders. Hence, coordination is defeated; the only way of overcoming this difficulty is to have a c o m m o n political decision. 1 T h e impossibility of achieving a Samuelson-type voluntary solution based on revealed preferences by M e m b e r States or by bargaining in a small group club is confirmed by the standstill reached by the EEC in recent years. T h e decision to coordinate must be taken by the E u r o p e a n institutions. But the size of the budget is too small to have a significant expansionary impact on the European economy, and the C o m m i s s i o n is unable to get a decision from the Council of Ministers on this matter. Thus, in this case, as in the cases of agriculture and industry, the implementation of the desired policy is impossible because the institutional m a c h i n e r y is deficient. 8. T h e main conclusion that can be d r a w n from the above analysis is that the EEC has placed the E u r o p e a n e c o n o m y on the road to unification, and has put an end to the tendency which emerged in the years following the First World W a r to pursue extreme forms of protectionism (autarky). The EEC has also played a positive role in sustaining the development of world trade, in particular through the agreements reached with more than 60 African, Caribbean, and Pacific countries within the L o m e Convention. It m a y thus be said that the C o m m u n i t y is
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at a significant stage in the long road leading to the creation of a true world market which is politically controlled. But we cannot overlook the EEC's limitations. Its confederally-based institutional structure has confirmed the limitations that Hamilton, at the end of the 18th century, anticipated with great far-sightedness. The inability to take decisions, deriving from the absence of any independent supranational government, has made it impossible to implement any active policy for controlling the internal market. In such circumstances, external commercial policy acts as a surrogate. Hence agricultural protectionism stands in for a structural policy and industrial protectionism stands in for the failure to implement an efficient restructuring policy. 2 Equally, in the absence a a common macroeconomic policy the EEC is forced to resort to the illusion of coordinating conflicting national policies. The full potential of the process of European unification can only be achieved completely once federal construction has been completed. In Europe the growth (by means of broadening) of the interdependence of human action would thus achieve a political conclusion. Moreover, the community's experience is influencing other parts of the world. Regional federations seem destined to grow in the future and such institutions as the United Nations which can be entrusted with limited tasks of governing the earth's economic resources (Montani, 1983, p.28) would seem destined to be strengthened. (We need only consider the problems of space and underwater resources). The federal completion of the Community experience may thus be seen from Robbin's standpoint noted above, namely, as a phase in the construction of an effective government for the world's economy (Albertini, 1984, p p . 9 - 1 3 ) in which problems of commercial policy would come to be seen as the World Federation's problems of internal economic policy.
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Notes
*Dipartimento di Economia Pubblica e Territoriale, UniversitY. di Pavia, Pavia, Italy. a A similar conclusion obtains for national defence (see K. Hartley, 1983, p.300). The same point is made by M. C)lson and R. Zeckhauser (1966, p.278). 2This is partly due to the absence of a common monetary policy (See A. Majocchi, 1984).
R eferen ces
ALBERTINI, M. (1979). I1 Federalismo. Antologia e Definizioni. Bologna: I1 Mulino. ALBERTINI, M. (1980). Lo Stato Nazionale. Napoli: Guida Ed. ALBERTINI, M. (1984). "War Culture and Peace Culture ", The Federalist. HARTLEY, K. (1983). "E.C. Defence Policy", in A.M. EI-Agraa (ed.), Britain Within the European Community, The Way Forward. London: Macmillan. MAJC)CCHI, A. (1984). "The Industrial Policy and the Development of Monetary Unification", in Strategies and Policies of the EC to Improve the Competitiveness of European Industry. Venezia: Cesiv. MONTANI, G. (1983). "I1 Governo Sovranazionale delle Risorse Marine", I1 Federalista. OATES, W.E. (1972). Fiscal Federalism. New York: Harcourt Brace Jovanovich. OLSON, M. and R. ZECKHAUSER (1966). "An Economic Theory of Alliances", Review of Economics and Statistics, XLVII, 278. ROBBINS, L. (1937). Economic Planning and InternationM Order. London: MacMillan. WHEARE, K.C. (1943). "What Federal Government Is", in P. Ransome (ed.), Studies in Federal Planning. London: MacMillan. WHEARE, K.C. (1967). Federal Government. London: Oxford University Press.