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

81. Memorandum of Conversation⁰

London, December 8, 1959.

SUBJECT

• Six and Seven

PARTICIPANTS

• U.K.
  • Mr. Selwyn Lloyd, Foreign Secretary; Sir Paul Gore-Booth, Deputy Under Secretary, Foreign Office; Sir John Coulson, Deputy Under Secretary, Foreign Office; Mr. Heathcoat-Amory, Chancellor of the Exchequer; Sir Roger Makins, Joint Permanent Secretary, Treasury; Lord Perth, Minister of State, Colonial Office; Sir Dennis Rickett, Third Secretary, Treasury; Mr. R. W. B. Clarke, Third Secretary, Treasury; Mr. Roger Jackling, Deputy Under Secretary, Foreign Office; Mr. Reginald Maudling, President, Board of Trade; Mr. John Robinson, Foreign Office; Sir Frank Lee, Presently Permanent Secretary, Board of Trade; after January 1, Joint Permanent Secretary, Treasury
• U.S.
  • Mr. Dillon, Under Secretary of State
  • Ambassador Whitney
  • Messrs. Beale, Evans, Leddy, Bean, Greenwald

After introductory remarks by Mr. Lloyd and Mr. Dillon, the Foreign Secretary led off with a presentation of the political aspects of European economic integration. He said it was not his intention to give a “sales talk” but to state the truth about the European problem as he saw it. In his view it is not possible to have a situation with the Six forming an exclusive group and the OEEC countries remaining on the outside. While not wishing to appear alarmist, Mr. Lloyd said he felt strongly that it would lead to a serious political “split” in Europe. The feeling in Europe at present that there are “opposing sides” is a direct outgrowth, Mr. Lloyd believed, of the failure of the FTA negotiations last December. This had led in 1959 to a great deal of bickering between the U.K. and the Germans and the French.

Since the election,¹ the U.K. Government has made one of its major policies the “patching up” of the European situation. In an effort to achieve this objective, he had taken a trip to Paris² and a number of European Ministers had since had talks in London. He found a desire among Ministers in the Common Market countries to heal the “split,” but Mr. Lloyd was not so sure that a similar attitude exists in the EEC Commission. The Foreign Secretary cited a recent conversation in London with the President of EURATOM³ who told him that “the Six were Europe and that was it.” Mr. Lloyd said he shared fully our assessment of the political advantages which we saw in the Common Market, particularly drawing Germany and Italy closer to the rest of Western Europe and NATO; his objection was to the “exclusive” aspect of the EEC. In his view this is a “fatal concept” and NATO cannot continue on this basis.

The Foreign Secretary did not feel that the original FTA concept was necessarily the only possible way out, but he was certain that some solution of the economic problem was absolutely essential to continued political cooperation in Europe. He added that in talking about the European problem it was not the U.K.’s intention to “cut out” North America. They hope that the U.S. and Canada would participate in any European discussions. The U.S., Mr. Lloyd thought, must be equally concerned about the “rift” developing in Europe. Western European unity is certainly important to the U.S. In his view the Six could not act as a bloc in Europe and in NATO without serious difficulties arising. The continued economic and political division of Europe would, for example, make it difficult for the U.K. to keep its troops in Western Germany. While economic considerations might be important, he felt that they were less fundamental than the political problem of European unity. If this unity cannot be achieved, NATO would run into “rough water.”

Mr. Heathcoat-Amory prefaced his presentation with the comment that the opportunity to talk with Mr. Dillon was particularly timely and that on the U.K. side they would “put all the cards on the table.” It was important, he thought, to press through to real answers to all the questions on both sides so that no misunderstandings would arise in the future. The Chancellor first addressed himself to the accusations that the U.K. was trying to break up the Common Market and denied that there was any truth whatsoever in this allegation. The U.K. was concerned at the growing signs that the Six are attempting to break up the EFTA by saying that the U.S. is hostile to it.

The Chancellor briefly reviewed the history of the EFTA negotiations and said that the Seven were now engaged in establishing a preparatory commission of senior officials in Paris which would deal with policy matters. Mr. Amory said that two things impressed him about the EFTA: (1) the “drive and determination” of the Seven countries to establish the EFTA which is perhaps best exemplified by the speed with which the treaty was negotiated, and (2) the liberal nature of the EFTA— it provided for free trade for industrial products inside the area and had liberal rules of origin for outside countries. The Chancellor emphasized that the EFTA can in no way be considered an “exclusive” or “inward looking” group. The Chancellor said that everything is being done to consolidate the EFTA which was “sound commercially in its own right.” The main objective of the EFTA, the Chancellor said, was to make negotiations with the Six easier. It gives the Common Market countries some incentive to negotiate a wider arrangement and at the same time simplifies the negotiating procedure. Another advantage of the EFTA was that it kept the smaller European countries from entering into bilateral, preferential deals with the Common Market.

