I move: "That the Dáil do now adjourn."
In my statement in the Dáil last week, about the situation which has arisen as a result of the suspension of negotiations between Britain and the Six, I said that, while desirous of facilitating a general discussion in the Dáil on the situation, I did not anticipate that the position could by now have become clarified to an extent which would make it possible, or wise, to take firm decisions as to the course we should follow in the sphere of the country's external economic relations. It is not yet possible to give precise answers to some of the questions raised last week by Deputies. Nevertheless, a useful purpose may be served by an interim discussion, based on such information as is available, to inform the Dáil on the various possibilities which may present themselves as the situation clarifies, and on the guiding principles by which, in the Government's view, national policy should be inspired. I propose also to refer briefly to the sequence of events over the past year and a half, terminating in the present impasse, and, while I intend to confine my statement to the important aspects, it cannot be very brief.
There is no doubt that, as a clearer picture emerges, we will be faced with a need to take decisions of major importance. It would, however, be naive to think we can arrange conditions in international trade to suit ourselves, or that, in respect of any aspect of our economic relations, we can take unilateral decisions without reference to the intentions or plans of the Governments of the countries with which we trade. As nothing has happened which will cause any sudden change in our external trading position, or which will require any alteration in the internal arrangements which we are bringing into operation, it is sensible to await developments before taking decisions which may need, or prove, to be of an irrevocable character.
Whatever the future may bring, it will be the Government's primary aim to secure arrangements best calculated to serve the national interest. It was with this object in mind, and with a sincere desire to play our part in the realisation of the great design for a new Europe, that the Government decided in July, 1961, to seek membership of the European Economic Community. Subsequent events will be already familiar to most Deputies, but some reference to them may be helpful.
Our application was considered at a meeting of the Council of the EEC in October, 1961, following which we were invited to participate in an exchange of views with the member States in January, 1962. A meeting with representatives of the Governments of the member States took place in Brussels on 18th January, 1962, at which I made a statement, the contents of which were published to the Dáil.
A further meeting was held in Brussels in May, 1962, between the Permanent Representatives of the member States and senior officials of the Irish Government to enable the member States to obtain clarification of certain points of an economic character arising from my statement of the 18th January. During the subsequent months, because it was clear that the negotiations with Britain were not proceeding very rapidly, we did not think it wise to press for speedier action on our application.
My visits to the member countries of the EEC in October last, when I had discussions with certain Heads of State and Heads of Government as well as with members of each of the Six Governments and with the Chairman of the Commission, were directed to securing a decision for the formal opening of negotiations on our application. I think I should say that, in the course of these discussions, I heard from none of the Governments any suggestion of opposition in principle to our application or that the detailed negotiations on it would present any great difficulties. There was, however, a question whether the Community would be prepared to contemplate the admission of other applicants until the issue of Britain's relations with the Community was finally resolved. However, on the 22nd October, 1962, the Council of the EEC unanimously agreed to the opening of negotiations on our application on a date to be agreed.
Concurrently with these events, the British application, which had been made on 9th August, 1961, was the subject of negotiations between Britain and the member States. At the preliminary meeting, which took place in Paris on 10th October, 1961, Mr. Heath, the chief British negotiator made a statement in which he told the Six that the United Kingdom accepted the aims and objectives of the Community but there were three problems for which solutions would have to be found—Commonwealth trade, British domestic agriculture and future relations between the EEC and Britain's partners in the EFTA. These, he believed, could be dealt with by protocols and would not require amendments to the Treaty.
The subsequent negotiations were fully reported in the press and it is not necessary to recount them. It had been hoped that a general outline of an agreement would have been discernible by mid-1962, in time for presentation to a Commonwealth Prime Ministers Conference in London in September, but this was not found possible, although understandings had by then been reached on a number of matters.
In the resumed negotiations, further understandings were reached on a number of additional items but all these were, of course, subject to the achievement of a satisfactory overall agreement. The chief problems left outstanding included the question of converting the present system of British agricultural price supports to the EEC system, Britain's request for concessions for her horticulture, and the details of the provisions to apply to Commonwealth exports of temperate foodstuffs. A great amount of detailed examination had been made of these problems which had given a more accurate view and clearer understanding of the difficulties and there appeared to be a general opinion developing that, given the necessary political will, a comprehensive agreement would be reached before long.
