JSS 17 (1) (1962) 64-89
THE COMMON MARKET
by
D. G. A. MOSS AND S. F. WOOD
(A paper originally presented to the Manchester Actuarial Society and
discussed by the Students' Society on 13 April 1962)
THE TREATY OF ROME
T H E treaty was signed by France, Belgium, Holland, Luxemburg,
Italy and West Germany on 25 March 1957, and came into effect
on 1 January 1958. The following is a summary of some of the
relevant provisions of the Treaty. Since the Treaty is very long
and complex it is inevitable that a short summary will appear to
be incomplete and, in many respects, drastic and uncompromising.
We think, however, that what is more important than a complete
knowledge of the Treaty is the spirit which has prevailed throughout the negotiations and carrying out of the Treaty so far. It is
essential to feel and understand this spirit of goodwill, fellowship
and determination to succeed in order to tackle successfully the
problems before us.
General
Article 2. The aim of the Community is to promote the harmonious development of economic activities, continuous and
balanced expansion, increased stability, an accelerated raising of
the standard of living, and closer relations between its member
states.
Article 3. For the above purposes, the activities of the Community shall include:
(a) the elimination between member states of customs duties
and of quantitive restrictions on imports and exports;
(b) the establishment of a common customs tariff and commercial
policy towards third countries;
(c) the abolition, between member states, of the obstacles to
the free movement of persons, services and capital;
THE COMMON MARKET
65
(d) the inauguration of common agricultural and transport
policies;
the establishment of a system ensuring free competition in
the Common Market;
(/) the co-ordination of economic policy;
(g) the remedying of disequilibria in balance of payments;
(*) the approximation of municipal law to the extent necessary
for the functioning of the Common Market;
(0 the creation of a European Social Fund;
(j) the establishment of a European Investment Bank;
association of overseas countries and territories within
(k) the
the Community.
(Most of the rest of this summary is concerned with the further
expansion and qualification of the aims set out in Article 3.)
Article 8. The Common Market is to be progressively established
over a period of 12 years (from 1 January 1958).
(e)
Agriculture
Article 39. The objectives of the common agricultural policy
shall be:
(a) to increase agricultural productivity by the technical development and optimum utilization of the factors of production,
particularly labour;
to
ensure a fair standard of living, for the agricultural
(b)
population;
to stabilize markets;
(«Q to guarantee regular supplies;
(«) to ensure reasonable prices to consumers.
w
The need to make the appropriate adjustments gradually is
recognized.
Labour
Article 48. The free movement of workers is to be ensured within
the Community by the end of the transitional period. (At present
the movement of workers is made to depend largely on employment
actually being available.)
5
ASS 17
66
D. G. A. MOSS AND S. F. WOOD
Capital
Article 67. Member states shall progressively abolish restrictions on the free movement of capital and also abolish any discrimination based on the country of origin of the capital.
Article 73. The free movement of capital shall be restricted by
protective measures in the event of movements of capital leading
to disturbances in the functioning of the capital market in any
member state.
Rules governing competition
Article 85. With regard to the prevention, restriction, or distortion of competition within the Common Market, the following
shall be prohibited:
(a) the fixing of buying or selling prices or any other trading
conditions;
(b) the limitation or control of production, markets, technical
development or investment;
(c) market-sharing or the sharing of sources of supply;
(d) the application to parties to transactions of unequal terms
in respect of equivalent supplies;
the
subjecting of the conclusions of a contract to the ac(e)
ceptance by a party of additional supplies having no
connection with the subject of such contract;
. . . or in general any agreement, decision or practice resulting in
such prevention, restriction or distortion.
Article 91. Where dumping practices exist in the Common
Market, recommendations shall be made with a view to bringing
such practices to an end.
Article 92. Except where specially provided tor, any aid granted
by a member state which distorts or threatens to distort competition shall be deemed to be incompatible with the Common Market.
Some exceptions are:
( a)aids of a social character granted to individual consumers
without any discrimination based on the origin of the products concerned;
67
THE COMMON MARKET
(b) aids intended to remedy damage caused by natural calamities
or other extraordinary events;
(c) aids to the economy of certain regions of the Federal
Republic of Germany which are necessary to compensate
for the economic disadvantages caused by the division of
Germany.
Approximation of laws
Article 100. Member states may be instructed to alter or amend
much of their legislative and administrative provisions as have a
direct incidence on the establishment or functioning of the
Common Market.
Balance of payments
Article 104. Member States shall pursue economic policies to
ensure the equilibrium of overall balances of payments.
Commercial policy
Article III. Member states shall co-ordinate their commercial
relations with third countries in such a way as to bring about, not
later than the expiry of the transitional period, the conditions
necessary to the implementation of a common external trade
policy.
Social provisions and European Social Fund
Article 118. There shall be close collaboration between member
states in the social field, particularly employment, labour legislation
and working conditions, occupational training, social security,
protection against occupational accidents and diseases, industrial
diseases, trade union legislation and collective employer-employee
bargaining.
