ASSUME then that it is with a peaceful, or more accurately a warless, Europe that we have to reckon in the years lying immediately ahead.
If the main preoccupations of the Continent are not military they will inevitably for some years be economic. And the issues raised there will be of two kinds and two magnitudes.
There are the ordinary commercial relation ships between individual States, and there is the much more general division of Europe into two groups of States, corresponding to ordinary political alignments and with ts fundamentally different but largely reconcilable. The latter conception, which will call for further discussion later, owes its origin very largely to one of the few contemporary books of which it can be said with any confidence that they have definitely influenced political thought, M. Francis Delaisi’s Les Deux Europes. It will suffice at this point to mention that what M. Delani contrasts is an industrial Europe of the West and an agricultural Europe of the East, both of which he geographically defines, capable of entering into much closer commercial and financial relations with one another to the common interest of both. The question of how far such a reading of the European situation is accurate, and how far developments in the desired direction are probable, or are already beginning, demand: examination, but it may be postponed till some estimate has been made of the future trend of existing relationships between State and State.
It is all wrong, of course, or rather it should be all wrong, to speak of commercial relationships between States at all, for States, except in the case of Soviet Russia, do not do commercial business. They leave that to individual traders within their borders. A merchant in London buys glass (or did before the Abnormal Importations Act of 1931) from a manufacturer in Belgium, and there is on the face of it nothing to distinguish that transaction fundamentally from a purchase from a manufacturer in Lancashire. But in the first instance it is an international transaction, figuring in the import and export statistics of both countries, possibly involving the payment of duties which may be governed by some commercial treaty, affecting the two countries’ trade balance and therefore the exchange value of their currencies. Consequently, we speak of Denmark sending us butter or France silks, not Danish farmers or Lyons weavers. Trade has become so national (not Governmental) that it has everywhere to be defended against competion from outside. Hence the paraphernalia of tariff barriers of which it has been necessary to say so much already.
What is to come of those barriers ? They may get higher, they may get lower, they may be up to a point circumvented. It might be supposed that, taking Europe as a whole, tariffs were already so high that any further increase was hardly possible. There is some truth in that, if Great Britain’s transition from Free Trade to Protection is left out of account, though almost everywhere a slump in exports has necessitated restrictions on imports in the interests of the trade balance, and led to the construction of still higher tariff walls. We may not have seen the worst yet.
There are unfortunately various special circumstances making for the maintenance or increase of tariffs or for resort to some alternative obstruction to trade. One is the special case of Germany, and to a lesser extent of Russia. Germany has vast sumsaveraging two milliards of marks a yearto pay in reparations. she can pay them only out of her trade balance, i.e. out of an excess of exports over imports. She must therefore export at almost any cost, and other countries swept by the fierce blast of German competition have taken whatever steps seemed most effective to keep German goods–or at any rate an abnormal influx of German goods out. Even Switzerland has felt herself driven to that, and sharp exchanges between German and Swiss delegates at the Lague of Nations Assembly in 1931 revealed the tension the situation had created.
The quota, or contingent, system (i.e. limitation of imports of particular commodities to a fixed quantity) may take the place of a tariff, but the effect on international trade is the same. France has adopted that very largely, to the concern of other countries doing trade with her. Russia is exporting assiduously for another reason, to secure the wherewithal to purchase imports for the execution of the Five Years’ Plan, and as far as European States have any organised com mercial relations with Russia they feel little compunction in limiting imports of Russian goods or excluding certain categories of them altogether.
The other factor militating against any improvement in the general tariff situation is the difficulty caused by currency fluctuations. That particular trouble seemed to have been disposed of by about 1925, by which date practically every important European currency had been brought into a fixed relation to gold. But the departure of Great Britain from the gold standard in September 1931, for reasons not immediately relevant here, threw commercial relations into confusion once more, for the Scandinavian countries and various others found it necessary to follow suit. French importers, as a consequence, could buy more English pounds, and consequently more English goods, with the same amount of francs as before. Those goods, in other words, be- came cheaper in terms of francs and consequently competed advantageously with home-produced French goods of the same kind.