This then was the position reached in the negotiations when President de Gaulle gave his press conference in Paris on 14th January, in the course of which he implied that Britain was not yet ready to join the Community. The whole question was, he said, whether Britain could at present join with the Continental countries in the acceptance of a tariff which would be truly a common tariff, could renounce all Commonwealth preferences and cease to claim privileges for her agriculture and, finally, could regard as no longer binding her commitments to the EFTA countries. The French President said that the entry of Great Britain followed by the EFTA countries would alter completely all the adjustments, agreements, compromises and rules which have already been adopted by the Six, and, consequently, a different Common Market would have to be envisaged which would find itself faced with problems of relations with other States; first, with the United States. He said that it was to be expected that the cohesion of its numerous and varied members would not prevail for long and that an enormous Atlantic Community would emerge, under American domination and control, which would soon absorb the European Community. This, he said, was not at all what France had visualised and was striving for. He went on to say that it was possible that one day Britain would transform herself sufficiently to become part of the European Community without restrictions, reservations or preferential arrangements and, when this happened, the Six would open the door to her and France would not oppose her. Meanwhile, he added, there was nothing to prevent an association agreement being concluded between the Common Market and Britain in order to safeguard trade.
It was clear from President de Gaulle's statement that France was opposed to the continuation of the negotiations with Britain and, at a meeting of the Six in Brussels, on 18th January, the French Foreign Minister, M. Couve de Murville, asked for the adjournment of the negotiations. This was opposed by the other member States and it was decided to defer discussion of the matter until 28th January. In the meantime efforts were made by the other member States to prevail on France to agree to a compromise solution to avoid a breakdown in the negotiations. These efforts did not meet with success and on Tuesday last week the negotiations were suspended indefinitely as the Six were unable to agree on future pro cedure.
This deadlock is, we hope, purely temporary. As I said in the Dáil last week, our desire is that a way will be found before long to enable all European countries which share the aims expressed in the Treaty of Rome to participate fully in a wider Community. The forces making for European unity, which received such an impetus after the last World War, will, I feel sure, be strengthened as time goes on and must in the end prevail. The suspension of the British negotiations should be viewed as a temporary setback and not as a final breach. We must also, ourselves, preserve a proper sense of proportion. Even if our eventual decision is that it is not for the present practicable or desirable for us to pursue our application for membership of the Community, this decision will not of itself make our position any worse than it has been for the last two years. Indeed, in many ways we will have gained permanently from the measures already taken to fit our economy for greater competition, and these measures will have to be reinforced and accelerated in our own economic interest. If it should turn out that we have lost for the present the possibility of participating fully in the economic arrangements of the Community, there is still ample scope for economic progress. We have become a stronger economy over the past few years and must strive to make the most rapid advance over the years ahead. Not only will this yield direct benefits in terms of higher employment and living standards, but it will increase our capacity to benefit from eventual participation in a wider European Economic Community.
I do not consider that it would serve any purpose for me to speculate on the reasons for the present impasse, the errors of policy on one side or the other which gave rise to it, or the motives of the principal personalities involved. It would be still less useful to speculate or to comment on the considerations of high-level politics which may be operating, although they are probably more significant than the details of agricultural policy and other matters which were being debated at Brussels. These disputations are concerned less with the operation and scope of the EEC than with the future of Europe and its relations with the USA. Their outcome will affect the future welfare of this country as of others but, nevertheless, I do not consider that it would be in the national interest that the Government should, at this stage, announce a position in regard to them. We are concerned with the realities of the situation for ourselves and its implications for our own future. We are interested in what has already happened as a guide for the conduct of our affairs, but it will not serve any purpose of ours to try to place responsibility on, or to award blame to, anyone. There is nothing which we could have done heretofore which could have influenced the situation. Our main interest lies in what we can do now to ensure the continued growth of our national economy and the wellbeing of our own people.
The comments made by leading statesmen in the Community and in Britain following the suspension of the negotiations reflect the deep disappointment occasioned in many quarters by the collapse of the negotiations. This disappointment we share not only because of the consequences for ourselves but also because of the consequences for Europe as a whole.
Assuming there is no change in the situation as it exists to-day, what are the implications both for our external trading relations and for the internal organisation of our economy? I propose to deal first with our external trading relations and later the possible courses of action in this sphere that may present themselves.
So far as the British market is concerned, our terms of access for industrial products will not be affected, although the tariff preferences which we enjoy there will contract and increased competition must be expected according as British tariffs are eliminated within the EFTA. This process may be extended by the participation of Britain in multilateral negotiations for tariff reductions, the setting for which has been provided by the U.S. Trade Expansion Act. This is, however, uncertain because the exclusion of Britain from the EEC will reduce the usefulness of that Act as an instrument for tariff disarmament. As it stands, it allows for the abolition of duties on all industrial goods for which the USA and the EEC together account for 80 per cent. of world trade. I have seen it stated that, with Britain outside the Community, this provision would apply only to aeroplanes and edible fats. Unless, therefore, the Act is amended to include trade with countries outside the EEC, the results of any negotiations thereunder may be confined to the reduction of duties rather than their elimination. Britain may, however, proceed also with unilateral tariff reductions, as is indeed being advocated there, as a means of stimulating industrial efficiency and accelerating economic growth.