Article 123. A European Social Fund is to be established to
promote and assist employment facilities and the geographical and
occupational mobility of workers.
European Investment Bank
Articles 129/130. A European Bank is to be established to
assist the balanced and smooth development of the Common
5-2
68
D. G. A. MOSS AND S. F. WOOD
Market. The Bank is to be non-profit making and is to grant loans
and guarantees to facilitate projects,
developing less developed regions;
(a)for
for
modernising
or converting enterprises (where additional
(b) finance is necessary)
or for the creation of new activities
(c)
called for by the progressive establishment of the Common
Market; and
of common interest to several member states, where the
projects require additional finance because of their size or
nature.
Overseas countries and territories
Article 131. The member states are to bring into association
With the Community the overseas countries and territories of
Belgium, France, Italy and the Netherlands to promote the
furthering of the interests and prosperity of the inhabitants of
these countries and territories in such a way as to lead them to the
economic, social and cultural development which they expect.
Article 132. The objects of the above associations are as follows:
states in their commercial exchanges with the
(a)member
countries and territories to apply the same rules which they
apply amongst themselves;
each overseas territory is to apply to its commercial exchanges
with member states and with other overseas territories the
same rules which it applies in respect of the European state
with which it is already connected;
member
states are to contribute to the investments required
(c)
for the progressive development of these countries and
territories;
With
regard to investments financed by the member states,
(d)
participation in tenders and supplies is to be open on equal
terms to all nationals of member states or overseas territories.
(b)
Article 133. The overseas territories and countries are to benefit
from the progressively reduced and eventually eliminated tariffs
on their exports to the Common Market and are required to
eliminate gradually the tariffs on imports from member states
THE COMMON MARKET
69
and other overseas territories. (An Overseas Development Fund
has been formed to assist the development of these countries and
territories.)
General
Article 237. Any European state may apply to become a member
of the Common Market. The conditions of admission and amendment to the treaty are to be agreed between the member states
and the applicant state.
Article 238. The Community may conclude with a third country
agreements creating an association embodying reciprocal rights,
obligations, joint actions and special procedures.
Notes
We must point out at this stage that if and when we, or any other
country, enter the Common Market the Treaty may be amended,
e.g. the representation and voting rights in the various committees
will have to be altered to give new members a reasonable say in
the running of the Common Market. For this reason the provisions
relating to representation and voting rights have not been included
in the above summary. In the next paragraph we mention the
tariff changes to date and in our opinion no alterations will be made
for new states. It will, therefore, be necessary for us on entry to
bring our import tariffs, quotas, etc. immediately into line with
those now obtaining within the Common Market.
Up to the present date (January 1962) internal tariffs within the
Common Market have been cut by 40 % of the 1957 levels. Internal
tariffs are to be removed altogether by the end of 1969, but it now
appears likely that total abolition will take place long before that
date. All quota restrictions on industrial products have already
been abolished. Import tariffs to third countries are to be progressively equalized to approximately the average of the individual
tariffs of member states as at 1 January 1957. So far 30% movements have been made towards these equalized tariffs in the
majority of cases.
7°
D. G. A. MOSS AND S. F. WOOD
THE POLITICAL POSITION
The originators of the idea of the Common Market were concerned with the creation of a federal republic in Europe. Whether
or not this ever occurs—and a recent publication of the European
Community Information Service leaves little doubt that this is
still the objective—is, in itself, largely beside the point for investment purposes, but it does have a bearing on which countries are
likely to apply for membership of the Common Market, and which
applications are likely to be rejected. Recently Professor Hallstein has
implied that applications from states which wish to remain neutral
in the cold war will not be acceptable, which suggests that the Six
are indeed considering political motives as well as economic aims.
There is no doubt that the great success of their plans so far,
to which we refer in the next section, has put them in a very strong
bargaining position. Considering possible entries from the political
angle, it is most unlikely that Austria, Sweden or Switzerland will
join the Common Market as full members. In addition Portugal
is, at least at the present time, disinclined for closer association
with Europe, although her weak economic position may overcome
her pride. Of the remaining E.F.T.A. members, Denmark will
certainly wish to join if we do, and although Norway has made no
pronouncement as yet, there would seem to be no reason why she
should not wish to join.
Greece is already an associate member of the Common Market
and will become a full member as soon as her economic position
permits. In addition Ireland has already applied to join the Common
Market, leaving Spain, Turkey and Finland of the 'Western
European' countries to be considered. Of these Finland's special
position vis-a-vis the U.S.S.R. will almost certainly preclude her
joining as a full member. The present Spanish regime would not
fit Well into the Common Market framework and seems content
to be isolated. Turkey, however, may well decide to apply for
membership on the same sort of terms as Greece.
In our discussion of the trade figures in the next section we
have therefore decided to consider also a Common Market that
will consist of the following countries: The Six, United Kingdom,
THE COMMON MARKET
71
Denmark, Norway, Ireland, Greece, Turkey, and the statistics of the
'ultimate Common Market' assume this combination of countries.
