Britain's Place in the World: Import Controls 1945-60 (Routledge Explorations in Economic History, 4)

BRITAIN’S PLACE IN THE WORLD ‘The book has some exciting political conclusions…. It will be frequently used by the exp...

Author: Alan Milward | George Brennan

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BRITAIN’S PLACE IN THE WORLD

‘The book has some exciting political conclusions…. It will be frequently used by the experts.’ Sidney Pollard, University of Sheffield ‘Pioneering…. It makes an important contribution to the historiography of postwar Britain.’ David Edgerton, Imperial College, London The overambitious foreign policy of British governments in the 1950s has been frequently blamed for the country’s relative economic decline. One aspect of those ambitions was the intention, then as now, to ‘take the lead’ in Europe by resisting schemes for regional economic and political union and leading the continent towards one worldwide international economic system. The authors take the first hard look into the semi-secret and hitherto ignored world of Britain’s import controls in the 1950s and come to fresh and disturbing conclusions. They show that the Labour government after 1945 did have positive policies to develop Britain’s industries, but that these policies were sacrificed after 1949 in pursuit of a worldwide foreign policy. The effect of import controls, they show, has been underestimated. Removing them was a prime cause of the balance of payments crises of the 1950s and thus of the failure to reassert Britain’s place in the world. Is there, then, as is often argued by the Left in Britain and the Right in the USA, a case for a return to import controls as a way of reviving manufacturing? The book reviews the historical evidence on whether after 1945 trade controls did in fact lead to higher levels of employment and output and greater manufacturing diversity in British industry. Trade controls, the authors suggest, were appropriate to one stage in the rise of the executive state; in a different stage of state development they might have little relevance. Alan S.Milward, formerly Professor of Economic History at the London School of Economics, and of Economics in Stanford University, is the author of several books on the modern economic and political development of Europe including The Reconstruction of Western Europe, 1945–1951 (1992) and The European Rescue of the Nation State (1994). George Brennan is Research Assistant at the London School of Economics.

ROUTLEDGE EXPLORATIONS IN ECONOMIC HISTORY 1

ECONOMIC IDEAS AND GOVERNMENT POLICY Contributions to Contemporary Economic History Sir Alec Cairncross

2

THE ORGANIZATION OF LABOUR MARKETS Modernity, Culture and Governance in Germany, Sweden, Britain and Japan Bo Stråth

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CURRENCY CONVERTIBILITY IN THE TWENTIETH CENTURY The Gold Standard and Beyond Edited by Jorge Braga de Macedo, Barry Eichengreen and Jaime Reis

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BRITAIN’S PLACE IN THE WORLD A Historical Enquiry into Import Controls, 1945–60 Alan S.Milward and George Brennan

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FRANCE AND THE INTERNATIONAL ECONOMY From Vichy to the Treaty of Rome Francis M.B.Lynch

BRITAIN’S PLACE IN THE WORLD A historical enquiry into import controls 1945–60

Alan S.Milward and George Brennan

London and New York

First published 1996 by Routledge 11 New Fetter Lane, London EC4P 4EE Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 © 1996 Alan S.Milward and George Brennan Routledge is an International Thomson Publishing company This edition published in the Taylor & Francis e-Library, 2003. All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Milward, Alan S. Britain’s place in the world: a historical enquiry into import controls 1945–60/Alan S.Milward and George Brennan. p. cm.—(Routledge explorations in economic history, ISSN 1359–7892) Includes bibliographical references and index ISBN 0-415-13937-6 1. Import quotas—Great Britain—History. 2. Great Britain— Commercial policy—History. I. Brennan, George. II. Title. III. Series HF3506.M55 1996 382'.52’0941–dc20 95–26082 CIP ISBN 0-203-11602-X Master e-book ISBN

ISBN 0-203-16323-0 (Adobe eReader Format) ISBN 0-415-13937-6 (Print Edition)

CONTENTS

Figures Tables Acknowledgements Archival References Introduction

vii viii x xi xiii

1

A PERSPECTIVE ON BRITISH IMPORT CONTROLS

2

QUANTITATIVE IMPORT RESTRICTIONS AND THE MODERN STATE

15

BRITISH COMMERCIAL POLICY AND THE OEEC TRADE LIBERALISATION PROGRAMME, 1949–51

37

TAKING THE LEAD IN EUROPE The international politics of import controls, 1952–6

78

MEASURING THE EFFECTS OF QUANTITATIVE IMPORT RESTRICTIONS

130

THE EFFECT OF IMPORT CONTROLS ON BRITISH MANUFACTURING

190

3 4 5 6

Appendix I

1

Examination of Scott’s calculations of the value of imports of food and raw materials excluded by quantitative restrictions, 1946–9 211

v

CONTENTS

Appendix II

Corden’s estimate of import savings in the year 1952 attributable to emergency quantitative controls imposed in November 1951 and March 1952, and our estimate of total savings for the year 1953 217

Appendix III

Government estimate of the probable value of additional imports in 1954 in the absence of quantitative restrictions

238

A survey of the operation of import quotas and other import restriction regimes on United Kingdom manufacturing

240

Appendix IV

Notes Bibliography Bibliography of Official Sources Index

vi

290 306 311 313

FIGURES

1 Cumulative net surpluses or deficits of EPU member countries, July 1950 to November 1953 2 Volume index of United Kingdom imports (goods and services) divided by index of real GDP 3 Volume index of United Kingdom imports (visibles) divided by index of real GDP 4 Share of finished manufactures in total United Kingdom imports 5 Quarterly volume of imports of United Kingdom v. liberalisation 6 Manufactures: volume of imports v. relative prices v. domestic sales 7 Manufactures: import volume v. relative prices v. Liberalisation Index 8 Imports of motor vehicles (volume) into the United Kingdom, 1949–66 9 Volume of imports and exports of OEEC countries 10 Volume of manufactured imports: Switzerland v. United Kingdom 11 Volume of raw materials imports: Switzerland v. United Kingdom 12 Area shares of total United Kingdom imports during liberalisation, deliberalisation and reliberalisation

vii

82 135 136 137 164 166 167 173 177 182 182 219

TABLES

1 United Kingdom trade liberalisation percentage as calculated by the OEEC, 1 November 1951 and 1 April 1954 2 Value of United Kingdom imports from EPU member-states 3 The increase in ‘real’ United Kingdom imports from EPU members in each six-month period, 1 July 1950 to 31 December 1951 4 Volume indices of United Kingdom retained imports and exports 5 OEEC Trade Liberalisation Index results, 1950–8 6 Estimates of the reduction in the value of imports attributable to import controls 7 Domestic sales and imports of manufactures at constant prices 8 Wholesale prices and cost of living, 1937–48 9 An index of real per capita disposable income in Switzerland, 1938–55 10 Volume indices of imports into Switzerland and the United Kingdom, 1938–55 11 Summary of our minimum upward revisions of existing estimates of the reduction in the value of potential imports attributable to import controls 12 ‘Deliberalised’ private imports from the Relaxation Area, 1952 13 United Kingdom output and imports of cotton fabrics, 1951–4 14 Paper and board: production and imports (volume) for 1952 viii

59 73

74 75 127 139 143 179 180 181

186 218 227 229

TABLES

15 Quarterly United Kingdom imports of cotton piecegoods from Belgium, 1952–3 16 Effects of the liberalisation in 1953 of some quotas on imports from the dollar zone 17 Summary of additional value of imports in 1954 after quota liberalisations in 1953 18 Import/income ratios of some manufactures in 1953 for the United Kingdom and Belgium 19 Employment, production and trade in the United Kingdom dyestuffs industry 20 Imports of oil into the United Kingdom 21 The source, number and value of computers delivered to United Kingdom public authorities and others, circa January 1963 22 Annual deliveries of watches and mechanical clocks made in the United Kingdom 23 Imports of watches and clocks into the United Kingdom, 1947–63 24 Import substitution in the United Kingdom paper and board industry (other than newsprint), 1938–65 25 United Kingdom output and imports of hardwood, 1934–53

ix

233 235 236 237 242 244

254 274 276 282 287

ACKNOWLEDGEMENTS

The research for this book was financed by the Economic and Social Research Council (Grant No. R 000 233 553) and by the Leverhulme Trust (Grant F. 4BD). The authors wish to express their strong gratitude to both institutions for their positive and flexible support. The authors would like to thank David Edgerton, Peter Hewlett, Professor Sidney Pollard, and Professor Leandro Prados de la Escosura for valuable practical help with particular sections of the work, and Patricia Cooke for practical help throughout.

x

ARCHIVAL REFERENCES

The conventional Public Record Office coding is used for all references to documents in the UK public records. BT CAB FO SUPP T

Board of Trade Cabinet Office Foreign and Commonwealth Office Ministry of Supply Treasury

The following abbreviations are commonly used in the text and footnotes. c.i.f. ECA ECSC EEC EFTA EPU f.o.b. GATT IBM ICI ILC MAC MFN NA NRDC NSC OECD

carriage, insurance and freight Economic Cooperation Agency European Coal Iron and Steel Community European Economic Community European Free Trade Association European Payments Union free on board General Agreement on Trade and Tariffs International Business Machines Imperial Chemical Industries Import Licensing Committee Mutual Aid Committee most favoured nation National Archives of the United States of America National Research and Development Corporation Newsprint Supply Company Organisation for Economic Cooperation and Development xi

ARCHIVAL REFERENCES

OEEC OGL SITC UN

Organisation for European Economic Cooperation Open General Licence Standard International Trade Classification United Nations

xii

INTRODUCTION

Our book is a study of the use of quantitative import controls in the post-war British economy. It argues that these were far more effective in achieving their objectives than government and economists concluded at the time. They were responsible for a much greater saving on the import bill than contemporary calculations implied and in many cases provided a significant infant industry protection, allowing certain industries which would otherwise not have been able to stand up to foreign competition to take root or to grow. A hidden industrial policy that operated after 1945 has been left largely undiscovered because of the lack of interest of historians and economists in non-tariff barriers to trade. Because the effectiveness of non-tariff restrictions, particularly of import quotas and state bulk purchasing, was underestimated, it was not understood how far the relative success of British post-war industrial recovery and the relatively favourable balance of trade and payments surplus for the 1950s as a whole depended on their existence. In the 1950s the balance on current account averaged around £200 million annually except in the crisis years 1951 and 1955. A permanent surplus of over £300 million was believed to be in reach. Especially the underestimation of the effectiveness of import quotas against western European exports led British governments to take a stance in international financial and commercial diplomacy that took insufficient account of the increasing competitiveness of continental western European manufacturing with that of Britain. While extensive import quotas against American manufactured imports were maintained until 1958–9, those against western European exports were relaxed first between 1949 and 1951, and after their reimposition in 1951–2, relaxed once more from 1953 onwards in pursuit of an ambitious global design which required that Britain should take the lead in Europe. In this xiii

INTRODUCTION

case, this meant leading western Europe away from regional schemes of economic or political unions and preserving a central role for the United Kingdom and its currency in a western world in which its leadership of the Commonwealth and of western Europe guaranteed its special relationship with the USA as the most significant of that country’s allies. Each major relaxation of quantitative trade controls from 1950 onwards helped to generate a balance of trade and payments shock with the OEEC and the dollar area, demonstrating the inability of the economy and the currency to sustain such ambitious policies let alone to combine them with economic growth. Western Europe created its own system of regulating international trade, excluding Britain as it did so, leadership in the Commonwealth was lost, and the ‘special relationship’ as a consequence became less valuable to the USA. Import controls, which in such existing literature as there is appear as a briefly exceptional and accidental hangover from the wartime economy, thus in their development and their removal in fact played an important part in shaping the course of post-war British history. We do not say that import controls were (or are) the most effective instrument of industrial, regional or employment policy for the modern state. We say that each separate control has to be judged on its own merits against the policy objectives. Because these objectives themselves in post-war Britain were frequently multiple and ambivalent, we find it difficult, perhaps unrealistic, to reach any final judgement abut their overall value in promoting the domestic manufacturing sector. But we are left in no doubt that in many important instances, for good or bad, they did so most effectively. If regional policy was (and is) desirable, quantitative import controls were a crucially important policy tool before 1960. About their effect on raising the national level of employment we are more sceptical, believing them in the circumstances of the 1950s to have had little influence either in their growth or their removal. In general, we see the extensive use of import controls by the United Kingdom, which at the time was the world’s second biggest international trader, not as a purely British episode, but as a stage in the evolution of the modern state. Their use spread as tariffs became less useful, either for revenue or for regulating trade, and diminished as international markets came to be regulated privately by inter-firm agreements. For much of the 1950s, however, the United Kingdom was relaxing quantitative import controls in the hope that they would xiv

INTRODUCTION

be replaced by a worldwide, multilateral, non-discriminatory network of world trade and payments—the post-Second World War approximation to ‘free trade’. This was to seriously misjudge the times as the Treaty of Rome was to show as early as 1957. The misjudgement seems to indicate the dominance of foreign policy considerations over economic realities. It may not have been the last occasion on which a sober assessment of economic realities was sidelined in a vision of Britain’s place in the world that involved a magical attitude to the national currency. Will Britain’s partners in the European Union indefinitely allow imports from the United Kingdom unhindered access to a large Single Market while allowing Britain to retain the sovereign privilege of undervaluing its currency at will? Whether or not Britain is overconfident of its competitive position at present it was certainly so in the 1950s. We do not say that the contemporary underestimation of the effectiveness of quantitative import controls was the only, or even the major, influence in the choice of Britain’s post-war international financial and commercial stance. Nor do we say that any other choice of international commercial policy would have been ultimately possible. But we do say that the large scope and far-reaching importance of quantitative import controls ought to have been taken into account; in the way in which trade was decontrolled, in their effects on the economy in the shorter as in the longer term, and ultimately in the determination of a more appropriate foreign policy in western Europe. Unavoidably, our book has to pass through several lengthy passages of detailed calculation. Unavoidably, these sometimes lead not to statistical certainty but to a balance of probability. These may well be unappetising for economists and economic historians, and to political historians repulsively indigestible. But without them, the work would be mere assertion, and for scholars of particular trades and industries they will have their own value and interest. For political and diplomatic historians they ultimately are the bones, nerves and arteries of an otherwise disembodied idea whose substance they have had some difficulty in fully describing—why Britain’s over-ambitious diplomacy persisted for so long after 1947. We have put as much of this material as possible, without breaking the continuity of the argument, in the Appendices, where readers may choose for themselves whether to disturb it. But we do hope that if they are going to argue seriously with us, they will turn there before they do so. xv

INTRODUCTION

The brief assertions made here are taken up in more detailed narrative and analytical form in Chapters 3 and 4. Necessarily, this involves some detail about certain of the more important trades and industries particularly affected by quantitative trade controls. Further detail still is provided in Chapters 5 and 6 which attempt quantitative measurements of the true impact of these non-tariff trade controls on the economy. Inevitably, in the case of those industries—cars, paper, etc.—where the financial and economic impact of quantitative trade controls was especially significant, there is a further accumulation of detail about them, although we hope no unavoidable repetition. And lastly there are the Appendices. So our book proceeds from generalisation to the detail on which it is founded, which seems to be the opposite way round from that in which history books are typically written. It was done in this way to induce more historians to consider its implications, while leaving those who so wish free to follow us down the funnel of accumulating microeconomic detail.

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1 A PERSPECTIVE ON BRITISH IMPORT CONTROLS

It is a familiar fact that in the aftermath of the Second World War the United Kingdom’s imports, like much of the rest of its economy, remained for some time subject to government regulation and control. Few people, however, have retained an accurate impression of the scale on which this took place nor of the resources of labour and time which it employed. In 1948 the Import Licensing Department of the Board of Trade issued about a quarter of a million separate licences. Over 300,000 applications for licences were processed. Its daily postbag averaged 2,000 letters. It shuffled 500 individual visitors a day through four separate buildings for interview and it answered a daily average of 3,000 telephone calls.1 A licensing staff of 190 in February 1946 had grown to more than 500 three years later, to say nothing of the secretarial staff, postal clerks, filing clerks, switchboard operators and cleaners they required. To carry out the accompanying task of managing exchange controls the Bank of England required a staff of about 1,400.2 And beyond that there was the administration of other forms of domestic economic controls which in effect were also import controls, such as consumption controls on softwood, which was virtually all imported. The removal of licensing of softwood timber, so the Board of Trade estimated in November 1953, would eliminate the completion of more than half a million forms a year.3 The details seem more reminiscent of an eastern European peoples’ republic than of what was then the world’s second greatest capitalist trader and economy. A measure of its importance was that in 1950 no less than 12 per cent of total recorded world imports consisted of arrivals in the United Kingdom. This does not indicate any inefficacy of the control machinery, for in 1938 the equivalent figure had been more than 19 per cent. This machinery has been generally regarded 1


as an accidental episode; survival in the war demanded the centralised control and rationing of all resources and after the war shortages of dollars and goods meant the system could not be immediately dismantled. As far as import controls are concerned this is quite wrong. Such controls were still proliferating at the start of 1949 and were not substantially reduced, apart from a temporary and localised episode between summer 1950 and summer 1951, until 1954. It is also ahistorical to see this development as an accident of war. It should properly be seen as a stage in the evolution of the modern state beginning with the great depression of 1929–32 and, as far as capitalist economies were concerned, ending in the early 1960s. It is by no means a purely British story, indeed it might be more interesting if it could be told about France. It concerns the longrun relationship of the modern developed economy and state to the huge growth in value and volume of international trade on which its inhabitants have come to depend for their wellbeing. How should that trade be regulated in the states own interest? Consult any large library on the subject of the commercial policy of twentieth-century states. Over 90 per cent of the information deals with tariffs. Yet in most of the highly-industrialised countries in the twentieth century tariffs have become increasingly unimportant both as an instrument of commercial policy and as a source of government revenue. To a significant extent tariffs have declined in importance not as a result of any secular movement towards greater freedom of trade but, on the contrary, because of their relative ineffectiveness as a means of regulating trade. In most developed countries since 1918 they have failed to meet the increasingly complicated and sophisticated objectives of government either in commercial or fiscal policy. As international trade in manufactures becomes increasingly dominated by a small number of large companies whose production operations are international in scope this tendency seems likely to be maintained. Quantitative restrictions on imports, the subject of this study, have in comparison attracted little political or economic debate and virtually no theoretical discussion. The secrecy and speed which often surrounds the introduction of such restrictions means that the facts, even if recoverable, seem too chaotic to allow analysis or to reward inquiry. Theoretical discussion is scant and empirical investigations are few. Yet in the twentieth century quantitative restrictions, particularly import quotas, have been a main instrument for regulating foreign trade. This was so in the United Kingdom in the 2


decade after 1945 when they were also a cornerstone of post-war reconstruction. It is mainly with that experience that this book deals, but the British experiment was not atypical. In the United Kingdom, as elsewhere, the development of a systematic apparatus of import controls arose out of a sense of the inadequacy of tariffs for supporting domestic policy choices and in the longer run is probably best understood as a stage in the transition from reliance on tariffs to the development of other forms of regulating international markets, business mergers, cartels, common markets and the like, so that their behaviour does not too greatly or too frequently disturb the equilibrium of the domestic economy. In spite of the importance of quantitative trade controls, little is known about them, not even about their most familiar variant, the import quota. Often disguised, sometimes secret, they have been an unenticing subject for historians because of the difficulty of assembling evidence. They have been even less enticing for economists, because theorising about them has seemed unrewarding while measuring their effect has seemed arbitrary and uncertain. Protectionism, as it has been defined by most historians and economists, has meant tariffs. Their analysis has spawned intricate and unresolved debates not only in economic and political theory but also in constitutional law. Import controls have been discussed only in a more simplified intellectual context. Everyone acknowledges that forms of protectionism other than tariffs, non-tariff barriers as they are usually called, have been and still are widespread, but their prevalence has yet to be taken into account even in the recent changes of fashion in the theory of international trade.4 Standard works on the international economy usually have little more to say about them other than that they are bad. To some this may seem their only exciting attribute. But that would be to ignore the particular importance they have had in the history of twentieth-century states. Beginning with the collapse of prices of so many products in the great depression of 1929–32, which led states to look for new forms of protecting domestic price levels, quantitative trade controls spread until they probably reached their apogee in 1948. Since then, on trade between developed economies they have diminished in significance, but as a means of protecting such economies against low-wage, labour intensive manufactures in poorer economies they have been spreading since the mid-1950s. While the developed economies have discovered other means of regulating trade between themselves, less inhibiting to its growth, 3


quantitative import controls and their effectiveness must remain a live issue in a world where countries like the United Kingdom or the USA have a congenitally high propensity to import manufactures and where Russia and the former republics of the USSR, and soon perhaps China as well, have a huge, highly-skilled industrial labour force willing to work for a tenth of American or German wages. The most typical quantitative import control in the post-war British economy was the import quota. A quota on imports has this essential difference from a tariff, that beyond a fixed maximum volume or value over a specified period no further amount of the commodity in question is allowed to enter the country. There is no price at which an additional amount may enter and be sold, whereas even in the case of a tariff intended to be prohibitive the theoretical possibility remains that the external price will fall so far that the good could still be imported and sold more cheaply than the domestic product. Once the quota, however, has been fulfilled prices no longer come into consideration; there is no market. The Keynesian tradition has been for temporary protectionism, and by this import quotas have often been meant. Keynes himself was an advocate of import controls until the gold standard was abandoned, and several of his followers have at various times advocated forms of import control on particular sectors of the British economy as a way of achieving macroeconomic goals. Such views are now deeply out of political fashion in the United Kingdom, although loudly voiced in recent elections in the USA. But while it may well be that in a perfect and sensible world Britain, Germany and the USA would not, for example, have textile industries, it is also the case that they do have them and the workers they employ are not being retrained to produce semi-conductors. Intellectual fashions do not last and even when, as in the last fifteen years, there has been a mighty tide of political opinion in Britain behind the belief that only an open economy can be competitive enough to deliver a high standard of living, flatly contradictory voices have been heard on the ‘left’ of the Labour Party demanding the direction of investment into protected industries as a better route to technological competitiveness. Other voices have been heard urging the protection of some manufacturing sectors on the grounds that if the manufacturing sector as a whole becomes too small a part of the economy any period of relatively high growth rates of national income will be sharply curtailed by the rising deficit on commodity trade. It is not fully known how often since 1960, 4


when this book ends, British governments when faced with exactly that circumstance have considered reimposing import controls. They rejected the idea in 1962, partly because of the administrative apparatus it would require, and temporarily doubled many tariffs instead. When tariffs returned to their earlier level in late 1966 and government was again faced with the familiar problem of a surge of imports it bowed to the wisdom of hindsight and devalued. Protectionist arguments are at the time of writing being loudly made in the USA, by the ‘right’ wing of the Republican Party and by Democrats from states where manufacturing is no longer in the forefront of competitiveness and employment has shrunk accordingly, and quantitative controls have been often mentioned. A ‘bad’ example of the use of import controls dominated and still dominates the contemporary political stage, that of the former communist regimes of the Soviet Union and eastern Europe. But if politicians when considering the possibility of reintroducing import controls looked back on the period covered by this book, when they were heavily used, they would be looking back on a golden age, characterised by a high rate of national and personal income growth and full employment. Import controls are rarely credited with having contributed to these happy conditions. They are treated in histories of the period as an emergency measure to cope with the shortage of foreign exchange caused by world trade and payments imbalances; in a ‘healthy’ economy they would have been removed. Our examination of all the import controls on which we could find good evidence shows, however, that it was very rare for any import control to have only one single policy purpose. It is true that saving foreign exchange was the commonest reason for import controls in Britain between 1945 and 1960, but it was most unusual for it to be the sole reason for any particular import control. There were many others and it is these which are missing from most existing accounts of the post-war British economy. Export promotion, by guaranteeing the domestic market to manufacturing industries obliged by other forms of government control to export a fixed high percentage of their total output, was also important. The protection by import quotas of modern, sciencebased, infant industries or single manufacturing processes against American or German competition was widespread. So too was the protection by similar means of industries regarded as strategic, in the sense that their output would be so important in any future war that the country should not rely on foreign supply for what they 5


produced. Regional policy, too, depended heavily on quantitative import controls to persuade foreign direct investment to settle in the scheduled Development Areas. That, in turn, meant that trade controls reinforced employment policy, because the defining characteristic of the Development Areas was their high pre-war unemployment rates. Some older uncompetitive industries, particularly textiles, clothing and jute, were also protected by import controls to safeguard employment in the regions where they were settled. As Chapter 6 and Appendix IV show this does not exhaust the range of motives for import quotas, but it summarises the more prevalent ones in addition to saving foreign exchange by reducing the import bill. Within this complexity of objectives can be discovered the piecemeal elements of the post-1945 Labour government’s industrial policy, which historians have struggled to find and, not finding very much, have tended to relegate to a rather low order of significance. It did indeed scarcely exist at the level of positive cabinet or party decisionmaking. There was no coherent, centrally directed attempt to develop manufacturing industries. But the outcome of piecemeal decisions to retain or introduce quantitative import controls, decisions taken within different ministries and at an intermediate level, did amount to the protection and promotion of many important new industries and some older, very large ones, like car manufacturing. If ‘policy’ implies a specified priority and the conscious allocation of resources to achieving it, then it would be correct to say the Labour government had no industrial policy. If, however, it implies the persistent operation of a constant predilection or prejudice at a lower level of decisionmaking, there was an industrial policy whose primary instrument was quantitative import controls, essentially import quotas and state purchasing. We estimate (Chapter 6) that in 1954 about 6.7 per cent of British manufacturing output would have been lost to American competition had it not been protected against imports from North America by import controls. In the same year about 16.5 per cent of manufacturing output stood to be lost if all quantitative import controls, including those against western European exports, had been removed. These are static calculations; an unimpeded flow of resources, many would argue, would have maximised efficiency through greater international specialisation, so that the same or a greater volume of output and employment would have been reached without trade controls and the distortions that they introduced. We 6


recommend the reader, however, to read the detail of the book and consider the great variety of circumstance of the industries in question as well as of the purpose of import restrictions. Some industries, jute goods for example, were protected by quota purely for reasons of regional employment policy and had no future other than under permanent protection. Others, like the production of bulk organic chemicals from an oil feedstock, appear a striking justification of the infant industry argument. Their success suggests that in a highlydeveloped economy a brief period of absolute protection against foreign competition will sometimes suffice to develop a technologically sophisticated manufacturing process which otherwise could not be implanted, and which, once implanted, is in no way inefficient. These are extreme examples. Given the multiple causation of most import quotas within the policy formulation process, most of the examples we consider lie in between these two extremes and it is a matter of judgement whether the gains outweighed the losses. Appendix IV serves to help the reader form such a judgement. But it must be one conclusion of our work that no theory offers a universal basis from which to form such a judgement. Each case of industrial protection by import restrictions was unique in the circumstances of the industry and the purposes of its protection. Although the percentage figures for the extent of manufacturing protected by import restrictions may seem high, we believe we have erred on the side of underestimation. They are certainly high enough to persuade us that it is justified to write of an industrial policy, in the qualified sense in which we have here defined policy. The different objectives for maintaining or imposing quantitative trade controls suggest the underlying reasons for that industrial policy. One was high employment, a commitment given to the electorate by the wartime coalition government. We estimate that in 1954 about 5.4 per cent of total employment in manufacturing was in sectors protected by quantitative trade controls. But this is certainly an underestimate, because in the absence of information clear enough to sustain even the vaguest approximation we have had to omit the textile sector from that calculation. Textiles and clothing were protected by import quotas against imports from western Europe (until 1954) and from the dollar area and Japan (until 1960). Export controls imposed by India provided additional protection to textile, although not to clothing, manufacturers before 1954, and after 1956 ‘voluntary’ export restrictions were imposed by Hong Kong and India in the face of clamour for protection in Britain. Until 1954 the key raw material of 7


the industry was purchased through a statutory public body, the Raw Cotton Commission. The reader will sense throughout the book how sensitive both Labour governments and their Conservative successors were to removing trade controls when this was likely to endanger a substantial number of jobs. The idea that protecting these jobs in the circumstances of the 1950s when demand was so high was a distortion, because the same national level of employment at higher productivity might have existed without import controls, has much force. It seems to us doubtful whether quantitative controls on imports did have any important impact on the national unemployment rate. Where they did have an impact, however, was on regional and subregional employment rates and this was another important objective of government policy. Controls were used to ensure a more equal geographical distribution of employment in manufacturing. In this, their use reflected a set of predispositions about policy and the national need which had emerged in the inter-war period, when persistent very high unemployment rates had indeed been a regional problem with severe implications. We are unable to say what percentage of employment in, for example, the Scottish Development Area depended on foreign direct investment in manufacturing which would in most cases not have taken place had imports of the same products been freely allowed or merely taxed on the frontier, but it was clearly a much higher percentage than in the country as a whole. Manufacturing behind a protectionist import quota was one concession the foreign investor might win in return for having to site its factory in Scotland or South Wales. Dunning estimated that in 1957 American firms sited in Development Areas, many, perhaps most, of which had been enticed there by trade controls, employed 35,000 people.5 Another motivation for import controls was the warlike world in which the British economy operated. It would have been extremely foolish in the early 1950s to have forgotten the economic lessons of rearmament and war as they had been learned after 1936. A wide range of industrial processes and technologies in the British economy in 1946 were the result of the rearmament drive, the artificial protection given by the Second World War, and massive government investment in what were considered ‘strategic’ industries. In a war of mass production, as the Second World War had been, an astonishing range of output is classifiable as strategic, in the sense that it is indispensable for victory and that it may be unwise or dangerous to rely on imports for its supply. There was no good reason after 1945 to suppose that the world had become safe enough to 8


eliminate these considerations. Until the mid-1950s defence strategy was still based on the assumption that future wars might well replicate the pattern of 1939–45, so that what had been acquired during that war in the way of skills, technology and output must be kept, even though the market for it was smaller and in many instances the industries were not capable of facing international competition. From aeroplanes to alarm clocks and from shotguns to silk cloth, goods were classified as strategic and protected by import quotas to guarantee a national manufacturing capacity. The line between this and straightforward industrial protection against the USA and Germany was thin indeed and frequently crossed. There were persuasive arguments for protection against American manufacturing. The extraordinarily rapid expansion of American industry during the war and the ingenuity in technological innovation which accompanied it took place in much more favourable circumstances than those in which British wartime production operated. Constraints on the supply of labour, capital and raw materials meant that investment in new technologies in wartime Britain was governed by one criterion: would they help to win the war within the time frame set by grand strategy? Everything else was postponed. The enormous disparity in size of output by 1945 in some sectors of manufacturing between the USA and the United Kingdom suggested that some form of non-tariff protection was necessary if United Kingdom manufacturing were to expand in those sectors. The argument was easy to win because everyone, including the Americans after 1947, accepted the need for trade controls for balance of payments reasons, to economise on dollar imports. The argument for industrial protection against Germany was a different one. In the future it was still a potential economic rival and enemy. It was thought that a decade would elapse after 1945 before German manufactured exports would return to world markets in sufficient strength to displace those of Britain. Beginning with the occupation of Germany and the opportunities it presented by fair means or foul for acquiring patents, machinery and even people, and continuing through the official reparations programme, British officials in specialised wartime ministries which continued in existence after 1945, notably the Ministry of Supply, attempted to reconstruct certain sectors of manufacturing industry, or to introduce new ones, so that the United Kingdom would compete in the post-war world on a more equal footing against its greatest European trade rival. Import controls were an important support to this policy. 9


Protection by import controls against both the USA and Germany was seen as one way of guaranteeing a better place in the world for the United Kingdom than it had had in the 1930s. It was not a purely defensive stance but a deliberately expansionist one, using import controls to boost the post-war industrial reconstruction. Its expansionist nature can be seen in the use of import quotas to promote exports. Drastic restrictions were imposed by agreements and understandings between government and some industries on the proportion of total output that could be sold on domestic markets. There was a brief period when only one-quarter of the cars manufactured could be sold to domestic purchasers and for the first post-war decade the proportion was never supposed to be higher than half the total number produced in any year. Other products too were forced by consumption controls or direct bargains on to export markets; nylon stockings and sewing machines are similar examples. Part of the bargain was that the domestic market was guaranteed to domestic producers. Lastly, as in all cases of quantitative import restriction, private interest could insert itself into government decision-making and policy. Because there were so many different rationales for the use of import quotas it was not all that difficult for private vested interest to coincide with, or masquerade as, public good. Some of the quotas we unearthed on goods whose import would scarcely have been noticed within the total import bill and whose output appeared to have no special significance for the economy are difficult to explain on any other grounds than straightforward protectionism. And as we argue later, in a very large industry like car production, where there were various public motives for stringent import quotas, it was also perhaps within the common private interest of the major car manufacturers not to disturb the quota regime which restricted competition on the domestic market to their own circle. The public reasoning for maintaining import quotas on pulp, paper and board became an important policy issue within government from 1954 to 1956, even a foreign policy issue. There is no doubt that relaxing the quotas in a period of high demand would indeed have strained the balance of payments. But the fact remained that British paper and board producers were probably well content with such effective protection against Scandinavian producers while high domestic demand gave them good, and sheltered, growth opportunities. The line between public and private interest was not so easy to draw. From autumn 1949 onwards this piecemeal industrial policy, in so far as it relied on quantitative trade controls, was increasingly 10


threatened by foreign policy issues of the most fundamental kind. Import controls, retained and imposed to ensure for the United Kingdom a better place in the post-war world order, then began to be removed for the same reason. The process was very slow and not continuous. Most import controls against dollar zone goods remained in place for the first 14 to 16 post-war years. While the United Kingdom was the leading force from 1949 in the OEEC Trade Liberalisation Programme which relaxed and removed quotas on trade between western European countries, it was nevertheless the case that even in 1955 import quotas still kept out an important volume and value of potential imports. How important a value are we talking about? ‘Potential imports’ is a slippery concept, and as our book demonstrates there is no entirely satisfactory way of quantifying the extent of import saving to be ascribed to import controls. Most British import quotas were specified by volume and quantity, not value. Once a quota was filled no difference between foreign and domestic prices could have any influence on trade flows (although, as we show later it is not true that quotas had no effect on foreign prices). In measuring the value of excluded imports we have therefore confined ourselves strictly to the subject of the book, quantitative import controls. But the reader needs to be aware that removing an import control was not the equivalent of moving to free trade, its removal brought the tariff into play. Since every method of measuring the effectiveness of quantitative import controls has evident defects, we use a variety of procedures. Over the period 1946–9 our estimate is that the value of potential imports excluded by quantitative import controls represented about 20 per cent of the total c.i.f. import bill. For 1953 we estimate the value of excluded potential imports at about 10.2 per cent of the total f.o.b. import bill as reported at the time, for 1953 about 9.6 per cent, for 1954 about 6.3 per cent, and for 1955 about 5.3 per cent.6 These estimates are higher than contemporary estimates. There were many reasons other than import controls for the ratio of British imports by value to GNP to be much lower in the 1950s than the long-term trend, but import controls were a weighty one. If the effectiveness of import controls is measured by their ability to keep out imports, British trade controls were effective, and more effective than was thought at the time. Given the protectionist stance of the British economy since 1931, of which the increase in the use of quantitative import controls after 1945 was a logical extension, it is interesting to ask why there was a 11


change in the direction of relaxing them and not just rhetorically espousing, but actually putting into practice, a policy of greater worldwide freedom of exchange for money and goods. The complex cross-currents of post-war domestic policy priorities—reconstruction, employment, regional development, the need for a powerful national defence production—were all increasingly subordinated to a foreign policy priority. The United Kingdom must remain the most important ally of the USA. For that, it was necessary to be the leading power in western Europe, for it was there that America’s main security interest lay. And because the Commonwealth was thought of as adding great weight to Britain’s influence, especially on the USA, it was necessary to link all three of these areas, North America, western Europe and the Commonwealth, in one common framework, of which as some politicians fondly imagined Britain would be the central point of intersection. It followed that a central thrust of commercial and financial diplomacy had to be to block all suggestions for customs unions and common markets in western Europe. They would be discriminatory against British trade, because Britain would be unable to join them and keep its Commonwealth relations in the same form. They might lead to Britain being replaced as America’s first ally in Europe by a more powerful European entity. Instead of a discriminatory European bloc, Britain pursued from 1952 the goal of the legal convertibility of western European currencies, led by sterling, into US dollars, and a greater freedom of movement of goods across the whole of OEEC Europe (all of western Europe except Spain). These would be guarantees of the ‘one-world system’, as British officials liked to call it, which would successfully guarantee Britain’s place in the world. Assuming British manufacturing industry to be much stronger than its continental rivals’ governments pushed ahead with the European Trade Liberalisation Programme as a counter-thrust to the idea of discriminatory trade associations in western Europe, while fully intending to prolong the discriminatory trade arrangements between Britain and the Commonwealth. However, as we show, after each bout of quota removal and widening under the auspices of the Trade Liberalisation Programme, the trade and payments balance was weakened by the inflow of continental manufactures, ultimately with the painful consequence that in 1955–6 the United Kingdom had to withdraw from reaching the target for quota removals that it had itself forced the other OEEC countries to accept. The only improvement in the 1950s in the ability of the United Kingdom to 12


pay its way on visible account in fact occurred in the period of greatest protection by trade controls. What might have happened had quantitative import controls not been imposed, or had they been less effective? Two hypothetical outcomes seem equally probable. One is a further devaluation or devaluations of the sterling exchange rate. The other is a drive towards competitive efficiency by major sectors of manufacturing, car manufacturers for example, and the almost complete loss of other sectors, textiles for example. Given the extreme anxiety about marginal increases in the unemployment rate evinced by the Conservative government between 1951 and 1955, when its majority in the Commons was very narrow, the former seems more probable, for the latter could have worked only if accompanied by drastic deflation of domestic demand. The strong ambitions for the national currency would thus have had to be abandoned earlier than they were. Government was in the ambiguous situation of clinging to import quotas and other quantitative controls as a device to continue the pursuit of sterling convertibility, unless it were to choose higher levels of unemployment. It might, of course, be argued that the pursuit of such ambitious global foreign and financial policies was only possible if more ruthless economic choices had been made; pursued while import quotas remained in place they were founded on an illusion. There were many other reasons for Britain’s over-ambitious foreign policy and international economic stance from 1949 onwards, the underestimation of the effect of import controls on the balance of payments was only one of them. Nor was the United Kingdom alone in following this trajectory; there are striking analogies with France, which also faced a similar problem of declining relative power which it first tried to rectify by quantitative trade restrictions and then, in the 1950s, by gradually removing them. Their relaxation and removal by France, however, took place not in the context of the ‘one-world system’ envisaged by British officials as the ideal framework for sustaining Britain’s influence, but in the context of a regional European discriminatory framework, discriminating also against the United Kingdom. Thus did two formerly great imperial powers reach different solutions, although the commercial problems with which they had both been faced from 1929 onwards had been rather similar. The movement towards quantitative controls on trade after the 1929 crash represented the reaction not only of the United Kingdom and France, but also of other states to the acute trade and payments problems with which they were then at grips and also the political 13


tendencies of that period. These could be described as a shift from legislation by parliament to regulation by the executive, from the public to the semi-secret, and to the states interest as the primary need in market regulation. Tariffs having failed, in the eyes of politicians, to guarantee an acceptable form of market management, the state had to intervene with its own regulative machinery. The United Kingdom in its choice of commercial policy was only following a worldwide tendency. Much the same may be said about its gradual abandonment of import controls, for there too it followed an international pattern, this time one in which state regulation of markets was replaced by inter-firm regulation, for which the state merely provided a general policy framework at the highest level to make sure that market regulation did not run counter to foreign or defence policy. The episode of post-war British import controls is thus also part of the general history of the evolution of the modern developed state, as well as having the particular characteristic of being a response to relatively declining power. Seen from a purely British perspective it is difficult to understand it in its full context. Furthermore the removal of import quotas against western Europe was in the context of a common European programme and the removal of those against North America at least required some public obeisance to the idea of international cooperation. We therefore turn in the next chapter to a more general history of the concept of quantitative import controls in order to put the British experience in the wider perspective which alone fully explains it.

14

2 QUANTITATIVE IMPORT RESTRICTIONS AND THE MODERN STATE

Although tariffs are often handled theoretically as though they were merely a tax on trade, one reason for the extensiveness of the literature about them is that in many countries they became a basic nineteenthcentury instrument of state-building. They provided the money for government expenditure, supported the objectives of foreign policy, occasionally protected and encouraged manufactures and trades that were considered essential to the state’s welfare, and served the constitutional purpose of balancing and compromising the economic and political interests of large and influential social groups. Adjustments of the tariff, usually made by laws debated in a representative assembly, could become so frequent as to elevate import duties to the position of coping-stone of a pluralist parliamentary democracy in evolution. This was strikingly exhibited in the German Empire, where the Reichstag, which had only limited influence over other areas of government policy and virtually no control over ministers, could exercise much greater powers in the frequent and interminable discussions of changes to the national tariff. In doing so it could provide or withdraw a coalition of interest group support which sometimes more accurately represented the interests and wishes of the electorate than did the Chancellors government. Tariff debates in the Congress of the USA fulfilled a similar purpose, because of the independence of the Executive from parliamentary censure. This nineteenth-century constitutional role of the tariff can still be seen in the USA, although now at the point of change. The debate over the proposed North American Free Trade Area has been in many respects a debate over whether the national tariff should now cease to play its constitutional and nation-building role, as it already has done in western European countries. The North American Free Trade 15

IMPORT QUOTAS AND THE MODERN STATE

Area is, in spite of reassurances to Congress, a change of practice for a country in which Congress has always kept the tariff in its hands, relinquishing its detailed parliamentary supervision of variations in customs duty to the President and the Executive’s trade negotiators for only limited periods of time and only under stringent conditions imposed beforehand on the possible outcome of any negotiations. The constitutional importance of customs dues was greater in the nineteenth century because the revenue from them made up so large a part of total state revenue. In 1851 in Norway, for example, it contributed 84.1 per cent of the total, in 1885–6 64.7 per cent, in 1934–5 36.2 per cent and by 1966 only 5.6 per cent.1 This is the typical trend, albeit in the Norwegian case strongly accentuated. Taking another example of a much larger and more industrialised economy with a much more diverse range of government expenditure, Germany, produces the following result. Customs duties produced 59.3 per cent of the tax income of the imperial government in 1905, 13.8 per cent of that of central government in the Weimar Republic in 1925, and only 5.1 per cent of that of the central government in the Federal Republic in 1956.2 For countries which had almost complete free trade in the nineteenth century, such as Britain, the trend is different in so far as there is an increase in the inter-war period in the proportional contribution made to tax income by tariffs. Their contribution in Britain was 38.5 per cent in 1851, falling to 19.3 per cent by 1896, but rising by 1935 to 23.0 per cent and still in 1955 providing 22 per cent of total tax income.3 But there are few such countries. This decline in the share of customs duties in national revenue has taken place against a background of theoretical commentary and discussion which has been often hostile to the very concept of tariffs, on the grounds that they impede the maximisation of welfare. From the mid-nineteenth century some critiques of tariffs called into question the usefulness of demarcating the nation-state’s frontiers in this way and argued that a universal unimpeded market would lead to general prosperity under a universal government. Most typically, such critiques emanated from Britain and it is possible to represent the movement for free trade, trade without protectionist tariffs, as an instrument of British nation-building through commercial imperialism, just as it is possible to do the same for demands for an ‘open-door’ by the twentieth-century USA. Many tariffs had in the nineteenth century a defensive purpose against British goods and in the twentieth century against American. 16


But even if the argument for free trade can serve as an ideology of commercial imperialism, it nevertheless in the nineteenth century exposed one weakness of using tariffs as a foundation for statebuilding. That the links between the growth of international trade on the one hand and the growth of prosperity on the other might eventually turn tariffs into a disadvantage for the state was difficult to refute even when tariffs were at the height of their constitutional importance. In replacing tariffs by other devices states have been searching not only for something more appropriate to the times but for something more durable as a foundation. The fact that the debate over tariffs was so clearly connected with the evolution of liberal democracy in the last century is also no doubt responsible for the massive dominance of this subject in the history of commercial policy. But the use of quotas in the twentieth century as a substitute for tariffs also signifies an important historical stage, both in the states adjustment to new economic developments and in the changing nature of parliamentary democracy. Their first substantial use, in the inter-war period, was a response to the difficulties which states encountered when trying to solve twentiethcentury problems with nineteenth-century machinery. The precision, speed and accuracy with which they began to be applied signalled the growing strength of executive government in this century and its ability and willingness to evade parliamentary scrutiny and control. Ultimately, and ironically, import quotas were a response to the bursting of the bonds which restrictive franchises imposed on parliamentary democracies before 1914. Direct executive action by government, especially in the rapidly changing conditions of international trade between 1929 and 1933, was used to achieve constitutional balance and stability when this could no longer be done as it had been previously, and more slowly, on the floor of parliamentary assemblies. With larger, more powerful and new interest groups represented in parliaments through the widening of the franchise, the impatience which the executive power of government felt at the setting of commercial policy terms through parliamentary debate grew. When economic conditions changed as violently as they did from 1929 onwards achieving constitutional balance through lengthy parliamentary compromise was in some countries thought impossible. Even in the USA where the constitutional importance of the national tariff has lingered so long, these pressures can be observed. The growing dependence of the US economy on international trade 17


forced an increasing involvement in international tariff bargaining, but also meant a weakening of America’s ability to force tariff settlements on others. Reaching sustainable international agreements required the Administration to escape the constant detailed control of its actions in commercial policy. With persistent pressure from the Administration for more room to manoeuvre came an increasing distrust not only of the Administration but of the effectiveness of tariffs and tariff bargaining. The circumscription of the possible outcome of any tariff bargaining reached by the Administration, reflected in the escape clauses, ‘peril point’ clauses, and the special provisions for national security embodied in the Trade Agreements Act of 1934 and its subsequent extensions, show this. The extensions of this Act in the 1950s were accompanied by a strengthening of the constitutional facility for domestic pressure groups to claim protection. The United States Tariff Commission was required to determine, before any international tariff negotiation, the point below which the tariff on any product could not be reduced without causing damage to the industry or trade concerned. No tariff concessions could be made beyond that point. If, in spite of this, any trade or industry could still demonstrate to the Tariff Commission that it had been injured, the Commission could recommend withdrawal of a concession already made. After the 1958 extension of the Act concessions could be withdrawn, after a rather lengthy procedure, by a two-thirds majority of Congress. Where concessions were deemed to effect national security they could be withdrawn more speedily. The international difficulties in trade bargaining to which these provisos gave rise showed that the system could no longer serve America’s foreign policy interest. Indeed, the view was frequently expressed in Europe that international tariff bargaining with the USA was pointless because US negotiators were not empowered to guarantee the concessions they made. The survival of these tensions later than in Europe is probably best explained by the fact that even in 1962 there were only six sectors of American manufacturing where the value of imports was more than 4 per cent that of apparent consumption.4 In western Europe a large number of relatively small economies with more limited resources than the USA and with contiguous frontiers only achieved comparable levels of per capita income with imports accounting for much greater shares of apparent consumption. The pressures on their governments to provide speedy protection against sudden changes in the pattern of imports were much stronger in the inter-war period than in the USA 18


and the will of their parliamentary assemblies to maintain detailed control of commercial policy proved to be weaker. Although the generalisation that international trade tends in the long run to maximise welfare because it develops the specialisation of function on which the attainment of higher productivity levels depends has been widely accepted by governments and voters in developed economies, it has also been a political reality that foreign trade is conducted between political units which survive by maintaining a viable political system and that unregulated trade can often destabilise that system. When developments in transport opened up the great grain-growing lands of North America and southern Siberia the political demand by farmers and landowners in most western European countries for protective tariffs, even in the period of restrictive franchise, proved irresistible, no matter how much it impeded the specialisation of function. The more responsive the state became to its citizens’ demands through the parliamentary process as the franchise was widened, the more it was expected to moderate the consequences for employment, income, and local political interests of such shifts in advantage. The mounting pressure for industrial protection which so many branches of British manufacturing brought to bear on the Conservative Party after 1918, as it became clear that in many industrial sectors Britain had lost its competitive advantage, illustrates the tendency.5 The use of quotas rather than tariffs to respond to pressures of this kind reflected the new tempo of events as trading conditions altered with greater rapidity, especially after 1929, as well as at the same time an attempt to assert the increased direct executive authority of government when its stability seemed threatened. It was in France that this response was particularly marked and since, like the demand there for protectionist tariffs in the late nineteenth century, it was a response to the falling price of food imports, it illustrates very well the increased speed of response by a more interventionist state. The invasion of western European markets by cheaper North American grain first occurred on a large scale in 1873. It took twenty years of campaigning in France before a systematic tariff law was passed under such a degree of control by the national assembly that it could not easily be breached by trade agreements made by central government outside the assembly’s control. By contrast, it took only two years between the first invasion of French markets by cheap food products from central and eastern Europe in 1929 before a protectionist system of import quotas was 19


put in place, over which the national assembly had then to struggle to assert any control. If it was France that conducted the boldest experiments with quotas and other non-tariff barriers as a form of commercial policy after 1929, a similar stage in commercial policy evolution can be discerned at the same time in other states in response to the same volatile trading conditions. Like most aspects of commercial policy, many of the devices used had a pre-history. Examples of quotas on trade can be found earlier, as can most of the other measures which are lumped together under the heading ‘non-tariff barriers’. State support for the regulation of markets by private cartels (‘industrial ententes’ in the language of the 1930s), direct state-trading, bilateral trade bargaining between states, protectionist measures disguised as sanitary or consumer protection measures, exchange control (usually discriminatory), tariff preferences, and export subsidies all existed before the 1930s.6 Bans or quantitative limitations on foreign trade in particular commodities until the mid-nineteenth century, however, were more commonly aimed at depriving the foreigner of some good by preventing its export, as in the ban on exporting certain types of machinery from Britain. The converse, a total ban on imports of certain manufactures, did also occur as a way of protecting employment in certain trades, typically textiles, or as a way of encouraging manufactures that might otherwise not have become established because of more efficient foreign production. The efforts of French governments from the mid-seventeenth century onwards to establish manufacturing industries were backed up by many such import prohibitions. However the application of an import quota which, unlike an absolute prohibition, allows a fixed value or quantity of the good in question to enter, is a more recent development which coincides with the rise of a sophisticated governmental apparatus and particularly with the collection of statistical data in modern form. It is therefore no surprise that import quotas as a central element in commercial policy were first developed during the First World War as a way of rationing shipping space. At the time this was thought of by the combatant powers purely as an adjunct to grand strategy, a temporary affair for the duration of the war. But after the war import quotas and other trade controls were retained in France until 1920 as an aid to reconstruction and the French minister of reconstruction, Etienne Clémentel, envisaged a coordinated international reconstruction based on planned trade where quotas 20


would have been a basic instrument of planning. They lingered in some areas of German foreign trade until 1925, before the Weimar Republic proclaimed its allegiance to the earlier parliamentary tradition with the establishment of a new national tariff. As import quotas as devices to support planned reconstructions disappeared, they tended to reappear as a way of protecting currencies from sudden adverse movements in the balance of payments. Some were reimposed in France in 1922 for example. The Geneva Conference for the Abolition of Prohibitions and Restrictions in 1927, attended by 29 states, agreed to ban both import and export quotas within six months, but by September 1929 only 17 countries had ratified the agreement, some of them only conditionally. It eventually came into force for only seven states, Denmark, Japan, The Netherlands, Norway, Portugal, the United Kingdom and the USA, at the start of 1930. By 1934 all had formally denounced it.7 Three of the signatories, The Netherlands, the United Kingdom and the USA, were soon to resort to import quotas themselves. It was, however, the violent price movements over the period 1929– 32 which fundamentally called into question the value of tariffs as a protective device and as an aid to political stability. The fact that the price of agricultural commodities fell so much more steeply in central and eastern than in western Europe precipitated the first experiments with quotas as a device for the permanent regulation of trade, as Clémentel had envisaged, and for the long-run replacement or supplementation of tariffs. So violent were price movements and exchange fluctuations that they often eliminated the protective effect of ad valorem tariffs while also breaking up the private international cartels that had supplemented them as a form of market regulation. Competitors scrambled for sales in the face of falling demand and prices; states sought a new basis for stability. Although there was a widespread move towards imposing quotas on food imports in 1931, France was that country which first used import quotas systematically on a large scale. Yet French tariff legislation had probably given the executive greater independent powers to keep out imports by sudden tariff adjustments than those accorded to most other governments by their parliaments. The law of 13 December 1897 had given the government the power to raise duties subject only to a subsequent notification to the national assembly, and the intention of this provision was expressly to allow sudden increases in food tariffs without debate. There were in fact 21


three such increases in March, April and July 1931 all of which failed to stem the inward flow of food from central and eastern Europe before quotas were imposed. The increase in the volume of French food imports in 1931 over the average of the years 1927/30 was 50 per cent. The quotas were usually calculated as an average of the imports of that commodity over the period January 1927–July 1931.8 They relied therefore on some concept of ‘normal’ trade and their intention was primarily to restrict imports to that norm. The urgency of the situation permitted these measures to be described in public as purely defensive and temporary, but when more closely inspected they reveal more long-term ambitions. By no means all the foodstuff imports on which quotas were imposed had shown an increase over the preceding period. The attempts to use quotas to replace failed international cartels preceded the quotas on food imports, as in the licensing of all nitrate imports in May 1931 after the collapse of the nitrate cartel. Import quotas were imposed not only on food and raw materials but also on a wide range of manufactures between January and May 1932. Altogether, between July 1931 and May 1932 1,100 separate items on the French tariff schedule, amounting to about 15 per cent of the total items, were subjected to import quotas. By the start of 1934 3,000 items had been covered in this way. These changes were all carried through by administrative decrees; there were 61 such between July 1931 and May 1932. The lesson was not lost elsewhere. By the end of 1932 eleven European countries had introduced import quotas on a wide range of commodities. In almost all of them parliamentary debate and legislation was similarly avoided. Consumers were given little say in the matter, the state acted in concert with groups of industrial or agricultural producers to maintain incomes, employment, and certain areas of output that it did not wish to sacrifice. For example, the Market Supply Committees appointed in Britain by the minister of agriculture under the terms of the Agricultural Marketing Act of 1933 to draw up regulations for marketing schemes for agricultural imports excluded consumers’ representatives while they determined maximum levels of imports for that commodity and the system for allocating quotas.9 In France no distinction was made in coal import licensing between industrial coal and coal for household heating, with the result that there were shortages of household fuel.10 If a preference for the use of quotas rather than unemployment had the disadvantage of higher domestic prices, another disadvantage 22


was the effect of quotas elsewhere on exports. In a period when world trade declined steeply in value and volume French exporters complained that other import quotas reduced their exports. Partly because of this repercussion the French government came to the London Economic Conference in 1933 with plans to repeat the experiment of the 1927 Geneva conference and attempt a mutual cooperative and progressive abolition of import quotas over a threeyear period providing there could also be a return to a mutually agreed tariff regime. This was to ask for something far beyond the bounds of probability. The failure of the London Conference to agree and France’s consequent decision to keep its currency tied, nevertheless, to the gold exchange standard decided the issue in Paris in favour of quotas. The relatively high domestic price level in France appeared to leave it vulnerable to dumping by countries no longer on the gold exchange standard or intending to return to it, and ready to manipulate their external currency values. It is hardly surprising that in this situation France and other gold bloc countries such as The Netherlands passed quickly to the idea of using import quotas as a bargaining device for export promotion. Whereas before the London Conference quotas and import licences had typically been issued to foreign exporters in accordance with the geographical spread of imports over the previous period, from the start of 1934 the system in France changed so that for many commodities only about a quarter of the total import quota was allocated on the basis of previous import patterns. The remaining three-quarters was reserved for nations which guaranteed, usually by bilateral treaties, advantages for French exports. The Dutch followed a similar policy and in a more limited way so too did the United Kingdom. Quotas were imposed at various dates after 1931 by the United Kingdom on a wide range of agricultural imports: potatoes, barley, oats, hops, bacon, ham, livestock, beef, mutton, milk, and fish. In some cases these arose out of the effort to construct an imperial trade system and were imposed at the request of Commonwealth countries to divert British imports away from European to particular Commonwealth suppliers. Quotas on chilled beef, for example, were the price the United Kingdom reluctantly had to pay at the 1932 Ottawa conference for an agreement on trade with Australia, which saw the beef quotas as a guarantee that its own chilled mutton exports to Britain would not be reduced.11 It is difficult to see much 23


consistent intent in the agglomeration of quotas on agricultural imports into Britain, even though agricultural imports were roughly half the value of total imports. As a protectionist device they were haphazard, and as a way of diverting imports to other sources they were piecemeal. Agricultural imports rose in volume in the 1930s although not by so much as falling prices and rising real incomes might have otherwise induced. If import quotas had only a small effect on the volume of British imports, their use led to endless diplomatic wrangles with foreign suppliers. As an instrument for protecting domestic agriculture they were to be of much less significance in the second half of the decade than domestic marketing cartels and direct subsidies, themselves responses to a more systematic encouragement of higher output and incomes in domestic agriculture. Some effort to follow the French precedent and to use quotas within bilateral trade agreements to promote exports was made. British bilateral agreements with agricultural suppliers whose exports to Britain were subject after 1933 to import quotas sometimes included clauses stipulating that in return for their quota a fixed proportion of their coal imports should come from the United Kingdom. In the case of Sweden this amounted to almost half the total quantity of imported coal, of Estonia to 85 per cent.12 This was thought of not only as promoting exports but also as protecting employment in a threatened industry with a very large labour force. The use of quotas, however, was much more extensive in countries that avoided currency devaluation. For those countries remaining on a gold exchange standard they became an essential method of regulating trade while avoiding as far as possible exchange controls. More than half of French and Swiss imports, for example, were subject to quotas and licences in 1937, about a quarter of those of Belgium and The Netherlands.13 In countries where exchange controls and bilateral trade were used to separate the domestic value of the currency from its manipulated external rates—Germany, Italy, and almost the whole of eastern Europe—all trade was effectively subjected to quotas, because it was almost all carried out through bilateral bargaining and bilateral payments, in which the quantities of imports of specific goods or their values were closely specified with little margin for exceeding them. Although these specifications had a different origin from the import quotas imposed by countries like France whose currency remained freely convertible, and thus hard, while being overvalued, they were quantitative import controls, 24


and taking the world as a whole in the 1930s probably the most common form of them. The political primacy of the origins of quotas, the fact that they were often introduced essentially to resolve a problem of governance rather than an economic problem, for in a different political context the economic problem might have been resolved by quite different methods, such as a devaluation, implies that they may well not have been the optimal choice of economic policy. And indeed they had a poor press from economists. Once filled, they eliminated any relationship between prices and markets. Their use to promote exports was soon seen with economic recovery as less of a stimulus than prices and open markets, and the relatively low level and low rate of growth of international trade in the 1930s was in part caused by the insurmountability of quantitative controls. As the US Department of State after 1932 began to sketch plans for a multilateral, non-discriminatory world trade and payments mechanism as a goal of American foreign policy, this essential characteristic of quotas brought them into increasing disrepute in Washington. During the Second World War they came to be identified there as a barrier to the restoration of a peaceful post-war world order. They were branded both as in restraint of trade and discriminatory and on both counts deemed unsuitable for the worldwide multilateral trade and payments systems to which the State Department looked as the foundation of a durable peace and a prosperous America. In fact, import quotas in the inter-war period had sometimes been limited to one supplier and as such clearly were discriminatory, but sometimes had been global in their application and shared between any number of suppliers. The latter was the case, for example, with some of the earliest French quotas on primary produce, like that on flax. In that instance the government simply decreed in 1931 a maximum volume of imports over a six-month period which could be freely imported from anywhere before the quota was exhausted. Such early examples of non-discrimination were frequent. But the inherent administrative difficulty of operating a quota could often lead to some measure of discrimination even when the original intention was not discriminatory. The announcement of a quota invariably provoked a rush of inward shipments of that commodity. Since reports from customs houses could not be collated, at least in the France of the 1930s, more frequently than every ten days, quotas were exceeded because of the statistical delays in estimating the quotas fulfilment. 25


The consequence was the reinforcement of quotas with import licences issued to potential importers. This opened the door to pressures to get a larger share both from associations of those foreign exporters who had dominated the trade previously and from associations of domestic importers whose links were with particular exporters. After August 1931, in order to counteract these pressures and because of the spread of currency inconvertibility and exchange controls, French quotas were almost invariably country-specific. Once import licences specified the country of origin they became in any exchange control country also a permit for the necessary foreign exchange, establishing a direct and easy administrative link between saving scarce currencies and manipulating the geographical distribution of imports. In a non-exchange control country, where quotas were allocated on the basis of the volume, value and origin of the previous three to five years’ imports, the system was still discriminatory, because it made no allowance for shifts in competitive advantages since that time. Indeed, quotas were aimed particularly against those countries whose exports were growing the most rapidly. Once incorporated into the growing network of bilateral trade treaties the discriminatory tendencies of quotas were impossible to eradicate. The response to France’s growing trade deficit with Germany in autumn 1931 was, for example, to force French importers to reach privately agreed quotas for imports with their German suppliers. Import licences were only given, in this case directly to German exporters, after such agreements had been reached. This procedure implied at least a medium-term guarantee that the trade would continue, which in a world of low demand excluded new competitors. Bilateral trade, quotas, and exchange control supported each other. During the Second World War the American denunciation of these practices became a diplomatic onslaught, renunciation of them the price for American aid in post-war reconstruction. There emerged a direct conflict between the American determination to base the postwar world order on a multilateral, non-discriminatory trade and payments system and schemes for national reconstruction which drew on the ideas of the 1930s. As in the pre-war decade there was little consonance between what was agreed in international forums and actual trading practice. The peace and prosperity of Europe in the decade after the war’s end came to depend on the growth of trade through bilateral channels within Europe and on discriminatory lines against the dollar zone. 26


Article XI of the 1947 GATT agreement, which reflected American diplomatic pressures, proscribed all new quotas, but allowed exceptions for agricultural products, for reasons of national security, and as a temporary counter to balance of payments crises. These were very large loopholes. Even while the agreement was being negotiated the network of bilateral trade agreements which financed and regulated intra-European trade was becoming more extensive and covering a larger share of that trade than in the 1930s. Although the financial terms of these post-war agreements were more liberal than those of the 1930s, because the amount of credit they allowed on each side of a strict bilateral balance was more generous, they were nevertheless part and parcel of an exchange control system which was directed towards saving any hard currency by controlling the origin and commodity composition of imports.14 As late as early 1950 a future British Chancellor of the Exchequer, Hugh Gaitskell, argued that reconstruction and full employment would still demand import controls even when the acute post-war shortages would have disappeared.15 All efforts to reduce the general level of tariffs, beginning with the impending GATT conferences in 1949 and 1950, turned exponents of national reconstruction, notably French planners, towards the ready acceptance of import quotas as a substitute for tariffs to protect, albeit temporarily, the manufacturing sectors they were developing. The number of import quotas in western Europe and their significance measured by the amount of potential trade which was subjected to them is usually estimated to have reached a peak in 1949. From late 1949, under American pressure and initially at British prompting also, the member states of the Organisation for European Economic Cooperation (OEEC) launched a programme to eliminate import quotas as an instrument for regulating trade between western European countries. This has led to a simplified account of commercial policy changes in the period; a narrative in which nontariff barriers to trade are said to have proliferated between the great crash of 1929–33 and the Second World War, to have been identified by the architects of post-Second World War reconstruction as causes of the decline in world trade in the 1930s and to have been removed under post-war American leadership from 1949 onwards. The concurrent reduction of tariffs is seen as part of the same process towards removing barriers to trade in the post-war world, both resulting in the remarkable rate of growth of international, and particularly inter-western European, trade throughout the 1950s. 27


This is too simple. The ambitions of post-war states to reassert themselves by satisfying the demands of their citizens for employment and welfare, and also to industrialise, modernise and develop their economies, meant that quotas, especially on manufactured imports, became more significant at the very moment when international economic reconstruction was supposed to be directed towards liberal multilateralism. It was the existence of this array of quotas which made the initial mutual reductions of tariffs in GATT possible. Once the OEEC began its attack on quotas, tariff reductions in GATT more or less stopped, so that little was achieved internationally to reduce tariffs between 1951 and 1959. Further tariff reductions and eliminations came mainly in western Europe at the end of the decade as a result of the formation of the European Economic Community (EEC) and the European Free Trade Association (EFTA). While both of these organisations owed much in their origins to the pressure of smaller, low tariff economies, to which the larger countries bowed for complex political reasons, this does not mean that the smaller countries were more liberal in all aspects of their commercial policy. They had learned in the 1930s that countries with small markets can not easily bargain down the tariffs of bigger economies, so that for the small countries tariffs were of less protective value. Some, notably The Netherlands which was a leader in this institutionalised reduction of tariffs, made extensive use of quotas precisely because their tariffs were so low. Conversely, a large and growing economy like Italy could dispense rapidly with quotas because it maintained relatively high protective tariffs. The removal of both tariffs and quotas on intra-western European trade was, furthermore, made easier by the persistence of both as protectionist devices against imports from North America. In a period of dollar shortage it was an encouragement to western European countries to lift restrictions on trade between themselves, that by doing so they were increasing the relative degree of discrimination against dollar imports. The following chapters show how intricately interlinked quotas were with tariffs. The political reality was more usually one in which a choice had to be made between the two and in reducing the incidence of one the relative protection afforded by the other was increased. It was only at the end of the 1950s that most western European countries were prepared to contemplate weakening their quota protection against imports from North America, although their demands for reductions in American tariffs were incessant all through the decade. If it were possible to construct 28


an index of trade liberalisation which included both quantitative controls and tariffs it would show that trade liberalisation made little headway before 1955–6. It followed, rather than caused, the great surge in international trade. The process of eliminating quotas on trade between developed western European economies in the 1950s can be seen as a transition in the nature of democratic government and the state as marked as that of the 1930s. The growth of international trade, the choice to make national currencies once more convertible into the dominant currency, the US dollar, to ease restrictions on capital movements, to allow the internationalisation of manufacturing and services, represented a persistent if gradual movement towards a different political consensus from that on which post-war states were built in the immediate aftermath of the war. Their concerns after 1945 were with appeasing agriculture, maintaining high employment, establishing military security and generating high enough rates of national income growth to provide a steady increase in personal security and welfare and thus constitutional stability. As we shall see, quotas were used in support of all these objectives. As the future of the state and the welfare of its citizens came to be thought of as depending primarily on success in finding a large and growing market for exports and in satisfying a mass demand for a more sophisticated range of imports, quotas on trade between the most developed manufacturing economies came to be thought of as an impediment, rather than a spur, to national success and thus a danger rather than a support to constitutional stability. Only when that political change had really become established does the conventional narrative which sees quotas and tariffs removed concurrently in a process of ‘trade liberalisation become accurate, after 1958. Even as quotas began to lose their political attractions as a way of regulating trade between developed nations, however, they began to reappear as a way of protecting manufacturing in developed economies against that in developing ones. The Treaty of Rome, while making specific detailed commitments to the removal of quotas by regular stages on the trade between its signatories, was deliberately vague about provisions for removing or widening quotas against the outside world. It seems to have been in 1959 that British Treasury officials, having preached for ten years the virtue of eliminating quotas on intra-western European trade, and beginning their preparations to remove quotas against dollar imports in the immediate aftermath of the establishment of legal sterling-dollar convertibility, realised 29


that quotas were actually spreading again in world trade. As one official realistically noted in April in a draft statement on Britain’s commercial policy, ‘quantitative restrictions, which were originally envisaged as a transitory or emergency phenomenon, now seem likely to become consolidated as a normal instrument of commercial policy.’16 By December, the same official minuted, ‘This means, I’m sure, that there is going to be almost automatic pressure to impose new QRs in future against low-cost competition: and we know from our own experience how hard (in fact impossible) it is to resist.’17 Article XI of the 1947 GATT agreement with its exceptions reflected the political interests of the 1930s, which lingered in the 1950s. Although quotas became relatively unimportant as a device for protecting domestic agriculture compared to the many other forms of protection which evolved, some still remained for this purpose. Thus the USA itself, even while leading the attack, continued to play a leading role in the regulation of the international sugar market, part of which was achieved by the use of import quotas. The mandatory quotas which it had imposed on wheat imports in 1941 were kept in place, restricting wheat imports from Canada to less than 1 per cent of national consumption. Quotas on peanut imports, equally restrictive, were imposed in 1953. Imports of short-staple cotton were virtually eliminated by quotas after 1939, while imports of long-staple cotton were confined to 2 per cent of domestic output. Quotas were imposed on dairy products in 1953 and the number of specific items covered increased from 1955. Quotas on beef and bacon were imposed in the 1960s. Under the GATT article the USA justified its imposition of quotas on crude oil and oil products in 1959, claiming that its oil stocks were essential to national security. The licences to import crude oil into the USA under the quota regime of the 1960s were actually a highly profitable subsidy to those who received them. The landed price of middle eastern crude oil in US east coast ports was only 65 per cent of the delivered price of domestic oil there. Inland oil refiners sold their licences to coastal refineries which used imported oil. The cost of these windfall profits to the oil industry, estimated at about $5,000 million in 1969, was carried by US consumers.18 Quotas on fuels remained common in most industrialised countries. The quotas on oil and oil products which France had imposed in 1928, mainly for reasons of industrial policy, remained in force, except of course towards its EEC partners. Belgium, France, Germany, Holland and the United Kingdom all kept quotas on coal imports after 1958, for 30


which the main reason was that at least half of western Europe’s coal output was uncompetitive in most years with US coal shipped across the Atlantic, although the public argument used in GATT and other bodies was always the need to protect national security. What article XI had not covered, however, was the arrival of manufactures from newly-industrialising countries. A serious problem in the 1920s, it had been much less so after the onset of the depression in 1929. The chief example of such a country in the 1950s was the exenemy Japan. Sterling area exchange controls strictly limited Japanese exports to Commonwealth countries before 1954. As they were relaxed British import quotas were introduced against Japan. Under the 1954 quota grey-cloth could only be imported up to the value of £3 million and only for processing and re-export. Quotas on clothing, cotton and rayon piece-goods, and pottery were all lower than imports of those goods in the 1930s. Other quotas were imposed in 1954 for toys, electric lamps, light bulbs, buttons, paper manufactures, brooms and brushes, lacquer ware, and ivory fancy goods. When in 1955 Japanese textile exports made serious inroads into the United States market the American cotton manufacturers and textile producers, in spite of the extensive extra provision made by Congress for additional safeguards in any extensions of the Trade Agreements Act, saw the survival of their industry as possible only if import quotas were imposed on the Japanese product. The president of the American Cotton Manufacturers’ Institute, inaugurating a campaign for protection, foresaw a new problem in world trade in manufactures, ‘I don’t think that a wage rate one-tenth that of ours can be equalised by a tariff when the Japanese have the same machines we have and the same, or lower, raw material cost.’19 When there had been an earlier surge of imports of Japanese cotton goods in 1936–7 the Japanese manufacturers had agreed to a negotiated quota on exports to the USA. Another inter-industry agreement like that of 1937 seemed likely to be ineffective, because of the more liberal way in the post-war climate of opinion in which US courts were interpreting the anti-trust laws. GATT had proscribed the use of import quotas to meet such a case. The Japanese manufacturers’ association was ‘persuaded’, therefore, in 1955 to announce a temporary voluntary unilateral quota on exports to the USA. Being voluntary, it escaped GATT condemnation. This was not regarded by the American side as a sufficient safeguard and for 1956 the Japanese Ministry of Trade and Industry officially instituted a regular regime of voluntary export quotas. The US government, 31


strenuously campaigning throughout the 1950s for the removal of quotas on intra-western European trade and then on trade between North America and Europe, concealed its official involvement in these allegedly voluntary quotas as far as it could, but no one doubted that it was only the US government’s tacit involvement and approval that had made the arrangement acceptable to the American manufacturers, while concealing that same involvement made it not subject to condemnation by GATT. In the 1960s many other Japanese textile and clothing exports to the USA were subjected to similar, if less formalised, voluntary export regulation, including woollen fabrics, silks, rayons, gloves and sweaters. By the end of the 1950s the United Kingdom defended its domestic textile market by similar, allegedly voluntary, export quotas administered by Hong Kong, India, and Pakistan. The voluntary export quotas lasted until 1961, by which time it was evident that excluded Japanese textile exports were being replaced by similar exports from other cheaper producers. Under American government initiative a series of international agreements on trade in cotton textiles was then negotiated in GATT. By 1968 90 per cent of American imports of cotton textiles were imported under this GATT regime.20 So-called voluntary export restrictions are not, of course, matters of pure volition. They are import quotas under a more acceptable name, and one chosen to circumvent those very post-war international agreements, mostly written on terms set by the USA, which sought to prohibit the use of quantitative restrictions. They are imposed by exporters on their own trade solely out of the fear that something even worse will happen to them if they refuse. Under the voluntary quota regime and under the later GATT agreement the value of US textile output in fact grew vigorously.21 It remained, however, of all the major US industrial sectors the one with the lowest value added per employee.22 There developed contemporaneously an extensive armoury of European quotas against Japanese exports. Baldwin estimated that in 1970 Italian quotas on Japanese goods covered 104 items, including cars, refrigerators, alloy steels, electrical equipment, clocks, and medical equipment. French quotas covered 47 items and German quotas 22. One persuasive reason for retaining them was that Japan itself imposed quotas on about 100 items.23 Post-war Japan initially stood outside regional commercial frameworks for eliminating tariffs or quotas. Where such regional 32


commercial frameworks, of which the common market of the European Community has been the notable example, have functioned successfully, it has been because private traders themselves, within an internationally agreed and occasionally enforced set of guidelines on competition, have been able to regulate or stabilise the markets in important trades. That has itself required a certain degree of trust and even familiarity between the firms concerned. Japanese business and government have had their own methods of reaching the same goals, and by the time Japan was allowed into the comity of trade regulatory agencies it was the close relationship of firm and government that was generally replacing quotas and tariffs as a regulatory device, albeit in a Japanese model which the USA in particular has repeatedly denounced internationally. The instinct of the state machine in the face of growing democratic pressures to seek compromises with pressure groups and vested interests in the pursuit of its own policy objectives, as far as possible outside the purview and immediate control of parliamentary assemblies, has thus remained, after the surge in power and influence of parliamentary assemblies in the first post-war decade. Many of the more modern quotas reflect this, like the arrangements between the US government and its domestic oil producers and refiners. Where intra-firm regulation does not serve the purpose, state officials can still plead the technocratic advantages of import quotas; quickly imposed and quickly removed, they still permit a speed and flexibility of international trade bargaining which tariffs do not. The disadvantage, that they impede exports more than inter-firm regulation probably does, of course, remains. In the immediate post-war period, in the United Kingdom at least, most of the civil servants employed in the administration of import quotas were simply carrying out routine bureaucratic procedures. Actual negotiations with the domestic producers affected by the quota regulations were few. Usually they were confined to the setting of bilateral quota levels, global quota levels being considered only a matter of the governments own balance of payments policy. Industrial sectors protected by quotas were being sufficiently favoured, for reasons of the state’s own choosing, for the state not to feel it necessary to waste the time of its officials in discussions with representatives of the interests concerned, with all the possibility for suggestions of corruption which might arise. When it came to the matter of removing quota protection, government was even more high-handed. In two British industries 33


massively protected by quotas, lace and handguns, the trade associations, the Federation of Lace and Embroidery Employers’ Associations and the Gunmakers’ Association, were contacted only three days before the government began OEEC negotiations on their bilateral quotas and then only with requests for information. More typically such requests were made at only 24 hours notice or even on the same day.24 The only group which seems to have been strong enough to force anything resembling consultations on the government over the size of bilateral quotas was the car manufacturers. Their cars were in the forefront of government export policy, one of the single largest items in Britain’s export earnings. In part this high-handedness of government was the outcome of an attitude under the Conservative governments from 1951 onwards that import quotas should be primarily an instrument of balance of payments policy. Given the mix of motivations which had led to their introduction this was a point of view which aroused controversy between ministries. When the Treasury was concerned with the balance of payments and the Foreign Office with pursuing its commercial policy initiatives in Europe, other ministries—Supply, the Admiralty, for example—clung to the original motivations for industrial policy. It would not have done to have industrial and trade associations inserting themselves into these disputes. In these circumstances the influence of private firms on the removal and widening of quotas became inevitably small. On the other hand, any international arrangements which private firms made with foreign producers in the same sector were entirely their business, unless they fell foul of legislation on monopolies. When, for example, the watch and clock industry, protected by import quotas from 1945 onwards feared in late 1953 that it might lose its quotas in the cause of the grand strategic design for Britain’s place in the world, it referred to the Board of Trade an approach from the German and Swiss manufacturers’ associations to fix prices in preparation for a freer trade in clocks. It was told that that was not government business.25 The application from the industry for continued protection for clocks was then handled as a straightforward application for tariff protection on the assumption that the quota would be removed. Seen therefore in a British context, the period when quotas and other quantitative import controls played a major role in commercial policy was a result of the incremental decisions to protect incomes in the agricultural sector, the carefully fostered contacts between some industries and government which began to be built up after 1931, 34


the exceptionally close and urgent nature of some of these in rearmament and war, and the Labour governments attempt to use them as an instrument of industrial policy and economic planning. Underlying the whole period was also the periodic concern, intense after 1945, about the precariousness of the balance of trade and payments. A characterisation of the same period in France, over which quotas and quantitative restrictions were even more significant in national commercial policy, would not read very differently. The pressure for the removal of quotas also had the same origins in both countries, the belief that freer competition within larger markets would increase prosperity more rapidly and the emergence of an agreed international framework of trade and exchange rules which made it safer to widen or remove quotas. In western Europe, at least, this could be done by multilateral agreement which balanced the advantages and disadvantages for all concerned. It was this level of international agreement, quite lacking in the 1930s, which permitted the slow transition from quotas to interfirm market regulation under state and international supervision. It followed that the transfer of regulation to the private domain under loose public supervision would either be tacitly encouraged or treated as a matter of little concern, foreshadowing the permissive attitude to private regulation of markets between major producers taken by the European Economic Community after 1957. In Britain, manufacturing industry in general distrusted government interference. And where it suffered from the withdrawal of government support and protection this was not likely to alter the fact that it paid for and voted for the Conservative Party which held office throughout the rest of the decade. But this change in the relationship of industry to the state was not confined to the United Kingdom, it was merely more abrupt and immediately evident there because of the alleged imperatives of the grand diplomatic strategy of the government of a country which still wished to function as a worldwide power. Were it possible to analyse the post-war history of import quotas in France in the same detail as for the United Kingdom it might well prove to be the case that the contacts between the state and manufacturing remained closer for longer than in the United Kingdom.26 The implementation of at least the first two mediumterm central economic plans required that. For that reason and also because the French balance of payments was in serious deficit for many of the first fifteen post-war years, it was harder to get rid of quotas. Once government had opted for the common market of the 35


Six, which it saw as a positive step towards modernising French manufacturing by removing some of its protection, there was an intense struggle between industrialists and civil servants who supported that position and those who opposed it. The ratification of the Treaty of Rome, however, was a big step on the road to the private regulation of foreign trade within a set of vague supranational guidelines on competition policy. This change in the relationship between the state and manufacturing industry probably reflected the greater security of both in the 1950s, although this new line of commercial policy could probably not have been pursued unless different systems of protection for the agricultural sector had been developed. These latter also were internationalised, notably in the Common Agricultural Policy of the EEC. Delegating the removal of quotas to an international organisation with a programme with its own rules and its own system of supervision was a task from which international economic conferences in the inter-war period had fled. That such a programme could be undertaken so vigorously and go so far is the best demonstration that changes in the nature of the democratic state were beginning to render inappropriate the quota regime which had developed in the inter-war period. There were also, however, specific historical circumstances which led to the initiation of that international programme in 1949. These and the vicissitudes of the programme itself are explained in the next two chapters, because it was within that programme that British import quotas were removed, re-imposed or retained. It is in the detail of these international negotiations and their links to the domestic economy that the significance and purpose of post-war British import quotas best emerges.

