24 February 1989 - 26 February 1989

A Single Market in Western Europe: The Approach to 1992 and the Economics and Political Implications for Partners Outside the Community

Chair: The Rt Hon Sir Michael Palliser GCMG

This conference was designed to consider the implications for the partners of the European Community of the progress towards a single European market, by the end of 1992, in the light of widespread fears of “Fortress Europe”.

At the start, the conference established that the process of moving towards a single, inevitably imperfect, European market was on schedule, no insurmountable obstacles being foreseen, though some of the more difficult issues remained to be tackled, e.g. water, energy, taxation and, especially, economic and monetary union, where there was a real risk of a rift. The process, foreseen in the original Treaty of Rome, was dynamic: it would not end in 1993. It was wrong moreover to define the objective in traditional constitutional terms: suffice it to call it a community. Some potential applications for membership (ranging from Norway to Turkey) raised real difficulties (e.g. size, weak economies, neutrality etc) and the Community was in no mood for enlargement at present

For the Community’s trading partners, the principal concern was the risk of protectionism, either through tariff or non-tariff barriers. In general it seemed to be accepted that there would be an unquantifiable benefit overall to world trade from the dismantling of internal barriers within Europe, but there was concern over the regulatory regime that might be established (though we were assured that Brussels’s philosophy had abandoned harmonisation for its own sake) and over the prospect of a single market becoming more difficult to deal with. The link with the multi-lateral trade negotiations in the GATT Uruguay Round was emphasised, with concern centred on agriculture. Though agriculture lay outside the 1992 process, the latter would be affected by failure there. The point was made that industry was forced to plan on the assumption that the Uruguay Round would fail.

Those voicing concern over the single European market tended, it was argued, to ignore the record: the Community had taken major steps to reduce agricultural surpluses, tariffs had come down and would not go up; and service industries enjoyed great freedom of access, indeed for the most part “national treatment”, and there was no intention to apply retroactively any fresh regulations: the US protested too much, particularly in the light of the US Foreign Trade Act. Moreover, demands for the liberalisation of agricultural trade on economic grounds ignored the political dimension which, in a democracy, made progress there at best slow.

Some voiced the belief that since a perfectly Ricardian world, with complete free trade, was unattainable, there might be advantage in the trend towards three large free-trading areas operating vis-à-vis each other in a GATT-regulated competition.

The three conference groups concentrated respectively on physical trade, the service industries and the political aspects of European integration. Within the groups there seemed to be relatively little dissent. Nevertheless, the report stage on the Sunday provoked vigorous debate, primarily of issues not covered the preceding day (e.g., the macro-economic outlook, and the social dimension). For example, it was argued that liberalisation did not per se expand a market: the industrial benefits of the 1992 process could only be realised through rationalisation and closures. While organised labour might welcome the single European market, especially in the light of the promised social dimension, it would react differently as nationalisation began to bite (cf. Gillette’s attempt at rationalisation in France and the analogous attitude of Canadian labour to the Canada-US Trade Agreement). Moreover the rest of the world market would sooner or later have to accept lower exports in order to accommodate the regularisation of the US trade deficit.

Liberalisation of public procurement would be particularly difficult, both within the Community and vis-à-vis others, and while the Commission might press for this to apply also to defence procurement the member states would resist it, even at the cost of an argument with the US.

The social dimension itself provoked a strong reaction from British participants insofar as it related to worker participation. Opponents were only in part mollified by the assurance that the draft proposals set out three forms of participation (the German and French models, and a third, “designer”, model) and envisaged an optional approach. This area, critics argued, was pre-eminently one where pluralism must rule, each member state being free to work out its own solution compatible with its history, traditions and culture. Britain, for example, had come through a confrontational period in labour relations to growing participation through profit-sharing and share-ownership: to try now to impose a system from elsewhere, however well it worked there, would be disastrous.

In the field of service industries, debate turned mainly on the issue of reciprocity - what did it mean, how was it to be measured and was it a satisfactory lever given that in economic terms, its use damaged the user? Some argued against the concept in principle; others were content to accept it if it meant no more than giving “national treatment” to non-nationals, provided that work permits and other barriers were similarly free of discrimination; and others, while accepting that as a lever it was little more than “a rubber crow-bar”, nonetheless argued that the concept was already established in the GATT (cf. also the US Foreign Trade Act) and in civil aviation, and was a necessary element in any campaign for liberalisation on the basis of “balance of advantage”.

Current inward investment into the Community, it was noted, was probably driven by both a belief in the possibilities and a probably unfounded fear of exclusion. The regulation of mergers and acquisitions on a Community-wide basis was probable, but there was no reason to fear that that would be more discriminatory.

On monetary and economic union, considerable doubt was expressed about the future. The European Monetary System had succeeded because it was in essence a DM zone. Could it work if sterling were admitted and the Bank of England vied with the Bundesbank (unless the latter concentrated on currency-management and the former on regulation of market practices!)? There was a danger, however, in sterling’s exclusion, of the creation of a “two- speed” Europe.