The picture, therefore, of future developments in the British market, so far as our industrial exports are concerned, is one of disappearing preferences and increasing competition from both foreign suppliers and British home production, offset perhaps by rising demand flowing from increased economic activity. In Britain we have tariff-free entry to a market of over 50 million people with a high living standard to which we have been gaining increasing access. As yet we supply only a very small proportion of Britain's import needs. While we may lose some of our preferential advantages, the demand in Britain for imported as well as home products may be expected to rise as national income increases.
On the agricultural side, the present situation means that a gain has been deferred, but our position in relation to the British market remains unaltered, including the price links for cattle and sheep. Other agricultural exports to Britain have to compete with heavily subsidised British domestic production, as well as with world surpluses, the volume of which at times results in the application of import restrictions. The situation in this respect may well be intensified if overseas supplies which formerly went to the EEC area are diverted to Britain, which is the only open market available.
As long as we are outside the EEC, our agricultural exports to that area will be subject to a system of variable levies. This will involve for most products a system of levies based on the difference between the internal Community prices and those of the world markets. Heretofore, our agricultural exports to the Community area have been subject to a variety of national import regimes of very restrictive effect. It would not be correct to assume that the replacement of these by a uniform non-discriminatory system of protection will adversely affect our export possibilities. Our agricultural exports to the Community area in the past have not been very great. As there is every reason to hope that under the new system, nonmember countries would have equal opportunities of access to the market, we might very well succeed in increasing our share of the Community's market for some commodities.
The more important regulations, from our point of view, namely, those for beef and dairy products, have yet to be settled. In the case of dairy products, the intention is to give protection by way of variable levies. In the case of beef, protection would be by way of tariffs, supplemented where necessary by import licensing, but there is pressure in certain quarters of the Community for the application of a system of minimum import prices on the sluice-gate principle. Beef is, however, the principal agricultural product in which the EEC is not self-sufficient, and there may be opportunities of enlarging our beef exports to the area.
The main barrier to the exports of our industrial products will be tariffs. The member countries are in process of moving to the common external tariff, the duties in which, though in general not high, will put our exports at a disadvantage as compared with Community production which can be expected to become increasingly competitive according as it adapts itself to Common Market conditions with the gradual disappearance of duties on intra-Community trade. Nevertheless, rapidly rising living standards will ensure an expanding market which should afford opportunities for increasing exports. The obstacles are not to be underrated but they can be overcome by offering goods that are competitive in quality and price.
While it should be understood that our external trade situation is not now any different to what it has been, the prospect is of intensified competition in every market, including Britain, to which we export our goods. There is no likelihood of any situation developing which will release us from the need for maximum efficiency in every sector, and this is true even if there are no changes other than those which will take place automatically under the operation of existing EFTA and EEC rules.
What prospects are there of other developments? The reaction of the British Government to the suspension of their EEC negotiations was, from our viewpoint, very satisfactory. They have maintained the position of desiring membership, indicated their acceptance of the political and economic principles on which EEC is based, and have been instructing British public opinion that no alternative policy is possible, based either on the Commonwealth or EFTA. If their attitude had been different, if they reacted to the abrupt breaking-off of the negotiations on their application by adopting an attitude of resentment and hostility to Europe, and were seeking now to frame a commercial policy which would create additional impediments to their subsequent participation in EEC, it would have made the position much more difficult for us, having regard to our desire to participate eventually in Europe integration, our economic interests in trade with the Six, and the preponderant importance of our British trade.
In respect of our common desire to join EEC, our expectation that the difficulties are only temporary and that membership will be possible in time, and in respect also of our independent decisions to avoid adopting policies now which would add to the difficulties of negotiating conditions of membership, our policy and that of Britain can be said to be in concert.
British association with the EEC, as a temporary arrangement pending membership, or as a permanent condition, has been suggested by the French President, and important newspapers in Britain have urged that the British Government should not reject this possibility. It is understandable that, heretofore, the British Government would not consider this proposal when offered as an alternative to membership, but if the deadlock over their membership application persists, the British Government may reconsider the proposition. Mr. Heath's House of Commons statement could be read as implying that the offer of an association agreement might be considered if made by the Community as a whole rather than by one member of it.