36

3 BRITISH COMMERCIAL POLICY AND THE OEEC TRADE LIBERALISATION PROGRAMME, 1949–51 A PRELIMINARY NOTE ON BRITISH METHODS OF IMPORT CONTROL Imports came into the United Kingdom through a variety of conduits. Many large-scale manufacturers who used imported materials and components set up their own importing agencies. Some chain retail stores, the Cooperative Wholesale Society for example, imported directly from wholesale suppliers. Some foreign firms for which the United Kingdom was a large, regular market set up their own branches inside the country and some operated their own retail agencies or shops. Staple products which could be easily classified and sampled were bought and re-sold at a profit by import merchants, often specialising in a particular commodity. A kindred spirit of the import merchant, but not trading on his own account, was the import commission agent. The agent sold on behalf of a foreign exporter, finding the market, selling at the best price and deducting a commission. The greatest importer in this period was the government itself, virtually the sole importer at the end of the war and still responsible for 37 per cent of the value of all imports in 1951.1 All goods imported into the United Kingdom in the period had to be covered by an import licence issued by the Board of Trade, but the existence of ‘Open’ licences made this to some extent a fiction. If goods were scheduled in the Board of Trade Journal as being under a World Open General Licence, any trader could import any amount from any source. A World Open Individual Licence meant that only entitled individuals had this right. The World Open Individual Licence was a way of keeping new entrants out of the import business. The National Coal Board, for example, held such a licence to import coal. It was used only in accord with an import programme approved by the government, so that coal 37

THE OEEC TRADE LIBERALISATION PROGRAMME

was never claimed as a liberalised commodity in the OEEC Trade Liberalisation Programme. An Open General Licence meant that any trader could import any amount from some designated area or areas. Most Open General Licences were issued for imports from the Relaxation Area, whose geographical boundaries altered with changes in exchange control regulations. Its core was the OEEC countries, their overseas dependencies, and Brazil, Egypt, Finland, Indonesia and Sudan. An Open General Licence thus meant that imports of these commodities were accepted as having been liberalised by the OEEC definition, but only from the relevant zone. ‘Specific’ licences specified limits to the value or volume of permitted imports. They were allocated to recognised importers, usually on the basis of their previous imports. In the case of bilateral trade agreements the specified amounts had to be imported from specified countries. In the case of ‘global’ quotas the importer could, up to the specified limit, seek the cheapest supplier within the permitted area. Some ‘global’ quotas, like that imposed on pulp and other paper-making materials in November 1951 were truly global in that importers could import up to their specified limit from anywhere on the globe, including the dollar zone. This, however, was unusual; most global quotas were in fact for imports from the Relaxation Area only. BRETTON WOODS, THE MARSHALL PLAN AND TRADE LIBERALISATION The caution with which western Europe moved towards removing import controls after 1945 is in stark contrast to the drastic advice given by the west to former Soviet bloc economies after 1989. While eastern Europe was told to move at top speed to free foreign trade as the quickest way to high growth rates and stable democratic government, western Europe after 1945 moved very hesitantly in that direction because of fears that removing trade controls might destabilise democratic reconstruction. Although over most of western Europe from 1945 onwards high rates of growth of national income and high levels of employment replaced the stagnation and unemployment of the 1930s, the postwar debate over the regulation of foreign trade resumed the arguments of the pre-war decade. The smaller western European countries renewed their 1930s campaign to force the larger ones to lower tariffs, 38


while the larger ones resolutely retained protectionist duties on their frontiers. Within this familiar argument could be heard at first faintly and then ever louder, a third theme; propositions for tariff unions. In a world where states pursued so energetically a wide range of domestic economic and social policies tariff unions were only likely to exaggerate the degree to which non-tariff barriers were maintained between countries in such unions. Thus the Benelux customs union did very little before the mid-1950s to expedite the flow of goods between Belgium and The Netherlands because of the battery of nontariff restrictions, from quotas to fiscal and excise duties, that both countries deployed to regulate trade between them. Conversely, an intense post-war diplomatic negotiation over the future of European tariffs only made it obvious that the removal of quantitative restrictions would strengthen sectoral demands for tariff protection. Yet the first post-war decade is notable for the internationally supervised programme of quota removal by the Organisation for Economic Cooperation and Development (OEEC). How did quotas rather than tariffs become so much the focus of trade liberalisation that the phrase by the mid-1950s had come to exclude tariffs? And how did European states which had so signally failed to cooperate in the 1930s manage to combine in a mutual action to remove quantitative restrictions? These questions are not answered by simply reciting the way that economic conditions had changed so that quantitative trade restrictions seemed otiose. It was probably not before late 1953 that governmental anxieties that the bubble would burst and that a deep post-war slump would arrive were finally allayed. Anxiety was then brusquely replaced in the miracle years 1954–5 by an unbounded confidence that government action had permanently reshaped economic conditions and the idea began to be voiced that with the increase in the state’s ability to control equilibrium at a high level of employment the normal future expectation might be one of high annual income growth. But over the decade it took for that view to crystallise, dominant memories of the 1930s haunted politicians with the idea that the fortunate years would not last, that the new western European political system which they were building would collapse into disaccord. Underneath that fear was the other fear, that its rival system in eastern Europe would prove far more resilient against an internationally transmitted depression, would preserve higher employment levels, and ultimately achieve higher rates of income growth. 39


If, therefore, it was ultimately the change in economic conditions which undermined quantitative restrictions as a method of regulating trade, it was not that change which determined the timing with which they began to be removed. That was determined by the American intervention in European reconstruction through the Marshall Plan and by the intra-European struggle for leadership of the continent under the Americans. On the American side the political objective of the Marshall Plan was the creation of an ‘integrated’ western Europe, to serve as a bulwark of American security. This was a conscious rejection of European economic policies of the 1930s, whose divisive national protectionisms were thought to have weakened America’s own security in that decade. The integration of western European markets was to be the first step along a road which was ultimately to lead to some form of political integration. This was almost always envisaged in Washington as resting on the removal of trade barriers between the western European economies. The price of American aid and, for many countries more important, American international support, thus became the lowering of tariffs and the widening or removal of quota restrictions on intra-western European trade. Quantitative trade restrictions within western Europe thus came under political attack from the outside as early as 1948, when they were still proliferating. On the European side, winning American favour and support meant being seen to advance the cause of European integration. For the smaller states this meant trying to get American backing for their attempts to bring down tariffs. For European federalists it meant advancing once again their pre-war idealisms of a European customs union as the basis of a European political union. For France, it meant a recurrent political flirtation with different forms of commercial, payments, or tariff unions with its immediate neighbours as the basis of a future security policy against Germany. All of these ideas competed for favour at court in Washington. All were regarded in London as threats to the United Kingdom’s position in the world. The United Kingdom’s own future security was believed to depend directly on the imperative that of all the western European countries it had to be the most important to the USA. Since the priority of America’s own security policy lay in western Europe, the United Kingdom had to seem able to further America’s interest there more successfully than any other European state. All plans for European customs unions and, even worse, plans for European political 40


federations, were seen as potential threats to the United Kingdom’s position. Britain could not join, and the hope that moves towards European union would not outlast Marshall Aid alternated with fear that such associations might replace the United Kingdom as America’s right hand in Europe. There were episodes when London’s policy was prepared to tolerate the formation of a European customs union excluding Britain, or at least to say in Washington that it tolerated it. But, economically, even when the political opposition was muted, the conclusion was always firm that such a development could only hurt the United Kingdom. There were French approaches to Italy and to the Benelux countries to form customs unions even before the Marshall Plan brought massive American diplomatic support for such initiatives during 1948 and afterwards, so that the need for an alternative policy in London was always present. It was never taken too seriously, however, before the Marshall Plan led to the creation in 1948 of the OEEC. Within the sixteen European member-states who formed that organisation there were only two of genuine weight and influence, Britain and France. While carefully cooperating within the OEEC to make sure that federalist or other unwanted schemes for European integration were pushed aside, London and Paris vied with each other at Washington to attract American support for their separate and rival schemes for establishing their national leadership of Europe. With American enthusiasm for a customs union as the best step towards a political union in Europe, those in Paris who advanced the idea of a customs union between France, Benelux and Italy into which the emerging West German republic could be fitted were in a much stronger position. What before 1949 had been almost as improbable a vision as in the 1930s became something whose chances of fruition were high enough for the British government to need a rival policy which could have the same high level of emotional and practical political appeal in America.2 Its other necessary characteristics were that it should be seen as advancing the cause of economic ‘integration in western Europe, to please the Americans, while making sure, in Britain’s own interests, that Europe was led away from regionalism towards participation in ‘the one-world system’ where Britain could retain unimpeded its existing relationships with the USA, the Commonwealth, and the continent. It must therefore reduce barriers between western European economies while not being discriminatory and it must be a step towards reducing barriers between Europe and North America. 41


Proposals for tariff reductions would have been dangerous ground. They opened the door wider to French enthusiasts for a customs union. Besides, the tariff that Britain was mainly interested in beating down was that of the USA and officials were more interested in preserving British tariffs at their existing levels as a bargaining counter against the USA, and to a lesser extent as a way of preserving the value of preferences offered to Commonwealth countries. Any tariff proposals would have had to be made in GATT, unless they were proposals for a customs union, and so could hardly be presented as a European initiative by Britain supporting American foreign policy. A proposal to widen and remove non-tariff barriers on inter-western European trade, on the other hand, could give the OEEC something to do and could be presented as a big step towards ‘integration while being a step away from a customs union or a political federation. Removing quotas would make it harder to remove tariffs. Removing them on trade between all the sixteen states in the OEEC would involve countries such as Norway, Portugal and Sweden, where there was no interest at all in a federal Europe or any other form of political union on the continent. Domestically, controls—of all kinds—were becoming unpopular and a greater freedom of trade might revive the fortunes of the Labour government with consumers, to whom the newspapers presented an image of a continent wallowing in the consumption of luxury goods excluded by puritanical British socialist practitioners of austerity. It was through this chain of political reasoning that the Labour government in June 1949 launched a major policy initiative to widen import quotas on intra-western European trade. The initiative did receive enthusiastic American support, although American officials, of course, saw it as something that would run in parallel with moves towards a customs union. This initiative was to become the Trade Liberalisation Programme of the OEEC. As events were soon to show, no matter how appropriate the political timing of this initiative, its economic timing was much less happy. Without the enormous pressure on both Britain and France from the USA through the Marshall Plan to do something to ‘integrate’ western Europe, and without their rivalry for leadership of such a programme, it seems improbable that the United Kingdom would have risked removing its own import quotas so rapidly as was at first attempted. Without the enormous pressure that the Trade Liberalisation Programme then brought to bear on other western European countries it seems even less probable that some of them 42


would have done the same. Indeed, one of the appeals of the Trade Liberalisation Programme to London was precisely the fact that it would show up France in American eyes, not as a pioneer of a European customs union, but as the most protectionist of western Europe’s economies, ready to prattle about tariff unions but actually practising the full range of non-tariff barriers to trade which it had pioneered since 1929. Clever as the political thinking behind the initiative was, its consequences for Britain’s own economy were much more serious than was thought at the time or afterwards. It was to be an important cause of the huge balance of payments deficit of 1951. No matter how convincing the political rationale for the Trade Liberalisation Programme, so risky a step, endangering the earlier domestic policies which had depended on import controls, would not have been taken had there not also been an economic rationale supporting the decision. That rationale is found in the gradual emergence by 1949 of the ‘one-world system’ not just as a foreign policy but as a coherent international commercial and financial policy as well. Reconstruction and the return to a peacetime economy were interrupted by the brief trauma of the convertibility fiasco of July 1947, and followed by the shock of sterling devaluation in September 1949. Absorption in domestic economic affairs, and the state of emergency which governed international economic and commercial relationships after summer 1947 meant that no clear course of postwar British commercial policy emerged before the Trade Liberalisation Programme. The Bretton Woods negotiations had disappointed Keynes’s hopes for a world clearing union which would be generous to short-term debtors and severe towards persistent creditors, and the subsequent Anglo-American Financial Agreement which provided the dollar loan to the United Kingdom, although generous in its cancellation of war debts, entailed rough handling in other ways for sterling. It demanded ‘non-discrimination’ in trade. On American lips non-discrimination meant the end of sterling area discrimination against dollar goods, whereas on British lips it came to mean no discrimination by a continental European bloc against sterling and dollar goods. After the start of the Marshall Plan, and even more so after sterling’s devaluation, the Bretton Woods agreement had little more than symbolic value. The USA proved quite ready to support discrimination if it believed it to be in its own security interest. Nevertheless, in spite of import controls, exchange controls, bilateral agreements and devaluation, the principle of a 43


worldwide multilateral trade and payments system based on the legal convertibility of major capitalist trading currencies as laid down at Bretton Woods remained. In Washington after 1947, faced with the immediate, complex, detailed problems of the political and military leadership of the western world, the Bretton Woods agreements, too generalised to be applicable to actual problems, were forgotten as practical politics, to be preserved only in the pages of economics texts. In London they began to be resurrected with the start of the Trade Liberalisation Programme as a description of a world in which the United Kingdom would be of much greater importance than any other western European country. If the USA, faced with the problem of European reconstruction saw the answer in a European customs union it must be led away from this false direction and back to Bretton Woods. Customs unions in western Europe would not, in any case, it was believed in Whitehall, lead to a larger, unified market. On the contrary, it was thought, they would prove of limited size, protectionist, and more divisive in their effects than integratory. In spite of this rediscovery of the statements at Bretton Woods that the future world order would be commercially nondiscriminatory, the British definition of the one world system was one in which the United Kingdom-Commonwealth links helped Britain to play a leading role and one element in those links was trade discrimination. The tariff preferences between the United Kingdom and Commonwealth countries through which commercial policy had been reorientated from 1932 onwards were thought politically indispensable, because to weaken them weakened one of the three great circles of Britain’s influence. Both at Bretton Woods and in the subsequent negotiations for the loan to Britain, Washington had pressed for the end of these imperial preferences as the most significant example of discrimination in world trade. The issue had been fudged at Bretton Woods, and in the loan negotiations the United Kingdom had been able partly to get around it because it involved so many countries who were not negotiating with the USA, most of which strongly wished to keep the preferences which the USA wanted to see end. All the United Kingdom was prepared to concede for the loan was to accept the ‘no new preference’ rule of the proposed International Trade Organisation (a rule subsequently adopted by GATT); to accept that preferences would be allowed to be automatically reduced by any tariff cuts; to unbind all bound preferences so that they would be automatically reduced by the same process; and to abandon certain minor preferences.3 In the one non44


discriminatory world, Commonwealth tariff discrimination would remain, until the distant day when all tariffs would be bargained down in GATT. The tariff in fact was important to the United Kingdom not only because of its value in preserving the preferences on Commonwealth and imperial trade at a significant level but also as a purely national instrument of economic policy. Since the 1929–32 depression the United Kingdom had become a relatively protectionist country. The early postwar rounds of tariff cutting still left Britain in the 1950s with a tariff whose average incidence was rather higher than that of the Federal German Republic, much higher than that of most of the smaller states, and only slightly lower than that of candidly protectionist France and Italy. Programmatic attempts to reduce or remove tariffs in western Europe in the name of integration were not only politically threatening, they were economically threatening as well. In British eyes the United Kingdom tariff would be reduced when the one world system arrived. What mattered to Britain was not European tariffs but the American tariff, and no further concessions would be made, including the ending of imperial preferences, except for the purpose of bargaining down the American tariff, because the core of the one-world system would remain the two great English-speaking powers, the lesser with its special relationship to the greater. Financially, the birth of a true one-world system would be marked by the restoration to full legal convertibility into the US dollar of the pound sterling. In 1949 this was still a millenarian moment, that one, far-off, divine event, To which the whole creation moves. There were no detailed plans for bringing it about; it was awaited. Day-to-day policy was concerned with defending the currency, which for most of that year meant resisting any suggestion of even the most technically limited forms of convertibility. But nowhere in the Labour government was there any coherent plan for the management of the currency or the economy which supposed anything other than its eventual full legal convertibility within the dollar-exchange standard which was beginning to emerge. In this system the pound sterling would still, it was assumed, be a widely-used international currency. The political relationship between the USA and Britain would be reflected in the relationship between their currencies. As conditions in Europe and the rest of the world returned to ‘normal’, and the shortage of dollars in world trade 45


disappeared, exchange restrictions would be removed and the International Monetary Fund (IMF) would begin to play the role foreseen for it at Bretton Woods as the keeper of the convertibility rules. At the same time the need to save foreign exchange, to regulate payments in bilateral trade and to economise on dollars, would be removed, thereby eliminating the most obvious publicly-proclaimed reason for quantitative import controls. Although in 1949 there was still no coherent programme in London to reach the point at which the legal convertibility of sterling into US dollars could be restored, the Trade Liberalisation Programme fitted into all these assumptions about the future. It proclaimed British leadership of Europe towards the free exchange of goods and currency; for reasons which seemed in 1949 too obvious to debate the dollar convertibility of other major European currencies would have to wait on a proclamation of sterling convertibility at a moment chosen in London. When exchange controls went, what would happen to trade controls? The assumption had to be that with the re-establishment of convertibility they too would go, apart perhaps from some which might be insignificant in terms of world trade and payments. This would make the tariff of even greater importance as a defence of the trade balance and the sterling exchange rate. If the regulation of markets by tariffs was also to be reduced this must therefore be in a grand international settlement which guaranteed much greater access for British goods to other countries’ markets. The tariff was thus set aside as an item over which it was pointless to bargain with Europeans, because it would be needed later to defend the trade balance, and because reductions in European tariffs could not offer sufficiently large trade gains to recompense the loss of protection. British markets lay elsewhere, so it was elsewhere that tariffs had to be brought down by mutual bargaining. European reconstruction was indispensable. Some measure of European integration, as long as it helped the United Kingdom’s vision of the future and did not pose a political threat to that vision, was valuable in the interests of British security. If sterling payments were strictly reserved for national control, if tariffs were too dangerous on every ground for negotiation in Europe, a programme to promote market integration in Europe could only mean an assault on the use of import quotas on intra-western European trade. It could appear as integrationist; as embracing all OEEC members (unlike any of the proposed customs unions); as allowing all awkward questions about tariffs and preferences to be relegated to GATT where European 46


pressures would be more easily resisted; as a major reduction in trade discrimination; as a step towards restoring sterling-dollar convertibility; and, above all, as strengthening the special relationship by reasserting Britain’s capacity to lead western Europe in the general, albeit not the exact, direction in which the USA wanted it to go. The ways by which the ideas of quota removal advanced in Washington and London at first separately and then together until they coalesced in the Trade Liberalisation Programme of the OEEC— trade liberalisation thenceforward referred only to quotas—were intricate and at times conflicting. Although the British initiative received strong support from Washington, it was not so much complementary to more ambitious American aims for Europe as an alternative to them. In Washington the idea of a mutual action by the OEEC memberstates to remove quotas on their intra-trade was present as one of many competing ideas, many of them of greater political scope, to put new life into the idea of European integration, discussed within the US government in summer and autumn 1949. By that date it had become evident that the Marshall Plan and the creation of the OEEC had not been the giant step on the road to political integration which the USA had initially hoped it would prove. Diplomacy within the OEEC remained strictly national and cooperative. Time appeared to be running out for the USA’s capacity to achieve a measure of political integration in western Europe, because the economic leverage of aid was already much less in autumn 1949 than it had been at the start of the Marshall Plan. Officials therefore were seeking some way of linking the continuation of aid with a firmer and more formal commitment to integration on the European side. The British initiative for the removal of quotas can be traced back to early 1949. There was in existence a Working Party on Import Licensing Relaxations whose task was to make periodical recommendations. The first report in which it recommended any widespread relaxation of the import licensing system was 30 April 1949.4 The report seems to have been based on a secret Board of Trade list of goods which were candidates for transfer to a nonquota regime, but only if they were imported from what were then classified as soft-currency countries in the OEEC. Among OEEC member-states this would have excluded imports from Belgium, West Germany and Switzerland. This was furbished as a European-wide initiative in May in response to an American initiative to wake the OEEC from what the USA regarded as its slumbers and drive it once more towards integration. 47


The American initiative was intended to create some form of payments mechanism between the members of the OEEC which would not depend on bilateral balances but would allow for a certain degree of multilateralism. The Economic Cooperation Agency (ECA), the USA government agency in day-to-day charge of Marshall Plan affairs, proposed to set aside as much as 10 per cent of the Congressional appropriation for the next aid year to support a settlements mechanism for intra-OEEC trade that would not rely on strict bilateral balances. The competition to obtain this slice of aid was fierce, led by proposals for a closer payments association with some element of multilateralism between France, Benelux and Italy. This came too close to the integration of the same group of states in the customs union to which the United Kingdom was opposed not to arouse suspicions. Whitehall and the Bank of England were equally opposed to the introduction, on the basis of this American financial backing, of another American idea, the use of transferable drawing rights within Marshall Aid as a means of effecting multilateral payments between the OEEC members. This came too close to foreshadowing convertibility, and only the United Kingdom itself could determine the conditions and timing of sterling convertibility. American pressure to make drawing rights transferable would involve the loss of dollars to European countries. It would be even worse if those dollars were allocated to establishing a quasi-multilateral settlements mechanism between those very countries which France wished to gather into a customs union. ‘If we are to resist American pressure successfully,’ Cripps informed the cabinet, ‘we must ourselves make constructive proposals for liberalising trade and to stimulate economic and competitive production in Europe.’5 These proposals were found in the Working Party’s report. The proposal which Cripps was able to have accepted by the cabinet was that by 1 October 1949 each OEEC member-state should submit its own list of goods on which it would unilaterally remove quotas. This became a formal resolution of the Ministerial Consultative Group of the OEEC on 4 June. Having already done the homework, the United Kingdom was able to publish an impressive-looking list of goods to be transferred to Open General Licence from 5 October. This amounted to about half the trade imported on private account from soft-currency OEEC countries in 1948. French counter-proposals, that these liberalisations should involve a common list of goods on which quotas would be removed by all member-states of the OEEC were firmly rejected. This also 48


looked too much like a prototype for a customs union; it might become a step towards associating the OEEC with parallel schemes for tariff removals. Each country was therefore to act unilaterally and the OEEC’s role was to be no more than to register the results. It was not the opinion in London that either the British proposal or that of France for a ‘common list’ would be a particularly significant step in improving manufacturing productivity in Europe. That, it was thought, depended on removing protection against North America. One argument for rejecting the French idea of a common list was that it might delay the removal of European quotas against dollar imports.6 Indeed, the British proposals, although trumpeted in Washington as Britain’s contribution to America’s strategy for Europe, were based on very little enthusiasm for any European trading bloc. One of Cripps’ worries was that the anti-discriminatory Section 9 of the Anglo-American Financial Agreements would prevent the subsequent extension of import control relaxations to the sterling area countries. In fact, in June 1949 the OEEC Council agreed to explore both the British idea of unilateral quota removals and the alternative French plan for the removal of quotas on a common list of goods, to be drawn up initially by the OEEC. Although the British proposal obviously fell shorter than the French of the American definition of integration, two factors brought American support. One was the failure of France and its associates to put together a payments mechanism which would include West Germany in any relaxation of bilateral settlements or any common set of trade rules. European integration had to mean integrating West Germany into western Europe and anything which excluded it was certainly not going to get American support. The British proposals did not permanently exclude any member-state of the OEEC. The second element was Britain’s readiness to give its original proposal a more mutual content and to allow the OEEC supervisory powers over it. This, however, it was only ready to do after the head of the ECA, Paul Hoffman, had made it unmistakeably plain in a much-heralded speech to the OEEC at the end of October that continuing aid and support from the USA meant a specific commitment to an agreed programme of trade and payments liberalisation associated with a non-bilateral settlements mechanism for OEEC countries. French attempts to build a less bilaterally based payments association with Italy and Benelux had come to a standstill in September 1949 when details were revealed to the Dutch, who at 49


once made it clear that no proposals which excluded West Germany were of any interest to them. They were put together in different form with a view to including West Germany only after Hoffman’s speech.7 The speech came as a relief in London, where officials were well aware of how far internal American discussion had ranged beforehand, with some ECA officials even advocating that Hoffman demand a single western European currency and central bank within two years. By adapting their original proposals so as to allow the OEEC a genuinely supervisory role over a programme of quota removal with common rules, British officials were aiming to avoid, probably until the end of the Marshall Plan when the danger would be over, something much worse. That theirs was a correct view of the situation is shown by the way that the French government responded to America’s enthusiasm for the British proposals by including in its new version of a payments association with Italy and Benelux a proposal to remove quotas on a common timetable more quickly than the ‘Plan of Action’, as it was first called, proposed by the British. Hoffman had gone out of his way in his speech to say that narrower regional groupings were valuable. The French project, now known as Finebel, was in fact far from dead. The ECA wanted Britain to support it. Between the participants the discussions about the regional payments project did envisage an eventual economic integration of the kind that so troubled British thoughts, even if the possibilities of achieving it looked very remote. No one was sure what would emerge in the newly-created Federal German Republic and France therefore wanted to use Finebel as an instrument to control the new country by devising a framework of economic regulation akin to the ideas of the first French five-year plan, before fitting the Federal Republic into it. The Dutch still wanted Germany in from the outset. What the French proposals foresaw was essentially the regulation of the market of the six countries by inter-industry agreements to fill the void left by the removal of quantitative trade controls. Tariffs would remain as a second line of defence. This was seen by the American officials, who had at first encouraged the regional plan, as an example of the protectionism that they wished to get away from. It justified much of what the British had forecast would result from a regional association. What the commercial arrangements would be was the crux of the matter, for the liberalisation of payments between the five countries which the French proposed still rested pretty firmly on a bilateral 50


basis. Commercial policy arguments, however, centred on tariffs. There was as large a measure of disagreement between The Netherlands and France over the necessity to reduce French tariffs as there was over the terms and timing of the Federal Republic’s inclusion; Dutch negotiators wanted to use Finebel to bring down French and Italian tariffs. As the British proposals to remove quotas made their way through the OEEC both France and The Netherlands became increasingly alarmed at the idea that they might be committing themselves to a position where they would both be simultaneously removing quantitative restrictions and reducing tariffs. Some French foreign ministry officials foresaw this with alarm as opening the French and European economies to control by large American companies. There no longer seemed any way forward through Finebel by midFebruary 1950. Since the alternative French idea of the common list of goods on which all OEEC member-states would remove quotas had made even less progress by that time, there was really little choice for the USA but to back the revised British proposals as made to the OEEC Council in November 1949 after Hoffman’s speech, including the idea of formal OEEC supervision of the quota removal programme. The United Kingdom’s diplomatic position was thus a strong one. In the circumstances it seemed worth removing many quotas on British imports which even liberalisers would have preferred to keep for longer in order to take advantage of this. The French government continued to hope throughout the last six months of 1949 for FrancoBritish cooperation in the OEEC in drawing up a common list. But that did not happen, and by the end of the year London could bask in the rare pleasure of American gratitude for an European initiative which was integrationist only in the least committed sense of the word. Would it ever have served as a British programme for Europe had there not been a strong pointer before October 1949 that Europe, including Britain, would be able to keep its quotas against dollar imports? Probably not. This pointer came in the negotiations about repayments on the post-war US loan to Britain, which took place in September 1949 after the sterling devaluation. One of the conditions of the original loan agreement had been that Britain must foreswear trade discrimination and Section 9 of the Agreement specifically required quantitative trade restrictions by either party to be nondiscriminatory. The imminent demise of Section 9 had been prefigured 51


in the last weeks between convertibility and devaluation when the United Kingdom, followed by the dependent sterling area, imposed swingeing import controls against dollar exports. This was disguised somewhat by the fact that the restrictions took the form in Britain of cutting back government purchasing programmes for 1950. These quantitative restrictions may have had a bigger effect on import levels than the devaluation itself.8 In September 1949 the American and Canadian governments gave a public expression of opinion that British participation in a programme of trade liberalisation confined to western Europe would not be considered a breach of the terms of the loan Agreement under Section 9.9 The prospects of success in any programme of quota removal were obviously very restricted when foreign trade was still dominated by bilateral agreements. Countries would still maintain quotas against those whose currency they lacked or on which they wanted to economise. For this reason Hoffman’s speech had contained an implied demand for a multilateral settlements mechanism for trade between OEEC member-states. That the ECA was well aware that removing import quotas under the British proposals did not in any way imply multilateral settlements is shown by its encouragement of Finebel after mid-February 1950. Even when it was no longer a plan for removing quotas or lowering tariffs more quickly than within the OEEC as a whole, it could still be presented as a genuine advance towards a multilateral payments mechanism which, by rendering many bilateral trade agreements no longer necessary, would strike at the most common cause of import quotas. Few contemporaries or historians seem to have been wholly convinced that this continued American support was genuine, most regarding it as a tactical move by Washington to bring pressure on the United Kingdom to force it to allow sterling to be included in a European multilateral settlements mechanism governed by the OEEC.10 This was what the ECA most wanted in Europe from autumn 1949 onwards and sought to use Marshall Aid to obtain. Its officials saw a new payments mechanism which separated, albeit temporarily, western European currencies from the dollar as now the most likely road to political union. Western European currencies would be automatically transferable into each other through a central settlements agency, while they maintained exchange controls against the US dollar. Because this struck a direct blow at the way officials in London saw the evolution of British commercial policy it took unremitting pressures from the USA on the United Kingdom to achieve this 52


objective. The ambiguity of the Trade Liberalisation Programme became, therefore, greater as soon as the OEEC had accepted it. For Britain, it had been a policy initiative intended to forestall, among other unwelcome developments, a European settlements mechanism between soft currencies, independent of the IMF and thus of the one world system, and especially one in which sterling was to be forced to accept common rules imposed by the OEEC. For one thing, since the minimum period of time over which such an arrangement could reasonably last could not be less than a year, it seemed to place an unwelcome constraint on the right of the British government and monetary authorities to set independently the date of sterling’s return to dollar convertibility. For another, so it was argued, a soft-currency payments mechanism would postpone the day when the one-world system would be restored. If the settlement terms for debtors were generous, containing a high proportion of credit, as indeed they eventually proved to be, why would European economies hasten to remove trade barriers against American goods? And how, if that were the reaction, would productivity be raised to the level needed to compete with the USA and so allow the one-world system to arrive? It was against this background of pressure, arising from the insufficient nature of the British initiative on quotas to meet America’s longer-term objectives, that the loud plaudits of American officials for what Britain was doing in Europe have to be seen. Without multilateral settlements the need to defend bilateral balances within narrow limits was bound to restrict quota removals. When the British proposal that countries should submit unilaterally lists of goods on which quotas would be removed was first accepted in the OEEC in July 1949, a statistical method of calculating on a common comparative basis what was being done was also devised, the OEEC Trade Liberalisation Index.11 In November a common target of 50 per cent on this index was set for quota removal. All member-states were asked to reach this target by 15 December, when there would be a general examination and report by the OEEC Council on what had been done, followed by a further examination at the end of March 1950. Although the United Kingdom complied with the December target, at least on its own calculations, others did not. When the next balance was struck at the end of March 1950 Denmark, Germany, and Norway still fell short of the December target and Turkey had not yet even begun to liberalise. The network of bilateral payments and the fact that some currencies were considered harder than others meant that 53


liberalisations were not extended to all members. Britain did not extend them to Belgium, Germany or Switzerland, their currencies still being considered hard. Denmark’s quota removals did not apply to imports from Belgium, Germany, Italy and Switzerland; Holland’s to Germany and Switzerland; Norway’s to Belgium, Holland and Germany; and those of Sweden, like the United Kingdom, did not apply to Belgium, Germany and Switzerland. Austria when removing quotas retained other trade and exchange controls. Italy persisted in the 1930s bargaining mode; the removal of quotas on imports from Austria, Denmark and Switzerland was conditional on the purchase of equivalent values in Italian exports. Before the OEEC Council met in December 1949 to make its first report on the Trade Liberalisation Programme the ECA submitted an ambitious plan for an intra-European payments union which would encourage the speedier removal of quantitative restrictions by allowing balances with one country to be automatically settled in the currency of a third. In Congress in February 1950 the decision was made to withhold as much as one-third of the Marshall Aid appropriation for the aid year 1950–1 and set it in a special fund to support further moves to trade liberalisation. In effect, this meant that the USA was prepared to place working capital from the Marshall Aid appropriations into a multilateral payments system for the OEEC, providing as working balances the hard-currency dollars which countries were finding so hard to earn from trade. It took from the date of this Congressional decision until August 1950 before what became the European Payments Union (EPU) was created. Most of that time was taken up with tense negotiations between the ECA and the United Kingdom over the terms on which sterling would participate. For Hoffman and the ECA it was a condition that the Marshall Aid set aside to support a multilateral payments system, about $600 million, should be used only in support of arrangements in which sterling would be transferable on the same terms as all other OEEC currencies. Hoffman failed, however, in January 1950 to force Cripps into an agreement of this kind.12 Because the ultimate purpose of the payments union was trade liberalisation the struggle was over two vital areas of commercial policy. One was the terms of sterling’s participation in a temporary settlements mechanism in western Europe. The British definition of temporary was that the arrangement would cease in 1952 with the termination of Marshall Aid. The other was the definition of a common set of trade rules for OEEC member-states which would come into force 54


simultaneously with the EPU. Transferable currencies in a multilateral settlements system would have been obviously of limited value as an expression of trade liberalisation if countries continued to discriminate, as Britain itself was doing, between currencies in their quota liberalisations. The trade rules were intended to eliminate all discrimination between members in the process of quota removal. Before the end of March British proposals for the terms on which sterling would participate fell far short of the full currency transferability for trade settlements at which the USA was aiming. Indeed the proposals made in March, which were intended to be of a ‘thus far and no further’ nature were so unacceptable to the ECA that Hoffman felt obliged to remind Cripps that if the Trade Liberalisation Programme were weakened, ‘the restoration of a cordial relationship between the United Kingdom and the USA will be difficult of achievement’.13 The British proposals envisaged maintaining all United Kingdom bilateral agreements unaltered, but paying off up to certain limits Britain’s bilateral debts through the EPU. Full transferability as an obligation was for the others. Any claims for payment on the United Kingdom beyond the limit of the ‘swing’ on either side of balance which was stipulated by each bilateral trade agreement would be settled only after similar British claims on all the other OEEC member-states had been transferred to the clearing system. If the United Kingdom could maintain its import quotas it would under that system have been able to protect itself against all risk of losing gold, while being in a good position to win it. It was partly on the future of quantitative import restrictions that the argument after March 1950 therefore turned. How far was the United Kingdom really intending to go in removing quantitative restrictions? Beyond a certain deficit to the EPU Britain must, its negotiators claimed, have the right to reimpose import quotas and related measures. This was in some sense a hypothetical point, since what British officials were actually expecting with the return of ‘normality’ was a trade surplus with continental Europe. But in another sense it was not; it was the fundamental stipulation that trade balances with the continent could never be allowed to disturb sterling’s worldwide role. If in the process of trade liberalisation there was a British trade deficit with the continent, quotas would be put back on to protect sterling where it truly mattered. This is exactly what was to be done at the end of 1951. The issue was complicated by the balances in sterling which continental countries held. Continentals, especially the Belgians, were 55


thought to have played a big role in the 1947 sterling devaluation by rushing to cash their balances for dollars when sterling had been made convertible in that summer. The legitimate worry in London was that creditors would use the proposed new payments machinery to run down their existing sterling balances with a consequent loss of gold or dollars by the United Kingdom. It was through the need for the USA to face up to this genuine problem that a solution was found. Sterling balance holders in the EPU would be able to negotiate repayments, if they wished, over the two-year period to the end of Marshall Aid for which it would last. If the negotiations failed, the United Kingdom would have another two years before it had to repay. Members of the EPU would be allowed to exchange debts owed to them in the Union by Britain against the existing sterling balances. If they did so, and if this meant gold/dollar payments by the United Kingdom because payments would be going beyond that point in the settlement rules where a country had to begin repaying in gold/ dollars, the ECA would reimburse Britain for those gold/dollar payments. Of the aid funds reserved by Congress to back the settlements mechanism one-quarter of the total was further reserved to insure the United Kingdom against sterling losses caused by EPU members using already existing sterling balances to make settlements. The agreement between the acting Chancellor Hugh Gaitskell and ECA officials over the sterling balances was reached over the period 2–4 June 1950 and approved in London on 7 June. It opened the way to final agreement on the trade rules which would be commonly enforced on EPU members by the OEEC. A special OEEC Trade Committee meeting over the period 7–10 June wrote the formal rules under which the OEEC Trade Liberalisation Programme proceeded.14 It was thus a year after the first United Kingdom proposals for quota removal were accepted by the OEEC and almost six months after the OEEC had first gone through its statistical procedures to determine the comparative extent of quantitative restrictions on intraEuropean trade, that the OEEC Trade Liberalisation Programme came into operation with stronger chances of success. With the creation of the EPU there was no longer a motive to discriminate against the goods of OEEC member-states with harder currencies, so that, in the British case for example, Open General Licences could be extended to Belgian, German and Swiss exports on the same terms as those of the other members. Without the creation of the EPU the Trade Liberalisation Programme would have remained an insignificant affair. After its creation, the United Kingdom was 56


committed to a more comprehensive programme of removal of quantitative restrictions. Fortunately this coincided with a highly favourable swing in the balance of payments and a strengthening of the reserves. The fact that this favourable tendency set in after March played its part in convincing Gaitskell to commit sterling fully to the EPU, and to trade liberalisation. The rules specified that after 30 June 1950 all removals of quotas must be applicable to all members of the OEEC/EPU. From 31 December the registered statistical measure of each country’s private trade that had been liberalised, i.e. that had once been governed by quotas and was no longer, must also be made non-discriminatory. All this simply accepted the reality that ending exchange discrimination in trade settlements removed any financial motive for maintaining commercial discrimination. Other rules, however, showed what a large step the United Kingdom had taken. The trade rules, as we shall see in the description of their statistical measurement which follows, imposed a tight restraint on the use of quotas on different sectors of the economy. The November 1949 decisions in the OEEC Council had required the 50 per cent target figure to be reached not only for total imports, but also in each of three separate categories of measurement: agricultural products, raw materials and manufactures. Furthermore, the criteria for reimposing quotas were also to be defined by the OEEC, and if it disapproved of such reimpositions it could request their annulment. Nevertheless, the last six months of 1950 appeared to confirm Gaitskell’s judgement. It was an excellent period for western Europe’s foreign trade and reserves. The dollar shortage seemed to be disappearing and ‘normality’ returning as dollars flooded into the reserves of European central banks. The Trade Liberalisation Programme was fully in place at the very moment when it could make a dramatic initial impact and that accounts for its surprising initial rate of success and particularly for the speed with which British import quotas were at first removed. Gaitskell, it should, however, be noted, no more than Cripps, was an enthusiast neither for the ‘one-world system’ nor for a European regional bloc. His change of heart in favour of the EPU came with his realisation that because of the EPU’s generosity to debtors it would be easier to pursue the sort of domestic policies at which the Labour government aimed. Gaitskell overrode the arguments of Treasury officials that the settlement terms in EPU were too inflationary and would thus delay the arrival of dollar convertibility.15 The EPU and the trade rules were an acceptable 57


bargain, he thought, because it was not possible to resist combined American and European pressure, although his personal predisposition may have been to do so.16 The Bank of England was less realistic about accepting the EPU. If the EPU failed, so the Bank argued, the consequence would be a forced return to the gold standard, since no alternative provision was being made. Sterling was not yet ready to face this; it was too early for dollar-convertibility. Better therefore, Bank officials argued, to maintain the framework of bilateral trade and payments agreements constructed since 1945 through which sterling was used in Europe until such time as British authorities decided the moment was ripe for sterling-dollar convertibility. Underlying this argument was the Bank’s wish that western European countries might continue to use sterling to some extent as a reserve currency, as well as its fear that the EPU unit of account, menacingly named the écu although it was essentially a US dollar with limited non-resident transferability between central banks, might replace sterling in its reserve role in western Europe. In reality, European countries had disliked the bilateral agreements with the United Kingdom precisely because they did force them to hold sterling, in whose status they had little confidence, especially after the drastic devaluation of September 1949. In effect, the ratification of the EPU agreement announced the end of bilateral trade and payments agreements between the United Kingdom and OEEC member-states, removing one necessary cause of quantitative import restrictions on balance of payments grounds against those states. MEASURING AND COMPARING QUOTA REMOVALS Once the Trade Liberalisation Programme’s trade rules meant that the widening or removal of any import quota had to be on a nondiscriminatory basis within the OEEC, the comparative method of measuring the extent of trade liberalisation devised and accepted in summer 1949, the Trade Liberalisation Index, came to dominate national decision-making about quotas. The meaning of the percentage figures recorded in this index has been so frequently misunderstood that it is important to explain what these numbers did actually measure, especially as they are the readiest method to hand for explaining the actual extent of quota removal on infrawestern European trade. 58


They did not measure the actual percentage of quotas removed, much less the percentage of trade actually freed from quota restrictions, as some writers seem to assume. In fact, as we now show, a country’s percentage score in the OEEC Trade Liberalisation Index could actually drop significantly when the value and share of imports entering free of quantitative restrictions rose. The method of calculation measured the extent to which imports were subject to a quota, not the degree to which existing quotas were effective. Goods were deemed as liberalised if private traders could import unlimited quantities from the designated area under ‘open licence’, which meant that no licence was necessary.17 In any given year the ‘liberalisation percentage’ for any country was calculated by dividing the current list of liberalised private imports, weighted in terms of their actual annual 1948 import values, by the current list of total private imports—thus excluding imports on government account—also weighted in terms of their 1948 import values.18 Weighting imported goods by fixed values was intended to exclude effects of changing trade patterns which might occur independently of any liberalisation. The weights were in 1948 values because 1948 was the most recent year on which a calculation could be made.19 To help to clarify this procedure we anticipate our narrative and show an actual example giving the United Kingdom liberalisation percentage on 1 November 1951, when it was 90 per cent, and on 1 April 1954, when it was 80 per cent (Table 1). Table 1 United Kingdom trade liberalisation percentage as calculated by the OEEC, 1 November 1951 and 1 April 1954

59


It will be seen from this example that as a share of total imports the value and proportion of imports entering the United Kingdom free of quantitative import controls was slightly larger in April 1954 than in November 1951, because the value of imports on government account had dropped, yet the OEEC liberalisation percentage was well below what it had been in the earlier period. On the other hand the high liberalisation percentage in 1951 disguises the fact that government imports, which were effectively subject to quota because the government purchased fixed amounts to correspond with its import programmes, were two and a half times the value of private goods under quota, yet did not count in the calculation at all. It was British advocacy that led to this method of calculation being adopted. Among the advanced countries the United Kingdom was the one with the biggest share of its imports on government account. Even at the end of 1951, at a moment which was a peak in the first phase of liberalisation, 20 per cent of the United Kingdom’s imports from OEEC member-states on a 1948 basis were state purchases. For early 1949 the proportion was about one-third, on current value basis. This method of calculation could have been designed to put the United Kingdom quickly at the top of the percentage league table by the beginning of 1951. Had total trade been used as the denominator, then the reader will calculate that the United Kingdom’s liberalisation percentage at November 1951 would have been only 72, instead of 90. It would have been no smaller in 1954. But when imports were transferred from government account to private account, as they increasingly were by the Conservative government which came to power in 1951, so were their 1948 import values transferred to the denominator of the current calculation. Many food and raw material imports were privatised but not liberalised. They remained under quota and this reduced the liberalisation percentage in the sub-category by 1954, though there were actually fewer restrictions in the latter year. The advantage which Britain gained from this method of calculation therefore was short-lived. Thus, when a private import restricted by quota was liberalised, the liberalisation percentage would rise steeply. When a government import was privatised or liberalised, it would rise slowly. And when a government import became a private import still under quota the liberalisation percentage would fall even though there was no change in the scope of quota restriction. Where there was more privatisation than liberalisation the liberalisation percentage could paradoxically fall even though more goods were becoming free of restriction, 60


something which actually happened in the agricultural trade of the United Kingdom for the years 1951–4. For this purely arithmetical reason the change in the extent of trade liberalisation by the United Kingdom in the years 1953/5 is understated by the OEEC Liberalisation Index. For some countries, it may also have been understated in 1950–1. Where a country removed quota restrictions but still retained the legal right to reimpose them, this was not counted as liberalisation. This tended to occur in 1950 when countries were still cautious and was strikingly the case with Belgium, which at the end of the year was recorded as having an overall liberalisation percentage of 65 when, had the quotas not actually being imposed but still retained on the statute book been counted as liberalisations, the figure would have been about 80 per cent. However, the effectiveness of the liberalisation programme was more usually overstated by this measure of its extent. The effectiveness of quotas depended on the trade they excluded, and this could vary with changes in the size of particular quotas or with changes in autonomous demand. Both factors might in principle vary drastically without any change at all in the number of quotas revoked or imposed. Quotas which were most protective in terms of potential trade tended to be the last to go. The commodity composition of trade was changing over the period 1948–56, and it was easier to liberalise goods for which demand was slowing down. Even assuming an unchanging pattern of free demand, the use of actual import values in the base year 1948 to weight the calculations made to produce the index could produce striking anomalies. Removing quotas on goods not imported in that year or imported in very small values would not improve a country’s liberalisation percentage, even if it would have permitted a large inflow of trade. Because concerted action in the OEEC never set a target higher than 90 per cent of private imports, there was no pressure within the Liberalisation Index to remove quota restrictions on such goods. Yet one such item, cars, was to be the most rapidly expanding sector of industrial production in the 1950s. A tacit agreement among European car manufacturers not to disturb the silence over this comfortable reservation of dynamically growing domestic markets to national producers was easy to reach.20 It is important to bear in mind therefore that what primarily concerned governments after July 1949 in the Trade Liberalisation Programme was not the liberalisation of potential trade, but liberalising that part of actual 1948 trade which would achieve the 61


stated OEEC percentage target as calculated in this arbitrary way. Misunderstanding the real significance of the percentages has sometimes led to a much more generous assessment of the extent of trade liberalisation than was actually the case, especially from enthusiasts of and publicists for the Marshall Plan. The disincentive to liberalise items traded only in small quantity in 1948, together with the exclusion of items on government account, were serious limitations on the scope and effectiveness of the Trade Liberalisation Programme. The fact that so much of Britain’s food was subject to state trading was one reason why food exporters like France, Holland and Italy were unimpressed by its liberalisation percentages for trade in agricultural products. State bulk purchasing covered well over 50 per cent of the total value of British imports of food in 1949, 35 per cent in August 1951. At that latter date no less than 87 per cent of private food imports from the OEEC had been liberalised; but this represented only about 56 per cent of total food imports from the same source. By April 1954 23 per cent of British agricultural imports were still imported directly by government. It was always claimed of course that these imports were in accord with the Havana guidelines for state trading and did not constitute unfair protection. Sir Hugh Ellis-Rees, who headed the British delegation to the OEEC, perhaps because of his unshakeable conviction that most foreigners, especially the French, were up to no good, suggested that the United Kingdom should devise and initiate an agreed measure within the OEEC for protection of agricultural trade. The Board of Trade was all too aware that if an exercise of this kind were put in hand for OEEC countries the United Kingdom would show up in a very bad light. Probably only Switzerland had a higher level of agricultural protection. Even more important in continental eyes than the high percentage of state trade in British agricultural imports was the fact that the United Kingdom was the biggest prospective market for European food exporters. Since state trading as a proportion of its food imports was large, the absolute amounts, from the exporters’ view, were huge. Of total food imports by OEEC member-states in August 1951 the United Kingdom accounted for 44 per cent, as against 9 per cent for France. The United Kingdom was responsible for 61 per cent of the total OEEC state trading in the agricultural sector.21 At that same date only 14.4 per cent of total French food imports were on government account. 62


If we turn to other sectors of trade, however, the disparity between the recorded percentage of trade liberalisation and its actual effectiveness can be seen to lie in the persistence of both the United Kingdom and France with state trading. In August 1951, for example, 31.9 per cent of French raw material imports were imported under state trading schemes, against 15 per cent for the United Kingdom, and France accounted for 44 per cent of all state trading in the raw material sector of intra-OEEC trade. In the manufactured goods sector France appeared as the major villain; its imports of manufactures on government account at the same date made up 63 per cent of all state trade in manufactured goods in intra-OEEC trade. This reflected the different commercial strategies of the two countries in adjusting to the post-war world. Adhering to principles which must ultimately at an imprecise future moment mean the sacrifice of quantitative restrictions as a policy instrument, British governments nevertheless accepted the reality that in the future there was going to be no such thing as free or liberalised trade in foodstuffs. Indeed they themselves would not have wanted such a thing. In France, although this reality was also fully accepted, agricultural exports mattered and the domestic food market was less controlled than in Britain, so state trading in agricultural products was not encouraged and was much less important. In the industrial sector, however, while a majority was gradually emerging in favour of a more open economy as the way to competitiveness, growth and prosperity, this was thought of by liberals as a viable choice only after the programmes of state-directed investments initiated by the first Reconstruction Plan in 1947 would have brought French manufacturing to a higher level of productivity. State trading in manufactures was a way of buying time for post-war industrial policies to do their work. Sir Hugh would have been on better grounds had he tried to devise a common measure of industrial protection, for that would have put France, not Britain, on the spot. ‘I think I should say here,’ he reported from OEEC in 1954, ‘that nothing is more displeasing to me and members of this Delegation than for the United Kingdom’s performance to be put in the same category as the French performance, and we attack this procedure whenever we can.’22 This was a matter of pots and kettles, especially when seen from the viewpoint of economies dependent on exports to either country. But it serves as a last cautionary note about the measures of trade liberalisation which are cited in the literature. As for as the effectiveness of the whole 63


range of national quotas was concerned, treating state trading as quotas, there was little difference between the United Kingdom and France. Performance, as judged by the OEEC, was another matter, being judged solely by the Trade Liberalisation Index percentage. Inevitably, any narrative of quota removal will be constructed around the OEEC data, because this was the data that states were required to generate. It is, accordingly, used as the foundation of the narrative which follows, as it is of existing statistical and narrative accounts of the programme.23 THE TRADE LIBERALISATION PROGRAMME FROM ITS ORIGINS TO ITS FIRST FAILURE Liberalisation percentages according to the Trade Liberalisation Index were first calculated when the British programme for unilateral liberalisations was first accepted in the OEEC in July 1949. On average, for OEEC member-states as a whole, they came to 30 per cent, with the Belgian percentage reckoned at 78 and that of France at only 18. In November the OEEC Council agreed on a specific target of 50 per cent to be reached by 15 December. The target percentage in this case had to be reached not only for the liberalisation of total imports, but also in each of three separate categories: agricultural products, raw materials, and manufactures. This was a fairly obvious additional requirement, since countries might otherwise have removed quotas on raw materials, put in place in the 1930s but rendered pointless by changes in economic conditions, in order to reach the overall percentage requirement at the expense of quotas on manufactures. When the percentages were again calculated in March 1950, however, this additional sectoral requirement was far from being met. Austria, Denmark, Germany, Italy, Norway, Portugal and Turkey all failed to reach the 50 per cent figure for manufactures. Italy recorded a percentage of only 11.1 on manufactures, Norway only 27.5. All except the United Kingdom and Turkey achieved the target figure for raw materials comfortably. The overall percentage target was surpassed by the United Kingdom only because it was able to record a percentage of 71 for foodstuffs, which of course was easy when most of its food imports were excluded from the reckoning because of the prevalence of state trading. The exercise made it plain that few countries had removed quotas on manufactures which they produced domestically. No doubt aware that real progress would depend on the introduction of a more flexible settlements mechanism, and that this 64


was likely to come in spite of British lack of enthusiasm, the OEEC agreed in March to move the overall percentage target to 60, and to consider further in June how to move to a target of 75 per cent, on condition that the EPU would begin its operations before any commitment to these targets was made. The obligation to move to the 60 per cent mark became effective only from October 1950 because the EPU was ratified only in August. All except Norway were adjudged at the end of December to have attained the overall percentage figure. Austria, Denmark, Norway and Turkey still, however, fell below it for manufactures. Most of the others just made it, Belgium, France, Germany and The Netherlands recording a figure of exactly 60 per cent and thus inaugurating that policy of finely calculating the precise effects of each quota on the liberalisation percentage which would occupy so many European civil servants for the next five years. It was in this stage that the United Kingdom moved to the very high figure demonstrated in Table 1, an achievement that was to prove fragile and which reflected the relatively greater easing of the pressure on British currency earnings and reserves in 1950 than on those of other member-states. Ironically, the obligation to extend new liberalisations to all members without discrimination actually resulted in the re-imposition of a small number of quotas which had been eliminated before the EPU agreement. Countries which had removed quotas against particular partners in bilateral trade agreements by allowing in unlimited imports of a particular commodity were not prepared to do the same for all OEEC partners. It can be seen that the situation was delicately balanced. It would need more than one year’s favourable balance of payments results before the tough core of genuinely effective import quotas would be eliminated, especially as so many of them were not purely for balance of payments purposes. Although in making each intra-trade surplus equally and convertibly hard the EPU had abolished the settlements motive for bilateralism, many bilateral quotas were to remain throughout the decade.24 During the OEEC discussions in June 1950 to consider moving to the higher percentage mark much of the talk repeated the reasons given in the 1930s for retaining quotas: protection against lower cost producers; the need for industrialisation by import substitution; the inoperancy of some tariffs and the need to revise them if quotas were to be abandoned; the lack of bargaining power for smaller economies if tariffs again became the principal regulatory device for intra-western European trade; the value of quotas as 65


bargaining counters for exports; the fear of strong political protest from domestic pressure groups.25 It was for this reason that the trade rules did not immediately proscribe discrimination against fellow member-states by pre-EPU quotas, but allowed a margin of time. By the close of the year, however, when the date drew near to make preEPU quotas non-discriminatory, there were several governments refusing to accept any system for reaching that goal. The further move to the 75 per cent mark was also agreed in October 1950, to be attained by 1 February 1951, although the crucial requirement that this mark should also be attained in each of the three categories of imports was dropped. Several countries refused any further liberalisations of agricultural imports. The opposition of organised agricultural interest groups to anything which might lower their prices on domestic markets had become intense, as had their activities in trying to organise a regulated European market which would allow them to vent their high-priced surpluses without having to take any lower-priced imports. Continuing with a separate target for quota removals on agricultural produce seemed in these political circumstances impossible. The relative success of the programme against the background of rising reserves and the seeming elimination of the dollar gap had enabled it only to travel the faster towards the most obviously foreseeable political obstacle. Refusal to set a higher target figure for liberalisations of agricultural imports, however, could only make the Trade Liberalisation Programme finally unacceptable to countries like Denmark and The Netherlands, where the value of agricultural exports to other OEEC member-states made a massive contribution to total export earnings. For Denmark, the fact that this separate target was now to be temporarily abandoned, when three-quarters of the value of its exports was made up by food-stuffs, provided an excellent argument for refusing to eliminate any more of the quotas which protected its small manufacturing sector. The Netherlands made it a condition of accepting the 75 per cent target that the tariff question would be soon addressed. One reason for the spritely beginning of the Trade Liberalisation Programme was that the core of the OEEC was made up of larger states with a similar structure of output and trade. In expansionary circumstances and given the very limited nature of the quota removals that did take place at first it was possible to increase the percentage scores on the Trade Liberalisation Index at such a rate as to make the programme seem one of the more undisputed successes of Marshall Aid. But Denmark’s objections showed how unrealistic it 66


was to expect the same level of statistical performance from a country with a different structure of output and exports. The same applied to Greece, Iceland and Turkey, but they were allowed to play by different rules, their EPU trade debts being financed by American military aid. Austria was allowed to follow the rules only when it could and was otherwise given exceptions as a nursling of the west. The concept of identical liberalisation percentage targets for each of the three sectors was also in trouble in autumn 1950 because the expansionary background of the second half of 1950 began to generate severe settlements problems. The impact of the Korean war had first made itself felt in the soaring demand for raw materials, especially in the USA. This was a main cause of the improved dollar position of the United Kingdom, through exports from the rest of the sterling area. The demand for capital goods to sustain European expansion then led to a steep increase in the value and volume of imports into the Federal Republic in the last quarter of 1950, such that the new state could no longer meet its payments obligations within the EPU rules. Technically, therefore, those Bank of England officials who had predicted the possible early failure of the EPU were correct. Politically, however, they were short-sighted; because the essential purpose of European integration was to retain West Germany within the system, and because the Federal Republic was in political tutelage to the former Allied occupiers the new state could not protest an infringement of national sovereignty if the OEEC imposed controls over its domestic policies and even over its foreign trade. It was put under strong warning from the other members to reintroduce the quantitative import controls which it had jettisoned almost with its birth, although between December 1950 and February 1951 it fended off deliberalisation by the use of monetary policy instead. The OEEC experts, Alec Cairncross and Per Jacobsson, who negotiated directly with the German officials, were proved entirely correct in their forecast that the Federal Republic’s negative trade balance would be only temporary. The underlying trend of German exports was powerfully upwards, while the import pattern was demonstrably exceptional. Nevertheless the Federal Republic’s debts had accumulated by February 1951 to the point where its quota in EPU was exhausted and its liberalisations made under the OEEC programme had to be suspended. The reimposition of German import quotas was exactly the demonstration that Denmark and other agricultural exporters needed 67


to make their point that the Trade Liberalisation Programme was unfair to them, for, after the United Kingdom, the Federal Republic was the OEEC’s biggest food importer. At the February 1951 OEEC Council meeting Denmark, The Netherlands and Turkey, all held to be specially affected by the OEEC’s insistence on reducing Germany’s imports, were excused from the overall 75 per cent target until Germany itself would have reached it. When the OEEC had taken the decision in October 1950 to move the overall percentage target beyond the 60 per cent mark no single item had by then been liberalised by every one of the member states. France more or less made a common list of quota-free goods a condition of acceptance of the next, 75 per cent, stage. The moment was hardly propitious. The least disputed commodities for inclusion in any such list would probably have been raw materials. In the full flush of an improving payments position in 1950, however, the interministerial committee which handled Marshall Plan affairs in the French government had pressed for the 75 per cent target as a way of reducing manufacturing costs in France by opening the economy. When it came to pressing for final acceptance in the OEEC of the new stage of the programme and also the idea of a common list the French government, in the face of a still steeply rising demand, was already perhaps hoping to manoeuvre the American government towards some form of international regulation of raw material supplies.26 The OEEC Secretariat tried to produce a common list of items important in intra-European trade and whose mutual liberalisation would lead to increased productivity. But the exercise was made meaningless by the fact that countries which had not reached, or were excluded from, the 75 per cent overall target were excused from participation in drawing up the common list also. Of what use was a common list of quota-free items which did not have to include imports into Germany? By April 1951 the OEEC Council had nevertheless given a provisional approval to such a list and on 12 August it was adopted by Council and incorporated into the Code of Liberalisation. It makes odd reading. One of its most statistically significant entries was textiles, soon to become one of the industrial sectors most protected against non-European economies. The artificialities that action of this kind brought about are well illustrated by Diebold.27 Most manufacturing industry in Denmark was protected by quotas and by low tariffs. Removing quotas meant that tariffs were not high enough to have the desired protective effect, as indeed was usually 68


the case in small economies with less to gain from tariff bargaining. Under pressure to conform to the OEEC percentages and to the common list, for it was lagging far behind the percentage targets for the removal of quotas on manufactured imports, Denmark removed quotas on textile imports while at the same time requiring importers to deposit between 120 and 150 per cent of the value of the goods for between three months and a year with the central bank. This foreshadowed the many devices by which France was later in the 1950s to comply with the letter but not the spirit of the OEEC Code of Liberalisation and the trade rules. The determination to go ahead in April 1951 with the idea of a common list reflected the vindicated belief that the setback to the Trade Liberalisation Programme caused by the Federal Republic’s forced reintroduction of quantitative controls was not permanent. The Federal Republic’s liberalisations were all cancelled on 21 February 1951, import licences being immediately required for all previously controlled goods. But existing import orders did not require a licence. Later, we show the average lag between the introduction of import licensing and the consequent fall in imports to have been between six and nine months for the United Kingdom and there is no reason to think it would have been any different for Germany. Yet the Federal Republic’s balance in EPU began to improve in March. Except as a signal, to force the reintroduction of import quotas by the Federal Republic may have been unnecessary. From March 1951 onwards Germany moved inexorably every month from being a virtually bankrupt debtor to its EPU partners to the opposite problem of having a trade surplus with every one of them, so that the EPU’s final problem became that everyone owed the Federal Republic money. Dramatic though the German crisis was for the EPU, the real underlying problem of the Trade Liberalisation Programme in spring 1951 was not Germany’s deficit. It was the refusal of the agricultural exporters any longer to accept what was clearly one of the Programme’s necessary procedures, the equality of percentage liberalisations across the sectors. This raised the fundamental issue of how markets should in future be regulated. It was the more obstinate problem which British commercial policy had to resolve if the European initiative which had won American backing was to keep it. Where any form of genuine liberalisation was politically impossible, as it was in European agricultural markets, what would replace quotas if they had to be removed? 69


Although this was a problem first raised in 1929 it was one to which the answer was to be postponed. Before British officials could apply themselves to it in the breathing space given to them by the OEEC decision in February 1951 to set only an overall target (which itself could not of course be met by one of its biggest traders, because OEEC appointees were themselves by the end of the month to all intents and purposes controlling German import licences), they found themselves staring at a much worse problem. Whereas United Kingdom foreign exchange reserves rose by £680 million over the period June 1950–June 1951, and EPU balances proportionately, they fell in the third quarter of 1951 by £215 million and in the fourth quarter by £335 million. The United Kingdom’s EPU balances fell by £90 million in the third quarter and by £190 million in the fourth quarter. The collapse of raw material prices after the rush to build stocks in 1950 was partly responsible. Just as the sterling area had been the source of much of the worlds extra value of raw material imports in 1950, so did it bear the brunt of the price falls in 1951. But what was to become the worst run on the United Kingdom’s reserves since the end of the war was by no means caused only by the swing in raw material prices attributable to the Korean War. It was caused also by something equally alarming, not previously considered among the many anxieties about the payments position, a surge of imports from continental Europe into Britain itself and the sterling area. The United Kingdom was in fact from summer 1950 not merely travelling towards another familiar post-war sterling crisis caused by payments swings in the rest of the sterling area, it was also travelling towards becoming the EPU’s biggest debtor. At the start of the United Kingdom’s membership of the EPU the assumption in Whitehall was that Britain would be a long-run or permanent creditor of the Union. The good performance of British exports to 1950 even led the Programmes Committee, which set out forecasts of future needs and financing, to suggest that it had become an urgent matter to reduce the potential size of this prospective export surplus to the OEEC countries. The Board of Trade accepted that the United Kingdom not only was, but ‘must expect to go on being a substantial creditor in EPU’.28 This was still the assumption in summer 1951, when a further round of British quota removals and enlargements took the British liberalisation percentage to 90. By July, though, a deterioration in the balance with the EPU was becoming observable, and during the second half of 1951 the United Kingdom began a seemingly irresistible slide into EPU debt. The inflow of 70


imports from OEEC countries came as a great surprise, and in circumstances where the Treasury was hoping to build up an overall balance of trade surplus to support the move to convertibility, a nasty one. The rise in imports from the OEEC countries was seen as a particularly dangerous aspect of the balance of payments crisis, because it was against all long-term predictions, whereas a large deficit with the dollar zone had always been expected. This adverse trade movement with western Europe increased the payments in gold which the United Kingdom had to make, so postponing further the move to convertibility, because it exceeded the generous allowance for settlement of deficits by credit under EPU terms. Scott, whose survey of British imports over the post-war period we consider in Appendix I, summed up elsewhere the United Kingdom balance of payments crisis of 1951–2 as ‘to a large extent a gigantic fluctuation in the sterling area’s current balance of payments with the rest of the world, due very largely to an equally gigantic fluctuation in its terms of trade’.29 While certainly not incorrect as a generalisation such a judgement omits what was specifically different about the 1951– 2 crisis in terms of actual trade flows, rather than movements in prices and balances, when compared to the earlier post-war balance of payments crises of 1947 and 1949. It does not, furthermore, distinguish between the separate roles of the United Kingdom and the rest of the sterling area in the real changes in trade flows which underlay the crisis. While the terms of trade did indeed deteriorate dramatically both for the United Kingdom and the sterling area as a whole and by 1952 were returning equally rapidly to what would be a favourable trend for the rest of the decade, the shift in the pattern of the United Kingdom’s real trade with continental Europe, as opposed to the deterioration in the balance of trade attributable to the temporary fluctuation in the terms of trade, pointed towards a fundamental weakness in the assumptions on which British post-war commercial policy was based. That this passed unperceived at the time, except by Board of Trade officials, is shown by Scott’s additional conclusion that the crisis ‘largely cured itself’ and had reserves been larger the level of the decontrol of the United Kingdom’s trade could perhaps have been left as it was in summer 1950 until the storm was over.30 We need first to distinguish between the separate contributions of the United Kingdom and the rest of the sterling area to the deterioration in the sterling reserves. The United Kingdom’s own current account balance moved into deficit before that of the rest of the sterling area in 1951, and this was due to the trade account, for 71


invisible earnings were still increasing until the middle of the year. The deterioration in the trade account was due to a weakening export performance, to a steep annual increase in retained imports compared to the calendar year 1950, and to the shift in the terms of trade. The fall in the reserves coincided with the movement of the rest of the sterling area into deficit and a fall in the United Kingdom’s own invisible earnings. After having benefited in 1950 from United States raw material stockpiling programmes and the soaring inflation in the prices of its raw material exports, the rest of the sterling area now had to adjust to falling raw material prices as well as falling real exports. The discipline which had governed its importing from the dollar zone weakened, as Commonwealth countries saw less reason not to spend their high dollar earnings of 1950 to help them through the crisis.31 They withdrew reserves from London. When this coincided with a fall in the United Kingdom’s own invisible earnings, the loss of sterling area reserves was at its fastest in October 1951 during a general election campaign which only increased uncertainty over the exchange rate. The overlying pattern of events after June 1951 was thus not unlike that of the earlier postwar balance of payments crises. So was the public aspect of the crisis; the run on the all-too-slender sterling reserves and the need to stop it. As far as the overall swing in the balance of payments of the sterling area as a whole was concerned, however, the United Kingdom and the rest of the sterling area were responsible for it statistically in roughly equal proportions.32 The trade performance of the United Kingdom in the first six months of 1951 before the run on the reserves and its continuing trend in the second half of the year received less attention until action was taken in November to stop imports. Analysis concentrated on the problems of Britain’s relationships with the world through the sterling area, appropriately enough given the global ambitions for sterling. The trading difficulties were mainly attributed to the fluctuation in the terms of trade and the unexpected surge in imports from western Europe was overlooked. Using United Nations trade returns Ady calculated an index of the net barter terms of trade33 which gives a figure of only 88 for 1951 on the base of 1950=100.34 The London and Cambridge Economic Service index gives a roughly comparable result. The adverse movement was in fact much worse between the third quarter of 1949 and the end of the second quarter of 1951, before the reserves crisis began to make itself felt. By that date a quarterly index of the terms of trade shows a fall of 25 points against the base of January72


September 1949.35 Dow suggests that import prices in general rose by 59 per cent between December 1949 and June 1951, half the rise having taken place by the end of December 1950. However, raw material prices show an increase of 115 per cent by June 1951, foodstuff import prices of only 25 per cent. Some of the price rises, as we show below in the case of pulp and paper, were themselves the result of liberalised purchasing by the United Kingdom.36 Import price indices for manufactured goods are notoriously unreliable, but if we assume that the movement in the price of manufactured imports was roughly equivalent to that of the overall import price index we can calculate approximately what the increase in ‘real’ imports from OEEC/EPU members was. The United Kingdom’s imports from OEEC member-states were being freed from quotas over the very twelve-month period when the increase in import prices and the adverse movement in the terms of trade were at their worst. It may be observed at this point that in any trade where quotas had been kept in place the effect of a rise in import prices would in many cases have been a corresponding fall in the volume of imports of that particular good. An increase in volume must therefore have been caused by the removal of the quota, since had it stayed in place demand could not have come into play. How far was the deteriorating trade balance with OEEC a consequence of the swing in the terms of trade and how far of an increase in ‘real’ imports? As Table 2 shows the actual value of imports from OEEC Europe into the United Kingdom increased by 67.5 per cent between the last months of 1950 and 1951, the period over which, except for the last month, they were being liberalised. If we deflate the increase in Table 2 Value of United Kingdom imports from EPU member-states (£000)

Source: United Kingdom, Board of Trade, Accounts Relating to the Trade and Navigation of the United Kingdom.

