II. Main Developments in Restrictive Practices
- International Monetary Fund. External Relations Dept.
- Published Date:
- September 1980
1. Imports and Import Payments
a. Quantitative Import Controls
The industrial countries avoided recourse to comprehensive new quantitative controls on imports during the period under review. The changes that took place in existing import restraints in these countries appeared, on balance, to have had little impact on the overall degree of restrictiveness carried over from 1978. While unemployment and changes in international competitiveness in many of these countries continued to pose problems at the sectoral level, such as for trade in textiles, some limited liberalization of quantitative restrictions negotiated in the Tokyo Round of the MTN gave promise that pressures for protectionist measures could be held in check during 1980.
The restraint measures introduced by the EC in 1978 on trade in steel were renewed in 1979 with little change. These measures consisted mainly of the establishment of basic reference prices11 for steel, based on the lowest production costs in an exporting country in which the EC deems that “normal conditions of competition” exist, and an arrangement for the levying of provisional antidumping duties should the actual import price be lower than the reference price. Under bilateral agreements entered into by the EC with a number of steel exporting countries, understandings were reached on the volume of exports to the EC and commitments were given on the observance of the EC’s rules on basic prices. Antidumping duties are not imposed on products covered by bilateral arrangements, thereby providing an incentive for the conclusion of such arrangements. Arrangements of this kind were negotiated with many countries early in 1979.12
Under the GATT’s Multifiber Arrangement (MFA), which had been extended for the period 1978–81, the EC concluded a number of restraint agreements with countries exporting textiles and clothing. In addition, the EC concluded bilateral agreements to restrain imports of textile products from Argentina, Greece, Malta, and Turkey, countries which had not adhered to the extended MFA.13 Italy and the United Kingdom applied quantitative limits on their imports of certain categories of wool from Uruguay for the period 1979–82. Other European countries also negotiated export restraint agreements with suppliers of textiles. Other agreements were notified to the Textile Surveillance body of the MFA, some involving nonsignatory countries. Also within the terms of the MFA, the United States renewed expiring export restraint agreements or concluded new ones with 20 trading partner countries, including one industrial country. The United States imposed unilateral quotas on certain exports by the People’s Republic of China and South Africa. Canada negotiated export restraint agreements with a number of major suppliers of textile and clothing items.
The United States took a number of measures affecting other import items. Under the trigger price mechanism14 for steel imports, the U.S. Treasury raised the trigger prices for investigations of dumping of steel. In March 1980 the mechanism was suspended. In February 1979 an orderly marketing agreement entered into force in respect of certain color television receivers and components imported from Korea. In July 1979, under a program to reduce imports of petroleum, a ceiling was placed on oil imports at their 1977 level. In November a prohibition was placed on imports of crude oil and oil products from Iran. In April 1980 the prohibition was extended to all imports from Iran. Other measures adopted by the United States included the suspension of restraints on certain imports of meats and the phasing out within an eight-month period beginning June 1979 of the quota system for imports of specialty steel.
In Europe, the EC negotiated a trade agreement which liberalized imports from the People’s Republic of China. The Federal Republic of Germany abolished import licensing requirements for 42 import items and lifted import quotas on certain imports from state trading countries. On the other hand, in February 1980 the EC authorized the United Kingdom to impose a limit on imports from third countries of yarn of synthetic fiber. The three-year orderly marketing arrangement on specialty steel exports concluded between Japan and the United States was allowed to expire in June 1979. Japan agreed to relax import standards and inspection regulations for U.S. exports. In other industrial countries, Australia eliminated import licensing requirements for some imports and substituted tariffs for quotas on other products, while New Zealand increased its import quota allocations for some items.
A number of Latin American countries liberalized their import regimes. Argentina allowed the importation of finished vehicles for the first time in 20 years and raised the foreign input content allowance for domestic vehicle production. Colombia added a large number of import items to the list of freely importable commodities. Mexico eliminated import permit requirements for a large number of tariff items, Peru added 1,435 nomenclature items to the list of permitted imports, and Venezuela liberalized imports of unassembled products, agricultural vehicles, and color television sets. Import licensing requirements for certain goods were also relaxed in Haiti and Trinidad and Tobago.
Several other countries eased quantitative restrictions on imports. Egypt disinvoked Article XXXV of the GATT with respect to Israel and Portugal, and added new import items to the open general license system, increasing its coverage to 15 per cent of total imports. In January 1979 Greece terminated the suspension of imports of Japanese goods, first imposed in June 1978, in conjunction with the negotiation of an export restraint agreement with Japan, and in August abolished licensing requirements for some imports of food and industrial goods. In introducing its foreign trade policy for 1979/80, India continued the process of liberalizing and simplifying its import regime, including an expansion of the open general license system with respect to capital goods and other imports. Iraq removed the restriction on trade with the United Kingdom imposed in 1978. Korea increased the share of imports under the automatic import list by transferring a number of items from the restricted list. Nigeria in September 1979 prohibited certain imports, including rice, but removed the ban in December and replaced it by a system of import licenses. At the same time, certain other goods were removed from the list of goods requiring import licenses. Portugal increased global quotas on imports of consumer goods. South Africa removed import quotas from a range of consumer goods; for imports of motor vehicles, the quotas were replaced by a 100 per cent customs tariff. Quantitative restrictions were also eased in Malta, Morocco, and Thailand.
A number of developing countries tightened quantitative controls on imports. Brazil extended for another year the prohibition of a range of imports of superfluous and luxury goods. In December 1979, as part of a series of new measures in the exchange and trade system, Brazil announced that in 1980 public sector imports other than petroleum would be kept to 80 per cent of their 1979 level. In January 1979 the Libyan Arab Jamahiriya imposed a licensing requirement on all imports and in July announced that licenses would no longer be issued to the private sector. In October 1979 Pakistan announced that licensing of imports for the private sector in 1979/80 would, in principle, be limited to their 1978/79 value. Import licensing was tightened in Sierra Leone and Tanzania, while Tunisia removed a number of imports from the list of goods that may be imported freely without license. Turkey banned imports of luxury goods, and enterprises in Yugoslavia, in July 1979, limited imports under their self-management agreements for the remainder of 1979. Other countries which tightened quantitative import restrictions included Benin, the Dominican Republic, Ghana, Morocco, Senegal, and Western Samoa.
After the United Kingdom’s action of December 13, 1979, a large number of countries lifted restrictions on transactions with Rhodesia under the terms of a United Nations Security Council resolution to that effect in October 1979.
b. Import Surcharges and Import Taxation
There were relatively few major trade actions relating directly to the use of import surcharges during the period under review. In April 1979 Portugal reduced its 20 per cent surcharge to 10 per cent and in May exempted several products from the surcharge, leaving them subject to basic import duties. In March 1979 Botswana, Lesotho, Swaziland, and South Africa reduced their common import surcharge from 12.5 per cent to 7.5 per cent. The surcharge was abolished in March 1980. Uruguay implemented a tariff reform program whereby import surcharges, duties, and other charges will be reduced gradually over a period of five years. Accordingly, the higher import surcharge rates were reduced from 150 per cent to 110 per cent in early 1979 and to 90 per cent in August. Among other countries, special import fees or duties in the form of surcharges were introduced or raised in Australia, Benin, Mauritius, Morocco, and Tanzania. Malawi, in July 1979, raised the surtax on imports from 15 per cent to 20 per cent. In January 1979 Peru extended, until the end of 1980, the import surcharge of 10 per cent; the surcharge was, however, eliminated in March 1980. During the period under review, Thailand introduced import surcharges on various items, ranging from 5 per cent to 30 per cent.
Substantial tariff concessions were negotiated in the Tokyo Round of the MTN, with the industrial countries pledging to reduce industrial tariffs by approximately 33 per cent on a weighted average basis. The process of tariff liberalization is scheduled to take place over eight years, beginning January 1, 1980 for those countries that have accepted the Geneva Protocol of 1979 and the Supplementary Protocol, and will enter into force for other countries on acceptance. In some sensitive areas the starting date for the progressive reductions is to be delayed. The overall tariff reduction formula will also result in some tariff harmonization through a proportionately larger reduction of tariffs levied at high rates. A separate agreement was negotiated to eliminate all customs duties and any similar charges on civil aircraft, aircraft parts, and repairs on civil aircraft by January 1, 1980.
