1992 And All That

If 12 national markets are to be transformed into a single, internal market by the end of 1992, it’ll be a Euro-miracle. This is exactly what the EC’s Lord Cockfield is determined to see happen.

September 1 1988 by Chief Executive


If 1992 ever resonates as a watershed . date that future schoolchildren will labor to understand as much as 1066 or 1776, it will be due, in no small measure, to Lord Francis Arthur Cockfield, [pronounced co-field] who has’ worked energetically to create a unified European internal market.

Lord Cockfield is vice president of the European Commission (EC) and is the leading figure behind its campaign to eliminate all barriers and to unify its internal market by 1992. The elimination of these barriers-ranging from customs posts and technical standards to taxation rules and restrictions on financial services-will provide the free movement of goods, persons, services and capital throughout Europe. Lord Cockfield proposes some 300 measures designed to transform the Community into a vast open market of more than 320 million people, similar to that of the United States.

Called a Euro grandee and a walking white paper, Lord Cockfield has led a distinguished career before joining the EC in 1985. He was a Commissioner of Inland Revenue; managing director and chairman of the Boots pharmaceutical company in Great Britain, and a cabinet minister with the Thatcher government. He was made a life peer in 1978.

At a breakfast at New York’s Ritz Carlton, CE invited Lord Cockfield to discuss the “grand design for Europe in 1992.” Given European protectionist fervor and slow growth, CE posed the question, “Will the EC end up creating a huge, free internal market that may be closed to non-Europeans? In short, from a North American point of view, will 1992 be a “good thing” or a “bad thing?” Excerpts from the discussion and questions from attending CEOs follow.

Editor’s note: As we went to press, British Prime Minister Margaret Thatcher appointed Leon Brittain to succeed Lord Arthur Cock-field, whose term expires December 31, 1988. Thatcher’s decision not to reappoint Cock-field was greeted with dismay by other members of the Commission. Cockfield’s vocal support of tax harmonization was viewed as being too European for Thatcher’s taste, a fact which may call into question the UK’s commitment to some of the more ambitious goals cited here.

1992 IN PERSPECTIVE

Lord Arthur Cockfield: The ultimate objective of 1992, in perspective, is to create a single European economy in much the same way as there is a single economy in the U.S. The completion of the internal market is the most important step in that direction. Whether you’re looking at developments in the field of science and research, the application of new technologies or economic and monetary policies, they all require the marketplace of 320 million people that a unified market in Europe will provide. It’s important that I make this distinction because people are increasingly asking me, “When are you going to get a single European currency?” A single European currency is only half of the creation of an integrated European economy and that half lies beyond the 1992 horizon. We have to look at 1992, not as the end of the road, but as a road which leads to further and wider objectives.

In the early years of the Community-which dates back to 1952-the member states produced, on average, an increase of 5 percent in GNP per annum. In the 1970s, that progress came to an end for a variety of reasons: the successive world recession sparked by oil price increases and the European Community also had to deal with domestic problems; the enlargement of the community in 1973 brought in new members with different problems. For a number of years there was relative stagnation in Europe while the rest of the world was still forging ahead.

In the early 1980s, as Europe began to emerge from the recession of the 70s, the prime ministers and presidents of the member states of Europe recognized this problem and came to that great conclusion that is beloved by all politicians: that something ought to be done about it by “someone!” The present commission-which came into office in January of 1985-is essentially a quasi-political bandage; an executive arm of the community that lasts for four years. When we first organized, the most important thing we saw needing attention was the creation of the single market in Europe. The causes of Europe’s relative stagnation in the economic field were manifold, in many forms, but undoubtedly the fragmentation of the market was one of the principle reasons for the lack of progress in Europe. Instead of having a single market of 320 million people, you had a dozen markets averaging only 25 million people each-these were separated from one another by frontier controls, differences in plant and animal health regulations, problems arising from common agricultural policies in the form of border taxes and numerous other reasons. There were also nationalistic public procurement policies and monopolistic measures taken both by individual, national governments and by private organizations. Bringing that fragmented market together into a single, unified market meant there would be 320 million people to sustain trade and industry; it would be the biggest integrated market in the world.

Two years ago, we commissioned a major study to evaluate the costs of the present position of Europe and the benefits which would flow from the integration of the European market into a single, great market. The results of that study have just been published. Apart from the commission’s involvement, there were 15 consulting firms brought in and 11,000 businesses responded to the commission’s inquiries; it was an enormously important study; one which proves the necessity of this program. It indicated that the benefits of 1992 would produce and increase the communities’ GNP by 5 percent, reduce prices by about 6 percent and create 2 million new jobs.