73


Table 3 The increase in ‘real’ United Kingdom imports from EPU members in each six-month period, 1 July 1950 to 31 December 1951 (£000)

six-monthly values by the corresponding increase in the index of overall import prices we arrive at the result shown in Table 3. In fact the index of import prices probably measures dollar import prices more sensitively than it measures those from the OEEC, whence many exports to the United Kingdom were still made under surviving bilateral agreements, so the real increase in imports from western Europe was probably greater than shown. It can be seen that United Kingdom ‘real’ imports from OEEC Europe were much higher in 1951 than in 1950 and were still higher in the last six months after the rise in import prices had stopped and when the terms of trade were again becoming more favourable. By contrast the increase in actual imports from the USA and Canada, still unliberalised, in the last six months of 1950 was only £7,267,900, in both cases less than the ‘real’ increase in import values from EPU members. Only when the rise in import prices had stopped, in the second six months of 1951, was the increase in dollar imports greater than that in EPU imports. The increase in the dollar trade gap had been forecast as conditions began to deteriorate; a trade gap with the OEEC which widened just as rapidly, more rapidly before July, had not. Indeed, it had been hoped that the trade balance with the OEEC might cushion the blow of the deteriorating dollar balance. While it is correct to see the real value of the increase in imports from either the OEEC or North America as small in comparison to the price movements which were the major cause of the 1951–2 balance of payments crisis, as far as British commercial policy was concerned the increase in imports from the OEEC was, in retrospect, the most significant aspect of that crisis. Firstly, the wholly unexpected fact that the 12.5 per cent increase in the volume of United Kingdom retained imports (Table 4) had 74


Table 4 Volume indices of United Kingdom retained imports and exports (1950=100)

Source: United Kingdom, Central Statistical Office, Monthly Digest of Statistics.

come as much from western Europe as North America led the new British government, once the general election was won, to reverse the Trade Liberalisation Programme and temporarily abandon the one European initiative to which it could point in Washington as evidence of the value of the special relationship. Secondly, the increase was not an isolated phenomenon, it was the announcement of a trend. In the 1950s the United Kingdom would not have a surplus on liberalised trade with western Europe but a deficit. One of the principles on which post-war commercial policy was to be built was thus put in a new light, or should have been had government understood that this was the start of a trend. The world had not stayed in its relative strengths of the 1930s. Higher levels of investment, a more rapid rate of growth of manufacturing productivity, and above all the sheer diversity of the continent’s rapid industrialisation after 1945 were beginning to alter the pattern of trade flows away from the assumptions which underlay British policy. The EPU, which officials had entered with such little enthusiasm (and in the case of the Bank of England strong reluctance) proved a major source of finance in the crisis, providing £443 million by 30 June 1952.37 Having entered the EPU sullenly in order to preserve its bold European initiative of the Trade Liberalisation Programme, the United Kingdom now depended on it and had to put the Trade Liberalisation Programme into abeyance to defend its EPU position. As soon as the new government came into office in November it reimposed import quotas on an extensive range of goods from the OEEC, and imposed new ones on some which had not previously been under a quota regime, while also announcing that there would be further quota restrictions to follow. Its actions showed the true worth of the propaganda made in Washington in 1949–50. 75


No country was harder hit by this than France. From April 1951 it had been in continuous monthly deficit in the EPU, drawing down the surpluses acquired in 1950. The war in Indo-China weakened the franc throughout the second half of 1951. Rearmament demanded a heavy increase in imports. The indecision of weak and changing governments made the situation worse. The closure of the British market to a range of exports, especially textiles, left France with no particular motive to battle on with a programme which had not been universally popular even when things had been going well in 1950. The British decision in November 1951 to return to quotas on intra-western European trade was followed by a French decision on 4 February 1952 to cancel all liberalisations except those on raw materials and agricultural products. On 19 February quotas were reimposed on those goods as well. The promises by both countries to liberalise remained, as did the political machinery of the programme. The reimposition of quotas was permitted under safeguard clauses which allowed emergency action to protect the balance of payments. Even so, by mid-February 1952 the Trade Liberalisation Programme looked a complete failure. Although both British and French governments insisted on every occasion that their return to an extensive quota regime on their European trade was temporary, the fact that the two largest economies and politically most influential countries in the OEEC had reneged on the programme was overwhelming. The situation was only too reminiscent of the inter-war years. Quotas had been removed under the influence of a good year, 1950, and returned with a vengeance as soon as conditions had deteriorated. The OEEC and its cooperative machinery remained in place, but it was primarily a Marshall Plan organisation and the Marshall Plan was drawing to an end. American pressures on western Europe to ‘integrate’ did not weaken, but the means to persuade it to do so were much less. In the eyes of most British officials the OEEC’s existence had been at the start limited to the term of the Marshall Plan. It had then acquired two important new functions with the 1950 agreement on the EPU; supervising the trade rules of the EPU and supervising the Trade Liberalisation Programme. The initial agreement on the EPU had, however, been for only two years. There was nothing in those agreements which could stop British governments, if they so chose, from leaving the European soft-currency bloc and opting for the ‘one-world system’. The new and reimposed quotas of 1951 were mainly against western European exports—British manufacturing 76


had not removed its quota protection against US exports—so that apart from the very short-term commitment to the OEEC/EPU British commercial policy was in a position to begin anew. As we shall see in the following chapter, with the 1951 balance of payments crisis which provoked the reimposition of quantitative trade controls the debate within government over whether to liberalise against the dollar or to stick with the European arrangements became intense. The ‘one-world system’—the re-establishment of sterling-dollar convertibility and the abandonment of the European Payments Union—offered many temptations, diplomatic and economic, particularly to a Conservative government less interested in using the generous settlement terms of the EPU to shelter domestic policy choices. Rejecting the EPU and the liberalisation of intra-OEEC trade could be presented as the better way forward to international competitiveness. And it was not now so easy to see what kind of a lead the United Kingdom could take in a Europe against which it had discovered unexpectedly that it had to defend itself commercially.

77

4 TAKING THE LEAD IN EUROPE: THE INTERNATIONAL POLITICS OF IMPORT CONTROLS, 1952–6

THE UNITED KINGDOM AND THE REVIVAL OF THE TRADE LIBERALISATION PROGRAMME From the reimposition of quantitative controls over much of the United Kingdom’s trade with Europe in November 1951 and March 1952 and France’s reimposition in February 1952 of the controls it had removed, the OEEC Trade Liberalisation Programme was moribund until it began to be revived in 1953, when the United Kingdom, very cautiously at first, began once more to free from controls its foreign trade with Europe. Two tendencies explain its revival. One was political: the clearer commitment of the Conservative government elected in 1951 to a vision of future diplomatic and financial greatness. Instead of sterling-dollar convertibility being an undefined event belonging to an indefinite future, it now became an event for which influential officials tried to set a date and for which they had drawn up a specific programme of action. From October 1951 to September 1955 there was unremitting, albeit ultimately unsuccessful pressure on the new Chancellor, R.A.Butler, to adhere to this timetable. The programme was drawn up in the depths of the balance of payments crisis of 1951–2. Its purpose was to preserve the global role of sterling as an international currency by making it convertible as soon as possible. This would be achieved by building up the United Kingdom’s main customers by recycling an imagined permanent current trade surplus into Commonwealth development and by following the active programme of establishing sterling-dollar convertibility irrespective of whether all the EPU currencies could simultaneously follow 78

TAKING THE LEAD IN EUROPE, 1952–6

sterling in that move. That, it was supposed, would suppress all notions that regional or sectoral tariff-free zones in western Europe were feasible; countries would have to concentrate on dollar convertibility as the first priority. Those that could follow sterling’s lead into convertibility and hard-currency status would do so and the others should be left behind, so argued many officials. Reliberalising British trade with Europe became a step on the road to the one-world system, to the elimination of the EPU, to the banishing of all threats of European customs unions, common markets or political unions, if necessary by dividing the western Europeans into those that could join the one world hard-currency system by establishing convertibility and those that could not. The existence of the OEEC and the political framework of cooperation it provided is often cited as a prime cause for the removal of quotas on western European trade. But while the existence of the OEEC as a forum was a most useful improvement over the lack of cooperative machinery between European states in the 1930s, it was not in the capacity of the OEEC itself, as the events of 1951–2 showed, to generate so great a change; the OEEC was no greater than the sum of its national parts. The renewal of the Trade Liberalisation Programme depended not so much on cooperation as on a political struggle within the OEEC between Britain and France provoked by the British government’s drive to convertibility and the one world system. Europe’s only two world traders at that date became locked in bitter rivalry over the commercial and political future of western Europe. In this rivalry both were forced by their political ambitions to decontrol as far as possible their trade with other OEEC members. Outside western Europe as we have already pointed out in the case of Japanese-American trade, the elimination of quotas was not a particularly dominant feature of the 1950s. Inside Europe it became so because of Franco-British rivalry over western Europe’s stance in the international economy. For France, some form of political and economic construction in western Europe which would increase French security and support the French economy was a persistent theme of foreign policy between 1951 and 1957. For the United Kingdom, western Europe was subordinate and instrumental to visions of future security and grandeur. As the United Kingdom pursued quota removal on intra-western European trade in order to bring western Europe into the one-world system, so was France forced to follow suit in order to build a western European regional framework. 79


The second tendency was economic: the extraordinarily vigorous growth of European incomes from early 1953 onwards and the even more rapid growth of intra-European foreign trade. There seemed no argument against removing quotas if to do so encouraged growth and won elections and if at the same time it led, or pushed, France and Europe away from regional schemes. Before the balance of payments crisis Britain had found itself a leading member of two discriminatory trading blocs, enjoying the advantage not only of preferential tariffs within the Commonwealth but of discriminatory quota liberalisation within Europe. It was still the world’s second largest importer and about 40 per cent of the worlds trade was transacted in its currency. To solidify that position, once the reimposed import controls had done their job, seemed a plausible strategy, even if in retrospect it is possible to see that it ignored the deeper long-term significance of the 1951/2 balance of payments crisis. Had the British economy followed the biennial pattern of swings in external payments that had prevailed since 1945, 1953 would have been another year of balance of payments crisis. But when late in that year almost every western European economy had been swept into a spectacular foreign trade boom, of which the trade between themselves was the biggest component, the British economy was still sheltered by the quotas reimposed in 1951–2. Ad valorem tariffs did not impede this development, for imports could increase with incomes. The same growth of demand which left tariffs unaffected, however, generated pressures for the removal of quotas. These pressures could be mobilised by Britain behind an energetic renewal of the Trade Liberalisation Programme whose objectives were primarily political. When quotas were dismantled, however, their absence was as much a cause of the additional imports, in a permissive sense, as the growth of demand. As we shall see, the British economy did not cope so well with this growth of imports as most others in OEEC Europe. This might have been predicted from the events of 1951. The background to the growth of trade in manufactures within western Europe was the extraordinary industrial expansion which created large new manufacturing industries in countries such as Denmark, The Netherlands and Spain where the development of manufacturing industry had hitherto lagged and which turned Italy into a major industrial producer. It was the high rates of national income growth which this long industrialisation boom sustained which changed the political attitude to foreign trade. From being 80


sometimes considered in the 1930s as one source of unemployment, trade came by the mid-1950s to be seen as a strong cause of high employment. From being a source of political instability, it came to be seen as an aid to stability and growth. The timing of this shift of opinion probably was more significant for continental Europe than for Britain. The British attitude, which was based on a large measure of self-delusion, was that British trade controls since 1931 had been essentially an unavoidable and regrettable response to continental trade and exchange controls. This principle was enunciated unambiguously in July 1951 by the Working Party on the Relaxation of Import Licensing Restrictions. ‘As a nation we must export to live, it is our aim to get rid of import licensing restrictions all over the world as soon as practicable.’1 Within nine months British trade controls were more extensive than they had been since the end of the war and their extension could certainly not be blamed on actions by others. Nevertheless, the belief that unrestricted trade must benefit the United Kingdom and was the way forward was predominant among officials, and the impact of Cripps and other Labour Party planners on that had been slight. Officials, however, would have added that this way forward depended on a suitable response by others. For most continental countries the great boom in industrial output and the high rates of income growth came earlier and more convincingly than in Britain; it was in 1953 that fears of a post-war slump and a return to inter-war conditions began to be replaced by a widespread optimism that favourable economic conditions would endure. What was at first essentially a political initiative on the United Kingdom’s part to reinvigorate the Trade Liberalisation Programme thus fell on fertile economic soil on the continent when within Britain itself, for all the liberal language of officials, there was still much caution after the trade shock of 1951/2 about the extent to which decontrol could actually be risked. For British governments the timing of the resumption of trade liberalisation was determined by a pleasant surprise in the trade and payments balances in late 1952, just as its cancellation had been determined by the unpleasant surprise of the same kind in late 1951. The unpleasant surprise of 1951 was that the payments crisis had among its causes a trade deficit with western Europe, when it had been assumed that Britain would have a surplus on commodity trade with EPU member-states collectively. In fact net monthly credits with the EPU became negative in May 1951 and the cumulative balance 81


Figure 1 Cumulative net surpluses or deficits of EPU member countries, July 1950 to November 1953 (millions of units of account (equivalent to one US dollar)). Source: OEEC Statistical Bulletins: General Statistics (Paris, November 1953). Notea: Austria, Denmark, Greece, Iceland, Norway, Portugal, Sweden, Switzerland and Turkey.

with the EPU turned negative in August. Figure 1 shows the dramatic extent of this swing. Over the year 1951 the United Kingdom passed from being the EPU’s greatest accumulative creditor to being its greatest accumulative debtor. The sterling area deficit with OEEC member-states was still the hard core of Britain’s international payments problem in late 1952, although the accumulative debt with the EPU stopped increasing in April, one month after the imposition of a further major batch of import quotas had been reimposed to supplement those of November 1951. The pleasant surprise came in autumn 1952 when on an f.o.b. payments basis the Treasury discovered an overall current account surplus for the first half of the year. When this discovery was made, 82


import control committees were still examining the few remaining manufactures on Open General Licence to see if the imposition of further quotas could scrape another £5 million off the import bill. However, it was the import side of the account that was most responsible for the good news, through a combination of falling import prices, recession, and the effect of import controls. The Treasury did not at first regard this as a secure foundation for resuming the Trade Liberalisation Programme. A comparison of the trend of imports from western Europe with the first half of 1951 gave fewer grounds for optimism than with the second half. It was not therefore perceived at the time that spring 1952 did in fact mark a turning-point, after which there would be relative balance of payments comfort for almost four years. Although by November 1952 the United Kingdom had moved into a current monthly surplus with the EPU it had accumulatively drawn over £225 million from it and was thus obliged to pay part of its debt in gold. The caution with which the United Kingdom treated the unexpectedly good news about its payments position has to be seen against the background of its positive programme of action to achieve sterling-dollar convertibility as soon as possible.2 This was thought to depend on building up the currency reserves from the low point to which they had sunk in winter 1951–2. For this, it was estimated, a permanent current surplus of the order of £300/350 million annually was needed.3 This was much larger than required simply to build reserves and repay debt. The balancing counterpart of this surplus was supposed to be an outflow of investment capital to the Commonwealth and for the development of the colonies. Because the strong likelihood was that any proclamation of sterling-dollar convertibility would mean the dissolution of the EPU, because by no means all its members would be able to establish convertibility at the same moment, policy also had to aim at reducing the cumulative debt to that organisation against the moment when it had to be repaid or, better, at returning to a cumulative surplus with it.4 Although Britain from early 1953 onwards was winning back gold from the EPU it neither wished nor expected the EPU to have a long life and so had to be prepared to meet the claims in gold or hard currency against its debts at the moment of the EPU’s dissolution. Since a big part of the improvement in the balance of payments was due to the use of import quotas against western European goods, there was an all too evident conflict at the heart of commercial policy, albeit not one easy openly to acknowledge. 83


The project of making sterling convertible never crystallised into a single precise public plan of action and its definition varied. The full convertibility of the radiant multilateral future was always, of course, intended to mean the end of all exchange controls both on current and capital account for residents of all currency areas, and so implied the end of all import quotas. But on the way to that final objective false starts and deviations were numerous. The first such project, codenamed Operation Robot, which reached and was rejected at cabinet level in early 1952 was a top secret affair. It envisaged a sudden unilateral declaration of sterling-dollar convertibility at a floating exchange rate.5 Robot was eventually abandoned in summer 1952 after once more reaching the cabinet. The Chancellor, R.A.Butler, was thought, however, to be loath to give up the idea that unilateral action was possible, because of his dislike of any scheme allowing the USA to interfere in the affairs of the United Kingdom.6 There followed a publicly advertised policy which was too vague in its timetable and imprecise in its diplomacy to be properly called a plan. The first public hints of this policy were at the time of the Commonwealth Conference in September 1952, more than three months after the definitive abandonment of Robot. At first it was discussed under the heading ‘The Commonwealth Plan’. Only when the ensuing European hostility to it had to be taken into account did it officially become the Collective Approach. It accepted that a unilateral move to sterling-dollar convertibility, ignoring the Americans, was not possible; American support was needed in the event of a run on the sterling balances held outside the country, which the reserves would be too small to combat. The grand policy objective now became an international agreement to replace the fixed rates of Bretton Woods by flexible exchange rates, having a much wider margin on each side of the registered IMF par rate, and to establish dollar convertibility for a small group of European currencies contemporaneously with sterling. The Collective Approach was not, however, an approach to the progressive hardening of all the major EPU currencies to the point of their general convertibility into the US dollar. It was a plan to end the EPU by inducing some of its currencies to follow sterling into convertibility irrespective of whether the rest could do so. At the same time as American support for this objective was sought, unavailingly, a parallel policy of making sterling in effect, if not in law, convertible was also pursued by gradually relaxing exchange 84


controls. Neither policy took account of western Europe’s own ambitions, leaving European countries to follow the United Kingdom into its own version of the non-discriminatory, multilateral world as they might, separately. Such steps as were rumoured or discussed in 1953 and 1954 were very limited. Convertibility, at that time, meant only that residents of forty-three countries outside the sterling or dollar areas would henceforth be able to use any current earnings of sterling to buy dollars from the central pool of sterling area dollars in London. Exchange controls would still prevent residents of the sterling area, or migrants from it, from converting their sterling capital or savings into dollars. There was already no formal difficulty for residents in getting dollars to finance current imports, if, that is, they could get an import licence. Convertibility in this limited sense therefore was not only compatible with the continuance of import controls, it even depended on it. One of the putative gains from convertibility, apart from prestige, was an increase in invisible earnings from merchanting and financing. As the hoped for trade surplus failed to arrive, at least on the scale envisaged, the wish to build up reserves by invisible earnings became all the stronger. But to encourage foreigners to hold sterling by giving them the freedom to get rid of it could obviously backfire. Two major hopes of commercial policy were to win dollar support for sterling area reserves and to bring about a lowering of American tariffs. That meant converting Washington to the United Kingdom’s vision of its own future world role as consolidator of the west and weaning the Americans away from what seemed in London their dangerous obsession with continental western European integration. There was little chance of this, because western European integration was a basic pillar of US national security policy. London’s hopes, or dreams, were not, however, shattered until 1960 when the Kennedy administration accepted the Republican line of the 1950s in its entirety, refused to support Britain’s creation, the European Free Trade Association (EFTA), and not only continued to give strong support to the European Economic Community (EEC) but put every pressure it could on the United Kingdom to join the regional European bloc whose development it had tried to discourage. America’s commercial policy evolved on altogether more businesslike lines. Having conceded that the creation of a western European trade bloc was an essential element in its global security system, the United States was to become increasingly interested that this should 85


not mean the continuation of discrimination against US exports. The decisive turning point in this would be the shock to the US balance of payments in 1958, after which the sacrifice of a certain volume of exports would no longer be willingly made in the interests of a global design. This was to mean not only the end of European discrimination by import quotas against dollar imports within some at least nominal OEEC common plan of action, but also that when American tariffs were thrown into a world trade bargain, it was with the EEC. As it then turned out, the regional bloc had that strength to bargain them down in a mutual process which Britain, with its much smaller market, lacked. Furthermore, although for most trading purposes sterling had been made effectively convertible by 1956, the declaration of its full legal convertibility had to wait for coordinated action with other major western central banks at the end of 1958, and after September 1955 it can safely be said that the declaration would not have been made without some measure of consultation with other European central banks. The positive commercial policy initiated in late 1951 failed therefore to achieve most of its objectives, and indeed they were not realistically attainable without a radical shift of American attitudes. British archives are heavy with melancholy lucubrations by government officials who would have preferred the United States to pursue British interests rather than its own. But they were also unrealistic for a second reason. Should western Europe continue to industrialise and to grow more rapidly than the economy of the United Kingdom, as in fact it did, then the balance of payments episode of 1951 was likely to be repeated. The removal of the import controls on which the pursuit of even the more restricted form of convertibility envisaged in 1953 and 1954 depended would be ever more threatening. Limited convertibility at prevailing exchange rates could bring no obvious advantage to the sterling area’s visible trade, although it might improve the financial balance by removing the motive to acquire dollars by illicitly shunting to the dollar area goods bought from Commonwealth countries with cheaper sterling on ‘transferable account’, for which the exchange rate was lower than the rate for sterling recouped on ‘dollar account’. With convertibility sterling would simply be converted into dollars at the standard rate and no hard currency earnings lost to the sterling area. For the rest, Americans who wanted to import British goods had no difficulty acquiring sterling on ‘dollar account’. Sterling-dollar convertibility would 86


immediately weaken the financial motive of Europeans and other foreigners to discriminate against the American exports which competed with those of the United Kingdom. Conceivably Japan, which had to preserve a careful bilateral balance with the sterling area, would have been more willing to spend some of the aid it received in dollars, but such expenditure would be small beer. Moreover, as the first leading European trader to make its currency convertible, Britain would first feel the impact of any dollar shortage, because countries which could take advantage of the conversion facility would target exports on the sterling area and reduce their own purchases of sterling goods by reintroducing quantitative import controls. The choice was acute. If Britain were to go it alone, it had to be prepared to take that strain. If it dawdled until other European currencies were also ready to go convertible, sterling might end as just another European currency. Taking the strain meant relying on import controls against western European exports for as long as was possible, that is until retaliation was threatened or until to do so made nonsense of the policy of taking the lead in Europe and preventing the emergence of a regional continental bloc. This was a difficult hand to play. Roughly, until the end of 1953 policy was still to postpone removing quotas for as long as retaliation was not imminent. Thereafter, policy was to take the lead in Europe by encouraging and consolidating liberalisation throughout the OEEC. The primary motivation for this leadership changed over the years 1954–6. At first it was the hope of sterling-led convertibility. As that faded in 1955 it became the fear of a regional tariff scheme led by the entity first known in Whitehall as ‘Schumania’ and then more sinisterly as ‘The Messina powers’.7 THE DECONTROL OF UNITED KINGDOM IMPORTS IN ITS INTERNATIONAL SETTING, 1952–6 In British eyes the sheer size of the accumulated deficit with the EPU was to remain until 1954 a strong justification for delaying the liberalisation of imports. Although the United Kingdom was winning back gold from the EPU, sterling-dollar convertibility would almost certainly end the EPU’s existence and Britain would then have to pay up on its debt. It would have been irrational for any importer to hold on to a sterling surplus within a system where only a part of the surplus could be translated into hard currency 87


imports, when by leaving it could turn the whole into dollars. A dissolution of the EPU in 1953 would have probably pushed France and other members even further towards autarky and bilateralism and for that reason there was a lively opposition by many officials in Whitehall, as well as in Washington, to any precipitate unilateral declaration of convertibility, on the grounds that it might actually make the attainment of the multilateral world more distant. Nevertheless, hopes for an imminent declaration waxed strong in the Bank of England and in some Treasury circles between the Common-wealth conference of November 1952 and R.A.Butler’s fruitless visit as Chancellor to Washington in March 1953. But as they did so fears in Europe of an Anglo-Saxon fait accompli waxed equally strong. Furthermore, it seemed in Europe that convertibility was to be achieved at the continuing expense of western Europe’s exports, especially those of France and Italy. It was French and Italian exports, particularly textile exports, which were worst hit by the British import quotas of November 1951 and March 1952. It seemed to the French that Albion expected them to be grateful for the freedom to convert their currently earned sterling into dollars while denying them at the same time the freedom to earn such sterling, which they needed in large quantities to purchase sterling area raw materials. Italy was the biggest current net debtor to the EPU in January 1953 and was virtuously near to the 100 per cent target in the OEEC Trade Liberalisation Index. France was the biggest accumulative debtor and, having exceeded its quota, was paying current net debts in gold. And this deficit with the EPU was largely a matter of its sterling deficit. In a political situation where the government was trying to obtain a certain measure of European support, or at least an absence of European opposition, for its plans to restore convertibility, a political gesture in the form of a more favourable commercial policy towards western Europe became essential in order, as officials thought, to prevent retaliation or a return to bilateral trade. Had the USA shown itself willing during the Washington visit to underwrite the sterling area reserves, Britain would have been more capable of liberalising its European imports while pursuing convertibility, even though about £330 million of potentially convertible sterling balances were held in Europe and therefore not subject to direct or indirect control from London. In the face of prevarication tantamount to refusal liberalisation had to be kept to a minimum, but this still meant 88


responding to the mixture of complaints and threats from France and Italy. French exports to Britain in 1952 fell by 37 per cent in value compared to their 1951 level, a far steeper fall than to any other European market. The value of Italian exports to the same destination fell by 48 per cent and two-thirds of the fall was due to causes other than the decline in price. Total imports of textile manufactures into the United Kingdom in 1952 only reached 53 per cent of their 1951 value, and from France only 19 per cent. British exports to France, by contrast, were not so heavily reduced by French cancellation of quota liberalisation in February 1952. French import restrictions in February 1952 were intended to establish an import programme for the period April-June which embodied a 50 per cent general reduction in imports, but in negotiations with Britain this was changed so that on most of the items to which United Kingdom exports were most sensitive, the reductions turned out to be of the order of only 25 per cent.8 This of course only increased the French insistence in the OEEC that the United Kingdom reliberalise imports of textile manufactures, at least, as its EPU position was improving.9 In November 1952, as a small gesture, quotas on imports of textiles and cheese for the first six months of 1953 were widened by 20 per cent. The Programme’s Committee, which drew up United Kingdom import programmes a year in advance, was left to work out the cost of a larger gesture of the kind Paris was demanding. It estimated in March 1953 that to meet the pressing French and Italian requests would add £26 million to the import bill in terms of increased imports from those two sources and about £30 million in all.10 On the other hand, the situation could not be held static. France and Italy threatened to cut their own imports from Britain at the end of March and to switch their raw material purchases away from the rest of the sterling area, so making the United Kingdom’s balance of payments prospects gloomier than the perspective opened by removing again the textile quotas. Had they done that, it would have seemed in Washington like the death-blow to European integration, and the blame would have fallen on London. Even without the need for European support, maintaining the November 1951 quotas unchanged would have severely harmed Britain’s own grand commercial strategy. It seemed to both Treasury and Board of Trade reasonably certain that unless we can in the very near future make substantial progress in relaxing our restrictions, we must 89


expect one European country after another to reverse their own liberal trade policies and so precipitate a downward spiral of trade to the serious detriment of our exports. There would be a general revival of bilateralism and it would become extremely difficult to achieve the multilateral objectives of the Collective Approach [general currency convertibility into $US].11 It was the Collective Approach, the return to convertibility in a oneworld trading system implying the end of regional payments schemes and the prevention of new regional tariff blocs, which was the paramount interest.12 This ambition meant that not only would the United Kingdom set the pace at which Europe ended quota discrimination against dollar goods, but that, as a consequence, it would have to lead the way towards quota removal on Europe’s internal trade. Convertibility would reduce the financial incentive for Europeans to maintain restrictions against dollar goods, but at the same time it would increase their incentive to restore quotas against UK exports. Because continental countries might reimpose quotas in the future to save convertible currency, it became important in the absence of American backing to embrace Europe in the collectivity of the Collective Approach. This meant pressing for the revival and consolidation of trade liberalisation across the whole of OEEC intra-trade. Of course, each advance in the OEEC Trade Liberalisation Index percentage was in the short run an intensification of discrimination against dollar imports. But as a precursor of convertibility it could be presented as an alternative concept of European integration to the State Department’s predeliction for political union by way of a customs union. The decision was therefore taken to reliberalise imports of textile manufactures from March 1953. However, confining these reliberalisations almost entirely to concessions beneficial to France, Italy and Belgium meant that the United Kingdom’s liberalisation percentage for all categories of goods moved only from 46 to 58 per cent, although for the sub-category of manufactures it moved to 65 per cent. There was as much an inherent contradiction in the policy of France in its dealings with the OEEC as of Britain. France had had the second largest accumulative surplus with the OEEC in summer 1951 and had passed into accumulative deficit in the same month as the United Kingdom. Although its deficit increased less rapidly than that of Britain, there was for France no reversal of this trend in 1952, indeed its accumulative deficit was still growing at the close of 1953. 90


Those French officials and politicians who favoured a long-term strategy of securing national security by developing still closer commercial links between the six ECSC countries were necessarily ambivalent about the OEEC’s long-run importance to the French economy. For them it was the requirements that any further deal with those countries might place on French commercial policy which mattered. The common market of the Six, which was eventually proposed by the Dutch in 1953 as the concrete form of that economic integration which they insisted should be written into the European Defence Community (EDC) Treaty, was an indication of what France might be required to do if it persevered towards those closer links, even though the EDC Treaty itself by that time probably had no chance of passing the French national assembly. Those requirements were stiff: an automatic progressive removal of tariffs between the members on a fixed timetable and simultaneous commitment to get rid of quotas on their mutual trade, also in fixed unavoidable stages. Of course, the Six would be removing quotas only between themselves; there was no overt commitment to remove them in the same stages and at the same speed from trade with their other OEEC partners. But could France, given its bad situation in the EPU, even contemplate that? If it could not, then the threat from the British thrust to convertibility was serious indeed. If the Deutschmark were to shadow sterling into convertibility against the dollar, as by 1953 it looked well capable of doing, this might mean the end not only of the EPU but also of the European integrationist framework that France had built up for the control of the Federal Republic. With increasing accumulative debts, losing gold, with an overvalued currency, dependent on American aid, with powerful vociferous protectionist lobbies in industry and agriculture who did not wish to give up the quotas which had protected them since the early 1930s, France seemed reduced to policy paralysis. Any relaxation of quotas would make the payments situation worse. For Britain, it seemed the moment, no matter how uncertain the balance of payments prospect, to lead Europe where it wished it to go. It was easy for Britain to expose France within the OEEC as the worst laggard of them all in trade liberalisation, once Whitehall had plucked up enough courage to begin seriously to reliberalise some of Britain’s own trade. Yet France needed the OEEC and the EPU the more as French advocates of a smaller and more closely knit trade group among the Six could not themselves realistically show in 1953 91


how the French economy could stand the risk. In May and June fierce criticisms were made of France in the OEEC by Belgium, Germany, Sweden and Switzerland.13 Yet the two countries who vied with each other to take the lead in Europe were each incapable of doing so. Progress in Whitehall towards trade liberalisation, in spite of the politically favourable opportunity, was to prove painfully slow. Weighted in terms of their 1951 import values, nearly half the goods which Britain had deliberalised in November 1951 and March 1952 were still under quota at the beginning of 1955. It was small comfort that France’s record was even worse, for if Britain wished to achieve its own global objectives it had to offer western Europe something more convincing than the American prospect of an economic, followed if possible by a political, union. When the British delegation returned empty-handed from Washington in March 1953 the government tried to cover both its disappointment and the on-going semi-secret nature of its plans to establish virtual, if unofficial, convertibility through technical changes in exchange control by adopting a pro-European stance in the OEEC. It promised in March to study ways of progressing towards convertibility in harmony with its European partners, to agree to renew the EPU for a further year, and increased Britain’s percentage score on the Trade Liberalisation Index to 58 per cent from its existing 46 per cent mainly by removing some of those quotas which particularly affected French and Italian textile exports. The rest of the OEEC had no reason to be contented with trade liberalisations largely intended to benefit the other great defaulter France. Indeed, because of the rebuff in Washington of its plea for financial support for convertibility Britain actually made last minute reductions in the scope of the March 1953 reliberalisations.14 Some of the smaller OEEC member-states, thwarted in GATT in their efforts to reduce the tariffs of the higher-tariff member-states, were ready to support the Secretary-General’s wish to reinvigorate the OEEC by relaunching the Trade Liberalisation Programme in a more ambitious way than these British moves, perhaps even by fixing a 100 per cent target. But while supporting the idea in principle the member-states unanimously refused to fix a timetable for any new commitment before France and Britain had gone a long way further along the road to reliberalisation. The official target was still 75 per cent, but the decision to move back to that percentage would not be taken in London until October 1953. 92


That the two major OEEC countries maintained their import quotas inevitably drove the smaller states towards plans for the reduction of tariffs on intra-western European trade. One of their favourite proposals was to reduce tariffs on a common list of goods on which import duties were held to frustrate further quota liberalisation by low tariff countries. But the extension of such a common list would have undermined Imperial Preference and was even feared in London as a possible first step to a common market. As long as such schemes were proposed on a preferential basis the United Kingdom could oppose them in the name of GATT as violating the most favoured nation principle. In search of a way to show leadership in a different direction the Board of Trade tried to interest the interministerial Mutual Aid Committee in the notion of a different kind of common list, of goods on which OEEC member-states would abolish all quantitative restrictions. Since such a list would have severely restricted the ability of any member-state to deliberalise these commodities, its advantage would have been that it would have consolidated much existing liberalisation. The United Kingdom had already itself reliberalised textiles, which were the backbone of such lists. However, it would not yet, in summer 1953, contemplate reliberalising other items proposed for such a common list, like pulp and paper. Moreover, properly to serve its purpose a common list of the kind proposed by the Board of Trade would require such tightly drawn escape clauses as to inhibit the United Kingdom’s own actions.15 In the face of a US recession, Treasury officials were by no means sure they wanted as yet to consolidate Britain’s recent reliberalisations. But the overriding objection to the proposal inside Whitehall was that it looked too much like what it was, a diversion from trying to reach once more the 75 per cent target. It was known that at the October 1953 OEEC ministerial meeting Secretary General Marjolin would officially propose a programme to move to the 100 per cent mark. The project was not as Utopian as it seemed; it had rather a shrewd political idea in it. It seems to have been generally accepted that by the methods used before 1951 no overall common target higher than 75 per cent could have been reached. The idea of proposing an ultimate target of 100 per cent was linked to a new institutional method. Instead of claiming credit for what they had done, countries would be asked to justify what they had not done. The Ministerial Council was to be asked to instruct 93


the Steering Board for Trade to examine, country by country, all remaining quotas and to advise the Ministerial Council by March 1954 if, and by what timetable, the 100 per cent target could be reached. This would oblige member-states to defend the full range of their import quota policies, and where they could make no good argument for them on balance of payments grounds to say on what precise grounds they were maintained in place. This looked attractive to those smaller countries hoping that it might expose the deeper roots of French and British protectionism. It would not, the Mutual Aid Committee decided, be good tactics to come forward with a common list proposal before the OEEC’s attitude to the SecretaryGeneral’s proposals had become clear, otherwise Britain might be accused of blocking progress towards liberalisation by a diversionary tactic. It was understood in London that Marjolin, the SecretaryGeneral, was no particular friend of the idea of a customs union between the Six. The proposed commitment to 100 per cent was met without enthusiasm by most OEEC member-states, but it was difficult to reject the idea that the Steering Board for Trade might ask for an explanation of any quotas which countries intended to hold back from the Trade Liberalisation Programme on other than balance of payments grounds. Member-states were given until March 1954 to prepare a case for such quotas, but there was no compulsion and France declined to cooperate in the exercise. In February 1954 London was still debating whether to organise pressure in the OEEC to force it to do so and decided there was no point; such action would have made no difference to the level of British exports to France and ‘its importance was rather symbolical than practical’.16 British officials were in fact to have stiff problems compiling arguments to defend their own so-called ‘negative list’ of quotas, but the situation was still a relatively safe one in which a British forward move at a pace which Britain itself chose was possible. Since the British version of a common list had been dropped, this had to be a move to a higher percentage on the OEEC index. Balance of payments excuses for not making such a move were wearing thinner with every months increase in the reserves and reduction of the accumulative debt in the EPU. The French, whose situation had not improved, were still there to be embarrassed if Britain could only make a move. And if it could not, there still remained the strong risk of retaliation or reneging by others. ‘If we fail to make a move,’ the Treasury 94


official R.W.Clarke minuted, ‘there is a real risk of restrictions against our exports; we should certainly have to face strong and continuing pressure and criticism in OEEC, with loss of influence on general trade and financial questions.’17 ‘The advantage,’ as it was put by the Programmes Committee, is of the most general kind, and consists of avoiding odium and the risk of positive disadvantage. There is no compulsion upon us to take the step now; the case for acting now is to forestall pressure and to clear up our record with OEEC in the expectation that in any case we shall be compelled to take this action soon.18 The decision was taken in London to move to a liberalisation percentage of 75 by the end of the year. The announcement on 20 October 1953 was accompanied by an expression of pious hope that France would do the same. The advance from the existing 58 per cent to 75 per cent was achieved not by simply removing import controls, but by liberalising the domestic rationing scheme for imported softwood. Quotas on softwood imports had been removed a year previously but the OEEC had refused to count this as liberalisation because, as had been the case with petrol and was still the case with newsprint, the effective check on imports was consumption controls. These were now removed as one of the last stages of the Conservative governments pledge to end rationing. Although the 75 per cent target figure was regained by November 1953, it was flatteringly enhanced by the continuing relatively high share of government trade. However, for a debtor to the EPU the figure was less open to comparative criticism. Of the nine debtors only Denmark had a higher figure, 76, while five recorded a figure under 50 per cent. In so far as the move was designed to put France under pressure it did have some effect. From a percentage figure of 8 per cent at the time Britain made the move France moved to one of 18 per cent by December. This small change, however, was thought to have provoked an immediate deterioration in the balance of trade and it led to a lengthy committee of enquiry into the overall competitiveness of French manufactures. While the OEEC seemed capable of encouraging liberalisation only negatively, by discouraging retaliation, the EPU could be said to encourage it positively, not only because it provided a multi-lateral settlements mechanism but because of its relatively generous 95


automatic credits to net debtors. These credits went some way to offset the post-war paucity of reserves. European reserves as a proportion of annual imports were on average about 25 per cent, when before the war more than 60 per cent had been typical. Britain’s reserves in 1952 covered only about one-sixth of its sterling obligations, which before the war they had matched. Whereas in early 1953 the United Kingdom had been looking to put an end to the EPU, the fear generated by the American recession temporarily produced a different attitude. In early 1953 a hardening of the settlement terms of the EPU, while it would have hurt the sterling reserves, would also have meant that there would be less gold to repay if the EPU were suddenly wound up. By early 1954, like any debtor, the United Kingdom wanted to postpone its own gold repayment until more favourable economic conditions. As the major creditors, Germany, Switzerland, Belgium and Holland, pressed to have more of their net surplus repaid in gold rather than in EPU credits, Britain was temporarily transformed into the defender of the EPU settlements mechanism as it existed. It was not merely the repayment of its own debts that troubled the United Kingdom. Without EPU credits there would perhaps be no further progress in import liberalisation by the other debtors, without that progress perhaps no sterling convertibility, and thus no end to the EPU, until there was a general move to convertibility in which sterling would not necessarily be the leader. Britain was obliged to feed the hand of the creditor it was hoping to bite. For France, the position was not made more comfortable by this short-term adjustment of British attitudes. In Paris the fear was that those in the German government, like the Minister for the Economy Erhard, who wanted to shadow Britain into convertibility as soon as possible and so break up the EPU, would win the argument in Bonn. Erhard and his followers could present convertibility as having a purely commercial meaning.19 It would advance German trade beyond the confines of the EPU area and allow the Federal Republic to cash in its European winnings and spend them in the USA. As the likelihood of France ratifying the European Defence Community Treaty waned, so that by the start of 1954 ratification of the Treaty as it stood was impossible, German supporters of more European integration among the Six might find their cause difficult to defend in Germany and might lose all patience with Paris. The evidence that French manufactures were not competitive with German goods over a wide range of products was piling up in the committee of enquiry. It was 96


to be used by deputies in the debate in the national assembly in August 1954 to convince the assembly to reject the European Defence Community Treaty.20 The danger of the relapse in liberalisation which Britain feared was of course greatly enhanced by France’s almost complete failure to reliberalise since February 1952. The complaints which had come from Denmark in 1951, before the British and French retreat, that low tariff countries which depended heavily on agricultural exports had been unfairly discriminated against in the Trade Liberalisation Programme, were heard again over the winter of 1953–4. Denmark had low reserves, as well as low tariffs. If monthly payments of EPU debt were to have a larger gold component Denmark would, it threatened, renounce its liberalisations. The leader of the British delegation to the OEEC, Sir Hugh EllisRees, than whom no stauncher, narrower defender could be found of the idea that Britain’s greatness lay in leading the world back to multilateralism, was strongly in favour of a more forward policy whatever the hesitations in London. Once the United Kingdom had regained the 75 per cent target and was no longer a defaulter, he argued that the moment had come to put pressure on the others, especially France, otherwise controlled trade would linger on interminably. If Whitehall was unwilling to go to a higher percentage, the appropriate move in the new circumstances, where the OEEC Steering Board for Trade was hoping to conduct detailed enquiries into all quotas which countries wished to retain for non-balance of payments reasons, was, he suggested, to challenge the high percentage figures recorded for other countries. He suspected continentals of cheating in a variety of ways to which the British would not stoop. The Board of Trade had to waste a certain amount of time looking for evidence of unfair import licensing practices by the continentals or hidden export subsidies relevant to allegedly liberalised commodities, before sadly reporting back that not only was there little evidence of these malpractices by foreigners but that to denounce the few that existed might be unwise because ‘we had skeletons in our own cupboard’. The Board of Trade concluded Although, as Sir Hugh Ellis-Rees says, there is no longer any reason why the United Kingdom should not adopt more offensive tactics in OEEC discussions, it is difficult to supply him with any subject for attack which could be held to be in 97


any way comparable in importance with, for instance, our own state trading policies, which have been the subject of particular criticism by other Member countries.21 It was bad news for sturdy Sir Hugh that his colleagues back home regarded the examination of the so-called ‘negative lists’— commodities on which governments felt they must retain quotas for longer-term policy reasons—as an exercise which was likely to present more problems for the United Kingdom than for the others. It might have been easier had they been able like France to treat the whole exercise in an offhand manner. In Appendix IV we illustrate the complicated motivations that underlay the quota regimes on most commodities. There were few cases where the direct effect on the balance of payments was the sole consideration and far fewer where it was so throughout the history of the quota. Clearly, however, the list of quotas to be defended on other than balance of payments grounds had to be kept as small as possible for tactical reasons. It was only a subset of those imports restricted for non-balance of payments reasons. Cars could be excluded from the list, for example, because they had been excluded all along. Coal, also not traded in 1948, could similarly be excluded. But cash registers, whose national manufacture was the object of a small industrial policy initiative which depended on a quota, soon the subject of a serious contention in the OEEC, were also omitted. So were apples and pears, whose growers were protected on what could only by the greatest of ingenuity be argued to be balance of payments grounds. The most acceptable justification for keeping a quota included in the ‘negative list’ was that the good was strategic. This was cited as the defence, for example, of maintaining quotas on dyestuffs, scientific instruments, watches and clocks, jewel bearings, diamonds and calcium carbide. Another was that the supply of raw materials to domestic manufacturers was controlled from outside the country. This, for example, justified quotas on jewellery, leather and hemp. A third was the need to dispose of accumulated government stocks. This justified the quota regime on plywood, linseed oil and dairy products. But many quotas eluded these neater headings and could not be left out without complaints from the foreigners Sir Hugh had hoped to arraign before the OEEC. Silver, iron and steel tubes, cashmere goods, baskets and plums were all examples.22 98


The final list was a long one, and the process of drawing it up mobilised lesser ministries—Agriculture, Supply, the Admiralty—in defence of quotas which represented their own protectionist interests. The list became longer because the Mutual Aid Committee resisted Sir Hugh’s appetite for the offensive. The French were apparently not prepared to make any real progress in liberalisation and the Italians were likely to deliberalise; with our present balance of payments prospects we could not offer any substantial step forward during 1954 and could not therefore attack the French too hard.23 Denmark and The Netherlands used the negative list procedure to reiterate their complaints that countries with low tariffs and which depended heavily on agricultural exports were unfairly penalised because agricultural trade remained so controlled. Both countries included all their surviving quotas on the negative list, making it clear that they were not intending to liberalise any further until the major countries did something bolder, either with quotas or tariffs. The Secretariat-General of the OEEC estimated that 60 per cent of the ‘negative’ sector was placed in that category on the alleged grounds that the commercial policy of other countries was protective.24 Most of the items on the Belgium-Luxemburg ‘negative list’, for example, were similarly ‘justified’, by a statement that they could be liberalised only if there was a reduction in government trading by other countries, the adoption by them of lower tariffs, and the abolition of dual pricing and dumping. Apart from agricultural quotas, the impression conveyed by the list is that all other quotas imposed by Belgium-Luxemburg were now being retained for bargaining purposes until large concessions were made in London and Paris.25 Given the already high liberalisation percentage of The Netherlands and Belgium such a standpoint might seem to have been acceptable to the defaulters. But in fact the British complained that much of the Dutch negative list was made up of infant industries protected against potential British exports: nylon stockings, paints and varnishes, penicillin and engineering equipment. The inclusion of linoleum on the negative list was attributed to a large stockpile of high-priced linseed oil which could be disposed of only on a domestic market from which exports were shut out.26 A list of Danish quotas which British exporters believed to be intentionally protectionist included leather footwear, 99


leather goods, paints, bicycles, refrigerators, electrical household machinery, fire-extinguishers and razor blades.27 Even Germany, with a high liberalisation percentage, 92 per cent, was thought to be listing quotas either to protect manufactures in trouble or to nurse infant industries. Carpets, hats, lace, briar pipes, hand-knitting yarns, pottery, plastic and synthetic resins, and plasterboard were all cited as examples of one or the other. Disillusionment with other countries’ attitudes to agricultural exports could hardly be given as justification in this case and the list is a good indication of the reality behind so high a percentage figure. In addition there were German import monopolies of fuels and agricultural products, although these products were classified as liberalised. If we move to a small country which deliberately protected a wide range of manufacturing, Norway, we can see that it was possible to reach the 75 per cent mark by the end of 1953 while maintaining a complete embargo on imports of bicycles, toys, umbrellas and rubber hotwater bottles, and allowing in only nominal values of hollowware, metal office furniture, silver- and electric-plate goods, carpets, wallpaper, pottery and cars, to take but a selection of that already selected list of quotas which Norway felt obliged within the rules to discuss at the OEEC. It was fairly evident from these lists that this new approach by the OEEC would lead nowhere, given the resistance to it in France and the poor record which it revealed the United Kingdom as having. In France the foreign minister, Georges Bidault, denounced his country’s commercial policy at the start of 1954 as ‘harmful to our authority in the relevant international bodies and not advancing our credit in everything that concerns European unification’.28 But the best that this demand for action could produce was a move to the 52 per cent mark in April, mostly made up of raw material liberalisations. The percentage for manufactures rose to only 42 per cent and for foodstuffs to 45 per cent. The move was accompanied by a declaration that there would be a further move to 65 per cent on 1 November. But it was also accompanied by a new, allegedly temporary, tax on foreign exchange transactions for import payments for manufactures and foodstuffs. Nominally set at between 10 and 15 per cent, in practice at rates between 0 and 10 per cent, the tax was supposed to eliminate the difference between French production costs and OEEC production costs. Raw material imports were excluded from the tax to keep down manufacturing costs. While this technically qualified as liberalisation and prevented the French percentage from looking 100


too disgraceful and while it increased imports from the OEEC into France by virtue of shifting from quotas to what in effect was a supplementary ad valorem tariff, the tax was denounced by the OEEC in September as discriminatory. It was surely distorting the whole meaning of trade liberalisation to replace quotas by supplementary import duties. The French government’s action was probably intended more as a token of its faith that European integration was not a moribund policy alternative, in spite of the approaching death throes of the EDC treaty, than as a response to British efforts to assemble a forward policy, because what could be assembled was so trivial. Apart from its own shortcomings, the United Kingdom had to desist from pressing France too hard lest it have negative consequences for the programme as a whole, or even for the OEEC. The overall trend of France’s balance of payments was improving, but the rise in its reserves was small in relation to the value of its trade and it would have been open to the French to argue that this trend was a temporary phenomenon linked to American aid. The best that could be safely done, it was thought in London, was to put pressure on Bidault to make ‘a reasoned statement of their difficulties and to show that they were preparing to make a genuine effort’.29 As we have just observed, Bidault himself wished to go further than this, even if the way that was found was oblique. This obliqueness did not trouble Whitehall greatly. Britain’s concern was not so much to increase its exports to France as to make sure other countries, particularly Denmark and Italy, did not deliberalise because of a French refusal to move. Had they done so, that would have made a bigger difference to British exports. More seriously, it might, in what British officials from their transatlantic perspective still thought of as recessionary conditions, start a downward spiral of trade restrictions. That policy was still so heavily influenced by observations from trading patterns of the 1930s rather than by the objective facts of intra-western European trade after 1945 is a vivid testimony to the lack of understanding in London of western Europe’s economic development since the end of the war. The counter-cyclical effect of the growth of German imports had meant that other continental western European economies had been left unscathed by the fall in American imports, and that was a contributory factor also to the short and limited impact of America’s recession on Britain itself. As usual, it was European trends in which Whitehall was least interested. Even so, the threats from Denmark had been specific and Danes, 101


Dutch and Belgians, perhaps even Italians, may well have been considering retaliation against France. And if France was to be persuaded to make a gesture to stave this off Britain had to make one too, even though as the Mutual Aid Committee deemed in midMarch, ‘The United Kingdom, in any case, in the light of present forecasts of the balance of payments position, will scarcely be able to offer any important further measures of liberalisation for some time to come.’30 That judgement was made after a small number of cosmetic adjustments, mainly involving fruit, vegetables and eggs, raised Britain’s percentage figure by a further five percentage points to 80. The widening of quotas on horticultural products was the outcome of an indication that GATT might permit extra tariff protection in this case even though it were preferential. Ironically, the United Kingdom had steadfastly maintained in the OEEC that low tariffs were no justification for quotas. There were increases in global quotas for fruit juices, because of complaints about shortages of raw materials from soft drink manufacturers, and for apples and pears, which was only a matter of making the quota for the first six months of the year correspond to that for the second. Iron and steel tubes went on to Open General Licence, but only after an agreement with Sweden, the main foreign supplier, that the tariff on Swedish exports of these products would rise from 15 to 20 per cent. The Treasury was subsequently firm that there should be no further risks, ‘since the effects of the recent relaxations cannot yet be fully assessed’.31 It is not hard to see merely from an examination of Britain’s own position why the examination of ‘negative lists’ would not speed up trade liberalisation. The quotas which were on them were mostly of two kinds, quotas on agricultural goods imposed in the 1930s and quotas which protected infant industries, many of them deemed strategic, imposed in the post-war reconstruction. Where these hardcore quotas were on agricultural products, like the British quotas on apples and pears or flower bulbs, the universal nature of the problem in western Europe was recognised, as was the universal need for some other solution to the problem of agricultural protection if quotas were to go. The Six, when they signed the Treaty of Rome, acknowledged this in agreeing that there would have to be a common agricultural policy if tariffs and quotas on their intra-trade in agricultural products were to be removed. One solution for the nonSix appeared to be to substitute tariffs for quotas, which was what the United Kingdom had done with horticulture in its move to 80 102


per cent in March. But that involved long negotiations with suppliers, with GATT, and with the interest groups involved. Where hard-core quotas were on manufactured goods, very little recognition of their justification could be expected in the OEEC except perhaps from some country which had been busy doing the same thing for the same commodity group, but whose support alone would not be sufficient. A rough list of such quotas for the United Kingdom in summer 1954 would have included many whose origins were genuinely strategic: dyestuffs, optical and scientific instruments, precision cameras, scientific glassware, laboratory porcelain, tungsten carbide, watches, clocks, calcium carbide, bandsaw strip, woven wirecloth and diamond dies. It was considered essential for defence purposes before 1954 that each of these products be manufactured in the United Kingdom. The quotas that protected and encouraged their manufacture were in most cases of wartime or immediate postwar origin. These were items on which it was said to be dangerous to rely for imports in wartime, although some, like the quotas on clocks and watches, were also based on wider industrial policy considerations. There were other examples where no strategic issue was involved, protecting the national manufacture of agricultural and office machinery, for example, and these were harder to defend. For reasons established earlier, mainly the controls and tariffs that had strangled certain imports in 1948, even removing all the quotas on the ‘negative list’ would, in October 1954, have improved the United Kingdom’s Trade Liberalisation Index percentage by only about 7.5 per cent. For this small statistical gain a nasty tangle of political problems would have had to be faced. The only OEEC member-state which would not have drawn a similar conclusion was Italy; it had relied throughout on high tariff protection and from 1950 had consistently led the way in quota removal. For the United Kingdom in 1954 therefore any further exemplary pressure on the other OEEC members involved removing quotas that were in fact maintained for balance of payments reasons. The obvious candidate was pulp, the only important raw material deliberated when quotas had been reimposed in November 1951. But pulp could not be liberalised by itself without antagonising the vertically integrated Swedish paper and board industry which also set pulp prices. Removing the quotas on pulp, paper and board would have raised the United Kingdom’s score on the Trade Liberalisation Index by 9.38 percentage points, a bigger effect than removing all the hardcore quotas on the ‘negative list’. 103


Some of the quotas that would have made a large difference to the percentage figure, including those on pulp, paper and board, had been, in OEEC language, ‘consolidated’. Member countries had been required in 1951 at the 75 per cent stage to ‘consolidate’ liberalisation measures amounting to 60 per cent in each of the three OEEC categories of goods. This meant that there was only a very restricted set of circumstances in which it was permissible to deliberalise them again. One of these was that a country’s deficit with the EPU was increasing at a rate which was endangering its reserves. This had been the grounds cited by the United Kingdom when quotas had been reimposed. Since the deficit with the EPU had been decreasing since 1953 these ‘consolidated’ items should have been reliberalised. Britain’s claim on reaching the 75 per cent mark at the end of 1953 that it was no longer a defaulter was challenged on these grounds. The United Kingdom was still clear that it wanted to advance or consolidate the liberalisation programme so that the other memberstates did not revert to a greater use of quantitative restrictions in order to save convertible pounds on any British declaration of convertibility. There was another burst of expectancy about convertibility in summer 1954, when world confidence in sterling was at its height and gold and dollar reserves in June reached the $3,000 million mark. As we have seen, the United Kingdom was anxious that other debtor members would not be so short of credit that they might be tempted to deliberalise their imports. To preserve a generous credit to gold ratio in EPU settlements Britain was willing to buy off Germany’s demand for harder settlement terms in the EPU by agreeing to a bilateral gold settlement. But in terms of the Trade Liberalisation Programme it was difficult to know what to do. There was not likely to be any advance in liberalisation which did not originate from a British initiative. Such an initiative might please the United States, which would certainly have preferred sterling to survive further liberalisation before going convertible. Since no initiative on convertibility had been taken in the summer, Britain was committed for a further year to the EPU. Excuses for inaction were running out as reserves improved, albeit more slowly from summer onwards. The quotas on paper and pulp were probably the least excusable big item retained on balance of payments grounds in Europe. On top of this came the seeming final collapse of European integration and of French rivalry for Europe’s leadership with the rejection of the EDC Treaty in August. Britain took that rejection as 104


a sign that it must take a lead that would dismiss for ever the spectre of a continental economic union which the United States had conjured up in 1948. The political lead was the negotiations which led to the Western European Treaty and the commitment of British troops to Germany. The economic lead was a major step forward in trade liberalisation. In September the decision was taken to use every possible means to induce the OEEC to proceed in common to attain and then consolidate the 90 per cent mark, which of course meant proclaiming the United Kingdom’s own fixed intention to reach that mark by a given date.32 It was not clear in autumn 1954 that the failure to establish the legal convertibility of sterling in summer was the last chance to do so by a purely British initiative independent of its EPU partners, although by summer 1955 the European Monetary Agreement was to all intents and purposes to confirm that this was the case. After June reserves had again begun to fall, so that a year later they were back to their level of the start of 1954. In late 1954, however, a further advance in the Trade Liberalisation Programme was still seen as a way of sustaining momentum towards the one multilateral world while Britain, as it was thought, was still on the brink of convertibility. ‘We consider that in default of such a step it may be more difficult for us to live with Europe in the European Payments Union, as we shall have to do for another year after mid-1955.’33 To advance to 85 per cent and to press for this as a common target would have required little effort domestically, only the removal of quotas on a number of the less ‘difficult’ items, in the language of British officials, which had been left off the ‘negative list’. It was also a more feasible international programme for cooperation. In terms of additional imports it would have cost no more than six or seven million pounds.34 To move to the 90 per cent mark involved real difficulties, so much so, indeed, that it was to prove ultimately impossible for Britain within the timetable it had itself insisted on. The reasoning, had it been made public, would not have been reassuring to Britain’s OEEC partners; the wider the extent of liberalisation at the moment of convertibility, the less risk would there be that these partners would reduce imports from Britain in order to finance dollar imports or build up their reserves. But for Britain itself, policy acknowledged that there was only ‘hope’ that it would be possible to maintain the existing degree of liberalisation during the transitional period after convertibility.35 105


For not going beyond 90 per cent there was a good reason. We ourselves should have very great difficulty in going beyond 90 per cent and we should get little in return for it. The negative list exercise has shown clearly that there is a hard core of items in all countries which they could not liberalise without great difficulty. We should, therefore, reach a position in which all countries were seeking exemptions. The least scrupulous would come off best and relations within the Organisation would be strained by disputes as to what grounds justify exemption. The Organisation might well find that it could not exert its authority over the members.36 Ninety per cent, therefore, became thought of as the mark which would best guarantee progress to convertibility and not endanger it through the consequences. In October 1954 the British liberalisation percentage stood at 83. Calculations suggested that by removing a number of quotas on smaller items of no strategic value—stockings, artificial jewellery and some drugs were under consideration—the percentage could be raised by a further 3.92 points. To achieve something less than 87 per cent would do nothing for the United Kingdom’s position in the percentage league tables and certainly not put it in any position to urge others to reach and consolidate the 90 per cent target. But for Britain to reach 90 per cent itself it was necessary to go beyond it, since it was considered impossible to liberalise the raw material pulp without also liberalising paper and board and together these would add nearly another ten percentage points. When Britain decided to press for the 90 per cent target in the OEEC at the January 1955 ministerial level meeting, it probably hoped to liberalise pulp imports on a worldwide basis and so satisfy both the OEEC Liberalisation Code and the claims of non-discrimination. The calculation was perhaps that the loss in dollars would be compensated by the gain in import prices. If so, it was an unhappy calculation. In November 1954 the Import Licensing Committee was asked to work on the assumption that all remaining quotas against GATT members would have to go by the end of 1955, except for a possible limited period of grace, probably one year, for a few hard-core items pending ‘alternative arrangements’, usually tariff increases which GATT would be asked to allow.37 The goal, it seems, was one more year and no more in the EPU and policy towards trade liberalisation 106


was shaped by the need to use that year to create the best possible commercial circumstances for Britain when convertibility was established. The question of relaxing quotas by OEEC member-states against North American exports had first been seriously raised by the OEEC Secretariat in 1954. As the dollar shortage disappeared over western Europe in general and European goods became competitive with American—and there was good evidence for both of these things by 1954—it had understandably become an aim of US commercial policy that the Trade Liberalisation Programme should be extended to cover European-American trade. The Americans naturally tended to see the removal of currency restrictions and their analogue, trade restrictions, as simultaneous processes; there was no point in European and other non-resident importers having more access to dollars if they could not spend them, and the existing access of sterling area resident importers was of less value in American eyes because of the tariff preferences which the United Kingdom had in major sterling area markets. But non-resident convertibility would supply the continentals with an incentive to keep out British exports and the means to buy more American imports. The OEEC, with the support of the more integrationist-minded governments, wanted the relaxation of quotas on dollar imports to take the form of another common programme. This was strongly disapproved in London; Britain wanted to set its own terms, as well as its own timing, for the start of the non-discriminatory world, because it believed that the start would be the unilateral establishment of sterling-dollar convertibility. If convertibility came while trade liberalisation within Europe was still so incomplete as it was in 1954, continentals, so it was feared in London, might have recourse to global quotas, technically nondiscriminatory but in actuality restricting British exports. Moreover, resident importers of the United Kingdom or the rest of the sterling area could not for long be expected to endure import restrictions against dollar goods simply in order to keep sterling strong enough to enable foreigners to benefit from cheaper American machinery, food and raw materials. Postponing dollar trade liberalisation, at least by others, until the unilateral proclamation of convertibility and its aftermath had been safely navigated, while establishing liberalisation within the OEEC on a more solid basis, were both necessary, and both subordinate to the pursuit of convertibility. Western Europe’s own commercial arrangements must so be shaped 107


as to give the United Kingdom a free hand to shape its own arrangements with the United States. Earlier it had seemed better in Whitehall tacitly to support the French import taxes because fake progress towards liberalisation was better than regression led by countries such as Italy and Denmark. But as patience with the pursuit of convertibility wore thin, as America’s tolerance of Europe’s discrimination began to fray, as with strongly improving conditions for most of 1953 and all of 1954 convertibility for other European currencies came into active consideration, Whitehall gathered its forces for a quasi-decision; a term must be set for the EPU’s existence. Since it was renewed annually, that could be one year. All talk of a common liberalisation programme towards America could easily be postponed for that time, but within the OEEC liberalisation must go forward so that Britain would then achieve its grand objective of leading Europe away from regionalism and into the one multilateral world in 1955. On 14 January 1955 the OEEC Council under British pressure approved a decision that the 90 per cent target should be set. This target was to be achieved by 1 October 1955 and maintained until 30 September 1956, when member-states would, technically, be free to abandon it without default. A subsidiary target of 75 per cent for each of the three subsectors was more binding, and could not be retreated from except under the terms of strictly defined escape clauses. Another requirement was that at least 10 per cent of imports not yet liberalised at 30 June 1954 should be liberalised by 1 July 1955. Only Greece, Iceland and Turkey were exempted from this additional target, the main purpose of which was to give memberstates already past the 90 per cent mark something to do. France had moved to 65 per cent in November 1954, still with the help of special taxes, as it had promised in March, and on 1 January 1955 it committed itself to 75 per cent by 1 April. This was not of course wholly a matter for rejoicing in London. Although French domestic prices still seemed so much higher than those of its competitors and talk of the necessity of a devaluation continued, France’s balance of payments and reserves were improving in autumn 1954 as British reserves began to fall.

