Free Trade in a Free World

MR. LAWSON: Mr. Albert A. Thornbrough was born on a Kansas farm some forty-eight years ago. He graduated with top honours in agricultural economics from Kansas State College in 1935 and went to Harvard University on a scholarship. He lectured at Harvard for two years before going to Washington to work for the Department of Agriculture. During the early war years he was in the Office of Price Administration as chief of the Farm Machinery and Tractor Branch, and he later served in the Corps of Engineers where he rose to the rank of lieutenant colonel.

Following the war Mr. Thornbrough joined Harry Ferguson, Inc., in Detroit, and almost immediately was thrown into the turmoil that resulted from the break between Ferguson and Ford. This was a sort of baptism of fire into the farm implements business and led to a vice-presidency and a directorship, besides providing a liberal education in the problems of adversity that was to stand him in good stead when he got to Toronto. To get him to Toronto and into his present position, I should first recall that the Massey-Harris Company amalgamated with the Ferguson interests in 1953. Possibly the most important asset that Massey acquired through this transaction was Mr. Thornbrough. In any event he was brought to Toronto as Executive Vice-President in 1955, was elected a Director in July, 1956, and became President in December, 1956.

I have referred to the problems of adversity. To the best of my knowledge those particular problems have been licked and Massey-Ferguson is now back to just the normal year-in year-out problems that beset us all. How Mr. Thornbrough and his associates produced such wondrous results in their giant empire in such a short period of time must be one of the most thrilling stories in the annals of modern business, but I am sorry to say that it does not appear to be on our programme today.

When I say that the subject for today is "Free Trade in a Free World" I would remind you that some ninety percent of the business of this great Canadian company, Massey-Ferguson Limited, is done outside of Canada, so our speaker knows whereof he talks. It is a pleasure to introduce a farm boy who has made good in the big city, a new Canadian who will contribute mightily to our community in the years ahead, Mr. Albert A. Thornbrough.

MR. THORNBROUGH: As we read of the new trade bloc or free trade area developments of Western Europe--"The Inner Six and The Outer Seven"--I am sure most of us have been curiously and perhaps vaguely disturbed in our attempts to recall just where and when such an interplay on the numbers six and seven was previously encountered. I would have sworn, but mistakenly, it was aptly included in "Alice in Wonderland". A further check, however, did reveal it to be present in Shakespeare, Chaucer, Goldsmith, Cervantes, and in Gilbert and Sullivan. The latter in their collaboration in "H.M.S. Pinafore", Act II, asked the following question:

"Say, why is everything either at sixes or at sevens?"

And this appears to provide a good point of departure for my remarks today on world trade. It is a subject not only of great general interest to us in Massey-Ferguson, but also of great specific importance to our overall operations, earnings, and contributions to agriculture generally. As a Canadian-based company, owned 80% by Canadians, we obtain but 10 per cent of our sales volume from Canadian customers and less than 50 per cent from North American farmers! We are thus utterly dependent upon our ability to produce and sell farm equipment throughout the world.

I have heard it said that an expert is a knowledgeable man who is away from home. Obviously, I am speaking here at home in Canada and my remarks must be so conditioned! The great attention currently on trading, particularly by the Western nations of Europe, members of the Commonwealth, and by the United States, is, in many respects, the continuation of post-war adjustment of the nations of the world. Nearly fifteen years have nevertheless passed and new patterns and forces are emerging which have their own influences on world trade.

It seems to me that of the many factors which enter into world trading, there are several of utmost importance:

1) The economic recovery of Western Europe.

For the Western nations it is difficult to separate the immediate post-war political and economic objectives from military necessities. The military and political manoeuvring of Russia was met by the Marshall Plan of aid for Europe, together with the establishment of the organization for European Economic Co-operation, and followed later by the North Atlantic Alliance. Despite the many disappointments and difficulties which have been experienced, there can be but one impressive conclusion--Western Europe not only has recovered but has surged to new heights of prosperity and productivity. Its production capacity, largely newly developed in a number of industries, is supplying an increasing share of the requirements of world trade. Western Europe today can, with a reasonable optimism, look forward to achieving a standard of living comparable to North America.

2) Increasing attention by Russia and its satellites toward achieving political aims by economic means. Although competition in military technology continues, political alignment is actively being sought by Russia through grants of aid, assistance in industrial and resources development, and by trading arrangements or pricing to disrupt the free world. Russia has now added trading as a tool of conquest which may be more effective and absolute than its missiles. It would appear that these activities will increase rather than diminish.