The Chancellor also emphasized the political considerations. The absence of any wider arrangement would force the U.K. politically and economically out of Europe and he did not believe that the U.S. wanted this to happen. He said that the stage to which the U.K. has now come in associating itself closely with Europe is without precedent. While the degree of political association may not satisfy the U.S. it should be recognized that no U.K. Government has ever come so far before. If the U.K. is now discouraged from moving toward closer ties with Europe, then the real political difficulties which the Foreign Secretary had pointed out would follow.

The U.K. has no fixed ideas about the form of association with the Six and is ready to consider any proposals which may be made. It cannot take the initiative, however, because all earlier British proposals had been rejected. Furthermore, after the OEEC meeting last January⁴ the Six said they would come up with new suggestions for a European-wide association. The Chancellor made these points to show that the U.K. was not dragging its feet regarding negotiations with the Six. Nevertheless they are anxious that the next negotiations should not come to a “dead end” as had the last OEEC negotiations. No one could afford to have another failure and it was absolutely essential to “start off on the right foot” this time. The original FTA idea still made sense to him, but the Chancellor recognized that there seemed to be no chance of negotiating such an arrangement at this time.

The Chancellor thought that apprehension in the U.S. regarding a wider European association was not well founded. He felt that the U.S. should favor any “good” form of economic and political cooperation in Europe. Such an association in his view would strengthen Europe. In a wider context, the U.K. wanted to do anything it could with the U.S. to work toward freer trade and to avoid protectionism. The recent moves by the Common Market were very welcome and the U.K. is discussing with its EFTA partners whether they should negotiate with the Six at the forthcoming GATT tariff conference.

The Chancellor concluded his statement with some laudatory comments about the work which has been done by the OEEC. He also thought that the OEEC was perhaps the right forum to discuss European economic integration problems because the U.S. and Canada also participated. The OEEC was a highly useful organization and should not be thrown away. The Chancellor solicited U.S. views as to the future activities of the OEEC in this field.

Mr. Maudling reviewed the history of the FTA negotiations in the OEEC, supporting the Chancellor’s comment on the importance of the OEEC in strengthening Europe politically and economically. He said that the U.K. had originally had mixed feeling about the Common Market and at first had misjudged the strength of “federalism” in the Six. They felt, however, that the Common Market would be good for Europe. When the Rome Treaty came into effect, the U.K. looked at the situation and seized upon a free trade area as the right solution which would hold Europe together and allow the Common Market to develop. They had gotten very close in the OEEC to agreement on a free trade area. But when they failed, they looked around for something else which would forestall the economic disintegration of Europe and the isolation of the U.K. Again the only way open in GATT seemed to be a free trade area. The organization of the Seven outside countries served to avoid a further fragmentation of economic relations in Europe and also provided a better basis for negotiations with the Six.

The main problem as Mr. Maudling saw it was to maintain the OEEC principle of non-discrimination through some kind of association which was consistent with the GATT. As far as the U.S. attitude was concerned he thought the major issue was whether we wanted to preserve a system of European economic cooperation within the GATT framework. If we agreed on this objective, then he was sure the means could be found.

Mr. Dillon expressed his appreciation for the full and frank exposition by the U.K. Ministers. He would be equally frank in presenting these U.S. views. There was, he thought, no basic difference in objectives but we may be operating from different premises and evaluations.

The EEC, Mr. Dillon said, clearly has more political content than the EFTA. It had been the result of a series of efforts to achieve full European integration which would tie Germany and Italy very closely to the other countries of Western Europe. After the failure of the EDC, the economic path was chosen as the route to ultimate political union. Strong U.S. support for the Common Market stemmed basically from these political considerations which overcame the short run economic disadvantages for the U.S. We felt in the long run Europe would be economically and politically stronger and that was important in meeting the Communist threat. Also with complete economic integration within the area, the U.S. expected that there would be long run economic benefits. These considerations made it possible to present the EEC to the Congress and the U.S. public as being in our national interest. The U.S. did not feel that the establishment of the Six should lead to a “split” in Europe or NATO. It was hoped that the NATO structure and joint U.S.–U.K. influence could prevent the Common Market from leading to any political or economic difficulties. Mr. Dillon recognized, however, that the FTA row last year made for bad feelings in Europe. He thought that this had come about because some leaders in France and Germany felt that the FTA was incompatible with the development of the Six; only when the Common Market was further along in consolidating itself could negotiations with outside countries be undertaken. It was felt that the FTA was a real challenge and threat to the Common Market and under these circumstances the US could not actively press for a wider association.