108


THE ULTIMATE WEAKNESS OF BRITISH COMMERCIAL POLICY AND THE NEED FOR A CHANGE OF APPROACH British policy was approaching the point where error verges on irrationality and folie de grandeur becomes simple folly. In order to facilitate the end of non-resident discrimination against dollar goods the United Kingdom had had to protect itself against de facto European discrimination against sterling goods. This had required another exercise of leadership. But in order to demand a 90 per cent target from others without shame, it would have to impose a 94 per cent target on itself by liberalising both paper and paper-making materials, a task which was to prove beyond its strength until most of Europe had lost interest in the Trade Liberalisation Programme and turned to other forms of commercial action. For nearly two years, the two years over which the ‘Messina powers’ moved towards completion of the Treaties of Rome and the low tariff countries became increasingly restive with the Trade Liberalisation Programme, the grand strategy of the United Kingdom was to turn on a judgement about the price that the ring of Swedish pulp producers might set upon their exports. The decision to demand the 90 per cent target was not based on any detailed analysis of trends, but on that desperation that strikes when a clearly defined objective becomes harder to reach, when time is running out yet the internal momentum towards the goal is still strong. In this case the internal momentum had two sources. One was the alliance of the officials of the Overseas Finance section in the Treasury with the Bank of England. It was they who in late 1951 had first set the goal of unilateral convertibility, and they who in autumn 1952 had devised a putative timetable for de facto convertibility to accompany the public diplomacy of the Collective Approach. They would not readily abandon that project. The other was the internalised bureaucratic momentum of the delegation to the OEEC and of its determined leader. The gallant Sir Hugh was not to be deterred any longer by the musings of more cautious sections in the Treasury over the reasons for the much slower improvement in reserves than the original policy had called for. Even less could policy be deflected by troubled misgivings in the Foreign Office over whether this was really the way to treat our European allies. More rational assessments would have been based on a careful study of commodity trade between the 1951 disaster and the decisions taken at the end of 1954. During 1954 Australia had loomed as 109


large in the increase of British exports as western Europe, reinforcing the delusion that a market with 9.5 million inhabitants was as weighty as one with 250 million. The volume of imports had risen by only 2 per cent in 1954, because stock reductions had been greater than usual, while industrial output had risen by about 6 per cent. If 1955 was to be another boom year, a heavy import bill was to be expected. Non-resident convertibility would in any case have to be followed by what some, particularly its American and German critics, called ‘true convertibility’, allowing sterling area residents and those in Britain itself to import all dollar goods without a licence. The continental countries had of course not pursued the OEEC programme in order to prop up convertible sterling as a bridge towards the one world system. They had pursued it, for the most part, in order to create a secure European market which would confront the American challenge in proportion as it felt strong enough to do so. Abolishing quotas on United Kingdom dollar imports, however, would mean exposing some of Britain’s largest and most successful infant industries—petrochemicals, electronics, agricultural machinery and office machinery—to the full blast of American competition. In sectors where the main threat was western European competition—cameras, clocks, watches, for example—there were the same commercial arguments against removing quotas as there were against entering a customs union or a free trade area. The competitive success of the Federal Republic had begun to disturb Board of Trade officials, although it was only in 1955 that they undertook a serious enquiry into it.38 None of these facts, even taken together, were necessarily good arguments against quota removal, but each of them was an argument for a statistically more detailed study of the relative effects of quota removal against both dollar and EPU imports for all important protected trades, not just for the short-run balance of payments consequences, and even less for the even shorter run consequences for the United Kingdom’s rating in the OEEC Trade Liberalisation Index, but for the long-run consequences for the structure and pattern of the country’s production. Had it genuinely been possible and realistic to take the lead in Europe by making a weak currency fully convertible, the importance of being able to do so would perhaps have outweighed any conclusions from so much more detailed and sophisticated enquiry. Because it was not, detail, caution and foresight were needed. In short, there were no demonstrated commercial reasons to try a final rush to convertibility. 110


The Import Licensing Committee became aware that even by the end of 1956 the United Kingdom would still not have in place the alternative methods of tariff protection it sought for certain items, or even perhaps know what alternative possibilities existed.39 The continued acceptance in London of France’s unique way of achieving liberalisation suggests the importance of this. As far as British government officials were concerned French temporary import taxes were tariffs and as such did not infringe the letter or meaning of the Code of Liberalisation, as the United Kingdom hoped its own alternative methods of protection would not. Smaller countries maintained their strong objection to replacing quotas by tariffs, especially the Scandinavians who could cite an earlier case involving Denmark as evidence of unfairness by the larger countries. Denmark had liberalised imports of certain textiles only on condition that the importer first put down a substantial deposit before obtaining an import licence. The OEEC had refused to count this as trade liberalisation even though the Danish scheme tied up the importers’ deposits for only a limited period and so was not really a tax on trade. However, it was true that the issue of an import licence was conditional on payment of the temporary deposit, whereas in France, for goods covered by the temporary import tax, import licences and foreign currency were automatically made available. These legalistic arguments were brought to bear by Britain to reject criticisms of the French scheme because it would not be in our own interests to support an argument that liberalisation accompanied by tax should not qualify as liberalisation under the Code. For all practical purposes the French tax is indistinguishable from an additional Customs duty and it is essential that we should retain our freedom to increase customs duties in cases where this is judged necessary without running the risk that the relevant liberalisation measures would be disqualified on that account.40 Along neither of the two possible avenues for reaching the 90 per cent mark could Britain actually advance. The bulky bundle of hardcore quotas had to wait on GATT decisions before it could be unpicked and as many of its items as possible liberalised, and the single bulky package of pulp, paper and board, without which the overall target could not be reached, became impossible to liberalise for balance of payments reasons by March 1955. This was ‘a most unfortunate affair’ as Sir Hugh wrote to the Board of Trade in that 111


month, ‘particularly as we were among the prime movers to force these measures to be accepted by a number of rather reluctant countries, including the Scandinavians.’41 He hoped that by the last date for declaring liberalisations, 30 September 1955, the United Kingdom would be able to say that for merely technical reasons the liberalisation had to be postponed for two months. But this, too, was over-optimistic. Policy was to suffer two death-blows which meant its final abandonment in the very year in which it was supposed to be accomplished. One was the relentless fall in the reserves from June 1955 onwards which caused the final abandonment of the idea of a sterling-led establishment of convertibility which would leave the EPU, and therefore France, to fend for itself. The other was the meeting in the same month at Messina of the foreign ministers of the Six which began the progress to the common market. The fall in the reserves was linked to weaknesses in the trade balance which resulted from the policy itself. When all sterling except that on dollar account had been accorded transferable account status in March 1954, there followed an increase of 20 per cent in 1955 in imports from outside the sterling area, whereas imports from the sterling area grew by only 5 per cent. In the second half of 1954 the increase in imports compared to the comparable period of 1953 was mainly attributed by officials to the increase in demand arising from the higher levels of industrial activity. The balance of payments for 1955 was accordingly predicted to be worse than that for 1954. The tendency to attribute import increases to demand rather than to trade liberalisation prevailed in the Treasury all through 1955.42 But the permissive role of trade liberalisation in increasing imports can be judged from the warning in January 1955 that the hoped for surplus of about £20 million on trade with EPU members in 1954 would turn into a deficit in 1955 of about £25 million, whereas there would be no serious deterioration in the trade balance with the dollar zone.43 Having declined steadily from their peak of June 1954, reserves were to plunge more rapidly after June 1955. Although trade controls against dollar imports had remained undiminished, the increase in imports in 1955 over 1954, about 15 per cent in volume, was attributable more to the increase in dollar imports than in imports from EPU members. Part of the increase in dollar imports was attributable to the final ending of food rationing, which had, like many consumption controls, been in effect an import control. The percentage increase in value of 112


imports of food and drink was 22 per cent, that of industrial raw materials 23.1 per cent. The blow to long-run commercial strategy, however, came more seriously from commodity trade with the continent. The swing in the balance of trade with the EPU was much greater than that with North America and, of course, it was on trade with the EPU that the United Kingdom was supposed to earn a surplus to pay its dollar debts in boom years with high imports. With the fall in the trade balance the position of sterling weakened on the exchanges and as it did so the ambition to leave the EPU in 1955 was hedged about with caution and fallback positions. These mainly took the form of proposals for a temporary European Fund with enough capital to support those countries which could not establish convertibility at the same moment as sterling, and so encourage them not to relapse into trade controls. Before the March 1955 meeting, which was to decide Britain’s future in the EPU, the Bank of England was still pressing its demand that the EPU move to 100 per cent gold settlements, as a prelude to dollar convertibility. The Treasury, with an eye on the weakening reserves, said no and encouraged negotiations on the constitution of a European Fund. This was thought of in spring as facilitating rather than impeding a sudden break-out from the EPU into dollar convertibility. The decision on whether the EPU would be renewed for another year was held off until the June EPU meeting, the month in which the fall in the reserves accelerated. At that meeting the British delegation assured the Germans that it was not going to move in 1955 and the EPU would have another year while the details of the European Fund were thrashed out. It was only, however, at the IMF meetings in Istanbul in September in the face of a wave of speculation against sterling that a public statement was made that an independent move to dollar convertibility by sterling had been shelved.44 The unexpected decision by the Six at Messina to focus their attention on removing tariffs between themselves was as decisive as the weakness of the pound. It was not that the Spaak Committee which the six foreign ministers of the Coal and Steel Community set up to discuss this possibility ignored quotas and the need to remove them. But to put the primary emphasis on tariff removal was to hit the United Kingdom where it hurt; British tariffs were intended to remain and in some cases to increase until trade liberalisation had been safely negotiated. And to connect tariff removal to the idea, albeit distant, of a political union was a direct challenge to British 113


policy, for it was to take the lead in Europe where Britain had publicly said it could not follow. A customs union might have been compatible with the OEEC Trade Liberalisation Programme if quotas internal to the union had been removed in harmony with that programme, as though the union were one national unit. But a common market, with common policies towards agriculture and competition, which was what the Spaak Committee recommended, appeared much more menacing in British eyes than a mere customs union. It seemed only too probable, as indeed was the case after the eventual signing of the Treaty of Rome, that it would feel free to set its own individual pace for quota removal or even leave the question of quotas on the frontier of the common market to be settled in its own way by each individual member-state. The truth was that the Six, and most other OEEC member-states top, had lost all interest in the Trade Liberalisation Programme, while the Six themselves were playing for much bigger stakes. The Six did not wish to be led, or forced, by British aspirations to keep sterling as an important reserve currency into a world of non-discrimination, when that meant non-discrimination against dollar imports. Discussions in the OEEC on the possibility of a set of trade rules to be drawn up in advance of general dollar convertibility and the end of the EPU had revealed how wide the gap was between Britain and the others. Neither the Benelux nor the Scandinavian countries would agree to ban quantitative restrictions under these rules unless tariffs were reduced, so they were not prepared to limit their freedom of action in advance of the proposed GATT review. During 1955 the United Kingdom was quite isolated on the question of ending discrimination. Not one OEEC member would accept the British argument that discrimination should be formally prohibited by new trade rules for the post-dollar convertibility period. They argued, rather, that the OEEC should press for the right to set up systems of regional liberalisation whose members would liberalise trade between themselves but would only do so to non-members who operated reasonably liberal import policies.45 The Six had their own political reasoning which strengthened this view of the world after the EPU, so that the gap between them and the United Kingdom was especially wide. There were critics of British policy inside Whitehall, notably the Economic Section of the Treasury.46 They emphasised the financial value of British, and even rest of the sterling area, controls to the 114


balance of trade and preferred that these should be reduced more gradually and thus less riskily. To eliminate them at a stroke through convertibility might ultimately only increase the use of quotas, albeit global ones, if it transpired that the dollar shortage was not in fact over. They estimated the exclusion of imports by quotas in 1955 as having a value of £165 million, a figure which appears to have been taken from a Ministry of Supply estimate which we discuss in the next chapter and show to be an underestimate.47 The removal of quotas on dollar imports by countries elsewhere in the sterling area would, they suggested, worsen the sterling area balance of payments by more than this, perhaps by as much as £300 million.48 But the Economic Sections argument was only for going more slowly, they made no case against the ultimate advantages and desirability of the link between convertibility and non-discrimination. On that Whitehall was united, and in Europe isolated, apart from noisy but politically weak friends in the German Ministry of the Economy. The origins of the common market, which emerged as the Spaak Committee’s recommendation to the foreign ministers of the Six, did not lie in a reaction to British strategy. On the contrary, the hopes of most of the governments which travelled the road from the Messina meeting to the Treaties of Rome were still that British strategy and commercial policy would change in their direction, as indeed with the public renunciation in September 1955 of a sterlingled return to convertibility they began to do. The abandonment of that grand ambition narrowly preceded a change in the direction of British exports, first strongly observed in 1956, towards western Europe at the expense of the relatively stagnant sterling area markets. Rethinking was no doubt expedited when Australia, having raised substantial quantitative import restrictions against British exports, demanded special favours for its own wheat exports. However, although the move towards a new policy acknowledged the shift in the direction of British exports, as well as the failure of independently leading Europe to convertibility and non-discrimination, it was still based on the premiss that the Six were a threat, and it was intended as a challenge to the Messina project for a common market. The Free Trade Area proposals, as they slowly made their way forwards to priority through the Whitehall decision-making process, from being only the exploration of an alternative possibility begun in late 1955, took on the familiar grand strategic garb of a policy aimed at preventing any regional power-bloc forming on continental Europe or, if such a bloc did form as a result of Messina, dissolving it as 115


quickly as possible into a free trade area for manufactured goods with no further political implications for European unity. The change in British strategy was finalised in a rush after the Venice meeting of the foreign ministers of the Six in May 1956 opened inter-governmental negotiations for the common market by accepting the Spaak Committees report as a basis for agreement. The change was fundamental, but not in respect of its hostile attitude to the common market or any other regional European bloc. Its fundamental nature lay, firstly, in opening British markets to European exporters and European markets to British trade, not primarily by taking away quotas but by taking away tariffs. This would permit a much greater increase in trade between Britain and continental Europe than anything that could now be done under the OEEC Trade Liberalisation Programme. It recognised the geographical shift in the direction of the United Kingdom’s export trade in manufactures towards Europe and was strongly motivated by the desire to respond to competition in Europe from German manufactures. Secondly, the free trade area proposals rejected a basic tenet of the earlier strategy. They proposed continued discrimination against the United States. If a free trade area were granted a waiver from GATT rules, under the provision applying to customs unions that the arrangements meant an increase in world trade such that they overcame the restrictive effects of the exclusion of non-members, the United Kingdom and as many OEEC memberstates as joined would be discriminating by tariff, and perhaps also by their remaining quotas, against the United States. The hope in Whitehall was that the free trade area would prove a more effective way to bargain down US tariffs, so that this discrimination might not last too long. Allowing for this underlying hope which preserved a continuity with the earlier objective of non-discrimination, the change of strategy nevertheless meant that continental Europe, which had been on the margin of British commercial strategy and policy before late 1955, was now moving towards the centre of it. But the purpose was still to take the lead in Europe over, and against, France and, like the earlier strategy, in a direction in which, as events were to show, not all OEEC member-states outside the Six wished to be led. The change of policy also meant, although this was not evident until summer 1956, that Britain would lose interest in the Trade Liberalisation Programme as other European countries had begun to do earlier. From Messina onwards the implication was that the 116


Six, could they come to agreement, would feel free to make their own common decision about the removal of quota restrictions against dollar imports and would feel under no obligation to continue in harmony with the rest of the OEEC to agree on any common programme for the removal of remaining quotas on intraOEEC trade. For years the United Kingdom had been urging on Europe the importance of sterling convertibility as the path out of quotas against dollar imports, one major component of discrimination in world trade. In the name of non-discrimination it had delayed its own reliberalisation programme in order to make sterling fit for convertibility. It had jockeyed Europe into pursuing and consolidating the internal OEEC Trade Liberalisation Programme in order to prevent EPU members from accumulating too much of a good thing. But far from ending quota discrimination against the dollar zone, the Six were now planning a seriously discriminatory tariff bloc, which moreover would also discriminate against the United Kingdom if it did not join. And far from pursuing the Trade Liberalisation Programme further, the Six regarded it as an exhausted approach. The Treaty of Rome actualised this position. It forbade all new quantitative restrictions on trade between the Six states and set out an automatic schedule for progressively enlarging the old ones so that they would have disappeared by the end of the Treaty’s transitional period. Existing quotas had to be enlarged by 20 per cent per annum in total value and by not less than 10 per cent annually for each product. This rule boldly broke with the former approach of liberalising separate products by making a separate calculation about each. It was, though, of little use in the case of very small quotas, and no use at all in the case of embargoes. For both these cases the Treaty established a rule that where a quota was less than 3 per cent of the national output of the item, it must reach 3 per cent by the start of 1959, must move to 4 per cent by the start of I960, to 5 per cent by 1 January 1961, and thereafter be enlarged by 15 per cent annually.49 Where there was no national output the European Commission would fix the quotas size. By the end of the tenth year of enlargement no quota could be less than 20 per cent of the national output, a figure which implied some acceleration beyond simple conformity to the rules. If the safeguard clauses were invoked in an emergency, any reimposition of quotas still needed to be approved by a qualified majority of the Council of Ministers. 117


When it came to quotas against non-EEC states the Treaty, as might have been expected, imposed no central rule or authority, offering only an exhortation to pursue a common commercial policy towards third countries. Since the details of which goods were still under quota varied from one EEC member-state to another, as the OEEC had left it, as far as quotas were concerned the best this exhortation could mean was that the EEC itself would devise a set of targets for quota elimination against third countries similar to those which the OEEC had devised for intra-OEEC trade. The likelihood of its doing this for trade with North America was obviously not strong, because the individual members of the EEC had earlier taken such different stances to dollar imports. Belgium, for example, had practised very little trade discrimination by quota against the USA; France had done so massively. The British government, rightly, did not see this chain of events from Messina to the Treaty of Rome as inevitable. Indeed it was not finally persuaded until November 1956 that the Treaty of Rome would actually be signed and ratified. But from the moment the Spaak Committee began its deliberations, deliberations which coincided with the gradual forced abandonment of the plan for a sterling-led move to convertibility, trade liberalisation appeared in a different light. The OEEC had been pushed to its limits and integration, thought to have disappeared as a serious threat in August 1954, had raised once more its menacing banner. British actions in the OEEC were increasingly to be responses to this threat. Britain participated in the Spaak Committee’s discussions, but as soon as it was observed that the Committee was engaged in drawing up arguments for a common market, and for continuing discrimination, the British representative left, for his presence no longer served a useful purpose to either side. By October 1955 outright hostilities were breaking out between the United Kingdom as the defending champion of the OEEC against those who would divide Europe and the Six, beginning with an attack led, not surprisingly, by Sir Hugh. From the moment that British attendance at the Spaak Committee began he was asking officials in London to prepare themselves for unfortunate recommendations by the Spaak Committee and asking also that it be made clear from the outset that the United Kingdom would not support any such form of discrimination.50 By December it had to be admitted, however, that there was not much leadership which Britain could offer in the OEEC to uphold the Organisation’s activities against the nefarious plans of Messina. The 118


Board of Trade was engaged in a preliminary study of the possible formation of a preferential tariff club, to which the objections seemed so weighty that at that date it was hard to see it becoming policy.51 In the OEEC the head of the Belgian delegation, Baron Snoy, emphasised in January 1956 that consolidation of the 90 per cent liberalisation target as an obligation in October depended on action on the tariff front, and Nicholas Bretherton, who served as the British representative on the Spaak Committee, ‘was prepared to admit that if the results were considered unsatisfactory by an important number of OEEC countries, we might have to see what could be done’.52 But, firstly, worldwide action by GATT to reduce tariffs to the extent that the smaller countries wanted was certainly not that imminent. The fourth round of GATT negotiations was to begin in Geneva in February and not much was expected from the complicated bilateral agreements coupled to the MFNclause machinery which would be struck there. Unless Britain could free imports of pulp, paper and board from quotas it was its own result which might not be considered satisfactory in October. This left it difficult to refute the argument of the Six that regional action on tariffs was necessary, especially when the United States would countenance and perhaps encourage such regional action as a step to the ultimate political integration of Europe. Nevertheless, the momentum of policy, although the course of change had begun, was still to persevere with the Trade Liberalisation Programme and at the next OEEC Ministerial Council in February to ‘confront the new French Government with the need to improve France’s performance over a wide field—artificial aids to exports, compensation tax and administrative delays in licensing, as well as more formal liberalisation’.53 There were two difficulties: over the last year nothing much had happened, because the others were not very interested, and this would be only too apparent at any press conference; secondly, ‘We shall have to make the best we can of any embarrassment which our own performance causes us’.54 It had been accepted since December 1955 that For our own part there would be no likelihood of our being able to announce by that time an advance to 90 per cent liberalisation and it would be clear generally that the Council’s decision of January last was not being carried out. In the circumstances, we were in no position to initiate a strong move for a positive decision to continue the 90 per cent liberalisation 119


aim after next September, but with good management it might be possible to push through a resolution which would make it extremely difficult for any country to back out next October.55 The need for ‘good management’ meant removing the quotas on pulp, paper and board. All that United Kingdom policy could aim for in the OEEC in early 1956 therefore was to secure a declaration from those who had not reached the target, including the United Kingdom itself, that there was long-term value in achieving it. This would make it more difficult for member-states to withdraw from their obligation in October and help to win the point at the October meeting that the 90 per cent liberalisations should be consolidated. This was an absurdly small result to put beside the enormous issues raised by the Six for the United Kingdom’s future position in world trade. The low external tariff of the putative common market seemed in Whitehall to be just another powerful reason for not joining it. Britain’s high tariffs were viewed as an important bargaining weapon against that tariff which still in British eyes in early 1956 was the most important, the American tariff. To join the common market would also mean weakening the United Kingdom’s preferential tariff links with the Commonwealth and removing the high tariff protection which many British industries enjoyed against continental competition. For the United Kingdom to join or encourage the common market might ensure the success of a venture whose failure in most influential Whitehall quarters was still secretly being prayed for and, moreover, was still expected. Yet if the thing did not collapse it would be a commercial disaster to remain outside and surrender the European market to Germany. Britain had understood from the beginning of the Spaak Committee that a customs union which excluded it would be even more harmful to its economic interests than one which included it. But the judgement still was that it was politically impossible to join. The Churchillian hopes for a preeminent role in Europe as the unique intersection of the three great western spheres of influence, commerce and power, and the judgement, under challenge but still prevailing, that among those three spheres the Commonwealth was more valuable than Europe, not only kept Britain out of the common market but covertly hostile to it. It left it still with no policy in Europe in spring 1956 but the pursuit of the Trade Liberalisation Programme to its bitter, 120


insignificant, and for Britain itself at that time still unattainable, end. Beyond that, there was convertibility and a slow MFN-governed progress on reducing tariffs worldwide which would not affect Imperial Preference. To trace the steps by which the idea of a European free trade area eventually became an official British proposal to the OEEC would be to venture into another subject. For our purposes here it is sufficient to note that once it did so quota removal as a way of taking the lead in Europe had been replaced by tariff removal, at least on manufactured goods, and that such quotas as were left in place against European exports would no longer be removed under the mutual pressures of the OEEC Trade Liberalisation Programme, but by a different process of bargaining still to be determined. British hopes that this would remain a mutual process within one OEEC free trade area were to be shown to be unrealistic. Two years of protracted and fruitless negotiations showed that if all bluffs were called, the Federal Republic would not choose a free trade area without France but a common market without the United Kingdom. The birth of the new policy was almost simultaneous with the death of the old. It can be usefully dated by the OEEC Ministerial Council on 17 July 1956, where a British proposal to set up a working party to examine forms of association between the OEEC and the Messina group, including a free trade zone, was formally tabled under the guise of a proposal by the Secretary-General. Within the government the decision to do this had been confirmed by ministers only in June. Two outside pressures pushed the government in this direction, mainly the decision by the Six at the end of May to put the Spaak Committee’s proposals to the test of inter-governmental negotiation, but also the unremitting insistence of Scandinavians and Swiss inside the OEEC to force the Organisation to switch its attention to tariffs and devise a plan to meet the wishes of what had become a low tariff club. The low tariff group pre-empted classic British objections by proposing to reduce tariffs on goods of European interest on an MFN basis. It was only encouraged by the final outcome of the GATT Geneva negotiations which lasted for four months until late May. The concessions made to each other by Britain and the USA did not make much difference to Scandinavian or Swiss opportunities in British markets and the reduction in the British tariff on certain kinds of paper from 16? per cent to 14 per cent, the only significant concession made directly to Scandinavia, fell well short of Swedish 121


hopes, especially when there was still a quota on paper imports. The low tariff club stood ready to refuse Britain’s modest proposals for the next stage of the Trade Liberalisation Programme if the OEEC was not also prepared to do something on the tariff front. They were not prepared to wait three years for another general GATT round. In the event therefore Britain arrived at the July 1956 OEEC Ministerial Council meeting still sticking to its Trade Liberalisation Programme proposal, but also with the far more important proposal for the free trade area which it was decided at almost the last moment to elevate to policy priority. Before that meeting it was necessary to free imports of pulp, paper and board. The decision to do so was taken less than a month before the meeting under strong urging from Peter Thorneycroft the President of the Board of Trade. To the Chancellor Harold Macmillan he wrote on 25 June, ‘The low tariff group within OEEC have, however, consistently maintained that unless there is some progress on the tariff front consolidation of the 90 per cent obligation is for them unacceptable.’56 The cost of liberalising imports of pulp, paper and board was now put by Board of Trade officials at between £1 million and £1.25 million. Deflationary demand management in the British economy together with a slowing down of the great European expansion of 1955 had made it possible to offer import licences freely to those who might no longer be demanding them. Even then, however, it was presented as a risky matter, both presentationally and in terms of the balance of payments. The arguments that clinched the decision were not financial ones, but political: the initiative must not be surrendered in the OEEC; to say that for the price of £1 million or £1.5 million the United Kingdom was failing to carry out an international obligation which it had itself sought would be not only to surrender the initiative but to hand it over to the Six; because the total cost would be much smaller than that of any new European initiative on tariffs which Britain might propose, it would get the free trade area proposals, were they to be made, off to a poor start.57 It was clear therefore that even before the final decision to submit the free trade area proposals to the OEEC was taken, quota removal and the Trade Liberalisation Programme had become a subordinate issue. It was treated as such by the Ministerial Council of the Organisation in July, being discussed only after the new British proposal. Consolidation of the 90 per cent obligation, which was the heart of the United Kingdom’s remaining interest in the Trade 122


Liberalisation Programme, and for which it had itself moved on the eve of the meeting to 94 per cent, was refused, partly because of Denmark’s refusal to go any further without a firm commitment from the OEEC, rather than a set of proposals, on tariffs. Denmark and Switzerland put up such strong opposition that the United Kingdom did well to gain a prolongation of the existing situation to the end of 1957. Both countries demanded the right to deliberalise if there were no tariff plans in existence by an earlier date. Germany, the most publicly enthusiastic for the free trade area, and Italy, however, agreed with the United Kingdom plea that guaranteeing to hold the existing extent of quota liberalisation for anything less than fifteen months ‘would produce dangerous instability’.58 A further proposal from the Steering Board, that countries should liberalise 10 per cent of the non-liberalised sector or relax their quotas over 20 per cent of it, was rejected through French, German and Swiss opposition. This would have widened quotas on foodstuffs and ministers of agriculture dug in their feet and refused to move any further. There was now nowhere further for the Trade Liberalisation Programme to go. By springing the diplomatic surprise of the working party proposal the United Kingdom had successfully moved the proposals of the low tariff club to the sidelines and had bought some time. Publicly, the free trade area idea was warmly welcomed by the Dutch and the Germans. But privately there was an equally prevalent response among officials that it was a diversion from a low tariff scheme or a ruse to bury the Spaak proposals and change the nature of the Six’s inter-governmental negotiations about them. Those negotiations were not at the time showing signs of an early successful conclusion. The fact that the United Kingdom had lost its chance of taking the lead in Europe became clear only in stages: when in early December 1956 it became evident that the common market negotiations would reach a successful conclusion; when the ratification process of the Treaties of Rome was completed at the end of November 1957; and when a French press statement in November 1958 put an end to the negotiations between the new European Economic Community (EEC) and the United Kingdom as the representative of the rest of the OEEC. However, in retrospect, the chances of success in the negotiations for the free trade area were very few indeed. Having gained the concessions it desired in the Treaty of Rome France was never likely to dilute or surrender them in the wider arrangement. Indeed, it also seems true in retrospect that even when the proposal for the working 123


party was accepted in July 1956 the chances were large that France would get what it wanted from the Treaty of Rome negotiations and the common market would come into existence. British opposition in GATT to the common market was unavailing. The United States pushed the necessary GATT waiver through on the grounds that the common external tariff of the Six constituted a tariff reduction leading to an increase in world trade because it was lower than the average national tariffs of its memberstates, a matter of some argument. The free trade area proposals, which the Six were prepared to consider only once the common market was legally in place, had as a central objective a common procedure for quota widening and removal on trade with the United States as well as on the remaining intra-western European trade covered by quotas. But it was to become a central point for the EEC that the Community should deliberately maintain as a principle a different set of rules on quota removal in order to mark its distinctive, separate and new political personality. In the negotiations in 1957–8 to discuss linking the EEC to the free trade area the Six agreed to extend to the rest of the OEEC their policy of increasing the total of bilateral quotas by 20 per cent as well as that of increasing each specific quota by at least 10 per cent. But they refused to extend the offer to create or enlarge all quotas up to the level of 3 per cent of national production. The difference this made to the potential value of intra-western European trade where it was still affected by quotas was important. Three per cent of French national car production would have been cars to the value of £10 million. Actual quotas for United Kingdom car exports to France were £720,000 annually. The difference for electric motors was that between £500,000 and £60,000, for sugar and confectionery that between £1.2 million and £21,000. The end of the Trade Liberalisation Programme can be seen in retrospect to have coincided with a set of other international circumstances in the same year which put an end to the vision of greatness as it had been glimpsed and pursued since 1951. In summer British exports were rudely excluded, and for the second time since 1945, by import quotas raised against it by its ‘best customer’, Australia. This made such nonsense of Commonwealth preferences as to make the birth of a regional customs union, which the United Kingdom could not afford to join, and could still less afford not to join, even more of a disaster. The long-term swing in direction of British exports away from the Commonwealth to Europe was a swing 124


away from one discrimination towards another. The American tariff still stood firm. American perfidy, or so it seemed to him, wrote the word Suez on Anthony Eden’s heart over the same days that the decisive Franco-German agreements on the Treaty of Rome were reached. After the United Kingdom’s trade liberalisation percentage had moved by the end of 1956 to 94 per cent it still maintained quotas on a fairly wide range of imports from OEEC member-states. There were quantitative restrictions on imports of ham, milk products, apples and pears, potatoes, sugar preparations, stone, flower bulbs, coal, coke, dyestuffs, calcium carbide, leather, newsprint, paper manufactures, stockings and socks, lace and lace net, jute and manila hemp yarns and manufactures thereof, jewellery, cutlery, motor vehicles and parts, clocks and watches, precision cameras, scientific and optical glassware and instruments, arms and ammunition, sports goods, toys and games, smokers’ requisites, basketware and curios.59 As for quota restrictions against manufactured imports from the dollar zone the process of removing them had scarcely begun, and the chances of common action in that direction, which the United Kingdom now of course wanted, had gone. THE OEEC TRADE LIBERALISATION PROGRAMME IN RETROSPECT The OEEC Trade Liberalisation Programme is usually presented as one of the demonstrations of the greater ability of post-Second World War Europe compared to post-First World War Europe to solve its international economic problems by cooperative action through international organisations. So of course it was, but the basis of that international cooperation and the way it functioned in practice inside the Organisation show that success was not so much dependent on goodwill as on the nature of the organisational machinery and on political rivalry. Before the Treaty of Rome national decision-making about import quotas was always under pressure from the need not to flout OEEC agreements too flagrantly because of the opportunity it presented for semi-public condemnation within the Organisation by a rival. It is evident that civil servants in Britain and France did not always remove quotas at the moment they would themselves have chosen, but according to a timetable dictated by the schedule of OEEC calculations. Those French liberalisations in 1954–5 which were achieved only by 125


substituting special temporary import taxes for quotas are the most obvious example; France could no longer go on without either coming somewhere near to conformity with OEEC rules or devaluing its currency. It is also the case that collegial scrutiny of national government policy formulation reduced the propensity of national civil servants to special pleading and exposed such pleading for what it was when it was used. In the March 1954 OEEC exercise the United Kingdom struck a particularly virtuous pose with its high percentage figure for liberalisation of agricultural imports, 86. But as the discussion in the OEEC made clear, if government trading had not been excluded from the calculation the figure would have been only 61 per cent.60 There were several instances in Britain and no doubt elsewhere where officials decided not to take up the defence of a quota in the OEEC because it was hard to find one that would stand up to the prosecution. As long as this interplay of national rivalries made the OEEC the main forum for discussion of commercial policy changes it did constitute an institutionalised forward traction towards quota removal. This was certainly more successful as a political framework than mere intergovernmental commercial negotiation over the same issues had proved in the 1930s. It can be seen from Table 5 that after the July 1956 decisions, however, the percentage point calculations of the OEEC Trade Liberalisation Index do not significantly alter, other than for France’s suspension of liberalisation in 1957 which, given the continuation of the temporary import taxes, is perhaps best regarded as a merely statistical event. In spite of the widespread acceptance of the idea that larger markets would improve productivity, growth and welfare, British quota removal was more the outcome of attempts at political leadership than of commercial calculation. In its first stage to 1951 it was driven by American pressure for European integration, in its second stage to 1956 by Anglo-French rivalry and by British attempts to lead Europe away from regional integration and towards worldwide multilateralism in payments. For the other OEEC members quota removal was viewed as a serious but diminishingly effective way of creating larger, more secure markets. In this light, the OEEC appears as no more influential or effective than the dominant powers wanted it to be. Since the dominant powers were Britain and France, the Trade Liberalisation Programme was in large part driven from the start of 1952 by national rivalry in the traditional diplomacy of the struggle for primacy in Europe. If the causes of trade liberalisation, 126

Note: * Base year for West Germany is 1949, for Austria 1952, for the Benelux Union 1955, for Iceland 1958. A=30 June; B=31 December.

Sources: W.Andres, Der Liberalisierungskodex der OECE für den Warenhandel (Zürich, 1964), p. 78; OEEC, Miscellaneous Reports by the Steering Committee for Trade.

Table 5 OEEC Trade Liberalisation Index results, 1950–8 Base Year 1948*


in the specific sense of removal of quotas by mutual agreement within an international organisation were in fact rooted in traditional diplomacy, and dependent on national diplomatic rivalry, this would not of course imply that the process did not make the contribution to the growth of trade and incomes in western Europe over those years which is often alleged, if never proved. Estimating the effect of the OEEC programme on the growth of trade over these years depends firstly on estimating the potential value and volume of trade excluded by import quotas, an exercise which we attempt in the next chapter. By our estimations British import quotas, at least, were more effective in keeping out goods than has been claimed. There is no reason to suppose that this is not true of those of other countries. However, to extrapolate from the revised estimated value of excluded potential British imports in particular years to the total value of excluded OEEC imports in the same years, and then to estimate the same values for years for which we have made no estimate, and in which the incidence and effectiveness of quotas would have been different, would scarcely even merit the name of guesswork. To make a plausible estimate of the potential value of imports excluded from the United Kingdom alone required a minute enquiry at the microeconomic level into a multiplicity of trades. It is not implausible that quota removal, although it made tariff reduction more difficult, may nevertheless have led to dynamic gains to trade. But the generalisations usually made in studies and models of economic growth about the benefits of trade liberalisation in this period should be treated with caution. Tariff reductions were certainly not a marked feature of the period 1951–6, indeed outside the German Federal Republic they came to a virtual standstill, and one reason for that was the Trade Liberalisation Programme. Given that the motive for quota removal was essentially a diplomatic one, it seems more probable that before 1955 it was growth which led to trade liberalisation, rather than the other way round. The episode remains, nevertheless, surprising. It could not have seemed probable as bilateral trading agreements still proliferated across Europe in 1948 that by the close of 1956 there would be so few quantitative restrictions on western Europe’s intra-trade, especially after the tariff reductions before 1951. The restrictions that had grown up after 1929 were so varied, complex, often secret, and interacted with each other in so tangled a pattern that just to describe them accurately is a task of great difficulty, even when attempted in the 128


calm of an academic study. For those whose business and income depended on them, less time was to spare. Quotas were not removed because they failed in their job of keeping out imports. They were even more effective in this than British governments realised at the time. At the deepest level, the explanation for their removal must be that they had become as inappropriate an instrument as tariffs for the realisation of the complex objectives of the modern state.

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5 MEASURING THE EFFECTS OF QUANTITATIVE IMPORT RESTRICTIONS

The problem of how to measure the effect of quantitative import restrictions is unlikely to find a neat solution. One hope of economists seems to be to find a theoretical foundation derived from the theory of tariffs which could be used to measure all forms of protectionism combined, like the ‘trade restrictiveness index’ recently proposed by Anderson and Neary.1 Their index would equal the uniform tariff on all imports which would produce the same welfare level as the existing mixture of tariffs, quotas and other non-tariff barriers to trade. Even if the harmful effects on welfare of tariffs in an equilibrium model are accepted as an approximation to the real economic world, to have sufficiently detailed information on quotas to calculate their effects on the same basis is usually impossible. And where both tariffs and quotas exist on the same imported good, as was typically the case in Britain and western Europe in the period of which we write, the situation becomes more complicated, because reducing the extent of protection by quota increases the extent of protection by tariff and measuring the point at which that occurs requires an even more precise knowledge of the trade and quota in question. Given the different objectives of most tariffs and most quotas it seems in any case a theoretically false step to consider them as similar instruments of protection for the purpose of measuring their effects. The effects of import quotas are likely to be very different between different sectors of production and the measurement of their protective effect hardly to be summed up in the mere calculation of a hypothetical welfare loss. The very factors which give quotas a worse name than tariffs also make their effects harder to evaluate. Tariffs must be made known, and after the Second World War they were nearly always ad valorem. Quota restriction can be imposed either on value or on volume 130

MEASURING THE EFFECTS OF RESTRICTIONS

of imports, and in many cases the quotas or purchasing programmes were kept so secret or unheralded that their existence seems to have gone unsuspected by many excellent authors. With the widespread application of the most-favoured-nation principle it is also objected against quotas that they can more easily and less detectably discriminate. But the main accusation is that quotas distort market relationships. Once the permitted quantity has been reached the price of external goods ceases to matter; the barrier comes down and no subsequent change of external price or internal demand can affect the amount imported. Even where the size of the quota or the purchasing programme is published, the extent of the demand which it frustrates can only be indirectly estimated; the connection between domestic demand and foreign supply is cut. In principle international and domestic supply costs could continue to widen indefinitely, but there would still be no market for imports. Quotas were effective in the absence of tariffs, and where tariffs existed reduced them to revenue taxes. Even in the low-import year 1952 ad valorem tariffs transferred a tidy £84 million (none of it from the Commonwealth areas unrestricted by quotas) from importers to government. But even in a year where a few permitted quotas exceeded demand, these duties can have had little deterrent effect on the level of imports. In the absence of quotas a tariff, by contrast, even when very high, still allows import prices to serve as a measure of potential demand. In equilibrium, an ad valorem tariff ideally measures the difference between international costs and domestic costs at the margin of production. Tariffs can still be an ineffective barrier if domestic demand is initially high enough to make it so, or if the foreign supplier in response to its imposition reduces the price of a good before duty is levied. But in any case a given tariff allows imports to respond in the longer run to a genuine change of international costs or to any change of domestic demand. If price elasticities are known, an effective ad valorem tariff can simply be assimilated to a price rise. Those who have gone before us in trying to measure the impact of import restrictions on the British economy in the post-war years— there seem to have been no more than three such attempts—did not in fact equate quotas with tariffs on the basis of a single theoretical assumption. Their object in every case was to isolate the effect of quantitative import restrictions from other forms of restriction and to measure the additional impact of quantitative controls beyond the impact of tariffs. The question they were asking was what would 131


have been the value and volume of British imports in a given year had there been no quantitative restrictions? In this chapter we are concerned with two things. Firstly, are these earlier measurements correct, and if they are not how does that alter our view of the postwar British economy? More generally, is there a way of making such measurements which carries any historical conviction? The outcome of our enquiry is to suggest that all three previous measurements are underestimates of the extent to which import restrictions did keep out imports. Without quantitative trade restrictions, the situation to which, as our earlier chapters showed, the British economy was being driven by foreign policy choices, the United Kingdom’s balance of trade would have been much worse. Our examination of these earlier measurements leads us to conclude that, in spite of the sophistication and care with which they were made, they were nevertheless biased at critical points, possibly by their authors’ distaste for trade controls and preference for free trade. In much subsequent advice to government the degree to which import controls had been or would be effective was crucially understated, even if effectiveness was measured simply by the capability to reduce next year’s import bill. The pattern was to disdain import controls until crisis made them unavoidable; or to be surprised by a surge of imports a year or so after their removal. This pattern was to be repeated with respect to surcharge policy between 1964 and 1967. But, as we have shown earlier, quotas served a variety of important and overlapping objectives. This was as true of the United Kingdom as of other states. There were quotas whose purpose was also to protect politically influential sectors (agriculture and textiles); to safeguard the home market of those industries required by government policy to export a given percentage of their output (cars, domestic sewing machines, cashmere garments); to penalise ‘unfair’ foreign access to cheap raw materials (finished leather); to protect fledgling if not actually infant industries (office machinery, nylon stockings, cameras, clocks, plastics, petrochemicals, sulphuric acid, electronics); to preserve key strategic military industries (scientific instruments, precision cameras, dyes tuffs, watches); to hold the fort until a tariff could be authorised by parliament and negotiated with GATT (apples and pears, soft fruit and vegetables, flowers and other nursery products, iron and steel tubes); to bargain against other quotas (canned tomatoes, cars); to discourage speculative private stockbuilding and assist the management of government stock 132


reduction (plywood, linseed oil, soft hemp manufactures, tungsten, whale oil); to hold down quasi-monopsonistic prices (pulp, timber, some foods); and to get rid at a reasonable price of sugar supplies contracted for from colonies under the Commonwealth Sugar Agreement (biscuits and other sugar-based confectionery). In many cases (newsprint, foods) their added purpose was to fortify the system of internal rationing which would have collapsed had imports been controlled by tariffs alone. This last function was especially important for the repressed consumption, sometimes known as repressed inflation, of the period 1945–51. To the extent that internal controls of imported goods were intended to exclude imports, they were themselves a barely disguised form of import control; in some cases, such as internal controls on the consumption of softwood timber or on petrol for private motoring, they had no other purpose. And to the extent that internal rationing failed to exclude imports, the external controls buttressed the domestic system. During the six years of war the British people received less than four years supply of normal clothing and less than three years supply of household goods.2 These goods remained heavily controlled after the war, when there was much more purchasing power than before and it was much more evenly distributed. In these so-called years of austerity semi-luxuries were freely available, and the over-hang of purchasing power was so great that personal consumption of tobacco and ‘entertainment’ exceeded pre-war levels even though such items were the most highly taxed. Savings as a share of personal disposable income were nearly 6 per cent in 1947 as against 3.5 per cent in 1938.3 The potential custom of the United Kingdom was more alluring to foreign exporters because of the disruption of the great German market. All that said, it is true that the most pervasive motive behind the use of import quotas was to protect one side of the balance of payments: within government the efficacy of quotas was usually judged by the size of their effect on the value of the import bill within twelve months of their removal or imposition. It would therefore seem that the most appropriate first measure of the effect of import restrictions is to follow our predecessors and assess their impact on imports. On surveying the broad historic trends and geographic patterns, we were surprised by the strength of circumstantial evidence that import policies did have a major impact on the magnitude of total imports, even though they were usually judged in relation to the balance of payments deficit, a smaller magnitude whose targeted 133


value is usually zero. As we noted in the previous chapter, in autumn 1952 before the favourable payment figures for the first half of the year became known, it still seemed an urgent matter of state to scrape a further £5 million off a total import bill expected to be about £3,500 million.4 Another million on the current deficit might mean more than a million off the reserves. We have shown how OEEC stages of liberalisation, deliberalisation and reliberalisation were both causes and effects of changes in the accumulated payments deficit with the EPU, although this was never more than a matter of £300 million. On surveying the literature about the data, a further surprise was its notable tendency to understate the impact of import policies, especially in the period of severe quota restriction 1945–54. Much of the literature errs incautiously on the side of caution. Import restrictions of whatever kind did have a very discernible effect on British imports before the Second World War, and, we conclude, quantitative restrictions seem to have had an even bigger effect afterwards in prolonging patterns laid down during that war. Import controls were effective enough to encourage the delusion that they could be easily dispensed with. THE LONG-RUN PATTERN OF IMPORTS The dominant influences on imports, we assume, are variations in national income or activity. Other changes in imports will in the main be due either to changes of relative prices or to changes in import policies. Given fixed prices and constant liberal policies, a natural expectation would be for the long-run import/income ratio to remain constant or to change very gradually according to some underlying law. The long-run pattern within British imports has shown a shift in source toward Europe, which largely reflects a huge shift in their composition toward manufactures. Among industrialised countries, as is well known, the general trend has been for manufacturing countries with similar endowments to exchange similar goods. The theory which explains foreign trade by differences of factor endowment can be rescued by a more refined definition of factors. But both the simple and refined versions, as far as we know, are agnostic as to long-run trends of the import-income ratio under free trade and stable prices, which of course are nothing like the trends we can observe. For manufacturing nations, it seems possible to us that the tendency for expenditure on food to grow less quickly than general expenditure may have been somewhat offset, in so far as 134


agriculture is unprotected, by a tendency to import a larger share of that consumption; and the tendency to import fewer industrial materials per unit of industrial output may have been considerably outweighed by the tendency to import more manufactures per unit of income. But the patterns we observe seem nevertheless clearly affected by changes of import policy. Figure 2 represents the changing ratio in the volume of British imports to real GDP. Being purely the index of a ratio, its rise could mean that real imports were rising faster than real income or falling not so fast. The peak in the crisis year 1931 occurs because GDP fell by about 5 per cent while imports of goods and services actually rose by nearly 3 per cent. In general it can be seen that the first upswing of imports relative to income coincides with the period of relatively liberalised trade after the First World War, even though income stagnated below pre-war levels. Imports fell in 1932 with devaluation and the end of free trade and remained low relative to income throughout the period of pre-war protection. The postNovember 1931 restrictions were largely quantitative controls for agricultural imports, which were then 50 per cent of British imports,

Figure 2 Volume index of United Kingdom imports (goods and services) divided by index of real GDP (1913=100). Source: C.M.Feinstein, National Income, Expenditure and Output of the United Kingdom, 1855–1965 (London, 1977).

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and ad valorem tariffs for non-sterling manufactures. The only important manufacture subject to quota, dyestuffs, had already been restricted on strategic grounds. The intentions of the move to protectionism were mixed, because protecting home manufacturing employment and the balance of payments coincided with an attempt to increase foreign trade within the empire. Both objectives were achieved. In 1929, about 40 per cent of the United Kingdom’s imports by value came from Europe, only 32 per cent in 1938. This fall in imports from Europe was entirely due to the collapse of trade with the major industrialised exporters of manufactures.5 During the same period imports rose more slowly than income, and much more slowly than industrial production. After the Second World War the period of most severe restriction by quota coincides with the deepest drop in the ratio. The Britain of 1946–9 was roughly 10 to 20 per cent richer in terms of consumers’ purchasing power than before the war but was importing 20 to 30 per cent less. As in the period after November 1931, manufactures were the category which fell most. Very broadly, volume levels of imports did not surpass their pre-war level until about 1954/5— apart from some brief upsurges during the short period of quasi-

Figure 3 Volume index of United Kingdom imports (visibles) divided by index of real GDP (1913=100). Source: T.Liesner, Economic Statistics, 1900–1983 (London, 1985).

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liberalisation in 1951. Real GDP in 1954/5 was at least 36 per cent higher than in 1938. Viewed from 1913 imports did not, in this light, catch up with real income until about 1973, when both were about two and a half times greater than in 1913. In the early 1960s, it seemed possible to detect a secular decline in the real import/income ratio since 1913. But it had climbed gradually between 1895 and 1913 and has risen during every period of relatively free trade. In Figure 2 the trend between 1945 and 1955, if anything, is downward, but this may be a result of using, for long-run consistency, an import series which includes services. In Figure 3, for the sub-period, we use visible imports in the numerator. Real visible imports after the Second World War barely kept pace with income and lagged behind industrial production until around 1955; thereafter imports grew faster than both. The lag coincides with the period of maximum use of import quotas. Quantitative import restrictions were most intense in the class of finished manufactures, which were about 7 per cent of total imports in 1938 and were to reach 30 per cent by 1973. Figure 4 shows that this powerful trend was dampened until the middle and late 1950s, when most quotas were removed or generously widened. But the

Figure 4 Share of finished manufactures in total United Kingdom imports (percentages). Source: T.Liesner, Economic Statistics, 1900–1983 (London, 1985).

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removal of tariffs on manufactures within EFTA in the early 1960s may have steepened the climb of this ratio. It seems, then, that the effects of commercial policy changes were large enough to be correctly inferred from the movement of imports and income alone. However, some part of these patterns is to be explained by price movements; primary products became cheaper after the First World War, which was really a European war, and much dearer after the Second World War, which was truly global in its devastation. However, long-run correlations between the terms of trade and imports are not strong—not surprisingly, since terms of trade for the United Kingdom reflect the exchange ratio between manufactures and primary products. Imports of manufactures for which there is a domestic substitute are much more likely to be responsive to changes in import prices, including the ad valorem tariff. During the war years foreign manufactures appear to have risen faster in price than those of the United Kingdom, which managed the war with remarkably low inflation. But one would have to argue for a quite huge price elasticity of import/output substitution to explain the post-war import pattern of this sector as being mainly a consequence of low free demand due to relative price changes. EXISTING ATTEMPTS AT MEASUREMENT To our knowledge, there have been only three attempts to measure the immediate effect of quantitative restrictions on the post-1945 imports of the United Kingdom. They are summarised in Table 6. Fortunately, these together span the period 1945 to 1955 which is of central interest. One is that of Scott, who in his general study of British imports deals incidentally with the question.6 Another is that of Corden who in an influential paper assessed the impact of some of the quantitative restrictions on imports during the calendar year 1952.7 The third is an unpublished estimate by the government of the value of imports kept out by those quantitative controls in place in the year 1954, and by implication in 1955.8 Scott estimated the import savings for 1946–9 at an average of £310 million annually in terms of 1948 prices. Unlike Scott, Corden was measuring not the value of imports excluded by all quotas in place, but only the value excluded by the restrictions imposed between November 1951 and March 1952, of which relaxation did not begin until after March 1953. According to his ‘best guesses’, these saved something less than £289 million during 1952. The government 138


Table 6 Estimates of the reduction in the value of imports attributable to import controls

Note: * Saved only by the additional restrictions of November 1951 and March 1952. Had all restrictions been absent, the estimate could have been larger even if, as is theoretically possible, some government imports were above free market levels. This figure does not take account of some ‘double counting’ discussed later.

estimate implies that the absence of all quotas in 1954 would have cost something over £166 million. On the assumption of unchanged prices, it seems that this estimate was meant to apply to 1955. We proceed now to examine each of these estimates in the light of the historical evidence we have accumulated, before attempting further measurements of our own. In order not to interrupt the flow of the argument the more detailed qualifications we make to these estimates are recounted in the appendices at the end of the volume, where the reader may check our work and our assumptions against those of Scott and Corden in particular. SCOTT’S ESTIMATE Scott’s estimates are essentially deviations from long-term import trends representing ‘free’ levels of imports, as estimated by a mixture of econometrics and rule of thumb. They are incidental to his main endeavour, which was to construct appropriate reduced form import functions explaining British imports in each major category using data from 1900 to 1955. His rough estimate of £310 million yearly at 1948 prices as the value of imports excluded by quotas is the sum of £200 million for food, £40 million for raw materials, £70 million for manufactures (excluding fuels and non-ferrous metals).9 Some of the inferences which support these estimates are scattered in reverse order through the later parts of his book. In the case of the £70 million for manufactures the reasoning seems to be ad hoc: the import/sales ratio for manufactures of the allegedly free years 1954/ 5 is imposed on the data for 1946/9. The ‘guess’ of £40 million for 139


raw materials is the residual between actual levels and those predicted by a well-fitting least squares equation of Scott’s own. In the case of food Scott borrows elasticities from other studies to predict from 1935/8 levels the free demand after the war for unprocessed food and ‘hence’ the demand for imported food, all of which is assumed to be unprocessed and therefore to have a low income elasticity of demand. The issues raised, particularly for social historians, by Scott’s use of 1935/8 data to predict ‘free’ levels of post-war demand for food seem to us to be important ones, because of the marked improvement in employment levels and income in the United Kingdom from 1941. These are discussed in Appendix I. We did not find his assumptions wholly convincing, but we have no quarrel with his calculation that in this category the value of imports excluded by quotas was roughly £200 million. Given the complexity of protection in the agricultural sector, we doubt that it is possible to improve on his estimates for ‘free’ food imports in 1946/9. It does seem reasonable to proceed by way of an estimate of free total demand, which can be judged against observable post-rationing levels after 1954. Free demand for imports alone can not be directly observed, since the ending of bulk purchasing and import licensing in 1953–4 brought into operation for many foods another form of non-tariff protection, the price support system which had been authorised by the Agriculture Act (1947). While seeming to favour imports by allowing consumers to buy at world prices, this very effectively encouraged output by guaranteeing sales of domestically produced food well above those prices. The value of the estimated import savings on raw materials, £40 million, seems relatively small. We accept it here as a minimum, because we are concerned with the immediate effect of import controls on the value of imports. It does, however, raise the serious question about the longer-run effect of quantitative import restrictions on imports; to what extent did they encourage import substitution for imported raw materials? We consider some aspects of this in the following chapter. It is when we come to Scott’s estimate of the savings on imports of manufactures, £70 million, that we see a need for a large upward revision. The production and free interchange of sophisticated manufactures came during the period to be seen as the life-blood of the modern European economy, yet this was the category on which import controls were the most durable and the most severe through the period as a whole. At the same time manufactures were the most 140


volatile element in the total import bill, being more responsive to changes in demand and as a consequence more subject to changes in policy. The marginal oscillations of total imports were strongly influenced by variations in manufactured imports, even though they were no more than a quarter of the total. This gave manufactured imports great leverage within the United Kingdom economy, since before 1957 the reserves tended to swing with the total current balance of payments, whose oscillations in turn appeared to be heavily influenced by variations in visible trade. If we have understood him, Scott’s estimate of £70 million as the cost of liberalisation applies to a manufacturing sector somewhat smaller than that represented by imports in Class III of the Annual Statement. He has omitted the sub-group ‘non-ferrous metals and manufactures thereof’, treating these as raw materials of which leftover wartime scrap gave adequate supply. He adopts a similar procedure with the entire sub-group ‘oils, fats, resins, manufactures’ in order to separate out fuels. Fuels are treated separately and as if not subject to import control, whereas in reality coal was under a quota regime and, as we have noted, domestic consumption of liquid fuels was intended to restrict imports. The soaring secular trend of liquid fuel imports did put them well above pre-war levels, but of course this does not mean that controls had no effect. Internal consumption of all petroleum products stood by the end of 1947 about 44 per cent higher than before the war, but it remained more or less stable at about 15 million tons in 1948 and 1949.10 Nearly all liquid fuel was, directly as refined or indirectly as crude oil, imported. In the immediate post-war years, the United Kingdom could meet only about 10 per cent of its own refined petroleum requirements and so had to import oil in its expensive, refined form. Since more than half of this was destined for transport, petrol rationing on private motoring was clearly an oblique but recognised form of import control and it seems pedantic not to treat it as such. In answer to a question about petrol rationing which did not even mention imports, the Minister of Fuel and Power stated the estimated cost of doubling the ration as $13 million f.o.b., that is, the additional import cost without taking account of insurance and shipping costs.11 In earlier years the rationing was more strict. After the private motorists’ ration was virtually ended in May 1950 motor gasoline consumption rose by 11 per cent over the previous year12 and so exceeded its pre-war level despite an accompanying increase of road taxes.13 The total ban on imported 141


cars was in itself an oblique form of control on liquid fuel imports, since until 1953 domestic car producers were obliged to export most of their output. In any case post hoc imports offer poor evidence as to how much had been excluded. After 1951 the vast expansion programme in home refining undertaken in the late 1940s meant that liquid fuel imports switched to unrefined and therefore cheaper oil. Newer cars tended to be far more efficient consumers of fuel. For his narrowed category, Scott estimates that the actual volume of manufactured imports in 1946/9 stood at only 58 per cent of their level in 1935/8.14 He estimates they would have been at a ‘minimum’ 25 per cent greater on average in the years 1946–9 in the absence of quotas, which would represent an additional £70 million a year in 1948 prices.15 The free level would still therefore have been only 72 per cent of the pre-war level. His method, as noted, was to assume that the proportion of imports in total home sales of manufactures would, if freed, have been the same in 1946–9 as it was in 1954–5. In terms of constant 1948 prices his data imply that imported manufactures as a share of domestic sales in 1954–5 were about 4.7 per cent, as against an actual 3.7 per cent in 1946–9 and 7.3 per cent in 1935–8.16 Had manufactured imports in 1946–9 regained prewar levels, on Scott’s figures they would have stood at 6.4 per cent of current domestic sales. The main reason, according to Scott, why the share of imports in sales was only 4.7 per cent in 1954–5, rather than the 7.3 per cent (or higher) one might very easily have expected, was that British manufactures had become relatively less expensive than imported manufactures.17 This seems to carry the interesting implication that British manufactures gained in terms of price competitiveness during the period in history when they were least exposed to competition and tended to lose in price competitiveness as they became more exposed to competition. In so far as any increased competitiveness was due to the 1949 devaluation its effects should not be read back into the pre-devaluation period. As far as factor productivity is concerned, the recent evidence is that this was growing more rapidly after 1950 in those countries which were the main suppliers of British manufactured imports than in the United Kingdom, and that this was especially so in the manufacturing sector.18 In a slightly ambiguous passage Scott allows that the 1946–9 increase would ‘almost certainly’19 have been larger than his estimates, even though, on some other hand, free trade imports of manufactures 142


had been low with respect to sales immediately after 1918 because of world scarcity ‘and they increased rapidly in the twenties’. By itself he would count this as evidence that the impact of quotas in 1946–9 was small. But on his first hand he allows that in the case of 1921, when imports were to some degree controlled by unemployment, there was neither the shortage of home supply nor the pent-up consumer demand which mark the scene in 1946. In all three major categories of imports Scott’s estimates imply the strong judgement that, in the absence of quantitative restrictions, price rises would have held the free level of imports well below pre-war levels in the period 1946–9, despite rises in the estimated free levels of consumption and in actual levels of output well above pre-war levels. In the cases of food and raw materials, where it is conceded that the price elasticities were small, the price rises were big enough to make elasticities matter. In the case of manufactures, where the relative price rises were not so large, it is argued that the price elasticity of demand for imports was huge enough to make prices matter. It would have to be, of course, if freed imports of manufactures were to have averaged only 72 per cent of pre-war levels even when domestic sales were about 20 per cent higher. According to Scott’s own figures the export price index for manufactures is higher in 1954 than the import price index for manufactures, if both are based on 1938,20 so the important relative price changes must be found at the disaggregated level and have occurred during the earlier more protected period. Since, for manufactures, imports are usually a small share of domestic sales, we can rebase Scott’s own annual index numbers at 193821 to get some picture of annual growth of demand (Table 7).

Table 7 Domestic sales and imports of manufactures at constant prices (1938=100)

143


These index numbers indicate how drastically imports of manufactures had lagged behind demand, as determined by income and expenditure. In the main, according to Scott, this is because the relative cheapening of home manufactures had large effects. He therefore finds it easy to believe that the import/sales share which obtained in 1954–5 closely approximates the proportion which would have obtained in the absence of quotas: it was simply the relative expensiveness of imported manufactures which held them below prewar levels until 1954, when sales on the domestic market were 80 per cent higher. The key assumption of the estimate is that the actual ratio of imports to sales was not significantly affected by the remaining quota restrictions. But in 1954, in terms of current values, nearly half of all manufacturing imports and over 90 per cent of those from the dollar area were still formally subject to restriction. Actual quotas were of course more generous than in the earlier period. But the extent of this coverage provides a strong enough prima facie case to seek evidence that the manufactures excluded in 1954/5 were not negligible. In a later section, when dealing with the government estimate, we consider such evidence in more detail and conclude that liberalised imports in 1954–5 would have constituted something close to 6 per cent of domestic sales of non-fuel non-ferrous metals manufactures, as against the 4.7 per cent suggested by Scott’s data. Scott derives his estimate of £70 million by supposing that the import/sales ratio had been 4.7 per cent in 1946–9 instead of the 3.7 per cent it actually was. A 6 per cent import/sales share in the immediate post-war period would represent an absolute level of imports close to pre-war levels. But if the ‘true’ post-war import/ sales share were only 5.5 per cent then, applied back to Scott’s figures for the immediate post-war years, this would add another £50 million or so (in 1948 prices) to his £70 million. If the average volume of manufacturing imports in 1946–9 had actually regained its 1935–8 level, implying an import/sales share of 6.4 per cent, then £110 million would have to be added to Scott’s £70 million estimate. Such a figure is of course no more than suggestive. Even flawless inferences about potential imports could not lead to perfect accuracy when projected on index numbers or fixed-price values for actual imports.22 In fact Scott’s estimates of actual magnitudes and index numbers do seem consistent with any others we have found that might test them, and they embody an awesome amount of scholarship. 144


But his inferences about potential levels will not be flawless if he has underestimated the effects of quotas in 1954–5 and over-estimated the price elasticity of demand for imported manufactures. If we have understood him, Scott believes that a 10 per cent increase in the price of imports of manufactures, other things unchanged, would have led to a 60 or 70 per cent reduction in the volume of imports demanded. His evidence is based on data for 1930 and 1935, dominated by the convulsion of 1932, but he presumably intends these results to have general significance and he quarrels with stochastic equations based on ‘normal’ years of the pre-war period which have elasticities close to unity and which would imply for the aforementioned price change a fall of demand for imports by about 10 per cent. Unfortunately Scott does not offer an estimate for the elasticity on his income-type variable. On the basis of the import series alone it seems a plausible hypothesis that imports of manufactures, if fully liberalised, and subject only to income and price changes, would have tended to regain pre-war levels well before the temporary quasi-liberalisation of 1951, when some imported manufactures in fact did briefly leap up to pre-war levels. Of course sterling’s special debts, difficulties and pretensions would have made pre-war levels impossible to regain, but an implication of the Scott view is that, for manufactures, imports ‘naturally’ would have fallen well short of those levels anyway, in part because of a shortage of foreign supplies but largely because of the relative cheapening of British manufactures compared to those of major suppliers. This is consonant with the persistent idea that sterling was fundamentally strong enough to permit large and sudden steps in liberalising imports without precipitating a crisis. The fact that the brief upsurges of 1951 did help to precipitate such a crisis seems a sturdy piece of counter-evidence. However, if estimates which ultimately derive from the greatest recession in history may not be a safe guide to normal times, estimates based on normal times may not be credibly applicable to a period of such general dislocation as followed the greatest war in history. Historians may feel on safer ground with cross-country comparisons. If history kindly provided controlled experiments, we would find a country without quotas on imports and without global commitments on its capital reserves, but whose manufacturing imports had been cut off by war and which suffered an immediate post-war shortage of supplies, whose free trade import structure was not unlike that of Britain, and whose incomes and output prices had not grown 145


dramatically faster than those of Britain. There is of course no such country. Later, however, we do make comparisons with countries which have some of these patterns and this provides a further check on Scott’s estimates. This cross-check supports the view that unrestricted imports of manufactures would have quickly tended toward a level as high as that of the pre-war period and allows us to feel safe in adding no less than £90 million to Scott’s estimate of £70 million. But even an estimate of half that size would be serious enough to alter conclusions about the British economy in that period and beyond. CORDEN’S ESTIMATE The second estimate of import savings attributable to quotas is that of Corden, who examined in detail the emergency cuts and restrictions imposed on British imports over the period November 1951 and March 1952.23 He attempted to measure only the import savings made by these particular restrictions, which would be equal to something less than the import cost of having no restrictions, and he confined his study to the calendar year 1952, which by post-war standards was a year of marked recession. His is a closely detailed commodity-by-commodity inspection of trade returns for items or groups of commodities, comparing them with such published quotas or programme revisions as are known. From our point of view the limitation of his estimates to the year 1952 is a serious one. The lowered value of imports in 1953 broke the post-war biennial series of payments crises even though the volume of food and raw material imports increased, and this encouraged the view that the improvement of the balance of payments was fully explained by better terms of trade. The unusually low imports in 1954—the volume of imports increased by 2 per cent while real GDP increased by 4 per cent—was to solidify the view that the fundamentals of the British propensity to import were sound, leaving speculative capital outflows as the main source of worry about the payments balance. Although this optimism was never shared in the Economic Advisory Section of the Treasury, where opinion was more Keynesian, that group had little influence on policy, certainly until late 1955. Falling raw material prices in 1953 can not fully explain the shift of source within all categories of imports and of course can not explain the striking fall in the volume of manufactured imports, especially 146


textiles, of which established suppliers, even in the sterling area, were subject to some form of restriction (see Appendix II). The improvement in the current balance in the first half year was notably with the dollar area and western Europe, especially in manufactures.24 As for the Relaxation Area, it is certain that the emergency measures whose effects Corden attempts to measure had their biggest impact in the first nine months of 1953. Reliberalisation of private imports, as we showed in Chapter 4, was not seriously undertaken until the period between March and November 1953, and before November only reluctantly and on a small scale to forestall retaliation by OEEC countries. So the period of most intense ‘deliberalisation’ was between March 1952 and March 1953, at the end of which nearly 80 per cent of private manufactured imports from the OEEC were subject to quotas. The common estimate of the average lag between import orders or non-orders and arrivals or non-arrivals, assuming policy changes to be unanticipated, is six months. An assumed lag of one quarter would be conservative. As far as private trade is concerned, the emergency measures must have had their maximum impact, at the soonest (and probably somewhat later), during the twelve-month period mid-1952 to mid-1953, which unlike the calendar year 1952 was generally a period of reviving demand. For 1952 itself the announced target of the reimposition of quotas and other restrictions was to reduce the total programme for current invisible and visible f.o.b. imports by £600 million. The implication for visible imports, announced in June 1952, was a fall from 1951 of 10 per cent in volume and, given expected price falls, something over £400 million c.i.f. in value. And in fact c.i.f. imports compared with the previous year did fall by 10 per cent in volume, and by £429 million in value. Although import prices of raw materials fell steadily during the course of 1952, as did imported quantities, the average price level of imports for the whole year 1952 was not much lower; it was the fall in volume which counted. The balance of payments targets were exceeded mainly because export receipts proved to be higher than foreseen. Cairncross and Dow follow Corden, not too exactly, in taking £250 million c.i.f. as a best guess at the contribution to restricting the value of British imports made by the emergency cuts.25 This must be a heavily rounded approximation. Corden’s stated estimate has two main components: £200 million saved by a tightening of existing restrictions against the whole non-sterling area, including cuts on government food purchases, and £89 million saved by a revival of 147


quotas on most of the private imports from the ‘Relaxation Area’ which had been freed from quotas in 1950–1. The two figures are Corden’s ‘best guesses’, with upper margins of error of £250 million and £117 million respectively. As Corden argues, some of the frustrated demand for private Relaxation Area imports might not have existed if existing restrictions had not been tightened against the whole non-sterling world. For example, some unrationed cheese of more expensive quality excluded by private quota might not have been in demand anyway if government had not cut its own purchases of lower-quality, cheaper, rationed cheese. Corden suggests £25 million as the extent of such diversionary cuts. To eliminate double counting we need to reduce Corden’s combined best guesses of £289 million to a figure no lower than £264 million. In Appendix II we try to follow Corden’s paths through this detailed commodity analysis and give reasons why we find it acceptable only as a minimum figure, even for those savings during the calendar year 1952 which were due to emergency cuts alone. Corden’s procedures generally seem tilted towards obtaining a lower figure. In any case where actual imports fall even slightly below published quotas, he assumes the restrictions had no effect, taking the short-fall as proof of deficient demand. Where there is no published quota but some evidence of excess supply he also assumes the restrictions had no effect. And in the important case of textile manufactures, where quotas were published and imports did exceed them, he implies there would have been a deficit had not long-run military purchases arrived outside the quota. Quite apart from the question of comparing six-monthly imports with nine-monthly quotas, the first assumption sets too much store by customs returns and underestimates the behaviour of established traders, both exporters and importers, in the face of cuts which were often anticipated. The second assumption gives the benefit of doubt to failure even where the published statistics were consistent with the success of the programme. As regards textile manufactures, the clamorous complaints of French, Italians and Belgians which we documented in late 1952, imply that without the arrival of goods on government military contracts from Germany, these would not have appreciably exceeded the quota. And such proves to be the case. Moreover, the downward effect of the cuts on the price and therefore the value of pulp and timber imports do not seem to have entered the calculation. Textiles, pulp and paper are cases where even for 148


1952 we find the biggest discrepancies due to Corden’s assumptions, and the reader who is interested in the way in which government action impinged on the pattern of trade in 1952–3 may find details in Appendix II. In estimating the effects of ‘deliberalisation’ Corden does not profess to assess the savings on goods which, like cars, nylons and newsprint had never been liberalised in the first place. That is why non-food manufactures play so small a role in his sums. Nevertheless his detailed piecemeal analysis is the most impressively documented and influential attempt to measure the effects of quantitative import restrictions on the British economy. It was no mere academic exercise, being written in a period when the re-introduction of quotas was a live option. Like most economists, Corden clearly is no champion of import controls; all he will concede in favour of the 1951/2 restrictions is that they may have steadied the nerves of speculators, which of course was a large part of their purpose. Otherwise, these controls were judged by him to be either otiose, because some imports would have fallen as much anyway, or unnecessary, because export receipts seem to have oversolved the balance of payments problem. As with Scott, the suggestion is that market mechanisms were doing most of the work and, if intervention there must be, deflation or devaluation were lesser evils.26 The re-introduction of quotas appears to have been discussed in Whitehall during or after every serious balance of payments crisis since the war.27 There is an understandable, if not entirely logical, tendency among those who fear that future quotas will have bad effects to argue that many past quotas tended to have little or no effect. The immediate benefit of import controls, for those who advocate them, is relief from pressure on the balance of payments; the cost of imposing import controls, for the theoretical economist, is the loss of resources switched to higher cost production and the ensuing inflation of prices and wages. The notion that past import controls had few useful consequences for the balance of payments is somehow felt to fortify the case that future controls would distort resource allocation and price exports out of the market. It is hard to feel that Corden’s work is entirely neutral between these positions. It leans in all cases of doubtful evidence, and there are many, in favour of the received view. Nevertheless anyone who tries to verify its findings will admire the labour embodied in his brief article. Its estimate for Relaxation Area Savings mark only the lowest bound for the recessionary year 1952. Its world estimate of £264 million 149


due to all ‘emergency restrictions’ is so problematic that in making an estimate for 1953 we have preferred 1954 as a point de répère. THE GOVERNMENT ESTIMATE The third estimate known to us is the government’s own estimate of the impact of quotas for the year 1954. This was made in 1955 when all the quotas which it assessed were still in place.28 The real object was to estimate the effect of currently removing these quotas in terms of 1954 prices. Precise methods and calculations are not revealed, but apparently it made use of various departmental estimates of the ‘hard core’ items on the OEEC negative list and similar exercises for ‘dollar items’. Where these were not available, it referred to the pre-war pattern of trade, taking account of known changes. The exercise was clearly begun when it still seemed possible that the policy of re-establishing legal automatic non-resident pound-dollar convertibility for current account earnings in sterling might soon be realised. The chief concern therefore was with the cost of removing quotas on imports from the dollar zone, a quiescent issue in 1951–2. The burden of the estimate is mainly with imported manufactures on private account and on commodities soon to be returned from government trading to private account and therewith to Open General Licence. State trading had been decisively run down over the years 1953–4 by the Conservative government in pursuit of removing trade and currency controls and by 1954 government importing covered only about 10.6 per cent of imports. The unpublished estimate for 1954, which we reproduce as Appendix III, shows that without quotas British imports from the non-sterling world (ignoring Japan and the Soviet bloc) would have been £163 million higher in 1954 than they actually were, but the re-diversion of £30 million of sterling imports gives a net figure of £133 million. Liberalisation of trade with the Soviet bloc and Japan would have added another £20.5 million, giving a total of approximately £153 million. Attentive readers will find small arithmetical inconsistencies in the tables, which we shall treat as typing errors. Leather and skins, for example, should give a net figure of £2 million not £1 million. The penultimate column is labelled the ‘Total’, but must be the residue, of the non-sterling area and possibly consists of Finland, which was a source of inferior plywood. Some items were omitted from this balance. One was goods manufactured from jute, the only financially significant category of 150


manufactures still imported on government account. The government purchased from India and Pakistan only the quantities necessary to supplement United Kingdom output and it sold them at the ruling domestic price, which was about three times higher. This was the one item in the calculation where in the absence of quantitative controls imports from the sterling area would have been significantly higher in 1954, by £13 million according to an estimate appended to the document. Coal is omitted altogether from the calculation, although the National Coal Board was formally in possession of an Open Individual Licence. There was no prospect of privatising its production and so presumably none of privatising its import. The inclusion of jute gives a grand total of £166.5 million, which means that total c.i.f imports in 1954 might, if freed, have been about 5 per cent higher than they actually were. This is significant enough in relation to the balance of payments and highly significant in relation to the total of manufacturing imports as normally defined, into which category the bulk of the estimate falls. Like the other two estimates, this one also rests on questionable assumptions about potential demand, especially in the case of imports from western Europe. It is implicitly optimistic about the lack of relative competitiveness of western European manufactures, though unlike Scott it falls well short of assuming that import restrictions were making a negligible impact on manufactured imports in the mid-1950s. Even on the government’s own estimate, the increased volume of imports, under liberalisation, would have exceeded the growth of GDP in 1954. The estimates were influenced by the ‘pattern of trade existing before the war’ and mention is made of specific departmental estimates which presumably themselves were so influenced. But history provided unsatisfactory guidance for estimating the growth of potential demand in the 1950s, particularly for consumer goods. The unexpected surge of imports from western Europe in 1951, against which the reimposition of an extensive quota regime from November onwards was directed, had showed that. After 1950 national income and personal disposable income grew at unprecedented rates in western Europe, accompanied by a generally much more rapid rate of growth of productivity than in the United Kingdom. The high investment ratios which were one important cause of this productivity growth began in 1945, so that by 1951 five years of growth of productivity and disposable income, in most cases at higher rates than in Britain, had changed the prospects for domestic 151


sales of manufactures on the continent and a combination of optimism and relatively falling prices was turning the serious attention of continental manufacturers to the large British market, whose needs British industry itself for a variety of reasons was failing to meet. As far as modern manufactures are concerned there was no safe point of statistical reference to the past which would have given any accurate forecast of how rapidly actual imports into the United Kingdom were likely to grow in the 1950s, much less how much they might have potentially grown in the absence of controls. Paper and cars, the two categories where data and definitions are usually compatible enough to allow easy verification, indicate that the outcome was an underestimation. Removing quotas on pulp for paper and on board and newsprint is costed at £10 million, a figure wildly out of line with all known estimates even assuming unchanged prices.29 The usual cautious estimate was £10 million for pulp plus £10 million for paper and board plus £10 million for the effect on Scandinavian prices. Liberalisation of newsprint was never considered before 1956. It emerges from an accompanying and confusing note that newsprint, which by itself would have added at least another £10 million, was omitted.30 The estimate for newsprint was made as if there were no quantitative restrictions ‘and had been none in the previous years; that is all transitional effects (e.g. an upsurge of purchases in the first flush of freedom) have been ignored’.31 This remark makes it not entirely clear what question is being answered by this government estimate. Estimates usually concern the immediate twelve-monthly effects of removing quotas in the face of a given level of overt demand, the only delay being the interval between the importers order and the goods’ arrival. But even for a constant level of demand it might take more than a year to reach a new equilibrium. Once quotas had been abolished the United Kingdom would have been perceived as an open market; markets would have been researched, contacts made, outlets opened, and after-sales services set up. On the import side foreign supplies would have had to be located and ordered, often on long-term contracts. Local suppliers, who might never have existed had there been no quotas, would have taken time to adjust to the competition. Quotas may enable a protected industry to become strong enough to do without them, in which case their removal will never give any measure of their effects; alternatively, a vulnerable industry may take a long time to go out of business. 152