3) The population explosion.

The population pressure for food and fibre is greatest in many countries least well developed. And these are the countries over which Russia is making its greatest efforts to exert control. Removal of these countries not only from the political traditions of the free world but also from general trading is a frightening threat to freedom. The statistics on population growth are staggering. From the origin of mankind until the 1920s world population grew to a total of two billion. It is now estimated at present rates of growth that by 1980 world population will reach four billion--and eight billion in 2020--an increase of six billion in a century. At the end of this century, if present rates continue, there will be one billion Indians and one and one half billion Chinese, the latter number equal to 75 per cent of the total world population in the 1920s! Furthermore, at the turn of the century, at these rates, 70 per cent of the world population will be of African or Asian origin, and 75 per cent will be living in what are today the least developed areas.

4) The surging Nationalism of Africa.

The overwhelming insistence of the negro peoples of Africa for national status regardless of ability or circumstances is a current reality. How to preserve and further strengthen the ties of trade with these new nations is a paramount task for the free world.

5) Decline in the ability of the United States to maintain adverse balance of payments.

That this has occurred is a development of the most far-reaching nature, and it is not due to any single factor. United States exports have declined and done so not only because in some instances of increasing relative costs, but also because of more favourably situated suppliers in nations which frequently had been aided by the United States. Yet imports to the United States have latterly increased very substantially as exports fell. Not only has the United States assisted in creating the ability to supply imports but also has provided encouragement by tariff reductions with complete freedom from quotas unlike many other countries as regards goods of United States origin. As a result of all these and other causes, the United States currently faces the need to manage its world trading, investments, and grants of aid in order to avoid excessive loss of monetary gold. There has thus been a significant shift in degree of responsibility from the United States to other nations of the West as regards world trade encouragement and financial assistance for military purposes.

Post-war trading among non-communist countries has been within the general rules and procedures established following World War II. The General Agreement on Tariffs and Trade (GATT) provides, in addition to limiting discriminatory trading among its members and encouraging reduction of tariffs, that customs unions and free trade areas may be created, and it is within this framework that the "Inner Six" and the "Outer Seven" have been created. It is important to note that the trading blocs in Europe are not considered as new discriminatory efforts to restrict trading so long as the rules of the General Agreement are observed.

The Organization for European Economic Co-operation established in 1948 to implement Marshall Plan Aid has brought forth plans and activities of unusual contribution to its member countries. Under its umbrella, new monetary and fiscal institutions have evolved. We have seen supranational co-operation in steel and coal. Yet in a most fundamental sense we are now witnessing a fragmentation of this unusual group. Beginning in mid-1958, all of the members of the OEEC negotiated to form a closer economic union--particularly as regards to tariffs. These talks broke down because of certain major differences in view. The result has been the formation of two trading blocs among its members. Six members have now within the OEEC established the European Economic Community--"the Common Market" or "Inner Six"; seven have subsequently to the grouping of "the Six" associated into the European Free Trade Association (the "Outer Seven") and five members are not affiliated with either bloc.

These two trading blocs are quite different in approach and reflect the basic issues upon which full agreement could not be achieved. "The Six" are associated in what, if carried to fruition, would be a close, if not ultimately complete, political union. Common tariffs are to be established by all members as regards external trading, but tariffs among the Six will, over a period of years, reach zero levels. Provision is made for common policies on agriculture, and many other situations requiring solution or progressive adjustment. France, Italy, Belgium, Luxembourg, Western Germany and Holland are the chief six countries now functioning in this customs union or Common Market.

"The Outer Seven" grouped themselves around the leadership of the United Kingdom which could not accept the supra-national requisites of the negotiations, nor could, for economic and political reasons, sever ties with other Commonwealth members. The United Kingdom, Sweden, Norway, Switzerland, Denmark, Austria and Portugal have subsequently associated into a free trade area, planning to reduce tariffs among themselves at the same approximate rate and timing as that provided by "The Six". Each member of "The Outer Seven" is free to continue or revise its own tariffs outside of the association. Provisions have also been made regarding certain categories of products and as to how importation of certain products into a member country will be controlled or limited in export to another member merely to take advantage of the lowest tariff point for entry into "The Outer Seven".

We of Canada are now thus involved in a number of trading systems or areas:

1) That of North America.