The form of association suggested —although it was not defined—would appear to be limited to the removal of barriers to trade in industrial products only. It is to be appreciated that one of the difficulties which complicated the British negotiations at Brussels was their agricultural support system, their undertaking to their farmers not to change this system before a General Election, and their desire to phase it out, possibly involving increases in market prices of foodstuffs, by a gradual process. The suggestion is that an association arrangement would meet British economic needs without involving changes in their agricultural support system. If, however, the British Government hopes and expects to acquire membership and to participate fully in EEC affairs, including their agricultural marketing arrangements, it would seem that they may start to move away from this system in the interval prior to the resumption of negotiations. Indeed, there are indications that the British Government are considering changes in their farm support system independently of the question of EEC membership.
The position of EFTA in this situation must be kept in mind. One of the stated purposes of EFTA was to facilitate collective negotiations between the Six and the Seven for a European trading system. This purpose dropped from view during the recent negotiations, but it may now reappear. If negotiations between EEC and EFTA should seem to be likely, it would be necessary for us to have regard to the fact that, as we are not members of EFTA, we would not be involved in them. We did not seek to join EFTA primarily because its arrangements did not embrace agricultural trade.
If negotiations between EFTA and EEC were likely to take place and to lead to the settlement of a new European trading arrangement, we would, of course, have to secure participation in that arrangement either by direct negotiations on our own behalf with the two organisations—which would be difficult—or by seeking membership of one of them. Our desire is to join in a European Community which would embrace all the countries with which we trade, and which would have the regulation of agricultural trade, production and marketing as one of its functions. Our decision to take no course which would impede the realisation of this desire would be an important factor when deciding our policy in such an eventuality. If membership of EEC would not be regarded as possible for economic reasons—because of the serious disruption it might cause in our trade with Britain so long as Britain was not also a member—our interest in seeking membership of EFTA would, of course, be increased if there was a prospect that it might develop a policy for agricultural trade.
If other possibilities should emerge of wider trade negotiations by reason of USA intervention, through GATT or otherwise, we would wish to participate fully in any discussions or negotiations of this kind in which our interests would be involved. Our application for GATT membership was not pressed during the EEC negotiations —because possibly it might be suggested that entry into the Community would have eliminated certain obstacles to our accession to GATT which had been under discussion there.
As regards the position of our application for EEC membership, we had previously made known to the EEC countries that, although it was not linked to Britain's, as were those of Denmark and Norway, we did not wish to proceed with detailed negotiations on it until the progress of British negotiations had revealed the likelihood of agreement and we had a general indication of its character. Up to now, the British application for membership of EEC has not been withdrawn, nor has it been decided by EEC. It is still on the EEC agenda, as is ours. The French Foreign Minister has emphasised that, in his view, what has happened is an adjournment of the negotiations and not a break-off. Action on the British application has been suspended but it does not seem necessary for us to come to any decision regarding our application until the position is clarified, unless the EEC consider that for some procedural reason it should be disposed of. We are not withdrawing our application. Our position is still that we wish to become members of EEC if it is economically possible for us, which is something which we may not be able to decide finally until the position concerning the British application, and Britain's future commercial policy, are known.
We can be described, because of the character of our trade agreements with Britain, as being within the British preferential system. Britain offered in Brussels to liquidate the Commonwealth preferential trading system. This is likely to be a chief topic in the anticipated negotiations in GATT for tariff reductions. The interest of the USA in the termination of this system is well known. As a member of EEC, our trading agreements with Britain would have been submerged in the EEC arrangement. If there is a possibility that the preferential system may be terminated or greatly modified, outside EEC membership, then our interests would be directly involved, and presumably a new trade agreement with Britain made necessary. The value of our preferences in Britain have been steadily eroded by the passage of time, by British resort to quantitative restrictions in some instances, and by the automatic reduction of British tariffs in favour of EFTA countries. Our preferences in Britain's favour have been maintained at the standard rate of 33? per cent. which is of considerable importance to British exporters. British commercial interests are, of course, very much wider in scope than ours and any new principles regarding preferential trading on which she might agree with USA or in the GATT would, it is to be assumed, be applied in our case. While we would much prefer to see our future trading arrangements with Britain as with other European countries conducted under the rules of an International Community such as EEC, if there is a need to re-negotiate our bilateral trading arrangements with Britain, either for a temporary period pending our common membership of EEC, or for an indefinite term, there is a possibility that it would take a different character to the present arrangement. The mutual advantage to both countries in maximising trade between them is, however, so obvious that it is certain that any new agreement which may have to be negotiated will be based on due recognition of this interest.
General de Gaulle's reported suggestion to Denmark that she should proceed with her application for membership of EEC does not appear to be very relevant to our problem. The significance of the statement may, indeed, have been misinterpreted in press comments. The Danish application was expressed to be conditional on British membership. In the light of the suspension of action on the British application, it may be that the Six would not consider themselves free to deal with it, unless it should be withdrawn and replaced by an unconditional application. The Danish Prime Minister has, however, stated that this will not happen. It would seem also that Norway does not intend to pursue her application at this time.
