Foreign Relations of the United States, 1958–1960, Western European Integration and Security, Canada, Volume VII, Part 1

83. Memorandum of Conversation⁰

Brussels, December 10, 1959, 3:30 p.m.

SUBJECT

• Various Issues with regard to the EEC

PARTICIPANTS

• Commission of European Economic Community
  • President Walter Hallstein
  • Vice President Robert Marjolin
  • Commissioner Jean Rey
  • Commissioner Hans von der
  • Groeben Commissioner Petrilli
  • Mr. Schnippenkoetter
• U.S. Representatives
  • The Under Secretary
  • Ambassador Butterworth
  • Mr. Leddy
  • Mr. Corse—USEC
  • Mr. Norwood—USEC

Outer Seven

President Hallstein referred to a recent speech which he had made in Basel¹ and indicated that he had gone farther in this speech than ever before in questioning whether the Outer Seven actually formed a bridge for a broader European arrangement. Although he had had these thoughts for some time, he had not expressed them because it would have been inappropriate during the negotiation of the OS arrangement. From a negotiating point of view the OS was not a unit. No one country, such as Switzerland, could speak for the whole group, since each had its own independent policy with regard to its external relations. He also thought that each of the OS had its own trade problems with the Six, and these were generally not common. He said that there was some evidence that certain influential individuals in some of the countries of the OS appeared to be thinking that, if the Six would take care of the economic problems through adoption of a liberal trade policy, this would alleviate the need for a broader European arrangement. The editor of the Frankfurter Allgemeine Zeitung had recently expressed this view to him. He identified the editor as being very close to Schaffner,² the principal Swiss advocate of the OS.

Mr. Dillon reviewed the views which he had expressed in London with regard to the U.S. position on the Six, the OS, and a broader European arrangement.³ He said that he had responded to the question as to the U.S. position on a broader European arrangement which was consistent with GATT by saying that this was a hypothetical question but that, if such an arrangement could be arrived at and would not interfere with the full development of the Common Market, the U.S. would not oppose it. But, on the other hand, it would not greet it with great enthusiasm. He said that the British did not want to enter into negotiations for such a broad arrangement until there was some chance that they would be successful. The British were willing to wait, and now were finally recognizing the political advantages of the Six. President Hallstein indicated that some of the smaller members of the OS probably were not that patient.

President Hallstein then turned to a consideration of the claim that the Six and the Seven would result in a political division of Europe. He said he did not agree with this claim. In his opinion a political division in Europe could only result if people desired to have such a political division. No responsible European statesman would ever be prepared to advocate such a division as this would mean a dissolution of the Alliance.

Liberal Trade Policy

Mr. Dillon then referred to the vital need for a liberal trade policy on the part of the Six. He said that there was increasing antagonism in the United States against regional blocs. He hoped that the Common Market would adopt a liberal trade policy to assure that people in the U.S. would not come to think of the Common Market as a trade bloc. He said that the rates of duty that might be placed on List G items were very important. Low rates, which he recommended, would be evidence that the Community intended to follow a liberal trade policy besides being in the interest of the Six themselves. He reflected that some action with regard to the common external tariff in connection with acceleration of the Treaty provisions might involve taking the better parts of the Luns and Wormser proposals.⁴ For example, the Six might unilaterally cut the common tariff by some percentage. This would answer criticism which might arise in connection with a raise in duties towards the common external tariff earlier than provided for in the Treaty. He favored such acceleration if done along the above lines and included the more rapid removal of internal trade barriers.

Tariffs

Mr. Rey stated that the List G rates so far agreed to by the Member Governments, which accounted for 40% of the total number of items, averaged generally below the average of individual country tariffs although the rates on individual items might be higher than the average. He could not be sure of what might happen with regard to the remaining items since the determination of the rate was a decision of the Member States and not of the Commission. Mr. Dillon hoped that the Member States would take account of the need for low List G rates both because such rates would be in their own interest and because they would be of primary importance in connection with the Community’s external relations. He then referred to the possibility of Saharan oil obtaining priority position in the market of the Community,⁵ saying that a solution of this problem without increased protection or discrimination was important. Mr. Hallstein indicated that the matter had only been discussed by the Commission that morning and then only superficially.