There is to be considerable variation in the depth of tariff reductions among the major industrial countries participating in the pledge to reduce tariffs (the EC countries, Austria, Canada, Finland, Japan, Norway, Sweden, Switzerland and United States). For Austria, a weighted average reduction of 13 per cent is estimated to reduce the post-MTN tariff level on industrial products to an average of about 8 per cent, while for Japan the weighted average reduction of 49 per cent will result in a final tariff rate of 3 per cent. For the other industrial countries, the depth of the cut and the post-MTN tariff averages are, respectively: Canada—38 per cent and 9.5 per cent; the EC countries—29 per cent and 5 per cent; Finland—21 per cent and 6 per cent; Norway—25 per cent and 3 per cent; Sweden—28 per cent and 4 per cent; Switzerland—23 per cent and 2 per cent; and the United States—31 per cent and 4 per cent.
In addition to tariff actions related to the Tokyo Round, some industrial countries made important and wide-ranging reductions in import duties and other tariff concessions during the period under review. Canada extended a range of customs duty concessions originally due to expire at the end of June 1979. Spain applied substantial import duty reductions, on a temporary basis, for most of 1979 and early 1980.
Within the framework of the Generalized System of Preferences (GSP), several industrial countries introduced further tariff concessions for imports from developing countries. In agreeing upon its GSP scheme for 1980, the Council of the EC increased by 27 per cent the value of duty-free imports, to a level of EUA 9.5 billion.15 The EC included the People’s Republic of China as a beneficiary for the first time. Switzerland also extended the benefits of its GSP program to the People’s Republic of China, and with effect from January 1, 1979 Canada extended the list of its GSP beneficiaries to include Jordan, Niue, the Tokelau Islands, and the Mariana, the Marshall, and the Caroline Islands, while withdrawing St. Pierre and Miquelon from the list. In March 1979 the United States revised the list of products covered by its GSP scheme: some 108 products on which duty-free treatment had previously been withdrawn were redesignated as eligible for such treatment, 21 products were added to the list for the first time, while 6 products were withdrawn from the list. Duty-free treatment was withdrawn from 124 items when imported from certain developing countries. In March 1980 the United States added a further 50 items to the list of goods covered by its GSP scheme.
A number of developing countries in Latin America liberalized their import tariff regime in the period under review. Argentina announced a tariff reform program for the period 1979–84 designed to reduce tariffs from the existing range of 10–85 per cent to a range of 10–40 per cent in 1983, and introduced additional tariff reductions for more than 1,000 items of capital equipment. Colombia reduced import duties on a wide range of commodities according to the negotiations of the Cartagena Agreement and extended through mid-1980 a reduced 5 per cent duty on certain capital goods imports. Mexico abolished the minimum price system for customs valuation of most imports. Peru adopted a single, uniform customs tariff which consolidated a wide variety of previous duty exemptions and import surcharges. Under its tariff reform program, Uruguay implemented an across-the-board duty reduction on December 31, 1979 equivalent to 16 per cent of the difference between the sum of all existing duties and the basic 35 per cent duty. During the period under review, import charges and fees on a large number of imported foodstuff items were lowered. Uruguay also announced that the import duty reduction timetable would be accelerated for those products whose domestic prices are raised by percentages in excess of those justified by cost factors. Import duty reductions or concessions took effect in Chile, Costa Rica, and Venezuela. Among other developing countries, Algeria suspended import duties on agricultural products. Indonesia granted total or partial duty exemption for some imports and lowered duties for a wide range of imports of raw materials and semifinished goods. In January 1979 Korea lowered import tariffs on most products. In February 1979 Kuwait announced that import duties would be canceled when similar goods were not produced domestically. Other countries which introduced important tariff reductions included Nepal, the Philippines, Senegal, and Western Samoa. Sri Lanka increased import duties on some products and reduced them on others; on balance there appeared to be a net reduction in Sri Lanka’s import duties.
A number of countries increased the rates of customs duties and other import taxes. Australia raised duties for several items, and Sweden increased its compensatory import taxes on beer, sweets, and biscuits. Among developing countries, Madagascar and Malawi increased customs duties on a wide range of goods, while Yugoslavia increased import duties on luxury goods and imposed a 50 per cent tax on certain other imports. Significant increases in import duties also occurred in Algeria, Fiji, Guinea-Bissau, Iran, and Papua New Guinea, while Pakistan, Sierra Leone, and Zambia raised their import license fees.
There were numerous cases involving antidumping and countervailing duties in Canada, the EC, and the United States during the period under review. In Canada findings of dumping were concluded in respect of several products, including certain footwear and industrial trucks, while antidumping duties were rescinded for color television sets and certain fabrics. The EC also imposed antidumping duties in several cases. In the United States, antidumping duties were imposed on five import categories, while countervailing duties were imposed in a number of cases, the most important being imports of iron and steel chain from Italy, industrial fasteners from Japan, and canned tomatoes from the EC. In addition, import duties were increased to 15 per cent on imports of bolts, nuts, and large screws as a result of an escape clause case. The United States, however, revoked its findings of dumping against certain imports from the EC, Italy, and Japan, and revoked countervailing duties on specified imports from Austria, Colombia, the United Kingdom, and Uruguay.
c. Advance Import Deposits
The use of advance import deposit schemes became more widespread during the period under review. While two countries abolished or suspended their schemes and four others liberalized existing requirements for advance import deposits, new schemes were established in five countries and existing requirements were intensified in another seven countries.
In January 1979 Brazil announced an immediate reduction of the 100 per cent advance import deposit requirement introduced in July 1975 to a level of 90 per cent, accompanied by a schedule to phase out the requirement by June 1983 at a semiannual rate of 10 percentage points. In December 1979, as part of a wide-ranging series of measures, the advance import deposit scheme was suspended. In January 1979 Korea abolished all advance import deposits except those for goods imported by the private sector on a deferred payment basis and in March 1979 lowered the rates of the remaining deposit requirement. Kenya exempted a number of import items from its advance import deposit requirement, substantially reduced deposit rates for most remaining items subject to the scheme, and reduced from six months to three months, except for passenger cars and textiles, the term for which deposits would be retained. Ecuador and Paraguay exempted certain imports from their advance import deposit requirements. Uganda abolished prior import deposits in June 1979.
In September 1979 El Salvador introduced a 10 per cent prior import deposit requirement on all imports exceeding US$2,000 in value and paid for by letter of credit or bank draft. Iceland introduced a temporary import deposit scheme applying to imports of furniture and certain wood manufactures, to be in effect through December 1980. As part of a series of measures introduced in November 1979, Israel imposed a 10 per cent advance import deposit on taxable imports; the deposit requirement was to be in effect for six months. Malawi, in August 1979, made all imports subject to a 20 per cent advance deposit. In Nicaragua, about one half of merchandise imports became subject to a prior import deposit, equivalent to 100 per cent of the c.i.f. value in foreign exchange, which would be held for 60 days and would earn interest at 12 per cent per annum. In addition, a 100 per cent advance deposit requirement was introduced in respect of the value of the foreign exchange payment for all imports.