Part of the difference in the evaluation of the effect of the Common Market on European cooperation stemmed from differences in U.S. and U.K. estimates of the prospects for a liberal trade policy in the Common Market. The U.S. feels that the Six will evolve into a liberal trading group. Mr. Dillon agreed that protectionism had been firmly rooted in France, but noted that there are now forces moving in the other direction. While the U.S. may not have pressed adequately for liberal policies on the part of the EEC in the early stages, we felt that as the Community became more firmly established it would be possible to apply more pressure to get them to adopt “outward-looking” policies. Once they are “permanently on the road” then we can press for a more liberal trade policy without jeopardising the Community and our political objective.

The U.S. intends to start this process now and would welcome U.K. cooperation. Mr. Dillon acknowledged that the EFTA has been useful in inducing the Six to adopt more liberal policies.

Regarding the EFTA, Mr. Dillon said the U.S. had not opposed its formation and would not oppose it in the GATT. If the EFTA helps to bring down the Common Market external tariff that will be a very useful development. At the same time it should be recognized that public opinion in the U.S. has not received the EFTA with the same enthusiasm as the Common Market because there is no apparent political connotation. The EFTA appears merely as a commercial reaction to the Common Market which has a discriminatory effect against U.S. exports even though it may conform to the GATT. The U.S. pulp and paper industry, for example, has already complained that it will be adversely affected by the EFTA. The U.S. recognized the EFTA as an established organization and was not against it. Our position may have been misunderstood because we did not stand up and cheer about it.

On relations between the Six and Seven, Mr. Dillon thought that it should be possible to solve some of the problems of the smaller countries on an M-F-N basis. There is difficulty with the negotiations of a broader European arrangement because the Six still feel that it will upset the Common Market. The talk about a “bridge” between the Six and Seven does not arouse any enthusiasm in the U.S. because it appears to involve a series of preferential arrangements which discriminate against the rest of the world. The U.S. would be opposed to such a preferential arrangement. Mr. Dillon said he understood that it was not the U.K.’s intention to work out a preferential agreement inconsistent with GATT.

Mr. Dillon said he was in full agreement with the comments which had been made about the fine work done by the OEEC. He said that the U.S. felt the OEEC should be preserved and we are turning over in our minds the idea of reorganizing the OEEC, with the U.S. playing a more active role. One possibility was that the OEEC could be used as a forum to talk about over-all development assistance policies.

Mr. Dillon said he was delighted to hear that the U.K. is considering with its EFTA partners the possibility of negotiating with the Six in the GATT tariff negotiations. He felt this was a very important practical way of ensuring that the Six will be less protectionist. He also felt that as the Six became stronger they would not need as much tariff protection and they should be able to make unrequited reductions in the external tariff. Similarly, we would propose to ask them to do more in the tariff negotiations than the U.S. could do in return.

On the question of a broader FTA, Mr. Dillon expressed our interest in maintaining the political cohesion of the Six. At the same time due consideration must be taken of the interest of outside countries and the U.S. would want to participate in any discussions which may take place between the Six and the Seven. He was skeptical about the possibility of negotiating a broad free trade area with the Six at this time.

Mr. Maudling responded to the comment about the relative political content of the EFTA and the EEC by comparing the continental and Anglo-Saxon approaches. He said that the U.K. followed the inductive method, starting with a little bit and building up on a pragmatic basis. There are also, he said, the political consequences of the absence of any agreement between the Six and Seven. Mr. Maudling then reiterated his request for a statement as to whether the U.S. thought there should be a specifically European organization. In other words, he asked, would the U.S. adhere to its original position that if a European free trade area consistent with GATT could be negotiated, it would be a good thing, or does the U.S. now oppose the idea of a purely European economic arrangement which would necessarily involve some discrimination against the U.S.

