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

78. Memorandum of Conversation⁰

November 18, 1959.

SUBJECT

• Problems Relating to the European Economic Commission

PARTICIPANTS

• Dr. Hallstein, President of the Commission of the EEC¹
• The Secretary
• EUR—Mr. White
• OT—Mr. Hadraba
• RA—Mr. Fessenden

Dr. Hallstein opened the conversation by expressing his pleasure at the Secretary’s speech before the Foreign Trade Council in New York.² He noted particularly the emphasis which the Secretary had placed on the need for economic cooperation between both sides of the Atlantic. Dr. Hallstein noted that there have been some differences in view between the Common Market countries and those outside the Six. British thinking, however, has recently shown signs of progress in the right direction. The British show signs of understanding that the Common Market is sincere in its determination to adopt a worldwide liberal trade policy and that its proposals are not designed to block a European solution.

The Secretary inquired about proposals for speeding up the implementation of the Common Market.³ He said that he understood that the Commission felt that the time was now propitious to move in this field and emphasized the importance of a worldwide approach in any steps which may be taken.

Dr. Hallstein said that there is sometimes a failure to realize the political importance of the Six-country movement, which differs basically from other arrangements more purely commercial in motivation. Dr. Hallstein said that the process works in two ways: (1) the Community’s progress in the economic field results in greater political unity; (2) progress in the economic field requires political unity to succeed. There are recent signs indicating recognition by the Six Governments of the importance of political unity. There is a recent movement toward integration of the foreign policies of the Six. Dr. Hallstein said that he recognized that this was a field of much interest to us. Secondly, there is work going forward in the Community’s Parliament to develop a scheme for direct elections which would result in giving greater powers to the Parliament.

The Secretary inquired whether a directly elected Parliament with stronger powers would have authority to tax. Dr. Hallstein said that he felt the Governments were not yet ready to accept this. The thinking in the European Commission was in the direction of giving more power to the Parliament, but not in the field of taxation. Dr. Hallstein felt that this is something which would evolve later and cited the parallel of the German Reich established by Bismarck in 1870. The Reich did not have the power of central taxation until World War I. In spite of this, the Federal Government of the Reich was a strong one.

The Secretary noted that there is sometimes difficulty in the United States today because certain states, in order to attract industries, reduce or eliminate taxes on new businesses. Dr. Hallstein noted that the European Community has safeguards against such action by the individual states. There is a provision which prohibits any measures which will have the effect of subsidizing certain industries in a manner which will interfere with competition. The Secretary also referred to wage-scale differences. Dr. Hallstein acknowledged that there is difficulty in this respect in certain countries. France, for example, has a long tradition of social subsidies.

The Secretary noted that it is always better when the demand for greater unification comes from the member states. This is preferable to a standardization imposed on member states by the central authority. Dr. Hallstein said that he fully agreed and pointed out the strong internal impetus toward more rapid implementation of the Rome Treaties which comes from such groups as the French Patronat. The Patronat’s reasons for wanting to accelerate implementation of the Rome Treaties are to make clear to the outside world as rapidly as possible the certainty that the Common Market is coming into being. The more rapid the momentum towards carrying out the Common Market program, the more readily will the outside world come to accept the Common Market as a certainty.

The Secretary raised the question of other countries joining or associating with the Common Market. Dr. Hallstein said that this is a question which occupies much of the attention of the Commission. He cited Greece and Turkey as two special cases of association currently under consideration.⁴ Austria at one point was very close to working out a form of close association with the Common Market, but Kreisky is now being very negative on the subject.⁵ Dr. Hallstein said that he personally felt this was the result of Soviet pressure, although the Austrians would, of course, never admit this. Dr. Hallstein pointed out that the problem with Austria was to work out a formula which would, on the one hand, protect Austrian neutrality and, on the other hand, provide for the closest possible working association short of actual membership. The Secretary noted that the difficulties in associating other countries will probably become more difficult as the Common Market moves in the direction of political unity. Dr. Hallstein said that the cases of the various non-Six countries which may wish to work out some form of association differ greatly among themselves. The Austrian case is quite different from the Danish; the British, different from either two; and the Swiss case is in yet another category. Therefore, a standard formula for association covering all European countries is not feasible. It is better to look towards individual means of association for each country, adapted to each country’s needs.