The program, itself, was published in June of 1985. It was a complete program: there were 300 proposals, all of them set out in detail in that original 1985 document; it was set in a time frame; (that goes back to my own industrial experience, that is, if you want a job done, you’ve got to say when you want it done and you’ve got to lay down a timetable.) That’s exactly what the White Paper did.

The date of 1992 wasn’t a number pulled out of a hat; it had a solid reason behind it. The original treaty of Rome, the creation of the “custom’s union,” as it was called, was determined by the time in which it was to be completed-a period of 12 years. (That is the lifetime of three of our commissions.) We decided that if our predecessors could do it in 12 years, we could do it in the lifetime of two commissions. If you start on the first of January, 1985, and you take the lifetime of two commissions-which is eight years-you end up at the 31st of December, 1992.

Now that the objectives are enshrined in a single, European act-which was adopted by all member states-you have a document; an act approved by the parliaments of every member state (two of them on the basis of a referendum). It says two things: It defines the internal market as a single area without internal frontiers in which the freedom of movement of groups, persons, services and capital is insured. It also says that this is to be achieved “progressively over a period expired on the 31st of December, 1992.” Not a period which might go beyond 1992; not 1992 with a little bit of luck; not 1993 or 1994, but a period expiring on the 31st of December, 1992. That is my answer to people who ask me, “Will you do it?” The commission has now produced two-thirds (about 200) of the 300 proposals. By the end of 1988, we will have produced 90 percent of the total. These proposals will have to go through the European parliament and the council of ministers.

I am now witnessing a great surge of interest in this project, which is largely a reflection of the fact that people now accept that it is irreversible; they have only four years left and they’d better, therefore, get on their marks now so they’re not left standing on the starting line when their competitors are already under way.

EXTERNAL IMPACT

Everything we do inside the community has an external impact; there are two schools of thought here: one, which you tend to find in certain circles in Europe, says that by integrating the European market we will be creating a great opportunity; we will do it for the benefit of American and Japanese companies. That view is widespread. The other, opposite view, is that which is expressed by the phrase “autres Europe” [other Europe]. I don’t know who invented the phrase and I don’t support either school of thought. As Shakespeare said, “A plague upon both your houses.” [Laughter]

In conclusion, I’d like to note that there has always, throughout history, been a battle between free traders and the protectionists. This was one of the major themes of Adam Smith’s Wealth of Nations. There has been a recent judgment by the court of justice in Luxembourg (December 1986) that says, in effect, that in regard to certain barriers, such as services, member states are entitled to impose restrictions. We’re not prepared to alter that position unilaterally in advance of GAIT negotiations. To do so would be very short sighted for two reasons: First, it would cut across the accepted panels of negotiation; that is, you do not give away your advantages in advance. Second, it would be much more likely to lead to an illiberal role and to a less effective agreement with the GATT. If you’ve given away your position first, what pressure could you then exert on the illiberal countries in the GATT?

Richard A. Voell (The Rockefeller Group): I’ve heard it said that a rising tide lifts all ships. Some of the concerns expressed by some European businessmen I’ve talked to are that the rising tide will lift all ships, but at the expense of others. Specifically, those countries in Europe that are moving forward will be carrying the ones that aren’t-thereby providing a protective cushion for the less efficient countries. What is your comment?

Cockfield: What you’re saying is that you will get the same sort of problems inside Europe that you have in the U.S. and Europe at present, with declining industries. This is true. One of the things that governments do-often ill advisedly-is to support the old at the expense of the new. In the long run, this is a very foolish policy and the community has strict rules relating to what is called state aid. -In order to insure that aid is given, member states are limited in time and are designed for reconstruction, not merely to keep dying enterprises on their toes. The completion of the internal market does not accentuate those problems. Instead of these countries becoming, as you indicate, areas which are damaged by the completion of the internal market, they are becoming areas where the industrialists of the North see great opportunities. It is essential, however, to improve the human and physical infrastructure of the less advanced member states of the community. That is the reason for the so-called structural funds which have been greatly increased in amount; to enable less-developed countries to take advantage of new developments, not to keep dying industries in position.

John J. Roberts (American International Underwriters): One of the problems we see is the harmonization of taxation. Would you comment on that?

Cockfield: The position in Europe is more difficult than it is in the United States. For example, Holland, Belgium, Germany and France all have common borders; they’re areas which are heavily populated and, unless you brought your indirect taxes within a reasonable distance of one another, you would get a serious distortion of trade. What we’re doing is to bring these taxes closer to persuade the finance ministers that they can abolish the frontiers and frontier controls. Then, it will be the forces of the market which decide how close to one another the final taxes come.

Roberts: And that harmonization will be completed by 1992?

Cockfield: Yes. The objective of harmonizing indirect taxes appears in the original Treaty of Rome; it is not something I invented during a nightmare one night-great progress was made. The progress made in the ’50s, ’60s and ’70s needs to be brought to a successful conclusion. We’re more flexible than our predecessors were. By harmonization, our predecessors meant precise identity; by harmonization, we mean bringing sufficiently close together. People who sing in harmony do not necessarily have to sing the same note.

