Ireland learns to adjust to reduced EC benefits

The Irish are beginning to find out that they are not, perhaps, as good Europeans as they thought they were. In the first 10 years after membership in 1973, funds from the European Community rolled in, especially to the agricultural sector, giving a substantial boost to the economy and transforming rural life.

This phase is now over, with Irish farm prices adjusted to EC levels and the effects of the stricter attitude to agricultural spending becoming all too obvious. In retrospect, the 1984 negotiations on curbing milk production may be seen as a turning-point when Ireland came uncomfortably of age as a community member.

Milk is more important to the Irish economy than that of any other member-state, accounting for 15 per cent of gross domestic product, and Prime Minister Garret FitzGerald was determined that Ireland should not bear a disportionate economic loss by accepting the same production quotas as other countries.

Even though Mr. FitzGerald is an old European hand, it still took a walkout before the other leaders would agree to special treatment for Ireland. The Irish won that battle but realized that they had used a lot of ammunition and that life was going to be tougher in the future than in the past.

One senior opposition politician went so far as to suggest that Ireland should consider associate membership in the community. His remarks were not taken up because most people know there is no alternative to full membership, but Ray McSharry, as a member of the European Parliament and a former agriculture spokesman, knows better than most that in the long term, the proportion of community spending going to agriculture is likely to decline.

Irish Foreign Minister Peter Barry sounded a different warning recently, when talking about moves to integrate the EC into something more like the founding fathers’ ideal of European union. He said that such a development could not be countenanced within the present financial resources of the community.

Ireland benefits more from EC membership, proportionately, than any other member-state, so Irish concern is understandable. It is estimated that transfers from the community represented over 10 per cent of gross national product in 1978-79 mostly to agriculture. The proportion has declined since then but still represents about 6 per cent of GNP.

Irish membership in the community has also contributed substantially to the influx of foreign industry, which is so marked a feature of the economy. Foreign firms, mostly from the United States, now account for roughly a third of manufacturing employment and two- thirds of manufactured exports. The Irish must compete for such investment with other EC states but very few of these firms would have located in Ireland if the republic were not a member.

Over-all numbers employed in manufacturing have declined since membership and a new problem has emerged. The fact is that the linkages between the foreign companies and the national economy are much less than with native firms. Ireland is in the peculiar position of recording spectacular growth in exports (averaging 11 per cent per year in recent years) and industrial output (up 70 per cent since membership) while having a general decline in employment.

Analysts increasingly separate out the foreign firms when examining the Irish economy and find that the indigenous sector has not coped well with EC membership. It displays poor productivity, indifferent marketing and export sales, and an over-all decline in output and employment. Government polices are turning more toward the correction of these problems, rather than luring ever more high- technology foreign companies, although the latter will never be turned away.

Over-optimism about the prospects for the Irish economy may have been one of the reasons governments in the 1970s engaged in the spate of foreign borrowing which is now causing such problems for Ireland. The heavy debt repayments now amount to over 1 per cent of gross national product. The combination of debt repayments and a rising population means that living standards have been stagnant for the past three years, while unemployment has risen steadily and to 17 per cent of the work force. It is estimated that the Irish labor force is growing by about 4 per cent a year, a situation which is unique in the EC.

The economy has been growing, by an estimated 3.8 per cent last year and an expected 4 per cent this year. However, when debt servicing and the repatriation of profits by foreign firms are taken into account, these figures fall to 1.7 per cent and 2.7 per cent increases, respectively, in GNP. This level of growth is not sufficient to give rising living standards or reduced unemployment to a growing Irish population.

The outlook is for little change. Net investment is expected to rise by a little under 4 per cent this year but this hides sharp falls in some sectors with the highest labor content, particularly construction. Consumer spending shows a marked reluctance to grow, despite the hopes of economists that people might start spending again after three years of recession.

The high taxation imposed on incomes and goods in an attempt to correct the public finances has undoubtedly dampened retail spending. Finance Minister Alan Dukes reduced some rates of value added tax in the January budget and abolished the top rate of 35 per cent. This was partly to reduce cross-border purchases in Northern Ireland and partly to boost the economy, but the net effect of the budget was still mildly deflationary.