It is possible that other countries such as Finland, Spain,
Switzerland, etc. will become associated with the Common Market
under Article 238 of the Treaty. Associate membership may
ultimately be granted to several countries and it would not be
possible to consider here all the likely outcomes.
Turning now to the position of the Commonwealth, the older
members—Canada, Australia and New Zealand—are three of
our main trading partners. They are highly developed countries
but they cannot be granted full membership which is confined to
European states. Presumably some sort of association will be
developed, possibly under Article 238. In addition, the United
Kingdom is particularly interested in their agricultural products,
and agriculture has already proved the most difficult of the Common
Market problems.
The newer independent states are an easier pill for the Six to
swallow economically. Anyway, few of them now give special treatment to British exports. For the still-dependent states, association
with the Common Market under either Article 131 or 238 could
prove a useful means of leading to independence, especially where
the economy of the colony is not at present self-supporting.
One of the main points of this brief glance at the Commonwealth
position is that the Six are unlikely to welcome the Commonwealth
countries on special terms and we have felt it advisable to assume
that the ultimate Common Market does not include the Commonwealth. It is true that the United Kingdom is unlikely to join
without gaining some form of association for the Commonwealth
but we do not think that this is likely to influence the pattern of
development of the United Kingdom and the Common Market.
TRADE AND DEVELOPMENT IN WESTERN EUROPE
A general idea of the current economic position in Western
Europe is given by Table 1.
The figures in Table 2 show an increase, in current money
terms, in trade in selected areas. Only the United Kingdom does
(Source: U.N. Stats. Year Book, Chase Manhattan Bank.)
Table I. Miscellaneous statistics of Western Europe and U.S.
THE COMMON MARKET
73
Table 2. External Trade {millions of U.S. dollars)
(Source: O.E.E.C.)
(a) Imports, c.i.f.
Common Market
E.F.T.A.
U.K. (included in E.F.T.A.)
U.S.
Ultimate Common Market*
(b) Exports, f.o.b.
Common Market
E.F.T.A.
U.K. (included in E.F.T.A.)
U.S.
Ultimate Common Market*
1957
1958
1959
1960
24,820
19,620
10,960
13,109
40,320
22,940
18,400
10,096
12,918
37,62O
24,290
19,680
10,806
15,050
39,912
29,616
22,076
12,756
14,642
47,436
22,470
16,230
9,266
20,682
22,770
25,220
16,680
9,325
17,393
38,028
29,724
18,528
10,296
20,204
43,320
96·3
118·0
115·9
86·5
99·6
119·1
123·9
3S.076
(c) Imports c.i.f. as a percentage of exports
Common Market
110·5
120·9
E.F.T.A.
U.K. (included in E.F.T.A.)
118·3
U.S.
63·4
115·0
Ultimate Common Market*
15,760
8,893
17,732
34,992
f.o.b.
100·7
116·8
113·5
72·9
107·5
105·0
72·5
109·5
• See p. 71 for an explanation of this.
not seem to show a definite upward trend. The table also shows
that the trade of the Common Market countries is now roughly
in balance overall, probably a preferable position to that of the
United States, with an embarrassingly large trading surplus, and
certainly preferable to that of the E.F.T.A. countries with their
large trade deficits, and the resulting problems that are so familiar
to us. The' ultimate Common Market', as described in the previous
section, shows a pattern similar to E.F.T.A.'s, but little can be
deduced from these figures. They have been included solely to
gain some idea of the size of the trade of such a body.
Table 3 gives the trade between selected areas. Until 1960
figures are available throughout; it would be foolish to draw any
far-reaching conclusions, but it is clear that the international
trade of the E.E.C. is expanding much more rapidly than that of
E.F.T.A. The exports of both groups to the United States rose
considerably in the period, while trade the other way fell heavily.
74
D. G. A. MOSS AND S. F. WOOD
On the other hand, similar trends shown by the U.K.-U.S. trade
were reversed in 1960 and the 1960 E.F.T.A. figures will reflect
this; it is possible that the E.E.C. ones will be similar. Exports
from the United Kingdom to E.F.T.A. are almost static, but the
exports to the E.E.C. are on the increase. The same is true of
imports from these two groups into the United Kingdom.
Table 3. Exports f.o.b. {millions of U.S. dollars)
(Source: U.N. and Board of Trade.)
Receiving country
Exporting country
Year
U.S.
1957
I958
1959
1960
U.K.
Common(included wealth*
(excluding
in
E.F.T.A. E.F.T.A.) U.K.)
U.S.
E.E.C.
—
3170
2400
2360
1850
1410
1530
1090
820
865
1300
5600
495°
539°
5880
E.E.C.
1957
1958
1959
1960
1500
1670
2380
7160
6860
8170
4950
4970
542O
1290
1330
1440
1690
1820
1720
1905
2190
E.F.T.A.
1957
1958
1959
1960
1170
1280
1700
3730
3560
3820
2920
2780
3000
1020
950
1020
1200
495
44o
435
505
U.K. (included
in E.F.T.A.)