Newsprint offers a clear example where, even for given demand conditions, the new equilibrium would be reached only within years.32 The press lord Lord Layton estimated, with some exaggeration, that under free conditions, that is with pre-war page quantities and circulations even higher than actual, newsprint imports in 1954 would have been two million tons instead of the actual 750,000 tons. At 1954 prices this would have added about £28 million to the import bill. But this could have been the state of affairs only if all restrictions had been abolished in, say, 1951. Everyone was clear that it would take years for such changes to work through. In the short-term most supplies of newsprint were already earmarked. The impact of quotas during the ten years after the war could not be computed as a sum of the changes which would follow their removal in any year. The other case where verification is relatively easy also suggests an underestimation. The government estimate was that cars to the value of six million pounds were excluded by import controls in 1954, four million from OEEC member-states and two million from the dollar zone. Before the war, imported cars had accounted for about 3 per cent of new registrations; in 1954 they were rather less than 1 per cent. An assumption of 2 per cent of registrations so accounted seems to have yielded the estimate of £6 million. How much credence can be put in that figure? In 1953, when it was decided that an import quota for 500 cars from the USA and 150 from Canada could not be allocated, the potential value of those North American cars was put at £600,000– £700,000.33 Assuming the import value of a German car to be 80 per cent of that of an American vehicle, the quota opened for German cars in 1953, two million pounds, could be estimated to mean a total import of at the most 2,400 cars annually. There was in addition a small import quota for France in the same year, £250,000, the equivalent of 300 cars. Simply equating the growth in national income and personal disposable income with the growth in the volume of car sales, and making no allowance for any of the structural changes in the pattern of consumption which it is often argued took place in the 1950s, itself suggests that the figure in the 1954 estimate for excluded potential imports of cars is too low. New cars were virtually rationed until 1953, so there is no obvious index of the increase in consumer demand, which must have more than kept pace with income. The propensity to purchase a car was more closely linked to the growth in personal income in the 1950s than the propensity to purchase any 153


other consumer durable.34 At 1938 prices consumers’ expenditure on public and private transport in the United Kingdom rose over the period 1938–54 by 69 per cent.35 Domestic sales of manufactures rose by somewhat more than this. Had the regime for car imports been what it was in 1937–8, as in the case of the tariff it was, and the competitive balance between domestic and foreign producers remained the same, the total number of cars imported into the United Kingdom in 1954 would have shown, at the crudest estimate, the same percentage increase over the average figure for the two earlier years. It would have amounted to 23,892. This should be reduced to allow for two influences on the market which meant that the demand for foreign cars was not the same as the demand for cars. One is the extra protection to domestic producers offered by the purchase tax, 15 per cent levied on the retail price which, in the case of an imported car, included the 33.3 per cent import duty. Had the retail price of the pre-tax, pre-duty foreign car been the same as its domestic price this would lead us to reduce the number by 5 per cent, leaving the potential number of car imports at 22,698. The other influence is that, at least based on their domestic prices, foreign cars had become relatively dearer than British models compared to the situation in 1938. Given that protection of domestic car markets allowed export sales net of import duty to be made at lower prices than domestic sales, and given that this was a widespread European practice, it is difficult to know what allowance to make for the relatively higher price inflation for consumer durables in general in most continental countries compared to the United Kingdom after 1945. Had car imports into Britain in 1954 reached 23,000, this would have meant an increase in imports over the postwar period roughly comparable to the increase in domestic production. An alternative procedure might be to assume that imports would keep pace with the growth of GNP. An index of the ratio of car imports to GNP based on 1938 as 100 would give a figure in 1953 for France of 143 and for Germany of 113, whereas that for the United Kingdom would be only 31. For non-producers without import controls such as Belgium or Switzerland the number would be much higher, 296 in the first case and 395 in the second. The circumstances of the German car industry in 1953 were still exceptional, but France was a large producer in a similar situation and practising similar commercial policies to the United Kingdom, so the difference gives some indication of the extent to which trade controls may have kept 154


potential imports of cars from the British market. The actual number of cars imported in 1954 was only 3,300. Weighing all this admittedly circumstantial evidence must lead to the conclusion that the government estimate seriously underestimated the potential demand for imported cars, if imports were allowed. The true value of suppressed demand for car imports, we suggest, might have had an upper bound of between £16.15 million and £17 million in 1954, rather than only six million pounds, the government’s calculation. When cars were finally liberalised in 1959 the import/ registration percentage soared from about 2 to 8 per cent, settled at around 4.5 per cent and thereafter steadily increased again in a period of dwindling tariffs. If in the spirit of the enterprise we try to rule out ‘transitional effects’ and take 4 per cent as a likely import/registrations ratio for the 1950s, adding £6 million, this makes, with newsprint, £182 million. However, even the uncorrected government estimates imply a high degree of protection for manufactures, as ordinarily defined. Leather (but not hides) and paper (but not pulp), chemicals and metals and most of the items classified as ‘Basic materials and goods partly manufactured’ would fall into the Manufacturing Category D of the Annual Statement of Trade. In fact most would fall into Scott’s narrower category of manufactures minus fuels and non-ferrous metals. Subtracting from £166 million the value of those items in the estimate which are food and raw materials by usual definitions and allowing a niggardly £5 million for manufactured paper and board, then estimates within this category amount to about £135 million, to which we can very safely add £10 million for the omission of newsprint. Imports of manufactures without fuels and ferrous metals in 1954 amounted to £505 million.36 Assuming unchanged prices, the volume of these manufactures would have been nearly 29 per cent higher if imports had increased by £145 million. The same quotas existed in the boom year 1955, when they were both more generous and more exclusive because of greater demand. The restricted group of imported manufactures tended to rise more slowly in 1955 than the general manufacturing category, which was dominated by a massive increase of imported iron and steel manufactures. Let us assume that the volume of imports of the restricted category would have been 25 per cent higher in the years 1954–5 in the absence of quotas. Applying this to Scott’s 1954/5 figures37 implies an import/sales ratio of 5.9 per cent rather than the 4.7 per cent he presumably used to derive his estimate for 1946–9. 155


Projecting 5.9 per cent instead would add a further £74 million to his estimate of £70 million (at 1948 prices) saved on all manufactures in the immediate post-war years. However, all this is on the assumption that the government estimate is not an underestimate, on cars for example, and that petrol and non-ferrous metals were not seriously excluded during the post-war period. THE PROBLEM OF PRICES It will be evident to the reader at this point that even if our estimates are preferred and our reservations about the hitherto existing calculations accepted, the procedures by which all these estimates have been made, including our own, do not amount to a method as rigorous as the historian might wish. It is true that if we have thrown much doubt over the existing estimates it is because we have accumulated more historical detail about specific trades and their specific methods of operation as well as more evidence about the way quotas were operated. Most of this detail is related in the Appendices for those who have specific interests in the trades and industries in question, or who wish to follow our methods more closely. But to use specific historical evidence to cast doubt on existing numbers is not the same as to justify completely their emendation. Can the revised estimates we have now made be confirmed or corroborated by some other method in which historian or economist might have more confidence? The core of the problem of measuring the impact of quantitative trade restrictions on imports is that quotas, in principle, disassociate the value of imports from the relationship between domestic and foreign prices and thus make it very hard to say what the potential demand for any import excluded by a quota actually is. The reader who has had the patience to bear with us so far in this chapter will have observed that the numerical disputes between ourselves and our predecessors very often turn on this question. By throwing as much general and specific historical evidence as we could at each separate calculation we have tried to get nearer to estimating what the level of ‘true’ or ‘free’ demand, both overall and in respect of specific commodities, actually was. Is there a better method which could be used by historians to measure the many similar episodes which they might wish to study? In considering all three estimates, the assumption of unaffected prices has often been mentioned. Normally we estimate potential 156


imports on the basis of volume, i.e. physical quantities, or on the basis of value calculated at fixed prices, because we assume that the international price of imports varies independently of national demand and hence of the impact of national quotas. Rather than being a result of policy, a fall in value of imports may simply reflect falling import prices, and a fall in volume may be due to rising import prices. By measuring changes in volume rather than value we avoid money illusion and are better placed to estimate the presumedly negative effect of the independent changes in relative prices. Under free trade, imports depend broadly on changes of income and movements of relative prices, and what these supposedly independent variables supposedly determine are quantities. Quantities were the usual target of quantitative restrictions, and even when quotas were fixed in values, the main objective was largely to achieve a quantity target by anticipating price changes. However, the balance of payments target is a matter of current values, not volumes, and for primary imports a big purchaser like the United Kingdom could powerfully and intentionally affect prices. In the textbook, small country, case this should not happen: quotas should leave landed import prices unchanged, simply raising the final consumer’s price by creating excess demand on the internal domestic market. Excess demand would have the effect equivalent to some ad valorem tariff and, under the text-book assumptions, this would be equal to the ensuing difference between world prices and domestic prices. The assumption of exogenous prices may have been a strong one even in the case of manufactures, and for many of these the quotas were believed to keep even the landed prices high. Manufacturers who begged for continued protection in electronics, petrochemicals, office machinery and other industries usually did so by invoking the fear of German and American ‘dumping’ at prices unfairly low enough to drive them out of business. But in the post-war period an important purpose and effect of quotas was not to keep up prices but to keep them down. The application of quotas on primary goods was far from being a response to falling commodity prices such as occurred in 1931. For one thing, huge economies of scale were plausibly believed to flow from longrun bulk government purchases on long-term contract. Scott suggested that post-war liberalisation of food imports ‘might have led to a rise in food prices which would have choked off demand (at least initially) and which would have had further repercussions on 157


wages and other incomes’.38 He seems to imply that the rise in price would have been more than offset by the smaller increase of quantity, so that the additional import bill for food would have been significantly less than the £200 million saving which he estimated on the assumption of steady prices. That seems improbable, though it is not unlikely that removing quotas on primary imports would have inflated wages and thus exports—the very result, incidentally, which Scott later expected from imposing quotas on manufactures in the late 1970s as advocated by Cripps and Godley.39 For important foods and raw materials for which the United Kingdom was the big European market, quantitative import control was very much a question of price management. Even for some manufactures, import control was sometimes deflationary. Among raw materials the strongest examples are coniferous softwood timber and pulp as raw material for paper. This is the sector according to Scott where post-war quotas had their only significant effects on the volume of raw material imports. Of sawn softwood as much as 97 per cent of the United Kingdom’s consumption requirement was imported in 1954,40 which represented about half the total imports of all OEEC countries and about 30 per cent of their consumption.41 Consumption control was simply a disguised form of import control and in this sense softwood timber had never been really liberalised in 1950–1. Consumption remained subject to strict control until November 1953 and was held at more or less 50 per cent of the pre-war level. In early 1950 the government had drastically reduced its purchases of European softwood in an attempt to check the rise in prices.42 With the Korean war came large scale purchases which contributed to a new price upsurge. Having acquired huge stocks, the government was able to displace private imports by running the stocks down. With the restraint of British purchases in 1952 prices fell rapidly until July, when they stabilised as soon as Timber Control released a quota.43 When private imports were put on Open General Licence at the end of 1952 importers, freed from import controls which had lasted thirteen years, did buy large amounts of timber during 1953, on the correct expectation that consumption controls would also be abolished. These ended in November 1953. Softwood imports through 1953 remained on a higher level than restricted consumption. Possibly the government was still hoping to keep down prices as well as imported quantities, but private importers were speculating against future consumption. It seems evident in this case that quotas 158


and other forms of import (consumption) restriction had a powerful effect on prices. Of the European intra-trade in pulp and papermaking materials United Kingdom imports accounted for about half. The price of pulp was already rising after 1949 in the wake of devaluation when the liberalisation of imports in April 1950 sent it soaring as private firms became free to accumulate stocks. By the end of 1951 there was a large accumulation of stocks at all intermediate stages. Pulp, paper and board imports contributed more to the balance of payments crisis of 1951 than any other common category except meat. They were thus a prime candidate for deliberalisation in November 1951, by which time prices were descending. ‘The immediate cause of the collapse of pulp prices was the introduction of import restrictions and price controls in the importing countries rather than the fall in demand by private importers.’44 Faced with increases in the prices of raw materials in early 1951 the USA had already imposed price controls on wood-pulp and timber products. Such an action by the country which was the world’s largest consumer of wood-pulp had given the opportunity to Britain as the biggest European customer for Scandinavian wood-pulp to impose import controls and so bring the import price of Scandinavian supply down to that of the North American product. The reduction in price paid for the Scandinavian exports was between 20 and 30 per cent.45 The closely and centrally organised Scandinavian exporters accepted the restrictions and price cuts, because this still left them with satisfactory profits for the second half of 1951. One consequence was that until the next sharp fall in demand, which did not occur until 1956, any removal of the British import quota was likely to lead to an upward surge in the wood-pulp price and was therefore continually postponed. Either the year was wrong or the time of year was wrong. The initial determination of Scandinavian wood-pulp prices took place at the main annual log auctions in September. No removal of the British quota on woodpulp could therefore be publicly announced before 30 September in any year. Although by the beginning of 1955 the hope of liberalising pulp on a world basis was strong enough not to deter the United Kingdom from again taking the lead in the OEEC Trade Liberalisation Programme, while at the same time moving toward convertibility and non-discrimination, the hope proved a delusion. As we saw in the previous chapter the United Kingdom was unable to meet the OEEC liberalisation target of 90 per cent sponsored by itself because 159


during that boom year it dared not remove quotas on pulp, or the products thereof, for fear of the price increase this would inevitably bring. Pulp could never have been liberalised without a chain reaction affecting the whole pulp, paper, board and newsprint complex. The authorities were especially unwilling to liberalise newsprint. Though it produced little pulp, Britain had a large paper and board industry, and the Scandinavians and Dutch regarded import controls on paper and board, and manufactures thereof, as straightforward protection. As a ‘consolidated’ item under the OEEC programme, paper and board should have been reliberalised as soon as the balance of payments crisis had passed at the end of 1952. By 1954, however, when world confidence in sterling was relatively high, Whitehall still wished to retain import restrictions on paper and board, which for the Scandinavian suppliers was the more profitable commodity group. The fear was that Scandinavian producers of paper, organised in vertically integrated concerns, would raise the price of pulp and also press their governments to take a harder line on bilateral trade arrangements, on cars for example. The fear seems to have been well justified. A weaker purchaser of the same raw materials, the Federal Republic, at times in the 1950s had to buy pulp at prices higher than those of some of the finished paper products and had even been faced with export embargoes.46 Not liberalising paper and board kept British converters, manufacturers of stationery and the like, for whom it was a raw material, at a disadvantage. The manufacturers of paper and board, however, for whom the immediate raw material input was pulp, feared the retaliatory rise in its price which would ensue if their protection were exposed as too naked by the removal of the quota on pulp. In the 1955 balance of payments crisis, which finally destroyed the dream of an independent move to de jure sterling convertibility, it became clear that the United Kingdom could not afford even to liberalise the raw material at fixed prices. So the whole pulp/paper complex was not reliberalised until after demand slackened off, in July 1956. Paper manufactures, the output of converters, remained protected until September 1958. Again, the powerful effect of quotas on prices was dictating policy at important moments. Even if the influence of British purchases could be discounted, the effect of exogenous import price changes on the level of demand is not easy to measure. Until 1953 there is seldom a plain case of imported quantities falling or rising in response to rising or falling 160


import prices. In the period 1950–2, both quantity and price of imports rise and fall together in response to world scarcity and European recession. During 1952 falls in import prices partly caused by the downward shift of world demand were presumably tending to increase imports along the United Kingdom import demand schedule, while more visibly a drop in British income and output, to say nothing of a tightening of certain quotas, was depressing the same British import demand schedule and thus pushing some raw material prices further down. Even prices of manufactures tended to move in unison with general demand, and hence with imports. To gain some notion of the separate impact of relative import prices on the volume of imported manufactures we might turn to multiple regressions which should filter away that variation in both which correlates with changes in income or output. Nobody as far as we know has produced, or is likely to produce, a complete system of equations purporting to identify all the factors governing supply and demand under normal conditions. Import demand functions typically include factors like income and activity, which govern the position of the import demand curve, and import price factors which determine its slope or negative price elasticity. The order of magnitude of price elasticities is of interest because price changes are the competing or complementary explanation of deviations from trend of import/income and similar ratios. In the ten years after the war total imports and import patterns of the United Kingdom seem to deviate markedly from what might have been expected on the basis of income, output, consumption or any other appropriate index of the forces shifting the national demand curve for imported food, raw materials and manufactures. Under free and stable conditions we might have expected the ratio of imports to income or output or consumption to remain constant or to change very slowly. The basic question is how far these deviations from trend were due to policy changes which frustrated free demand and how far due to autonomous relative price changes such as the price of food relative to other goods, or the price of raw materials relative to manufactures. The most striking deviation from trend was that of imported manufactures, where the most relevant prices are those of imports relative to those of competing home outputs. This elasticity of demand for imports is of special interest because a huge price elasticity is needed, and has been invoked, to explain much of the effects which we believe were mainly due to quotas. 161


Price variables have the advantage of being measurable, even if the extent and stability of their impact is disputable. The most general strategy in assessing the effect of import controls has been what might be called the method of remainder. An elasticity or percentage derived from the data of a free period or place is used to estimate the free demand for the restricted period or place; quotas are blamed for the measured difference. When using rules of thumb, the expectation is that percentages or ratios or elasticities obtaining in the free period would have obtained in the restricted period. With the very crudest rule of thumb we measure the increase of imports in a year after the quota was removed and assume quotas had been keeping out a similar amount. When using full regression analysis the measure of the effect of quotas is the difference between the observed level and the level calculated from an equation which fits the data of unrestricted periods well. Quotas are thus usually conceived of as an external shock which was strongly ‘on’ for certain years, say from 1946 through 1949, but of lesser importance after 1952. The changes in imports excluded by restrictions are usually measured not as a correlate of the degree of restriction, but as a residue left over after measuring everything else. Of course, one quantitative policy variable does exist in the shape of the OEEC Trade Liberalisation Index percentages described in Chapter 3.47 Recall that these merely purport to capture the percentage of some broad category of goods not subject to government restrictions, and their complement measures the scope, not the intensity, of restriction. Changes in the scope of restrictions might in principle have no effect at all: licences could be imposed and cancelled at quota levels above effective demand. The effectiveness of restriction on the other hand could change without any change at all of scope: intensity might be said to have doubled for restricted goods if either the values of existing quotas were halved or if free demand doubled. But then, if we had enough information to construct an index of intensity—say the ratio of free demand to quota size—we would not need it; we would already have most of the information we want. Even as a measure of scope we found the OEEC Trade Liberalisation Index wanting, confined as it was to imports since 1950 from OEEC countries and their dependencies, and measuring as it did the liberalised share of private trade only, thus excluding current government trade from its shifting denominator. Furthermore it measured individual goods throughout the entire period for all but 162


two countries in terms of their import values during the most restricted of all years, 1948, which ill reflected the pattern of free trade then or the subsequent change of that pattern. As shown, there was a tendency after 1953 to remove quotas from goods imported generously in 1948 but for which there was little current demand, and to retain powerful restrictions on imports which, not having been much imported in 1948, would, if liberalised, have added little to the current index of private goods not subject to quota. The control indexes devised by Hemming, Miles and Ray48 escape some of these strictures. They use total trade as a consistent denominator, and total trade minus private liberalised trade as numerator. Subtracted from 100, they serve as liberalisation percentages. For world trade Hemming, Miles and Ray give series for 1946–58 in terms both of current values and of the fixed import values of 1955. Area series exist in terms of current values for the dollar area, the sterling area and for the ‘Rest’, an area including important sources like Argentina, Japan and the Communist countries and thus too wide to approximate the Relaxation Area. If changes in the proportion of imports which was subject to quota restraint correlate strongly with changes in the total imports, it seems good evidence that the quotas, on average, were having serious effects. As we see in Figure 5 the big changes in the scope of control between 1949 and 1958 correspond broadly to changes in the trend and variation of the quarterly volume of imports during the period. The measure of scope of control is a quarterly interpolation, lagged once, of the mid-year percentage of Hemming et al. This is the percentage of total current imports at current prices which were both private and unrestricted. Unlike the volume index it is a number which cannot rise above 100. Even if import policies were both extensive and effective, total import changes might well not have correlated strongly with the immediate changes in the percentage of imports subject to control. Quite apart from the lag between order and arrival, and longer delays of structural readjustment to prevailing conditions of supply and demand, there was some tendency to remove precisely those controls which would have no early effect because current demand was slack. Removing a quota might be considered like leaving open a tap, even if the water supply is temporarily absent. Liberalisation is permissively responsible for all future imports above the level of the original quota. In the boom of late 1951 officials were found denying that the relaxations of 1950 had contributed greatly to the upsurge of 163


Figure 5 Quarterly volume of imports of United Kingdom v. liberalisation (1938=100). Sources: Monthly Digest of Statistics; M.F.W.Hemming, C.M.Miles and G.F. Ray, ‘A Statistical Summary of the Extent of Import Controls in the United Kingdom since the War’, The Review of Economic Studies, no. 70, February 1959 (smoothed interpolation).

European imports—right up to the hour when they were forced to reimpose them.49 In any case the choice of twelve-month periods or less as units of analysis is arbitrary. Our own fundamental interest is in comparing the ten post-war years with other decades. On the other hand, if annual changes within one decade in the scope of control do correlate with immediate changes in imports it offers some evidence that many quotas are important and effective, especially since changes in the number of quotas by and large coincided with a tightening or loosening of existing quotas. Of course the scaling of the diagram is tendentious and it is far from conclusive evidence of anything, because, not accidentally, liberalisation tended to change in step with the demand factors which, under free trade, are usually the dominant influence on imports. Quotas were widened or removed in response to an increased demand for imports, although they also became more effective when there was an increased demand for imports. Even if the liberalisation percentage was an exact index 164


of the extent to which policy was ceasing to frustrate free demand it would be too collinear with industrial output to estimate the separate influences of whatever it is measuring with the least confidence. The general growth of demand, which itself was inducing more liberal policies, would to a large extent induce more imports precisely because the policies were allowing it to do so. Nevertheless the fact that the percentage index probably correlates almost as well as demand factors and better than price factors like the terms of trade, certainly provides us with no reason to doubt that changes in import policy were strong enough to have effects observable at the macro level. A strong connection between changes in the volume of total imports and changes in the proportion of imports which are subject to quota would offer firmer proof of effect and cause in a period when other influences were not moving in the same direction, and it might throw light on the question whether the influence of price changes was stronger than those of income or output. We rule out the possibility that the rise in purchasing power across the wartime period actually caused the drop in imports. If, assuming that the war left the basic parameters unchanged, we regressed manufactured imports against domestic sales and relative import prices, omitting the war years, we would conclude that prices had some negative effect and demand had little (Figure 6). But the weakness of fit makes clear that some important factor has been ignored, obviously import policy, which was exerted by degrees and in principle should be measurable. The percentage of imports on Open General Licence will not quite serve as a measure of the extent to which policy was affecting total imports of manufactures. Even before any significant number of these were granted for manufactures, the widening of quotas between 1946 and 1949 was allowing less demand to go unsatisfied. The growth of the import bureaucracy after the war was not a symptom of increasing state control; on the contrary it was a reflection of transfer to the private trading sector and a widening of permissible private purchases. If we take Hemming’s liberalisation percentages for imported manufactures and assign a value of 100 to pre-war years, when effective protection was exerted by tariffs, and insert some small dummy values for the post-war years to capture the undoubted relaxation that occurred, then perhaps we have a plausible policy variable. In Figure 7 the positive association between imported peacetime manufactures and this variable clearly is stronger than the negative 165


Figure 6 Manufactures: volume of imports v. relative prices v. domestic sales (1935=100). Source: M.Fg.Scott, A Study of United Kingdom Imports (NIESR, Cambridge, 1963). Note: Manufactures without fuels or non-ferrous metals. Import price index divided by export price index.

association with the (inverse) terms of trade in manufactures. A multiple regression of imports on sales, relative prices and, in addition, the policy index improves the overall fit of the earlier equation and implies that if policy had not been holding imports down, demand, represented by sales, would have raised them.50 Like many policy variables the index is a suspect entity, because the question of the relative importance of what it measures is confounded by the question of the extent to which the index measures it. But the regression does add to the scant evidence which the graphs present to the naked eye. Most of the systematic variation in the imports is predictable from the variation in the policy and in the demand variable; at this level of aggregation the noise that is left over does not correlate negatively or significantly with variation in prices. However, an index of scope does not say which goods are being removed from control, and necessarily exists only at a coarsely aggregated level where regression analysis is likely to be insufficiently specific about the demand and price influences on the particular commodity groups on which quotas were imposed. In any case, with 166


Figure 7 Manufactures: import volume v. relative prices v. Liberalisation Index. Sources: M.Fg.Scott, A Study of United Kingdom Imports (NIESR, Cambridge, 1963); M.F.W.Hemming, C.M.Miles and G.F.Ray, ‘A Statistical Summary of the Extent of Import Controls in the United Kingdom since the War’, The Review of Economic Studies, no. 70, February 1959.

every aggregation income effects and price effects become harder to distinguish. Within these groupings the range of these commodities was wide, and it is self-evident that the growth of and determination of demand for them also varied widely. The microeconomic level at which we might hope to identify the appropriate demand and price influences with any accuracy is one where there can not be an appropriate ordinal index of policy change. We revert to the method of remainder. If we are to form a judgement of how typical importers of manufactures will respond to given changes in expenditures and prices, the best statistical evidence is likely to come from regressions conducted at industry level during normal and unrestricted years. While predictions based on these cannot be confidently applied to years outside the usually short and allegedly free period which provides the data for estimation, they may set reasonable bounds to guesswork about long-run elasticities. Elasticities of demand for imports of a wide range of British imports using variable starting dates in the early 1950s to 1966 have been 167


calculated by Stone and Barker.51 Their import functions are for total imports, including those from the dollar area; their right-hand terms usually comprise a relative price factor and an appropriate ‘demand’ factor such as competing domestic production or, in the case of raw materials, total consumption. These import functions for various commodities are not perfect reduced forms; in the case of manufactures the demand variable, which explains changes in actual imports when prices do not change, seems to include not only domestic output of the equivalent good but actual imports and concomitant tariff revenues. It is noteworthy that their aggregate equation for manufactures yields a price elasticity of around -0.4, with a miserable t-statistic, and a demand elasticity around 3.4 with a high statistical significance.52 The price elasticities are higher than the unweighted average of their separate equations for various industries, but the judgement that the price elasticity of import demand for manufactures in the United Kingdom was less than unity, and probably much less than the demand elasticity, surely cannot offend many instincts. If higher incomes (or whatever) raises the demand for imported manufactures by 10 per cent one might easily expect some net increase of imports, even if the relative price of foreign manufactures counteractively rises by 10 per cent. And this is not unlike the situation of Britain in the immediate post-war period. According to Scott the main reason imported manufactures in 1954 were still close to prewar levels was that they had become relatively more expensive than home produced manufactures. At the same time ‘there is no evidence of any marked cheapening of imports relative to home-produced manufactures’ in the period from 1946–9 to 1954–5.53 So the basic gain in price competitiveness concerns the period 1945–55, as against the pre-war period. In his judgement the relative price rise of foreign manufactures which would have kept imported manufactures so far and for so long below pre-war levels during this prosperous decade, even in the absence of quotas, was of the order of 10–20 per cent. Scott can believe that this was sufficient because he estimated a long-run aggregate price elasticity in the region of no less than 7 per cent.54 The empirical basis for this estimate was data from the two years 1930 and 1935, capturing changes which were mainly due to the dramatic 50 per cent fall of manufactured imports in 1932 that accompanied a relative foreign price rise which Scott suggests as about 10 per cent. Elsewhere, in scatter diagrams for selected manufactures, Scott adds post-war data to suggest a highly elastic 168


‘flat’ long-run price elasticity of import substitution for domestic outputs, but the use of post-war data is only permissible if it is independently proved that quotas had no big effect. Scott’s 7 per cent solution implies that the cataclysmic fall in manufactured imports between 1930 and 1935 was almost entirely due to the change in relative prices—in effect to the ad valorem tariff—and that this change was not a great one. We confess to being unclear about this relative foreign price rise of only 10 per cent. If home prices (proxied by export prices for manufactures) and import prices stayed in line then the ‘10 per cent’ must simply represent the ad valorem tariff. But this surely cannot be the general ad valorem ten per cent tariff imposed by the Import Duties Act of November 1931. As is well known the Appendix to the Act excepted a list of goods long enough to include most manufactures. The unweighted average of all those tariffs is about 25 per cent and the generally accepted figure for finished manufactures is 20 per cent.55 When discussing a sub-group Scott associates a 13 per cent ad valorem tariff for ‘various’ manufactures with a 44 per cent import fall in 1932.56 If in this case too export prices were also used as a proxy for domestic prices, this seems to imply a relative mark-up of 15 per cent, since the former fell by 8 per cent and the latter by only 6 per cent. Unfortunately Scott does not suggest an elasticity of import demand for his income-type demand variable, but the reader is left with the impression that typically and in the long-run it would be around unity. All this may have enabled Scott to believe, perhaps more easily than others may, that under a free regime manufactured imports would still have been not significantly above pre-war levels in 1954, even though home sales were 80 per cent higher. The strong connection between tariff cuts and imports in Europe in the 1960s does suggest that others may have underestimated the price elasticity of import demand. Scott is careful to show that price rises for imports usually are subject to countervailing influences and he has secondary arguments why the elasticity might be generally higher than supposed. Apparently the year 1932 was the only occasion when indices of import prices and home prices of manufactures moved significantly out of line, and Scott treats this shortage of evidence as additional evidence in his favour. The ratio of import prices to home prices in manufactures is an independent variable which, it seems, does not vary significantly. Its two components seem to be collinear and interdependent. Presumably Scott’s argument is that close 169


substitutability and hence price sensitivity tend to force domestic supplies and supply prices to adjust as quickly to changes of import prices as does consumer demand. Given an elastic supply of imports, the response of domestic supplies and domestic prices to changes in import prices might in principle be so swift that we could never observe it, though in that case presumably import prices would be the only relevant variable. As another argument, also a priori, he claims to have shown that price elasticities of demand for imports will be greater where the ratio of imports to competing home produce is low, as was usually the case with manufactures.57 However, this assumes that the import is a good substitute for the home product, and at the disaggregated levels which approach perfect substitutability the ratio tends to be higher. The same imports which account for a small proportion of our footwear may amount to a large proportion of our slippers. It is easy to believe that the impact of a small change in the relative price of imported manufactures would be higher than in the case of primary goods. Nevertheless, the simple belief that post-war manufacturing imports stayed down mainly because quantitative restrictions held them down would be more easily shaken if Scott’s estimated price elasticity of imports was not merely higher but startlingly higher than those of other econometricians, and did not depend for sole empirical support on the data of two years which bridge the historical chasm of 1932. And while it is true that a given change in price exerts more influence in the case of manufactures, the same generally will hold for a given change in incomes. The nature of finished manufactures in the post-war world, furthermore, makes it more important to distinguish between the elasticity of imports of any commodity with respect to the total demand for that commodity and the income elasticity of demand used in the theory of consumer demand. A high import demand elasticity for any commodity might co-exist with a much lower income elasticity of demand if, as was increasingly the case after 1950, many varieties of the commodity were offered on international markets. The typical consumer might not increase the value of his purchases of that commodity as his income increased, but he might well prefer the variety produced abroad. Increasing specialisation in, and differentiation of, products which are listed as homogenous categories in trade statistics was probably one of the main causes of the increase in import ratios of finished manufactures in the 1950s, irrespective of changes in the 170


income elasticities of demand, and this increasing specialisation was accelerated by the prevailing high levels of general demand throughout the decade. The total demand elasticity for finished manufactures and semi-manufactures was higher than that for other categories of imports and the proportion of imports in those groups, where specialisation and differentiation were strong determinants of demand, rose. In a general sense therefore import quotas were increasingly inappropriate unless made increasingly specific in their definition, so specific as to define a category of goods too fine to coincide with those used in the official trade statistics. Otherwise, where they remained as blanket exclusions, like those on paper manufactures, they may have been either impeding the process of specialisation inside the United Kingdom or penalising British consumers in comparison with those in other European countries or they required repeated breaches of and exceptions to the regulation to meet the changing needs of the British economy. Only where the total demand elasticity for a specifically differentiated product can be worked out could the concept of elasticity help in measuring the extent of suppressed potential demand. Stone and Barker’s work yields believable elasticities which might be applied to the period of quota restriction, although some of their estimated equations seem to have included years of quota restriction in their very short data period. Most of their regressions use annual data from 1950 or onwards to 1966, for periods therefore of which the first years were seriously restricted for many import categories. Their findings are not easy to verify because of the difficulty of matching their categories with those of the trade returns, in addition to the usual difficulty of matching trade classes with the quota headings and output categories. Again, we use paper and cars as a check, because in these cases such problems are minimised. Stone and Barker’s figures for imports of paper and board at constant prices, regressed over the period 1950– 66, almost certainly include newsprint, which as we have seen was subject to a harsher regime than other paper and board. Direct controls on newsprint imports were not abolished until 1956 and rationing did not end until 1958. Under the rationing system, the purchase price paid by all users was an average of import prices and domestic cost prices. This enabled the press lords, who tended to use expensive Canadian imports, to be subsidised by the provincial magazines, who tended to use the British product. It is not surprising 171


that imports correlated closely with an output subject to rationing and have a weak relation to international prices. Stone and Barker’s motor vehicles regression runs from 1955 to 1966, although imports of private cars were not completely liberalised until 1959 from Europe and highly restricted before the same year from the USA and so during the first five or six years of their period were fixed by the size of the quota. This may lead to an underestimate of free demand and their calculated ‘free’ values for 1955–7 fall below the actual values, suggesting improbably that the effects of quota control were more than offset by positive random influences. Their handsome equation owes most of its good looks to the years after 1959: one can regress motor vehicle imports on domestic output and relative prices from 1962, using up nearly every degree of freedom, and get strong tstatistics and R-squared. Between 1949 and 1957 the equation does not work well, which is as it should be. Stone and Barker’s elasticity on the demand term is 2.7, and a negative 1.6 on the price term. Such co-efficients on logged variables are merely approximations for small changes, of course, but for the long run they may at least be suggestive. Between 1949 and 1957 domestic output of vehicles rose by at least 68 per cent, which ceteris paribus would nearly triple imports, while import prices, with negative elasticity, rose by about 55 per cent in relation to domestic prices. So demand changed more than prices, and with bigger percentage effect. We might have expected an increase of about 50 per cent rather than the actual stagnation that occurred, but because in 1949 imports were well below trend it can not be used as a base year for prediction. In fact, this would be a ludicrous underestimate because it assumes that demand was already ‘free’ and on trend in 1949. Figure 8 suggests that, as with many other goods, a structural break occurs at the time of liberalisation of passenger cars, presumably a large element of Stone and Barker’s motor vehicles category. If these findings can have any implications for long-run periods which straddle wars, the important claim is that relative price rises would have to be very high indeed to offset the impact of the growth of income that occurred. Even if the international price of foreign cars had risen twice as fast as the home price of British cars between 1938 and 1954, we would still have expected to find imports at 1938 levels instead of their being, as was the case, at around one-third of those levels. 172


Such elasticities could be used more safely to forecast free demand over a very short period, but even a procedure of that kind could not demonstrate that Corden was wrong in his estimate for a single extraordinary year like 1952, following another extraordinary year. There seems to be no safe rule for the behaviour of import—income ratios during a serious recession, although it was once believed that stockpiling would typically cause imports to fall less severely than general demand. Imports actually rose in 1931, including many manufactured imports, even though income and output were plunging. Our starting point was the impression that quantitative restrictions and controls had a historic impact on the basic trends and patterns of imports, especially in the case of manufactures. We noted that the instinct of contemporary observers was that in the face of unsatisfied purchasing power and so high a proportion of output earmarked for export, imports would have quickly tended to return to pre-war levels if left unrestricted. In so far as such an outcome would depend on the preferences of private agents, it embodies an implicit belief that price elasticities will tend to be less than unity and that demand elasticities will be somewhat greater.

Figure 8 Imports of motor vehicles (volume) into the United Kingdom, 1949– 66 (1949=100). Source: R.Stone and T.Barker, The Determinants of Britain’s Visible Imports 1949– 1966. A Programme for Growth (Cambridge, 1970).

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Demand for manufactures in the post-war period was between 10 to 20 per cent higher than in the pre-war period. The terms of trade in manufactures as a whole (putting imports in the numerator) rose by about as much. On the assumption that price elasticities do not exceed income elasticities, these forces tend to balance out. When we amended Scott’s rule of thumb in the face of evidence that his ‘free’ import/sales ratio was not sufficiently free, we obtained a result for the post-war period which is consistent with our initial surmise. When looking at the detailed work of Stone and Barker we find elasticities of appropriate magnitude, less than unity for the price elasticity and more than unity for finished manufactures, especially for the modern accoutrements of ease such as motor cars. There seems to be no econometric finding solid enough or rule of thumb strong enough to disturb the belief that an absence of quotas would have allowed manufactured imports to overtake pre-war levels by about 1947 and that it was to an important extent the presence of quotas which held them close to pre-war levels until the mid-1950s. Even if econometric findings had not been consistent with our conclusions it is only fair to confess that the effect on conviction would have been slight. What econometrics calls ‘noise’ is what historians call history. Multiple regression purports to satisfy ceteris paribus conditions for any given co-efficient by correlating the residuals left over from unseen regressions performed on and among a supposedly complete list of explanatory variables which are ideally uncorrelated with each other. The statistics require a world of stable parameters and calculable probabilities subject only to random shocks of predictable range. The models they usually test posit a world in which domestic prices would, under free trade, quickly adjust to world prices. Kreinin, to whose estimates of the impact of American import quotas and voluntary export quotas on Japanese exports to the USA we referred to earlier, suggests that it may be possible to quantify the effect of import quotas by applying an import demand elasticity to the differential between the world price and the domestic price of the commodity in question. But it is noticeable that in his estimates of the effect of voluntary Japanese quotas he in fact rejects that procedure in favour of the ‘alternative (more practical) method of relying on the informed judgement of commodity experts’, a procedure to which historians probably had recourse before any other. The parentheses are his.58

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INTERNATIONAL COMPARISONS Historians probably can extend less troubled confidence to cases where they can more easily see what changed and what remained the same. To gain some inner conviction it may be useful therefore to supplement the foregoing consideration of time-series data for the United Kingdom with international comparisons. Before doing so it is worth recalling that the time path for aggregated OEEC intratrade during the liberalisation period suggested to most observers that the programme had very large effects. Perhaps the only important exception is Scitovsky. In the first classic treatment of the subject in 1958 he wrote: To begin with, the partial abolition of quantitative restrictions on intra-European trade, carried out by the OEEC in its Trade Liberalization Programme has had very little effect so far [1958] in increasing intra-European trade. The share of intraEuropean trade in the total foreign trade of the OEEC countries has only risen from 42 per cent in 1938 to 47 per cent in 1956.59 In the eye of many beholders this shift would seem rather large, even if we unconsciously spread it over seventeen years and thereby blame the programme for failing to deliver results in the ten years before it was born. Of course 1938 is the standard benchmark to use when eliminating abnormalities of war and reconstruction. But by 1947 most European countries had surpassed their pre-war level of industrial output. What was most abnormal about the situation was precisely the restrictiveness of the intra-European trade and payments system. Quantitative barriers to trade have in peacetime never been greater than in 1948. By the end of 1949 the volume of intra-European trade had recaptured its 1938 level, and this was accompanied by an easing of quotas. Its rise might have been expected to slow down. In fact in 1950 it climbed to 60 per cent above its 1949 level, growing faster in the second half of the year then in the first. By the end of 1950, OEEC countries were carrying out a greater share of their total trade with each other than in 1938.60 By the end of the decade European intra-trade as a share of world trade had surpassed the figure for the quota-free, and relatively tariff-free, world of 1929.61 Writing in the same year as Scitovsky, Ouin assessed the removal of these barriers differently: 175


This campaign has continued and today about 85 per cent of intra-European imports have been freed. The effect of this policy can be assessed when it is realised that between 1948 and 1956 trade within Europe increased by 120 per cent, whereas in the rest of the world it increased by only 54 per cent.62 The index numbers which impress Ouin are consistent with the percentages which fail to impress Scitovsky. For Scitovsky not much has happened, so quota removal cannot have caused it. For Ouin a great deal has happened, all of it thanks to the payment and trade policies of the OEEC, of which he was a distinguished civil servant. Most writers follow Ouin, at least in believing that there had been a notable, even spectacular, growth of intra-trade. For many of them, quotas had been frustrating a powerful tendency toward greater intratrade in manufactures. This rapid growth of European intratrade was doubtless more a consequence than a cause of Europe’s unprecedented growth of income, as it was also of the rapid return of the Federal Republic to a volume of intra-European trade greater than that of the whole of pre-war Germany. But it could not have occurred had it not been allowed to. As regards individual European countries, even in the early stages of the OEEC programme there was a clear relationship between changes in quota liberalisation and in imports. The upsurge which followed the liberalisations of 1950 and 1951 was general, although German imports fell sharply in 1951 in response to restrictions reimposed to meet its difficulties with the EPU. By 1953 the picture varied somewhat. France and the United Kingdom, where imports fell, were the two countries which had returned to a high degree of restriction; Belgium, Italy, The Netherlands and Western Germany, where imports increased, were all countries where the liberalisation percentage had been raised to very high levels. However, our interest here is not so much with the formal OEEC programme initiated in late 1949 as with the actual or potential consequences of the kind of liberalisation which it encouraged and exemplified. Figure 9 shows that the immediate post-war patterns of imports and exports in the OEEC countries were varied. The United Kingdom, girdled with quotas, showed a uniquely low import profile in contrast to that of near-naked Switzerland. Not all European countries waited until 1950 to free their manufactures and raw materials from quotas and the earlier period is as relevant to the central question. If a comparable country whose imports of 176


Figure 9 Volume of imports and exports of OEEC countries. Source: OEEC, Report on the Progress of Western European Recovery (Paris, June 1949).

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manufactures had depended entirely on changes in incomes and prices had quickly regained pre-war levels it would be prima facie corroboration that fully privatised British imports, in the absence of sterling’s special difficulties and ambitions, might have quickly regained those levels too. Switzerland and Belgium offer the most useful comparison. Outside agriculture, Switzerland imposed virtually no import restrictions at all, except on commercial vehicles. Half of Belgian imports were still under licence in 1947 but by repute they were liberally administered. Both countries felt the loss of post-war German supplies and having hard currencies and less threatening deficits of US dollars imported more liberally from the USA. Switzerland retained a few quotas against the USA for bargaining purposes but never seriously discriminated. With its convertible currency (outside the EPU) it was able to finance a dollar deficit from general export earnings. As with Britain, imports into Switzerland plummeted during the war, in fact to a greater extent. Clearly the sundering of trade links and the loss of regular foreign supplies did not of itself preclude any rapid post-war recovery of imports. In the immediate post-war period, the absence of German supplies was as serious a problem for Switzerland as was the shortage of continental supplies for the United Kingdom. Like Belgium, Switzerland counted as an industrial country. Like the United Kingdom, though not by identical means, Switzerland strongly protected its agriculture from foreign imports. The internal price histories of the two countries are by comparison with the rest of Europe extremely close (Table 8), though this does not tell us the real import/output exchange ratio of their manufactures and in 1947 Swiss goods were still dearer in relation to a 1938 base. Like the United Kingdom, Switzerland in the post-war period was a country of full employment and stretched capacity. An obvious difference was that Switzerland did not have to redeploy its machinery and plant for peacetime output and export production, but this meant that domestic sources were better placed to satisfy a smaller backlog of consumer demand. Switzerland had abundant supplies of immigrant labour, but so did the United Kingdom. Furthermore, by the end of 1946 the United Kingdom had redeployed eight million nunitions workers and service personnel into civilian industry.63 The objections to a comparison of this kind on the other hand are strong. Switzerland was a much smaller economy, with a population 178


Table 8 Wholesale prices and cost of living, 1937–48

Source: OEEC, Report on the Progress of Western European Recovery (Paris, June 1949). Notes: 1 This figure represents an average increase in the price of all consumer goods and services in the year 1948 compared with 1938. 2 1938=100. 3 October 1947 to October 1948. 4 November 1947 to November 1948.

in 1948 of only 4.5 million compared to the 50 million of the United Kingdom. Twenty per cent of the employed labour force still worked in the agricultural sector, compared to less than 3 per cent in the United Kingdom. Manufactured products were 34.6 per cent of the value of total imports into Switzerland in 1948, compared to only 23.3 per cent in Britain, a sizeable difference even allowing for our view that import controls themselves seriously distorted the British share. Raw materials imports, excluding fuels, were about 25 per cent compared to 32.8 per cent in Britain.64 All these comparisons are indications of the greater size and complexity of British manufacturing. Even under free conditions the recovery of United Kingdom imports would never have equalled that of Switzerland. In the 179


immediate post-war years Switzerland emerged with an even higher income in relation to 1938 than that of the United Kingdom and was generally more prosperous across the first post-war decade. Real personal disposable income per capita in Switzerland was 21 per cent above its 1938 level by 1955 (Table 9).65 Consumers’ expenditure in the United Kingdom weighted at 1938 prices was 17.8 per cent higher in 1955 than in 1938.66 The growth of personal disposable income in Switzerland seems, however, to have been much less regular than that of consumers’ expenditures in Britain. It grew very rapidly over the period 1944–7, then only slowly and falteringly over the years 1947–53, accelerating again rapidly in the years 1954–5. This pattern is reflected in the growth of imports. They increased to such effect in the years 1946–7 that Switzerland was probably that western European country whose imports grew the fastest between 1945 and 1948. It was in those years that it acquired the reputation of a post-war consumers’ paradise. In absolute contrast the United Kingdom seems to have been that western European country whose import growth over the same period was the slowest. In the following years 1949–53 slack demand in Switzerland lessened this disparity. The year 1951 saw an import surge in both countries and 1952 a fall in import volume slightly greater in percentage terms in Switzerland than in Britain (Table 10).

Table 9 An index of real per capita disposable income in Switzerland, 1938–55

Source: Eidgenössisches Statistisches Amt, Statistisches Jahrbuch der Schweiz (Basel, 1955), p. 371.

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Table 10 Volume indices of imports into Switzerland and the United Kingdom, 1938–55 (1938=100)

Sources: Switzerland, Statistisches Jahrbuch der Schweiz, 1955; United Kingdom, Monthly Digest of Statistics, 1956.

Imports in Table 10 include agricultural imports which were as severely protected in Switzerland as those of the United Kingdom. The import profiles for manufactures and raw materials shown in Figures 10 and 11 are strikingly different, even allowing for the effects of superior income growth. In 1947 Swiss real GDP was as much as 25 per cent higher than in 1938 but the volume of imported manufactures was nearly 80 per cent higher. There seems no reason to believe that Switzerland faced significantly lower import prices than the United Kingdom. It is this stark contrast between the import path of the most liberalised country in the OEEC and that of the United Kingdom which convinces us that the solitary pattern of Britain’s imports was the result of their being among the least liberalised. CONCLUSIONS One forgotten cornerstone of the international trade and payments system actually proposed at Bretton Woods was the removal of quantitative restrictions, for this is implied by a move to general convertibility and an end to discriminatory trading blocs, all of which were to be achievable through the new world credit institutions. One forgotten cornerstone of Britain’s post-war reconstruction is the elaborate system of quantitative import 181


Figure 10 Volume of manufactured imports: Switzerland v. United Kingdom (1938=100). Sources: Statistiches Jahrbuch der Schweiz; Annual Abstract of Statistics. Note: UK manufactures include fuel.

Figure 11 Volume of raw materials imports: Switzerland v. United Kingdom (1938=100). Sources: Statistiches Jahrbuch der Schweiz; Annual Abstract of Statistics.

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controls it retained. This speedy abandonment of the underlying commercial principles of the Bretton Woods agreements has usually been attributed to severe balance of payments difficulties. In general, although by no means always in the particular, import quotas did have as their primary purpose the reduction of the balance of payments deficit. We have been concerned with two questions in this chapter; whether existing measurements of the effect of quantitative restrictions on imports are correct, and whether there is any good general method of accurately measuring such effects. Our answer to the first question is that existing estimates could, in this case, be measured accurately enough to show that they were wrong, that they were in fact serious underestimates. Our answer to the second question, however, is in the negative. We have examined every approach known to us to make our own estimates: documentary research, arithmetical inspection of the trade data, econometrics and international comparison. We have tried to point out the weakness in each and we do not believe that any separate single method can properly be taken as sufficient historical evidence that we are correct. We have somewhat less confidence in the multiple regression analysis than in the other methods, because it seems to take us furthest away from the realm of objective historical fact. We were, in contrast, more agreeably surprised by the outcome of the approach about which at first we had least confidence, international comparison. It seemed to us at first a far-fetched and eccentric procedure to compare the imports of two countries so different as the United Kingdom and Switzerland, but the evidence that comparison provides is difficult to deny. If there is no single reliable method of inspection of the British data alone that will separate the effects of trade policy from the other influences pushing in the same direction, the fact that broad international comparisons support the view we formed on the basis of broad historical trends strongly reinforces our case. Finally it is the fact that each of our approaches yields a result tending in the same direction that confirms us in our conclusions. There are surely many other historical problems which are not susceptible to resolution other than by the cumulation of circumstantial evidence from every appropriate method of historical enquiry. Perhaps there too the question always remains open, as it does here, as to how well the problem has been resolved. In this case what is at stake is not merely a small numerical revision but one of 183


serious significance to much of the political argument about the development of post-war Britain. The extent to which the United Kingdom’s long-run balance of payments difficulties have been caused by a long-run weakening in the balance of commodity trade has been the subject of much discussion.67 Can the United Kingdom, as a national unit, pay its way in the world as its visible imports become, seemingly inexorably, ever greater than its visible exports, is a question which is repeatedly asked. While some remain unperturbed by trade balances and regard payments balances as being of much greater importance, others believe that the balance of trade can not be too unfavourable without incurring national danger. They look back with some nostalgia to the much healthier trend of the United Kingdom’s balance of commodity trade in the 1950s, which for them reflects the much greater relative size and strength of British manufacturing in that decade. The post-war deterioration in the United Kingdom’s commodity trade position is usually seen as starting in the early 1960s. Indeed, in 1956 Britain recorded the first surplus on commodity trade which, if earlier statistics are credible, it had generated since 1822. How far was this seeming healthier trend of the United Kingdom’s balance of commodity trade attributable to the use of import quotas, some of which, as we shall show in the next chapter, were also designed to promote exports? Was it dependent on changes in commercial policy, rather than on underlying economic changes? If we substitute our own estimates for the existing ones, what difference would the absence of quotas and other quantitative restrictions have made to the United Kingdom’s commodity trade balance? In answering this question we felt it fairer to offer what we regard as only a minimum estimate of the difference that quotas and other restrictions made. The lack of any certain method of specifying this difference induces us to be cautions and to offer a set of estimates which we believe to be the least difference from earlier estimates which we could regard as sure. Throughout the explanation in this chapter we have reduced our estimates of the impact of non-tariff barriers on the level of imports below what we believe to have been probably the true result in order to establish a lower figure with which there could, it seemed to us, be no reasonable quarrel. What follow, therefore are minimum estimates of the value of imports kept out by the trade controls we have reviewed. They are substantial upward revisions of the earlier estimates, but we believe the actual 184


value of imports excluded to have been higher even than our revised estimates and we believe also that the reader tracing our path through the separate calculations on which they have been based may well believe it too. We found no difficulty in believing that during the period 1946– 9 imports saved by quantitative restrictions represented close to £400 million annually in 1948 prices (rather than the £310 million which Scott estimated). Our estimate is therefore as much as 20 per cent of the total c.i.f. import bill. In this period import controls were part of a comprehensive policy some of whose elements were the suppression of home consumption by rationing or taxation, the retention of many groups of imports in public hands, and the enforcement of dollar exports through the allocation of raw materials to the industries which were the best dollar earners. These policies began to change in 1950. Corden’s estimate of £264 million saved during the calendar year 1952 we also found too low. It included a government decision to forgo an increase of strategic stocks, which has no obvious analogue in terms of the market, but it seems not to count imports excluded by already existing restrictions, and in our view palpably underestimates the effect of private quotas against the OEEC. We find no difficulty in believing that in the year of recovery 1953, at current prices, imports were at least £282 million below what the market would otherwise have taken. The transfers to private trade and liberalisations in 1953, such as the privatisation of cereals and the liberalisation of clothes and most timber, would have worked their way through in 1954. Amending the government estimate made in that year for newsprint and motor vehicles, and accepting its estimates for dollar machinery, we set the effect of exclusions by import controls at about £182 million in 1954 (rather than the £166 million estimated by the government). These results are displayed in Table 11. The widening of quotas in 1955, especially for paper, may count as the beginning of the end of significant quota restriction. However, the last substantial restrictions (some dollar machinery and chemicals, motor vehicles) were only removed between 1958 and I960 at an annual cost estimated by officials during the 1960 crisis at something under £100 million.68 We would therefore conclude that had import quotas not been so extensively used as part of a comprehensive policy to restrict consumption over the years 1946–9 the deficit on commodity trade in 1946, in 1948 and in 1949 would in each year have appeared greater than £500 million, substantially greater in the last two years. 185


Table 11 Summary of our minimum upward revisions of existing estimates of the reduction in the value of potential imports attributable to import controls

Notes: 1 Allowing for double counting; see note to Table 6, p. 139. 2 Also for 1955.

In 1947, the year of the balance of payments crisis which led to the suspension of sterling-dollar convertibility and ultimately to the Marshall Plan, the deficit on commodity trade would have been more than £750 million, or 63 per cent of the recorded value of merchandise exports (including re-exports) f.o.b. The small surplus on current account in 1948 and the virtual balance of 1949 would have been large deficits. Without the re-introduction of import quotas in 1951/ 2 the substantial surpluses on current account would have been instead deficits of between £125 and £150 million. In 1954 the merchandise trade balance would have, we estimate, recorded a deficit of about £384 million, instead of the actual figure of £204 million, thus once again eliminating the current account surplus. Finally, the two celebrated surpluses on commodity trade in the deflationary years 1956 and 1958 would not have been achieved without the use of import quotas. In both years there would probably have been a deficit on commodity trade of between £50 million and £75 million. These are minimum revisions. The implications of this revision for the course of British postwar history are that the persistent underestimation of the effect of import quotas on the external balances strengthened the arguments in favour of a commercial policy which the United Kingdom was by no means as well situated to sustain as the arguments supposed. Without quantitative import restrictions it is probable that the only year before 1956 on which there would have appeared to be a balance on current account would have been 1950. There would have been 186


no surpluses on commodity account. The growth of reserves over the period 1952–5, which encouraged the ambitious attempts to establish sterling-dollar convertibility on British terms at the cost of Britain’s trading and political relationships with western Europe, would not have taken place. The improved reserve position depended on the very commercial policies which the move to convertibility was intended to eliminate. The claim that before 1954 quotas were so important in reducing the import bill, especially the import bill in manufactures, and improving the commodity trade balance may seem weakened by the fact that the balance of trade improved after 1955 when most of the quotas were eliminated. Thirlwall notes only a ‘slight tendency’ for the volume of imports to grow faster than exports between 1951 and 1959, a difference he puts at 23 per cent against 17 per cent, though using his own figures we make it 27 per cent against 15 per cent, with most of the divergence coming after 1954.69 Apart from the movement of the terms of trade much of the improvement in the balance of trade in the later 1950s, however, is ascribable to the effect on the volume of imports of three consecutive years of stagnation, 1956–8. Our strongest assumption has been that imports of manufactures, especially finished manufactures, are sensitive to changes in income. Even so, the remaining import controls in the slack years 1956 and 1958 were probably exerting just enough effect for their removal to wipe out the famous visible surpluses. The distinct improvement in the 1950s in the extent of the United Kingdom’s ability to pay its way on visible account occurred, by contrast, earlier, in the period of greatest protection by quantitative restriction. Our estimates have been confined to the immediate impact of import quotas on imports, and have so far excluded any assessment of their long-run impact on the pattern of production. In the important case of food there had occurred huge gains in productivity by 1954, when state trading was largely superseded by other forms of protection. Oil refinery products, petrochemicals, machinery, electronics, paper and hardwood are other instances where effective import controls coincided with import substitution. It could well be that some further addition to the sum we calculate as having been saved on the import bill should be made to allow for import substitution. The weakness of import controls, as the 1930s showed, lay in their effect on exports. In the following chapter we look at their impact on production and on exports in industries where they may have induced import substitution. 187


As we have earlier showed, import quotas fell foul of the overriding rationale which came to shape Britain’s post-war commercial policy. This was dominated after 1949 by the search for a global commercial policy which would accommodate all the conflicting aspects of a foreign policy which would allow the United Kingdom to retain a high level of international influence as a point of consolidation for the west. Even had it been accepted at the time that the use of import controls improved the balance of payments and reserves by as much as we estimate this would in all probability not have altered the outcome. Only a worldwide, multilateral, commercial and payments framework offered the United Kingdom the chance to pursue a common commercial policy towards the Commonwealth, the USA and Europe, the three areas on which its central place in the world was thought to depend. In the ultimately vain pursuit of this objective import quotas were rapidly reduced as a policy instrument in the attempt to construct a common commercial stance for OEEC countries, a counter to French (and American) schemes for more divisive European commercial arrangements based on customs unions or common markets. Our revision of the value of imports kept out by import controls suggests, however, that the United Kingdom was less well placed to compete with western European exporters whether in a wider free trade area or a smaller customs union than this commercial policy supposed. The increase in import penetration by finished manufactures after the slack years 1956–8 ought not to have come as any surprise. Initially, in 1949, the United Kingdom was willing to lower quota restrictions against Europe because (Germany aside) it was regarded as a ‘soft’ market which, until July 1951, was expected to yield a permanent payments surplus. The market that mattered was the American market and the quotas that mattered were those against dollar goods. During 1954 the UK again became inclined to take the initiative. As we have shown, the motives were firstly to bind those like France and Italy who might be disposed to re-introduce quotas in order to accumulate convertible sterling and, secondly, as a diversion from disagreeable schemes to abolish intra-European tariffs and reduce the United Kingdom’s power to bargain with the USA. The only tariff that mattered was the American tariff. In so far as any sort of sober commercial calculation informed the policies preceding the crisis of 1951 and the humiliation of 1955 they involved, assumed, or implied a serious underestimate of the efficacy of United Kingdom import quotas against European imports. At the start of 188


two decades where trade and payments balances were still dominated by the international trade in manufactures this was an error of judgement with fundamental and sad consequences for Britain’s foreign and international commercial policies.

189

6 THE EFFECT OF IMPORT CONTROLS ON BRITISH MANUFACTURING

THE MOTIVES OF NON-TARIFF PROTECTION FOR INDUSTRY By imposing tariffs, which needed to be legislated, negotiated and promulgated, governments had usually been able to lower the quantity of imports—but not in the face of aggressively reduced import prices and never to an amount which was exactly predictable. Quotas, unlegislated and often unpublished, enabled post-war government ministries to maintain elaborate and detailed Import Programme’s, that is to say, to plan their trade. After shipping space had become once more available on an open market in 1946 the official objective of these programmes was to save scarce currencies, particularly dollars. But their effect was to protect British industry from post-war competition, especially against competition of more capital-intensive industries elsewhere in the west and labour-intensive industries in Asia. Much of the modern science-based industry of the United Kingdom can be said to owe its birth to such protection, while some older industries like jute manufactures owed their longevity to it. ‘Imports of those goods which would give rise to substantial readjustment in UK industry are still very strictly limited’1 the Mutual Aid Committee was told as late as September 1955. Although the pattern of British industry in the post-war decade was substantially affected by these import programmes, they represented planned trade without a plan. A subcommittee on the contribution of science to productivity growth, set up by the Labour government, did have an Imports Substitution Panel as one of its four panels, and this survived until 1967. However, its activities were limited to a few explorations of alternative raw material sources.2 It seems more probable that where such substitutions took place they 190

IMPORT CONTROLS AND BRITISH MANUFACTURING

were the outcome of the import controls themselves rather than committees. Some elements of a long-term industrial strategy did exist: the post-war Development Areas; the great oil refinery programme of 1948–51; the activities of the National Research and Development Corporation. All of these elements were in place before 1951 and were directly or indirectly fortified by quantitative restriction on imports. But the effect of import quotas on the pattern of industry, though large, was an aggregation of special cases. The public justification for import controls, especially in international organisations, was that they were imposed primarily for currency saving purposes. While this was indeed the general mainspring of the policy, there are many cases where the primary motivation would be more truly described as industrial policy, as well as a large number where the various impulses were so intertwined that it would be misleading to attribute a priority among them. When, for example, in 1951 the Board of Trades Working Party on Import Licensing Relaxations considered the quotas which protected the herring canning industry they were faced with the plausible argument from the Ministry of Agriculture and Fisheries that this was a straightforward case of the need to protect the domestic market of an industry which earned foreign currency. About half the industry’s output was exported, and although the return on these exports was small the export drive, it was argued, demanded protection. But in fact other issues were also at stake. All herring surpluses had to be bought by the Herring Industry Board for fish oil or fish meal manufacture at a subsidised price. Imports of cheaper herring for personal consumption from Norway or The Netherlands would have indirectly increased government outlay on subsidised state purchasing because the British catch would not have shrunk. Eliminating state purchasing would have brought liberalisers into conflict with regional employment policy. Two-thirds of the herring canning industry was located in remote north-eastern Scotland which by the standards of the early 1950s had low employment. Had a sterner view of that problem been. taken, as might have been the case in the 1980s, and migration been suggested as the answer, this would only have produced in the 1950s the riposte that the navy relied on the herring fleet for ships and men, so that ultimately the United Kingdom’s small herring canning industry should be protected as an industry of strategic value. This was a small industry, but it is cited here to show how complicated it can be to decide what the dominant reason for any 191


import quota actually was. In the circumstances where the most acceptable international defence of an import quota was that it protected the balance of payments until a payments equilibrium had been restored, this was the argument that was made in international organisations like the OEEC whenever it could be made to stand up. However, although import programmes and quotas fell well short of economic planning, they were closely related not only to the disparate elements of post-1945 industrial strategy, but also to regional employment policy and to strategic defence considerations. While, as the Bilateral Trade Negotiations Committee had to acknowledge in early 1953, ‘it was not the Government’s policy to use import quota restriction for the protection of Domestic Industry’, the reality by that date was that, ’Nevertheless, the pattern of production in the United Kingdom had been affected by a dozen years of quota restrictions and industry had benefited from the protection they afforded.’3 In the case of industries protected by quantitative controls primarily against North American producers, for example, it is evident that one purpose of such restrictions, freely admitted in internal discussion, was the protection of several of the more important modern technologies as infant industries. The term ‘modern’ applied also in this regard to new developments within existing industries. This was true, for example, of chemicals, especially petroleum chemicals, plastics and pharmaceuticals. It was true also of much capital equipment, especially agricultural and excavating machinery, office machinery and electronics. Because the retention of quotas against North American exports did not demand the same process of international justification within the OEEC as quotas against western European exports, there was less pressure to present every case publicly as a temporary measure to protect the balance of payments and a greater willingness to admit candidly to other motives, particularly those involving industrial policy. By contrast, where quantitative restrictions were particularly aimed against western European exports, it is noticeable that the argument for retaining quotas was, wherever possible, made to refer to the balance of payments or to the sometimes arcane calculation of results in the OEEC Trade Liberalisation Index. To revert, for example, to the navy’s claim that the herring canning industry merited protection on strategic grounds, that argument was not used in the OEEC because herring imports came from Europe and would still be small if they were liberalised. Thus, removing quotas on herrings would not substantially help in reaching a target 192


in the Trade Liberalisation Index. The argument that quotas had to be retained because an industry was of strategic importance was an argument of last resort, not many such cases would be accepted within the OEEC. Where it was used, it usually, but not always, indicated the true reason for the quota. It was not disputed within the OEEC for example that the manufacture of precision time-keeping equipment or of sporting guns could be protected by import quotas because defence considerations demanded that manufacturing capacity be retained. It was disputed, however, that there was any need to retain an import quota on heavy ferrous chains, essentially against German exporters, until 1955. It would not have done, the Admiralty argued, to have expensive warships attached to defective chains supplied by cunning foreigners. But the quota was in fact straightforward protectionism. What was a ‘strategic’ industry? The same Working Party that rejected the claims of herring canning agreed on a rather long list of others that were entitled to quota protection under that heading. The definition of the word ‘strategic’ necessarily had to alter with changing strategies. The strategic justification was used for protecting a national watch-making industry; it preserved a pool of skilled precision engineering workers who themselves constituted a pool of future armaments workers. But by the mid-1950s, when military strategy envisaged successful nuclear deterrence or short nuclear war, the need for a pool of such workers who could be drafted to increase armaments output became hard to justify and the watch industry ceased to be ‘strategic’. It kept its import quotas, however, late into the 1960s. Also in the list of industries allowed to keep quota protection on the grounds that they were defending the realm were diamond dies, industrial jewels, woven wire cloth, sporting guns, dyestuffs, calcium carbide, silk bolting cloth, and bakers’ yeast. Diamond dies, indispensable for the manufacture of wire for radio valves and electrical apparatus, was an infant industry, protected against cheaper manufacture in Belgium, France and The Netherlands. Industrial jewels was another infant industry on which that part of the national watch-making venture which made the highest-grade timekeeping machinery for armaments depended for one of its inputs. Woven wire cloth, for screening aggregates and ores or for filtration, had had to be imported during the war from the USA because pre-war supply had come from Germany. Keeping out sporting gun imports helped to keep, it was argued, national rifle manufacturing technique 193


alive. Dyestuffs manufacture was the origin of a complex knot of technological developments some of which were strategically indispensable and others were better classed as protected industries. We consider them in Appendix IV. Calcium carbide, manufactured and exported by several countries from where it was unlikely that supply would have been cut off, was protected long enough for a big consumer to build a factory to produce its own supply.4 Silk bolting cloth was an infant industry started in the war to produce parachutes and flour milling equipment and still required protection against Swiss competition. Bakers’ yeast, too, was a manufacture started during the war which needed protection against cheaper continental output. After the experience of the Second World War producing the daily bread had become a strategic industry. The idea of a future war fought with yeast, jewels, sporting guns and silk cloth may seem bizarre. In the light of the 1939–45 experience, however, strategic manufactures did genuinely cover a wide range of industrial activity and it did not seem foolish in the early post-war years to suppose that the whole of continental western Europe might again pass under enemy occupation. But the reality was that there was also in the same years a strong element of industrial policy, a determination to establish manufacturing capacity in some sectors, particularly in engineering, before German competition returned. As we have seen, this policy was overtaken by global commercial and political considerations so that by late November 1954 most engineering products could be freely imported from Europe, that is with no more protection than afforded by the (on a rough average) 17 per cent ad valorem tariff.5 But the strategic arguments invoked to preserve quotas after that date on items such as dyestuffs, clocks and watches, scientific instruments and precision cameras also covered an attempt to maintain the protection of infant industries against exports from a far stronger equivalent German manufacturing sector for some time longer until they were better established. One benefit of import controls on dollar imports was massively to attract direct investment from across the Atlantic. The tariffs and imperial preferences established at Ottawa in 1932 had boosted this tendency. Many American firms set up British subsidiaries to beat the tariffs and gain privileged access to empire markets. Given the post-war famine in dollars and the hunger for dollar goods, the superimposition of quotas on tariffs reinforced this motive and the value of American investment expanded even more rapidly after 1945 194


than in the 1930s. By 1955 the American presence in British manufacturing, not including oil refining, amounted to a total investment of some $941 million. Some measure of its growth may be taken from the fact that in 1943 all US investment in the United Kingdom, including oil refining and distribution as well as the service sector, amounted to only $518.8 million.6 After Canada, the United Kingdom was the main recipient of post-war foreign investment by the USA, much of it induced by the post-war growth of concerns which had established themselves in Britain before 1939. Within the manufacturing sector, something over 200 US-controlled firms accounted for almost a quarter of a million employees. Under the Exchange Equalisation Act of 1947, a potential US investor required permission from the Treasury and the Board of Trade. An investment was permitted only if it could prove its worth to the British economy, by bringing about a reduction of imports from hard-currency areas, an increase in exports to the same, and a transfer of American know-how into Britain. The difficulty was to ensure that capital inflows came with honourable intentions. The Board of Trade was at pains to seek guarantees that investment plans were genuine manufacturing proposals, the purpose of which was not to establish a foothold in the British market with a view either to withdrawing after local competition had been driven out or to becoming mere assembly points of American components after quantitative import controls on such components had been lifted. Until 1957 the Board of Trade demanded a 100 per cent British manufacture of components within two years of the plant being set up. Genuine proposals were encouraged with inducements to build in the Development Areas, especially those in Scotland and northern England. Between 1945 and 1956, more than three-quarters of American companies building plants in Britain chose to do so in Scotland.7 When ‘taking the lead in Europe’ came in 1957 to mean negotiating for a European free trade area the Scottish Office became alarmed that this US investment might relocate on the continent if Commonwealth preferences had to be surrendered as the price of the free trade area. The Development Areas were a recurrent sub-theme of discussions about removal of import quotas in the mid-1950s. By then they contained nearly 20 per cent of Great Britain’s manufacturing workforce. They had developed from the less successful pre-war Special Areas, where in 1932 40 per cent of the workforce had been unemployed. Between 1946 and the end of 1948 more new factories 195


were licensed in Development Areas than in the rest of the United Kingdom. Firms which settled in scheduled areas received preference when government contracts were allocated. By 1956 the government had sunk £60 million of its own money into building factories in addition to loans worth seven million pounds and grants of £10 million.8 The aim was to diversify areas still depending chiefly on basic heavy industries by adding light industries with export potential. By 1953 41 per cent of the total workforce in the Development Areas was employed in the expanding light industry sectors, as against 29 per cent in 1939. By 1956 only in the Scottish Development Area did the unemployment level exceed 2 per cent. Many of these light industries were considered vulnerable to European competition and most were at risk against North America. When at the end of 1955 it was still hoped to begin the removal of quotas on dollar imports in 1957 it was assumed inside the Ministry of Supply that ‘some small industries (not necessarily only ‘dollar savers’) will suffer severely when the protection afforded by dollar restrictions is removed and individual firms may perhaps be forced out of existence. These will be largely in the consumer goods field.’9 It was for this reason that when the process of removing quotas against American exports began in 1958 the strategy was to leave quotas against consumer good imports until the last. Evidently, employment policy and nascent regional policy were taken into account and the issues were not just those of dollar saving. Four major liberalisations of dollar imports of manufactured products took place. Most chemical imports from North America were freed from quotas in August 1958. Machinery was liberalised in the following month. A batch of miscellaneous commodities was liberalised in June 1959. Only in November 1959 were most consumer goods liberalised. This diversity of motives for the use of quantitative import restrictions made it inevitable that the general principles of commercial policy followed before 1951 and the more concrete programme of action which was built on those principles after that date would lead to clashes of interest between, on the one hand, the various disparate strands of industrial and regional employment policy which led into import controls and, on the other hand, the pursuit of multilateralism and non-discrimination as the guiding lights of commercial policy. These clashes of interest became much stronger when what for the Labour government had been only vague guidelines for a future commercial policy were transformed by the Conservatives 196


into an immediate priority for action, essentially through the pursuit of sterling-dollar convertibility. But the dividing line is not the date of the change of government. The clash of interest was plainly foreshadowed by the Labour governments decision in 1949 to take the lead in the OEEC through the Trade Liberalisation Programme, although that decision initially implied only the withdrawal of quantitative restrictions against continental Europe. After 1951, when the logical consequences of this course of action, convertibility and the eventual end of quantitative restrictions against North America, were being more ardently pursued, import controls as a support to other policies survived more by the chance of the way the Trade Liberalisation Programme operated than on the merits of industrial, regional, or employment policy. Otherwise they were considered dispensable in the pursuit of the higher policy of sterling-led convertibility. When this policy collapsed with the balance of payments crisis of 1955, it still influenced official thought until it became clear that the Messina project was unstoppable. Thereafter industrial policy was subordinated to the free trade area proposal, Britain’s counter-punch to the Spaak Report. This in turn collapsed in November 1958, but had a partial embodiment in the form of the seven-nation EFTA which meant the removal of both quotas and tariffs against its member-states. As we have shown, the pursuit of sterling-led convertibility meant that the commercial priority was to promote the OEEC internal liberalisation programme as a prologue to an imminent (if never quite yet) end of external quotas against North America. The original free trade area proposal, which superseded this, implied the dismantlement of intra-European tariffs on manufactures, as well as the remaining quotas on intra-European trade in manufactures, but it accepted future tariff discrimination against the USA by Europe, if only for bargaining purposes. The end of quotas against North America was still envisaged as a process in which the United Kingdom led Europe. At any time therefore after 1951 an end was envisaged to protection by quantitative restriction against North American exports at a given, if variable, date. Pursuing this line of policy meant that the clashes of interest were particularly severe over those manufacturing industries which had been considered in 1945 as strategically indispensable and had become the post-war offspring of specialised ministries such as Supply (reconstituted in 1959 as Aviation) and Admiralty. Inevitably such ministries appeared as protectionist, although it might also be said 197


that they were the most knowledgeable about industry. But the important interdepartmental working parties were dominated by the Treasury and the Board of Trade and both made it a considered policy not to consult industry when quota removal was imminent. ‘Consultation might have led to a number of unfortunate results’ of which the most unfortunate would have been a clamour for assistance by the suddenly unprotected.10 Given the commitment of the major government departments to dismantling import controls the fact that they lasted so long is probably explained by the fact that there were so many to dismantle. Up to the period of the free trade area negotiations and the multilateral European advance to convertibility at the end of 1958, the British economy was surrounded by a stockade of non-tariff barriers to trade. A large part of manufacturing was protected by quotas against North American competition, and even after the liberalisation of intra-OEEC trade was resumed in the middle of 1953 a significant range was still protected in the same way against European competition. In addition, textiles and clothing were protected by disguised quota systems against Commonwealth exports, notably from India, Pakistan and Hong Kong. Japan’s limited entry into GATT allowed for strict control of Japanese imports into the United Kingdom, which eventually became a system of Voluntary restraint’. Communist countries remained in outer darkness. We have analysed the effect of quantitative restrictions on imports. Is it possible to say anything about their effect on the pattern of industry? THE EFFECT OF QUANTITATIVE RESTRICTIONS ON THE PATTERN OF INDUSTRY Not all firms or sectors owed their existence to the quantitative restrictions on imports afforded to the industry of which they were part. The gross output of United Kingdom manufacturing in 1954 was approximately £18,000 million, the net value something over £6,000 million.11 Only a fraction of this would represent lines of production vulnerable if left to stand on their own feet without import quotas, which means, it should be remembered, to stand behind their existing tariffs. To ask how much output and employment owed their existence to quantitative import restrictions is to ask what is. finally an impossibly hypothetical question. It may not, though, be amiss to try to gain some rough sense of the magnitudes involved. 198


