Foreign Relations of the United States, 1955–1957, Western European Security and Integration, Volume IV

200. Report by the Subcommittee on Regional Economic Integration of the Council on Foreign Economic Policy to the Council¹

CFEP 539/3

Washington, November 15, 1956.

SUBJECT

• CFEP 539—Effect of Regional Economic Integration on U.S. Trade and Other Economic Interests

Problem

1. To review progress in economic integration in Western Europe, to analyze the probable impact on United States trade and other economic and political interests, and to recommend a statement of United States policy in the light of pending proposals.

Facts Bearing on the Problem

2. Economic integration is realistically viewed as a process involving gradual steps by two or more countries, jointly, based on reduction and eventual elimination of barriers to movements of goods, and of capital and labor as well, within a defined area. Advanced forms of integration may involve transfer to “supranational” institutions, responsible to the group as a whole, of certain governmental powers of decision previously exercised by national governments separately.

3. Since 1948, United States policy has outspokenly favored economic integration in Western Europe “as a means of building strength, establishing security, and preserving peace” (Mutual Security Act of 1955) and of cementing Germany to the West by organic bonds of common interest.

4. Postwar progress in European economic cooperation and integration has been made chiefly through several international organizations:

a. The Organization for European Economic Cooperation (OEEC), representing 17 cooperating countries, with the United States and Canada as associate members;

b. Its associated agencies, the European Payments Union (EPU) and the European Productivity Authority (EPA);

c. Benelux, which is in process of becoming an economic union of Belgium, Luxembourg, and the Netherlands; and

d. The European Coal and Steel Community (CSC), in which Benelux, France, Germany, and Italy have undertaken the gradual integration of the coal, iron, and steel industries of these six “Schuman Plan” countries. Thus far the CSC is the only organization in which governmental powers of decision have been transferred to central institutions in a “limited but decisive sphere” of the economies of the member countries.

5. Two fresh steps of large potential importance are under active study in Europe, though neither has yet reached definitive form. These steps are designed to widen the base of European prosperity, (1) by the formation of a “common market” among the Six—initially in the form of a customs union with central institutions—to reach maturity in 12–15 years; and (2) by the association of the United Kingdom and probably several other OEEC countries with the common market, in a “free trade area” in which trade barriers within the area would be gradually eliminated while the additional members would retain their tariff autonomy with respect to nonmember countries. The British, because of domestic political and security considerations and their Commonwealth commitments, contemplate exluding raw and manufactured foodstuffs, feedstuffs, drink and tobacco from the new arrangements.

6. The President, in a speech in a Miami, Florida, on October 29, 1956, had this to say about European integration:

“Nothing has been more heartening than the recent announcement of two new proposals that would advance further the economic integration of Europe.

“The first is the concept that six Western European countries might establish a common market in which all internal barriers to trade would be completely eliminated, just as they are within the United States. The second is the challenging idea that, thereafter, Great Britain, in association with other countries on the European Continent might gradually, over a period of years, establish a free trade area around the common market.

“We shall watch these exciting new developments with the keenest interest. Because, my friends, as Europe grows stronger economically we gain in every way.”²

7. Proposals for the common market and a free trade area in Europe are being translated into concrete terms and are expected to be submitted to interested countries early in 1957.

Discussion

8. See Tab A attached.³

Conclusions

9. In the past eight years, Western European economies have made a remarkable recovery and advanced far above prewar levels. These gains have been accompanied by a notable growth of international economic cooperation and significant though limited experience in regional economic integration.

10. Experience to date has abundantly justified U.S. policy in support of both cooperation and integration, though full convertibility of currencies and elimination of import restrictions have yet to be achieved.

11. An integrated Western Europe continues to appear desirable on political and economic grounds, even if its full attainment still appears distant.

12. Recognizing that Europeans must determine, evolve, and carry through agreed specific moves in this direction, the U.S. has continued to give sympathetic consideration to all steps proposed in the light of overall U.S. policy.

13. While important pending proposals are taking definite form, it seems proper to state the U.S. view of considerations that should be taken into account as they may be matured and implemented.

14. It is imperative that further progress in regional integration be consistent with strengthening the whole free world, in which the United States and all other free countries have a vital interest.

15. The matured proposals should therefore harmonize European economic integration with other major objectives of U.S. policy: the promotion of multilateral trade, the attainment of general currency convertibility, and the avoidance of increased tariffs or large-scale discrimination against our goods and those of other countries in the free world.