Mr. Dillon dwelt at some length on the thought that, as the Six became stronger economically as a larger economic unit, they no longer needed the tariff protection which the average of the previous tariffs of weaker Member States gave. Therefore, the Community could make unilateral reductions.

Mr. Marjolin presented as his personal thoughts a possible program for action by the Community after the presently scheduled tariff negotiations take place during the next two years. He thought it possible that the Community could cut its common tariff by 20% across the board if other European countries and Canada reciprocated. In recognition of the need for the U.S. to obtain Congressional authority and the difficulties that this would entail, the United States would not be expected to reciprocate immediately. It would be hoped that such reciprocation could take place later but agreed that the status of the United States balance of payments at such a time should determine the degree of reciprocity. In his opinion such an action by the EEC would be easier than a unilateral reduction. Mr. Dillon said that this approach would be better than nothing, but that a unilateral action would be much better.

Mr. Hallstein understood that some of the American unions had made flat protectionist demands and said that he had just had a visit from Mr. Meany (who was in Brussels for the ICFTU Conference).⁶ Meany said it had always been the policy of U.S. trade unions to oppose protectionism. However, a great number of the unions were now concerned with special problems, such as those concerned with automobiles, shoes, and watches. In assessing the political significance of union attitudes, Mr. Dillon explained that the views of particular unions or locals of unions might well be more vocal than, and might differ from, their parent organizations. Nevertheless, he said one must acknowledge the growing concern among unions. If some gesture of liberality could be shown by the Community, it would be welcomed. Hallstein said he was aware that some groups look for pretexts to press for restrictive action.

He reported that in a discussion with Per Jacobssen the latter also said that something of a liberal character would be useful.

Greece and Turkey

Mr. Rey said that the talks with Greece and Turkey on their proposed association with the EEC were parallel, although in point of time the discussions with Greece were further advanced. One problem was agriculture, and this was complicated by the fact that the Community’s agricultural policy had not yet been determined. However, he believed that the Commission would be ready to submit a proposed agreement of association to the Ministers of the Six by Easter. This statement was welcomed by Mr. Dillon.

With regard to tariff arrangements, Mr. Rey said that Greece was seeking a full customs union with a transitional period of twelve years subject to certain exceptions, and the Turks wanted twenty-four years. The exceptions in the case of Greece applied only to the transitional period, which Mr. Marjolin stressed was “long.”

With respect to financial assistance, Mr. Rey stated Greece, at the outset, said it was calculating on receiving the same aid as had been coming from the U.S. Greece then told the Six that $60 million a year in aid would be needed from them, and the Turks last week said that double this amount would be necessary in their case. Some remarks were made that there was no harm in asking, and Hallstein declared that the Turks had not behaved badly in the negotiations.

EEC Relations in Europe

Rey said that the Community wanted to improve its relations in Europe. There were certain difficulties in its relations with its neighbors, particularly as the tariff and trade differentials were beginning to be felt. Accordingly, the Commission had proposed the Contact Committee, which would discuss such problems as might occur. The Commission did not yet know what the reactions of all the Seven would be but did know that Switzerland, Austria and Sweden would be pleased. It appeared that London had great hesitations, and the Commission was waiting with interest to hear from Whitehall.

Mr. Dillon believed that the Community could, should, and must do something for other countries on an MFN basis, as in the GATT on a multilateral basis.

In response to the British request to know the U.S. attitude on a big FTA, Mr. Dillon said he had told them that our position continued to be the same—that we were opposed to anything which would impair the integration of the Six. However, if any FTA which was fully consistent with the GATT and which would not submerge the Six could be worked out, the U.S. would not oppose it. However, we would not be happy with it, since it would mean more discrimination for the U.S. Mr. Dillontold the British further that we did not think their talk of a big FTA was practical, since we did not see anything of this nature in the near future.

He reported that the UK accepted this expression of position. The British responded that they did not intend to pursue such an objective until diplomatic soundings showed that the Six were ready and that any such readiness was some time off.