For those industries protected under the heading of ‘dollar saving’ an estimate was made in terms of 1953 output by the Committee on the Future of Dollar Saving Industries. Its estimate was that output to the value of £314 million was protected by quantitative restrictions, of which £270 million represented lines of production which were likely to ‘vanish’ or to be ‘crippled or destroyed’ if quota protection against North America ended.12 This estimate was confined largely to those advanced industries which had been created specifically to substitute for imports from the USA. It does not include hardwood, an industry with a gross output of £150 million in 1954 and with a volume of output three times that of the 1930s. It does not include newsprint, of which Canada was an important supplier. Because Europe was between 1945 and 1954 the chief supplier, it does not include other paper and board and manufactures thereof, which in 1954 in total was an industry with a gross output value of £373 million, importing only about half as much as before the war and producing about 10 per cent more. The Committee’s estimate seems also not to have included electronics, the paradigm of a dollar-saving industry. It also omits consumer goods which were in demand from the dollar area, most obviously cars. However, the Committee in several cases seems to have considered the whole output of a particular sector as vulnerable to the removal of trade controls, when it is evident that some part of the output would have been maintained. Not all the manufacture of oil refinery equipment or office machinery, for example, would have been lost had quotas been removed in 1955, and where the Committee made rough estimates in its correspondence, and sometimes even in the text of its report, which seem more exact than the gross calculations published at the end of the report, we have preferred the finer calculation. Thus we have accepted the Committee’s guess that between five and ten million pounds of annual output of the office machinery industry would have survived and we have thus reduced the Committee’s final estimate that output to the value of £21.5 million pounds in that sector was vulnerable to the removal of quotas. For oil refinery equipment we have estimated that £17.1 million of output would have survived deliberalisation and accordingly reduced the Committee’s estimate for that item from £67.1 million to £50 million. Attempting to assess the value of output protected against North American competition in those sectors where protection by quota 199


was as much or more concerned with keeping out European competition is difficult and can not be done with any precision. We calculated in Chapter 5 that the true value of potential car imports excluded in 1954 may have been as much as £16 million (rather than the six million pound government estimate). Our grounds for this were the underestimation of demand by government officials. But as our survey of the import quotas on cars showed, it is impossible to do better than guess what share of this value was made up by potential, but excluded, car imports from the USA and Canada. If we accept the guess in the governments own 1954 estimate (Appendix III) that a third of the value of excluded cars were from the dollar zone, that alone would add about £4.5 million to the Committee’s estimate of the value of total manufacturing output protected by quotas on dollar trade. Electronics was not listed as a separate sector in the 1954 Census of Production, but if we assume that its output was one-quarter that of ‘radio and telecommunications’ this would add another £46.3 million of net output to the value of output protected against North American exports. Assuming the value of output of clothing and ‘other consumer goods’ so protected to be equal to the estimated value of excluded dollar-zone imports—which is surely an underestimate—adds another seven million pounds to the total. Making the same assumption for metals and ‘miscellaneous materials’ adds another six million, for dyestuffs another 0.5 million, and for pulp, paper and board a further six million. Adding to this one-third of the value of domestic hardwood production, suggests, very crudely but conservatively, that the total value of British industrial output which was protected by quotas on dollar imports and in the long run vulnerable to competition from North America at existing tariffs was £406,139,000 (rather than the £314,010,000 of the Committees estimate). At the mid-point of the thirteen to fourteen years over which non-tariff import restrictions were used to defend British manufacturing against North American exports we may therefore say, very roughly, that about 6.7 per cent of the value of total output stood to be lost if these restrictions were removed. In Appendix IV we have tried to put together as much relative data as possible about the effect of all quota restrictions, including those primarily intended to exclude exports not from North America. There is one industry, however, textiles, especially cotton textiles, where the working of the quota regime, which was a ‘voluntary’ one imposed by exporters, can not be studied without a proper knowledge 200


of its implementation by the manufacturers’ associations and governments of Hong Kong, India, Japan, Singapore and other countries. Any calculation about the proportion of the value of United Kingdom manufacturing output protected by quantitative restriction against imports from all sources must therefore be even rougher. In a static world, we estimate, in 1954 about 16.5 per cent of British manufacturing output stood to be lost if all quantitative restrictions were removed. But the world was not static, and a calculation which supposes that resources would not have been redeployed had there been a general sudden liberalisation of trade must be wrong. In the classic argument for free trade all the resources so protected would have been quickly released into activities which better maximised welfare. Appendix IV tries to describe a real world as well as possible, given the obvious constraint that we can not write full separate histories of about forty industries. On the basis of these descriptions and our calculations in the previous chapter we have tried to make some further estimate of the effects of import restrictions on United Kingdom manufacturing. An alternative way of measuring its impact is to attempt to estimate the amount of employment dependent on the quota regimes. This of course runs into the same difficulty of estimating what proportion of employment in any protected sector would have survived without protection. Our survey of the sectors involved convinces us that, as in the case of output, there is unfortunately no better way to measure this than by individually inspecting the particular international circumstances of each industry. This leaves much room for doubt and we offer our estimates only tentatively. As in the case of output, and for the same reasons, we omit the textile sector from the calculation. Total employment in 1954 in the manufacturing sectors protected by quantitative restrictions amounted to, as close as we can estimate it having no employment data from censuses of production for some of the smallest protected sectors, 390,000. We can therefore venture to say that about 5.4 per cent of total employment in the manufacturing sector (omitting textiles) was protected by import restrictions. It does not surprise us that the proportion of total output protected was so much higher than that of total employment. We have been forced to omit the largest and the most labour intensive sector, textiles, protected by quotas. Much the most capital intensive of the larger sectors of manufacturing by output, the chemical 201


industry, was highly protected by quota and is included in the calculation. A short trawl through Appendix IV will show that almost all the industries in it were also capital intensive. This puts into an interesting perspective governments’ concern over the effect of trade liberalisation on employment. Only a part, perhaps about a third, of the labour force employed in the trades protected by quota would have fallen out of work. Accepting that a sudden liberalisation of the trade regimes would have led to a much less sudden redeployment of those put out of work, it is still difficult to believe that with the demand for labour so high and the official unemployment rate so low as it was in 1955, the most likely year for such a liberalisation, import restrictions were making a serious contribution to full employment policy over the country as a whole. However, any estimate of the proportion of employment in the Development Areas that was safeguarded by import restrictions would certainly be higher, especially in Scotland. It would be high enough to expect some electoral repercussions from trade liberalisation, but not, outside Scotland, national ones. Import restrictions, while they had only a small impact on total manufacturing employment had a larger role to play in regional policy, and a much larger one still in determining the pattern of British manufacturing. One thing must be emphasised: the range of products made by United Kingdom industry was very different, for good or ill, than it would have been without quantitative restrictions. We can conclude with reasonable probability that in the mid-1950s the production of the following items would not have been taking place had there been no protection by quantitative restriction: many dyestuffs, a wide range of petroleum chemicals, many pharmaceutical chemicals and preparations, some agricultural machinery, industrial tractors, typewriters, cash registers, computers, watches, most clocks, precision cameras, many scientific instruments, a wide range of industrial process control instruments, industrial jewels, jute goods. The list is not exhaustive because of the difficulty of discovering how these relatively secret non-tariff barriers were operated in some other industries deemed ‘strategic’—such as sporting guns or woven wire cloth—or in industries where some particularly specialised product hard to separate statistically from the general run of output was similarly protected—some special steels or leavers’ lace for example. In the period between 1979 and 1989 when the manufacturing sector declined steeply both as a proportion of the total output of 202


the economy and in absolute terms as measured by the real value of its output, it was frequently argued that loss of the capacity to manufacture a wide range of products would lead to a manufacturing sector so small as to ensure a permanent balance of payments deficit. It was, the argument ran, essential to retain the capacity to produce domestically a wide range of the components and semi-finished products used by domestic producers of finished manufactures. Even if in a peaceful world this is not really the case, it will be evident that British commercial and industrial policy before 1955 was designed for a warlike world. Accepting the warlike world of the post-war years as the reality that it was, import substitution behind quantitative trade controls was largely successful in its own terms. How successful was it for the peacelike world of the mid1950s onwards? It was successful where quota protection lasted longer, in most cases against North America, and where it bridged the relatively short span of time needed for already large United Kingdom industries to acquire American technology developed during the Second World War. The volcanic expansion of American manufacturing capacity during the Second World War and the narrowing of Britain’s industrial output to products deemed essential for war purposes accelerated the gradual trend of the inter-war years for American manufactures to sell more cheaply than the corresponding British product. In part this represented a generally higher level of overall productivity in American manufacturing than in British since the late nineteenth century. But this general gap in productivity, as well as in the respective rates of growth of overall productivity, was dramatically widened during the war, perhaps in some cases by scale economies attributable to the sudden expansion of output, in many cases with guaranteed sales and in some cases with government investment aid. Over the years 1940–5 in America the range of what was manufactured also increased, with new products like petrochemicals, plastics and some pharmaceuticals appearing in response to wartime demand and sometimes government subsidy for, and protection of, innovation. There was narrower scope for such developments in Britain where the range of innovation had to be more concentrated because there were fewer resources to spare and priorities had to be more carefully selected. Even though these wartime disparities were but an acceleration of a tendency which might have eventually generated similar disparities had there been no war, they could easily be represented 203


after 1945 as temporary phenomena, caused by Britain’s heroic effort, and thus correctable by a short period of quota protection against American producers. And given the worldwide dollar shortage, also regarded as a temporary phenomenon arising from the war, the exclusion of imports of a wide range of manufactures from the dollar zone appeared readily justifiable on balance of payments grounds as well. Indeed, when Marshall Aid was provided from 1948 onwards even the government of the USA accepted that discrimination by Britain and other European countries against its exports was necessary for European recovery. It was already becoming less necessary by the end of 1949 after the general devaluation of western European currencies against the dollar than the US government, eager to show favours to western Europe in return for its strong opposition to the Soviet Union, believed. Studies of the relative prices of British and American goods after 1950 show that much British manufacturing, in spite of lower overall productivity levels could compete with American prices.13 Although final sales prices of American and British goods were relatively close by 1950 and the shortage of dollars for foreign exchange was only a minor problem by the end of 1953, discrimination by quota against American manufactured exports continued almost undiminished until 1958. It was thus not politically too troublesome to maintain quantitative protection against North American competition on all these grounds for fourteen years. The USA accepted it for strategic reasons, continuing to allow such favours to western Europe until the surge of European manufactured imports into America in 1958 played its part in the USA’s balance of payments shock in that year. From 1958 onwards American exporters found it easier to bend their government’s ear. Between 1955 and the end of 1958, however, having decided that the quotas on dollar imports would go, British governments could still maintain them without much political trouble until there was a genuine policy gain in removing them, and in doing so give a chance for the number of industrial survivors to increase. Against European competitors, as Chapters 2 and 3 showed, it was much more difficult, because foreign policy objectives demanded that commercial policy be shaped to support them. Time and the industry’s own ability to use it were crucial. Successful petrochemical and pharmaceutical sectors were built up in fourteen years of quota protection. A shorter period might well not have sufficed. A smaller domestic industry with a less 204


sophisticated existing technological capacity would probably not have been able to use the time vouchsafed. In the event dollar saving and effective import substitution went hand in hand, effective in the sense that both sectors were competitive internationally at the end of the period of protection. A contrasting case is offered by watches. The watch industry had no manufacturing capacity when it was restarted behind an import quota regime in 1945. The quota protection began to be relaxed after only ten years, although in one form or another it survived for more than twenty. After ten years the industry was still extremely dependent both on foreign technology and on foreign components. The technological gap was too great and the time was too short. It might have needed a hundred years to bridge the gap with the leaders, first Switzerland and then Japan. The industry did not have the existing large manufacturing base on to which to graft the new technology. The same can be said about the effort to establish a precision camera industry behind a quota regime. This only leads us to a further problem. The manufacture of watches, clocks, cameras, and many other products, where the original manufacturing base was too small and the timespan of quota protection too short, nevertheless survived in the United Kingdom at or about the 1955 level of output. Such was the case for example with many scientific instruments, industrial jewels, industrial process control instruments and other sectors of precision engineering. It was the case also with some heavier mechanical engineering products such as agricultural tractors, industrial tractors, earth-moving equipment, and so on. Is this a case of successful import substitution or not? There were sectors where, in a period of rapid growth of industrial output by value and volume, output grew either very slowly or stagnated. Are we entided to assume that these are all examples of the misallocation of resources, particularly where, as with watches or cameras, some form of quota protection had still to be retained? From our survey of those industries and of the electronic and computer industries we can conclude that resources released by a sudden liberalisation of the trade regimes would not have been redeployed in computer manufacture or most of the other high technology sectors we consider in Appendix IV. In a free market the United Kingdom would have had no computer industry other, perhaps, than the small existing branch of IBM, which did not actually manufacture computers. 205


Taking all these elements into account implies that protection by quantitative restriction is an immense risk as an industrial policy, but one which is far from fated always to be a losing risk or a waste of resources. The argument that government is condemned to be always a worse judge of that risk than private management and private investors is not confirmed by our investigation, because there were important instances where government got it right. The more relevant question for the historian may be; why, when British governments after 1950 were on the whole dominated by commercial liberals, British commercial policy retained so many illiberal examples of quantitative restriction. The Second World War is important to the answer. State-trading and government controls had contributed to the victory. It was a continuation of that story that the technologically-orientated armed forces and armaments ministries which had relied on state power for their wartime successes should try to extend the range of peacetime ‘strategic’ industries at the expense of the conquered enemy. It was also a logical sequel that a Fabian socialist like Stafford Cripps should try to use the same machinery as a way of introducing an element of socialist planning into part of the industrial economy. But in retrospect the role of the state in foreign trade in the Second World War and its immediate aftermath was only an extension and acceleration of the role it began to play in the great crash of 1929–32. There were so many quantitative restrictions on British imports after 1945 because the state, not just the British state but the European state in general, had begun to take a more direct role in regulating international markets when the mostfavoured-nation tariff system broke down as a regulator from 1929 onwards. In the United Kingdom the war gave the state a greater confidence in that role. That did not greatly affect the belief of most British politicians and state officials that the role was a temporary one. As we have seen they spent much energy on planning an international commercial framework which would allow the state to abandon the market regulatory role which it had undertaken. But until they had that new system in place officials had much confidence in their own incorruptible bureaucratic skills and powers to make controlled trade and the controls on consumption and investment that went with it work in Britain’s interest. It is no paradox that the same officials who penned and voiced so many statements about the need for international trade to be conducted within the one-world multilateral trade and payments framework described in the Bretton Woods 206


agreements were also those who took away trade controls with such caution. The true paradox is that whereas they understood well enough the historical experience through which they had passed, they failed to understand its significance for the future. When the state withdrew as the regulator of international markets it would not be replaced by open markets, but by inter-firm market regulation. Instead of the one multilateral world came the common market of the European Economic Community. The problem in reality was not how to get rid of quotas so that the most-favoured-nation tariff system could return and tariffs be bargained down to a low level, it was how to replace quotas with a form of market regulation more appropriate to a period of export growth. In the 1960s government turned towards rationalisation of the manufacturing sector by mergers and even by ‘planning’ on the French model. This was foreshadowed by its benign furthering of inter-firm agreements as a way of replacing some of the quotas. It did so in watch manufacture to enable the British watch industry to survive as quotas were widened by means of agreements with Swiss producers. In the car industry, when widening the quotas made life less easy on the home market for the domestic producers, there was a similar benign pressure for mergers. It is probably no coincidence that the most successful instances of import substitution through quantitative restrictions were in the chemical industry, already dominated as it was by one very large firm, ICI, with its network of international production and sales agreements with similarly large firms. It might have been more advantageous for British manufacturing if foreign policy had envisaged a transition from quotas to a trade regime closer to that which emerged in the common market. On the continent the logical conclusion of the Trade Liberalisation Programme was increasingly seen as a guaranteed, protected European market, governed by a set of trade and competition rules within which inter-firm market regulation could operate. That this was true of France can readily be believed, and nothing else can so easily explain the ease with which the patronat made their peace with the Treaty of Rome. But it was also preferred as a solution in Germany in spite of the enthusiasm of some firms and ministers for the British concept of a free trade area. This was so even though Germany could compete in the one multilateral world where successive bouts of trade liberalisation produced commodity export surpluses, not balance of payments crises. Tariffs had been exposed 207


in the inter-war period as an inadequate instrument for regulating international markets. A free trade area in Europe in which each country had its own external tariff did not overcome that objection. Import quotas were an unsatisfactory substitute for tariffs in an age of trade expansion. They had a much more harmful impact on the growth of foreign trade and the economy than tariffs. The period of quantitative restriction and its effects on manufacturing has therefore to be judged in a transitional perspective. As the United Kingdom was obliged to consider and reconsider its place in the post-war world, its commercial policy instruments were revealed as inappropriate to the contemporary path of economic change and inadequate as the basis for a satisfactory foreign policy. And in the long-run the impact of trade controls on the manufacturing sector can only properly be judged by what happened when import controls were taken away over almost the whole sector, that is to say by what happened after 1959. Because of the misjudgement of foreign policy the removal of trade controls did indeed prove to be a step towards a grand bargain on tariffs with the USA, ultimately negotiated however, not by the United Kingdom but by the European Economic Community. This bargain left British manufacturing to make whatever inter-firm regulatory arrangements it could with North American and European competitors, while European competitors had the additional advantage of their own semi-publicly regulated common market. In the worldwide transition from tariffs, by way of import quotas, to interfirm regulation, the United Kingdom, in opposing continental European discrimination was returning to a nineteenth-century instrument to solve a twentieth-century problem.

208

APPENDICES

APPENDIX I Examination of Scott’s calculations of the value of imports of food and raw materials excluded by quantitative restrictions, 1946–9 In the case of food Scott presents most of his reasoning on the same page with his conclusion. If the imports could have been obtained in sufficient quantities to satisfy demand, and without having to pay higher prices for them, the absence of rationing and import controls would have led to an increase of something like 12 per cent in consumption and hence about one quarter in our imports of food during 1946–9. At current prices this would have cost about £200 million.1 This ‘hence’ presumably encapsulates the inelasticity of domestic supplies and the assumed stability of domestic prices. Since post-war Britain was producing nearly half its own food (as against a third before the war), these figures seem to imply that the whole of the additional consumption would have come from imports. Imports would nevertheless have remained below pre-war levels because in the face of total decontrol domestic output would have held steady at its new higher level. Presumably the end of rationing would offset the end of protection. Scott gives some clear back-ofthe-envelope estimates of the domestic demand which governs import demand. Free home demand for all unprocessed food is assumed to depend on population, food prices and average income. All three explanatory variables rose by known percentages between 1935/8 and 1954/5—two periods judged relatively free of controls. Given ‘true’ elasticities, the actual levels of the latter period can be predicted. Scott uses elasticities derived from ‘econometric studies’ which we take to be those discussed in his chapter 7. An accurate prediction of food consumption for 1954/5 would have confirmed the elasticities 211

APPENDIX I: SCOTT’S CALCULATIONS

and ruled out the omission of important factors. An equivalent prediction of free demand in the period 1946–9 would then differ from actual demand by an amount ascribable only to the quotas. Unfortunately the volume of realised demand for food in 1954/ 5 turned out to be about 11 per cent greater than the calculated volume. Consumption of non-retail food ‘measured at the farm gate’ actually rose by 14 per cent instead of the 3 per cent predicted from the three elasticities.2 One possibility is that the estimated elasticities are wrong: the trans-war price rises did not reduce the demand for food as much as supposed, or a larger and richer population had a bigger upward effect on demand than supposed. The elasticities being estimated were presumably an aggregate of individual elasticities for a given income distribution. Scott prefers to preserve the elasticities by suggesting ‘additional’ factors which, along with the growth of population and average income were pushing up the demand for food even faster than relative price rises were pulling it down. These were the redistribution of income, postwar school meals, work canteens, etc., changes which we might summarise as equalisation. Even if population and aggregate income had remained fixed, such levelling tendencies would have increased the demand for unprocessed food. This is plausible: 1942 may have been the first moment of a long period in British history when the entire population resolved that it would not go without three good meals a day. If the estimated elasticities would hold ceteris paribus, then the difference between the 14 per cent increase that did happen and the 3 per cent increase that was expected to happen measures the effects of equalisation. However, in the highly restricted period 1946–9, the difference between what is observed and what is predicted must be due to two factors, import controls and equalisation—two unknowns influencing one equation in opposite directions. For 1946/9 the assumed elasticities predict a free level of demand for unprocessed food that is 2 per cent below pre-war levels—price rises clearly dominating income and population rises. But equalisation, Scott guesses, would have taken the free level up a further ten points to a level of ‘say’ 8 per cent above pre-war levels. Since actual consumption of unprocessed food apparently was 5 per cent below pre-war levels ‘food rationing may have held consumption 12 per cent or so below free demand’.3 Obviously there can be no clear measure of the levelling tendencies of social change and therefore no precise estimate of their effects. 212


Scott has preserved the elasticities by treating like an omitted variable a set of factors whose impact must surely have been at their strongest during the years 1941–51 when there was more equalisation and when times were leaner. ‘Whatever redistribution of income there had been, however, had largely occurred in the war period, not in the post-war years.’4 On another envelope one might as easily have written: equalisation would have pushed free demand for unprocessed food upward by eleven percentage points to ‘say’ 9 per cent above pre-war levels and so, by arithmetic, 14.7 per cent above the actual levels of 1946/9. ‘Hence’ free demand for imports would have been up nearly 29 per cent above actual which, rather than £200 million, would give an additional food bill of nearly £230 million. However, Scott’s estimate of free demand for all unprocessed food as 8 per cent higher than before the war seems generous enough. His own figures show that Britain was still importing about 54 per cent of its total consumption of unprocessed food in 1954/5.5 Additional demand, following the end of most rationing in 1953 and most state trading in 1954, was satisfied evenly by imports and home output. Scott himself recognises the rise in the volume of food imports of 20 per cent over the period 1946/9–1954/5 as evidence for the effectiveness of removing the controls and hence of the controls themselves. But on his figures home output of food rose by 16 per cent over the same ten years. There must have been very considerable gains in productivity during the controlled period, and the effects of de-control on the import/output ratio were in any case muffled by application of the deficiency payments system authorised by the Agriculture Act of 1947. This allowed farmers to sell all they could, while the state paid the difference between the realised price and a ‘guaranteed’ price fixed by the government and the National Farmers’ Union. But with the important exception of bacon, for most major products deficiency payment schemes were introduced only in 1954. Previously the more usual system was state purchase by bulk at fixed prices.6 Imported bacon and ham had to remain on government account until 1956, because unrestricted imports from Denmark would have depressed the price of domestic bacon and, through high deficiency payments, put a drastic strain not on the balance of payments but on the Exchequer. As it was, the government made a profit on the sale of bacon, which it used to meet part of the cost of the deficiency payments on United Kingdom pigs.7 The Agriculture Act was 213


holding down the price of food to consumers while raising it for domestic producers, appearing to encourage and discourage imports at the same time. Government bulk purchase schemes for importing were probably the most extensive and effective form of import control. Unsound though it is to estimate ‘free’ demand over the period 1946/9 from data for the period 1955/8, because of the sweeping social changes which intervened between the two periods, the superimposed and contradictory effects of the Agriculture Act (1947), themselves curbed before 1954 by state importing of food, dispose us to believe that Scott’s estimate of £200 million is unlikely to be bettered. For raw material imports Scott offers a ‘very uncertain’ estimate of £40 million a year, representing a fall of 6 per cent below the volume of free demand for all materials, that is, demand that is free from quantitative controls. This ‘rough guess’8 is the residual between actual imports and those calculated from Scott’s own least squares equation which shows a good fit to data from 1900 to 1955.9 His independent variables are industrial production, relative prices and a time trend which captures the long-run decline in the ratio of industrial materials to industrial output due to tendencies such as the development of synthetics and the switch away from textiles toward modern metal-using industries with lower import content. Though the calculation seems to be based on the equation for the whole category, the entire £40 million shortfall is ascribed to timber and papermaking materials. This subsector represented less than a quarter of the Basic Materials sector as defined in the Annual Statement of Trade, all of which was formally subject to control. Controls on ferrous and non-ferrous metal materials, unprocessed textiles, seeds, and rubber are taken by Scott to have had no significant impact. It might be noted that imports of many non-ferrous metals such as lead and tin, all of which the Annual Statement of Trade classified as manufactures, fell well below prewar levels, as did those of cotton, wool and jute, though iron ore imports were higher. For metal materials the residual shortfall is ascribed by Scott to a temporary boost to home production from wartime scrap, just as in 1919. Non-ferrous metals, especially lead, were generally in short supply in the post-war years and in western Europe the consumption of all the main non-ferrous metals other than aluminium (which, uniquely, was cheaper than pre-war) remained lower than in 1938. Countries other than the United Kingdom emerged with stocks virtually 214


exhausted, but even in the United Kingdom the demands of housing and reconstruction set up an excess demand;10 the internal rationing system for non-ferrous metals did not end until 1948. Stocks of scarce non-ferrous metals accumulated in Belgium because no one would pay hard currency for them, and American copper was to be had at a price.11 The assumption that liberalised trade would have had no impact whatever seems a severe one. For textile materials Scott’s calculated levels of free demand actually fall below observed levels. The implication is that the free market, confronted with the huge leap in import prices, would have bought even less than was actually bought under the controlled system. Overall, Scott’s £40 million estimate12 implies that in the absence of restrictions, raw material imports as a whole would have stood at only 80 per cent of pre-war levels instead of their actual 74 per cent, even though industrial production was 8 per cent higher. For the volume of imported raw materials in 1946/9 to have regained prewar levels would have cost (in 1948 prices) another £160 million in addition to the estimated £40 million. By Scott’s calculation the actual volume of imported raw materials in 1954/5 was still 4 per cent below the pre-war level, even though industrial output was nearly 50 per cent higher. The calculation presented in his Table 513 is essentially the difference between total consumption and domestic production, although in Appendix II of his work materials are defined in terms of the Annual Statement Class B imports plus jute and nonferrous metals. Pulp, dollar hardwood and jute materials were still controlled by quota in 1955. On the subject of raw materials, PEP authors writing before June 1947 stated: ‘to allow relatively free entry to the raw materials required by industry would, however, almost certainly result in increases over 1938 levels, and would necessitate continued internal raw material controls to prevent purely speculative buying.’ And, they added, ‘without import restriction 1948 and 1950 would almost certainly see very substantial increases over 1938 import levels’.14 These authors were writing before June 1947 when import controls were not yet at their most severe, i.e. before the shotgun wedding with convertibility drained away the American loan and necessitated further tightening of dollar imports, which helped to make 1948 a year of surplus on current account. Of course even in the absence of forced convertibility ‘relatively free entry’ would no doubt have induced a payments crisis before import levels near to those of 1938 were reached. Britain’s situation would not have allowed discovery 215


of the limits of free demand, as determined freely by individual incomes, relative prices and long-run structural trends. Scott’s implied suggestion is that, mainly as a result of high prices for wool and raw cotton and the existence of wartime scrap, the limits would not have been extreme. His low figure for raw material imports in the nearliberalised mid-1950s is further evidence on his side. Nevertheless the remarkable gap between the instincts of the most acute contemporary observers and Scott’s findings leave open two interesting questions. To what extent had the war itself accelerated long-run trends toward outputs with smaller import content? How far in the post-war years did the continued development of domestically produced substitutes such as synthetic fibres, the use of scrap and the reduction or recycling of waste, represent freely preferable alternatives to high-cost foreign supplies and how far was it a decision forced upon industry by import controls themselves? This is the question discussed in the last chapter of our work, and in Appendix IV. But we are content, in the narrower context of the immediate effect of import controls on the value of imports to accept Scott’s estimate of £40 million as a lower bound. Our substantial revision of Scott’s calculation of the value of manufactured imports excluded by quantitative restrictions is to be found on pp. 140–5.

216

APPENDIX II Corden’s estimate of import savings in the year 1952 attributable to emergency quantitative controls imposed in November 1951 and March 1952, and our estimate of total savings for the year 1953

CORDEN’S ESTIMATE OF IMPORT SAVINGS IN 1952 A proper spirit of caution governed Corden’s estimate of a saving of £200 million on non-sterling imports ascribable to revisions of planned government purchases or to reductions of private quotas which were still in place. Imports ‘possibly affected’ fell by £330 million c.i.f. below the previous year,1 and by something more than that below the original programme for 1952, since this included some planned purchases above 1951 levels. The additional £130 million is due almost entirely to the fall in raw cotton imports, which was probably due entirely to the contraction of demand. The main imports actually affected, according to Corden, were government non-sterling food imports, private dollar foods and dollar tobacco. These actually fell by £118 million. Under existing plans they would have risen. The government also cut its additions to strategic stocks by some unknown amount. Actual additions fell by £78 million below the additions of 1951, but something further than this below the planned increases. ‘Other’ items in the group possibly affected by the tightening of existing restrictions fell by £84 million, but none of this seems to be ascribed by Corden to the policy changes. It may be worth recalling that many existing controls would have excluded imports even if they had not been tightened. It is not clear to us, for example, where the tightening of control on dollar hardwoods in 1952 has entered Corden’s accounting. But even if dollar hardwood restrictions had not been tightened in the emergency, 217

APPENDIX II: CORDEN’S ESTIMATE

existing restrictions would still have excluded much. For certain North American hardwoods the British industry had no substitute, but in 1952 these were reduced to an ‘indispensable minimum’ of 5.7 million cubic feet of imports annually, as against an annual average of 25.2 million cubic feet for the period 1935/8.2 Even allowing for recession in the furniture industry this must have been far below free levels. In 1938 the USA had supplied 38 per cent of the United Kingdom’s hardwood requirements; by 1949 it supplied only about 2 per cent of those needs, and by 1953 3.7 per cent.3 Corden’s estimated saving of £200 million made on those nonsterling imports which were already subject to private control or government purchase seems, then, to be the sum of a £118 million c.i.f. fall below the previous year for government account food imports, private dollar food and dollar tobacco, plus some planned increase of these foregone, and on top of this an actual £78 million c.i.f. reduction below previous additions to stocks, plus some planned increase of these also foregone. This £200 million guess is too undetailed to verify. In contrast, his estimate of £89 million saved by reimposing quotas on private imports from the Relaxation Area is a convincingly documented estimate, the only one known to us. Corden seems to have used privileged Board of Trade data which we have not been able exactly to collate with the Trade and Navigation Accounts which themselves are summaries of more detailed headings which do not correspond to quota headings. But most of his careful piecemeal analysis is accessible to scrutiny. The breakdown of Corden’s estimate is shown in Table 12. Table 12 ‘Deliberated’ private imports from the Relaxation Area, 1952 (Corden’s estimates, £ million)

218


Figure 12 Area shares of total United Kingdom imports during liberalisation, deliberalisation and reliberalisation (percentages). Source: Annual Statement of the Trade of the United Kingdom.

The mainly global quotas on private imports from the Relaxation Area were then as now of particular interest, partly because imports subject to private quotas are easier to relate to free market levels, which private quotas cannot effectively exceed, and partly because their reinstatement reversed the initiatives which Britain had taken at the OEEC since 1949. The liberalisation measures of 1950–1 had amounted to de facto discrimination in favour of Europe against the dollar zone; their revocation was tantamount to discrimination in favour of the sterling area at the expense of Europe. Corden is generally disposed to minimise any impact on the geographical pattern of trade. But we have suggested that these measures, for manufactures at least, must have had their main impact in 1953 and one that was still appreciable in 1954 and 1955. This could explain some of the striking deviation from long-run trend in the sources of British imports in this period shown in Figure 12. The long-run trend of British manufactured imports, apparently disrupted by the deliberalisation episode, has been a shift of source away from the sterling area in favour of Europe. 219


Relaxation Area imports removed from the list of those on Open licence—which in fact meant importers had needed no licence— fell by £269 million in 1952, a fall of 46 per cent from the previous calendar year. According to Corden all but £89 million of that fall would have happened anyway, mainly because the recession reduced the volume of imports demanded, and perhaps to some extent because of a fall in the prices of raw materials. The statistical details he presents entail that the value of these imports would have fallen by 31 per cent even if no quotas had been reimposed.4 If the cuts saving £200 million had not been made, the ‘Other non-sterling imports possibly affected’ would have fallen by only 9 per cent, almost entirely because of the fall in raw cotton. The implication is that the government singled out for restriction a stream of private European imports which was destined anyway to fall by a truly drastic proportion. The value of imports from the sterling area, which escaped deliberalisation, fell by only 5 per cent, even if, following Corden, we exclude the increase of crude oil imports as a special case explained by the construction of the new refining capacity at Fawley. The most severe falls in imports from the Relaxation Area occurred from a zone comprising the countries of the outer Relaxation Area (the Middle East, Brazil, Indonesia, Finland) plus Argentina. This zone had already been targeted in June 1951, when it was known as the ‘extended dollar zone’, since payments to it were costing hard currency. At that date the United Kingdom still confidently expected to have a permanent current surplus with the rest of the OEEC. Cuts in imports from this zone of sugar, cheese, wheat, coarse grains, timber and pulp were already being planned before the reimposition of quotas in November, but most of these commodities were statetraded. Imports from Brazil and Egypt in 1952 fell by about fourfifths mainly because of the drastic fall in purchases by the Raw Cotton Commission. On examining Table 12 it is clear that private food imports are the only category on which Corden estimated big savings. His guiding assumption was that the value of free levels of private food imports from the Relaxation Area would have repeated those of 1951. This is reasonable, since there was no recession in food; domestic output of food in the United Kingdom actually rose in 1952. It should be mentioned that the value of food imports from the sterling area, of which 40 per cent were privately traded, rose considerably over the 1951 level in important categories like meat, 220


cereals, and fruit and vegetables, or else remained constant, whereas no equivalent food imports from the Relaxation Area rose significantly, and most of them fell.5 Corden ascribes such differences to the existence of excess sterling area supplies, many of which came under long-term contract. Imports of unrationed cheese from the Relaxation Area, apparently the only important private ‘frivolous’ food not restricted until March 1952, tended to rise during the early months of the year; but Corden counts this simply as an exception rather than as a control. For hardwood imports from the Relaxation Area, on which no quota was published, Corden does use the sterling area as a control, supposing that freed imports from the Relaxation Area would similarly have fallen by only 32 per cent instead of the actual 62 per cent by which they did fall. Domestic production fell by about 11 per cent. For softwood, Corden estimates only the savings due to import controls defined in the strictest sense. Open Individual Licences were revoked in November 1951 and restored in November 1952. Since nearly all softwood was imported, the internal control on consumption was regarded by the OEEC as the serious import control, and the United Kingdom did not claim softwood as liberalised until internal consumption controls were abolished in November 1953. Since softwood consumption in 1952 was apparently maintained at 1951 levels, which were well below pre-war levels, direct import would mainly affect additions to stocks. Stocks actually fell by 108,000 standards during the year. Corden assumes they might otherwise have risen to December 1953 levels, and he takes unofficial effects on consumption and the quota-induced price falls into account.6 Had the Open licence been maintained, private softwood imports from the Relaxation Area would anyway have fallen by £33 million presumably because private stockbuilding in 1951 was abnormally high. Corden’s calculation seems unobjectionable, but a difficulty of verifying it is that private imports seem not to have been confined to the Relaxation Area, and we find no separate figures for government imports or stocks. If government plans were fulfilled, then their own savings would have amounted to over £20 million at the prices Corden uses.7 Apart from food and timber, Table 12 suggests that the cuts were widely ineffectual. In a year of recession, following a year of high stock accumulation, many imports would undoubtedly have fallen considerably even in the absence of the changes in regulations. 221


Figures for Commonwealth imports imply that imports of raw cotton and rubber probably fell entirely in line with demand. Leaving foods and fuels aside, the combined value of imports of raw materials and manufactures from the sterling area, which was unaffected by the new restrictions, fell by 22 per cent in value. But Corden’s tables III to VI imply that equivalent values from the Relaxation Area would have fallen by 40 per cent even if there had been no cuts. The policy did tend to focus restrictions on those goods, such as softwood timber and paper and board, of which the sterling area was a negligible supplier. It is possible that the recession chose to discriminate against the Relaxation Area even more severely than did the government. However, the difference between 22 per cent and 40 per cent is striking enough to warrant a closer look at the assumptions which led Corden in so many cases to impute zero effects to the restrictions. In cases where actual imports fell below published quota, however slightly, Corden assumes deficient demand: the restrictions therefore had no effect. Where there are no published quotas, but evidence of excess supply exists, he again assumes that the restrictions had no effect. In one important case where imports were in excess of quotas, textile manufactures, he declares that the excess was due to imports arriving under government contracts and that the restrictions therefore had no effect. The first assumption, that if actual imports fell below the level set by a published quota demand was deficient and the quota was thus having no effect seems in most cases unwarranted. A minor objection is that for newly deliberated goods, eight-monthly quotas (November to June 1952) or nine-monthly quotas (from late March to December 1952 for the second round of restrictions) are being compared with six-monthly import figures and would naturally tend to exceed them. Against this, arrivals would naturally tend to exceed quotas because many were arriving outside the quota under long-term contracts. The case of matches is an easy one to collate. Open licences were cancelled on 11 March 1952, but the total entitlement of the licences for the remainder of the year was not announced until 31 May, when there were still seven months of the year to go.8 This was set at £685,000. Corden contrasts it with the actual imports from the Relaxation Area of the last six months of the year, which were worth only £405,000. However, imports of matches from the Relaxation Area arriving between 11 March and 31 December totalled 222


approximately £790,000, which in apposition to a quota of £685,000 does not offer proof of deficient demand. In this kind of case goods arriving between 12 March and 31 May were allowed to enter under special licences and the value on these special licences was to be deducted from the final entitlement of individual importers, unless goods were already by 11 March on the high seas or due under longterm contract. Corden seems to assume that all imports arriving between 12 March and 31 June were not counted against the quota. This is probably a reasonable rule for anyone who would rather risk an underestimate than an overestimate. There are more serious objections. One is that customs officers could not always match the categories of import with perfect efficiency. The case of leavers’ lace on which there was an import quota can be cited merely as an example of a widespread difficulty. Because customs officers could not certainly distinguish it from other related products the quota regimes had also to be widened to cover these. The various categories of steel presented similar difficulties. Customs returns were not, in short, exact enough to justify Corden’s ruthless assumption. Secondly, the effect on exporters’ practices and anticipated profits of a reduction in permitted quotas is not taken into account. Reducing the permissible quantity of goods to be traded might well reduce the trader’s potential profit below the level that made the trade worthwhile. This is a phenomenon commonly observed in present trade to African countries which use import quotas extensively and vary them. A small reduction in quota to one firm can cause that firm to redirect the whole of its exports of that good elsewhere, because at the marginally reduced market level insufficient profit is available. It would be easy in such circumstances for such imports to fall below quota. A third objection is that the value appearing in the trade returns was determined by the customs estimate of the value of goods at current prices. This was the value written off the importer’s licence, not its nominal value, and in theory the British importer could get no more foreign currency from his bank than this. Prices of timber and paper fell throughout 1952, largely as a result of the restrictions, and many importers must have taken delivery of goods contracted at higher prices. If the banks were issuing foreign exchange not, as they were supposed to, against value written off the licence, but according to the value needed to fulfil the contract, the trade figures would give the appearance that quotas were not 223


being taken up. There are strong signs that banks were behaving in just this way.9 A further objection is that many importers would look to domestic or Commonwealth sources as soon as ‘Open’ licences were publicly cancelled and new licences had to be applied for; they would not wait to find out the limits of their specific licence. Something like that may have happened with hardwood imports from the Relaxation Area. Finally it should be noted that the quotas were granted only to established importers; they excluded new entrants. Imports of ‘paper manufactures’, those goods for which manufactured paper and board served as raw materials, remained below quota for this reason throughout the prosperous 1950s, finally provoking Dutch complaints.10 It also seems to have happened that the deadline for applications may have left early birds with entitlements they did not bother to take up, which meant that earmarked foreign exchange was not available to willing latecomers.11 In claiming that many quotas had no effect at all on imports during 1952 Corden is on his strongest ground with textile manufactures, since the European textile recession of 1952 was severe in Britain and any excess of imports over private quotas might be explained by arrivals under government contracts, mainly of cotton cloth from Germany, which were known to exist. Import values from all sources for total textile manufactures (SITC 65) fell by about 50 per cent, as against a fall of 30 per cent for textile imports into Sweden, Belgium and Denmark, the countries which in terms of a decline of domestic textile output seem to have suffered from the recession almost as badly as the United Kingdom. Some imports from the Relaxation Area such as flax line and tow yarns fell so far below the level of 195112 that quotas were clearly otiose, although this would suggest that other quotas in the related group were over-subscribed since for the whole targeted category (Board of Trade quota numbers 100 through 108) imports exceeded quotas.13 In May 1952 at the depth of the textile recession, licences for May–December 1952 for textile manufactures from the Relaxation Area were granted to a total of £12.6 million. In May–December 1951 these imports had reached £53 million, about £10 million of which was accounted for by defence contracts.14 Private imports, that is, were to be constrained to 28 per cent of their 1951 levels. This is consistent with the published intention to set quotas at half the level of actual imports for the previous period. As soon as Open General Licences were cancelled in March 1952 many traders 224


may have decided to seek out domestic or sterling area sources of supply before waiting for the publication of the quotas in May. In any case, in May importers who in the last eight months of 1951 had imported goods to the value of £26 million did not apply for new import licences.15 Some possibly had gone out of business, as people do in recessions. Successful importers who did apply for Relaxation Area licences were allowed to import no more than half the value of their imports for the last eight months of 1951. It was on this basis that quotas worth a total of £12.6 million were granted for the last eight months of 1952. Actual imports for the last six months of 1952 exceed this figure by about £4.5 million. The excess matches a Ministry of Supply estimate of defence textile contracts as worth £6 million for the period May–December 1952.16 Corden is right that the excess of imports over quota can be explained by government contracts, but they have to be larger than this excess to prove that no private importers were frustrated by the quotas granted in May 1952, retroactive to March. For the separate category of ‘apparel’ (Board of Trade quota number 3), restricted for a full two years between November 1951 to November 1953, it is not clear why Corden so easily emphasises the recession as the full explanation for the fall in the import of clothing. The recession in clothing output bottomed out at the end of 1951. Consumer expenditure on clothing for the whole of 1952 was down 3 per cent on the previous calendar year, both in current and constant prices.17 But the recession in the high street was over by the middle of the year: the value of retail clothing sales in its latter half exceeded those for the second half of 1951.18 The September– December 1952 value of sales by the wholesale textile houses was 15 per cent greater than the same period a year earlier and the value of industrial production in clothing about 23 per cent greater.19 Real clothing consumption over the period March 1952 to March 1953 was higher than for the previous twelve months. After February 1952 clothing stocks in the wholesale textile houses were steadily run down to the lowest levels since 1949. This probably happened to a large extent on the speculation that prices would continue to fall; it may to some extent have happened as an alternative to imports. Foreign suppliers were convinced that they could sell more on the British market if given the chance. Indeed, it was in response to French and Italian complaints, as we saw in the last chapter, that quotas for textiles and clothing for the first half of 1953 were widened by 20 per cent in November 195220 in response to the ‘strength of French 225


and Italian feeling’21 as expressed in trade committees of the OEEC. From Italy and France, textile manufactures (SITC 651 through SITC 657) fell in 1952 to 30 per cent of their 1951 value as against 62 per cent for other sources. The physical volume of cotton piece-goods from Italy fell to only 27 per cent of its 1951 level.22 Probably most of the fall in textile imports in 1952, though not all, can be blamed on the recession. However, a focus on 1952 would from our point of view simply be calendar fetishism. The full impact of the restrictions on manufactures was certainly not felt until the first half of 1953. In the first nine months of 1953 the average output of the British textiles industry as a whole was only marginally below that for the whole of 1951,23 and total domestic sales fell not far short of it; whereas the volume of imports, even if we allow for government contracts and arrivals outside the quota in 1952, certainly did not rise. The continuing fall in cotton textile imports was one reason why manufacturing imports generally in the first quarter of 1953 fell even below those for the second half of 1952. Later in this Appendix we try to assess the effect of the cuts during 1953. Italian cotton manufactures were considered to have been particularly hard hit by the British restrictions, as well as by those which France imposed in March 1952.24 Imports of woollen yarns and fabrics from Italy fell from £5.5 million in 1951, which was more than five times the value of imports from the Commonwealth, to £675,000 in 1953, which was less than the amount from Commonwealth sources.25 Table 13 suggests that any complaints laid by Italy in 1952 were more than justified in the course of 1953. Belgium also complained about difficulties for its exports of textiles and glassware in 1952, although since Belgium had a surplus rather than a deficit of sterling the Belgian government was not inclined to vociferate on behalf of its exporters. By March 1953, French and Italian complaints had become so clamorous that textile imports were restored to an Open licence. An investment boom was under way in the textile industry of the United Kingdom even at the depth of the consumer recession, as import figures for textile machinery make clear, so these figures may reflect some element of import substitution. Restrictions on paper and pulp are among the most important of those judged by Corden to have had no consequences during 1952. No quotas were published in 1952 for the raw material pulp for making paper, nor for the paper and board which were made from 226


Table 13 United Kingdom output and imports of cotton fabrics, 1951–4 (thousand metric tons)

Source: OEEC, The Textile Industry in Europe (Paris, 1956).

it. It should be noted that, as defined here, paper and board excludes the special case of newsprint. Although future newsprint imports from Scandinavia were cut at the end of 1952, newsprint imports actually rose during the year under long-term contracts. There were no newly-imposed restrictions until the end of the year, but imports were certainly below free levels even in this year of depressed demand. Along with cars, nylons and dyestufFs, newsprint was among the important imports from Europe that had not been liberalised in 1950– 1. Page rationing put a check on the total demand for newsprint and hence for imports; import quotas, by limiting the total supply, put some check on circulation. Nevertheless circulations were twice their pre-war size, while popular newspapers were restricted on average to eight pages, as against up to twenty-one before the war. Since a mass audience for television had not yet arrived, the free demand for newspapers and for their advertising space would have been at a historical peak. Given post-war circulations and the pre-war number of pages there is no reason why unrestricted newsprint imports should not have surpassed the pre-war volume. At short notice there was always a scarcity of newsprint, but abundant Canadian supplies were there for anyone who was willing to pay for them and enter into long-term contracts. The newspaper proprietors were so willing, and the purpose of the control system was to prevent them. At the 1938 import volume of 37.2 million tons, newsprint imports would have cost an extra £9 million at 1952 prices. Even allowing for generally low demand in 1952 and unusually high imports, the level of newsprint imports in the absence of controls would have been far beyond its actual level. When import quotas were deliberately set ineffectually high and virtually liberalised in 1956 and 1957, another 227


period of weak demand, imports promptly exceeded their pre-war level. Page rationing was not ended until September 1958. By then, the popularity of commercial television had begun and eased the demand for advertising space. For paper and board (other than newsprint) no quotas are known, but the originally declared objective was to keep the imported weight for the first half of 1952 at 50 per cent of its level for the first half of 1951.26 Since quotas were generally tightened in the second half of 1952, and since paper and board imports had risen during the course of 1951, this would imply imports to a volume of something under 50 per cent of the whole preceding year. Corden mentions ‘clear evidence’ of excess supply of paper and board, probably referring to an article in the Board of Trade Journal.27 According to that article some of the reduced demand for paper and board was in part due to purchases postponed in the expectation that falling pulp prices would feed through to the end product. As we later show, these raw material price falls were themselves largely the result of the return to import restrictions. However, accepting demand simply as given, we can derive the index numbers of Table 14 from the same article. It is not unnatural in a fully employed economy that imports fall somewhat further than production during a recession, even though imports from Ireland which in effect were unrestricted did not, and import prices generally fell faster than domestic prices. But the import figures are low enough in relation to production and high enough in relation to a target somewhere under 50 per cent, to be consistent with success. The sterling area was a negligible supplier of paper and board, and although Whitehall was willing to pay dollars for cheaper Canadian pulp, presumably for the manufactured product there was no discrimination in favour of the dollar zone. In the case of plywoods it was very reasonable to assume that the reimposed import restrictions had zero effects during 1952, given the very bad slump in the furniture industry during the first half of the year and the very large stocks which the government had bought from the Soviet Union and Finland during 1951. The system of import control was to oblige importers to buy two units of government stocks for every unit imported. This system lasted to the end of 1953. The published series available to Corden did not indicate any serious drop in stocks, but it seems that already in April 1952 £1 million of national stock was offered for sale. This was taken up and entitlements were made against it of up to £1/2 million of imports.28 Possibly the purchasers of this Baltic plywood would have bought it anyway, and 228


Table 14 Paper and board: production and imports (volume) for 1952 (1951=100)

Source: Board of Trade Journal, 24 April 1953.

the compulsion was unnecessary, but it is reasonable to assume that some would have preferred to buy entirely abroad. Pulp and other raw materials for producing paper, board, and paper manufactures had been liberalised in April 1950. For pulp (excluding esparto) there exists an unpublished memorandum29 which suggests that the unpublished quotas slightly exceeded actual imports for the second half of 1952, if not for the first. It is note-worthy that in such cases officials never explicitly infer that the quotas were ineffective; the dog does not bark, or even wag its tail. The purpose of drastically reducing the pulp quota by 50 per cent for the second half of the year was both to anticipate and to induce a fall in prices, which, as we show in the main body of the book, they did.30 Undoubtedly these price falls in turn encouraged speculative restraint on the import of quantities. Even if no individual was frustrated from buying, which seems unlikely, importers were buying less as a result of the restrictions. Allowing for double counting, Corden’s estimate for the effect of the cuts comes to about £264 million. The examination we have just made suggests that his assumptions lead to no exaggeration of the effect of the emergency cuts of 1951/2. So had controls not been tightened and some private quotas reimposed, actual imports in 1952 would have been at least some £264 million higher. If instead all existing controls had been abolished the addition would be even greater, and the recession would not have appeared like a decision not to buy foreign goods. The year 1952 is unique after 1945 in that the change in the magnitude of imports was even greater than was that of total final expenditure. However, the estimate for emergency savings provides an uncertain basis for an estimate of total savings and we are obliged to leave the matter unresolved. 229


OUR ESTIMATE OF TOTAL SAVINGS FOR 1953 If £182 million was indeed saved in 1954 by all controls still in place, as we estimated,31 we can extrapolate backwards to gain a crude idea of the savings made during the more restricted previous year 1953. The amount excluded by total controls in 1953 would have fallen to £182 million in 1954 chiefly for four reasons: in 1954 most private foods and manufactures and timber and fertilisers from Europe and the rest of the Relaxation Area were no longer subject to control; controls on pulp, paper, board and newsprint were far more loosely applied during 1954; restrictions on the use of softwood timber and plywood had gone; and during 1953 and early 1954 many dollar goods, beginning with foodstuffs, raw materials and some semi-manufactures, had been liberalised or much more liberally licensed. Assuming that controls remaining in 1954 had been not less effective in 1953, we can work backwards to gain a rough idea of total savings for 1953. The simplification of treating 1953 and 1954 as otherwise similar years is not an outrageous one. Import prices levelled out in 1953 and the annual averages are similar. Although real GDP rose by 4 per cent, the free demand for imports was probably no more than 2 per cent higher, largely as a consequence of stock reductions. Goods severely restricted in 1954 such as tobacco were verifiably excluded to something like the same amount in the earlier year. No quotas were more generous in 1953 than in 1954 and in more cases than we can consider, they were tighter. The estimate of £10 million for 1954 in Appendix III for pulp and paper and from all sources, to which we added £10 million for newsprint, can not be applied to 1953. In respect to that year the estimate of £50 million bandied between ministries was not wild talk. If we set 1938 as 100 then volume imports of pulp/paper/ newsprint during 1953 were 80/62/52 respectively. For 1957, with de facto liberalisation in a slack period and with the growth of commercial television, the figures were 126/110/110. In 1953 there was every reason to expect pre-war levels to be quickly recaptured, and especially in the case of newsprint exceeded. The assumption that paper and pulp would have regained their pre-war import levels and that newsprint would have gone 10 per cent higher would add no less than £43 million assuming that would have had no effect on pulp prices, which the controls themselves had made unusually low 230


in 1953. Officials typically added £10 million for the price effect but we shall allow £7 million. On this reckoning, controls on the whole complex of pulp, paper, board and newsprint were keeping out £30 million more imports in 1953 than in 1954. Many Relaxation Area quotas considered by Corden had their major impact during 1953. Their withdrawal did not seriously begin until March 1953 and the most important of them, paper and pulp, remained in place for many years. However, even without lagged effects those quotas which were removed to bring the United Kingdom’s score in the Trade Liberalisation Index up from 44 per cent in March 1953 to 77 per cent by the end of the year would have had an impact. The complication is that the import bill was additionally helped by a fall in defence requirements and by better terms of trade. Having fallen continuously since May 1951 the prices of imports did not level out until May 1953, leaving the 1953 average price for raw materials and foods respectively 16 per cent and 4 per cent lower than in 1952. The overall figure for manufactures is distorted by the collapse of textile import prices. The annual value of total imports fell by 4 per cent, while volume rose by 9 per cent, important expansions being raw wool and cotton due to the revival of textile manufacturing. But the fall in the average values, supposedly exogenous, does not account for the sharp drop in the physical quantity of imports of some foodstuffs and of many imported manufactures. Britain was unusual in that its volume imports of engineering and foods and basic manufactures from other European countries fell sharply during the first nine months of 1953, with displeasing consequences for all European countries. Outstanding items were basic manufactures (SITC 6) from Belgium and foodstuffs from Holland. Although Belgium was the largest sufferer in the remarkable fall recorded in Table 13, wherein imports slump while outputs thrive, its government was less clamorous than those of Italy or France because it had too much sterling rather than too little. Since textile imports fell below permitted levels in 1953 it is possible to argue that restrictions had no effect at all. On that view there was an unconstrained decision at home to buy British in the final quarter of 1952 and it was coincidence that Britain and France were the only two European countries to buy appreciably less rather than more textiles from the others during that year, and another coincidence that imports of the most restricted textiles, cotton fabrics, fell more strikingly from the more restricted areas. On that view, 231


too, it was a mistake for the Board of Trade to have reported to the OEEC Textile Committee that these restrictions began to show their full influence on arrivals reported in the trade statistics for 1953,32 and another mistake for a junior minister to have told Belgian businessmen that ‘recent relaxation measures should be of special interest to Belgian industry, especially OGLs against textiles and glass. He hoped that relaxations would remove some of the difficulties Belgian exports to the United Kingdom had met in 1952.’33 Imports from Belgium of cotton fabrics (SITC 652) did fall in average value by something like 20 per cent and in volume dropped by 64 per cent between the third quarter of 1952 and the fourth quarter of 1953 (Table 15).34 Imports from other western European countries show comparable trends. This quarterly time path for Belgium is consistent with a six-month lag of the effect of import controls. In March 1952 the Board of Trade had hoped to shift the burden of the recession onto foreign suppliers and it is our view that they succeeded. When quotas took effect at the end of 1952 they forced many importers to seek home sources of supply while foreign suppliers looked for stabler European markets. Custom, contract and inertia kept some permanently out of a market which was certainly not growing. The value of cotton fabrics and yarns imported from the Relaxation Area fell from something like £25 million in the first nine months of 1952 to roughly £7 million during the first nine months of 1953. Subtracting £4 million for grey cloth arriving under military contracts in the first period, assuming no defence requirements in the second, and ascribing nearly half of the remaining £14 million drop to the fall in average values, still leaves us with £8 million which is most easily explained by the cuts. A comparison with 1954 is not apposite because at the end of 1953 India removed its export duty on grey cloth, which fell in price drastically close to production costs. Thereafter the United Kingdom took its cheap cotton piece-goods from India rather than Italy while Lancashire shouted for protection until ‘voluntary’ export quotas were negotiated in 1958. For clothing and footwear, on the other hand, figures for 1952 may include large unknown amounts of uniforms. Imports under this heading from the Relaxation Area in 1954 were approximately £7 million. Discounting for a known increase of 6 per cent in consumer demand for clothing, we would expect a figure of £6.5 million in 1953 instead of an actual £4.5 million. Assuming none of these defence requirements, we ascribe the difference of £2 million to the effect of quotas. 232


Table 15 Quarterly United Kingdom imports of cotton piece-goods from Belgium (million square yards), 1952–3

Source: Cotton Industry Statistical Review.

Other items liberalised during 1953 were less important but they were many. The financial press had much sport with the idea that Britain’s balance of payments could depend on bird cages, fly swatters, haggis and mousetraps. But there were 200 such headings in the Relaxation Area imports liberalised in November 1953, most of which are not separately identifiable from the Trade Accounts. Trivial items add up, and not all were trivial. Items liberalised during 1953 or more liberally licensed during 1954 included sewing machines, typewriters, lawn mowers, refrigerators and most electrical household appliances. Even though we are confined to cases we can identify in the Trade Accounts, we can count import values more than £2 million below a 1954 level discounted for the growth of national income. Typewriters, for example, were nearly half a million pounds below the growth line followed by imports of office machines which had not been restricted. Thus £10 million for textiles and clothing plus £2 million for the miscellany liberalised in November gives a figure of £12 million for Relaxation Area savings no longer being made in 1954. The total volume of food imports in 1953 in most cases exceeded 1951 levels; the main effect of controls was to help switch imports to sterling area sources. In 1953, for example, less food came from The Netherlands largely because more came from the Commonwealth. Nevertheless there were net effects. Imports of foods and fresh fruit whose annual value in 1951 had been some £120 million were restricted by quotas to £28.6 million in the first half of 1953 and £24.6 million in the second half. By far the most important restricted groups were canned meats and canned hams, where the corresponding figures were approximately £50 million, £8.6 million and £8.7 million. About forty-five quota groups were published in the Board 233


of Trade Journal.35 Other notables were canned tomatoes and edible nuts. The heavily targeted foods were among the few not to recapture 1951 levels. By one count, total canned meat imports of £53 million were down in volume by 17 per cent.36 It is unclear if this figure includes canned hams. Had these been 2 per cent above the 1951 level, in line with other foods, they would have cost another £21 million, but imports in 1951 were exceptionally high so we take an average of 1951 and 1952 as an estimator of free demand. This implies another £13 million on the import bill. It is unclear if any dollar canned meats were included in the 1954 estimate so for safety we shall subtract £3 million. Board of Trade officials feared costs of £2 million on canned tomatoes, of which Italy was the only supplier and which were not formally liberalised until July 1954. In tact if this item had recaptured its 1951 volume in 1953, as it did in late 1954, it would have added £4 million. Edible nuts is a category we find impossible to collate with the trade returns and we shall rely on a Board of Trade estimate of the cost of liberalisation as a measure of past savings of £3 million. Fresh tomatoes were banned entirely in July 1953 because of ‘abundant home supplies’ but a new tariff held the rise in 1954 down to under £0.25 million.37 For rationed cheese, liberalised in March 1953, we shall assume that free demand would have been 85 per cent of 1951 levels rather than the actual 68 per cent, which implies that imports to the value of £1.5 million were saved.38 To attempt to match the other forty foodstuffs quotas exactly with the Annual Statement of Trade would be to misspend a lifetime; so we shall fortify our margin of error by assuming they all had zero effect. We are left therefore with a calculation that, in total, for foodstuffs from the Relaxation Area, imports to the value of £19 million were kept out by controls no longer active in 1954. Finally, it seems vastly improbable that government decisions to buy sterling food rather than OEEC food had no effect on the total food bill. No less than 30 per cent of food imports from the sterling area came in under government contract in 1953. But we can see no basis to measure this effect. In the wake of the Korean boom a shift toward sterling sources of food would have occurred anyway. The relaxation of dollar imports, mainly foodstuffs and raw materials, that began in 1953 had only limited effects, largely because before ending fourteen years of bulk purchasing of wheat in August 1953 the Ministry of Food made large pre-emptive purchases from Canada. The main impact of these dollar liberalisations was not felt 234


Table 16 Effects of the liberalisation in 1953 of some quotas on imports from the dollar zone

Source: UN, Economic Commission for Europe, Economic Bulletin for Europe, vol. 7 no. 2, p. 13 (Geneva, 1955).

until the upswing of demand at the end of 1954, whereafter imports of cereals, softwood timber, metals and coal helped to intensify the crisis. The liberalisation of some items in mid-1953 had no effect throughout 1954; dollar copper’s share of total copper imports, for example, remained at 20 per cent before rising to 30 per cent in the first four months of 1955. Other liberalisations, however, had obvious and large effects, shown in Table 16. Table 16 suggests a total increase in imports from the dollar zone in 1954 over 1953 attributable to 1953 quota liberalisations (in the sense that without the liberalisation they could not have happened) of £59.15 million. The main impact of these liberalisations came in the second half of 1954, when the gold and dollar reserves began their downward trend. The impact on total trade figures was smaller since nearly all the cotton and most of the softwood represented a switch of source. Omitting cotton entirely leaves us with £40 million excluded by controls during 1953 but not during 1954. This includes an estimate of £3 million for softwoods after decontrol of all timber except dollar hardwoods at the end of 1953. A bigger increase was £10 million for plywood, classified in the Trade Accounts as a manufacture.39 We are perforce confined to easily identifiable cases. Car imports, low enough in 1954, were £1 million less in 1953. We can also take account of the fact that Jute Control bought £3 million less in 1953 than in 1954. But we have had to ignore many cases where the quotas are not known or analogous headings in the Trade Accounts too obscure. 235


Table 17 Summary of additional value of imports in 1954 after quota liberalisations in 1953 (£ million)

All else unchanged, Table 17 implies that frustrated demand was greater in 1953 than in 1954 by some £115 million, so that, adding this sum to £182 million implies that imports to the value of at least £297 million were excluded in 1953. In relating the above figure to the current payments surplus one should not forget those controls on foreign purchase known as travel allowances, a key factor in reducing the current deficit with the OEEC. The average allowance for tourist travel was less than £40 per person during 1953 and had it been abolished invisible imports would have increased by at least £20 million. This estimate for 1953 is of short-term effects and manufactures account for less than £200 million of it. But if, liberalised from the beginning, British imports had grown fast enough to restore the 1938 import/income ratio, manufactures would have been over £250 million greater in 1953. If it had followed the Swiss import/income ratio they would have been greater by an astronomic sum. For no better reason than that, one adviser to the Treasury, Alan Day, preferred to calculate on the basis of Belgium import/income or import/capital formation ratios. Belgian imports were less liberalised than those of Switzerland but much more so than those of the United Kingdom. The result is shown in Table 18, where a figure of 100 implies that imports kept pace with income. We have been unable to replicate these results exactly, but the magnitudes seem of the right order. Applied to the weightings in the Economic Survey and amended according to export price indexes, these figures imply that British manufactured imports in 1953 in the tabulated categories would have been greater by £485 million. Clearly 236


Table 18 Import/income ratios of some manufactures in 1953 for the United Kingdom and Belgium (1938=100)

Source: T 230/393, Note by A.C.L.Day, 12 November 1954.

‘other manufactures’ covers a multitude, and Day saw the obvious reasons why this estimate would be too high. ‘Still,’ he minuted, ‘it makes you think.’ It makes us think that an estimate of £297 million for short-term savings would be of the right order. However, we achieved the figure by running the film backwards and treating 1953 and 1954 as otherwise equivalent years. But other things being equal one would expect less frustrated demand in 1953 because real income did rise in the next year by about 4 per cent. If we discount this we end with a figure close to £282 million as an estimate for all savings made during 1953.

237

APPENDIX III Government estimate of the probable value of additional imports in 1954 in the absence of quantitative restrictions (SUPP 14/173) (£ million)

238

APPENDIX III: ESTIMATE VALUE OF ADDITIONAL IMPORTS

239

APPENDIX IV A survey of the operation of import quotas and other import restriction regimes on United Kingdom manufacturing

CHEMICALS The products of the chemical industry are so complex and specialised, and its borders with the oil, textile, and food industries so ill-defined, that researchers unschooled in chemistry can venture only the wariest deductions from the trade returns and censuses of production. Chemicals are treated in some documents as raw materials, since they are usually inputs of other industries, but they have high valueadded and appear as a manufactured product in section 5 of the SITC classification. It was not unknown for a product to go back and forth two or three times between factories before reaching the external customer. Many plastics, in their earlier stages of production, were not counted as chemicals at all by the Board of Trade and as a serious consequence did not enjoy the protection of the full Key Industry duty of 33.3 per cent. Apparently the justification for this ruling was that the individual molecules of the polymers were not identical. The most rapid and innovatory expansion of chemical output took place in the organic sector. The number of organic chemicals is too great for easy analysis (in 1950 there were about 7,000 on the Key Industry duty list alone). Practically all organic chemicals had enjoyed the benefit of the Key Industry duty of 33.3 per cent since 1921. An important exception was dyestuffs, which were protected by embargo. Non-organic chemicals consisted largely of traditional chemicals which were produced in bulk and were therefore protected essentially by their transport costs. As far as organic chemicals were concerned, therefore, there was already before the war a high level of tariff protection and in the case of dyestuffs absolute protection of the products made in Britain. 240

APPENDIX IV: SURVEY OF UK MANUFACTURING

Because most chemical products were deemed an essential raw material to some other industry from 1945 onwards, restrictions on home consumption fell only on cases of truly final and frivolous consumption such as the wearing of nylon stockings. Priority was in fact given to home requirements, although large quantities of chemicals did, as was hoped, come to be exported. Imports of organic dollar chemicals were admitted only if they could not be obtained in Britain or elsewhere, which in practice meant Germany. Safeguarding employment was a consideration in this extra degree of protection by quota, although chemicals was the most capitalintensive of industries, but the dominant justification was couched in terms of exports. Since the home market had priority, this was not the more common plea of equitably safeguarding an unsatisfied home market from high-cost foreigners in justice to efficient domestic producers who were required to export a large proportion of their output. For chemicals and science-based products generally the argument ran in a contrary direction, that the producers needed to exploit a large protected home market in order to develop those economies of scale which would make exports possible. In the absence of such ‘dynamic’ gains, import quotas would simply have diverted exports to the home market. Prior to 1914 the organic chemical industry of the United Kingdom had been insignificant. For dyestuffs, an important sector of the organic branch and the one from which a wide range of other sectors such as explosives and pharmaceuticals developed, Britain depended in fact entirely on imports, most of them from Germany. When those were cut off in the First World War the country encountered serious difficulty in dying textile exports and uniforms for the armed forces, while the more immediately armaments-related branches of the organic chemicals industry suffered acute difficulties from the absence of trained researchers and scientists. During the 1914–18 war it was decided that the United Kingdom must build up and permanently maintain its own dyestuffs industry, partly because of its strategic value in any future war and partly because dyes were considered important in their own right. The government created British Dyes Ltd in 1915 and in 1918 the two major dyestuffs producers were forced by government into a merger, the British DyestufFs Corporation, which was allowed to keep the wartime loans as part of its capital. Its output was protected by import licences issued by the Traders and Licensing Committee 241


whose membership was composed both of manufacturers and consumers. At the end of 1919, however, a judicial decision annulled most of the import prohibitions and in the short period of open trade which followed it became clear that German producers were able to undercut British prices by a wide margin. So much so in fact that the idea of protection by high tariff was rejected.1 Under the Dyestuffs (Import Regulations) Acts of 1920–34 protection took the form not of a high tariff but of an outright prohibition of imports of synthetic organic dyestuffs, odours, colouring matter and intermediates, except for those products, strictly licensed, which were not available from domestic production. At the same time the Dyestuffs Industry Development Committee was set up to advise the Board of Trade. The prohibition of dyestuff imports permitted the growth of a powerful home industry which by the late 1930s was supplying more than 90 per cent of domestic requirements, as against less than 20 per cent before 1914. In terms of value, however, the United Kingdom remained a net importer in the 1930s.2 By 1932 most domestic producers were linked through cartel agreements between the largest UK firm, Imperial Chemical Industries (ICI), and the German cartel I.G.Farben to Swiss, French and American producers.3 In effect the control of the domestic market was but part of the worldwide regulation of markets by the major producers. Embargoes and import quotas remained in place, because quantitative import restrictions supported infra-firm market regulation. With the onset of the Trade Liberalisation Programme the problem became that while a quota might have been opened to breach an

Table 19 Employment, production and trade in the United Kingdom dyestuffs industry

Sources: United Kingdom, Censuses of Production; Accounts Relating to the Trade and Navigation of the United Kingdom.