We must, of course, keep ourselves informed of the development of opinions as to the future course of events in Britain and the Six. At the appropriate time, this will very probably involve discussions at Ministerial level. It would be unnecessary and unwise to seek such discussions until we could draw up a fairly precise agenda, having regard to our own policy, of the matters on which we needed information or discussion. This could not be done yet but it is having our attention at the present time.
The possibility of some form of economic association with the EEC is suggested by the fact that we hope ultimately to secure membership and wish in the meantime to have reduced the obstacles to trade with the Community that non-membership entails. The only provision in the Rome Treaty on the subject of association is that in Article 238 which says:—
The Community may conclude with a third country, a union of States or an international organisation agreements creating an association embodying reciprocal rights and obligations, joint actions and special procedures.
It was pointed out in our White Paper on the EEC that this provision leaves room for a wide variety of forms of association; also that there was no established doctrine covering association which would serve as a guide to countries seeking such status. Only one country, Greece, has so far negotiated an agreement for association. It provides for Greece's participation in the customs union of the Six with a view to ultimate membership of the Community. Association on the Greek model would undermine the essential basis of the Anglo-Irish Trade Agreements because of the barriers it would erect to trade between the two countries. This objection would disappear if association by way of participation in the customs union of the Six were extended to a group embracing ourselves and Britain. Whether such an arrangement is feasible or would be in accord with the wishes of the countries concerned has yet to be seen, but the question is one which lies at the core of the present uncertainty about future relations between the EEC and other Western European countries.
Failing association on a group basis, association for us on an individual basis would, for the reasons I mentioned, lie some place in that vague territory outside the customs union which the Community itself, even, has not yet charted, although we have been given to understand that for some time past consideration has been given to the elaboration of principles which would guide the Community in the negotiation of future association agreements. It is impossible, therefore, to say what a form of association outside the customs union would mean in terms of reciprocal rights and obligations—to quote the wording of Article 238 of the Rome Treaty. It seems clear, however, that, from the point of view of the desideratum which I mentioned earlier, namely, the reduction of obstacles to trade with the Community, it would be a second best to a form of association providing for participation in the customs union.
As regards a possible arrangement with the EEC, a limiting factor will be the need to avoid any damaging clash between the consideration given in exchange for benefits from the Community and the principles on which our trade with Britain rests. Since the consideration on our side would be the gradual opening of our market to the Community to the detriment of Britain's preferential rights, it would be idle to pretend that there are not very real difficulties in the way of such a provisional link with the Community, nor could it in any event be usefully explored until we had some idea of the prospective trend of future relations between Britain, the Community and other countries.
There is also the question of the extent to which the Community would be willing to accord any individual country—or even a group of countries —preferential treatment. Such preferential treatment would, because of the provisions of the GATT, to which all the member States of the Community are parties, be feasible only in the context of a customs union, or free trade area, or an interim agreement leading to the formation of a customs union or free trade area. The prospects for such an interim agreement would be enhanced if it could be fitted within a broader framework embracing relations between the EEC and the present applicants for membership and based on the hypothesis that eventually the Community would admit these countries to membership. What, in effect, is involved in this question is the future relations between the EEC and other Western European countries including those in the EFTA. Efforts to create a free trade area between the EEC and the countries which now constitute the EFTA broke down in 1958. Nevertheless, it is possible, as I have said, that some form of association between Britain and other EFTA countries on the one hand and the Community on the other may evolve. In any event, it is not unlikely that the EFTA will have a role in the settlement of future relations between the EEC and other countries of Western Europe and that scope for individual arrangements of any significant value may be small.
A bilateral trade agreement which did not provide for mutual tariff reductions could not be expected to result in any notable increase in trade with the Community. This has been our general experience with bilateral trade agreements of this kind. The tendency nowadays is to get away from bilateral tariff agreements and to promote instead multilateral tariff reductions aimed at the expansion of trade on a world-wide basis. This is the primary function of the GATT whose activities in the sphere of international trade complement those of the International Monetary Fund in the sphere of international payments. We are already a member of the Fund and we applied in 1960 for membership of the GATT. We have up to now benefited from the application of the most favoured-nation principle even though not a party to the GATT. The benefits in terms of tariff reductions have heretofore been slight, but, according as reductions in the course of future tariff negotiations become significant, there may be a tendency to confine the resultant benefits to member countries. Our recent 10 per cent. tariff cut would, if bound, probably be more than sufficient to secure us entry to the GATT and we would thereafter have a contractual right to benefit from all tariff reductions subsequently negotiated. Participation in such negotiations would not entail burdensome obligations for us, as we are not principle suppliers of any commodity entering into international trade. As a participant in the negotiations planned to take place against the background of the United States Trade Expansion Act, we would be in a position to align ourselves with those countries which will be pressing for the lowering of barriers to trade and to support any moves for the more orderly marketing of agricultural products. This latter point is of interest to us because of the effects on our exports of dumping of agricultural surpluses on the British market and the provision made in the GATT in regard to the measures which a contracting party is permitted to take against other contracting parties in such a situation. For all these reasons, we shall have to consider whether we should not now go forward with our application for accession to the GATT.