A number of countries tightened existing import deposit schemes. In September 1979 Bolivia raised the 120-day import deposit requirement on a large number of import items from the range of 5–25 per cent to a rate of 500 per cent for a period of 180 days; certain other imports not previously covered also became subject to the higher rate of deposit; in November previous deposit rates and terms were reinstituted. In February 1979 Colombia increased the rates of advance exchange license deposits from a range of 40, 60, and 80 per cent to a uniform 95 per cent. The advance import payment deposit, equivalent to 35 per cent, was thenceforth included as part of the required advance deposit. In June a new advance import deposit requirement, equivalent to 20 per cent of the value of the import license, was established for imports of capital goods that previously had been exempted from the deposit. This deposit requirement was subsequently raised to 35 per cent and imports of equipment and capital goods financed by financial corporations were exempted. From December 1979 Greece required importers to make additional advance deposits equivalent to 75 per cent of the c.i.f. value of imports to be held for a period of six months. The requirement was eliminated in April 1980. Morocco applied an advance deposit requirement to imports financed without purchase of official foreign exchange. In Nigeria the 100 per cent advance deposit requirement was made applicable to all forms of import payments, except those effected on documents against payment terms. Deposit requirements for imports were also tightened in the Philippines and Turkey.
d. Other Measures Affecting Import Payments
A number of countries eased existing regulations for import payments. In March 1979 Finland abolished the cash payment scheme for imports. In November Kenya eased the requirement introduced in December 1978 for importers to finance certain imports at terms of 90–180 days, and in August Korea extended the settlement period for imports with deferred payment from 90 days to 120 days. Peru phased out the minimum foreign financing requirement for imports. With the removal of all exchange controls in October and December 1979, the United Kingdom ceased to impose any requirements in respect of payments for imports.
Import payments regulations were tightened in Bangladesh, which restricted imports under the Wage Earners Scheme16 to those goods paid for with funds deposited in foreign currency accounts or remitted to Bangladesh through regular banking channels. Brazil increased the minimum financing period for imports of certain capital goods from five years to eight years, and Chile required exchange cover to be secured for all import payments not on a deferred basis within 120 days; for automobiles the period was fixed at 90 days. Previously, the permissible delay was 180 days. Certain imports exempted from the requirement were allowed a delay of 360 days. Guinea-Bissau prohibited foreign exchange allocations for imports of vehicles and spare parts, and Sierra Leone imposed a 2.5 per cent user charge on import licenses, except for raw materials. Western Samoa changed the period for allocations of foreign exchange for imports from an annual to a quarterly basis and subsequently required imports under the allocations system to be financed from current allocations even if payments were not due until a later date.
Credit financing for imports was restricted in Greece, where banks were not permitted to finance imports with goods as collateral; some import items were exempted from this regulation which was to remain in effect until June 1980. Greece also required the first repayment of a supplier’s credit to be made within six months. Mauritius prohibited the negotiation of credits for the importation of low-priority goods and required central bank approval of suppliers’ credits exceeding 90 days.
e. State Trading
In July 1979 the Libyan Arab Jamahiriya announced that import licenses would no longer be issued to the private sector. During the period under review, Malta extended the list of consumer goods that may be imported by the Ministry of Trade. Following the expiration of the India-Pakistan trade agreement, Pakistan announced in March 1979 that such trade by Pakistan would be conducted by a public sector agency. In Spain the Ministry of Commerce relinquished its participation in the importation of fresh and frozen meat.
2. Exports and Export Proceeds
Continuing the trend observed in recent years, many countries, both industrial and developing, adopted measures to encourage export growth. These included tax incentives in the form of rebates, other fiscal incentives for exports, and the provision of preferential financing facilities and exchange guarantee arrangements. On occasion, domestic supply considerations or changes in external conditions prompted the withdrawal of such benefits. Measures involving quantitative export restrictions or taxes on exports were generally introduced for domestic supply or price purposes and were confined to a few important commodities. However, as noted in Section I above, there was a further marked extension in the use of “voluntary” export restraint agreements. A number of countries modified their regulations governing the surrender of export proceeds.
In January 1979 Mexico granted subsidy payments to offset import duties on capital goods destined for export production; it also expanded the list of exports eligible for tax rebates to include manufactured goods. Pakistan lowered the tax rate on income derived from export activities and raised export rebates on a wide range of manufactured products. The Philippines offered a variety of incentives to exporters, including income tax benefits, exemptions from certain import duties, and an extension of the period allowed for the tax-free import of capital equipment. In Uruguay, additional tax credit incentives were provided to those exports which might become subject to countervailing import duties, in order to encourage the development of new export markets. In addition, exporters of specified commodities, mostly nontraditional exports, were offered fiscal incentives in the form of tax rebates, tax credits, or cash payments in a number of countries, including Argentina, Costa Rica, the Dominican Republic, India, and Sri Lanka. Also, Argentina granted its petrochemical and mining industries a wide range of benefits including deferred tax payments and tariff exemptions on capital good imports. However, fiscal incentives for exports were eliminated in several countries. In January 1979, Brazil announced a 10 per cent reduction in tax credits given to exporters of manufactures, together with a plan to phase out the credits by June 1983. In December Brazil suspended these tax credits. India suspended cash compensatory aid in respect of exports of cotton garments to countries with textile quotas. In Nepal the cash subsidy on jute goods exported to countries other than India was withdrawn, while Uruguay terminated the provision of subsidized credits in local currency against the advance surrender of export proceeds.
During the period under review, there were no significant changes in the arrangement on guidelines for officially supported export credits; the arrangement, which entered into effect on April 1, 1978, is maintained by member countries of the Organization for Economic Cooperation and Development (OECD) in respect of export credits and guarantees.
A number of countries introduced measures to promote export performance through the provision or expansion of preferential financing facilities. Austria in January 1979 announced an increase in the upper limit of the value of export promotion bills that the Austrian National Bank was prepared to refinance; in the same month Greece raised the reimbursable portion of interest payments due on export credit for goods shipped to European countries outside the EC. In September Spain relaxed the rules governing credits extended to finance the period of manufacture of exports, and in May Sweden removed the limits on amounts for export financing by authorized banks. Among other countries, Pakistan raised the amount of financing available to exporters; Malaysia granted certain exporters preshipment credit facilities; and the Philippines raised the limits to which the commercial banks were permitted to rediscount export paper with the Central Bank. In May 1979 Costa Rica established an export financing program whereby commercial banks were authorized to contract foreign financing in order to extend credit directly to domestic producers. On the other hand, France announced that ceilings on certain forms of credit, including medium-term and long-term export financing, would be imposed for the first half of 1980.
A number of countries introduced changes in their systems of guarantees and insurance on export credits and guarantees against exchange risks. The Federal Republic of Germany improved its official export credit insurance through the provision of automatic cover on payments which were six months overdue, and in December announced that new credit guarantees for trade with Iran would be suspended. In Italy cover against exchange risk was made available by the export credit agency for contracts denominated in U.S. dollars of maturity in excess of six months. Morocco established a forward exchange cover facility for individual export and nonconsumption import transactions. In the United Kingdom the Export Credit Guarantee Department (ECGD) reduced by one half the minimum limit for the value of export contracts qualifying under its bond support scheme; however, it also withdrew the refinancing facility provided for fixed rate sterling export credits of more than five years and raised the premium rates on the bank guarantee facilities. The abolition of exchange controls removed all requirements in respect of export proceeds and gave exporters unrestricted access to forward exchange cover facilities.
Quantitative restrictions on exports were abolished or relaxed in several countries. Argentina lifted its ban on the export of cattle hides, Costa Rica eliminated restrictions on the export of coconuts, and India suspended the limitation on tea exports for a period of one year beginning April 1979. Malta and Spain exempted most nonessential goods from export licensing requirements. Pakistan lifted the ban on exports of staple cotton, Papua New Guinea liberalized regulations governing exports of logs, Peru resumed exports of fish oil, and Thailand abolished licensing requirements for exports of animal feed. A number of countries, however, introduced new or intensified existing quantitative restrictions on exports. The Federal Republic of Germany announced the suspension of approvals for future deliveries of military spare parts to Iran. Prohibitions on specified exports were also imposed in Argentina, Ghana, India, Indonesia, and Sri Lanka, while the Dominican Republic temporarily banned exports of most agricultural products following supply disruptions caused by hurricane damage. Certain exports were made subject to prior approval or licensing requirements in Colombia, Fiji, Nigeria, and Sweden. The United Arab Emirates limited the issuance of general trade licenses to U.A.E. citizens or to firms fully owned by citizens. In January 1980 the United States prohibited the export of agricultural commodities to the U.S.S.R. (for wheat and corn the measure applied to exports beyond the previously agreed level); subsequently, specific items deemed not to be animal feed or meat substitutes were withdrawn from the list of prohibited exports, while phosphate fertilizers were added. In April 1980 the United States prohibited all exports to Iran except food and medicines. The United States also renewed, until 1983, export control regulations under the Export Administration Act; provision was made for the introduction of guidelines on the use of export controls for foreign policy purposes, the modification of export licensing procedures, and the setting up of a commodity control list.