242


embargo, or the list of licensed dyestuff imports lengthened, quantitative trade controls could hardly be removed when there was no tariff, and to establish one would have meant a lengthy process in GATT. Domestically, users appear to have been well content with the domination of the domestic market by what was effectively an ICI-dominated cartel. The main users were in the textile industry. The more efficient dyestuff producers were willing and able to provision them at prices lower than what would have been the level of German prices with a high duty added. The complexity of the industry put stable pricing arrangements at a premium and was itself another reason for preferring a simple embargo to a tariff. There were thousands of different dyestuffs and a variety of different trade names. Compiling and updating an exemption list for only those made in the United Kingdom would have been a formidable administrative task. It would also have opened up delirious possibilities for litigation. As things stood the smaller makers preferred market regulation. Their fear was that there might be another German price-war like that of 1919 which would override a protective tariff and eliminate them, and lead to a further stage of regulation at higher prices between the bigger firms. With the great expansion of the American industry to meet the demands of the war economy, a new need for protection had also arisen after 1945, because of the new sectors developing out of the organic chemicals sector, such as synthetics, plastics and drugs. Here, for the first post-war decade the initiative in innovation and in volume of output lay with America. Total employment in the post-war dyestuffs industry was more than twice its pre-war level (Table 19). This increase incurred almost entirely in the years during and after the Second World War. Exports by 1954 were approaching three times their volume of 1938–9, while imports had fallen. This takes no account of the industry’s indirect contribution to textile exports. By 1953, when dyestuffs to the value of £8.4 million were exported, this handsome surplus of an allegedly scarce strategic good was provoking criticism inside the OEEC. The fear that ad valorem tariffs would not be a proper defence for dyestuffs was perhaps confirmed by the experience of the rest of the organic chemical industry. The Key Industry duty of 33.3 per cent was unavailing against the transatlantic competition of the second post-war period. Imports from Canada were in any case exempt from these duties since Canada was a Commonwealth member. This had not mattered in 1932, when the Canadian organic 243


Table 20 Imports of oil into the United Kingdom

Source: D. Burn, ‘The Oil Industry’ in idem (ed.), The Structure of British Industry: A Symposium, vol. 1 (London, 1958), p. 182.

chemicals industry had hardly existed. But during and after the war Canada developed a formidable and protected industry of its own, with oil as a basis for petroleum products. As for the USA, the same duty afforded scant defence given the vast scale of American chemical production which was based on a huge and protected home market. North American competition was especially feared in the production of bulk organic chemicals. In North America these were produced from petroleum, of which the USA had large natural resources. The wartime expansion of American output was extremely rapid and that output developed into a new range of products (polymers, solvents, etc.) which were to be in high post-war demand. In the late 1940s and early 1950s there was active debate inside ICI and elsewhere in the British chemical industry over what the appropriate feedstock for this sector should be; coal (via calcium carbide and acetylene), molasses (via alcohol), or, as in the USA, petroleum using the distillation and cracking processes. In the immediate post-war years the United Kingdom still imported most of its oil in refined form. In the 1950s the solution was generally adopted of using petroleum, but only after a domestic oil refining industry, whose main purpose was to produce petroleum for fuel, had been created. The Germans continued for a long time to derive their bulk organic chemicals from coal. In the post-war world, partly because it was believed to be safer and partly because of the growing demand and growing diversity of uses for refined oil products, there was a strong impulse towards the development of domestic refining (Table 20). Some of the impulse came from Marshall Aid and the ECA, somewhat to the chagrin of the USA’s own oil industry. In the United Kingdom alone a massive capital expansion occurred mainly between 1949–51. The Fawley 244


refinery, representing an American investment of $65 million, was said to save $300 million of hard currency every year. By 1953 Britain had become an exporter of refined oil. The post-war policy of building major refineries had many indirect consequences and it incidentally created a sizeable market for equipment used by them. Such equipment could not be distinguished from general service items like refrigerating plant, but as such generally also enjoyed stringent quota protection. American industry, producing on a scale to equip two hundred oil refineries and thousands of wells, had an insuperable advantage. The new domestic supply of refined petroleum helped to make an end to rationing of motor spirit in 1950, which in effect had been an import control. But most importantly here, the new refineries provided the basis of the domestic petro-chemical industry, protected by quotas against US competition. During the 1950s output of petroleum-based organic chemicals expanded at a phenomenal speed to meet the demand for goods like detergents, nylon hosiery, synthetic rubber tyres, plastic upholstery and car parts, insecticides and fertilizers. Between 1950 and 1962 the contribution of petroleum as a source of organic chemicals in the United Kingdom grew at an average annual rate of 30 per cent as against a 7 per cent growth rate for chemicals as a whole.4 At the end of the 1950s ICI’s Teesside plant was the biggest petrochemical producer in Europe. From its beginnings with the manufacture at the Shell Stanlow refinery of a synthetic detergent the industry expanded into a range of organic chemicals. By 1952, when there were four other plants, it represented an investment of £40 million. Petroleum chemicals was perhaps the most successful British example of import substitution in an infant industry protected by quantitative import restriction. United Kingdom producers of bulk organics from petroleum enjoyed technical advantages over their continental rivals which would very probably have been lost had the industry been swamped by US and Canadian imports. At least it was accepted that some firms would have gone out of business and a growing export trade have been lost, and this in spite of the 33.3 per cent tariff. Dumping below the tariff, by the USA industry, as a result of wartime expansion six times the size of that in the United Kingdom, might even, it was thought, wipe out the whole sector. Certainly, in the absence of quantitative restraints, the US industry could have supplied most of the British market for earlierstage petrochemicals out of its surplus capacity. In a recession, American producers could profitably have off-loaded their 245


marginal output at prices which would have seeped through the tariff barrier. A mere 2 per cent of American output might have been enough to unbalance the United Kingdom industry. Without quotas the only defence would then have been anti-dumping legislation of the kind which exporters encountered in overseas markets, including Canada. As the older viscose rayon was replaced by newer man-made fibres after the war chemical firms tended also to move into the textile business, while traditional textile firms like Courtaulds developed large chemical interests. In the post-war period there were two new synthetic fibres of major importance, nylon and terylene, which may be considered as aspects of advanced chemical development. By 1951, nylon and its products were already in large-scale production. Nylon stockings had been the emblematic popular luxury good of the socalled austerity years, while terylene was becoming increasingly successful in blends with natural fibres. Both were made from indigenous materials and required a specialised plant which could not be adapted for or from any other line of production. The process by which they were made had genuine military strategic importance. This process of extruding polymer into yarn and fibre was carried out by ICI under exclusive licence from the American firm Du Pont: what was licensed by the Board of Trade was importations of the manufactured product thereof. Extrusion was first carried out by an ICI-Courtauld subsidiary in 1941 and production had risen to about one million tons by the end of the war, this being devoted to parachutes, aircraft tyres, military cords and ropes. After the war this subsidiary was persuaded by the government to site a factory in the South Wales Development Area. On the import of nylon stockings there was a virtual embargo, which did not merely apply to the dollar area. The restriction on imports of nylon stockings from Europe was continued even during the wholesale OEEC liberalisation round of 1950/1. Nylons had played their part in gaining the trade surplus which encouraged that liberalisation. At the beginning of 1951 64 per cent of their exports were going to Europe as against 33 per cent to the sterling Commonwealth. This was a result of a conscious export drive aimed at winning francs from Belgium and Switzerland in pre-EPU days when the francs of these countries were coveted as hard currency. After the EPU put all European currency earnings on an equal footing, the official hope was to divert these exports to the Commonwealth and North America, since Europe as a whole was 246


still in the early 1950s a despised market.5 Belgium and Switzerland were both themselves producers of nylon and presumably were covetous of the British market. Although in 1951 only 1.3 per cent of exports of nylon stockings went to the dollar area, the intention was to build up the nylon stocking industry as a long-term dollar exporter. Its continuing protection by quota through the 1950s was officially justified under both of the export-drive arguments: the nylon industry was able to export half its production because protection from America had allowed it to achieve economies of scale when supplying the domestic economy with the other half; at the same time the domestic demand was so clamant that an Open General Licence for OEEC countries would have diverted supplies from exports toward the home market as soon as exporters beheld the foreigners crowding in. PHARMACEUTICALS Petroleum-based chemicals, though pregnant with great developments, still amounted to an annual production of only £25 million in 1953. The pharmaceutical industry’s output in 1954 was at least £120 million, of which £34 million was exported. In real terms this production amounted to roughly twice the pre-war levels. The area which was vulnerable to American competition both at home and in the export market consisted in 1955 of about thirty large firms which represented about a third of the pharmaceutical industry’s total output. These included a dozen subsidiaries of American firms. There was the usual fear that removing restrictions on dollar imports would have the effect of transferring to America activities carried out by American firms in the United Kingdom. After the war only the most essential American drugs, such as the new antibiotics or cortisone, were allowed in. The rest were excluded by quota. It was also feared that the higher prices of glamorous American drugs would not deter sales under the National Health Service, since it was the taxpayer rather than the purchaser who footed the bill, and the Health Service could not in this area have decently operated a buy British policy. It was estimated that the liberalisation of dollar imports would not only add £5–10 million to the annual import bill but £4 million to the cost of the National Health Service which might not be offset. The Committee on Dollar Saving Industries was very cautious about liberalising imports of pharmaceuticals. 247


The effects of more competition on the efficiency of the British pharmaceutical industry might not however be wholly beneficial. The main weakness of this industry is the small amount of money at present spent on research (under one-tenth of the comparable expenditure in the USA) and one effect of keener American competition at home and abroad might be to reduce the sums available to the industry for financing research and development.6 Since the favoured argument in 1955 for only removing quota protection very cautiously was that the USA could dump its marginal production during a mild recession, it may seem surprising that the decision to remove the quotas was taken in 1958, when just such a recession was underway. But in this instance the imperatives of general commercial policy in that year were reinforced by the special problem which chemicals imports raised for the free trade area negotiations. For France, British chemicals imports from Canada were the proof that it was impossible to link the common market to the proposed free trade area, because US production in Canada would have tarifffree access to the market of the Six. It was urgent to remove this trade control, it was argued by one section of Whitehall opinion, before the negotiations.7 In fact there were, unusually, in this case some ‘general and informal consultations with the largest firms in the industry’ in 1956. The conclusion, however, which the Board of Trade drew from these, was ‘that no amount of consultation with the industry would yield us any accurate picture of what the effects of dollar liberalisation would be’.8 The great variety and interlocking complexity, as well as the substitutability, of both the processes and products of organic chemistry mean that it is a hazardous business to make any statement about the relationship between trends in imports and output. But of the chemical groups liberalised in 1958 the total value of imports in 1959 was almost 60 per cent higher than in each of the two earlier years, most of the increase coming from the dollar zone.9 Some of this was probably due to switching from dollar sources. The volume of output of all the organic chemicals produced in the largest quantities continued to rise on a steady trend after the liberalisation of dollar imports in 1958. Value added in the United Kingdom chemical industry as a whole grew from $1.77 million in 1958 to $2.24 million in 1962, a faster rate of increase than in the three years before the quotas came off.10 But it 248


is of course the survival of the modern sectors that has to be measured. The value of sales of pharmaceutical chemicals rose from £13.13 million in 1958 to £25.47 million in 1963, and then to £60.62 million in 1968, which in real terms is a fairly constant rate of increase.11 It is not, however, possible to measure any changes in import penetration after 1958 because of the lack of comparability between production data and import statistics. If it were possible, it might not be ultimately very revealing, because of the heavily cartelised nature of the industry on world markets. Pharmaceutical preparations remained of course subject to a marginal consumption control, in so far as not all of them could be prescribed under the National Health Service, although all were available on the free market. The same problems of comparability and market organisation apply to any attempt to reach a judgement about petroleum chemicals. Nevertheless, all the branches of the chemical industry protected against American producers after the war survived as large sectors in terms both of output and employment throughout the 1960s. While imports grew, output and exports grew faster. The output of synthetic resins rose, for example, from 393,300 tons in 1958 to 653,800 tons in 1962, to 1,001,000 tons in 1966.12 This was one of the few sectors of the chemical industry where, in spite of the capital intensity of the production methods, employment grew substantially, from 23,000 in 1959 to 39,000 in 1966.13 Fragmentary though the statistical information is in the absence of any detailed research into the growth of the modern chemical industry, it is difficult to resist the conclusion that protection by quantitative restriction did establish important new sectors of chemical production which may, in the international circumstances of the period 1945–55, not otherwise have taken root. Of course, when the whole industry in the United Kingdom was so dominated by one firm, ICI, the conditions for successful import substitution may well not necessarily have depended on quantitative trade restrictions for so long a period as these were in force. When world trade in chemicals had been so highly cartelised in the interwar period, it made an important difference once post-war conditions became established that the British industry was dominated by one of the worlds largest firms, and that after the decartelisation of I.G. Farben its relative size on the world scale was even greater. Perhaps in this case embargoes and import quotas should be seen as a temporary device in a period of immediate post-war international 249


economic disorder and of disruption of the pre-war equilibrium caused by the spectacular growth of the industry in the USA. They were needed before the regulation of the market could again become an interfirm regulation. Whether it had already become that before August 1958 and the removal of the dollar quotas we can not say. ELECTRONICS Electronics is the modern industry par excellence and like bulk organic chemicals its products are hard to identify in the standard statistical series. Transmitters, navigation aid equipment, radar-type detection instruments, receivers, radiograms, television, photoelectric devices, business machines, valves, cathode tubes and components all come under this heading. Exports in current terms rose by value from about £2 million in 1935 to £40 million in 1956, which following Wilson’s claim that 8 per cent and 15 per cent of output were respectively exported, would imply an output that rose from £25 million to £270 million in 1956 so that ‘it would be safe to say that real output in 1956 was six to seven times its prewar volume’.14 When liberalisation of electronic equipment imported from the dollar area was first seriously mooted in 1954 the Ministry of Supply protested sharply.15 But a year earlier, it had seemed to recognise that in some branches the United Kingdom could hold its own.16 British prices were in general in line with those across the Atlantic, so it was other factors which made American competition feared, often compatibility with equipment systems already installed. For example, the United Kingdom was judged fully competitive with the American industry in telephone and telegraph equipment, not merely in the home market but abroad, having the advantage that most sterling area countries were committed to the use of the British type of apparatus. So a relaxation of their restrictions on their imports from America, which would have followed liberalisation by the United Kingdom, was not expected to affect United Kingdom exports. To the Ministry of Supply in 1953, the United Kingdom seemed abreast of the USA in the production of radio transmitters and generally in the field of radar. The importation into the United Kingdom of complete apparatus was unlikely because these were costly to transport and easy to assemble, and technical incompatibilities were common. In the case of television receivers compatibilities were decisive. Other countries operated with different 250


scanning lines; 525 in the USA, 625 in continental western Europe, and 404 in Britain. The change in the Ministry of Supply’s attitude from 1953 to 1954 was attributable to the arrival of the long-dreaded American recession. The American industry was at least twelve times as large as the British and there had allegedly been a history of dumping of valves, components and radio sets before 1939. This was held to have crippled the development of the United Kingdom radio receiver industry. With their comparatively vast production and spare capacity the Americans could profitably export their incremental output at very small margins in a recession. By 1958 the total value of American output of electronic capital goods was between 20 and 27 times as great as that of the United Kingdom.17 Valves, components and parts, and cathode ray tubes were all protected by the 33.3 per cent Key Industry tariff, claimed as adequate for normal competition. Dumping seems in some minds to have existed by definition, therefore, when prices were low enough to beat these tariffs. The fluctuating conditions in the market for radios and television sets made it seem likely that in the absence of quotas severe price-cutting of components would have occurred in conditions of recession. Although anti-dumping powers were available under the provisions of Article VI of GATT, to apply for such powers would have been to invite international scrutiny and perhaps a more rigorous definition of dumping. COMPUTERS The most momentous development in electronics was the production of what at first were big electronic business machines and then became computers. Computers were the child of business mechanisation and electronic engineering and in the latter department Britain was in the forefront of technological innovation after 1945. The worlds first stored-programme computing machine was created in Manchester University in 1948. Because it was near to Manchester, a British firm, Ferranti, had been encouraged by the Ministry of Supply to enter the field and with the help of a contract from the ministry was able to claim the first commercially marketable computer, the Ferranti Mark 1 of 1951, as the fruit of its enterprise. The American firm IBM was only beginning by that date to spread its wings, and British firms like Powers-Samas, Ferranti, Elliott, and Leo computers, an offshoot of the J.Lyons catering corporation which 251


built and installed one of the world’s first industrial computer systems in 1954, were acknowledged to be at the frontier of research and development. The uses of computers were not only as office machinery, but also for scientific laboratories, for the control of machinery, and, increasingly, for strategic military purposes. In spite of the optimism about their future use, profits were uncertain because research and development costs were huge. Enthusiasm about the marvellous technical possibilities existed in exactly inverse proportion to complacency about the British industry’s chances of prospering without government assistance. Government assistance to the industry came principally through Ministry of Supply/Aviation expenditure and investments by the National Research and Development Corporation (NRDC) set up in 1949 under the Board of Trade to exploit public or neglected private inventions. It purchased patents in addition to those inherited from the Ministry of Supply and was authorised to borrow up to £10 million from the Board of Trade for investments aimed at exploiting the basic research done by the universities and the Department of Scientific and Industrial Research. Its most expensive venture was the early British computer industry. In these salad days both the NRDC and the Board of Trade were alert to the incipient threat posed by the American computer industry and eager to coordinate the scattered efforts of private firms which were likely entrants to this new field. Between 1949 and the end of 1958 NRDC invested about two million pounds in the development of electronic computers and the Ministry of Supply about £2.5 million. The idea was to do this through an Advisory Panel of the eleven firms then in the industry, and so achieve some measure of rationalisation of research and output. In those early days, however, the tendency of firms, hoping to develop and possess their own patents, was to keep the NRDC at arm’s length.18 By the later 1950s this tendency was increasingly reversed. The startlingly rapid expansion of IBM, based on much bigger military-related expenditure by the US government as well as on a more adventurous and buoyant domestic market, led British manufacturers to turn increasingly towards government for aid. The Board of Trade had learned that one way to avoid awkward demands from industry was simply to avoid meeting it. In the late 1950s, although there were interdepartmental discussions of the computer industry’s problems, these never reached the stage of discussion with the industry itself.19 The abolition of import quotas on dollar electronic imports at the end of 252


1958 expressed the wish at that time of both Board of Trade and Treasury that the industry should stand on its own feet. The unease over this attitude, and the strong disagreement with it of the new Ministry of Aviation, which insisted on the extreme importance of computers for modern weaponry, was reflected in an interdepartmental paper prepared in April 1960 in the Board of Trade for a meeting of the leading manufacturers, but the Treasury felt unable to take a leading role so the project was abandoned. The NRDC felt, and was also told, that it had placed too many eggs in one basket, and the Board of Trade decided that enough of its £10 million had been spent on computers.20 By then IBM already dominated every market which had been opened to it. The mixture of complacency and pessimism about the industry’s future of the interdepartmental committees, dominated as they were by the Board of Trade and the Treasury, meant that holders of either view felt intervention was pointless. What changed was the attitude of politicians in response to strenuous lobbying by the British manufacturers against a background of fears of national technological backwardness. In 1961 the British manufacturers expected to be smothered by IBM. In that year there were at least 10,000 computing machines (not including calculators) installed in the USA as against only 340 in Britain and about 390 in Germany.21 One basis of IBM’s expansion had been massive government spending: the Los Alamos atomic research programme, defence contracts, and the space programmes thereafter. In addition there was enthusiastic purchasing by public departments, universities and hospitals. It was this mixture of markets which the British industry hoped that government intervention could provide. Computers are not listed separately in the trade figures at that date, so we cannot measure the impact of dollar liberalisation on imports. Private purchasers could in any case purchase on Open licence before 1958 from IBM’s German subsidiary. It seems that the UK Atomic Energy Authority was never included in such figures as are available for public purchasing of computers, including the figures in Table 21. It is safe to assume, however, that the great value of imports came after 1958 and that a high proportion of central government computers was made up of small machines purchased before then. These roughly contemporaneous figures represent stocks not flows. So by the beginning of 1963 about £22 million worth of imported computers, approaching half the total stock, were in use, nearly all from IBM, and most having arrived into the private sector after dollar 253


Table 21 The source, number and value of computers delivered to United Kingdom public authorities and others, circa January 1963

Sources: BOT 258/1422, ‘Computer Survey’, 1962, 1963.

liberalisation in September 1958. In reply to parliamentary questions the government could boast correctly that only a small number of central government’s own purchases were of foreign IBMs, but the value of these big machines represented a bigger proportion of the total value than of the total number, and central government figures apparently do not include big purchases from IBM by the Atomic Energy Authority. The American share of the United Kingdom computer market, measured somewhat crudely by the number of units installed, rose to 15 per cent in 1961 and to 45 per cent in 1963.22 By the end of 1961 Basil de Ferranti, the head of the firm which had pioneered computer manufacture in Britain, seems to have been convinced that after three years without quota protection the British industry was near to extinction unless there was a return to government help. The subsequent history of the industry is that there was a return to government help. Government was in fact persuaded as early as 1962 that computers were a strategic industry and something should be done to encourage the survival of a substantial national manufacturing capacity. The picture given by Table 21 is in fact an image of the British computer market on the eve of retreat from the brief openness to international competition which trade liberalisation for dollar imports in 1958 had established. The computer industry, like the aviation industry, survived in fierce competition, but it was competition among governments to provide a guaranteed market 254


for the output of high-risk projects. After only a brief interlude, regulation of the market by quotas was replaced by regulation by government purchasing and government-inspired mergers. This interventionist policy was not abandoned when the Ministry of Technology was disbanded in 1970. It survived until the arrival of the Thatcher government in 1979 and only then was the hope of the Board of Trade in 1958 that the industry would stand on its own feet truly put to the test. It fell. MACHINERY Since the need for capital machinery, especially from the USA, was an obvious priority, between 1945 and 1947 considerations of scarce currency were not allowed to impede the importation of machinery from any source, if the requirements of British industrial reconstruction demanded it. Officials were instructed to err upon the side of granting rather than refusing licences. But as a result of the convertibility crisis in August 1947 policy became more stringent and stiffer tests of essentiality were laid down. Usually each machine required an individual import licence and to the end of 1948 about 30 per cent of applications were rejected. The impact on the efficiency of the user industries was supposed to be moderated by the requirement that a licence should be granted if it could be proved that productivity would be increased and costs reduced by importing an American machine that could not be obtained in the United Kingdom or, later, in Europe. In fact, quota protection against American machinery encouraged liberalisation towards Europe. ‘Most of Europe will remain “soft” to us for several years to come. Therefore there is every reason to be liberal regarding the import of machinery from these countries so long as it does not upset the willingness of our exporters to export’ wrote one official in 1949, although at that time ‘soft’ Open General Licences did not include Germany.23 Only 15 per cent of applications were turned away between 1949 and 1952. The high level of investment in manufacturing meant that the more stringent tests of essentiality were in practice after 1948 used to protect only certain infant industry sectors of the machine-building industry from United States competition, in particular agricultural machinery, earth-moving machinery and office machinery. The existence of the system, however, may have deterred an unknown number of applicants.24 There was a strong preference for 255


American machinery in certain sections of the engineering industry. This was attributed by Board of Trade officials as late as 1955 to the lead which American producers had established in these sectors in the 1930s.25 It was regarded as uncertain how well British producers would survive in some areas if quotas were taken away particularly if American exports into the sterling area also expanded. In spite of the instructions to officials to be liberal with licences it seems likely that they were a significant protectionist device against American competition. Quotas were not taken away on imports of dollar machinery until September 1958. The effect of their removal was, as expected, diverse and to consider the issue more closely it makes better sense to look at those sectors of machine building which were specially protected. AGRICULTURAL MACHINERY Before the Second World War Britain had imported 80 per cent of its agricultural machinery from North America. A big expansion of the agricultural engineering industry during and after the war made Britain self-supporting over a wide range of output. Imports were restricted mainly to machines for which demand was too low to make domestic production an economic proposition. During 1948 the home industry with government help was able to supply some £40 million worth of machinery, including tractors and spare parts, to the domestic market. Many items such as combine harvesters, balers, drills, and haymaking machinery were no longer imported after 1945. Imports from the USA still amounted to some five million pounds annually, but half of these were spare parts or components, while exports, including tractors, amounted to about £27 million, which made the United Kingdom the foremost exporter of agricultural machinery to Europe. The reimposition of quotas in November 1951 included quotas for the first time on some kinds of agricultural machinery which had previously been on Open General Licence. There were strong complaints from the Swedish multinational Alfa-Laval that various machines manufactured in Sweden and Denmark were not receiving import licences in 1952 whereas in November 1951 the firm had been told the change would not make much difference. The Ministry of Supply, however, stuck rigidly to its policy of not recommending licences if there was any competing production in Britain. For one category of machines, heat exchangers, the official who dealt with 256


import licences was said to be a representative of Alfa-Laval’s chief British rivals.26 Complications of this kind could cut both ways; after Norway removed quotas on tractor imports in 1951, most imports were of the British made Ferguson tractor system rather than of its rival system made by International Harvester, because of the close connection of the Bergen import agency that had the monopoly of Ferguson sales in Norway with the Norwegian licensing authorities.27 No specific quotas were in fact published in November 1951 for the machines about which Alfa-Laval complained. The policy was that each machine would be imported only on the grounds of its essentiality and unobtainability in the United Kingdom. ‘In practice the use of these criteria tends to mean that practically no imports get licensed.’28 The difference in size between the British and American markets, however, meant that exports were essential to the industry’s survival. Some measure of this may be taken from the fact that in the 1953–4 recession in the USA sales of tractors and farm equipment fell by far more than the total value of British output. There lay the vulnerability of the British industry, because many of its foreign sales depended on OEEC trade controls on dollar imports just as its domestic output depended on British trade controls. Furthermore, a substantial part of the sector had been created by American investment and that investment might well be wound up if the United Kingdom’s own trade controls were removed. The Americans would go back home, turning British exports into British imports. Excluding tractors, the bulk of the industry’s production was in the hands of three American companies. Tractors were a more native product. British production of agricultural tractors was begun by Fowler in 1933, but the big advances came after the war with strong government encouragement. Six entirely British firms produced all the output of agricultural tractors until 1954, when the American company International Harvester began production at Bradford and Doncaster, employing about 2,000 people from the beginning and exporting two-thirds of its output. About half the value of production of the whole tractor industry was exported, but these exports could not, it was assumed, stand up to competition with American tractors if there was general liberalisation of dollar trade throughout OEEC Europe; either the whole British tractor industry might fold or International Harvester would increase its output.

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INDUSTRIAL TRACTORS The first British industrial tractors came off the line in 1951 and 1952, made by Fowler and the armaments firm Vickers Armstrong. The heavier items, which were the only ones capable of competing with American machines, were essentially a conversion from tank production and Vickers Armstrong manufactured them at specific government request, while Fowler’s output also depended on government encouragement. This came not only in the form of import quotas but in large orders from the armed forces. The sector was thought of as a reserve tank manufacturing sector. But it was also a dollar-saving sector, for otherwise the high post-war demand could have been met only from American imports. Like the agricultural machinery sector, however, this sector could not survive without exports. The assumption was that by about 1958 in the case of Vickers Armstrong’s output their machines, given an expanding home market, might be able to compete with the Americans on price and quality. This, though, seems, at least in the producers’ eyes, to have depended on an increase in the tariff to 20 per cent. EARTH-MOVING EQUIPMENT Another large protected sector was excavators, dumpers, quarrying equipment and road rollers, with a total output in 1953 of £47 million. The value of domestic output grew about ninefold over the period 1950–3 and exports only slightly more slowly. About 55 per cent of the total value of output of the protected sectors was exported to the continent. The American presence was overwhelming. Inward investment from the USA accounted for more than 80 per cent of the total value of output, so that the whole sector in effect represented a technological transfer from the USA to the United Kingdom, American investors jumping the non-tariff barrier to gain access to the European market when they could have sold their goods through the tariff barrier. OFFICE MACHINERY (OTHER THAN TYPEWRITERS) Sales of office machinery before the war, with the exception of duplicators, had been on the way to becoming a German and American preserve. Office machinery, apart from its obvious uses in 258


banking, insurance and commerce, was also widely employed in productive industry. With quotas in place against all office machinery imports the United Kingdom was able by 1947 to dispense with the importation of duplicators, hand-operated adding machines, addinglisters or calculators, addressing machines and offset-litho machines. When quotas were granted to importers the would-be purchaser of an American machine had to fill in a particularly inquisitive form which asked for not only details of his business and its value for the nation but particulars of how he ran it and why he needed the machine. In return for this protection, however, under the Labour government domestic producers had to export a fixed, high proportion, in some cases 70 per cent, of their output. By 1952 production had developed from almost nothing in 1946 to £21 million, of which some £8 million was exported, making Britain the worlds second largest exporter. The industry then employed about 18,000 people. In 1955 there were roughly 44 firms of some size and importance. Eight of these were American subsidiaries, accounting for about 45 per cent of production. Again, some American companies had established themselves only because of import restrictions against finished products. Domestic American firms were believed to have an overwhelming competitive advantage and it seemed possible that their subsidiaries would withdraw production to America if restrictions on imports were removed. Moreover exports, which accounted for no less than 40 per cent of United Kingdom production, were judged likely to suffer considerably from American competition in foreign markets possessed of convertible sterling and in sterling area markets that would follow Britain in liberalising dollar imports. Most of the plant was convertible into the manufacture of goods such as refrigerators or washing machines, but much of it was in the Development Areas, so the question of how much employment would survive the conversion was a serious one. TYPEWRITERS AND CASH REGISTERS Thanks to a quasi-monopoly on public sector purchases British typewriters enjoyed a limited home market in the inter-war period, but their manufacture remained a small affair. During and after the Second World War the industry expanded greatly, with government encouragement based on dollar-saving considerations and behind an import quota. By 1953 there were eight firms in the industry of which three were owned by North American companies who, as 259


with other office machinery, accounted for 45 per cent of a total output of about £7 million. Exports in that year were about £2.5 million and imports less than one million. In the typewriter industry about four thousand out of seven thousand people were employed either in the Development Areas or the related Unemployment Areas. Electric typewriters began production in 1957 and one of the two firms making them was located in Scotland. Without quotas the likelihood was that the American firms would have converted their plant into the assembly of imported components, probably reducing total output of the sector by two million pounds out of a total of £7.3 million in 1953. In 1958, when general liberalisation of dollar manufacturing imports became a serious policy, it was resignedly assumed that the nascent electric typewriter industry would be a certain case of infant mortality. A related case was the manufacture of cash registers. This was a deliberate venture into import substitution as well as a regional development policy. In the inter-war period cash registers had been all imported, mostly from the USA. In the post-war period the American firm National Cash Register Company was established with the protection of an import quota in Dundee, a town with heavy inter-war unemployment and whose main standby was the declining and heavily protected jute industry, which is considered later.29 When most machinery imports from western Europe were liberalised in 1952–3, cash registers were not. When imports of machinery from the dollar area began to be liberalised at the end of 1958, imports of cash registers were not freed because they were still under quota from Europe. It was estimated in September 1958 that removing all quotas on cash registers would mean an extra £250,000 on the annual import bill.30 The total value of output of all office machinery in the United Kingdom grew until 1964 but did not pass its 1964 level until 1969. The value of 1964 output, however, was about 90 per cent higher than in 1958. The steep fall in output between 1964 and 1967 was not caused by foreign competition or the withdrawal of American firms but by the collapse in sales of non-electronic data processing equipment in the face of computerisation.31 Sales of domestically produced typewriters, however, increased only sluggishly, and of the smaller portable machines fell. This was one sector where neither native firms nor American subsidiaries stood up well to the competition from Europe, notably Italy, and Japan. 260


Agricultural machinery output had a chequered experience, falling slightly with the removal of quotas, recovering from 1961 to 1964, over which period output grew in value by almost a half, then falling back by 1966 well below its 1963 level. In 1968 it rose well above its earlier peak but then stagnated. It proved, as had been feared in the 1950s, a rather weak cultivation. It was not, however, from the USA that the challenge came, but from Germany, Sweden, The Netherlands and Belgium, all of which showed a growth of exports to Britain more impressive than the faltering growth of British domestic output. The manufacture of some kinds of office machinery became established in Britain behind the import quotas, but the industry remained relatively small, employing 30,100 people in 1963 and still only 30,800 by 1968. Agricultural machinery manufacture employed only 21,500 in 1963 and 21,700 in 1968. In the case of office machinery this represented stagnation after the steady growth to 1958, and for agricultural machinery stagnation at a lower level of employment than in 1954. CARS There was an almost complete ban on imports of cars into Britain between 1945 and 1953. In 1953 the first important breach was opened when an annual import quota worth two million pounds was allocated to the Federal Republic, the only producer willing to open a quota of any size in return. In the same year a quota of a mere 500 cars a year for the USA was refused. The only American cars that could be sold in Britain before 1955 were the handful of models brought over for exhibition at the motor show. They were allocated by special permit. The advice of Sir William Rootes, managing director of the Rootes car company, was that even 500 American cars a year might encourage other sterling area markets to open the door to American rather than British imports.32 It was only in 1954 that this small quota was eventually opened, for the year 1955, together with an annual quota of 150 cars from Canada. Having given something to the Europeans, Britain had also to give something on its own market, albeit much less, to the USA, but was still determined to defend markets in the rest of the sterling area against American competition. The rest of the sterling area, notably Australia, was the main market for British car exports. Quota protection had its origin in the Labour government’s unease about the future of the car industry. Eager for post-war exports, it 261


was not sure on the evidence of the 1930s that the industry was capable of providing them in the hoped for quantity.33 Unable to get very far with ideas of reconstructing the industry, the Labour government nevertheless demanded an export ratio to output of more than 50 per cent and stood ready to reduce steel allocation to the industry if it failed to meet the targets. Quotas amounting to almost a total embargo were the industry’s recompense. When the steel control sanctions were lifted at the end of 1952 and the Import Licensing Committee considered widening the quotas to OEEC members, the manufacturers argued that quotas should be retained to allow them safely to meet the continued demand for exports. In fact they were suspected, particularly Ford, of seizing the opportunity of the removal of the steel sanction to push sales on the home market.34 Manufacturers also objected, somewhat implausibly, that France was the European market on which they had particularly fastened their sights and that it was closed to them by narrow quotas. So long as France retained its quotas, they argued, Britain must do the same, until eventually in a world without quotas British exports would be many and imports few. It was for this reason that the first substantial breach in quota protection was made for imports from Germany, even though the British car makers appear to have thought Germany a stronger competitor on their own domestic market than France or the USA. The manufacturers’ declared confidence that they did not need quotas other than to prevent foreigners satisfying domestic demand that they were themselves asked not to satisfy, or for trade bargaining purposes against France, may have demonstrated a complacency which they did not feel. Germany, the one European producer to open a quota of any size to them, was Europe’s most rapidly expanding car market, but they did not do well there. Neither did they do well in direct competition elsewhere against German models between 1950 and 1955. In those years they lost much of their market in Austria, Belgium and Switzerland to German competition. These were all countries with no native car industry to protect and where competition was for that reason more acute. The steep fall in British export sales in 1955 was mainly due to the losses on Danish and Swedish markets to German competitors.35 That the industry was less confident at the end of 1953 than it had been when the quotas were originally imposed and was beginning to have some hesitations about their removal was apparent from the anxiety of the president of its trade association to keep the bilateral quota arrangement with Sweden, 262


whose quotas discriminated in favour of the United Kingdom over Germany. The outcome, the industry feared, would be precisely those German gains at British expense which did take place in 1955.36 The European quotas were in fact self-reinforcing as a system. For Sweden, offering a bilateral car quota was a way of sustaining valuable wood pulp exports through a British quota opened for them. To take a further example, two French car producers, Citroën and Renault, assembled cars in Britain, originally attracted there in the 1930s as a way of jumping the tariff. The British industry would have liked to impose an import quota on the component parts, in retaliation for the fact that France gave a quota for car imports from Belgium which in practice was limited to American cars assembled there, all others being excluded, although the quota did not publicly reveal this practice. For France, this was a way of getting dollar cars without dollars. But no British government was likely to countenance such a reprisal when the export value of the completed French cars was greater than the import cost of their component parts. The components imported from France amounted to less than half the value of the assembled car in the case of both firms, so under present European Union rules the vehicles would have qualified as Britishmade cars.37 The quota for car imports from France was only £900,000 for 1954 when it was £2.5 million for German cars plus a further £400,000 for German-made commercial vehicles. The quota for Italy was only half that for France, because Italy maintained an almost complete embargo on car imports from Britain while being more generous in its admission of German cars. This self-reinforcing bargaining over car quotas did not affect the car trade only. In 1954 the United Kingdom kept a quota on imports of canned tomatoes, which came mainly from low-employment areas of southern Italy, specifically as a bargaining counter to force Italy to increase its quota for British cars.38 Any consideration in the Import Licensing Committee of liberalising car imports died in view of the awareness that to do so would not change French or Italian policies at all. The idea was soon replaced with the actual policy that was pursued in 1954 of using car quotas (as well as those on canned tomatoes) as an aggressive bargaining instrument to increase exports. There is every indication that the car industry was happy with this, preferring the regulated market, perhaps because it minimised domestic competition between 263


the producers.39 Furthermore, quota bargaining was being played out between Europeans while the industry enjoyed blanket protection against the biggest source of pre-war imports, the USA. Quotas could obviously not be removed against American cars before European ones; that would have made a nonsense of ‘taking the lead in Europe’. So on that score the car industry was safe, although it was told unequivocally in 1954 by Peter Thorneycroft, the President of the Board of Trade, that ‘protection was entirely the function of the tariff’.40 The quotas thus remained in operation while domestic suppliers happily fulfilled the large backlog of suppressed demand. Car imports from OEEC member-states were not fully liberalised until June 1959. Liberalisation of dollar cars came in November of the same year. As late as 1958 therefore only 650 North American cars, only 500 of them from the USA, were allowed to be imported into Britain each year. By that time the annual quota for the Federal Republic was £3,070,000, which represented over 8,000 cars a year, and for France £1,300,000, roughly the equivalent of the concession to British car exports which France had eventually made. A further £526,100 of cars from Italy was allowed, also in return for a similar reciprocal quota, and £210,000 was allocated to Swedish Volvo and Saab. The combined effect of these quota relaxations was to allow into the United Kingdom about the same absolute number of foreign cars as in the early 1930s, although demand was so much higher. Foreign cars represented only about 2.5 per cent of domestic sales on the eve of the 1959 liberalisations. The transformation of the British car market into a modern, mass-consumption and mass-production business was to all intents and purposes left entirely to domestic producers. Car manufacturers were not threatened by the diversion of their output to export markets and were able to reap the possible economies of scale offered by virtually unchallenged control of a large and rapidly expanding market. They do not seem to have seized their opportunity well. Estimating the impact of ending quotas is difficult. In the course of the 1960s levels of import penetration into all the European car producing countries rose to about 20 per cent. The rise was erratic, following a pattern determined by quite minor fluctuations in consumer spending, themselves, at least in Britain and France, responses to changes in interest rates and fiscal policy. In the case of the British market, furthermore, the political tergiversations over whether the United Kingdom would actually join the common market, 264


as well as the start of EFTA, make it almost impossible from the evidence of the first years after liberalisation, when competitive advantages were still probably close to what they had been in the last years of the quota regime, to say anything very decisive about the ability of the British industry to compete on its own market. Because the deterioration in the competitive ability of the British car industry is usually said to have occurred during the 1960s, the longerrun consequences of trade liberalisation are also hard to estimate, for they become confused with other issues. The number of foreign cars sold in the United Kingdom rose from 10,600 in 1958, to 26,450 in 1959, and then to 56,600 in 1960, so that within twelve months from the full liberalisation of imports from Europe imported cars were almost 8 per cent of new domestic sales instead of 2.5 per cent. The short-term increase was certainly higher than the longer-run trend, because of the effect of purchase tax reductions in April 1959. The tax was charged on top of the high import duty, so its reduction lowered the price of a foreign car relatively more than that of a home-produced model. Hire purchase restrictions were also removed with liberalisation. To some extent therefore the surge of imports in I960 represented a pent-up demand for foreign models being urgently satisfied as the new aspect of one of the periodic car purchasing booms. In 1961 the number of foreign cars imported fell steeply to 23,700, partly because stocks of them were still so high from the previous year. But this could also be attributed to the rise in interest rates in July 1961 and to a 10 per cent surcharge imposed on sales prices; when the car-buying bonanza was stopped foreign models were left on the shelf as expensive luxuries. In short, the sales of foreign cars were more susceptible than those of domestic models to the strong oscillations of demand which government policy made stronger. When it looked in 1960–2 as though the United Kingdom might join the EEC, European producers invested in sales and service networks in Britain. The surge in imports in I960 was part of this process, Renault in particular making a big play for the British market and challenging Volkswagen as the main exporter to Britain. Things turned out differently; the first tariff cuts were on EFTA exports, leading to a noticeable increase in cars from Sweden in 1961 when exports from EEC countries were falling so steeply. As tariff reductions were extended to EEC members the industry’s trade association estimated that registrations of foreign cars were likely to 265


rise to between 12 and 13 per cent of the total within a very short period and then more slowly to a ceiling of between 15 and 17 per cent.41 Although an underestimate, this was so great a change from the situation which the industry had been happy to preserve until 1959 as to make it clear that in the medium-term the ability of the British car industry to survive in its existing size after the removal of quota protection depended on its success in exports rather than in defending its domestic market. It was precisely there of course that it failed. But how far that failure was due to the keener edge of competitive ability having been dulled by fourteen years of such high protection is another subject. The industry which typified the rise of the mass-productive and mass-consumption society of the 1950s, the industry whose total employment (excluding the manufacture of commercial vehicles and car components but including that of motor bodies) grew from 119,023 in 1953 to 160,840 in 1958, the industry whose affluent workers were the raw material for sociological theories about the permanent change in the political behaviour of the working class and whose production methods were the source of many sweeping theoretical commentaries on the philosophical basis of modern society, was competitive only within a tightly regulated arena. Historians of the industry have been quite unable to come to terms with the fact that the ruthless competitive struggle in which they set their analyses of the rise and fall of particular firms in the industry, or indeed of the whole British car industry itself, was for so many years a state-regulated competition; most either leave out quotas from their tale or acknowledge them briefly with no analysis of their consequences. Because there had been no trade in cars in the base year of the OEEC Trade Liberalisation Programme there was no formal requirement in the OEEC for the mutual widening of quotas. They remained a striking instance of bilateral trade bargaining and a striking affirmation of the American assertion after 1947 that bilateral bargaining between states would never, or only very slowly, get rid of quantitative restrictions. As far as the manufacturers were concerned, this was a welcome, convenient protection which they were able to prolong for six years after the original reason for granting it had been removed. As far as government was concerned, the lack of international pressure within the OEEC for the removal of the quotas was a convenient setting for not tackling the protection which the industry obtained after 1953. Car manufacturers had muscle, 266


and government, in spite of its wish to revert solely to tariff protection, did not wish to take them on when there was no internationalised momentum to make it do so. PRECISION ENGINEERING The origin of several infant industries protected by quota in this sector was the Second World War and the desperate need to produce at home items of precision engineering which had formerly been imported from Germany, although in some cases they had been produced in an earlier epoch in Britain before German competition had eliminated them. These were goods, the total value of whose output in each case was usually rather small, which often appeared in the United Kingdom negative list in the OEEC; the defence of the quota was not on balance of payments but ‘strategic’ grounds. In terms of excluded imports the most notable was clocks and watches, where the quota was estimated to keep out ten million pounds of imports in 1955 in equal proportion from Europe and Japan. The quotas on cameras, scientific instruments, engineers’ small tools, optical glass, woven wire and industrial jewels are all similar examples. Typically, too, this group of quotas was associated with attempts to use reparations to weaken German competition by transferring, in some cases seizing, German technology. Much of this technology, specific machines, patents and even technicians, had been identified during the war and targeted for acquisition during the invasion, where possible, or as reparation claims when it was decided to follow a more legal procedure. Much of this targeting was carried out by British industrialists in wartime service with production ministries. Their influence remained strong in Whitehall after 1945 and Cripps’s interest in interventionist industrial development provided a favourable political atmosphere in which wartime ambitions could sometimes be translated into peacetime realities. The initial period of disorder after the invasion and before a reparations system was properly constituted, the drastic control of the foreign trade of the occupied zones of Germany, the initially very wide definition of the ‘demilitarisation’ of the German economy on which the Allies had agreed, each in its own way made for a situation where technological transfer of this kind seemed feasible. It was particularly the policy of the Ministry of Supply, which in those years provided the detailed local support and encouragement for these infant industries, as well 267


as identifying what might be transferred. In these instances the primary purpose of quotas could be said to be the pursuit of a coherent industrial policy. As industrialists moved back out of government service into the civilian economy the detailed knowledge of German manufacturing industry in Whitehall steeply declined. The Ministry of Supply’s role was narrowed down to guaranteeing the supply of items thought indispensable for a further war. The strategy by which any such war would be fought became a subject of doubt and perplexity, until in the mid-1950s it became obvious that the manufacturing base originally thought necessary would in reality be smaller. The commercial policy of the Conservative government meant, with few exceptions, that unless future survival in war could indeed be shown to depend on the industries in question, the issue for most of these quotas became mainly that of whether what had been implanted could better survive the return to open competition if by diplomatic stalling the quota could be widened or removed more slowly than the general line of commercial policy demanded. In most cases it was the Ministry of Supply or the armed forces’ ministries which put up a bureaucratic struggle for delay. WATCHES AND CLOCKS The domestic British watch industry lived but a feeble existence by the late nineteenth century. The clock industry survived longer until almost eliminated as a producer in the 1930s, mainly by imports from Germany. Timekeeping devices of all kinds then became of vital strategic importance during rearmament and the Second World War, necessitating a major re-investment of resources in their domestic production. Between 1937 and 1944 the Ministry of Supply invested more than £2.5 million in buildings and plant for clock, watch and fuse production.42 Although at the start of the war the import of watches was prohibited as part of the programme to prevent the expenditure of foreign exchange on ‘luxury’ consumer goods, the ban was lifted by spring 1940 when the true scale and range of the demand for timekeeping devices became apparent. However, restrictions on trade with neutral Switzerland, the world’s largest supplier of the highest-grade precision timekeeping machines, meant the main reliance had to be placed on national production. The main producer of precision timekeeping machinery, S.Smith and Sons (Motor Accessories) Ltd, later Smiths (Industries), a manufacturer 268


of car dashboard equipment, was supported by guaranteed government contracts to undertake a wider range of development and production. In the last months of the Second World War a careful assessment was made of the chances of establishing an industry which could withstand Swiss and German competition. The Labour government, armed with this study, then committed itself to the manufacture of certain types of watches and clocks as a native British industry. The basic argument was strategic, in wartime the domestic manufacture of precision fuses and other high precision instruments was indispensable. The watch industry would provide that, while the clock industry, including the manufacture of alarm clocks, would be turned over to less precise engineering such as clocks for aircraft dashboards. But the strategic argument served as a prop to larger industrial aspirations. It would not have been necessary to establish the mass production of the cheapest watches and clocks had armament been the sole purpose. The type of quota protection that was given makes it clear that in this case trade control was to support industrial policy. The war had revealed serious shortages of engineering labour throughout industry and the domestic manufacture of watches and clocks was intended to create a larger pool of highly skilled precision engineering workers for the economy in general. It was very much the type of planning venture which Stafford Cripps believed necessary for the country’s future. Furthermore, it helped with the balance of payments. Spring wound clocks, including alarm clocks, had accounted before the war for an average annual import bill of about £700,000, mostly from Germany.43 Outside Switzerland, where it had already become well established in the eighteenth century, watch-making was an industry whose establishment on an internationally competitive level had always demanded a long period of almost absolute protection. In the USA and France its survival had required protecting the domestic market against Swiss exports. The rapidly expanding Japanese and Soviet watch industries were based on closing the domestic market to all competitors. Clocks seemed to offer more scope for re-establishment with a briefer period of protection, if only because there had been a small pre-war capacity. But when tariff protection had briefly revived the British clock industry’s fortunes after 1914, the revival had been only feeble because the level of protection offered by the tariff had been too low and had not lasted long enough. The tariff had been 269


lowered by the Anglo-German Trade Agreement of 1933 and after that German exports had eliminated much British production, although under the Nazi regime the German tariff on many types of clocks had risen to more than 100 per cent. The Lennox-Boyd Committee, set up by Cripps in 1944, recommended in view of this history a 50 per cent post-war ad valorem tariff on imports of watches and clocks, as well as import quotas for the period of currency stringency. The tariff increase was not implemented in full, the Key Industry duty of only 33.3 per cent being set. One reason seems to have been that as far as clocks were concerned there was so much active planning at the time to dismantle or seize equipment in Germany that German exports were not foreseen for several years to come. In the circumstances, and because the industry as an infant industry looked a good case for a GATT waiver if it was ever necessary to raise the tariff, it was thought safe to rely on quotas for additional protection. As far as watches were concerned, the height of the tariff seems to have been subordinate to an agreement with Switzerland which was necessary to re-establish their manufacture in Britain. It was well understood that Switzerland’s watch output was too large and too sophisticated to be emulated in the United Kingdom; it was from Switzerland that 90 per cent of pre-war British watch imports had come. There could be little hope, and there was no intention, of creating more than a relatively small niche for British watches. The strategy therefore was to develop the native industry with Swiss help in return for allowing Switzerland a continuing market in Britain when trade controls would be keeping out Switzerland’s competitors. With clocks much greater ambitions were possible. A working party on the future of the German clock and watch industry, whose chairman had drawn up the early 1945 reports on the possibility of re-establishing a substantial watch and clock industry in the United Kingdom, recommended that Britain stake a claim with the International Reparations Authority for at least half of the total clock and watch manufacturing plant in the western zones of Germany, based on lists already drawn up by the Ministry of Aircraft Production during the war.44 Since France was also staking reparations claims of a similar scope it was at first assumed that the industrial disarmament of Germany might take so comprehensive a form that only about one-quarter of pre-war Germany’s manufacturing capacity in this sector would be left.45 270


As the hopes of basing an infant industry on acquired German plant rapidly dimmed in the complex diplomatic shadows thrown by the reparations issue and the need of the Treasury to reduce the costs of the occupation by stimulating an economic revival in Germany, a different way forward was found. Behind the shelter of quotas and the 33.3 per cent tariff three new watch production plants were set up in plant provided by the government and rented to the producers on favourable terms, two of them in Development Areas. They were joined in 1947 by a subsidiary of the American firm Waterbury, producing under the trade name Timex at Dundee. By the terms of the Anglo-Swiss Watch Trade Agreement of 1946 Switzerland leased machine tools, which it was otherwise illegal to export, to the new plants and made available components which it might not otherwise have been possible to produce in the United Kingdom. Smiths, the only one of the new firms which was intended to produce higher-value precision watches, received an additional direct subsidy to make jewel bearings for them. It was necessary to retain a certain measure of independence from Switzerland in case trade was again cut off. But most mainsprings and hairsprings had still to be imported from there. For Switzerland, the return for its leasing of machine tools and provision of components was a guaranteed niche at the upper end of what was now to be a highly protected market at the expense of France, Germany and the USA. The British intention was to confine mass production to cheaper pin-lever watches. The quota regime was carefully devised to protect the domestic market for these cheaper watches, of which it was estimated one million sales a year were needed to make the operation viable, while leaving to Swiss producers most of the sales of higher value-added jewelled lever watches. The threat was that without the agreement these Swiss watches would have been imported in much smaller quantities, being excluded by the Import Licensing Committee as luxury imports. The overall value of watch import quotas for Switzerland was initially set by the Anglo-Swiss Agreement at two million pounds for the two-year period 1946–7 and was steadily increased after 1948. From 1951 all watch quotas including those for Switzerland were split into two categories, above and below a value of thirty shillings c.i.f. The significance of the division can be understood from the fact that over the period 1951–5, when the total value of the combined watch quotas for Switzerland was £2.25 million annually, £1.65 million was reserved for the category above the 271


thirty shilling mark.46 For the rest of the OEEC a global quota of only £375,000 annually was established in 1951. Of that, watches up to the 30 shilling mark could not account for more than £100,000. It was assumed thereafter that if the total value of all quotas above the 30 shilling mark were widened, there would be an influx of watches only narrowly above that price, which may also suggest that Switzerland benefited by protecting sales of its medium-value products on the British market against excluded American, French and German exports. Furthermore, the agreement also led to an understanding that there would be quotas on the UK market for Swiss alarm clocks. Unassailable in high-grade clock production, Switzerland like Britain had seen its cheap alarm clock industry badly damaged in the 1930s by German exports. In the temporary absence of German competition, it too attempted after the war to re-establish a larger industry producing the cheaper alarm clocks. In each of 1946 and 1947 the United Kingdom imported Swiss alarm clocks to the value of £100,000 (about 300,000 clocks annually) and for £50,000 (about 150,000 clocks) in 1948. Import licences were issued in 1947 for an additional 500,000 alarm clocks, of which 150,000 were to come from the USA and Canada and the rest mainly from France. As British domestic output rose, however—it was intended to reach three million units in 1948 which was about the number of pre-war annual imports—quotas for North America and France were to be reduced.47 As in the case of watches, the non-Swiss quotas were turned into global quotas in 1951. Also like watches, clock quotas were divided into two distinct value categories in such a way that the higher value category, which did not compete so directly with the new British industry, made up 38.5 per cent of the total imports in 1951 and 50 per cent by 1952. For 30-hour alarm clocks, the cheapest line of production and the one on which British makers concentrated, imports were negligible from 1951, limited by quota in 1952 to only £12,500 for each six-month period. For all kinds of mechanical clocks—electrical clocks were not protected by quota—the total of global quotas was established in July 1951 at £400,000 annually. But actual imports were only £215,000 in 1952 and £318,000 in 1953. Partly this was a result of the recession, but more the result of aggressive liquidation of stocks by British makers as the first cheap German models un-expectedly appeared through the small global quota. If quotas still allowed the industry to resist Germany in the cheapest lines, sales of the more 272


expensive travelling alarm clocks fell away more steeply, because at that higher price level Swiss clocks could come in through the larger, higher-price quota category. This, although it threatened only a small part of the new British clock industry, threatened the more strategically vital part for labour training. It meant that the success of the watch venture was all the more important. The Anglo-Swiss Agreement also limited British exports of the watches to be made under its terms. No more than 5 per cent of their export by value was to be directed outside Commonwealth markets.48 In fact, when domestic production was supposed to reach three million units by 1948 a quarter of the output was intended by the British government to be exported. This would have to be substituted at home by imports, and as we have seen these were likely to be mainly Swiss. Since all except the most expensive Swiss jewelled lever watches fell under UK price controls, there was little hope as long as the quota regime lasted for Germany, France or North America to improve their position. As for British consumers, they were being provided either with price-controlled cheap alarm clocks to get them on their feet for the increase in shift-working or left free, if they had the means, to buy the most expensive Swiss watches at an uncontrolled price. Industrial policy, employment policy, regional policy, price policy and Fabian social engineering were all to some extent by the end of 1951 shaping the import quotas on watches and clocks. These were not threatened until the launching of the Trade Liberalisation Programme. Even then, the threat was abstract, for it was not before 1953 that German clocks again began to make a big impact on world markets. By then, of course, British quotas against European exports had been reimposed. The Ministry of Supply was firm that any move to Open General Licence for clocks and watches with only a 33.3 per cent tariff would endanger both industries, which were not yet able to stand on their own feet.49 At the Geneva GATT conference the duty on cheap alarm clocks, however, had been bound and that on the more expensive alarm clocks, still not made in any number in Britain, reduced to 25 per cent as a concession to France. If, because of the great difficulty of going back on these concessions and increasing the tariff, Britain persevered with quotas for non-balance of payments reasons France would be able to lodge an accusation of bad faith in the OEEC. Since one purpose of the 1954 ‘negative list’ examination was to expose French protectionism to other OEEC members in contrast 273


with Britain’s liberalism, this was a nasty diplomatic corner to negotiate. Some solution had nevertheless to be devised because by 1953 the sector was no longer a puny infant. The first British watches were sold on the domestic market in 1947, when production was less than 300,000. In 1955 it was more than 3,400,000. Mechanical clock production increased from 1.6 million in 1947 to 5.1 million in 1955. There were twelve firms making clocks by early 1954, with a total employment of 8,516 and a further 2,000 making components. By 1953 there had also developed a substantial export of mechanical clocks, 752,000 units. It is easy to see why this no longer small sector was still uncompetitive internationally when it is considered that Swiss watch exports in 1952 amounted to 33 million pieces, almost ten times British output, whose size and growth are shown in Table 22. The Table 22 Annual deliveries of watches and mechanical clocks made in the United Kingdom (’000)

Source: UK Central Statistical Office, Monthly Digest of Statistics, nos. 60, 84, 132, 144, 180, 216, 252. The deliveries are of completed units whether wholly manufactured or assembled in the United Kingdom.

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British watch firms not only depended on government subsidies and quotas, but, where they had a clock division, also on subsidisation out of the profits from clock sales.50 The Ministry of Supply was not prepared lightly to abandon one of its favoured children to the Trade Liberalisation Programme. At the start of 1950 it could contemplate removing clock quotas at the end of 1952, but only if there were a tariff increase.51 In spring 1954 it carried out an enquiry, carefully kept secret from the OEEC, into the effects of the Anglo-Swiss Agreement and recommended an ad valorem tariff up to 100 per cent for the cheaper watches, plus purchase tax relief on more expensive models in order to stimulate their domestic sales and so appease Swiss objections.52 Both clocks and watches found their way, for purposes of submissions to the OEEC, on to that list of items where there was ‘a reasonable prospect of measures alternative to quantitative restrictions being taken by the end of 1955’ but on which ‘the United Kingdom might, in the last resort, be able to justify internationally the temporary retention of quantitative restrictions’.53 This was rather optimistic in respect of the time needed to negotiate a new tariff, especially if some of its posts were to be as high as 100 per cent. It turned out also to be rather optimistic in respect of the case for maintaining quotas. When the UK ‘negative list’ was examined in the OEEC the Danish chairman of the committee took exception to Britain laying a claim to continue with quotas on clocks when it was exporting them to some member states like The Netherlands at competitive prices. The OEEC Steering Board for Trade was advised to accept the British case for watches but not for clocks, because ‘tariffs were high and it was difficult to see why a highly industrialised country like the United Kingdom needed to protect these industries over a long period’.54 As far as clocks and watches were concerned the United Kingdom might almost have felt relief when the Treaty of Rome, by removing any urgency to meet the OEEC liberalisation targets, gave it more time to resolve this issue. But the grand strategic response to the Treaty of Rome, the free trade area proposal, soon threatened the clock and watch industry’s protection even more than had the Trade Liberalisation Programme. It was not only that the industrial tariffs against the non-EEC members of the OEEC would be lifted; behind the free trade area proposal in 1956 lay the hope of persuading the EEC to pursue in common a European programme for quota removal with the non275


EEC members of the OEEC, so that Europe could not be divided into Six and Seven. When this failed, the Stockholm Convention of 4 January 1960, which brought EFTA into existence, laid down a mixture of rules and guidelines for mutual tariff and quota removal on manufactured goods. During 1956 therefore the discussions about how the industry could be protected by higher tariffs as an alternative to quotas stopped in face of the hard facts that preventing the Six from ‘dividing Europe’ meant both removing tariffs on manufactured imports from Switzerland and quotas against the EEC. Response to the common market thus required the watch and clock industry to become competitive very rapidly, unless government was prepared to consider it as the equivalent of an armaments industry outside the normal application of commercial rules. The defence policy outlined in White Paper Cmnd. 124 in 1957, with its heavy reliance on the nuclear deterrent, was considered by government to eliminate the strategic need for which the industry’s capacity had been developed, to build up a larger reserve of replacement precision engineering labour. Who needed skilled labour reserves in the age of nuclear deterrents or nuclear strikes? While the history of the watch and clock quotas as of similar quotas in the precision engineering sector supports the argument that it is the military state which is a prime inspirer of technological advance, it is also a perfect example of the fragility and arbitrariness of such

Table 23 Imports of watches and clocks into the United Kingdom, 1947–63 (units)

Source: UK, Accounts Relating to the Trade and Navigation of the United Kingdom. The figures refer to imports of completed watches and completed mechanical clocks of all categories.

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inspiration. The British watch industry by 1956 was widely regarded as having the most capitalised, mechanised and productive assembly processes outside Japan. The long and difficult task of training skilled labour in Development Areas had been accomplished. British watches were established on the home market, clocks more so and selling also in several European markets. Over the next two years everything changed and by the end of 1957 the sector could look forward as its highest ambition only to survival at its 1955 level, either by government preserving a measure of protection or through take-overs by Swiss firms. Faced with the likelihood of eventual free trade with Switzerland the industry negotiated a new Anglo-Swiss agreement for five years in 1959. Imports of watches from Switzerland costing more than £5 c.i.f. would be freed from all control, while the quota for imports of cheaper watches would be increased over the five years more slowly than under proposed EFTA rules. The quota increase over five years would be 39 per cent instead of the 100 per cent which applied to most other goods. This left the quota for British imports of Swiss watches more than five times greater than the global quota which Britain offered, and the global quota continued to exclude Japan. The restrictions on United Kingdom exports imposed under the earlier agreement had of course to be lifted. The leased machines were now bought, and the import of complete watch-kits for assembly allowed. Agreement of this kind to control the market, nominally between firms and trade associations but with active government connivance, preserved the industry in the Development Areas, although not outside them, at its 1955 level. As Table 23 shows imports were not allowed to increase significantly. The 1961 quota for watches from Switzerland was in fact only £210,000 larger than the quotas of 1951–5, which, given the rate of inflation, represented only a small increase in the actual number of pieces, while the additional global quota had increased by only £102,000. Sales of British-made watches fell sharply from 1963 onwards to return to their 1955 figure. Clock production reached a plateau in 1955 from which it could not climb higher. The increase in the number of imported clocks was much steeper than of watches, reflecting the lack of variety of British domestic output but also the lesser willingness on the part of government to protect. It was worth continuing in business after the Stockholm Convention and the beginning of EFTA for most producers because their protection 277


came from quotas, not tariffs, and quotas continued to constrict the flow of imports, especially of their main lines of production, for another six years. CAMERAS Quotas on camera imports were analogous to those on watches. During the war output of high-priced, precision cameras, especially for aerial reconnaissance, became a vital strategic industry which had to be developed with great difficulty. The pre-war camera industry had mainly been located in Germany, so after the war plans to retain and develop the sector as an infant industry depended on protecting the home market against German competition. However, there was no British mass-production cheap camera industry which government wanted to protect. Cheaper camera imports were liberalised as soon as the balance of payments permitted, whereas those costing more than £5 each at the port, and in a shop £20 to £25 after addition of duty, purchase tax and mark-up, remained controlled by a very restrictive quota which even by 1958 had a ceiling of only £100,000. There were special exemptions to the quota, when import licences were occasionally made available to the press, or for scientific and medical research, for about £15,000 a year. The infant industry thus protected was very small, its annual output less than £200,000 a year. Although additionally protected by an import duty of 50 per cent, which with the addition of the 15 per cent purchase tax, was effectively 65 per cent, it still depended on imports of German components such as lenses and shutters and its output was fundamentally a copy of German models. Indeed, thirteen German camera technicians were initially employed. The German product was preferred on technical grounds by consumers. The consequence was obvious. Most cameras can be smuggled and, since the quota plus domestic production fell well short of demand, they were. ‘Secondhand cameras in mint condition’ were a frequently advertised commodity, their stock being swollen also by legitimate sales by foreign visitors who could sell the camera they brought in for 60 per cent more than its retail price abroad even after duty and tax were paid. It was estimated in Whitehall that the number of cameras above £5 value c.i.f. which actually entered the country was twice the quota.55 The Photographic Importers’ Association, presumably with a rather strong vested interest in liberalisation, 278


asserted that illegal imports of German precision cameras were ‘many times’ the value of licensed imports.56 Even before the 1957 defence White Paper there was no longer any strategic reason for quota protection; quotas remained in force purely for protectionist purposes, because the Ministry of Supply wanted to let the industry down gently.57 But the serious question was whether the quota did in fact protect. Increasing the quota until a greater share of demand was met by imports officially under the quota heading would presumably not have weakened the domestic industry while at the same time it would have reduced the grey market which government did not like. Alternatively, changing the quota so that it applied only to items worth £10 c.i.f. and above would still have protected much of what there was of British manufacturing while satisfying more domestic demand. As in the case of watches and clocks the issue became involved in the free trade area negotiations, but when these failed and were replaced by the commitment to EFTA there was no fellow EFTA member interested in the United Kingdom market for cameras. In 1958 when a small increase in the quota was mooted to make room for Japanese exports this was vetoed at ministerial level.58 Output remained at the same low level in terms of numbers of cameras, the small precision camera sector remained dependent for essential components on Germany. SCIENTIFIC INSTRUMENTS These were mostly laboratory and other research instruments of which there was neither mass production nor mass consumption. They were, however, not a cheap import and had proved hard to obtain during the war. Domestic production was encouraged after 1945 because of their strategic importance and protection by quota was aimed primarily against Germany, but also against the USA and Switzerland. The Key Industry duty had allowed a certain limited range of domestic production to develop in the inter-war period, but this was considered inadequate in scope after 1945, so that additional protection was needed. The German industry too had of course expanded during the war and its sales prices were markedly lower in 1950 than those of the British products. Faced with this situation, the Ministry of Supply wanted to keep the quota until it could reorganise the numerous scattered small producers into a more rational and internationally competitive structure. The Board of Trade already by that year wanted to take away the quota, but was faced 279


with the Ministry of Supply’s belief ‘that the result would be such a general contraction of capacity that we should find it impossible to secure economic production of the crucial items’.59 Quota protection therefore stayed in place, although the structural reorganisation seems to have made few ripples. The output of the German industry in 1954 was two and a half times the value of its British counterpart, with the American industry coming somewhere in between. The manufacturers’ association complained at the end of 1953 of the ‘difficulty of overcoming the deeply ingrained opinion of scientists and research workers that German instruments are in almost all cases the best in the world’. 60 Unlike most industries the manufacturers were vouchsafed the privilege of a certain measure of consultation when the Trade Liberalisation Programme’s revival put them in jeopardy. Warned in late 1953 that their products might be placed on Open General Licence in spring 1954, they were allowed to present a list of items for which they believed protection to be indispensable. Quotas did not in fact come off in spring 1954 and the list was presented at the start of July.61 Difficulties of comparing this list with the SITC trade classifications make it difficult to say whether it was accepted in its entirety, but most of the items which the manufacturers’ association finally deemed to be both indispensable and doomed to extinction as British products if quotas were removed appear on the Board of Trade list in early 1956 of items of strategic importance for which liberalisation might have to be foregone.62 As with cameras and watches, quotas, albeit widening ones, lingered through the 1960s. INDUSTRIAL PROCESS CONTROL INSTRUMENTS Another industrial sector whose importance far exceeded its size was a specialised section of the scientific instruments industry, a great part of which probably had at least as much to fear from Germany as from the USA. This was the industrial process control instruments industry, which employed some 10,000 people in 1954. More than 60 per cent of its output came from firms either owned by or associated with American producers through patent agreements. This industry received direct government encouragement on strategic grounds, since the instruments it produced were essential to munitions factories and atomic energy establishments. Many of them enjoyed 280


the shelter of Key Industry duties. There was the usual fear that under liberalisation the American producers would either go home or use the British plant to produce obsolescent or end-of-line instruments. Here, too, as far as can be told, most of the items were placed on the ‘negative list’ and excluded from liberalisation throughout the 1960s, except in isolated instances where quotas had to be progressively widened because there were exports of a particular item from an EFTA member. In real terms there was a significant upward movement in the value of output of scientific and laboratory instruments after 1962 and industrial process measuring and control instruments after 1963. Small though both sectors were, they were evidently of genuine strategic importance and persistence with quantitative restrictions established their manufacture in a broader range than in the 1930s. PULP, PAPER AND BOARD The United Kingdom did not produce pulp and tried to import just so much as would satisfy the needs of the domestic paper and board industry, subject to balance of payments pressures. It was, by contrast, much the biggest producer of paper and board in Europe, producing for its protected market at home and in the Commonwealth an output 40 per cent greater than that of West Germany. Britain was responsible in 1950–1 for roughly half the value of the total OEEC intra-trade in pulp and paper-making products. After they had been freed from state-trading in 1950, imports of pulp, paper and board were the second biggest single identifiable item in the surge of imports from Europe which made the balance of payments crisis of 1951 seem so threatening. So it was in November of that year that quotas were imposed on all those items. We earlier observed the sensitivity of the European prices of these goods to British trade controls.63 The tendency to import more from Scandinavia after 1945 as a way of saving dollars had led Scandinavian producers to put up their prices. American price controls on domestic sales of wood-pulp and timber early in 1951, followed by British quotas on imports of the same products, brought the Scandinavian export prices down by between 20 and 30 per cent. Thenceforward the fear was that in any period of rising demand to remove the quota would lead to so sharp a price increase as to threaten the desired balance of payments surplus with Europe. Removal of 281


Table 24 Import substitution in the United Kingdom paper and board industry (other than newsprint), 1938–65

Sources: Monthly Digest of Statistics (annualised); Account of the Trade and Navigation of the United Kingdom. Note:

the quotas on pulp and board in 1954 or 1955 would have set the seal on British commercial policy in Europe, by allowing the country to appear with Italy at the top of the Trade Liberalisation Index; failure to remove them meant it could not even reach the target percentage in that Index which it had almost single-handedly forced the OEEC to accept. But as the balances of trade and payments stopped improving from summer 1954 onwards, so was the removal of these quotas repeatedly deferred and they came off only in 1956 with the first marked fall in demand. There is no clearer case of a quota on a major category of imports which had to be maintained against all the general lines of policy because of fears that the balance of trade could not support its liberalisation. 282


Even in this case, however, motives were mixed. Scandinavian producers of paper and board were not impressed by Britain’s balance of payments difficulties. It was the market for the finished products, paper and board, not pulp, which yielded the higher profits. Scandinavians regarded the quotas on paper and board as simple protectionism and were persistent with their criticism. Paper and board can certainly count as a case of partial import substitution. Output of paper and board increased from a total of 1.83 million tons in 1939, and in 1946 of only 1.44 million tons, to 2.6 million tons in 1956 and 3.3 million tons in 1960.64 The liberalisation of pulp would have had strong implications for the quotas on paper, board and newsprint. These commodities were consolidated under the OEEC programme, so that nominally Britain was bound to remove the quotas as soon as the 1951–2 balance of payments crisis was over. If the quotas on pulp alone were removed, the quotas on paper and board would appear to all as straightforward industrial protection and the rise in the pulp price might, so British paper manufacturers feared, be the greater out of retaliation. Quotas on pulp, paper and board therefore could only be removed together and all stayed in place until July 1956. Paper manufactures, for which paper was an input, remained under quota until September 1958, a further indication that there was almost certainly an element of industrial protection involved in all this. Table 24 shows strikingly how dependent the ratio of imports of paper and board to availability was on the variations in the quota regime. Under the government purchasing regime before 1950 the ratio fell steeply. When imports were placed on Open General Licence it rose equally rapidly almost back to its pre-war level. When quotas were imposed in November 1951 it fell back again sharply. It began to rise slowly as the quota regime became more liberal after 1953. Eventually, with the end of quotas the ratio became higher in the early 1960s than before the war. But output rose throughout on a relatively even trend, so that when the quota regime was finally removed it was about 80 per cent higher than before the war. With complete liberalisation output still rose. Even if the element of industrial protection was secondary, the outcome appears to be a successful case of import substitution.