Recommendations

16. The following is recommended as a statement of U.S. positions:

a. The United States position with respect to current Western European proposals for a common market and free trade area grows out of our consistent support of measures for political and economic cohesion of Western Europe within the Atlantic community and of measures leading to freer, nondiscriminatory, multilateral trade and to convertibility of currencies.

b. The United States continues to hold the conviction that enlightened progress in economic and political integration in Western Europe can do much to enhance security and social progress in that area, to the net advantage of the United States and the entire free world.

c. The United States therefore welcomes the initiative recently taken by European countries for the establishment of a common market and a European free trade area. While the ultimate arrangements which may be agreed upon will not be known for some time, they could contribute significantly to U.S. policy objectives in support of the political and economic strengthening of Europe insofar as these ultimate arrangements promote further steps toward the general reduction of economic barriers without leading to the development of an inward-looking regional bloc.

d. The proposed association of the United Kingdom in a free trade area with the six-country common market would link the United Kingdom more closely to the Continent and could provide a stimulus for closer European political association, a long sought United States objective.

e. Within the framework of a position of support of these European endeavors, the United States should make every effort to assure that the proposed European arrangements promote rather than retard the achievement of currency convertibility and a multilateral system of trade in the free world. Accordingly, in discussions with participants in these arrangements the United States should stress the following points:

(1) The arrangements should be consistent with obligations undertaken by the members under the General Agreement on Tariffs and Trade and the articles of agreement of the International Monetary Fund, subject to a possible GATT waiver for some agricultural products. In particular:

(a) The lowering of economic barriers within the proposed area should not be accompanied by a raising of the level of tariffs or a tightening of quantitative restrictions against other countries of the free world, including the United States;

(b) Exceptions permitting the imposition for balance of payments reasons of quantitative restrictions on trade should not be used for protective purposes.

(2) Balance of payments difficulties arising out of trade within the common market or free trade area should not be met by the imposition of discriminatory restrictions against other free world countries, including the United States.

(3) The operation of the arrangements should not be such as to prevent the group of countries comprising the common market or any other member of the free trade area from lowering economic barriers against other countries of the free world, including the United States, as rapidly as possible, independently of the rate of progress in this direction of other members of the free trade area.

(4) Special provisions and safeguards for agriculture should not lead to further discrimination against imports from other free world countries, including the United States, and should not hamper the removal of quantitative restrictions on such imports.

(5) The lowering of trade barriers should be accompanied or followed as soon as possible by a liberalization of the movement of labor and capital, and by measures to discourage private restrictive trade practices.

f. The United States position will be reviewed if and when definitive agreements are reached, and at later stages under such agreements. The United States would retain the right under Article XXIII of the GATT to review developments affecting overall U.S. trade, including the impact upon concessions negotiated under the most-favored-nation clause, that might arise from the creation of a Western European customs union and/or free trade area.

17. It is further recommended that, when the proposals for the common market and/or free trade area have been matured, the CFEP undertake a further review.⁴

Joseph S. Davis
Chairman, Subcommittee on Regional Economic Integration

1. Source: Department of State, E–CFEP Files: Lot 61 D 282A, CFEP 539. For Official Use Only. This report was forwarded to the CFEP under cover of a memorandum by Cullen, also dated November 15.
2. For complete text of this speech, see Public Papers of the Presidents of the United States: Dwight D. Eisenhower, 1956, pp. 1038–1045.
3. Not attached to the source text.

4. This policy statement was approved without change by the CFEP at its meeting of November 29. (Eisenhower Library, CFEP Records) In a letter of November 23 to Philip Sprouse, Stanley Cleveland enclosed a copy of the policy statement adopted by the CFEP. His letter reads in part as follows:

   “As will be evident from the statement itself, it represents a compromise between the essentially positive approach of the State Department (supported generally by ICA and Commerce) and the very much more reserved attitude of Treasury and Federal Reserve. Some of the specific reservations were also shared by the ‘E’ area of the Department. However, under Isaiah Frank’s leadership, E as a whole has taken a very positive line. Obviously, the President’s very forthcoming statement in Miami on October 29 (which came on the President’s own initiative without prompting from the State Department) has been a big help.” (Department of State, RA Files: Lot 58 D 455, U.S. Policy)

   In CA–4530, sent November 28 to Bonn, Brussels, London, Luxembourg, Paris, Rome, The Hague, USRO, and the CSC Mission, the Department of State transmitted the statement of policy on European economic integration approved by the CFEP, along with some additional comments on the statement. The Department also proposed that the following action be taken by those missions:

   “1. The Missions are requested to bring the contents of the policy statement and the above explanations to the attention of appropriate officials. These points may at the discretion of the Missions be made a matter of written record.

   “2. It is requested that the Missions continue their detailed reporting on the economic integration developments and furnish documentation on those developments as it becomes available.

   “3. The Missions should avoid taking the initiative in making public statements on this subject. If it becomes necessary to comment publicly, care should be taken to avoid any impression that the United States is prodding the Western European countries into these projects. Consideration is being given to the issuance of a public statement in Washington on the common market and free trade area.” (Ibid., Central Files, 840.00/11–2856)