Mr. Dillon replied that he thought many of the European trading problems could be solved on an M-F-N basis. Also the U.S. did not attach the same political importance as the U.K. to the need for a wider European trade arrangement. However, if an over-all concept does come to pass, the U.S. administration would be prepared to accept it, albeit not with “unbounded enthusiasm.” A major consideration in the U.S. position at this time is the changed balance-of-payments situation. Mr. Dillon cautioned that no matter what the U.S. Government felt, the development of a new European free trade area might stimulate an adverse public reaction which would in turn affect the continuation of a liberal U.S. trade policy. There are dangers at home in continued discrimination against U.S. trade and this is why we are pressing so hard to get discriminatory restrictions removed. Thus even if the European-wide arrangement were in accordance with the GATT, it would not be welcomed in the U.S. Mr. Dillon added that some experts have doubts about whether the EFTA will in fact lead to complete free trade among the Seven countries. He specifically mentioned the escape clauses in the EFTA convention which may be used a good deal if governments of the EFTA countries succumb to domestic pressures for protection. Although there was probably no intention to make wide use of these escape clauses, the provisions were in the treaty and might in the future result in turning the free trade area into a preferential area.

Mr. Maudling said he was heartened that the U.S. did not oppose a wider European agreement in principle. He said this was important because other countries have been using the argument that the U.S. is opposed to any European agreement to challenge the EFTA and to impede progress towards a wider solution. On the question of M-F-N solutions to specific trade problems, Mr. Maudling cited the problem of Swiss machine tool manufacturers selling in competition with German producers who would have no tariff barriers against them. He did not see how an M-F-N solution short of complete free trade could solve this problem. Mr. Dillon replied that a reduction in the Common Market tariff to all outside countries would reduce the margin against Swiss products. He also pointed out that in some cases, such as automobiles, European tariffs, could be reduced or eliminated without substantially benefitting imports from outside Europe.

The Chancellor said he understood how things now looked different to the U.S. in the light of its changed balance-of-payments situation. He welcomed the idea of the U.S. participating more actively in European trade discussions. He thought this would be very useful and indicated that the OEEC framework might be appropriate for this purpose.

In connection with prospects for negotiations between the Six and Seven, Mr. Dillon said he thought it depended very much upon whether the Six felt such negotiations would interfere with the development of the EEC. In this connection, he welcomed the U.K. effort to convince the Six that they were not hostile to the EEC. The Foreign Secretary said he could not understand why the U.K. was accused of trying to undermine the Common Market, but he was certainly trying to dissipate this suspicion. He asked Mr. Dillon whether the current French protestations of liberalism were words or deeds. Mr. Dillon replied that it was probably a little of both. They have in fact reduced discrimination against dollar imports and Mr. Pinay has said that in two years all quotas will be gone. This, Mr. Dillon felt, was an entirely new point of view for France and a very welcome development. Nevertheless, there would still have to be further action in connection with reducing the common external tariff and establishing low duties on List G items. Sir Frank Lee underlined the importance of List G since higher raw material costs in some countries result in different cost structures which impede the development of a wider free trade area arrangement.

The Foreign Secretary asked what we should aim at now. There are a number of proposals for getting negotiations underway. One possibility was to re-open discussions in the OEEC; the Germans have suggested discussions among the Six, the Seven and U.S. and Canada; and the Italians have proposed that a couple of countries from each group carry on discussions.⁵ Mr. Dillon said he was under the impression that the U.K. was in no great hurry to re-open full scale negotiations and, in his view, when the proper time came there would be advantages in a smaller group than the full OEEC. Before the full negotiations were reopened, the special problems of the small countries outside the Six could be considered perhaps in the context of the GATT tariff negotiations. In any event Mr. Dillon said the U.K. should not miss the opportunity to negotiate in GATT for a reduction in the Common Market tariff. In the ensuing discussion of how the smaller negotiating group might be made up, some doubts were expressed by the British side as to whether the European Commission could really represent the Six in negotiations with the Seven. Not only do their instructions tend to be very rigid, but the Commission frequently has difficulty getting Ministers to agree to its proposals. It was clear that if the negotiations involved special problems of individual countries those countries would have to be represented in the discussions.

In trying to look ahead to the next steps the Chancellor observed that it may be necessary for the U.K. just to be patient and wait. Mr. Dillon felt this was the right approach and the thing to do was to watch List G and see what could be done next July 1 when the internal tariff cuts were to take place. Mr. Leddy said that a problem at that time would be whether the internal tariff reductions should be generalized.

In response to Mr. Dillon’s request for the U.K. reaction to the Hallstein proposals, Mr. Maudling replied that, although it was not clear what would really happen, the U.K. did not see much in them. Quotas should be eliminated in the near future anyway and so they do not present a problem. Tariff reductions will only go down to the level of the common external tariff and this merely means speeding up the action required by the Treaty of Rome. Mr. Maudling added that any liberalization action on the common tariff or List G would be much more significant.