Finally, the conference turned to the political aspects of the single European market and the European Political Cooperation. On the one hand, the point was made that while the political dynamic of the 1992 process was important, it could not carry the implications of unity that were being canvassed by some. On the other it was clear that more issues were being debated in the EPC forum, including, increasingly, some with security overtones. Nevertheless the Community could not be regarded as a unit in foreign policy terms and those who were seeking to influence it must lobby individual members as well as the Presidency or Commission as appropriate. There would be some risk of friction if it appeared that the members were settling policy among themselves in areas seen to belong to other bodies (especially to NATO). This was not a new problem (nor was it confined to Europe: the US also erred) and, as hitherto, could be managed provided all channels of communication were kept open and were used. However, discussion of security matters in EPC did put a question mark over accession by Europe’s neutrals, which in any case seemed remote as far as Sweden, Finland and also Austria were concerned. Norway, a member of NATO, was another matter (the point was made that Norway could not afford a second failure). In the context of enlargement, the point was also made that relations with the Muslim populations to the Community’s south were a factor to be taken into account. The day when the Community might come to embrace some of the nations of Eastern Europe was very far off, but relations and trade with them were elements to be borne in mind.

In conclusion, a number of points can be deduced. First the 1992 process was on track: however success was defined, the process had given an irreversible impetus to business planning. Secondly, to judge from the tone of the conference, the fears of non-members that the process would be damaging to their interests, were likely to prove exaggerated and were giving way to more specific but manageable concerns. Thirdly, it was evident throughout that Britain, whatever its specific reservations, saw itself as a full participant in the 1992 process, albeit with special links to North America, which could also be useful to its partners. Fourthly, that the 1992 process was inevitably linked to the multi-lateral negotiations in the Uruguayan Round; and the agricultural problem, though affected by the 1992 process, would be critical for the success of those negotiations. Fifthly, enlargement would raise difficult issues and tensions, if not carefully handled. And finally, that the Community would increasingly consult and act together in the field of foreign policy, but with careful management and consultation, this need not prove damaging to cooperation with partners in other fora.

This Note reflects the Director’s personal impressions of the conference.  No participant is in any way committed to its content or expression.

 Conference Chairman: The Rt Hon Sir Michael Palliser GCMG
Deputy Chairman, Midland Bank Group; Chairman, Samuel Montagu & Co Ltd; Chairman, Council of the International Institute for Strategic Studies; a Governor and Member of the Council of Management, Ditchley Foundation


Mr David W Evans

Australian Acting High Commissioner to the United Kingdom
Professor Sir Bruce Williams KBE
Economist and research director              

M Jacques Solvay

Chairman of the Board, Solvay et Cie, Chairman of the Board, Solvay SA; Director, Générale de Banque SA, Laporte Industries (Holdings)plc, London, Sofina SA; Member, European Advisory Council, Tenneco; Chairman, The Solvay Institutes for Physics & Chemistry, Brussels; Chairman of the Council, Center for European Policy Studies; Member of the Board, University of Brussels

Mr Michael Angus

Chairman, Unilever pic; Vice Chairman, Unilever NV (Director); non­-executive Director, Whitbread & Co pic; Joint Chairman, Netherlands-British Chamber of Commerce; Visiting Fellow, Nuffield College, Oxford
Mr Samuel Brittan
Principal Economic Commentator and Assistant Editor, Financial Times; author; Honorary Professor of Politics, Warwick University; a member of the Programme Committee, the Ditchley Foundation
Mr William Cash MP
Member of Parliament (Conservative) for Stafford; William Cash & Co; Member, House of Commons Select Committee on European Legislation
Mr Nicholas Colchester
Editor, The Economist; a member of the Programme Committee, the Ditchley Foundation
Sir David Hannay KCMG
Ambassador and UK Permanent Representative to the European Communities, Brussels
Lord Hunt of Tanworth GCB
Chairman: Banque Nationale de Paris pic, Prudential Corporation pic; Director, IBM (UK) Ltd; The Tablet Publishing Co Ltd; a Governor and Chairman of the Council of Management, the Ditchley Foundation
Mr A C Hutton
Under Secretary, External European Policy Division, Department of Trade and Industry
Mr J O Kerr CMG
Superintending Under-Secretary, European Community Department, Foreign and Commonwealth Office
Mr Andrew Knight
Chief Executive and Editor in Chief, The Daily Telegraph; a Governor and Member of the Council of Management, the Ditchley Foundation
Mr RG Lavelle CB
Deputy Secretary, Cabinet Office
Dr Richard Mayne
Writer and broadcaster
Mr John Miller
Director of Strategic Projects, IBM UK Ltd
Mr David Norgrove
Divisional Director for Strategic Planning, Marks & Spencer pic
Mr Humphrey Norrington
Executive Director, Overseas Operations, Barclays Bank pic
Mr Lionel Price
Head of International Division, Bank of England
Dr Helen Wallace
Director, West European Programme, The Royal Institute of International Affairs
Sir Patrick Wright KCMG
Permanent Under Secretary of State and Head of the Diplomatic Service; a Governor of the Ditchley Foundation
Mr Michael Young
Head of Public Affairs, BAT Industries pic