In so far, therefore, as it is possible, in the present conditions, to discern the broad principles which should inform our future policy in the sphere of external trade, it would hardly be contested that our interests would best be served by participation in some multilateral arrangement to which Britain was a party. The most advantageous arrangement would be one embracing Britain and the EEC, which might be expected to lead eventually to our membership of the Community. An alternative would be participation in the EFTA, the existence of which may facilitate the bridging of the gap between the EEC and the other Western European countries by maintaining the pace of tariff reductions.
Whatever course of action we adopt, we must have regard to the fundamental importance to us of the British market to which 75 per cent. of our total exports and 80 per cent. of our agricultural exports go. This concentration of our export trade in the British market is a consequence of the preferential terms obtained under the Anglo-Irish Trade Agreements which ensure duty-free access for practically all our products and certain links with the British price guarantee system for our store cattle and store sheep. There is little scope for negotiations on further tariff concessions. While it would be of considerable benefit to us if the existing price links could be extended to other agricultural commodities, proposals made by us to this end a few years ago were unsuccessful and there is no reason to believe that they would be any more successful now when major changes in British agricultural policy may be under contemplation.
While exercising caution not to prejudice our existing rights under the Anglo-Irish Trade Agreements, we must recognise that world trade is moving from the framework of bilateral agreements to that of multilateral arrangements and that the possibility of negotiating satisfactory arrangements on a purely bilateral basis with Britain or with the EEC, or any other country or any other group of countries is rapidly decreasing.
While the uncertainties of the situation preclude for the present any confident predictions about our future course of action in the sphere of external economic relations, we are not similarly inhibited from taking prompt and vigorous action to adapt the internal organisation of our economy to the situation in which we find ourselves. However great the area of uncertainty in the international situation, certain elements emerge clearly: first, in view of the possibility that our participation in the agricultural marketing arrangements of EEC may be prevented or delayed, there is greater need than ever to look to industrial exports as the mainspring of our economic growth: secondly, whatever arrangement or combination of arrangements we enter into in relation to external trade will involve concessions on our part in the form of reduced tariffs; and thirdly, although it is undesirable to exaggerate the possibilities—they may not exist in fact—the principle of bartering industrial tariffs where necessary for agricultural trade opportunities, must be accepted.
Whether our application for EEC membership proceeds, is delayed or is defeated, we have difficult and comprehensive tasks of reconstruction to undertake, and they cannot be avoided. The completion of these tasks calls for a degree of co-operation, and forbearance in pursuing sectional ends, between agriculture and industry, between employers and workers, greater than we have heretofore achieved, and for consultation and if possible agreement between the Government and representatives of economic interests, which can be undertaken by any practicable method but which are more likely to be fruitful if they are organised and regular.
We intend to base our policy on the assumption that circumstances will emerge which will permit of the admission of the present applicant countries to the EEC. In such an event we would be faced with the obligation to eliminate tariffs on imports from the Community by 1970. It is the safer assumption that, no matter what delays take place now, the EEC transitional period will not change. In our negotiations with the Community, we have been counting on a six-year transitional period; and in any future multilateral arrangement in which we may participate, involving the removal of tariffs, it would be unwise to count on the possibility of a transitional period of this length.
The considerations I have mentioned should constitute the guide lines of our policy for dealing with the situation with which we are confronted. They underline the necessity for maintaining the efforts which were initiated, with membership of the EEC in mind, towards increasing efficiency in order that our products may achieve the highest standards of competitiveness on both the home and export markets. This, indeed, is the vital condition of national progress, no matter how international circumstances may develop. Moreover, our freedom of action in external relations will be proportionate to our capacity to make Ireland a stronger and more independent economic entity. To this end it is essential that the surveys of industry and agriculture should be carried through to completion and that the actions decided to be desirable, arising from the reviews, should be promptly taken. Re-equipment, reorganisation of production systems, setting up of Adaptation Councils, co-operation in the field of export marketing and the considerable range of State aids must all be applied vigorously. Various other measures designed to help workers to cope with the consequences of more stringent trading conditions must be followed up. The setting up of standing advisory trade union bodies to work in co-operation with the Adaptation Councils, planning of arrangements where required for retraining and resettlement of workers and for dealing with any redundancy problems which arise must also proceed.