1957
1958
1959
1960
68s
77O
1020
895
1280
1170
1290
1430
950
890
965
1060
Commonwealth*
(excluding U.K.)
1957
1958
1959
1960
4140
3965
4555
4325
2150
1845
2015
2200
283
271
294t
347t
—
388o
3695
3970
4I20
4325
4095
3990
4330
2390
2250
2400
3655
• Commonwealth figures include South Africa, which accounts for some 10 % of the
total,
U.K. figures not included in E.F.T.A. figures.
Turning to the position of the Commonwealth, excluding the
United Kingdom but including South Africa, it is clear that trade
is increasing, although only slowly, except with the United Kingdom and with the rest of E.F.T.A. Trade with the E.E.C. is about
THE COMMON MARKET
75
76
D. G. A. MOSS AND S. F. WOOD
half of that with the United Kingdom, and several times that with
E.F.T.A. apart from the United Kingdom.
The more detailed figures in Table 4 for the trade of the United
Kingdom show very much the same picture. The Commonwealth
is still our most important overseas market for exports of manufactured goods, but it is a static one. Our exports are increasing in
all the classifications shown, both to Western Europe and to North
America, even though our total exports are not increasing.
Table 5. Indexes of industrial production (1953 = 100).
(Source: National Institute Economic Review, May 1961, table 20.)
World*
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
Canada
E.E.C.
84
84
83
91
90
94
85
93
90
93
81
93
94
91
98
100
100
100
100
100
100
109
117
128
72
IOI
93
100
no
112
112
100
122
129
117
104
109
120
121
110
120
132
140
139
147
1l8
I3O
102
116
119
119
128
130
144
153
152
162
180
Belgium
Netherlands
Italy
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
West
Germany
U.S.A.
171
E.F.T.A.J. U.K.
France
89
99
139
145
152
172
Sweden
78
93
88
94
94
95
89
91
106
IOI
91
91
98
95
98
94
100
100
100
100
100
100
100
109
119
106
116
123
123
no
118
124
127
127
139
108
115
116
119
118
126
108
114
114
116
114
104
111
122
127
157
134
130
135
128
138
143
158
182
115
119
126
98
115
119
122
* Not seasonally adjusted.
Excludes the Sino-Soviet bloc.
% Excludes Switzerland.
In considering the figures in Table 5 it is as well to state right
away that there is every reason to believe that all Western European
countries had largely recovered from the effects of the war by 1953,
THE COMMON MARKET
77
the base year of the indexes. It is also as well to point out that we
have found it difficult to believe, as has occasionally been suggested,
that it is good for a country to have its capital investments decimated by war, although such an occurrence may give rise to good
growth rates. Thus we consider that a direct comparison of the
industrial production figures is reasonable. It is at once seen that
the Common Market as a whole is progressing more rapidly than
E.F.T.A. as a whole or the United Kingdom. It is also worth
noting that Belgium has been showing considerably poorer results
than the others of the Six in the last few years and that all the 1960
indexes, except that for Belgium, are higher for the Common
Market countries than for any of the others shown. In the case of
Belgium the withdrawal from the Congo is partly to blame for the
poor results, but this case serves to show that entry into the Common
Market is not in itself a solution of economic difficulties; without
the ability to make and sell good products our position could only
be worsened by increased competition, although this in itself is
not an argument for remaining outside.
The G.N.P. figures of Table 1 tell a similar story. Belgium is
again a laggard in the Common Market, all the other members of
which have expanded more rapidly than most members of E.F.T.A.
INSURANCE
The Treaty of Rome provides that by 1969 all obstacles to the
movement of services—including insurance—shall have been
removed. We think that if the United Kingdom enters the
Common Market higher output, greater trade and rising standards
of living may lead to an increase in life assurance and general
insurance, although, as we have already pointed out, economic
expansion is by no means inevitable.
However, on consideration of the sections of the treaty relating
to services, to restrictive practices and unfair competition and to
the approximation of legislation, we think that some changes in
the structure of insurance as we know it may become necessary.
Statutory valuation bases and levels of disclosure to which we are not
at present accustomed in this country may be introduced. It is not
78
D. G. A. MOSS AND S. F. WOOD
beyond the bounds of possibility that there may eventually be
uniform premium rates (as at present in France) and uniform
rates of commission, procuration fees, etc.
INDUSTRIES
We now turn to the main problem with which we are immediately
concerned, namely the effect on industry and, therefore, on
investment of our assumed entry into Europe.
In our treatment we are only directly concerned with U.K.
investments. Overseas investments, particularly within the E.E.C.
will already have been affected to some extent and are likely to be
further affected, but for consideration of overseas investments we
cannot do better than to refer you to the paper' Some considerations
affecting the investment overseas of life funds' submitted recently
to the Institute by Messrs L. C. Polke and G. J. Titford
(J.I.A. 88.1), for the general principles, and suggest that such
treatment of E.E.C. investments as we have endeavoured to give
to U.K. investments is neccessary.