Dr Sylvia Ostry OC          

Senior Research Fellow, University of Toronto; Ambassador, Multilateral Trade Negotiations and Personal Representative of the Prime Minister, Economic Summit, Department of External Affairs

Mr Roderick Abbott

Director, External Relations, Commission of the European Communities (with particular responsibility for the external policy aspects of the 1992 Programme); Deputy Head, Negotiating Team during the Tokyo Round, EC Commission, Brussels and Geneva
Mr John Drew   
Head, United Kingdom Office, Commission of the European Communities; Visiting Professor of European Management, Management School, Imperial College, London University; author

M Andr
é Bénard
Co-Chairman, Euro Tunnel, The Channel Tunnel Group Ltd; Member, Supervisory Board, Royal Dutch Shell Group; Senior Adviser, Lazard Freres, NY; a Governor of the Ditchley Foundation
HE Luc de la Barre de Nanteuil  
French Ambassador, London; a Governor of the Ditchley Foundation

Dr Rudolf Morawitz

Deputy Director, Department of European Integration, Ministry of Economics, Bonn
HE Dr Karl-Heinz Narjes MdB
Recently retired as Vice President, Commission of the European Communities, Brussels (1985-89); Member, Bundestag

HE Signor Ferdinando Salleo

Ambassador-Designate to the USSR; Director General, Economic Affairs Directorate, Ministry of Foreign Affairs, Rome

HE Mr Michio Mizoguchi

Japanese Ambassador to Denmark
Mr Hajime Ohta
Deputy Director, International Economic Affairs Department, Keidanren
HE Mr Hisashi Owada
Japanese Ambassador to the OECD

HE Mr Bj
ørn Barth
Ambassador, Ministry of Foreign Affairs, Oslo and Government Co-ordinator, EC/EFTA

HE Hans Ewerl
Swedish Ambassador to Switzerland

Mr Robert Bartley

Editor, The Wall Street Journal, member, Council on Foreign Relations
Mr Michael Calingaert
Foreign Service Officer, US State Department; currently on sabbatical as Senior Fellow, National Planning Association; author
Mr Kaspar V Cassani
Chairman, IBM World Trade Corporation, IBM Switzerland
Mr Robert D Dalziel
President, AT&T Europe; Executive Committee Member, American Chamber of Commerce (Belgium); Member, Boards, Roosevelt Study Center (Netherlands), Community Help Service, Brussels and AT&T Microelectronica d’Españia; Vice President, Theodore Roosevelt Association; Fellow, Polytechnic University, New York
Mr Anthony L Gardner
Student, Columbia Law School
Professor Richard Gardner
Professor of Law and International Organisation, Columbia University; Of Counsel, Coudert Brothers; Member, Board of Directors, the American Ditchley Foundation
Mr Jeffrey E Garten
President, Eliot Group Inc, investment bankers, New York; adjunct professor of political economy, New York University; member, Advisory Council, the American Ditchley Foundation
Mr John G Heimann
Chairman of the Executive Committee, Merrill Lynch Europe/Middle East; Member, Federal Reserve Bank, NY, International Capital Markets Advisory Committee; Chairman, New York State Executive Advisory Commission on Insurance Industry Regulatory Reform; member, Advisory Council, the American Ditchley Foundation
Mr Martin J Kallen
Vice President, Monsanto Company and Managing Director, Europe-Africa area
Mr George Lindsay
Resident Partner, Debevoise & Plimpton, New York; Director, The Ogilvy Group Inc; Vice President, Carnegie Institute for International Peace; Chairman, Board of Directors, African American Institute; Member, Board of Directors, the American Ditchley Foundation
Mr Dennis C Longwell
Senior Vice President and Area Executive, Europe, Africa, Middle East, Chase Manhattan Bank, NA, London; a Governor and Member of the Council of Management, the Ditchley Foundation
The Hon James G Lowenstein
Senior Consultant, Stratecon Corporation; member, Advisory Board
Mr William J McDonough
Vice Chairman of the Board and Director, The First National Bank of Chicago
Mr Robert Neimeth
Executive Vice President, Pfizer International Inc
Mr Karsten Prager
Assistant Managing Editor, Time Magazine
Mr Jeffrey J Schott
Research Fellow, Institute for International Economics, Washington
Mr Gerhard Schulmeyer
An Executive Vice President, Motorola Inc. and Deputy to the Chief Executive Office for Europe; Vice President and General Manager, European Operations, Automotive Products Division, Motorola, and Managing Director, Motorola GmbH, West Germany
Mr Craig Whitney
Chief London Correspondent, The New York Time