3. General Undertakings of Members Regarding Relations with Non-Members
- International Monetary Fund
- Published Date:
- January 1966
One of the most striking efforts in the Articles to affect non-members is Article XI. This provision does not attempt to impose obligations on non-members, but its purpose is to impose obligations on members in their relations with non-members. Clearly, the broader the scope of these obligations, the narrower will be the freedom of action that non-members will find that they have in their relations with members. Article XI, Section 1, provides as follows:
Undertakings regarding relations with non-member countries.—Each member undertakes:
(i) Not to engage in, nor to permit any of its fiscal agencies referred to in Article V, Section 1, to engage in, any transactions with a non-member or with persons in a non-member’s territories which would be contrary to the provisions of this Agreement or the purposes of the Fund;
(ii) Not to cooperate with a non-member or with persons in a non-member’s territories in practices which would be contrary to the provisions of this Agreement or the purposes of the Fund; and
(iii) To cooperate with the Fund with a view to the application in its territories of appropriate measures to prevent transactions with non-members or with persons in their territories which would be contrary to the provisions of this Agreement or the purposes of the Fund.
A number of difficulties arise in arriving at an understanding of this provision. For example, is Article XI the only provision establishing the obligations of members in relation to non-members? On the one hand, if it is a comprehensive provision, it is not easy to see how certain transactions with non-members or practices involving them could be contrary to other provisions of the Articles. On the other hand, if it is not a comprehensive provision, but there are other provisions that regulate the relations of members with non-members, it is not immediately apparent why Article XI was necessary. It is possible that the answer is that some, but not all, provisions apply to the relations of members with non-members, and that for this reason the obligations of members were broadened by requiring them in Article XI, Section 1, to refrain from certain actions that would be contrary to the purposes of the Fund. For example, Article IV, Section 2,7 obliges members to refrain from buying gold at a price above par value plus the margin prescribed by the Fund,8 and no reference is made to the seller, so that a member may not buy gold at a premium price even from a non-member. This is an example of a provision which could be transgressed by a transaction between a member and a non-member. By contrast, exchange transactions involving a member’s and a non-member’s currencies could not be in violation of the margin provisions for exchange transactions in Article IV, Sections 3 and 4(b),9 because the obligations to observe these margins apply only to transactions involving the currencies of two members. However, it might be demonstrable that the purposes of the Fund would be undermined by exchange transactions involving a member’s and a non-member’s currencies if the rate or rates of exchange in those transactions were out of line with the rates in transactions involving the non-member currency and the currencies of other members. The transactions of the member in question would be in disregard of the purposes of the Fund which seek to promote exchange stability and avoid competitive exchange depreciation.10 It is arguable, however, that this is not a perfect example of the application of Article XI, Section 1, on the basis of inconsistency with the “purposes” of the Fund as distinguished from its “provisions.” Presumably, if an action were inconsistent with the central purposes of exchange stability and the avoidance of competitive exchange depreciation in Article I (iii), it would also be inconsistent with the provision which formulates the Fund’s purpose as a corresponding obligation of members. Under Article IV, Section 4(a),11 members undertake to collaborate with the Fund to promote exchange stability and to avoid competitive exchange alterations.12
Whatever the difficulties of understanding Article XI, Section 1, it is clear from its structure and scope that it was intended to have a broad sweep in regulating the relations of members with non-members. This is apparent from the use of such general terminology as “transactions” and “practices” and is confirmed by the hearings on the U.S. Bretton Woods legislation before the Committee on Banking and Currency of the U.S. Senate. Senator Taft, in discussing Article XI, asked:
If there is some nation that is not in the fund why shouldn’t we [i.e., the United States] make any arrangements we think we want to make [i.e., with that nation]?
Mr. White explained:
We didn’t know what the nonmember countries would be, and it might be possible for member countries to make arrangements with nonmember countries which would have the effect of putting other member countries at a disadvantage. It was deemed desirable to have a broad clause in there which would protect the member countries from any undertaking or arrangement by a member country with nonmember countries. If that paragraph were not in there, if that protective clause were not there, there would be no protection that member countries would have against the dealings of a member country with nonmember countries; and since we don’t know how many nonmember countries there may be, if any, it was deemed desirable in general to have that protective clause.
Senator Taft asked for an example of an arrangement that would be caught by the provision, and Mr. E. M. Bernstein then spoke as follows:
The purpose of that first provision, as Mr. White indicates, is to prevent a country violating the purposes of the agreement by going into a non-member country to do it. For example, members are supposed to keep their currencies stable. Suppose the exchange authorities of a country went to Switzerland and there sold its currency at way below the levels that have been established under the fund. That would have the effect of undermining the stability of the currency which the agreement is intended to facilitate. So this provision is designed to prevent the authorities of a country from going into a nonmember country and doing there what presumably the fund does not permit.
In answer to a further question, Mr. Bernstein said that if England sold sterling at a discount in Switzerland, it “would give Switzerland sterling at a low rate which would give an advantage to the British exporter to Switzerland.” Mr. White added that “the provision is a sort of a catch-all protective clause rather than aimed at any particular business transaction.” Senator Taft responded: “It is suggested to me that you are setting up this fund board as kind of a regulator of the world, people who are non-members as well as members, or of members dealing with non-members.” Mr. White replied. “Well, the intent was rather the latter, so that there would not be a loophole in the arrangements contemplated in the fund such as would be created by business dealings of nonmember countries over which the fund would have no control.” He went on to say that if certain countries remained outside the Fund, they might constitute serious competitors; “they might resort to all kinds of devices in a few years, and if they did that there would be no way in which the fund could have control over them, and this clause provides that. It would mean that they could do business with member countries only on the basis of the principles that apply to all member countries.” 13
There has been little or no resort by the Fund to Article XI, Section 1, in its practice so far.14 In part, this is because of the growth in the membership of the Fund. Again, although bilateral payments agreements between members and non-members could fall within the purview of Article XI, the Fund has so far been more preoccupied with the elimination of payments agreements between members. Nevertheless, this must not be understood to indicate a lack of concern with agreements between members and non-members.15