In the area of export taxation, several countries imposed new or raised existing taxes or duties on exports of primary products, often with a view to ensuring adequate domestic supplies. Brazil, in December 1979, introduced export taxes on a wide range of commodities, including coffee, but lowered the rates of tax in January 1980. Honduras imposed taxes on the export of certain meat products. Indonesia raised tax rates on a number of exports, while in Malaysia export duties on coconut products were increased. Paraguay introduced a new export tax on soybeans ranging from 3 per cent to 7 per cent, and in Sri Lanka duties were levied on certain fish exports. Uruguay introduced regulations permitting the imposition of taxes on exports subject to countervailing duties in the country of destination; it also applied taxes on leather and textile products exported to the United States and fixed the levies on exports of certain hides in terms of U.S. dollars. Export duties or taxes on specific commodities were reduced in Argentina, Malaysia, and Sri Lanka and were eliminated in India, Nepal, Pakistan, the Philippines, and Senegal.
Regulations governing the surrender or surveillance of export proceeds were abolished or liberalized in a number of countries. Colombia allowed exporters of mineral products in association with state enterprises to retain a portion of their export proceeds for the payment of foreign obligations; it also modified the list of exports against the proceeds of which foreign exchange certificates could be redeemed without discount within a specified period of time. Exporters of nontraditional goods were exempted from foreign exchange surrender requirements in the Dominican Republic and from filing foreign exchange sales reports in the Philippines. Surrender requirements were tightened, however, in several countries. Ecuador reduced the time limit for the surrender of foreign exchange proceeds from specified petroleum sales and raised the fines for delays in the surrender of these proceeds. Maldives imposed a 50 per cent surrender requirement on the proceeds from certain exports of fish, and Zaïre tightened the regulations governing the repatriation and surrender of foreign exchange earnings of several of its state trading companies.
3. Current Invisibles
During the period under review, many of the changes in regulations relating to payments and transfers for current invisible transactions were in the direction of liberalization. But, as generalized price increases continued worldwide, adjustments were often designed merely to maintain exchange allocations in real terms, such as those for foreign travel, especially in cases where nominal amounts had been kept constant for a considerable time and/or where they had been expressed in depreciating currencies. Several countries introduced new or intensified existing restrictions on current invisibles, sometimes sharply, and usually in conjunction with other trade and payments measures, as a means of stemming balance of payments pressures or preventing disguised capital outflows.
There were some important liberalizing actions by industrial countries. After several years of successive liberalizations, the United Kingdom abolished, between June and October 1979, the remaining restrictions on current invisibles (other than those with respect to Southern Rhodesia which were removed in December 1979) in the context of the progressive dismantling of all exchange controls. Concomitantly, Ireland terminated all exchange control distinctions between U.K. residents and other EC nonresidents. Consequently, all transactions in sterling by Irish residents were subject to the rules governing transactions in any other foreign currency, and all transactions (in any currency) involving payments or transfers of assets by Irish residents to U.K. residents were subject to the rules governing such payments or transfers to residents of other EC countries. In the Belgian-Luxembourg Economic Union (BLEU) the upper limit on current payments and receipts for which no exchange control documentation is required was doubled to BF 100,000 and some other administrative procedures were liberalized. Zaïre relaxed restrictions on remittances to Burundi and Rwanda involving settlement of insurance claims and for social security benefits.
In the area of exchange allocations for foreign travel, measures involving liberalization outnumbered actions introducing new or intensified restrictions. Colombia more than doubled the basic exchange allocation for travelers and also raised the ceiling on the special allocation for travel considered especially beneficial to the country. Chile increased the exchange allowance for travel to neighboring countries, and Finland raised the maximum amount of exchange that residents are permitted to take out of the country without central bank approval. Guyana reintroduced the exchange allocation for tourism which had been suspended late in 1976, while Iceland again raised its allocation for tourism. India increased the exchange allowances for travel to Bangladesh and Sri Lanka. Iraq raised the allocations for both official and tourist travel. The Netherlands Antilles set a higher daily exchange allowance for tourist travel. Pakistan raised the exchange allowance for business travel by 50 per cent, but reduced the special daily allowance for private trips to India. The indicative exchange allowances for business and tourist travel were doubled in Peru, and Spain increased the basic limit on the sale of foreign exchange for travel abroad. In Sri Lanka the monthly limit on the sale of exchange for medical travel to neighboring countries was raised and additional exchange for emergency travel was granted without prior approval. South Africa increased its travel allowance by 50 per cent as did Lesotho and Swaziland. Trinidad and Tobago raised allowances for all forms of travel, while Barbados, Malta, and Zambia increased exchange allocations for business trips. Among other countries which liberalized exchange for travel, Brazil suspended the deposit requirement on the issuance of passports and exit visas, payment of which was a condition for the purchase of exchange for travel, and the Philippines rescinded in early 1979 the requirement introduced in late 1978 that all applications for exchange for travel to Hong Kong be referred to the Central Bank.
New or intensified restrictions on the availability of exchange for travel were limited to developing countries. Two of them, Ghana and Uganda, suspended exchange allocations for tourist travel. El Salvador reduced the basic allowance for travel expenses, although additional amounts were made available subject to the lodging of a guarantee deposit with the Central Reserve Bank. Iran reduced the limits on allocations for all types of travel except travel for medical reasons. Nicaragua adjusted the limit on the travel allowances from a maximum of US$5,000 in any 360-day period to US$2,500 in any 180-day period. Turkey reduced the basic exchange allowance for travel from US$500 a person every two years to US$500 a person once every three calendar years. Thailand reduced the maximum number of days for which travelers may purchase foreign exchange from 45 to 30, but later raised the maximum daily allowance for business trips from US$120 to US$150. Restrictions on foreign travel introduced in 1978 were reinforced by new cost disincentives in Kenya, which subjected applications for air and sea travel tickets to ad valorem taxes of 10 per cent and 5 per cent, respectively.
In the area of remittances of personal income, profits, and dividends, Burundi relaxed restrictions on transfers of earnings of foreign nationals. India increased the maximum amount of dividends on equity shares which could be remitted to nonresidents without prior approval. South Africa permitted emigrants to take out up to R 100,000 for each family, in addition to normal travel allowances, and raised the limit for export of household and personal effects. In Spain business enterprises were authorized to open special accounts for payments abroad, and Sri Lanka withdrew the requirement of Central Bank approval for the remittance, after deduction of taxes, of interest accrued in blocked accounts from fixed deposits by nonresidents. However, Tanzania suspended all remittances of profits and payments of dividends to nonresident companies. In Nigeria the limit on remittances of profits and fees by foreign firms and consultants was lowered, and some restrictive guidelines were issued on the repatriation of proceeds from sales of shares by foreign companies.
Among other measures affecting payments for current invisible transactions, foreign exchange allocations for education abroad were increased in a number of countries, including Greece, Pakistan, Peru, and Uganda. Chile doubled the monthly allowances for several kinds of remittances, such as the cost of medical treatment abroad and payments for pension funds. Jordan liberalized certain exchange controls on remittances by permitting the transfer of foreign currency to local banks in any form and by doubling the ceiling on foreign currency deposits that may be held by Jordanians.
In a number of countries, restrictions on the import and export of domestic or foreign banknotes were eased and reconversion limits for unspent balances were raised. Malaysia and Spain raised the limit on the value of domestic currency notes that travelers may carry into and take out of the country. Guyana, Iceland, and Pakistan also liberalized restrictions on the import and export of domestic banknotes. In January 1979 Switzerland removed the limitations on importing foreign currency notes which had been reintroduced almost one year earlier. In Sri Lanka the reconversion limit on unspent rupee balances was lifted, subject to verification of adequate documentation on the initial exchange conversion, and the Syrian Arab Republic allowed departing nonresidents to reconvert Syrian currency into foreign exchange up to the equivalent of LS 500.