The Government has had most success in bringing down inflation and the balance of payments deficit. Inflation this year should be about 6 per cent, having reached 20 per cent just three years ago. Ireland showed a record trading surplus in the month of April and, even when debt payments are included, the balance of payments deficit should be about 500 million punt or less than 4 per cent of GNP.

This combination of economic circumstances has made it difficult to produce any marked improvement in the public finances.

Italy wins commendation for handling of presidency

Italy is now two- thirds of the way through its six-month- long presidency of the European Community’s Council of Ministers, a position which rotates among all the community’s members. Already the Government of Prime Minister Bettino Craxi has won high marks for its successful handling of some highly contentious issues.

In some ways it is appropriate that it should be Italy that solves the EC’s problems over the admission of Spain and Portugal to the community, and the latest emanation of the controversy over the budget. Not only is Italy probably the major EC country with the fewest reservations about being a member of the community, but it is also a country that is riding high in Europe at the moment in terms of economic growth, success of Italian industrial companies and political calm.

Italy is not a country that doubts for a moment that it ought to be in the community. The political parties vie with each other to be the most European of all, and it has a strong commitment to the somewhat nebulous goal of European unity. The leaders of Italy in the early postwar period were convinced that only in a wider entity such as the EC could Italy’s serious internal political differences and the great disparities of wealth between north and south be overcome.

They also hoped that the community would bring them financial resources and economic advantages that they would otherwise lose – a hope that has on the whole been justified.

Yet despite this commitment to the ideals of the community, Italy’s membership has been characterized by the ambiguity so common to things Italian. As Francesco Forte, Italy’s Minister for European Affairs, said at the start of the Italian presidency: “Most of our politicians and bureaucrats think and operate in a basically un-European way.” The fact is that alongside its commitment to the aims of the community Italy has sturdily protected its own interests – in some cases claiming that to enforce community regulations may be impossible, either for political or bureaucratic reasons.

Lately, however, Italy has been on its best behavior. Shortly before it assumed the presidency of the EC it accepted a community policy on wine production that hardly squares with its interests since it is the community’s biggest wine producer. It also backed down from the nit- picking interpretation of import regulations that were holding up the import of Scotch whisky into Italy at a time when Italians are gradually moving away from a preference for national brandies toward the British product.

Partly, no doubt, the change of attitude was politically necessary if Italy was to carry any conviction as president of the EC. Partly, however, it seemed to reflect a more orderly attitude to relations with other EC partners, a clearer view of what Italy ought to be able to obtain from them and of the concessions it ought to be prepared to make. One reason for this was the arrival at the head of the Foreign Ministry of Renato Ruggiero, a civil servant with an unusually broad grasp of Italy’s needs in economic relations and the drive to get the sluggish Italian bureaucratic machine to go for it.

If the Italians are now getting their act together better, as reflected in the skilful handling of the presidency, it may reflect a greater self- confidence in the country as a whole. Italy has since the Second World War been a country of political stability – the same Christian Democrat Party has been in power all that time – but of governmental instability: more than 40 governments over that period.

But for the past 21 months Italy has had the same Government, led by Mr. Craxi, the country’s first Socialist prime minister. It has tackled some serious problems, thought about other ones and provided a degree of continuity that had not existed for years.

That continuity is complemented by the realization, both in Italy and abroad, that Italian industry is now among the most impressive in Europe. Fiat, the privately owned conglomerate, is the first or second- biggest- selling car producer in Europe. Olivetti, the data processing equipment maker, is virtually the largest European- owned company in its field, and probably the most profitable. Pirelli, the tire and cables maker, is an obvious survivor in the tire industry and a company that produces respectable though not glittering financial results. One has only to compare these companies with their European rivals to see just how far Italian industry has progressed in the past few years in rationalization, investment and labor relations. Only West Germany matches or exceeds Italy in industrial prowess and confidence.

The performance of these leading private sector Italian companies is matched by that of other concerns, including several in the state industrial sector, which is gradually being reformed and slimmed down.

Unfortunately, Italy’s industrial success does not of itself ensure that the usual indicators for the Italian economy all point in the right direction. Because of governmental instability Italy reacted very late to both the 1974 and 1979 oil shocks. Only by 1983 had the Italian authorities put their balance of payments current account back into equilibrium, thanks to stern restrictions on monetary expansion rather than to fiscal measures. Only in 1984 did inflation finally drop below 10 per cent, having been over 20 per cent at the beginning of the decade.