We would also like to stress at this stage that the investor should
not only consider the Common Market in relation to the investment of new moneys, but must also examine his present portfolio.
The advantages to be gained include easier access to the large
and unsaturated market existing in Europe with considerable and
increasing purchasing power. The larger expected turnover should
enable the support of more extensive market and other research
and development projects without which our industries would
soon be outdated. A further point is that many industries will be
selling to the Common Market on more favourable terms vis-a-vis
the other Common Market countries as a result of the gradual
abolition of internal tariffs. Finally, in recent years our ability to
expand has depended on our ability to export as much as we import, and restraints on development have frequently been imposed
in the past because expansion was leading us into balance of
payment difficulties. However, there is provision in the Treaty of
Rome for the equalization of overall balances of payments, and
entry into the Common Market should therefore alleviate this
aspect of our development difficulties.
THE COMMON MARKET
79
A particularly good example of the likely effect of joining the
Common Market is the expected expansion of the consumer goods
industries which should benefit from the rising standards of living.
Some idea of the room for expansion in this sphere can be gained
from the last four columns of Table 1.
Certain points of doubtful benefit, to say the least, are the effects
of comparative labour costs, the infiltration of cheap labour from
Europe (and Italy in particular) and the Common Market aims of
a 40-hour week, 3 weeks' holiday with full pay and equal pay for
women. The effects of these will, of course, be felt least by the
most capital-intensive industries such as chemicals.
Industry will also have to meet gradually increased competition
both here and in the Commonwealth from Common Market
industries. Notwithstanding this, we think that no healthy company, except perhaps those which are at present protected on the
home market by a high tariff wall, has anything to fear from the
proposed union.
We feel that the general effects of entering the Common Market
will be:
(1) The tendency for good companies to improve and poor ones
to deteriorate will be accelerated.
(2) Large companies will tend to do better than small companies,
although size is no substitute for ability. Small firms with
specialised high quality products, however, should continue
to progress satisfactorily.
(3) Units of production will continue to increase in size,
particularly as a result of mergers between U.K. and Continental firms.
The next step in considering investment possibilities is the
analysis of individual industries and then of companies. Time and
space do not allow of a full analysis on these lines, but we have
appended such an analysis of the motor industry to give some idea
of what we consider necessary.
Many firms have already recognized the importance of the new
European market—whether or not we join it—and progress is
being made on many fronts both towards increased export potential
8o
D. G. A. MOSS AND S. F. WOOD
and by direct investment and production within the Common
Market. Any delay in our entry will cause difficulty to such firms
who are at present being forced to operate on reduced profit margins
in an endeavour to obtain a greater share of this new market. The
profit margins should improve upon entry, although they are
unlikely to reach previous home levels.
Because of this costly expansion, some progressive firms may
show poor results in the next year or two, although there is little
doubt that they will ultimately reap the benefit of their foresight.
As a general comment on investments in the United Kingdom
and in view of the Common Market objective of freer movement
of capital, i.e. investments, we cannot stress too strongly that at
present the yield bases of all types of investments in the Common
Market countries are lower than those obtaining in the United
Kingdom. This is illustrated in Table 6 and this disparity would
not continue for any length of time after entry. There is a school
of thought to the effect that the current high rates of interest in
the United Kingdom are here to stay—and this will almost certainly
be the case if we do not join—but this is inconsistent with what
we feel will be the inevitable consequences of our joining the
Common Market.
In our opinion, therefore, the present time is especially favourable
for long-term investment in gilts and selective but extensive investment in equities.
Agriculture
At present home food prices are kept reasonably low and farmers
kept reasonably well paid because of subsidies. If we join, these
must almost inevitably cease but will be replaced by the agricultural
framework which is at present being forged inside the Common
Market, along the general lines indicated in Article 39 or the
Treaty. Briefly this framework provides that a part of the tariff
on imported foodstuffs should be used to support the prices of
domestic products. This arrangement will apply to the Common
Market as a whole by the 1 January 1970, by which time there will be
no internal barriers to the movement of agricultural products.
The first moves in this direction will be made in July 1962. There
are, however, escape clauses which may be used by a member state if
8l
THE COMMON MARKET
Table 6. A comparison of rates of interest and share prices in
the U.K. and the Common Market countries during 1961
(Source: I.M.F. Year Book, 1961.)
ISt
1961 ... quarter Apr.
(a) Bank rates (%)
Belgium5
5
Luxemburg
France
3$
3i
West
s
5
Germany
31/2
Italy
3i
Netherlands 31/2
31/2
U.K.
5
5
May
5
1
June
5
3 /2
4
3i
3i
3i
3i
5
31/2
3*
5
July
Aug.
Sept.
Oct.
Jan.