4. Payments Arrears
A sizable number of member countries continued to incur external payments arrears during the period under review. These arrears relate largely to commercial import payments, although a significant proportion, particularly among countries with unfavorable debt profiles, represents delays in official and private debt service payments; some countries have also reported delays in the provision of foreign exchange for certain invisible transactions such as profit and dividend transfers and the remittances of international airline companies.
A number of countries entered into programs supported by the use of Fund resources providing, inter alia, for the phased reduction or elimination of arrears. Of these countries, Ghana, Jamaica, Mauritania, Sudan, Turkey, Uganda, and Zambia registered a decline in their payments arrears; in the case of Turkey some arrears, including those related to noncommercial payments, were rescheduled. Increases in arrears were reported in Guyana, Nicaragua, Sierra Leone, and Zaïre; the last two countries, as well as Sudan, received partial assistance in the form of rescheduling agreements. Among countries for which Fund programs were not in effect, the Dominican Republic and Tanzania registered further accumulations of arrears. Payments arrears also increased in Madagascar. Recent information on the situation concerning payments arrears in Guinea and Guinea-Bissau is not available. On the basis of the latest available information, outstanding payments arrears in all of the countries mentioned above, other than Ghana, Guinea-Bissau, Guyana, Madagascar, and Tanzania, relate to payments delays on both current account and capital account transactions.
Arrears have also been reported in a number of countries which share common currency arrangements. These arrears represent overdue payments by the public sector on commercial transactions and debt service commitments and are owed to both external and internal creditors; they reflect shortages of domestic currency arising from statutory restrictions on borrowing by participating governments from the joint central banks. Among the group of countries belonging to the Bank of Central African States (BEAC),17 the Central African Republic recorded a slight increase in payments arrears during the period. In February 1980 it introduced a program supported by the Fund to alleviate its balance of payments problems. Gabon eliminated arrears, and in the People’s Republic of the Congo arrears were reduced in accordance with targets specified in Fund programs; recent data on arrears in Chad are unavailable. Togo, which shares the common currency issued by the Central Bank of West African States (BCEAO),18 accumulated further arrears on external debt service payments, while in Grenada, which shares the common currency issued by the East Caribbean Currency Authority, a decline in arrears was reported; in these two countries, both of which were participating in Fund programs, payments arrears were rescheduled during the period under review.
5. Multiple Currency Practices
Under the par value system of exchange rates, a member was obligated to maintain the rates for exchange transactions within its territory between its currency and the currencies of other members within margins of 1 per cent either side of parity for spot transactions. Rates outside these margins or a spread of more than 2 per cent were considered to give rise to a multiple currency practice contrary to a member’s obligations under Article VIII, Section 3, unless authorized by Article XIV or approved by the Fund. With the Second Amendment of the Articles of Agreement, which took effect on April 1, 1978, the system of par values and the 1 per cent margin were replaced by a system in which members may choose their own exchange arrangements. This change required a review of the concept of “a multiple currency practice.” The freedom of members to choose their own exchange arrangements under Article IV of the Second Amendment does not dispense with the obligation of members to avoid engaging in multiple currency practices.
In October 1979 the Executive Board of the Fund completed a review of the legal and operational aspects of multiple currency practices in the light of the Second Amendment. The Executive Board concluded that, pending a further review, the Fund would continue to be guided by the following general principles: (1) a multiple currency practice arises only when created by official action, as distinct from the commercial costs of carrying out the exchange transactions; or (2) the result of that action is either (a) a spread of more than 2 per cent between the buying and selling rates for spot exchange transactions between the member’s currency and any other member’s currency, or (b) a difference of more than 1 per cent between the mid-point spot exchange rates quoted for another member’s currency vis-à-vis the member’s currency, and the mid-point spot exchange rates for the same currency in its principal market.
In the period under review, progress was made in unifying or simplifying existing dual exchange market arrangements in Afghanistan, Costa Rica, Egypt, Mauritania, Nepal, Nicaragua, Peru, Turkey, and Uruguay. In several of these countries, actions to reduce the incidence of multiple exchange rates were taken as part of policy programs supported by the use of Fund resources. In Afghanistan the multiple exchange rate structure that had existed for many years was abolished with the establishment of a unified exchange rate system in May 1979. In Costa Rica the margin between official rates and those quoted on the stock exchange narrowed to within 2 per cent. Egypt unified the official and parallel exchange rates early in 1979 by shifting all remaining transactions to the more depreciated rate (in terms of Egyptian pounds per U.S. dollar) in the parallel market; the free foreign exchange market, however, remained operative, and a special exchange rate based on the former official rate continued to be applied to settlements under bilateral payments agreements with nonmember countries of the Fund, as well as to liquidation accounts under defunct bilateral payments agreements. Mauritania, in March 1980, abolished the fixed exchange rates for transactions in banknotes for specified currencies, thereby permitting such transactions to be effected at the official exchange rate. Nepal, in February 1980, took steps to reduce the rate differentials within its dual exchange market system by appreciating the second, or more depreciated, rate. In Nicaragua the multiple exchange market arrangement, which was adopted in April 1979, was discontinued in August. From March 1979 the exchange rate premium in Peru’s market for foreign currency certificates of deposit ceased to exceed the official exchange rate by more than 2 per cent for a significant period. In Uruguay the exchange markets were legally unified on November 28, 1979.
As a result of the measures taken by the United Kingdom in October 1979 to dismantle its system of exchange controls, the separate exchange market for investment currency ceased to exist.
Among other countries maintaining dual exchange market arrangements, the Lao People’s Democratic Republic, which had discontinued this type of exchange arrangement in June 1976, re-established the practice through the introduction of an exchange premium on sales of foreign exchange to the National Bank by embassies and tourists or resulting from unrequited private transfers, as part of the currency reform effected in December 1979. In South Africa the scope of the investment currency market was widened in January 1979 with the replacement of the “securities rand” by the “financial rand,” which became accessible to a wider range of assets, including direct foreign investments and the acquisition of stocks in existing or newly formed companies. In Sudan a dual exchange market arrangement was established in September 1979, in a move associated with the abolition of existing exchange subsidies and taxes. Zaïre, in February 1979, depreciated further the exchange rate for exports of diamonds purchased from small-scale producers. There were no significant new developments or specific measures during the review period in the other countries featuring formalized separate exchange rate arrangements—namely, Algeria, the BLEU, Ecuador, the Dominican Republic, Morocco, and the Syrian Arab Republic.
Colombia adjusted the scope of its multiple currency practices; from the beginning of 1980, exports under official export-import regimes became eligible for exchange-related benefits in the form of freely negotiable tax credit certificates at a rate of 0.1 per cent of surrendered export earnings; previously, rates of up to 12 per cent were applied to the added value of certain exports, depending on the commodity. In the same month, the coverage of the special tax on outward remittances was reduced by excluding rental payments for television movies. In connection with its acceptance of the obligations of Article VIII, Sections 2, 3, and 4, of the Fund’s Articles of Agreement, Dominica in December 1979 abolished the 2.5 per cent tax on sales of foreign exchange by the banks. Reflecting the various ameliorative steps taken during the review period, multiple currency practices in Turkey in the form of separate effective exchange rates arising from specific official measures, had by early 1980 been reduced in essence to two forms: (1) an advance import deposit requirement amounting to 10 per cent of import costs for the public sector and 15 per cent and 30 per cent for the private sector; and (2) the export retention quota under which 50 per cent of foreign exchange earnings from exports of mining and manufactures can be used directly by the exporter at freely determined rates, for the importation of inputs for export production. In Kenya the advance import deposit requirement introduced in December 1978, which had given rise to a multiple currency practice, was reduced in November 1979 from 100 per cent and 25 per cent of the c.i.f. value of imports to 50 per cent and 10 per cent, respectively. Paraguay, in November 1979, removed the limit of 20 per cent on profit remittances by foreign investors. Uruguay eliminated two of its three remaining multiple currency practices upon the approval of the tax reform law in November 1979.