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NEWSPRINT For one category of paper, newsprint, import control was directly related to consumption control. Wartime rationing of newsprint was continued after 1945 as a response to a continued post-war shortage of supply. The components of that shortage were not a straightforward case of demand exceeding supply, although the circulation of newspapers in the United Kingdom was more than 60 per cent higher than in the 1930s. There had been a lot of rather important news in them from 1939 onwards. The shortage was also caused by the oligopolistic control of supply in Canada and Scandinavia. Canadian producers insisted on long-term purchasing contracts, usually for five years duration. Scandinavian prices were set by a producers’ ring, starting with the annual fixing of the pulp price at the autumn log auctions. The switch to non-dollar imports resulted in a steep increase in Scandinavian prices. When pulp and paper import quotas were imposed in 1951 an immediate consequence was to bring down Scandinavian prices. To dissuade newspaper proprietors from signing long-term contracts with Canadian suppliers, especially where there were close business connections between the newspaper and the suppliers, or from putting Scandinavian prices higher by increasing demand, newspapers were restricted in the number and size of their pages until 1957. Pages were less than half the pre-war average of 21. At the same time the retail price of newspapers was controlled. The power to fix both size and price was vested in the President of the Board of Trade. The import quota on newsprint was a supplementary device to maintain order on the domestic market. Imports were reserved for newspapers alone. Magazines were supplied by domestic paper millers of magazine type paper made from mechanical pulp and thus confined to what those mills could produce. The Board of Trade licensed the Newspaper Supply Company (NSC), a committee of press barons, to be the sole importer of Canadian and Scandinavian newsprint and to allocate the imports according to the governments rationing regulations. The NSC’s attitude to the quota was ambivalent. Some of its members occasionally ran editorials demanding free imports. The Times pressed the government hard, on the grounds that it was not using newsprint, to be allowed to increase its size to as many as 24 pages by using domestically produced paper from a mill in which it had invested. 284


The others tended to support the rationing scheme because it had some of the advantages of a cartel.65 The Times, for example, was already allowed to be slightly larger than its competitors, perhaps so that it could find room for the Court Circular, and its rivals had no wish to see it scooping additional advertising at their expense. It, however, claimed that with fixed prices and at the price/page ratios these permitted the others were content to maintain the system because they judged total circulation to be inelastic. From 1953 to 1957 the Board of Trade tried to get rid of statutory controls by persuading the newspapers to administer a voluntary rationing scheme, but they were unwilling because they could not agree an equitable scheme among themselves. It was perhaps as well that they could not, for in the boom year 1955, when total demand proved not to be inelastic, the press barons were threatening to take also all of the home-produced newsprint on which small provincial dailies depended. ‘It would,’ as one Board of Trade official commented, ‘be politically very difficult to allow the big papers to import anything they could get (either directly or indirectly through an NSC zombie) after they had taken all the home supplies.’66 There was therefore no voluntary system and import quotas remained. Deflation in 1956 brought stagnant and in some cases falling circulations and, together with a major exogenous help, the explosion of commercial television which damped the demand for newspaper advertising, gave the government its chance. Import control was greatly weakened in that year by a generous increase in the quotas. Page and price control ended in 1957. The NSC’s monopoly of imports was ended in 1958. But the government retained its licensing powers until September of that year in order to ensure that small consumers would still receive supply, showing that import licences and quotas were in reality an undrawn sword to prevent abuses of distribution on the domestic market. HARDWOOD In 1938 the USA supplied 38 per cent of the United Kingdom’s total hardwood requirement. This was a rare case where British imports were crucial to American producers; pre-war imports accounted for nearly 5 per cent of total United States production and of course for a much bigger share of the production and economy of the southern states. The Second World War necessitated a programme of import

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substitution, for there was not sufficient shipping space for wood when other items were allocated a higher priority. The Timber Control Board, formed in June 1940, had as its main function the task of coordinating a systematic and large increase in the utilisation of domestic resources. The ingenuity displayed encouraged the idea that in spite of heavy felling a large measure of import substitution would be possible in peacetime. As well as private mills the Forestry Commission became empowered to produce milled timber and acquired additionally the task of overseeing the management of domestic hardwood resources.67 It had been planting since the depletions of the First World War, so its management of the large, still immature stock was a vital part of any successful post-war import substitution programme. During the Second World War government pressure for the use of exclusively home-grown hardwoods was exerted so strongly that demand often exceeded supply but also, as a consequence, stimulated the planting and proper management of native hardwood resources. Before the war, private trade had preferred imports under the assumption that native hardwoods would be inferior. This proved to be much less the case once techniques of kiln drying replaced long maturing of the sawn timber by weathering. To maintain import controls after the war was thus to maintain the high level of demand for the native product which had, together with the changes in bureaucratic control, created a much more efficient and nationally managed hardwood industry. In 1949 only 2 per cent of hardwood imports came from the USA and by 1953 still only 3.7 per cent. This was not attributable solely to dollar saving; in 1953 the United Kingdom produced about half of its consumption and this proportion was rising (Table 25). When the quota was removed in 1958 imports from the USA did increase, but the new pattern of supply was not fundamentally altered. Dollar liberalisation did eventually restore something like the prewar situation, but the ratio of output to imports was still appreciably higher, about thirty logs produced for every hundred imported, as against twenty-two before the war. Conservation and resource management are, of course, not only essential in determining and maintaining ratios of this kind, but operate only over long periods of time. Measurement of a trend over twenty-five years is the shortterm as far as hardwood production is concerned, so any conclusion must be highly tentative. Nevertheless, allowing for conservation 286


Table 25 United Kingdom output and imports of hardwood, 1934–53 (million cubic feet)

Source: BT 230/178, ILC 1602, 14 September 1956. The figure for domestic output over the period 1934–8 is a ‘guess’ by the Board of Trade. There were no national output figures, indicating how national management of the industry developed during the war.

policy, it still seems fair to conclude that here, too, a certain measure of success in import substitution was achieved. JUTE GOODS The production of jute goods had gradually passed under state control in the course of the First World War. The industry’s output became increasingly dominated in the course of that war by the insatiable demand for what remains that war’s best-known object, the sandbag. Because the raw material was entirely imported, almost all of it from Bengal, which was also the main area of jute cloth manufacturing, it had been easy for its suppliers to organise shortages and the massive price increases which these were held to justify. The response in Whitehall had been at first the control of the manufacturers in Britain, followed by the control of the import trade. Government was never able entirely to divest itself of some measure of direction of the trade and responsibility for the industry in the inter-war period and this control returned in full force in the Second World War as the automatic consequence of Allied shipping controls on raw materials. 287


A substantial part of the population of Bengal, divided between India and Pakistan after the proclamation of Indian independence, depended on the trade for its staple export, while one medium-sized town in Britain, Dundee, depended overwhelmingly on jute goods manufacture for its employment and income. Dundee was the focus of several attempts to diversify employment by locating other protected industries there, such as watch and cash-register manufacture. In 1956, however, when 85 per cent of the jute goods made in Britain was made in Dundee, at least 19,000 workers, 23 per cent of the town’s insured population, were still directly dependent on the jute industry and a further 7 per cent had a secondary interest in it.68 The arrangements which protected their position were devised in 1945 by an interdepartmental working party. The Jute Control, under the Board of Trade, was allowed to remain as the sole importer of raw material and jute manufactures from India and Pakistan. The prices were calculated by two firms of accountants in Dundee. Only certain specifications of raw material were imported, the rest being prohibited. The price at which the raw material was sold to the manufacturers was linked to their retail prices and was above that at which Congolese raw material was sold to Belgian manufacturers, as were the prices of the manufactured goods above those of the Belgian product. The import of jute goods from OEEC countries was in private hands, but subject to individual import licences. The only goods which could be imported were those which could not be obtained from India or Pakistan. They were mainly from Belgium and subjected to a 20 per cent tariff. That this trade could exist was usually attributed by British manufacturers to Belgian export subsidies. Impartial commentators, within the OEEC at least, believed the high exports to output ratio of Belgian producers was a measure of their genuine competitiveness. However, Indian manufactures were cheaper than either British or Belgian. These were purchased by the Jute Control and resold in Britain at calculated ‘fair prices’, between 30 and 60 per cent above the Indian sale price. Thirty per cent might therefore be considered as the minimum tariff thought necessary to protect the most competitive of the British firms if this last outpost of state trading were to be demolished. In 1957 the mark-up on Indian goods resold in the United Kingdom was in fact standardised at 30 per cent, with a view to replacing the quota with a tariff. This step temporarily acquired a certain urgency with the free trade area proposals; had 288


the trade continued to be controlled by quota and the free trade area proposals been accepted by the EEC, Indian exports would have been diverted into Belgium, not a prospect which would have encouraged the Belgian government to support the British case. The shift from quantitative restriction to tariff in the event took until the 1960s and was carried out under a continuing regime of government purchase. Although the ‘fair price’ of the quota system was replaced by a fixed percentage mark-up on the Asian price, a mark-up which was by stages reduced from 30 per cent to 10 per cent, the trend of imported jute goods was a falling one, because the trend of consumption was also falling. In 1953 the United Kingdom produced 80,000 tons of jute cloth and imported a rather smaller weight of jute goods. Imports of jute goods, both of fabrics and of sacks and bags, reached their peak in 1960. Output of jute yarn declined from its peak in 1956 in parallel with imports of jute manufactures, but jute cloth production was preserved at roughly the same level throughout the 1960s.69

289

NOTES

1 A PERSPECTIVE ON BRITISH IMPORT CONTROLS 1 2 3 4

BT 13/206, Minute, 22 February 1949. T 236/4516, Note by R.W.B.Clarke, 10 May 1949. Board of Trade Journal, 14 November 1953, p. 1011. R.E.Baldwin, ‘Are Economists’ Traditional Trade Policy Views Still Valid?’, Journal of Economic Literature, vol. xxx, no. 2, June 1992. 5 J.H.Dunning, American Investment in British Manufacturing Industry (London, 1958), p. 299. 6 The value of annual British imports since 1945 has been subject to various revisions. In this calculation we use the values in B.R.Mitchell and P.Deane, Abstract of British Historical Statistics (Cambridge, 1962), since these are the ones most commonly referred to in the historical literature to which readers may wish to refer in making their personal judgement about the importance of these percentages. 2 QUANTITATIVE IMPORT RESTRICTIONS AND THE MODERN STATE

1 Norway, Statistisk Sentralbyrå, Historisk Statistikk 1968, Table 232. 2 Kaiserliches Statistisches Amt, Statistisches Jahrbuch für das Deutsche Reich, 1908, p. 277; Statistisches Reichsamt, Statistisches Jahrbuch für das Deutsche Reich, 1927, p. 457; Statistisches Bundesamt, Statistisches Jahrbuch für the Bundesrepublik Deutschland, 1960, p. 426. 3 B.R.Mitchell and P.Deane, Abstract of British Historical Statistics (Cambridge, 1982), pp. 393/5. 4 M.E.Kreinin, Alternative Commercial Policies—Their Effect on the American Economy (Michigan State University, East Lansing, 1967), p. 8. 5 F.Capie, ‘The Pressure for Tariff Protection in Britain, 1917–1931’, journal of European Economic History, vol. 9, 1980; T.Rooth, British Protectionism and the International Economy: Overseas Commercial Policy in the 1930s (Cambridge, 1993), pp. 35–70. 6 There are three reasonably full accounts: M.S.Gordon, Barriers to World Trade (New York, 1941); G.Haberler, Quantitative Trade Controls, Their

290

NOTES

7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Causes and Nature (League of Nations, Geneva, 1943); H.Heuser, Control of International Trade (London, 1939). Haberler, op. cit., pp. 13/14. F.A.Haight, French Import Quotas; A New Instrument of Commercial Policy (London, 1935), p. 19. National Institute of Economic and Social Research (NIESR), Trade Regulations and Commercial Policy of the United Kingdom (Cambridge, 1943), pp. 68ff. Haight, op. cit., p. 20. Rooth, op. cit., pp. 81ff. NIESR, op. cit., p. 174. League of Nations, World Economic Survey, 1938–39 (Geneva, 1940), p. 189. The fullest account is R.F.Mikesell, Foreign Exchange in the Post-War World (New York, 1954). A.Cairncross, The British Economy Since 1945. Economic Policy and Performance, 1945–1990 (Oxford, 1992), p. 4. T 230/413, ‘Commercial Policy’. Draft statement by J.Downie for Sir Robert Hall, 1 April 1959. Ibid., ‘Q.R.’. Note by J.Downie, 1 December 1959. I.Mintz, US Import Quotas: Costs and Consequences (American Enterprise Institute for Public Policy Research, Washington DC, 1973), p. 78. J.Lynch, Toward an Orderly Market. An Intensive Study of Japan’s Voluntary Quota in Cotton Textile Exports (Tokyo, 1968), p. 92. USA, Tariff Commission, Quantitative Import Restrictions of the United States (Tariff Commission Publication no. 243, Washington DC, 1968), p. 60. Mintz, op. cit., p. 56. H.B.Lary, Imports of Manufactures from Less Developed Countries (New York, National Bureau of Economic Research, 1968), pp. 80–5. R.E.Baldwin, Non-tariff Distortions of International Trade (Brookings Institution, Washington DC, 1970), pp. 38ff. BT 11/4977, Bilateral Trade Negotiations Committee, Memorandum of Views Agreed at a Meeting on 10 October 1953 by the FBI, ABCC, and NUM Representatives on the Committee. BT 64/5150, Correspondence between D.W.Barnett, Chairman of the British Clock and Watch Manufacturers’ Association with A.W. McKenzie, Board of Trade. Unfortunately the availability of materials in French archives does not permit a coherent study of the use of import quotas in sufficient detail to make systematic comparison with what occurred in Britain. Such information as we have been able to discover permits only occasional comparative references.

291

NOTES

3 BRITISH COMMERCIAL POLICY AND THE OEEC TRADE LIBERALISATION PROGRAMME, 1949–51 1 Not 6 per cent as mis-stated in Isaiah Frank’s generally excellent book, I.Frank, The European Common Market. An Analysis of Commercial Policy (New York, 1961), p. 61. 2 The fullest account of Anglo-Franco-American diplomacy within the OEEC is G.Bossuat, La France, I’aide américaine et la construction européenne 1944–1954, 2 vols. (Paris, 1992). 3 L.S.Pressnell, External Economic Policy Since the War, vol. 1, The PostWar Financial Settlement (London, 1986), pp. 326/8. 4 BT 64/4648, Report of the Working Party on Import Licensing Relaxations, 30 April 1949. 5 CAB 129/35, ‘Import Licensing Restrictions’. Memorandum by the Chancellor of the Exchequer. 28 May 1949. 6 T 236/4522, ‘Liberalisation. The Common List’, 18 June 1953. 7 R.T.Griffiths and F.M.B.Lynch, ‘L’échec de la “Petite Europe”: les négociations Fritalux/Finebel, 1949–1950’, Revue historique, vol. cclxxiv, no. 1, 1985. 8 T 230/389, Memorandum by Nita Watts, 28 February 1952. 9 Frank, op. cit., pp. 44/5. 10 This is the opinion, for example, of R.Triffin, Europe and the Money Muddle (New Haven, 1957), p. 166, who was himself involved in these negotiations. 11 It is described on pp. 58–61. 12 T 232/185, ‘Note of a Discussion on 26th January 1950 Immediately Before the Meeting of the Consultative Group’. 13 A.S.Milward, The Reconstruction of Western Europe, 1945–1951 (London, 1984), p. 329. 14 J.J.Kaplan and G.Schleiminger, The European Payments Union. Financial Diplomacy in the 1950s (Oxford, 1989), pp. 77–84. 15 P.M.Williams (ed.), The Diary of Hugh Gaitskell 1945–1956 (London, 1983), pp. 185–91. 16 ‘He circulated a memorandum full of an incipient nostalgia for a world of bilateralism, discrimination, and official settlement in sterling. The other world of the future—of multilateralism, non-discrimination, and the use of gold and dollars—seems to have had no real attraction for him, even in the regional European context. Nonetheless he was prepared to accept that American and continental pressures could not in the end be resisted. So it was a question of driving the hardest bargain, only giving up intra-European discrimination in exchange for the most liberal provisions on EPU credit.’ J.Fforde, The Bank of England and Public Policy 1941–1958 (Cambridge, 1992), p. 209. 17 After the start of the EPU the designated area usually had to include the whole of the OEEC area and its dependent overseas territories for the good to be deemed liberalised, but it was not restricted to the OEEC area. The usual practice of the British government was to offer such open licences for imports from the ‘Relaxation Area’.

292

NOTES

18 For the German Federal Republic 1949 values were used and the reference year for Austria was eventually established as 1952. 19 While the rationale for using fixed weights is understandable, the important political issue, what to do at any particular time, might have been better assessed by current weights. 20 Histories of the British car industry seem unaware that it was mainly by quotas, not tariffs, that cars, which became the dominant import of the 1960s, were excluded, entirely until 1954 and thereafter largely. D.G.Rhys, The Motor Industry. An Economic Survey (London, 1972), p. 378 is a notable example. 21 BT 11/4767, Joint Working Party of Trade and Food and Agriculture Committee (of OEEC). Draft notes forwarded by R.Gray, n.d. 22 BT 64/4605, Letter from Sir Hugh Ellis-Rees, 24 September 1954. 23 There are two such accounts. W.Andres, Der Liberalisierungskodex der OECE für den Warenhandel (Zürich, 1964); F.Boyer and J.P.Sallé, ‘The Liberalisation of Intra-European Trade in the Framework of OEEC’, IMF Staff Papers, iv, 1954/5. 24 In 1954 United Kingdom imports under bilateral quota amounted to about 5 per cent of total imports. Even a small proportion of total trade covered by bilateral quotas could still mean that the size of these quotas was of extreme importance to particular industries and trades. 25 Kaplan and Schleiminger, op. cit., p. 83. 26 Bossuat, op cit., vol. II, pp. 732–3. 27 W.Diebold, Trade and Payments in Western Europe. A Study in Economic Cooperation 1947–1951 (New York, for the Council on Foreign Relations, 1952), p. 195. 28 BT 11/4634, Import Licensing Committee. Working Party on Import Licensing Relaxations. Future Policy on Liberalisation of Trade. 23 December 1950. 29 M.Fg.Scott, ‘The Balance of Payments Crises’, in G.D.N.Worswick and P.H.Ady (eds), The British Economy in the Nineteen-Fifties (Oxford, 1962), p. 217. 30 Ibid. 31 C.R.Schenk, Britain and the Sterling Area. From Devaluation to Convertibility in the 1950s (London, 1994), pp. 66/70. 32 J.C.R.Dow, The Management of the British Economy 1945–1960 (NIESR, Cambridge, 1964), p. 63. 33 34 P.H.Ady, ‘The Terms of Trade’, in Worswick and Ady (eds), op. cit., p.149. 35 J.C.R.Dow, op. cit., p. 56 (n.1). 36 See pp. 158–160. 37 The difference between the United Kingdom’s EPU surplus of £113 million over the twelve months 1 July–30 June 1951 and its deficit of £340 million over the next twelve months.

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4 TAKING THE LEAD IN EUROPE: THE INTERNATIONAL POLITICS OF IMPORT CONTROLS, 1952–6 1 BT 64/4648, ILC. Fourth Report of the Working Party on Import Licensing Relaxations, 27 July 1951. 2 Accounts of this policy and its gradual implementation can be found in J.Fforde, The Bank of England and Public Policy, 1941–1958 (Cambridge, 1992), pp. 398ff.; J.J.Kaplan and G.Schleiminger, The European Payments Union. Financial Diplomacy in the 1950s (Oxford, 1989); A.S.Milward, The European Rescue of the Nation-State (London, 1992), pp. 347ff. 3 Cmd. 8800, Economic Survey for 1953, para. 103. 4 BT 230/249, ‘Statement by the United Kingdom in Reply to the Letter dated 16 February 1953 from the Chairman of the Steering Board for Trade Sir Hugh Ellis-Rees’ included in joint Cabinet Paper by the Chancellor of the Exchequer and President of the Board of Trade, ‘Relaxations on Trade with Western Europe’, 12 March 1953. Even with an average monthly surplus of $30 million with the EPU it would have taken more than two years for the United Kingdom to come back into balance. 5 A.Cairncross, Years of Recovery. British Economic Policy 1945–1951 (London, 1985), pp. 234–71. 6 FO 371/98992, E.A.Berthoud to Sir W.Strang, 3 September 1952. 7 T 229/770, R.B.M.King to J.A.C.Robertson, ‘Schumania’, 17 February 1954. The same term was used in an article in The Economist, 3 April 1954, p. 49. 8 SUPP 14/276, ‘Trade with France’. Note by P.W.Ridley, 8 May 1952. 9 CAB 134/1015, ‘Visit of French Ministers, Anglo-French Balance of Payments and United Kingdom Import Restrictions’, 10 February 1953. 10 T 236/4522, Note for the Chancellor by Edgar Jones. ‘Imports from Europe’, 14 March 1953. 11 T 236/4521, C(53)70, ‘Commercial Policy in Europe’. Cabinet Memo by President of Board of Trade, 19 February 1953. 12 Ibid., Comment by Copleston forwarded to Chancellor of Exchequer on the President of the Board of Trade’s memorandum, ‘Commercial Policy in Europe’, 19 February 1953. 13 G.Bossuat, La France, l’aide américaine et la construction européenne 1944–1954, vol. II (Paris, 1992), p. 873. 14 T 236/4522, Note for the Chancellor by Edgar Jones, 14 March 1953. 15 BT 64/4599, Memorandum by B.J.Leckie, 3 October 1953. 16 CAB 134/1021, MAC(54)30, 12 February 1954. 17 BT 230/249, Memorandum from R.W.B.Clarke, 22 September 1953. 18 Ibid., ‘Draft Section Programme’s Committee Report’, attached to memorandum from R.W.B.Clarke. 19 A.S.Milward, ‘La livre sterling, le franc et le Deutsche mark, 1950– 1955’, in Du franc Poincaré à I’écu (Ministère de 1’économie et du budget, Paris, 1993).

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20 J.Vernant, ‘L’économie française devant la C.E.D.’, in R.Aron and D.Lerner (eds), La querelle de la C.E.D. (Paris, 1956). 21 CAB 134/1021, MAC(54)35, ‘Liberalisation of Trade-Tactics’. Note by the Board of Trade, 23 February 1954. 22 BT 64/4558, passim, for the United Kingdom ‘negative list’. 23 CAB 134/1021, Meeting of 11 February 1954. 24 CAB 134/1021, MAC(54)40, ‘OEEC Examination of Remaining Quantitative Restrictions on Imports: The Netherlands’, 4 March 1954. 25 CAB 134/1021, MAC(54)39, ‘OEEC Examination of Remaining Quantitative Restrictions on Imports: B.L.E.U.’, 4 March 1954. 26 CAB 134/1021, MAC(54)38, ‘OEEC Examination of Remaining Quantitative Restrictions on Imports: The Netherlands, 4 March 1954. 27 CAB 134/1021, MAC(54)38, ‘OEEC Examination of Remaining Quantitative Restrictions on Imports: Denmark’. Note by the Board of Trade, 2 March 1954. 28 Bossuat, op. cit., p. 874. 29 CAB 134/1021, Meeting of Mutual Aid Committee, 11 February 1954. 30 CAB 134/1022, Meeting of Mutual Aid Committee, 19 March 1954. 31 T 236/3212, Outward telegram from Commonwealth Relations Office, 30 April 1954. 32 T 236/5551, Meeting of Mutual Aid Committee, 14 September 1954. 33 Ibid., Memorandum by D.A.U.Allen, 13 September 1954. 34 Ibid. 35 T 232/417, ‘Liberalisation Policy’, Brief for the Chancellor of the Exchequer, 11 September 1954. 36 Ibid. 37 BT 64/4551, ILC, ‘Examination of Difficulties Likely to Arise for the United Kingdom in Relation to Particular Products in the Event of the Removal of all Quantitative Restrictions’. Draft Report, November 1954. Although ‘the Committee were informed that no indication could be given of the date on which the new rules, if adopted, would come into force, since this would largely depend upon the progress made towards convertibility of sterling and other leading currencies’. 38 Board of Trade Journal, 30 March 1957. 39 BT 64/1551, ILC, ‘Examination of Problems Likely to Arise for the United Kingdom in Relation to Particular Products as a Result of the Removal of all Quantitative Restrictions on Imports’, 30 April 1955. 40 CAB 134/1025, Report of the Steering Board for Trade (SBC(54)19) (1st Revision), 2 December 1954 (MAC(54)215). 41 T 236/5551, Sir H.Ellis-Rees to R.F.Bretherton, 24 March 1955. 42 T 236/4602, Minute by Sir D.Rickett, 17 August 1955. 43 Ibid., ‘Balance of Payments’. Memo by Sir Leslie Rowan, 27 January 1955. 44 A.S.Milward, The European Rescue of the Nation-State (London, 1992), pp. 388–90. 45 T 230/394, ‘OEEC. Ministerial Council’. 46 Some account of its views on this question is given in A.Cairncross and N.Watts, The Economic Section 1939–1961. A Study in Economic Advising (London, 1989).

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47 See pp. 150–156. 48 T 230/394, ‘Economic Section Views on the Effects of Convertibility’. 49 The rule was specified too vaguely. It was possible to argue long about what ‘value’ was meant. Frank cites the case of Italy which construed the value of a car to be its value net of tax and any intermediate incorporated products, so that in 1959 only 1,800 Volkswagens were exported to Italy, whereas Italian car exports to Germany, faced with a more liberal interpretation of ‘value’, reached 100,000 in the same year. I.Frank, The European Common Market. An Analysis of Commercial Policy (London, 1961), p. 256. 50 CAB 134/1030, MAC(55)192. Despatch from Sir H.Ellis-Rees to FO, 11 October 1955. 51 T 237/260, ‘A Preliminary Tariff Club’, 15 December 1955. 52 T 237/270, Telegram from UK OEEC Delegation in Paris, 16 January 1956. 53 T 236/5552, Telegram from FO to UK OEEC Delegation, 25 January 1956. 54 Ibid. 55 CAB 134/1030, MAC(55)236. ‘OEEC—Liberalisation and Related Subjects’, 19 December 1956. 56 T 237/270, Thorneycroft to Macmillan, 25 June 1956. 57 T 236/5552, A.W.France to Sir D.Rickett, 27 June 1956. 58 T 237/271, ‘Note on Trade Questions Debated in the Ministerial Council of OEEC held on July 18 to 20’, 26 July 1956. 59 Hansard, 17 December 1957, Written Answers. 60 BT 64/4558, S.Stewart (UK Delegation to OEEC) to Mrs M.E. Welch (Board of Trade), 24 March 1954. 5 MEASURING THE EFFECTS OF QUANTITATIVE IMPORT RESTRICTIONS 1 J.E.Anderson and J.P.Neary, ‘Measuring the Restrictiveness of Trade Policy’, The World Bank Economic Review, no. 8, 1994. 2 United Kingdom, Cmd. 7046, Economic Survey for 1947, p. 14. 3 United Kingdom, Cmd. 7371, National Income and Expenditure in 1947, p. 11. 4 BT 64/4649, BT 64/4578, passim. 5 C.Zacchia, ‘International Trade and Capital Movements 1920–1970’ in C.M.Cipolla (ed.), The Fontana Economic History of Europe, vol. 5 (ii), (London, 1976). 6 M.Fg.Scott, A Study of United Kingdom Imports (National Institute for Economic and Social Research, Cambridge 1963). 7 W.M.Corden, ‘The Control of Imports: A Case Study—The United Kingdom Import Restrictions of 1951–2’, The Manchester School of Economic and Social Studies, vol. 26, no. 3, 1958, p. 181. 8 SUPP 14/173, Working Party on the Effects of Ending Dollar Discrimination, ‘Estimate of the Value of Additional Imports in 1954 in the Absence of Quantitative Restrictions, 2nd Revision’, WPDD (55) 1.

296

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9 10 11 12 13 14 15 16 17 18

19 20 21 22

23 24

25

26

27

This undated estimate was made in the middle of 1955 when all the major controls evaluated by it were still in place. Scott, op. cit., pp. 20–45. OEEC, Third Report on Co-ordination of Oil Refinery Expansion (Paris, 1953) p. 47. Hansard, 9 May 1949, Written Answers, p. 73. OEEC, op. cit. Ibid., p. 47; Petroleum Press Services, June 1950. Scott, op. cit., p. 41. Ibid., pp. 40–5. Ibid., table 11, p. 41. Ibid., pp. 40–5. C.R.Bean and N.Crafts, ‘Britain 1945–1992’, Unpublished paper presented to CEPR Conference on ‘The Economic Performance of Europe After the Second World War’, Oxford, December 1993; S.R. Prais, Productivity and Industrial Structure. A Statistical Study of Manufacturing Industry in Britain, Germany and the United States (National Institute of Economic and Social Research, Cambridge, 1981). Scott, op. cit., p. 44. Ibid., pp. 145–7. Ibid., p. 252. Index numbers straddling the Second World War are even more problematic than usual, as can be seen from the series for total imports in Monthly Digest of Statistics, 1954, Table X. When sub-quantities are weighted by 1938 prices the annual volume of total imports in 1947 fell 22 per cent below the 1938 volume. Weighted by 1947 prices the same fall was 30 per cent. However, the major sub-classes themselves are presumably less prone to index number problems. Corden, op. cit. For the circumstances in which these restrictions were imposed see pp. 70–75. ‘The improvement in the UK balance with the dollar area has been largely a matter of import cuts, and exports are still only about two-thirds of the reduced value of imports.’ T 236/4602, Note by F.R.P. Vinter, 11 June 1953. J.C.R.Dow, The Management of British Economy, 1945–1960 (National Institute of Economic and Social Research, Cambridge, 1964), p. 157; A.Cairncross, Years of Recovery. British Economic Policy 1945–1951 (London, 1985), p. 342. W.M.Corden, The Theory of Protection (Oxford, 1971); Protection, Growth and Trade: Essays in International Economics (Oxford, 1985); Protection and Liberalisation, A Review of the Analytic Issues, IMF Occasional Papers no. 54, (Washington DC, 1987); Strategic Trade Policy: How New? How Sensible? (World Bank. Country Economics Dept., Washington DC, 1990); M.Fg.Scott, W.M.Corden and I.M.D.Little, The Case Against Import Restrictions (London, Trade Policy Research Centre, 1980). Secret exercises were carried out in 1956 and 1962 aiming to cut 7.5 and 5 per cent respectively off the import bill. T 230/398 and BT 303/ 68, passim.

297

NOTES

28 SUPP 14/173, Working Party on the Effects of Ending Dollar Discrimination, op. cit. 29 BT 258/257, Note by A.G.Gilbert, 31 December 1953. GUbert, the Board of Trades expert on the subject, predicted £16 million for paper and board, £14 million for pulp, £22 million for newsprint. 30 SUPP 14/173, op. cit., ‘Note by the Secretaries’. 31 Ibid. 32 For the story of newsprint liberalisation see BT 258/257 through BT 258/266, passim. 33 Ibid. 34 A.Maizels, ‘Trends in World Trade in Durable Consumer Goods’, National Institute Economic Review, November 1959. 35 B.R.Mitchell and P.Deane, Abstract of British Historical Statistics (Cambridge, 1962), p. 371. 36 United Kingdom, Board of Trade, Annual Statement of the Trade of the United Kingdom, Class D minus sub-class D.13. 37 Scott, op. cit., p. 41, table 11. 38 Ibid., p. 20. 39 Scott, Corden and Little, op. cit.; F.Cripps and W.Godley, ‘Control of Imports as a Means to Full Employment and the Expansion of World Trade: The UK’s Case’, Cambridge Journal of Economics, 1978, vol. 2. 40 OEEC, The Timber Industry in Europe (Paris, 1954), p. 23. 41 Ibid., p. 38. 42 Ibid. 43 Ibid. 44 UN, Economic and Social Commission for Europe, Economic Survey of Europe in 1953 (Geneva, 1954), p. 8. 45 UN, Economic and Social Commission for Europe, Economic Survey of Europe in 1951 (Geneva, 1952), p. 12. 46 NA, RG 489, Records of the International Trade Administration, Bureau of International Programs, Office of International Regional Economics, European Division, European Economic Community Files, 1948–62, Box 3, ‘Conversation between officers of the Stuttgart Consulate General and Ernst R.Vogt’, 24 December 1957. 47 See pp. 58–61. 48 M.F.W.Hemming, C.M.Miles and G.F.Ray, A Statistical Summary of the Extent of Import Controls in the United Kingdom since the War’ The Review of Economic Studies, no. 70, February 1959, p. 75. 49 BT 70/355, ‘Imports from OEEC Europe’ September 1951. In earlier drafts the 1950 rise had been ascribed ‘only to a small extent’ to liberalisation. In the later drafts this becomes the unchallengeable ‘only in part’. Also, BT 11/4836, Carter to Nowell, 28 August 1951, in respect of liberalised ‘non-essential’ items and their rise in the first half of 1951: ‘the influence of this policy can be easily exaggerated’. Liberalised private ‘essentials’ like paper, pulp, and timber were not discussed, because there was as yet no likely prospect of deliberalising these ‘consolidated’ items. By September it was known that Britain had exceeded its payments quota by 15 per cent. By October the estimated July–August import figures from the OEEC indicated a further substantial rise; panic prevailed.

298

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50

51 R.Stone and T.Barker, The Determinants of Britain’s Visible Imports 1949–1966. A Programme for Growth, 10. (Department of Applied Economics, University of Cambridge, 1970). 52 Ibid., p. 63. 53 Scott, op. cit., p. 44. 54 Ibid., pp. 43, 162. 55 Board of Trade Journal 28 April 1932, p. 587. 56 Scott, op. cit., p. 168. 57 Ibid., p. 154. 58 M.E.Kreinin, Alternative Commercial Policies—Their Effect on the American Economy (Michigan State University, East Lansing, 1967), p. 57. 59 T.Scitovsky, Economic Theory and Western European Integration (London, 1958), p. 32. 60 OEEC, Economic Progress and Prospects for Western Europe (Paris, 1951). 61 Zacchia, op. cit., p. 595. 62 M.Ouin, The OEEC and the Common Market (Paris, 1958) p. 6. 63 Economic Survey for 1947, Cmd. 7046, p. 9. 64 United Kingdom, Annual Statement of Trade; Switzerland, Eidgenössisches Statistisches Amt, Statistisches Jahrbuch der Schweiz, 1948. 65 Eidgenössisches Statistisches Amt, Statistisches Jahrbuch der Schweiz (Basel, 1955), p. 371. 66 Mitcheil and Deane, op cit., p. 372. 67 R.E.Rowthorn and R.E.Wells, De-industrialization and Foreign Trade (Cambridge, 1987) provides a useful review, although typically in discussing the surplus on trade in manufactures in the years after 1945 they take no account of import quotas. 68 BT 70/664, Memorandum by J.W.Maton, 1 July 1960. ‘While the cost of liberalisation is substantial in relation to our current balance of payments it does not therefore account for a major part of the increase in our import bill. It may have contributed about three per cent to our imports so far this year.’ 69 A.P.Thirlwall, Balance-Of-Payments Theory and the United Kingdom Experience (London, 1982), pp. 145–7. 6 THE EFFECT OF IMPORT CONTROLS ON BRITISH MANUFACTURING 1 SUPP 14/173, MAC(55)177, 21 September 1955. 2 Sir S.Zuckerman, Monkeys, Men and Missiles. An Autobiography 1946– 88 (London, 1988), pp. 114ff.

299

NOTES

3 BT 11/4989, Twelfth Meeting of the Bilateral Trade Negotiations Committee, 27 January 1953. 4 The largest British consumer, ICI, was associated with the South African producer Rand Carbide, while the second largest, British Oxygen Company, owned Odda Smelteverk, the biggest Norwegian producer. There was pressure in the Board of Trade to keep out imports from both sources until a domestic producer was established. BT 64/4686, Note by C.B.Selby-Boothroyd, 10 November 1954. 5 The only items of machinery not liberalised for importation from EPU countries by that date were cash registers; diamond wire drawing dies; hydraulic machinery; paper machine wires; production control boards with signal pegs; scientific instruments; and spools for typewriters and ribbons. 6 J.H.Dunning, American Investment in British Manufacturing Industry (London, 1958), pp. 52/3. 7 Business International, 22 June 1956. 8 T 228/594, Note on Regional Planning by the Board of Trade, 25 October 1956. 9 SUPP 14/173, L.H.Robinson (Ministry of Supply) to Sir E.Cohen (Board of Trade), 8 December 1955. 10 BT 64/4926, Committee on the Future of the Dollar Saving Industries. Report, 1955. 11 United Kingdom, Board of Trade, Census of Production for 1954 (London, HMSO, 1958). 12 BT 64/4926, Report of the Committee on the Future of Dollar Saving Industries, May 1953. 13 Notably, D.MacDougall, ‘British and American Exports: A Study Suggested by the Theory of Comparative Costs’, Studies in Political Economy, vol. 2 (London, 1975). No important distinction, however, was made in the use of quotas by the United Kingdom against American manufactured exports between traditional goods which the USA manufactured more cheaply and goods which were the result of wartime innovation and had not previously been manufactured in Britain. Inability to compete was as strong a claim for a quota against America as the infant industry argument.

APPENDIX I Examination of Scott’s calculations of the value of imports of food and raw materials excluded by quantitative restrictions, 1946–9 1 M.Fg.Scott, A Study of United Kingdom Imports (National Institute of Economic and Social Research, Cambridge, 1963), p. 20. 2 Ibid., p. 19. 3 Ibid. By arithmetic, this suggests that consumption if free would have been 13.64 per cent higher than actual demand, but Scott, as quoted, cautiously uses 12 per cent.

300

NOTES

4 S.Pollard, The Development of the British Economy 1914–1990, 4th edn (London, 1992), p. 220. 5 Scott, op. cit., p. 249. 6 OEEC, Agricultural Policies in Europe and North America (Paris, 1956), pp. 258–61. 7 BT 64/4686, ILC 616. Annex C. 8 Scott, op. cit., p. 32. 9 Ibid., p. 137. 10 ‘The supply position of lead continues to be very difficult’, Board of Trade Journal, 8 November 1947, p. 1939. 11 OEEC, Report on the Progress of West European Recovery (Paris, June 1949), p. 19. 12 Scott, op. cit., table 5, p. 26. 13 Ibid., p. 26. 14 PEP, Britain and World Trade (London, 1947), p. 98. APPENDIX II Corden’s estimate of import savings in the year 1952 attributable to emergency quantitative controls imposed in November 1951 and March 1952, and our estimates of total savings for the year 1953 1 W.M.Corden,‘The Control of Imports: A Case Study—The United Kingdom Import Restrictions of 1951–2’, The Manchester School of Economic and Social Studies, vol. 26, no. 3, 1958, table V, p. 193. 2 OEEC, The Timber Industry in Europe (Paris, 1954), p. 27. 3 BT 230/178, ILC 602. 4 Corden, op. cit., tables III–VI. 5 A comparison of the sources of imports in classes A2 through A7 in the Annual Statement of Trade of the United Kingdom. The areas ‘British Commonwealth’ (minus Canada) and ‘Foreign Countries’ correspond roughly to the sterling area and the restricted areas. Unfortunately there seems no easy way to disentangle private from government imports. 6 Corden, op. cit., p. 218. 7 ‘During 1952 imports are being saved by living on stocks to the tune of some 300,000 standards. Stocks will be 420,000 by the beginning of 1953 and were 725,000 at the beginning of 1952…consumption in 1953 must be met wholly out of imports’, CAB 134/844, May 1952. 8 Board of Trade Journal, 31 March 1952, p. 1092. 9 T 236/4212, ‘Note of meeting held March 27th 1952 to discuss certain inter-departmental problems’. 10 BT 230/250, Note by M.I.Chapman, 30 October 1956. 11 Board of Trade Journal, 12 September 1953, p. 520. 12 Corden, op. cit., p. 214. 13 Ibid., p. 190. 14 BT 64/4582, ILC 412, 9 May 1952. 15 Ibid. 16 Ibid. 17 OEEC, The Textile Industry in Europe (Paris, 1956).

301

NOTES

18 Monthly Digest of Statistics, no. 94, October 1953, p. 128. 19 Board of Trade Journal, 14 March 1953, p. 500; 11 July 1953, p. 53; 4 July 1953, p. 6. 20 BT 230/249, Board of Trade Press Notice, 24 November 1952. 21 BT 230/249, Memo by R.M.Nowell, 15 November 1952. 22 The Cotton Board Quarterly Statistical Review, March 1953, p. 2. 23 United Nations, Economic Survey of Europe in 1953 (Geneva, 1954), p. 3. 24 United Nations, Economic Survey of Europe in 1954 (Geneva, 1955), p. 8. 25 Annual Statement of Trade of United Kingdom, Class D.6. 26 Board of Trade Journal, 22 December 1951, p. 1280. 27 Board of Trade Journal, 25 April 1953, p. 848. 28 BT 230/192, ILC (52) 73rd Meeting. 29 BT 64/4605, ILC 498, Annex V (1953). 30 See pp. 158–160. 31 See pp. 150–156. 32 OEEC, The Textile Industry in Europe (Second Report), (Paris, 1955). 33 Board of Trade Journal, 16 May 1953, pp. 979. 34 UN, Commodity Trade Statistics. 35 Board of Trade Journal, 29 November 1952; 28 March 1953. 36 Ibid., 24 January 1954. 37 Ibid., 11 July 1954, p. 521. 38 Ibid., 22 November 1954, p. 1065. 39 Ibid., 22 January 1955, p. 152. APPENDIX IV A survey of the operation of import quotas and other import restriction regimes on United Kingdom manufacturing 1 A.Plummer, New British Industries in the Twentieth Century. A Survey of Development and Structure (London, 1937), pp. 252ff. 2 L.F.Haber, The Chemical Industry 1910–1930. International Growth and Technological Change (Oxford, 1971) gives a more detailed account of the inter-war dyestuffs industry. 3 W.J.Reader, Imperial Chemical Industries: A History, vol. 2, The First Quarter Century 1926–1952 (London, 1975) provides a history of the development of dyestuffs. 4 The Director, July 1962, p. 83. 5 BT 11/4732, M.Burgess to Miss J.F.Frost, 15 May 1951. 6 BT 64/4926, Report of the Committee on Dollar Saving Industries, May 1955. 7 BT 258/598, ‘Dollar Liberalisation: Chemicals’. Note by A.Currall, 27 May 1958. 8 Ibid., A.L.Burgess to A.C.Hill, 22 May 1958. 9 BT 70/664, ‘UK Imports Liberalised in 1958’. 10 OECD, The Chemical Industry in the European Member Countries of OECD, 1953–1962 (Paris, 1964), p. 71.

302

NOTES

11 United Kingdom, Board of Trade, Census of Industrial Production, 1958, 1963, 1968. 12 Annual Abstract of Statistics. 13 Ibid. 14 T.Wilson, ‘The Electronics Industry’ in D.Burn (ed.), The Structure of British Industry: A Symposium, 2 vols. (London, 1958), p. 177. 15 BT 64/4675, Draft Memorandum, ‘Electronic Equipment’, October 1954. 16 BT 230/343, Note by Ministry of Supply, September 1953. 17 C.Freeman, ‘Research and Development in Electronic Capital Goods’, National Institute Economic Review, no. 34, November 1965. 18 BT 258/1898, Paper by H.J.Crawley, ‘The NRDC Computer Project’, February 1957. 19 BT 258/1421, W.G.Rainsley to F.N.Hill, 25 July 1962. 20 BT 258/1898, M.E.Quick to B.M.Eyles, 17 May 1962. 21 J.Hendry, Innovating for Failure. Government Policy and the Early British Computer Industry (Cambridge, Mass., 1990), Appendix B. 22 Ibid., Appendix B 8. 23 BT 11/4135, Twelfth Meeting of the Import Licensing Committee, 11 March 1949. 24 Production departments of the Ministry of Supply were not to sponsor import licence applications if a similar machine was available, albeit at a much higher price, from a British manufacturer, and even if the British machine was ‘slightly less suitable’. SUPP 14/338, Imports of Machinery from Dollar Sources, 6 December 1949. 25 SUPP 14/173, Note by Board of Trade to ‘Draft Brief for the Meeting in OEEC of 26 September 1955’, 21 September 1955. 26 BT 230/263, Minute by R.C.Bryant, 13 August 1952. 27 H.Espeli, Fra Hest til Hestekrefter. Studier i politiske og økonomiske rammebetingelser far mekaniseringen av norsk jordbruk 1910–1960, Norges landbruks høgskole. Institutt for okonomi og samfunnsfag, Melding nr. 2 (Oslo, 1990), pp. 688ff. 28 BT 230/263, Memo by Miss K.E.Boyes, 12 August 1952. 29 See, pp. 287–289. 30 T 236/5553, ‘Cash Registers’, Note by D.Church, 15 September 1958. 31 Census of Production, 1968 (57/7, table 5). 32 BT 230/323, Note of a meeting at the Board of Trade, 7 December 1953. 33 N.Tiratsoo, ‘The Motor Car Industry’ in H.Mercer, N.Rollings and J.Tomlinson (eds), The 1945–1951 Labour Government and Private Industry (Edinburgh, 1991). 34 SUPP 14/398, W.M.Miller to H.Bailey, 1 June 1953. 35 A.S.Milward, The European Rescue of the Nation-State (London, 1992), pp. 416/19. 36 BT 230/323, Meeting at the Board of Trade, 7 December 1953. 37 SUPP 14/355, Note by J.B.Cullen, 3 December 1953 and ensuing correspondence. 38 BT 64/4620, Miss J.Frost to J.L.Croome of the Ministry of Food, 26 May 1954, and ensuing correspondence. The Italian quota for German cars in 1954 was worth $1.05 million.

303

NOTES

39 SUPP 14/338, Letter from S.Masterman, August 1954, ‘Import Licensing Committee—Motor Cars’. 40 SUPP 214/355, Meeting of President of Board of Trade with the Society of Motor Manufacturers and Traders (SMMT), 23 March 1954. 41 Motor Business, January 1965, p. 47. 42 C.Glatt, Reparations and the Transfer of Scientific and Industrial Technology from Germany: A Case Study of British Industrial Policy and of Aspects of British Occupation Policy in Germany between PostWorld War II Reconstruction and the Korean War, 1943–1951, 3 vols. (Doctoral dissertation, European University Institute, 1994), vol. 1, p. 103. 43 Ibid., p. 105. 44 Ibid., vol. 1, pp. 110ff. 45 BT 64/4116, Economic and Industrial Planning Staff, The German Clock and Watch Industry Draft Memorandum by a Working Party, September 1945. 46 BT 258/356, ‘Protection of the UK Watch Industry’. Report by Board of Trade and Ministry of Supply, 4 January 1956. 47 BT 64/1136, ILC 190, ‘Import of Alarm Clocks’, 18 August 1947. 48 BT 64/4648, ILC/ILR 69, Third Report of the Working Party on Import Licensing Relaxations, 21 January 1950, and Annex 3. 49 BT 64/4648, Import Licensing Committee, Fourth Report of the Working Party on Import Licensing Relaxations, Draft Schedule C, 27 July 1951. 50 BT 64/4648, ILC/ILR 69, op. cit. 51 BT 64/4644, Import Licensing Committee, Working Party on Import Licensing Relaxation. Note of an ad hoc meeting, 5 January 1950. 52 SUPP 14/363, Final Briefs Proposed by the Board of Trade for the Examination by OEEC of Quantitative Restrictions on Watches and Clocks, 21 March 1954. 53 BT 64/4677, ILC 633, Annex B, Schedule 1, n.d. 54 BT 64/4558, ILC 562, ‘Examination of United Kingdom Negative List’ (March 1954). 55 BT 258/715, Import Control on German Cameras, n.d. 56 SUPP 14/342, Memorandum III from the Photographic Importers’ Association, n.d. 57 BT 64/4686, Minute by Miss K.E.Boyes, 18 January 1955. 58 BT 258/715, op. cit. 59 SUPP 14/338, ILC/ILR 6, Annex IV, Scientific Instruments. 60 SUPP 14/352, Letter from the Scientific Instrument Manufacturers’ Association, 13 November 1953. 61 Ibid., Letter from the Scientific Instrument Manufacturers’ Association, 1 July 1954. 62 BT 11/5437, Appendix C, ‘Restrictions which may still need to be maintained after the balance of payments problem is solved’. 63 See pp. 158–160. 64 United Kingdom, Central Statistical Office; Annual Abstract of Statistics, 1938–48, 1967. 65 Sir Eric Bowater, chairman of the largest domestic paper producer, thought the reluctance of the majority of newspaper proprietors to change

304

NOTES

66 67 68 69

the scheme in 1956 was because all were doing well financially. If their papers became larger, he argued, competition for advertising space would increase and its price would fall. BT 258/264, Note by M.R.C.Swindlehurst, 11 January 1956. BT 258/263, A.E.Welch to A.S.Gilbert, 26 July 1955. F.H.House, Timber At War. An Account of the Organisation and Activity of the Timber Control 1939–1945 (London, 1965), pp. 177ff. T 228/594, The United Kingdom Jute Industry. Note by the Board of Trade, October 1956. Monthly Digest of Statistics, Annual Abstract of Statistics, various issues.

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311

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312

INDEX

References are to the United Kingdom except where otherwise specified Admiralty, 34, 99, 193, 197 agricultural machinery, import quotas, 103, 110, 192, 256–8 Agricultural Marketing Act 1933, 270 Agriculture Act 1947, 140, 213–14 Alfa Laval, 256–7 alloy steels, import quotas (Italy), 32 American Cotton Manufacturers’ Institute, 32 Anglo-American Financial Agreement 1945, 43, 49, 51–2 Anglo-German Trade Agreement 1933, 270 Anglo-Swiss Watch Trade Agreement 1946, 271–81 apples, import quota, 98, 102, 125, 132 Argentina, 220 artificial jewellery, import quota, 106 Atomic Energy Authority, 253–4 Australia, 23, 109, 115, 261;import quotas, 124 Austria:car imports, 262;Trade Liberalisation Programme, 54, 64–5, 67 bacon:import quota, 23;import quota (USA), 30

bakers’ yeast, import quota, 193–4 balance of payments, xiii, 34, 133– 4, 184–9;deficit 1951, 43, 70– 6;swing 1951–2, 81–3; France, 35, 90–2;Germany, 67–9;USA 1958, 86, 204 bandsaw strip, import quota, 103 Bank of England, 1, 48, 58, 67, 75, 88, 109, 113 barley, import quota, 23 basketware, import quota, 98, 125 beef:import quota, 23;import quota (USA), 30 Belgium:agricultural machinery, 261;car imports, 262;European Payments Union, 96;import pattern compared to United Kingdom, 178–9, 236–7;interwar import quotas, 24;jute goods industry, 288–9;nonferrous metal stocks, 215;nylon, 246–7; sterling convertibility, 56;Trade Liberalisation Programme, 47, 54, 56, 61, 64– 5, 90, 92, 99, 176–7, 231–3 Bengal, 287–8 bicycles: import quota (Denmark), 99;import quota (Norway), 100 Bidault, Georges, 100 bilateral trade agreements, 23–4, 52–3, 58, 65–6

313

INDEX

Bilateral Trade Negotiations Committee, 192 Board of Trade, 34, 47, 70–1, 89, 93, 97, 110, 119, 122, 195, 198, 232, 240, 242, 246, 248, 252, 255, 280, 285 Board of Trade Import Licensing Committee, 37, 106, 111, 262– 3, 271 Board of Trade Import Licensing Department, 1 Board of Trade Journal, 37 Bradford, 257 Brazil, 38, 220 Bretherton, Nicholas, 119 Bretton Woods Agreement, 43–4, 46, 84, 181, 207 briar pipes, import quota (Germany), 100 British Dyes Ltd, 241 British DyestufFs Corporation, 241 Butler, Richard Austen, 78, 84, 88 buttons, import quota, 31 Cairncross, Alec, 67, 147 calcium carbide, import quota, 98, 103, 125, 193–4 cameras, import quota, 103, 110, 125, 132, 194, 278–9 Canada, 30, 52, 195, 227–8, 234, 246, 284;car industry, 261–2; chemical industry, 243–4, 248– 9 canned ham, import quota, 233 canned herrings, import quota, 191–3 canned meat, import quota, 233 canned tomatoes, import quota, 132, 233–4, 263 car industry, 6, 10, 13, 261–7; (Germany), 261–3;imports, 153–5;imports (Belgium), 154– 5, 237;imports (France), 154–5; imports (Germany), 154–5, 261–7;imports (Switzerland), 154–5;import quotas, 61, 98, 125, 132, 142, 152–5, 171–2, 200, 227, 261–7;import quotas (France), 124, 262–4;import

quotas (Germany), 262;import quotas (Italy), 32, 263; import quotas (Norway), 100; import quotas (Sweden), 263 carpets, import quota:(Germany), 100;(Norway), 100 cartels, 3, 20–2, 242–3, 284–5 cash registers, import quota, 98, 259–61 cashmere goods, import quota, 98, 132 cheese, import quota, 89, 148, 234 chemicals, import quotas, 192, 240–50 Citroën, 263 Clarke, R.W., 95 Clémentel, Etienne, 20–1 clocks, import quota, 34, 98, 103, 110, 125, 132, 194, 268–78; (Italy), 32 clothing, import quota, 31, 200, 225–6 clothing industry, 6 coal, import quota, 30, 98, 125, 141, 151, 235;(France), 30; (Germany), 30;(Netherlands), 30 coke, import quota, 125 Collective Approach, 84ff., 109 Committee on the Future of Dollar Saving Industries, 199, 247–8 Common Agricultural Policy of the EEC, 36 Commonwealth, 12, 31, 41, 44, 78, 83, 86, 120, 188, 222, 224, 226, 233 Commonwealth Conference 1952, 84, 88 Commonwealth Sugar Agreement, 133 computers, production and import quotas, 251–5 Congress of the USA, 15–6, 31, 54 Conservative Party, 19, 35 consumption controls, 1 convertibility of sterling, 12, 29, 43–5, 52, 57, 71, 78–129 convertibility of the Deutschmark, 91 Cooperative Wholesale Agency, 37

314

INDEX

Corden, W.M., 138–9, 146–50, 173, 185–6, 217–37 cotton:import quota, 235;import quotas (USA), 30 Courtaulds, 246 Cripps, Sir Stafford, 48–9, 54–5, 57, 81, 206, 267–70 cutlery, import quota, 125

(Italy), 32;import quotas (France), 124 electronics industry, 110, 250–1; import quotas, 132, 192, 200, 250–1 Elliot, 251 Ellis-Rees, Sir Hugh, 62, 97–9, 109, 111, 118 employment policy, 7–8, 191–2, 200–1 engineering equipment, import quota (Netherlands), 99 Erhard, Ludwig, 96 Estonia, 24 European Commission, 117 European Defence Community, 91, 96–7, 104 European Economic Community, 28, 33, 35, 85–6, 123, 207–8; import quotas, 124–5 European Free Trade Association, 28, 85, 138, 265, 276–9, 281 European Fund, 113 European Monetary Agreement 1955, 105 European Payments Union, 54–8, 70–6, 79–83, 87–8, 95–108; France, 87–9;Germany, 66–9 excavating and earth-moving machinery, import quotas, 192, 258 exchange control regulations, 38, 44–7, 85–7, 110 Exchange Equalisation Act 1947, 195 export controls:(Hong Kong), 7; (India), 7 export promotion by import quotas, 5, 10, 24, 54, 241–3

dairy products:import quotas, 23, 125;import quotas (USA), 30, 98 Day, Alan, 236 Defence Policy White Paper 1957, 276–7, 279 Democratic Party (USA), 5 Denmark:car imports, 262; Geneva Agreement, 21;import surcharges, 111;industrialisation, 80;Trade Liberalisation Programme, 53–4, 64–9, 95, 97, 99, 101, 108, 123, 156 Department of Scientific and Industrial Research, 252 Development Areas, 6, 8, 191, 195–6, 202, 259–60, 271, 277 diamonds and diamond dyes, import quota, 98, 103, 193 Diebold, William R. Jnr, 68 Doncaster, 257 Dow, J.C.R., 73, 147 Dundee, 260, 271, 288 Du Pont, 246 Dyestuffs (Import Regulations) Acts 1920–34, 242 dyestuffs, import quotas, 98, 103, 125, 132, 136, 193–4, 200, 227, 240 Dyestuffs Industry Development Committee, 242 Economic Cooperation Agency (USA), 48–54, 244 Eden, Anthony, 125 eggs, import quota, 102 Egypt, 38, 220 electrical equipment:import quotas, 31, 233, 235;import quotas (Denmark), 100; import quotas

Fawley oil refinery, 220, 244–5 Federation of Lace and Embroidery Employers’ Associations, 34 Ferguson, 257 Ferranti, 251, 254 ferrous chains, import quota, 193 Finland, 38, 150, 220, 228 fire extinguishers, import quota (Denmark), 100

315

INDEX

First World War, 20, 135, 138, 241, 286–7 fish, import quotas, 23 flax, import quota (France), 25–6 flower bulbs, import quota, 102, 125 food consumption, 211–14 Ford, 262 Foreign Office, 34, 109 foreign policy, xiii–xv, 12, 125–9, 188 Forestry Commission, 286 Fowler, 257–8 France:European Payments Union, 87ff.;food imports 1927–31, 22; free trade area proposals, 248; import surcharges, 100–1, 108, 111–12, 125–6;industrial policy, 63–4;inter-war import quotas, 19–26;London Economic Conference, 23;payments association with Benelux and Italy, 48–50;proposed customs union with Benelux and Italy, 41; Reconstruction Plan 1947, 64; state trading, 60–2;tariff history, 19–22;Trade Liberalisation Programme, 48–9, 62, 64–5, 68– 9, 76–7, 86–108, 176, 225–6; watch industry, 269 free trade area proposals, 115–16, 121–4 fruit and fruit juices, import quotas, 102, 132 Gaitskell, Hugh, 27, 56–7 GATT:agreements on international textile trade, 32;Article VI, 251; Article XI, 27, 30–1;customs unions, 124;free trade area, 116; preferences, 44, 93;quotas, 30–2; requests for tariffs, 106, 243, 270; tariff conferences, 27;tariff reduction, 28, 42, 92, 103, 119, 122–3, 273 Geneva Conference for the Abolition of Prohibitions and Restrictions 1927, 21 Germany:agricultural machinery, 261;camera industry, 278–9;

European Payments Union, 96, 104;inter-war import quotas, 24;tariff history, 16;Trade Liberalisation Programme, 53–4, 56, 64–5, 67–9, 92, 100, 123, 176–7;watch and clock industry, 34–6;Weimar Republic, 21 government import programmes, 37–8 Greece, 67, 108 grey cloth, import quota, 31 ham, import quota, 23, 125 handguns, import quota, 34, 125, 193–4 hand-knitting yarns, import quota (Germany), 100 hardwood:import quota, 285–7; import substitution, 200, 218, 285–7 hats, import quota (Germany), 100 hemp, import quota, 98, 125, 133 Herring Industry Board, 191 Hoffman, Paul, 49, 51, 54–5 hollowware, import quota (Norway), 100 hops, import quota, 23 Iceland, 67, 108 I.G.Farben, 242, 249 Imperial Chemical Industries, 207, 242–5, 249–50 Import Duties Act 1931, 169 import substitution, 187, 190–208, 240–61, 267–87 Imports Substitutions Panel, 190 India, 151, 232, 288 Indo-Chinese War, 76 Indonesia, 38, 220 industrial policy, xiii–xiv, 6, 190–208 industrial process control instruments, import quota, 280–1 industrial tractors, import quota, 258 infant industries, 9–10, 192–5, 240–55, 267–81 International Business Machines (IBM), 206, 251–5 International Harvester, 257

316

INDEX

International Monetary Fund, 46, 84, 113 International Reparations Authority, 270 International Trade Organisation, 44 iron and steel tubes, import quota, 98, 102, 132 Italy:European Payments Union, 88– 90;industrialisation, 80; inter-war import quotas, 24;tariff history, 28;Trade Liberalisation Programme, 54, 62, 64, 88–9, 101, 103, 108, 123, 176–7, 225– 6;typewriter industry, 260 Jacobsson, Per, 67 Japan:camera industry, 279; Geneva Agreement, 21;trade with, 87, 150;trade (USA), 79; typewriter industry, 260;watch industry, 206, 269, 277 jewels and jewel bearings, import quotas, 98, 125, 193–4 Jute Control, 235, 288 jute manufactures, 6–7, 190 import quota, 125, 150–1, 236, 287–9 Kennedy, President John Fitzgerald, 85 Key Industry duties, 240, 243–4, 251, 270, 279, 281 Keynes, John Maynard, 4 Korean War, 67, 158, 234 Kreinin, Norbert, 174 laboratory porcelain, import quota, 103 Labour Party, 4, 81 lace:import quotas, 34, 125, 223; import quota (Germany), 100 Law of 13 December 1897 (France), 21 lawn mowers, import quota, 233 Layton, Lord, 153 Lennox-Boyd Committee 1944, 270 leather:import quota, 98, 125, 132; import quota (Denmark), 99 Leo computers, 251

light bulbs, import quota, 31 linoleum, import quota (Netherlands), 99 linseed oil, import quota, 98, 133 livestock, import quotas, 23 London Economic Conference 1933, 23 J.Lyons, 251 machinery, import quotas, 256–61 Manchester University, 251 Marjolin, Robert, 92–3 Market Supply Committees, 22 Marshall Plan, 40–3, 47–55, 62, 66, 76, 204, 244 matches, import quota, 222 measurement of the effectiveness of import controls, 6, 11, 130–89, 211–37 medical equipment, import quota (Italy), 32 mergers, 3, 207 Ministry of Agriculture and Fisheries, 99, 191 Ministry of Aircraft Production, 270 Ministry of Aviation, 253–5 Ministry of Food, 234 Ministry of Fuel and Power, 141 Ministry of Supply, 9, 34, 99, 115, 196–7, 225, 250–6, 267–8, 273, 275, 279–80 Ministry of Technology, 255 Ministry of the Economy (Germany), 115 Ministry of Trade and Industry (Japan), 31 mutton, import quotas, 23 Mutual Aid Committee, 93, 99, 102, 190 National Cash Register Company, 260–1 National Coal Board, 37, 151 National Farmers’ Union, 213 National Health Service, 247, 249 National Research and Development Corporation, 191, 252–5 Netherlands:European Payments Union, 96;foreign trade,

317

INDEX

39;Geneva Agreement, 1;herring imports from, 191;industrialisation, 80;interwar import quotas, 23– 4;proposed payments association with Belgium, France and Germany, 49–51;proposals for common market, 91;tariff history, 28;Trade Liberalisation Programme, 54, 62, 65–6, 68, 99–101, 176–7, 233 Newspaper Supply Company, 284–5 newsprint:import quota, 125, 133, 152–3, 227, 235, 284–5; rationing, 95, 133, 284–5 non-ferrous metals, import quotas, 235 North American Free Trade Area, 15–16 Norway:GATT, 42;Geneva Agreement, 21;herring imports from, 191;tariff history, 16;Trade Liberalisation Programme, 53–4, 64–5, 100;tractor imports, 257 nuts, import quota, 234 nylon stockings:import quota, 10, 106, 125, 132, 227, 246; import quota (Netherlands), 99 oats, import quota, 23 office furniture, import quota (Norway), 100 office machinery, import quotas, 103, 110, 132, 192, 199, 258–9 oil and oil products:import quotas (USA), 30–1, 33, 244–5;import quotas (France), 30 oil refinery equipment, import quota, 199, 245 Open General Import Licences, 38, 48, 56, 83, 102, 158 Operation Robot, 84 optical instruments, import quota, 103, 125 Organisation for European Economic Cooperation (OEEC): Council, 52, 54, 57, 64, 68, 93, 107–8, 119, 121–2;Franco-British rivalry,

78–129; Ministerial Consultative Group, 48;Secretariat, 68, 99, 121; Steering Board for Trade, 94, 97, 123, 275;Textile Committee, 232;trade rules, 54–8, 66, 68–9, 114;see also:Trade Liberalisation Programme Ottawa Conference 1932, 23, 194 paint:import quota (Denmark), 99; import quota (Netherlands), 99 Pakistan, 151, 288 paper, import quotas, see pulp, paper and board peanuts, import quota (USA), 30 pears, import quota, 98, 102, 125, 132 penicillin, import quota (Netherlands), 99 petrochemical industry, 110, 206 petrochemicals, import quotas, 132, 192, 196, 244–7 petrol rationing, 95, 133, 141, 245 petroleum products, consumption, 141–2 pharmaceutical products, import quotas, 106, 192, 206, 247–50 plastics, import quotas, 192, 240 plums, import quota, 98 plywood, import quota, 98, 133, 228–9, 235 Portugal:GATT, 42;Geneva Agreement, 21;Trade Liberalisation Programme, 64 potatoes, import quota, 23, 125 pottery:import quota, 31;import quota (Norway), 100 Powers-Samas, 251 prices: 1929–32, 21; cars, 154; dyestuffs, 243;elasticities of import demand, 167–9;France, 100–1, 108;imports 1952, 83, 156–173;import quotas, 25; raw materials 1950–1, 70–4; United Kingdom and USA, 204 Programmes Committee, 70, 89, 95 protectionism:against Germany, 9, 193–4, 267–81;against Japan, 7, 31–2;against Scandinavia,

318

INDEX

10;against USA, 6, 9, 28, 108– 11, 118, 125, 192–3, 198–205, 240–267;against western Europe, 6, 193–4 pulp, paper and board:effect of quotas on prices, 158– 61;import quotas, 10, 38, 93, 103–4, 106, 109, 111, 119–22, 125, 133, 148–9, 152–3, 171– 2, 200, 224, 226–9, 235, 281–3 Raw Cotton Commission, 8, 220 rayon, import quota, 31 razor blades, import quota (Denmark), 100 refrigerators:import quota, 233; import quota (Denmark), 100; import quota (Italy), 32 regional policy, xiv, 6, 8, 193–6 Reichstag, 15 Relaxation Area, 38, 147–9, 218– 25, 230–6 Renault, 263, 265 reparations, 267, 270–1 Republican Party (USA), 5 Rootes, 261 rubber hot water bottles, import quota (Norway), 100 Saab, 264 savings, 133 scientific instruments, import quotas, 98, 103, 125, 132, 194, 279–80 Scitovsky, Tibor, 175–6 Scott, Maurice Fitzgerald, 71, 138– 46, 149, 168–9, 174, 185–6, 211–16 Scottish Development Area, 8, 195–6, 202, 260 Scottish Office, 195 Second World War, 8–9, 25–6, 28, 130, 133–4, 137–8, 178, 194, 203, 206, 243, 259, 268–9, 285–7 sewing machines, import quota, 10, 132, 233 Shell Petroleum, 245 Siberia, 19

silk bolting cloth, import quota, 193–4 silver:import quota, 98;import quota (Norway), 100 Smiths (Industries), 268, 271 smokers’ requisites, import quota, 125 Snoy et d’Oppuers, Baron Charles, 119 softwood:consumption controls, 1, 95, 133, 158;effect of quotas on prices, 158;import quota, 95, 133, 221, 235 South Wales Development Area, 246 Soviet Union, 4–5, 150, 228, 269 Spaak Committee, 113–16, 118–120 Spain, 12, 80 sports goods, import quota, 125 Stanlow oil refinery, 245 state trading, 37, 52, 58–62, 126, 148–50, 191–2, 213–14 steel controls, 262 sterling area, 70–6, 220–1 sterling balances, 56–8, 84, 88–9 sterling reserves, 55–7, 65, 67, 71–3, 83–4, 88, 94, 96, 104, 108, 112 stone, import quota, 125 strategic industries, 8, 98, 103, 191, 193–4, 197–8, 244–55, 267–80 Sudan, 38, 42 Suez, 125 sugar:confectionery, import quota, 125, 133;confectionery, import quota (France), 124;import quota, 30 sulphuric acid, import quota, 132 Sweden:agricultural machinery, 261;car exports, 264–5;car imports, 262;coal imports, 24; GATT, 121–2;paper industry, 103, 121–2;pulp producers, 109; Trade Liberalisation Programme, 92, 102, 256 Switzerland:car imports, 262; European Payments Union, 96; import pattern compared to United Kingdom, 176–82;interwar import quotas, 24;nylon,

319

INDEX

246–7;Trade Liberalisation Programme, 54, 56, 62, 92, 123, 176–7;watch and clock industry, 34, 206, 268–78 synthetic fibres, 245–6 tariff preferences Commonwealth), 44, 93, 119–21, 124, 194 tariffs:inadequate as trade egulator, 2– 3, 14;increased 1962, 5; nstrument of state-building, 15–18 terms of trade, 71–4, 138, 142–5 textile industry, 4, 6–7, 13, 200–1, 225;Belgium, 231–2;France, 88–9;Germany, 4, 224;Italy, 88– 9;USA, 4, 31–2 textiles:import quotas, 88–90, 132, 148, 224–5;imports, 224–6 Thatcher, Margaret, 255 Thorneycroft, Peter, 122, 264 Timber Control, 158, 286 Times, The, 284–5 Timex, 271 tobacco consumption, 133 toys: import quota, 31, 125;import quota (Norway), 100 tractors, import quota (Norway), 25–7 Trade Agreements Act 1934 (USA), 18, 31 trade discrimination, 12, 20, 25–7, 43–4, 57, 65–6, 86–7, 114 Trade Liberalisation Index (of the OEEC), 53, 58–64, 88, 90, 92, 103, 110, 126–7, 162–3, 175– 7, 192–3, 282 Trade Liberalisation Programme (of the OEEC), 11–12, 27, 34, 38–129, 207 Traders and Licensing Committee, 241–2 transferable drawing rights, 48–50 Treasury, 29, 34, 57, 71, 89, 102, 109, 112, 198, 253;Economic Advisory Section, 114–15, 146 Treaty of Rome 1957, xv, 29, 36, 102, 109, 114–15, 117, 123–5, 207, 275

Treaty of Western European Union 1955, 105 tungsten carbide, import quota, 103, 133 Turkey, 53, 64–5, 67–8, 108 typewriters, import quota, 233, 259–60 umbrellas, import quota (Norway), 100 United States of America:ally of the United Kingdom, 12, 40–1; car industry, 261–6;Collective Approach, 84–91, 104;copper, 215;direct investment in the United Kingdom, 8, 194–8, 247–50;Geneva Agreement, 21; military aid, 67;tariff history, 17–18;tariffs, 42, 86, 208; watch industry, 269;see also: Economic Cooperation Agency and Marshall Plan United States Department of State, 25, 90 United States Tariff Commission, 18 vegetables, import quotas, 102, 132 Vickers-Armstrong, 258 Volkswagen, 265 voluntary export quotas:Hong Kong, 32, 198;India, 32, 198;Japan, 31–3, 174, 198;Pakistan, 32, 198 Volvo, 264 wallpaper, import quota (Norway), 100 watches, import quota, 34, 98, 103, 110, 125, 132, 193–4, 268–78 whale oil, import quota, 133 wheat, import quota (USA), 30 Working Party on the Relaxation of Import Licensing Restrictions, 47–8, 81, 191–3 World Open General Import Licenses, 37, 224, 256, 273 World Open Individual Import Licenses, 37, 151, 221 woven wire cloth, import quota, 103, 193

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