There is a danger that, in the conditions of uncertainty that may prevail in the months ahead, the momentum that has been achieved in the preparations for entry to the EEC will be lost. Preoccupation with external events, or with the short-term discomforts of adjustment, must not cause us to lose sight of our principal objective, namely, the reshaping of the economy to enable us to hold our place in a world that is moving towards freer trade and to maintain the rate of economic growth achieved in recent years.
To sustain the pace of adaptation and reorganisation, aids and exhortations alone will not be sufficient. There may be a tendency for some sections of industry to adopt a "wait-and-see" or even a complacent attitude. Some compelling discipline—some additional pressures—will be necessary. The obvious discipline for this purpose is to keep in view, as a definite aim, the pursuit of our application for membership of the EEC and to make preparations accordingly by, inter alia, continuing the tariff reduction process initiated on 1st January last. Only in this way can we ensure that uneconomic industrial units are induced to amalgamate or change over to economic lines of production.
Because our industrial development has long passed the stage in which a policy of protection can stimulate further industrial growth, the primary emphasis has been deliberately shifted in recent years to direct development grants and tax incentives as the means of raising industrial capacity and employment and increasing production for export. It is only through enlarging its sales on export markets that Irish industry can in future expand at a rate which will give us the increase in employment we require. Moreover, a steady increase in exports is needed to support the greater internal activity and the higher expenditure on imports which will go with a general improvement in employment and living standards. The non-competitiveness of many of our industrial products is related to the smallness of the home market, the inadequate utilisation of productive capacity and the lack of opportunities for economies of scale and specialisation. The only remedy for these deficiencies is to bring about an expansion of export demand for the products of Irish industry through the offer of high quality goods at competitive prices.
High tariffs which protect inefficiency or obsolete equipment and procedures, have outlived their usefulness. We have followed the classical pattern of industrial expansion development based on the home market assisted by protection leading to growing efficiency and increasing export potentialities reducing or eliminating the need for home market protection. In the case of the great majority of our protected industries, however, exports form as yet only a small proportion of output. The scale of protection is such that in many industries there is no competition from imports at present. An increasing element of competition on the home market should be a general and effective spur to improvements, supplementing the special aids and incentives to which only the more progressive industries may respond. The scaled reduction of protection over a period of years would ensure more intense concentration by management and labour on the raising of efficiency and productivity and reinforce the tax and other incentives to increase production for export.
By their readiness to co-operate in the formulation and carrying out of measures necessary to prepare industry for entry to the EEC, management and labour have shown that they appreciate the force of these arguments. The apparent breathing space that would be presented by the indefinite postponement of our entry to the Community could, however, cause the weaker elements in industry to waver and doubts to be raised about the need to reduce protection, particularly on a unilateral basis. Although it is necessary to emphasise again and again that in this situation there is greater need than ever, in our own interest and regardless of international bargaining possibilities, for greater competitive efficiency in industry, and that expansion of exports against world competition is the key to national economic progress, it should not be necessary for me to say that the promotion of industrial efficiency by reduction of protection is not being initiated because of free trade principles, but because in the circumstances now prevailing in the world it is recognised to be necessary for economic and social progress. To remain efficient only in parts of the economy, with limited capacity to expand exports, is to condemn ourselves to inert dependence on the British market in which we may expect a progressive hardening of competitive conditions for our products.
We must be prepared, as I mentioned earlier, to assume the obligations of membership of the EEC whenever the opportunity presents itself. There is little doubt that for this purpose the effective date for the elimination of tariffs will not change and will be not later than 1st January, 1970. Unless we maintain the process of tariff reductions already initiated we will not be able to meet that deadline. Tariff reductions amounting in the aggregate to 50 per cent. have already been made within the EEC and it is anticipated that the process of tariff dismantlement within the Community will be completed by 1967. The countries of the EFTA have likewise achieved a 50 per cent. reduction and can be expected to keep abreast of further reductions in the EEC. We are the only country of the fourteen now involved in these activities, which has not seriously started the process of tariff reductions. We have a very considerable gap to close and we have only a limited time in which to do it.
I am not saying that we should not make such use as we can of tariff reductions as a bargaining counter to obtain corresponding concessions in our interest from other countries. It would, however, be unrealistic to expect specific benefits of particular value to ourselves. Our market— especially that portion of it which is protected by tariffs—is not, by international standards, a large one. The process of tariff reductions is now generally conducted on the basis of simple reciprocity and in a multilateral context. The scope for extracting special terms in bilateral arrangements is extremely limited since most of the important trading countries belong to GATT, and must, therefore, extend to all members tariff concessions given in any bilateral context. The compensation an individual country receives for reducing its tariffs is participation in the benefit of the tariff reductions of other countries.