Referring to Mr. Dillon’s statement that U.S. would not oppose an FTA if it did not hurt the Common Market, Mr. Marjolin declared that he (Marjolin) and many others were of the view that an FTA could not be formed without harming the Common Market. Mr. Dillon remarked that he understood Mr. Marjolin’s point of view. Mr. Marjolin referred to the other criterion mentioned by Mr. Dillon, that is, that the FTA would have to be compatible with the GATT; and said that this worried him because it might well lead to a grouping of industrial countries which would in effect be discriminating against Japan. Mr. Dillon stressed that the problem was in part one of words. The U.S. would not oppose an FTA if it complied with the GATT, to which the U.S. was a party, but it would have no great enthusiasm about the FTA. He also pointed out that no one could tell what public and Congressional reaction might be to a strong bloc, and such reaction was a very real danger. On the other hand, he said, the U.S. would find it pretty hard to say “no” if an arrangement were put forward which was compliant with GATT. Nevertheless, he stressed, the British understand that the U.S. would prefer that it not come about even though there might be no legal objection to it. On the legal point, Hallstein said he doubted whether the Outer Seven convention could stand scrutiny under GATT in light of provisions permitting a member to get out on twelve months’ notice, which would undermine the objective of having an end to the transitional period. Mr. Dillon also expressed doubts on the legal aspect in view of the broad escape clause provided, although the British would assert understandably that no one could say at this time whether the escape would be resorted to extensively.

Mr. Dillon reported that the British said nothing about conversations to handle practical problems, although he had clearly presented an opportunity for them to comment on this matter.

The British, he said, stressed that their position with regard to the European Communities was now one of political support on grounds that the Communities were an element of strength in Europe. The British had told Mr. Dillon that they recently had talks with the French and Italians on this matter to convince them of their position and had asked him to try to get the Six to believe that the UK was not trying to thwart the development of the Six. Mr. Dillon commented that, while the British did not say their present position represented a change in their policy, he was inclined to think that their policy had in fact changed in an important respect.

Mr. Dillon also had told the British that any Six-Seven arrangement would have a direct interest for us and that we were therefore prepared to take part in talks on it. The British welcomed this proposal. This represented a change in the U.S. position, since hitherto we had been of the view that this matter should be left to the European countries to work out for themselves.

Mr. Hallstein received this with pleasure and believed that it showed that the problems which have been discussed were not confined to Europe but concerned the Atlantic area. Mr. Dillon commented that the issue of trade relations was geographically broader than the Atlantic area and was of concern to Latin America and other areas, for example.

Bringing up the question of procedure for future discussions, Mr. Hallstein thought that it would be a mistake to look for a formal conference or some other formal arrangement to work out a solution and that it would be desirable to have a period of loose arrangements. Some way should be found for conversations to be held between the U.S., the UK, and the Six and stated that some thought was being given to this in the capitals of the Six.

The U.S., Mr. Dillon said, was giving a lot of thought to the question of procedure but had not reached any conclusion. He thought there probably should be some organized method for formal or informal talks but was strongly opposed to a conference from which people expected decisions every time the participants sat down. In answer to Mr. Hallstein, Mr. Dillon said existing frameworks could be used but would have to be modified. Both he and Mr. Hallstein agreed that the OEEC could not be used in its present form and if modified and used, should not be called the OEEC. It would not be sensible, however, to establish a totally new organization. He agreed with Mr. Hallstein that the arrangements should permit talks between small groups within the broader membership.

Aid to Underdeveloped Countries

The question of procedures relating to assistance to the less-developed countries, Mr. Hallstein said the Commission was restricted by the fact that the Ministers, not acting as the EEC Council, had unexpectedly taken this matter up themselves. As to substance, he said the Commission had not yet developed a policy. The Commission, like the Ministers, had a growing consciousness that the Community must take more responsibility for assistance to the less-developed areas. However, this consciousness was so widespread that it was almost a fashion, which had made him begin to wonder whether the people who continued to express concern for the LDC’s really appreciated the meaning of the problem. He believed that the growing importance of the Six as raw material importers enabled the Community to do more in this field.