Marshall Butler (AVX): Will the commission attack different costs of fringe benefits? These vary tremendously.

Cockfield: It is not part of the 1992 program. The 1992 program is not the complete range of everything the community is doing. It does not attempt to deal with every problem known to mankind. You’ve touched on some of the important issues that, in the long term, will have to be tackled: social security and welfare benefits. Another is the taxation of corporations. We are aware of these issues and we will be producing a document on them in the near future. The 1992 program will produce an effective, working single market. It will not be a perfect single market; nothing in this world is perfect. We must leave something for our successors to do. [Laughter] After 200 years, the U.S. does not have a perfect internal market. It has a workable one.

Voell: Do you have a 1994 program?

Cockfield: So far we do not have one, but you can see one beginning to emerge. It follows, logically, that in the not too distant future, there will be a need for another White Paper which goes beyond the 1992 objective.

Jean Way Schoonover (D-A-Y): How much public understanding is there of the program and does it have wide support in both the industrial and labor communities? Cockfield: There has always been widespread support for the program at the political and top industrial levels. The program has also been accepted and supported by the European trade unions. In the last six months there has been a sudden awakening of interest. Trade associations, professional advisors, consultants and members of the European parliament-many of whom are setting up what are being called “1992 clubs” in their constituencies-are taking a very active part.

Magnus Moliteus (Pharmacia): Being a Swede, I have to ask the question: Will the nonmembers in Europe, like Austria, Finland, Sweden and Norway, join, and will you let them join?

Cockfield: That is entirely a matter for them to decide. The treaty says that any European country wishing to join the community may so apply.

Arnold Pollard (CE): There was an article which appeared recently in the New York Times (and therefore it must be true) [Laughter] that characterized 1992 by an imaginary portrait of a commercial 18-wheeler filled with merchandise traveling from the south of Europe to the north that didn’t stop at any border. What will be the changes in border practices as commercial vehicles move across country borders and, has that image brought any concern on the part of some of its citizens?

Cockfield: You’ve got two separate problems there. One is whether you’re talking about the community, which is 12 member states, or whether you’re talking about the community plus EFTA. The second part of your question is answered specifically in the White Paper. The first part of the Paper deals with the physical barriers. The rest of your answers can be found in the study I mentioned earlier. A great deal has already been done to facilitate actual physical movement at the frontiers. There has been much improvement with administrative functions, transit procedures and documentation.

Butler: Unfortunately, I did not read the White Paper and I apologize for coming ill-prepared to class. [Laughter]

Cockfield: Well, we have some difficulty with member states who have not read the Treaty of Rome; so you’re not alone.

Butler: I was under the impression that we could operate in Europe as we do in the U.S.; we can send a box Federal Express to Memphis, Los Angeles or Florida but that is not the case today in Europe?

Cockfield: As of now, everything is stopped at the frontier. It has to be fully documented. One of the major problems is in connection with indirect taxes because the sales tax is refunded at the border to the exporting state. If we got rid of the frontiers and controls, and had complete freedom of movement, then the forces of competition would flow across the full width and breadth of the internal market, thus reducing competitive pressures.

Butler: If you reduce the paperwork to one document, and that document still has to be inspected at each border, the job has not really been completed. Are you going to eliminate the need for having that document inspected at each border by 1992?

Cockfield: What you say is entirely correct. The single administrative document was an extraordinary step in simplifying the procedure. We want to go one massive step beyond that. We want to tax in the same way as you would place a tax on a consignment of goods going from Paris to Marseilles or from London to Edinburgh. Goods would still be taxed, but the operation would be carried out at the point of consignment and the point of destination.

J.P. Donlon (CE): Considering the fuss created by Carlo de Benedetti in his attempt to take over Societie Generale, are we likely to see a highly excited market for corporate control once 1992 comes to pass?

Cockfield: I’m not going to comment on an individual case. There have been a large number of transactions of the kind you mentioned over the last several years. With the completion of the internal market there will be companies operating throughout Europe, instead of primarily manufacturing and trading on their domestic markets. This will create a great deal of reorganization and there will no doubt be a large number of takeovers as a result.

Bernard G. Rethore (Microdot Industries): You describe the creation of the single market as, essentially, a fait accompli. What is the single most important step beyond the completion of the market?

Cockfield: The next step is obviously the development of a single European currency. You have three great advantages in the United States: a single market, a single currency and, approximately, a single language. [Laughter] The foundations of this program are already being laid: the development of a European Currency Unit (ECU). Incidentally, the ECU was the name given to the golden coin of the middle ages, so it’s a wonderful acronym.