The Italian economy is resilient and enjoys considerable vitality, taking the form of fast spurts of growth. This is due in part to the hard- working nature and imagination of many Italians, and to the fact that many less- developed parts of the country are still catching up with the rest of Europe.

But it also suffers major defects. It is prone to balance of payments difficulties because of its near total lack of raw materials and indigenous energy supplies. Governments can rarely take unpopular economic action and the inefficiency of the civil service administration, local government and the state industrial sector means that government expenditure is always rising – far above taxation.

When the Craxi Government came to power in August, 1983, the economy was at last able to resume expansion, the balance of payments registering a current account surplus of over one trillion lire that year. Although gross domestic product declined in 1983 by 1.2 per cent, it grew by nearly 3 per cent in 1984. Bold action to cut wage indexation helped bring down inflation in 1984, which closed the year at about 8.5 per cent. The Government also managed to keep the public sector borrowing requirement to about the same level as the year before, about 93 trillion lire. This, however, is still more than 15 per cent of GDP, far above the level registered by almost all other industrial countries.

Yet 1984 closed with a current account deficit far above the original estimates – it exceeded five trillion lire. This was due in part to Italy’s traditionally high propensity to import, but also to disappointing export growth. Italy’s major European markets, led by West Germany, grew disappointingly slowly and the strength of the lira weakened Italian competitiveness. A series of setbacks prevented Italy from winning its due share of contracts in the Soviet Union, Eastern Europe, and in Algeria, a major energy supplier.

The same problems seem to be persisting this year, for which the semi- official forecasting agency Isco is predicting a current account deficit of 8.5 trillion lire and rather slower growth of about 2.3 per cent.

The same forecast also put this year’s average inflation rate at 8.5 per cent, instead of the Government’s target of 7 per cent, and with last year’s average of 10.5 per cent. The fact that inflation is no longer declining is attributed in large part to the fact that the Government is not succeeding in cutting its spending. The deficit is expected to go on rising in money terms and to continue to account for at least 15 per cent of GDP. National debt – the accumulated borrowing by the Government from the economy – will this year exceed national income.

The Government has not been able to hold down spending partly because of the sheer difficulty of finding items to trim, and partly because of the strong pre-electoral pressure for extra spending, notably a carefully timed rise in pensions. And the Government faces a further threat in June in the form of a referendum on wage indexation that could lead to a partial restoration of the cuts made last year and thus to a further boost in labor costs.

In this month’s local elections, voters seem to have signalled that they want the present coalition of Christian Democrats, Socialists, Republicans, Social Democrats and Liberals to continue. The opposition Communist Party lost support and the share of the vote won by the coalition rose, surpassing the results of the 1983 elections, after which it came to power.

In late June the Italian Parliament will have to elect a new president of the republic. That event and the local elections should determine whether Mr. Craxi continues as Prime Minister, or whether he gives way to a representative of the Christian Democrat Party.

Whoever governs the country will have an extraordinary advantage: a lull of three years before any more major elections are due.

Countdown on freer trade draws near

A mid all the rhetoric about freer trade and trade expansion, Canadian governments in recent years have been protectionist. Lately it has seemed sufficient for a firm merely to threaten to close a plant or to abandon a proposed new investment to trigger a protectionist government response that is costly to the public purse, or costly to consumers, or detrimental to industrial efficiency.

Among the major protectionist measures have been restrictions on imports – quotas, voluntary export restraints, orderly marketing arrangements and so on. This coming year will see the federal Government re-examining the most important quota arrangements (outside agriculture) that protect Canadian producers. These involve the automobile, footwear and textile and clothing industries. Will the Government opt for freer trade or more protection? The moment of truth is approaching.

Four years ago, Canada and the United States entered into voluntary export restraint agreements with Japan on automobiles, limiting imports from Japan to less than 20 per cent of the market. Before the U.S. agreement expired on March 31 this year, President Ronald Reagan announced that it would not be renewed. Apparently hoping to deflect growing protectionist sentiment in the United States, Japan indicated that it would continue to restrict exports to the U.S. market, but at a significantly higher level than before.

The restraint agreement between Canada and Japan also ended on March 31, but it is not clear whether Japan will continue to restrain exports to Canada and, if so, at what level. The issue is too important to be left hanging for long.