1962
5
43/4
43/4
43/4
4i
1
3*
31/2
3 /2
3
3i
3i
3i
3
3
3
3*
3*
7
3*
3*
7
3*
3*
3i
31/2
7
3*
61/2
3i
6
4.35
4.35
—
—
—
(b) Rates of interest (%) on long-term government securities
4.33
439
4.35
4.33
4.35
4.35
BelgiumLuxemburg
5.04
5.02
5.11
France
5.07
5.05
5.04
6.0
5.6
5.6
West
5.9
5.7
5.7
Germany
5.08
5.23
5.12
5.25
5.25
Italy
5.17
3.82
3.78
Netherlands 3.96
3.85
3.74
3.94
5.82
5.98
6.24
6.49
U.K.
6.59
5.95
(c) Share price index, 1953 = 100
116
129
Belgium12s
Luxemburg
France
460
462
437
820
West
772
779
Germany
440
Italy
472
445
Netherlands 4 2 9
468
463
259
U.K.
276
273
60
—
3.95
6.47
—
3.97
6.40
128
125
122
110
117
448
827
424
757
426
413
—
721
687
7O3
484
432
448
45°
403
244
400
—
393
234
231
—
401
225
251
(In addition to these figures it should be borne in mind that the yields on ordinary
shares are also much lower in the E.E.C. countries than in the U.K.)
it appears that serious damage is being done to its own domestic
industry, and it is fair to say that the Six are not very much nearer
to a solution of their agricultural problems than previously; what
they have achieved is a move into the second stage of the development of the Common Market. In particular, the actual level of
prices—and thus incidentally the efficiency that agriculture must
attain—has been left undetermined.
6
ASS 17
82
D. G. A. MOSS AND S. F. WOOD
GENERAL REMARKS
In his 'State of the Union' message this year, President Kennedy
drew attention to the development of the Common Market and
mentioned the extensive American investment in the E.E.C. It
seems likely that the present American administration would like
to have closer co-operation with the Common Market. If, therefore, the United Kingdom did not join, we would find ourselves
left very much in the cold, both economically and politically.
The Commonwealth is itself expanding and developing in such
a way as to be unsuitable for forming with the United Kingdom
such a union as is proposed with the E.E.C. Nevertheless, it is
both economically and politically desirable and morally necessary
for us to obtain some concessions for them; it remains to be seen
what form they will take.
It appears that our entry into the Common Market would be
welcomed by all the present members but on their own terms,
which would exclude the Commonwealth. However, Italy in
particular would be willing to grant us concessions, since she
would welcome our support as a counter-balance to the power of
France and West Germany.
CONCLUSIONS
We hope that reading this paper has stimulated your appetite for
further knowledge on this fascinating subject. We do not attempt
to recommend any particular publication, since there is no
absolutely comprehensive document on all aspects of the Common
Market, and also most treatments have bias, either towards the
Commonwealth, politics, agriculture, or a particular industry or
firm. We consider that further study will not only prove fruitful
and entertaining, but is also vitally necessary to each one of us,
both as actuaries and as citizens of the United Kingdom.
THE COMMON MARKET
83
SUPPLEMENT
The motor-car industry
We have chosen the motor-car industry for more detailed examination since we feel that it exemplifies many of the remarks we
have made about the effects on industry of our entry into the
Common Market, and in particular that while our entry will
undoubtedly cause some difficulty, our exclusion on the wrong
side of a high tariff wall would cause even more. The figures in
Table A show that even now our export record is not inspiring.
Our exports to North America have, admittedly, nearly doubled
over the four years shown, but this seems to have been achieved
by neglecting our other markets, which are gradually being taken
over by the E.E.C. countries—not by the U.S., whose export
record is even poorer than ours. (It is worth bearing in mind
that, because of U.S. ownership and investment in Europe, the
export figures do not give an exact picture of the U.S. position.)
In particular, our exports to E.F.T.A. are only a small proportion
of those of the E.E.C, and the latter are expanding whilst ours
are not. Other important features shown by this table are the
rapid increase in internal trade in the E.E.C., and the fivefold
increase in the fairly small exports of the E.E.C. to the U.K.,
despite the 30% import tariff imposed by the U.K. which is
higher than all the E.E.C. external tariffs except that for Italy.
Some explanation for this may be in the fact that at present
U.K. manufacturers are at a price disadvantage compared with
European manufacturers. This is partly due to high labour costs
and to the very bad industrial relations obtaining in this industry.
On the credit side, labour charges on the Continent will tend to
increase, and the important U.K. manufacturers are all very large
units.
Some of the recent increase in trade to the Common Market
has been achieved by price-cutting, resulting in greatly reduced
profit margins. As we have pointed out, this is probably the right
way to meet the challenge of the Common Market, and the firms
that have been taking this line should benefit from the sales outlets
that they have developed.
6-2
84
D. G. A. MOSS AND S. F. WOOD
Table B shows that for each of the four main car-producing
countries the home market takes a large part of the total production,
and in all cases home sales are very much larger than imports.
However, as tariffs are gradually eliminated, imports must be
expected to rise in all the countries concerned. This table also
shows that the expansion over the period was halted during the
second half of 1960. The only exception was West Germany which,
incidentally, is also the only country for which exports are greater
than home sales.