Hence a natural demand by French producers for special protection against the depreciated pound, and the grant of that protection in the shape of a 15 per cent. surtax on imports from Great Britain. At the same time Great Britain itself, in order to counteract the monetary effects of an excess of imports over exports, put on a tariff of anything up to 100 per cent. on a varied list of products, both industrial and agricultural, which it was considered could be excluded without serious loss to any one.
Those are the chief factors that may tend to keep tariffs high or even to raise them higher. The factors that may tend to lower then are common sense and a realisation if it comes in time–of the almost irretrievable disaster that may befall international trade if the fine art or restriction and exclusion is developed any further. Meanwhile an interesting alternative to tariff barriers is provided by the rapidly increasing international cartels, under which producers of the same, or similar articles, in different countries make agreements to avoid cut-throat competition, as, for example, reserving the national market in each country for the producers of that country and allocating neutral markets according to fixed arrangements. It is necessary, of course, for the producers within a single country to be sufficiently organised to negotiate with producers elsewhere as a single unit, which is one reason why Great Britain does not figure prominently in existing cartels. Cartels may render tariffs largely irrelevant. If, to take a simple example, French and German producers (among others) form a potash cartel under which the home market is reserved in each case for home producers there will be no danger of any potash coming in from outside, and it is therefore immaterial whether there is a prohibitive tariff on potash or no tariff at all. As a matter of fact the tariff will usually be prohibitive, to cover the case of imports from countries, or from individual producers, outside the cartel. Cartels have the effect of creating a more or less definite monopoly and may therefore be against the consumer’s interests. For that reason the question of national or international control arises.
What is to be the ultimate outcome of this welter of confused tendencies, which today have produced a dislocation so complex that international trade is being reduced to literal barter (the United States obtaining coffee 1 Pointing out that such agreements are not confined to crude products like steel or potash, Mr. Alexander Loveday, Director of the Financial Section of the League of Nations Secret:arkt, observes : ” The bottles in which we buy our drinks, the enamel ware and aluminium we employ In our kitchens, the linoleum on which we walk, the mirrors in which our wives admire fives, the electric bulbs which facilitate that task, even the Glauber salts or the bismuth, which, according to their dispositions, others take in the morning, are subject to international control or agreement in one group of countries or another ” (Index, January 1930) from Brazil in exchange for wheat, Germany sending machinery to Russia in return for oil and flax) ? It is difficult to imagine any moment in which that question would be harder to answer than the one at which these words are being written, a moment when it is impossible even to foresee whether the economic structure of Europe is to perish or survive. More fatal still to any confident prediction is the doubt, growing almost daily graver, whether there exist in any country men capable of directing events and withstanding tendencies, instead of being controlled by the one and swept along by the other. And under the head of events must be counted, even if a little inappropriately, that national public opinion which in its shortsightedness and prejudice and self seeking acts as a hopeless drag on leaders capable themselves of seeing the path of wisdom and disposed to take it. Both M. Laval and Dr. Brûning in Europe and Mr. Hoover across the Atlantic know all too well what that handicap means.
The only conclusion worth discussing for if complete breakdown, anarchy and chaos are to be assumed, there is nothing left to discussis that Europe will, in spite of everything, make a supreme effort to set its house in order both politically and economically. That raises national as well asinternational questions. The policy of Germany will depend largely on whether the National Socialists led by Herr Adolf Hitler succeed in capturing the Reichstag or not.
The policy of Italy might (or might not) be considerably changed in the event of the death of Signor Mussolini. Russia is incalculable externally because incalculable internally. But on the whole the effect of such factors as these is more easily exaggerated than underrated. National policies are oftener than we realise what they must be, not what this individual leader or that makes them. The continuity in foreign policy on which Great Britain rather prides herself may be a virtue, but it is also very largely a necessity. We act as we do mainly because of geography and other fixed factors. And the Governments of other countries are in much the same case. It is quite true that if Herr Hitler secured power and declared the Treaty of Versailles null and void, or the Praesidium in Soviet Russia decided to attempt the conversion of the world to Communism by force of arms, discussion of the future of Europe would be futile. It is safer, and more in accordance with probability, to assume that a change of leaders in a particular country means simply that that country’s national policy may be given a different slant, not that it will be transformed or reversed.