Shoe imports to Canada have been limited by quotas since 1977. The quotas are scheduled to expire in 1986. The Canadian shoe industry, however, wants them extended for five years.

Clothing and textiles have been protected for decades. Producers are protected by import quotas and orderly marketing arrangements under an international Multi-fibre Agreement due for renegotiation next year. The Canadian Textile Institute, supported by three industry unions, seeks even more restrictive global quotas.

Not suprisingly, there has long been widespread criticism of trade restrictions in Canada, including the following: Import quotas impose a heavy cost on consumers by allowing higher prices to prevail.

The protected industry often fails to take advantage of the opportunity for adjustment the quotas have brought. In the footwear industry, for example, domestic producers have generally failed to adopt the kind of new technology that will make them competitive with Third World producers. They have equally failed to adopt the kind of high styling to compete with European producers.

Import quotas lead sooner or later to international repercussions, in the form of retaliatory action or demands for compensation. (The European Community has launched proceedings against Canada for restricting footwear imports.) The repercussions are likely to injure Canadian industries that have been relatively successful in meeting international competition. This is likely to cost jobs in the long run. Thus import quotas reward inefficient firms and industries and penalize efficient ones.

With most of our manufacturing concentrated in Ontario and Quebec, import quotas have seriously divisive implications. The benefits are concentrated in one part of the country but the costs are shared across the country.

Import quotas may cancel out the intended benefits of our international aid programs. Last year, for example, Canada provided more aid to Bangladesh than it did to any other country. Bangladesh is in the process of building an efficient textile industry, but we have demanded that Bangladesh shipments of shirts to Canada be cut in half.

Despite such shortcomings, it appears to be difficult for political leaders to resist the clamor for increased protection. It is easier for politicians to adjust the quotas from time to time in response to criticism.

The Government should adopt a basic change in the ground rules. We need a policy that would make industries think twice before seeking import quotas, that would encourage good use of the breathing space provided by quotas and encourage the removal of quotas as soon as possible.

This could be done by making quotas depend on an undertaking by the industry or company involved to freeze all wages, salaries and fringe benefits and to reinvest all profits, throughout the life of the import controls.

Such a policy would have a number of clear advantages. Because employees would be reluctant to forgo wage increases and because shareholders would be reluctant to forgo their dividends, management would likely seek import quotas only as a last resort. Consumers would thus be asked to subsidize the industry only if management and the Government could see no reasonable alternative.

And once the quotas were applied, management and labor would have strong incentives to improve the competitive position of the industry. This would promote closer co-operation between labor and management and discourage aggressive labor tactics, such as resisting new technology. The prospects for survival of the industry would thus be maximized by the protection afforded from imports, the freezing of labor costs and the reinvestment of all profits to improve productivity and international competitiveness.

If the industry succeeded in turning itself around, there would be urgent demands from employees and shareholders to get rid of the import quotas and end the freeze.

If the industry did not succeed in turning itself around, but merely survived, what then? As time passed, the workers would find themselves falling further behind the national average wage level. In some cases, people would move out of the region, attracted by employment opportunities elsewhere. Some would find higher-paying jobs within the region as new employers were attracted by the low wage scale.

Ultimately, of course, if the industry was unable to retain its work force, it would disappear. But this is as it should be. The consumer would not be asked to subsidize the industry indefinitely. Efficient sectors of the Canadian economy would no longer be penalized by foreign retaliation for the import quotas.

In the long run, the surest way to make certain that we all lose is to allow quantitative trade restrictions to bring about a deterioration of the world trading system. Canada relies on world trade more than most countries and it is already gravely threatened.

More sweets from Spielberg

Gremlins was grim and Poltergeist paltry, but with Back to the Future executive producer Steven Spielberg presents relentlessly cheery entertainment. He’s called the film “the greatest Leave It to Beaver episode ever produced,” an achievement Spielberg pursued by putting Romancing the Stone director Robert Zemeckis in charge.