Table A. Exports of passenger cars (millions of U.S. dollars f.o.b.)
(Source: International Trade 1960, G.A.T.T.)
Exports to
Exports from:
North America
E.E.C.
E.F.T.A.
(excluding
U.K.)
U.K.
Year
1957
1958
1959
i960
1957
I958
1959
i960
1957
I958
1959
i960
1957
1958
1959
i960
North
America
E.F.T.A.
(excluding
U.K.
E.E.C. U.K.)
50
29
23
61
66
World
total
14
1
10
1
20
9
32
18
2
3
201
179
331
545
237
327
215
252
267
400
387
347
14
1
25
3
5
6
12
11
63
—
—
14
19
1
60
1
65
52
36
31
144
233
333
279
12
13
28
342
297
253
283
853
1154
1515
1614
28
43
25
29
42
39
426
38
53
46
43
605
611
507
The declared expansion plans of the various countries were
used to obtain the figures for Table C. The U.K. firms show plans
for a very considerable increase in capacity in the near future,
gradually slowing down thereafter. The total expected capacity
shown seems to us to seriously overestimate the potential market
THE COMMON MARKET
85
Table B. Passenger cars (thousand units, quarterly rates)
1960
France
Production
Imports
Exports
Including to U.S.
New registrations
West Germany
Production
Imports
Exports
Including to U.S.
New registrations
Italy
Production
Imports
Exports
Including to U.S.
New registrations
U.K.
Production
Imports
Exports
Including to U.S.
New registrations
I
1958
1959
231
2·2
80
271
2·8
129
II
312
4·4
IV
227
266
137
90
22
192
122
—
403
15
184
483
22
43
49
141
164
327
16
162
376
462
31
224
465
29
97
5
58
63
44
45
16
252
60
200
235
278
216
220
118
2·7
53
I2'2
151
163
151
—
243
29
196
222
63
84
107
142
4-2
29
I·6
105
263
2·8
297
393
405
312
113
135
52
161
92
1·4
40
7·5
52
38
139
8·8
5·3
169
147
36
167
330
6·7
III
4·6
62
11·4
6·8
17·4
173
5·5
63
3·4
25·2
169
8·8
109
55
48
22
224
247
195
47
—
6·o
87
7
151
Table C. Forecasts of car production capacity (thousands of units)
(Source: Economic Survey of Europe in 1960, U.N.)
1962-63
1965-70
(actual),
total
Passenger
cars
estimates,
total
estimates,
total
1280
1711
502
1560
1085
1503
471
1190
1800
2000
1200
2200
2000
3500
1500
3000
112
96
220
N.A.
1959
France
West Germany
Italy
U.K.
Sweden
at that time, and therefore considerable under-employment of
capital must be expected. We may even see more serious consequences for some firms resulting from this over-optimism.
86
D. G. A. MOSS AND S. F. WOOD
In considering individual companies—which we are only able to
do briefly—the only one for which the immediate prospects are
bright is Jaguar, and of course current share prices reflect this.
Jaguar caters for a very special section of the market, and is at
present working to capacity mainly for the home and American
markets. Of course the possibility cannot be ruled out that by
the time Jaguar is able to turn its attention fully to the Common
Market, competitors will have arisen.
As to the other five largest U.K. producers:
(a) B.M.C., the largest home producer, is having considerable
success with sports and mini-cars although the full benefit
of the minis would not be felt until the tariffs were reduced.
On the other hand, the whole B.M.C. range suffers from
over-duplication, and for future success this company will
have to settle on fewer models.
(b) Ford is now entirely U.S. owned and is not of much interest
for investment purposes. The future record of Fords will
depend largely on the policy of the parent company and it
is possible that either Dagenham will take second place to
Ford of Germany or that price cutting on a large scale (which
the parent company could afford) would lead to a big increase
in their share of the market.
(c) Vauxhall is also U.S. owned and only has approximately a
10% share of the U.K. market.
(d) Rootes are in some respects better integrated than B.M.C,
although inevitably catering for a smaller market. The
current expansion plans are very ambitious and it seems
that this company will stand or fall by its small car due out
next year. The small car market is a large one but there is
keen competition from B.M.C, Fiat, Renault, Citroen, and
other smaller companies, all of whom are already established
in this field.
(e) S.T.I. (Leyland) has been operating at a loss for some time
now, despite the success (both at home and overseas) of the
T.R. 4. The Triumph Herald range is still the major production line and there is no sign yet that Leyland have any
other plans.