Politically, as has been suggested already, the test of Europe’s capacity to rise above the level of today will be the Disarmament Conference of 1932. Not that any radical transformation will come out of the conference itself. No one could reasonably look for that, though the impossibility of getting to the root of the disarmament question without facing political problems of the first order (see the French Memorandum of July 1931, on security as a condition of a reduction of armaments) may carry the delegates at the conference a good deal further than was contemplated when they were appointed.
But the conference will be a supreme test, because its failure, however that might be glossed over by some face-saving formula, would give a new and inevitable impulse to those tendencies towards a defensive nationalism (that may insensibly become first defiant and then aggressive) which it is essential to arrest and reverse. And political, military and economic nationalisms today go hand in hand. Exactly what outcome of the conference may be held to constitute success and what failure is an open question, which need not be given an answer here. Let it be simply assumed that there is no such failure as to make further discussion of Europe’s economic state irrelevant. Let it be assumed further that consciousness of the dangers of the economic situation has so burned itself into the minds of statesmen that some old prejudices are abandoned and some old resistances worn down. We may then see a genuine and concerted attempt to get tariffs lowered. That might be effected in more ways than one. The advice of the Economic Conference of 1927, that States should give up increasing their tariffs and ” move in the opposite direction ” might be taken by individual States in their own interests. But that is not very probable. The curse of the tariff system is that industries not efficient enough or not sufficiently advantageously situated to face world competition are built up under its shelter, and their outcry if there is talk of removing or reducing the shelter outweighs completely the approval of the general population, too slow to realise the benefits it will secure from lower prices and (in some cues) better goods. The consumer is unorganised and mute. A country is not uch more likely to reduce its tariffs unilaterally than it is to disarm unilaterally.
The analogy between the two problems is close. And just as a Disarmament Conference is needed to secure disarmament on any general scale, or indeed to make serious disarmament by any individual country practicable, so a Tariff Conference must be convened if European tariffs generally are to be reduced.
The fact that recent conferences of this kind have been unsuccessful does not mean that the method was wrong or that the attempt ought not to be made again. It is significant that when a world conference on the abolition of those complete prohibitions of imports and exports which impeded trade rather more than even tariffs themselves was convened in 1929 no non-European State participated (though one or two sent observers) and every European State did, with the unimportant exceptions of Lithuania and Albania. The convention drafted did not in the end secure enough ratifications to bring it into widespread operation, but the composition of the conference showed how fully Europe realised the importance of such problems. The solution o them has not been found, but at least the necessity of solving them has been recognised.
The so-called Tariff Truce Conference of the following year was conceived on essentially sound lines, though for lack of preparation and other reasons it did not bear the hoped-for fruit. The aim, as with disarmament, was to secure first a pledge against any future increases and then gradual reductions by considered agreement. The tariff disease °has grown steadily more acute since 19301 and nations which declined that particular remedy then may be more disposed to give it a trial now.
Meanwhile something may be done to lower tariffs between two contiguous States, or even to abolish them altogether. Economically the projected Austro-German Customs Union was a step in the right direction, even though it might not have yielded all the benefits claimed for it. The litical reasons against it are not relevant here, except as they provide one more proof of the disastrous conflict between political and economic interests in parts of Europe to-day. In so far as the effect of the union would have been to create a larger production and consumption unit in Central Europe the result would have been all to the good, and there is every reason why similar enlargements of small units elsewhere on the Continent should be attempted. Some attempts are, in fact, being made, and others will be. The two Baltic States, Estonia and Latvia (populations 1,120 000 and 1,900,000, respectively), have been working at a complete customs union since 1928; Rumania and Jugoslavia were talking definitely in 1930 of taking the same step, though nothing has yet come of it ; a much larger union involving all the Balkan States (and therefore including Rumania and Jugoslavia) figures definitely in the programme drawn up by the unofficial but Important Balkan conferences of 1930 and 1931 ; and the idea of a customs union of the Danubian States (again including Rumania and Jugoslavia) is constantly present to the mind of the more far-sighted politicians in Czechoslovakia and adjacent countries. It will be observed that several of these projects overlap, which may either facilitate or impede their execution.
One difficulty, moreover, has to be faced from the beginning. If two countries, Estonia and Latvia for example, decide to form a complete customs union, that means that goods for Latvia can enter indifferently at a Latvian or Estonian port or across the Latvian or Estonian land frontier. The duty is the same everywhere, and once the goods are inside they cross the common frontier between Latvia and Estonia free of any further impost at all. Latvia and Estonia, in other words, become for tariff purposes like England and Scotland. But at least three questions arise. Are Estonian manufacturers content to face the competition of Latvian factories and vice versa ?
