Today, Europe's tariff barriers decrease trade, limit marketing areas
C o m m o n M a r k e t Lures U. S. Investments Increased t r a d e possibilities among six nations should offer more competition to imports from outside, niake European subsidiaries even more desirable to A m e r i c a n companies JL HE
EUROPE AX
COMMON
MARKET
plan is causing many American com panies to look at Europe as a place to put their new chemical plants. Unless the crisis in France changes this plan (see page 23), the six member coun tries, Belgium, France, Germany, Italy, Luxembourg, and the Netherlands, next year will start the 15-year process which will weld them into a single powerful economic unit. This new unit will provide a new base for compétition with the United States or the Soviet Union. It is something to be reckoned with. The CM should be a big market for chemicals. Growth potential for chemi cal sales may be even greater than in the U. S., because the present level of 72
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consumption is generally lower in Europe. Rising standards of living will mean greater sales of chemical prod ucts. But this doesn't necessarily mean a boom for U. S. chemical exports to Europe. They are more likely to suffer. An important part of the CM agree ment is the provision for a common tarn? wall to be thrown u p around the member countries. Even though this will probably be somewhat lower than present tariffs in countries like France, it will be higher in places such as the Benelux nations, so there will be an in centive for Common Market countries to buy from each other where possible instead of from outsiders. Although the U. S. will still keep its advantage of generally lower raw mate
rial and fmel costs, it will have to share its advantage of large-scale, more effici ent production made possible by a large market with fihe CM. It will not be easy for American producers to absorb the tariff and transatlantic shipping costs to jump the harrier around the CM. So American companies are attracted by t h e possibility of ^getting inside" the CM b y p i t t i n g up manufacturing plants wittiin its borders. European in vestment is certainly nothing new for the American chemical industry. Up till now, O . S- chemical investment in Europe has been rfiiefly in Great Brit ain, whichi will continue to be an im portant place for American investment. I t has the advantage of special arrange-
Under the common market, barriers w i l l drop, trade areas w i l l increase
ments with t h e British Commonwealth countries and the rest of the sterling area. If the Free Trade Area agree ment now being negotiated by most of the Western European countries is passed, Britain will have many of the advantages of the Common Market countries as well. The Free Trade Area calls for breaking d o w n tariff walls between member countries but does not call for a common tariff wall to outsiders. Each country could place whatever tariffs it wanted on goods from other countries—such as t h e U. S. But whether the F T A will be passed or not is anyone's guess. T h e strongest support for this plan comes from Great Britain, which did not enter the Common Market because she would have lost her special trade position with some of the British Com monwealth countries. T h e chief oppo sition comes from France, which is a traditionally high tariff country. Hav ing decided in favor of the Common Market, she is not anxious to take on the additiona.l adjustments t h e Free T r a d e Area will bring. At present, countries outside the
U. K. and the Common Market have certain disadvantages for U. S. inves tors. Switzerland already has a well developed chemical industry a n d an abundance of capital of her own to in vest. The market in the Scandinavian countries seems too small at present, even if they form their Nordic Common Market n o w being mentioned. How ever, the Free Trade Area would make them more attractive. It would also help Austria, which is very much in favor of foreign investment, as is t h e Irish Republic. The less industrialized countries are usually not as attractive. This doesn't mean they are excluded altogether as possibilities. Some al ready have successful American chemi cal plants.
Selecting α Site in Europe If selecting a plant site in the U. S. is a complicated process, w h a t about Europe? To the normal worries, such as raw materials, waste disposal, labor supply, transportation, and power, a r e added a host of new problems. Most countries require government permis
sion even to set u p i n business. Cur rency regulations m a y be complicated. There inay be restrictions on taking profits out of the country. Tax systems vary. And a million and one minor differences in business habits and pro cedures plague the investor who isn't prepared for them. Most of these addi tional problems depend upon govern ment policy. Accustomed to red carpet treatment from local community boost ers in the U. S., Americans looking for sites in Europe may b e surprised when they aren't always welcomed with open arms. Some countries are suspicious of foreign capital. Attitudes vary con siderably. This has t o be considered in conjunction with t h e usual economic factors in selecting a location in Europe.
Benelux Welcomes Investment The countries of the Benelux cus toms union, Belgium, the Netherlands, and Luxembourg, stand out as being the most receptive Common Market countries to American investment. Both Belgium and the Netherlands have special agencies for helping forJUNE
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eign investors- These both h a v e offices in the United States. Unlike many European countries, Belgium is not short of capital. The Belgian attitude toward American in vestment is that it will have to face American competition wherever plants are built—since Belgium is small it must export a large part of its o u t p u t . So, since it will have the competition any way, why not let the companies build in Belgium to increase the industrial ization of the country and b r i n g in new know-how? Both the Belgian and Netherlands governments guarantee repatriation of profits—and capital too, in case a com pany wants t o pull out later on. T h e Netherlands is shorter of capital than Belgium. I n spite of being the home of some big international firmslike Shell, Unilever, and Philips—it needs outside capital to help increase the industrialization of the country. In the past few years, it h a s been very suc cessful in attracting American invest ments. Tiny Luxembourg, the third member of the Benelux customs union, has also been very successful, in relation to its size. Since the war, one of t h e major U. S. tire manufacturers has set u p a plant there. A receptive government attitude and a tradition of stability and sound finan cial practice make t h e Benelux coun tries very popular for U. S. investment. T h e disadvantage of small home mar kets is disappearing with the starting up of the Common Market. They have excellent transportation facilitiesincluding extensive canal systems. The low countries are well situated as far as Western Europe is concerned. The population within a 300 mile radius of Antwerp, for example, is almost as great as that of t h e entire United States. R a w materials might have t o be im ported. However, there is a large pe troleum refining capacity in both coun tries. That of Rotterdam is t h e biggest in Europe. There i s still a place for new petroleum plants based o n refinery gases. G e r m a n y Offers A d v a n t a g e s T h e advantages of building plants in Germany are many. I t is already highly industrialized. Engineering is tops there. A plant c a n b e constructed in a very short time. Labor is highly skilled and industrious. But American chemical firms seem to shy away from investing in Germany. 74
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Small Areas with Tariff Barriers:
T o d a y , travel in Europe is , re stricted by m a n y national borders a n d t h e resulting tariff barriers to ^trade / *. . "
Europe's standard of living, - t h o u g h rising, still h a s a l o n g w a y to go in supplying con s u m e r goods
T h e p r e s e n t level of c o n s u m p t i o n in f E u r o p e isJiniited^^ p r o d u c t s ;itend t o , ; b e : ? l o c a l l y /;prb- ^ . : ' dueled!. _,.*
