Richard Schüller, A Free-Trade Area (1949)

Richard Schüller’s journal article proposes a European free-trade area as a practicable alternative to the customs union envisaged by thirteen governments implementing the Foreign Assistance Act of 1948. Its central distinction is between opening national markets to partners’ products and constructing a common external commercial regime. The first, he argues, can preserve national independence; the second requires political and monetary integration unlikely to be achieved in postwar Europe. The article moves from an institutional critique of customs union to the legal and administrative possibilities of reciprocal free trade, then examines the economic adjustments and currency reforms on which either arrangement would depend.

Schüller begins by exposing the institutional demands concealed within the customs-union proposal. A common tariff would require parliamentary agreement across thirteen states, while subsequent changes, customs practices, external negotiations, and concessions would require continuing coordination. His mechanical analogy makes the difficulty one of collective decision-making rather than simply insufficient enthusiasm for cooperation:

Such machinery is comparable to an engine driven by thirteen men, who can manipulate it only after having agreed on every single move.

The requirements extend beyond trade policy. Stable currency relationships would demand a common central bank or federal banking system and uniform monetary rules; indirect taxation would also need harmonization. Historical examples reinforce his argument that economic union generally follows political unity. The German Zollverein, the apparent exception, depended on nationalism and Prussian predominance, while political separations elsewhere dissolved customs unions. His personal experience negotiating Austro-Hungarian renewals supplies a particularly pointed comparison: even states sharing a monarch and major governmental institutions encountered recurrent political crises. The thirteen-country project therefore presupposes a degree of unity that its commercial machinery cannot itself create.

The alternative derives its legal basis from Article 44 of the International Trade Organization Charter, which recognizes free-trade areas alongside customs unions, provided external restrictions are not increased beyond their previous levels. Schüller identifies the defining principle in a concise formulation:

A free-trade area means a group of countries in which duties and other trade restrictions are eliminated on the trade of products originating in member countries.

Product origin, rather than a shared external tariff, marks the boundary of the arrangement. Each participant retains its tariff against outsiders and negotiates its own trade agreements. Consequently, the advantages enjoyed by partners may change as national external policies change. Schüller accepts this variability as the price of avoiding common institutions and vetoes. He also distinguishes reciprocal free trade from preferential tariffs: the ITO Charter explicitly protects the arrangement from claims under most-favored-nation treatment. A footnote locates his proposal in earlier experience with Austria, Hungary, and Italy, where political constraints and treaty obligations had blocked other forms of closer commercial association.

Administrative independence offers smaller states protection against domination by larger partners. It nevertheless creates a problem absent from customs union: outsiders might route goods through the member with the lowest tariff and seek duty-free entry elsewhere. Schüller treats this as manageable through certificates of origin and checks by exporting countries. His optimism rests on their interest in preventing foreign competitors from appropriating privileges reserved for domestic products. Institutional simplicity does not, however, remove competitive pressures. Industries would still need adjustment, and maintaining Italy’s high-cost steel production might require subsidies. Postwar reconstruction, he suggests, makes productive structures more adaptable, but he does not claim that liberalization would be painless.

The argument then shifts from institutional design to the restrictions that could make either design ineffective:

Neither these schemes nor the usual tariff agreements have any meaning so long as each individual import transaction depends on the granting of a license.

Exchange controls, quotas, and bilateral clearing arrangements are thus more fundamental obstacles than tariffs. Schüller recognizes that they respond to capital flight and scarce foreign exchange, rather than merely protecting industry. He challenges the conclusion that inadequate demand elasticities make continued controls unavoidable. Britain’s rapid export expansion and shrinking payments deficit suggest greater responsiveness than pessimistic forecasts allow; Belgium and Switzerland provide additional evidence against the necessity of extensive controls. These comparisons support his challenge, though they do not amount to a systematic demonstration that every country’s payments problem can be resolved through price or exchange-rate adjustment.

His treatment of the dollar shortage likewise combines acknowledgment of immediate need with criticism of its presumed permanence. Europe still requires American assistance, but forecasts of future deficits are uncertain and influenced by incentives to obtain larger grants. Aid can also divert purchases away from available European production: American tractors enter France while Italian producers cannot sell theirs, and donated American coal obstructs neighboring markets for Polish coal. These examples turn the argument toward resource allocation. Controls and aid arrangements intended to manage scarcity may restrict trade and perpetuate the disequilibria they address.

Schüller’s conclusion therefore makes monetary stabilization a condition of commercial integration:

If the European countries should not be able to overcome their open or repressed inflations and to adjust their exchange rates in the next years, controls will have to stay and neither a customs union nor a free-trade area can be established.

Ending inflation and adjusting exchange rates would not make a customs union politically feasible, but could make a free-trade area possible. The article’s significance lies in separating market integration from political unification without separating it from macroeconomic reform. Reciprocal free trade is a less institutionally demanding route to European cooperation, not a device capable of bypassing the monetary conditions of freer exchange.