That is the least of the difficulties, and it need be no more than mentioned. Can Estonia and Latvia agree on the items of a common tariff, to be imposed on all the external frontiers of both ? The interests of the two countries may conflict seriously at certain points. Estonia may want, in the interests of her consumers, to let in goods that Latvia prefers, in the interests of her producers, to keep out. Moreover, since, with a common tariff for both countries, it makes no difference whether goods are landed at an Estonian or a Latvian port the Estonian Reval may either gain at the expense, or suffer to the advantage, of the Latvian Libau.
Finally, how are the duties collected at the frontiers to be divided between the two countries ? It would obviously be quite unfair for each country to keep what it levies at its own frontier, for a large part of that may represent dues on goods going through to the other. This particular difficulty is, of course, in no way insoluble. There can be allocation on the basis of population or volume of trade or in accordance with some other criterion. But it is clear that there will have to be a standing joint commission to regulate all these matters, particularly the question of changes in the tariff schedules. Will such changes have to be confirmed by the Parliaments of the two countries ? If so, there may well be deadlock. If not, the joint tariff commission will acquire an importance which may soon be more than merely economic.
A customs union, in short, is only compatible with very close and very cordial political relations, and political union may seem in time to be its natural outcome.
That impression is confirmed by the emotions stirred by the proposed Austro German Customs Union, which France and the other habitual critics of Germany hailed as an obvious prelude to a full political union between the two countries. However that may be, the text of the proposed union is of some interest as indicating how such an arrangement between any two States might be expected to work, and answering incidentally some of the questions just asked in reference to Estonia and Latvia. It is explained in the Protocol of March 1931 that there is nothing exclusive about the arrangement. Other States, indeed, are invited to come into it. But the agreement is, in fact, drawn on bilateral, not multilateral, lines. The essence of the matter lies in the provision that during the currency of the agreement (three years in the first instance, with the faculty of denunciation by either side on one year’s notice at any time after the expiry of the first two years) ” the exchange of goods between the countries shall not be subject to any import or export duties.”
As to the division of the proceeds of the ordinary customs duties nothing more is said than that ” the amount of the duties received shall be apportioned between the two according to a quota.”
It is added that ” no import, export or transit prohibitions shall exist as between Germany and Austria.” The whole agreement is governed by the provision that ” Germany and Austria will agree on a tariff law and a customs tariff ” for the duration of the treaty. The treaty itself, it is necessary to observe, was never a framed the document which aroused French indigna tion, and was ultimately condemned by the Hague Court as incompatible with various anterior undertakings by which Austria was bound, being merely a preliminary protocol embodying the agreement to conclude a treaty later. That, if it had materialised, would have been a detailed document, indicating much more clearly than the protocol how various difficulties incidental to any customs union plan (notably the character and status of the joint tariff-making authority) were to be surmounted.
The considerations raised by the study of these and similar projects have an obvious bearing on the suggestion of the European Commission’s experts in August 1931, as an ultimate aim, that Europe ought to be made a single market for the products of any and every country in it. That can mean only one thing, that as an ultimate aim all internal tariff barriers in Europe should be removed, and goods produced in any country of the Continent be transportable to any other to be offered for sale there without any tariff barrier to cross on the way. (If this idea in all its implications was not involved in the verdict o these particular economic experts it is certainly quite definitely involved in proposals put forward with some authority in various quarters regarding a United States of Europe.) But there is no suggestion that goods from outside Europe should come in on such terms. Round all the coastline and along some undetermined frontier in the east there would have to be customs-barriers as at presentjust as there would be on a small scale round the outer frontiers of Estonia and Latvia in the event of a Latvian-Estonian Customs Union. The problems of fixation and variation of tariffs, and the ribution of the proceeds among the thirty States of the Continent, would be so in onnceivable that it is hardly the arrangement could be carried through till the day when Europe is for a political federation too. But it true, in spite of that, that if regional unions developed, and the number units in Europe, as distinct from the of political units, were thereby the difficulties in the way of the creation of the ” single market ” would be proportionately diminished.