Several countries increased the scope of multiple currency practices. Numerous new effective exchange rates in Brazil arose from the introduction, in connection with the series of measures adopted in December 1979 and early 1980, of export taxes on a wide range of primary products; the taxes were collected at the time of surrender of export proceeds. In April 1980 Brazil applied a tax of 15 per cent to purchases of foreign exchange for imports of goods and services. The rate of tax was to be lowered to 10 per cent on September 1, 1980. In Iran the authorities introduced both a preferential rate to be applied to the surrender of export proceeds by the private sector and an unofficial and substantially depreciated rate for use in meeting part of the exchange requirements for travel. Without showing significant changes during the period under review, multiple currency practices in relation to specific transactions continued in Bangladesh, Ghana, Iceland, and Romania.
6. Bilateral Payments Arrangements
There was a further reduction in the number of bilateral payments arrangements during the period under review, although progress in eliminating such arrangements was slower than in some other recent years. The use of such agreements as a vehicle for furthering trading relationships has continued to decline. Four arrangements between member countries, those between Colombia and Spain, Cyprus and Romania, Egypt and Mali, and between Egypt and Jordan, were either suspended or terminated. The comparative statistics presented in previous years have been distorted to some extent by the inclusion of nonoperative agreements. If such agreements are excluded, by early 1980 a total of 28 Fund member countries were maintaining some 29 agreements.19 In addition, four agreements between members and nonmembers were eliminated, namely, those maintained by Cyprus, Egypt, Greece, and India, respectively, with Hungary, Czechoslovakia, the U.S.S.R., and Bulgaria. Zaïre, however, concluded a new arrangement with Angola. The total of bilateral payments arrangements of Fund members with non-members in early 1980 was estimated at 123.
7. Capital Flows
The major developments in capital controls among industrial countries were the historic decision by the United Kingdom to dismantle its system of exchange controls and the continuing liberalization of capital movements by Japan. Measures to control capital flows taken by some of the other industrial countries represented a continuing effort to improve domestic monetary management. Few developing countries took steps to relax existing restraints on capital outflows; while the developing countries, in general, continued to encourage capital inflows, several tightened their regulations on foreign borrowing to strengthen the management of domestic liquidity and external debt.
The progressive abolition of exchange controls by the United Kingdom eliminated all barriers to inward and outward flows of capital. In June 1979 the first steps included the removal of restrictions on the reinvestment of profits from outward direct investments and the introduction of a substantial annual allowance of official exchange for the financing of such investments. In July 1979 all restrictions on outward direct investment were abolished, and significant steps were also taken to liberalize outward portfolio investment. All the remaining controls (except for those relating to Southern Rhodesia which were finally removed in December 1979) were abolished in October 1979. Among the effects of this was that, as mentioned earlier, the investment currency market ceased to exist.
Japan took further major steps to liberalize capital movements. In March 1979 the ceilings on oversold spot position (swap quotas) of foreign banks were raised. Japanese banks were allowed to be in oversold spot positions under ceilings set for individual banks. In May 1979 the Ministry of Finance announced a seven-point program for relaxing restrictions on capital inflows which included the following: (1) an extension of the maximum import usance period; (2) the freeing of export prepayment from government approval; (3) abolishing the maximum conversion period for proceeds of foreign yen bonds and yen syndicated loans; (4) easing of curbs on the use of impact loans with the repayment period exceeding one year; (5) lifting of the ban on short-term impact loans; (6) lifting of the 25 per cent limit on the share of nonresidents in subscription to foreign yen bonds; and (7) extending access to the gensaki market (a repurchase market for short-term trading in bonds) to nonresidents. Also in May the Japanese authorities authorized Japanese and foreign banks operating in Japan to issue yen-denominated negotiable certificates of deposit with market determined interest rates and maturities of between three and six months. In November 1979 the Ministry of Finance announced further measures aimed at encouraging capital inflows and improving surveillance of foreign exchange transactions as follows: (1) authorized foreign exchange banks were to report daily the volume of transactions, both interbank and vis-à-vis customers, as well as individual transactions exceeding US$5 million; (2) the main trading companies were to report monthly the outstanding balances of forward exchange purchased and sold in relation to foreign trade; (3) securities companies and foreign exchange banks were to report three times a month the amount of short-term foreign securities acquired by residents, and the amount of currency deposits by residents; (4) net actual foreign currency positions both for foreign banks in Japan and for Japanese authorized foreign exchange banks were to be expanded in January 1980; and (5) administrative controls on impact loans were to be further liberalized. In December 1979 a major revision of the Foreign Exchange and Foreign Trade Control Law significantly liberalizing capital controls received parliamentary approval. The new law, which was to become effective with the completion of the implementing regulations, scheduled for the second half of 1980, provided that, in general, foreign transactions including foreign borrowing could be made freely. Provided advance notice was given, Japanese banks could lend abroad, Japanese firms could issue bonds abroad and yen bonds could be issued by nonresidents. In addition, the ¥ 3 million limit on residents’ foreign currency deposits with resident banks would be abolished.
In March 1980 as part of a new yen defense program, Japan announced further measures to facilitate the inflow of foreign funds: (1) the raising of funds from abroad through interoffice free yen accounts by the authorized foreign exchange banks would be permitted on a more flexible basis; (2) free yen deposits held by public institutions including foreign central banks would be exempted from the legal ceiling on interest rates; (3) the private placement abroad by Japanese firms of yen bonds would be permitted more freely; and (4) medium-term and long-term impact loans by Japanese banks could be permitted.
In April 1979 the U.S. Comptroller of the Currency ruled that U.S. banks could lend more than 10 per cent of their capital funds to a foreign government and its agencies if they could demonstrate that the agencies were not controlled by the government and were not acting as intermediaries for the government to obtain funds. In June the U.S. Federal Reserve Board issued regulations to implement the provisions of the International Banking Act of 1978 relating to Edge Act Corporations, which are subsidiaries of banks or bank holding companies and are able to engage in international banking operations outside the banks’ state of operation. Under the new regulations, these corporations were allowed to establish branches in more than one state for the purpose of providing international financial services. The regulations also governed lending limits and capital requirements for these corporations, and foreign investment by U.S. banking organizations. In September the U.S. Federal Deposit Insurance Corporation (FDIC) issued final regulations to implement the section of the International Banking Act providing for FDIC insurance for all domestic deposits in a U.S. branch of a foreign bank that accepts deposits of less than US$100,000.
In March 1979 the U.S. Treasury issued regulations providing for the transfer of U.S. bank deposits and certain other funds of the People’s Republic of China, Cuba, Czechoslovakia, Democratic Kampuchea, Estonia, German Democratic Republic, Latvia, Lithuania, North Korea, and Viet Nam, which had been blocked under Treasury regulations, to interest-bearing accounts. In May an agreement was signed between the United States and the People’s Republic of China for the settlement of mutual claims, and in October the two countries agreed to postpone the unblocking of Chinese assets in the United States until January 1980. These assets were unblocked on January 31, 1980. The U.S. Treasury also liberalized the rules governing payments by U.S. agencies to persons in the People’s Republic of China; blocked assets were not affected. Effective November 14, 1979 the United States blocked all assets of the Government of Iran and its instrumentalities and controlled entities, including the Central Bank of Iran, which were subject to the jurisdiction of the United States or in the possession or control of persons subject to the jurisdiction of the United States, including foreign affiliates of U.S. firms. Later in November, under amendments to these regulations, the U.S. Treasury authorized foreign branches and subsidiaries of U.S. firms to exercise the right of set-off against blocked Iranian assets held by them; unblocked Iranian foreign currency deposits held by foreign branches and subsidiaries of U.S. firms; and permitted transfers by Iranian entities for payment of obligations to U.S. persons through banking facilities in payment of obligations to U.S. persons. The United States introduced further amendments to these regulations in April 1980 that included the prohibition of certain payments and transfers by persons subject to the jurisdiction of the United States which involved the Government of Iran, its instrumentalities or controlled entities, enterprises controlled by Iran, or persons in Iran, and certain payments related to trade and maintenance within Iran by most U.S. persons.