THE COMMON MARKET
87
DISCUSSION AT THE MANCHESTER ACTUARIAL
SOCIETY ON 16 FEBRUARY 1962
The first speaker, in opening the discussion, said that it was
important to realize that a major objective of the Treaty of Rome
was political integration. This objective ranks equal with that of
economic integration. Great Britain lost her chance to lead the
European community immediately after the War, partly due to our
Commonwealth ties and partly due to our national insularity. Those
economic events which will follow our joining the Common Market
are inevitable and will follow whether or not we subscribe to the
Treaty of Rome. The main economic difficulty of joining is the question
of Imperial Preference, and in particular the fact that we import
large quantities of food from the Commonwealth free of duty. Unless
some special concessions were made, these imports would become
dutiable if we joined the Common Market and a reduction in trade
with the Commonwealth might result. Would Great Britain be able
to make sufficient inroads into the Common Market countries to
replace the loss of this trade? It is clearly right for Great Britain to
do its utmost to gain some concessions for members of the Commonwealth, and probably our entry should be conditional on gaining suitable concessions. The opener felt that this step implies that we are,
to some extent, turning away from our moral obligations in Africa
and Asia, and he asked whether it was right to concentrate on setting
up a power-block in Europe at the price of possibly losing touch with
the newly emerging nations on these continents.
The discussion which followed tended to concentrate on effects of
Great Britain joining the Common Market, rather than the advantages
and disadvantages of our joining. Most members seemed to welcome
the idea and only two seemd to have serious doubts about the wisdom of
such a step. One of these quoted the cynical remark which he had heard,
that the proposal to join the Common Market was a mere expediency
made in the knowledge that the terms offered would never be acceptable.
In the discussion it was mentioned that closer alignment with
Europe would make a considerable difference to the duties of actuaries
and to the insurance world generally. It is probable that we would
have to accept much more state control in insurance over, for example,
premium rates, valuation bases and investment policy.
88
D. A. MOSS AND S. F. WOOD
One ultimate economic objective of the Treaty of Rome is that
labour and capital should be able to move freely throughout the whole
of the Common Market. A general levelling-up of standards of living
is envisaged and this is surely much more important in the long run,
than the immediate trading advantages of economic unity. When
discussing investments it was pointed out that yields on leading
European equities were substantially lower than those of leading U.K.
equities, and there might be room for considerable improvement in
prices of U.K. equities. The paper did not give enough weight to the
importance of probable political changes when discussing the assessment
of equities as it concentrated almost entirely on economic factors.
As one visitor to the Society mentioned, it was singularly appropriate that this meeting should have taken place in Manchester,
which was the original home of free trade.
In replying to the discussion the authors remarked that dividendprice ratios are not directly comparable; nor are the long-term yields
because of different taxation and financial structures. They stressed
that in spite of those difficulties between the Common Market countries
which are so frequently reported in the press, there must have been
a substantial amount of mutual goodwill in order to bring the organization into being at all.
DISCUSSION AT THE STUDENTS' SOCIETY
ON 15 APRIL 1962
Very few speakers were opposed to Britain's entry into the Common
Market, but while some were greatly attracted by the idea of joining
with Europe in a super-national organization and welcomed the
stimulus of having to look afresh at accepted ways and habits, others
regarded our entry as a regrettable economic necessity. It was pointed
out that the Commonwealth might well disintegrate as in many cases
trade was the one remaining link, but as the countries of the Commonwealth were trying to build up their own industries behind tariff
barriers it was a mistake to regard their economies as necessarily
complementary to our own. If the Common Market results in an
increase in economic activity all the raw material producers would
benefit in the long run.
THE COMMON MARKET
89
One speaker doubted whether the rapid economic expansion of the
Six was in any way due to the formation of the Common Market.
It was also pointed out that in several countries economic growth was
fostered by a high degree of centralized planning of the economy and
that it was not necessary to join the Common Market in order to
apply these methods in this country. On the contrary it was highly
undesirable that the control of the economy should be vested in a
Commission that was not directly answerable to any elected body and
was not required to deal with the social effects of its decisions. Several
speakers stressed the fact that the Common Market was still in the
formative stage and that if Britain joined she could have a real influence
on its political development. The free movement of capital and labour,
however, was already in operation so that the effects could be studied.
Experience has shown that in practice workers do not move easily.
On the effect of joining on our work as actuaries, it was pointed out
that the members of the Common Market are pledged to working
towards a uniform system of social security. If this resulted in the
British scheme developing on the lines of the German state superannuation scheme, the field for private pensions schemes could be
materially reduced. Attention was drawn to the high degree of
supervision and control of life assurance on the Continent: this
resulted in much less practical scope for the actuary and has had an
effect on the character of the profession in these countries.
As regards investment, it was agreed that the effect on the giltedged market was to a large extent unpredictable. If allowance is
made for taxation, the differences between the ruling market rates of
interest in Britain and the Six were likely to disappear, but the influx
of Continental stocks might well affect the yield curve. The basis of
evaluation of equities differed in the various countries and investors
in Britain might have to reconsider their techniques when applied to
Continental companies—if only because the information published
was normally much less extensive than in this country. The companies
that would do best in the Common Market would be those manufacturing high quality, specialized, easily transportable products. It
was a mistake to assume that larger companies would on the whole
do better than smaller ones, as size did not necessarily bring with it
efficiency: it was management that counted.