We tried unsuccessfully in 1959/60 to arrange special bilateral terms with Britain. Since then the trend has been even more pronouncedly towards mulilateral tariff reductions and away from preferential arrangements, the tariff reductions being either mathematically progressive within regional systems or proceeding at intervals under GATT auspices according as major initiatives such as the so-called "Dillon round" and the prospective "Kennedy round" are taken. It is important to have an established right to share in the increased access given to external markets by these general reductions and this is a ground for participating in multilateral arrangements, especially those affecting the British market. But the primary importance of continuing gradually to reduce protection is that the process provides a necessary stimulus to the rapid adaptation and reorganisation of our industry on which, more than on reduced tariffs elsewhere, depends our prospect of increasing our exports and, therefore, our employment and living standards.
It was with these considerations in mind that the Government decided, as I announced last week, that there would be a further general reduction of our industrial protective tariffs on 1st January, 1964. While our policy in this matter must be flexible, and adjustable to conditions as they develop, there is much to be said for the principle that the rhythm of reduction contemplated for EEC purposes should be observed at least for some time ahead, that is to say, that our general aim should be to achieve a reduction of the order of one-third by 1st January, 1965, unilaterally if necessary. This would mean that a tariff of 75 per cent. full, 50 per cent. preferential operative before 1st January, 1963, would be reduced to 50 per cent. full, 33? per cent. preferential.
I am not suggesting that tariffs of that level are typical in our system, but it will be appreciated that most of our tariffs, certainly of that order, are still high by international standards and would give considerable scope for further reduction either unilaterally or for bargaining purposes. After 1965 the automatic nature of such reductions could be qualified to meet the needs of basically sound industries which were energetically improving their standards of efficiency but which might encounter difficulties through the automatic application of further tariff cuts. In this connection it may be decided to introduce some process of survey or review for the purpose of deciding the future rate of tariff reduction, eliminating as far as possible uncertainty about future conditions of trading in the home market, and determining what special aids or services to assist adaptation to greater competition might be necessary.
A policy of tariff reduction has little relevance to the problems facing us in the agricultural sector since our agricultural products have in general only a minor degree of tariff protection. Agriculture has performed creditably in the difficult conditions of international trade which have existed during the past seven or eight years and I am confident that it will do so in the future. One readily understands the interest with which farmers looked forward to the more equitable conditions of competition and wider openings which should eventually prevail in the Common Market. While the present developments have been a disappointment to these expectations, increased productivity and efficiency in agriculture will be of even greater importance than in the past and will enable our farmers to hold their place successfully with other European countries in an integrated system in the enlarged Community which it is our hope to see established eventually. The agricultural surveys being carried out under the aegis of the Committee of Agricultural Organisations are well advanced and these will help to guide us in developing future policies.
Apart from the question of entry to the Common Market, the Brussels discussions have been of great benefit in highlighting the difficulties and distortions that beset agricultural production and trade, the gravity of which has not always been fully appreciated. The new light thrown on the problems and the exhaustive analysis they have undergone will help in finding a solution to them. One can henceforth expect a greater recognition of the wisdom and justice of paying a fair price for food entering into international trade. The movement towards international commodity agreements designed to stabilise prices at reasonable levels has been greatly strengthened. The period of renewed growth into which the world is now moving will bring increased demand for food and for high-quality foods of the kind which Ireland is fitted to produce.
We thought that we knew the pattern of events as it could develop during this decade. It may still be much as we had assumed, but whether it is or not, it is certain to be such as to require of us enterprise, initiative, adaptability, and a capacity for united effort for the national welfare. If we develop these qualities it does not really matter very much how things abroad may work out because we will be able to go ahead in any international circumstances.
The task before us is to adapt our economy to conditions in which trade barriers are coming down on a world wide scale and to maintain and increase our share of world trade. Trading arrangements in themselves will be of little avail unless we make use of the time that is left to raise our economy to the highest possible pitch of efficiency. This is a job which we must tackle for ourselves. Speaking for the Government, all necessary plans and arrangements will be devised to speed this work. Much has already been done through the first Programme for Economic Expansion but much remains to be done. The second Programme now in preparation must be tailored to the conditions we are likely to experience in the next few years to ensure that our available resources are effectively applied in the promotion of economic growth. Before the Programme takes final shape, there will be extensive consultations with interests representative of all important sectors of the economy so that there will be a thorough understanding of the objectives in mind and, so far as is possible, agreement on how these objectives are to be achieved. I hope it will be possible to launch the new Programme before the end of this year thereby establishing the necessary framework for our economic development in the years ahead.