In the Federal Republic of Germany, the Bundesbank and the banks entered into a six-month gentlemen’s agreement in March 1979 whereby the banks undertook not to place deutsche mark bonds abroad through their Luxembourg subsidiaries. This agreement was extended for another six months in September. Effective February 1, 1980 the credit institutions were required by the Federal Banking Supervisory Office to include their open positions in gold, silver, and platinum in the calculation of their daily open exchange positions. Also in December the credit institutions were instructed to report, from March 31, 1980, the status of nonresident claims and liabilities of their foreign branches by currency and country.
Switzerland removed a number of barriers and disincentives to capital inflows. In May 1979 the requirements of prior approval for foreign borrowing by resident nonbanks, of balancing daily the banks’ foreign currency positions, and the authority to sterilize Swiss franc proceeds of exchange market intervention (which had never been applied) were abolished. In June the requirement that foreign borrowers of Swiss currency convert 50 per cent of the proceeds at the National Bank was lifted. In September 1979 the limit on the forward sale to foreigners of Swiss francs with maturities of over ten days was raised from 40 per cent to 50 per cent of the October 31, 1974 level; the ceiling applicable for forward sales of up to ten days’ maturity remained at 20 per cent. In November the negative interest requirements on Swiss franc deposits of nonresidents were reduced from 10 per cent to 2.5 per cent a quarter, and in December 1979 these requirements were abolished, although nonresidents’ deposits were still not allowed to earn interest. In February 1980, however, the embargo on the payment of interest on these deposits was removed.
Among other European countries, Ireland in March 1979 suspended the 50 per cent deposit requirement on the inflow of capital through commercial banks. The Netherlands in June 1979 liberalized the so-called five million regulation which limited the permitted net spot foreign liabilities position of authorized banks to f. 5 million. Thenceforth, a margin of 10 per cent was permitted on the first f. 500 million of gross foreign assets, including export finance bills, 5 per cent on the next f. 500 million, and 1 per cent on any additional gross foreign assets. The limit was removed entirely in January 1980. In October Norway suspended until further notice the maximum limit of NKr 100,000 which nonbank nonresidents were allowed to hold on deposit at Norwegian banks. South Africa in June 1979 liberalized outward capital transfers by residents. Thenceforth, they normally were to take place at the financial rand rate instead of the commercial rand rate and permission for such transfers would be granted more freely. Spain, in April 1979, established a noninterest-bearing deposit requirement equal to 25 per cent of the value of all foreign loans and credits, both in foreign currencies and in pesetas, from foreign accounts authorized by the Bank of Spain to Spanish and foreign residents in Spain; the deposits were repayable in proportion to the amounts amortized. Exempt from this requirement were loans which did not give rise to a net entry of funds into Spain. The deposit requirement was abolished in October. Sweden permitted authorized banks to raise short-term loans in foreign currencies for on-lending to resident enterprises for import and export financing.
In the area of portfolio investment, Denmark announced in February 1979 that nonresidents could no longer purchase Danish Government krone bonds issued since 1975 from residents without permission from the National Bank; permission would not normally be granted. In February 1979 an amount of deutsche mark-denominated U.S. Treasury notes to the value of DM 2.5 billion was placed in the Federal Republic of Germany for purchase by residents. A further placement of these deutsche mark-denominated bearer notes to the total value of DM 4 billion was made in November 1979 and January 1980. These notes could not be sold or resold to nonresidents. In March 1980 the Federal Republic of Germany permitted nonresidents to hold domestic fixed interest securities with a maturity of two years or more; previously, the minimum maturity for the holding of such securities was fixed at four years. In addition, the rules governing the sale abroad by commercial banks of deutsche mark-denominated promissary notes were relaxed. Thenceforth, approval would be given for sales of these notes with a maturity of more than two years. Ireland, in September 1979, allowed insurance companies and pension funds to increase their holdings of foreign currency securities up to 10 per cent of their Irish net actuarial liabilities. At the same time, professional portfolio managers were allowed to acquire foreign currency securities with borrowed foreign currency. In October 1979 the Central Bank of Ireland announced that the special arrangements in the Irish exchange controls applying to transactions involving U.K. residents were abolished. Restrictions on the reinvestment by Irish resident holders in other foreign currency securities of the sales proceeds of existing holdings of sterling securities were also lifted. In January 1979 Japan permitted nonresident purchases of yen bonds with remaining maturities of 13 months or more; previously, purchases of bonds with remaining maturities of less than five years and one month had been banned. In February 1979 the remaining restrictions on nonresident purchases of yen bonds were lifted. The new Foreign Exchange and Foreign Trade Control Law of Japan, which is scheduled to take effect in the second half of 1980, freed most inward and outward portfolio investment from the requirement of approval; such approval, in practice, had been given automatically. In August 1979 the Netherlands relaxed restrictions on foreign borrowing. The yearly limits on borrowing by residents from nonresidents were raised from f. 300,000 to f. 500,000. The minimum maturity was lowered from ten years to seven years. The proceeds of Euro-guilder issues could be spent in the Netherlands subject to certain conditions. In October 1979 the Bank of Norway allowed nonresidents to buy shares in joint-stock companies and bearer bonds up to a value of NKr 1 million; previously, a ceiling of NKr 50,000 applied to such purchases. Outward portfolio investment was liberalized by Spain in November 1979: insurance companies, banks, and savings institutions were allowed to invest in foreign securities up to 10 per cent of any increase in their fiscal capital. Mutual funds were allowed to invest in foreign stock markets up to a limit to be established by the Ministry of Finance. All residents were free to invest in bonds issued abroad by Spanish public or private entities or by international organizations. Switzerland abolished in January 1979 regulations prohibiting the purchase of Swiss franc-denominated securities by nonresidents and lifted limitations on subscriptions by foreign investors.
In the area of direct foreign investment, Australia in January 1979 allowed net earnings from direct investments overseas to be retained abroad without the specific approval of the central bank, for financing increased working capital and planned future expansion. In June 1979 the requirement of 75 per cent Australian equity participation in uranium mine development was lowered to a minimum of 50 per cent in cases of significant economic benefit to Australia where local capital could not be obtained and where Australians retained policy control. The Federal Republic of Germany, in order to stimulate private investment in developing countries, provided more favorable conditions for investment in the 30 least developed countries and in raw materials and energy production. In September 1979 Finland permitted residents to purchase real estate abroad up to a limit of Fmk 150,000. The new Foreign Exchange and Foreign Trade Control Law of Japan provided for a significant liberalization of inward and outward direct investment and outward investment in real estate. Outward direct investments could take place, provided prior notification was given, as could inward investment, except in specified industries and any other cases where such investment would have an adverse effect on the economy. New Zealand relaxed controls on inward direct investment. Foreign takeovers of companies or purchases of businesses valued at less than US$500,000 would receive automatic approval and the amount of borrowing which overseas-owned companies might raise from local sources was increased substantially. In October 1979 Norway increased the limit on the transfer of capital abroad for the purchase of real estate for recreational purposes from NKr 150,000 to NKr 250,000 a family. In September 1979 Spain announced a liberalization of outward direct investments. In July 1979, however, Sweden banned new investment in South Africa and Namibia.
Among the developing countries which introduced new measures affecting capital flows through the banking system, Bolivia, in November 1979, prohibited banks and exchange houses from maintaining deposits on their own account, either abroad or locally, using foreign exchange provided by the Central Bank. At the same time, ceilings were placed on short-term and medium-term foreign exchange liabilities of banks. Liabilities in excess of these limits became subject to a 100 per cent reserve deposit requirement.