Is Back to the Future cute, sly, always in a little danger of turning smarmy? Will it be big this summer? Does a beaver bear fur? Zemeckis has made a very clean-looking, savory confection out of three cups of sugar and a palette of food coloring. In Back to the Future, young Marty McFly (Michael J. Fox) has unique family problems when a time machine made out of a DeLorean sports car accidentally transports him back to 1955. “Doc,” a charmingly crazy older scientist pal (Christopher Lloyd) , has invented a vehicle that can go from zero to 55 in seconds – but can it return Marty to the era of Calvin Klein underwear again? Unhappily stranded in a past barren of diet colas, Marty seeks out the Doc in 1955, somehow persuades him of the charmingly crazy thing that’s happened, and the pair start working on sending Marty back to 1985.

Meanwhile, Marty’s still in his own small, California town, hobnobbing with his parents – the warp is that they’re the same age as he. It appears that Dad (Crispin Glover) was always a meek bumbler being preyed upon by beefy Biff Tannen (Thomas F. Wilson), a local lunkhead who became Dad’s boss in later life. Mom (Lea Thompson), however, is different.

Rather than the reproving puritan of 1985 which she became, Mom is, well, forward. Call it unknowing narcissism or bio-genetic conceit, but she falls for Marty in a big way. This makes Marty understandably nervous.

Worse yet, the local high school’s Enchantment Under the Sea dance is fast approaching. Because Marty has disruptively popped up several years before he was supposed to be born, history is not following its proper course (Mom and Dad are supposed to go to the dance together and fall in love there).

Marty must coach his inept young father on winning over his mother – otherwise, Marty will not be born. Don’t think about this too much, or the fun spoils faster than whipped cream at a picnic.

Zemeckis has the Spielberg athleticism down pat. He knows how to use shots of moving feet to suggest action, action to suggest romance, romance to suggest ideals and ideals to suggest new ways to use sporty footwear. The trick is keeping the audience enjoyably winded but not hyperventilating.

What best sustains the momentum is the bounce and humor in the acting. Glover, as Dad, is absolutely winning as the stumbler who nearly misses his minor rendezvous with destiny, and Vancouver-born Fox, as Marty, can seduce a camera lens from twenty paces. Lloyd, as the Doc, produces entertaining mischief with his darting eyes, although his fruity scientist is occasionally over-ripe.

The most impressive contribution comes from production designer Lawrence G. Paull, who concocted that visual cornucopia called Bladerunner. One knows it’s 1955 by the fact that four uniformed attendants are seen servicing a single car at the local gas station, but there are less humorous touches, too; Paull’s work here has a consciously bittersweet quality. Between the eras, the oak trees give way to the fast- food restaurants and small-town America is seen to have decayed by the time it reaches 1985. We are brought back to a contemporary terrain which Back to the Future cautiously concedes is losing its appeal.

Predictably, however, Spielberg and Zemeckis have kept all the homespun values intact. They look patronizingly back at 1955 as a time of smug complacency, but 1985 doesn’t find them very anxious either. And with Back to the Future, Spielberg restores his plastered-on grin of boyish goodness; his screen world is never so messy that it can’t be fixed by the good intentions of people who have freckles.

Tribunal proposes end to some shoe quotas

Recommending an end to some quotas on imported footwear, the Canadian Import Tribunal says the domestic footwear industry has made “significant progress in restructuring.” The tribunal’s findings were contained in a report of its inquiry into Canada’s footwear industry.

Current quota restrictions on imported footwear are to expire Nov. 30.

Under provisions of the Export and Import Permits Act, quotas on footwear imports can be imposed only if the tribunal finds the domestic industry has been injured by imports or is threatened with injury.

Trade Minister James Kelleher said the federal Government expects to announce its footwear import policy in September.

The tribunal recommended that quotas be removed from types of footwear that are not produced in volume in Canada, such as athletic and leisure shoes.

It also proposed that quotas be removed from types of footwear with which domestic manufacturers are competitive with foreign companies. It said this category includes winter boots, ice skates, and men’s and boys’ footwear, including work boots.

The tribunal suggested that quotas also be dropped for children’s footwear and for slippers.

It proposed that quotas be continued, however, on women’s and girls’ dress and casual footwear, since some Canadian producers “remain vulnerable to competition from imports” in this area.

It called for quotas to be removed from women’s and girls’ winter boots and injection-molded plasticfootwear.

It said quotas on women’s and girls’ footwear should be phased out over the next three years by increasing the quota level 10 per cent each year and by progressive reductions in the price level above which footwear is exempt from quotas.