By proximity, and through historical development of trading between the United States and Canada, we are part of the largest economic system existent in the world today. This is not to say, however, that North America is a common market. Quite the contrary is true. Yet many products do move into trade between Canada and the United States with no real trade barriers of excessive tariff or quotas. For my own industry and company--that of farm equipment--there has been no tariff or quota system for a number of years. For farm equipment there is indeed a common market in North America. Although this freedom of market subjects Canadian farm equipment manufacturers to the full competition of the powerful companies to the south, yet I am more than willing to trade these disadvantages for the opportunities of free access to that tremendous market. In this regard I shall even go further. I am sure there are other Canadian companies which would benefit greatly from the increased volume resulting from a successful exploitation of larger and fully accessible markets through elimination of restrictive tariffs.

2) That of the Commonwealth.

We are all fully aware of the great advantages which accrue to us in having preferential access to the United Kingdom, particularly for food and raw material products. Thus far the European trading developments have not adversely affected Canadian privileges in the Commonwealth.

3) That of the "Outer Seven" and the "Inner Six". Canada appears, at least initially, to fare very well as regards the "Outer Seven". Wheat and flour are excluded from consideration. Manufactured or industrial products, however, face a differing situation. As tariffs are reduced to zero, Canada may lose certain preferential advantages now enjoyed in the United Kingdom.

As to "The Six", tariffs will vary on Canadian products. In the process of establishing common or average external tariffs there are both reductions and increases. Industrial raw materials will carry duties ranging from zero for copper and nickel up to nominal rates on others. Certain agricultural and forestry products would appear to carry high rates. It also appears that protection to agriculture will not disappear to open these markets to Canadian products.

Canada exports more to "The Six" and to "The Outer Seven" than is imported. For the United States, the reverse is true. Total Canadian trade, imports plus exports, for 1958 with "The Six" was $667,000,000, and with "The Outer Seven"--$1,474,000,000, of which $1,303,000,000 was with the United Kingdom. Trade with the United States was $6,404,000,000. Of the total trading of Canada with "The Six", "The Outer Seven", and the United States, 90 per cent is with the United States and the United Kingdom.

It might be quickly concluded from these figures that Canada, no matter what may happen in Europe or elsewhere, would have little to fear, so long as trading with the United Kingdom and the United States is essentially maintained or unimpaired. Such a course of action, unfortunately in my opinion, would squarely have Canada choosing regional or bloc trading rather than general trading with the non-communist world. It would also tend to ignore the political and economic threats of the communist nations.

I have already remarked about the increasing efforts of Russia to conquer by economic means. In such pursuit, Russia, of course, will not rely solely upon its own resources. In ten years since 1948, the trading of Russia, China, and the other satellite countries quadrupled while total world trading only doubled. And in that ten-year period trading by this Communist bloc with non-communist countries diminished. The large resources and population in the communist bloc, effectively exploited as they seem determined to do, offer a large base of economic strength and ability to interfere with world trading. We are aware that the communist system can for specific projects utterly disregard cost as a factor in pricing or repayment of loans made for political penetration. It certainly will be communist strategy once there is penetration of a presently non-communist nation or area, to close it off from free world trading even to the point of military enforcement. The example of Hungary is indicative.

Canada and the other industrialized nations of the free world cannot stand by and witness the gradual absorption by the communist bloc of the non-developed areas of the world who today are in open revolt against their poverty. To these have-nothing areas material improvement, or the hope of it, would be an excellent dividend to offset the restricted freedom of communism. They have little or nothing to lose and are thus susceptible to promises of improvement, however cynically they may be offered.

The effective development of these needy areas cannot be accomplished by one nation, nor will it be done by warring trading blocs. The investments required are very large and must be efficiently utilized. Free trading in the free world is required to promote the further prosperity of the industrial nations of the free world, not only as a reasonable objective in itself but also as a means of generating the ability to invest in the under-developed countries.

As I see it, the institutions of the free world are very much on test with half of the world's people. Fragmentation of the free world trade into competing trading areas or blocs will simply encourage and facilitate the transfer of low-income areas into the communist fold.

In closing I should like to become a bit more specific. As a company, Massey-Ferguson is a large employer in North America, in "The Outer Seven", in "The Six" and in the Commonwealth. I have been most impressed at the consistent manner in which decisions and the necessities of coordination of these various operations serve the local good as well as that of the overall company. I firmly believe that the evolution of a larger number of internationally operated companies would make a valuable contribution to the free world and free trading therein. May I be so bold, and perhaps impertinent, as to suggest that the very act of becoming a part of the broader economic functioning of the free world will in itself remove many of the barriers to freer trade.

THANKS OF THE MEETING were expressed by Col. Bruce J. Legge.