On the role of the OEEC, Mr. Dillon suggested that we work together and keep the OEEC going so that it can be used when the time comes. The Chancellor said there would be an opportunity at the January Ministerial meeting to discuss further what could be done in the OEEC.⁶ Mr. Maudling noted that the French do not like the OEEC and we may have trouble selling them the idea of using it as a forum for negotiations. Nevertheless, Mr. Maudling suggested that it would be better to “refurbish” the OEEC than to scrap it. The Foreign Secretary added that some people in the Common Market consider the OEEC a divisive element because the Six speak there separately rather than as a unit.

Mr. Dillon asked whether the U.K. would be seeking a GATT waiver for the EFTA, particularly for the agriculture arrangements. Mr. Maudling replied that there may be some controversy on the point but the U.K. felt that a GATT waiver was not required. The Danish-Swedish agreement⁷ may be particularly troublesome but the U.K. still hopes that it will be changed to bring it more in conformity with GATT. Mr. Leddy expressed some doubts as to whether the exclusion of agriculture from the EFTA and the accompanying agricultural arrangements between the U.K. and Denmark and Denmark and Sweden could be considered consistent with GATT. Sir Frank Lee commented that there might be some difference of opinion regarding GATT theology on this point. Mr. Dillon said he had found a good deal of concern in the Commonwealth about the agricultural provisions. Sir Frank Lee noted that the Commonwealth was losing its European markets because of increased productivity in Europe and it was, therefore, very sensitive about any proposals which might cut them out of what was left to them.

In concluding the discussions, the British Ministers again expressed their appreciation for the clarification of the U.S. position and expressed the opinion that we were very close together. Mr. Maudling said that it was most important to make known the true U.S. position and it was agreed that an attempt might be made to work out some wording which could be used with the press. Mr. Dillon thought that the confusion about the U.S. position might have resulted from the fact that many people in the Six consider that the FTA would destroy the Common Market and so the U.S. position must be opposed to an FTA. The Foreign Secretary said it would be very useful if Mr. Dillon could say during his visit on the Continent that the U.K. is really not opposed to the Common Market. This is a deep-seated suspicion which the U.K. has not yet been able to eradicate. The Foreign Secretary also hoped that Mr. Dillon would make clear that the U.S. recognized the existence of the EFTA, even though it may not be enthusiastic about it. The Six must also accept the Seven as a going institution. Mr. Dillon asked that nothing be said publicly about the U.S. working out closer relations with the OEEC.

The following questions and answers were agreed upon between the U.S. and U.K. sides as guidelines for use in answering press questions on a background basis:

Guidelines for use in response to Press enquiries on the Six and the Seven

Question: What was the result of the discussions in London on the EFTA and the EEC?

Line to be taken: The discussions in London have been entirely exploratory. There were no decisions, which can only be taken in a wider context after further discussions with other Governments.

Question: Are you opposed to the EFTA?

Line to be taken: No. We understand the reasons for the establishment of the EFTA and recognise that the broad principles on which it is based reflect the provisions on the free trade areas in the GATT. We intend to take part in a constructive examination of the details of the EFTA when it is presented to the GATT for consideration.

Question: It has been reported that the United States is opposed to any attempt by the Seven and the Six to work out a European free trade area arrangement between themselves. Is this correct?

Line to be taken: This obviously at the present time is a hypothetical question. A free trade area arrangement of this kind can only be established if all the countries concerned agree.

In the United States view such an arrangement would of course have to be consistent with the GATT. The U.S. would not oppose such an arrangement. However, it should be recognized that in the United States free trade areas do not have the same political attraction as the EEC in terms of a contribution to the political integration of Europe.

Any solution to the trade problems emerging from the EEC and the EFTA must not impair objectives of the European Economic Community relating to the integration of the Six countries. We have been much encouraged by the assurances of the British Government that this is in no way its intention.

0. Source: Department of State, Central Files, 440.002/12–859. Confidential. Drafted in the Embassy in London; no other drafting information appears on the source text. Cleared in U on December 16. The meeting was held at the British Foreign Office.
1. The British general election of October 8.
2. November 11–13.
3. December 2.
4. January 15.
5. The German proposals were presumably made during Adenauer’s November 17–19 visit to London, the Italian proposals during the Segni-Pella visit of December 1–2.
6. January 14, 1960.
7. Apparent reference to the Danish-Swedish trade agreement signed July 12 which reduced agricultural tariffs on a bilateral basis.