Mr. White raised the question of the EEC development fund for aid to overseas territories. He inquired whether agreement had been reached to change the terms of reference of the fund to cover also underdeveloped areas not associated with the Community countries. Dr. Hallstein replied that this question had two aspects: (1) Should the Common Market deal in any way with overseas territories not associated with the member states of the European Community? He felt that it had now been decided that the Community should do this. (2) What should be the form of such aid to overseas territories not associated with the Community? No decisions had been reached on this second question as yet, although it is to be discussed in a preliminary manner by the Council of Ministers next Monday. The Commission has not as yet made any specific proposals to the Council of Ministers on this question, and no definitive action will take place until the Commission has developed specific proposals. On the $500 million fund for investment in overseas territories associated with the Community, Dr. Hallstein added that there have been certain difficulties with the French. There are those in France who have a nationalistic outlook and who have certain views regarding the future of the French Community, which conflict with what the EEC is doing.

Dr. Hallstein noted that, as soon as a common tariff is in force, it is possible for the earnings from this common tariff to go into a fund for common purposes, provided the Council of Ministers and the European Parliament approve.

Dr. Hallstein commented that the Council of Ministers is in the process of developing a majority rule. In actual practice, majority vote is not resorted to, although it does exist in principle. Respect of member countries for the views of other member countries keeps the Council of Ministers from actually operating on a majority vote principle, but the fact that the majority rule exists in principle is a force impelling governments toward compromising their differences.

Dr. Hallstein said that he understood the importance which the United States attached to a worldwide liberal trade policy as opposed to protectionism. He said he understood our reluctance to accept regional solutions to trade problems except where there are important political advantages. He emphasized that a worldwide liberal trade policy is basic to everything the European Community is seeking to do, and cited recent developments in France as striking examples of what is taking place. Pinay’s recent statements are a radical departure from the long established economic philosophy of France.

The Secretary commented that our efforts in the United States on behalf of a liberal trade policy are greatly affected by the policies of the Common Market. It is therefore most important to us to have the Common Market adopt a liberal trade policy on a worldwide basis.

0. Source: Department of State, Central Files, 840.00/11–1859. Confidential. Drafted by Fessenden and approved in S on November 27.
1. Hallstein was in Washington to attend a meeting of NATO parliamentarians.
2. November 16; for text, see Department of State Bulletin, December 7, 1959, pp. 819–823.

3. At the November 11 EEC meeting, the French Government proposed acceleration of the timetable for reduction of internal tariffs among the member states. In telegram 2152 from Paris, November 16, Ambassador Houghton reported the views of Olivier Wormser:

   “Wormser commented underlying purpose of French proposal was to bring common market, as rapidly as possible, to stage where any turning back would become out of the question. This, he emphasized, was of great political significance for both Europe and outside world (US). In addition, French Government feels that pursuit of liberal trade policies to which it is committed is possible only if French business interests are assured common market is going concern.”

   Wormser also noted strong Belgian opposition to the French proposal. (Department of State, Central Files, 440.002/11–1659).

4. Greece applied for association with the EEC on June 8 and Turkey on October 31.
5. In a discussion with Herter on September 24, Kreisky explained the Austrian position as follows: “from an economic point of view the most natural course for Austria would be to join the Common Market, but that this would be difficult in view of Austria’s neutrality. To join as an associate member looks simple, but actually Austria has been attempting without any success to find some formula under which such an association with the Common Market would be possible. Therefore the best solution for Austria was to join the Outer Seven. He said there were great possibilities for developing Austria’s trade with many of the countries of the Outer Seven, such as Sweden and Great Britain, since they were rich.” (Department of State, Central Files, 440.002/9–2459)