In April 1979 Brazil tightened restrictions on conversion into domestic currency of the proceeds of foreign borrowing. The full amount of a loan was made subject to mandatory deposit of which 50 per cent remained frozen until amortization payments began; the remaining 50 per cent of loan value was refundable in stages within 210 days. As part of the series of measures introduced in December 1979, new foreign loans were no longer subject to the 50 per cent deposit requirement pending amortization; instead the whole amount of the loan proceeds became subject to a scheduled release over 210 days. In January 1980 the amount to be deposited in respect of borrowing by private enterprises was reduced to 75 per cent of the proceeds, and the schedule of releases was lowered to 120 days overall. In December 1979 the regulations governing voluntary deposits in respect of short-term foreign financial loans were modified, as follows: (1) voluntary deposits of these loans at the Central Bank by nonfinancial institutions were frozen for an indefinite period; these funds are refundable only as (a) amortization and interest payments fall due, (b) the loans are transformed into equity capital or, (c) they are needed to finance high-priority projects; and (2) voluntary deposits of these loans by financial institutions were subject to a mandatory minimum waiting period of 180 days. Another measure affecting external borrowing was the raising of the limit of foreign borrowing by commercial banks from two to four times their capital and surplus.
Chile introduced a number of measures relating to foreign borrowing. In April 1979 deposit requirements were imposed against certain foreign borrowings at the rate of 25 per cent for maturities between two and three years and 15 per cent for longer maturities; the deposits were noninterest bearing. In May 1979 the reserve requirement for longer matuities was modified to 15 per cent for borrowings at terms of three to four years, 10 per cent for those of four to five and a half years, and was eliminated for maturities over five and a half years. In June the limit on the external indebtedness of commercial banks, which previously stood at 225 per cent of capital and reserves, was eliminated, and in August the monthly ceiling on net disbursements of foreign loans by commercial banks was reduced. In September the requirement that lines of credit in foreign currency granted by domestic banks to foreign banks be used solely for the financing of Chilean exports was lifted. Also in September, banking institutions were permitted to transact arbitrage operations with foreign correspondents. In February 1979 Colombia exempted foreign currency liabilities contracted by public sector financial institutions from the existing minimum reserve requirement, provided that they were linked to the financing of approved mining projects and would not exceed 15 per cent of total costs. In May banks were authorized to prepay external loan obligations and have the repayments counted against the banks’ minimum reserve requirements on net foreign liabilities. In June the minimum reserve requirements on foreign liabilities of commercial banks were reduced. Ecuador included public financial development institutions among the entities for which loan capital from foreign governments and international organizations can be converted in the official market. Israel introduced a number of measures designed to control capital inflows. In February 1979 a total ban was placed on foreign currency loans by Israeli companies and individuals. In April the ban was lifted and replaced by a system of controls which took the form of supplementary interest payments. All borrowing by resident commercial banks from nonresident entities was made subject to a 12 per cent interest charge, while borrowing by nonbank residents was made subject to a compulsory deposit in U.S. dollars of 30 per cent of total proceeds. A negative interest rate of 17 per cent per annum was applied against these deposits. In November 1979 Israel announced a total freeze on foreign currency credits effective for 90 days.
Korea significantly liberalized foreign exchange regulations in January 1979. Korean banks were permitted to handle all foreign exchange transactions not specifically prohibited. Residents were permitted to hold foreign currency deposit accounts with foreign exchange banks. Offshore banking activities were permitted and the restrictions on forward exchange transactions were eased, while the restrictions on the holding of foreign stocks and securities by foreign exchange banks were removed. Also in January 1979 the maximum permissible interest rate spreads and service charges for foreign loans were lowered. In February 1979 the minimum allowable amount for foreign borrowing was reduced from US$10 million to US$5 million, and the list of industries eligible to obtain foreign loans was extended. In March 1979 foreign currency swaps between branches of foreign banks in Korea and Korean banks except the Bank of Korea were prohibited. In April 1979 restrictions on the minimum amount for foreign borrowing were lifted. Malaysia relaxed its foreign exchange control regulations in June 1979. Authorized banks were delegated increased authority to approve payments to nonresidents and to approve both the repayment of loans obtained from nonresidents and the payment of interest on such loans. Borrowing from nonresidents was freely permitted, up to M$100,000. In July 1979 Nicaragua nationalized domestic banks and established certain limitations for the operation of foreign banks. In March 1979 Peru permitted financial institutions to open current accounts with banks abroad with foreign exchange resources other than those derived from exports. In July 1979 Peru applied a 10 per cent noninterest-bearing cash deposit requirement in local currency to new external borrowing or loan renewals. The deposit requirement was raised to 15 per cent in August 1979 and was increased again to 25 per cent in January 1980.
The Philippines introduced new regulations in July 1979, in order to gain better control over short-term borrowing from offshore banking units and foreign currency deposit units. All such borrowing, except normal interbank transactions, was made subject to prior Central Bank approval which would be given only to finance foreign exchange requirements of domestic borrowers. Sri Lanka also took steps to encourage the development of offshore banking. In May 1979 commercial banks operating in Sri Lanka were authorized to establish foreign currency banking units, which could accept time and demand deposits and make loans, in any designated foreign currency with respect to nonresidents and specified residents. In May 1979 Thailand lifted the 10 per cent withholding tax on foreign borrowing by commercial banks, and in September removed the interest rate ceiling on nonresident accounts in foreign currencies. In January 1979 Uruguay eliminated the marginal reserve requirements on increases in foreign deposits over average daily balances in December 1978 and in May 1979 also eliminated the reserve requirements on foreign currency deposits by residents and nonresidents at commercial banks.
Several developing countries introduced regulations affecting foreign direct investment. Brazil announced in February 1979 that foreign-owned companies would be permitted to convert foreign loans into nonvoting equity capital. A new foreign investment law was adopted by Burundi under which guarantees were provided for freedom of settlement, adequate allocations of foreign exchange, and the repatriation of invested capital. In February 1979 Saudi Arabia provided tax concessions for foreign investment in joint agricultural and industrial ventures with at least 25 per cent Saudi Arabian participation. In June 1979 Singapore announced that companies investing in Singapore would receive an investment allowance in the form of a tax exemption. Uganda repealed its Foreign Investment Decree and specified the industries that are to be reserved for government ownership, while Venezuela restricted borrowing from domestic banks by foreign-owned companies. The Philippines issued guidelines for the approval of Philippine investments abroad.
A number of countries liberalized regulations governing transactions in gold, including procedures for export and import trade in gold. Argentina permitted financial institutions, exchange houses, and exchange agencies to buy and sell gold in coin or in bars. Gold exports no longer required the prior approval of the Central Bank. Chile eliminated the special regulations requiring the prior authorization of the Central Bank for trade in gold. In March 1979 new regulations were issued by France, simplifying the procedures for imports and exports of industrial gold, which also became exempt from prior authorization. Norway removed all controls on sales of unworked gold. In December Israel issued new regulations for the purchase, sale, and holding of gold. Four categories of gold were established, gold bullion for industry, bullion for investment, specified coins for investment, and other specified gold coin. In June the United Kingdom removed all controls on the import of, and dealing in, gold coin and medals. In October all dealings in gold were freed from restrictions. In January 1980 the Federal Republic of Germany applied value-added tax also to the sale of gold coins which are legal tender, while Switzerland imposed a tax on transactions in gold and gold coin; bank-to-bank transactions in gold were exempted. Several countries, including Australia and Canada, issued new gold coins or announced plans to do so.
The basic reference price is the compulsory base price applicable within the EC and to transactions with those countries of the European Free Trade Association (EFTA) with which the EC has concluded free trade agreements for products of the European Coal and Steel Community.
Australia, Austria, Brazil, Bulgaria, Czechoslovakia, Finland, Hungary, Japan, Korea, Norway, Poland, Portugal, Romania, South Africa, Spain, and Sweden.
Argentina and Turkey subsequently accepted the protocol of extension of the MFA.
A mechanism which activates accelerated antidumping investigations whenever import prices are below established trigger prices.
The value of the EUA (European Unit of Account) is calculated daily on the basis of a basket of currencies of the members of the EC.
Under the scheme, Bangladesh nationals and persons of Bangladesh origin who are working abroad are permitted to open foreign currency accounts denominated in pounds sterling or U.S. dollars. These accounts may be debited, inter alia, for payments for specified imports.
The members are Cameroon, Central African Republic, Chad, People’s Republic of the Congo, and Gabon.
The members are Benin, Ivory Coast, Niger, Senegal, Togo, and Upper Volta.
From April 1980, the number would be higher if account were taken of agreements with the People’s Republic of China.