In response to Mr. Dillon’s remark that the overseas territories Development Fund seemed to be going slow, Mr. Hallstein said that this was due largely to the delay of a year in completing the necessary regulations. Mr. Marjolin added that the activity of the Fund was a bit piecemeal in that it had numerous small requests. The Commission was compelled to depend on receiving projects which had to be worked out at the local level. One reason for this was the political and economic changes taking place in Africa which made it difficult to have proper development of projects. Mr. von der Groeben said that it seemed to be more and more difficult to get sensible projects and to get the needed technicians. Mr. Marjolin wondered what form the effort by the Six in favor of underdeveloped countries should take. The Six had already done something for Africa and would probably do something for Greece and Turkey. Also, France had done something on its own. Germany had also given export guarantees. Belgium was expected to do something additional for the Congo. Mr. Dillon commented that Germany and Italy were in a position to extend more and longer term credits for developmental purposes.

Mr. Dillon said he would be really interested to know if the Commission or the Community would be in a position to influence the Member States on this question or whether the U.S. would have to continue to rely on bilateral efforts to obtain an increase in assistance to the LDCs. He thought that France was probably already doing as much as possible in terms of its resources and that Germany, with its large reserves of gold and dollars, could grant long-term credits in place of the short-term credits which had become habit with it. Also Italy, despite its economic problem in the south, had large reserves which could be used. Mr. Marjolin said that the Commission was trying to do something but that “bilateral pressure will not be superfluous.” One area in which aid was badly needed, Mr. Marjolin said, was India. Mr. Dillon said that the U.S. did not care very much in which areas other countries directed their financial assistance, since it meant that U.S. funds could be released for use elsewhere.

Cooperation on Business-Cycle Policy

Mr. Hallstein remarked that the Rome Treaty was not very precise on this matter, but that the Commission in its February memorandum⁷ had suggested consultations with countries outside the Six. Mr. Dillon observed that discussions in the OEEC had proved useful.

Commercial Policy Matters

The Commission, Mr. Dillon believed, could do something for underdeveloped countries with regard to trade, which was even more important to such countries than economic assistance. The U.S. had the impression that the Six in the course of the recent GATT session had moved a little way toward meeting the underdeveloped countries by expressing a willingness to talk on problems that worry the latter. Mr. Marjolin believed that there were good chances that the Six would take a more liberal view on imports of industrial products from underdeveloped countries. He thought that a formula which reserved the existing market to domestic producers but gave a share of increased consumption to underdeveloped countries might go a long way in meeting the problem. Mr. Dillon remarked that this would also help in relations with Japan.

Free- and State-Trading Economies

In response to concern expressed by Mr. Hallstein, Mr. Dillon acknowledged that the development of trade by state trading countries on the basis of political prices was a potentially serious problem. However, it had so far proved not as serious as many people expected. He thought the problem should be discussed but pointed out that U.S. did not yet have any concrete ideas. Mr. Hallstein believed it was only a question of time before the problem became serious.

0. Source: Department of State, Central Files, 840.00/12–1859. Confidential. Drafted by Corse and Norwood on December 18 and cleared in U on December 17. The source text is incorrectly dated December 18.
1. In a November 24 speech, Hallstein stated that there could be no talks between the EEC and EFTA without the participation of the United States and Canada.
2. Schaffner chaired a December 1–2, 1958, meeting of the seven nations which would later form the EFTA at Geneva at which measures were discussed to avoid trade discrimination by the EEC.
3. See Document 81.
4. Luns had offered a proposal that would accelerate EEC tariff reductions over an 8-year period rather than the 12 to 15 years originally planned. The French wished to reduce all EEC tariffs by 20 percent on July 1, 1960.
5. The French Government had proposed that crude oil extracted from wells in Algeria be given preferential treatment within the EEC through the imposition of import duties on other nations’ petroleum products.
6. George Meany, President of the AFL-CIO, attended the December 3–12 meeting of the International Confederation of Free Trade Unions in Brussels. He returned to the United States on December 15.
7. The first memorandum of the EEC was issued on February 26; in it the EEC Commission suggested closer cooperation with the United States and United Kingdom as well as internal tariff reductions and import quota increases among the member states of the EEC.